Social Investment

Putting your money where your mouth is

Under capitalism – and indeed we don’t really have a capitalist global system we have a State-Capitalist system, or, semi-nationalism or semi-socialism or however you want to label it – money talks. Money is the means by which goods are exchanged and investment in productive assets are made. Without investment you don’t have growth and without growth the poor stay poor. The state intervenes in this flow through taxes, regulation and trade restrictions – so the resources don’t flow to their most productive outlets, but in a second best situation, this is what we have.

That being said, today’s NY Times has a story in the biz section on the Government of Norway’s pension fund social investment strategy. They avoid investing in companies which produce nuclear weapons and land mines, create environment damage, and don’t respect human rights. Good enough. Wal-Mart is on the latter list, I guess this must be because of the fact that they don’t encourage labour unions at their stores. I guess the fact that they personally inspect all of their Chinese manufacturing partners for working conditions doesn’t count as helping human rights, but that, again, is another story.

Which brings us to the point of this blog entry. Alot of people shop at Wal-Mart – poor people and not so poor ones – because they have the lowest prices. One of the goals of economics is maximizing consumption (this is kind of sad but the point here is that maybe for the poor maximizing consumption – eating, and clothing their children and sending them to school and buying them books – is all they can do), so Wal-Mart with its revolutionary concept of constantly lowering prices (actually K-mart did this first with their “Attention Shoppers we have a blue-light special on aisle three for paper towels” or whatever it was at the moment) helps the poor.

Under capitalism one has the freedom of choice (excepting the state intervention mentioned above some of which is necessary at decentralized levels to bridge the collective action – public good divide, sometimes literally with bridges and subways) to buy and invest in what they want. One persons bad – Wal-Mart, may be another person’s good – Wal-Mart (or here in Brooklyn the 99 cent local stores and kiosks run by Gambian traders and other ‘immigrants’).

This freedom of choice is what helps make our lives complete. We have the right to do what we want with our means of exchange (that which is left after taxes of course). Social investment is just another way of exercising this freedom of choice. But then again who knows if all the people working for the Norwegian government agree with the pension fund’s strategy. Another reason for giving people the right to exercise their own choices for their own “retirement” strategies. True social investment is the individual exercising his or her options in the market, especially as stock ownership as become broader and deeper over time.

Note: There has been a decrease in the rate of the general public's ability to buy stocks due to the regulatory over-reach with Sarbannes-Oxley after the Enron scandals - which could have been prosecuted under existing anti-fraud laws, no additional regulation was necessary. It is becoming more and more common knowledge that SOX added such regulatory burden to listing companies on American stock exchanges that more companies are seeking capital exclusively from private equity, eg from only the very rich, or, from overseas markets. This has hurt the ability of the average (read non-rich) person from buying stocks, all in the name of protecting this person ! This is classic unintended consequences. But, hopefully, it appears that a rollback of SOX is now underway, so that "social investment" may continue.