These are excerpts from a chapter originally published in The Political Economy of Justice (2022, University of Chicago Press). Read the full chapter here.

By Juliet Schor Economist and Professor of Sociology, Boston College Co-author: Samantha Eddy

Introduction

The Great Recession shone a bright light on structural problems that had been accumulating in the global economy for years. The failure of national governments to solve economic and ecological challenges, coupled with a decades-long right-wing attack on the state, resulted in widespread pessimism about the possibility and efficacy of political action, particularly in the United States. This proved to be fertile ground for optimism about a variety of market-based solutions.

One of those solutions came to be known as the “sharing economy.” It emerged with the Great Recession and promised a new way of organizing economic activity. It would be smaller-scale, more personal, and much more efficient. Power would not be concentrated in the hands of a few. It represented a way to deploy new technology in the service of human needs. Indeed, founders and ordinary participants claimed it could be the solution to multiple problems facing capitalist societies: inequality and exclusion, stagnant incomes, cli- mate chaos, and social disconnection (Schor 2014, 2020). The central vehicle for realizing these goals was online person-to-person exchange made newly feasible by innovations in digital technology (Benkler 2006).

The core idea is that small-scale, personal economic activity becomes viable as a result of digital tools, matching algorithms, and crowdsourced reputational data. These features overcome the long-standing drawbacks of peer-to- peer or person-to-person markets, such as costly search and risky exchanges. Consumers reap benefits and individual providers can control their work lives in new and empowering ways (Castillo, Knoepfle, and Weyl 2018; Einav, Farronato, and Levin 2016; Horton and Zeckhauser 2016; Schor 2020; Sundararajan 2016). In particular, the “sharing economy” offered the possibility of giving workers control over their schedules, total hours of work, and the labor process itself. The promise is that individuals can do it themselves by participating in this emergent, humane market (Fitzmaurice et al 2020).

Not everyone believed in the promise of the “sharing economy.” There has been widespread skepticism about some platform companies, particularly Uber, which has the largest labor force by a big margin. Some argued that the sharing sector represented the emergence of a hyper-predatory regime of labor control (Hill 2015; Rosenblat 2018; Scholz 2016b). Others foresaw a new frontier in the commodification and corporatization of everyday life and the destruction of urban quality of life (Morozov 2013; Slee 2015; see also the chapter by Stears in this book). A decade after its founding, many in the US have written off the sharing economy as a malignant force degrading workers and neighborhoods.

Others still see potential in the technologies and peer-to-peer structure. The experiences of some European countries, which have subjected platforms to more stringent regulation, suggest that policies and impacts are not predetermined by economics or technology (Rahman and Thelen 2019; Söderqvist 2017; Thelen 2018). Since 2018, regulatory activity protecting residents and workers has increased in the US, particularly in ride-hailing and accommodation. And after years of unsuccessful legal ef- forts to reclassify platform workers from independent contractors to employees (Collier, Dubal, and Carter 2017), pioneering legislation to convert providers to employees has been enacted, although this fight is ongoing. It is possible that after a decade of regulatory arbitrage and nullification by the firms (Acevedo 2016; Calo and Rosenblat 2017; Collier, Dubal, and Carter 2018; Rahman 2016), the power of platforms is being reined in. If so, workers and urban residents will likely benefit.

But this familiar turn to regulation, welcome as it will be, may not exploit the more transformative possibilities of the new technologies used by plat- forms in the sharing economy (Benkler 2004, 2006, 2013; Schor 2010). That may require a less traditional approach. In particular, the peer-to-peer (P2P) structure enabled by technology may not only make transactions more efficient, it may also do the same for democratic governance. This is the contention of a small but growing movement for platform cooperativism (Scholz 2014, 2016a; Scholz and Schneider 2016). Platform cooperatives borrow some of the features of worker cooperatives, in particular worker ownership and governance. But because platforms typically operate differently than conventional firms, they also offer new opportunities and challenges. Platform co-ops raise the possibility that P2P marketplaces can support a new enterprise form that is capable of achieving greater economic justice and democracy than conventional firms.

Platform cooperatives are best understood as one type of firm within a larger, more pluralist economy. This vision counters the conceit of twentieth- century economic theory that the capitalist firm is optimal and that economies should evolve toward a singular business form. Rather, it sees platform cooperatives as one type in a diverse ecosystem of ownership and governance arrangements that include small and large-scale commons, trusts, varied financial arrangements (public banks, crowdsourcing, credit cooperatives), small and owner-run businesses, nonprofits, networked enterprises, and others (Alperovitz 2011; Benkler 2006; Ostrom 1990; Piore and Sabel 2000).

Research on the sharing economy that we conducted in the sociology department of Boston College from 2011 to 2018  covered 12 cases of for-profit and nonprofit entities, including the first academic study of a platform cooperative. Our cases are Airbnb, Turo, TaskRabbit, Lyft and Uber, Postmates and Favor, a timebank, a food swap, a makerspace, Stocksy (the platform co-op), and an open education case. We did interviews, hundreds of hours of ethnography, web scraping, and quantitative analysis. Our database contains roughly 325 interviews.

. . .

Platform Cooperativism

The failures of the for-profit platforms to deliver good outcomes to workers on the three dimensions we identified above (compensation, autonomy, and voice), in combination with the lack of growth in the nonprofit sector, have resulted in the emergence of a movement for platform cooperatives. They are a subset of the larger class of worker cooperatives that date from the early nineteenth century in England. While this is still a new form, the innovations associated with platform technology may help to solve long-standing questions about cooperatives.

In the literature there are two broad classes of questions and research about the cooperative form—economic performance and democratic governance. Key economic questions are the cooperative’s relative performance on productivity, employment, and wages in comparison to conventionally managed firms. There is now quite a bit of evidence to conclude that employee- owned and governed firms are economically sustainable and that they return more economic value to workers, reduce turnover, and motivate work effort (Blasi, Freeman, and Kruse 2017; Cheney et al. 2014; Pencavel 2013). While there may be differences between conventional and cooperative firms in terms of rates of innovation, how employment responds to reduced demand, and other economic outcomes, the cooperative form is clearly viable. The biggest economic challenge to the scaling of this model remains one that was identified decades ago: access to capital (Gintis 1989). If this problem were solved, it is likely that the cooperative sector could grow and prosper. Indeed, that seems to be occurring in many places in the world (Cheney et al. 2014). One challenge is what researchers have termed “degeneration,” or the decline of worker ownership and devolution to a conventional setup in which owners hire workers (Cheney et al. 2014; Pencavel 2013). One explanation is the “iron law of oligarchy,” in which an owner-elite comes to dominate.

A related set of questions involves the extent of democratic participation. There is less literature on this issue, although ensuring robust participation by workers and maintaining democratic control over elected management are ongoing challenges. One argument is that robust democracy is difficult when participatory firms are embedded in larger societies that have few democratic structures (Varman and Chakrabarti 2004). A second issue is a potential trade-off between democracy and efficiency, which has been noted in some cooperatives (Ng and Ng 2009). However, there is also evidence in the literature of “regeneration,” when enterprises revitalize their governance mechanisms and practice (Cheney et al. 2014). How might platform cooperatives fare on these issues?

The platform cooperative is an online enterprise that is owned and governed by those who work on it (Scholz 2014, 2016a; Schneider 2018; Chase 2015). This form harnesses the benefits of the technology with a structure that is oriented to fair treatment and self-determination for producers. If governance is robust, it can also create social ties and even solidarity. Platform cooperatives have the potential to overcome some of the weaknesses of both the for-profit and nonprofit forms as discussed earlier. With respect to the former, they deliver a larger fraction of the revenue to the workers and are more likely to institute rules and policies that a majority of workers consider fair and equitable. For example, algorithmic management is less problematic if workers help develop the algorithms and the software remains accountable to worker-owners. Democratic governance also allows members to reject clients or projects they are ethically opposed to, an issue that has become a particular flashpoint at tech companies (Fang 2019; Shaban 2018).

 . . .

To date, there are relatively few platform cooperatives in operation, particularly in the US. . . . Our team did what we believe to be the first case study of a platform cooperative—a stock photography company called Stocksy United (Sulakshana, Eddy, and Schor 2018). At 1000 members, it is the largest and most well-established North American producer-owned platform cooperative currently in operation. (In contrast to our other cases, it is not a “sharing economy” company because its customers are mainly businesses. One difference is that they do not use a public reputation system and there is no direct contact between the artists and the customers. However, at the time we were undertaking our research, there were no other viable options to study.)

Stocksy was founded by Bruce Livingstone and Brianna Wettlaufer, two owners of a stock photo platform that they sold to Getty, the industry leader. The acquisition resulted in artists’ dissatisfaction with pay and policies under the new regime. The former owners then decided to organize a new cooperative to foster creativity, provide higher returns to artists, and enable democratic governance. Founded in 2012, Stocksy is a multistakeholder co-op in which the staff and a governing board also hold shares. The biggest obstacle to establishing cooperatives, financing, was not relevant, as the founders offered a $1.3 million loan from the proceeds of the original sale. Stocksy also began with high levels of industry-specific knowledge and expertise and a proven track record. While it is impossible to know how much that mattered, it seems obvious that it did.

By most metrics, Stocksy has been extremely successful. It has robust revenues and was able to repay its loan and begin profit-sharing in its second year. It has carved out a lucrative market niche with a unique positioning in the industry—as a boutique shop with a distinctive aesthetic style. We found that members report high levels of satisfaction. The cooperative structure attracted highly talented and successful artists who ordinarily will not sell in the low-prestige stock portion of the industry. Members did not complain about exploitation or unfair treatment. Artists receive 50 percent of one- time sales, in comparison to the 15 percent industry standard, and 75 percent for extended licenses (versus 45 percent). Some take advantage of the com- munity aspects of the site, getting support from the online forum and, in some cases, meeting up with other Stocksy members.

Stocksy differs from most platforms because membership is by application and has been subject to limits. It has been extremely competitive to join, with a 6 percent initial acceptance rate, which rose to 10 percent. . . . By contrast, freelancer cooperatives such as SMart do not maintain membership limits.

. . .

The success of Stocksy is especially impressive in view of a dynamic that we find endemic to most platforms in the sharing space: diversity of participant orientations. As we found in our other case studies, there is variation in the extent to which earners rely on platforms for income, with the coexistence of supplemental and dependent earners. This range is found on the labor and capital platforms we studied and has been found on marketplaces such as Etsy (2013) and digital platforms Upwork and Amazon Mechanical Turk (Caraway 2010; Gray and Suri 2019; Popiel 2017). . . .

One issue, however, is that Stocksy is a winner-take-all market. In 2016, 87 of the 1000 members earned 66.2 per-cent of the total royalties. Among those 87, the top nine contributors earned 26.5 percent.23 Stocksy’s perhaps uniquely extreme concentration is due to a number of factors. One is the presence of highly talented artists, who are attracted by the cooperative setup. The second is the diversity noted previously, and specifically the presence of a small number of highly commercially oriented producers who invest considerable sums on shoots (up to $20,000 for one shoot) and submit large portfolios alongside hobbyists who rarely submit. This “challenge of individual contribution” is especially an issue with online co-ops because conventional worker co-ops are more likely to make collaborative products. . . .

Stocksy is an instructive example for advocates of the platform cooperatives, however, it is also in many ways a best case. Its founders had deep experience in the industry and ample financing. It also carved out an upscale, profitable niche in a competitive market. Cheney and colleagues (2014) note that to be successful in global markets, cooperatives may now need to not merely respond to markets, but may have to create and lead them. Stocksy is a successful example of doing just this.

Furthermore, it did not face issues that are central for consumer-oriented service labor cooperatives (e.g., ride-hail, cleaning, and caring labor), such the “tyranny of the market,” when consumers are not willing to pay living wages or there is a sharp trade-off between prices and demand. For a discussion of this kinds of dilemmas, see Sandoval (2019). Stocksy artists were generally insulated from these economic dilemmas.

Envisioning a Pluralist Economy

It is too early to know whether cooperatives will become widespread. However, if they do, they may prove to be an important innovation in the plat- form ecosystem that can protect workers against exploitative employers and provide the opportunity for self-determination. The costs of the basic technology are in decline, and there are efforts underway to create open- source toolkits that will make establishing a platform cooperative relatively easy. For providers, platform cooperatives are likely better than monopolistic companies. However, they are not a panacea. Their ability to shape the larger labor market in which they operate is limited except in the case of substantial monopsonist power or cross-industry collaboration among cooperatives. However, that type of price setting is likely illegal. This suggests that platform cooperativism, even in its most successful incarnation, can only be one component of a system-wide restructuring that is capable of producing economic democracy and justice. Furthermore, platform cooperatives have little inherent advantage over for-profits on issues of ecological and carbon sustainability. To deliver those outcomes, this enterprise structure must be paired with a robust regulatory regime that internalizes key externalities and an expanding culture of solidarity and ecological responsibility.

In our view, platform cooperatives should be seen as one, albeit important, type of enterprise form in a hybrid or pluralist economy (Alperovitz 2011; Benkler 2006; see also Rodrik and Sabel’s chapter in this book). Cooperatives, both offline and online, address working conditions and help to create democratic workplaces. But other forms of economic organization are also feasible and desirable. Municipally-owned platforms are a close cousin that may be well suited to certain kinds of services. More conventional options include small businesses and self-employment. Resources held in common by local and regional communities are another important form that has become increasingly popular. Some of these may function as not-for-profits. Land and housing trusts are another building block of a new hybridized economic ecosystem. The global community must also find a structure for managing the atmospheric commons sustainably. We do not yet know what that will be. What we do know is that there is now growing excitement and energy around various alternative forms of economic organization. If these forms expand, they hold the possibility for creating a more democratic and just economy.

These are excerpts from a chapter originally published in The Political Economy of Justice (2022, University of Chicago Press). Read the full chapter here.