An Old Idea for the New App-Based Economy

Companies like Uber drive money out of local communities and erase the benefits that employees fought hard for. Co-ops could fix that.
December 2015
Both small businesses such as grocery stores and huge companies like Land O'Lakes are co-ops. (Flickr/ Dana Beveridge)
Alex Marshall
By Alex Marshall  |  Columnist
Senior Fellow at The Regional Plan Association in New York City

Propelled by the idea of “the Uber of everything,” many people are predicting that ever-proliferating “network companies” will radically change the older ways of doing business in all sorts of new fields.

Something like that certainly seems to be happening. Just as Uber and Lyft are taking on traditional taxi companies, Airbnb, TaskRabbit and dozens of other app-centered companies are taking on local companies in their industries. “When you can connect and share assets, people and ideas, everything changes, not just how you rent a car,” writes Robin Chase, co-founder of Zipcar, in her new book Peers Inc. This new world, she adds, “redefines our understanding of assets -- proprietary versus in-common, private versus public, commercial use versus personal use -- and requires a rethinking of regulations, insurance and governance.”

All true. But amid the enthusiasm for this new economy, we should remember that, as in the old economy, we risk putting ourselves, our dollars and our communities in the service of big companies that typically are based far, far away.

Cities, after seeing banks and factories decamp to distant parts, now watch as local businesses are undercut by outside app-based companies. Workers struggled for decades to get employer-backed pensions, health care, vacation time, sick days, family leave and other traditional benefits. Employment through an app doesn’t appear to be a route to important benefits like these.

Clearly, someone is getting very rich on this new model. Uber, which takes a 20 to 30 percent commission on ride-sharing fares all over the world, is valued at $50 billion. That’s a torrent of money for a company that doesn’t have to supply cars, radio dispatchers or mechanics. “What’s remarkable about this new generation of platform-based companies is that beyond the initial creation of software, what are they really providing?” asks Stacy Mitchell, author of Big Box Swindle and co-director of the Institute for Local Self-Reliance in Minneapolis. “Yet they take an enormous cut of the revenue stream.”

Is there a way for local communities to take advantage of these new technologies while keeping control of them? Is there a way for workers to produce new jobs and new income while also retaining control over their working lives and, not incidentally, keeping a greater share of the revenue for themselves?

There is. It’s a very old way, begun in the mid-19th century by weavers in England’s mills, an industry then on the cutting edge of technology and social disruption. Now this way includes both small businesses such as grocery stores and huge companies like Land O’Lakes. It’s called the co-op.

As I wrote in my last book, The Surprising Design of Market Economies, cooperative businesses, owned and operated by their members, tend to produce quality goods and services and divide the profits and wages more fairly while being less vulnerable to booms and busts, hostile takeovers, or government dependence and overregulation. They are a mechanism that both liberals and conservatives can embrace. And the time may be ripe for a new wave of them built around new technologies. “Co-ops have always been produced by people banding together to do something,” said Bill Oemichen, former president of the Cooperative Network, a national co-op industry group. And with the Internet, he points out, that can happen more easily than ever.

Let’s use ride-sharing as an example. Taxi drivers in, say, Cincinnati (perhaps those already driving for Uber or Lyft) could band together and start a co-op service with its own app that might be called Big Red Ride. Members could keep the 20 to 30 percent Uber would otherwise get and use that money to not only undercut Uber on price but also to provide Big Red Ride’s driver-owners with health insurance, vacation time and so on.

Does anything like this exist now? Union Cab in Madison, Wis., is a worker-owned co-op that has been in operation for decades, and there are many other co-op businesses around the country. I couldn’t find any that have an Uber-like app, but co-ops in fact have long been a vehicle to take control of new technologies. In the 1930s, under Franklin D. Roosevelt’s New Deal policies, rural power cooperatives were created to bring electricity to underserved areas. Now some of those same co-ops are providing broadband to their citizens at reasonable rates.

Not to be melodramatic here, but we really are at a crossroads. Unless current trends are countered, as the Institute for Local Self-Reliance’s Mitchell points out, this new economy has the potential to return us to a very old economy, a pre-Industrial Revolution one in which merchants put out work at meager piece rates to families and individuals. “It’s couched in this language of providing flexibility and putting people who do these jobs in a position of power,” says Mitchell, “but clearly they are not.” Co-ops are flexible because at their core is not technology but a set of legally defined relationships. The owners, or “members,” have control, not outside investors. People vote, not money.

Some people say we are in a new “post-scarcity” economy, where what was formerly dear can now be cheap or even free. As John Maynard Keynes predicted long ago, perhaps we can all work less and live better. But if big companies far from our communities control everything, it’s not going to turn out that way for the people who actually do the work. Co-ops could be a means of changing that equation.