Faculty Members Reflect on Divestiture

The Republic of South Africa is a country where a white minority lives in health and comfort, reaping the fruits of a richlyendowed, modern industrial economy. It is also a country where black children are so malnourished, susceptible to disease, and deprived of medical care that, according to United Nations estimates, half of them die before reaching age six.

The gruesome realities of the apartheid system are not, per se, the subject of controversy at Harvard. Everyone here, at least in words, opposes apartheid. The questions before the Harvard community are: whether it is appropriate for Harvard to maintain investments in corporations which operate in South Africa; what the impact would be of a move to divest from such corporations; and how to weigh the contribution that action would make to anti-apartheid efforts against the possible financial losses to Harvard from changing its investment policy.

The purpose of this article is to explain why an increasing number of Harvard Faculty members are calling for divestiture. We shall discuss: (1) the ways in which divestiture would contribute to the elimination of apartheid; (2) the viewpoints of prominent South African opponents of apartheid; (3) the costs to Harvard of divestiture; (4) the fallacies in Harvard's present approach.

Let us suppose Harvard announced that it intended to divest from corporations which operate in South Africa, thereby joining a growing international effort to ostracize the Nationalist government of that country through economic and other sanctions. Naturally, time will be allowed to effect an orderly transition to an investment policy based on stocks not involved with South Africa, real estate, government bonds, etc.; but after a specified date Harvard would have severed its financial ties to the apartheid regime. What could we expect to be the impact of such an action by Harvard?

First, other universities and non-profit institutions would come under intense pressure to follow Harvard's example. Second, those companies which are most sensitive to public relations would have to re-examine their South African ties, deciding either not to expand existing operations, to start cutting back operations, or, in some cases, to withdraw entirely. Thirdly, political leaders and corporate planners who try to gauge long-term trends would see Harvard's action as further evidence that the days of the white minority regime are numbered. To be sure, divestiture would not have an immediate financial effect on the companies which operate in South Africa. The impace of such a dramatic move would be felt on a deeper level.

Such action by Harvard would boost the morale of the anti-apartheid; movement both in Africa and world-wide. Conversely, it would be a powerful blow to the arrogant self confidence of the Nationalists in South Africa. As Donald Woods, exiled South African newspaper editor and Harvard Nieman fellow, explained in a recent interview with The Crimson: The South African government has this belief that Uncle Sam will always bail it out. It looks upon Americans as basically white and believes that they'll think racially. It's my belief that until something is done that actually costs the United States, something that proves that the U.S. is not kidding around the South African government will see no reason to change at all. The only things I can see that are non-violent, and that would constitute a strong pressure are withdrawal of investment and loan money from South Africa, and recall of the ambassador. It will take something fairly dramatic, like withdrawal of economic and diplomatic support, to get it through to them, finally, that they either have to start negotiating with black leaders or face the whole thing on their own.

The reputation of Harvard University as a bastion of Western cultural and intellectual tradition is especially strong in the emerging African elites. But many in that group mistrust the West because of the years of European colonialism, the long period of total support by the West of white supremacy in South Africa, and the continuing refusal to back U.N. sanctions against South Africa. Seen in this context, Harvard is faced with the choice of a policy of ambivalence on apartheid (opposing it in words while at the same time profiting from it)--which can only cause cynicism among Africans--or a forthright stand which could start to win back the good will of Africa's present and future leaders.

Virtually all black organizations and leaders that are carrying on the struggle against apartheid in South Africa call for U.S. corporate withdrawal. This is the official position of the Black People's Convention, the South African Students Organizations, the African National Congress, the Pan-African Congress, the South African Congress of Trade Unions, and the Christian Institute in South Africa.

The argument of the anti-apartheid forces in South Africa is best summarized in the 1976 statement of the Christian Institute in South Africa:

Governmental insistence on enforcing apartheid and its rejection of normal negotiation with freely chosen black leaders, have produced a situation in which there are few ways of preventing the escalation of violence and bloodshed into a major confrontation. One of the few remaining methods of working peacefully is through economic pressure, which could help to motivate the changes needed to bring justice and peace...The Christian Institute supports the call for no further investment in South Africa because:

1. Strong economic pressure is of vital importance in bringing about as peaceful a solution as possible.

2. Investment in South Africa is investment in apartheid, and this is immoral, unjust and exploitative.

3. Attempts to change the situation through pressure by investors have proved inadequate.

4. The argument that economic growth can produce fundamental change has proven false. Many black organizations have opposed foreign investment in South Africa, and this would be the opinion of the majority in South African blacks if their voices could be heard.

The late Chief Albert J. Luthuli, Nobel Peace Prize winner and president of the African National Congress, conceded that corporate withdrawal would entail "hardship for Africans." "But," he argued, if it is a method which shortens the day of blood, the suffering to us will be a price we are willing to pay. In any case, we suffer already, our children are often undernourished, and, on a small scale (so far), we die at the whim of a policeman."

In recognition of the virtual unanimity of anti-apartheid forces on this issue, many prominent American organizations have endorsed corporate withdrawal. They include the National Association for the Advancement of Colored People, the Congressional Black Caucus, the AFL-CIO Executive Council, the New York Times, and the National Council of Churches.

Supporters of the Corporation's position hope to diminish support for divestiture by arousing fears over the cost of such action to the University. We have analyzed Harvard's estimates and have found them grossly exaggerated.

There are two types of costs associated with divestiture: one-time costs (brokerage commissions and short-run price effects) and recurring annual costs. Harvard estimates the one-time costs at $5-15 million. But even the "low" estimate of $5 is based on inflated brokerage commissions. Moreover, no one is calling for instantaneous divestiture; if the stocks were sold over a period of a year or so, the cost would be considerably less. In any case, Harvard normally turns over 20-30 per cent of the portfolio each year. More realistic estimates, based on Stanford University's figures for one-time costs, lead to a sum under $1 million.

The primary recurring expense involves so-called "opportunity costs." This is the potential lower profit which comes from avoiding stocks of companies which operate in South Africa. Of course, this cost is highly speculative--Stanford did not even venture to estimate it. Harvard's estimates of $1.8-6.8 million annually for recurring costs are based on a Princeton study of the stock market in the years 1953-1968. This study demonstrated the overall greater profitability of investment in the large multinational corporations, which comprise the bulk of U.S. business interests. However, in the ten years since 1968 the multinationals have not fared nearly so well. Many investors now prefer to invest in other stocks, or in real estate, government bonds, etc. It is far from clear that a carefully thoughout investment strategy motivated by non-investment in apartheid would reduce Harvard's income at all, let alone by the amounts Harvard cites.

The other recurring expense is the possible detrimental effect on gifts. Again, this is highly speculative. In the past, Harvard has adopted policies which were not popular with conservative corporate executives--for example, abolishing ROTC during the Vietnam War, or refusing to fire a tenured faculty member and former communist during the McCarthy period. In short, we think the financial harm from taking aprincipled stand has been greatly exaggerated.

The Corporation has consistently refused to adopt a general policy favoring corporate withdrawal or, for the matter, non-expansion of existing business operations. Instead, it has chosen to evaluate the record of each corporation separately, weighing the individual benefits to certain black South African employees (in the form of desegregated facilities, opportunites for promotion, etc.) against the overall social burden to the wider black population. This has been both in theory and practice a woefully inadequate response.

While a case-by-case approach may appear on its face to be a fair and rational one, in practice it has been a prescription for obfuscation and delay. First, the entire process is dependent on data and information the corporations themselves provide. While most major companies provide information on employment practice, few (if any) are willing to provide information on taxes paid to the South African government, sales of strategic products and services, etc. In fact, corporations are precluded under South African law from disclosing sales to military and law enforcement agencies.

The Corporation in its April 1978 report promised to support corporate withdrawal resolutions where companies fail substantially to disclose material facts. Now, however, the Advisory Committee on Shareholder Responsibility appears content to proceed with the case-by-case review on the basis of employment practices data alone. This belies a conservative and deferential attitude toward corporate management.

The fundamental flaw underlying the Corporation's analysis is its failure to recognize that multinational corporate activity in South Africa provides the economic base and technology upon which the apartheid system depends. American firms in particular dominate the automobile, energy and computer industries, providing a substantial share of the military and police vehicles, refined petroleum, and data processing equipment essential to the efficient administration of apartheid. Furthermore, it has been estimated that American companies pay three times as much in taxes to the South African government as they do total wages to their African employees.

It is perhaps difficult for many Americans to understand that corporations in South Africa have not been, and will not be, a force for fundamental change. First, it must not be overlooked that multinational corporations locate in South Africa in large part because of the opportunity to earn a rate of return far in excess of that available in their home countries. These extra profits are in turn made possible by the existence of a large, non-union, underpayed non-white labor force deprived of elemental civic, political and legal rights and protections.

Second, South African laws, customs, and trade union work rules restrain whatever initiatives U.S. corporations may undertake to implement reform.

While U.S. corporations cannot bring about significant change, their presence actually strengthens apartheid. For instance, American and European multinationals provide the South African government with valuable political protection, insulating the regime from the threat of credible trade sanctions. As long as American firms maintain substantial South African interests, the Congress and the President will be unable and unwilling to invoke economic sanctions.

It seems clear that without internal and external pressure, the Nationalist regime will not find it in its interest to make substantive concessions to the black majority. By threatening the very foundation of white prosperity, continuous and substantial capital outflow is one of our best hopes for inducing the white population, or at least certain critical factions within that population, to begin good faith negotiations with the leaders of the African, "colored" and Asian majority. But in the event that accommodation is not achieved, at the very least the scaling down of multinational corporate presence would put the regime in a weaker position to resist the organized oppositon of the majority.

***

In conclusion, Harvard has not made a sincere effort to come to grips with this important international issue. It has yet to make an examination in good faith of alternative investment strategies, ones not predicated on the bitter harvest of apartheid.

It has not come out in favor of either complete or limited withdrawal. Indeed, it has not taken any steps to alter significantly corporate policies in South Africa. A growing number of Harvard Faculty members believe that Harvard should take positive action. We are convinced that corporate withdrawal is necessary and that divestiture will promote such withdrawal. Therefore we urge Harvard to adopt a policy of divestiture.

This article has been co-signed by the following Faculty members, and the South Africa Solidarity Committee:

Gosta Esping-Anderson, instructor in Sociology

Patrice L-R. Higonnet, professor of History

Thomas Holt, associate professor of Afro-American Studies and History

S.R. Cudjoe, assistant professor of Afro-American Studies

Neal Koblitz, assistant professor of Mathematics

A. Prabhakar Rao, assistant professor of Mathematics

David Rohrlich, assistant professor of Mathematics

Mary Nolan, assistant professor of History

Joel S. Migdal, associate professor of Government

Theda Skocpol, associate professor of Sociology