The fiasco of Uber in Hungary

One of the new features in the business model of platform organisations is that they often operate in the grey zone of regulation, partly because national governments are in a weak bargaining position compared to these global corporate giants, and partly because regulation in particular and institutional actors in general are lagging far behind technological development.

However, the case of Uber in Hungary demonstrates clearly that local and national actors are not weaponless vis-a-vis these tech giants. After opposition by taxi drivers and companies, and new regulation by the parliament, Uber decided to leave Hungary in July 2016.

This regulatory and institutional gap is even more important in the digital economy, where the transformation of work and employment and their interest articulation are not driven exclusively by the technological (algorithmic) process. In this respect we share the view of Grabher and Tuijl (2020:11): “… platform operators are not simply match-makers, but instead veritable market-makers. As market-makers, platform operators do not only enable individual transactions, but actually frame and co-develop the entire institutional and regulatory framework of the platform economy.”

A good case to illustrate the complex interplay between institutions, private market actors, soft and hard forms of regulation, and customers is to observe how Uber entered into the Hungarian market. Soon after its foundation in San Francisco (March 2009), Uber spread into many markets around the world, appearing in the Hungarian transport market in the early 2010s. Its business model became a hot topic immediately. There were two main concerns about its activities: first Uber paid its company tax outside Hungary, and secondly, its business model was based on unfair competitive advantages. Uber claimed that it is not a taxi company but only a high-tech firm and application developer through which it links customers and individual service providers who were (self-employed) entrepreneurs.

Rival taxi companies began protesting against them for several reasons:

1. Uber did not pay the obligatory deposit to government regulators required of every other taxi company.
2. Uber did not have to comply with strict environmental requirements by claiming it didn’t operate a car fleet.
3. The company claimed it did not have any obligations towards its quasi-employees.
4. The taxi drivers did not have to take the same exams and tests required of every other taxi driver.

Subsequently, the main root all of these issues relates to the fact that Uber refused to be acknowledged as a taxi company. As with the great majority of platform operators, this transport platform intended to carry out his operation in the status “… of neutral intermediary that solely matches supply of and demand for independent contractors” and the platform seeks “to avoid basic entitlements resulting from employment contracts – like social security, minimum wages as well as work time and security regulations” (Grabher and Tuijl, 2020 :9).

Taxi drivers represent a traditionally strong interest group in Hungary, and in this case they found a powerful ally in the Hungarian government because of the tax evasion. The taxi drivers’ trade unions organised demonstrations and petitions against Uber, and the owners of the taxi companies promoted their campaigns, too. The push-back against Uber culminated in January 2016 when the Hungarian Trade Union for Taxi Drivers blocked traffic in the center of Budapest with a demonstration. Following this demonstration, the Hungarian Parliament adopted a new regulation, which virtually prohibited the provision of services using the Uber model.

Instead of changing its business model, the taxi company left Hungary on 13^th July 2016. However, it is worthy of note that the employment status and the working conditions of the taxi drivers working for traditional taxi companies, while not the same as those used by Uber, are similar in many respects.  While the public debate around Uber focused mainly on unfair competition and tax avoidance, deeper problems related to job quality, working conditions and employment status have been overshadowed. Uber’s market position was soon occupied by its main competitor Taxify/Bolt. This company complies to the general rules traditional taxi companies have to follow, but its business model involves the use of an Uber-like app. The example of Bolt shows that breaking the rules is not a necessary precondition of business success as Bolt is one of the market leaders in Budapest. They are particularly popular among foreign tourist as they don’t have to communicate with the drivers or handle payments because all necessary information and compensation for the ride is provided through the app.

From a broader perspective, Thelen examined the appearance of Uber in the US, Germany and Sweden and found significant differences as to how the consumers, competitors and institutional actors (e.g. government, trade unions) reacted to it (Thelen, 2018). According to her analysis, Uber was able to position itself as the “champion of free markets and consumer choice” (Thelen, 2018:999) in the US and thus found a strong ally in the consumers. In contrast, existing German taxi companies, in alliance with public transport companies, were able to force institutional regulators to adopt a coordinated action against Uber in the “defense of consumers’ interest”. Sweden represents a third markedly different country where “taxes emerged as the central regulatory flashpoint and served as a common focal point for a broad coalition that included taxi companies, labor unions, and state actors in defense of the norms of fairness on which the Swedish social system rests” (Thelen, 2018:949).

From this perspective, the Hungarian case of Uber is somewhere between the German and the Swedish ones, as both the drivers and competitors reacted quickly and strongly against the new competitor, and Uber also faced criticism from the government because of the tax avoidance issues. Uber became rapidly popular among the clients, but the institutional actors and the changes in the regulatory framework forced it to operate in accordance to the general rules of Hungarian personal transportation sector.

However, we may assist not only to successful or failed attempts of social actors in defending the interest of the employees (taxi drivers) in the personal transport sector. From a dynamic perspective we may also observe a mutual learning process of national and global actors in creating consent-based legal regulations. From this point of view, the case of Uber in Slovakia seems to be exemplary. In March 2018 Uber was forced to terminate its operation in Slovakia following the “ruling of the district Bratislava Court I responding to a lawsuit filed by taxi drivers and their representatives …” (Sedlakova, 2018:14). Within a half year – as a result of continuous interactions of the social actors – a new law and regulations on taxi services was adopted and became effective from April 2019. This new regulation provided a solution to the legal problems created by the contradicting rulings for Uber and Taxify (now Bolt) as well as to harmonise the conditions of operations between traditional taxi services and the new digital platform services as Uber or Bolt. Numerous outdated and unnecessary regulations and obligations of taxi service providers were removed and some new were added (e.g. the use of GPS of mobile services for determining the distance of travel was allowed). The social compromise reflected by the new law (April 2019) removed most of the tensions that originated between traditional taxi drivers and digital platforms. Both Uber and Bolt are now providing services under these new regulations, which made the previous court rulings obsolete because both platforms abide by the new rules (Martinak, 2020).