The Unseen Revolution

...Yet Drucker illuminates an important issue even as he exaggerates with his rhetoric...

...But the imposition of values is not itself merely a matter of persuasion and the issuing of good ideas: it is equally a matter of Law--the firm and public enforcement of the laws which bear these values...

...The "revolution" he refers to is the remarkable growth in recent years of employee pension funds, particularly corporate funds established as fringe benefits for workers, but also pension plans for federal, state, and local employees, uniondominated funds, and most recently-thanks to liberalized tax benefits--individualized retirement accounts...

...But this is a minor quibble about a major argument...

...they are trustees, but if our capitalist system is to continue its phenomenal economic and political success, we need entrepreneurs willing to take risks...

...It has taken decades for any serious sign that the West may have reached the level of intelligence needed to perform this political and moral equivalent of counting up to two on one's fingers...

...Drucker sees that every year pension funds receive some $20 billion more in contributions than they must pay out in pension claims, hence their enormous resources for investment...

...Both Congressmen and businessmen have recently addressed the question of how well pension funds have been managed (not very wisely...

...Yet it has always been a principle, or at least the practice, in international affairs that states have been entitled to land troops in foreign territories for the limited purpose of saving their own nationals...

...This kind of forecast represents Drucker at his best...

...But, he rightly adds, it is better to be hated than despised, and this is a point the Western powers should consider with some care...

...If the civilized nations can indeed get together and produce an anti-terrorist charter, with an agreement on sanctions against offending organizations and states, prospects are better...

...And in fifteen or twenty years the number of retirees collecting pensions will be so great, and the number of new entrants to the labor force so low, that pension fund disbursements will equal or surpass contributions--with the result that pension funds will no longer generate new capital for investment...

...and firm international action against any sort of support of or collusion with terrorism--such are the two faces of an adequate policy...

...But he also sees a dramatic shift taking place in the age structure of the population: because the "baby boom" has ended, fewer people will be entering the work force...

...Few people realize, however, that pension funds are the most important institutional investors, more important than personal trusts and mutual funds, far more important than foundation and university endowments...

...BOOK REVIEW The Unseen Revolution: How Pension Fund Socialism Came to America by Peter F. Drucker / Harper & Row / $8.95 Adam Meyerson Forget the central thesis of this book, but read it for its insights...

...Now Drucker does not mean to imply that pension funds will supply only headaches...

...It is clearly true that a society in which the terrorists did not roam freely or gain support or excuses had different values from our own...

...And though he discusses at length the recent pension legislation known as ERISA, Drucker curiously neglects the provisions which prevent private pension plans from making speculative investments...

...To be sure, Drucker's use of the term "pension fund socialism" sometimes leads him to exaggerate the identity of interests between corporations and pension fund beneficiaries...

...But how long will it take for this good sense to penetrate to the political leadership...

...7.95 Tom Bethell This all-out attack on the patron saint of consumers by the managing editor of the New Republic is a peculiar effort...

...It is widely know that institutional investors have been taking over the stock market, and that individuals have been net sellers of stock...

...But if you take that approach you risk looking mean-spirited if you don't Tom Betbell, an editor of the Washington Monthly, is writing a book on George Lewis, the New Orleans dam'netist...

...In the first place, Drucker overstates the role of pension funds in the stock markets: rather than the 35% figure he gives, the funds own slightly over 20% of the market value of listed stocks.* Far more important, Drucker misleads his readers when he talks of workers owning the American economy...

...Reading between the lines, one gets the impression that Sanford is resentful of Nader's fame, and (perhaps even more) saintly image...

...Now Sanford tells us that Ralph's brother Shafeek bought an $80,000 house in a fashionable D.C...

...But those who see economic growth as the only way to relieve increasing political pressures for both higher standards of living and a cleaner environment, had best ponder the implications of a pension fund economy...

...24 The Alternative: An American Spectator October 1976 panying challenges...

...And since corporate revenue finances these pensions, Drucker believes that workers will begin to realize the extent to which their retirement security ultimately depends on the continued health of corporate profits...

...But there were good reasons why no one would buy New York bonds, and Drucker argues that the pension fund managers violated their trusteeship by making such unsound investments...

...His attack on Nader is almost entirely ad bominem, which is perfectly justifiable, of course, and in fact the correct approach in Nader's case...

...George F. Will has pointed out that such actions as that at Entebbe do not stop people hating the Israelis...

...At any rate, the new mood among the Western governments was the direct result of the bold Israeli action...

...Undeniably cranky, it is also hostile to Nader in a way that suggests someting approaching bitterness on Sanford's part...

...Peter Drucker is not only one of the business world's most respected management consultants...

...So the share of pension funds was somewhere around 20.9...

...Bankers study economic trends, demographers study population trends, Drucker with his catholic interests studies both, and by putting them together he startles us with convincing prognostications...

...Thus, Drucker commends the recent ERISA legislation, which requires that private pension plans be properly funded and invested...

...They say that if people choose not to save enough to generate capital investment, then so be it: that is the way the market expresses preferences, and we can do without economic growth...

...value of equities listed on American stock exchanges, and that in ten years they will own a majority of equity, in addition to holding a major proportion of corporate bonds and debentures...

...There are a number of reasons wily corporate income taxes might desirably be reduced, but one should not imagine that the result would be egalitarian...

...Whether these rather larger states will themselves ever dare actually to imitate the Israelis in similar circumstances is another matter...

...One of the major reasons for New York City's financial crisis was that its unfunded pension liabilities amount to at least $6 billion...

...But the growth of pension funds, which make diversified investments, gives workers a stake in the success of the corporate system and the long-term stability of the economy...

...These, Drucker asserts, must be properly funded immediately: else, when the pension claims come due in large numbers, the guilty states and cities must choose between repudiating their obligations and raising taxes exorbitantly in order to pay for them...

...Employees therefore have no say about where to invest their pension assets or how to vote at stockholder meetings...

...Perhaps this was appropriate, for it was the excessive wage and pension demands of municipal unions that led to much of the city's financial chicanery...

...Similarly, pension funds may have little to do with "socialism," but they are new institutional arrangements with a host of accom"I used Drucker's own figures to reach my calculation...

...for, as Drucker shows, we are soon going to lose one of our major sources of investment...

...Business must welcome these millions, develop effective management for their pension funds, and invite their representatives onto corporate boards...

...Who else but Drucker, for example, would point out that in recent years pension funds have been one of the major engines of our economic growth...

...Private pension plans cover over 30 million workers, and are mostly so generous that they will provide most of their beneficiaries' retirement income--with Social Security payments as only supplementary...

...As so often, a firm and uncompromising initiative clears the air, and gives a lead to weaker sisters...

...Let us repeat that, as in every other sphere, there seems no doubt that Western public opinion has swung away from appeasementminded liberalism...

...Many economists, of course, regard capital formation as a "non-problem...

...Most pension plans guarantee their beneficiaries annuities specified by collective bargaining, and employers must provide the pensions they promise no matter how well the pension fund is invested...

...Overall, it's not an edifying book...

...And this creates a problem, for, as Drucker puts it so well, the pension funds are investing in the past, whereas what we need is investment in the future...

...I see him coming and going at odd hours nearly every day...

...He is also--though his analyses are often wrong--one of the most imaginative and thoughtful social critics of our time...

...One can't help getting a certain amount of pleasure out of seeing Icon Nader under assault from the chic Left (in passing, the book includes a remarkably unflattering portrait of Gil Harrison, the former owner of the New Republic, who comes across as an effete snob...

...Trustees should not gamble with others' money, and Drucker argues cogently that some of the major problems facing pension funds have to do with insufficient safeguards on the security of their assets...

...And since, according to orthodox Marxist analysis, stock ownership amounts to ownership of the means of production, Drucker argues that America is inadvertently but rapidly becoming socialist--not in the modern sense of the state managing the economy, but in the classical Marxist sense of the workers collectively owning the means of production...

...Not that such legislation is wrong, of course...

...New York was rescued, at least in the short run, when its municipal pension funds invested in city bonds no one else The Alternative: An American Spectator October 1976 25 would buy...

...What is more, one can make a good case that existing tax laws greatly benefit pensioned workers: the assets of pension funds may be hurt by corporate inc(.,ne taxes, but corporate contributions to the funds are a tax-free fringe ber.e~?t to employees, and partly as a consequence corporations now pay more in pension fund contributions than they do in income taxes...

...Marx would have warmly approved of the standard of living American pension funds offer retiring workers, but I doubt he would have called the system socialism...

...Nader the Saintly, as we all have been told a million times, lives in an $85 a week rooming house near Dupont Circle, walled in with piles of old newspapers and government reports which he reads sixteen hours a day...

...But he argues that the worst pension mismanagement takes place in the funds for state, county, and local government employees...

...And needless to say, Nader has not lacked for pally reviewers in the media ready to lash out at Sanford for being disrespectful...

...He is a man of vision, and he sees in their emergence the opportunity for business to regain a sense of legitimacy...

...And so our Knight of Woeful Tidings emerges with renewed lustre, precisely because these lesser mortals have been sniping at him once again...

...In the next generation, Drucker believes, the critical problem before pension funds will be how to protect their assets from government interference --how to keep governments from raiding the funds in order to make up for their own fiscal irresponsibility, how to keep governments from requiring investment in "socially useful" and probably unprofitable activities...

...In a recent letter to the editor of Pensions and Investment, the pcnsion fund trade journal, Drucker estimated the markct value of stocks owned by pension funds, at the end of 1975, to be about $150 billion...

...But in the vast majority of cases, it is the employers, whether corporate or government, who manage the pension funds--either directly or, more commonly, through financial intermediaries such as bank trust departments...

...According to Drucker, such schemes tie workers too closely to the fortunes of one particular company, which might easily decline...

...But as we have seen, the workers do not "own" the holdings of pension funds, which are financed by corporate contributions...

...But few observers have paid any attention to the increasing importance of pension funds as institutions, and Drucker has therefore performed an invaluable service in forcing us to discuss both the problems involved and the promis.e...

...He argues, for example, that because workers own more and more stock, the corporate income tax is "highly regressive," and that "nothing would so effectively promote greater equality of income as to eliminate the corporation income tax, or at least that part of it which is levied on the holdings of the corporate pension funds...

...Nothing of the sort...

...it's his home...

...Drucker contends that pension funds are becoming the dominant force in the capital economy, that they now own 35% of the market Adam Meyerson is managing editor o f The Alternative...

...Pension funds may control only 20% instead of 35% of equity, but they have grown dramatically all the same--in 1956 they owned only 3 %--and all indications suggest that their share of the market will expand much further...

...But he does little to alter that image...

...Similarly, I imagine, this book may do little more than enhance Nader's reputation...

...If we put aside farming, Drucker writes, a larger sector of the American economy is owned today by the American worker through his investment agent, the pension fund, than Allende in Chile had brought under government ownership to make Chile a "Socialist country," than Castro's Cuba has actually nationalized, or than had been nationalized in Hungary or Poland at the height of Stalinism...

...Washington and Westminster exude a miasma of "enlightenment...

...American business now has the opportunity to form alliances with millions of pensioners and older workers, who, in order to protect the security of their retirement assets, will want to guard against inflation and make sure that economic productivity advances...

...A neighbor said: "Ralph lives there...

...But still, there's no doubt that Sanford is out to " g e t " Nader for reasons that are rather obscure, inasmuch as the actual idea of consumerism doesn't distress Sanford--in fact he endorses it, strangely enough...

...He hardly puts a dent in Nader's armor...

...Rigorous anti-terrorist laws, ruthlessly enforced, within the civilized countries...

...Pension funds are set up for the sake of workers, who are therefore "beneficial owners...

...Overdramatize Drucker has certainly done in The Unseen Revolution...

...The vision here is much broader than that of the "Kelso plan" and other profit-sharing schemes--proposals that would encourage workers to invest in the companies they work for...

...Nevertheless, Sanford's book is an interesting effort: brief, well written, undeniably an entertaining read for anyone not actually on the Nader payroll nor dedicated to the immediate overthrow of capitalism...

...Quite apart from the question of generating investment, the growth of pension funds is changing the nature of investments made...

...But of course, it needs courage too: not much, but more than has yet been available in capitals other than Jerusalem...

...And because so few have paid any attention to pension funds, even fewer are aware of a serious problem which will soon beset our economy: namely, that in fifteen or twenty years pension funds will cease to play their vital role in capital formation, and therefore in economic growth...

...BOOK REVIEW Me and Ralph by David Sanford / New Republic Book Co...

...This is because Sanford made one notable miscalculation...

...With his extraordinary breadth of interests-ranging from Kierkegaard to Japanese art, from jurisprudence to the psychological value of cosmetics--he can put together seemingly unconnected ideas and call our attention to phenomena that elude more rigorous specialists...

...Unfortunately, Drucker seems to concentrate too much on pension funds in this discussion: the fear of making risky investments now marks almost all institutional investors, including the one which was designed to invest in small and risky enterprises, the mutual fund...

...To do this, pension funds must develop strong management institutions, including boards of directors with clear accountability...

...But as Drucker never tires of pointing out in all his books, scientific and innovative management has successfully handled problems that were thought insoluble: in particular, at the end of the nineteenth century, it put clown the flames of what seemed to be unavoidable class war...

...Though English is his second language (he was born in Vienna and emigrated from Nazi Germany), he writes with a masterful facility that sometimes tends to overdramatize, but never fails to stimulate...

...According to the Securities & Exchange Commission, the market value of all listed stocks at the end of 1975 was $718.3 bJ, t~,ion...

...A recent article in Newsweek urges that a change in values is needed to remove the terrorists...

...It was a remarkable change to find the United States, France, and Germany openly congratulating the Israelis, instead of retreating into the usual faults-on-both-sides, Third World-appeasement, United Nations flummery...

...Many of these are gravely underfunded, and some governments--e.g., those of Florida, Boston, Indianapolis, and Pittsburgh--"have not laid aside one penny for future pension payments...

...A simple enough formula...

...neighborhood some years ago, and Sanford reports that Nader has been seen coming and going...

...come up with much, and Sanford doesn't...

...I have never seen 26 The Alternative: An American Spectator October 1976...

...Besides, he would say, solving problems is what business executives are paid for...

...It's very much as though Sanford went after Nader in the same spirit as that General Motors detective who did so much to put Nader on the map...

...He takes on the boarding house legend for example, but merely tantalizes...

...Small and unknown enterprises are starving for capital today, in good measure because pension fund managers (who dominate stock buying) try to protect their charges' assets by investing only in well-established stocks that will offer a safe return...

...and because public health has strikingly improved, more and more workers are able to enjoy lengthy retirements...

...In 1935, 8 million Americans were over 65, today there are 22 million, in ten years there will be 30 million...

...Those who have breathed it, like glue-sniffers, find it very hard to return to sanity...

...The growth of pension funds will create great problems in generating new capital, particularly the right kinds of capital...