Go Woke, Go Broke?

Conservatives recently had an apoplectic fit over Bud Light’s product placement making some sort of partnership with transgender TikTok personality Dylan Mulvaney. There have also been conservative freakouts at Mulvaney partnering with Nike, a man screaming obscenities over a Lego pride set, and around one stupidly outraged viral tweet or another every week. Exactly why this is a big deal is a mystery to anyone with literally anything going on in life whatsoever, but it does lead to one very common kind of reaction: here’s US presidential hopeful Ron DeSantis, for instance: “why are corporations focusing on promoting X cause versus making money.”

With Pride Month having just begun, and with it an increase in pandering to the LGBT community by corporations, the issue of what is going on with woke companies is as timely as it is interesting. So, why do companies go woke?

The greed mind virus

What do corporations do? Well, they pursue profits. That is their goal—the social responsibility of the firm is profit, to quote Milton Friedman. As a generalization, people have things they want to buy and things companies have for sale, so they can exchange things for money, leaving both parties better off. This process can usually work, but it functions mostly if everyone has the same information, and if the costs and benefits accrue to the people partaking in the transaction—no things such as pollution, which can’t be priced because the people who suffer from it aren’t buyers or sellers. 

Information, therefore, is key for “the market” to function. Around the world, everyone knows different things—especially, how to make certain products or do certain services, and all the related changes to different conditions. Imagine a hairdresser deciding what type of hair products to stock up on—since different hair types need different products, providing hair services needs different kinds and in different amounts. The issue is that it’s pretty difficult to know ahead of time what kinds of hair everyone has, and what hair cuts they want, so it’s also difficult to choose what kinds of products to buy. What you can do, instead, is observe prices for each type of hair product: if one is more expensive, all things being equal, then it has to be more in demand, meaning that hair type is more common. It’s not especially important if more people have curly hair or if curls are in fashion or if the straight hair shampoo is low quality; it only matters how many people will ask for each product and how that reflects on their prices. Nobody knows how to make a pencil—they know how to do parts of the task at hand, and prices and their own self interest keep the gravy train rolling. Prices both have all the information available, and give out the bare minimum—how, exactly, is a whole thing. The point isn’t really that prices convey information by themselves, but rather, that knowing prices helps minimize the amount of information a normal person needs to know. 

Companies, therefore, economize on information to make things. But there is one kind of information that is exceedingly hard to obtain: how much work their employees are doing. On a team, there are people who pull their weight, people who slack off, and people who go beyond what’s required. If it was possible to measure how much each person contributed, then you’d just pay them a share of profits proportional to their effort, and fire the slackers. However, it’s not really possible, and a lot of the time it’s actually very difficult to tell how much work actually went into something. Plus, workers have an interest in working as little as possible while still getting paid, while companies have the goal of getting their employees to do as much as is feasible—so it’s crucial to figure out who’s slacking and who’s working. If he (or she or they, this is a woke publication after all) who does not work shall not eat, then they pretend to work and you pretend to pay them. Thus keeping workers productive and happy is crucial to the firm as an economic unit (happier workers work better), and this means that sometimes you have to overpay to get them to actually put their heart into it. Potentially, you can hire a foreman to look over their shoulders, or threaten to fire them and replace them—unemployment, in a lot of ways, functions as a way to discipline workers. 

Companies, as mentioned above, pursue profits—either as in higher benefits or the highest possible.  In a marathon, the winner is who runs the fastest of the runners, not of everyone on the planet ever, and the same goes for a market—survival is based on receiving positive profits over time, and success is just receiving more profits than everyone else involved. The role of profits, then, isn’t to signal the correct choice of actions, but rather, to distinguish viable companies from non-viable ones—i.e. companies that can make better choices from companies that make worse ones. 

A lot of companies are owned by people other than those who run them, and just as there is a problem between the interests of workers (doing as little work as possible) and companies (getting workers to work as much as possible), there can also be a problem between the interests of the owners and the managers. The owners want to receive as much profit as possible, and the managers want to sustain their jobs as much as possible—which sometimes means focusing on short-term gains over bigger, slower ones. Owners don’t really follow what’s going on in their firms, but do follow the profits—and so can see if their managers are making good or bad choices. 

Pronouns over profits

The question, then, is whether “woke” corporations are an ideological project by out-of-control managers, or a rational response to market signals—or something in between. It’s of course possible that managers are imposing their prejudices (or lack thereof) onto the company at the expense of shareholders, but it’s equally plausible that this is a calculated, cynical push to increase profits. 

One first angle to consider is demand: companies would have to pull off a tightrope act between bringing in progressive customers and putting off conservative ones. Bud Light itself is the prime example of this: their push to market to the LGBT community was precisely intended to attract a new demographic, while grossly underestimating the backlash this would generate. In general terms, “going woke” tends to weird out conservatives and older clients, while bringing in a more progressive and youthful clientele—which has the natural corollary that who your customers are is important for a company considering whether to go woke: one can become Target and get bomb threats at your stores, or one can become Subaru and have the company turned around by marketing to lesbians. The impact of demand largely depends on the product—the consumer base results in a different capacity to use “advocacy” for profit, because nobody is going to buy the non-binary dentures, but they are also not going to go for the “Adam and Eve, not Adam and Steve” vape pods.

There is also the impact of wokeness on output—is having progressive initiatives at the company a smart idea? Larry Fink, CEO of BlackRock (not exactly a bleeding heart pinko) has said that his company’s overtures in terms of race, gender, and sexuality are not political or ideological, but rather about building a better relationship with clients and other companies. It can improve a firm’s reputation and attract new talent—Wall Street is infamously bad for women, so reining in the “frat boy” culture and promoting period equity would be a good counterbalance. Male dominated industries lose a steady trickle of female employees constantly, and high attrition imposes costs on firms— even Fox News has a list of best practices pertaining to transgender employees. Thus, the much-maligned practice of “DEI training” (a presentation about racism being bad) might make the company more attractive to talented minority workers, or result in a workplace with better relationships between employees—or not, it’s not like this stuff has many Randomized Controlled Trials. But happier workers are more productive, and this is more likely what firms are after rather than promoting an ideology. And there is one last, extremely cynical reason why companies might “go woke”: to not lose so many discrimination lawsuits. 

Lastly, the question of whether companies forego profits in order to pursue ideological agendas remains. A common practice in modern corporations is to focus on “ESG”, which stands for “Environment, Sustainability, and Governance”—basically, the social and environmental consequences of their actions. This practice has received blowback as being against shareholder’s interests—but those same shareholders, as well as other stakeholders, rank issues such as climate change very highly in their concerns. ESG is not about replacing profit with the environment, but rather, about taking into consideration the impact of such social concerns on the bottom line—what does long-term investing mean during the energy transition? Earth Week, for instance, is largely seen as an “all bark, no bite” type of affair by the climate community. It seems that, largely, ESG has a positive impact on profits: companies with exposure to climate risks have an incentive to mitigate it. For instance, the insurance industry is increasingly considering exposure to wildfires in states such as California, or flooding in others such as Florida. There have been those who blamed events such as the Silicon Valley Bank collapse earlier this year on “wokeness”, but if you’re a bank and you have a DEI chief but not a Chief Risk Officer, it might be ideological capture by postmodern neomarxists, but it’s probably just incompetence. 

Conclusion

So, go woke, go broke? Yes and no, as is usual for economics. Sometimes you market that you’re the gay bank and that pays back as higher profits. And sometimes being “the trans beer” costs you a lot of money. Regardless, and on a more cynical note, most “woke” corporations aren’t following the tenets of some sinister sounding ideology, they’re just chasing good publicity or media attention—woke capitalism is, after all, just capitalism. Overall, companies try to make good decisions based on the politics of their consumer base, and especially on how much they’d care either way—the sign and magnitude of the wokeness elasticity of demand, to put it in economics terms.

The fact that companies don’t think that pandering to progressives or the LGBT community or racial justice sentiments is unprofitable is a good sign that these ideas enjoy some level of broad support. 

Featured Image is Mylan CEO Heather Bresch Marches at the 2016 Pittsburgh Pride Equality March