The Politics of the Platform Economy
Exploring the political and institutional determinants of the platform economy
The year 2000 is not that far off. Most of us probably remember how we celebrated the entry into the new millennium, and yet, many of the companies that dominate today’s markets were not around that New Year’s Eve. In about twenty years, platform businesses have transformed our lives to such degree that it is hard to imagine how to search for things, connect with friends, move around, buy stuff, order food, or plan trips without using them.
Many authors have by now studied platforms, their economics, business models, surveillance practices, the change in the economic system that they represent as well as their impacts in our cities and our lives. These works tend to focus on the technological (e.g., network effects, data accumulation), financial (e.g., VC-funded drive towards market domination) and market (e.g., government-funded technological ecosystem and large consumer markets) conditions that explain the emergence and evolution of these platform models. Fewer scholars have focused on a different question, though: what are the political and institutional conditions that explain the emergence and evolution of platforms?
Enter K. Sabeel Rahman and Kathleen Thelen. In their paper “The Rise of the Platform Business Model and the Transformation of the Twenty-First-Century Capitalism”, these scholars address this relevant and yet largely ignored question. Their reflections are illuminating. Here I present some of the ideas that I found particularly interesting, but there is much more to read, reflect on, and often disagree with, in the paper.
First, Rahman and Thelen argue that the platform model “rests on a novel political coalition”. While previous dominant corporate governance models were underpinned by alliances between either owners and managers (the diffuse shareholder model) or managers and labor (the concentrated block-holder model), platforms are characterized by a new investor-consumer alliance. This alliance results in a business model that seeks market dominance and reduced labor costs, and that criticizes efforts to enact “stifling regulation in the interest of efficiency, innovation and consumer choice’”. This novel coalition, they argue, has been quite effective navigating the institutional and legal landscape during the tumultuous “disruptive” emergence of these platforms.
Understanding that battle – whose dust has not yet settled – also requires paying attention to some defining features of the US institutional and legal landscape and to how they have played out in the process:
· The regulatory fragmentation in the US federal system has been leveraged by platforms – particularly those more affected by state or local regulation such as Uber – to instigate competition among jurisdictions, promoting a regulatory “race to the bottom.”
· A less professionalized bureaucracy that shares a cultural and social background with business leaders and that lacks the capacities to regulate these companies has resulted in a more accommodating response by public entities.
· Weaker and less-organized labor and business interests have been unable or slower to pressurize governments for a swifter response, particularly under conditions of legal uncertainty.
· A pro-consumer orientation of anti-trust regulation in the US has evaluated consumer welfare through prices and payed less attention to issues of control and concentration and their possible impacts on innovation by and fairness for other market participants.
In sum, Rahman and Thelen argue that we cannot understand the rise of the “platform economy” if we ignore the “power and influence of business and financial interests in evoking the support of consumerist ideas and exploiting the weaknesses of the American political landscape.” If we agree with this proposition, it becomes clear that the responses to the negative consequences of platform companies will need to address the institutional and political elements that have facilitated platforms’ power concentration in the first place.