Uberisation and dangers of neo-serfdom

Posted on August 9, 2016

Saudi Arabia has put $3.5bn into Uber©Bloomberg

Hillary Clinton and Donald Trump have been pitching at voters their plans to revitalise the American economy. The proposals from Mr Trump, the Republican nominee, come with the usual dose of cognitive dissonance; he claims to be a fan of fiscal stimulus yet his new economic advisory committee consists of what seem to be the last surviving “supply-siders”, proponents of Reagan-era trickle down theory
. Mrs Clinton’s plans have more intellectual coherence — the Democratic nominee is promising big investments in infrastructure, manufacturing and clean energy, intended to create better paying jobs. But neither candidate has fully addressed the most important trend in labour markets — the gig economy.

A spate of research by everyone from high-profile academics to
McKinsey consultants points to the idea that in the next 10-20 years, the number of people working as freelancers, independent contractors or for multiple employers will increase dramatically. In the US, 35 per cent of workers are working in this way. So the sharing economy, made up of both lower-level gig workers and higher-end professionals with “portfolio” careers, is the future. The question is whether it will be an economy that creates more sustainable, robust growth.

    There are two paths this new economy might take. One, more widely covered, is Darwinian. People at all ends of the socio-economic spectrum become Uberised, as both blue- and white-collar jobs are handed out piecemeal to the lowest bidder. Already,
    eastern European designers and Indian radiologists are undercutting their full-time peers in more developed countries this way. The labour markets starts to resemble, as Adair Turner, chairman of the New York-based Institute for New Economic Thinking once put it to me, “a feudal marketplace in which the lord shows up each day and says, ‘I’ll take you, and you, and you’.” The labour share of the pie, which has been shrinking across the developed world for the past four decades, continues to decrease. Stagnant growth and polarised politics continue.

    But there is another possibility. Platform technologies used by companies such as Uber could, with a few crucial tweaks, enable a return to a more be­nign, pre-industrial form of capitalism.

    As Arun Sundararajan, a New York University academic, notes in his new book, The Sharing Economy, the percentage of self-employed workers in 1900 in the US was three times as high as it is today. Rather than working for huge corporations that take the majority of the pie — corporate profit share has reached record levels in the past couple of years — the farmers, artisans and small merchants that made up the majority of the 19th-century labour force were self-employed, selling goods and labour directly into the marketplace to myriad customers. The gig economy, it turns out, is not new; peer to peer commerce has just reinvigorated an old model.

    The trick for the next US president will be to craft policies that ensure the 21st-century sharing economy is more conducive to enterprise than to feudalism. That will include making sure labour can grab a larger chunk of the profit
    . Policymakers might take a lesson from existing co-operatives, in which workers already own the means of production. This type of business, with roots in the 19th century, is widespread in the US agricultural industry. Big brands such as Ocean Spray, Welch’s, Land O’Lakes, Sunkist are owned by individual farmers who can use economies of scale to secure prices above market average for their products.

    Digital platforms make it possible to spread this model to fast-growing hands on sectors such as healthcare and education. In the US, the Bronx-based Cooperative Home Care Associates employs 2,000 workers in jobs with above-average wages and more favourable scheduling standards and benefits. Swift, a new Uber-like taxi app, is run and owned by drivers themselves. New York recently launched a $2m fund to help develop digital co-operatives among companies such as print shops, neighbourhood cafés and artisan makers of high-end goods.

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    Increasing the scale of such a model requires state intervention. Current laws mean it is much easier for businesses to register as limited liability companies than as co-ops, for example. Labour laws, which assume there is an imbalance between individuals and large institutions, will need to be rethought, as will regulation. Already, there have been wrangles over legal compensation for things that go wrong in, for example, an Airbnb, and how that differs from a similar situation in a hotel. Portable benefits, an idea supported by many tech titans, would help provide a basic safety net for workers in the US sharing economy, allowing them to be more entrepreneurial. This is vital at a time when start-ups per head have been falling for at least four decades.

    Restructuring the rules for the new sharing economy will be time consuming and politically fraught. But the rewards could be significant. While trade in traditional goods and services is flat, a study by the McKinsey Global Institute shows that cross-border digital flows in areas such as e-commerce, streaming video, web searches and so on have increased 45 times in the past decade, and are projected to grow another nine times in the next five years.

    What is more, the companies responsible for the jump include a much higher proportion of small businesses and sole proprietors. That points to a form of globalisation that could be much more inclusive and thus less politically contentious. Handing greater power to those who create it could elevate not only our economy but also our politics.

    The writer is the author of ‘Makers and Takers: The Rise of Finance and the Fall of American Business’

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