Here’s a riddle: what large entity has the theoretical access to deploy a few trillion dollars, quickly, if given the chance? If you answered the Chinese or US governments, thank you for playing and please try again another time. The answer: labor unions.
Piling up around the world is the largest and most accessible source of cheap capital you can imagine. No wasteful Wall Street brokerage fees. No fancy credit-default swaps. Just good, hard cash.
It is money accumulated in pension funds—workers deferred wages. Pension funds now own 73 per cent of stock issued by companies in the Fortune 1000.
Think about it: overnight, all those bridges, roads, schools, ports, climate-change energy projects—all of which are gasping for finance because governments are foolishly slashing budgets—could be underwritten by cheap capital.
Just increasing pension fund investments in green technologies and low-carbon projects from the current two to three per cent of portfolios to five per cent would pour US$300 billion over the next three years into such critical projects.
And that capital would come with a price tag, though not one motivated by personal greed: projects funded by pensions would need to be unionized and pay a living wage.
The idea to mobilize workers’ capital is hardly new. It has been actively talked about for at least two decades. But, with the exception of a few projects and a slew of corporate governance campaigns (primarily shareholder resolutions that rarely win but can bring pressure on issues such as out-of-control executive compensation), the power of the pension fund money has barely been used.
So, what’s holding us up?
To begin, the money isn’t simply at the sole beckon call of unions. Pension fund decisions are typically jointly reached by a board split equally between management and workers.
But, the legal “partnership” is a myth: the truth is that management usually holds the upper hand in dictating investment direction. While management board members are very comfortable with balance sheets, the typical union pension fund representative is woefully untrained, chosen often because of his or her long service and loyalty to the union.
And the pension fund investment options are almost always laid out, and controlled, by professional financial consultants who could not give a damn about anything but the rate of return—and their compensation.
Moreover, most of the legal regimes require that the assets be invested for the sole purpose of enhancing and protecting the benefits of retirees. That language has always been construed as a license to focus on a very conservative and unimaginative investment strategy—a strategy that union trustees have not challenged.
Looking inward, an honest analysis would admit that most unions have not been very interested in the idea of capital power. As long as the pension fund reported fair returns and retirees were happy, the average union leader considered that performance adequate.
But, two developments converged. The global financial crisis, triggered by the immoral (and, in my view, criminal) behaviour of virtually every international Wall Street-financial firm, wiped out trillions of dollars in wealth, and pension funds took massive hits. That made labor people pay attention.
And, coupled with the Global Financial Crisis, a number of forward-looking labor leaders, faced with declining numbers and an organizing environment that has grown increasingly hostile, began spending more time thinking about new strategies to put into play.
That all led to a renewed focus on workers capital.
There is some positive progress to report.
Sharan Burrow, the General Secretary of the International Trade Union Confederation, has made it her mission to jump-start this area.
She recently asked the right questions:
At what point did we allow our funds to become captive of the dominant market frame without question? Have we lost a perspective of the original labour rationale for bargaining for deferred wages into retirement income and/or advocating for the legislative/regulatory guarantees for dignified retirement incomes?
More recently, the Teachers Retirement System of the City of New York pledged $1 billion to infrastructure, in advancing a $10 billion goal for a new asset class of infrastructure that will help spur Hurricane Sandy recovery efforts and upgrade the city’s infrastructure. The initiative came directly out of the AFL-CIO’s commitment at the inaugural Clinton Global Initiative America meeting in 2011.
And on the West Coast of the US, a multi-state exchange between California, Oregon and Washington will jointly look for projects worth plowing money into.
All of this is a proverbial drop in the ocean, a speck of sand on the beach of capital pools waiting to be used. Global union federations and national unions need to create a planet-wide network of pension fund trustees who can be trained and act in unison when investment opportunities arise. Those trustees need to map joint campaigns.
Would it not be a delicious turn of events to basically fire the Wall Street financiers—the circle of people who destroyed the economic wellbeing of tens of millions of people—and, instead, watch bridges go up that not only buck up a city’s economic heartbeat but also provide the bulwark for a decent standard of living.
[First published in Equal Times]