Defending the Republic: Scenario 1 Regulatory Capture

In Defending the Republic, Part 1: Introduction, I listed three potential threat scenarios. The first, regulatory capture is playing out now. While it seems to be the least threatening scenario, that may be a bit of an illusion. The regulatory capture scenario has 3 sub-scenarios, depending on the scope of the capture. The first sub-scenario is nothing new. Corporations have engaged in regulatory capture for a long-time. We see evidence of the second scenario with industries cooperating to enhance regulatory capture. Food and Drug is an excellent example of both industry-wide regulatory capture and the damage it can do to citizens. The third sub-scenario is perhaps happening now with multiple industries engaging and regulatory capture, and, with the social justice initiatives, potentially colluding.

To understand the danger, we need to understand corporatism and regulatory capture. For a background in corporatism, see Corporatism Part 1, Part 2; and Thoughts on Ukraine, Part 7: The Joint Corporatist Scenario. For regulatory capture, see Regulatory Capture and Other Bureaucratic Problems.

We need to understand the impact of the various social justice initiatives, as that is a common nexus among industries and potentially affects effectiveness. Why are corporations embracing the Diversity, Inclusion, and Equity (DIE), Corporate Social Responsibility (CSR) and Environmental, Social, and Governance (ESG) agendas? McKinsey and Company report, “In 2020, the global market for DEI—that is, dollars spent by companies on DEI-related efforts such as employee resource groups (ERGs)—was estimated at $7.5 billion and is projected to more than double to $15.4 billion by 2026.” That is an enormous sum that lowers productivity and competitiveness. Pundits claim that diversity improves performance and effectiveness, but there is not much data to prove that assertion. Many studies show that deep diversity, rather than surface diversity, provides these benefits. To put the 2026 projection in perspective, it is higher than nine state budgets and about the size of Maine’s budget.

An article in the New York Post on Corporate Equality Index (CEI) and how it can shape/compel policies may hold some answers. Organizations such as the Human Rights Campaign (HRC) publish their ratings. In concept, this is nothing new.

Social investing was a big and successful part of the campaign to end apartheid in South Africa. With that success, the nascent social justice movement sought to expand beyond South Africa to other areas, such as the Green Movement and racial politics. I say racial politics vice ending discrimination and furthering inclusion and equity because the US has spent billions, if not trillions of dollars in the programs and potentially the problems are on worse since the Great Society (see Part 7: The Great Society and Creating the Monster: The American Bureaucracy).

The government alignment with the social justice movement came just in time for social investing. Shareholder lawsuits alleging corporate leaders neglected their fiduciary responsibilities threatened the movement. But as politicized bureaucrats and politicians got involved with the social justice movement, the legal pressure petered out and shareholder activists and consumers took up the pressure as we see with Anheuser-Busch, whose website states: “t Anheuser-Busch, our purpose is to create a future with more cheers. We are always looking to serve up new ways to meet life’s moments, dream big to move our industry forward, and make a meaningful impact in the world. We hope to build a future that everyone can celebrate, and everyone can share.” The website is correct. They are “more than just a beer company”. Shareholders probably wish they had remained to being a beer company as the company shed market share and the parent company hemorrhaged value.

But given the US government’s embrace of social justice and its objectives, there will probably be few successful shareholder lawsuits. We can say the same for Disney and many other companies that have lost considerable value after adopting social justice tactics.

However, evidence from Coke may show shareholders may have had enough. “Coca-Cola Co. shareholders last week soundly rejected three proposals pushed by leftist activists to push the company further into leftist causes.”

Corporations and government are colluding. Why?

Perhaps for a few reasons:

• Corporatism, especially in post-WWII Europe, emphasizes cooperation with governments and unions to foster strong employment.
• Some social justice bureaucrats and politicians and corporate leaders believe the social justice tenets are beneficial for society. Since the pain they inflict is predominantly on the wealthy, it is acceptable.
• Some corporate and government leaders do not care a fig about social justice. They just care about power. If social justice objectives create pain and chaos, they open avenues to consolidate power. Once they consolidate power, the social justice movement will die off and the protected classes will be victims for the new order.
• Some corporations and power brokers may want to destroy small and mid-sized companies. Whether by coincidence or planned activities, these companies suffered the most during COVID. Disrupting these companies hit the middle class, which are the strongest supporters of the Republic.
• Some may be deeply in bed with China. As I have discussed elsewhere, China is a fascist state, not a communist state. When companies seek to do business in China, they need to pay with technology and perhaps other favors. China may influence these companies to push the social justice narrative to further destabilize the US.

The current government-corporate collusion, however, seems to stand traditional corporatism on its head. In traditional corporatism that moves into fascism, the government is in control. In this American incarnation, the corporations seem to move into control. With scenario 1a, these activities are just a continuation of regulatory capture and rent seeking activities. Rent seeking is “economic concept that occurs when an entity seeks to gain added wealth without any reciprocal contribution of productivity. Typically, it revolves around government-funded social services and social service programs.”

As Investopedia notes, these are often within the span of social justice initiatives. Besides the social service programs, we also see rent seeking/regulatory capture in food and drugs, and the social justice movement is moving their focus into traditional corporate governance. Almost certainly industries collude in these activities either to further their rent seeking, to protect themselves, or to use the social justice movement for their own purposes. This moves into scenario 1b and if they collude across industries into scenario 1c. As they consolidate these efforts, the border between scenario 1c and scenario 2, policy domination blurs.

The more corporations collude in these efforts, the more they water down the controls built in to safeguard the Republic and destabilize society. This could create the conditions for scenario 3, a complete takeover by underming the rule of law.