How Capitalism Ends

If you read your Karl Marx you might believe that a woke proletariat would one day rise up to overthrow their capitalist masters. Of course, everyone now understands that Marx’s theories produced some of the most dysfunctional economic systems that the world has ever seen. And that they destroyed more lives than the bubonic plague.

For that reason, nations that tried Marxism, led in particular by China, replaced its madness with free market capitalism. As it happens, over the past four decades China has known an unprecedented economic boom, moving from an extreme poverty rate over 80% to one that is less than 10%. Naturally, China still has many state owned businesses, and it has industrial policy set down by the party, but still, China is a capitalist country. It might not be our kind of capitalist country but it is competing effectively in world markets and it is producing extraordinary wealth for its people. 

It is obviously a little too early to say that in the great debate between capitalism and socialism, capitalism has won. After all, Western European nations have adopted their own version of regulated capitalism, an economy run by and for regulators. As AI guru Kaifu Lee pointed out, regulation in Europe has stifled innovation… which implies that the future of AI will be played out between Asia and America… in nations where regulation is less onerous.

But, now it appears that American capitalism is under assault, not only from without, from hectoring Congresspeople and academic intellectuals who cannot get over the fact that socialism failed, but from within, from the very tippy top of American industry. Yesterday, the Business Roundtable, comprised of the chief executives of 181 of America’s largest corporations, issued a statement rejecting the traditional goal of making more profits by providing better products, and thus serving the interests of shareholders… that is, the company’s owners. In place of profit these executives suggested that they want to produce more justice and equality.

If capitalism has produced extraordinary wealth… that does not suffice. Woke intellectuals believe that they would do better at running the economy because they are smarter. After all, they ran the Vietnam War... and look at how well that worked out. Let's not forget the outsized influence that lawyers exercise in our conduct of today's wars. How is that working out?

You will notice that you no longer need to invest in a company or to make a fortune to have an outsized influence on American business and the American economy. All you need to do is to hijack the mind of a business tycoon. In truth, many of these tycoons, having amassed gargantuan fortunes, now consider themselves to be philosophers. They want to be philosopher kings. Their arrogance makes them especially vulnerable to the Siren Song of people who are supposed to be our thought leaders.

Anyway, our new capitalist elites, apparently hellbent on ensuring that no future generation of capitalists will outearn them, have redefined their responsibilities. They are no longer just beholden to their shareholders-- those who hired them and who own the company-- they now believe that they must serve the interests of an intelligentsia that wants them to compromise business efficiency in favor of certain ideals-- diversity, the war against the climate, and the interests of labor unions. Let’s not forget, this new direction is designed, above all else, to gin up business for trial lawyers.

It is only a step in the wrong direction, and the Wall Street Journal suggests that it is just a sop to Sen. Elizabeth Warren and the Democratic Party socialist contingent. And yet, one step and then another… and before you know it American capitalism will no longer be able to compete in the world. It will go the way of Western Europe. Evidently, China, in particular, is salivating at the opportunity this presents. And it is doing everything in its power to avoid the mistakes that the West seems unable to resist.

The Daily Mail reports on the statement, by the Business Roundtable:

The statement redefined the purpose of a corporation with social consciousness in mind saying corporations are now committed to valuing customers, investing in employees by hiring diverse groups and compensating them fairly, dealing ethically with suppliers, protecting the environment with sustainable practices and supporting local communities.

It's a stark contrast from the longstanding principle that companies function first and foremost to benefit shareholders and maximize their profits. 

The statement was signed by 181 CEOs including Amazon’s Jeff Bezos, Apple’s Tim Cook, Bank of America’s Brian Moynihan, Boeing's Dennis A. Muilenburg, GM’s Mary Barra, and BlackRock' chief Larry Fink. 

So, diversity quotas and the fight against climate change. And a blizzard of bureaucratic regulations, sustained by lawsuits. In Asia they are building coal and nuclear powered plants to generate electricity. We are taking another path, building largely inefficient windmills and solar panels.

So, rather than say that they are undermining capitalism from within-- as though  they were worms-- these executives are pretending to be intellectuals. They have bought the idea of “conscious capitalism,” which means capitalism as practiced by those who have raised their consciousness to become aware of social injustice and whatever:

The new idea takes from the concept of ‘conscious capitalism’ which promotes a company having a responsibility to serve society in addition to stakeholders, an ethos that has been growing in popularity with CEOs over the past decade. 

BlackRock CEO Larry Fink previously called for CEOs to rethink and re-evaulate the purpose of corporations, calling for corporations to offer guidance on social and economic issues including environmental safety and gender and racial equality.

These enlightened CEOs could have taken a gander at what enhanced consciousness has done to America’s colleges and universities. They would have noticed that these places are no longer producing young people who can compete in the world economy. They would have noticed that university teachers-- in the Humanities and Social Sciences-- are spending more time purging bad thoughts and fighting bigotry than they are preparing young people to enter the world of work. If they had taken notice they would have rejected the model of conscious capitalism out of hand. Alas, they are not smart enough in philosophical matters. They are simply trying to get in front of what they think is an oncoming calamity, protecting themselves from the coming Reign of Terror.

The Wall Street Journal puts it in perspective:

They see socialism on the rise, with Senator Elizabeth Warren proposing to redefine corporate governance in law with explicit direction to serve “stakeholders.” Her goal is to redirect corporate capital to serve political goals favored by unions, environmentalists and trial lawyers. The CEOs no doubt want to get out in front of this by showing what splendid corporate citizens they are.

Yet these CEOs are fooling themselves if they think this new rhetoric will buy off Ms. Warren and the socialist left. It may even embolden them by implying that corporate rules that require a focus on achieving value for shareholders are somehow morally insufficient. The Roundtable CEOs may be selling Ms. Warren the political rope to hang them.

Fair enough, and true enough. These CEOs are not going to buy off the peasants with their pitchforks. With any luck they will move operations out of the country, to places where such an ideology does not destroy their companies from within. Without any luck they will end up like the supremely woke Jeffrey Immelt, former CEO of General Electric, whose elevated consciousness just about destroyed one of America’s greatest corporations.

The Journal describes the Immelt record:

An ill-defined stakeholder model can quickly become a license for CEOs to waste capital on projects that might make them local or political heroes but ill-serve those same stakeholders if the business falters. 

Consider the long, slow decline of General Electric , which for decades helped mom-and-pop shareholders provide for their retirement. Former CEO Jeffrey Immelt was the model of the stakeholder executive, posing in Vanity Fair as a spokesman against climate change, issuing pronouncements after the 2008 panic about the failures of capitalism.

Yet Mr. Immelt failed in his core duty to find a post-panic business model that enhanced profits and shareholder value. That failure served neither customers, employees, suppliers, communities nor shareholders. From a moral point of view, GE did far more social and economic good when it was wildly profitable and its shareholder retirees could sleep better at night confident in its dividend.

This is the way capitalism ends… not with a bang, not with a rebellion, but with a whimpering whine from woke chief executives.