Book review: ‘Davos Man’ stands behind your ESG fund

Book cover for the book Davos Man, of a plane that flies out of the earth covered in fire.

Is the undemocratic spirit of the Davos Forum behind your ESG fund?

That seems like a strange question, but Peter Goodman, a New York Times economics correspondent, gives a convincingly affirmative answer in his new book: Davos Man† While the book addresses in-depth questions about the relationship between corporations and government, it’s far from a philosophical treatise — it relies instead on detailed reporting to show how capitalists convince themselves that the profit motive always leads to just public policy. .

Davos Man derives much of its power from heady but cynical vignettes. Goodman picks Salesforce founder Marc Benioff for evading corporate tax, BlackRock chief executive Larry Fink for its hefty trade debt it helped assess the government, and Blackstone founder Stephen Schwarzman for tossing real estate in low-income communities after raising taxes. the rents. Along the way, he quotes the billionaires on their moral virtue and candor, while expressing concerns about wealth inequality, low union participation, and lack of enforcement of antitrust laws.

This approach may deter some diehard capitalists, but Goodman has the charm of an older kind of reporter, now nearly extinct, who at least doesn’t shake up his wealthy subjects.

The annual meeting of the World Economic Forum in Davos, the Swiss Alps resort town where heads of state and business titans sit alongside rock stars like Bono and Mick Jagger, is the source of an inspiring idea behind ESG (environmental, social and governance) investing.

Economist Klaus Schwab, who founded the World Economic Forum and served as its executive chairman, also developed “stakeholder capitalism,” which is the idea that corporations are accountable to various constituencies affected by their operations — shareholders, employees, customers, the environment. basically everyone.

This idea animates the Alpine event, and it seems to be in stark contrast to Milton Friedman’s notion of “shareholder capitalism,” which holds that the company’s sole responsibility is to maximize shareholder profit.

But Goodman shows that stakeholder capitalism is, in fact, a greater amplification of capital’s power, because it assumes that corporations will handle political matters better than governments — even if they aren’t democratically elected to do so or not. Friedman never had that in mind for business, which he assumed would be more or less (hopefully) under the thumb of government.

“The word stakeholder is a talisman for Davos Man, its use reflects lofty principles … a demonstration that the speaker cares about loftier things than the gross enrichment of shareholders,” Goodman says.

But stakeholder capitalism, according to Goodman, is just a cover for Davos Man’s concern for the outcome and ambition to control those who claim to rule him.

After lowering corporate tax rates, sending jobs to places with the cheapest workforce to boost returns for shareholders — and, in the process, exacerbating inequality in developed countries to the point of encouraging populism and authoritarianism – Davos Man shows his true genius by winning the world to accept him as the source of just law and order. Anyone who disagrees, especially by defending higher tax rates or greater wealth redistribution, is simply anti-capitalist.

In other words, the usual means by which we have smoothed out the rough edges of capitalism in the past – government – “has been distorted by the billionaire class.”

The Fink Link

The most direct link between capitalism wanting to control government policy and your ESG fund is Larry Fink. Goodman cites Fink’s 2018 BlackRock shareholder letter to outline stakeholder capitalism: “To thrive over time, every company must not only deliver financial performance, but also demonstrate how it contributes positively to society.” .’

Fink has grown BlackRock into a $7 trillion wealth manager. He has also made the behemoth a leading provider of ESG funds, the fastest growing segment of actively managed mutual funds. This is a profitable move for BlackRock shareholders (though not necessarily investors in the company’s funds), as actively managed funds, ESG or not, can charge much higher fees than the cheapest index funds.

In the 36-month period to March 2022, global inflows to funds with a particular “sustainability criterion” (another abstract replacement for “ESG”) in their prospectus exceeded $1 trillion, according to Morningstar. BlackRock’s sustainable funds alone, including those of its iShares division, totaled $190 billion over that period.

But the benefits for billionaires and large corporations are much broader than the additional management fees.

After Fink’s 2018 shareholder letter and Jamie Dimon’s updated Statement of Purpose of the Corporation in 2019 stating that business would no longer focus solely on making money, “the billionaires had changed the view of business in the popular imagination, by themselves.” to be transformed into a source of vitality. and good, in contrast to the alleged incompetence of the government,” Goodman writes. “The executives were benevolent masters of their domain, their virtue impeccable, so any counterweight could be given away as gratuitous hindrances to their dynamism.”

Huntington the seer

Capital depriving democratically elected governments of public policy control helps us get to the source of the phrase “Davos Man,” which Goodman acknowledges came from the late political scientist Samuel Huntington.

Huntington coined the phrase in a 2004 essay called “Dead Souls: The Denationalization of the American Elite,” referring to the World Economic Forum in Davos and the typical itinerant capitalist forum visitor with weak loyalty to a particular country at best. (Huntington also referred to this character as a “gold-collar worker” or a “cosmocrat.”)

Davos Man is out of politics, a cosmopolitan who strides the world and lives for the profits he can make by buying materials here, assembling them there, selling the finished product in third place and his executive offices in still fourth. jurisdiction (usually the one that will apply the lowest tax rate to its businesses).

Huntington’s newspaper had a somewhat conservative tinge and worried about the soul of Davos Man, including the loss of patriotism and religion among the wealthy.

It also anticipated political instability. “Significant elite elements are increasingly separated from their countries, and the American public, in turn, is becoming increasingly disillusioned with his administration,” wrote Huntington — 12 years before Donald Trump was elected president.

Goodman is more interested in how wealthy elites are eating an increasing slice of the economic pie, which may also have been a factor behind Trump’s 2016 victory.

The differences between Huntington and Goodman give an indication of how the Democrats in the US have a lively anti-Establishment progressive wing, while at the same time the Republicans are now just the anti-Establishment populist party.

Progressive Democrats and Republicans alike, along with populist movements in other Western liberal democracies, can be viewed as hostile to Davos Man’s full-scale conquest of liberal democracy, which many believe no longer works for them without capital.

That means your ESG fund may be the latest stage of how capital has conquered liberal democracy, but has also left it vulnerable to populist and authoritarian reactions.

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