In an earlier blog post, Kyle Klavetter wrote, ”There is a good reason why the Dartmouth Review and, among other intellectual conservatives, Mr. Buckley argued against the divestment of South Africa and it is the same reason why most liberal ideas are opposed: such ideas appeal nicely to emotion but, upon evaluation of their real world consequences, are seen to have unintended and regrettable consequences”.
With all due respect (sorry, Kyle): Divestment can and should be an important options for individuals who want their portfolios to reflect their beliefs. This is one issue that the left has right.
Mr. Robinson’s talk to the Collegiate Network detailed a new way to fight countries that support terrorism. Using the financial prowess of the United States to discourage countries from supporting terrorism is an excellent idea which may give policy makers an alternative to conventional warfare. At present, Mr. Robinson’s ideas are based on free market values, encouraging companies to divest in corporations that are based in, or do substantial business in, terrorist-sponsoring states with the assumption that these companies will be naturally more volatile and have a greater risk of collapse.
The problems with this economic argument are twofold. First, it is based upon the assumption that the random walk theory is incorrect. This is an enormous assuption that has been widely proven through empirical evidence. If the current market assumptions, however, do not take the risk of terrorism into account, then Mr. Robinson’s arguments would be correct. Secondly, Mr. Robinson does not present a valid sample size for his volatility argument. Simply put, there have not been enough companies exposed to the risk of unstable, terrorist-sponsoring states in order to argue that they are unduly risky.
In many ways, Mr. Robinson’s method does have the potential to be a very successful way to fight terrorism. If the United States made a cohesive effort to punish companies dealing with terrorist states, it could force them into non-existence. An enormous percentage of the world’s resources flow through the financial institutions of the United States, even if these institutions are mere third parties in the transaction. In fact, the United States directly controls over 40 percent of the world’s usable capital. Furthermore, if these companies were labeled as risk assets by the SEC, corporations would have to divulge their holdings in these companies, alerting share holders to their presence.
If the strategy of financial warfare is to be used successfully, it must be done on as large of a scale as possible. Companies must divest,the United States must deny use of its financial institutions, and the treasury may take additional action, such as releasing currency reserves to drive up that nation’s inflation. In this way, the terrorist nation will experience a shock that will result in the downfall of its national economy within a matter of weeks or months. This would cause minimal damage to the civilian population, and allow the economy to quickly recover once reforms are in place. On the whole, Mr. Robinson’s idea presents much promise, but still has to be defined further if it is to reach maturity.
Mr. Robinson argues for a strategy of financial divestment of ‘at-risk’ nations to counter terrorism.
I am unsettled that Mr. Robinson has made this strategy something of a mandate by using the authority of the SEC to enforce his idea. Doing so, he added yet another level of bureaucracy to the SEC (I have read the SEC is currently estimated to consume about 2.5 of blue chip revenue due to its red tape) which is unpalatable.
However, my objection is to the strategy, not the method, of Mr. Robinson’s idea. Divestment is in my opinion a strategy somewhat akin to the old Puritan idea of stoning the rebellious child to prevent him from sin and, by extension, eternal damnation. To save the child, his life is forfeit and that is absurd. Divestment prevents corporations from trading with what Mr. Robinson deems as undesirable nations, and, as a direct result, will greatly increase the time it takes for these peoples to come out from their stone age and develop a middle class. In a thought, I believe that divestment is a feel-good strategy which entraps the world’s poor. Because poor people are more easily dictated by evil men and can be more easily led to embrace violence (they have literally less to lose), entrapment is, in a word, bad.
It is my understanding of history that the nations with a large middle class are the peaceful nations. How else does Mr. Robinson propose wealth come to these poor peoples if not by trade with the industrialized world? It appears to me that it is chiefly through an anti-divestment strategy (i.e. strong trade) with China that we, US, intends to transform that land into one flowing with Starbuck lattes and gas guzzling SUVs. A nation which once survived on rice now enjoys beef, and a people which only knew bicycles now is seeking the automobile: they are becoming a middle class society and much more amenable to the Western ways, as a people and politically.
Incidentally, this reality is an example of the social argument proposed by Asimov in his “Foundation.” It is through trade that you make a backwards people want to change into a prosperous people who prefer peace, the condition which protects their wealth.
I also believe it is unfortunate that Mr. Robinson sells his idea as an ”anti-terrorism” act of the common man. This, I believe, is propaganda which takes advantage of the average American’s patriotic inclinations and also unfairly demonizes American corporations which do some business in the nations Mr. Robinson says not to. There is a good reason why the Dartmouth Review and, among other intellectual conservatives, Mr. Buckley argued against the divestment of South Africa and it is the same reason why most liberal ideas are opposed: such ideas appeal nicely to emotion but, upon evaluation of their real world consequences, are seen to have unintended and regrettable consequences.
Afterthought: did it unsettle anyone else that Mr. Robinson was excited to be on the same team as liberal radicals? Traditionally, (and conservatives love tradition) I have found it to be a sound strategy to listen to, for example ex-President Carter’s foreign policy ideas, and support the exact opposite idea. I favor this advice on this policy as well.
