Rip Off the Band-Aid: Chamath Palihapitiya on Our Broken System


Before we start the show I want to talk about our sponsor Meta lab. It's possible you haven't heard of them before. But there is a zero percent chance that you haven't interacted with their products. A lab has worked behind the scenes for over a decade to design build and ship upset over. A billion people use each month for everyone from startups like slack coin based to industry leaders like Google. Dubar check them out at Meta lab dot co and let them know Kinsey from business. Casual sent you. That's Metal Lab DOT Co. Hey everyone welcome to business casual the podcast from morning Brew Answering. Your questions in business I'm your host and Brew Business Editor can be grant and now let's get into. This is part two of my conversation with venture capitalists billionaire and outspoken critic of Capitalism Tomasz polly Petia. If you haven't listened to part one of this interview with trauma I highly encourage you. Go check it out now. To today's conversation we just left off with trauma explaining why companies prioritized innovation productivity hiring the right people can theoretically succeed and even contribute to shrinking some of the negative impacts of wealth disparity but for every company. That is doing the right thing. There's a company that is not doing the right thing so we're going to start this conversation by talking about why those companies that should fail sometimes. Don't then we'll talk about why. Those Zombie companies seem to get endless. Second chances the role of here's where the government machine might be selling short and so much more moss why are these companies that aren't prioritizing innovation and prioritizing productivity failing they're not failing because there is enough debt in the world and there are enough banks in the world and there are enough of this debt bat will allow these companies to basically stay on life support so meaning when a company is sort of like losing money and hemorrhaging money if their product is fundamentally flawed which is a small strain. They go bankrupt and they liquidate and then they go away and they disappear but most companies fall into different grey zone the belly which is like eighty percent of companies which is sort of. You know what I call. Zombie companies and the Zombie. Companies are ones where you know some quarters break even some quarters a little bit of profit. Most quarters are unprofitable and instead of saving money and investing it in the future they become very short-term because they don't have any good ideas and this is where you know. Ibm is a is a perfect poster child for this Ibm as a company over the last fifteen years or so twenty years they they spent one hundred and forty billion dollars on buybacks. It's one hundred billion dollar revenue company it just printed its worst quarterly revenue since nineteen ninety eight. The last CEO who just stepped down she oversaw twenty. Four straight quarters of revenue decline yet. Saw her compensation go up? She made more than one hundred million dollars just on stock and so you know I mean. That just doesn't seem doesn't seem right to meet so if we think about this like say a game of Jenga this system of Zombie like IBM light companies. What what peace do we need to pull out to dismantle this corrupted version of the system that we're now engaged with is it. Removing debt from the equation is it. I don't know disincentivising buyers of of what. What can we pull on to fix this? I think that there are. There are probably three things that our highest priority. The first is that I think we need to have much stricter limits on what a balance sheet needs to look like to be rated as high quality debt number two is we need to disincentivize people from not investing in the future you do that by preventing buybacks and dividends only in cases where these companies have enormous amount of profit. And then the third is you need to create positive incentives so that you can capitalize your rnd better so that for example in Canada if you hire engineers to work on cutting edge things you get a tax credit from the Canadian government. That is up to almost three times the salary of what you pay folks and so there's a deep incentive to focus on long-term are indeed because it effectively subsidizes the cost of these people so those kinds of positive incentives combined with some more financial handcuffs would go an enormously long way. Those are what I would do I. Then what you can do is all of the participants in the market that may amplify short-term behavior. You can handcuff 'em a little bit more and the way that you do that is you. You just don't allow these hedge funds to have as much leverage as they do and the way that that game works. Is You know they get paid? A percentage of the profits. They make an every year. And so you know what they want to do. Those do that in the most risk way possible so they figure out a strategy where you know maybe they can make one percent a year and you. It's h mouth. Will one percent a year is not that great now? It's Kinsey right while then. What I'll do is I'll go to the bank and I'll get JP Morgan to lever me up twelve times and now that one percent twelve percent. And that's what happens all day long again. These incentives are set up. Where the bigger you are the less likely you are to fail because nobody can afford for you to fail. So the incentive is to get incrementally valuable to the system as it is because then somebody will bill you out right like it's this old adage if I owe the bank dollars it's my problem but if I owe the bank of billion dollars that's their problem and so you're incentivized to have massive obligations and massive leverage because you know somebody will be forced to come to your rescue so if you grow large enough. You can't theoretically outgrow resurrect you. You really do become too big to fail okay. Big Question but first we're gonNA take a quick break to hear from my partner. Sometimes I swear I could run this podcast. 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Greens dot com slash morning brew and now back to the conversation with Moth polly how does the government inject itself into these companies? While they were up to me and I had to say what I would say is the following. The first thing that we need is an entire wave of spending on the next generation set of things that we would all expect. I think you and I deserve. It doesn't mean whether we're good. People are bad people. You mean everybody else. We deserve Best in class healthcare. We deserve the best in class education system. We deserve a military apparatus. That's set up for the next generation You know we deserve a bunch of things and what that requires is money the. Us government has just proven that they're willing to spend enormous amounts of money so we should spend it on this kind of stuff because it gets people working it focuses on productivity and innovation and it'll force the money to go downstream to people. That's what I think we need to do in the long term in the medium term. We need to be a bridge and without quibbling about what's happened now because that money has already been spent what I will say is a disproportionately larger piece of the next dollar that gets spent by the. Us government should go to people's pockets. Because I think that the damaged individuals is much worse than understood or forecasted. I think it's ripping apart the working class in the middle class in a way that we will figure out only in a quarter or two from now and it'll be it'll be savage and I think that they need direct payments right and I've heard you say before that this is basically our experience in the last. Two months has been the metaphorical ripping a band aid. That we now feel a little bit more comfortable ramping up. A two point two trillion dollar relief package to send money to Americans. Do you see this happening realistically. Do you see this happening again. Do see US getting another check in the mail or it's it's so just to put it in perspective it's two point two trillion in which is now two point six trillion of fiscal stimulus. But it's been I think. Eight or nine trillion of monetary system by the Fed. So you know we. We've spent ten or eleven trillion so if you think about the totality of that you know we have spent more buying bonds of companies meaning you and I through the Fed than we have giving economic support to our brothers and sisters so I think it's like three or four cents of every dollar has gone into individual pockets so we could probably do better than that in a noncontroversial way. So is it safe to say that? This billionaire owner class has gotten more of those cents on the dollar. Then I have as like a hard middle-class. Yeah I mean look to be honest with you like I have really in this kind of weird way like been decently effected through this whole thing. I've kind of thrived. I hate to say that Because they feel guilty about it. I mean to be honest with you. I I have these massive bounce of anxiety because I. I haven't lived in the shoes of my current self long enough and so I bring too much baggage of my old self and my old self was the kid that saw their parents really struggling and It's pretty devastating. So what I would tell. You is disproportionately benefited. Should I know I know the game and nobody was going to step in for me when I was trying to. You know climbing up and I knew that and I was okay with it and now that I'm here. I just think it's I duNNo. It's like it's not doesn't have to be this way Yeah I would rather the younger version of meek taken care of before the older version of me. 43-year-old Jamaa is okay. He's fine Nina. Help twenty year old Timothy Needs. Help you know sixteen year old Timothy so so there should be. It should be more that so there's the conversation of WHO NEEDS HELP. I class or the working class but I think there's also a conversation around. Should that billionaire owners class even exist in the first place? And I'm going to ask you if you think billionaires should exist shortly but first let's take a quick break to hear from our partner. I WANNA take a minute to talk about our sponsor policy genius. Polcy GENIUS ISN'T INSURANCE. Marketplace is here to help you navigate buying life insurance and there's no denying that right now the world feels unpredictable. And frankly kind of scary. But on a more positive note many of us have taken a baking or adopted a new cat or dog and acted with more compassion than ever and during this uncertain time. Americans are also thinking how life insurance can help them. Prepare for the future now. I never really given much thought to life. Insurance but policy genius was there to answer all of my questions and find the best plan for me. Policy Genius compares quotes from the top life insurance companies in one place and it just takes a few minutes to find your best price. They're in contact with life. Insurance companies every day monitoring developments in helping customers handle each and every step their team will even take care of all the paperwork and the red tape for free. So if you're one of the many people looking to buy life insurance right now but you're not quite sure where to start at to policy genius dot com that's policy genius dot. Com and now back to the conversation with Timothy Paulie hop sof should billionaires exist. Of course they should. Of course they should it's an embodiment of the fact that people can be successful and and you want that. I think you want to have things and people and Objectives. You can aspire to you. Know a label of money for most people that get there was a byproduct of something they did. You know all the people I've ever met that had been obsessed with getting rich. Never became rich. You know at least the people that I know and now I know enough folks that have done things across many industries you know we were all just really insecure people trying to do something and to varying degrees. We were rewarded. And I think you want that example for your kids and your kids his kids because that's healthy. It would kind of be like saying you know. Let's let's have an NBA. Where if you're as good as Brian James you should just. You're only allowed to play five minutes a game. I mean that would make the NBA brutal. You wouldn't watch the NBA. So you know an America where you say. The smartest people can't do what they're naturally inclined to do because they may accidentally make a ton of money is kind of ludicrous. So we've we've talked at length about equality of opportunity in this conversation. But what about the role of luck and you can be a hard worker. But there is something to be said for the harder you work. The luckier you get but also like lightning struck. You know. I agree with this buses. Say there's a cloud above you okay. And that cloud has a magic drop of rain and when it hits you become successful. You're goal is to make sure that you are as large as possible so that when that when that drop of rain falls down it has the best chances of hitting you. Okay right versus the person beside you. That's what I like into hardware cardboard kind of makes your surface area as big as possible so that raindrop can hit you. Luck is a very strange beast but what is true? Is that if you are kind of in the grind and putting in the time you improve your chances of that of that of luck being by your side okay. Now the the in that analogy. Let's assume that in this area where this cloud is. You can't get big okay. Well that is a problem because then I agree with that idea. Because that's kind of like saying. Wow No matter how hard you work you can increase your surface area so I think we have to fix that versus shooting. The cloud hadn't saying get the cloud. It's not the so instead of an instead of anointing winners and losers. It's how do we allow ourselves to get a little bit so that we can get bigger? I Wanna I thank you for your transparency in this conversation before I let you go. We are going to bring out our a business casual wheel quickly and play Some rapid fire questions get to know you a little bit a little more insight into what you're like so we are doing this remotely. I'm going to spin the wheel for you and I'll let you know what it lands on all right day in the life. So what is day in the life like for you right now? In the Cova Dear Cova era. I wake up at seven. Basically quickly quickly. I looked through my email. look the public markets. And then I go downstairs. I make breakfast. I come back upstairs. Eat in bed. Spend a few more minutes kind of thinking about what I need to get done. I get ready. I mean this is very detailed but Love it and get ready for a while. I mean so brutal. It's like I was kind of like a a bit of a Dandy before he used to dress really well and you know used to take care of myself and I really saw it degrading. I was like my gosh like this is brutal so I'm trying to shower every day. It's like it's a real pain in the ass because sometimes they don't a respectable same thing two days in a row like these are like but then the problem is. I have to do my laundry and then I'm like so anyway. So I get through that conundrum and then I come into this room. This is usually I use it for poker with my friends but and then I'm typically here until about twelve thirty and then I have lunch and then I come back and I'm here until six and then I go for a walk and between the twelfth somewhere in there. If I'm doing conference calls I walk around my house. Because I live in the suburbs of San Francisco. I have a little bit of space. I try to get ten thousand steps twice a week. I do yoga via zoom. Dinner is typically at seven and then I try to basically be in bed by nine and I watch some. Tv shows a right now. I'M WATCHING BILLIONS SEASON. Three of billions. I've never watched it before. People have told me. Watch it so I've been watching it. It's fabulous nice and then re twitter catch up on email and Unin bed by eleven thirty twelve pretty good routine. Yeah I was told by somebody. He said it had enough handed way but then I saw it on twitter. Where an astronaut who lived on the space station for a year. Basically said the most important thing if you're going to shelter in place which is like being in space is to have a very strict routine and follow it because it'll minimize your anxiety and then in between the day. There's a part of my day where I allocate to calling my friends now. That's good I like that. I think we could all do do well to do that. A little more than have a little checklist that's awesome. I like the checklist to the establishing a routine has been particularly difficult at home home home with my parents so I feel like I'm reverting back to my routine when I was seventeen years old which is very interesting. Okay we're GONNA take another spin it lands and call me crazy. So what a hot. Take that. You've had that either. This is a good one for you. I mean I've been called crazy for a long time. Yeah let's let's say like your hottest take that we haven't talked about in this conversation. Either that you've been right around about or you think you will be right about well. I hope this isn't true but I think that we are headed towards Kind of a depression and I I think that there is a very strong possibility that in it. There's a lot of chaos and geopolitically Mike Crazy take would be China invades Taiwan. My other crazy take is at the Middle East. Basically goes from however many countries that are to ten times at number of countries. Because you know when you when you stop pumping oil and you don't have a dictator or a strong person strong man that can pump petrodollars into the economy. People get skittish in you know there's enough cultural and language differences in the Middle East. That things could this about okay so that would be my heart. Take my crazy. Hot Take. Is that China invades Taiwan mostly to get access to technology and capability the. Us has done some crazy stuff by not allowing China to get access to certain key technologies and that the Middle East becomes completely fragmented. Okay well no but I hope you're wrong. I totally hope I'm wrong to this is what I'm saying. It's it's it's the crazy that's a definitely a call me crazy one. We'll have to check back on them like for six months and see where we are all right one last bench trauma and it's going to land on in or out So I already know your take on this but I want you to share it with the audience who might not know but inner al on Bitcoin in and maybe just explain to us how and while I started buying in two thousand and Twelve or thirteen So I was a pretty early participant. You know I mean I. I was buying coins at eighty five bucks. A coin so What do I think of Bitcoin? I think that If we don't fix the ingredients so if we don't fix this combination of capitalism and democracy and make the make the the product tastes better again. We will go through kind of a financial cataclysm so for decades and decades. We've seen that when things get tough. You WanNa have a backstop where you can go in trade between people and I think that there is a risk that if we can't get Iraq together people lose faith in the US system and It's a small risk very small risk and so I I view Bitcoin as insurance. So you buy a very small amount and You know what I what I've said before publicly is kind of like one percent of your net worth or less and then don't ever look at it like Kinsey. I couldn't tell you the price. I don't know what it's done last week or last year. I've not looked at it and every time somebody tries to tell me to look at it. I fight my basic instinct to do it. I don't want to know because I wanted to be worthless. I wanted to be left with the other ninety nine percent of my assets but if it doesn't that one percent will save you it'll give you really needed liquidity in a moment that matters and kind of having a one percent insurance policies and such a bad idea if you think the ingredients are tasting worse and worse okay. That checks out. Make sense sense to me All right well tomorrow. Thank you so much for coming on business casual. I really enjoyed this conversation And I would love to to revisit this. I'm sure at some point when we have more information about how this recipe is changing But thank you and I appreciate your time. Thanks thanks for taking the time so I know you love listening to business casual but a lot of the topics. We've hit on have veered very heavily toward technology. If you WANNA learn more about the emerging technologies that are shaping the economy and the business world around us. I cannot recommend enough breath emerging tech newsletter written by Ryan Duffy who? I sit next to in the office. It's a great look at everything from artificial intelligence augmented reality to cars and all of the new tax. That's going to be changing the world. We live in in the coming years. Go to morning brew. Dot Com backslash emerging dash tech to subscribe and learn. More until Ryan. I sent you thank you so much for listening to this episode of business casual so asks. You probably can tell by now. We're testing out this. Move FORMAT OF INTERVIEWS WITH BIG NAME. Split into two separate parts. I did it with Ray Delio and now with tomato probably half a Tia. We you WanNa know what you think about these new. Two art interviews. Let us know by emailing me. Activity at morning. Brew Dot Com K. I. N. S. E. Y. At warning dot com to share your thoughts. And I'll see you next time.

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