#24 - Corporate dictatorship and efficiency; The corporate nation-state
How should we think about Coinbase?
This past week, Coinbase CEO Brian Armstrong (pictured above) wrote a blog post essentially prohibiting politics from the workplace. It’s well worth the full read, but he sums up the takeaways here:
[Coinbase and its employees] won’t:
Debate causes or political candidates internally
Expect the company to represent our personal beliefs externally
Assume negative intent, or not have each others back
Take on activism outside of our core mission at work
The backlash to this has predictably been intense. For instance:
I am simultaneously very sympathetic to those who are upset by this blog post yet also trying my hardest to understand where Armstrong is coming from. Below is my attempt at a rough framework to make sense of how we should think about this.
Corporate dictatorship and efficiency
Ben Thompson wrote back in 2013:
[W]e have no trouble with the modern corporation being a de facto dictatorship, and we glorify the most dictatorial of CEOs; there are clearly efficiencies to be gained by dictatorships, particularly if the dictator is a visionary.
The difference in our standards, of course, is that the downside of a poor dictator in a corporation is capped at bankruptcy, so we don’t mind the risk; in a state the downside is far more terrible, and our tolerance for dictatorship commensurately lower.
Thompson makes two insightful points here. First, modern tech companies are de facto dictatorships. Indeed, corporations are hardly restricted to the same degree that the government is. For instance, employees who work in the private-sector do not, as a rule, have First Amendment protection for their speech in the workplace. Granted, employees have other statutory free speech protections, but these protections are much narrower in scope than the protections afforded by the Constitution.
As my constitutional law professor taught me, the government’s glacial pace is a feature, not a bug, of U.S. politics. When the government makes a move, it usually holds hearings to solicit feedback from constituents and voters, ensures that the branch of government actually has the power to do what it wants to do, documents everything for full transparency, etc. Government inches forward slowly in order to ensure that it is best serving the American people.
Meanwhile, companies’ relative lack of restriction and lack of checks/balances enables them to move faster than the government. When companies are formed, they aren’t beholden to the American people as a whole, but only to their customers and shareholders. And even then, corporations are only beholden to a specific subset of desires that their customers want, and shareholders make up a tiny percentage of the population. There are a few laws that aim to protect consumers and shareholders, but by and large, because companies don’t need to serve everyone or everyone’s desires, companies can be more way more efficient with their time and resources in pursuit of their goals. Companies that pursue the wrong goals will have no market, and companies that don’t find the most efficient way to get there will be left in the dust by competition. Our general social contract with companies is that we let them experiment efficiently, and if they go down in flames, that’s no skin off our backs, but if they succeed, then great!
With respect to Coinbase, it’s instructive to view the company as a de facto dictatorship pursuing what it thinks is its best, most efficient strategy to accomplish its goal “to create an open financial system for the world.” Of course, Armstrong says as much in his post. But my point is that the conversation around Armstrong’s post shouldn’t be around whether this is, at bottom, a “legal” thing to do, or even the “moral” thing to do. To engage in a conversation on the merits of Armstrong’s blog post, we should be questioning whether this de facto dictatorship is implementing an efficient way to achieve its stated goals. For Armstrong, his answer is a resounding yes.
The corporate nation-state
But, there’s a caveat, and here’s where Thompson’s second insightful point comes in: We happily give corporations increased efficiency in pursuing a stated goal, since the downside is capped at bankruptcy. But what if the corporation’s failure is not capped at bankruptcy?
Over the past decade, we’ve seen the rise of what I’ll call the corporate nation-state. Corporation nation-states have two distinctive qualities. First, like two circles merging in a venn diagram, corporation nation-states are increasingly making decisions that intersect with the kinds of decisions we’d normally see made in the political realm. Government, constitutions, and courts, for instance, have traditionally drawn boundaries around permissible expression, but today, Facebook is de facto becoming a gatekeeper for individual expression online. Government bodies also have traditionally controlled the money supply, but here, too, Facebook seems to be entering the realm of creating an international currency with Libra.
Second, not only do corporate nation-states make quasi-political decisions, but their decisions also impact a wide swath of people, just as a government’s decisions impact millions of its people. Put differently, corporate nation-states are large companies, with a large population of users that are affected by any one change in policy. The practical result is that when a corporate nation-state fails, the downside is far, far worse than bankruptcy. Going back to the case of Facebook, the downside would be the complete censorship of speech online and an upheaval in the global financial system.
Where a corporation is increasingly taking on government functions, and where the downside risk of a corporation’s failure is more than just bankruptcy, we need to modify the social contract we enter into with corporations. No longer should we be willing to grant them efficiency in return for the chance for upside. Instead, we impose some friction, requiring companies to move a bit more slowly, kinda’ like governments, to make sure that they’re making the right steps forward. While laws play a role in that, consumers, employees, and even the companies themselves should also work to impose this friction.
Again, Facebook here can be instructive. Back when Facebook was founded, its motto was, infamously, ‘Move fast and break things.’ A few years ago, Facebook realized that breaking things would actually break society, so it dropped the ‘break things’ part of the motto. It’s also no surprise that Facebook is self-imposing friction and transparency in its content moderation process. Instead of unilaterally making the decision to keep or remove content on the platform, Facebook, like the government, is creating transparent procedures for due process with the Facebook Supreme Court, to ensure that it consistently applies its policies for content moderation. As a corporate nation-state, Facebook also rightly (in my eyes) fosters employee discussions around political topics that are adjacent to its spheres of influence.
Going back to Coinbase, the questions then become: Is Coinbase on a path to becoming a corporate nation-state? If so, where in its business should we remove efficiency and impose friction? And what does that friction look like? Is the friction commensurate with the downside risk? Is it incompatible with what Armstrong laid out in his blog post?
Unstructured thoughts
A space for stream-of-consciousness.
In my personal opinion, if Armstrong were to announce (he didn’t), on behalf of Coinbase, that Black Lives Matter and that police brutality is a bad, bad thing, that’d be … kind of a good thing? Like, even from a cold-blooded efficiency perspective, I feel like that sort of affirmation would go a long way towards making minorities feel welcome at work, and as a result, they’d be more productive. And non-minorities (on both sides of the aisle) probably wouldn’t feel threatened by that statement.
That said, perhaps having a bright-line rule against all political stances is just the convenient thing to do. Once you say that Black Lives Matter, perhaps others will begin asking why you don’t make take other political stances, and you start down a slippery slope.
Another idea here is the extent to which our work has become an extension of our political identity. I wrote last week about how we choose our friends and if it’s wrong to be friends with a staunch conservative. Along a similar vein, perhaps there are many people who would not work for a company if it didn’t explicitly align with their political views. I’d love to see some empirical evidence on this to understand this phenomenon (or if it’s even a phenomenon at all). In any case, my sense is that we’re living in a culture of work obsession, where work is seen not only as a means to make a living, but also as a status symbol. And if that symbol is silent (complicit?) with respect to certain political issues, perhaps the symbol is one that people don’t want to wear on their sleeves.
📚 What I’m reading
Coinbase employees have begun to take severance packages. As expected, a few Coinbase employees are already starting to leave after Armstrong’s blog post. I wonder how many employees will ultimately leave, and how many of the remaining employees will have increased levels of motivation / efficiency.
Conformism. Do not be aggressively conventional-minded.
Where Trump and Biden stand on tech issues.
Buying Myself Back: When does a model own her own image? A long but extremely riveting read by Emily Ratajkowski. So many themes, too: Toxic masculinity; obsession with image; what is art?; copyright and the legal system.
In defense of the IPO and how to improve it.
And finally, here’s a drone-captured video of New York City during quarantine. I haven’t been back in over a year now, and some of this footage is startling.