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Too big to fail us? Platforms as systemically relevant

Written by Stephan Bohn, Nicolas Friederici, Ali Aslan Gümüsay

During the current COVID-19 crisis, we can see that we increasingly depend on digital platforms to satisfy our basic needs. Platforms like Google, Facebook, Uber, and Amazon are not only providing central communication channels, server capacity, and information but also offer mobility infrastructure, deliver food, and supply vital medicines. Platforms become essential infrastructures and key players in our society. They are both systemically relevant and too big to fail.

Becoming essential infrastructures of connection has been good business for platform companies, as digital markets turned into oligopolies that allow for rent extraction and self-sustaining growth – at low marginal cost. Meanwhile, for individuals, platform infrastructure has become taken for granted. Just like we stop paying attention to the affordances of roads or the electricity grid, we no longer wonder about browsers, internet exchange points, or app stores. Yet, in crises, when infrastructures fail (Graham, 2009), we do notice them.

The same goes for professions such as nurses, truck drivers, or salespeople. They have become essential workers during this COVID-19 crisis, or, to be more precise, their centrality is now more visible. German public agencies have explicitly called these workers KRITIS, short for “critical infrastructure”. Of course, some of these essential workers, like gig delivery couriers, are already part of platform infrastructures.

However, platforms are not only increasingly coordinating essential workers but become systemically relevant themselves (Friederici, Meier, & Gümüsay, 2020). During the financial crisis in 2008, we learned that there are two central concerns when dealing with systemically relevant economic actors. One is how to keep systemically relevant platforms from collapsing (Öhman & Aggarwal, 2020). The second is how to prevent individual platforms from becoming “too big to fail” in the first place.

Of course, the idea that digital platforms need to be regulated is not new (Gorwa, 2019). Latest since the tech lash, it has become something of a received wisdom that digital platforms are “big, anti-competitive, addictive, and destructive to democracy” (The Economist, 2018), as they engage in “harmful, extractive, and monopolistic business practices” (Nachtwey & Seidl, 2020, p. 2). But these legal debates – whether focusing on antitrust, labour protection, or tax issues – maintain a perspective on platforms that sees them rather as private entities separate from society and off limits for collective governance (see van Dijck, Poell, & de Waal, 2018; Kenney, Bearson, & Zysman, 2019).

We feel that the current crisis forces us to take platforms’ far-reaching infrastructural character more seriously than the different prevailing national regulations have done until now. We argue that we can productively employ the idea of systemic relevance to determine platforms’ policy relevance and appropriate responses. The pithy notion of banks becoming “too big to fail” led to Basel III, the most recent European banking regulation. In the case of the financial sector, regulation was introduced to prevent systemic collapse with the help of a two-step procedure. First, Basel III defined which banks are systemically relevant on the global and national level, assessing five characteristics: size, cross-border activities, intertwining, substitutability, and complexity. Second, organisations meeting these criteria are more closely monitored and regulated. For example, they must have additional capital buffers; as soon as the buffers fall below a certain level, automatic restrictions apply.

We can treat platforms similarly. COVID-19 is an example of a socio-economic shock triggered by a deadly infectious disease: ‘after’ this crisis will be ‘before’ the next crisis. The systemic centrality of platforms and their evolving role before, during, and after crisis should thus be taken into account in policy regulation. In particular, we can distinguish between pre-crisis and in-crisis regulation of systemically relevant platforms.

Pre-crisis regulation may ensure that private platforms do not become essential infrastructures to begin with, or that they are already regulated for public benefit as they become more essential. To prepare platform regulation for the next crisis, we need a Basel III for platforms. In contrast to banks, however, systemically relevant platforms would not aim at capital buffers but would have to commit themselves to more transparency, for example by setting up API interfaces, disclosing algorithms, making filter decisions transparent, or sharing findings from the analysis of user data, also and especially with competitors.

In-crisis regulation can add stronger direct interventions in platform governance, making sure that platforms’ centrality is not misused. For example, it would then be necessary to ensure that obvious misinformation, as in the case of COVID-19 and social media, could be effectively filtered because it is a matter of life and death. Or to use the example of Uber, supply and demand should no longer be allocated according to pure market criteria, but should also include social or health issues e.g., in emergency situations when driving to the doctor or for persons with disabilities. Similarly, food delivery platforms can be subsidised and turned into universal service providers at city level, ensuring that the elderly or poor people receive food during lockdowns.

Both before and during a crisis, then, platforms are not just too big to fail, but too big to fail us.

Note

All authors have equally contributed to this publication; authorship is in alphabetical order.

References

Friederici, N., Meier, P. & Gümüsay, A.A. (2020), An opportunity for inclusion? Digital platform innovation in times of crisis. Pioneers Post. https://www.pioneerspost.com/news-views/20200616/opportunity-inclusion-digital-platform-innovation-times-of-crisis

Graham, S. (2009): (Hg.) Disrupted cities: when infrastructure fails. London/New York: Routledge.

Gorwa, R. (2019). The platform governance triangle: conceptualising the informal regulation of online content. Internet Policy Review, 8(2). Doi: 10.14763/2019.2.1407

Kenney, M., Bearson, D., & Zysman, J. (2019). The Platform Economy Matures: Pervasive Power, Private Regulation, and Dependent Entrepreneurs. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3497974

van Dijck, J., Poell, T., & Waal, M. de. (2018). The Platform Society. Oxford University Press.

Nachtwey, O., & Seidl, T. (2020). The Solutionist Ethic and the Spirit of Digital Capitalism. Doi: https://doi.org/10.31235/osf.io/sgjzq

Magalhães; J.C. & Couldry, N. (2020). Tech Giants Are Using This Crisis to Colonize the Welfare System. JACOBIN. https://www.jacobinmag.com/2020/04/tech-giants-coronavirus-pandemic-welfare-surveillance?fbclid=IwAR37SVEWehoJBlKnFLO3lBjwH0oblPPeB-KzogDpg34NiKEIK43UyMBaZ9M.

Öhman, C. & Aggarwal, N. (2020). What if Facebook goes down? Ethical and legal considerations for the demise of big tech. Internet Policy Review, 9(3). Doi: 10.14763/2020.3.1488.

The Economist (2018). How to tame the tech titans. https://www.economist.com/leaders/2018/01/18/how-to-tame-the-tech-titans

Bank for International Settlement (2017). Basel III: international regulatory framework for banks. https://www.bis.org/bcbs/basel3.htm

Source: The Internet Policy Review

LICENCE: Creative Commons Attribution 3.0 Germany

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Internet Policy Review is an open access and peer-reviewed journal on internet regulation. Scholars, regulators, journalists, activists, and other stakeholders publish in the journal in a variety of formats

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