[칼럼] Korea Story 20 - Economy and Finance 3 by Atty Jeong-kee Kim

(Newskorea=Seoul) Digital News Team = Korea Story 20 - <Economy and Finance 3  by Atty Jeong-kee Kim>

● The New Economic Paradigm: The Future Lies in the Sharing Economy.

I was particularly interested in digital technology among the 10 leading technologies presented by Schwab. These are the Internet of Things, blockchain, and sharing economy that he proposed. 

These days, you frequently see ads for "Trivago" on TV. Many might mistake it for a local travel agency, but it's actually a German company headquartered in Düsseldorf. The real owner is Expedia, which acquired Trivago in 2012. Trivago, Expedia, and Agoda are multinational travel agencies that compare the prices of over 700,000 hotels, hostels, motels, guesthouses, pensions, and more worldwide, connecting them to travelers. Young travelers familiar with using websites particularly favor these platforms. In the case of "Trivago," for instance, it enjoys tremendous success, with an average of 120 million users per month globally. Their business form is based on the ‘sharing economy’. Sharing Economy refers to an economic activity in which goods are not owned, but are shared with many individuals and are lent and shared with others through collaboration. Recently, it has been widely used as a term to refer to a social economic form in which not only goods but also space and services are rented and shared. 
Practical examples that always appear when talking about this sharing economy are ‘AirBnB’, which provides accommodation sharing services, and ‘Uber’, which provides transportation services.

‘Airbnb’ is an arrangement company that provides services that connect individuals (peer to peer) with accommodations and travelers (guests) anywhere in the world online. It was co-founded by three people in San Francisco, USA in 2008, and is said to have been created in response to the extremely expensive housing rents in San Francisco. As you know, ‘Airbnb’ is an abbreviation for Airbed and Breakfast. This means providing a comfortable bed and breakfast. When landlords who own their own homes or accommodations post accommodations for rent on Airbnb's website or smartphone app, users surf the Internet and select a place that suits them. Currently, Airbnb has a list of more than 1.5 million accommodations connected to over 34,000 cities in over 190 countries around the world, and connects an average of 1 million accommodations per day. It is known that tourists used Airbnb the most during the Winter Olympics held in Sochi, Russia and the World Cup held in Brazil. The accommodations provided by Airbnb are very diverse, including European castles, private islands, nomads' gers, desert tents, and caves, just like their promotion that 'you can stay anywhere but a hotel'. . In Korea, the service began in 2012, and it is known that about 6,000 accommodations are currently registered on Airbnb.

‘Uber’ is a car sharing and transportation service company that has been highly controversial in Korea. This company was also founded in San Francisco, USA in 2010. It provides a transportation brokerage service that connects regular passenger cars, not taxis, through a smartphone app.The biggest attraction is that passengers on the move can easily use luxury cars instead of taking taxis. Uber offers two types of services: Uber Black and UberX. Uber Black is a premium car service with fares approximately twice as high as those of regular taxis. On the other hand, UberX is provided by individual drivers using their own cars without taxi driver certifications, which often results in lower fares compared to traditional taxis. It is known that ‘Uber’ currently provides services in over 230 cities in over 50 countries around the world. In Korea, the service began in 2013, but it became highly controversial when it was indicted by the Seoul Central District Prosecutors' Office in 2014 for violating the Passenger Transport Service Act. At that time, the city of Seoul cracked down on Uber by offering a reward of 1 million won to those who reported illegal operations. Consequently, Uber decided to discontinue "UberX," its premium taxi service, and only operate "Uber Black" in accordance with existing laws. However, due to legal violations and opposition from taxi companies, the service has not been operating smoothly. In many foreign cities, there have also been collective protests from the taxi industry, and several countries have banned Uber's operations for violating local laws. Nonetheless, some people cite Airbnb and Uber as successful models of the sharing economy.

Many people say that the rapid expansion of the sharing economy is a counterattack of surplus that reduces waste and utilizes surplus goods and services for recycling by actively utilizing surplus goods and services. In addition to the accommodation sharing and car sharing services described above, there are also online dating apps such as Tinder, which helps match lovers and finds friends, 'Just It', which orders food, and 'Wikipedia,' the online encyclopedia that we often use. These can all be called the sharing economy.

In the United States, more than 40% of citizens are said to be participating in the sharing economy. Jeremy Rifkin, an American futurist introduced earlier, also actively supports the sharing economy, saying that the era of ownership is over and that “the sharing economy is the most ecologically efficient and the shortcut to a sustainable economy.”

In Korea, the sharing economy is expanding rapidly and its scope of use is expanding. We collaborate, borrow, and share with each other in a variety of fields, including not only accommodations and transportation, but also offices, tools, clothing, knowledge, talents, and hobbies. Even for taxis, there is a ‘Kakao Taxi’ that will run to the location where the user is waiting if you call it with a smartphone app. Many people say that Kakao Taxi is not illegal and much more efficient than Uber.

The concept of the sharing economy was first introduced during a time of severe global economic downturn in 1984, when Professor Martin Weitzman of Harvard University outlined the idea in his paper titled "The Sharing Economy: Conquering the Recession." According to his argument, the various harms caused by capitalism can be overcome through a cooperative sharing society. Furthermore, he defined it as a new economic paradigm where the exchange value of the market is transformed into the shared value of society, distinguishing it from commercial economies.

Of course, it is true that problems resulting from the sudden change in economic paradigm are also emerging. The sharing economy is a nearly free service in which individuals collaborate with each other and borrow and share their own goods or items, but in reality, each person focuses on maximizing profits. For example, Airbnb collects a 3% commission from landlords who rent accommodations and a 6-12% brokerage fee from travelers, and Uber charges twice as much as regular taxi fares, leading to a strike by Uber drivers in San Francisco demanding lower fares. In the sharing economy, where transactions are conducted between individuals, strikes are absolutely impossible. Therefore, it is not a sharing economy, but merely a modified business activity in which compensation is exchanged. Additionally, there are claims that the sharing economy does not significantly create jobs and that services like Airbnb may severely impact the profitability of existing hotels, potentially leading to large-scale layoffs. Moreover, the accommodations rented to travelers are relatively well-equipped private houses, apartments, and villas, and most of the owners are middle-to-upper class. Accordingly, voices are growing that their rental of accommodations will cause a recession not only in luxury hotels but also in mid- and lower-class hotels, threatening the jobs of the lower-middle income class working there. Furthermore, renting out accommodations without proper business registration and without adhering to legal regulations is considered illegal and a form of tax evasion. Since such rentals are not reported to authorities, they lack sanitary and safety inspections, making them vulnerable to fire or accidents. There have even been cases where young women using accommodation-sharing services were sexually assaulted by property owners. Similarly, Uber’s use of private vehicles for commercial purposes is considered illegal.

Due to these problems that easily arise in the sharing economy, the Australian Labor Party proposed six conditions for revitalizing the sharing economy, which are as follows.

· The main asset you wish to share must be yours.
· New services must offer good wages and working conditions.
· All parties involved must pay their fair share of taxes.
· Appropriate protective measures are necessary for public safety.
· Access must be guaranteed to everyone.
· Operations should adhere to regulations.

The problem with the sharing economy is that many people go one step further and argue that there is a high risk that it will be abused by the left and turn into a socialist system. It could be argued that there is an institutional flaw in the sharing concept itself, but that is an extreme claim. The socialist planned economy and the shared economy are completely different.

Most of the problems of such sharing economy are institutional problems related to operation and can be improved to any extent. Therefore, the new economic paradigm called the sharing economy will not shrink but become more active. The sharing economy is based on the convergence of digital technologies such as the Internet and smartphones and online through information technology (IT). Technology convergence and information technology are key elements of the 4th Industrial Revolution and will develop rather rapidly.

Large corporations around the world are also exploring various ways to adapt to the new economic paradigm called the sharing economy. Korea’s Hyundai Motors is already participating in the international car sharing service and is making strategic investments to enter the Southeast Asian mobility service market. The leading company in Southeast Asian mobility services is Grab, established in Malaysia in 2012. According to experts, Grab holds about 75% of the Southeast Asian ride-hailing service market. It has about 2.3 million drivers and provides ride-hailing services in 168 cities in 8 Southeast Asian countries. In terms of scale, it is known to be the world's third largest car sharing market, following China's Didi and the US's Uber.

What is important to us is digital technology convergence and information technology, which are the foundation of the sharing economy, rather than the sharing economy itself. These are all core technologies of the 4th Industrial Revolution. If Korea falls behind in the core technologies of the 4th Industrial Revolution, which develop and change rapidly every day, it becomes increasingly difficult to catch up. In order for Korea, a trading country ranked around the top 10 in the world, to confidently become an advanced country, the shortcut is to secure a firm position in the global market by making the most of the core technologies of the Fourth Industrial Revolution.

☆ Author:  Atty Jeong-kee Kim ☆

● Education
- Bachelor of Arts in Political Science, Summa Cum Laude, State University of New York at Stony Brook
-  Doctor of Jurisprudence, Marquette University Law School
- Senior Executive Program, John F. Kennedy School of Government, Harvard University
- Research Scholar in North Korean Studies, Peking University

● Experience
- Consul General of the Republic of Korea in Shanghai
- Commissioner General for the Korean Pavilion at the 2010 Shanghai Expo
- CEO, Asia-Pacific Local Government Network for Economic and Social Development (CityNet)
- Secretary General, World Smart Sustainable Cities Organization(WeGO)
- Law Clerk, Milwaukee Circuit Court, USA
- Senior Attorney-at-Law, Dr & Aju LLC
- Distinguished Visiting Professor, World Economy Research Institute, Nanjing University
- Research Professor, Institute of Oriental Studies, Peking University
- Distinguished Professor, Graduate School of Political Science, Kookmin University
- Chair Professor, Graduate School of Business, Dongguk University
- First President of Soongsil Cyber University

● Publications
- Georo English Studies Series for College Students [10 volumes] (Georo Publishing)
- I Challenge the Possibility of One Percent (Chosun Ilbo)
- The Art of Negotiation (Cheongnyonneongsin Publishing)
- Korea and the World (Chekmidum Publishing)