Speakers
As Americans of all stripes debate contentious social issues, one group in particular is making its voice heard: corporate leaders. Citing the doctrines of “stakeholder capitalism” and “corporate social responsibility,” business executives are no longer content to fulfill their obligations to their shareholders. Meanwhile, cutting-edge tech companies have gone from hosting fractious political arguments to participating in them. What does this entanglement between business and politics portend for the future of American democracy?
Biotech entrepreneur Vivek Ramaswamy went from being an accomplished investor to starting his own company, Roivant Sciences. In the process, he’s gained insight into the changing corporate world, in which his fellow executives wield their market power to advance their desired causes. As firms in industries from entertainment to finance wade into our political conversations, the nature of American capitalism is changing—and Ramaswamy can explain how and why.
On August 24, Manhattan Institute President Reihan Salam interviewed Ramaswamy about the future of American capitalism.
Vivek Ramaswamy (@VivekGRamaswamy) is the founder and CEO of Roivant Sciences, a biopharmaceutical company focused on developing transformative medicines faster by building technology and deploying talent in creative ways. After graduating from Harvard in 2007, he began his career as a successful biotech investor and oversaw investments in numerous companies, including those that developed curative treatments for hepatitis C virus. He continued to work as an investor while earning his law degree from Yale Law School, where he was a Paul & Daisy Soros Fellow.
Mr. Ramaswamy has authored numerous articles and op-eds which have appeared in diverse outlets including The New York Times, Harvard Business Review, and The Dispatch. He recently published two op-eds in the Wall Street Journal on the relationship between capitalism and democracy and the threat of undue corporate influence on public institutions. He has emerged as a prominent commentator on this topic, appearing on Fox Business, Tucker Carlson Tonight, and other programs.
Earlier this year Mr. Ramaswamy was appointed to the Ohio coronavirus task force. He serves on the board of directors of The Foundation for Research on Equal Opportunity, a nonpartisan think tank focused on expanding economic opportunity to those who least have it.
Event Transcript
Reihan Salam:
Good afternoon and welcome to our MI and Adam Smith Society eventcast, "Stakeholder Capitalism and the Future of American Democracy."
Reihan Salam:
I'm Reihan Salam, President of the Manhattan Institute, and I'm honored to be hosting Vivek Ramaswamy, the CEO of Roivant Sciences. Vivek founded Roivant before his 30th birthday and was responsible for the largest biotech IPO to date not long after. In addition to his success as an entrepreneur and investor though, he is also an insightful thinker about many other issues in the larger public conversation.
Reihan Salam:
Recently many of America's most proponent business leaders have argued it is no longer sufficient for executives to narrowly focus on earning a profit. Instead, business decisions should advance social causes. In op eds for the Wall Street Journal, Vivek has pushed back against this new woke capitalism questioning the wisdom of moving social activism into the corporate sphere. This topic is also the subject of his forthcoming book on woke capital, which will be published by Hachette Publishing Group next year.
Reihan Salam:
So I'm very glad he has agreed to speak with us today to give us some insight into his thinking and a preview on what I'm sure will be an important book.
Reihan Salam:
Throughout the conversation, please feel free to submit your questions on whatever platform you're watching us on, and we will save some time at the end and do our best to get to as many of them as we can.
Reihan Salam:
Vivek, thank you for joining us. It's great to have you here.
Vivek Ramaswamy:
Thank you, Reihan. Glad to be here.
Reihan Salam:
Vivek, stakeholder capitalism has been champions by a number of luminaries, including the Democratic nominee for president Joe Biden, former Vice President Al Gore, and 181 CEOs who signed a Business Roundtables endorsement, a stakeholder capitalism last year. In their statement, the Business Roundtable identified the groups they believed ought to be given the same consideration as shareholders, customers, suppliers, workers, and the wider community, which people take to be a byword for the environment.
Reihan Salam:
Interestingly, in a speech on the economy in July endorsing stakeholder capitalism, Joe Biden added the country as a stakeholder with a claim on business leaders. And there's reason to believe that this intellectual shift is having a real impact on markets. For example, the size of ESG funds, investment funds that prioritize environmental, social, and governance factors in their investment decisions, has grown by $70 billion since April of this year. Bringing their total assets under management to $1 trillion. Why isn't stakeholder capitalism a sound response to concerns over inequality and climate change? What is this distinguished group getting wrong in your view?
Vivek Ramaswamy:
Yeah, sure. Look, I think this philosophy of capitalism has been on the rise actually for the last decade. It has accelerated in the last year, in the year of 2020, the year of COVID-19, the year of Black Lives Matter. It has quickly been crowned as the governing philosophy for corporate America. So there's no doubt about that.
Vivek Ramaswamy:
Now Milton Friedman, thinkers from the 20th century might have worried that a shift from shareholder capitalism would cause companies to operate less efficiently, to be less profitable, to leave investors and workers worse off. And I have to admit I do share some of those concerns myself.
Vivek Ramaswamy:
But Reihan, my main problem with stakeholder capitalism is actually different. It's that stakeholder capitalism demands that corporate leaders, people like me, play a fundamental role in determining and implementing our society's core values. And in order for a CEO to pursue societal interests in addition to shareholder interests, companies first have to define what those other societal interests should be and that isn't a business judgment. It's a moral judgment.
Vivek Ramaswamy:
So speaking more as a citizen than as a CEO, I got to say that I do not want American capitalists to play a larger role than we already do in defining and implementing the country's core political and social values. And I personally think those answers ought to be determined by our citizenry and answered through our democracy.
Vivek Ramaswamy:
In my opinion, business leaders like me have no special standing to determine whether... Well, let's just take one question, whether a minimum wage of American workers is any more important than full employment or on the issue of climate change, whether minimizing society's carbon footprint is necessarily more important than raising prices on consumer goods. Those are issues that belong to our citizenry to determine through our democratic process.
Vivek Ramaswamy:
Let's take an example. I lead a biotech company. I have a lot of personal beliefs on matters that go far beyond drug development. I'm vegetarian. I don't eat meat because I think it's wrong to kill sentient animals for killinary pleasure. That's just a personal belief. We can talk about that another time. But I don't ban our employees from eating meat. I don't believe that I have any special standing to legislate my morals just because I happen to be a CEO. I do legislate our company's R&D budget, but I think it's a different question to legislate normative issues like whether or not companies ought to ultimately propagate vegetarianism anymore than they should particular views on climate change.
Vivek Ramaswamy:
The last point I make gray on just in opening this discussion is I personally find it puzzling that stakeholder capitalism is now viewed as a liberal idea. It's certainly popular among liberals today. A lot of liberals who love stakeholder capitalism think that that's the right model for capitalism going forward. But many of those same liberals also abhor the Citizen's United ruling. That's the Supreme Court ruling that permits corporations to spend money on elections. In my view, stakeholder capitalism is really Citizen's United on steroids. Unlike Citizen's United which only permits companies to implement their favorite political goals, stakeholder capitalism demands that companies do precisely that. And in my humble opinion, society created companies to provide goods and services that real people want, not to push social values that only a subset of people agree with.
Vivek Ramaswamy:
So in a nutshell, it's a little bit different than the critique that Milton Friedman or other classic capitalists from the 20 century may have had to offer in prior years.
Reihan Salam:
To what extent is this embrace of woke ideology on the part of corporate leaders a bottom up phenomenon in which you have corporate leaders who are responding to their employees and also to consumers, many of whom are consumers who are deeply invested in brands, deeply invested in the companies that provide the products they depend on, rather than something that is being driven by corporate chiefdoms.
Vivek Ramaswamy:
I actually think it's more top down than they let on. I think it's mostly been driven top down, and then there's a discursive cycle. Consumers are told by companies how they ought to think. Citizens are told by the companies from whom they purchase products how they ought to think, and then that's used as a veil to create a discursive loop where we create the feel of a bottom up movement when in fact a lot of those values are really legislated from the top down. That's what I effectively call corporate social irresponsibility.
Vivek Ramaswamy:
CSR, like ESG, is another one of these acronyms that defines this new movement of capitalism. CSR stands for corporate social responsibility. I call it corporate social irresponsibility. And the reason I say it's top down is I can say this almost speaking a little bit from if not personal experience, having a front row seat to the decisions of many of my fellow CEOs and may investors who run in the same circles.
Vivek Ramaswamy:
This is effectively the equivalent of a trick. It's a magic act. It's the final step of really making it in 21st century capitalism. And the trick goes like this: you pretend like you care about something other than profits precisely to make more profits. So to give you some examples of that top down trick that I think is ultimately perpetrated on our democracy, let's go through some examples. Examples even from this year. There's plenty of examples dating back over the last decade. Let's talk about examples over the course of the last 12 months.
Vivek Ramaswamy:
Goldman Sachs proclaimed that it wouldn't take a company public unless that company had at least one diverse director. Goldman was the sole arbiter who counted as diverse, but that was the rule. The trick there, in my opinion, distracting you from Goldman's codified status as a member of a small cartel that effectively enjoys toll booth status as a gatekeeper for every company seeking to go public thanks in part to securities regulations that were coauthored by that same cartel. All the while, and this is not to be conspiratorial about it, but I think it's really real. Putting further into distant memory the government's, what I view as shameful 2008 bailout of Goldman Sachs and other companies on Wall Street while Goldman Sachs last CEO was the sitting US treasury secretary.
Vivek Ramaswamy:
My industry isn't immune from the same thing. Earlier this year AstraZeneca, a big pharma company that I respect in many ways, announced to much fanfare an investment of $1 billion over the course of the next 10 years into environmental sustainability initiatives. The trick there, look, I think you can say it's distracting you from the fact that AstraZeneca still generates a billion dollars per year from the sales of a cholesterol medication that went generic over four years ago or the fact that AstraZeneca got over a billion dollars this year of taxpayer money to fund its own for profit vaccine candidates.
Vivek Ramaswamy:
BlackRock set up this sustainability accounting standards board. They're one of the pioneers, certainly CEOs is one of the leading advocates of stakeholder capitalism. Now the trick there I think, look, it's hard to parse line for line, but BlackRock did serve as the administrator for the governments most recent economic stimulus program. I personally think there's a decent chance that its CEO Larry Fink could be selected as the next treasury secretary, taking a page out of Goldman's playbook.
Vivek Ramaswamy:
And so we're seeing this pattern continue time and again in that top down way. Even Amazon jumped on board over the course of the last year. Amazon challenged Walmart last year. Jeff Bezos said a minimum $15 wage for its employees. Now do you think that that was really Jeff Bezos suddenly discovering after all these years a newfound generosity and magnanimity towards his workers, or do you think he was just co opting a popular social value to undermine his long time competitor when their profitability happened to be vulnerable? I think it's the latter.
Vivek Ramaswamy:
And I think one of the most concerning examples I saw earlier this year during the COVID-19 pandemic was even watching the Chinese get on the act. It was during the COVID-19 pandemic just this year where we saw a state affiliated Chinese company that charitably donated drones to US local law enforcement agencies to help enforce social distancing measures and contact tracing during the national lockdown. I think it doesn't take a genius to figure out the trick there likely through the form of free surveillance.
Vivek Ramaswamy:
So I absolutely think that while this has been wrapped up in the veneer of a bottom up movement, merely being responsive to what the stakeholders and constituents of a corporation, including customers, demand. I think the cycle was in many ways triggered by top down action taken by a small group of elites, and I think if America represents anything, it is the idea that we determine our most important social, political, and cultural values as a democracy where everyone's vote and everyone's voice is weighted equally. Rejecting the old school, old world European Conservative notion that church leaders work with business leaders to determine the common good. And if anything, I think this new model of stakeholder capitalism is reviving that Conservative European old world social thought in the skinny jeans and Arlbergs of the 21st century.
Reihan Salam:
Could one argue that if you're seeing corporate leaders recognizing that there's political energy behind centralized regulation, more coercive policies from government, that this is an approach, chiefly rhetorical approach, one could call it hypocritical, but an approach that could forestall that more destructive and more coercive regulation?
Vivek Ramaswamy:
Yeah. I think you could. It depends on what your ends are. I think that in many cases you could make the argument that, hey, at least capitalists determining this for themselves. The only thing worse than inauthentic capitalist would be the government getting involved stepping in to address those same issues. I think if we were having a discussion in the context of our democracy where we each have our own views, I have one voice. I'm one among many. My voice would probably on a similar side of many of those questions to problem yours and probably others who are the viewership of a call like this one.
Vivek Ramaswamy:
That being said, the question we're talking about is a different one. It goes to the integrity of our system itself. And if given the choice, if pressed to live in a world and live in a society in which we are able to adjudicate our decisions together as one people through our democracy whether or not we agree with the result, and sometimes get a result that we disagree with. Versus living in a world where I get the ends that I want but it's adjudicated through a system that subverts our democracy. I would choose the former.
Vivek Ramaswamy:
And I think that this unique moment of political polarization in America, I think we owe it to ourselves wherever we are in the political spectrum to stand at least for the integrity of our democratic process as a way of adjudicating our most important questions, no matter how strong our views maybe. And I have strong views on many of those questions, many of which aren't in favor of government regulation as the solution to addressing underlying problems.
Vivek Ramaswamy:
But the question we're talking about I think is a different one. And I think it is part of the reason I've become to some degree so outspoken about this issue is that I believe that calling out the corporate hypocrisy for what it is is itself a form of small public service on the issue where American consumers are able to see past that self interested veil, I think that alone moves the ball forward in terms of restoring the integrity of our democracy itself.
Vivek Ramaswamy:
As a successful young capitalist myself, the thing I was supposed to do was shut up and play along with all of this. I was supposed to wear hipster clothes, be understated, applaud diversity and inclusion, muse on how to make the world a better place, and I have to admit that's not a bad gig. But my reason for defecting from that more natural path is that that trick is I think quietly reeking havoc on American democracy. And I think that soon that damage threatens to become irreversible. It's creating a cultural shift in America from the top down. I think it happens to be ruining companies, but it's also more importantly dividing our country to a breaking point. And worst of all, it's concentrating the power to determine those American values in the hands of a small group of capitalists rather than in the hands of the American citizenry at large. And to me, that's not America but a distortion of it.
Vivek Ramaswamy:
So this new corporate culture of woke capitalism, I actually think it's playing both sides against each other to effectively perpetrate a fraud on democracy itself, not just as a bug but as the essential feature of that new philosophy of capitalism, and to me, while I generally tend to believe that solutions are better delivered to the people, not necessarily through centralized government but through other means, that's a separate question from whether or not we believe in the integrity of our democracy itself.
Reihan Salam:
Many of our viewers are business leaders or people who aspire to become business leaders, and you just touched on something that's of great personal interest to a lot of our audience. That is this question of when it felt safe for you to come forward and speak out on these issues. Is this something that you would recommend to other people, or is this something that is a path that's fraught with peril given that you are potentially a minority position within many elite companies, many leading companies? I'm curious if you could elaborate on that a bit.
Vivek Ramaswamy:
Yeah. Look, I think that it is not without risk. I think we live in a moment where the greatest monopoly in the United States... I wrote about this in the Wall Street Journal recently. The greatest monopoly in American capitalism today isn't a price fixing cartel. It is an idea fixing cartel that is increasingly narrowing the bounds of acceptable debate, of acceptable exchange of ideas, and within the market as our choice of consumer goods expands, our choice in the marketplace of ideas continues to narrow.
Vivek Ramaswamy:
So I think it is going to be up to leaders, not only elected leaders at the top but leaders in really every community in every sphere of our lives to stand up for the values of the free exchange and deliberation of ideas to let the marketplace of ideas ultimately determine which ideas represent who we are as a people.
Vivek Ramaswamy:
So I think that that's not without risk. But if you're a leader, I think by definition being a leader in part means being willing to take personal risks in order to make sure that other people don't bear the bad consequences of bigger risks. I think that that's a personal choice for each person to make. But I think part of the choice that I've made, not in the way that I run my company, but I'm really here in a personal capacity more than anything else. Speaking as a citizen more than as a CEO to be able to expose some of the issues that I've had a chance to see from the front row taken behind the curtain through my own successful journey as an entrepreneur that I wouldn't have seen if I was sitting on the outside as I might have been five or 10 years ago. So I feel some sense of responsibility to really expose what's happening behind the scenes, not for its own sake but because I think American democracy needs to actually hear what's happening from the top down.
Reihan Salam:
Why is it that stakeholder capitalism has become so popular and pervasive over the last decade or so?
Vivek Ramaswamy:
Yeah. So I think there's two answers to that question. I think first is an important shift in society, and I think there's been a separate shift within business culture itself. I think perhaps more interesting is the broader societal shift. And the short answer is that it was a grand bargain engineered by Wall Street to apologize for the apparent failure of classic capitalism following the 2008 financial crisis. I mean, there's a lot of complex causes, but if I'm going to give you a short answer, it traces back to 2008.
Vivek Ramaswamy:
In the '80s, the Reagan '80s, the Clinton '90s, the Bush early 2000s, whether you're on the center left, whether you're on the right, you favored the classical capitalism. Businesses pursue profits, that the greater good comes out of the pursuit of self interest and profit, not necessarily on an account of an intellectual argument but simply on account of widespread economic prosperity, stock market success. Whether you're Larry Summers, Bob Rubin on the left, whether you're Marty Feldstein, Greg Mankiw on the right, whether you're Clinton, whether you're Reagan, whether you're Bush, that was sort of the American conception was really a love affair with the classic capitalist model.
Vivek Ramaswamy:
All the way leading up to about 2008, and the 2008 financial crisis I would say then changed everything about public perceptions towards capitalism. Public attitude sour. The ugly stain on top of it was what I certainly view as the shameful 2008 government bailout of Wall Street. And before we knew it, at the end of 2008, the revolution was on Wall Streets doorstep. The Occupy Wall Street Movement was quite literally occupying Wall Street.
Vivek Ramaswamy:
And then something curious happened. Right around the same time, identity politics and woke culture rose to the fore right around the same time, and the best I can tell it was really just a coincidence of history. And that was interesting. That was interesting because it redrew the battle lines. It was a remix of the narrative of disempowerment. In the 20th century, the battle was between those who had economic power and those who didn't. But with the advent of woke culture, the new battle was between empowered classes like white men and disempowered classes defined on the basis of race, on the basis of sex, on the basis of sexual orientation. And that subtle shift in the definition of disempowerment, in the narrative of disempowerment actually gave American capitalists a once in a generation opportunity.
Vivek Ramaswamy:
Corporations now had an opportunity to convert from just being the bad guys to potentially becoming the good guys. Corporate power was itself no longer the perpetrator of disempowerment. Instead the new narrative went corporate power, if it was wielded by the right hands could actually be a good thing. Something that helped the new disempowered classes, and there enters the scene woke capitalism. More elegantly termed the multi-stakeholder model of the corporation.
Vivek Ramaswamy:
Occupy Wall Street became passe. Wokeness was now in vogue. And the corporation now would no longer exist to serve just shareholders but the interest of society at large, including and perhaps especially those who deserved the special protections that the rest of society had failed to afford. Women, persons of color, LGBTQ persons, people who are going to be disproportionately impacted by climate change. I think that that was one of the most quiet subversive events on the left over the course of the last decade.
Vivek Ramaswamy:
Reihan, I sent you this video beforehand, and if we have the technical capabilities, if we're able to put that up. I think the video-it's about two minutes-captures in a much more elegant way the phenomenon that I'm describing than anything else I can say. If we're able to put that up, that'd be great.
Video 1:
... have to do here. I just want some people to be aware of what's going on. Is that they do things by a consensus, which means everyone gets to be heard. And the way people speak at their General Assemblies is there are facilitators that keep a stack, which means a list of people who would like to speak. In New York, they use something called a progressive stack, which means if you have your name on a list and you come from a traditionally marginalized background, race, gender, ethnicity, anything that is traditionally marginalized, you get bumped up the list. So this means we want to be able to hear what everyone has to say. Also, one of the things stressed at Occupy Wall Street is the step up, step back. This means people who have been privileged all their lives, mainly white men, white women even, people who have been privileged need to realize that they need to step up and step back if they've already said what they had to say.
Video 2:
Is this supposed to be a totalitarian movement?
Unknown:
[inaudible 00:22:27].
Video 3:
I think it doesn't matter what their general background is because the majority of us are already part of the marginalized class of people. So it won't matter because more people who are under the marginalized group, we get to speak anyways. And I think a... What?
Video 4:
All right. Something we need to identify on class. When we talk about privilege, we're talking about access to [inaudible] power. Those things that come from your skin...
Vivek Ramaswamy:
I think you had a taste for it. So this was an Occupy Wall Street rally, not in 2008 when it first got started but three years later in 2011. It shows what happened from the inside out that woke values co opted the narrative of disempowerment based on economic disempowerment, redefining it along the lines of race, along the lines of gender, along the lines of modern woke values.
Vivek Ramaswamy:
That video actually reminds me of a quote that I heard from Hillary Clinton on the campaign trail in 2016 when she was pressed by the far left in her race against Bernie Sanders on why she was so protective of the big banks. And her response was-I think I'm quoting it exactly-, "If we broke up the big banks tomorrow, would that end racism?" So the way I look at it is that fighting racism suddenly became a great way to just change the subject.
Vivek Ramaswamy:
So it wasn't as though corporate leaders invented woke culture. They just got lucky that wokeness was born right when they needed it most. And I'll tell you that Wall Street and Silicon Valley did what they do. They pounced on the opportunity. Capitalists on both coasts were able to articulate this new conception of social purpose not as an alternative to capitalism but rather through capitalism itself, which I think was the essential genius of it. Now I think that we need to move on to the next generation to really call out in history what exactly happened so that not only our consumers but our citizenry can see with a clear eye exactly what happened to make sure that we aren't duped in the process.
Reihan Salam:
What is it about American business that made it right for the rise of stakeholder capitalism and for the embrace of woke capitalism as you described it?
Vivek Ramaswamy:
Well, I do think there was this second trend, and I'm glad you brought it up, which is a change in corporate culture itself. I think those of you who are viewers in the audience that come from the investment world, from the business world, from the corporate world. You'll be interested in the long standing battle between the ownership class and the managerial class of a business. And in a nutshell, stakeholder capitalism represents an unambiguous victory for the managerial class.
Vivek Ramaswamy:
I'll tell you what I mean. So by way of analogy, in high school, we all learned that there are three branches of government. The executive branch, the legislative branch, and the judicial branch. That's what the Constitution says. But for those of us who have seen the real world, we also know that there's a fourth coequal, arguably even more powerful branch of government called the administrative state. That's the alphabet soup of government agencies, which technically sits underneath the president but in practice becomes accountable to no one. Certain people are appointed by the president but functionally can't be fired by the president, at least no without significant political consequence. The chairman of the federal reserve, the commissioner of the FDA, the commissioner of the FCC, and so on.
Vivek Ramaswamy:
Well it turns out there's a parallel reality in the corporate world. In business school, you learn that there are founders who start businesses, investors who fund businesses, and employees who work for businesses. But hereto, there's a fourth invisible class that wields silent power. The elite hired hands who I call the managerial class. Like all human beings, this is the C Suite by the way. This is when you think about the C Suite of a company, that's who you think about, the managerial class. And like any other human being, members of the managerial class pursue their own self interest above all else. And unlike shareholders, they collect a salary. Unlike shareholders, they often own a small piece of the business and sometimes none at all. And unlike shareholders, they have a public reputation to maintain. So unlike shareholders, as you'd predict, they care not only about financial power but also about their social and cultural power.
Vivek Ramaswamy:
Now here's a dirty little secret that they don't teach you in business school. The more shareholders there are in a business, the better it is for a manager because by being accountable to everyone, that manager becomes accountable to no one. It's often why I see CEOs of private companies that so badly want to take their companies public. I see that phenomenon in biotech all the time. Now stakeholder capitalism takes that impulse, that desire of the managerial class, and then supercharges it. By saying that the manager isn't just accountable to shareholders but to society at large, those managers become accountable to everyone and therefore to no one in one fell swoop.
Vivek Ramaswamy:
Reihan, that isn't just an issue that's localized to business. I actually think it represents quite possibly the most important dividing line in our society at this moment in American history, and I know that's a big thing to say. But I actually think the real division in America today isn't between Democrats and Republicans. It is between the rich and the poor. It isn't between white people and Black people. The real division is between the accountable and the unaccountable.
Vivek Ramaswamy:
The accountable are the people who actually have to work hard to maintain their positions. The unaccountable are the people who enjoy tenure, the people who enjoy union protection. The accountable are the people who can no longer make a livelihood if they actually fail to serve their customers. The unaccountable are those who enjoy toll booth status in the economy, often as a function of government regulation implemented by a government that they captured through lobbying. Think about the Goldman Sachs example from earlier. Stakeholder capitalism's important because it lays bear that battle between the accountable and the unaccountable not just in corporations but across America.
Vivek Ramaswamy:
Now you might observe, and I think it's a fair point to make that a lot of the proponents of stakeholder capitalism today aren't on the face of it members of the managerial class but are literally the shareholders themselves. For example, BlackRock, aren't they an investor? What about pension funds that demand stakeholder risk values? Pension funds demand companies abide by certain social values. Aren't they actually investors? I think you need to take a magnifying lens to who actually controls the capital versus who capital it really was. It turns out that members of the managerial class work at investment institutions as well.
Vivek Ramaswamy:
Larry Fink is the CEO of BlackRock. He is an investor. He's the manager whom BlackRock's shareholders have elected to run BlackRock. The person who makes the decision of where a pension fund invests its money is not the same person as the pensioner whose dollars are actually invested.
Vivek Ramaswamy:
So I see this analogy just like we see in government, the leaders of agencies in the administrative state, the elite managerial class in the business world is increasingly accountable to no one as well. I think that that battle between the managerial class and the ownership class is something the victory of the managerial class over the last decade I think in part accounts for the rise in popularity of stakeholder capitalism from within the corporate world as well.
Reihan Salam:
When you're looking at government, the lack of accountability in government, the idea of an administrative state that is not accountable to elected officials and what have you, the idea that government is so opaque yet gaining more and more power, one thing that's striking is that the American public has lost faith in many, if not most, public institutions. There are rare exceptions, military being one of them. But then you see a great deal of faith in a number of corporations. Amazon, for example, is a company in which Americans whether they're on the right or the left, they have more faith in Amazon than they do in many core public institutions. Could that be part of the stakeholder capitalism phenomenon? The idea that when you're talking about accountability in government, you're dealing with institutions that have proven themselves ineffective, that have proven themselves unaccountable. Whereas when people are looking to corporations, they're looking at institutions that have in some cases proven very effective, proven quite able in their ability to deliver outcomes for their customers.
Reihan Salam:
So could it be that people are trying to take these effective institutions and make them vessels for the kind of social values they care about?
Vivek Ramaswamy:
Yeah. I think that that's a good summary actually. I view it a little bit differently where people are actually using corporations as the vessels, but rather the corporations have... Companies like Amazon have done certain things incredibly well. Providing a wide range of goods at low cost to a lot of people. That's what companies were designed to do. But over the course of the last decade, I think we have seen the problematic natural extension of that, which is the seizure of power, not just in the market but in the spheres of our lives that extend beyond the market. The cultural spheres of our lives, the social spheres of our lives, and the political spheres of our lives.
Vivek Ramaswamy:
So I think that corporations have used the standing that they gained in the sphere of the market to be able to consolidate greater cultural social and political power and spheres outside the market, and then are using that to further consolidate their market power. And I don't think that our tools to think about the gatekeeper on the expansion of corporate power from the 20th century are really an apt vocabulary in thinking about the real essence of corporate power in the 21st century.
Vivek Ramaswamy:
In the 20th century, it was about anti-trust law. And I personally believe that a lot of anti-trust laws intellectually ill founded in the first place. But even if we take the presuppositions of anti-trust law as given, it's not a tool that is designed to police the use of market power to seize social power. It is designed to police the use of market power to further consolidate more market power. And then one of the questions that we got to think to bring the Burkean philosophy of the 20th century thought on containing corporate power into the 21st century is how we actually contain the scope of what these effectively unelected leaders are able to do not in delivering products because leaders shouldn't be elected to deliver products. That's what the market does. But how do we contain the scope of that corporate power to also influence our social, cultural, and political values?
Vivek Ramaswamy:
So I do think that it has been in part the competence in delivering goods and services effectively that has increased public trust in companies. But it should only increase public trust in companies to do that thing and to do that thing even better in the future, not to expand the sphere of ultimately impacting the other aspects of our lives, which I do think that civic institutions, not just government but civic institutions ranging from community institutions, religious institutions, educational institutions, nonprofits, the thriving set of activities that live beyond the sphere of the market ought to ultimately inform. And I think a culture in which companies are able to dictate the ways in which people define the non-market aspects of their lives is really a dangerous and dystopic world for what the future of America ought to look like.
Reihan Salam:
One dimension of woke capitalist discourse, many find grading, is the contrast between US corporate leaders weighing in on domestic controversies around social justice issues, racial divides, and much else while taking a very different stance when it comes to the internal affairs of, for example, China. You see this in the conversation around the NBA, it's many controversies around the treatment of Hong Kong and human rights abuses there, and also in Western China among the Uyghurs. So I wonder how do you make sense of that, the willingness to weigh in on US affairs and the relative reluctance to weigh in on internal affairs in China and other authoritarian countries?
Vivek Ramaswamy:
Yeah. So you bring up an important point that a lot of people haven't touched on. I haven't really talked about this in other forms either. But it is my opinion that the biggest beneficiary of the rise of stakeholder capitalism on a global stage is actually China. And the reason for that is even though Wall Street and Silicon Valley choose to-and the NBA for that matter, choose to push fashionable progressive ideas today on issues ranging from climate change to racial diversity. That could just as easily change in the future, and we should look at the ways in which even in this past year Beijing has successfully pressured American businesses to restrict US employees speech about China. Companies ranging from Disney to Marriott to the NBA have caved to that pressure. There's a whole separate conversation to be had about our educational intuitions. Universities like Princeton are now being policed by China as to what they teach about Chinese history to their students here in the US.
Vivek Ramaswamy:
So to me, it's hardly a stretch to then worry that corporate behemoths like Apple or Google or influential platforms like Twitter, all of which by the way have already collaborated with the Chinese Communist party on the regulation of acceptable speech in China could then bring those same standards of acceptability here to the US as well to appease their CCP affiliated stakeholders. Let's talk through some examples.
Vivek Ramaswamy:
Twitter suspended the accounts of Chinese activists at the 30th anniversary of Tiananmen Square. Apple removed songs from its iTunes store that referenced Tiananmen Square. Apple has outright banned the Taiwanese flag emoji in Hong Kong and Macaw. Google famously made a PR stunt out of its decision to get out of China nearly a decade ago only to have been recently privately exposed to have been working on a secret project with the Chinese Communist party to create a search engine that actually met China censorship standards. So I'd say that kneeling for Black Lives Matter and trying to take credit for that on an NBA game is one thing, but censoring speech in favor the Chinese Communist party is quite another.
Vivek Ramaswamy:
In my opinion, that is the true poison fruit of stakeholder capitalism and action because if society demands that CEOs improve society, then it entrusts those same CEOs with deciding what a better society looks like. Under stakeholder capitalism, who gets to decide? Who counts as a stakeholder? One company might decide that it's the Black community. Another company might decide that it's the Chinese Communist party. And for a company like Apple, which factually generates tens of billions of dollars in sales each year in China. The CCP absolutely counts as a stakeholder. So that fact means that multi-national companies like Apple and Google are effectively at risk of becoming something like Trojan horses for advancing interests of the CCP here in the US rather than the other way around.
Vivek Ramaswamy:
So the way I look at it is the rise of stakeholder capitalism on a global stage is a competitive advantage for dictatorships over democracies. It is a competitive advantage for China over the United States. And here's why, in liberal democracies like the US, if a business is to have stakeholders other than shareholders, it's unclear who counts as one of those stakeholders. But by contrast, in a place like China, the answer to that question is clear. There's one stakeholder other than shareholders. It's the ruling Communist party. So I think this is a question of not just commercial importance but geopolitical importance that we ought to think about in a much more careful way.
Reihan Salam:
There's a tension here that Luke and the audience has identified that I want to run by you. So the question from Luke is, "Vivek says companies go woke as a profit strategy but thinks it's degrading our democracy. Is it business's responsibility to forego profits to advance some civic goal?" Now to put this in the context of your remarks on China, one could argue that the NBA recognizes that it has a relatively youthful audience. Its audience shares a certain political sensibilities. And so advance in certain social justice messages is profit maximizing behavior. Whereas with the Chinese audience, it's a very, very different set of considerations. They're operating in a different environment. So it could be that even if the veil is taken away, we recognize this as profit seeking behavior. The underlying behavior is going to be the same. What do you make of that?
Vivek Ramaswamy:
I want to address Luke's question precisely.
Reihan Salam:
Of course.
Vivek Ramaswamy:
And then you raised a slightly separate point, which I think is important. Let me just address one point you raised because I think it's important to clarify.
Vivek Ramaswamy:
On the NBA and Disney and Marriott, I'm not talking about examples of adhering to local laws and regulations. I'm talking about US companies regulating US speech of their US employees on account of their CCP stakeholder attitude. The NBA is able to imprint Black Lives Matter on its court, is able to ultimately put it on the jersey of every player, yet is silent, purposefully silent about what's happening with Uyghurs in China. It's not because the NBA necessarily has a different point of view. It's ultimately taking their profit oriented interest in China into account when making bad decision.
Vivek Ramaswamy:
So what I want to come back to though is Luke's question, which is well aren't companies just doing the thing that I'm saying companies should do, which is to pursue profits? And if they're going to be more effective at pursuing profits by espousing and publicly promulgating these woke values, isn't that a bit of a puzzle? And I think it's a good question.
Vivek Ramaswamy:
So though it may sound like I am being critical of companies, I'm actually... My essential point is a slightly different one. I think that we as a society, speaking not as a CEO but as citizens, ought to view those actions with deep skepticism. That we as a democracy ought not demand of companies that they do anything other than the pursuit of profits. That Joe Biden as a presidential candidate should not demand that companies do anything more than pursue profits. And if it then turns out in that world that companies are going to do what they need to do in order to make a buck, great. That's what society created companies to do. But the societal consciousness about understanding exactly what's happening rather than conflating their profit oriented behavior with moral behavior is in part the solution itself.
Vivek Ramaswamy:
So I'm not saying that companies should be prevented from doing this legally, far from it. I think that would be a terrible idea. I'm not even saying that companies are necessarily engaging in some type of nefarious, some sort of act that we should view as a corporate sin to be able to promulgate a social value if they think that's going to be more likely for them to make a buck. But what I am calling for is that for us as a society to see through that for what it is. And the irony is that once we do, companies will no longer be able to actually make a buck by doing it anyway.
Vivek Ramaswamy:
So I think it's a good question, and it's important to put a fine point on what the actual solution is versus isn't.
Reihan Salam:
Rahul has a question. "If Biden wins and enacts an expansive agenda, would that deflate woke capitalism? Would it be superfluous in a new era of big government?"
Vivek Ramaswamy:
Yeah. I don't know. I'd have to think about that, and I don't know what that expansive agenda would contain. That gets into the realm of making political sociological predictions. That's not really my expertise.
Reihan Salam:
Of course.
Vivek Ramaswamy:
You're guess would be as good as mine. I do think that we're going to see with the evolution of woke culture is either by 2024 there's going to be a lot worse than it is now or it will have subsided and been diluted by other issues that really drown it out. And I'm not sure which of those two directions we're going to see evolve over the course of the next few years.
Reihan Salam:
Robert asks a skeptical question. "Is there really a narrowing of ideas taking place, or is that only descriptive of the experience of well educated professionals making their careers and lives in a handful of cities? If you're not subject to these social constraints, you have a lot of center right media and a largely unregulated internet conversation." Now you've argued that there really has been a narrowing of ideas and that woke capital has played an active role in this part. And that rather than be concerned about anti-trust and the concentration of corporate power or rather of market concentration, that we ought to be concerned about this rising monopoly of ideas.
Reihan Salam:
So tell us your reaction to Robert's question.
Vivek Ramaswamy:
Yeah, sure. So I think the short answer is I think it's a good question. But I do think that the platform power of a lot of the modern technology companies, as well as the platform power I would say of companies that otherwise enjoy government create toll booth status like large investment banks are indeed narrowing the scope of ideological permissibility. Let's just talk through some specific examples that are relevant to this year. We're in the year of COVID-19.
Vivek Ramaswamy:
Earlier this year YouTube decided that it was going to begin removing political videos that it deemed were untruthful. The site has taken down a number of videos on this premise, including videos that were politically critical of COVID-19 lockdown policies in certain states. Whatever you think about the validity of the COVID-19 lockdown policies adopted by certain states, you can also agree that it is one of the most important scientific and public policy debates of the year. And YouTube's state litmus test was that look, the WHO's assessment of what is or isn't truthful is going to be our litmus test of what's true. But you ought to be concerned about this not just from the standpoint of democracy but also from the standpoint of science because under that standard, in January of this year, YouTube by definition would've removed any video that claimed the coronavirus could be transmitted person to person since that ran contrary to WHO's stated position at that time.
Vivek Ramaswamy:
So I do think that you could say is there some other corner of the internet in which you could have access to that same video? Sure, you could have. But functionally in our lives this is the place where someone goes where they want to watch a video online. I don't know for sure, Reihan, but maybe this video link of our conversation today will be principally made available on platforms like YouTube and Facebook.
Vivek Ramaswamy:
And speaking of Facebook and speaking of COVID-19 this year, they too created this polit bureau of experts to determine what type of speech were and weren't acceptable on its site. And I think it's worth recalling even just speaking as somebody who is say comes from the realm of science, speaking personally, I think it is worth at least recalling that as recently as March, most public health experts ranging from the surgeon general to the head of the CDC to Sanjay Gupta when I watched him on CNN were advising against wearing face masks. Now this is complicated. There were reasons why they were trying to tell a noble lie to ultimately preserve face masks for healthcare workers on the front line. I am sympathetic to that goal. My wife being one of them who got infected with COVID-19 herself while treating patients.
Vivek Ramaswamy:
But nonetheless, I think there's no such thing as a noble lie through the regulation of speech using platforms that ultimately inform what people ultimately provide the information that people get to make their own decisions. Now that previous error with respect to public health experts advice on masks obviously isn't a persuasive argument against wearing masks now. But it is an argument for some form of humility going forward because the past teaches us that even from the standpoint of science, many of our current beliefs, if we know one thing about our current beliefs, we know that many of them will be proven false in the future. That a determination of truth is always probabilistic. And I think in that way this notion of unfettered dialogue isn't just some sort of ivory tower, liberal arts luxury. I think it is a fundamental necessity for democracy and for science.
Vivek Ramaswamy:
So as we sort of see an expansion of corporate power in providing the platforms to facilitate communication, and I think that we have to recognize that that's in part a great contribution of the modern internet, of modern technology companies. We also have to be concerned about the ways in which those companies are now no longer just the platforms for providing open dialogue but are ultimately editing what type of dialogue is permissible on those platforms as well.
Vivek Ramaswamy:
So I don't find persuasive the idea that there are still remaining pockets for discourse for contrarian ideas as a comforting counter argument to the idea that we are seeing an expansion of corporate power in a way that is narrowing. It hasn't narrowed it to zero, and I think that's why it's important to have the conversation now before it narrows to zero. But the fact that it hasn't yet narrowed to zero doesn't mean that it still isn't narrowed in a problematic way in our present moment.
Vivek Ramaswamy:
[crosstalk 00:46:49][inaudible 00:46:49]
Reihan Salam:
You suggested that anti-trust is not an appropriate solution for dealing with this rise of woke capitalism. What do you see as constructive solutions, steps that we ought to be taking in order to curb this new form of power?
Vivek Ramaswamy:
So that's a complicated question. I guess I would go to the birth of the corporation itself. So if you don't mind, Reihan, I think it's worth first calling out something we haven't done, which is providing what I see as the best argument for stakeholder capitalism, at least what I view as the best argument for stakeholder capitalism. If you have a second, maybe we'll go through that and I can talk about some solutions from there. Yeah.
Vivek Ramaswamy:
So the best argument for stakeholder capitalism in my view goes like this: the modern corporation could not exist without the state permitting it to exist by giving shareholders of companies the great gift of limited liability. Limited liability means that by law a company's shareholders, including founders like me, including investors who back people like me, that those people cannot be directly sued for the acts of a company.
Vivek Ramaswamy:
Take a biotech company. Say someone gets hurt by a medicine that a pharmaceutical company makes. Today a patient can sue the company, but that patient can't sue the company's shareholders directly. And that shield is a great gift. Codified in the law from society to shareholders. So thoughtful proponents of stakeholder capitalism argue that in return for that great gift, companies have this implicit social contract to do good not just for their shareholders but also for society at large. And I personally think that that argument is compelling on its face.
Vivek Ramaswamy:
Classical capitalists like Milton Friedman reject that argument. They don't like it. But they don't have a great response to it.
Vivek Ramaswamy:
My own view is different. I think that at the birth of the corporation, state law, they actually did two things. It gave limited liability to shareholders and it also said at the same time that the board of a corporation owned a fiduciary duty exclusively to those shareholders to maximize profits. I agree that there was a social contract. I just happen to think that it was an explicit social contract codified in the law rather than an implicit one. And the explicit social contract goes like this: shareholders, you get this great gift of limited liability in return for limiting the scope of your activities to the sphere of the market. That was the grand market that in return for the great gift of limited liability, corporations were supposed to use their power solely to deliver consumers with goods and services that generated profits, not to seize social power, not seize cultural power, not to seize political power.
Vivek Ramaswamy:
This is not an unfamiliar notion. Take nonprofit law. 501(c)(3). Federal statute says that nonprofits only get the benefit of tax except status if they steer clear of activities that go beyond their scope, like veering into politics or veering into the pursuit of profit. Similarly, the initial deal when society birthed the corporation was a deal with capitalists that said that you get the great benefit of limited shareholder liability but only if you stay in your lane in the market. Out of that is born I think the basic solution, which is to limit the scope of limited liability.
Vivek Ramaswamy:
So corporations activities which go beyond the sphere of the pursuit of profits should no longer be shielded, should no longer shield its shareholders from limited liability. Now of course if a corporation is selling goods or providing services for profit, I don't think its shareholders should be sued. There was good logic for why we decided in the first place that there was limited shareholder liability. But what if BlackRock demands that a company, one of its portfolio companies take steps to prevent climate change? I certainly think BlackRock should be legally permitted to do that, but I also don't think that BlackRock should enjoy the benefit of limited liability for a portfolio company's advocacy work on a social issue.
Vivek Ramaswamy:
So let's say you have an aggrieved consumer who pays higher prices for goods because of that energy company's decision or an aggrieved employee who loses his job because he ultimately was the casualty of a decision that that energy company made. If that consumer or that employee wants to take legal action, is aggrieved and wants to be compensated for it, they should be able to not only go after that company but in principle, they should be able to go after BlackRock directly for that narrow set of actions, not for its profit oriented activities but for the set of activities that go beyond the pursuit of profit. And I predict that simple change will end stakeholder capitalism as we know it. That's not a form of regulation. In a certain sense, it's a form of deregulation by limiting the scope of this great gift of limited liability that the state gave to a corporation's shareholders in the first place.
Vivek Ramaswamy:
Now of course what's BlackRock's response to that in that hypothetical example going to be? Oh, no, no, no. Just kidding. It really wasn't about the pursuit of social values. It really wasn't about climate change. This was just about the long run pursuit of profit for that company. And that could be a valid defense if they could prove it. But to me, that is an end of stakeholder capitalism in a different way because it really calls out to the fore that the thing that we're talking about is the same thing we've been talking about for decades in capitalism in the first place is simply the pursuit of profits. But calls out somewhat the intellectual dishonesty of claiming that there was some other social objective that we were actually pursuing.
Vivek Ramaswamy:
So I think if anything, even the conversation prompted by the possibility of limiting the scope of limited liability is actually one of the cleanest solutions to ultimately respecting the grand bargain that was made at the start of the birth of the corporation in the first place. I have a couple of other ideas too, but that was-
Reihan Salam:
I wonder, do you worry that introducing this idea of limiting the scope of limited liability is something that could be used to further woke capitalism and further the agenda of the stakeholder capitalists because you have your intention as to what that would look like and the scope of this deregulation as you call it. But then it could be used by any number of any activists investors to further weaponize the corporate form to advance other social objectives.
Vivek Ramaswamy:
I'd have to think about that, Reihan. But on the face of it, I don't think so. And maybe let me clarify exactly what my position here is.
Vivek Ramaswamy:
I think that there was a very good reason and a reason we ought to preserve for creating limited liability for shareholders. It enables the aggregation of capital to scale businesses in a way that otherwise wouldn't happen if shareholders were individually liable for the acts of the corporation. I think we should keep that intact in so far as it applies to the sphere of the pursuit of profit through selling goods, services, the very thing that a business was created to do. And I think it would actually be an affirmative defense... I mean, if we were to play it out in a legal form, it would be a basis for a court to sustain a motion to dismiss on grounds of lacking standing or on grounds of being outside the scope of what an individual was able to bring against a company if the company's able to prove at the first instance that it was actually in service of the pursuit of profit, they could still go after the company. But they could no longer go after the shareholder.
Vivek Ramaswamy:
So as long as you're preserving the scope of limited liability for the pursuit of profit, you're actually clarifying the original intent of what society created corporations to do, to provide goods and services to people, to pursue profits, and ultimately not to use that great gift of limited liability as a source of power to seize cultural power, political power, or social power.
Vivek Ramaswamy:
So I'd have to think about it more, and I'd love to maybe hear if you could lay out a particular example. We could think about it on the fly. But I think if done in the right way and framed in the right way, this actually sets the terms for ultimately preserving the integrity of capitalism as distinct from democracy, which is ultimately what I think we ultimately need to accomplish.
Vivek Ramaswamy:
And the only thing I would say is I'm actually even more interested... Less interested in the way this gets adjudicated out in the courts, but it is in the shadow of that possibility that we ultimately will end stakeholder capitalism as we know it because every company is then going to say that actually all of these woke values that we're professing as our own are really just in the service of long run profits. And we get limited shareholder liability. Actually, we don't want our shareholders to be sued. All of this just about the pursuit of long run profit. Then that's fine, but I think that that makes very clear for society and reduces the risk that I outlined in response to Luke's question, which I actually see as the main issue, is when American citizens are duped by the idea that these corporations might actually be pursuing social good when, in fact, they're only pursuing profits. And by making that an affirmative defense, we ultimately force corporations to actually say the essence of what's going on.
Vivek Ramaswamy:
So it's really less as a legal lever than creating the conditions in the shadow of which the illusion of stakeholder woke capitalism goes away.
Reihan Salam:
We only have a few more minutes left so I want to ask one question. One of the most persistent arguments raised by the partisans of stakeholder capitalism is that shareholder capitalism is excessively short term in its orientation and that, for example, we're not getting the investment in basic science. We're not getting the investment in research and development to yield breakthrough innovations that we really need.
Reihan Salam:
Now you're obviously in entrepreneur in a sector that depends on research, that depends on innovative products. So I wonder if you could offer some thoughts on whether or not corporate capitalism as it exists in 2020 America is actually yielding those kind of breakthrough innovations that we need if that part of our capitalism is sufficiently healthy.
Vivek Ramaswamy:
Yeah. Look, I think that that's a common argument from advocates of stakeholder capitalism. That it's actually the pursuit of the straw man of short run profits is actually the bad guy. The pursuit of short run value is the wrong way to sacrifice long run shareholder value. I happen to agree with that point. I think long run lasting value is more important both for an individual business and for society at large than short term stock price movements or managing to quarterly earnings. I just disagree that that's actually what stakeholder capitalism is really all about because if that's what we were talking about, that's an important debate. But it's a debate that's really internal to classical capitalism itself. So I think that for the purpose of at least the main topic of today, that's a contained debate to the sphere of classical capitalism itself.
Vivek Ramaswamy:
Now for a moment to get into it since you asked about it and it's a good question, I happen to think that on inspection, I'm not saying that the number of examples on this list is going to be zero. But I'm going to say it's going to be a lot closer to zero than you first think. Is that there are exceedingly few examples that aren't going to be addressed by a classical model of capitalism, including investment in R&D because what is a short term time horizon for one party becomes an opportunity for somebody who has a longer term time horizon than that competitor.
Vivek Ramaswamy:
So I think that the burden of proof certainly rests in really in a rigorous way calling out the case where something isn't going to get done even in an economy where you have a competitive advantage from someone who takes a long run view. Berkshire Hathaway was certainly on the face of it built on that principle. In many ways, it's the principle on which Roivant, my own company, has been built as well. I think the nature of short term dislocations that short term actors bring to the table actually just create opportunities for real capitalists who are thinking for the long run.
Reihan Salam:
Vivek, that's all the time we have. It was always a pleasure to speak with you. Thank you for taking the time to join us and address our audience. Thank you as well to everyone who joined us this afternoon and sent in great questions.
Reihan Salam:
If you'd like to join us for more conversations like this one or support our mission, I'd encourage you to subscribe to our newsletters or consider making a contribution. There are links for doing both in the comment section on your screen.
Reihan Salam:
Vivek, thank you again. This was terrific. I very much look forward to your book.
Vivek Ramaswamy:
Thanks, Reihan. I look forward to it. Thanks for having me.
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