Divest from Teheran - now

A Californian bill may require pension funds to liquidate holdings in companies that trade with Iran.

By MICHAEL MLEO GIOSUÈ ROSEN
iran flag 88 (photo credit: )
iran flag 88
(photo credit: )
La Mesa, California is a long way from Teheran. So it may seem unlikely that this San Diego suburb is the point of origin of a measure that could significantly affect the way Iran does business. First-term California State Assemblyman Joel Anderson, a Republican who represents this corner of Southern California in Sacramento, recently introduced a bill that would require the state's two enormous public pension funds - the California Public Employees' Retirement System (CalPERS) and the California State Teachers' Retirement System (CalSTRS) - to liquidate any of their holdings in companies that trade with Iran. The measure, which passed the Assembly by a 75-0 vote on June 5, represents a ripple that could swell to a massive wave of international economic divestment like the one that ended the South African apartheid regime. DIVESTING Iranian-friendly companies from CalPERS and CalSTRS matters because of the funds' sheer size. Together, they hold nearly $400 billion in assets; befitting a state populated by 37 million people, the two pension systems are by far the largest of their kinds in the United States. The funds also reportedly own approximately $24 billion worth of investments in companies that do business with Teheran, including major international corporations like Hyundai, Royal Dutch Shell, and Siemens. (US law forbids American companies from operating in Iran.) Removing tens of billions of dollars in stock holdings will undoubtedly send a message that residents of America's most populous state strongly disapprove of these companies' ongoing relationship with Teheran. As Anderson told me, "California's investments should not be gambled on foreign-owned companies that make money by violating or skirting federal and United Nations sanctions on Iran." Even more importantly, the bill would build on a foundation already laid by several states - including Missouri, New Jersey, Illinois - that have embarked on divestment campaigns of their own. It's not difficult to envision others states following the Golden State's lead in stigmatizing those who deal with Iran. As Anderson says, "California has always led the nation in groundbreaking legislative issues… [This bill] will lead to similar legislation in other states, and possibly other nations." He skillfully steered the measure to unanimous passage through an otherwise highly contentious State Assembly. STILL, THE bill is not without its detractors. A recent editorial in the local San Diego paper launched a misguided attack on Anderson's bill, warning that divestment would "cost taxpayers hundreds of millions of dollars" and "would have no impact whatsoever on Teheran's backing for terrorist groups." The editorial suggested that the companies will continue trading with Iran irrespective of the funds' actions, questioning how "Hyundai selling cars in Esfahan [could possibly] provide any support" for the regime anyway. Spokespeople for the pension funds offer similar objections to the measure, while others have doubted the wisdom of allowing states to effectively make their own foreign policy and bypass traditional diplomatic avenues. Yet these criticisms miss the mark - badly. First, any genuine economic analysis favors divestment. As Anderson, who insists that he's primarily concerned with diverting California taxpayer dollars from an unstable regime, told the New York Times: "I'm not saying that we should take a foreign policy stance; I'm saying it's not a good place to invest our money." He elaborated to me that "money is the mother's milk of terrorism - and Californians want to sever that source." Second, there's simply no way that the transactions costs associated with this measure run into nine figures. If that's the case, then CalPERS and CalSTRS are managed far worse than anyone appreciates. Anderson dismisses the transaction cost argument, claiming that it "ignores the normal costs of doing business and assumes these investments are never traded. Common sense professional money managers would trade out of bad investments and into good investments." THIRD, contrary to the callous cynicism of the naysayers, divestment can work. As Anderson told me, just as the Golden State's previous "divestments [from] South Africa and the Sudan" set in motion a cascade, we have every reason to expect the same from this bill. And as for the temerity of individual states' dalliance in international affairs, these efforts go hand-in-glove with the State Department's push to isolate Teheran. Especially where traditional diplomacy has foundered on the shoals of Chinese and Russian intransigence, a grassroots assault on Iranian finances could actually be preferable. Anderson's bill must still clear the California State Senate and overcome the fund operators' opposition. But Anderson has amassed 26 co-authors of the measure, including numerous key Sacramento Democrats. Even the Teamsters are on board. Closer to home, the local Jewish community - including the Anti-Defamation League, the American Jewish Congress, and the Simon Wiesenthal Center - has also gotten behind the bill. Marty Block of the San Diego Jewish Community Relations Council - a recent state university retiree - told me that he depends on CalSTRS for his pension and "want[s] to see the fund prosper, but not at the expense of supporting companies that ultimately support the anti-Israel, terrorist regime in Iran." Block "support[s] divestment because it's the right thing to do, morally and fiscally," a widespread sentiment in the San Diego Jewish community. So while many politicians pay lip service to the phrase "think globally, act locally," Assemblyman Anderson actually embodies it. His bill could open up a promising new front in the very difficult battle to force Iran to change its course. Perhaps La Mesa isn't so far from Teheran, after all. The writer, an attorney, is the secretary of the San Diego County Republican Party.