Opinion: Stakeholder Capitalism and ESG’s Road to Socialism

ESG and stakeholder capitalism use the regulatory state to control corporations for their own political and special interest

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This week, the World Economic Forum is planning to hold its annual meeting in Davos. Thanks to OMICRON, however, we have received a six-month sweetening of the elite “World Leaders” conferences and the collectivist policies they enact. This year’s meeting, now postponed until mid-year, will focus on how to accelerate “stakeholder capitalism” and its cousin ESG (short for “environment, social and governance”), two movements related that diminish economic freedom, which is the key to prosperity and bringing us closer to a new form of socialism.

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What do these two terms actually mean? The definitions are fluid by design, but broadly speaking, “stakeholder capitalism” means companies should not focus solely on maximizing returns to owners, but rather use their companies’ resources to solve social problems, thereby maximizing the benefits to various “stakeholders” (i.e. their employees, customers, suppliers, communities and countries). ESG is an even more nebulous concept relating to a wide range of causes from climate policies to “diversity” initiatives. There is more than 600 ESG reporting frameworks in use today, many of which conflict with each other.

The vague nature of the ESG framework raises a number of fundamental questions. What social and stakeholder “ends” to maximize? How should corporate leaders and boards of directors balance all the causes and interests of different stakeholders? And how do boards assess how effectively CEOs optimize social or stakeholder welfare, since stakeholder preferences and demands are often in conflict? A sufficiently imaginative CEO can claim almost anything that creates stakeholder value for at least one group.

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Economic freedom and market forces already answer most of the problems raised by proponents of ESG and stakeholder capitalism. Any successful business, big or small, must be accountable to the interests of its employees, customers, investors, and the communities where it operates. Businesses that fail to do so are not as successful or extinct in competitive environments. This is one of the great virtues of capitalism that proponents of stakeholder capitalism often overlook.

Adam Smith, 18th century philosopher and founder of modern economics, Noted The benefit that people acting in their own self-interest can have on society. “It is not from the benevolence of the butcher, brewer, or baker, that we may expect our dinner,” he wrote, “but from their regard to their own interest.” Simply put, businesses and entrepreneurs can only succeed by benefiting their customers – unless they are granted special privileges by the government.

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The quality of food and level of service we receive from our favorite restaurant is not the result of some sort of act of its owner, but rather the owner’s pursuit of success. By caring for their employees (by paying competitive salaries and benefits) and their communities (through sponsorships and other grassroots initiatives), businesses and entrepreneurs lay the foundation for success, which depends on satisfying the desires and customer needs.

But what’s true for small businesses is also true for Kevin Johnson at Starbucks, Satya Nadella at Microsoft, Tim Cook at Apple, and every other successful business leader. Their businesses can only achieve lasting success by providing customers with great products and services at a price they are willing to pay. And if they do, they are likely to maximize the value of their owners’ shares. Incidentally, many of these “owners” are pension funds that invest the savings of regular workers.

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If society wants us to want better social outcomes, including increased economic growth, better quality of life, more happiness, greater income mobility, and better environmental outcomes, then as the research clearly shows , we should primarily rely on the markets to make economic decisions. In short, we need more capitalism, which relies on the bottom-up forces of workers, entrepreneurs, investors, business owners and families deciding where to invest their labour, savings and entrepreneurial energies. Top-down regulations dictated by irresponsible politicians, bureaucrats and interest groups will not get us what we want. Decentralized voluntary action will be decentralized.

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It is worth remembering that ESG and stakeholder capitalism are really nothing new. They used to be called “corporate social responsibility” (CSR) and Milton Friedman warned against it 50 years ago. “Few trends could so deeply undermine the very foundations of our free society as the acceptance by corporate leaders of a social responsibility other than to make as much money as possible for their shareholders,” he said. writing. “If businessmen are civil servants rather than employees of their shareholders, then in a democracy they will, sooner or later, be chosen by the public techniques of election and appointment.”

Words that couldn’t be truer today.

ESG capitalism and stakeholder movements will ultimately see governments, unselected bodies such as Canadian securities administrators, and special interest organizations such as former Bank of England Governor Mark Carney’s Glasgow’s Glasgow Financial Financial Alliance, and, if necessary, require companies to choose the “appropriate” ends to achieve. In many ways, these movements are simply different approaches to socialism. Instead of governments owning the factors of production and seizing the generalized heights of the economy, ESG and stakeholder capitalism use the regulatory state to control corporations for their own political and special interest.

At a time when global elites are justifying mass social change in the name of public health and a more “equitable” future, it is time to acknowledge the socialist nature of their arguments and the inevitable stagnation and increased poverty even a softer and softer socialism would impose on citizens wherever it takes root.

Niels Veldhuis and Jason Clemens are economists at the Fraser Institute.

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