THE BLOG

Will The App Economy Be Throttled In South Africa Too?

Gig economy companies such as Uber are being scrutinised for their tax evasion strategies and the social impact of their labour practices.

04/10/2017 03:59 SAST | Updated 04/10/2017 08:10 SAST
Toby Melville/ Reuters
Uber faces legislative restrictions in some cities and countries, as lawmakers seek to balance workers' rights with the freedom to work flexibly.

The current robust debate about regulating and licensing social media behemoths such as Uber, Google, and Facebook has spurred interesting and relevant debates among policymakers and regulators. Apart from their tax evasion strategies, these companies face the scrutiny of regulators concerned with fair competition and social impact.

The latest $2.7 billion fine imposed on Google by the EU competition commissioner [for advantaging its own comparison shopping service on its search engine] and the City of London's latest formal ruling by its transport and employment departments [against Uber] have put the platform and app economy on the back foot –- with increased critical dialogue on its business models.

After World War II the sociologist Karl Polanyi introduced the concept of the "great transitions" to describe the post-reconstruction period of Europe, Japan and the US that led to the expansion of the middle class, rapid urbanisation, and highways and byways as industrial production units of multinational corporations, and that spurred employment and demand for goods in the leading northern economies.

This led to a sustained consumer boom and a permanent urban middle class that sustained these post-WW2 economies for many decades. In the1970s, sociologist Daniel Bell's classic book "The Coming Of Post-Industrial Society" unpacked the transition to an industrial society and was a key academic primer in setting the scene for understanding the waves of technological developments that drastically altered work organisation and labour relations.

New modes of investments, such as just-in-time [JIT] manufacturing and flexible production, especially in low-wage East Asia, were required to meet the demand for consumer electronics. This changed the way production and work were organised, setting the scene for the waves of outsourcing and multitudes of consumer electronics that featured in the post-industrial economies of the 1990s.

The 1990s had seen the most intensive technocentric-driven globalisation in history -- driven by information and communication technologies, [ICT], software development, a convergence of telecoms, and mass miniaturisation of consumer goods [from iPods to Smart Cars]. The advent of the "information society", theorised by Manuel Castell in part one of his trilogy, "The Rise of the Network Society", has clearly unpacked this phenomenon.

Indeed, open source, open content and open knowledge applications have given great impetus to hundreds of thousands of micro-innovators, writers, artists, and 'prosumers' globally.

Key global economic governance drivers at the time were the formation of the World Trade Organisation [WTO] and World Intellectual Property Organisation [WIPO] in the early 1990s that led to massive deregulation and shaped the economic and social policies of developing economies for years. From the early dial-up to Web.2.0, to iPods, we've entered the new web 3.0 social media world where wikis are now a daily interactive tool in the professional and private lives of hundreds of millions of people.

The demands of this knowledge economy spurred new tools and models, such as the software-as-service model, enabling outsourcing and offshoring, and micro-work, all within the context of rapid deregulation and competition at the "bottom of the pyramid".

For innovators everywhere, the rise of the open source movement brought in the pro-summarisation of new applications from web design to FOSS and open source hardware. Indeed, open source, open content and open knowledge applications have given great impetus to hundreds of thousands of micro-innovators, writers, artists, and "prosumers" globally.

Created by American Uber Technologies, the famous, if not notorious, Uber application, headquartered in California, has become a worldwide online transportation network company offering reliable and affordable rides since March 2009. The service has been made available in a whopping 66 countries and 507 cities across the globe, but as Uber grew internationally, its legality is being challenged by governments as well as taxi drivers, who refer to Ubers as "pirate taxis".

Uber further offers employees a flexible and independent job, a great deal for passengers, and even serves as a competitor for others in the transportation business. Despite the spectacularly rapid growth of this business, challenges prevail.

April 2014 saw Uber banned in Berlin, even though the company was active in other German cities, and the dispute about whether or not to reinstate the deal still goes on. This, however, is just the tip of the iceberg. While self-driving car technologies are in the future, a United Kingdom court ruling could soon affect thousands of workers in the gig economy.

This is not, however, the end of the process for Uber.

This comes after an employment court declared that Uber drivers are not self-employed individuals and should be paid the "national living wage", in addition to being entitled to leave pay, a pensioners fund and other working rights. Similar companies now face similar inspection of their working practices.

According to research by UK agency Citizens Advice, up to 460 000 workers could falsely be classified as self-employed, resulting in a stupendous cost of £314 million per annum in tax loss and employer insurance policies. Four courier firms are already among the services facing legal action.

The Uber ruling could, according to The Guardian, consider receiving a stipulated amount as commission from the employees' earnings. James Farrar and Yaseen Aslam represented a group of nineteen Uber workers who argued that they were employed by the San Francisco-based firm and were not self-employed while raising the issue of working conditions. Farrar said workers faced "tremendous pressure" and "repercussions" if they cancelled a pickup.

Furthermore, workers would often make just £5 an hour –- lower than the £7.20 that employers are obliged to pay workers over the age of 25. "The fact it takes an employment tribunal to decide whether these drivers are self-employed shows that proving employment status is an extremely complicated and costly process", said Citizens Advice chief executive, Gillian Guy. "For many people struggling at the sharp end of insecure work, such as in false self-employment, taking such a case is simply not an option."

This is not, however, the end of the process for Uber. The case is set to be escalated to the employment appeal tribunal and further hearings can be expected following its decision in the Supreme Court. Uber's Jo Bertram, who has just announced her resignation, said: "Tens of thousands of people in London drive with Uber precisely because they want to be self-employed and their own boss."

As South African policymakers and regulators and owner-drivers grapple with the Uber phenomenon, the dark side of the gig economy becomes ever more apparent. It sucks up local capital and labour in the 21st century virtual economy, and it clashes with the real economy of worker rights, social wages and the need for health, pension and other benefits in our own quest for equity, social justice and solidarity in the globalised economy. These battles have just begun...

Ashraf Patel is a development and public policy analyst and researcher with a focus on digital and ICT media policy regulation, knowledge economy and innovation policy. He is a digital knowledge associate at the IGD.