Political Economy, Political Technology

An Algorithmic Bon Marché? Platform Governance in Urban Spaces

PUBLISHED

Jason Jackson is an assistant professor in the Department of Urban Studies and Planning at MIT. His research focuses on the relationship between states and markets.

PUBLISHED

Jason Jackson is an assistant professor in the Department of Urban Studies and Planning at MIT. His research focuses on the relationship between states and markets.

The last few decades have been characterized by the return of market fundamentalism: the belief that society can and should be organized through the institutional mechanism of “self-regulating markets.” Many expected that the 2008 financial crisis might constitute a blow to pervasive market expansion and a check on global dominance of private corporations. Not so. Instead, it may have entailed a deeper entrenchment, albeit through new techniques of power and control. While the large bureaucratic corporation was rarely the model of a perfect market actor, the liberal ideal may now be exemplified by platform firms, organizational structures that promise to create perfect markets through algorithms, “big data,” and computation.

Ride-hailing platforms offer a rich empirical case of neoliberal market transformation. For industrial organization scholars, they are “two-sided platforms” that serve as “market makers” allowing buyers and sellers to meet. These platforms’ commercial success is due to their use of matching algorithms, which are deemed to be simply more efficient than earlier market technologies, such as the assemblage of human taxi dispatchers, telephones and two-way radios. At first blush, this may seem reasonable. But what might such technical conceptions of platform markets obscure?

Structural Transformations in the Global Economy

The transformation of urban mobility markets is occurring against the backdrop of broader structural shifts in the global political economy, including changes driven by corporate restructuring strategies. In rich countries, manufacturing sector firms have faced rising costs stemming from a withering welfare state. As a result, they have largely abandoned hierarchical modes of production by using private ordering mechanisms and legal regimes to shift costs to intermediaries that they govern through transnational networks and global value chains. Vertically-integrated corporations in industrialized countries thus escaped profit margin pressures by shifting the costs and risks of production to counterparts in the developing world. The result? Millions of stable, well-paying, often unionized jobs from the Fordist-Keynesian capital-labor-state bargain vanished, only to pop up in poorer countries with much lower wages and few of the benefits that characterized the “Golden Age of Capitalism.” In contrast to this global fragmentation in manufacturing, non-tradable service sector industries like taxis have similarly restructured but, as Veena Dubal shows, they did so internally by shifting the risks of production from taxi company owners to workers. Crucially, this form of restructuring was spatially contained within the local markets in which they operated—i.e., the hundreds of municipalities that constitute the worldwide array of structurally fragmented urban transportation markets.

In the United States, this variation in industry-level strategies was facilitated by post-New Deal changes in employment law and regulation, which, as Karl Klare argues, weakened labor’s protected status in the employer-employee relationship. These legal changes had major ramifications across industry structures spanning different patterns of capital ownership and organization of work. First, they catalyzed a shift in the business practices of taxi firms in many municipalities from individual ownership of taxicabs and licenses to oligopolistic control through often-exploitative financial techniques such as driver-leasing. Second, they generated a different type of labor politics as the status and identity of drivers transformed from wage-earning worker-employees with the legal right to unionize and collectively bargain to independent contractors and “working class entrepreneurs.” This upended the industry’s structure and drove major redistributions from labor to capital.

Workers’ losses have been even sharper in developing countries where typically informal urban mobility markets are simultaneously atomized and cartelized. This market structure poses challenges for worker organizing in the context of what development economist Sir Arthur Lewis termed “unlimited supplies of labor.” Mobility services in these settings are overwhelmingly provided by private entities, given the high investment costs of public transit and the weak fiscal positions of the developing states. These markets are often romanticized as utopian sites of entrepreneurial opportunity, given their supposedly minimal state regulation. Yet despite being “informal,” these markets are hardly “free”: they operate under overlapping regimes of law and planning where boundaries of informality and illegality can be selectively shifted as spatialized means of governance and control. Maintaining such control is essential, as mobility markets are politically and economically crucial: they provide essential human connectivity across uneven urban geographies while serving as valuable sites of (precarious) employment in labor markets decimated by structural adjustment, as, for example, in Dar-es-Salaam.

This case of market transformation thus highlights the changing role of the state. Not simply as the decline or withering of a once-powerful “welfare state,” nor as the weakness of a failed “developmental state,” but rather (as Amy Cohen and I recently argued) as a reconfiguration of sovereign power through markets. The neoliberal state uses “formal” and “informal” mechanisms of market governance, from labor, property, tax and investment law, to municipal transportation regulations, to the creation of what Oren Yiftachel terms “gray spaces” between legality and illegality that the state uses to manage marginalized populations. Indeed, Ananya Roy argues that this production of informality exemplifies a territorial flexibility enabled by the legal powers and urban planning practices of the state.

Markets vs. Planning: A Classic Dichotomy

Enter ride-hailing. Urban mobility markets are one of the few remaining domains in contemporary market society where central planning—i.e., state-led, rational, scientific management—is considered legitimate. Planning became institutionalized in municipal transportation markets during the early-mid 20th century, the heyday of statist technocratic expertise. These settings were particularly well-suited to planning due to the technical complexities of coordination across different modes of urban mobility (taxis, buses, trams, trains, etc.), high fixed costs of infrastructure and equipment that serve as a barrier to entry, and crucially, and politicized concerns about access and equity (routing and pricing). The latter were heightened in urban environments where public transit was a common tool of spatial ordering and racial exclusion, whether in post-colonial Africa or the post-Civil Rights United States. Spatial logics of urban mobility were also dominant in military-authoritarian contexts in Southeast Asia and Latin America, where coopting and controlling labor was a paramount political objective. Simply put: planning has maintained legitimacy in urban transportation (even if periodically challenged by privatization advocates) while being increasingly discredited in other policy and market arenas over the last few decades of neoliberalism. However, the rise of urban mobility platforms is challenging this sharp dualism between markets and planning.

The markets-planning dichotomy is classically represented by Friedrich Hayek’s critique of central planning. Hayek identified fundamental informational limitations that he thought made New Deal-era technocratic planning through scientific expertise impossible. In brief, Hayek argued that the problem of planning rests on the distribution of knowledge in society. Because knowledge cannot reside within a single individual or organization, central planning by experts will always be inferior to the market, which aggregates and is constituted by the shared knowledge of all in society.

Hayek further described central planning and competition as two ends of a spectrum. He thereby aimed to problematize the way that New Deal planners saw private corporations occupying monopoly positions as the outcome of “natural” market efficiencies like economies of scale. Hayek referred to this as “the delegation of planning to organized industries.” That is, private monopoly constituted a mode of economic planning. Today we see a parallel in municipal planners’ increasing fascination with platforms’ purported “efficiency” in providing solutions to urban mobility problems that planners have struggled with for generations.

The New Planned Markets?

The liberal ideal thus may now be exemplified by the rise of platform firms offering the renewed promise of creating perfect markets through machine learning algorithms that ‘reveal’ consumer and producer preferences and aggregate them across fragmented markets. Platform markets also promise to secure political liberty by providing market actors on both sides of the platform with freedom of choice. The seductive promise of efficiency, rationality and modernity that platform firms embody has enticed contemporary urban planners desperate for technical tools that seemingly elide political functions.

Yet Hayek would probably disagree, as platform firms exemplify the state-sanctioned private monopoly that was the target of his ire. Take price formation. Since the 1930s, central planners’ “artificial” attempts to set prices using technologies of input-output tables and rudimentary computing have been excoriated by critics who favor “natural” free-market processes. Yet in platform markets, prices are set internally by competing sets of firms operating in oligopolistic urban mobility markets—precisely the types of industry structures that Hayek (and later Milton Friedman) critiqued. The planner is no longer the state bureaucrat, but neither is she the metaphorical Walrasian auctioneer. Instead, planning is embodied in firm-level socio-technical practices: machine learning algorithms created by “data scientists”—effectively private sector planners.

Platforms use algorithms as proprietary tools of technocratic expertise, more akin to techniques of central planning than a “free” market.

This new breed of planner is tasked with designing markets by deploying logics from applied microeconomics, operations research, computer science, civil engineering, transportation planning, and other disciplines shaping the emerging field of data science. Market design processes are further facilitated by the ubiquity of sensing and data capture devices such as smartphones, consumer and regulator acquiescence in ceding data ownership and control, and the availability of relatively low-cost computational power and cloud-based storage capacity. Yet, while they offer the promise of objectivity and technocratic expertise, algorithmic markets do not represent the laissez-faire idea. Instead, they constitute new modes of privately ordered planning conducted by data scientists following mandates from corporate managers who in turn answer to boards of directors appointed by shareholders—rather than technocratic planners guided by state bureaucrats accountable to an executive and legislature elected by citizens. Despite these intrinsically undemocratic features of private sector market governance, platform firms nevertheless cultivate the image of the perfect market-maker, offering efficient modes of resource allocation coupled with liberal political ideals of entrepreneurship and freedom of choice: a 21st century manifestation of the bon marché.

Platform firms also embody modernity through their convenient and aesthetically pleasing smartphone-based user interfaces. However, rather than inviting broad-based participation in their services, platform firms signal an urban sophistication and class privilege that reproduce inequalities by proclaiming new standards of taste and distinction. Ride-hailing firms thus enjoy a degree of legitimacy in contemporary market society that contrasts sharply with both the products of centrally planned mobility systems, such as perennially beleaguered urban mass transit and the much-maligned taxi system that they seek to displace. Ride-hailing also appears as both antithesis and solution to planning’s ostensibly most visible “failures”: pervasive informal mobility in poor and minority neighborhoods in industrialized countries and across the developing world. This is not to suggest that the conventional taxi system is more normatively desirable. Taxis in the United States have long characterized by high costs, poor service, gender hostility, and racial discrimination. It is, however, simply to place the institutional arrangements that constitute both market orders in comparative perspective as what Timothy Mitchell terms rival “metrological regimes.” In this respect, “centrally planned” urban mobility systems and the new markets for urban mobility created by platform firms constitute alternative modes of market governance shaped by competing socio-technical tools and moral justifications. They provide alternative lenses through which to “see” the market.

Thus the organizational logics and business practices of platform firms raise new issues of market politics. Take the (once controversial) practice of dynamic or “surge” pricing. Platform firm managers rationalize these practices as simply reflecting market forces at work: surge pricing is designed to provide incentives to drivers to enter the market and to riders to exit, thus equilibrating “natural” forces of supply and demand (even though this is not at all how platform pricing works). As former Uber CEO Travis Kalanick offered in response to accusations of unfair pricing practices: “We are not setting the price. The market is setting the price. We have algorithms to determine what that market is.” Commonplace market metaphors provide convenient simplifications of black-boxed algorithms for media interview responses. Yet they obscure the socio-technical mechanisms through which price formation occurs while rationalizing these practices as efficient and justifying them as ethical and societally beneficial. Moralizing discourses that couple technical economic logics with normatively appealing justifications are crucial market legitimating devices. An alternative approach challenges the notion of “natural” processes of “price discovery” by highlighting platforms’ reliance on an array of organizational routines and market devices: theories, tools, techniques, technologies, legal rules, and oftentimes conventions and rules of thumb—that help facilitate market actors’ behavior and allow markets to work. Platforms use algorithms as proprietary tools of technocratic expertise, more akin to techniques of central planning than a “free” market. Thus, as Karl Polanyi argued of the late 19th-century attempt to institute the laissez-faire ideal through the gold standard, Uber’s “market” is planned.

Blog Symposia Political Economy, Political Technology