Regulating the sharing economy

This week the Ministry of ICT launched REACH 2025 initiative during the MENA ICT Forum 2016.

REACH 2025 is Jordan’s national ICT strategy; it follows the REACH initiative the country first launched in 1999.

The strategy will integrate ICT in key economic sectors as one of their main themes, and will detail action plans, projects and measures required to genuinely turn the Kingdom into an ICT hub in the region. 

However, at the same time, the transport sector regulator, the Land Transport Regulatory Commission, is about to issue a regulation that will heavily regulate and limit the use of ridesharing mobile applications (namely Uber and Careem and future market entrants).

These two simultaneous events show how the lack of coordination among policy makers can result in policies that contradict each other.

This lack of coordination is, unfortunately, something that successive governments in the country have consistently lacked. 

Enabled by information technology, ridesharing is part of a new wave of online peer-to-peer, access-driven businesses that is shaking up established categories. 

This new wave is dubbed “sharing economy”; it allows individuals and groups to make money from underused assets. This way, physical assets are shared as services.

For example, in transportation, a car owner may allow someone to rent out his/her vehicle while he/she is not using it, or share a vacant seat in his/her car on a long trip from Amman to Karak.

In hospitality, a house owner may rent out a spare room in his/her house to a city traveller, or a condo owner may rent out the condo while he/she is away.

In a research conducted by PWC Research, it was estimated that the sharing economy in five main sectors (ridesharing, hospitality, peer-to-peer lending and crowdfunding, online staffing, and music and entertainment) have generated $15b in global revenues in 2014.

By 2025, the five sharing sectors are projected to generate revenues worth $335b.

Jordan should not miss this great opportunity and potential of the sharing economy, and should strive to claim a slice on the new pie.

This new segment of economic activity should bring more growth and employment opportunities in a country where unemployment reached a staggering 15.8 per cent rate, and the economy has been growing at a snail pace, at less than 3 per cent in the last two years.

In addition, transportation challenges are among the most significant barriers to youth participation in the labour force, especially for women.

According to a survey in 2013 by the Youth for the Future — a USAID-funded programme — in four areas, Mafraq, Ruseifeh, South Shouneh and Sahab, 97 per cent of surveyed young workers go to work by bus, taxi and/or public cars and 39 per cent of them must transfer at least once to get to work. 

To be able to reach their destinations, they face unpredictable wait times and unreliable service, which often prolong their commute even more.

The average daily door-to-door round trip for these youth is 145 minutes, and they spend 23 per cent of their salary on these long, unreliable commutes. Many youth and women decide to leave their jobs that become worthless in light of these challenges.

Therefore, it could be argued that over-regulating ridesharing applications would exacerbate the unemployment problem, especially among the youth and women.

Also, regulatory barriers will impede potential economic growth in Jordan as the sharing economy will constitute a significant segment of economic activity in the future, which, in turn, will stimulate new consumption, raise productivity and catalyse individual innovation and entrepreneurship.

In light of the debate about regulating ridesharing platforms in Jordan, the reader, regulators and policymakers should be reminded why regulation is needed for any economic activity.

Simply put, regulation refers to the use of instruments, mostly legal, to implement social and economic policy objectives. 

It aims to influence economic and social agents towards achieving specific objectives by imposing constraints or altering incentives. 

Through regulation, regulators try to address market failures, such as information asymmetry between buyers and sellers, externalities and natural monopoly; and to achieve social objectives, such as income redistribution (e.g., taxation, licence fees, etc.). 

Also, regulators issue “risk regulation” that deals with market risks of societal kinds, mainly safety, health, environment and consumer protection. 

Against this backdrop, examining one of the sharing economy sectors, one could argue that ridesharing application operators in Jordan have natural built-in control mechanisms, i.e., they are self-regulated. 

This form of self-regulation should be looked at favourably by the regulator, the Land Transport Regulatory Commission, because it assists in achieving the objectives of regulation.

Under those ridesharing applications, consumers are protected; information about fares is known to customers; safety and health standards are also met.

For example, all the trips conducted through the ridesharing platforms are tracked. Drivers are screened before providing the service and rated by other customers giving the latter more choice and information about the person with whom they are riding. 

Drivers who under-perform and customers who misbehave are blocked from accessing the service.

The cars accepted to deliver the service (or the rideshare) have minimum standards. In addition, regulators should not underestimate the power of reputation and trust, which ridesharing platforms strive to create and maintain, in complementing traditional regulation.

I am not calling here for full deregulation. Self-regulation does not have the same nature as deregulation, and the sharing economy requires sharing of regulatory responsibilities.

Therefore, I call for a more collaborative approach between the transport regulator (and other sectoral regulators in the future) and the ridesharing platforms owners.

This could be achieved by a combination of self-regulatory measures implemented by the platforms themselves under a redesigned regulatory oversight, i.e., delegating some of the regulatory responsibilities from the regulator to the market players, the ridesharing platforms.

The discourse about regulating the sharing economy sectors currently held in Jordan has already taken place in many countries over the last few years, and it has unnerved both governments and the affected industry incumbents (e.g., taxis and hotels) whose market positions and business models are threatened by these novel peer-to-peer sharing platforms, and that started mobilising their political power to lobby for the regulators to erect barriers against those new businesses.

I really hope that our government and its regulator will not listen to the voices against the ridesharing platforms, and set a positive regulatory trend for other industries and sectors that will be submerged by the forces of innovation and the sharing economy in the near future. 

Rather than over-regulating and choking this new sector, I hope that the commission’s regulation will optimise this new sector so its benefits are shared among its stakeholders through tackling issues that are not explicitly addressed under the self-regulatory mechanism, such as consumer protection (through insurance) and social protection for drivers.

The government, whose debt has reached a staggering 93 per cent of GDP, could also benefit and raise revenues through a “reasonable” level of taxation and imposing “reasonable” licence fees on those ridesharing platforms.

The sharing economy, in general, and ridesharing, in particular, will be bringing new opportunities to Jordan that would benefit everyone if the right regulatory framework is put in place. 

The government will benefit through more tax returns and licence fees from the platform owners; customers will enjoy safer, more comfortable and reliable rides; and more job and income opportunities will be created for labour (drivers), whether they are working full or part time.

The writer was director of policy support at Jordan Enterprise Development Corporation, director of employability and entrepreneurship at King Abdullah II Fund for Development and adviser to the director-general of the Social Security Corporation. He contributed this article to The Jordan Times.