[W Forum] The Three Enemies of Regulations Blocking the Platform Economy

The entire world is rapidly transitioning to a digital economy. According to the Shanghai Academy of Social Sciences, the share of the digital economy in total production exceeds 60% in the United States, 46.1% in Japan, and reaches 34.8% in China. In particular, platforms can be said to be the 'core' of the digital economy. Looking at the top 10 global companies by market capitalization in August 2020, except for Saudi Aramco in first place, companies ranked 2nd to 8th?Apple, Microsoft, Amazon, Alphabet (Google’s holding company), Facebook, Tencent, and Alibaba?are all platform companies. U.S. and Chinese companies are overwhelmingly dominant. Unfortunately, not a single South Korean company, a global ICT powerhouse, is among them. The main reason lies in the three regulatory enemies that hinder the flourishing of our platforms.

The first enemy is regulatory competition among government ministries based on bureaucratic principles. Platforms mediate all goods and services fundamentally related to clothing, housing, and food. The entire business scope of these platforms inevitably involves intervention from all ministries related to the services they mediate. Due to the nature of bureaucracy, government ministries inevitably compete to claim regulatory jurisdiction over their respective fields. Conflicts and competition among these ministries can 'incinerate' platform businesses that have just begun to ignite. We have already experienced this through 'Tada'.

The second enemy is the excessive consumption of regulatory costs. Startups with only a few dozen employees must deal with and respond to regulations from as few as five to as many as ten government ministries, including the Ministry of Science and ICT, the Korea Communications Commission, the Fair Trade Commission, the Ministry of SMEs and Startups, and local governments. Most startups must prove on their own that their new services do not violate regulations during the launch process, and they often face conflicts with existing traditional services. The number of regulations and regulatory authorities they must deal with continues to increase during this process of proving and resolving conflicts. Excessive regulatory costs are another entry barrier for startups competing with large corporations or domestic companies competing with global firms. While Naver and Kakao can bear the costs of regulatory compliance, startups with only a few dozen employees cannot. Moreover, domestic companies are at a vulnerable position in competition with global companies that do not have to bear such regulatory costs.

The third enemy is regulations that ignore the global nature of platforms. Borders have no meaning in platform competition. Especially in the global market, the presence of our platform companies is extremely minimal. Users can freely move across borders without restrictions to more innovative services. Discussing the negative effects of economic concentration based solely on domestic standards while ignoring the global competitive nature of platforms is shortsighted.

However, the behaviors of these three regulatory enemies that block the flourishing of platform companies continue and even intensify. Platform regulation bills competitively produced by government ministries are flooding the National Assembly. Following the legislative notice of the Fair Trade Commission’s "Act on the Fairness of Online Platform Intermediated Transactions," the Korea Communications Commission-led "Act on the Protection of Online Platform Users" was proposed through Representative Jeon Hye-sook, and the Ministry of SMEs and Startups-led "Partial Amendment to the Act on Promotion of Mutual Cooperation between Large and Small-Medium Enterprises" is expected to be proposed. These bills assume platforms as the 'dominant party,' impose obligations equivalent to those of large-scale distribution businesses, and include active government intervention such as contract standardization.

However, the reality to which these bills apply is different. Targeted businesses include accommodation, clothing, vehicle, and food material platforms with around 20 to 100 employees. There is no reasonable proof of the platform’s superior position in transactions. The characteristic of platforms’ borderless nature is not reflected. Although these bills benchmark Europe and Japan, both countries have had years of prior discussions tailored to their own conditions, and above all, the environment surrounding platforms differs from ours. Only the United States, China, and South Korea have search engines developed by domestic companies worldwide. China artificially nurtured Baidu, a domestic company, by excluding Google, but Korea’s search platforms have grown organically. Platform innovation must continue during the digital economy transition. It is worrisome that the government might commit the mistake of "cutting off the horn to kill the ox" (교각살우) in the platform economy by using illusions of 'fairness,' 'user protection,' and 'mutual cooperation' as tools.

Kim Hyun-kyung, Professor at Seoul National University of Science and Technology