Competition is for losers

Peter​ Thiel is known for so many different things it can be hard to keep up. He co-founded PayPal, which provided the basis for his early fortune as well as Elon Musk’s. He is the eerily prescient angel investor who helped launch Mark Zuckerberg and Facebook on the path to global domination. He is the man who bankrupted Gawker, the online gossip site, by funding Hulk Hogan’s libel action, fulfilling a decade-long vendetta that started after Gawker outed Thiel as gay. Though himself a Stanford graduate, Thiel set up a fellowship programme that pays smart kids to skip college and live their dreams with him in Silicon Valley. He was an early and vocal champion of Trump’s presidential bid, giving a memorably creepy address at the 2016 Republican National Convention. As a hedge against the looming apocalypse, Thiel has taken out New Zealand citizenship and bought a 500-acre estate, despite spending scarcely any time in the country. He helped to bankroll the Seasteading Institute, which aims to create independent, ocean-based communities free from all government control. Like several other tech titans, Thiel is interested in trying to defy the ageing process, and ideally to defeat it altogether. He is particularly associated with the novel field of biology known as parabiosis, which involves experiments in blood transfusion from the young to the old. Asked about this at a New York Times event in 2018, Thiel responded: ‘I’m not even sure what I’m supposed to say. I want to publicly tell you I’m not a vampire.’

Is there a guiding philosophy that connects this bewildering range of activities? Max Chafkin looks for one in his new account of Thiel’s life and career, but to be honest he doesn’t look very hard. Instead, he does an excellent job of unpicking the disparate elements of the Thiel mythology. Nothing is quite what it seems. Take Thiel’s reputation as a far-sighted investor and early spotter of world-changing talent. It’s true that he put $500,000 into Facebook when the company was worth barely ten times that: in Aaron Sorkin’s The Social Network, Thiel is portrayed as the ruthless suit who realises that the business is one corporate restructure away from hitting the big time. (In Mike Judge’s Silicon Valley, Thiel appears as the oddball visionary Peter Gregory, who can see connections that everyone else misses, such as between the patterns on Burger King buns and the price of sesame seed futures.) But having put his money into Facebook, Thiel did his best to take it out again. In 2006 he tried to persuade Zuckerberg to sell the business to Yahoo for $1 billion, confident that the offer greatly overvalued the company. Zuckerberg refused and Thiel offloaded some of his stockholding soon after, thereby missing out on the incredible riches to come (Facebook is currently worth more than $1 trillion). When Facebook went public in 2012, Thiel once again thought the business overvalued, and once again he sold what he could. The share price has gone up tenfold since. Always on the lookout for portents of doom, Thiel can claim to be one of the few who saw what was coming before the crash of 2008, and he alerted his investment fund to the possibility of huge returns on shorting the US economy. Unfortunately, the fund did little about it and Thiel and his investors lost out. He then panicked and bought into the market in early 2009, believing the worst was over, and then suffered another shellacking when he dumped his stocks before the real turnaround came. Thiel is not a genius investor. He is, like almost everyone else, a nervous investor, prone to panic and regret. He’s just another hedgie chasing his tail.

Thiel’s scheme to offer anti-college scholarships to lean and hungry teenagers who remind him of himself is also a lot less disruptive than it sounds. He isn’t alone in thinking that college education in the US is a vast racket, trading spurious credentials for inflated tuition fees and a crippling burden of debt. He also thinks that elite universities are cultish breeding grounds for liberal pieties, as does everyone else on the Trumpian right. The Thiel Fellowships, which began in 2011, initially provided $100,000 each to 22 high school students with big ideas for changing the world. The successful candidates were a bunch of mini-Thiels: self-styled libertarians, contemptuous of college and its pointless rituals. ‘They were – nearly all of them – boys,’ as Chafkin points out, ‘and, almost to a person, they shared Thiel’s social awkwardness.’ One 17-year-old was hoping to extend the average human lifespan by three hundred years; a 16-year-old was developing a workaround to China’s Great Firewall. Unsurprisingly, these dreams came to nothing.

The Thiel fellows showed up in Silicon Valley and were given access to networking events at Thiel’s house. ‘They are the most depressing parties you’ve ever been to,’ one former fellow recalled, and the programme soon descended into a remorseless competition to get a few minutes with the boss to pitch projects in the hope of some seed funding. Thiel promised the fellows a community of like-minded individuals who would help nurture their ideas. What they got instead was the chance to trade on the Thiel name. ‘It was college without the classes, a residential community or studying – in short, most of what was enriching about college,’ Chafkin writes. ‘It wasn’t an attack on the credentialing system; it was another credential.’ As credentials went, this one was more spurious than most. Thiel was wary of putting much of his own money into the kids’ startups for fear of being accused of favouritism, and the ones he did back – such as Hello, a manufacturer of a $149 alarm clock and sleep tracker set up by a 19-year-old – soon flopped. Thiel fellows found it harder to get a start than they might have otherwise. The ones who did eventually escape to make a success of it have described their regret at the time they wasted on the programme. ‘Don’t run on a strategy that was formulated by your 19-year-old self,’ one said. ‘It’s kind of obvious in hindsight.’

The long, secretive and ultimately devastating campaign that Thiel waged against Gawker is a little mysterious too. Not the vengefulness that motivated it: a well-developed sense of grievance has always been one of Thiel’s calling cards. Nor the ruthlessness with which it was executed. He had trawled around for plausible libel actions against Gawker that he could surreptitiously support, and when he came across Hulk Hogan’s case against the site for publishing a sex tape filmed without his consent, Thiel went all in. In 2016, a Tampa Bay jury, unaware that Thiel was funding the action, found for Hogan and awarded $140 million damages against Gawker. A meeting was set up between Thiel and the founder-publisher of Gawker, Nick Denton, to allow the two men to reach some sort of accommodation, notwithstanding their mutual loathing. Thiel went to the meeting, but wasn’t willing to play along. When the possibility of a settlement came up, he told Denton that he intended to ‘wipe out your publication’. Which is what he did. (Gawker relaunched this year, without Denton.) Why, though, did Thiel mind so much being outed by Gawker in the first place? In late 2007, when it happened, Thiel’s homosexuality was already an open secret. He professed to care little about conventional morality and his sensitivity on this issue seemed at odds with his libertarianism, not to mention his hedonism (there were far more exciting parties at the Thiel residence than the ones he threw for the Thiel fellows). Gawker had consistently mocked him for his philosophical pretension, his dubious business practices and his bogus pronouncements about technology. But it was comment on his sexual preferences that really rankled. Why?

Thiel claimed that it was a matter of principle: far from seeking to use his wealth to stifle open expression, he was supporting the free press by ridding it of a bad actor that gave everyone else a bad name. ‘It is precisely because I respect journalists that I do not believe they are endangered by fighting back against Gawker,’ he announced after the Hogan verdict. ‘It’s less about revenge and more about specific deterrence.’ But there is little evidence that Thiel respected journalists, any more than he respected any other closed shop of liberal-minded, college-educated elitists. Instead, what seems to have spooked him about Gawker’s interest in his sex life was the consequences it would have for his businesses. The original Gawker piece had been far from prurient. Under the headline ‘Peter Thiel Is Totally Gay, People’, Denton tried to dress up outing Thiel as his own statement of principle. Gawker’s Silicon Valley editor Owen Thomas (who is himself gay) had written:

How many out VCs do you know? I think it explains a lot about Thiel: his disdain for convention, his quest to overturn established rules. Like the immigrant Jews who created Hollywood a century ago, a gay investor has no way to fit into the old establishment. That frees him or her to build a different, hopefully better system for identifying and rewarding talented individuals, and unleashing their work on the world. That’s why I think it’s important to say this: Peter Thiel, the smartest VC in the world, is gay. More power to him.

That’s not how Thiel saw it. Over the following year, as the global economy went into meltdown, there was a squeeze on Thiel’s investment fund. He worried that twitchy investors had been turned off by Gawker’s gossip. In particular, he feared that the news about his sexuality would prove toxic for the Arab sovereign wealth funds he had been cultivating, many of them controlled by governments that considered homosexuality a crime. Thiel had a reputation as an outsider, but his business model depended on getting as close as possible to those in power. He understood that’s where the really big money is. He also understood that in the world of state-controlled assets – as opposed to the world of Silicon Valley startups – it pays not to step out of line.

If there is a key to the Thiel philosophy, it’s this: make a public show of your enemies, but keep your friends hidden. It helps to explain what is perhaps the least surprising aspect of the Thiel story – his embrace of Trump. To many other Silicon Valley entrepreneurs, including Zuckerberg, who liked to mouth liberal principles while their businesses went about trashing them, it was shocking that Thiel should be so open about his preference for the political dark side. But Thiel called it ‘my least contrarian bet’. Ever since his college days – when he founded the liberal-baiting, anti-feminist Stanford Review – he had traded political notoriety for access to the rich and powerful. By backing Trump for the presidency he knew that he would win either way. If Trump lost the election, as almost everyone expected, it would be of a piece with Thiel’s public persona as a man who doesn’t care what the rest of the world thinks. No one would bat an eyelid if he seemed to be playing the part of provocateur. But if Trump upset the odds and won, Thiel would reap his rewards with special access to the new administration. The rest of Silicon Valley, and indeed much of Wall Street, would find themselves frozen out of Trumpworld. He would be on the inside.

Thiel was granted two different sorts of access once Trump pulled off his remarkable victory. His immediate reward for sticking by his candidate – he had doubled down on his support after the release of Trump’s ‘grab ’em by the pussy’ comments – was a place on the executive committee of the transition team. It was Thiel’s job to suggest cabinet nominees who would ‘disrupt the administrative state’. He ended up producing a list of more than 150 names for senior government positions. Many were either ultra-libertarians or reactionaries. Almost none got the nod. The list was too outré even for such an unlikely administration. For the position of chief science adviser, Thiel suggested William Happer, America’s most prominent climate sceptic and a man who had compared the demonisation of fossil fuels to Hitler’s treatment of the Jews. Trump eventually fobbed off Happer with a lowlier position, and even that proved too much: Happer left the administration after claiming White House officials had been ‘brainwashed’ into believing in the dangers of climate change. Thiel then tried David Gelernter, an anti-PC warrior and author of America-Lite: How Imperial Academia Dismantled Our Culture (and Ushered in the Obamacrats). Thiel tried to pitch Gelernter to Trump as a martyr for technology, because in 1993 he had been one of the victims of the Unabomber, losing part of his right hand. This showed how little Thiel knew or understood his new boss. Trump is notoriously squeamish about physical disability. When he interviewed Gelernter, the president-elect focused intently on his injury, obsessing over how he got it and the general state of his health, before dismissing him curtly. ‘You didn’t get the job’ was all he said.

As a political disrupter, Thiel was a flop. Steve Bannon considered him too flaky for the serious graft of government, which is saying something. But this wasn’t really the game Thiel was in. Mainly it was just for show. What he wanted was to get close to government contracts. On 14 December 2016, a month before Trump’s inauguration, Thiel arranged a meeting between the president-elect and the CEOs of Silicon Valley’s biggest firms. It took place on the 25th floor of Trump Tower. Tim Cook from Apple was there, along with Sheryl Sandberg from Facebook and Amazon’s Jeff Bezos, as well as the heads of Microsoft, Cisco, Oracle, Intel and IBM. The symbolism was clear: Thiel was now the man to bring tech money and political power together. The fact that almost every West Coast attendee bar Thiel himself had been batting for Hillary Clinton added to the sense of playacting: ‘the greatest liberals in the history of the world here’, Trump said of his guests at one point, with some irony and more than a hint of menace. He heaped praise on Thiel, whom he called ‘a really special guy’ and credited with having seen something ‘very early – perhaps even before we saw it’. Thiel found being the centre of attention uncomfortable. But he was happy with the fact that everyone else had more reason to feel uncomfortable than he did. And he was happy with the guest list. It included Musk, at a point when Tesla had a market capitalisation of barely a fifth of the next biggest invitee, Cisco. It also included Alex Karp, the CEO of an even smaller company, Palantir, which was the only defence contractor at the table. Palantir was a minnow among the sharks. It had sued the US army over a failed defence bid worth $200 million – small change, as far as the other guests were concerned. Karp was ostensibly the face of Palantir. But Thiel had founded it, and he still controlled it.

Five years on, Palantir has a market capitalisation of more than $50 billion, a large chunk of which belongs to Thiel. Nominally it is a data analytics company that uses AI to help solve complex real-world problems. Its business is dispelling the fog of war – define war any way you like, and personal privacy be damned. Palantir’s clients include governments around the world, along with many of their secret services. It built its profile by targeting mid-level US military officials, hoping to build up a large set of customers who would impress their superiors with the idea that this technology was indispensable. It allowed junior officers to put together charts and slide decks that appeared to connect the dots between disparate domains of information. Once this sort of presentation became the norm, the top brass came to expect it. Then the big contracts started to flow. It was the same business model that Thiel had used to build up PayPal. Get people to sign up by promising them extraordinary interconnectivity and convenience, regardless of whether the product worked. Once enough people had signed up, claim that as proof of its efficacy: it must be essential because everyone is using it. Then exploit this captive consumer base by trying to sell them other apparently desirable things, including the things they needed to make the product work in the first place.

Did Palantir’s technology work? Even those at the company weren’t sure. When Obama announced in May 2011 that US special forces had tracked down and killed Osama bin Laden, employees at Palantir asked their bosses: was this us? What they got back was a nod and a wink and a ‘maybe’. That was enough to get the press speculating that the company’s AI tools – which were still little more than presentational devices – had made the difference. Karp was careful not to take the credit, and careful not not to take the credit. He noted that the company worked with intelligence agencies and that those agencies had done something that seemed to require a spectacular new level of intelligence. It was only years later that a report in New York magazine concluded there was no connection: ‘No one … in either national security or intelligence believes that Palantir played any significant role in finding bin Laden.’

But in the meantime, the links between Palantir and the US military deepened and grew. The company – in keeping with Thiel’s favoured business strategy – believed that to overpromise and underdeliver was fine if it meant that other players got squeezed out of the market. There would be plenty of time to close the gap once the scale of the operation meant that its clients had no choice but to sign up for more. Just how big the gap was between promise and delivery is made clear by the fact that Palantir was very wary of any other company that claimed to do what it did – not because that meant they were a serious rival, but because it meant they didn’t have anything serious to sell. In 2016, executives at Palantir were particularly suspicious of a new outfit called Cambridge Analytica that purported to be doing for political intelligence what their business was doing for military intelligence. They didn’t believe it for a moment. Snake oil salesmen have a good eye for snake oil salesmen.

Thiel has never made any secret of his view that the key to success in a capitalist economy is to create a monopoly. ‘Competition is for losers’ is one of his mantras. ‘Monopoly is the condition of every successful business’ is another. It is the ultimate test of entrepreneurship to build something that is one of a kind, sufficiently different from what already exists to render the idea of competition redundant. Like so many others in Silicon Valley, Thiel read Ayn Rand’s Atlas Shrugged as a young man and continues to pursue her ideal of the fearless businessman who is prepared to take no prisoners in creating something new. The condition of progress is to change the rules of the game. For that reason, Thiel remains sceptical of the true value of Facebook, even though it has exploited its near monopoly position to make obscene amounts of money. What it hasn’t done is make anything much worth having. In 2012, soon after its IPO and following the initial drop in its share price, Facebook invited Thiel to give a motivational talk to its employees, in the hope he might encourage them to take the long view. What he gave was a demotivational talk instead. ‘My generation was promised colonies on the moon,’ he said after being introduced by Zuckerberg. ‘Instead, we got Facebook.’ Zuckerberg had once called Twitter ‘a clown car that fell into a gold mine’. Thiel thought the same applied to the entire social media universe. What was it, after all, except a giant displacement activity?

This​ bracing scepticism about the current payoff of the digital revolution is consistent with Thiel’s libertarianism. He is holding out for something altogether more disruptive. Another of his favourite books is The Sovereign Individual by James Dale Davidson and William Rees-Mogg (father of Jacob), first published in 1997 and reissued in 2020 with a preface by Thiel. It predicts the demise of the nation-state and the emergence of low or no tax libertarian communities in which the rich can finally emancipate themselves from ‘the exploitation of the capitalists by workers’. Thiel has long argued that blockchain and encryption technology – including cryptocurrencies such as Bitcoin, along with online payment systems first trialled by PayPal – has the potential to liberate citizens from the hold of the state by making it impossible for governments to expropriate wealth by means of inflation. He considers paper money to be a form of government control. He wants to see individuals free to choose where, when and how they pay tax – and to whom. He believes in creating monopolies through innovative technologies and then using those technologies to break up the unsustainable and outmoded monopoly power of the modern state, including its power to print money.

What’s harder to square with this philosophy is that Thiel has made most of his own money by exploiting the monopoly power of the state to secure lucrative defence contracts. How can a libertarian be comfortable cosying up to sovereign wealth funds, the military-industrial establishment and the security state? One possible answer is that Thiel is not a libertarian at all. The pretence is just a means of covering up his true business model, which is to rely on craven bureaucrats squandering taxpayers’ money on untested technologies. But the other possibility is that this is the essence of libertarianism. One book not discussed by Chafkin is Robert Nozick’s Anarchy, State and Utopia, which has been widely influential in Silicon Valley since its publication in 1974. Nozick argues that the powers of the state can’t be justified for anything except the protection of private property. Tax-raising is only permitted to pay for security infrastructure. Everything else – social justice, welfare, redistribution – counts as the workers exploiting the capitalists. In a famous thought experiment, Nozick describes the way even an anarchic society will eventually produce a dominant ‘protective association’, which keeps its citizens safe by taking their money more effectively than its rivals. The state’s monopoly on violence is therefore simply a product of market forces, and the state little more than a protection racket. This isn’t politics as The West Wing. It’s politics as The Sopranos.

Thiel treats the state as though it were as described by Nozick. He rails against the use of public money for the betterment of people’s lives, especially the poor. Who are politicians to decide how we should live? The state only exists to protect the lives we build for ourselves, including the wealth we acquire along the way. But Thiel has noticed that even such a ‘minimal state’, as Nozick calls it, still has an awful lot of resources to throw around. It’s a monopoly after all. Any modern security infrastructure in the age of digital technology requires plenty of public money to fund it. That money must be spent somewhere – and Thiel is the one to oblige. Libertarians would have us believe that unregulated, free-market capitalism is somehow diametrically opposed to state capitalism. One encourages innovation; the other stifles it. What Thiel demonstrates is that unregulated, free-market capitalism is in fact closely aligned to state capitalism. Deregulation means that nothing constrains the monopoly power of the security state and nothing gets in the way of people selling it their bogus and corrupting wares. This alliance helps explain the weird anomaly of Thiel’s persona. He’s like a cross between Joe Pesci in Goodfellas – a man who will stab you in the eye with a ballpoint pen if you cross him – and Richard Branson, another so-called entrepreneur who makes most of his money by capturing state-controlled contracts (Virgin Rail, Virgin Atlantic, Virgin Media). Branson, unlike Thiel, is a bit of a hippy and mouths most of the liberal pieties, including about climate change. But it doesn’t really matter what the philosophy is. The business model is the same: get as close as you can to the people who control the protection rackets. Unregulated markets aren’t opposed to state capitalism. They are the means by which capitalists make the most money out of the state. One more movie character I was reminded of when reading about Thiel is Keyser Söze, who says at the end of The Usual Suspects: ‘The greatest trick the Devil ever pulled was convincing the world he didn’t exist.’

Listen to David Runciman discuss this piece with Thomas Jones on the LRB Podcast.