The Digital Economy: Not only, but also…

My previous post on the digital economy looked at how some companies flourished under a winner takes all model and could thrive with healthy competition in their markets. But in a market where there is a single winner, what are the costs ? and what happens next ?

Monopolies manipulate producers rights and rates

One observation is that some digital monopoly markets tend towards restricting workers’ wages and rights. Although this isn’t the case for every market, (and certainly not done by necessity), it’s becoming increasingly common for the gorilla in the market, to fix market conditions for all. Typically, this rears its head through price fixing (at rates which encourage consumer demand), while simultaneously driving down production costs (such as minimum hour/wage contracts for producers). This is most noticeable where there are low or no barriers to entry because producers and service providers are often considered easily replaceable.

Take a look at the battle for rights Deliveroo couriers and Uber’s numerous legal battles against its so-called “independent contractors”. The growth of economies based on temporary workers (aka the gig economy) is rising, but come with their fair share of employment rights-related battles.

Are disposable and dispossessed resources as the cost of innovation?

Proponents of winner-take-all-models-with-fungible-production-resources (sic) usually suggest that these battles are the costs of innovation while a growing base of contractors is a rich pool in which to fish. Alternate proposals for driving innovation are more egalitarian in nature, such as state provided universal basic income or citizen wage packages. My personal thoughts are that such a strategy is more ethical, and likely to drive more disruptive and diverse innovation, but I’m both an optimist and choose to believe Theory Y of social motivation).

Rebellion by the jaded centre

Free market advocates suggest that market forces would dictate that any imbalance in market conditions should open windows of opportunity through which new entrants to the market could emerge. (That is if the level of inequality is wrong enough*). In practical terms, the imbalance would have to be strong enough, to overcome any bootstrap or entry costs to the market. In other words, even if there is scope to pay producers more and still make a profit (hence a company would appear more attractive to win over the producers), there is still costs involved in entering the market that would be prohibitive. This value of this inequality is something I’ve loosely termed the ‘golam number’, from the Swedish term lagom (loosely translated as just the right amount of elements for correct operation).

Golam’ is a fanciful term loosely based upon the Gollum, a character from Lord of the Rings who is driven by greed and an anagram of lagom. Hence, golam represents a state where things are just wrong enough to witness injustice, but not outright wrong enough to allow new competitors to slipstream into the market (or wrong enough to force corrective legislation).

So - to breach the golam number — (and for new competitors to enter a market) the following conditions must be met:

(profit discrepancy - fair production costs) > market entry costs

The new disruptors

The Free and Open Source Software (FOSS) World is a an area where a monopolistic players have been tackled and grounded from their positions of power. As an observer to this disruption, the success here appears to be attributable to the level of exclusivity of those rebels (i.e. well qualified and outraged individuals who could digitally organise themselves — effectively, non-fungible, digital knowledge workers). It’ll be interesting to see how closely this success in revolt will be mimicked outside of the tech community, such as the UK junior doctors trying to tackle the monopolistic practices of a national government.

Although monopolies may be seen on the rise in the digital economy, it remains to be seen how many can retain their stranglehold on the fickle and demanding industries that have been responsible for their growth.

In my next post, I’ll share some thoughts on digital disruption, its affect on identity, and how emerging technologies such as blockchain could take centre stage in this spectacular prismatic society .

*For a given value of wrong enough