It’s Pragmatism, not Socialism

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expert perspective telescopeExpert Perspective by Grahall’s Michael Dennis Graham.

A Wall Street Journal News Alert published May 20, 2009 titled “U.S. to Inject More Than $7 Billion Into GMAC, May Become Majority Owner” got me thinking about socialism in America and its history in the arena of employee benefits. 

Back in the early 1970′s (1974 specifically), the government passed legislation called ERISA (Employee Retirement Income Security Act) and the CEO for whom I was working at the time called that the socialization of America and the beginning of the end for capitalism.  I didn’t understand why my CEO objected so much to legislation that required employers to fund retirement plan promises in case the employer went out of business. There had just been a number of high profile cases where companies went bankrupt and were unable to honor their promises to employees. In light of that, ERISA seemed sensible to me.

Peter Drucker, the well know philosopher and management guru wrote in his 1976 book, “The Unseen Revolution”, that as a result of ERISA funding requirements, the “workers” would “own the means of production”, and unintentionally, with ERISA the United States had embarked on the road trip that Lenin and his buddy Karl Marx had mapped out.

Drucker was hardly correct.  With the requirement for funding pension plans, came the need for professional money management.  These professional money managers invested pension funds in a wide variety of stocks contributing to one of the greatest stock market growth periods in history.  Some would call that capitalism at its best. Further, the voting rights on the stock in these defined benefit plans didn’t flow back to “ownership” (i.e. the “worker”), rather it ended up in the hands of institutional investors  (generally financial services organizations) who voted more in line with company management than workers.   Additionally, ERISA was never intended to “socialize” anything!  Reinforcing this were two important aspects of that regulation:

1. ERISA requires that a pension trust be diversified and limits how much of its own plan sponsor’s securities it can hold (I.e., “qualified employer security”.  The rules differ by plan type, for details see ERISA section 407.)  Not only does this restriction put the kabosh on “workers owning the means of production” but it actually forces the employer to invest most of the funds in every body else including the competition.

2. ERISA did consider employee ownership vehicles and therefore established ESOPs but even ESOPs can own no more than 30% of the company.

I see this as  “the more things change the more they remain the same”. Yes, we taxpayers now “own” companies like AIG, Citicorp, General Motors, and soon we will own GMAC, but does this really mean America is shifting toward socialism?   Are the grim countenances and worry lines on the foreheads of the talk show and cable news hosts over the “growing socialism” in America more of a worry than Peter Drucker’s statements in “The Unseen revolution”? 

I strongly doubt it.  The American taxpayer and our politicians are doing nothing except practicing the great art of American practicality. There’s nothing wrong about America’s response to these issues or events. As it has always been in the USA, our response is just practical pragmatism (not socialism or any other “–ism” for that matter) as it has always been. We get ourselves in trouble, lose sight of our goals and reduce ourselves to vitriolic speech and partisan behaviors when we are lured into nodding our heads with the news show and talk show hosts who have only their ratings and their own pocketbooks in mind. (As a side note, it seems that Republicans have as finally given up on their attempt to have the Democrats rename themselves the Social Democrats.) I don’t know why these parties don’t rename themselves the “Practical Republicans” or the “Pragmatic Democrats” since those names might be more descriptive, accurate and appealing to the voting population.

Email Michael Dennis Graham at Michael.Graham@grahall.com

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