Divestment remains unproven solution

At least in the 1960s progressives understood the transactional logic of marijuana dealing, and knew that some primate species avoid war by having sex. This enlightened paradise is now lost. In the 2005-06 academic year, Yale students out to change the world attacked the police chief for publicizing the race of crime suspects and helped a board of aldermen better suited for wrestling with subject-verb agreement forestall the construction of a futuristic cancer center over “community” objections transparently staged by a union and the Connecticut Center for a New Economy’s South African president.

And now, sadly, the latest progressive cause is beset with the same woolly thinking as the others. Without invoking any evidence whatsoever, students (and a state senator) have decided that divesting is a good way of hurting oppressive regimes such as the Sudanese government’s. In a recent opinion piece, Josh Eidelson implied that investing in companies that dealt with the South African government “abetted apartheid” (“Divestment shows role of students in Yale policy,” 2/21). YCC representative Andrew Steinberg ’08, the sponsor of a successful resolution calling for divestment from companies with links to the Sudanese, argued in the News that “Yale has the ability to effect change in Sudan [through divestment] and should do so” (“YCC urges divestment,” 1/26).

The pro-divestment argument goes like this: After a massive struggle, organization, rallies and student protest, a number of institutions divested from holdings in South Africa. Eventually, apartheid ended in South Africa. Therefore divestment is effective. This is conceptually the same as thinking that Uncle Jeff farted because you pulled his finger. (He farted because the time was right and he had to, and your role was being in the right place at the same time.) So it was with the student activists.

But don’t take my word for it. A 1999 study in the Journal of Business concludes: “We find no support for the common perception — and often vehement rhetoric in the financial media — that the anti-apartheid shareholder and legislative boycotts affected the financial sector adversely: The announcement of legislative or shareholder pressure had no discernible effect on the valuation of bands and corporations with South African operations or on the South African financial markets.” And a recent article by Matthew Haig and James Hazelton in the Journal of Business Ethics: “Fundamentally, however, addressing social problems by targeting individual firms, either by way of shareholder activism or SRI (socially responsible investment) fund investment, is not likely to result in systemic changes.” Uh-oh.

And it gets worse. Companies that sold their assets and left the country (which students advocate) did worse in terms of stock price than those that stayed, and they enriched local businessmen by selling their holdings at rock bottom prices. So a push for divestment and disinvestment may have the opposite effect of what the activists hope: not hurting (or even helping) the bad guys and punishing the good guys. Moreover, I’m not sure that we want ethically conscious companies leaving impoverished countries. Whom do they employ, after all? Martians? Who will take over their operations when they depart? Cronies of the same governments we’re trying to punish?

Of course the Sudanese genocide must be stopped. The question is how best to apply pressure on the government. Sending in the Marines would be a good approach, but it does not appear possible at this time. As far as economic policy tools are concerned, William Keaempfer, James Lehman and Anton Lowenberg contend in their study “Divestment, investment sanctions, and disinvestment: An evaluation of anti-apartheid policy instruments,” that limiting future investment in a country may be a way of hurting its economy without enriching local businessmen. Even this does not get around the problem of potentially harming innocent people in the country far more than the government, but at least it is not likely to be completely counterproductive. Why divestment advocates don’t know the basic economics of their own movement is a great mystery.

But I could be wrong. Perhaps I misread the evidence or couldn’t track down a specific reference proving unequivocally that divestment drives solve all the world’s problems and leave each and every one of us with a beautiful white pony. If so, I would love to know and will publicly abase myself. And yet somehow I can’t help but think that Yale’s divestment crew got caught up in do-gooder groupthink and actually has no idea if divestment is effective or not. This innocence of evidence is a problem that plagues many activists at Yale on both sides of the political spectrum (one example on the right would be those who moralize against homosexuality on religious grounds ignoring the vast abundance of same-sex activity in nature). I weep for America if this style of thinking is as prevalent among our future leaders as it seems.

Matthew Gillum is a first-year graduate student in molecular and cellular physiology. His column appears on alternate Fridays.