America's Tech Advantage and the Dangers of Regulatory Overstep

A discussion with Shane Glynn on The Rasheed Griffith Show

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Show notes

What lessons can we learn from the current tech regulation climate in the United States? CPSI Director Shane Glynn joins us for a great discussion on efforts to reign in the juggernauts of the technology sector and the market factors driving the latest wave of scrutiny over household brands like TikTok and Amazon.

The Caribbean may not be a major player in global information and technology, but it is a notable customer and beneficiary. Social media proliferation in the region facilitates the dissemination of news and politicians have jumped on the latest trends to reach a younger and more socially active electorate. Facebook, WhatsApp, Instagram, and TikTok allow ideas and movements to propagate throughout the region in mere seconds. The importance of these platforms has not gone unnoticed by US regulatory bodies. The courts argue that the ubiquity of these public forums has crossed the threshold for which they can operate without increased oversight. 

In the case of TikTok for example, the geopolitical tension between Washington and Beijing has brought the popular video-sharing network within the crosshairs of Congress. Shane discusses the broader implications of recent congressional hearings and the shift it could cause in the greater regulatory landscape. America's competitive and technological edge is often said to be driven by its open markets and de-regulatory practices. A leader in innovation and information access, The U.S. is powered by a thriving tech sector that largely functions without the fear of government incursion. But could this edge be dulled by a renewed focus on censorship?  What could this increased oversight mean for privacy, free speech, and accessibility for the satellite regions of the Caribbean and greater Americas?

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Full Transcript

This transcript was automatically generated by AI and lightly edited by our team. We don’t catch every error, so if you spot one, send us a message/email via shem@cpsi.org.

Rasheed: Hello Shane, and thank you so much for joining me on the podcast today.

Shane: Of course Rasheed, thank you for having me.

Rasheed: There's a lot of conversations going on, broadly classified as the tech industry in the U. S. And many of them are a bit confusing to me because, from an economic point of view, the questions seem to be quite, how they say, curious, to put it very mildly.

And I'm wondering if on the legal side, it's a lot more complicated than I'm giving it credit for. In particular, there are two ones, but one that comes to mind quite quickly is the campaign against Amazon when it comes to Amazon's supposed monopoly status in the U.S. Again, I'm not sure what market they're using to size that monopoly, but why is it that the U.S. regulators are so hell-bent on trying to break up Amazon in the U.S?

Shane: Sure. So I think your question has a bunch of very interesting insights built into it. The key one is you mentioned how the market is being defined. I do occasionally teach law school. I occasionally lecture on antitrust, but I'm not an antitrust expert.

But a key thing that you mentioned is that in American antitrust law, the way that you define the market and the way that you measure a company's participation in the market tends to be outcome-determinative. So if you want to know whether or not there's an antitrust violation, generally all of the fight is around defining the market.

So that's a good insight. Most of the focus on Amazon, in my opinion, is based on the head of the Federal Trade Commission in the United States. That's a push from Lina Khan now, uh, Commissioner Khan or Chairwoman Khan. When she was in law school, she wrote a fairly influential paper that was published in the Yale Law Journal back in 2017, if I had to guess, and that paper was called 'Amazon's Antitrust Paradox', and that paper laid out Chairwoman Khan's theory on what are the issues with Amazon and what should the remedies be.

Anyone who's listening to your podcast and studies a lot of American antitrust law might recognize the name of the title 'Amazon's Antitrust Paradox' is a bit of a reference to a book written by Robert Bork called 'The Antitrust Paradox'. And in that book, I believe I can't remember if it was a book or a paper.

I think it was a book. Robert Bork laid out his theory that breaking up companies via antitrust regulation leads to higher prices. And those higher prices confound the purpose of antitrust, which is to bring lower prices. I thought it was an interesting choice from Chairwoman Khan to position her paper as a rebuke of the very influential text from Robert Bork.

And so I think one of the key elements in the government's positioning is they're looking at both the scope of what Amazon does. Amazon started as being a first-party retail marketplace. Then they expanded into offering their reselling services to unaffiliated companies. Then they got into cloud hosting, and then they got into being, I believe they are one of the world's largest book publishers.

Then they got into the movie industry. Then they got into the TV industry. Part of the supposed issues around Amazon has to do with the number of businesses that it's involved in. And the other one, and the one that I think is probably more interesting is that in Amazon's marketplaces for both real-world goods and digital goods, the claim is that Amazon has a unique ability to observe the sales price, the sales process to see what sells, who does it sell to, how much does it sell for? And that gives Amazon the ability to compete against their third parties using their sales platform in a way that is claimed to be unfair. To me, that's the really interesting antitrust issue with Amazon.

This idea that, let's say, Rasheed, you are Amazon and I am a store. I produce goods and I sell them through Amazon. I'm using your sales platform to connect with customers who use Amazon. I'm using your warehouse to store my products. I'm using your delivery network to deliver those products. You as Amazon, get to set a lot of my costs because you're determining what cut you take or the ability to participate in the marketplace. You determine storage costs in the warehouse. You determine shipping and delivery costs. And you also may be able to gain some insights into my Manufacturing costs that could give you as Amazon the ability to find a lower-cost manufacturer Or to adjust your internal cost of sales, cost of fulfillment, cost of delivery, cost of processing returns, et cetera, et cetera, in a way that would advantage you and disadvantage me.

Now, I'm not saying that is what happens, but I think that is a core component of the claim.

Rasheed: Okay, so if that isn't what happens, then what happens?

Shane: I don't know. I've never worked at Amazon. I'm not an insider. I don't have any special knowledge. But from an external perspective, you can observe that Amazon has product lines like Amazon Basics, where again, at least this is what the claim is that Amazon is looking at products selling on the Amazon marketplace and identifying products Where they may be able to out third parties and then going into that market.

And it would take something like the current lawsuit that's been filed to dig in and look at how Amazon makes those decisions. Are they abusing the information that they have about people who sell via Amazon to outcompete them? I can understand the argument, but you would have to dig into the details again, from my perspective, to know whether or not they were engaging in any behavior that violated the law.

Rasheed: Okay, so it's more on the law. Because if there is no, in my view, consumer harm, I say if consumers are paying lower prices, they're not complaining and they're actually having a general economic benefit, would the law still have an issue with how Amazon operates?

Shane: Ah, so that gets into the key sort of philosophical underpinnings of American antitrust law.

And again, for your audience, I want to say I am not a professor of antitrust law, so I am grossly oversimplifying this. If you look at trends in antitrust law or what in Europe you would call competition law, there was this huge event that took place in the early 1980s, which was the breakup of the phone company AT&T.

And broadly speaking, before the breakup of AT&T, the view on antitrust law in the United States was that once a company got to a certain size and once it had a sort of supermajority of the market, That was in and of itself a violation of antitrust. Since the 1980s, that view has changed, and probably between maybe 1985 and 2000, the prevailing view is exactly what you said, Rasheed, that the focus of antitrust is not on how big is this company.

How much market share does it have? The focus is on consumer prices. And as long as consumer prices were trending down, then there was a presumption that you did not have an antitrust violation. I think the most recent Biden administration, Lina Khan coming in to run or to be the head of the Federal Trade Commission has caused a bit of a change.

And you can see this both in government and also in academia. I think there's a bit of a willingness now to reevaluate whether or not there should be more criteria other than the consumer price. Because you can have low prices and very little choice and to some level of generality, you could say that there can be a trade-off between low prices and having many options just because of the cost of warehousing, the cost of delivery. If you have many options, you may have greater overhead again, this is a gross oversimplification, so I think that is part of the reason why this issue is so contentious.

In the United States, it's because we've had a lot of legal certainty that price is the only thing that matters and now that sort of fundamental precept is being reevaluated and the U.S. may start trending towards the sort of pre-1980s view of antitrust, which is that once you hit a certain size, you're presumptively in violation of the regulations.

Rasheed: I remember seeing a chart, pretty sure you had sent it to me at some point, about the breakup and subsequent reunification of AT&T over the last couple of decades. And you see things like that, it asks the question, like, all this effort, is it for naught, even if they go through with their plans?

Shane: Yes, and for the benefit of your listeners, that was a chart created by the website, The Verge, and it's called 'Look at This Chart'. There's an expletive in there that I won't repeat. And what that chart does is it starts with January 1st, 1984, which is the date that the AT&T breakup order became effective.

And AT&T, which had been this monolithic company in the United States, provided both local telephone services, long-distance telephone services, and also manufactured a lot of the telephone hardware, both the sort of switches used in central offices as well as the phone you might have on your desk.

That company was broken up into seven companies, which were colloquially called the "Baby Bells". And then between 1984 and I believe 2018, which was the date of the merger of AT&T with Time Warner, you saw AT&T get broken up into the seven regional bells. You also get added into that mix of cell phone companies, which were brand new.

You have internet service providers, and digital online entertainment companies, and then gradually over about 40 years, they all end up recombining or 35 years. And as in 2018, when the time Warner merger took place, that combined entity in 2018 was actually larger in terms of the scope and scale of services offered than AT&T was back in 1982.

And obviously, the percentage of the marketplace had changed because we had all these new telephony and communication services. Yeah, it's an interesting story. There's the negative view of it, which is that we spent all this time and effort breaking up AT&T only to have it get reconstituted. So why bother?

That's the negative view. The positive view is that look at all of the new telecommunications services and products we got in between 1984 and 2018. We got cell phones, we got internet delivered via a variety of mechanisms. We got satellite radio, we got satellite-delivered television. We got the growth of the cable industry.

We got all of the video streaming services. There is an argument to be made that breakup, even though ultimately all those companies were largely reconstituted, during that period, you had this explosion of brand new telecommunication services, and that might have been, no, that would have happened no matter what the status of AT&T was, perhaps the breakup of AT&T created enough competition and created enough opportunity for these services To be adopted and to spread faster than they would have otherwise, if everyone had to wait for a Bell Labs manufactured cell phone or a Bell Labs manufactured DSL modem to access it.

Rasheed: Has there been any very rigorous work in this legal tech-econ intersection that tries to do a counterfactual about that exact point? Like what if this didn't happen, the AT&T didn't break up, did that actually lead to some kind of burst of innovation or burst of space opening for innovation in that kind of market?

Shane: There has been and perhaps I can track down some references and we can link those kinds of in the notes attached to this podcast. Again, in my sort of non-professional, non-expert view on this, it's hard to tease that out. Partially just because you can't run the experiment. You can't set up another United States and not have AT&T broken up.

So that's very difficult. To me, the other problem is that there's a huge source of bias where some of the academic papers I've read where they try to tease out the counterfactual. The person writing it is coming from a certain point of view and so they're largely perhaps trying to generate a model that reinforces their prevailing view on antitrust generally rather than taking a real unbiased approach to it.

That's difficult across all of academia, I don't wanna be viewed as pointing out these particular authors. Everyone comes to research with a set of preconceptions and it's very difficult to not have those influence your outcome.

Rasheed: Moving on a bit to some recent tech industry court, not court for tech industry trial drama.

So there've been lots of these, I'm not sure what the correct term is- senate hearings of the tech CEOs in the US. And it seems like often for the very much more media-frenzied ones, Microsoft seems to be missing from them. Either seen or heard that much on Twitter or any kind of news about the Microsoft part of this tech industry-supported regulatory onslaught.

Am I mis-seeing this? Is Microsoft not missing? Or, and if they are missing from these hearings, why are they not getting as much pressure as let's say Facebook or TikTok or Google?

Shane: I think you are accurate that both in fact and in reporting, Microsoft has been largely absent, not entirely, but largely, and my opinion is that the reason why is that these latest rounds of hearings are focused on social media.

And the major issues which are in direct contradiction with each other, one issue that congressional hearings have occurred on or taken place on has to do with allegations of censoring and preventing people from speaking on social media platforms. And then there's been another set of hearings that have to do with members of Congress being very upset about the social media platforms allowing people to speak too much.

To me, that sort of perfectly encapsulates all of the issues around free speech, which is that a company sets a policy and then there's one group of people who will be upset that policy restricts speech that they don't want to be restricted and another group of people will be very upset that policy allows speech that they don't want to be allowed, then the companies are stuck in the middle.

But to directly answer your point, because the focus has been on social media and because the focus has been on policies of either allowing or restricting speech on social media platforms, the major players have been the executives of large social media platforms. It's been companies like Meta with Facebook.

It's been companies like Google, primarily because of YouTube. And companies, and services like TikTok with ByteDance. And you have X and Twitter. You've got Snap. You have Discord. You have companies like that. Microsoft is not as much of a player in the social media space with a giant asterisk, and that asterisk is their ownership of LinkedIn, I think even though LinkedIn is enormous and is used by many people all around the world because LinkedIn is more business focused and always has been, I think it has been less of a place where controversial political opinions have been disseminated, and therefore it's been drawing less ire from members of Congress in the United States, and that's why you don't see Microsoft executives as prominently featured as much as you would with the CEO of Meta or the CEO of Google or a company like that.

Rasheed: So on that point of social media and free speech. The big debate is, what's it, section 230. Is that right? Am I close? The big debate is that. And again, for me, from sitting on my point of view, it's a very difficult debate to follow. Because on one side, of course, they're saying that the tech companies like Meta for Facebook or Instagram, Google or Alphabet or YouTube, should have more liability when it comes to monitoring the content placed on the platform.

Now intrinsically, that doesn't seem to me like a super technical problem, but of course, it is a very hard operational problem, I'm sure. Of course, on the other side, why even go about it that way, where it doesn't seem like it is a justified measure to get users, independent users, to be essentially nicer to people online?

I'm not sure why the question about online liability has become so central to the free-speech conversation in the U.S.

Shane: Great question. So for anyone interested in this law and its impacts generally, there is a professor named Jeff Kosseff, who's at the U.S. Naval Academy, and he wrote a book called "The 26 Words That Changed the Internet".

I think it is probably one of the best books written both on that law and its implications generally Professor Kosseff, I think is fairly down the middle. He does not have an obvious pro or anti-tech bias. And so I would encourage everyone to go read that book. It's considered the authoritative text on how we got here with that law.

The issue of Who bears liability is a very interesting one. And as you said, Rasheed, broadly speaking, you can have the liability be on the person who says the thing, or you can have it, the liability be on the platform where the thing is said. And that place, that can be a website, that could be a social media property, it could be an app, but it could also be the law in the United States in this area was developed around things like newspapers and television and radio. Where things got interesting in the context of newspapers was obviously if a newspaper pays a reporter to write a story, and that story contains factual mistakes, liability is on the newspaper.

But then what if you have an ad placed in a newspaper and the newspaper doesn't necessarily know if the contents of the ad are violative of some law or what if you have an op-ed piece written by someone else in the newspaper and the newspaper publishes it, that's where U.S. liability gets interesting, but I think to your point, the reason why we got CDA 230 initially and why we American law puts liability on the speaker and not on the website or the service was because the Internet back in the mid-nineties was very small.

There was in the United States a- already a developing split amongst courts about where this liability should lie where you had one court saying it's on the speaker or the person who wrote the thing on another court saying that no, it's on the actual platform. There was a view in Congress of a desire for uniformity and also a desire to not have the Internet viewer be crushed by these lawsuits, which seems quaint these days where today these are the biggest companies in the world, but back in the nineties, we weren't sure if the Internet was even going to exist.

That's how it got created. And so really from a policy perspective, you have to decide where do you want the liability to lie. And a huge component of that, as you mentioned, is how do you do that? Like how do you operationalize it? This is when you dig into the scale that internet service providers, not internet service providers, but social media websites and social media apps operate on.

It's very difficult. There was a joke floating around Silicon Valley that to hand review English language and social media content, you would need to hire half of the English-speaking people in the world to review the content being generated by the other half of the English-language speaking world.

That there's probably not a good economic use of human capital there. So on the operational side, it's tremendously difficult because you need some combination of automated monitoring for whatever set of regulations you have, you're going to have some combination of automated monitoring and human review.

I think it's been. Publicly disclosed that companies like Meta hire tens of thousands of people to do the second-level human past review. So it's enormously complicated. And if you put the bulk of the liability on the social media companies, what you will see is if you can imagine a giant free speech lever, if you put more liability on the companies, they're just going to turn that lever to a more restrictive position.

And so you're going to have the automated filters getting turned up and you'll have many more false positives happen where you'll have innocuous comments being removed purely because the companies are worried about liability again, in my view, as you put more liability on the companies, you're going to see more and more speech get restricted purely because the risk management people at the companies don't want to have to pay out in enormous quantities of money for violating these laws. So really, I view it as there are two dials. There's a liability dial and there's a free speech dial and one dial directly impacts the other one.

And as a society, countries need to decide for themselves. Where do they want that liability dial to be, understanding that the more liability you put on the company is the fewer kinds of speech you're going to have on these properties, and at the margin, you're going to have more and more speech restricted.

I'm sorry, that's a bit of a long-winded answer, but that's my kind of summary view having thought about this for 10 or 15 years.

Rasheed: And that's why to me it's so complicated because it seems that the U. S. political system is trying to inadvertently push the U.S. to more Chinese-style internet, which for decades, at least a decade, which has been mocked mercilessly by the U.S. political system to try to essentially copy it, which is the deepest irony you have. At the same time, this seems to tap back into the monopoly question. If you have such strong liability rules, it seems almost impossible to have newcomers to the game of social media, because they wouldn't be able to handle the compliance and legal fees, potential liability constraints, and so on.

They have locked in those who already do it on a big enough scale to manage the burden, which restricts even further the possibility of more speech in the future.

Shane: Yeah, I think that's true. A personal example of that is that I'm an attorney in the United States. For several years I was employed by, initially by Google and then by Alphabet.

I was there for the transition. When I was there, Google had an internal staff of hundreds of attorneys. Startups generally have zero, maybe one attorney. So as you noted, between the company with an in-house staff of hundreds of attorneys and the startup with none, which one of these companies is going to be better able to comply with regulations?

The large one. Now, particularly in the European Union, you do see a somewhat thoughtful approach to that, where a lot of the Uh, GDPR and other European privacy regulations, they do have a phased approach to regulation based on the size of I forget the term at the top in EU regulations. It's something like a very large online service provider or something like that under the acronym VLOP.

And so you have the most regulation placed on those very large companies. And then as the size of the company shrinks, both based on, you know, market capitalization, number of users, et cetera, there is less regulation. But you have a very good point that as a general principle, there are of course exceptions, but as a general principle, regulation favors incumbents because the large incumbents are more able to respond and comply with regulation.

Also, the incumbents are more able to influence regulation when it's being enacted. So there is certainly a concern that More regulation in the United States is going to further entrench the ability of the existing major players in the tech space to continue to maintain their position. That is entirely reasonable.

Rasheed: And what would be the requirement to remove the Section 230? Would this be a fairly high political threshold or a rudimentary change?

Shane: Section 230 was part of the Communications and Decency Act, large portions of which would end up being invalidated through, I believe that was the ACLU v Reno case because some components of that law had to do with pornography and adult content online.

But in summary, This is not something enshrined in the American Constitution. It was a law passed by Congress and signed by the President, so it could be repealed through the same action. The political viability of that happening, I think, would be very difficult. We have seen several attempts, some successful, to modify CDA 230. The most recent one had to do with solicitations of prostitution, especially involving underage people, and that did go through. And so there are certain kinds of content and certain kinds of social media providers where the general protections of CDA 230 are removed under certain conditions.

So that's been The way that the regulation has been modified over time. I don't think there is a political appetite for a wholesale repeal of CDA 230, but I would expect to see the sort of scope of CDA 230, and continued attempts to chip away at it around the edges for certain types of content.

We've already seen this around things like sexual exploitation, and human trafficking, There's a set of things that you always see come up over and over again, and it tends to be things like terrorism, things like drugs, things like exploiting minors, and those tend to be the kinds of issues that do get passed through Congress and do get signed by the president.

Just to summarize, I would not expect a wholesale repeal, but I would expect continued attempts to carve out certain areas of content. Not being subject to CTA 230, and that's

going to continue.

Rasheed: Could this also be adjusted via federal Supreme Court hearings?

Shane: It could. Certainly could. That is a possibility.

I don't know how likely that would be, but there is, on the current United States Supreme Court, there is a majority of justices who share a certain view of the law and it might be possible to have the scope of CDA 230 adjusted through Supreme Court action as well. It is interesting that most of the, oh, actually that's not true.

I was going to say that most of the action is not at the Supreme Court except for in the last year where all of the action has been at the Supreme Court. Just in the most recent Supreme Court, a sort of year, I think not in the current term of oral arguments, but in the previous term, several cases involved the application of things like anti-terrorism statutes, the material support of terrorist statutes attempted to be applied to services like YouTube. Now those cases were unsuccessful. I believe those cases were nine zero, but yeah, this, the possibility certainly is there.

Rasheed: So sticking on this social media aspect a bit, I want to ask about TikTok cause that's pretty much in the news excessively also in the U.S. I guess it's almost, to me, an obvious question, but I guess I'm wondering which aspect of it is possible. What legal grounding does the U.S. government have to ban TikTok if it wants to?

Shane: The grounds that were attempted during the Trump administration had to do with an organization called CFIUS, which in the United States, oversees, or has oversight over foreign investments, foreign mergers, foreign companies, buying U.S. Companies, and things like that. And it's an interesting organization because it has enormous powers, but they are only very rarely used.

And especially in the sort of, you know, if you're working in defense contracting, anything that touches aerospace, anything that touches satellites or any technology with a direct military application, CFIUS is going to be top of mind. But if you're a social media company out here in California, it's something that is on the checklist for every merger or acquisition but generally viewed as a tick the box, file the paperwork. It's not gonna be an issue. Generally, I'm sure there are a bunch of M&A lawyers right now who are screaming into their computers because it is very important. But CFIUS has. the power to unwind M&A activity and to force divestitures.

That was a huge lever that again rarely used in the context of sort of social media companies that don't have a direct sort of military obligation. That's one of the bases for the proposed ban. And my view is that a lot of that political activity was a proxy for geopolitical infighting between the United States and China.

That TikTok was the thing that the U.S. and China decided to fight about, rather than it being purely a function of the U.S. worried about the influence of short-form video content-sharing apps on teenagers. It was more the fact that it was a company that potentially had some source of Chinese government influence.

That was the whole source of the issue, in my opinion.

Rasheed: Anyway, still going on now. We just recently had another senate hearing or additional hearing with the TikTok CEO where he was I've been obnoxiously grilled for random questions for a long time. So it's still going on. Is it, has it elevated to an actual legal conversation or is it still pretty much a geopolitical struggle?

Shane: Again, during the Trump administration, there were actual significant government efforts to force a divestiture. And I think there was talk of the assets getting split up. I know Oracle was in the conversation at one point and so was Microsoft. So it was a very real legal issue, and I think there were some PR stumbles by TikTok where they had made statements around what was kept onshore in the United States, what information was going internationally. Some of those statements ended up not being entirely accurate, and that caused a bunch of additional problems for them. And they did hire a bunch of relatively, not relatively, but extremely high-quality American attorneys to help give them advice and also to help them communicate to American regulators about exactly how the TikTok service works.

That is good, but I think just because of the prior history and because of the ongoing tensions between the United States and China, that TikTok is, how should I say this? TikTok executives should probably just rent a house in Washington, D.C. to save on the hotel fees that they're going to be incurring over the next several years.

Rasheed: Besides the general military-type CFIUS review examples, is there a similar precedent to this activity in the U.S.?

Shane: Oh, I'm almost certain that there is, but I don't have examples of it in the front of my mind. I think you can see there being a parallel to chip manufacturing, which has been in the news because of the Chips Act from the Biden administration. However, the United States is concerned about the offshoring of critical electronics manufacturing technology that goes back to at least the 1980s.

Because I can remember there was during the Reagan administration in the 80s, there was a big push to try to onshore semiconductor manufacturing, which I do not believe worked tremendously well. And back then, the concern was, I believe manufacturing leaving the United States and going to Japan. I could have that wrong, but I think it was Japan.

And that was more of an economic issue or more of a purely economic issue. These days, again, it's geopolitics because most of the best, most advanced semiconductors are being designed and or manufactured in Taiwan, which is a sort of geopolitically fraught location.

Rasheed: I remember this, Grindr was, I think, CFIUS forced the Chinese owner to sell it because it was, I think, originally American-owned and a Chinese company bought it, but then CFIUS forced the sale of Grindr, I think, back to another U.S. company.

Shane: That is correct. Again, I don't know what the actual concern there was, but I have read some analyses by some people in the national security world. Some of the concerns they were thinking about were, I don't know if you're familiar with the GAO, the General Accounting Office. So, there's an organization in the United States that is responsible for keeping the employment records and the pay records of everyone employed by the federal government.

And there was a hack that involved a large number of those records. I had read some speculation that if you take the information from the GAO hack about every person who's employed by the federal government, and then you take all of the members of Grindr, you can then, everybody who works for the federal government, you have a large database of people who have perhaps self-identified as being gay.

And then you can use social media to cross-reference those and find out, perhaps, if is there anybody who is on Grindr who does not present themselves to the public as being gay, and then you have a vector for espionage because you potentially have some information that you could use to influence people.

You could say, "Hey, if you don't help, if you don't give us your government secrets, we're going to reveal this information about you". Again, I have no idea about the veracity of that. But that is something that people in the American national security sphere were concerned about. There was also in the GAO hack, there was a whole concern that if you looked at people's job titles and how much they get paid, if someone had a relatively low-level job title, but, and they were getting paid disproportionately more than their job title suggested, and they work overseas, that's probably someone you want to focus on. Cause that person, that might, that might, they may be an undercover agent.

Rasheed: Interesting. Okay.

Moving on, before I go to my more substantive question. Did U.S. regulation kill crypto in the U.S.?

Shane: It hasn't killed crypto in the United States. I think that it has significantly curtailed investment by the traditional American venture capital companies, although, with a giant asterisk, I saw that the cryptocurrency investment arm of Andreessen Horowitz recently made a 100 million investment in a crypto company that happened last month or so.

There is still significant investment going on, but it has been scaled. The sort of new venture investment has scaled back quite a bit. On the other hand, in 2024, we have seen the sort of long-awaited Bitcoin exchange-traded funds being listed. I don't know if those funds in aggregate have broken the 10 billion level yet, but there is certainly billions of dollars invested in a very short time in these Bitcoin exchange-traded funds.

So there is Interest in crypto, I just think it's a little bit less of the Wild West as it was maybe in 2016 through 2018, but I think crypto is still going strong. Chris Dixon and his colleagues are still making investments and there's still a tremendous amount of investment happening. It's just we may be on the downward slope of the hype cycle and we'll find a steady state of investment and activity in the crypto sphere.

Rasheed: I always made the point to my friends that, here in Spain, I can get crypto way easier than the developing world, quote-unquote, which is where a lot of people initially had a lot of big hype for crypto. Whereas in Barbados, it's almost impossible to buy crypto. Literally in Spain, you could buy it in 10 minutes from your bank.

Shane: God, how do I phrase this? I think that it can be easy to point to someplace where you've never been and say they're going to use it. Whereas when I was more active in the cryptocurrency industry, I would ask people, I'd be like, okay, have you gone there? Have you tried it? Do you know how financial flows in that place work?

I think you and I both were involved during the period when everyone would trot out the example of M-PESA, perhaps without a full understanding of how M-PESA works. What and what made M-PESA a success in the countries where it was extremely successful? There certainly are interesting use cases, I think, especially for stablecoin payments.

I know that dollarization is a big topic of interest for you, Rasheed. Interest of mine as well. And I think the use of dollar-denominated stablecoins as a vector for dollarization is very interesting to me. To me, that's the most interesting use case of retail cryptocurrency.

Rasheed: You mentioned M-PESA and it's funny because we've been reading, talking about M-PESA for years, and then when I went to Nairobi for the first time last year, I got to see it firsthand and ask people, Hey, what do you think about M-PESA?

And everyone was complaining about the fees. That was the universal complaint on M-PESA. It's so expensive. And yeah, I have to make money somehow.

Shane: It also can be relatively, okay, I'm going to levy a criticism against M-PESA's user interface, but I'll caveat it after that because it is quite clunky. If you're used to a modern smartphone-based environment, or if you live in a city where you can walk to a branch of your bank. You look at M-PESA and think, "Oh, my account is tied to my cell phone carrier".

And so you effectively have to have different SIM cards with different bank accounts for different carriers, because when you want to send someone money, you don't know what cell phone carrier they're using. And, if you look at where M-PESA took off and you look at the alternatives, you understand why M-PESA was such an enormous improvement at the time.

And those conditions don't exist universally. To me, you have to look at the success of a product in the context of where it was or where it is and why it's successful. And M-PESA was revolutionary when it came out. And has had a tremendously positive impact by giving people who didn't have access to banking.

And that was wonderful. But I think that there was a view that, "Oh, we can just copy and paste M-PESA exactly, and it will work in other parts of the world". Is that necessarily true? If you look at the experimentation with M-PESA in South Africa, you have different conditions, you have different levels of access to banking, and it was not as instantly successful in South Africa, as it was in another country for those reasons.

Rasheed: So I'm going to go to my next question. There's a lot of interest in emerging markets, especially small countries to kickstart what they call the tech industry revolution in their own countries. And by that, they mean many various things that I probably wouldn't call tech myself, but that would be the case.

It seems difficult to picture a world where these things could happen. Where a small country, even a small but wealthy country, like Singapore, for example, has no material tech industry to think of, either software or not. Even poorer countries like the Bahamas or Botswana, Ecuador, and El Salvador are trying to get that tech industry idea going there domestically.

I don't know how they can compete, but I'm wondering if, in some way, any kind of regulatory competition could potentially benefit them. And I'm thinking here about Ireland, where they did have some regulatory benefits they gave to international, multinational companies. And I just came back from Dublin, and you see the companies are there.

Microsoft has a big office there. Salesforce has a big office there. They're there making jobs, a lot of foreign jobs are being made domestically, but still, it's working in some way. Is there still room for regulatory arbitrage?

Shane: I think there is. Also, this is a very fascinating question.

It gets to the heart of, why does Silicon Valley exist? And why does it continue to exist? What are the things that make a certain geographical region attractive for a tech company? I thought about that issue quite a bit and came up with some ideas. Given that no one knows what makes a successful high-technology innovation hub geographical region, I'm going to attempt it.

And what I think that people have done successfully Is you can have an unusual pool of talent, of talented employees. That seems to be a necessary component. You can have a concentration of what you might call risk capital, a concentration of investors who are willing to make a series of investments knowing that 90 percent of them will fail.

And then you also need, as you said, you need a regulatory environment that is conducive to these companies being made, the investments coming in, there's a stock being distributed on both the formation side and on the dissolution side, because again if you're assuming that 90 percent of these companies are going to not be successes, you need a rapid way of being able to turn down those companies so that you can reallocate the capital, new projects so you can reallocate the offices so that you can make it so that the talented individuals can go work for other companies. And I think that there are a variety of countries that have exceeded in different aspects of that. So as you said, Ireland is a great example. Ireland perhaps started as being the most tax-advantaged place for non-EU countries to have their principal place of business, in the EU.

And that worked out fairly well for a while. If you were Ireland to the detriment of every other country in terms of tax. But now Ireland has grown beyond that and you do see if you go to Dublin, there's a Microsoft office. There's a Meta office There's an Alphabet office, etc, etc. So that's one way to do it.

I think maybe an under-discussed country in the same vein is Israel. In Israel, you have some just world-class technical universities. The University of Haifa is the one that I can think of at the top of my mind. And so you end up with global tech companies building engineering offices in Israel just so they have proximity to this very strong, talented pool of software engineers coming into those universities.

Although I wouldn't say Canada is a small country, it is interesting that if you look at where global tech companies have offices in Canada, a lot of them have them in Waterloo, which is not a large city in Canada. But you have the University of Waterloo, which is again, a top flight engineering university, and you also have proximity to Toronto and the University of Toronto, which is another top flight academic institution.

You see this unusual concentration of American tech companies in Waterloo, Canada for that purpose. And again, that's a mixture of public and private universities. So you have this long-term public investment in engineering graduate schools that paid a dividend in tech companies as a matter of policy. I think you can also have favorable banking rates or you could have favorable Intellectual property licensing rules.

I know the Cayman Islands are fairly popular. They're known for banking, but they're also fairly popular for intellectual property licensing, where there are several, again, large global internet or global technology companies that do most of their or some large portion of their intellectual property license activities out of Cayman because of the sort of unique legal and tax structure surrounding doing those deals in that country.

So those are a few examples.

Rasheed: Cayman is interesting because yeah, it's very well known for banking and hedge funds and so on. But The country itself doesn't have that much commercial activity compared to recently where you have actual activity being brought up in Dublin from the international companies.

And I guess Dublin has a very world-class university, by the same time I've been told A lot of the staff that fills these jobs are not from Ireland, they're international people that they bring to Ireland, which I think is still good in many ways. But that's why I feel like for small countries, like, how are you going to compete?

As you mentioned, if you do have a very good university and a university fueling system to good in, really good out, that could be a very important way. And the legal aspect seems fairly straightforward to either copy or approve on. I guess if you have all those things combined, then you could have some benefit.

Shane: Yeah. And then I think that again, I don't want to generate too much ire amongst my colleagues in the venture capital and M&A world. You could in a country like Cayman, you could change some of the local representative, and local nominee rules to require more of a physical presence. That is a thing that if a country wanted to have more people in offices working for foreign companies in your country, that could be one way to do it. I think the EU regulations in this area are fairly complex, but I think that is one of the drivers of American tech companies having a physical presence either in Ireland or in the Netherlands.

When a U.S. company offers services in the EU, you have to pick even though you have problematic regulations in the EU, American foreign companies need to select a jurisdiction where they are subject to the law. And part of that involves having an office, having a physical presence. And that's another one of the drivers why you see there are a variety of reasons why the Netherlands and Ireland are the sort of countries of choice for foreign companies that want to have a physical presence.

And that is a driver of why those offices are there as well.

Rasheed: Shane, another question. There's lots of hype around Texas, Austin in particular. Is Texas poised to overtake California as some new Silicon Valley hub?

Shane: So let me first say that I have an enormous bias on this. I am a California-born and raised and educated person. I'm currently sitting in San Francisco as we record this.

I think that there will be growth in Texas, but I don't think that, as you said, Texas is poised to take over from California. The reason for that is, as we had discussed previously, I have this view that the main driver of Silicon Valley and why everybody comes to this region is the combination of talented people willing to write risky checks and it being very easy to turn up and turn down companies.

And I think Texas has some of that, but not all of it, and not to the extent that California does. It is, I think, unarguable that it's probably easier to turn up and turn down a company in Texas than it is in California, even though these companies are Delaware companies for reasons of American law.

But it is easier these days to probably rent an office in Austin and certainly cheaper than it would be in Palo Alto or San Francisco or San Jose. I think that where Austin lags behind Silicon Valley is in the sheer number of people who come to the region. Austin is gaining on that, but I don't think they're quite there yet.

And also, I think that there are some great venture capital funds located in Texas, like on top of my head, I can think of the Mercury fund, which I believe is based in Houston was making great investments in Texas, but you don't have the hundreds of venture capital funds in Texas that you have in an area like California.

You don't have them yet. Certainly possible that they will get there, especially as the cost of doing business in California keeps going up and up as Texas keeps lowering its taxes and making it a more financially advantageous place to create a company. I think we could see more movement there. But for largely unknown reasons, I think that This sort of 50-mile region with San Jose at one end and San Francisco at the other end still has probably the greatest aggregate concentration of people who want to work at startups, capital that's willing to invest in startups, and this ability to rapidly create a turn-up and turn-down companies is still unique to this region. Although it's not a foregone conclusion that it will be like that forever.

I've been here 20 years, and I've seen costs in Silicon Valley go up enormously over that period. At some point, there could be an economic tipping point.

Rasheed: There's this idea from Peter Thiel, and I've heard it also echoed by Marc Andreessen on some instances, where San Francisco is uniquely cultish.

Definitional cult, not a metaphorical cult. And that kind of cultural trait of having this extreme wacky but just the extreme in either direction built this ability to birth a culture that is much more conducive to extreme experimentation. And you don't, even in the U.S., talk about foreign countries, even in the U.S., where the U.S. as a culture is generally much more open than other countries. In San Francisco, it's even more open, and more willing to experiment, essentially allowing it to go too far in one direction, compared to other places. And Austin, nowhere else in the U.S. has that. I do wonder if there's some truth to that idea, have you thought of that?

Shane: I have, and I think that's true. If you look at the 170-year history of San Francisco, if you just want to, Pick an arbitrary starting place in 1850, Windsor, California, what was created? San Francisco has always been a new technology, boom and bust, transient city. It's always been on this city that's poised on the edge of the Pacific Ocean.

It's always in danger of burning down or being destroyed by an earthquake, a flood or some natural disaster. People keep coming back. But if you look at that trend, San Francisco was always investing in novel technology going back to the era of, say, the Pacific shipping trade. Then you had gold mining, and then you had the oil extraction business, and you had lumber and railroads when that was the new technology.

And then it was a big R &D facility for the military during the world wars. And then after that, you have the famous example of these semiconductor scientists who were at Bell Labs on the East Coast coming out here. You have Shockley Semiconductors, you have the Traitorous 8, the famous sort of first batch of investors and entrepreneurs in the 50s and 60s.

And then that turned into semiconductor manufacturing and aerospace. A lot of people think of venture-backed investment in Silicon Valley starting in the 80s, but actually, it goes back to the 1800s. This is one of the kind of hilarious underpin, not hilarious, but interesting underpinnings of the venture capital model is that the current fee structure for a lot of venture capital funds is the same fee structure that was used for sailing ships.

Going back to the I think like the 1400s that's the idea of investing and the sort of two and twenty fee structure and the entire concept of the 2% being called like the carry. That's a throwback to financing sailing ships when the carry was literally the goods being carried on the ship from point A to point B.

So, yeah, the Bay Area has a very long tradition of oddballs and misfits from all over the world coming here to start some venture that is either going to work tremendously or just explode in flames. And they're always being a financier, fully aware of the risks and willing to say, yes, I will give you money to go pursue your wild dream that that's very much baked into the, into the environment.

Rasheed: That's a very interesting point. Shane, thank you so much for coming on the podcast today. This has been a very fun conversation.

Shane: Thank you very much. I appreciate it. And it's always a pleasure to talk with you and I hope this was useful.

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