Politics and holding stocks - are we all complicit?

[scorpioncapital]

Can we justify holding stocks that do business in places that have real human rights issues ? I don't mean like environmental because when USA was poor 200 years ago they also burned coal and polluted to survive. I mean things that really are totally unacceptable like government murders (khashoggi case) , repression of uighurs in China on a mass level and disappearance of people as so called political prisoners (but by a different standard than westerners would consider it a crime to speak out )? Yet we hold stocks of companies that have enabled the economies of these countries. I hold stocks that operate in Russia and China. Of course this is a geopolitical risk but what happens when companies both need(?) these countries for growth and then turn a blind eye saying we only do business. Should we keep these stocks or sell down ? Self financial interest versus not wanting to support these markets as it stands ?

Of course everything is a web as even governments unwittingly (or not) support by various trade and foreign aid some of these problem areas

(eg https://www.conservativewoman.co.uk/how-british-cash-helps-fund-chinese-concentration-camps/

 

https://www.google.com/amp/s/www.marketwatch.com/amp/story/guid/25A64D46-7C93-11E9-BCBE-9CFF8142FED0)

[cameronfen]

Ya thats an interesting point that I have thought about myself.  I think at some point you are complicit but thats sometimes life.  These corporations are big and some parts are good and some are bad.  I feel like this is a fence sitting answer, but mainly I wanted to comment to thank you for opening up this discussion. 

[LC]

I feel similar to cameronfen.

 

I don't have a satisfying answer, but there is an anecdotal story I'll tell: I was watching what IIRC was a vice documentary on the lives of sweatshop workers making clothes and sneakers for the brands we all know and love. And they are saying how horrible the conditions are and how they are overworked and mistreated, and then the host asks them if they feel that strongly, why are they all wearing nike flip flops and abercrombie shirts etc. (i.e. all the reject articles of clothing which they buy for super cheap).

 

And the host draws this distinction that in America (or in the western world) people have this sense of responsibility and ownership - i.e. I'm going to boycott Nike and that will change things. And he contrasts this with these poor workers who simply don't think that way.

 

I don't know which is right but I see their point. Do we need millions of people to stop wearing Nike sneakers to change things, or do we need a few managers sitting in NY or CA to say, "you know what, this is wrong"?

 

So maybe it's like Uncle Ben said, with great power comes great responsibility.

[Jurgis]

Yes, we are.  8)

 

Internet forums - even the ones as enlightened as CoBF  8) - tend to have simple answers to complicated problems. (Actually, this is true not just for internet forums).

 

So, on one hand we are complicit in the evil things companies do: gauging customers, inflating drug prices, water shortages (hello Coke), obesity (hello crappy processed food cos), environmental destruction (hello Wolverine and shoe companies that dumped chemicals; hello agri cos that dump runoffs into rivers), and so on and so forth. We are also complicit in rising inequality and political/economic/social results of that.

 

On the other hand, it may be better to invest into imperfect companies that provide jobs for people (in America or in developing countries), that may raise the economy level of these countries and make people's lives better, even if that comes with somewhat unsatisfactory working conditions or environmental issues. Insisting on companies paying $15 per hour in Vietnam or having great environmental protections in China may just lead to these people not having jobs at all. It's like the example of prohibiting children labor leading to children becoming beggars or working harder jobs in the family fields or even sold into (sexual) slavery.

 

The balanced and complicated way is to pressure companies a bit, but not too much. To raise the standards of workers and environment gradually. And for companies to have goals of making better conditions for their workers as they grow and earn profits. And for investors to be satisfied with lower profits and investment returns. It's not easy to do that though. It's not easy to persuade shareholders, customers, (local) politicians and regulatory bodies, it's not easy to avoid shortcuts, graft, etc.

 

Boycott or not owning shares in "evil" companies mostly does not work. OTOH, holding 10 shares in a mega corp and expecting your shareholding to influence that megacorp in positive way mostly does not work either. And a bunch of people here will laugh at investing into "good" companies that are either overvalued or have bad capital allocation. But then general public opinion sometimes works. And rising ESG investing, however imperfect, does work - imperfectly but somewhat. If you look at 100 year history or so, the workers' conditions and environmental conditions have improved a lot - and even in developing countries mostly.

 

World is complicated. We all just have to keep chipping at it.  8)

[rukawa]

I don't know which is right but I see their point. Do we need millions of people to stop wearing Nike sneakers to change things, or do we need a few managers sitting in NY or CA to say, "you know what, this is wrong"?

 

I don't really and have never gotten the logic here. Why is it wrong? Its worked and its the only thing that has worked time and time again. Poor labour standards, low environmental standards, low salaries...sweatshop labour has been the way every country (US, Britain, Europe, Hong Kong, China, Korea) and ethnic group (Eastern European jew in New York) has advanced.

 

People always talk about the West screwing the third world through unfair trade agreements. Nobody ever makes the argument in detail though. Generally speaking the West screws the Third World by IMPOSING labor standards and environmental standards on them. Countries like China are anxious not to have these standards because it makes them less competitive. China's currency manipulations are designed to make the terms of trade more unfair to the CHINESE. They want to be treated more unfairly precisely because it will cause us to favor their products more.

 

There is also another thing to consider. All these standards have costs. These costs are money that cannot be reinvested in growth. For example suppose you have great salaries, labour and enviro standards for some company. This means profits for the company go down. But this also means there are less reinvested profits. So you have lowered the compound growth rate of capital. This argument, so far, hugely underestimates the effect here...since you don't just lower the growth rate of capital already invested in the country but you also discourage others who would have been attracted by the fat profits being made. In the short run it probably doesn't mean much. But in the long run it means you have a few workers in the country that are doing very well and a majority of people who are incredibly poor. To me the alternative is a lot better since it impacts a much larger population in the long run. Eventually you will get a situation where the country becomes rich enough and worker demand is high enough that environmental standards rapidly improve as do salaries and labour conditions. Exactly this has happened in China.

 

So I don't really get why people think sweatshops are wrong. All these ESG conditions do is favor a small group of people over the short run and hurt the vast majority of people over the long run. They are counter-productive and stupid and a bad idea but they are a great way of virtue signaling. Oh...now I get why people think sweatshops are wrong :)