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Shorting the Devil

By Hunter Bosson

One of the few places where student protesters are taken seriously is the institution that takes their money: universities. The university, with its resources, publicity, and networks, offers a praxis for political and social change far beyond campus.

One tactic for wielding the academy’s power is divestment: selling stocks, bonds, and investment funds of businesses that engage in ethically ambiguous practices. Since their genesis in the 1970s, worldwide campaigns for divestment have been as varied as they have been contentious, tackling such issues as South African apartheid, Big Tobacco, climate change, and the Israeli-Palestinian conflict. The debate continued onto Cornell’s campus when the Board of Trustees recently rejected a proposal to divest from the 100 largest oil companies for their contribution to climate change. The divestment campaign has its limits and costs, but as universities increasingly acknowledge the legitimacy of financial activism, students must be the ones who define that role.

One issue plaguing divestment campaigns is that misinformation abounds as to how it works. By selling shares and bonds in a company, the divesting institution does not actually take money away from said company, but merely sells the equity or debt that it holds to someone else. The idea is that by liquidating positions in a firm, it raises the cost of borrowing and lowers the value of the company, the latter being of great importance to company executives compensated in part by stock options. As prominent institutions divest, it raises awareness for the issue it addresses and provides movement catalysis. Despite its circuitous nature, divesting has shown real results.

Divestment began as a particularly promising student political strategy. The first major campaign began in the 1970s, as campus protests pressured universities into selling shares in firms that did business in or with South Africa in protest of apartheid. Large firms, including IBM and GM, were targeted by institutions such as the University of Michigan, Columbia, and the University of Wisconsin Madison. The movement’s momentum snowballed, eventually dragging nonprofits, counties, and states into the fray until its culmination in 1986 with the Comprehensive Anti-Apartheid Act, banning new investment in South Africa. By the time the apartheid regime fell shortly thereafter, 155 universities had divested. Even today the anti-apartheid movement is the godfather of divestment campaigns; one is hard-pressed to find an activist who does not pay homage to its success.

Divestment’s popularity soon began to fall as the morally dubious issues started hitting closer to American homes. The next major divestment campaign focused on the American tobacco industry, a similarly distasteful lot, but this time the social crusade was less decisive. While numerous high profile universities, including Harvard and CUNY, divested from America’s original poison peddlers, the movement faced stronger opposition. Critics argued that shares should be retained so that responsible investors could wield shareholder power for good, such as preventing tobacco advertisements directed at children. Although tobacco divestment won press, little evidence has emerged that the divestment campaign applied noticeable downward pressure on stock prices.

The most prominent divestment campaign today targets fossil fuels. The coal, oil, and gas industries have inherited the title of societal boogeyman and are paying the price on college campuses. Over a hundred universities have divested, including Stanford, Cambridge, Oxford, and the University of California System. Divestment has been much more popular, and successful, among smaller colleges and educational institutions (perhaps in part due to a lack of financial exposure). However, the reasons for divestment provided by larger institutions are damning: Stanford invoked its investment responsibility policy, established in 1971, barring investments in firms whose actions could pose a “substantial social injury.” A particularly vocal group of proponents are scientific academics, many of whom fear the coal and oil lobby’s impact on climate change research. Opponents, with dazzling predictability, called the movement pointless and unproductive. However, in addition to the usual tropes, some investors have raised valid points: energy sector firms’ stock price movements have the lowest correlation with other industries, making their shares a key tool for diversification, arguably the most important component of an endowment’s investment strategy.

Perhaps the most polarizing target of divestment campaigns today is Israel. In 2005 the Palestinian Civil Society called for a campaign of boycotts, divestments, and sanctions (BDS) against Israel and firms with ties to the Israeli military or Israeli control of the West Bank. Unlike other major divestment campaigns, this BDS campaign faces the challenge that Israel’s actions do not receive the same level of condemnation as South African apartheid and Big Tobacco. Proponents claim that BDS is justified due to Israel’s occupation of the West Bank and the Gaza Strip, even going so far as to call it an “apartheid state,” making companies such as Caterpillar and Raytheon, who contract with the Israeli military, prime targets for divestment. Opponents claim that Israel’s actions do not merit any form of condemnation, and have even gone so far as to label prominent members in the BDS campaign as anti-Semitic. The BDS movement is especially controversial on Cornell’s campus, where a website called SJP Uncovered recently began a PR campaign aimed at Cornell’s BDS movement. The rather shady organization advertised directly to Cornell students on Facebook, accusing the organization Students for Justice in Palestine of working against the Israeli-Palestinian peace process, including for its advocacy of BDS.

Concerning divestment issues, Cornell remains well behind the times. The university’s equity holdings and business deals have sparked three organized divestment movements, targeting fossil fuels, Israel, and private prisons respectively. Some proposals have catalyzed action, with Cornell recently announcing that it will honor Black Students United’s demands that security firm G4S’s contract with Cornell’s Herbert F. Johnson Museum of Art be terminated for its business in private prisons. But overwhelmingly, the university’s attitude towards divestment has been patronizing and unsympathetic. A resolution for BDS against Israel was not even given a vote by the Student Assembly, and when presented with resolutions by Cornell’s student government organizations in January calling for divestment from major polluters, the Board of Trustees voted against divestment. The Board instead issued guidelines that the university would divest only from firms partaking in “morally reprehensible” actions, such as apartheid, genocide, and child labor law violations.

The core of Cornell’s distaste for divestment was stated by board member Donald Opatrny when he extolled that the endowment’s main purpose is to “provide income for the advancement of the university’s educational objectives.” Admittedly, if ever there were a university that needs to worry about its finances, it is Cornell: last year its endowment’s 3.4% return on investment was the worst in the Ivy League, and at least 2.4 percentage points behind any other Ivy. But Cornell’s administration used the same rationale in the 1980s when it declined to join the divestment campaign against South African apartheid. Cornell’s actions are striking: today its administration has the gall to advocate divestment from apartheid, when it was one of few large universities never to do so, while deploying the same financial myopia it used in the 1970s and 1980s to avoid new divestment campaigns. Even those who reject that propagating climate change is a “morally reprehensible” action must find it hard to stomach such a carelessly two-faced and opportunistic institution.

Central to the rejection of such financial activism is the misguided belief that divestment does not work. A single university, opponents pointedly argue, holds far too little of a company’s stock or debt to affect its equity or borrowing prices in a noticeable way, even in mass divestment movements like that for fossil fuel. Even the anti-apartheid movement’s economic results can be attributed to congressional action. However, the awareness that the campaign raised certainly paved the path for more efficacious changes down the road. And that is the necessary lens for divestment: it is not a painful sanction but a powerful protest. Like any meaningful protest it incurs financial cost, although concerns about cost are wildly blown out of proportion. While energy stocks represent an important source of diversification, targeted fossil fuel stocks compose less than 0.5% of Cornell’s endowment. And that’s the kicker: so long as they are reasonable, divestment initiatives will never impact the endowment enough to noticeably change its composition or its return.

Clearly we should not rule out divestment completely. While most issues at the butt end of divestment campaigns are highly contentious, there are some obvious investments that no conscionable human being would be able to make. An example would be German bonds in the 1930s: perfectly legal to hold, and very profitable before war broke out, but representing an investment in actions unforgivable. Even if secondary stock purchases do not directly flush a company with cash, by holding shares one literally owns a piece of that company. As a stockholder, one not only acknowledges that company’s right to existence, but seeks to profit from its success. Not even practitioners of the dismal science can be that indifferent.

Exxon-Mobile is not the Third Reich, but we first have to acknowledge that what divides us is not whether one can rightly divest from an ethically bankrupt institution, but where to draw the line separating the acceptable from the unforgivable. Divesting from every company that has even the smallest ethical infraction on its record is functionally impossible. However the ultimate arbiter of Cornell’s investments’ moral merit should not be Cornell administrators themselves. They have proven themselves to be opportunistic, inconsistent, and borderline incompetent, establishing a litmus test to serve the university’s “interests” without bothering to listen to what its own students want. If ever there were a responsibility to devolve to Cornell’s dilapidated student assemblies, it would be this.

Divestment campaigns will continue to be a powerful tool for any student activist, and rightly so. They do, however, in many ways represent a morally conscious university’s greatest fear: having to put its money where its mouth is. A university’s divestment sends a powerful signal even if it has a negligible financial effect, one that has the potential to grow into something more. Cornell should welcome such moral convictions. And for the tuition Cornellians pay, their university might at least respect them.

tags: Cornell, activism, politics, energy, oil
categories: Government
Thursday 10.20.16
Posted by Website Editor
 

Campaign Finance: Yesterday, Today, and Tomorrow

By Sam Torre

As the 2016 Presidential election nears, the anticipated and often feared influence of corporate wealth on politics through super PAC contributions continues to raise concern throughout the United States. As The New York Times Editorial Board predicted, “This election year will be the moment when individual candidate super PACs—a form of legalized bribery—become a truly toxic force in American politics.”

These apprehensions breed discussion about campaign finance reforms. Proponents of reform fear that contributions by large corporations will allow the donors to exert control over policy and push their own political agendas on the candidates to whom they contribute. They look to stop organizations from using their large sums of money as incentive for politicians to pass legislation in accordance with their special interests. Opponents of these reforms argue that the legislation violates the Constitution, specifically the right to freedom of speech, since monetary contributions enable candidates to communicate their platforms to voters. How have these regulatory policies changed in the last several decades, and how do they impact Presidential candidates’ campaigns today? Additionally, is the panic caused by fear of super PACS warranted or simply blown out of proportion?

After decades of mostly unsuccessful attempts at campaign finance reform dating back to the 1800s, policymakers enacted stricter regulations in 1971 with the creation of the Federal Election Campaign Act (FECA). Goals of replacing previous, evaded legislation, including the Federal Corrupt Practices Act of 1925 and the Hatch Act of 1939, with more enforceable legislation remained at the forefront of the discussion. FECA, signed by Richard Nixon in 1972, required candidates in federal elections to disclose campaign contribution details. Although FECA achieved some progress in terms of regulating campaign finance, it required amending following the infamous Watergate Scandal later that year. After the discovery of a link between the money used by Nixon’s reelection campaign and the Watergate break-in, the American public’s emergent distrust of government led to the FECA reforms of 1974.

The creation of the Federal Election Commission (FEC) arguably remains the most influential aspect of those 1974 FECA amendments. The FEC defines their duties as “to disclose campaign finance information, to enforce the provisions of the law such as the limits and prohibitions on contributions, and to oversee the public funding of Presidential elections.” This establishment provides enforcement practices which failed to exist in previous legislation. Additionally, the amendments included individual donation limits of $1,000 to a single candidate and no more than $25,000 delegated between federal election candidates. The reforms also validated Political Action Committees (PACs), or outside entities established to campaign for a candidate’s election, by limiting their contributions to $5,000 per candidate.

However, several provisions of the reforms, including candidate spending limits of $10 million in primaries and $20 million in general elections, were not readily accepted nationwide.

The Supreme Court case Buckley v. Valeo (1976) took a step away from regulation and determined unanimously that limiting campaign expenditures violated freedom of speech rights, except in the cases of candidates who received public funding. Buckley v. Valeo remains a landmark case due to its denial of financial equality as a standard for federal elections while also demonstrating the continued struggle between upholding individual rights and establishing an accepted sense of fairness in elections.

2002 marked the enactment of the Bipartisan Campaign Reform Act, more commonly known as the McCain-Feingold law in recognition of the act’s main sponsors, U.S. Senator John McCain (R-AZ) and former Wisconsin State Senator Russ Feingold. A major provision of the act included ending the use of soft money in federal elections, or what the FEC describes as nonfederal “money raised outside the limits and prohibitions of federal campaign finance law.” The act also coined the term ‘electioneering communications’ to describe paid television and radio ads which “discuss[ed] candidates in the context of certain issues without specifically advocating a candidate’s election or defeat,” and disallowed their funding by corporations or labor unions. Additionally, individual contribution limits became $2,000 to a single candidate and $95,000 every two years for overall contributions. While these alterations were, in part, adjusted for inflation, they also demonstrated a growing tendency toward deregulating campaign finance.

The Supreme Court case Citizens United vs. FEC (2010) struck down on parts of the McCain-Feingold law. The Court ruled that free speech rights also extend to corporations and unions, giving rise to super PACs. Individuals and corporations may contribute unlimited amounts of money to super PACs, permitting these super PACs to spend limitlessly on campaigns, as well. As a result, the use of super PACs in the 2008, 2012, and 2016 Presidential elections grew exponentially. While candidate money is capped and goes directly to the candidate, super PAC contributions have no limits and do not go directly to the candidates, but rather to outside campaigns. According to the New York Times, in 2008, before Citizens United vs. FEC created super PACs, roughly 99.9% of total campaign contributions went directly to the candidate. In 2012, the first Presidential election to follow the Citizens United case, approximately 8% of total funds were contributions to super PACs and 92% were contributions to the candidate. Surprisingly, in 2016, 49% of total funds were contributed to super PACs and 51% went directly to the candidate, nearly an even split. The ability to donate limitless amounts of money to super PACs tends to attract wealthy donors and corporations. Additionally, super PACs may target their campaigns to specific aspects of a candidate’s platform and often use smear tactics to create negative and typically distorted (or simply untrue) campaigns about a candidate’s opponents. Although considered unscrupulous by many, this ability to donate to smear campaigns through contributions to super PACs incentivizes others. Together, these features explain a proliferating trend toward super PAC use, only exacerbating concerns of a government swayed by wealthy contributors.  

The struggle between seeking equality in federal elections and avoiding infringement on individual liberties manifests in the 2016 election season. Senator Bernie Sanders repudiates the use of super PACs and claims that, “I am very proud to be the only candidate up here who does not have a super PAC, who’s not raising huge sums of money from Wall Street and special interests.” According to a report by the New York Times, as of February 20, 2016, Sanders received a negligible 0.1% of his total funds from super PACs/PACs, while Drumpf received 7%, Kasich received 25%, Clinton received 31%, and Cruz received 48%. Interestingly enough, these numbers hardly compare to the monstrous super PAC funds amassed by several former candidates in the election. Scott Walker received 61% of his total funds from super PACs/PACs, Chris Christie received 69%, and Jeb Bush received 79%, yet all still removed themselves from candidacy due to the meager prospects of their election. This raises the question of whether these corporate contributions are as formidable as they may seem or if hysteria may be partly to blame for the concern. Accordingly, fears regarding super PACs may be justified but misplaced; while raising the largest amount of money may not always win elections, as demonstrated by Jeb Bush, issues may still arise if a candidate heavily funded by super PACs does win and allows special interests to influence legislation.

Where does this leave us as a nation on the brink of electing a new national leader? We have been irresolute for many decades, wavering between more and less regulation of campaign finance; with the recent controversy surrounding super PACs, we can assume this indecisiveness will continue.  Because limitless contributions to super PACs are a fairly new phenomenon, we are still gauging their power and efficacy. Party nominations and the election in November may convey the initial impacts of these super PAC contributions; however, only time will reveal their true effects, as we wait in hope of an honest and upstanding President who will distinguish special interests from those of the nation as a whole.

tags: campaign finance, elections, politics
Thursday 10.20.16
Posted by Website Editor
 

Election Year: Rhetoric vs. Reality

By Isaac Greenwood

2016 has ushered in a national election cycle like none other. In the aftermath of the Great Recession of 2007-2009, and despite the rhetoric espoused by many of the leading candidates on both sides of the aisle, the still-recovering American economy would be best served by centrist economic policies given the fragility of international developments and tepid growth.

The Great Recession cost the American economy billions in productivity and had long-lasting effects on the domestic and international economic orders. Even after the height of the Recession, U.S. unemployment peaked at 10% as workers were laid off in increasing numbers. Thousands of Americans were impacted by the sudden burst of the housing bubble, which significantly devalued their homes while also setting of a global financial crisis from the prevalence of mortgage-backed securities. While China and Russia weathered the crisis relatively well, most countries heavily engaged with the U.S. economy, notably in Europe, felt the shockwaves of distress as the turmoil increased.

The Federal Reserve, under the guidance of former Chairman Ben Bernanke, engaged in bailing out or aiding firms deemed “too big to fail” like AIG and a variety of large banks which had become increasingly interdependent with a number of industries. The Fed embarked on a policy of quantitative easing and slashing interest rates to historic lows to maintain a high money supply and embolden the teetering economy. In addition to the fiscal policies such as the Troubled Asset Relief Program (TARP) and Emergency Economic Stabilization Act of 2008, Washington was successful in preventing a catastrophic meltdown of the U.S. economy.

However, the American economy is not out of danger yet. A myriad of factors remain that threaten not only domestic prosperity but also the international economic system given the rapid globalization of the past twenty years. The American Dream may still be attainable, but only with the careful monetary and fiscal policies that will not strain the moderate economic recovery of the past five years.

While unemployment has reached the Fed’s target of 5%, the labor force participation rate remains at 63%, down from its historic 66% average. To maintain full employment and continued consistent job growth, candidates with job creation programs would aid in the recovery as opposed to those who seek to cut unemployment assistance and government spending.

Another key measure of economic health is inflation. Often measured by the Personal Consumption Expenditures Price Index (PCE), inflation is currently below the Fed’s target of 2%. While in the United States this number is near 1.7%, European inflation is almost 0 and has forced the European Central Bank to enact quantitative easing through 2017 as a means to prevent another crisis. Rather than meddle in the workings of the Fed and politicize the institution, the incoming President must remain aware of Chair Janet Yellen’s guidance in bolstering the American economy and work to promote job security.

Beyond macroeconomic growth and stability, issues of wealth inequality and social security have become forefront topics for the average American. With a stagnant lower class and growing upper class, the American middle class has been shrinking over the past 45 years. The share of aggregate income held by middle-class Americans has fallen 19% from a previous high of 62% in 1970, and the Recession saw middle class wealth shrink by 28%. Once a representation of the American Dream and success, the middle class ought to be supported through tax cuts and incentives by future candidates to ensure domestic economic stability, and the increasingly wealthy upper classes should bear a larger burden of taxation to account for the wide discrepancies under the current system.

With increasing life expectancies, Social Security reserves, which are expected to run out of money by 2034, must be increased to provide for the nation’s poor and infirm. Politicians who suggest cutting Social Security benefits or taxes will fail to address the magnitude of the program by failing to provide for the 65 million who require it. As Mahatma Ghandi said, “A nation’s greatness is measured by how it treats its weakest members” and that certainly holds true with regards to the aged, infirm, and poor of the United States, although current policies seem to do little to ensure their future stability.

Given the precarious global economic situation, in addition to forecasts for another recession within the coming two years, drastic tax or spending cuts could exacerbate future economic issues and threaten to undo the slow but steady recovery of the past administration.

tags: politics, elections, unemployment, macroeconomics
Thursday 10.20.16
Posted by Website Editor
 

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