The Week of January 30, 2023: ESG, the debt ceiling, the Fed, antitrust, and much, much more.
The week of January 30, 2023: ESG, the debt ceiling, the Fed, antitrust, and much, much more.
O n Thursday, Rich Lowry put up a post on the Corner with the headline “Have Corporations Given Up on Woke Virtue-Signaling?”
What had aroused Rich’s interest was an article by Eleanor Hawkins for Axios entitled, “America’s CEOs have gone silent on national tragedies.” Rich, however, focused on the broader drift of Hawkins’s argument, describing it as follows:
Axios has an item on corporations beginning to stay silent on public controversies, which is a welcome trend . . .
The same article also attracted the attention of Michael Brendan Dougherty, who headlined his post, “Woke Capital Receding?” but, again, concentrated on the broader issue. Michael wrote:
A friend flags this item from Axios. Corporations that had made a lot of noise about social justice as recently as 2020 have suddenly gone silent . . .
The experts at Axios have all sorts of guesses as to why this is happening: It’s partly the Silicon Valley recession, or it is fatigue. Perhaps it’s investor pushback against ESG.
My guess is that we are seeing something like a thermostatic reaction. When Donald Trump was president, the entire establishment was put on a war footing. Now that Joe Biden is in office, the private sphere can stand at ease. Instead of pushing for new territory, progressives in corporate life will content themselves to consolidating what they’ve already captured.
Axios is upset. They write (emphasis theirs): “Reality check: Corporate silence could crater civil discourse.”
I don’t know about that. Civil discourse existed in America before Nike got involved. I’m sure it can survive without Dell.
Indeed. In fact, I’d go further than that. “Civil discourse” is, except in one area, improved by silence from the C-suite. The one exception is when corporate executives are speaking out on issues that directly relate to the job that they are paid to do, which, broadly, is to generate return for their shareholders (see Milton Friedman for details).
For company managements to go beyond that is, these days, often justified by the doctrines of stakeholder capitalism and, of course, ESG (an investment discipline that involves measuring portfolio companies against various environmental, social, and governance standards), its equally repulsive symbiont. Both are expressions of corporatism, an ideology (despite the way it sounds, it is not specifically about business) with premodern roots that, at its worst, is closely linked to the governing theory (if not necessarily the practice) of fascism or ideologies, such as Peronism, close to it. Stakeholder capitalism (and ESG) are an attempt to work around democracy. They have nothing positive to add to “civil discourse.”
The Axios piece is well worth reading. It was triggered by the relative lack of comment (or more) from “companies that were once very vocal on human rights and societal issues” to the horrific killing of Tyre Nichols by policemen in Memphis. But Hawkins sees this subdued response as part of a broader trend — one that, she feels, should be of concern:
This is a major shift in the way leaders communicate during heightened moments of tragedy and crisis. Most have now opted for internal correspondence in place of public pledges — and some are saying nothing at all.
“Leaders.”
Well, they may be leaders in their companies, but are they, in a political sense, leaders? No. Or at least they shouldn’t be, unless they choose to quit their jobs and run for elected office — and win. That’s not to argue that they have no right to speak out. As (presumably) accomplished people, they may well have a worthwhile contribution to make to the national debate. But when they speak, they should (unless they are doing so to advance their shareholders’ economic interests) make it clear that they are speaking in their own right, not as representatives of their employer.
As Michael mentions, Hawkins gives various explanations why corporate managements are not speaking out:
Power dynamics. Companies are not facing public and internal pressure to make external statements. “They felt pressured to speak up in 2020 because their employees had a lot of power. Now, not,” one DEI consultant told Axios’ Emily Peck.
Economic uncertainty. The tech industry — which was previously out front on many of these issues — is now going through massive cuts and is focused on staying afloat, not wading in. Plus, many tech companies have gutted their DEI departments in response to economic strains.
There may be something to both those explanations. But it’s worth noting that, if tech companies are cutting their DEI departments due to tougher times, that surely reflects some skepticism about the contribution that such departments bring to the bottom line, a view somewhat at odds with current orthodoxy.
Hawkins adds two more possible explanations:
ESG pushback. Recent pushback from activist investors and legislators at the state and federal levels have caused businesses to become more skittish on ESG initiatives.
Fatigue. “There’s a sensitivity to not making a statement every time something happens,” Paul Washington, executive director of the ESG Center at the Conference Board told Emily.Companies don’t want to get into the routine for fear of being asked, ‘Why did you say something about that, but not this?’
Again, there could be something to both those points, and to Michael’s explanation too.
Hawkins also quotes the CEO of Edelman, a PR company:
As trust in government erodes, “business is the sole institution seen as competent and ethical,” Edelman CEO Richard Edelman says, and “societal leadership is now a core function of business.”
Yes, but (to use a handy Axios phrase), government and business are doing different things. They will be judged in different ways. Certainly, government is (often) incompetent, but that can partly be explained by the democratic constraints under which it operates. Moreover, government has taken on certain functions that are by no means necessary to the operation of a democratic state, and then does them poorly. They might well be better privatized. But to go from grumbling about the incompetence of government to saying that “societal leadership is now a core function of business” is to leap into the corporatist nightmare.
I clicked on the link tied to “Edelman says,” which took me to another Axios story. It turns out that the findings on “trust” come from Edelman’s 23rd annual Trust Barometer. Its release, Axios reports, was timed to coincide with the opening of this year’s festivities at Davos, the latest meeting of the World Economic Forum.
Oddly enough, the World Economic Forum is an organization long dedicated to corporatism and, well, “leaders.”
Axios:
Societal leadership, Edelman argues, is now a core function of business.
“CEOs are expected to use resources to hold divisive forces accountable,” the report says.
“72 percent want business to defend facts and expose questionable science being used to justify bad social policy …. 64 percent want companies to support politicians and media outlets that build consensus and cooperation.”
If people really do want that, small-d democrats need to be doing a better job. “Divisive forces” ought to be held to account in legislatures, not the C-suite.
And as for the idea that business should “defend facts and expose questionable science being used to justify bad social policy,” it is not only postmodernists who will read those words and see them as an attempt to turn the subjective into the objective.
And do the 64 percent, rallying, if inadvertently, behind Citizens United (that’s the good news) want “companies to support politicians and media outlets that build consensus and cooperation”? Well, when polled, people often express their fondness for consensus and cooperation, but that’s not, generally, how they vote. They want consensus, sure, but over policies with which they agree. “Consensus and cooperation” is a corporatist incantation. It fits in with the corporatist vision of a cooperative, “organic,” stakeholder society. Such a society would have little room for “divisiveness,” the individual, or shareholder rights. In the corporatist vision, shareholders are reduced to being just one stakeholder among many.
Then, I clicked the link connected to “Edelman argues,” which led to fairly predictable, rather depressing content, although to discover this piece on “Trust in China” was, even allowing for my bleak expectations, a surprise. Please note that it was written in January last year.
While accurate numbers are always hard to come by in China, our 2022 Edelman Trust Barometer allows us to follow the trends. Trust among Chinese citizens in their government is a record 91 percent, the highest seen in a decade.
Amazing!
Edelman has offices in Beijing, Shanghai, Shenzhen, and Guangzhou.
As mentioned above, the piece on China was written in January 2022. That was before China ran into the difficulties that may now be leading to some ideological backtracking. In January 2022, however, the Beijing regime offered a spectacle of corporatism on the march. It had adopted a model of harnessed capitalism, and stressed that the party’s objective was “common prosperity,” a phrase which, doubtless unfairly, brought to mind the “common good” chatter that can be heard over here from some on the right.
All this is a (very) convoluted way of saying that “woke capital” is just one aspect of the broader phenomenon represented by ESG and stakeholder capitalism. Nevertheless, it’s not hard to see why it attracts such attention.
As I wrote in a Capital Letter back in August:
It’s easier to gin up popular support for a campaign to oppose corporate wokery than to base it on a defense of shareholder rights or a rejection of corporatism, causes with possibly rather less immediate populist appeal. Something similar holds true for those in the opposing camp. It is far easier for defenders of ESG and stakeholder capitalism to frame the debate as another chapter in the culture wars than to address the serious threat to both property rights and to democracy that their efforts represent.
External corporate wokery may come and go, buffeted by day-to-day politics, but within companies, it is likely to persist, fueled by a combination of conviction and careerism.
To quote myself yet again, but, for variety, from a Capital Note (remember those?) written in March 2021:
It is increasingly obvious that more and more companies are, quite genuinely, going woke, and that this is no longer confined to what was once (wrongly) thought of as the harmless HR department, but is rising far up the management chain. And it is an ascent that shows no signs of slowing down. On the contrary, as younger generations who have been through the reworked universities of the last decade assume greater power within corporate America, this process is likely to intensify. The idea that people will grow out of it will prove, I suspect, to be wishful thinking. It is true that youthful conviction (mercifully) can often fade, but self-interest rarely does, and playing woke is likely to be the route to promotion, power, and cash, not only for now, but for the foreseeable future, as this way of thinking becomes more deeply entrenched within corporations.
There’s no reason to think that this has changed.
As for the broader issues of ESG and stakeholder capitalism, as welcome as the pushback from the red states against them may be, it is only the beginning of what will have to be a very long struggle. But still, it’s not the only piece of good news. The energy crunch that followed the Russian invasion of Ukraine has led some ESG advocates to reconsider, at least in the short term, their absolute hostility to fossil fuels. Equally, the absurd claims that ESG is a way of doing well by doing good are, after the last two years, looking a little tatty, thanks not only to poor returns but also to intellectual demolition jobs by the likes of New York University finance professor Aswath Damodaran (I have discussed his work here, here, and here). It’s also encouraging that the behavior of ESG’s duopolistic helpers, the proxy advisory firms, has come under overdue scrutiny. Another positive: Three of the largest investment-management firms have been taking steps to give more voting power to clients, who are the underlying investors in the shares these firms hold.
However, the central tenet of both stakeholder capitalism and ESG — the destruction of shareholder primacy — will not itself be so easily disposed. The bonfire of shareholder rights warms too many hearts (we live in a collectivist age) and comes with powerful incentives for those who would like to see them burn, as I (yes, me again) discussed in a Capital Letter last month:
ESG and stakeholder capitalism continue to be pathways to a job, wealth, and power.
I’ve written (frequently) before about the way that ESG, “sustainability,” stakeholder capitalism, and other aspects of the ever-expanding climate-policy regime have created an ecosystem in which many businesses (consultants, professional advisers, financial types selling ESG products, and all the rest) have flourished. The owners of those businesses, and those who work for those businesses and, those who work in jobs created within other enterprises to enable them to adjust to this new regime — heads of sustainability here, heads of diversity there . . . well as all those who report to them — represent a formidable lobby against any retreat from ESG. And the same is true of those sections of the administrative state (and those who work for it) being given the responsibility of policing how businesses live up to the commitments they have made in the name of ESG or the climate, a process that has also enabled a disturbing amount of regulatory mission creep.
And don’t look to CEOs or, indeed, to other senior executives, to risk the career damage that could come from pushing back against ESG. Not only are they under pressure from the large institutional shareholders who, to a greater or . . . lesser extent, have embraced ESG and stakeholder capitalism, but they are well incentivized to play ball. Diluting the importance of shareholder-friendly financial targets, makes it easier for them to get well paid, but, on top of that, the combination of ESG and stakeholder capitalism enables them to use their shareholders’ capital to buy them a seat at the corporatist table, seats that generate both power and yet more profit.
ESG has made its way into business schools too, another significant marker of the way that it has become established and of the way that it will continue to be established.
ESG, stakeholder capitalism, and woke capital are going to be with us for quite some time.
The Capital Record
We released the latest of our series of podcasts, the Capital Record. Follow the link to see how to subscribe (it’s free!). The Capital Record, which appears weekly, is designed to make use of another medium to deliver Capital Matters’ defense of free markets. Financier and NRI trustee David L. Bahnsen hosts discussions on economics and finance in this National Review Capital Matters podcast, sponsored by the National Review Institute. Episodes feature interviews with the nation’s top business leaders, entrepreneurs, investment professionals, and financial commentators.
In the 104th episode, David is rejoined by the economist Lacy Hunt for a meaty and needed conversation about the “spender of last resort,” the Federal Reserve, the state of inflation, and expectations for bond yields in a world not having enough kids.
No Free Lunch
David has also launched a new six-part digital video series, No Free Lunch, here at NationalReview.com. In it, we bring the debate over free markets back to “first things” — emphatically arguing that only by beginning our study of economics with the human person can we obtain a properly ordered vision for a market economy.
The series began with a discussion with Robert Sirico of the Acton Institute. Later guests include Larry Kudlow, Dennis Prager, Hunter Baker, Ryan Anderson, Doug Wilson, and Ted Cruz.
Yes, the six-part series now has seven parts.
Enjoy.
The Capital Matters week that was . . .
The Fed
John Greenwood and Steve Hanke:
The Fed is realizing losses because it is paying out 4.4 percent interest on reserve balances of $3 trillion and 4.3 percent interest on reverse repurchases of $2.5 trillion, but yields on long-term Treasury securities held on its balance sheet are substantially lower. If that’s not bad enough, these losses are likely to become even larger, at least in the near future. This means that the Fed won’t be laying any more golden eggs for the Treasury in 2023.
Where did the Fed go wrong? When the Fed was founded in 1913, one of the key justifications was to provide an “elastic” currency — a system that would expand the stock of money when needed and withdraw it subsequently. But in the face of the Covid crisis, the Fed produced an unprecedented amount of money and never withdrew it . . .
Steve Hanke and Caleb Hoffman:
Thanks to the Federal Reserve’s monetary mismanagement, Americans are suffering from economic whiplash. Americans enjoyed a post-Covid economic boom. Then, they were hit with high inflation. Now, they are staring down a recession in 2023. How did this happen in just three short years?
All roads lead to the Federal Reserve, where chairman Jerome Powell has rejected the quantity theory of money (QTM), a theory which states that inflation and economic growth are inextricably linked to the money supply (measured by M2). It’s a theory that was famously championed by Milton Friedman, who was unquestionably the master of monetarism (read: the QTM) . . .
Antitrust
Last week for Capital Matters, Jessica Melugin wrote about how the FTC is using Robinson-Patman to go after soda companies for their pricing. She noted many of the same deficiencies in the theory undergirding Robinson-Patman that Muris noted in his piece. That’s because these concerns are long-standing and well known to anyone who has studied antitrust over the past 50 years.
But progressives want to use the FTC for a political agenda, and the Robinson-Patman Act is a tool in their toolbox. The question is: Why didn’t Congress remove this tool a long time ago?
Since the FTC had essentially stopped enforcing Robinson-Patman for decades, Congress may have felt it unnecessary to do anything about it. The current FTC is now demonstrating why that feeling would be incorrect. Rather than leaving a bunch of statutory residue in the U.S. Code, Congress should have repealed Robinson-Patman when the FTC and Department of Justice both decided to stop enforcing it. Because Congress didn’t repeal it, progressives at the FTC can now use it to pursue a political agenda disconnected from sound economic theory . . .
ESG
Resistance to environmental, social, and corporate governance (ESG) investing is taking center stage in a number of Republican-leaning state legislative sessions this year. The question is how red states can prevent asset managers from investing their states’ funds — or exercising shareholder rights (such as proxy voting) — to advance ESG-related political and social goals rather than maximizing returns for beneficiaries.
There are currently two, similar pieces of model legislation designed for states to achieve this goal — the American Legislative Exchange Council’s (ALEC) State Government Employee Retirement Protection Act, and the Heritage Foundation’s State Pension Fiduciary Duty Act. To date, legislators in six states have introduced fiduciary-duty legislation, and at least as many more are expected to do so soon . . .
It was time to say, “No more.” Last year, the State Financial Officers Foundation and its members decided to take on the insertion of environmental, social, and governance (ESG) investing into state finance. The challenge was not only to raise awareness of what had been an arcane subject, but to take the lead with substantive action in pushing back against those who would weaponize Americans’ pension and investment dollars to advance a political agenda . . .
A friend flags this item from Axios. Corporations that had made a lot of noise about social justice as recently as 2020 have suddenly gone silent . . .
While Greene is correct to be concerned with the effects of existing ESG priorities, the ESG model should not be wholly dismissed. Rather, ESG offers a useful template to conservatives, free marketeers, and the fusionist Right. A reconfigured ESG could enable the Right to exert influence over economic and social outcomes without resorting to the cudgel of government policy. Bloomberg, it turns out, has a point.
As opposed to the Economist’s recommendation to pare ESG down to the “E” — and to truncate environmental concerns solely to greenhouse-gas emissions — a more conservative approach would be to pivot in a different direction and emphasize sound corporate governance, national resilience, and constructive social policy . . .
Energy
A frequent characteristic of central planning is an insistence on speed. Production must be pushed ahead! Targets must be hit! That the timetable makes no sense and may even damage the quality of what is being produced is almost never the concern it should be. This is especially true when the central planners decree, as they so often do, that there is a “crisis.” Indeed, that’s often their excuse for getting involved in the first place. As we all know (or should know) by now, good ol’ climate change has become the climate crisis, the climate emergency, or worse: Climate chaos! There is a “race,” we are told, to hit net-zero greenhouse gas (GHG) emissions.
This is the attitude that is likely to lead to disarray in the wake of the rollout of electric vehicles, and this is the attitude that has led to solar and wind energy being assigned primetime roles before they are ready for them . . .
Tax
Congress recently gave the commissioner of the Internal Revenue Service (IRS) a chauffeur as part of a $1.7 trillion spending bill that nobody actually read. In another such bill, Congress required reporting of individuals’ payments of as little as $600. The hypocrisy, and the problem, arise from Progressive Era reforms that centralized power in the federal government and created the income tax.
Worse, however, is the deep and serious inconsistency between the income tax and our nation’s foundational protection of privacy, the Fourth Amendment. In tax investigations, the courts essentially give the IRS carte blanche to seize and search financial information without regard to constitutional limits. The modern era of digitization has made this hugely consequential for our financial privacy, personal autonomy, and security . . .
China
China’s housing market is a wreck, and a heady blend of regulatory capture and corporatism smirks at the devastation. The Chinese people, promised future homes after paying mortgages for years, are finding out there many never be a unit with their welcome mats before the door, as firms pull up stakes and abandon the projects . . .
Regulation
Jonathan Wolfson and Matthew Nolan:
States should follow Kentucky’s lead and require every regulation to sunset, or expire, after a fixed period of time. This prevents outdated, contradictory, and unhelpful regulations from needlessly burdening job-creating businesses for decades. And it allows regulatory agencies to renew the most important regulations tailored to target each state’s most pressing problems . . .
When the mural was unveiled, it showed the sun rising over Mount Washington, except the mountain bluffs were majestic confections — donuts and other pastries against the sun’s rays. The community was delighted by the quirky, whimsical mural, which would now adorn the front of the bakery above the door. It is exactly the type of local art project that gives small towns their unique character.
But the pointy-nosed bureaucrats in the town’s code-enforcement office weren’t as excited.
A week after the mural went up, the town informed Young that the donut painting wasn’t “art,” it was a “sign.”
Immigration
As countries around the world witness slowing population growth (China just reported negative population growth for the first time on record), many, including America, are also experiencing a shortage of workers, which is, in part, contributing to wage inflation (thus adding to an inflationary spiral kicked off by enormous amounts of government spending).
An easy way to ameliorate the worker shortage, without going down the controversial path of policy related to undocumented immigrants, is to help high-skilled foreign workers who are legally in America — and already approved for green cards — stay in America . . .
Transportation
Last year, it was a common refrain that the market for ocean freight was insufficiently competitive. It was, according to Elizabeth Warren, yet another supposed example of a handful of powerful firms using their unfair market power to raise prices and gouge consumers. Congressional Democrats introduced legislation to change antitrust law and allow government to go after ocean carriers with more vigor. Joe Biden claimed to be “viscerally angry” that there are “nine major ocean-line shipping companies that ship from Asia to the United States” in a speech at the Port of Los Angeles.
The legislation didn’t pass, the ocean carriers weren’t broken up, and Biden’s anger has apparently subsided. Yet, ocean-freight rates have returned to roughly their pre-pandemic levels, and ocean carriers invested so much in new vessels that they are struggling to figure out what to do with them . . .
Industrial Policy
This is an excellent example of how national-security justifications for economic policy can and will be warped to suit the aims of politicians and bureaucrats. You were sold a bill that would help pay for some semiconductor factories; you might end up getting a Democratic commerce secretary (who, as Will points out, may have presidential aspirations) attempting to transform American society . . .
Debt Ceiling
Markets, should this coin materialize, would react differently. Indeed, the bond market, on hearing of the $1 trillion coin’s successfully circumventing the problem of the debt limit, will expect this practice to recur regularly. We minted a coin for the debt ceiling. Will we now mint more for climate subsidies, aid to Ukraine, stimulus checks, building border walls, re-shoring tech supply chains, saving the whales, or just building good old-fashioned bridges to nowhere? And why stop at $1 trillion? When’s the $5 trillion coin coming? That’ll really get the spending party started . . .
Jon Hartley and Jackson Mejia:
The trillion-dollar coin would, in essence, permanently add new currency to the liability side of the Fed’s balance sheet. This type of money creation sharply contrasts with the quantitative-easing strategies of the past. With quantitative easing, the Fed issues temporary bank reserves to fund bond purchases rather than issue new currency altogether. According to research by one of the co-authors, quantitative easing has a marginal effect on long-term bond yields and minimal effect on inflation. On the other hand, economists since David Hume have known that helicopter-money drops — which are permanent additions to the balance sheet — are highly inflationary. A trillion-dollar helicopter drop, which would equal about 5 percent of the M2 money supply, would be one of the largest in American history . . .
Social Security
Timothy Taylor has a blog post at Conversable Economist helpful for framing the conversation about retirement ages and entitlement programs. With French president Emmanuel Macron facing protests over raising his country’s retirement age from 62 to 64, and the United States facing Social Security and Medicare insolvency, it’s worth looking at the facts . . .
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Please note that there will not be a Capital Letter next week owing to travel plans.