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Ethical Moonshine

Penelope Wise
13 June, 2010

Nearly half of the British public says it's interested in finding out about the ethical credentials of the next financial product or service that they buy, according to a recent poll. Or so they say. It's like that old question: "Have you stopped beating your wife yet?" Of course I am interested in saving the planet, I will say in answer to the pollster's question. In a way it's surprising that only half the people agreed; do the other half agree with me then that 'ethical investment' is for the birds?

First of all, it doesn't work in investment terms. I have never seen a survey which claimed higher returns for ethical investment than . . er . . . what is the opposite of ethical investment? . . . unethical investment? That's what the moral majority, or as it seems the moral plurality, would like us to call it, perhaps.

A better distinction would be between 'productive' investment and 'non-productive' investment, the former being investment which tends to increase the goods which result, including employment and consumption, while the latter is investment into passive assets such as gold or antique motor cars, which have little or no effect on the human condition.

Let's take vodka production as being presumably a prime 'unethical' activity. The Russian government has just announced a swingeing increase in the tax on vodka, with the professed aim of cutting down on drunkenness, which certainly is a scourge in Russia, and always has been. 'Ethical' investors will nod their heads in approval, and hope to see the shares of Brown-Forman (NYSE-listed owner of Finlandia, the leading imported vodka brand) fall. And what will be the results of this 'ethical' crusade?

For the little old ladies who own shares in Brown-Forman, it will mean loss of income and wealth; for the Finnish employees of Finlandia it will mean loss of jobs and concomitant tax increases to pay for their unemployment benefit; for Russian vodka drinkers it will mean a flight to cheaper brands and an increase in the illicit production of vodka, which already supplies 42% of the market according to the Russian government's own statistics, and killed 35,000 people last year.

Attacking the producers of 'unethical' goods such as tobacco, alcohol, guns and dynamite will never be very successful because these goods cater to basic aspects of human nature. If you stop Brown Forman from supplying vodka to Russia by starving it of investment, you will simply hand the market to a Polish or Chinese competitor.

What will work is to create an educated middle class in Russia which prefers to drink Moldovan champanska and has enough money not to want to buy moonshine, and to help countries where child labour is prevalent to climb the economic ladder to a point at which parents can afford to send their children to school rather than to the tobacco plantation.

Railing against the suppliers of 'unethical' goods and starving them of resources are lazy and ineffectual armchair responses to real, existential problems which have real solutions. But if your life-style doesn't permit you to throw up your job and join Voluntary Service Overseas, at least you have the comfort of knowing that your conspicuous consumption is fuelling economic growth in some God-forsaken territory whose name you don't even know.


About the Author

Penelope Wise

Penny Wise but not Pound Foolish! But remember: I am not offering investment advice. My comments are just for your general information; I do not recommend investments, and you should take professional advice before entering any investment contract.


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