tag:theconversation.com,2011:/africa/topics/vanguard-18446/articlesVanguard – The Conversation2020-07-13T14:39:31Ztag:theconversation.com,2011:article/1419382020-07-13T14:39:31Z2020-07-13T14:39:31ZThe ANC insists it’s still a political vanguard: this is what ails democracy in South Africa<figure><img src="https://images.theconversation.com/files/346377/original/file-20200708-19-x1jtcx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The post-apartheid system of participatory democracy is generally considered to have failed. </span> <span class="attribution"><span class="source">EPA-EFE/Yeshiel Panchia</span></span></figcaption></figure><p>A common claim of the governing African National Congress (ANC) in South Africa is its commitment to participatory democracy: the involvement of citizens in decisions about issues that affect their lives. It is a principle and a system, primarily at the local government level, that has been institutionalised alongside representative democratic government.</p>
<p>The country has a prominent history of popular participation in the struggle for democracy. Under the largely ANC-aligned national liberation movement, <a href="https://academic.oup.com/afraf/article-abstract/107/429/589/79989?redirectedFrom=PDF">mass participation and popular control</a> characterised the struggle discourse. South Africans have shown, as opponents of apartheid and as free citizens, their desire to engage government.</p>
<p>Yet the post-apartheid system of participatory democracy is generally considered to have failed. This is evident in the <a href="http://wiredspace.wits.ac.za/handle/10539/12155">weaknesses of institutionalised mechanisms</a> and the growth of informal channels such as <a href="https://muse.jhu.edu/article/247170/pdf">protests</a>. Citizens still lack influence in governance processes.</p>
<p>With this in mind, I set out to examine the roots of this policy failure. My findings are published in a book, <a href="https://www.palgrave.com/gp/book/9783030257439">The African National Congress and Participatory Democracy</a>. </p>
<p>It examines the ANC’s understanding of participatory democracy – first as a liberation movement, then as a government since 1994. It seeks to show how the failure of participatory democracy can be linked to the ideas that underpin it.</p>
<h2>A precedent for participation</h2>
<p><a href="https://www.sahistory.org.za/article/african-national-congress-anc">Founded in 1912</a> by a small group of educated, middle class Africans, the ANC grew into a mass movement in the 1940s. It later became an exiled underground organisation from 1960, <a href="https://theconversation.com/south-africas-anc-is-celebrating-the-year-of-or-tambo-who-was-he-85838">after its banning by the apartheid regime</a>. In exile, its roots in African nationalism merged with Marxist-Leninist ideology. </p>
<p>It draws on these intellectual traditions, but has always been a <a href="https://www.anc1912.org.za/sites/default/files/ANC%20Today%20%289%20Nov%29.pdf">“broad church”</a>. There has never been a singular, uniform understanding of participation within the ANC. Instead, during the struggle, multiple traditions and approaches to popular participation emerged.</p>
<p>In the 1980s, as the struggle heightened, one of these ideas took form in the “people’s power” movement. Rooted in local, informal structures of self-governance, it represented for some participants a form of <a href="https://onlinelibrary.wiley.com/doi/abs/10.1002/9780470674871.wbespm167">prefigurative</a>, participatory democracy, built from the bottom up.</p>
<p>From 1990, with the onset of talks to end apartheid, and after the <a href="https://www.sahistory.org.za/article/south-african-general-elections-1994">first democratic elections in 1994</a>, some of this inspiration was woven into public policy. This was often through participation of civic and labour movements in formulating policy. </p>
<p>The <a href="https://www.gov.za/sites/default/files/governmentgazetteid16085.pdf">1994 Reconstruction and Development Programme</a> emphasised people-driven development. This ethos informed the <a href="http://www.cogta.gov.za/cgta_2016/wp-content/uploads/2016/06/whitepaper_on_Local-Gov_1998.pdf">1998 White Paper on Local Government</a> and legislation that established municipal ward committees as key forums for citizen participation.</p>
<p>But new ideas and influences also emerged – from development theory, governance discourse and international best practice. They can be seen in various consultative mechanisms, such as ward committees and <a href="https://www.etu.org.za/toolbox/docs/localgov/webidp.html">municipal development planning</a>. </p>
<p>Some discomfort has arisen between an impetus for managing the public sector efficiently and allowing citizens to participate. But South Africa’s public policy on participation does allow for some popular influence. </p>
<p>Separately, though, the ANC as a movement has a distinct discourse about participation. </p>
<h2>The political vanguard idea</h2>
<p>Emerging from its dominant intellectual heritage, the ANC’s very identity as a mass movement is rooted in the notion that it exists as a political vanguard. Associated with the ideas of Vladimir Lenin, the <a href="https://onlinelibrary.wiley.com/doi/abs/10.1002/9781405198073.wbierp1514">vanguard party</a> is a vehicle led by an enlightened, revolutionary leadership through which the people can be led to freedom.</p>
<p>The adoption since 1994 of a largely market-oriented economic strategy makes this discourse meaningless at a policy level. Yet the narrative continues. </p>
<p>ANC documents, statements and commentary still refer to the governing party as “a vanguard movement”. For example, its discussion document on organisational renewal, presented at its most recent policy conference in 2017, stated: </p>
<blockquote>
<p>The ANC has to operate as a vanguard movement with political, ideological and organisational capacity to direct the state and give leadership to the motive forces in all spheres of influence and pillars of our transformation.</p>
</blockquote>
<p>Why is this a problem for participatory democracy? </p>
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<img alt="" src="https://images.theconversation.com/files/346361/original/file-20200708-3991-w0otyw.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/346361/original/file-20200708-3991-w0otyw.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=846&fit=crop&dpr=1 600w, https://images.theconversation.com/files/346361/original/file-20200708-3991-w0otyw.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=846&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/346361/original/file-20200708-3991-w0otyw.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=846&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/346361/original/file-20200708-3991-w0otyw.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1063&fit=crop&dpr=1 754w, https://images.theconversation.com/files/346361/original/file-20200708-3991-w0otyw.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1063&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/346361/original/file-20200708-3991-w0otyw.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1063&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p>Vanguardism holds that a dedicated movement – or party – is needed to give ideological, moral and intellectual leadership through a process of “conscientisation”. A vanguard views itself as a true representative, able to interpret the popular will. The people must not only see the vanguard’s objectives as in their best interests. They must also see leadership by that vanguard as essential for those interests to be secured. It implies a fundamental connection between the people’s collective needs and the leadership of their vanguard organisation. </p>
<p>An active role for the people is a critical component of vanguardism. But the movement must guide participation. It’s not the form of participation that’s usually associated with democracy. But the ANC understands it as being the same as participatory democracy.</p>
<h2>Vanguardism versus participatory democracy</h2>
<p>The challenge for South Africa’s democracy is that the very existence of vanguardism prevents citizens from being empowered. It keeps the party dominant. It also contains what the political theorist Joseph V. Femia, in his book <a href="https://www.questia.com/library/4548330/marxism-and-democracy">Marxism and Democracy, p.136)</a>, said was an important tension in Marxism generally, between a desire for </p>
<blockquote>
<p>political control from above and popular initiative from below.</p>
</blockquote>
<p>This can be framed as a tension between vanguardism and participatory democracy.</p>
<p>Twenty six years since the end of apartheid, South Africa has reached a critical point in its democracy. Popular <a href="https://theconversation.com/the-anc-must-offer-more-than-promises-to-win-over-south-africans-109788">disillusionment with the ANC</a>, <a href="https://witspress.co.za/catalogue/dominance-and-decline/">failures in government performance </a> and the <a href="https://www.timeslive.co.za/news/south-africa/2020-01-31-these-provinces-had-the-most-service-delivery-protests-in-2019/">rise of popular protest</a> are evident. But certain ideas continue to influence the way democracy is practised. </p>
<p>The ANC has been found wanting as a leader of society. <a href="https://www.sastatecapture.org.za/">Rampant corruption and abuse of office</a> have marred its claim to the rightful leadership of South Africa’s people. It was inevitable that citizens would lose faith in formal political processes. </p>
<p>The difficult path from liberation movement to governing party is well-trodden in Africa. Liberation struggles across the continent were conducted in the context of state repression. Political organisations were not free to operate openly. </p>
<p>But the requirements of underground operations and of unity in struggle are different to those of democracy. Organisational traditions focused not on empowering citizens but on maintaining movement hegemony do not allow democratic influence and agency to flourish.</p>
<p><em><a href="https://www.palgrave.com/gp/book/9783030257439">The African National Congress and Participatory Democracy: From Peoples Power to Public Policy</a> is published by <a href="https://www.palgrave.com/gp">Palgrave Macmillan</a>.</em></p><img src="https://counter.theconversation.com/content/141938/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Heidi Brooks received funding from the Leverhulme Trust for the doctoral research on which this article is based. </span></em></p>The challenge for the deepening of South Africa’s democracy is that the very existence of vanguardism prevents the realisation of empowered citizens.Heidi Brooks, Senior Researcher and Associate, Mapungubwe Institute for Strategic ReflectionLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1318692020-02-24T10:10:03Z2020-02-24T10:10:03ZThree financial firms could change the direction of the climate crisis – and few people have any idea<figure><img src="https://images.theconversation.com/files/315940/original/file-20200218-10976-1uu8yj7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Dirty deeds done cheap. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/oil-price-fall-illustration-red-down-243831277">Mangulina</a></span></figcaption></figure><p>A silent revolution is happening in investing. It is a paradigm shift that will have a profound impact on corporations, countries and pressing issues like climate change. Yet most people are not even aware of it.</p>
<p>In a traditional investment fund, the decisions about where to invest the capital of the investors are taken by fund managers. They decide whether to buy shares in firms like Saudi Aramco or Exxon. They decide whether to invest in environmentally harmful businesses like coal. </p>
<p>Yet there has been a steady shift away from these actively managed funds towards <a href="https://www.thebalance.com/actively-vs-passively-managed-funds-453773">passive or index funds</a>. Instead of depending on a fund manager, passive funds simply track indices – for example, an S&P 500 tracker fund would buy shares in every company in the S&P 500 in order to mirror its <a href="https://www.macrotrends.net/2324/sp-500-historical-chart-data">overall performance</a>. One of the great attractions of such funds is that their fees are dramatically lower than the alternative. </p>
<p>In 2019 there was a watershed in the history of finance. In the United States, the total value of actively managed funds <a href="https://www.bloomberg.com/news/articles/2019-09-11/passive-u-s-equity-funds-eclipse-active-in-epic-industry-shift">was surpassed</a> by passive funds. Globally, passive funds <a href="https://www.ft.com/content/a7e20d96-318c-11ea-9703-eea0cae3f0de">crossed</a> US$10 trillion (£7.7 trillion), a five-fold increase from US$2 trillion in 2007.</p>
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<p>This seemingly unstoppable ascent has two main consequences. First, corporate ownership has become concentrated in the hands of the <a href="https://www.cambridge.org/core/journals/business-and-politics/article/hidden-power-of-the-big-three-passive-index-funds-reconcentration-of-corporate-ownership-and-new-financial-risk/30AD689509AAD62F5B677E916C28C4B6">“big three” passive asset managers</a>: BlackRock, Vanguard and State Street. They are already the <a href="https://theconversation.com/these-three-firms-own-corporate-america-77072">largest owners of corporate America</a>. </p>
<p>The second consequence relates to the companies that provide the indices that these passive funds follow. When investors buy index funds, they effectively delegate their investment decisions to these providers. Three dominant providers have become increasingly powerful: MSCI, FTSE Russell and S&P Dow Jones Indices. </p>
<h2>Steering global capital flows</h2>
<p>With trillions of dollars migrating to passive funds, the role of index providers has been transformed. We traced this change in <a href="https://www.tandfonline.com/doi/full/10.1080/09692290.2019.1699147">a recent paper</a>: in the past, index providers only supplied information to financial markets. In our new age of passive investing, they are becoming market authorities. </p>
<p>Deciding who appears in the indices is not just something technical or objective. It involves some discretion by the providers and benefits some actors over others. By determining which players are included on the list, setting the criteria becomes <a href="https://press.princeton.edu/books/hardcover/9780691144795/the-new-global-rulers">an inherently political activity</a>. </p>
<p>Especially relevant are the dominant emerging markets stock indices, particularly the widely tracked <a href="https://www.msci.com/emerging-markets">MSCI Emerging Markets Index</a>. This is a list of large and medium-sized companies in 26 countries, including China, India and Mexico. </p>
<p>MSCI sets the standards for countries to qualify for inclusion. Above all, they have to guarantee free access to domestic stock markets for foreign investors. If a country is included, massive amounts of capital will flow into their national stock market almost automatically. As a result, MSCI and the other big three providers’ rival indices are now effectively steering global investment flows. </p>
<p>For example, when Saudi Arabia was recently added to the list of qualifying countries for these indices, it <a href="https://www.reuters.com/article/us-saudi-funds-msci/saudi-regulator-expects-40-billion-foreign-fund-inflows-after-msci-idUSKBN1JH1VH">was predicted</a> to trigger inflows into the Saudi stock market of up to US$40 billion. And when Saudi Aramco, the largest global oil producer, went public last year, it was fast-tracked by the same three index providers into their emerging markets indices. Millions of investors around the world now unknowingly hold shares in this controversial corporation – either through owning emerging markets index funds or having pensions that hold such funds on their behalf. </p>
<p>When China was added to the key emerging market indices in 2018, reportedly after <a href="https://www.wsj.com/articles/how-china-pressured-msci-to-add-its-market-to-major-benchmark-11549195201">heavy lobbying</a> from Beijing, the capital steering effect was expected to be larger by an order of magnitude. It <a href="https://www.scmp.com/business/companies/article/2146084/us400-billion-expected-flow-chinese-stocks-after-msci-inclusion">was estimated</a> that the long-term inflows into Chinese stocks would be up to US$400 billion. </p>
<h2>The future role of index providers</h2>
<p>The three dominant index providers’ income mainly derives from the funds replicating their indices, since they have to pay royalties for the privilege. The providers are therefore currently enjoying a fee bonanza. For 2019, <a href="http://ir.msci.com/events/event-details/msci-fourth-quarter-2019-earnings-call">MSCI reported</a> record revenues and said the assets tracking its indices were at all-time highs. </p>
<p>Our research suggests that these providers’ brands are so well established that competitors will struggle to take away that business. This suggests that MSCI, FTSE Russell and S&P Dow Jones will increase their role as a new kind of de facto global regulators. </p>
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<a href="https://images.theconversation.com/files/315941/original/file-20200218-11005-ycfm6n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/315941/original/file-20200218-11005-ycfm6n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/315941/original/file-20200218-11005-ycfm6n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=462&fit=crop&dpr=1 600w, https://images.theconversation.com/files/315941/original/file-20200218-11005-ycfm6n.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=462&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/315941/original/file-20200218-11005-ycfm6n.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=462&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/315941/original/file-20200218-11005-ycfm6n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=581&fit=crop&dpr=1 754w, https://images.theconversation.com/files/315941/original/file-20200218-11005-ycfm6n.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=581&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/315941/original/file-20200218-11005-ycfm6n.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=581&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Soaring & Passive.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/3d-render-closeup-computer-keyboard-sp-1114516781">Alexandra Gigowska</a></span>
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<p>Arguably the most important aspect of their private authority for the future of our planet pertains to how corporations tackle climate change. BlackRock <a href="https://theconversation.com/blackrock-is-the-canary-in-the-coalmine-its-decision-to-dump-coal-signals-whats-next-129972">recently made headlines</a> with plans to divest from firms that make more than 25% of their revenues from coal. Yet this only applies to BlackRock’s actively managed funds: most of its funds track indices from the major index providers, so <a href="https://www.washingtonpost.com/business/blackrocks-climate-activism-has-a-passive-problem/2020/01/14/80e233d6-36c5-11ea-a1ff-c48c1d59a4a1_story.html">they will keep</a> investing in coal until the providers remove such companies from their indices. </p>
<p>Similarly, BlackRock, Vanguard and State Street <a href="https://www.cnbc.com/2020/01/14/blackrock-is-overhauling-its-strategy-to-focus-on-climate-change.html">all recently announced</a> they will increase their range of so-called ESG funds, which profess to exclude the worst performing firms according to environmental, social and governance criteria. Again, these criteria are increasingly defined by the index providers, using <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3438533">proprietary methodologies</a>. As The Economist <a href="https://www.economist.com/finance-and-economics/2019/12/07/climate-change-has-made-esg-a-force-in-investing">has noted</a>, the providers often decide which companies to include based on whether they go about their business sustainably rather than what business they are actually in. </p>
<p>For instance, Saudi Aramco <a href="https://www.saudiaramco.com/en/news-media/news/2018/study-shows-record-low-carbon-intensity-of-saudi-crude-oil">produces</a> few emissions extracting oil from the ground. It’s a comparatively “sustainable” oil company, but it’s still an oil company. Most ESG indices include industry leaders in each sector and exclude worst performers - irrespective of the industry. Consequently, many ESG funds still heavily invest in the likes of airlines, oil and mining companies. </p>
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<a href="https://images.theconversation.com/files/315936/original/file-20200218-10995-75hcmb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/315936/original/file-20200218-10995-75hcmb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/315936/original/file-20200218-10995-75hcmb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/315936/original/file-20200218-10995-75hcmb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/315936/original/file-20200218-10995-75hcmb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/315936/original/file-20200218-10995-75hcmb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/315936/original/file-20200218-10995-75hcmb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/315936/original/file-20200218-10995-75hcmb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Best in the sector?</span>
<span class="attribution"><a class="source" href="https://pixabay.com/photos/power-station-energy-electricity-374097/">Steve Buissinne/Pixabay</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
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<p>They are also sometimes quite arbitrary about who qualifies as a good performer. For instance, the American bank Wells Fargo <a href="https://www.researchaffiliates.com/en_us/publications/articles/what-a-difference-an-esg-ratings-provider-makes.html">is ranked</a> in the top third by one index provider, while another ranks it in the bottom 5%. </p>
<p>In short, this tightly interlinked group of three giant passive fund managers and three major index providers will largely determine how corporations tackle climate change. The world is paying little attention to the judgements they make, and yet these judgements look highly questionable. If the world is truly to get to grips with the global climate crisis, this constellation needs to be far more closely scrutinised by regulators, researchers and the general public. </p>
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<img alt="" src="https://images.theconversation.com/files/263883/original/file-20190314-28475-1mzxjur.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/263883/original/file-20190314-28475-1mzxjur.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=140&fit=crop&dpr=1 600w, https://images.theconversation.com/files/263883/original/file-20190314-28475-1mzxjur.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=140&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/263883/original/file-20190314-28475-1mzxjur.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=140&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/263883/original/file-20190314-28475-1mzxjur.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=176&fit=crop&dpr=1 754w, https://images.theconversation.com/files/263883/original/file-20190314-28475-1mzxjur.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=176&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/263883/original/file-20190314-28475-1mzxjur.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=176&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p><em><a href="https://theconversation.com/imagine-newsletter-researchers-think-of-a-world-with-climate-action-113443?utm_source=TCUK&utm_medium=linkback&utm_campaign=TCUKengagement&utm_content=Imagineheader1131869">Click here to subscribe to our climate action newsletter. Climate change is inevitable. Our response to it isn’t.</a></em></p><img src="https://counter.theconversation.com/content/131869/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jan Fichtner receives funding from the European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation programme (grant no. 638946).</span></em></p><p class="fine-print"><em><span>Eelke Heemskerk receives funding from the European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation programme (grant no. 638946).</span></em></p><p class="fine-print"><em><span>Johannes Petry receives funding from the Economic and Social Research Council. </span></em></p>Now that passive funds have eclipsed their actively managed competitors, climate finance is increasingly in some new pairs of hands.Jan Fichtner, Postdoctoral Researcher in Political Science, University of AmsterdamEelke Heemskerk, Associate Professor Political Science, University of AmsterdamJohannes Petry, ESRC Doctoral Research Fellow in International Political Economy, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1100922019-01-18T11:41:35Z2019-01-18T11:41:35ZWhat’s an index fund?<p>The creation of the index fund in 1975 revolutionized investing, lowering costs for millions of ordinary investors. </p>
<p>Their inventor John Bogle <a href="https://www.cnbc.com/2018/12/14/jack-bogle-founder-of-vanguard-group-and-creator-of-the-index-fund-dies-at-age-89.html">died on Jan. 16</a> at the age of 89. </p>
<p>Bogle took a complex universe of thousands of stocks and reduced it to a simple, singular entity, the index fund. Through index funds, investing in the stock market became easy, and one could do so at low cost while minimizing risk. </p>
<p>Practitioners and academics have researched the drivers and consequences of index fund investing – <a href="https://scholar.google.com/citations?user=YXsoQv0AAAAJ&hl=en&oi=ao">myself included</a>. Here is some of what we know.</p>
<h2>Investing before index funds</h2>
<p>In the 1970s, academics and others <a href="https://www.doi.org/10.1111/j.1540-6261.1970.tb00518.x">began finding</a> that many highly paid stock pickers do not outperform broad market indices. That is, investors could earn higher returns by simply holding a diversified portfolio of stocks and avoiding speculation altogether.</p>
<p>But at the time, the average investor didn’t have an easy way to this because an investment vehicle for such diversification did not yet exist.</p>
<p>So <a href="https://www.wiley.com/en-us/John+C+Bogle+Investment+Classics+Boxed+Set%3A+Bogle+on+Mutual+Funds+%26+Bogle+on+Investing-p-9781119187899">Bogle stepped in</a> and created the index fund. </p>
<h2>An easy way to diversify</h2>
<p>In a nutshell, index funds are designed to give investors exposure to a diversified set of stocks at a very low cost.</p>
<p>The name “index” reflects the idea that by buying the fund an investor in effect immediately owns a broad index of the underlying stocks. All you must do is pay an intermediary – like Vanguard, the investment company Bogle founded, which now <a href="https://about.vanguard.com/who-we-are/fast-facts/">manages US$5.1 trillion in assets</a> – a small, built-in fee in exchange for spreading your money out across the market. </p>
<p>In part, that’s because index funds are bought and sold just like individual stocks and many even have their own stock symbols.</p>
<p>For example, if you want exposure to a mix of all the companies in the S&P 500 index, you can buy the <a href="https://finance.yahoo.com/quote/VOO/">stock VOO</a>, and your money will automatically be invested in a value-weighted portfolio of the S&P 500 companies. If you want to divest, simply sell your shares of VOO.</p>
<h2>Why they’re so popular</h2>
<p>The underlying logic of index funds still prevails today. </p>
<p><a href="https://www.doi.org/10.1111/j.1540-6261.2008.01368.x">Academics regularly find</a> that <a href="http://www.aei.org/publication/more-evidence-that-its-very-hard-to-beat-the-market-over-time-95-of-financial-professionals-cant-do-it/">stock pickers</a> – who continue to be highly paid – do not outperform the market, on average. It should thus not be surprising that, according to Moody’s, <a href="https://www.thestreet.com/story/13975194/1/6-trillion-and-counting-etfs-index-funds-set-to-overtake-active-investing.html">nearly one-third of all investments</a> in the U.S., or almost $6 trillion, are now in index funds or other passive investments. <a href="https://www.wsj.com/articles/bogle-sounds-a-warning-on-index-funds-1543504551">Analysts expect this amount</a> to increase further over the next decade.</p>
<p>Economies of scale resulting from their popularity have caused the fees for <a href="https://www.cnbc.com/2018/09/04/fidelity-offers-first-ever-free-index-funds-and-1-billion-follows.html">some index funds to hit zero</a>. And by one estimate, <a href="https://www.forbes.com/sites/baldwin/2019/01/16/jack-bogle-is-gone-but-hes-still-saving-investors-100-billion-a-year/#40e3f006795c">Bogle’s creation is saving investors $100 billion</a> every year. </p>
<p>Bogle’s innovative investment philosophy overturned an industry, which in my view makes him one of Wall Street’s superstar investors.</p><img src="https://counter.theconversation.com/content/110092/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jordan Schoenfeld does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The index fund revolutionized investing for millions. Its founder died on Jan. 16.Jordan Schoenfeld, Accounting Faculty, Georgetown UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/936402018-03-21T05:56:37Z2018-03-21T05:56:37Z60 years in orbit for ‘grapefruit satellite’ – the oldest human object in space<figure><img src="https://images.theconversation.com/files/211111/original/file-20180320-31608-1qr424l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">One of the Vanguard satellites being checked out at Cape Canaveral, Florida in 1958.</span> <span class="attribution"><a class="source" href="https://www.nasa.gov/content/vanguard-satellite-1958">NASA </a></span></figcaption></figure><p>Sixty years ago, a grapefruit-sized aluminium sphere with six antennas and some tiny solar cells was launched into Earth orbit. The <a href="https://www.nasa.gov/content/vanguard-satellite-1958">Vanguard 1 satellite</a> is still up there and is the oldest human-made object in space. It’s our first piece of space archaeology. </p>
<p>Other early satellites – such as Sputnik 1, the first satellite to leave Earth in 1957, and Explorer 1, the first US satellite – have long since re-entered the atmosphere and burnt up.</p>
<p>Vanguard 1’s legacy, as we enter the seventh decade of space travel, is a new generation of small satellites changing the way we interact with space. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/curious-kids-how-do-satellites-get-back-to-earth-82447">Curious Kids: How do satellites get back to Earth?</a>
</strong>
</em>
</p>
<hr>
<h2>Making the first road map for space</h2>
<p>By the early 1950s, the <a href="http://www.v2rocket.com/">second world war’s rocket technology</a> had developed to the point where the first satellite launch was imminent. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/211096/original/file-20180320-31599-1gkp7t1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/211096/original/file-20180320-31599-1gkp7t1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=925&fit=crop&dpr=1 600w, https://images.theconversation.com/files/211096/original/file-20180320-31599-1gkp7t1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=925&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/211096/original/file-20180320-31599-1gkp7t1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=925&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/211096/original/file-20180320-31599-1gkp7t1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1162&fit=crop&dpr=1 754w, https://images.theconversation.com/files/211096/original/file-20180320-31599-1gkp7t1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1162&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/211096/original/file-20180320-31599-1gkp7t1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1162&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A commemorative poster of Vanguard 1 by artist Heidi Neilson, 2012.</span>
</figcaption>
</figure>
<p>The global scientific community had been working towards a massive cooperative effort to study the Earth, called the International Geophysical Year (<a href="http://www.nas.edu/history/igy/">IGY</a>), to take place in 1957-58. What could be better than measuring the Earth from the outside? </p>
<p>Everything we knew about the space environment we had learned from inside the envelope of the atmosphere. The first satellite could change everything.</p>
<p>The IGY committee decided to add a satellite launch to the program, and the “space race” suddenly became real.</p>
<p>Six nations were predicted to have the capability to launch a satellite. They were the United States, the Soviet Union, the United Kingdom, France, Japan and Australia.</p>
<p>This was before NASA existed. The <a href="http://www.unoosa.org/oosa/en/ourwork/spacelaw/treaties.html">United Nations space treaties</a> had not yet been written. The IGY was effectively building the first road map for using space.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/trash-or-treasure-a-lot-of-space-debris-is-junk-but-some-is-precious-heritage-82832">Trash or treasure? A lot of space debris is junk, but some is precious heritage</a>
</strong>
</em>
</p>
<hr>
<h2>Waging peace in the Cold War</h2>
<p><a href="https://history.nasa.gov/SP-4202.pdf">Vanguard 1</a> was intended to make the US the first nation in space – hence its name, meaning “leading the way”. The term also refers to the advance troops of a military attack. </p>
<p>Space exploration was not just about science. It was also about winning hearts and minds. These first satellites were ideological weapons to demonstrate the technological superiority of capitalism – or communism.</p>
<p>The problem was that the IGY was a civilian scientific program, but the rocket programs were military.</p>
<p>Project Vanguard was run by the US <a href="https://www.nrl.navy.mil/">Naval Research Laboratory</a>. Public perception was important, and they tried to give the satellite a civilian spin to present the US’s intentions in space as peaceful.</p>
<p>This meant the launch rocket should not be a missile, but a scientific rocket, made for research purposes. Such “sounding rockets” were, however, part of the military programs too – their purpose was to gather information about the little-known upper atmosphere for weapons development. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/as-the-world-embraces-space-the-50-year-old-outer-space-treaty-needs-adaptation-79833">As the world embraces space, the 50 year old Outer Space Treaty needs adaptation</a>
</strong>
</em>
</p>
<hr>
<h2>Keep watching the skies!</h2>
<p>The astronomer <a href="https://www.cfa.harvard.edu/about/flwhipple.html">Fred Whipple</a>, from the Smithsonian Astrophysical Observatory, had an idea for the IGY satellite program that would help Project Vanguard present the right image and contribute to the scientific outcomes.</p>
<p>It was all well and good to launch a satellite, but you also had to know where it was in space so that you could collect its data. In the 1950s, the technology to do this was still in its infancy. </p>
<p>And in the words of science fiction author <a href="https://www.goodreads.com/quotes/14434-space-is-big-you-just-won-t-believe-how-vastly-hugely">Douglas Adams</a>, space is big. Really big. When something the size of a grapefruit is launched, you can predict where it should end up, but you don’t know if it’s there until you’ve seen it. Someone has to look for it.</p>
<p>This was the purpose of Whipple’s <a href="https://www.universetoday.com/100744/citizen-science-old-school-style-the-true-tale-of-operation-moonwatch/">Project Moonwatch</a>. Volunteers – nowadays we would call them citizen scientists – across the globe watched for the satellite using binoculars and telescopes supplied by the Smithsonian. But their first satellite sighting was not Vanguard 1. The Soviet satellite Sputnik 1 became the first human artefact in orbit on October 4, 1957. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/211101/original/file-20180320-31602-11uj6q4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/211101/original/file-20180320-31602-11uj6q4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=470&fit=crop&dpr=1 600w, https://images.theconversation.com/files/211101/original/file-20180320-31602-11uj6q4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=470&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/211101/original/file-20180320-31602-11uj6q4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=470&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/211101/original/file-20180320-31602-11uj6q4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=590&fit=crop&dpr=1 754w, https://images.theconversation.com/files/211101/original/file-20180320-31602-11uj6q4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=590&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/211101/original/file-20180320-31602-11uj6q4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=590&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">1965: Project Moonwatch volunteers in Pretoria, South Africa, one of more than 100 teams worldwide. Each telescope covered a small, overlapping portion of the sky. Smithsonian Institution Archives.</span>
<span class="attribution"><span class="source">Wikimedia</span></span>
</figcaption>
</figure>
<h2>Vanguard 1’s descendants</h2>
<p>Six months later, on March 17, 1958, the little polished sphere was lofted up to a minimum height of around 600km above the Earth, and there it has stayed, long after its batteries died. Technically, Vanguard 1 is <a href="https://theconversation.com/au/topics/space-junk-844">space junk</a>; but it doesn’t pose a great collision risk to other satellites. It has survived so long simply because its orbit is higher than the other early satellites. </p>
<p>The historians <a href="https://history.nasa.gov/SP-4202/begin.html">Constance Green and Milton Lomask</a> say that Vangaurd 1 is the “the progenitor of all American space exploration today”. It wasn’t just the satellite, it was the support systems too, such as the tracking network hosted by multiple nations.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/211130/original/file-20180320-31602-11q7p0s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/211130/original/file-20180320-31602-11q7p0s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/211130/original/file-20180320-31602-11q7p0s.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/211130/original/file-20180320-31602-11q7p0s.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/211130/original/file-20180320-31602-11q7p0s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/211130/original/file-20180320-31602-11q7p0s.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/211130/original/file-20180320-31602-11q7p0s.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The Minitrack interferometer was one of the earliest antennas designed to track satellites. The Minitrack installed at Woomera in the 1950s was later moved to the Orroral Valley NASA Tracking Station near Canberra, where you can still see the antenna pylons. Author’s image.</span>
<span class="attribution"><span class="source">Alice Gorman</span></span>
</figcaption>
</figure>
<p>It was Soviet leader Nikita Krushschev who called Vanguard 1 the “<a href="https://phys.org/news/2008-03-vanguard-celebrates-years-space.html">grapefruit satellite</a>”, and he didn’t mean it as a compliment. But funnily enough, after satellites weighing thousands of kilograms and the size of double-decker buses, the current trend is back to <a href="https://theconversation.com/australias-back-in-the-satellite-business-with-a-new-launch-76090">small satellites</a>. </p>
<p>Rather than fruit, these satellites are likened to loaves of bread or washing machines. They’re cheap to build, with off-the-shelf components, and cheap to launch. They’re not meant to stay in orbit for centuries. They’ll do their job for a few months or years, and then self-immolate in the atmosphere.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/australias-back-in-the-satellite-business-with-a-new-launch-76090">Australia's back in the satellite business with a new launch</a>
</strong>
</em>
</p>
<hr>
<p>There has been a long tradition of <a href="https://www.amsat.org/">amateur satellites</a>, but now space is more accessible than ever before. Students and space start-ups can get into orbit at a fraction of the cost it used to take. It’s revitalising the space economy and allowing a greater number of people to participate.</p>
<p>For example, QB50 is an international collaboration to launch 50 cubesats to explore the lower <a href="https://scied.ucar.edu/shortcontent/thermosphere-overview">thermosphere</a>. So far, 36 have been launched, including <a href="https://www.huffingtonpost.com.au/2017/04/18/these-tiny-cube-shaped-satellites-are-launching-australia-back_a_22045161/">three from Australia</a> last year.</p>
<p>Elon Musk’s SpaceX company is planning to launch a network of more than 7,500 small satellites over the next few years, to deliver broadband internet. (There are <a href="https://www.huffingtonpost.com.au/2017/04/18/these-tiny-cube-shaped-satellites-are-launching-australia-back_a_22045161/">major concerns</a> about how they will contribute to the space junk problem, however).</p>
<p>When Vanguard 1 was launched, its only companions were Explorer 1 and Sputnik 2. Soon it may have thousands of descendants swarming around it.</p>
<p>The little satellite meant to represent the peaceful uses of outer space is a physical reminder of the competition to imprint space with meaning in the early years of the Space Age. Now, 60 years on, it seems we are on the cusp of a new age in space.</p>
<hr>
<p><em>Alice Gorman is a panellist for two events at 2018 World Science Festival Brisbane – <a href="https://www.worldsciencefestival.com.au/program/events/space-junk/">Space Junk: Cleaning Up After Ourselves</a> (22 March) and <a href="https://www.worldsciencefestival.com.au/program/events/space-invaders-infinity-beyond/">Space Invaders: To Infinity and Beyond</a> (24 March).</em></p><img src="https://counter.theconversation.com/content/93640/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alice Gorman is a Board Director of the Space Industry Association of Australia.</span></em></p>When Vanguard 1 – the “grapefruit satellite” – was launched in 1958, its only companions were Explorer 1 and Sputnik 2. Soon it may have thousands of descendants swarming around it.Alice Gorman, Senior Lecturer in archaeology and space studies, Flinders UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/802062017-06-28T14:55:28Z2017-06-28T14:55:28ZANC policy papers point to a party in a panic about losing power<figure><img src="https://images.theconversation.com/files/176035/original/file-20170628-7303-1nn0cgh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Reuters/Mike Hutchings</span></span></figcaption></figure><p>The documents released ahead of the policy conference of South Africa’s governing African National Congress <a href="http://www.anc.org.za/content/5th-national-policy-conference-2017">(ANC)</a> expose a panicking party that sees enemies everywhere. While previous policy conferences addressed real policy issues, all energies are now focused on retaining state power as the leadership faces damning claims of <a href="http://pari.org.za/betrayal-promise-report/">capture by a kleptocratic elite</a>.</p>
<p>The <a href="http://www.anc.org.za/documents/discussion-documents/any-author/2017">discussion documents</a> show a party that professes a desire for self-correction and renewal. But, it seems to have neither the guts, nor the necessary internal balance of forces to do so.</p>
<p>At the same time the documents point to deepening paranoia and an increasingly authoritarian tendency. In combination, they seem to emanate from a parallel universe where the party’s interests have become elevated above those of the South African society at large. </p>
<p>Some of the text show a party that’s going through the motions. There’s trotting out of lofty ideals left over from when it still occupied the <a href="https://theconversation.com/anc-take-heed-even-big-brands-die-if-they-abandon-their-founding-values-79506">moral high ground</a>. It’s a rhetoric that used to be meaningful and powerful. But it’s been emptied out by the ANC’s increasing failure to harness the state’s resources for the good of all. </p>
<p>For example, one of the documents <a href="http://www.anc.org.za/sites/default/files/National%20Policy%20Conference%202017%20Organisational%20Renewal.pdf">“Organisational Renewal and Organisational Design”</a> claims:</p>
<blockquote>
<p>[the ANC’s vision] is informed by the morality of caring and human solidarity, [and its mission] is to serve the people of South Africa.</p>
</blockquote>
<p>Beyond this nostalgia for what it used to be, the ANC documents display little sense of the depth and severity of the political, constitutional, economic and governance crisis facing South Africa. What does come across strongly, however, is a party that feels beleaguered and panicky about possible loss of state power.</p>
<h2>Party and state are conflated</h2>
<p>The “Organisational Renewal…” document issues the following admonition:</p>
<blockquote>
<p>it is in the interests of the movement to… undergo a brutally frank process of introspecting and self-correction.</p>
</blockquote>
<p>This sentiment is overtaken by disappointment over the party’s poor performance in the <a href="https://theconversation.com/sharp-tongued-south-african-voters-give-ruling-anc-a-stiff-rebuke-63606">2016 local government elections</a>. Several pages are dedicated to investigating how other liberation movements became defunct. It transpires that the primary emergency is “to ensure that the ANC remains at the helm” of government. </p>
<p>Of course political parties are about getting and holding on to power. But because of the ANC’s habit of conflating party and state, there seems to be no understanding that its feeling of destiny – that it should rule “until Jesus comes” as President Jacob Zuma <a href="https://mg.co.za/article/2016-07-05-zuma-repeats-that-anc-will-rule-until-jesus-comes">put it</a> – won’t dictate the will of the people.</p>
<p>Parties get reelected because they demonstrably govern in service of the will of the people. If the ANC should demonstrate that, it will be returned to power <a href="http://www.huffingtonpost.co.za/2017/04/21/anc-could-lose-power-in-2019-if-zuma-stays-or-dlamini-zuma-takes_a_22048928/">in 2019 </a>. If not, it won’t.</p>
<p>There is an admission that the,</p>
<blockquote>
<p>moral suasion that the ANC has wielded to lead society is waning; and the electorate is starting more effectively to assert its negative judgement.</p>
<p>Significant sections of the motive forces seem to have lost confidence in the capacity and will of the ANC to carry out the agenda of social transformation [due to] subjective weaknesses [in the party]. </p>
</blockquote>
<p>These weaknesses are identified but in a way that skirts around the extent and depth of <a href="http://47zhcvti0ul2ftip9rxo9fj9.wpengine.netdna-cdn.com/wp-content/uploads/2017/06/Betrayl-of-a-promise.pdf">state capture</a>. More and more evidence, including hundreds of thousands of leaked <a href="https://www.timeslive.co.za/sunday-times/news/2017-05-28-here-they-are-the-emails-that-prove-the-guptas-run-south-africa/">emails</a>, have emerged that an Indian family of business people, the Guptas, has over the past numbers of years gained a hold over Zuma and a network of ANC leaders. This grip stretches from national to local level, and from government departments to state-owned enterprises. </p>
<p>But in the ANC documents black capitalists are blamed for “corrupt practices including attempts to capture institutions of political and state authority…” <a href="https://mg.co.za/tag/gupta-family">The Guptas</a> only get an opaque acknowledgement with reference to lobbying: </p>
<blockquote>
<p>[T]he lobbying process engineered by clandestine factionalism destabilises the organisation… Factionalism’s clandestine nature makes it a parallel activity…</p>
</blockquote>
<p>But it’s almost as though the document’s authors don’t believe their own diagnosis, or the implications of the party’s “subjective weaknesses”. The document becomes contradictory. Even as it admits that the “motive forces” … “still desire such change and are prepared to work for it”, it starts to cast suspicion:</p>
<blockquote>
<p>the mass of the people can, by commission or omission, precipitate an electoral outcome that places into positions of authority, forces that can stealthily and deceitfully chip away at the progressive realisation of a National Democratic Society.</p>
</blockquote>
<h2>The people are the problem, not the party</h2>
<p>That “the people”, rather than a party that’s lost its way, are in fact the problem becomes more ominously clear in the document on <a href="http://www.anc.org.za/sites/default/files/National%20Policy%20Conference%202017%20Peace%20and%20Stability.pdf">“Peace and Stability”</a>. Leninist vanguardism makes the party still feel it knows best, and that the people are useful fools. </p>
<p>It’s worth quoting the whole section to see the extent of the paranoia in the ANC and the array of enemies it creates to avoid confronting the enemy within. </p>
<p>According to the document, the main strategy used by foreign intelligence services is to:</p>
<blockquote>
<p>mobilise the unsuspecting masses of this country to reject legally constituted structures and institutions in order to advance unconstitutional regime change. The alignment of the agendas of foreign intelligence services and negative domestic forces threatens to undermine the authority and security of the state. </p>
<p>Their general strategy makes use of a range of role players to promote their agenda and these include, but are not limited to: mass media; non-governmental organisations and community-based organisations; foreign and multinational companies; funding of opposition activities; judiciary, religious and student organisations; infiltration and recruitment in key government departments; placement of non-South Africans in key positions in departments; prominent influential persons…</p>
</blockquote>
<h2>A small clique vs South Africa</h2>
<p>The proposed organisational renewal is to bolster the ANC secretary-general’s powers. Even this belated and lacklustre attempt to reduce the ANC president’s control over the party is compromised, as the clarion call of the discussion documents is “Let us deepen unity!”.</p>
<p>That’s why the actual enemies cannot be confronted, those that have insidiously corrupted the very life and soul of the party. Instead, a worrying paranoid and authoritarian tendency emerges. Its targets are journalists, judges, church and business leaders, activists, opposition parties, foreigners and intellectuals. </p>
<p>Nowhere is the fact confronted that Zuma, president of the ANC and the country, has ceded South Africa’s sovereignty to a foreign family, or that state-owned entities and government departments are being repurposed to enrich a small clique at the expense of <a href="http://pari.org.za/betrayal-promise-report/">South Africa’s people</a>.</p><img src="https://counter.theconversation.com/content/80206/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Christi van der Westhuizen is an associate of the Democracy Works Foundation.</span></em></p>Documents released ahead of the policy conference of South Africa’s embattled governing ANC show it hasn’t the guts or internal balance of forces, for self-correction and renewal.Christi van der Westhuizen, Associate Professor, Sociology, University of PretoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/770722017-05-10T06:14:40Z2017-05-10T06:14:40ZThese three firms own corporate America<figure><img src="https://images.theconversation.com/files/168552/original/file-20170509-11015-1ydxdq8.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Big Three</span> </figcaption></figure><p>A fundamental change is underway in stock market investing, and the spin-off effects are poised to dramatically impact corporate America.</p>
<p>In the past, individuals and large institutions mostly invested in actively managed mutual funds, such as Fidelity, in which fund managers pick stocks with the aim of beating the market. But since the financial crisis of 2008, investors have <a href="http://www.cnbc.com/2017/04/17/a-seismic-shift-is-happening-and-billions-are-pouring-into-these-funds.html">shifted to index funds</a>, which replicate established stock indices, such as the S&P 500.</p>
<p>The magnitude of the change is astounding: from 2007 to 2016, actively managed funds have recorded outflows of roughly US$1,200 billion, while index funds had <a href="https://www.ici.org/pdf/2017_factbook.pdf">inflows of over US$1,400 billion</a>.</p>
<p>In the first quarter of 2017, index funds <a href="https://www.etftrends.com/2017/04/etfs-industry-enjoys-record-first-quarter-inflows/">brought in more than US$200 billion</a> – the highest quarterly value on record.</p>
<h2>Democratising the market?</h2>
<p>This shift, arguably the biggest investment swing in history, is due in large part to index funds’ much lower costs. </p>
<p>Actively managed funds analyse the market, and their managers are well paid for their labour. But the vast majority are <a href="https://www.ft.com/content/e139d940-977d-11e6-a1dc-bdf38d484582">not able to consistently beat the index</a>. </p>
<p>So why pay 1% to 2% in fees every year for active funds when index funds cost a tenth of that and deliver the same performance?</p>
<p>Some observers have lauded this development as the “<a href="https://www.wsj.com/articles/how-index-funds-democratize-investing-1483914571">democratisation of investing</a>”, because it has significantly lowered investor expenses. </p>
<p>But other impacts of this seismic shift are far from democratising. One crucial difference between the active fund and the index fund industries is that the former is fragmented, consisting of hundreds of different asset managers both small and large.</p>
<p>The fast-growing index sector, on the other hand, is highly concentrated. It is dominated by just three giant American asset managers: <a href="https://www.blackrock.com">BlackRock</a>, <a href="https://www.vanguard.com">Vanguard</a> and <a href="https://www.ssga.com">State Street</a> – what we call the Big Three.</p>
<p>Lower fees aside, the rise of index funds has entailed a massive concentration of corporate ownership. Together, BlackRock, Vanguard and State Street have nearly <a href="https://www.ft.com/content/657b243c-e492-11e6-9645-c9357a75844a">US$11 trillion in assets under management</a>. That’s more than all sovereign wealth funds combined and over three times the global hedge fund industry.</p>
<p>In a <a href="https://doi.org/10.1017/bap.2017.6">recently published paper</a>, our <a href="http://corpnet.uva.nl">CORPNET research project</a> comprehensively mapped the ownership of the Big Three. We found that the Big Three, taken together, have become the largest shareholder in 40% of all publicly listed firms in the United States.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/168441/original/file-20170508-20729-vi6sxj.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/168441/original/file-20170508-20729-vi6sxj.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/168441/original/file-20170508-20729-vi6sxj.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=608&fit=crop&dpr=1 600w, https://images.theconversation.com/files/168441/original/file-20170508-20729-vi6sxj.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=608&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/168441/original/file-20170508-20729-vi6sxj.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=608&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/168441/original/file-20170508-20729-vi6sxj.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=764&fit=crop&dpr=1 754w, https://images.theconversation.com/files/168441/original/file-20170508-20729-vi6sxj.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=764&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/168441/original/file-20170508-20729-vi6sxj.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=764&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Figure 1: Network of ownership by the Big Three in listed US firms. (See our paper for explanation of colours).</span>
<span class="attribution"><span class="source">Fichtner, Heemskerk & Garcia-Bernardo (2017)</span></span>
</figcaption>
</figure>
<p>In 2015, these 1,600 American firms had combined revenues of about US$9.1 trillion, a market capitalisation of more than US$17 trillion, and employed more than 23.5 million people.</p>
<p>In the S&P 500 – the benchmark index of America’s largest corporations – the situation is even more extreme. Together, the Big Three are the largest single shareholder in almost 90% of S&P 500 firms, including Apple, Microsoft, ExxonMobil, General Electric and Coca-Cola. This is the index in which most people invest.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/168444/original/file-20170508-20729-1mpgbeg.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/168444/original/file-20170508-20729-1mpgbeg.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/168444/original/file-20170508-20729-1mpgbeg.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=430&fit=crop&dpr=1 600w, https://images.theconversation.com/files/168444/original/file-20170508-20729-1mpgbeg.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=430&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/168444/original/file-20170508-20729-1mpgbeg.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=430&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/168444/original/file-20170508-20729-1mpgbeg.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=540&fit=crop&dpr=1 754w, https://images.theconversation.com/files/168444/original/file-20170508-20729-1mpgbeg.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=540&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/168444/original/file-20170508-20729-1mpgbeg.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=540&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Figure 2: Statistics about the ownership of the Big Three in listed US firms.</span>
<span class="attribution"><span class="source">Fichtner, Heemskerk & Garcia-Bernardo (2017)</span></span>
</figcaption>
</figure>
<h2>The power of passive investors</h2>
<p>With corporate ownership comes shareholder power. <a href="https://www.blackrock.com/corporate/en-us/literature/whitepaper/viewpoint-index-investing-and-common-ownership-theories-eng-march.pdf">BlackRock recently argued</a> that legally it was not the “owner” of the shares it holds but rather acts as a kind of custodian for their investors.</p>
<p>That’s a technicality for lawyers to sort. What is undeniable is that the Big Three do exert the voting rights attached to these shares. Therefore, they have to be perceived as de facto owners by corporate executives. </p>
<p>These companies have, in fact, publicly declared that they seek to exert influence. <a href="https://www.bloomberg.com/news/articles/2015-03-04/vanguard-s-mcnabb-says-firm-is-not-passive-on-governance">William McNabb</a>, chairman and CEO of Vanguard, said in 2015 that, “In the past, some have mistakenly assumed that our predominantly passive management style suggests a passive attitude with respect to corporate governance. Nothing could be further from the truth.”</p>
<p>When <a href="https://doi.org/10.1017/bap.2017.6">we analysed the voting behaviour</a> of the Big Three, we found that they coordinate it through centralised corporate governance departments. This requires significant efforts because technically the shares are held by many different individual funds.</p>
<p>Hence, just three companies wield an enormous potential power over corporate America. Interestingly, though, we found that the Big Three vote for management in about 90% of all votes at annual general meetings, while mostly voting against proposals sponsored by shareholders (such as calls for independent board chairmen).</p>
<p>One interpretation is that BlackRock, Vanguard and State Street are reluctant to exert their power over corporate America. Others question whether the Big Three really want this voting power, as they primarily <a href="https://ssrn.com/abstract=2359690">seek to minimise costs</a>.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/OYpCxXuF3M8?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
</figure>
<h2>Corporate American monopoly</h2>
<p>What are the future consequences of the Big Three’s unprecedented common ownership position?</p>
<p>Research is still nascent, but some economists are already arguing that this concentration of shareholder power could have <a href="http://dx.doi.org/10.2139/ssrn.2427345">negative effects on competition</a>.</p>
<p>Over the past decade, numerous US industries have become dominated by only a handful of companies, from <a href="http://dx.doi.org/10.2139/ssrn.2427345">aviation</a> to <a href="http://dx.doi.org/10.2139/ssrn.2710252">banking</a>. The Big Three – seen together – are virtually always the largest shareholder in the few competitors that remain in these sectors.</p>
<p>This is the case for American Airlines, Delta, and United Continental, as it is for the banks JPMorgan Chase, Wells Fargo, Bank of America, and Citigroup. All of these corporations are part of the S&P 500, the index in which most people invest.</p>
<p>Their CEOs are likely well aware that the Big Three are their firm’s dominant shareholder and would take that into account when making decisions. So, arguably, airlines have less incentive to lower prices because doing so would reduce overall returns for the Big Three, their common owner.</p>
<p>In this way, the Big Three may be exerting a kind of emergent “structural power” over much of corporate America.</p>
<p>Whether or not they sought to, the Big Three have accumulated extraordinary shareholder power, and they continue to do so. Index funds are a business of scale, which means that at this point competitors will find it very difficult to gain market shares.</p>
<p>In many respects, the index fund boom is turning BlackRock, Vanguard and State Street into something resembling low-cost public utilities with a quasi-monopolistic position. Facing such a concentration of ownership and thus potential power, we can expect demands for increased regulatory scrutiny of corporate America’s new “<a href="https://ssrn.com/abstract=2699326">de facto permanent governing board</a>” to increase in coming years.</p><img src="https://counter.theconversation.com/content/77072/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jan Fichtner receives funding from the European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation programme (grant no. 638946).</span></em></p><p class="fine-print"><em><span>Eelke Heemskerk receives funding from the European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation programme (grant no. 638946).He is affiliated with The Galan Group</span></em></p><p class="fine-print"><em><span>Javier Garcia-Bernardo receives funding from the European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation programme (grant no. 638946).</span></em></p>Together, three asset managers now control shares in 40% of all publicly listed firms in the United States.Jan Fichtner, Postdoctoral Researcher in Political Science, University of AmsterdamEelke Heemskerk, Associate Professor Political Science , University of AmsterdamJavier Garcia-Bernardo, PhD Candidate, University of AmsterdamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/441022015-07-06T05:14:16Z2015-07-06T05:14:16ZWhy the military is divided over Britain’s nuclear deterrent<p>One thing was very striking at the recent Royal United Services Institute (RUSI) <a href="https://www.rusi.org/landwarfare">Land Warfare Conference</a>, where current British Army personnel including top brass and Ministry of Defence officials were heavily present. The issue of replacing Trident, the UK’s sea-based nuclear deterrent, was not discussed at all. </p>
<p>This conference was taking place a few months ahead of Conservative plans to renew the deterrent like for like. This was <a href="https://s3-eu-west-1.amazonaws.com/manifesto2015/ConservativeManifesto2015.pdf">guaranteed by</a> the party’s victory at the general election in May, and has since <a href="http://www.publications.parliament.uk/pa/cm201516/cmhansrd/cm150608/debtext/150608-0001.htm">been reaffirmed</a> by Michael Fallon, the defence secretary.</p>
<p>Yet when it comes to Trident, the British military are “split on this issue as never before”. That was the conclusion of a <a href="http://www.nuclearinfo.org/sites/default/files/Military%20attitudes%20to%20nuclear%20weapons%20-%20full%20report.pdf">report</a> by the Nuclear Education Trust and Nuclear Information Service that was published at the end of June. So why the difference in views?</p>
<h2>The need for UK nuclear weapons</h2>
<p>Admittedly the report tends to emphasise the minority views in the data, coming from one organisation whose fundamental goal is to “make nuclear issues accessible to all regardless of age and ability” (Nuclear Education Trust) and another that is dedicated to disarmament (Nuclear Information Service). It also represents a mere snapshot of the views of mainly ex-military personnel based on 35 in-depth interviews. That said, it undoubtedly offers an insight into the variety of views on Trident that exist within UK defence circles. </p>
<p>It will be no surprise that most interviewees favoured UK nuclear weapons and replacing Trident. And those who demonstrated concerns were not opposed per se, but raised issues of costs and effectiveness. What was interesting, and may shed light on the silence at the RUSI conference, is that the majority of military personnel interviewed had “little interest in Trident” at all. </p>
<p>The report noted that army personnel are the “least supportive” as they have the “least to gain” in contrast to the Royal Navy, which feels Trident justifies its claim as the senior service responsible for the strategic defence of the United Kingdom. These grievances (some may call it tribalism) should presumably be understood in terms of materials and priorities as the cost of Trident limits investment in the conventional capabilities of the army and RAF. </p>
<p>No single weapons system can protect against all threats, of course. Even with the continuous at-sea deterrent provided by Trident, the UK would still remain vulnerable to threats below the nuclear threshold <a href="http://www.telegraph.co.uk/news/uknews/defence/9850192/Trident-is-no-longer-key-to-Britains-security.html">such as</a> climate change, cyber war and nuclear terrorism. Yet there may be greater threats above the nuclear threshold if the UK were to <a href="https://www.rusi.org/publications/journal/ref:A536CF6E4B14D9/#.VZROWu1Viko">unilaterally</a> reduce its nuclear capability. Russia’s recent <a href="http://www.reuters.com/article/2015/06/25/us-usa-nuclear-arms-idUSKBN0P52FC20150625">nuclear sabre-rattling</a> is a case in point. </p>
<p>Deterrence can fail, of course. It is also ill-suited to many of today’s security threats, and <a href="http://www.theguardian.com/environment/2009/apr/27/nuclear-waste-scotland">accidents</a> can happen – as one <a href="http://www.bbc.co.uk/news/uk-scotland-scotland-politics-32908665">whistleblower</a> recently augured. Yet most realists will still tell you that the very destructiveness of nuclear weapons helps to decrease the probability for war between great powers.</p>
<h2>Costs and strategy</h2>
<p>A related issue is the balance of costs between nuclear and conventional defences. Although most interviewees in the report favoured “high-priority” government spending on the nuclear deterrent, they didn’t want this to undermine conventional capabilities and said the cost of replacing Trident should fall outside the Ministry of Defence budget. Yet this logic assumes that savings from either abandoning nuclear weapons or reducing our current deterrent would be reinvested in conventional forces. There is no guarantee of this.</p>
<p>The report demonstrated an increasingly common argument: <a href="http://www.ft.com/cms/s/0/7a3592c2-e1c9-11e4-8d5b-00144feab7de.html?siteedition=uk#axzz3ekp5YvYH">Trident is</a> useless as a military tool and frivolously wastes billions on a symbol of strength. The fact that it is arguably more of a political tool used to be reflected in the fact that the Treasury met the cost of the deterrent. In 2010, however, it was <a href="http://www.bbc.co.uk/news/uk-10812825">moved over to</a> the defence budget. </p>
<p>It is <a href="https://www.rusi.org/publications/journal/ref:A536CF6E4B14D9/#.VZepCu1Vikp">estimated</a> that the cost of replacing the four Trident-equipped Vanguard-class submarines will consume 10%-12% of the defence budget during the procurement stage but will be reduced to 5%-6% once the next generation of submarines comes online in the late 2030s. <a href="http://www.bbc.co.uk/news/election-2015-scotland-32236184">According to</a> the ministry, it will cost £17.5bn to £23.4bn at 2013-2014 prices to procure the replacement system. (Though it has been claimed by the likes of the Scottish Nationalists that the total costs of procurement and the running costs of the replacement deterrent “over its lifetime” <a href="https://theconversation.com/fact-check-will-renewing-trident-cost-100-billion-39002">will reach</a> £100bn.)</p>
<p>Later this year, the government <a href="http://www.defensenews.com/story/defense/policy-budget/policy/2015/06/08/uk-fallon-strategic-defense-and-security-review-2015/28691491/">will conduct</a> its strategic defence and security review. We are told it will be a full-scale review of all the threats and the capabilities facing the UK. But given the commitment to like-for-like replacement that I mentioned earlier, it is unlikely that this review will see Trident as no longer key to Britain’s security. </p>
<p>This is at a time when the UK’s defence budget <a href="http://www.thetimes.co.uk/tto/news/uk/defence/article4454545.ece">is facing</a> another 5% or £1bn cut. Couple that with the sizeable cost of Trident renewal and it can only have an effect on the UK’s conventional forces. </p>
<p>As one young army officer so eloquently put it at the RUSI conference, we may have the manpower and the equipment but will we have the money left to do anything with them? A pan-military conference might feel understandably awkward about airing its divisions in public, but the rest of us must not. How much faith we put in nuclear weapons as a traditional deterrent in an age of fluctuating threats is a public debate that needs to take place.</p><img src="https://counter.theconversation.com/content/44102/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Simon J Smith receives funding from the Economic and Social Research Council for research on the Drivers of Military Strategic Reform.</span></em></p>Splits over Trident can create stalemate between the UK’s forces, but the public needs to debate renewing the deterrent before time runs out.Simon J Smith, Research Associate, Department of Politics, Languages & International Studies, University of BathLicensed as Creative Commons – attribution, no derivatives.