Capitalisn’t: Is ‘Woke’ Capitalism a Threat to Democracy?

Vivek Ramaswamy: Capitalism, like light, like air, can really show up like an uninvited guest in rooms of the house where it wasn’t supposed to have shown up.

Bethany: I’m Bethany McLean.

Phil Donahue: Did you ever have a moment of doubt about capitalism and whether greed’s a good idea?

Luigi: And I’m Luigi Zingales.

Bernie Sanders: We have socialism for the very rich, rugged individualism for the poor.

Bethany: And this is Capitalisn’t, a podcast about what is working in capital-ism.

Milton Friedman: First of all, tell me, is there some society you know that doesn’t run on greed?

Luigi: And, most importantly, what isn’t.

Warren Buffett: We ought to do better by the people that get left behind. I don’t think we should kill the capitalist system in the process.

Luigi: So, I was asked to have a debate with a young author called Vivek Ramaswamy, and I was quite pleasantly surprised by the originality of many ideas. And so, because they touch very strongly on issues of ESG and corporate purpose that we discuss in many of our podcasts, I thought it was an interesting idea to bring him on the podcast and look at it a little bit more deeply.

Bethany: So, the title of Vivek’s book is Woke Inc.: Inside Corporate America’s Social Justice Scam. Even if you are opposed to the concept of his book, there are some really, really interesting ideas in here, like our granting of limited liability to corporations and what that means they owe or don’t owe in exchange.

But the overriding thought behind his book is that wokeism has become a way for corporations to wrap themselves in a mantle that then furthers the idea of crony capitalism. Corporate America is expanding its power into all sorts of places it was never meant to be by wrapping itself in the mantle of wokeism, and sometimes, doing the opposite. But this has the dangerous effect of ex-panding the corporation into spheres in which it was not supposed to be.

Luigi: I have to say that I was pleasantly surprised with the book, because it’s actually much deeper than the typical book you see on this topic, and there are some clever legal ideas and different viewpoints.

Bethany: Tell us a little bit about your background and your founding of Roivant, and what brought you to your current views of the world. The title of your book has quite a provocative title: Woke Inc.: Inside Corporate America’s Social Justice Scam. Not the point of view you come across from a young entrepreneur every day.

Vivek Ramaswamy: I’ll give you the short version of my background. So, I was a scientist by background, studied molecular biology in undergrad. Thought I was going to be a sci-entist. Ended up joining the world of hedge-fund investing in biotech. Three years in, I told my bosses I was going to leave. I wanted to go to law school at Yale and scratch an itch in law that I’d never really scratched. So, I did that for three years.

Came back to New York City, and when I came full time to my job as an investor without law school, I had a lot of time on my hands. And so, I did a six-month stint in standup comedy on the side, where I got the best piece of advice I’ve gotten professionally, which is to carry around a notebook wherever you go and write something down when it really annoys the hell out of you.

Didn’t work for me too well in standup comedy, but I did that in my day job as a biotech inves-tor and ended up writing down all the things that annoyed me about the pharm industry and de-cided that was my business plan for starting Roivant. Thankfully, it’s been a multibillion-dollar suc-cess today that’s gotten multiple drugs developed, several of which are FDA-approved products for patients today.

Earlier this year, I did step down ahead of the publication of a book, that, as you noted, was sufficiently controversial that, actually, it was going to probably have an adverse impact on my company if I didn’t separate my voice as a CEO from my voice as a citizen. And so, that’s what I de-cided to do, in some ways, practicing what I preach by separating business from politics.

Luigi: Can you describe a bit what the argument is and what are your poten-tial solutions?

Vivek Ramaswamy: Yeah. Sure, sure. So, the argument is really simple. If the government can’t do something under the Constitution, then the government cannot deputize a private company to go do that same thing instead.

There’s a case called Brentwood, which lays out the standards for finding state ac-tion in the guise of a private enterprise. And what Brentwood says is that if a private company is responsive to the threat of a government official, if a private company is responding to the inducement of the government, or if a private company is coordinating with the government—willful participation in a joint activity—any of those three conditions could be the basis for finding state action in the guise of a private company.

And then, a funny thing about what we see with modern big-tech censorship today is we see not one of those conditions met, not two of those conditions, but all three of those conditions. You have the White House boasting, every day, every week, nowadays, about working with social-media companies to remove misinformation or hate speech as defined by the White House.

You have congressmen that issue threats that big tech then responds to, and there’s a statute called Section 230 which is to immunize those companies to take down content that the govern-ment could not take down directly. So, that’s the case I made both in that op-ed and in more de-tail in my book.

Bethany: Couldn’t you argue that that same legal argument could apply to the existence of the big banks, in the sense that the big banks exist with the support of the Federal Reserve, which, in many ways, is the support of the government? So, in this age of crony capitalism, couldn’t you extend that argument to industries beyond Silicon Valley?

Vivek Ramaswamy: Yeah, I think some of those same principles could abso-lutely apply. I think the key point, though, is, is the government using that private party to do something that the government could not legally do on its own anyway?

And, Bethany, I think the answer is, actually, you could bring that argument to bear in a lot of cases. For example, what you saw in the settlements after the 2008 financial crisis. There were multimillion-dollar settlements—multibillion-dollar settlements, I should say—between big banks and the Obama DOJ. But the Obama Administration, at the same time, wanted to pass a budget that included a lot of dollars fed through to certain left-leaning nonprofits. But after the 2010 election, when the Tea Party took over Congress, the Tea Party-led Republicans took over Congress, Congress said, “No. We’re not going to spend that money.”

You know, like it or not, you can debate whether that was a good policy or a bad policy. That’s life in a two-party system. Well, what the Obama DOJ then did was to say that, actually, “Hey, big banks, we have a deal for you. For every dollar that you give to this nonprofit that Congress refused to fund, we’re going to give you three dollars off the amount that you owed the public fisc. Oh, and by the way, your press release is going to look a heck of a lot better if you say that you didn’t pay a DOJ fine, but you gave it to a 501(c)3. Oh, and by the way, if you give it to a 501(c)3, that’s also tax deductible."

So, banks, being fond of money, were happy to keep more money, but I think the Obama DOJ and the Obama administration was able to do, indirectly, through the back door, funding nonprofits they wanted to fund, using federal dollars to do it, what they could not do through the front door, the constitutionally ordained process for budgeting. So, in a certain sense, you’re absolutely right that it could apply to banks. I think it could really apply to any industry.

And I think it’s the defining tenet of crony capitalism in the modern moment is not just private companies using government to gain competitive advantages over one another, but rather, gov-ernment using private companies in return to do what government itself couldn’t do under a con-stitutionally ordained democracy. So, yes, is the answer to that question.

Luigi: But you have a very interesting twist on the purpose of corporations, a revisitation of Friedman’s piece that we have discussed many times on our podcast. You are saying that, actually, Friedman missed the political dimension of the corporation, but then you use this in an intriguing way. Can you explain to our listeners what you’re doing in your book?

Vivek Ramaswamy: Milton Friedman, basically, never responded to, I think, the best argument for stakeholder capitalism. I think it goes something like this. It’s that the state allows the corporation to exist. Society gives corporate shareholders this legally invented privilege called limited liability to say that the shareholders and owners of a corporation do not bear the debts or liabilities of that corporation even as they benefit from its profits. That’s a creation of law.

And society would have never conferred that benefit on corporate shareholders without some quo in return for that quid. And that quo for the quid, they argue, was the implicit understanding that those corporations, existing as a separate entity with separate legal privileges, were supposed to also implicitly advance the interests and take into account the interests of society at large. Take into account their own negative externalities in the rest of society at large when making their de-cisions, or else society would have never agreed to that trade.

My central point in the book that I wrote, Woke Inc., is that, actually, they have a point. There was a quid pro quo at the inception of the corporation in return for this grand bargain of limited liability, but it was not an implicit grand bargain, as the stakeholder capitalists presup-pose. It was an explicit grand bargain that said that in return for this great gift of limited liability, corporate America and shareholders, we’re going to make a demand of you, and the demand is that your directors and officers only concern themselves with what allows you, as a corporation, to make the most profit and nothing else.

And Milton Friedman just said, “Oh, well, limited liability was for the benefit of corporate shareholders to incentivize capital formation, and by the way, so, too, was the demand to protect shareholders through the fiduciary duty of corporate directors, that both of those are just gifts to shareholders to subsidize the size of a greater economic pie.”

I say, no. Those are actually running in opposite directions. One was a gift. The other was a de-mand. The demand was to say if we’re going to create corporations so powerful that they were go-ing to ultimately be insulated from liability, their owners were going to be insulated from liability, that if we’re going to create Frankenstein’s monster, we want to keep Frankenstein’s monster in the cage, in the cage of the market, in the cage of capitalism itself, to make sure that that monster doesn’t roam free over other terrains of our life, be it family life, or religious life, or certainly civic or democratic life.

Bethany: While we’re on the subject of Friedman, early on in the book, you talk about negative externalities that might lead you to conclude that a company should exercise some restraint in maximizing its profits. And you say this issue rarely arises in the real world, be-cause most corporate actions, you write, that are known to harm people are either illegal or likely to hurt the company’s reputation.

But that seems to me that that’s not right. Think about social media, for example, where their profit maximization is arguably in all of our worst interests. Or think about a company like Coca-Cola or Pepsi, which sells products that are arguably not good for our health. And so, what restraint do you think should exist on a company’s behavior if it isn’t a broader notion of responsibility to the public?

Vivek Ramaswamy: Yeah. Well, I think in each of those cases, though I hap-pen to share your opinions on the net effects of social media or soft drinks on what’s net-good, I think that neither you nor I, though we happen to agree with each other, can exercise the hubris of presuming that our answer is the correct one as to whether or not the externalities on balance were negative, or whether the net effects, inclusive of those externalities, were unbalanced nega-tive or positive relative to the utility the individual users of that platform gained from being able to communicate with their cousins on the other side of the world via WhatsApp or the satisfaction they get when they drink a cup of Coke at night.

I mean, I think those are questions that it would be what Hayek would have called a fatalistic hubris for us to think that we could know here what was the net effect of what was positive or negative with the vantage point of one.

Now, I personally think that if we think that those things are problematic, we should have the political courage to be able to debate those in the open, in the sphere of public debate, through free speech and open debate in a democracy, to say that, to me, it’s a betrayal of that system to ultimately relegate to Facebook that responsibility. And, ironically, if we think the problem of our day is that Facebook and Twitter have become the churches of modernity, we make that problem worse by making those churches exercise the discretion over what makes their users more or less angry, what does or doesn’t prey on the psychic insecurities of the teen girls who have body-image issues because they use it.

We should actually solve that problem, in my opinion, and I kind of am conservative about these things, by reviving the actual churches in the offline world, or the actual institution of the family in the offline world, or our schools, that create a culture of adults through education that don’t suffer from those same psychic insecurities that social-media companies can prey upon. That’s how we ought to be fixing these issues, not deciding to ask Mark Zuckerberg or Jack Dorsey on a given day to internalize their presumption of what was and wasn’t a negative externality, when, in fact, what is or isn’t a negative externality is part of the question that’s on the table.

Whether something’s a negative externality or not, we talk about this as though it’s a facile and obvious answer. The question of whether that externality exists, let alone of whether it’s positive or negative, is a normative question, not a descriptive one. And normative questions ought to be sorted through mechanisms like the one that we’re having here, on a civic scale, writ large, through a democratic process that we call our constitutional system of governance.

Luigi: Let me give a less sexy example, literally, about pollution. And since you are from Ohio, let’s talk about DuPont. As you know, DuPont dumped in the Ohio River a sub-stance called PFOA, known to be toxic, creating a number of cancers, and so on and so forth.

Thanks to documents that emerged at trial, I was able to write a paper about the cost-benefit analysis that DuPont did in 1984. They were pretty clear that there was some cost for incinerating this PFOA, and they were pretty clear that it was a toxic substance that would create a number of deaths. They knew perfectly well.

Now, not only did they do something that cost hundreds of lives and was devastating, they got away with that for years and years. In fact, I spent time looking at . . . Speaking of reputation. The reputation of the directors of DuPont at the time, they all died or retired completely unaffected by reputation. In fact, for some of them, their obituaries even had that they were environmental stewards and pioneers.

So, they got away, literally, with murder in a way that imposed enormous externalities at no cost. And there is no doubt that it is a negative externality. Having a testicular cancer or kidney cancer is not something that can be considered enjoyment. So, in this particular case, we could not even have a debate, because at the time, nobody knew how dangerous this substance was except a few scientists in DuPont and in 3M.

Vivek Ramaswamy: So, I want to say something at the outset. And I call out Milton Friedman for dancing around his limited-liability issue. If someone’s going to call out for me in the book, this is the issue that I kind of dance around a little bit and didn’t really address head-on.

Could you come up with a . . . And you’re getting pretty darn close there, Luigi, to an example that . . . It isn’t even a straw man. I mean, it’s a real-world example that puts pressure on my argu-ment that ultimately has to recognize the fact that the position I’m committed to, and the heart of the argument that I’m making, is one that says that even for an infinitesimally small negative exter-nality that is a known externality, not social-media effects on teen body-girl images, but like can-cer, and to know that you know you’re doing something wrong, but to also recognize that it’s ille-gal and be committed to say that it’s not going to have enough of a reputational impact in the long run that’s going to cause me to make a different decision, but I’m still going to make the profit-maximizing decision instead because I have an obligation to.

I think it’s possible to force someone into that box. And I’m the first person to admit that I’m uncomfortable with that conclusion, putting myself in the shoes of such executives. I think the number of gymnastics you need to go through to get there is sufficiently, to put it kindly, I think, academically abstruse so as to almost never be relevant to inform the ways in which we may want to make decisions in the ordinary.

And I think that the fact that that’s such a hard distinction to make, or a hard decision to make, is part of what defines the otherwise normal cases that’s I’m discussing that don’t put quite the level of pressure on those boundary conditions as your example did.

I guess the thing I would say in response is, let’s just take Volkswagen, which was the ESG Com-pany of the Year several years in a row, as it was actually perpetrating the scandal of fixing, that is, sort of cheating, on the measurement of its own emissions tests in its own cars. If the question is, does my worldview on this question, even under a boundary condition, hold water to be a struc-turally intact, standalone argument in its own right as a perfect system? It probably doesn’t, under at least those boundary conditions that you sort of put pressure on.

But neither does stakeholder capitalism, which actually created the very conditions that de-terred the kind of regulatory . . . So, your point is that laws and regulations would be insufficient as a mechanism for curtailing negative externalities, because they could never know what the next negative externalities was going to be. OK, that’s an imperfect system. I acknowledge it’s an imper-fect system. I guess the best response I’d have to offer is that it’s a less-imperfect system than one in which we actually delegate that authority, voluntarily, to actors to assume upon themselves, be-cause it actually creates the conditions for deterring the kind of scrutiny that would have better policed against the very negative externality we cared about.

And I think the fact that Volkswagen was the ESG Company of the Year probably had something to do with the fact that it took longer to detect the fact that they were cheating on their own emissions tests. So, that’s what I would say. If it’s a choice between less-imperfect options, that’s an argument that I’m much more comfortable defending than one that puts me in the position where I have to say that it would necessarily prevent all negative externalities in the optimal way to simply think that they should be identified by regulation in advance, which is not a position I’m prepared to espouse.

Bethany: So, it seems to me that perhaps the lines between the behavior that you think a corporation should engage in and what it shouldn’t might be a little more slippery than you think. And one part of this question is that brands have been tangled up with politics for decades. Pepsi and General Motors were among the companies to stop doing business in apartheid-era South Africa. Was that OK? Was that not OK?

You write in the book that Roivant chose a policy of wanting to hire a certain number of em-ployees whose families were at the 25th percentile of income or below, because you thought that was good for the company. But what’s then different between a company then embracing wokeism as its mantra because they believe that creates a better world and will help them make more prof-its as time goes on?

So, how do you draw a line between the kind of behavior that is acceptable for a company to engage in, because that company believes it’s going to benefit its bottom line over the long term, and that which isn’t?

Vivek Ramaswamy: Yeah. That’s a good question. So, I think that a company should ultimately make the determination of what’s going to benefit its own bottom line and make those decisions accordingly. And if that includes publicly bending the knee to some sort of neo-progressive orthodoxy that consumers demand that the company bend its knee to as a condition for buying from the company, and that’s what allows the company to make the most profit, then I don’t fault that corporate leader for making the decision that they do.

Side note: I do, then, go into a separate category of faults, which is where those companies don’t actually do the same thing in places like China today, but do so here as a form of hypocrisy that I think, at least, deserves to be called out. Calling it out there is half the solution, because consumers are, then, less likely to say that they want to buy products from companies that match their values, when they realize that matching their values is geographically contingent. But putting that small caveat to one side, I basically don’t fault companies for doing what allows them to sell the most products legally.

However, I think that the impulse that creates the conditions for that to be the profitable thing for the company to do reveals a separate cultural cancer in our society that goes beyond the scope of what law ought to concern itself with, but that we ought to concern ourselves with as thinking citizens who care about the future of a republic and the future of a generation that fails to derive meaning from the kinds of things that used to fill our hunger for meaning.

We have a generation of Americans who are hungry for purpose and meaning and identity, and hungry for cause, who have resorted to thin acts of mixing morality with commercialism as a way of filling a moral hunger that demands more substantial fare. And I think that sometimes a shirt is just a shirt, at the end of the day, and a sandwich is just a sandwich. And by ultimately tricking a gener-ation into thinking that they’re discharging a moral obligation by buying a shirt or buying a sand-wich, when in fact, they ultimately grew up in conditions that never let them have the experience of either doing pure service in their own right. You do it because you want to get into college. When you ultimately are . . . it comes to be your turn to pursue self-interest in your own right, you never built the muscle memory of doing either one alone and were left with the bastardized ver-sion of both, commingled.

So, I’m not saying there’s a legal solution to that problem. I don’t think that’s the fault of any CEO or investor in that case, meeting the demands of that generation, but I do think it is an occa-sion for us to reflect as a people on who we are and who we want to be, and whether or not we want to live in a society whose citizenry grows up to be the adult generation who’s raising kids to think that the right way to ultimately exhibit virtue is to signal your virtue as a substitute for being virtuous itself. I think that’s a discussion that goes beyond the scope of capitalism or economics.

But, Bethany, I think one of the things that I do often say, and this relates to our exchange ear-lier about the social-media companies, is that virtue, in my opinion, is a precondition for capital-ism. It’s not a product of capitalism.

And I sometimes joke that capitalism would be the perfect system for organizing a society’s af-fairs if that society were virtuous, where virtue is defined as people who want what they ultimately need. If our wants perfectly matched our needs, then capitalism would be the holiest system we could find to organize that society’s affairs.

But to the extent that I find faults with capitalism on its own terms, it’s to the extent that our wants diverge from our needs. And I think that virtue is the delta between the two that we need to fill, and doing it through the pursuit of commercialism is an optical illusion that creates the phenomenological experience of having discharged the obligations of virtue without having actual-ly engaged with the tougher stuff underlying those moral questions. And that goes probably beyond the scope of our conversation about what Capital-is and Capitalisn’t.

Luigi: What you raise, I think, is incredibly important, and the issue between virtue and capitalism, to what extent capitalism needs some virtue to prosper, but also to what extent capitalism undermines the very virtues that it needs to survive.

And I fear that many modern corporations induce amorality by what a writer of the Financial Times described as a combination of the Nixon and the Eichmann defense. There is the CEO that uses the Nixon defense and says, “I did not do anything. My underling did it, and I wasn’t aware.” And the underling uses the Eichmann defense, “I was ordered. I didn’t have any choice.” And in between these two, anything goes.

And we’re seeing with the financial crisis, we have seen it with the opioids, we’ve seen it over and over and over again, and it seems that, yes, there was also amorality in the past. But I think that large corporations with this mentality seem to be pushing even more in that direction.

Vivek Ramaswamy: Yeah. I don’t disagree with you there. I think my worldview is a little bit different than what you outlined at the outset, Luigi. It’s not that virtue is a precondition for capitalism to work. Virtue is a precondition for society to work, and capitalism is just one of those spheres of our lives that governs the commercial side of our affairs. And if that’s the impulse that determines who I vote for in my annual election to the board of directors of Ap-ple, that’s great.

It’s not a one-person, one-vote system. It’s a one-share, one-vote system. And that’s fine in the rules of capitalism. Decide whether this phone rises to the top or a different phone model rises to the top, I’m fine with that.

But there are other spheres and spaces in our lives, too. There’s the civic sphere of our lives, where, actually, it doesn’t matter how many shares of Apple you own. Your opinion on whether or not the battle for climate change ought to be won in one way or another, or not at all, ought to be one where everyone’s voice and vote is actually counted equally, irrespective of the number of shares of Apple or Google that you own. And, by the way, that’s just the civic sphere of our lives, which is totally different than the religious sphere of our lives, where we may exercise pursuits of truth and accessing higher truth that go beyond reason or go beyond self-interest. And we, in that sphere of our lives, access truth in a different way, which is different than the realm of family, which is one where we don’t exercise our impulses of self-interest within the unit of the family as we do in the same way as an individual agent in an economy.

And so, that’s sort of my broader worldview, is part of American pluralism is the plurality of these institutions that underlie our culture, and part of preserving that pluralism means keeping those institutions apart from one another. Church from state, but also capitalism from democracy. Virtue is a precondition for capitalism, not for capitalism to work in its own right, which is what your point was about, is whether capitalism can undermine its own goals that way. That’s less what I’m concerned with as the ways in which capitalism, like light, like air, can really show up like an uninvited guest in rooms of the house where it wasn’t supposed to have shown up.

And for the house to ultimately stand on its own two feet, it’s not just how the room assigned to capitalism ultimately operates that matters. That’s the sphere of the market. But the ways in which the air in one room accidentally pollutes or invades that of another room, that’s when we lose the structural integrity of the house itself. And I want to say, I’ve never gotten this far in a podcast. Certainly, not one that’s this short. So, this was quite fun to go that deep in a half-hour.

Luigi: Likewise, likewise. Thanks for the availability, also short term. I really appreciate it.

Vivek Ramaswamy: Thank you, guys. Yeah. It was a lot of fun.

Bethany: Yeah. Thank you for your time.

Probably the most interesting idea in his book is this notion of limited liability, that we granted this to corporations as part of our system so that corporations can do things people can’t and have their owners, their shareholders, be insulated from the consequences of their actions, in effect. And it’s one of those things that is so foundational to capitalism that we take it for granted without thinking about it.

That, in fact, that is a gift to corporations, and so, that is actually the strongest defense for stakeholder capitalism, because, in exchange for being given this, a corporation actually owes quite a bit. And his argument, instead, is that because he perceives that as being so dangerous in expand-ing corporate power that he thinks what a corporation owes instead is to stay in its lane and be forced to stay in its lane by just making profits.

And that really forced me to reevaluate the whole Friedman-esque idea, that just a focus on the bottom line is bad and dangerous somehow, and we want companies to care about more than that. I’m still mulling it over because I think he has a point.

Luigi: He definitely has a point, and the debate on the purpose of the corpo-ration has been around for at least 50 years. Actually, much more, but at least 50 years since the piece by Milton Friedman. So, it’s not easy to have an original point on this front, and he definitely has an original point.

Now, I’m not 100 percent convinced that his historical narration of the story is correct, in par-ticular because we grant limited liability to nonprofit institutions. And so, the fact that you have to have a profit motive in order to not be dangerous I think is a bit farfetched. And, especially today, there is such a thing as the benefit corporation, where you can look at all the stakeholders and you still have limited liability.

But one of the reasons against the freedom of the corporation in Europe was the fact that cor-porations could basically create political opposition. So, the fear that granting limited liability to some organization might make this organization powerful and be a powerful opponent to a regime is something that has definitely been around. And I think he is building on this idea in a very inter-esting twist.

Bethany: I’ve been obsessed for a long time, as you know, with the idea that corporations occupy a shadow justice system. And they certainly have since the global financial cri-sis, with settlements where nobody is held responsible, and when you read the settlements, you can’t tell who did what. There are no people named. There are no humans. It’s just a corporation pleading guilty to something that, by reading the settlements, you would think that nobody did.

And so, when I combine that with his thought about limited liability, I think, we really have created this whole parallel system for corporations where the people now often have . . . and I know there’s movements afoot at the Justice Department to try to make people accountable for the actions of the corporation, but we have created this whole system where the corporation isn’t prosecuted criminally, because that would destroy the corporation, and the people are prosecuted criminally, because they’re just the people, and the company is its own entity.

And it just is a very . . . We’ve allowed this monster to really grow out of control.

Luigi: Oh, absolutely. First of all, I did not know, and I have to say, I am ap-palled by how the proceeds of the fines are allocated. It seems like one of the most corrupt sys-tems on the face of the earth. If something like that had happened to Italy, I would say, oh, the typical Italian corruption. But, in fact, this is at the core not only of the United States, but of the Obama Administration, which was considered, actually, a clean administration by many standards. So, I think that that’s a very interesting twist.

Bethany: Yeah. And we should lay that out. So, what he says in the book is that all the billions of dollars in fines that the big banks paid in the wake of the financial crisis, it’s actually unclear where they went. They didn’t necessarily go to homeowners. Instead, the big banks were given credit and allowed to reduce the amount of money that they paid as long as they sent them to various, generally left-wing organizations that work on issues like social justice and homeownership.

And that is really . . . That is a form of extortion that I find extremely, extremely worrying, be-cause, to his point, then you do have an incentive for big banks or powerful firms to wrap them-selves in certain policies that appear to be in favor by the government in order to insulate them-selves from the effects of their actions elsewhere. And it’s not even the people who are harmed who end up getting the benefits, necessarily. And there’s something quite ugly about that.

I also thought it was really interesting, his point about corporations often draping themselves in this mantle of wokeness and then doing something completely different in the places where they think no one is looking. And his point about Airbnb and its affiliation with the Chinese Communist Party, and all the companies who talk about how much they care about social justice and then are manufacturing in essentially slave-labor camps in China.

I mean, it’s quite a triumph of narrative over reality.

Luigi: That’s true. But I have to say, the fact that many corporations are hyp-ocrites, I don’t think is that new. I think he writes it very well and very effectively, and with a lot of facts, so kudos to him. But I don’t think that that’s particularly new.

What I find particularly intriguing, because it’s very aggressive, but I think there’s definitely an element of truth, is this idea that the rise of wokeism was really a response to the revolt that was developing after the financial crisis, including Occupy Wall Street. So, he basically said that one of the reasons is, faced with this challenge to their authority by a movement like Occupy Wall Street, the banks and, in general, the large corporations, embraced one part of the revolt, the part that was very cheap for them to embrace, being politically correct and emphasizing the diversity ele-ment, and hid under the carpet the aspects they don’t like, which is, maybe, a redistribution of wealth or of political power.

It caused a marriage made in hell. You put together radicals who need money and some large corporations who need moral authority. As a result, you get these woke corporations that have both money and legal authority being at the center of the universe.

Bethany: I think he’s right about that, because you don’t see many CEOs of large corporations saying, “I’m going to cut my salary in half in order to make the world a more eq-uitable place. I’m going to take my own personal wealth, my options in this company, and instead, I’m going to give them to charity X of my choosing in order to make the world a better place, or I’m going to donate them across my company to the lowest-paid workers in my company to make sure that my company is a more equitable place.”

No. They spend shareholders’ money, and they spend the corporation’s money, but you haven’t seen CEO salaries go down, and to me, that feels like the ultimate proof that what he’s saying has some validity to it, because nobody’s embracing a policy that actually hurts the people who have the most power and could give something up. They’re not giving anything up.

Luigi: You know, Bethany, I’m doing research over a long period of time, this one is actually from 1955 to today, about the letters that CEOs write to their shareholders at the beginning of their annual reports.

Of course, it’s pretty tedious in many dimensions, but one of the interesting aspects is you see these gems. And one of the gems is a letter that is written, I think in the late ’50s, by the then-CEO of IBM, in which he says that he’s giving up his stock options to the employees.

Bethany: Really?

Luigi: Yes. So, I’m not saying this is a rule, but it’s interesting that you do find, early on, some CEOs that do exactly what you say they will never do. I think it would be un-thinkable today, but that’s kind of the level of stakeholderism that I really appreciate, because you put your money where your mouth is.

Bethany: Well, what would be an interesting comparison is that, back in the day of stakeholder capitalism, before the raiders came along in the 1980s, before Friedman’s ideas really began to be the mantra in corporate America, it would be interesting to see the extent to which stakeholder capitalism was practiced, and one measure of that was just the discrepancy be-tween the highest-paid employee and the lowest-paid one.

I don’t have the numbers at the tips of my fingers, we can find them, but it’s so much more dramatic today. Even through all the talk about a return to stakeholder capitalism, that gap has only gotten bigger, whereas back in the day, companies, actually, maybe because they were forced to by the strength of unions, I don’t necessarily think people were better people back in those days. Maybe they were. I don’t know. But back in the day, they certainly walked the walk more than they do today. There was more of a sense of, “We’re all in this together,” and now it’s words that we’re all in this together, and we care about justice and equality, but it’s not the actions.

Luigi: But to be fair, at a time where the marginal tax rate was close to 90 percent, the CEO had very little incentive to pay himself more. And they were paying them in kind, so in stuff that is not easily measured, but if you have access to a very sophisticated club, and the company pays those memberships, and all this stuff that didn’t used to enter, at least, in the con-versation, it was a way in which they were compensated, but it was very tax-efficient and less visi-ble.

So, over the years, part of that . . . I’m not saying that it’s the only thing going on, but part of that is that there was a greater transparency in the amount they were paid, because it was all in cash. In cash or stock, but very measurable.

Bethany: That’s actually really interesting that it was easier to measure it than it perhaps is today, despite all the SEC’s moves to try to make executive pay more transpar-ent.

I thought he gave a really good answer to one of the questions I asked him in a way that is ac-tually more nuanced than it is in the book. Because the part of the book, it’s right at the beginning, that made me really say, “No, no, no, no, no,” was when he basically says, “There’s no such thing as bad profits, that a corporation is never incentivized.” It’s a very Alan Greenspan-esque thing to say, that a corporation is never incentivized to do the wrong thing and make profits in a bad way, be-cause it wouldn’t last and it would destroy their reputation, and that would probably be illegal, and that he, in his times as CEO of Roivant, never faced that particular issue.

And I thought, “Oh, come on!” As I asked him, everything from social media to Coca-Cola, the list of companies making profits in ways that are not good for the health of the population is long. But he’s right that there’s a personal viewpoint at work in that. And I actually thought he was right that this is, then, the job of a government to put guardrails on capitalism. It’s not the job of the company to say, “I won’t make profits in this particular way.” It actually is the job of the govern-ment to say, “We won’t allow you to make profits in this way.”

And that that’s a place, possibly, where our government is failing on multiple levels today, whether it’s allowing companies to do whatever they will in China, or whether it’s our failure to impose any kind of limits on social media, or whether it’s the crisis of obesity in this country, which has made COVID 1,000 times worse than it would otherwise have been, and which has been ena-bled by untrammeled marketing from companies that sell food that makes you fat.

Luigi: But, actually, let me push back a little bit on this, because when it comes to climate change, I think we probably agree that a carbon tax imposed by the government would be the most efficient thing, rather than trying to have these soft limitations that don’t work very well.

But especially if you are a conservative like he is, and he is not afraid to say it, you don’t want the government to intervene in so many other things. So, saying that, oh, you shouldn’t do any-thing because the government should take care of that, and then, when it turns to the moment in which the government should intervene, it’s, oh, we don’t want too much regulation, too much intervention, you cannot have it both ways. So, that’s number one.

And number two, which is related, there are certain areas where it’s very, very hard for the government to intervene, partly because it is poorly informed, it arrives late, and government rules should be homogenous. So, if you have one rule that fits everybody, it’s very hard to have an efficient rule. You would like to leave more flexibility, but I think that having some human decen-cy, I think, is probably something we’d like to believe that individuals have, and the question is, do corporations have it?

Bethany: Well, I think that has changed over time, and I’ll relay an anecdote to back that up. I actually agree with that, and it would be really interesting to see if he is a hypo-crite if that actually happened in the real world. Because, on that note, he actually agrees with Tariq Fancy, who probably couldn’t be more opposite from him in political ideology. At least, that’s just my guess from our conversation with Tariq.

But they both agree that it’s the job of the government to intervene in matters like climate change and lay down the rules and not the job of corporations. Tariq, because he thinks corpora-tions are just pretending. Vivek, because he thinks it expands the power of corporations too much. But it’s an interesting place in which two people from very different ideologies sort of meet in the middle.

Back to your point, I do think that has changed, and that gets to the last comments he made at the end about a fundamental sense of virtue in a society, and I do worry that we’ve lost some of that. I remember talking to someone for the last big book I wrote, on the financial crisis. This guy was an old school Republican operative, and he said, basically, there are just things we wouldn’t do. You knew that if you went into the guardrails and off the lanes, that we would kill you. And it just wasn’t allowed. There are just things people just . . . It wasn’t decent. It wasn’t the way busi-ness should be done. We didn’t need a government to tell us not to do that. We just didn’t.

And I think a concrete example of what people just didn’t do, we saw in the Valeant scandal. And, oddly enough, Martin Shkreli is in Vivek’s book. But Valeant made its profits simply by taking existing drugs and raising the price on them to whatever the market would bear. That was always a strategy that was legal. That was always a strategy. Companies could have done that 30 years ago, 20 years ago. They just didn’t, because that just wasn’t an OK way to make money, and nobody would have done that.

And yet, in our time, we had not only Valeant do precisely that, but then, private-equity guys seeded a bunch of companies to copy Valeant’s strategy, because it was such an easy way to make money. So, there wasn’t a sense of, “This is morally reprehensible, and we don’t do this.”

And so, there do seem to be some ways in which the guardrails of decency have fallen apart. And I say that with some degree of wariness because I don’t love the sort of nostalgia of back in the old days, but I think there might be some truth to it.

Luigi: Vivek has a great line in his book about the fact that Shkreli, the fa-mous or infamous hedge-fund manager who increased the price of a drug by, what, 300 percent or 1,000 percent? I don’t remember, an outrageous amount, and then, ended up in jail for a com-pletely different reason, but ended up in jail, has done with gusto what every drug executive does a little bit with less flair, which is to keep increasing the price of drugs. The reason why everybody showed so much moral outrage vis-à-vis Shkreli, it was not because of what he did, it was because it was ruining the game for everybody else.

Bethany: There was a slightly different reason. It’s not just because it was ruining the game for everybody else. It’s because his company wasn’t public at the time, and he wasn’t sharing with everybody else. So, I remember asking a guy who was an investor in Valeant who was expressing outrage about what Shkreli had done, and he said, “Just the worst thing ever.” And I said, “Well, why is what Valeant’s doing any different?” And he looked at me and said, “That’s a really good question.”

And so, the difference was that people in power could invest in Valeant and share in the prof-its, and with Martin Shkreli, they couldn’t.

Luigi: And now is the moment of our Capital-is/Capitalisn’t question, where we pick a current news topic and we decide whether it fits with a model of working Capital-is or it is an -isn’t because it really isn’t working.

Bethany: So, there have been a couple of stories in the last few days about a topic that’s been ongoing, which is the pressure corporations are putting on people to go back to the office.

Speaker 8: As more Americans get vaccinated, workers and companies are figuring out what post-pandemic work life will look like, and how it may change permanently.

Speaker 9: Facebook is the latest of many businesses that have pushed back in-person return to the office, joining Amazon and Lyft with a target date of at least January of next year before they start bringing people back.

Speaker 10: LinkedIn is turning on a new feature that’s going to let companies and individuals signal how they’re looking to work: remote, hybrid, all in person or on premise.

Bethany: There’s a piece in the Times as we’re recording this about how Wall Streeters are rebelling from the pressure being placed on them to be back in the office. And, overall, there’s this sort of view that to be competitive, a company needs to offer a work-from-home package.

So, how much right does a company have to force people to come back to the office in a time like this? Luigi, what do you think?

Luigi: I think there is a big issue about the cost in terms of human lives, es-pecially for the kids and all this stuff. But that is a bit complicated to calculate, and I don’t think I have any comparative advantage. I think the more economic issue is, is this a new, better way to organize production, or is it simply what we’re trying to make do at a moment of extreme prob-lems, tensions, and so on so forth?

And I think it’s more the former rather than the latter. And as with every new form of produc-tion, there is a lot of resistance. There are a lot of people that are not used to it. Clearly, there is a loss of control, or at least some psychological sense of control, of the boss vis-à-vis the subordi-nates. Part of the resistance, as is often the case in life, is from people who are used to doing things the old-fashioned way, and they find it diminished if you don’t continue that way. But I think that, actually, one of the great things about capitalism is the experimentation of different forms.

And I think we are in an exciting new phase of experimentation. And I am not saying that every job should be done from home, but I think having that flexibility is great. And, pretty quickly, we’re going to figure out what works and what doesn’t.

Bethany: I think it’s going to be interesting to see how it evolves. It’s funny, because when this topic comes up, I finally realized that I have a big bias that prevents me from seeing the intellectual arguments clearly. And my big bias is that I think human contact is good, because it forces people to remember that other people are people, too, and it makes it less likely that we’re all going to kill each other in some giant conflagration because we’re going to remem-ber each other’s shared humanity.

So, I have this weird bias about people going back to the office. Or, at least, going back to the office as a stand in or as a microcosm of people having contact with other people. So, take what I say with that grain of salt offered up.

But I’m surprised by how quickly the old arguments about culture went away. I mean, up until the pandemic, companies were building increasingly elaborate headquarters with dry cleaning and pet care and childcare, because culture was so important, and it was so important for you to be around other people in your company. And all of a sudden, that narrative just flipped on a dime, particularly in Silicon Valley, and it became, “Oh, we don’t need culture. We don’t need offices. You don’t have to be here.”

And I don’t know. Is the truth somewhere in the middle? I can’t help but believe that the truth is somewhere in the middle. And then, I’m plagiarizing someone else’s thought, but it’s a banking executive who I was talking to the other day, and per your point about control and about bosses losing control of their subordinates, he said that what’s coming that is going to be very hard to people to get used to is going to be white-collar workers having to allow their bosses and their companies control over their lives when they’re working from home, monitoring in a way that only used to be done if you were a blue-collar worker, where you could only take a 15-minute bath-room break here or there, but that it’s coming to white-collar workers who want to work from home, because bosses aren’t going to let themselves lose that kind of control.

And so, if you are going to choose the work-from-home option, you’re also going to have to submit to a kind of monitoring of what exactly you’re doing during the day that might make it not very fun to be working from home. And I don’t know. Maybe that’s a little bit apocalyptic, but I’m all in favor of any form of experimentation, really. It is capitalism. So, I can’t complain that it’s a Capitalisn’t. I just am not sure about how this evolves, or how I would like it to evolve if I ruled the world.

Luigi: I am more optimistic. I think that that level of surveillance would be so odious that it would not last very long, because I can be in front of a computer and do a lot of oth-er things. So, if I’m forced to be in front of a computer, my contrariness will make sure that I don’t work, and try to play a game or just defy the boss. So, I don’t think it’s going to go very far.

Bethany: It is interesting, though. And what might be the Capitalisn’t in all of this is the degree of hypocrisy right now, and I only have anecdotal evidence to support this, but a lot of Wall Street firms . . . Not a lot. But some will say, “Sure, fine. Work from home.” And I have a friend who did that and took a job working from home in Chicago for a team that was based in Bos-ton, and she ended up having to leave the job because she found that because she wasn’t in the office, she got squeezed out of all the assignments, squeezed out of her team.

And so, even though the marketing was, “work from home,” it actually wasn’t true once she was there. And I think a bunch of people are discovering that in finance, that what your company says may actually not be the way your place or your group works. And that level of hypocrisy, I don’t like. I wish companies would just tell it as it is. “Your career is going to suffer if you choose to work from home. You can do it. We’re not going to tell you to come back in the office. But you know what? Your career is going to suffer, and you may find it difficult to survive here.” Just be honest. Right?

Luigi: Yeah. But remember the episode with Claudia Goldin, I think a lot of this “being there” is not really productive. It’s just showing your face and trying to steal the job and the client from somebody else who’s not there. So, it’s completely rent seeking. It’s not really doing a better job.

And it is favoring, disproportionately, men over women. I think having a better organization that allows people to work from home is also more gender neutral.

Bethany: I don’t agree with that at all. There’s a reason why, during this work-from-home period, women have left the workforce at unprecedented levels, and it’s not be-cause working from home is gender neutral. It’s because working from home means that you are in charge of your children 24/7, and it means that you’re never going to get anything done, because the only way you, as a woman, could advance unless you were already pretty senior was by leaving your home to go to the office so that you had to be there. And I think this is going to create a ter-rible double standard for women where, “Well, if you’re a good mother, wouldn’t you choose the work-from-home option? Because then you can be with your kids.”

And what that means is that you can never function at the level of your male colleagues, be-cause you’re with your kids, and there is absolutely no way, until maybe your kids are in their mid-teenage years, that you can function normally with children at home. You just cannot.

And so, I think that having this option is going to be one more thing that possibly holds women back, because it’s going to be an option that if you were a good person, if you were a good mother, you would choose that. You would be with your kids as much as you possibly could. And now, your company is making that possible. Bingo! But you’ll never rise to the top.