Forget About Divestment

Targeted divestment is a popular and oft-proposed solution for some of the worst atrocities in the world. In November, Massachusetts Governor Deval L. Patrick ’78 signed into law a targeted divestment bill aimed at putting pressure on the Sudanese government to cease the genocide in Darfur. In September, students marched through Harvard Square to urge the passage of a bill that would stop public pension funds from investing in companies that enable the military junta in Myanmar. These advocates apparently believe that they can make a difference by convincing financial institutions to stop investing in companies such as PetroChina and Chevron, which are linked to atrocities around the world. There is no question that the genocide in Darfur and the violent military crackdown in Myanmar are acts of brutality that should be stopped, but divestment is both an economically unsound and ineffective way of achieving these ends.

Divestment campaigns advocate the sale of shares in companies that support atrocities. Proponents of Darfur divestment argue that such “financial pressure” on companies that support the Sudanese government can help alter its political stances. While divestment is similar to traditional boycotting of products, classic economic theory predicts that it will have absolutely no effect. Unlike goods and services, whose prices can be affected by changes in demand, the price of a financial asset is determined by its expected returns. If a firm forgoes a profitable investment, then another firm will take advantage of that investment instead. In today’s world of highly mobile global capital, opportunities for profit rarely go unnoticed—someone will step in as soon as we leave.

What this means is that divestment merely transfers the profits gained from one investor to another. As long as someone is willing to invest in a given company, no divestment will have any effect. Therefore, divestment campaigns only hurt the investors they go after, such as Harvard’s endowment or Cambridge’s pension fund, and cannot cause real change. This conclusion is backed up by empirical studies. An August study from the Center for Retirement Research at Boston College surveyed the academic literature and found that such “social investing” has no effect on the stock prices of targeted companies.

Divestment advocates claim that the South Africa divestment campaign of the 1970s and 1980s played a major role in ending apartheid. There is no empirical evidence, however, for this claim. A 1999 study in the Journal of Business found that the boycott had almost no impact on financial markets or corporations in South Africa. In addition, global capital markets are significantly more liquid than they were in the 1980s, so even short-term effects of divestment will revert more quickly.

Furthermore, even if Harvard or Cambridge’s actions helped spark a national movement for divestment, there will always be available sources of capital—sources that do not necessarily operate from Wall Street. No publicity campaigns in the United States can change the fact that PetroChina and Chevron are incredibly profitable companies. That harsh reality means that they will always be able to find investors who are not so picky about where their money has been. Eliminating American investment in companies such as PetroChina and Chevron will only shift profits to foreign investors, including, perhaps, terrorist financiers or rogue states.

One might argue that the goal of divestment campaigns is not to hurt the targeted companies but to raise awareness, send a message, or ensure that our money in particular is not directly involved with companies that support genocide. But if that is true, then advocates are being disingenuous when they claim their campaigns can effect real change. HDAG claims that “institutions can influence the Government of Sudan” by divesting in companies such as PetroChina. Such a claim implies that divestment puts financial pressure on these companies, or can cause change itself. This idea is not only misleading, but also is harmful, since it diverts people’s attention toward ineffectual policies rather than strategies that can actually bring change on the ground.

Finally, it is questionable why our primary concern when faced with genocide should be whether our own hands are somehow dirtied by it. It makes little sense for strategies that could effect real change in Darfur, such as military intervention or humanitarian aid, to be ignored in favor of attempts to clear our own consciences. It is self-centered of students to suggest that Harvard’s portfolio matters at all to those directly affected by the genocide.

Raising awareness should be a means to an end, not an end in itself. There are things students can do to help make a difference in Darfur, such as donating money to non-governmental organizations that provide refugee relief or medical aid. We can lobby congress to accept refugees in America, to impose sanctions, or even to take military action. Some of these courses of action have downsides, but they should be our primary considerations, not the symbolic gesture of divestment. Lack of awareness is no longer a problem; a lack of progress is. Advocating for policies that do nothing but engender more advocacy is an empty form of activism.



Daniel P. Robinson ‘10, a Crimson editorial editor, is a social studies concentrator in Kirkland House.