Make it more inclusive, democratic,
accountable and sustainable.
International Policy
Conference
of the Capital Ownership
Group
COG
October 9-11, 2002
Speech
to the ”Labor Venture Funds and
Pension
Investment Strategies” workshop
by
Per Ahlstrom
I sometimes get the feeling that we are in the process of building a house without having a proper foundation. Before we go into investment strategies of labor venture and pension funds we should build a firm base and create an investment strategy for wage earners, i.e. the vast majority of people, who in a way also are the new capitalists whose funds are creating what a scornful critic called ”pension fund socialism”.
Regardless of the label you put on this phenomenon, the end owners of the big pension funds, the wage earners, need to create an investment policy for themselves to be able to govern these vast pools of money in a responsible manner. If they don’t the present ongoing scandal will continue, where other people use wage-earner money to promote their own wealth. Today managing other peoples money is one of the best and safest ways to get rich quickly.
In my humble opinion one of the main problems of globalization today is the lack of owner guidance of the fast growing pension funds. One might critisize the fund managers for irresponsible management. On the other hand (not counting the criminals in the business) they are doing exactly what they are told to do: they try to maximize short term profits.
The money of ordinary working people must be invested in a more intelligent way than it is at present, or the system will run amok.
To do this everybody has to understand that pension funds are deferred wages and that the wage-earners have the sole right to this money and should be given total responsibility for managing the pension funds. Employers have no business meddling with this money.
Secondly we must understand that for a person living purely from capital dividends it is not important in which geographical location he makes his money. He can easily move his productive asset, his capital, to any place on earth in seconds, just by pushing buttons. He can live with the conventional risk diversification applied by pension funds today.
A wage-earner has more difficulties moving his productive assets, his body and brain. Not only does he have to travel, he also has to abandon his home, his friends and relatives. And if his money doesn’t help to sustain the local economy he might also loose what he has invested in fixed assets like real estate.
Wage-earner have to spread their risks too. And this might be even more important to wage-earners than capitalists, as an ordinary wage-earner seldom has enough money to be able to accept a loss. So far pension funds have invested as if the end owners were making their living as capitalists, living off the capital dividends. They need to be given a new set of rules for their investments which also incorporate a geographical factor, the purpose of which is to stimulate economic growth in the area of the fund owner constituency. and they need to better understand the needs of their ultimate investors, ordinary people, making their living by working.
I think labor-friendly investment policy must contain several components.
First of all labor must promote local ownership in different forms:
I think the most urgent reform is to make it possible for wage-earners to become owners in regional investment funds, mainly investing in unlisted companies. These funds should be of two kinds, venture funds to support the growth of new companies, and investment funds to guard local ownership of companies.
With this kind of financial arrangement wage-earners should get better opportunities to transfer from oldfashioned, low-profit, low-paying companies to companies with better prospects. It is much better to be employed in a dynamic, forwardlooking area than to work in a regionwhere companies look back to the good old days. Labor should therefore promote change and entice people to move from declining industries to growth sectors.
To do this many trade unions have to rethink their contracting structure as well as their pension schemes.
It is important that organized labor helps working people to diversify their savings. This can only be done by pooling the savings of working people and to diversify the investments made by these funds. Doing this it is also important to understand that different kinds of investments require different kinds of institutions.
Investing in venture capital is quite different from managing an ordinary pension fund. Venture capital investments require relatively small amounts of money, but a lot of hands-on control. To me it is reasonable to create specific regional labor venture capital companies, as our Canadian friends have done. I think it would be very wise for the large pension funds to act as founding partners of these regional funds, using say one per cent of their capital for this purpose. To create the proper pressure on the labor ven-cap funds individual investments in the funds should be encouraged, like in Canada. But I think there should be a cap on the amounts that individuals can invest in these funds, to prevent them from putting too much money in one place.
The pension funds could use another per cent of their money to act as founding partners of regional and/or local investment funds, whose task it would be to invest in running local businesses, retaining ownership in the region. These investments should be less risky than the ven-cap investments, and might even make the ven-cap business less risky by taking over the ”living dead” from them, the investee companies that neither go broke nor are profitable enough to attract well-paying buyers. This category of companies might be a burden to a ven-cap company, but could provide a good living for quite a few people and a modest running profit to the owners, if they got a more suitable local owner, like a regional investment company.
These regional investment companies could be combined with employee ownership, with the employee ownership providing direct company governance and the regional investment company providing risk diversification to the employee owners.
I do not believe in employee ownership as some sort of panacea. Employee ownership is not a good investment policy if it is not governed in a proper way. It has to be part of a scheme for proper risk management. In most, but not all cases, it is desirable that wage-earners participate in employee ownership schemes. This because they should have the possibility to share governance of their workplace, and to share the profits they help create.
Unfortunately employee ownership is frequently used in a very destructive manner, to bail out the unsuccessful previous owners and to keep obsolete companies running for too long, robbing the employees of both jobs and savings. Strong measures have to be taken to prevent this from happening.
I think it is a terrible mistake from labor to tie the savings and security of wage-earners to individual companies. Companies are born, prosper and die, and all to often wage-earners find themselves left all on their own when the companies die. The security of life-long employment is an illusion. For true security labor must strive for security in change rather than resist change.
I think that this local/regional portion of wage-earner savings should not exceed 15-20 per cent of the total savings of an individual. The rest of the money should be placed in larger money pools, investing nationally and internationally. The investment policy of these larger funds is of course of paramount importance. And I am sure that most of our discussion today will focus on this particular issue.
Rather than going into that now I would like to stress the importance of creating a labor friendly investment policy in the local/regional funds. And by that I mean an investment policy that makes the local economy in which the wage-earner lives more modern, more diversified, more resilient and sustainable.
All too often the money of working people is used unwisely, either for speculation abroad that ruins the local economy where the investors live, or for investment in obsolete local industries to ”save jobs”.
It is wiser to have an investment policy that is a mixture of the policies adopted by the Working Opportunity Fund in British Columbia and the Crocus Fund in Manitoba, a policy which promotes modernization and diversification of the regional economy, while guarding and promoting local ownership, which can be family owned businesses, employee owned businesses or a mixture of both.
It is also important to have a policy for the sale of companies. It is a fact of life that some companies grow out of their regions and need owners with more money, more expertise and bigger resources than can be found locally. The Novabus company in Montreal is a good example, where the Solidarity Fund searched worldwide to find an industrial deal that gave the company an owner with capacity to broaden its market to Latin America.
I am a firm believer in evolution, multitude and diversification. I do not believe in overthrowing the capitalist system, but I wouldn’t mind gradually doing away with the capitalists themselves and replace them with a multitude of funds owned wholly or partly by ordinary working people.
And mind you I speak only of the passive capitalist or speculator, who is only making money on money.
I still believe individual private ownership has a very important role to play as an incentive for the true entrepreneurs. It is a fact that true novelties are rarely created by groups of people. Development leaps often come when dedicated individuals decide to do what everybody else considers to be impossible.
I believe these labor funds I have proposed must have different perspectives and different philosophies, to maintain the dynamics which have proven to be the real strong point of market economies. But they need to have a common base in the belief that what they do should be good for their owners from a total perspective – i.e. they must strive for development of the regions where their owner constituency lives and abstain from actions that might disrupt local economies.
Or in other words – they must act as responsible corporate world citizens. And in the end – I think that is the most profitable policy of all.