U.S. Workers Should Take Control of Pension Fund Power

New York Gov. Mario Cuomo exaggerated only a bit the other day when he said the $2 trillion set aside for workers’ pensions is an “untapped investment tool, but nobody knows what it does (or) how it works.”

A relatively small cluster of money handlers know exactly what those enormous pension fund reserves do and how they work. And the money has been “tapped,” although it is tapped too often by the wrong people for the wrong reasons.

Pension funds, which are repositories for workers’ deferred wages, have become the “owners of corporate America” and sweeping changes are needed so that these funds better serve not only the contributing workers but also the nation as a whole, a business-labor task force appointed by Cuomo declared in a new study.

For one thing, the funds should not be used to finance corporate raiders but instead should be used primarily as a giant reservoir of what the task force report called “patient money” that would be invested to achieve long-range goals instead of fast profits.

Daniel Walsh, a panel member and president of the New York State Business Council, said pension funds often are “allied with (corporate) rapists whose objectives are to bust up the companies for a quick profit and put the employees on the street and leave their communities in despair.”

The report proposed, among other things, a legal ban on pension fund investments in hostile takeovers. That’s logical, but exceptions should be made in situations such as that of strikebound Eastern Airlines.

Eastern’s boss, Frank Lorenzo, is cutting the company to pieces in his determined attempt to get cheap labor and break the unions. A hostile takeover from Lorenzo by workers’ pension funds might save the once-proud airline.

The Cuomo task force also suggested using pension funds to create a public interest investment bank to channel money into projects such as rebuilding roads and constructing schools and prisons.

It called for laws that would make fund trustees active owners of the companies in which they invest rather than “passive investors” of the vast sums that they manage.

The idea of protecting the pensions of retirees while using the funds to achieve broad social and economic goals instead of short-range profits isn’t a new one. But the support from the blue-ribbon Cuomo panel of top corporate, financial and union leaders should focus public attention on much-needed reforms.

Far too little attention is paid to the fact that, as the task force emphasized, “the emergence of pension funds as the nation’s largest and predominant source of capital is one of the most significant changes in our economy in this century.”

The funds, which cover 41 million workers, have grown 500% in just 10 years, and they should double again in another 10 years when they will hold two-thirds of the equity capital of all business in this country.

And given the fact that 10 million workers participate in company stock ownership plans, the result is what management theorist Peter F. Drucker has termed an “invisible revolution.” Workers already own, or soon will own, most of America’s corporations through their pension and stock ownership plans.

But workers actually control precious few of the corporations they own.

In both the public and private sectors, workers’ representatives help manage some of the funds, but their role is restricted even in those situations; 51% of the funds are run by corporate executives who decide virtually alone what is in the best interests of their employees.

Congress is considering a bill that could bring about more power-sharing in the running of single-employer pension plans. The proposal, introduced by Rep. Peter Visclosky (D-Ind.) along with 15 co-sponsors, would allow workers to demand the same number of representatives as held by management on the boards of those plans. Multi-employer plans already have that provision.

The Cuomo task force offered no suggestion for including workers in the mangement of single-employer, private-sector pension funds, presumably because its members were determined to get a unanimous vote for their report.

Business leaders would have refused to go along if some members, such as union leader Jack Sheinkman, had had their way and the report had included a call for a real revolution in the way that company pension funds are managed, as called for in the pending Congressional legislation.

Sheinkman, president of the Amalgamated Clothing Workers of America, would like the report to have urged that workers or their representatives be allowed to act more in keeping with their roles as owners of corporate America.

Labor consultant Randy Barber in his book, “The North Shall Rise Again,” argues that, since pension fund reserves are really money held in trust for workers, they should use it to gain economic power throughout the country.

An idea similar to Barber’s “pension power” concept was proposed for Swedish workers in 1971 by economist Rudolph Meidner and supported by the late prime minister, Olof Palme.

But the political party of Palme lost power for eight years partly because of public opposition to the Meidner plan.

Today, the United States has progressed much further toward worker ownership of industry than has socialist Sweden, where workers own, even indirectly, only a fraction of that country’s corporations.

However, Swedish workers have greater voice in corporate management than do Americans because, under Swedish law, workers must be represented on corporate boards and must be allowed to participate in plant decision-making.

It might be too radical even for liberals such as Cuomo to suggest, but we certainly should start considering the need to combine the American and Swedish systems.

America should continue to expand its workers-as-owners “pension socialism,” as Drucker calls it, and add to that the Swedish system of giving workers a real voice in corporate management.