Here today, gone tomorrow?
On Tuesday, the chief
executives of the world’s largest public companies will be receiving a letter
from one of the most influential investors in the world. And what it says is
likely to cause a firestorm in the corner offices of companies everywhere and a
debate over social responsibility that stretches from Wall Street to
Washington.
Laurence D. Fink, founder and
chief executive of the investment firm BlackRock, is going to inform business
leaders that their companies need to do more than make profits — they need to
contribute to society as well if they want to receive the support of BlackRock.
Mr. Fink has the clout to make
this kind of demand: His firm manages more than $6 trillion in investments
through 401(k) plans, exchange-traded funds and mutual funds, making it the
largest investor in the world, and he has an outsize influence on whether
directors are voted on and off boards.
“Society is
demanding that companies, both public and private, serve a social purpose,” he
wrote in a draft of the letter that was
shared with me. “To prosper over time, every company must not only deliver
financial performance, but also show how it makes a positive contribution to
society.”
By J.M. Hamilton (11-5-2018)
If the obituary for
capitalism is ever written, among the key factors in its demise will likely
be: its complete moral collapse;
concentrated – economic & political - power into too few hands (to the
detriment of nation states & society as a whole); and an inability to
provide an acceptable standard of living, enough well paying jobs, and
opportunity for the majority of the globe’s citizens.
The idea that capitalism
is at the crossroads, and possibly flirting with disaster, and certainly hanging
w/ the wrong crowd, is not as far fetched as it sounds. Empires thrive and wane. Monarchies in the eighteen, nineteenth, and
twentieth centuries were considered to be the foundation of good government –
at least by the aristocracy – until they were consigned to the dustbin of
history. The Czar and his ministers,
here one day and gone tomorrow, replaced by communists and the Union of Soviet
Socialist Republics, until they too, were: here today, gone tomorrow (but not
before becoming a military superpower w/ the aspirational objective of world domination).
It doesn’t seem
inconceivable. As JMH predicted,
establishment political parties throughout the West have been falling like
dominos, one after another… w/ the latest being, Brazil and Germany. The centrist parties - based upon an economic
foundation of neoliberalism & free trade (dictated by multinationals), and
a political foundation of allowing the oligarchy/political patrons to loot governments, while insisting upon austerity for everyone else – have failed a
great many citizens. In fact, the
majority. The public has responded, and in
doing their democratic duty, have turned out centrist parties that have
bankrupted nation state, after nation state.
The public, in turn, and throughout the West, is looking for a new earthly
messiah. In many instances, that savior
comes in the form of a strong man or woman, a right-wing authoritarian (who consistently, scapegoat migrants & minorities as the problem, when it's the economic system itself). While in the recent German election w/in the
state of Hesse, left of center Greens doubled their popular vote haul to
20%. Populism comes in many stripes
& flavors.
So if the West’s citizens
are willing to overturn governments and centrist parties, who through gross
fiscal mismanagement have racked up unsustainable amounts of nation state debt
in favor of the oligarchs, and the resulting populist parties, ultimately, are not
able to perform as expected, or become co-opted into the mainstream (i.e.
become the next centrist parties) --- as the financial establishment/elites use national debt, and markets, as a means to defang & discredit populist parties --- it’s only a matter of time before citizens turn their attention to
the puppet masters (a/k/a CEOs of multinationals, the financial elite, and the
billionaire class), and demand economic & financial market reforms, if not
outright socialism.
Yes, many democracies
have checks & balances established against the various branches of government,
but where are the checks & balances against the obscene amounts of
concentrated wealth w/in this Neo-Gilded Age?
Under the
financialization of the economy – where banking, hedge fund, and private equity
own nearly everything and dictate public policy through campaign contributions,
dark money, and lobbyist - we’ve seen, in the late 20th and early 21st centuries, the very worst of what capitalism has to offer. Private
equity, in particular, uses unseemly amounts of debt to front load profits,
dodge paying taxes, eviscerate the middle and working classes, and burn the tax
base and government with it. All too
often, PE shafts their bondholders & provides subpar returns to their shareholders, as well. (The private
equity biz model is so malevolent that Germany’s Spiegel magazine once likened
its dark arts to a plague of locusts; the private equity model has become so
ubiquitous – and requires so little thought – that it is now deployed as matter of
corporate policy, even in publicly held companies, under the rubric of
financial engineering.) Once a corporation - and its bondholders - have been looted by said private equity firm, there is nothing left, but a
huge gaping hole, that cartels and monopolies are only too happy to fill.
All forms of power, even
economic, abhor a vacuum.
And so
it is with the moral collapse of capitalism. Google employees marching the streets over
C-Suite sexual harassment, & protesting over DOD contracts and development
of a censored search engine for Communist Red China; Senator Sanders extracting
living wage concessions from Amazon (thwarting monopsony power); California
initiatives and referendums taking political power back from oligarchy owned
centralized/state government. The economic & political pressure is
mounting, not merely to remove owned centrist political parties, but also to
address the unseemly influence & power of the billionaire class.
In short the financial
elite, increasingly, have a credibility problem. For instance, how to square a dying planet in flames with the power elite’s inability to quit Big Oil (particularly when
renewable technology is abundant & readily available)? How does a sitting US President (from both
political parties) rationalize selling billions in military weaponry to the
most nefarious regime on the planet, so the Saudis can commit war crimes? And how is it Wall Street, and national
banks, blow up the global economy, contributing to the bankrupting of the federal
government in the subsequent bailout process… only to continue, unabated, the
greatest crime wave ever seen, since the 2008 crash? (Such are the perils of placing one’s entire
economy into the hands of monopolists… citizens, as well as political leadership,
are basically at their mercy; such is the power of capital flows & capital
strikes).
Meanwhile, despite low
unemployment, wages stagnate in our monopoly/monopsony economy, which is just
another coercive, and highly manipulative, form of wealth transfer. Not only is the government rigged, but the
private sector is even more rigged: against you, the consumer, and you, the employee.
Things are so bad, and
the writing is so clearly on the wall, that none other than Blackrock’s CEO,
Mr. Larry Fink, writes an epistle to CEOs telling them to clean up their act,
and not only grow a social conscience, but to deliver. Operating the world’s largest asset
management firm, Mr. Fink certainly, has the power – the power of imprimatur
& leverage – to push such an agenda with the companies and countries Blackrock invests in and services, respectively. But as w/ many CEOs, the language & talk
all too often dissipate and fall short of real actions.
Does Blackrock invest in the military industrial complex, which is so pervasive & powerful, that in no
few instances, it drives US foreign policy decision making? Often in ways that are unconscionable? Yes.
Does Blackrock work w/ highly repugnant global dictatorships, including Saudi Arabia? Yes again.
Does Blackrock invest in job killing private equity firms, and provide capital to same? Yes.
And the list could easily
go on.
In short, there’s a
sizable chasm between Mr. Fink’s words to his fellow CEOs and his, and
Blackrock’s, actions.
Fortunately, not all CEOs
and entrepreneurs are the same. Elon
Musk, of Tesla fame, manufacturers planet soothing electric vehicles in
defiance of Big Oil; and despite engaging, previously, with the Saudis about
possible financing for taking Tesla private, Mr. Musk came out against Saudi
financing last week.
Reasons Mr. Musk may have considered in his Saudi decision: war atrocities in Yemen to
serial human rights abuses w/in the Terror Kingdom; the selling of a genocidal
petrol product; and the financing & spread of terror globally, all the way,
to killing a Washington Post journalist (who merely had the audacity to write
the truth about the Saudi monarchy).
Whether he was a
recipient of Mr. Fink’s letter or not, Mr. Musk – whose skills & talents
are considerable – seems to have chosen an ethical path.
Shame that Mr. Fink has not followed through in a more socially conscious manner. The two business leaders then define the
dichotomy found in capitalism today: one
leader – increasingly rare - is providing a highly innovative products array
that challenges entrenched interests & the status quo, and presents evolutionary change for the
betterment of mankind & planet; the other leader is still in bed w/ rent seeking ventures, dictatorships, the military industrial complex, and the most evil form of
capitalism on the planet today, the private equity business model.
Capitalism will
undoubtedly play some future role in the global economy. This writer, however, fully anticipates that the
predatory economic institution capitalism has become – one dominated/marred by cartels
& monopolies, a debt explosion, the looting of governments, and financial
engineering (all of which works at cross interests w/ the majority of the
Earth’s citizens) - has a limited future.
The people are woke, and
the blowback is just beginning, in ways both real and unimagined.
Crony capitalism, cartel
& monopoly, and the private equity model, like the monarchs of old: here today, gone tomorrow?
P.S. Happy Guy Fawkes Day!
Copyright JM Hamilton
Publishing 2018
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