The fact that so many hand-wringing leftists demonize American success stories like Walmart (WMT) should come as no surprise, because the left believes there cannot be success without someone suffering as a result.
That’s just not true, and anti-capitalists often point to companies that should behave more “morally.”
The result of this mind-set was the creation many years ago of “socially responsible investing,” or SRI, which I place one level below the notion of “social justice.” Playwright David Mamet refers to the latter as inflicting pain on one party for the benefit of another. Socially responsible investing is what I refer to as inflicting the pain of below-market returns on foolish investors.
SRI is a sales gimmick, designed to appeal to those suffering the guilty pangs of success who want to pay penance for their involvement in capitalism, and invest their ill-gotten gains in something that is “good for the community.”
Unfortunately, those following this train of thought are doing the equivalent of running through a minefield of fallacies while wearing clown shoes. So I’m going to detonate a few of those fallacy bombs.
SRI Fallacy Bomb No. 1
Somewhere along the chain of manufacturing or distribution of a socially responsible investment, something immoral is going down.
One or more of the workers is a convicted felon, or worse. One of the tools hidden away in some robot in the factory was manufactured by child slave labor. The company is unquestionably using fossil fuels. Some widget in the final product is purchased from a country on the (fill in the blank world watchdog) agency’s list of countries with human rights violations. The floor manager is a homophobe/racist/sexist. The district manager kicks puppies.
My favorite example: diamonds. In the 1990s, there were horrific civil wars in West Africa in which crazy people were fighting over diamond mines. Butchers and maniacs were digging up diamonds, and they were sold into the public’s hands. These were called “blood diamonds” or “conflict diamonds.”
Oh sure, there was all this talk about how government verification processes were put in place to identify conflict diamonds. The truth is there was no way of telling what was or wasn’t a conflict diamond. Many of them are on the fingers of Western women. Zillions of others are used in drill bits by countless companies.
So, what … are you going to boycott the companies that use diamonds in their drills? What about products created from the drill bits? What if those products get placed inside other products?
There is an infinite number of elements that socially responsible investing funds have no knowledge of, and by extension, neither do you. So in some way, every time, you aren’t being totally socially responsible, and neither is the SRI fund.
But I guess it’s OK if you don’t know about it, right?
SRI Fallacy Bomb No. 2
What makes a company “socially responsible,” anyway? Whose definition are we using? What exact line has to get crossed for the SRI label to apply?
See, any standard set is, by its very nature, going to be arbitrary.
OK, so the CEO of Barilla pasta made some comment about not liking the facts that gays can get married. So you boycott Barilla. How do you know the CEO of Jasmyn’s Organic Crunchy Granola isn’t a closet racist? Or that he hates straight people? Or gays? Is your arbitrary line set at having to know about the person’s prejudice to trigger the socially irresponsible claim?
The Chick-fil-A controversy revealed that for every person who boycotts the company over the CEO’s views on gay marriage, there were others who supported the view, and his right to express it. You ate at Chick-fil-A before, but now you won’t because he engaged in free speech?
What kind of morality encourages people to shut up?
SRI Fallacy Bomb No. 3
You can never verify whether a socially responsible investing mutual fund would or would not perform better than any other mutual fund, simply because of the alleged socially responsible activity of the companies held by the fund.
That’s because you cannot control for the socially responsible elements. Just go back to the arbitrary rules for what constitutes being “socially responsible.” How do you determine how a given company would have done had it not implemented these already arbitrarily chosen guidelines? Or more succinctly, how do you know whether SRI caused a stock to outperform or underperform?
I could throw a bunch of stocks into an index and call it socially responsible. Let’s see — Starbucks (SBUX), Whole Foods Market (WFM), Tim Horton’s (THI), and Bank of Montreal (BMO).Then I’ll stack those up against those evil terrible corporations like Walmart, McDonald’s (MCD), General Electric (GE) and JPMorgan Chase (JPM).
Starbucks and Whole Foods are considered socially responsible investments, but they’re also great companies that sell expensive products. How does each factor into the returns? On the flip side, Walmart isn’t an SRI stock, but its long-term returns blow away every stock I just mentioned.
Business and capitalism are amoral. That is, they are devoid of morals, which is different from immoral, meaning having bad and destructive morals.
If you try to tie your investing cart to morality, you are going to be led astray by emotion and fallacy. Investing is about fundamentals and earnings growth. The sooner you accept this, the better your returns will be.
Lawrence Meyers is a proud owner of SBUX, WFM, GE, and a host of really evil, profit-driven, minimum-wage-paying, overpaid-CEO-run companies.