Silicon Valley’s Strategy For Washington Goes Way Beyond A Privacy Bill
Newsletter 20: In this special edition, we dig into the executive branch’s important role in regulating — and tolerating — the technology industry’s growing power over every part of American life.
|Jeff Hauser||Oct 3, 2019|
Don’t tell the press, but there are other things happening in Washington besides the House impeachment inquiry. Regardless of whether a long-overdue inquiry “breaks down” the legislative process (because this Congress was so very productive before), the executive branch agencies will continue setting and enforcing rules that affect our everyday lives — and there aren’t many enforcement stories as dynamic or consequential right now as Washington’s square-off with the tech industry.
The Revolving Door Project has traditionally focused on financialization and Wall Street’s capture of our elected officials. But expanding our focus to Silicon Valley is a logical extension of our revulsion at ever increasing concentrations of wealth via plutocrats exercising domination of the inner workings of the executive branch. Both tech and banking exert outsize influence on the Democratic party establishment, veering it away from its economic populist roots to leave the wealthy and well-connected without credible opposition in Washington. Both are hyper-concentrated industries central to the working of our political economy. Tech and banking are both faux antagonists of a Trump administration that talks a populist path it rarely walks. And both industries demand real regulation from public-minded civil servants instead of assistance from revolving-door opportunists in positions of governmental power. There is one fascinating difference: waking Democrats up to the dangers of Wall Street influence is often about reminding the party of what it once accomplished, vis a vis the New Deal. With Silicon Valley, it’s about getting the party to institute new controls where none existed before.
Most of that narrative has focused on the DOJ, FTC, and state-level antitrust inquiries into the so-called Big Four (Google, Amazon, Facebook, and Apple). To a lesser extent, there’s been coverage of Washington’s breakdown in passing a national privacy bill — which we’d argue is a good thing at the moment, since the only reason Big Tech wants such a bill right now is to preempt a California law that could finally let consumers meaningfully control the data which giant corporations collect about them.
But there are plenty of other parts of the existing bureaucracy with sway over Silicon Valley. Had these regulators been less trusting of 20-something Bros With Big Ideas over the last decade, we might be looking at a very different political economy — which means that the next administration will have to think long and hard about staffing jobs that often slide under the radar.
Congressional Oversight of the Executive Branch
We’ve sung the praises of House Financial Services Committee chair Maxine Waters plenty of times. Sadly, though, not all of her committee is as committed to justice as its chairwoman. Its artificial intelligence (AI) and FinTech Task Forces in particular seem loaded with the sort of double-dealing Democrats who only want to use Financial Services as a “money committee.”
This is dangerous, since both FinTech — a catch-all term for any online financial service, including payments apps, e-lenders and cryptocurrency — and AI have significant allies in the Trump administration. These officials are using their offices to build institutional infrastructure that will keep a few start-ups profitable at the cost of American financial stability.
Across the financial regulators, a slew of so-called “offices of innovation” have sprung up with the stated goal of helping commissions figure out how to regulate FinTech services. The answer, generally, is “lightly.” Unsurprising, given the backgrounds of the appointees trailblazing each agency’s new “Chief Innovation Officer” position (as an aside, if you structure a job from the get-go around promoting innovation, it’s already institutionally biased against scrutinizing new ideas).
The CFPB is struggling with Paul Watkins, a homophobe who’s so-called “regulatory sandbox” practically exempts companies from any pro-consumer oversight if they just say the word “innovation” at some point in a pitch. Watkins got his start setting up a similar program in Arizona, to glowing reviews from the Federalist Society.
At the OCC, you have Beth Knickerbocker, a former American Bankers’ Association lawyer who helped defang the Dodd-Frank Act.
The SEC’s Valerie Szczepanik told cryptocurrency enthusiasts at SXSW this year that “if we hope to smell the crypto spring in the air, it will take people walking with the regulators.” The SEC issued its first No-Action Letters (immunity from regulation) to cryptocurrency start-ups this year, after Szczepanik signalled openness last year.
While the CFTC’s leadership has changed, the former top dogs were heavily bullish on Bitcoin. The ex-Chief Innovation Officer Daniel Gorfine got his start at the pro-market Milken Institute, named for “junk bond king” Michael Milken who was imprisoned for securities fraud. The CFTC’s ex-chairman J. Christopher Giancarlo made crypto miners’ lives so easy that they nicknamed him “Crypto Dad.” And he just joined...wait for it...the blockchain trade group.
These are just the Chief Innovation Officers who’ve sprung up ad hoc. Democrat David Scott of Atlanta — a city with a flourishing FinTech sector — proposed a bill this year to require each agency to set up one of these “innovation” offices. The bill would also designate one or more specific regulators for each FinTech company, meaning the CFPB could have no jurisdiction over consumer abuses perpetrated by a company regulated by the SEC. The bill has gotten no traction, but is a warning of the direction legislation might take down the road. Scott’s colleague Gregory Meeks actually gave the FinTech industry direct lobbying advice in this address a few years ago. And of course, there’s a “FinTech And Payments Caucus” of swingy moderates, who schmoozed with an industry trade group on September 12th at Google’s DC office.
Perhaps while they were there, the lobbyists and politicians tuned in to the AI Task Force hearing the same day. The Wall Street Journal reported last week that ZestFinance, an AI company which previously testified to the Task Force, is now partnering with Freddie Mac. ZestFinance has faced multiple lawsuits over the years for dodging payday lending caps. Just who we want with power over our home loans!
Moreover, ZestFinance’s backers include Peter Thiel, the same man who installed Trump’s Chief Technology Officer, Michael Kratsios. We’re FOIA’ing Kratsios’ emails with Thiel’s network of companies and nonprofits, but Congressional oversight hearings and subpoenas can dig deeper much faster. How many individual companies in which Thiel has invested are profiting from Kratsios’ big project, the American AI Initiative? How many of those companies have shady backgrounds themselves, like ZestFinance’s rent-a-tribe allegations?
There’s plenty to dig into, and plenty of opportunities for progressive leaders like Waters to play into two popular narratives: Democrats taking on the Trump administration’s corruption, and Democrats challenging the tech industry’s dominance. Make no mistake; Republican grumblings about tech are mostly self-serving, like Senator Josh Hawley (himself funded by Peter Thiel) calling algorithms biased against conservatives despite ample investigations turning up zero evidence to support that. This gives Democrats a key opening to contrast self-serving faux economic populism with the real deal, while taking on a rare universal enemy. They’d be fools to miss this chance.
Hall of Shame
Who is kept up at night worrying about intellectual property law? Jeff Bezos is — maybe that’s why he snapped up Obama’s U.S. Patent and Trademark Office Director, Michelle Lee, to run a subsidiary of AWS, Amazon’s web services division which accounts for more than half of its operating income.
Like far too many members of the Obama White House, Lee came from Google. She was the search titan’s deputy general counsel for nine years before revolving into the patent office. Inside, she worked to reduce the number of patent lawsuits Google and other big platforms faced from smaller players. This made her popular enough for 61 companies and trade groups to plead with the Trump administration to keep her on in 2017.
Lee’s new job is running a section of AWS focused on AI and machine-learning, neither of which are likely areas of expertise for a patents lawyer. But small online sellers have plenty to say about Amazon’s tolerance of fraudulent and counterfeit materials on the Amazon Marketplace. Keeping Obama’s top patent official floating around the C-Suite is a savvy move by Bezos, and another case of the corrupt impact of the revolving door.
2020 (And Potentially 2021):
Much as it’s inconvenient for some candidates’ fundraising strategies, the Democratic base is firmly behind a crackdown on Big Tech. Like almost every other issue, Elizabeth Warren and Bernie Sanders have been out front on this, with the former calling for a direct break-up of Big Tech and the latter planning to raise its tax bill and implicating Silicon Valley in his plan to save local journalism. At a company meeting in July, Zuckerberg called the threat from Warren in particular “existential,” saying he would “go to the mat and fight.” Notably, this combativeness isn’t how Facebook responds to less substantiated criticisms from the right.
Even Pete Buttigieg, whose bevy of tech donors we’ve criticized at length, is at least publicly backing gig economy drivers as they push for unionization. But even if the candidates now want to be seen as critical of Big Tech, you have to ask: How many of them will actually follow through on the posturing?
Here, again, Warren and Sanders come out looking the strongest while Buttigieg remains the most worrying. All of the candidates have received plenty of donations from Silicon Valley, but the two progressives’ funding bases are mostly low-level coders. That scans. Plenty of tech industry workers have become critical of the industry themselves in the last few years, from Google’s employee protests against Project Maven to the growing push toward unionization — with Googlers again leading the charge. Even as some tech executives have gradually warmed to Warren, she’s made a point of not reciprocating.
Buttigieg, however, has earned a reputation as the darling of Silicon Valley’s elite. Cyan Banister, an outspoken libertarian and ally of Peter Thiel, built a friendship with Buttigieg years before his presidential bid and appears to have a recurring $1,000 donation each month (we too are unsure how this is legal). Banister also co-hosted a fundraiser for Buttigieg with fellow right-winger Keith Rabois. Then there’s the campaign staff: his national political director, national policy director, and chief innovation officer (yes, even political campaigns have innovation officers!) are all ex-Google executives and higher-ups.
We always say that personnel is policy, but we should also say that past is prologue. Buttigieg’s sole qualification for office (aside from talking like a debate club champion) is the supposed revitalization of South Bend, Indiana under his leadership. A peek under the hood shows that this was much the same as any other post-industrial city’s revamp in the 2010s: app start-ups and hipsters come in, low-wage workers and families of color go out. Given Buttigieg’s many other problems with racial issues in South Bend, don’t be surprised if tech-driven gentrification gets more air time, should he receive another polling boomlet.
The Influence Game
Much of our research and writing so far on Big Tech has been about soft money and soft power — the vectors of influencing Congress that are subtler than direct lobbying or campaign contributions, but which limit the scope of policy ambition and set industry-friendly parameters of debate. If you want to set the terms of a conversation in this town, you turn to a think tank, and the think tank establishment over the last decade has been all too happy to soak up cash from the West Coast’s nouveau-riche.
Just look at three of the biggest names in center-left thought leadership: New America, the Brookings Institution, and the Center for American Progress. In 2018 alone, the Big Four gave at least $160,000 to CAP, and that’s being generous and assuming that each corporation gave the minimum possible total for its donor class. Under the same generous assumption, Brookings took home at least $400,000 from the companies in FY2018, and at its tech-focused Open Technology Institute alone, New America received at least $730,000.
The real money, though, comes from the charitable foundations set up by tech billionaires. In 2018, CAP received $600,000+ from just the Hewlett Foundation and Chan Zuckerberg Initiative. They gave a combined $1,250,000+ to New America. And the Gates Foundation gave an astounding $1,000,000+ each to CAP and New America, and $2,000,000+ to Brookings.
The Gates Foundation principally does international development work — noble, but not much in common with funding white papers. Then again, as Anand Giridharadas writes, Bill Gates might not be in a position to heroically swoop in and rescue millions from poverty if it weren’t for actual world governments largely staying dormant and waiting endlessly for market forces to sort out the world’s problems. Each of these think tanks produces work that is often amiable to market forces and against structural change.
Then there’s the small but influential subset of technology-focused think tanks. We wrote about one, the Technology Policy Institute, here. But any conversation of that ilk would be incomplete without mentioning the Center for Democracy and Technology, whose funders page is practically a list of all the largest players in Silicon Valley right now.
Leave aside that CDT has separate “top donors” entries for Amazon and AWS ($200,000+ and $50,000+ respectively), or that the Chan Zuckerberg Initiative’s entry specifies that it’s contributing through a donor-advised fund, meaning Chan and Zuckerberg are likely taking a major tax break on their contributions to a think tank which helps quell Facebook’s regulatory problems. (New America also specifies that its donations come through the Initiative’s donor-advised fund.)
What we want to note about CDT is that the first thing one sees upon logging onto its homepage is a big banner headline promoting its draft of a federal privacy bill. This bill, by CDT’s own proud admission, does not grant the right to opt out of data selling, and seriously limits the right to data deletion, which are the centerpieces of the California law.
Check out some of the pieces that we have published or contributed research or thoughts to since Newsletter 19 on Thursday, September 26.: