Economic growth: inclusive, green, no-cost.


Print Friendly
Don’t blame banks and start-ups for maximizing their efficiency. The problem is; bodies that could do the same for the rest of us haven’t.



Circumstantial factors

Why did international banks get such empowering markets? They happened to have the ideal conditions as computerized trading became possible. Their markets feature:

  • Simplicity of sale: Change of ownership of a financial instrument can be achieved with just transfer of details from one database column to another. There are no complex dependencies like transport of an item from seller to buyer.


  • Concentration of Sellers: Parts of Big Finance are highly concentrated. Nine Wall Street banks control 70% of stock market orders. If those 9 decide they will collaborate to force, for example, competing exchanges to become interoperable, it tends to happen.


  • Government enablement: Trust in a wide-open, high turnover, market requires swift punishment of dishonest traders and easy completion of transactions. Official entities such as the National Market System, government-owned clearing houses, the Mifiid standards and NRSRO’s enabled this for financiers.


From 1997 new exchanges, led by Island and Archipelago, exploited these factors. In parallel, programmer Thomas Peterffy quietly perfected auto-trading tools. By 1999 his secret was out; Goldman Sachs moved conclusively towards algorithmic trading and the arms race began. “Algo” trading took over financial markets around the world through the 2000’s.

A few other sectors were also ready for a new-generation market. As the travel industry moved online, hotel chains, airlines and rental car companies coalesced  around a “Global Distribution System”. It’s their database of each room, flight seat and vehicle; when it is available and how it is to be priced at any time. When we shop on platforms like TripAdvisor, or Expedia and notice a room price fluctuating, it is because of the underlying database. Algorithms working for sellers know exactly what each room is worth. We don’t.


Meanwhile in the wider world

For 99% of us, our time is our key economic asset. It’s what employers pay for. From the 2000’s low-skill employment has been fragmenting; away from regular jobs to portfolios of hour-by-hour work. That’s driven by fundamentals: a shift from manufacturing to services, new scheduling technologies, corporate short-termism and changing worker lifestyles.

Clearly there was a need for new kinds of labor market. But trading of peoples’ hours does not immediately align with the best conditions for computerized commerce. Labor markets feature:

  • Nuanced transactions: Even the most opaque financial derivative won’t; slink off at lunchtime, ruffle customers, or taste your food order. Temporary labor is fraught with these outside-the-database issues; so a computerized market can’t really guarantee transactions.


  • Atomized seller base: There is no non-governmental body that can move more than a fraction of sellers in this market. The biggest private sector employers have heft, but no immediate incentive to drive real worker empowerment.


  • Unresponsive official bodies: Read on for more on the mystifying passivity of public agencies as labor markets evolved.

So, no significant, neutral, new labor market emerged. That created a vacuum in which Uber catalysed an opportunity for Silicon Valley investors. Using technologies developed in government programs – encryption, mapping, payment mechanisms, display tools, connectivity – Uber offered a minicab booking platform starting in 2009. The model avoided overheads and often ducked regulatory compliance.

And Uber could commoditize workers to keep costs down. Drivers with better cars earn more. But drivers themselves do as they’re told for what Uber’s software decides they’re worth. (Uber takes disproportionate flak in coverage of “gig work”. That’s because of scrutiny after they become the most valuable private company ever. We have little idea what thousands of labor markets aiming to emulate Uber in other sectors are doing with their algorithms.)


Governments sit it out

Over the last 20 years, digital issues as diverse as social media addiction, data breaches, foreign interference, and revenge porn have commanded policymakers’ attention. Remaining unasked is the Market Fairness Question: “Can our citizens and businesses access the best possible markets?”

Politicians could have put their finger on the scales for workers. In any economy, public bodies are typically the biggest buyer of labor (directly or through contractors), the key regulators and overseers of registries determining who is licenced to do what. Billions are spent on boosting employment prospects.

Even in light safety-net countries like the US, government has used this leverage to initiate more inclusive and empowering labor markets since the 1880’s. Doing so cuts costs of public assistance and drives growth. Even significant investment in better labor markets goes unopposed in tough times.  But – beyond some marginal adjustments and attempts to prepare workers – officials around the world were bovine when faced with atomizing employment in the 21st Century. A reluctance to officially shape nascent technologies is commendable, but it has continued even as inadequacies of commercial labor markets pile up.

Around the developed world, governments already operate publicly funded online labor markets for all types of jobs, creating an alternative to Monster, Indeed, CareerBuilder and other for-profit platforms. See for example those in the US, Canada, Britain and Australia. Why not do the same for the new world of hour-by-hour work? (Disclosure: we are working with individual US workforce boards on this possibility.)

A chicken-and-egg seems to explain lack of action from the top. Official data collection is not granular enough to properly detect “gig work” and much of it goes unreported in shadow economies. So government employment services, like America’s Public Workforce System, remain focused on targets around 20th century job creation.


Hiding on plain sites

Why haven’t voters demanded action? It’s hard to avoid a humbling conclusion about Modern Markets: few people understand what’s happening. And those that do have every incentive to keep quiet.

Walls of screens on a bank trader’s desk have become a recurring image. Visually unappealing and data dense, it’s easy to assume those displays are boringly tangential to our lives. Meanwhile, the beguiling Uber interface on a phone might feel more sophisticated, more impactful.

Uber relies on complex routing, pricing and display technologies. But as a labor market it’s basic. Try telling the App to price you towards your girlfriend’s home, help you assemble a pool of regular local customers or add a new service you’ve dreamed up. You can’t. Uber has no remit, means or business case for shaping an entrepreneurial, empowering, labor market. That should be clear from the scale of their investment in driverless vehicles.


Schlock and Awe

Uber has portrayed its inroads against public transportation and traditional taxis as driven by a superior model. But it massively subsidizes transactions, up to 60% in some cities. That outlay can be recouped once Uber becomes a dominant market for buyers, able to rack up prices and force down pay. This brute financial force running alongside lobbying and public outreach can create a sense of inevitability about new platforms.

Many officials have bought into this positioning of commercial platform operators as essential innovators: Denmark’s official tourist agency is among several partnered with room rental site AirBnB despite what’s been called their “Guerrilla War” against local governments. When Austin, Texas, tried to ban global ride-share services, they were overruled by state lawmakers. A “Sharing Economy Review” set up by Britain’s government had the founder of an online home exchange as chair. Innisfil, Ontario, is one city that has paid Uber to replace public transit.

Uber and its emulators are often better than older ways for sellers to find buyers; print adverts, flyers, street hawking. That doesn’t make them the best markets now possible. Authorities have a long history of ensuring healthy, diverse, economic forums. Ignorance, a veneer of showy technologies, and beguiling PR by start-ups does seem to have dampened that commitment over the last 20 years.


→ Consequences