Vivek Ramaswamy: beware of the "woke industrial complex"

Merryn talks to author and investor Vivek Ramaswamy about how big fund managers are using ESG investing to undermine the foundations of democracy.

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Merryn Somerset Webb: Hello and welcome to the MoneyWeek Magazine podcast. I am Merryn Somerset Webb, editor-in-chief of the magazine. And with me today is Vivek Ramaswamy. Vivek is the author of a fabulous new book I want you all to go out and buy immediately. It is called Woke, Inc.: Inside the Social Justice Scam. It is one of the few books, indeed the only book, that I have seen recently that really has a proper look at what happens when you mix up politics and business. Vivek, thank you so much for joining us today.

Vivek Ramaswamy: Great to be on. Thank you for having me.

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Merryn: I have been looking at your history, and you really do have a very impressive career behind you. I wonder if you can tell us, before we get started, just a tiny bit about the company you’ve set up, and why you left that company, and why you wrote this book?

Vivek: I’ll give you the two-minute version so we can spend more time talking about ideas and less about me. But the book does draw from my experiences, you’re right. So, I was born to the kid of immigrants in Cincinnati, Ohio, in the American Midwest. Went to Harvard for college. Studied molecular biology. Thought I was going to be a scientist.

Instead I got into the world of biotech investing in 2007, when I graduated. I did that for seven years. Three of those years, I spent simultaneously at Yale Law School, scratching an itch in law and political philosophy that I never fully scratched. After I came back from doing law and studying law and being a biotech investor at the same time, when I went back to being a full-time biotech investor, I realised that I have a lot of extra time on my hands.

So, I had a six-month failed stint as a stand-up comedian. It didn’t go that well in New York City. But I did learn some lessons about actually they say, you make a joke out of something that annoys you. Well, one of the things that annoyed me was actually the pharmaceutical industry. And so, I decided to make my version of a joke in the entrepreneurial sector was actually, instead of just telling a joke about it, let’s actually fix the problem. And so, I started a company that was designed to go faster in developing drugs and reduce cost.

I started that company in 2014, called Roivant. Led the company as CEO for seven years. We had our fair share of successes and failures along the way. But I think that at the end of the day, it was a company that actually did a lot of things that I’m incredibly proud of, including developing medicine, several of which are FDA-approved products today.

I stepped down as CEO in January to write the book that I did and to be able to speak out on the topics that I’m speaking out on with candour. And so though I remain on the board, I have really extricated myself from the day-to-day operations there, so that I could separate my voice as a citizen from my prior voice as a CEO to talk about what I think is one of the defining issues of our time, the merger between the neo-progressive woke movement and big business, both in the United States and around the world.

A curious phenomenon that I think goes to the heart of what it means to be a modern American in the American context, and to the heart of what it means to live in a democracy, which I think is an issue that many democracies around the world are grappling with today.

Merryn: OK. Let’s start with how you’re defining the problem. You talk about all sorts of wonderful phrases. Woke smoke being a favourite. And what is the core problem with companies getting involved in politics/the social justice movement? Why does it matter?

Vivek: Yes. So, look, I think that it matters for a lot of reasons. But it matters for one of the reasons that’s different than what Milton Friedman worried about. So, back when Milton Friedman was criticising stakeholder capitalism, the model of capitalism where companies don’t just pursue profits, but advance social agendas, he criticised it from the standpoint of worrying that that would cause companies to operate less efficiently.

And to be clear, I’m sympathetic to a lot of his arguments. My argument is actually the reverse. It’s not that I worry that businesses are going to be less profitable. It’s the opposite. It’s that, actually, I worry not how politics will infect business, but how business will infect our politics.

By causing corporations to exercise power not just in the marketplace of product, but in the marketplace of ideas, where at least in a democracy everyone’s voice and vote ought to be counted equally. On how to address climate change. On how to fight racism. Do you use quota systems, or do you do something else? Are you supposed to trade off higher prices for consumer goods in relation for lower carbon emissions, or take a different approach?

These are fundamental societal questions that ought to be grappled with in the open, through free speech and public debate in the public square, according to a one-person-one-voice, one-person-one-vote system. That is co-opted into a one-dollar-one-vote system when a small group of elite executives and investors get to decide behind closed doors what the right answers to those questions are.

And to me, that’s not America. That’s a perversion of what America is supposed to be all about. It might be a version of how old-world Europe used to operate, where a small group of labour elites, and business elites, and church leaders got together behind closed doors and decided the common good for everybody else.

At least speaking as an American myself, that wasn’t the American way. And that’s a big part of why I wrote the book, is that I feel like this actual new trend was a betrayal of the workings of democracy itself.

Merryn: OK. Well, let’s go back a step then and talk about why it is that companies have got involved in this in the first place. You talk in the book about the purpose of a company, the point of a company, and a company should have maybe a purpose, but it’s not necessary they should have a social purpose or a moral purpose. And that purpose should be to make something and sell it, perhaps, as opposed to make something, sell it, and also lecture people about the climate.

So, how did we get to the point where the purpose has become… Many companies seem to believe they should have a social purpose as opposed to simply a capitalist purpose.

Vivek: Yes. So, look, I think there’s no one simple answer I could give you in a few minutes. That’s why I wrote a book to describe it. But I’ll give you a couple of pointers.

Merryn: I know you have two-minute answers to all of these questions. I know you do.

Vivek: OK. Well, I’ll give you an example of an answer, which is that part of this story traces back to the 2008 financial crisis, actually. It’s an untold story. I lay it out on the book for the first time.

It’s a story that traces back to the 08 crisis. And I saw it personally, by the way. I got my first job in the fall of 2007, at a hedge fund in New York City, on the eve of the 2008 crisis. I saw this. I lived it first-hand. What happened was that big business in the United States was viewed as the bad guy, especially by the old left, following the ignominious bailouts of 2008, where bankers got paid a lot of money when times were good, then got bailed out by the public when times were bad.

This was a bad moment for capitalism. Side note, I actually think that that was just a version of crony capitalism, but we’ll put that to one side. What happened was that the old left wanted to take money from those wealthy corporate fat cats and redistribute it to poor people to benefit poor people. Agree or not, that is what the old left wanted to do.

But there was the birth of this new woke strand of the left that said, actually, the real problem wasn’t quite economic injustice. It wasn’t quite poverty. No, it was racial injustice, and misogyny, and bigotry and so forth.

That actually presented the opportunity of a generation for big business in this country, for Wall Street, because if you’re Wall Street, Occupy Wall Street is a pretty tough pill to swallow. But the new woke stuff was actually pretty easy. You applaud diversity and inclusion. You put some token minorities on your boards. You muse about the racially disparate impact of climate change, after you fly in a private jet to Davos. This is actually pretty good work if you could get it.

But they didn’t do it for free. They effectively expected that the new left look the other way when it came to leaving their own corporate power structures intact. And so, that worked so well for Wall Street. Actually, the way I joke around about it in the book is that you had a bunch of woke millennials get in bed with a bunch of big banks. Together, they birthed woke capitalism, and they used that to put Occupy Wall Street up for adoption.

But then Silicon Valley gets in on the act and realise that they could use their power to censor certain content that the new strand of the left doesn’t want to see on the internet, but again expect that then the new left look the other way when it comes to leaving their monopoly power intact.

And that’s just one of the many undercurrents. But I offer it because it sort of reveals the essence of what’s going on here, Merryn, is it’s an arranged marriage. It’s not a marriage of love, though. It’s more like mutual prostitution. And the net result is what I call the illegitimate birth of the woke industrial complex, a new force in modern American life.

And I think the same is true in the UK, by the way. I think the same is true in a lot of Western Europe. I think the same is true in Canada. Increasingly, even in places like Israel and India is the rise of a new force that is far more powerful than either big government or big business, because it is a hybrid of the two, that together can do what neither one of them can do on their own. And that’s what the book is really all about.

Merryn: OK. And one of the great middlemen of this new woke industrial process is the fund management industry, right? Because you have…

Vivek: That’s correct.

Merryn: Big men at the top of the fund management industry, your Larry Finks, etc., who basically have a controlling shareholding in every big company there is and have kind of made themselves into gods. Larry Fink can write his letter every year, telling every company in the world what they should or shouldn’t be doing. Make it public so we can all see what he’s telling everybody they should or shouldn’t do. And suddenly, it’s Larry Fink who gets to decide what the world does about climate change.

Vivek: Exactly. By the way, he could charge a fee for doing it, a hefty fee for doing it. Actually, a lot of what happened over the last couple of decades is that a lot of funds switched from actively managed higher fee funds to passive index funds. Well, BlackRock and the likes of them had to justify their own existence and the fees that they charge, so they decided to douse it in morality instead by becoming part of the new ESG movement. Environmental, social, and governance factors.

If that doesn’t mean anything to you, and it sounds like it doesn’t mean anything, then you probably have a good interpretation of it, because in my opinion it really doesn’t mean anything.

It’s a load of jargon that often comes in three-letter acronyms. ESG. CSR for corporate social responsibility. DEI for diversity, equity, inclusion. Somehow these come in sets of three. That’s the optimised model for being able to actually pass over a social filter that somehow takes it for granted.

And that’s what the ESG movement represents today, is a movement in the asset management space that says that the people who control the most capital, get to determine how companies ought to behave on so-called social and environmental matters. Get to charge a thicker fee for doing it and get to wear the mantle of being an investor who tells companies what to do.

That actually subverts Milton Friedman’s narrative on its head, because Milton Friedman again would’ve told you that when an executive misuses his stead of corporate power, he’s betraying the shareholder, and ultimately failing to maximise value for the firm by pushing these orthogonal social values.

They’ve turned that on its head now, because they’re saying, no, you got it backwards. We are the shareholders. We are the ones that are demanding that you as the company behave in this way, or else we’re going to take our money and put it elsewhere. We’re going to fire you as CEO. Side note, actually, Milton Friedman had a point because the Larry Finks of the world, he’s not investing his money.

He’s taking trillions of dollars of other people’s money, many of whom actually disagree with the social agendas he’s pushing, but simply don’t know it because of the non-transparency of the financial system, and is using that as a pulpit to push values that actually would make the blood boil of the very people whose money he’s entrusted with protecting. But that’s a side note. We’ll put that to one side. The difficult thing is that what you do about it is a lot more complicated when that becomes the new norm for how capital is allocated.

One of the things I talk about in the book is because capital is now being allocated by these fund managers according to principles that don’t directly map onto fundamental economic value, but map onto these social values instead, and because there are so many funds now flowing into that asset class category, especially as governments, like the United States government, implicitly pass regulations that sort of favour that kind of funds flow, we’re at risk of creating a new kind of asset bubble. A new kind of market distortion.

Akin to the lead-up, again, to the 2008 financial crisis, when governments around the world, including the US, fostered policies to favour home ownership. What did we do? We created a home ownership bubble that went burst, hurt the very people it was supposed to help the most.

By the way, I think the same thing may happen in the so-called ESG movement today, where more funds are flowing into the ESG category simply because it’s a government-favoured, culturally-favoured, popular thing to do right now. That creates the early stages of that bubble, that when it bursts, may actually hurt the very causes that it was supposed to help as well.

Now, one thing I note in the book is that I might be wrong about that. And if I am wrong about that, it’s going to be because, actually, the Larry Finks of the world do have the last laugh in the end. They say, ESG is going to make for better investment returns over the long run. Well, there’s one way in which they may be right, and that’s through the capture of government itself.

You look at actually the head of the White House Council of Economic Advisers, I believe is actually a BlackRock’s head of ESG fund management. Look at the way Goldman Sachs has captured government in prior administrations, earning a seat for itself as seat of the US Treasury Secretary.

What I worry about is actually, you know what? Maybe the ESG stocks do go up and persistently are worth more because government passes regulations that treat them more favourably when they’re able to actually infiltrate the government using their so-called progressive values to be able to gain a competitive advantage over their peers who don’t flaunt those same values.

So, there’s a version of it where either we’re in a bubble because capital is being misallocated according to what actually maximises long-run value. In which case, when that bubble bursts, it’s going to hurt some of the very people it was supposed to help. Or they’re right, but the reason they’re right is because they captured government in a way that’s an even greater betrayal in terms of the citizenry of a democracy that may not lose money when the ESG bubble bursts because it wasn’t a bubble.

It was even worse than a bubble. It was the new reality that was codified by a new form of crony capitalism that favoured the very firms using government and state power at the expense of those who didn’t favour those same values. So, pick your poison. I think either road leads to a bad place.

Merryn: That is one of the things we saw at COP26 last week, right? So, we had Mark Carney coming out and announcing that there’s now $300 trillion sitting behind the climate change agenda, without mentioning that these dollars are simply dollars that are run by big financial institutions and may not actually invest in the green agenda at all. They’re just other people’s money and all kinds of different vehicles.

Vivek: Exactly. Exactly right. And you know what I think everyone at the COP26 summit should do? Anyone who’s a representative of a democratic nation should take the agreements that they reach, and then go back and have them voted on back at home and see how their citizenry actually feels about it.

And if you think there’s a reason they don’t want to do it, then that reveals the essence of the disconnect here, is that in the name of being democracies, we’re actually converting into a new Holy Roman Empire, a transnational Holy Roman Empire, that’s advancing certain churchlike values and what I view as the new church of fighting climate change.

And I say that not because I’m sceptical of certain of the underlying claims. I am sceptical of certain claims, not of others. But because I actually think that it’s more nuanced than talking about one green agenda. It’s not like there’s one monolithic conception of what is more green than something else. The Earth, for example, today is covered by greater green surface area, by more plants than it was 50 years ago, in part because the surface temperatures are slightly warmer, in part because there’s more carbon in the atmosphere, because carbon is plant food.

So, there’s no one monolithic narrative, and we should sort these questions out through free speech and open debate. Really, the building blocks of scientific inquiry and of a democratic process. That’s how we should sort these questions out, not through the use of force, including economic force, that has it done by fiat instead. That’s the world we live in today, under the banner of so-called stakeholder capitalism.

Merryn: OK. Interesting, but let’s pick up on stakeholder capitalism, because there’s this big difference between shareholders and stakeholders. When we talk about stakeholders, I always say that in the UK, because everyone has got an autoenrollment pension, a stakeholder and a shareholder are kind of the same thing. But you still need to ask shareholders what they want before you deliver stuff they may not want.

But another stakeholder today, of course, are, what you call in your book, dictators. You talk about the stakeholder as a dictator. And the way in which companies are beginning to pander to the kind of stakeholder in the past they may not have pandered to.

Vivek: Exactly. I think that this is the thing that progressives miss. Once corporations become vectors to advance progressive values, they become vehicles to advance anyone’s values. And no one has mastered that dark art better than the Chinese Communist Party, which has realised that they can use corporations to create a false moral equivalence between the United States and China, thereby endangering the greatest geopolitical asset of the US of all. That is not our nuclear arsenal. It is our moral standing on the global stage.

Let me ask you, Merryn – I could go on about this one for a while, I think it’s an important topic – but is that something you want to talk a little more about?

Merryn: Yes, it is.

Vivek: So, let me just say a word about it then. Take a look at Disney just a few years ago, which said it could not shoot a film in the state of Georgia if Georgia passed the equivalent of a new anti-abortion statute.

But last year, goes to the Xinjiang province of China, literally ground zero of the Uighur human rights crisis, where there are over one million Uighurs enslaved in concentration camps, subject to forced sterilisation, Communist indoctrination and worse, because they’re religious minorities. And Disney does not say a peep. In fact, at the end of the film, you could see it in the credits to the film Mulan today, they thank the local CCP authorities for allowing them the privilege of filming there.

Nike does the same thing. The NBA does the same thing. BlackRock, perhaps one of the most hypocritical actors in this respect, professing ESG values here at home, yet lying prostrate before their Chinese overlords abroad.

This is the new game, where, actually, what China has been able to do is to deflect accountability for their cruel macroaggressions by allowing companies to instead criticise microaggressions like transphobia or racism or whatever in the United States.

And so, when Xi Jinping is pressed by EU leaders as he was last year on the Uighur human rights crisis, it’s no surprise that the first thing he says is that Black Lives Matter shows that the United States is no better. Or that his top diplomat lectures the United States in Alaska this year on how China wants to see the US do better on human rights and to stop slaughtering black Americans.

These would be laughable claims if it weren’t for the fact that global corporations are implicitly lending moral credibility to their claims by equating any allegation of… For example, even any inquiry into the origin of the coronavirus pandemic for that matter, with the equivalent of being a so-called racist inquiry, using our own woke values against us.

We talked a little bit about stakeholder capitalism, Merryn. I think that this actually traces itself to a different philosophy of capitalism as a vehicle in the 1990s, called democratic capitalism.

Back in the 90s, it was a popular idea in the United States, on both sides of the political spectrum by the way, to think that we could use capitalism as a vehicle to spread democracy abroad. We thought we could export Big Macs and Happy Meals, and somehow that was going to spread democracy to places like China, that we could use our money and our investment to get them to be more like us.

They turned that game on its head, and they realised they could actually use their money to get us to be more like them, because they could deny market access to any company that criticised the CCP, while rolling out the red carpet to any company that criticised the United States.

Even better, they realised they could use our money to get us to be more like them. And they realised they could send back those Nike sneakers and Disney movies as effectively Trojan horses that undermine the United States from within by creating that false moral equivalence between the US and China. And as I said earlier, that erodes our greatest military asset of all. That is not our nuclear arsenal. That is not our naval arsenal. It is our moral standing on the global stage. And I’m sorry to say, it is working masterfully for the CCP.

Merryn: OK. This is a horrible situation, the way you described it, and I agree with you on most of it. It’s also something that I’m guessing the majority of the American population are not particularly happy with.

I don’t know about in the US, but certainly, if you ask in surveys here, should business and politics mix? Should big companies have a view on cultural identities issues, etc.? The majority generally answer, no, they shouldn’t. They should make good stuff, be nice to their employees along the way, and sell it in a reasonable way, and that’s it. And then distribute the profits into our pensions, and we’re done there. And I assume that the majority of Americans feel much the same.

Vivek: I think that’s true, and that’s why I think we’re going to see a course correction happen very soon. I hope the course correction takes a good form rather than a bad form. The bad form is if we start to get businesses that respond and say, yes, well, you’re for Democrats, well, then we’re for Republicans. You’re for black people, well, then we’re for white people. And in a way that further divides and fractures society.

I think that could be a commercial opportunity that’s available to a lot of people. Let’s say Major League Baseball issues statements about a new voting law in Georgia that make it sound more like a super PAC than a soft drink manufacturer, favouring one end of the political spectrum, I certainly hope we don’t see the emergence of an alternative form of baseball in response.

Because I think that one of the beautiful things about the private sector, one of the beautiful things about sports, about the arts, about the apolitical spaces in our lives, is that they bring us together, irrespective of our race, or our gender, or our politics. And I think that’s one of the roles of capitalism and an apolitical marketplace in an otherwise divided polity, is to provide those social forces that result in cohesion across division.

It’s actually what Tocqueville many years ago remarked upon. In the United States was the existence of those so-called intermediating institutions that otherwise held a divided, dispersed nation together as one.

So, I hope that’s not the way it goes. Now, the way I do hope it goes is that maybe some of those businesses start up in a more elegant way, serving customers who may feel left behind by this new trend, that that wakes up the rest of corporate America to say, boy, we just lost a million customers to this new business that’s operating according to apolitical principles. Gee, we probably screwed that up over the last ten years. Let’s course correct a little bit and use market mechanisms to bring that back.

I think it will defend on what kind of leaders step up in the private sector to determine which of those two paths we’re on. I also think that public policy can play a role to create the conditions for that cultural revival. I don’t think the solution is a legal one, but I think certain legal solutions can create the conditions for that cultural revival. I lay those out in the book.

One of them, simple enough, is that, I would say, we should make political belief and political expression a protected class, just like race, and gender, and sexual orientation, and religion, and national origin.

That is to say so long as we have protected classes at all, which is an idea that we can debate, but so long as we have them at all, then we should apply those standards even-handedly to include political belief and political expression, too, that cause people to liberate themselves from this culture of fear that we’re experiencing today. And so, I think that will also be one of the ingredients towards a solution. But as I said, Merryn, we could barely skim the surface in a half hour. That’s why you’ll have to read the book to be able to [overtalking].

Merryn: Everyone is going to read the book. Let me ask you one more thing. Two more things, actually. First, you mentioned earlier the side show of the fact that the big fund management companies have all the power, use all the votes. We’ve delegated our responsibilities effectively as shareholder democrats to them.

Do you see any future in which… Because there are movements springing up here. Any future by which the big fund management companies will be effectively forced to return our votes to us, and hence respond to what it is that their end clients want? Because that seems to me to be a big part, potentially, of the solution.

Vivek: Yes. So, look, I think it’s an important component to it. And you’re one of the few people, actually, who’s focusing on it. I actually think we are going to see that trend, a re-democratisation of the ability for people to vote their own shares. I don’t think that’s going to be the end-all-be-all solution, but it is another example of the pendulum swinging back in the right direction, in a way that restores a greater sense of democracy, to at least to where people have their own voice attached to their own shares.

To be clear, that still doesn’t solve for the fact that the people who own the most shares will still have the greatest say, and that’s something that I think ought not be the case on moral matters that a society ought to address in a democracy. I think it’s perfectly fine to determine who’s elected to Apple’s board of directors, or to determine which products rise to the top in a marketplace of products. Yes, it’s a one-dollar-one-vote system. But when settling moral questions, we ought to have a one-person-one-vote system. So, this is only a step in the right direction.

But today, we have even a worse perversion of that system, where even the people whose dollars it is, don’t always get to even express their own voice, because the people who manage their dollars, like the Larry Finks of the world, get to express their views for them, often in ways that betray their own views in the process.

We’ve already seen in the last month some change in that regard. Actually, BlackRock under pressure has begun to say certain investors and certain of their funds will get to vote their own shares. I think that’s a step in the right direction, but I think it’s a pendulum that’s going to have to swing much further.

Merryn: Last question. I promise. How do investors navigate this?

Vivek: So, look, I think that there’s going to be a couple emerging trends. I think there’s going to be a rise of businesses who are actually created to serve the tens of millions, perhaps hundreds of millions, of customers who are quietly disaffected from their private sector, but to do it in ways that are elegant rather than combative.

I think those businesses, if they’re run well by the right people and have high quality products, are going to be winners, are going to be undervalued on day one. I think there are a number of capital market distortions created by the rise of the ESG movement. Certain businesses that are overinvested in, other businesses that are underinvested in. I think it’s a great opportunity for value investors to be able to take advantage of today, and I think those would be the right ways in which investors can see opportunity to make money for themselves.

I’m personally much more interested in seeing the revival of a civic politic and a body politic, and a civic restoration that goes beyond just how certain investors can use this to create profit for themselves. But actually, I think that could actually be a force for good, too. As investors capture that opportunity, they’re helping actually swing the pendulum back for the better, too. So, those are some closing thoughts, Merryn. And of course, much more detail laid out in the book.

Merryn: Yes. Those are fantastic. Thank you so much. Thank you so much for making time to talk to us, Vivek. And just so everyone knows, Woke, Inc: Inside the Social Justice Scam. Go out and buy it right now. You won’t regret it.

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I’d also like to point out that one of the things that we talked about in our podcast today was shareholder democracy, and I have actually managed to complete a book on that very subject. It’s called Share Power, and you can pre-order it on Amazon now, should you want to.

Thank you very much. Talk to you again next week.