Is it right to invest ethically?
Author: Sam Bizzell | National Affairs Officer 2022
The world seems to have a gloomy outlook. In many ways it seems as though we are worse-off today than 50 years ago. War rages in Ukraine, public discourse is more polarised than ever, ecosystems are moving ever closer to collapse, slavery perpetuates, and many groups are still systematically repressed. Through this grimness, as governments seem to continue to fail their constituents, people have turned to private enterprises to correct the harms that have often been created by the market. Investors and even consumers have begun to pressure businesses to take responsibility for the negative externalities they have created and internalise moral codes as a fundamental aspect of their management. However, the question remains as to whether businesses can, or should, step in to help.
Currently, consumers and investors alike expect ethics from corporations; businesses, by-and-large, are conforming to this. But why do we expect ethics from these businesses, and why should companies conform? For years, companies have aimed to maximise profits following Freidman’s relativistic and utilitarian chain of logic that the most moral thing companies can do is to provide as much funds as possible for investors to distribute to whatever moral cause they desire. However, with social issues like modern slavery and discriminatory employment, as well as environmental degradation and the climate emergency overtaking our generation’s zeitgeist, the flaws in Freidman’s logic have become apparent. Profit-justified corner-cutting often occurs on such a large scale that investors receiving profits would have a near-impossible task to simply reverse the injustice caused by businesses, let alone provide a net positive impact on society. Consider a chocolate manufacturer using child slaves to harvest cocoa in Ghana and burning rainforests to farm palm oil in Borneo; what can investors do with their profits to make up for the irreversible act of moral evilness?
The solutions to this problem have been bi-pronged; firstly, from investors becoming more ethically conscious in what they provide capital to, and secondly, from consumers becoming more aware of the companies they buy from. A problem remains, however, in that morality cannot be assumed to be absolute; what one person believes is ethical, another may find abhorrent. This moral subjectivity or relativism stems from cultural, contextual, and ideological differences; examples of these differences in belief can be as simple as people’s views on eating meat, or as complex as the varied perspectives on the individual, family, and community units in different cultures. Regardless of the origins of moral perspectives, these differences negate the ability to prescribe an absolute moral code. Thus, the problem of determining which morals to prescribe to a business persists.
Still, these solutions are arguably elegant in that they allow for democracy in determining morals through the market; consumers and investors effectively cast a ‘vote’ on which ethical code they agree with when they buy things like bonds, equity or produce. But is this just? While it is vaguely democratic, it is more closely aligned with aristocracy, as voting rights are allocated according to socio-economic status. If a person has more money they can consume more and buy more stocks, meaning they get a greater than proportionate say over the governance and ethics of companies. Thus, if decisions surrounding the ethics of businesses are left to the market, only the rich prescribe their ethics to businesses.
Why is this problematic? Some issues are fundamentally divided by socio-economic status. Consider the gig economy: those working for technology companies like Uber have very little bargaining power over changes to remuneration, so these corporations are able to exploit them. While some drivers only drive part-time and have other sources of income, many full-time drivers would not have the resources to ‘cast their corporate vote’ about whether or not this is ethical practice. Instead, those who are able to invest in the company (or meaningfully deny investment if they disagreed with the company’s practices), are those with stable incomes, which fundamentally excludes them from the plights they are creating for lower tier workers. This phenomenon is not restricted to the gig economy; even at this system’s best, where investors and consumers are able to significantly influence a corporation’s decision making according to a moral code, all people in lower-paid jobs are subjected to ethical codes set by those in higher-paid jobs, who have the money to influence the corporation. Even more abstract, consider social media companies, which have been revealed to knowingly reduce mental health of consumers as a trade-off for increased profits. Those being affected by these decisions are largely teenagers and young adults, a demographic sparsely represented in the ranks of investors in these tech giants, so they have no way of influencing these companies’ policies. This is so significant because corporations are taking more and more power over how we live our lives.
While ethical investors and consumers with the means to influence companies will likely have a sense of empathy that can help those less fortunate, this will never result in the same outcome as giving those less fortunate an equal say over businesses’ policies. Expecting empathy to be sufficient would be like taking away the electoral votes of a marginalised group of the population and expecting the rest of the population to remember that group’s needs and vote with them in mind as well. Still, this empathy avenue does illustrate the importance of raising awareness for issues requiring large-scale addressal.
So, if we can’t rely on private enterprise to correct for its negative externalities, then what is the solution? As with any market failure, the government has the potential to intervene. Still, the breadth of issues that governments aim to solve means that a person does not have the opportunity to cast a vote for a specific issue they find important. As a voter, we don’t have the means or power to support the side of every issue that we align with; instead, we have to prioritise certain issues and vote according to the party that prioritises those issues too, even if this means supporting some policies that we don’t agree with. In this way, less effectual policies are not voted on in a particularly democratic way; people vote in a party for very specific policies they champion, and then have to put up with a package deal of all their ideologies.
These problems are compounded, in the issue of controlling enterprises as many of the most influential businesses are multinational companies, with operations spread across a plethora of jurisdictions. Even if a government was able to decide upon a democratic response to a company, it would still be somewhat powerless to change the behaviour of business without the help of other nations.
So, if we can’t rely on democracy through the market, nor the government to prescribe ethics to businesses according to the desire of the population at large, then what should we do? I think this is the big question, isn’t it? The options seem to be to leave all power to wealthy capital-holders or politicians. Either way we are left with an aristocracy rather than a democracy. It would be so easy to look back at historical revolutions and call for this kind of large-scale change, but the real difficulty remains in determining what new system would be superior. Despite the grimness in the world, unfortunately, there doesn’t seem to be a less-grim alternative.