UAE – Larry Fink’s participatory capitalism has not woken up enough

(MENAFN – Khaleej Times)

Posted: Sun Feb 13 2022, 21:40

BlackRock CEO Larry Fink’s latest annual letter has taken the business world by storm. BlackRock is the world’s largest asset manager, and Fink, addressing the CEOs of companies whose assets his firm manages on behalf of investors, took the opportunity to make the case for some form of more environmentally sustainable, socially conscious and forward-looking capitalism, rooted in stakeholders rather than shareholder value.

Fink’s exhortation seems like a welcome break from orthodox dogma. But if her vision is supposed to be “awake”, she’s not awake enough. We’ve heard all of this before, including in Fink’s own letters in 2018 and 2019, and in the resounding statement from the 2019 Business Roundtable that Fink helped lead. But far too little has changed, largely because the vision expressed by Fink and other business leaders stops short of the sweeping reforms needed to transform capitalism for the benefit of people and the planet.

Fink’s version of stakeholder capitalism is based on conceptual sleight of hand. After all, its stakeholder support is conditional on a secure earnings pipeline for shareholders, which means shareholder value remains the bottom line. Stakeholder value simply becomes a means to an end – to the benefit of long-term shareholders. It is therefore a betrayal of the true intention of stakeholder capitalism: to create value for the public good.

Think about climate change. Fink celebrates progress in dollar terms, saying sustainable investments have reached $4 trillion. Yet the goal should not simply be to invest trillions more in sustainable development; rather, these trillions should be democratically coordinated, by stakeholders, to support ambitious missions like global decarbonization. A carbon neutral economy is what would maximize benefits for all stakeholders.

For missions to motivate action, generate momentum and give meaning to the economy, the gap between stakeholders and shareholders must be bridged. In practice, this means empowering stakeholders. Workers, citizens, unions, community groups, state institutions and NGOs must have significant financial and political interests in the operations of the capitalist economy.

Such a paradigm shift begins with recognizing the inherently collective process by which value is created in the first place. Value is co-created by producers and consumers, workers and managers, inventors and administrators, regulators and investors. It doesn’t just come from the heads of heroic entrepreneurs, risk-taking venture capitalists and business leaders. It is the result of organizational and institutional configurations that allow all these actors to work together.

Whether in technology, pharmaceuticals or energy, the great innovations that have created value for corporate shareholders are most often the result of public investment. Many of the innovations driving today’s pharmaceutical revolution have been funded by early, high-risk investments from organizations such as the US National Institutes of Health, which invest more than $40 billion a year in the United States. -United.

Likewise, without public investment, the information technology revolution would not have happened when it did. As I explained in The Entrepreneurial State, from the internet and GPS to touchscreens and the technology behind Siri, everything that makes our phones “smart” is the result of strategic public investment.

No one doubts that private sector innovation was also important, especially in the downstream phase of commercialization. The question is why the private sector has received all the recognition and reward. Why don’t drug prices reflect the original public contribution (even when the government reserves entry fees that force pharmaceutical companies to license their products)? Why are intellectual property rights so strong that they hinder knowledge sharing?

Part of the answer is that the pact between the private and public sectors – stipulating everything from legal ownership to privacy – is overly weighted in favor of corporations. Moreover, the same companies that have benefited from publicly funded innovations are now investing millions of dollars in lobbying for regressive regulations and tax policies, all to support their bottom line. Countering this undue influence will require ambitious new regulations to strengthen corporate accountability and transparency, starting with reforming the 10-K disclosure rules that have allowed Big Tech companies to conceal their operations.

But the state is not the only player in the value co-creation process. Workers too are major contributors, and you don’t have to be a Marxist to see that labor (and nature) creates at least as much value as the owners of the means of production. Ultimately, true stakeholder capitalism calls for a new social contract – underpinned by a new global economic consensus – that puts public value before private profit and fosters the “ecosystem” of value creation. In this vein, music producer Brian Eno attributes music-making not to genius but to “scenius”: the community scenes that connect, support and inspire individual creators.

The same is true throughout the economy. A healthy ecosystem involves competition between companies; but it also depends on cooperation. A thriving ecosystem requires the public, private and third sectors to work together in mutual partnership to foster innovation and the growth of new businesses.

The Covid-19 pandemic has provided two examples of pervasive threats to ecosystem health. The first was the development and production of vaccines. The six vaccine pioneers received around $12 billion in public money. This makes vaccines a public good, but they have not been treated as such. Under stakeholder capitalism, pharmaceutical production would find a fairer balance between public and private risks and rewards, and it would be geared towards global access.

The second example was the distribution of pandemic recovery funds. Tougher conditionalities were to be attached to the bailout funds that many governments were providing to businesses; and in the future, public subsidies must begin to require recipients to reduce their greenhouse gas emissions.

Despite all the attention it has received, Fink’s view of stakeholder capitalism focuses far too narrowly on intra-organizational corporate governance. By failing to address the broader landscape of extra-organizational and institutional relationships between different areas and sectors of society, Fink maintains the traditionally sharp distinction between stakeholders and shareholders.

Consider the results: BlackRock is Fox News’ fifth-largest shareholder at a time when the network’s on-air personalities openly seek to undermine American democracy and the rule of law, seemingly forgetting that American capitalism is built on of them. Which shareholders have an interest in this? — Project syndicate

Mariana Mazzucato, professor of economics of innovation and public value at University College London, is founding director of the UCL Institute for Innovation & Public Purpose.


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