During my book tour, several interviewers asked me what socialist policies would have meant for Ameritrade back in the day, and what those policies would mean for our shared futures today. In those short-format interviews, it’s often difficult to discuss these complex issues thoughtfully without the message getting distilled down to soundbites – e.g., “free enterprise is great and socialism will be our ruin.” (Elizabeth Warren seized on one of these moments, including me in an ad she ran attacking successful businesspeople.) But like so many things in life, soundbites don’t really do this important topic justice.
So I was interested to read Professor Walter Block’s recent opinion editorial in the Wall Street Journal, Bad Capitalism and Good Socialism. In many ways, I couldn’t have said it better than Professor Block – there are different flavors of capitalism and different flavors of socialism. Neither system is without its flaws. In fact, during one of my recent interviews, I acknowledged that at its core, socialism sounds great – society asking each of us to contribute according to his ability and providing to each of us according to his need. And at small scales, as Professor Block points out, socialism can work – think the convent, monastery, kibbutz, commune, syndicalist association, and cooperative. At large scale, however, where government must own and control the means of production, nationalizing industries in the pursuit of social justice, it ends very badly – think Venezuela, East Germany, Maoist China and the U.S.S.R.
On the flipside, the free enterprise system, if left wholly unregulated, can run amok. There are plenty examples of this – e.g., unsafe working conditions at the dawn of the industrial era – but one that I think makes the point about the potential pitfalls of free enterprise is the fur trappers of the mid-1800s. Those entrepreneurial adventurers would sometimes kill one another if doing so was a profit-maximizing strategy; not a particularly attractive advertisement for free enterprise.
But this bare-knuckle, broken version of free enterprise isn’t the only variety. In fact, it’s not even the most prevalent one. For just as socialism has versions that work and others that don’t, there’s a moderated version of free enterprise that has created more wealth and raised more people out of poverty than any system in human history. In this high-functioning version of free enterprise, entrepreneurs are given a relatively unfettered field on which to reimagine the world, and from this springs social prosperity at a scale socialism of all stripes can never achieve. And scale matters. A system that works for a few dozen people on a kibbutz is great, but doesn’t answer the more complex challenges hundreds of millions of people face when trying to live and work together.
So is free enterprise great and socialism evil? That’s the wrong question. The right question is how we improve the guardrails around free enterprise to assure social justice doesn’t become roadkill while preserving enough freedom that new businesses can start and prosper. For it’s those new businesses, and the entrepreneurs that create them, that will provide the jobs and economic opportunity that propels us – all of us – forward.
And when I talk about “jobs” it’s important to make clear I’m referring to net new jobs. Those are the new jobs that are above and beyond the ones that simply replace the jobs lost each year through normal churn. And those net new jobs really matter, as most economists agree it takes a 3% annual GDP increase to accommodate all the new jobseekers coming into the workforce. Put differently, we need those net new jobs to expand the pool of opportunity so more people can prosper from the free enterprise system.
It might not sound like a particularly interesting issue but it’s incredibly important. It’s so important that I’ve established a nonprofit foundation – Entrepreneurs Create Jobs – to help provide information about the topic. In time, I plan to talk more about Entrepreneurs Create Jobs, but for now I invite you to check out the videos on the foundation’s website.
A number of people have asked me about my media appearances supporting my book, The Harder You Work, The Luckier You Get. I thought it might be convenient to post everything in one place here.
FOX BUSINESS –MORNINGS with MARIA, MARIA BARTIROMO Parents should teach kids to value hard work, success: TD Ameritrade founder November 6, 2019 https://video.foxbusiness.com/v/6101006383001/
He has called out the Chinese regime
for lying, cheating and stealing its way into challenging our power, while American
workers lost their jobs and opioids flooded our towns.
More importantly than calling out China,
he has taken action. The president has hit the regime where it hurts by imposing
tariffs that have crippled the economy that helps keep General Secretary Xi and
his cronies in power.
The purpose of Trump’s tough talk and
tariffs is to force China into making a trade deal that will even the playing
field.
Right now, it is a totally one-sided
relationship. China steals hundreds of billions of dollars in intellectual
property every year, and its trade practices are unfair and anti-competitive.
This is not even to mention things we
don’t often think about like the untold millions if not billions China robs of
American businesses by allowing its people to sell knockoff goods.
The status quo takes food off of your
table; it makes it harder to send your kids to college; and it funds the
Chinese Communist Party’s pursuit of world dominance, threatening your freedom.
So the president has said enough is
enough.
But getting to a deal has been
challenging.
One of the major sticking points is
“enforceability.” How can we be sure that the Chinese will hold up their end of
the bargain? After all, time and time again in the past they’ve played Americans
for fools. They’ve been proven right.
But there’s still another problem that doesn’t
get enough attention.
Let’s say tomorrow China agrees to
every U.S. demand in a deal. They tell us they are deathly serious about honoring
it. They even take immediate actions that might cost them a lot of money to
show us that this time is different—that they mean what they say.
What if I told you that they were still
holding most if not all of the cards.
How could this be?
China’s laws make it so.
Did you know that China’s State
Security Law, passed in 2015, says that every citizen, company and organization
has “the responsibility and obligation to maintain state security?”
Therefore, under China’s National
Intelligence Law, all organizations and individuals are obligated to “support,
provide assistance, and cooperate in national intelligence work.”
The same goes for “counter-espionage
work.”
Then, what if I told you that according
to some experts, China’s new cryptography law could require all encryption to
be turned over to the state, with it potentially allowing the state to access
all the data that was encrypted (which it can then share with state-run
businesses)—again on “state security” grounds?
Let’s stop right here. The Chinese
Communist Party defines “state security,” and determines what qualifies as
legitimate “national intelligence” and “counter-espionage” work.
Do you think their definitions are the
same as yours and mine?
It’s pretty clear that under Chinese
law, anyone doing business on the mainland and even off of it with Chinese
entities could be a sitting duck.
Also, consider that China requires that
Communist Party cells sit in its own companies, including those that have joint
ventures with American companies.
And remember, this is a country without
the rule of law or private property rights. Heck, it has been holding its own
people—one to two million Uighur Muslims in Xinjiang province—in modern-day
gulags.
The truth is that the law is only what the
Communist Party says it is.
And since the Party does what is best
for the Party, the law serves the Party’s ends.
Too, when it comes to trade, China’s
decisions aren’t driven by what is best for the Chinese people to pursue a
better life, but what is best for the Communist Party to survive, and grow more
powerful.
It would be foolish to think the
Communist Party wants to engage in free and fair trade with the U.S. any more than
it does for Hong Kong to retain its independence.
One can easily see a scenario where
China claims it is fully complying with the deal while doing all sorts of
things that totally violate it—with the excuse that it was “just following the
law.”
We’ve gotten ripped off for far too
long. President Trump has stood up and done something about it. It would be
wonderful if we could agree to a trade deal that the Communist Party would keep.
But we must remember who we are dealing with.
To succeed, the president will truly need the “Art of the Deal.”
I don’t normally post news articles here, but I feel so strongly about this topic. Jobs matter. One of the great satisfactions of my career is creating them. And I was proud to stand up for Omaha jobs when we merged TD Ameritrade with another organization.
I don’t normally post news articles on my blog but this one was important to me so I wanted to highlight it here:
Charles Schwab and TD Ameritrade were set to publicly roll out a blockbuster brokerage merger that
would shake up the investment industry, send both companies’ stocks
soaring and fan deep fears of job loss in TD Ameritrade’s home city of
Omaha.
Then
just hours before the planned announcement, timed to hit just before
markets opened Thursday, Nov. 21, Schwab officials noticed something
concerning: The sale of TD Ameritrade had not been signed off on by the
firm’s biggest individual shareholder, company founder Joe Ricketts.
The
announcement was suddenly off. And when Schwab reached out to Ricketts
later that morning, his representatives communicated a condition
Ricketts wanted if he was going to sign off on voting his shares for the
merger. The deal would have to include language offering some
protection for TD Ameritrade jobs in Omaha.
In the end, Ricketts reportedly was satisfied with what he got — a signed agreement intended to provide a measure of security for TD Ameritrade’s Omaha workers.
Joe Ricketts initially delayed the TD Ameritrade-Schwab merger until an agreement on some protection for TD Ameritrade jobs in Omaha. “Omaha has been, and we hope may continue to be, an important employment center for our company,” said spokesperson Kim Hillyer. REBECCA S. GRATZ/THE WORLD-HERALD
On
its face, the wording in the agreement Schwab filed with federal
regulators last week provides no guarantee that all — or even any — of
the 2,300 TD Ameritrade jobs will remain in Omaha for the long term. The
language gives Schwab much leeway to reduce the acquired firm’s
workforce in the city, and the agreement sunsets after two years.
But
an expert on mergers law says the words could still pack both legal and
practical punch. And a person close to the transaction says Ricketts
was satisfied the agreement will accomplish his goal: requiring Schwab
to be deliberate in the coming years as it considers how to integrate TD
Ameritrade’s Omaha operations into its own.
“It’s
not a rock solid ‘no one can get fired,’ but it’s a commitment by
Schwab to be reasonable and thoughtful in how they approach this, and
the fact Schwab agreed means they are taking it seriously,” said the
source, who had knowledge of the agreement and spoke on condition of
anonymity. “It’s a merger. Changes are going to happen. But they’re
going to happen in a thoughtful way.”
A
spokesperson for Schwab declined Friday to comment or answer questions
about the agreement or how it came about. Joe Ricketts through a
spokesman also declined to comment.
However, Nebraska
Gov. Pete Ricketts, his son, said the agreement “reflects a commitment
to maintain a level of jobs in Nebraska” and “gives us the opportunity
to make the case to Schwab to grow here in the future.”
Pete
Ricketts, a former TD Ameritrade executive who as governor is the
state’s de facto chief economic development officer, said he has since
Monday spoken to Schwab chairman and founder Charles “Chuck” Schwab and
company CEO Walter Bettinger.
“I will continue to make the case in the coming months,” Ricketts said.
The
jobs agreement, signed by Bettinger, Joe Ricketts and his wife,
Marlene, was part of a pile of merger-related legal documents Schwab
filed with the U.S. Securities and Exchange Commission Wednesday. Here
is how the relevant language reads (“Parent” being Schwab and “Company”
being TD Ameritrade):
Post-Closing
Integration. Parent commits in good faith to seek to maintain, from the
Closing Date through the second anniversary of the Closing Date, a
level of employment in Nebraska comparable to the Company’s level of
employment in Nebraska at the Closing Date, taking into account
voluntary attrition and transaction-related integration plans.
Irina
Fox, a mergers and acquisitions expert with Creighton University’s law
school, agreed that the latter part of that wording does give Schwab
much freedom to reduce Omaha employment. But she said no one should
overlook the significance of Schwab’s commitment to “in good faith” seek
to maintain Omaha employment — words that also carry significant legal
meaning.
“That
does put a little restriction on their discretion,” she said. “If they
were to fire a significant percentage of the Omaha employees, they would
need to do quite a bit to justify that decision. There is a good faith
clause there where they promise not to do it arbitrarily. I think this
clause has some teeth.”
Legalities aside, it’s probably not a bad thing for Omaha’s future job prospects that
Schwab’s leadership made a promise to TD Ameritrade’s founder. All
things being equal, it’s certainly not unheard of for boardroom politics
to play a role as companies make decisions on where jobs will be
located.
And that may be particularly noteworthy in this case, in which the two company founders have a long shared history.
By 1999, Joe Ricketts was a billionaire — something Ricketts credits in part to TD Ameritrade’s back office trading center, operated so efficiently and cost-effectively, no competitor could afford to offer online trades for less. “It had always been a point of pride with me that this business I had built was helping bring prosperity to some of my neighbors,” Ricketts wrote in his recent book. KILEY CRUSE/THE WORLD-HERALD
As
it happens, within a single month this fall, both Chuck Schwab and Joe
Ricketts came out with autobiographies telling their own life stories.
And in back jacket quotes, each man actually offered praise for the
other.
Schwab
lauded the guts, tenacity and creativity of his Omaha-based competitor.
Ricketts described Schwab as a man of high integrity and a fierce rival
who he now considers a friend.
Indeed, the two men have much in common.
In
1975, Ricketts and Schwab founded two of the nation’s very first
discount brokerages, their low trade commissions helping to democratize
stock trading, bring investing to the masses and shake up the Wall
Street establishment.
While
Schwab’s San Francisco-based firm largely evolved into a traditional
wealth management company offering financial advice to individual
investors, Ricketts’ firm in Omaha was more of a technological
innovator. One of his first breakthroughs was a niche technology he
developed that allowed customers to make automatic trades on their
touch-tone phones.
That
platform left Ricketts’ firm well-positioned in the 1990s when the
Internet and home computers rose to prominence. In 1995, Ricketts’ firm
bought the company that had just pioneered the first online trade, and
he dove headlong into the fast-growing, lucrative new business line.
The
sales commissions starting rolling in, and TD Ameritrade shot off like a
rocket. By 1997, Ricketts took his family business public. By 1999, Joe
Ricketts was a billionaire.
The
company continued to grow and thrive in Omaha, becoming the industry’s
largest volume online brokerage with its widely recognized “eight bucks a
trade” pitch. But technology and marketing aside, Ricketts spoke to a
World-Herald reporter in 2006 about what he considered the secret of his
firm’s success.
The
key, he said, was the low-cost operations of TD Ameritrade’s back
office trading center, at the time in the Southroads Mall in Bellevue.
Staffed 24/7, it operated so efficiently and cost-effectively, no
competitor could afford to offer online trades for less.
Ricketts
also expressed an appreciation and affinity for his staff, talking of
the pride he felt in helping create jobs that made a difference in the
lives of his employees and their families.
“It
had always been a point of pride with me that this business I had built
was helping bring prosperity to some of my neighbors,” he wrote in his
recent book. At times when he had to lay off workers due to stock market
crashes, he’d do so, but said he’d “rather cut off my own arm.”
Once
TD Ameritrade went public, the control the Ricketts family held over
the firm loosened with time. Joe Ricketts retired as CEO in 2001, saying
he was firing himself to put the company in more capable hands. He left
the board of directors completely in 2011, though other members of the
Ricketts family have continued to hold at least one board seat since
that time.
Tapping
its TD Ameritrade fortune, the Ricketts family in 2009 acquired the
Chicago Cubs baseball team. Joe Ricketts became one of the largest
funders of conservative politics and libertarian thought. He saw his
son, the firm’s former chief operating officer, win the Nebraska
Governor’s Office in 2014.
But
over the years, Ricketts also continued to own huge amounts of TD
Ameritrade stock, despite the persistent advice of financial advisers
that he should do more to diversify. TD Ameritrade remained his baby.
To
this day, he and his wife hold 8.6% of TD Ameritrade’s shares, and his
children own sizable stakes as well. Before word of the Schwab merger
leaked, Joe and Marlene Ricketts’ shares were worth almost $2 billion.
Based on the premium they and other shareholders will receive from the
sale, those shares are currently worth $2.5 billion.
Joe
Ricketts rode his company’s stock through highs and lows over the
years. He also watched as the firm gobbled up competitors and in 2013
moved into its new headquarters, a green-tinted tower meant to resemble a
ticker tape that rises over Interstate 680 and West Dodge Road.
But in recent years came an industry challenge that finally proved the company’s match.
An
upstart called Robinhood in 2014 began offering no-commission trading
on a phone app, causing all the traditional players to start ratcheting
down their commission rates.
On
Oct. 1, Schwab announced it was eliminating all sales commissions on
U.S. stocks and exchange-traded funds. Within hours, TD Ameritrade and
other competitors were forced to match the move.
Schwab
was completing the “race to zero,” and it appears to have been a
strategic play, as it disproportionately hurt Schwab’s chief
competitors.
For
Schwab, the lost commissions reportedly amounted to less than 5% of
revenue. For Ameritrade, the loss was 15%, nearly $1 billion a year. TD
Ameritrade’s stock price plummeted by almost one-third.
At
some point, Schwab and TD Ameritrade began merger talks. And when they
got serious, TD Ameritrade officials provided Joe Ricketts and his
family a “voting support agreement.” Such documents are common in
business mergers and acquisitions, signed statements that bind major
shareholder to vote stock in favor of the merger.
Such
an agreement wasn’t needed for the deal to go forward. The considerable
Ricketts family holdings were still just a fraction of TD Ameritrade’s
shares.
And
Ricketts actually fully backed the merger. According to the source
close to the transaction, Ricketts believed that in a zero-commission
world, having a company of significant scale would be critical to future
success. Marrying TD Ameritrade with Schwab would provide that scale.
But
Ricketts simply wasn’t interested in signing the voting support
agreement. He just wanted to vote his stock the same way any other
common shareholder would, later when TD Ameritrade schedules the
shareholder vote.
While
the reason is unclear, the fact Ricketts declined to sign the agreement
apparently was not communicated by Ameritrade officials to Schwab until
just hours before the planned Nov. 21 announcement.
Schwab’s leadership balked. They weren’t comfortable going forward without the Ricketts agreement.
It’s
not exactly clear why Schwab officials hesitated. But it’s conceivable
they were concerned that Ricketts owned enough stock he could cause
difficulties for the merger if he suddenly decided the deal was a bad
one and worked against it before the official shareholder vote.
Nebraskans
in recent years have seen firsthand the power that can be wielded by a
significant minority shareholder like Ricketts. Sidney-based outdoor
outfitter Cabela’s was forced to merge with a competitor in 2016 after
an activist investor owning 9% of its stock vocally objected to the
firm’s financial performance and led a campaign for major change.
With
the announcement suddenly off, the source said Schwab officials reached
out to Ameritrade’s founder. Ricketts’ representatives explained that
he simply didn’t want to sign the agreement. But they said he’d be
willing to do so if Schwab made a commitment to preserve jobs in Omaha.
The memo details the $26 billion transaction and provides, it says, “answers to common questions.”
“Joe
is a businessman,” said the source. “If you’re going to ask something
from him, he’s going to ask something from you. The only thing he asked
for was the jobs language.”
Ricketts was certainly realistic that the elimination of redundancy between the two companies will require job losses in Omaha.
He wasn’t going to ask for blanket protection. But he still wanted to
pursue language that would make Omaha jobs “top of mind” for Schwab —
potentially easing the impact, the source said.
Schwab
officials were “thoughtful and respectful” and took the request by
Ricketts seriously, the source said. It was considered at the most
senior levels of Schwab. It’s unclear to what degree Chuck Schwab
himself, as Schwab’s chairman, participated in the considerations.
With some tweaking, the language was officially agreed to on Sunday, Nov. 24. The merger was announced the next morning.
Though
it’s clear the language offers no guarantees, the source called it an
important commitment from Schwab — one that bodes well for how that firm
will approach Omaha jobs in the merger.
What
the combined Schwab-TD Ameritrade ultimately looks like will be a long
game that will play out over years. The deal is not expected to close
until next year, with Schwab officials saying the full integration of the companies could take up to three years after that.
The
Omaha agreement isn’t the only geographic consideration. With the
merger, Schwab announced that the combined headquarters will be in the
Dallas-Fort Worth metro area, where both TD Ameritrade and Schwab
already have significant operations.
While
Schwab declined to comment on the Ricketts agreement, TD Ameritrade
officials acknowledged it, but said it’s premature to talk about how it
will impact the firm’s more than 9,000 employees nationwide.
“Omaha
has been, and we hope may continue to be, an important employment
center for our company,” said spokesperson Kim Hillyer. “But it would be
a disservice to our people — in Omaha and in other cities across the
country — to speculate on what staffing in Omaha may ultimately look
like.”
Fox,
the Creighton professor, said the Ricketts agreement won’t keep Schwab
from creating the efficiencies that shareholders expect when two firms
merge. But she said the agreement could help shape where the combined
operations end up. And the firm in many cases will have multiple cities
to choose from, as both companies have operations spread around the
country.
For
example, about half of TD Ameritrade’s 2,300 Omaha workers are part of
its clearing operations, making sure trades get posted to the proper
accounts, at the right price and according to federal regulations. TD
Ameritrade also has clearing operations in Dallas.
For
its part, Schwab has clearing operations in both Dallas and Colorado.
It would seem quite likely the merged company will continue to have
clearing jobs in more than one location.
While
Omaha is officially the home of TD Ameritrade’s corporate headquarters,
company employees say the reality is most of its top executives have
been based in New Jersey for the past decade. In effect, Omaha lost most
of those jobs years ago.
Besides
clearance, the balance of TD Ameritrade’s Omaha workforce is largely a
mix of certified stockbrokers who handle trades by phone and information
technology workers who operate the trading platform. There are such
workers in other locations around the country, too.
George
Morgan, a former stockbroker who teaches finance at the University of
Nebraska at Omaha, said Omaha has lots of business advantages that
should be appealing to Schwab. The city offers low operating costs, is
home to one of the industry’s most user-friendly trading platforms, and
has some of the nation’s best technology infrastructure, part of its
legacy as the strategic home of the nation’s nuclear arsenal.
“From the perspective of Schwab, maintaining a presence in Omaha makes a lot of business sense,” he said.
But
he said the Ricketts-Schwab agreement certainly won’t hurt matters,
either. “I really commend Joe 100 percent for taking care of what he has
built,” Morgan said.
Indeed,
beyond the legal significance of the jobs agreement, Fox said there’s a
practical effect, too. She doubts Schwab and its leaders would take a
pledge they made to the founder of TD Ameritrade lightly.
“It is in the interest of Chuck Schwab to have Ricketts on board with the merger,” she said. “It is in everyone’s best interest to assure a smooth transition.”
