Jared Kushner viewed investments in terms of opportunity costs at the New York Observer. Photo / AP
Jared Kushner viewed investments in terms of opportunity costs at the New York Observer. Photo / AP
Elizabeth Spiers was the founding editor of Gawker and former editor-in-chief of the New York Observer when it was owned by Donald Trump's son-in-law Jared Kushner.
On my first day of work as the editor in chief of the New York Observer, which had been acquired five years earlier by Jared Kushner, now the son-in-law and senior adviser to President Donald Trump, I inherited an office and a desktop computer, both in fine but used condition. The computer was a recent-model Mac, but when I turned it on, it was inexplicably running Windows. I summoned our beleaguered IT guy to explain, and he informed me that it had belonged to Kushner, who liked the design of Apple products but preferred the Windows OS.
"So he was basically using a $2,500 desktop as a monitor?" I said. The IT guy shrugged.
Watch: Jared Kushner is President-elect Donald Trump's son-in-law but he's also one of his key confidants.
In retrospect, this tiny moment seems like a metaphor. Frankensteining two products you appreciate into one product you appreciate even more isn't irrational; it's even creative, in a way. On the other hand, why did the newspaper's owner need a $2,500 monitor? How was it anything but a vanity object?
That moment in 2011 came back to me when the Trump administration announced this past week that Kushner would lead the newly created Office of American Innovation to "infuse fresh thinking" into government institutions by utilizing the hard-won knowledge of great American business executives. The appointment was announced with a breathlessness that suggests no one has ever thought of it before, or that former great American business executives have never worked in government until now.
But I worked for Kushner for 18 months as he tried to infuse a much smaller institution than the U.S. government with cost-cutting impulses from the commercial real estate world. And my experience doesn't bode well for the Office of American Innovation. Not everything that works in the private sector is transferrable to the public sector - and even if it were, Kushner isn't the best person to transfer it.
I was the youngest editor in the Observer's history and not an obvious choice, but Kushner liked me because I had been the founding editor of Gawker, which had grown into one of the largest indie media companies in the country, with more than 100 million unique visitors a month, and because I had an entrepreneurial and digital background. I also had started a Wall Street site he'd considered acquiring, and I was the only candidate he interviewed who asked to see the Observer's financials before I would take the job.
Almost 40 per cent of my compensation was in the form of a performance bonus contingent upon hitting growth milestones while staying under budget. I was fine with being held accountable; I viewed the paper as a business, just as Kushner did.
But I resigned in 2012 for a variety of reasons, chiefly that the president of the company and I couldn't persuade Kushner to recapitalise the Observer - even though I reached all my numbers. When the paper had a profitable quarter for what I was told was the first time, Kushner floated the idea of layoffs to increase the margins, seemingly ignoring the fact that staff reductions would also reduce ad inventory by reducing content. A material part of what had been attractive about the job was the promise of expansion and growth. But we submitted business plans over and over again, and Kushner rejected them. He wanted the Observer to be cheaper to run, usually at the expense of growth and evolution, and he could not see the relationship between scale and profit - between risk and reward. (The White House did not answer a request from The Washington Post to provide Kushner's perspective for this story.)
Ivanka Trump and her husband Jared Kushner. Photo / AP
He viewed investments in terms of opportunity costs. "Why should I put more money into the Observer when I could invest in a software company?" he would say. This is a legitimate question for any returns-driven investor. But news media doesn't scale like software. You need people to produce content, at least until artificial intelligence becomes more sophisticated and sensitive sources are willing to trust a bot.
Why would you buy a newspaper if you expect it to scale the way software does? Why assume that media and software have the same risk profile and dynamics? Kushner would frequently point to a media company with a 60-person editorial staff and ask why our two-person desk wasn't producing as many stories or as much traffic. Or he'd argue, bizarrely and incorrectly, that because Gawker started with one person, that meant you didn't need head count to scale a media company. The Internet makes media more scalable, of course - distribution is unlimited and gained at little marginal cost. But that doesn't mean a media company is just like Uber.
When I worked for him, I wasn't sure he had a realistic view of his own capabilities since, like his father-in-law, he seemed to view his wealth and its concomitant accoutrements as rewards for his personal success in business, and not something he would have had in any case.
That same obsession with the tech world permeates Kushner's new project. Cost-cutting is important in situations where there is excess, but it is not what catalyzes evolution; if the point here is to make government more effective, not just more efficient, cuts alone won't do it. The Silicon Valley entrepreneurs Kushner has roped into helping him with the new office - such as Apple's Tim Cook, Salesforce boss Marc Benioff and Tesla founder Elon Musk - would be the first to tell him that scale is important, and that growth is often a function of prioritizing R&D investments. You prototype cheaply to get to a minimum viable product, but if you stop there, you're in trouble. You have to reinvest, constantly.
Lessons from Silicon Valley are even likelier to be misapplied in government than in media. Outside experts always groan that government institutions are running outdated systems that still rely on floppy disks, and that this is a function of some combination of government waste, idiocy and ubiquitous Luddite-ism. But a more logical explanation is that systems upgrades require appropriations, many of which have been gleefully slashed by Congress. There's also the problem of government pay, and the fact that the private sector has financial resources that the government does not. Is it reasonable to expect speedy, high-quality upgrades when engineers are making $90,000 a year and implementations are often contracted out to the lowest bidder?
The irrelevance of private-sector nostrums is likely to haunt Kushner's new initiative. "They're all outsiders and nobody knows anything about the government," says Elaine Kamarck, who worked with Vice President Al Gore when the Clinton administration sought to reinvent government 25 years ago and who is now a senior fellow at the Brookings Institution. "It will take these people a year just to figure out what they're doing." There are many government functions that have no analog in the private sector, she pointed out, like maintaining a nuclear arsenal.
The Clinton administration's efforts had some success, Kamarck said, because Gore's group was staffed primarily by government people and civil servants who worked in concert with private-sector experts. "They also have to staff the government," she said, pointing to the Trump administration's failure to fill hundreds of crucial positions so far, leaving any ideas that the new organization produces without a government to execute them.
Kushner's claim to business knowledge, beyond admiring Silicon Valley, boils down to his work for his family's commercial real estate company, which is hardly comparable to a government institution. And if industry dynamics are not transitive across the board, expertise isn't, either.
tA few days after Trump won the election, Kushner folded the now attenuated print newspaper and subsequently announced that the Observer, in its digital incarnation, was for sale. Photo / AP
On that count, I'm not even sure how to quantify Kushner's expertise, anyway. Yes, he ran the company - which he inherited, not uncommon in New York's dynastic, insular real estate world. But he was sure he had the goods. When I worked for him, I wasn't sure he had a realistic view of his own capabilities since, like his father-in-law, he seemed to view his wealth and its concomitant accoutrements as rewards for his personal success in business, and not something he would have had in any case. To me, he appeared to view his position and net worth as the products of an essentially meritocratic process.
Yet when Kushner Co. bought 666 5th Avenue for $1.8 billion in 2007, it was the largest transaction for a commercial real estate building in Manhattan's history. Had the financing gone south, as it nearly did, it probably would have destroyed the family's fortune. The building is heavily in debt now and in need of new investors to let Vornado, a real estate firm that owns 49.5 per cent of the building, get out; a tentative arrangement with Chinese insurance giant Anbang fell apart this week.
Is this good dealmaking? I don't know. If I were to assume any expertise I have is transitive to commercial real estate, I might argue that Kushner Co. overpaid for the building in the first place and overleveraged itself. But I also know what I don't know, and I don't make a living using vast amounts of debt to buy Class A office buildings in New York, so I will defer to people who do to opine. You could construe my evaluation as a reasonable observation by an outsider with a set of "fresh eyes," but you'd be nuts to hand me a billion-dollar commercial real estate company because of it.
When it became clear in 2012 that Kushner was conflating running lean with starvation, I submitted my resignation and left the Observer mostly on good terms with him, but I was disappointed. The company president resigned a few weeks later. Kushner eventually filled our positions with a family friend and his brother-in-law, the latter of whom had no media experience. He wanted outsiders to run the business - but loyal, compliant outsiders.
A few days after Trump won the election, Kushner folded the now attenuated print newspaper and subsequently announced that the Observer, in its digital incarnation, was for sale. He probably would refer to it as a "lean" operation. I would say in his zeal to trim the fat, he began eliminating muscle and hacked into a few bones. I realize also, in retrospect, that he may never have intended to grow it or improve it. It was for him, in essence, another vanity object - like the beautiful, expensive desktop computer he used as a monitor.
I worry that this new office will be more of the same: a vanity project, one that exists primarily to put Kushner in the same room with people he admires whom he wouldn't have had access to before, glossing government agencies in the process with a thin veneer of what appears to be capitalism but is really just nihilistic cost-cutting designed to project the optics of efficiency. If the outside experts have good advice, it will be heeded only where it reinforces what the administration would do anyway. And anyone who volunteers to carry out the administration's agenda may be handed wholesale control of an area of government where their domain expertise isn't just low, but nonexistent.
But I would like to be a fly on the wall when Kushner expresses his feelings to Tim Cook about the Macintosh operating system.
