Towards a Smarter economy

The world is changing rapidly. Over the course of the 21st century, one of the most notable developments has been the huge shift in the relationships between employers and employees. We’re only at the beginning of this process, but several things have already become clear.

Over the past 10 years, the nascent gig economy has generated remote employment opportunities that are as widespread as the Internet itself. It has given the world crowdsourcing and other forms of sharing economy. The economies and ecosystems of digital platforms have grown from these — the most significant manifestations being Uber, AirBNB, Amazon, and others like them.

Problems and opportunities

This new type of economy and working arrangement provide numerous advantages, but also play a role in creating more and more acute problems. Born as a means to make the most of temporarily available resources, such as working hours, real estate, or professional experience, the gig economy has at the same time deprived workers of significant benefits and protections — including guaranteed wages, social security, sick pay and more.

Various methods have been used to address these issues. For example, the United Kingdom recently established the Independent Workers’ Union (IWGB). The union represents workers in the gig economy, including Uber drivers, couriers, tutors, clerks, babysitters, and so on, who provide services through different digital platforms. Employees demand guarantees and protections similar to those in the traditional economy.

Studies of these situations show that in most cases, employees are at a disadvantage. This is primarily due to the fact that digital platforms have successfully made their case (including in the courts of different countries) that they are not employers at all, but technology intermediaries. They do not hire workers to provide services themselves, but only facilitate connection between workers and employers by providing information on the needs of the relevant parties.

A growing trend

How widespread is this problem? According to the U.S. Department of Labor, approximately 1% of the workforce, or nearly 2 million people, accessed work via such platforms in 2018. In the EU, according to the European Commission’s research centre, 2% of the adult population in earn at least half of their income from work accessed via digital platforms. The highest rates are in the UK (4.3%), followed by the Netherlands (2.9%) and Germany (2.5%).

Returning to the U.S., real employment on digital platforms is significantly higher than the Department of Labor estimates. According to the DOL’s survey, around 57 million Americans, or 36% of the workforce, were freelancing in 2018. Of these, roughly 10%, or 19 million people, use digital platforms to interact with clients. At the same time, the U.S. Bureau of Labor Statistics shows that 16.5 million people are employed in freelancing. (The difference between the two figures of 16.5 and 57 million people is down to the Americans who, in addition to freelancing, have seasonal, temporary, project or full-time employment.) The conclusion is that, according to European criteria, the employment of Americans on digital platforms must be at least 5–7%. In both the United States and EU countries, employment on digital platforms is growing at a dizzying rate of 20–30 percent per year.

The future is now

‘The future is already here — it’s just not very evenly distributed.’ — William Gibson

If we want to see a clear picture of tomorrow, we need to analyse the current situation carefully. It seems that the main problem is that in response to the challenges of tomorrow, we are offering remedies suitable only for yesterday. As history shows, any attempt to stand in the way of technological progress and try to return to the past by legal or any other means is doomed to failure.

First, we need to understand what we’re dealing with. The new economy, even in its initial stages, is a world in which the relationship between producers and consumers is governed by algorithms. Essentially, an intelligent digital platform is a combination of artificial intelligence, big data and algorithms designed to optimise interaction between different parties. In a very real sense, technology platforms do not hire people, but only provide the best possible information to consumers and producers. Learning algorithms of recognition, optimisation and feedback replace the standard jobs market, where interaction is based on incomplete information for both employers and employees.

A new paradigm

In the vast majority of cases, there are indeed no employees and employers, but only the self-employed and their clients. Accordingly, it is possible — and necessary — to regulate the relationship between producers and consumers, between self-employed and the party to whom services are rendered or work is performed, on the basis of smart contracts.

In this new model, traditional wages, social packages and employment contracts are replaced by smart contracts between producer, consumer and platform. Accordingly, these contracts should provide some form of remuneration depending on the timeliness and quality of work performed for the employees, payment obligations for the consumer, and platform obligations to the other two parties to the contract.

Digital platforms hold invaluable information about consumers, producers and all aspects of successful and failed transactions. This information goes far beyond the Internet, encompassing human behaviour in the physical world, location-based data, and much, much more. Each transaction enriches the platform — the technological intermediary — not only with commission fees, but also with what has been termed the oil of tomorrow: representative data. Obviously, in the long run, these platforms would not only be able to, but would have to, reward the most valuable producers and consumers using them.

It is therefore very likely, and possibly inevitable, that smart contracts will become one of the key components in the large-scale transition to the new world of employment.