Platform Capitalism: How digital platforms took over the world and what to do about it

Kicking-off our week of special coverage on social security and technological change, CommonSpace editor Ben Wray examines the rise of the digital platforms, which are based on a fundamentally different set of characteristics than the global economic giants of the past

IN EVERY era of rapid technological change, the titans of global capitalism suddenly shift. When oil emerged in the late 19th century, John D. Rockefeller suddenly became the richest American in history due to his ownership of Standard Oil. When the mass automobile emerged in the early 20th century, Henry Ford became one of America’s richest people through his Ford Motor Company. 

Our age is no different, but it’s not oil or cars that is at the cutting edge of technological change - it’s digital platforms. 

As the graph above shows, the change even in the past decade at the top of global capitalism is dramatic - seven of the ten companies on the top ten list are now based on digital platform business models. 

What this tells us that it’s control of information, or more specifically of data, that is the 'new oil’ in the global economy. And there is virtually no industry which cannot be dominated by the data merchants, whether it be in distribution (Amazon), holidays (AirBnB), taxis (Uber) or photography (Instagram).

This change is a profound one in how power works in the global economy. As Ryan Avent pointed out in the MIT Technology Review last year, “a recent analysis found that less than 20 percent of the market value of S&P 500 firms was due to the tangible assets on their balance sheets—a reversal of the ratio that prevailed in the 1970s.”

Whereas in previous technological epochs it was control of real physical resources that was the most obvious determinant of economic power, in the information age, control of the digital platforms which we all use to buy goods and services is the most sure-fire route to billionaire-dom.

What has been called Platform Capitalism has fundamentally different characteristics to a conventional capitalist enterprise. Trading in information is not like trading in coal. In the latter case, the commodity requires significant labour to extract and transport it, it is perishable (once it is burned it’s used up) and it is finite (there is not a limitless supply and land needs to be purchased to access it). Data has none of these qualities: it can move anywhere in the world in a fraction of a second, requires almost no labour and is infinitely reproducible. 

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What this means is that the marginal costs of information production trends towards zero – whereas oil is currently trading at $56.36 a barrel. But if it costs almost nothing to produce, why are digital platforms so valuable? Their value comes not from each of our individual units of data itself, but the combination of all of them on their platform. It’s this crowding effect which allows digital platform companies to monetise the network through advertising (Facebook), or taking a cut from the purchasing of goods and services (AirBnb, Amazon) or subscriptions (FT). The larger the network the more useful it is, as those of us who have ever answered “because everyone/everything is on it” to the question of why we use these platforms can attest to.

What are the essential characteristics of Platform Capitalism? Platform capitalists extract a digital rent: like landlords, they don’t produce any value directly, they extract value from those who do through their control of something people want access to. In the landlord’s case that is land/housing, in the digital platform’s case that’s access to the network.

Second, the tendency in digital platforms, more than in industry sectors based on physical resources, is towards monopolisation. It is inefficient to have two Amazons or two Facebooks or two Googles when the network is optimal when everyone is on one platform. While competitors do exist in every sector, there is usually one dominant player well above the others. This is unusual in the history of capitalism.

Finally, digital platforms are not labour intensive. Whereas Walmart employs 2.2 million workers worldwide, Google employs just 102,000 full-time employees globally, with another 120,000 temporary staff and contractors.

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Rentier, monopolisation, low labour costs - is it any wonder Amazon owner Jeff Bezos is the richest man in history? Inherent to the rise of Platform Capitalism is the rise of greater plutocracy and inequality. As Erik Brynjolfsson and Andrew McAfee argued in a 2014 book called the Second Machine Age, whereas in the industrial revolution productivity, employment and average incomes rose together, in the data revolution there is a clear break between those who control the digital platforms and their small, highly-skilled labour force, and everyone else.

The impact is not just economic – there is also a direct threat to democracy from digital platforms’ “algorithmic control”, as writer Paul Mason has put it. 

“Facebook’s weaponisation of data against democracy is a function of the technology,” Mason writes. “Allowing dark forces to manipulate elections via opaque network data because that’s the only kind of business model that can support its 500 billion dollar market capitalisation. Information wants to be free. Corporations need it to be opaque, expensive and under elite control.”

Of course the irony is that while digital platforms accrue the rewards of the data revolution, it is our data they do it with. Without millions of humans inputing their information into the platforms, their businesses would turn to dust. So the inequality of digital platforms is built on an inherent unfairness. How can we address this? 

While some argue that Facebook, Amazon and so forth have to be broken up in a similar way to Standard Oil through the 1930s ‘anti-trust laws’, this wouldn’t address the fundamental problem of a small billionaire-class reaping the rewards of monetising our digital footprint. It would also create less, not more, efficiency: whereas having two oil firms increases competition and pushes down prices, two Facebooks merely makes it harder to see what half of your friends are up to, before everyone eventually migrates to the Facebook they prefer.

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When it comes to digital platforms, the ownership question has to be addressed directly. Mason has identified the radical potential in open source, pointing to Android, Linux and Wikipedia as examples of initiatives where data is kept free for all to use and change as we wish, rather than hived off by a private firm for maximum profit extraction. Making publicly-used data open source is part of the answer.

Then there is the ownership question itself. Imagine if Facebook or Amazon were run as free not-for-profits (‘digital commons’) or state-run institutions; no advertising, no digital rent, no subscriptions. Once established, the expenditure costs are low, while the social benefits of free services would be huge.

The primary challenge here (above and beyond property rights) is the global nature of these institutions. While most of them are headquartered in the US, their influence is far beyond the borders of that country - and would you want the US state in control of a global network like Facebook? There’s a good argument to say that the close relationship between the NSA and the digital platforms, which has allowed the US to build up a global surveillance network like nothing history has ever seen, means we already see the dangers of imperial state control of the network.

In a country like Scotland, the limits of our possibilities is more to look at how to prevent value from the Scottish economy being extracted in digital rents from the likes of AirBnB and Uber through stronger regulation, and supporting alternative public and community digital platforms. Why could Scotland not have a national alternative to Netflix which showcases Scottish film, or local authorities support not-for-profit digital platforms for taxi drivers? Government has the scale and resources to build and promote these sort of platforms which small firms on their own will never have.

Listen: Is Scotland ready for the Fourth Industrial Revolution?

As Craig Berry pointed out in a 2018 paper for the Common Weal which looked at what sort of disruption we should expect from technological transformation, Scotland is better positioned than a low-skill economy like Italy, but significantly worse placed than Nordic countries, which made an early digital transition and high rates of investment in R&D. The Scottish economy has the highest level of foreign ownership of any region in the UK, and one of the lowest rates of business and government R&D investment. Investment in public infrastructure is infamously low.

In a rapidly changing world, it’s these structural weaknesses that could leave Scotland behind, not just in terms of digital platforms but ‘the fourth industrial revolution’ innovations which also handsomely award “first-adopters”, like in 3-D printing and Artificial Intelligence, where intellectual property will be king. As Avent has pointed out, AI is just another way in which companies will extract what Marx called the “dead labour” of work already done and consolidated as intellectual property, at the expense of “living labour” - those trying to navigate an increasingly treacherous labour market.

“The AIs that promise to displace millions of workers are just clever aggregations of countless human actions and communications. Across most of the workforce, capital is learning from labour in order to mimic labour and, eventually, replace labour—all without compensating labour for its enabling role in this process,” Avent writes.

There’s little reason to believe the future is not going to be more alienating and more unequal than the present - other than to hope for the same force to intervene that we have always relied on: People Power.

Picture courtesy of Ben and Rachel Apps

25 JULY COMMONSPACE FORUM: Social Security in an age of AI and Robots