As usual, regulation is running behind technological innovation. As new digital services disrupt established business models, governments are slow to make a balanced response
Political parties in the European Parliament have this week been examining the disruptive impact of the sharing economy and the increasing role of the digital sector in the economy, with MEP Kaja Kallas chairing an event organised by the Alliance of Liberals and Democrats for Europe on the disruptive potential of the digital economy, while MEP Vicky Ford chaired a hearing on the Digital Single Market, organised by the European Conservatives and Reformists Group.
New digital services are disrupting established business models and companies offering traditional services are feeling threatened. However, governments are slow to react and to come up with regulations that accommodate these new business models and are appropriate and proportionate for both new digital companies and for the incumbents.
Companies, including the accommodation site Airbnb and the taxi booking service Uber, are coming under pressure as the incumbents see their markets gobbled up by what they regard as unregulated competition. In the latest example of this unrest, the French government took Uber executives into custody after taxi drivers violently protested against the car-sharing company in Paris last Sunday.
But governments will not be able to hold back the tide of market forces and consumer preferences. New digital business models are simply more efficient, “Matching people who need things with people who have those things,” said Simon Hampton, Director for EMEA Policy Development at Uber, speaking at the Alliance of Liberals and Democrats for Europe event.
Digitisation is spreading to more and more sectors of the economy and the disruptive ideas it supports will reshape sectors including finance, education, healthcare and transport, predicted Hampton.
Governments are failing to respond with timely and appropriate regulations, with Hampton saying better regulation should be about, “constant reassessment of market failures”.
Disruptive digital businesses are successful because they are appreciated by consumers. But rather than being supportive, national governments and regulators, “are more worried about the incumbents,” said Taavet Hinrikus, Exceutive Chairman and co-Founder of TransferWise, an online money transfer service.
When Skype was launched in 2003, telecommunications companies did not expect the online service to command 40 per cent of the international calls market in just 10 years. “The incumbents have to go through a reinvention,” said Hinrikus.
This view was echoed by Kallas who said, “It is not the role of the regulator to protect some traditional sector.” Instead, they should focus on how to adapt legislation to meet the requirements of the new models for delivering services to which consumers are increasingly attracted.
Removing regulatory barriers
European Commission’s Digital Single Market strategy is supposed to remove regulatory barriers that are blocking the free flow of digital services across Europe. However, said Juhan Lepassaar, Head of cabinet of European Vice President Andrus Ansip, “Regulators always tend to be less nimble than market forces.”
Currently, fragmentation and poor interoperability of regulations and frameworks means digital technology companies find it hard to get full access to the EU’s market of 500 million consumers. “Fragmented approaches disrupt the disruption,” said Lepassaar. He added, the Digital Single Market strategy could, “get rid of the most notable barriers.”
Think about sharing
The EU has to “think about the sharing economy more broadly,” Patrick Robinson, head of public policy Europe at Airbnb, said at the European Conservatives and Reformists Group hearing on the Digital Single Market.
The first challenge, Robinson told the meeting, is for the EU to understand the differences between the many types of digital businesses. There is a difference, for example, between collaborative and sharing models which, “need different regulatory models,” said Robinson.
The second challenge is how the EU will take note of best practices in Europe, such as the UK government’s push to remove regulatory barriers and “encourage self-regulatory models,” said Robinson.