Possible Side Effects of Regulation in E-Commerce…

The Great Leader Atatürk expressed the following truth at the Izmir Economy Congress that he held before the proclamation of the Republic:

“It is essential for the State to implement regulations so that personal interests do not defeat the interests of society, Therefore, the State must be respectful of market rules when performing its duties.”

The supply-demand balance is referred to as “market rules” here, while the duty of the state is defined as to mitigate the burdens on the producers of goods and services. So why did Atatürk say this? Well, for two known reasons:

  • Fear is the mind killer
  • Poverty destroys bravery

Let’s start with the first one. A State that has been monitoring the markets for a long time without regulation would eventually enact quite harsh laws. Laws that are too rigid to allow the markets to operate smoothly. When this happens, the bureaucracy adopts a carefree management style, hoping to manage things in its own way until someone objects. Written with fears, reservations, and a tad paranoia, much of this legislation soon becomes flexible. But the time that has passed is a great loss.

The second reason is this: When the economy is in trouble and the public sector is struggling to generate funds, the State begins to plan how to make independent cuts from the revenue it can easily receive. These “one-time” cuts create side effects that disrupt the competitiveness in the industries. The big firms eat the small ones, the market breaks down. This way, new players are prevented from operating in the market. Over time, some of these “one-time” cuts become a regular practice.

Here’s another surprising piece of information for you: Behind such legislation, there are often unpopular players in the industry who tend to bend the rules quite frequently. Or sometimes, the competitors of such players. In the safe knowledge of they are backed politically by the State, they are in constant touch with the bureaucrats. Recent events in e-commerce represents a major example of what I have explained above. While wating for some support, Turkey’s e-commerce industry took an unexpected blow.

“Possible Side Effects of Rapidly Passed Laws…”

According to the new law, which passed by the Parliamentary Commission at an unprecedented pace, companies will pay a license fee which will be calculated based on their transaction volume. As I mentioned above, the Government tends to make one-time cuts regular practices when it needs funds. Apparently, the law says that as the volume increases, the license fee also increases in proportion to it. Almost a double taxation. In his article last week, Vahap Munyar summarised the situation as follows:

“Merchants will pay the Government up to TRY 25 tax for a t-shirt worth TRY 100 TL” This is the burden that e-commerce firms will have to face when their transaction volume increases. This situation might soon cause us to talk about the inflationary effects of e-commerce. We have already seen countless examples showing that the ever-increasing taxes and revenue cuts do affect the prices.

There is also the “brand ban”. As long as more than 50% of the revenue comes from stores, companies can sell their own brand in online stores. If, however, 50% of the revenue is generated from digital sales, companies cannot sell their own brand.

After thinking about the reason for this imposition for almost a day, I could come up with only one answer: Shopping mall investors probably asked the government to intervene because they did not want the stores in malls stand idle without customers all day long. As e-commerce grows, such traditional brick-and-mortar locations will be replaced by warehousing and logistics. Apparently, this is not something that many people desire. These cuts from e-commerce revenue which have been recently enacted seem like they are some sort of threat against digital merchants, which can be interpreted as, “If you continue to do what you do despite all these difficulties we place in your path, then you will have to pay.”

These regulations do not make any sense. Frankly, the situation that Atatürk warned us about in 1923 seems to have become a reality. That is “market regulations should be made in accordance with market rules and realities”. Unfortunately, such regulations serve only neo-liberalism. In other words, they protect the interests of certain groups, not individuals. Obviously, it is not easy to govern a country and please everyone at the same time.

I just hope this mistake will be corrected as soon as possible before we get used to it. Because these regulations do not contribute positively neither to prices nor to profitability.