I’ve been mulling over Grant’s book-of-a-post on (among other things) our nation’s acceptance of the “greed is good” economic model, and of possible alternatives to this model.
Especially relevant has been some recent news reports on faith-based investment practices that — because of their rejection of certain greed-risk practices — have been outperforming in this toxic market.
Muslim investors adhering to Islamic business values, which include a rejection of interest-based profit models, have been largely shielded from the risk-heavy parts of the markets that have been at the front of the free fall:
As credit markets have imploded, triggering a global economic crisis, Islamically correct investors have seen a change of fortune: The conservative principles this small group of devout Muslims clung to during the economic heyday has insulated them from the worst of the past year’s suffering.
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Renouncing interest is the high-profile element of Islamic finance that relates to the current economic crisis. For Islamically correct investors, that means there are limits to how much debt a company can have or how much profit it can derive from interest-based investments…Islamic finance also prohibits selling assets you don’t own, selling someone’s debt and engaging in high-risk investments. Thus, there was no participation in practices that have been blamed for Wall Street’s meltdown: complex derivatives trading, short-selling and the $30 trillion market in credit default swaps.
Interestingly, however, these Islamic investing advocates make sure to insist that extra profit is not the rational behind these investment practices, but rather following their faith values:
But performance alone isn’t the point of compliance with Islamic law, known as sharia. For the committed, investing finance with faith is about living with values.
“We don’t claim to our investors that we’re going to be consistently outperforming the market because we have sharia criteria,” said Monem Salam, director of Islamic investing and deputy portfolio manager for Saturna Capital, which manages the Amana funds. “We’re going to give our investors the best return they can (get) based on the criteria. If that means outperformance on certain indices, then great.”
Frederick Clarkson also has a similar piece up on Religion Dispatches on Christian investment firms that have taken conscientious investment practices on issues such as environmental issues that have proven largely prophetic:
Faith-based investors, [Laura Berry] says, have been way ahead of the curve on several major issues, noting that they had for years warned of predatory mortgage lending and called for full disclosure of risk. “One hesitates to use the term prophetic in this context,” she said, underscoring that they had “flagged a number of issues that could have been addressed sooner and at far, far lower cost to investors and to society in general.” On the other hand, Berry notes that they are not without successes, some of the issues raised about climate change over the past three decades, “are now a part of the business plans of many corporations.”
Of course, the divestment campaigns (on issues such as Darfur) also quickly come to mind when discussing values-informed investment practices.
I would sum up both of these Muslim and Christian investing articles like this:
- Their investing guidelines have led to less hurt in this downturn market.
- However, even if acknowledging some of the prophetic nature of their practices, they insist that the point is not to be more profitable but to bring their money management in line with their faith values.
After all, if we can say that anything is alarming about American culture it is the notion that dollar concerns always trump all others. Just even challenging this paradigm seems nearly revolutionary — which is all the reason more that it should be done.
Alan, thanks so much for this timely post. I know there are some Catholic investment groups, as well as “social justice” investment groups that often underperform the general market. Of course, that means they all avoid the huge risk. Would you see this as a viable option for the community of faith, to place principled approaches over and against the attraction of profit?
The other issue is simply this: capitalism has created tons of…well…capital. This has allowed for several advancements, perhaps, for our species, but I’d probably suggest at least has helped create and maintain “middle class” and redistributes wealth cyclically (for good or ill).
Someone like Ludwig von Mises might argue that this “faith-based approach” would fail, as it approximates economic calculation, rather than consider most “human action.” And of course, someone like Ayn Rand would say that market capitalism is the most moral and just system.
What can people of faith say about this system’s morality? Can you be utilitarian AND Christian, hoping that this system brings about the greatest common good?
Yeah, Edwin, I think you hit on their real crux of the matter. Let’s say that, in a broader utilitarian sense, self-interest is good, which I think there is at least a bit (if not a lot) of truth to that as far as economic systems go — then should Christians accept this as a systematic necessity (even if not on a personal basis) for the betterment of all? While the “invisible hand” is not nearly as simple and omniscient as hardcore capitalists might argue, there is no question that it does, as you suggest, create capital.
I don’t have the answers on this. I would say, though, that if one is going to do faith-based investing, one should be doing it expecting underperformance. One should do it for the moral and prophetic nature of the practice.
I’d be curious as to others’ thoughts on this topic.
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