How Bad is “Woke” Capitalism?

Ramaswamy’s qualifications and observations

Although only 36, Ramaswamy has an impressive array of accomplishments. Born in Cleveland of Indian immigrants and raised in a small town in Ohio, he was valedictorian of his high school class, graduated from Harvard with a molecular biology degree, worked for large hedge fund companies, got a law degree at Yale and then started a pharma company, Roivant, which developed several successful pharmaceutical drugs. He stepped down in early 2021 after seven years as CEO. He is on firm ground in saying, “I know how the elite business world works—and elite academia and philanthropy too—because I’ve seen it firsthand.”

The best parts of the book – the most authentic and most interesting – are his own experiences. In one chapter he relates his family’s annual trips to visit his ancestral home of Vadakanchery in Kerala, India, and how different their mores were. (His parents had an arranged marriage. Ramaswamy doesn’t say whether his own was arranged too.)

He relates an experience at his firm, Roivant, in which he handled a corporate crisis with admirable skill and delicacy. In the wake of George Floyd’s killing, employees began to ask questions like “What is Roivant doing to address systemic racism across its many subsidiaries?”; “Are we going to revisit our recruiting practices?”

Ramaswamy, as he says, “personally [rejected] the narrative of systemic racism.” (This statement is more complicated than it sounds, because later Ramaswamy makes it clear that he does believe systemic racism exists. But he is uncomfortable with it as a vague concept and rejects the popular narrative about the proposed race-based solutions.) But because he wasn’t in tune with the employees’ remedies and motivations, he wasn’t very responsive.

After complaints from employees, he finally reacted by declaring Juneteenth a holiday and a day for reflection.

Reflecting during that day himself, he remembered that one of the founding values of his company was “scrappiness.” (A small pharmaceutical company, it developed pharmaceuticals that big pharma had already put a lot of research into but didn’t find it worth their while to continue developing.)

In reflecting, he realized that:

For years we had prioritized Ivy League schools in our campus recruiting process. Sure, there are plenty of scrappy kids at Harvard just as there are at state universities. But recruiting Ivy League grads wasn’t automatically going to select for hunger and scrappiness.

There was another issue, too. As CEO, I often declared with pride that we valued diversity of thought and diversity of experience among our employee base.

Ramaswamy’s solution was to prioritize recruiting a certain number of employees who grew up in a family whose household income was below the 25th percentile. This may not have been exactly what the employees meant, but it was good enough. (I had a similar experience myself once as a member of a nonprofit board, some of whose members were calling for more “diversity” on the board.)

The self-servingness of “service”

Another telling experience was when he was visiting the Manhattan townhouse of an investor to help build a business relationship with the investor’s friend, the CEO of a foreign company with which he was working on a big deal. After dinner, the investor’s son came downstairs and, realizing Ramaswamy was a Harvard graduate, asked him for advice on his college applications.

Ramaswamy replied that it could help for the son to say he had done something that no other applicant in the country had done. But the kid already had that covered. “He had founded a nonprofit organization to combat sex slavery around the world.”

Ramaswamy comments, “I nearly laughed. There was something amiss about an American minor founding a nonprofit to fight sexual assault in the third world. But it quickly became clear that this was a critical cornerstone of his college application.”

Ramaswamy then uses this example to lament how “service” is not altruistic anymore, but often performed on the understanding that it will gain some advantage. Community service is undertaken to pad a resume; philanthropy is often necessary for business networking purposes.

He then proposes a good solution to this problem: universal service, perhaps for high school students during their summers. Instead of supposedly altruistic, much-admired service being limited to military service by paid volunteers, it should be universal service that goes far beyond the military, for example to fight hunger, poverty, pollution, illiteracy, and homelessness.

Woke, Inc.

But much of Ramaswamy’s book, of course, is addressed to what he believes are the evils of corporate America adopting a ”woke” posture and taking it upon itself to enforce woke-ness.

To be woke in America is to be aware of and vehemently opposed to racial and gender (and now, gender identity) injustice, extremes of inequality in wealth and income, and activities that exacerbate climate change. “Woke, Inc.” refers to the recent and rather sudden tendency of corporations to embrace the woke agenda. To be woke also, crucially, encompasses agreeing with certain philosophies and actions about what to do about these problems.

Many people agree that these are problems. But they are not necessarily woke. The true woke believe that one should be vehemently concerned about these problems and should buy into a certain set of solutions to them. The most extreme woke believe in what amounts to turning the tables, elevating those categories of society such as the dark-skinned and women that have been victims of injustice above those who have avoided being victims – or have been the causes of it – thus creating, at least temporarily, a new injustice. Many people in America, especially many of the young, believe this – my daughters, for example, millennials, may believe this to a certain extent.

Ramaswamy does not believe this. But more particularly he believes that whether or not they believe it, CEOs of companies have no business playing a role in carrying out the woke agenda. Ramaswamy claims, as did Milton Friedman, that corporations should pursue profit (“shareholder value”) as their primary and sole goal. But, unlike Friedman, this should be done not because greed is good but because the bargain they make in exchange for their gift of limited liability is that they, on their part, must limit their activities to their business only.

He makes a pretty good but not perfect argument that the history of limited liability shows that this is the trade-off that businesses were supposed to agree to in exchange for limited liability – that they must not try to extend their activities or their influence beyond business itself.

The recent extension of business to “stakeholder capitalism” – which posits that businesses must serve the interest not only of their owners but also of their stakeholders such as employees, suppliers, and the community at large – is, according to Ramaswamy, a violation of this agreement and dangerous because it allows the exercise of power by corporations – capitalism – to extend to decisions that should be made only by another institution that it should not invade – democracy. These decisions are properly made by popular vote, not by corporations, he claims.

This argument is interesting but not entirely persuasive. The problem, though, is that the exercise of corporate power in the name of wokeness has, at least in some widely publicized cases, begun to be tyrannical.

Ramaswamy recounts several incidents of employees being fired by corporations because they violate an often-obscure principle of wokeness. For example, Ramaswamy cites the case of James Damore. Damore was fired by Google after responding to a request for employees to send feedback on diversity, by distributing an innocuous email in which he cited peer-reviewed psychological papers on innate biological differences between men and women. In another example, the Tobias Literary Agency fired Sasha White for tweeting support for author J. K. Rowling, of Harry Potter fame, because of Rowling’s opinion that a person’s sex is a biological fact that can’t be changed.

Most of these have been in the news, and some of them are truly appalling – unless, possibly, the details that have not been fully reported in the media make them less appalling than they seem on the surface.

Is wokeness a religion?

More compelling, surprisingly, is Ramaswamy’s argument that wokeness could be considered a religion, for legal purposes that is. Saying, “Let me finally put that pricey Yale law degree to work with a legal argument,” he cites the vague definition of religion in the interpretation by the Equal Employment Opportunity Commission (EEOC) of Title VII of the Civil Rights Act.

Based on that, and on carefully cited Supreme Court case precedent, he argues that employees who are fired for not being woke enough could sue on the basis that their employer is discriminating against them because of their refusal to abide by the dicta of the employer’s religion, wokeness.

This may not sound very serious. But it is. Watch to see if such a case comes up soon, perhaps even brought by Ramaswamy himself or his law school advisor, Jed Rubenfeld.

Flaws in the ointment

Now let me come to the flaws.

I’ll get the relatively minor one out of the way first. Ramaswamy’s book has a chapter titled “The ESG Bubble.” I have written about the problems with ESG elsewhere, but the single one that he highlights is not one of them. This is because he buys into the fallacy about ESG and socially or environmentally responsible or “sustainable” investing that has been enunciated by Cliff Asness: “… constraints can never help you ex ante and only sometimes ex post through luck. Why? Because if they help, they aren’t constraints, they are what you want to do anyway.”

In other words, if you are constrained by the requirement to invest in socially responsible companies then that constraint must lower your expected return. But what is to distinguish a “constraint” from “what you want to do anyway”? Virtually all active investment managers constrain themselves by confining their stock selections – or their weights in the portfolio – to those that meet their criteria. Do all these constraints reduce their expected return? Apparently not, because they are “what you wanted to do anyway.” But if what you wanted to do is invest in “sustainable” companies then this suddenly becomes a constraint?

This argument is and always has been utterly illogical. ESG has finally gotten around that by claiming it is a way to increase expected return, not to decrease it – whether there is any truth to that or not.

Now for the argument that got me incensed in the initial Ramaswamy essay that I read.

That essay is titled, “Stakeholder Capitalism is a Trojan Horse for China.”

The essay rides the crest of the wave of China-bashing that has appropriated the groupthink mentality recently in the United States even more effectively than wokeness has. The essay repeats emphatically all the wrong and unproven accusations against China that are constantly repeated by the U.S. press. It is imbued with the assumption of moral superiority that is the American birthright.

As a resident of Hong Kong and close observer of the events here in the past two years, and one who has traveled several times in China, not just for meetings but among ordinary people, I see a very different China and Hong Kong from what most U.S. media – and Ramaswamy – sees. U.S. reporting on Hong Kong has been extraordinarily biased. Ramaswamy has – understandably – bought into it uncritically.

Ramaswamy’s essay speaks of “a program of systemic rape” in Xinjiang for which solid evidence is non-existent but it is believed anyway. He speaks of “forced labor” but as usual, “forced labor” is neither defined nor proved. He speaks of Beijing’s “crackdown on Hong Kong demonstrators,” which is true, but it should be clear that the crackdown was on demonstrators who rioted violently almost daily for six months in the last half of 2019, destroying many public facilities and private businesses and nearly shutting down the city, and their sources of funding support. He speaks of the distinction “between the free West and fear-based societies like China.” Most Chinese would be surprised to know that their society is fear-based. For the vast majority of citizens of China, China is not fear-based any more than, for the vast majority of US citizens, the United States is fear-based.

China sometimes behaves like a cartel, business-wise, and it doesn’t hold certain freedoms like those of speech as sacred as we do. But that doesn’t mean it is guilty of every allegation that is thrown at it, without adequate corroborating evidence.

I know it will fall on deaf ears to say these things, because it is now axiomatic in the United States that China is bad and that therefore everything it does and says is bad, no matter what. This is not to say that everything it does is not bad either, of course – and some of it definitely does not agree with our moral code.

But when I read Ramaswamy’s book I found that although some of the same objections appear there about U.S. corporations kowtowing to China because they want access to its vast market, the incendiary statements in the essay that I first read are not there.

Nowhere in Woke, Inc., for example, could I find a statement of, or reference to, China’s “fear-based” society.

This tells me that someone informed Ramaswamy that the best way to pitch his book would be to ride the coattails of all the China-bashing that’s going on in the United States. This is a despicable exploitation of a biased but all-too-common view that is wrong or at least wildly exaggerated.

And one more thing

I’ll say one more thing that may make my case even more unpalatable, especially, perhaps, to China-bashers who are also Trump supporters.

Ramaswamy, a conservative, makes the mistake of calling Trump supporters and those who write positively about him and negatively in the extreme about his opponents “conservatives.” He believes that social media have committed a sin by disallowing many of the accounts and comments of those “conservatives.”

But as I see it, the pinnacle of his objection to the Trump-and-company objectors is an interesting quote. He cites a recent report that found that “over a third of conservative academics and PhD students in the U.S. have been threatened with disciplinary action for their views, and 70% of conservative academics report a hostile departmental climate for their beliefs.” This is certainly lamentable, and it is in keeping with his valid objections to the woke mob.

But he then goes on to apparently double down on the problems cited by this report. “The report contains a number of other grim statistical findings, like the fact that more than 40% of U.S. academics would refuse to hire a Trump supporter.”

Trump is – by, I believe, most people’s admission – a casual, habitual, and sometimes malicious liar. (My friend Josh Scandlen, a Trump supporter, does not, I think, necessarily deny this. His reason for supporting Trump is that he is “only a weapon” – against wokeness, I presume.) Academia is based on the search for truth. Screening among many competitive applicants for an academic position must be carried out on some basis. The fact that the candidate for the position supports a habitual liar could reasonably be considered a disqualifier.

I wonder, what would Ramaswamy think if another hypothetical practice in academia were reported – that more than 40% of academics would refuse to hire a Xi Jinpeng supporter. Would that, too, be outrageous and an indication of wokeness? Or would he agree with that refusal and – just possibly – admit that it’s not wokeness after all that refuses to consider Trump supporters as academics but a reasonable choice.

After being initially incensed with the first Ramaswamy essay, and now having read his book, I find the book and Ramaswamy highly admirable. But I fear that although he may also believe it himself – understandably, given the level and depth of misinformation – he has been badly advised to ride the misguided, gratuitous, and dangerous anti-China wave to sell his book.

Economist and mathematician Michael Edesess is adjunct associate professor and visiting faculty at the Hong Kong University of Science and Technology, managing partner and special advisor at M1K LLC, and a research associate of the Edhec-Risk Institute. In 2007, he authored a book about the investment services industry titled The Big Investment Lie, published by Berrett-Koehler. His new book, The Three Simple Rules of Investing, co-authored with Kwok L. Tsui, Carol Fabbri and George Peacock, was published by Berrett-Koehler in June 2014.

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