At the centre of each of these topics lies social activism that always progresses to economic rent-seeking. They start when certain people have a view that a market is failing in some way. Those people make their own judgement and decide that they want to change the particular market. They want to impose their views on the market participants. For example, in fair trade coffee, the central aim is to improve the working conditions and reward to local farmers and labourers in coffee growing areas. In quality certification, the certifying authority believes it is better able to judge quality than the consumer and so its stamp of approval adds an element of protection to the buyer. With responsible investing, the picture is a little confusing at present. Responsible investment agents are not clear on their value proposition – on one hand they present their case as ensuring (their) ethics are brought into the investment decision and so certain investments will be automatically excluded. On the other hand, they try to present this approach as good for investment returns. Well, it can’t be both. More on that later.
What is crucial to these agencies is 1) that they believe their world view is better, more informed, more ethical than the views of the market participants, and 2) that they will try to impose their views on the participants rather than letting the poor sods get on with life. They develop codes and trademarks that usually include big tick-marks stamped on products and websites – certified quality, certified ethical, certified fair etc. Over time, the original reason for existing is forgotten and instead their focus changes to the on-going strengthening of power of the certifying agency. They do not wind down their activities in any markets, even when their original supposed market failure has been resolved. Instead, they do their best to constrain free trade and seek economic rent out of the market in which they add no further value, if indeed they ever did.
Inherent in these agencies is that individuals freely trading with each other in voluntary circumstances must be constrained to meet the desires of the agency. Note, the agency is not a participant in the market, just an observer. These agencies attract people whose inclination is to control the lives of others. They seek the power, not necessarily overt political power but instead through economic power, to impose their views. Economic and political power are two sides of the same coin, but sometimes one is easier to seize control of than the other. The political upheavals of the 20th century were ultimately largely unsuccessful and so tyranny is having another go using economics.
To the responsible investment agencies, they really ought to get their message straight. If responsible investment is “just good business and investment sense” then there is nothing new about the concept. Investors have always sought out businesses to invest in that will produce a good return. Of the many factors that go into such a decision, environmental, social and governance issues are clearly in the mix. If this is the case, responsible investment (RI) is nothing new and should have always been a part of the investment decision. However, if RI means never investing in ‘bad’ businesses, such as tobacco companies, or polluting companies, then the object of ensuring the best return has been lowered in priority. The agency’s view of what constitutes a bad business has become the first priority and all investment decisions will be subject to that overriding control.
Consumers are free to adjust their behaviour for whatever reasons they choose. It is their decision and theirs alone. Provided fair trade coffee, quality certification and responsible investing do not become compulsory, we should be grateful for the freedoms we have left.