Crypto, AI art, the gig economy, China, and some recommendations
Roundup #1 - Week of 1/18/23
Hello everyone!
Some programming notes first: I had initially planned for my first post to be the first in a series of columns about venture capital. It's taking a wee bit longer than expected, so we'll start with a roundup—stuff I’m interested in and want to comment on or quote at length. Additionally, we’ve got some recommendations of content I thought you all might enjoy.
Roundups will typically be for paying subscribers but are free for everyone for the next month (starting today). These posts will run much longer than typical because they’re really multiple blogs/comments/pieces strung together. This one is somewhere north of 6,000 words, so I’ll quickly add a table of contents to make navigating it a bit easier.
Here’s what we’ve got on our plate for this week’s roundup:
A weird (and bad) defense of generative AI that centers markets and efficiency
How China’s tech ecosystem is a mirror that lets us ignore America’s dysfunctional tech ecosystem
If you enjoy this newsletter and want to keep reading more of this, please subscribe to The Tech Bubble. If you're already subscribed, many thanks and blessings to you.
Let’s get into it!
Crypto
Gary Gensler, chair of the Securities and Exchange Commission, has been in the news a lot over the past few months as the foam of crypto bubbles begins to pop and his agency has announced fines, investigations, probes, and charges.
On November 21, we were treated to two reports from the New York Times and Politico: the first a flattering profile painting Gensler as the "nemesis" of the crypto industry eager to apply laws on the books; the second a report that surveyed hostility to his "ambitious regulatory agenda poised to shake up much of corporate America." Both profiles are pretty entertaining in that you’re encouraged to judge Gensler by his enemies: whiny executives, crypto advocates, and even some politicians who seem pretty upset that an MIT professor and federal regulator won’t go easy on an industry rife with fraud, speculation, and vaporware.
(My favorite quote comes from Jeremy Kauffman, a CEO who sued the SEC in 2021: “I was hopeful that an M.I.T. professor who had studied cryptocurrency would have some semblance of fairness about him and not be a complete sociopath”)
All of this is nice and well but is Gensler the driven, competent, dogged crypto regulator these and other profiles are suggesting?
Amid the cycle of praise for Gensler, there was a December piece by Jeff John Roberts, Fortune's crypto editor, arguing that Gensler was using PR stunts to distract from a failure to properly regulate crypto.
Gensler may have sent out a statement to journalists detailing fraud charges against FTX co-founder Sam Bankman-Fried after his company revealed it had mishandled billions of dollars worth of customer funds and then shortly thereafter declared bankruptcy but, Roberts asks, if it was a fraudulent operation going back years as the SEC statement maintains then why didn’t Gensler do anything about it? And why send the statement out at 2 AM ET on the day that the Justice Department was also set to announce charges against Bankman-Fried?
And if Gensler was the mortal enemy of crypto, as the profiles suggest, then where was he when the Terra ecosystem collapsed or when crypto lenders Voyager, Celsius, and BlockFi began to disintegrate? These are all fair questions from Roberts, but he’s not the first (and surely won’t be the last to raise them).
Back in 2021, Francine McKenna wrote a comprehensive takedown of Gensler in her Substack newsletter, The Dig, titled "Gary Gensler is not the guy" which argued just a month into his new job that he wouldn't be up to the task. Gensler earned a lot of praise for his track record on regulating derivatives at the CFTC but there was plenty of criticism he garnered at the time of his nomination to chair the regulatory agency over his time as a Clinton Treasury.
After retiring from Goldman Sachs at 39, Gensler took a job at Treasury and helped work on CFMA, a bill which The American Prospect wrote: "allowed the derivatives market to metastasize into a hotbed of financial risk with an estimated value -- before last fall's financial crash -- exceeding the world's real financial holdings."
But wait, there’s more:
“Derivatives are essentially contracts based on changes in the value of any asset, whether real (the price of soybeans) or more theoretical (the possible future losses any company suffers). Some derivatives are traded on regulated exchanges, but the CFMA gave the government's blessing to the so-called "over-the-counter" derivatives market, where handshake deals fly back and forth between financial parties with little or no regulatory oversight.
Gensler remained close to Wall Street players even after leaving the public sphere in 2000. He is a longtime investor in New Mountain Capital, a private buyout firm that paid him $70,000 last year in exchange for service on its advisory board. New Mountain, whose chief executive officer, Steven Klinsky, co-hosted a $28,500-per-head fundraiser for John McCain last year, even placed Gensler on the board of Strayer Education after taking it over eight years ago.”
Gensler offered a mea culpa and was successfully nominated, but still wrong-headed about how to proceed with derivatives. Gensler anticipated that Dodd-Frank was sufficient to reign in derivatives, for example, but big banks simply hid billions of dollars worth of trades from Gensler’s CFTC.
One of McKenna's instructive examples, though, is MF Global, its bankruptcy, and what Gensler did (and didn’t do)—she’s written about it elsewhere and is, by her admission, obsessed with it because it was a particularly egregious example of fraud that was gotten away with.
MF Global was a financial derivatives broker (sound familiar?) that sought to become as integral to financial services as Goldman Sachs (sound familiar??). They filed for bankruptcy on October 31, 2011, shortly after “discovering” $1.6 billion was missing from customer accounts.
MF Global's troubles first manifested in 2007 during a bear market that gave way to the Great Recession (sound familiar???) but seemed poised to turn things around after hiring Jon Corzine (former Goldman Sachs chairman, former U.S. Senator, and New Jersey governor) to be chairman and chief executive.
Corzine decided to try and shore up MF Global's books with a risky trading strategy—gambling that distressed bonds issued by Belgium, Portugal, Italy, Ireland, and Spain during Europe’s 2010 debt crisis could be bought at a steep discount and then redeemed at full value in a year. BUT (and this is a big one), that's a year or two without profits and that's a year or two where MF Global's financial performance could adversely affect the value of these bonds. In need of liquidity, MF Global did what any responsible financial actor would do: gambling (sound familiar????).
So, MF Global entered into repurchase-to-maturity agreements that allowed it to sell the bonds at a discount from their value, but then agree to repurchase them at a later point for a certain price. If for some reason, the collateral grew even more worthless or the creditworthiness of the borrower declined then there would be a margin call—a cash payment in this case.
These repo agreements also had a few other attractive benefits for the firm: the junk debt wouldn't appear on MF Global's accounting books because it could technically claim the repo represented a sale, important in case the debt crisis got worse (which it did). Furthermore, if the interest on the bond was greater than the discount paid out to the lender via a cash payment, MF Global could record a profit (even though the debt wasn't on the books). And so, over the next year, MF Global's repo-to-maturity agreements ballooned to $7.4 billion and accounted for about 1/7 of its assets.
Well, guess what happened next reader: the debt crisis continued to get worse, reducing the value of the collateral. This led to a growing number of margin calls against MF Global and credit rating downgrades—remember, MF Global entered into these agreements precisely because it was starved of liquidity!
Subsequent credit downgrades triggered successive waves of margin calls, leading ultimately to the last week of October when it experienced a run on the bank and customers withdrew over $100 billion from their accounts (sound familiar?????). Despite all this, in its final days, MF Global was convinced it could survive certain financial ruin (sound familiar??????).
In the final days, MF Global was withdrawing cash from segregated customer accounts, using their funds to trade or make cash payments, and scrambling to return the money before end-of-day balances were reported to regulators. On October 28, MF Global "discovered" it was $300 million short of customer funds. On October 31, the number had grown to $900 million for customers of U.S. exchanges and another $700 million for customers of foreign exchanges (sound familiar??????). And so, left with no way out, MF Global filed for bankruptcy on Halloween.
In case it wasn’t clear by now, this sounds like what happened at FTX. It makes sense to ask, then, what did Gensler do when MF Global collapsed. Well, the chairman of the CFTC recused himself from the investigation into what happened because he and Corzine were close friends when they both worked at Goldman Sachs. Here’s McKenna on that:
”Basically, Gensler bailed. The captain left the ship before the passengers were all safe. Maybe it was a “damned if he did, damned if he didn’t” situation. But it would have been arguably a lot better for the MF Global customers if he stayed, but then he would have had to avoid taking a call from Corzine about delaying the rules for how MF Global could use customer segregated funds the summer before.”
But that's not all Gensler did. He took the moment to kill a long-inactive proposal and then passed another to limit the types of financial instruments that firms like MF Global could use to invest customer funds. McKenna points to the Wall Street Journal, which wrote a pretty furious response to the development: "This bureaucratic eyewash is not going to satisfy MF Global clients who have had their funds frozen, if not plundered. The CFTC chairman sought and received vast powers under the Dodd-Frank law on the premise that he and his staff had the wisdom and knowledge to re-engineer derivatives trading. CFTC regulators have now failed at a much less complicated task, and one of central importance to customers.”
All of this is important for a few reasons. The first and foremost is, again, MF Global sounds like FTX—Gensler fell asleep at the wheel the first time and is showing signs of life the second time around, but in ways that feel like PR stunts, as established by Roberts in Fortune. The second is that one of the major problems with the lead-up to and aftermath of MF Global is that Gensler’s philosophy for regulating markets seems woefully insufficient. In all of the aforementioned profiles, Gensler insists on simply enforcing the laws on the books against crypto instead of creating a new regulatory framework. Those aren’t encouraging words given it’s the existing laws that have given crypto operations the ability to grow into operations that are allegedly engaged in multi-billion frauds.
It’s no surprise, then, that McKenna got into a bit of a fight on Twitter last month over Gensler’s approach as FTX collapsed and the glowing praise began to surface. On December 26, she turned those arguments into a much longer piece that aimed at Gensler’s glowing profiles and other coverage painting him as the hero in a post titled “Did the SEC's Gary Gensler really get crypto regulation right? I am not so sure.”
The core target here is a report released by a report from the American Economic Liberties Project, co-authored by antitrust scholar and AELP research director Matt Stoller titled “Gary Gensler Got It Right”
McKenna's rebuttal is long, comprehensive, and paywalled so I'll just highlight some of her key points here (but encourage you to go and subscribe to read it in full):
The emergence and acceptance of cryptocurrency don’t only indict American financial and political thinking, as the AELP report suggests, but also regulators who have refused to act unless to pursue ineffective enforcement, attend lunches and dinners with crypto executives, and create a "roadway" that protects big crypto investors instead of retail investors.
There’s been a selective focus on the revolving door between crypto and regulators that overlooks just how many people left Gensler's CFTC to join the industry—or how many regulators at Gensler's CFTC were party to lobbying done on behalf of firms like FTX.
Crypto proponents are not the only ones to criticize Gensler and the SEC. Former SEC officials, industry experts, lawyers, and so on are also concerned the SEC is not doing enough to ensure the contagion from FTX's collapse doesn't spread to the real economy, as well as calling attention to how FTX and the company were able to scale up by cultivating close relationships with regulators and financial institutions. The path to legitimacy for a crypto exchange ran through Gensler's SEC, which obliged Coinbase and FTX. Both entered into negotiations to gain SEC approval to trade digital assets, despite allegations that FTX was a fraud from the start.
The Gensler debate is a proxy for what should be done about crypto. Should we simply enforce laws on the books and legitimize the trading of crypto assets and the creation of a legitimate crypto financial industry? Or should we kneecap this thing while we still can? I lean towards the latter: we can and should euthanize the rentiers and parasites and speculators before we go about trying to build anything with blockchain technology. As far as I can tell, there is nothing there except the potential to earn greater returns from gambling with other people’s money. At this point, most of the crypto assets hailed as savvy innovations have proven to be duds fueled by hype, inflated valuations, labor exploitation, and speculation.
It will not be a great tragedy if, for a few years, we deprive ourselves of the “financial innovations” that crypto advocates insist are just around the corner while we try to figure out a robust regulatory regime that protects consumers and minimizes systemic risk. Alternatively, we could keep deluding ourselves into thinking the current laws are sufficient (as Gensler seems to), and ensure more retail (consumer) and institutional investors (pensions, endowments, etc.) continue to lose their money to crypto fraud, theft, and speculation.
AI Art
One of my favorite projects last year was an annotated version of NYT columnist Kevin Roose’s "The Latecomer's Guide to Crypto" that sought to correct what amounted to be "a thinly-veiled advertisement for cryptocurrency that appeared to have received little in the way of fact-checking or critical editorial scrutiny." It was a pretty clear, persuasive, and effective rebuttal of many key points and narratives invoked by Roose that was threatening to be uncritically repeated and adopted en masse. So imagine my surprise when someone shared with me a project (“Stable Diffusion Frivolous”) following the same angle, but in defense of what promises to be one of this year’s hype tech products: “AI art.”
Some background: On January 13, a class-action lawsuit was filed against Stability AI and MidJourney, along with art platform DeviantArt for their use of Stable Diffusion.
Stability AI and MidJourney style themselves as AI art generators, meaning they use Stable Diffusion to take pre-existing creative work, use those works as training data for neural networks, and generate derivatives. In this lawsuit, it's alleged some five billion images were taken without the artist's consent and essentially remixed, amounting to a massive violation of copyright law for millions of artists.
"At minimum, Stable Diffusion’s ability to flood the market with an essentially unlimited number of infringing images will inflict permanent damage on the market for art and artists," the lawsuit announcement reads.
The annotations themselves aren't particularly interesting or well-argued, obsessing over technical details instead of fundamental questions. Consider the invocation of Jevon's paradox, an economic observation that when the efficiency of a resource's consumption is increased, its demand will increase. The annotations look at aluminum—once a precious metal that Napoleon used for silverware and the Washington Monument used as a luxurious capstone, but now is ubiquitous because it costs $2/kg.
AI art tools increase efficiency, yes. Contrary to myth, they rarely produce professional-quality outputs in one step, but combined into a workflow with a human artist they yield professional results in much less time than manual work. But that does not inherently mean a corresponding decrease in the size of the market, because as prices to complete projects drop due to the decreased time required, more people will pay for projects that they otherwise could not have afforded. Custom graphics for a car or building. An indie video game. A Mural for one's living room. All across the market, new sectors will be priced into the market that were previously priced out.
There are two things to address here. First: the economics rant is not relevant to the lawsuit, which is asking whether you are violating copyright law when you use unlicensed images as training data for AI art tools. Most of the annotations work like this, pursuing tangents or quibbling on points that are ultimately concerned with markets and efficiency, not the legal question. Opponents are dismissed as “whittlers mad at power tools” and complaints are fielded that a system that did ask for consent would be technically difficult to build.
Second: it is not immediately clear why expanding art markets and increasing artist productivity is a desirable path forward. This was, after all, more or less the core thrust of many pro-NFT arguments over the past two years: sure, NFTs won’t help you make more art but they will allow you to do more with your art—speculation, secondary markets to trade fractional shares, experiences, targeted benefits, social clubs, etc. Individually creating all of those things would be tedious and cumbersome, but simply throwing your art onto the blockchain could outsource some of that work to zealous fans and communities would create more markets, more revenue streams, and more opportunities for additional art to be created by yourself or them.
NFTs, however, quickly proved themselves to be a disaster. They created markets rife with fraud, outright theft, half-baked ideas and implementation, vaporware, and creative attempts to generate excess returns through speculation. There is a tendency to insist AI and crypto will help all artists, but experience suggests that recklessly rolling out these digital technologies to develop new markets tends to largely benefit con artists.
There is also a third point, a secret point, which is both and neither of the previous. Why is anyone pretending that what these AIs are creating is art? The other day, someone sent Nick Cave lyrics generated by ChatGPT in the style of his music and he wrote a furious blog post that was incredibly perceptive when it came to the question of what art is and why AI isn’t doing it.
Songs arise out of suffering, by which I mean they are predicated upon the complex, internal human struggle of creation and, well, as far as I know, algorithms don’t feel. Data doesn’t suffer. ChatGPT has no inner being, it has been nowhere, it has endured nothing, it has not had the audacity to reach beyond its limitations, and hence it doesn’t have the capacity for a shared transcendent experience, as it has no limitations from which to transcend. ChatGPT’s melancholy role is that it is destined to imitate and can never have an authentic human experience, no matter how devalued and inconsequential the human experience may in time become.
The core reason to object to AI art isn’t simply the legal question of licensing or the debates over how artists should make a living, but the fact that this is another front in the war waged by market zealots on life experienced outside of markets. In a bid to quantify the value of everything so that it can then be turned into an asset, its transaction costs made transparent, its production optimized, and its innovation ensured, market fundamentalists have created caricatures of how human minds, social networks, and communities are formed. They’re not interested in creativity, let alone any sublime element of what it means to be a human being―unless it can be linked back to a market. That’s a pretty depressing and increasingly dominant viewpoint of the world which shouldn’t be given any room to breathe.
So at the end of it all, this is an interesting document to read if only because it teases the shape of arguments to come as techno-optimists, venture capitalists, and market zealots reposition themselves to insist AI art is a net good. Advocates will avoid the central legal question (should you get paid for your work being used by a neural network to make similar work), and insist on reframing artists as workers who must produce more for less instead of creatives who should be provided a livelihood independent of demand for their work and spin new markets for speculation and commodification as opportunities for more ambitious artistic endeavors.
What I would love to see is an annotation of the lawsuit, though I doubt that will be coming as it would require a little work and the already shaky arguments would likely fall apart when forced to engage with the legal question and not rhetoric about the virtue of turning everything into a quantifiable transaction, digital commodity, or frictionless market.
Gig Economy
The European Union is on the brink of passing the Platform Work Directive, a proposal for a series of wage and labor protections for workers on digital labor platforms. This would be an important victory in the fight against worker misclassification and labor exploitation that powers most digital platforms—but first, let’s talk about what it is and how we got here.
Back in December 2021, the European Commission announced the proposal and detailed three key areas it would focus on to improve conditions for platform workers:
Employment status: The PWD would establish criteria to determine whether a platform was an employer. Meeting two of those would legally qualify it as an employer and its workers as employees, granting them the right to "a minimum wage (where it exists, collective bargaining, working time and health protection, the right to paid leave or improved access to protection against work accidents, unemployment and sickness benefits, as well as contributory old-age pensions."
Algorithmic management: Digital platforms typically handle their misclassified workers through algorithmic overseers whose decisions are otherwise inscrutable. The PWD would require transparency about when, where, and how these algorithmic overseers are used along with "human monitoring" and the right to contest automated decisions. This will apply to employees and genuinely self-employed workers.
Enforcement, transparency, and traceability: Digital platforms enjoy information asymmetries that allow them to tightly control data generated by their platforms and their workers. Things are further complicated by their operation in multiple jurisdictions and states across the European Union, allowing digital platforms to act as private regulators that exploit differences in national laws while insisting that their cross-national operations exempt them from national regulatory frameworks. The PWD would clarify obligations platforms have to report what platform work is happening in what member state and by whom, lowering some barriers to data access and making it easier for a “cross-board regulatory approach.”
That directive was the work of years of organizing inside and outside of Europe's political institutions. Inside the European Parliament, Leila Chaibi—a French Insoumise representative in the European Parliament, a member of the Left group, and a former gig worker herself—quickly became one of the fiercest advocates for gig worker right and helped spearhead the campaign to draft (and now pass) the directive. She has a pretty interesting and wide-ranging interview in Jacobin about labor rights, the directive, political coalitions in the European Parliament, French politics, and macroeconomic conditions worth checking out, here is a snippet:
We managed to build a broad coalition for this. Why? Because even the traditional right — while loving things like the market and competition — could not accept that some companies had to comply with the law and others [the platforms] did not. Being in favor of fair competition, it could not accept the way platforms do things. So, we as a Parliament managed to get a very ambitious proposal from the European Commission. We managed to bring the workers themselves to the institutions in Brussels, to make the Commission — used to always listening to the lobbies, to the platforms — listen to them. If you have someone in front of you all day, of course you will be influenced.
This is a pretty exciting development! It still has to pass a vote to outright become law or be opened to amendments that would water it down (that vote was scheduled for January 19th but delayed to the 30th because of ongoing strikes). Still, these sorts of protections are important reforms not just because they improve the lives of people engaged in precarious work, but because they also destabilize foundational arrangements that make the gig economy possible.
The gig economy without these reforms is a fundamentally unprofitable industry that relies on regulatory arbitrage, labor exploitation, piles of venture capital funding, propaganda, and outright lies to chug along; substantially increasing labor costs creates an opening for it to disintegrate and be replaced by something else which still provides good wages and labor conditions BUT ALSO a model that expands our public goods and services instead of competing with and degrading and privatizing them.
On that point, Robert Hockett wrote a great piece in Forbes titled “Why Is Uber Über Alles? Public Platform Infrastructure for the ‘Gig Economy.’” Hockett's article hits on something I've been yelling about for a while: digital platforms are using infrastructure and resources that would be better suited in public, not private, hands.
Two needs of cardinal interest to all major metropolitan areas, if not indeed all towns and cities, seem to go under-appreciated these days: First, the need for readily available livery and delivery services, which have amounted to a species of essential infrastructure since the earliest days of our republic. And second, the need of a decent quality of life for local residents who provide such services, which amounts among other things to a prerequisite to the sustainability of any means of satisfying the first need. A city like New York, for example, benefits immensely from, and could hardly get on without, readily available and affordable livery for persons and delivery of things (letters, documents, medicines, groceries, meals, etc.), hence also from arrangements that sustainably attract and retain local providers of such services. That’s why you see taxis, buses, small trucks and other delivery vehicles everywhere, and indeed always have.
The current ride-hail system in New York City makes little sense as Roberts explains: Uber drivers on average earn 52 percent of each fare, 25-43 percent go to Uber and the remaining 15 percent to New York. Uber offers a "two-sided marketplace" while New York is supposed to ensure safety. Riders face growing price hikes and wait times that fall heaviest on non-white users, drivers face perpetual wage cuts, and labor conditions continue to degrade to the point that strings of suicides are regular as drivers push their bodies and minds to a breaking point.
Hockett argues that cities should establish their public platforms, continue to take a 15 percent cut, and give the rest to drivers. Such a system could give drivers the labor rights that have eluded them in the United States and protect their physical and mental health as well:
All that Uber and Lyft are ‘efficient’ at now that a city would not be is gratuitously extracting high fees from riders and profits from drivers. They add no value in return for these forms of extraction that cities couldn’t provide just as well on a not-for-profit basis, again given how old, familiar, and inexpensive the matching-technology used by their algorithms are.
The main problem that emerges from any proposal of a public option tends to be: who will do the computing? Digital platforms own all the data, algorithms, and technical know-how that ensures their operation and often use computational infrastructure like data centers or servers held by other Big Tech firms or real estate investment trusts. I think we should simply seize all of this and operate it publicly, but that’s for another post.
Hockett's argument here is sufficient and a good one to consider now that Europe is adopting reforms that will make drivers' lives better and make plain how unstable and unsustainable the gig economy is. What comes after it? We need to intentionally design platforms and technologies that meet social needs and abide by labor laws and don't give rise to firms that can translate venture capital subsidies into private political and regulatory power.
Start with our cities, then move up higher and higher to our state and federal governments, making them truly the servants of all rather than recognizing Silicon Valley firms as masters of us all.
China
Tech Won’t Save Us (subscribe to them if you haven’t already) just had a great conversation with Louise Matsakis—a tech reporter at Semafor—about the growing US-China divide rift and what increasingly aggressive rhetoric and policy mean for the tech industry.
The conversation is kicked off by an article she wrote early this month on a genre of Youtube video that constantly insists China is on the verge of total collapse and serves as a smart way to survey fears and anxieties about China’s place in the global order.
So, most of these people are themselves just trying to get views—except outright anti-CCP groups—but they are finding traction because China’s borders are closed, information is a bit harder to come by without putting in some work, and this information vacuum is happening at the same time as China finds itself facing genuine challenges (economic slowdown, population decline, zero-Covid policy, human rights abuses, etc.).
From her interview:
This narrative about the East collapsing or being on the verge of destruction or taking over the world is so alluring and has been for a really long time. Something I really like to do is look back at mainstream magazine covers from the 80s. I’ll never forget—it’s seared into my brain—when we were so terrified of Japan in the 80s there was an incredibly racist Atlantic cover of a sumo wrestler next to the world and the headline is “Containing Japan” and this big sumo wrestler who is as big as the rest of the world. That narrative hasn’t gone away.
The draw here is that simplistic narratives about China—sometimes racist, sometimes paranoid—are easier to digest than our incredibly complex reality. In the 80s, fear of Japanese competition for market share of the semiconductor industry led to a flurry of failed policies aimed at bringing that supply chain back under American control. Fear-mongering about China, then, can provide cover for certain policies or spur action in certain industries, or cobble together support for certain geopolitical objectives more easily than pitching collaboration with China, honestly engaging the public, or trying to rally politicians or corporations.
One easy example here is TikTok. Over the past few years, we’ve seen a lot of alarm bells go off about the social media app: Niall Ferguson argued that it was “digital fentanyl” and “revenge for the Chinese century of humiliation” in one Bloomberg column, state governments and Congress and universities have banned it from devices they own, and bills have been put forward to outright ban TikTok from the United States.
The other easy example here boils down to the global tech supply chain. Concerns that Chinese tech would have secret government backdoors sparked the Trump administration’s “clean networks” initiative to stop America and its allies from using Chinese tech in various sectors. Fear that China could weaponize dependence on its semiconductor manufacturing has led to a flurry of bills and moves to subsidize domestic semiconductor manufacturing and compete on artificial intelligence research.
But clinging to the relatively superficial narratives about a war with China, imminent collapse, or fear-mongering about weaponization or government backdoors misses pretty interesting developments at every level.
We might overlook that ByteDance, which owns TikTok, is a darling of venture capital and has received nearly $8 billion from investors since Sequoia Capital's China arm first invested in 2014. Or that it has grown its lobbying effort from a meager 17 lobbyists and $270,000 in 2019 to 47 lobbyists and $2.6 million in 2020. Since then, lobbyists have stayed steady but expenditures have ticked up to $5.1 million in 2021 and $4.2 million in 2022 (excluding Q4, which hasn’t ended yet).
Venture capital has no qualms with where their money comes from or goes to so long as it makes them more money—as is the case with lobbying—so one takeaway might be that we should reign in those two arenas if we are interested in limiting the ability of tech firms to draw in billions and convert those VC subsidies into political power. Or we can just insist this is an issue specific to Chinese firms.
Other developments such as China's moves to restrict usage of its domestic version of TikTok to 40 minutes a day for children or its cuts to “strategic investment” teams amid China’s antitrust crackdown, might also be worth considering as we try to struggle to institute antitrust reforms of our technology sector. The TikTok bans are stupid because they want to ban TikTok for being a Chinese app, but we should be restricting TikTok because it is an app and tech platforms enjoy far too much power in shaping our lives. At this juncture, however, such a realization seems beyond lawmakers—especially as Big Tech giants successfully attempt to spin themselves as nationalist champions Big Enough to compete with China.
Similarly, the saber-rattling with China on the question of semiconductors and “clean networks” may be presented as a very simple competition issue with China but it figures into a much more complex struggle over European, Chinese, and American attempts to create technology stacks impervious to geopolitics—only to realize their stacks will be limited by the geopolitical strategies they pursued over the past few decades that shaped policy priorities, productive capacities, supply chains, and economic partnerships.
Evgeny Morozov has written two great essays in Le Monde about the geopolitics of semiconductors and Huawei, a Chinese telecommunications giant integral to ICT technology stacks across the world. Both are worth reading in full and sketch out a picture that suggests that the stakes are much higher than commentary suggests because of their complexity—countries are concerned about technology sovereignty, but also concerned about supply shocks and off-shoring.
On semiconductor chips:
The dialectic of the chip crisis would have delighted scholars of the Frankfurt School, if only for exposing the inner dumbness of today’s smart society. The scarcity of chips has forced us to wait for the latest consumer electronics: without semiconductors (some at only $1 a piece), they cannot function. All those electric cars, smartphones, smart fridges, and toothbrushes have suddenly disappeared into the black hole of global capitalism, as if an invisible spoilsport had cancelled the Consumer Electronics Show in Vegas.
Today’s crisis isn’t exceptional. This time, however, it has come amidst wider anxiety about globalisation, the decline of western industrial activity, and politicisation of advanced technology such as AI, now a strategic domain in the US/China standoff. This explains how a boring technical issue, which ten years ago would have had little impact outside the directly affected industries, has become a massive headache for governments.
On Huawei:
Whatever happens to Huawei in the near future, China, Russia and other countries have received the message loud and clear: achieving technological sovereignty is imperative. China had grasped the importance of this even before Trump launched his attack, which only strengthened the sense of urgency. It would be ironic if the ultimate effect of the US’s war on Huawei was a much more technologically advanced and independent China, with a completely different supply chain that included no American companies. Paradoxically, it is Washington that has got Beijing to act upon one of Ren’s pithy sayings, that ‘without an independent national [tech] industry there can be no national independence.’
All this to say that Matsakis is right: China is complex and a lot of how we talk about China and its tech ecosystem overlooks our tech sector in favor of half-heartedly pursuing a geostrategy that’s kneecapped by fear-mongering or a refusal to embark on serious political economic reforms necessary to achieve whatever it is “winning” looks like.
Recommendations
Playlist of the Week
I’m going to make themed playlists to accompany roundups (if you have suggestions for platforms besides Spotify, I’m all ears). This week is all about posse cuts. There’s some overrepresentation from some of my favorite rap (super)groups—Beast Coast and Black Hippy—but that's okay.
Listens of the Week
One song I have been replaying is “Fuck the Nordic Model” by Ghais Guevara off his album BlackBolshevik (great name). I’m obsessed with a lot of things going on here but specifically: the Chipmunk’d sample of Jamie Foxx’s live cover of Midnight Star’s Slow Jam, the slight flow shift in the second verse that makes each line fall over the next one, and the way that builds and explodes into to the verse’s end “Opps steady thinkin' we cool/I’m just settin' you up for a murder like army recruiters.” Not a special line but it sounds so nice to my ears.
This week’s album is Nobody Can Live Forever (The Existential Soul of Tim Maia), a great compilation of Maia’s best songs that introduced me to Brazilian music and a good bit of psychedelic funk. It's hard to choose a favorite but I used to play “Ela Partiu” and “Que Beleza” so much that my little brother's first words were lyrics from the songs that he’d sing along with me.
Books of the Week
I start each year reading LAST AND FIRST MEN/STAR MAKER, my two favorite science fiction books, and both from sci-fi grandmaster Olaf Stapledon. The first follows the next two billion years of human history and the sixteen species of humanity that follow us. The second follows the entire history of our universe, as life struggles to find meaning and eventually make contact with God.
I just finished reading ADELE: A NOVEL by Leila Slimani (a Parisian journalist with a sex addiction that threatens to ruin her life) and ALL SYSTEMS RED by Martha Wells (a security android programmed to kill gains sentience). Both are great books, ADELE inches out here because I recently watched SHAME and CRASH which have a similar self-possessed horny energy to them that’s fun to follow along.
Going to start rereading PALO ALTO by Malcolm Harris (an amazing history of the tech industry, California, America, and the global economy) and PIRATE ENLIGHTENMENT by David Graeber (a fun revisionist history focused on Madagascar pirates, their descendants, and the political/social experiments both embarked on), both forthcoming!
Films of the Week
Two films I think readers would enjoy are Koyaanisqatsi (1982) and Possessor (2020).
KOYAANISQATSI largely features visuals of cities and nature, along with some beautiful music from Phillip Glass. I haven't seen the trilogy yet but will try to check out the next two films (Powaqqatsi and Naqoyqatsi) this weekend. Letterboxd describes it as a "visual tone poem" that shows us "the heavy toll that modern technology is having on humans and the earth." That’s a bit of a vulgarization, but I think it’s best to just dive in here without much of an articulation of what it’s like.
POSSESSOR is a fascinating and gruesome body horror/science-fiction film directed by Brandon Cronenburg (David Cronenberg’s son) that takes place in a future where elite corporate assassins take control of people via implants to kill targets. We follow one assassin as her mind is starting to unravel ahead of One Last Job that goes awry.
You can stream or pirate both pretty easily, though if you're in NYC you can also watch the uncut version on January 25th at the Nitehawk Cinema (9:30 PM).
And that’s it for this week’s roundup! Thanks for reading and, again, if you haven’t subscribed already then please do! Share if you found this helpful! Send me an angry email if you hated it so I can frame it for my wall!
I find it rather telling that no one is willing to put their name on that rant about the Stable Diffusion lawsuit.
Thank you, Edward, this was wonderful! Listening to Tim Maia now and just downloaded a few books to my Kindle - I recently read the original Foundation trilogy and the Stapleton books in particular sound right up my alley.