The report does indeed read like a criminal indictment. It chronicles the 75-year history of espionage and political subversion by Fidel Castro’s regime against the US, as well as the relationships between current Left-wing organizations in the US (like the Democratic Socialists of America and the National Lawyers Guild) and operatives in Havana. 

If intended as a piece of prewar propaganda, it’s a curious one. Grandiose title notwithstanding, the report does little to prove that Cuba in 2026 remains the powerhouse of intelligence and political operations that it was in the Seventies or even the early 2000s. If anything, it shows that the seeds of political subversion that Cuba sowed on American soil in those earlier decades have become self-sustaining. 

But if the report fails as a military cri de coeur, it provides a brilliant summary of the political strategy of Third-Worldism — pioneered by Fidel Castro and Che Guevara and now practiced by governments and organizations worldwide from South Africa to Hamas. And in the process, it turns a mirror back on the United States, asking what it is that makes free societies like our own uniquely susceptible to subversion by overseas Left-wing totalitarians.

The report begins by establishing a central fact in Cold War history that remains little-understood. This is that by the time of the Cuban Revolution in 1953, the Soviet Union and Cuba were practicing fundamentally different types of communism. And it was the Cuban type that would dominate the international politics of the late 20th century. 

On top of Russia’s class-struggle communism, Cuba superimposed an element of racial and ethnic struggle. By identifying liberation from white colonial oppressors with a communist command-and-control economic system, Cuba and other Third-Worldist political movements were able to maintain the approval of the mostly rural poor populations they controlled, even while making their lives materially worse.

Castro and Guevara’s Third-Worldist communism also appealed far more to the ethnically-diverse First World than the ideologies of Stalin and Khrushchev did. And observing this, Leftist governments around the world were quick to emulate Cuba, finding that they could attract a broad base of public support inside nations like the United States by appealing to a racial or ethnic “coalition of the oppressed”. This strategy helped Ho Chi Minh in North Vietnam and the Sandinistas in Nicaragua, among others, to build fifth columns of support within the US, sowing internal divisions over American foreign policy toward those nations. More importantly, Third-Worldism allowed communist ideologues to strike a blow against the capitalist powers by convincing them to degrade themselves from within.

The strategy’s secret was its ability to achieve impressive foreign influence for minimal economic cost. While Castro’s Cuba devoted significant resources to supporting Leftist political or paramilitary activities from Venezuela to Angola, as well as spying and subversion in the US, its outlays on those activities were dwarfed by those of the Soviet Union. It was the emotional tug of the Third-Worldist message, more than money, that enabled tinpot Leftist dictatorships, even while their domestic economies and political systems languished, to conduct effective international public relations campaigns on the cheap. 

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Is Polymarket a threat to democracy?

By John Masko

The appeal of Third-Worldism made it easy for Cuba’s Dirección de Inteligencia (DI) to recruit intelligence assets in the United States. All Cuban agents had to do was lie in wait at US policy schools, find students whose political sympathies had so alienated them from their country that they were ready to betray it, and wait for those students — once graduated — to achieve high-ranking positions in government. The State Department’s report cites three of many such cases, all of whom — Victor Manuel Rocha, Ana Belén Montes, and Walter and Gwendolyn Myers — operated as spies for Cuba over multiple decades. All are remarkable for their monolithic loyalty to the Cuban regime, their remorselessness, and their purely political motivations. As the authors write of Montes, who was once considered the Defense Intelligence Agency’s top Cuba analyst:

When the Department of Defense’s Inspector General completed a review of [her] case in 2005, it found no credible evidence that Montes accepted any significant financial compensation from the Cubans. Her motives were purely political: The review found that “her ideological disposition fostered a negative view of U.S. foreign policy, and that fixation coupled with a sense of moral righteousness sealed her commitment to a cause from which there was no alternative, at least in her mind.

As it recruited spies, Castroist Cuba forged political alliances with nascent Left-wing activists and organizations in the US. To understand how, we must recall that prior to Cuba’s formal alliance with the Soviet Union, many Americans had sympathized with Cuba’s revolution and greatly admired Castro. In 1959, he had even undertaken a whistlestop tour of the United States. On a stop in Boston, he delivered an address to Harvard students where he was introduced by McGeorge Bundy, then the dean of the Faculty of Arts and Sciences. 

Three years later, the very same McGeorge Bundy would be plotting to slip him an exploding cigar as John F. Kennedy’s national security adviser. Castro’s reputation among mainstream Americans had soured dramatically following his public embrace of communism and the Soviet Union, yet he maintained a cult following among students on the American Left. As America’s civil rights movement morphed into the radicalism and riots of the Vietnam era, Castro made sure that Cuba was there to support and nurture that radicalism.

As the State Department report chronicles, Cuba’s main tool for achieving this was an exchange program for Left-wing activists called the Venceremos (“We will prevail”) Brigades. Under this program, young activists (or terrorists) were flown to Havana and given five-star treatment, ideological education, and access to Cuban officials. This inaugurated a lifelong relationship with the Cuban government with Venceremos alumni serving both as intelligence assets and political agents, subverting the United States and hastening the global communist revolution. 

Some of Venceremos’ early graduates included domestic terrorists and Weather Underground founders William Ayers and Bernardine Dohrn, as well as the founders of the Black Liberation Army (BLA) and Black Panther Party. Through institutions like the Tricontinental Conference, Havana made itself a meeting and breeding ground for organizations and individuals devoted to revolution in the US. Those organizations and individuals returned home and became distinguished university professors, social leaders, and even government officials. And when they ran afoul of US authorities (as did convicted cop-killer and BLA leader Assata Shakur), Cuba could be relied on to succor them as fugitives.

The State Department’s authors deftly demonstrate that these efforts have continued up to the present day. While today’s Cuba may lack the cool factor (and some of the funding) that Castro enjoyed, it continues to make common cause with America’s leading Left-wing organizations — among them, the Democratic Socialists of America (DSA), the National Lawyers Guild (NLG), the People’s Forum, and Code Pink. Leaders of all these organizations have traveled to Havana and, in turn, expressed their support for the Cuban regime. In America, they represent the regime’s interests, from the NLG’s role as Cuba’s exclusive legal counsel in the US to the People’s Forum’s fiscal sponsorship of the Venceremos Brigades (enabling the Brigades to accept tax-deductible contributions from American taxpayers).

Like the American organizations Cuba recruited under Castro, they are all fundamentally revolutionary — meaning that they are devoted not to incrementally moving American policymaking in a Leftward direction, but to the transformation of the American state. To take the DSA as one example, the organization recently announced a platform advocating for the abolition of the US Senate and the US Supreme Court, moves that would obliterate the checks and balances that prevent America from becoming a Cuba-style command-and-control economy. With DSA-supported candidate Zohran Mamdani winning the mayoralty of New York last year, New York DSA-endorsed Congresswoman Alexandria Ocasio-Cortez a favorite for the Democratic presidential nomination in 2028, and several other DSA endorsees shoo-ins for Congress this November, that platform no longer seems so unrealistic. 

While it’s a stretch to see the fingerprints of Cuba’s dying regime on the DSA’s recent successes, it’s far easier to see a through-line from marginal organizations like the Weather Underground and BLA, through the more radical corners of America’s universities, to today’s far more mainstream socialist radicals who seek to open government grocery stores, dictate housing costs, and inhibit immigration enforcement. Indeed, it’s no exaggeration to characterize America’s recent socialist drift as a long-range triumph of Fidel’s policy of Third-Worldism. 

The State Department’s recent report lays bare the uncomfortable truth that even as the Cuban state collapses in the year 2026, Fidel may be having the last laugh from beyond the grave. As the authors write of the DSA: “Today, it maintains a fierce, almost religious commitment to the cause of the Cuban regime — not because the group is controlled by Cuban agents, per se, but because that commitment is now simply the de facto policy orthodoxy on the American far left.”

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Can Cuba resist the US?

By Ioan Grillo

It seems that Fidel and America’s other Third-Worldist enemies understood something about America. They understood that our political institutions, our free markets, and our personal freedoms are the secret weapons that make Americans wealthy and America attractive. Those were the weapons that won us the Cold War. But they also knew that under economic or social stress, it’s easy for free people to take those blessings for granted. And they knew that by playing on America’s internal insecurities and social fissures, they might convince that free people to undermine its own institutions and values. Those enemies of the United States that have understood this best — Cuba, the Nicaraguan Sandinistas, Iran, Hamas — have exercised an influence over American society that has far exceeded their financial investments. 

The report may not have the bearing on current policy that its writers seem to hope. Today’s Cuba is a shell of its former self — barely capable of delivering the post, let alone systematically influencing the politics of its enemies abroad. The history of subversion in the report isn’t necessary to justify an intervention in Cuba today; the daily sufferings of the Cuban people, the island’s decades of transparent anti-Americanism, and its current intelligence and military cooperation with China, Russia, and Iran are justification enough. 

But the report is a sign that the US government is finally beginning to take seriously our enemies’ exploitation of our free institutions to undermine our political order. If our leaders come to clearly understand the history of Cuba’s infiltration of the US, that will benefit not only our approach to today’s Chinese and Russian infiltration, espionage, and disinformation (on which we remain on our back foot), but also our policy toward Cuba’s Third-Worldist heirs, from Venezuela to Hamas. 

The report’s domestic lessons are just as valuable. It reminds us that when we look at political movements or organizations on our own shores — when we ask whether they are merely revisionist movements intending to reform our political process, or revolutionary ones aiming to destroy it — we should listen to our enemies. If those enemies see organizations like the Black Panther Party or the Democratic Socialists of America as allies in their quest to engineer America’s defeat, perhaps we should ask ourselves why.   

On a second reading, the report’s title — “Capital of 21st Century Communism” — takes on a tragicomic air. Cuba certainly was the capital of Seventies and Eighties communism; and a bitter, worthy, and threatening enemy of the United States. But not anymore. In 2026, our greatest enemy is ourselves.

A clear example of this took place last month, when Times of Israel reporter Emanuel Fabian published a first-person account headlined: “Gamblers trying to win a bet on Polymarket are vowing to kill me if I don’t rewrite an Iran missile story.” In the American press, the article rated only a quick mention, nestled between updates on ships stranded in the Strait of Hormuz and the Pentagon’s comments on US strategy. 

But when this latest chapter of America’s military struggle with Iran is a distant memory, Americans will still be wrestling with the matters raised by Fabian’s article. His account is the proverbial canary in the coalmine, warning us to get a handle on the power of online prediction markets before they hijack our political process.

Here are the basic contours of Fabian’s story. On 11 March, he wrote a Times of Israel blog post, reporting that an Iranian missile had struck Israeli territory. The missile, he wrote, had hit a wooded area and caused no injuries. After publishing this seemingly unremarkable news update, he began receiving emails, and then text messages, from people he did not know. The senders urged him to correct an “error” in his reporting and clarify that the area had been hit by shrapnel rather than by an entire missile. Fabian, believing his reporting to be correct, declined to make the change. But the messages continued, becoming more urgent, and then a bit sinister, and then overtly threatening. One read: “If you do not correct this by 01:00 Israel time today, March 15, you are bringing upon yourself damage you have never imagined you would suffer.” Only after Fabian went to the police with these messages did the threats stop.

By this time, Fabian had figured out that the source of the writers’ obsession with an otherwise insignificant missile attack was that it was the subject of a bet on the blockchain-powered prediction site Polymarket. The bet was on whether Iran would strike Israel on a certain date. The precise terms stipulated that Iran would have “struck” Israel only if Israeli territory were hit by a full missile rather than by fragments of an intercepted one. The pool at stake was $14 million. (Polymarket has since denounced the threats directed at Fabian, stressing its compliance with the law and its commitment to national security.)

When I read Fabian’s article, I was reminded of a scene in George Orwell’s 1984, in which protagonist Winston Smith, a record keeper in the “Ministry of Truth”, is asked by his bosses to change an “error” in the historical record. His specific assignment is to change the official history — which claims that his nation of Oceania has always been at war with the nation of Eastasia — into the claim that Oceania has instead always been at war with the nation of Eurasia. This “error,” of course, is not an error at all. His bosses’ demand simply reflects the government’s wish to maintain continuity in its propaganda, thus justifying its current military engagement with Eurasia. Smith duly complies, consigning the outdated history to the Memory Hole and writing the lie into truth. 

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By John Rapley

Over recent decades, we have frequently been warned of the potential for biased journalists, powerful politicians, or moneyed special interests to instill false consciousness in the public to serve their own ends. But we have paid far less attention to the potential for gambling on politics or geopolitics to accomplish the same ends by means more impactful, more pernicious, and less traceable. The type of pressure that Polymarket’s bettors applied to Fabian over a relatively unimportant event — pressure to which a less courageous journalist might easily have succumbed — not only stands to undermine the integrity of journalistic reporting (the shared basis of facts on which democracies make decisions) but the integrity of decision-making itself. Indeed, it is hard to imagine that it isn’t doing so already. 

Gambling is an ancient industry, but real-time prediction markets on topics other than games and sports are far newer. At the scale we observe on leading prediction market sites like Polymarket (founded in 2020) and Kalshi (founded in 2018), where bets on events from election results to military interventions frequently attract pools of tens or hundreds of millions of dollars, the industry is practically newborn. 

On Polymarket, trading volumes approach $500 million in a day. The company earns a commission off users’ bets, and payouts can be massive. To bettors, using Polymarket feels like placing bets on sports book sites like FanDuel or DraftKings. But its customers are not betting on horse races or soccer matches; they’re betting on the most impactful events in the world. 

The industry of sports betting has never been able to effectively neutralize the risk that gambling might cause some outcomes to become fixed. Horse racing has always had fixers ready to slip a certain horse a syringeful of drugs to speed it up or slow it down. Just this year, 20 college basketball players were indicted for their involvement in fixing games. Do we really think that when we subject politics and world events (and public information about them) to the same set of incentives, with betting pools running into the hundreds of millions, we’ll get a different result? 

Currently, the only federal regulator of sites like Polymarket and Kalshi is the Commodity Futures Trading Commission (CFTC), originally formed in 1975 to regulate the trading of futures for commodities like corn and oil. In the absence of other regulators, CFTC has transitioned into regulating prediction markets. Initially, CFTC resisted Polymarket’s entry into the American market on the grounds that it lacked registration with the agency, but in 2025 Polymarket acquired a company that was already registered, making the point moot. The only CFTC enforcement action against Kalshi so far, which challenged the presence of US election prediction markets on the site, ended in a court ruling that the CFTC ban was inappropriate.

CFTC enforcement is hamstrung by the fact that the only major law governing the topics listable by online betting markets is a rather vague provision of the Commodity Exchange Act allowing CFTC to ban contracts that are “contrary to the public interest” if they involve “activity that is unlawful under any Federal or State law, terrorism, assassination, [or] war”. So, when six senators decided to send CFTC Chairman Michael Selig a letter in February asking him to increase enforcement against Polymarket, they were reduced to portentously asking whether he really thought that contracts like “Maduro out by…” or “Will Russia capture Myrnohad by…” were “in the public interest”. Presumably they meant the interests of the public in the US, not that of Ukraine or Venezuela. (Polymarket has updated its rules to clarify that insider trading is banned; Kalshi has said it is working with a compliance firm to identify “bad actors”.)

Government action against political betting sites has thus far taken on a partisan complexion, with Democratic legislators pushing regulations to limit insider trading by (Republican) members of the executive branch. All six senators who signed on to the letter to Selig were Democrats. Most pending legislation in Congress respecting political betting markets deals with insider trading by knowledgeable politicians, and the issue has become lumped in with efforts to regulate stock trading, like Congress’s recent investigation of Defense Secretary Pete Hegseth over his purchase of defense stocks just before the launch of US military action in Iran.

It is unsurprising that Congressional Democrats have zeroed in on government officials’ betting on politics and geopolitics while a Republican administration occupies the White House and has outsized access to sensitive information. The issue is a valuable political cudgel. They will likely lose that interest as soon as a Democratic administration enters the White House. (The whiplash of Democrats’ sudden deep interest in the Jeffrey Epstein scandal after a decade of indifference suggests just how quickly.) More importantly, this partisan approach all but ensures that no meaningful reforms will ever become law — if Congress ever passes them, the president won’t sign them.

But even if Congress were to pass any of the bills currently under consideration, the risks of insider trading are merely the tip of the iceberg. Far harder to regulate are influence campaigns like those Fabian experienced — whether directed at newsmen or at decision-makers themselves. If we’re already concerned about the influence of the wealthy and powerful on political decision-makers, how much more should we worry when those same individuals are making wagers on the outcomes of policymaking? 

Let’s run a thought experiment. By the standards of Polymarket, the pool that ensnared Fabian was quite small. A larger pool, with $79 million wagered as of Tuesday, asks who will be leading Venezuela at the end of 2026. Current President Delcy Rodríguez is heavily favored with 64% odds, with deposed President Nicolás Maduro at 15%. Clearly, anyone who bets on Maduro stands to make quite a lot of money if he returns to power. 

Let’s suppose a top executive at a semiconductor manufacturer, who is weighing whether to sign on to a proposed new export restriction, bets on Maduro’s return. While meeting with Commerce Department officials, he mentions his deep desire to see Maduro reinstalled. Then, on 1 December, President Trump announces that Maduro has learned his lesson from his year of incarceration. Trump releases him to Venezuelan custody, and he’s back as president. A few months later, new semiconductor export regulations are announced, to little fanfare.

Would that be illegal? Of course, in all kinds of ways. But would criminality be extremely difficult to prove, and the political event itself almost impossible to stop through the legal process? Also, yes. Scanning the leading markets on the Polymarket homepage, it takes but an ounce of creativity to imagine 10, 20, even 100 such scenarios. 

It’s more than enough to convince yourself of two facts: first, that it’s inevitable that prediction markets will very soon exert significant influence on political decision-making, if they aren’t already; the money is simply too good. And second, that cracking down on “insider trading”, no easy task in itself, would be woefully insufficient to solve the problem. 

For one thing, in a democracy where everyone has a vote, everyone is (to some degree) an “insider”. What’s to stop a voter, just as a sports fan bets against his favorite team to win a bet, from voting against his political interests for the same reason? Then there are the many powerful people who can exert political influence in oblique ways, but would not, by any legal definition, be considered “insiders”.

And if betting markets can so profoundly influence the political process, how much more could they influence news, think tanks, and policy institutes — industries where most workers make little money and might stand to get a big payday by tweaking reality just a little bit? For some, the temptation will simply be too great. (Readers may recall one such example from the think tank world last November, when a subsequently fired employee at the Institute for the Study of War altered the think tank’s publicly available map of Russian-held territory in the Ukraine at the eleventh hour to reflect a territorial gain that did not happen. By the time the map was changed, the gain was considered so unlikely that Polymarket bettors stood to earn returns of 33,000% on their investment if it occurred.)

It’s fortunate for Americans that there is a potential solution to the online prediction market problem that is as elegant and complete as the problem itself is multifaceted and complex. That is: limiting online betting to sports and games only. Case law is clear that the Constitution’s Commerce Clause gives Congress the power to regulate online gambling (up to and including banning it). Congress should use this power to ban political prediction markets, and do so quickly.

Some such prediction markets might remain in casinos or local betting parlors. But the experience of the last few years shows conclusively that it is only the engine of the internet that has enabled political and geopolitical prediction markets to become as large and as consequential as they have. If they are not allowed online, there will be little risk of American policymakers or news reporters being bullied, cajoled, or bribed into changing the facts to help someone win a bet. 

One likely reason that the political class has thus far been slow to regulate prediction markets is that in only a few short years, it has come to rely upon them for information. Studies have shown that prediction markets like Kalshi and Polymarket can be more accurate at predicting election results than traditional polling. Prediction markets also offer predictions on events in areas like war and diplomacy that are not usually polled, and they do so (at least as far as the voyeuristic political class is concerned) for free. But they will need to learn to live without them. Our quality of governance and our national wellbeing are more important than the convenience of pundits, policy analysts, and campaign managers. 

If Congress bans online political betting, it will head off a major destabilizing influence on our republic. Forging a path forward for our fractured country — a path that integrates the genuine diverse interests, desires, and passions of all Americans — is hard enough. With voters, businesspeople, and policymakers betting on those decisions, forging that path will be impossible. 

The administration’s reasoning is not merely that momentum is on its side, but that Maduro’s Venezuela — particularly its oil — had long served as one of very few lifelines available to a Cuban economy teetering on the edge of collapse. Now that Venezuela under Delcy Rodríguez has cut off that supply, an energy crisis is adding to an already bleak economic picture on the island. 

By 1 January, two days before Maduro’s removal from Venezuela, Cuba had lost over 10% of its population over the previous five years. Over the same period, the country’s GDP declined by 11%. Around the country, Cubans are today frequently in the dark, owing not only to energy shortages but a disintegrating power grid. Cuba continues to sort through the rubble of Hurricane Melissa, which last October damaged almost 100,000 homes and much of eastern Cuba’s farmland, while the country also faces an epidemic of dengue fever. 

To topple the government of Cuba — one which has held its population to early-20th century living standards, repressed all political dissent, and been a thorn in the side of US policy for six decades — has long been an impossible dream for American presidents. Only two years after Fidel Castro and Che Guevara’s revolution, in 1959, President Kennedy failed multiple times to dislodge the new regime, whether by covert invasion force or assassination. 

Eventually, the US settled on an indefinite extension of the 1960 trade embargo, a policy designed to ensure that if a longtime friend and ally of Washington was suddenly going to embrace a political ideology antithetical to American values and interests, it would have no support from American commerce in doing so. The policy, which has persisted to this day, succeeded in washing America’s hands of communist Cuba. It failed entirely, however, to pressure Cuba to pursue a different course. 

The embargo’s failure would become synonymous with the axiom that one cannot starve revolutionaries out of their ideologies merely by disengaging with them. As both Cuba and the hermit kingdom of North Korea have shown, communist leaders can use their control over the flow of information to blame their citizens’ poverty on the very nations they have alienated, thus instilling an “us against the world” mentality that dulls the gnaw of poverty, keeps counterrevolution at bay, and preserves leaders’ power.

But even despots cannot ignore the needs of their people forever. After the Soviet Union’s fall in 1990 deprived Havana of a longtime source of international aid, Cuba’s GDP fell by a third. Its economy limped along for two decades. Desperate Cubans regularly left the island on unseaworthy crafts to seek asylum in America, in a manner reminiscent of the South Vietnamese “Boat People” of the Seventies. By 2010, Castro’s brother and successor Raúl was declaring that “we reform, or we sink”. 

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By Rana Mitter

In the early 2010s, Cuba conducted a surface-level political and economic reform sufficient to convince US President Barack Obama to normalize diplomatic relations with the island in 2014, for the first time since the Kennedy presidency, in exchange for Cuba allowing American investment in the island. But over the years that followed, most of those investments went nowhere, waylaid by a command-and-control economy that government insiders still controlled. There was therefore little American political resistance when President Trump cut off diplomatic relations again in 2017. In 2021, Cuba experienced its widest-reaching anti-government protests since the 1959 revolution. 

Today, Cuba — as a nation, a polity, and an economy — is at its lowest ebb since the collapse of the Soviet Union. With Fidel dead and Raúl retired, the family that held the Cuban communist project together is now gone. President Trump is right to see an opportunity. But to take advantage of that opportunity, he will need to bear in mind that Cuba is nothing like Venezuela. 

For one thing, Cuba is a bureaucratic government with power diffused among a large group of party elites. President Díaz-Canel was hand-picked by Cuba’s Communist Party apparatus, and elected by a congress controlled by it. While Venezuela also has a congress, Maduro was a strongman elected by popular (sometimes rigged) elections. Because Maduro was the main locus of political power, a “decapitation” strategy of removing him from the country stood a chance of drastically changing Venezuelan government policy even as the rest of the government structure remained intact. In the few weeks since Maduro’s arrest, this does indeed seem to be happening. But in Cuba, there is no Maduro figure to remove. Power resides in Cuba’s Communist Party and its congress. 

Another difference is ideology. Cuba is a one-party state. Venezuela, at least officially, is not. Venezuelan Chavists follow a populist socialist program with considerable ideological flexibility, whereas Cuba is notorious for its legalistic interpretation of Marxist-Leninist communism. While both nations have always had their share of graft, Chavist Venezuela’s lodestar is self-enrichment for the politically connected, whereas Cuba’s is Marxism-Leninism, even when it impoverishes everyone. 

And then there’s the question of historical memory. Whereas Venezuela was a functional democratic country within the memory of most Venezuelans, Cuba has been a communist dictatorship for as long as most Cubans have been alive. And even those few born during the reign of Cuba’s pre-revolutionary dictator Fulgencio Batista will find few lessons from that grim era.

Based on these contrasts, the Trump administration should instead base its Cuba policy on six decades of US experience with the country — as well as a century of experience with other communist regimes. These encounters might suggest that neither decapitation nor further economic sanctions are, in themselves, viable pathways to change in Cuba. An effective strategy, if it involves a stick in one hand, must be balanced by a carrot in the other.

The most powerful carrot in our arsenal is the prosperity that comes from friendship with the United States. American strategy must make it painfully clear to Cuban leaders and citizens alike what they are missing by not being full members of the international community and the Western Hemisphere specifically. Today’s American leaders can learn a great deal here from the statesmen of the late Cold War, particularly men like Secretary of State George Shultz, who used Western economic dynamism to persuade the Soviet Union’s leaders essentially to legislate themselves out of existence.

Creating a functional democratic government in Cuba is going to require hand-holding. Cuba has been steeped only in communist political philosophies for the lifetimes of most Cubans. To learn anything else will take a great deal of external commitment. Cuba — like many other communist adversaries — also has a history of feigning reforms to attract concessions: as President Obama learned to his cost in 2014. To stick with the late Cold War theme, then, “Trust but Verify” will need to be the watchword of any US strategy toward Cuba, just as it was for Ronald Reagan and the Soviet Union.

Yet if the administration’s current strategy as widely reported, covertly convincing a critical mass of public officials to turn on the government is unlikely to work. If the Cuban Communist Party knows one thing, it is how to sniff out and imprison counterrevolutionaries. And even were this strategy to succeed, pandemonium would be the likeliest result in a nation that has known nothing but one-party rule for the better part of a century. Far better would be a policy that unequivocally shows an exhausted people the perks of friendship with the United States, and persuades them to leave communism behind. No coups required; a whimper, not a bang. 

Trump’s first priority, then, should be to open the information environment in Cuba. An advantage here is Elon Musk’s Starlink, which could connect the whole island cheaply (or even, knowing Musk’s tendencies toward political philanthropy, for free). Reliable internet needs electricity, and Cubans are struggling with broken-down power grids. Happily, American firms have the dollars to help them rebuild. All Cuba’s government would need to do to receive these fabulous benefits would be to end online censorship. Were Cuba to do so and then go back on its word, meanwhile, those benefits could be taken away just as easily. 

Once information is flowing more freely, the Trump administration should set to work on two initiatives at once — one economic, one political. First, Trump should work with US businesses to put together a massive package of potential investment for Cuba. In doing so, it should pretend to be living in a parallel universe with no trade embargo. It is difficult to overstate just how much American imports could contribute to the Cuban economy were the embargo to be lifted, even in part. One might compare Cuba to the Dominican Republic, a US ally with a similar population but which earns seven times as much export income as Cuba.

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How might trade with the US uplift Cuba? Take the example of cigars. Cuba remains, in the estimation of most aficionados, the undisputed quality king. At the moment, though, Cuba’s total international cigar sales are around $1 billion. The country’s total exports, in all categories, are barely above $2 billion. The US market for premium cigars alone is $4 billion. Were American cigar smokers to choose Cuban cigars even half the time, US demand for Cuban cigars alone would equal the total exports of the entire island of Cuba. And that’s just cigars. Cuba also has some of the world’s best land for the cultivation of sugar and fruit, and some of the world’s largest deposits of nickel — a metal vital for producing electronics from phones to electric vehicles.

Once Trump puts together a suitably impressive list of hypothetical commitments, he can begin selling them to the Cuban government and its people. He could offer those investments individually, alongside matching abatements of the embargo, in exchange for specific political changes in Cuba. These could start with concessions in economic policy — allowing private businesses to compete with state-owned monopolies, for instance, or else setting exchange rates, tax policies, and legal frameworks to encourage foreign investment. As the economic rewards get bigger, meanwhile, Trump might exchange them for ever-greater political reforms ending, finally, with the abolition of Cuba’s one-party state, the freeing of political prisoners, and free movement between Cuba and the US. 

Cuba is a once proud and vibrant country that has been hollowed by 65 years of Marxist-Leninist dictatorship. Rebuilding will take time, and such an ambitious program might seem optimistic given the long decades of failure. Yet here it’s useful, perhaps, to return to Venezuela, which the US currently controls. Maduro’s regime was Cuba’s closest ally, and Havana is watching what happens in Venezuela very carefully. If Trump can prove that by bringing a longtime enemy into alignment with Washington, and is able to better the lives of Venezuela’s people, Cubans are likely to be far more receptive to similar ideas for their own country. 

President Trump is an extraordinarily effective salesman, and this is fundamentally a strategy of salesmanship. The greatest obstacle to its success might be the President’s own capriciousness. Rebuilding Venezuela is a years-long project, and at times it seems that Trump has already lost interest in it. Cuba will take far longer, and will require a new level of patience for his administration. But if Trump can retain focus on the long haul of rebuilding Venezuela and Cuba, however, he will have done more to advance American leadership in its near-abroad than any president in decades. And conversely, he will not be able to achieve his goal of reasserting the Monroe Doctrine and reestablishing US dominance over the Western Hemisphere with a blood enemy in Cuba.

New Bedford, Massachusetts is the first waypoint of Melville’s protagonist Ishmael on his route to Nantucket and the whale ship Pequod. “Nowhere in America,” Ishmael tells us, “will you find more patrician-like houses; parks and gardens more opulent, than in New Bedford… All these brave houses and flowery gardens came from the Atlantic, Pacific, and Indian oceans. One and all, they were harpooned and dragged up hither from the bottom of the sea.” That is, they were built by whaling. New Bedford has changed a lot since Ishmael walked these streets. Few would describe it today as “patrician-like” or “opulent”, but the modern city’s takeover by Portuguese and Portuguese-speaking (particularly Azorean and Cape Verdean) seafarers resulted directly from the whaling boom of the early 19th century. And inasmuch as Ishmael’s spirit remains, they are the ones who guard it.

This year’s reading began in a museum gallery containing a half-scale model of the whale ship Lagoda, with room for little else. A brave subset of the 3,000 or so souls who would come in and out over the next 25 hours were crammed in — shank to flank, as Tom Wolfe might have put it — leaning against columns, spilling out the doors. Dog-eared copies of the book were clutched or splayed out on the floor, Post-it notes protruding like the spines of polychromatic hedgehogs.

Barely had I taken my own cross-legged seat when the first of 278 volunteer readers, a sonorous baritone, invited us to “Call me Ishmael”. The audience whooped. I scanned the room to size up my fellow travelers. About half looked like current or recent college English majors; about 70% were women. The rest were mostly older adults — both New England lifers and literary tourists. So much for the “end of reading”.

It is rare nowadays for such a varied group of people — they hailed from an array of backgrounds, speaking with a variety of accents — to come together around an artwork so completely foreign to our own time. In her memorable 2002 article “Against Presentism”, historian Lynn Hunt decries the “moral complacency and self-congratulation” that arise from our era’s collective sense of “temporal superiority”. In the two decades since, these tendencies have only grown worse. By the early 2020s, even America’s founding fathers found their achievements minimized or their memorials defaced because they lacked the moral clarity of the 21st-century world — even if their innovations helped build that world.

How extraordinary, then, at a moment when whales are a protected species and women run many of our largest industries, that these readers have dedicated 25 hours of their lives to understanding a man who inhabits an exclusively male world of danger, action and adventure, and who sees whale hunting as the noblest of human pursuits. In her essay, Hunt writes that “respect for the past, with its concomitant humility, curiosity, and even wonder. . . enables us to see beyond our present-day concerns backward and forward at the same time. We are all caught up in the ripples of time, and we have no idea of where they are headed.” It may be that great literature has a power to instill that understanding in us that even great historical writing lacks.

Admittedly, there were moments during the marathon when I sensed the presentist mask reasserting itself. For instance, when Ishmael postulates that perhaps he himself, and not a South Pacific cannibal like his “bosom friend” Queequeg, is the genuine “savage”, a cheer arose from the crowd. A young man behind me tittered: “That’s actually pretty progressive!” as though satisfying 21st-century progressives should have been among Melville’s objectives in conceiving the character of Ishmael.

We moved between venues as we cruised through the book at around 33 pages an hour. I was one of the lucky few to hear Father Mapple’s sermon on the Book of Jonah read out in the tiny Seaman’s Bethel where Melville set it. I squeezed into a pew, peering at the walls of the bethel which still bear the same memorial plaques Ishmael describes, commemorating crews lost in shipwrecks and whaling accidents around the world. Seeing these plaques, meditating on the boundless pain they represent, gave me a greater appreciation of Ishmael’s obsession with the Christian dichotomies of good and evil. Imagining the crew listening to the sermon, comparing themselves with the prophet Jonah, it became vividly clear that he was a way for them to salvage meaning from an unrelentingly dark and dangerous life where death came unannounced and gory.

At around dusk, we reached the most divisive of Moby-Dick chapters: the 32nd. “Cetology” is the first and longest of several chapters in which Melville disgorges his years of research on the biology of whales and commerce of whaling. In a charming display of Melville nerd-dom, the room cheered when the infamous chapter was announced, and gave a little chuckle when Ishmael introduces the chapter’s contents as “almost indispensable” to understanding the novel’s action (“almost” is doing rather a lot of work there).

How easily one forgets that an average American reader in 1851 would never have seen a photograph of a whale, nor had any sense of how to figure out which drawings or paintings of whales were realistic, and which fantastical. Novelists who write of things utterly foreign to their readers’ experience must be very specific. Even so, I overheard one young lady outside yelling into her phone: “Why does he put all this stuff in there if it has no direct relevance to the narrative?”

As night fell, we settled in for the true endurance test — 12 hours of the Pequod encircling the world and Captain Ahab sinking into madness. Through most of the night, the 220-seat theater where these passages were read was full. Couples and groups of friends took turns sleeping and keeping watch. It is funny how tempting it is to slip into nautical patterns of behavior with such engrossing source material to suggest them.

The sun rose. And then, finally, at noon, the words: “Chapter 133. The Chase — First Day.” The focus of one-and-all snapped back from the wandering expansiveness of the open ocean to Moby-Dick’s endgame. A few minutes later, Ishmael was clinging to a floating coffin on a vast disinterested ocean.

Aside from exhaustion, the prevailing feeling as we filed out of the whaling museum, clutching our marine-themed goodie bags, was bewilderment. Moby-Dick is a bewildering book, all the more when read in a single sitting. This might be because Melville, with his penchant for turning characters into archetypes and ephemeral moments into eternal principles, is writing to persuade all peoples and all eras at once. He seems to speak directly across the ages to a reader in our own time who has asked him a question. We can imagine the young woman at a meet-the-author event with Melville’s ghost at some swell Manhattan venue: Why, she demands, would any sane person voluntarily risk his life to prowl the world’s oceans in a wooden vessel to find, kill, and disembowel huge man-eating monsters and melt their flesh down into lamp oil? And why would they further pledge their allegiance to an even bigger maniac who had resolved to subdue the world’s single deadliest sea monster or else die in the attempt?

Melville knew that even in 1850, such shots across the bow of cool-headed reason demanded a passionate defense. Even among readers living near Melville’s farmstead in Pittsfield, Massachusetts, located multiple days from New Bedford by stagecoach, the whaling life would have seemed utterly foreign. And so, his narrator sets out to make the irrational inevitable: to convince us that for a man of his time, or indeed of any time, there is no work more honorable or more beautiful than whaling. The most unsettling thing about Moby Dick may be that even after we witness the White Whale’s slaughter of all Ishmael’s shipmates, we are still forced to admit that he has succeeded. That we (particularly we men) might never have the chance to live as fully or as deeply as Ishmael did.

When we read a little bit of a book at a time, we have a chance to dismiss or disqualify things that we read out-of-hand, due to their dissonance with our world. One of the chief benefits of reading a work like Moby-Dick in one sitting is the opportunity to swallow it whole — to bring into our minds an entirely different living world — dissonant with our own but rich with eternal knowledge that our world has forgotten.

There’s more in that dissonance than one can process in an evening, or perhaps even in a lifetime. But I take some comfort in the fact that Moby-Dick’s author felt exactly the same way about the ideas he advanced. Indeed, he reveled in the incompleteness of it all. “God keep me from ever completing anything,” Melville writes. “This whole book is but a draft—nay, but the draft of a draft. Oh, Time, Strength, Cash, and Patience!”

Right now, President Donald Trump’s policy towards Venezuela is running such a risk, and Trump, the consummate political stage director, knows it. His gun has been on the wall ever since he began his military buildup in the seas around Venezuela in late August. For the past several weeks, he has played for time by conducting a foreign policy reminiscent in its unpredictability of a fraternity hazing ritual. He has periodically threatened military strikes against targets in Venezuela, walked back those threats, claimed that President Nicolás Maduro’s regime needs to fall, and suggested a meeting with Maduro and brokering a deal. All the while, he has conducted periodic open-sea strikes on Venezuelan and Colombian drug boats.

But now, even from the perspective of an American public generally sympathetic to Maduro’s removal, the drama has gone on too long. Trump knows that in order both to save face internationally and to avoid American voters’ perception that he’s jerking them around, he needs to do something, soon. For Maduro, that makes the next few weeks exceptionally dangerous.

Trump’s first instinct is usually to use military threats to compel a deal — a deal that persuades a rogue state to follow a course better aligned with American interests. (In fact, the only case in which Trump has made public military threats and then followed through came this past June in his bombing of Iran’s Fordow nuclear facility.) But if Trump is still holding out for a deal that convinces Maduro to address his main concerns — to take a hard stand against drug and human trafficking — he will be disappointed. There is simply no peace deal that advances US interests to be had with the Maduro government. 

This is not primarily because the Venezuela of onetime bus driver Maduro, and his predecessor Hugo Chávez, is an untrustworthy partner, untrustworthy though it certainly is. The country expropriated ExxonMobil’s Venezuelan oil fields in 2007. A decade later, it compensated Exxon for a tenth of the fields’ worth, and only when compelled to by an international court. Given these circumstances, it would be reasonable for American leaders never to trust a Venezuelan Chavista regime again. But the main reason that no deal with Maduro can help the US is that he lacks the power to deliver on any of the promises Trump will be looking for.

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In today’s Venezuela, significant swaths of the country, including those most involved in the distribution of drugs, are functionally outside government control. In the country’s West, the Colombian National Liberation Army runs cocaine across the Colombian border and distributes it using local airstrips. Much of the country’s South, along the Brazilian border, is held by megabandas — that is, large and armed criminal groups — like El Tren de Aragua, which distribute drugs internationally. Even many territories involved in mining, which is Venezuela’s largest legal industry after oil, are functionally ungoverned. 

None of this means, of course, that government officials are not involved in Venezuela’s illegal commerce. The opposite is true — it’s their lifeblood. But it does mean that the Maduro government is not in a position to put a stop to any of it, even if Trump were to make them a very attractive deal. A government crackdown on drugs would mean pitched military confrontations between the cartels and a Venezuelan army that is undersupplied, underfed, badly commanded, and old. The chances that Maduro would take a chance at being humiliated, whatever he promises Trump, are slim.

There are many in the US government and media who still believe Maduro can effectively address Trump’s concerns over drug trafficking and migration if he chooses to. After all, they say, he has effectively remained in power for almost a decade and a half; he can’t be totally ineffectual. But such optimism displays a confusion between regime stability and regime effectiveness. 

While it is true that stable regimes typically achieve stability through the legitimacy accorded by effective governance, Maduro’s is an exception. His is a regime that is totally ineffective but surprisingly stable. Venezuela’s public safety, order, and social welfare system have broken down almost entirely, to the point that 30% of the country’s population has left during Maduro’s reign– for Colombia and destinations further abroad, including the U.S. Its economy hasn’t been stable enough even to report an annual GDP figure since 2014. And yet, last year Maduro managed quite easily to remain in office despite losing an election, marginalising his opposition while consolidating power.

Why? Because since the mid-2010s, Maduro has been running a criminal enterprise rather than a state government, and he runs that enterprise well. He has achieved stability by tying the fortunes of Venezuela’s military and civil power brokers so tightly to the country’s endemic graft, corruption and drug trade that they know they can only survive as long as Maduro remains in power. Hanging the sword of Damocles over the heads of all one’s rivals can be as powerful a guarantor of regime stability as democratic legitimacy itself. 

In this sense, President Trump is correct to call the Venezuelan government itself a sort of cartel, which the administration did two weeks ago when it designated the Cartel de los Soles (a Venezuelan colloquialism for Maduro’s graft-ridden government) a foreign terrorist organisation (FTO). Maduro’s government is not a cartel in the same sense that El Tren de Aragua is, but it is one insofar as its existence depends upon illegal commerce. 

It might be tempting for Trump to meet with Maduro, receive a grant of oil or mining concessions, and declare victory. But such concessions, as we know from ExxonMobil’s experience, would not be worth the paper they are printed on. Neither would a promise to crack down on the drug trade. The only near-term Trump-Maduro deal that could serve American interests would not be peaceful. It would not involve sanctions relief or a decrease in military pressure. It would be a deal in which the US military has free rein to attack drug distributors in Venezuela, and in exchange for Maduro’s non-interference, we leave him alone. But if that’s going to be the deal, why make a deal at all?

If Maduro had a slim chance of convincing Trump otherwise, he might have bungled it on Sunday. It was then that the Venezuelan National Assembly (controlled by Maduro’s United Socialist Party of Venezuela) announced that it would be conducting its own investigation into the Trump administration’s alleged second strike to kill survivors on a drug boat carrying Venezuelan nationals. The war crime allegations, first reported in the Washington Post, have ignited a media firestorm and spurred a US congressional investigation. Trump and his Secretary of War, Pete Hegseth, have claimed to have no advance knowledge of the strike and have dismissed the story as a distraction. Further reporting by the New York Times has cast doubt on whether the second strike was intended to kill survivors (which would have been a war crime), as opposed to fully destroying the boat and drugs on board (perfectly legal under the laws of war). 

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Venezuela has reached its nadir

By John Masko

It is tempting for foreign adversaries, when the transparency of American democracy brings to light some scandal favourable to their case, to press their advantage by piling on. Those weaker adversaries who know how to negotiate with President Trump, however, do not do this. They know that there is no surer way to provoke the president’s ire than to make him look bad on the world stage. Instead, they garner his sympathy with public shows of flattery, modesty, and deference, even while holding to their own bottom line. No one understands this better than Vladimir Putin, whose handling of the American president is usually virtuosic.

Until recently, Maduro seemed to be following Putin’s playbook. He made no attempt to fight the legitimacy of the strikes, and did not even acknowledge that any of the boat’s crews were Venezuelan until last week. But with this most recent strike, the temptation for him to piggyback on the US. Congress’s own investigation seems to have been irresistible. Venezuela’s government has now not only admitted that there were Venezuelans aboard the boat, but launched its own investigation into the US’s purported criminal activity. The presumptuousness of this gesture is likely to infuriate Trump and drive him further away from the negotiating table. 

With no desirable deal on the horizon, Trump faces a strategic quandary. If his opening gambit was to persuade Maduro to leave office peacefully, through an overwhelming show of American force, that effort has clearly failed. With the magnitude of the US military buildup and the FTO designation for the Venezuelan government (an unprecedented move that opens possible legal justifications for regime change), it is hard to imagine any means by which Trump could further turn up the heat without ordering an actual attack. He ran up against the limits of his foreign-policy-by-threat this past weekend, when he attempted to declare, via his social media app Truth Social, that the airspace over Venezuela was closed — an announcement that the Maduro government denounced and then ignored.

Now that Maduro has called his bluff, what is Trump’s next step? Militarily, he has a few options. He could initiate a land strike against cartels operating in Venezuela’s South or West. This would be a logical extension of the drug boat strikes. Such a campaign might compel Maduro into making a deal that provides for continued American anti-drug policing in Venezuela. Alternatively, it could draw Maduro’s army into direct conflict with American troops, giving Trump a pretext for forcible regime change. Trump could also skip the formality of attacking cartels and instead attack Maduro directly with airstrikes or a ground assault, working with opposition leaders to install a post-Maduro government. Either of these options carry some risk of an Iraq-style “forever war”, should Venezuela’s opposition government prove unable to consolidate power.

The other option is a covertly-led coup. This option would likely offer a higher likelihood of post-regime-change stability than a direct American attack, and would demand less future involvement from the US. But given Maduro’s tight control over his inner circle, Trump may have to wait a long time for such a plot to come together. One can’t help but wonder whether, if such a coup had been immediately possible, it would have happened already. Either way, it is Trump’s move. 

Over the last few months, Trump has orchestrated a crescendo worthy of Beethoven’s most powerful symphonic finales. But big crescendos must lead somewhere; they cannot simply peter out. To make narrative sense, Chekhov’s gun must be fired. If Trump acts against Venezuela, either with an attack on Maduro’s regime or on the cartels he protects, he introduces uncertainties. Uncertainty as to what will follow — an orderly restoration under the leadership of dissidents like Nobel Laureate María Corina Machado, civil war, or something in between; and uncertainty over what American resources will be required, and for how long. 

But politically, the consequences of inaction at this late date would be worse. Over recent months, Trump has declared a great reversion in American strategy — from the Wilsonian aspiration of making the world safe for democracy to the Rooseveltian one of making the Western Hemisphere safe for the United States. He chose Venezuela as that strategy’s first proving ground. And if all it takes to stop that strategy is the obstinacy of a single South American crime-boss caudillo, Trump will have shown his administration to be worse than impotent. It will take years, and a new administration, for any foreign adversary to take such American pressure seriously again.

As of this week, the US had positioned 10 F-35 fighter jets in Puerto Rico, along with three MQ-9 reaper drones. More than 4,500 Marines and sailors have taken up residence at US Southern Command in Miami, Florida. Last week, President Trump publicly announced that he was authorizing CIA covert operations in Venezuela, and a group of B-52 bombers flew near Venezuela’s coast. More than five suspected drug ships, some originating in Venezuela, have been interdicted and destroyed by US forces over recent weeks.

To many in the foreign policy establishment, Trump’s fixation on squeezing Venezuelan dictator Nicolás Maduro has been an enigma. He has justified the buildup on the grounds that Maduro’s regime harbors drug producers and distributors. But when Maduro has tried to satisfy Trump — even accepting planeloads of deported Venezuelan nationals from America — Trump has rebuffed him and redoubled US pressure. Perplexed analysts are asking: what exactly is Trump trying to achieve, if nothing Maduro can offer will please him? Where can this lead except to war or a humiliating walk-back?

This reveals a fundamental misunderstanding between the Trump administration and the foreign policy establishment. Rather than focusing on the near-term risks of war in Venezuela, Trump is asking a higher-order question: What is the point of being a superpower if you can’t stop your neighbors from sneaking deadly drugs and unapproved migrants across your borders?

In Trump’s understanding, security begins at home, and then extends to the near-abroad. When weak or corrupt leaders nearby threaten the stability of the US, they must be either forced to change their behavior, or they must be replaced. This has not been US policy for several decades, but for most of the 20th century, it was. The name of this policy was the Roosevelt Corollary to the Monroe Doctrine. What Trump is signaling in Venezuela is that the Roosevelt Corollary is back.

President Theodore Roosevelt announced the Corollary in 1904 in his Annual Address to Congress. Since the presidency of James Monroe a century earlier, it had been American policy to oppose any new colonization or subjugation of lands in the Western Hemisphere by European powers. Monroe’s policy did not, however, provide a road map for when European countries sent ships into America’s backyard to collect debts or fight wars, as occurred during the British, Italian and German blockade of Venezuela in 1902. Determined to keep European warships out of America’s near-abroad, Roosevelt declared that US policy would be to have a monopoly over policing power in the Western seas. He further declared that it was no longer the sole purpose of the Monroe Doctrine to keep Europe out of our near-abroad; the doctrine would also now be used to protect American interests more generally. He explained: “It is always possible that wrong actions toward this nation or toward citizens of this nation… may result in our having to take action to protect our rights; but such action will not be taken with a view to territorial aggression, and it will be taken at all only with extreme reluctance.”

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During the ensuing decades, the Roosevelt Corollary was periodically called upon to reestablish order in Latin American war zones and to prevent the accession of regimes dedicated to, in Roosevelt’s words, “wronging” the US. The Corollary underlay the brief US occupation of Cuba, from 1906-1909, after the Spanish-American War, two occupations of the chronically unstable Dominican Republic, and support for the Contras against the Sandinistas in Nicaragua. It also inspired the CIA-supported overthrows of Guatemalan President Jacobo Árbenz following his nationalization of United Fruit Company lands, and of Chilean President Salvador Allende as he led that country’s mining-based economy into ruin. It was also behind America’s futile efforts — through an embargo, assassination attempts, and the failed Bay of Pigs invasion — to topple Cuban communist dictator Fidel Castro.

America’s failure to overthrow Castro, coupled with the relative untouchability of many Soviet-allied Latin regimes during the Cold War period, caused the Roosevelt Corollary to fall into disuse. The liberal internationalist order that followed the Cold War further discouraged the use of hard power to overthrow regimes hostile to American interests. But in 2025, the Trump Administration seems determined to bring it back.

Within the Roosevelt Corollary (or, as I’ve been told it’s referred to within the administration, “Neo-Monroe Doctrine”) framework, some of Trump’s harder-to-figure foreign policy actions begin to make more sense. One of these is the appointment of Cuban-American Florida Senator Marco Rubio as Secretary of State, which was perplexing alongside Trump’s more provocative foreign policy nominations of Pete Hegseth and Tulsi Gabbard. But when one considers Rubio’s knowledge of Latin America and his hawkish record on Latin American dictators in the context of the Roosevelt Corollary agenda, he fits perfectly.

Then there are Trump’s recent actions toward Argentina and Colombia, both of which would have seemed peculiarly drastic in past administrations, but represent a return to a Rooseveltian approach to doing business. For Argentine President Javier Milei, a libertarian friend of the US who faces a fiscal crunch at home, Trump recently structured a $40 billion loan package and floated a huge purchase of Argentine beef, much to the chagrin of American cattle ranchers. Colombian socialist President Gustavo Petro, on the other hand, faced a cutoff of all American aid (Colombia has received $14 billion in aid since 2000) due to his failure to address Colombian drug trafficking. In a Rooseveltian world, the President wields plenty of carrots and a big stick.

In order to understand how Trump’s Roosevelt Corollary framework applies to Venezuela, we must first consider the state of the country today. Maduro’s Venezuela is a shambles by every possible metric: aside from its ruler’s personal security. Owing to a combination of mismanagement and corruption, Venezuela, once the wealthiest nation in Latin America, is now an economic basket case. Its economy is projected to contract by 3% this year, and inflation is at 682%. Venezuelan oil exports — the foundation of its economy — have declined by two thirds since 2012. As living standards and safety across the country have plummeted, nearly 30% of Venezuelans have left over the last 10 years, mostly for neighboring Colombia, but many for the US (both legally and illegally).

Even with a hostile third of the country now gone, Maduro still received fewer votes for president than opposition candidate Edmundo González in last year’s election. While international organizations urged him to accept defeat, he declared victory and began a third term in office. Opposition leader María Corina Machado, whose exit polling efforts demonstrated that Maduro’s reelection was rigged, was awarded the Nobel Peace Prize for her efforts to fight the regime.

Yet while Maduro may be the world’s least legitimate leader, his position within Venezuela is still secure. As centuries of Latin American history have shown, military loyalty is the single most important requisite for regime security in the region. And while Maduro may have little else, he has that. As the Wall Street Journal has shown, Maduro has successfully “surrounded himself with a fortress of lieutenants whose fortunes and future are tied to his”. He has done this by imprisoning or exiling the disloyal, while encouraging the loyal to accept patronage jobs in state-run companies or payoffs from drug-traffickers to allow their shipments to pass. The result is a military that is just as fearful for the personal ramifications of regime failure as Maduro is himself. And in case Maduro’s reign of blackmail were to fail, there are Cuban counterintelligence officials and other paid spies installed in the ranks to detect any hint of insurrection. According to Edward Rodríguez, a defected former Venezuelan army colonel, snitching is richly rewarded with “jobs, money, cars and even homes” in a country where much of the population cannot consistently afford food.

With the government preoccupied by personal security and self-enrichment, it will surprise few that much of the official territory of Venezuela (precisely how much is unknown) is no longer under government control. Much of western Venezuela is controlled by Colombian drug-running and human-trafficking organizations like the National Liberation Army. And much of southern Venezuela is given over to feuding megabandas or organized crime rings — most infamously the gang Tren de Aragua, recently designated a foreign terrorist organization by the US. The megabandas have outposts in Venezuela’s major cities, and all around the world, including in the US. One reason for Venezuela’s declining exports is that large parts of its major extractive industries — particularly mining — have been taken over by criminal enterprises whose activities occur off the books. These organizations control territory in the Orinoco Mining Arc in Venezuela’s southeast, where many of their mines are located.

Since Trump’s pressure campaign, Maduro has pumped out propaganda to recruit a citizen militia that can bolster the country’s depleted military. According to the Wall Street Journal, “on state television, radio and social media, announcers are telling Venezuelans that the U.S. is a rapacious Nazi-like state that wants to dig its claws into the country’s oil wealth but that the Venezuelan military, the National Bolivarian Armed Forces, are positioning to repel any invasion”. Maduro’s army currently numbers about 125,000 — a combination of military regulars and new recruits, so many of whom are above typical military age that they have been dubbed a “Dad’s Army” in the British press. According to recent reporting, the army is underfed, under-resourced, and has suffered from a significant brain-drain due to Maduro’s loyalty tests. Maduro reportedly also plans, in the event of invasion, on having the support of Colombia’s National Liberation Army — the least it can do for Caracas’ salutary neglect of its drug and human smuggling (whether before or after he delivers to Trump his proof that there’s no drug trafficking in Venezuela, one can only guess).

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For the US, this all adds up to a puzzle: the Maduro regime’s continued existence directly hurts American interests, but the regime has hollowed out Venezuelan society and institutions to such a degree that regime change will probably result in further chaos, and very possibly a civil war — outcomes that also hurt American interests.

Trump has likely still concluded that regime change would help the US, but that to be effective, the muscle behind it will need to come from inside Venezuela itself. His military buildup is therefore an effort to pressure fence-sitters inside Venezuela’s military and underground political opposition (a group that still includes Machado herself) to provide that muscle. Perhaps if military brass begins to see that the Maduro regime’s days are numbered, their calculus on how best to preserve their own lives and careers will shift. There is also an outside chance that a skirmish with US forces, and a glimpse of the untenability of his position, might convince Maduro to resign or flee.

For the time being, direct covert action against Maduro’s person seems to be off the table. Ironically, we know this because of Trump’s highly irregular decision to broadcast his authorization of CIA covert action to the world — meaning it would no longer be, well, covert. Trump’s threat of covert action, rather, functions as a nuclear bomb of psychological warfare, ensuring that every night for the foreseeable future, Maduro dreams of exploding cigars. Far more likely is covert action that assists in forming and resourcing opposition parties or militias, as the US has done in past Latin American revolutions. Conventional military strikes on Venezuela are possible, but would need to be provoked. Conventional forces could also be deployed in ungoverned spaces against drug-traffickers, further underlining the impotence of the Maduro regime.

Where the Trump-Maduro standoff goes from here is hard to know. But the reasoning behind the buildup is abundantly clear, and it goes far beyond Venezuela’s drug distribution or human trafficking. It is a signal to the world, and to Latin America in particular, that American policy toward the Americas has changed. More precisely, it’s changed back from a policy of salutary neglect to an active posture in which American interests are stridently defended. As in the days of the Roosevelt Corollary, America will help its friends and hamper its foes. If a Latin American regime harms American interests, and regime change will improve the situation, America will not hesitate to effect its overthrow.

Venezuela resonates particularly with the original purpose of the Monroe Doctrine, which was to preclude European incursion into American waters. Venezuela is a long-term strategic partner of China, which relies heavily on Venezuelan oil and offers economic and political support to Venezuela internationally. Even as Venezuela has descended into ruin over the last few years, it has continued to serve as a beachhead for Chinese influence in America’s backyard. Just as President Monroe’s original doctrine intended to keep hostile foreign interference far away from American waters, President Trump’s updated Monroe Doctrine can do the same for America’s 21st-century threats.

Trump is likely gambling on the fact that Maduro’s fall would be universally popular. The rest of the world has watched in horror over the last several decades as Maduro and predecessor Hugo Chávez plunged their country into poverty and chaos. This means that if US pressure results in Maduro’s overthrow, Trump’s new Roosevelt Corollary will start out in the win column in the court of international public opinion. Whether the US stays in that column as it addresses challenges in Colombia, Peru and Argentina, only time will tell.

That analysis severely understates the case. In truth, the Department of Government Efficiency could be one of the biggest gifts that the consulting giants have received in decades. And if Elon Musk and Vivek Ramaswamy are not careful, these leaders of the DOGE experiment risk ensuring that the McKinseys and EYs of the world hamstring the very goals their new department was established for: finding savings for taxpayers and refocusing government on its most essential functions.

As Musk and Ramaswamy outlined in a recent op-ed, the DOGE exists to implement the rulings of two recent Supreme Court cases. Taken together, these rulings demand that judges no longer defer to executive agencies’ own interpretations of laws, while also denying the agencies the right to impose new regulations without specific authorisation from Congress. By recommending cuts in these in-house regulations to Trump, the pair plan to trim their headcount to only the numbers needed to implement those responsibilities authorised by Congress.

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By John Masko

How much trimming might the DOGE be able to do? The current Federal headcount suggests quite a bit. Excluding active members of the military, it employs about 0.6% of the US population. That encompasses some two million Americans, scattered across 15 cabinet-level agencies and a range of other functions. Excluding defence, five of those agencies, including Treasury and Agriculture, employ 70,000 people or more. With Trump promising to bring back his “Schedule F” executive order, rescinded by Joe Biden, he may have the power to make deep cuts to the civil service starting early in his term.

Even with such a large workforce, the Federal government is already one of the consulting industry’s top clients, accounting for around $23.5 billion of the industry’s annual revenue. In practice, that represents some 30,000 projects, scattered everywhere from healthcare to infrastructure. Over time, many departments have come to rely on consulting as a sort of temp agency — increasing their labour force flexibility while permitting them to undertake projects far from the prying eyes of congressional oversight. The same can’t necessarily be said of foreign rivals like China: McKinsey, one of the CCP’s favourite foreign consulting firms, has also advised the Pentagon on its F-35 programme, while also providing management counsel to the Air Force and Space Force.

It is not unlikely that as the DOGE ramps up its promised headcount reductions in federal agencies, those agencies will increasingly fill the gap with consultants. It is just as likely that many of the same career civil servants cut from the Federal government via DOGE will wind up as consultants, working for McKinsey or Booz Allen, and covertly doing much the same work they were doing before. In its efforts to dismantle the so-called deep state, the administration may therefore inadvertently push the civil service into the arms of the private sector. The taxpayer would still foot the bill here, but that work would be paid for via consulting contract fees instead of government salaries.

Such a migration would be harmful for several reasons. First, it would thwart the incoming administration’s electoral mandate to reduce spending and roll back the scope of the state. Second, it would also push projects further away from the accountability of lawmakers and the executives, let alone the voters themselves. There’s also a national security dimension here. As Senators Marco Rubio and Josh Hawley showed in a recent report on McKinsey’s China portfolio, the spread of consultants could put even more privileged government information into the hands of firms that also work for our geopolitical adversaries. And while consulting firms swear by the information firewall they impose between projects, these promises are dubious when so much money changes hands.

That’s clear enough from Rubio and Hawley’s report, which discovered a large percentage of McKinsey work involved both Chinese state-owned firms and the CCP itself. In particular, that included the CCP’s “Made in China 2025” scheme, aimed at asserting Chinese technological superiority over the US and other rivals. Firms that McKinsey advised were also responsible for constructing artificial islands in the South China Sea, an effort intended to challenge American superiority in the Pacific.

The good news is that there is plenty that the new administration can do to close this consulting loophole and allow the DOGE to operate without fear that public sector cuts will just be made private.

For one thing, Trump must improve on his first-term efforts at filling mid-level appointments across executive agencies. Speed is crucial. In 2016, according to data from the Center for Presidential Transition, he had submitted nominations to the Senate for only 72 of about 1,200 senate confirmable positions, resulting in only 28 confirmations. His predecessor, Barack Obama, had by that point in his tenure submitted 190 nominations, resulting in 67 confirmations. Unsurprisingly, by the final year of Trump’s first term, 30% of confirmable Cabinet department positions remained vacant.

This time, Trump must regard each vacancy as a vital beachhead to carry his agenda forward across executive agencies. Vacant leadership positions create a vacuum in which business can happen behind the president’s back. While it will be the DOGE’s role to do a once-over of each agency, recommending cuts to the president, Trump’s appointees will be responsible for ensuring that those cuts stay made rather than being outsourced.

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Second, Trump should create a function within the Office of Management and the Budget to monitor consulting contracts across the Federal government. Each year, this office would report to the president on the number of contracts being made, their length, their cost, and their substance. That way, the administration can quickly flag irregularities around consulting contracting, before promptly addressing them through its appointed representatives in the agencies.

Lastly, the Administration must, in collaboration with Congress, ensure that cuts made by the DOGE are followed up with commensurate budget cuts. If the administration cuts an agency’s headcount and functions by 30%, but Congress only cuts its funding in the next year’s budget by 15%, that creates an environment rife for outside procurement, and for the entrenchment of a new deep state even less accountable to the voters than the last one.

The DOGE is the boldest attempt to roll back the administrative state in decades. It’s unique in its accountability to the American people, since Musk and Ramaswamy are both external appointees who will not draw government salaries; neither will the hordes of back-office workers supporting the project, who Musk has been recruiting on X. At the same time, however, the volunteer-driven DOGE will not be around to check the cuts it recommends are actually implemented. That responsibility falls to the White House, and to Congress, which must ensure not merely that the deep state stays cut in the public sector, but that it isn’t reborn in the private sector instead.

Looking at a postcard of Downtown Caracas from 1980, one could be forgiven for assuming that it depicted a different city than the blighted wasteland standing in its place today. That Caracas was a city worthy of “George Washington of the South” Simón Bolívar, who a century and a half earlier had liberated his home country of Venezuela, along with much of South America, from imperial Spanish rule. It was a city of tree-lined boulevards, cosmopolitan cafes, arts and learning. Its central arts centre, the Teresa Carreño, regularly played host to Ray Charles and Luciano Pavarotti. To quote Venezuelan author Ana Teresa Torres: “You truly felt, as we used to say around here, in the first world.” And no less an authority than my mother, who grew up in Buenos Aires and visited Caracas around that time, remembers that it “felt like New York”.

It is a popular oversimplification nowadays to claim that mid-century Venezuela’s “first-world” living standards, sophistication and opulence were built on quicksand. That, like most other Opec nations, Venezuela suffered from “the resource curse” — in that its over-reliance on oil temporarily gave Venezuelans developed-country living standards without compelling the country to build the diversified economy it needed to sustain that level of wealth.

To be sure, there is something to this. The oil price shocks of the Eighties certainly did spark the death spiral that culminated in Venezuela’s collapse. Over that decade and the following one, Venezuela’s economy stagnated and unemployment and poverty increased, fuelling the discontent that would lead the country to throw it all away. But to imply that Venezuela was a mere petrostate is to grossly misrepresent reality — because Venezuela in the Eighties was on its way to figuring out something that most of today’s Middle Eastern petrostates still have not: how to use its wealth to build a broad-based, vibrant, productive mass culture.

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During the Eighties and Nineties, Venezuela was the longest continually operating democracy in Latin America. Since 1958, it hosted regular, peaceful elections, and its political parties were generally moderate. Venezuela’s politics lacked the radical swings that characterised the latter half of the 20th century in most of the continent — there were no Bolsonaros or Peróns. Towards the end of the century, the country did experience rising levels of corruption at the bureaucratic level, but the democratic foundations remained.

At this time, Venezuela’s cultural exports were the envy of South America. Consider one extraordinary example: the Venezuelan national music education programme, El Sistema. Founded in 1975 by conductor José Antonio Abreu, El Sistema sought to use music as a vehicle for social uplift and general education. Its rigorous programme catered to students of all social strata, and several of its protégés ended up among the world’s top classical musicians — including Gustavo Dudamel, who was recently named the next music director of the New York Philharmonic Orchestra. Yet today, even as the memory of El Sistema continues to inspire imitators around the world, Venezuela’s own youth music programmes are in a shambles. As of 2017, a third of the members of Venezuela’s flagship Simón Bolívar Youth Orchestra had fled the country.

By the Eighties and Nineties, Venezuela’s economy was beginning to diversify — particularly into manufacturing — but it remained deeply reliant on oil revenue, and thus beholden to that market’s vicissitudes. Oil shocks begot fiscal crises and, by the Nineties, Venezuela’s economy was regularly experiencing either recession, inflation or monetary instability. Perhaps most distressingly, the country’s ability to leverage its cultural resources and high levels of education for economic growth slowed as well. According to one study carried out in 1999, Venezuelans with a 12-year education had a nearly 20% chance of ending up in poverty, up from 2.5% in 1989.

Venezuela found itself at a similar crossroads to the one Chile had faced a quarter century earlier under military dictator Augusto Pinochet. After Chile’s single-resource copper economy ceased to work, the country’s leaders worked to diversify the economy — attracting foreign manufacturing dollars and investing in agriculture, aquaculture and viniculture. These reforms — carried out, admittedly, in an environment of political repression — set the stage for 50 years of economic growth and stability.

What Venezuela needed in the Nineties — frustrated by over-reliance on oil, economic stagnation and bureaucratic corruption — was exactly what Chile had gained in the Seventies: economic leadership. Even at that late date, Venezuela enjoyed many advantages that Chile had not — a still-functioning democracy, well-developed urban areas and impressive living standards. What Venezuela needed was reform. But what it got was revolution.

When Hugo Chávez took power in 1999 as a third-party president, he offered Venezuela a populist socialist platform the likes of which it had never seen. Feeding on the class resentments that had festered during the decades of fiscal crisis, Chávez promised voters a new Venezuela that would use the country’s prodigious natural resource wealth to help the poor. Rather than doing the hard work of diversifying the economy to free Venezuela from oil price fluctuations, Chávez did the opposite, increasing production and using the proceeds to set up comprehensive social welfare programmes. Helped along by favourable oil prices in 1999 and 2000, the approach worked at first, cutting poverty by 20% in only a couple of years.

But Chávez was about to demonstrate his ignorance of the petroleum industry. Around the same time that oil prices stagnated again in the early 2000s, thus requiring the country to increase production again to feed its social safety net, Chávez responded to an oil worker strike by firing most of the senior geologists at Venezuela’s state oil company. Drained of valuable expertise, Venezuela’s oil production fell. Chávez responded by nationalising foreign-owned oil reserves in Venezuela, including reserves owned by the American oil company ExxonMobil, leading multinational companies to divest from Venezuela in industries ranging from agriculture to auto manufacturing, fearing that the same fate might one day befall them. The economic vibrancy of Chávez’s first two years began to run in reverse.

Chávez’s nationalisations fit hand-in-glove with his general anti-American posture, which he also expressed through a refusal to cooperate with the US on counterterrorism and narcotics initiatives. In 2006, the George W. Bush administration imposed sanctions on Venezuela, blocking the Venezuelan state from using US financial institutions and American entities from buying Venezuelan state oil. In response, Chávez cultivated closer trading relationships with enemies of the US, including Cuba and Russia. US sanctions would later be tightened during the Obama administration in 2014 and then again during the Trump administration in 2017.

As Chávez’s popularity flagged in the late 2000s, he began altering Venezuela’s democratic political system in order to remain in power. He abolished presidential term limits, curtailed the powers of Venezuela’s supreme court and restrained the freedom of the press. Meanwhile, state oil production continued to decline — from 2.5 million barrels a day in 2005 to 500,000 by 2020 — and Chávez nationalised some 100 companies in a diverse array of industries that his government lacked the expertise to run. Predictably, both state revenues and Venezuela’s economy continued to decline.

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In 2013, Chávez died. And under his successor, Nicolás Maduro, the political system Chávez had run with at least a nod to democratic forms became an unapologetic dictatorship. Elections became charades and members of the political opposition began to fear for their lives. Economically, the country became a basket case. As The Economist put it in 2014: “A big oil producer unable to pay its bills during a protracted oil-price boom is a rare beast. Thanks to colossal economic mismanagement, that is exactly what Venezuela, the world’s tenth-largest oil exporter, has become.”

As domestic manufacturing and agriculture collapsed, Venezuela’s trade imbalance yawned so widely that the country ran out of currency. Its import-reliant food supply cratered, and the Maduro government became unable to pay for the provision of basic services or to keep the peace. Crime skyrocketed across the country, and starvation reigned. Typical was the case of a music teacher quoted in The Guardian in 2018, who claimed that he had lost 8kg in a year on the “Maduro Diet”. “A litre of milk,” he said, “costs 280 soberanos, a box of eggs is 1,000, a kilo of cheese 1,000. If I buy this, that’s my whole monthly salary.”

Unsurprisingly, what started as a trickle of emigration from Venezuela in the mid-2010s has turned into a flood, as Venezuelans who could afford to leave have sought asylum in other countries, particularly neighbouring Colombia. According to the UN Refugee Agency, 20% of Venezuela’s population has now left — a total of 7.7 million people.

If Maduro’s rigged third-term victory this week is allowed to stand, Venezuela’s near future looks just as bleak. Most likely, current opposition leader Edmundo González will soon be forced to leave the country out of fear for his safety, as his predecessor Juan Guaidó did last year. In the six years before the next sham election, Venezuela’s population is projected to decline by another 10%. As they see their country trapped in the hands of the Latin incarnation of Libyan despot Muammar Gaddafi, Venezuelan exiles will put down roots in Colombia, Peru, Brazil or the US. And the most valuable natural resource underlying Venezuela’s onetime blossoming — its people — will be irretrievably lost.

For those with Latin American roots, following the region’s politics often feels like having a younger sibling who every few years falls in with the same sort of bad partner or bad crowd. For more than 50 years, we’ve watched a continent bounce like a pinball machine from extreme to extreme. One decade: the caudillo with his sky-high deficit spending, agrarian reform, industrial nationalisations, hyperinflation, mass unemployment, poverty. The next: the military junta with its extreme fiscal austerities, incarceration of political opponents, desaparecidos, autocracy, fear. From Allende to Pinochet and back again in Chile, from Bolsonaro to Lula in Brazil, from Banzer to Morales in Bolivia, from Perón to Galtieri in my family’s native Argentina.

Through it all, constant unrest, constant suffering and a gradual siphoning off of the wealth, talent and international relevance of an entire continent. For centuries, European colonisers appropriated South America’s wealth. Today, the continent gives it away voluntarily — through brain drain, corruption and an omnipresent volatility that makes any smart foreign investor think twice. But there’s always a rock bottom. And the Chávez and Maduro regimes in Venezuela have achieved it. If there can be any silver lining to the devastation wrought upon Venezuela by this duo, it is that they have finally shown Latin America its nadir.

It’s a tempting bargain. So tempting that management consulting is now America’s biggest business-to-business service industry, with roughly $385 billion in annual revenue. But as appealing as the industry may be to business leaders, it is all the more attractive for the public sector, where managers need to achieve high levels of flexibility while confronting limited resources and medieval hiring processes. The beauty of bringing in management consultants is that you don’t have to hire or train new employees, or repurpose or lay them off when the project’s done. Consultants swoop in at the right moment with the right expertise, and then disappear.

In the US, consultants work with all levels of government. At the federal level, they play a central role in creating the intellectual capital that powers our government, earning $23.5 billion on almost 30,000 separate federal contracts in 2022. At the nucleus of this booming business is a small group of firms, which are far more significant for the consequence and sensitivity of the work they do than the number of dollars they make. These include Deloitte, Booz Allen Hamilton, and of course, McKinsey and Company.

Over the past 10 years, McKinsey has completed around $1 billion worth of contract work for the federal government, more than half of which was contracted by the Department of Defense. As a report from the Quincy Institute found: “This work has ranged from advising senior officials on developing technology for the Air Force and Space Force to evaluating the management of the F-35 program.” In the same report, we learn that McKinsey has for several years considered the Defense Department one of its top clients, and that one of President Trump’s leading assistant secretaries of defence worked for McKinsey both before and after his federal tour of duty.

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The consequences of this line-blurring between public and private would be complicated enough if leading consultancies confined their work to the US. But they do not. While management consulting grew throughout the latter half of the 20th century to saturate the American private and public sectors, it was also spreading internationally on the promise of selling “American management knowhow” abroad. “Whether reorganising the Bank of England, Royal Dutch Shell, the Government of Tanzania, or even the World Bank,” writes business historian Christopher McKenna, “management consultants disseminated American management techniques throughout the world.” While management consulting had originated in the West, it came to be a valuable resource to business, organisations and governments everywhere — in East and West, market and command economies, democratic and authoritarian states.

As the consulting hydra has grown ever more colossal, with consultants embedded in most large organisations, consulting firms’ webs of allegiances have become ever more complex. Frequently, this leads to conflicts as fraught as those in George Orwell’s 1984, in which a single entity is advising both sides in an adversarial system. These conflicts are legally challengeable when a consultant shares one company’s proprietary information with another — a problem firms can avoid by assigning different teams to competing client companies. But the legal system cannot solve the broader conflict, whereby the same consulting firm stands to benefit if either team wins. It has no answer to what happens when one consulting firm advises both a regulating agency and a regulated company — to cite a recent example, McKinsey advising both the U.S. Food and Drug Administration and Purdue Pharma. Or when the same firm consults two competing companies, or two governments that are geopolitical rivals or even enemies.

One such conflict arrived in the halls of Congress a month ago, when US Senators Marco Rubio and Josh Hawley challenged McKinsey and Co. for its work with the Urban China Initiative, a think-tank based in Beijing. The Initiative published a report in 2015 entitled “The Trend and Impact of World Technological Revolution and Industrial Transformation”, a litany of recommendations for Chinese government officials and business leaders to aid in the implementation of the Chinese Communist Party’s (CCP’s) “Made in China 2025” industrial initiative. Rubio and Hawley, who obtained a copy of the report, noted that it aimed to support the CCP’s goals of “dominating other countries in cutting-edge fields”, ranging from cloud computing and big data to artificial intelligence, renewable energy and human genomic technology.

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In response to the senators’ criticisms, McKinsey attempted a Clintonian dodge. “[T]he Urban China Initiative,” read an official statement, “is not McKinsey, and it did not perform work on McKinsey’s behalf” — using the technical meaning of the word “behalf” to distract from the two organisations’ deep connection. As Rubio and Hawley go on to highlight, McKinsey co-founded the Urban China Initiative with Columbia and Tsinghua Universities, and the think tank was based at the same address as McKinsey’s Beijing office. McKinsey’s top China hand, Lola Woetzel, wrote the foreword to the report — acknowledging the role her company played in the research — and then hand-delivered it to China’s second-highest-ranking official at the time, Premier Li Keqiang.

As the Financial Times and New York Times reported, the Urban China Initiative is only one product of a fruitful decades-long collaboration between McKinsey and the CCP. In 2019, the company’s China website touted a series of Chinese government projects: “McKinsey’s impact in China goes well beyond our work in the corporate sector. In the past decade alone, we’ve served over 20 different central, provincial and municipal government agencies on a wide range of economic planning, urban redevelopment and social sector issues.”

Over the 2010s, McKinsey was also retained by 22 of China’s 100 largest state-owned enterprises (SOEs). One of these companies aided the Chinese government in the construction of an archipelago of artificial islands in the South China Sea — a vital tool in China’s quest for naval domination in Asia. On the topic of Chinese military aggression, it should not escape our notice that even McKinsey’s current “Greater China” website, sanitised in response to recent scrutiny, includes the firm’s Taiwan office. While diplomatic realities have forced the US government into its farcical “One China Policy” that refuses to acknowledge Taiwan as an independent nation, McKinsey is under no obligation to make the same declaration. It is one indication among many that American international businesses fear offending the Chinese government more than their own.

In part, this is because democracies tend to be more sympathetic than autocracies to the idea that businesses must sometimes make decisions that don’t benefit “the home team”. But it also evinces a deeper truth: that given the blurry distinction between Chinese government authority and all Chinese businesses (not just officially state-owned ones), it is difficult for a consulting company to trust that if they run afoul of the CCP, any of their Chinese business will be left unscathed. As Curtis Milhaupt and Wentong Zheng have convincingly argued in the Georgetown Law Journal, China is “a state in which no firm — irrespective of ownership — is truly autonomous from the government”.

Admittedly, it is virtually impossible in a globalised world to ensure that no American resources — economic, human, or intellectual — are harnessed for the benefit of our geopolitical adversaries. We are a democracy after all, and projecting a totally unified front to the world isn’t one of democracy’s strong suits. But that doesn’t mean that there isn’t any low-hanging fruit for us to address — management consulting being within particularly easy reach.

As US-China geopolitical competition has heated up, a group of legislators has begun to take notice. In May, the Senate Homeland Security and Government Affairs Committee passed the Time to Choose Act of 2024 by a 10-1 bipartisan vote, referring the bill to the broader Senate. The Act, which calls out both McKinsey and Deloitte by name, would prevent the US government from doing business with consulting firms that also work for the governments of China, Russia, identified state sponsors of terrorism, or SOEs in those countries, among certain other entities.

It’s a good start, but far from a complete solution. It fails to account for the fact that outside the West, the boundary between public and private is often murky, if not downright illusory. In China, for example, the government has the right to requisition data or information from any company or citizen in the name of national security. For that reason, no law that targets only governments and SOEs can ever be entirely airtight when it comes to keeping valuable American data or ideas out of the hands of our adversaries. For that reason, the law should be passed as written, but only if bolstered by two other initiatives.

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The first would be a “patriotic consulting” policy stating that all US government agencies must offer preferential consideration to firms that do not consult for the governments of countries that lack a mutual defence treaty with the US, or for private companies in China, Russia, Iran or other geopolitical adversaries of the US. This would decrease the financial desirability for consulting firms of doing business abroad that conflicts with US interests. It would also push federal money and talent toward smaller firms that cater more to the Americas and our allies in Europe and East Asia.

But even this would be insufficient. Many of the biggest consulting firms will continue to invest in China because the money is simply too good. For that reason, in the interests of national security and competitiveness, we must in the long run decrease the federal government’s reliance on consulting. The best way to do this might be to form an all-of-government internal consulting department, which would draw top talent from the private consulting industry, pay similar salaries to private firms, and replace private consultants throughout government.

As our adversaries work relentlessly to erode the boundary between public and private, our best policy is to reinforce that boundary. While private businesses should be allowed to spend as much as they like on the expertise of management consultants, who must in turn remain free to pursue profit however they see fit, US interests demand that our government, in the fullness of time, put its days of hiring management consultants behind it.

Signs of revolt are everywhere. Last month, The New York Times led with a story headlined “Inside the Anti-DEI Crusade”, which reported that “more than 20 states considered or approved new laws taking aim at DEI” in 2023. BlackRock, a pioneer of ESG investing, just announced mass layoffs in its ESG division. It was recently discovered that assets under management in ESG had declined by $5 trillion over two years.

This string of victories might suggest that the swift “de-wokeification” of business is not far off. After all, the C-Suite represents the only locus of power in American life to have a documented Right-leaning bias. One study last year found that registered Republicans outnumbered Democrats among top-earning executives in S&P 500 companies by a margin of 69% to 31%. It seems logical enough, then, to attribute the relentless equity, gender and climate activism of American businesses over recent years to pressure from a shareholder base, media and society in the throes of a sociocultural maelstrom. It would seem equally logical to predict that as this maelstrom subsides, managers will return to their traditional role of maximising shareholder returns, while leaving the political realm to elected politicians.

But wishful thinking will only lead to disappointment. Such optimism depends on the tenuous assumption that business leaders, when left to their own devices, will lead their businesses the way they vote. In today’s America, that would require them to be willing to see their own elite position severely curtailed or taken away entirely. And to give up one’s status for one’s values is a bigger sacrifice than most people are willing to make.

To be sure, C-Suite positions accord their holders wealth and status within a company or an industry. But that most tantalising of emoluments — social status — is doled out by other institutions, most notably media, academia and government, all of which have a decidedly different political orientation from the C-suite. It is, therefore, no surprise that, even while Republican executives outnumber Democrats by more than 2-1, the CEOs whose wisdom is most regularly exalted in the mass media —  say, Warren Buffett of Berkshire Hathaway, Bob Iger of Disney, or Larry Page (formerly) of Google — are Democrats. Meanwhile, Right-leaning CEOs and founders too powerful for the media to ignore — say, Elon Musk or Peter Thiel — are cast as out-of-touch, if not a bit sinister.

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If this isn’t enough to remind a CEO which side his bread is buttered, he can consider the recipients of those most golden of post-retirement parachutes, Distinguished Professorships at Harvard or the Wharton School of Business. (As an ex-employee of the former, I can vouch that the ideology of its practice-based faculty mirrors Buffett’s far more closely than Musk’s.) Or he can observe which titans of finance are awarded honorary doctorates or deliver homilies at the World Economic Forum (WEF) in Davos, the Aspen Institute, and the Munich Security Conference.

Beyond the quest for status, there are more quotidian considerations that encourage business leaders to stay the course with DEI and ESG. Every year, as America’s regulatory state grows, so does American businesses’ dependency on the good will of regulators and government partners. And once one penetrates below the rank of presidential appointees — even if November brings a second Trump Administration — the political makeup of regulators is overwhelmingly Democratic. Many CEOs will conclude that running afoul of regulators to satisfy their personal values simply isn’t worth it.

For the first time in years, shareholders and investors are fighting back against the American C-suite. It’s too late, however, for their revolt to have a deep and durable impact on company behaviour. That is because the shareholder is no longer king in American business, and he hasn’t been for a long time. The “stakeholder” is.

In American business law, the cornerstone of fiduciary duty is the business judgment rule (BJR), which stipulates that managers are exempted from legal liability for violating their duty to the shareholder, provided that they act “in good faith”, in the company’s interest. Classically, “the company’s interest” has been defined narrowly as maximising shareholder returns. Over the past decade, however, the definition of a company’s “interest” has been quietly expanded — in sources ranging from the Harvard Law School Forum on Law and Governance to that consummate arbiter of business conventional wisdom, Investopedia — from shareholder benefit to “stakeholder” benefit.

What is a stakeholder? Pioneered by WEF Chairman Klaus Schwab decades ago, the term refers to any “party that has an interest in a company and can either affect or be affected by the business”. The term is wide enough to encompass not only shareholders, but employees, customers, government regulators, communities, entire nations, even the whole world. Under the stakeholder system, there is no hierarchy, no order in which the different stakeholders must be served. It is — critically — so slippery a concept that virtually any business decision can be justified on the grounds that it benefits one stakeholder or another. In this way, it accords unprecedented power to managers, who, by virtue of their positions, can claim an understanding of stakeholders’ needs shared by no one else.

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Stakeholderism enables managers to do two things that were far more difficult under the conventional shareholder model: first, to pursue ends other than profitability without running afoul of the BJR; and second, to avoid personal responsibility for unpopular business decisions by claiming that other “stakeholders” have demanded them. If they are to win the corporate battle against DEI and ESG, therefore, shareholders need to be ready to recognise and resist three common “stakeholder” dodges: employee activism, consumer activism and government regulations.

Let’s start with employee activism, which refers to pressure exerted on managers by company employees to adopt or reject a certain policy or position. Employee activism is a real concern for managers at many companies, particularly those in industries that attract politically engaged young people. But it is also easily exploited by managers for their own ends. This is due to a fundamental asymmetry in information: managers know what their employees are saying, but the public — and even shareholders — largely do not. Therefore, when a manager justifies a policy decision on the grounds that key employees threatened to leave the company if they decided differently, who is to say that they didn’t?

Take Disney, an expert in the use of employees as a corporate shield. In 2022, in response to a new set of education regulations related to sexuality in the company’s home state of Florida (monikered as the “Don’t Say Gay” bill), the company capitalised on employee activism to oppose the law. Following a series of walkouts by some employees, Disney’s various outlets issued statements condemning the law, such as this tweet by Disney+: “We strongly denounce all legislation that infringes on the basic human rights of people in the LGBTQIA+ community — especially legislation that targets and harms young people and their families.” Disney subsequently committed to ceasing all political donations within the state of Florida, donated to the Human Rights Campaign, and included a gay kiss scene in the upcoming movie Lightyear.

The narrative, as widely reported, was that Disney employees had acted en masse to persuade their bosses to take a stand against bigotry following an insufficiently indignant reaction from CEO Bob Chapek. But there was another side to the story which only received coverage in conservative media outlets. It turned out that a group of conservative-leaning employees at Disney had also written an open letter to management, urging Disney to remain “politically neutral” and arguing that the company “shouldn’t be a vehicle for one demographic’s political activism”. Disney, they added, had created an oppressive political culture within the company: “Employees who want [Disney] to make Left-wing political statements are encouraged, while those of us who want the company to remain neutral can say so only in a whisper out of fear of professional retaliation.”

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Here were two groups of Disney employees taking contradictory positions. But when Disney management sought to express “solidarity” with its employees, it did so by capitulating totally to the first group while ignoring the second. And yet, if a shareholder irate over Disney’s antagonism of its home state, its governor and legislature were to take management to court for violating their fiduciary duties, he would have faced a severe uphill climb. After all, Disney’s employed “creatives” mean the difference between industry leadership and falling behind. And when it comes to what those employees really want, or whether one group of dissenting employees poses a greater threat to the company than another, who is in a better position to decide than the managers? This was none other than a victory for managers over shareholders, using employee activism as a shield.

Indeed, as if to demonstrate just how fully he has internalised this principal, Iger, responding to a separate imbroglio over the restrictive 2019 abortion law in Georgia, speculated portentously: “I think many people who work for us will not want to work there, and we will have to heed their wishes in that regard.” Quartz, reporting on Iger’s comments at the time, asked: “Was this another victory of sorts for employee activism before employees even acted?” This was the wrong question. It was, rather, another victory for managers over shareholders, using employee activism as a shield.

The principle can also apply to customer activism. While customer feedback can be more public than employee sentiment, much of it is also proprietary — collected through meetings and correspondence with clients or customer surveys. The prerogative of packaging this information and determining how it should influence company behaviour falls to managers. The same goes for government regulations. When the task of interpreting the regulatory climate is left solely to managers, they can very easily end up passing off their own political aims as regulatory risks, or even lobbying behind the scenes for the very regulations that they present to their boards as regrettable faits accomplis.

The long-and-short of it is that shareholders are in a far weaker position compared with a decade ago. Their only avenues to influence company policy now are through questions brought to corporate boards, and through the hiring and firing of managers and board members. If they are to fight back, they must learn to use those avenues to maximum effect. Firstly, by demanding thorough proof from managers every time a decision is attributed to the needs of a “stakeholder”, to make sure it’s not another dodge. And then, by hiring and firing managers and board members based on who will prioritise benefit to shareholders, rather than their public image or personal political aims.

Managers will always feel the urge toward “mission creep” from the purely commercial to the political. When they succumb to it, the democratic process surrenders to what the sociologist C. Wright Mills once termed a “power elite” — an amalgamation of public and private sector that offers us a single orthodoxy rather than a marketplace of ideas or products. Shareholder capitalism is democracy’s vital firewall between the public and private sector, and it is under threat. It is nothing less than the patriotic duty of all American investors and board members to reinforce it for the protection of our republic.

It is easy for those watching DC’s gratuitous street violence from a safe distance to kibitz that the city’s residents have voted for this. They elected leaders whose policies have led to high crime, short-staffed police, bad schools, and a housing crisis. But such smug dismissal misses a larger problem.

DC is home to nearly 700,000 residents who, since Congress passed the District of Columbia Home Rule Act in 1973, have elected their city council, mayor and public officials in the way Americans do across our nation. But DC is also the seat of our federal system. Since its founding in 1790, the same year as the ratification of the US Constitution, its main purpose has not been residential or commercial, but governmental. It is home to our President and most of the executive agencies, our congressional representatives, and our Supreme Court. Its city government — unlike that of any other state or city — serves at the pleasure of Congress.

DC’s residents, while vital stakeholders in their city government, aren’t its only stakeholders. The widely-reported urban decay in, say, San Francisco, reflects only on San Franciscans. But mismanagement of Washington DC reflects on all Americans. A federal government seeking to project power and moral authority worldwide cannot headquarter itself in a failed city. The fact that our government is currently based in a city where, by the admission of its own City Council Chair, “you can get away with murder”, is not only embarrassing, but threatens our national security. It’s time for Congress to do something about it.

Let’s start with the raw data. As of July 2023, Washington’s homicide rate was the sixth highest of any US city, and the highest rate in a city of its population or greater. DC logged 203 homicides in 2022, and that number is on tack to grow by 20% in 2023. Violent crime more broadly is up 30% this year. A resident’s probability of being the victim of a violent crime in a given year is around 1 in 75, and if property crime is included, that rises to 1 in 17 — among the highest in the nation. There is a stereotype outside of Washington (and even among some in it) that crime in the District is confined to certain “bad neighbourhoods” — particularly the city’s South-East. The implication being that the wealthier residents of the leafy North-West and increasingly fashionable North-East are insulated from it all. This contention, apart from its callous dismissal of much of the city’s population, is flat-out wrong.

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By Robert D. Kaplan

Neighbourhood Scout identifies the campus of Catholic University of America, just north of Union Station, as the safest neighbourhood in the city. But just last week, a 25-year-old Kentuckian teacher visiting for a conference was shot and killed there. The same day, Alison Cienfuegos, a 21-year-old college student who wanted to become an anaesthesiologist, was murdered in South-East DC. The day before that, Nasrat Ahmad Yar, a former interpreter for the US Army in Afghanistan who then worked as a Lyft driver, was murdered by a group of passengers in North-East. In May, a 12-year-old girl in South-East was hit in the leg by a stray bullet from a shootout outside as she lay in bed. In February, a man shot several random passengers on a city bus and slaughtered a Metro transit worker near the city’s popular Eastern Market neighbourhood. And last month, we marked one-year since the mass shooting of four people at a Juneteenth party in Northwest.

This crimewave extends beyond gun violence. Since early 2023, North-West DC has increasingly fallen victim to organised shoplifting; nowadays it’s hard to find a tube of toothpaste for sale that isn’t under lock and key. On 30 April, two CVS Pharmacies in North-West were targeted within half hour of each other by the same group of five suspects, who stuffed large trash bags with goods before fleeing in a stolen car. And stolen cars themselves are increasingly easy to come by. In 2022, there were 485 carjackings in DC, up from only 140 four years earlier — an increase The Washington Post described as leaving authorities “baffled”.

And then there are the unclassifiable crimes of civil disorder, chaos and squalor. Three North-East businesses were targeted with explosives last week. There have been eight documented arson attacks in the past six months. And there are the mobs of illegal ATV and dirt bike riders roaring down DC’s main arteries while endangering and verbally abusing pedestrians, who cannot be apprehended due to the city’s “no chase” police laws. Washington also has the biggest per-capita homelessness problem on the East Coast (over 1% of its population), and the third-highest opioid drug mortality rate in the nation. I could go on.

It is unfair, of course, to blame crime and disorder solely on city government. But it is more than fair to expect a crisis of such magnitude to be met with a vigorous, unified and effective government response (particularly since these problems, while currently on the upswing, are far from new). The District’s response has been none of those things.

Washington’s Metropolitan Police Department (MPD) is currently understaffed by almost 20% (around 800 officers) and is nearing the lowest number of active officers in its history. According to Police Chief Robert Contee, it is DC’s policy climate that has made the city such an unattractive place to be an officer. Unlike in almost any other city, Contee explains, MPD officers must be able to prove a reasonable belief that no one will be injured as a result of a vehicle pursuit before initiating it — an impossible demand. Other laws, such as a prohibition on officers reviewing their own bodycam footage before writing an incident report, and the removal of time limits on internal conduct investigations — have made it more difficult for officers to defend themselves when accused of misconduct. With a hollowed-out MPD, Contee predicts that the department will be unable to reach necessary staffing levels for “at least a decade”.

But DC’s maladministration of criminal justice does not end with the police. Its mismanagement of corrections bears equal responsibility. A 2022 city report found that out of all homicides committed in the District in 2019 and 2020, 46% were committed by people who had been previously incarcerated, with an additional 29% by people who had spent time on probation or parole. The report also found that a mere 500 individuals already known to the criminal justice system (0.1% of the city’s population) perpetrate 70% of the city’s gun violence.

How did the City Council react to this sobering data? Infamously, they responded by passing a crime bill earlier this year (despite Mayor Muriel Bowser’s opposition), seeking to eliminate mandatory minimum sentences and reduce maximum sentences for violent crimes such as robbery and carjacking. In response, the US Senate was forced to exercise its right to veto the Council’s bill.

Interestingly, these self-sabotaging crime policies have been enacted by a City Council that pledges its utmost dedication to the cause of racial equity. It created an equity office in 2020 whose homepage reads: “Everything is a matter of racial equity.” But from the Council’s behaviour, it would seem that “everything” does not include crime. For while the pettier subcategories of DC’s crimewave have become increasingly equitable in their impact over recent years, gun crime has not. In a city with a 45% black population, 95% of the victims of gun violence in DC are black. And somehow, the Council’s instinct is to ask: what about the criminals?

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Public safety is the most basic mission of a municipal government, but it is far from the only one. Unfortunately, DC’s performance in other important areas is little better. Its public education system is one of the worst in the nation, with the city’s students scoring in the bottom five of American states and territories in both reading and mathematics. This has not budged in decades. Considering DC’s high poverty rate and the fact that it is one city being compared with entire states, it might be unreasonable to expect these test results to exceed the national average. But nor should residents expect or tolerate zero progress over three decades.

And then there is the housing crisis. DC has a huge home affordability problem and a high homelessness rate, with 20,000 low-income city residents on a waiting list for low-rent or zero-rent public housing from the city Housing Authority (DCHA). And yet, 25% of the DCHA’s 8,000 units lie unoccupied at any given time, and they remain so for an average of two years before the DCHA gets around to renting them to a new tenant (nationally, the average public housing vacancy rate is 5%). According to The Washington Post, vacant housing units not only attract crime, but cost the city $10 million in rent and federal aid per year.

Reading this, one might wonder whether DC is cash-strapped. Far from it. DC’s effective individual tax rate is 12%: the 11th-highest combined state and local tax rate in America. And its tax base is large. Over the past two decades, the city has experienced a huge wave of wealthy immigration for lucrative government, contractor, consulting and lobbying jobs, resulting in a much-bemoaned wave of neighbourhood gentrification. Add to this a healthy 27% of city revenue supported by federal aid (on the high end for combined federal and state aid in other US cities), and DC frequently runs a budget surplus. But what does that federal largesse buy residents? Far less than they would get living somewhere else, which is why Wallethub awarded DC first place in its “worst-run cities in America” in 2022.

Admittedly DC had stiff competition from such formidable foes as New York, Cleveland, and San Francisco, all of which consistently struggle with their own crime, liveability and maladministration problems. But Washington DC, unlike those other cities, is the capital city of a world superpower. By virtue of this, it ought to provide a positive model of how government can serve its citizens, not a negative one. It should provide safe streets for visitors and residents alike, and a police force sufficiently staffed and trained to keep the peace. It should provide public schools to which a struggling single mother and a visiting diplomat alike would be proud to send their children.

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BlackRock’s tyrannical ESG agenda

By John Masko

And then there are the national security implications of DC’s disorder. In the event of war or national disaster, the federal government must be able to secure the city of Washington and lock it down for the protection of our government officials. Considering this need, the fact that the streets only a mile away from the Capitol Building and White House are essentially uncontrollable, even during peacetime, is unacceptable.

There is, though, a potentially swift solution. Under the 1973 Home Rule law, the Senate has the power to review and veto laws of the DC City Council (as it did with the Crime Bill). But it also has the right under the Constitution to take bigger steps, such as abolishing or suspending Home Rule itself. Article 1 of the Constitution gives Congress the right to “exercise exclusive Legislation in all Cases whatsoever” over the federal district — a provision that, according to Georgetown University constitutional law professor Louis Michael Seidman, clearly means that “Congress could abolish the city government and establish whatever governmental system it chose, including direct rule by Congress”. (Indeed, this was how DC was governed before Home Rule.)

Today, Congress should strongly consider exercising that right once again. It should place Washington DC under a temporary federal conservatorship. This would mean suspending the City Council and Mayor and replacing them with federally-appointed city managers, perhaps drawn from more successful municipal governments around the US, until standards for public safety, administration, and education rise to an acceptable level.

Washington DC’s struggles are not unique among American cities. But the solution I propose here is necessarily specific to DC. It would be fundamentally undemocratic and un-American, not to mention unconstitutional, for the federal or state governments to go around disbanding or suspending municipal governments simply for giving their people what they have voted for. But our federal district, as our founders knew, is not a normal city. It represents all of us, which is why the Constitution gives Congress the final say over its affairs.

DC’s officials seem to have forgotten this. Indeed, any effort Congress makes to exercise supervision over the District’s affairs typically elicits hysterical reactions from those city officials whose incompetence has necessitated those interventions. When Georgia Representative Andrew Clyde brought up the possibility of direct federal supervision during a Congressional debate over the idea of DC statehood last year, DC Congressional Delegate Eleanor Holmes Norton accused him of seeking to turn the city into a “colony”. What Holmes Norton forgets is that, unlike any other city on the American continent, this one belongs to us all, just like the federal government that inhabits it.

Perhaps reading the writing on the wall, Mayor Bowser and Brooke Pinto of the City Council just this week passed an emergency crime bill that would make it easier to track and detain violent criminals. While I applaud the effort, it is too little too late. We have now seen enough to know that the current city government of DC is not capable of providing our nation the safe, orderly and dignified capital it deserves. Perhaps another democratically elected government a decade or two down the line will be — a conservatorship need not be permanent. But right now, Washington DC requires major emergency surgery, not a mere change in diet. Congress — while an imperfect surgeon — is the only one available.

ESG first entered the investment and banking mainstream as a survival strategy. In 2009, BlackRock had acquired Barclay’s Global Investors Ltd, making it the largest investment firm in the world with almost $3 trillion in assets under management (AUM), a sum larger than the total revenue of the US federal treasury. Politically speaking, BlackRock’s emergence as an investment superpower could hardly have come at a worse time. Amid the wreckage of the 2008 Financial Crisis and then the ululations of the “Occupy Wall Street” movement, public suspicion of big banks and corporations was at an all-time high. Finance, in particular, became a morality play: financial institutions were the greedy villains, while policymakers played the heroic civic advocates reining them in. For BlackRock, the chances of continuing to grow freely in such a hostile policy climate seemed remote.

But BlackRock’s leaders had an epiphany — one that would repeat itself in the C-suites of several of its competitors in the early 2010s. What if big investment houses could rebrand themselves as so unimpeachably virtuous and civic-minded that their virtue outshone even their regulators themselves? Such a strategy would be game-changing. Not only would it afford investment houses a mile-wide road to limitless growth; it could even, if played judiciously, accord the companies themselves quasi-governmental power.

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By Ashley Rindsberg

The ESG principles underpinning that strategy had already been written. The 2004 United Nations report “Who Cares Wins,” which introduced the principles of ESG to a worldwide audience, suggested that investors would make higher long-term profits if they put more emphasis on environmental and social progress. The small print was that the task of defining these impossibly broad categories (“environmental” or “social”) would be left to international institutions. Per those institutions’ priorities, “environmental” would mostly focus on implementing CO2-reduction goals, while “social” would mean anything related to the UN’s stated social goals on issues such as gender parity, racial justice, and poverty reduction. In other words, from the very beginning, the goal of ESG was to harmonise the priorities of political elites with those of business leaders. This approach was nothing new in Europe, where Klaus Schwab and his World Economic Forum (WEF) had long blurred the lines between business and government. But in the US, where the WEF ethos had failed to take root and the shareholder remained king, it was a radical departure.

When the UN invited global financial institutions to sign onto the Principles for Responsible Investment (PRI) in 2007, the total global assets managed by ESG-minded investing vehicles was around $10 trillion. By 2020, a mere 13 years later, that has grown to more than $30 trillion worldwide and more than $17 trillion in the US. New private equity firms and investment outfits devoted purely to ESG — such as Al Gore’s Generation Investment — were springing up every year, and most large US investment firms began offering ESG-mandated mutual funds, leading Bloomberg in 2021 to project $53 trillion invested in ESG by 2025.

As the ESG agenda took hold, the individual investor increasingly found himself shunted aside. Admittedly, the roots of this shift lay in the early Eighties, when federal proxy voting rules were changed to allow fund managers such as BlackRock to vote on behalf of their clients. The idea was a good one at the time, in that it recognised that few individual investors have the time to attend shareholder meetings or the wherewithal to make their views known to company leadership. But it handed vast power to investment companies — admittedly under the understanding that they would vote on behalf of their clients for one purpose only: the maximisation of profits and shareholder returns. It was, however, only a matter of time before this power was exploited.

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That time came in the 2010s, as investment companies began instead to vote in line with the ESG agenda. Company leaders who opposed this were either quickly made to see its inherent wisdom, overruled, or out of a job.

In 2020, BlackRock voted at 16,200 shareholder meetings on 153,000 company proposals. Frequently, these votes were against company management. According to the company’s own Investment Stewardship Annual Report: “In 2020, we identified 244 companies that were making insufficient progress integrating climate risk into their business models or disclosures. Of these companies, we took voting action against 53, or 22%. We have put the remaining 191 companies ‘on watch’. Those that do not make significant progress risk voting action against management in 2021.”

In the same report, BlackRock boasted of having voted against management more than 1,500 times for “insufficient diversity” in company management. This interventionist approach was hardly limited to BlackRock. At State Street Global Advisors, in 2017 alone, proxies voted against the re-election of board members at 400 companies that it felt had made insufficient effort to appoint female board members.

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By Mary Harrington

But for huge investors such as BlackRock, attending shareholder meetings remained a rather inefficient method of coercing company managers into accepting the Good News of ESG. By 2012, Larry Fink had already discovered a far better method: the royal proclamation.

Fink’s first few letters contained tell-tale signs of the revolution to come, particularly in 2015, when he chastised managers for returning too much money to their investors in dividends and buybacks. Then, in his 2018 letter, he went a step further, advocating that CEOs step away from traditional shareholder capitalism and toward ESG by embracing the idea of “stakeholders”. In his words: “Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.” “Every company,” he wrote, “must not only deliver financial performance, but also show how it makes a positive contribution to society.” Allow me to translate: On behalf of millions of shareholders I’ve never met, I declare that they no longer truly own the companies they have invested in. Society does.

As Vivek Ramaswamy convincingly argues in his book Woke, Inc., this feint of widening the pool of “stakeholders” beyond shareholders marginalises the shareholder and elevates the manager. By making companies answerable to everyone, proponents of stakeholder capitalism make them answerable to no one.

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In his 2020 letter, modestly subtitled “A Fundamental Reshaping of Finance”, Fink decreed that all American companies must redesign their businesses to align with the goals of the 2015 Paris Agreement on climate change, with the implied threat of shareholder activism or even divestment if they failed to do so. To that end, he declared that all portfolio companies would thenceforward need to define climate risk as investment risk in their financial analyses — a measure designed to disadvantage companies engaged in heavy industry or fossil fuel production or use, and likely shunt them into cleaner businesses. Furthermore, since the nearest-term climate risks for many businesses are government climate regulations rather than the actual effects of climate change, this is a thinly-disguised method for coercing companies into complying with international climate agreements.

Second, Fink stipulated that companies must disclose their climate risk to investors using accounting methods created by two organisations which are constituted primarily of representatives from investment companies including BlackRock and international organisations such as the UN, World Bank, and IFC. Fink ordered that these disclosures specifically draw a path to the two-degree global temperature increase stipulated by the Paris Agreement.

A reader sympathetic to Fink’s goals might reasonably ask why such use of the bully pulpit is a problem. After all, if companies don’t do the right thing on their own, why shouldn’t Larry Fink incentivise them to do so? But in making his demands, Fink is speaking with the authority of an elected representative who has polled his investors and found that his proposals have their universal support, when he has not.

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Considering that BlackRock is headquartered in the United States, which within the last decade elected a president who withdrew America from the Paris Agreement, there are probably many BlackRock investors who would either reject ESG principles out of hand or else disagree with Fink’s methods of applying them. For example, while many Americans would agree with Fink that climate change is cause for concern, some would dispute the idea that reaching Net Zero emissions by 2050 is a workable strategy, or even that businesses should focus on climate change at the expense of prioritising other problems such as hunger, poverty or terrorism. Similarly, some individual investors might disagree with State Street’s insistence on gender and diversity quotas for company boards.

Living as we do in a free-market capitalist democracy, there is supposed to be room for disagreement on questions such as these. When companies disagree with one another, the result is that they choose different strategies, allowing the market to choose the best strategy in the long term. But when the CEOs of every company in America answer to Larry Fink first and their actual investors second, that diversity — and therefore, the probability that we ever discover the best strategies — plummets.

There is a further irony in this. Over the past decade, as investment houses such as BlackRock have exerted ever-greater influence over decision-making at their portfolio companies, investors have in fact been signalling for them to take a step back. We can see this in the growing popularity of passive strategies (in which investment companies take a backseat role) compared with active strategies (in which they more frequently buy and sell stocks and actively intervene in the affairs of portfolio companies to improve performance). In 2011, 21% of US AUM were managed passively, compared with 79% managed actively; by 2018, the split had narrowed to 36% to 64%. Parity is projected for 2025. BlackRock’s own active-to-passive balance has followed a similar trajectory. Their portfolio had been primarily actively managed until 2009. But by 2018, $3.9 trillion of their $6 trillion assets were invested passively. Just as BlackRock’s customers were voting with their dollars for the firm to intervene less in company policy, BlackRock’s leaders were declaring it their sacred duty to intervene more.

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Over the years, ESG advocates have parried charges of overreach by responding that investing with ESG criteria is just as lucrative as traditional investing. This has always been a dubious argument: after all, if favouring ESG-friendly companies were a prudent financial strategy, an investor would not need to publicly commit to ESG in order to do it; it would simply be the best financial decision.

The evidence of ESG’s performance has until recently been ambiguous enough to offer ammunition to both sides. But that has begun to change. In 2022, eight of the top ten actively managed US ESG funds (including one of BlackRock’s) performed worse than the S&P 500. This demonstrates two things. First, that ESG funds are not some financial miracle. And second, that the performance of ESG funds is tightly bound to the tech industry, which had a terrible year in 2022. (Unsurprisingly, tech stocks are overrepresented in ESG funds, since it is easier for tech companies to claim low environmental impact than companies that actually make things.)

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By Michael Cuenco

Not only is ESG failing to make money, but it is not even achieving its non-financial goals. One sizeable Columbia University and London School of Economics study published in 2021 found that US companies in 147 ESG portfolios had worse compliance records for both labour and environmental rules than US companies in 2,428 non-ESG portfolios. They also found that companies added to ESG portfolios did not subsequently improve compliance with labour or environmental regulations. This study added to a growing body of evidence that ESG investing is not only anti-democratic but ineffective.

Over the past few months, investment companies have begun to take notice. Of particular note was investing giant Vanguard’s December 2022 decision to pull out of a Net Zero 2050 pledge. Last week, Vanguard CEO Tim Buckley told the Financial Times: “We don’t believe that we should dictate company strategy […] It would be hubris to presume that we know the right strategy for the thousands of companies that Vanguard invests with.” The just-announced presidential campaign of Vivek Ramaswamy, one of the most articulate spokesmen on ESG’s excesses, will doubtless only amplify demands for corporate independence.

Larry Fink has not yet posted a 2023 letter. Perhaps he is delaying as he contemplates how to respond to the growing anti-ESG tide, a tide he bitterly decried at the January WEF in Davos. I might be unusual among ESG detractors in my belief that Fink should write another CEO letter this year. But it should be a very short one, the writing of which is unlikely to take too much time away from his busy schedule of saving the planet through regular flights to Aspen and Davos. The letter should read, simply:

Dear CEO,

I’m sorry.