On the last day of 2021, the world’s most-listened-to-podcast on Spotify, The Joe Rogan Experience, aired a three-hour deep-dive interview with Dr Robert Malone, an early developer of the mRNA technology used in Covid-19 vaccines.
Malone has more recently been widely criticised for spreading disinformation about virus vaccines and the interview came just days before Malone’s Twitter account was suspended with the social media site citing violations of its Covid misinformation policies.
As is often the way with a Rogan interview, the conversation struck a public nerve and went viral. To say the interview was divisive would be an understatement. But it’s not what Malone said about vaccine policy which drew the attention of the serious people of ‘finance Twitter’.
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It was Malone’s reasoning as to why the pharma companies might be operating irresponsibly. “The overlords that own them,” Malone told Rogan, “BlackRock, Vanguard, State Street, etc, these large massive funds that are completely decoupled from nation states have no moral core. Their only purpose is return on investment. That is the core problem here.”
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For many of those who like to use social media to share market and economic insights, the statement seemed absurd. To suggest that BlackRock or Vanguard, which make their daily bread and butter from managing the assets of pension funds, unions and many more, were an omnipotent but malevolent force was misguided. The observation instantly implied Malone had major credibility issues.
Yet, when you unpick Malone’s statement, an iota of truth rings out. The structural reality of modern corporate control tends towards oligopoly. It may just have gone insufficiently scrutinised due to its sheer obviousness.
It’s not controversial to say that passive fund providers have too much power
In one way or the other — mostly via the shareholder votes they control — BlackRock, Vanguard and State Street, really do influence nearly $20trn of assets and as a result also the corporates that issue them.
Yes this influence is rendered in our names. But there’s a solid argument that this type of mass delegation of interest, especially via passive investment vehicles which dominate BlackRock and Vanguard offerings, could unwittingly be constraining the usual incentives that keep capitalistic economies in check.
The idea that index investing specifically may be warping capitalism isn’t new. One of the most prominent voices to have made the case that index funds could be worse than even communism was broker Sanford C. Bernstein & Co in 2016.
A note from the broker at the time observed that “a supposedly capitalist economy where the only investment is passive, is worse than either a centrally planned economy or an economy with an active market led capital management”.
The theory went that if investment flows to industry occurred on a very broad-brush and passive level, bad companies would go unpunished while good companies would have little to no incentive to keep adding value.
Eventually the incentive to try and outperform each other would disappear — a fact that could encourage potentially collusive practices that did little to add true economic value.
In recent years the environmental, social and governance (ESG) investing trend has come to address some of these potential misallocations. Even so, in being outcome- rather than profit-driven, ESG too has failed to address the collectivising forces that are skewing corporates towards maximising rent extraction above all else.
This raises other uncomfortable truths. Since the world’s largest asset managers disproportionately represent the wealth of older generations, they may also have an interest in encouraging corporate behaviours that favour those generations over younger ones. Maximising rents that can be drawn from younger generations at any cost may be the unwitting result.
In light of what is now being called the Web3 phenomenon, which aims in its own unique way to revive active personal management through new types of blockchain-based mutual structures, it’s an important point to dwell on for markets.
What might happen to valuations if and when users begin to understand the true power that resides in their personal engagement with corporates, both in terms of consuming their services and investing in their future growth? How might early-stage capital formation be impacted?
BlackRock’s recent decision to give a number of institutional clients the right to proxy vote on their stock holdings is just one indication of powerful democratising forces being afoot in the modern marketplace. Voices like Malone’s may be too simplistic and extreme on the issue, but they do offer an important insight into a fast-changing zeitgeist.
For more from Izabella, go to TheBlindSpot.com.
And for more on the topic of shareholder democracy, read Merryn’s new book, Share Power.
