23sense, is a business that does not so much produce things, like a factory, but rather produces coordination, getting everyone together and reducing barriers and costs to transactions. Digital technologies thus reduce transaction costs, which sets in motion a competitive innovative process leading to the disintegration of industries and the rise of platforms. Those platforms are now, in some instances, the size of the industries they vertically disintegrated and disintermediated. But at the same time, they are no less competitive, as platforms also compete with each other and continually seek to displace each other. For instance, MySpace, an early pioneer of social media, was disrupted by a startup called Facebook, which grew into one of the largest companies in the world but is now under threat from a range of new platforms that include photo-sharing websites and online gaming companies. In each instance, platforms seem like monopolies, but as Schumpeter (1939, p. 107) explained, “practically every enterprise [is] threatened and put on the defensive as soon as it comes into existence” and especially so when that business earns huge proﬁts that can be competed away through further innovation.

But platforms are critical economic infrastructure for the digital economy, providing economic foundations such as markets and matching, search, money and payments, and identity and distributed communication (i.e., social media). These large digital platform ﬁrms provide services that were often provided by governments in the industrial economy or were heavily regulated when privately held. So while many digital economy platform ﬁrms are large, the relevant comparison is not just to the industrials of the past, but to the comparative size of economic infrastructure organizations, many of which were utilities, often government owned. All the new platforms are the result of a highly competitive Schumpeterian innovation process and operate in contestable markets, in the sense that none hold monopoly licenses or patents, or Royal charters, or are designated and protected national champions. This situation is not true everywhere, for example, in China.)

However, as platforms, they are undeniably big. And that bigness has made them targets of new variants of progressive innovation and competition policymaking. There are two overarching forms of this: the new mission-oriented and broadly Schumpeterian innovation policy, as led by Mariana Mazzucato, and the so-called hipster antitrust policy, as led by Lena Kahn. We shall consider these in turn.

1.1 The Entrepreneurial State as a Regulator

In a 2021 Project Syndicate essay, Mazzucato, Kattel, O’Reilly, and Entsminger set out arguments for regulating the “platform” economy. Readers are told, S. Davidson and J. Potts

24There is a growing consensus that platforms have been abusing their power, driving proﬁts

by exploiting consumer privacy, crushing the competition, and buying up potential rivals. Yet, there is no evidence that consumer welfare is being compromised. Therefore,

Regulators therefore need to look at the other side of the equation, particularly the supplier

marketplace. Even if consumers are not being harmed directly, there is the question of how

Google treats content creators, how Amazon treats sellers, how Uber treats drivers, and how

Facebook treats merchants. . . . Because digital platforms tend to fall outside of the existing antitrust framework, we need a

new tool kit, with new metrics of market power, and a clear deﬁnition of platform power in

particular. But outdated theories are only one part of the story. When modiﬁed to account for new

realities, market power arguments tend to conclude that the major platforms should be

broken up, and key mergers rolled back. But if we push these new theories further, it also

follows that some digital services should be considered social infrastructure. At face value this is an unusual argument. Mazzucato et al. immediately concede that there is no argument that these platforms are outside the scope of existing antitrust laws and concede that these platforms do not appear to harm consumers (not too much, anyway). Yet they still argue that antitrust, of some description, should apply to these organizations. It seems these platforms may be harming other players in the economy: suppliers, contractors, and the like.

It is true that the platform organizational form is somewhat new. Historically, they have not obviously dominated the economy as they now do. Mind you, banks and media ﬁrms are identiﬁable as platform organizations, but economists have only taken notice of the unique features of this organization form since Rochet and Tirole (2003). It is intriguing that Mazzucato et al. make no effort to argue that this organizational form may disadvantage consumers.

But with Google, Amazon, Facebook, and others offering ‘free’ services to their users, the

calculus has changed. Even if the leading platforms were to pay their users, they could still

end up ahead, because one of the main sources of value in these markets lies in amassing

user-generated data with which to sell or drive targeted advertising. The beneﬁts of their business model are so great that consumers cannot be at a disadvantage. At best, it can be argued that consumers get too little from the exchange, but not that they are worse off for the exchange. This leaves Mazzucato et al. having to introduce a different set of arguments to justify (increased) regulatory control over platform organizations. Having already determined that the large digital platforms should be either broken up or, in some instances, nationalized—that is how we interpret the notion that they are “social infrastructure”—Mazzucato et al. correctly point out that platform organizations are a different form of organization to those policymakers are used to dealing with. Quite rightly, policymakers should re-evaluate their assumptions and expectations relating to the regulation of these different organizational forms. Yet Mazzucato et al. never provide that analysis. They declare platforms organizations to be different, concede they do not harm consumers, and proceed to evaluate them as if they did cause harm and were in the need of additional regulation.

25The Entrepreneurial State and the Platform Economy

In the ﬁrst instance, they argue that platforms have some market power over suppliers and merchants. This is an argument about unequal bargaining power. They also argue that many of the proﬁts earned by these platforms are “rent” in an Adam Smith sense; that they are not earning returns from adding to the productive capacity of the economy (i.e., proﬁt) but that they are extracting value from their consumers. Mazzucato et al. also appear hostile to the notion of advertising:

If personal data is used for micro-targeted advertising, we should ask whether the platform is

in the business not only of identifying but of creating consumer desires through subtle forms

of psychological manipulation. Finally, it should not be overlooked that the European Union (and the United Kingdom) would like to increase the tax burden placed on (predominately) U.- S. organizations. While Mazzucato et al. do not explicitly discuss taxation, it is clear that increased taxation forms part of the general agenda. The European Union, for example, is attempting to use competition policy to increase Apple’s tax burden in Ireland.

2 Rent Is a Classical Fallacy

Mazzucato et al. make the following argument:

We need to recognise, as Adam Smith—‘The Father of Economics’—did, that there is a

difference between proﬁts and rents—between the wealth generated by creating value and

wealth that is amassed through extraction. That is a powerful argument. An appeal to authority, to the authority of Adam Smith, no less. Yet, it is an error. As much as we loathe to admit it, Adam Smith was wrong.