Entrepreneurial Suppression

In yesterday’s Daily Prophecy, I mentioned that FreedomFest, the global convention of free minds, annually held in Las Vegas, has been cancelled.

I brought this up for an important reason, writing:

In the US today, we no longer have a constitutional republic or even a democracy.

Our rulers are doctors and lawyers in a strange alliance. The doctors control the pols and the lawyers sue the doctors and the pols. Mobs dominate the streets in what can be termed an ochlocracy.

The law is no longer a predictable framework for justice and commerce. It is an unpredictable weapon for lawyers to wield against everyone else. The Supreme Court apparently just gave back half of Oklahoma to the Indians on the basis of some obscure textual séance by Neil Gorsuch.

Money has become an instrument of expropriation by pols and central banks in a hypertrophy of finance, with $6.7 trillion dollars a day worth of currency trading, some 70 times all trade in goods and services, while real trade shrinks.

Cancellation of freedom creates a perilous environment for investors.

This notion eerily reminded me of a prophecy I wrote in January 2020.

In January, I surmised, “Whether nominally democratic or nominally communist, governments feed on power and prejudice and suppress enterprise and freedom.”

With this ringing ever true, I’d like to revisit that article now…

Jack Ma, the now displaced founder-chieftain of China’s Alibaba (BABA), requires every new employee to learn to stand on his head for 30 seconds, or hers for 10 seconds.

The idea is that all the blood runs to the brain and enables Alibaba folk to think differently, even upside down.

This turned out to be a heady heuristic for this topsy-turvy company that is rapidly taking over the world internet economy with trillions of dollars-worth of e-commerce. Perhaps Americans should try it.

From Rags to Ultra-Riches

Alibaba began in 1999 as a startup at the very bottom of the internet heap, with a miserably failed effort to launch in Silicon Valley in the midst of the dot.com crash as a “Chinese Yellow Pages.”

To close out 2019, its now at the very top of the lists of industry giants with a reasonable claim to be the most important company in the world.

Its upside-down approach has carried the company ever since its founding in 1999, with the goal of becoming “one of the world’s top 10 websites.”

Alibaba checked off that goal by 2008, and has since shifted its target to becoming the “world’s top e-commerce service provider.”

Readily knocking off eBay, which never knew what hit it, Alibaba went public in 2014 with a $25 billion IPO valuation and a new goal: becoming the “world’s number-one data sharing platform.”

Its win over eBay came not from copying, but from contrarianism.

While eBay aimed to run the most efficient platform, Alibaba guaranteed transactions through an escrow service and offered interest payments to its users until deals cleared.

While eBay prohibited side deals and off-platform communications, Alibaba encouraged customers to deal with each other and bypass its platform. It even provided online software Aliwangwang as a medium for offline deals and haggling.

And while eBay tried to offer the same service around the globe, Alibaba differentiated carefully among markets in 200 countries (much on the pattern of Huawei in telecom).

After these spectacular breakthroughs, it is cruising on in 2020 to become the world’s leading cloud computing platform, video streaming source (Toukou), AI chip supplier (the Hanguang 800), small loan and investment provider, and electronic marketplace in some 200 countries.

A World-Leading Bank and Bazaar

Alipay (the payments platform second only to Tencent’s Wechat Wallet)… Alibaba Loans (second to none)… Yuebao saving and investment of cash in escrow accounts for its world-beating Taobao marketplace… all are making Alibaba a combination of bank and bazaar for some 200 million registered entrepreneurial users.

From 14 million micro-loans (issued in as little as three minutes)… to piggy bank investments as small as 14 cents (one RMB, the Chinese currency)… second-hand-goods trading and top-of-the line T-Mall markets… money market funds for all and a seamless electronic world trade platform for its millions of Taobao customers… Alibaba now does it all. It has become the true fabric and framework for much of the enterprise in China.

As Jack Ma puts it:

“At Alibaba we fight for the little guy, the small businesses, entrepreneurs, and their customers. Through our ecosystem we help merchants and customers connect and conduct business on their own terms… We help merchants to grow, create jobs and open new markets in ways that were never before possible.”

Alibaba’s various functions comprise China’s dominant “Internet Rules.” To name a few…

  • Alibaba’s real name system (no anonymity in Aliwangwang network)
  • Its integrity system (your credit record and transactions data for loans on Alipay and Taobao)
  • Its transaction security guarantees (backed up by world leading insurer PingAn)
  • Its fraud prevention across its platform
  • Its dispute resolution through indelibly recording all negotiations
  • Its comprehensive intellectual property enforcement
  • Its consumer protection now moving to an industry-leading blockchain.

As Ying Lowrey contends in her comprehensive compendium of essays on the company, The Alibaba Way, Alibaba provides many services that replace governmental interventions. “It lowers the costs of the judiciary and the burdens on the Chinese judiciary.” It provides a rule of law for entrepreneurs on the net just as merchant traders in Europe created the rules for the expansion of international capitalism across the Mediterranean.

Summing up all these aims is an Alibaba drive to “make it easy to do business anywhere,” even in Communist China! Partly as a result, between the 1990s when Alibaba was launched and 2018, the number of enterprises in China rose from roughly 8 million to nearly 80 million.

The Mammoth Importance of Free Enterprise

The idea that China is not really a communist economy is hard for many Americans to swallow. And the idea that it is more capitalist than the US seems outrageous. But people in the US have to understand that free enterprise is more important than democratic legalism and lawsuits.

While Alibaba brilliantly serves its customers around the globe, the US is in the midst of a fallacious obsession with privacy. It is based on the misconception that privacy consists of anonymity rather than identity.

Think of it. The US, starting with a leviathan law in California, now duplicated in several other states and compounded by statewide referenda, is imposing a radical new regime of fake privacy pettifoggery on our high-tech economy. Our leading tech companies face constant harassment by demagogic politicians and predatory bureaucrats wielding fines and lawsuits.

As I wrote in John Schroeter’s high-voltage After Shock: “The US today is congested with government agencies shocked by the future and attempting to suppress it. Besetting companies such as Google on all sides are Federal Trade Commission bureaucrats who imagine it is a monopoly and needs to be broken up, Equal Employment Opportunity bureaucrats who believe that its meritocratic hiring is a menace to women and minorities, Attorney Generals from 20 states and the European Economic Commission who regard it a threat to privacy. Every other week is another story about huge fees and fines assessed against our technology paladins for vague and venial offenses. Each one is justified by the huge earnings of these leviathans. But collectively the Lilliputian bureaucrats can bring down and stultify our greatest companies.”

The situation now is growing worse.

The Reason US Tech Lags Behind China

Eric Goldman of the High Tech Law Institute recently summed our suicidal abuse of democratic processes: “These privacy laws are hopelessly prolix. [California’s Privacy Law] CCPA runs about 10,000 words. The [state] DOJ’s proposed regulations run another 10,000 words. Together, the law comprises about 20,000 words — and the byzantine drafting of both documents makes them extremely hard to parse.

“At 22,000 words, [in the new state referendum] CPREA would double the length of the existing law. It has become a full-time job just to keep up with the massive volume of California privacy law. That virtually demands that businesses retain dedicated CCPA specialists to advise them — their own readings and the advice of non-specialist lawyers won’t cut it.”

All these laws target the leviathan tech companies but their impact falls most oppressively on the process of small business creation and entrepreneurship.

Alibaba and Tencent could not have risen up in the kind of environment we see in the US. With these runaway rule-makers and pettifogs, US companies cannot dream of competing with Chinese capitalists.

US investors can only practice standing on their heads and taking solace in the recognition that the Chinese leviathans have valuations far below the US giants.

But Chinese investors have their own issues to contend with, too.

They have to contemplate the increasing overreach of Chinese Communist bureaucracy, signified by the allegedly forced retirement of Jack Ma and of Peter Ma of Tencent as excessively uppity and independent minded. Although the new Alibaba Chairman/CEO Daniel Zhang is continuing in the Jack Ma tradition, an economy where CEOs can be routinely harassed and displaced by politicians is hostile to free markets.

Whether nominally democratic or nominally communist, governments feed on power and prejudice and suppress enterprise and freedom.

Regards,

George Gilder
Editor, Gilder’s Daily Prophecy

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George Gilder

George Gilder is the most knowledgeable man in America when it comes to the future of technology — and its impact on our lives.

He’s an established investor, writer, and economist with an uncanny ability to foresee how new breakthroughs will play out, years in advance.

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