Why the Divest Movement Would Hurt More Than Israel

Issue Briefs | National Security

No. 198
Monday, July 25, 2016
by Danielle Zaychik and David Grantham

The self-styled Boycott, Divestment and Sanctions (BDS) movement has been seeking to discredit and reverse Israeli policies with respect to the Palestinian Territories since 2005. BDS promotes an international boycott of Israeli products, divestment from Israeli companies, and exclusion of artists and academics from the Jewish state, among other things. Though the political aims of BDS are contrary to nearly 40 years of U.S. policy, the movement has gained traction in the United States, primarily in academic circles, and among religious and labor organizations. Divesting from Israel, however, would not only likely have negative economic repercussions for Americans and Israelis, but for Palestinians as well. Indeed, the entire divest movement has the potential to devastate the very people it purports to defend.

The Financial Cost of Divestment and Boycott. Punitive economic campaigns have reemerged as the weapon of choice for activists seeking to change the behavior of a given public corporation or the policies of a certain government. For instance, socially responsible investing (SRI) ‒‒ the practice of choosing stocks, bonds or mutual funds based on political, religious or social values ‒‒ remains a popular approach for political activists pushing divestment. State pension funds are a popular target for SRI and divestment activists. Despite their fiduciary duty to maximize the return for investors, some funds have made decisions based on political motivations or outside pressure. Investors in those funds have suffered the consequences. For example:

  • In 2000, the California Public Employees Retirement System and the California State Teacher Retirement System sold all $800 million of their tobacco shares; but since then, the fund has missed out on $3 billion in investment gains and is now considering reinvesting in tobacco company stocks.
  • SRI funds routinely underperform traditional stocks; from 2004 to 2009, the worst performing regular fund tracking the S&P 500 Index fared better than three out of the four leading SRI funds.

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