Getting serious about using investment for social change

Divestment campaigns almost never work. Sometimes a campaign might actually get a fund to sell off and refuse to buy certain stocks, but rarely will it ever get enough funds to do so simultaneously, which is what’s necessary to actually exert any pressure. I suspect these kinds of campaigns are pursued in part because people don’t really understand what divestment means. They think that one entity “divesting” scores some sort of blow in and of itself. In reality, divesting just means swapping out owners: the entity divesting just sells of its ownership shares to some other party.

What does that accomplish? By itself absolutely nothing. Ownership shares swap hands every second of every day. That’s how markets work. However, if you can get enough actors to simultaneously sell off their shares (if they have any) and commit to not buying any in the future, then that can cause the share price to fall in at least two ways. First, by taking potential buyers out of the market, there are less actors competitively bidding for shares, which can reduce the price. Second, by taking potential buyers out of the market, the liquidity of any given share is reduced, exposing holders of those shares to greater risk. This risk should get priced into the share, which means the share price will fall.

From there, the theory goes, the management of the firm being targeted will cave to the demand in order to stop the divestment and boost its stock price. From the description alone, it should be clear how big of a long shot this strategy is. Getting a bunch of (usually very wealthy) managers of large funds on board with your politics enough to pass over a high-yielding investment is very unlikely. Not to mention that we have laws in this country that assign liability to fiduciaries of investment funds that do not act solely in the interest of the fund’s beneficiaries or participants (think pension funds for instance). So, passing over a good investment for political reasons could get you sued.

The long shot nature of divestment campaigns probably explains their general failure. But there are other ways. It astonishes me that there is so much focus in getting your money out of bad places. I guess it goes to the whole politics of personal purity the left in particular gets bogged down in. The most sensible thing, it seems, is not to pull your money out of bad places, but to plunge your money into them. If you want to get serious about using investment strategies to force companies to do something, collect money to buy out controlling shares in them.

Imagine, for instance, a donation-sponsored activist fund that was solely dedicated to buying out controlling shares in targeted companies, reforming the companies for purposes of social justice, and then selling their shares back out. With the money from the sale, the fund could then move on to the next targeted company, and so on. This would be a costly strategy: it would probably force the fund to absorb investment losses for each targeted strike. But if you could collect enough money and keep donations rolling into the thing, it could work. At the very least, it seems like a more plausible strategy than divestment for actually winning social change through these channels.

Rolling Jubilee round up

A group calling itself Strike Debt has a new initiative called the Rolling Jubilee. The basic idea is to purchase distressed debt for pennies on the dollar — as collection agencies regularly do — and then cancel the debt. Through this strategy they estimate that they can cancel $20 of debt for every $1 that is donated. This has gotten a great deal of buzz from all sorts of press outlets and the usual suspects. For those interested, here is a short round up of the must-reads.

  • Seth Ackerman and Andrew Ross debate the merits of the Rolling Jubilee at Dissent.
  • Ida Ince covers some of the legal issues involved and iterates some of the relevant arguments.
  • Matt Yglesias favors the idea, but unsurprisingly raises the point that cash transfers would be better.
  • Doug Henwood, among other things, challenges the strategic wisdom of a campaign focused on debt.

As for me, I don’t have much to add. It’s a neat idea and getting a great deal of attention. It illustrates a level of creativity and competence that many doubt those associated with Occupy have. That’s all good, and so I think it’s a good initiative for those reasons. Along with Henwood, I am not that excited about debt as the focal point. As the 2010 Survey of Consumer Finances reveals, the poorest 20 percent of households are the most likely to have no debt at all, and debt levels track income percentiles.

Those on the lower end of things — even though they are the least likely to be holding any debt — certainly get trapped in it and have to rely on things like credit cards because of the grossly unequal distribution of income in society. But this broad distributive point — the point I tend to think is the most important — may not come across in this action that is so narrowly focused on debt. If the movement is one against the institution of debt itself as a social relation, this ends up being much less of a class issue than the organizers suggest. That is, all classes carry debt, and the rich carry the most.

A direct action success for DREAM activists

In past couple of weeks, activists from the National Immigrant Youth Alliance staged sit-ins at Obama campaign offices, demanding an executive order halting the deportation of youth eligible for the DREAM Act. Obama caved to the demands, issuing a Department of Homeland Security directive stopping certain kinds of deportations.

An estimated 1 million young people could benefit from the deferral. To be eligible, applicants have to be between 15 and 30 years old, live in the U.S. for five years, and maintain continuous U.S. residency. People who have one felony, one serious misdemeanor, or three minor misdemeanors will be ineligible to apply.

In the past, I have written about the problems with the DREAM Act. The DREAM Act would require the overwhelming majority of immigrant youth — I estimate around 3 out of 4 — to choose between military enlistment and remaining undocumented. It goes without saying that such a requirement would be extremely exploitative.

Nonetheless, the success of DREAM activists in winning the DHS directive is very impressive. It is not every day that a group of undocumented youth force the hand of the President of the United States. As with any substantial victory, we should ask ourselves the question: what can we learn from this success?

My takeaway is two-fold. First, comprehensive campaigns are a necessary backdrop to direct action success. The DREAM Act campaign is more than a decade old, has introduced bills in Congress, won position commitments from many leading Democrats including Obama, and has won support from influential groups like the AFL-CIO. There is no way these direct action sit-ins — as brilliantly conceived as they were — would have worked as standalone actions. Actions must be part of serious, on-going campaigns to have effect.

Second, election time can be a good time to push things forward. I have no doubt that one of the reasons Obama caved is his interest in the Hispanic vote. As the fastest growing population groups, Hispanics will be an essential component of any Democratic electoral victory for decades to come. The campaign office sit-ins put Obama in a really tough situation. His campaign could not ignore the sit-ins for months on end, and it also could do nothing to stop them. Calling the police was off the table as doing so would put the activists at risk of deportation and inflame the Hispanic voting base. Thus, giving in was Obama’s best option.

Pushing issues and policies at campaign time runs counter to the typical approach to elections. Instead of using election time to push favored candidates to do things for them, many left groups treat it as a time to pull back and get their candidates elected. The usual approach involves not rocking the boat for the candidate, getting the vote out for them, and then hoping that the support translates into leverage post-election. As far as I can tell, that approach has not worked too well lately. Perhaps it’s time to use a new approach to election time politicking, and follow the lead of the DREAM activists.