Exploitation and Rent-Seeking Models in Social Media and P2P Exchange Platforms

(embargoed until publication of book on Platform Cooperatives edited by Trebor Scholz.

The author, Dmytri Kleiner, writes: "The Mr. Peel text was written for Trebor Scholz's upcoming Platform Co-op book, so probably should wait until it comes out to post it elsewhere"

Text

Dmytri Kleiner:

Unhappy Mr. Peel

In Chapter 33 of Capital, Karl Marx introduces us to the character of Mr. Peel, recounted from E. G. Wakefield's book England and America.[1] While Mr. Peel's story is one of early 19th-century colonialism, it helps us understand what has become of the Internet and the so-called sharing economy.

Mr. Peel went to Swan River in Australia to seek his fortune. He brought everything an aspiring capitalist might need to start accumulating surplus value and become a great capitalist: 300 people, including men, women, and children to provide labor and its reproduction, along with £50,000, presumably a large sum at the time. However, things didn't work out for Mr. Peel, as Marx concludes: "Unhappy Mr. Peel who provided for everything except the export of English modes of production to Swan River!"

Once in Swan River, the 300 people simply went off and settled on the vast amounts of free land available, and "Mr. Peel was left without a servant to make his bed or fetch him water from the river."

He discovered that capital is not a thing, but a social relation between persons, established by the instrumentality of things.

As Marx explains further, "Property in money, means of subsistence, machines, and other means of production, does not as yet stamp a man as a capitalist if there be wanting the correlative — the wage-worker, the other man who is compelled to sell himself of his own free will….The means of production and subsistence, while they remain the property of the immediate producer, are not capital. They become capital only under circumstances in which they serve at the same time as means of exploitation and subjection of the labourer."

Mr. Peel's capitalist class was not satisfied with their inability to expand their mode of production into the colonies, and found a solution in enclosure, described by Wakefield as "Systematic Colonization." Land was seized by law as public property and privatized, leaving no free land available. Only those with wealth could to be owners, and thus everybody else needed to sell their labor (or what Marx calls “labor power”) to capitalists.

The early Internet was like Swan River. How can Mr. Peel make money operating Internet platforms, if anybody can do so? If all the software and the networks are open and widely available, then nobody could really make significant profit. If the means of production are available to all, then there can be no capital. Like the colonies, the Internet needed to be systematically colonized in order to create the conditions needed by capital. This was also accomplished by enclosure. The original infrastructure — which was developed with public funds — was taken over and brought under capital control, and decentralized systems where displaced with centralized systems.

"Social media" and "sharing" platforms are two forms this centralization takes, two business models for platform capitalism.

Surplus Value vs. Surplus Profit

It's tempting to look at sites such as Facebook and YouTube and conclude that they they earn profit by exploiting their own users, who generate all the content that makes the sites popular. However, this is not the case because the media is not sold, and therefore makes no profit and captures no value.

What is sold is advertisement. Thus the paying customers are the advertisers, and what is being sold are the users themselves, not their content. This means that the source of value that becomes Facebook's profits is the work done by the workers in the global fields and factories, who are producing the commodities being advertised to Facebook's audience.

The profits of the media monopolies are formed after surplus value has already been extracted. Their users are not exploited, but subjected, captured as an audience, and instrumentalized to extract surplus profits from other sectors of the ownership class.

Sharing economy companies such as Uber and Airbnb, which own no vehicles or real estate, capture profits from from the operators of the cars and apartments in the marketplace they control. Neither of these business models is new. Media businesses selling audiences as a commodity are at least as old as commercial radio. Marketplace landlords, capturing rents from market vendors, have been with us for centuries. Rather than subvert capitalism, "sharing" platforms are an extension of it.

Consent-Oriented Architecture

Capitalist platforms based on the sale of the audience as a commodity and capturing marketplace rents demand a sacrifice of privacy and autonomy.

Audiences, like all commodities, are sold by measure and grade. Eggs are sold in dozens as grade A, for example. An advertisers might buy a thousand clicks from middle-aged white men who own a car and have a good credit rating.

Audiences are graded by " demographics." Platforms with business models that sell audiences require surveillance. Likewise, platforms that capture marketplace rents collect extensive data on their users and providers in order to maximize profitability.

A mandatory sacrifice of consent is required to use the platforms. When users share information on a platform, they may consent to sharing that information with certain intended people, but they don't necessarily consent to that information being available to the platform’s staff, to advertisers, or to business partners and state intelligence agencies. Yet, as there are no practical alternatives for most users, they must sacrifice such consent in order to use the platform.

Corporations built to maximize profits are unable to build consensual platforms. Their business model depend fundamentally on surveillance and behavioral control. To build consensual platforms require that privacy, security, and anonymity be built into the platforms as core features. The most effective way to secure consent is to ensure that all user data and control of all user interaction resides with the software running on the user’s own computer, not on any intermediary servers.

Counter-Anti-Disintermediation

On her blog, Wendy M. Grossman writes:

"Disintermediation” was one of the buzzwords of the early 1990s. The Net was going to eliminate middlemen by allowing us all to deal with each other directly…. Today, the landscape is dominated by many fewer, much larger ISPs whose fixed connections are far more trackable and controllable. We thought a lot about encryption as a protector of privacy and, I now think, not enough about the unprecedented potential for endemic wiretapping that would be enabled by an increasingly centralized Internet.[2]

The idea of disintermediation was central to the emancipatory visions of the Internet, yet the landscape today is more mediated than ever before. If we are to understand the consequences of an increasingly centralized Internet, we need to start by addressing the root cause of this concentration. Centralization is required to capture profit. Disintermediating platforms were ultimately reintermediated by way of capitalist investors dictating that communications systems be designed to capture profit.

The flaw was, to some degree, a result of the architecture of the early Internet. The systems that people used in the early Internet where mainly cooperative and decentralized, but they where not End-to-End services. Users of e-mail and Usenet, the two most common platforms, did not generally operate their own servers on their own local computers, but were dependent on servers run by others. But servers require upkeep. Operators need to finance hosting and administration. As the Internet grew beyond its relatively small early base, Internet service came to be provided by capitalist corporations, rather than public institutions, small businesses, or universities. Open, decentralized services came to be replaced by private, centralized platforms. The profit interests of the platform financiers drove anti-disintermediation.

Just as Systematic Colonization was developed to establish the capitalist mode of production in the colonies, anti-disintermediation was developer to colonize cyberspace. The basic strategy of anti-disintermediation was formulated by economists like Carl Shapiro and Hal R. Varian. Their influential book Information Rules encourages platform owners to pursue "lock-in."[3] As Varian explains, "Since information technology products work in systems, switching any single product can cost users dearly. The lock-in that results from such switching costs confers a huge competitive advantage to firms that manage their installed base of customers effectively."[4]

Their advice was well received. Varian is currently the chief economist of Google, while Shapiro is the Transamerica Professor of Business Strategy at the Haas School of Business at the University of California, Berkeley, and was a Deputy Assistant Attorney General for Economics of the Antitrust division in the U.S. Department of Justice.

Going back to an early Internet architecture of cooperative, decentralized servers, as projects such as Diaspora, GNU Social, and others are attempting to do, will not work.[5] This is precisely the sort of architecture that anti-disintermediation was designed to defeat. Decentralized systems need to be designed to be counter-anti-disintermediationist.

Central to the counter-anti-disintermediationist design is the End-to-End principle: platforms must not depend on servers and admins, even when cooperatively run, but must, to the greatest degree possible, run on the computers of the platform’s users. The computational capacity and network access of the users’ own computers must collectively make up the resources of the platform, such that, on average, each new user adds net resources to the platform. By keeping the computational capacity in the hands of the users, we prevent the communication platform from becoming capital, and we prevent the users from being instrumentalized as an audience commodity.

Thus, we leave Mr. Peel just as unhappy in cyberspace as he was in Swan River — and resist the colonization of our communication platforms by Venture Capital and pave the way for Venture Communism."

Notes

[1]. Edward Gibbon Wakefield, England and America: A Comparison of the Social and Political State of Both Nations (New York: Harper, 1834).

[2]. Wendy M. Grossman, “Take Back the Net,” July 13, 2013. Available online at: http://www.pelicancrossing.net/netwars/2013/07/take_back_the_net.html

[3]. Carl Shapiro and Hal R. Varian, Information Rules: A Strategic Guide to the Network Economy (Cambridge, MA: Harvard Business Review Press, 1998).

[4]. Statement of Hal R. Varian before the Subcommittee on Basic Research of the Committee on Science, United States House of Representatives, March 16, 1999. Available online at: http://people.ischool.berkeley.edu/~hal/Papers/congress.html.

[5]. https://diasporafoundation.org and https://gnu.io/social/.