15 February 2022. Innovation | Signals
Larry Fink’s ‘stakeholder capitalism’ is just shareholder capitalism in disguise. Signals of change from NESTA.
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#1. Larry Fink’s ‘stakeholder capitalism’ is just shareholder capitalism in disguise.
Maybe I’ve spent too much time here recently on the subject of BlackRock, the world’s largest asset manager, and the writings of its CEO, Larry Fink. But then again: they are the world’s largest asset manager. So it was worth noticing that the economist Mariana Mazzucato had laid into BlackRock on the relatively elite discussion platform that is Project Syndicate.
The article is headlined ‘Larry Fink’s Capitalist Shell Game’, which gives a clue as to where she’s coming from.
Her beef: that BlackRock talks about stakeholder capitalism in a way that is far too narrow to have any effective impact on the challenges that face us.
Fink’s exhortation seems like a welcome break from orthodox dogma. But... Fink’s version of stakeholder capitalism is based on conceptual sleight of hand. After all, his support for stakeholders is conditional on a secure profit pipeline for shareholders, which means that shareholder value remains the bottom line. Stakeholder value becomes merely a means to an end – to benefit shareholders in the long run. It is thus a betrayal of stakeholder capitalism’s true intent: to create value for public benefit.
Obviously Mazzucato has a bit of an agenda here. She’s most associated with the idea of ‘mission-driven investment’, and this seems quite a long way from the BlackRock view of the world. But then again, one of the intentions of the mission-driven approach is to focus on positive outcomes for everyone. For example, as she says here: “A carbon-neutral economy is what would maximize the benefits for all stakeholders.” (I wrote about her mission-driven investment model here last year).
And this, in turn, has implications for how we think about stakeholders and shareholders:
For missions to motivate action, generate momentum, and inject purpose into the economy, the gap between stakeholders and shareholders must be closed. In practice, that means empowering stakeholders. ... Such a paradigm shift begins with recognizing the inherently collective process by which value is created in the first place.
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This is the innovation model that she developed that led her along the road to mission-driven investment in the first place, about the relationship between public investment and private investment—or sometimes, private extraction. Or, as President Obama said during the 2012 election campaign, almost certainly off the back of Mazzucato’s work, “You didn’t build that”. Here’s why:
Value is co-created by producers and consumers, workers and managers, inventors and administrators, and regulators and investors. It does not simply spring from the heads of heroic entrepreneurs, risk-taking venture capitalists, and corporate leaders.
There are some examples in the piece, across the pharma and the tech sectors, of how public investment created the circumstances in which private sector companies were able to prosper.
And this takes her back to her core point about the problem with the current model:
Why do drug prices not reflect the original public contribution (even when the government reserves “march-in” rights that require pharmaceutical companies to license their products)? Why are intellectual-property rights so strong as to inhibit knowledge sharing? Part of the answer is that the compact between the private and public sectors – stipulating everything from legal proprietorship to privacy – is excessively weighted in favor of business.
And however you look at it, it’s still quite shocking to read about the amount of public money that paid for COVID19 vaccine development, given that the IP in them has not been shared globally:
The six vaccine frontrunners received an estimated $12 billion of public money. That makes the vaccines a public good, but they haven’t been treated like one. Under stakeholder capitalism, pharmaceutical production would strike a fairer balance between public and private risks and rewards, and it would be geared toward providing global access.
Of course, it’s not just the state that’s involved in the process of value creation. There are other important stakeholders as well:
Workers, too, are major contributors, and you don’t need to be a Marxist to see that labor (and nature) create at least as much value as the owners of the means of production do. Ultimately, true stakeholder capitalism calls for a new social contract – backed by a new global economic consensus – that puts public value before private profit.
In passing, she nods towards a nice pun by by the musician Brian Eno:
Brian Eno attributes musical creation not to genius but to “scenius”: the communal scenes that connect, sustain, and inspire individual creators. The same is true throughout the economy.
(And as it happens, there’s a rich vein of economic analysis about the importance of ‘milieu’ in creating innovation opportunities. In the 19th century the economist Alfred Marshall said ‘It’s in the air’ as a way to describe the knowledge that flowed around between people involved in the then world-leading clusters such as the Sheffield cutlery industry. Just as it does now in Silicon Valley.
And without dragging this point on too long, there’s research into why Silicon Valley developed as the computing centre of the US, and not Boston’s Route 128, and concluded that one of the reasons was that the Silicon Valley firms were smaller, and leakier. Unlike on the East Coast, the West Coast software engineers shared what they were doing with each other.)
Anyway, back to Larry Fink:
For all the attention it has received, Fink’s vision of stakeholder capitalism focuses far too narrowly on intra-organizational corporate governance. In failing to address the wider landscape of extra-organizational, institutional relations between different domains and sectors of society, Fink maintains the traditionally stark distinction between stakeholders and shareholders.
I also didn’t know that BlackRock was the fifth largest shareholder in Fox News. Hard to work out how that fits into the BlackRock talk on longer term capitalism.
2: Signals of change in food and sleep
A short note here on the launch by the British innovation organisation NESTA of their ‘future signals’. There’s nine of them, spread across technology, environment, economics, and social trends. Each of the nine is a short essay, written in an accessible style.
I’m going to pick out two here, one positive, one negative.
The positive one: will your next avocado be grown in Aberystwyth?
This is about the development of indoor agriculture, which is already used extensively for products such as tomatoes, but is now perhaps ready to make the next step towards more difficult fruit and vegetables.
The aim is to automate where possible. Although such facilities typically use a lot of energy, they are far more efficient in their use of land and fertilisers. They use around 95 percent less water than outdoor farming and, coupled with a green energy supply, could help agriculture’s carbon footprint become lighter. Because the climate inside the facility is independent of the climate outside, growing warehouses can be built anywhere and produce crops at any time of year.
So, in a flourish, they ask if we’re going to see “bananas from Ballymena or oranges from Orkney”. (My guess: possibly and probably not, respectively).
There are still a lot of technical issues here once you move beyond tomatoes and lettuces and the other current staples of indoor production:
Other challenges in broadening the range of crops suitable for indoor agriculture include accommodating complex root systems that don’t adapt well to hydroponic nutrient baths, optimising pollination in sealed environments that don’t have wind or insects, or even just learning to manage unwieldy plants that are taller or wider than current greenhouse designs can house. Then there is the challenge of doing this cost effectively. Imported fruit and vegetables are cheap and plant factories are not.
But it matters because the UK produces very little of its own food, and is potentially hugely vulnerable to supply chain disruptions. And, as NESTA points out, most of the small number of countries that supply two-thirds of the UK’s fresh produce are likely to experience water stresses. I’ve been told separately that our larger supermarkets are looking at what happens when they can no longer ship fruit and vegetables from southern Spain, for example.
(Image: Nesta Signals from the future)
The negative one: sleep deprivation and inequality.
We understand more about the effects of loss of sleep on people, and generally they aren’t good. Some of the claims about a ‘sleeplessness’ epidemic might be overblown, but even so, the distribution of sleep shortage caused by the pandemic is both racist and sexist:
In April 2020, just after the UK lockdown began, a University of Southampton study found that sleeplessness due to worry in April 2020 (just after the UK lockdown began) increased from about one fifth to one third of women and people from minority ethnic backgrounds. Sleep problems among frontline workers in health, social care, education and childcare, of which both women and people of minority ethnic backgrounds are overrepresented, rose from 16 percent to 29 percent after lockdown started.
And what’s interesting here is that because the inequalities have been made more visible by the pandemic, sleep has become a political issue.
The link between sleep inequalities, health inequalities and work raises questions about the right to sleep and whether it ought to be protected. Recently, union leaders attacked moves to extend relaxation of the hours worked by lorry drivers. And as early as 2012, the supreme court of India declared sleep a fundamental right, with justices citing health as part of the rationale. This is also a grassroots movement: across the world, activists are increasingly demanding the right to rest.
Early days, I think, in this particular battleground. But I liked the argument made by the Nap Ministry: given the underlying inequality about who gets enough sleep, that “rest is an active form of resistance to social and racial injustices”.
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