The Distorted Market for Woke Capitalism

The founder of modern economics, Adam Smith, was no fan of the merchants of his time. He regarded them as among the most responsible for how “the mercantile system,” as Smith called it, accorded legal privileges to politically connected producers over the interests of consumers. Nor did Milton Friedman have a particularly sympathetic view of the business leaders of late-twentieth-century America. “The two greatest enemies of free enterprise in the United States,” he wrote, “have been, on the one hand, my fellow intellectuals and, on the other hand, the business corporations of this country.”

Whenever I inform students of Smith and Friedman’s unflattering opinions of the business community, they are invariably shocked. But their eyes start opening when I point out that large established businesses don’t actually like competition, aren’t wildly excited about other people’s new ideas and products threatening “their” market share, and are quite happy to hop into bed with complaisant legislators to use state power to make life difficult for new and potential competitors. At this point, students begin realizing that to be pro-market is not the same as being pro-business. The two are at odds in some very important ways.

This is one way of understanding the phenomenon of “woke capitalism,” and it features in Vivek Ramaswamy’s Woke, Inc: Inside Corporate America’s Social Justice Scam. For if there is anything that characterizes woke capitalism, it is the desire—like the mercantilists of old—to exclude (ironically, in the name of tolerance, diversity, equality, etc.) particular individuals and groups from “their” markets and corporate America in general. In the case of woke capitalists, the excluded is anyone who doesn’t embrace all the usual progressive orthodoxies or who won’t play the woke game to go along to get along.

But Ramaswamy provides other insights into the underlying rhyme and rhythm of the woke capitalist phenomenon that have long needed wider attention. Part of it is about profit—or at least near-term profit—and locking in political support against potential market competitors to achieve that end. Yet corporate wokeness is also fueled by some serious self-righteousness on the part of prominent business leaders. In many cases, this reflects their embrace of the Gospel of sentimental humanitarianism. Of course, they are hardly the only adherents of the new faith. But woke capitalists, thanks in part to their impeccable connections with the political class, are able to marshal considerable resources behind their beliefs. And it’s not just consumers who pay the price. It’s the American body politic as well.

Speaking from the Inside

Ramaswamy’s book does not purport to be an academic study of woke capitalism. Though he directs attention to how schools of thought like stakeholder theory and business tools like Environmental, Social, and Governance (ESG) evaluation methods have influenced corporate wokeness, these are not his focus. For this is a very personal book. It takes the reader through the world of corporate America through Ramaswamy’s eyes and experiences. In the process, one encounters some Jupiter-size egos, brittle personalities, shameful subservience to corrupt and brutal regimes like Communist China, and widespread uncritical adherence to ideologies that an hour or two of basic logic and a good course in American history would suffice to discredit.

At the nexus of all this is a curious combination: a neo-mercantilist approach to realizing profit alongside a conviction that the business of business somehow involves resolving as many of the world’s political, social, and cultural problems as possible. This reflects deep misunderstanding—if not corruption—of the role of business vis-à-vis other groups’ responsibilities in society. When this gets mixed in many corporations’ growing tendency to behave as if virtue-signaling is somehow supposed to supplement (or even supersede) the signaling function of prices, the long-term results for consumers, politics, and America are toxic.

That toxicity emerges again and again in the various vignettes that Ramaswamy offers to illustrate his points. He highlights, for example, the selectiveness of the outrage that permeates much of the American business world. While there is a near-fixation with the Black Lives Matter movement (whose founding organization was, let’s recall, created by Marxists with the stated intention of doing all the evil things that Marxists typically do), Communist China’s effort to destroy its Uyghur Muslim community barely raises an eyebrow among the devout.

We also see how the near-obsession with diversity never quite translates into “Chief Diversity Officers,” as they are called, promoting diversity of political opinion, let alone protecting socially and religiously conservative views. Even more disturbing is the way that Beijing has worked out how to play the woke deck of race-gender-green-social-justice cards to their advantage when dealing with corporate America. I found this erringly similar to the manner in which Chinese diplomats flung the rhetoric of critical race theory and the 1619 Project back in the face of a bewildered and hapless American Secretary of State in March this year.

Then there is the economic cost—something that Ramaswamy highlights in a fashion that other critics of woke capitalism so far haven’t. Many American business leaders have realized that one way to raise a lot of capital is to claim that a particular venture is grounded, for instance, on the ESG business model. It’s an approach likely to appeal to, say, wealthy progressives burdened with guilt about the size of their (often inherited) assets and who want their investments to battle climate change while simultaneously making money. How else could one live with oneself and yet maintain one’s economic and social status?

Here Ramaswamy underscores an adage familiar to anyone who knows anything about capital: “Good fundraising strategies don’t always make for good investment strategies.” The sheer amount of dollars being ploughed into ESG-approved schemes is resulting, Ramaswamy states, in asset prices rising “in the short run because there are more dollars chasing them due to the expectation they’ll keep rising. But that’s the logic of a Ponzi scheme.”

If market forces are allowed to prevail, Ramaswamy projects, the ESG bubble will at some point implode. I suspect that he’s correct. Ramaswamy notes, however, that companies managing ESG funds are not stupid. In many cases, they have taken out insurance, and the name of that insurance is the government. The degree to which businesses peddling ESG schemes have managed to secure loans and outright grants from state authorities to manage the government’s own “sustainability standards” or to subsidize the development of assorted environmentally sensitive products is staggering. It’s not a quid pro quo, Ramaswamy stresses. Nevertheless, it constitutes a type of ongoing reaffirmation by businesses and government officials of their mutual purity, with taxpayers being left to foot the bill.

Markets and Service

Throughout Woke, Inc., Ramaswamy offers various suggestions for addressing these problems. Some involve removing various regulations that effectively insulate woke managers, CEOs, and boards from pressures of investors who know what’s really going on. In these cases, Ramaswamy is intent upon bringing the power of market forces to bear upon woke practices. This subject is worthy of further exploration. To the extent that deregulation involves removing various legal privileges accorded to those who run corporations, it is the worst nightmare of your average woke Fortune 500 CEO who does not want investors being empowered to take concrete action when the CEO’s preferred ESG strategy doesn’t seem to be producing the anticipated returns.

Yet such measures are not enough. Woke mindsets are obsessed with underscoring the differences that characterize any society. It follows, Ramaswamy holds, that Americans need something which unites us. One way forward is to reinvigorate those ideals and practices associated with civic service, which remind Americans of the motto that appears on most American coins: e pluribus unum. According to Ramaswamy, these can help Americans remember that they belong to one nation, thereby making it harder for the woke priesthood to succeed in making differences of race, sex, and identity become permanent fracture points that make the American republic’s existence impossible.

In principle, I think Ramaswamy’s proposal has merit insofar as it seeks to grow a sense of service to others alongside wider recognition of the bonds that link Americans to each other and previous generations. Its effectiveness, however, would depend on the details. Ramaswamy indicates that his particular idea of having high school students spend a portion of their summer vacations engaged in some form of civic service would be mandatory. Some would object to this compulsory dimension.

Nor can we underestimate the extent to which wokeness has permeated the various arenas in which such civic service would presumably be served. Like the good Gramscians that they are, woke activists are skilled at infiltrating civil associations with their ideology. There’s a significant possibility that those teenagers who spend three weeks assisting with a religious group’s outreach to the homeless could find themselves being subject to “consciousness-raising” sessions in which they are lectured about their “privilege” and the subsequent necessity to engage in political activism.

More generally, part of the antidote to corporate wokeness has to be a return to the truth about what business is—and what it isn’t. That requires reflection on 1) the specific telos of business that makes it different from politics, schools, religious organizations, and nonprofits, and 2) how it is through pursuing this telos that business contributes to the realization of particular conditions which, alongside other factors, constitute the common good that helps people to flourish as humans ought.

Ramaswamy observes that the Founding generation legally structured corporations in a manner designed to ensure that their scope remained limited to very specific purposes. One side effect was to underscore the insight that different types of organizations had different purposes, and it was usually an error for them to usurp other organizations’ functions.

Something similar, Ramaswamy maintains, is needed today. Here I would add that any such move is predicated upon arriving at a common understanding of the purpose of business. In this regard, the natural law philosopher Germain Grisez is very helpful. “The common end of every voluntary association,” he wrote, “is determined by its participants’ mutual understanding and consent. A profit-making business is a voluntary association of the persons who cooperate in the specific activities for which it was organized, in order to achieve various economic benefits.”

These economic benefits are the goods primarily realized through a business association (profits, wages, capital, a division of labor, products, services, etc.), and it is through actualizing these particular benefits, and not others, that business contributes to the common good. Such a definition not only specifies why businesses are not the same as a family or a school; it also leaves no room for corporations to start fantasizing that their job is to realize cosmic justice.

Getting Religion

But even this type of clarification, I’d suggest, won’t suffice. Ramaswamy argues, correctly I believe, that wokeness is effectively a religion insofar as it contains all sorts of non-negotiables and tries to offer a comprehensive (albeit thoroughly demoralizing rather than uplifting) vision of reality (with no hope of redemption for the fallen). It follows that the source of any substantive pushback against wokeness will require a religious response. Religion is a uniquely powerful force insofar as it purports to offer an overall explanation of the meaning of the universe and the purpose of life. As the woke faith’s prevalence illustrates, sound business theory doesn’t even come close to resisting the power of humanity’s religious impulse.

Alas, organized religion in contemporary America is not in great shape. Not only is it discredited by never-ending sexual and financial scandals, but many religious groups are also suffocated by NGO-ism and political activism. Others are in thrall to the same wokery that has bewitched corporate America. Some religious leaders talk endlessly about topics they know nothing about, which reflects, I suspect, disillusionment or even boredom with the central claims of their own faith. Many synagogues, churches, and mosques are thus ill-positioned to respond to woke dogmas, whether in corporate America or the country more generally.

We should not anticipate any major critique of wokeness emanating from those quarters soon. But the woke phenomenon’s religious character reminds us that, at some level, it is filling a void in the lives of some often very bright, hardworking people who are not all of bad will. To that extent, the process of awakening corporate America from wokeness will need to be as much a cultural enterprise as it is an exercise in returning business to its proper function in the economy and society more generally. That endeavor may take years, and the opposition will be formidable. But in the end, America will be better for it.

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