A group of Dartmouth students recently undertook a hunger strike in protest of the College’s handling of the ongoing conflict in Gaza. Amongst their list of demands was the call for Dartmouth to divest from all corporations that are complicit in Israel’s treatment of the Palestinian people, consistent with the demands in Sunrise Dartmouth’s Dartmouth New Deal last fall. In an email to campus, Dean of the College Scott Brown recently pledged that Josh Keniston, the Chair of the Advisory Committee on Investor Responsibility, would engage with the proposal. While the strikers’ intentions may be admirable, divestment is not the best course of action and may even be counterproductive.
I want to establish first that divestment has costs, as the advantages of such a change can only be evaluated relative to what must be renounced to achieve them. There are a plethora of costs associated with divestment, including deviating from what the investment office considers to be the optimal strategy, the opportunity cost resulting from a narrower pool of potential investments and the time spent by the investment office employees sorting through the complex issue (a glance at the College’s Form 990 reveals that their time is incredibly expensive), among others. The primary takeaway here is that divestment has clear potential financial costs.
However, these costs are purely financial; if divestment has tangible social, political or ethical benefits, surely it could be justified?
I would argue that this is not the case. Critics of divestment are quick to point out that it will have no measurable effect on the state of affairs in the Middle East. This is true: the Israel Defense Force won’t exactly be shaking in their boots when they find out that Dartmouth no longer owns a stake in Amazon. But this argument misunderstands the purpose of a divestment campaign. Proponents of divestment argue that in addition to raising awareness, it can lead to changes in governmental and corporate policy in alignment with ethical ideals.
Divestment is not an effective way to enact this variety of change. On a federal level, divestment is unlikely to influence the Biden administration’s foreign policy. Not only is divestment not a widespread enough occurrence to warrant any attention, but policymakers are motivated by factors that take precedence over the whims of college students, such as security concerns and the interests of the American corporations in question. The administration is likely already aware that the majority of Americans support a ceasefire and that elite colleges are full of students who are outraged at Israel. A single instance of divestment is therefore unlikely to provide any new information to policymakers, resulting in no policy impact.
Divestment would also be ineffective at regulating the behavior of corporations whom the protestors accuse of complicity with Israel’s transgressions. Advocates posit that by applying downward pressure on stock prices, widespread divestment incentivizes companies to adhere to the moral concerns of investors. However, the empirical research does not support this conclusion. In an article analyzing the divestment campaign against companies in South Africa, Economists C. Paul Wazzan, Siew Hong Teoh and Ivo Welch found that the pervasive campaigns had “little discernible effect” on stock valuations and that it was “unlikely that political shareholder activism has large wealth consequences.” The rationale behind this is simple: not everybody shares the same moral considerations.
The idea that institutional investors such as Dartmouth would offload large amounts of stock for purposes unrelated to profit — such as divestment — may attract buyers who see a financial opportunity and don’t share the same ethical misgivings. This phenomenon leads to a seller’s market, negating any downward price pressure applied and potentially even raising prices, validating a company’s conduct.
It is important to mention that the anti-apartheid campaign did succeed in South Africa. However, only through pairing divestment with mass boycotts, transnational advocacy networks and ultimately international political pressure, did the movement succeed at altering U.S. foreign policy. It was this public pressure, rather than the direct effects of divestment itself, that led to the end of Apartheid, and as I argued above, Dartmouth divesting would not impact the Biden administration’s foreign policy.
Furthermore, divestment removes the possibility that investors have for engagement. As one scholar argued in regards to fossil fuel divestment, “Selling shares … reduces the opportunity to engage with these companies … to encourage them to become better actors.” As an institutional shareholder in possession of a considerable number of shares, you have sway over a company, especially if you collaborate with other groups. Public corporations are accountable to their shareholders. In a situation of mass divestment, those who have moral concerns sell shares, and those who are indifferent buy shares.
This is the most profound effect of divestment: it transfers ownership of a company from ethically-minded investors to investors that are agnostic towards the issue in question, removing the impetus for change entirely. Divestment cleanses the ownership base of a corporation of anyone who might advocate for the company to change its behavior, replacing them with those who will continue to endorse the company’s actions. In this sense, divestment is not only ineffective but counterproductive, creating corporations that have even less incentive to pay heed to consumers’ ethical qualms.
Without clear evidence of real-world efficacy, we are left with the moral argument. Supporters argue that despite any costs, divestment cements the College in the moral promised land. However, as I have stipulated, not everyone shares the same opinions on this matter, as some community members may be more sympathetic towards Israel. Taking action would be zero-sum from the perspective of moral utility; it would make one group happier while angering another group. If the ethics behind this question were more clear-cut, like that of fossil fuels, tobacco or gambling, this motive would be more salient.
On a similar note, a recent op-ed in The Dartmouth argued that it is the College’s job to remain neutral on political issues to create a climate of free discourse. Divestment would be directly contrary to that logic. One might counter this by arguing that owning the stock is partisan in the first place, but it is much harder to see how owning a stake in a company like Disney or Airbnb equates to taking sides in the Middle East. The endowment is not a prop for political stunts, it is the engine that allows this academic institution to function.
In conclusion, divestment is not free and doesn’t work. In some cases, it may even be counterproductive toward its own goals and would destabilize the already tense political climate on campus. The central argument behind divestment is that if a collection of stock that was possessed by one owner is transferred to a new owner, this will accomplish good in the world. This is untrue. Guilt by association is not an effective way to deal with this issue, and blame for war crimes should not be misconstrued on uninvolved companies, such as Disney or Amazon. Complicity is not the problem, the violence itself is. This corporate extrapolation of cancel culture feels like a desperate grab at meaningful action, but it comes up empty.
That said, I want to commend the students involved for taking the initiative to try and improve our community and the world; it is this type of action and dialogue that moves us forward. The situation in Palestine is both deplorable and deeply saddening, and whatever can be done to save lives and end the war and the harmful practice of settlement should be. When something so objectionable is occurring in the world, it is natural to want to take a stand, but it is vital to rationally analyze the effects of those actions because the facts are not always what they seem.
Opinion articles represent the views of their author(s), which are not necessarily those of The Dartmouth.
