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May 5, 2015
With Responses From
May 5, 2015
3 Min read time
Platforms require us to rethink the role of the government in the market.
The great value of the platforms Sabeel Rahman identifies lies in what is built atop them, and construction is rapidly underway. His concerns will only become more urgent as platform-mediated exchange continues to expand beyond digital goods and retail into more personal services such as accommodation, urban transportation, local logistics, and peer-to-peer asset rental. The behavior of tomorrow’s platforms will have a significant impact on labor markets, the nature of employment, and social safety nets.
So I agree that platforms, as natural monopolies, require us to reconsider government’s role in the market. However, Rahman’s public utility idea focuses excessively on how to rein in that power. A broader and more pragmatic set of alternatives would include self-regulatory approaches such that platforms can be partners in addressing old and new forms of market failure.
Platforms require us to rethink government's role in the market.
While Rahman sees regulation primarily as the task of curbing excessive private or corporate power, the purpose of regulation has always been larger: to correct market failures—inequitable or inefficient outcomes. By redefining exchange in the markets they mediate, today’s platforms will create new efficiencies that diminish some sources of market failure—for example, the uncertain quality of taxicabs and their drivers that necessitated government licensing in the past. At the same time, though, platforms may induce new forms of market failure, such as the denial of market access to a supplier or a consumer. The regulatory framework should allow the government to respond to specific failures, not prescribe intervention across the board.
I appreciate the fear, shared by many, that dependence on a platform lowers the bargaining power of providers such as Uber’s drivers. However, the idea that Uber and Lyft drivers are somehow less empowered than today’s urban taxi drivers is debatable. In New York City and Los Angeles, among Uber’s biggest U.S. markets, taxi drivers were independent contractors well before the new platforms emerged. Granted, in New York City, taxi drivers who lease medallions receive workers’ compensation insurance, but at significant cost—typically more than $100 per twelve-hour shift. A market-based alternative superior to the status quo—for example, platforms offering benefits or workers’ compensation insurance as an incentive to retain providers—might emerge without preemptive regulatory intervention. The advent of platforms such as Uber, Lyft, and TaskRabbit, new companies operating at national or global scale in fragmented markets with limited worker protections, may naturally address some problems that now seem amenable only to government directives.
Alternatives to preemptive intervention seem especially important when one recognizes the ongoing dramatic growth of the U.S. freelance workforce. The creation of a safety net that is not contingent on full-time employment will be a huge societal challenge, which the government is unlikely to shoulder effectively on its own.
Reallocating regulatory responsibility could also set the stage for new solutions to other societal challenges such as discrimination, which persists despite government intervention. One might apply modern machine learning methods to the detailed digital traces left by Uber, Lyft, and Sidecar rides or TaskRabbit jobs to detect discriminatory practices that were previously not easily observed. Delegating this role to the platforms, with appropriate auditing and reporting if needed, would work better than mandated transparency, locating responsibility close to the expertise and the data, while avoiding the privacy issues associated with handing over transactional data to a government regulator.
We have entered an era in which digital platforms mediate a growing fraction of our commercial and social interaction. The boundary between platforms and governments as regulators of our behaviors has already blurred over the last decade. The division of rights between creators and consumers of content is increasingly governed by the licensing contracts and digital rights management systems of Apple’s iTunes and Amazon’s Kindle, as opposed to intellectual property and copyright law. Facebook and LinkedIn are sufficient sources of personal identification in many situations. Google and Facebook have greater power to observe human interactions within their digital spaces than do governments. Crypto-currencies such as Bitcoin may challenge government-backed money. As this shift continues, de facto rather than de jure, Rahman’s concern about a new form of private power will seem increasingly compelling, as will his call for rethinking government oversight. His solutions, however, would benefit from recognizing both the potential and pragmatism of regulatory delegation.
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