First, Banfield (who died in 1999) was a pioneering political scientist and longtime Harvard faculty member who was, according to Charles Kesler, the editor of Claremont Review of Books, “one of the greatest social scientists of the twentieth century.” Banfield’s best-known book, the 1970 bestseller The Unheavenly City, was an influential — and contrarian — examination of America’s “urban crisis.” His blunt indictment of lower-class culture as the root of most urban ills was controversial and led to campus protests and undeserved pariah status in academia.

Second, Government Project, based on Banfield’s PhD dissertation at the University of Chicago, is an equally insightful analysis of the Casa Grande Valley Farms cooperative, which was created by the Farm Security Administration (FSA) in 1938 at the height of the Great Depression to provide economic security to distressed tenant farmers and migrant farm workers — many of them “Okies” displaced by the Dust Bowl. Banfield’s careful case study of the Casa Grande project, based on his review of the detailed government records (including extensive interviews with the participants) and his own experience as a “public information officer” for the FSA, is a sobering critique of government planning and social engineering.

Third, the original Foreword by Rexford Tugwell (nicknamed “Rex the Red” by his detractors due to his utopian infatuation with Soviet-style schemes), a member of FDR’s “Brain Trust” and the architect of FSA’s predecessor agency, the Resettlement Administration, is alone worth the modest cost of the book as an exercise in bureaucratic hubris. Tugwell lauds Government Project as “the full case history” of Casa Grande, and acknowledges that “We can see in it many lessons if we will” — while conveniently shifting the blame for the fiasco to others.

Finally, Banfield had a long association with AEI, dating back to 1963 (when Milton Friedman served on AEI’s advisory board), and one of Banfield’s students at Harvard, Christopher DeMuth, was AEI’s president from 1986 to 2008. For all these reasons, Banfield, now largely forgotten, deserves to be remembered, as do the lessons of Casa Grande.

What was Casa Grande and why did it fail? The FSA was a New Deal relief program that sought to provide employment and housing — and, ultimately, economic self-sufficiency — to destitute farm laborers such as sharecroppers and itinerant cotton-pickers then living in squalid shacks. Sixty families were selected to live in newly constructed brick homes featuring modern amenities such as electricity, indoor plumbing, flush toilets, water heaters, refrigerators, gas ranges, and washing machines. At great expense (more than $1 million in 1938 dollars), the federal government (via the WPA) built the homes, acquired 3,600 acres of farmland, and provided the necessary agricultural infrastructure (wells, irrigation ditches, roads, fences, outbuildings, and the like).

Unlike the earlier — but equally disastrous — Matanuska Colony Project in what is now Palmer, Alaska, Casa Grande did not rely on a model of individual homesteads of 40 acres for the participants to clear and farm; it was to be a “collective” farm on an industrial scale, permitting efficient mechanization and more scientific agricultural techniques, such as crop rotation. Small farms in the Arizona desert were deemed to be economically untenable. Accordingly, the 60 settlers chosen to participate would own the farm on a communal basis, responsible for cooperatively operating the farm profitably and reimbursing the federal government for its substantial up-front investment. Eventually, the Casa Grande settlers would repay their debt to the FSA, share the profits, and build equity as owners. Casa Grande — an untested experiment in quasi-socialist agriculture — was to be the largest cooperative farm ever established in the United States.

The problems with this model were — or should have been — obvious. The Casa Grande farm was a complex enterprise, dependent on irrigation, with multiple crops (cotton, alfalfa, grain), livestock (cattle, hogs, sheep), dairy, and poultry, and a complement of horses, mules, tractors, hay balers, and other equipment. The settlers, some of whom had limited (or no) farming experience, were ill-equipped to manage such a complicated operation on their own. To protect its investment, the federal government appointed an experienced farm manager to oversee operations. The farm would not immediately turn a profit, so the settlers were initially paid a nominal monthly stipend. From the beginning, this arrangement generated conflict.

The settlers, who viewed themselves as “owners” (albeit communally) resented the FSA’s management despite their own lack of experience as independent farmers. The settlers’ duties were strictly structured by the FSA foreman. Because of the FSA’s operational supervision and their modest monthly remuneration, the settlers behaved as hired hands, often threatening to strike — against their own cooperative! — if they didn’t get their way. “Sharing” the workload led to disputes over perceptions regarding the settlers’ differing roles and levels of effort. Needless to say, the operational arrangement was contrary to the ostensible goal of cooperative self-governance, which frustrated and confused the poorly educated and inexperienced settlers.

The Casa Grande participants, few of whom were native Arizonans, were haphazardly chosen from widely disparate backgrounds, in terms of age, education, family composition, religious beliefs, life experience, and other characteristics. The only trait they shared was destitution. Any random assortment of humans will include moochers, loafers, troublemakers, and complainers, and the quarrelsome Casa Grande settlers were no exception. With time on their hands (thanks to the mechanized farm operations), the settlers quickly divided into competing cliques and factions. Internal governance amidst these differences degenerated into petty feuds, incessant bickering, jealousy, resentment, and recrimination. The “cooperative” was wracked with discord.

Naïve FSA managers were dismayed that the independent-minded settlers did not adapt to communal life; “economic democracy” was, after all, the ultimate goal of establishing a cooperative farm. To the New Deal architects of Casa Grande, enlightened communal living was a moral imperative. Alas, no amount of tinkering and prodding by the FSA’s social engineers was able to turn Casa Grande into a kibbutz. Adding to the tension, neighboring communities viewed the WPA-built collective farm with distrust and suspicion, nicknaming the project “Little Russia.”

Despite the cajolery of FSA social workers, in 1943 the fractious (and short-sighted) settlers insisted by a two-thirds vote on liquidating Casa Grande — after it became profitable! — squandering their equity on legal fees, and walking away with next to nothing. Most returned to destitution and squalor as migrant farm workers, leaving the federal government $100,000 in the hole (in 1946 dollars).

The lessons? Americans do not readily embrace government-imposed collectivization. “Community,” in the Tocquevillian sense — voluntary associations which comprise the fabric of civil society — cannot be manufactured or externally imposed; civic cooperation must be organic. Good intentions are not enough. In a free society, dealings among citizens are based on “private ordering”: consensual free-market transactions based on perceived individual self-interest. Property rights demarcate separate economic interests. The potential for personal financial success provides incentives for hard work and self-discipline. All these elements were absent in a government-planned “cooperative” with federal supervision and competing factions among the randomly-chosen participants — all of whom were strangers before being thrust into an unfamiliar communal society.

Original foreword author Tugwell was an FDR confidante who helped create, and then led, the Agricultural Adjustment Administration that was declared unconstitutional in 1936, when he’d moved on to be Administrator of the Resettlement Administration. A champion of central planning in industry, housing, and agriculture, Tugwell believed that government bureaucrats could “fix” social problems by moving poor people into utopian planned communities. Despite the manifest failures of the numerous New Deal programs that he designed and oversaw, he steadfastly refused to accept any blame. In his 1951 Foreword, Tugwell conceded that Casa Grande was a “noble failure,” not because “the conception was bad,” but because “the people there could not rise to the challenge.”

Tugwell disingenuously condemned the “character” of the “unfortunate” settlers, who succumbed to “a general sickness which was at work,”including “deplorable exhibitions of selfishness” and “maleficent” opposition to cooperation by “very powerful forces” opposed to FDR. Despite the best efforts of the federal planners, he lamented, “We are far from being fundamentally accustomed to the projections necessary to finding our duty and doing it in modern society” (emphasis added). In other words, Americans were to blame for refusing to adapt to Soviet-style communal farming!

Casa Grande was one of four cooperative farm projects sponsored by the FSA. Believe it or not, it was the most successful. The others, also torn by factionalism, fared far worse. Government Project is a powerful lesson — in economics and human nature: Socialism doesn’t work.

Postscript: The difference between then and now is that Congress recognized the failure of resettlement projects and cooperatives, and in 1943 cut off their funding. Today, such self-restraint is entirely absent.

Fink told attendees at a 2017 New York Times conference that as an index fund manager, “we are the ultimate long-term holder; we have to own all the companies that are in an index.

“If you’re an active manager and you don’t like a company, you can sell it,” Fink said. “I can’t sell. I have only one power, and I’m going to use that power heavily. And that’s the power of the vote.”

Proxy voting refers to the practice of fund managers voting the corporate shares they own on behalf of the individuals and institutions that invested in their funds. With the rise of mutual funds, pension funds and index funds, more than three-quarters of all stocks in the United States today are held, not by individual investors but by a short list of very large asset management firms.

BlackRock, the world’s largest asset manager, has more than $8 trillion in assets under management. Vanguard, the second largest, has more than $7 trillion under management. State Street has about $3.5 trillion under management.

At the same time, two proxy agent companies, International Shareholder Services (ISS) and Glass Lewis, have arisen to advise fund managers on how to vote on numerous shareholder proposals. Critics argue that fund managers and proxy agents now have undue influence over shareholder votes and that they have used that power to successfully push a left-wing agenda known as the environmental, social and governance (ESG) movement on companies.

Congressional Hearings on ESG

In a series of Congressional Financial Services Committee hearings this week, Republican representatives hammered the ESG industry, which the Biden administration has supported, for manipulating free markets for political goals, while Democrat representatives accused the GOP of racism, climate denial and Trotskyism.

“I support shareholder democracy, but it should be their say and not external third parties who exploit the existing process to impose their own social and political beliefs onto American public companies,” Committee Chairman Patrick McHenry (R-N.C.) stated at the July 12 hearing.

In addition, “We must address the burdensome climate reporting and other requirements imposed by the Biden administration Securities and Exchange Commission,” he said. “The SEC has proposed a 500-page climate disclosure rule that would replace voluntary sustainability reports with mandatory disclosures, and the question of materiality is really thrown out the window.”

“The SEC is not a climate regulator, nor has Congress authorized it to mandate environmental policy via the disclosure regime,” McHenry said.

Democrat lawmakers, however, were united in their view that the ESG hearings should not take place and presented themselves as defenders of free market capitalism.

“Today is the first of six areas this month where Republicans will partner with a network of dark money, climate deniers and conspiracy theorists to wage their latest culture war against responsible investing,” Rep. Maxine Waters (D-Calif.) stated.

“For over 100 years, the followers of Leon Trotsky and the Socialist Workers Party have waged war against this capitalist model,” Rep. Brad Sherman (D-Calif.) stated. “Today, elements of the Republican Party join them in that effort. Ronald Reagan would be ashamed.”

How Proxy Voting Works

The hearings focused on how to address the role of proxy agents and how to deal with efforts by financial regulators under the Biden administration to impose extensive climate reporting rules on all listed companies. New regulations by the SEC would require companies to produce audited reports on their CO2 emissions, as well as those of their suppliers and customers.

“Coupled with the recent politicization of the SEC, proxy advisory firms have seized immense power to shift policy … to promote a liberal social and political agenda,” Rep. Bill Huizenga (R-Mich.) stated. “The proxy process is broken; it no longer promotes long-term shareholder value and operates without transparency or accountability.”

The proxy process begins with shareholder proposals, for which the SEC acts as a gatekeeper, determining which can proceed to a shareholder vote and which cannot. Under President Biden in 2021, the SEC shifted its policy to make it easier for ESG proposals to be put to a vote.

“The SEC’s new position is that corporate annual meetings must permit the smallest of shareholders to force shareholder votes on any social or policy concerns whether or not it is material to the company’s business,” James Copland, a fellow at the Manhattan Institute, told Committee members. “This change in policy has predictably led to a significant increase in socially oriented shareholder activism.

“In 2022, the first year after the SEC’s new guidance, the number of shareholder proposals faced by the large companies tracked in our proxy monitor database jumped 33 percent over the prior three-year average,” Copland said. “To date in 2023, with approximately 10 percent of companies yet to file a proxy statement, companies have already seen a record number of shareholder proposals.”

“Environmental and social proposals now represent a majority of all proposals in Russell 3000 companies, 58 percent of proposals in 2022,” Jonathan Berry, a partner at law firm Boyden Gray, testified at the July 13 hearing. In addition, Berry said, the SEC has shown a bias toward green-lighting pro-ESG proposals while rejecting anti-ESG proposals.

“This last proxy season, my client, the National Center [for Public Policy Research], took a shareholder proposal that the SEC had blessed on a discrimination issue and substituted the terms ‘viewpoint’ and ‘ideology’ for the prior proposal’s terms ‘sexual orientation’ and ‘gender identity,’” Berry stated. “But the SEC said that my client’s proposal could be struck off the ballot, that viewpoint discrimination in the workplace was not a significant social policy question.”

“In recent years, third parties have hijacked the proxy process,” said National Association of Manufacturers Vice President Christopher Netram. “Activists use the proxy ballot to advance political and social agendas.”

“Proxy firms dictate corporate governance decisions, and the SEC is empowering these groups while also proposing ESG disclosure mandates of its own,” Netram said. “Turning the proxy ballot into a debate club diverts time and resources away from shareholder value creation and forces companies to wade into controversial topics over which they have no control.”

Examples of companies wading into controversial topics include Disney’s fight in 2022 against parental rights laws in Florida, Coca-Cola’s fight in 2021 against voter I.D. laws in Georgia, and Anheuser Busch and Target’s recent attachment of their brands to the transgender movement. In many cases, venturing into politics proved harmful to brand perception, has reduced sales, or caused a substantial decline in the company’s stock price, all to the detriment of end investors.

Those who support ESG say it is merely a means of getting important information to investors and that the SEC’s green accounting mandate and permissive approach toward ESG shareholder proposals is simply the free market at work.

“Investors need to know how companies are addressing climate risk, how they pay their employees, how diverse their workforce is, and more investors want this information, because it’s good for the performance of their investments, which is also good for society,” Waters said. “Rest assured that committed Democrats will continue to thwart this anti-capitalist, anti-investor, anti-business and anti-American effort.”

But ESG critics say there’s more to it than that.

“ESG efforts are not primarily about providing information,” Scott Shepard, director at the National Center for Public Policy Research, told The Epoch Times. “They’re about forcing companies to adopt political-schedule decarbonization, equity-based discrimination and hard-left positions on social policy.”

According to Will Hild, executive director of Consumers’ Research, much of the information that comes from environmental or racial audits that companies are compelled to produce will not be used to increase shareholder value but rather “to give far-left activists a cudgel to use against these companies” via lawsuits, negative publicity campaigns, and additional shareholder proposals.

The Proxy Agent Duopoly

The proxy agency market is a duopoly in which ISS and Glass Lewis together represent more than 90 percent of the market.

“Both earlier and recent regulatory actions by the Securities and Exchange Commission have created a duopoly in the market for proxy advisory services and powerful incentives for firms and funds to retain proxy advisors and to adopt their recommendations often on an automatic basis,” Benjamin Zycher, a fellow at the American Enterprise Institute, told lawmakers.

“The advisors themselves have weak incentives to consider the fiduciary interests of shareholders and fund participants, thus freeing them to indulge their own political preferences and little or no cost to themselves,” Zycher said. “Unsurprisingly, environmental social and government’s political objectives have come to influence proxy advice heavily.”

Steven Friedman, ISS general counsel, testified that ISS is a registered investment advisor that “provides institutional investors with objective, timely and expert proxy research and vote recommendations based on the proxy voting policies selected by the clients.”

“ISS and other proxy advisors play an important but narrow role in the proxy voting process,” Friedman said. “It’s the client who creates and selects the voting policy guidelines that reflect their own fiduciary obligations and investments strategies.”

A 2018 report by the Harvard Law School Forum on Corporate Governance stated that “proxy advisory firms have significant influence over the voting decisions of institutional investors and the governance choices of publicly traded companies. However, it is not clear that the recommendations of these firms are correct and generally lead to better outcomes for companies and their shareholders.”

According to this report, ISS and Glass Lewis are able to swing between 10 percent and 30 percent of shareholder votes in line with their recommendations.

A 2018 report by the American Council for Capital Formation stated that 175 asset managers, with more than $5 trillion in assets under management, followed the advice of ISS more than 95% of the time.

A July 12 Wall Street Journal article stated that both ISS and Glass Lewis supported an audit of Starbucks’ employment practices this year, which shareholders passed with a 52 percent majority, and that the duopoly backed a racial equity audit at McDonald’s that passed with 55 percent support.

Policy recommendations included breaking up the proxy advisor duopoly and passing laws to check the administrative overreach of financial regulators like the SEC.

“One thing they should do is look at why it’s a duopoly in the first place,” Hild said. “Generally speaking, we don’t allow that in any major industries and certainly not something as big and important as the proxy advising services.”

“I urge Congress not to focus on the large asset managers, BlackRock, State Street and Vanguard,” Zycher stated. “Their incentives are roughly efficient, however silly their public pronouncements.

“I urge Congress instead to reform the SEC regulatory framework,” Zycher said. “I urge Congress to enact legislation constraining the efforts of regulatory agencies to pursue climate policies not authorized in the law, uninformed by actual evidence and justified on the basis of fundamentally dishonest benefit-cost analysis.

“Such regulatory efforts continue to engender vast costs and no benefits.”

Article cross-posted from our premium news partners at The Epoch Times.