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Investing With Impact

Why Finance is a Force for Good

By Jeremy K. Balkin
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Investing With Impact by Jeremy K. Balkin

Investing With Impact (2015) explores how people have harnessed the power of capitalism to do good and improve society at large. As a number of ethical and philanthropic investors have shown, finance needn’t be a system of pure greed. Find out why the frequently demonized capitalist system may well be the secret to saving the world.

Key idea 1 of 6

The capitalist system isn’t inherently evil; it’s people that make it bad.

No tool is inherently good or bad. Morality enters the picture when tools are put to use. For instance, an axe can save lives when it’s used to chop wood to build a fire in winter; in the hands of a murderer, however, that same axe could be a weapon. Capitalism is a tool like any other.

Since human beings ultimately control the capitalist system, it’s up to us to decide whether capitalism is used for good or bad.

The capitalist system works by establishing a free market that is based on empowered individuals who are free to make their own decisions. Over the past 50 years, this system has brought prosperity and made the world a better place for many.

Thanks to free trade, the wealth of nations has risen, as have levels of employment and self-sustainability – all of which has improved living standards.

According to a 2014 World Bank report, approximately 80 percent of poverty reduction is due to a nation’s economic growth through free trade and free markets. Free trade and free markets are also what halved global poverty between 1981 and 2005.

Capitalism’s ameliorative effects have led most people to view capitalism in a positive light. In fact, a 2014 study by the Pew Research Center showed that 4.5 billion people in the world think that free-market capitalism is the best economic system.

Now, you might be thinking, “What about the 2008 financial crisis? Wasn’t this the result of a broken system?”

As a matter of fact, the crisis was the result of moral and societal issues. The people who made the financial decisions failed – not the system itself.

The crisis stemmed from the greedy and selfish actions of bankers who favored short-term earnings over long-term benefits and disregarded what was best for their communities.

In retrospect, the immoral actions of US energy company Enron foreshadowed the crisis that followed.

The company collapsed into bankruptcy after they tried to hide debts by exploiting loopholes and posting false numbers. Rather than trying to provide a helpful service, the company strove to improve the stock price and earn big returns and dividends.

The motives of bankers were similarly greed-driven. Rather than helping clients, they based their actions on self-interest alone.

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