Inštitut za ekonomsko demokracijo

Time to democratize labor platforms

Authors: Kosta Marco Juri and Tej Gonza

CICOPA

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. The business model of companies such as Uber, Wolt or Deliveroo – known as labour platforms – consists of decreasing the operating costs by avoiding regulation associated with traditional employment. Labour 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 sick leave, they do not guarantee paid overtime, nor do they pay for social and pension contributions, transport, or taxes on labour income.

Many governments across the world seem to have passively accepted the notion that labour platforms are nothing more than digital marketplaces used by independent workers. After all, this is precisely how gig companies want to be perceived. Nevertheless, 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.

Labour 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 of these two main ingredients: occupying a legal grey area that 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 the prices of services. This is precisely what the goal of labour platforms has become.

For years now, many 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. So far, the most popular response to the gig economy situation has been the implementation of traditional employment legislation. For instance, last February, the UK Supreme Court ruled that Uber drivers should be classified as employees. More recently, the Spanish government passed a piece of legislation that forces platform-providing companies to employ riders. These are all important steps forward – or are they?

Instead of resorting to labour rights that were already established in the second half of the 20th century, progressive policymakers committed to reducing economic inequalities should seize the moment and kill two birds with one stone. 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?

Platform cooperatives would guarantee that the ownership of the platform technology 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. 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.

The final question to consider is how to realize a cooperativist revolution in the platform economy. There have been multiple attempts to establish cooperatively owned platforms in the last years. Nevertheless, 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 invention is called Employee Stock Ownership Plan (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 payout over next few years, and the company transfers part of its profits every year to the trust, which is 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 the net asset value. The ESOP model in the US is extremely successful in conventional companies. What if we could apply this mechanism to the platform economy?

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 sales. 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.

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