Davos Man, page 31
Davos Man aspirants like Pfizer’s Bourla were getting richer, while humanity remained vulnerable to the continued spread of the coronavirus, given the patchwork of protection. Poor countries were left to manage profound problems largely on their own, save for token donations and sound bites of concern from the wealthiest, most powerful people on the planet.
Many developing countries were in fact seeing their meager resources stretched further as they confronted impossible debts, and as Davos Men like Larry Fink squeezed them to pay up.
Chapter 15
“We Will Get 100 Percent of Our Capital Back”
Nobody Stiffs Davos Man
Larry Fink was in a reflective place.
Riding out the pandemic at his lodge in Aspen, Colorado, in the summer of 2020, Fink was contemplating how the global trauma could become a source of social progress.
Lockdown orders had forced employees to work from home and skip their commutes—a potentially positive development for the environment, and for family dynamics. Fink saw a rare opportunity for society to reorder its priorities.
The virus was no longer the sole source of social upheaval. A global reckoning with racial injustice was underway, triggered by the Black Lives Matter movement following the murder of George Floyd by a white cop in Minneapolis. As the protests spread that May and June, reaching more than sixty countries, they expressed widespread grievance over enduring forms of discrimination. From Africa to South Asia to Europe, people took the latest evidence of police violence against African Americans as impetus to reject repression and inequity in their own societies.
It seemed in no way incidental that communities seethed with anger about injustice at the same time that the pandemic was destroying livelihoods. Economic inequality was widening, and skewing prominently along racial lines. The legacy of colonialism still exerted potent force, leaving people in India subject to brutal police tactics that dated back to British rule. Black South Africans were stuck in townships far removed from jobs, despite the official ending of apartheid more than a quarter century earlier.
Wealthy nations in North America and Europe were promising to aid developing countries in Asia, Africa, and Latin America while doing very little, leaving the governments of poor countries confronting the pandemic with minimal resources.
Meanwhile, Davos Man was intensifying the crisis by demanding that poor governments make good on their debts. Many developing countries were sending more money to creditors in New York, London, and Beijing than they were spending on education and health care. A summit of major economies would pledge relief by suspending debts, but it would leave out the most important player—the financial services industry.
Perched in his Rocky Mountain hideaway, Fink pointed to the global protest movement as an inflection point; a driver for the corporate transformation he had long championed.
“I do believe the impact of racial inequality is going to elevate the conversation of stakeholder capitalism even more,” he declared during a virtual Global Summit convened by BlackRock in July 2020. “And I do believe we’re all going to be judged as companies, as leaders of companies, as business people, even private sector companies are all going to be judged heavily on how they are performing related to environmental issues, related to social issues.”
On Zoom meetings with members of foreign governments, investors, and fellow executives, Fink sketched out visions for “the post-COVID world.” Large numbers of people would continue to work from home, gaining liberation from the agita of traffic jams. Parents would have more time to spend with their children.
“We’re going to make this a positive,” Fink said. “I can work in Aspen, Colorado, for thirty days a year. Not so bad.”
It did look appealing. Fink’s virtual appearances showed him seated in what appeared to be a modernist barn punctuated by exposed wooden beams, with a forest glimpsed behind glass doors.
“There are many blessings that we’re learning from the horrificness of the pandemic,” Fink told stock analysts as BlackRock detailed its earnings for the third quarter of 2020.
There was the $129 billion in fresh investment that had flowed into his company’s coffers. There was the windfall of time for those relieved of their commutes.
“They could spend two hours improving their health by exercising,” Fink said. “They could spend two hours more in building a deeper, stronger, more resilient family.”
You could view the shock of the pandemic and the wave of protests over racial injustice as indications of a global economy that was fundamentally unfair. Fink preferred to think of it as a chance to Improve the State of the World.
“Society will be better off through these processes,” he said.
Yet at that very moment, Fink’s own industry was exerting itself to stymie an initiative that might have allowed the poorest countries to gain relief from the pandemic.
On the other side of the world, in the Qatari capital of Doha, Mohammed Heron was awash in found time, yet in no way building a more resilient family.
He was jobless, broke, and marooned in a dormitory stuffed with other men in similar straits, separated from their wives and children by the Arabian Sea.
Three years earlier, Heron had left his village in Bangladesh on the same route toward upward mobility traced by tens of millions of South Asian migrant workers. He had ventured out in pursuit of wages that would allow him to send cash home to his family, adding meat and fish to the dinner table, while keeping his children in school.
To finance his journey, he had borrowed nearly $5,000—more than triple the annual income of the average Bangladeshi. That money paid for the recruitment agency that bought his plane ticket, secured him a work visa in Qatar, and guaranteed him a job on arrival.
His wife, Monowara Begum, had been terrified by this plan. A decade earlier, her first husband—Heron’s older brother—had gone to work as a janitor in Saudi Arabia and never returned. He had been killed by a drunk driver, without consequence or compensation. The thought of sending another husband away, leaving her to raise three children alone, filled her with dread.
But the status quo was not tenable. Her family lived in a shack that was vulnerable to the torrential rains of the monsoon. Heron was lucky to earn $3.50 a day working in the surrounding rice paddies. They subsisted on a diet of rice and potatoes. Her oldest son, Hasan, was in school, where he was learning to use a computer, but tuition ran more than $70 a year.
When Heron landed in the furnace-like heat of Doha in September 2018, the recruitment agency had failed to line up a job. He looked frantically for work. After several months, he found one at a staffing company that dispatched him on a variety of assignments—cleaning offices and hotel rooms, pulling weeds from gardens, and digging ditches to lay fiber optics cable. He earned about $250 a month. The company assigned him a bunk inside a dormitory that he shared with fifteen other Bangladeshi migrant workers. Every other month, he sent home a few hundred dollars.
Heron was part of an exodus that was crucial to the fortunes of Davos Men throughout the Persian Gulf. From the oil installations of Saudi Arabia to the landscaped gardens of Kuwait, people desperate to support families in South and Southeast Asia presented an exploitable source of labor—the key element in the commercial empires forged by the wealthiest men in the region.
In Dubai, migrant workers building a Trump-branded golf course1 at a luxury development where villas fetched $4 million complained that the company was stiffing them on their wages—between $200 to $400 a month. Trump’s partner was one of Dubai’s largest developers, Damac Properties, headed by the Emirati magnate Hussain Sajwani, whose net worth was estimated at $2 billion.
At his wages, Heron would have had to work for more than six hundred thousand years to earn such a sum. Suddenly, he was earning nothing. The pandemic shut down construction and emptied hotels across Doha. Heron’s employer stopped paying him. He suffered an asthma flare-up that forced him to the hospital, absorbing what was left of his cash.
When I reached him via a videoconference app in July 2020, he had not sent money home in months. He lay on his bunk for hours, using the patchy internet connection to talk with his wife and children in their village in Bangladesh.
These conversations left him feeling raw and despondent. He was supposed to be supporting his family, but now they were forced to cut back on buying food while agonizing over how they would pay their debts. His wife was begging him to come home, but he lacked the money for a plane ticket. She was urging Hasan to ditch his studies and find a job—maybe in construction, perhaps at an auto repair shop. Hasan was resisting, preferring to continue his studies at home.
“I dream that my sons will do something in their life,” Heron said, struggling to remain composed. Then his WiFi cut out, and our connection was terminated.
The year before the pandemic, migrant workers worldwide2 had returned a record $554 billion to their home communities. That sum was more than three times the amount distributed to poor countries by official development agencies. But as the pandemic destroyed jobs, these remittances were shrinking. Countries in South Asia and sub-Saharan Africa were suffering declines of greater than one-fifth.
This was a major reason why as many as 150 million people were at risk of falling into a state of extreme poverty3, and why 265 million were on the brink of life-threatening levels of malnutrition4—roughly twice as many as the year before.
The decline of remittances was intensifying the pressure on poor countries that were already struggling to come up with the cash needed to stay current on their debts to foreign creditors. Over the previous decade, Pakistan, for example5, had seen its payments to foreign creditors swell from 11.5 percent of its government revenues to more than 35 percent. Less money flowing into poor countries from workers overseas was exacerbating the crisis at the worst possible time. As the virus spread, Pakistan increased spending on health care, but cut support for a range of social services as it prioritized staying current on its debts.
In Washington, the international institutions tasked with aiding countries in distress promised an extraordinary campaign.
“The World Bank Group intends to respond forcefully and massively,” declared its president, David Malpass.
The same day, the managing director of the International Monetary Fund, Kristalina Georgieva, said her organization would not hesitate to tap as much of its $1 trillion lending capacity as needed to protect poor countries.
“This is, in my lifetime, humanity’s darkest hour,” she declared. “It requires from us to stand tall, be united, and protect the most vulnerable.”
Six months later, the Fund had distributed a relative pittance6—about $31 billion in emergency loans to seventy-six member states. Overall, the Fund was lending out about $280 billion, less than one-third of its total capacity. The World Bank had more than doubled7 its lending, but had been slow to actually distribute the money.
The G20, a summit of major economies, had forged an agreement to provide relief in the form of debt suspension. But this merely delayed loan payments, while heaping them atop outstanding balances.
And the program left out the single largest holder of debt—the global financial services industry.
By October 2020, forty-six countries—most of them in sub-Saharan Africa—had collectively gained relief from $5.3 billion in immediate debt payments8. That was less than 2 percent of the total international debt payments due from developing countries that year.
The financial services industry claimed that poor countries were not actually seeking a reduction to their payments. If they asked for debt suspension, credit rating agencies would record that as a default, jeopardizing their ability to borrow in the future.
There was truth to this, but the fear of upsetting the money gods was actively fomented by the financial services industry. Leading the charge was the Institute of International Finance, a global trade association that represented more than four hundred financial companies in seventy countries.
In a letter sent to the finance ministers of the G20 in September 2020, the association’s president, Timothy Adams—a regular in Davos—maintained that financial companies remained “strongly supportive of the intent” of the debt suspension initiative. Never mind that they had demonstrated this with no money whatsoever.
The most important consideration, Adams added, was that borrowing countries preserve their ability to take out more loans in the future. “If private capital is unavoidable9 or prohibitively expensive, how will these countries recover and attain the high growth rates needed to improve living standards?”
To which one might reasonably append another question: how exactly would these countries achieve economic growth and higher living standards if they were forced to skimp on schools and health care so they could continue making debt payments to Davos Man?
As research, experience, and common sense made clear, the best way for debt-saturated poor countries to grow was frequently to secure forgiveness from creditors on a portion of their loans. For lenders, such agreements were not charity, but rather the product of a hardheaded calculation. If governments were stuck with impossible debts, they ran the risk of defaulting. If they gained relief, they could invest in infrastructure, education, health care, and other spurs to development that would allow them to earn money needed to meet their obligations.
Adams offered assurances that private creditors were eager “to help troubled sovereign borrowers10, both with short-term liquidity problems and with longer-term solvency risks.”
But the association’s most influential member, BlackRock, had already displayed reason to be skeptical of this depiction.
Despite his prominent championing of stakeholder capitalism, Larry Fink had personally staked out a hard line against a uniquely troubled borrower—Argentina.
In the annals of countries that had found their way to danger through exuberant borrowing, Argentina stood alone. It had defaulted on its sovereign debts no fewer than nine times.
Fink had been among a group of international investors who had bet on a supposedly foundational change. They had piled into Argentine debt, betting on the transformative powers of the new president elected in 2015, Mauricio Macri. A highly educated technocrat, he engendered hope among the investor class that he would liberate Argentina from its wrenching history as a deadbeat nation.
For much of Argentina’s history, the country had been highly prosperous. Waves of European immigrants transformed the country’s prodigious soils into grain farms and cattle ranches that sold their wares around the world. By 1913, the country had a higher per capita income11 than France.
But then came Juan Domingo Perón, the charismatic army general who assumed the presidency in 1946. He employed an authoritarian hand and muscular state power toward championing the interests of the poor, absent budgetary considerations. He and his wife, Eva Duarte—widely recognized by her nickname, Evita—would dominate Argentina’s political life long after they died, inspiring waves of politicians who claimed their mantle.
Successive governments spent with abandon, financing their exploits by printing Argentine pesos, yielding hyperinflation. To put off the inevitable reckoning, they borrowed what they could from overseas while seizing hard currency from exporters.
History unspooled as a series of populist booms and busts. Governments came in on the traditional Perónist promise to rain relief on the poor, willfully ignored arithmetic, and then exited amid the resulting crisis. Neoliberal reformists intermittently claimed mandates to set everything right through fiscal rectitude, enraging the citizenry with cuts to social services.
An especially traumatic turn played out in the 1990s, as the International Monetary Fund urged Argentina to peg the value of the peso to the American dollar. This conveyed the appearance of stability, banishing volatility in the exchange rate. But it forced the government into an impossible situation. It had to promise to exchange one peso for one dollar at all times, requiring that Argentina maintain a great stash of hard currency. As the government ran out of dollars, it borrowed from the IMF, which conditioned its help on a poison pill—austerity.
As the economy slowed, investors demanded ever higher rates of interest for more loans, reinforcing the downturn. When the scheme unraveled in 2001, investors fled, and Argentina defaulted12 on most of its $141 billion in public debt. A veritable depression wiped out the life savings of millions of Argentines, while turning the IMF into a synonym for ruthless bastards.
Under the leadership of the husband-and-wife duo that dominated Argentina for the next decade and a half—the successive presidencies of Néstor Kirchner and Cristina Fernández de Kirchner—the economy grew, unemployment fell, and living standards rose, while poverty plunged by 71 percent. Yet by the end of Cristina’s second term, Argentina’s finances were tattered, and she had devolved into a symbol of the corruption scandals that dogged her presidency.
Macri presented himself as a liberator from his country’s destructive cycles of populism and austerity. The former mayor of Buenos Aires, he filled the palatial ministry offices of the capital with English-speaking economists educated at elite American institutions. They promised a return to fiscal discipline—a stance that won the confidence of international investors—while vowing to assault poverty with expanded social programs.
“Macri appealed to Davos Man, because he echoed their language,” Joseph Stiglitz told me. “It was all about Argentina turning a corner. It was going to be a neoliberal country.”
No one was more captivated by the story than Fink.
Macri “has really shown what a government can do if it is trying to change the future13 of its country,” the BlackRock chief declared in 2016.
Fink backed up that pronouncement with money. BlackRock was among a slew of foreign institutions that were suddenly eager to resume lending to Argentina. Macri’s government sold a fresh $100 billion’s worth of government bonds during the first two and a half years of his tenure, allowing him to delay planned cuts to public spending.
