Nathan Schneider, Pt. 1 (Platform Coops)

photo of Nathan Schneider
Reimagining the Internet
Reimagining the Internet
Nathan Schneider, Pt. 1 (Platform Coops)
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Why don’t users get a say in how platforms operate? Nathan Schneider thinks it might be because we don’t own them. In Part 1 of this week’s interview, Nathan tells us about how online spaces could be cooperatively owned, and what the US government could do to help.

Listen to Part 2.

Nathan Schneider is a professor of Media Studies at the University of Colorado, Boulder. He helped organize with first Platform Cooperatives conference with past Reimagining guest Trebor Scholz, and has continued the work by helping launch start.coop and develop the Exit to Community framework. Nathan has lately been researching the use of blockchain tools for community governance, and is involved with the new DWeb initiative.

Transcript

Ethan Zuckerman:

Hey, everybody. Welcome to Reimagining the Internet. My name’s Ethan Zukerman. I’m here today with Nathan Schneider. He’s an assistant professor of media studies at the University of Colorado Boulder, where he leads the Media Enterprise Design Lab. Nathan organized the first Platform Cooperativism conference with Trebor Scholz in 2015. He wrote an excellent book in 2018, Everything for Everyone: The Radical Tradition That is Shaping the Next Economy, which I think is probably the best explainer out there of platform cooperatives. It’s actually one of four books he’s written, including books about the Occupy movement and about searches for the proof of existence or non-existence of God. Nathan is just a fascinating and broad-based thinker. And I’m really looking forward to the conversation we’re going to have today about platform co-ops and everything that comes after. Welcome. Nice to have you here.

Nathan Schneider:

Thank you. It’s so good to be here.

Ethan Zuckerman:

So Nathan, we’ve talked a bit with your colleague Trebor Scholz about platform cooperatives, but we’re going to be talking today about some of the problems, how these systems scale, what it might mean to Exit to Community, which is an idea that you’ve been writing and thinking about. Start us off simple. What do you mean when you talk about platform cooperativism?

Nathan Schneider:

To me, it’s really about the challenge of bringing an old legacy of cooperative enterprise, of shared ownership in the economies that people participate in by those participants into the online economy. And it seems like this is the sort of thing that the online economy might have been built from, to begin with. Right? We have pure production, we have open-source software, and we have democratized access to information. And yet in a lot of ways, the internet has produced some of the most centralized forms of investor ownership the world has ever seen, some of the largest companies the world has ever seen, the incredible concentrations of power.

The platform cooperativism is an attempt to kind of connect this sense of possibility that people have had around the internet with this old legacy of people actually doing that kind of shared ownership, all the way down into the level of companies that has existed outside of it. For instance, in the agricultural sector. My grandfather ran a hardware distribution cooperative that enabled small hardware stores to thrive. This is a model that has operated all around the world. And it’s something that I think helps address a lot of the challenges that we see in the online economy, as well as the general malaise of democracy in general. So I think of it as in some ways, a kind of response to particular ills on the internet, but also a much broader response to a much broader vision for the kind of future we want.

Ethan Zuckerman:

So two things to unpack there. So first, sort of wrestling with what we might think of as Benkler’s paradox, right? We have all these visions for how the internet is going to give us these open participatory systems. We have all these new modes of production that give us remarkable things like Linux and Wikipedia, but somehow the dominant economic model that emerges is one of intense concentration. We have companies like Facebook and Google, which I guess are now meta, and Alphabet. There’s something about these very powerful companies changing their names that really have almost unprecedented knowledge about the world, about their customers, that they are then going off and selling to other people. So somehow, despite having what we thought were the right rules in place, perhaps we got the economics wrong. Maybe the technology was right, the economics were wrong.

The second thing is that platform co-ops as you’re reminding us, first of all, are a real thing. There are co-ops out in the world. If you go to an ACE Hardware store, you are interacting with a co-op. The employee and the store owners are owners of ACE as a whole. But also platform co-ops are a thing. Talk about some of the examples of platform co-ops that are really working things out in the world.

Nathan Schneider:

Absolutely. Yeah. They take a lot of different forms and it’s important to see this as I think, a movement more or than a particular model. You’ve got examples like in New York City, a prominent example recently has been The Drivers Cooperative, which is a driver-owned Uber, a kind of holy grail in this space.

Then, you also have data cooperatives. Two examples, I think are really instructive are MIDATA Switzerland, which is a kind of personal medical data repository, where members can’t monetize their own data, but they can share it for research use. And then in the US, we have one called Savvy, which is a little different in that it’s a co-op of patients, often with chronic illnesses, who are doing gigs, providing their knowledge and understanding of their conditions to companies that are trying to produce products for them on their own terms, using their collective power, and they’re actually making money.

So the models can really be quite divergent, as the cooperative tradition more broadly has been, but what they all have in common is that sense of collective power, that sense that the participants who are creating the value also own the value that they create.

Ethan Zuckerman:

Let’s go for a little bit on what you described as the holy grail for platform co-ops, which is ousting Uber. Right? So Uber essentially provides two pieces of software. It provides a piece of software that allows passengers to find a driver, and that it provides a piece of that allows drivers to find passengers. And in exchange for the services, it takes a good chunk of the driver’s revenue. And many people have seen Uber as sort of a sign of a particularly predatory economic model in which venture capital money is used to subsidize market position, but the fundamental business proposition is not a winning one for the participants.

There’s a perception that I think that’s becoming increasingly demonstrable that drivers can’t actually make a living off of Uber, and that Uber in some ways is sort of based on false premises. How does putting Uber in the hands of the driver change that equation? What does the platform co-op do differently than how Uber does it?

Nathan Schneider:

Well, Uber, I called it the holy grail because it represents in some respects what excited a lot of people about this idea of a sharing economy, right? One in which more peer-to-peer connections would be possible through technology and that this could be liberating and maybe environmentally helpful. Uber turns out not to be so much. But then the difference is that ownership structure.

In fact, I don’t think of Uber… Uber likes to talk about itself as a tech company, a logistics company, everything but an employer. But I really think of it as primarily a regulatory arbitrage company, because its technology is widely replicated. You can buy an off-the-shelf copy of Uber software for almost nothing, but what you can’t replicate is the network effects, the power of the company, especially in its ability to manipulate regulatory environments in its favor. That’s the difference.

What the co-op models try to do is try to put that same kind of relatively commodity software into the hands of drivers, though we have to recognize they are up against a lot. For instance, a really important case that reveals this regulatory arbitrage side is that a number of years ago, Austin required Uber and Lyft to fingerprint drivers, the same things that taxi drivers have to do, safety. And the companies refused to do that because they didn’t want to do that everywhere else, so they left.

The city helped facilitate the development of a nonprofit ride-share and a taxi co-op, and they worked great. I mean, I remember going to Austin during the time when those were running or when they were really thriving and it was fine. It was cheaper. The drivers loved it. They paid a lot less in commissions. It was just a really nice deal for them. It actually turns out that this model works better when it’s scaled locally. And we’re seeing that also with food delivery, which I can get into.

Ethan Zuckerman:

Well, but tell the end of the Austin story. So what happens to that? Does Uber come back? Does that co-op thrive? Is it part of keeping Austin weird or whatever it is supposed to be these days? How does that story end?

Nathan Schneider:

It’s a regulatory story. What happens is that the state government in Austin, with the support, for instance of the College of Republicans at UT ends up overruling the city of Austin’s decision, and preventing the city from having these kinds of rules, and Uber and Lyft come back. And because of their network effects, their brand power, their ability to subsidize, they’re able to regain their market share. And so there you see the sense in which these monopolies are really protected and enabled, not so much just by the glory of their technology, but by their market power and their ability to manipulate the regulatory environment.

Ethan Zuckerman:

And let’s just unpack that for a second. So just to be clear, Uber, when it started working in New York City, didn’t have to buy taxi medallions, it didn’t have to get licensed yellow cabs, it didn’t have to put their taxi drivers through all the steps that licensed New York City taxi drivers go through. In the process, coming in undercutting rates, or in some cases, not even undercutting rates, simply adding a level of convenience from payment and hailing through the app, managed to severely damage the New York cab business, hurting lots of individual cab drivers, as well as people who had invested in some cases, life savings into their cabs.

A regulatory environment was supposed to protect the taxicab business. It failed in this case, in part because Uber has been very aggressive in mobilizing its users for one thing, on behalf of making arguments to city government.

So why are platform cooperatives sort of losing in a case like that? So it sounds like the city of Austin sort of stepped in, created this perfect opportunity for a platform cooperative, which you said the riders and the drivers both liked, but it ended up losing out to scale. It ended up losing out to people like me, who aren’t in Austin, often come in for South by Southwest. I’ve already got Lyft installed on my phone, and so I end up using that rather than the platform cooperative. How do platform cooperatives scale to compete with the Ubers and the Lyfts of the world?

Nathan Schneider:

So this is really essential and it goes back. I mean, this is a story about the ways in which we have decided as a society to enable innovation. For instance, venture capital is often treated as a kind of force of nature in our discourse. Venture capital was not itself able to scale until Congress allowed it to until passing a law that changed the Prudent Man Rule and changed the ability for pension funds to invest in venture capital, and to unleash the floodgates. We have to recognize that we have a society that systematically decided to support investor ownership as the means of innovation, rather than other approaches. When groups of people, for instance, the taxi cooperative formed, they do not have anything like comparable access to capital. And that’s not just again, a natural kind of state of nature phenomenon. That is a result of the financing environment that our society has created.

Ethan Zuckerman:

What’s the solution to that? How do we solve the problem of platform co-ops or anyone else who wants to innovate in a technological sense outside of investor ownership? What are the other paradigms? What are the structures is we need to make that innovation possible?

Nathan Schneider:

Well, the kind of exciting thing for geeks of history of this stuff is that we’ve done it a bunch of times, but we’ve done it in very specific sectors. So credit unions, a good chunk of people in the United States have their deposits in credit unions. I have a mortgage with a credit union. It’s a very common thing. It’s the largest lender in my area. And that was enabled through legislation, particularly in the early ’30s. The rural electrification problem, in the mid-’30s 90% of rural America didn’t have access to electricity. The solution to that, that the Roosevelt administration led was to enable financing through the Department of Agriculture for rural electric cooperatives, and it solved the problem in around a decade. And we still have a revenue-positive loan fund at the Department of Agriculture.

The problem is every time we do co-op or shared ownership legislation, we put it in a straight jacket. We’ve enabled investors to be creative, to do whatever they want. But when we talk about co-ops, we say, “You can only do this one thing. You have to follow this cookie cutter. We don’t trust you. We don’t want to unleash you in the economy.” So what we need is a framework that unleashes shared ownership on the economy as a creative force, not simply a stopgap for particular little hitches, market failures where investors fail to solve a certain and kind of problem.

Ethan Zuckerman:

Okay. So I’m with you so far. We need a general structure, not specific to this particular problem or that particular problem. It needs to be somehow outside of the venture capital system, which you rightly pointed out. I’ve talked with Mal Salter often about this. It’s a very particular product of pension funds being able to make incredibly risky investments, but sort of turning that risk into the mainstream of investing. What’s the solution that’s going to unlock this pool of capital for creative solutions that allow us to be more pro-social and more focused on how we imagine and build these futures?

Nathan Schneider:

I think there are a few approaches and also some new ones coming on online, but in the kind of 20th century economy, you could imagine something like a Fannie Mae, Fred Mac, a public insurance pool that sits there and makes sure… Those were the pools that we used to enable homeownership, unfortunately, along very racist and exclusionary lines, but still more widespread homeownership, through a pool that incentivized the private sector to actually recognize that lending to regular working people to buy homes was a reasonable thing, and now nobody questions it.

If we had similar pools to support shared ownership investments, recognizing that this is a public good, I think we’d end up with the situation quite similar, where suddenly when a neighborhood in a city or a region in a rural area, doesn’t have broadband internet, they can just go to the bank and buy something, get a loan to build something that they can co-own and nobody would bat an eye. Right now, of course we can’t do that. Those communities are waiting for investors to decide that those people have value like anybody else. That’s one approach.

We’re also seeing, for instance, my Senator, John Hickenlooper recently proposed something, finally, requiring the Small Business Administration to lend to cooperatives like they do to other their businesses. But one way or another, I think we need probably a few different mechanisms, but we need to have a recognition that shared ownership is a vehicle for wealth creation and equity, and also for innovation for technology, this is a vehicle for ensuring accountability for the power that technology gives us, and we need to enable that.

Ethan Zuckerman:

I would say that the Hickenlooper Small Business Administration is a partial solution, the sort of Freddy Mac-style pool of capital that communities, groups can go to, to fund something like broadband. But of course, not just limited to broadband, to fund whatever seems appropriate, whether it’s local wind power, or whether it’s putting your electric infrastructure under the ground.

Nathan Schneider:

Or a group of employees buying out their employer.

Ethan Zuckerman:

Right. Because, of course, it doesn’t have to be municipal. It can be on the level of any sort of group organizing to do it. How does this relate to what you’re writing about now with this idea of Exit to Community?

Nathan Schneider:

Yeah, so after working on Platform Cooperativism for years, I was realizing, okay, first of all, we’re attracting only the people who already know what a cooperative is and want to do that from the beginning. And second of all, sometimes it doesn’t make sense to do the shared ownership from the very beginning. And so Exit to Community was an attempt to ring some of these ideas into this startup community as it is. Where if you’re a normal person, exit is a sign on the wall, right? But if you’re in startups, exit is your whole purpose. The whole point of a startup is to exit, which means to essentially sell the company to either an acquiring company, or on a stock exchange as an IPO. In either case, you’re just handing that off to another set of investors.

What I and my collaborators have been arguing is that we need another option where community ownership becomes the destination that startups aspire towards. So maybe early on it would be closely held by its founders, maybe some investors who help get it going, help find the market, help find that community. But then at the point where it matures, the startup starts converting toward community ownership, and that can look a lot of different ways. It could mean users buying it from the founders and the founders get a return from that. It could mean a kind of token sale. It could mean a kind of federation approach. We’ve mapped out a few different strategies. Really what this is though, is a different kind of story about what startups are for and what we expect of them.

Ethan Zuckerman:

How is an exit to community different from going public? If I’m a big fan of Facebook and I’m a heavy user of it, and Facebook goes public, there’s very little that stops me from going to my stockbroker and buying shares of Facebook so long as I’ve got the money to do it. How is Exit to Community different from going public on the stock exchange and allowing the company’s biggest fans, and supporters, and users to become owners of it?

Nathan Schneider:

That’s a great question. It was something that was asked a lot in 2016 and ’17. I and some friends did a campaign where we called for Twitter to become community-owned, to explore strategies for community ownership. We had enough stock to be able to do a shareholder proposal and a lot of people just said, “Why do that?” Even the company said, “You can always just buy our stock.”

But actually, when you, again, look at the rules of the game, when you become a shareholder, our regulatory environment is designed to ensure that your interest in that company is purely financial. Everything about the structure of the relationship is that you’re trying to make as much money as possible, and that company has to make you as much money as possible. Whereas the forms of community ownership that we’re talking about here, and this is a broader family now, it includes cooperatives, but also you could look at trust-based ownership structures, or even kind of membership nonprofits. There’s a broad range of possibilities here. Many of these actually broaden the relationship. They say, this company, sure, there’s a fiduciary responsibility, but there’s also a kind of democratic right, where the company is now responsible to its members, not just to make them more money, but actually to treat them fairly, to reflect their values, and they can have a voice in that company in many of these contexts.

Community is a very broad and squishy word, and I know that. The imprecision is intentional. The idea here though is to look at the models that, that move us from a purely kind of financial relationship, which has its role, but is really, I would argue, insufficient for managing these great utilities of our time toward a recognition, which is the language that many of these companies use themselves already anyway, that their users are a community and should be treated as such.

Ethan Zuckerman:

You’re starting to stray into language that I’ve heard from other folks who are big fans of B corporations and sort of other ways of making a structural change to investment vehicles that they see as freeing these structures from a particular dictate, which is to make as much return for investors as possible. There’s a counterargument that that’s a misreading of what the corporate responsibilities actually are, that corporations, including publicly traded ones, for years have made decisions that are in community interest, that are values-aligned, that are not purely profit aligned.

Your argument about exiting to community seems to center on this idea, or at least in that explanation seems to center on this idea that ownership through equity doesn’t give control proportional towards the ownership, right? That essentially it’s giving you fiscal ownership, but not necessarily controlling ownership. If that system were reformed and you had proportional control in a company based on your financial share, would that solve these problems, or are you talking about something that’s sort of deeper and more complex here?

Nathan Schneider:

Well, so you’re absolutely right, that there is a sense in which what we’re talking about here, the responsibility of shareholder primacy and profit maximization is in many respects as cultural as it is legal. But when you do look at these documents and sign these documents and explore how for instance, companies speak to their shareholders and the kinds of language that shareholders use-

Ethan Zuckerman:

Culture is real.

Nathan Schneider:

It’s very real.

Ethan Zuckerman:

Just because it’s cultural, doesn’t mean that it’s not powerful.

Nathan Schneider:

And the incentive is baked in. I mean, you really do stand to benefit in a certain way from the company when you are a shareholder, and when you’re a large shareholder, this is what they’re interested in.

In terms of the specific reforms, I think there are a lot of strategies for how to do this and how to meet these kinds of goals. You see this in terms of the breadth of what earlier generations have done. I really try to focus on the fact that this is not a matter of inventing the new model often, the B Corps, or whatever. A lot of what B Corps are trying to propose are things that cooperatives have been doing for over a century, with much more teeth. B Corps, it’s still not really clear whether this stuff is legally enforceable, but it is a powerful signaling mechanism and signaling is really important.

But when you do create structures, for instance, one approach to Exit to Community that folks have been exploring is using purpose trusts, where you’re able to, kind of similar to a B Corps, inscribe a limitation or a positive affirmation of purpose in the corporate governance of an organization. That can change some of the incentive structures. Cooperatives, their financial incentives are very different often from shareholders in a public company. They’re not buying and selling shares left and right. They’re attaching their relationship to a commitment, to loyalty to a different kind of time horizon, and that changes how you relate to that share. It is not simply a commodity. It’s a relationship. It’s a commitment. It’s a long-term bond. That kind of temporal relationship is something that I think is really interesting to explore.

I don’t think there is one solution to these problems we’re talking about, but what is important to emphasize is that the solution space, the responses based on traditions and experience of what has worked in the past are largely unavailable in the online economy because of the environment that we’ve established, both regulatory, and then based on that, cultural. You can’t walk into a mainstream accelerator, other than Start.coop., the one I co-founded, and say, “I really want to learn about how to build this business model, but I’d like to do it as a cooperative someday.” You’ll be left out of the room. The models just are not even available.