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Harvard Law School




Several recent works have sharply criticized public pension funds and labor union funds (“labor’s capital”). These critiques come from both the left and right. Leftists criticize labor’s capital for undermining worker interests by funding financialization and the growth of Wall Street. Laissez-faire conservatives argue that pension underfunding threatens taxpayers. The left calls for pensions to be replaced by a larger social security system. The libertarian right calls for them to be smashed and scattered into individually-managed 401(k)s. I review this recent work, some of which is aimed at my book, The Rise of the Working-Class Shareholder: Labor’s Last Best Weapon, and some of which is aimed at labor’s capital more broadly. I argue that while critics of labor’s capital make some reasonable points, none justify a retreat by labor from implementing capital strategies. None justify either wholesale abandonment of the current pension regime, or the smashing and scattering of pensions into individually managed-401(k)s. Leftist structuralist critiques underestimate new opportunities to advance labor’s capital created by the ideological retreat of shareholder primacy and a newly-emboldened stakeholderism. They also overlook serious but curable errors by unions in permitting their capital to be used against them. They tend to critique labor’s capital in a vacuum, making heroic assumptions about offstage policy preferences like a comprehensive new social security system or macrofinancial reform, though labor obtained neither when it was more powerful than it is today. Moreover, social security systems, important as they are, do not give workers voice in markets the way pensions do. At the other end of the spectrum, laissez-faire rightist critiques overstate the underfunding threat, which has subsided as markets have recovered from the Great Recession of 2008 and as forty-nine states have revised their funding formulas. They also exaggerate the risks to taxpayers of underfunding and fail to articulate any plausible reason why taxpayers shouldn’t be on the hook to pay-in-full for services rendered by public servants.

Properly organizing its capital to advance worker interests remains a critically important and attainable goal for labor in the 21st century.

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