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27.10.2019 Michael Derrer, Hochschule Luzern

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Content / Objective

Theory:

Institutional economics aims to define rules that make markets sustainable.

Case study:

“Uber” as archetype of “Uberization” and the “Gig Economy”

Objective:

What would be good rules for this market?

Larger objective:

Should a market economy freely evolve or be «crafted»?

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Schedule

1. Intro 5 Theory: Institutional Economics 13 2 Group Exercise: Create good institutions for the market of taxi services Form groups (Polish & Swiss students) 2 Every member watches a video sequence 10 Members relate their sequence to the group 10 Group Discussion 10 Prepare a common position and illustrate it on paper 8 3. Present it to the class 12 Plenary discussion 15 Feedback on the workshop 5

27.10.2019 Michael Derrer, Hochschule Luzern

Institutional Economics

Interventionist tradition

• German Historical School 19th century
• Original Institutional Economics in U.S. (John Commons)
• Economic Sociology
• “Marketcraft”

Not to be confounded with New Institutionalist Economics, even if they partially overlap.

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What are institutions?

= the «rules of the game» in a society formal: laws, regulations, contracts, bylaws, standards informal: routines, conventions, habits, customs, norms

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Sociological view on institutions

Include the categories and logic of how people think:

• What is a company?
• What is an employee?
• What is a binding agreement?
• What is (acceptable) competition?
• What is fairness?

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Mental models and convictions Institutional frame of the economy Incentive structure Organisations Strategies Results

(Douglass North)

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Political stance of institutionalists

accross the spectrum: conservative, moderate liberal or left views Uniting element: Need for pragmatic political intervention to create good institutions No believe in an “invisible hand”: Improve capitalism through continuous reform It is the good rules that make markets work to the benefit of all Promote socially desirable behavior, better living standards, equality

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Find specific solutions

There isn’t one best way of doing things Details in policies lead to significant changes Context‐dependent: regulation has to fit into a cultural, political, economic environment Institutions function differently in different countries

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27.10.2019 Michael Derrer, Hochschule Luzern

Against free market ideology

Economy made up of power relations (bargaining power) Markets are an instrument, not a goal in itself “Government versus market” : A false dichotomy. Recognize the multidimensionality of market governance. “Once you’v got competition, the state can withdraw.”

• Wrong. More market requires a strong government.

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«Marketcraft» (Steven Vogel 2018)

a core function of government Non‐action is also an action: Always certain actors are advantaged. Not all regulations are good: Find good rules that are not impeding, but enhancing the market.

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Positive effects of UBER

Break up taxi monopolies https://www.youtube.com/watch?v=n0yLhlQ6kCQ 7:43 Advantages for consumers https://www.youtube.com/watch?v=jZYZrU0cTk8 5:56 Work opportunities https://www.youtube.com/watch?v=9abrZwnPThE 5:03 Disruptive, entrepreneurial at technological frontier https://www.youtube.com/watch?v=t2LMEJgXE84 5:31

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Negative Issues with UBER

No minimum wage

https://www.youtube.com/watch?v=HUXHMsqj2Go

7:31 Undermining security standards

https://www.youtube.com/watch?v=NTs2uBp9yVY

10:56 Workers’ rights

https://www.youtube.com/watch?v=YIvB1ND1H0s

8:21 Unfair toward competitors

www.youtube.com/watch?v=2eViwgKGJJg

7:00 ‐ 16:25

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Opposing positions

«Austrian» https://youtu.be/qvsPXKJe05Q 2:59 «Radical» https://youtu.be/jyP8zReDlX4 2:16

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Type of intervention

• Contract law
• Standards
• Labor law
• Property rights: Capital investment outsourced, profits
• centralized. “Give shares to drivers”?
• Monopoly law: Should small companies be treated

differently from large ones? ‐ …other?

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