By Nassim Khadem
It is called the "sharing economy". It has been embraced by millions of consumers globally, and has made multi-millionaires out of the savvy entrepreneurs behind its most high-profile services, like Uber and Airbnb.
But for governments in Australia, and around the world, it has proved to be a difficult beat to police.
Demonstrators hold signs during a protest organised by the San Francisco Taxi Workers Alliance.Credit: Reuters
The likes of Uber, the taxi industry disrupter, and Airbnb, the room-sharing service, have at times refused to play ball with governments. Uber, for example, has flouted widespread bans on its operations, while Airbnb has frustrated local authorities amid complaints from neighbours about noisy renters or rooms rented through its site being used for prostitution.
But after years of being dragged through the courts - legal battles worldwide, including in Australia, are ongoing - these fast-growing technology companies, which are shaking up once-unbreakable industries like taxi services and hotels, are realising that it is better to work with authorities than against them.
David Plouffe, of Uber, says most transport regulations were drafted before the invention of smartphones.Credit: Reuters
And governments, which in some cities have been reluctant to negotiate, are considering rewriting old laws now to account for this new economy and its growing throng of users.
Progress is slow. Uber, founded in San Francisco in 2009 to connect drivers with users seeking a ride via a touch of a smartphone app, still operates illegally in most cities around the world.
However, it insists that it wants to find a "way forward".
"There's a misconception we don't want to work with regulators," said David Plouffe, Uber's senior vice-president of policy and strategy and US President Barack Obama's 2008 campaign manager. "We want to work with governments in a co-operative way."
Illustration: Simon Bosch.
Uber has become a threat to taxi industries by being popular with drivers who want to make extra income on the side, and with consumers who just want a fast, cheap ride. Early research by the Grattan Institute has shown uberX can be cheaper than a taxi paid for by a credit card during non-peak times, but not when taking peak times into account.
It is also becoming an ally to governments who want quick wins on job and income creation.
The company's market capitalisation has soared to more than $40 billion. If accurate, that would mean Uber has grown faster than any other Silicon Valley start-up, including Facebook, Google and Amazon, did over the same period.
But as Uber grows, incumbents are becoming frustrated, and are working harder to protect their turf. They complain that the company is evading local laws, and authorities step in.
It's a foreign company coming to Australia with a product and, like every other company, it should come here and comply with our laws, rather than ignore our laws and tell us we will all be better for it.
Blair Davies
Uber has faced on and off bans in cities including Amsterdam, Brussels, Berlin, Paris, London, Madrid, Cape Town, Vancouver, New York, San Francisco, New Delhi, Seoul and Manila. It facesbans across Australia, including Melbourne and Sydney, where the company picks the greatest potential for growth.
In a nutshell, uberX, the company's low-cost offering, employs drivers who are willing to operate by their own rules.
The Indian ban, which was introduced in December after an Uber-affiliated driver was accused of raping a female passenger, also reignited the debate about whether the company, which uses a third party to do checks on its drivers, was adequate and within the law.
Airbnb is also no stranger to controversy. The room-sharing service that started in 2008 to connect people who wanted to rent out an unused space with short-term renters and travellers looking for a place to stay, now operates in more than 34,000 cities. Last year, Airbnb globally averaged about one million guests a month.
But it has learnt, through trial and error, that trying to avoid legal and regulatory hurdles - rather than trying to overcome them - is bad public relations.
Airbnb had its first big lesson in 2011 when a host, "EJ", who rented out her San Francisco apartment on Airbnb, had it trashed and robbed by a guest. The incident resulted in public backlash and then a policy change - Airbnb now offers hosts a "guarantee" that covers property loss or damage from vandalism up to a certain amount.
It's had to go into damage control when spaces rented through the site overseas were reported as being used by prostitutes and for mass orgies. It has had to face local government criticism when neighbours have complained about noisy renters, or when users have illegally sub-let their homes. And it has had to deal with city regulators who get annoyed that users are not declaring income earned from renting their spaces on the site, and thereby avoiding tax.
Airbnb's Australian company manager Sam McDonagh, who has also been talking to local authorities about how they can navigate the regulatory minefield better, makes clear that abiding by local laws is the responsibility of hosts, not Airbnb.
"Airbnb advises hosts to familiarise themselves with locally set regulations, and these can differ from council to council, and even street to street, all over the world."
He says many of the laws that exist are "outdated and difficult to interpret", written long before the arrival of platforms that allow ordinary people to connect and offer services in return for a fee.
Airbnb, the middleman, typically takes a fee of up to 12 per cent for the online introduction. But it can go higher, depending on local taxes issued in certain cities. In some jurisdictions authorities have introduced hotel taxes, or required Airbnb to collect taxes from the host at the time of the booking.
McDonagh says Australia doesn't impose hotel or bed taxes on the company, but "we are always happy to talk with governments".
The question of tax is one that federal shadow assistant treasurer Andrew Leigh says must be tackled as the shared economy grows. While the average Airbnb host earns about $5000 a year, if there are enough people who earn that, or even a few who earn significantly more and make a gain on income that they do not declare, it becomes a tax avoidance problem.
There are 30,000 Airbnb listings in Australia alone – a figure that has doubled in the past year – and Sydney is one of the 10 biggest Airbnb cities in the world, with more than 10,000 listings.
Leigh says with nine million spare rooms on offer, there is a chance for low-income Australians to make a quick dollar.
"Initially many governments have simply attempted to shut these services down," he says. "But forward-thinking regulators are increasingly realising that the sharing economy can deliver big benefits for consumers. … the benefits are real and the risks are manageable."
Neither the Australian Taxation Office nor the Australian Competition and Consumer Commission would give details on whether they have received complaints about shared economy services. Both say they are working through the tax and regulatory issues these new services pose.
Plouffe, while declining an invitation to comment for this story, made his rare public comments about Uber during a talk in Melbourne this week hosted by the Grattan Institute on regulating the peer-to-peer economy.
He faced some tough questions from the audience about why the company was not operating within the same rules as those governing the taxi industry. Why didn't its drivers face the same safety checks? Why didn't they have to spend tens of thousands of dollars on a taxi licence? Why didn't they have to have Australian business numbers (ABNs), so authorities can track and tax their income?
The Insurance Council of Australia has confirmed Uber drivers are not covered by their personal policies if they use the vehicle for commercial use. ICA Chief executive Rob Whelan says drivers and passengers might be exposing themselves to "substantial financial loss if they are involved in a collision or cause property damage while using car ride-sharing services".
He says those considering providing a ride-sharing service should discuss this first with their insurer to check the impact this might have on their motor vehicle insurance policies, in particular third-party property or comprehensive car insurance.
Monash University professor of economics and former ACCC commissioner Stephen King says Uber needs to start operating within the law.
"Their [uberX] drivers are not licensed drivers like those of taxis and commercial hire cars," he says. "They are simply people with a car who are picking up people and getting money for that service."
King says while there should be some regulation on Uber, the current taxi rules throughout Australian states are far too restrictive. "They've led to a situation where consumers are paying far too high prices," he says.
The founder and chief executive of Freelancer, Matt Barrie, says people need to ask "what sort of a world do we want to live in?"
"Australia is so over-regulated it's out of control," he says.
His online company, which he describes as, 'like Ebay, but for jobs', connects millions of people who need a job done with people who have the skills to do it.
He says the best way to regulate the shared economy is by self-regulation. "If we didn't do a good job self-regulating ourselves, people wouldn't use our service."
But King says Uber and Airbnb, while having the potential to offer greater competition, lower prices and better services, should not be allowed to self-regulate. "I don't think as a society we can say, 'let's leave it all up to Uber'. Uber may be well meaning, but we do need some laws on Uber drivers."
The company initially left Uber drivers fighting their own fight when authorities issued them with hefty fines. But these days, in Australia at least, if its drivers break the law and get fined Uber will pay. It has been issued with hundreds of thousands of dollars in fines in cities all over Australia.
Australian Taxi Industry Association chief Blair Davies says the fines are doing nothing to deter Uber from expanding in Australia, and that Uber has become savvy in working around enforcement agencies.
He says while some fines were issued, it has become hard to track. "To catch uberX drivers providing an illegal service, authorities would need access to multiple user IDs, credit cards and phones, and they have not been able to manage that up to this point."
He also says while taxi drivers are forced to pay tens of thousands of dollars for licences, have an ABN, and pay GST, uberX drivers do not have to have a taxi licence, and do not have the same level of insurance, and until recently, safety checks. He says there is also no way of knowing whether they are declaring income and meeting their tax obligations.
"That's the nature of dealing with this black economy," he says.
Uber says it is a technology company. Davies says uberX is an imitation taxi service. "We don't need to head down the American path of creating special regulations to suit Uber. It's a foreign company coming to Australia with a product and, like every other company, it should come here and comply with our laws, rather than ignore our laws and tell us we will all be better for it."
But Plouffe's answer, to paraphrase, is: change the laws to suit us, rather than ask us to change our business model to suit the laws.
"Most transportation regulations were written well before flat-screen television, cable TVs and smartphones," he says.
Uber, Airbnb and other companies like them, he says, can be a force of good for society: a job creator, an income supporter, a carbon emissions reducer.
Airbnb has been working with state governments on a plan to give residents displaced during bushfires temporary accommodation.
Uber's soon-to-be-introduced pooled car service has potential benefits of reducing traffic congestion. Plouffe says when he tells authorities this, "their eyes light up".
Graeme Samuel, former ACCC boss and chairman of the Victorian Taxi Services Commission, who was charged with implementing sweeping reforms following the Fells inquiry into the industry, says it is devising a new set of regulations that fits in with a new business model, which is no easy task.
The complexity, he says, is working out a solution that doesn't involve rewriting laws, and doesn't involve billions of dollars of compensation to incumbents who have spent a lot of money on taxi licences.
So far they have managed to get Uber to agree that its drivers must meet the same safety checks that taxi drivers have to undergo in Victoria, he says.
There are already 270 uberX drivers that comply, and 2000 more will in coming months, Samuel says.
"It means that any driver that has serious judgment against him/her, for assault, for being under influence, for dangerous driving, or sexual assault would be immediately alerted and denied accreditation," he says.
The more difficult issue is what to do about taxi licenses, which are governed by "arcane" laws, he says.
"They're laws that have grown over many many decades that were directed towards ensuring public safety, but that have developed into laws that protect incumbents from competition," he says.
The Grattan Institute's Jim Minifie, who has been researching the impact of shared economy services like Uber and Airbnb on prices and productivity, says there might be some scope to change the laws and give some drivers compensation.
"Broadly, I am sympathetic to the idea that a case for compensation can be made in some circumstances where regulations are changed by government," he says.
Plouffe says just one year ago, no states in the US had passed ride-sharing regulations. "Now you have it in 25 cities," he says.
In its submission to the National Competition Policy review, being led by Professor Ian Harper, Uber said it was ready to discuss with state governments how ride-sharing might be regulated.
In his draft report, Harper noted that "any regulation of such services and support should be consumer-focused and not inhibit innovation or protect existing business models".
King is pleased Uber is changing strategy and is trying to work with governments to come within the law.
"They've realised if they keep breaking the law they will be sued to death – there will be law suits in every country around the world.
"Uber and Airbnb, and other similar services, could end up facing the same fate as Napster. They've got to come inside the law."