Children have never been afforded the full sovereignty of adulthood (Cunningham, 2009) but both these concepts suggest children have become the points of application for new forms of power that have emerged from the digitisation of society. The most dominant form of this power is called “platform capitalism” (Srnicek, 2016). As a result of platform capitalism’s success, there has never been a stronger association between data, young people’s private lives, their relationships with friends and family, their life at school, and the broader political economy. In this post I will define platform capitalism, outline why it has come to dominate children’s relationship to the internet and suggest two reasons in particular why this is problematic.

Children predominantly experience the Internet through platforms

‘At the most general level, platforms are digital infrastructures that enable two or more groups to interact. They therefore position themselves as intermediaries that bring together different users: customers, advertisers, service providers, producers, suppliers, and even physical objects’ (Srnicek 2016, p43). Examples of platforms capitalism include the technology superpowers – Google, Apple, Facebook, and Amazon. There are, however, many relevant instances of platforms that children and young people use. This includes platforms for socialising, platforms for audio-visual content, platforms that communicate with smart devices and toys, and platforms for games and sports franchises and platforms that provide services (including within in the public sector) that children or their parents use.

Young people choose to use platforms for play, socialising and expressing their identity. Adults have also introduced platforms into children’s lives: for example Capita SIMS is a platform used by over 80% of schools in the UK for assessment and monitoring (over the coming months at the Oxford Internet Institute we will be studying such platforms, including SIMS, for The Oak Foundation). Platforms for personal use have been facilitated by the popularity of tablets and smartphones.

Amongst the young, there has been a sharp uptake in tablet and smart phone usage at the expense of PC or laptop use. Sixteen per cent of 3-4 year olds have their own tablet, with this incidence doubling for 5-7 year olds. By the age of 12, smartphone ownership begins to outstrip tablet ownership (Ofcom, 2016). For our research at the OII, even when we included low-income families in our sample, 93% of teenagers owned a smartphone. This has brought forth the ‘appification’ of the web that Zittrain predicted in 2008. This means that children and young people predominately experience the internet via platforms that we can think of as controlled gateways to the open web.

Platforms exist to make money for investors

In public discourse some of these platforms are called social media. This term distracts us from the reason many of these publicly floated companies exist: to make money for their investors. It is only logical for all these companies to pursue the WeChat model that is becoming so popular in China. WeChat is a closed circuit platform, in that it keeps all engagements with the internet, including shopping, betting, and video calls, within its corporate compound. This brings WeChat closer to monopoly on data extraction.

Platforms have consolidated their success by buying out their competitors. Alphabet, Amazon, Apple, Facebook and Microsoft have made 436 acquisitions worth $131 billion over the last decade (Bloomberg, 2017). Alternatively, they just mimic the features of their competitors. For example, when Facebook acquired Instagram it introduced Stories, a feature use by Snapchat, which lets its users upload photos and videos as a ‘story’ (that automatically expires after 24 hours).

The more data these companies capture that their competitors are unable to capture, the more value they can extract from it and the better their business model works. It is unsurprising therefore that during our research we asked groups of teenagers to draw a visual representation of what they thought the world wide web and internet looked like – almost all of them just drew corporate logos (they also told us they had no idea that platforms such as Facebook own WhatsApp and Instagram, or that Google owns YouTube). Platform capitalism dominates and controls their digital experiences — but what provisions do these platforms make for children?

The General Data Protection Regulation (GDPR) (set to be implemented in all EU states, including the UK, in 2018) says that platforms collecting data about children below the age of 13 years shall only be lawful if and to the extent that consent is given or authorised by the child’s parent or custodian. Because most platforms are American-owned, they tend to apply a piece of Federal legislation known as COPPA; the age of consent for using Snapchat, WhatsApp, Facebook, and Twitter, for example, is therefore set at 13. Yet, the BBC found last year that 78% of children aged 10 to 12 had signed up to a platform, including Facebook, Instagram, Snapchat and WhatsApp.

Platform capitalism offloads its responsibilities onto the user

Why is this a problem? Firstly, because platform capitalism offloads any responsibility onto problematically normative constructs of childhood, parenting, and paternal relations. The owners of platforms assume children will always consult their parents before using their services and that parents will read and understand their terms and conditions, which, research confirms, in reality few users, children or adults, even look at.

Moreover, we found in our research many parents don’t have the knowledge, expertise, or time to monitor what their children are doing online. Some parents, for instance, worked night shifts or had more than one job. We talked to children who regularly moved between homes and whose estranged parents didn’t communicate with each other to supervise their children online. We found that parents who are in financial difficulties, or affected by mental and physical illness, are often unable to keep on top of their children’s digital lives.

We also interviewed children who use strategies to manage their parent’s anxieties so they would leave them alone. They would, for example, allow their parents to be their friends on Facebook, but do all their personal communication on other platforms that their parents knew nothing about. Often then the most vulnerable children offline, children in care for example, are the most vulnerable children online. My colleagues at the OII found 9 out of 10 of the teenagers who are bullied online also face regular ‘traditional’ bullying. Helping these children requires extra investment from their families, as well as teachers, charities and social services. The burden is on schools too to address the problem of fake news and extremism such as Holocaust denialism that children can read on platforms.

This is typical of platform capitalism. It monetises what are called social graphs: i.e. the networks of users who use its platforms that it then makes available to advertisers. Social graphs are more than just nodes and edges representing our social lives: they are embodiments of often intimate or very sensitive data (that can often be de-anonymised by linking, matching and combining digital profiles). When graphs become dysfunctional and manifest social problems such as abuse, doxxing, stalking, and grooming), local social systems and institutions — that are usually publicly funded — have to deal with the fall-out. These institutions are often either under-resourced and ill-equipped to these solve such problems, or they are already overburdened.

Are platforms too powerful?

The second problem is the ecosystems of dependency that emerge, within which smaller companies or other corporations try to monetise their associations with successful platforms: they seek to get in on the monopolies of data extraction that the big platforms are creating. Many of these companies are not wealthy corporations and therefore don’t have the infrastructure or expertise to develop their own robust security measures. They can cut costs by neglecting security or they subcontract out services to yet more companies that are added to the network of data sharers.

Again, the platforms offload any responsibility onto the user. For example, WhatsApp tells its users; “Please note that when you use third-party services, their own terms and privacy policies will govern your use of those services”. These ecosystems are networks that are only as strong as their weakest link. There are many infamous examples that illustrate this, including the so-called ‘Snappening’ where sexually explicit pictures harvested from Snapchat — a platform that is popular with teenagers — were released on to the open web. There is also a growing industry in fake apps that enable illegal data capture and fraud by leveraging the implicit trust users have for corporate walled gardens.

What can we do about these problems? Platform capitalism is restructuring labour markets and social relations in such a way that opting out from it is becoming an option available only to a privileged few. Moreover, we found teenagers whose parents prohibited them from using social platforms often felt socially isolated and stigmatised. In the real world of messy social reality, platforms can’t continue to offload their responsibilities on parents and schools.

We need some solutions fast because, by tacitly accepting the terms and conditions of platform capitalism – particularly when that they tell us it is not responsible for the harms its business model can facilitate – we may now be passing an event horizon where these companies are becoming too powerful, unaccountable, and distant from our local reality.

References

Hugh Cunningham (2009) Children and Childhood in Western Society Since 1500. Routledge.

Sonia Livingstone, Amanda Third (2017) Children and young people’s rights in the digital age: An emerging agenda. New Media and Society 19 (5).

Deborah Lupton, Ben Williamson (2017) The datafied child: The dataveillance of children and implications for their rights. New Media and Society 19 (5).

Nick Srnicek (2016) Platform Capitalism. Wiley.

In his Policy & Internet article “Platform Logic: An Interdisciplinary Approach to the Platform-based Economy“, Jonas Andersson Schwarz argues that digital platforms enact a twofold logic of micro-level technocentric control and macro-level geopolitical domination, while supporting a range of generative outcomes between the two levels. Technology isn’t ‘neutral’, and what designers want may clash with what users want: so it’s important that we take a multi-perspective view of the role of digital platforms in contemporary society. For example, if we only consider the technical, we’ll notice modularity, compatibility, compliance, flexibility, mutual subsistence, and cross-subsidization. By contrast, if we consider ownership and organizational control, we’ll observe issues of consolidation, privatization, enclosure, financialization and protectionism.

When focusing on local interactions (e.g. with users), the digital nature of platforms is seen to strongly determine structure; essentially representing an absolute or totalitarian form of control. When we focus on geopolitical power arrangements in the “platform society”, patterns can be observed that are worryingly suggestive of market dominance, colonization, and consolidation. Concerns have been expressed that these (overwhelmingly US-biased) platform giants are not only enacting hegemony, but are on a road to “usurpation through tech — a worry that these companies could grow so large and become so deeply entrenched in world economies that they could effectively make their own laws”.

We caught up with Jonas to discuss his findings:

Ed.: You say that there are lots of different ways of considering “platforms”: what (briefly) are some of these different approaches, and why should they be linked up a bit? Certainly the conference your paper was presented at (“IPP2016: The Platform Society”) seemed to have struck an incredibly rich seam in this topic, and I think showed the value of approaching an issue like digital platforms from multiple disciplinary angles.

Jonas: In my article I’ve chosen to exclusively theorize *digital* platforms, which of course narrows down the meaning of the concept, to begin with. There are different interpretations as for what actually constitutes a digital platform. There has to be an element of proprietary control over the surface on which interaction takes place, for example. While being ubiquitous digital tools, free software and open protocols need not necessarily be considered as platforms, while proprietary operating systems should.

Within contemporary media studies there is considerable divergence as to whether one should define so-called over-the-top streaming services as platforms or not. Netflix, for example: In a strict technical sense, it’s not a platform for self-publishing and sharing in the way that YouTube is—but, in an economic sense, Netflix definitely enacts a multi-sided market, which is one of the key components of a what a platform does, economically speaking. Since platforms crystallize economic relationships into material infrastructure, conceptual conflation of this kind is unavoidable—different scholars tend to put different emphasis on different things.

Hence, when it comes to normative concerns, there are numerous approaches, ranging from largely apolitical computer science and design management studies, brandishing a largely optimistic view where blithe conceptions of innovation and generativity are emphasized, to critical approaches in political economy, where things like market dominance and consolidation are emphasized.

In my article, I try to relate to both of these schools of thought, by noting that they each are normative — albeit in vastly different ways — and by noting that not only do they each have somewhat different focus, they actually bring different research objects to the table: Usually, “efficacy” in purely technical interaction design is something altogether different than “efficacy” in matters of societal power relations, for example. While both notions can be said to be true, their respective validity might differ, depending on which matter of concern we are dealing with in each respective inquiry.

Ed.: You note in your article that platforms have a “twofold logic of micro-level technocentric control and macro-level geopolitical domination” .. which sounds quite a lot like what government does. Do you think “platform as government” is a useful way to think about this, i.e. are there any analogies?

Jonas: Sure, especially if we understand how platforms enact governance in really quite rigid forms. Platforms literally transform market relations into infrastructure. Compared to informal or spontaneous social structures, where there’s a lot of elasticity and ambiguity — put simply, giving-and-taking — automated digital infrastructure operates by unambiguous implementations of computer code. As Lawrence Lessig and others have argued, the perhaps most dangerous aspect of this is when digital infrastructures implement highly centralized modes of governance, often literally only having one point of command-and-control. The platform owner flicks a switch, and then certain listings and settings are allowed or disallowed, and so on…

This should worry any liberal, since it is a mode of governance that is totalitarian by nature; it runs counter to any democratic, liberal notion of spontaneous, emergent civic action. Funnily, a lot of Silicon Valley ideology appears to be indebted to theorists like Friedrich von Hayek, who observed a calculative rationality emerging out of heterogeneous, spontaneous market activity — but at the same time, Hayek’s call to arms was in itself a reaction to central planning of the very kind that I think digital platforms, when designed in too rigid a way, risk erecting.

Ed.: Is there a sense (in hindsight) that these platforms are basically the logical outcome of the ruthless pursuit of market efficiency, i.e. enabled by digital technologies? But is there also a danger that they could lock out equitable development and innovation if they become too powerful (e.g. leading to worries about market concentration and anti-trust issues)? At one point you ask: “Why is society collectively acquiescing to this development?” .. why do you think that is?

Jonas: The governance aspect above rests on a kind of managerialist fantasy of perfect calculative rationality that is conferred upon the platform as an allegedly neutral agent or intermediary; scholars like Frank Pasquale have begun to unravel some of the rather dodgy ideology underpinning this informational idealism, or “dataism,” as José van Dijck calls it. However, it’s important to note how much of this risk for overly rigid structures comes down to sheer design implementation; I truly believe there is scope for more democratically adaptive, benign platforms, but that can only be achieved either through real incentives at the design stage (e.g. Wikipedia, and the ways in which its core business idea involves quality control by design), or through ex-post regulation, forcing platform owners to consider certain societally desirable consequences.

Ed.: A lot of this discussion seems to be based on control. Is there a general theory of “control” — i.e. are these companies creating systems of user management and control that follow similar conceptual / theoretical lines, or just doing “what seems right” to them in their own particular contexts?

Jonas: Down the stack, there is always a binary logic of control at play in any digital infrastructure. Still, on a higher level in the stack, as more complexity is added, we should expect to see more non-linear, adaptive functionality that can handle complexity and context. And where computational logic falls short, we should demand tolerable degrees of human moderation, more than there is now, to be sure. Regulators are going this way when it comes to things like Facebook and hate speech, and I think there is considerable consumer demand for it, as when disputes arise on Airbnb and similar markets.

Ed.: What do you think are the main worries with the way things are going with these mega-platforms, i.e. the things that policy-makers should hopefully be concentrating on, and looking out for?

Jonas: Policymakers are beginning to realize the unexpected synergies that big data gives rise to. As The Economist recently pointed out, once you control portable smartphones, you’ll have instant geopositioning data on a massive scale — you’ll want to own and control map services because you’ll then also have data on car traffic in real time, which means you’d be likely to have the transportation market cornered, self driving cars especially… If one takes an agnostic, heterodox view on companies like Alphabet, some of their far-flung projects actually begin to make sense, if synergy is taken into consideration. For automated systems, the more detailed the data becomes, the better the system will perform; vast pools of data get to act as protective moats.

One solution that The Economist suggests, and that has been championed for years by internet veteran Doc Searls, is to press for vastly increased transparency in terms of user data, so that individuals can improve their own sovereignty, control their relationships with platform companies, and thereby collectively demand that the companies in question disclose the value of this data — which would, by extent, improve signalling of the actual value of the company itself. If today’s platform companies are reluctant to do this, is that because it would perhaps reveal some of them to be less valuable than what they are held out to be?

Another potentially useful, proactive measure, that I describe in my article, is the establishment of vital competitors or supplements to the services that so many of us have gotten used to being provided for by platform giants. Instead of Facebook monopolizing identity management online, which sadly seems to have become the norm in some countries, look to the Scandinavian example of BankID, which is a platform service run by a regional bank consortium, offering a much safer and more nationally controllable identity management solution.

Alternative platform services like these could be built by private companies as well as state-funded ones; alongside privately owned consortia of this kind, it would be interesting to see innovation within the public service remit, exploring how that concept could be re-thought in an era of platform capitalism.

Read the full article: Jonas Andersson Schwarz (2017) Platform Logic: An Interdisciplinary Approach to the Platform-based Economy. Policy & Internet DOI: 10.1002/poi3.159.

Jonas Andersson Schwarz was talking to blog editor David Sutcliffe.

Homejoy was slated to become the Uber of domestic cleaning services. It was a platform that allowed customers to summon a cleaner as easily as they could hail a ride. Regular cleanups were just as easy to schedule. Ratings from previous clients attested to the skill and trustworthiness of each cleaner. There was no need to go through a cleaning services agency, or scour local classifieds to find a cleaner directly: the platform made it easy for both customers and people working as cleaners to find each other. Homejoy made its money by taking a cut out of each transaction. Given how incredibly successful Uber and Airbnb had been in applying the same model to their industries, Homejoy was widely expected to become the next big success story. It was to be the next step in the inexorable uberization of every industry in the economy.

On 17 July 2015, Homejoy announced that it was shutting down. Usage had grown slower than expected, revenues remained poor, technical glitches hurt operations, and the company was being hit with lawsuits on contractor misclassification. Investors’ money and patience had finally ran out. Journalists wrote interesting analyses of Homejoy’s demise (Forbes, TechCrunch, Backchannel). The root causes of any major business failure (or indeed success) are complex and hard to pinpoint. However, one of the possible explanations identified in these stories stands out, because it corresponds strongly with what theory on platforms and markets could have predicted. Homejoy wasn’t growing and making money because clients and cleaners were taking their relationships off-platform: after making the initial contact through Homejoy, they would simply exchange contact details and arrange further cleanups directly, taking the platform and its revenue share out of the loop. According to Forbes, only 15-20 percent of customers came back to Homejoy within a month to arrange another cleanup.

According to the theory of platforms in economics and management studies literature, platforms solve coordination problems. Digital service platforms like Uber and Airbnb solve, in particular, the problem of finding another party to transact with. Through marketing and bootstrapping efforts they ensure that both buyers and sellers sign up to the platform, and then provide match-making mechanisms to bring them together. They also provide solutions towards the problem of opportunism, that is, how to avoid being cheated by the other party. Rating systems are their main tool in this.

Platforms must compete against the existing institutional arrangements in their chosen industry. Uber has been very successful in taking away business from government-licensed taxicabs. Airbnb has captured market share from hotels and hotel booking sites. Both have also generated lots of new business: transactions that previously didn’t happen at all. It’s not that people didn’t already occassionally pay a highschool friend to give them a ride home from a party, or rent a room for the weekend from a friend of a friend who lives in New York. It’s that platforms make similar things possible even when the highschool friend is not available, or if you simply don’t know anyone with a flat in New York. Platforms coordinate people to turn what is otherwise a thin market into a thick one. Not only do platforms help you to find a stranger to transact with, but they also help you to trust that stranger.

Now consider the market for home cleaning services. Home cleaning differs from on-demand transport and short-term accommodation in one crucial way: the service is typically repeated. Through repeated interactions, the buyer and the seller develop trust in each other. They also develop knowledge capital specific to that particular relationship. The buyer might invest time into communicating their preferences and little details about their home to the seller, while the seller will gradually become more efficient at cleaning that particular home. They have little need for the platform to discipline each individual cleanup; relationships are thus soon taken off-platform. Instead of an all-encompassing Uber-style platform, all that may be needed is a classifieds site or a conventional agency that provides the initial introduction and references. Contrast this with on-demand transport and short-term accommodation, where each transaction is unique and thus each time the counterparty is a stranger — and as such a potential cheat or deadbeat. Here the platform continues to provide security after the parties have been introduced.

The case of Homejoy and the economic theory on platforms thus suggest that there are fundamental limits to the uberization of the economy. Digital service platforms can be very successful at mediating one-off transactions, but they are much less useful in industries where the exact same service is repeated many times, and where buyers and sellers develop assets specific to the relationship. Such industries are more likely to continue to be shaped by hierarchies and networks of personal relationships.

There are probably other dimensions that are also pivotal in predicting whether an industry is susceptible to uberization. Geographical span is one: there are efficiencies to be had from particular cleaners specializing in particular neighbourhoods. Yet, at the same time, online labour platforms like Upwork cater to buyers and sellers of software development (and other digitally mediated contract work) across national boundaries. I will discuss this dimension in detail in a future blog post.

Vili Lehdonvirta is a Research Fellow at the OII. He is an economic sociologist who studies the design and socioeconomic implications of digital marketplaces and platforms, using conventional social research methods as well as novel data science approaches. Read Vili’s other Policy & Internet Blog posts on Uber and Airbnb:

Uber and Airbnb make the rules now – but to whose benefit?

Why are citizens migrating to Uber and Airbnb, and what should governments do about it?

Should we love Uber and Airbnb or protest against them?

Ride-hailing app Uber is close to replacing government-licensed taxis in some cities, while Airbnb’s accommodation rental platform has become a serious competitor to government-regulated hotel markets. Many other apps and platforms are trying to do the same in other sectors of the economy. In my previous post, I argued that platforms can be viewed in social science terms as economic institutions that provide infrastructures necessary for markets to thrive. I explained how the natural selection theory of institutional change suggests that people are migrating from state institutions to these new code-based institutions because they provide a more efficient environment for doing business. In this article, I will discuss some of the problems with this theory, and outline a more nuanced theory of institutional change that suggests that platforms’ effects on society will be complex and influence different people in different ways.

Economic sociologists like Neil Fligstein have pointed out that not everyone is as free to choose the means through which they conduct their trade. For example, if buyers in a market switch to new institutions, sellers may have little choice but to follow, even if the new institutions leave them worse off than the old ones did. Even if taxi drivers don’t like Uber’s rules, they may find that there is little business to be had outside the platform, and switch anyway. In the end, the choice of institutions can boil down to power. Economists have shown that even a small group of participants with enough market power — like corporate buyers — may be able to force a whole market to tip in favour of particular institutions. Uber offers a special solution for corporate clients, though I don’t know if this has played any part in the platform’s success.

Even when everyone participates in an institutional arrangement willingly, we still can’t assume that it will contribute to the social good. Cambridge economic historian Sheilagh Ogilvie has pointed out that an institution that is efficient for everyone who participates in it can still be inefficient for society as a whole if it affects third parties. For example, when Airbnb is used to turn an ordinary flat into a hotel room, it can cause nuisance to neighbours in the form of noise, traffic, and guests unfamiliar with the local rules. The convenience and low cost of doing business through the platform is achieved in part at others’ expense. In the worst case, a platform can make society not more but less efficient — by creating a ‘free rider economy’.

In general, social scientists recognize that different people and groups in society often have conflicting interests in how economic institutions are shaped. These interests are reconciled — if they are reconciled — through political institutions. Many social scientists thus look not so much at efficiencies but at political institutions to understand why economic institutions are shaped the way they are. For example, a democratic local government in principle represents the interests of its citizens, through political institutions such as council elections and public consultations. Local governments consequently try to strike a balance between the conflicting interests of hoteliers and their neighbours, by limiting hotel business to certain zones. In contrast, Airbnb as a for-profit business must cater to the interests of its customers, the would-be hoteliers and their guests. It has no mechanism, and more importantly, no mandate, to address on an equal footing the interests of third parties like customers’ neighbours. Perhaps because of this, 74% of Airbnb’s properties are not in the main hotel districts, but in ordinary residential blocks.

That said, governments have their own challenges in producing fair and efficient economic institutions. Not least among these is the fact that government regulators are at a risk of capture by incumbent market participants, or at the very least they face the innovator’s dilemma: it is easier to craft rules that benefit the incumbents than rules that provide great but uncertain benefits to future market participants. For example, cities around the world operate taxi licensing systems, where only strictly limited numbers of license owners are allowed to operate taxicabs. Whatever benefits this system offers to customers in terms of quality assurance, among its biggest beneficiaries are the license owners, and among its losers the would-be drivers who are excluded from the market. Institutional insiders and outsiders have conflicting interests, and government political institutions are often such that it is easier for it to side with the insiders.

Against this background, platforms appear almost as radical reformers that provide market access to those whom the establishment has denied it. For example, Uber recently announced that it aims to create one million jobs for women by 2020, a bold pledge in the male-dominated transport industry, and one that would likely not be possible if it adhered to government licensing requirements, as most licenses are owned by men. Having said that, Uber’s definition of a ‘job’ is something much more precarious and entrepreneurial than the conventional definition. My point here is not to side with either Uber or the licensing system, but to show that their social implications are very different. Both possess at least some flaws as well as redeeming qualities, many of which can be traced back to their political institutions and whom they represent.

What kind of new economic institutions are platform developers creating? How efficient are they? What other consequences, including unintended ones, do they have and to whom? Whose interests are they geared to represent — capital vs. labour, consumer vs. producer, Silicon Valley vs. local business, incumbent vs. marginalized? These are the questions that policy makers, journalists, and social scientists ought to be asking at this moment of transformation in our economic institutions. Instead of being forced to choose one or the other between established institutions and platforms as they currently are, I hope that we will be able to discover ways to take what is good in both, and create infrastructure for an economy that is as fair and inclusive as it is efficient and innovative.

Vili Lehdonvirta is a Research Fellow and DPhil Programme Director at the Oxford Internet Institute, and an editor of the Policy & Internet journal. He is an economic sociologist who studies the social and economic dimensions of new information technologies around the world, with particular expertise in digital markets and crowdsourcing.

Cars were smashed and tires burned in France last month in protests against the ride hailing app Uber. Less violent protests have also been staged against Airbnb, a platform for renting short-term accommodation. Despite the protests, neither platform shows any signs of faltering. Uber says it has a million users in France, and is available in 57 countries. Airbnb is available in over 190 countries, and boasts over a million rooms, more than hotel giants like Hilton and Marriott. Policy makers at the highest levels are starting to notice the rise of these and similar platforms. An EU Commission flagship strategy paper notes that “online platforms are playing an ever more central role in social and economic life,” while the Federal Trade Commission recently held a workshop on the topic in Washington.

Journalists and entrepreneurs have been quick to coin terms that try to capture the essence of the social and economic changes associated with online platforms: the sharing economy; the on-demand economy; the peer-to-peer economy; and so on. Each perhaps captures one aspect of the phenomenon, but doesn’t go very far in helping us make sense of all its potentials and contradictions, including why some people love it and some would like to smash it into pieces. Instead of starting from the assumption that everything we see today is new and unprecedented, what if we dug into existing social science theory to see what it has to say about economic transformation and the emergence of markets?

Economic sociologists are adamant that markets don’t just emerge by themselves: they are always based on some kind of an underlying infrastructure that allows people to find out what goods and services are on offer, agree on prices and terms, pay, and have a reasonable expectation that the other party will honour the agreement. The oldest market infrastructure is the personal social network: traders hear what’s on offer through word of mouth and trade only with those whom they personally know and trust. But personal networks alone couldn’t sustain the immense scale of trading in today’s society. Every day we do business with strangers and trust them to provide for our most basic needs. This is possible because modern society has developed institutions — things like private property, enforceable contracts, standardized weights and measures, consumer protection, and many other general and sector specific norms and facilities. By enabling and constraining everyone’s behaviours in predictable ways, institutions constitute a robust and more inclusive infrastructure for markets than personal social networks.

Modern institutions didn’t of course appear out of nowhere. Between prehistoric social networks and the contemporary institutions of the modern state, there is a long historical continuum of economic institutions, from ancient trade routes with their customs to medieval fairs with their codes of conduct to state-enforced trade laws of the early industrial era. Institutional economists led by Oliver Williamson and economic historians led by Douglass North theorized in the 1980s that economic institutions evolve towards more efficient forms through a process of natural selection. As new institutional forms become possible thanks to technological and organizational innovation, people switch to cheaper, easier, more secure, and overall more efficient institutions out of self-interest. Old and cumbersome institutions fall into disuse, and society becomes more efficient and economically prosperous as a result. Williamson and North both later received the Nobel Memorial Prize in Economic Sciences.

It is easy to frame platforms as the next step in such an evolutionary process. Even if platforms don’t replace state institutions, they can plug gaps that remain the state-provided infrastructure. For example, enforcing a contract in court is often too expensive and unwieldy to be used to secure transactions between individual consumers. Platforms provide cheaper and easier alternatives to formal contract enforcement, in the form of reputation systems that allow participants to rate each others’ conduct and view past ratings. Thanks to this, small transactions like sharing a commute that previously only happened in personal networks can now potentially take place on a wider scale, resulting in greater resource efficiency and prosperity (the ‘sharing economy’). Platforms are not the first companies to plug holes in state-provided market infrastructure, though. Private arbitrators, recruitment agencies, and credit rating firms have been doing similar things for a long time.

What’s arguably new about platforms, though, is that some of the most popular ones are not mere complements, but almost complete substitutes to state-provided market infrastructures. Uber provides a complete substitute to government-licensed taxi infrastructures, addressing everything from quality and discovery to trust and payment. Airbnb provides a similarly sweeping solution to short-term accommodation rental. Both platforms have been hugely successful; in San Francisco, Uber has far surpassed the city’s official taxi market in size. The sellers on these platforms are not just consumers wanting to make better use of their resources, but also firms and professionals switching over from the state infrastructure. It is as if people and companies were abandoning their national institutions and emigrating en masse to Platform Nation.

From the natural selection perspective, this move from state institutions to platforms seems easy to understand. State institutions are designed by committee and carry all kinds of historical baggage, while platforms are designed from the ground up to address their users’ needs. Government institutions are geographically fragmented, while platforms offer a seamless experience from one city, country, and language area to the other. Government offices have opening hours and queues, while platforms make use of latest technologies to provide services around the clock (the ‘on-demand economy’). Given the choice, people switch to the most efficient institutions, and society becomes more efficient as a result. The policy implications of the theory are that government shouldn’t try to stop people from using Uber and Airbnb, and that it shouldn’t try to impose its evidently less efficient norms on the platforms. Let competing platforms innovate new regulatory regimes, and let people vote with their feet; let there be a market for markets.

The natural selection theory of institutional change provides a compellingly simple way to explain the rise of platforms. However, it has difficulty in explaining some important facts, like why economic institutions have historically developed differently in different places around the world, and why some people now protest vehemently against supposedly better institutions. Indeed, over the years since the theory was first introduced, social scientists have discovered significant problems in it. Economic sociologists like Neil Fligstein have noted that not everyone is as free to choose the institutions that they use. Economic historian Sheilagh Ogilvie has pointed out that even institutions that are efficient for those who participate in them can still sometimes be inefficient for society as a whole. These points suggest a different theory of institutional change, which I will apply to online platforms in my next post.

Vili Lehdonvirta is a Research Fellow and DPhil Programme Director at the Oxford Internet Institute, and an editor of the Policy & Internet journal. He is an economic sociologist who studies the social and economic dimensions of new information technologies around the world, with particular expertise in digital markets and crowdsourcing.