Inštitut za ekonomsko demokracijo

Time to Democratize Labor Platforms – Long Read
Time to Democratize Labor Platforms – Long Read

Time to Democratize Labor Platforms – Long Read

Napisano skupaj z: Kosta Marco Juri.


The way in which the platform economy has been able to develop over the last decade is a testament to the disruptive nature of recent technologies on the one hand, and the inertia and often shortsightedness of the regulatory environment on the other. It is also, in the grand scheme of things, a manifestation of the ethos of the political class. Convinced of the inherent virtuousness of capitalist enterprises, policymakers no longer feel the duty to catalyze and administer economic change. Instead, they have abdicated their responsibility and undermined representative democracy by progressively devolving the control over the economy to an unaccountable economic elite.

Firstly, we need to realize that there is a great variety of platforms; they come as different kinds of digital marketplaces for ideas, transport, food delivery, apartments, finance – even dating and sex. Our focus here is primarily on labor platforms, which are marketplaces for labor. Their business model consists of decreasing the operating costs by avoiding regulation associated with traditional employment. Labor platforms do so by redefining their workers as “independent contractors”. As a result, they do not have to pay minimum wages, they are not required to pay for a sick leave, they do not guarantee paid overtime, nor do they pay for social and pension contributions, transport, or taxes on labor income.

Flexibility is sold as the major upside of the new platform economy. However, there is a high social price that comes with it. Flexibility means that one can choose how many hours to work; however, for the millions who are trying to make a living out of platforms and not merely use them to fill up a few hours here and there, flexibility usually translates into a longer workweek and no overtime compensation. Data show that the majority of Uber drivers get less than the national minimum wage hourly rates, even though the common perception is that hourly rates are higher. The problem is, as already mentioned, that, unlike employed workers, platform workers need to cover all the costs associated with their work (depreciation and capital use, income tax, social and pension contributions, sick leave, holidays, food, transportation etc.). Low levels or income are not the only issue. Dozens if not hundreds of studies in the last decades are consistently showing that in addition to material deprivation and long working hours, the economic insecurity caused by income instability bears detrimental psychological effects. So does the isolation on the market, the inability of platform workers to collectively organize and bargain, and the increasing economic, racial, and gender inequalities arising from the nature of algorithmically organized platform work.

Many governments across the world seem to have passively accepted the notion that labor platforms provided by companies such as Uber or Wolt are nothing more than digital marketplaces. After all, this is precisely how gig companies want to be perceived. Indeed, there is no denying that these platforms at a first glance look like smarter and more efficient versions of actual markets. Platforms come as user-friendly and free-to-use apps, which are able to match allegedly independent workers – be it drivers or riders – with consumers in a matter of instants; they have a slick design and are advertised basically everywhere. Nevertheless, regardless of how persuasive and comforting the mainstream conception of the gig economy might be, there is hardly any validity to it; and it doesn’t take much to understand why.

Platform-providing companies, far from acting as mere matchmakers, are the ones actually engaging in a market relationship with their users; they are the ones determining the price of gigs and the ones getting paid by the customers. The money flows from the customer to the platform and, at a later stage, to the alleged independent contractor. Secondly, platform technology controls workers directly – it sets the prices of their services and uses sophisticated methods of incentivizing, ranging from rewards to punishments. Thus, gig companies are de facto employers, even though they are, in most countries, still allowed to operate as de jure intermediaries between users and service providers. While some countries, like the Netherlands, the United Kingdom, Spain, and even certain states in the US, started to recognize the need to regulate platforms by making sure that workers are actually employed, most of the world is lagging behind. For instance, the Slovenian government just recently opened the door to Uber by legalizing commercial transport for drivers without licenses.

One may then ask: “is there at least some competition among platform providers? Can workers choose for whom to work?” Hardly so. Platforms are natural monopolies due to a phenomenon called network effect; those with more users and workers end up retaining control over their markets, since users have greater choice and workers benefit from greater demand. This means that labor platforms get stronger as the size of their network increases. As a consequence, these industries are dominated by one or two big players (e.g., Uber and Lyft in the case of taxi platforms).

Labor platforms have managed to bypass the regulations that standard companies, such as restaurants or traditional taxi companies that actually employ people, are obliged to respect. Lower operation costs play a key role in the success story of platforms. These companies are not establishing themselves by providing the public with new, ground-breaking technologies. In fact, traditional taxi services have been using apps for years. Rather, their recipe for success consists in these two main ingredients: occupying a legal grey area which allows them to exploit unprotected workers and – in the case of two of the largest ride-sharing platforms, namely Uber and Lyft – using venture capital to subsidize rides. This is how cheap services are created; it has little to do with innovation. Studies have shown that in order to become profitable, platforms must gain monopoly power and raise prices of services. This is precisely what the goal of labor platforms has become.

For years now, policymakers, academics and trade unionists from all across the world have been calling for the regulation of the platform economy. The situation has long since become unsustainable, given that every day more workers are being deprived of their basic rights and many local companies are being thrown out of business, while few ‘gig giants’ are capturing an ever-increasing share of the market. Some predict that in a few years, more than 80 million workers will depend on work provided by labor platforms. So far, the most popular response to the gig economy situation has been the implementation of traditional employment legislation. For instance, in 2020, a historical law compelling platform-providing companies to treat their workers as employees entered into force in the US State of California. What followed was a remarkable testament to these companies’ ability to influence politics. In fact, the bill was eventually nullified later that year after the 58% of Californians voted ‘Yes’ to a ballot initiative known as ‘Proposition 22’. During the campaign, Lyft and Uber had spent 200 million USD in support of Proposition 22, which is about ten times more than the amount spent by those who opposed the measure.

Nevertheless, there were also efforts which ended up being more successful. On February 2021, the UK Supreme Court ruled that Uber drivers should be classified as employees. More recently, the Spanish government passed a piece of legislation which forces platform-providing companies to employ riders. These are all important steps forward – or are they? Perhaps we should call them by their real name, namely the reinstatement of labor rights which were already established in the second half of the 20th century. Should we rely on reactionary policies to enforce labor rights? There must be stronger and more radical ways to regulate and transform labor platforms.

Instead of resorting to already-existing legislation, progressive policymakers committed to reducing economic inequalities should seize the moment and kill two birds with one stone. The renewed interest in employment relations prompted by the advent of the gig economy gives policymakers a unique chance to push forward long needed reforms in corporate law. Instead of making gig companies conform to the status quo by forcing them to employ workers, why not turn platforms into pioneers of radical change by providing legislative tools that would allow for the democratization of the platform economy?

Workers employed by companies such as Uber or Wolt do not even get the chance to meet their colleagues, let alone their bosses. Instead, they are hired, managed, surveilled, and potentially fired by algorithms. Shareholders thrive at the expense of workers’ living standards and have no role whatsoever in enhancing productivity and driving innovation. Not sophisticated technology, but rather monopoly power achieved through labor cost dumping and network effects is what makes platforms so attractive for investors. This is what Wall Street is betting on. In the platform economy, capitalist hierarchies come in their worst form – alienated decision making done by algorithmic management and continuous betting on so-far unprofitable businesses that promise monopoly power in the future, which is what would allow them to increase prices and further cut costs. Turning labor platforms into worker-owned cooperatives would address these issues and bring democracy into the workplace.

Employee-owned enterprises have time and time again proved to be the most responsible and future-oriented way of organizing a firm. In an era marked by increasing wealth and income inequality between owners of capital and wage-earners, cooperatives are instrumental in effectively tackling the root cause of such inequality. They link capital income to work and reward the truly productive people in our economies – the people who actually work and who ultimately produce the computers, cars, checkout machines, tools, etc. which keep the economy going. Cooperatives and employee-owned firms, which are steps in the direction of economic democracy, have a predistributive effect – rather than relying on governments to redistribute market income, they alter the distribution of the earned income already at the level of the market. Moreover, while transnational, publicly traded companies which currently dominate the gig economy are extremely detached from local realities and pay little attention to the needs of communities, employee-owned companies are incentivized to prioritize social and environmental needs and to take care of their workers. All of this does not come at the expense of competitiveness. In fact, employee-owned companies tend to be ‘better at business’ than their traditional counterparts. Everyone is better off but the absentee owners, the gamblers in the stock market, the suits of Wall Street.

Platform cooperatives would guarantee that the ownership of the platform technology, and, therefore, the value stemming from it and the control over it would remain in the hands of the people who are working on the platforms. In this way, the added value deriving from new technology would be much more widely distributed and not concentrated in the hands of the well-off shareholders and the few founders of platform companies. In platform cooperatives, workers are the owners of the revenue created by their services. In contrast to capitalist practices, where the owners of the net product are mostly external, non-present owners of capital, cooperativism complies with the ethical maxim of private property that states that property appropriation should follow labor and labor only. What is also important, is that platform cooperatives would ensure that the control that algorithms currently hold over workers would be held by workers themselves – the decision on how to incentivize workers, how to supervise their work, how to manage and direct it, and how to reward or punish good or bad practices would be made democratically by the people affected by said decision. This basic democratic principle is self-evident in our political lives but has not yet penetrated the world of economic organization.

The final question to consider is how to realize a cooperativist revolution in the platform economy. This is not – to say the least – an easy nut to crack. There have been multiple attempts to establish cooperatively owned platforms in the last years. Loconomics Cooperative is one example where workers joining the platform became co-owners. The cooperative offered an alternative to Task Rabbit or Amazon’s Mechanical Turk, since it was a network for providing a variety of services from dog walking, home care, childcare, tutoring, massage therapy and others. There were also many attempts to establish democratic alternatives to Uber. The Drivers Cooperative in NYC, TaxiApp in the UK, and Eva in Montreal are just some of the more successful co-operative platforms offering alternatives to platforms like Uber and Lyft. Similar attempts were made with food delivery platforms, which took off during the recent pandemic crisis. Even though the technology behind platform cooperatives was comparable to the one used in capitalist platforms, and although workers and users of platform cooperatives were committed to getting these initiatives off the ground, the scaling did not happen. Markets were not disturbed, and big players were not disrupted. Most platform cooperatives eventually died off, were subsumed by their big competitors, or remained small and local. At the present moment, network effects make it practically impossible to compete against companies like Uber. The lesson is clear – it is exceedingly difficult to penetrate markets dominated by natural monopolies.

There are other strategies. One is to transfer existing platforms into the hands of platform workers. The American legal system offers an interesting mechanism, which enables employee buyouts of established companies. The mechanism uses company’s financial resources to pay off existing owners and transfer part of the ownership to workers (or more precisely, to workers’ trusts). The invention is called Employee Stock Ownership Plan or ESOP and it works like this: a special legal entity or a trust is established, the owner transfers, say, 20% of the shares to that trust in return for a note that promises him a pay out over next few years, and the company transfers part of its profits every year to the trust, which are then used to pay out the owner. US legislation demands that if this model is used, all employees must be included as members of the trust, hence gaining ownership rights like the right to decision-making, the right to profits, and the right to net asset value. The ESOP model in the US is extremely successful in conventional companies. There are 7000 such companies employing 14 million people, which is 10% of the private workforce in the US. What if we could apply this mechanism to the platform economy? How would that look like?

Local subsidiaries of global corporate platforms could establish ESOPs for local or national workers. The ESOP trust could be a cooperative, which would guarantee democratic representation among workers. Every year, the platform subsidiary would put part of its profits in this cooperative, and the money would be used to buy some shares from the external owners in the name of platform workers. Platform workers would gradually start gaining shares on platforms they work for, thus gaining control over technology and receiving more of the value that they are creating. This would be a gradual process, which would largely depend on how willing current owners of platforms would be to set up such schemes. ESOP in the US motivates business owners by providing tax advantages – owners get tax breaks on ESOP sale. Since societies are paying a high price for the platform economy, governments could use even stronger carrot-stick measures. For example, they could design different tax rates for platforms with different degrees of worker ownership through ESOP co-operatives. They could go even a step further and demand that platform corporations set up, say, 10% worker ownership.

The democratization of our concentrated economic system seems like a good step towards more socially responsible and just economies. More and more economists, public intellectuals, politicians, activists, and even businessmen agree with proposals of this kind. The platform economy seems like a great place to start a large-scale political operation, since regulatory institutions are still struggling to keep platforms in check. Democratization, even if gradual, would be a major step in that direction. There are quite a few ways of pushing platforms towards more democratic representation in ownership and decision-making; here we have described two of them. There are also grassroot alternatives; however, this strategy seems to be limited in effect due to the strong network effects associated with the platform economy. The other strategy is to establish buyout programs. Clearly, such attempts will not come without strong opposition from vested corporate interests. This should not come as a surprise, since disruptiveness threatens them. But disruption does not stem from technological progress per se. It can only be achieved if we manage to ensure that technology serves the democratic interest.

Tej Gonza

Tej Gonza

Soustanovitelj in direktor IED, kjer dela na področju politike, zakonodajnih predlogov in praktične implementacije modelov lastništva zaposlenih. Gonza je so-avtor evropskega ESOP, platformnega ESOP-a in Evropske Marcore, ki predstavljajo tri različne modele za spodbujanje lastništva zaposlenih.