Stock Market: Why are Defense Contractors considered a "vice" industry?

Vice investing, in terms of the stock market, involves investing in Alcohol, Tobacco, Gambling, and Defense Contractors. Why is defense considered a vice?

According to Wikipedia’s article on Socially Responsible Investing, the concept of socially responsible investing was spearheaded by Quakers. Is this the origin of classifying defense contractors as a vice industry, since Quakers doctrinally oppose war?

I can only assume that defense contracting is equated to “guns” and “war”, which I gather more liberally minded folks will consider a “vice”.

For what it’s worth, I will never forget my wife’s response on 9/11 to watching the twin towers fall on the news, which was: “Whoever was responsible for this is going to get a whole lot of bombs dropped on their country. Now seems like a good time to invest in defense stocks” and a week later, I purchased the Fidelity Select Defense Fund. That was good investment advice - thanks honey!

Thoughts on the first question:

“Vice” implies a character flaw, and since wars of any kind typically increase sales and profits for defense contractors, the argument can be made that profits come at the price of lives. Trading lives for shareholder dollars can reasonably be thought of as a character flaw.

Even defensive technologies, such as armor, can be rationalized as ways to kill opponents more efficiently. Some might also make the argument that you’re just determining who is killed - us or them - but not changing the sum total. (not saying I subscribe to this rationalization, but the argument can be made)

And defense contractors typically do not distinguish between wars of “defense” and wars of aggression. They make money either way and are unlikely to say “Sorry Congress, we don’t believe this is a defensive action, so we’re sitting this one out and not shipping you anything.” Furthermore, defense contractors can be opportunists and choose to sell to countries abroad not interested in “defense.”

Finally, no military provider ever categorizes itself as an “offense” contractor. So the term “defense” is really just an industry nicety.

I’m sure other folks will be along with cites that a lot of “defense” contractors instigated or at least cheered for arms races, especially in the early 20th century and with the Military Industrial Complex (my cite here is also that it’s also a world wonder in Civilization Revolution. I conquer all in the name of defense!! :))

I have never heard of “vice” as a measurement in selecting against stock funds, but (esp. in connection with Quakers) a few banks over here offer “ethical” investments. And one of the criteria on the negative index (the ethics council that selects the stocks has one negative list of reasons that cause a company to be excluded, and sometimes a second positive list that cause a neutral company to be included. So Siemens might be listed for promoting women and offering kindergartens, but Junghans was dropped after long discussion because they produce pins for land mines).

Any companies that produce weapons or parts of weapons are negative (it’s not called “defense” in German). If a company only made defensive material for the Army like body armour and clothing, they might not count, but most companies produce weapons because that’s more money.

As Meerkats already explained, the companies don’t say “Well, the US is currently in a defensive war, so let’s produce weapons for our guys”. They produce first, and then look around where they can sell their weapons to. And even when a country forbids selling to certain regimes, the weapon companies try to get around that law because it’s profitable.

I think constanze is right. It’s not that defense is considered a “vice” industry, it’s that “socially conscious investing” usually includes defense among the industries that it does not invest in.

As an investor, you may wish to avoid the risk of creating a conflict between your interests and your values. If you invest in a tobacco manufacturer, you put yourself in a position where each person who takes up smoking brings you a financial benefit, and each person who gives up causes you a loss. Similarly, if you invest in a company that makes bullets, you’ll make more money if war breaks out.

Sometimes the best defense is a good offense.

Wouldn’t this be in the same line of thought that led to the creation of a Bureau of Alcohol, Tobacco and Firearms?

The Ethikbank (ethical bank) has the following negative criteria:

Each point has a longer listing with exact explanation and definition.

The positive list is

Now, as private bank, the ethics bank has chosen these criteria according to what they believe the majority of their customers want to influence - strenghetning by investing into the positive, weakening by not giving money to with the negative list.

Of course, they are free to add or remove criterias as they see fit, or as the customers want it - part of their approach is to be a glass (=transparent) bank, so that the customers can know in advance where their money is going at all. Whereas when you give money to a “normal” bank like Hypo, Commerz, Dresdner, Deutsche etc., they will invest that money into nuclear and weapons industry soleyl because of profit.