The Rise of the Platform Economy: Policy Issues, Business Choices, and Research Questions

Berkeley Roundtable on the International Economy University of California, Berkeley

The Rise of the Platform Economy: Policy Issues, Business Choices, and Research Questions

August 30, 2016

John Zysman Co-director, BRIE

Professor Emeritus, UC Berkeley

Zysman.john@gmail.com www.brie.berkeley.edu

* A version of this talk was presented at the OECD June 14, 2016 “New Approaches to Economic Challenges Seminar” ** See also -- IST “ The Rise of the Platform Economy”Spring 2016 Martin Kenney and John Zysman -- The Next Phase in the Digital Revolution:Fall 2016 BRIE Working Paper John Zysman and Martin Kenney

The BRIE/ETLA Collaboration

2

Central issues in the platform economy

3

Can the Digital Revolution provide real and rising

incomes with reasonable levels of equality?

What kind of society will we create?

1 2

Central issues in the platform economy

4

Can the Digital Revolution provide real and rising

incomes with reasonable levels of equality?

What kind of society will we create?

1 2

• Productivity & Growth

• Jobs: How many? What kind? What social context?

• Equality: Is that a choice?

Central issues in the platform economy

5

• Productivity & Growth

• Jobs: How many? What kind? Computation Intensive Automation

• Equality: Is that a choice?

• How do we govern the “Platform” phase of the digital revolution?

Can the Digital Revolution provide real and rising

incomes with reasonable levels of equality?

What kind of society will we create?

1 2

TWO PREMISES

• Cloud is the technical foundation: platform is its application manifestation • Platform: algorithms that run in the Cloud

6

Era of the Platform and the Cloud

CLOUD FUNDAMENTALS

• Cloud is a question of how computing is done, not where • Cloud computing is enabled by era of abundance • Abundance facilitates virtualization and abstraction

7

Era of the Platform and the Cloud

BRIE Working Paper 2014-2, “Cloud Computing: From Scarcity to Abundance.” Kenji E. Kushida, Jonathan Murray, and John Zysman (2014)

THE CONSEQUENCES OF CLOUD

• For the User

– Availability of power – Speed of development of applications – Value moves up the chain from infrastructure to applications

• For the Provider

– Scale matters – Winner take all characteristics

8

Era of the Platform and the Cloud

THE CONSEQUENCES OF CLOUD

• For the User

– Facilitates Start-ups and Small players

• For the Provider – Facilitates Giants

9

Era of the Platform and the Cloud

What Are Platforms?

There are multiple meanings…

10

Digital algorithms that run in the Cloud

11

What are platforms?

Digital algorithms that run in the Cloud

12

What are platforms?

This is obviously not sufficient

13

What are (digital) platforms?

COMPUTER SCIENCE DEFINITIONS

• The key aspect is that platforms provide a set of shared techniques, technologies,

and interfaces to a broad set of users who can build what they want on a stable substrate.

– Platforms all the way down (Stu Feldman)

CONVENTIONAL ECONOMIC USAGES

• Multi-sided digital frameworks that shape, intermediate, the terms on which participants interact with one another

• Algorithm-enabled “cyberplaces” where constituents can act or transact

• Not just matchmaking or markets…. but social community

14

The consequences of (digital) platforms?

• Do current things better: Efficiency and Friction

• The ability to do radically different things: Restructuring-Disruption

– Changes what is possible, not just what is efficient – The Economy from Horses to airplanes

15

Delusions and side conversations: From the Valley

• The Sharing Economy

• Permissions and Forgiveness

16

Are digital platforms restructuring economy and society?

The Platform: Utopia or Dystopia?

THE PIONEERS: Creating a utopia

• Noyce, Jobs, Sanders, Sporck (Gates in Seattle)

THE SKEPTICS: Will it be a dystopia? • Vonnegut (Player Piano) • Davidow-Mohr Davidow (HBR)

17

The Platform: THE NEW QUESTION

IS THE DIGITAL REVOLUTION OVER?

• Robert Gordon forces the debate with The Rise and Fall of American Growth

• The core argument: – Drop in Productivity – Dramatic change in life is past

• The IcT technology wave has burst

– Limited scope in the economy – Limited power of the technology

18

The Platform: Utopia or Dystopia?

RESPONSES TO GORDON

• The wave is just beginning: sweeping from pure information services to – Services with everything – IoT – Manufacturing – Industrie 4.0 and its cousins Where we are in the Wave is, for now, speculation and argument

19

The Platform: Utopia or Dystopia?

RESPONSES TO GORDON

• The wave is just beginning:

• How technology is deployed is the key to the impact of technology on productivity

– Depends heavily on attitudes toward workers

The character of deployment is central to Productivity:

20

ASK

To consider deployment and productivity in the Platform Era

21

What do digital platforms do to jobs?

22

23

What do digital platforms do to jobs?

HOW WILL LABOR MARKETS WORK

• How will work be organized in the market – Gig, putting out – Contract – Employment

• Job matching

– The friction efficiency story – Uber, Upwork

• Rules for the market and for work

24

What does digital do to jobs?

THE BROADER QUESTIONS ABOUT DIGITALIZATION and WORK: The implications of Computation Intensive Automation

• Automation

• Employment

• Equality

25

What do digital platforms do to jobs?

THE EVIDENT

• Automation touches much of work and employment

BUT CRITICAL QUESTIONS REMAIN

• How much is displaced? • How much is created? • How much is transformed

26

What do digital platforms do to jobs?

THE EVIDENT

• Automation touches much of work and employment

BUT CRITICAL QUESTIONS REMAIN

• How much is displaced? • How much is created? • How much is transformed

We cannot know this now

27

What balance will emerge?

WHAT INFLUENCES THE BALANCE OF-

• Displacement

• Creation

• Transformation

28

Responding to the algorithmic dilemma will affect that balance THE ALGHORITHMIC DILEMMA & the 4th Services Revolution

• The Routine can be automated

• Most of automation can be copied

• The high road adaptation to the algorithmic revolution is innovation effectively using People

29

Responding to the algorithmic dilemma will affect that balance THE ALGHORITHMIC DILEMMA & the 4th Services Revolution

• The Question: Does sustained innovation require human imagination and implementation?

• The Answer?

The high road adaptation to the algorithmic revolution is effectively using People

BUT

30

THE QUESTION AND ANSWER ARE EVOLVING:

For example • The Facebook exception:

– Market position?

• Machine learning and its high powered cousins!!

– Does this change the game?

• Routine can be copied

– So continuous innovation is required

• Does machine learning automate continuous innovation?

– Or is machine learning just another routine that requires innovation?

31

REPLACING OR REDESIGNING WORK?

Back to the Balance

• Will robots / software simply replace workers?

• Will we redesign work to take advantage of human cognition and creativity?

32

Algorithms, workers, and productivity

THE HOPE!

Outcomes may not be inherent in technology

33

Algorithms, workers, and productivity

If outcomes are not inherent in technology….

We come back to the deployment question

34

Algorithms, workers, and productivity

DEPLOYMENT STRATEGIES AND WORK ORGANIZATION

Workers: • An asset to be promoted?

• Or a cost to be contained?

35

There will be national variations in deployment choices and variations in deployment outcomes

• How will Cyber be integrated into production – Consider Industrie 4.0 – What standards will favor whom?

Promoting Intelligence Augmentation

Possible Routes

1. What is being done by whom

2. What is the nature of human capacity

3. IA Prize

36

What world will we create?

Towards an integrated policy conversation

37

38

What world will we create?

I. PRIVATE VS. PUBLIC GOVERNANCE Digital platforms structure interactions

• Private structure and public rules

• What should be publicly or privately “governed”

39

What world will we create?

I. PRIVATE VS. PUBLIC GOVERNANCE Managing Innovation While Maintaining Rule based markets

• The Giant Platforms and Social Policy – Uber

• Transportation

– AirBnB

• Urban Planning

40

What world will we create?

I. PRIVATE VS. PUBLIC GOVERNANCE Managing Innovation While Maintaining Rule based markets

• A Silicon Valley Mantra: “Don’t Ask Permission, Ask Forgiveness”

41

What world will we create?

II. POLICY DOMAINS: Break down the silos of discussion

Consider the interconnections between…

• Privacy Big Data

• Competition Policy Labor Law

42

What world will we create?

II. POLICY DOMAINS How do we group the debates?

• Regulating Protections Workers, Communities, Clients

• Social Policy Markets, Employment, Citizenship

• Market Policy Who gains and how do we compete

43

What world will we create?

III. INTERNATIONAL RULES AND GLOBAL SYSTEMS

• What format for International Rules?

• The problem with treaties in the ICT world

– Rigidity in fast evolving technology – Who is involved

44

What world will we create?

IV. THE POLITICS OF DIGITAL TRANSFORMATION

• Structural change is not a matter of bloodless statistics

• Politics of this structural change in a Platform Economy

45

What world will we create?

IV. THE POLITICS OF DIGITAL TRANSFORMATION: BEYOND EFFICIENCY AND INNOVATION

• Can the era of rapid growth post-WW II help us understand the emergence of the platform economy

– Promoting winner, containing losers

– Fast growth solutions; slow growth problems

• The Implications of the American election

– Fragmentation of interests and the dynamic of mass politics.

46

Two Takeaways: Two Critical Issues Going Forward

• Digital Deployment: Human consciousness and artificial intelligence

• Beyond Specific Policies: The politics of structural change in the era of the platform and digitalization

47

The fault will lie not in our technology, But in ourselves

• What world will we create in a platform era?

• How will policy matter?

• How do we shape those debates?

Berkeley Roundtable on the International Economy University of California, Berkeley

Platforms: The Next Phase in the Digital Economy

Thank You

48

Berkeley Roundtable on the International Economy University of California, Berkeley

Platforms: The Next Phase in the Digital Economy

“The Rise of the Platform Economy” Martin Kenney and John Zysman in Issues in Science and Technology http://issues.org/32-3/the-rise-of-the-platform-economy/

The algorithmic revolution---the fourth service transformation Magazine Communications of the ACM - Services science CACM Homepage archive Volume 49 Issue 7, July 2006 Page 48 How Revolutionary Was the Digital Revolution: National Responses, Market Transitions, and Global Technology, ed. With Abraham Newman Stanford University Press 2006

“Choosing a Future in the Platform Economy: Implications and Consequences of Digital Platforms” BRIE / ETLA Collaboration with Support from TEKES and Kauffman

Prior BRIE research on the Digital Economy: www.brie.berkeley.edu

49