The End of Woke Capital?

Date: 4/19/2022
Author: Mr. X

Not long ago, companies like Tesla (TSLA), Amazon (AMZN), Apple (AAPL) and Starbucks (SBUX) could be seen as champions of a progressive, forward looking, and optimistic liberalism from the Barack Obama era. They were technocratic, efficient, and carried a certain cultural cachet. They were the products of what Professor Richard Florida called the “creative class.” If the technology workers and artists that he termed the “high bohemians” led to more economic development, it followed that they would want electric vehicles, the swift delivery of goods (perhaps even by electric vehicles, if not drones), and a coffee shop around every corner where you can discuss the news with other sophisticates. Apple itself was practically a cultural signifier rather than simply a brand choice.

Times have changed. While California still leads the way when it comes to a great deal of technological progress, Tesla has fled for Texas. Tech workers are no longer quite so welcome in San Francisco amidst soaring housing costs and debates over gentrification. The city itself is gripped in debates over how to deal with homelessness and crime, not new high-tech projects.

Most importantly, class inequality, which was somewhat papered over by “culture war” issues in the early part of the century, is splitting the Democrats. The tight labor market is giving labor a great deal of power, and companies that were built in what seemed like a post-union America are now having to deal with massive unionization drives. Republicans may benefit most as capital comes crawling back to the conservatives.

Consider Apple. At its flagship Grand Central store in New York City, retail workers have begun a unionization drive, appealing to be represented by Workers United, itself a branch of the politically influential Service Employees International Union (SEIU). They want a minimum wage of at least $30 an hour. Given continuing inflation, this isn’t unreasonable.

This would represent the first union for Apple workers. Thus far, Apple has not responded. However, the company implicitly suggested that it isn’t needed. “We are pleased to offer very strong compensation and benefits for full time and part time employees, including health care, tuition reimbursement, new parental leave, paid family leave, annual stock grants and many other benefits,” said a spokesman. Fair enough, but people are always going to want more.

Move fast, keep winning

Starbucks CEO Howard Schultz considered a presidential run in 2012, 2016 and 2020. Though technically an independent, he leans Democratic. However, Starbucks too is facing a unionization drive that is only gaining momentum. Mr. Schultz has taken what many believe is an anti-unionization position. “[W]hile not all the partners supporting unionization are colluding with outside union forces,” he said in a public letter, “the critical point is that I do not believe conflict, division, and dissension – which has been a focus of union organizing – benefits Starbucks or our partners.” Fortune ran a somewhat hostile piece against Starbucks, quoting an organizer who saw CEO’s warning as “another indefensible threat.” More than 200 locations now face unionization. I doubt the company will be able to stop this.

A union election will soon take place at an Amazon location in New Jersey. A slim victory for the company over a unionization effort in Alabama was seen as a milestone at the time. Yet it seems that this was just the beginning. Even that victory was questionable, as the results were close enough to require a recount. Earlier this month, organizers successfully unionized a warehouse in New York, a significant victory for the labor movement and a major embarrassment for the company.

Obviously, there are far more workers at Amazon warehouses than at a Starbucks and unionization probably poses a bigger threat to Amazon than the coffee purveyor. Yet at a time when supply chains are extremely strained, raw materials and energy are costly, and even coffee prices are increasing because of weather conditions, neither company can afford increased labor costs.

Happy talk about high wages and “work families” can’t conceal that many of America’s corporate titans expanded over the last few decades during a time of declining union membership. If union contracts and strikes become a staple of American life again, it’s questionable whether many American companies will still be able to operate using the same models. “Just-in-time” delivery systems are especially vulnerable to labor disruptions, and union organizers know it.

They also have media support on their side, as reporters have increasingly unionized in recent years. Poynter reported in July 2021 that there had been more than 200 union drives by workers at media companies in the past decade – with an over 90% success rate. The economics of journalist unions might be questionable – automation threatens to replace many reporters’ jobs outright and many media companies don’t make money. For example, Buzzfeed News Union recently was able to secure a “tentative” agreement with management for a contract. However, Buzzfeed continues to lose money and some investors would prefer that the entire newsroom be simply shut down.

Still, the true importance of journalist unions may not be in solving the industry’s structural problem. Many media organizations may only survive if the government begins subsidizing them.

The true importance of journalist unions is that a pro-union line is gradually becoming the norm at American publications – which is helping spur unionization efforts in other industries. A union organizer at Amazon, Apple, or Starbucks may face opposition from management, but he or she is likely to get a friendly reception from a reporter who is already in a union.

Elon Musk is famous for his furious work schedule and flippant attitude towards politically sensitive topics. He may have invited doom when he basically dared the United Auto Workers to try to unionize Tesla, saying that the company would not try to stop them. The National Labor Relations Board found in 2018 that Tesla violated labor laws for allegedly thwarting efforts at union organization. The UAW reports no contact with Musk since his statement.

As this is written, it’s still unclear what will be the fate of Elon Musk’s attempt to take over Twitter (TWTR). However, it’s perfectly clear what Twitter’s employees think about it. They really, really don’t want it to happen. Polls suggest that employees don’t believe Musk would take the company in the direction they favor. Media coverage of Musk’s move was also overwhelmingly hostile, (slightly amusing given that Jeff Bezos owns The Washington Post).

If Musk tried to liberalize Twitter’s rules on free speech and roll back some of the “protections” the platform has imposed over the last few years, it’s likely he would face employees sabotaging his efforts, quitting, or taking to the press to air dirty laundry. Jack Dorsey is adding to the chaos by tweeting about the dysfunction on Twitter’s board, offering a cryptic explanation about why he didn’t do anything about it when he oversaw Twitter. “so much to say… but nothing that can be said,” he tweeted.

In any event, even if Musk is serious, he may simply not be allowed to take over such a politically powerful company. Musk is already facing lawsuits over his tweeting habits and an investigation from the SEC and SpaceX is facing a DOJ probe into alleged hiring discrimination. New probes could mysteriously develop if powerful people want him to back down.

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President Joe Biden has a reputation as an economic moderate by the standards of the current Democratic party. He forcibly pushed back against the “socialist” label during the 2020 campaign, much to the disappointment of some progressives. His perceived moderation may be turning off younger voters that the Democrats will need to fend off a red wave election in 2022.

The tragedy for the president is that he’s always been a major supporter of organized labor and unions were key to his 2020 victory. In theory, he has a way out by backing unions and getting progressives excited again with a cause that’s greater than simply “stop Donald Trump.”

Unfortunately, President Biden can’t really do that. The Democratic coalition is as reliant on urban, high-income, socially liberal voters (and donors) as it is unions. Backing unionization efforts could drive some major companies – and their donations – into the arms of Republicans.

Elon Musk is now perceived as essentially a right-wing corporate boss; a strange fate for someone who was the quintessential Obama-era “cool” corporate leader, complete with cameos in Marvel movies. Now, Texas Governor Greg Abbott brags about attracting Musk to Texas, and Musk largely remains silent about the Lone Star State’s social policies.

We’re likely to see a major political shift after the 2022 midterms. Republican leaders like Florida Governor Ron DeSantis see political capital in attacking companies like Disney over being “woke.” Corporate leaders may want the good PR that comes with being progressive, but they don’t want to have to raise wages. With socialists gaining increasing importance in the Democratic base, corporate leaders also can’t afford to antagonize Republicans whose populist voters would gladly throw aside free-market principles for culture war victories. In short, corporate America will have to choose. More accurately, they are probably going to be forced to choose GOP.

Unionization will force corporate leaders to back up their progressive slogans with policies that actually make a difference for workers. That sounds nice, but these businesses were built on entirely different models. They can’t be run like American auto companies of the 1950s. In desperation, corporate leaders may need to go crawling back to Republicans, especially if the GOP rules DC after 2022. Republicans will have their own demands to make on cultural policies. It’s a price that corporate leaders might be willing to pay rather than increase wages, especially as economic circumstances seem likely to worsen.

After all, as anyone who has spent time in Washington knows, talk is cheap. And as any investor knows, it’s always less painful to sacrifice your pride than your pay.

Mr. X is an investment analyst working in the Washington DC area who specializes in the intersection of business and public policy. After fifteen years working in politics, he writes on a classified basis for to bring you news on what those with power are debating, planning, and doing.

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