Alienation and Platforms
Silicon Valley exposes one of Marx's fundamental mistakes
"Karl Marx" by Dunechaser is licensed under CC BY-NC-SA 2.0.
A concept called alienation lies at the heart of Marxism. With the help of his collaborator Friedrich Engels, economic theorist Karl Marx noticed that industrial workers in 19th century factories in Manchester in the United Kingdom (UK) only received a small percentage of the value that they created back in wages. At the same time, the product of their labour belonged to the factory owner and were then traded on markets. Marx thought that workers became alienated (or estranged) from their own labour as a result of this system.
While this observation is largely reality-based, Marx also thought that factory workers became alienated from their very humanity. He went on to argue that the system he had observed (capitalism in his words, market-tested betterment in ours) would inevitably collapse under the weight of its contradictions. It would be replaced by a system of socialism or communism without any alienation. This is much less reality-based, to put it mildly. In fact, Marx made one of the worst predictions in the history of economics, as we have seen before. Multiple efforts to build a market-free modern economic system have failed miserably.
What did Marx get wrong? This week’s essay will argue that he missed three essential concepts, which should seem much more obvious to us in the 21st century. The first is value creation, or betterment - a running thread through recent essays on Sharpen Your Axe. The second is opportunity cost; and the third is platform economics. Taken together, they strongly dilute his observation about alienation.
Let’s take value creation and opportunity cost together. Economists often talk about trade-offs, which is another term for opportunity costs. Trade-offs imply that the cost of doing one thing is the inability to do something else. The cost of learning German is that you will have less spare time to learn to play the saxophone or how to dance salsa or to compete in Olympic weightlifting or watch bad television.
Although urban factory workers undoubtedly had tough lives throughout the 19th century and beyond, Marx and his followers rarely discussed the opportunity cost at the heart of the issue. The people who chose to work in urban factories were actually much better off than they would have been if they had stayed in the countryside.
In other words, poor people in Great Britain and Ireland were able to create more value by moving to a big a city and working in factories than they would have been able to do by scratching out a living with subsistence agriculture. Modern scholars have counted 95 famines in Great Britain during the Middle Ages, often as many as one a generation. The risk of famines began to fall at end of 18th century as the country industrialised, but it didn’t disappear entirely - the 1840s were known as the “Hungry Forties.”
Meanwhile, the Great Famine of rural Ireland began in 1845, leading to the deaths of some 1m people. Ireland became part of the UK in 1801, although 26 of the island’s 32 counties gained independence and became a republic between 1922 and 1949.
Living in the 2020s, we have an advantage over Marx: we can look back at the 68 years since William Shockley, the co-inventor of the modern transistor, moved to Mountain View in California. There is a clear lesson from Silicon Valley: new platforms can create massive amounts value and make it easier for users to create value too.
Substack is a good example. It is a platform that allows users to find interesting and thought-provoking reading material, much of it free. People like me can also use the platform to try and create value for others by sharing our thoughts with the world. Some of the more successful authors will be able to monetise their projects.
Once you know about platforms, it should be obvious what Marx missed. The first industrial factories were platforms! Access to these platforms allowed early industrial workers to generate a little more value than they could in rural cottages.
Alert readers will notice that I haven’t addressed alienation directly. Sadly for Marxists, it is perfectly possible to design business models that minimise alienation. For example, John Lewis Partnership of the UK and Corporación Mondragón in the Basque Country in Spain are both employee-owned cooperatives. Meanwhile, advocates of stakeholder capitalism awant more companies to give their employees a greater say in how they are run.
Also, modern digital platforms make it easy for us to create side gigs where we can enjoy full control of our labour. Sharpen Your Axe is an example. After a hard week (hopefully) creating value for others on a platform that I don’t own, I can fully control a free essay that I write for my own enjoyment at the weekend. Hopefully other people will appreciate at least some of the essays too.
I don’t want this essay to be too breezy. It should be obvious that is much easier to find personal fulfillment in a project than it is make a living; and people who give away our work create unfair competition within the culture industries. This is not an unconditional defence of platform economics!
Despite the exceptions of John Lewis and Mondragón, cooperatives often find it harder to compete with companies with orthodox ownership structures. which can take faster decisions, scale successful experiments and merge with rivals. Building economies of scale becomes easier as a result.
The reason that it was difficult for Marx and his contemporaries to develop sound economic theories about platforms is that industrial workers in 19th century Manchester were only able to create a little more value in a factory than in the countryside. The numbers change drastically in a digital economy, which makes it easier to reach millions of people over a platform. Creating massive amounts of value becomes possible and provides a route to financial success.
An economist called Enrico Moretti, who we have mentioned before, talks about “brain hubs,” like Silicon Valley, which bring together a well-educated labour force with a strong innovation sector. His research shows a multiplier effect, as every new high-tech job in a city brings five additional jobs in its wake, whether in skilled occupations or unskilled ones.
It is worth repeating that this essay is not an unconditional defence of platform economics. Platform decay is always going to be a risk. Silicon Valley also shows us one significant risk of concentrating lots of brilliant people in a small space. The housing market can very quickly become dysfunctional, unless the public administrators pro-actively build (or issue licences to build) new homes. The comments are open. See you next week!
Previously on Sharpen Your Axe
The failures of Marxism (part one, part two and part three)
Value creation (part one, part two, part three and part four)
The move to cities from the countryside
Building houses is better than rent control
Further Reading
The Cultural Industries by David Hesmondhalgh
The New Geography of Jobs by Enrico Moretti
Platform Thinking: Read the past. Write the future by Daniel Trabucchi and Tommaso Buganza
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Opinions expressed on Substack and Substack Notes, as well as on Bluesky, Mastodon and X (formerly Twitte) are those of Rupert Cocke as an individual and do not reflect the opinions or views of the organization where he works or its subsidiaries.
An unexpected feature of a market-based system is the opportunity for differentiation. The drive to set your company apart from the competition is what enabled the existence of mutual ownership in the first place.
Free choice has also proven to be a powerful stimulus for both business creation and improving working conditions.
I always felt that the biggest failure of Marx's economic theory was his inability to account for the impact of labor unions, which emerged during his lifetime in the US, UK, and on continental Europe. Beyond that glaring omission, I agree that the success of the mutual ownership model and the value creation opportunities that technology has enabled have further distanced his theories from any relevance in today's economy.