Customer Reviews

Working Capital: The Power of Labor's Pension (ILR Press books)

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Imagine your own money being used to throw you out of a job and deny you a decent living. Millions of workers don't have to imagine this, it is a reality, as the pension funds they have bargained for in union contracts can be used to buy up their firms and throw them out of jobs.

Most people, including workers with defined benefit pension plans, don't realize how little control workers have over their pension money. This is an important issue, since pension funds currently have more than $4 trillion in assets. Pension funds are powerful actors in current financial markets.

However, the control of pension fund assets rests, not with the workers, but rather with the same sort of financial managers who run other types of funds. These financial managers often use pension fund assets to finance the type of speculative short-term investments that they make with other funds. The impact that this behavior might have on the jobs of workers for whom they are investing is not a concern for pension fund managers.

As the papers in this book make clear, this lack of concern is partially for legal reasons - the law requires that pension fund managers act in the interest of the pension plans participants and beneficiaries. But part of the failure of pension fund managers to consider the impact of investments on workers is due to fears and prejudices that go beyond the legal requirements implied by this responsibility.

For example, many funds engage in extremely risky investments at present. Investing in East Asia earlier in the nineties was extremely risky, although many pension fund managers did not become aware of this fact until after the East Asian financial crisis. Similarly, buying stock on the NASDAQ in the late nineties was also quite risky. In spite of the risks involved, hundreds of billions of dollars in pension fund money flowed into East Asia in the early and mid-nineties, and into the NASDAQ in the late nineties.

As this money flowed out of the country or into the tech economy, thousands of smaller and medium sized manufacturing businesses were being starved of capital. The pension funds offered these firms no help. Even though many of these businesses employ unionized workers at decent wage rates, the managers of pension funds had no inclination to use the resources under their control to try to save workers jobs.

Pension funds have also done little to prevent the top executives of major corporations from raiding the companies they manage to pay themselves salaries far out of line with what executives receive elsewhere in the world. The representatives of shareholders, including pension fund managers, have looked the other way as top corporate executives decided to bless themselves with salaries running into the tens, or even hundreds, of millions of dollars annually. These salaries bear no obvious relationship to performance by any measure. As one of the articles in this book notes, exorbitant executive salaries can be viewed as a tax out of workers' paychecks - the impact is the same, less money for wages.

Alternatively, these salaries can be seen as taking money which rightfully belongs to the shareholders. But, for some reason, the $50 million salaries of CEOs never seem to raise as much ire among investors as the concern that autoworkers or steel workers may be overpaid by $1-$2 and hour.

This book shows both how pension funds have failed workers and also how some innovative managers are trying to use pension fund assets to create good paying jobs. It gives examples of success stories, where pension funds have been invested ways that build communities and also provide high returns. These success stories could provide a model for pension fund management in the future.

I wonder if the reviewer from Illinois read the same book I did. If so, I think that he must have read it exclusively to knock it down. He takes things completely out of context. I found this book to be very interesting, and very pro-shareholder power. It raises significant questions on who makes the money decisions and how they make them, and offers some intriguing possibilities for the future.

Sometimes it seems like companies have become focused on "shareholder value" as if shareholders weren't human beings with many interests. For example, "shareholders" want airlines to keep prices down, to pay security checkpoint staff the bare minimum ... unless, of course, the shareholder is also flying on the airplane, in which case, they might feel that security is a more important value than thrift.

Some of these articles are a tad dry and academic, but the points they raise are really important. If you're a pension fund trustee, or a pension recipient, I urge you to read this book.

Although I do disagree with the direction that contributors' conclusion, this is an interesting and important little text and well worth a read.

The premise of this book is that pensions are being mismanaged by companies and investment managers to worker's detriment. The facts are misrepresented and the solutions offered are chilling. Here are some examples:

The writers believe that a companys management should not make pension investment decisions, even thought by law, most plans are required to be maintained for the exclusive benefit of participants. (Notable exceptions to this rule are public plans and union-sponsored plans!)

Several chapters also state that workers themselves are not capable enough to manage their own pensions  they should not be allowed to make decisions as to current vs. future spending and make mistakes in asset allocation.

The alarming conclusion is that only 1) union leadership or 2) the government is equipped to make decisions on the $7 trillion invested in pensions.

Pensions investment decisions have not been speculative and are not short-term in nature. The Asian crisis in 1997 and tech decline 2000-present are often cited in the book as examples of mismanagement. However, almost all pension plans were under-weighted (relative to the total market) and extremely few were over-weighted in these sectors at the time of their drop. In other words, plan fiduciaries recognized some of the speculation involved in the inflated prices, and adjusted portfolios accordingly. Had this book been written in 1975, they would decry the Nifty Fifty market decline.

Instead of using professional investment managers that seek (and are incented for) the highest possible return given a risk profile, the authors would like to use other factors in making investment decisions. For example, will any investment decisions result in layoffs, plant closings or job flight overseas?

In other words, we must keep all our existing industries and refuse to re-train workers for the better jobs of tomorrow. This approach didnt work too well for the Soviet Union.

Yes, it is painful when worker lose their jobs, but the growth of the US economy in the last 20 years has been due, in part, to the fact that we have exited low-skills industries, and we adapt to changes faster than any other country.

The exciting fact is that over 50% of households now own stock, and the majority of us are now owners, as well as workers. We have an opportunity to manage companies better. I agree with the foreword that CEO compensation is too high, and vote my proxies on that basis.

This book is very anti-individual and anti-shareholder.