Cleaning Up After The Con

Again [1]and again [2]and again [3]and again [4]and again [5]and again [6] and again [7], this blog has chronicled the mess conservative ideology has made of our national infrastructure. But how do we clean it up? How are we going to come up with the 1.3 trillion dollars [8] needed to get our infrastructure back in shape?

In a recent editorial [9], Andy Stern (head of the Service Employees Industrial Union) and Kathleen Sebelius (governor of Kansas) offer up a proposal: let pension funds team up to directly invest in the national infrastructure. The plan isn't crazy. There's enough money. American pensions have about three trillion dollars in combined assets. And there seems to be a motive. Pension funds are owned by workers, workers have an interest in work, and rebuilding our infrastructure is going to take a whole lot of work. The plan seems a whole lot better than the alternative:

The financiers on Wall Street already have positioned themselves to take advantage of this national crisis for their own gain. Where most Americans see crumbling bridges and traffic congestion, the money managers see a treasure trove of fees, profits, and more record bonuses for CEOs.

It's why some private equity firms and banks on Wall Street are raising massive funds to buy these assets that have typically been owned and managed by the government.

In recent years, new infrastructure funds have been established in North America with capital commitments of $40 to $45 billion. These private funds have sprouted up like weeds, structured for short-term profits and sky-high fees – usually up to a 2 percent management fee plus up to 20 percent of the profits.

It would be a monumental mistake to turn the future of America's infrastructure over to the same crowd that brought us the subprime crisis, an economy loaded down with debt, and recession.

But there's a problem with the argument. It turns out that finance capital runs the pensions too!

Robin Blackburn, dean of leftist pension studies, notes [10] that pension funds are

legally obliged to invest the money as a ‘prudent expert’ would; but since the standard of prudence and expertise required is that of the financial services industry itself, the end result is a further boost to the power of the huge financial corporations that offer fund-management services—Morgan Stanley, Merrill Lynch, Fidelity, State Street, Barclays Global Investors and so forth. These giants need non-financial corporations to give them business so they do not often make aggressive use of their power as proxy shareholders. The banks anyway make more money from underwriting, and help with mergers and acquisitions, than they do from fund management.

As for the policy holders, they have precious little leverage over trustees and still less over fund managers. Most public-sector funds, and a few private-sector schemes, give some representation to trade unions, but they are still bound by the ‘prudent expert’ rule. In the great majority of schemes employers call the shots and cut deals with the financial corporations. The fund-management services offered by the latter are supposedly separated by ‘Chinese walls’ from the investment-banking services they may also supply. But the overall effect is what Allen Sykes terms a ‘double accountability deficit’, at the expense of the pension-plan holder and (nominal) shareholder.

Changing the system will take serious work. Pensions are big business to financial corporations, and financial corporations are big donors to both parties. There is, of course, an easier, time-tested funding source: Taxes. Stern and Sebelius will have none of it.

Leaders of both the Republican and Democratic parties know the US cannot raise money from traditional public sources of financing, including municipal bonds, user fees, and taxes.

It may seem impossible to raise money for infrastructure through taxes. But this is not a permanent or natural condition. It is the result of conservative hegemony. If we want to reinvigorate our nation's infrastructure -- whether through taxes or through pensions -- that hegemony must end.

P.S: For anyone interested in the wild world of pensions, Blackburn's massive BANKING ON DEATH [11], is well-worth a read.