Politics of the Platform Economy

Not so long ago, the study of economics was referred to as “political economy.” The term bore the recognition among scholars that economic behavior and activity could not be studied without consideration of the political context. It was understood that politics and economics shaped each other in intricate ways, and that choices in one area influence choices in the other. Subsequently, however, the economics profession chose the pathway of methodological individualism, and the study of economic behavior became mostly dissociated from consideration of politics.

In “The Rise of the Platform Economy” (Issues, Spring 2016), Martin Kenney and John Zysman remind us that political economy never really went away. And, the emerging economic reality of platform economies that they describe is closely connected to political choices. In particular, the choices that citizens, policy makers, and business leaders make about technological change, risk, benefits, and costs will affect the economic activity that occurs under the auspices of the platform economy.

The authors specifically highlight social policy, for example. In adjusting to platform economy effects, different countries will make different political choices about the relationship between social protection and economic dynamism. If greater individual initiative and more entrepreneurship is expected as result of the platform economy, what evolving role should social policy play?

There is evidence that enhancing social protections (e.g., unemployment insurance, family and medical leave, health care, food stamps) can actually raise the level and quality of entrepreneurship. Research has found such effects across different countries. How will the United States, Europe, and other regions make political decisions about social policy and economic dynamism? The answer will shape the effects of the platform economy.

Competition policy is another area in which politics will be critical for determining what the platform economy ultimately looks like and how it affects economic activity. Decisions about where to draw regulatory lines, how to even define those lines, and how to balance different types of competition are inherently political.

The political fight over the platform economy is already occurring—mostly at the local level where firms such as Uber and Airbnb often act as if they are somehow post-political businesses. Google and Facebook, too, are often treated as beyond politics. Criticism of the European Union’s antitrust approach to Google, for example, focuses not on the political economy question of Google’s competitive stance, but rather on shortcomings of European economies in that they did not produce a company as wonderful as Google. Of course, in the case of Uber, these firms are intensely political and often erect competitive barriers around themselves.

As a result, the political debate on the platform economy is sometimes framed as new versus old, disruptors versus incumbents, with one prima facie better than the other. Framing the debate as what it really is—a political choice, a question of the distribution of costs and benefits—might be unrealistic, but could be more fruitful in resolving the issues raised by Kenney and Zysman.

This is not to suggest that the platform economy is wholly negative. There will undoubtedly be positive effects from the rise of the platform economy. The nature of those positive effects—and how they balance the negative implications—is entirely a political question.

Dane Stangler