UK’s supreme court recently made a ruling classifying Uber’s drivers as workers entitled to rights such as minimum wage and holiday pay. Uber has a long history of legal battles. It has had many fights against taxi regulations, who can offer rides and how. But the struggle over the rights of its drivers is even more fundamental. It hits at the heart of its operating model and cost structure and it’s a good example of disruption versus regulation.
The court ruling says that drivers not only work when they are on a trip but includes the time they are logged into Uber’s app. Amongst other things, Uber now needs to start a pension scheme for these drivers. It significantly increases Uber’s costs, and it fundamentally changes the idea that drivers are ‘entrepreneurs’ who get customers through Uber’s app. Californians voted on a similar question for their workers’ law in November. Uber spent a lot of money to get support for its model, and the results were that the drivers could continue as independent contractors in that state.
Employee rights is only one area where new business models and disruptive startups encounter issues with old regulations. Digital services could and should be global, but financial services and fintech are examples where regulation significantly restricts how and to whom services can be offered. In fintech, we see many restrictions, including what services are not allowed to users. Regulations are supposed to protect citizens, but they also safeguard companies using old models to continue business. Is that fair on people who ask for freedom, not protection?
Regulation is one of the main reasons why fintech services are slow to acquire market share. It doesn’t just limit how services are offered; it also makes it more expensive to provide services. In the global sense, it is hard to understand why you can only use services in your own country. Why is it that you can travel to another country to get financial advisory services and make investments, but you cannot, in many cases, use those services online or talk on Zoom with your advisor in another country?
There are many other examples of how startups and new business models collide with old regulations. And it is not always the regulations. For example, labor unions or incumbent companies push to introduce new laws and regulations to protect their position. Taxi companies, taxi driver unions and banks are famous for utilizing laws and their lobbying power against newcomers. None of them have a reputation as model citizens or focused on offering their customers the best service.
In most cases, the arguments against newcomers are justified with good intentions such as protecting customers, employees and ensuring fair competition. It is never easy to say what is right and wrong, and the best way to protect someone. Still, it would be more honest to say that in most of these cases, the question is not really about the protection of customers, employees and competition, but about the fight between old and new models.
Many people want to drive for Uber, and similar services, as independent contractors and have their freedom to do other things, too. Then some people like to have more permanent employment and get paid holidays. Many people would like to use new fintech services and global financial services, and then some people just want to walk to their local bank branch and send checks by mail.
As a result, societies become fragmented. It is tough to have one model fit all, but regulation forces one model that everyone is made to follow. That’s OK and easy to understand if the objective is to protect all people. But if it concerns people who do not want that protection and it causes no harm to other people, it is harder to justify. Of course, there are always arguments about indirect impact, e.g. how the competitive environment is shaped.
Let’s be honest; many of these questions are political. They are about conservatism versus the freedom of individuals and businesses. Some of them are also about negative and positive freedom models, i.e. whether a system allows something and offers equal opportunities to different parties. Anyway, a kind of reality in business is that the most efficient model will win eventually, assuming lawmakers don’t restrict people’s freedom by limiting the choice of services they are allowed to use.
The article first appeared on Disruptive.Asia.
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