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.)