The gig economy has changed businesses mindset on building trust, regulations, and jobs they create

By Soumik Dey

The nature of work is changing for millions of workers. The rise of on-demand platforms has led to millions engaging as freelancers, Flexi-workers, or part-timers, typically performing manual and non-cognitive tasks for a clutch of start-ups. In India, too, the story is no different. To assess the far-reaching impact of the gig economy, the Srini Raju Centre For IT and Networked Economy (SRITNE) of Indian School of Business invited experts from the academia, industry, and regulators, to share their views on this economic trend.

The gig economy is growing at a phenomenal rate. A survey conducted this year by the Indian Staffing Federation (ISF), an industry body of staffing organisations, concluded that in the last six years of the Narendra Modi government alone, India had added millions of workforce as Flexi-workers. By 2018, the number of flex workers in India had reached 3.3 million. This number is likely to swell by another 1.53 million by 2021, the ISF study said.

The government has hailed this trend on the rationale that this has helped some of India's 90% workforce in the unorganised sector make a shift towards formal employment. The government is pleased that this has led to an increase in its taxpayer base. Though only minor growth in tax collections. But experts had cited that these kinds of employment are bereft of the many benefits and social protection of formal work.

At the Digital Transformation Workshop conducted by SRITNE during October 11-12, experts debated on the need for such employment generation, the rationale behind regulating gig economy participants and platforms, and on the need to design specific regulations for them. The objective is to support the growth and efficiency the gig economy brings and to check exploitations of diverse nature in this form of economics.

Scale change: Traditional vs Gig Economy

Defining the scale and scope of this phenomenon, Professor Deepa Mani, Executive Director, SRITNE, ISB, brought in comparisons between traditional business outlets and those following the gig economy model. Hospitality service provider Air BnB controlled and managed 3.3 million rooms compared to one million owned and operated by the largest hotel chain in the world, the merged Hilton-Marriott group, in the year 2017.

Ridesharing platform Bla Bla Car in Europe created an infrastructure which carried five times the passenger on the Eurostar train network on any given day, without the equivalent capital investment. "We are moving from institutional-based managerial capitalism to a more crowd-based model," said Prof. Deepa, pointing out that this is percolating across geographical boundaries and sectors.

She said as a researcher; she got interested in seeking answers to questions like why do people participate in this kind of crowd-based capitalism. Secondly, how different are the capabilities of the gig economy vis-a-vis the traditional economy. And finally, the implications of this for consumer welfare and labour markets.

On the first question, she cited that Professor Arun Sundararajan at the Stern School of Business, New York University, who has been studying the sharing economy phenomenon, offers some answers.

Professor Mani said that typically, technology was considered to be an isolating phenomenon. "Where high emotive exchanges used to exist before, but now it creates these silos and digital tethers." But recent examples from the gig economy has turned this belief of, technological progress leading to fragmentation of social ties, on its head.

Instead, she says: "This new form of economic activity allows for these connections and ties that are formed through everyday economic activity. Which is being outstripped or taken away in some sense by many decades of capitalism and modern institution." She illustrated that while staying in a hotel room is like staying in a soulless property, opting for an Air BnB property leads you to witness more slivers of life of the hosts and forming connections with them.

Similarly, while riding in an Uber car or a Bla Bla Car again, these connections are formed. This is not the case with traditional taxi drivers. "In some sense, there is this element of bringing together connections and forging them. That becomes the central theme of this new form of economy. That is the motivation for being part of this," she said in answer to the question of why people participate in the gig economy.

The flip side to the gig economy, however, is that one is often led to trust a stranger. Gig economy platforms found the answer for how to establish trust with the customers and build on relational capital, she said. Professor Mani explained that the platforms, in this case, created an institution of reputation, management of scoring, and trust-building to achieve this.

She said that this is a new model of trust-building that is being witnessed in the gig economy. "I think what this economy also brings with it is the onus on platforms to build a certain level of trust that allows for selection into these platforms." This, she said, was in sharp contrast to what led us to trust institutions in an earlier age, via some kind of certification from governments, brand building by organisations and other methods.

Creating digital infrastructure, social capital, peer feedback systems, have become the newer ways of building trust in the gig economy instead.

Rewiring Regulations

With this subject of trust-building, Professor Deepa Mani broached on the topic of government regulations. Government's would certify about 5,000 taxi drivers on-road, but with the humongous jump in scale with the gig economy model in play, can the same regulatory checkboxes be applied? She asked, implying that there are benefits of scale, but there are also social costs of regulation.

"It's going to be difficult (to do so) because the sharing economy is on that scale. Should we then have the same system that was used to regulate the economy on a much smaller scale?" she asked. Implying that the same measurement may not fit all, Professor Mani suggested that a shift in regulation to accommodate the nature of the gig economy phenomenon was the need of the hour.

The regulation setting, however, if not done properly, could end up hurting the high-value business models that the gig economy creates and increase their social costs. Uber, which was built primarily as a private ride-sharing platform, cannot operate as such in India. Instead, regulations force it to operate as a commercial taxi operator.

In a study conducted by SRITNE, across four major cities - Delhi, Mumbai, Bengaluru, and Pune -- a significant reduction in congestion on roads was observed when Uber drivers went on strike in these cities. She said that when in other markets, with a more lenient regulatory approach, Uber drivers had the option of staying on or off the road depending on-peak and off-peak hours, in India that flexibility was not available owing to regulatory restrictions. This, she said, was the reason why the new-age taxi platforms are contributing to road congestion in Indian cities.

According to her, it is vital to think about new ways of regulating these platforms engaging in crowd-based capitalism, and self-regulation could be the answer in most cases. At a panel discussion, later, more exciting facets of regulating the gig economy came up for discussion.

Responding to Professor Nandkumar's query that is the World Bank is justified in pointing out that the most crucial need today is about regulating the gig economy, Sridhar K said that there is probably no black or white answer to this. The answer is going to be grey in most cases. He said as a customer, our usage of services have enhanced extensively because of the gig economy. This has, in turn, led to a lot more transactions happening. "I think it is important to generate employment on one side, and reasonable safety and security for the people on the other," he said.

Referring to the California model of regulating gig economy workers, which has asked platforms like Uber to term their driver contractors as regular employees, Sridhar K said such blanket regulations are going to be difficult.

Sridhar K said that at the end of the day, a combination of development and regulation would be necessary. And not just regulation or just development. On his point about economic development, Payal Malik, Chief Economic Adviser, Competition Commission of India, responded that economic growth is a continuous backdrop while making decisions at the anti-trust body.

She said that the anti-trust body had adopted new thinking when it comes to the gig economy and the role of independent contractors on platforms like Ola-Uber and Zomato. On Professor Nandkumar and the other panelists' concerns that platforms like Zomato agreeing to listen to unions, could lead to dropping in efficiency levels, Malik said workers might want to shift to collective bargaining given the dominance of the platform. This, she said, is perhaps a good thing.

Both Smitha MV and Sridhar K, however, said during the discussion that there should not be much needed for regulation as disruptions are an economic compulsion and that they will keep happening aided by technology and other market forces.

Future of Work

What is the future of gig economy workers? Critics have often pointed out that they are overworked and underpaid and mostly bereft of any social security safety net. Professor Deepa Mani suggested that one way to bridge this gap could be by creating a public safety net from the surplus that is generated from the business.

Professor Anand Nandkumar pointed out that there is enough systematic data that suggests that 40% of US workers

will be in non-standard jobs by 2020, owing to the proliferation of the gig economy. Can it be that the creation of platforms is fueling the gig economy?

At Wipro, one such example can be found. "We created a platform which allowed people interested in technology to come together, collaborate, learn, and become developers rather than just tech user," said Smitha M V, General Manager at Wipro Ltd. She said this platform created an open-source culture within Wipro. "We call it inner-sourcing," she added. This crowdsourcing model now contributes to 10% of the software giant's development work.

However, freelancing is not a new trend, the panelists held. So, regulating freelance workers and generating such work is nothing new. Highlighting these examples, Sridhar K, Chief Digital Officer, Talent Sprint, said: "In my view, freelance work is nothing new. Like most other things in life, the data is available today. This probably gives us an insight and a way to look at how to go from here."

But there is a difference in the way freelancing is done now and earlier. "Back in the days there was no platform, but now you have a platform," pointed out Professor Anand Nandkumar of ISB while moderating the panel discussion on regulating the gig economy. He acknowledged that the biggest argument in favour of the gig economy was in terms of employment. But unregulated employment becomes a concern when more of the economy moves towards freelancing.

On the question of regulating growth versus employment, Sridhar K made the point that all major economic initiatives have always happened with regulatory arbitrage. "It is imperative to balance the growth of higher employment these things offer and at the same time, make it valuable and viable for both parties – the freelancers and the platform," he said.

Fortunately, India may not yet be ready to adopt the California model and treat contractors as employees. Payal Malik said that it might not be the right thing to do from a regulatory viewpoint. She said enforcing our archaic labour laws on contractors by giving them employee status will lead to more drudgery. "Then we are missing the picture," Malik said.

In the larger context, the gig economy model would experience more changes, as developments in AI, robotics, and machine learning make new progress every day. "With Uber drivers of today being replaced by autonomous vehicles, regulations too, will have to change," summed up Sridhar K.
 

Send feedbacks to: soumik_dey@isb.edu