What if smart money had to bet on a competitor or growing some other investment instead?
Your argument isn’t a moral one.
I don’t mean to make a moral argument, just question the need for short positions. If the company is truly bad their shares should deflate as demand deflates, no short seller position necessary. I think, from the perspective of the needs of society, punishing bad investors who fail shouldn’t be as rewarding as finding the right investments to grow.
The sentiment that shorting isn’t necessary is particularly pernicious in the places where companies trade cash compensation for stock.
Employee long positions derived from stock grants are already boosts to the optimistic view of a company.
If there is no short position to determine fair pricing companies can use their already outsized advantage to take advantage of workers.
Companies that have inefficiently deployed capital or have problems like a Theranos or Enron should collapse. People keep acting like shorts show up to a company like Apple and take it down. That's not at all what happens. Shorts are a lot like vultures. We may not like to see what they do, but they provide a service by cleaning up dead carcasses.
If you want to argue that shorters spread (dis)information in a company and should be more closely looked at, I might agree. My immediate counter though would be that I see way more positive information spread in general, and people rarely seem to check that until it so blatantly false things collapse.