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Thursday, May 19, 2016

Trump’s War on Explained

The brutal and baseless attack is a struggle between the old and new worlds

On February 2016, Donald Trump began a public relations war against one of America’s most successful companies. He directly threatened and its founder Jeff Bezos with political reprisal should he become president.

Why? It seems like every consumer loves Amazon. What gives?

“I have respect for Jeff Bezos, but he bought The Washington Post to have political influence, and I gotta tell you, we have a different country than we used to have,” Trump said. “He owns Amazon. He wants political influence so that Amazon will benefit from it. That’s not right. And believe me, if I become president, oh, do they have problems. They’re going to have such problems.”

Problems? This is pretty dark. What kind of problems? He didn’t say. Regardless, Bezos is right that this is “not an appropriate way for a presidential candidate to behave.”

This week, Trump filled in some detail. He thinks that Bezos bought the Washington Post to stop D.C. from taxing Amazon. “The politicians in Washington don’t tax Amazon like they should be taxed,” he said. They have to be taxed because right now “they are getting away with murder taxwise.”

It’s not only taxes. He also thinks Amazon is too big, too controlling. “I would go after him for anti-trust because he has a huge anti-trust problem.”

A Brutal and Baseless Attack

These serious claims are all wrong on their face. Amazon customers once benefited from the lack of a sales tax when shipping out of state. But once Amazon established distribution centers in state after state, its goods are taxed like any other — thus taking away a pricing advantage for customers. It is fast service and variety that are driving Amazon to new heights.

As for antitrust, it is hard to imagine what he is referring to. Not gouging. Not controlling (anyone can list on Amazon’s platform). Not even market share, since producers see its marketplace as an alternative venue to  their own main sites. In fact, the old antitrust laws don’t seem to have any application in the complex, multilayered, ineffable world that digital commerce has become.

And by the way, if Bezos did buy the Post in order to editorialize against higher taxes on internet commerce, that would be absolutely fine, even praiseworthy. It certainly shouldn’t be condemned. The Post has historically served as a mouthpiece for state growth. That has noticeably changed since Bezos took charge, and the results have been a blessed relief.

For his part, Trump says he is burned up at Bezos, the Post, and Amazon, because journalists have been digging around for dirt on him. Threatening journalists would be bad enough. This is straight out of the 1790s when the Alien and Sedition Acts led to the arrest of editors who criticized President John Adams. Such attacks on free speech nearly smashed the union. Certainly it led to the triumph of Thomas Jefferson in the upset election of 1800.

The Old World Washed Away

But what if there is more going on here than a bully politician intimidating newspapers and enemy businessmen? The struggle here is bigger and more historically significant. It’s not just about ideology; it’s a battle of economic interests.

Trump is joining an emerging war between old-style economic institutions, rooted in brick-and-mortar and nation-state loyalism, vs. new-style digital institutions that span the globe and empower producers and consumers directly.

The world has changed dramatically in the last 10 years, a change as significant as the move from feudalism to capitalism, from agriculture to industry, from rural life to city life. The digital revolution has fundamentally shifted the way we live, the way we communicate, the way we produce and consume. It has brought capital and power to the people. It has flattened old hierarchies. It has enabled an end-run around government bureaucracies and old-world institutions of mandated mediation between individuals.

The change has been revolutionary. It has affected transportation, retail, entrepreneurship, friendship, the hospitality industry, intellectual property, and even choices over education, healthcare, and geographic location. In so many ways, the advent of digital innovation is in the process of sweeping away major swaths of the old world.

And it’s just begun. Once technology is invented, it cannot be uninvented. Regulations can slow down its progress but cannot stop it. There’s so much more coming. 3-D printing puts the power of production in every home. Communication in all forms is free. Blockchain monetary technology has seen the proof of concept: it can exist outside the nation state. Space travel can be private. Law and contract can exist as scripts on distributed networks. Cars can drive themselves. Language differences are themselves becoming obsolete.

In this emergent world, borders do not matter. Weight and space do not matter as they once did. Old categories of class, race, religion, and even formal certification and education are ever less significant. Exchanges are taking place peer to peer, value for value. Anyone can work for anyone or hire anyone, based not on some “art” but rather based on market signalling.

Amazon has been a powerful tool in ushering in this new model. It has revolutionized the way we buy and sell things. Just now I faced a choice in buying shoes: drive to a store or click them for tomorrow delivery. I did the latter. Three-hundred million other account holders have done the same. This is why the platform moves $100 billion in product, employs 250K people, and the company is growing 20% per year.

So, yes, that is disruptive. Amazon is the creative part of Schumpeter’s process. The destructive part is that many people in the old economy are very upset.

The Empire Strikes Back

It would be remarkable if the displaced elites did not organize politically. There’s no question, for example, that the hotel industry has funded the anti-AirBnB campaign.

And it would be amazing too if some one leader didn’t emerge to represent their interests. Just as the landed caste resisted the onset of capitalism, and the entrenched economic relationships of an agricultural economy resists industrialization, so too are the barons of the analog age pushing back against the rise of digits.

Consider that Trump is the consummate physical-world capitalist. He builds towers, casinos, hotels, country clubs, all rooted in real estate, and all with a gawdy 1980s-style aesthetic. With that comes “the art of the deal.” The deals are done on golf courses, in “old boys” clubs, through personal networks. It’s about meeting in board rooms with mayors and city planners and trading favors. He hires contractors to dig and build and rent. He puts his name on large structures and they reach to the skies to proclaim his personal glories.

But what if technology makes it possible for people to work from home? Offices shrink. Revenues decline. Real-estate value falls. What happens if fancy hotels are losing marketshare to AirBnB? Hundred-million-dollar properties fall into bankruptcy. What happens when consumers can buy direct from China? Trade negotiators and entrenched establishments lose power.

And what happens when the essential value that is being traded is not physical but intellectual and people can trade all over the world? That alone blows up the world that Donald Trump romances about.

Think of it. When have you ever heard Donald Trump celebrate the new world of the app economy? He uses Twitter for his purposes. But when has he identified the tech sector as an important source of economic growth? He speaks not of innovation but of greatness. He is attached not to entrepreneurs as such but existing elites in the legacy sectors of the American industrialism of decades ago.

The central campaign symbol that Trump has chosen is The Wall, the ultimate brick-and-mortar construction project. It will require contractors, buy-outs, eminent domain, the art of the deal, all in an effort to shore up the value of the real estate holdings of the nation state.

Think of his remarkable demonization of Apple, another ornament of the new digital age. He has demanded that the company degrade its operating system to allow government surveillance. He has called for a consumer boycott (fat chance of that!). This company has enabled billions of people all over the world to produce and “break smart” rather than languish with the tools around them.

The immigration issue figures into this as well. When I last visited Google in Silicon Valley and Uber in San Francisco, it was readily apparent that one of the great assets these companies have is the H1B visa, without which they would lose some of their mightiest minds. Of course Trump has thoroughly denounced this visa status: “I will end forever the use of the H-1B as a cheap labor program, and institute an absolute requirement to hire American workers for every visa and immigration program. No exceptions.”

Method to the Madness

What if Trump represents more than just an ideology? Of course, he is in politics and therefore represents some economic interest. If you consider the consistency of his attacks on the digital realm, and his attachment to old-model, physical-world property, we find a new rationale for why it is that he is as passionate as he is.

Certainly Trump’s constituents feel themselves to be left behind by the progress of the 21st century, and, in this respect, they have blamed the wrong forces. It is not free markets but rigged labor markets and bad policy at the top that have driven down their economic prospects.

As an exponent of protectionism, cronyism, surveillance, censorship, and migration restrictions, Trump has emerged as a consistent defender of a world gone by. With the power of the presidency behind him, he can’t turn back the clock but he could manage to slow the progress.

In this respect, is he worse than Hillary who has directly attacked the “gig economy” in a way that Trump has yet to do? It’s hard to say; she depends on old-world unions for political support. However, her targeted demographic is young and more technologically sophisticated. That alone might curb her desire to roll back digital progress. And yet she has never been in business and does not understand its complex dynamics.

Trump represents an old corporate guard that is increasingly furious about the revolutionary changes taking place in a digital-data driven age that points to a world without borders and without entrenched elites.

When you think about the underlying dynamic here, it gives new meaning to the campaign’s slogan, “Make America Great Again.” Make: government will act. America: the nation state and its borders, not the individual, are of highest value. Great: as in big buildings, symbols of power, and ostentatious mountains of brick and mortar. Again: an age gone by that, thankfully, will never return, no matter how many powerful people try to make it happen.