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While dispirited Democrats stew over their party's uncertain future, they might check out an unusual cluster of progressive "activists" forming within their ranks. Some politicians with real muscle are pursuing far-ranging possibilities for reforming the economic system. Their potential for driving important change is not widely recognized, perhaps because the reformers are drawn from unglamorous backbenches of state government--treasurers, comptrollers, pension-fund trustees. Yet these state officials, unlike the minority Democrats in Congress, have decision-making power and control over enormous pools of investment capital. They are fiduciaries who manage the vast wealth stored by state governments in public-employee pension funds, invested in behalf of working people--civil servants, teachers and other types of public workers--who as future retirees are "beneficial owners" of the capital.
In the wake of Enron-style corporate scandals, in which public pension funds lost more than $300 billion, some of the leading funds have restyled themselves as more aggressive reformers. They are picking fights with Wall Street orthodoxy they long accepted, like the obsessive maximizing of short-term gains. More important, they are broadening their definition of fiduciary obligations to retirees by trying to enforce corporate responsibilities to serve society's long-term prospects. Instead of adhering passively to market dogma, the activist funds now regularly accuse corporate managements and major financial houses of negligently or willfully injuring the long-term interests of pension-fund investors, therefore injuring the economy and society, too. Pension-fund wealth is thus being mobilized as financial leverage to break up the narrow-minded thinking of finance capital and to confront the antisocial behavior of corporations.
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The best evidence that the reform-minded pension funds are onto something--maybe something big--is the fierce and nasty counterattack launched by business and financial interests. Last spring, the Business Roundtable, the US Chamber of Commerce and the American Enterprise Institute began a simultaneous barrage of complaints and name-calling accusations (faithfully echoed by the Wall Street Journal and Forbes). State pension officials, they warned, are departing dangerously from their fiduciary duties, putting "social issues" first and becoming pawns of organized labor. AEI's economic-policy director claimed CalPERS (the mammoth California Public Employees' Retirement System) "is abusing the public trust in a manner as serious and grave as any I have seen. They have a pool of money controlled by politicians and they are using that pool to strong-arm changes in targeted companies."
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