BlackRock CEO Larry Fink in New York in 2018 (Shannon Stapleton/Reuters)

The week of January 17: stakeholder capitalism, Xi’s ‘common prosperity,’ climate, inflation, and much, much more.

It’s the time of year when Larry Fink, the chairman and CEO of BlackRock, comes out with his annual letter to CEOs, a letter in which he tells CEOs what he expects of them. As BlackRock marked the end of 2021 by passing the benchmark of $10 trillion under management, an impressive figure however you look at it, many CEOs will treat Fink’s thoughts with rather more respect than their shareholders or our democracy deserve — $10 trillion will do that.

It will be worth going through the letter in more detail at a later date. There are some newer topics to discuss, not least with regard to the beginnings of a worthwhile initiative to give clients an increased say on proxy votes. Suffice to say for now that the letter also includes some familiar themes. And so, by the second half of the third paragraph, there, with dreary predictability, is this:

Over the past three decades, I’ve had the opportunity to talk with countless CEOs and to learn what distinguishes truly great companies. Time and again, what they all share is that they have a clear sense of purpose; consistent values; and, crucially, they recognize the importance of engaging with and delivering for their key stakeholders. This is the foundation of stakeholder capitalism.

CEOs clearly know how to talk the talk to an important investor. There’s nothing wrong with that. What is worrying is that more and more of them have actually come to believe in its more malign aspects. Why? They, and many of their colleagues in the C-suite, have realized that, in a regime where stakeholder, rather than shareholder, capitalism is the dominant ethos in the “private” sector, their rewards will be less dependent on delivering value to shareholders (who can be a demanding bunch) than in the past. Rather, they will be expected to pay increased attention to the somewhat nebulously defined aspirations of their almost as nebulously defined stakeholders. In practice, that means putting “their” companies’ capital, and the power that comes with it, behind a social, political, and economic agenda set by the state, various interest groups (unions, say, or NGOs, to take two examples), and, yes, business, a set-up that may not only offer them a pathway to (in many cases, even more) wealth but also to a degree of political power. And the latter comes with the advantage that it is largely free of conventional democratic control. That’s how corporatism works — and stakeholder capitalism is, as I have argued many (!) times before, a form of corporatism.

Somewhat defensively (it seems to me), Fink goes on to argue that

stakeholder capitalism is not about politics. It is not a social or ideological agenda. It is not “woke.” It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper. This is the power of capitalism.

To say that those words need qualification is an understatement. To start with, stakeholder capitalism, at its core, has a great deal to do with politics. More precisely, it is about (as mentioned above) using corporate power to pursue, contrary to Fink’s claim, a social and ideological agenda, underpinned by a dream of society as some sort of unified whole (corporatism’s foundations are premodern). However, while stakeholder capitalism is ideological, the form of that ideology will vary with the vision of what that “whole” should look like. Fink argues that stakeholder capitalism is not “woke” and he’s right in the sense that it does not have to be. Unfortunately, in the U.S., the vision of society toward which corporatists are working contains a strong woke strain. Not only that, but those working toward that vision are well aware of the ways in which wokeness can be used for coercive means, if not always woke ends.

But that’s just the U.S. and, to different degrees, the modern European take. Corporatism (and by extension stakeholder capitalism) looked very different in, say, post-war West Germany or pre-war Italy. And it is being given a fresh twist with the fascism with Chinese characteristics that is emerging as the dominant ideology in a still nominally Communist state about which, incidentally, segments of Wall Street are either naïve or unhealthily admiring. For those looking to understand the nature of China’s latest transformation, the emphasis, at least in theory, that Beijing is putting on “common prosperity” is an intriguing indicator of the way that thinking is developing over there — and of how that thinking will be sold.

In June 2020, I wrote this:

Corporatism takes as its starting point the idea that society is best run through its leading interest groups, either alongside the ballot box, or, under fascism, in place of it. To fascist ideologues, it was a pathway to a harmonious national community, a “third way” that made redundant the class divisions that could tear a nation apart. Conveniently, this national community could be directed by a single party under, more conveniently still, a single leader.

A key part of the pathway to social harmony was, Mussolini claimed, “social justice” (a phrase, it seems, we are doomed to live with for eternity) and something to which the “selfish individual” will always be an obstacle. Mussolini’s claim is a reminder of the conflicting attitudes toward the individual percolating through corporatism. Corporatism rests on the assumption that most individuals are unable to protect or assert themselves on their own and so need the support that only the group (and/or the state) can bring if they are to flourish. But (to the extent that it is needed), the proof, however camouflaged, that this is a fundamentally collectivist ideology can be seen in the treatment of the individual who does feel able to strike out on his own yet finds himself criticized (“selfish”) — or worse — for his effrontery.

The other day Xi Jinping addressed a virtual Davos (where else?) and turned his attention to “common prosperity.”

The Financial Times reported some of what he said:

China’s “common prosperity” drive is not a pursuit of egalitarianism, President Xi Jinping said in a rare international defence of the policy that rattled markets from Hong Kong to New York last year . . .

“The common prosperity we desire is not egalitarianism,” Xi said. “We will first make the pie bigger and then divide it properly through reasonable institutional arrangements. As a rising tide lifts all boats, everyone will get a fair share from development, and development gains will benefit all our people in a more substantial and equitable way.”

Under the policy, spearheaded by Xi, the Chinese Communist party has sought to reshape the country’s business and cultural landscape via a months-long series of crackdowns. This has targeted industries including fintech, education and entertainment as well as perceived societal ills such as celebrity culture, gaming and effeminate fashion trends.

Xi understands the prosperity that capitalism can bring. Nevertheless, if insisting that some of its energy is directed (or reined in) to satisfy broader societal or political purposes means that China will see less growth than could otherwise have been the case, Xi can live with that.

Fink argues that stakeholder capitalism “is capitalism.” And so it is. But, as was or is the case with the other corporatist regimes described above, it is a harnessed capitalism. And harnessed capitalism should never be confused with the free-market variety.

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 National Review Institute. Episodes feature interviews with the nation’s top business leaders, entrepreneurs, investment professionals, and financial commentators.

In the 50th episode David Beckworth of the Mercatus Center at George Mason joins Capital Record. David is an international economist and renowned expert on matters of monetary policy. David and David look into the Fed, the way it is perceived by others, the false impressions many have about “natural” interest rates, and where policy decisions impact the ability of free markets to flourish. It is not a Fed-bashing party, nor is it a Fed celebration — just a good, honest look at a subject that many do not care about, but all are affected by.

The Capital Matters week that was . . .


Richard Morrison: 

As the old saying goes, it would take a heart of stone not to laugh. Large financial corporations are now being skewered in the Lone Star State as the anti-oil-and-gun virtue signaling they undertook to attract approval from liberals on Wall Street runs afoul of the pro-oil-and-gun commitments they made to gain access to state contracts in Texas. While the conflict might seem comical, the results will likely mean significant legal headaches for big players like Citigroup in the near future and greater skepticism of environmental, social, and governance (ESG) investing going forward . . .

Andrew Stuttaford:

I have no particular views on Unilever, but in a world in which it was understood that the primary purpose of a company was to generate return for its owners (the shareholders), Smith’s views would be regarded as common sense — and Jope’s not only as nonsense, but self-serving nonsense too.

Sadly, we do not live in that world. The importance that Milton Friedman attached to shareholder primacy is now regarded as rather grubby, beneath the dignity of the business and finance class, who would rather be working for their own idea of a higher purpose than, respectively, for their greedy shareholders or “muppet” clients, the two sets of unfortunates who ultimately pay their salaries. It is, of course, only a coincidence that ESG has given birth to a flourishing — and profitable — ecosystem within which countless people, including consultants and professional advisers of one category or another, as well as NGO types, academics, ambitious regulators, Wall Street hucksters, and business executives who would rather “answer” to a voiceless planet than noisy shareholders, can do very nicely indeed . . .


Andrew Stuttaford:

I do not know (of course) what the Russians’ next move with regard to Ukraine will be, although yet more cyberattacks seem as close to certain as anything might be. I do know, however, that the U.S. and its allies will continue to threaten sanctions should certain lines (a direct military “incursion”?) be crossed. That’s how it should be, and if those lines are crossed sanctions should follow.

But Russia is in a far better position to cope with economic (at least) sanctions than it has been in the past, and it knows it . . .

Supply Chains

Dominic Pino:

Thieves are stealing directly from Union Pacific freight trains in downtown Los Angeles, and the problem has exploded in just the past year.

According to Union Pacific, train robberies increased by 356 percent from October 2020 to October 2021. Lupe Valdez, a spokeswoman for the company, told CBSLA that an average of 90 containers are compromised per day. “I have been with Union Pacific for 16 years, and I have never, ever seen this situation to this degree,” she said. (Check out these photos from the Los Angeles Times, and you’ll see what she means.) . . .

Andrew McCarthy:

Packages stolen from Union Pacific cargo containers and then ransacked, thousands upon thousands of them, are regularly strewn along the tracks in the Alameda corridor that stretches through downtown Los Angeles. The scene is simply shocking (see, e.g., embedded video posted by the city’s CBS News affiliate).

Why is it happening? Because George Gascón, the paradigm “progressive prosecutor” who is L.A.’s elected district attorney, follows no-bail and wrist-slap policies, with burglary and grand-theft cases routinely pled down to trespassing, with no-incarceration sentences. Reminiscent of the high-crime 1970s, the criminals are back on the street, and back to the tracks, before the cops can finish the paperwork . . . if they bother to make arrests at all, given the pointlessness of the exercise . . .

Dominic Pino:

Supply Chain Dive reports that FedEx Logistics is starting a “congestion bypass service” by selling space on empty-container sailings for shippers. Instead of sailing to Los Angeles/Long Beach, these ships will sail to the Port of Hueneme, which is in Ventura County, less than 100 miles north of L.A.

According to FedEx, this alternate routing will save shippers 20 days of transit time from China to the U.S. compared with going through Los Angeles/Long Beach. Hueneme is close enough to Southern California’s logistics network that shipping there is feasible, but the port is not very large and wouldn’t be able to be a long-term substitute. The port authorities had to make an agreement with the Navy to accommodate the increase in container volume, and the FedEx-chartered ships will dock at a U.S. Navy terminal . . .


Andrew Stuttaford:

One of mankind’s great achievements has been the way that, across an ever-increasing part of the planet, we have reached a level of technological sophistication that has meant that we can go about our business without, extreme events aside, having to worry too much about what the weather is doing.

One of the countless ironies running through current climate policies is that that progress may be about to go into reverse, not because of climate change, but because of policies designed to combat it, and, more specifically, what looks more and more like a premature dash into wind energy . . .

Paige Lambermont:

When the EU Commission proposed that both nuclear and natural-gas power be given “green” designations in its “taxonomy for sustainable businesses,” Germany’s new unwieldy governing coalition made its displeasure quite clear. The German government is united in its opposition to the inclusion of nuclear but is divided over the inclusion of gas, with the Free Democratic Party and Social Democratic Party supporting it and the Green Party opposing it. Yet the country has also shown that its commitment to reducing greenhouse-gas emissions is predicated on unrealistic notions about what generation sources can be used to achieve its aims . . .

Mario Loyola:

Sheldon Whitehouse has staked his legacy on the persecution of “climate deniers.” It’s a cause for which he seems ideally suited: He is the sort of person who would have been perfectly comfortable persecuting heretics during the Spanish Inquisition.

Senator Whitehouse thinks that our collective failure to do anything serious about the climate crisis is the fault of the diabolical Koch brothers and the conservative think tanks that do their demonic bidding. In fact, the senator has only himself and his environmentalist allies to blame for the daunting obstacles facing any clean-energy transition . . .

Andrew Stuttaford:

If this (almost week-old) story is true, at a first glance it would appear to suggest that those running the European Central Bank may have lost their minds . . .X


Dominic Pino:

The Biden administration and key Democrats such as Senator Elizabeth Warren have trotted out a new idea about inflation: It’s caused by greedy monopolies. It’s not a monetary problem or a fiscal problem. It’s an antitrust problem.

Paul Glastris, editor in chief of Washington Monthlyasks why most economists have dismissed monopolization as an explanation for inflation. He’s responding to the Washington Post editorial board, which wrote a strong editorial against the idea. Glastris writes, “I’m not sure why the Post editorial board, much less economists like [Larry] Summers and [Dean] Baker, are so dismissive of the idea that monopolistic corporations might choose to exploit their pricing power at this moment of maximum leverage.” . . .

Bryan Cutsinger and William Luther:

Far from being unconventional, Chairman Powell’s view on inflation and unemployment is the norm among economists. He understands that high rates of inflation are costly and that the Fed can do little to push unemployment below the natural rate. Although the naïve Phillips-curve view was once fashionable, it is rightfully met with a snicker among economists today. It is the pastel bell-bottom leisure suit of economic ideas.

The Fed

Andrew Stuttaford:

It seems that mission creep at the Fed (although “creep” is becoming too leisurely a word) may be on the edge of speeding up once more.

The Wall Street Journal’s editorial board explains that President Biden “has a chance to remake the Federal Reserve Board of Governors by filling multiple vacancies.” It adds, not unfairly, that “this is especially important given inflation’s breakout, yet Mr. Biden’s latest nominees seem less worried about prices than pushing progressive policies that aren’t the Fed’s job.” Mission creep, in other words. And a spot of mission neglect, too . . .


Brian Riedl:

Being a left-wing institution certainly comes with privileges. Because such organizations’ research often serves the mainstream media’s preferred narratives, their new studies and reports can become news events in ways that comparable right-wing research wouldn’t. And for the same reason, media outlets often don’t bother to check their work before making it news.

So it is that in the past few days, CNNCBS NewsABC NewsYahoo, and others have run breathless articles highlighting a new Oxfam report on inequality that claims that “since the start of the pandemic . . . billionaires have seen their wealth increase by $5 trillion.” Unsurprisingly, these “news” articles read like fawning press releases and did not cite a single critic of the Oxfam report or of the general argument that the existence of billionaires is harmful.

Yet five minutes of research would expose the $5 trillion figure as flatly false . . .

The Metaverse 

Jack Butler:

In typical Silicon Valley fashion, this conception [the Metaverse] disregards the human and assumes that ever-greater penetration of technology that draws us away from the physical world is an unqualified good. Hence my primary concern with the metaverse — which other companies, not just Meta, will attempt to dominate — is that it will entice a great many souls into an ever-more-pervasive and thorough digital existence. Reality itself will become an afterthought. As Grayson Quay put it for us last year, virtual reality, the more “dystopian” of the two aspects of the metaverse, “fully disincarnates the user, placing very aspect of his reality in the hands of omnipotent Silicon Valley overlords,” while “the real world goes to pot.” And augmented reality blurs the line between real and fake, threatening a resurgence of Gnosticism, “the favorite heresy of all post- and trans-humanists.”


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