Saturday 28 August 2021

All or nothing

Something I've been thinking about lately is the tendency to try and force issues or ideas into either/or boxes. I don't why I'm more aware of it lately, but I seem to see it everywhere. Most often it appears in assessments of events - either This Will Happen or This Will Not Happen - which I suppose is an argument in favour of Philip Tetlock's work. But I'm thinking (in this initial bit of burbling) a bit broader.

For example, in discussions about the labour market it's very easy to start talking about it as if it's One Big Thing. For example, currently there is a discussion about labour shortages, which seem to be starting to lead to higher wages in some sectors and increased bargaining power for workers. But at the same time office workers are being told that a shift to remote working is likely to result in a globally expanded total labour force (leave aside the fact that this was always there), so they should hunker down and count their blessings. Needless to say these are very different positions to be in.

Similarly I had a good Twitter exchange recently with the always interesting Duncan Lamont from Schroders about employer incentives to treat workers well. He said, rightly, that there's loads of evidence that this results in better performance, reduced turnover etc. I both know this to be true and found it a bit jarring somehow and I realised that this is because isn't what I see when I look at companies, or at least some companies. 

One retailer I dealt with at work recently basically shrugged their shoulders about high workforce turnover saying it was never likely to change. So even though it is true that there are incentives for employers to treat workers well, these vary in significance. Sectors look different - even employers in the same sector look different. Some employers think they do need to invest in reducing turnover (or training or whatever) others think 'meh'. It's not either or.

That leads into the question of ESG. Duncan also flagged the issue of Tesla, and significantly divergent scores from ESG rating firms. Is it a good stock on ESG grounds or isn't it? There isn't an answer. Last spring Elon Musk argued that Covid was overblown and would be done by April. So convinced was he that it wasn't a real risk that he publicly bullied harassed regulators about health and safety restrictions that resulted in Tesla sites being shuttered and threatened to open them illegally. He's previously been sanctioned by the SEC for some seriously stupid behaviour on Twitter. And I know a bit about Tesla's bad history with unions. Yet, obviously, Tesla has done more than arguably any company to drive the development of electric vehicles.

That means Tesla is concurrently a lot of things, not Good or Bad. And, from an investor perspective, what you put weight on personally matters a lot. I can see a case for divergent ratings - as long as a) the punter understands why they differ (perhaps one puts greater weight on the S) and b) it is also understood that this maybe more about preferences than performance. 

More generally, it's notable that scepticism about the growth of ESG is shared by both Left and Right, particularly the extent to which it's simply a marketing tool for active management. Having recently read a couple of Right-leaning critiques there are elements I find myself nodding in agreement with. For example, I could have written this (and sort of have):

Regulation by governments is not only more efficient but also possesses democratic legitimacy. Proponents claim that ESG is necessary to achieve inclusive capitalism, but political power wielded by a handful of billionaire Wall Street oligarchs provides a pretty good definition of insider capitalism. 

The author is a former (early 90s vintage) Conservative Treasury Spad.

I don't think ESG is the solution to the world's problems. I do have concerns about the political aspects of it that I think have been *hugely* overlooked in the rush to Get Blackrock To Do Things. And it is definitely the case that ESG is used as marketing device. And yet at the same time I think things are improving as a result of companies being subject to more scrutiny of their management of ESG issues and investors challenging them more often. Can't it be both of limited effectiveness, and better that it exists than not?

I feel the same way about behavioural economics. It was a niche field for a long time, then became very fashionable. Lately there has been a very negative counter-reaction. No doubt there is some dodgy research out there that over claims. But again there seems to be a tendency to think it's either The Answer or a giant swindle. It seems more likely to me that as an area of study it has contributed usefully to understanding some things but not others. Some behavioural effects might be basically meaningless, others significant. Surely we can pick and choose.

And finally in Big P politics discussions of why certain leaders or parties are failing regularly fall into really annoying single factor explanations. The 'Red Wall' narrative is a good example. I have no doubt that some 'traditional' Labour voters have deserted the party because they are socially conservative and feel culturally alienated. But I also think that some of these voters are financially secure - both owning houses and having decent pensions - and as such may materially no long have the same interests as when they were at work. 

To paraphrase another Duncan (Weldon) a bit - why do we think home owners with secure retirements will vote Conservative in the South East but not the North East? Currently this is a big cohort of voters that turns out and votes Right.* But those coming behind them may neither own homes or have decent pensions. They may put rather less emphasis on cultural issues and more on economic ones and may skew Left, who knows? But currently much political commentary seems stuck in the rut of 'Red Wall voters won't like this' as if this is the only factor at play. 

Similarly I believe both that Labour lost votes in 2019 because it shifted to a Remain position and that it may have lost more if it had not. 

It's not just One Thing.

(I should stress, by the way, that I am regularly guilty of this way of thinking myself. I just hope that, now I'm more aware of it, I can lean against it a bit.)

*interesting subplot is that this group also seems to the most convinced that we need to spend serious money tackling climate change. But perhaps that's a burden that is likely to fall primarily on working age taxpayers?