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Banning big money

Banning big money

In the US, politicians are big on investing in big tech. That might be about to change

Here’s what you need to know this week:

  • Affairs of state: US Congress may have to cut some economic ties with the tech states


  • Apple is accused of being a surveillance state
  • Microsoft may face a tough ruling over its cloud business
  • Meta might let you use “Zuck Bucks”
  • Amazon gets a lot of returns
  • Google censored a Chinese reporter in Ukraine
  • Tencent faced a new algorithm regulation

Affairs of state: Banning big money

Members of Congress and their families have traded over $336 million worth of stocks in the tech states since 2019. But for the first time in over a decade, an official oversight committee is asking: should politicians be allowed to trade stocks and shares in the companies they make laws about?

What’s new? Last week, the body that oversees the House of Representatives heard arguments from legal experts, ethicists and former regulators. In summary, the committee was told that members of Congress are directly involved in regulating markets, and their own personal finances shouldn’t be allowed to threaten a conflict of interest in this public service.

What’s the problem? Public trust. Donna M. Nagy, a law professor who testified at the hearing said “financial conflicts of interest contribute to a corrosive belief that those entrusted with power are making decisions that may serve their own personal gain, rather than the best interests of the people they were elected to serve”.

Trades by members of Congress are so frequent and successful that platforms are now devoted to tracking politicians’ investments as a way to give advice to private clients. Congresspeople beat the market by so much, and so often, that private investors see their strategies as a guide. 

A report from Washington University found that the private financial holdings of legislators did affect their policy decisions across all major House votes that directly impacted economic policy from 1999 to 2008; as financial exposure to a market was directly associated with support for key legislation that would boost that market.

The technology stock that Congress trades the most is Microsoft. It’s actually the single most popular stock traded by Congress overall. And the rest of the top five is pretty predictable: Amazon, Apple, Alphabet and Meta.

Plenty of politicians on Capitol Hill have seen their investments in the tech states soar whilst in office. 

Suzan DelBene, a US Representative for Washington DC, filed disclosures showing that she has traded $129 million in Microsoft stocks, with multiple purchases between $5-25 million since 2019. DelBene has opposed antitrust bills targeting the tech states and in June 2021 she called on House leadership to “pump the brakes” on the antitrust legislation.

Meanwhile, US Representative Rohit Khanna’s family has made 339 individual stock transactions involving Apple, Amazon, Alphabet, Meta and Microsoft since 2019 (though in a recent statement he said he would support an outright ban on lawmakers trading stocks). 

Nancy Pelosi, Speaker of the House, and her husband Paul Pelosi beat the stock market by 5 per cent in 2019, and by 14 per cent in 2020. Based on the stocks purchased and disclosed from 2019 through to Q4 2021, their portfolio grew 96 per cent, gaining $62 million in value. Nancy Pelosi disclosed that her household has invested between $7.7 and $30.5 million dollars in the tech states since 2019. 

Pelosi, DelBene and Khanna are not alone.

Is a ban the right move? We spoke to Richard Painter, a former chief ethics lawyer at the White House, about the problem of trading in Congress: 

  • There’s a logjam of legislation. There are many different proposed bills aimed at stopping trading in Congress. The risk is that so much time will be spent disputing the differences between them, that there is a natural “excuse to do nothing”, Painter told us. US politicians have also resisted efforts to stop trading by saying that it’s good for them to have some skin in the game, because interested shareholders can make sound decisions about the governance of a company. When we spoke to Donna M. Nagy, she said that there were “more than a dozen bills and counterparts” that are “essentially the same”. With this “flurry of paper” the task is to sit down and think through the major differences between them. This might take some time. 
  • To be effective, any bill would have to include not just politicians, but their spouses. A bill to prevent financial interests from causing a conflict of interest in government would need to “unwind all the investments” that the politician’s family has made, Painter said.
  • There’s already an “incredible hypocrisy” taking place. The US already has laws that make it a felony for unelected officials (like financial regulators and judges) to create a conflict of interest through financial dealings. Yet the elected officials like the president, and those in the House and the Senate, are not subject to the same laws. “That’s incredibly hypocritical and liable to undermine public confidence in Congress,” Painter said.
  • Technology markets are especially dangerous. Whilst the problem of commercial interests bleeding into politics is an old one, Painter thinks that the emergence of technology markets that are “prone to bubbles” (starting with the Dot-com bubble in the late nineties) represents a serious new issue that requires proactive and effective legislation. “When you have members of Congress trading in the stocks, there is a tendency for them to feed the bubble or not want to pursue policies that would deflate the bubble… that can be very very bad for the economy”. The removal of congressional investment on the market would “create more integrity” in the stock prices of the companies themselves and “inspire more public confidence” in their value. 

Why does it matter? We report on the tech states because they often behave more like nations than corporations; and their financial relationships with some of the most powerful politicians in the world is one reason why. 

If the close relationship between US politicians and the tech states (through lobbying, legislation and big investments) is altered, then the balance of power also shifts.

A bill to prohibit members of Congress from trading on the stock market “is likely to have a significant effect” on the big tech companies, Craig Holman, a government affairs lobbyist at Public Citizen, told us.

What happens next? “First, a large number of lawmakers own very substantial stock investments in the leading big tech companies. Depending on how the final legislation is written, lawmakers probably will have to divest of these investments,” according to Holman. But more importantly, “it is reasonable to assume that these substantial holdings in big tech companies by many lawmakers have been influencing their official actions and votes in Congress”. 

Take The American Innovation and Choice Online Act, which mirrors many of the features of the EU’s Digital Markets Act.

The US Act is intended to stop companies from “favouring their own products or services, disadvantaging rival or discriminating among businesses that use their platforms in a manner that would materially harm competition”. Its proposition was enough of a threat to the tech states that the heads of Apple and Alphabet went on personal diplomatic missions to try to block it.

“Despite significant public support, most of these legislative efforts have so far fallen to the wayside,” Holman said. The obstacle to progress might seem pretty obvious – passing a law like the American Innovation and Choice Online Act would have a direct impact on the stock investments of many of the lawmakers. “Banning such stock ownership and stock trades by members of Congress will remove one obstacle to passage of these regulatory and antitrust laws.”

The question which hangs in the air, however: is it just naive to expect politicians to willingly vote for change that would harm their family wealth?

Apple: Surveillance state

Apple is a surveillance state, according to a former employee. Ashley Gjøvik, formerly an engineer at the tech state, details the complaint in a 54-page statement, claiming that Apple collected data from employees illegally over the course of many years. A UK information watchdog will now investigate the claims, which include accusations of unlawful data collection through employees phones. Gjøvik is one of the founding members of the #AppleToo campaign, a movement which has been highlighting issues of harrassments, sexism and discrimination at Apple for over a year. 

Microsoft: Cloud contract crackdown

Microsoft’s “cloak of invisibility” has worn off, according to a regulator in the EU Parliament. For years, Microsoft has cultivated an image of friendliness, trustworthiness and compliance – not the sort of company that needs the firm hand of antitrust legislation. But the tech state’s tactics have finally begun to draw anti-competition scrutiny from Brussels like never before. Specifically, over its use of allegedly illegal contracts that lock customers into the use of Microsoft’s Azure cloud computing services, and prevent interoperability with other platforms and services. Microsoft has seen its cloud division grow more strongly than both Amazon and Alphabet over the past three years. Its bull run might now be over, as the European crackdown on the “gatekeeping” giants of the internet marches on. 

Meta: Zuck bucks

Would you use “Zuck Bucks” to buy and sell content on Meta’s platforms? It may well soon be an option. The FT reported last week that Meta was making plans to introduce virtual tokens (nicknamed internally after CEO Mark Zuckerberg) which could act as currencies in the metaverse; including “social” or “reputation” coins, and “creator coins” possibly for influencers on Instagram. There’s a lot to unpack here. First, how would you earn them? If Meta issued tokens in return for engagement in the form of liking and sharing content, it would have to step up its moderation of fake accounts (it had to delete 1.7 billion of them last year). Second, what would users be able to buy? Meta has announced plans to integrate NFTs into its apps but the trend has seen a die-off in interest in the past few months. Third, would it actually work? Meta’s track record with making its own currency is short, and dire. After the failure of its Libra cryptocurrency project, Meta hasn’t made much noise about its financial innovations.

Amazon: Returned to landfill

One in five items from Amazon get returned, a recent survey from the National Retail Federation has estimated. It found that 21 per cent of online sales end up returned, and that $761 billion of goods were returned to sellers across the US last year, with Amazon as one of the biggest recipients of unwanted purchases. This is a big problem. An ITV investigation last year found that Amazon was destroying millions of unsold items when third-parties no longer wanted to pay for them to be shelved in warehouses; the rising number of returned items contributes to this waste problem. Amazon says it is working on “minimizing waste” and returning more goods to the “circular economy”. We couldn’t find any commitments as to when it would finish this work.

Google: State censorship

YouTube wrongly censored the channel of a Chinese influencer reporting on the war in Ukraine. The video-sharing platform reversed its decisions to suspend Wang Jixian’s account after a week. YouTube initially received reports that the videos he was posting contained “suspected violence”, but after realising that the videos was covering atrocities in Ukraine as the invasion unfolded, it backpedalled. The Guardian reported that Wang had been posting videos daily, covering the events of the invasion from the Ukrainian city of Odesa; one of which began with the words, “I am still in Odesa. I am still alive”. Wang’s videos are controversial. They dispute the Chinese foreign ministry’s claim that all its nationals had been safely extracted from the country.

Tencent: Regulating algorithms

Here’s an agency we haven’t written about recently – the Cyberspace Administration of China (CAC). The CAC issued a statement last week saying that it will be making on-site inspections of all large websites, platforms and products in the internet space that have a “strong influence on public opinion and social mobilisation”. It also said it would “prohibit algorithmic recommendation services from generating and disseminating fake news”. Overwhelmingly, Chinese internet platforms have been populated with “fake news” from the perspective of Western onlookers – but the CAC and Party have a different interpretation of what content is likely to foster “mainstream” Chinese values and “spread positive energy” as the statement goes on.

Also worth noting: In China, an eight month-long freeze on the issuing of licenses to produce and monetise new games has been lifted, and Tencent (which is the world’s single largest gaming company) is a major beneficiary. Its share price jumped by more than 5 per cent yesterday.

Thanks for reading,

Luke Gbedemah

Sebastian Hervas-Jones