Woke Capital: Uniquely American

Woke Capital: Uniquely American

The following is the address I delivered yesterday, February 23, to the 2023 Engelsberg Ideas Summit, presented by the Axel and Margaret Ax:son Johnson Foundation for Public Benefit.  A slightly expanded version will constitute my chapter contribution to the book the Foundation is putting together and will soon publish on the subject of “woke.”


Woke Capital: An American Problem, Requiring an American Solution

“Woke” is a global or at least a civilizational issue.

“Woke capital” too is a global or at least civilizational issue.

Both plague numerous countries, particularly throughout the Western world, wreaking havoc and undermining traditional social structures and market arrangements.

And yet both are, in very profound ways, predominantly and even uniquely American phenomena.

In order to explain what I mean by this and why it’s relevant, I will need to start with a little background.

First, the definition of “woke capital” as I use the term is “the top-down, antidemocratic means by which some of the most powerful and best-known men and women in business are endeavoring to change capitalism, to change the securities markets, and to change the fundamental relationship between the state and its citizens – in an effort to right historical wrongs and to ‘save’ the world.”

While woke capital has dozens of fathers – ranging from Woodrow Wilson, the 28th President of the United States, to Larry Fink, the founder and CEO of the largest asset manager in the world; from György Lukács, the Hungarian Marxist philosopher, to R. Edward Freeman, a renowned business professor and business ethics innovator – three men in particular help best to explain how and why this phenomenon became so significant and so potentially destructive.

Of these men, one is famous on a global level.  A second is also famous but far less so.  And the third is almost entirely unknown, completely anonymous to all but the most dedicated and focused financial historians.  One – the most famous of the three – is an intellectual giant and, to many, an intellectual monster.  The other two were mere businessmen with the best of intentions who sought innovation and advancement, only to see those innovations harnessed for disreputable purposes.

The first of these men, the intellectual giant/monster is Herbert Marcuse, the Marxist philosopher and late-comer to the Frankfurt School.  Although he was German by birth, educated at Frieberg, and intellectually at home with Adorno, Horkheimer, and the rest of the Frankfurt refugees, Marcuse was, nevertheless, America’s own critical theorist.  He wrote his most important works in the United States.  He worked for the U.S. government for seven years during and after World War II.  And when Horkheimer and Adorno moved their school back to Frankfurt after the war and its ugliness, Marcuse stayed behind, choosing to become and to remain an American until his death.

Marcuse’s impact on the development of woke ideology and woke capital was as significant as it is enduring, and it can be seen in three monumental contributions.

First, Marcuse is very much the primary architect of what we know today as “woke.”

Although it is generally acknowledged that “cultural Marxism” had its origins in post-World War I Europe, with the emergence of theorists like Lukacs, Gramsci, and the Frankfurt Critical Theorists, woke itself is something notably different, albeit derived from, what those original Marxist revisionists had in mind.

Forty-one years into the cultural Marxists’ long march through the institutions, Marcuse gave up and conceded defeat.  His book, One-Dimensional Man, was a eulogy for the Long March.  It was also a primal scream in frustration at the persistence of that which Max Stirner called “egoism,” and a blueprint in its own right for advancing the revolutionary cause and promoting the revolutionary mindset.

Marcuse conceded that the capitalist system was simply too good at providing goods and services that made the masses comfortable and happy, thus depriving them of ever knowing or caring about their true oppressed consciousness.  Workers had become one-dimensional consumers, distracted from their fate by their egos.

As a result, in order to facilitate the revolution, the Left would have to abandon the “workers of the world” and would have to recruit an entirely new revolutionary class.  Marcuse suggested the socially oppressed: racial and ethnic minorities, women, sexual subgroups, etc.

Marcuse’s focus on identity evolved, over time, into political correctness and then, into “woke,” which is our present-day plague, powerful, punishing, and equipped for battle.

Marcuse’s second significant contribution was in making cultural Leftism intellectually respectable and academically acceptable.  Marcuse just happened to be in the right place at the right time and happened to possess both the skill and the ego to manipulate the American media and intellectual establishments into believing that he and his ideas provided the philosophical and ideological foundations of the New Left.  Most of the student leaders of the New Left professed little or no knowledge of Marcuse or his work, insisting that he had no influence on their movement or their tactics.  Nevertheless, Marcuse became a celebrity intellectual, a hero to those who detested Nixon, the Vietnam War, and the “square” culture of post-War America.  And as he made cultural radicalism look cool and smart, he also made it intellectually desirous.  As Thomas Wheatland noted in his 2009 book The Frankfurt School in Exile, “Although they wrote and lectured about an Intellect tradition critical of most aspects of U.S. soci­ety, scholars of the Frankfurt School were invited into the establishment, earning chairs at such prestigious universities as Harvard, Yale, Princeton, Cornell, Columbia, Duke, the University of California at Berkeley, and the University of Chicago.”  All of this took place, in large part, because of the efforts made by Marcuse to simplify and popularize the intellectual tradition of the cultural Left.

Finally – and relatedly – by popularizing cultural Leftism and by associating it with the New Left student movement, Marcuse took what had been a speculative and theoretical field, a mostly academic exercise, and turned it into a full-blown, living, breathing activist endeavor.  This transformation took place within education, where the identity-politics/woke worldview evolved into a full-blown epistemology that would come to dominate the teaching of all subjects in American academia, not just the social sciences, but administration, finance, and economics as well.  The transformation also took place in political communities, where half-educated “organizers” and “protestors” became full-time advocates for cultural and social change, harnessing Marcusian social radicalism to Alinskyite tactical radicalism.  And among the most controversial but most productive targets of this street-pressure activism were American businesses, which were, as a result, targeted from both within and without by Marcuse-inspired cultural extremists.

The second man to play an outsized role in the rise of woke capital could not have been more different from Marcuse if he’d tried.  Famous – and largely beloved – within the American financial community, Jack Bogle was a full-throated capitalist, a Republican, the founder of the Vanguard Group, and the inventor of the index fund.  It is in this last capacity that Bogle unwittingly though NOT entirely unknowingly aided the rise of woke capital.

Bogle’s invention was both extremely powerful and extremely beneficial to small investors.  It allowed even those with relatively few assets to invest to nevertheless enjoy the advantages and safeguards of diversification, once the purview of the rich alone.  With the index fund, Bogle changed investing, forever and, inarguably, for the better.

Yet even he understood that danger lurked in his invention.  In 2018, 42 years after he created the first index fund and just a few months before his death, Bogle took to the pages of the Wall Street Journal to warn that his brainchild was, perhaps, becoming a little too successful for its own good.  Index funds, he noted, had quadrupled in size, relative to total market capitalization, in this century alone, growing from 4.5% of the total market in 2002 to more than 17% in 2018.  And their growth showed no signs of stopping.  “If historical trends continue,” he wrote, “a handful of giant institutional investors will one day hold voting control of virtually every large U.S. corporation.”

Bogle also noted that “Three index fund managers dominate the field with a collective 81% share of index fund assets”: the firm he started, Vanguard, the largest asset management firm in the world, BlackRock, and State Street.  These three firms – known collectively as “the Big Three” – had become enormous and would, over the next couple of years, prove Bogle was right to worry that a “handful” of firms could come to have outsized influence over every American corporation.

As of 2020, the “Big Three,” collectively, held, on average, about 22 percent of the typical S&P 500 company.  They held “18% of Apple Inc.’s shares . . . 20% of Citigroup, 18% of Bank of America, 19% of JPMorgan Chase, and 19% of Wells Fargo.” (1)  The leverage that gave them – and continues to give them – is both unprecedented and even unimaginable just a few years ago.  Moreover, the fact that the last three names in the list above also happen to be the first, third, and fourth largest wealth man­agement firms in the United States (with $1.35 trillion, $774 billion, and $604 billion in assets under management, respectively in 2020) amplifies their power to dominate shareholder decisions exponentially.

For their part index managers have always dismissed the idea that their combined power was a matter of concern.  They insisted that they all had independent investment goals and objectives as well as differing investment strategies.  Certainly, they had neither the will nor the means to “coordinate” on any corporate managerial matters.  And while that may have been true up until the day before yesterday, the emergence of “woke” investment concerns stemming from “sustainability” and ESG methodologies changed everything quickly.  On ESG matters, BlackRock and State Street are nearly perfectly aligned and they don’t need to coordinate, because their ESG research and proxy advisory services do the coordination for them.

Jack Bogle’s invention was inarguably a positive development for almost everyone in the markets but especially for small investors.  Nevertheless, because of its inherently low cost-structure and its unprecedented diversification, that invention enabled and continues to enable the manipulation of American capital markets to the benefit of three firms, two of which still aggressively pursue the ends of woke capital.

The third and final name in this uniquely American tale of woke capital is, as noted above, virtually unknown by all but the most detailed and obsessive financial researchers.  In 1981, Ted Benna, a benefits consultant for the Johnson Companies, had an idea.  He thought it might be worthwhile to help employees save for retirement by utilizing a tax loophole in the Revenue Act of 1978.  This loophole was intended to allow corporate executives to defer pay and bonuses without incurring immediate tax liabilities, but Benna saw a way in which the company could turn the relevant section of the law – section 401(K) – into a tool that would allow employees to defer a portion of their own salaries the same way, creating a retirement savings vehicle to comple­ment traditional pension plans. By 1983, companies across the country were offering employees 401(k) savings plans. By 1990, 401(k) plans held some $384 billion in assets, and by 1996 that number had nearly tripled to more than $1 trillion.

Today, nearly 60% of all American adults – and MORE than 60% of adults over the age of 30 – own stock shares in American corporations.  This compares to 33% in the UK, and a scant 16% in Germany, the largest economy in the EU.  America’s uniquely heavy reliance on defined-contribution pension plans – most notably 401(k) plans – is the primary reason this is the case.  Americans are invested – literally and figuratively – in the fate of equities markets because of Ted Benna.

As with Jack Bogle, Benna’s contribution to the growth of woke capital was both unwitting and an unforeseen consequence of an otherwise enormously positive development for markets and their participants.  Nevertheless, in combination with Bogle’s invention and Marcuse’s outsized influence, it created what can only be called a practical and ideological monstrosity.

Today, because of the contributions of the three men identified here, the United States faces a business and capital markets crisis.  A significant majority of Americans are invested in the equities markets, but they have no say in corporate behavior.  Their shareholder voting rights – and their voice – have been usurped by the passive fund managers who control their assets.  Average Americans provide an unprecedented share of corporate capitalization but have almost none of the power that traditionally comes with capital investment.  That power has been taken from them and is employed by massive asset management firms, the employees and executives of which are dedicated – often explicitly and in writing – to the advancement of woke ideology and principles, as advocated by Herbert Marcuse and refined over the decades.

This is not to say that woke and woke capital are not problems in Europe and other parts of the world.  They are, inarguably.  Nevertheless, the unique nature of the ad hoc, private American defined-contribution pension scheme, the unique and unmanageable size of the American passive investment business, the uniquely woke nature of American higher education, and the uniquely American critical theory that developed into identity-obsessed wokism have all combined to make this an American problem first and foremost.

Unfortunately, given the United States’ position in the global economic, social, and political spheres, its problems become the world’s problems, albeit a problem that most of the rest of the world has no ability whatsoever to solve.  To paraphrase Metternich, when America sneezes, the world catches cold.

The good news is that Americans – like Jack Bogle and Ted Benna – still tend to be creative, incisive, and ambitious, which is to say that the nation that unleashed this problem on the world and that, therefore, has the responsibility to fix it, also has the capacity to do so.

Stephen Soukup
Stephen Soukup
[email protected]

Steve Soukup is the Vice President and Publisher of The Political Forum, an “independent research provider” that delivers research and consulting services to the institutional investment community, with an emphasis on economic, social, political, and geopolitical events that are likely to have an impact on the financial markets in the United States and abroad.