Dismantling Solidarity: Capitalist Politics and American Pensions since the New Deal 9781501708206

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DISMANTLING SOLIDARITY

DISMANTLING SOLIDARITY Cap­i­tal­ist Politics and American Pensions since the New Deal Michael A. McCarthy

ILR PRESS AN IMPRINT OF CORNELL UNIVERSITY PRESS ​ ​I THACA AND LONDON

Copyright © 2017 by Cornell University All rights reserved. Except for brief quotations in a review, this book, or parts thereof, must not be reproduced in any form without permission in writing from the publisher. For information, address Cornell University Press, Sage House, 512 East State Street, Ithaca, New York 14850. First published 2017 by Cornell University Press Printed in the United States of Amer­i­ca Library of Congress Cataloging-­in-­Publication Data Names: McCarthy, Michael A., 1979–­author. Title: Dismantling solidarity : cap­i­tal­ist politics and American pensions since the   New Deal / Michael A. McCarthy. Description: Ithaca ; London : ILR Press, An imprint of Cornell University Press,   2017. | Includes bibliographical references and index. Identifiers: LCCN 2016046156 (print) | LCCN 2016047583 (ebook) |   ISBN 9780801454226 (cloth : alk. paper) | ISBN 9781501713170 (pbk. : alk.   paper) | ISBN 9781501708190 (epub/mobi) | ISBN 9781501708206 (pdf) Subjects: LCSH: Pensions—­Political aspects—­United States. | Pensions—­   Economic aspects—­United States. | Pension trusts—­United States. |   Industrial relations—­United States—­History. Classification: LCC HD7125 .M23 2017 (print) | LCC HD7125 (ebook) |   DDC 331.25/20973—­dc23 LC rec­ord available at https://­lccn​.­loc​.­gov​/­2016046156 Cornell University Press strives to use environmentally responsible suppliers and materials to the fullest extent pos­si­ble in the publishing of its books. Such materials include vegetable-­based, low-­VOC inks and acid-­free papers that are recycled, totally chlorine-­free, or partly composed of nonwood fibers. For further information, visit our website at www​.­cornellpress​.­cornell​.­edu.

For Ellen, Wren, Joann, and Bill

Contents

Acknowl­edgments List of Abbreviations

ix xiii

1.

The Retirement Puzzle

1

2.

Cap­i­tal­ist Crisis and Pension Insecurity

8

3.

Reconversion and the Origin of Bargained Plans

42

4.

Turning ­Labor into Finance Capital

77

5.

Toward the 401(k) Owner­ship Society

6. Conclusions

Notes References Index

126 160 175 193 213

Acknowl­e dgments

Books may appear to readers as the product of a sole author’s brain, in the form of paper and ink. But the fact that this book has my name alone on the cover hides all of the ­others that have contributed to it. Of course, ­there are clues in the book itself that it’s not the result of my sole effort. On the copyright page, you find the publisher’s name, Cornell University Press, whose staff worked to edit, design, and produce it. Other clues are the citations peppered throughout its pages. They are an indication of how the book is built on the work of o ­ thers. This ac­know­ledg­ ments section reveals even more. I accrued some of my greatest debts early in this book’s life when I was as a doctoral student in sociology at New York University. Without the imagination and guidance of my mentors ­there, this book would look entirely dif­fer­ent and maybe not exist at all. Jeff Goodwin’s support was especially invaluable. Jeff has the rare quality of being both unconstrained by disciplinary bound­aries and ruthlessly rigorous. He read more drafts than anyone e­ lse did, and each time gave me thoughtful criticism and the encouragement to keep g­ oing. He not only helped me write a book but also taught me how to think so­cio­log­i­cally, becoming a good friend and comrade in the pro­cess. Vivek Chibber made a similar contribution. Both Jeff and Vivek are rare breeds in an academic world that is increasingly concerned with publication placement and institutional prestige. Neither have relented on their commitment to a more solidaristic world, and both see capitalism as a chief source of its suffering. During my last few years at New York University, Jeff Manza was extraordinarily gracious with his time, willing to read draft ­after draft. He brought to the proj­ect the eye of a seasoned po­liti­cal sociologist whose empirical rigor reined me in when I became overly ambitious. Jeff has continually challenged and changed my thinking on a host of issues—­most impor­tant of which is the subject of this book, the welfare state. The last of my mentors at NYU, Steven Lukes is one of the kindest and most brilliant ­people I have ever met. His seminars on theory, power, and po­liti­cal philosophy laid out some of the deepest and most enduring questions of social science that silently underlie this book. On more than one occasion, I have been asked why I chose to study pensions. At first glance, they seem to be an especially dull institution, highly technical and often described in an expert language. But pensions are too impor­tant to be left to specialists alone. Their study reveals the class divisions and strug­gles of a society and unearths insights into the ix

x Acknowledgments

relationship between capitalism and democracy. Steven helped me stay focused on the bigger so­cio­log­i­cal issues. Of course, many o ­ thers in New York contributed as well. Ira Katznelson and Dee Royster both graciously gave their time and comments. Dee’s and Ira’s ideas have helped me revise the book into its current form. Truth be told, I am somewhat stubborn. I rarely took my argument in the specific directions that ­others urged me to go in. But that does not mean I have not taken criticisms to heart. Many helped me to reevaluate my interpretation of the history. In some cases they pointed to ways to fortify it. I presented chapters of this book many times in the NYU workshop Economic and Po­liti­cal Sociology. In addition to the faculty participants, students like John Clegg, Jeremy Cohan, Daniel Cohen, Mark Cohen, Michael Gould-­Wartofsky, Jen Heerwig, Paul Heideman, Suzy Lee, Emi Lesure, Brian McCabe, Zalman Newfield, Michelle O’Brien, René Rojas, Poulami Roychowdhury, Ercan Sadi, Erik van Deventer, and David Wachsmuth all offered comments of the highest caliber on earlier iterations. A handful of ­people came into my life during grad school that especially contributed to my thinking and well-­being as personal friends and allies. Hrag Balian, Jonah Birch, Madhavi Cherian, Dan DiMaggio, Barry Eidlin, Kevan Harris, Issa Kohler-­Haussmann, Nada Matta, Glen Pine, Charles Post, Emily Rauscher, and Adaner Usmani all kept me sane and accountable. Other scholars also s­ haped my ideas, prob­ably much more than they realize. Fred Block and Bill Domhoff have been particularly generous interlocutors from afar. I also thank Edwin Amenta, Angie Andrus, Neil Brenner, Mary Craciun, Cedric de Leon, Kurtuluş Gemici, Kathleen Gerson, Gabe Hetland, Amy Holmes, Ho-­fung Hung, Sandy Jacoby, Jane Jones, Richard Lachmann, Stephanie Luce, Aaron Major, Carolina Bank Muñoz, Edo Navot, Matt Nichter, Klas Rönnbäck, Daisy Rooks, Jake Rosenfeld, Michael Schwartz, Derek Seidman, Chloe Thurston, Florencia Torche, Natascha van der Zwan, Owen Whooley, Jim Wooten, Erik Olin Wright, and Elizabeth Wrigley-­Field. Apologies to ­those whom I have unintentionally omitted. Several individuals and institutions helped during my archival research as well, providing both financial support and guidance in navigating boxes of historical documents. Although this book draws heavi­ly from the widely available historiography, it also pres­ents a substantial amount of new historical data. A significant amount of that history was collected with the help of a fellowship and nearly half-­year residency at the Hagley Museum and Library in Wilmington, Delaware. The Hagley is a trea­sure trove of business history. ­There, Roger Horo­w itz and Carol Lockman, from the Center of the History of Business, Technology, and Society, gave me the resources and support to make the most of their wonderful collections from the National Association of Manufacturers, the National Industrial Conference Board, and the U.S. Chamber of Commerce. I also greatly benefited from the many librarians at the George Meany Memorial Archives and the

Acknowledgments

xi

Walter P. Reuther Library. Selfless librarians at both helped me wade through the collections of the American Federation of ­Labor, the Congress of Industrial Organ­ izations, the merged AFL-­CIO, the United Auto Workers, and the papers of George Meany and William Green. Conducting the historical research for this book was also made pos­si­ble by two grants that did a lot to help a low-­income gradu­ate student pay his rent—­one from the National Science Foundation and the other from the Horo­witz Foundation for Social Policy. I also owe a debt of gratitude to the Max Planck Institute for the Study of Socie­ ties in Cologne, Germany, where I worked as a postdoctoral fellow with Wolfgang Streeck in his “institutional change in con­temporary capitalism” research cluster. Wolfgang encouraged me to push capitalism to the foreground of the analy­sis. In an era of scholarship where a materialist approach like the one in t­ hese pages might be considered too retro, our discussions gave me the confidence to let the historical data speak for themselves. Many ­people at the institute graciously gave me feedback and support. Thanks to Francesco Boldizzoni, Helen Callaghan, Adel Daoud, Ruth Hanisch, Martin Höpner, Jergen Lautwein, Mark Lutter, Tom Paster, Aidan Regan, and Alexander Spielau. A ­ fter Max Planck, I moved to Marquette University in Milwaukee to take a position as an assistant professor of sociology. I completed much of the final version of the book during my first two years. Suffice it to say, intellectual debts have continued to accumulate. All of my new colleagues in Marquette’s Department of Social and Cultural Sciences have been especially welcoming and supportive as I have completed this proj­ect and negotiated new teaching duties. I am indebted to each one. And of course I have met new interlocutors, such as Noelle Brigden, Jessica Rich, Duane Swank, and Michael Wert. Not all my debts are intellectual or financial though. My path into academia was an unconventional one, having been raised in a working-­class neighborhood in Fresno, California, where I left high school in my se­nior year to work in the construction industry laying asphalt. My f­ amily was especially supportive when I eventually made the odd decision to go to gradu­ate school in sociology. I thank all the McCarthys, Buschs, Christians, and Aldersons, both living and dead, that ­were ­there for me. Their encouragement helped me write this book. My parents, Bill and Joann, have been indispensable in this regard. They are my personal boosters. My partner, Ellen Wagner, is a constant source of joy and smiles. Her ability to brave uncertainly is like none other and her patience is nothing short of heroic. In the pro­cess of writing this book, we had our ­daughter, Wren, who is extraordinary and wonderful. Without the emotional support of my friends and ­family I ­can’t imagine having completed this. In ­these ways, this book is much more a result of the relationships I have had over the course of writing it than just my own in­de­pen­dent effort. That being said, the usual disclaimer stands—­I am the only one to blame for its contents.

Abbreviations

ABA American Bankers Association ACLI American Council of Life Insurance ACTWU Amalgamated Clothing and Textile Workers Union ACWA Amalgamated Clothing Workers of Amer­i­ca AFL American Federation of ­Labor AFSCME American Federation of State, County, and Municipal Employees AFT American Federation of Teachers ATA American Trucking Association BAC International Union of Bricklayers and Allied Craftworkers CIO Congress of Industrial Organ­izations CIO-­PAC Congress of Industrial Organ­izations–­Political Action Committee CLC Canadian ­Labour Congress COLA cost-­of-­living adjustments CSPF Central States Pension Fund DB defined benefit DC defined contribution EBRI Employee Benefit Research Institute EEO Equal Employment Opportunity ERB Economic Revitalization Board ERISA Employee Retiree Income Security Act ESOP Employee Stock Owner­ship Plan FOMC Federal Open Market Committee FTQ Fédération des Trailailleurs et Traivailleuses du Québec GATT General Agreement on Tariff and Trade IAM International Association of Machinists and Aerospace Workers IBEW International Brotherhood of Electrical Workers IBT International Brotherhood of Teamsters ILGWU International Ladies’ Garment Workers’ Union IRA individual retirement account IRS Internal Revenue Ser­v ice IUD Industrial Union Department IUEW International Union of Electrical Workers IUOE International Union of Operating Engineers LLPE ­Labor’s League for Po­liti­cal Education xiii

xiv Abbreviations

LNPL ­Labor’s Non-­Partisan League LSIF ­Labor-­Sponsored Investment Fund ME multi-­employer NAM National Association of Manufacturers NDMB National Defense Mediation Board NFIB National Federation of In­de­pen­dent Business NFLU National Farm ­Labor Union NICB National Industrial Conference Board NLRA National ­Labor Relations Act NLRB National ­Labor Relations Board NWLB National War ­Labor Board OECD Organisation for Economic Co-­operation and Development OSHA Occupational Safety and Health Administration OWIU Oil Workers International Union PATCO Professional Air Traffic Controllers Or­ga­ni­za­tion PBGC Pension Benefit Guaranty Corporation RENPA Railway Employees National Pension Association SIB Steel Industry Board SSA Social Security Act SSB Social Security Board TIAA-­CREF Teachers Insurance and Annuity Association-­College Retirement Equity Fund UAW United Auto Workers UBC United Brotherhood of Carpenters and Joiners of Amer­i­ca UFW United Farm Workers ULLIC Union ­Labor Life Insurance Com­pany UMW United Mine Workers of Amer­i­ca USCOC United States Chamber of Commerce USW United Steel Workers

DISMANTLING SOLIDARITY

1 THE RETIREMENT PUZZLE

The Question In 2008, the stock market crashed. From the opening of trading in October 2007 to its close one year ­later, stocks plummeted a whopping 37.5 ­percent. Like tipping dominoes, the fall triggered financial havoc in the retirement systems of the advanced cap­i­tal­ist countries of the world. Throughout the year, occupational pension plans in the OECD’s member countries lost $5.4 trillion in savings, nearly 23 ­percent of their total value, contracting to $20 trillion.1 The pension funds in the United States, which accounted for about 61 ­percent of global pension assets at the time, bore the brunt of this loss. The American occupational pension system saw a 26 ­percent decline in its value, while OECD countries saw an average of 17 ­percent of their pension retirement assets bleed out over the year. Many Americans ­going into retirement in the years immediately following the collapse had their pension plans heavi­ly invested in the stock market. ­Those same individuals, most of who relied on a 401(k) plan for savings, saw large portions of their retirement income simply vanish overnight (OECD 2009a). To make ­matters worse, consumer prices ­rose nearly 5 ­percent in the same period, making the smaller amount most had worth even less in real terms. The hefty loss forced many to defer retirement, downgrade their quality of life, or take on a second job—an unlikely option when job openings w ­ ere so scarce. In fact, large segments of the workforce found themselves at a double disadvantage, in danger of losing both their savings and their jobs. But all was not lost for retirees. While occupational pensions w ­ ere tangled in financial chaos, the inflation-­adjusted value 1

2

CHAPTER 1

of Social Security benefits remained largely unaffected by the downturn, providing a stable and much-­needed safety net that remained available despite other losses of income for the golden years (Burtless 2009:73). Since the ­Great Recession, Americans, just like the citizens of other countries with heavi­ly privatized pension systems, have discovered how uncertain and risk-­ laden their f­utures actually are. In 2011, more than half (53%) of adults w ­ ere worried that when they retire they ­will be strapped for income, without enough to live comfortably. This was a sharp increase from another recession year, 2002—­after the dot-­com ­bubble popped, when just 32 ­percent had financial concerns about life ­after work. Financial anxiety and gloom about the ­future is not misplaced. From 2001 to 2010, the median wealth of ­house­holds headed by adults 35 to 44 years old dropped from $99,727 to $43,698. The bulk of this loss was a direct result of the 2008 crash (Morin and Fry 2011).2 By the ­middle of 2015, the Government Accountability Office reported that about half of all h ­ ouse­holds ages 55 and older have no savings at all for retirement (U.S. Government Accountability Office 2015). Global economic turbulence in cap­i­tal­ist financial systems raises real controversies about the viability and fairness of Amer­i­ca’s heavi­ly marketized retirement system. Is the market the best way to or­ga­nize the distribution of retirement income given the risks and disparities in outcomes that it generates for and between retirees themselves? Are more solidaristic institutions and arrangements, which are built on the idea of pooling risk around the market’s uncertainties, preferable to ­those that put more risk onto workers to secure their own adequate retirement? Beyond deep normative issues about what our retirement system ­ought to be and the likelihood that its current form w ­ ill lead to more crises in the f­ uture, both of which have been written on extensively, the current precariousness of the old-­age security system also underscores a comparative historical puzzle about how the provisioning of American retirement income came to become so tied to the market in the first place. A ­ fter all, the hopes and ambitions of progressive New Dealers such as Robert F. Wagner, the resurgent ­labor movement in the 1930s, and the Townsend clubs that dotted the nation in the ­Great Depression’s wake promised a robust public retirement system. The New Deal era opened up the real possibility of a public pension program built on solidaristic princi­ples of risk sharing and capable of providing a livable, egalitarian, and universal income during the golden years. Such hopes even lingered into the fleeting moments ­after World War II, when, as historian Nelson Lichtenstein (2002:126) writes, “The stakes ­were high ­because the level, scope, and po­liti­cal meaning of the entire social wage was on the postwar ­table.” But the solidaristic vision of shared risk, the kernel of Franklin Roo­se­velt’s “freedom from want,” was at best just partially realized. What followed in the

The Retirement Puzzle

3

de­cades since the 1930s was the making of a compromised and limited version of itself. A public-­private approach to retirement income provisioning emerged that, over time, increasingly gave priority to cap­i­tal­ist market-­oriented changes and mechanisms of income distribution. The public safety net for the el­derly jumping out of the l­abor pool, ­whether voluntarily or pushed, which Roo­se­velt’s 1935 Social Security Act (SSA) created, did not protect every­one. It excluded, for example, domestic and agricultural workers, many of whom w ­ ere black and Latino. And ­those who ­were covered had to find ways to augment their benefits with other sources of income. The program eventually became nearly universal in the 1950s. It was well a­ fter the first Social Security check (for $22.54) was distributed in 1940. Yet instead of becoming the nation’s central pensioning agency, Social Security became just another pillar in a much larger multipillar welfare state institution that included both public and private initiatives. Beginning from this point, a basic so­cio­log­i­cal question motivates the rest of this book: Why, since the New Deal, was the American retirement security system augmented with market-­oriented changes? ­There have been many forks in the historical road that led to Amer­i­ca’s current, highly marketized, old-­ age security system. The solidaristic ones are often the roads not taken. Taking a longer view, what explains the paths of marketization that the country has gone down at nearly ­every critical conjuncture since the New Deal when a more solidaristic route was pos­si­ble? Why, in other words, has ­there been a slow reassertion of the reliance on markets that characterized much of the pre–­New Deal period? And, more broadly, what does the marketization of Amer­i­ca’s retirement system tell us about the character of welfare states? The development of old-­age income security followed three paths over the half ­century since the New Deal, each distinct but converging: occupational plans ­were ­adopted as a supplement to Social Security; their assets w ­ ere invested by employers into the stock market; and, most recently, they w ­ ere turned into 401(k) plans. To explain the overall institutional trajectory of marketization, this book analyzes each of ­these paths. In par­tic­u­lar, I address three historical questions: (1) Why was the collectively-­bargained occupational pension system established a­ fter World War II in the place of real increases in Social Security benefits? (2) Once ­these private systems ­were established, what explains the subsequent employer consolidation of pension fund control and the shift of their investment into the stock market, mimicking the investment trends in corporate finance? And (3) Why, within the system of employer-­provided pensions, was ­there a subsequent shift t­ oward much riskier defined-­contribution (DC) plans, such as 401(k)s, away from the traditional defined-­benefit (DB) plan in the late 1970s and 1980s? More than 60 ­percent of workers with retirement coverage in 1983 had a DB plan; ­today, with the rise of 401(k)s, that figure has declined to 20 ­percent and is even smaller

4

CHAPTER 1

for private-­sector workers. Taken together, ­these developments account for the major episodes of marketization in Amer­i­ca’s old-­age security system. Explaining each episode ­will shed light on this gradual, decades-­long shift. In this book, I offer answers to each of t­hese questions. But I also aim for a more general explanation of pension marketization through the use of comparative historical analy­sis. Unlike many other comparative historical accounts, which use states or other geo­graph­i­cal units such as regions or cities for comparison, I compare the sequence of events in each episode of marketization. This comparison seeks to identify continuities across each time sequence to understand the common causal mechanisms at work in each, if indeed such exist (Haydu 1998:341). But institutional change is messy. ­These market-­oriented shifts did not unfold in unique periods, neatly divided from one another. Although they are roughly chronological, the time periods of each episode overlap. Building on the crisis theories of the welfare state from the 1970s and 1980s, I find that three interdependent f­actors enabled the marketization of retirement security between the New Deal and the 1990s. First, politics was key. Po­liti­cal intervention into and po­liti­cal regulation of the economy and industrial relations s­ haped each market-­oriented shift. The long-­term privatization of pensions was, somewhat ironically, driven by a stronger hand of the state in industrial relations, not a weaker one as we might expect. Second, politicians, both Demo­ crat and Republican, did not intervene with the primary purpose of creating a retirement system guided by market forces, but rather did so to manage the broader market forces at work in the economy. When politicians believed that they faced an imminent crisis of capitalism that threatened to slow American economic growth, they acted to facilitate accumulation and to maintain Amer­i­ ca’s global hegemonic position. Policymakers sought to promote cap­i­tal­ist growth. Changes in the old-­age security system w ­ ere often just the inadvertent result. But policymakers did not intervene in the same way in each episode. Third, both the form that policy interventions took and the way that the po­liti­cal intervention itself drove marketization are explained by the relative po­liti­cal, orga­nizational, and economic power of ­unions and firms, or, the balance of class forces. In short, the structural need to maintain cap­i­tal­ist accumulation restricted the range of policy options politicians had to intervene with, but historical contingencies selected from within this range. I term this the structural contingency of welfare state change. It is my desire that this book re-­center capitalism in our understanding of the welfare state and policymaking in cap­i­tal­ist democracies. Policymakers face structural imperatives on the kinds of policies they formulate and what they can do while they hold elected office. They are compelled to support cap­i­tal­ist accumulation—­because not ­doing so risks spurring on economic downturns

The Retirement Puzzle

5

and being voted out of office. This critical constraint on policymakers is simply too impor­tant to be as overshadowed or de-­emphasized by students of politics. Yet, as I show in this book, the marketization of pensions is also a story fraught with contingencies that cannot be forced into too deterministic an explanation. Although policymakers confront a fundamental structural imperative to intervene for capitalism, how they manage is a result of the contingencies of class strug­gle.

On the Sources As most researchers do, I went into this proj­ect carry­ing entirely dif­fer­ent assumptions about what I was g­ oing to find than what I actually did. The argument that I had worked out before ­doing the research was simply unsupported by the historical rec­ord in the archives. As with most research, it had to be revised iteratively as it was confronted with new details that did not quite fit. The lit­er­a­ture makes clear that policymakers mattered early on in the privatization of retirement security, but the widely accepted view suggests that the state mattered much less ­later. Although welfare state scholars do emphasize the ways that American politics and the private welfare state remained interwoven, they also tend to suggest that early state interventions in the 1940s created “policy feedbacks” and “path dependencies” whose effects remained durable even while the state took a backseat in subsequent de­cades. Taking this cue from the lit­er­a­ture, I assumed that I would add to the accepted view. I hypothesized that what must have been driving marketization within occupational pension plans was largely a story about private actors, such as ­unions and firms, who while constrained by regulations and institutions largely made the changes within the pension system themselves. Starting from this premise, I set out to dig into the business and l­abor archival rec­ord to piece the story together. Naturally, I started with t­ hose who appeared to be the principal players in the pension story. For ­labor, I consulted materials ­housed at the Walter P. Reuther Library in Detroit. I explored ­unions affiliated with the Congress of Industrial Organ­izations (CIO), which ­were the key ­drivers in getting pensions established a­ fter World War II. I also explored the materials of the United Auto Workers (UAW) extensively. By the time that the CIO had merged with the American Federation of ­Labor (AFL) in 1955, forming the AFL-­CIO, ­unions from both federations w ­ ere central to the development of Amer­i­ca’s retirement system. I drew on materials from both the AFL and the AFL-­CIO, which at the time ­were ­housed at the George Meany Memorial Archives at the National ­Labor College in Silver Spring, Mary­land. I also drew from the William Green and George Meany Papers h ­ oused t­here. Accessing t­hese materials when I did was a

6

CHAPTER 1

stroke of luck. Shortly ­after viewing them, the National ­Labor College was shut down. Although they have since been moved to the University of Mary­land, t­ here was a long period of time ­after I viewed them when they ­were simply unavailable. On the side of industry, I spent many weeks living in a former blacksmith’s shop of Du Pont’s early 1800 gunpowder works while I poured over the collections of key employers’ associations during the day at the Hagley Library in Wilmington, Delaware. Three collections w ­ ere especially critical to piecing together the story that follows in this book. I drew on the materials of two employers’ associations that w ­ ere particularly vocal and involved po­liti­cally in issues relating to employer pensions, the Chamber of Commerce (USCOC) and the National Association of Manufacturers (NAM). I also drew very heavi­ly from the collection of the National Industrial Conference Board (NICB), the premiere employer’s research institution, which not only coordinated meetings and discussions, but also produced richly detailed reports and studies that individual employers and employers’ associations could draw on. As with the l­abor materials, I viewed subcommittee reports, conference minutes, memoranda, personal letters, speeches, lit­er­a­ture, newspaper clippings, congressional testimony, and studies related to Social Security, pensioning, and collective bargaining. In total, I read over 11,000 documents that date from the 1930s to the 1990s. ­These materials proved revelatory. Combining the business perspective with that of l­abor, they did not merely cast doubt about my earlier assumptions, they proved them entirely wrong. What I found was that politics mattered continuously and consistently for all of the major changes in Amer­i­ca’s pensioning system, even ­those that appeared to be quite distant from legislation. I also found that the actions of policymakers w ­ ere justified with their concern about what was “best” for the American economy, which they shared both publicly and privately. Like any decent investigator, I followed the clues and let the primary sources speak for themselves. What the reader ­will find is that while this book is built around the information that I pieced together from business and l­abor archives, it also draws on state-­level sources, such as congressional testimony, po­liti­cal speeches, and po­liti­cal biographies, to provide additional critical information for its core ­theses. And of course, much of this is intertwined with information drawn from the rich historiography. Without the work of previous scholars I would have been lost in the archives.

Proj­e ct Roadmap The study unfolds as follows. In chapter 2, I build the conceptual approach that I use to explain pension marketization. This chapter holds the book’s core

The Retirement Puzzle

7

c­ ontribution. ­There I argue that we must reformulate crisis theories of the welfare state to better understand the trajectories of pension marketization recounted in this book. The following chapters are then or­ga­nized around an examination of three such episodes of change in Amer­i­ca’s retirement security system. Chapter 3 begins the book’s empirical work. It is an analy­sis of the growth of the private pension option a­ fter World War II. T ­ here I explain why collectively bargained plans ­were ­adopted to supplement Social Security. In chapter 4, I discuss how employers gained control over pension fund investment decisions and why, once private pension plans ­were established, they directed their assets into the stock market. And in chapter 5, I take on the task of explaining the rise of DC plans, such as 401(k)s, a­ fter the late 1970s. Fi­nally, chapter 6 concludes, taking stock of the book’s arguments and its broader theoretical and po­liti­cal implications.

2 CAP­I­TAL­I ST CRISIS AND PENSION INSECURITY

Solidarity or the Market? In his pioneering book, The Three Worlds of Welfare Capitalism, Gøsta Esping-­ Andersen (1990) argues that welfare states cluster into dif­fer­ent regime types. Welfare state regimes vary in the way the state, the market, and the ­family are arranged as sources of social support for the ­people of a country (26). Broadly conceived, they comprise the institutional arrangements, rules, and understandings that guide social policy decisions, expenditures, and the demand structure of welfare consumers (80). In this regard, a welfare state regime is more encompassing than state-­level welfare policy ­because it extends beyond formal government programs into the multifaceted ways in which economic social rights are constituted. Typically, they are a combination of publicly provided social rights, publicly supported private initiatives, and private initiatives that go unsupported by the state. Along with Canada’s and Australia’s, Esping-­Andersen classifies the U.S. welfare state regime as “liberal” ­because it tends to have means-­tested programs, modest universal transfers and social insurance plans, and a heavy reliance on employer provided benefits. Taken together, public programs providing health care, child-­care support, job training, disability benefits, and dif­fer­ent forms of compensation and subsidies for working ­people are notably less generous in the United States than in many other rich countries. In 2014, the United States spent well ­under 20 ­percent of gross domestic product (GDP) on public programs, below the OECD average and far below the French high of 32 ­percent (OECD 8



Capitalist Crisis and Pension Insecurity

9

2014). However, the United States’ much heavier use of private, employer-­ provided social programs is the largest in the world. Whereas public programs tend to be less generous, a large share of the duties carried out by governments elsewhere is put in the hands of American employers. Where one works becomes critically impor­tant for personal and ­family concerns that extend far beyond the size of one’s monthly check. For many, place of employment determines access to health insurance, dental insurance, eye care, child care, and most importantly for this book, a pension. In 2012, expenditures on private social programs in the United States accounted for almost 11 ­percent of GDP, far above the OECD average of 2.6 ­percent (OECD 2014).1 Why the United States relies so heavi­ly on occupational health-­care schemes is uncomplicated; it is the only advanced cap­i­tal­ist country without a comprehensive public health-­care program that covers most of the population. However, this is also true of retirement security, an area where the United States does have a large and universal public program, Social Security. In the United States, 45.1 ­percent of retirement income is derived from private pensions, well above the OECD average of 19.5 ­percent (OECD 2009b). And although Social Security is a massive program—it is the largest income-­maintenance program in the United States—it is relatively small compared to the public pension programs in many other advanced cap­i­tal­ist countries. The portion of one’s gross pre-­retirement earnings that are covered in retirement by the program, which is termed the replacement rate, is 42.3 ­percent for the median wage earner. That is well below the OECD average of 60.6 ­percent from other state-­administered retirement programs. But occupational retirement plans do not operate beyond the scope of the state. Welfare state scholars show that employer-­provided social programs have been both supported by and interwoven with state policies. Provisions in the federal tax code that make contributions to programs such as health-­care plans and retirement plans tax deductible provide incentives for employers to adopt them (Howard 1997; Hacker 2002). At times, policymakers have made such changes to encourage employers to offer fringe benefits to their workers. And large-­scale expansions in the U.S. public welfare state during the New Deal period pushed some businesses to adopt social programs as a way of countering further expansions in public programs (Gottschalk 2000; Klein 2003). Far from reinforcing the illegitimate view that ­there is a static separation between state and market pro­ cesses (Block and Somers 2014; Krippner 2001), private policies are often part and parcel of state policies and can be said to be “embedded” in politics. Although they are interwoven, the distinction between public and private, as a source of social support, is not trivial or merely academic. Scholars show that where workers procure their benefits has deep implications for the distribution

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of social risks among a society’s members. Risk distribution in private benefits differs from public ones in four critical ways (Hacker 2002:34–40). First, they are more likely to be voluntary for employers. In many policy areas, employers who are not forced to provide additional benefits simply w ­ ill not offer them if they cannot clearly tie them to their bottom line. In the case of occupational pensions, although they are an impor­tant source of income to augment Social Security, less than half of the working population has one. Second, ­because they are provided through employment, they ­will be awarded in accordance to a firm’s ability to pay for them. This ties current and f­ uture benefits to the firm’s finances and, more broadly, to the winds of the markets that the firms do business in. Third, and related, they are not awarded in accordance with need. Instead, employer-­provided programs tend to be regressively distributed. When welfare states emphasize private benefit initiatives over public ones, better paid workers w ­ ill also get better benefits. This produces an unfair outcome. In a system of private provisioning, ­those that need benefits the most get them the least. As Jacob S. Hacker (2002:36) has noted, when “approaches become more private in structure and more voluntary in operation, they tend also to become less able and likely to redistribute income and risk down the economic ladder.” Fi­nally, their very establishment precludes the possibility of a universal system or­ga­nized around the princi­ples of shared risk and egalitarianism at the heart of a more solidaristic approach. Once the private ele­ment of the welfare state is established, it locks in a system that generates unequal outcomes in retirement income. Public programs, by contrast, have a higher likelihood of, and indeed the real possibility of, distributing social risk on a more solidaristic and egalitarian basis. While the public/private distinction is impor­tant for understanding how welfare programs function, we ­ought not overemphasize its analytical purchase. Indeed, this study aims to expand upon it. Conceptualizing welfare regimes solely in public versus private terms poses impor­tant barriers for thinking about how social support can be or­ga­nized. Meaningful differences exist within both state-­ and employer-­administered social programs. This variation should be thought of, not as public or private, but rather more or less solidaristic or market-­oriented, as the classical theorists approached the welfare state generally (Marshall 1950; Titmuss 1966). As programs in cap­i­tal­ist socie­ties become more solidaristic, the costs of addressing social risks (such as illness, poverty, disability, and old age) are pooled across the population. In Peter Baldwin’s (1990:2) phrase, “the terms of misfortune’s reapportionment” do not rest on the shoulders of individuals or families, but instead are mutually agreed on at the level of policy and set by the standards of the day. As programs become more market-­oriented, however, individuals increasingly confront the economic uncertainty of life alone, their needs met or unmet by their own private dealings. A greater reliance is placed



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on their personal or ­familial ­savings or per­for­mance on the ­labor market. Of course, the most market-­oriented approach is to have no social programs whatsoever, leaving socie­ties members alone to fend for themselves on markets. But within both public and private approaches to welfare provisioning, ­there are deep differences along this dimension. For instance, some public programs are universal, available to the entire population, like access to a basic precollege education in the United States. As programs approach universality in access and equality in distribution, where risk is shouldered by all, they come to represent the most solidaristic approach to the risks ­people are exposed to in cap­i­tal­ist socie­ties. ­Here a beneficiary’s market per­ for­mance does not determine access to benefits like heath care, child care, and retirement income, it is simply deemed a right, and as a result their access and standard of living tends to be more stable (Esping-­Andersen 1990). Targeted or means-­tested public programs, by contrast, are available to certain individuals and families ­because they meet certain criteria, and as a result risk is more individualized. H ­ ere access to a benefit is conditional on one’s market per­for­mance. For instance, Temporary Assistance for Needy Families (TANF) is accessible by families or individuals with dependent c­ hildren, who earn below a certain income level, and only for a limited period of time. Although they receive aid, the recipients’ worry about both the amount of aid they receive and their continuing access to that aid is on their shoulders alone. In many means-­tested programs like TANF, recipients can face a so-­called benefits cliff where a small increase in income could lead to benefits losses that leave them financially worse off. Both access and distribution are in this instance determined by market outcomes. Like public programs, private nongovernment programs also can be more market oriented or more solidaristic. Employer-­provided welfare plans sometimes cover all employees and are constructed through a collective contract, typically bargained over by a u ­ nion. While ­these are less solidaristic than universal public programs ­because they are dependent on employment and an employer’s ability and willingness to pay, they still distribute risk across a large group of employees. Like an insurance model, when plan participants collectively confront market risks, such as the possibility that their employer w ­ ill go u ­ nder and be unable to provide their benefits, t­ here is a lower likelihood that any individual ­will lose their benefits. In the case of pension funds, in fact, sometimes risks can be spread across several generations. Alternatively, employer-­sponsored welfare plans can be made available and distributed on the basis of the par­tic­u­lar beneficiary’s per­for­mance, where an individual worker’s be­hav­ior determines access and distribution. For example, employer-­provided benefits may only be offered to select employees ­either ­because of an employee’s position in the firm or as a reward for how a worker performs on the job. In this model, t­here is increased risk that the

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­TABLE 2.1.  Degrees of marketization in hy­po­thet­i­cal social programs RISK SHARING

RISK INDIVIDUALIZED

PUBLICLY ADMINISTERED

Universal (most solidaristic)

Targeted

PRIVATELY ADMINISTERED

Collective Contractual

Beneficiary Per­for­mance (most market-­oriented)

employer might decide to revoke benefits. In the case of 401(k) retirement funds, how much savings individuals w ­ ill have at retirement depends on how well they invested their fund during their working life. Savings are not guaranteed or tied to final salary, and they are partially determined by the market at the time of retirement. T ­ able 2.1 offers a summary of the degree to which dif­fer­ent kinds of social programs can be marketized. The shading, from light to dark, indicates more market-­oriented arrangements while the arrows point to the pos­si­ble paths of marketization welfare systems can be transformed along. This approach, which draws a gradational distinction between solidaristic and market-­oriented institutions, is indebted to Esping-­Andersen’s concept of “decommodification.” For Esping-­Andersen (1990:37), the fundamental way in which welfare states differ is in the “degree to which individuals, or families, can uphold a socially acceptable standard of living in­de­pen­dently of market participation.” If living standards are determined more by market participation, then l­ abor is more commodified. And if they are determined less by market participation, then it is less commodified. Public, universal, and egalitarian welfare policies have the effect of “decommodifying” ­labor, by making workers less dependent on work. Though I build on Esping-­Andersen, my approach, which contrasts solidaristic versus market-­oriented forms of welfare provisioning, differs in a crucial way. In par­tic­u­lar, I am primarily concerned with how risk sharing or markets drive distributional outcomes. In other words, two individuals might participate in the ­labor market to the same degree and have access to an employer-­provided benefit, something that Esping-­Andersen would say is less decommodifying than universal flat-­rate programs. But this ignores the criteria that determine the distribution of ­those benefits. One of ­those programs can be or­ga­nized in such a way that its benefits are distributed through market pro­cesses (e.g., when benefits are derived from a fund that is invested in the stock market). Another might be or­ga­nized in such a



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way that benefits are guaranteed (e.g., ­because of employer responsibilities or state backing via public insurance). In ­these examples, we see that an additional critical way t­ hese programs differ is related to the degree to which market forces or shared risk drives the distributional outcomes of the program itself. In this vein, the story of the development of U.S. old-­age security cannot be told primarily as the making of e­ ither a public or private approach, or even as a public-­private mix as more recent scholars have considered it (Gottschalk 2000; Hacker 2002; Klein 2003). Instead, ­after the New Deal response to the ­Great Depression, which offered one route t­ oward a more solidaristic approach to old-­ age income provisioning (i.e., one built on shared risk and mutual support), old-­age security proceeded down several distinct paths of marketization that individualized risk and tied ­people’s retirement benefits and livelihoods to cap­i­tal­ ist market pro­cesses. This course was not a result of the U.S. public-­private welfare state being locked in place a­ fter World War II through path-­dependent pro­cesses, as Hacker (2002) and others argue. Nor, as Jennifer Klein (2003) argues in her excellent history of the U.S. public-­private approach to welfare and the role of insurance companies in it, was it a story of the federal government helping to set up a private insurance system then stepping back to let market forces dictate its subsequent development. The U.S. retirement system, as well as ­those of rich countries that are slowly beginning to follow it, does not simply have a public-­private welfare state, but has an approach to social provisioning that even within that mix has become more marketized and less solidaristic. In this book, I emphasize the changes within the private pension system itself. On this front alone, Americans, relative to their counter­parts in other advanced cap­i­tal­ist countries, have had their retirement income more greatly exposed to cap­i­tal­ist market pro­cesses and pressures, a feature that is by design. As I show, politics and politicians, responding to economic crises in capitalism, have played a vital and decisive role in e­ very step of its evolution. In short, the so-­called invisible hand of capitalism has slowly risen from its shallow New Deal grave and is once again a main distributional force governing the U.S. system of retirement income, putting dangerous risks onto the shoulders of the individuals that are subject to it. The size of the financial stockpile that one has to live off in retirement, in the long run, is typically a result of ­future retirees’ own market per­for­mance, their investment decisions about their savings, and the fluctuations of the market itself, something simply beyond their control. The burden of securing retirement income, in other words, is not shared but instead is increasingly faced alone. Some win and o ­ thers lose, and when they do lose, as happened in the 2008 crisis, only the paltry benefits from Social Security are ­there to lessen the staggering financial blow.

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It is not surprising, then, that in the United States se­niors are particularly poor off relative to ­those in other rich countries. By OECD mea­sure­ments, about 20 ­percent of se­niors between 66 and 75 years old are in poverty, while the proportion increases to 27.4 ­percent for ­those above 75. Consider a comparison with the United Kingdom. The percentage ­there is 8.5 and 12.6, respectively; while the broader OECD average is 11.7 and 16.1 ­percent, also respectively (OECD 2011). And the burden of an individualized and marketized system makes many Americans rightly uncertain or simply ignorant about their own financial ­futures. In a 2008 survey (Munnell 2009:12), just 18 ­percent of the respondents indicated that they ­were very confident that they had put aside enough for retirement, 28 ­percent had not saved anything for retirement, and 53 ­percent ­were totally unaware of how much they would need come time to leave the ­labor market. Moreover, such a shift t­ oward individualized market risk within the private sphere has not been counterbalanced with an increase in benefits or shared risk in the public sphere. Without major reforms, it is predicted that Social Security benefits ­will gradually decline in the coming de­cades. If left as is, Social Security replacement rates ­will shrink from 40 ­percent of the average worker’s wage (as it was in 2002) to around 30 ­percent in 2030 (Orenstein 2009). Cap­i­tal­ist markets make winners and losers. And so it goes with retirement income provisioning in the United States. Like the lottery, some win for their golden years while ­others lose. And for many, the result is a mystery, left in ­others’ hands and at the behest of abstract forces in distant financial markets. The precarious state of an approach to retirement security oriented around cap­i­tal­ist princi­ples makes answering this book’s main comparative historical questions all the more pressing. To reiterate them, why was the post–­New Deal retirement security system set up as a public-­private mix instead of a more solidaristic public one based on shared risk? Why, in the subsequent de­cades, did the private ele­ ment become both relatively larger and increasingly marketized, unlike the retirement systems in many other rich countries? And fi­nally, what does this story tell us about the character of welfare states more broadly?

The Argument in Shor t Before elaborating, I briefly preview the argument that I make throughout the rest of this book. A ­ fter the New Deal, the U.S. old-­age security system was augmented with institutions and practices situated in private markets by way of three transformative episodes. First, although private pensions date back to their first adoption in the late 1800s in the railroad industry, they ­were established on a widespread basis ­after World War II, when they ­were subject to collective



Capitalist Crisis and Pension Insecurity

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­ argaining between employers and u b ­ nions. Second, ­after a period of risk-­averse investing in bonds and government securities, pension fund assets w ­ ere reinvested into the riskier stock market by employer-­controlled boards of trustees. And third, since the late 1970s, riskier defined-­contribution plans, such as 401(k)s, have increased in number and largely replaced their traditional and more secure defined-­benefit counter­parts. This book explores how the cap­i­tal­ist context in which policies are made itself bears on this policy change. I explain each episode of change above by showing how policymakers intervened in industrial relations to contain and manage crises that they believed ­were unfolding or ­were immanent in U.S. capitalism. The changes in the pensioning system that ­these interventions spurred on ­were at times completely unintentional and at o ­ thers of only secondary importance to them. Policymakers ­were motivated, above all ­else, to facilitate cap­i­tal­ist accumulation, which was often only remotely related to the retirement system. In short, policymakers ­were responding to structural imperatives as they perceived them. But the form that their po­liti­cal interventions took and how ­those interventions actually reshaped old-­age security depended on historical contingencies borne by the balance of class power between firms and ­unions. The central point I make is that, at its very heart, the con­temporary market-­oriented system of retirement income provisioning is a result of politicians managing recurrent crises in American capitalism but ­doing so within the changing constraints of class forces. Taking ­these two ­factors together, I describe the pattern of change within old-­age security since the New Deal as one of structural contingency. In the following paragraphs, I summarize each historical episode for the purposes of a quick overview. The Spread of Employer Pensions. While many Eu­ro­pean countries consolidated their public old-­age security systems in the postwar period, the United States shifted decisively ­toward collectively bargained private pensions. ­After World War II, the largest strike wave in history to that point spread across the country. Unions had unsuccessfully initiated major po­liti­cal efforts to expand Social Security, namely in the failed Wagner-­Murray-­Dingell bill. But they also struck for collectively bargained benefits, some, such as the UAW’s Walter Reuther, to leverage employers to support Social Security expansions but ­others solely to satisfy their own members’ retirement needs. Union strike efforts played a large role in pushing employers to begrudgingly adopt pensions for their employees. But ­labor did not win private pensions through straightforward power bargaining with cap­i­ tal­ists, who ­were in a much stronger bargaining position ­after the war. Instead, Harry S. Truman and his administration saw the upsurge in strike activity and employers’ willingness to let equipment sit idle as a crisis in cap­i­tal­ist production, which undermined the state’s goal of expanding American capitalism and

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influence in the war-torn economies of Western Europe and Japan. Between 1945 and 1948, Truman’s administration intervened actively to resolve the industrial conflicts and get production in coal, steel, auto, and other major industries back online. Its main goal was ­labor peace. Yet, Truman did not intervene to weaken ­unions. Republicans and Southern Demo­crats in Congress argued that this was the best way to solve the crisis. Instead, his administration’s policies largely supported ­union demands for fringe benefits. His policy choices w ­ ere ­shaped by contingent historical conditions. A ­ fter the New Deal, or­ga­nized ­labor shifted its strategy ­toward electoral activity, making CIO u ­ nions an impor­tant component of Northern Demo­cratic po­liti­cal machines. The politics that resulted from u ­ nion electoral support of Northern Demo­cratic politicians explains why the Truman administration intervened to help establish a system of collectively bargained pensions. To support a key ally in the New Deal co­ali­tion and to halt the crisis in production that threatened to slow postwar growth, Northern Demo­crats intervened on behalf of u ­ nions in l­abor disputes. The Financialization of Pension Funds. By the mid-1970s, employee pension funds controlled nearly 25 ­percent of the equity in all U.S. corporations. Although beneficiaries legally owned the money (the majority of which w ­ ere ­union members), most ­unions with negotiated plans ­were unable to control or influence decisions about asset allocation, allowing employer-­appointed fiduciaries to direct the monies in ways that suited plan sponsors and mimicked financial industry practices. This had negative long-­term ramifications for ­unions, their members, and working ­people more broadly. Pension fund money was used to invest in antiunion firms and was increasingly invested overseas in areas with poor ­labor standards, all in pursuit of higher rates of return. Fundamentally, pension fund assets became increasingly tied to trends in speculative financial markets. ­These developments w ­ ere not simply the result of plan fiduciaries, pension fund man­ag­ers, benevolently pursuing the investments that w ­ ere most in the financial interest of beneficiaries. Instead, Republicans won control of both h ­ ouses of Congress in 1947 and, along with their Southern Demo­cratic allies, sought to ­counter what they perceived as a growing crisis of American capitalism, the power of u ­ nions. They intervened in the management of pension funds, not to protect retirement investing, but rather to ensure that or­ga­nized ­labor would not control them and turn them into what congressman Robert Taft called a “war chest” (quoted in Fogdall 2001:222). The provisions of their first effort, the Taft-­Hartley Act of 1947, turned ­labor’s retirement assets over to employers to invest. It was only in multiemployer pension plans, most common in the building and construction trades, that ­unions ­were able to get around the intent of Taft-­Hartley



Capitalist Crisis and Pension Insecurity

17

and exercise control over investment decisions. This is a contingent feature of the story that explains the dif­fer­ent investment patterns of ­these plans. But, the passage of the Employee Retirement Income Security Act (ERISA) in 1974 restricted ­union control in even ­these multiemployer sectors. Unions in the United States lacked the po­liti­cal and social power to reform ­these laws, leaving employer-­run pension boards able to mimic investment practices in other sectors of finance. Although ­there was a possibility in the run-up to Jimmy Car­ter’s failed election in 1980, a conservative co­ali­tion won by electing Ronald Reagan and defeating ­labor’s attempts at reform. The Rise of 401(k)s. Even more market-­oriented defined-­contribution plans, such as 401(k)s, ­were introduced between the 1980s and 1990s. In contrast to the notion that this growth was simply driven by po­liti­cal institutional changes, such as the piecemeal adoption of the neoliberal policy regime known as the “Washington consensus,” I argue that it was an unintended consequence of new ­legal regulations on the defined-­benefit system. By the second half of the 1970s, both Demo­cratic and Republican politicians ­were confronted by an inflation crisis. And by the end of the de­cade, policymakers on both sides of the aisle rallied around the goal of inflation-­less growth. They drew on the theory that the principal cause of the decline in the dollar’s purchasing power was wage gains driven up by u ­ nions and worked with the Federal Reserve to discipline ­labor and halt wage growth in ­unionized industries and sectors. Once elected, Reagan’s administration continued the policy of reducing inflation by weakening u ­ nions begun at the tail end of Carter’s term. Despite Reagan’s small-­state rhe­toric, part and parcel of his administration’s approach to lowering inflation was strengthening regulations on pensions to undermine the ­unions with control over them. Unions like the Teamsters, with relatively well-­ paid members, ­were targeted by the administration’s new rules. A battery of new regulations ­were passed between 1974 and the late 1980s. Ostensibly, ­these regulations ­were passed to make the DB pension system more secure. Instead, the legislation pushed businesses to adopt much riskier DC plans as an alternative. The legislation worked in such a counterintuitive way ­because of two contingent f­ actors related to changes in the balance of class forces in U.S. society: (1) regulation increased costs for businesses, especially smaller ones where ­unions ­were weak, at the same time that shifts in the economy led to a growth of employment in the ser­v ice sector and a decline in manufacturing where u ­ nions ­were historically stronger; and (2) u ­ nions ­were unable or unwilling to u ­ nionize the ser­v ice sector, with the result that new businesses in that area ­were not compelled to negotiate DB plans. In such a context, regulatory costs pushed many firms to adopt DC pensions for their employees if they ­adopted any plans at all.

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In each episode, policymakers have striven to promote cap­i­tal­ist growth. Pension marketization was the inadvertent result of their interventions for accumulation.

Capitalism and the Welfare State Understanding the ­causes of ­these historical shifts in the evolution of the private pension system in the United States speaks to the theoretical issues that are at the core of the po­liti­cal economy of welfare states. Specifically, which social forces drive forward institutional changes in the policies that govern social re­distribution in cap­i­tal­ist socie­ties? For several de­cades, a large portion of the lit­er­a­ture has conducted a debate over which agents and institutions are more impor­tant than ­others in spurring on expansion or retrenchment. The list of possibilities is long; a thorough review of the lit­er­a­ture itself would be book length. Are special ­interest groups more impor­tant than voters? Are ­unions the primary force ­behind welfare state expansion, and businesses the force ­behind retrenchment? Or can businesses themselves be a force for expanded welfare policies? Do state actors have autonomy from broad social forces? And are state policies and po­liti­cal institutions themselves imbued with in­de­pen­dent causal properties? Before articulating my own explanation, I offer a brief review of the scholarship on welfare state change in the following section, focusing in par­tic­u­lar on po­liti­cal institutionalism, power resource theory, and business-­centered accounts. My intention is not to suggest that ­these approaches are wholly wrong in foregrounding the kinds of causal pro­cesses and ­factors that they do. Indeed my own analy­sis has considerable overlap with each of them. Yet, while each approach contains its own strengths and insights, and certainly all have advanced our understanding of the welfare state, they also share a common limitation—­the tendency to analyze causal pro­cesses as ­either in­de­pen­dent from or abstracted away from the cap­i­tal­ist context in which they occur. In par­tic­u­lar, none consider the way that capitalism itself bears on policy change, which my analy­sis suggests is absolutely essential to understand it.

Po­liti­cal Institutionalism Po­liti­cal institutionalism is perhaps the most practiced of the approaches to understanding welfare state change. Once called the state-­centered approach, it was pioneered by Theda Skocpol and colleagues (1979, 1992; Skocpol and Amenta 1986). Po­liti­cal institutionalism is built on the view that the state, in and of itself, can be the force that shapes a country’s social policies. ­These scholars explore the way the enduring features of the constitutional system combine with properties of the state to shape politics (Sheingate 2014).



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Institutionalists emphasize three causal dimensions of the state: the autonomous decisions of state actors themselves, the or­ga­ni­za­tion and structure of state bodies, and the effects of policy legacies or policy feedbacks. For example, the timing of democ­ratization (Skocpol 1992), a nineteenth c­ entury patronage system (Orloff and Skocpol 1984; Amenta 1998:24), an uneven demo­cratic development (Amenta 1998), the constitutional rules of the game (Immergut 1992; Lipset and Marks 1999), and party control (Hooks and McQueen 2010; Huber and Stephens 2001) are all used within this framework to help explain the development of par­ tic­u­lar welfare provisions. In relation to the U.S. private welfare state, for instance, Frank R. Dobbin (1992) argues that institutional structures constrain the policy choices made by organ­izations and ­states by examining how public policy shifts changed the orga­nizational and po­liti­cal goals of salient interest groups and how ­these altered goals in turn stimulated the growth of fringe benefits. In his view, public policies such as the Wagner Act and Social Security Act, both of 1935, led to ­union and business support for private pension insurance, which in turn spurred the growth of fringe benefits. Similarly, po­liti­cal institutionalists emphasize the causal role of government bureaucrats such as actors on the Social Security Board in the case of the Social Security program. Martha Derthick (1979:7) famously argues that, “[Social Security] policy has been made by a relatively constricted and autonomous set of actors with a strong sense of proprietorship in the program.” It was ­these specialists, rather than social forces beyond the institutional purview of the state, who dominated the outcomes and development of pensions (65). Derthick, of course, offered a state-­centered argument on its strongest terms pos­si­ble; most of the recent institutionalist analyses offer the more qualified view that state institutions channel interest groups in decisive ways.2 For instance, Ann Shola Orloff (1993b) argues that in the United States, unlike in Britain and Canada, m ­ iddle-­class actors opposed reforms in the pension system b ­ ecause of the effects of a preexisting Civil War pension program and a decentralized poverty relief apparatus, an example of what institutionalists call “policy feedbacks.” In all contexts, however, she argues that the initiation of social provisions for the aged w ­ ere the work of cross-­class co­ali­tions of ­middle-­class, farmer, and working-­class actors led by po­liti­cal reformers. Similarly, Hacker (2002:90) argues that the most serious barriers to the expansion of Social Security a­ fter it was enacted w ­ ere constitutional and po­liti­cal: the weakness and fragmentation of national po­liti­cal power, the absence of programmatic parties backing reform, the preeminence of the states as the loci of social legislation, and the strength of the opponents of government re­distribution. Like other institutionalists (e.g., Pierson 2004), Hacker uses the concept of “path de­pen­dency” to explain his outcome. Although the Social Security Act itself has path-­dependent

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features for Hacker (such as its long-­lived commitments to pensioners), private provisions display similar trajectories. Hacker (2002:56) argues that the development of private pensions has been considerably colored by law, both “supported by and interwoven with government policies.”3 Are the institutionalists right? Yes, but only partially. A main contribution of po­liti­cal institutionalism is to pose questions and offer explanations at a lower level of abstraction than earlier approaches (see Hedström and Udehn 2009). Earlier welfare state theory tended to explore the broad relationship between industrialization (e.g., Wilensky 1965) and capitalism (e.g., O’Connor 1973; Gough 1979; Offe 1984) with welfare state development at a very high level of abstraction. Institutionalists (Hacker and Pierson 2002:282) have responded that “it depends,” ­because cap­i­tal­ist democracies take widely divergent institutional forms and historical contingency is more the rule than the exception. In part, this is a welcome shift in focus. But it throws the baby out with the bathwater, rendering the cap­i­tal­ist context in which policymaking and institutions are embedded largely invisible. In their scholarship, the institutionalists have said far too ­little about how policymaking itself is structured by constraints that obtain in all cap­i­tal­ist economies. Recently, leading institutionalists (Hacker and Pierson 2002; 2010) themselves acknowledge this limitation.

Power Resources Theory Alternatively, power resource theory (PRT) places class strug­gle and social conflict at the center of the study of the welfare state. Unlike po­liti­cal institutionalism, power resource scholars start with basic assumptions about the class character of cap­i­tal­ist socie­ties: unequal class structures facilitate the formation of groups with differing access to resources and competing interests with regard to social provisioning. Class mobilization of ­these resources then bears on the development of the welfare state (Stephens 1979; Korpi 1983; Esping-­Andersen 1988; Pontusson 1992). With Sweden often taken as the prototype, PRT argues (Shalev 1983; Korpi 1983) that strong ­labor movements aligned with social demo­cratic parties push the state to adopt and expand social spending programs. But po­liti­cally, votes are what count. Welfare provisions are won when social demo­cratic parties “subordinate class purity to the logic of majority politics” and move from being parties of the working class to parties of the ­people, broadly conceived (Esping-­Andersen 1988:8–32). A snapshot of Eu­ro­pean welfare states, as compared to the relative absence of social provisions in the United States, appears to support this view. High ­union mobilization resulting in leftist governments with electoral support has typically resulted in higher levels of welfare spending (Brady 2003) and



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“­ de-­commodifying” social programs (Esping-­Andersen 1988, 1990). According to PRT (Korpi and Shalev 1980; Hicks, Misra, and Ng 1995), once working-­ class organ­izations gain control of the state and wield po­liti­cal power, often through co­ali­tions, ­labor and social unrest become relatively unimportant to the formation of welfare state policies. PRT tends to reduce to a “balance-­of-­class-­forces” argument: when ­labor is strong, it wins social policy gains; when business is strong, it rolls them back (see Misra 2002). In the case of old-­age insurance in the United States, or­ga­nized ­labor’s preferences and capacities have never been so straightforward. In fact, it was only a­ fter Social Security was on the policy ­table that the major ­labor federations deci­ded to support it—it was not the result of or­ga­nized ­labor’s explicit and intentional initiative. Before the 1930s, ­labor had ­adopted a position of voluntarism, opting instead for union-­run pension schemes, many of which failed financially during the ­Great Depression (Rogin 1961; Beito 1999; Kaufman 2002; Klein 2003). Even ­after the passage of the SSA in 1935 and when ­labor’s numbers ­were growing by the end of World War II, the ­labor movement was one of the main forces pushing for joint-­run private pension schemes; and ­unions had largely given up on lobbying Congress for increases in Social Security ­after the expansions ­under Richard Nixon in the late 1960s and early 1970s (Quadagno 1988; Sass 1997).4 Furthermore, segments of U.S. business actually favored old-­age insurance and w ­ ere always organ­izing for the changes that drove marketization (Quadagno 1984:641; Domhoff 1987; Swenson 2004). But even more fundamentally, although PRT appears to have robust explanatory power in the Nordic countries, like po­liti­cal institutionalism it also fails to detail how policymakers are constrained by capitalism itself—­free from the relative orga­nizational influence of businesses and ­labor ­unions. Without a more sufficient elaboration of how the cap­i­tal­ist context imposes structural constrains on policymakers, the ­factors emphasized by PRT alone only offer a partial explanation for the long term development of old-­age security in the United States. While the balance of class forces are a critically impor­tant ­factor, as this study shows repeatedly, the analytical lens that we use to understand pension marketization cannot be limited to the orga­nizational power of business and ­unions alone. In each case I find that the action on the part of policymakers that triggered ­these shifts was driven by the cap­i­tal­ist context itself, not par­tic­u­lar class forces within it. As with institutionalism, I draw from PRT with the intent of g­ oing beyond it as ­well.

Employer-­Centered Approaches Recent employer-­centered accounts shift the causal emphasis to firms. T ­ hese scholars ask: When ­will firms be in opposition to social policies, and when ­will

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they support them? When w ­ ill they prefer private, firm-­level policies? Peter Swenson (1991, 1997, 2002, 2004), for instance, building on the historical insights of Gabriel Kolko (1977), argues that welfare provisions often serve impor­ tant regulatory functions that are associated with the interests of certain sectors of business. That is, social policies often regulate competition among cap­i­tal­ists in ways that protect the profits of a po­liti­cally significant portion of them. Colin Gordon (1991, 1994) and G. William Domhoff and Michael J. Webber (2011) make comparable arguments when explaining impor­tant New Deal legislation in the 1930s. Similarly, several studies (Culpepper 2002; Martin and Swank 2012) have shown how interfirm coordination shapes the interests and preferences of businesses with regard to social policies.5 Alternatively, analysts in the influential va­ri­et­ ies-­of-­capitalism (VoC) lit­er­at­ ure (Hall and Soskice 2001; Iversen and Soskice 2001; Mares 2003a) regard worker investment in the skills (­human capital) relevant for firm production as of highest importance for determining employers’ preferences regarding welfare policies. According to this approach, social insurance is an inducement to working ­people to invest in job-­specific skills that are subject to greater risks related to market fluctuations. When firms are at a greater risk of losing needed skilled ­labor, ­there is an increased benefit in redistributing risk (Iversen and Stephens 2008; Mares 2003a:32). Like Swenson, VoC scholars aim to identify the ­factors affecting the cost-­benefit calculations made by dif­fer­ent firms when faced with the introduction of a new social policy. ­Here, the impor­tant dimensions of the welfare state are employment protection, unemployment protection, and wage protection. From the employers’ perspective, ­these are all intended to make workers more willing to invest in firm-­and industry-­specific skills that increase their dependence on employers and their vulnerability to market fluctuations. Workers ­will only make such risky investments when they have some assurance that their job or income is secure. In short, social protection aids the market by helping economic actors overcome market failures in skill formation (Estevez-­ Abe, Iversen, and Soskice 2001). The employer-­centered lit­er­a­ture rightly views as problematic PRT’s notion that capital and l­abor are locked into a zero-­sum conflict concerning the presence or absence of social policies—­both may press for some form of social program, depending on the circumstances, just as both may resist them. However, the employer-­centered approach, and especially its VoC variant, runs into three prob­ lems. First, unlike PRT, it ignores power. Although it is true that sometimes capital and ­labor ­will share an interest in a par­tic­u­lar institution, they ­will very often have dif­fer­ent aims in regard to what form that institution should take. For example, deeper empirical work (Nijhuis 2009; Emmenegger and Marx 2011; Paster 2012) has recently shown that business support for social protection is often driven more



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by cap­i­tal­ist fear of social unrest and an unstable social and po­liti­cal order than it is by a need to incentivize skill investments. Second, the VoC approach lacks the concepts necessary to explain institutional change over time (Schmidt 2002; Deeg and Jackson 2007). For instance, Hall and Soskice’s (2001) ideal-­typical characterization of coordinated-­and liberal-­market economies suggests a tight coupling between the function of an institutional system and the kinds of social policies that ­will be generated within it. Unfortunately, ­these static models cannot tell us why or how pensions transformed in the United States so drastically since the New Deal period. Fi­nally, although VoC scholars emphasize that employers are the chief agents within cap­i­tal­ist social relations and in turn want to focus on their preferences, they do not actually focus on how cap­i­tal­ist social relations themselves constrain policymaking. This is a principal task of this book. I now explore some of the ways capitalism has been foregrounded in previous work on the welfare state and show that the distinct analytic strategies available to researchers that explore the cap­i­tal­ist context carry both strengths and limitations.

Crisis Management and the Welfare State Each of the strands of research just described implicitly dismisses or deemphasizes a core proposition of the crisis management theories of the welfare state developed in the early 1970s—­that the welfare state, at its most basic level, is a po­liti­cal response to crises in the cap­i­tal­ist economy. This notion was articulated most forcefully by Frances Fox Piven and Richard Cloward’s (1971) Regulating the Poor, James O’Connor’s (1973) The Fiscal Crisis of the State, and Claus Offe’s (1984) Contradictions of the Welfare State.6 Though each work articulates this argument in its own way, they share the view that the cap­i­tal­ist context fundamentally structures policymaking. This point has been nearly lost in the con­ temporary debates about the welfare state. The crisis management approach argues that the state is compelled to mediate crises in capitalism in order both to create and to maintain conditions for cap­i­tal­ist accumulation, emphasizing the ways that social policies made ­labor markets more workable for cap­i­tal­ist firms. For both O’Connor and Offe the fundamental crisis in con­temporary capitalism is not one of production, as under­ consumption theory or Karl Marx’s (1977, vol. 3) falling rate of profit in Capital presaged, but rather legitimation.7 In the late 1960s and early 1970s, ­these theorists calculated that the primary way in which cap­i­tal­ist relations w ­ ere breaking down ­were social and po­liti­cal rather than technical and economic.8 In par­tic­u­ lar, they ­were concerned with how, as capitalism developed, accumulation “created its own gravediggers” making fortunes for some and disorder and precarity for ­others.9

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In advanced cap­i­tal­ist democracies, this structural constraint is the source of a fundamental contradiction between capitalism and democracy. For both O’Connor and Offe, the cap­i­tal­ist state is tasked with the impossible burden of fulfilling two functions that are often at odds with one another. First, states need to spur on and facilitate cap­i­tal­ist accumulation; that is, economic growth, productivity gains, and growing corporate profits. Second, they need to be seen as legitimate in the eyes of the electorate, as mea­sured through the approval of their governing decisions by voters.10 According to O’Connor (1973:6), “This means that the state must try to maintain or create the conditions in which profitable capital accumulation is pos­si­ble. However, the state also must try to maintain or create the conditions for social harmony. A cap­i­tal­ist state that openly uses its coercive forces to help one class accumulate at the expense of the other classes loses its legitimacy and hence undermines the basis of its loyalty and support.”11 Their view contrasts sharply with more pluralist understandings of politics, views that are often implicit in the lit­er­a­ture on welfare states. As O’Connor (1973:67) writes, “Interest-­group politics is inconsistent with the survival and expansion of capitalism.” For O’Connor, the interest group model of policymaking explicit in pluralism would lead to contradictory policies and make planning and guiding the cap­i­tal­ist economy as a w ­ hole impossible for the state. Instead, ­there needs to be a systematic bias in f­avor of accumulation, and therefore, the cap­i­tal­ist state needs to be run by “class-­conscious politicians” with long time horizons regarding the management of the economy. Policymakers, for O’Connor, have to “remain in­de­pen­dent” while also interpreting “class (as opposed to par­tic­u­lar economic) corporate interests and translate ­those interests into action” (68). Enacting welfare programs was one par­tic­u­lar way that policy­ makers did this. For the crisis theorists, creating agencies and programs for the poor functioned to “control the surplus population po­liti­cally” and to obvert the “tendency ­toward” legitimation crisis (69). Offe also identifies the more specifically economic function of welfare, the need to incorporate displaced ­labor into the ­labor pool. ­Here, he builds on Marx’s (1977) insights concerning primitive accumulation and the idea that the “rising bourgeoisie needs the power of the state” to “keep the worker at his normal level of dependence” (899–900). Offe (1984:92) writes that “social policy is the state’s manner of effecting lasting transformation of non-­wage labourers into wage-­ labourers.  .  .  . ​The pro­cess of cap­i­tal­ist industrialization is accompanied—­and by no means only at its historical origins, when the phenomena is especially evident—by the disor­ga­ni­za­tion and mobilization of ­labour power.”12 He goes on to say that “understood this way, social policy is not some sort of state ‘reaction’ to the ‘prob­lem’ of the working class. The most decisive function of social policy is its regulation of the pro­cess of proletarianization” (98). In addition to



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po­liti­cal unrest, cap­i­tal­ist states are compelled to incorporate ­labor into the supply side of the market, mitigate risks that are not subsumed in the wage-­labor relationship, and govern the l­abor market, regulating supply and demand. Focusing specifically on welfare relief for the poor in the United States, Piven and Cloward (1971) came to a similar conclusion. Starting from the premise that “change and fluctuation” in the level of employment opportunities are “chronic features of capitalism,” driven by depressions, migrations of large populations, or changes in the structure of the economy itself, they argue that the economic dislocation endured by ­people at the bottom of the ­labor market alongside the weakening of social control during downturns in the economy is a driver of civil disorder—­crime, riots, and protests, and shifts in voter preferences (5–10). Relief deals with the disorder of the poor by granting help on the condition that ­people on the rolls seek work (22). In periods when the disorder has subsided and the economy swings back up, social policies are contracted, ejecting the recipients needed to refill the ­labor market. But the relief system is rarely rolled back entirely. For Piven and Cloward, it endures ­because it serves a broader social control function. Associating welfare recipients with the stigma of being a recipient, welfare relief makes pariahs of ­those unable to fend for themselves on the ­labor market alone (34).

Reformulating the Crisis Management Approach Crisis management theorists offer two insights into policymaking and the welfare state that I draw on to understand the development of pensions in the Unites States. They foreground the cap­i­tal­ist context in which many policymakers act and are in turn constrained. Yet, left on their own they offer only an incomplete view. The crisis management theories that emerged in the 1970s need to be modified. First I identify their central propositions, then I offer three provisos.

Two Propositions The first proposition of t­ hese scholars is that the cap­i­tal­ist context structures the decisions made by policymakers. The cap­i­tal­ist context is not a mere backdrop to politics. Instead, it imposes constraints on policymakers, pushing them away from certain policy paths and ushering them down o ­ thers.13 This view contrasts sharply with the more common views of policymaking by suggesting that politics of social policy change is neither the straightforward result of partisan politics (e.g., Demo­crats or Republicans gaining or losing control of key policymaking

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positions) nor interest group politics (e.g., ­unions, businesses, or other interest groups better organ­izing around their preferences). Capitalism itself shapes policy. The second proposition, and the most fundamental and controversial, is that a driving force b ­ ehind social policy changes are po­liti­cal interventions that are intended, on the part of policymakers themselves, to manage cap­i­tal­ist accumulation and encourage cap­i­tal­ist economic growth.14 Only in the most exceptional cases are policymakers motivated by the benevolent goal of helping the less fortunate. Instead, politicians repeatedly intervene for capitalism b ­ ecause of the structural constraints they confront when they govern.

Three Provisos ­ hese theories help make sense of the prob­lem of pension marketization. HowT ever, in reviving the approach, we must be sure not to stumble into the same pitfalls confronted by earlier scholars that attempted to navigate this path. T ­ here are three par­tic­u­lar limitations that t­hese theories of welfare state development carry if left entirely on their own terms. Reformulating the theory requires that we address ­these three impor­tant limitations: (1) the high a level of abstraction on which they are articulated, (2) their functionalist form of argument, and (3) their state-­policy centrism. First, crisis management theories are developed at too high a level of abstraction to account for the contingent constellation of interests that drove po­liti­cal actors to intervene in the U.S. retirement system in the multiple ways that they did since the New Deal. ­These approaches offer covering laws, akin to the industrialization theories that they ­were in conversation with (e.g., Kerr et al. 1964; Wilensky 1965), which ­were concerned with the broad relationship between economic growth and welfare development. Offe (1984:101), for instance, suggests that t­ here are “laws of motion” of the development of social policy like the economic laws that Marx sought to uncover in the cap­i­tal­ist economy. But welfare state development in the case of U.S. pensions is hardly so straightforward. Marketization was not simply a one directional response to cap­i­tal­ist crises. Institutionalists (e.g., Skocpol 1980) have been rightly critical of such an approach, arguing that ­there is no clear equation that can explain welfare expansion or retrenchment. While the history of pensions support the argument that policymakers need to encourage cap­i­tal­ist accumulation through active intervention, it also suggests that more contingent circumstances explain why policymakers intervene in the par­tic­u­lar ways they do and how ­those interventions bear on the welfare state. To explore this I devise an analytic strategy to think about how welfare state change is both driven by structural forces and constrained by historical contingencies.



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Second, and related, crisis management scholars tend to make functionalist arguments about welfare change, too tightly coupling the effect of a policy in dealing with systemic “needs” of capitalism with the reason why it was ­adopted in the first place.15 But social systems do not have needs. Only the ­people in ­those systems do. Instead of investigating the actors involved, this analytical approach explains the dynamics of welfare development in terms of the functional requirements of reproducing the system of capitalism itself.16 We can see this logic in the language of crisis theorists. As O’Connor (1973:151, 158) writes, capitalism is a “self-­correcting system” and “[p]overty and government relief are . . . ​inherent features of cap­i­tal­ist development.”17 But pension marketization often served no functional “need” for capitalism itself. If it did, in most cases it was not even recognized as such by the policy­makers who spurred it on. But the crisis management approach would have too l­ittle to say about this b ­ ecause, empirically speaking, the intentions of policymakers in this approach are often insufficiently taken into account. As I show, changes in the U.S. retirement security system ­were often not the primary reason for the po­liti­cal interventions that caused them, and in some instances the change was unintended altogether. Contrary to a neat functionalist view of the welfare state, pensions w ­ ere often far from the minds of policymakers when they intervened and ­were hardly considered by them essential to the growth of the U.S. economy. A non-­functionalist account gives greater consideration to the intentions of policymakers, leaving more room for the possibility that welfare change may be the inadvertent outcome of po­liti­cal action that is intended for other purposes. Third, crisis management theories of the welfare state have very ­little to say about employer-­provided programs. Indeed, it is hard to imagine how they would clearly fit into their theories at all. Earlier in this chapter, I described how welfare state scholars have come to see the public and private dimensions of the welfare state as tightly linked. Institutionalists in par­tic­u­lar have shown that private plans are often entwined with state policies and rarely operate beyond the scope of the state’s regulatory limits. While employer-­provided programs are a critical component of the broader welfare state, they ­were largely ignored by crisis management theorists b ­ ecause welfare change itself was understood as a functional po­liti­cal response to cap­i­tal­ist crises. But in the United States employer-­ sponsored, private social welfare programs are typically a­ dopted on a semi voluntary basis on the part of businesses and in an indirect relationship with state legislation. Exploring occupational programs allows this book to begin to conceptualize the ways that po­liti­cal interventions to assuage crises and facilitate accumulation can have inadvertent effects on the private welfare state—­the

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programs available through work. The exclusive focus on public programs leaves a large empirical gap in ­these studies, which this book helps to fill.

Structural Contingency This exploration of the theory raises a final question about states and the cap­i­tal­ ist context: Why are states in cap­i­tal­ist socie­ties beholden to the needs of capitalism itself? Two features of cap­i­tal­ist politics are relevant h ­ ere. First, the business class may have instrumental power in policymaking and directly shape policy though their lobbyists, their recruitment into policymaking positions, their campaign contributions, their employer’s associations that defend their interests, and their privileged access to policymakers (Mills 1956; Domhoff 1967; Miliband 1969; Clawson, Neustadtl, and Weller 1998).18 Although this perspective has proven to be quite power­ful in explaining a w ­ hole host of policy developments, in the case of pension marketization, I do not find that policymakers are simply working at the behest of individual businesses or sectors. Instead, policymakers, who lucidly express their own motivations on the Congress floor and in personal correspondences, w ­ ere compelled to intervene on behalf of capitalism broadly, if not for par­tic­u­lar cap­i­tal­ists or sectors of their class. To explain this, a second view which emphasizes the structural power of ­capitalism in policymaking is more useful. T ­ here is a one-­directional de­pen­dency between policymakers and businesses, such that policymakers themselves ­will be oriented ­toward procapitalist policies even without the direct influence of par­ tic­u­lar businesses on them.19 The structural thesis argues that regardless of the partisanship or ideological commitments of the governing party or co­ali­tion, ­there is a predisposition to adopt policies that encourage firm investment into the economy (Poulantzas 1969, 1978; Lindblom 1977; Block 1977). Policymakers govern to promote a healthy “investment climate” and strong “business confidence” ­because of the direct costs they face if businesses decide to disinvest in their operations or the region (Block 1977:16; Przeworski and Wallerstein 1988; Swank 1992).20 The power of firms to disinvest when policy threatens to undermine their profits imposes a structural mandate on the state to create and maintain conditions for accumulation (Offe 1975:126).21 If policymakers enact legislation that is too broadly oriented against the profit interests of firms, or they contribute to broader economic conditions that significantly undermine “business confidence,” capitalism’s structural power can take the form of “capital strikes,” a collective action of capital to disinvest, or simply un­co­or­di­nated disinvestment (Kalecki 1943; Block 1977; Bowles and Gintis 1986).22 This power can e­ ither be mobilized automatically or strategically by individual businesses (Culpepper and Reinke 2014).



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Why are politicians so concerned with preventing disinvestment? Cap­i­tal­ist disinvestment is part and parcel of economic downturns and a regular feature of shorter run business cycles—so it is something that policymakers often confront. But ­there are two ave­nues through which this disinvestment fashions an orientation that f­ avors cap­i­tal­ist growth. First, policymakers and states more broadly are heavi­ly dependent on firms for state revenues. In the case that the economy takes a turn for the worst, states ­will be forced to draw out less tax revenue from firms’ profits and workers’ income. This undermines the state’s capacity to govern and pursue policy agendas. Second, if cap­i­tal­ists disinvest and the economy goes into a downturn, p ­ eople ­will lose their jobs. As O’Connor (1973) and Offe (1984) point out, policymakers are dependent on voters for legitimacy. However, the likely outcome ­will be for ­those without work to be hardest hit by the downturn and thus to be the angriest at policymakers. During the next election cycle, this increases the likelihood that they w ­ ill vote them out of office in f­ avor of the candidate they think ­will better encourage job growth (Block 1977; Lindblom 1977). As Cohen and Rogers (1983) note in their book On Democracy, this structural dependence on firm investment means that every­one is dependent on the welfare of firms to make a profit, reinvest, and hire.23 Considering the development of pensions in the United States through the lens of policymakers’ structural dependence on capitalism takes us far in explaining policy change. However, as I suggested in the previous section, it leaves an impor­ tant dimension of the puzzle unaccounted for and raises some new questions. Predicting that policymakers w ­ ill tend to intervene for capitalism says far too l­ ittle about the ­actual form that ­those interventions ­will take in concrete policy terms. It only tells us that they ­will be motivated to support cap­i­tal­ist accumulation. Like the crises management theories discussed earlier, it is articulated at too high a level of abstraction to offer much insight into the par­tic­u­lar policy decisions that policy­ makers took at dif­fer­ent historical forks in the road. Surely, ­there is not always one clear policy option when it comes to maintaining and spurring on cap­i­tal­ist growth. Indeed, a crucial feature of po­liti­cal debate is that policymakers offer the public contrasting policies that ostensibly have this same aim. The analytical attention, therefore, needs to shift from policymakers’ relationship to capitalism broadly to their relationship with the contingent constellation of interests, or, to use an older phrase, the balance of class forces. It is ­here that we need to account in theory for the ­factors that go into shaping the way policymakers intervene and how t­ hose interventions drive welfare change in the precise ways that they do. What is constant, with the exception of only the rarest cases, is that policymakers ­w ill intervene to support accumulation. What is constantly changing, however, is how they do this. To account for both their motivations and how they intervene, I develop an argument about pension development that I term

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the structural contingency of welfare state change. It is “structural” in the sense that in each episode of change that I identify, policymakers ­were motivated by the broader goal of helping cap­i­tal­ist accumulation, and the specific mechanisms identified by scholars like Block (1977) and Lindblom (1977) go a long way in explaining why. However, it is also “contingent” b ­ ecause both the form that policy intervention takes and how the intervention itself drove marketization of pension plans was conditional on the balance of power between u ­ nions and firms in a number of institutions and settings that ­were not themselves determined in any way by policymakers’ structural imperative to govern for growth.24 “Balance of class forces” is a highly underspecified concept. But I use it precisely ­because it captures a very broad range of phenomena of a very par­tic­u­lar kind. Class strug­gle comes in an innumerable numbers of configurations, varying greatly across dif­fer­ent institutions, dif­fer­ent socie­ties, and dif­fer­ent times. And it is the form of class strug­gle in the moment that ­matters for how policymakers respond to more structural ­drivers. It acts as a selecting mechanism, pushing policymakers down policy routes that remain consistent with their broader goal of cap­i­tal­ist growth and locking in certain outcomes for the welfare state once they have chosen their path. Conceptually, I do not use the term “contingency” to suggest pure chance or randomness—­how retirement security was marketized is not due to an accident. Chance denotes a random outcome, which goes one way or the other, without rhyme or reason. This is not at all the case h ­ ere. Instead, I use “contingency” to suggest a historical uncertainty in how structural imperatives drive policymakers to manage capitalism. When structural crisis creates the imperative for policy intervention, many alternative pathways are available for policymakers. Contingent historical f­ actors incline policymakers to take certain policy paths, but t­ hose ­factors are only made relevant ­because of the structural force driving them to search for ways to intervene at the outset. Structure sets policymakers on a path to intervene, the contingencies of class strug­gle in the moment explains the specifics of how. How policymakers act and how their actions bear on welfare state change can not be reduced to the ­thing motivating them to act in the first place. Simply put, the historical rec­ord needs to let the facts of strug­gle on the ground speak for themselves during critical junctures where policymakers are trying to decide how to intervene for capitalism.25 In this book, contingent c­ auses are mechanisms that mediate between structure and outcome. The conceptual work is now done, and we are ready to uncover the a­ ctual history of pension marketization in the United States. In the following section, I summarize the broad empirical arguments of the book, illustrating how they support the theoretical framework I just laid out. ­There ­were three key episodes of market-­ oriented change that pushed the U.S. retirement system away from more



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s­ olidaristic alternatives. The first was the spread of private pensions a­ fter World War II instead of real expansions in the Social Security replacement rates. The second was the financialization of the pension funds. And the third was the erosion of the traditional defined-­benefit system and the emergence of defined-­ contribution plans, such as 401(k)s. My conceptual arguments pertain to each one of ­these episodes of marketization; thus they can be considered historical cases that are explic­itly compared throughout this study.

The Argument Elaborated I make three arguments about how, at each fork in the road, the pension system was changed and oriented t­ oward the market. T ­ hese arguments serve two functions in this book. First, taken together, they explain each of the episodes of change in the private pension system, such that the arguments hold true across all of my cases. Second, they also form the conceptual framework for thinking about the structural contingency of welfare state ­change.

State ­Regulated Marketization Argument In each episode, state intervention into and regulation of the U.S. system of industrial relations has been the most proximate cause of the shift of retirement income ­toward market forces. Somewhat counterintuitively, the marketization of pensions has been driven by a stronger hand of the state, not a weaker one as we might expect. In a system of retirement provisioning that is entirely voluntary, where firms are not compelled to offer their employees retirement benefits and many do not, it is tempting to foreground private actors and nonstate causal ­factors. And in the economics lit­er­a­ture on industrial relations, in par­tic­u­lar, many analysts of pensions do just this, pointing to technological change, demographic change, or the changing character of work itself as key ­drivers of the developments in the U.S. retirement system. They allow politics to fade into invisibility. But one cannot overemphasize the decisive role that the state played in guiding, even if inadvertently, the making of the retirement system. This role was per­sis­tent and continuous, not the result of one decision with lasting effects. This revises the standard historiography of pension development in at least one impor­tant way. According to the commonly held view, state intervention in the making of the U.S. private retirement system mattered early on but much less ­later once occupational plans w ­ ere in place. As the story goes, early policy interventions in the 1940s and 1950s laid the groundwork and locked the system into what Marie Gottschalk (2000:39) has called an “institutional straightjacket.”

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Although the government continued to play a role in the system once it was in place, private pensions remain deeply interwoven with public policy and s­ haped by regulation; the widespread view suggests that policy only guided changes already ­under way rather than decisively making new ones. In the most impor­tant social scientific account of the U.S. private welfare state, Hacker (2002) has used the language of path de­pen­dency to show how policy feedbacks created lock-in effects in the pro­cess of privatization. The occupational pension system installed ­after the New Deal created vested interests that, combined with the lower level of visibility than the policymaking regarding public programs, made them “highly resistant to change.” In turn, the “two-­track” public-­private retirement system “became increasingly embedded” in the U.S. approach to old-­age security (83). Similarly, in an impor­tant history of the public-­private welfare state, Klein (2003:7) argues that although the federal government was decisive in shaping ­labor-­management relations in the 1940s, in the 1950s policymakers withdrew, deferring to firms and insurance companies.26 I argue that while ­these generally accepted accounts have made ­great strides in advancing our understanding the public-­private mix in the U.S. retirement system, they have been much less effective in their explanation of changes within the private system. ­These arguments offer what Baldwin (1990:10) has called “welfare whiggery” in reverse. Early decisions too determinatively laid down the tracks for the steady and progressive privatization in the coming de­cades. If we attune ourselves more to changes within policy, we can see that the development was not simply a ­matter of public versus private. Although ­these distinctions ­matter, of equal relevance are critical episodes of marketization that occurred within the private system itself. Contrary to the view that politics mattered more earlier but less l­ater, I show that in each episode of change, policymakers played a critical role in not only managing the change but actually directing it. Consider the first episode of change, the spread of private pensions in the postwar period. Some collective bargaining had resulted in negotiated pensions during World War II. However, the bulk of plans w ­ ere won ­after the war. A decisive proximate cause of this shift was state action. Between 1945 and 1948, the Truman administration intervened repeatedly into industrial conflicts, typically over bargaining fringe benefits. In 1946, during a conflict between coal operators and the John Lewis–­led United Mine Workers, Truman seized the mines ­under the pretense of the Smith-­Connally Anti-­Strike Act of 1943, known more commonly as the War ­Labor Disputes Act (WLDA). His administration forced an agreement that included collective bargaining over pensions. With large-­scale strikes already ­under way in auto and steel, Truman’s presidentially appointed National ­Labor Relations Board then ­later ruled in the case of the Inland Steel Com­pany that, by refusing to bargain with the United Steel Workers over retirement policy or the



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terms of their employees’ pension plan, the com­pany was acting in unfair l­abor practice. Employers’ associations, such as the Chamber of Commerce and the National Association of Manufacturers, poured resources and energy into keeping fringe benefits, such as occupational pension plans, outside the scope of collective bargaining altogether. But once the U.S. Supreme Court put its stamp of approval on the NLRB ruling in 1948, even the most conservative and resistant employers’ group, the National Association of Manufacturers, conceded in 1949 that “mandatory bargaining is now a fact.”27 Once private pensions ­were established, pension plan designers, administrators, and fund fiduciaries faced a new set of questions. Of central importance was the financial question—­namely, how should pension fund monies be invested? Many options ­were on the ­table, both immediately following the war and in the period before the passage of the landmark legislation governing retirement plans, the Employee Retirement Income Security Act of 1974. Should u ­ nions have a say in how their members’ deferred wages ­were invested? If so, should they be invested in par­tic­u­lar companies, potentially ­those with good ­labor standards? Should they avoid certain industries, maybe ­because of the health risks associated with them, such as tobacco, or, as was debated l­ater, environmentally unsustainable business models? Should investments of workers’ funds be directed into working-­class communities, potentially for housing or other goods that might have a lower rate of return but also bring benefits? Should they be invested in ­union proj­ects to help support u ­ nionized firms and their employees? While ­there ­were many roads available, in theory, the one taken was ­toward the market. Plan administrators financialized the assets and by the 1970s pension funds controlled nearly 25 ­percent of all U.S. corporate equity. Only pursuing returns, and even then not always that well, employer-­controlled boards of trustees forced other “social” options off the ­table and invested pension monies in ways that directly mimicked investment practices on Wall Street. Again, government intervention is the most proximate cause explaining the financialization of workers’ retirement funds. In the midst of l­abor agitation over pension plans, once Republicans won both ­houses of Congress in 1947, they and their Southern allies in the Demo­cratic Party passed the Taft-­Hartley Act over Truman’s veto. The Taft-­Hartley Act, which revised the National ­Labor Relations Act, famously placed restrictions on u ­ nions and u ­ nion organizers in the United States. T ­ oday it still remains the guiding ­labor law. A key provision of that legislation, though one that is rarely discussed by l­ abor scholars, drastically weakened the capacity of u ­ nions to decide how u ­ nion funds w ­ ere invested. For many u ­ nions, this effectively cut off the possibility of shaping investment choices, which some w ­ ere indeed intent on d ­ oing. Next, the passage of ERISA in 1974 further regulated pension-­fund investment decisions, tying fund fiduciary prudence to common

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i­nvestment practices on Wall Street while reducing the already-­small institutional leverage that ­unions with multiemployer plans had to shape investment decisions. Fi­nally, by the 1980s, a new type of retirement plan had emerged and soon came to overtake traditional defined-­benefit pension plans as the plan of choice for employers: defined-­contribution plans, or 401(k)s. ­These too ­were spurred on by policymaker interventions. ­After the passage of ERISA, policymakers went on a fifteen-­year regulation spree, revising it and amending it.28 The new rules typically made ERISA’s provisions more restrictive. One might expect that u ­ nder the Reagan administration, known for its out­spoken embrace of small government, this regulatory trend would have subsided. Indeed, Reagan had campaigned openly on repealing ERISA. But, in fact, the opposite occurred. Even more regulations ­were imposed on the pension system ­under Reagan’s watch and often with his administration’s active encouragement. In the context of a voluntary system, the increased costs for businesses of new regulations largely worked against their stated purpose of making DB pension plans more secure. Instead, they drove new businesses out of the DB system and into DC plans, which ­were cheaper to operate, entailed fewer risks for employers, and put the onus on beneficiaries to invest wisely. Therefore, the comparison of each episode of marketization yields the first finding of this book—­marketization was triggered by policymakers. But by itself, this finding would be a wholly inadequate and merely a descriptive argument ­because it begs for an additional line of inquiry. In par­tic­u­lar, what was the motivation driving policymakers to intervene in the private affairs of firms in the first place? The standard f­ree-­market approach suggests that the kinds of programs and provisions that firms voluntarily provide for their employees should be left to their own discretion. ­Were policymakers increasingly seduced by this neoliberal market fundamentalism? W ­ ere they motivated to help f­ uture retirees b ­ ecause they thought that privatization best suited their personal needs? Or, alternatively, ­were ­there other ­factors that drove them to regulate and intervene? As I argued before, t­ here ­were structural c­ auses for policymaker interventions emanating from conjunctural prob­lems in cap­i­tal­ist accumulation itself. The next argument explores this issue.

Managing Capitalism Argument Policymakers did not intervene in industrial relations ­because of their party affiliation, po­liti­cal ideology, interest group influence over them, or a desire to create a private retirement system for the betterment of workers, but instead to manage perceived crises in U.S. capitalism and to facilitate smooth cap­i­tal­ist accumulation. Pension marketization was often of only secondary interest and sometimes



Capitalist Crisis and Pension Insecurity

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entirely inadvertent. A structural ­factor, the need to manage capitalism, explains policymakers’ motivation to intervene in the system of industrial relations. I find that this feature is consistent across each episode of pension marketization. In the case of establishing the private pension system a­ fter the war, the Truman administration’s motivations ­were unambiguous. ­After World War II, the largest strike wave in U.S. history to that point spread through industrial sectors such as mining, auto, textiles, and steel. And coming out of the war Truman’s administration had a primary goal, to maintain the ­labor peace and stability in production won during the war, what policymakers termed “reconversion” at the time. His first attempt at achieving this goal was the President’s ­Labor-­Management Conference, convened immediately ­after war­time controls and institutions such as the War Production Board and the National War ­Labor Board ­were dissolved. Once fascism was defeated abroad, l­abor’s controversial “no-­strike pledge” was also lifted. Despite early administration efforts at a rapprochement between ­unions and firms, the ­Labor-­Management Conference ended in abject failure. What followed was a wave of industrial unrest that policymakers feared threatened the entire economy and undermined the state’s ambition to develop American capitalism abroad. Truman intervened and pushed his agencies to do so, explic­ itly, to promote postwar cap­i­tal­ist accumulation uninterrupted by industrial conflicts between ­labor and firms. Considering the case of pension fund financialization, we see that both of the policy interventions ­were, to a large extent, spurred on by policymakers keen to bolster cap­i­tal­ist accumulation. Consider first the Taft-­Hartley Act. In congressional testimony, policymakers, including the act’s very authors, made it explicit that the best way to secure postwar growth and industrial peace was to weaken ­unions and roll back the gains that had been written into the Wagner Act. Somewhat ironically, the Demo­crats who ­were opposed to Taft-­Hartley framed the issue around the same objective—­they thought it would lead to more l­abor unrest, not less. As to the provisions that ­were added to limit ­labor control of funds, conservative policymakers believed that allowing u ­ nions to control their pension funds would make them far too power­ful a force. Congressmen argued that pension funds would become war chests for l­abor leaders and that they had the potential to make ­unions so strong that the U.S. government would no longer be able to contain them. Conservatives sought to weaken ­union control over this new financial power. Policymaker motivations for the passage of ERISA in 1974 are much more complicated to gauge, given that the legislation has a dense history that dates far back to the 1950s. T ­ here ­were many cooks in the kitchen. But this book complicates the accepted view about its passage. Many (e.g., Sass 1997) suggest that the collapse of Studebaker in 1963 was the primary cause of the legislation. In fact,

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the premiere historian of ERISA (Wooten 2001:683) writes that “no single event is more closely associated with ERISA than the collapse of the Studebaker plant in South Bend, Indiana.” So the argument goes, when the plant closed and defaulted on its pension obligations to thousands of employees, public outcry made the cracks in the retirement system impossible to ignore for policymakers. Regulation had to be developed to protect ­future retirees from similar market risk. Although ­there is certainly some validity to this view, it is hardly the w ­ hole ­picture. ­After all, it was not ­until 1974, more than ten years ­after the Studebaker plant closed, that ERISA was passed. In terms of causation, this is certainly a long temporal lag. Many policymakers ­were concerned about protecting the soundness of the private pension system, but a more proximate cause explains the timing of the legislation. For the first three years of the Nixon presidency (1969– 1974), his administration completely ignored pension reform. Instead, a growing trade deficit had made a trade deal a much greater legislative priority. In hopes of getting l­ abor’s support for the controversial trade deal, which they ultimately did not offer, Nixon’s White House pushed the pension legislation. A young Henry Paulson Jr., then a member of the administration, said that pushing the pension law forward as part of the trade package was a “quid pro quo for ­labor.” Fi­nally, in the case of the rise of 401(k)s, policymakers ­were again motivated to intervene to manage crises in cap­i­tal­ist accumulation. By the second half of the 1970s, once the recession had subsided, a new economic prob­lem threatened the continued growth of American capitalism—­inflation. Even before the Reagan revolution, ­under the Car­ter administration, policymakers rallied around the goal of inflationless growth. With re­spect to both the domestic economy and foreign trade, they w ­ ere driven to strengthen the value of the dollar. Its potential collapse was viewed as a legitimate possibility, which would have embroiled the U.S. economy in financial chaos and revived the demand to remonetize gold. Theories about the c­ auses of inflation circulating in both the Federal Reserve and Congress pointed to wage growth as the primary cause, commonly associated with “cost-­push inflation.” According to the view, ­unions ­were pushing up wages through collective bargaining well above their reasonable market value. Guided by this view, ­under Car­ter’s watch in 1979, Paul Volcker became chair of the Federal Reserve and pushed the board to use its powers for one sole aim—to lower the level of inflation. With both Car­ter and Reagan in the White House, the Volcker-­led Fed induced several recessions, or “shocks,” to weaken ­labor ­unions and push employers to lower their wages. It did this by tightening the money supply, which in turn triggered increases in the interest rate. The commencement of the Reagan presidency, in January 1981, is widely accepted as being the beginning of a deep shift in economic policymaking in the United States. It marks the rhetorical rejection of active state involvement in the



Capitalist Crisis and Pension Insecurity

37

economy promoted by Keynesians and the embrace of ­free markets commonly associated with neoliberalism. But in many re­spects, including the ongoing way in which the private pension system was interwoven with government policy and regulations, this view is simply incorrect. Regarding federal outlays, government got bigger. With wage and price controls ideologically off the t­ able, Reagan did not roll back ERISA and pension regulation as he had suggested he would during his campaign. Instead, his administration pushed to expand the rules and more effectively and diligently enforce them through the Department of L ­ abor. Indeed, year ­after year during his Presidency, the rules ­were complicated and the scope of the state’s role in the private pensioning system expanded. In short, Republican policymakers w ­ ere motivated to pursue this approach b ­ ecause they wanted to discipline ­labor, which in their view was the best means to lower inflation and revive U.S. business power. Strengthening the rules provided an impor­tant means to weaken the capacity of strong ­unions, such as the Teamsters, who had used their pension funds to augment their bargaining strength with employers. In this critical re­spect, Reaganism did not represent a sharp break in policy terms with the previous administration. Instead, it had ramped up an agenda and orientation begun earlier. The managing capitalism argument, in pointing to the motivation of policymakers to intervene for capitalism broadly, raises a new and final set of questions that need to be accounted for. Why did policymakers intervene in the par­tic­u­lar ways that they did, and how did they actually drive marketization? Broadly, both Republican and Demo­cratic policymakers ­were always primarily oriented around the goal of managing cap­i­tal­ist accumulation. But concretely, what explains the par­tic­u­lar set of policies that they ­adopted to do that? ­Were the policies that won out simply the result of the partisanship of t­ hose in policymaking positions? W ­ ere they solely the result of the “needs” of capitalism at the moment? Or, w ­ ere they the result of business, ­labor, or some other interest group holding sway in the policymaking pro­cess? To t­hese last three questions, I answer no. Instead, both the form that state intervention took and the way that it spurred on marketization was contingent on the broader balance of class forces in the s­ ociety.

Class ­Forces ­as ­Mediator Argument Both the form that state intervention took and how the intervention itself drove marketization was contingent on the relative power of u ­ nions and firms, in a broad sense. E ­ very student of politics understands that policies are not formed in vacuo, and once they have been passed, the ways they bear on social outcomes are not always as planned. Instead, the f­actors that shape laws and rules in the policymaking pro­cess and the ways they actually drive change extend far beyond

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the par­tic­u­lar motivations that compelled policymakers to act in the first place. Both are heavi­ly conditioned by broader social circumstances. The third argument that I make in this book is that both the form that the po­liti­cal intervention took and the way that it spurred on marketization cannot simply be reduced to policymakers’ motivations to intervene for capitalism. Although the cap­i­tal­ist context compelled policymakers to act, the par­tic­u­lar way they acted was only partially determined by that structure. Instead, the balance of class forces at the moment, broadly conceived, acted as a mediator on the policy outcome, its implementation, and its effects. Structure demarcated a range of policy options, strug­gle selected from within that range. Considering the first case, why did Truman and other Northern Demo­crats intervene in ­labor management conflicts ­after the war to support the ­union demand for collectively bargained pensions? ­After all, if the goal was to restore ­labor peace, it might just as easily have been achieved by supporting employers, forcing ­unions to bargain simply over wages and keeping fringes off the ­table. Why Truman and other Northern Demo­crats intervened in the ways that they did and why ­those interventions actually spurred on the spread of private pensions was due to the growing electoral and orga­nizational strength of U.S. l­abor ­unions within the Demo­cratic Party. By the end of World War II, ­unions in both of the major ­labor federations, the American Federation of ­Labor and the Congress of Industrial Organ­izations, ­were pushing for expanded old-­age security. In ­doing so, they developed a two-­pronged strategy by advocating both for increases in the replacement rates established by Social Security and for the establishment of a collectively bargained pension system with employers. The u ­ nions, primarily t­ hose in the CIO, opened up multiple fronts of ­labor activism to achieve this end. First, as mentioned earlier, they engaged in l­abor disputes to get pensions on the collective bargaining agenda. Second, ­unions turned out members to the voting booth, in part to push their Demo­cratic allies in the North to expand Social Security. The CIO had become a crucial player in the New Deal co­ali­tion in the 1930s and remained heavi­ly active in Northern Demo­cratic politics and machines well ­after the war.29 ­Because ­labor was a growing force within the northern wing of the party, Northern Demo­crats, especially Truman using his presidential powers, intervened in ­labor disputes to help establish the collectively bargained system of employer pensions. Needing their votes and loyalty, Northern Demo­crats ­were willing to support ­unions in strikes, but many refused to pursue the goal of expanding Social Security replacement rates. The bill that ­labor had pushed for which would have done so, the Wagner-­Murray-­Dingell bill, languished in committees and was never even called to a vote. The strike wave alone, ­after World War II, was largely in­effec­tive at getting firms to concede to l­abor’s postwar ambitions. Returning



Capitalist Crisis and Pension Insecurity

39

soldiers and declining demand for war­time goods drastically undercut ­labor’s economic leverage over firms, so industrial class power was insufficient. But ­after the Supreme Court ruled that employers had to at least bargain over pensions, if not actually offer them, the growing orga­nizational strength of ­unions provided the class force at the workplace to push firms to comply. Similarly, the formation and effect of the two policies, the Taft-­Hartley Act of 1947 and ERISA of 1974, on pension fund financialization was also s­ haped by the balance of class forces. Republicans won control of both h ­ ouses of Congress in 1947, the first time that they had done so since 1929. Undeniably, this election shifted power ­toward business, whose groups such as the USCOC and the NAM had been intent on dismantling the Wagner Act since it was passed in 1935. Contrary to the view that suggests that ­there was a postwar ­labor-­management accord, firms and u ­ nions remained locked in a pitched b ­ attle comparable to trench warfare, pushing the line in the system of collective bargaining inch by inch. Policymakers in office that w ­ ere most unbeholden to l­abor ­were able to push it by ­great leaps with the Taft-­Hartley Act. Taft-­Hartley restricted ­labor’s capacity to control funds. But ERISA imposed further restrictions that had locked in place the marketization and financialization of pension fund monies begun with Taft-­ Hartley. In par­tic­u­lar, it made diversified portfolios, heavi­ly invested in equities, a main component of and requirement for fiduciary prudence. Indeed, it became explic­itly illegal for funds not to mimic Wall Street. By the time ERISA had passed in 1974, the interests and orientations of l­abor and business had radically changed. Unions that had more control over the investment of their funds, t­ hose that had multiemployer pension plans, w ­ ere largely hostile to the legislation and its stricter investment guidelines. For instance, t­ hese ­unions included the Teamsters, the UMW, and ­those in the construction sector such as the UBC. Alternatively, ­those ­unions that had lined up in support of it had already lost much of their administrative role in pension funds and, as a result, saw any costs associated with the law falling on the shoulders of employers whom they, rightly, wanted to make more responsible for their members’ retirement. T ­ hese included large u ­ nions that typically bargained plans with single employers such as the UAW and the USW. For their part, firms typically pushed in the opposite direction of the ­unions that or­ga­nized them; firms that participated in multiemployer plans w ­ ere favorable, whereas t­ hose in single-­employer plans w ­ ere opposed. When the United Steel Workers threatened to leave the federation, the AFL-­CIO president at the time, George Meany, broke the deadlock and conveyed to Congress the federation’s support for the law. Had employers and ­unions taken dif­fer­ent positions than they did, it is very unlikely that the law would have taken the form that it did. Yet, why did t­ hese laws have the effect that they did? Why was l­ abor unable to change them? Why did they ultimately spur on market-­oriented changes? At the

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end of the 1970s, when economic stagnation and deindustrialization ­were key public issues, t­ here was a historical opportunity to revise and amend t­ hese laws around a growth strategy that involved greater ­union involvement in fund investments and targeting of investment into prob­lem areas of the U.S. landscape. ­These areas ­were fast becoming what we now call the rust b ­ elt (Lopez 2004). In the early 1980s, Quebec, Canada, embraced a growth strategy, creating the Solidarity Fund, a state-­subsidized retirement fund that was union-­run and invested in the province. In the lead up to his failed reelection, Car­ter’s economic revitalization plan offered a similar strategy to reinvest in the stumbling U.S. economy. But in the United States, unlike in Quebec, u ­ nions had simply become too weak of an electoral and orga­nizational force by the end of the 1970s to push policymakers to embrace Car­ter’s plan. As a result, Taft-­Hartley and ERISA remain the guiding framework for pensions and the principal reason why they ­were heavi­ly financialized and impervious to ­unions’ attempts to win control of them. Fi­nally, the class ­forces ­as ­mediator argument can be seen in the third episode of change as well. Occupational pensions ­were further marketized between the late 1970s and the 1990s when new plans that ­were ­adopted ­were increasingly of the DC variety, such as 401(k)s, rather than traditional DB plans. T ­ hese plans put substantial risk on the individual, eroding the relatively more solidaristic approach of DB plans. This shift in the institution of employee retirement plans is part and parcel of the emergence of neoliberalism in the 1980s—­the dismantling and suppression of extramarket forms of economic coordination (Amable 2011). In recent political-­economic considerations of the period, scholars suggest that the “­free market proj­ect” is state managed and is rife with dilemmas and contradictions (Krippner 2007). Several (Mudge 2008:718; Cateno and Cohen 2012) ­suggest that the state manages neoliberalism through a repertoire or package of policies with five main characteristics: privatization, separation of regulatory authority, depoliticizing regulatory authorities by insulating them from po­liti­cal influence (moving away from a dirigisme approach where agencies are subject to the winds of politics), liberalization, and the favoring of monetary policy over fiscal policy. Yet, as I said earlier, the opposite occurred in regard to state policies concerning the U.S. occupational pension system in this period. DC pension plans became more numerous in a context in which state regulation on the pension system was increasing, not decreasing. To understand the shift t­ oward DC plans in the context of regulatory expansion, we need to consider how ­these regulations functioned relative to the balance of class forces in U.S. society. Counterfactually, it is pos­si­ble to imagine a dif­fer­ent balance of orga­nizational strength between u ­ nions and employers driving a completely dif­fer­ent outcome. Had u ­ nions been stronger, the regulations supported by the Reagan administration likely would have benefited them. Yet,



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while ­unions retained some influence in the po­liti­cal committees that worked on pension regulation, ­union strength in the market was waning quickly. Union density had plummeted in the 1980s. New sectors, such as ser­v ices and high tech, ­were growing by using nonunion ­labor while the traditional ­union strongholds in manufacturing ­were eroding ­because of deindustrialization and the Reagan-­ supported employer offensive. The increased regulatory costs of the new rules combined with ­labor’s inability to defend and expand the DB system created the conditions u ­ nder which most of the new plans that w ­ ere ­adopted ­were DC. Although the regulations w ­ ere costly, t­here was nothing in the law stating that employers had to adopt DB plans, or any plans for that ­matter. In a voluntary private pension system, l­abor’s weakness changed the impact of regulation on the private pension system’s development. I now turn to the history.

3 RECONVERSION AND THE ORIGIN OF BARGAINED PLANS

The timing of the expansion of private pensions in the United States is a critical part of its multitiered, public-­private pensioning mix. Public and private pensions did not gradually grow at the same rate in parallel to one another a­ fter the New Deal period. Instead, as one might expect, their development was temporally uneven, expanding, contracting, and stabilizing in fits and starts. T ­ here ­were massive expansions of the public ele­ment with the passage of both the 1935 Social Security Act and its 1939 amendments. But in the de­cades that followed, during the postwar period, the New Deal promise went unfulfilled. The United States never saw the full realization of a universal, livable, and solidaristic pensioning system. Instead, occupational pension plans became an increasingly impor­tant supplement to Social Security. Yet eligibility for an occupational pension has never come close to universal. Access is determined by the market location of individual beneficiaries and the willingness of employers to offer them, so many are left out of the occupational pension system entirely (NICB 1950a).1 And as a result, the supplemental old-­age security system anchored in the market has further worsened inequalities in retirement outcomes for U.S. citizens. As for the development of the public portion of the U.S. retirement system, it stagnated into the late 1960s. Although amendments to the Social Security Act in 1950 and 1954 moved the public system ­toward universality in coverage, it never came close to being an adequate source of retirement income on its own. In the first de­cades of the program, the value of a Social Security check eroded with inflation. Amendments in the early 1950s restored its purchasing power to earlier levels, but these w ­ ere still inadequate. The next time Social Security replacement 42

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43

rates ­were expanded beyond correcting for inflation was ­under the Republican presidency of Richard Nixon. This raises a question about the United States that this chapter addresses: What f­ actors explain the expansion of private pensions in the postwar era, while the public system largely stagnated? The postwar period in the United States is well-­treaded territory in the lit­er­a­ ture, in both the historiography and in some of the key contributions to the study of the welfare state. The skeptic might approach this chapter with a fair question: Do we r­ eally need more scholarly research on this period? T ­ here are two reasons why the inclusion of this chapter in this book is critical. First, and most basically, the proliferation of occupational pension plans began in earnest ­after World War II. To be sure, occupational plans existed before the war; the first dated back to the railroad industry in the late 1800s, and before the ­Great Depression many ­unions and welfare cap­i­tal­ist firms experimented with pension plans. But the scale on which they ­were ­adopted ­after the war was markedly larger than the pre-­ Depression pension systems.2 As such, understanding the origins of t­ hese occupational plans w ­ ill contribute t­oward explaining the larger puzzle of pension marketization since the New Deal. Second, and more importantly, this chapter gives a novel explanation of their diffusion a­ fter the war. It breaks in impor­tant ways with the reigning consensus in the lit­er­a­ture on the period. Principally, it shows that private pension development was neither the result of policy interventions before the end of the war nor was it the ­simple result of ­union strength in postwar collective bargaining disputes. Instead, I show that the turn to occupational pensions was caused by policymakers intervening in ­labor-­management disputes—­not principally to compel businesses to adopt occupational pension plans, but rather to establish l­ abor peace in order to capture cap­i­tal­ist growth opportunities abroad. ­There is now widespread agreement that the development of collectively bargained pensions ­after the war ­was deeply po­liti­cal in their ­causes. A view has taken hold in scholarship on the U.S. private welfare state that attributes the growth in private pensions to ­legal changes, often through the tax code, that incentivized companies to adopt them (Stevens 1988). In other words, the state mattered insofar as it set out to actively encourage cap­i­tal­ists to offer occupational pensions to their workers through indirect incentives. Some scholars tie this story into the long development of private pensions, arguing that ­after 1950 the U.S. government pulled back on its willingness to actively intervene into ­labor-­management relations, leaving indirect policy incentives developed earlier ­behind, and allowed workers and cap­i­tal­ists to determine the form the private system of pensioning would take within t­ hose policy constraints. On one level, the explanation that I give in this chapter is in agreement with this view. Policy­ makers ­were indeed critical in spurring on pension growth ­after World War II.

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­ ithout the role of the state, it is very unlikely that ­unions would have been able W to win gains in fringe benefits on their own; they emerged at the end of the war in a weak bargaining position vis-­à-­v is capital, which was adamant in its opposition to collectively bargained fringe benefits. Yet the explanation that I offer differs in critical re­spects and as a result breaks from scholarship that puts an emphasis on state action. First, the consensus view gives an incomplete account of the motivations driving policymakers in this period. Implicitly, it suggests that policymakers intervened to support the development of private pensions primarily ­because they wanted to establish private pensions. The assumption is that they had no ulterior motives. In my account, however, the postwar establishment of private pensions was, at best, of secondary concern for policymakers. Truman and his administration w ­ ere not motivated to intervene in industrial relations out of benevolence or concern for aging workers, but rather ­because of structural ­causes. In par­tic­u­lar, I show that they ­were concerned above all ­else with the reconversion pro­cess ­after the war; that is, ensuring that peacetime capitalism would run smoothly and be able to take advantages of new markets in war-­torn Eu­rope and Japan. Second, and related, the reason that policymakers intervened in ­favor of collectively bargained pensions ­after the war, even if it was a means to ensure ­labor peace, was due to the balance of class forces in society at the time. Again, state action was not autonomous from broader class forces. Although they w ­ ere compelled to manage capitalism, Truman and the Northern Demo­crats ­were also partly obligated to the u ­ nions in the CIO. The l­abor federation had built a sizable electoral machine for the party, especially in the North, and its politicians ­were dependent on the votes that the u ­ nion was able to turn out. I show that ­because of this de­pen­dency on votes, policymakers sought to achieve l­ abor peace in ways that w ­ ere favorable to the demands being raised by u ­ nions, even if their primary goal was not satisfying their ­labor constituencies but rather securing the ­labor peace. In this chapter, I begin my argument with some ground clearing. Although it is not the core concern of the chapter, I consider why the CIO was unable to expand the pension benefits offered by the Social Security program a­ fter the New Deal, roughly between 1939 and 1968. Not addressing this topic would leave too many lingering questions unanswered b ­ ecause the initial aim of many CIO leaders a­ fter the New Deal was winning a larger public program. Several ­unions only opted for occupational plans for their members when it was clear that they would be unable to win an expansion in the welfare state through formal politics. I show that ­after the New Deal period, a time when workers w ­ ere highly mobilized and disruptive, they simply lacked the po­liti­cal influence to do so. I explore why through a consideration of the failed Wagner-­Murray-­Dingell bill.

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The chapter then turns to the expansion of private pensions. First, I show why the common explanations for the postwar expansion of private pensions are unconvincing. Next, I offer my counterexplanation. I show that the transition from a war­time economy to a peace economy created a crucial prob­lem for policymakers, the reconversion dilemma. Policymakers ­were faced with a task that neither capital nor l­abor was intent on complying with, securing stable l­abor peace and production a­ fter the war once the war­time agencies in place to regulate l­ abor-­management relations w ­ ere lifted. Truman was keen on capturing growth opportunities abroad. I show that Truman and his administration ­were motivated, above all ­else, by this goal and made several efforts to get l­abor and management to voluntarily regulate themselves. When that failed, however, the state embraced a policy of active intervention into work stoppages, in some cases actually seizing plants and infrastructure by military force to ensure ­labor peace. Fi­nally, I show that when they did this they did so often in f­avor of ­union demands for collectively bargained pensions ­because of their electoral dependence on the CIO ­unions and their members. This contingent dimension of class strug­gle explains why Truman supported u ­ nions rather than cap­i­tal­ists. To make this argument, I explore the electoral alliance that the CIO formed with Northern Demo­crats in the years ­after the New Deal. However, if ended on this point, the chapter might raise a question for the skeptical reader: Did Truman push his agencies to support private pensions simply ­because he was a prolabor President? To set this concern aside, I compare the postwar episode in private pensioning with Truman’s role in the counterfactual case of the AFL farmworkers’ organ­izing drive in California between 1946 and 1948. This comparison is illustrative ­because the AFL was not an explic­itly pro-­Democratic ­union at the time. It was not ­until ­after 1947, when the AFL formed ­Labor’s League for Po­liti­cal Education (LLPE), that it began to institutionalize a pro-­Democrat electoral approach to politics. Truman’s “antilabor” interventions in the farmworkers’ organ­izing drive occurred in the same period in which he supported CIO efforts to expand the private pensioning system.

Public and Private Pensions ­ after the War The passage of the Social Security Act in 1935 did not s­ ettle the prob­lem of old-­ age security. In 1947, even the top businessmen at a conference of the U.S. Chamber of Commerce, an or­ga­ni­za­tion known for its unrelenting appeal to laissez-­ faire, agreed that Social Security benefits for the retired hourly worker “cannot make ends meet.”3 Or­ga­nized ­labor repeatedly echoed this assessment. Yet while or­ga­nized business preferred market-­based remedies, ­labor put substantial

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100 90 80 70 60 50 40 30 20 10

19 4 19 0 4 19 3 4 19 6 4 19 9 5 19 2 5 19 5 5 19 8 6 19 1 6 19 4 6 19 7 7 19 0 7 19 3 7 19 6 7 19 9 8 19 2 8 19 5 8 19 8 9 19 1 9 19 4 9 20 7 0 20 0 0 20 3 0 20 6 0 20 9 12

0 Year Retirement at normal age

Retirement at 65

FIGURE 1.  Social Security replacement rate for the median income earner, 1940–2013 Source: Author’s calculations from U.S. Social Security Administration 2013.

i­nitial energy into expanding the public program. ­After World War II the CIO concluded that “the Social Security system is still only a partially realized ­factor in the American standard of living.”4 During the first thirty years of Social Security’s operation (1940–70), most changes in the old-­age pension program w ­ ere directed at achieving universal coverage across occupational categories rather than increasing income replacement rates. In fact, the first ten years saw a large erosion of the program b ­ ecause of inflation. By the end of World War II, inflation had made public old-­age insurance benefits totally inadequate. Means-­tested old-­age assistance benefits, intended for the poor, had come to cover more and more retirees (Quadagno 1988). The amendments of 1950 (which included domestic workers) and 1954 (which included agricultural, ­hotel, laundry, and government workers) largely accomplished universal coverage and countered inflation driven program erosion by increasing benefits. However, e­ very legislated benefit increase u ­ ntil 1970 simply restored the purchasing power lost since the program’s inception (see figure 1). ­Those pieces of legislation that aimed to expand benefits in a more comprehensive

Reconversion and the Origin of Bargained Plans

47

way, such as the Wagner-­Murray-­Dingell bill ­were defeated. As a result, public pension benefits failed to keep pace with the rising standard of living among workers (Pampel 1979:135; Myles 1989). It was not u ­ ntil Nixon included cost-­ of-­living adjustments in the program that replacement rates w ­ ere increased. The postwar period was a critical juncture, offering two distinct paths: to pursue the solidaristic vision, insipient in the New Deal program, or to turn back to the market to address the prob­lem of old-­age security. Policymakers took the latter path. But before explaining why, first I show why they rejected solidarity.

The Solidaristic Road Not Taken ­ fter the war, u A ­ nions ­were more embedded in the formal institutions of American politics than they had been in any other time in their history. But without larger social movements like ­those in the 1930s to put elites on the defensive, New Dealers a­ fter the war that ­were inclined to expand the program ­were rendered too po­liti­cally weak to do so. Conservative po­liti­cal blocs in the North and the South stymied ­labor’s po­liti­cal action and undermined the bigger ambitions of their main allies in Congress. U.S. federalism splits responsibilities, increases the number of relevant po­liti­cal actors in a policy field, and changes their preferences and strategic options (Pierson 1995). As such, policymaking in fragmented po­liti­cal institutions require a massive coordination of dif­fer­ent actors, often with unique sets of interest. As a result, federalism weakens po­liti­cal power at the national level by providing the capacity for minority factions to block legislation (Immergut 1992). In turn, it increases the difficulty of policy change, since change itself requires the approval of several po­liti­cal actors with veto power (Tsebelis 2002). ­After the 1938 congressional elections, a bloc of Republicans and Southern Demo­crats forged an antilabor co­ali­tion, used ­these constraints, and blocked attempts to expand Social Security (Patterson 1967; Hacker 2002:86; Béland and Hacker 2004:51). Facing insurmountable congressional opposition, the prolabor Northern Demo­crats could not effectively intervene to support bigger expansions in public social provisions. ­Because their party was not programmatically oriented to social demo­cratic policies, the southern wing represented the regional interests of landed agricultural elites. And as a result, Southern Demo­crats ­were united in opposition to a prolabor agenda and in support of southern white supremacy (Katznelson, Geiger, and Kryder 1993). The slow death of the Wagner-­Murray-­Dingell bill casts light on the obstacles that ­unions faced when they pursued solidaristic policy changes through formal po­liti­cal institutions and electoral politics. Before the onset of the G ­ reat Depression, only seven states had passed old-­age security laws. In a l­abor push for

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­ ld-­age insurance, both the AFL and the CIO supported the most redistributive o proposals in the Social Security debate in the 1930s. In 1932, for instance, the AFL mobilized its po­liti­cal resources to support the Dill-­Connery bill, a proposal that appropriated $10 million in federal matching aid to states with old-­ age benefit programs, at the ratio of two state dollars for ­every national dollar. It passed the House in 1933 and 1934 and almost passed the Senate. And, both federations supported the very generous Townsend Plan, which would have immediately begun to pay out a $200-­per-­month pension to retirees (Amenta 2006:210).5 The CIO supported the Social Security Act, but it was less generous than many in the ­labor movement wanted. The federation made clear its preference for a more robust program. In a 1935 statement before the House Ways and Means Committee on Proposed Changes in the Social Security Act, the freshly formed federation argued for universal coverage to include occupations that had originally been excluded, much larger replacement rates, repre­sen­ta­tion of ­labor within the Social Security administration, and funding through general taxation rather than the payroll tax (Quadagno 1988:120).6 But ­unions faced po­liti­cal barriers to seeing their goals realized, even in the New Deal period when popu­lar mobilizations of industrial workers, the unemployed, and the el­derly made policymakers more responsive to popu­lar demands (Piven and Cloward 1977; Amenta 2006). Not only was the bill ­under attack by conservatives, but t­ here ­were real limitations to how far Roo­se­velt’s administration was willing to go. Consider the issue of program universality. Reflecting on his discussion with Robert Wagner (a progressive prolabor Demo­crat from New York) about the Social Security program, one of the UAW’s chief lobbyists noted in a confidential memo that I was on a committee which discussed [federal standards for eligibility] with Senator Wagner in late Winter, 1935, before enactment of the federal Social Security Bill and complementary state bills. We then urged Senator Wagner to insist on including more rigid federal standards in the Social Security Bill. He interrupted our pleading to state that he knew and agreed with our case, but that he was not g­ oing to insist upon stiffening of standards ­because to do so might imperil Administration support for his National ­Labor Relations Act Bill, which, he felt, was more impor­tant to ­labor and the welfare of the country that the Social Security Bill.7 During the forming and passage of the Social Security Act at the height of the New Deal progressive politicians had many policy priorities and lacked the po­liti­cal capital to realize all of ­labor’s legislative goals.8

Reconversion and the Origin of Bargained Plans

49

­After the New Deal the Wagner-­Murray-­Dingell bill aimed to greatly expand the public program. An early version was first proposed in 1939 (by Robert Wagner alone) then reintroduced to both h ­ ouses of Congress in 1943 with full endorsement from both the AFL and the CIO. The bill had four major provisions. First, it “federalized” the administration of unemployment insurance and expanded its provisions. Second, it created a national universal health insurance system. Third, it provided large increases in cash benefits and insurance for both temporary and permanent disability. And fourth, and most pertinent for this story, it extended old-­age and survivors’ insurance to practically all employed persons (with exception to federal employees who w ­ ere included in their own retirement systems), offered benefits for permanent disability, liberalized benefits by increasing the minimum from $10 per month to $20, and raised the maximum by making eligibility less restrictive through a new formula for computing average earnings (Witte 1943:833; Derthick 1979:26). The Wagner-­Murray-­Dingell bill had come to be known as the “American Beveridge Plan,” ­after the 1942 report in Britain that laid out a blueprint for a significant expansion of the welfare state t­ here (Rosenthal 1948:338). But despite the strong support of both the AFL and the CIO, it was not endorsed by Franklin D. Roo­se­velt or anyone ­else in his administration. And the Social Security Board only supported its broad objectives, they never officially endorsed it (Witte 1945:172). Although it caused much debate, the lack of support for expanded welfare benefits in both the Demo­cratic Party and the Republican Party is the reason why the bill never left committee for a vote. The bill went through several iterations, becoming less and less ambitious each time it was reintroduced. The bill’s main supporters ­were in retreat as the Congress became more conservative during the war years. When it was first proposed in 1943, it called for a 12 ­percent contribution from firms and workers to finance expansions and extensions in old-­age, survivor, and disability benefits; the creation of a national unemployment insurance program; and a universal health insurance program. By 1945, however, the bill had dropped the demand for extensions in old-­age pensions and focused primarily on the issues of heath care and of reducing the tax on employers and employees down to 8 ­percent (Williamson 1946:99). The bill was reintroduced into both ­houses, yet again, in 1945 and 1946—­a context in which Republicans did not have majority control of Congress. Although Truman had expressed support, especially in the 1948 election campaign in which he desperately needed ­labor’s vote, it again failed to garner enough momentum to leave committee. Hearings on the bill initiated by its supporters ended up primarily featuring the testimony of its opponents, who were far more numerous (Hacker 2002:224). By 1950, Senator Reid Murray largely gave up hope in

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moving it forward. The Wagner-­Murray-­Dingell bill, whose original version would have greatly expanded old-­age security, was not only opposed by Republicans and Southern Demo­crats; seeing the writing on the wall, the majority of Northern Demo­crats came to oppose it as well. ­After the legislative difficulties in passing the Social Security Act (namely, the exclusion of racialized occupational groups to win support from Southern Demo­crats), Northern Demo­crats ­were willing to trade the segregated utilization of federal funds to win support from the Southern section of their party for other spending mea­sures (Katznelson 2005:49). Between 1947 and 1949, the progressive agenda came u ­ nder attack once Republicans captured both ­houses of Congress. And this extended to the Social Security program as well. At the national level, the Republicans ­were able to pass the Gearhart bill over Truman’s veto, which made 750,000 door-­to-­door salesmen, truck ­drivers, pieceworkers in the home, and life insurance agents ineligible for the program’s protection. In a circulated pamphlet on Social Security in 1948, the CIO noted that “the Taft-­Dewey Republican Party in the states and in the nation are attacking Social Security by nibbling when they ­can’t bite, and by bites when they can get away with it. A Taft-­Dewey government would attempt to swallow up the law completely.”9 The 1950 and 1954 amendments to the Social Security Act did, however, bring expansions in coverage. Although they w ­ ere very limited in comparison to the solidarity promised by the Wagner-­Murray-­Dingell bill, the amendments w ­ ere not insignificant and w ­ ere certainly supported by l­abor. It bears repeating that in terms of replacement rates, the increases they brought only made up for inflation-­ driven losses in benefit purchasing power. More progressively, however, t­hese amendments largely made Social Security universal by incorporating occupational groups such as domestic, agricultural, ­hotel, laundry, and public sector workers into the program.10 Expanding coverage raises a question about the public program during the postwar period. Namely, if a southern faction of the Demo­cratic Party blocked earlier Social Security expansions, how can we account for ­these amendments? Developments in the South’s po­liti­cal economy offers the best explanation for the South’s shift in orientation on social policy. When the Social Security Act was passed, the white southern elite that Southern Demo­crats represented ­were individuals that had made their fortunes in agriculture and as a result w ­ ere dependent on reliable and exploitable farm ­labor. Their workforces tended to be drawn from black families, locked into a relationship of peonage with them that dated back to years following the abolition of slavery. An impor­tant ­factor ­behind the southern elite’s earlier rejection of the Social Security Act, and the primary reason why the final version of the SSA excluded domestic and agricultural ­labor, was that agricultural production in the South was ­labor-­intensive and therefore

Reconversion and the Origin of Bargained Plans

51

reliant on ready access to a large supply of cheap and dependent workers. It behooved southern landed interests to prevent the implementation of government programs that threatened to substitute for the paternalistic and paltry benefits they themselves offered (Alston and Ferrie 1999). However, southern agriculture was slowly mechanized between 1940 and 1970, and many of the black agricultural workers in the South w ­ ere displaced, in part leading to the Second G ­ reat Migration to the North (Wright 1986). Technological developments that made farm-­specific knowledge of tenants less necessary, mechanization-­caused displacement that heightened the threat of unemployment in the South for agricultural workers, and a reduction in the cost of monitoring agricultural ­labor in more highly mechanized and standardized production, all contributed to southern paternalism becoming outdated as a contractual device between agricultural workers and plantation o ­ wners (Alston Ferrie 1999:119). ­These changes led to a shift in the attitude of southern white agricultural elite on the Social Security program and largely opened up the po­liti­cal space for the 1950 and 1954 amendments that had hitherto been blocked by Southern Demo­crats.11 This section shows that despite ­labor’s enthusiasm for expanding Social Security in the postwar period, trade ­union ties to New Deal Demo­crats in the North ­were insufficient for achieving this end. Politicians that might other­wise have been favorable would have had to overcome the block of Southern Demo­crats and Northern Republicans; the numerous veto points available to t­ hese groups made this unlikely. Vetoes against a more solidaristic path for the Social Security program w ­ ere exercised by Southern Demo­crats ­because the party did not have a programmatic platform on ­these issues. Instead, Southern Demo­crats ­were tied to the regional interests of landed agricultural elites, whose industry relied on dependent ­labor. Northern Demo­crats, on the other hand, saw this challenge as insurmountable. Although Truman did support expansions, his leverage over legislation fell far short of his leverage on ­labor-­management relations through his federal agencies, as the numerous bills that w ­ ere passed over his veto attest to. As I w ­ ill show in the following section, to support a key segment of his electoral co­ali­tion, Truman instead pushed his agencies to make favorable rulings for CIO ­unions within the system of collective bargaining. T ­ hese interventions laid the groundwork for a market-­oriented shift in old-­age security.

To the Market While public old-­age security stagnated, private pensions took a dif­fer­ent course. First, the number of private pensions expanded exponentially (see figure 2). In 1940, private plans covered 3.8 million employees, and by 1960, coverage had reached 21.6 million. The spread occurred in both absolute and relative terms.

Workers covered (in thousands)

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20,000

15,000

10,000

5,000

60

58

19

56

19

54

19

52

19

50

19

48

19

46

19

44

19

42

19

40

19

38

19

36

19

34

19

32

19

19

19

30

0 Year FIGURE 2.  Workforce covered by private retirement plans, 1930–60 Source: Calculated from Skolnik and Zisman 1958:10; Skolnik 1960:11, 1962:7.

The share of Americans covered increased from about 15 ­percent in 1940 to over 30 ­percent in 1960 (Hacker 2002:79). Second, a­ fter World War II, plans increasingly came ­under the purview of collectively bargained agreements between ­unions and firms (NICB 1950a). The commonly accepted arguments about the proliferation of private pensions ­after World War II ­either point to the role of po­liti­cal institutions, suggesting that several legislative changes encouraged businesses to adopt occupational pension plans for their employees, or class strug­gle, suggesting that strong u ­ nions won them ­after the war. Yet all fall short; Without considering the cap­i­tal­ist context none alone provides a sufficient explanation for the postwar growth in pensions. Before turning to my own argument, I briefly consider ­these common alternative expla­ nations in the lit­er­a­ture: the Revenue Act of 1942, World War II wage and price ­controls, the Wagner Act and the Social Security Act of 1935, and u ­ nion power. The Revenue Act of 1942. This act turned income tax into a mass tax by raising taxes for all income earners and bringing many working-­class Americans into the tax system for the first time in their lives (Howard 1997:98). Additionally, a small and easily overlooked section of the act imposed the first nondiscrimination rules

Reconversion and the Origin of Bargained Plans

53

on employers with pension plans. To deduct the costs associated with administering and contributing to their pension plans as business expenses, employers would have to offer a pension to at least 70 ­percent of their full-­time workers. And, employers ­were not allowed to skew their pension benefits too heavi­ly ­toward their se­nior and higher-­level employees as they had primarily done (Howard 1997:120). According to one view (Macaulay 1959; Munts 1967; Stevens 1988; Hacker 2002:86; Béland and Hacker 2004; Béland 2005), nondiscrimination rules in the Revenue Act of 1942 created incentives for firms to incorporate more of their employees into their pension plans. Preferential tax treatment for employer pensions was not a new development in the 1940s. The Revenue Act of 1942 reinforced changes made between 1910 and 1930. For instance, the Trea­sury Department ruled in 1914 that “amounts paid for pensions to retired employees or to their families or ­others dependent on them, or on account of injuries received by employees, are proper deductions as ordinary and necessary business expenses” (quoted in Howard 1997:55). And although employers deducted contributions for quite some time, the Trea­sury Department ruling was codified in the Revenue Act of 1926, which included an amendment that exempted employer contributions from taxation (ibid). The Revenue Act of 1942 alone ­can’t explain a common prob­lem found in most of the alternative explanations: timing. First, as I show below, most of the American employees covered by a pension at the end of the war w ­ ere better paid salaried workers in professional occupations or managerial positions. If the intent of the Act was to make pensions available to ordinary workers, it certainly did not do that during the war years. Second, while the nondiscrimination rules in the Act might explain the incorporation of some new participants into existing pension plans during the war, given the nearly five-year time lag it seems less likely that t­ hese rule changes drove the much larger-scale spread of occupational pensions in the postwar period. World War II Wage Controls and Regulations. During World War II, the U.S. government drastically raised federal income and excess profit taxes and the Stabilization Act of 1942 imposed heavy constraints on wage increases (NICB 1950a:7). Some scholars (Stevens 1988; Howard 1997) argue that such policies ­were another major cause of the rapid growth in private pensions. Tax incentives combined with war­time controls to push firms to increase compensation for employees through fringe benefits. Not ­doing so risked losing employees to other firms in such tight war­time ­labor markets. However, this explanation also stumbles on the issue of timing. At the end of the war, most wage controls and regulations ­were lifted (NICB 1947:9). Given that they ­were no longer in effect before the widespread adoption of collectively

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bargained pension plans in the postwar period, they cannot directly account for it. However, almost as impor­tant as the timing, the wage-­freeze policy actually had ­little effect on capital ­because many firms easily found ways to circumvent it. The National War ­Labor Board permitted wage and salary increases in cases of promotion. As early as 1943, three out of five firms ­were paying wage increases for promotions to higher job titles for the same work responsibilities (Dobbin 1992:1438; Jacoby 2004). New Deal Legislation. Another account suggests that public policy shifts during the New Deal well before the war changed the orga­nizational and po­liti­cal goals of ­unions and in turn stimulated the growth of fringe benefits. This view suggests that together the passage of the Wagner Act (or, the NLRA) and Social Security Act in 1935 ­were the crucial cause of the spread of private pensions. In an influential article, Dobbin (1992:1434) argues that the reason why “most firms delayed canceling private pension insurance, high wage firms installed supplementary plans, banks installed private pensions, and most firms that had pension plans replaced them with special supplemental plans, and, in the pro­cess, many switched from informal to insured plans” can be traced back to New Deal legislation. According to this view, the legislation mobilized ­labor ­unions and created the drive to or­ga­nize for and win pensions. Although it is clear that the Wagner Act helped to spur l­abor organ­izing, it is again difficult to demonstrate a direct causal link between both it and Social Security and the large-­scale expansion of private pensions a­ fter the war. First, NICB (1939) data shows that ­there was almost no change in the aggregate private pension figures between 1935 when this legislation was passed and 1939 when World War II began. Second, although ­there was an increase of private pension provisioning during the war, t­ hese new plan adoptions w ­ ere not collectively bargained plans like the large bulk installed in the postwar period. At the beginning of the war, employer contributions to pension plans totaled $180 million. By war’s end in 1945, this figure had risen to $830 million (Skolnik 1976:4). However, the adoption of pensions for top-­tier employees, not hourly or ­unionized employees, explains much of this growth (Sass 1997). By the war’s end, most firms still excluded ­middle-­and low-­income workers from their private pension plans (in spite of the nondiscrimination rules I discussed previously). NICB survey data from 1948 and 1954 suggests this much; for reporting companies, ­there was a significant difference in private pension coverage of hourly and salaried workers in the respective periods.12 As figure 3 suggests, coverage of salaried workers in 1948 was more far more extensive than coverage of wage workers. But by 1954, the statistics begin to tell a dif­fer­ent story. They suggest that wage workers, not salaried workers, w ­ ere incorporated into the private

Reconversion and the Origin of Bargained Plans

55

% of employee type covered

80 70

Hourly

Salary

60 50 40 30 20 10 0

1948

1954 Year

FIGURE 3.  Percentage of firms reporting pension coverage by employee type, 1948 and 1954 Source: NICB 1948, 1954.

pension system in much larger numbers well a­ fter the war. While arguments that put primary emphasis on legislation fall short, straightforward ­labor power arguments, alternatively, also fail to fully satisfy. Postwar L ­ abor Power. Another possibility is that l­abor ­unions ­were strong in the postwar period, if not legislatively, as I discussed earlier, then in their leverage over employers through collective bargaining. Could the explanation be that ­unions used this leverage to force employers to bargain over pensions and that the US government had ­little to do with it? ­After the war, ­labor initiated the largest strike wave in U.S. history to that point. Even the strong advocate of l­abor discipline during the war, Walter Reuther, president of the UAW, led a 113-­day strike against General Motors. It’s plausible that the strikes caused the expansion of collectively bargained pensions. ­After all, collectively bargained plans that included pensions ­were negotiated in industries with major ­labor-­management disputes. Although strikes and ­labor-­management conflict mattered po­liti­cally, as I show in detail ­later, they did not force the hands of cap­i­tal­ists to offer pension plans like this story suggests. The limitation of a ­simple class power argument is evident when considering the weak impact of the strike wave between 1945 and 1946 on capital’s position. The war’s end brought several changes that weakened l­ abor’s ability to press U.S. businesses for concessions. First, returning soldiers flooded the ­labor market, drastically undermining or­ga­nized ­labor’s strike leverage. For firms that did worry about keeping production online, t­ here was a large supply of willing strikebreakers.

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Second, and more fundamentally, the rapid decline in demand for war­time goods ­after the war made employers willing to temporarily shut down their operations and let their stock and equipment sit idle. Strikes also brought a welcome reprieve in ­labor costs. During the strike wave, even though ­there was a large supply of l­ abor most employers generally did not attempt to run replacement workers when their regular workforce walked off the job (Harbinson and Spencer 1954:712; Davis 1980:72). Third, far from being on the defensive, employers rapidly countermobilized against many of the gains that ­labor made during the New Deal and World War II. In many states ­after the war, employer groups successfully lobbied for right-­to-­work laws, and by 1947 u ­ nions ­were staggered by the federal passage of the Taft-­Hartley Act (Fones-­Wolf 1995; Dixon 2010). And fi­ nally, ­unions themselves ­were internally divided. As the Cold War began to set in, the earlier “red u ­ nionism” that provided the ideological basis for CIO militancy became a point of intense division. Impelled by the noncommunist affidavits contained in Taft-­Hartley and a CIO officialdom oriented ­toward ­labor-­management peace, “reds” ­were expelled from the federation in 1949 and 1950 (Lichtenstein 1982; Stepan-­Norris and Zeitlin 2002). Simply put, ­after the war the widespread adoption of private pension benefits would not have been pos­si­ble for u ­ nions without active support from the state. Although the strikes did not directly impel employers to ­settle for collectively bargained pension plans, they did indirectly ­matter, by spurring on action from Northern Demo­crats. However, understanding why Northern Demo­crats intervened in postwar ­labor disputes, often in support of the demands being made by CIO ­unions, requires understanding the structural ­factors that underlay their motivations. Policymakers ­were primary motivated to support American economic growth, and the strike wave between 1945 and 1946 was nothing short of a crisis of capitalism that spurred them into action. However, more contingent historical ­factors account for the par­tic­u­lar way that they intervened, in ­favor of collectively bargained plans rather than employer prerogatives. In the next section, I explore the structural dimension of the story.

The Reconversion Prob­l em ­ fter World War II, policymakers ­were confronted with a dilemma that required A an agile and smart policy response: how to shift from a war­time economy, one that had managed ­labor-­management relations through both government agencies and civic war­time duty, to a peacetime economy. Their initial efforts failed. Instead of industrial peace, policymakers faced an upsurge in class strug­gle and the threat of another breakdown in production akin to the 1930s. Truman and

Reconversion and the Origin of Bargained Plans

57

his allies referred to the dilemma as the prob­lem of “reconversion.” In this section, I show how war­time conditions regulated and limited strike disruptions to the economy, managing war­time capitalism and encouraging cap­i­tal­ist growth. Then I show how the end of the war caused ­these conditions to break down, provoking a crisis for ­policymakers.

State-­Managed War­time Capitalism Before the United States entered the war, relations between l­ abor and capital ­were largely hostile. The l­abor upsurge, strikes and wildcats, of the 1930s spilled into the 1940s. On the eve before troop deployment, in the winter of 1940–41, ­labor disputes riddled the economy. Cost of living had risen rapidly, pushing ­unions and their members to demand more from firms. But firms had not replied cooperatively; in large part, capital opposed organ­izing attempts wherever they could. For ­labor’s part, with the U.S. entry into the war appearing more and more likely, ­union leaders hurried their organizers on the ground to ­unionize the workers of the new war­time production plants. So the onset of the war did not immediately cool relations between workers and cap­i­tal­ists. Philip Murray, who assumed the presidency of the CIO in 1940, saw the boom in defense production as an opportunity to embark on an even more widespread organ­izing drive, which sparked war­time strikes early in the war. In 1941, ­there ­were 4,288 strikes, most of which ­were centered in heavy industry. In that year, industrial unrest was more widespread than it was in 1937, a period that had shaken some politicians with fear of potential revolution (Lichtenstein 1982:46). Many of the companies that ­unions targeted as part of organ­izing campaigns ­were central to the war effort. Most carried impor­tant defense contracts that needed to be fulfilled. Reckoning with the early war­time ­labor unrest, the Defense Department called it “an unpredictable drain on defense production” (quoted in Lichtenstein 1982:47). Once Roo­se­velt shifted into his role as a war­time leader, his wing of the Demo­ cratic Party made large demands on or­ga­nized ­labor to maintain war­time production. Many ­union leaders complied. A massive coordination of private enterprises and aggressive interventionist foreign policy required high levels of ­labor productivity and a strictly enforced ­labor peace. The top-­level CIO officials, with initial exception of John L. Lewis, in coordination with the state, took many mea­sures to ensure t­hese conditions w ­ ere met.13 Compelled by a combination of civic virtue, an obligation to the New Deal president, and the opportunity to bureaucratize and reign in their dissident grassroots members, u ­ nion leaders coordinated active support for the state through the adoption of the war­ time no-­strike pledge.14 And, while ­there ­were initial holdouts among the national leadership, the attack on Pearl Harbor immediately drew in support for

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the war from nearly all of the United States’ impor­tant ­labor representatives, including Lewis. The ­labor leadership’s position did not always align well with rank-­and-­file concerns. Local organizers and u ­ nions in opposition to the no-­strike pledge pushed against it. Some in the UAW argued that it helped create a system of “collective begging” instead of “collective bargaining.”15 However, ­labor militants met strong opposition by an officialdom that was intent on maintaining its alliance with Northern Demo­crats. In January 1944, almost the entire national leadership of the UAW spoke in ­favor of the no-­strike pledge during a ­union referendum on the ­matter. Roo­se­velt had faithful allies in CIO officialdom, especially in ­unions such as the UAW.16 Some reds even engaged in red-­baiting to support the no-­strike pledge. Communist leaders in the UAW, who w ­ ere committed to an alliance with progressive Demo­crats, decried rank-­and-­file militants as “fifth-­column, pro-­ fascist, anti-­war cliques, some of the types that have already been convicted of sedition for their activities.”17 Policymakers also managed industrial relations with new institutions. On March 19, 1941, once the war was officially u ­ nder way, Roo­se­velt responded to flashes of l­abor unrest by creating the National Defense Mediation Board, an ad hoc state agency made with the explicit purpose of maintaining l­ abor peace. Over the opposition of voices in l­abor and business, Roo­se­velt implemented the government’s vision for stable war­time production by forming the eleven-­member board. The agency gave the president power to intervene in ­labor disputes in plants that w ­ ere critical to the fighting effort abroad by, among other ­things, giving Roo­ se­velt the authority to seize control of them. During the course of the war, three production plants w ­ ere seized by the government in this way. Just ten months ­after it was put together, Roo­se­velt issued an executive order that replaced the NDMB with the National War L ­ abor Board. Occasionally termed the “Supreme Court of ­labor disputes,” the new board was afforded the authority to ­settle any industrial disputes thought to impact the war (McClure 1969:27). ­Labor historian Nelson Lichtenstein (1982:51) notes that the ­labor boards ­were “as impor­tant as the Wagner Act in shaping the American system of industrial relations.” They served such a critical role, both during and ­after the war for several reasons: they established industry-­wide wage rates; s­ haped the management of work on the shop floor, which was previously an arena of significant contestation; they promoted the system of collective bargaining; they created grievance procedures; and they s­ haped the internal structure of u ­ nions. Ultimately, the war ­labor boards promoted more efficient, reliable, and bureaucratic production. But what the boards did above all ­else during the war was to mediate class conflict and assure cap­i­tal­ist accumulation. Although they ­were only begrudgingly accepted by cap­i­tal­ists, by creating the rules that would minimize disputes and

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e­ nsure stable production, they ultimately served to strengthen corporate hegemony and American capitalism (4). Through the organs of the NWLB, CIO officials that had become committed to the Demo­cratic Party in the North and the no-­strike pledge isolated and removed local level organizers still committed to the disruptive and agitational tactics that harkened back to the insurgent l­abor movement of the mid-1930s. In the rubber industry alone, hundreds of shop stewards w ­ ere blacklisted for agitating in spite of the pledge (Davis 1980:66). Even in war­time strikes that drew martial repression from the federal administration, the CIO leadership explic­itly supported the government by offering “full aid” for the war effort abroad. Such was part and parcel of maintaining good relations with supportive policymakers and in fighting the threat of fascism overseas. For his part, Roo­se­velt was unequivocal on the issue of war­time militancy within l­abor’s ranks, proclaiming on many occasions that he would not allow defiance to go unpunished.18 An example from the executive came very early in the war when the UAW’s North American Aviation strike in Inglewood, California, involving 11,000 workers and led by Wyn­ dham Mortimer (leader of the 36–37 Flint sit-­down strike) proved the decisive test. In a nationwide speech in late May 1941, Roo­se­velt proclaimed a national emergency in relation to the war effort and called on worker and employer participation. The New York Times (May 28, 1941) printed that “the government is prepared to use all of its power to assure the production of armaments.” As a result, the UAW leadership publicly opposed the California strike. On June 7, on nationwide radio, Richard Frankensteen, a top UAW official and hero of the B ­ attle of the Overpass at Ford Motor Com­pany in 1937, decried the strike as unsanctioned, told the strikers to return to work, and drew on anticommunist sentiments to declare that the agitation was a result of communist maneuvering.19 With explicit support from Sidney Hillman, the key founder of the ACWA and head of the War Production Board’s l­abor division, Roo­se­velt signed an executive order that authorized the army to seize the plant and break the strike. On June 9, some 2,500 troops with bayonets dispersed the strikers (Lichtenstein 1982:62). The last time that the U.S. Army was deployed to break up the picket lines of striking workers was the Pullman strike of 1894. The war­time context ­after the New Deal offered many opportunities to policymakers to re-­regulate ­labor-­management relations. In the sections that follow, I show how the lifting of ­these war­time agencies mattered for U.S. capitalism and ultimately the development of private pensions.

Postwar Accumulation and L ­ abor Unrest In the year following the announcement of Victory over Japan Day—­August 14, 1945—­there ­were over 4,600 work stoppages involving about 120 million

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­ orkdays of idleness in production. The war’s end drastically slowed down ecow nomic growth in the United States, sparking the first recession since 1938.20 War was a boon for U.S. industrialists. By 1945, industrial production was double what it was on the eve of war in 1939 (Sharnoff 1987, 1:227). With the war­ time demand for goods slumping and government spending on the decline, many factories shut down completely and even more scaled back their workers’ hours. In the midst of the uncertainty, ­unions ­were ­eager to recoup wage and benefit gains that they had forgone during the war, weathering an imposed wage restraint for the war effort. But in large part, firms ­were bent on keeping postwar ­labor gains to a minimum. Conflict first erupted in the oil industry. Just a month a­ fter Japan’s unconditional surrender, on September 17, about 43,000 oil workers from twenty dif­fer­ent states stopped working. The Oil Workers International Union believed its members deserved an immediate 30 ­percent increase in pay. But the oil workers would not be victorious in 1945. The strike barely lasted two weeks before they ­were forced back by Truman. Early in October, with the strike undercutting the United States’ oil supply by a third, Truman seized and ran the refineries with the naval wing of the American military (McClure 1969:48). Both the unrest of the OWIU and the response from the state ­were replayed, again and again, in other industrial sectors throughout the Truman presidency. At their heart, ­these state interventions ­were the way that policymakers dealt with the reconversion pro­cess, what Truman referred to in Congress as, the “changing of our economy from war to peace.”21 Before a large group of l­abor and business representatives, Truman had laid out the prob­lem in stark terms: Our country is worried about our industrial relations. It has a right to be. That worry is reflected in the Halls of the Congress in the form of all kinds of proposed legislation. You have it in your power to stop that worry. ­Under the pressure of a desperate war crisis, management and ­labor have performed a miracle of production for four years—­working together voluntarily but ­under a mea­sure of Government control. ­Those controls must soon dis­appear. Many have already gone. And yet as soon as the first ones ­were taken off, industrial strife appeared. Some of it was expected by the American p ­ eople in this period of adjustment. But I am sure that they never expected anything like the amount of strife which has been threatened.22 While capital and l­abor ­were embroiled in seemingly unresolvable conflicts over wages and benefits, the State Department was thinking about the best interests of American capitalism with a keen eye on its chance for hegemony in the postwar global order. Old empires w ­ ere broken by war, their cap­i­tal­ist classes

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viewed by their tired demos as complicit and illegitimate, and their economies and domestic sources of production decimated (Panitch and Gindin 2012:89). As such, for Republicans and Demo­crats alike, the crucial question of reconversion revolved around the unpre­ce­dented opportunity that U.S. capital had in the markets of war-­torn Eu­rope, whose economic infrastructure had been totally shattered by falling bombs. No one describes this opportunity clearer than Truman himself, saying to l­abor representatives and cap­i­tal­ists: The ­whole world now needs the produce of our mills and factories—­ every­thing stands ready and primed for a ­great ­future. But situations and circumstances can change rapidly. Our unparalleled opportunity may not long remain open. We must have production—­vast production. We must have it soon. In order to have it, ­labor and management must work together to expand the economy of our Nation—as they worked together to protect the safety of our Nation during the war. If we get the production we need—­the production which our resources and industrial skill make pos­si­ble, the pres­ent prob­lem of wages and prices ­will be easier to solve. Production means employment. It means economic health. It means higher wages and lower prices. It means the difference between strength and prosperity on the one hand, and uncertainty and depression on the other.23 At such a pivotal moment, a breakdown in production as a result of industrial disputes amounted to nothing short of a crisis of capitalism for the state. Left on their own, cap­i­tal­ists did not take advantage of this historic moment. Yet when they did eventually aggressively pursue the expansion of U.S. industry into foreign markets, it brought untold wealth and profits to their enterprises (McCormick 1995:53–57; Panitch and Gindin 2012). Instead, capital’s shortsighted unwillingness to negotiate concessions with ­unions over their demands for higher wages and benefits sparked outrage on the part of the workers. To be sure, some strikes ­were expected ­after the war. Policymakers anticipated that ­there would be an adjustment period to a reduced guiding role of the government in industrial relations. But only a few voices in the national debate pushed for the continuation of the War ­Labor Board; almost all in politics, instead, rushed to dissolve both it and its restraints in ­favor of the “freedom of unhampered collective bargaining.”24 But the industrial unrest that followed unfolded on a much larger scale than what policymakers anticipated. The postwar strike wave intensified alongside the decline in the government’s power to do something about it. By late summer 1945, as one commentator in the period noted that, “a void was developing in Government ­labor dispute machinery.”25

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Truman responded first by pushing ­labor and capital to cooperate voluntarily in its plans for postwar cap­i­tal­ist expansion. He did this, primarily, by convening the President’s L ­ abor-­Management Conference, which began November 15, 1945. The conference brought together leading figures from both industry and l­abor, including the presidents of the top employers’ associations, such as the National Association of Manufacturers and the Chamber of Commerce, and l­ abor federations, such as the AFL and the CIO, among other corporate and l­abor representatives. Truman emphasized, repeatedly, both at the conference itself and to the public, that the government was acting to simply bring ­labor and management together to work out their differences. The President ensured the conference attendees that the U.S. government would leave the practical solution to the industrial unrest to them to work out voluntarily. The administration even built state impartiality into the rules of the conference itself; the government had no vote in the recommendations that emerged from the vari­ous conference committees that ­were convened. But talk of a hands-­off government to the ­labor-­management prob­lems hid the threat of force. Truman was also quick to note that if ­labor and capital failed to come to an agreement that would ensure stable production, the government would be forced to act in­de­pen­dently.26 This conference was not the first time that the State Department convened ­labor and management in Washington to work out differences to ensure stable production. In March 1918, a conference was held to devise a way to improve war­time ­labor relations. Then, in 1941, just a few days ­after Pearl Harbor, another was set up. Roo­se­velt clearly expressed the goals of the conference in the invitations his office sent to its participants: The first and essential objective of the conference ­will be to reach a un­ ani­mous agreement to prevent interruption of production by ­labor disputes during the period of the war. It is not expected that ­there ­will be any hesitation on the part of ­either ­labor or industry to accept this basic condition of the Nation’s safety. The conferees doubtless w ­ ill find it necessary to agree upon a machinery by which ­these disputes may amicably and fi­nally be settled. . . . ​But it is for the conferees to decide what form the machinery ­shall take so long as agreement is reached.27 Both conferences ­were successes, the latter was partially responsible for the willingness of ­union leaders to embrace the no-­strike pledge during World War II. Wartime-­ending conferences also had pre­ce­dent, but t­ hese had a history of failure. President Wilson called an industrial conference ­after the World War I that ended with l­ ittle compromised or accomplished and not much agreed on between ­unions and industry.28

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Judge Walter P. Stacey opened Truman’s postwar conference, by saying that “Industrial Amer­i­ca comes once more to where the road forks. Out of the war effort, which has been tremendous, we turn to a peacetime economy.”29 Truman’s opening speech ratcheted up the urgency of the meeting, noting that “the time has come for l­ abor and management to h ­ andle their own affairs in the traditional American, demo­cratic way. I hope that I can give up the President’s war­time powers as soon as pos­si­ble, so that management and l­ abor can again have the full and undivided responsibility for providing the production that we must have to safeguard our domestic economy and our leadership in international affairs.”30 He went on to say that “­until we successfully reconvert our productive capacity we cannot hope to proceed ­toward the goal of full employment and an increased standard of living. If ­labor and management, in an industry or a com­pany, find that they cannot come to agreement, a way must be found of resolving their differences without stopping production. . . . ​We ­shall have to find methods not only of peaceful negotiation of l­abor contracts, but of insuring industrial peace for the lifetime of such contracts.”31 His traditional foes, the Republicans, sought a postwar ­labor peace as well. In a letter to Lewis B. Schwellenbach, the new secretary of ­labor, appointed in July 1945 to replace Frances Perkins, Senator Arthur H. Vandenberg (R-­MI) wrote, “The American republic knows that we cannot rebuild and maintain our national economy at the high levels required by our unavoidable necessities if we cannot have productive peace instead of disruptive war on the industrial front” (McClure 1969:51). ­Labor and management, however, w ­ ere less conciliatory. In his opening speech, Philip Murray, president of the CIO, argued that the selfishness of management in its refusal to concede wage gains was the principal drag on economic pro­gress, undercutting workers purchasing power in a period of rampant inflation. As a result, he said that “­today we are confronted with a major collapse in ­labor-­management relations.”32 William Green, president of the AFL, however, pointed to the possibility of cooperation between l­abor and management, saying that, “in a real sense this is a peace conference. It is an industrial peace conference the purpose of which is to evolve a long-­range plan through which employers and workers can arrive at the best attainable way for working together, producing together and serving the public together in harmony.”33 Throughout the conference, management regularly invoked the idea of “public interest.” But practically speaking, this phrase meant l­ittle more to employer representatives than that they should have the right to manage and run their operations as they saw fit. This led to doublespeak on the part of cap­i­tal­ists at the conference and even among themselves. Addressing the group, NAM President Ira Mosher said that the goal cannot be “some temporary or strategic advantage for

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e­ ither ­labor or management. Rather, it must be the welfare of the public and the good of the nation.”34 Industrial democracy and strengthening workers organizations were treated as incompatible with the public interest by Mosher. When ­union leaders demanded that t­ here should be a role for l­abor organ­izations in the management and exercise of corporate power, talks broke down. As the NAM reported to its membership, “­Labor members of the Committee on Management’s Right to Manage have been unwilling to agree on any listing of specific management functions. Management members of the Committee conclude, therefore, that the ­labor members are convinced that the field of collective bargaining ­will, in all probability, continue to expand into the field of management. The only pos­si­ble end of such a philosophy would be joint management of enterprise. To this the management members naturally cannot agree. Management has functions that must not and cannot be compromised in the public interest.”35 With both sides unwilling to concede on issues of corporate power, shop-­floor management, and wages and benefits, any hopes for the conference ending in ­labor-­management cooperation w ­ ere frustrated. Not skipping a step, less than a month ­after the conference, Truman returned to Congress asking lawmakers to adopt “reasoned and workable legislation . . . ​to provide adequate means for settling industrial disputes and avoiding industrial strife.”36 Securing postwar cap­i­ tal­ist growth remained his top domestic priority. Truman’s speech to Congress outlines the core motivation that would form his industrial policy for the remainder of his presidency: I am sure that it was the hope of the American p ­ eople that out of this conference would come some recommendation for insuring industrial peace where collective bargaining and conciliation have broken down. . . . ​ But on the all-­impor­tant question of how to avoid work stoppages . . . ​ the conference arrived at no accord. Failing in that, the conference was unable to attain the objective most necessary for successful reconversion. If industrial strife continues, the quick reconversion which has been planned, and which is now proceeding on schedule or even ahead of schedule on many fronts, ­will fail. In that event, we should face a period of low production, low consumption, and widespread unemployment—­ instead of the high production, high employment, good markets and good wages that are within our grasp. . . . ​Industrial strife in some key industries means not only loss of a g­ reat amount of wages and purchasing power; but it may have ramifications throughout the country affecting the ­whole reconversion pro­cess. In such industries, when ­labor and management cannot compose their differences, the public through the Federal Government has a duty to speak and act. . . . ​I regret that ­labor

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and management have not been able to agree on machinery that would provide a solution for existing strikes in some of the major industries and for the strikes which are threatened. Strikes already in effect may possibly cripple our reconversion program. Negotiations have broken down in other industries, and stoppages are threatened.37 But such calls for national ­labor peace fell on the deaf ears of ­labor and capital. In January 1946, the month following Truman’s speech to Congress, over a million workers in steel, electrical manufacturing, meat-­packing, farm-­equipment manufacturing stopped working. In steel alone, the United Steel Workers took out 750,000 workers (McClure 1969:71). In the next section, I show how active state interventions into t­ hese conflicts, intended to stabilize American capitalism, also spurred on the adoption of private pensions.

The Interventionist State Straightforward power-­bargaining resulted in the adoption of some union-­ negotiated pension programs during World War II. However, ­labor won the “­great majority” of collectively bargained pension plans in the postwar period in the industrial strife following the failure of the L ­ abor-­Management Conference.38 Why? According to business representatives at the NICB (1950a:27), “The most impor­tant event in the field of com­pany pension plans has been the ruling of several federal agencies and courts that pensions are a subject for collective bargaining.” In the previous section, I showed that policymakers ­were keen to snuff out the postwar flare-up in industrial unrest as quickly as pos­si­ble to create the conditions for smooth reconversion into peacetime capitalism and to take advantage of new markets in a demolished Eu­rope. Guided by the broader motivation of managing cap­i­tal­ist accumulation, in this section I argue that the Northern Demo­ crats, and Truman especially, intervened in conflicts over strikes to support the widespread creation of the occupational pension system. In the next section, I explore why policymakers in the North intervened in the par­tic­u­lar ways that they did, favoring u ­ nions over the employers’ goal of keeping pensions off the bargaining ­table. As I showed earlier, ­after the war Truman’s chief priority was enforcing ­labor peace. One way in which his administration did this was through seizing plants that ­were shut down ­because of work stoppages.39 Even though the war had ended, in the ten-­month period ­after August 1945, the Truman administration invoked the War ­Labor Disputes Act nine times to seize plants.40 The largest industrial showdowns ­were centered in the railroad and mining industries. Truman and

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l­ abor leaders such as A. F. Whitney and Alvanley Johnston of the railroad brotherhoods and John L. Lewis of the UMW often found themselves at loggerheads. Strikes choked large segments of the U.S. railway system a­ fter the war. The Railroad L ­ abor Act, passed in 1926 and amended twice ten years l­ater, had kept war­ time l­abor relations on the railroads fairly stable. But during the reconversion effort, l­abor relations broke down. The Brotherhood of Locomotive Engineers and the Brotherhood of Railway Trainmen called a nationwide strike for May 1946, demanding updated work rules and a wage increase of $2.50 a day. Early in 1946, Truman intervened in the failed negotiations between ­labor and management, appointing a fact-­finding board that on April 18 offered recommendations that fell short of what both railway u ­ nions sought for their members. The rail workers rejected the board’s proposal and set a month deadline for the strike. But a strike never actually materialized. Just a day before ­labor’s deadline, Truman issued Executive Order No. 9729, which promised to seize 337 railroads and turn over their administration to the director of the Office of Defense Transportation. Forced by the hand of government, most ­unions involved in the strike accepted the recommendations just a day before the strike was set. The trainmen and the rail workers, however, held out, ­going on strike on May 23. The strike effort was short-­lived. With both the presence of the army to operate the trains and protect strikebreakers and the pressure of very real pleas to Congress for drastic legislation against them, the two ­unions eventually gave in, accepting Truman’s fact-­finding board’s compromise (McClure 1969:73, 150–52). Intervening in ­labor conflicts in the years ­after the war was the norm, rather than the exception, for the Truman Administration. Of central importance to the development of private pensions was the state’s intervention into the strikes in the mining sector. Despite their weakened bargaining position a­ fter the war, ­unions made a large-­scale push for wages and fringe benefits (U.S. Bureau of ­Labor Statistics 1948:5). The UMW took the first initiative. Although the u ­ nion had broken with the CIO in 1942 and severed ties with Roo­se­velt two years earlier, their efforts a­ fter the war set the stakes in the postwar bargaining disputes. In 1945, the UMW demanded an employer-­financed pension fund and wage gains but backed down in face of owner opposition. Mine workers’ take-­home pay had increased over the past few years, but that was solely due to working more hours—­ their rate of pay had not increased since 1941 (McClure 1969:143). In the next year, Lewis called a nationwide strike. With mine operators again refusing to budge, mine workers shut down the industry on April 1. On May 4, the Office of War Mobilization and Reconversion issued a report raising the national alarm about the strike, calling it in no uncertain terms a “national disaster.” The report predicted contagion effects that the strike could have in other sectors across the economy, noting that the strike’s effects w ­ ill “spread

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through the economy and the damage to the reconversion pro­gress ­w ill take months to mend” (quoted in McClure 1969:146). Indeed, it did. With all negotiations stopped, for the next month, the country burned away its coal reserves. By mid-­May, coal supplies w ­ ere so low as to trigger slowdowns in other industries: steel production was cut in half, several auto plants in Detroit stopped production, the Office of Defense Transportation put an embargo on rail freight and reduced passenger ser­v ice by 25 ­percent. As Melvyn Dubofsky and Warren van Tine (1986:331) elegantly put it, “Harry Truman dimmed the lights in the White House, and New York’s G ­ reat White Way lost its glow.” On May 21, a fed-up Truman invoked the War ­Labor Disputes Act with Executive Order No. 9728, authorizing the secretary of the interior, J. A. Krug, to seize the mines and negotiate an agreement between the mine workers and the coal operators.41 By May 29, the operators and the ­union signed an agreement that both put coal operation back online and met many of the mine workers’ demands. Although he was no friend of Lewis, Truman’s influence allowed the mine workers to establish a pathbreaking pension plan that included disaster, medical, death, disability, and survivor annuity insurance. In addition, the retirement plan paid a flat rate of $100 a month, which, in combination with public pension benefits, provided a comfortable retirement.42 The contract included two separate welfare funds: first, a health and welfare fund that was financed out of a tax on the industry payroll; and, second, a fund that gave ­union sole control over administration and was financed by com­pany deposits deducted from the miner’s wages (Dubofsky and Van Tine 1986:332). This victory had a significant impact on the subsequent drive for u ­ nion pension plans (Sass 1997:128–29). Likewise, large-­ scale strikes over pensions erupted in steel and auto in 1945, where Truman had also urged employers in both industries to adopt negotiated pension plans.43 The state continued to shape the outcome of industrial conflict, recurrently intervening in ­favor of the establishment of collectively bargained pension plans to get workers back to work. In time, ­these decisions became inscribed in law. On April 13, 1948, the presidentially appointed NLRB made a landmark decision. In accordance with the Taft-­Hartley Act, the board ruled that the Inland Steel Com­pany was engaging in unfair ­labor practices when it refused to bargain with the United Steel Workers of the CIO regarding the terms of the pension plan and its retirement policy. Instead, it ordered the com­pany to bargain with the ­union over pension policy, provided that the u ­ nion qualified u ­ nder the non-­Communist and financial provisions of the law (NICB 1950a). The ruling determined that pensions “lie within the statutory scope of collective bargaining” (quoted in Sass 1997:132). The case was upheld by the U.S. court of appeals on September 23, 1948. On April 25, 1949, the U.S. Supreme Court set its stamp of approval on the ruling by refusing to review the decision.

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In the interim between the NLRB’s ruling and the Supreme Court’s denial of the petition to review the case employers continued to resist compliance, which resulted in another strike wave over fringe benefits (Stevens 1988:141). Employers’ associations, such as NAM, argued that the “entire subject of employee benefit programs must continue to lie outside the scope of collective bargaining.”44 As a result, by the summer of 1949, contract negotiations in steel, auto, coal, oil, and other industries came to a halt over old-­age security. Although many national ­unions ­were on the verge of striking, the case of steel proved decisive. Three days before the USW initiated a nationwide strike, the White House intervened by forming the Steel Industry Board. Truman conferred on it the power to recommend an equitable solution to the steel dispute. The SIB produced what one historian of private pensions (Sass 1997:133) calls “the defining document in the history of collectively bargained pension plans.” The document recommended that the o ­ wners agree to com­pany-­financed pensions and insurance programs—­something the u ­ nion found satisfactory. Although the companies refused to immediately comply with the recommendations, the SIB’s decision turned the tide in contract negotiations in the auto industry. As in the steel case, when Ford and the UAW went to the bargaining ­table in 1948, they ended up in a deadlock over the issue of pensions. The ­union demanded a noncontributory plan that was managed by a joint l­abor-­management board. The com­pany, on the other hand, refused to bargain over pensions. B ­ ecause of 45 management’s firm position, the UAW settled. However, during the negotiations the following year, pensions reemerged as a pivotal point of strug­gle. And the report issued by the SIB drastically shifted the momentum in ­favor of the auto workers. Shortly afterward, Ford and the UAW signed a Memorandum of Agreement on Retirement and Health Security Programs based on the SIB’s recommendations. The result was that Ford had to pay $100 per month pensions to all eligible retirees for the duration of the contract (Sass 1997:135). Once the auto workers won, one by one, starting with the Bethlehem Steel Com­pany, USW members won pensions in their negotiated contracts. The administration’s role, alongside the NLRB ruling and subsequent denial of the petition by the Supreme Court, settled the question of the bargainability of pensions (NICB 1950a). Employers accepted this outcome. The NAM, previously staunch opponents, resigned itself to the position that “mandatory bargaining [over pensions] is now a fact.”46 And this resignation bears out in the statistical evidence that firms themselves collected concerning contract outcomes. Looking to a NICB (1950b) study of 487 contracts that ­were reopened in 1949 (covering 1.26 million workers), the decision had an immediate effect. Out of 399 signed contracts before the steel fact-­finding report (between January 1 and September 9), 47.2 ­percent of renewed contracts made increases in fringe benefits (out of a

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100 90 80

% on contracts

70 60 50 40 30 20 10 0

Jan. 1–Sept. 9, 1949

Sept. 10–Dec. 31, 1949 Date range

No fringe items, no wages

Wage increase only

Wages and fringe items

Fringe items only

FIGURE 4.  Collectively bargained fringe benefits before and ­after the Steel Industry Board report, September 9, 1949 Source: NICB 1950b.

set of contracts that covered 479,526 workers). A ­ fter the report (between September 10 and December 31), 96.3 ­percent of the 88 renewed contracts (covering 593,162 workers) made increases in fringe benefits, and 93.1 ­percent made increases in fringe benefits alone (see figure 4). ­These contracts ­were especially impor­tant for the spread of private pensions ­because they covered very large groups of workers. Nine of the thirteen large contracts signed by the USW a­ fter September 10 included pension benefits (NICB 1950b:10). Truman would intervene in f­ avor of collectively bargained pensions again in the final year of his presidency. In the next nationwide steel strike in 1952, the NLRB, with dissent coming from industry representatives, recommended a

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package of wage increases and fringe benefits that w ­ ere historically unprecedented—­ far more expansive than anything ever offered to or negotiated by a u ­ nion in the United States. The president gave the recommendation his full public endorsement (Harbinson and Spencer 1954:714).

From Ballot Box to Pension Plan In the previous section, I showed that Truman’s primary goal was ensuring stable ­labor-­management relations ­after the war and that he and his administration did this by intervening in ­labor disputes to force settlements between ­unions and employers. This, then, had the inadvertent effect of driving the spread of private pensions across the U.S. economy. But the analy­sis would be incomplete if left as is. It raises a new set of questions: Why did Truman intervene in support of l­ abor’s demands? Why did his administration not more actively support employers and their associations, who both argued against collectively bargained pensions and resisted them in contract negotiations? In this section, I address this issue, arguing that the electoral role of the CIO l­abor federation in the North compelled Northern Demo­crats to support t­ hose ­union bargaining objectives that did not risk undermining their main postwar goal, ensuring cap­i­tal­ist accumulation.47 While it did not result in a radical extension of the Social Security program, ­union electoral activity used votes to motivate Northern Demo­cratic politicians to intervene on behalf of the l­ abor movement against the more narrow and short-­ term interests of U.S. businesses.48 Immediately ­after World War II or­ga­nized ­labor’s bargaining power with re­spect to firms was severely weakened, but their membership numbers ­were at a historical high. Quite simply, ­unions had become a critical constituency within the party. Truman was compelled to intervene in ­labor-­management conflicts ­because of a structural reason, to manage American capitalism and avoid cap­i­tal­ist crisis. But the policy paths he and Northern Demo­ crats chose to do this was selected by a more contingent cause, the position of or­ga­nized ­labor in the New Deal electoral co­ali­tion.

Electoral Activity and Old-­Age Security The CIO arose in 1935, in the midst of widespread industrial conflict, with UMW leader John L. Lewis acting as its main architect. Many officials of the federation almost immediately a­ dopted a pro-­Democrat po­liti­cal stance. Roo­se­velt’s famed Section 7(a), the so-­called right to ­unionize clause, in the National Industrial Recovery Act, earned him many close allies in the CIO’s top ranks (Bern­stein 1960). But with re­spect to the resources ­labor dedicated to the party, the first steps t­ oward

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real incorporation into the New Deal co­ali­tion ­were taken in the 1936 elections, during which the CIO formed ­Labor’s Non-­Partisan League to help secure Roo­ se­velt’s reelection. Of course, ­labor leaders and Northern Demo­cratic politicians formed personal ties long before the New Deal. For instance, Sidney Hillman, longtime leader of the ACWA, had working relations with progressive Demo­crats before World War I and a close personal connection to Roo­se­velt since at least the onset of the ­Great Depression (Lichtenstein 1982:34–35). Other ­labor leaders such as David Dubinsky and Philip Murray w ­ ere also committed to the Demo­cratic Party and Roo­se­velt (Burns 2002). However, as business support of the New Deal administration dwindled, Roo­se­velt strengthened ­these connections through the widespread and progressive reforms of the “Second Hundred Days” of 1935 (Davis 1980). He needed the votes and campaign support that the nearly 4 million new members of the CIO between 1935 and 1937 might offer in f­uture elections. The strategy paid off for the party. The New Deal Demo­crats achieved an electoral landslide in the 1936 elections. However, it was not ­until World War II that a pro-­Democratic orientation became fully institutionalized into the CIO wing of the l­abor movement. The 1938 and 1942 elections, in which blocs of antilabor Republicans and Southern Demo­crats won seats in Congress, spurred CIO leaders to formulate a long-­ term po­liti­cal plan. A ­ fter the elections, a top-­level po­liti­cal action report within the federation asserted that ­there was no hope in influencing Republicans. Instead, the CIO should put its full resources b ­ ehind the Demo­crats (Foster 1975:21). This plan was formalized and resourced with the establishment of the Po­liti­cal Action Committee in 1943, of which Hillman would take the helm ­until his death three years ­later. Although the first goal of the CIO-­PAC was the reelection of Roo­se­velt in the 1944, it remained an active organ­izing hub for Demo­cratic candidates well into the 1950s. In his book The New Men of Power, C. Wright Mills (1948:184) went as far as describing the CIO-­PAC as “an appendage of the Demo­crats.”49 In stark contrast to the CIO’s legacy of intense shop-­floor militancy and work actions, the CIO-­PAC or­ga­nized its program around electoral activity. One historian (Foster 1975:48) notes that their penultimate goal was that “workers should think and vote as liberals.” Assuming that its more than 5 million members could alter the balance of power in several congressional districts, the CIO-­PAC made its raison d’être the po­liti­cal education of the CIO membership to build a reliable and easily mobilizable electoral constituency for the Demo­cratic Party (Greenstone 1977). U.S. businesses recognized this strategy’s “dangerous” potential. The NAM lamented, “Or­ga­nized ­labor has created a po­liti­cal missile of massive proportions.”50 And, other leaders of industry referred to l­ abor’s new role in the party as an “unholy po­liti­cal deal” (Harbinson and Spencer 1954).

CHAPTER 3

Number of union members (in thousands)

20,000

30

18,000 25

16,000 14,000

20

12,000 15

10,000 8,000

10

6,000 4,000

Percentage unionized

72

5

2,000 0 66

64

19

62

19

60

19

58

19

56

19

54

19

52

19

50

19

48

19

46

19

44

19

42

19

40

19

38

19

19

19

36

0 Year Number of union members

Percentage employed in unions

FIGURE 5. ​Union density, 1936–66 Source: U.S. Bureau of ­Labor Statistics 1980:412, ­table 165.

The CIO-­PAC was an effective campaign machine with regional offices in the largest northern cities. ­Under its direction, tens of thousands of local campaign workers brought out CIO members and their communities to vote for Demo­cratic candidates. If taken to the polls, CIO leaders believed that the growing corps of ­union members and their neighbors could prove to be an effective electoral force. In the de­cades following the New Deal, this corps only grew. Both ­union density and the number of employees in u ­ nions tripled between 1936 and the end of World War II (see figure 5). Yet despite the CIO’s enthusiasm for expanding both public and private pensions a­ fter the war, its electoral activity facilitated an expansion of the latter and not the former. Co­ali­tional ­Labor Politics. ­After the initial downturn of the G ­ reat Depression and in the context of what appeared at first to be a recovery, the insurgent rank-­and-­ file ­union movement led a major strike wave (Bern­stein 1960; Temin 1976). The first of such strikes was initiated by auto workers in 1933, at Briggs Manufacturing Com­pany in Detroit (Keeran 1980:77–95). But the majority of strikes took place in 1934.51 That year produced three extraordinary strike episodes: the strikes

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in Toledo (Auto-­Lite), Minneapolis (Teamster-­led general strike), and San Francisco (a general strike sparked off by the longshore and maritime workers). Scholarship on the passage of the Social Security Act suggests that ­these working-­class protests fostered a sense of crisis among po­liti­cal and business elites that helped put the Act on the po­liti­cal agenda (Jenkins and Brents 1989). By the second half of the 1930s, the CIO officials began to turn t­ oward party politics as the main arena of strug­gle. But the orga­nizational shift ­toward an electoral strategy constrained the same local militancy within the federation that had previously generated a context of crisis conducive to the passage of large-­scale public welfare programs. Instead of encouraging industrial action, CIO officials worked with New Deal Demo­crats to promote “responsible ­unionism,” which meant curbing worker militancy and radicalism (Lichtenstein 1982:44). Roo­se­ velt was no radical. The CIO-­Democrat alliance pivoted on the recognition of management’s right to manage and the promotion of l­abor peace.52 As a result, progressive Demo­crats pushed for more negotiated settlements between l­ abor and management and the suppression of the widespread use of militant tactics like the sit-­down strike.53 This electoral activity is the crucial component that explains why Truman intervened so forcefully on behalf of l­abor ­union demands. Although his primary concern was with maintaining the health of American capitalism, electoral constraints on his party ensured that he ­wouldn’t work at cross purposes against ­union leaders if he d ­ idn’t have to. Their organ­izations played a vital role in getting Truman elected, as they did with Roo­se­velt before. In short, CIO leaders saw Truman as an explicit ally, turning out voters and distributing campaign material on his behalf.54 In return, he seized or threatened to seize entire sectors of the economy in ­favor of ­labor demands, even when ­labor leaders like John Lewis ­were opposed, and pushed his ­labor agencies, such as the NLRB, to take an activist approach to their decisions (Sass 1997:126).55 ­Because of the electoral leverage ­unions had, many of the outcomes in national ­labor conflicts in the five-­year period ­after the war ­were driven by the prolabor role of the government (Harbinson and Spencer 1954).

The Farmworker Counterfactual Before concluding, it is necessary to address a final set of questions related to the contingent f­actor at play in this chapter—­labor’s electoral leverage over Northern Demo­crats. How can we be sure that Truman and his agencies did not intervene in l­abor-­management conflicts a­ fter the war b ­ ecause of his own prolabor disposition? Was the electoral activity of the CIO a decisive cause of Truman’s interventions? By looking at the counterfactual case of the farmworkers’ organ­izing

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drive ­after World War II by the AFL, I hope to offer more support for the idea that Truman did intervene in ­favor of private pensions ­because of the electoral incentive rather than his own prolabor views. Comparison with the AFL farmworkers’ drive is instructive in two ways. First, in the immediate postwar period, the AFL was not an explic­itly pro-­Democrat or­ga­ni­za­tion like the CIO. Although the AFL benefited from the New Deal legislation and the alliance between the CIO and Northern Demo­crats, some of its main leaders, most prominently within the building trades, remained vocal Republicans ­after the war. Their leverage in l­abor markets allowed them to make bargaining gains without the assistance of the NLRB and other federal agencies (Marks 1989; Dubofsky 1994:199). As a result, the federation’s public positions on po­liti­cal candidates typically reflected its own internal divisions over electoral politics. For instance, in 1948 it rejected a proposal to endorse Truman in an official AFL report (Greenstone 1977:55). This point is made all the more relevant ­because many farmworkers could not vote at all; many w ­ ere, ­after all, mi­grant workers and not actually U.S. citizens. Second, farmworkers ­were also in a weak bargaining position vis-­à-­v is farm o ­ wners, and farm o ­ wners, like industrialists, ­were a po­liti­cally power­ful group. However, in this instance, Truman intervened in ways that ­were largely unsupportive of the ­union. The AFL’s National Farm ­Labor Union (est. 1946) unsuccessfully tried to or­ga­nize farmworkers between 1946 and 1952. They used mass agricultural strikes, boycotts, and lobbying. However, government officials at all levels tended to intervene on the side of the growers (Jenkins and Perrow 1977:250, 255). As soon as the NFLU was chartered, it launched a strike wave in the Central Valley of California that ended with the Los Baños strike of 1952. The largest of ­these strikes took place at the DiGiorgio Fruit Com­pany between 1947 and 1949 (Grubbs 1975:454). Its Arvin ranch in the southern San Joaquin Valley employed about two thousand workers. Approximately three-­quarters ­were “dust bowlers” (“Okies” from the Southwest and Great Plains), and one-­quarter Mexican (Ganz 2009:47). Of the Mexican workers, most w ­ ere braceros (government-­imported contract workers). In response to the agricultural l­abor shortage during World War II, the federal government recruited Mexican workers to work on U.S. soil. Once the NFLU began its strike at DiGiorgio, the federal government came to the aid of growers—­not the ­union. The bracero workers walked out on the first day, alongside the U.S. employees. However, they w ­ ere immediately ordered by Mexican and U.S. officials to fulfill their contracts or be deported. With substantial public support in the area for the farmworkers, the NFLU continued the strike, expecting that their effort would be strengthened at the end of 1947 when the bracero program expired. By that year the official number of Mexican workers imported, most of which w ­ ere sent to California and Arizona, had reached

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220,000 (Hawley 1966:158). Truman intervened, however, by not only extending the life of the program, but also expanding the number of imported workers. This drastically undermined organ­izing efforts by the NFLU. In the coming years, extensions to the program moved through Congress with relative ease, greatly supported by both growers and agribusinesses.56 The AFL became much more active in national politics when it formed the LLPE in 1947, largely in reaction to a provision in Taft-­Hartley that banned direct u ­ nion contributions to po­liti­cal campaigns.57 However, during the 1948 elections, the AFL put much of its effort into Senate contests, conceding the presidential election to the favored Republican candidate, Thomas Dewey (Leeds 1950:208– 12). Although many local ­unions in the AFL supported Truman, as they had Roo­se­velt in his four elections, the federation never officially endorsed him (Witte 1956:412).58 The federation officially endorsed a Demo­cratic presidential candidate for the first time when it supported Adlai Stevenson over Dwight Eisenhower in the presidential election of 1952. Following the lead of the CIO, the AFL slowly shifted its po­liti­cal vision away from ­labor voluntarism ­toward social democracy. By the postwar period, the federation was already an advocate for robust redistributive programs that benefited both u ­ nion and nonunion workers alike (Cornfield 1989; Cornfield and Fletcher 1998). Indeed, the convergence of the public policy agendas of the two federations was an impor­tant component of their merger in 1955, forming the AFL-­CIO (Cornfield and McCammon 2010). Although the CIO-­PAC had established itself much earlier as a pro-­Democratic organ­izing tool, by 1955 both it and the LLPE could work together to support Northern Demo­cratic candidates. The CIO’s electoral activity provided the impetus for Northern Demo­crats to intervene with an eye t­oward ­union interests ­after the war. In major industrial disputes, which on occasion ended in government seizure, executive and state agency decisions provided the ­legal framework for the expansion of private collectively bargained plans. By the completion of the fourth round of postwar ­labor negotiations in 1952, pensions became a regular, and indeed expected, component of CIO contracts (Sass 1997:136). Between 1950 and 1954, the UAW alone negotiated more than two hundred distinct pension plans—­more than any other international ­union (Perham 1954). ­After the state intervened, the trend spread throughout most collectively bargained plans, resulting in a successful push for pension plans among AFL ­unions as well (Sass 1997). The U.S. government estimates that just more than 50 ­percent of u ­ nionized employees had pension coverage at the end of 1957. About 10 million of the approximately 17 million employees covered by private pensions in the same year w ­ ere ­unionized (U.S. Bureau of ­Labor Statistics 1958).

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Crisis to Pensions Policymakers played a central role in spurring on the development of private pensions ­after the war while they made ­little attempt to expand the public social security system. I have shown that understanding their motivations points t­ oward structural ­factors. In par­tic­u­lar, Truman and his agencies ­were not motivated by their own prolabor orientation nor ­simple interest-­group politics reducible to their main constituencies, but rather by the need to secure stable postwar ­labor-­management relations in order to expand American capitalism into markets abroad. However, the explanation for their prolabor intervention points to a contingent ­factor in this episode—­their electoral alliance with ­unions in the CIO. The federation built a sizeable electoral machine for Northern Demo­crats, able to mobilize large numbers of votes in key northern cities. Policymaker motivations ­were ­shaped at two distinct levels. The deeper one, the need to promote postwar cap­i­tal­ist growth, and the other, the desire to do so in a way that did not undermine ­unions. In large part, the U.S. government’s gambit for postwar economic hegemony and stable cap­i­tal­ist accumulation was a success. Although John L. Lewis remained a thorn in the side of the government, the strike wave had subsided and u ­ nions settled into routinized and bureaucratic bargaining that kept rank-­and-­file militancy at bay well into the 1960s. For their part, cap­i­tal­ists took full advantage of the postwar cap­i­tal­ist growth. War­time priorities had restricted the production of goods for civilian consumers, which led to a backlog of demand for goods. Consumers began to buy big-­ticket items like cars and, with the help of the G.I. Bill that made home owner­ship a real­ity mainly for whites, home appliances (Sharnoff 1987:228). As a result, GDP quickly recovered from its initial postwar slump, and by the end of the Korean War, a­ fter the brief 1949 recession, the U.S. economy was growing at the same rate that it had in the midst of World War II. Truman’s reconversion effort worked for American capitalism. Through agreements such as Bretton Woods and the Marshall Plan, the U.S. government asserted itself and assumed the leading role in the postwar reconstruction of Eu­ ro­pean cap­i­tal­ist states, both strengthening U.S. hegemony and bringing new business to U.S. firms. In securing the correct domestic conditions at home—­ stable production founded on bureaucratic and regularized l­abor-­management relations—­policymakers ­were able to sell the American dream to western Eu­rope and Japan.

4 TURNING L ­ ABOR INTO FINANCE CAPITAL If “socialism” is defined as “owner­ship of the means of production by the workers” . . . ​then the United States is the first truly “Socialist” country. Through their pension funds, employees of American business ­today own at least 25 ­percent of its equity capital, which is more than enough for control. . . . ​Only in the United States are the employees through their pension funds also becoming ­legal ­owners, the suppliers of capital, and the controlling force in the capital market. —Peter Drucker, The Unseen Revolution

When management con­sul­tant and author Peter Drucker penned t­ hese words in the mid-1970s, his basic facts ­were correct. First, pension funds amassed ­great wealth in the years following their installment in the postwar period. They went from negligible holdings ­after World War II to over $10 trillion in assets by 2010 (Board of Governors, Federal Reserve System 2010). Second, and related, this money became a major source of capital for U.S. firms. By the mid-1970s, pension funds controlled nearly 25 ­percent of all U.S. corporate equities. Indeed, pension funds became critical to the U.S. economy on a historically unpre­ce­dented level. The gigantic scale of ­these asset holdings alone has led some to characterize economies with large funded private pension systems like the U.S. as “pension fund capitalism” (Clark 2000).1 But Drucker miscalculated his conclusion. U.S. workers ­were never a “controlling force in the capital market” as he said. Own­ership of pension fund money should not imply control of it. Despite trying, on balance U.S. l­abor never had control over pension fund investments (cf. Zysman 1983). Instead, in the 1950s, institutional fiduciaries hired by employer-­dominated trustee boards followed investing trends in the financial sector and shifted pension fund assets out of the government bond market, which had become the preferred investment during the war, and into much riskier common stocks. This investment shift led to the full-­scale financialization of the U.S. pension system, several de­cades before finance-­based profit-­making strategies would spread to other sectors of the economy (see Krippner 2011). As fiduciaries financialized pension funds, they put the income of f­uture retirees on riskier terrain. Higher risks meant both higher 77

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returns and higher losses; that depended on the status of financial markets when one retired and how one had invested over their lifetime. Financializing pensions had other indirect and hidden costs for working p ­ eople beyond putting their retirement on riskier footing. Fund man­ag­ers distributed assets on the basis of purely financial criteria, often investing in antilabor companies with operations in less developed economies. Policymakers made social considerations in investment largely illegal or very difficult to pursue for ­those managing the funds and in turn have rewarded firms that prioritize profit margins over l­abor, environmental, and social standards. Since World War II, many ­unions promoted an alternative, more solidaristic vision of social investment, which gave priority to growth through targeting local proj­ects that drew on ­union ­labor. Yet, policymakers stifled this vision of pension fund investment a­ lmost as soon as it began to take form. The rapid expansion of pension plans and participants ­after the war resulted in a massive buildup of plan assets. This development led to two pressing and connected questions about the institutional design of t­ hese plans: Who should control them, and how should they be invested? This chapter makes a three-­part argument to show how pension assets w ­ ere both controlled and financialized by corporate boards, further subjecting retirement to market forces and taking it down another path away from solidarity. First, perceived crises in American capitalism both ­after World War II and in the early 1970s set policymakers on separate courses of action. Second, they intervened in the management and administration of pension funds, not to best protect retirement income by enforcing prudent investing, but rather to block ­labor from controlling pension fund assets and ensure that workers’ finance would serve as a readily available source of capital for U.S. firms—­and a driver of cap­i­tal­ist growth. B ­ ecause of federal legislation, the ability of most ­unions in the CIO—­and ­later the merged AFL-­CIO— to control fund investment and to incorporate nonfinancial criteria into fund investment decisions was incrementally eroded in the three de­cades following the war. Third, cap­i­tal­ist crises in the late 1970s brought the issue of solidaristic pension investing back into the public debate. Some within the Demo­cratic Party proposed worker-­run investing for reindustrialization purposes in Northern cities that had once been manufacturing centers. But by the end of the 1970s, or­ga­nized ­labor was too weak a social force to bring about t­ hese more solidaristic alternatives. Instead, policymakers turned to neoliberal forms of cap­i­tal­ist management. Provisions in the Taft-­Hartley Act of 1947 largely transformed ­labor’s retirement assets into a pool of employer-­controlled assets by weakening the ability of ­unions to influence decision making on pension boards. This left employers to make decisions on the basis of purely financial criteria and investment trends in

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the financial markets. Only in multiemployer pension plans, which emerged through industry-­wide agreements where the structure of collective bargaining created opportunities to get around the intent of law, did l­ abor organ­izations successfully influence fund investment at the board level. Nearly three de­cades ­after the passage of Taft-­Hartley, the Employee Retirement Income Security Act of 1974 further restricted even t­ hese multiemployer pension funds by making diversified portfolios, heavi­ly invested in equities, a main component and requirement of fiduciary prudence. ERISA made it even more difficult for u ­ nions to influence investment decisions in traditional pension funds. As I show in this chapter, both Taft-­Hartley and ERISA w ­ ere passed in part b ­ ecause of a structural f­ actor, policymakers’ worries about cap­i­tal­ist crisis. But the reader should take heed not to ignore the context of strug­gle in which regulations are passed and implemented. As I try to show throughout this book the contingencies of class strug­gle help to explain both the effect of the policy interventions and their a­ ctual form. As in the other cases in this book, where changes in pension institutions follow the logic of the market rather than the logic of social solidarity, the form the state intervention took was contingent on the relative po­ liti­cal and economic power of ­unions and firms, of workers and c­ ap­i­tal­ists. During the economic stagnation that followed the 1974 recession, policymakers in many rich countries vetted the possibility of experimenting with more solidaristic growth strategies. The best-­known experiment in worker finance ­were the “wage earner funds” established in Sweden in 1983 (Pontunsson 1992). But even in more liberal and capitalistic countries in the late 1970s, such as the U.S., policymakers explored the idea of using worker-­controlled retirement assets to help generate cap­i­tal­ist growth. Just a few hundred miles north, in Quebec, Canada, the provincial government debated similar plans. For u ­ nion fund control to be a possibility in both the U.S. and Quebec, laws had to be changed or new forms of state-­supported private pensioning had to be created that provided a role for ­unions in the investment decision. Driven by the recession, policymakers searched for ways to revive cap­i­tal­ist growth. Union power helps explain their dif­fer­ent trajectories. In 1983, in Quebec, a strong l­abor movement aligned with a social demo­cratic government introduced the Solidarity Fund to invest worker savings into the province. By contrast, in the late 1970s U.S. u ­ nions ­were simply too weak an electoral and social force to change the law even when similar proposals w ­ ere debated. In the run-up to Car­ter’s lost reelection campaign against Reagan in 1980, President Carter proposed an economic revitalization plan that created a tripartite investment board that increased ­union control over retirement funds. Although this plan failed, it represents what Barrington Moore (1978) once termed a “suppressed historical alternative.” As we see throughout this chapter, structural crises create historical junctures,

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carving out new historical possibilities where t­ here ­were none before. The character of class strug­gle selects the paths that are chosen and the ones left unexplored.

Pension Fund Design Basics To explain how the po­liti­cal management of capitalism drove pension financialization, it is critical to first pres­ent the pro­cess of pension fund investment itself in s­ imple terms. This is a somewhat challenging task b ­ ecause the management of private pension funds is notoriously arcane, reflecting real differences both in pension type and in the high level of complexity of the institutions that manage them. For the purposes of this book, though, it ­will be sufficient to distill the basics and to eliminate the insider jargon, wherever pos­si­ble. This section describes how pension funds as institutions of re­distribution actually work. In the next section, I address how the policy arena has changed since the postwar period. ­Doing both w ­ ill provide the base knowledge necessary for the subsequent analy­sis of their marketization. Occupational retirement plans are typically funded by periodic contributions, which may be made at a number of dif­fer­ent intervals. The earliest occupational pension plans, however, ­were unfunded—­pensions ­were paid by the employer out of current income as it accrued. ­These became known as out-­of-­pocket, or pay-­ as-­you-go plans. Occasionally, companies would set aside reserves to meet ­future demand. However, while the reserves w ­ ere often earmarked for retirees, the funds could be drawn on anytime by the firm and used for other purposes. This, the “balance sheet reserve system,” was actuarially unsound and proved unreliable. The temptation for firms to draw on the funds in hard times for other expenses was simply too g­ reat. As the NICB (1950a) wrote, “Experiences with the unfunded discretionary pension plans of the Twenties should be a warning both to employers and u ­ nions as to the consequences arising from an unsound plan during a period of depression.” Bad experiences, repeated plan failures, alongside incentives in the Internal Revenue Code that made funded plans the only kind that w ­ ere tax deductible, resulted in a shift ­toward funded plans ­after the depression era when many of ­these plans ­were bankrupted (NICB 1950a). Since the 1930s, most private pensions have been funded in advance, rather than on a pay-­as-­you-go basis.2 The first step in establishing a funded plan is for the com­pany’s financial officer to hire an actuary to calculate what contributions need to be made. The mere presence of the actuary reveals something critical about how pensions function—­ none are actually set up to pay off most of the ­people that contributions are set aside for. T ­ here is an explicit understanding that many workers in the plan ­will

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be left out, come time for their own retirement (NICB 1950a). Pension plans operate much like insurance policies; although most in the plan contribute only a few ­will actually gain their benefits. The main difference is that in a pension plan, distribution is not made on the basis of need, but rather qualification: some p ­ eople ­will not work long enough for the employer to become vested; ­others ­will be laid off for a short period only to be hired back to lose their vested status; some w ­ ill become disabled before they reach retirement age; and the truly unfortunate ­will die, potentially leaving their spouse without the old-­age security that they had come to expect. Taking all this into account, professional actuaries make estimates that help calculate the costs of the plan (mortality rates, employee turnover, assumptions about investment return rates, and the companies own financial statistics, among o ­ thers). Actuary ­tables are then used in order to determine the contribution needed to keep the plan financially sound (and more recently in line with the funding provisions of ERISA).3 Once the amount of the contribution is calculated, they are channeled in one of two ways. Plans in existence before the G ­ reat Depression w ­ ere primarily noncontributory, which meant that the employer was the sole contributor to the plan’s fund. Murray Webb Latimer (Latimer 1932:572), a key architect of the Social Security Act, surveyed 400 plans in 1928 and found that only 22 ­percent relied on employee contributions. Another survey (Strong 1951:67) in the late 1940s of 923 firms found that contributory plans, in which both the employer and the employee make contributions to the pension fund, became popu­lar in the 1930s. In this period, companies regularly included contributory provisions as a cost control mea­sure. However, they found that dollar for dollar, costs associated with employee contributions outweighed t­ hose of the employer contributions (McGill et al. 2005:376). First, employee contributions greatly complicate the administration of plans, leading to higher administrative costs. Second, and most importantly, changes in the Internal Revenue Code in 1942 altered the regulations governing pension plans. If the pension plan complied with the regulations of the Bureau of Internal Revenue and was approved by it, the employer’s contributions ­under the plan could be deducted as a reasonable business expense. At the same time, employees ­were not taxed on the amounts contributed on their behalf ­until the benefits ­were made available to them. The high excess-­profits tax imposed on firms during the war encouraged many companies to turn back to noncontributory pension plans. If the com­pany was in the excess-­profits brackets, the money contributed to the pension plan represented a smaller portion of the total dollars expended other­wise since for many firms the money would have to be paid out in taxes (NICB 1955a). As a result, the funding trend shifted decidedly back ­toward noncontributory plans ­after the 1940s (NICB 1950a). The majority of collectively bargained pension plans

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­ etween 1945 and 1948 ­were noncontributory (U.S. Bureau of ­Labor Statistics b 1948). And this trend prevails in defined-­benefit plans to the pres­ent. In 2000, just 5 ­percent of employer sponsored defined-­benefit plans in the United States required employee contributions (McGill et al. 2005:375). Collectively bargained pensions w ­ ere financed in two ways. On the one hand, pensions ­were or­ga­nized through a group annuity contract.4 ­These contracts are designed for a group of employees within the same establishment. Employers purchase deferred annuities from an insurance com­pany, which provide an eventual retirement income. In most cases, a master contract is negotiated between the employer and the insurance com­pany to lay out the terms u ­ nder which the insurance com­pany is g­ oing to underwrite the plan (NICB 1948b:31). The retirement benefit u ­ nder a group annuity contract consists of a series of units of paid-up deferred annuities, one unit to be purchased each year for each eligible employee to cover the retirement benefit attributable to the employee’s ser­vice during that year. The income at retirement then is the total of all units purchased during membership in the plan (NICB 1955a:42). However, by the end of World War II, most new pensions typically accumulated funds through a trust (NICB 1948b:41). H ­ ere a fiduciary, ­under agreement, holds and administers the assets, investing contributions in securities, cash, properties, bonds, or equities to yield an interest. Although the fiduciary exercises the right of owner­ship over the pension contracts, they are subject to the investment guidelines set by a pension committee or trustee board (NICB 1948b:34). Employers increasingly a­ dopted ­these plans b ­ ecause they afforded firms greater flexibility to deal with changing conditions, such as revisions in the Social Security Act, and higher rates of interest than the ones offered by the annuity contracts (NICB 1948b:41). Asset management of ­these funds are typically delegated by the board to hired fiduciaries, such as banks, insurance companies, trust companies, or, as they w ­ ere increasingly, large institutional investors. In the postwar period, firms strongly preferred corporate trustees to manage pension fund investment: (1) trustees provide an in­de­pen­dent agency to ­handle the funds and ensure that the funds ­will be safeguarded; (2) the fund is left in the hands of specialists in the field of investment, and therefore the com­pany often leaves investments decisions in the hands of the trustee ­under the restrictions of the original agreement; (3) the fund is entirely separated from the assets of the employer; (4) trust accounts are subject to examination by banks without cost to the employer; (5) the trust com­pany specializing in pension trusts is in a position to give the employer advice on how to administer it (NICB 1948b:40). But most importantly, trust funds are less risky for employers. The absolute cost of a pension plan for a firm can be broken down by a ­simple equation:

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­ enefit payments plus expense outlays minus investment income (cost = b contributions + expenses − investment returns). This s­ imple formula underscores the importance of successful investment of fund money for corporate sponsors. The higher the returns achieved on the investment of the funds, the lower the contributions cap­i­tal­ists need to finance a plan and vice versa. Using investment specialists that seek out the highest returns greatly reduces employer risk by lowering costs and increasing profits. In order to reduce risk as much as pos­si­ble, constraints are typically imposed on money man­ag­ers. ­These may include restricting or even barring investments in sponsors’ securities, specifying quality prerequisites for investments, setting limits on the size of holdings in any one com­pany, directing diversification (usually by industry), banning certain types of transactions and investments (e.g., purchases of gold), restraining the use of direct brokerage, and curtailing portfolio turnover. Employers may also include quantified risk yardsticks. In some cases, portfolios are composed of specified “betas,” which are mathematical criteria that relate the sensitivity of port­ folios to market swings.5 Although pension funds are or­ga­nized ­under trust law, which stipulates how they are held by someone for the benefit of another, historically ­there has been significant ­legal ambiguity in determining who rightfully has access to the fund’s assets. In practice, the stakes on the contents of the fund overlaps with dif­fer­ent parties claiming parts of the money at dif­fer­ent moments in its circulation. Overlapping claims of owner­ship has led Robin Blackburn (2002:115) to term ­these retirement funds “grey capital,” in part ­because the property rights represented by the funds represent a grey area in terms of the law. Ambiguity can lead to a set of principal-­agent prob­lems, and in some cases cast doubt about who the principal actually is. However, it has been accepted, largely for tax purposes, that contributions to a pension fund represent a worker’s deferred compensation. Therefore, workers have legitimate rights and interests as to what is done with the funds that ­will provide their retirement pensions.6 This is a contentious issue. Employers’ associations opposed the characterization of pensions and other fringes as deferred wages. The NAM Sub-­Committee on Com­pany-­established Employee Benefit Programs circulated the idea among firms and legislatures that “they [pension assets] serve entirely dif­fer­ent purposes in the scheme of industrial relations and call for entirely dif­fer­ent criteria.”7 Within ­these systems of retirement distribution, t­ here are vast socioeconomic differences between the workers and ­those that manage their pension funds, a situation that leads to further principal-­agent prob­lems. Fiduciaries, or fund man­ ag­ers, quickly became among the highest-­paid members of the business class. As a 1982 Harper’s article vividly illustrates, “this w ­ hole pinstriped world is financed by the lunch pail brigade of blue collar workers, living and working in a world

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their financial advisors never visit.”8 By the early 1980s, several hundred management firms (large institutional investors) administered the largest pension funds. Although a few funds remained managed in-­house, such as U.S. Steel, Du Pont, and Wells Fargo, typically t­hese Wall Street fiduciaries manage the investment decisions of pension funds. According to a survey of 449 tax-­exempt money man­ag­ers at the time (pensions made up 75 ­percent of tax-­exempt assets), the average individual asset man­ag­er controlled about $112 million in assets. And, the largest 25 managed 54 ­percent of all tax-­exempt assets, suggesting a large concentration of control capacity over a huge amount of capital. Although t­ hese funds are managed by a relatively small number of ­people, firm executives typically decide how assets ­will be allocated. In 1948, ­these decisions ­were made by about 1,000 executives at a dozen major insurance companies and fewer than 100 major trust banks. By 1998, the asset allocation decision was made by more than 40,000 pension executives for DB plans and by 35 million employees with DC plans (Clowes 2000:3).

Pensions and Financial Investment We have seen how ­these defined-­benefit pension plans ­were designed, but how do the funds actually get invested? T ­ here are two impor­tant phases: (1) the asset allocation decision (how much ­will be invested in stocks, bonds, and other financial instruments), and (2) the portfolio management decision (which par­tic­u­lar assets ­will be bought). Up to the early 1950s, theories of investment risk ­were relatively unsophisticated. How the risk of par­tic­u­lar investments could compound or offset one another and how risk and returns w ­ ere connected ­were yet to be worked out mathematically. By con­temporary yardsticks, early corporate approaches to pension investment ­were much more risk averse. Up to the 1950s, the majority of pension assets ­were invested in long-­term bonds, both government and corporate, which w ­ ere just held to maturity. Pension fund fiduciaries viewed ­these bonds as a safer way to invest workers’ savings (NICB 1954b). The relatively small amount of money directed into corporate equities was only invested in the stock of the largest firms; pension funds early on avoided risky investments such as venture capital or junk bonds. But a revolution was about to occur in the world of fiduciaries and fund man­ ag­ers. Fund fiduciaries in the private sector radically changed their investment strategies in the mid-1950s; they began to give priority to investment in common stocks—­precisely the ­thing that they had once thought was too risky. In 1952, just a few years ­after Truman’s agencies had turned the tide in pension negotiations, a young economist named Harry Markowitz penned an article in the Journal of Finance that laid out the basics of modern portfolio theory and offered the

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i­ntellectual justification for the financialization of pension funds. Wall Street’s working approach to stock investment at the time was to carefully choose a few stocks and watch them closely. In this re­spect, investing in stocks was like ­horse racing; you hope that yours w ­ ill win. The theories of investment at the time w ­ ere only concerned with techniques to value par­tic­u­lar stocks. Markowitz’s innovation, for which he won the Bank of Sweden’s Nobel Prize in Economic Sciences, was to develop the concept of “risk” and concerned itself with how to build investment portfolios that maximized returns on the given levels of risk that fiduciaries wanted to take on. The work he developed, throughout the 1950s, built mathematical models to be able to quantify the level of risk in any portfolio. At its heart ­were the notions of variance (stocks whose returns vary more widely between years are higher risk) and covariance (some stocks vary in similar directions ­because of contingent market forces; for example, an oil boom ­w ill have a greater impact on the stocks of gas companies than on o ­ thers). Using t­hese princi­ples, Markowitz’s work began to convince corporate boards that portfolios could be constructed that ­were composed of individual stocks whose relative price movements would countervail each other and lower the risk for the investors (Clowes 2000:38–41; Fox 2009:47–59). This work was developed throughout the 1960s and most elegantly by one of Markowitz’s PhD students, William Sharpe. Sharpe’s innovation was to simplify Markowitz rather complicated mean-­variance mathematical model to make it more usable by asset man­ag­ers and plan fiduciaries. By the mid-1960s, he had introduced the idea of a beta, a mea­sure of stock volatility that simplified Markowitz’s complicated and costly method of separately calculating the variance and covariance of all the stocks in the portfolio. Once each of the stock’s betas are calculated, the fiduciary can combine them to produce a beta for the portfolio as a ­whole. This innovation gave corporate boards the capacity to specify and tailor the level of risk that they wanted to take on in their portfolio. The beta, since the 1960s, continues to be the mea­sure investors use to compare risk to returns, not just in pension funds but in the much larger mutual fund industry as well (Clowes 2000:40). Modern portfolio theory combined with efficient markets theory to channel the stampede of corporate investors into the stock market. T ­ hose at the helm of the growing pension funds ­were the ones to take the lead. In an acclaimed article in 1965, Eugene Fama, a University of Chicago economist and student of Milton Friedman who also obtained the Bank of Sweden prize, argued that markets in stocks w ­ ere efficient; they ­were always right, reflecting accurate and true information, so the price of a com­pany’s stock was also the true reflection of the value of that com­pany. An extraordinarily rosy picture of financial markets emerged from this approach, which suggested that speculative b ­ ubbles ­were an impossibility for

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any kind of financial instrument (Madrick 2014:138). The view served as the justification for corporate fiduciaries, who looked to ­these economists to be their intellectual guides, to dump their pension fund money into the stock market. Fama (1970:383) wrote that “the primary role of the capital market is allocation of owner­ship of the economy’s capital stock. In general terms, the ideal is a market in which prices provide accurate signals for revenue allocation: that is, a market in which firms can make production-­investment decisions, and investors can choose among the securities that represent owner­ship of firms’ activities u ­ nder the assumption that security prices at any time ‘fully reflect’ all available information.” If markets in stocks are efficient and the stock market as a w ­ hole is growing, as indicated by indexes such as the Dow Jones Industrial Average, then the logic of the market dictates that is where the assets are best invested. Armed with new theories of finance, corporate boards shifted their investments into stocks. They incorporated t­ hese theories into their calculations for how to invest in ­these stocks, diversifying and in their eyes spreading risk, but above all e­ lse, they w ­ ere interested in returns and returns alone. In 1950, government securities and corporate bonds accounted for 29.9 and 41.8 ­percent of fund assets, respectively. By 1972, ­government securities accounted for only 2.4 ­percent, and corporate bonds, 17.7 ­percent. Compare ­these figures with the rapid increase of corporate equity investments. In 1950, corporate equities accounted for only 16.4 ­percent of pension fund assets, but by 1972, they had reached a height of 73.8 ­percent (see figure 6). Instead of being channeled into solidaristic developmental proj­ects, workers’ capital across the country was moved back East and settled into its new home on Wall Street.9 In 1949, pension funds had only $586 million invested in stocks. Just one year ­later, that figure doubled. The amount had climbed to $3.1 billion by 1954, to $16 billion by 1960, and $76 billion by 1970. Yet ­because of a more risk-­ averse regulatory framework up to the 1990s, public pensions for federal, state, and local government workers remained primarily invested in fixed incomes such as bonds. Only ­after which, with encouragement from state-­level legislatures, have equities come to take up a larger share of portfolio allocations for government employees as well (Board of Governors 2010). At first glance, pension fund financialization may seem like a straightforward and smart financial decision. Total pension fund assets ­rose from a net worth of $26 billion in 1952 to $10.8 trillion in 2007 (see figure 7). The pension plans of the private workforce grew to be the largest—­from just $11 billion in 1952 to $6.3 trillion in 2007. Pension funds for public employees grew from $15 billion in 1952 to $4.4 trillion in 2007. This growth was such that pension funds themselves occasionally became more valuable than the companies that the ­future retirees worked for. In September 2000 the pension fund at General Motors held assets worth nearly double the com­pany’s (Blackburn 2002:109). Of course, private

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Misc. assets

FIGURE 6. ​Asset distribution of noninsured private pension funds, 1950–79 Source: Author’s calculations from Barth and Cordes 1981.

­ nion funds are a fraction of the total assets, which is currently mostly made up u of nonunion 401(k)-­type plans. Historically, ­union funds ­were the largest, but as defined-­contribution plans grew in the 1980s and 1990s, they became less prevalent. However, it would be wrong to suggest that they are unimportant. As of 2012, ­union funds accounted for about $1.6 trillion in assets. As I showed in the last chapter, businesses ­were originally opposed to having collectively bargained pension plans. But if they had to, they ­were determined to control the allocation of assets themselves and not have that decision left to ­unions. And corporate executives deci­ded early on that the best place to put the money was into financial speculation. The money should be put into the circulation of capital, not social proj­ects deci­ded more by need than profit. The NAM noted in 1958 that “the pro­cess of amassing funds for financing retirement inherently results in g­ reat accumulations of capital from a source relatively new to financial history. Though the prime investment purpose of t­ hese funds is safety and assured income, it is of high importance that they contribute a creative ele­ment to our economy as well.”10 From the NAM’s perspective, indeed they did—­they became a vital source of equity for U.S. firms contributing directly to corporate

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12,000 10,000 8,000 6,000 4,000 2,000

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62 19

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0 Year Total pension funds

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Public pension funds

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FIGURE 7. ​Pension assets 1952–2009, in billions of dollars Source: Author’s calculations from Board of Governors of the Federal Reserve System 2010 and Department of ­Labor Form 5500, ­table A6, 1993–2009.

­ rofitability. By bolstering stock prices in the secondary market, ­union pension p funds ultimately drove up corporate credit ratings, opening doors to cheaper capital for corporations. The expansion of the stock market in the postwar period seemed to support financial theory and further fostered the belief among Wall Street investors that stocks could only bring greater returns. Large banks, which dominated the pensioning field at that time, invested the funds heavi­ly into big companies such as Coca-­Cola, Avon, and IBM. Yet the “nifty fifty,” or “blue chip” companies, ­were bid up much higher than their earning potential. Advisers had based their recommendations on the idea of permanent growth. By the aftermath of the Mideast oil embargo in 1973 and 1974, when the stock market collapsed and the largest corporations ­were among the hardest hit, pension portfolios took huge losses, comparatively much worse than that of Standard and Poor’s 500.11 The bad per­for­mance of the funds in the 1970s boded poorly for bank fiduciaries. Pension trustees reacted by taking their reduced funds out of the banks that invested so heavi­ly in the “blue chip” companies and instead hired man­ag­ ers at the smaller investment firms that ­were among the few to predict the ­market

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was g­ oing to decline. Armed with modern portfolio theory, the new money man­ag­ers claimed that the se­lection of stocks is relatively unimportant and what did ­matter was heavy investment in a wide range of stocks right before the market was about to go bull. In times of a bear market, they argued, investors should pull out their money. Yet, in 1975 and 1976, many of ­these man­ag­ers failed to predict the recovery, and again pension funds seemed to lose out.12 By the mid-1970s, most pension funds gave investment decision-­making power to fiduciaries whose specialty was low-­priced stocks with high dividends. For a short period following, investing in small companies became the norm. By the 1980s, with fiduciaries chasing higher rates of returns, this strategy changed and fund investments w ­ ere directed into real estate, where prices w ­ ere skyrocketing. Eventually, leading up to the financial crisis of 2008, they ­were drawn ­toward increasingly speculative purchases of junk bonds and exotic financial instruments such as subprime mortgages (Blackburn 2002:130). Union funds themselves w ­ ere invested in the subprime mortgage market in the de­cade preceding the 2007 housing collapse. “Risk for returns” was the motto, which in practice meant chasing more and more risk. As a result of the broad shift, pension funds became a critical pillar of U.S. finance. In 1955 private pension funds controlled only 2.3 ­percent of total equity holdings, and insurance companies 3.2 ­percent. By 1997 pensions held 24 ­percent, and insurance companies 5.7 ­percent of total U.S. holdings. House­holds held 93 ­percent of all U.S. equity in 1945; this proportion dropped to 42.7 ­percent in 1997 (Board of Governors 2010). This represents a critical transformation of the market for stocks in the United States. By the mid-1970s, when pension funds controlled nearly a quarter of all U.S. equity, stocks ­were no longer exclusively held in the private savings of wealthy cap­i­tal­ists such as the Rocke­fel­lers, the Morgans, or the Du Ponts. They ­were not even mostly the savings of millions of individual investors. Pension funds, administered by institutional investors, became the largest pool of equity investment anywhere in the world.

How Union Pension Funds Invest Firms pushed ­union pension money into the speculative frenzy of the stock market. D ­ oing so involved investing in the business of the country and justified keeping Social Security contributions at a modest level to avoid diverting scarce capital into channels cap­i­tal­ists deemed “non-­productive.” As William C. Greenough, head of the TIAA-­CREF fund between 1957 and 1979, noted, “The consequence of this new approach would be to channel the savings of our working and retired population, directly and/or indirectly, into investment in private enterprise on a scale never before contemplated.”13 This injection of new pension

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capital came at a critical time for U.S. firms. By the 1960s, firms faced an inadequate provision of capital resulting in a decline in productivity and technological pro­gress. With the threat of even greater declines in productivity, firms turned to new sources of capital. In the 1960s and 1970s, pension fund reserves ­were the most rapidly growing source of finance for capital in the United States.14 But cap­i­tal­ists ­were not just blinded by short-­time horizons that only went as far as next quarter’s profits. In this case their laissez faire ideology and business interests comfortably coexisted. Fund investment into the stock market provided one potential route out of the system of collectively bargained pension plans altogether. As far back as 1958, businesses speculated that fund investment in the equities market could provide the basis for shifting to defined-­contribution plans, which we ­will explore in the next chapter. The NAM noted in a report titled, A Fresh Look at Retirement Security, “In the ­future years as workers become well informed in personal security m ­ atters generally, and even better able to fend for themselves, may not the com­pany and industry (and perhaps government) group insurance programs assume a subordinate place or even a voluntary status?” The report went on to say that, “­These mea­sures . . . ​would create a host of new cap­i­tal­ists, able for the first time to put substantial sums to work at their own discretion.”15 According to NAM, by hedging the lives of workers retirement on the stock market, financialization would make “worker cap­i­tal­ists,” who, despite their nonowner status at work, would come to identify more fully with corporate interests. If the market logic had unambiguously benefited ­future retirees, it would be hard to mount much of a criticism that it was undermining solidarity. But allowing fiduciaries to make investment decisions on the basis of rate of return criteria alone contributed to deep financial prob­lems for ­unions and working ­people. A study conducted by Corporate Data Exchange analyzed the investments of a sample of 142 collectively bargained pension funds with total assets of $157 billion, including common stock worth $61 billion, in 99 major U.S. corporations at the end of 1976. The results showed that u ­ nion pension funds w ­ ere financing publicly antiunion firms. In total, 118 of ­those ­union funds held $12.6 billion in common stock in 50 nonunion firms.16 In 10 of ­those companies, ­unions owned a significant share of the total stock (see figure 8). And in many cases, fiduciaries invested u ­ nion pension money directly into companies that the same ­unions ­were unable to or­ga­nize. The collectively bargained funds of the UAW and the International Union of Electrical Workers owned $61 million in Texas Instruments’ stocks (2.6% of its stock) in 1976, a com­pany that had successfully resisted organ­izing attempts from both ­unions for years.17 Unions became increasingly worried about pension fund investment. In 1980 the Committee on Benefit Funds of the AFL-­CIO’s Industrial Union

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Turning Labor into Finance CapitaL

FIGURE 8.  142 ­union pension funds investment as percentage of nonunion com­pany stock, 1976 Source: “The Pension Power Unions Might Wield.” 1979. Editorial. Business Week. September 17. AFL-­CIO Vertical Files, box 43, folder 1. George Meany Memorial Archives, Silver Spring, MD.

­ epartment issued a report finding that “large portions of the assets of ­these D pension funds are used to furnish capital to build foreign plants” (AFL-­CIO [Industrial Union Department] 1980). According to the report, the assets of the ten largest industrial companies that they surveyed had funds that w ­ ere heavi­ly invested in firms with high overseas employment, typically in areas with low wages, poor ­labor standards, and vulnerable nonunion workforces (3). Turning to an investigation of ­union pension funds, the report uncovered similar investment practices. Examining the fifteen largest investments of each of the funds, the report showed that five companies had at least half their assets invested in companies whose employment forces abroad represented at least 30 ­percent of their total employment (18). Somewhat surprisingly, as the trend of deindustrialization in the U.S. industrial heartland intensified in the late 1970s, a growing number of companies, many of them ­unionized, followed the lead of the biggest corporations such as Exxon, IBM, W. R. Grace, and Ford in investing their pension funds overseas. By 1982, of the 1,600 largest U.S. corporations, 17 ­percent invested pension funds in foreign enterprises, up from just 5 ­percent in 1977 (see figure 9). The explanation for fiduciaries’ allocation of workers’ finance into antilabor companies and companies with poorer nonunion workforces abroad is straightforward. Firms with lower ­labor costs tended to have higher profit margins and ­were seen by fund man­ag­ers as more likely to produce higher rates of return. The decision was solely financial. Longer-­term considerations—­how this might

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18 16 14 12 10 8 6 4 2 0

1977

1978

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1980

1981

1982

Year FIGURE 9. ​­Percent of largest 1,600 U.S. corporations investing pension funds in foreign enterprises, 1977–82 Source: Garcia, Arthur. 1983. “Foreign Stocks Attract Larger Share of US Pension Funds.” Christian Science Monitor. February 22. AFL-­CIO Vertical Files, box 43, folder 2. George Meany Memorial Archives, Silver Spring, MD.

­ egatively affect U.S. job growth or contribute to a race-­to-­the-­bottom in n work standards—­were simply ignored by corporate investors. But leaving the lack of social investing aside, even by their own definition of fiduciary prudence, the investments brought inconsistent returns. In the 1970s, pension investors had a substantially lower return on their investments than did the stock market as a ­whole, even taking into account fund management costs. T ­ hese assets would have grown more in a savings account than in the hands of professional fiduciaries. Between 1966 and 1976, banks averaged a 4.4 ­percent rate of return on their pension fund investments. That is 33 ­percent less than the average rate of return for Standard and Poor’s 500 stock index.18 In congressional hearings, Senator Howard Metzenbaum (D-­OH) said, “Without a question, t­ hose who manage pension funds are in a position to play a crucial role in determining the method and direction of the nation’s economic growth and development” (AFL-­CIO [Industrial Union Department] 1980:7). Yet most ­unionized firms invested their pension funds in the same ways as nonunion firms. Nonunion and union-­negotiated single-­employer pension plans had almost identical asset allocations in their portfolios in the 1970s and 1980s. Both concentrated more of their investments into the equities market than u ­ nion negotiated multiemployer plans, which w ­ ere more likely to be channeled into fixed income investments (Dorsey and Turner 1990). Several ­labor leaders pointed out the contradiction. William Winpisinger, president of the IAM, testified in

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c­ ongressional hearings that “Responsible trade u ­ nionists have to conclude that they have been financing their own destruction . . . ​only tradition and a g­ reat con game have kept pension funds in the control of the private sector g­ iants.”19 Despite the power ­these funds wielded in the U.S. po­liti­cal economy, most ­unions played ­little or no part in pension fund investment decisions. In 1954, out of a representative sample of 203 medium-­to-­large ­unionized companies, fewer than 10 ­percent had ­union repre­sen­ta­tion on the pension committee and just 16 ­percent had employee repre­sen­ta­tion. Com­pany executives controlled the bulk of U.S. private pension funds and hired fiduciaries to manage their portfolios (NICB 1954a:48). The committee, usually composed of three to fifty members at this point, maintained general administrative powers over the pension fund within the firm. Over two de­cades ­later, according to an internal AFL-­CIO study of a sample of twenty-­eight international u ­ nions in 1980, “Almost universally, investment decisions are left up to investment advisors.”20

The Po­l iti­c al ­C auses of Pension Financialization One plausible explanation for the financialization of ­union pension funds is that ­unions themselves lacked foresight or the technical confidence to try to influence pension fund investment decisions. ­After all, the world of finance is highly complex and nearly impenetrable for the uninvited, t­ hose that manage the funds are professionally trained, often at elite Ivy schools. Did ­unions simply lack the financial literacy necessary to make meaningful investment decisions? Contrary to this view, that ­unions largely did not control their funds and embrace solidaristic investment techniques was not for lack of effort or ideas on their part. Many tried to shape investment policy and to incorporate solidaristic nonfinancial investment criteria that gave priority to the well-­being of their members and the working class more broadly into their portfolios. Unions w ­ ere often concerned with how investments could help the national economy or the local communities in which their members resided; how investments could contribute to worker quality of life (e.g., investment in worker housing); how investments could help l­ abor organ­ izations themselves; and ­later, how investments might help promote environmentally sustainable development. However, market-­guided investment that gave priority to rate of return typically made t­ hese objectives irrelevant and only occasionally of secondary importance. This section shows that while ­unions endeavored to control their funds and to experiment in solidaristic investing, t­hese efforts ­were stonewalled by antiunion legislation. Intent on weakening the power of or­ga­nized ­labor, a conservative

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c­ o­ali­tion of legislators intervened to impose regulations on the system of fund administration. Po­liti­cal intervention first made corporate-­led financialization pos­si­ble and l­ater actively promoted it. First, the Taft-­Harley Act of 1947 made corporate interests dominant on the boards of most union-­negotiated pension funds. Next, ERISA of 1974 made mimicking financial sector investment practice a crucial component of fiduciary prudence. Both combined to financialize pension funds. By the 2000s, ­union funds ­were investing heavi­ly in companies such as Citigroup and Merrill Lynch, both of which ­were deeply involved in the subprime mortgage market that led to a global financial meltdown. As I showed in chapter 3, ­unions pushed for fringe benefits in large numbers immediately ­after the war (U.S. Bureau of L ­ abor Statistics 1948:5). The 1945–46 strike wave was the largest in U.S. history to that point. But the strikes and President Truman’s interventions, urging employers to adopt negotiated pension plans at a l­abor-­management summit the White House or­ga­nized in 1945, initially failed.21 John L. Lewis of the UMW, however, set the benchmark. In 1940, 50 ­percent of miners ­were ­under thirty-­three years old. By 1944, only 16 ­percent ­were u ­ nder thirty, and the average age had increased to forty-­five. In response, Lewis and the UWM demanded retirement plans with industrial action and won (Dubofsky and Van Tine 1986:331). The u ­ nion created a pension and welfare fund financed by contributions of the coal industry on a pay-­as-­you-go basis. Lewis won the demand that this fund be financed according to output (10 cents a ton) rather than hours, so that the tremendous mechanization of the industry would not impair it (Ghilarducci 1992:38). The settlement also included a second fund, financed by com­pany deposits deducted from miner’s wages, over which the UMW had exclusive administrative control (Dubofsky and Van Tine 1986:332). Spurred by the success of the UMW, large-­scale strikes over pensions erupted in auto, steel, and other sectors of manufacturing. Between 1945 and 1947, the issue of pensions led to a deadlock in strike negotiations with firms refusing to budge. But ­union demands ­were not limited to winning pensions; l­abor leaders also wanted a direct hand in their management. In 1945, the UAW led a 113-­day strike against General Motors that demanded both. But the auto workers met with com­pany re­sis­tance and a contract that fell far short of their hopes. The UAW won small wage increases rather than the negotiated pension plan it was angling for. In the same year, the USW took on U.S. Steel and the steel industry as a w ­ hole. Although Truman again intervened in support of the ­union, establishing a fact-­finding board that made prounion recommendations, the strike once again ended in a stalemate. Early failures did not s­ ettle the question of union-­managed funds. Vice president of the USW, Clinton Golden, pushed the CIO leadership to bring joint-­industry-­union cooperation to the front of its agenda—­a proposal that included pension fund control. In 1946, signaling

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its change in strategy, the CIO published Should L ­ abor Have a Direct Share in Management? ­There Philip Murray, president of both the USW and the CIO at the time, argued for a new kind of corporate governance in which employees and the ­union would take an active interest and role in firm affairs without interfering with management’s right to manage (Zieger 1995:323). Despite ­labor’s push, the postwar period brought with it changes that undercut ­labor’s economic leverage over firms. But the success of the UMW to win control of their fund, the posture of the Truman administration, and a general u ­ nion interest in establishing and managing pension funds was enough to spur an ascendant Republican right into po­liti­cal action by 1947. Employers’ associations such as the Chamber of Commerce and the NAM ­were inclined to keep pensions outside of the scope of collective bargaining altogether. They believed that they should be voluntarily offered by management and only when it suited the firm’s broader profit interests; they did not want ­unions to force the hand of employers. But if ­unions did compel employers to bargain over pensions, the second order preference of cap­i­tal­ists was to control the fund money without the interference of meddling ­labor leaders and their members. As the NAM Sub-­ Committee on Com­pany Established Employee Benefits Programs noted in a report laying out the association’s position: “To assure the continuing soundness and stability of the program it should be administered by management.” So establishing new laws that blocked potential ­union control proved a fail-­safe plan for firms and a means to weaken ­unions for conservative ­policymakers.22

Taft-­Hartley and Corporate Control of Fund Administration Politics in Washington veered sharply right by the end of 1946. ­After the mid-­ term elections, Republicans controlled both ­houses of Congress between 1947 and 1949, the first time they had done so since 1931. The conservative co­ali­tion of Republicans and Southern Demo­crats was intent on rolling back the ­union gains made during the New Deal. Both agreed that the best way to promote American capitalism was to weaken the bargaining power of its workers to drive up wages beyond the market rate, a vision enthusiastically supported by the Chamber of Commerce and the NAM. In the South, this had already been accomplished, and so po­liti­cally it simply meant maintaining the outsider status of the already highly marginalized black and Latino agricultural workforce. They w ­ ere excluded from the l­ abor protections in the NLRA and the retirement provisions of the SSA, both passed in 1935. But the CIO’s Operation D ­ ixie, a failed drive in the spring of 1946 to ­unionize the southern textile industry, was enough to give the southern po­liti­cal order real cause for concern about the ­unions to their North. In the

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North itself, where ­unions ­were well established in most major cities, it meant weakening their capacity through legislation. Northern firms w ­ ere not equipped to beat back ­labor through bargaining power alone. For both Northern Republicans and Southern Demo­crats, ­labor’s orga­nizational gains and growth required a po­liti­cal response if capitalism, in its more laissez-­faire form, ­were to be revived. During the push for fringe benefits a­ fter the war, many conservative politicians argued that u ­ nion pension fund control would set a dangerous pre­ce­dent for the country, undermining the growth possibilities of American capitalism in the long run. In congressional testimony on the antilabor Case bill in 1946, a forerunner to Taft-­Hartley, Senator Harry F. Byrd (D-­VA) stated, “I am endeavoring to strike against the attempt of representatives of ­labor to use such payments in establishing funds over which no one but the l­abor representative would have any control. I assert that if such a condition w ­ ere allowed to take place, l­ abor ­unions would become so power­ful that no or­ga­nized government would be able to deal with them.” Byrd’s conclusion pointed to nothing less than the survival of American capitalism itself, saying that if ­unions ­were able to control ­these funds it would result in “the complete destruction of the private enterprise system in the U.S.” (Rif kin and Barber 1978:100). Truman used his executive power to veto the Case bill. With l­abor ­unions a critical segment of his party, making an overt move to weaken them would have been bad politics. But more importantly, Truman believed it would merely agitate the class strug­gle and lead to more workdays idle. His administration had a dif­fer­ent approach to cap­i­tal­ist growth promotion. Truman and other Northern Demo­crats ­were sure that antilabor legislation would work at odds with the aim of getting workers back to work and ending the strike wave that clogged the industrial arteries of the U.S. economy. In his veto letter to the House of Representatives, June 11, 1946, Truman wrote, The outstanding domestic prob­lem confronting this country t­ oday is the maintenance and increase of production. We must have production, or the effects of ruinous inflation w ­ ill be felt by e­ very one of our citizens. Strikes and lockouts are the greatest handicaps to attaining vital production. Inasmuch as the solution of our pres­ent-­day ­labor prob­lems constitutes the key to production, this pres­ent bill must be judged in the light of ­whether it ­will assist in reducing ­labor strife in the nation. I have given careful study to the bill. I have not considered it from the standpoint of ­whether it ­favors or harms ­labor, or ­whether it ­favors or harms management. I have considered it from the standpoint of w ­ hether or not it benefits the public, which includes both management and ­labor. In the determination of the question of w ­ hether or not the g­ reat majority

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of our citizens ­w ill be benefited by this bill, the question presented is ­whether it w ­ ill help to stop strikes and work stoppages and prevent other practices which adversely affect our economy. I have reached the conclusion that it ­will not. (Truman 1946) Winning both h ­ ouses of Congress just five months l­ ater, Republicans with the support of their Southern Demo­cratic allies found another chance to strike a blow against ­unions with the Taft-­Hartley Act. The importance of Taft-­Hartley extends far beyond the pension issue. The final version did nothing short of remaking Amer­i­ca’s industrial relations in the image promoted most by cap­i­tal­ists. As Business Week noted, it was “A New Deal for American Employers” (quoted in Phillips-­Fein 2009:32). Lichtenstein writes that it “stands like a fulcrum upon which the entire New Deal order teetered. Before 1947 it was pos­si­ble to imagine a continuing expansion and vitalization of the New Deal impulse” (Lichtenstein 1998:765). The cardinal antilabor act famously rolled back l­ abor rights in several areas: imposing limits on u ­ nion organ­izing, plant elections, strikes, and u ­ nion po­liti­cal action and campaign contributions; creating greater capacity for employers to oppose and sue ­unions; outlawing the closed shop and secondary boycotts; putting conciliation ser­vice ­under an in­de­pen­dent agency; excluding foremen and other supervisors from u ­ nion coverage; and denying u ­ nions the right to use the NLRB ­unless their officers submitted affidavits stating that they ­were unaffiliated with the Communist Party and loyal to the United States. First and foremost, business interests ­were indelibly stamped on most provisions of the bill. Representative Donald L. O’Toole (D-­NY) observed that “the bill was written sentence by sentence, paragraph by paragraph, page by page, by the National Association of Manufacturers.” Key author Senator Robert Taft (R-­OH) himself noted that it “covers about three-­quarters of the ­matters pressed upon us very strenuously by the employers” (quoted in Ginger and Christiano 1987, 1:243). Ira Mosher, who led the NAM, praised the law noting that “when the boycott is combined with the closed shop and industry-­w ide bargaining, its [­labor’s] monopolistic character is intensified and the danger to competitive economy increased.” He continued, saying that if the bill ­were not passed and “mono­poly ­unionism” left to its own, ­there would be a “marked tendency in such circumstances to emphasize the ‘class strug­gle’ and to argue and fight for po­liti­cal ends” (quoted in Lichtenstein 1998:787). The NAM itself bragged that it had spent over $3,600,000 on Taft-­Hartley propaganda (quoted in Ginger and Christiano 1987, 1:243.) Conservative policymakers lined up ­behind it once they won the Congress ­because they believed it would ­counter the postwar ­labor upsurge and return power to employers to get on with the business of cap­i­tal­ist growth. That

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e­ mployers’ associations supported it so strongly surely mattered. But Republicans ­were not simply the legislative arm of Amer­i­ca’s business class. What is especially striking is that in the debates over the Taft-­Hartley Act, policymakers on both sides framed their arguments around the same objective, protecting American capitalism and ensuring its growth. Republicans and Southern Demo­crats, along with business associations such as the NAM and the Chamber of Commerce, believed that rolling back ­labor gains was the most critical way to do this. In the postwar context, this rollback meant ensuring ­labor peace and weakening ­union capacity. As the chairman of the Federal Reserve wrote to the president: While the statutory responsibility of the Federal Reserve System relates primarily to monetary and credit policies, we cannot ignore the fact that even the limited contribution which such policies can make ­under pres­ent-­ day conditions to economic stability and pro­gress depends fundamentally upon sustained industrial peace . . . ​we would like to express to you our conclusion that this bill, assuming, as we must, that it ­will be fairly administered, would help to promote industrial peace. (Eccles 1947, 9:416) What is especially striking is that Demo­cratic policymakers lined up against it for the same reason; they thought the law would create even more l­abor unrest. John A. Krug, the secretary of the interior who had worked with John Lewis and the coal operators to ­settle their conflict, wrote to the director of the Bureau of the Bud­get about the House version of Taft-­Hartley, H.R. 3020, warning that “the cumulative effect” of the bill would “destroy the efficacy of the [NLRB]—­both by procedural and administrative limitations imposed upon the Board and by the strong impetus the amendments ­will have ­toward driving ­labor into direct action and away from the Board procedures in order to ­settle its grievances.” In short, Krug worried that the bill was “a dangerous invitation to direct economic warfare, and a discriminatory attack on the rights of or­ga­nized ­labor” (Krug 1947:395). Similarly, Chester Bowles, a liberal Demo­crat from Connecticut appointed by Truman to direct the Office of Economic Stabilization, wrote the president on May 29, 1947, about the act saying, “­There is no questioning the fact that many l­abor practices have grown up over a period of years which simply cannot be defended. Secondary boycotts, jurisdictional strikes, and featherbedding are un-­democratic and eco­nom­ically harmful. Also, it seems to me, we must face up to the kind of development which was dramatized by John L. Lewis’ strike against the Government and against the p ­ eople as a ­whole last fall.” But Bowles thought the Republicans’ solution went too far and that it “would create new hatreds, new bitterness, and new confusion in a period which, above any other, calls for the restoration of the kind of teamwork we achieved during the war” (Bowles 1947:96–97).

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Gael S­ ullivan, executive director of the Demo­cratic National Convention, summarized the findings of a survey given to Demo­cratic Party leaders and organizers, saying that it “would throw union-­employer relationship into chaos. Union security is vital to ­union discipline” (­Sullivan 1947a:270). Leaders within the Demo­cratic National Committee from nonsouthern states articulated a similar opposition. George D. Kells, Demo­cratic state chairman for Illinois, said it “­will cause ­great ­labor unrest.” James Roo­se­velt, a chairman from California, called it “destructive to the economic welfare of all our p ­ eople.” E. Cyril Bevan, a committeeman from Michigan, said the bill would cause “chaos and industrial war.” But Elizabeth A. Conkey, an Illinois national committeewoman, put it most strikingly, “If the Taft-­Hartley bill becomes a law the 80th Congress w ­ ill have the distinction of having furnished the fertilizer for the seeds of revolution” (­Sullivan 1947b:286, 288, 292). Policymakers across the aisle even shared the same goal of the non-­Communist affidavits in the law, which the CIO and AFL would eventually willingly execute to purge the reds and radicals from their ranks u ­ nder both Truman and Eisen23 hower. But while Republicans and Southern Demo­crats thought that ­these affidavits ­were a necessary step to expel the radical organizers from the ­labor movement, organizers that had incidentally been the backbone of the l­abor movement, Northern Demo­crats worried that they would only strengthen the Communist “threat.”24 Robert P. Patterson, whom Truman appointed as secretary of war, wrote Truman saying, “Enactment ­will not increase re­spect for our demo­cratic pro­cesses at a time when domestic accord is particularly essential, at a time when our nation is challenged by disruptive forces that have already made themselves felt in other parts of the world” (Patterson 1947:215). Truman himself opened up a cabinet meeting on the last day that the bill was debated, cutting quickly to the point: “It is a l­ awyers [sic] bill. It w ­ ill create strife. It ­will only cause the postponement of a coal strike for 80 days. . . . ​This ­will not cure the ­things we are worried about (Communism)” (Truman 1947a:420). Concluding his letter to the House outlining his reasons for vetoing the bill, Truman wrote that “large volumes of litigation ­w ill result from the bill. The pitting of employers and employees against each other in the adversary climate of the courts is not, in my opinion, conducive to sound and peaceful industrial relations” (Truman 1947b:443). Despite opposition, coming in no small part from u ­ nions themselves, the bill fi­nally passed May 13, 1947, over Truman’s veto on a roll-­call vote of 68 to 24 with a majority of Demo­cratic support from the southern wing of the party (Reilly 1960:297). Less well known and rarely studied is that Taft-­Hartley also laid the ­legal groundwork for the modern regulatory apparatus concerning occupational pensions that persists t­ oday. In par­tic­u­lar, it struck a blow against u ­ nions such as

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the UMW that ­were angling for control of their pension funds. On the issue of ­union fund control, the House Committee on Education and L ­ abor concluded in its statement on the bill that “certainly, it is not in the national interest for u ­ nion leaders to control t­ hese ­great, un­regu­la­ted, untaxed funds derived from exactions upon employers” (U.S. House of Representatives 1947). To be sure, ­there ­were prolabor voices in the congressional debate, such as Senators Wayne Morse (R-­OR) and Claude Pepper (D-­FL), who countered that such a rule would hinder the expansion of welfare funds and that many employers did not want the responsibility of administering t­hese funds in the first place (Mills and Brown 1950:566). But their dissents ­were in the minority. Section 302 of Taft-­Hartley makes it illegal to “pay, lend, or deliver . . . ​any money or other ­thing of value” to a ­union representative. ­Because this would prohibit employers from contributing to a pension fund established by a ­union, Taft-­Hartley includes, as an exception, contributions that are administered with or controlled exclusively by the employer (Fogdall 2001:219). In practice, this provision requires that management representatives compose at least 50 ­percent of the board of trustees for pension plans. Senator Taft (R-­OH) said “The occasion of the amendment was the demand made by the United Mine Workers of Amer­ i­ca that a tax of 10 cents a ton be levied on all coal mined, and that the tax so levied be paid into a general fund to be administered by the u ­ nion for practically any purpose the ­union considered to come within the term ‘welfare.’ Of course, the result of such a proceeding, if t­ here is no restriction, is to build up a tremendous fund in the hands of the officers of the l­abor ­union . . . ​which they may use indiscriminately.” Taft went on to say, “The tendency is to demand a welfare fund as much in the power of the u ­ nion as pos­si­ble. Certainly u ­ nless we impose some restrictions we ­shall find that the welfare fund ­will become merely a war chest for the par­tic­u­lar ­union, and that the employees for whose benefit it is supposed to be established, for certain welfare purposes, ­will have no ­legal rights” (quoted in Fogdall 2001:222). In determining who would control workers’ finance, Taft’s regulation strengthened the capacities of firms and weakened ­those of ­unions. This act was the first step t­ oward financializing pension assets; corporate boards needed a ­free hand to channel them on the basis of financial imperatives alone. But the outcome was not cut-­and-­dry; the law had practical gaps that allowed for some ­union control.

Variation in Union Control a­ fter Taft-­Hartley In the previous section, I showed that policymakers, motivated to facilitate cap­ i­tal­ist accumulation, passed the Taft-­Hartley Act, effectively checking ­labor’s capacity to control pension funds. In this section, I show that u ­ nder the new law

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the character of the collective bargaining pro­cess varied in each industry—an institutional feature of the class strug­gle, creating opportunities for u ­ nion control in certain sectors. Variation in ­union control over their funds indicates precisely why the legislation was so effective at hemming in ­labor and channeling workers’ finance into the stock market. It also shows that the way legislation drove pension financialization was in part due to contingent ­factors. In bargaining, the group of workers that a ­union represents, the bargaining unit, can ­either be employed by a single employer or drawn from multiple firms. The dif­fer­ent kinds of bargaining structures that result from ­these two scenarios determines the structure of the pension plan itself. When a single ­union bargains with a single large firm, single-­employer pension plans are the norm. For ­these plans, fund management is the responsibility of one firm and one ­union. When a ­union represents the workers of an industry and bargains with several, often smaller, employers, multiemployer plans emerge. For ­these plans, fund management is the responsibility of many small employers and one, typically large, ­union. More than a half million separate plans existed by the early 1970s. ­Those that or­ga­nized retirement income through multiemployer plans, which accounted for the minority, provided more ­legal room for ­union influence. This greater capacity, oddly enough, relates to Section 302 of the Taft-­Hartley law, which ruled that employers had to control half or more of the pension board seats. In single-­ employer plans, this rule largely cut off the possibility of ­union control. However, it left room to maneuver for ­union influence in the multiemployer plans. When employer trustees representing dif­fer­ent interests ­were sometimes divided and ­union trustees ­were united, ­union trustees on joint-­administered multiemployer boards had more capacity to influence pension investment policy (Steir and Malone 2002). Firms noticed and ­were worried by this trend in the early 1950s just a few years ­after Taft-­Hartley was passed. As the NAM noted at the time, “administration of employee benefits by the employee’s collective bargaining agent appears to develop when the ­union is the dominant force in the entire industry or some geo­graph­i­cal portion of it.”25 According to a report from the U.S. Bureau of ­Labor Statistics (1961), investment decisions on all multiemployer plans w ­ ere made jointly between u ­ nion and employer representatives, whereas the employer typically retained decision-­ making power in single-­employer plans (see ­table 4.1). This trend, which persisted two de­cades ­later, bore on the kinds of investment decisions that fund man­ag­ers made. In a 1980 AFL-­CIO survey of their member ­unions, the funds of the building and construction trades, mining, and transportation (all relying on multiemployer plans) ­were more likely to engage in targeted social investments, such as ­union proj­ects or mortgage loans, than common stocks. Although some of ­these ­unions invested in the Union ­Labor Life Insurance Com­pany’s (est. 1925) J for

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­TABLE 4.1.  Bureau of ­Labor Statistics survey of 100 ­union plans, ­1961 SINGLE-­EMPLOYER PLANS

MULTI-­EMPLOYER PLANS

Who determines who makes investment decisions? Employers Jointly

61

0

1

38

53

9

Who makes investment decisions? Delegated to money man­ag­er Employers

9

0

Jointly

0

29

Source: U.S. Bureau of ­Labor Statistics 1962.

Jobs Program and the AFL-­CIO Mortgage Investment Trust, most of the unconventional investments ­were intended by ­union leaders to directly benefit the par­ tic­u­lar ­union and its members. Although joint control was a basic feature of bargaining over a pension fund in multiemployer plans, it had to be won through the bargaining pro­cess in single-­ employer plans. In spite of the setback attendant on Taft-­Hartley, Walter ­Reuther, who became president of the CIO in 1952, continued to push the ­labor leadership to make gaining a stronger hand in the management of t­ hese funds a primary goal. When the CIO’s Social Security Department cata­loged its health-­and-­ retirement security bargaining objectives in 1954, it noted that “the powers of Union members on joint boards [should be] extended to true equality. The Union’s role in the disposition and control of trust funds should be strengthened.” Reflecting on the past, the u ­ nion strategists suggested that “five years’ operation of the pension program has demonstrated the importance of joint administration. In the last round of bargaining, compromises had to be accepted in relation to the authority of joint boards of administration. It is impor­tant to strengthen the role of ­these boards so that they can serve their purpose of controlling and evaluating pension plans. Such boards must have jurisdiction over interpretation of the terms of the agreement and complete responsibility for administrative m ­ atters.”26 But as ­table 4.1 shows, the ability of ­unions with single-­employer plans to do this was exceptionally rare. Other issues tended to take pre­ce­dence in the bargaining pro­cess over joint control of funds. For instance, in the so-­called Treaty of Detroit with General Motors in 1950, the UAW was forced to concede on issues concerning shop-­floor control and joint cooperation for better wages and benefits, such as a generous pension of $125 a month for autoworkers with at least thirty years of ser­vice with the firm (Lichtenstein 1995). The 104-­day strike at Chrysler—­the most expensive strike in the auto industry to January 25, 1950 when it began—­produced

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s­ imilar results. Reuther led eighty thousand Chrysler workers out b ­ ecause of the com­pany’s refusal to commit itself to an actuarially sound plan to finance their pension fund, not ­because of the issue of joint management. Chrysler was committed to a plan that consisted of buying their workers an insecure annuity. The strike ended May 4, 1950, ­after Chrysler fi­nally accepted the union-­demanded trust fund. The technicalities involved in the UAW’s demand for an actuarially sound plan was hardly understood by most of the u ­ nion members that the plan would cover. But most workers understood the basic princi­ple. The UAW wanted to ensure that income that would pay for the pensions of ­future retirees would be secure and available when they retired (Wigderson 2003:504). For many ­unions with single-­employer plans, plan security became a more impor­tant goal than joint ­control. The notorious case of the Teamsters’ Central States Pension Fund (CSPF) offers a stark contrast to the experiences of most ­unions with single-­employer plans. In par­tic­u­lar, the CSPF illustrates how ­unions with multiemployer funds had much more capacity to control them than u ­ nions with single-­employer plans. In 1955 IBT President Jimmy Hoffa built the CSPF. By 1985, the fund had $2.2 billion in assets. Hoffa wanted to consolidate the fund into a single massive pool of money for all Teamster ­unions, but some 230 funds remained in­de­pen­dent. Following the rules laid out in Taft-­Hartley, the CSPF had six ­union and six employer trustees. Tellingly, the number of trustees was the main point of division between the ­union and the employers in the setup of the fund. The l­abor relations director of the American Trucking Association (the employers’ industry association), Ben Miller, represented the employers’ interests in negotiations. He advocated for a smaller board with employer representatives only selected from the collective agreements that established the plan. From a business perspective, a smaller board composed with employers from the employers’ association would ensure greater una­nim­i­ty on the business side of the ­table in votes over investment decisions. However, Hoffa insisted on a larger board that included repre­ sen­ta­tion from “in­de­pen­dent” employers who w ­ ere not in the association, some of whom he was friends with. ­After several months of negotiation, with the employers still refusing to include the in­de­pen­dents on a larger board, Hoffa convinced them by threatening to strike. In a meeting over the issue in 1955, he said, “Representing the ­union, we ­will file a grievance against e­ very carrier, e­ very one, and we w ­ ill take you out on strike, God damn it, u ­ ntil you do agree to draw up the proper kind of trust that we can live ­under. I can tell you that much, and I ­will, God damn it. Take that home, and see how you like it” (cited in James and James 1965:219). Shortly thereafter, Ben Miller and the employers capitulated to Hoffa’s demand for a sixth and in­de­pen­dent trustee. With the addition of an in­de­pen­dent employer on the

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80 70

Percentage

60 50 40 30 20 10 0

1956

1957

1958

1959 Year

1960

1961

1962

Corporate equities

Corporate bonds and government securities

Mortgages

Other

FIGURE 10. ​Central States Pension Fund investments, 1956–62 Source: James and James 1965.

board, Hoffa was often able to get his way; decisions w ­ ere made by s­ imple majority (Steir and Malone 2002). As a result, the Teamsters’ fund portfolio broke significantly from the investment norms in most other funds; it was heavily invested in trustee-­selected mortgages (typically real estate and casinos that used ­union l­ abor) within a few years of its establishment (see figure 10). This stands in contrast to standard industry practice, where total pension fund investment in mortgages ­rose from just 1.4% in 1956 to 3.2% in 1962. How bargaining worked in the industry was a critical ­factor for control. Before moving on to a discussion of ERISA’s impact, a proviso needs to be raised. Although ­union fund control is a necessary condition for ­union members to be able to demo­cratically allocate their own finance, it is not sufficient to ensure that ­either the funds ­will actually be allocated demo­cratically or that they ­w ill break with the investment logic of corporate finance into solidaristic proj­ ects. In the former case, it is likely that if the u ­ nion itself is undemo­cratic, then the way the funds are allocated ­will also be undemo­cratic; in many re­spects, we

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can see this with the Teamsters case. But we have already seen that u ­ nions that controlled their pension funds ­were more likely to incorporate social ­factors into their investment decisions and tended to be interested in making investments that not only allowed them to meet ­future obligations to retirees but also created jobs in their sectors of the economy and for their members. Of course, ­union control of funds is also no guarantee that u ­ nions ­will actually break with the corporate investment logic. The conditions u ­ nder which they do or do not are certainly worth investigating but beyond the scope of this book. But the critical point is that most u ­ nions and u ­ nion members did not have the chance to forge their own history one way or the other. Instead, they w ­ ere blocked by policymakers.

ERISA and the Completion of Financialization In this section, I show how the Employee Retirement Income Security Act of 1974 completed the process of financializing pensions. ERISA is the only comprehensive private benefits legislation ever passed in the United States. Among a number of vesting, funding, and eligibility requirements, it also established federal fiduciary standards against which courts could mea­sure the actions of fund man­ag­ ers.27 Core components of the bill w ­ ere debated since at least the Eisenhower administration in the 1950s, when policymakers put forward early drafts. Unlike other pieces of legislation, such as the Taft-­Hartley Act, businesses and u ­ nions ­were not neatly divided over it. In fact, ­there was just as much division within ­labor and business as ­there was between them (Wooten 2004). As a rule, ­unions that sponsored multiemployer plans w ­ ere generally hostile to the legislation. The ­unions that retained more administrative control resisted regulations b ­ ecause of the heavier regulatory costs they would incur as administrators. The strongest opposition came from ­unions such as the ACTWU, ILGWU, the IBT, the UMW, and vari­ous building and construction trades u ­ nions. In single-­employer plans, we find a dif­fer­ent perspective on pension regulation. Unions such as the UAW and the USW that had long given up on the possibility of r­ unning their plans themselves ­were the most vocal advocates for increased regulations on the pension system, whereas employers in t­ hese industries most staunchly resisted them. ­After President John F. Kennedy created the President’s Committee on Corporate Pension Funds and Other Retirement and Welfare Programs in 1962, it recommended regulatory reforms such as federal minimum vesting and funding standards that would ensure plan participants receive their benefits. When it released its report in 1965, Anthony Boyle, then president of the UMW, argued, “the proposed report to the President is based on the erroneous concept that Government specification of standards in private pension plans can be mandated by public law to a similar extent that such standards are fixed by law in public pension

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plans.” The UMW primarily relied on multiemployer pension plans. Even George Meany, president of the AFL-­CIO, objected to vesting and funding requirements for multiemployer plans when it was suggested by Kennedy’s committee ­because it would create a division within the federation between ­unions with single-­ employer plans and multiemployer plans (Wooten 2004:109). The proposal triggered significant opposition from businesses as well, primarily t­ hose with single-­employer plans that bore the administrative burden (Wooten 2004; McGill et al. 2005:84). However, ­those ­unions that relied on single-­employer plans, such as the UAW and the USW, actively supported the legislation and continued to make it a priority in congressional committees. With another flurry of congressional interest in pension reform, this division arose in the public debate once again in 1967. That year the AFL-­CIO Executive Council drafted a policy that opposed pension reform. The ­unions within the federation that had won some administrative control over their funds ­were unwilling to give up what ­little administrative capacity they had, and ­others worried about provisions that would even further increase the riskiness of pension investments. ­Because employers often administered collectively bargained single-­ employer plans alone, ­unions felt compelled to support regulations that made their pension promises more secure, even if it meant higher administrative costs. In multi­employer plans, ­unions ­were often administrators so regulation costs fell on their shoulders. According to ERISA scholar James Wooten (2004:140), “The difference between single-­employer and multiemployer plans explains why much of the analy­sis in the draft policy statement might have come from the Chamber of Commerce or the National Association of Manufacturers.” In fact, it was so rare for a multiemployer plan to support increased pension regulations that when the UBC deci­ded to do so just before the passage of ERISA, Bert Seidman, director of the AFL-­CIO Department of Social Security, made a special note of it in congressional testimony saying, “To my knowledge this is the first time that a building trades ­union has endorsed vesting and funding standards.”28 Despite opposition from the u ­ nions with multiemployer plans, however, the interests of single-­employer ­unions, intent on holding employers to higher administrative standards and willing to sacrifice more control over investment, came to dominate the AFL-­CIO by the 1970s. When pension reform was debated again, the federation leadership supported it. At the beginning of the de­cade, the AFL-­CIO remained internally divided over vesting and funding standards, which the multiemployer u ­ nions resisted. In 1973, when the legislation was making its way through the House, multiemployer ­unions again tried to prevent it from passing. The standoff within ­labor broke when the USW threatened a “reevaluation of its position as an affiliate of the AFL-­CIO” if the legislation was not supported by the federation as a w ­ hole. U ­ nder the threat of a federation split,

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AFL-­CIO ­president, George Meany, was spurred to make an executive decision and against the multi­employer ­unions informed Congress that the AFL-­CIO supported the bill (Wooten 2004:230–33). Nixon’s Mercantilism. ERISA was signed into law in 1974 by President Gerald R. Ford ­after years of wrangling and negotiating with ­labor and business associations. Most pension scholars point to the fantastic failure of Studebaker as the principal cause of the passage of ERISA (Sass 1997). The car com­pany went ­under, closing its doors in December 1963. The executives of Studebaker left the pension plan underfunded and without the assets to pay off its pension obligations to its younger employees. Thousands, including some that had worked on the production line for forty years, lost retirement income. ­There is ­little doubt that the bankruptcy helped to push the issue of pension security onto the public agenda again. But given both that ERISA was passed nearly a de­cade ­later and that many other similar public crises do not lead to major legislative reforms, it is hard to suggest that one com­pany failure was the real driver of the new law. Much more proximate, however, w ­ ere pressures on American capitalism coming from abroad in the late 1960s. In par­tic­u­lar, the growing competitiveness of German and Japa­ nese cap­i­tal­ists ­were undermining domestic manufacturing interests and cutting into corporate profits for American firms. A growing trade deficit combined with a mercantilist approach to domestic growth promotion made trade a major concern for Nixon’s administration. In 1970, Amer­i­ca had a $2.7 billion trade surplus. By June 1971, the tides in the global flow of goods had turned sharply, driving the trade balance into a $597 million deficit. It became the first year-­long deficit since 1893 (Matusow 1998:145). Although Nixon never shied from paying lip ser­v ice to ­free trade and the postwar chimera of harmonious comparative advantage, his trade policy was nationalist and Janus-­faced. On one side, he ratcheted up protections on U.S. textiles. On the other side, he sought to lower protections in places such as Germany and Japan to open up new markets for U.S. manufacturers. By the end of the 1960s, Amer­i­ca’s staple industries such as auto, steel, electrical and textiles—­the central ­drivers of U.S. growth in the postwar period that Truman was so careful to protect—­were being outcompeted by emergent industries abroad. Japan had practically been a satellite state of the United States in the two de­cades ­after the war. U ­ nder the United States’ wing, the country had reached commanding heights in the economy by the end of the 1960s. Although it had typically bowed to U.S. interests, it ended up resisting Nixon’s early efforts to restrict its vibrant textile industry (Matusow 1998:120). By 1971, the value of its exports to all other countries exceeded $23 billion. Autos had come to make up a large chunk of Japan’s success. But the flow of cars was in one direction. For

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instance, Japa­nese autos had captured 20 ­percent of the Los Angeles market in 1970, while the largest U.S. auto maker, General Motors, had only 0.1 ­percent of the ­whole Japa­nese market. Western Eu­ro­pean countries had also become troublesome for U.S. policymakers, entering into bilateral trade agreements with Mediterranean and African countries for agriculture that heavi­ly restricted U.S. exports (Matusow 1998:134). In this context, pension reform had been largely ignored by the Nixon administration during its first three years. It was not a legislative priority. Bogged down in an unending series of legislative holdups, with l­abor and business divided amongst themselves, ERISA might never have been passed at all ­were it not for Nixon’s need to garner support for his trade deal, the centerpiece of his economic agenda for the country. With a fresh round of GATT negotiations scheduled for September 1973, Nixon needed support for the probusiness trade plan that his administration was rolling out. In the context of manufacturing moving overseas and to the nonunion South, ­unions had felt the brunt of foreign competition and had become increasingly opposed to Nixon’s trade plans, which by most accounts merely strengthened the hands of U.S. firms. But Nixon was convinced by his aides that ushering through the pension reform and unemployment insurance, neither of which alone was a major policy priority for the administration, would be a useful way to get ­labor leaders to support the trade plan. In February 1973, a young Henry Paulson Jr., then a member of the Nixon administration, said, “a proposal for a beefed-up system of unemployment insurance which, in conjunction with pension reform, would be included in the Administration’s trade package as a quid pro quo for ­labor” (cited in Wooten 2004:198). As a result, in early April Nixon sent the pension reform to Congress as a package deal that included the Trade Act of 1974 and the Job Security Assistance Act. Nixon’s Trade Act of 1974 sought to liberalize trade and kick off a round of U.S.-­led multilateral negotiations with the Eu­ro­pean community and Japan. Peter Peterson, a businessmen who had become assistant to the president for international economic affairs, convinced the president that ­every extra billion dollars in U.S. exports would create 60,000 to 80,000 jobs (Matusow 1998:136). A mercantilist trade policy, u ­ nder Nixon, would be seen by his administration as an impor­tant driver of domestic growth. Yet, the GATT system had come ­under pressure as Eu­ro­pean economies took flight and Japan’s soared. ­There ­were several attempts at a more protectionist solution from Congress in the late 1960s and early 1970s. The Fair International Trade Act (1968) sought to impose quotas on imports, the Mills bill (1970) proposed to set quotas on shoe and textile imports and provided more relief to domestic firms and workers, and the AFL-­CIO-­backed Burke-­Hartke bill, which proposed to raise taxes on multinational corporations and reduced incentives for foreign investment. Each of ­these died in Congress,

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and two out of three failed to leave the House Committee on Ways and Means (Kirshner 2014:141n11). ­After a first attempt to pass a trade deal in 1970 failed, Nixon assembled the Commission on International Trade and Investment Policy. The board was composed of high-­profile figures, mainly from Amer­i­ca’s leading firms. Albert L. Williams, head of IBM’s Finance Committee and a honorary trustee of the Committee for Economic Development (a power­ful business-­led policy or­ga­ni­za­tion), was chosen by Nixon personally to serve as the chairman. Of the commission’s twenty-­seven members, seventeen ­were high-­ranking executives in major companies and banks—­including General Electric, General Motors, Monsanto, Motorola, Standard Oil, and Wells Fargo. Of the rest of the commission members, six ­were academics, one was from a farm or­ga­ni­za­tion, and only two ­were representatives of or­ga­nized ­labor from the USW and the IAM (Kirshner 2014:130). ­After a year working on the document, Williams’s commission submitted its recommendations to Nixon despite two dissenting voices from the ­labor representatives, who said that it did not address the rise of multinational firms and the shift of U.S. jobs overseas (147n24). The commission argued that the surge of imports into the domestic market since the m ­ iddle of the 1960s had brought about a “crisis of confidence” among U.S. businesses and a concern that the Eu­ ro­pe­ans and Japa­nese ­were not ­doing their part in managing the global system of trade. However, the main point of the report to the president was that U.S. businesses had a deep interest in maximizing trade flows, and so action needed to be taken to restore business confidence in the GATT system (130). Nixon accepted the commission’s recommendations entirely and used them as the basic architecture for the administration’s Trade Act. But this act was a hard sell to the public. During a time when foreign competition was becoming a national issue and jobs moving overseas w ­ ere making news headlines, many domestic groups ­were opposed to trade liberalization. In a message to Congress, Nixon noted that “­those who would have us turn inward, hiding ­behind a shield of import restrictions of indefinite duration, might achieve short-­term gains and benefit certain groups, but they would exact a high cost from the economy as a ­whole” (Nixon 1973). Supporting ERISA was a means to the Republican administration’s deeper agenda, strengthening U.S. capital’s competitiveness abroad. ERISA and Investment. As a comprehensive package of federal minimum standards for employer-­provided pension plans, ERISA was hugely consequential for the U.S. retirement system. Although it does not make employer pensions mandatory, ­those companies that do adopt them must meet certain requirements concerning information disclosure about plan features and funding, fiduciary standards for asset investments that include transaction prohibitions,

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­ inimum standards for participation, and vesting and funding standards. It also m guarantees a payment of certain retirement benefits through the Pension Benefit Guaranty Corporation (PBGC), a federally chartered corporation, if a DB plan is terminated by the sponsoring employer. Since its passage, it has become “one of the business community’s worst regulatory headaches.”29 In the next chapter, I ­will discuss its provisions more fully, specifically as they relate to increasing the cost of plan administration, but ­here I focus solely on how the law further financialized pension funds. Along ­these lines, the key concept that the law developed was the so-­called “prudent person rule.” The prudent person rule predated ERISA. Taft-­Hartley included a provision that pension investments had to be made for the “exclusive benefit” of plan beneficiaries. But it was in 1950, when the New York State legislature enacted the “prudent man law” to regulate the allocation of investments of insurance companies and personal trusts, that this concept was further defined. The New York State law was patterned a­ fter a lesser-­known rule that dated to common law doctrine in the state of Mas­sa­chu­ setts in the mid-­nineteenth ­century. In 1936, during a lawsuit, Chief Justice Arthur P. Rugg of Boston summarized the law, noting that “a trustee is required to conduct himself faithfully and to exercise a sound discretion, and to be enlightened by observance as to how men of prudence, discretion and intelligence manage their own affairs, not in regard to speculation but in regard to permanent disposition of their funds, considering the probable income as well as the probable safety of the capital. Good faith and sound discretion, informed by experience and wise observation constitute the standard” (NICB 1954a:14). The New York State law did not directly relate to pension funds, but by allowing trustees to invest up to 35 ­percent of the portfolio in common stocks, it made equities a respectable and legitimate investment (14). In 1950, General Motors proposed to direct the investments of their new pension fund into equities instead of bonds. Executives argued that they would overcome increased risk by diversifying the investments, which in part changed standard investment practices for fiduciaries (O’Barr and Conley 1992). Still, 35 ­percent of the portfolio invested in equities is a far cry from the nearly 75 ­percent that was reached by the early 1970s. Not all companies w ­ ere quick to get on board with the newer, more liberalized approach to fiduciary duty and trust law. In 1954, the trea­surer of a large manufacturer in the Midwest reported to an NICB survey, saying that “the pension board had been deadlocked on the one issue ever since passage of the New York Prudent Man Law. Several members advocate strongly an amendment so as to permit higher investments in common stocks; but e­ very six months the suggestion is voted down. The gentlemen who are against the amendment believe that the inclusion of common stocks in the portfolio increases the risk f­ actor unnecessarily. They

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also assume that such policy might become subject to criticism by our employees” (NICB 1954a:15). According to ERISA Section 404(a)(1), fiduciaries must act “with the care, skill, prudence and diligence ­under the circumstances then prevailing that a prudent man acting in like capacity and familiar with such ­matters would use in the conduct of an enterprise of a like character with like aims.”30 Up to the mid-­twentieth ­century, most U.S. states a­ dopted ­legal statutes that mandated investment into fixed bonds, which gave safer investments a greater legitimacy with both employers and employees immediately ­after the war. This earlier interpretation held that prudence is the absence of speculation and high risk. But high ­interest rates, a booming stock market, and the intellectual revolution in modern portfolio theory and efficient market theory led by Markowitz and Fama (discussed in a previous section) provided the justification for plan fiduciaries to give priority to stocks over bonds. In short, ERISA made this version of “prudence” a federal ­legal standard. ERISA did not just reinforce the prudent person rule of New York State and apply it to pensions; it also made it more restrictive. Social investing advocates argued that the pre-­ERISA rule required the fiduciary to weigh nonfinancial objectives that may be in the beneficiaries’ broader interest (Dorsey and Turner 1990:545n6). Once ERISA was passed, according to Ian D. Lanoff, administrator of the Office of Pension and Welfare Benefit Programs in the U.S. Department of ­Labor (1980–81), “what the pension plan fiduciary needs to determine about an investment is not, first, ­whether it is socially good or bad but how the proposed investment ­will serve the plan’s participants and beneficiaries.”31 The law allows for the consideration of solidaristic objectives only ­after establishing that the investment ­will obtain the highest rate of return for a given level of risk.32 This provision constrained fiduciary decision making and ­union efforts to control funds to an even larger degree. In practice, ERISA made fiduciaries even more inclined to follow financial investment trends in the corporate sector. A 1977 study, conducted by the nonprofit International Foundation of Employee Benefit Plans, which included more than 1,900 pension fund trustees, administrators, and advisers representing all regions of the country, found that a large majority of fiduciaries (83%) said that ERISA has made them less willing to invest in anything but “blue-­chip” securities.33 It also reined in the control efforts of u ­ nions with multiemployer funds. In 1958, policymakers tried to create greater oversight for ­unions with control over their funds by passing the Welfare and Pension Plan Disclosure Act. By most accounts, however, the law was a failure. ERISA, alternatively, gave policymakers much greater power to undermine u ­ nion strength on pension boards. In 1976, just two years a­ fter it was passed, the Internal Revenue Ser­v ice found the

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60

1977

1979

Percentage

50 40 30 20 10 0

Bonds

Mortgages

Corporate equities

Real estate

Other

FIGURE 11. ​Central States Pension Fund investments, 1977 and 1979 Source: Cook, James. 1980. “The Most Abused, Misused Pension Fund in Amer­i­ca.” Forbes. November 10. AFL-­CIO Vertical Files, box 43, folder 1. George Meany Memorial Archives, Silver Spring, MD.

Teamsters’ CSPF’s investment practices to be in violation of the prudent person rule and revoked its tax exemption. According to a Forbes reporter at the time, “By conventional [­legal] standards, the Teamsters’ Central States Pensions Fund was a fiduciary nightmare.”34 The government then imposed a number of requirements on the fund and removed many of the ­union trustees. In June 1977, the IRS appointed Equitable Life Insurance as the princi­pal asset man­ag­er and gave Victor Palmieri and Com­pany the responsibility to manage the CSPF’s real estate assets west of the Mississippi.35 This appointment led to an immediate shift in the CSPF’s pension investment practices, from a portfolio heavi­ly based on real estate and bonds, to one or­ga­nized around common stock investments (see figure 11). The CSPF v­ iolated the two widely held markers of prudence based on modern portfolio theory: diversification and majority investment in common stocks. Before ERISA, the ability of the Teamsters and other u ­ nions with multiemployer funds to control financial flows was due to multiemployer bargaining in their industries. B ­ ecause the Taft-­Hartley mandated that u ­ nions comprise no more than 50 ­percent of the board of trustees, ­those ­unions that ­were most able to influence fund policy ­were predominately in industry-­wide collective bargaining agreements with many small employers. ­After the passage of ERISA, however, the federal government regulated the investment practices of t­ hese ­unions with a stronger arm—in the Teamsters’ ­union this resulted in punitive ­legal action against ­union leaders.36

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ERISA had proven persuasive to many l­abor leaders. A 1980 AFL-­CIO survey of their member u ­ nions concluded that “what­ever enthusiasm t­ here was for taking on non-­financial objectives—­whether for employment or other social objectives—­was tempered by the ‘prudent’ judgment that ­union trustees must first meet financial objectives.” When the survey asked the u ­ nion leaders if they would consider social objectives in developing pension fund investment policy, “without exception they agreed—in fact, emphasized—­that the first duty of the ­union trustees is to protect the integrity of the funds, managing them in such a way as to get the greatest pos­si­ble return, consistent with the other imperatives of prudent investment.” Many of the officials in the sample balked at the idea of influencing corporate policy through pension fund investment strategies b ­ ecause the law made the pursuit of this objective inconsistent with their fiduciary responsibilities.37 Despite the l­egal constraints, a handful of multiemployer u ­ nions continued to experiment within the more restrictive confines of the law in the early 1980s, often without the tinge of nefariousness that Hoffa’s fund carried. First, several multiemployer plans continued to find ways to invest in worker housing. In Minneapolis-­St. Paul, the BAC, the IBEW, the UBC, and the Minneapolis Municipal Employees Retirement Funds contributed money into the F ­ amily Housing Fund to provide affordable housing in the area. With a grant from the U.S. Department of Housing and Urban Development, the program offered loans that made it pos­ si­ble that families could pay no more than 25 to 30 ­percent of their income for housing. Second, some plans continued to invest in u ­ nion construction proj­ects. In southern California, twelve construction u ­ nion pension funds with combined assets of $2 billion financed the Real Estate Development Financing Foundation to promote ­union construction proj­ects. ­Because of ERISA restrictions, the fund could not finance ­these proj­ects; instead, it helped to promote them to the participating funds as investment options. In Milwaukee, the pooled Milwaukee Building Trades United Trust Fund put $30.4 million, or 21 ­percent of its assets, into mortgages for union-­built construction proj­ects. And fi­nally, the multiemployer ­unions continued to consider the ways retirement funds could contribute to reindustrialization proj­ects. The Marine Engineers Beneficial Association developed a plan to build two advanced carrier ships with the assistance of u ­ nion pension funds and own and operate them with a pension-­fund backed corporation. Similarly, the IAM and the Molders put a portion of their pension funds into a pool of venture capital to invest in new technology in the Chicago area, where both had members that ­were unable to find work in that industry.38 Throughout the 1980s and 1990s, a small number of ­unions continued to imagine new ways to use their funds, but their ability to put solidaristic plans into action was severely constrained by the law.

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Suppressed Historical Alternatives I have argued that regulatory laws and the weakness of the conservative co­ali­tion to keep t­hose laws in place in combination with ­labor’s power at the workplace largely explain why most ­unions ­were unable to gain control of their pension funds (and, likewise, why some inadvertently did). Variation in u ­ nion capacity to do so along bargaining structure and the effect of ERISA to clamp down on ­unions with multiemployer plans strongly point to this conclusion. It also shows why the market logic of chasing risks for returns won out and why the assets of the funds ­were heavi­ly financialized between 1950 and 1970. But does this mean that restrictive laws foreclosed all possibilities to create union-­run retirement funds? Does it suggest that U.S. pension funds w ­ ere and are locked into a market model of financial speculation? A ­ fter all, ERISA inadvertently mobilized several u ­ nions to think more seriously about controlling their funds, even if it also made it harder for them to do so. Further, does it mean that corporate-­controlled pension financialization was the only and obvious historical route to economic growth for policymakers? In Injustice, sociologist Barrington Moore (1978:376) observed that “history may often contain suppressed possibilities and alternatives obscured or obliterated by the deceptive wisdom of hindsight.” In Amer­i­ca, Car­ter’s failed reindustrialization policy in the late 1970s is one such “suppressed historical alternative.” Despite the firm entrenchment of the Wall Street model of investment in the private pension system by the end of the 1970s, t­here ­were significant po­liti­cal challenges to it, which argued, even if unsuccessfully, that growth of American capitalism was not only consistent with but also dependent on more solidaristic forms of asset allocation.

Solidaristic Investing in Car­ter’s Failed Economic Revitalization Plan By the late 1970s, as deindustrialization intensified and the twin prob­lems of stagnation and inflation—­stagflation—­set in, policymakers became increasingly galvanized around the need to do something to get American capitalism on track yet again. ­There ­were two broad answers to the crisis, bolstering the old Keynesianism by using more government spending to revive the economy and neoliberalism. The former was an answer in word only, while the latter, as we w ­ ill see in the next chapter, took hold in deed as well. In this section, I show how the failed Keynesian response, which would have given u ­ nions more power over their funds to use them for reindustrialization purposes, was built on more solidaristic princi­ples concerning pension fund management and investment, even if it was one that was still primarily concerned with the cap­i­tal­ist growth model.

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In no small part, U.S. ­unions helped to promote this po­liti­cal and economic perspective. As we saw in the previous section, the turmoil of the 1970s in pension systems across Amer­i­ca, along with the debate over ERISA, drove many member ­unions of the AFL-­CIO to revisit the issue of pension fund investment with new enthusiasm. Unions w ­ ere well aware of corporate misuse of pension funds, their stake in antilabor corporations and in overseas ventures, and their unimpressive rates of return over the sluggish de­cade. ­There was a strong sense among many ­unionists that they had given the issue insufficient attention for the better part of the past thirty years. In 1978, this culminated in the publication of The North ­Will Rise Again, by Jeremy Rif kin and Randy Barber, which served as a call to arms and laid a progressive strategy for Northern reindustrialization and u ­ nion revitalization with targeted union-­fund investing in the areas of the North with soaring unemployment rates (places like Detroit, MI and Buffalo, NY). Already, a handful of building trades ­unions with multiemployer plans ­were taking innovative approaches to their funds and pushing the broader ­labor movement to do the same. At the time Jacob Sheinkman, secretary-­treasurer of the ACTWU, noted, The massive sums accumulated in pension fund assets are often used against the direct economic interests of the workers in whose name the funds ­were created. The banks and insurance companies in charge of such funds, u ­ nder agreements with sponsoring companies or ­labor ­unions, have used them in ways that foster and even hasten the flight of jobs and capital to the largely unor­ga­nized areas of the “Sunbelt” or overseas. The “money man­ag­ers” would say they are seeking a better business climate, but almost invariably the pension fund assets—in effect, billions of dollars of deferred wages of American workers—­end up subsidizing a climate hostile to workers.39 At its biennial meeting in November 1979, the Thirteenth AFL-­CIO Convention ­adopted a resolution to investigate the ways ­unions could influence the investment pro­cess, noting that investments ­were benefiting neither ­union members nor the U.S. economy.40 A year l­ater the u ­ nion published a widely circulated report arguing that ­labor should increase its participation in fund management (AFL-­CIO 1980). With greater control of investment flows, the federation hoped to ­counter rises in unemployment through reindustrialization, increase worker influence over firms as collective shareholders, disinvest money from antilabor firms, and promote socially responsible investing—­echoing some of the key points of The North ­Will Rise Again.41 The ­union leadership urged their member ­unions to assign their pension assets to financial institutions whose investment policies w ­ ere consistent with the interests of working Americans.42 At

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the time, Stanley Rothenburg, a pension fund con­sul­tant hired by the AFL-­CIO said, “This is a major departure from the federation’s approach in the past.”43 According to congressional testimony by Harry B. Schecter, director of the Office of Housing and Monetary Policy within AFL-­CIO, “This situation must be turned around and that is the purpose of the recommendations of the Executive Council of the AFL-­CIO which stem from the report and the work of the Executive Council Committee. The major goals of ­those recommendations are—by enhancing ­union participation in pension fund management—to use ­these funds for expanding employment, advancing social purposes such as worker housing, improving the ability of workers through their ­union to exercise shareholder rights and withholding pension fund investment from companies hostile to workers’ rights.”44 Since Truman intervened ­after the war, Demo­crats from the North tended to support the idea of collective bargaining over pensions but w ­ ere mixed on the issue of u ­ nion control of pension funds. Robert F. Kennedy, for instance, in his role as lead counsel of the McClellan Committee in the 1950s, did more to weaken ­labor’s ability to control their funds than to strengthen them (Witwer 2003). This pattern changed, however, in the run-up to the 1980 presidential election between Reagan and Car­ter. ­After a period of uneasy relations with ­labor, alienating workers and their organ­izations through deregulation and allowing Volcker in the Federal Reserve to shock the economy, Car­ter needed u ­ nion support in 1978 when he began to gear up for reelection. The AFL-­CIO’s support for Car­ter had been crucial in the barely won 1976 election against Ford.45 However, his administration’s efforts at rapprochement ­were rattled during the Demo­cratic primary. Early pledges of support indicated that large segments of ­labor backed Senator Ted Kennedy, a leading figure in the party’s liberal wing from a solidly u ­ nion state, Mas­ sa­chu­setts. Kennedy received endorsements from several national ­unions, such as the UAW and the IAM. Although only a few l­abor leaders, such as J. C. Turner of the IUOE, supported Car­ter from the beginning, initially the AFL-­CIO executive remained neutral and kept relations with the incumbent cold. ­After Lane Kirkland was elected president of the federation in 1979, Car­ter found an especially ­eager ally. Kirkland was intent on rebuilding the relationship with the Demo­crats that they had formed in the New Deal period and which had been strained u ­ nder George Meany’s tenure as president. As we w ­ ill explore in more depth in the next chapter, a critical prob­lem in American capitalism was the inflation crisis. To signal his interest in building a better relationship with the administration, Kirkland offered to help the administration take it on. According to a memo from Deputy Chief of Staff Landon Butler, “In April and May, 1979, Lane Kirkland told me privately that he was prepared to enter into a ‘social contract’ with the Car­ter Administration. Lane pointed out that the Callaghan

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government’s social contract in E ­ ng­land involved specific concessions on policy questions in return for the cooperation of British trade ­unions in a voluntary wage guideline program” (quoted in Dark 1999:118). The negotiations resulted in a so-­called national accord between l­abor and the administration, which included the formation of a fifteen-­member tripartite board that would provide assistance to policymakers in formulating wage guidelines to deal with the inflation prob­lem. AFL-­CIO spokesman Allen Zack said, “It is quite a historic document. It’s about as far as you can go ­toward a social contract ­here in the U.S. without a parliamentary system. Never before has the legitimate role of the ­labor movement been recognized in such a way” (quoted in Dark 1999:119). When Kennedy failed to win the primary and the AFL-­CIO Executive Committee came out in support of Car­ter, most of the l­ abor movement shifted into a position of active support for reelection. This mattered critically for the campaign, even though in the end it was a failure. As one Car­ter aide observed of u ­ nion activists, “­They’re prob­ably the most impor­tant group in Demo­cratic Party politics. No other group in the Demo­cratic Party has the money. When you get into voter registration, that’s who you go to. And ­these groups get involved in the primaries” (quoted in Dark 1999:122). But ­union density fell to just above 20 ­percent in 1979, roughly what it was in 1940. So it cannot be denied that, had ­labor been stronger, it might have been able to sway the election in f­ avor of Car­ ter and his policy proposals. During the presidential campaign, in addition to tackling the inflation prob­ lem with wage controls, Car­ter’s main domestic economic policy aimed to expand basic industries to c­ ounter deindustrialization. This policy was the alternative to the neoliberal solution coming more forcefully with Reagan. On August 28, 1980, Car­ter announced his economic revitalization plan to ­great fanfare within his party, which included $3 billion worth of loans, grants, and interest subsidies to distressed areas in 1981 and 1982; $350 million for retraining and relocation programs for workers in declining industries; a targeted investment tax credit for investments in distressed areas; and $1 billion for programs in high-­unemployment areas. As president, Reagan’s eventual alternative would be to lower taxes, creating “enterprise zones” out of areas experiencing severe deindustrialization ­under the pretense that this policy would encourage firms to stay on U.S. soil and not relocate (Peirce and Steinbach 1980). Car­ter had appointed a Commission on Pension Policy to conduct a thorough analy­sis of the retirement system in 1978 and also installed a tripartite Economic Revitalization Board into his broad program for reindustrialization, a policy recommendation of the AFL-­CIO’s Executive Committee. He appointed AFL-­CIO President Lane Kirkland to serve as a chairman on the board, which would invest pension assets for reindustrialization purposes by granting guarantees for a

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­ inimum level of return to pension funds that participate (Barber 1982:50).46 In m his words, Car­ter wanted the Board to act as an industrial development authority to channel resources—­including pension assets—­“to help revitalize American industry in areas most affected by economic dislocations or by industrial bottlenecks.”47 By pointing to alternative objectives besides the rate of return, the Car­ ter administration explic­itly advocated a more solidaristic developmental policy that both challenged existing pension regulations that had blocked ­labor control and created new institutions that incorporated u ­ nion influence into retirement saving investment decisions. The proposed economic revitalization plan garnered significant support within the party. At the Demo­cratic National Convention in August 1980, Governor Jerry Brown of California said, “It is time to redirect the vast pension funds of this nation to more socially responsible objectives.”48 Brown created a Public Investment Task Force to investigate how state pension funds could be used to invest in the state of California for purpose of creating jobs. Other Demo­cratic politicians followed the example of California and took similar initiatives in Illinois, Mas­sa­chu­ setts, New York, and New Jersey (Gray 1983). For its part, or­ga­nized ­labor actively campaigned for the plan. According to President Kirkland, What is being contemplated, and supported by the AFL-­CIO, is the establishment of an industrial development authority which would appeal to pension funds through attractive interest rates and loan guarantees and the assurance that they would be devoted to the support and expansion of jobs in this country. ­Under this proposal, pension fund capital would be available for such vitally needed proj­ects as rail road improvement to move our manufactured goods and agriculture, harbor expansion to facilitate exports, synthetic fuel development to help our nation obtain energy in­de­pen­dence, and the modernization of our manufacturing and other facilities.49 Larry Smedley, of the AFL-­CIO Department of Social Security, echoed Kirkland, promoting the plan to the ranks and saying that “fund investment effort ­will be aimed at greater emphasis on job creation through investments that ­w ill help modernize industries in depressed areas and encourage industrial growth, as well as produce solid earnings on investments.”50 The plans for the Economic Revitalization Board w ­ ere quickly scrapped when Reagan won the presidency. Instead, Reagan introduced his alternative, cutting taxes to create and maintain production in the United States. A ­ fter the electoral defeat, former President Car­ter’s Commission on Pension Policy was unable to give a clear set of policy recommendations in its Final Report in 1981. T ­ hroughout

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the 1980s, Northern Demo­crats shifted away from the policy of targeted pension fund investments for reindustrialization. The last time Car­ter’s economic revitalization plan was advocated by the party was when Walter Mondale won the Demo­cratic nomination for the presidency in 1984. Again, however, Reagan won. ­Under the Clinton presidency, hardly a word was mentioned of ­union pension fund investments as a means to domestic growth. By the 1990s, neoliberalism was well-­lodged into the policymaking paradigms of both parties. The Humphrey-­Hawkins Full-­Employment Bill. The economic revitalization plan was a “suppressed historical alternative” in the development of Amer­i­ca’s old-­age security system. But it is a ­mistake to conclude that the plan would have simply succeeded had Car­ter won reelection against Reagan. Surely, history would have unfolded quite differently with a moderate in the White House, but it is doubtful that the plan would have made it through the legislative pro­cess unscathed given the broader market-­oriented policy shift already ­under way and begun ­under Car­ ter himself. The alternative was suppressed ­because of deeper changes in the balance of class forces in Amer­i­ca. Unions ­were hemorrhaging members and their brief flirtation with a more fightback stance and militancy in the opening years of the 1970s had all but withered away into rank-­and-­file passivity. As they did in the years ­after World War II, ­under Lane Kirkland, ­unions once again devoted their energies into politics and supporting the Demo­cratic Party. In the first instance, it had shifted u ­ nions onto a market-­oriented path away from a more solidaristic expansion of the public plan ­after the war. But at least along this path of marketization, ­unions ­were able to make gains. Their second enthusiastic embrace of the Demo­cratic Party, however, brought far fewer rewards. Comparatively, the Humphrey-­Hawkins bill, passed when Car­ter was still in office, suggests that in all likelihood the economic revitalization plan would have failed regardless of which party controlled the executive branch. The bill provides a useful counterfactual for what might have been, had Car­ter been reelected and his developmental plan attempted. ­After a minor recession in 1971, in 1974 the U.S. economy went into an economic slump. The crisis spurred public discontent over the Ford administration’s economic policy and a number of legislative initiatives by the liberals in Congress, the most successful of which was the Humphrey-­Hawkins bill. The original version of the bill, proposed in 1974, aimed to achieve full employment. It rejected the common definition, the level of employment at which inflation begins to rise according to the Phillips curve, in ­favor of a situation where ­there ­were as many vacant jobs as individuals looking for and able to work (Akard 1996:108). The bill proposed to achieve full employment within eigh­teen months of passage; required the president to submit an annual report to Congress to keep the

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a­ dministration to task; and, most controversially, granted the ­legal right to work and wage provisions for the public jobs it created. Unsurprisingly, it faced opposition from business organ­izations, Republicans, and the moderate Demo­crats who ­were elected in Republican districts a­ fter the Watergate scandal (Anderson 2008:98). The bill had the support of u ­ nions such as the UAW; the USW; the IUEW; the AFT; the AFSCME; the IAM; and the UFW.51 Just nine months ­after the bill was introduced, unemployment had climbed from 5.2 ­percent to 8.7 ­percent. By the end of 1975, with pressure coming from the rank and file of the or­ga­ni­za­tion, George Meany was pushed to meet with the Congressional Black Caucus to overcome their policy differences. The version that the AFL-­CIO leadership eventually agreed on dropped the ­legal right to a job, extended the goal deadline to four years, and made the creation of public jobs a “last resort.” The federation preferred investment into private domestic industries. The new bill met outright hostility from the Ford administration. Ford and his advisers, taking their cue from the testimony of the Federal Reserve and business associations, ­were worried that reducing unemployment would drive up inflation. Once elected in 1977, Car­ter took a similar position on the advice of Charles Schultze, head of his Council of Economic Advisers. Despite public support, ­there was a widespread concern among the bill’s long list of opponents that it would draw capital away from productive investments in the private sector in f­ avor of unproductive investments in public, government jobs.52 Although the Humphrey-­Hawkins bill became a part of the Demo­cratic Party platform in 1976 when it was reintroduced, it is not surprising that by the time it was passed in 1978, with Car­ter’s support, it had gone through so many rounds of revision that its final form was hardly recognizable from its first. The unemployment goal was increased from 3 to 4 ­percent by 1983 (in that year unemployment was almost 11 ­percent), and the option for public jobs was largely removed. Provisions w ­ ere also included that gave priority to anti-­inflationary mea­sures over and above the goal of employment, essentially changing the bill’s very purpose turning it into an anti-­inflation bill. The final version included numerical targets to reduce inflation to 3 ­percent by 1983 (a goal that was achieved), and to zero ­percent by 1988 (Ginsburg 2012:132). When it came to lowering unemployment, the bill that was passed lacked any meaningful enforcement mechanism and as a result was almost immediately ignored and v­ iolated by employers and policymakers alike. If it was symbolic, even its symbolism was empty. All ­things being equal, with ­union members conducting business as usual, the economic revitalization plan would likely have had a similar fate if Car­ter was reelected. Like full employment ­under the Humphrey-­Hawkins bill, the fate of the economic revitalization plan highlights the deeper shift ­toward market-­oriented policies during this period in Amer­ i­ca. Without ­legal reforms that cut in the other direction, ­unions ­were forced to

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retreat on the issue of pension fund control. During the years that followed the failed Car­ter reelection, ­unions did create a variety of investment funds, such as the Housing Investment Trust (est. 1983), which attempted to realize some of the goals the AFL-­CIO Executive Committee on Investment of Union Pension Funds had laid out in 1980. However, ­these ­were financed primarily by the jointly run multiemployer funds, not the single-­employer funds that held the bulk of U.S. pension assets, and ­were never large enough to have much of an impact (Zwan 2011). Comparatively, in the Quebec case a stronger and mobilized ­union federation in combination with the po­liti­cal success of a social demo­cratic party made solidaristic financial reforms in the retirement system pos­si­ble. Like ­those in the U.S., policymakers in Quebec also responded to the structural imperative to manage cap­i­tal­ist growth; working class power explains why they chose a more solidaristic path.

Solidaristic Investing in Quebec’s Solidarity Fund The creation of Quebec’s Solidarity Fund contrasts sharply with Car­ter’s failed revitalization plan and corporate-­controlled pension financialization, more broadly. As in the United States, ­unions across Canada in the late 1970s began to show an increased interest in the way pension funds ­were invested. The Canadian L ­ abour Congress (CLC), the central l­ abor federation in Canada, even passed a resolution at their 1986 convention “endors[ing] the goal of or­ga­nized Canadian workers achieving greater control and direction of the investment of pension funds” (quoted in Quarter et al. 2001:94). Also as in the United States, ­unions in Canada ­were largely unsuccessful at achieving control. Yet, provincially, by creating a new type of pensioning instrument based on ­labor control, Quebec is an outlier within the broader Canadian story. Quebec, which represents about one-­ quarter of the entire Canadian population and had a u ­ nion density rate around 40 ­percent in this period, was the first province to establish a union-­run ­labor-­sponsored investment fund (LSIF) to pool retirement savings and redirect financial flows.53 LSIFs are not the same as traditional collectively bargained funds. Quebec ­unions, like t­ hose in the United States, w ­ ere also unsuccessful at controlling bargained pension funds ­because of ­legal barriers similar to ­those in Taft-­Hartley and ERISA; Canadian court rulings on pension fund investment issues took their cue from U.S. ­legal pre­ce­dents (Tessa Hebb, interviewed by McCarthy, unpublished, 2013). Instead, LSIFs are more like a mutual fund or a 401(k), with individuals choosing if they want to invest in them and then deferring their returns on t­ hose investments ­until retirement age (Hebb). But unlike U.S. mutual funds or 401(k)s, which ­unions cannot control, the Fédération des trailailleurs et traivailleuses du Québec (FTQ), Quebec’s largest ­union federation, runs the Solidarity Fund.

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Since 1983, the Solidarity Fund has had a significant impact on Quebec’s development (Hebb, by McCarthy; unpublished interview; 2013). With the massive infusion of equity through workers’ contributions, by the early 1990s, the fund was estimated to have created 23,000 new jobs through approximately one hundred distinct investments in local firms (Comeau and Lévesque 1993:237). By 2012, the fund had created 86,624 jobs and maintained or protected 81,993 more (Fonds de Solidarité FTQ 2012). B ­ ecause the fund was successful at generating cap­i­tal­ist growth in the province, LSIFs have become more common in Canada beyond Quebec.54 Although many of the funds outside of Quebec are less explic­ itly prounion, they also represent risk capital that meets investment gaps in the market for small-­to medium-­sized firms in the given province, and if the fund is specialized, par­tic­u­lar sectors of the economy (Hebb and Mackenzie 2001:131). By the 2000s, LSIFs provided nearly one-­half of the all venture capital in Canada (Quarter et al. 2001:95). In comparison to their U.S. counter­parts, then, how did the FTQ come to establish and control the Solidarity Fund? The balance of class forces in the province leaned more toward unions than it had in the U.S. While Car­ter’s plan was stifled by the rise of Reagan conservatism and the weakening of U.S. ­unions, the FTQ was able to achieve fund control for two reasons: (1) the rise and success of the Parti Québécois (PQ), a social demo­cratic party that advocated separation from Anglo Canada; and (2) the labor movement’s larger size and importance in provincial politics. By the 1970s, the FTQ cut its po­liti­cal ties to the New Demo­cratic Party (NDP) and its leader, Louis Laberge, penned Un seul front (The Only Front, 1971), which called for po­liti­cal action to out the Liberals in support of the PQ. According to the FTQ, the PQ was “the party closest to the interest of the workers” (Confédération des Syndicats Nationaux 1987:247). As a result, FTQ members voted overwhelmingly for PQ candidates, they staffed its local po­liti­cal offices and outreach programs, and they financed its po­liti­cal campaigns (Lipsig-­Mummé 1991:93). ­Labor’s effort was critical for the PQ, given how large the ­labor movement was. For its part, the PQ proposed ­legal reforms that gave ­unions far greater control over investment. René Lévesque (1976:743), the leader of the party, wrote in Foreign Affairs that the dominant position in our repatriated financial cir­cuit would be handed over to Québec’s cooperative institutions, which happen to be particularly well developed in that very field, and, being strongly or­ga­ nized on a regional basis, would afford our population a decent chance for better-­balanced, responsible, demo­cratic development. And that, by the way, is just one fundamental aspect of the kind of evolution ­toward a new economic democracy, from the lowest rung in the marketplace

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up to the board-­room levels, which all advanced socie­ties that are not already ­doing so had better start thinking about in the very near f­ uture. When the PQ won the elections in 1976, it shifted domestic policy in a more solidaristic direction and targeted investments into the province in preparation for in­de­pen­dence. It strengthened the role of the existing governing agencies to further support Quebec enterprises, created the Société de developpement de l’enterprise to provide more capital for small-­and medium-­sized firms, created a preferential buying scheme using the provincial government’s purchasing power to build up Quebec firms, and designed an industrial recovery fund to provide further aid to businesses in need. T ­ hese economic development policies ­were elaborated on in its report, Challenges for Quebec, which it published in 1979. The report offered a “new social contract” based on a corporatist model of state-­led development, encouraging the coordination of activities between business and ­labor, not unlike Car­ter’s failed plan. It also outlined the dif­fer­ent forms of aid the government would make available to the private sector, such as investment assistance and technical and financial help (Quebec Government 1979). To implement its agenda, the PQ held annual tripartite summits with l­abor and francophone capital, and it created the Conseil économique et social (CES), a corporatist body that made developmental policy recommendations for the province. In the early 1980s, however, the developmental proj­ect came ­under the strain of an economic recession in no small part triggered by Amer­i­ca policy (as we w ­ ill see in the next chapter). In response, the FTQ, ­under the active leadership of Louis Laberge, put its full attention on plant closures and deindustrialization in the private sector. At a tripartite government-­led summit in 1982, the FTQ argued that through the targeted provincial investments of a pension fund made of voluntary contributions, the ­union could help keep existing jobs and create new ones—­ again similar to Car­ter’s plan. The major outcome of this proposal was the creation of the Solidarity Fund in 1983, when the PQ passed Bill 192 (Hebb and Mackenzie 2001). With the FTQ named sole sponsor, the new law laid down four objectives for the fund: (1) to invest in firms whose total assets w ­ ere less than $50 million or net assets no greater than $20 million, (2) to promote worker training, (3) to stimulate the Quebec economy, and (4) to bring workers into the fund through very generous tax credits (130). By 2013, the Solidarity Fund had net assets of $8.8 billion (Fonds de Solidarité). In the United States, Car­ter’s economic revitalization plan would have challenged and revised interpretations of the prudent person rule that only emphasize rate of return, a purely market-­oriented investment criteria. But given the timing and the weakness of ­labor, ­there was small hope in it actually being implemented. In the Reagan revolution, which was actually u ­ nder way before he took office,

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the plan was Keynesianism’s ­dying gasp rather than last hope for an alternative economic policy. So when the plan failed, ­unions ­were forced again to retreat on the issue of targeted investments of pension finance. By contrast, in Quebec, the social demo­cratic policies of the PQ emphasized corporatist development and targeted investments into the provincial economy. The rise and po­liti­cal success of Quebec nationalism in combination with the strength of or­ga­nized ­labor in the province made ­these ­legal reforms pos­si­ble and resulted in the creation of the union-­run Solidarity Fund. Policymakers responded to the cap­ i­tal­ist crises of the late 1970s in very dif­fer­ent ways.

Crisis to Pension Financialization The financialization of retirement funds between 1950 and 1980 was driven by a series of po­liti­cal interventions into the management of pensions by policymakers who ­were primarily concerned with promoting cap­i­tal­ist growth. Starting in the postwar period, when a conservative co­ali­tion came to control both ­houses of Congress between 1947 and 1949, lawmakers on the right argued that the best way to end l­ abor-­management conflicts was to drastically roll back the gains made by ­unions in the Wagner Act. With overwhelming support from business associations such as the NAM and the USCOC, Northern Republicans and Southern Demo­crats passed the Taft-­Hartley Act over Truman’s veto in 1947. Somewhat ironically, most Northern Demo­cratic policymakers opposed the law on the same grounds that Republicans supported it, arguing that the act would actually increase ­labor unrest and encourage the spread of communism domestically rather than temper it. An impor­tant, but often ignored, aspect of the Taft-­Hartley Act restricted ­union control of pension funds to no more than half of the board in charge of administering them. The threat of ­unions with vast pools of capital at their disposal frightened lawmakers. Byrd, a Demo­crat from V ­ irginia, did not mince words when he said that that much financial power might lead to “the complete destruction of the private enterprise system in ­the U.S.” Taft-­Hartley conferred much greater capacity to cap­i­tal­ists to follow the best practices on Wall Street when it came to investing their u ­ nion pension funds. But the law itself only partially explains why the investment of pension fund money was so deeply subjected to market forces, while more solidaristic forms of investment available to pension fund man­ag­ers ­were sidelined and treated with suspicion. Laws operate within a social context. In the case of Taft-­Hartley, its implementation and impact on pension financialization have to be understood within the within the broader context of class forces, as it did not have the same effect on all employers and l­abor organ­izations. Although u ­ nions that

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­ argained with single, large employers over their fund found the barriers to fund b control too ­great, ­those that bargained industry-­wide, representing the employees of several smaller firms, often found themselves able to exert more leverage on fund boards. As a result, it was within ­these multiemployer plans that u ­ nions continued to push the bound­aries of the law. If Taft-­Hartley made pension financialization pos­si­ble by strengthening the hand of firms, ERISA in 1974 actively promoted it. Drafts of the bill had been u ­ nder debate since the Eisenhower administration, and for his part Nixon ignored it the first three years of his presidency. But in order to win l­abor’s support for his trade deal, he included it in the package of legislation that he introduced in 1973. By this time l­abor, like business, was internally divided over ERISA. T ­ hose ­unions with multiemployer plans who also had greater administrative responsibilities over their funds opposed it while most ­others, already having given up on the possibility for control, supported it. ERISA clarified the prudent man rule for courts, making the rate of return on pension investments the primary criteria for fiduciaries sorting through investment options. In practice, this further discouraged plan sponsors from engaging in targeted investing that also gave priority to social concerns. By the time Car­ter had begun his campaign for reelection, ­there was a possibility that the path to financialization that most funds had taken might be reversed. In the run-up to the election against Reagan in 1980, the Demo­cratic Party, both at the national level and the state level, promoted targeted pension investments as way to achieve reindustrialization in order to shore up voter support against Reagan’s neoliberal alternative, cutting taxes. Deindustrialization and the loss of U.S. jobs ­were critical issues during the campaign. Unions, ­eager to revisit the issue of fund control, supported Car­ter’s proposals. Had the Car­ter plan been a success, a tripartite board with l­abor repre­sen­ta­tion would have been set up and given the state’s backing, guaranteeing minimum rates of return to investments that helped the U.S. economy reindustrialize. But Car­ter’s proposals ­were more of a d ­ ying gasp that a ­viable alternative to Reagan’s. In contexts where ­unions have been able to control retirement plans and use them for reindustrialization purposes, such as in Quebec, Canada, they ­were also much more mobilized and socially strong. In Amer­i­ca by 1980, ­union density had already been in decline for twenty-­five years and many politicians, even Northern Demo­crats, had distanced themselves from the prolabor agenda of the New Deal. While ­unions have continued to explore ways to redirect the power of their retirement finance for social purposes, the idea that they can be harnessed on a large-­scale into solidaristic proj­ ects has been dead in practice since 1974. Instead, pension fund investment practices are now driven almost solely by cap­i­tal­ist market imperatives.

5 T­ OWARD THE 401(K) OWN­E RSHIP SOCIETY

As I have shown, pension privatization since World War II proceeded at a glacial pace. Sometimes t­ hese changes began suddenly, but each episode has been de­cades long. The spread of private pensions, which I explained in chapter 2, occurred ­after a burst of postwar l­abor unrest but slowly expanded into the 1970s when increases in the proportion of workers covered came to a halt. The share of workers participating in an employer-­pension plan climbed to 45 ­percent coverage in the late 1970s and, despite a temporary increase to 50 ­percent in 2000, remains nearly the same ­today (EBRI 2015). In chapter 3, the financialization of private pension assets was a similarly long term pro­cess, beginning with the passage of Taft-­Hartley in 1947 and finalized with the passage of ERISA in 1974. Both concurrent changes took a similar path, a movement away from social solidarity, shared risk and collective responsibility for the life of our aged, to the market, individualized risk and impersonal economic forces determining income in the golden years. In both chapter 3 and 4, I also showed that t­ hese shifts w ­ ere po­liti­cal in their ­causes, the inadvertent outcomes of policymakers acting to promote cap­i­tal­ist growth, avert crises and proj­ect American economic power abroad. In chapter 3, Truman’s interventions into strikes, industrial unrest, and botched contract negotiations ­were intended to solve the reconversion prob­lem, the need to maintain the relatively coordinated l­ abor-­management relations that had been achieved with war­time po­liti­cal institutions and controls. And similarly, in chapter 4, I showed that while the practical effects of Taft-­Hartley and ERISA ­were financialization and corporate control, in fact politicians thought ­these laws would contribute to economic growth and avoid looming crises. 126

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By the late 1970s and early 1980s, the design of American old-­age security was poised to undergo another transformation. The coming tectonic shift further exposed the income of retirees to the unpredictable whip market forces. Gradually, defined-­contribution (DC) plans, such as 401(k)s, came to replace the traditional, defined-­benefit (DB) plans that l­abor ­unions had won ­after the war. While DC plans have become more prevalent since the early 1980s, DB plans grew sparse, falling from 38 ­percent coverage in 1980s to 20 ­percent by 2008 (Bureau of ­Labor Statistics 2008). This change brought costs for f­uture retirees. 401(k) retirement plans, a species of DC pensions more broadly, do not guarantee retirement benefit levels like their historical pre­de­ces­sors. Instead, in DCs the beneficiary is responsible for making smart investment choices that ­will create a nest egg large enough to adequately supplement the retirement income they earn from both Social Security and any personal savings they might have. The net effect of this shift to DC plans is to allocate even more risk to workers and less to the firms that sponsor the plans (Munnell and Sundén 2004). The previous chapters have shown that policymakers’ interventions into industrial relations w ­ ere the main proximate force driving marketization in Amer­i­ca’s retirement system. But t­ hese interventions w ­ ere rarely made b ­ ecause of the need to change the provisioning of retirement income. Workers’ retirement needs ­were never the sole or even primary cause of ­legal changes that impacted pensioning. Instead, policymakers w ­ ere driven by the need to manage American capitalism, removing any blocks to growth and facilitating it where necessary. The growth of 401(k)s followed a comparable but unique po­liti­cal logic. In the postwar period, policymakers w ­ ere determined to quiet l­abor-­management conflicts and establish a regularized ­labor peace that could take advantage of opportunities in war torn markets. As the cap­i­tal­ist context changed, so did this orientation. By the late 1970s policymakers m ­ oved to restrain and depress wages to c­ ounter a growing inflation crisis. In this chapter, I show that the rise of 401(k)s, on the one hand, and the decline of DB plans, on the other, was the inadvertent result of policymakers attempting to revive Amer­i­ca’s stagnating and inflationary economy. The somewhat counterintuitive story of the rise of 401(k)s begins with ERISA. For every­thing ­else that it did—­including locking in place the financialization model of pension investment and at the same time making other aspects of the traditional DB system more secure—­ERISA had imposed large costs on pension plan administrators. And a­ fter it was passed, well into the Reagan revolution, and despite the administration’s small-­state rhe­toric, more and more regulations ­were imposed on the private pension system. Costs associated with this legislation helped to trigger a business shift ­toward much riskier 401(k) plans. The new rules worked in such a way b ­ ecause of two f­ actors related to changes in the balance of class forces in the United States: (1) employment in the manufacturing sector,

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the ­unions’ traditional stronghold, declined as a share of total employment; and (2) ­unions ­were unable or unwilling to ­unionize emergent sectors that ­were often harder hit by regulatory costs, so new businesses in ­those sectors ­were not compelled to negotiate DB plans. In such a context, regulatory costs pushed many firms to adopt DC pensions for their employees. Structural prob­lems in capitalism pushed policymakers to intervene, but contingencies of class strug­gle explain how ­those interventions drove marketization. Individualized retirement schemes such as 401(k)s are a critical component of the more general shift ­toward marketization in the final quarter of the twentieth c­ entury. It helped lead to what President George W. Bush would come to call the “owner­ship society.” Transportation deregulation was pushed through u ­ nder Car­ter’s watch, but neoliberalism was embraced more fully by the Reagan administration. The emergence of 401(k)s is one instance among many policy changes in the period that moved risk onto workers and the m ­ iddle class. The lit­er­a­ture on Reagan’s economic policies and his management of American capitalism has produced two analytical perspectives, but neither fully captures the causal story of 401(k)s. The most commonly held view characterizes 1980s marketization as simply the advance of the market and the retreat of the state. In this view, markets triumph b ­ ecause ideologically driven policymakers deliberately weaken the state’s regulatory capacity, cutting bud­gets, slashing funding, and loosening rules. In d ­ oing so, neoliberal policymakers allow private markets to govern the distribution of goods once regulated or public. I call this the weak-­state intervention thesis. But other research (Vogel 1996; MacEwan 2000; Krippner 2007; Crouch 2011; Major 2012; Panitch and Gindin 2012) argues that although Reagan’s neoliberal ideology emphasized ­free markets, in practice marketization and the privileging of firms’ interests was a state-­managed proj­ect that actually entailed major forms of reregulation. In this perspective, neoliberal policymakers purposefully created new state functions and capacities to usher in a market paradigm. I call this the state-­managed transition thesis.1 Pensions’ developmental path does not fit in neatly with e­ ither of the characterizations of the period. First, more rules—­not less—­were being imposed on private pensions in the period. Undoubtedly, the notion that the state was in retreat simply does not apply to pension regulation. Second, the emergence and spread of 401(k)s was not deliberately state-­managed; their rise was unplanned by policy­ makers and in part a result of l­egal institutions that w ­ ere established when ­unions ­were once stronger. Instead, policymakers, as part of a multifaceted approach to solve the inflation crisis by further weakening u ­ nions, unleashed a torrent of legislation a­ fter the passage of ERISA. But t­ hese new rules had the unintended effect of spurring on the growth of DC plans. Suggesting that the shift

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was state-­managed implies an intentionality that simply was not ­there. In the context of an increase in administrative costs of DB plans, a growth of small businesses in the ser­v ice sector, a decline in goods-­producing industries, and the weakening of the ­labor movement, employers made the economic choice to adopt DC plans. Although policymakers mattered, they mattered in spite of their basic intentions. In the case of 401(k)s, marketization occurred as a firm-­level reaction to both increased regulatory costs and deeper changes in the country’s employment structure that both weakened the bargaining power of u ­ nions and lowered ­union density in emerging sectors of the economy.

What Are 401(k)s? Before exploring the historical paths on which marketization proceeded, in this section I briefly offer the reader a primer on retirement plans and how they differ. Employer retirement programs come in two broad types: DBs and DCs. In a DB plan, the worker’s pension benefit is preset by a formula that takes into account years of employment and, typically, salary or wage levels. Employees do no typically contribute to the fund that they draw from once they retire. In a DC plan, participating workers have a retirement account into which the employer contributes on a regular basis. If the program is designated as “contributory,” as many are, the employee pays into the fund as well. In DC plans, benefit levels are not guaranteed, but instead depend on the total investment earnings in the account at the time the worker retires. DB and DC plans allocate risk to firms and workers quite differently (Bodie, Marcus, and Merton 1988). In a DB plan, relatively speaking, risk is more solidaristically pooled within the firm itself; whereas in a DC plan, it is more individualistically allocated and retirement income’s distribution is more dependent on the market mechanism. Along t­ hese lines, a worker that qualifies for a DB plan w ­ ill get a set income flow ­until her or his death. And, for the most part, as we saw in the last chapter, the firm is responsible for having that amount in the fund come retirement time. In a DC plan, however, more decision-­ making authority is given to employees to determine the retirement income. The worker chooses from a limited number of investment options and gains access to the accumulated savings on retirement. The critical difference in risk allocation is that an employee that is covered by a DB plan w ­ ill accumulate a specified entitlement that is backed by both federal law and the federal insurance of the PBGC. A DC plan, by contrast, produces a retirement income that is determined by the employee’s strategic investment choices and the state of the stock market at the time of retirement. As a result, participants in DC plans are at a much greater

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70 60

58 50

Percentage

50 40 30 20

21

19

Defined benefit only

Both

10 0

No pension

Defined contribution only

FIGURE 12.  National retirement risk index by pension coverage before crisis, 2004 Source: Munnell, Webb, and Delorme 2006.

risk of having lower replacement rates (retirement incomes relative to preretirement earnings) during their retirement years than ­those with DB plans. Figure 12 reports calculations of the National Retirement Risk Index (NRRI) before the crash in 2008. The NRRI compares replacement rates for ­house­holds in that year with the rates that would allow them to maintain their working-­life standard of living and calculates the risk of falling short—­the higher the index, the higher the risk of not being able to maintain their preretirement standard of living by pension type. Recalculations of the NRRI in 2012 showed a substantial increase in risk ­after the 2008 crash for ­future retirees (Munnell, Webb, Golub-­Sass 2012). Before the 1980s, DC plans w ­ ere marginal within the pension system, typically being reserved for higher-­paid employees. As we saw in previous chapters, ­after ­unions won collectively bargained DB plans in the postwar period, they quickly became the norm and even spread to nonunionized sectors. Unions had been able to win meaningful gains in the standard of living through the bargaining pro­cess. In the 1970s, however, this arrangement—­the so-­called ­labor management accord that never r­ eally was—­rapidly broke down. And as the h ­ ouse of ­labor fell, the traditional pension plan came to be replaced with DC plans. By the early 1990s, the number of participants in DB and DC plans was evenly split, and by the 2000s, DC plans had clearly become the private retirement vehicle of choice for many American cap­i­tal­ists (see figure 13).

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80 70 60 50 40 30 20 10 0 1983

1992

2004

2013

Year Defined benefit only

Defined contribution only

Both

FIGURE 13.  Percent of workers with pension coverage by type of plan, 1983–2013 Source: Author’s calculations from Munnell and Sundén 2006; Ellis, Munnell, and Eschtruth 2014.

The 401(k) is a type of DC plan. They ­were named ­after a new section of the Internal Revenue Code, set forth in the Revenue Act of 1978, that concerns bonus payments for employers. The (k) section was inserted into the code to allow firms to offer a deferred profit-­sharing bonus, untaxed ­until the point of payment. As in all DCs, the money is put into a fund where it is invested. In ­these plans, employees select between several stylized asset-­allocation combinations offered by fund fiduciaries. ­These can include short-­term portfolios, which invest in the money market; income portfolios, which invest in bonds and mortgages; growth portfolios, which invest in equities; or portfolios that combine t­ hese approaches in dif­fer­ent ways. Sometimes employers push their employees to invest in their own stocks. In the early 1990s, 23 ­percent of 401(k) assets ­were invested in the sponsoring firm, 32 ­percent in guaranteed investment contracts (GICs; Blackburn 2002:106). Self-­investing, which is illegal for DB plans but not DC plans, was especially scandalous in the collapse of the Texas energy and commodities com­ pany, Enron, in 2001. At the end of 2000, Enron employees had well over half of the $2.1 billion in their 401(k) funds invested directly in the com­pany itself. Although Enron executives famously sold their com­pany stock before its value fell,

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50 45 40 35 30 25 20 15 10 5 0

1984

1986

1988

1990

1992

1994

1996

1998

Year Percentage of all plans

Percentage of all DC plans

FIGURE 14. ​401(k) trends, 1984–98 Source: EBRI 2002.

most employees saw their 401(k) assets frozen and, as a result, lost most of their retirement savings (Blackburn 2002:191). Before the Reagan era, 401(k) plans w ­ ere non­ex­is­tent. They rapidly grew, however, during the 1980s and 1990s. In 1984, they represented just 3 ­percent of all private plans and 4 ­percent all DC plans. By 1998, ­those values ­were 41 ­percent and 45 ­percent, respectively (see figure 14). Similarly, as a percentage of all plan participants in both DB and DC plans, 401(k)s grew from 12 ­percent in 1984 to 51 ­percent in 1998. For just ­those participants in DC plans, 401(k)s grew from 25 ­percent in 1984 to 74 ­percent in 1998 (EBRI 2002). The 401(k) plan has become the industry standard for firms that are willing to offer their employees some form of retirement savings program; most opt out completely. They have pushed retirement income provisioning even further down the path of marketization.

401(k)s and Cap­i­tal­ist Interests The shift to 401(k)s specifically and DC plans more broadly was with a move ­toward the vision of retirement income promoted by Amer­i­ca’s largest business organ­izations, which emphasized the role of the individual in securing retirement income for themselves. In multiple conferences and reports by business

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a­ ssociations such as the USCOC and the NAM in the postwar period, U.S. firms promoted “old-­fashioned, individualistic thrift” and “old-­fashioned, individualistic insurance.”2 In 1947 the USCOC argued that “the primary responsibility for providing against the hazards of old age must rest with the individual. In our American system, this is a power­ful incentive for personal thrift and savings, for the sane and orderly planning of our lives; a power­ful incentive for home owner­ ship, for investment, for insurance, and for working and striving to ever improve our standard of living.”3 Personnel needs given for having a plan for ordinary workers (i.e., retaining good l­abor) was often a post hoc justification a­ fter the system became a fact. A de­cade ­later, despite collectively bargained gains that made DB plans the norm, ­these business organ­izations pushed for the same approach to old-­age security. According to an internal report produced by NAM’s Employee Health and Benefits Committee in 1958, “Utmost consideration should be given to incentives for individuals to provide for their own security in old age.”4 And in the same year, the USCOC held a large conference that included leaders of industry and prominent U.S. academics all ­eager to further marketize retirement security. From the USCOC’s perspective, its main aim was to develop momentum for a national shift ­toward individual planning for retirement.5 A fully market-­oriented system of retirement provisioning, where workers relied solely on their ­labor market per­for­mance and ability to save, cuts business costs. T ­ here can be no doubt that several of the major employers’ associations advocated for the need to get rid of corporate financial obligations to retirees altogether. Of course, DC plans do not rely exclusively on individualized thrift strategies; the employer is still responsible for contributing a portion into the plan’s funds. But as compared to the alternative, DB plans, they greatly reduce the financial burden on firms.6 Short of being able to achieve cap­i­tal­ists’ deeper goal of a personal savings-­based system, DC plans ­were a strategic second-­order preference for business relative to the DB standard. First, they are much easier to administer ­because contribution rates are clearly defined and the benefits are in plain view. Second, only DB plans generate liabilities for plan sponsors that increase default risk, which is the risk that the plan w ­ ill not have enough assets to pay out the benefits to retirees (Wooten 2007). In DC plans, firms are not saddled with the obligation of paying pension benefits throughout the retirement life of a worker. What is paid out is simply what that worker has saved in the plan. And fi­nally, they are flexible and portable. In most cases tax-­sheltered savings benefits, including 401(k), profit-­sharing, and thrift plans, can be transferred when the employee moves from one com­pany to the next.7 Yet for workers, DC plans carry large information prob­lems and uncertainty (Ghilarducci 1992:79). In DB plans, workers know exactly what their benefits w ­ ill

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be when they retire. In DC plans, they do not. With the latter, workers have to be smart investors and need to be lucky enough to retire in a period of economic boom. Of course, this was touted as a good ­thing by businesses and conservatives at the time. Most echoed the sentiments of a Business Week article from 1989 which proudly proclaimed, “Instead of faceless man­ag­ers deciding how pension funds get invested, employees choose their own course.”8 Yet economists have shown that employees are generally much more risk averse than employers when thinking about pension financing, leading to smaller retirement accounts in the long run (Bodie, Marcus, and Merton 1988). And if the worker retires in a bear market, his or her retirement income w ­ ill be smaller than if the choice to begin retirement had taken place during a bull market. In a DB plan, an employee’s retirement benefits are less subject to reductions if t­ here are fluctuations in the market (Clowes 2000:16; Munnell and Sundén 2004). As in the previous chapters of this book, this market shift raises a question: ­Under which conditions did ­these DC plans come to emerge and dominate the private pensioning industry? The rest of the chapter offers an answer.

Inflation and Growth In this section, I show that by the end of the 1970s, policymakers had rallied around the goal of solving the inflation crisis. Wielding a theory of the cause of inflation that identified u ­ nion wage gains as a crucial culprit, policymakers believed that ­unions w ­ ere the principal barrier to growth and competitiveness with Amer­i­ca’s foreign trading partners and needed to be weakened in contract negotiations. Policymakers also pushed firms to more strongly resist wage demands from their workers through policy decisions at the Federal Reserve. In the next section, I show that the eagerness of policymakers to discipline ­unions was an implicit goal of pension regulation ­under Reagan. New rules ­were one means among many used in the period to undermine ­labor leverage, and ­these rules inadvertently triggered the expansion of 401(k)s. January 20, 1981, the commencement of the Reagan presidency, is often marked as the beginning of a conservative attack on the government from within. On that day, Reagan (1981a) said, “The economic ills we suffer have come upon us over several de­cades . . . ​In this pres­ent crisis, government is not the solution to our prob­lem; government is the prob­lem.” Armed with the now-­familiar tools of austerity, so the story goes, the government slashed bud­gets, cut programs, and lowered tax rates to spur economic productivity and growth. In several impor­tant re­spects, the administration’s policies did take on an antigovernment character. Bud­gets for key agencies such as the Occupational Safety

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and Health Administration and the Environmental Protection Agency w ­ ere cut and their staffs reduced. Governmental programs such as Medicaid and the Food Stamp Program had their funding tightened. The Kemp-­Roth bill, signed into law in 1981, was the largest single marginal tax cut since the roaring twenties, and more tax cuts ­were pushed through in 1986. And in 1983, Social Security benefits ­were cut by gradually raising the retirement age from 65 to 67 over a twenty-­ two-­year period. But the consistency between rhe­toric and real­ity with re­spect to some aspects of Reagan’s economic policy should not also conceal the deep divergences. Although his administration contained advisers such as David Stockman, an ­eager booster for both lower taxes and lower spending to balance the bud­get, Reagan’s reign did not usher in a new era of small government. On balance, government got bigger. Even in Reagan’s second term, a­ fter the economy recovered from the Volcker Shock and recession-­spending eased, federal outlays ­were 21.7 ­percent of GDP, more than both the 21.1 ­percent of GDP during the Car­ter years and the 19.3 ­percent during the “guns and butter” years of Lyndon B. Johnson (Stockman 1986; Stockman 2013:57). And similarly, far from removing regulations on the pension system, the state’s apparatus for oversight and intervention was significantly expanded during the shift ­toward neoliberalism ­under Reagan.9 Focusing on deregulation and lowering taxes alone ignores both a critical component of Reaganomics and a large part of the explanatory story for the expansion of DC retirement plans. A core objective of policymakers when Reagan entered office was lowering inflation. And this led to a greater role of the state in the economy, not a smaller one. Inflation has typically taken off during wars, but the inflation of the 1970s was a new beast, rising from inconsequential levels in the mid-1960s to double ­digits by the early 1980s—13.7 ­percent in March 1980. Although the inflation rate of select years during World Wars I and II reached greater comparative heights, the cumulative impact of inflation over the 1970s was on parallel with ­either of them. The weakening of the dollar in the 1970s and early 1980s created a major obstacle for cap­i­tal­ist growth and American dominance on the world market. It destroyed the Bretton Woods system of exchange rates, taxed capital stock, bankrupted the thrift industry, undermined government securities, eroded wealth and purchasing power, weakened American firms vis-­à-­v is their foreign trading partners and hindered foreign investment. Inflation devalued the dollar, both at home and abroad, weakening purchasing power and causing “chaos in the international money markets” (Moffitt 1983:196). In 1971 a series of mea­sures known as “the Nixon Shock” had decoupled the value of the dollar with gold, turning it into a ­free-­floating currency. Ending the fixed exchange rate by severing the link that tied the currency to gold put a heavy

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burden on the dollar to perform well in the global economy; ­those that held assets in the dollar would now see returns on ­those assets that ­were tied to changes in the value of the currency itself. Considered from this ­angle, inflation run amok poses real dangers for capitalism and especially financial investors on Wall Street. And by the end of the 1970s, inflation had led to a crisis of confidence among most U.S. businesses and foreign firms considering the U.S. as a place for new investment.10 The creeping growth of inflation since the escalation of aggression in Vietnam in the mid-1960s had surged to feverish levels u ­ nder the Car­ter administration ­after the severe recession in the mid-1970s. At the twilight of the 1970s, it had become apparent to many in government and the Federal Reserve that a collapse of the dollar was entirely plausible. Such a collapse could lead to deep financial crisis and, possibly, the effort to remonetize gold. Policymakers feared the possibility of both. Even before Reagan entered the White House, politicians from across the party divide ­were keenly aware that the state had to strengthen the value of the dollar (Moffitt 1983). Policymakers have long worried about the link between ­union power and cost-­ push inflation.11 Despite their public comments to the contrary, privately policymakers in the 1970s understood that inflation was more about the balance of class forces than the amount of money in the economy (Hung & Thompson 2016). Such an analy­sis ­wasn’t a new one. ­After wage and price controls ­were lifted in the wake of World War II inflation jumped up from 8.5 ­percent in 1946 to 14 ­percent in 1947. At the time, many in Congress argued inflation was driven by the industry-­wide ­labor contracts, which typically included wage increases, that ­unions ­were winning. But the idea had been revisited by a new generation of technocrats in rich cap­i­tal­ist countries in the 1970s when the OECD (1970) released the report, Inflation: The Pres­ent Prob­lem. The report again identified ­labor demands as the source of price increases. It urged OECD governments to shift away from the goal of full employment and instead use fiscal and monetary policy to raise unemployment rates to weaken the ability of ­labor to drive up wages. ­There is some analytical justification for the class power view of inflation that policymakers held. L ­ abor ­unions have two basic economic f­aces: one “voice,” and the other “mono­poly” (Freeman and Medoff 1984). The “voice” face, which involves their ability to redress employee grievances with the employer, is understood well. Simply put, u ­ nions provide a means for employees to have a say. Their “mono­poly” face, however, involves their role in bargaining their wages above the market level. In other words, ­unions interfere with the market mechanism to set wages and benefit levels above what workers would receive without ­union repre­sen­ta­tion. Many policymakers during the Car­ter administration circulated an explanation of the cause of inflation that pointed to or­ga­nized ­labor as the chief driver.

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In meeting minutes of the Federal Open Market Committee in 1977, the pre­ eminent committee of the Federal Reserve that sets its monetary policy, worries ­were raised that “business did not appear to be pressing as actively as they might to hold l­abor costs down, fearing the impact of strikes and assuming that inflation would continue” (Board of Governors 1977). Within a year, the FOMC ratcheted up its concern that new ­union settlements, which included significant wage increases, ­were continuing to drive inflation increases. In April 1978, committee members warned that the contract that was negotiated in the coal industry that settled the UMW’s 110-­day strike had the potential to make the m ­ atter even worse if it set a pattern in other sectors of the economy (Board of Governors 1978). The Fed was sure that wage gains for ­unionized workers would further contribute to the weakening of the dollar’s value. When Paul Volcker, a cheap-­cigar-­chomping Demo­crat, somewhat unexpectedly became the Federal Reserve’s chairman in August 1979, the rate of inflation had reached nearly 13 ­percent, the highest since the mid-1940s. A ­ fter becoming the President of the Federal Reserve Bank of New York in 1975, he had taken a seat as a member the FOMC. In his time on the committee before becoming the chairman, he warned against the optimism of most members of the FOMC in their ability to lower inflation incrementally. When Volcker considered their econometric models’ predictions of continued reduced inflation, he concluded that they failed to take account of “the impor­tant ­factor of expectations” on the part of Amer­i­ca’s workforce (Silber 2012a:134). To defeat inflation, Volcker needed to lower expectations. Economists had not clearly worked out a predictive mathematical equation (if one is even pos­si­ble) that showed the point at which an increase would trigger a crisis, but it was high enough to wet the brows of both policymakers and cap­i­tal­ ists. In his role as chair, Volcker was concerned with one ­thing above all else—­ lowering inflation. And this put U.S. ­unions in the crosshairs. Manipulating interest rates was the primary way the Fed disciplined u ­ nions. The Federal Reserve u ­ nder the two previous chairs, Arthur F. Burns and then G. William Miller, took a tepid approach to interest rates, raising the target rate by quarter p ­ ercent increments at their meetings to try to slowly bring inflation down. They would set a target rate then buy or sell Trea­sury bills to reach it. But for all practical purposes, it w ­ asn’t working. Volcker’s monetary policy became increasingly restrictionist, not supplying reserves to banks through open market operations but holding non-­borrowed reserves at a fixed level. Instead of injecting reserves into the banking system through buying Trea­sury securities, Volcker’s monetary approach forced banks that are low on funds to bid against each other for the federal funds. The result drives up the interest rate. By controlling interest rates the Fed could manipulate the be­hav­ior of firms, increasing them

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made borrowing to finance investment or consumption more expensive while lowering them made it cheaper. As the cost of borrowing went up, firms w ­ ere pushed by market forces to be even more austere. In changing the conditions ­under which firms made a profit, restricting the money supply was the main means to discipline and weaken u ­ nions as wage-­setting institutions in the United States. Both central bankers and policymakers believed this bought po­liti­cal cover. In part, this is why Car­ter supported Volcker’s new approach, which was sure to induce a recession. If inflation was, as monetary theory tells us, a prob­lem of too much money driving up prices then the Fed restricting money would be a direct way to deal with it. By indirectly setting interest rates and inducing recession, their real goal, they believed that the public would have a harder time understanding that the economic slump was caused by monetary policy (Krippner 2011). In 1979 following Car­ter’s famous “crisis of confidence” speech, the Federal Reserve made its first real effort to curb inflation with the support of the State Department. Volcker and the Fed tightened the money supply to an unpre­ce­ dented level. In ­doing so the Fed intentionally slowed down the economy (Treaster 2004:149). Tightening the money supply increased interest rates, which lowered consumer demand and increased the cost of loans for firms. Both combined to force firms to put downward pressure on the wages of their workers. Car­ ter also pushed the Fed to impose mandatory credit controls on the economy, a “credit crunch,” to force the banks to stop lending (Moffitt 1983:180). The first “shock,” which occurred before Reagan was elected and with support across the aisle, was explic­itly intended to get firms to discipline their workforces, cut where necessary and resist ­labor demands for wage growth. Despite Car­ter’s goal of promoting long term cap­i­tal­ist growth he misunderstood that recessions also undermine the more immediate ambitions of voters—he was not reelected. ­After Reagan was elected, without realizing the decreases in inflation that his initial shock aimed for, Volcker stayed on course. Undeniably, the chairman believed inflation was being driven by wage gains. In a statement before the Committee on Banking, Finance, and Urban Affairs in 1981, Volcker (1981) said that “so far, only small and inconclusive signs of moderation in wage pressures have appeared.” A year l­ater, before the Joint Economic Committee of the U.S. Congress, Volcker (1982) hammered home the point even more clearly. He said that in order to continue to put downward pressure on inflation, which had been dropping steadily since 1980, “pro­gress ­will need to be reflected in moderation in the growth in nominal wages. The general indexes in worker compensation still show relatively ­little improvement.” To Volcker, improvement meant halting wage growth. ­There ­were rumblings of disagreement within Reagan’s staff and the Republican Party. Even Reagan himself had doubts about Volcker’s approach, fearing that

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the recession would not be short lived. On several occasions, Reagan clashed with Volcker over high interest rates—­which at one point was well over 20 ­percent, tax cuts, and the bud­get deficit. And some, like Secretary of the Trea­sury Donald Regan, ­were out­spoken critics of the Fed’s monetary policy. But the President agreed with Volcker’s broad course of action. On February 15, a­ fter a private meeting at the White House with the chair, Reagan said to the press corps that “I have confidence in the announced policies of the Federal Reserve Board. . . . ​The administration and the Federal Reserve can help bring inflation and interest rates down faster by working together than working as cross-­purposes” (quoted in Treaster 2004:173–74). Reagan repeated this public vote of confidence several times over the next few years. Financial interests on Wall Street w ­ ere pleased with his resolve to weaken ­unions and break inflation. The support of finance helped keep Volcker in his position as chair for most of the de­cade (176). But a­ fter the 1981 recession, Reagan (2007:67, 200) and many in his team began to worry that the Fed chair’s restrictions on the money supply ­were too aggressive and potentially self-­defeating.12 The unemployment rate reached nearly 11 ­percent by November 1982 from around 7 ­percent in July of 1981, the highest it had been since the ­Great Depression. Still, ­there was agreement that weakening ­union capacity was in the interest of f­ uture cap­i­tal­ist growth. With ­people being laid off, ­labor ­unions faced a double pressure, both from t­ hose in the l­abor market desperate to find work, and employers who ­were squeezed by high interest rates. The po­liti­cal effort to break ­union strength had its intended consequence for policymakers. Inflation dropped off substantially by 1982 and continued to fall into 1983. When economic data started to show that wages ­were being effectively held down, Volcker attributed it to the disciplining and weakening of U.S. l­abor ­unions. Sitting before the Committee on Banking, Housing, and Urban Affairs in the Senate, he (Volcker 1983) stated that “the upward trend in nominal wages and salaries slowed noticeably last year, with average wages rising about 6 ­percent. . . . ​Longer-­term ­union agreements negotiated in earlier, more inflationary years are expiring, tending to further moderate the wage trend.”

Disciplining ­Labor A coordinated po­liti­cal attack on ­union wage gains began well before the 1980s. In Car­ter’s 1976 election, he had surrounded himself with Keynesian advisers and endorsed their recommendations for wage controls and price guidelines as the means to lowering inflation. Despite the restrictionist stirrings in the Fed, his administration initially took policy positions that ­were less concerned with inflation than it was with unemployment (Biven 2003:36–37).13 But lower

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­ roductivity, a declining profit rate, and a business mobilization into politics p helped to shift the orientation in policymaking circles beneath the executive branch of the government. With Car­ter in office, Keynesianism lived in the White House, but it was on its last leg, powerless to make a real impact on policy and ready to collapse. The clearest examples of this w ­ ere the failed Humphrey-­ Hawkins full-­employment bill and the proposed reindustrialization policy, which I discussed in the last chapter. Instead, by the end of 1978, the alternative—­ supply-­side economics—­had already begun to make its mark in congressional policy debates (Roberts 1984). Before Reagan was elected, Congress began to put po­liti­cal pressure on workers’ wages. In the late 1960s, with employers subject to increased pressure from Eu­ro­pean and Japa­nese competitors, work speedups and ­union leadership inactivity sparked significant anger and feelings of betrayal among rank-­and-­file ­union members who had become used to a rising standard of living (Brenner, Brenner, and Winslow 2010). Wildcat strikes pushed their ­unions, albeit momentarily, into a more aggressive bargaining posture with firms in the early 1970s. But the de­ cade ended with a Demo­cratic Congress hoisting an austerity program, with wage restraint as the core objective, onto the backs of UAW members at Chrysler. By the end of 1970s, Japan’s smaller and more fuel-­efficient vehicles had captured over a quarter of the market. In 1979, several conditions—­the increased competition from abroad; Chrysler’s choice in 1977 to focus production on larger, upscale vehicles; and OPEC’s oil price increases—­led to Chrysler having over 80,000 cars worth over $700 million that they simply could not sell. At that time, the com­pany was $1.5 billion in debt and without the funds to begin repayment. Bankruptcy was imminent. Like the International Monetary Fund (IMF) helping a failing banana republic, Congress attached strict conditions to a bailout that prevented the auto manufacturer from ­going ­under. The UAW reluctantly accepted the conditions by reopening their agreement to allow wage and bargaining concessions and greater capital mobility (the outsourcing of production to nonunion workforces). By the end of October, the u ­ nion reached an agreement with Chrysler that granted $203 million in wage and benefit concessions and $100 million in deferred pension fund payments (Moody 1988:152–56). Reaganomics was not a sharp break with, but instead a continuation of, this policy shift that started ­under Car­ter. It was intended to spur growth and competitiveness within the economy at the expense of ­unions.14 The revival of business power u ­ nder Reagan, the hallmark of neoliberalism, amplified the policies begun by Volcker and the Congress. Shortly ­after he took office, Reagan (1981b) summarized his economic goals: “We must increase productivity. That means making it pos­si­ble for industry to modernize and make use of the technology which we ourselves in­ven­ted. That means putting Americans back to work. And

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that means above all bringing government spending back within government revenues, which is the only way, together with increased productivity, that we can reduce and, yes, eliminate inflation.” Later in the month, commenting on his Program for Economic Recovery, he (Reagan 1981c) wrote that “the policies that this Administration is putting forward for urgent consideration by the Congress are based on the fact that this Nation now f­ aces its most serious set of economic prob­lems since the 1930s. Inflation has grown from 1 to 1½ p ­ ercent a year in the early 1960s to about 13 ­percent in the past 2 years; not since World War I have we had 2 years of back-­to-­back double digit inflation.” Weakening ­unions, which would reduce inflation and increase productivity, was the centerpiece of the Reagan administration’s plan for more flexible markets. Along t­ hese lines, policymakers needed to unleash capital from bargaining constraints, to give firms greater freedom to assign work to employees at the wage they deemed appropriate. The new administration believed that wage gains ­were hurting both firms and l­ abor. If firms w ­ ere compelled to give into u ­ nions in negotiations, growing costs would lose markets and the ability to remain competitive with the firms of Amer­i­ca’s main trading partners. And, if l­abor pushed too hard for wage increases, the unemployment level would eventually rise. According to this view, ­union wage increases did not reflect the “true” market wage; they ­were an artificial imposition by ­unions or government regulations. For instance, employers ­were often tied to cost-­of-­living adjustments (COLAs), which linked wage changes to the rate of inflation. Policymakers treated ­these wage formulas as unambiguously inflationary. A vital pillar in their plan to revive the economy was the elimination and weakening of u ­ nions as wage-­setting institutions, so that wage levels could respond to the guiding hand of the market (Piore 1986:48–54). From the perspective of neoliberals, the administration was successful. The 1980s, which continued what began most noticeably with Chrysler in 1979, was the era of concessionary bargaining on the part of ­unions. The Bureau of National Affairs (1983) reported in 1982 that 427 negotiations involved ­union concessions by the end of the year. Union membership also declined during the period. While ­union density had been on a downward trend since 1955, in absolute terms, ­union membership actually reached its peak in 1980 with over 20 million workers or­ga­nized. Unions had lost nearly 5 million members by the early 2000s. Between 1976 and 1983, the USW lost 593,000 members, the Teamsters lost 422,600, the UAW lost 348,000, the IAM lost 321,000, and the ACWA lost 249,000 (Moody 2007:102). The Reagan administration sought to push down wages indirectly by weakening ­union capacity. The most direct solution to inflation was wage and price controls, a fix that Car­ter himself had proposed with active support from the AFL-­ CIO, as we saw in chapter 4. But according to the new regime, t­ hese controls would

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only put in place new governmental actors to muddle with the market. So, somewhat surprisingly given that the administration thought wage inflation was a critical dilemma, the Reagan government took a somewhat hands-­off approach to ­actual wage bargaining. The administration’s first public execution, the firing of more than 11,000 members of the Professional Air Traffic Controllers Or­ga­ni­za­ tion, is well known. Ironically, a ­union that had actually supported Reagan’s campaign for the White House became one of its first victims. That Reagan was the only former ­union president (of the Screen Actors Guild) to become president of the United States, did not bias him by any means in f­ avor of ­unions. Although ­there had been thirty-­nine illegal strikes against the government by federal workers in the previous twenty years, none followed Reagan’s breaking of PATCO (McCartin 2011). But this event was somewhat exceptional. PATCO was a public sector ­union and public sector ­union membership actually made significant gains during the Reagan era. Hardest hit, however, w ­ ere private sector ­unions. More commonly and less publicly, the administration sought to remove any po­liti­cal advantage that ­labor ­unions might have in negotiations with employers. According to Murray L. Weidenbaum (quoted in Silk 1981) in September 1981, the first chairman of Reagan’s Council of Economic Advisors, “We are not telling ­labor and management what to do. We are subjecting them to the fundamental force of market pressures.” The less well explored relationship between the Teamsters and the Reagan administration is more typical than that of PATCO. One of the more affluent and conservative ­unions, the Teamsters, like PATCO, had publicly supported Reagan’s bid for the presidency, but had one of the sharpest declines in a ­union’s membership in U.S. history in the three years a­ fter he was elected (Edsall 1984). Reagan entered the presidency as a moderate Republican and kept up the façade that he was willing to work with ­unions. Just sixty-­nine days into his presidency, when he was shot and wounded in an assassination attempt by John Hinckley Jr., he was leaving a speaking engagement for ­union leaders in the building trades (McCartin 2011:253). And in the next year, at the Teamsters’ Twenty-­Second National Convention, Reagan (quoted in Serrin 1981) sent along a filmed message of support for the ­union that said, “I hope to be in team with the Teamsters.” But by 1984, no Republican administration in the postwar period had so thoroughly cut its ties with u ­ nions. Even the L ­ abor Department became a plainly antilabor institution. Previous Republican l­abor secretaries, such as James Mitchell, George Shultz, and William Usery Jr., had maintained cordial relations with u ­ nions, using their role as a conduit to the executive for l­abor leaders (Barbash 1984). The Teamsters’ pension fund, the Central States Pension Fund, lay at the center of the government’s indirect crackdown on the ­union. ­Middle-­class ­unions with better-­paid workers, such as PATCO and the Teamsters, ­were a target ­because

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of their ability to drive up wages. PATCO’s execution was swift and made easy ­because of the illegal status of its strike, but weakening the Teamsters and other private sector u ­ nions required a more patient approach. In August 1981, a­ fter thirty-­five witnesses gave over a thousand pages of testimony, the Investigations Subcommittee of the Senate Governmental Affairs Committee issued a report saying that the Teamsters’ CSPF had not been regulated strongly enough by the Department of ­Labor. And just a ­matter of months ­after being nominated by Reagan, Donald L. Dotson (quoted in Scheibla 1981), assistant secretary of ­labor for ­labor-­management relations, said the L ­ abor Department “had too much comraderie” with ­unions ­under the Car­ter administration. Dotson argued that the department’s powers needed to mobilize their resources more forcibly against u ­ nions such as the Teamsters. One expedient tactic of policymakers was to strengthen regulations on u ­ nion pension funds. The Reagan administration toughened regulations, not to protect retiree income, but rather to weaken ­union capacity and clout. By the end of July 1982, the administration was calling on Congress to put new financial controls on the Teamsters’ $3.5 billion fund. Both Raymond Donovan, the ­labor secretary, and Roscoe L. Egger Jr., the Internal Revenue Ser­vice commissioner (quoted in Jackson 1982), asked the Oversight Subcommittee of the House Ways and Means Committee for a higher excise tax and increased ­labor department powers to seek injunctions on fund trustees that invest in “prohibited transactions.” Republican regulators, often with the active support of their Demo­cratic counter­ parts, ­were successful. They extended and sharpened pension regulation ­after Reagan was elected. In the next section, I show how complicating the rules that governed pensions led to a result that was at once inadvertent and welcomed in the eyes of the administration—­the rise of 401(k)s and the erosion of the traditional DB pension system.

Complicating the Rules The passage of pension regulations is a key ­factor in the market-­oriented shift in old-­age security ­toward 401(k)s. As we have seen in this book, since at least the Taft-­Hartley Act in 1947, the private pension system has been embedded in a contested ­legal regime. In 1974 the Employee Retirement Income Security Act radically revised the rules of the game. ERISA is the only piece of comprehensive legislation governing nearly all aspects of employer pensioning in the United States. In the last chapter, we discussed how the law’s investing rules hemmed in ­union capacity to control pension finance. But the law did much more than that, regulating almost ­every aspect of private pensioning, such as plan information

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­ isclosure, termination insurance, transaction rules, and funding requirements. d ­After ERISA and u ­ nder the Reagan regime, a wave of legislation passed through the Congress, further expanding its regulatory scope. Taken together, t­ hese regulations concerned DB plans to a far greater extent than DC plans. Although, technically, many of the rules cover all pension plans, simply by the structure of their design, DC plans are often unaffected (Clark and McDermed 1990; Hustead 1998). See ­table 5.1 for a chronological list of pension regulations, what type of plan the legislation covered, and what the legislation actually did. Firms faced relatively small costs associated with operating a pension plan before ERISA. In fact, most of the postwar legislation concerning the pension system ­were passed with business interests in mind and in order to encourage firms to establish retirement programs for their workers. Before 1974, the Internal Revenue Code was the main way the state managed employer benefits. As early as 1914, at the height of welfare capitalism, Congress gave favorable tax treatment to retirement plans to encourage their expansion.15 Trea­sury officials allowed employers to deduct contributions to retirement plans beginning in 1921, and in 1942 more changes ­were made to prevent discrimination in plan coverage (Howard 1997:55). As we saw in chapter 3, the Taft-­Hartley Act of 1947 established rules governing the allotment of employer and ­union seats on the boards of trustees for the pension funds and made multiemployer plans jointly controlled. A de­cade ­later, the Federal Welfare and Pension Plans Disclosure Act of 1958 established rules about disclosing information about the plan to the plan’s participants. However, the act was largely a failure. Business groups opposed the bill, arguing that the administrative prob­lems that Congress was trying to minimize ­were largely confined to union-­run multiemployer plans instead of the single-­employer plans that represented the larger number of participants. In order to convince the business class to accept the application of the law to their own retirement plans, the Department of ­Labor had to remove many of its investigative and enforcement powers, effectively rendering it in­effec­tive (McGill et al. 2005:82). ERISA’s passage in 1974 marked the establishment a comprehensive and complicated set of rules to govern the administration of the private pension system. And subsequent changes in the law only complicated it further. In the next section, I explore the legislation that governs pension plans. In par­tic­u­lar, I ­will consider (1) the regulatory costs imposed on businesses, ­those that design, administer, and provide ser­v ices for plans; and (2) the incentives, usually through the tax code, that make private plans attractive to sponsors.16 I show how regulations and tax policy developed and how they disproportionately distributed administrative costs to smaller firms. The slow increase in regulatory costs being heaped onto pension plans throughout the 1980s was a result of expanding the scope of many of the core provisions of ERISA. In chapter 4, I discussed ERISA’s

­TABLE 5.1.  Selected legislation regulating pensions, 1921–2001 YEAR

­LEGAL CHANGE

COVERAGE TYPE

IMPACT ON PENSIONS

1921

Internal Revenue Code

All plans

Established tax incentives for plan adoption

1942

Internal Revenue Code

All plans

Established rules against discrimination

1947

The Taft-­Hartley Act

All plans

Limited ­union administrative control, made ME plans joint control

1958

Federal Welfare and Pension Plans Disclosure Act (amended 1962)

All plans

Established rules about information disclosure to beneficiaries

1974

Employee Retirement Income Security Act

All plans

Changed vesting, funding, information disclosure, fiduciary duties, and investment guidelines

1976

Tax Reform Act

All plans

Changed tax deductibility requirements

1978

Revenue Act

All plans

Established the 401(k) option

1980

Multiemployer Pension Plans Amendment Act

ME plans

Insures ME plans ­under the PBGC

1981

Economic Recovery Tax Act

All plans

Expanded provisions for ESOPs

1982

Tax Equity and Fiscal Responsibility Act

All plans

Imposed penalties on top-­heavy plans

1984

Retirement Equity Act

All plans

Required joint-­and-­survivor annuity as the default annuity

1986

Tax Reform Act

All plans

Established minimum coverage and nondiscrimination tests, redefined “highly compensated employee,” changed minimum vesting standards, and established new integration r­ ules

1986

Single-­Employer Pension Plan Amendments Act

SE plans

Raised insurance premiums to deal with PBGC deficits

1987

Pension Protection Act

DB plans

Increased minimum funding requirements, reduces maximum tax deductible contribution, and raised PBGC premiums

1996

Small Business Job Protection Act

All plans

Liberalized and simplified nondiscrimination standards

1997

Taxpayer Relief Act

Public plans

Exempted government plans from nondiscrimination standards

2001

Economic Growth and Taxpayer Relief Reconciliation Act

All plans

Raised pretax contribution limits for most plans

Source: McGill et al. 2010

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rules regarding investment in detail, whereas in this chapter I ­will briefly explain its basic terms.

ERISA’s Core Provisions ERISA contains five core areas of concern for businesses, u ­ nions, and f­ uture retirees. First, it establishes disclosure provisions that vastly strengthen the ineffectual ones included in the Federal Welfare and Pension Plans Disclosure Act of 1958. ­Under ­these rules, plan sponsors must report much more detailed information about their funds’ investments to the Department of ­Labor, which with the IRS is in charge of overseeing the vesting and funding provisions of the law (Brooks 1975:11). In response, almost immediately, firms and business associations came out in opposition of the so-­called “paperwork burden,” with many reporting a “deeply felt hostility to paperwork requirements.”17 This was costly for business in terms of both time and administrative expenses.18 And its passage resulted in “strenuous efforts to eliminate or curtail reports, simplify them for small plans and remove certain annual audit requirements.”19 Second, as chapter 6 shows, ERISA’s section 404(1)(a) requires that pension fund fiduciaries manage a plan “for the exclusive purpose of providing benefits to participants.” Although this princi­ple was not entirely new, the act heightened the awareness of t­ hose likely to assert complaints about plan sponsors and increased the capacity of the aggrieved to formally make them. This increased the risk of liability for businesses by easing jurisdictional and procedural access to courts, broadening court remedies to violations, giving courts discretionary authority to award litigation costs, making fiduciaries personally liable, and making plan operations more vis­i­ble through disclosure provisions.20 Like t­ hose above, ­these rules have been criticized for being too restrictive by firms and t­ hose in the pension community.21 Third, ERISA established the Pension Benefit Guaranty Corporation, which guarantees against losses in DB plans (but not DC plans) that are terminated. This termination insurance pres­ents a fierce regulatory dilemma. For employers remaining in the DB system, ERISA uses insurance premiums that sponsors have to pay out to the PBGC to subsidize unfunded plan benefits that solvent employers could afford to fund more generously. According to a one of the principal authors of ERISA, “Efforts to make the regulatory structure more equitable by expanding an employer’s post-­w ithdrawal or post-­termination funding responsibilities—­the former in the case of the multiemployer amendments of 1980, the latter in the case of the proposed single employer insurance legislation—­ make defined benefit plans considerably less attractive to employers.”22

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Fourth, the law prohibits certain kinds of transactions. In par­tic­u­lar, it imposes restrictions on sales, exchanges, lending, or furnishing of goods and ser­v ices between the plan and parties of interest such as the sponsoring employer, the ­union, or the plan fiduciaries. For instance, it limits the amount of the stock of the sponsoring com­pany that the plan can be invested in. Plans can only invest up to 10 ­percent of their assets into the sponsor’s stock (Brooks 1975:55–56). This is illustrative of the complexity of the rules. And with most plans, l­ awyers spend the majority of their time on transaction rules, which makes it a costly aspect of the code for plan administrators.23 Since no one has the perfect formula for regulating conflicts of interest, regulators err on the side of extra safeguards. Business expended significant effort to soften prohibited transaction rules, but they ­were unsuccessful throughout the 1980s.24 Fi­nally, ERISA imposes minimum funding requirements on DB plans; by their nature, DC plans are always fully funded and are therefore not subject to ­these rules. ­These mandate that employers contribute the normal costs of the plan plus amortization of past ser­v ice liabilities into a “funding standard account.” E ­ very year, the employer is required to contribute the necessary amount to achieve a targeted fund value. Before the enactment of ERISA, only minimum funding rules existed. For ­those employers with underfunded plans, ­these new rules ­were an unwelcomed change. As a result of their establishment, many participants lost their benefits when their underfunded plans w ­ ere terminated by their employers.25

Regulation ­after ERISA When Reagan took office in 1980, in line with his campaign trail rhe­toric about stronger government, it was rumored that he would ask for a repeal of ERISA. In fact, his administration did the opposite. Although the 1980s are widely recognized as a period of state-­managed deregulation that trend did not extend to pension legislation, where the law’s core provisions ­were strengthened and the agency responsible for overseeing it was pushed by politicians to take a more aggressive posture in its administration. Even in the early days of the Reagan revolution, Jeffrey Clayton, a conservative Mormon from Utah appointed by Reagan to the Pension and Welfare Benefit Program in the Department of L ­ abor, the position in charge of enforcing ERISA, took a middling-­road saying that “­we’ll deregulate where prudent. But to protect plans from abuse, we have to be tougher in enforcing the meaningful provisions of ERISA.”26 In the coming de­cade, Clayton and other Reagan-­era conservatives faced a “dilemma of enforcement.” On the one hand, conservatives backed by big business wanted to roll back some of the regulatory provisions that disproportionately

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placed financial burdens on employers with traditional plans. Along ­these lines, Clayton and his staff at the Department of L ­ abor proposed several changes to the ERISA legislation, including easing prohibited transactions, simplifying plan asset guidelines, and reducing paperwork. He went as far as to put together a “paperwork reduction taskforce” to reduce the administrative burden of the lengthy reporting Form 5550. But most of t­hese goals actually went unrealized.27 Conversely, ramped-up regulations ­were more impor­tant for the administration as they gave Reagan’s agencies a legitimate means to crack down on the power­ful multiemployer u ­ nions that had gained control over their funds.28 ­These ­were the same u ­ nions, such as the Teamsters, that ­were blamed for driving up wages with industry-­wide contracts and that Reagan wanted to see disciplined and weakened, even if many of them ­were historically more conservative. ­Because of the antilabor agenda of the administration and the cap­i­tal­ist crisis of inflation, most conservative policymakers saw t­ hese rules as, on balance, beneficial. New regulations hemmed in the ­unions with greater administrative control of their funds. As I showed in chapter 4, just a few years a­ fter its passage, ERISA was used as justification for the government taking over the Teamsters’ Central States Pension Fund. When Reagan appointees ­were put into the Department of ­Labor, they did not use a Trojan ­horse strategy, weakening it from within. Instead, they sought even stronger enforcement of the rules. Donald Dotson, a Reagan appointee who worked u ­ nder Clayton as assistant secretary of ­labor, said candidly, “The DOL’s rec­ord on protecting and recovering plan assets has not been good.” And conservative members of Congress echoed this policy sentiment. The Senate Permanent Subcommittee on Investigations released a report in 1981 specifically noting that the department has not intervened strongly enough to oversee u ­ nion pension funds, including the Teamsters CSPF. In the Senate Committee on ­Labor and ­Human Resources, chairman ­Orrin Hatch (R-­UT), argued that the Department of ­Labor was too weak in enforcing the criminal and civil provisions of ERISA on u ­ nion funds. Far from weakening the law or the Department of ­Labor, along ­these lines neoliberals wanted to make it, in their own words, “a better policeman.”29 The crucial point is that even the changing po­liti­cal winds, the rise of the ethos of market fundamentalism, the opposition coming from businesses, and the comprehensiveness of ERISA did not slow the expansion of the regulatory activity governing pensions in the 1980s. Unions with single-­employer plans, who had no administrative capacity on their funds, saw new rules as a way to make their own plans more secure, and progressives in Congress generally followed their lead by supporting stronger regulations. Although the neoliberals in Congress did want to remove some of t­hose regulations, higher costs for some businesses had benefits for the antiunion effort that hindered the momentum for liberalization. Namely,

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the rules allowed the state to weaken u ­ nions in industries that relied on multiemployer plans. As ­table 5.1 shows, the semiannual passage of pension legislation (annual between some years) both expanded the scope of existing rules and generated new rules entirely. The speed in which plan designs ­were changed, the growth of unintended prob­lems that ERISA created for firms, and the emergence of deficiencies in the existing regulatory regime led to the congressional tendency to revise and amend throughout the de­cade. Conservatives’ favorable view on weakening ­unions with t­hese rules was the po­liti­cal capital needed to move along new rules through the Republican-­controlled Senate between 1981 and 1987. Legislators ­were on a path-­dependent track and, in Lindblom’s (1959) phrase, found themselves “muddling through,” but the result was always increased regulatory oversight. The expansion of neoliberal regulations had mixed effects on firms, who ­were often frustrated by rising administrative costs associated with them. In this re­ spect, Republicans ­were not simply acting at the behest of big business. Throughout the 1980s, employers with retirement plans ­were pushed to navigate a constantly changing regime of regulatory requirements; not least of which, they ­were subject to higher and higher insurance premiums on their DB plans. Although government had strug­gled to keep the PBGC solvent, it almost went bankrupt in the ­middle of the de­cade ­because several large corporations ­were unable to pay out their pension obligations. In 1980 the Multiemployer Pension Plans Amendment Act had extended PBGC insurance to multiemployer plans and with it the cost of premiums for sponsors. And in 1984 the Retirement Equity Act required that the more costly joint-­and-­survivor annuity be the default option for plans. In addition to regulatory changes, tax policy regarding plan qualification guidelines seesawed back and forth between favorable and unfavorable, creating significant uncertainty for cost-­averse firms. ­After the passage of ERISA, the Joint Committee on Taxation (quoted in Howard 1997:132) noted that “the Federal laws and regulations governing employer-­provided retirement benefits are recognized as among the most complex set of rules applicable to any area of the tax law.” And during the 1980s, far from being streamlined, the tax code only became even more difficult for plan administrators to comprehend. Initially, cap­i­tal­ists applauded when the tax advantages for individual retirement accounts, which ­were established in ERISA for t­ hose without access to an employer pension, w ­ ere expanded significantly in 1981. IRAs w ­ ere Reagan’s favored alternative to the Social Security program. However, fiscal and po­liti­cal pressures on the state to reduce the deficit eventually led to provisions that rolled back the tax incentives for all types of retirement plans. The first of t­ hese was the Tax Equity and Fiscal Responsibility Act of 1982, which imposed penalties on top-­heavy plans; that is, t­ hose that primarily provided pensions for top-­tier employees. ­These penalties ­were made more

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s­tringent in the 1987 Pension Protection Act. And, in 1986 eligibility for tax-­ exempt IRAs was made more restrictive. Nearly 30 ­percent of ­those previously eligible ­either lost their eligibility entirely or saw their tax incentives scaled back (Hacker 2002:162). But the largest changes to the tax code concerning pensions ­were written into the Tax Reform Act of 1986, which significantly revised the Internal Revenue Code. The act continued to exclude pension contributions and trust income from taxation. A co­ali­tion of insurance companies, business groups, and ­unions with po­liti­cal clout w ­ ere intent on retaining the tax-­free status of their plans (161). But ­because it significantly revised ERISA, almost ­every qualified pension plan had to be amended. Just a year ­later, the Pension Protection Act of 1987 increased minimum funding requirements, reduced maximum tax-­deductible contributions, and further increased PBGC premiums.30 The act’s authors intended to push companies to fully fund their plans. But instead, the percentage of plans paying the PBGC’s variable-­rate premium ­because of their underfunded status increased from 17 ­percent in 1989 to 23 ­percent in 1991. During the same period, the underfunded amount in plans insured by PBGC increased from $30 billion to over $50 billion.31 As a result of ­these changes, the largest cost increases in both absolute and relative terms of administering DB versus DC plans occurred in the late 1980s (Hustead 1998). By the ­middle of the 1990s, policymakers w ­ ere keenly aware that growth in pension coverage had stagnated overall and was sharply declining for DB plans. As a percentage of the private workforce, total pension coverage had remained the same since the passage of ERISA in 1974. With inflation ­under control and ­labor retreat evident, legislators began to argue that it was necessary to dismantle the large regulatory wall that had been built up around DB plans over the past two de­cades. But by then, many firms had already ­adopted DC plans or opted out of a retirement plan for their workers altogether, making any hope of salvaging the DB system a case of too l­ ittle too late. In 1996, President Bill Clinton signed the Small Business Job Protection Act into law. It greatly simplified and liberalized discrimination standards. Clinton signed the Taxpayer Relief Act of 1997 into law less than a year ­later and extended the nondiscrimination exemptions to government plans as well. Like welfare state retrenchment more broadly, deregulation of the pension system began in earnest ­under the Demo­cratic administration of the 1990s.

Regulations and the Rise of 401(k)s The wave of new laws in the twenty-­year period following the passage of ERISA led to an incremental increase in the administrative costs associated with

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­ perating a DB retirement plan up to 1996, when the l­egal regime was subject o to Clinton’s deregulation. On balance, however, the regulatory changes ­after ERISA did not fall equally on DC and DB plans. Several requirements, such as ­those concerning minimum participation and funding, only apply to DB plans. Other requirements u ­ nder the Internal Revenue Code might include certain types of DC plans, such as money purchase plans, but primarily relate to DB plans (McGill et al. 2005:94). Congress also repeatedly raised PBGC premiums during the 1980s and imposed an excise tax on employers who claimed the excess assets of terminated DB plans (Munnell and Sundén 2004:26). DC plans, alternatively, do not pay premiums to the PBGC for pension insurance, and by their very design are incapable of having “excess assets.” In 1981, the cost of administering a DB plan was approximately 140 ­percent higher than that of administering a DC plan. By 1996, the relative cost had grown to 210 ­percent more (Hustead 1998). Additionally, smaller plans disproportionately felt the regulatory burden relative to plans that covered a larger number of beneficiaries. As shown in figure 15, costs for smaller plans, especially t­ hose operating as DB, increased dramatically in the 1980s—­with the largest increase in administrative costs a­ fter the 1986 Tax Reform Act. Per capita costs decrease with more participants b ­ ecause of economies of scale. But the legislation included several requirements that w ­ ere particularly burdensome for small firms operating a DB plan. In par­tic­u­lar, the withdrawal liability established by the Multiemployer Pension Plans Amendment Act in 1980 disproportionately affected small plans. According to business testimony at the Department of ­Labor, it “has a very negative impact on the adoption of multiemployer plans by new employers.”32 And provisions aimed to reduce top-­heavy plans in the tax reforms in both 1982 and 1986 also increased administrative costs for smaller plans to a larger degree. Top-­heavy plans, identified in the 1982 act, are plans where more than 60 ­percent of the accounts or accrued benefits are for employees at the top of the internal job ladder. T ­ hese regulations drastically reduced incentives for small businesses to adopt or maintain DB plans (Olsen and VanDerhei 1997). Businesses also anticipated increased f­ uture costs. During the 1980s, the character of the debates in Congress signaled to employers that the cost burden would only get heavier. In the 1970s, Congress was indifferent to pension funds in large part ­because a lethargic stock market had left many employers scrambling just to meet basic ERISA funding levels. But policymakers became more interested when a bull market in the 1980s infused pension funds with assets.33 As Senate Finance Committee chairman Bob Dole (R-­KS) said at the time, “Tax-­free benefits have been growing at a much faster rate than taxable wages. . . . ​To the extent narrowing the tax base ­causes pressure to increase marginal tax rates, ­these tax-­free

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700 600 500 400 300 200 100

96

95

19

94

19

93

19

92

19

91

19

90

19

89

19

19

88

87

19

86

19

19

85

84

19

83

19

82

19

19

19

81

0 Year DB plan with 15 DB plan with 10,000

DB plan with 75 DC plan with 15

DB plan with 500 DC plan with 10,000

FIGURE 15. ​Annual per capita pension administration costs in 1996 dollars Source: Hustead 1998:166–77.

­ enefits ­will only appear to be ­free, ­because ultimately ­every taxpayer ­will have b to pay for them in the form of higher taxes on the portion of his compensation that is subject to taxes.”34 In short, Congress wanted some of the pension money. This put businesses on the defensive. According to Howard C. Weizmann, executive director of the Association of Private Pension and Welfare Plans, a business trade group in Washington, “This magnificent system is in jeopardy ­because Congress is undermining it.”35 By the end of the 1980s, businesses anticipated an all-­out assault from Congress on the tax-­exempt status of retirement plans. In the words of a 1989 Business Week article, this attempt to tax benefits “would kill employer-­paid plans.”36 Congress debated several reforms in the late 1980s: legislation that would make it harder for employers to engage in reversions, joint-­trustees on single-­employers plans, increased taxation, and an age-­discrimination regulation. As Weizmann noted, “What ­we’re seeing is a ­battle for control of pension assets between ­labor, employers, and the government.”37 The net result of this ­battle was fewer employer-­ sponsored plans—­a direct result of the growing institutional complexity of

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r­ egulations and their increased administrative burdens on a system that is entirely voluntary for employers to opt into or not.38 According congressional testimony from the American Society of Pension Actuaries, “Since 1982, continual change of the rules ­under which qualified retirement plans operate has been a major deterrent to employers adopting and maintaining ­these plans. As a consequence, the percentage of employees covered ­under qualified retirement plans has decreased during the last de­cade.”39 Many firms that remained in the DB system b ­ ecause of obligations in the late 1980s and early 1990s had underfunded plans as a way to defer costs, taking what Secretary of ­Labor Robert Reich called a “contribution holiday.”40 Unfunded liabilities doubled between 1987 and 1992, growing from $27 billion to $53 billion. This underfunding was concentrated in ­those industries most likely to have union-­negotiated, single-­ employer DB plans such as steel, auto, manufacturing, and airlines.41 Some legislators ­under Clinton, as well as ­Labor Secretary Robert Reich, sought to enact further regulations in the Retirement Protection Act (­under debate in 1994) to ­counter the exit reaction of business.42 But by that point, even some of the ­unions that had been staunch supporters of regulatory expansion came to understand that the regulations ­were part and parcel of the business shift into the DC system. According to testimony from William S. Hoffman, Director of the United Auto Workers’ Social Security Department, “The UAW strongly opposes the provision of the Administration’s bill which would lift the cap on the variable rate premium. This would place a substantial financial burden on some companies. Instead of requiring companies with underfunded plans to pay additional premiums to the PBGC, the UAW believes it would be preferable to have t­hese funds go into pension plans directly.”43

The Context of Class Power In the previous section, I showed that regulations on the DB pension system w ­ ere increased u ­ nder Reagan rather than liberalized and that this created disincentives for firms to adopt DB plans. Yet, do increased regulatory costs alone explain this shift ­toward DC plans? If this was the only dynamic at work, we should see a uniform shift away from DB plans among all employer types. However, historical data suggests a number of t­ hings that make the story more causally complex. First, the shift did not primarily result from employers with DB plans terminating them and replacing them with DC plans (see figure 16). Considering the net change in plan participants between 1985 and 1993, we see that ­there ­were about 3.7 million fewer employees with a DB plan and almost 18.4 million more with a DC plan, which shows that reversions w ­ ere not the primary cause of the shift (see Kruse 1995). Instead, it appears that new plan adoptions tended to be DC.

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25−49 50−99 100−249 250−499 500−999 1,000−2,499 2,500−4,999 5,000−9,999 10,000−19,999 20,000 or more −1,500

−1,000

−500

DC plan participants (thousands)

0

500

1,000

1,500

DB plan participants (thousands)

FIGURE 16.  Net change in participants in primary plan by plan size, 1985–93 Source: EBRI 2002, data drawn from Form 5500 filed with the Internal Revenue Ser­vice.

S­ econd, the largest increases in DC plan participants occurred disproportionately in smaller pension plans. In fact, in very large plans, ­those that covered ten to twenty thousand participants, the number of DB plan participants actually increased more than DC plan participants. This trend is only exaggerated when the unit of analy­sis is plans rather than participants. As figure 17 reports, almost all of the new DC plans ­were ­adopted in firms that had 249 or fewer employees. Changes in the balance of class forces are a critical contingent channeling f­ actor that helps explain the way ­these regulations affected the pension system over the period. It is now well known that shifts in the employment structure favored a large growth in service-­sector work in the 1970s and 1980s and a decline in manufacturing as a share of total employment. Goods-­producing industries ­were already in decline by the passage of ERISA in 1974. And the share of ser­vice industries, usually smaller, owner-­run businesses that tended to employ younger, female, and part-­time workforces, began to increase as early as the postwar period. Manufacturing jobs w ­ ere once U.S. l­abor’s stronghold (Goldfield 1987:126). And as figure 18 shows, although ­union density in goods-­producing firms declined

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2−9 10−24 25−49 50−99 100−249 250−4999 500−999 1,000−2,499 2,500−4,999 5,000−9,999 10,000−19,999 20,000 or more −70,000

−50,000

−30,000

−10,000 DC plans

10,000

30,000

50,000

70,000

DB plans

FIGURE 17.  Net change in number of plans by plan size, 1985–93 Source: EBRI 2002, data drawn from Form 5500 filed with the Internal Revenue Ser­vice.

over the period, from about 30 ­percent in 1983 to 16 ­percent in 2002, it was always higher than the density in the ser­vices. But figure 18 also reports that although the number of ser­vice jobs grew rapidly since 1983, u ­ nions failed to respond to this growth by organ­izing a meaningful percentage of t­hose new employees. Over the period of the 1980s and 1990s, across most sectors (with special exception to the public sector—­the one area where DB plans have endured), u ­ nion density went into decline. Like regulatory costs, at first glance this employment shift ­toward ser­vices might appear to be the main reason why we see the growth of DCs and the weakening of traditional pensions. In other words, is it pos­si­ble that the regulations of the period ­were ultimately less meaningful than I suggested above and that firms would have chosen DC plans regardless ­because of the weakening of American ­labor ­unions? Two points suggests that this explanation alone would also be incomplete. On the one hand, it fails to explain the timing. T ­ here is no substantive shift ­toward DC plans ­until the 1980s, long ­after the marked increase in ser­vices

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100,000,000 90,000,000 80,000,000 70,000,000 60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000

19 8 19 3 8 19 4 8 19 5 8 19 6 8 19 7 8 19 8 8 19 9 9 19 0 9 19 1 9 19 2 9 19 3 9 19 4 9 19 5 9 19 6 9 19 7 9 19 8 9 20 9 0 20 0 0 20 1 02

0 Year Non-agriculture goods coverage

Services coverage

Non-agriculture goods employment

Services employment

FIGURE 18. ​Sectoral employment and ­union coverage trends, 1983–2002 Source: Hirsch and Macpherson 2016, www​.­unionstats​.­com.

relative to the goods-­producing sectors in the employment share. Although the growth in ser­vices accelerated in the 1970s, t­ here was a gradual move of the economy in the direction of ser­vices since at least the 1950s. On the other hand, if share of employment in manufacturing and ser­vices are all that ­matter for plan adoption, then traditional plans should have never been dominant in the first place. From the postwar period on, ser­vices always accounted for a greater share of employment than goods-­producing industries. Even in the beginning of the 1980s, over 30 million more ­people worked in ser­vices than worked in the goods-­ producing sectors (see figure 18). However, the dominance of this sector before the 1980s did not lead to the dominance of DC-­type plans in the same period. In short, if sectoral trends alone explained the rise of DC plans, we should have seen them much sooner, and they should have always been dominant. This shift ­toward employment in ser­vices needs to be put in the context of a shift in class power. By the 1970s, the ­labor movement was in retreat. Union density in the de­cade declined by a fifth, falling from 26 ­percent to 20 ­percent of the workforce in a ­union. In the 1980s, it fell another 5.4 ­percent. Although it varies by study,

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r­esearchers believe that the shift t­oward ser­vices accounts for 20 ­percent to 60 ­percent of the decrease in ­union density since the postwar period. Even with no change in the absolute number of ­union members, ­union density would have declined if ­unions had remained strong in the goods-­producing sectors of the economy that ­were shrinking as a share of total employment (Clawson and Clawson 1999:98). But u ­ nion decline in the period was not driven exclusively by the changes in the composition of employment; u ­ nions ­were also weakened in the sectors where they ­were strongest, such as manufacturing (Western 1997:145).44 Employers had become especially hostile to u ­ nions in the early 1970s, when many firms faced declining profit rates (Brenner 2006). But in the 1980s, employers ­were further emboldened to oppose ­unions when the Federal Reserve raised interest rates. In the de­cade, businesses aggressively sped up production, fired ­union organizers, hired antiunion consultancy firms to protect themselves against organizers, delayed and disputed NLRB rulings, and threatened to relocate production rather than be u ­ nionized (Goldfield 1987; Fantasia 1988; Bronfenbrenner et al. 1998; Cowie 2001; Brenner, Brenner and Winslow 2010). In short, firms resisted u ­ nionization to a greater degree than they had done since the postwar period, and they ­were spurred on to do so by a state with the same goal. As we saw in chapter 2, u ­ nions ­were a pivotal force in both the establishment and spread of the DB pension system. Once collective bargaining was made mandatory by the Supreme Court in 1947, all u ­ nions had to do was pressure employers into agreements. However, when ­union strength began to wane and employers ­were ­free to run their businesses without ­labor interference, the latter had less reason to be concerned with which plan was best for workers. In a context of weakening of ­union strength, employers in the new sectors that w ­ ere being disproportionately hit by administrative costs ­were ­free to ignore ­union demands for DB plans. As a result, firms in emergent sectors of the economy ­adopted DC plans, which ­were increasingly 401(k)s, if they chose to offer a retirement plan to their employees at all. By 1993, just 21 ­percent of all contributions to DC plans ­were provided by employers with ­unionized employees; 79 ­percent ­were employers with nonunion workforces (EBRI 1997:26).45 But solely focusing on decline in u ­ nion density leads to similar analytical prob­ lems with solely focusing on shifts in employment. Had u ­ nion density been the only ­factor that mattered to plan adoption, again we would not be able to explain timing. Union density in Amer­i­ca has been in decline since the mid-1950s. And during that de­cade and the next, traditional plans ­were becoming more popu­lar, not less. Instead, regulatory costs augmented DB adoption disincentives for firms. And it was ­those firms that had more capacity in the emergent nonunion sectors that ­were able to avoid ­these costs by adopting DC plans or none at all. In a spate of

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statistical studies in the 1980s and the 1990s, economists tried to identify the core characteristics of the new companies that ­were adopting DC plans. Researchers generally agree that three features of the firm w ­ ere the most impor­tant determinants of the kind of pension plans ­adopted by businesses: the size of the firm, the industrial sector of the firm, and ­whether or not the firm was ­unionized. They find that employees of large firms are more likely to be offered a traditional pension plan than workers at small firms (Hodson 1986), that the shift from manufacturing to ser­v ices decreased participation in defined-­benefit plans—­services are much less likely to provide one (Bloom and Freeman 1992; Kruse 1995), and that deunionization in ­these sectors was a key ­factor for the fall in DB coverage (Bloom and Freeman 1992). Empirical studies (Ippolito 1995) have shown that the loss of employment in larger, ­unionized good-­producing sectors, where DB plans have historically prevailed, can explain nearly half of the shift. In short, traditional plans in large ­unionized firms in the goods-­producing sector lost a significant portion of the total pension plan and participant share to DC plans in smaller, nonunion firms in the ser­v ice sector. In 1984 a principal author of ERISA, Michael S. Gordon, noted that the crisis over defined-­benefit plans may be losing its momentum due to organic developments in the national economy. The shift from heavy industry and manufacturing to high tech and ser­v ices may account for the increasing popularity of defined contribution and Internal Revenue Code section 401(k) plans. ­These plans may be more suitable and attractive for younger, more mobile employees in less-­traditional, less-­ unionized occupations. If so, the risk of discouraging defined-­benefit growth by tighter insurance regulation may now be that ­great ­because the natu­ral limits of that growth may already have been reached.46 Throughout the period, neoliberals supported policies that helped them weaken ­union control over multiemployer pension funds at the cost of raising the administrative burden on firms with single-­employer plans. And for their part, u ­ nions with single-­employer plans actually supported ­these regulations. However, given changes in the employment structure of the economy and the weakening of ­unions, the regulations had the unintended consequence of triggering a business shift out of the traditional pension system altogether.

Crisis to 401(k)s The regulatory apparatus governing the U.S. pension system, which was expanded ­under Reagan’s aegis to weaken ­unions with administrative control over their plans,

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had the unintentional consequence of triggering a shift to the DC system. Regulations worked in such a way ­because of how policies themselves functioned relative to changes in the balance of class forces between businesses and ­unions. By the end of the 1970s, policymakers had honed in on inflation as a looming crisis in American capitalism. With firms subject to increased competition from Amer­i­ca’s main trading partners in Eu­rope and Japan, policymakers needed to strengthen the dollar and lower wages to increase firm productivity. Such was Reagan’s aim once he entered the White House. Reflecting near the end of the Reagan era, economist Paul Samuelson (1987:60) wrote that Reaganomics was “a dramatic program” that sought to bring “back to vigorous life the sleeping beauty of American capitalism.” To do so, from the White House to the Federal Reserve, they ­were even willing to induce two recessions. Although the energy crisis that was spurred on by the Ira­nian revolution in 1979 certainly helped, Volcker’s shocks u ­ nder both Car­ter and Reagan played no small part in causing the double-­dip recessions in 1980 and 1981–82. Simply put, U.S. ­unions had to be disciplined to break wage increases during bargaining sessions. And policymakers largely achieved their goal: the 1980s became the era of concessionary bargaining and soaring profits for U.S. capital. In this chapter, I have argued that the growth of DC pension plans in general, and 401(k)s in par­tic­u­lar, alongside the decline in DB pension plans was driven by the state’s effort to weaken u ­ nions through regulation. DC plans w ­ ere an inadvertent, albeit welcomed, outcome for conservatives. When Congress added Section 401(k) to the tax code in 1978, it was primarily concerned with resolving a set of disputes that ­were related to profit-­sharing plans, not the private pension system as a ­whole. The only real mention of the provision in Congress was that it would be “negligible” (Hacker 2006:118). When the Reagan administration positively ruled in 1981 on the legality of the provision, even Ted Benna (the author of the provision) admits he had no idea about its implications for retirement policy. During the period, much of the congressional debate and legislation aimed to make the DB system more secure. Neoliberals, such as the administrator appointed by Reagan to enforce the rules, Jeffrey Clayton, worked to shore up regulations, even if their purpose was primarily to weaken u ­ nions. ­After the passage of ERISA in 1974, Congress regularly passed amendments and new laws that expanded the scope of regulatory oversight. They did so on an almost annual basis up to the mid-1990s, when, ­under the Clinton administration, the regulatory regime governing pensions began to be liberalized. But by the 1990s, the shift to DC plans was already an accomplished fact.

6 CONCLUSIONS

We now return to the broad question motivating the core analyses of this book: Why, since the New Deal, has the market played a growing role in the distribution of retirement income in Amer­i­ca? In the previous pages, I reassessed some of the more widespread explanations by considering changes within the private pension system itself. I compared each of the major marketizing episodes of change since World War II: (1) the growth of occupational pensions a­ fter the war in conjunction with the stagnation of Social Security replacement rates, (2) the financialization of pension funds, and (3) the most recent growth in DC and 401(k)-­type plans and the decline of traditional DB plans. In explaining t­ hese shifts, this book makes contributions to the study of welfare state development in three specific areas, from the general to the concrete. First, it contributes to the question: What is a welfare state? It conceptualizes the welfare state as a set of interwoven public and private institutions that reapportion risk, arguing that the vital way to understand how welfare states do this is by considering the degree to which policies themselves are solidaristic or market oriented. Along ­these lines, although ­there are impor­tant differences between public and private programs, ­there are dif­fer­ent ways to approach risk reapportionment within them as well. In par­tic­u­lar, the book highlights the way a policy’s widening exposure to market forces drives unequal distributional outcomes and increases uncertainty for working ­people when more solidaristic approaches are eschewed. Second, it asks: How do welfare states develop? H ­ ere it offers a framework that aims to explain welfare policy change with both structural mechanisms that push policymakers to intervene for cap­i­tal­ist growth and the contingent his160

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torical ­factors that both drive them to intervene in the par­tic­u­lar ways they do and shape the way their interventions bear on change. Fi­nally, its investigation of changes in Amer­i­ca’s old-­age security system significantly revises the commonly held historiography about its a­ ctual development. In this chapter, I draw out the book’s main contributions and conclude with some brave speculation on its po­liti­cal implications for the ­future of retirement security.

The Welfare State in Cap­i ­t al­i st Society Institutionally, the classical lit­er­a­ture defines the welfare state as a country’s state-­ administered social programs. The older definition of the welfare state evoked images of policies like Chancellor Otto von Bismarck’s old-­age social insurance in Germany, Prime Minister Clement Atlee’s National Health Ser­vice in ­Eng­land, and President Lyndon B. Johnson’s food stamps in Amer­i­ca. But scholars of the welfare state over the past twenty-­five years have shown how incomplete this view is. Following Gøsta Esping-­Andersen (1990), they argue that welfare states need to be thought of as complete regimes, where the state, market, and ­family combine in qualitatively unique ways to provide the livelihoods of a country’s inhabitants. Along this vein, researchers have shown that private, employer-­provided social programs are often supported by and interwoven with state policies. States do not simply offer welfare through their own programs, they also provide financial support for businesses to do so by making contributions to them tax deductible. As a result, states have played a central role in the making of the private provisioning of welfare, such as employer-­provided health care, pensions, and unemployment and disability benefits (Gottschalk 2000; Hacker 2002; Klein 2003).1 In this broader view, welfare states are systems of stratification. They structure class and social differentiation such as race and gender (Esping-­Andersen 1990:55; Orloff 1993a; Lieberman 2001). And the principal way that they do this is by reallotting risk. As risks are pooled more universally, individuals ­will face life’s uncertainty as part of a larger po­liti­cal community instead of being left to their own. Therefore, as early theorists of the welfare state T. H. Marshall (1950) and Richard Titmuss (1966) pointed out, a robust welfare state does not simply provide a safety net for ­those on the bottom of the income distribution or a minimum standard of living for the worse off. Solidaristic welfare states do not simply redistribute between classes or income groups, lessening the suffering of the poor. Instead, as Peter Baldwin (1990:19) has noted, they redistribute “horizontally over the lifespan of the individual and, in cross-­section at any given moment, between risk categories (from healthy to sick, young to old, ambulatory to disabled, working to unemployed) that only secondarily and partially overlap with

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social groups as defined in other terms.” The earliest theorists of the welfare state (e.g., Marshall 1950) showed how they subvert the logic of the market in ­favor of social solidarity. Building on this classical risk-­pooling understanding of the welfare state, scholars argue that ­whether a program is public or private has real implications for how that risk is spread in a society. On balance, as approaches become more private in form, they also tend to distribute risk more unequally across the population (Hacker 2002:36). This book argues that our understanding of what welfare states do needs to go a step further. Although the public-­private distinction is indeed impor­tant, crucial even, if left on its own, it obscures deeper differences within both public and private plans. I have argued that a more satisfying way of thinking about how social policies vary considers the degree to which arrangements for the distribution of resources are e­ ither market oriented or solidaristic. As I showed in chapter 2 and or­ga­nized analytically in ­table 2.1, both public and private welfare plans can be or­ga­nized in such a way that the distribution of benefits are more or less subject to market forces. In the most marketized social policies, access is determined by the beneficiaries’ work per­for­mance; whereas in the most solidaristic policies, benefits are universally accessible and distributed on an egalitarian basis. On this point, I do not offer a fundamentally dif­fer­ent way to think about the welfare state, but much more humbly aim to work from what Esping-­Andersen (1990) developed with the idea of “decommodification.” His concept concerns the degree to which individuals can live in­de­pen­dent of market participation. To put it simply, does one need to work to obtain the basic needs in life? But somewhat distinct from that of Esping-­Andersen, my approach shifts the analytical focus instead to welfare programs themselves, seeking to understand the degree to which market pro­cesses determine how they function. In short, who has access and how are resources allotted? I have argued that such an approach to what welfare states do, which emphasizes the degree to which markets structure program resource allotment, is critical to understand, in descriptive terms, the ways old-­age security in Amer­i­ca has changed since the New Deal period. This development is best considered with regard to ­table 2.1; in each episode in this book, we can see a move t­ oward marketization in the policy’s form when more solidaristic options w ­ ere available. Roo­se­velt’s Social Security Act offered the partial promise of an old-­age security system that was solidaristic (universally accessible, distributed on an egalitarian bases, and sufficient for a comfortable retirement). But the promise of the “freedom from want” went unfulfilled. What followed was a gradual shift ­toward market forces as the mechanism ­behind the distribution of old-­age income.

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­After World War II, instead of expansions in the Social Security replacement rate, private, collectively bargained pension plans w ­ ere ­adopted. For ­those lucky enough, primarily white ­unionized men, pensions supplemented Social Security to provide for a better retirement income. ­Others had to fend for themselves. But even for the fortunate few, having access to them depended on their status at work and often in the collectively bargained contract and tied the pension to their final salary. Once t­ hese plans w ­ ere in place, plan administrators had to decide how to invest the pension funds. One possibility was in more stable financial instruments such as bonds, while some u ­ nions advocated for investments into worker housing or economic development proj­ects that tied the health of the fund to the long-­ term good of the community and working class as a ­whole. Instead, pension funds ­were financialized and mimicked Wall Street investing into equities, further tying worker retirement to the outcomes of cap­i­tal­ist market pro­cesses. Fi­ nally, the rise of 401(k)s, or more generally DC plans, has shifted away from the collective contractual model of traditional pension plans ­toward a system of retirement income allotment that is heavi­ly dependent on beneficiary per­for­ mance. Not only does access depend on work status, but distribution is no longer even tied to salary. Instead it is dependent on the worker’s investment choices and the state of financial markets at the time of their retirement, as we so clearly saw in the crash of 2008. Even within the private pensioning system, the allocation of retirement income has become more driven by market forces over time.

Capitalism and Welfare State Change A central goal of this book has been to refocus the debate about the welfare state back onto capitalism. The cap­i­tal­ist context ­matters not only to how welfare itself functions, as I reiterated in the last section, but also how policies themselves emerge and change over time. I have argued that the cap­i­tal­ist economy imposes structural constraints on policymakers and that this bears on how policymakers themselves in turn both make and dismantle the welfare state. I would speculate that t­ hese structural constraints cut across capitalism’s va­ri­e­ties to varying degrees, but clearly more comparative work is desperately needed in this area. This approach is intended to warn against stronger pluralist versions of politics that suggest the driver of welfare state development can be reduced to one or another collective actor or interest group, such as employers, u ­ nions, or policymakers themselves, simply getting what they want. The broader constraints of the economy are ever pres­ent and cannot be abstracted away from when explaining policy development. Above all e­ lse, I have tried to show that the basic insight of the

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crisis management theorists in the 1970s, that welfare state development is often a po­liti­cal response to crises and contradictions in capitalism, is necessary to understand the long development of private pensions. Capitalism is structural in its effects on policymakers; their concern for the health of the economy is perennial and supersedes the interpersonal influence of special interests or their own party affiliation. Students of politics cannot lose sight of this basic constraint. Regardless of partisanship or ideological commitments of the party or individuals in power or their individual connections with vari­ous sectors of society, policymakers are compelled to promote a vibrant and healthy economy that heartens business confidence. This is not necessarily b ­ ecause of their own personal commitment to cap­i­tal­ist property relations, although that is certainly often the case. A more fundamental explanation is their interest in professional self-­preservation. If policymakers fail spur on cap­i­tal­ist accumulation and instead undermine business confidence, two interrelated pro­cesses are likely to unfold. First, the government’s revenues w ­ ill be squeezed as taxable income and profits reduce. Second, ­people ­will lose their jobs. ­Those that become unemployed or face new financial hardships do not typically offer much electoral support for the incumbent that contributed to their economic suffering. Consider, for instance, the extraordinary predictive power that a negative three-­ year change in the Dow Jones Industrial Average has on an incumbent president being reelected or voted out of office. Policymakers in cap­i­tal­ist socie­ties tend to be biased ­toward generating cap­i­tal­ist growth when they govern. Not ­doing so nearly ensures professional suicide. But I have termed the framework I use to understand the development of the ­ ecause it modifies the crisis theoprivate pension system structural contingency b ries of the welfare state in several re­spects. Chiefly, the structural argument alone only tells us that policymakers ­will tend to be motivated to support cap­i­tal­ist accumulation. However, it does not offer much insight into the a­ ctual form that their po­liti­cal interventions ­will take in concrete policy terms. As the adage goes, “­There is more than one way to skin a cat.” In short, the structural dimension of the theory does not give us the analytical tools we need to fully understand specific policies. This is ­because crisis theories of the welfare state tend to be developed at too high a level of abstraction to offer much insight beyond policymakers’ general motivations. My framework shifts the analytical attention onto the historically contingent ­factors that account for the specific ways that policymakers intervene. The structural constraints imposed on policymakers, to govern for capitalism, limits the range of pos­si­ble interventions they can make. But the contingencies of class strug­gle in a society and the balance of forces between ­labor, business, and other competing social groups across a wide number of settings, selects from within that range. To make sense of ­these more contingent

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c­auses, you simply have to consult the historical rec­ord. Class power takes many dif­fer­ent forms. Unlike capitalism itself, which imposes a fixed structural constraint on policymakers, the ­factors that shape how they ­will intervene for capitalism and how t­ hose interventions bear on policy change have to be understood more historically. Before I move onto the history of old-­age security, a word of caution is needed. I make no claim that this book’s structural contingency framework is exportable to ­every instance of welfare state change. The detail-­oriented reader ­will prob­ ably already have realized that this argument is not an exhaustive explanation of ­every development within retirement income provisioning in Amer­i­ca. Even in this regard, I have said too l­ittle about many relevant t­hings: the expansions in public provisioning u ­ nder Nixon; the 1983 reform ­under Reagan that increased the age of retirement eligibility for Social Security; the role that Medicare plays in old-­age security; the Pension Protection Act of 2006, which tried to prevent against some of the failings of the 401(k) system, but failed to remedy the major prob­lems of DC plans; and the system of retirement provisioning for workers in the public sector. And surely a more historically fine-­grained analy­sis ­will find developments in the private sector that do not smoothly fit into my framework. More humbly, my aim instead has been to solve three empirical puzzles concerning what I argue are the most impor­tant transformations in Amer­i­ca’s retirement system since the New Deal. My basic claim is that the structural contingency framework that I have developed offers the most compelling solutions to ­these puzzles. The extent to which it w ­ ill similarly help explain other developments has to be left to further study, which I certainly hope ­others ­will take up. With this discussion, I make no pretenses that this is a g­ rand theory of all forms of welfare policy change. Surely, capitalism imposes constraints on all policymakers in all cap­i­tal­ist socie­ties. But to what degree in dif­fer­ent contexts, both policy and country, is not something that this study can convincingly answer for the curious reader.

Making Amer­i ­c a’s Retirement Insecurity What this book does try to answer is how U.S. old-­age security has become more market oriented since the New Deal. Against the conventional wisdom, the developments in each episode of change w ­ ere driven by three interrelated ­factors. First, the marketization of retirement security has been induced, somewhat counterintuitively, by a stronger hand of the state in the regulation of industrial relations. It has not been the result of policymakers stepping back and allowing the institution of retirement income provisioning to correct itself and

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chart its own course. But this government intervention is just the proximate trigger, not the fundamental cause. Second, policymakers w ­ ere motivated to intervene in ­labor-­management relations by a structural mechanism. They intervened in industrial relations to manage perceived crises in American capitalism to encourage cap­i­tal­ist accumulation. But their interventions into the system of pensioning ­were tactical, often a means to more strategic goals. In other words, old-­age security itself was never the crisis in American capitalism that policymakers ­were compelled to fix, even if the po­liti­cal rhe­toric at times suggests this. Concerns for ­future retirees ­were only of secondary importance, and changes in the institution itself sometimes completely inadvertent. Third, the way that policy­ makers intervened into industrial relations and how ­those interventions actually spurred on marketization was contingent on ­factors related to the balance of class forces in society at the time. Although policymakers w ­ ere always a driving force b ­ ehind marketization and ­were always concerned to ensure stable cap­i­tal­ ist accumulation, how they spurred on developments in the private pension system itself varied between each episode and can only be explained by the balance of power.2 Let us very briefly reconsider how this approach accounts for each of the episodes of marketization. (For an elaboration of the argument, see chapter 2.) A ­ fter the New Deal, the U.S. system of retirement income provisioning was augmented with market-­oriented practices and institutions. T ­ here ­were three impor­tant episodes of change, each making the private component of Amer­i­ca’s old-­age security system: the growth of private plans a­ fter World War II, the financialization of pension funds, and the shift to defined-­contribution and 401(k)-­type plans. Within the realm of private pensioning itself, we can see a shift ­toward the market, as market pro­cesses increasingly determined access and distributional outcomes for ­future retirees. Postwar Employer Pensions. A ­ fter World War II, policymakers ­were confronted with a deep and troubling crises in American capitalism. State agencies, such as the War L ­ abor Board, bureaucratized and routinized l­abor-­management relations during the war. But when the war ended and ­these agencies ­were dissolved, ­there was no apparatus to directly manage l­abor-­management relations in the country. As a result, the largest strike wave in U.S. history erupted—­unions ­were intent on making up for losses in wages and benefits caused by inflation during the war, and employers ­were keen on holding back ­union advances. ­These strikes halted U.S. industry and limited the capacity of capital to take advantage of new product markets in war-­torn Eu­rope and Japan. Policymakers across the po­liti­cal aisle termed this crisis the prob­lem of “reconversion.” In other words, how is it pos­si­ble to establish stable postwar production without

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the stabilizing effect of war­time agencies to ensure domestic production can take advantage of growth opportunities abroad and ensure U.S. global economic hegemony? Both ­labor and capital ­were willing to put in a long fight with each other, but in war-­torn Eu­rope policymakers saw the unpre­ce­dented chance to harvest major new spaces for cap­i­tal­ist growth. How Truman’s administration solved this prob­lem laid the groundwork for the modern private pension system. Unions, especially ­those associated with the CIO, ­were initially oriented around increasing the scope and size of the public program. They expended po­liti­cal effort trying to win expansions in the Social Security system, along with a universal single-­ payer health insurance system, by supporting the Wagner-­ Murray-­Dingell bill. But the bill’s few supporters in Congress w ­ ere never even able to get it out of committee. Southern Demo­crats ensured that it would go nowhere, and not even Roo­se­velt himself lent it support. In response, ­labor ­unions made collectively bargained pensions a core demand in the postwar strike wave. They did this for dif­fer­ent reasons: some wanted to pressure employers to support Social Security expansions; ­others had the more narrow interest of protecting their members’ retirement years from the possibility of deprivation. The ­union demand for fringe benefits and wage gains contributed to a major disruption of U.S. industry. The Truman administration intervened in many of t­ hese conflicts: sometimes by actually seizing or threatening to seize plants; at other times by directing fact-­ finding boards to issue recommendations for contract settlements. Above all ­else, the administration wanted l­abor peace. T ­ hese work stoppages threatened both the domestic economy and the longer-­term goal of grabbing hold of new markets abroad. T ­ hese interventions, decisions by a presidentially appointed National ­Labor Relations Board, and a decision by the Supreme Court laid the foundation for the system of collectively bargained pensions. But Truman could have intervened in many ways to ensure l­abor peace, including trying to directly weaken ­unions as Republican and Southern Demo­cratic congressmen did in 1947, ­after the former won control of Congress. Instead, he intervened to support collective bargaining over pensions ­because CIO ­unions ­were a key constituency within the northern section of his party and provided crucial votes and organ­izing during elections. When the American Federation of ­Labor, which was not explic­itly pro-­Democrat ­until 1948, made similar organ­ izing efforts in agriculture in the immediate years following the war, it was met with sharp re­sis­tance from both the president and Northern Demo­crats. Pension Financialization. Even before collectively bargained plans became “a fact,” as the NAM lamented in 1949, the question of how they would be funded was

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forced to the agenda.3 Pre-­Depression pensions had shown how unreliable nonfunded plans ­were; many went bankrupt ­under the financial strain their sponsoring employers and u ­ nions faced during the downturn of the 1930s. The norm ­after the war was to establish collectively bargained plans that allocate monies, sometimes contributed by both employers and employees, into a pension fund. But once the money was in the funds, the question became how to properly invest it. Early on, the UMW won control over their fund, and other ­unions began to follow suit. Several ­unions reasoned that the funds could, in part, be invested into worker housing, ­union proj­ects, and their own local economies. For their part, fiduciaries at the time embraced a very risk-­averse approach to pension fund investment, recommending portfolios that ­were primarily directed into bonds, as equities ­were deemed too risky and unpredictable to hedge the retirees’ f­ utures on. What followed, however, was the financialization of workers retirement assets. Instead of being invested into more risk-­averse or socially oriented investments, they ­were directed by employer-­dominated pension boards into the equities market. By the mid-1970s, pension funds controlled nearly 25 ­percent of the stocks of all U.S. companies. And since then, pension fund fiduciaries have mimicked the investment practices of other large institutional investors, such as banks and hedge funds. Indeed in the lead-up to the 2008 housing market crash, many pension funds, including t­ hose of ­unions, ­were invested in toxic subprime mortgages. Pension funds became tied, in a very direct way, to the stock market, warts and all. And although fiduciaries have used modern portfolio theory to offset portfolio risk, they have operated u ­ nder the efficient market hypothesis that assumes that the overall trend for equities ­will be growth. In long-­boom periods, investment based on this theory has produced financial windfalls. But in periods of financial turbulence, it has driven major losses. ­Because funds have been governed by market incentives alone (i.e., the pursuit of the highest rate of return), their monies have been used to finance antilabor firms increasingly invested in overseas operations with particularly exploitative l­abor regimes. This outcome was not simply the result of learned fiduciaries following the sound economic logic of modern portfolio theory, although the economics profession has certainly encouraged the shift. Financialization was a product of po­ liti­cal intervention. John L. Lewis and the UMW made pension fund control an issue, especially for the Republicans who won both h ­ ouses of Congress in 1947. The Republicans, along with their Southern Demo­cratic allies, w ­ ere worried that ­unions would use their welfare funds as weapons in a class strug­gle that would undermine corporate profitability. The potential power of u ­ nions was a perceived crisis for ­these policymakers, who in the Taft-­Hartley Act of 1947 limited ­labor’s ability to control the investment decisions of their welfare funds. As a

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r­ esult, the law turned over most pension assets to employers. However, in multiemployer pension plans, where ­unions bargained with many dif­fer­ent employers on behalf of the workers of an industry, the orga­nizational character of the ­unions in ­these plans afforded them some capacity to direct the monies. Some experimented with social investing of their funds, breaking with the model of finance. But the passage of the Employee Retirement Income Security Act in 1974 restricted the capacity of even ­these ­unions and made mimicking Wall Street a marker of fiduciary prudence and sound investing. The Defined-­Contribution Shift. By the late 1970s, another marketizing shift was ­under way. Employers w ­ ere increasingly adopting defined-­contribution plans, such as 401(k)s, for their employees instead of traditional defined-­benefit, plans. By the 1990s, traditional plans ­were rapidly dropping out of sight. Initially, 401(k)s ­were treated by plan designers as supplemental to the traditional pension and profit-­sharing plans. ­Because designers assumed that much of their retirement income needs would be taken care of by their traditional plan and Social Security, workers ­were given a lot of discretion over the investment decisions of their DC plans. How much t­hose DCs accumulated through the lifetime of their investing would be what workers would get for retirement. ­There was no guarantee, and their income was no longer tied to preretirement salary, like traditional plans. But ­these plans came to be the primary source of private retirement savings for workers lucky enough to have an employer-­sponsored savings plan at all (Ellis, Munnell, and Eschtruth 2014:26). The result has shifted the nature of retirement income provisioning at the private level squarely into the lower-­right quadrant of ­table 2.1. Access remains dependent on the employers, but for ­those employees with access, the distribution of this retirement income is heavi­ly ­shaped by their own per­for­mance as individual investors and by the market, turbulent and unpredictable as it is. As in the other episodes, t­ hese shifts ­were not simply the result of employers changing their plans to fit a new economy or making plans more portable for an increasingly precarious or mobile workforce. Instead they ­were the inadvertent result of policymakers trying to quell the crisis of stagflation, though once they did emerge, they ­were entirely welcomed on the part of both cap­i­tal­ists and conservatives. From his position as chairman of the Federal Reserve, Paul Volcker helped to promulgate a theory of inflation that identified u ­ nion wage gains as the princi­ple cause. Drawing on this view, many policymakers had rallied around the goal of inflationless growth by the late 1970s and supported his initial shock, restricting money to drive up interest rates to force employers to push back on wage demands. Once Ronald Reagan became president in 1981, he continued the policy of weakening ­unions to drive down wages and lower inflation. Contrary to

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the idea of shrinking the government, the central way that his administration pursued this goal was ramping up the role of the state. One ele­ment of this strategy was to strengthen the regulations on pensions to undermine the capacity of the multiemployer ­unions that had gained some control over them—­all ­under the pretense of making the system of traditional pensions more secure for ordinary workers. The result was a wave of regulation a­ fter regulation into the late 1980s. It was not u ­ ntil the Clinton presidency that the regulatory regime was liberalized. Far from making traditional pension plans more secure, however, t­ hese new rules hastened their demise and pushed firms to adopt DC plans as an alternative. They had such an effect b ­ ecause of two related aspects of the balance of class forces during the 1980s. First, they increased the cost of operating a traditional plan, especially for smaller firms where u ­ nions ­were weaker. And shifts in the economy at the time resulted in a growth in the ser­v ice sector (precisely in the kinds of jobs that would have been more heavi­ly hit by regulatory costs), and in a decline in manufacturing, where ­unions ­were traditionally stronger. Second, with ­unions ­either unwilling or unable to or­ga­nize more precarious workers in the ser­v ice sector, the employers in them ­were ­under no compulsion to offer a DB plan. With the higher cost of operating them and the absence of a bargaining agent pressuring them to do so, employers made the easy management decision ­either to not offer one at all or to offer a much cheaper DC plan.4

Prospects in Crisis? Although cap­i­tal­ist crises have been impor­tant to my analy­sis, they have not been the object of it. I have discussed them in broad terms as social or technical breakdowns that ultimately slow down economic growth and undermine profits. The keen observer ­will have noticed that the crises of capitalism, both perceived and anticipated, that policymakers are trying to respond to in this book have come in widely dif­fer­ent forms. Some readers might be concerned that I was not specific enough or may have used too expansive a definition, but discussing crises in such a broad way is necessary to capture their common feature. At heart, cap­i­tal­ ist crises undermine firm profitability and economic growth. But the conditions ­under which profitability and growth get undermined are diverse. By way of conclusion, I suggest how this diversity points to certain forms of strategic po­liti­cal action that may be necessary to ­counter marketization—­something I have been mostly ­silent about throughout the book up ­until now. Do opportunities for solidarity lay in crises? One type of cap­i­tal­ist crisis, the one most debated among po­liti­cal economists, is caused by firms and individuals g­ oing about business as usual and inadvertently

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driving profit decline. In this instance, crisis is internally driven, by capitalism’s own routines, and un­co­or­di­nated by extramarket forces. As part and parcel of the accumulation pro­cess itself, ­there are several ways that cap­i­tal­ist crisis could unfold: growing employment could lead to profit squeezes (Bowles, Gordon, Weiskopf 1983; Glyn 2007), changes in the technical composition of ­labor and machines could spur on a falling rate of profit (Shaikh 2016), firms might overproduce and lose profits ­because of insufficient demand (Brenner 2006), and individual investors might overvalue stock, creating ­bubbles that eventually pop (Kindleberger and Aliber 2015; Shiller 2015). This type of crisis is a collective action failure, the net result of decisions that seem good for the firm or individual but turn out to be bad for the ­whole. The crisis of profitability between roughly 1966 and 1983, which was in part tied to inflation (discussed in chapter 5), should be considered this sort of crisis. In the context of crises, policymakers ­will respond to try to revive profitability. But they are also forward-­looking and ­will try to stop such crises from happening in the first place if their advisers raise sufficient alarm. Sometimes they ­w ill promote cap­i­tal­ist growth at the expense of workers (which we also saw in chapter 5), and other times they ­will do it in ways they think benefits workers (as we saw in chapter 3). Policymakers are not intervening for par­tic­u­lar cap­i­tal­ists, but rather for capitalism itself. ­There is substantial debate over how responsive Herbert Hoover was to the onset of the ­Great Depression between 1929 and 1931. But one ­thing is clear to all in hindsight: he did not do enough to revive profitability and the economy, and as a result he lost his reelection bid against a more interventionist Franklin Delano Roo­se­velt. Policymakers understand this historical lesson and are keenly aware of the danger of being perceived as hurting the economy and firm profitability. Yet, this book also points to another kind of cap­i­tal­ist crisis, one that is the result of concerted collective action such as ­labor strikes, po­liti­cal protests, riots, and boycotts. This is the kind of crisis illustrated in Frances Fox Piven and Richard Cloward’s (1977) Poor ­People’s Movements and the legitimation crisis of James O’Connor (1973) and Claus Offe (1984). Life in a cap­i­tal­ist economy generally depends on “conformity with established roles and compliance with established rules” (Piven and Cloward 1977:24). But p ­ eople can withhold their cooperation from a number of institutions that makes life difficult for elites and policymakers; of primary importance to t­ hese kinds of cap­i­tal­ist crises (as opposed to ones that are solely social or po­liti­cal) is the extent to which ­people conform to the rules and expectations of the central economic institution—­the firm. Disruption of a firm’s operations, through coordinated ­labor actions, are specifically intended by ­unions to eat into its profits. This is what makes a strike a threat to cap­i­tal­ists in the first place. But it makes l­abor disruption a threat to politicians as well. On

172

CHAPTER 6

a large-­enough scale, intentional work slowdowns and stoppages can depress an economy as a ­whole, digging into corporate profits and slowing down growth.5 Politicians are plainly aware of this possibility, and often move to stop it before it happens. While I did not give much attention in this book to the passage of the Social Security Act—my task was to explain marketization—­the case has been made elsewhere that this latter type of cap­i­tal­ist crisis in part created the context in which this act was passed by Roo­se­velt (Jenkins and Brents 1989). Is Amer­i­ca locked onto a neoliberal path, edging more and more t­ oward personal thrift as the primary means to save for retirement as some suggest? Consideration of ­these two ­causes of cap­i­tal­ist crisis in the broader context of this study points to a strategic prospect for reversing the pres­ent course and redirecting Amer­i­ca’s retirement system ­toward more solidaristic institutions and arrangements. Crisis and its potential opens up historical opportunities for institutional innovation and change. But as I have shown, how politicians act can be widely dif­fer­ent. Consider the stark contrast in po­liti­cal responses in legislation passed in 1935 (the Social Security Act and the National L ­ abor Relations Act during the ­Great Depression) and in 2008 (the Emergency Economic Stabilization Act during the G ­ reat Recession, which bailed out banks “too big to fail”). As I have shown in this book, what ­matters in ­these moments of structural possibility is the balance of class forces. In moments of economic uncertainty, whose interests have greater leverage over policymakers? The 2008 crisis unfolded in a period of near silence on the part of ­labor and popu­lar movements and historically low levels of ­labor or­ga­ni­za­tion. It was only ­after the Occupy Wall Street movement ­rose in 2011 and was crushed nearly two months l­ ater that the popu­lar dialogue changed and economic in­equality became a salient po­liti­cal issue. But in terms of creating po­liti­cal opportunities for solidaristic policy change, OWS itself was a case of far too late and far too ­little. Politics in times of social calm can appear as unbendable as steel to advocates for solidaristic policy reforms. In normal times, when working ­people are unor­ ga­nized, cap­i­tal­ist democracies are more tightly beholden to elite interests (Domhoff 1967; Block 1977; Gilens 2012). In this setting, ­labor has to both make a crisis that triggers a structural response from policymakers and be strong enough within the context of that crisis to exact concessions from them. As this book shows, the capacity on the part of working ­people to both cause crises or worry politicians that they are on a path to causing a crisis is not enough to ensure that policymakers w ­ ill intervene with solidaristic resolutions—­indeed historically they usually do not. But, the two are certainly connected. The degree to which l­abor militants w ­ ere able to cause po­liti­cal panic during the context of the 1930s was far greater than the subsequent strike waves of the or­ga­nized ­labor movement.

Conclusions

173

Without a doubt, higher levels of ­labor militancy contributed to making the policies of the Roo­se­velt administration more solidaristic. But in the years ­after the passage of the Social Security Act, ­labor’s strategic approach shifted away from the kinds of militancy that have the potential to cause crises. Philip Murray, president of the CIO, summed up the change in a 1947 ­Labor Day speech. Pointing to the first half of the 1930s, he said that “it was against ­great odds that the Congress of International Organ­izations fought in ­those days. But men and ­women fought splendidly—­and they won.” But from Murray’s view, the prob­lems that confronted ­labor ­after the war “can be solved only by po­liti­cal action.”6 The shift, t­ oward formal politics and away from militancy, was reinforced by the AFL-­CIO’s first president, George Meany, who in 1955 declared that “the scene of the b ­ attle is no longer the com­pany plant or the picket line. It has moved into the legislative halls of Congress and the state legislatures.”7 By most accounts, ­labor now is at its weakest it has been since the 1920s. Unions are barely able to do what they once did for their own members, let alone for the working population at large (Rosenfeld 2014). Is it fantasy to suggest that ­unions at this point in history could both create a crisis large enough to force policymakers to intervene and be in the position to ensure t­hose interventions promote solidaristic institutions? It is certainly unlikely; but it is not impossible. Recall that ­union density through the first five years of the G ­ reat Depression, between 1929 and 1934, hovered around just 10 ­percent and t­ oday it is nearly the same. To exact solidaristic changes in the U.S. system of old-­age security alongside pro­gress in other welfare institutions, ­unions and working ­people should take a lesson from that past era. Though small, the or­ga­nized and unor­ga­nized alike acted collectively and militantly and used one tactic that has t­ oday faded into memory—­the strike—to spur policymakers into action (Burns 2011). We are not locked into a path of marketization. But only large scale collective action can get us off it to begin to build a system that ensures that our retired can live financially comfortable and stable lives.

Notes

1. THE RETIREMENT PUZZLE

1. The OECD member countries are: Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, K ­ orea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, United Kingdom, the United States. 2. By 2010, ­there was a $6.6 trillion retirement income gap. Predictions at the time by the Center for Retirement Research at Boston College indicated that about 70 million American ­house­holds with p ­ eople between the ages of 32 and 64 w ­ ill be short an average of about $90,000 in the amount they w ­ ill need for a comfortable retirement (Fleck 2010). 2. CAP­I ­TAL­I ST CRISIS AND PENSION INSECURITY

1. This study follows OECD standards and defines public welfare programs as state-­ administered policies intended to reduce vari­ous kinds of social risks associated with life in cap­i­tal­ist socie­ties. Similarly, private programs are defined as employer-­administered policies. 2. Several po­liti­cal institutionalists have come to emphasize the ways that institutions and social actors combine and interact to drive policy changes. For instance, Amenta and Halfmann (2000) argue that strong l­abor ­unions in demo­cratic polities with robust administrative capacities promote welfare expansion. Hicks (1999) suggests that strong ­unions and center/left parties interact with centralized and neocorporatist institutions to facilitate growth of social policy and resist retrenchment. And Huber and Stephens (2001) emphasize similar ­factors in their comparative analy­sis of welfare formation and retrenchment but also point to the importance of w ­ omen’s mobilization. H ­ ere Amenta’s (2006) work has advanced this research by g­ reat leaps. His analy­sis of the Townsend movement and the rise of Social Security shows that “the strategies of state oriented challengers need to fit the po­liti­cal situation” (9). And, “as po­liti­cal circumstances become more difficult . . . ​ more assertive or bolder collective action is required to produce collective benefits” (26). The research shows that some social movement strategies are more efficacious than o ­ thers when situated in the existing po­liti­cal institutional arrangements. 3. In explaining the “hidden welfare state,” Howard (1997) makes the same point. 4. Furthermore, according to Pavalko (1989), ­labor militancy had no impact on the timing of the adoption of state workmen’s compensation laws during the 1909–29 era. 5. This approach has produced much research, especially by Eu­ro­pean scholars (Afonso 2011; Callaghan 2011; Brookman 2012; Paster 2013). 6. Offe’s work is a collection of essays dating from 1973 to 1981. Several scholars in the late 1970s and 1980s developed or expanded on this approach to think about welfare state change. Looking to old-­age security systems in par­tic­u­lar, Gough (1979), Olson (1982), and Quadagno (1988) each develop their own version of this argument to explain their development in dif­fer­ent contexts. 7. See Streeck (2013:1–46) for an excellent elaboration on cap­i­tal­ist accumulation and legitimation. 175

176 NOTES TO PAGES 23–25

8. This view is somewhat ironic in hindsight, given that we now know that O’Connor and Offe ­were writing in the m ­ iddle of a period of severe declines in profit rates, which was not the result of social unrest (Brenner 2006). 9. Polanyi ([1944] 2001) develops a strikingly similar line of reasoning about the extension of the self-­regulating market. For Polanyi, market-­oriented institutions overturn customs and norms associated with the right to a certain standard of living. However, unlike the crisis management theorists, power is absent in the Polanyian approach. Elites, in Polanyi’s story, intervene to regulate market relations when it becomes clear that they are unsustainable. T ­ here is no clear line of demarcation in the class interests bound up in having them remain or not having them at all. And as a result, capitalism, as a broader force, is largely made invisible in Polanyi’s analy­sis. 10. Recently, Wolfgang Streeck (2013:22–23) has written that “for a theory of po­liti­cal economy in which capital is an actor and not just machinery, the seemingly technical ‘functioning’ of the ‘economy’—­above all, growth and full employment—is in real­ity a po­liti­ cal ­matter. ­Here lies the difference from a technocratic concept of crisis such as we find in the years ­after the Second World War and also in Pollock’s work and Frankfurt social theory. Both growth and full employment depend on the willingness of capital o ­ wners to invest, and that in turn depends on their aspirations for an ‘adequate’ rate of return, as well as on their general assessment of the security and stability of the cap­i­tal­ist economic order. The absence of economic crisis means that capital is content, while crisis signals its discontent. Exactly what return on investment capital ­owners and man­ag­ers demand is not set in stone; it varies with time and place. Investors may become more modest if they have no alternatives, more demanding if their profits no longer seem enough in comparison with what they can obtain elsewhere. Above all, if they see their social environment as hostile and inclined to impose exaggerated obligations on them, they may ‘lose confidence’ and withhold their capital—­for example, by developing a ‘liquidity preference’—­until conditions improve . . . ​Economic crises in capitalism result from crises of confidence on the part of capital; they are not technical disturbances but legitimation crises of a special kind.” 11. A critical ele­ment of the story for both Offe and O’Connor is the fiscal crisis of the state that ­these functions are bound up with. Contrary to the idea that the state expands at the expense of industry, O’Connor (1973) reasons that when the state sector grows, the mono­poly sector also grows. And as the socialization of the cost of cap­i­tal­ist accumulation expands and firms privately appropriate profits, t­ here is a “structural gap” between state expenditures and state revenues that drives fiscal crises and state debt (9). O’Connor’s causal argument about fiscal crisis, in par­tic­u­lar, has been subject to much criticism by po­liti­cal sociologists (Flacks and Turkel 1978; Block 1981). 12. Marx’s (1977:875) notion of primitive accumulation points to the history of states and former lords “divorcing the producer from the means of production” as a kind of “pre-­ history of capital.” Once wage laborers have been created by force, “the s­ ilent compulsion of economic relations sets the seal on the domination of the cap­i­tal­ist over the worker. Direct extra-­economic force is still of course used, but only in exceptional cases.” Crisis management theorists ­were skeptical of this basic claim, instead emphasizing the way that policymakers had to repeatedly and actively intervene in l­abor markets to spur accumulation. 13. Much of the con­temporary scholarship on policy change has been marked by too clean an analy­sis of the direct ways that nonstate actors, such as ­labor ­unions, businesses, or other interest groups, shape policy. Instead, the partisanship of policymakers and the interest groups ­behind pension marketization ­were historically contingent, at one point Demo­crat but at another Republican. Sometimes business advocated change, at other times ­unions did, and at still ­others po­liti­cal alliances ­were formed that tied segments of business and ­labor together against each other. But the stick is bent too far in the other direction when the argument is made that policymakers have “autonomy.” The gradual

NOTES TO PAGES 26–28

177

­ arketization of pensions simply cannot be understood in e­ ither the interest group terms m or state autonomy framework typically employed by scholars of the welfare state, where one group or party wins out over another. One has to look to the structural constraints on policymakers within capitalism itself. 14. This proposition is distinct from but not inconsistent with Streeck and Thelen’s (2005) seminal contribution on institutional change. They and ­others point to the importance of po­liti­cal interventions in institution making (Knight 1992; Streeck 2001, 2009; Thelen 2004; Streeck and Thelen 2005; Mahoney and Thelen 2010). The work that they have inspired and taken up themselves “underscores the contested nature” of institutions and emphasizes the “po­liti­cal dynamics” that drive their evolution (Thelen 2004:31). In pointing to multiple and simultaneous functional and po­liti­cal demands made on institutions in the po­liti­cal economy, Mahoney and Thelen (2010) have most recently brought a power-­distributional component to their study. They argue that institutions, above all e­ lse, are “distributional instruments laden with power implications” (ibid:8). They are “fraught with tensions b ­ ecause they inevitably raise resource considerations and invariably have distributional consequences” (ibid: 8). In the case of pensions, I show, echoing Mahoney and Thelen (2010:9), that reproducing institutions requires “ongoing mobilization of po­liti­ cal support” and changes are often the result of “shifts in the balance of power.” 15. The critique of Marxism more generally as functionalist has fashionably circulated in the social sciences for nearly four de­cades. It was articulated most forcefully, if not as convincingly, by Anthony Giddens’s (1981, vol. 1) A Con­temporary Critique of Historical Materialism. 16. The social actors in crisis management theory, as Marx (1977) wrote, are “personifications of economic categories,” simply “the ­bearers of par­tic­u­lar class relations and interests.” See the preface to the 1st ed. in Marx (1977 1:92). 17. In a similarly functionalist logic, O’Connor (1973:150) writes that “welfare and military spending are determined by the needs of mono­poly capital and the relations of production in the mono­poly sector. Surplus productive capacity (or surplus capital) creates po­liti­cal pressures for aggressive foreign economic expansion. And surplus ­labor power (or the surplus population) also builds up po­liti­cal presides for the growth of the welfare system.” 18. Ralph Miliband (1969:70) succinctly sums up this view in The State in Cap­i­tal­ist Society, writing that “cap­i­tal­ist regimes have mainly been governed by men who have ­either genuinely believed in the virtues of capitalism, or who, what­ever their reservations as to this or that aspect of it, have accepted it as far superior to any pos­si­ble alternative economic and social system, and who have therefore made it their prime business to defend it.” 19. Structural theories of the state dis­appeared into relative obscurity ­after the 1980s. However, ­there has been a more recent renewal of interest in them, especially in the discipline of po­liti­cal science (see Hacker and Pierson 2002; Culpepper and Reinke 2014; Paster 2015). 20. As Fred Block (1977:16) writes, “Business confidence is . . . ​very dif­fer­ent from ‘ruling-­class consciousness.’ Business confidence is based on an evaluation of the market that considers po­liti­cal events only as they might impinge on the market. This means that it is rooted in the narrow self-­interest of the individual cap­i­tal­ist who is worried about profits.” 21. Lindblom (1982:325) calls this pro­cess the “automatic punishing recoil,” and Offe (1975:133) refers to firm disinvestment as “negative events.” As Offe writes, “the basic pre­ nless production is rogative of ­free enterprises is a negative one: the right not to produce u at the same time accumulative, that is, not only production of useful ­things but si­mul­ta­ neously production of surplus value, or profit” (126). 22. The necessity for policymakers to support growth in a cap­i­tal­ist context speaks to the debate about the so-­called relative autonomy of the state, formulated originally by Poulantzas (1969; 1978). By “autonomy,” Poulantzas argued that the policymakers formulate

178 NOTES TO PAGES 29–38

policies in­de­pen­dent from the control or coercion of par­tic­u­lar businesses or sectors. However, this autonomy is “relative” b ­ ecause policymakers are constrained to pursue policies that do not discourage capital accumulation. The state is autonomous from individual cap­ i­tal­ists, but not from capitalism. For neo-­Marxists like Poulantzas, the state therefore remains functional to the general interests of capital and is able to foster accumulation more effectively than individual cap­i­tal­ists motivated by narrow or sectional interests. 23. Cohen and Rogers (1983) referred to this de­pen­dency as the “demand constraint”: the electorate is unlikely to demand what hurts firms b ­ ecause in the short term that hurts the electorate. 24. In this section, I build on the ideas of Nicos Poulantzas (1976:72–76), who argued in a vigorous debate with Ralph Miliband in the New Left Review that the “precise role of existing state machines” and “the way in which relative autonomy of the cap­i­tal­ist state develops and functions” depend on the relative strength of competing classes and fractions within ­these classes (1976:72–76). Poulantzas argues that the cap­i­tal­ist nature of the state itself makes it such that it not only effectively disorganizes the working classes but also functions to or­ga­nize the competing interests of the cap­i­tal­ist class into “power blocs” where one par­tic­u­lar class fraction would emerge as hegemonic—­but would also have to offer concessions to other cap­i­tal­ist class fractions in order to make its power ­v iable. For Poulantzas, relative state autonomy is exercised to unify the cap­i­tal­ist bloc around the leadership of the hegemonic fraction. Unfortunately, Poulantzas’s own theorizing was often too abstract to derive testable hypotheses. His earlier work (1969; 1973) was criticized famously by Miliband for leaving no room for state autonomy at all. Miliband (1970) wrote that the “structural constraints of the system are so absolutely compelling as to turn t­ hose who run the state into the merest functionaries and executants of policies imposed upon them by the system.” (1970). And Poulantzas’s (1978) ­later work ended up leaving so much room for class strug­gle and competing social interests to influence policy that some (e.g., Van den Berg 1988) have argued that it slid back into a form of pluralism. Despite t­ hese limitations, Poulantzas’ claim that the modern state is structurally constrained by capitalism is critical for t­ hose that want to understand how the policymaking works. 25. In the words of the Irish historian J. B. Bury, “The course of history seems . . . ​to be marked at ­every stage by contingencies, some of greater, some of smaller import. In some cases, they produce a situation to which the antecedent situation does not logically lead. In ­others they determine the form and means of the realization of a logical tendency” (cited in Miliband 1980). 26. Dobbin (1992) makes a similar, though distinct, argument that the Social Security Act of 1935 spurred on l­abor organ­izing for private pensions, which by the 1950s had largely locked them in place as a critical fixture of employee benefits. 27. Minutes of the Sub-­Committee on Com­pany-­established Employee Benefit Programs, November 2, 1949, NAM Collection, Committee Rec­ords, box 154, Committee Minutes 1949, November–­December folder, Hagley Museum and Library, Wilmington, DE [hereafter Hagley Library]. 28. Policymakers also changed tax policy in the period with re­spect to retirement plans. For example, tax breaks ­were given to firms for offering their employees IRAs. 29. The U.S. po­liti­cal context channeled ­these strategies in ways that produced unique outcomes. In terms of electoral activity, u ­ nions faced two U.S.-­specific limitations. The first is the two-­party system and the Demo­cratic Party’s lack of a programmatic orientation t­ oward social demo­cratic policies. ­There is nothing in the po­liti­cal DNA of the Party that biases it ­toward robust public programs; that has to be won through gaining control of the party and molding its agenda and platform. And in this regard, ­unions ­were always a ju­nior partner in a co­ali­tion that included other, more resourced groups. Second, U.S.

NOTES TO PAGES 42–48

179

federalism splits responsibilities, increases the number of relevant po­liti­cal actors in a policy field, modifies their preferences and strategic options, and creates several veto points in the legislative pro­cess. ­Those within the party that advocated for real expansions in the Social Security replacement rate could not see their legislation get past the block of a conservative co­ali­tion that included Southern Demo­crats and Northern Republicans (Katznelson, Geiger, and Kryder 1993; Alston and Ferrie 1999; Katznelson 2013). As a result, real Social Security rates hovered around the same point between 1940 and 1970. Although the rate was increased several times in that period, the increases only reflected changes in inflation. 3. RECONVERSION AND THE ORIGIN OF BARGAINED PLANS

1. In 2005, u ­ nder 50 ­percent of the working population was enrolled in an occupational pension plan (Antolin 2008). 2. The emergent personnel management movement in the 1910s and 1920s was concerned with the costs associated with high l­abor turnover and low “worker morale.” To impart greater loyalty to individual firms, employers sought to use social provisions to recast the worker in a m ­ iddle-­class mold (Jacoby 2004:37). To reduce turnover, it was in this period that employers began to offer welfare benefits (e.g., pension plans, com­pany ­unions, and paid vacations) to employees. According to data gathered by the Bureau of L ­ abor Statistics in 1916–17 (quoted in Fairris 1997:26), welfare benefits significantly reduced voluntary separations. Some of ­these programs ­were retained ­after the ­Great Depression (Swenson 2002:68; Moriguchi 2005). But many firms found that they could not afford them in the context of crisis, and nearly all of the mutual aid socie­ties developed by ­unions went bankrupt. 3. “Employee Pension Plans 1947,” U.S. Chamber of Commerce [hereafter USCOC], ser. 4, box 1, Employee Pension Plans (1947) folder, Hagley Library. 4. “Comment of the CIO Executive Board on the 1952 Elections,” UAW President’s Collection: Walter P. Reuther, box 62, CIO Po­liti­cal Action Committee (5 of 7) folder, Walter Reuther Memorial Archives, Detroit, MI [hereafter Reuther Archives]. 5. The first push for a federal program within l­abor was by the Railway Employees National Pension Association, which formed in 1929 to advocate for a federal old-­age insurance program. In 1932, it successfully pressured Senator Henry Hatfield, a Republican from West ­Virginia, to introduce its legislation into Congress. Other ­labor leaders then got on board. A ­ fter progressive senator Robert Wagner introduced an alternative proposal, the two ­were combined and passed as a Wagner-­Hatfield bill in 1934. The bill, however, did not last long. It was declared unconstitutional by the Supreme Court shortly thereafter. In 1935, the Wagner-­Hatfield bill was modified and signed into law by Franklin D. Roo­se­velt as the Social Security Act (Quadagno 1988:120). 6. ­After the SSA passed, the International Typographical Union, one of the founding ­unions of the CIO within the AFL (along with the United Mine Workers, the International Ladies’ Garment Workers’ Union, Amalgamated Clothing Workers of Amer­i­ca, the United Textile Workers, the International Union of Mine, Mill, and Smelter Workers, the Oil Workers Union, and the Hatters, Cap and Millinery Workers), was very concerned that since Social Security contributions come from payroll deductions, the costs of the program would fall on the shoulders of workers. But ­these concerns ­were slowly resolved as the Social Security Board increasingly worked with and consulted or­ga­nized ­labor about the implementation of the plan. 7. “Confidential Memo on Social Security, October 12, 1948,” UAW President’s Collection: Walter Reuther, box 170, Reuther Archives. 8. The memo also conveyed a worry about the long-­term po­liti­cal viability of the program. It noted that “as so often happens with social legislation, the alertness of t­ hose who worked for its enactment has tended to decline with the years, while the activity of ­those opposed to it has increased year by year.” And it went on to observe that “in the quiet war

180 NOTES TO PAGES 50–60

of attrition, unemployment insurance has been exchanged, sometimes by formal action of state legislatures, sometimes by the quiet administrative interpretation, ruling, findings, and court decisions, so as to remain the law closer to the wishes of employers who are not willing to accept the idea of unemployment insurance except on a relief basis. They are now determined to remove all effective federal standards and control and to have 51 competing state and territorial systems which they can play against each other.” (“Confidential Memo on Social Security, October 12, 1948”). 9. “Points of Information about Health and Social Security,” UAW President’s Collection: Walter Reuther, 1948 pamphlet, box 142, Reuther Archives. 10. Although t­ hese groups w ­ ere included in 1950 and 1954, they w ­ ere not able to immediately catch up with the rest of beneficiaries b ­ ecause the program required that participants contribute for at least five years before they w ­ ere eligible for benefits. 11. Alston and Ferrie (1999) use the mechanization of Southern agriculture as an explanation for southern willingness to go along with the G ­ reat Society programs that w ­ ere ­adopted by the Johnson administration in the 1960s. The authors do not specifically claim that mechanization resulted in the 1950 and 1954 amendments to the Social Security Act. Although my speculation that it did is not inconsistent with their view, the specific question of the amendments begs for more research. It was also true that Republicans controlled Congress in 1954, so it was a period in which Southern Demo­crats had lost some of their ability to directly shape legislation (Katznelson 2005:42). 12. In both the 1948 and 1954 data, the NICB sought so much information on com­ pany pensions that they divided the survey into separate parts, sending each part to dif­ fer­ent cooperating firms. The companies in each group, however, w ­ ere chosen to be representative of dif­fer­ent types of industries and firm size. Questionnaires concerning wage earners and salaried earners ­were sent to dif­fer­ent cooperating firms. NICB (1948a) shows 360 firms reported on wage earners and pensioning and 474 firms reported on salaried workers and pensioning that year. Similarly, NICB (1954b) indicates that 438 firms reported on wage earners and pensioning, and 446 firms reported on salaried workers and pensioning six years ­later. 13. “A Program for Increasing WWII Production through Full Employment,” submitted to the War Manpower Commission by Walter P. Reuther, date unknown, UAW President’s Collection: Walter P. Reuther, box 31, Reuther Archives. 14. Even the militant International Longshore Workers Union leader, Harry Bridges, who happened to be a consistent Communist Party supporter, proposed a five-­year, no-­ strike contract in 1940 (Prickett 1981). 15. “Stop Collective Begging,” UAW President’s Collection: Walter P. Reuther, box 32, No-­Strike Pledge 1944 folder, Reuther Archives. 16. “Referendum Starts,” UAW President’s Collection: Walter P. Reuther, box 32, No-­ Strike Pledge 1944 folder, Reuther Archives. 17. Communist Po­liti­cal Association, “The Nation and the No-­Strike Pledge,” UAW President’s Collection: Walter P. Reuther, box 31, No-­Strike Pledge 1944 folder, Reuther Archives. 18. “FDR’s Seizure Order,” The Resale, Wholesale, and Department Store Employee, UAW President’s Collection: Walter P. Reuther, box 32, No-­Strike Pledge 1945 folder, Reuther Archives. 19. It was ­later disproven that it was primarily due to communist agitation. Instead, it was driven largely by rank-­and-­file discontent over wage levels (Prickett 1981). 20. In all likelihood, the war’s end would have produced much greater economic prob­ lems had it not been for the G.I. Bill, which was signed into law 1944. The provisions of the bill absorbed about 4 million of the returning veterans who would have flooded the market looking for work into educational programs (Sharnoff 1987, 1:228).

NOTES TO PAGES 60–65

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21. Harry Truman, President’s Speech to Congress, December 3, 1945, USCOC, ser. 4, box 2, President’s National L ­ abor-­Management Conference Reference Manuel, Hagley Library. 22. Harry Truman, National Association of Manufacturers [hereafter NAM] Collection, Subject Files, box 141, President’s National L ­ abor-­Management Conference: General, November 5, 1945, Folder L ­ abor-­Management Conference Transcriptions docs 1–64, Hagley Library. 23. Ibid. 24. Thomas Holland, NAM Collection, Subject Files, box 141, President’s National ­Labor-­Management Conference: A Report, Special Suppl. No. 15, Daily L ­ abor Report, August 1950, p. 25, Hagley Library. 25. Ibid. 26. “Convening of Management-­Labor Parley,” NAM News, November 10, 1945, NAM Collection, Subject Files, box 141, Hagley Library. 27. Holland, Report, 19. 28. Ibid. 29. Walter P. Stacy, NAM Collection, Subject Files, box 141, President’s National ­Labor-­Management Conference: General, November 5, 1945, Folder ­Labor-­Management Conference Transcriptions docs 1–64, Hagley Library. 30. Harry Truman, citing himself in his Speech to Congress, December 2, 1945. 31. Harry Truman, quoted in “Convening of Management-­Labor Parley.” 32. Philip Murray, quoted in “Convening of Management-­Labor Parley.” 33. William Green, NAM Collection, Subject Files, box 141, President’s National ­Labor-­Management Conference: General, November 5, 1945, Folder ­Labor-­Management Conference Transcriptions docs 1–64, Hagley Library. 34. Ira Mosher, quoted in “Convening of Management-­Labor Parley.” 35. Editorial, “Convening of Management-­Labor Parley.” 36. Harry Truman, Message to Congress, December 3, 1945, USCOC, ser. 4, box 2, President’s National ­Labor Management Conference Reference Manuel, Hagley Library. 37. Ibid. ­ ree Society 38. Employee Health and Benefits Committee, “Retirement Security in a F 1955,” NAM Collection, ser. 1, box 274, Employee Benefits folder, Hagley Library. 39. Government plant seizure was a tactic that had been explored at the Labor-­ Management Conference. According to the chairman of the Committee of Initial Collective Agreements, “In cases where, in the opinion of the Governor, a strike or lockout would constitute a public emergency or endanger the health and safety of the public, the Governor should be empowered to arrange for the appointment of a fact-­finding commission. Such a commission should be nominated, upon request of the Governor, by the chief judicial officer of the State and should consist of outstanding citizens who do not reflect e­ ither employer or employee interests. In cases where a national emergency is involved, or national health or safety is endangered, the President of the United States, upon his own motion, should be empowered to appoint a similar commission. Such a commission in ­either of the above cases should investigate the dispute and within 30 days make public the facts concerning it, without recommendation.” (Holmes, USCOC, ser. 4, box 2, President’s National ­Labor-­Management Conference Reference Manuel, Committee on Initial Collective Agreements, Confidential Drafts of the Reports of the Committees of the Management Group, November 13, 1945, agenda item 5, Hagley Library.) 40. ­These ­were the nine instances: Illinois Central Railroad, August 23, 1945; oil refining and piping businesses, October 4, 1945; Capital Transit Com­pany, November 21, 1945; ­Great Lakes Towing Com­pany, November 29, 1945; the “Big Five” meatpacking companies, as well as other smaller ones, January 24, 1946; harbor tugboat companies in New York,

182 NOTES TO PAGES 67–71

February 5, 1946; Monongahela Connecting Railroad, June 14, 1946 (McClure 1969:141). ­ fter the president first seized the mines, Lewis (quoted in Donovan 1977:240) fa41. A mously remarked, “Let Truman dig coal with his bayonets.” 42. The United Mine Workers Journal (quoted in McClure 1969:147) deemed the contract “the greatest economic and social gains registered by the UMWA in a single wage agreement since the birth of the ­union in 1890.” 43. President’s L ­ abor-­Management Conference, USCOC Collection, ser. 4, box 2, President’s ­Labor-­Management Conference 1945 folder, Hagley Library. 44. Report of the Sub-­Committee on Com­pany-­established Employee Benefit Programs, NAM Collection, Committee Rec­ ords, box 153, Committee Minutes 1948, January–­March folder, Hagley Library. 45. “Agreement on Retirement Plan,” UAW President’s Collection: Walter P. Reuther, box 99, Ford Department Pension Plan folder, Reuther Archives. 46. Minutes of the Sub-­Committee on Com­pany-­established Employee Benefit Programs, November 2, 1949, NAM Collection, Committee Rec­ords, box 154, Committee Minutes 1949, November–­December folder, Hagley Library. 47. Social movements and l­ abor organ­izations regularly mobilize votes to shape policy (Meyer, Jenness, and Ingram 2005). In many Eu­ro­pean cap­i­tal­ist democracies with more robust welfare states, social demo­cratic po­liti­cal parties aligned with, or w ­ ere created by, strong and centralized ­labor movements (Korpi 1983; Shalev 1983; Huber and Stephens 2001). In legislative contests, welfare provisions ­were often advanced when social demo­ cratic parties ­were able to “subordinate class purity to the logic of majority politics” (Esping-­Andersen 1988:8–32; Hicks 1999). Although the research on the influence of American u ­ nions on social policy through electoral activity is inconclusive (see Amenta et al. 2010 for a review), it is well documented that in western and northern Eu­rope higher levels of ­union electoral mobilization resulting in leftist governments in turn typically bring about higher levels of welfare spending (Brady 2003). However, the strategy of electoral mobilization for or­ga­nized ­labor in the United States must be differentiated from its social demo­cratic counter­parts in Eu­rope. Countries such as Sweden, for instance, built welfare states via strong alliances between ­unions and social demo­cratic po­liti­cal parties programmatically oriented around solidaristic policies. Yet, Amer­i­ca’s winner-­take-­all electoral system imposes major constraints on efforts to or­ga­nize a ­v iable ­labor party founded on ­these princi­ples (Duverger 1954; Lipset and Marks 1999). As a result, American parties are not programmatic and are in turn more subject to capture by better resourced interest groups (Amenta 2006:21). 48. U.S. l­abor ­unions confront a basic limitation when they mobilize votes for par­tic­ u­lar policy goals. Institutional arrangements tend to ­favor interest group politics over class politics (Amenta 2006). If or­ga­nized ­labor campaigns for a party, the party members that benefit from the votes u ­ nions garner have an incentive to intervene on behalf of or­ga­nized ­labor’s sectoral interests, not necessarily the general interest of the “working ­people” that the movement claims to speak on behalf of (Eidlin 2015). Greenstone’s ([1969] 1977) definitive study, ­Labor in American Politics, laid out this view in detail. He finds that or­ga­ nized ­labor was incorporated into the Demo­cratic Party as one interest group among many and that in becoming a constituent of the party came at the cost of considerable autonomy (248, 267). As a result, l­abor had to compete with other constituencies over party policy as an interest group representing its own narrow membership. 49. Outside of the strongholds of the Demo­cratic urban machines, the party lacked the orga­nizational infrastructure to mobilize new urban populations to the polls. The CIO’s organ­izing arm aimed to fill this gap (Greenstone 1977:51).

NOTES TO PAGES 71–81

183

50. NAM, “Or­ga­nized ­Labor’s Program to Or­ga­nize the Legislative Halls,” UAW President’s Collection: Walter P. Reuther, box 432, 1956, Reuther Archives. 51. The widespread upsurge of strikes and organ­izing in 1934 helped reverse the long decline in ­union membership between 1920 and 1933 (Wolman 1936). 52. Business made retaining capital’s right to manage a central concern. In 1945, management delegates on the Committee on Management’s Right to Manage at Truman’s ­labor-­management conference submitted a report concluding that “industrial disputes can be minimized by full and genuine recognition of the inherent right and responsibility of management to exercise the usual rights incident of owner­ship of the enterprise and to direct its operation” Representatives of capital said that they “naturally cannot agree” with the alternative, the “joint management of enterprise.” (Grove, S.B., C.R. Hook, H.W. Prentis, Jr., E.J. Robeson, Jr., C.O. Skinner, and C.E. Wilson. “Separate Report of Management Delegates to the Executive Committee,” NAM Subject Files, box 141, President’s National ­Labor-­Management Conference 1945, Hagley Library). 53. As early as the 1936 sit-­down strike in Akron, John L. Lewis strongly opposed the tactic. 54. Statement of the CIO Executive Board, UAW President’s Collection: Walter P. Reuther, box 62, CIO-­PAC 1952–1953 folder, Reuther Archives. 55. The NLRB became more conservative in the context of World War II (Dubofsky 1994:161). ­After, Taft-­Hartley reformed the board’s internal structure in 1947 by making the agency’s general counsel in­de­pen­dent of the board and presidentially appointed with a fixed term of office (Moe 1987). This tied the board to politics and reduced its in­de­pen­dence since 1947. At least one of the five board member slots becomes available each year, and a new general counsel has to be appointed at least once e­ very four years. Appointments are generally handled through the White House and a small number of high-­ranking presidentially appointed figures in the Department of L ­ abor. Although this pro­cess makes the politics of the board more volatile, it also increases the capacity of presidents to shape the board’s orientation to decision making. For this reason, despite being restructured by business interests, Truman was able to push the board to take a more prolabor stance during his presidency. 56. Truman did set up his President’s Commission on Migratory ­Labor in mid-1950, but it was largely a case of too l­ittle, too late. The commission concluded that employers exaggerated the need for foreign ­labor and that it was being used to depress domestic wages. However, ­because Truman did not display the same seriousness of action that he had in the CIO-­led conflicts, the findings ­were largely ignored. 57. Like the CIO-­PAC, the LLPE financed its activities from voluntary individual member donations instead of ­union trea­suries. 58. The electoral efforts of the CIO-­PAC and the LLPE in 1948 helped to defeat seventy-­ eight of the representatives and nine of the senators that voted for Taft-­Hartley (Witte 1956:413). 4. TURNING L ­ ABOR INTO FINANCE CAPITAL

1. The market value of pension fund assets relative to GDP, the asset-­to-­GDP ratio, is a key indicator of how impor­tant ­these funds are in an economy. In Australia, Iceland, the Netherlands, Switzerland, the U.K., and the U.S. the ratios exceed 80 ­percent of GDP (OECD 2015). 2. Social Security benefits are financed on a pay-­as-­you-go basis. 3. Patrick J. Davey, “Current Directions in Pension Fund Management,” Conference Board Information Bulletin No. 39, 1978. AFL-­CIO Vertical Files, box 43, folder 1, George Meany Memorial Archives, Silver Spring, MD [hereafter Meany Archives].

184 NOTES TO PAGES 82–99

4. An annuity is a contract between a buyer and an insurance com­pany that is designed to meet retirement and other long-­range goals, ­under which the buyer makes a lump-­sum payment or series of payments. In return, the insurer agrees to make periodic payments to the buyer beginning immediately or at some ­future date. 5. An argument for the market suggests that “imposition of numerous constraints can inhibit strong per­for­mance. The delays that vari­ous checks require may predispose many money man­ag­ers to assume an attitude of benign neglect in investing pension funds.” (Davey, “Current Directions in Pension Fund Management.”) 6. AFL-­CIO, “Pension Fund Investment Study, July 7, 1980,” AFL-­CIO Unpro­cessed Files, box 43, Meany Archives. 7. Confidential Minutes of the Sub-­Committee on Com­pany-­established Employee Benefit Programs, April 25, 1948, p. 2, NAM Collection, Committee Rec­ords, box 153, Hagley Library. 8. Stan Luxenberg, “Pinstripes & Lunchpails,” Harper’s, April 1982, AFL-­CIO Vertical Files, box 43, folder 2, Meany Archives. 9. As an early sign of the shift to “pension fund capitalism” that was ­under way, a new institutional investment industry emerged by the end of the 1950s. Institutional investors provided sophisticated and long-­term investment management for the assets of pension funds and other large tax-­exempt institutions such as charitable foundations and college and university endowments (Clowes 2000:13). By the late 1970s, government-­sponsored plans accounted for less than 40 ­percent of total fund assets. More than 60 ­percent was in the private sector. Nonetheless, only a small fraction of the plans in the private sector ­were subject to joint c­ ontrol with unions—­about 10 ­percent. For the vast majority, executives hired institutional investors to manage the funds (U.S. Senate 1978). 10. Employee Health and Benefits Committee, “A Fresh Look at Retirement Security,” March 1958, p. 21, NAM Collection, Committee Rec­ords, ser. 1, box 274, Hagley Library. 11. Luxenberg, “Pinstripes & Lunchpails.” 12. Ibid. 13. William C. Greenough, “Closing Circle: Pension Funds as a Source of Necessary Capital,” talk to the International Foundation of Employee Benefit Plans, repr. Financier, August 1979, p. 21, AFL-­CIO Vertical Files, box 43, folder 1, Meany Archives. 14. Ibid., p. 23. 15. Employee Health and Benefits Committee, “A Fresh Look at Retirement Security.” 16. Among other ­things, the Corporate Data Exchange study also found that the same sample of funds held $2.6 billion in common stock in 14 companies that ­v iolated OSHA standards, $3.9 billion of common stock in 26 firms that ­were violators of EEO regulations, and $10.1 billion of common stock in 30 companies that ­were major investors or lenders to South Africa (Corporate Data Exchange, “Pension Investments: A Social Audit,” August 8, 1979, AFL-­CIO Vertical Files, box 43, folder 1, Meany Archives). 17. Ibid. 18. Dedra Hauser, “The Unions’ Hidden Asset,” Nation, February 17, 1979, AFL-­CIO Vertical Files, box 43, folder 1, Meany Archives. 19. Ibid. 20. AFL-­CIO, “Pension Fund Investment Study, July 7, 1980.” 21. President’s National ­Labor-­Management Conference, USCOC Collection, ser. 4, box 2, President’s National L ­ abor-­Management Conference folder, 1945, Hagley Library. 22. Report of the Sub-­Committee on Com­pany-­established Employee Benefit ­Programs, NAM Collection, Committee Rec­ords, box 153, Committee Minutes 1948, January–­March folder. Hagley Library. 23. Though they ­were few, some writers in the Republican camp actually worried that the anticommunist provisions in the bill would produce the opposite of their intended

NOTES TO PAGES 99–115

185

effects. In a letter, Russell W. Davenport, a writer and publisher with ties to internationalist Republicans such as Wendell Willkie, wrote that “I fear the rise of Communistic forces should the President sign the bill . . . ​In fact, as framed, the bill would encourage the growth of Communism in ­unions” (Davenport 1947: 413). 24. Stepan-­Norris and Zeitlin (2002) have exhaustively chronicled how critical “reds” ­were for building the U.S. ­labor movement. 25. NAM, “Memorandum Dealing with Some Prob­ lems regarding Com­ pany-­ established Employee Benefit Programs,” c. 1950, NAM Collection, ser. 1, box 75, Hagley Library. 26. “Health and Retirement Security Bargaining Objectives,” October 14, 1954, UAW President’s Collection: Walter Reuther, CIO Social Security Department, box 160, Reuther Archives. 27. See Wooten (2004) for the most comprehensive overview of ERISA’s legislative history. 28. Hearings on H.R. 2 and H.R. 462 Pension Reform Bills, Before the General Subcommittee on ­Labor of the Committee on Education and ­Labor, U.S. House of Representatives, (March 6, 1973) (statement of James F. Bailey, Legislative Advocate, UBC), AFL-­CIO Department of Legislation, box 38, folder 37, Meany Archives. 29. Diane Hal Gropper, “The Ordeal of Jeffrey Clayton,” Institutional Investor. August 1982, AFL-­CIO Collection Social Security Department, 85-0036, box 1, Unpro­cessed Files, Meany Archives. 30. Investment Work Group of the Advisory Council on Employee Welfare and Pension Benefit Plans, position paper, January 24, 1978, AFL-­CIO Social Security Department, Unpro­cessed Files,. Meany Archives. 31. Ian D. Lanoff, “The Social Investment of Private Pension Plan Assets: May It Be Done Lawfully ­under ERISA?” ­Labor Law Journal 31, no. 7 (1980): 387–392, AFL-­CIO Vertical Files, box 43, folder 1, Meany Archives. 32. ERISA charged the Department of ­Labor with enforcing the law and developing its regulations. It was not ­until August 1977 that pension fund man­ag­ers and fiduciaries ­were given specific L ­ abor Department guidelines on ERISA’s prudence standards (Clowes 2000:134). 33. “Pension Fund Officials Not Optimistic about Economic Outlook: Inclined to Invest Only in ‘Blue Chips’ due to ERISA,” International Foundation News, 1977, AFL-­CIO Social Security Office, Unpro­cessed Files, Meany Archives. 34. James Cook, “The Most Abused, Misused Pension Fund in Amer­i­ca,” Forbes, November 10, 1980, pp. 69–82, AFL-­CIO Vertical Files, box 43, folder 1, Meany Archives. 35. Ibid. 36. Although most ­unions with single-­employer pension plans, such as the UAW and the USW, actively supported ERISA, ­unions with multiemployer plans largely came out in opposition to the legislation. This suggests that by the time the 1970s came about, most ­unions with single-­employer plans had begun to give up hope of controlling the funds and simply wanted stricter administrative rules imposed on employers (Wooten 2005). 37. AFL-­CIO, “Pension Fund Investment Study, July 7, 1980.” 38. AFL-­CIO, “Pension Fund Investment Developments in 1981–82 Private and Public Sectors,” AFL-­CIO Social Security Department, Unpro­cessed Files, box 1, Meany Archives. 39. Jacob Sheinkman, “The Union Role in the Boardroom,” Employee Relations Law Journal 5 no. 1 (1979): 14–20, AFL-­CIO Vertical Files, box 43, folder 1, Meany Archives. 40. AFL-­CIO, “Pension Fund Investment Study, July 7, 1980.” 41. Ibid. 42. Jonathan Fuerbinger, “Pension Funds Are Freed to Pursue Social Goals,” Washington Star, June 19, 1979, AFL-­CIO Vertical Files, box 43, folder 1, Meany Archives.

186 NOTES TO PAGES 116–122

43. Stanley Rothenburg, quoted in Lance Gay, “AFL-­CIO Plans to Tighten Pension Fund Investments,” Washington Star, August 22, 1980, AFL-­CIO Vertical Files, box 43, folder 1, Meany Archives. 44. Hearings on Private Pension Fund Investment in Residential Mortgages, Before the Savings, Pensions and Investment Subcommittee of the Finance Committee, U.S. Senate, (May 19, 1982) (statement of Harry B. Schecter, Director of AFL-­CIO Office of Housing and Monetary Policy). AFL-­CIO Department of Legislation, box 12, folder 123, Meany Archives. 45. A ­ fter the election, the New York Times l­abor-­beat reporter, A. H. Raskin, wrote of the federation’s support that “a top-­level Presidential campaign endorsement usually adds a few percentage points to the margin when the majority of the membership starts out liking the same candidate as the officialdom; similarly, an endorsement reduces the margin a bit when the tide is ­running in the opposite direction” (Raskin, A. H. 1976. “The Week in Review.” New York Times. January 11). 46. Mobilizing pension funds for public interests had been tried at the local level during the fiscal crisis in New York in 1975. When borrowers stopped lending to the city, the state created the Municipal Assistance Corporation. On the eve of default, the city turned to its pension funds for public employees such as firefighters, the police, the teachers, and transit workers. The funds w ­ ere then used to invest in bonds issued by the Municipal Assistance Corporation. By investing over $1.6 billion in (20% of their assets) in the city, the funds diverted the fiscal crisis (Lowenstein 2005:114–16). 47. Jimmy Car­ter, quoted in Peter Gall, “Unions Increase Investments in Mortgages,” news release, November 1980, McGraw-­Hill World News, AFL-­CIO Vertical Files, box 43, folder 1, Meany Archives. 48. Jerry Brown, quoted in Gall, “Unions Increase Investments in Mortgages.” 49. Lane Kirkland, news release, October 17, 1980, AFL-­CIO News Ser­v ice, AFL-­CIO Vertical Files, box 43, folder 1, Meany Archives. 50. Larry Smedley, news release, September 3, 1980, AFL-­CIO News Ser­vice, AFL-­CIO Vertical Files, box 43, folder 1, Meany Archives. 51. Murray Finley of the ACTWU had taken an early interest in the bill through his co-­chairmanship of the National Committee for Full Employment with Coretta Scott King (Ginsburg 2012:130). But the leadership of the AFL-­CIO, opposed to the legally enforceable right to a job and wage and price controls, came out against Representative Augustus Hawkins’s original proposal (Akard 1996:110). 52. This idea, in retrospect, was fallacious. Although capital investment in the period was lagging, it was not due to a lack of potential investment funds. In fact, the 1974 recession led to a drop of demand and surplus of potential investment funds that firms hoarded. Instead, investment lagged ­because the rate of profit had been contracting since the late 1960s. See Akard 1996:117–20 for a full discussion. 53. The better-­known case of ­unions making real attempts to gain control financial investments is the Meidner Plan in Sweden. In this chapter, I focus primarily on Quebec. ­There ­unions ­were much more successful than ­were ­unions in Sweden when they created the wage earner funds in 1983. The wage earner funds are the better-­known case, however, ­because in their earliest iteration, they greatly exceeded the Solidarity Fund’s scope as a means to transfer control of capital to u ­ nions. Although not a case in this study, the Meidner Plan can be seen as consistent with the causal story that I have developed in this chapter, policymakers ­were forces to backtrack when it was clear that more radical proposals would undermine cap­i­tal­ist growth (see Pontusson 1992:186–219). 54. Not all ­unions in Canada support ­these funds. In par­tic­u­lar, the Canadian Auto Workers and Sam Gindin, their chief economist, ­were vocal opponents, arguing that they amounted to tax breaks for firms, that savings held in individual retirement accounts ­were inconsistent with the more prolabor view that workers’ retirement should be pooled

NOTES TO PAGES 128–135

187

c­ ollectively, and that they turn workers into cap­i­tal­ists (Sam Gindin, unpublished interview by McCarthy, 2012). 5. T­ OWARD THE 401(K) OWN­E RSHIP SOCIETY

1. Another line of inquiry concerns why policymakers, both in advanced democracies and less developed countries, embraced an ideologically driven liberalization agenda. Why, in other words, did “market fundamentalism” emerge as the dominant policymaking paradigm (Bourdieu 1998; Fourcade-­Gourinchas and Babb 2002; Somers and Block 2005)? Scholars in this research vein identify several causal ­factors. The neoclassical perspective, advocated by government agencies and state actors themselves, argues that the break with Keynesianism was the result of structural shifts in the global economy that made neoliberal policy ideas not only inevitable but also desirable (Boix 2010). Critics also adopt this account by pointing to the policy imperatives of globally integrated markets (Callinicos 2001). Still ­others point to the role of ideas themselves and identify how moral imperatives ­were linked up to the value of competition (Amable 2011). And monetarists came to occupy vital state agencies and po­liti­cal posts and made decisions guided by the efficient market hypothesis (Babb 2009). Neoliberalism, as a set of policy ideas, then came to radiate out of the United States’ superior geopo­liti­cal position (Bourdieu and Wacquant 1999; Blyth 2007) and was diffused globally in the 1990s (Henisz, Zelner, and Guillen 2005; Dobbin, Simmons, and Garret 2007). Fi­nally, another perspective identifies the core cause in power relations; namely, the business offensive in the late 1970s (Piven and Cloward 1997; Duméneil & Levy 2004; Brenner 2006) and the breakdown in the cross-­class alliance between ­labor and capital formed in the postwar period (Harvey 2005; Glyn 2006). In this story, neoliberalism was the state-­led restoration of class power. States acted both in coordination with and on behalf of emerging constituencies within business sectors such large capital (Fairbrother 2007), finance (Verdier 2002; Krippner 2011), and ser­v ices and business associations such as the NAM, the USCOC, and the Business Roundtable (Hacker and Pierson 2010). 2. Richard R. Tryon, “Report on Pensions,” Management Policy Research Associates, 1949, NAM Collection, ser. 1, box 75, Hagley Library. 3. Minutes of the Conference on Employee Pension Plans, July 9 and 10, 1947, USCOC Collection, ser. 3, box 6, Employee Pension Plans folder, Hagley Library. 4. Employee Health and Benefits Committee, “A Fresh Look at Retirement Security,” March 1958, p. 11, NAM Collection, Committee Rec­ords, ser. 1, box 274, Hagley Library. 5. Minutes of the National Conference on Individual Planning for Retirement, October 2, 1958, USCOC Collection, ser. 4, box 4, Hagley Library. 6. Neal F. Healy, “Clinging to Defined-­Benefit Pensions Is Poor Policy,” letter to the editor, Wall Street Journal, September 9, 1982, AFL-­CIO Occupational Safety, Health, and Social Security Department. Unpro­cessed Files, 87-0011, box 2, Meany Archives. 7. Greg Burns, “The Perils of Pensions.” Mature Outlook, April 1988, AFL-­CIO Department of Legislation, Unpro­cessed Files, 1994-0224, box 9, Meany Archives. 8. Leah J. Nathans, “The New Breed of Pensions That May Leave Retirees Poorer,” Business Week, November 6, 1989, AFL-­CIO Department of Legislation, Unpro­cessed Files, 1994-0224, box 11, Meany Archives. 9. In 1987, economist Paul Samuelson (1987:59) wrote that “Reaganomics was not a coherent program.” Instead, as Samuelson pointed out, Reagan’s economic policy was ­shaped by the factions around him. His primary goal remained the promotion of cap­i­tal­ ist growth, but the forces around him helped select the policy path for d ­ oing this. Business interests (especially in California and Texas) and Chicago-­style economists championed laissez-­faire and the power of the market, the former for purely self-­interested reasons. At the same time, supply-­siders such as Arthur Laffer, Jack Kemp, Paul Craig Roberts, David

188 NOTES TO PAGES 136–140

Stockman, and Norman Ture advocated for tax reduction. Above all e­ lse, the policymakers ­were intent of reviving corporate power and achieving inflation-­less growth. The so-­called Laffer curve was used during the period to illustrate the view among some of the supply-­siders that tax reduction could actually increase government revenues. Supply-­side economics suggested that lowering taxes would encourage more economic activity and growth. But some argued that lowering taxes would not be at the expense of government revenues. The view is premised on the idea that taxable income changes with the level of taxation. By lowering taxes, Laffer argued, taxable income would grow and so would government revenues. Laffer argued that if the tax rate is zero, then total tax receipts ­will be zero; and similarly, if the tax rate is very high, revenues ­will again be zero. At the zenith of the arch, revenues ­will be at their maximum. Many other supply-­siders, such as Stockman and Roberts, thought this logic was deeply flawed—­the parabola was hardly scientific having its origins on the back of a Chinese restaurant menu, not any serious empirical study (Roberts 1984; Stockman 1986). But the curve did, in a public way, capture a core idea of Reagan’s supply-­siders: tax rates ­were too high, and by lowering them, economic activity could be revived (possibly, but not necessarily, along with state revenues). 10. With inflation on the rise, in 1974 Federal Reserve Chair Arthur Burns cautiously increased interest rates and tightened credit. That same year the economy went into a recession, wages stopped growing with productivity, and inflation fell to 5 ­percent in 1976 down from 12 ­percent in 1974. The price of bullion was the principal indicator of the confidence of Wall Street in the dollar for the Federal Reserve, an increase in the price of gold signaled to central bankers a decline in Wall Street confidence. Gold prices fell 50 ­percent in the 20 months following Burns’ intervention (Silber 2012b). But this fix was short-­lived. In the years to come inflation surged back along with an increase in gold prices. 11. Much of the following section, which focuses on the way the Federal Reserve developed an analy­sis that tied inflation to ­union strength in bargaining and its approach to solving it, is drawn from Mitchell (1986). 12. Volcker had earned high praise from the financial sector. But the approach he used to lower inflation, inducing recessions, made politicians very uneasy. ­After all, the reason that politicians so regularly promote cap­i­tal­ist growth is b ­ ecause they worry not ­doing so ­will cost their jobs along with the ­others in the economy. Writing in his diary, on June 6, 1983, about ­whether he should reappoint Volcker or not, Reagan (2007:157) penned, “? do I reappoint him as Chmn. of the Fed Aug. 1 or change. The financial mkt. seems set on having him. I ­don’t want to shake their confidence in the recovery.” Despite his reservations, Reagan reappointed Volcker ­until 1987, when Alan Greenspan took the position ­after Volcker stepped down. 13. With active deregulation policies u ­ nder the Car­ter presidency, an explic­itly probusiness politics began to unfold. But by the time he ran for reelection, high-­profile executives ­were removing their support (Phillips-­Fein 2009:259). 14. Where Reaganomics did differentiate itself clearly from the previous administration was in tax policy, but even in this area the end goal was the same. The supply-­side reason for reducing marginal tax rates was to reduce the amount that government would take out of new earnings, which in turn would generate an incentive to produce more income and thus increase GNP. A reduction in ­these rates meant that the income earner would keep a greater portion of any new earnings that they got (Roberts 1984:13). But as in the Car­ter years, international competition, which was lagging ­behind Amer­i­ca’s key trading partners, and increased inflation put pressure on Reagan to also push down wages. In comparisons between the productivity of the manufacturing sectors of dif­fer­ent countries, the Department of L ­ abor had shown just a 1.7 ­percent growth in Amer­i­ca between 1973 and 1981, while Japan and Germany grew 6.8 ­percent and 4.6 ­percent, respectively (cited in Roberts 1984:70).

NOTES TO PAGES 144–151

189

15. Welfare capitalism is “any ser­vice provided for the comfort or improvement of employees which was neither a necessity of the industry nor required by law” (Brandes 1970:5). It refers to employers’ voluntary provision of nonwage benefits, greater employment security, and employee repre­sen­ta­tion. 16. Michael S. Gordon, “Reflections on Selected Issues of Private Pension Regulation,” Policy Forum, National Journal, August 11, 1984, AFL-­CIO Occupational Safety, Health, and Social Security Department, Unpro­cessed Files, 87-0011, box 10, Meany Archives. 17. Ibid., p. 1547. 18. Andrew H. Cox, “The Impact of ERISA and Related Legislation on the Development of Private Retirement Plans,” remarks to the Department of ­Labor ERISA Advisory Council on Employee Welfare and Pension Benefit Plans, March 15, 1984, AFL-­CIO Occupational Safety, Health, and Social Security Department, Unpro­cessed Files, 87-0011, box 10, Meany Archives. 19. Gordon, “Reflections on Selected Issues of Private Pension Regulation.” 20. Jeffrey D. Mamorsky and Lee T. Polk, “Indemnification and Fiduciary Liability Insurance,” Pension World, August 1976, AFL-­CIO Social Security Department, Unpro­cessed Files, 85-0036, box 1, Meany Archives. 21. Gordon, “Reflections on Selected Issues of Private Pension Regulation.” 22. Ibid., p. 1548. 23. Cox, “Impact of ERISA and Related Legislation on the Development of Private Retirement Plans.” 24. Gordon, “Reflections on Selected Issues of Private Pension Regulation.” 25. Joseph F. Delfico, “Most Underfunded Plan Sponsors Are Not Making Additional Contributions,” April 20, 1993, Testimony Before the Oversight Subcommittee of the Ways and Means Committee, U.S. House of Representatives, 103rd Cong. (April 20, 1993) (Testimony of Joseph F. Delfico, Director, Income Security Issues, U.S. General Accounting Office), AFL-­CIO Department of Legislation, Unpro­cessed Files, 1996-0010, box 3, Meany Archives. 26. Jeffrey Clayton, quoted in Diane Hal Gropper, “The Ordeal of Jeffrey Clayton,” August 1982, AFL-­CIO Social Security Department, Unpro­cessed Files, 85-0036, box 1, Meany Archives. ­ abor shouldered 27. The Pension and Welfare Benefit Program in the Department of L a disproportionately large share of the bud­get cuts imposed on the ­Labor-­Management Ser­v ices Administration by the Reagan administration ­because it had lost out in the po­ liti­cal ­battles with rival programs in the department. Its chief adversary, the program of ­Labor-­Management Standards Enforcement, the department’s only other enforcement arm, is widely viewed as having gained the upper hand in influence and resources. As a monitor of u ­ nion elections and auditor of u ­ nion books, the LMSE enforces the anticorruption provisions of the Landrum-­Griffin Act, which regulated internal u ­ nion affairs. (Gropper, “The Ordeal of Jeffrey Clayton.”) 28. Gropper, “The Ordeal of Jeffrey Clayton.” 29. Ibid., p. 111. 30. “Facciani & Com­pany Memorandum,” March 28, 1988, AFL-­CIO Department of Legislation, Unpro­cessed Files, 1994-0224, box 9, Meany Archives. 31. Delfico, “Most Underfunded Plan Sponsors Are Not Making Additional Contributions.” 32. Cox, “Impact of ERISA and Related Legislation on the Development of Private Retirement Plans.” 33. Special Report. “The Power of Pension Funds,” Business Week, November 6, 1989, AFL-­CIO Department of Legislation, Unpro­cessed Files, 1994-0224, box 11, Meany Archives.

190 NOTES TO PAGES 152–168

34. Martha M. Hamilton, “Hill, Bud­geteers to Look at Fringe Benefits,” Washington Post, August 12, 1984, AFL-­CIO Occupational Safety, Health, and Social Security Department, Unpro­cessed Files, 87-0011, box 10, Meany Archives. 35. Howard C. Weizmann, quoted in “The Power of Pension Funds,” p. 156. 36. “The New Breed of Pensions That May Leave Retirees Poorer,” Business Week, November 6, 1989, AFL-­CIO Department of Legislation, AFL-­CIO Collection, 1994-0224, Box 11, Unpro­cessed files, p. 164. 37. Howard C. Weizmann, quoted in “The Power of Pension Funds,” p. 157. 38. Cox, “Impact of ERISA and Related Legislation on the Development of Private Retirement Plans.” 39. Retirement Protection Act of 1993: Hearings on H.R. 3396, Before the Committee on Ways and Means, U.S. House of Representatives, 103rd Congress. Page 1. (April 19, 1994) (Comments of the American Society of Pension Actuaries), AFL-­CIO Department of Legislation, Unpro­cessed Files, 1996-0010, box 3, Meany Archives. 40. Retirement Protection Act of 1993: Hearings on H.R. 3396, Before the Committee on Ways and Means, U.S. House of Representatives, 103rd Cong. Page 5. (Testimony of Robert Reich, Secretary of ­Labor) (April 19, 1994), AFL-­CIO Department of Legislation, Un­ pro­cessed Files, 1996-0010, box 3, Meany Archives. 41. Ibid. 42. Ibid. 43. Retirement Protection Act of 1993: Hearings on H.R. 3396, Before the Committee on Ways and Means, U.S. House of Representatives, 103rd Cong. Page 2. (Testimony of William S. Hoffman, Director of the UAW Social Security Department) (April 19, 1994). AFL-­CIO Department of Legislation. Unpro­cessed Files, 1996-0010, box 3. Meany ­Archives. 44. Bruce Western’s (1997:151) analy­sis shows that growth in ser­v ices was not a primary cause of declines in density. In the 1970s, u ­ nions generally grew in many OECD countries (not including Amer­i­ca), despite a decrease in manufacturing jobs, just as they did in the following de­cade, when ser­v ices grew ­there too. 45. ­These figures do not imply that 21 ­percent of all contributions to DC plans ­were for ­union workers. Many firms with some of their workforce ­unionized provided separate retirement schemes for their top-­tier employees, such as ­those in dif­fer­ent levels of management that ­were not affiliated with a ­union. ­These employees typically received a DC pension as a supplement to a DB one. Also plans can be set up that have both DB and DC features; ­these are known as hybrid pension plans (McGill et al. 2005). 46. Gordon, “Reflections on Selected Issues of Private Pension Regulation.” 6. CONCLUSIONS

1. Even more “hidden,” welfare states can also redistribute t­ oward the wealthy through tax deductibles and loopholes (Howard 1997). 2. Some skeptics might worry that this mention of “balance of power” is simply interest group politics sneaking in the back door of my argument. ­After all, I have framed much of my own intervention as a critique of straightforward interest-­group politics. But keep in mind that the balance of class forces is a selecting mechanism that “chooses” from within a range of pos­si­ble options. Policymakers are motivated above all ­else by the structural mechanism, the need to maintain cap­i­tal­ist accumulation, and ­there are many ways to do this. The balance of class forces selects the par­tic­u­lar policy path. 3. Minutes of the Sub-­Committee on Com­pany-­established Employee Benefit Programs, November 2, 1949, NAM Collection, Committee Rec­ords, box 154, Committee Minutes 1949, November–­December folder, Hagley Library.

NOTES TO PAGES 170–173

191

4. One pos­si­ble criticism of this framework could be that pension development in the United States is r­ eally about cap­i­tal­ists getting what they want from the beginning. And the reason for this development since the postwar period is that businesses have become more or­gan­i­za­tion­ally strong while u ­ nions have become weaker, g­ oing from the offensive to backtracking through concessions. Is it pos­si­ble that I have overemphasized the role of policymakers as the protectors of capital and its interests and that this history is, ­after all, simply one of the balances of class forces? As business interests go, ­there is no gainsaying that the private pension system has developed in ways that are more consistent with their interests than with ­labor’s. But I have tried to argue that the notion that pension marketization was driven by a concerted effort by business is far too simplistic a view. In the first episode, we can see that it is flatly inaccurate ­because businesses opposed the establishment of collectively bargained plans. The state literally forced their hand. And even in the ­later rise of 401(k)s, it was a bit more complicated. While businesses saw the form of DC plans as preferable, it is not clear that they would have ­adopted them without the push from the growing administrative costs of operating a defined-­benefit plan. Class interests are certainly often at loggerheads in cap­i­tal­ist society, but it is a ­mistake to think that politicians are simply responding to better or­ga­nized groups as the pluralists suggest or sectors of capital as some Marxists do. Instead, policymakers have their own unique set of interests and constraints. Above all e­ lse, they are constrained by the structural power of capital rather than par­tic­u­lar cap­i­tal­ists. The need to maintain a healthy business environment pushes them to intervene, sometimes against ­labor but also sometimes against cap­i­tal­ists. Marketization in Amer­i­ca’s old-­age security system was the largely the inadvertent consequence of policymakers governing for capitalism in just this way. Yet the par­tic­u­lar ways policymakers intervened and how ­those very interventions spurred changes in the private pension system ­were ­shaped by contingent features of the balance of class forces in the United States. This book has tried to articulate the precise way in which that occurred since the New Deal. 5. An impor­tant insight is that cap­i­tal­ists themselves can spur on ­these kinds of crises through “capital strikes” (Kalecki 1943; Block 1977; Bowles and Gintis 1986). By withholding their investments, firms can indirectly pressure states and policymakers. A classic example was the aftermath of Salvador Allende’s election in Chile in 1970. During the three years before he was murdered and his government toppled by a dictatorship, Chilean capital used its investment power to sap the society of resources. 6. Philip Murray, ­Labor Day Speech 1947, UAW President’s Collection: Walter P. Reuther, box 142, PAC 1947 folder, Reuther Archive. 7. George Meany, “Or­ga­nized ­Labor’s Program to Or­ga­nize the Legislative Halls,” UAW President’s Collection: Walter P. Reuther, box 432, 1956, Reuther Archive.

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Index

401(k) plans, 34; and 2008 financial crisis, 1, 13, 163; and beneficiary performance, 11–12, 163; and capitalist interests, 36, 132–34; and inflation, 127; and Internal Revenue Code, 131; introduction of, 3–4, 17, 132–34, 169–70; overview, 129–32; and profit-sharing plans, 159; and risk, 1, 12, 127; in service sector, 157; size of assets, 87. See also defined-benefit (DB) and defined-contribution (DC) plans 2008 financial crisis: effect on 401(k)s, 1, 13, 163; Emergency Economic Stabilization Act, 172; and Occupy Wall Street, 172; and replacement rates, 130; and subprime mortgages, 89, 94. See also recessions actuaries, 80–81, 153, 173 AFL-CIO: Committee on Benefit Funds, 90–91; and Democratic Party, 73–76, 116; Executive Committee, 120; Executive Council, 116; formation, 5; Mortgage Investment Trust, 102; Office of Housing and Monetary Policy, 116; opposition to pension reform, 106–7; and pension fund investments, 78, 91–93; Social Security Department, 106, 118; support for Carter, 117; support for ERISA, 39, 106–7; wage guideline programs, 117 Amalgamated Clothing and Textile Workers Union (ACTWU), 105, 115, 186n51 Amalgamated Clothing Workers of America (ACWA), 59, 71, 141, 179n6 American Federation of Labor (AFL): anticommunism in, 99; and Democratic Party, 73–76; efforts to expand Social Security, 38, 179n6; farmworker organizing, 45, 73–75, 167; and Labor-Management Conference, 62–65; merger with CIO, 5; pension organizing, 38; support for solidaristic legislation, 48, 49. See also AFL-CIO; Labor’s League for Political Education (LLPE) American Federation of State, County, and Municipal Employees (AFSCME), 120 American Federation of Teachers (AFT), 120 American Trucking Association, 103; and Bretton Woods, 135

Association of Private Pension and Welfare Plans, 152 Australia, 8 auto industry: austerity in, 140; in Canada, 186n54; in Japan, 107–8; strikes, 32, 35, 67, 72–73, 94, 102–3 Auto-Lite, 73 Avon, 88 balance sheet reserve system, balance sheet reserve system, 80 Barber, Randy, 115 Battle of the Overpass, 59 Benna, Ted, 159 Bethlehem Steel Company, 68 Bevan, E. Cyril, 99 Bowles, Chester, 98 Boyle, Anthony, 105 Bracero Program, 74–75 braceros, 183n56 Bretton Woods, 76, 135 Bridges, Harry, 180n14 Briggs Manufacturing Company, 72 Brotherhood of Locomotive Engineers, 66 Brotherhood of Railway Trainmen, 66 Brown, Jerry, 118 building and construction trades, 16, 39, 101–2, 105, 142 Burke-Hartke bill, 108 Burns, Arthur, 137, 188n10 Bush, George W., 128 Butler, Landon, 116 Byrd, Harry F., 96, 124 California: agricultural industry, 45, 74–75; state pension funds, 118; strikes in, 59 Canada, 8, 19, 40, 79–80, 121–24, 186nn53–54 Canadian Auto Workers, 186n54 capitalism: and accumulation, 4, 23–25, 34, 164, 176n12; and crises, 15, 23–31, 34–35, 135, 136, 158–59, 164, 166, 170–73, 176n10, 191n5; disinvestment, 28–29, 177n21; politicians’ intervention for, 21–23, 25–26, 28, 29–30, 177n22; and poverty, 27; regulatory functions of welfare provisions in, 22–23; and social

213

214 INDEX

capitalism (continued) unrest, 23, 25; varieties-of-capitalism theory, 22–23; and the welfare state, 4–5, 18–25, 163–65, 189n15 Carter, Jimmy: Commission on Pension Policy, 117–18; Council of Economic Advisors, 120; and deregulation, 188n13; economic revitalization plan, 40, 79, 114–21, 123; failed re-election bid, 17, 79, 116, 119, 125; federal spending under, 135; and inflation crisis, 36, 135–38, 139–40, 159; labor support for, 116; and solidaristic institutions, 118; and unemployment, 139–40 Case bill, 96 Chicago School economics, 85–86, 187n9 Chile, 191n5 Chrysler, 102–3, 140, 141 Citigroup, 94 Civil War, 19 class struggle: and inflation crisis, 136; and policy, 30, 38, 79; during postwar period, 38–39, 55–56, 59–65, 76, 94, 115, 166–67; and proliferation of private pensions, 52; as selecting mechanism, 190n2; and shift to DC plans, 153–58; and state autonomy, 178n24; and structural contingency, 191n4; and Taft-Hartley Act, 97, 168–69; during World War II, 56–59 Clayton, Jeffrey, 147–48, 159 Clinton, Bill, 119, 150, 150–51, 159, 170 Coca-Cola, 88 Cold War, 56 collective bargaining: after Taft-Hartley, 101–5; and CIO, 75; employer opposition to, 87; NLRB rulings, 33, 67; of pensions, 3, 11, 14–16, 30–33, 38, 56, 67, 67–70, 82, 163, 167–69; Supreme Court rulings, 33; and Truman administration, 32–33; and UAW, 75; and War Labor Board, 61; during World War II, 32, 58, 183n55 Committee for Economic Development, 109 Communist Party: exclusion from NLRB, 97; purged from unions, 56, 59, 67, 99; role in building labor movement, 185n24; wartime alliance with Democrats, 58, 180n14 Congressional Black Caucus, 120 Congress of Industrial Organizations (CIO): anticommunism in, 56, 59, 67, 99; and Democratic Party, 16, 44–45, 58–59, 70–76, 167, 173, 182n49; Inland Steel Company ruling, 32–33, 67; and Labor-Management Conference, 62–65; and liberalism, 71; and New Deal coalition, 38; Operation Dixie,

95–96; and pension fund investments, 78, 94–95, 102–3; pension organizing, 5, 38, 75; and Roosevelt, 58–59, 62–65; Should Labor Have a Direct Share in Management? 95; Social Security Department, 102; and Social Security expansion, 38, 44, 46, 167; support for ERISA, 179n6; support for Social Security Act, 48; support for solidaristic legislation, 48, 49; and Truman, 51. See also AFL-CIO; Congress of Industrial Organizations Political Action Committee (CIO-PAC); Labor’s Non-Partisan League Congress of Industrial Organizations Political Action Committee (CIO-PAC), 71–73, 183nn57–58 Conkey, Elizabeth A., 99 cost-of-living adjustments (COLA): to Social Security benefits, 47; to wages, 141; crisis management theory, 23–31, 164, 176n12, 177n16, 186n46 Davenport, Russell, 185n23 defined-benefit (DB) and defined-contribution (DC) plans: administrative and regulatory costs, 17, 34, 41, 150–53, 152; asset allocation, 84; and beneficiaries, 127, 163; higher premiums on, 149; hybrid plans, 190n45; as inadvertent result of anti-inflation tactics, 128; legal regulations on, 17, 144–45, 153; number of workers with, 131, 154; overview, 129–32; and public-sector workers, 155; and regulatory costs, 17, 34, 41; shift away from, 3–4, 15, 40, 127, 153–58, 170; shift from DB to DC plans, 3–4, 15, 31, 34, 40, 127, 153–58, 169–70, 170; for top-tier employees, 190n45; underfunding of plans, 153. See also 401(k) plans deindustrialization, 40–41, 78, 91, 117, 123, 125 Delta Air Lines, 91 Democratic Party: and AFL, 73–76, 116; anticommunism in, 124; blocking efforts to expand Social Security, 47; and capitalist accumulation, 37; and CIO, 16, 44–45, 58–59, 70–76, 167, 173, 182n49; Democratic National Committee, 99; Democratic National Convention, 99, 118; and Humphrey-Hawkins bill, 120; and inflation crisis, 17; lack of support for welfare expansion, 49; and neoliberalism, 140; Northern wing and New Deal coalition, 16, 38, 44–45, 124; relationship with labor movement, 15, 38, 47, 56, 57, 71, 98–99,

INDEX 215

116–19, 167, 182n48; Southern wing’s coalition with Republicans, 16, 33, 47, 50, 71, 95–97, 98–99, 124, 167, 178–79n29; and Taft-Hartley Act, 33, 35; and two-party system, 178n28; and white supremacy, 47, 50; during World War II, 57 deregulation, 128 Detroit, 67, 72, 102–3 Dewey, Thomas, 75 DiGiorgio Fruit Company, 74 Digital Equipment, 91 Dill-Connery Bill, 48 disability benefits. See social welfare benefits Dole, Bob, 151–52 Donovan, Raymond, 143 Dotson, Donald L., 143, 148 Drucker, Peter, 77 Dubinsky, David, 71 Du Pont Corporation, 6, 84 Eastman Kodak, 91 Economic Growth and Taxpayer Relief Reconciliation Act, 145 Economic Recovery Tax Act, 145 Egger, Roscoe Jr., 143 Eisenhower, Dwight, 75, 99, 105, 125 Elections: of 1932, 171; of 1936, 70–71; of 1938, 47, 71; of 1942, 71; of 1946, 16; of 1948, 75; of 1976, 139; of 1980, 79, 116, 119, 125; effects of economic downturns on, 29, 164, 171 Emergency Economic Stabilization Act, 172 Employee Retirement Income Security Act (ERISA) and actuaries: and administrative costs, 105, 127; core provisions, 146–47; and financialization of pension funds, 39, 40, 94, 105–13, 125, 126; legislation following, 143–50, 150–53; and multiemployer pension plans, 17, 79; passage of, 33, 35–37, 145, 169; and PBGC, 146–51; “prudent person rule,” 110–13; revisions and amendments, 34, 150; and Studebaker collapse, 36, 107; union opposition to, 105; union support for, 39, 158, 185n36; and U.S. Department of Labor, 185n32 Enron, 131–32 Environmental Protection Agency, 135 Equitable Life Insurance, 112 equity capital, 77, 79, 87, 89, 110, 168 Europe: economic competition from, 108, 140, 159, 188n14; postwar markets in, 44, 76, 166–67 Exxon, 91

Fair International Trade Act, 108 Fama, Eugene, 85, 111 Federal Reserve: efforts to discipline labor, 17, 36, 134, 169–70, 188n11; Federal Open Market Committee, 137; and inflation crisis, 36, 116, 120, 134–40, 169–70, 188n10; and interest rates, 137–39, 157; monetary policy under Volcker, 137–39, 159 Federal Welfare and Pension Plans Disclosure Act, 111, 144–45, 146 Fédération des travailleurs et travailleuses du Québec (FTQ), 121–24 fiduciaries: advantages for employers, 82–83, 184n9; bad performance of, 88–89, 92; and claims of ownership, 83; ERISA regulations on, 109–12, 146; and financialization of pension funds, 77–78, 115, 168–69, 184n5; mimicking Wall Street tactics, 16, 84, 85–89, 124–25, 163; personal liability, 146; “prudent person rule,” 110–13; socioeconomic status of, 83–84 Flint, Michigan, 59 Food Stamp Program, 135, 161 Ford, Gerald, 107, 116, 120 Ford Motor Company, 59, 68, 91, 180n19 Frankensteen, Richard, 59 Friedman, Milton, 85 GATT, 108–9 Gearhart Bill, 50 General Electric, 109 General Motors, 55, 86, 94, 108, 109, 110 Germany: economic competition from, 107–8, 188n14; social insurance in, 161 G.I. Bill, 76, 180n20 Gindin, Sam, 186n54 Golden, Clinton, 94 Gordon, Michael S., 158 government bonds, 77, 87, 163 Great Depression: early pension funds, 19; and failure of union-run pension schemes, 21; New Deal as response to, 13, 171–72; strikes during, 72–73, 172, 183n51; and Townsend clubs, 2 Great Migration to the North, Second, 51 Great Society programs, 180n11 Green, William, 63 Greenspan, Alan, 188n12 Halliburton, 91 Hatch, Orrin, 148 Hatfield, Henry, 179n5 Hatters, Cap and Millinery Workers, 179n6

216 INDEX

Hawkins, Augustus, 186n51 health care. See social welfare benefits Hillman, Sidney, 59, 71 Hinckley, John Jr., 142 Hoffa, Jimmy, 103–5 Hoffman, William S., 153 Hoover, Herbert, 171 Housing Investment Trust, 120–21 Humphrey-Hawkins Full Employment bill, 119–21, 140 IBM, 88, 91, 109 ideology: and Cold War, 56; and economic investment, 28, 164; and industrial relations, 34; and neoliberalism, 37, 128, 187n1 individual retirement accounts (IRAs), 149–50, 178n28 inflation: 1970s political crisis, 17, 114–15, 128, 134–43, 159, 169–70, 188n10; and Carter administration, 36, 114–21; and Federal Reserve, 36, 137–39; and Humphrey-Hawkins Full Employment bill, 119–21; “Nixon Shock,” 135–36; and Reagan administration, 36; and Republican Party, 17, 36, 135–36; and rise of 401(k) plans, 127–59; and value of Social Security checks, 42, 46, 50, 178–79n29; and Vietnam War, 136; and Volcker “shocks,” 36, 116, 135, 137–39, 159; during wars, 135 Inland Steel Company, 32–33, 67 Internal Revenue Service (IRS), 111–12, 143, 146. See also taxation International Association of Machinists and Aerospace Workers (IAM), 92–93, 109, 113, 116, 120, 141 International Brotherhood of Electrical Workers (IBEW), 113 International Foundation of Employee Benefit Plans, 111 International Ladies’ Garment Workers Union (ILGWU), 105, 179n6 International Longshore Workers Union, 180n14 International Typographical Union, 179n6 International Union of Bricklayers and Allied Craftworkers (BAC), 113 International Union of Electrical Workers (IUEW), 90–91, 120 International Union of Mine, Mill, and Smelter Workers, 179n6 International Union of Operating Engineers (IUOE), 116

Japan: auto industry, 107–8; economic competition from, 107, 140, 159, 188n14; textile industry, 107; US markets in, 76, 166 J.C. Penney, 91 Job Security Assistance Act, 108 Johnson, Lyndon B., 135, 161, 180n11 Johnston, Alvanley, 66 Kells, George D., 99 Kemp-Roth bill, 135 Kennedy, John F., 105–6 Kennedy, Robert F., 116 Kennedy, Ted, 116–17 Keynesianism, 37, 139–40, 187n1 King, Coretta Scott, 186n51 Kirkland, Lane, 116–19 Kmart, 91 Korean War, 76 Krug, J. A., 67, 98 Laberge, Louis, 122–24 Labor-Management Services Administration, 189n27 Labor’s League for Political Education (LLPE), 45, 75, 183nn57–58. See also American Federation of Labor (AFL) Labor’s Non-Partisan League, 71 labor-sponsored investment funds (LSIFs), 121–24 Landrum-Griffin Act, 189n27 Latimer, Murray Webb, 81 law: and development of private pensions, 20; labor law, 33, 56; “prudent person rule,” 110; trust, 83; workers’ compensation, 175n4 Lévesque, René, 122–23 Lewis, John L., 32, 57–58, 66–67, 70, 73, 76, 94, 98, 168, 182n41, 183n53 Marine Engineers Beneficial Association, 113 Markowitz, Harry, 84–85, 111 Marriott, 91 Marshall Plan, 76 Marx, Karl, 23–24, 176n12, 177n15 McClellan Committee, 116 McDonald’s, 91 Meany, George, 39, 106, 107, 116, 120, 173 Medicaid, 135 Medicare, 165 Merrill Lynch, 94 Metzenbaum, Howard, 92 Miller, Ben, 103–4 Miller, G. William, 137 Mills bill, 108

INDEX 217

Milwaukee Building Trades United Trust Fund, 113 Minneapolis general strike, 73 Minneapolis Municipal Employees Retirement Funds, 113 Mitchell, James, 142 Mondale, Walter, 119 Monsanto, 109 Morse, Wayne, 100 Mosher, Ira, 97 Motorola, 109 multiemployer pension funds, 16–17, 39, 79, 101–5, 105, 106, 106–7, 112, 145, 149, 151, 158, 185n36 Multiemployer Pension Plans Amendment Act, 145, 149, 151 Murray, Philip, 63, 71, 95, 173 Murray, Reid F., 49 National Association of Manufacturers (NAM) Committee on Management’s Right to Manage, 64, 183n52; efforts to avoid collective bargaining over pensions, 33, 68, 95, 167; emphasis on individual savings, 133; Employee Health and Benefits Committee, 133; and Labor-Management Conference, 62–65; on labor’s alliance with Democratic Party, 71; and neoliberalism, 187n1; opposition to Wagner Act, 39; and single vs. multiemployer plans, 106; and speculative investment of pension funds, 87–88, 90; Sub-Committee on Company-Established Employee Benefit Programs, 83, 95; and Taft-Hartley Act, 97–98, 101, 124 National Defense Mediation Board, 58 National Farm Labor Union (NFLU), 74–75 National Industrial Conference Board (NICB), 6, 54, 65, 80, 180n12 National Industrial Recovery Act, 70 National Labor Relations Act (NLRA). See Wagner Act National Labor Relations Board (NLRB): and 1952 steel strike, 69–70; anticommunism in, 97; delays and disputes by employers, 157; Inland Steel Company ruling, 32–33, 67; and Supreme Court, 67–68, 167; and Taft-Hartley Act, 98, 183n55; and union support for Truman, 73; during World War II, 183n55 National Retirement Risk Index (NRRI), 130 National War Labor Board (NWLB), 35, 54, 58–59 neoliberalism: and austerity, 134, 138, 140; and deregulation, 40, 128, 151; in Federal

Reserve, 137–39; as ideology, 37, 187n1; and multiemployer pension plans, 158; and pension fund investments, 78; and privatization, 40; and Reagan administration, 36–37, 40, 159; and single-employer pension plans, 148; state-managed transition thesis, 128; weak-state intervention thesis, 128 New Deal, and CIO, 38; effect of Taft-Hartley on, 97; and proliferation of private pensions, 9, 31–32, 54, 165–66; as response to capitalist crisis, 172; and solidaristic institutions, 2–3, 13, 42; and Wagner Act, 54 Nixon, Richard, Commission on International Trade and Investment Policy, 109; and ERISA, 125; “Nixon Shock,” 135–36; and Social Security expansion, 21, 43, 47, 165; trade policy, 107–9; Watergate scandal, 120 North American Aviation, 59 North Will Rise Again, The, 115 Occupational Safety and Health Administration, 134–35, 184n16 Occupy Wall Street, 172 Office of Defense Transportation, 66–67 Office of Economic Stabilization, 98 Office of War Mobilization and Reconversion, 66–67 Oil Workers International Union, 60, 179n6 OPEC oil embargo, 88, 140 Organisation for Economic Co-Operation and Development (OECD), 1, 14, 136, 175n1 (chap. 1), 175n1 (chap. 2), 190n44 O’Toole, Donald L., 97 Parti Québécois, 122–24 path dependency, 5, 13, 19–20, 30, 149 Patterson, Robert P., 99 Paulson, Henry Jr., 108 pay-as-you-go pension funds, 94, 168; pay-as-you-go, 80, 183n2 Pension and Welfare Benefit Program, 189n27 Pension Benefit Guaranty Corporation (PBGC), 110, 129, 146 pension fund investments: in antiunion companies, 33, 90–91, 115, 116; investment process, 80–84; in overseas enterprises, 91–92, 115; in solidaristic projects, 33, 78–80, 86, 93, 101–2, 113, 114–25, 116, 163; in speculative markets, 16, 86–89, 111; Pension Protection Act, 145, 149–50, 165 pensions: administrative costs, 53; asset distribution, 87; contributory, 81; corporate misuse of, 115, 131–32, 153; early pension

218 INDEX

pensions (continued) funds, 21, 43, 47–48, 81, 168, 179n2; group annuity contracts, 82, 184n4; legal regulations on, 145; noncontributory, 81–82; during postwar period, 31, 44, 51; size of assets, 1, 15, 86–89, 89, 183n1; trustee boards, 15, 77–78, 82, 100–101, 102–3, 112, 143; vesting and funding minimums, 105, 145 Pepper, Claude, 100–101 Perkins, Frances, 63 Peterson, Peter, 108 political institutionalism, 18–20, 52, 175n2, 177n14 power resources theory, 20–21 Professional Air Traffic Controllers Organization (PATCO), 142–43 profits, 23, 81, 159, 170, 176n7, 186n52 Public Investment Task Force, 118 Pullman strike of 1894, 59 Quebec, Canada, 40, 79–80, 121–24, 125, 186n53 racism, 47, 50, 50–51 railroad industry: pensions in, 14, 43, 179n5; strikes, 59, 65–66, 70 Railroad Labor Act, 66 Railway Employees National Pension Association, 179n5 Reagan, Ronald: assassination attempt on, 142; conservative coalition, 17; Council of Economic Advisors, 142; and ERISA, 34, 37, 147; employer offensive, 41, 123–24, 157; federal spending under, 135, 189n27; increase in retirement age under, 165; and IRAs, 149–50; and inflation crisis, 36, 117, 118, 134–36, 138–39, 140–41, 159, 169–70; monetary policy under Volcker, 138–39, 188n12; and neoliberalism, 36–37, 128; PATCO strike, 142–43; Program for Economic Recovery, 141; and rise of 401(k) plans, 17, 132, 134–50; supply-side economics, 140–43, 159, 187n9, 188n14; and unions, 40–41, 134, 140–43, 142; victory over Carter, 79, 116, 119, 125 recessions: of 1945, 60, 166; of 1949, 76; of 1970s, 36, 88; of 2002, 2; Great Recession of 2008, 1–2, 94, 172 (see also 2008 financial crisis); and spending, 135; and Volcker “shocks,” 36, 116, 135, 138–39, 159 Regan, Donald, 139 Reich, Robert, 153 Republican Party: in 1946 election, 16, 33, 39; anticommunism in, 185n23; blocking efforts

to expand Social Security, 47, 49; and capitalist accumulation, 37; coalition with Southern Democrats, 16, 33, 47, 95–97, 98–99, 124, 167, 178–79n29; and inflation crisis, 17; during Reagan era, 37; and reconversion, 63; trade policy, 108–9; and unions, 47, 71, 95, 98–99 retirement, age of, 135, 165; collective action to improve, 173; and inequality, 10, 42; Retirement Equity Act, 145, 149; workers without savings for, 1, 2, 175n2 Retirement Equity Act, 145, 149 Reuther, Walter, 15, 55, 102 Revenue Act of 1926, 53 Revenue Act of 1942, 52–53 Revenue Act of 1978, 145 Rif kin, Jeremy, 115 risk: and 401(k) plans, 127; and collective bargaining, 11–13; and DB vs. DC plans, 34, 127, 129, 132–34; and distributional outcomes, 12–13; and financialization of pension funds, 77–78, 84–85, 110; and laborsponsored investment funds (LSIFs), 122; and means-tested programs, 11–13; and private vs. public benefits, 10, 11–13; quantified yardsticks, 83; reapportionment in welfare states, 160–63; social, 10; and solidaristic institutions, 2, 10, 161–63; theories of, 84–85; of trust funds, 82–83 Roosevelt, Franklin Delano, and New Deal, 2–3, 172, 179n5; and program universality, 48, 162; and Sidney Hillman, 71; and unions, 58–59, 59, 70, 73; victory over Hoover, 171; and Wagner-Murray-Dingell Bill, 49, 167; as wartime leader, 57, 59 Roosevelt, James, 99 Rothenburg, Stanley, 116 Rugg, Arthur P., 110 San Francisco general strike, 73 Schecter, Harry B., 116 Schultze, Charles, 120 Schwellenbach, Lewis B., 63 Seidman, Bert, 106 service sector, vs. goods-producing industries, 154–59; growth of, 41, 154–58; lack of unionization, 17, 41, 128, 170; regulatory costs in, 128 Sharpe, William, 85 Sheinkman, Jacob, 115 Shultz, George, 142 single-employer pension funds, 39, 101–5, 106, 106–7, 145, 148, 153, 158, 185n36

INDEX 219

Single-Employer Pension Plan Amendments Act, 145 Small Business Job Protection Act, 145, 150 Smedley, Larry, 118 Smith-Connally Anti-Strike Act of 1943. See War Labor Disputes Act (WLDA) Social Security Act of 1935 (SSA): and Murray Webb Latimer, 81; passage of, 21, 45, 73, 179n5; path-dependent features, 19–20; and proliferation of private pensions, 19, 52, 54, 178n26; as response to capitalist crisis, 172; revisions and amendments, 42, 46, 50, 180n11; and solidaristic institutions, 162; and unions, 73, 179n6; workers excluded from, 3, 95 Social Security benefits, cost-of-living adjustments (COLA), 47; cuts under Reagan, 135; during Great Recession, 1–2, 13, 130; legislated benefit increases, 46, 179n29; predicted decline, 14; private pensions as supplement to, 42; replacement rates, 31, 38, 45–47, 50, 130, 178–79n29; size of program, 9; and standard of living, 47; and unions, 15, 21, 38 Social Security Board, 19, 49, 179n6 social welfare benefits, 81; and beneficiary performance, 11–12, 163; cash benefits, 49; child care, 8–9; and collective bargaining, 11; disability benefits, 8, 10, 49, 67, 161; disaster insurance, 67; economic function of, 23–25; employer-provided, 8–9, 11, 179n2; health care, 8–9, 11, 49, 67, 161; job training, 8; means-tested, 8, 11, 46; social insurance plans, 8; and state policies, 9; survivors’ insurance, 49, 67; Temporary Assistance for Needy Families (TANF), 11; unemployment insurance, 161, 180n8; as unintended secondary policy changes, 27, 127; universal transfers, 8; workers’ compensation, 175n4 solidaristic retirement programs: and New Deal, 2–3; and pension fund investments, 33; and risk, 2, 10; and welfare states, 10–11, 161–63 Solidarity Fund (Quebec), 40, 79–80, 121–24, 125, 186n53 Southland Corp., 91 Stabilization Act of 1942, 53 Stacey, Walter P., 63 Standard Oil, 109 Steel Industry Board, 68, 69 Stevenson, Adlai, 75 Stockman, David, 135 stock market: betas, 85; and “blue chip” companies, 88, 111; Dow Jones Industrial

Average, 86, 164; during Great Recession, 1, 89, 94, 172; investment of pension fund assets into, 15, 77–78; postwar expansion of, 88; speculative bubbles, 85–86, 89, 94, 171 strikes: agricultural, 65, 73–75; in auto industry, 25, 32, 55, 59, 67, 72–73, 94, 102–3; of capital, 15, 191n5; Chrysler, 102–3; effect on labor costs, 56; in electrical industry, 65; Flint sit-down strike, 59; General Motors, 55, 102; general strikes, 73; during Great Depression, 72–73, 172, 183n51; Los Baños, 74; in meat-packing industry, 65; in mining, 35, 65–70, 137; North American Aviation, 59; in oil industry, 60; at PATCO, 142–43; postwar strike wave, 15, 35, 55–56, 59–65, 94, 166–67; in railroad industry, 59, 65–70; sit-down, 59, 183n53; in steel industry, 32–33, 65, 67, 68, 69–70, 94; strikebreakers, 55, 59, 60, 60–70, 94, 167, 181nn39–40; and Truman administration, 32–33, 60–65; wildcat, 140, 142; during World War II, 58–59 structural contingency, 4–5, 16, 28–41, 160–73, 178n25 Studebaker plant closure, 36, 107 Sullivan, Gael, 99 Supreme Court, 33, 67–68, 157, 167, 179n5 Sweden, 79, 182n47, 186n53 Taft, Robert, 16, 97, 100 Taft-Hartley Act of 1947: anticommunist provisions, 67, 99, 124, 184n23; ban on campaign contributions, 75; bipartisan support for, 33, 35, 97–100, 124, 168–69; and capitalist growth, 35; effect on NLRB, 98, 183n55; effect on unions, 56, 100; and financialization of pension funds, 16, 39, 40, 78–79, 94–105, 124, 126; and Inland Steel ruling, 67; “prudent person rule,” 110; Section 302, 100; and union representation on trustee boards, 112, 144–45 taxation: and deferred compensation, 83; excess-profits tax, 81; excise tax, 143, 151; as funding for Social Security, 48; incentives for companies to offer private pensions, 43, 52–53, 81–82, 161; incentives for IRAs, 178n28; income tax, 52–53; Internal Revenue Code, 80–81, 131, 144–45, 150–51 ; loopholes, 190n1; of multinational corporations, 108; under Reagan, 117, 118, 187n9; state dependence on revenues, 29; during World War II, 53, 81. See also Internal Revenue Service (IRS); and individual acts of Congress

220 INDEX

Tax Equity and Fiscal Responsibility Act, 145, 149 Taxpayer Relief Act, 145, 150 Tax Reform Act, of 1976, 145; of 1986, 145, 150, 151 Teamsters: Central States Pension Fund (CSPF), 103–5, 112, 142–43, 148; declining membership, 141; and Minneapolis general strike, 73; and multiemployer pension plans, 39; opposition to ERISA, 105; relationship with Reagan, 17, 142 technology, 51, 94, 180n11 Temporary Assistance for Needy Families (TANF), 11 Texas Instruments, 90–91 textile industry, 35, 95–96, 107 Three Worlds of Welfare Capitalism (EspingAndersen), 8 TIAA-CREF, 89 Townsend clubs, 2, 175n2 Townsend Plan, 48 Trade Reform Act, 108–9 Treasury Department, 53, 139 Truman, Harry S.; and anticommunism, 99; and Case bill, 96; and CIO, 51; formation of Steel Industry Board, 68; industrial policy, 64–65; Labor-Management Conference, 35, 62–65, 94, 181n39, 183n52; President’s Commission on Migratory Labor, 183n56; and reconversion, 44–45, 60–61, 76, 167; and Social Security expansion, 51; and strikes, 15–16, 32–33, 35, 60, 65–70, 94, 167, 181nn39–40, 182n41; and unions, 15–16, 38, 44, 60–70, 73–76, 96–97; veto of Gearhart Bill, 50; veto of Taft-Hartley, 99 Turner, J. C., 116 unemployment rates, 119–21, 139, 141 Union Labor Life Insurance Company, 101–2 unions: anticommunism in, 56, 58–59, 67, 97, 99, 180n19; blame for inflation crisis, 136–37, 141, 169–70; and capitalist crises, 170–73; and Democratic Party, 73–76, 116–19, 182n48; density, 72, 117, 125, 141, 154–58, 173, 190n44; efforts to expand Social Security, 15, 21, 167; electoral work, 16, 38, 44, 116–19, 173, 182n47, 186n45; in emergent sectors, 17, 41, 128, 170; during Great Depression, 59, 72–73, 172, 179n2; as interest group, 26; and Wagner Act, 33; no-strike pledge, 35, 57–59, 180n14; opposition to ERISA, 105; in OECD countries, 190n44; organizing for private

pensions, 52, 54, 56; during postwar period, 14–16, 15, 21, 47, 55–56, 59–65, 76, 94, 166–67; public sector, 142, 155; representation on pension committees, 112; and returning soldiers, 55; right-to-work laws, 56; structure of, 58; struggle to control investment of pension fund assets, 16–17, 33, 39, 77, 87, 91–93, 93, 95–105, 168–69, 184n9; support for ERISA, 39, 158, 185n36; support for FDR, 73; support for Jimmy Carter, 116; support for Truman, 73–76; in Sweden, 79, 186n53; and Taft-Hartley Act, 33; wage gains of, 17; weakening of, 40, 119, 122, 128, 140–43, 149, 169–70; during World War II, 72. See also collective bargaining; strikes; and names of individual unions United Auto Workers (UAW), 102; and Chrysler, 102–3, 140; and collective bargaining, 15; declining membership, 141; Ford Motor Company strike, 59, 68, 180n19; and General Motors strike, 55, 94, 102; North American Aviation strike, 59; and no-strike pledge, 58–59; on PBGC, 153; pension organizing, 75; and single-employer pension plans, 39; support for ERISA, 185n36; support for Humphrey-Hawkins bill, 120; support for Ted Kennedy, 116; and Wagner Act, 48 United Brotherhood of Carpenters and Joiners of America (UBC), 39, 106 United Farm Workers (UFW), 120 United Kingdom: asset-to-GDP ratio, 183n1; Beveridge Plan, 49; comparison to US pension system, 19; National Health Service, 161; poverty among seniors in, 14; wage guideline program, 116 United Mine Workers (UMW): blame for inflation crisis, 137; and Democratic Party, 70; opposition to ERISA, 105; and pension fund investments, 100; strikes, 32, 65–70, 182n42 United Steel Workers (USW): declining membership, 141; Inland Steel Company ruling, 67; and pension fund investments, 95; representation on Commission on International Trade and Investment Policy, 109; and single-employer pension plans, 39, 69, 106; strikes, 32–33, 65, 68, 94; support for ERISA, 106–7, 185n36; support for Humphrey-Hawkins bill, 120; United Textile Workers, 179n6 U.S. Chamber of Commerce (USCOC): assessment of Social Security, 45; and

INDEX 221

collective bargaining, 33, 95; and LaborManagement Conference, 62–65; and neoliberal ideology, 133, 187n1; opposition to Wagner Act, 39; and single vs. multiemployer plans, 106; and Taft-Hartley Act, 124 U.S. Congress: Committee on Banking, Finance, and Urban Affairs, 138–39; House Committee on Education and Labor, 100; House Ways and Means Committee, 48, 109, 143; Joint Committee on Taxation, 149; Joint Economic Committee, 138; Senate Committee on Labor and Human Resources, 148; Senate Finance Committee, 151–52; Senate Governmental Affairs Committee, 143; Senate Permanent Subcommittee on Investigations, 148 U.S. Department of Defense, 57 U.S. Department of Housing and Urban Development, 113 U.S. Department of Labor, 142–43, 146, 147, 151, 183n55, 185n32, 189n27 U.S. Department of State, 60–61, 62–65, 138 Usery, William, Jr., 142 U.S. Steel, 84, 94 Vandenberg, Arthur H., 63 varieties-of-capitalism theory, 22–23 Vietnam War, 136 Volcker, Paul, 36, 116, 135, 137, 140, 159, 169–70, 188n12 Wagner, Robert F., 2, 48–49, 179n5 Wagner Act, 19; business opposition to, 39, 124; exclusion of black and Latino farmworkers, 95; political responses to, 172; and proliferation of private pensions, 19, 52, 54; and Taft-Hartley Act, 33, 35; and unions, 48 Wagner-Hatfield bill, 179n5 Wagner-Murray-Dingell bill, 15, 38, 44, 46–50, 167 War Labor Board, 61 War Labor Disputes Act (WLDA), 32, 65–70 War Production Board, 35, 59 Weidenbaum, Murray L., 142

Weizmann, Howard, 152 welfare states: and capitalism, 4–5, 18–25, 22–23, 160–65, 189n15; contingent historical factors, 160–61; crisis theories, 7, 15, 23–31; in Europe, 182n47; liberal, 8–9; and marketization, 3; and policymakers, 30; and redistribution to wealthy, 190n1; and standard of living, 12; structural development mechanisms, 160 Wells Fargo, 84, 109 Whitney, A. F., 66 Williams, Albert L, 109 Willkie, Wendell, 185n23 Wilson, Woodrow, 62 Winpisinger, William, 92–93 workers: agricultural, 3, 45, 46, 50–51, 73–75, 95, 180n10; auto, 68, 72–73; black, 3, 50–51, 95, 180n10; deferring retirement, 1; domestic, 3, 46, 50, 180n10; electrical, 65; excluded from Social Security Act, 3, 46, 50, 95, 180n10; farm-equipment manufacturing, 65; hotel, 46, 50, 180n10; insurance agents, 50; Latino, 3, 50, 180n10; laundry, 46, 50, 180n10; meat-packing, 65; Mexican, 74–75; “Okies,” 74; pieceworkers, 50; public sector, 46, 50, 86, 142, 180n10, 186n46; sales, 50; steel, 65; truck drivers, 50 World War I, 62, 141 World War II: and collective bargaining, 14–15, 32, 38, 183n55; effect on Social Security program, 46; labor shortage, 74; no-strike pledge, 35, 57–59, 180n14; Pearl Harbor attack, 57–58; pension programs during, 65; postwar strike wave, 15, 38, 55–56, 59–65, 76, 94, 166–67; reconversion to peacetime economy, 44, 45, 56–59, 59–65, 76, 98, 166–67; returning soldiers, 38–39, 55; and solidaristic institutions, 2; state management of capitalism during, 57–59; strikes during, 58–59; and union growth, 21; union workers in war production, 57–59, 76; wage and price controls, 52–54, 136; wartime goods, 38–39, 56 W. R. Grace, 91 Zack, Allen, 117