The rich own a large and growing share of the wealth in the U.S. economy, but more than $20 trillion in assets is held by financial entities that represent a much broader portion of the population: pension funds. According to a recent article in the New York Times, some of these funds, especially public employee funds run by state governments, are becoming woke.
The Times points to the support some funds have been showing for the effort of workers at Toys R Us to get severance pay if the troubled retailer’s private equity owners let it go under. Funds have also been pressuring private equity firms over issues such as foreclosures in Puerto Rico and payday lending.
These initiatives are encouraging, but there is one problem: they are about 30 years too late. The recent spurt of pension fund social activism is hardly unprecedented. In the late 1970s, when U.S. big business began an open assault on unions, labor strategists began looking to “pension muscle” as a new device for shifting the balance of power in industrial relations. The idea was to use pension assets as leverage to get corporations to treat workers fairly, while also seeking to use them to invest in projects that would create well-paying jobs for union members.
In 1978 Jeremy Rifkin and Randy Barber published The North Will Rise Again, a manifesto for a pension-fund revolution. Labor officials expressed indignation that the pension funds of unionized workers were often heavily invested in the securities of some of the country’s most anti-labor and socially irresponsible companies. Even the business press took a worried look at the potential power of union pensions; Fortune, for instance, published a piece entitled “Pension Funds Could Be the Unions’ Secret Weapon.”
Bringing about the pension revolution was no easy task. First of all, most single-employer plans were firmly controlled by management. Unions had more sway over multi-employer plans, known as Taft-Hartley funds, in industries such as construction. Yet even the latter were restricted by efforts of the Reagan Administration Labor Department to label targeted or social investments as violations of the fiduciary duties of plan trustees.
Unions did manage to mobilize pension power in some campaigns, including those targeting J.P. Stevens, Phelps-Dodge and Louisiana-Pacific, but it never amounted to anything close to the revolution envisioned by Rifkin and Barber. Some money was directed to labor-friendly investments, but for the most part, unions used their influence over pensions mainly to promote reforms in corporate governance that often had a limited relationship to workplace conditions.
The same was true for public pension funds. A few such as California’s CALPERS took some social initiatives but most state funds were no more activist than mainstream asset managers such as Fidelity Investments.
When the leveraged buyout operators of the 1980s repackaged themselves as private equity firms in the early 2000s, pension funds were not in a position to challenge the looting that took place. On the contrary, the funds, desperate to pump up their faltering assets, became some of the most enthusiastic investors. In a February 28, 2007 column in the Wall Street Journal, Alan Murray wrote: “Public-pension-fund money is pouring into private equity, where there is little accountability to investors, limited transparency, and compensation levels that would make the average CEO blush.”
Unions such as SEIU became vocal critics of private equity, while union trustees of Taft-Hartley funds joined their public pension counterparts in becoming enthralled by the high returns promised by PE. The Times piece was accurate in describing the relationship between private equity firms and pension funds as “symbiotic.”
We can hope that the recent revival of pension fund social activism is more than an anomaly, but one can’t help wonder how different the economy would be if it had not been postponed for so many years.
Note: This piece draws from an article of mine entitled “Labor’s Lost Lever” published in the May 1988 issue of The Progressive.