Can you Build Wealth as an Anti-Capitalist Investor?
Can You Be an Anti-Capitalist Investor?
Investing, as we conventionally understand the word, is a deeply capitalist enterprise. So, if you find capitalism to be a deeply flawed economic and social system, is there a way to save, invest, and build wealth in a manner that is consistent with this belief?
Exploring the Issue
This is an issue that has perplexed me for a while. It takes Socially Responsible Investing to another level by questioning the premise on which most, if not almost all, investing is built. I had a chat the other day with someone who, upon finding out that I was a financial planner, immediately got into a discussion about buying stocks. As an advice-only financial planner, I don’t make specific investment recommendations and I certainly wouldn’t recommend a specific stock. However, when people think about investing, the companies that quickly come to mind are Apple, Microsoft, Alphabet (Google), and Amazon, among others. Each of these companies is worth greater than one trillion dollars, and several more companies are worth hundreds of billions of dollars. These are the ultra-capitalist businesses that almost all investors have in their portfolios either through direct ownership or through a mutual fund or exchange-traded fund (ETF). And even if you don’t invest in these companies, you may use their products or services. How many readers of this blog own an Apple iPhone or have Microsoft Office on their computers?
Why should investing in these companies be a problem?
Concentration of Power
Of course, we don’t have to look only at these giant U.S.-based “mega-cap” companies to think that there may be a problem with the way capitalism is working. In Canada, the major banks are simultaneously praised and vilified. On the one hand, they are praised for their stability; on the other, they are vilified for their oligopolistic control of Canadians’ finances. For example, recently, HSBC Bank Canada was bought by the Royal Bank of Canada. ING, a low-cost online Bank from The Netherlands was taken over by the Bank of Nova Scotia and renamed Tangerine Bank. This is already over 20 years ago, but another example was the takeover of Canada Trust by the Toronto-Dominion Bank.
In short, the largest companies in Canada, and more broadly around the world tend to get larger by acquisition, concentrating ever more power in the control of fewer people. This degree of power allows them to exercise political power as well, often leading to “regulatory capture.” In essence, this refers to the co-opting of government legislators and regulators to serve their industry, rather than keeping the industry in check. Readers may want to follow the request by BCE Inc., the owner of CTV, to the Canadian Radio-television and Telecommunications Commission (CRTC) to drop requirements for spending on local news. BCE has already closed several radio stations in Canada as well as two foreign news bureaus. How will the CRTC respond to the request of the 13th largest company in Canada which is worth almost 55 billion dollars?
Exploitation of Labour
Another critique of large companies is their exploitation of labour. You may recall that Loblaw’s division, Joe Fresh, had clothing items made in a factory in Bangladesh. That factory collapsed, killing over 200 people in 2013. While that was a decade ago, the proper treatment of labour, especially overseas labour, is an issue that won’t go away.
Environmental concerns are also an issue. Canada is considered a giant in the world of mining and many foreign mining companies seek a listing on the Toronto Stock Exchange because of that reputation. Mining and other forms of resource extraction for that matter, are notorious for their potential to harm the environment in which they are established. Canadian gold and copper mining company Barrick Gold Corp. was reported to have spilled cyanide into several rivers in Argentina. According to allegations back then, they had even fired an engineer who had advised the company of the potential for such an incident.
Lack of Accountability and Transparency
Companies are responsible to their boards of directors who are in turn responsible to their shareholders. The concern is that this accountability is too often focused on shareholder return and the attribution of that return to the executives, resulting in compensation that is far more than the salaries and wages paid to lower-level employees. In addition to employees, many also express concerns about the lack of consideration given to the communities in which companies operate, or more broadly, stakeholders who are impacted by company actions regardless of whether they happen to be shareholders.
Some Solutions for the Anti-Capitalist
Given these concerns, what options do investors with concerns about large-scale capitalism have to support a different vision of society? Several of the following anti-capitalist or perhaps anti-mega-capital ideas can be identified as forms of impact investing, so that’s where we will start.
Impact investing is an investment strategy that still seeks to generate returns but does so via organizations that generate specific social or environmental effects. The basic goal is to reduce the negative effects of business activities on the environment and society. Examples include microfinance loans which are typically pooled by a non-profit or charity to fund small business owners in developing nations. Entrepreneurial women are often the beneficiaries of these loans. Impact investing is similar to socially responsible investing (SRI), but the emphasis is more on seeking to invest in enterprises that make a positive contribution versus avoiding those that have a negative impact.
As the name indicates, community investing is locally oriented and intended to support economic development in the investor’s own community, including affordable housing initiatives, small businesses, or cooperatives. These often take the form of community bonds or other forms of lending.
Socially Responsible Investing
This is the other side of the coin from Impact Investing. If Impact Investing is about “doing more good,” then Socially Responsible Investing (SRI) often takes the path of “doing less evil,” (these terms come from a recent interview with Tim Nash of Good Investing by John De Goey on his Bullshift, the podcast). Not all SRI is explicitly oriented toward an exclusionary approach, but that is the approach of many such funds. Unlike many Impact or Community Investing opportunities, SRI is fully part of the mainstream of investing; many mutual fund or ETF companies offer funds that emphasize the reduction or exclusion outright of enterprises that are involved in the fossil-fuel industry, weapons manufacturing, tobacco production, the gaming (gambling) industry, or pornography, to name several such categories. The investment approach here may be likened to the social-legal philosophy of “that which is not prohibited is permitted.”
This category may not be considered adequate by those who are against investing in large companies. For example, the BMO MSCI USA ESG Leaders Index ETF, which follows relatively strict exclusionary criteria, still includes multi-billion-dollar companies like Microsoft, Nvidia, Tesla, Alphabet (Google), and Visa.
Divestment and Avoidance
This strategy is more often pursued by institutional investors like pension funds. Organizations that have announced a divestment policy include the Caisse de Depot et Placement du Quebec, Canada’s second-largest pension plan. The Ontario Teachers’ Pension Plan, another huge institutional investor, has an engagement approach with its investments, seeking to shift businesses toward acting for environmental and societal benefits, which they see as more effective than divestment, but divestiture is an option. It should be noted that Canada is home to some of the biggest pension plans in the world. The top eight are worth approximately two trillion dollars. Number one among them is the Canada Pension Plan, valued at 570 billion dollars as of March 31, 2023.
A divestment and avoidance approach can certainly be practised by individuals and households, too. Holders of individual stocks may choose to eliminate those that they judge to be doing less good and/or more evil. Holders of funds may choose to sell those without a socially responsible mandate and replace them with funds or other investment opportunities that have more of an Impact or SR Investing approach.
Participation in Co-operatives
Co-operative enterprises are active in a variety of areas of the economy. They typically involve ownership by their members and employees. Credit unions are co-operative financial enterprises that operate under provincial jurisdiction. They lend money to small and medium enterprises that are based in the communities the credit unions serve and often provide financing that the big banks are reluctant to offer. There are also agricultural co-operatives operated for the benefit of farmer-members. Co-operative housing is another form in which the co-operative model works. A group of people form a corporation to provide housing for themselves. Food co-ops are another manifestation of this approach. An example in the city of London, Ontario, where I live, is the London Food Co-op, which is a not-for-profit, member-owned natural food store.
While not investing in the sense of placing money in an organization to receive a profit in return, philanthropy or charitable giving has its place in the anti-capitalist approach to investing in that the emphasis is not on profits but on contributing to the social good and contributing to systemic change for the better. At this point, too, giving to registered charities in Canada also comes with the benefit of a higher-than-normal tax credit, to the extent the donor gives greater than $200 in a year.
Here’s Where You Can Find Out More
If you are interested in community investing, you may wish to look into CommunityBonds.ca for ideas and opportunities.
If you are part of a pension plan, you may want to review the investment policies of the plan to see whether they match your criteria. Are they divesting from or otherwise avoiding investments in certain sectors that cause environmental or social harm? You should be able to find policy information on the pension website. Alternatively, ask a pension and benefits administrator in your employer’s Human Resources department. If you own investments personally, you may want to review the holdings of the funds you own and consider shifting your investments from products that are not consistent with your moral values. Again, the Responsible Investment Association website is a good source for investigating options that may be available to you.
Co-ops are everywhere across Canada and are usually locally or regionally based. Therefore, you may wish to search for co-operative enterprises in your own community. For broad information about co-ops, the Government of Canada has some helpful information on Co-operatives in Canada. For credit unions, you may want to start with the website of the Canadian Credit Union Association. Some information on housing co-ops can be found through the Co-operative Housing Federation of Canada.
Philanthropy can take many forms, but if you are interested in giving through registered charities in Canada then a good place to check on a charity that you may be interested in giving to is through the Government of Canada’s information on Charities and giving, including a List of Charities.
This is the 205th blog post for Russ Writes, first published on 2023-07-10
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Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, tax, or legal decisions.
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