Platform capitalism:

How the US and Europe are addressing the issue of regulation
Platform capitalism: How the US and Europe are addressing the issue of regulation
20/12/2018 The people from Cocolabs

Introduction: The two waves of the sharing economy

Digital platforms are at the heart of the sharing economy. These digital marketplaces are based on:

  • Peer-to-peer sharing.
  • Collaborative consumption and shared ownership.
  • Higher cost-effectiveness and eco-friendliness.
  • Electronic payment via smartphones and computers.

Martos Carrion distinguishes two waves of the sharing economy:

  • A first type of platforms (sharing economy 1.0) emerged in 2008, for sharing purposes.
  • A second type of platforms (sharing economy 2.0) emerged in 2012, for market-driven purposes.

Unlike the sharing economy 1.0 which was motivated by social aims, version 2.0 includes large corporations driven by market principles. The capitalization of some sharing marketplaces drove them to redefine their goals. This process marks a turning point in the evolution of the sharing economy.

While they don’t share the same goals, the two waves of the sharing economy still share a common purpose: the optimal redistribution of underused goods, knowledge or services. Both waves, 1.0 and 2.0, still coexist today.

In 2016 many analysts and academics were overwhelmingly enthusiastic about the platform economy. In 2018, however, the tendency is to criticize the type of capitalism they favor, platform capitalism. The problem, today, is about regulating this type of economy. Can the platform economy self-regulate, or should the law intervene? Does regulation necessarily slow innovation down?

In this article, we’ll focus exclusively on the second wave of the sharing economy. We’ll examine the notion of platform capitalism. First, we’ll compare how the US and Europe approach the issue of market regulation and law. Then, we’ll present an alternative way of analyzing what the platform economy is: not a revolution, but a return to a pre-industrial form of economic organization.

 

I.  Digital marketplaces and the emergence of platform capitalism

Basically, platforms provide the hardware and software foundation for others to operate on. But they’re not just technology: they’re also and primarily a type of business, often depicted as radically new. Though still in their infancy, compared to century-old businesses, these firms have caused major economic and social transformations.

Platform capitalism emerges with the transformation of the most important tech companies into platforms.

Today, the issue at stake is whether to regulate the sharing economy. Pro-innovation defenders would argue that regulation slows innovation. Pro-regulation defenders would argue that innovative enterprises must play by the rules and act within the law.

From one continent to another, the innovation/regulation debate is not posited in the same terms. For instance, what Europe defines as a law for protecting personal data, the US sees as “data protectionism”.

While the US tend to adopt a pragmatic and adaptative approach to the new businesses, in Europe the new economy businesses are increasingly being asked to adapt to European citizenship, and its specific market and labor regulations.

Platform revolution, published in 2016 in the US, is an eloquent illustration of the fascination surrounding digital transformation. The authors claim that:

  • Digital connectivity and the platform model make it possible to change the world forever.
  • The platform-driven economic transformation is producing enormous benefits for society, for the businesses and other organizations that create wealth, generate growth, and serve the needs of humankind.

At the same time, the sharing economy is “creating sweeping changes in the rules that have traditionally governed success and failure.” These changes reveal the “dark side” of the platform evolution.

The defenders of the sharing economy, whom Kenney and Zysman call “utopians”, argue that society can be reconstituted with producers becoming proto-entrepreneurs able to work on flexible schedules and benefit from these platforms. For example, car-sharing services like Uber and Lyft can unlock the commercial value in underused personal assets. Other platforms such as Airbnb promote the idea that vacant rooms in one’s house can become sources of income whether technically hotel rooms or not.

Is this for the greater social good? Platforms may make labor markets more efficient, but also cause less positive repercussions on labor. They generate fragmented work schedules and increase levels of part-time work.

Legal scholars in the US have started to study the legal implications of the platform business model. Sarah Light, for instance, argues in a 2018 interview that “when we’re dealing with something really new, experimentation is good.” Cities and local governments, as well as states, should be gathering information about the potentially negative implications of a business before a general rule is conceived. Furthermore, she claims that “right now, the law is drafted in a way that is not neutral between the incumbent industry and the innovative business, so we should strive for some kind of neutrality based on the function.” It’s about leveling the playing field between the incumbent and the innovator.

In Biber and Light, the legal issues raised by the platform business innovation are important and cover a wide range of domains. The fundamental questions are:

  • Should service providers be considered employees of the firm managing the platform?
  • Who bears liability for harm caused during service provision?
  • Should legacy (and now threatened) service providers such as hotels and taxi drivers be given special protections or compensation based on their reliance interests in the old legal regime?

The authors point out that “existing regulations can effectively bar entry to new business models that do not match the requirements or assumptions of the regulatory system.” And that “some of these business innovations can solve problems that regulatory systems are designed to address.”

All in all, the ideal regulatory system would need to be adaptive and dynamic, to allow for learning and change.

As the sharing economy (also known as “Californian liberalism”) was reaching Europe, many were excited by a new phenomenon, soon-to-be-named after the Californian start-up, Uber. In 2016, Uberization triggered passionate debates in the general European media. It is still widely perceived as being synonymous of job insecurity.

The reasons for such a passionate interest are societal and cultural.

  • In Europe, where the notion of a welfare state is still pregnant, the sharing economy in its capitalistic form is perceived as a threat to labor protection.
  • In Europe, sharing is not forcibly associated with income, –let alone, profit–, rather, with selflessness. As a matter of fact, cultural preconceptions also led debaters to confusion, and still do.

The general public tends to assimilate the expression “sharing economy” or “collaborative economy” with non-capitalistic, self-managed “cooperative economy”, also powered by modern IT and telecommunication technologies.

The French radio program “Du grain à moudre”, is a good example of the informed, critical debates that have been taking place during the past year but that, nonetheless, hardly acknowledge the ideological and cultural gaps between Californian capitalism and European market regulation. The radio programmer, Hervé Gardette, most astutely formulated the problem in the following terms: is the sharing in the process of de-uberization?

From the very start, Europe considered that the issue is not whether to regulate or not, but whether platform work constitutes employment or not. How policy makers react to the rise of the online platforms will channel or, on the contrary, precipitate, the rise of the platforms.

The employment relationship is defined in reference to three criteria:

  • The subordinate relationship
  • The nature of the work
  • The remuneration provided

The European Trade Union Institute in Brussels argues that “many of the common arguments made by the platforms, (that workers are not constantly monitored, that the work is not continuous) are not sufficient in order to avoid classification of platform work as a working relationship.”

On the other hand, sharing economy defenders argue that the main reason for entrepreneurs in building such platforms is “to create jobs” and “take part in what is considered an industrial revolution.” They further claim that platforms adapt to how our societies work. Platform-mediated work is only a reflection of our societies and a response to the current economic situation:

  • Platforms allow job seekers or precarious workers to gain additional income.
  • Markets tend to self-regulate, creating a virtuous circle of innovation and labor creation.

The main threat to the economy, however, is the monopolistic tendency of digital giants such as Amazon and Uber.

The limits of our study do not allow us to treat the debate opposing regulation to innovation exhaustively, nor can we thoroughly detail how the EU Commission or individual European countries respond to the challenges the sharing economy raises to their type of social organization.

From an organizational theorist’s perspective, however, platform capitalism returns to a pre-industrialized organizational form which “preceded the emergence of manufacturing and the managerial corporation.”

 

II.  The strange new world of platform capitalism

Instead of analyzing the sharing economy in terms of revolution, Aurélien Acquier proposes a convincing alternative. The emergence of platform capitalism, he claims, “should be understood as a digital reincarnation of the putting-out system.” The putting-out system is “a pre-industrial organizational form that preceded the emergence of manufacturing and the managerial corporation.”

Platforms convey the countercultural and libertarian values that marked the origins of the internet. They are often analyzed as a field of alternative, collaborative and democratic forms of business organization.

There is little doubt that peer-to-peer platforms:

  • Widely reject the traditional bureaucracy and hierarchy that has long dominated capitalism.
  • Tend to promote decentralization and horizontal forms of peer-to-peer collaboration.

Platform capitalism forms:

  • A set of organizations carrying out productive and for-profit activities through digital platforms that arrange transactions between providers and customers.
  • One part of what is commonly referred to as the sharing economy.

It can be understood as a digital reincarnation of the “putting-out system”. In this system, merchants outsourced work to individuals who produced goods at home and owned their own means of production.

The current return of this mode of production creates major challenges, both for organizational theory, the governance of platforms, and individuals.

Acquier depicts platform capitalism in those terms: “in the strange world of platform capitalism, workers are capitalists without power, exploited by the virtual managers (algorithms) of companies without employees!”

  1. Platforms erode the boundaries between markets and firms. Platforms are best described as “market organizations”, because they are hybrids of business coordination (or full hierarchies) and of market coordination (full markets, by nature heterogeneous, uncertain, free, and regulated by price).
  2. Relations of social and economic domination are no longer based on the cleavage between capital and labor. The fundamental distinction between capital and labor is also shaken by the emergence of platforms. Acquier explains that platform workers, whether Uber drivers or Airbnb hosts, possess the capital required to perform their activity.

 

Conclusion: Is Uberization only a matter of cultural perspective?

In this article, we’ve focused on the 2016 second wave of the platform economy, in which digital marketplaces have become for-profit organizations, setting a number of challenges to advanced capitalist societies. The main debate these challenges pose is, undoubtedly, between the defenders of the sharing economy and the tenants of stricter regulation.

First, we’ve briefly compared how the US and Europe answered these challenges. In simple terms, the US would prone adaptative and dynamic legislation, while Europe would take the opposite stand and demand that platform businesses conform to European market and labor jurisdiction.

Secondly, based on Aurélien Acquier’s work, we’ve shown that platform capitalism, far from being revolutionary, arguably returns to a pre-industrial form of economic organization, the putting-out system.

There is no doubt that platform capitalism is here to stay. It brings innovation and answers some problems advanced societies face, notably in times of crisis. It also has a natural monopolistic tendency. As it is advancing towards a more mature age, it should conform to both trade regulation and international law.

 

References

Acquier, Aurélien. Uberization Meets Organizational Theory: Platform Capitalism and the Rebirth of the Putting-out System. May 2018.

Biber, Eric, et al. Regulating Business Innovation as Policy Disruption: From the Model T to Airbnb. SSRN Scholarly Paper, ID 2951919, Social Science Research Network, 12 Apr. 2017.

Drahokoupil, Jan, and Brian Fabo. “The Platform Economy and the Disruption of the Employment Relationship.” SSRN Electronic Journal, 2016.

Gardette, Hervé. “L’économie collaborative est-elle en voie de désubérisation ?” DU GRAIN À MOUDRE, 1 Mar. 2018,

Martos Carrion, Esther. Historico-Sociological Analysis of the Sharing Economy from Its Early Digital Foundations to the Present. Univerzita Karlova, Fakulta humanitních studií, 2018.

Parker, Geoffrey G., et al. Platform Revolution. How Networked Markets Are Transforming the Economy and How to Make Them Work for You. W. W. Norton, 2016.

Srnicek, Nick. Platform Capitalism. Polity, 2016.

Wharton School. “Why Regulation Is a Tricky Business in the Sharing Economy.” Knowledge@Wharton, 16 Mar. 2018.

Zysman, John, et al. “Regulating the Platform Economy: How to Protect Workers While Promoting Innovation.” Intereconomics, vol. 52, no. 6, Nov. 2017, pp. 328–328.

 


 

At Cocolabs we’re working on the standardization of services. We build custom service marketplaces. Each new project is an opportunity to further our reflection and refine our understanding of what is at stake: human interactions, set in a given time and space dimension.

Las Vegas, USA: December 25, 2011- A man impersonating Rich Uncle Pennybags, aka as Whiff or more recently as Mr. Monopoly, performs on the Strip (Las Vegas Boulevard). If people give him money, they can be photographed with him.

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