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Can Australia make the flexible economy work?
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Key takeaways
- Digital technology has enabled the flexible economy to prosper.
- Participants are carving out new working patterns or seeking new value from under-utilised assets.
- Current regulatory and business practices threaten to stem the flexible economy’s rapid rise.
The smartphone revolution has placed the whole world in our hands. It’s granted us access not only to greater information and communication, but has given rise to an innovative new goods and services industry that’s changing the way we live and work.
The ‘flexible economy’ is a hybrid business model that takes advantage of digital technology and a shift in attitudes and values within the modern workforce. Also known under various guises as the ‘on-demand’ or ‘access’ economy, it’s not only empowering a new generation of individuals to diversify in their working habits and careers, but it’s mobilising demographics that traditionally didn’t participate in standard working regimes, including stay-at-home parents, the elderly and students.
But while the flexible economy has been moving from strength to strength, lawmakers and regulators have been slow to keep pace. A Flexible New Australia – a paper released today authored by Justin McLean (PwC) and Jon Davey (NAB) – argues that this inertia has created significant obstacles and unnecessary bottlenecks for the flexible economy, posing a threat to its continued growth.
It needn’t be this way, however. If incumbent institutions can reposition themselves to interface effectively with the flexible economy, then the burgeoning sector presents encouraging opportunities for all parties involved.
What is the flexible economy?
At its core, the flexible economy is made up of two interrelated markets: the sharing economy and the gig economy.
The sharing economy (which finds its roots in the ‘collaborative consumption’ model coined by behavioural scientists Joe Spaeth and Marcus Felson back in 1978), focuses on opening access to privately owned, under-utilised assets. By empowering individuals to grant market access to their assets – such as an unused car, holiday home, or even pets – the sharing economy is creating new demand and value for otherwise static goods.
The gig economy, meanwhile, hinges on the human-centered assets of labour and productivity. Individuals can offer their time and expertise as a private contractor, picking and choosing jobs that suit their own personal schedule or individual requirements. A wide range of skills have already been targeted by flexible economy startups, from general labour (such as cleaners or dog walkers on Airtasker) right through to specialised professional services (everything from graphic designers via 99designs through to accountants or software developers via Upwork).
Further expansion
The flexible economy has been made possible thanks to advances in digital technology as well as a refocusing on work-life balance driven by the rise of the Millennial generation. At the core of the flexible economy is the digital platform, which usually acts as a marketplace that quickly connects buyers and sellers.
Whereas traditional transactions were usually between owner and purchaser, flexible economy platforms don’t own or maintain assets themselves – meaning they’re generally low cost and highly scalable. This points to the ability to quickly spread into new markets and rapidly gain further territory. Are we sufficiently supporting the ramifications of this?
Portrait of a flexible economy worker
A Flexible New Australia identifies five key traits common to participants in the flexible economy. They are:
- Flexible participation
- Trust based on reputation, not relationship
- Diverse income streams from multiple sources
- Geographically fragmented participants that can achieve scale through partnerships or by using technology
- Digital technology and mobile devices make it all possible.
Flexible economy predictions
Like it or love it, the flexible economy is here to stay. Joint research from Harvard economist Lawrence Katz and Princeton economist Alan Krueger asserts that all net US job growth since 2005 has occurred in ‘alternative work arrangements’ such as those offered by the flexible economy, with ride-sharing platform Uber alone accounting for more than 50% of this growth.
In Australia, the figures are much more conservative. A 2015 PwC survey of HR professionals showed that nearly half of respondents expected up to a fifth of their workforce to comprise contractors or temporary workers by 2022. Nevertheless, the US represents a roadmap of what to expect.
Are we prepared for a flexible future?
Given the flexible economy’s explosive growth in America and Australia, it is of little surprise that regulatory and compliance frameworks have failed to keep pace. Current obstacles to the flexible economy and its participants include GST tax compliance, increased regulation, and tighter access to credit and finance. For example, small businesses spend around $7,000 just to remain compliant with GST; this fee does not include the cost of GST itself. A November 2015 PwC study also found that a quarter of Uber drivers were not even aware they had to comply with GST laws.
An additional difficulty comes from the flexible economy’s democratised nature. The bulk of flexible economy contractors comprise newly empowered workers and asset owners, who likely do not have the capital to employ accountants or tax consultants – nor earn enough from their supplementary new roles to offset this increased cost.
With the flexible economy to account for an increasing share of all employment, there needs to be a shift in the attitudes and processes of large, established organisations to support this new market, particularly in the ways it is financed, served and regulated.
While a reorientation is already under way, compliance costs still need to come down, and the underpinning regulatory frameworks should be realigned to better empower the flexible economy workers of today and tomorrow.
Read the full PwC and NAB paper on the flexible economy, A Flexible New Australia, here. The authors of that paper, Justin McLean (PwC) and Jon Davey (NAB), contributed to this article.
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