As campuses come back to life this fall, many pro-Palestinian students will resume their protests from the spring against Israel’s war on Hamas. Once again they will demand that their colleges divest from Israel. These campus protesters often have their hearts in the right place: They want to alleviate what they consider to be unjustified, extensive suffering among a civilian population. Their demands, however, are impractical — for both legal and financial reasons.
To begin, anti-BDS (Boycott, Divestment, and Sanctions) laws are in effect in most states. Those laws prohibit organizations boycotting Israel from doing any business with the state government. Surprisingly, student-activist groups have not discussed how those laws affect their movement. That is a serious strategic error, assuming their goal is to alleviate suffering in Gaza by exerting financial pressure on the Israeli military. Because of those anti-BDS laws, successful divestment at most public colleges would result in significantly increased tuition costs. Also, the anti-BDS laws reveal why the divestment movement, in the current political environment, cannot hope to achieve anything comparable to past campaigns targeting South Africa or Sudan.
Since 2015, 38 states have enacted anti-BDS laws. The laws do not, at present, apply at the federal level. Nor do they make it illegal to boycott or divest from Israel. But for any organization that transacts with state governments, they make boycotting or divesting prohibitively expensive and effectively impossible. They have been challenged for violating First Amendment rights, but so far the Supreme Court has declined to step in. The legal scholars Josh Halpern and Lavi M. Ben Dor defend the laws’ constitutionality on the grounds that boycotts are not legally protected speech.
Those laws are especially relevant to public institutions. Take the University of Michigan at Ann Arbor as an example. Since October 1, 2017, Michigan law has prohibited state agencies from doing business with an entity that is engaged in a “boycott of a person [or corporation] based in or doing business with a strategic partner” of the United States. That would include Boeing, which supplies weapons to the Israeli military. Assume for illustration that part of the university’s $17.9-billion endowment includes equity in Boeing. What happens if, under pressure from student activists, the university sells that equity? The university projects it will receive $365 million in funding from the State of Michigan in 2025, composing about 12 percent of the operating budget used to pay for teaching and administration. By divesting, the university would lose that money. It would need to compensate for the budget shortfall by, among other things, raising tuition, perhaps by more than 15 percent. Few students would be pleased with that result.
The situation is different at a private university like Brown. Per Rhode Island law, Brown cannot do business with the state if it divests from Israel. That is not a serious deterrent. Rhode Island’s contribution to Brown’s operating revenue is tiny; it does not even merit a mention in the university’s most recent financial report. Unlike public institutions, many wealthy private institutions can do without any state funding, making the costs of violating anti-BDS laws for them much less severe. That said, those costs do exist.
Successful divestment at most public colleges would result in significantly increased tuition costs to students.
Costs for private institutions come with the reallocation of their investment portfolio. Each college manages its endowment differently. According to recent financial filings, over 96 percent of Brown’s endowment is invested in different funds that are managed by a handful of firms, including Blackrock, State Street, and Vanguard. To completely divest while maintaining a portfolio with a comparable risk/return ratio, Brown would need those asset managers to provide something like a BDS fund that eliminates all exposure to suppliers of the Israeli military. In a different political climate, that would be possible. Many asset managers already offer funds that cater to clients’ moral preferences, with over $323 billion invested in funds that include only environmentally conscious companies.
But due to anti-BDS laws, no large asset manager can offer a divestment fund because they all have state pensions as their biggest clients. (Moreover, offering a BDS fund for colleges is not the same thing as divesting from Israel. Blackrock could offer such a fund while retaining exposure to the Israel Defense Forces’ suppliers.) Nevertheless, were Blackrock to offer a BDS fund to customers, it would lose business to competitors, as pro-Israel states transferred their pensions to State Street or Vanguard. Many states would do that in retaliation against Blackrock for offering a BDS fund, even if the letter of their anti-BDS law did not require it. No responsible asset managers would make such financially disastrous decisions for their firms.
Perhaps private colleges could turn to small boutique firms for the financial tools they need to divest. Such relatively tiny firms do not deal with state pensions, and so could offer a BDS fund without worrying about losing business with state governments. But under such an approach, colleges would have to pay much higher portfolio-management fees than if their assets were with a behemoth like Blackrock, which manages over $9 trillion in assets. Due to economies of scale and the number of its clients, Blackrock can afford to charge much lower fees than would a boutique firm while providing a product with the same risk-adjusted return. These additional fees — amounting to millions of dollars a year — may seem like a trifling matter if they are the cost of doing the right thing. Yet doing the right thing here has only symbolic value, and will make no difference to the lives of desperate civilians in Gaza.
A lone college’s divestiture from Israel can have no impact whatsoever on the war. For example, in February, the Brown Divest Now group published a report presenting precise criteria for targeting companies for divestment. The report identified 10 companies — nine American and one Swedish — meeting the criteria. Twenty-four attorneys general of states with anti-BDS laws recently condemned the plan, noting that if it were carried out, their states would be required to dissolve all relations with the university. Imagine if Brown, undeterred, were to fully divest, eliminating all exposure to the 10 companies. They include mainly military contractors (Airbus, Boeing, Northrop Grumman) and one telecommunications company (Motorola). They have a combined market capitalization of about $1.3 trillion, which dwarfs Brown’s endowment of $6.6 billion. Those numbers must be kept in perspective: $1.3 trillion represents only about 2.4 percent of the $54-trillion market capitalization of all American companies listed on the New York Stock Exchange and Nasdaq.
A lone college’s divestiture from Israel can have no impact whatsoever on the war.
Brown’s complete endowment holdings are not publicly available, but we can guess the 10 problematic companies compose much less than 2 percent of its investments, which include, in addition to U.S. stocks, exposure to foreign companies and other assets like debt and real estate. As an upper bound, we can guess that of Brown’s $6.6-billion endowment, no more than $132 million is invested in companies targeted for divestment. While that is a large number, the average market capitalization for those 10 companies is above $100 billion. Were Brown to sell off several million dollars in holdings in any of those companies, it would make no difference to their share price, due both to the relatively insignificant volume of the trade and to the fact that the holdings would simply be bought up by another investor.
What if a single college were to divest as part of a wider trend? Student activists may have that in mind when they liken the current movement to past divestment campaigns, against South African apartheid in the 1980s or Sudan over the Darfur genocide in 2006. In both cases, colleges participated in a trend that included state divestments and culminated in federal legislation: the Comprehensive Anti-Apartheid Act in 1986 and Sudan Accountability and Divestment Act in 2007. The present ardently pro-Israel political climate makes comparisons to past campaigns inapt. To the extent past divestments made a difference, it was because they came to enjoy broad bipartisan support, leading to state and federal legislation. Americans today are too divided on Israel for past campaigns’ success to be replicated.
College divestment is not the right tool to tackle Gaza’s humanitarian catastrophe. Activist energies may be better directed away from college presidents and administrators and toward elected public officials. Political activism might not make any difference to the conflict, but it is more likely to be effective than campus-centric capitalist activism. Campus protests for divesting have one advantage: They signal to the world that students want their hands to be clean in this crisis by eliminating any indirect financial ties to Israel’s military. All of that is just hand-washing, though. It is not the same thing as helping.
