18 Jan The Ruling Class-Country Class Chasm and ESG’s New Era
The following commentary/analysis is one I wrote in my capacity as a senior fellow at “the nation’s oldest consumer protection agency,” Consumers Research, where, among other things, I compile a weekly letter for public pension-fund managers. I am sharing it here today because I thought it might be useful to some of you.
What the CEO of Allianz Sees as “Political Risk”
The other day, in Davos, the CEO of the German insurance and asset management giant Allianz declared that Western governing “elites” are increasingly detached from the “working classes” in their countries, creating significant political risk:
Asked on the sidelines of the World Economic Forum in Davos, Switzerland, on Tuesday what he considers the main global risk at present, [Allianz CEO Oliver] Bäte pointed to a lack of trust from populations in their governments across major democracies.
“You’ve seen recent elections in the Netherlands, you’ve seen it in France, and societies are polarizing because our leaders are not addressing the needs of the people,” he said….
“We have an increasing detachment of the political elite from the working class and the people that actually go to work every day, and that, I see as the number one risk for our societies,” Bäte said.
For an attendee at Davos, this is surprisingly insightful – low bar though that might be. Bäte’s statement here is inarguably accurate. Unfortunately, it is many other things as well, all of which mitigate that accuracy.
First, Bäte’s discovery that the governing and working classes are separated by a massive and widening gulf is only about 16 years late.
This weekend will mark the 15th anniversary of Barack Obama’s inauguration, a historic day in American history. To reach that point, Obama, a largely unknown first-term Senator from the middle of the country, had to defeat two other sitting Senators, one of whom also happened to be the former First Lady of the United States and likely the most famous woman in the world, and the other of whom was longtime Washington insider and legendary war hero. It’s easy to forget now that he’s the most famous person in the world himself and still the behind-the-scenes leader of the Democratic Party, but Barack Obama should never have had a chance in the 2008 election. The only reason he did was the American people’s frustration with and dislike for the rest of their political class. Obama’s election marked the first shot in the great Country Class Revolt.
Of course, when Obama proved to be “more of the same” rather than “the Change we’ve been waiting for,” the Country Class quickly turned on him as well, enabling the rise of the Tea Party movement, followed swiftly by midterm elections that effectively neutered the remainder of his presidency.
This was followed, in turn, by the Occupy Wall Street movement; the nomination of Donald Trump, the ultimate political outsider over a host of long-serving, experienced politicians; Brexit; the election of Donald Trump, against all odds; the gilets jaunes/yellow vest movement in France; the Canadian Truckers’ revolt; the collapse of successive Conservative British governments; the Dutch Farmers’ revolt; etc., etc., ad infinitum.
In short, while it’s interesting that Oliver Bäte and Allianz are noticing the separation between the governing and governed classes, it is indicative of their rather profound lack of awareness that they are noticing it only now, after more than a decade-and-a-half.
The second mitigating characteristic of Bäte’s discovery of this political risk is that it is remarkably self-serving. He sees this as a problem facing governments alone, a political class issue. In truth, this is a ruling class issue, which is to say that the widening gyre he identifies exists not just between governments and their citizens but also between the ruling class and the country class, between people like him on the one hand and everyone else on the other. “The people” are not unhappy merely with their politicians but with their social and economic overlords as well.
During his little diatribe on the gulf between the classes, Bäte says, among other things: “And remember, this year a lot of people are going to vote, so we need to make sure that they vote for the right things and are not just venting anger.” Anyone who believes that there are “right things” for which voters must vote and that everything else is just the “venting [of] anger” is part of the problem, is representative of an authoritarian mindset. Anyone who would say it out loud, in front of a global audience, is so convinced of his own righteousness and so confident that his own beliefs are shared by all “right-thinking” people that he needn’t sugarcoat them. He says the proverbial “quiet part out loud” largely because he’s so far removed from reality that he doesn’t even realize that it’s supposed to be the quiet part.
Additionally, Bäte declares that it’s important for governments to be honest with people and to tell them the truth, even if it’s hard to hear. For example, he says, the government must tell people that there’s no money left for consumption and “therefore, we cannot fund your hobby anymore.” Here, Bäte is addressing his own German people, referring to the recent spate of protests throughout his country. And for the record, the “hobby” that he so condescendingly derides is farming.
Finally, in addition to everything else, Bäte’s declaration of political risk is also, and perhaps most importantly, a declaration of defeat for ESG as it has existed to date.
As every schoolboy knows and as I have noted ever since I began covering the subject several years ago, ESG is, above and beyond everything else, an attempt to achieve public policy goals without the interference of the public. To paraphrase Clausewitz, ESG is the continuation of policy with other means. Or, as I write in The Dictatorship of Woke Capital, ESG promises to tackle the tough policy issues and to provide a workaround to democracy, “offer[ing] a quasi-regulatory solution to the problem of a disappointingly intransigent electorate.”
The catch here, however, is that investors have been rather intransigent themselves of late. Part of the problem for ESG is that people like me and Vivek Ramaswamy (and Rupert Darwall and Richard Morrison and Andrew Stuttaford and Russell Greene and Will Hild and countless others) exposed the political nature of the project, inspiring a (justifiably) political response. The bigger part of the problem, however, is that the ESG rhetoric never matched the reality, and when the central banks removed the free-money trough, ESG was exposed as a lower-return investment strategy and, more to the point, part of the Galbraith-ian good-times bezzle. And so, for the last two years-plus, American and, increasingly, British investors have been telling ESG and its advocates to go take a long walk off a small glacier.
The statement by Oliver Bäte at Davos is important because it quite clearly shows the direction ESG will take in this new environment. When he tells governments to be honest with their citizens and to tell them the “truth,” he is shifting the balance of power and responsibility for “sustainability” back to government and away from private businesses. He is conceding that the ESG project was too clever by half, that it was never going to be as easy to fool all of the people some of the time as he and its other advocates had hoped. He is admitting that ESG needs the power of government (with its Weberian monopoly on the legitimate use of physical force) to achieve what its low-key coercion tactics could not achieve on their own. In essence, he is declaring an end to the corporatocratic stage of ESG and inaugurating the corporatist stage.
Three years ago, Tariq Fancy, the former director of sustainable investment for BlackRock, famously derided ESG, calling it a “dangerous placebo.” Fancy insisted that the goals that ESG’s earnest believers wanted to achieve would always be impossible without the forceful intervention of governments. The difference between what Fancy declared in 2021 and what Oliver Bäte said in Davos earlier this week is that Fancy also conceded that ESG is a scam, little more than a marketing scheme. Bäte makes no such concession. Rather, he demands that governments – elected to do “the right things” – enforce the marketing schemes that have made him and Larry Fink quite wealthy and have made Klaus Schwab quite famous.
There is indeed a disconnect between the elites and the people. But Oliver Bäte, bless his heart, has no idea which side of that disconnect he is really on.