Bye, Bye Birdie
Elon Musk’s destruction of Twitter seems almost incomprehensible, the result of impulsive (re)actions of a delusional man-child convinced he will save civilization. While there may be some truth to that, what we are really seeing is emblematic of the failures and abuses of modern American capitalism yet again leading to the destruction of what is essentially a public good.
Modern corporate capitalism has largely been fueled by the theory of “creative destruction”, where innovation and new methods of doing business modernized and replaced older markets. It was driven by an entrepreneurial class with the backing of venture capital. It has reached it apotheosis with the current crop of Silicon Valley billionaires whose motto is “move fast and break things”.
Yet, while many of these entrepreneurs mouth such a mantra, they are often engaged in a vastly different kind creative destruction, namely the tactic of “buy to kill”. Certainly, all the Big Tech giants have engaged in this tactic which has finally started to come under governmental scrutiny. Firms sometimes buy to kill in order to incorporate the purchased product into their own, merely killing the potential competitor – think of Facebook’s acquisition of Instagram. But other times, the strategy is simply used to kill a better product. A 2020 House committee study showed “In some cases, a dominant firm evidently acquired nascent or potential competitors to neutralize a competitive threat or to maintain and expand the firm’s dominance. In other cases, a dominant firm acquired smaller companies to shut them down or discontinue underlying products entirely”. Similar tactics are also used by Big Pharma. A London Business School study concluded “acquired drug projects are less likely to be developed when they overlap with the acquirer’s existing product portfolio, especially when the acquirer’s market power is large due to weak competition or distant patent expiration”.
Because of the Supreme Court’s interpretation that monopoly power can never be restrained if there is the tiniest shred of evidence, (real or more often imagined), that consumer prices will be reduced, buy to kill is basically a legal, valid, and smart business strategy. And it is at least partly how the handful of companies that dominate Big Tech and Big Pharma got there and remain there.
Buy to kill is hardly a new tactic. From the 1920s through the 1940s, a consortium of car, oil, and rubber companies created a front company, National City Lines (NCL), to buy up and then dismantle the trolley lines in a number of American cities. While suburbanization and its concurrent demand for cars and buses were the primary reason for the demise of trolleys, there is no doubt that buy to kill was the NCL strategy. But, at least back on the 1940s, we had real antitrust laws and NLC was eventually convicted of antitrust violations, although only given some slap on the wrist fines primarily because the damage was already done and there was little left of NLC since the consortium had already pulled their money out.
The tactic has also been used quite successfully outside of business as well. The National Enquirer basically worked with high profile individuals, including Trump and Weinstein, to buy and kill stories about their sexual indiscretions.
Another variation on the buy to kill strategy is the classic private equity leveraged buyout that loads up functioning companies with debt and then strips the assets, leaving a shell that ends up in bankruptcy. Private equity has destroyed retail, newspapers, and grocery chains. In fact, private equity is trying to make one last, enormous money grab from Albertson’s before it sells what’s left to Kroger.
Musk’s destruction of Twitter is just the worst combination of leveraged buyout and the buy to kill strategy. It makes no sense as a leveraged buyout because the largest assets of Twitter aren’t employees or technology or real estate. They are the users and the content creators that Twitter has no control over. Twitter was a marginally profitable company before the Musk purchase. It was also readily apparent that Twitter would become massively unprofitable under the enormous debt load that Musk’s purchase created for the company. But the Twitter board was obligated to its shareholders to not only accept Musk’s offer but also force him to go through with it in order to maximize shareholder value and avoid lawsuits that would claim they acted otherwise if they dropped the deal.
Of course, the people who are most directly affected – the employees; the users around the world who used Twitter to build movements, connect with others, and both directly heard from and confronted the elites; and the content creators who mostly worked as free contractors for Twitter – were not even a consideration. Musk may still opt to pour his own money into sustaining what will increasingly become a vanity project where he can spew his extremist far right views and get to hear them echoed back at him, but that hardly seems sustainable for any extended period of time.
For the same reason Twitter’s board really had no option but to accept Musk’s offer, neither could they consider who exactly they were turning the company over to. Musk’s successful ventures have relied on billions of government money, a bottomless pit of venture capital money, and a heavy dose of hype for whatever profits they have made; he is a serial fabulist, promising products that he never delivers; his companies have been rife with racism and employee abuse; and he has had repeated run-ins with the SEC, a real feat considering how toothless that agency has become. He has already violated EU laws on employment and data. In short, he is not someone you would search out when looking for stable leadership.
There appears to be no real economic or reputational reason for Musk’s purchase other than his personal pique, although it’s possible he could be doing the bidding of his Saudi investors or his Silicon Valley libertarian friends who believe that democracy must be sacrificed in order to save civilization. Certainly, his actions since taking over the company indicate someone untethered from reality and deep in the rabbit hole of conspiracy theories and far right propaganda. Whether that is a pose to juice the user base is unclear but seems unlikely considering the way both users and advertisers have abandoned the platform.
Finally, Musk’s takeover of Twitter speaks to our inability to deal in almost any way with the enormous wealth and power that modern American capitalism has put into the hands of a very few. This is especially true of the social media space which operates under even fewer restraints than newspapers. It is hard not to believe there is something seriously wrong when one man can essentially destroy a worldwide service used and yes, sometimes abused, by millions in some kind of personal vendetta and governments barely blink an eye.
The Twitter saga highlights all the worst of corporate capitalism – legal buy to kill strategies, primacy of the shareholder with no consideration for employees or community, extraordinary wealth combined with narcissistic egos, and government’s lack of ability or even concern about another public good destroyed.
Bye.