Wayne Wheeler, a lawyer born in Iowa in 1869, is not a famous name in Indonesia. This may be about to change. He was the architect of Prohibition. Between 1920 and 1933, the US government banned the manufacture and sale of alcohol.
Wheeler was a small man with a gigantic drive. His handlebar moustache and balding hair made him look middle-aged in his 20s. The elderly look was an advantage as it gave him gravitas.
The definitive event in his life took place when he was 11. One of the workers on his family farm had too much to drink. The worker accidentally stabbed young Wheeler with a hayfork. Wheeler was lucky to survive.
Wheeler recounted this story to highlight the evils of alcohol. He campaigned for its ban by travelling on a bicycle from Iowa to Washington. This is greater than the distance from Singapore to Kuala Lumpur.
His efforts bore fruit in 1919 when the alcohol ban was passed. The ban did not end alcohol consumption. It created a vast ecosystem of illicit liquor. There were secret bars on every street called Speakeasies. The bar at 28 Hong Kong Street is modelled on the Speakeasies of that era.
Prohibition was not only ineffective in curbing drinking. A massive criminal network was created. Gangsters like Al Capone dominated the trade. The murder rate rose three-fold during prohibition.
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The government even added poison to industrial alcohol to prevent its consumption. Wheeler was behind this move. At least 60,000 people died by drinking poisoned industrial alcohol. The government finally saw the error of this policy and overturned Prohibition in 1933.
Indonesia’s government has revived Wheeler’s memory. Last week, the authorities announced a ban on social commerce. The move is aimed at outlawing TikTok’s e-commerce in Indonesia. The government wants to protect the traditional e-commerce players like Lazada, GoTo and Shopee. It is also worried that TikTok’s algorithm could collect too much information about Indonesian consumer habits.
TikTok’s e-commerce segment (called TikTok Shop) has disrupted Asean. It has cornered a tenth of Asean’s US$10 billion ($13.7 billion) e-commerce in just over a year of operations. Over six million businesses use TikTok to sell their products in Indonesia.
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TikTok entices young people to shop after watching dance videos. Indonesia is the biggest market for TikTok outside the US. Most of the products that are sold on TikTok are cosmetics or clothing. A typical purchase in Indonesia would be a lady’s scarf or lipstick. The nature of TikTok’s platform lends itself to the instance purchase of these items.
Indonesia is a poster child for emerging market tech. Its scale and rapid digitalisation have enticed Tech innovators. The government may want to protect its tech players. GoTo group, formed by the merger of Gojek and Tokopedia, is a vital cog in Indonesia. GoTo and its local rival Bukalapak have enticed Indonesia’s 68,000 warungs (small shops) to the digital world. President Joko Widodo’s government may project the ban to protect small businesses.
TikTok will immediately cease e-commerce operations in Indonesia. The new regulations bar social media platforms from facilitating e-commerce transactions. This does not prevent TikTok from promoting e-commerce on another app.
TikTok’s GMV could triple to US$30 billion. Banning TikTok Shop could be hard to implement. It may be like prohibition. It could be circumvented.
TikTok will likely create another app for e-commerce. The new app may have a distinct ownership structure. However, users could move from the dance app to the new platform.
A similar workaround was common during Prohibition. The laws outlawed the commercial manufacture of alcohol. Many homes brewed their beer and served it in the backyard.
Prohibition’s evils were worse than that of alcohol. The crime wave it created was featured in The Untouchables, a classic film from 1987 starring Kevin Costner. The actor plays Eliot Ness, a Bureau of Prohibition agent who sends the gangster Al Capone to jail. Even Ness was thirsting for a drink at the end of his crusade.
Indonesia’s ban will do little to stall TikTok’s march. TikTok’s immense traffic will still be harvested for e-commerce. Like the victims of prohibition, its users are thirsting for e-commerce.
Nirgunan Tiruchelvam is head of consumer and internet at Aletheia Capital and author of Investing in the Covid Era. He does not hold any position in the stocks mentioned in this column. This column does not constitute investment advice of any kind
