The Scoop
A group of Silicon Valley bigwigs have been in talks to join the Donald Trump administration, but government ethics rules requiring divestitures of certain investments are getting in the way, according to people briefed on the matter.
People who accept full-time federal positions are generally required to dump investments that represent a conflict of interest or place them in a blind trust, and step down from private sector positions. That’s especially difficult in Silicon Valley, where startup stocks are illiquid and sometimes prohibit secondary market sales.
And venture capital funds, where many of Trump’s tech backers work, usually include provisions that require key partners to remain involved in the fund’s work or risk triggering provisions that put major limits on its operations.
Those complications have pushed some tech luminaries toward advisory roles that operate outside the government, but can have less power.
Last week, the venture capital world was buzzing about Trae Stephens, a partner at the Founders Fund and chairman of defense tech firm Anduril Industries, being considered for a senior role at the Defense Department, according to three people familiar with the matter.
But earlier this week, it appeared less likely that Stephens would serve inside the government, and might instead be added to a civilian advisory board that counsels the Secretary of Defense.
It’s unclear why Stephens’ potential position changed, but one person familiar with the matter cited his investments as a factor. Through a spokesperson, Stephens declined to comment.
Even Elon Musk, a key Trump ally, will become the co-head of the Department of Government Efficiency, or DOGE, which will operate outside the federal government and cease operations in two years.
For Musk, divesting from his business interests and stepping down from his corporate roles would be catastrophic for shareholders and employees.
The requirements could add a complicating layer to the Trump administration’s efforts to reform the Department of Defense.
Silicon Valley investors have been pushing for reforms of government procurement practices that favor established contractors like Lockheed Martin, Raytheon, Boeing and others. Trump’s victory a week ago appeared to be an opportunity for progress in that area.
The day after the US election, Musk tweeted at Anduril Co-Founder Palmer Luckey, who created Oculus, that it was important to open the Pentagon and intelligence community to “entrepreneurial companies like yours.”
Know More
Stephens is often mentioned in defense tech circles as someone who could help change government procurement practices and modernize its arsenal.
He is also connected to Trump through the Founders Fund, a venture firm started by Peter Thiel, an influential investor and political donor who went against the grain to back Trump ahead of the 2016 election.
Thiel briefly employed Vice President-elect JD Vance and then became his most prominent political backer for his senatorial campaign.
Stephens, who graduated from Georgetown in 2006 with expertise in the Middle East, worked at a US intelligence agency before joining Palantir, then a little-known upstart pitching AI-powered anti-terrorism and crime-fighting technology to US government agencies.
Stephens’ success at Palantir placed him in the orbit of Thiel, making him a player in one of the most influential parts of the technology ecosystem. When he joined Luckey to co-found Anduril, his star rose further.
Silicon Valley investors and entrepreneurs like Luckey and Stephens have become some of the most vocal advocates of the need to modernize the military to more quickly adopt and develop private sector technology.
That sentiment is spilling over into the generative AI space, with some conservative think tanks advocating for a “Manhattan Project” for AI, an idea that the US military should push and develop frontier AI technology for its own purposes.
Reed’s view
Ethics rules around financial conflicts of interest are extremely important, but the system in this case isn’t functioning properly.
Venture capital firms might be able to come up with some way to allow for public service while simultaneously protecting their investors, or limited partners.
It also might make sense for the federal government to create some leeway for overly complicated financial situations.
Otherwise, what we’ll end up with is a kind of shadow layer of government advisors who aren’t subject to the same scrutiny and transparency that they would be in official positions.
There’s a subset of Silicon Valley, especially in the defense tech space, that is patriotic and eager to serve the public. Yes, many of them would have conflicts of interest on paper. But it seems like less of a problem than the current system, where there is a constantly revolving door between defense contractors and the government.
The last decade or so of Silicon Valley innovation has often been about circumventing government when outdated rules or regulations inhibit innovation. It would probably be better if innovators enabled disruption by reshaping policy from within the government.
Room for Disagreement
This research paper, published in argues that the tech industry is already having an outsized influence on government and is using it to its own advantage, to the detriment of society:
“Given their rising influence, Big Tech are actively shaping today’s economic, cultural, and social milieu to consolidate their advantage (Zuboff, 2019). In this regard, an overlooked area of study is how Big Tech are fundamentally changing their relationship with the government. While studies have highlighted how governments increasingly rely on digital platforms and integrate AI into their day-to-day operations, existing studies downplay the comprehensiveness of Big Tech’s influence in the policy process.”
