BlackRock: the Company That Controls* the World's Governments
You wake up to the sound of the alarm on your iPhone, and annoyed that you couldn't get more sleep, you grudgingly unlock your phone to see what's going on in the world. There's an email from Amazon telling you that your package has been delivered. So you force yourself out of bed to get the package, and it's some Johnson and Johnson medicine you ordered the night before. The wonders of overnight shipping, you think to yourself. You glance across the room to see the clock—it's 8:00 a.m., and you have to be at work by 9:00. Flustered, you open your Microsoft computer to answer some work emails before getting dressed. There's no time to cook breakfast, so you'll just grab something at McDonald's on your way to work.
What if I told you that every single company you just interacted with within the first hour of your day is heavily influenced, in large part, by one company: Black Rock? Now, I'm sure you've heard about Black Rock. There are dozens of videos here on YouTube that talk about how it’s the company that controls the entire world, but the reality is far less glamorous. Here is why everything you've heard about Black Rock is wrong.
Before we talk about that, let's talk about data. Every time we browse on the internet, companies collect an insane amount of data from us—information which is then sold to data brokers, who in turn sell it to the highest bidder or just lose that information in data breaches. According to a report from the Identity Theft Resource Center, there were 68% more breaches in 2021 than in 2020, and that number is only going up. A few months ago, my friend got an email telling him that his information was released in a data breach from a company that he had never heard of, and right after he started getting personalized email ads from shady companies. This is how scammers are able to figure out your phone number, name, and even your address.
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Back to our story: Black Rock is an investment firm that controls a huge number of shares in some of the largest companies in the world. They have a total of $10 trillion in assets across the globe; that's an amount equal to half of America's total GDP controlled just by one company. It's easy to dismiss such a powerful company as all-out evil, but the truth is Black Rock doesn't own these companies or even own shares of these companies; their clients own the shares. Black Rock simply manages them.
That's not to say that Black Rock doesn't have any influence on these companies—they definitely do because they control such an incredible amount of their stock. It's possible that companies want to keep in Black Rock's good graces so they don't pull their investments. Now, while Black Rock might not be the evil company some people make them out to be, the truth is there's still something very shady about them: their hypocrisy. Black Rock was founded 34 years ago by Larry Fink, and he grew the company from $5 million in value to $8 billion in just 5 years, primarily by managing money invested by large institutions like pensions, university endowments, and substantial fortunes invested by the uber-rich.
Today, Fink serves on the Council on Foreign Relations and the World Economic Forum—commanding the attention of business tycoons and political leaders around the globe. His company is on the cusp of consolidating so much power that it could essentially control the world. Let's talk about the speed with which we are watching this market deteriorate. The worst day on Wall Street since the crash of 1987, the 2008 financial crash turned out to be an incredible opportunity for Black Rock.
It secured an uncontested contract to control many of the banks that had collapsed, which gave Larry Fink, who was already incredibly wealthy, even more power and a direct line to the American government. The same thing happened in 2020 during the early days of the pandemic when the government called in Black Rock to protect the Federal Reserve from financial fallout. Periods of economic uncertainties like these were key to Black Rock’s rise to power. And as the famous saying goes, with great power comes great responsibility, and Black Rock would like you to think that they are being responsible.
In the summer of 2020, while the world was angry about the murder of George Floyd, Black Rock came out with a statement saying that companies had to serve a social purpose and that they would be giving every company an ESG, or Environmental Social and Governance score. Companies that promised more diversity in hiring and leadership or offered environmentally friendly policies and technology received higher scores than companies that didn't. Although this concept had been around since 2004, Black Rock became the loudest proponent of ESG investing in 2020, and, in all honesty, it worked.
Before this statement, ESGs were mentioned in far fewer than 1% of earnings calls, but by May 2021, that number rose to around 20%, and it has since remained the fastest-growing segment in the asset management industry. People are more concerned about the environmental and social impact of companies, and that's a good thing, right? Socially responsible companies get the upper hand. In an ideal world, yes, but we all know that the world we live in is far from ideal.
While there's been some positive improvement, the main result of Black Rock's ESG statement has been a massive surge in companies participating in practices like greenwashing—pretending they're more sustainable, diverse, or responsible than they actually are. It’s also exposed the hypocrisy of Black Rock itself because while it claims to champion ESG investing, the company remains the largest investor in fossil fuels and war profiteering and maintains a pretty friendly relationship with human rights violators. And it's not just Black Rock; the second largest investment firm in the world, Vanguard, is guilty of the same technique—promoting ESG investing on one hand, but on the other, unwilling to stop investing in oil and gas companies or pull out of companies with questionable human rights practices.
We see this time and time again from Black Rock. They do something that seems like they're moving in the right direction in the eyes of the public, but behind the scenes, they're unwilling to tamper with their investments, even if it's for the greater good of society. Take climate change, for instance. Black Rock says that climate risk is investment risk, meaning that investing in companies that aren't creating policies to help address climate change is a risky move. In 2021, Black Rock actually did do something about this by helping shake up the board of Exxon Mobil and installing new members who promised to take action on climate change.
Previously, the oil and gas behemoth was responsible for 2% of the world's emissions. Now, there are new self-imposed mandates to help reduce that over time. This is a great move by the company, no doubt, but the fact that it's still the world's single biggest investor in fossil fuels makes this feel more like virtue signaling than actually trying to make meaningful change. And hypocrisy doesn't end there. As mass shootings continue to end lives in the U.S., Black Rock has spoken out against gun violence and said that gun manufacturers should do more to protect the lives of the American people.
But who's the largest investor in gun manufacturers? You guessed it: Black Rock. The investment firm holds a 16% stake in Sturm Ruger, 15% in Vista Outdoor, and significant percentages of other manufacturers just like them. Black Rock says it talks to these companies about improving safety, but so far it's unclear whether or not there's actually been any policy change. Outside of America, Black Rock's U.S. Aerospace and Defense Fund has billions of dollars invested in major weapons contractors worldwide, like Lockheed Martin, Raytheon, and General Dynamics.
They're supporting these companies that then get huge Pentagon contracts and use taxpayer money to engage in violence and war around the globe. Often, these weapons are supplied to foreign governments in the name of peace, like Saudi Arabia, which received weapons from the U.S. government and used them to indiscriminately attack civilians in Yemen during years of civil war. Funding this spread of war and an increase in nuclear weapons shows that Black Rock constantly skirts its own commitment to human rights, so does its engagement with authoritarian governments.
Black Rock is officially the first global asset manager to have access to China's mutual fund, leaving critics wondering what did Fink promise Chinese President Xi Jinping to allow him to access the Chinese Communist Party's fund? To be fair, Black Rock isn't the only investment company out there looking to do business with China, but because of its widespread power, it's been the most successful in gaining a foothold in the controversial territory, which is surprising, especially for a U.S. company. This power also made it a major player in the war in Ukraine and in China.
Despite its emphasis on ESG investing, Black Rock has a tendency to overlook human rights in favor of monetary gain. It's been investing in Russia's most prominent companies for years. The British pensions that Black Rock controls alone have contributed $630 billion to Russia after Russia's annexation of Crimea in 2014—a precursor to what would become the more than a year-long war in Ukraine. Black Rock reconsidered some of its investments in Russia, but just one year later, it was back to being among the top shareholders in the country's biggest corporations.
Even when it became clear that Russian President Vladimir Putin was planning an invasion last year, Black Rock didn't budge. And like most other Western firms, it did eventually pull assets out of Russia once the war started, but think about all the money it flooded into Russia over the years—money that the authoritarian government controlled and used in its expansion mission that led to this deadly war.
All of this begs the question: how did one company gain this much global power and influence? Well, it started with technology. Black Rock's business is built on ETFs, or exchange-traded funds. An ETF contains diversified investments to reduce an investor's risk; rather than buying stock in a single company, you're investing in a fund that buys stocks, commodities, and other securities. This practice proved to be very lucrative for Black Rock and its investors, thanks to a portfolio management software it created in 1998 called Aladdin.
Aladdin predicts the possible outcome of every investment and collects information and personal data on everyone who has ever knowingly or unknowingly given Black Rock money. This allows the software to predict how likely it is that a specific investment will fail. Eventually, this technology put Fink and Black Rock on top, making the company the go-to firm for ETF investing, which keeps getting more and more popular. Global ETF assets could explode to $25 trillion by 2025, meaning trillions more for Black Rock.
But we don't need to wait until 2025 to see the effects of the power Black Rock has right now. Black Rock oversees assets worth 10% of the entire world economy. Companies like Fox, Comcast, and Disney have to consult with Black Rock before they make major moves since it has such a large share of their ownership. Black Rock and other large firms like Vanguard are the biggest investors in global giants like Google, Facebook, and Amazon. This level of ownership creates an anti-competitive environment.
You feel this in the prices of airline tickets. Black Rock and Vanguard are among the five largest shareholders of the three biggest airline operators, which means that there's very little incentive to lower prices in order to compete with each other. This level of ownership consolidation reduces consumer choice and raises prices. And it also means that eventually, a handful of powerful people at these investment firms could wield more power than the executives at the companies they own shares in.
Even Jack Bogle, who founded Vanguard, says that this kind of ownership concentration is bad. Too much money in the hands of too few will not work out well for the global economy. There are solutions that governments could put in place to stop these companies from gathering too much influence, things like not allowing funds and ETFs to vote as shareholders in companies or creating ownership caps that would dictate how much of a company can be owned by a single entity.
The laws can be passed limiting how much influence an investment firm can have in the companies they're invested in, even if that influence is intended to be benevolent, like with the ESG. But how soon could any of this happen? Because Black Rock and Vanguard are less than a decade away from managing $20 trillion in assets—that would upend the asset management industry and intensify the already staggering ownership consolidation of the world's largest companies, sending prices through the roof.
One of the biggest problems with the system of business is that the more money Black Rock manages, the lower its fees for investors. So we end up in the cycle where the best way to invest our money today creates a potentially catastrophic environment for our money and our society tomorrow. Unfortunately, most people don't have the luxury of looking that far ahead. What looks good in the short term is all that matters, and that is how Black Rock thrives.
It hopes you will overlook its hypocrisy around the environment, diversity, and human rights because it puts out statements about being a responsible company. As future ESG on its investors, not caring about these things. The problem is that many of its investors don't even know they're investors; they're simply part of a pension fund or an endowment that Black Rock manages.
There are smaller funds that do support ESG investing without conflicts of interest, and there are options like managing our own shares that help us avoid the moral pitfalls of large companies like Black Rock. But much like how most of us couldn't live without Amazon's next-day delivery for our last-minute essentials, using these large flab companies is just easier. Over the past decade, the public has become more and more critical of what massive companies do and say.
As that magnifying glass emerged, Black Rock made sure that its messaging about making the world a better place was heard and publicized. Black Rock's hypocrisy won't end; its public image versus private actions will most likely always conflict with one another. But as consumers and investors, it's our responsibility to know what's happening. Taking them at their word is the easier option, but that's exactly what Black Rock is betting you'll do. That's how they've gotten this far. This is the same ignorance that allowed banks and governments to drown us in debt.
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