A Nordic approach to regulating intermediary online labour platforms

In the past few years, a new phenomenon has emerged on the labour market. Spearheaded by a handful of high-profile firms, novel approaches to facilitating transactions between clients and providers have been developed using intermediary digital platforms. This may be seen as an evolution of the so-called sharing economy, a broad term often used to describe ‘systems that activate the untapped value of all kinds of assets through models and marketplaces that enable greater efficiency and access’ (Botsman and Rogers, 2011).

Using the sharing label to describe the phenomena at-large has caused debate, controversy and criticism. Although a growing plethora of firms and organisations use intermediary platforms to various ends, many of the high-profile firms facilitate commercial transactions using paid labour. Labelling such practices as sharing activities is a stretch of the imagination, to say the least. Alternative terms taking the broader perspective of labour and capital markets into account include ‘crowd-based capitalism’, as proposed by Sundararajan (2016), and the online platform economy, as described by Farrell and Greig (2016).

Stretching and bending definitions to one’s advantage seems to be common practice for many platform firms, provoking much of the above-described controversy and debate. Platform firms may (purposefully) operate in regulatory grey areas, giving them advantages in a variety of fields where higher-profile firms epitomise a culture of begging for forgiveness rather than permission in their dealings with regulators. If successful, platform firms may scale up their operations rapidly, leaving regulators in the uncomfortable position of having to regulate relatively established practices, pitting the interests and practices of incumbent firms, new platforms, and consumers against one another.

Although labour platforms currently provide work to a miniscule share of the total workforce in the surveyed Western countries (see Farrell and Greig, 2016), a focal issue regards the actions and responsibilities of platform owners and operators, and how they choose to classify those who provide their labour to the platform. Platform owners and operators often seem to see the providers as self-employed ‘partners’ providing on-demand labour from a highly liquid labour pool, while critics of such practices see labour providers as misclassified employees, operating under bogus self-employment contracts.

The issue of classification has not only implications for the responsibilities of platform owners and operators: all parties within the triangular intermediary platform relationship are affected by how we choose to characterise or classify the platform and its practices.

Applying Coase’s (1937) theory of the firm, a platform is either a tool to internalise labour (where platform labour providers are from a legal perspective bogus self-employed) or externalise labour (meaning platform labour providers are properly categorised as self-employed). Either way, labour platforms in one form or another are likely to remain a factor in labour markets in the near future, as the further development of the associated technologies and institutions may alter the transaction costs associated with internalising or externalising labour. We may even be witnessing the emergence of a revolutionary new way of organising work.

In Unionen (2016), I discussed the long-term labour market implications of an increasingly dominant platform-based labour market displaying similar practices and business rationales to today’s major platform firms. In this scenario, income security will decrease while income volatility increases for affected groups of platform labour providers. Given that relevant labour market institutions remain unreformed, access to social security will be reduced, while ‘traditional firms’ in direct competition with platform-based firms (and thus subject to a different set of rules) will be outcompeted by platform firms. While there is a high potential for growth in these types of services in the medium to long run, with the possible benefit of supplying goods and services at lower prices to consumers, there is a real risk that unregulated growth may increase income inequality, most likely negatively impacting growth, social mobility, financial stability, social coherence, and more.

A platform’s competitive advantages can be seen as a technical and/or institutional innovation (as described by Christensen et al., 2015). Unionen’s view is that firms that utilise platforms to improve the way work is organised to deliver higher quality goods and services should be tolerated and even promoted. If platforms represent the future, Swedish firms should be early adapters. Platforms may have positive effects on employment and could create new types of services. However, a platform’s competitive advantage should not be achieved through social dumping. If a platform outcompetes a ‘traditional firm’ by unloading risks onto platform labour providers, for example by reducing income security and worsening benefits and working conditions, then ‘welfare is reduced by the innovation’ (Harris and Krueger, 2015). In such a case, regulatory intervention in some form is both warranted and necessary. The difficulty arises in how best to regulate a phenomenon in its infancy, while still promoting innovation and entrepreneurship.

To address the many regulatory challenges, I use Ranchordás’ (2015) three guiding questions to policy-makers: ‘First, can these sharing economy practices be qualified as “innovations” worth protecting and encouraging? Second, should the regulation of these practices serve the same goals as the existing rules for equivalent commercial services? Third, how can regulation keep up with the evolving nature of these innovative practices?’ Many scholars seem to see that the answer lies in one-sided self-regulation in the Anglo-Saxon tradition (see Cohen and Sundararajan, 2015, for example) where firms in similar industries create and enforce their own rules and best practices (often under the watchful eyes of legislators).

The Nordic social partner model follows a similar tradition, with the difference that self-regulation is two-sided. Here, employer associations and trade unions represent the interests of capital and labour to regulate wages and wage-setting procedures and to negotiate benefits, working practices, etc. through extensive collective bargaining, made possible through the implicit and explicit support of the state. Nearly 90 per cent of the Swedish labour force (Kjellberg, 2010) are covered by collective agreements determining their wages, benefits and other labour-related rights and obligations (see Swenson, 2002).

Based on this tradition, we are developing a novel approach to self-regulating the emerging platform-based labour market. The aim is to give ample room to innovative platform practices and development, but within the confines of existing regulation. The aim is to lower the transaction costs for platform firms to comply with existing regulations, i.e. legislation, ordinances and collective agreements in the relevant market.

Many platforms are owned and operated by start-up companies, often meaning that regulatory compliance is, at best, a secondary issue. Firms running digital platforms to facilitate transactions have incentives to automate as many processes as possible. Broadly speaking, existing regulation is designed with ‘analogue firms’ in mind. To increase compliance and lower regulatory transaction costs for platform firms, it is crucial that the relevant regulation and the associated regulatory supervision become more adapted to the digital environment and the algorithms driving these firms. To achieve this, new, highly digital standards of regulation will need to be created.

We propose creating a platform institution tasked to create digital standards and guidelines for firms wishing to abide by the rules and norms established by society. By centralising this function, rather than relying on a plethora of government agencies to create such standards, relevant expertise can be concentrated, creating the best possible conditions for creating top standards and ease of use. The institution will be owned by the stakeholders, i.e. it will be shared between relevant trade unions and platform firms who have signed collective agreements. Centralised standard creation will also mean that standards are created ‘closer to the market’ than would otherwise be the case. Further efficiency gains can come from concentrating required expertise in a single institution, in turn continually improving existing standards and the process of creating novel ones. The created standards will be the result of negotiations between platform firms, trade unions and the relevant government agencies. The institution itself may thus be seen as a social compact tasked with adapting existing institutions to a changing labour market.

This will ultimately require the consent of legislators, as individual government agencies would normally be tasked with creating such standards. Given that platform-based firms may arise in a plethora of markets, an uncoordinated regulatory response might produce mixed results. There is also a risk of the developed standards not sufficiently balancing the sometimes shared and fragmented interests of platform firms and labour.

Apart from adapting existing regulation, there are already examples of novel practices possibly requiring regulatory supervision. One such example lies in the design and function of rating and reputation systems, an integral function of many platforms today. By creating trust between parties, and by giving an indication of expected quality, ratings determine the individual provider’s, and sometimes the client’s, ability to sell and purchase goods and services on platform markets. Ratings are thus also pertinent to wage formation. Ratings and reputations produced on platforms are usually not portable to other platforms, creating lock-in effects. Creating some degree of transferability between platforms may increase labour mobility and stimulate platform competition.

Other potential areas pertain to privacy, consumer protection, pooling insurance and other resources pertinent to platform employership. Platform firms will also have to be incentivised to participate in the proposed institution. We propose that platforms which comply with established rules be certified, using such certification as a consumer label when marketing their services.

Unionen (2016) is an attempt to show the possibilities of developing the self-regulatory regime characterising the Swedish Part Model. However, the strength of this regime rests on the ability of trade unions to maintain high union density. If trade unions wish to have a seat at the table in a period of perhaps intense labour market transition, we must also be able to recruit and justly represent platform workers, indeed all forms of precarious or self-employed workers, on their own terms.

Established trade unions are designed to organise workers within the traditional confines of a firm. As platforms enable firms to manage a decentralised workforce in a digital environment, union tactics need to evolve. One starting point is to develop our own digital tools for representing a decentralised collective voice. This will not only necessitate innovative thinking on the part of trade unions, but also overlooking and adapting many of our previous practices, such as opening up and adapting our memberships better to cater for workers in atypical work arrangements. If established trade unions cannot provide a strong foundation for precarious workers to improve their working lives, the latter will create their own organisations as the winds of changes shift on the labour market.