The Distorted Market for Woke Capitalism

(Samuel Gregg, American Institute for Economic Research) The founder of modern economics, Adam Smith, was no fan of the merchants of his time. He regarded them as among the most responsible for how “the mercantile system,” as Smith called it, accorded legal privileges to politically connected producers over the interests of consumers.

Nor did Milton Friedman have a particularly sympathetic view of the business leaders of late-twentieth-century America. “The two greatest enemies of free enterprise in the United States,” he wrote, “have been, on the one hand, my fellow intellectuals and, on the other hand, the business corporations of this country.”

Whenever I inform students of Smith and Friedman’s unflattering opinions of the business community, they are invariably shocked. But their eyes start opening when I point out that large established businesses don’t actually like competition, aren’t wildly excited about other people’s new ideas and products threatening “their” market share, and are quite happy to hop into bed with complaisant legislators to use state power to make life difficult for new and potential competitors.

At this point, students begin realizing that to be pro-market is not the same as being pro-business. The two are at odds in some very important ways.

This is one way of understanding the phenomenon of “woke capitalism,” and it features in Vivek Ramaswamy’s Woke, Inc: Inside Corporate America’s Social Justice Scam. For if there is anything that characterizes woke capitalism, it is the desire—like the mercantilists of old—to exclude (ironically, in the name of tolerance, diversity, equality, etc.) particular individuals and groups from “their” markets and corporate America in general.

In the case of woke capitalists, the excluded is anyone who doesn’t embrace all the usual progressive orthodoxies or who won’t play the woke game to go along to get along.

But Ramaswamy provides other insights into the underlying rhyme and rhythm of the woke capitalist phenomenon that have long needed wider attention. Part of it is about profit—or at least near-term profit—and locking in political support against potential market competitors to achieve that end. Yet corporate wokeness is also fueled by some serious self-righteousness on the part of prominent business leaders. In many cases, this reflects their embrace of the Gospel of sentimental humanitarianism.

Of course, they are hardly the only adherents of the new faith. But woke capitalists, thanks in part to their impeccable connections with the political class, are able to marshal considerable resources behind their beliefs. And it’s not just consumers who pay the price. It’s the American body politic as well.

That toxicity emerges again and again in the various vignettes that Ramaswamy offers to illustrate his points. He highlights, for example, the selectiveness of the outrage that permeates much of the American business world. While there is a near-fixation with the Black Lives Matter movement (whose founding organization was, let’s recall, created by Marxists with the stated intention of doing all the evil things that Marxists typically do), Communist China’s effort to destroy its Uyghur Muslim community barely raises an eyebrow among the devout.

We also see how the near-obsession with diversity never quite translates into “Chief Diversity Officers,” as they are called, promoting diversity of political opinion, let alone protecting socially and religiously conservative views.

Even more disturbing is the way that Beijing has worked out how to play the woke deck of race-gender-green-social-justice cards to their advantage when dealing with corporate America. I found this erringly similar to the manner in which Chinese diplomats flung the rhetoric of critical race theory and the 1619 Project back in the face of a bewildered and hapless American Secretary of State in March this year.

Then there is the economic cost—something that Ramaswamy highlights in a fashion that other critics of woke capitalism so far haven’t. Many American business leaders have realized that one way to raise a lot of capital is to claim that a particular venture is grounded, for instance, on the ESG business model. It’s an approach likely to appeal to, say, wealthy progressives burdened with guilt about the size of their (often inherited) assets and who want their investments to battle climate change while simultaneously making money. How else could one live with oneself and yet maintain one’s economic and social status?

Here Ramaswamy underscores an adage familiar to anyone who knows anything about capital: “Good fundraising strategies don’t always make for good investment strategies.” The sheer amount of dollars being ploughed into ESG-approved schemes is resulting, Ramaswamy states, in asset prices rising “in the short run because there are more dollars chasing them due to the expectation they’ll keep rising. But that’s the logic of a Ponzi scheme.”

If market forces are allowed to prevail, Ramaswamy projects, the ESG bubble will at some point implode. I suspect that he’s correct.

Ramaswamy notes, however, that companies managing ESG funds are not stupid. In many cases, they have taken out insurance, and the name of that insurance is the government. The degree to which businesses peddling ESG schemes have managed to secure loans and outright grants from state authorities to manage the government’s own “sustainability standards” or to subsidize the development of assorted environmentally sensitive products is staggering.

It’s not a quid pro quo, Ramaswamy stresses. Nevertheless, it constitutes a type of ongoing reaffirmation by businesses and government officials of their mutual purity, with taxpayers being left to foot the bill.

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