Can the Government Out-Gig Uber?

A few weeks ago, the New Yorker ran an interesting piece on “Should Gig Work Be Government-Run?”

The idea is that the government should build and run a gig platform, just like Uber does. I am sure some of you might have a hard time visualizing it given that it seems so antithetical to both government and gig work, but a simple example of that is CalFLEXI, a local government-run gig platform matching parents and caregivers:

“We had hundreds of qualified childcarers registering with CalFLEXI. They are being vetted and trained in Covid-19 readiness then approved to work. Families or other clients can book them exactly as needed. Each provider (worker) has their certification and experience checked by staff at Skills4Care. Once approved, each provider decides the hours they want to work.“

If you have read anything I have written until this point, you probably know that I am not a huge fan of government intervention. While I am not a libertarian (not that there’s anything wrong with being one), I find that government regulation usually results in either regulatory capture or legibility issues.  

So you probably expect me to oppose this idea of a government-led gig platform in lieu of regulation.

But I absolutely love it. 

Why? 

I believe the notion of the gig economy is an important development that reduces transaction costs in hiring and managing employees. It also allows people the flexibility to work when they want in areas they truly feel appreciated.

But it also has many risks and limitations.  Having the government run its own gig platform for sectors it deems as important can not only alleviate some of these shortcomings but also open new opportunities for this category of employment, allowing it to scale even faster than before, unleashing its promised benefits.

Wingham Rowan

Wingham Rowan, a UK-based policy entrepreneur, is the main proponents of this idea and the protagonist  of the New Yorker piece:

“Rowan’s idea is to create markets for gig work that are run as public utilities, by non-profits and governments. Instead of getting work through a private company, such as Uber, a job seeker in Rowan’s system could use a Web site or app overseen by the government and regulated to promote the public interest.”

What’s the main motivation for this? Rowan writes about the main shortcomings of the gig economy: 

“He outlined eight major challenges faced by gig workers: misclassification, lack of benefits, no progression, high worker overhead, misleading promises from employers, sudden market closures, pay cuts, and having an algorithm as a boss.”

There are multiple ways to solve these. The states of New York and California, as well as the UK, have taken the approach of regulation, requiring the gig workers to be labeled as employees, forcing the firms to provide them with benefits, or requiring tight monitoring of their work and guaranteeing a certain level of earning. 

Rowan is suggesting a different approach: rather than hobbling the gig firms with regulating, let the government Out-Gig them. 

The idea has its origin in the 1930s, Rowan writes in a Brookings piece

“Nearly a century ago, when FDR encountered his own problem with labor market profiteers, he found a solution by creating a public option for job seekers: Nationwide public labor exchanges that matched workers with jobs, established by the 1933 Wagner-Peyser Act.“

He ultimately portrays a very ambitious vision:

“If public e-markets really took off, they would fill with a constant hum of microeconomic activity, drawing an ever-wider set of people into exchanges of goods and services without private companies cashing in. **Haircutting would be bought and sold alongside graphic design and auto repair….keeping money circulating in local economies.”

The Upside

We have been debating for a long time the main shortcomings from the gig economy: with all the freedom workers get, it is possible that it's just an illusion of freedom: you get sucked into chasing the next gig, without any protection against economic shocks or the arbitrariness of the platform hosting you. You are responsible for your sick leave. Vacation days. Your insurance protection, 

This was always the case for freelancers. But if we truly want the option of the gig economy to be more widespread (because we truly believe that both firms and workers are better off with it) we need to be able to address these main pitfalls. 

One option is to regulate the gig platforms. Force firms to offer benefits and protections. I wrote about this in the past: I don't think this is necessarily a bad option if done well.  But a regulation done well is rare. Like a good American pizza. Theoretically possible. Just very hard to find.  

A government that runs its own gig platform can offer these benefits, effectively forcing the private gig platforms to do the same if they want to be competitive. Two-sided markets are first and foremost driven by their ability to attract the supply side of the equation: Uber needs drivers. Fiverr needs works. Etsy needs artisans to even bring initial demand.

Ultimately this may serve to attract more people to the gig economy. Both workers and new gig platforms: 

Workers: there are many people that are currently fully employed, but are dissatisfied with what they do. They remain with their employers since they offer them the peace of mind of full employment, consistent cash flow, and reasonable benefits.  If the government can start operating such a platform, this group of workers will be the first to join it, maybe initially as a way to supplement their existing salary, and potentially over time as a full mode of employment. 

An "idealized" gig platform could be a tool for improving working conditions across the board. If traditional employers didn't want to lose workers to the preferable gig economy, they would have to work hard to retain them.

Firms: I have been arguing for a while for the term gig-market liquidity or Gig-Economy-Flywheel. Every firm that joins the gig economy adds a few more workers, probably willing and ready to take jobs from other gig economy platforms, thus enabling the next gig platform. The next gig disruptor. It is much easier to launch a new gig platform these days than it was before Uber and Fiverr existed. 

The government is going to bring to this game a whole new scale and resources, creating labor liquidity we have not seen before, while also enabling the tools to manage these.  

Finally, it will create an alternative to merely regulating the gig economy to death. Uber and Lyft have become the scapegoat of everything that is wrong in our economy. Our labor is not skilled? Uber. We can’t find jobs for people? Uber. We cant solve the Covid situation? Uber. The gig economy is so much more than just Uber, Lyft, and Door Dash.  While we may need to regulate part of the gig economy, it will allow the government to have a stake in the game, and allow for a more nuanced approach. 

What’s the downside?

Would a government entrant threaten private investments in the gig economy? I don’t think so.  

First, let’s look at sectors where the government is currently offering solutions, from the postal office to education, and health care. The quality of the service has been quite variable. 

While I am sure you had some amazing postman or postwomen, service experience and reliability have not been the hallmark of it. I had many great teachers, I also had not-so-good teachers.  I expect the government-led gig platform to converge to offering low-cost, relatively low-quality gig work. 

Why low quality? The main challenge in operating a platform is maintaining excellent quality.  Firms need to be brutal in their approach to service quality. Uber bans any driver that scores below a certain level. Relatively high level. While we all like to hate Uber, we trust Uber more than most government agencies. We hop on a stranger’s car in the middle of a city, just because they operate on Uber. The level of trust needed for that is mind-boggling. 

Managing so many interactions, while maintaining reliable customer service is not trivial. It is not something governments do well. Political pressure, equity considerations, and just inattention to details are all more common with government than adherence to service and quality.  

There is nothing wrong with a low-cost, baseline quality service. There is a market for it. But it’s not for everyone.  As the system scales up, I expect two things: downward pressure on prices and an inability for gig workers to differentiate themselves on the government-led platform. 

Don’t think about Uber where differentiation is limited. Think about Fiverr or Upwork (or Substack). In the same way that Disney left Netflix since it was unable to differentiate from the masses, I expect the better service provider to look for an alternative platform to be on.  

This implies that even if the government is going to launch its own gig work platform, it is not going to preclude other platforms from emerging. Platforms that offer a focal solution will continue and exist. For example, some platforms require a collaboration of more than a single entity, whether it is a restaurant and a driver or two experts. Some solutions, by being tailored to a specific issue, can integrate with the existing solutions to solve a specific pain point. For example, Uber for sound editing can integrate with Spotify. 

Government-led platforms will not be able to cater to all of these. The age-old idea of operational focus is going to allow new entrants to offer better solutions while also attracting better talent.

I do not see these as a bug. I see these as a feature of the system. 

Markets have many flaws, but one of the main benefits they have is that they are pretty good at eliciting preferences and building solutions to address these. 

Over the last few years, we have seen a heated debate between private market enthusiasts and government supporters. The debate seems sometimes like black and white.  

The best solution is a blended one. Governments and non-profits should take settings where preferences are homogenous, and address these: mobility, health care, education. The emergent platform will offer a baseline service quality and employment. It will also force the private sector to cater to settings where customer preferences are heterogeneous. Acknowledging that the solution can be achieved through competition is an interesting first step. 

Are there risks that the government will drive the existing gig platform out of the market given its unlimited resources? I don’t think so.  FedEx exists beside the postal service and private schools exist beside public ones. Even SpaceX exists besides NASA.

But for the gig economy to strive at scale, another system has to change. The education system. But that, for another post.