A Failed Investment

Divestment campaigns rarely force the political change they seek

By Patrick T. Brennan

Last month, the Student Labor Action Movement hosted a weekend-long “Responsible Endowment Conference” in Boylston Hall. The conference added to the group’s impressive list of accomplishments, such as spending three unshaven weeks in Larry Summers’s office, soliciting Ben Affleck’s signature for their petition, and dishonoring legitimate hunger strikes by fasting in support of a petty wage increase for Harvard’s security guards. While the conference did not focus on one issue, it did represent another effort on the part of students from Harvard—and other wealthy schools like Yale, Wellesley, and Bowdoin—to shoehorn their university’s endowment into their vague concept of social responsibility.

One such campaign recently urged divestment from oil companies in Sudan, while past targets included South Africa and Israel. An awkward yet admirable sense of solidarity motivates students to such advocacy. But good intentions cannot rescue the divestment strategy from its bêtise and inefficacy.

First, how does one determine whether a company or country is ethically acceptable for investment? In some cases, it is abundantly clear; in others, less so. For instance, the demand that Harvard divest from the Middle East’s only democracy because of its human rights record—which is far better than any of its neighbors—is silly. Larry Summers was charitable in calling Israeli divestment “anti-Semitic in effect, if not in purpose,” rather than labeling it the political farce that it was. 

The more recent demand that Harvard divest from HEI Hotels because of alleged mistreatment of workers has some merit, but is equally ridiculous. HEI employees have complained about an anti-unionization atmosphere at the hotels, as well as threats of layoffs and reduction in working hours—also known as “normal working conditions” at thousands of American corporations (including Harvard, one might add). If these policies make an investment morally objectionable, Harvard will have a difficult time finding somewhere to invest its endowment, notwithstanding its newly petite size.

As for the objections over Harvard’s financial connections to various oil and gas companies in Sudan, the intentions are humanitarian, but the method is ineffectual. In 2006, the Corporation ordered that Harvard divest from Sinopec, a Chinese oil contractor owned by a company that works with the Sudanese government. Since then, the situation in Darfur has deteriorated, the African Union’s peacekeeping force has remained feckless, and Sinopec has grown into the world’s third largest oil producer. Perhaps the ardent activists who pressured the Corporation into such an admirable act of humanitarianism would have been better off taking a shower. 

Last year, Harvard students organized a campaign to boycott UBS’s recruiting process because UBS was underwriting some of Sinopec’s expansion plans. How many Harvard students determined the plight of the Sudanese to be more affecting than the allure of Hermes ties and bottle service is unclear. Suffice it to say had UBS been worried by its loss of eager Ivy I-bankers as to withdraw its services from Sinopec (which it was not), a few more firms would have been happy to step in.

Proponents of divestment love to point to the boycott of apartheid South Africa as a success story. Besides the fact that South Africa is the only example where divestment may have achieved its aims, divestment was hardly the central factor. Harvard undergraduates may be eager to grab a slice of the glory from Nelson Mandela, F.W. de Klerk, and the thousands of South Africans who perished in the fight against apartheid, but they do not deserve it. In the 1980s, at the same time that the United States and Britain imposed federal embargoes on South Africa, violence in townships and cities grew to an unsustainable level, while the South African Border War stretched the South African military to its limit. The collapse of apartheid had as much to do with these conflicts as it did with the damaging—though hardly catastrophic—effects of divestment. 

Meanwhile, examples such as Cuba, North Korea, Iran, Sudan, and Rhodesia (which had a growing economy for fifteen years despite never having economic relations with any Western country) evince the impotence of divestment and embargoes. It is quite ironic to note that many of the same leftist elements that promote divestment from objectionable companies and countries support lifting the embargo on Cuba, since it has proven not just futile, but deleterious to the Cuban people. 

Divestment’s moral and practical futility is hardly surprising, and its continued practice rests upon economic ignorance. Once a company has sold its stock to a private party, the sale of it to another party has no effect on the financial health of the company. Moreover, from an ethical perspective, if holding stock in an immoral venture is a sin of commission, then giving it to another party merely transfers the guilt, rather than eliminating the sin itself, producing no utilitarian benefit.

Unsurprisingly, students at wealthy universities have taken a liking to the idea that they have billions of dollars of capital with which they can effect social change. Why work towards real political change when one can complain about where the endowment is invested? When one considers that Harvard students do not have any particular sway over Harvard’s endowment, divestment campaigns seem even more ridiculous. In fact, every Harvard student has his education subsidized by investment in activities as heinous as logging companies in northern Maine and McDonald’s in Israel. If any of them feel like paying the full price for a free conscience, I’m sure President Faust would be more than happy to oblige.