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Professor gives lecture on limited fiscal impact of divestment

By Emily Liu

Nov. 19, 2014 3:41 a.m.

A professor of finance from the UCLA Anderson School of Management discussed the economic effects of divestment Tuesday, arguing that divestment movements don’t have much fiscal impact and activists should seek alternative means to achieve their goals.

In a lecture organized by the UCLA Burkle Center for International Relations, Professor Ivo Welch presented his findings from a 1999 research paper he co-wrote on the economic impacts of the United States’ economic boycott of South Africa during the apartheid.

As recent student activism for different divestment movements has sparked debates on campus and throughout the University of California, officials at the Burkle Center organized the talk to look into the economic efficacy of divestment and implications for using it as a political tool, said Kal Raustiala, a law professor and director of the Burkle Center.

On Tuesday night, the undergraduate student government discussed a resolution calling for the UC to divest from companies that some say contribute to human rights violations in the West Bank and Gaza Strip.

In September, after students asked the UC to divest from several fossil fuel companies, the UC Board of Regents decided against doing so because of the financial impact that divestment would have on the University’s funds.

Welch’s research found that despite the Comprehensive Anti-Apartheid Act of 1986, which imposed trade embargoes, currency sanctions and bank-lending restrictions on South Africa, the country’s economy was not significantly affected. Indicators such as the Johannesburg Stock Exchange showed no statistically significant change, positive or negative, Welch said.

“Even though a worldwide embargo is far more effective than voluntary partial divestment by individual funds, it still seemed to have zero effect economically,” Welch said.

Sam Appel, a graduate student in urban planning who attended the lecture, said he thinks divestment is not an economic but rather a political tool. Appel is part of the Fossil Free UCLA activist group, which supports divestment.

“There are very few people in the divestment movement that are under the illusion that it is a powerful economic tool,” Appel said. “The purpose of divestment is to make a moral stance that it’s not okay to use our money to perpetuate injustice, and to pressure people in power to make changes they wouldn’t otherwise make.”

Denis Bandera, a graduate student in the Anderson School of Management who attended the lecture, said he thinks divestment may be economically ineffective, but it remains a popular tool because it is a straightforward and simple action to endorse.

“It makes you feel like you’re doing some good, even though you don’t know if these marginal effects are really going to make a difference,” Bandera said.

Welch said he thinks tangible change for activist causes will only come about if decisionmakers have better alternatives that are convincing enough to make them change their actions. To tackle climate change, for example, Welch said he thinks the UC should focus on investing in clean energy research, which he said would be more beneficial in the long run than divesting.

Appel said he thinks research, however, would take a long time to bring change, and does not address the political problem of global warming.

Raustiala said he thinks that even though divestment may not lead to significant economic effects, it is still valuable as a political tool.

“At (the) end of the day, divestment is about making a statement as a community,” Raustiala said. “There is no reason not to use it, but we must recognize that it is a difficult tool to use effectively.”

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Emily Liu
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