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Today is a FREE taste of an Insight Politics article by writer Nathan Smith.
BlackRock and the Rise of the Market State
Power is very shy. Often, it can only be seen in retrospect after a new regime takes over.
For example, a peasant in 13th century France wouldn’t have called himself “Catholic”. His belief was just the normal thing that everyone believed. But he certainly would have known that paganism was bad, very bad. Two centuries later, his great-grandchildren would be called “Catholic” by Protestants, an entirely insane aspect for him to think about at the time.
Similarly, during the 20th century, Europeans didn’t call themselves “white” because the status quo was the nation-state. They were “German,” “French” or “New Zealander”. A century later and their great-grandchildren would be called “white” by “black” people. Why? Because the hermit shell of the nation-state was hollowed out and taken over by a new crab.
Why does this new crab look like BlackRock? US author Philip Bobbitt can answer that.
History will be the judge, but I expect his book Shield of Achilles will one day be recognised in the same pantheon with Hobbes’ Leviathan and Machiavelli’s The Prince. The importance of all these books was that they correctly described their contemporary power regime at the time when that power wished to remain as far from the spotlight as possible.
Bobbitt’s overarching point is that all politics has been useless for at least 30 years because the nation-state has not been the core system of power since the fall of the Soviet Union. The nation-state swallowed poison in the 20th century, thrashed about for a few decades and was finally pronounced dead in 1990. But power cannot be destroyed, so power flowed to a new regime.
Bobbitt calls this regime the “market state,” which is the latest iteration in the evolution of the tradition of Renaissance government called the “state”.
The evolution began in 1494 when Charles VIII invaded Italy, which set up the conditions for the “princely state”. The 1567 Dutch Revolt led to the “kingly state”. The beheading of Charles I in 1649 then created the “territorial state”. The American Revolution in 1776 shifted the West to the “state nation”. And the 1861 US Civil War birthed the “nation-state”, which finally died in 1990 with the Yugoslav collapse.
Each new power structure emerged after an epochal war. In the 20th century, what we thought were three separate conflicts – WWI, WWII and the Cold War – were actually one “Long War” that eventually broke the nation-state idea. The Long War was fought to determine which of three new constitutional forms of democracy would replace the imperial nation-states of Europe: parliamentarianism, communism or fascism. The Anglo-American parliamentarianism was victorious because it was the most brutal, not because it was morally ‘better’ than its competitors.
Once the Long War was over, power shifted away from nation-state capitals to a network of international offshore banking cartels based out of semi-privately owned territories like the City of London and Washington DC. The world market would no longer be structured along national lines but rather “transnational and thus in many ways independently of states”, Bobbitt wrote.
He isolated three distinct versions of the emerging market state: the mercantile, the entrepreneurial and the managerial state.
“The great powers will repeatedly face five questions regarding the use of force in the 21st century: whether to intervene, when to do so, with what allies, with what military and nonmilitary tools and for what goals”, Bobbitt said. If this sounds like the basic maths which explains pretty much every serious decision over the last 30 years, that’s because it is.
Tax havens like the Cayman Islands, the British Virgin Islands and even Hong Kong are part of the infrastructure of market states which operate by using what author John Robb called “networked moral warfare” to reshape the world in the interests of the new power structure.
Some good concrete examples of market states are BlackRock, Vanguard and State Street, the largest property owners on the planet. Let’s look closer at BlackRock.
Prime minister Jacinda Ardern visited BlackRock headquarters in New York earlier this year. To say she was “visiting her masters,” as some people did, is to confuse direct with indirect rule. BlackRock likely has never sent policy proposals directly to Wellington. But it owns plenty of businesses, lobby groups and think tanks all over the world that can do that.
Indirect rule is an old British strategy that goes back to the East India Company. This makes BlackRock more powerful, not less powerful. Indeed, however powerful you think BlackRock is, double it, and then triple that again. BlackRock is a market state.
Below is a list of the 20 largest companies in which Blackrock is a major shareholder, together with total shares and dollar amount:
1. Apple, 1bn, $141bn
2. Microsoft, 523m, $134bn
3. Amazon, 588m, $62bn
4. Alphabet (Google), 40m, $86bn
5. United Health, 72m, $37bn
6. Johnson & Johnson, 205m, $37bn
7. NVDIA, 179m, $27bn
8. Exxon Mobil, 288m, $25bn
9. Visa, 124m, $24bn
10. Proctor & Gamble, 163m, $23bn
11. Pfizer, 435m, $23bn
12. JP Morgan Chase, 198m, $22bn
13. Mastercard, 64m, $20bn
14. Coca-Cola, 303m, $19bn
15. Pepsi, 108m, $18bn
16. Verizon, 316m, $16bn
17. Cisco Systems, 351m, $15bn
18. Adobe Systems, 37m, $14bn
19. Intel, 348m, $13bn
20. McDonald’s, 50m, $12bn
How does BlackRock’s model of indirect rule operate in practical terms? BlackRock uses a data analysis program called Aladdin which makes suggestions based on specific principles about where to invest and not to.
For example, environmental, social and governance (ESG) principles are part of its algorithm. Because BlackRock owns so many global assets, we can expect that entire markets will appear to be independently moving in the direction of ESG but are actually systematically moving in that direction. And this is exactly what we see.
If any corporation does not play ball, it can be quickly crashed into oblivion. The market state BlackRock is like nothing the world has ever seen because, well, the world has never seen it before.
The specific power of the market state is in the combination of 1) the number of major companies for which it is the major shareholder; 2) its ability to crash any stock price at any time; 3) its total awareness of market data; 4) its control of central bank assets; and 5) its semi-formal and backdoor ties to vestigial national governments. The important factor is not wealth but functional control.
BlackRock isn’t alone in this. Vanguard is a major shareholder of BlackRock, and BlackRock is the number 1 shareholder in the next “competitor” State Street. But the idea that these firms are truly “competing” in the Ricardian sense of the word is farcical. There is no word to describe their relationship. Again, power is often only visible in hindsight.
German political jurist Carl Schmitt once said that the sovereign is he who decides the exception. In 2008, when the US Federal Reserve enlisted BlackRock to help it “bail out” the finance and housing sectors and later entrusted it to make investment calls on behalf of the US Treasury, who was deciding the exception?
On current trends, Blackrock is expected to control more than 90% of all US corporations within the next few years through board membership and stock ownership. Who owns the New York Stock Exchange? A company called International Exchange (ICE). Oh, look who it is again.
In the nation-state, the media were the rule-maker. But in the market state, the media are the rule-taker. Consider that Vanguard and BlackRock are the top two owners of Time Warner, Comcast, Disney and News Corp, four of the six media companies that control more than 90% of the US media landscape.
The principle of indirect rule allows BlackRock to wield enormous influence over the media it owns. For example, if BlackRock wants to push its ESG principles, then all it would need to do is inform its many majority-owned companies of the ESG goal, and each of those firms would then issue press releases about how excited they are to pursue “sustainability” in the workplace.
The same system of indirect rule applies to pretty much every “woke” business practice.
For example, mass immigration keeps wages low, hedonism leads to more consumer spending, “LGBT” is a branding and consumerist dream strategy, “white” and “black” people are Excel spreadsheet categories, Net Zero artificially pumps up investments and SMEs are allowed to die because the Aladdin program can’t “see” them since they have no market data.
The concept of the market state will make more sense the further we get into this century. Sure, “BlackRock” is a goofy name for a market state. Then again, “New Zealand” was a goofy name for a nation-state as well.
But we got used to it.
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