The New Investors
BRUCE-BRIGGS, B.
The New Investors The Unseen Revolution: How Pension Fund Socialism Came to America By Peter F. Drucker Harper & Row. 214 pp. $8.95. Reviewed by B. Bruce-Briggs Author, "Cities on the Way Out";...
...Drucker's development of this theme is thoughtful and concise...
...The use of the word "worker" is equally loose...
...They have been the chief source of equity capital in the United States over the last generation...
...Their very existence would seem to cast doubt on Drucker's contention that pension fund capital is "worker-controlled...
...Drucker's warning of a struggle between workers and pensioners rings false as well...
...Here, "worker" slides into "employe," who may wear a white collar...
...Then there is the more fundamental question of pension funds being set up to provide the financial resources on which employes have a fixed claim, as on an annuity, upon retirement...
...I particularly enjoyed his distinction between elderly dependents cared for anonymously through some annoying levy, and youthful dependents ?children ?whom people don't mind supporting...
...Consequently, an entirely new American political economy is being created...
...Drucker would require that a certain fixed part of the funds go into speculations...
...A more credible nightmare recognized by Drucker is the prospect of government raiding of pension funds...
...The working population has historically had to provide for few older people, but soon the point will be reached where each person over 65 will be supported by only three workers...
...But the workers of Amalgamated Widget will not own Amalgamated Widget, employes of other companies will, and American labor has always been notorious for its lack of class solidarity...
...In considering the effects of the "unseen revolution," Drucker observes that when workers become owners, the dynamics of the struggle over the industrial pie will change radically...
...and it is my understanding that Social Security was originally intended as a supplement to savings...
...In addition, his understandable suggestion that pension rules be modified to encourage people to continue working past retirement age fails to deal with the problem of chronic unemployment...
...Drucker's concern for the welfare of pensioners notwithstanding, his principal audience has always been managers, and it is to their cares that his book is ultimately addressed...
...If anything, the current trend toward increased ownership of industry by pension funds poses a larger challenger to the political role of unions...
...Where will venture capital come from...
...resident consultant, Hudson Institute Peter Drucker has a fascinating thesis: American labor is rapidly taking control of American capital, making the traditional notion of a struggle between the two increasingly irrelevant...
...Nor does he indicate the sources of his assertion that workers own more of the means of production in the United States than any other country—including the Soviet Union, China and Cuba, where they theoretically own it all...
...A whole area not elaborated on is how pensions may replace private savings—usually assumed to be the major source of retirement income...
...Certainly it is already looked upon as nothing more...
...For if your company fails, it is bad enough to lose your job without losing everything else as well...
...This was only possible, though, because those funds were seen as "found money" that got into the employes' hands due to the nonfeasance of municipal officials...
...Other digressions, with often tenuous connections to the central theme, take up productivity, inflation, capital formation, and a version of the post-industrial society...
...Instead of dealing with these matters, Drucker for some reason chooses to take up a number of side issues...
...indeed, one of the three pension funds mentioned by name is for teachers and professors...
...The last is not a pedant's quibble: A reader has no way of determining how Drucker knows the precise extent of pension fund ownership of American business today, let alone what it will be almost a decade hence...
...He does not call attention to the obvious: that they have been getting a free ride with easy money over the last generation, and that the system of "power without property' characteristic of the management of large corporations dealing with a fragmented stockholder-ship is about to end...
...Drucker claims in one passage that because most of the savings in the country goes to pension funds and home ownership, "real" private savings in the U.S...
...Actually, it is quite possible that a good chunk of the funds has been gathered by and for executives, who are known to take even better care of themselves than their underlings...
...Organized labor may be obliged to rethink its support for corporate profits taxes once its own resources are at stake...
...The worst threat to corporations and to the economy that the author brings up, however, is that the pension funds will stop growing...
...For example, an extended section on "the demographic revolution" presents interesting, although previously well known, data about the effects of an aging population on the economy...
...approaches zero...
...It is apparently not meant in the American sense of a blue-collar worker or the European sense of an industrial manual laborer...
...How is the pension money invested...
...Regrettably, Drucker hardly confronts the intriguing questions that arise as we examine the state of affairs he is trying to persuade us exists...
...A discussion of Social Security is more closely related to the book, if less satisfying...
...In other words, while workers clearly have an "entitlement" to the funds, nothing in the current structure involves control of any kind...
...Top executives will once again be forced to answer to substantial stockholder interests—in this case, the currently anonymous pension fund administrators...
...Drucker declares that Social Security will eventually be considered a mere supplement to pension income for most retirees, and he sees this as a major change...
...Drucker's characterization of pension fund ownership as "socialism"—for which "the only rigorous definition" is "ownership of the means of production by the workers"—also leaves a great deal to be desired...
...This is very difficult to believe...
...by 1985 they will own more than half...
...But The Unseen Revolution does not carry that thesis much beyond its earlier presentation...
...One is left hoping that in his next book Peter Drucker will lay out the topic with the coherence and comprehensiveness it deserves...
...Further, a pensioner is likely to be only dimly aware of where his check comes from, just as he doesn't question the source of the interest on his savings account...
...Having had my interest piqued by the author's earlier expositions of "pension fund socialism" in the Public Interest and the Wall Street Journal, I eagerly anticipated his book-length treatment of the phenomenon...
...The money from one company's fund is being used by professional managers to buy stocks in other firms...
...Encouraged by the then president of General Motors, Charles E. Wilson, the process began in 1950 with the establishment of the giant automobile producer's fund, and it was given governmental blessing by the Employees Retirement Security Act of 1974...
...Drucker's traditional readership will no doubt feel apprehensive, too, about the possibility of pension fund socialism halting technological progress...
...What he describes could just as easily be characterized as simply one more form of property in a capitalist system...
...Unfortunately, on the central issue he adds little in The Unseen Revolution to what he has previously said—not even a bibliography or adequate supportive documentation...
...He points to the juggling of New York City employe pensions as a dangerous precedent...
...Moreover, this is happening not through nationalization or worker participation in company ownership, but through the investments of pension funds created to provide for workers after retirement...
...It is doubtful that the same might be done as easily with another fund, but it remains a potential disaster...
...Fund managers are required to be "prudent" and therefore like to invest in established blue-chip securities...
...Drucker's solution to this difficulty is to insulate the bosses by the institution of "professional" directors, to cover the managers with managers...
...More important, who makes the final investment decisions...
...According to Drucker, pension funds already own 30 per cent of American business...
...And Drucker's thesis explains why, in the face of a relatively trivial return, they are America's major investors in common stock...
...After all, theoretically there is a conflict between the payers and recipients of Social Security, yet it has never come to the surface...
...That is as it should be, believes Drucker, who quite rightly scorns schemes of Louis Kelso (and Russell Long) to relieve industrial conflict by giving workers a stake in their own firms...
...The author mentions "pension managers," but neglects to say who they are or how they use their power...
Vol. 59 • October 1971 • No. 20
