There is considerable evidence that in the future platforms will act as global markets and thereby control the behavior of both suppliers and customers. The decide on who gets access to the market, they permanently collect information about everyone on their platforms, and they define the rules for prices and services. Alpha, Amazon and Apple are showing how this can be done on their platforms. Others are following.
As in the old mercantilism, trading is controlled by the market platform operators and a considerable part of the profits is skimmed off. Unlike in earlier times, however, the market operators are only very indirectly supported by the state – presumably with the exception of Alibaba and other Chinese platforms. And unlike in the past, market owners do not set up their own military troops, as the British East India Company once did. Nonetheless, they are shaping the digital transformation to a considerable extent – among other things, by exerting pressure on the producers who are dependent on them because they reach large customer groups via the platforms. Facebook and Google, for example, are bringing many readers to newspapers.
In addition, platform operators have developed advanced tooling to influence the behavior of customers, which in turn increases their market power towards providers of products and services.
This change is only beginning to unfold its full impact. However, its current manifestations are so impressive that they have started a new debate about what a “liberal government” should do. Traditionally, no regulation is considered as most liberal. However, this does not hold in an economic setting where platforms act like full markets that are governed by the private platform owners. Embracing the transfer of regulation power to private companies is a pseudo-liberal concept that is not only anti-democratic but also a threat to economic growth as it limits the freedom of trade activities.
How to regulate platforms?
Those who suffer from the market power of trade platforms and who are forced to adapt their services and reduce their prices will turn start to optimize the work of their employees by exactly the same methods that are applied to them by the market platforms. Gig economy and data-based HR control are most likely to follow on a broad scale. From the individual perspective of an individual worker, the loss in employment stability and salaries to be expected will be compensated for by price reductions and free services in the market platforms. One must spend more time to find a task that is paid for and on is paid less for one’s work, but one must also spend less time to find great products and services at low costs. Unfortunately, this only holds on average and not necessarily permanently. And unfortunately, it may lead to substantial economic degrowth.
The EU, Switzerland and the USA react very differently to this. The EU tries to regulate the market platforms. For example, it is focusing on strengthening the rights of the cloud providers’ customers through GDPR. The data portability stipulated there reduces vendor lock-in and supports the emancipation of corporate and individual customers of cloud services. This is an original liberal idea because it strengthens the global market.
Switzerland does not want to ensure data portability. Often the rejection is justified with an apparently liberal argument: No one should be prevented from concluding an unfavorable contract. Unfortunately this does not help id only unfavorable contracts are offered. The new eID law is based on a similar logic. There, the Swiss government leaves the issuing of “online passports” to the business community. Basically government steps back in favor of new platform providers.
The US is pursuing a third way and is trying to reinstall the state influence that shaped the old mercantilism. For example, it demands technology backdoors to the platforms and it wants to actively control trade. This is more than just a presidential show, even if it often seems that way.
Platform economy and its influence on the social life
In view of all the nasty problems affiliated with digital transformation, most companies do not care much about the market power of market platforms. This holds particularly for cloud computing, with which many companies struggle a lot. We should bear in mind, though, that reducing lock-in opportunities through data portability creates new incentives to become more customer-friendly and provide better support for cloud customers. This would help those companies with low organizational IT maturity that have the biggest problems with cloud computing.
In general, I believe that the emergence of platforms that act as privately regulated global markets is not compatible with a liberal vision of free markets. And I believe that platform economics will have a severe negative impact on societal togetherness. I do acknowledge though that it is very irritating that liberal thinking and the protection of workers’ rights share a cause. We are not used to travel in the same boat (other than in practical politics where deals must be made).
But I can assure all liberal readers that most of those social democrats I know have no clue about platform economics. And I can assure all social democrat readers that most of the liberals I know have no clue as well. The dividing political line is between those who are perceiving the economic change reality and those who stick to old fights. The majority either sticks to the past or has lost political interest at all. But technological progress does not care about old majorities. It changes them. We should adapt to economic reality and transform our governance concepts. That we do not know good new answers yet is no reason to stick to the old ones.