Friday, June 27, 2014

Ethical Investors and What Ended Apartheid

I am looking at my university which just approved to divest from oil companies due to their environmental practices and human rights abuses. I definitely agree with them that these oil companies are unethical and take advantage of millions, only a fool would deny it. However, my concern is that their strategy will not be effective in creating real change that will move the planet off of fossil fuels.

The whole question is extremely big picture. The goal of the movement is to move the world off of fossil fuels as quickly as possible. By doing this, we need an incredible amount of capital, in terms of fueling stations, to make it so we can all move to a realistic alternative. This requires a lot of money. The oil companies today have the resources we need. I have already wrote about this in my post The Ethical Investor and nothing has come to my attention since writing it to change my mind.

The classic example of successful divesting that people will point to is the almost global embargo on South Africa in the 1980s and early 1990s before the end of Apartheid. They were supported by the US until late in Reagan's administration when Congress finally imposed sanctions, and after the US left them the only country that freely traded with them was Israel (which is an interesting scenario given their policies in West Bank and Gaza). South Africa couldn't get outside resources and their economic system was such the Soviet Union wouldn't help them and Russia couldn't after the break-up, so the ANC was able to come to power without a massive civil war, which is unusual for any time or place. The only reason the sanctions worked was because they were from almost every country in the world and the protesters were the vast majority of people.

Companies however are a different animal. If we choose to divest from the stock of an oil company it won't have the same effect as divesting from South Africa because the mechanisms are completely different. The only major effect of the divesting will be removing voices of reason and science from the company elections which will give the people who vote for the individuals who attack our environment and abuse their workers a larger voting share. This will not shut the company down, and it will not give us the resources we need to turn the economy around to make a nationwide renewable energy network. Exxon Mobil is the most profitable private company in the world, and we could do much more good harnessing their resources to invest in renewable energy than investing in companies that have lower profit margins. In the end it is a self-defeating strategy and comparing to South Africa (the only sanctions in history that worked from my reading about historical sanctions) is not a valid comparison. There is also no solid theory to back up divesting as a real strategy that could change the world so it should be discarded and we need a new approach.

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