Gig economy requires adaptation, not avoidance

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In his now-classic “The Age of Unreason”, the organisational behaviour and management writer Charles Handy described a scene out of the General Synod of the Church of England in the 1980s. The controversial topic of women priests was being debated, and a speaker from the floor made a desperate and heartfelt plea: “In this matter as in so much else in our great country, why cannot the status quo be the way forward?”

In a similar vein, we see the natural conservatism of bureaucracies everywhere coming to the fore in dealing with the “gig economy”, or an economy characterised by many more freelance or independent contract workers. This process has already been described as the “uberisation” of the workforce—named after the ubiquitous ride-hailing app that has enabled hundreds of thousands of drivers worldwide to offer rides directly to customers.

Two concerns about the gig economy
There are at least two main reasons why governments are often resistant to, or sceptical of, the gig economy. The first is that it disrupts traditional business models that rely on firms being employers or the owner of assets that individuals need to produce and sell a service. By disintermediating such firms, the gig economy renders many government rules, regulations and taxes—most of which are imposed on firms—obsolete.

The rise of platforms such as Uber, Grab, Airbnb and other peer-to-peer exchanges in recent years has been driven by the fact that they do not own the (costly) assets that their “old economy” rivals (e.g. taxi companies and hotels) are encumbered with. They are also able to circumvent many of the rules and regulations that their traditional rivals are subject to. Finally, by shifting power from capital owners to individual workers, the gig economy makes governments less potent in securing compliance or extracting taxes from firms.

Most governmental responses to such platforms have focussed on this aspect of the gig economy. They have been scrambling to draw up new rules and regulations—often quite clumsily—to create some sort of regulatory “parity” between the new platforms and the businesses they are disrupting. But doing so also risks eroding many of the benefits—especially the cost savings that accrue to consumers and the flexibility that accrues to independent workers—that such platforms create in the first place.

The second reason why governments are sceptical about the gig economy is that it undermines the traditional employer-employee relationship. While the labourer gains flexibility and the freedom to work as much (or as little) as he wants, social security systems that rely on employer and employee contributions also become more tenuous. Deputy Prime Minister Tharman Shanmugaratnam alluded to this second aspect of the gig economy when he pointed out at a recent forum: “We’ve got to avoid a continuing drift—risk being passed from companies to workers, who actually can’t take much risk—the risk of instability in wages, and the risk of not being prepared for retirement because of a lack of social security contributions.”

How should government respond?
Not surprisingly, therefore, the disruptions caused by the gig economy tend to be framed as impending threats to be mitigated or even avoided altogether. Such a framing reveals a great deal of the policymaker’s natural instincts.

The new, innovative ways of allocating resources and matching demand and supply that the gig economy brings is “threatening” only because our policy frameworks and regulatory regimes have not kept pace with social and technological innovations. Rather than focus on how these disruptions can be avoided, policy makers should instead think about how social security systems ought to be adapted.

For instance, if the concern is that independent contract workers do not contribute to social security or their retirement savings, then surely the right policy response would be to create the incentives (or rules) that make such contributions far more likely. In Singapore’s context, this would mean expanding the Central Provident Fund (CPF) to cover the self-employed.

Or if the concern is that independent contract workers do not have bargaining power vis-à-vis the platform companies, then the right response would be to mobilise and organise such workers such that they can bargain collectively.

The CPF is also a defined contribution system, rather than the defined benefit one found in most developed countries. It is probably easier to encourage the self-employed to save for themselves than it is to persuade them to contribute to a pooled fund.

Singapore is thus uniquely placed to embrace the gig economy as our social security system is, mostly, an individualised one. This should provide policy makers the impetus to think creatively about how the CPF can be adapted for an economy with a much larger share of independent contract workers.

The Singapore Government has long had a reputation for proceeding with caution; incrementalism rather than radicalism has been its preferred mode of dealing with change. This reflects its prudence and the rigour with which it undertakes analyses of challenges (and opportunities). However, a fine line separates deliberate and thoughtful policy responses from policy (non-)responses that are born of risk aversion, a failure of imagination, a lack of courage, or plain inertia.

In fact, the Singapore Government has not always approached the novel and the unknown in so ponderous a manner. Many of the policies in the early days of independence had no precedent, and many big leaps forward were “nothing more than acts of faith.” One need only look at the building of the container port at Tanjong Pagar, undertaken at a time when there was no evidence that global container volume would reach a level that could justify its construction. And of course the development of Jurong Industrial Estate has become the symbol of our policy derring-do and innovation.

Finally, Singapore itself was a disruption. We were the disruptors par excellence, whether in terms of our “developmental state” approach to growth and governance, or our pursuit of export-oriented industrialisation in the face of the import-substitution orthodoxy, or in our whole-hearted and early embrace of technology. It is ironic that a country that has benefited from being a disruptor, and which has disruption at the heart of its DNA, should now look upon disruptions produced by the gig economy with such anxiety and askance.

 


This piece first appeared in The Business Times on 17 November 2016.