he little-noticed Republican effort to control how your retirement fund is invested
For the last half of the 20th century the popular libertarian economist of the “Chicago School”, Milton Friedman, tirelessly promoted his conviction that the only social responsibility of business is to increase its profits:
This shareholder primacy approach [known as the Friedman Doctrine] views shareholders as the economic engine of the organization and the only group to which the firm is socially responsible. As such, the goal of the firm is to increase its profits and maximize returns to shareholders.
Friedman died in 2004. His Doctrine was tarnished by the crisis of 2008 when the relentless pursuit of profit by deregulated big banks nearly crashed the economy, but—little noticed—the principle of profit above all else lives on in the fossilized economic convictions of the Republican Party. Little noticed by most of us, the concerted Republican attack on “ESG” (standing for environmental, social, and governmental concerns) is a bid to legislatively enshrine Friedman’s profit primacy as the only criterion investment managers are allowed to use in choosing where to park our retirement money—with the result that yours and my retirement savings are often used to fund industries of which we might staunchly disapprove.
The fundamental policy question is this: Should investment managers be allowed to consider anything other than corporate profitability (Friedman Doctrine) in making investment decisions? Specifically, should such managers be allowed to consider the environmental, social, and governmental (obscurely labelled “ESG”) consequences of corporate actions?
If all that has flown under your radar, you’re not alone—and that is exactly where the Republican Party wants the issue to fly. Did you completely miss—as I did—that President Biden’s very first veto, issued three years into his presidency in March of 2023, nixed a Republican led effort to forbid that investment managers of retirement funds consider ESG criteria in their management decisions? From CBS news at the time:
“There is extensive evidence showing that environmental, social, and governance factors can have a material impact on markets, industries, and businesses,” Mr. Biden said in a statement announcing the veto. “But the Republican-led bill would force retirement managers to ignore these relevant risk factors, disregarding the principles of free markets and jeopardizing the life savings of working families and retirees. In fact, this bill would prevent plan fiduciaries from taking into account factors like the physical risks of climate change and poor corporate governance, that could affect investment returns.”
Republicans have heavily criticized the rule and say ESG investing practices that take into account issues like climate change unfairly penalize industries like the oil and gas sectors.
When I look back at this Republican, Leonard-Leo-led effort to restrict the criteria by which my retirement money is managed and invested, it makes me hopping mad. The fossilized Friedman Doctrine that enshrines short term profit above all else lives on in the Republican quest to villainize and outlaw the use of ESG considerations as “woke capitalism.” This is another clever culture-war-couched effort to use the force of law to impose Republican economic doctrine to restrict our freedom—in this case by narrowing the criteria investment managers are allowed to consider in investing yourretirement savings.
The personal significance of this seemingly obscure issue was brought home to me by a Reveal podcast entitled “Your Retirement Investments Are Probably Fueling Climate Change.” Vanguard Group, Inc. is a huge money manager with about 9.3 trillion dollars under management. (Yes, that’s a “t” for trillion. For scale, 9.3 trillion is more than 50 times a whole two-year budget for the State of Washington.) I, probably like many of my readers, have a retirement account parked with the Vanguard Group in a “mutual fund,” to the specific investments and management of which I pay almost no attention. The Reveal podcast points out that Vanguard is a huge investor in new carbon fuel projects, including a current vast expansion of the Coalstrip, Montana open pit coal mine. On top of that, the podcast details how Vanguard, under pressure from Republican-dominated state governments, recently abandoned a 2021 commitment to environmentally conscious investing.
It’s not just Republicans in the U.S. Congress, it’s Republican lawmakers who control legislatures in many states. “By 2024 a total of nineteen states had passed laws restricting investment firms from considering environmental factors in their decisions.”
Does every current day Republican lawmaker understand the linkage between the ludicrous Republican culture war crusade against “woke capitalism” and the drive to keep our retirement savings flowing to corporations that have only short term profit as their goal? Probably not, but ignorance is no excuse. We are being led astray. This relatively obscure Republican effort to enshrine the Friedman Doctrine into restrictive law is yet another reason to vote against every Republican on the November ballot.
Furthermore we might all do well to delve a bit further into how our retirement money is invested. Life is not just about short term monetary gain.
Keep to the high ground,
Jerry
P.S. Many of my readers are old enough to remember the effectiveness against the institution of Apartheid of the decades-long effort to disinvest in South Africa. That action, begun by university students in the 1960s, eventually grew to an international financial pressure campaign based on condemnation of the social institution of Apartheid—NOT on any Friedman-esque fixation on short term profits that the current day Republican Party wishes to enforce on the U.S. financial system.