Pension funds, privatization, and the limits to “Workers Capital”

Abstract

In the 1960s and 1970s, some worker activists thought they saw a source of emerging working class power in the growth of North American workers’ pension funds. This paper critically examines what are now called “Workers Capital” strategies for controlling financial investment. It points to the role recently played by Canadian pension funds in the privatization and financialization of public infrastructure to illustrate the structural limits of these strategies, concluding that efforts should be directed to a fight for a full democratization of finance along with universal pension provision.

Keywords:

• Financialization
• infrastructure
• neoliberalism
• pensions
• privatization

Notes

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1 See Lapavitsas, Profiting Without Producing; Hudson, The Bubble and Beyond. The recognition of this predatory role for finance is interpreted by some analysts to mean that financial capitalists have gained a parasitic power over a struggling subset of industrial capitalists. This view is persuasively challenged by, among others, Lapavitsas, whose analysis emphasizes the financialization of nonfinancial corporations. Other critics develop this argument with different points of departure, including, for example, Panitch and Gindin, The Making Of Global Capitalism; McNally, Global Slump; and Maher, “Stakeholder Capitalism.”

2 Marlow, “Canada’s Giant Pension Funds”; see also “Maple Revolutionaries.”

3 Skerrett, “Canada’s Public Pension Funds,” 121–54; Hildyard, Licensed Larceny.

4 For further details on the scale and significance of Canadian pension fund involvement in this asset class, particularly via “Public Private Partnerships” or “P3s,” see Boston Consulting Group, “Top Ten Report”; OECD, Pension Funds Investment in Infrastructure; Inderst and Della Croce, “Pension Fund Investment in Infrastructure”; Siemiatycki, “Public-Private Partnerships”; Skerrett, “Canada’s Public Pension Funds.”

5 Sanger, Creating a Canadian Infrastructure Bank. Infrastructure privatization takes many forms, some of which are discussed in Whiteside, “Stabilizing Privatization.”

6 Meidner, “Why Did the Swedish Model Fail?”, 211–28.

7 Meidner, “Why Did the Swedish Model Fail?”, 211–28; Minns, “The Social Ownership of Capital,” 42–61; Henwood, Wall Street.

8 Ghilarducci, Labor’s Capital.

9 Gerard, “Foreword.” A similar complaint was raised in 1979 by the then president of the International Association of Machinists and Aerospace Workers, William Winpisinger. In testimony to the US Congress that year, he argued: “Responsible trade unionists have to conclude that they have been financing their own destruction…only tradition and a great con game have kept pension funds in the control of the private sector giants,” cited in McCarthy, “Turning Labor into Capital.”

10 Ghilarducci, Labor’s Capital; Fung et al., Working Capital; McCarthy, “Turning Labor into Capital”; McCarthy, Dismantling Solidarity.

11 Rifkin and Barber, The North Will Rise Again; AFL-CIO, Investment of Union Pension Funds.

12 AFL-CIO, Investment of Union Pension Funds.

13 Among others, this literature is represented by Fung et al., Working Capital; Hebb et al., Routledge Handbook; and Croft and Malhotra, The Responsible Investor Handbook.

14 This committee was chaired from inception in 1999 until 2015 by Ken Georgetti, president of the CLC, and its secretariat has been another Canada-based organization, the Shareholder Association for Research and Education (SHARE).

15 Hebb, “Introduction,” 12 and 3.

16 Hebb, “Introduction,” 3.

17 An intense debate continues about the negative constraining power as against the positive “progressive” potential of fiduciary doctrines and their application to pension-fund investing. Like many Workers Capital advocates, Croft and Malhotra insist that there is no sacrifice of financial returns when pursuing nonfinancial social or environmental goals. See The Responsible Investor Handbook, “The faulty theory of solely maximizing profits,” 108–10. Nonetheless, it is broadly acknowledged that the scope for trade union trustees (or other potential advocates) for bringing non-return social concerns into account is limited, absent radical legislative or structural change. See also Archer, “Pension Funds as Owners,” “The Best of All Possible Worlds” and Appelbaum and Batt, Private Equity at Work, 246–52, which include helpful discussions of this issue, but the subject merits a fuller separate treatment.

18 UNPRI, “Annual Report 2016”; Krosinsky, “Overcoming Distractions”; McCarthy, Dismantling Solidarity.

19 In the space of just 10 years, the 1,500 financial asset managers, pension funds, insurance companies, and consultants that have formally “signed on” as endorsers of these principles represent some US$70 trillion in assets under management—more than half of all institutionally invested financial assets in the world. UNPRI, “Annual Report”; Hebb et al., The Routledge Handbook of Responsible Investment.

20 Henwood, Wall Street; Henwood, “Pension Fund Socialism”; Stanford, Paper Boom; Soederberg, Corporate Power; Maher, “Stakeholder Capitalism.”

21 Doug Henwood’s 2004 critique of Robin Blackburn’s more Left-wing argument for a revival of the Swedish wage-earner fund strategy points out that the original, quite radical, program triggered massive (ultimately successful) opposition from Swedish capital for an unsurprising reason: it represented “a challenge to capitalist ownership,” reminding us that “finance is central to the constitution of a corporate ruling class.” Henwood, “Pension Fund Socialism.”

22 Soederberg, Corporate Power, 106.

23 Henwood, Wall Street; Henwood, “Pension Fund Socialism.”

24 Archer, “Pension Funds”; Boguslaw and Kaufman, “Gaining Traction”; McCarthy, Dismantling Solidarity.

25 Clark et al., “Addressing the Challenges.”

26 This faith in market forces is generally shared among Workers Capital proponents, notwithstanding its liberal critique of bad behavior and corporate scandal. On occasion, this faith becomes explicit, as in the recently published Responsible Investor Handbook by Croft and Malholtra, which describes the Carbon Disclosure Project as having created incentives for corporations to measure and disclose their environmental information by “leveraging market forces,” 270.

27 Six Danish pension funds fully withdrew from their membership in the UNPRI in 2013, citing concerns over the scheme’s own governance problems. See Olsen, “6 Danish Pension Funds.” Four of these six funds returned in 2016, citing sufficient improvements. See also the sharp critique of UNPRI by Gray, “Investing for the Environment?” who derides the UNPRI as utterly lacking in legitimacy.

28 Jacoby, “Labor and Finance,” 277–317

29 An important example of socially retrograde pension-fund investing is the emergence of farmland and other agricultural “assets” in recent years. Advocates point to the confluence of climate change, population growth, and projected declines in food supply that have made farmland into the latest rising asset class. It has also generated searing criticism of the emergence of illegal land-grabbing, often at the expense of indigenous and campesino populations. The largest British Columbia-based pension fund manager (BcIMC, another UNPRI signatory) is caught up in a particularly high-profile scandal of land-grabbing in Brazil. Romero, “TIAA-CREF.”

30 Skerrett, “Canada’s Public Pension Funds,” 121–54.

31 Some of these are listed in Boston Consulting Group. Other material is in LaFrenz, “Canada’s OPTrust”; Chamberlain, “Chileans Rise Up”; and Marlow, “Canada’s Giant Pension Funds.” See more detailed discussion in Skerrett, “Canada’s Public Pension Funds,” 121–54. There is not, however, a reliable and comprehensive database of these holdings, and pension funds are not required to disclose their portfolio holdings.

32 Calvert, “Pensions and Public-Private Partnerships,” 1–13; Siemiatycki, “Public-Private Partnerships”; Webber, “The Use and Abuse,” 2106–189.

33 Resolution 250 at CUPE 2015 Convention.

34 ITUC, Where the House Always Wins,” 34. A 2014 statement issued by Public Services International (PSI) includes the following: “Infrastructure bonds issued by a government or municipality can be designed to be attractive to pension funds. The main reason for our recommendation of bonds over stocks is that public infrastructure typically does not behave according to market rules, and that equity owners will seek to take advantage of the natural monopoly or oligopoly position of public infrastructure to extract excessive profits, often from a public which may not be able to afford to pay. Therefore, the ownership and management of the infrastructure should be public.”

35 Siemiatycki, “Public-Private Partnerships.”

36 Larry Beeferman makes the point that such practices could be challenged if trade unions could establish “reciprocal” commitments to one another, across national borders. However, as he notes, the few modest job-protecting policy restrictions on infrastructure investing found at several US pension funds, such as Calpers, CalSTRS, and ISBI, do not apply outside the United States—which is where most of these funds are doing their infrastructure investing. Beeferman, “Pension Fund Investment in Infrastructure,” 45.

37 Beeferman, “Pension Fund Investment in Infrastructure.”

38 Fagan, “Building the Future.”

39 Beeferman, “Pension Fund Investment in Infrastructure”; Hebb and Beeferman, “US Pension Funds,” 109–17.

40 In the recent privatization of Ontario’s provincially owned Hydro One transmission network, an antiprivatization campaign was launched by two of Hydro One’s unions, until such time as a deal was struck to distribute a portion of the shares of the new privatized entity to the union’s members. See Morrow, “Ontario to Give Power Workers.” Another example is the public-private partnership signed in 2013 between the city of Rialto, California, Veolia, and the union-linked financial institution known as Ullico. See Sabol and Puentes, Private Capital, Public Good; Croft and Malhotra, The Responsible Investor Handbook.

41 ITF Workers Capital and Infrastructure, emphasis added.

42 ITF Workers Capital and Infrastructure, 24.

43 Hebb and Sharma, “New Finance for America’s Cities,” 488.

44 Hebb and Sharma, “New Finance for America’s Cities,” 497.

45 To be fair, and somewhat surprisingly, Hebb and Sharma briefly, and somewhat ambiguously, acknowledge the socially negative impact of infrastructure privatization: “The privatization of investment in America’s cities leads to uneven development. Investment selection is no longer driven by opportunities that yield the greatest public good, but rather by those that provide the greatest private benefit.” See Hebb and Sharma, “New Finance for America’s Cities,” 498. Nonetheless, their conclusion returns to an uncritical emphasis on the purported upside: “In a virtuous circle, retirement savings are being used to invest in these cities’ future growth,” Hebb and Sharma.

46 On such “political risk” mitigation by pension fund actors, see Roberts for critical commentary, “Vampire Beaver or Cuddly Canadian.”

47 Siemiatycki, “Public-Private Partnerships.”

48 Weststar and Verma, “Protector or Activist?”

49 It is widely estimated that more than 70 percent of the eventual pension benefit payments for a given individual derive from investment returns, with the remainder represented by contributions.

50 Skerrett and Gindin, “The Failure.”

51 Lapavitsas, Profiting Without Producing, 38–39.

52 This recalls Marx’s observation in Volume III of Capital that, once inside the credit system, capital emerges as the “common capital of the class,” which is “placed under the control of the bankers as representatives of the social capital.” See Marx, Capital, 490–91. This underlines the point that once money is moved into this system, its origin and even its ownership are in one sense erased: “On the money market, it is only lenders and borrowers who face each other.” Pension funds, like bankers, are situated in this relation as lenders.

53 Archer, “Pension Funds.”

54 There has been some work in the liberal legal tradition that recognizes this peculiar result. It responded by developing an argument for the more expansive concept of the “universal owner” and “fiduciary capitalism.” See Hawley and Williams, “Universal Owners”; Waitzer and Sarro, “The Public Fiduciary.” However, it is not clear that such efforts substantively challenge conventional investment thinking, nor is its emergence likely to shift actual legal practices in pension plan or corporate boardrooms.

55 In their survey of subjective trustee thinking about controversial investment issues, Weststar and Verma point out that union trustees openly acknowledge being disciplined by legal arguments about fiduciary duty. See “Protector or Activist?”

56 Clark and Hebb, “Why Should They Care?”, 2015–31.

57 Weststar, “Critical Perspectives”; Weststar and Verma, “Protector or Activist?”

58 Hebb and Sharma, “New Finance for America’s Cities,” 485–500.

59 Hall, A Crisis for Public-Private Partnerships (PPPs)?; Whiteside, “No Admittance Except on Business.”

60 Harvey, A Brief History, 159.

61 McCarthy, Dismantling Solidarity; Skerrett and Gindin, “The Failure of Canada’s Financialized Pension System.”

62 While secure Defined Benefit pension plans are shrinking in active membership, the financial asset base of Canadian pension funds (of all prefunded types) remains the second largest in the OECD (to the US) at US$2.4 trillion. See OECD,“Pension Funds in Focus.”

63 Ghilarducci, Labor’s Capital.

64 Hildyard, Licensed Larceny.

65 Henwood, Wall Street.

Additional information

Notes on contributors

Kevin Skerrett

Kevin Skerrett is a Senior Research Officer at the Canadian Union of Public Employees in Ottawa, Ontario, Canada.