Larry Fink a finger on the invisible hand

Andy Wang ECO-3

Adam Smith is often referred to as the father on economics. In his 1776 book, “An Inquiry into the Nature and Causes of the Wealth of Nations,” Smith introduced a doctrine of economic thought that eventually laid the theoretical foundation for free-market capitalism. The ‘Invisible hand’ is the idea that capitalism relies on the private deployment of the means of production and a system of voluntary exchanges; it is entirely guided by a spontaneous, efficient allocation of resources.

Laurence Douglas Fink is the chairman and CEO of BlackRock, an American multinational investment management corporation. BlackRock is the largest money-management firm in the world with more than $6.5 trillion in assets under management.

Every year Larry Fink sends out an annual letter addressed to the ‘CEO’s’ outlining Black Rock agenda. His letter has a ripple affect in the business world and often causes huge changes throughout the world.

In 2018 Larry Fink wrote that there is “an extricable link” between purpose and profit. “It must begin with a clear embodiment of your company’s purpose in your business model and corporate strategy,” he wrote. “Purpose is not a mere tagline or marketing campaign; it is a company’s fundamental reason for being – what it does every day to create value for its stakeholders. Purpose is not the sole pursuit of profits but the animating force for achieving and that CEO’s should not be just “a bunch of white men.” Following his letter, the Business roundtable which includes 200 of the worlds most powerful CEO’s announced it would prioritise ‘stakeholders’ rather than ‘shareholders.’ Stakeholders refers to customers, suppliers, employees and the community.

In his 2020 letter Fink wrote that “Awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.” And, “The evidence on climate risk is compelling investors to reassess core assumptions about modern finance.” Again, his letter has had ground-breaking affects. Delta, Microsoft and BP have committed to going carbon neutral, McDonalds have released that they will abolish single use packaging. Many more companies have made commitments in regard to climate change. Blackrock is also gradually moving its assets out of fossil fuel and has begun to move away from coal in particular.  

Fink has managed to change the business world through his letters, reflecting the concept of the invisible hand. Highlighting the advantages of free market capitalism. Fink’s vision is closely linked to the idea of the triple bottom line introduced by John Elkington. Elkington’s Triple Bottom line framework recommends that companies commit to focus on social and environmental concerns just as they do on profits. Fink’s recent letter and investing goals have major similarities to this model.

In my opinion:

In my opinion Larry Fink’s annual letters are extremely beneficial to the economy and to the general public. I believe his actions will be valued in the future as we see the benefits of environmental conservation and the prioritization of purpose over profits in the future.

Bibliography:

https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter

https://www.investopedia.com/terms/t/triple-bottom-line.asp

https://www.investopedia.com/terms/i/invisiblehand.asp