Spanish politicians fail in Collaborative Economy

6 April, 2017

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Rosa Guirado

Just before Easter Holidays a debate took place in the Spanish Senate between Mr Guardingo, representing the political party Podemos, and the Minister Álvaro Nadal, regarding a question put by the former to the latter regarding the challenges the Public Administration has in the scope of holiday rental intermediary services, or in other words, regarding the collaborative economy in the accommodation sector.

For those who wish to read the full text, we attach the link to the journal of sessions of the Senate.

The debate begins with the question by Mr Guardingo, to which we shall later refer, and the reply by the Minister (for Energy, Tourism and Digital Agenda), who emphasises that the collaborative economy concerns peer-to-peer economy, and not only the fact that it takes place without money being exchanged, to subsequently refer to the positive consequences of such an economy: taking advantage of underused assets that are lying idle, increased efficiency, wellbeing, ecology and competition, as well as combating monopolies and oligopolies. Up to that point, the Minister’s posture was impeccable as it is not for nothing that Álvaro Nadal is one of the best educated politicians of our times, with a double degree in Law and Economics.

However, just after that positive valuation, the Minister then concentrated on the negative aspects of the collaborative economy, pointing out that these arise from the fact that efficiency is not being improved, that resources are not being used better, or that competition is not increasing, but rather obligations of two types are being evaded: one are tax obligations (mentioning movement of grey money and money laundering); and others “because they may be systems with which the guarantees consumers have are evaded, of safety and also asymmetric information, as on many markets, those offering and demanding do not have equal knowledge of the product and the series of guarantees usually established may be avoided precisely through the collaborative economy”.

Thus, he concludes that “the collaborative economy and the digital economy do contribute if they ensure more efficient use of resources and also increase competition, and do not contribute, if it is a way to encourage grey money or even money laundering or to eliminate the guarantees the consumers have. That is where the public administrations find it necessary to act.”

It is then that he considers matters in Europe to state that what is important is what is happening there. Indeed, the Minister states, there is the Communication by the European Commission on 2nd June 2016, titled “A European agenda for the collaborative economy”, as well as the existence of two working parties on the collaborative economy in the accommodation sector, and another on platforms for intermediaries.

Fine so far, and then what? What is it that weakens the Minister’s position? The failure in his arguments lies in when the Minister Nadal states that he is waiting for the communications by the European working parties, and that he tried “to see what the trend was, because it is very difficult to circumscribe such matters as the Internet and collaborative economy, and I could not find too many clues”, to later add that “the European Commission has not yet issued its finding, so we are waiting to see what they say. The easiest thing would be to apply a directive because, if not, we would have to see what where the State competence lies and where that of the Autonomous Governments lies”. It is true that relevant work is still pending and that it is very difficult to regulate such a matter. However, the final reality is that Spain is not establishing a voluntary posture on the collaborative economy, while it waits for a European Directive – that is not foreseen or expected -. That is, by such a posture, it is postponing a new economy, able to provide great benefits, all “sine die”.

Politicians fail

Considering all the above, the reader may ask so how did the politicians fail in this subject? The answer basically lies in the following points:

1. In the Spanish Government waiting for European legislation to be handed down, which is not foreseen, a fact that will considerably delay it in adopting a posture, that could take place earlier by punctually applying the Communication by the European Commission on the collaborative economy.
2. In the solutions proposed by the Minister that, far from constituting a properly grounded, brave position, amount to a mere waiting game, generating more legal insecurity of the kind that damages markets, companies and investors, and ultimately the Spanish economy overall.
3. Due to the Minister positioning himself on the political side that is contrary to the collaborative economy -it also being against economic liberalism and free competition-, with respectable arguments, although ones that lack legal and/or economic grounds. However, that posture, that may only be understood from the political point of view, is one that, due to lacking legal and economic grounds, drifts away from what is offered by the competition authorities and the European Commission in that regard.
4. All of which strays from the postures of the European Commission and the national and regional competition authorities who have studied the matter and have taken a clear position in favour, based on solid legal and economic argument, based on Community Law and Competition Law.

As we shall see further on:

1.Spain’s economy, on hold …

First of all, the Minister states that they have begun work, that they have contacted Europe, but at the same time he recognises that they are really waiting for Europe to make the next move. That is, they will not take serious steps until a European Directive exists -that, as we know and given the complexity of enacting Community regulations, is neither foreseen or expected at present-.

And thus –we ask ourselves- for what purpose has the European Commission issued its Communication on the European Agenda for the collaborative economy, the explicit purpose of which is to provide guidelines on application of the existing regulations to this new phenomenon, vetoing absolute prohibitions and barriers both to entry as well as practice for collaborative platforms?

Why then did the European Commission and the competition authorities take the trouble to analyse relevant aspects of this new economy and to evaluate what could be considered barriers or obstacles to entry or exercise of these collaborative platforms? For what did they thus take the trouble of offering recommendations in keeping with the law? If, under Community Law, the Service Directive, the Founding Treaty of the European Union and all the Competition Law, fulfilment of which – a reminder is due here – is obligatory, and not arbitrarily, but rather because they benefit the citizens.

At this point one must remember all the grounds and purpose that the General Theory of Competition Law we explained in our post on how “fashionable” it is to speak about unfair competition, and the difference between that and defending competition. And how that General Theory, on which the European Commission is base, requires all regulations to comply with the principles of efficient regulation, by virtue of which all administrative acts (either regulatory or penalisation) must be: (i) necessary for the general interest served and (ii) proportional to it. That is a true difficulty for the Public Administrations, the true challenge, and that is why we have chosen a well educated political class.

2.Measures by the Minister “meanwhile”

Meanwhile, the Minister proposes three kinds of measures:

(i) To begin with neighbours’ associations, encouraging them to reach an agreement against rentals for tourism. That is a measure that may provide highly differing efficiency due to the difficulty in achieving agreements within neighbours’ associations.

(ii)“Wait to see what the European directives say and how we can reach an agreement”, regarding regulation of tourism, that recognises the regional scope of competence. To that end, he believes “all homes should have a registration number, to know which home is concerned, and that all the tax information of the buyer and seller be known to the Spanish tax authorities because there are sometimes cases, speaking of the service, in which buyer and seller are from abroad and the home is within our borders.”

Here one must point out that the proposal by the European Commission and the competition authorities was to eliminate all the prior requisites that may constitute an entry barrier to the market. In particular, regarding inscription on a register, the European Commission pointed out that non professional rent should be “without prior authorisation or requisites of registration”, while the CNMC (National Commission for Markets and Competition) specifically stated the need to “eliminate inscription of tourist homes on a register and publication of the registration number, as obligations in order to perform the activity, due to these being equivalent to a regime of prior authorisation of the activity”.

(iii) With regard to that fiscal aspect, he calls for work to be carried out at State level, emphasising that the tax obligations must be equal in the digital as well as the analogical world -logically-. One may not raise any objections to the contrary, but rather in favour of: (i) the swiftness in doing so, and thus cease to tar the collaborative economy with the brush of tax evasion; (ii) informing citizens, if what exists is fundamentally a lack of knowledge of the obligation to pay taxes, as was pointed out by the European Commission in its Communication of 2nd June 2016; and (iii) instead of attacking platforms, take advantage of their role as intermediaries and acting along with them, given the work they already perform to send statements of their revenue to their users, along with reminders to the latter that they must pay their taxes.

3.The Minister, on the contrary political side to that of economic freedom

Perhaps the most severe affirmation by Minister Nadal is that everything said by Mr Guardingo is true, when his declarations contain flaws it is necessary to emphasise, for all to be able to speak in the same terms -of juridical correction- and to be able to reach a dialogue in this matter:

(i) Homes are not an underused asset but rather a constitutional right. That is true. However, this is also true of freedom of venture within the setting of a market economy (as stated in Article 38 of the Spanish Constitution) and free competition, within the framework of that market economy. That is not because it affects companies, but rather the opposite, because the greater benefit -recognised under our juridical order, through the right to defence of competition- is for ordinary citizens, for all of them, through price reductions and increased offer of assets and services, as well as quality and variety.
(ii) He completely subscribes the Exceltur report, in which 23 of the largest companies in the tourism sector lash out at collaborative platforms (logically, due to their users being ultimate competitors who may put an en end -fairly and legally- to their hegemony on the market, to benefit citizens).

Without prejudice to the arguments of the report, that we shall refer to below, we must first state our surprise -once more- by the fact of a left wing political party seeking to align itself with the arguments put forward by the 23 largest companies in the tourism sector, before than with those of the citizens, for whom the collaborative economy involves extra income (to those offering the services), or price saving (for those who receive them).

Due to this, we understood that recapitulation in this aspect is required, especially when we bear in mind all the benefits the collaborative economy provides, that were already stated by the European Commission in its Communication of 2016: “The collaborative economy is a phenomenon that creates new opportunities for consumers and entrepreneurs, and that may thus contribute to employment and growth in the European Union, if it is encouraged and developed in a responsible manner. For prosumers, the collaborative economy involves new opportunities of employment, flexible means of work and new sources of income. For consumers, it may provide advantages through new services, increased offer and lower prices. For the economy in general, it may also promote greater distribution of assets and more effective use of resources, that may contribute to the sustainability agenda of the EU and to transition to the circular economy.”

It is pointed out that these companies are an example of adaptation to the new technologies so are collaborative platforms, that have arisen from these, not even more so?

The members of Exceltur also emphasise that it is not a new tourist, but rather the same tourist who chooses the offer on the basis of price. Exactly! There it is. That is precisely where the benefit of the existence of competition lies: in citizens at large obtaining the benefit of lower prices and/or an increase in the variety and quality of the offer, etc.

And then the famous subject of unfair competition is raised, with two statements:

(i) that “the scarce rules that govern homes for tourist lets turn this into unfair competition to traditional the hospitality sector”. That statement is not true and

(ii) one must add that: “Exceltur calculates that these platforms obtain a cost advantage through unfair competition of 17.2 euros per bed compared with the contractual economy.” We ignore the concept of “cost advantage due to unfair competition” and this, moreover, is totally inapplicable, as no such unfair competition exists, but rather simply competition.

Having reached the subject of unfair competition, we shall now make some basic points clear:

There are no regulations that turn the activity by collaborative platforms into unfair competition. Or do you not think the Public Administrations would not have already applied them? Or would no suits for unfair competition have been filed against collaborative economy platforms by the accommodation sector? This has not happened simply because there are no juridical arguments to do so.
As we emphasise in the post on unfair competition, the Supreme Court has not tired of repeating that “competition is inconvenient, but that does not make it unfair”.
And all the judgements handed down on pure collaborative platforms corroborate this: they do not compete unfairly.

Within the scope of accommodation, the Judgement of 29th November 2016 declared that Airbnb was right in its appeal against the first fine imposed by the Government of Catalonia for supposedly having provided an accommodation service without the necessary licence to do so. As we record in our post, Contentious-Administrative Court no. 11 of Barcelona found that there was no breach of any regulations whatsoever, as Airbnb only provided information society electronic services. That is, its task was limited to being an online platform that puts users in contact so they can provide and receive accommodation services. That decision constitutes a clear precedent in the tourism accommodation sector and that, moreover, pointed out that the Executive Power could not “administer justice itself”, filling in legal loopholes by imposing fines, with the responsibility that involved for the Public Administration.

On its part, in the field of transport, on 2nd February 2017, Mercantile Court no. 2 of Madrid set aside a suit filed for unfair competition by CONFEBUS against BlaBlaCar, emphasising once more that BlaBlaCar did not provide transport services, but rather just provided electronic intermediary services, as we recorded in our post. And if that were not enough, Uber, that has refused to classify itself as collaborative economy, to call itself an online platform, has also won three appeals against files imposed by the Government of Catalonia, those sentences emphasising that mere electronic intermediation is the legal nature of the services it provides.

Definitively, what these judgements emphasise is that pure collaborative economy platforms – and that is what Airbnb and BlaBlaCar are – do not provide the underlying service, but rather just provide the electronic service of putting their users in contact and offering them a -very useful- automatic online search and matching services of offer and demand, and due to that they do not compete unfairly with companies operating on the accommodation or transport markets, as we were able to explain in greater detail in our post on the legality of collaborative platforms.

(iii) Another of the incorrect aspects of the declarations by Mr Guardingo is to confuse the term “collaborative” with the idea of “charitable”, that has nothing to do with that. In spite of the “good intentions” behind the term “collaborative”, collaborative economy does not imply that an economic consideration does not arise from the accommodation service. This point has already been duly clarified not only by the competition authorities, but also by the European Commission itself when defining the collaborative economy, including “all business models in which activities are facilitated by collaborative platforms that create an open market for temporary use of goods or services often offered by private parties, so that, in general, these do not involve a change of ownership and they may be performed with or without the intention of profit making”.
(iv) No less severe is the demonization of collaborative platforms, that are accused of being “the cancer of Barcelona, because they are leaving many neighbourhoods without neighbours”. That is a tremendous accusation that gratuitously harms the image of platforms that have specific backing by the competition authorities of the European Commission.
(v)Mr Guardingo then queries whether the collaborative economy benefits the population, and his answer is that this is not the case due to tax fraud, tax engineering by the platforms, real estate administrators who avoid VAT and owners who evade income tax. The European Commission has said this is so, as we previously saw (and there must be a reason for this). The competition authorities also say so (and duly).
(vi) Mr Guardingo concludes his explanation by stating that tourism is the main industry in Spain and must have a positive social function to create employment and boost the economy.

We have nothing to object in this regard; quite to the contrary, we share the importance of caring for tourism and making it grow with quality. However, that does not mean that it must necessarily be done the way it has been done up to now. Society has changed. Now, what if it is citizens who are indeed demanding a new type of offer, a cheaper one with greater variety? What problem lies in that if, thanks to new technology, a new offer has arisen that is able to satisfy that demand? It is a welcome change!

Since when has there been defence of intervention in markets to prohibit a demand being satisfied by an offer that has arisen freely for the purpose? Demand cannot be limited. It is free! And as such, it demands whatever strikes its fancy , and citizens cannot be asked not to have needs and not to aim to satisfy these freely.

The conjuncture of collaborative economy is not present as a whim, but rather is a change in paradigm that has come to stay. The European Commission provided the following data in its Communication of 2nd June 2016: “it is growing swiftly and is gaining major market shares in some sectors (it was estimated that in 2015, the gross revenue of collaborative platforms and providers in the EU amounted to 28,000 million euros) and it has a major potential (some experts consider that in the future the collaborative economy may represent an increase in the EU economy between 160,000 and 572,000 million euros). What is true is that it changes revenue mechanisms for citizens. Instead of attending to a traditional type of employment, they obtain extraordinary income by sharing their houses, cars or other assets they are not using. It is no use demonising them, as that will not stop them from doing it.”

Let us be intelligent and constructive and take advantage of that new demand, for example, by emphasising and educating in the need for such income to be taxed, as stated by the European Commission. Due to this, we do not share the assumption that it destroys employment, when it is generating a new type of income (this is stated by the European Commission), although with a different kind of employment, that breaks with traditional monopolies. The question would thus be, in the name of what interests are traditional oligopolies maintained over those of citizens and how is the right to competition thus defended?

In any event, the question lies in whether the growth of tourism must take place with the citizens in mind, with a tourism for and with citizens, or without taking them into account. We must thus remember that all the millions of users of these collaborative economy platforms are precisely that, citizens that see their needs satisfied.

4. Conclusions. The Right to Competition, as an indispensable tool.

We understand that the political function is difficult to exercise, due to having to attend to and gather together a multitude of interests at the same time and bid for the higher general interest in all of these.

However, it is precisely due to this that the legislator has provided the Executive Power with tools such as competition law, that are already available to ensure the essence and defence of general interest, to benefit all consumers.

As we saw in our post on the difference between defence of competition and unfair competition, Competition Law articulates a whole system of public order aimed at achieving and guaranteeing the benefit of all citizens due to free competition within the framework of market economy. That system, inspired by the principles of efficient regulation along with Administrative Law, is a latent transversal system under all the layers of the economy, regardless of the sector concerned and the company affected. That is what public order guarantees: the general interest.

All that remains is the political will to duly implement the tools of Law, the Legislative Power has provided the Executive for the benefit of all citizens. We trust in improvement of that political path, as well as the rest of the political parties taking a posture to ensure adequate progress down the path of efficiency and economic liberty –consecrated in our Constitution- something we are open to providing a constructive contribution to bring about.