The Ownership of Production

An Essay On

The Ownership of Production

By Alfred Brock

                The ownership of production in American society has changed from what was typically the case to a more diffuse and disorganized situation.

                In the past the role of the ownership of production was normally performed by the owner – that would be a private individual or some group of individuals forming a corporate body.  This individual or individuals would then carry out the duties of ownership of a business and thereafter extract a profit.  That is the primary motive alluded to in capitalist society.  The reward of profit for hard work done.

                Andrew Carnegie, wealthy steel magnate once wrote, ‘The contrast between the palace of the millionaire and the cottage of the laborer with us to-day measures the change which has come with civilization.’

                This idea of the extravagance of wealth or the outward trappings of it has persisted into this century.  It based on the concept that the ‘rich guy’ owns everything.

                That is no longer the case.  It is not individuals who own entire portions of our economic engine though they may, through pretense and application of time and money influence it somewhat.

During the 1950’s the unions were growing at an incredible rate.  Capitalists across the nation were alarmed because in the not-too-distant past of the 1920’s and 1930’s the unions had the indelible stamp of Communism on them.  In the 1950’s Communism as a governing system was spreading around the world.  The Soviet Union was extremely powerful and the leading citizens in the United States cast a wary eye on the People’s Republic of China which was also perceived as part of the ‘Red Menace’.

The stinging failure of capitalism was that the aged or those dependent upon a working person were not cared for after they had stopped working or lost the main breadwinner in a family.  During the 1930’s the United States could no longer depend on the frontier as an idea to absorb those pitiful individuals.  States and counties responded with ‘County Homes’, ‘Poor Houses’, ‘County Farms’ which expanded at an alarming rate.  They themselves began to exhibit forms of communism and this further alarmed those in power.

Social Security was idealized as the way to solve society’s ills in regards to those too old to work or left without an income from the loss of a family member.

It did fulfill its promise and helped to avoid the onrushing catastrophe of starvation and loss.

Moving back to the 1950’s private corporations were faced with having to pay out social security benefits and, when confronted by unions, to put aside some retirement funds either to supplement social security or replace it.  There were creative ways this was done.  One was to offer partial ownership to the employees through stock options.   This was considered and became largely unfair because if the concern went out of business all of the retirement funds were lost and the workers were back in the same position they would have been in 1910.

Around the same time in the 1950’s It was more happenstance than intention that most government units, both local and state, began to or expanded their own pension fund systems.  Set up primarily with the idea that states would retain control of their own systems these governments, local and state, set up a situation which capitalism was and is unable to bear.

The result has been less than optimal.

Private pension funds were essentially barred from offering as retirement income only investments in their own company.  This particular concern was never insisted upon for local and state governments and as of late has proven to be a very large problem.  Rather than deriving benefits directly from investments in local or state enterprises or a specific share of tax revenue local and state government offices are required to pay back a portion of the monies assigned to them in order to pay out the pensions.

The difficulties are immediately obvious.

To make matters worse pension fund investments, in order to avoid investing in one single company at a time, took to spreading their investments out across the entire financial spectrum.  At the time the number of individuals joining the work force far outpaced the number of those retiring and so these investments became larger while payouts remained relatively small.

In a bizarre turn of events some local and state governments instituted rules that if an employee did not become vested within 10, 15 or 20 years by working full time during that entire period they would lose most or all of their benefits.  It was a one way street.  In the case of those local and state government employees they were subjected to a form of indentured servitude.  Indeed, in many states and locales these rules still apply. 

Those workers lucky or industrious enough to complete these long cycles of labor might then retire and take up another job in the public sector.  Lately this has attracted a lot of attention but the roots of why this happens are not often discussed.

As the pension funds increased in size their purchases of stocks, bonds and other financial paper increased.  As their investments increased their returns increased.  Though each individual pension fund might not hold a large interest in the company where most of their beneficiaries work in total all of the funds began to take up a position of control.

This refers to control of a company through capital investment.  In this case these burgeoning funds took up controlling interest in an ever greater number of companies which eventually led to them to a de facto control of entire American industries in general.  That is industry spread across services such as manufacturing, shipping and finance.

The problem that has occurred is that these pension funds are often run by individuals who have a narrowly defined set of rules but no oversight.  They have accumulated immense power on behalf of the pension fund participants.  Neither the fund managers nor the fund participants seem cognizant of their position.  Some few others have become aware and they are primarily in the financial industry where you will see large financial funds of quite another sort working to provide services to these pension fund behemoths and following along behind them are a bevy of regulators who seem more concerned with form rather than the actual sort of business which is being conducted.

                The long term problem with this change in ownership from the private investor and corporate boards is that there is no guarantee that the income they extract from business will remain at the levels necessary to fund their pension obligations let alone deal with the losses they themselves encounter either through the normal business cycles or their own errors.

                In the case of private pension funds if there is a loss as recently occurred with a large automotive manufacturer the workers blame the management for ‘stealing’ their retirement funds while management points out there were no funds left to pay because profit had ceased.

                In the case of a recent development in one state’s pension fund policies a large loss was merely passed on to local governments who are now required to make up for errors rather than any shortfall they had created on their own.  That is the shortfall was declared instantly to be applied now into past and therefore the state has issued a declaration that the local governments must pay into the future.

                This is not only a departure from common sense it is quite impossible to carry out.

                Pension funds were never intended to exist as independent capital organizations but they have taken on all those behaviors with the expectation they will never fail.  Pension funds are dependent upon the companies and governments from which they collect revenue in order to pay their participants.

                When this inflow of capital is interrupted the participants are left in want for the payments they expected.

                In several cases when this has occurred, these participants have taken to the courts to sue for a return of income that they lost from the pension fund in which they are a participant.

                This had led to a situation where many individuals, acting as a corporate body without governance or normal financial controls, are set to suing themselves for income that they lost.

                Pension funds, without governance similar to a board normally associated with a publicly traded company or a normally functioning and profitable private company should not be able to pass on its obligations to pay to some other body.

                In conclusion the diversification of pension fund investments which have occurred over the past fifty years have carried along with them a diffusion of responsibility that has become a liability to them.

                Pension fund participants are in most ways financially the owners of a majority of production in the United States at the present time.