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TikTok and the new American capitalism
Business norms, shattered.
Ranjan here. Today I’m writing about how the TikTok deal, the infamous Trump jobs number tweet of June 2018, and the general shattering of business norms taking place.
In May 2019, in one of the earliest Margins' posts I wrote the following about TikTok’s Chinese ownership:
I still can't believe its not a bigger story that a Chinese-owned app is quietly taking over the American market. Think about all the times American tech firms have stepped over themselves to try to access the Chinese\ market (my favorite is imagining Xi Jinping's reaction when Zuck asked him to help give his kid a Chinese name).
My fascination with the app was not one of watching people do karaoke. It was having built my own personalized news startup and always having wondered about Bytedance, the TikTok parent. I include this not to take some kind of victory lap for being early to the story (well, fine, maybe a tiny bit), but more to remind readers that the US-China tech conflict is something I have long been fascinated by.
Watching this TikTok "deal" has been excruciating, yet so familiar. I'm going to touch on it, but first I want to go back even earlier, to June 2018.
THE JOBS TWEET
Most of the guys (yes, they were almost exclusively guys) I used to work with, in trading, were Republican. They were that very Northeastern "keep my taxes low, I don't really care if you're gay, and most likely my family has been Republican for a few generations". I grew up in the intensely liberal town of Lexington, Massachusetts, and until I went to college I had never met someone genuinely conservative. Sure I'd met plenty of self-identified Republicans, but never an across the board social-to-economic-to-hating-the-Clintons-with-a-passion conservative.
That was until I got to college in Atlanta, GA, where experiences good enough to grace the pages of a college pamphlet abounded. One of my hallmates, who I ended up being really good friends with, told me I would be going to hell as a nonbeliever. It was a motley crew of political and social upbringings (though not hugely economic ones) and reminded me how much my childhood influenced my political leanings.
When I got to work in NYC finance, I was in a much better place to handle just how antithetical to my politics the prevailing views were. It was fine, and I’d even argue a productive thing. While a large part of my experience in life was defined by being an ethnic minority, being an ideological one was also formative.
One thing, left or right, we all universally held was an almost religious reverence for the monthly Nonfarm Payrolls number.
On the first Friday of every month, the Bureau of Labor Statistics releases the number of jobs added (or lost) in the past month. I'd guess most Margins readers are familiar with the metric, at least in passing. The minutes after the number's release were the most uniformly volatile of the month. Normally you might have one asset class see a bit of craziness. It was rare everything would get wild at a predetermined time.
At 8:29 am everything would be dead silent. At 8:30:01 every Bloomberg Terminal and CNBC screen would be lit up with the month's release. The floor would erupt with yelling and fists pounding desks (or sometimes, screens). It was honestly fun and probably the thing I miss most about trading floor culture (other than the wasabi-eating contests).
In June 2018 this happened. At 7:21 am Trump tweeted:
I vividly remember it. There were plenty of FinTwit-y people speculating whether that meant the number would be a good one. That he couldn’t possibly have tweeted that to give away the number. It was a tradition, one of the most sacred norms of the financial markets.
But of course, it was a good number. Of course, he broke the protocol.
It hasn’t happened since. I still wonder whether that was the one time Kudlow raised his voice.
I've now spent well over a decade arguing with a few of my friends from trading life over politics. We almost got kicked out of a restaurant for arguing loudly during the Iraq War. When I did a lot of campaigning for Obama they'd harass me endlessly. But Trump was different. For them, it was more of the "he's an idiot, but Hillary is the devil" attitude. That jobs tweet, though, that was the moment I was beseeching them that this was something different. Something that they cared about was now forever broken. It might sound like this niche cultural thing, but like so many others, it mattered.
Larry, Safra, Mark & Donald
Watching this TikTok deal unfold has felt like the drawn-out version of that jobs tweet. I really care about the business climate. I genuinely care about financial markets and technology. I am telling you this, not as some b.s. boilerplate text from the Business Roundtable about an acronym like CSR or ESG. I mean it as someone who, having had the privilege of growing up in the US while spending plenty of time in 1980s/1990s India, and seeing how a healthy climate of business built on efficiency, law, and trust can transform your overall quality of life and even your physical health.
This deal reflects the absolute worst of grifter capitalism. It's so grifty I hesitate to call it a capitalistic transaction.
First, at the time of writing, I honestly have no clue what is going on. I will assume most Margins readers have followed this story to some extent, but what I understand as some highlights:
It's basically a cloud contract to help supercharge Oracle's cloud business.
China still is saying the deal is nowhere near done.
Americans might or might not own a majority of TikTok.
The magical algorithm will, unquestionably, remain in China.
There's something about a $5 billion tax payment to a 1776 fund, or something (fun fact: the town I grew up in is where the first battle of the American Revolution took place on April 19th, 1775).
Trump needs to “approve” the deal for some reason.
Larry Ellison and Safra Catz are big Trump donors.
Those are all the "facts" as I understand them, but I can’t even state them definitively because no one really knows what is happening. This Reuters piece is the best play-by-play of the deal to date and I highly recommend you read it, just to remind yourself of the sheer absurdity of this. This is not how business should be done.
The whole thing is an absolute mess, rife with conflicts of interest, demagogic personalities, nationalism, and grift. It's also one where we simply end up back at the status quo. A lot of people announce and tweet a lot of things, but nothing really happens, other then the rule of law and business predictability end up in tatters.
The oddest part of trying to process this is I began this piece reminding readers....I was genuinely worried about TikTok's Chinese roots a year ago. I have been for years! I think there have been very valid concerns about it on the grounds of national security (that could be an entirely different post).
But not like this.
Everybody’s a Lobbyist
I still cannot understand how any business-loving American can support this type of behavior. Left, right, up, or down. My co-host Can wrote how Facebook has become a PR company, and this reminded me how, in an era of rampant corruption, every company effectively becomes a lobbying firm. Your D.C. office becomes more important than your R&D center.
At this point, we all kind of know about Zuck and Trump. I still find it a bit…odd….that Trump zeroed in on TikTok so suddenly and seemingly out of nowhere. Maybe he read my Margins post from last year? But otherwise, he never even mentioned the app until after there were dinners with Zuck and the app became the most recent existential threat to the Facebook empire. But that is thinking that leans conspiratorial and instinctual rather than factual. Maybe Casey Newton's new Platformer thing will one day give us a more definitive answer.
But the Oracle thing is so painful because there is no conspiracy to be conjured. It's all right out there in the open. Their entry was so nonsensical and business-comical that we don't need to stretch our imagination to come up with an explanation. Ellison strongly supported Trump so he was given the prize. A prize that was acquired in a manner worthy of an emerging market dictatorship.
It would almost be more kosher if Oracle just paid out in full for TikTok and got stuck running it. But the attempted structure is even worse. Instead, they get a sweetheart investment and a supercharging of their nascent cloud business. One that without this deal, would most likely fall to the other giants who are years ahead of them.
Et tu, WSJ?
I brought up that jobs tweet story because we are just seeing more and more norms smashed. The cut-my-taxes-and-leave-me-alone segment of Americans should be terrified. They need to be terrified. This WSJ editorial titled, Trump, TikTok and Crony Capitalism, was almost comical in its lack of self-awareness:
Economic statists may cheer all this, but it sure looks to all the world like U.S. government meddling that rewarded political allies. Cfius was established to protect national security, not to be used as leverage to steer investment to certain companies. Better to ban TikTok outright than negotiate a deal that the French would be proud of.
Trying to take a jab at "the French" at the end feels like some last gasp at taking us back to the pre-Trump days. This version of TikTok capitalism is what the WSJ editorial board has been pushing for the past four years. This is the endgame they have allowed, enabled, and generally celebrated as they have sat back and watched the stock market fly. This isn’t French. This is the new American, brought to you by the editorial pages of the WSJ.
To write "first they came for the jobs number, then they came for tech M&A....", given the endless array of atrocious things happening to people on a daily basis, is not the most sensitive thing to write. But, for my little corner of the world, these things trouble me endlessly. For those who have forever warned us about the dangers of government intervention in business, please recognize, we’re already there.