On September 7th at 6.00 pm in the Golden Hall Martin Kenney (UC Davis) gave a lecture entitled The Internet Platform Economy, Employment, and Value Creation.
We are entering a Platform Economy—one in which tools and frameworks based upon the power of the Internet will frame and channel our economic and social lives. For our purposes, “platforms” are “frameworks that permit collaborators—users, peers, providers — to undertake a range of activities, often creating de facto standards, forming entire ecosystems for value creation and capture.”
Many believe that software and software-enabled robots are likely to replace an enormous number of today’s workers, leading to massive and persistent structural unemployment. For those working or seeking work, these changes may be as wrenching as those that workers faced in the Industrial Revolution or during the Great Depression. In each of the previous technological revolutions even as old work was destroyed or transformed, new work was created. Those who do find work will undoubtedly experience a transition from one set of authority and economic relationships to another as we move from a set of “employment” relationships to gig, contractor, and consignment arrangements.
The Platform Economy participants that have received the greatest attention are firms, such as Uber, whose business model is predicated upon connecting individuals wishing to purchase a service with individual providers. In some cases, these services threaten to transform existing business models, which often had barriers to entry that allowed higher pricing but also corresponding public service requirements that imposed costs. The new platforms dissolve the barriers to entry but also avoid the public service requirements, such as serving the disabled, providing accommodations to anyone regardless of color or creed, or picking up passengers in less safe areas. There is also a shift in power from public agencies such as the local Taxi Commission or zoning administrators to the platform owner, who, particularly in winner-take-all sectors, can simply make changes in the software and immediately shift the terms of engagement for providers and customers to maximize the owner’s position.
An intriguing new opportunity for creating compensated activity may be the burgeoning opportunities to create digital and even new software-enabled physical products that they can either sell directly or be compensated for through other payments, such as a share of advertising revenue. The largest of these platforms are, of course, the Apple, Android, and Amazon app stores. To illustrate, as of January 2015, Apple had paid developers over $25 billion; while Google paid $7 billion in 2014. YouTube, Amazon self-publishing, Vimeo, and other websites have also become sources of income. Conceptualizing the meaning of all of this becomes even more difficult as the Maker’s Movement gathers strength and, through it, software and computation increase their suzerainty over the world of atoms even further.
In this changing environment, a growth and “jobs” policy may need to be reconceptualized in part as a “compensation-for-value-creation” policy. Well-compensated value-creating activities are the objective, but they will be the outcome of successfully guiding the structural transformations in the economy and society that the platforms bring. This enormous change is accompanied by many issues, and we can allude to only a few. Government involvement may not comprise a jobs policy per se but a collection of efforts to shape an environment within which skills at software creation as well as design, video, and other forms of creative expression are supported. Competition policy will also have to be rethought. Moreover, the state is likely to be asked to take a role in regulating platforms, many of which are already virtual monopolies or duopolies, to ensure that the power is not vested entirely with the owner. Finally, tax policy will have to be revisited because the massive value created by the platform ecosystem is now captured in capital gains typical of a winner-take-all economy, in which the economics even for those creating apps and making YouTube videos demonstrate winner-take-all returns for the successful and long-tail minimal returns for the vast majority. How can our tax policies better account for such dynamics?
Activities by humans that create value are not disappearing; however, the forms and arrangements within which those activities are organized are changing. While economists have monopolized the discussion thus far, the changes require a far broader framing, as considerations of equity and empowerment will be necessary for building acceptance of the social context within which these new value-creating activities will be embedded.