Henry Blodget on the Free Market

There’s an excellent article in The Atlantic this month by Henry Blodget on the ins and outs of “socially responsible investing.” Blodget manages to put into words something I’ve long felt but have never been able to adequately express:

At some level, after all, our very economic system is socially problematic. The benefits accrue disproportionately to owners (investors, this means you), who make fortunes off the labor of rank-and-file employees. Luck plays a role, as does timing. Education, connections, and money give some people an edge, and hard work doesn’t always carry the day. The key to increasing profit and wealth is improving productivity, and an owner’s glee at producing the same amount with 50 workers as with 100 is not often shared by those who got canned. If you’re going to invest in any free-market enterprise, you’re going to have to accept that no matter how enlightened you choices, your money will be supporting wealth disparity, inequality, and other arguably unfair conditions that go hand in hand with a successful free-market economy.

What’s in that paragraph that’s missing from almost anything else that considers the subject is simply the admission that owning a piece of the market economy is, simply by definition, unfair. For me, that’s the key, and it makes considering the issue so much easier because deciding whether to become an investor or not is thus a simple matter of deciding whether I can live with that essential quality of the enterprise.

If I can, then all bets, so to speak, are off: I could easily become an aggressive and completely socially irresponsible investor (tobacco, whale killing, nuclear plants: bring it on!).


Steven Garrity's picture
Steven Garrity on October 2, 2007 - 23:22 Permalink

I’ve struggled with these same issues. So, where is your money?

Peter Rukavina's picture
Peter Rukavina on October 2, 2007 - 23:28 Permalink

In the Metro Credit Union, earning 4.00%.

oliver's picture
oliver on October 3, 2007 - 03:56 Permalink

Where is the Metro Credit Union putting your money? (And if they loan it, do they keep the debt or do they sell it?) It makes no difference whether it’s you or them investing your money, except that you’re creating jobs for credit union employees by letting Metro keep whatever profit the investment earns beyond that 4% they promise you. You could get 3.25% for a Canada Savings Bond.

Peter Rukavina's picture
Peter Rukavina on October 3, 2007 - 12:00 Permalink

In my idealized pretend universe, the Credit Union loans my money to orphans so that they can create non-profit cooperatives.

Ann's picture
Ann on October 3, 2007 - 12:42 Permalink

The Credit Union offers ethical funds which invest in socially responsible companies, but pay a slightly higher dividend.
Or you could invest in Kiva, which offers no dividend whatsoever but invests in just the sort of thing you imagine the Credit Union does.
Why don’t you invest in companies you already support by dealing with them — like Apple and Air Canada?

Peter Rukavina's picture
Peter Rukavina on October 3, 2007 - 13:02 Permalink

But if all investing in inherently unethical (or at least unfair), why not maximize returns no matter the destination?

Ann's picture
Ann on October 3, 2007 - 15:29 Permalink

I guess what you’re saying is that capitalism is unfair. So why participate at all? You buy stuff…why not invest in companies that make the stuff so that they can make more, better stuff?
Or don’t buy stuff at all.

oliver's picture
oliver on October 3, 2007 - 17:17 Permalink

Actually, I don’t think I see in that excerpt what you see, Peter, or even what the unfairness is.

Steven Garrity's picture
Steven Garrity on October 3, 2007 - 17:55 Permalink

Ann makes a good point. If we shop at Sears, then we’re already fueling the system. That said, I’m not sure that’s a blank slate for further participation.

Alan's picture
Alan on October 3, 2007 - 20:51 Permalink

The analysis you quote is incorrect in two ways. The economy is fluid so that some who are owners in one year are employees the next. This may not be the case at the uppest and the lowerer parts of society but there is no bright red line. Also, people are not even one or the other. People with government pensions are also indirect investors as the capital for their income is sitting in the market, invested by the government in the businesses of the nation. Just as your 4% GIC is by the Credit Union. Money will not make interest without its investment in production somewhere.

And it is an ethically neutral activity in itself. While investing in firms that make bad things is worse than investing in firms that make good things, investing is not bad. It is so unbad that is it good and even necessary in a democracy as it is a conduit for manifesting free expression and hope, not to mention the only way people can reward the most productive and acceptable.

So put your money in firms you support directly through a self directed RRSP and the shares you keep in that RRSP. You will reward only those you want to support and if your act of faith is a good one you will get wealthier in the process.

Leo's picture
Leo on October 3, 2007 - 23:30 Permalink

Interesting thread — I am like Peter in my investing patterns and support money staying in the region. Loads of capital leaves region and if you follow the big banks in Canada and the obscene profits, bank charges and the way they have eliminated jobs and kept them low paying
is extremely problematic. Banks in Canada got tax breaks to develop labour saving (and employee layoffs followed) devices like bank machines. I know a few employees who were forced out as they were approaching a time they would be eligible for pensions and the like. They have also continually advocated for some neo-con policies. I recall taking part in a demonstration about massive cuts in the unemployment insurance program at the same time banks were making huge profits — there is a disconnect between who the economy is meant to serve and capital wins at the expense of labour most times. A Stats Can report released last week indicated that all the benefits of our booming economy has become increasingly more concentrated in fewer hands while the vast majority of our wages have remained stagnant or worse. Guess who will be hurt when the so called boom ends?