Fleecing the Bankers

We assume bankers obsessing over the mathematics of the economy are committed rationalists. Investors like Steve Eisman assure us they are not: he claims to observe bankers in the grip of euphoria and despair on a weekly basis (“It’s very hard to short a stock that is a cult”). Wall Street’s reaction to Patagonia might prove Eisman right.

The Wall Street Journal cheekily reports on the panic that recently swept Wall Street when learning that Patagonia will now only customize its fleece vest for “mission-driven companies that prioritize the planet.” Patagonia is an outdoorsy fashion label beloved by the adventure-sports-practicing upper middle class and is known for its environmental activism. The closely-held company donates one percent of sales to environmental causes and has taken up numerous political stances, notably castigating Donald Trump for shrinking by 85% the land mass protected by President Obama’s 2016 proclamation regarding Bears Ears National Monument, Utah.

For a number of years now, Patagonia has produced bespoke fleece vests emblazoned with the names of America’s great financial houses. But now money cannot buy the coveted fleece—morality is the only acceptable currency. Yet, why the panic? When Patagonia recently gave a private equity firm the cold-shoulder, why did “the Masters of The Universe” melt down over this? Isn’t this just the liberal fashion world taking up a conventional position against the conservative monied establishment? And surely, this comment by a Mr. Bajaj hits the mark:

Some men also scoff at the branded-vest fetish, a view amplified by online mocking. “I mean…a vest is a vest in my opinion,” said Mohit Bajaj, director of ETF trading solutions at WallachBeth Capital, who prefers North Face.

According to lore, the vests first appeared on Wall Street for the pragmatic reason that trading floors are cold, to keep the computers cool. Mr. Bajaj expresses an eminently rational view: a vest’s value is its utility.

Adam Smith would not invest with Mr. Bajaj. This man is undoubtedly very intelligent, but neither Smith, nor David Hume, would think he really grasps the ways that business works on motives much broader and deeper than those utility suggests.

Economics is foundationally about aligning objects with desires, finding symmetry between production and consumption. The second paragraph of The Theory of Moral Sentiments begins with Smith observing that “we have no immediate experience of what other men feel.” If commerce is about communication, aren’t we stumped? If each person is uniquely embodied, and thus flooded with experiences which others cannot really fathom, how can business hope to align objects with desires? The arts and imagination bridge the gap.

Persons might be mysterious, but we are also animals of mimickry. The second page of The Theory of Moral Sentiments explains what happens when we watch others:

By the imagination we place ourselves in his situation, we conceive ourselves enduring all the same torments, we enter as it were into his body, and become in some measure the same person with him, and thence form some idea of his sensations. 

 We literally perform this imitation, for we are natural mimics:  

 When we see a stroke aimed and just ready to fall upon the leg or arm of another person, we naturally shrink and draw back our own leg or our own arm; and when it does fall, we feel it in some measure, and are hurt by it as well as the sufferer.  The mob, when they are gazing at a dancer on the slack rope, naturally writhe and twist and balance their own bodies, as they see him do.

For this reason, contends Smith, the universal art is dance, accompanied by music. Which likely explains both the pervasiveness of music in shops, elevators, and our cars, and the commercial buoyancy of the music industry.

It is more natural to mimic, by gestures and motions, the adventures of common life, than to express them in Verse or Poetry… Pantomime Dancing in this manner serve to give a distinct sense and meaning to Music many ages before the invention, or at least before the common use of Poetry.

Bankers are fretting because Patagonia is putting the brake to the pantomime of all being bankers together. Pantomime satisfies the human need for belonging, but tribal solidarity is only half the story. Why do bankers so proudly twin these inexpensive fleeces with their $1500 Jonathan Lobb wingtips?

Smith: “It is because mankind are disposed to sympathize more entirely with our joy than with our sorrow, that we make parade of our riches, and conceal our poverty”. Written 260 years ago, these words remain explanatory. From The Wall Street Journal report: “‘When you walk on the street, you can definitely tell who are the people who are in banking or finance,’ said Zach Creighton, of Minneapolis, an analyst at investment bank Cascadia Capital, the name stitched on the breast of his own Patagonia vest.”

What is the ultimate driver of the economy, according to Smith? 

If we examined his economy with rigour, we should find that he spends a great part of them upon conveniencies, which may be regarded as superfluities, and that, upon extraordinary occasions, he can give something even to vanity and distinction… But vanity is always founded upon the belief of our being the object of attention and approbation. The rich man glories in his riches, because he feels that they naturally draw upon him the attention of the world.

Vanity and distinction are the hinge of both economics and morality. One is moral, argues Smith, if in symmetry with the spectator.  The great analytical questions of Smith’s moral thought are: Who is the spectator, how partial or impartial, and, if more than one, can spectators find consensus? The basic rule of thumb is you have symmetry with the spectator if your posture suggests “a thousand agreeable ideas,” as he charmingly puts it. How do you and I convey agreeableness to others? Style.

Smith would not invest with Mr. Bajaj because commerce is not fundamentally about utility, but style. There is a Smithian reason Apple sits atop the business hierarchy. Steve Jobs grasped this and transformed Apple as a result:

What we’re going to do is make the products high-tech, and we’re going to package them cleanly so that you know they’re high-tech. We will fit them in a small package, and then we can make them beautiful and white, just like Braun does with its electronics.

Apple has a design logic, and so do bankers. The panic over fleeces is not irrational: vanity is as much a part of the logic of commerce as utility, and Patagonia is hitting bankers where it hurts. But do the financiers get to laugh last?

Another aspect of Smith’s thinking is uncomfortable for Patagonia. Smith argues that spectators are fickle. The speed of the news cycle or the duration of Twitter cascades makes his point. Sometimes, however, a spectator lingers and digs into the background of glamorous lives. The FBI unearthing corruption at elite universities or the Harvey Weinstein case are good examples.

Digging below the surface of Patagonia, they are not quite the moral custodians they would have you believe. Oddly, Patagonia has no factories: all manufacturing is contracted. Odd, because you would expect a company so concerned about the earth to be actually settled upon it somewhere. Its business is not in any place, its manufacturing roves.

In a frank and thoughtful ethics statement, Patagonia accepts that there are strong environmental arguments for localism and plenty of evidence exists that linking the place of design and manufacturing fosters innovation. This has been amply demonstrated by Spanish clothing giant, Zara, whose operations are all located in Galicia.

In the comments section of their ethics statement, Patagonia moderators reply to readers. One asks why Patagonia is not localist when other clothing companies are. The moderator’s answer is extremely revealing. The moderator bemoans the collapse of sewing know-how in the US and then argues that it simply is not possible for a company of Patagonia’s scale to manufacture in the US. Is it really Patagonia’s position that it is too big a company to be especially environmentally conscious? Too big to fail, anyone? Is Patagonia recycling not only clothes, but a version of the old banking argument that some financial houses are simply too important to be burdened by niceties?

Granted Patagonia is morally superior to a bank like Wells Fargo but this argument from scale—and it appears to be important in Patagonia’s eyes—trades on the idea that there is a rigorous determinism that makes it difficult for the company to be as moral as it would wish. This just is not true. The scale of the company is well within its power to change (not least because it is private). Is there a moral reason Patagonia needs to be as big as it is? Doesn’t morality demand living within one’s moral means, so to say?