Welcome wagon.

Photographer: Balint Porneczi/Bloomberg

Europe Isn't Quite Ready for the Sharing Economy

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
Read More.
a | A

Sharing economy platforms such as Uber and Airbnb have been struggling as some European countries attempt to regulate and make sense of their business. The European Union has finally come up with some guiding principles for its members, mildly telling them that the "collaborative economy," as the bureaucrats call it, is generally a good thing that shouldn't be banned.

QuickTake The Sharing Economy

The actual recommendations in the European Commission communication issued Thursday aren't particularly friendly to Uber and Airbnb. But at least the commission has established a semblance of a unified approach that will make it easier for the platforms to project future growth and expenses, which it hasn't been possible to do in any honest way.

The EC estimated the total gross revenue from the gig economy platforms and providers in 2015 at 28 billion euros ($31.7 billion). That's not much -- the potential has been estimated at more than 500 billion euros. The EC argued that this potential should be allowed to develop: "Absolute bans and quantitative restrictions of an activity normally constitute a measure of last resort. They should in general only be applied if and where no less restrictive requirements to attain a legitimate public interest objective can be used."

But then the commission went on to describe its vision of the less restrictive requirements, which showed that it was far from an unqualified champion of Silicon Valley-style disruption.

The EC document called on EU countries to draw three important distinctions: between professional and occasional service providers; between employees and independent operators, and between platforms that only provide information and auxiliary services and those that provide a core service. 

As they lobbied bureaucrats and courts throughout the world for recognition in recent years, U.S. disruptors started out saying they only provided platforms for peers to trade services. They haven't succeeded with that argument anywhere, including the U.S. But at least at home, they have won some freedom to operate. Though the EC guidance is not binding, it seems Europe will be more demanding. 

Uber, for example, has been able to settle U.S. lawsuits that would have forced it to treat drivers as employees and provide them with the appropriate benefits. The EC guidance relies on a rather strict definition of a worker, provided by the European Court of Justice: "The essential feature of an employment relationship is that for a certain period of time a person performs services for and under the direction of another person in return for which he receives remuneration." In other words, if the provider of a service doesn't independently determine its nature, remuneration and the working conditions, an employment relationship exists. This leaves Uber little wiggle room: It sets the rules and the prices. In the European framework, its drivers are at the very least private contractors working for the taxi service. 

According to one of the papers commissioned by the EC as a basis for the guidance, about 900,000 people work as service providers in the European gig economy. If such rules are applied, this number is highly unlikely to grow much, nor are such jobs likely to help reduce European unemployment rates.

Airbnb faces a different problem. A recent Penn State report (funded by the hotel industry, so perhaps not perfectly reliable) showed that people renting out multiple homes account for 40 percent of the revenue on Airbnb. In some major U.S. cities, most Airbnb revenue accrues to professional operators, whose properties are rented 365 days a year. Europe probably wouldn't tolerate that: A landlord who behaved in this fashion would qualify as a "trader" under European rules, not a peer, which would mean licenses, liability and all the hassles of running a business. In addition, the EC appears to be more favorably disposed toward the long-term rental market: Many big European cities experience an acute shortage of housing but no shortage of tourists, so the proliferation of short-term rentals could affect quality of life. 

The EC wrote: "Banning short-term letting of apartments appears generally difficult to justify when the short-term rental use of properties can for example be limited to a maximum number of days per year. This would allow citizens to share their properties on an occasional basis without withdrawing the property from the long-term rental market."

This is the approach that has crystallized, say, in San Francisco, where a property cannot be rented out for more than 90 days a year. But that's still milder and more sensible than the rules in some European cities. In Berlin, a law took effect last month that banned all short-term apartment rentals without a city permit, and carried a fine of 100,000 euros. Long-term housing is notoriously difficult to rent in the German capital, and the situation is complicated by the recent influx of refugees, so the authorities have made life tougher for Airbnb than the Brussels bureaucracy considers useful.

Other cities have weirder rules. Barcelona, for example, bans renting out spare rooms in an apartment to tourists -- the exact opposite of, say, Santa Monica, where an Airbnb host has to live on the premises all the time. The Catalan capital basically requires a host to turn the property into a hotel and run it as such, and to adhere to all the regulations that exist for hotels.

If in time all European cities adhere to the rather mild guidance, Airbnb will find it easier to grow in these markets without facing existential legal risks. Such uniformity, however, is highly unlikely in the near future: Almost every major city can argue that its circumstances are special enough to justify severe restrictions or bans. 

The EC guidance leans toward making "traders" -- individuals who provide a service through a sharing platform, be it Airbnb, Amazon's Mechanical Turk or the design marketplace CoContest, legally liable for the services they provide  -- another step toward treating them as small-business owners. It could be argued that Uber provides the underlying taxi service, not just information for drivers and passengers, which would make it liable as an entity. This is a particularly important issue: According to a Eurobarometer survey, not knowing who will be responsible in case of trouble is the biggest problem European consumers have with gig economy services.

Finally, the EC points out that value-added taxes, which exist everywhere in Europe, should apply to the services bought and sold through the "collaborative" platforms. This is likely to result in the platforms' obligation to implement the taxation and collect the money for governments. The guidance calls on governments and "collaborative economy" companies to cooperate in working out how this can be done.

Even though the guidance doesn't mean any immediate changes -- the European bureaucracy moves slowly as usual -- U.S. sharing economy companies, big and small, should prepare to be regulated more severely in the EU than at home. On the whole, the European bureaucracy is not willing to view a large transportation company such as Uber as a peer-to-peeer marketplace or to consider a professional landlord renting out apartments through Airbnb as anything other than a hotel owner. And it wants adequate customer protections and taxes. By the time all the rules are adjusted to services being sold globally through apps, the services or their underlying economics won't look much different than the traditional economy. That will probably be a blessing for consumers, if not for sharing economy operators' exponential growth projections.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Leonid Bershidsky at lbershidsky@bloomberg.net

To contact the editor responsible for this story:
Max Berley at mberley@bloomberg.net