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.

Individual power, opportunity, morals, and balance

I am right now starting a small business, and will be working (finally) by the end of the week. The license took a long time and my desire for technology is larger than ever before. It is far harder to lose an e-mail than a physical letter (as the people in my State's government showed yet again) but that isn't what I really want to talk about.

With a new job, and a future for myself, I am going to have as a young man money to invest. I will be able to make my own decisions on where I want to place my money and am currently studying (while not reading about politics and blogging about current events) how to be the best small business owner I can possibly be. How to balance my books without hiring an accountant and how to invest my surplus income in a way that will prepare me to be well-off throughout my life. I have made a few major decisions on what I will and will not invest in. Here are my opinions on the three most popular investment strategies.

1. I will never invest in a government bond, I would rather pay taxes so that the government doesn't have to pay 18% of spending to the debt. It is wasteful. I do not want the government to pay me directly, I want my government to build infrastructure, schools, and provide universal health care, not pay me as some lousy investor an interest rate that frankly doesn't keep pace with inflation. It also doesn't beat the stock market.
2. I will not invest in real estate as an investment for the long-term. It doesn't beat the stock market and I am extremely bothered with how just sitting in a house can through the miracle of voojoo make the house double in value without actually improving it. That doesn't make sense, and barely beats inflation when taking into account the time, and when counting the investment beyond the mortgage to keep it up could very reasonably cost more than any money you will get out of it. It has always been and always will be a bubble, and one rule of economics I have learned is that every bubble must pop.
3. The stock market however, and I consider hedge funds part of the stock market, beat inflation by a large amount almost every year. The actual value of the companies is actually increasing as they take your money and invest it in new infrastructure and grow their company. It is also one of the few things every person who is currently on the Forbes 400 has in common, they all invest in the stock market. I probably won't invest in a privately managed stock fund to avoid the massive fees that they charge to manage your money, but will invest long-term in a vast array of companies that I feel are going to grow and increase their value. This is value-investing philosophy and is the school of thought Warren Buffett practices, the most successful investor in history. I am reading his letters to shareholders which are on-line and I have gained respect for him.

I have heard one legitimate complaint about investing in these types of companies however, that I am investing in immorality, and will be part of the problem. I will start investing in a few companies along with companies that are part of ethisphere (www.ethisphere.org) which are selected for morality. There is not a choice between morality and wealth. You can have both. I will also invest in banks, conglomerates like Berkshire Hathaway, and other high-performing stocks with and without dividends. If enough moral people invested as owners and pressured their managers to be moral in their political and labor relations and work towards long-term growth than we could change the world, and I am going to follow Mohandes Gahndi's advice to be the change I wish to see in the world. By not being involved in the stock market we are saying we agree with the decisions of many unethical companies by not acting to change their business practices through voting stocks which would pressure them as owners to do things, because picketing outside their offices with signs hasn't changed anything yet, and I don't expect it ever will. This is my way of making the world a better place. This is the type of direct action Occupy should have done along with removing their cash from large banks. When ethical organizations are pressured by activists to divest from large companies they are hurting their proclaimed cause by removing ethical owners from large companies that hold the power, and the activists will lose once again.

Sun Tzu said: In the practical art of war, the best thing of all is to take the enemy's country whole and intact; to shatter and destroy it is not so good. So, too, it is better to recapture an army entire than to destroy it, to capture a regiment, a detachment or a company entire than to destroy them.
http://classics.mit.edu/Tzu/artwar.html

What Sun Tzu said about military war is just as applicable in activism. To capture the company and change how they do their dealings would a much more effective strategy.


Also, my previous post on Europe is becoming true, with the new progressive Czech president beating the conservative incumbent.