Woke Capitalism: A History

By Kevin D. Williamson

Thursday, June 10, 2021

 

Woke capitalism began, as so many of these things do, with the best of intentions. In this case, those good intentions were focused on the long campaign against apartheid in South Africa.

 

The South Africa divestment campaign is popularly associated with the politics of the 1980s — Ronald Reagan’s veto of the Comprehensive Anti-Apartheid Bill of 1986 was denounced as an infamy and overridden by Congress — but the effort actually began in earnest in the 1960s. Throughout the 1940s and 1950s, the anti-communist and pro-Western regime in Pretoria was courted by U.S. leaders, including Presidents Truman and Eisenhower, who were willing to subordinate most interest in human rights to maintaining strategic and economic advantages on the Cape. The African National Congress was allied with the pro-Soviet South African Communist Party, which took its orders from Moscow, and the Cold War was seen as a bipolar affair. From Shanghai to Santiago, the United States and its allies were willing to turn a blind eye to much — in the end, far too much — when it came to our confrontation with the Union of Soviet Socialist Republics.

 

The mood changed in the late 1950s and early 1960s. In 1958, the United States broke with precedent and voted in favor of a U.N. resolution expressing “regret and concern” about apartheid. President Kennedy believed that winning the Cold War required the U.S. to find allies in both white-dominated South Africa and throughout the continent. Those demanding an immediate end to apartheid would “make us choose between Portugal and South Africa on the one hand and the rest of Africa on the other,” as Arthur Schlesinger Jr. put it at the time. “We wish to evade that choice.” Robert Kennedy gave a celebrated commencement speech at the University of Cape Town linking South African apartheid with American segregation. The first formal effort to apply real economic pressure, a 1962 U.N. resolution calling for sanctions, was rejected by all the Western powers as being beyond the scope of the international body’s legitimate powers.

 

But the idea of sanctions caught on. A voluntary arms embargo was enacted and became a mandatory embargo in 1977.

 

In the same year, the “Sullivan Principles” were articulated. The Sulli­van Principles, named for the Reverend Dr. Leon Sullivan, a Phila­delphia clergy­man who served on the board of General Motors, demanded that corporations ensure that their employees were treated equally — inside and outside of the workplace — as a fundamental business responsibility. And here, the shape of woke capital as we know it begins to emerge. The Sullivan Principles further demanded that businesses be held accountable not only for their own practices but for those of any government under which they did business, transforming matters of business ethics into matters of politics proper. And while individual companies were lobbied to adopt the principles, activists found their greatest success in lobbying major institutional investors to adopt the Sullivan Principles and then act as their cat’s-paw, pressuring corporate boards into compliance under the threat of having their shares dumped.

 

Apartheid was a great evil, and it was right and necessary to fight it. But economic weapons are like any other weapon: They can be used for all kinds of purposes — good, evil, destructive, silly — depending on who is wielding them and how. The Montgomery bus boycott of 1955–56 struck a blow for the good, and Germany’s anti-Jewish boycott of 1933 struck a blow for evil.

 

Because politics is entrepreneurship for people who prefer power to money, no tool that useful gets left unexploited and gathering dust. Once the evil of apartheid was swept aside and the South African government descended into the familiar corruption and incompetence that have plagued so many liberation movements once they achieved ordinary political power — late last year, the secretary general of the ANC was indicted on 21 corruption charges, mostly related to kickbacks — fashion moved on, and the best and brightest lost interest in South Africa.

 

But they didn’t lose interest in divestment.

 

This didn’t come out of nowhere. The anti-apartheid movement came to promi­nence in an investing environment that had long been accustomed to similar activism at a more modest, less organized, and less disciplined level. From the early 20th century, some Christian investors had avoided “sin stocks,” meaning the shares of alcohol and tobacco firms and a few others at the moral margin. The Pioneer Fund, established in 1928 (and not to be confused with the eugenics organization), brought “socially responsible investing” (SRI) to the mainstream.

 

Through the 1950s, SRI had a distinctly Methodist-Quaker feel to it — its politics was rooted in the temperance movement and similar campaigns for social improvement. It was to a more than trivial degree a conser­vative undertaking, with ads for values-based investment funds appearing regularly in National Review and other conservative publications — as, indeed, they still do. Some of these funds emphasized their explicit Christian character. That slowly began to change in the 1960s, when the Vietnam War protests and the civil-rights movement helped not only to bring to power and prominence a number of influential left-wing radicals but pulled many mainstream Protestant pulpits and civic organizations to the left as well. (The cynic will pause here to appreciate that the Right’s largely ceding the issue of civil rights to the Left was not only a moral failure but also a strategic blunder.) In the 1960s as in our own time, left-wing activism became a fashion, what Tom Wolfe would famously describe as “radical chic.”

 

In the Vietnam era, activists began pressuring university endowments to divest themselves of holdings in armaments and munitions companies and other firms linked to the war effort, although they enjoyed only modest success compared with the later anti-apartheid effort that saw universities ranging from Harvard to the University of California to Michigan State joining the campaign. Attempts to recruit the commanding heights of education and business to the cause of left-wing activism bore only modest fruit in the 1960s — the Left’s great victory in that era was its occupation of popular culture, which at the time proved much more amenable to quick and easy recruitment than did IBM or General Electric or even, with apologies to National Review’s beloved founder, Yale. For the Left, the battles of 1968 were not the end or the beginning of the end, but the end of the beginning, the last great street fight before they cut their hair, put on ties, and began the Long March through the Institutions. You can follow the Left’s success in that march for institutional control by charting its drift from the libertarian and the libertine (the Free Speech Movement, Deep Throat, the old Dionysian ideal of the rock star and the movie star — Roman Polanski was a liberal cause célèbre once upon a time) to the authoritarian and conformist. Woke capital, then, is properly understood as one particularly fast-moving and high-energy manifestation of the woke corporation.

 

Students of political economy talk about the “body politic,” but the corporation is a body, too (corporation, from the Latin corporare, meaning “to form one body”), as is the university (the president and fellows of Harvard College together form the Harvard Corpora­tion), and, like the body politic, the body corporate is vulnerable to parasitic infestation. Advocates of what used to be known as “SRI” and now mostly goes under the name of “ESG” — environment, social responsibility, governance — have in large part accumulated in the universities and the corporations far from the centers of excellence, cutting-edge research, or core business functions, being found more often in their natural environment: diversity offices, human resources, community outreach, public affairs and public relations, mid-level administration, associate deans’ offices, etc. There are, of course, many exceptions to this: Larry Fink, the true-believing activist chief of BlackRock, is by all accounts nothing if not sincere in his belief that environmental concerns must be the “top issue” for investors.

 

Historically, conservatives have not done protest very well, and they are among the least effective boycotters on earth. Anybody who remembers the short-lived 1997 effort to boycott Disney over “gay days” at its theme parks, first called for by the Southern Baptist Con­vention, appreciates that this is just not something con­servatives have the right kind of temperament for. Rather than engage with the same energy and commitment as left-wing activists, those on the right have traditionally trusted in markets to sort things out for them.

 

How’s that working out for you?

 

You might think that turning the focus away from profit and business development toward voguish social activism would be hard on the bottom line, and that these kinds of shenanigans would, in that sense, be self-policing. But that isn’t the case — or, at least, it hasn’t been.

 

Activists on opposite sides can point to dueling studies on the question, but there isn’t any consistently demonstrated evidence that activism undermines investment returns or business performance. And there is some evidence that such activism is positively correlated with performance. To the extent that such a correlation holds, there are two possible explanations: One is that activism is good for business, and the other is that good business attracts activism. Firms such as Google and Apple have so much money sloshing around that at times they literally do not know what to do with it. (Pay it out to shareholders? Not that!) These firms can afford to indulge all manner of distraction. On the institutional-investor front, Washington has spent most of the 21st century moving heaven and earth to ensure that financial concerns can’t lose money and that bear markets and corrections are as brief as possible. Even when one accounts for the unpleasantness of 2007–08, people in the investment business have been making a lot of money for a long time, and there’s a lot of dumb money in play, which is (probably) why Dogecoin, a cryptocurrency created as a joke, is worth almost as much as Honda.

 

Some critics blame the “financialization” of stocks, meaning the uncoupling of a company’s share price from its business performance. Beyond the wild rides of “meme” stocks such as AMC, they point to shares whose prices have skyrocketed in a way that is not obviously justified by revenue or profit or by likely changes in revenue or profit. This may be driven by Keynesian animal spirits or by maneuvers such as stock buybacks. There may be some merit to that criticism, but it is limited: Institutional investors and reasonably intelligent individual investors know how a buyback works and that it is a maneuver that may boost the performance of a company’s shares without boosting the performance of the company’s core business. In the long term, managing for share price rather than for business performance should impose real costs on firms as they divert funds away from research and development or other internal investments oriented toward improving the performance of the business. But it is not clear that this is happening, at least in a robust way that would persuade business leaders to change their ways. Google shares have more than trebled in value in the past five years — and when is the last time Google brought something truly interesting to market?

 

By moving the focus away from business performance to share performance, financialization creates opportunities for activists who cannot justify their programs on business grounds, amplifying the influence of big institutional investors whose decisions can move markets. This power is reinforced by the familiar asymmetry of activism: Activists care a great deal about having their way, and they will invest significant resources in securing a particular outcome; ordinary shareholders, on the other hand, mostly care only about a share’s performance, and many of them do not even know that there are pitched political battles being fought inside boardrooms and through proxy votes.

 

This isn’t a fight ordinary shareholders are losing. It’s a fight ordinary shareholders barely even notice.

 

As I noted more than a decade ago, capital lives in what we now call “blue” America. Though the Donald Trump phenomenon did bring some new voters into the Republican Party in 2016 and 2020, including more black and Hispanic voters, the Republican Party and the conservative movement remain disproportionately rooted in a world that is white, southern, Evangelical, rural, and, to an increasing degree, anti-intellectual. The people who run the money are mostly people who live in Manhattan or Greenwich or Palo Alto, who send their children to Choate or Brearley, and who themselves went to Princeton University or Harvard Business School, or people whose affinities and aspirations are culturally consonant with Greenwich and Brearley and such — and these are not people who have a lot of Pentecostal churches and ceremonial foot-washing in their lives. Claire Berlinski, a right-leaning journalist, practices linguistic reappropriation in pointedly calling her newsletter the “Cosmopolitan Globalist,” indicating the urgent cultural divide in American life. It is almost inevitable that the deployment of capital is going to reflect the values and biases of the capital managers — and that while the markets are booming there will be very little to organically counteract their excesses.

 

And there are excesses all around: Exxon, Major League Baseball, Black­Rock. Values-based investment has evolved into “woke capital” because money management, like so much else, has been deformed, debased, and politically supercharged by a political discourse and civic culture now domi­­nated by social media and the tribal model of political and public life associated with the Internet. The problem isn’t the tools, which, though they have been sharpened and made more fearsome by technology, have been around for a long time. The problem is how those tools are wielded and by whom — in this case, a stampeding herd of grievance professionals who think that reserving a ladies’ locker room for the ladies is more or less the same thing as apartheid. There are perhaps a few things that could be done structurally to limit the reach of woke capital, for instance, limiting the role of proxy advisers such as Institutional Shareholder Services, which plays both sides of the fence by rating firms on their social-justice commitments while offering the same firms consulting services to improve their scores in an arrangement that critics say lacks transparency. The two largest such proxy advisers together control about 90 percent of the market, giving them extraordinary power.

 

There are always tensions between corporate managements and corporate shareholders, the age-old agent–principal problem. But businesses ultimately will do what the people who own them — the shareholders — demand. And as long as the advocates of woke capitalism can win the day with no real resistance, then they will have truly awesome power at their disposal.