Crazy after all these years
ESG investing often marches under the same banner as “stakeholder capitalism,” which maintains that corporations owe obligations to a range of constituencies, not only their shareholders. Erisa [the Employee Retirement Income Security Act] requires something different of retirement plans, however: A fiduciary’s duty is to retirees alone, because under Erisa one “social” goal trumps all others—retirement security for American workers.
By J.M. Hamilton 8-9-2020
Late cycle neoliberalism appears to center on two central business models: either becoming so monolithic, that said enterprise becomes a nation state (the Silicon Valley approach); or strip a firm bare, bust out its credit line, slash labor, and extract rents from the consumer before the horse gives outs (the Private Equity/Wall Street method).
At the center of these two business models are two central themes, the desire to control every aspect of the business environment, to better ensure profitability, and given what we’ve seen as of late, a whole lot of crazy.
And the methodology for attempting to control the business environment has been well documented:
Competition… Eliminate or merge w/ it and become bigger;
Government & Regulatory bodies … co-opt, capture, and own;
Consumer… Make sure you’re the only game in town, so said consumer has few or no alternatives;
Labor… Utilize monopsony power, destroy unions, and line the Federal Courts & SCOTUS with reactionary/anti-labor jurists;
Taxation… Dodge it at all costs to starve the government of revenue;
Monetary Policy… Free money for financial engineering, industry consolidation, speculation, and to finance unearned dividends; and
Consolidation & monopoly… achieve zero oversight and M&A w/out limit.
And it is this very desire to control & guarantee profits that has led to government paralysis in a time of crisis. A nation governed by special interests – by profit motive – to the exclusion of all other considerations – is a nation destined for collapse. The U.S. and the world are witnessing the culmination of special interest rule – profit rule (i.e. neoliberalism) – with the Trump Administration’s badly botched pandemic response. A nation drowning in debt, bailing out banksters & financing credit card wars… certainly is ill prepared for a true existential threat.
And as the two aforementioned business models become preeminent, the more we see American companies, government, management, and ownership do & say crazy.
See Elon Musk praising communist China and telling America and US labor that basically - I paraphrase - they suck.
We read that the Private Equity model is so ubiquitous that 20% of all US corporations are now zombies, per Deutsche Bank… that is, so indebted, and so lacking in income, that they can’t make their interest payments. Welcome to deadbeat Corporate America, brought to you by unmitigated greed and the Federal Reserve.
Americans survive the virus only to go immediately into bankruptcy with million-dollar medical bills, as private equity – not content to have destroyed American retail – dives into US healthcare. And if you think Americans pay the most, per capita, for healthcare (w/ substandard outcomes), the United States hasn’t seen anything yet.
PPP, under the CARES Act, is raided by the connected and powerful – a program designed to keep small business afloat – only to see thousands of Main Street and family run enterprises go under.
Then there’s the optics of Trump attacking, perhaps, the only Western nation the United States runs a trade surplus with, Canada, when including services. Trump's latest tariff on Canadian aluminum smacks of desperation, election year theatrics, and misdirection.
Meanwhile, the stock market indexes are right on top of or, in the case of the NASDAQ, have blown though pre-pandemic highs, while GDP dropped like a rock. It seems gutting aggregate demand – screwing the U.S. consumer/labor – isn’t such a smart business practice after all.
And finally, there was the visual of four Tech Utility CEOs completely choking in front of Congress. And Dems, actually, surprisingly, appearing to have done their homework, unlike the billionaires in the docket defending their monopolies. Post- November, it will be time to ramp up the FTC and Justice Department and to immediately begin breaking up the Tech Utilities.
Absolutely strange, but perhaps the most surreal story JMH read in the last two weeks was the Bloomberg piece on Labor Secretary Scalia. Going along with the themes of controlling your environment (good luck with that), and doing crazy, Mr. Scalia’s bright idea is to dictate to pension/retirement fund managers that they must invest based purely on shareholder value and short-term returns (irregardless of all other considerations).
Mr. Scalia’s proposal, of course, is in retaliation to stakeholder capitalism and sustainable investing, or ESG investing, which is a direct affront to a huge GOP donor, Big Oil & Gas.
Scalia appears to have tapped into the ultimate forms of control and crazy: Telling fund managers exactly how they must invest.
Perhaps Mr. Scalia hasn’t noticed… but if America’s pension & retirement funds were to take up Mr. Scalia’s proposal, the first stock to dump – based upon a shareholder first focus – would be the planet killing, Big Oil stocks (which have been crushed by the pandemic). And these stocks will, likely, suffer additional fallout, before this crisis is over.
All of this is very odd. The more the GOP and their corporate supporters beat their chest about freedom and the evils of socialism, the more their actions betray them as dictators in love with big government & welfare for the 1%.
Copyright JM Hamilton Publishing 2020
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