ESG and the Stakeholder – Smokescreens for Socialism
Amongst the myriad of half-baked schemes, concepts and dogmas being promoted by our political overlords, one might have encountered innocuous and seemingly harmless mantras such as “Environmental, Social and Corporate Governance” (ESG), “Stakeholder Capitalism” and “Diversity and Inclusion”. This article will explain why these, amongst others, must necessarily become smokescreens for increasing state control over the means of production.
The basic problem underpinning human society is scarcity. At any one time, the demand for an economic good is greater than the available supply. For instance, if there is only one apple, it is physically impossible for that apple to be eaten by both you and me. Thus, if we both desire the apple, then there needs to be some mechanism of determining which, out of the two of us, should get to eat it. Libertarians solve this problem through the right to private ownership. He who is either the first possessor of the apple (“user-occupier”) or who has received that apple later through voluntary trade has the exclusive right to dispose of it.
It is not only consumer goods such as apples that are scarce at any one moment. So too are all of the machines, tools and factories that make up the totality of capital goods – goods which are used to produce other goods. By applying the same rules of private ownership to capital goods we form the basis of trade and exchange, market prices, profit and loss, capital accumulation and a flourishing economy. This, in the long run, will produce more consumer goods for everyone, vastly ameliorating the condition of scarcity over time. In short, there will be more apples available at lower prices.
Socialism has usually been tolerant of the private ownership of consumer goods. It rejects, however, private ownership in the realm of capital goods (“the means of production”), preferring instead “collective ownership”. But the notion of “collective ownership” is clearly nonsensical. The whole purpose of ownership, in response to the condition of scarcity, is to ensure that one person’s ends, vis-à-vis the good in question, are fulfilled, while the ends of others must yield.
To be clear, outright ownership doesn’t have to be the only method of achieving this kind of exclusion. Renting, for instance, is a method of parcelling out the de facto ownership of a good into slices of time, with each renter having control over that good only for the duration of the lease. So too is it possible for a small group of people to pool their assets before deciding, by agreement, how those combined assets should be deployed. But in each of these instances, it is clear that the goods in question are being devoted to a single end at any one time, to the exclusion of all others. If I was to rent an apartment for the period of one year, I would enjoy exclusive use of that property for that year; during that time, the owner of the apartment, in exchange for the rent paid, cannot use it himself. If a small group of investors form a company, then they may come to an agreement as to how the company’s assets should be deployed. But if each of the investors has slightly different ideas in that regard, then they will need to compromise if the enterprise is to continue. Most likely, any one investor will find that some of his ideas are carried forward, whereas others he either has to compromise or let go of completely. The end result is one, single, plan that is dedicated to fulfilling one set of purposes to the exclusion of all others.
Whichever method of exclusion is chosen, the important thing to remember is that no solution to the problem of scarcity can ever grant multiple people contemporaneous and conflicting claims to the use of resources. And yet this is precisely what is suggested by the concept of “collective ownership” – “collective” meaning the millions of people who populate an entire country. A thing cannot be literally owned by everyone – “collective” or “common ownership” is therefore a contradiction in terms, representing not ownership, but a free for all. It simply puts us back at square one, with no mechanism to regulate the demand for scarce goods.
Because of this, socialism has always meant de facto ownership of the means of production by the state. Instead of everyone being able to exercise their ownership rights over every resource in the country, a small oligarchy makes decisions over those resources on your behalf. In practice, this will never mean that productive industry is run for the benefit of “the people”. At best, it tends to mean that resources are deployed so as to best suit those who are closest to the epicentre of political power. As an ordinary citizen, you have no actual rights over anything at all. You cannot even go and claim your 1/65,000,000th share of any resource, or otherwise “cash out” on your ownership. In fact, instead of you owning the means of production, it is more likely that the state effectively ends up owning you.
Once we realise that any viable solution to scarcity always requires a mechanism of exclusion, we can see how concepts such as ESG, the “stakeholder” and “diversity and inclusion” can serve as smokescreens for socialism, or, at least, can advance state control over private industry. For all of these things serve to erode the exclusive nature of ownership, resulting in the need for a further method to resolve the problem of scarcity. That further method ends up being state fiat.
This seems most intuitively obvious with “diversity and inclusion”. In many instances, both concepts have advantages. A concentration of like-minded people can easily become an echo chamber riddled with groupthink, and so it is beneficial to include those who may have the ability to scrutinise decisions from a different angle. However, if this is to be achieved successfully, the kind of diversity sought must be relevant. Typical diversity metrics tend to concentrate only on relatively superficial, visually observable characteristics such as age, gender, ethnicity, disability, and so on. Simply having a mix of people in this regard guarantees neither diversity of thought and opinion nor the presence of an outside voice. In fact, it is quite possible for a group of white men from different parts of the country to be more diverse than a selection of white, Asian, and black men and women from a single city suburb, and yet the former would almost certainly be shouted down for its narrow composition.1
More importantly, however, there are clear limits to the extent to which diversity and inclusion can be taken. As we have explained, scarcity can only be resolved by some kind of exclusion. The actions of every individual, every group and every organisation are always devoted to a defined set of purposes. Once those purposes have been settled on, anybody whose character, actions or ends is antithetical to those purposes must be excluded, otherwise they will never be fulfilled. Taken too far, therefore, we can see how “diversity and inclusion” ends up as the allocation of labour according to state direction at the expense of the desires of property owners – or, at least, provides a segue to it.
Similar problems are seen in the notion of the “stakeholder”. A stakeholder is defined as an individual or group that is “impacted” in some way by a business’s decisions. The notion can include that business’s suppliers, employees, customers, creditors and so on, but can also include more vaguely defined concepts such as the “community” or the “local environment”.
The traditional view is that a company is run for its shareholders, with their welfare being the only direct concern in its decision making. To make profits for themselves is, after all, the reason why the shareholders either formed or bought into the company in the first place. It belongs to them and to no one else. Legally (and superficially) this is true. Economically, however, under a system of private ownership and voluntary trade and exchange, every relevant “stakeholder” is, in fact, accounted for in full. A company can engage suppliers only if it is willing to pay a mutually agreed price for whatever the supplier is selling; it can hire staff only if it is willing to pay competitive rates of wages; it can secure finance only at a rate of interest accepted by the lender. If any of these parties is dissatisfied with what the company is offering, then they have the power to end their relationship with that company.
Companies must also pay for waste disposal and their environmental impact if it has a physical affect upon the property of others. The strive to make profits also contains an inbuilt conservation ethic, because profits are equal to revenue minus costs; thus, there is as much incentive to lower costs through economising as there is to maximise revenue. Moreover, local communities benefit from the presence of businesses offering opportunities of employment and producing goods and services that people want to buy. Space precludes us from going into too much more detail, but suffice it to say that severely detrimental (or “unsustainable”) actions of companies usually result from when property rights – upon which all of this depends – are interfered with by the state, allowing companies to offload perceptible costs onto third parties.
However, if the decision-making process of businesses is modified to account for the supposed “needs” of stakeholders in a much more pro-active sense, we once again run into the problem of scarcity. Decision-making over a finite supply of resources becomes less exclusive, spread out to an increasing number of people. The more people that are considered, and the more views that become included, then the more the decision-making process becomes a cacophony of competing and conflicting interests. Indeed, the logical end of advancing the notion of the stakeholder is that corporations are seen not as market entities engaging in economic relationships with customers, suppliers and employees, but as “mini-governments” who serve “the people” as a whole through a “social contract”. Shorn of any truly rational method of making decisions to decide between all of these interests, a firm’s decisions cannot help but be dominated by political considerations.
This leads us into the field of ESG. ESG effectively provides a framework for everything we have been discussing thus far, stripping the creation of economic value as the primary criterion for success before replacing it, as the name suggests, with social and environmental goals as determinants of a firm’s “sustainability”. Now if any company wished to engage with the ESG framework on its own dime, then we could just leave them to it. However, ESG is beginning to operate effectively as social credit score for companies through the restriction of access to capital – the major source of which is, of course, state privileged banks and large investment firms. In short, those firms that fall short of ESG standards can find themselves starved of funding and patronage. The fact that the needs of owners is clearly being usurped by political and government priorities is further indicated by the fact that trustees of investment and pension funds are seeing the dominance of the ESG metrics as breaching their fiduciary duty towards their clients.
All in all, as innocuous as the concepts of diversity and inclusion, the stakeholder and ESG are, we can see how they lead to the gradual socialisation of the economy. If we are to guarantee a prosperous economy free of state control then they must be resisted and rejected.
Further, if characteristics such as race and gender are of limited relevance in fulfilling a particular role, then it is inaccurate to describe people as somehow “representing” their race or gender when discharging that role. For instance, a woman who sits on a company board does so as a representative of the company’s shareholders; the fact that she is a woman does mean that she acts in the interests of women while discharging her duties as director.