The fight against the ‘disruptors’ illustrates the split between the old and new economy

Who today is against disruption and innovation? The correct, Silicon Valley-approved, answer is of course: Governments across the world.  Fortunately, disruptors and innovators grow like weeds; everywhere and without much water. With this mushrooming growth, however, comes a certain amount of friction.

  In Paris last month, the French Parliament released a much-awaited report that looked into the fight between cab services and digital car-sharing services such as Uber. The fight was sparked earlier this year in January when registered cabs protested violently by attacking Uber cars. 

Almost concurrently, Anne Hidalgo, the new socialist mayor of Paris, trained her guns on lodging service provider Airbnb—a company that has also been accused of violating New York City’s hotel laws. In Brussels, two weeks ago, a court order issued an outright ban of app-powered car services such as Uber. In London, the highly influential Licensed Taxi Driver’s Association plans on intentionally causing a gridlock on the roads of the city to protest against Uber. 

From Beijing to San Francisco, we see Government-backed lobbies furiously opposing the rise of the disruptors, in a tale that illustrates the split between the old and the new digital, data-driven economy. (This is not to insinuate that this fight is a new phenomenon. If anything, it’s a repetition of a long drawn out battle that has been happening since the advent of the railroad system)

 From New Delhi, however, we hear very little. One of the bigger questions this country will face, as the inexorable forward march of technology continues, is whether we will view technological progress as an unstoppable, implacable force that is beyond human influence.

 For example— how do you manage the digital economy? Do you see those in it as disruptors and side with the status quo-ists or do you view the digital economy as a natural process of evolution that needs to be encouraged and supported? As the new and old economy start to become one, there are a number of broad issues that need to be confronted.

Structuring the new economy

 The first is in the way India shapes its digital economy. One of the more common characteristics of this new economy is its unprecedented access to huge amounts of capital. Uber and Airbnb—which have raised dizzying amounts of funding—do not require money to ramp up their technology infrastructure or recruit new employees. They use it, instead, to rub out their competitors through acquisitions.

 It is in this manner that the American venture capital ecosystem encourages the dominance of U.S Internet companies.

While Uber can raise up to $300 million to expand worldwide, local start-ups like Ola Cabs and TaxiforSure can raise only $10-20 million. Most economists would call this the reality of international competition, but what it really shows is how poor the Indian system is in stimulating access to capital. The real question that needs to be answered is this: do we need Indian internet companies? Is it okay to let our e-commerce sector be ruled by Amazon, our e-mail to be dominated by Google, our instant messaging to be synonymous with WhatsApp and our taxis to be organised by Uber?

If we do realize we need Indian equivalents to Google, Facebook, Uber and Amazon—for whatever reasons—then the country needs to start acting decisively by either promoting greater access to capital or encouraging the development of local technology infrastructure.

China’s internet sector, for instance, has enjoyed the most foreign equity investment of any part of the Chinese economy through a curious regulatory loophole known as VIE or variable interest entity. This essentially allows foreign funding without foreign ownership. In India, when e-commerce companies do look to foreign funding, they are not given easy foreign investment structures to work with and consequently are rewarded with enforcement directorate scrutiny.

 A century old culture

 One of the more curious aspects of the digital economy is that we are finally beginning to understand exactly how our traditional institutions contribute to our cultural life. While in the pre-Industrial era it was impossible to ban the powerloom so as to protect the country’s weaving industry, it is easy to abolish the predatory pricing that accompanies most digital commerce.

 There is no better example of this than France’s Lang law. Named after Jack Lang, who was the French Minister of Culture at the time, this law currently looks to protect the interests of small bookstores from online retailers like Amazon by doing away with heavy discounting.

Under Lang law, there is a fixed price for books sold in France, which limits the amount of price discounts that can be given by companies like Amazon.

 While this law protects the smaller retailer, it was done, mostly, to promote diverse reading habits and thereby enhance France’s literary culture.  As the digital economy and the old economy merge, India will have to take a call on what curbs to place on today’s disruptors so as to protect the country’s culture.

 The other side

 On their part, disruptors argue that apart from cost savings, they bring about other benefits. They aren’t wrong. Car-sharing services like RelayRides help in reducing environmental pollution while companies like Airbnb help in reducing inequality. As consumers start voting with their smartphones—as they already have in Western markets— Governments will find it difficult to protect the status quo for the sake of protecting it. 

Apart from figuring out how India should shape her digital economy and protect her culture, the Government and its regulators should start working at the most basic level: by ensuring that consumers are protected in the digital economy and by making sure that technology companies pay local taxes.

Most Government-disruptor tussles dissolve into a mess of jingoistic mud-slinging. This is exactly why the ‘physical versus digital’ debate must be abandoned; it is a false argument. The future has to be one where we look forward, but, at the same time, one where we do not compromise on values that protect the consumer and country.

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