24 October 2016
An Uber employee is escorted by the police after a raid. Uber stands to lose whichever way Hong Kong courts decide its status. Phtoto: HKEJ
An Uber employee is escorted by the police after a raid. Uber stands to lose whichever way Hong Kong courts decide its status. Phtoto: HKEJ

Why a new regulatory mindset is better than a tech bureau

On one hand, governments around the globe are scrambling to take advantage of new technologies, seeing them as a new growth engine.

On the other, however, most of them are either unwilling to accept the resulting changes or are unprepared for them.

Joseph Alois Schumpetern, the eminent 1930s Austrian-American economist, argued that a successful creation is often a “disruptive innovation”, usually a game changer that can topple existing norms and bring industry to a new level.

Yet, in the course of helping rewrite the rules of the game, new innovations face a daunting first hurdle — well-established and longstanding vested interests.

The opposition to Uber by Hong Kong taxi drivers is a typical example of how traditional interests get in the way of innovation.

The next hurdle is the government.

In fact, governments are often ambivalent about technological innovations because these could undermine their regulatory powers.

Most of the technological innovations at the center of the ongoing controversy such as Uber, Airbnb, the set-top box, internet finance and the drone are so new there is no legal framework to regulate them.

Which is why it is difficult for regulators to determine their legal status.

While the jury is still out, these new business models are flourishing by exploiting a legal vacuum.

Things in Hong Kong are a bit more awkward. Our government seems to be less receptive to new technologies than its foreign counterparts.

For example, Uber has been busted for not having third-party insurance and for illegally engaging in cash transactions.

But some barristers say the government is merely trying to test the waters by pressing misdemeanor charges against it.

If Uber is convicted, the case will become a legal precedent based on which it can be officially outlawed.

If it is acquitted, the government can change the law to close the legal loopholes in order to ban its operation.

Either way, Uber loses.

In fact, the Hong Kong legal sector is not surprised by that. It’s exactly how the government previously dealt with Airbnb, the set-top box and internet finance.

By comparison, some foreign governments have a completely different approach to new technologies.

They have been regularizing them under certain conditions, so that they can operate in an orderly manner.

For example, Airbnb was initially considered illegal in France.

However, its increasing popularity prompted the French government to change the law to legalize its operation such as limiting the maximum leasing period to four months a year and requiring operators to pay tax accordingly.

As a result, tourism in France has been significantly boosted.

Another example is again Uber.

Many state governments in the US are beginning to open their transport markets to the company as long as it fulfills certain requirements such as capping the daily number of vehicles in operation.

Even cities across China are green-lighting taxi apps such as Di-Di, Kuaidi and Vvipone.

The Shanghai municipal government has even set up an official platform for taxi services in collaboration with Di-Di and Kuaidi.

After all, new technologies have taken the world by storm and they’re here to stay.

The degree to which governments are willing to take proactive measures to take advantage of these developments will determine whether their people will benefit from them or not.

If the Hong Kong government wants to ride the technology wave, it must change its regulatory mindset.

This is far more important than an innovation and technology bureau.

This article appeared in the Hong Kong Economic Journal on Aug 13.

Translation by Alan Lee

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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