Post-democratic pensions

"[T]raditional politics in seen less and less as something that belongs to the citizens or to the society, and more and more as something done by politicians. There is a world of citizens - or a host of particular worlds of them - and a world of politicians and parties, and the interaction between them steadily decreases. Citizens change from participants into spectators, while the elites win more and more space in which to pursue their own particular interests."  

Peter Mair, Ruling The Void 

Stylizing owners and managers of capital as trustees of society has lost any remaining credibility, their much-publicised exercises in philanthropy notwithstanding. A pervasive cynicism has become deeply engrained in the collective common sense, which has come as a matter of course to regard capitalism as nothing but an institutionalised opportunity for the well-connected super-rich to become even richer.

Wolfgang Streeck, How Will Capitalism End? 

Among all [those] who have a say in the running of the company, only 'people who invest' - the shareholders - are in no way space-tied; they can buy any share at any stock exchange and through any broker, and the geographical nearness or distance of the company will be in all probability the least important consideration in their decision to buy or sell.In principle there is nothing space-determined in the dispersion of the shareholders. They are the sole factor genuinely free from spatial determination. And it is to them and them only, that the company 'belongs'. It is up to them therefore to move the company wherever they spy out or anticipate a chance of higher dividends, leaving to all others - locally bound as they are - the task of wound-licking, damage-repair and waste-disposal. Whoever is free to run away from locality, is free to run away from the consequences. These are the most important spoils of victorious space war.

Zygmunt Bauman, Globalisation: The Human Consequences 

So again I find myself drifting back to these questions that gnaw away at me, about the nature and the legitimacy of much of the activity that is undertaken in the world of Responsible Investment.

There was an interesting piece in the Sunday Times before the election about the decision of utility companies to restructure in a way that provides more protection for shareholders against a potential shift to public ownership:

National Grid and SSE, which together own Britain’s entire gas and electricity transmission spine, this weekend confirmed they had created overseas holding companies in recent months to seek shelter from Labour’s renationalisation agenda. SSE has put its UK business into a new Swiss holding company; National Grid has shifted its gas and electricity businesses into new subsidiaries in Luxembourg and Hong Kong. The moves are designed to build defences against Labour’s sweeping renationalisation plans. Switzerland, Luxembourg and Hong Kong have “bilateral investment treaties” with the UK that ensure investors are paid properly in the event of any state asset grab.

National Grid's statement was particularly interesting:

“Labour’s proposals for state ownership of National Grid would be highly detrimental to millions of ordinary people who either hold shares in the company or through their pension funds — which include several local authority pension funds,” it said. “To protect their holdings, and in line with our legal fiduciary duty to our shareholders, we have established holding companies in Luxembourg and Hong Kong. This has no financial benefit to the company and does not affect its day-to-day operations. It is solely to protect our shareholders’ interests.”

There are three things I would emphasise here. First, the interests of 'millions of ordinary people' are here identified as being as indirect investors in the company. Clearly in the case of electricity generation and supply obviously they also have an interest as customers and a small minority also have an interest as employees. 

Second the use of fiduciary duty to justify this restructuring shows just what a double-edged concept this can be when let loose in a public policy setting. Law can be used to delegitimise or disable entirely reasonable political objectives.

Finally, what about the statement that there is no impact on day to day operations? Doesn't this say it all, and hammer home the point Bauman makes? The physical infrastructure, the public (customers), the employees and the delivery of the service all remain absolutely rooted in the UK. But through some piece of legal magic 'the business' (apparently something other than these things) can slip across the border to Luxembourg, or Switzerland or Hong Kong, and thus out of the grasp of politicians. 

Taken together all these things point towards taking important questions out of the realm of politics. My own different interests might be in conflict. I might have more to gain through public ownership as a customer than I lose through nationalisation as an indirect investor. Yet while in the former field of politics I have a vote, and thus have some power, in the latter (the field in which I am encouraged to see myself) I have little or none. The interests of 'millions of ordinary people' as investors have very little expression. It is typically intermediated by financial services giants. Even the remaining limited pockets of quasi-democratic control (member trustees and equivalents) are being squeezed in all markets in favour of professionals. Meanwhile innovative use of the law, and legal concepts, serves to put undesirable policy proposals out of reach.

This reminds me of another couple of bits from Streeck, this:

Standard economic theory treats social structure and distribution of interests and power vested in it as exogenous, holding them constant and thereby making them both invisible and, for the purposes of economic 'science', naturally given. The only politics such a theory can envisage involves opportunistic or, at best, incompetent attempts to bend economic laws. Good economic policy is non-political by definition... The implication is that while an economy, if sufficiently conceptually disembedded, may be modelled as tending towards equilibrium, a political economy may not, unless it is devoid of democracy and run by a Platonic dictatorship of economist-kings. Capitalist politics... has done its best to lead us out of the desert of corrupt democratic opportunism into the promised land self-regulating markets.

And this:

[T]he battlefields on which the contradictions of democratic capitalism are fought out have become ever more complex, making it exceedingly difficult for anyone outside the political and financial elites to recognize the underlying interests and identify their own.

This latter point particularly resonates when I look at asset managers. A decade ago most of the asset management industry was deeply resistant to the idea that it shouldered any responsibility towards the companies and assets in which it invests. These days it is a disadvantage for an asset manager to not have a convincing ESG story. The move to "mainstream" responsible investment has resulted in it looking much like all the rest of the financial services industry. Besuited salespeople who a decade and a half ago had zero interest in RI now actively promote ESG products. The industry still makes a lot of money, but now some of the branding features pictures of smokestacks and colourful frogs.

To be fair, this has gone beyond adopting a policy, putting out a report or two. Increasingly asset managers seek to demonstrate that they are having an 'impact', as measured through positive changes to investee companies and assets. That said, the issues that led me into this world - the treatment and employment conditions of the millions of working people who built the pension funds that enable ESG activity to exist - continue to feature infrequently. ESG events rarely touch on workplace issues, and even when they do speakers representing workers or even workers themselves are usually not on the panel. This is even the case when investors and corporates hold events to talk about the importance of engaging with stakeholders.

Within the RI industry there is a professional sense of who the 'good guys' are - the firms more committed to ESG issues in a real way. If you are an ordinary punter, even a trustee, all the firms must sound the same these days. They can all wheel out an ESG analyst, or offer a case study on a climate-related engagement. To go back to Streeck, it's really feckin difficult to see who is actually on your side. (and to reiterate, if you're a worker who's expecting investors to back you up it's a pretty small group) 

Mainstreaming has also fed the idea that ESG issues are things that can be measured, assessed in data points, and risk managed. The idea that any of this is in any way "political" is discouraged, and activity that looks like advocacy is characterised as unsophisticated or lacking in maturity. Highly-paid specialist staff can handle all that for you with a quiet word in the right ear.

This overlaps with the shift away from any notion of democratic oversight or accountability in much of the pensions industry. What really bothers me is the idea of a sophisticated, well-remunerated, globally mobile ESG elite spends its time negotiating over social and environmental issues with little reference to underlying beneficiaries. I think we are approaching this already.

Ultimately this comes down to the question of what we want to happen to the giant firms like Blackrock and Vanguard. They are repeatedly, and rightly in my opinion, exposed for failing to back resolutions on climate change. Few people bother to look at their voting record on social issues, but its basically the same. So the question is: do we just want a better Blackrock, or do we want something different? 

The reaction to Blackrock's recent conversion to a tougher position really teases these issues out. If you think that mainstreaming is the biggest goal, it is an unquestionably good thing. And obviously it IS better that Blackrock is more engaged than not. But if your conception of RI has any notion of democratisation in it then we need to tread carefully.  

PS. This is a theme I keep being drawn back to, but am finding hard to write about without sounding like I'm just moaning, so I'm going to try to flesh it out a bit more. Hopefully this will make it a bit sharper, but also show up which bits are just moans.