Will the Left Get Fooled Into Abandoning Worker Pensions?

David Webber

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The ide­o­log­i­cal blind­ers of some on the left are aid­ing and abet­ting the right’s final assault on labor. Work­ers and their allies should be appalled, and they need to act quickly.

In the past decade, one of the few hope­ful devel­op­ments in an often bleak labor land­scape has been the rise of a new form of activism built on the pow­er of labor’s $3.5 tril­lion pen­sions. A new class of activists at the AFL-CIO Office of Invest­ment, the Amer­i­can Fed­er­a­tion of Teach­ers, the Nation­al Edu­ca­tion Asso­ci­a­tion, the Amer­i­can Fed­er­a­tion of State Coun­ty and Munic­i­pal Employ­ees, the North America’s Build­ing Trades Union, the Ser­vice Employ­ees Inter­na­tion­al Union, UNITE HERE, the Cal­i­for­nia Pub­lic Employ­ees’ Retire­ment Sys­tem, the New York state and New York City and Illi­nois and Chica­go and Los Ange­les pen­sion funds — and small­er state, coun­ty and munic­i­pal pen­sion funds across the coun­try — have begun to mobi­lize these funds to advance the inter­ests of the work­ers who con­tribute to them. Under their lead­er­ship, these pen­sions have invest­ed to cre­ate union jobs for work­ers, who then strength­en the funds by con­tribut­ing to them. They have fought pri­va­ti­za­tion of pub­lic sec­tor jobs, pushed back on out­ra­geous Wall Street fees, attacked obscene exec­u­tive com­pen­sa­tion, forced dis­clo­sure of the CEO-work­er pay ratio, resist­ed hedge fund attacks on pen­sions and in some cas­es divest­ed from them entire­ly, and sued com­pa­nies like Enron, World­com, and now Wells Far­go for fraud. They have divest­ed from gun com­pa­nies, demand­ed com­pa­nies account for their envi­ron­men­tal impact, ham­mered com­pa­nies over sex­u­al harass­ment and assault, and attacked phar­ma­ceu­ti­cal com­pa­nies that fueled the opi­oid cri­sis. For all these rea­sons, these funds have come under with­er­ing attack from the right — empow­ered by the recent Janus case — which is using a con­tro­ver­sy about the fund­ing sta­tus of pub­lic pen­sions to ram through crip­pling reforms to under­mine them. The left’s response has been silence and con­ces­sions. The left’s pen­sion paral­y­sis can be traced to its entire­ly ide­o­log­i­cal and out­dat­ed dis­com­fort with what these pen­sions real­ly are: labor’s own source of capital. 

The best exam­ple of this aid­ing and abet­ting of attacks on pen­sions is Doug Hen­wood and Liza Featherstone’s In These Times piece, Wall Street Isn’t the Answer to the Pen­sion Cri­sis. Expand­ing Social Secu­ri­ty Is.” They then dou­ble down on their claims here. Accord­ing to Hen­wood and Feath­er­stone, pen­sion funds are dead any­way because of sys­tem­at­ic under­fund­ing. In sup­port of this con­clu­sion, they cite the research of Joshua Rauh, a Stan­ford econ­o­mist affil­i­at­ed with the con­ser­v­a­tive Hoover Insti­tu­tion. Rauh is indeed a cred­i­ble econ­o­mist. But so is Ali­cia Munnell of the Boston Col­lege Cen­ter for Retire­ment Research, as is Dean Bak­er of the Cen­ter for Eco­nom­ic and Pol­i­cy Research, and as are oth­ers who dis­pute the con­clu­sion that these pen­sions are nec­es­sar­i­ly doomed nation­wide, includ­ing Max Saw­icky, who respond­ed to the Hen­wood and Feath­er­stone argu­ments here and here.

Wher­ev­er one stands on under­fund­ing, there are cures for it that are worse than the dis­ease itself. The con­ser­v­a­tive solu­tion is to smash and scat­ter these pen­sions into mil­lions of indi­vid­u­al­ly man­aged 401ks. The num­ber one pri­or­i­ty on the left should be to stop that from hap­pen­ing, not under­mine resis­tance to this grim fate by scare­mon­ger­ing about the per­ils of pen­sions or com­par­ing them to a nonex­is­tent alter­na­tive. Turn­ing all these funds into 401ks will do more than just sub­ject work­ers to a retire­ment vehi­cle that has been renounced by its inven­tors and itself has its own indis­putable under­fund­ing cri­sis. It would also silence work­er share­hold­er voice. This aspect of the argu­ment is repeat­ed­ly mis­un­der­stood, dis­missed, or ignored by parts of the Left.

The nec­es­sary pre­con­di­tion for these funds to be able to act on behalf of the work­ers who con­tribute to them is to be col­lec­tive. A pen­sion fund is like a union and a 401(k) is like right to work. Just as an indi­vid­ual work­er has lit­tle say nego­ti­at­ing pay, ben­e­fits or work­ing con­di­tions alone, so an indi­vid­ual share­hold­er in a com­pa­ny has lit­tle say over the fees they are charged or how much the CEO makes. Just as work­ers are empow­ered through the col­lec­tive voice of the union, so they are empow­ered in their retire­ment invest­ments through the col­lec­tive voice of the pen­sion. Divide and con­quer the pen­sions and you kill the share­hold­er voice that has enabled them to engage in the very activism that pro­motes their con­trib­u­tors’ interests.

And yet, Hen­wood and Featherstone’s sub­sti­tu­tion of Social Secu­ri­ty for these pen­sion funds would silence that work­er-share­hold­er voice as sure­ly as 401ks would. They blithe­ly dis­miss the pow­er vest­ed in these pen­sion funds by cit­ing three exam­ples of how it has been used against work­ers. Indeed, this pow­er has been abused, and more than three times. But a more bal­anced account of this pow­er would also con­sid­er the stun­ning ways in which it has been used to advance work­er inter­ests. Iron­i­cal­ly, one of the exam­ples Hen­wood and Feath­er­stone use in their arti­cle — KKR prof­it­ing off its invest­ment in Safe­way super­mar­kets while lay­ing off work­ers — end­ed in a way that demon­strates the very share­hold­er pow­er they deride and ignore, in which fed up work­er pen­sion funds like the Cal­i­for­nia Pub­lic Employ­ees Retire­ment Sys­tem flipped the script, using their share­hold­er pow­er to oust sev­er­al KKR board mem­bers from Safe­way, demote oth­ers, and pun­ish its man­age­ment for its attack on work­ers and their ben­e­fits. We are see­ing echoes of that revolt today in the furi­ous reac­tion of pub­lic pen­sions to KKR’s han­dling of the Toys R Us deba­cle, in which many labor’s cap­i­tal insti­tu­tions have pushed hard for Toys R Us work­ers to receive sev­er­ance and are recon­sid­er­ing their KKR invest­ments, as Hen­wood and Feath­er­stone acknowl­edge here. What oth­er investors would do that?

On the oth­er hand, they are quite cor­rect to con­demn out­ra­geous invest­ments by pen­sion funds in busi­ness­es that kill work­ers jobs, par­tic­u­lar­ly the jobs of the very work­ers who con­tribute to these funds. I agree and have argued against that prac­tice here and here. But they make an unjus­ti­fi­able log­i­cal leap in argu­ing that the solu­tion to this prob­lem is wide­spread divest­ment and ulti­mate­ly aban­don­ment of these pen­sions in favor of a larg­er Social Secu­ri­ty system.

First, divest­ment. The left has fall­en mad­ly in love with divest­ment. When it comes to invest­ment issues, we have just one move: Divest. But divest­ment is only one tool in the toolk­it, and any­one who has looked care­ful­ly at the evi­dence must con­clude that it is often not the best of the lot. Divest­ment from pub­licly held com­pa­nies is often utter­ly point­less— pure polit­i­cal the­ater. Con­sid­er the Vice Fund (for­mer­ly the Bar­ri­er Fund), which invests in tobac­co com­pa­nies, casi­nos and alco­hol com­pa­nies because they sell addic­tive prod­ucts and are often tar­get­ed for divest­ment. How many divesters have sold their shares to the Vice Fund? There’s no way to know. But if the share­hold­ers buy­ing your shares are indif­fer­ent to the con­cerns that prompt­ed your divest­ment, it will have no effect, oth­er than to make your­self look con­sci­en­tious in a press release. As share­hold­er advo­cate Nell Minow has put it, the day an activist share­hold­er divests is the day the CEO pops the cham­pagne and breaks out the caviar.” Investors that stay and fight have had a sig­nif­i­cant impact, like prompt­ing cor­po­rate action on the envi­ron­ment or rein­ing in exces­sive CEO pay practices.

Yes, divest­ment can be appro­pri­ate at times. I applaud­ed CalPERS’s divest­ment from hedge funds. I researched and told the sto­ry of how Den­nak Mur­phy, a qui­et SEIU cap­i­tal strate­gist, helped to make that hap­pen. Hedge funds have under­per­formed the mar­ket for over a decade and charge out­ra­geous fees, mak­ing divest­ment from them as an asset class often a log­i­cal thing to do, though a report from the Amer­i­can Fed­er­a­tion of Teach­ers Cap­i­tal Strate­gies group illus­trates how pen­sions could do bet­ter by cut­ting the fees they pay hedge funds. And it is also true that pen­sions that have stayed in hedge funds have been able to use their invest­ments to push the funds to stop under­min­ing teacher pen­sions.

Sim­i­lar issues present them­selves with pri­vate equi­ty funds, par­tic­u­lar­ly those engag­ing in prac­tices that under­mine labor. Divest­ing from pri­vate equi­ty might under­mine the indus­try. But it might not. It might instead result in the indus­try pro­ceed­ing much as before, but with­out the only investors who care about labor and have any inter­est in pro­tect­ing it. That would be KKR and Toys R Us but with no one push­ing for work­er sev­er­ance pack­ages. Alter­na­tives exist. For years, ULLI­CO—found­ed by Samuel Gom­pers to pro­vide life insur­ance poli­cies for indus­tri­al work­ers when the insur­ance indus­try wouldn’t write such poli­cies — has been mak­ing invest­ments that require com­pa­nies to use union labor. The AFL-CIO Hous­ing Invest­ment Trust sim­i­lar­ly uses union cap­i­tal to finance hous­ing built with union labor. New York City recent­ly adopt­ed a respon­si­ble con­trac­tor pol­i­cy for real estate and infra­struc­ture invest­ment requir­ing the hir­ing of respon­si­ble con­trac­tors who pay work­ers fair wages and ben­e­fits, induc­ing pri­vate equi­ty fund Black­stone to adopt the pol­i­cy for its infra­struc­ture projects. In fact, the only rea­son we know about pri­vate equity’s many abus­es is because the AFL-CIO’s Office of Invest­ment pushed for the adop­tion of pri­vate fund reg­is­tra­tion in Dodd-Frank. In short, if prop­er­ly deployed, labor’s cap­i­tal can be uti­lized to advance the inter­ests of work­ers, not just under­mine them.

The spread of work­er-friend­ly invest­ment poli­cies may be a far more pow­er­ful tool than divest­ment. It may, in fact, be crit­i­cal to the future of labor if and when a nation­al infra­struc­ture spend­ing project mate­ri­al­izes, which is high­ly like­ly to con­tain some incen­tives for pri­vate sec­tor fund­ing. Scal­ing up New York City’s respon­si­ble con­trac­tor pol­i­cy for pri­vate infra­struc­ture invest­ment could make the dif­fer­ence between whether Amer­i­ca gets rebuilt using union or nonunion labor. But for such work­er-friend­ly poli­cies to suc­ceed, you’ve got to have pooled invest­ment funds that can imple­ment them, not 401ks. And not just Social Secu­ri­ty either.

There are sev­er­al prac­ti­cal objec­tions to the pur­suit of a sin­gle-mind­ed plan to expand Social Secu­ri­ty. First, it is polit­i­cal­ly impos­si­ble in the near term; if any­thing, we will be lucky if we com­plete the year 2018 with­out it being cut back. Sec­ond, going all-in on Social Secu­ri­ty implies that our retire­ment is more secure in the Wash­ing­ton of Trump, McConnell, and Ryan, or their future incar­na­tions, than it is in Sacra­men­to, Boston, or Albany. Third, if pen­sion crit­ics favor­ing this approach were being intel­lec­tu­al­ly con­sis­tent, they would have to describe Social Secu­ri­ty the same way they describe pub­lic pen­sion funds. That means describ­ing Social Secu­ri­ty as zero-per­cent fund­ed, since there are no funds actu­al­ly set aside for it, any­where. That’s a mis­lead­ing descrip­tion, but no more mis­lead­ing than the argu­ments made about pub­lic pen­sions that Hen­wood and Feath­er­stone so cred­u­lous­ly accept. The fed­er­al gov­ern­ment can pay for Social Secu­ri­ty — even if it is tech­ni­cal­ly zero-per­cent fund­ed — just as all fifty states can pay for their pen­sions. Fourth, there is no good rea­son why we should not simul­ta­ne­ous­ly pur­sue a pol­i­cy of expand­ing Social Secu­ri­ty while also fight­ing to pro­tect work­er pen­sions in col­lec­tive form. But set­ting these aside, it’s wrong to argue that Social Secu­ri­ty alone is the right ide­al, because it entails for­feit­ing the share­hold­er pow­er of pooled, col­lec­tive­ly man­aged retire­ment funds.

One prob­lem with Social Secu­ri­ty is that work­ers con­tribute to it over a life­time of work but have absolute­ly no say over how that mon­ey is used in the inter­im. In con­trast, vehi­cles that set aside those con­tri­bu­tions into actu­al funds with work­er rep­re­sen­ta­tion and often polit­i­cal rep­re­sen­ta­tion on boards — like pub­lic pen­sion funds, and like some sov­er­eign wealth funds — have say over whether, for exam­ple, their funds should be invest­ed in apartheid South Africa, not to men­tion giv­ing work­ers say over CEO pay, cor­po­rate gov­er­nance or labor prac­tices. Such funds give work­ers voice in cap­i­tal mar­kets, arguably the most pow­er­ful force on the plan­et today. They are the 21st cen­tu­ry mod­el for retire­ment secu­ri­ty, because they retain that share­hold­er voice. Social Secu­ri­ty gives away all that pow­er for nothing.

The only plau­si­ble argu­ment for for­feit­ing this mas­sive share­hold­er pow­er is that it taints work­ers by mak­ing them com­plic­it with the pow­er struc­tures of cap­i­tal. (“Invest­ing in the stock mar­ket achieves the oppo­site [of guar­an­tee­ing future secu­ri­ty through social and phys­i­cal invest­ments]; it expands the wealth and pow­er of Wall Street,” Hen­wood and Feath­er­stone write.) And indeed, to an extent, par­tic­i­pat­ing in the mar­ket can make labor com­plic­it in pow­er struc­tures that work against it. So does par­tic­i­pat­ing in elec­toral pol­i­tics. So does bring­ing law­suits. So does orga­niz­ing into a union that nego­ti­ates, and com­pro­mis­es with, man­age­ment. When run­ning for office, suing, or orga­niz­ing, you cre­ate and enter into pow­er struc­tures that may at times com­pro­mise you. The ques­tion is not whether this will hap­pen — it will. The ques­tion is, would you be bet­ter off not vot­ing, suing, orga­niz­ing? In my view, the answer is no. That same no” applies just as much to cap­i­tal mar­kets. Over­all, you are worse off if you make no effort to exer­cise voice with­in them.

Hen­wood and Feath­er­stone style their argu­ment as a wake-up call to pro­gres­sives to get real” about the pur­port­ed­ly par­lous state of pen­sions. Here is anoth­er get real” wake up call to pro­gres­sives: cap­i­tal mar­kets are going nowhere. When cor­po­ra­tions oper­ate glob­al­ly, when cap­i­tal can flee overnight or starve gov­ern­ment func­tions through pun­ish­ing bond yields, you can­not rely on the nation state alone to solve all your prob­lems. If it’s the mar­ket that is caus­ing those prob­lems, you must have some say inside the mar­ket to solve them. You do not empow­er your­self in the 21st cen­tu­ry by uni­lat­er­al­ly sur­ren­der­ing your own share­hold­er voice any more than you empow­er your­self polit­i­cal­ly by not vot­ing. Instead, you exer­cise that share­hold­er voice, learn to ampli­fy it, orga­nize it to advance the inter­ests of the work­ers who con­tribute it, resist the hos­tile legal inter­pre­ta­tions designed to choke it. You engage with it and you fight for it and you push to move it in the right direc­tion. What you def­i­nite­ly do not do is walk away from it in favor of some fan­tas­ti­cal, out­dat­ed, and nonex­is­tent alter­na­tive that keeps you ide­o­log­i­cal­ly pure and powerless.

David Web­ber is a law pro­fes­sor at Boston Uni­ver­si­ty and author of The Rise of the Work­ing Class Share­hold­er: Labor’s Last Best Weapon (Har­vard Uni­ver­si­ty Press 2018).
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