The Gig Economy in Spain: From the Shadow to the Light
Spain’s sharing economy is said to be one of Europe’s most promising, and a growing part of the population — more than 53% of the population, for 44% on average in Europe — shows a strong interest in it. It appears to be an unstoppable trend in Spain, with more than 25% growth in just one year. Consumers’ behavior, still affected by the crisis, is changing and embracing the new sharing economy models, that can help make ends meet. Barcelona even hosted the OuiShare Fest last month!
Even though unemployment is on the decrease in 2015 for the first time in 4 years — the number of unemployed people fell below 5 million — it remains stubbornly high at 21.18% of the active population. Among EU countries, only Greece has a higher unemployment rate (25%). At 49%, Spain’s youth unemployment rate (that affects people aged 19 to 25) is also one of the highest. So however precarious and uncertain gig economy jobs may be, they are better than no jobs at all! And if the platformization of work can help expand the job market and create new opportunities, all the better!
Spain also has one of the highest shadow economies in Europe. Nearly one fourth of Spain’s GDP — which could represent as many as 4 million jobs — goes unrecorded and generates zero tax revenues. Surely internet services can help fight the market distortions produced by the shadow economy by making some of this activity legal again.
Yet Spain is the country that has fought US platforms such as Uber and Airbnb the most. Even French carpooling platform BlaBlaCar fell prey to the aggressive zeal of Spanish regulators earlier this year. Uber had to stop its Spanish operations altogether, and Airbnb, although popular with tourists and apartment owners, is increasingly under attack, its growth hampered by stricter regulations, in Barcelona in particular. It would seem that life is particularly hard for ‘gig’ platforms and sharing economy startups in Spain.
With general election due in a few days in Spain, the fate of digital platforms and the future of young workers are being debated fiercely. It’s likely to improve fast within the next few years…
Traditional industries have effectively fought their digital competitors
Spain is one of the European countries where the gig economy platforms have had the hardest time developing their business. The corporatism of Spanish institutions combined with a high level of distrust towards US digital players by traditional businesses have effectively curbed the development of platforms such as Uber.
Since Uber started in Spain in 2011, it has faced strong opposition from traditional taxi services that blame the company for competing unfairly by bypassing local laws on licensing and safety. Indeed it was a Spanish judge who suggested Europe’s top court regard Uber not as a mere intermediary linking freelance drivers to passengers — i.e. an “information society service” — but as an actual transport service powered by better tech. The fact that Uber may ultimately get rid of its human drivers to rely solely on a fleet of self-driving cars suggests it is indeed a transport service! The case is to be decided in 2016 by the European court and will set a precedent for legal battles across the continent (including in Germany: see previous article). In the meantime, Uber recently announced it agreed to adhere to a strict licensed-driver model, which is highly regulated in Spain — only one such license per 30 licensed taxis is allowed, so very few new licenses are issued.
BlaBlaCar, France’s carpooling giant, launched in Spain is 2009 and is particularly popular with young Spaniards looking for cheaper transportation options. But this year BlaBlaCar was also the victim of effective lobbying from the lobby of bus drivers, the Confebús Trade Group. BlaBlaCar’s 2.5 million registered users in Spain could no longer be regarded as ‘harmless’ by bus services that complain they have to pay for certain types of insurance and comply with more regulation.
“We are an industry subject to regulation and BlaBlaCar is operating in the same industry without complying with the same regulations”, said Rafael Barbadillo, co-president of Confebús.
Spain’s bus industry was particularly affected by the crisis: the number of passengers who took long-distance buses (more than 300km) fell nearly 20% between 2009 and 2014, partly because of BlaBlaCar, which offers a cheaper, more convenient, more comfortable and friendlier alternative to buses. Of course, BlaBlaCar (who’s just raised a lot of venture capital to conquer more of the world) sees Confebús as a ‘dying industry looking for a scapegoat’. BlaBlaCar’s drivers are not professional drivers — they merely break even when they choose to take on passengers. You can’t make money on BlaBlaCar, which makes its model fundamentally different from Uber and thus much harder to stop. (The argument that BlaBlaCar is a ‘social network to help people share costs’ is harder to combat).
In any case, opposition by established industry players is not a typically Spanish problem. What makes Spain singular is the fact that many individuals who already work in the gig economy prefer to remain underground. Indeed these gig workers have a lot to lose if platforms force them to go from the shadow to the light.
The underground economy and the ‘morality issue’ are the main reasons why platform-based activities aren’t more widespread
After unprecedented boom years that made Spain the most promising economy in Europe, Spain has suffered a terrible backlash since the 2008 financial crisis. The government’s lack of response to the crisis and a violent crisis in the construction market that left 1 million workers unemployed have boosted Spain’s underground economy enormously. According to an official report by Spain’s Ministry of finance, the shadow economy represented as much as one fourth of Spain’s GDP in 2012 (last known figure). There is basically a gigantic ‘army’ of shadow ‘freelancers’ for whom not paying taxes is the preferred option (and/or for whose employers it is the preferred option). Best examples of this phenomenon include the informal delivery services offered outside Ikea stores in Madrid and Barcelona (often by Latin Americans like Ecuadorians), which would typically be a service you would find online on gig economy platforms like TaskRabbit in the UK or the US.
A lot of ‘legal’ workers have accepted to work for less, as the percentage of unpaid extra hours increased dramatically in 2013 (+30%). Meanwhile their income taxes have risen to a level that is perceived as unacceptable. To cut its budget deficit in a context of dwindling tax revenues, the Spanish government raised taxes a lot in the past few years. All this naturally makes legal work a lot less appealing. Working ‘off the books’ makes more sense. If income taxes are nearly as high as in Denmark for example, one would expect something in return! (The Danes do have something for their money).
The feeling that only the few provide the bulk of Spain’s tax revenues while so many dodge taxation altogether has brought about a ‘morality issue’ that is a particularly painful vicious circle. A recent European Commission report revealed that 95% of Spaniards thought corruption was widespread in their country, superseded only by Italy (97%) and Greece (99%) — by contrast, the percentage of Danes who feel that way was 20%. Spain, Italy and Greece are also the three countries with the largest underground economies.
When you pay a lot in taxes and have nothing to show for it — benefits are lower than they used to be, civil servants are paid less, public services have been cut — it contributes to a higher level of perceived corruption, even though actual bribes are in fact pretty rare in Spain. In addition, Spain has little power to enforce its tax code : there is only one Tax Agency worker for every 1,928 citizens, compared to 729 in Germany and 860 in France.
The US digital giants’ tax planning efforts certainly don’t help their cause. They are frowned upon in Spain because what they generate in tax revenues is… nada. 7 giant tech companies, Google, Apple, Amazon, Facebook, Yahoo, eBay and Microsoft COMBINED paid only €1.2 million in taxes in Spain in 2012. As a Spanish worker put it:
“Big companies are making millions, and they are paying 3.5%, when we’re paying 30% on our paycheck. Wow! Why am going to pay the VAT on my car repair if they don’t pay?”.
Tax authorities seem powerless. The Tax Agency in Spain has issued incendiary statements against the tax engineering of internet giants and created a special unit that has extracted more taxes essentially from traditional multinationals, but it was powerless with Google, whose model could only be validated. (Google underwent a tax inspection but only a few minor discrepancies in its filings could be found.)
A more liberal approach is gaining momentum
Things could change as Spain is considering making its economy more innovation-friendly. The creation in 2013 of the national commission for markets and competition (Comisión nacional de los mercados y la competencía, or CNMC) is the best evidence that market-based solutions and sharing economy platforms may ultimately win over Spanish authorities.
The CNMC is to publish a long-awaited paper in the next few weeks (the paper is due before the end of the year) that is expected to present strong arguments in favor of eliminating the unjustified barriers to ride-sharing services and other digital platforms. The CNMC views government regulations as justified only when the market fails (which of course does happen once in a while) and argues that digital technologies reduce some of the typical market inefficiencies that made regulations more necessary in the past. In the case of housing and transportation, for example, insufficient transparency and lack of information made protective regulation indispensable but geolocation combined with reviews and rankings provide users with much more information. The paper is to offer a new perspective on the subject that will give the future government reasons to reverse the previous approach — unfortunately, given that the next government is bound to be a coalition, that may prove a bit difficult. It is the first thorough study conducted by a national authority in Europe and EU authorities will surely examine the paper carefully.
The CNMC is the product of a new approach to regulation that takes the interest of internet users into account. It is a multi-sector body that was born of the merger of several different regulatory bodies in Spain. The multi-sector approach may be a less outdated and more adapted way to analyse the sharing economy and its many facets. The CNMC proceeded by launching a large public consultation to analyze all the consequences and take different views into account. It is likely to inspire EU authorities next year as it aims to clarify the rules that apply to service providers and other sharing economy platforms. The goal is to strike a perfect balance between protecting consumers, enabling innovation and allowing competition between different models to benefit the consumers.
Likewise entrepreneurs have raised a lot of awareness on the difficulty of creating your own business in Spain. Last year, Spain ranked 49th in the world on the economic freedom index and 22d out of 43 in Europe. It takes a lot of paperwork and at least three weeks to create a company, and up to 7 months to obtain a license (and roughly a year of revenues). Work laws are still rigid and hinder the creation of new jobs in the private sector. Given that tax revenues can only increase if a portion of the shadow economy becomes licit again, heeding the interests of the startup world could pay off politically. Users and entrepreneurs have aligned interests that politicians may now find easier to take into account.
Design and low prices will have the final say
Spanish users don’t trust the government and don’t want to pay taxes, but they are very sensitive to design and low prices. Who isn’t? The traditional players in both the taxi and hotel industries have emphasised the ‘risks’ of taking the ‘cheap option’ and tried to leverage Spanish distrust by arguing that Uber taxis are dirty and driven by criminals and that apartments let on Airbnb are filthy, and therefore only people with very low budgets would accept the liabilities… but Spaniards aren’t fooled by these arguments and like the design and comfort of modern apps. There is a lot of enthusiasm around the sharing economy. For the first time Barcelona was host to OuiShare Fest this year (the global event dedicated to the sharing economy).
The convenience of user-friendly apps is making electronic payments much more widespread. And because the shadow economy is almost exclusively cash-based, it is likely to dwindle in the next few years. For the ‘shadow’ freelancers, there is a point when relying on social networks and physical networks to match one’s offer with a demand, becomes insufficient and the ease with which you can get access to more gigs on online marketplaces could outweigh the pain of declaring one’s activity.
The level of complexity that Spanish entrepreneurs have to cope with is also a business opportunity for new startups. A report by the World Bank Group states that Spain is among the bottom 5 countries of the 34 OECD countries in terms of complexity (the Czech Republic and Poland are worse). Entrepreneurs face lots of challenges to deal with different levels of government, including the national government, the autonomies — there are 17 autonomous communities and 2 autonomous cities that are collectively known as “autonomies” — , the municipalities that often have different legal requirements. BECAUSE doing business is tough, helping entrepreneurs do business with ease is more of a business. Where there is friction, there are business opportunities! (In France, a lot of promising startups are flourishing with the promise to ease the pain of paperwork or user-unfriendly administrations. Examples of such startups include Guacamol for the legal paperwork, PayFit to make payroll easier than ordering a pizza online, Wemind to make insurance for entrepreneurs and freelancers transparent, Fred de la Compta for cheap and frictionless accounting.)
The growing startup ecosystem and Barcelona
The startup world is growing in Spain and becoming more visible than even just a year and a half ago. Sharing España is a good example: the association federates most of the sharing economy startups present in Spain. The 26 members include BlaBlaCar, Uber, Airbnb… but also local actors such as Etece, a growing TaskRabbit-style online job portal for professional service providers, founded 3 years ago in Madrid, Respiro, a car sharing service, Cabify, an online chauffeur service that operates in Spain, Chile, Mexico and Peru and that raised $16 million in venture capital, Traity, an app that allows users to create profiles that they can carry with them from one sharing economy website to the next, so that the reputation they build on one platform can serve them on another. Spanish startups are learning to create synergies with the rest of the Spanish-Speaking world (they usually launch their services in Spain and Latin America) and address a very large market. The approach of Spanish startups is more inclusive as they hope that more players (including US players) will lead to new regulations. Cabify, for example, isn’t afraid of the return of Uber in Spain. On the contrary, it wants a liberalization of the licensed-driver market in Spain and believes that with 500,000 users in 14 cities, it is well-positioned to fight Uber in a fair fight.
Barcelona is growing into a good place to launch a startup and introduce new products. The city’s climate and beauty used to be the main reasons why some companies would choose to set up shop in Barcelona. But they now do so also because of a growing ecosystem of startups, schools, incubators and investors. The presence of millions of international tourists each year also play into the rise of the gig economy. Top business and design schools provide a local pool of talent to recruit from.
Numerous accelerators nourish a growing pipeline of startups: main accelerators include Wayra (Telefónico’s tech startup accelerator that targets Spanish and Latin American startups), Startupbootcamp (focused on internet-of-things and data startups), SeedRocket and Conector. There used to be a big shortage of early stage capital in Barcelona. There is now slightly more with more investment firms (Active VP, Caixa Capital, Inverready…) and angel investors. Barcelona Activa is a noteworthy organisation to promote growth in Barcelona: they provide expert advice to help with legal procedures (incorporation, taxes …). Amovens, which offers both car-sharing and peer-to-peer car rentals, is growing rapidly in Spain, and in Barcelona in particular. Drivy, leading peer-to-peer rental company in Europe, opened its first office in Barcelona last summer.
“The people in Barcelona are very international and flexible, they are perfect for the sharing economy. The startup ecosystem is also very well connected, which makes it easier to operate from Barcelona”, said Raquel Priego, the CCO of Drivy in Spain.
With 27 million visitors last year, tourism in Barcelona accounts for 14% of the city’s economic output, but is also accused of hindering other economic activities. Local residents complain Airbnb has made the city increasingly unaffordable to them, which is why Barcelona’s new mayor, Ada Colau, wants to limit the uncontrolled rise of rental platform Airbnb. She claims uncontrolled tourism is driving out poorer residents and spoiling the charm of Catalonia’s capital. So everyone who wants to rent a place to tourists will now have to be registered in an official tourism registry.
Spain’s startups and users agree that a large part of the regulations meant to protect consumers have become obsolete and protect only a few established businesses. They argue that these regulations are stifling innovation and preventing growth. New consumer behaviours illustrated by the success of sharing economy platforms like BlaBlaCar are making the discussion about them unavoidable. The upcoming CNMC paper and the next legislative elections will mark a turn for Spain.
To be continued…
Laetitia Vitaud with Switch Collective
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