RE­WORK­ING IN­FOR­MAL BUSI­NESSES

Down to Earth - - EDITOR’S PAGE - @suni­ta­nar

AIRBNB—THE room rental com­pany that does not own any rooms—has just sued the city of New York. Why? Be­cause the city has in­tro­duced a bill to pe­nalise any­one who rents out their apart­ment for less than 30 days. This would ef­fec­tively kill Airbnb’s busi­ness, which makes ev­ery house­hold owner a po­ten­tial hote­lier. Airbnb pro­vides an on­line list­ing sys­tem—any­one who owns a house or many prop­er­ties can rent out space. The busi­ness cuts into the profits of con­ven­tional ho­tels who have to buy land, build rooms and take care of the es­tab­lish­ment. In Airbnb’s case, the costs are low and dis­trib­uted. More im­por­tantly thou­sands, even mil­lions, of rooms sud­denly be­come avail­able, which eat into the mar­ket of house rentals or ho­tels. Airbnb is, not sur­pris­ingly, hit­ting old busi­ness, which too is hit­ting back.

It is also dif­fi­cult to reg­u­late. Just think. How do city gov­ern­ments con­trol mil­lions of prop­erty own­ers who have be­come in­stant hote­liers? Airbnb ar­gues that its rep­u­ta­tional sys­tem, where own­ers and guests rate each other, reg­u­lates the in­for­mal mar­ket. Gov­ern­ments dis­agree. Airbnb is fight­ing sim­i­lar bat­tles in Am­s­ter­dam, Barcelona, Ber­lin and even in its own home­town of San Fran­cisco, and the list is grow­ing.

Uber—the taxi ser­vice that does not own any cars—has sim­i­lar bat­tles on hand. Uber, and oth­ers like it, have turned ev­ery car owner into a po­ten­tial ser­vice provider. All that Uber does is to ag­gre­gate these mil­lions of car own­ers who have overnight be­come taxi driv­ers. This is why it can re­duce costs and work the mar­ket—dras­ti­cally un­der­cut the mar­ket price and drive con­ven­tional taxi ser­vice into the red. All this with­out own­ing a sin­gle car.

Uber and its vari­ants are fac­ing huge hos­til­ity from the old busi­ness. I saw this at close hand when the Supreme Court of In­dia di­rected that all taxis, in­clud­ing those run by ag­gre­ga­tors like Uber or Ola, should con­vert to cng. This was done to re­duce Delhi’s run­away air pol­lu­tion. But the re­sult of this seem­ingly sim­ple or­der was out and out war. All taxi own­ers—from the black and yel­low, ra­dio taxi, to the tourist taxi and the all In­dia tourist taxi—con­verged at the En­vi­ron­ment Pol­lu­tion (Preven­tion and Con­trol) Author­ity (I am a mem­ber of it), which is re­quired to over­see the im­ple­men­ta­tion of the Supreme Court’s di­rec­tion. They had only one de­mand: stop Uber and Ola.

Our ob­jec­tive was dif­fer­ent—to reg­u­late the fuel used by taxis and not to stop their op­er­a­tions. But reg­u­la­tion is a chal­lenge. In the very first meet­ing, the po­lice in­formed us that they are help­less. They could not iden­tify the taxi—ev­ery car had be­come a taxi. Uber and Ola told us that they were not taxi op­er­a­tors—only ag­gre­ga­tors. In fact, their com­pa­nies are reg­is­tered as in­for­ma­tion tech­nol­ogy providers. They were also not re­spon­si­ble for any­thing—cus­tomers hired cars us­ing their plat­form and rated the ser­vice pro­vided by driv­ers. The Delhi govern­ment had is­sued guide­lines, which would curtail the op­er­a­tions of such ag­gre­ga­tors, but Uber chal­lenged this in the court.

Fi­nally, af­ter weeks of pro­tracted dis­cus­sions, and of­ten vi­o­lent dis­agree­ments, it was agreed that all taxis, in­clud­ing those listed with the ag­gre­ga­tors, would run on cng. But all other is­sues, in­clud­ing the con­tentious is­sue of surge pric­ing, re­mained un­re­solved. Gov­ern­ments in In­dia and abroad are bat­tling with taxi op­er­a­tors and tech­nol­ogy com­pa­nies to for­mu­late these rules.

But why am I writ­ing this now? The fact is Airbnb and Uber are part of the in­evitable change in our fu­ture. The rea­son is that the mod­ern world has for­malised its econ­omy to the point that it has be­come un­vi­able. The brick-and-mor­tar world re­quires huge in­fra­struc­ture, and this then re­quires reg­u­la­tions to en­sure that all this op­er­ates within rules. The cost of reg­u­la­tions is also high and adds to the cost of run­ning the econ­omy. In my view, Uber and Airbnb are un­der­cut­ting this world—by mak­ing best use of the in­di­vid­ual’s as­sets. In both cases, they are op­ti­mis­ing ex­ist­ing re­sources—the cars and houses peo­ple own—to make more money and share the profits. But most im­por­tantly, these busi­nesses are work­ing the in­for­mal space. They are do­ing this to re­duce costs and to ex­pand op­por­tu­nity.

This is where we need to think fur­ther of what our world is about. In coun­tries like In­dia, in­for­mal busi­ness is the ex­ist­ing or­der of the day. Ev­ery­thing—from col­lect­ing sewage from homes, re­cy­cling garbage to pro­vid­ing trans­port in our cities—is man­aged by mil­lions of myr­iad in­for­mal busi­nesses. But we do not con­sider it part of our fu­ture. Worse, it de­fies reg­u­la­tion as we know it to­day. So, it must go. But given that the for­mal econ­omy comes with costs, we can­not re­place this in­for­mal and thriv­ing busi­ness. But to kill it we ne­glect it; make it il­le­gal and all to­gether de­spise it. But still it stays. We just can’t make it work.

So, is it time we thought of a dif­fer­ent busi­ness fu­ture? Let’s dis­cuss this again.

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