The Sharing Economy- Why so Difficult for the EU to Accept?

After scuffles between several European nations and such companies as Airbnb, but especially Uber, the EU has now come to realize the advantages of the sharing economy, a type of economy where people share access to, instead of own, goods and services. The European Court of Justice, the highest court in the EU, is going to give a final decision on the status of Uber by June of this year, and the Commission is planning to regulate this economy as part of its digital single market plan, set to be established this autumn.

The sharing economy, commonly imagined as Uber (ride-sharing) and Airbnb (home-sharing), is defined as “systems that facilitate the sharing of underused assets or services, for free or for a fee, directly between individuals or organizations.” Besides these two San Francisco-based widely-known companies, there are many others that are involved with other aspects of the sharing economy, such as food-sharing (Share Your Meal) and Vandebron (power-sharing). The sharing economy is based on three pillars: social (making connections and community-building), environmental (reusing assets), and economic (saving money).

Although not as well-established or widely-used as in the United States, the sharing economy is slowly gaining traction in Europe, particularly in urbanized areas with a high youth population. “The Netherlands is doing very well in this regard, with Amsterdam set to become Europe’s first sharing city,” said Harmen Van Sprang, co-founder of ShareNL, a Dutch knowledge and network platform for the sharing economy.

However, many Silicon Valley companies have a hard time in Europe due to more regulation and a more socialistic view towards the economy, contrasted with the “cutthroat capitalism” model of the US, where private people and companies operate in a freer market system. The taxi and hotel industries have objected to these companies’ operation in several European cities.

 

Uber and Airbnb- Two Case Examples

The past summer’s worldwide protests against Uber by established taxi companies show that not all economic and social spheres are equally adaptable to new and innovative business models. The protests targeted, in particular, UberPop, which is branded as the app’s cheapest, easiest, and most convenient version. UberPop rides are hailed through the app, and drivers are regular people using their own cars as taxis, rather than professional licensed drivers. An average UberPop ride costs almost half a typical taxi ride for the same distance covered. It is estimated that in only two years, taxi companies have lost 30-40% of their revenue to services like Uber. Regular taxi drivers complained that they have to pay as much as 250,000 euros to get a license and companies like Uber have an unfair advantage. UberPop is now banned in France, Germany, Spain, Italy, and Belgium.

“The main problem for EU legislators is to decide whether Uber is legal, and whether it functions more as a transport service or an information society service, since it would be subject to different rules based on its specific category,” said Morgane Taylor, senior consultant at Political Intelligence, a Brussels-based public affairs consultancy and lobbying agency. If considered a transport company, it will be subject to more national rules, which means more regulation and limited business expansion, since transport is not an integrated European sector. However, if it is considered a digital service, which Uber insists it is, it will be subject to EU law and will be coordinated within the European digital single market initiative.

Another reason for Uber’s troubles in Europe is that it followed a harsh policy and ignored legal bans on its UberPop service by several European courts, continuing its operations in Paris and Amsterdam. It was only after heavy fines were imposed (up to 50,000 euros) on individual UberPop drivers that the company decided to comply with the law and completely ban the service from the concerned cities. “Airbnb and BlaBla Car, on the other hand, saw an opportunity in being represented in Brussels and lobbying the Commission,” Taylor said.

In his book titled “Permissionless Innovation: The Continuing Case for Comprehensive Technological Freedom,” Adam Thierer argues that for countries and societies to thrive, a system of “permissionless innovation” should be established, in which tech companies are allowed to take on the paths they find suitable, with very little government regulation. He argues that Europe’s adoption of the “precautionary principle,” in which companies are forced to adapt to existing regulation, is the reason the continent lags behind the US when it comes to entrepreneurship and technological innovation.

Tax regulation is another area of policy that is not integrated at EU level and thus could inhibit innovation and investment in European start-ups. Tax liability impositions between various European countries means that a venture capital firm wanting to invest 50,000 euros in a European start-up needs much more money to do so, whereas it would only need that same amount to invest in an American company.

Airbnb, on the other hand, did a better job of integrating into the European model. Airbnb agreed about tax collection with the local government in Amsterdam. “For Airbnb to be allowed to operate in Amsterdam, renters who generate a significant income have to pay income tax to the national government, and tourist tax is mandatorily collected from all renters to the municipal government,” Van Sprang explained.

 

Towards what kind of economy?

Research conducted by PricewaterhouseCoopers (PwC) UK shows that the sharing economy sector is projected to make as much revenue ($335 bn) as the traditional rental sector by 2025, meaning that each of these sectors will contribute equally to the economy. Peer-to-peer lending and crowdfunding will witness the highest revenue increase (63%), followed by online staffing (37%) peer-to-peer accommodation (31%), and others.

Companies are already beginning to realize the weight of the sharing economy and have realized the need to adapt accordingly. For example, BMW’s DriveNow car-sharing online platform enables anyone to pick up a parked BMW on the street within a designated area and use it for a certain amount of time, after which that person parks it for others to use. Other companies, such as car rental service Avis, have found it advantageous to buy shares within their respective sharing economy sectors.

For Europe, this will mean obliging sharing companies to comply with existing regulation, or creating a new level of bureaucracy through a new area of legislation for the sharing economy sector, by which traditional and sharing economy companies are subject to different kinds of rules.

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