The Walmartization, Uberization and Facebookization of the Economy

If I had to describe what I consider to be the frontier of today’s economy and labor market, I cannot help but think of the impact that three big and powerful corporations have on the lives of Americans and other western people. Of course, it is too simple to consider only three companies’ practices (Walmart, Uber and Facebook) and make logical inferences of the whole economy. But, on the other hand, I am convinced that theorists of monopoly capitalism (see old advocates in literature cited in Sweezy 2004 as well as more contemporary ones Stiglitz 2016) make the claim that a few big companies set the trend for the economy and the labor market, so that we can make logical inferences to the wider economy from the three companies’ practices. I will describe each of these concepts in turn, and then make a case for why the rise of these three companies are making the lives of consumers and investors amazing, but the lives of workers very miserable. The rise of these three companies partially explain the proliferation of millionaires and billionaires as well as the growth of wealth and income inequality that the likes of Bernie Sanders have railed against.

Walmartization

Walmart is the largest private-sector employer in the US, and has about 1.4 million employees under their payroll. It is very natural to take them as the first example of where the economy is going. As they set very low wages, that has a knock on effect on other companies in the retail industry, who don’t see themselves compelled to raise their own wages. There is now some evidence that with a somewhat tightening labor market, the Walmart management is now forced to slightly raise the base pay, which at 10 dollars an hour is still not significantly higher than the minimum wage of 7.25 dollars an hour. Workers at Walmart are notoriously mistreated as they work an insufficient number of hours at rather low wages. They don’t have a trade union to protect their interests, which is indicative of the larger economy, where only 11% of the workforce (7% in the private sector) are unionized.

In Walmart, it is common practice to boot out workers, who had been employed longer than 10 years, because their pay has increased so much, and they can easily hire a new worker off the street at a lower wage. Because there is not much training involved, the turnover costs are perceived to be low. Economically, we have to question the logic of everyday low wages (being the flipside of their slogan “everyday low prices”). Costco is treating their workers much better and pay higher wages, which results in greater employee motivation and lower turnover, which means a higher productivity to offset the employer cost of higher wages. It is quite pathetic that the Walmart management pays itself outrageous compensation, make a substantial profit, and pay their workers so little that they rely on Food Stamps and Medicaid to survive. The taxpaying middle class (corporations pay only a small share of total taxes), therefore, is forced to subsidize Walmart’s and other low-wage employers like McDonalds’ profits through the social benefit programs, which Jacobs et al. (2015) estimated to cost $152.8 billion.

While consumers may relish the convenience of 24-7 access to a consumer paradise, a quasi one-stop shop for all the retail commodities that the heart desires, the rise of Walmart has been devastating to the interests of workers, who have to rest content with low wages and no influence over work decisions. Ironically, the workers here are still relatively the best off.

Uberization

Since the rise of Uber, the taxi business is no longer the same. Consumers can now order a taxi through the webapp and private people, who decide to hire out their car and earn some extra income, pick them up and drive them to the desired destination. Because the app bypasses the bureaucracy surrounding traditional taxi companies, who restrict taxi licenses to a few individuals, the price of a hired car ride is much lower with Uber. Some Uber drivers, who voluntarily like to earn some extra money, have also spoken quite positively about their driving experience. They may be the secondary earners of the family and know very well how to drive the kids to school and to the soccer match, and are quite happy to drive strangers, who can even pay them an income.

But while the experience is mostly positive for customers, the case for drivers is more ambiguous. There has been a class action lawsuit among California and Massachusetts Uber drivers against Uber for classifying the drivers as independent contractors, where costs like fuel and maintenance are not reimbursed and benefits (health and pensions) are not paid by the company. Uber decided to pay the $100 million settlement, accepting the cost of doing business, as long as the drivers continue to be classified as independent contractors rather than the workers that they really are (Reuters 2016).

Why would I make the claim that Uber drivers are really workers in a dependent employment relationship? It is clearly difficult to make a purely legal claim out of it, because both sides will hire lawyers to make their case and quote the right passages of previous court cases and statutes. This is really a moral claim more than anything else. If workers are independent contractors, we assume that these individuals can easily handle the risks within the industry, i.e. car breakdown, sickness. If workers are dependent employees, we assume that these workers cannot handle the full risk, and a substantial portion of the risk is carried by the employer, who pays substantial health contributions if the worker gets sick or is responsible for the car repair when it breaks down.

Any reasonable society will try to apportion most of the risk to the entity, which is capable of carrying the largest burden, which is usually the employer. Individual workers usually don’t have enough resources to bear all the risk. What would be the problem of shifting the risk to Uber? The executives and shareholders, who are swimming hand over fist in cash, might get a little bit less money, but they are then also bearing the full responsibility of the risk, because they can bear it. Sacrificing some money in exchange for the well-being of the drivers cannot be too much asked. Yet if we delude ourselves that the neoliberal economic paradigm is the only correct paradigm, we might say otherwise.

But let us leave risk aside for the moment, and focus on the share of the fare that goes to Uber: it is usually between 20 and 25%, while some locations go as high as 30% (WSJ 2015). Uber claims that this share is calculated based on the supply and demand at any given market, which makes it seem as if the market were justly allocating the spoils. Of course, it is not. Given the fact that Uber’s taxi (not ‘ride-sharing’, which sounds too Orwellian to me as it implies a free service provided to a friend or family member) undercuts the prices of traditional taxis, they do generate a greater market demand, and so more taxi drivers will have to switch from the traditional taxi company to Uber, simply as a matter of survival. That situation gives an enormous market power to Uber. That to me sounds like a monopolization or cornering of the market, though Lyft is one alternative provider (though that’s about it). How better can that market power be used if not for raising the share of the fare claimed by Uber?

Private investors have gotten themselves a gold mine, while customers have cheaper transport options available. For the Uber drivers and the millions of independent contractors in other companies, eking out a precarious existence (e.g. adjunct instructors in universities, nursing home workers), the innovation has been everything but beneficial. But there is an even worse example yet to come.

Facebookization

We are all guilty of it. Many of us are wasting a substantial amount of our waking time on the phone or on the laptop to check Facebook updates of our friends and the message inbox. We want to see the cute baby photos of friends and family members, who recently became parents. We want to see the cat which makes weird faces; the Donald Trump video, where he is insulting another group of people; the political stories that make people like me angry everyday. When Zuckerberg founded Facebook in 2004, he understood that an important market niche in the world wide web was the human need for social connection. We cannot imagine nowadays to not use Facebook to stay in touch with old friends and family members, who live in a different part of the world, and whom we thought we might not see again. Facebook also allows us to narcissistically project our own viewpoint of the world to the friendship network and join our favourite tribe (called ‘group’). We post our status updates, our views, videos, links, articles and comments. So from the consumer standpoint, being a Facebook user is the best thing since sliced bread.

Now we turn to the world of work. We shall begin with the 7,000 employees, who staff the headquarter in Menlo Park outside of San Francisco in California. This is in the middle of Silicon Valley where almost the entire innovation in the computer and internet industry is happening. Google, Apple, Facebook and others are vying for the top Ivy League graduates to hire programmers, engineers and marketing personnel to staff their offices, and it is a true privilege to work for any of these big Silicon Valley companies, as the pay is high, the benefits are great, the perks are substantial (e.g. free food, laundry, gym) and the creative downtime (once a week) is enormous. Surely, there are downsides to the many perks, as for instance free food at the workplace encourages employees to stay at their desks and continue working rather than enjoy the sunshine in a patio of a Bay Area restaurant. In that sense, there is an enormous stress capacity, but the perks are still substantial, right?

But I wanted to make a different point, which is to look at the number of employees and compare it with the number of users. 7,000 paid employees for more than a billion users. That is a lot of users, and that is a lot of money there. The Facebook founder is not nearly content enough. Zuckerberg speaks good Mandarin and loves traveling to China, mainly to convince the authorities to admit Facebook to their country and unlock another market of more than 1 billion people.

But notice that I say ‘users’ and not ‘consumers’. In the case of Walmart and Uber it is clear that the consumers are just ‘devouring’ the service and not contributing any value toward it, which is done by the workers. In the case of Facebook users it is not the case that they are just consuming the service, but also contribute value to the company by posting, commenting and contributing content. Before you shout me down and say that posting on the Facebook wall is no more value creation than me giving an impassioned lecture to my friends in a pub, I have to say that the difference is that in the latter situation there is no exchange of money but in the former there clearly is. (We are talking here strictly in terms of economic value and not social or cultural value which involves sentiments and gaining knowledge, which is economically invaluable.)

If I give a great speech in a pub, which my drunk mates will forget the next morning, they have not paid me a nickel for that speech. That also does not happen if I post on the Facebook wall, but money exchanges hands, because the content is taken by Facebook, packaged up and sold to advertisers, who then pay the proceeds to Facebook if they want ads showing up on users’ walls. If I like skiing, then I will see skiing products. If I like watching movies, I will see movie recommendations. If I like clothing, I will see clothing commercials, and so on. Facebook monetizes the content that the users put out, and in that sense people are producing value without getting compensated for it.

Does it matter for the average Joe? Yes, very much so. We have these huge centralized networks (read ‘monopoly’), which no one wants to destroy because we relish the benefits of having all the people that we know in our lives be part of that great network, and we have a very concentrated ownership pattern with few formally paid (albeit well-compensated) employees. Mark Zuckerberg is now among the richest people in the world ($45 billion the last time I checked), and he showed off that he was giving most of his money away to charity when his daughter was born. (What he did not say was that the Zuckerberg-Chan foundation also serves as a useful tax shelter to avoid inheritance tax.) The collectivity is paying Zuckerberg for the privilege of using his network, where lots of economic value is created, but only very few get to benefit from it.

In such a dystopian world, there might be one little positive element, namely that if we get so frustrated in the world of work, because of the low pay, we at least get the right amount of free entertainment (chiefly Youtube and Facebook), though it will not really pay the rent or food.

Conclusion

I summarize that the three major trends in the economy and the labor market that I see today are captured in the three major companies Walmart, Uber and Facebook. Each of these companies provide a boon for consumers and investors, but provide penury and insecurity for workers. Walmart workers face low wages and job insecurity. Uber workers face low payment and uncertain contracts with enormous individual risks. Facebook users create economic value but get nothing themselves.

As most of us can scarcely rely on rent or dividend income for survival, we must go out in the labor market and try our luck there. Given the uncertainty of the labor market, we can no longer believe that jobs will be safer or better in the immediate future. That cannot happen without a substantial degree of class struggle, which can result in positive outcomes for workers. For instance, states like New York have substantially increased the minimum wage.

But even if workers, who through their strike can temporarily stop surplus accumulation in the capitalist class and redistribute some profits back to them, are successful in wresting hard-fought compromises from their employers, these gains are most likely to occur in the Walmart sector, and with sufficient legal changes (assuming that judges do not continue to be bought and paid for by the 1%, as they usually are) even the Uber sector. In the Facebook sector (which includes Google as well, among others), it is much more difficult to realize, because most users don’t see themselves as creating any economic value, and those, who defend Zuckerberg’s mountains of sugar (pun intended for my German-speaking friends), claim that he deserves all the money because of his innovative idea to establish Facebook in the first place. If that narrow private property principle were in place when Penicillin was invented, that inventor would have been very rich today, yet he refused to patent it for the common good. And without Zuckerberg’s engineers, who helped develop the network, and users, who give live to the network by using it, he would not have anything today.

For those of us, who are constantly concerned about creating economic and social justice, there is a deep dilemma wrought by modern technology. If we decided to pay Facebook users for their postings, how much should each post get paid? For what length? For how many likes? These are tricky questions, which I think should, therefore, not be resolved within the framework of a market economy, which would have been more understandable with more traditional labor markets.

In short, we need to have a universal basic income paid to all citizens, so the users can continue providing the content which creates economic value but not necessarily payment to the value creators. We can pay for that by taxing the mountains of cash in Zuckerberg’s hands and those of other fellow oligarchs (especially in finance). As Yanis Varoufakis says, it is an illusion to believe that wealth is privately created and publicly appropriated, as neoliberal discourse suggests, when, in reality, wealth is publicly (i.e. commonly) created and privately appropriated. In a world where it is difficult to discover the new frontier of work, where labor participation continues to remain low, where globalization and automation make the nice and good jobs scarce, there are few other options to create a better society than with a basic income.

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