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The biggest lesson of GameStop

Rana Foroohar in The FT

Much has been written about whether the GameStop trading fiasco is the result of illegal flash mobs or righteous retail investors storming a rigged financial system. Robinhood’s decision to block its retail customers from purchasing the stock while hedge funds continued trading elsewhere has turned the event into a David and Goliath story. 

But that story is predicated on a false idea, which is that markets that have been “democratised” and that people trading on their phones somehow represent a more inclusive capitalism. 

They do not. Markets and democracy are not the same thing, although most politicians — Democrats and Republicans — have acted since the 1980s as if they were. That period was marked by market deregulation, greater central bank intervention to smooth out the business cycle via monetary policy following the end of the Bretton Woods exchange rate system, and the rise of shareholder capitalism. This combined to begin moving the American economy from one in which prosperity was based on secure employment and income growth, to one in which companies and many consumers focused increasingly on ever-rising asset prices as the most important measure of economic health. 

Right now, short-term fiscal stimulus aimed at easing the economic pain from Covid-19 is distorting the picture. But putting that aside, the US economy is at a point where capital gains and distributions from individual retirement accounts make up such a large proportion of personal consumption expenditure that it would be difficult for growth to continue if there were a major correction in asset prices. 

That is one reason why the GameStop story has so unnerved people. It reminds Americans how incredibly dependent we all are on markets that can be very, very volatile. 

The 40-year shift towards what President George W Bush referred to as an “ownership society” came at a time when the nature of the corporation and the compact between business and society was changing, too. The two phenomenon are of course not unrelated. 

The transformation of markets put more short-term pressure on companies, which cut costs by outsourcing, automating, using less union labour and dumping defined benefit pensions for 401k plans, which put responsibility for choosing investments, and the risks of bad outcomes, on individual workers. In 1989, 31 per cent of American families held stock. Today it is nearly half. Now, it seems, we are all day traders. My 14-year-old recently told me I should “buy the dip,” which did nothing to quell my fears that we are in the midst of an epic bubble. 

GameStop is the perfect reflection of all of this. The ultimately unsuccessful effort to squeeze short-sellers by pushing up the share price illustrates the risks of the markets. At the same time, the company itself illustrates how the nature of employment has changed. In a 2015 Brookings paper, University of Michigan sociologist and management professor Jerry Davis tracked the job growth linked to every initial public offering from 2000 to 2014 and found that the single largest creator of organic new employment was, amazingly, GameStop. The then-fast growing retail chain had an army of mostly part-time game enthusiasts who generally made just under $8 an hour. They were “the new face of job creation in America, ” wrote Davis, whose 2009 book Managed by the Markets is a wonderful history of the rise of the “ownership” society. 

I contacted Davis, who is now at Stanford University working on a new book about the changing nature of the corporation, to ask his thoughts about GameStop and the controversy surrounding it. He sums up the big picture about as well as anyone could: “Rescuing an extremely low-wage employer from short-sellers by pumping up its stock is not exactly storming the Bastille.” What’s more, he adds, “Robinhood easing access to stock trading does not democratise the stock market any more than Purdue Pharma democratised opioid addiction. Democracy is about voice, not trading.” 

I hope that politicians and regulators keep this core truth in mind during the coming hearings about GameStop and Robinhood. I fully expect Treasury secretary Janet Yellen will, based on her recent pledge to staff to address long-term inequality. 

While apps and social media have led more people to trade shares, that has not made our system of market-driven capitalism stronger. Our economy is largely based on consumer spending, and that consumption rests on asset price inflation which can now be brewed up by teenagers in their bedrooms. If current employment trends continue, many of the latter will end up working gig economy jobs without a safety net to catch them when their portfolios collapse. 

That is neither sustainable nor supportive of liberal democracy. That is why I applaud Joe Biden’s core economic promise to move the US economy from one that prioritises “wealth” to one that rewards work. 

The details of the GameStop debacle should be parsed and any villains punished. But we must not lose sight of the main lesson: an economy in which individual fortunes are so closely tied to the health of the stock market rather than income growth is fragile. Speculation, no matter how widely shared, isn’t democracy.

Uber ruling is a massive boost for a fairer jobs market

Aditya Chakrabortty in The Guardian

Yaseen Aslam. James Farrar. Remember those two names, because they are giant-killers. This summer the men took on not just one £50bn multinational, but an entire business model. On Friday, they won.

As minicab drivers for Uber, Aslam and Farrar were deemed to be self-employed. The status meant they were denied the most basic rights that other workers take: no minimum wage, no sick pay, no paid holiday. But as an employment tribunal judge heard over several days in July, that classification was both wrong and unfair. And he agreed.

The obvious thing to say about Anthony Snelson’s ruling is that it is huge. It poses an existential threat to Uber in Britain. It will also send shockwaves through a string of companies using the same business model to do everything from delivering takeaways to providing cleaners to couriering court documents.

Most of all, it is a massive boost for all of us who want a fairer jobs market – and a big slap in the face for the government. For most of the past six years, ministers have turned a blind eye to the growth in bogus self-employment, zero-hours contracts and Sports Direct-style agency work. They have preferred instead to celebrate the record employment numbers as proof that austerity is doing the trick. Just before the last election, Nick Clegg claimed: “If you want a glimpse of the sort of worker that will thrive in the new economy, you need look no further than the growing numbers of self-employed people.”

On this subject too, the hapless Lib Dem was wrong. The idea that the swelling army of self-employed Britons are all budding SurAlans and Bransons, swigging lattes and toting MacBooks, is for the birds. Serious labour-market analysts agree that a large number of those now in self-employment are there as a last resort. And many believe a big chunk should not even be classed as self-employed. As with much else in our insecure labour market, firm numbers are hard to come by. But the Citizens Advice Bureaux believe that the reserve army of bogus self-employed may number around half a million.

For some Britons, self-employment doubtless means freedom. But for others, it means the freedom to be exploited, deprived of rights – and to be underpaid. According to recent research from the Resolution Foundation, the typical self employed Brit is now earning less than when John Major was prime minister.

For the likes of Uber, self-employment is hugely profitable. The giant company has 40,000 drivers working for it in Britain – and as long as they are self-employed they are almost cost-free. On that basis, Uber can keep on adding to its fleet of drivers for next to nothing, and thus rack up ever more passengers and squeeze out competitors.

But as the judge found on Friday, Uber drivers are not self-employed at all. They have little of the liberty you might expect, but are instead interviewed, recruited and controlled by the firm. Uber sets their default driving routes. Uber fixes the fares. Uber instructs them on how to do their job and runs a disciplinary procedure. The drivers work for Uber – not the other way round.
As the ruling observes, the company and its highly-paid boosters do their best to cloak this relationship in the language of chummy marketing and hi-tech piety. They use the term “gig economy”, when what they mean is casualised labour. They claim to be “disrupters”, when what they’re really disrupting are our labour laws. And Uber still markets itself like a plucky underdog when it is now worth $62.5bn – more than Tesco and Barclays put together – and numbers among its public affairs and public relations people the former advisers to Ed Balls and Michael Howard. Pretending to be the future, it is really the past: a cab company that relies on its drivers being cheap and available. Except your local cab firm doesn’t have the lobbying muscle or the Westminster contacts.

Uber confirmed that it will appeal against the decision, and you can expect this case to keep the courts busy for a few months. Other businesses that have copied the Uber model will be watching anxiously. And so will their workers.

A few months back, I interviewed a courier called Mags Dewhurst, whose job is biking urgent medical supplies to hospitals around London. Like most other cycle couriers and drivers, she’s also classified as self-employed; she’s also fighting to change her status. Next month she will be battling her company, CitySprint, in court.

Dewhurst has a strong case. She wears a uniform with a logo, clocks in with a controller each morning. And then: “For 50 hours each week, I’m told what to do.” She’s been impatient for the Uber verdict, knowing that it will be of huge symbolic importance for her own case. On Friday afternoon, I texted her: How pleased are you?

Her reply: “On a scale of 1-10? A GAZZILLLLION.”