Elon Musk and Sam Bankman-Fried show the tech star system is failing fast

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Two multi-billion dollar companies. Two shattering collapses. How should we respond to the catastrophic behaviour of Sam Bankman-Fried and Elon Musk?

It’s been a bleak few weeks for major tech CEOs. Elon Musk has managed to lay off, fire or otherwise scare away well over half of Twitter’s workforce, leading to legitimate fears it might fail, mere weeks after he acquired it. FTX founder Sam Bankman-Fried has gone from the cerebral, acceptable face of internet money to its most famous charlatan.

If the opening line of that first paragraph seems familiar, it’s because I wrote the exact same sentence a year ago, in the aftermath of the death of a New Zealand founder who seemed caught chasing the same impossible dream as this now-infamous duo. At this point, their catastrophic behaviour feels less like an aberration than an inevitability. If we didn’t have Musk and Bankman-Fried we could easily fall back on Adam Neuman and Do Kwon, the calamitous founders of failed shared office company WeWork and collapsed crypto empire Luna respectively. The list seems to lengthen by the week.

FTX founder Sam Bankman-Fried testifies about crypto regulation on Capitol Hill, December 8, 2021 in Washington, DC. (Photo: Alex Wong/Getty Images)

What did they do exactly?

It’s worth recalling what each of these leaders did, before considering how we should respond. Cryptocurrency exchange FTX founder Sam Bankman-Fried is notable due to having committed perhaps the largest bonfire of wealth in history. He was the face of effective altruism, a media darling who had styled himself as the JP Morgan of crypto, a brilliant, sanguine boy wonder who would buy ailing crypto companies caught out by plunging prices so as to save the still-nascent industry more broadly.

It turned out that he was doing so with a combination of his clients’ funds and his own token – which is to say other people’s money, and money he had made up. He was also funnelling those funds into another of his companies, Alameda Research, led by his sometime girlfriend, who in between blogging about polyamory and advocating for stimulant use in the workplace, was pursuing even riskier and more doomed investments.

By comparison, Elon Musk’s behaviour looks boring, even conventional. He reluctantly acquired Twitter a few weeks ago, after suffering major remorse over his mistimed offer to purchase it at what turned out to be a very flattering valuation back in April, just before a series of major earnings setbacks for social media platforms and advertising businesses.

When he finally ran out of legal options to resist the takeover, he set about hacking away at the culture of his new company. It had, admittedly, been notorious for a slow pace of change and an inability to turn its extremely (some would say excessively) engaged user base into profits. Yet his chaotic, vindictive style has now lost so many senior staff that some speculate the service is one technical drama away from a catastrophic failure. Perhaps it will happen before the recently unbanned Donald Trump rejoins the platform, perhaps not.

Elon Musk has wasted no time in making sweeping changes to Twitter (Image: Tina Tiller)

What might we do differently?

It’s easy to shrug at all this. New Zealand can seem a long way from the action and somewhat powerless to influence it (let’s ignore the Christchurch Call, everyone else is). On some level, the internet was deliberately designed to be beyond regulation, to view guardrails and oversight as ineffective and counterproductive, tools which would ultimately render tech companies as slothful and mediocre as those in the real economy, a place for which many tech leaders and investors radiate a scarcely-concealed contempt.

That wasn’t too bad a philosophy, for a while. But as New Zealand tech identity Rowan Simpson has written, nowadays “every company is a tech company. Or, at least, every company could and probably should be a tech company.” The point he is making is that defining “tech” is nebulous and basically impossible as it continues to eat the world. Which is why it’s puzzling that we continue to treat companies operating in essentially the same industry very differently according to how they deliver their service.

For example, NZME, owner of half of this country’s radio stations and its largest newspaper, says its purpose is to “keep Kiwis in the know”. It is overseen by the Advertising Standards Authority, the Broadcasting Standards Authority and the New Zealand Media Council, each of which has tightly defined rules around what its various parts can and can’t do. These regulations might be imperfect and slow growth, but they exist because those in government thought it important to protect people from the potential harms of media’s products. That’s ultimately why we have regulations at all – to do our best to channel the behaviour of our organisations toward that which causes the least harm and the most benefit.

Twitter’s purpose, on the other hand, is to “serve the public conversation”, which seems like basically the same thing as NZME’s. Yet there is no body specifically scrutinising the operations of social media within New Zealand, despite the fact that these companies have become by far the fastest growing media companies here over the past decade. There is a government media and online content review happening at the moment, but it initially did not even take social media into scope and it’s unlikely that its delivery in July 2023, into the heat of an election campaign, will be noticed by anyone at all.

Yet media regulation is nothing compared to that governing finance and asset trading, the area in which Bankman-Fried’s FTX operates. The compliance departments at places like Kiwibank or ANZ are huge and powerful. The Reserve Bank exists in part to regulate our banking system, and there exists an imposing thicket of regulations and oversight aimed at ensuring the stability and fairness of our finance system – rightly so, as it’s the underlying platform upon which our whole society is arranged.

FTX sits outside of all that. The cryptocurrency platform is based in the Bahamas, but has been entirely accessible to New Zealanders throughout its operation. Even if it had a New Zealand office, you’d be out of luck if you called for help: the Financial Markets Authority, which regulates shares and securities here, has some bullet points you should read that explain why.

The first informs you that cryptocurrencies are “high risk and highly volatile – the price can go up and down very quickly”. Sounds scary, but OK. The second simply says that they are “not regulated in New Zealand”. While an inquiry was initiated by the finance and expenditure subcommittee in 2021, this August Interest reported that MP Barbara Edmonds, who has taken over oversight of the committee, said it “still needs to finalise what we want to say, and whether we would like to make any specific recommendations”.

This contrast between sectors is consistent – locally operating incumbents which employ many people, pay a lot of tax and must obey our laws, against international competitors which employ few people, pay little in tax and exist without regulation. It’s this regulatory void which has, in part, enabled the hypergrowth of internet-based technology companies all over the world.

We’re still waiting, never seeing

For many years there was an argument to be made that a wait-and-see approach to rule-making allowed the right balance between encouraging innovation and protecting consumers. Now though, it seems like we are forever waiting and never seeing any smart regulation – instead, we’re letting it happen off-shore, in the EU or California, a long way from our shores, oblivious to Te Tiriti and without our ability to influence their shape. Bankman-Fried was notable for publicly encouraging regulation, while making his private feelings clear to a journalist: “fuck regulators”.

In a year’s time there will probably be a fresh crop of tech scandals, likely driven by some familiar names and some which are brand new. Unless our legislators start to take meaningful steps to place the same kind of guardrails around technology-driven businesses as exist around our local businesses, one will remain at an enormous advantage over the other. And we as a society will remain exposed to the chaos and ego of tech founders, waiting for a consequential enough scandal to finally prompt action.


Follow Duncan Greive’s NZ media podcast The Fold on Apple Podcasts, Spotify or your favourite podcast provider.

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