Labor in the Age of Finance: Pensions, Politics, and Corporations from Deindustrialization to Dodd-Frank by Sanford M. Jacoby (review)

In this vitally important volume, Sanford M. Jacoby analyses what happened when two momentous developments intersected in the late twentieth century. One was the financialisation of the economy that accompanied the ascendant mantra of "maximising shareholder value," the emergence of hedge funds and private equity partnerships, and the rise of vast pools of capital in the form of pension funds seeking optimal returns. The other was the effort by a weakening labour movement to leverage power on the financial front, using corporate campaigns and its clout as an outsized institutional investor through the enormous pensions funds it partially controlled. The intersection of these developments led to what Jacoby aptly calls "labor's financial turn" (1), and his book suggests that, after 40 years of effort, its results are ambiguous.

Jacoby is the first scholar to delve so deeply into this crucial yet little-studied story. He is perfectly suited for the job. Over the course of an immensely productive career, he has straddled business history, labour history, and economics. He puts his mastery of all three fields to good use here.

Jacoby opens by surveying US organised labour's long history of financial experimentation, from the labour banks of the 1920s to the first corporate campaigns of the 1970s. The organisation of anti-labour textile manufacturer J. P. Stevens–a victory won in part by inducing sympathetic shareholders and creditors to pressure the company to accept unionisation–was the most successful of those campaigns. Flush with that victory, 1970s labour activists believed that pension funds could wield decisive leverage in future battles. Even business thinker Peter Drucker predicted that "the accumulation of pension assets would bring socialism to the United States" (59).

Drucker's prediction was not fantastical. One legacy of the divided US welfare state was that unionised workers fought for and won employer-funded pensions in the post-war era. Private sector pensions were funded by individual unionised companies like General Motors or by multiple employers in a unionised sector such as trucking. Yet, the largest pension funds were those created for public sector workers, such as the California Public Employee Retirement System (CalPERS). Those funds emerged as among the nation's largest institutional investors by the mid-1970s, just as shareholder capitalism took Wall Street by storm. As Jacoby shows, pension trustees increasingly became activist investors. By 1994, CalPERS had codified principles of corporate governance into a framework Jacoby calls "the cookbook" (45). Following these principles, CalPERS endeavoured to use its clout to win board member independence from chief executive officers, limits on executive pay, and greater transparency in the corporations in which it invested. Other big pension funds followed suit. Fond hopes flourished around the potential leverage of labour's capital.

Yet, as Jacoby shows, the cookbook yielded not socialism, but mixed or meagre results. Translating pension fund investments into power for workers proved vexingly problematic in praxis. For one thing, labour's shareholder activism further ensconced "maximising shareholder value" as Wall Street's mantra. Cookbook reforms also produced unintended consequences. The fight to limit executive compensation, for one, pushed CEOs toward compensating themselves with stock options–and discovering that well-timed layoffs ballooned the value of those (often backdated) options. Moreover, pension funds were constrained by a narrow understanding of fiduciary duty, the responsibility of the funds' trustees to maximise returns on investments to safeguard future retirees' security. Fiduciary duty constrained all the more as unions lost clout, emboldened employers underfunded pensions plans, and trustees felt increased pressure to deliver returns for retirees.

Somewhat more promising were union efforts to perfect corporate campaigns, leveraging pension investments and shareholder proxy fights to win organising breakthroughs. The Service Employees International Union (SEIU) used such tools to help achieve big wins for its Justice for Janitors campaign. SEIU also launched a campaign to take on private equity partnerships that lured union...