Editorial: Be careful dumping city gun stocks
Mayor Rahm Emanuel is famous for refusing to let a good crisis go to waste.
But he’s managed to outdo himself in the days since the Newtown shooting with his full-throttle effort to push through new gun-control measures and to rein in recalcitrant gun makers and lobbyists.
He’s pushing gun-control legislation at the federal, state and local level, while also launching an aggressive national campaign to beat into submission companies that make and sell assault weapons.
His latest is a call for U.S. mayors to sever ties with companies that manufacture or sell assault weapons, pitching the idea at a U.S. Conference of Mayors meeting in Washington over inauguration weekend. He has asked the city’s five pension funds and sister agencies like the CTA to do the same. Two funds already have moved to divest.
Then, on Thursday, Emanuel contacted two major banks that provide lines of credit to two gun manufacturers, urging them to “use their influence” to get the companies to support President Obama’s gun-control agenda.
Emanuel has the moral high ground here, and we’re with him. But not without adding a big dollop of caution.
Divestment is intrinsically appealing — how can city pension funds in good conscious invest in gun companies that then turn around and use those same dollars to fight the gun-control measures that big-city mayors desperately want?
Emanuel is tapping into a profound moral inconsistency and others are already on board, including retirements system in New York State and California. The mayors of Los Angeles and Philadelphia also are moving to divest their city pension funds.
But no one should kid themselves about the limits and perils of divestment, which have become apparent over the years as pension funds have sold off stocks tied to noxious regimes such as those in Sudan, Iran and South Africa, and in companies that sell products such as tobacco or alcohol.
The power of these efforts is largely symbolic, a crucial part of the campaign to change hearts and minds. In the case of assault weapons, the goal is to change the conversation, to tip the scales in favor of a culture that rejects military-style guns and ammunition in American homes and streets.
But has divestment so far made an impact on the bottom line of targeted companies? No, says the research. That’s even true in South Africa, where apartheid eventually fell. Perhaps a targeted campaign against assault weapons makers — smaller companies that may be less able to weather disinvestment — will be different. That’s what Emanuel is banking on.
Meanwhile, there are real risks for public pension funds — institutions responsible for the retirements of millions. Research suggests that funds that screen out companies based on social values tend to perform just as well as unscreened portfolio. That’s the good news. But there are many examples of individual funds that have been hurt by screening, according to an analysis by Alicia H. Munnell, director of the Center for Retirement Research at Boston College.
Munnell and others also point out the risk of distracting already poorly managed and underfunded pension funds (you listening, Chicago and Illinois?) and of a slippery slope: Today it’s guns, tomorrow Disney (that screening request was made to Virginia’s retirement fund).
The bottom line: Divestment can send a powerful message and, when prudent, pension funds should go for it. Mayor Emanuel is on the right side of history.
But be careful not to lead any wobbly pension funds over the cliff.