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The new one in the city

The use of technology platforms such as Uber and Airbnb is transforming cities. Local authorities must think of regulatory solutions to put technology at the service of vibrant and livable cities for all.

Throughout history, technological advances have been shaping cities. The ability to design and build water and sanitation channeling systems enabled the development of Rome. The defensive technology favored the economic development in the interior of the medieval cities and, more recently, the car revolutionized the urban dynamics throughout the world.

The new frontier in the transformation of the city seems also linked to the technological explosion of recent years. In an attempt to imagine this future, the council of advisers in science and technology of President Barack Obama published in 2016 a report entitled “Technology and the future of cities.” Among the exercises of futuristic prediction, the one that has pulled the most is the one that imagines cities where thousands of sensors collect and analyze data in real time, connecting decision-making and improving the lives of citizens. Smart cities or smart cities like the one that Alphabet – Google’s parent – is developing in Toronto through its other subsidiary, Sidewalk Labs.

This utopia – or dystopia, depending on how you look at it – has not yet materialized, but the great development of the digital domain in recent years is already generating tangible impacts on the physical space and the socioeconomic conditions of cities. The transformation is connected to the emergence of digital platforms such as Uber or Airbnb, which are revolutionizing key urban aspects such as mobility or housing. A process of different urban transformation, and often overshadowed by the enthusiasm that has led to the idea of ​​smart cities, but with such real and already present effects that it is worth stopping to analyze.


History of a paradox

If cities arose from the benefits generated by proximity, one might think that technological platforms – which eliminate the need for physical closeness to buy and sell goods or to lend and enjoy a service – would reduce the importance of cities. It has not been like that.

Economists explain cities based on the concept of agglomeration. Proximity and density reduce transaction costs, favoring the exchange of ideas, allowing access to goods and services, and improving the productivity of workers and companies. Therefore, with the expansion of information and communication technologies (ICT) a few decades ago, many predicted that the importance of cities would decline. The prophecies were not fulfilled, among other things, because the face-to-face interactions are often complementary, and not substitute, of the exchanges and the negotiations that are done online, as Jess Gaspar and Edward Glaeser argued in 1996. services -turistic or daily- that the city provides are easily found in rural environments.

With the appearance of digital platforms something similar has happened. By platforms we refer to the virtual markets that connect individuals to trade goods and services through digital tools, also known as peer to peer or P2P platforms, as described by Aqib Aslam and Alpa Shah in 2017. At this point it is convenient to distinguish between the terms digital platforms and collaborative economy, which overlap but are not identical. Although some platforms qualify as a collaborative economy (Airbnb), there are many other collaborative economy initiatives that are not platforms (Zipcar). At the same time, there are platforms like Amazon that can not be classified as collaborative economy companies, but they are clearly virtual markets. According to the 2017 report of the World Economic Forum, the companies that operate P2P platforms had a market value of 4.3 billion dollars and directly employed 1.3 million people in 2016. These figures have been reached in a few years, and everything indicates that the trend will continue to be of exponential growth. Will these virtual markets replace the physical markets, reducing in the process the need to live in cities and thus emptying the cities? The answer, almost certainly, is no. reducing in the process the need to live in cities and thus emptying the cities? The answer, almost certainly, is no. reducing in the process the need to live in cities and thus emptying the cities? The answer, almost certainly, is no.

As happened with ICT, digital platforms complement, rather than replace, physical markets. In fact, many of them base their value proposition on eminently urban characteristics. That is, as analyzed by Nestor Davidson and John Infranca in “Spaces for sharing” (2015), are the scale, proximity, presence of amenities and professional specialization that characterize cities which allows these platforms to grow, since they need a critical mass of suppliers and consumers with sufficient concentration for a high volume of transactions. The concentration of resources in urban areas also results in the underutilization of assets (cars, floors, personal and professional skills) that platforms put into value by connecting supply and demand. In this sense,

These benefits have caused some cities to welcome platforms with open arms, not only for the facilities they offer to citizens but also as a strategy for economic development and marketing to attract, in particular, companies and young professionals. In a 2016 study conducted by the National League of Cities with interviews with representatives of 12 North American cities, a majority expressed the wish that their cities be perceived as open to the innovation brought by the platforms.

If there are open cities and closed cities, it is because, in the case of these platforms, cities and local governments not only have the incentives to regulate them, but also the power to do so. Unlike other technology companies such as Facebook, Microsoft or Google, regulated mainly at the national level, the mobility and vacation rental platforms are impacted by local regulations. Decisions on building codes, urban land qualification or the granting of mobility and hotel licenses reside mainly in the hands of town councils and regional governments. These decisions, which may vary between cities in the same country, are those that establish the regulatory framework in which the platforms operate and, ultimately, may prohibit or render their implementation impracticable.

Despite the optimism of those who proclaim the future as a scenario of cities and not of nation-states, the truth is that cities, in general, have less political and regulatory power than would correspond to them due to their demographic or economic importance. However, the interesting thing about the paradox of digital platforms is that, in this case, cities do have the necessary tools to shape these forces that are transforming urban landscapes.


Visible and invisible changes in the urban landscape

One of the arguments of the defenders of the digital platforms is that they create new opportunities to obtain income for more people, not only through the generation of employment, but allowing the obtaining of an income, thanks to the rent of spaces or underutilized goods. They also allow the purchase or enjoyment of services at more affordable prices, which favors small entrepreneurs. An example could be Storefront, a platform that offers small businesses rent spaces for small businesses. On its website, the difference between renting a physical space by traditional way compared to this platform is explained, which can mean a saving of $ 96,000 for an SME. Others argue that platforms do not generate real income for people with lower incomes, destroy more work than they create and, in addition, they favor more precarious and lower paid jobs. The battle of companies like Uber to prevent drivers from being qualified as employees -which would increase their labor obligations and therefore their costs- is part of this debate.

There are no conclusive studies on the net effect on employment and the creation of companies, which has led some cities to express their concern because they are unaware of the real impact of the platforms, as highlighted by the National League of Cities in 2016. Calculation is complicated, since it may not only be replacing employment, but part of the job that is destroyed in some cities is being created in others. The net calculation, therefore, depends on the geographic scope that is taken as the unit of analysis. The type of employment that is generated and replaced may also be different if, as some argue, the platforms favor a more precarious and flexible employment for a different type of worker (younger, perhaps students or immigrants).


Mobility and housing are the sectors where the positive and negative effects of digital platforms are most perceived


From the point of view of the distribution of the economic benefits generated by the platforms, the impact is not clear either. On the one hand, the benefits for consumers – and for the capital that creates and finances these innovations – seem to be concentrated in the richest citizens, who consume the most these services. The platforms can be used by companies or multi-owners, for example in the case of Airbnb, which control the flooring market, and instead of promoting a more efficient use of underutilized assets, they cause a general increase in rental prices. In addition, social protection systems change when one passes from the concept of worker to the idea of ​​autonomous service provider. On the other hand,

Platforms also produce externalities, both positive and negative. Thus, they are generating information on prices or consumption patterns that reduce transaction costs and, if made public, can be of great value to design transport policies or establish taxes on activities that were previously in the shadow economy, as pointed out by Aslam and Shah. in your study. According to Davidson and Ianfranca, platforms can also facilitate interactions between groups that would not otherwise come into contact, promoting the development of social capital. An intensive use of cars or flats in neighborhoods can also lead to congestion and overuse of public space not reflected in the price of services, with a negative impact on cities.

The two sectors where the positive and negative effects of the platforms are most perceived are mobility and housing, neuralgic elements in any urban settlement.

– Mobility . The urban transport of goods and people is perhaps the dimension most transformed by technological platforms, and certainly one of the most publicized. Companies such as Uber and Lyft in the United States or Cabify in Spain and Latin America have broken into the cities, with tangible impacts in the taxi sector and other effects that are noticed as their use becomes more widespread and more intensive. Other companies such as Zipcar, Car2Go, Chariot or bike-sharing companies (shared bicycles) are also transforming urban mobility, but they belong more to the field of collaborative economy than to P2P platforms. BlaBlaCar could be described as a P2P platform and although it mainly affects interurban transport, its impact on urban mobility is important.

The taxi has been, without doubt, the first and most direct victim of the appearance of these services. In countries like Spain, the resistance of the organizations that group the taxi drivers has managed to avoid, for the moment, the expansion of these companies. In other countries where they have grown exponentially in recent years, the impact is evident: in New York, the price of taxi licenses has plummeted, going from the record of 1.3 million dollars in 2014 to 150,000 dollars in some sales of 2017.

The widespread use of these services is also beginning to be noticed in the level of traffic or the use of public transport. According to a 2017 study by Bruce Schaller, former deputy director of the New York Department of Transportation, Uber and Lyft generated a net increase of 31 million trips, 52 million passengers and 600 million additional miles traveled in four years. These numbers take into account the substitution effect with the taxi; that is, they are additional trips of travelers who, in the absence of platforms, would not have made those trips or would have made them walking, cycling or public transport. That is, in addition to additional traffic, the use of digital platforms for the use of cars is also replacing other means of transport, not just the taxi.

Given the relative novelty of these platforms, the estimates are still preliminary, but they highlight the profound impact that platforms can have on the mobility patterns of cities. The combination of the use of smart phones, low data costs and urban density offers interesting possibilities for integrating the different mobility services, and that is where they want to move – eventually operating a fleet of autonomous cars that reduce costs – companies like Uber. Towards the idea of ​​”mobility as a service”, in which a single platform can collect information about the times and combinations of transport modes for a specific route, including paying tickets for all sections (bicycle, train, carpool, etcetera) through one’s ownapp .

Some of the cities that advance the most in this concept, such as Helsinki, hope to revolutionize urban mobility, eliminating the need to use the car in the city center by 2025. How far we are from this scenario is not easy to guess, but If that future materializes, the mobility of cities will have been transformed forever.

– Housing . Along with mobility, housing is the other fundamental area of ​​any city, and one that is also being profoundly affected by the emergence of platforms that allow leases for short periods of time, such as Airbnb and other similar ones.

The idea of ​​the founders of Airbnb was to take advantage of the unused space in the real estate park, so that anyone could rent part or all of their house when they did not use it. In fact, some platforms prior to Airbnb such as Coachsurfing favored homesharing , but for free. The idea was good: it allowed the most efficient use of underutilized assets and it became an additional source of income for many people thanks to that use. So good it was that, in 10 years, Airbnb has reached a valuation of more than 30,000 million dollars.

As with taxis, the emergence of these platforms has generated competition for the hotel sector in the cities. One of the complaints – which is also repeated in the case of taxis – is that these flats represent unfair competition, since they do not have to comply with the regulations and licenses required for hotels and other tourist accommodation. In fact, one of the main concerns with the appearance of these companies was that they would favor the use of flats to hold parties and create discomfort for the neighbors of the buildings, making an improper use of housing and without complying with the requirements of health and accessibility. tourist accommodation needs. Many cities have responded to these concerns by requiring licenses from landlords,

The system of scoring the reputation of the users that these platforms incorporate as a basic element of their design – and one of the secrets of their success – means that both landlords and tenants tend not to use the properties in a vandal. However, as in the case of mobility, the exponential increase in the use of accommodation sharing platforms is having an impact on other aspects of cities, such as the price of rents, the intensive use of spaces public or the composition of commerce in neighborhoods. For example, several recent studies in the US find a clear relationship between the increase in the supply of rental flats in Airbnb and the rise in the price of rents and the value of housing. Keep in mind that the rental of several homes by companies or owners is becoming more frequent, which has distorted the nature of the collaborative economy of these platforms, turning them into a source of speculation and covert professionalization of the tourist accommodation sector. . The effects are not always negative, and some cities have seen an increase in the volume of retail trade in recent years, probably in part thanks to the dynamism generated by the rental of flats.


Regulation of platforms at the local level

The profound changes that the platforms are causing have forced cities to seek regulatory responses. Some of these measures are available to local governments, but others go beyond their regulatory capacity. For example, a characteristic of the platforms is their monopolistic tendency, derived from the network effects of their business model, which produces the incentive of users to use a single platform, substantially increasing their power to set prices. Obviously, this is an aspect that escapes the regulatory scope of cities. The creation of systems of protection and Social Security for workers who now qualify as autonomous service providers is also something that is generally designed at the state and not the local level.
Many other aspects, such as granting licenses to operate, the classification of land uses, or the setting of local taxes, are elements that correspond to cities. This regulatory localism has advantages and disadvantages. While some cities have the means and power to demand conditions, many medium or small cities have little capacity to negotiate with the large companies that operate these platforms. The local scale also causes certain concentrated interest groups to have bargaining power and influence greater than their economic weight. It is the classic dilemma formulated by Mancur Olson, of concentrated costs and diffuse benefits, which can result in entry barriers to these digital platforms,


The profound changes of the platforms have forced cities to seek regulatory responses


In response to this problem of collective action, technology can be used to organize individuals whose potential benefits regulation may be holding back. It is no coincidence that one of the strategies used by the platforms is to try to expand rapidly in the cities – even consciously breaching the regulation – and thus generate a sufficient base of suppliers and users who subsequently mobilize politically to ask for more favorable standards for the platforms. , as indicated by Davidson and Ianfranca. This strategy does not always work, and Uber is already paying the damages in its image and the distrust on the part of regulators around the world for having followed it.

In this scenario of political economy, regulatory responses will continue to vary between countries and cities, but it is not unreasonable to imagine a trend that will repeat itself in several cities. Cities will continue to protect the interests of existing groups and businesses, but as the use of the platforms expands, they will try to respond to the growing group of users of the new economy. Mechanisms will also be established that reduce abuses by certain agents, compensate negative externalities through taxes, soften the redistributive impacts and take advantage of these platforms -or create others according to the cooperative or collaborative models that are already beginning to emerge- to provide public services of mobility, housing or use of real estate thanks to new technologies.

On the other hand, the companies that operate these platforms will be increasingly aware of the need to comply with regulation and contribute to the reduction of their externalities and distributive effects. At the same time, they will see the opportunities of collaboration with local governments in the provision of public services and in the arrival of citizens to whom currently the city councils do not reach to provide services.

Until now, the responses to the transformation of cities by digital platforms can be placed along an axis, with one end represented by the prohibition and the other by total freedom. Many US cities were placed in the most liberal wing when the platforms appeared, and progressively they have developed more balanced regulations. Other countries such as Spain start from much more restrictive positions, which may be gradually opened up to respond to all the interests involved. They are natural movements in every process of economic change and Schumpeterian creative destruction. Do not forget that when they emerged in the cities at the beginning of the 20th century, taxis also generated resistance for the existing transport services at that time.

Managing a better future will require being open to the improvements offered by these platforms, mitigating their negative impacts through the regulatory, administrative or fiscal instruments available to cities. Alceo de Mytilene said at the time of the famous Greek polis: “It is not the houses with good roofs, nor the solid stone walls, nor the channels nor the ports that make the city, but the men capable of using their opportunities”. As in the classic past, it is not technology that will make a city have a future, but the ability of citizens to use that technology to generate vibrant and livable cities for all its inhabitants. ●


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