Getting BlackRock To Rebuild Britain?

Ethan Shone writes:

Yesterday (21 November) in Downing Street, senior executives from BlackRock, one of the world’s most controversial companies, sat down opposite Keir Starmer and Rachel Reeves.

The government’s laser-focus on private investment as the key means of driving economic growth has inevitably led to a reliance on the world’s big money machines, like BlackRock. But this is a relationship that Labour developed in opposition – and which has become even cosier since the party entered government, with BlackRock CEO Larry Fink making a star turn at Labour’s investment summit last month, and posing for pictures with the PM when Starmer visited New York in September. Senior BlackRock figures were there, too, when No 10 held a summer reception for business leaders, as we revealed previously.

‘On a personal note’ 

As Starmer’s cabinet ministers were appointed in July, hundreds of companies contacted them to offer their congratulations, pitch their value to the government, and request meetings. Inevitably, some had more success than others in obtaining access to their targets. And BlackRock was one of them.

As the world’s largest asset manager with around $10tn (yes, trillion) under management, BlackRock is among the most powerful financial institutions on the planet. To many, it is also among the most “evil”, because it continues to pump billions into fossil fuels and arms companies, and its reach extends into almost every aspect of the economy and society.

At 5pm on Monday 8 July, a managing director at the investment giant emailed Jonathan Reynolds, who’d been appointed as the UK’s new secretary of state for business and trade just a few days earlier. 

“Dear Secretary of State,” the executive wrote, “on behalf of all of us here at BlackRock, please find attached a formal letter of congratulations from myself and our UK Chair, Sandra Boss.

“And may I add, on a personal note, it is a pleasure after all these years to address you as such!”

The BlackRock executive was Anthony Manchester, a former senior civil servant who held roles across various government departments between 2001 and 2015, including the Treasury and Cabinet Office.

The attached letter began with the same pleasantries and congratulations expressed by Manchester, before highlighting BlackRock’s broad range of clientele and the scale of their footprint across the breadth of the UK economy, name dropping British Airways, Rolls Royce and AstraZeneca as investments.

Next came the key point:

“As you know, we also share the Government’s view that infrastructure investment can play a critical role in improving economic growth and productivity. We believe infrastructure is poised to become one of the fastest-growing segments in private markets globally. As our Chairman and CEO Larry Fink has recently written, private capital market financing, combined with policy pragmatism, are necessary to meet countries’ infrastructure needs and thereby enhance economic growth and productivity.

“We would welcome the opportunity to meet with you to discuss our work on funding the projects and enterprises that drive the economy and building the UK’s case as an investment destination. We will work with your team to get this meeting in the diary.

“Until then, congratulations once again on your appointment.”

Cutting through the corporate glaze, we can roughly understand the point being made here. In effect, BlackRock is highlighting that Labour’s entire political project rests on the willingness of companies like BlackRock to plough private capital into the foundational components of our society (and extracting massive profits in the process).

Reynolds’s reply to BlackRock, when it eventually came in August, gushed with praise for the firm and the wider financial services sector.

“Partnership with the Financial Services sector will be critical to developing and delivering on our industrial strategy and supporting small businesses. The sector underpins UK investment and trade, and its continued success is critical to lay the strong foundations for economic growth that this country needs.”

Reynolds added: “I would like to thank you for your long-standing investment in the UK, and partnership in driving growth, jobs and innovation. Blackrock has an impressive reach driving investment into the UK across sectors of our economy and your work is vital to economic growth. Funding our priority projects and investment in infrastructure is an important part of this…”

“We do not underestimate the importance of the UK’s Financial Services sector to the wider economy, or its potential to help deliver social value and the clean energy transition. To succeed we need everyone to play their part. I am looking forward to working with you in this common endeavour of national renewal.

“Together, we will change the face of our United Kingdom for the better.

“Thank you for your kind offer to meet. I would be delighted to accept this invitation. My Private Office will be in touch with you to arrange a suitable time. Thank you once again for writing and I look forward to working with you.”

‘Getting BlackRock to rebuild Britain’

In the asset management space, BlackRock has historically been a fairly hands-off investor, with the bulk of its holdings being significant but typically not controlling shares in many of the world’s biggest companies – generally between 5-10% – according to Brett Christopher’s survey of the industry, Our Lives in Their Portfolios: Why Asset Managers Rule the World. Think of an industry, then think of the top companies within it, and there’s a fairly good chance that BlackRock has shares in it. Christophers notes that, as a proportion of its overall holdings, investments placed in infrastructure – things like the electricity grid, water systems, toll-roads – were relatively small.

But in January this year, the firm announced it would purchase Global Infrastructure Partners, which controls around $170bn worth of assets worldwide, including Gatwick airport and Hornsea 1, a project to build the world’s largest offshore windfarm in the North Sea. This purchase, which was completed last month, reportedly makes BlackRock the second largest asset manager in the infrastructure space, after ‘the vampire kangaroo’, Macquarie.

Critics will argue that when asset managers own significant chunks of infrastructure, their priority is their investors (including sovereign wealth funds and pension funds), rather than society, or even the planet. The primary purpose of infrastructure, the argument goes, becomes the generation of profit, rather than providing a working, reliable service. In practice this might mean cutting investment while raising prices.

BlackRock and its ilk buying up the UK’s infrastructure would be controversial enough, but the way in which Labour is seeking to encourage this process is even worse. Writing in the Guardian ahead of the general election, economist Daniela Gabor said Labour’s plan for getting back into government amounted to: “get BlackRock to rebuild Britain”.

She wrote: “Labour’s strategy raises a bigger set of questions about the type of state we want. Starmer’s vision for government-by-BlackRock reduces the question of state capacity to “how do I get BlackRock to invest in infrastructure assets?” This model involves the state in effect subsidising the privatisation of everyday life.”

In simple terms, the government’s plans to use public funds to ‘derisk’ private investment means that the taxpayer takes on much of the risk involved, while the private sector stands to reap most of the benefits. This is particularly true of essential infrastructure, which the government cannot let fail and so must step in to cover losses in the event that something goes wrong.

Gabor continues: “This doesn’t only make it harder to bring public goods back into public ownership; it also allows big finance to tighten the grip on the social contract with citizens, and to become the ultimate arbiter of climate, energy and welfare politics, which will have profound distributional, structural and political consequences.”

Immediately after the Downing Street meeting yesterday, Starmer took to social media to trumpet his sitdown with BlackRock. His message echoes the tone and substance of BlackRock’s letter to Reynolds months prior.

He wrote that the government’s mission, to “deliver growth, create wealth and put more money in people’ pockets” can “only be achieved by working in close partnership with businesses and investors”.

“BlackRock has a big footprint in the UK, and supports thousands of jobs across the country. Their insight on how we can put the UK on the world’s stage as a top investment destination and turbocharge growth is invaluable. Delighted to welcome them to Downing Street today to continue my government’s partnership with leading businesses.”

Exactly which people’s pockets are about to be filled with more money remains unclear.