Peter Drucker on the GM Pension Plan (1976), and Questions for Today
Few professors or pundits have worn the title of guru better than Peter Drucker. Here is an excerpt from his 1976 book, The Pension Fund Revolution, on the revolutionary General Motors Pension Plan of 1950:
“The union [the United Auto Workers] feared, with good reason as subsequent events have proven, that the pension fund would strengthen management and make the union members more dependent on it.
“[GM President Charles] Wilson’s major innovation was a pension fund investing in the ‘American economy.’ . . . And while this made financial sense to the union leaders, their strong preference until then had been for pension funds invested in government securities. . . .
“The union leadership was greatly concerned lest a company-financed and company-managed private pension plan — negotiated with the union and incorporated into the collective bargaining agreement — would open up a conflict within the union membership between older workers interested in the largest possible pension payments, and younger workers interested primarily in the cash in their weekly pay envelope.
“Above all, the union realized that one of the main reasons behind Wilson’s proposal was a desire to blunt union militancy by making visible the workers’ stake in company profits and company success. . . .
“But Wilson’s offer was too tempting, especially to the rapidly growing number of older workers in the UAW. And so, in October 1950, the GM Pension Fund began to operate.”
Source: Peter F. Drucker, The Pension Fund Revolution [1976] (New Brunswick, N.J.: Transaction Publishers, 1996), pp. 5-6.
This passage provoked a few thoughts:
• What would our economy look like today had pensions invested in “the American economy” rather than exotic credit derivatives and off-shore markets?
• How different would our economy and economic prospects look had GM not aggressively off-shored jobs and investments, rather than investing where its stakeholders were?
• Standards of fiduciary responsibility as to the types of investments a pension could hold changed from ultra-safe securities (mainly bonds) in the early 1950s to include a broader investment universe by the 1990s. If older fiduciary standards had been maintained, how would our economy look today?
• Should we conclude, from our private pension and healthcare experiences since the 1940s, that society must treat some risks as absolutes – and provide for them as such?
As the auto industry debacle slowly reveals itself, we will have many questions of this sort to ponder. We welcome your thoughts in the comment section of this post.
These are all superb questions, Peter. Here’s another: I recently read that some pundit had estimated that the market events of 2008 were a once-in-10,000-years event. It seems quixotic–even silly–to estimate probabilities of an event as if the market were some force of nature obeying laws of physics and the constraints of carbon-based organic life. The market is invented by those who participate in it, and the more avaricious and short-term oriented its participants are, the more likely it is that the events of last year will occur again. As Drucker points out (and you brought to our attention), changing the rules have significant long-term consequences that are often ignored in favor of short-term gain. Plus ca change, plus c’est la meme chose.