Assessing the Platform Economy
In “The Rise of the Platform Economy” (Issues, Spring 2016), Martin Kenney and John Zysman offer a fresh and comprehensive look at one of the most urgent topics in industrial economics. The article helps our understanding, as the authors refuse any form of technological determinism. Their phrase “technologies—the cloud, big data, algorithms, and platforms—will not dictate our future. How we deploy and use these technologies will”—is an inspiration. Of course, if we deviate from a techno-determinism understanding of the platform economy, we realize we don’t know much, and many doubts about the development of the high tech industry come to light. This article therefore leaves the reader with many unanswered questions—a very welcome and healthy result!
A logical consequence of Kenney and Zysman’s reasoning is the following: If a debate over policy on the rise of the platform economy is not going to be straightforward or simple, what are the dimensions that could guide industrial decisions and national innovation strategies to steer the economic transformation? As I was reading, I scribbled in the margins five issues that should be kept in mind to characterize various aspects of the platform economy.
First, who are the actors that will guide a transformation in the platform economy? Will incumbents resist the pressure of new entrants? Different sectors and different stages of a technology life cycle will provide different answers to these questions. Certain layers (or sectors) of the platform economy will be characterized by stronger barriers of entry and will assign a dominant position to platform leaders. To maintain leadership in these layers, scale will matter, and industrial policy should be very much aware of that. On the other hand, other layers (or sectors) of the platform economy will be characterized by significant opportunities of disruption by new entrants and entrepreneurs. Flexible specialization will be key to achieving competitiveness in these areas.
Second, what will the recombination of the factors of production look like? The platform economy will change the role of labor. As Kenney and Zysman suggest, we can imagine a reorganization of work that will prefer a looser relationship between employer and employee. Also, we need to consider the role of users, and their relevance as codevelopers for parts of the offering for services and products exchanged on the platform economy. How can we motivate these users? How can we protect their contributions? Should the development of users become one of the objectives of innovation policy?
Third, what will a new social contract look like? As a consequence of redesigned labor practices, a social welfare that is founded on formal and stable participation of individuals in the labor force might not set the right incentives to get people to contribute to a platform economy. Can policy redesign a new welfare state based on different criteria?
Fourth, how can we determine the most sustainable position for companies within the platform economy? Firms can compete to become platform leaders, but they could also very well position on a niche/module of the platform. Also, they could serve platform leaders and niches by providing important complementary assets.
Finally, what is the approach to take toward the development of a new technology? As we overcome the truism of technology determinism, pursuing technological leadership might not be the only strategy. We find many different alternatives to consider. Countries and companies that are leading the transformation could, indeed, choose to stay ahead and to lead others on the road to technology adoption. Alternatively, they could follow rather than lead the adoption of certain individual technological trends. Or they could prefer to hold the decision, and strategically prevent the adoption of certain technologies.
Countries as well as companies are trying to position themselves within the platform economy. The debate worldwide on Industry 4.0 is active and urgent. Kenney and Zysman encourage managers and policy makers to take a savvy, informed, and disenchanted approach in order to not end up in the digital peripheries of the future.
Alberto Di Minin
Martin Kenney and John Zysman raise an important set of observations about the rise of the platform economy. There are few issues that elicit more passion with fewer facts than the gig economy and its impact on the lives of workers (especially at ground zero in the Bay Area of California where I live). The authors provide a very helpful and dispassionate overview and framework for how to understand the phenomena.
I would suggest four areas for near-term attention to push the discussion forward:
There are few issues that elicit more passion with fewer facts than the gig economy and its impact on the lives of workers.
First, gather real data, not a set of anecdotes. Government data on employment in the platform economy is poor, and what is collected is dated. JP Morgan Chase Institute is the most comprehensive to date (https://www.jpmorganchase.com/corporate/institute/report-paychecks-paydays-and-the-online-platform-economy.htm), but much more is needed, including ethnographic research on the workers themselves.
Second, rethink the definition of employee and contractor. The US classification system no longer reflects the reality of the marketplace. Too often companies are winning via regulatory arbitrage and “catch me if you can” approaches to how they classify their workforce. Seth Harris and Alan Krueger have started the debate (http://www.brookings.edu/research/papers/2015/12/09-modernizing-labor-laws-for-the-independent-worker-krueger-harris).
Third, reimagine how benefits are provided independent of an employer. The discussion around portable benefits has sparked a very constructive set of conversations around how to deliver benefits that stay with the employee as they collect wages (https://medium.com/the-wtf-economy/common-ground-for-independent-workers-83f3fbcf548f#.a1rsc9p22). We should expect to see a series of experiments around the country on how to make this idea real.
Fourth, engage a broader conversation around the social contract. The great recession exposed the fragility of the post-WWII contract, and the expansion of the platform economy is laying it bare. New America and others are helping frame a dialog that reflects the reality of today’s economy (https://www.newamerica.org/economic-growth/the-next-social-contract-an-american-agenda-for-reform/).
It will be next to impossible to put the platform economy genie back in the bottle—and we shouldn’t try. Now that it is here, we need to adapt, not pine for a nostalgic view of the workplace.
Lenny Mendonca
Digitalization is, indeed, changing industries and societies in fundamental ways, as Kenney and Zysman so accurately note. Digital platforms are the key change agents in this development. It is really difficult to find any business or area of life that would remain untouched as digitalization goes forward. The authors touch on some of these changes. They make a number of references to the Nordic countries, which in many respects have been the forerunners in digitalization. There is also a wide public debate on the challenges that digitalization brings to the society.
Countries will have to change to be able to benefit from the platform economy and digitalization. They are here to stay, and it’s up to us whether we will be able create a sustainable future for us and our children.
Intelligent information and communications technology solutions could, according to some observers, reduce global greenhouse gas emissions by 16%, providing a huge opportunity to solve the problem of global warming. Payment systems are changing. Some developing countries have shown the way. Kenya is a country where more than 50% of all financial transactions are made with mobile devices using a system called M-Pesa, provided by Vodafone and a Kenyan operator, Safaricom. A high-level media advisory group for the European Union concluded in 2013 that the media industry is now dominated by a platform game controlled by foreign players. These are just a few examples of the fundamental changes digitalization can bring to society.
Kenney and Zysman concentrate in their article on working life, which will change as people are more and more doing work that is made available by platforms. A number of platforms are distributing tasks that people can do and get compensated for as the task has been completed and approved by the customer. This is, indeed, a new issue not only for the people involved but also for the traditional institutions that create and control the labor market rules and legislation. The labor market rules are structured primarily to cover conventional employment situations where an employee and an employer have clear identities and certain rights and obligations. National tax revenues are dependent on these arrangements.
Nordic countries are widely recognized as welfare states with a high level of public expenditure and heavy taxation of income and consumption. In principle, the welfare societies have been able to make structural reforms in the economy due to the fact that people feel safe even if they lose their jobs for a short period. Now this situation is changing, and it is going to be extremely interesting to see how the Nordic welfare societies can adapt to the new conditions created by digitalization. Some suggestions have been presented in the public debate. We should tax environmentally harmful consumption more heavily, or we can pay people permanent financial compensation without any work obligations, etc. None of these suggestions, however, has been able to give a sustainable solution for how to adapt to the new conditions. It will remain to be seen how different countries will be able to adjust. As a general conclusion, we can say that doing nothing is not an option. Countries will have to change to be able to benefit from the platform economy and digitalization. They are here to stay, and it’s up to us whether we will be able create a sustainable future for us and our children.
Erkki Ormala
In their review of the platform economy, Kenney and Zysman offer a number of interesting observations, but they also fall short in several ways. They take a very US-centric view that lacks global perspective, and they focus narrowly on labor issues and give little attention to how platforms are influencing innovation through harnessing third-party complements.
There is a more interesting global story to tell about the variation in platform creation between North America, Asia, and Europe. Analysis I’ve done suggests that the top US platforms earned $1.3 trillion in profits over the past five years. Asia comes in second at $217 billion. Europe, by contrast, earned only $86 billion, since it has relatively few platform companies, and the ones that it does have are transaction-based rather than integrated platforms that bring together both the matching functions and accelerated third-party innovation.
A chunk of the $1.3 billion in profits the US platform companies have garnered have gone back to shareholders. However, a good portion is being invested in artificial intelligence, automation, and a bunch of other next-generation stuff that we have been reading about from companies such as Facebook, Amazon, and Apple. This suggests that platform companies have the potential to influence national systems of innovation, with potentially long-term consequences for national competitiveness. Whereas they have a marginal impact on employment relations, they are golden geese from the standpoint of innovation.
Thus, there is much more to say about the global status of platforms, including their significance in terms of rent/value accumulation and influence on national competitiveness.