The impact of Trump’s re-election in November continues to reverberate around the world. The World Economic Forum’s annual gathering of elites in Davos has become a shell of what it once was. Global financial alliances, once boasting tens of trillions of assets under management by member companies, have become defunct. Corporate America, including lefty Silicon Valley tech companies like Google, Amazon, and Meta, are running for the exits when it comes to DEI. But underlying these changes has been relentless political pressure from Red States and now from the White House.
Yet many conservatives have reservations about using political power to pressure companies and asset managers to abandon DEI policies and ESG priorities more broadly. Our piece last June applauding the Texas Permanent School Fund withdrawing its assets from Blackrock elicited just this concern. John Tamny argued that the bigger political problem was that the state government was managing billions of taxpayer dollars in the first place. Texas was “politicizing” citizens’ money in a way that conservatives should, and would, bemoan if California were to do the same.
We’re sympathetic. Governments should take and keep as little of their citizens’ wealth as possible while providing good rule of law and basic public services. People generally manage their own money far better than government officials will. Large state actors also tend to distort markets in perverse ways: Medicare and the healthcare system, student loans and higher education, etc. Government investing, like any other form of government intervention, inevitably distorts markets.
But we do not live in a world free of government distortion. Until we do, public officials have a duty to make sure their constituents’ money is invested well – meaning holding asset managers accountable for fulfilling their fiduciary duty to obtain the best returns for their clients, in this case the taxpayers. That’s not playing politics. It is correcting deficiencies, potentially illegal deficiencies, in the status quo.
The legality point means that state funds may have an obligation to cease doing business with BlackRock, State Street and Vanguard, even if those firms offer the lowest management fees. An investment strategy pursuing ESG goals, like any other strategy based on non-financial factors, has greater risk and performs worse than investment strategies focusing only on financial factors. This is because social investing strategies, like ESG, are built on platitudes, making investment selection arbitrary as well as money being left on the table in forgone investments that appear to not align with these platitudes.
When it comes to state investment funds, if actual returns fall below expected returns, taxpayers have to make up the difference. At a time when Americans are already feeling strained financially, higher tax burdens are the last thing they need. Using the TPSF to fund a universal voucher system is a way of repurposing the fund so that money goes back to Texans and grants them greater educational freedom than they have right now. This could be a small step toward getting the government out of education altogether.
We also can’t ignore that governments have actively pushed the DEI/ESG agenda. The federal government has been one of the worst offenders when it comes to forcing these ideological priorities on citizens and companies. Trump’s executive order reverses this egregious abuse and overreach of federal authority. Conservatives should cheer this rollback of government interference – just as they should cheer better governance and accountability for how citizens’ tax money is managed.
We agree with Mr. Tamny on the dangers of replacing the leftist ideological crusade with a right-leaning traditionalist or cronyism ideology. If a state legislature were to direct its asset managers to invest in some industries and avoid others for any reason other than maximizing financial returns, they would be guilty of abusing their power and distorting markets just like ESG crusaders did.
Mr. Tamny’s comments also provide a reminder of what’s important: moving toward freedom and away from central planning. Making these funds insolvent, however, does not make them easier to dismantle. Look no further than California or Illinois, where budget deficits, debt, and high taxes still do not deter government from growing. Detroit’s bankruptcy provides another cautionary tale. Despite painful restructuring, A decade after bankruptcy, research found “The 2013 bankruptcy filing didn’t make the city more prosperous, more functional, or less corrupt” yet residents of city remained some of the poorest in the nation. The way out of government intervention is certainly not through insolvency.While we advocate reducing the size and scope of state and federal government, we can also cheer political action that puts the interest of taxpayers first and removes the ESG thumb from one side of the scales without placing a fossil fuel or social conservatism thumb on the other side.
Exercising political authority to reform and correct abuse should not be viewed negatively when the goal is to return to a neutral rule of law position. If it goes beyond that, true conservatives should change their tune. But until then, we give three cheers for political pressure rolling back destructive and deceptive DEI and ESG policies in government, universities, asset management, and corporate America.
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