The New Colossus

By William Greider, The Nation. Posted February 24, 2005.

The New Politics of Capital

While dispirited Democrats stew over their party's uncertain future, they might check out an unusual cluster of progressive "activists" forming within their ranks. Some politicians with real muscle are pursuing far-ranging possibilities for reforming the economic system. Their potential for driving important change is not widely recognized, perhaps because the reformers are drawn from unglamorous backbenches of state government – treasurers, comptrollers, pension-fund trustees. Yet these state officials, unlike the minority Democrats in Congress, have decision-making power and control over enormous pools of investment capital. They are fiduciaries who manage the vast wealth stored by state governments in public-employee pension funds, invested in behalf of working people – civil servants, teachers and other types of public workers – who as future retirees are "beneficial owners" of the capital.

In the wake of Enron-style corporate scandals, in which public pension funds lost more than $300 billion, some of the leading funds have restyled themselves as more aggressive reformers. They are picking fights with Wall Street orthodoxy they long accepted, like the obsessive maximizing of short-term gains. More important, they are broadening their definition of fiduciary obligations to retirees by trying to enforce corporate responsibilities to serve society's long-term prospects. Instead of adhering passively to market dogma, the activist funds now regularly accuse corporate managements and major financial houses of negligently or willfully injuring the long-term interests of pension-fund investors, therefore injuring the economy and society, too. Pension-fund wealth is thus being mobilized as financial leverage to break up the narrow-minded thinking of finance capital and to confront the antisocial behavior of corporations.

The core players in this struggle are the largest and most progressive pension funds in the nation – anchored by blue-state constituencies in California and New York. The heavyweights are occasionally joined by a handful of smaller states like Connecticut, North Carolina, Iowa and a few others where pension officials are kindred spirits. Together and individually, their efforts are possibly the only reform impulse ascendant among Democrats. Party leaders trying to rethink strategies could learn a lot from these state-level officials (and come to their political defense, if they had the nerve). "We're thirty-year investors and we have to take the long view," California Treasurer Phil Angelides explains. "I believe one of the things that led to the corruption of recent years was this notion that infected America that wealth is somehow created in six to nine months and all that matters is whether this quarter's returns are better than last quarter's – not whether you are building companies and products and an economy that will have enduring value."

His resonant phrase – "enduring value" – effectively summarizes the reform objective. The reformers understand that the current laissez-faire, let-'er-rip system damages important social values – equitable treatment of workers, the environment and other commonly shared public assets – and that both workers and retirees (and the state taxpayers who put up the money for public pension funds) have a strong self-interest, personal as well as financial, in husbanding the distant future: a healthy society and strong economy for themselves and their families.

The best evidence that the reform-minded pension funds are onto something – maybe something big – is the fierce and nasty counterattack launched by business and financial interests. Last spring, the Business Roundtable, the U.S. Chamber of Commerce and the American Enterprise Institute began a simultaneous barrage of complaints and name-calling accusations (faithfully echoed by The Wall Street Journal and Forbes). State pension officials, they warned, are departing dangerously from their fiduciary duties, putting "social issues" first and becoming pawns of organized labor. AEI's economic-policy director claimed CalPERS (the mammoth California Public Employees' Retirement System) "is abusing the public trust in a manner as serious and grave as any I have seen. They have a pool of money controlled by politicians and they are using that pool to strong-arm changes in targeted companies."

Why California Matters

CalPERS is the largest pension fund in the nation, holding $180 billion, and it is indeed trying to "strong-arm" companies – scores of them – into making reforms. Angelides has become a favorite target of the corporate critics – and a visible point man for pension-fund activism – because he sits on the boards of both CalPERS and CalSTRS (California State Teachers Retirement System), the country's second-largest, with holdings of another $125 billion. Angelides has pushed both funds to adopt a whirlwind of reforms – dumping tobacco stocks, blacklisting ten "emerging markets" that ignore international labor standards, redeploying capital to neglected sectors like inner-city redevelopment and innovative environmental technologies, and, above all, peppering scores of corporations, banks, brokerages, financial markets and federal regulators with critiques and demands for change.

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