What is interesting in the Free Enterprise Action Fund, a U.S. mutual fund launched on March 1, is less its profit potential than its symbolic significance. Perhaps corporate executives will stop being eaten alive by anti-business, big-mouthed social activists.

In recent decades, the anti-free market movement has subverted corporations from the inside by developing business ethics into an anti-free market ideology, and by using shareholdings to push the social activists’ agenda into corporate policies. “Socially responsible investing” (SRI) and “ethical” mutual funds have been an important part of the activists’ toolbox since the creation of the Pax World Balanced Fund in 1971.

Executives, who are as incompetent in battles of ideas as they are efficient at producing goods and services, have fallen in the trap with their typical commercial smiles. But they are also under heavy intimidation tactics.

For example, Pax World Funds, owner of the Pax World Balanced Fund among others, recently sold its US$23-million stockholding in Starbucks Coffee Co., because the (otherwise very politically correct) corporation is involved in a joint venture to produce a coffee-based alcoholic beverage. A few days ago, J.P. Morgan Chase, under pressure from the Rainforest Action Network and activist shareholders groups, adopted an environmentalist agenda. (In a vindication of the poor, the Congress of Racial Equality criticized Morgan Chase for thus restricting lending to Third World projects: The bank, says the organization’s spokesman, is “guilty of political correctness and cowardice.”)

The Free Enterprise Action Fund will provide some much-needed counteraction. The Fund brands itself as “[t]he first mutual fund to seek long-term capital appreciation through investment and advocacy that promote the American system of free enterprise.” Its founder and lead advisor is Steven Milloy, a lawyer, columnist and adjunct scholar at the Cato Institute. For regulatory reasons, the fund is only available to American investors.

The Fund’s prospectus says that it “will be a shareholder of some companies that ... are at risk of being adversely impacted by social activists.” The Fund’s “Free Enterprise Guidelines” contains criteria like, “Is the business making or considering decisions that tend to ignore individual liberties relevant to the businesses’ products?”, or “Is the business willing to aggressively challenge unfounded government action that threatens its interests?” The Fund will invest in the companies for which the answers to such questions are positive, or at least intervene as a shareholder to focus them on their goal of making money.

For the fund also has an advocacy mission. “By working to keep businesses focused on business rather than activist-defined [corporate social responsibility],” it says, “the Fund aims to promote more generally our system of free enterprise.” The Fund’s prospectus quotes Milton Friedman’s controversial 1970 statement: “The social responsibility of business is to increase its profits.”

In other words, the Free Enterprise Action Fund will do in favour of free enterprise what SRI and “ethical” funds do against it.

At least 65% of the fund’s assets are normally invested in common stock of the Fortune 500s and the S&P 500s. As of April 12, the top 10 holdings (among some 400) amount to less than 20% of the portfolio value; the largest holding, General Electric Co., stands at 3%.

By putting their money where their mouths are, investors in the Fund would compromise purely financial criteria and earn lower returns or incur higher risk, as acknowledged in the Fund’s prospectus. Mr. Milloy, however, says that investments are chosen on the basis of performance only, that the investment and advocacy activities are kept separate, and that the free-enterprise guidelines apply exclusively to the advocacy mission.

With about US$4 million in assets, the Free Enterprise Action Fund is still very small, but may be part of a contrarian movement against politically correct investing. Another politically incorrect fund, the Vice Fund, created in 2002, has US$32 million very profitably invested in alcohol, gambling, defence, and tobacco. These amounts are little compared to the Pax World Balanced Fund’s assets of US$1.5 billion, but are a step in reclaiming corporations for the only thing they do well: producing goods and services efficiently for the people—not for the social activists.