Institutional Characteristics of the "Platform Economy"

Friday, June 24, 2016: 2:30 PM-4:00 PM
107 South Hall (South Hall)
Vili Lehdonvirta, University of Oxford, Oxford, United Kingdom
Institutional characteristics of the "platform economy"

Cars were smashed and tires burned in France last spring in protests against the ride hailing app Uber. As I write this in January 2016, #UberTaxiWars is trending in the Kenyan twittersphere. Despite these and similar protests around the world, Uber's use keeps growing. Uber says it has over a million users in France and is now available in 57 countries. Uber is only the most visible and controversial of an entire generation of apps and websites that mediate between buyers and sellers of goods and services. Others include Upwork, Taskrabbit, Freelancer and 99designs. An EU Commission flagship strategy paper (EU Commission 2015) notes that "online platforms are playing an ever more central role in social and economic life." The Federal Trade Commission organized a workshop on the topic last year in Washington. Undoubtedly some of the excitement about platforms turns out to have been unsubstantiated. But even if we set aside future projections, it is clear that the "platform economy" as it already exists is a topic of interest to policy makers and the social scientists who inform them.

In this paper I make two main arguments. The first is that analyses of the platform economy should place it in proper historical and comparative contexts. Without such context, analyses are liable to produce technologically determinist declarations of platforms' effects on economy and society. The second argument is that we should nevertheless be open to what is novel about platforms as a mode of economic coordination. We should not simply equate platforms with either markets or hierarchies, but approach them as a potentially distinct institutional form or forms. This way, we will be better placed to examine their full societal implications. Finally, based on a set of cases including Uber and Upwork, I will outline some of the distinct institutional characteristics of the platform mode of coordination.

Early discussion on platforms in technology and business media and academic literature made heavy use of terms such as "sharing economy", "on-demand economy" and "peer-to-peer economy". According to a view frequently expressed in this literature, people use platforms because platforms are a more efficient, market-based way of organizing economic activity (Malone 2004, Howe 2008, Sundararajan 2013, Hamari et al. 2015). Platforms offer choice, quality, speed, convenience, and cost savings to consumers, and flexibility, market access, and entrepreneurial growth opportunity to suppliers. Platforms are made possible by advances in information and communication technologies, including hardware innovations such as mobile phone positioning and software innovations such as reputation systems. Because of these advantages, people are increasingly choosing to switch from their old corporate suppliers and employers (or unemployment) to new digital platforms. In some cases, platforms make it economical to exchange resources that previously were not exchangeable at all, or were exchanged in only small circles. It may be possible via political action to prevent people from using platforms, but their economic self-interest drives them towards increasing platform use. This early discussion of platforms was mostly theoretical in nature. In extrapolating futures from a simple transaction cost model of economic organization, it generated conclusions that were optimistic but naive.

As platforms acquired more users, media and academics begun to draw more on user's voices in their stories. The working lifes of Amazon Mechanical Turk workers stood in stark contrast with those of Americans and Europeans in standard full-time employment. A different discourse on platforms emerged: one that situated platforms in the context of contemporary labour politics (Scholz 2012, Fuchs 2014, Huws 2015). The post-war model of standard employment, achieved through decades of labour struggle, is disintegrating: job tenures are becoming shorter, non-standard work arrangements are becoming more common, the number of self-employed people is increasing, and jobs are increasingly outsourced and offshored. These shifts reflect global capital's efforts to undermine labour rights, a process in which platforms are simply yet another stratagem. Platforms allow employers to "misclassify" employees as contractors, this time using innovation as a pretext. Platforms also facilitate unprecedented levels of surveillance and algorithmic control over labour power. People adopt platforms not out of enlightened self-interest, but as a result of manipulation, myopia, and deceit. Platform companies may initially subsidize users to achieve a dominant position, only to exploit them later once competition has been eliminated.

This "gig economy" discourse offers a view of platforms that is somewhat better contextualized in contemporary political and economic transformations. However, by setting standard employment as the yardstick, it suffers from a type of myopia. In a global and historical context, standard employment is course not a standard at all, but a special institutional form particular to certain affluent post-World War 2 societies (Ashford et al. 2007). Even in these societies, the arrangement mostly ever extended to white male breadwinners. For instance, the taxi industry that Uber is now challenging has long been characterized by migrant labourers, nonstandard working arrangements and unpredictable pay. It is not clear whether Uber is more threatening to the drivers or to taxi license owners' profits.

Instead of conceiving of platforms as either entrepreneurial marketplaces or exploitative employers, can we approach them as distinct institutional arrangements in their own right? Drawing on previous literature and new evidence from a multi-year research programme, I identify the following institutional characteristics of the "platform economy" and discuss their implications. Platforms are private companies that compete with state institutions in creating conditions where exchange among strangers is possible; for instance, opportunism is addressed with ratings rather than enforceable contracts. Platforms can be much more efficient to participants than state institutions, in part because externalities are left unaddressed and individual rights are not guaranteed. Platforms can be more open to new entrants than state regulated markets, improving inclusion but making labour organizing difficult. Unlike state institutions, platforms can extend across jurisdictions, facilitating transnational exchange and "virtual migration", and sometimes addressing issues that geographically-bound institutions struggle with. Platforms exhibit two-sided network effects, tending towards lock-in and monopoly. These characteristics give rise to a host of implications that go far beyond contemporary labour rights.