23 April 2019
Killing sharing economy businesses with red tape is not helping anyone other than a handful of stakeholders in sunset industries. Photo: Reuters
Killing sharing economy businesses with red tape is not helping anyone other than a handful of stakeholders in sunset industries. Photo: Reuters

When sharing economy meets rigid govt bureaucracy

Nicholas Yang, Secretary for Innovation and Technology, stressed recently that the government will not tolerate any illegal business conducted under the banner of “sharing economy”.

When it comes to many of the so-called sharing economy businesses, the illicit element may be this: operating without the necessary licenses and permits.

Hong Kong’s licensing and permit system was fashioned to protect consumers. Yet it is important to recognize the fundamental changes in our daily economic activities, made possible by technology. Tying ourselves to outdated licensing requirements may no longer provide the optimal benefit or protection for consumers or service providers.

Take Uber for example. With all transactions tied to credit cards, and real-time GPS position sharing, it is hard to argue how Uber hinders the safety of passengers or drivers relative to taxis. Whilst certain restrictions such as drivers’ training and background checks are well justified, killing sharing economy businesses with red tape is not helping anyone other than a handful of stakeholders in sunset industries.

Regulatory dilemma: New economy and old mentality

Many countries have begun regulating Uber in recent years. Some of these regulations are worth emulating, whilst others are merely packaged protectionism intended to protect traditional taxis by hindering Uber. Yet very few places actually address the unique nature of the sharing economy.

The most common regulations are on drivers. Singapore and mainland China require drivers to complete training and obtain permits before they are allowed to drive for remuneration. The permit application process includes background checks. California also requires background checks and health checks from drivers as well as drivers’ training. So far these regulations seem fair and capable of protecting consumers without being overly stringent.

There are also regulations that address the sharing economy platforms. In the US, some states have categorized Uber drivers as hired employees, making them entitled to employee benefits and protections such as health insurance and minimum wage as stipulated by the state and federal laws. California puts the responsibility of vehicle inspection onto the ride-sharing companies. Likely driven by the same motivations, Singapore requires drivers to be hired by a firm providing chauffeured services or be the registered owner of such companies.

There are also bad regulations that are written to hinder: London requires Uber rides to commence 5 minutes after a successful match between driver and passenger. Such regulation is petty and meaningless and does nothing to protect passengers or drivers, nor does it make taxis any more competitive than it is.

With all the existing regulations around the world, very few actually address the behavior of ridesharing, the exception being Singapore.

Singapore amended The Road Traffic Ordinance in February 2015. The amendment made it illegal for drivers to pick up passengers on roads, parking lots and outside bus and train stations, and specified that ride-share must be in the same direction to qualify. Drivers can be remunerated for two rideshares per day, and passengers need to declare their destinations beforehand. Whilst such a meticulous law does reflect the Singaporean mentality on governance, it does address the nature of ridesharing.

New regulations for a new economy

Sharing economy platforms often rely on commissions for matchmaking and can end up diverting capital and manpower from traditional markets if they are not well managed. If Hong Kong were to regulate the sharing economy properly, the regulations can help the sharing economy stay true with its original intended aim.

The core of the sharing economy is putting idle capital and labor to better use. Sharing economy platforms make good use of popular technology and can gather abundant amount of data from the consumers and service providers. With Hong Kong’s low unemployment rate in mind, it is recommendable for the government to exempt certain sharing economy activities from the various licensing and permit requirements for the first HK$6,000 earned every month. This exemption clause can be put into legislation under the major ordinances.

Take ridesharing and carshare for example, if the service provider can provide adequate third person liability insurance, then the government can consider adding an exemption clause under Section 52 of the Road Traffic Ordinance for the first HK$6,000 earned by car-owners and drivers. The same method can be applied to Food Business Regulation for home-cooked takeaway food apps, and to the Hotel and Guesthouse Accommodation Ordinance for AirBnB.

As long as the Legislative Council believes the market can accommodate the sharing economy, and that it does not affect the distribution of severely limited resources, such exemption would be advisable.

The sharing economy is an irreversible trend. Trying to impede it with outdated, bureaucratic requirements for the preservation of sunset industries is regressive politics and economics. If the Hong Kong government can accurately identify the specific characteristics of the sharing economy, and create an appropriate regulation that promotes these characteristics, the city will be able to harvest the great potential and value of the sharing economy. If executed correctly and swiftly, perhaps Hong Kong can even set an example for other places to emulate.

– Contact us at [email protected]


Policy Officer, Savantas Policy Institute

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