Celebrating Labor's Role in Responsible Investment

Ebony Hughes, who works two jobs, struggles to make ends meet.[1] She, along with millions of other Americans, fills the ever-swelling ranks of the “working poor” – those who work full-time hours, yet do not earn enough to break the vicious cycle of poverty. Generally employed as temporary workers in areas such as retail stores, fast food joints, home health-care, factories and farms, the working poor are often faced with sub-optimal working conditions and also lack access to paid sick leave and health insurance. Low wages force them to rely on assistance programs, and crowd them out of housing options that may be safer and closer to their place of work.[2]

For over a century, labor unions have fought for better pay and improved rights for workers, retirees and their families. They fought to win 8-hour workdays, work-free weekends, paid vacations, and they bargained for retirement benefits. Some of the earliest pension plans for working people were started by unions.[3] While labor initially fought these battles to help their own members, the goal of labor has always been to help all working families and to build a better society.

Advancing untold financial design innovations, labor’s financial institutions, pension funds and partner investors have also been successfully deploying capital for decades with the goal of revitalizing cities and industries, and pushing “the boss” to be fairer. These responsible investment “aviators” invested in our communities and financed mortgages, affordable and multifamily housing, small businesses, etc.[4] In the 1960s, working with the Civil Rights movement, the AFL-CIO formed new housing investment institutions as a new thrust in the movement for social and economic justice. With the leadership of the construction trades pension funds, these new institutions created affordable and livable workforce housing in dozens of cities.

Since the 1980s, industrial labor leaders have designed shrewd capital strategies, deploying worker-friendly investment banks and new capital vehicles that turned around or expanded critical industries. And, in the new millennium, teachers, public, and service employees have invested their pension funds in energy, transportation and infrastructure innovations to grow the clean economy. These labor leaders have invested in the “real economy” – the part of the economy that is concerned with actually producing goods and services, as opposed to the part of the economy that is concerned with buying and selling on the financial markets.

Simultaneously, the retirement savings of everyday working people – teachers, steelworkers, firefighters, pilots, engineers - have grown to represent a significant share of global wealth, leading to a transformational change in the world’s financial architecture. These assets, along with the assets of other long-term institutional investors, such as insurers, sovereign wealth funds, investment companies and endowments, controlled over $85 trillion in global capital in 2011.[5]

In the U.S., pension assets have grown to represent a significant portion of all institutional assets – from 35.9% in 1980 to 40% in 2009.[6] This growth has resulted in a greater ownership share of pension funds in public and alternative investment markets. For example, as of 2009, U.S. institutional investors collectively owned 73% of the outstanding public equity of Fortune 1000 companies, and pension funds alone held about 30% of this total.[7] In addition, U.S. pension fund allocations to alternative investments totaled over $6.4 trillion as of 2014.[8]

Despite tremendous strides made by labor and the contribution of workers’ retirement assets in the development of America’s economy and its capital markets, Ebony and millions of workers like her are trapped within a system that prioritizes corporate profit-making and shareholders returns.

A recent article in the New York Times notes that “for the vast majority of workers, pay increases have lagged behind productivity in recent decades. Since the early 1970s, median pay has risen by only 8.7 percent, after adjusting for inflation, while productivity has grown by 72 percent. Since 2000, the gap has become even bigger, with pay up only 1.8 percent, despite productivity growth of 22 percent.” The huge gains in productivity, the article notes, have gone towards increasing corporate profits, fattening executive paychecks, and appeasing shareholders, rather than towards better pay for workers. For example, “chief executives now make about 300 times more than typical workers, compared with 30 times more in 1980.”[9]

Another news article, in The Week, reports that “top 50 employers of low-wage workers, a recent study found, paid their top executives an average of $9.4 million a year and have returned $175 billion in dividends to their shareholders since 2006. In contrast, the typical worker eligible for the Earned Income Tax Credit, a tax break for low-income workers, has an adjusted gross income of $13,900.”[10]

The after-effects of the 2008 financial crisis shed greater scrutiny on unbridled corporate greed at the expense of workers and retirees, whose labor and savings are used to fund corporate growth and shareholder returns in the first place. Recent regional and national campaigns such as “Say-on-Pay” votes aimed at curbing excessive executive compensation and the “Fight for 15” aimed at increasing low-wage worker pay (particularly within the fast-food industry), as well as global movements such as the UN-backed Principles for Responsible Investment (PRI), are rightfully shifting focus from “profits at all cost” to a more responsible way of doing and investing in business that is inclusive of good social, environmental and governance practices. In Pope Francis’ recently issued encyclical on climate change, he too has called for a reversal of “business as usual” that is greatly contributing to environmental degradation, human exploitation and climate change.

“The theory was if we make sure the top 1 percent is okay, the rest of us will be too. But history has disproven that theory. What works is investing in middle- and low-income families. Putting money in their pockets keeps the economy healthy for all of us, including those at the top.”[11]

- Melissa Boteach, Director of the Poverty and Prosperity Program

Center for American Progress

The short-term financial markets model that is squeezing workers and mismanaging our savings and assets must be scrapped, along with gridlock politics; both are starving the nation of vastly needed resources and depriving us of collaborative approaches to solving our problems. To change this model, we, as citizens, businesses and capital stewards, need to consume, produce and invest in ways that create good jobs and resilient growth, without sacrificing the environment and our shared planet.

AFL-CIO President Richard Trumka offers the vision, in his forward to the upcoming Responsible Investor Guidebook authored by Heartland: “We must reinvest in America’s crumbling infrastructure to preserve our economic competitiveness. We need to encourage corporations to allocate capital for new factories, research and development, and workforce training. We should reinvest in our cities, making our housing more affordable and energy efficient for working people. And we must overcome the environmental threat of climate change, creating high-wage jobs along the way, while making sure that we don’t leave communities behind.”

The working families and citizens of our country are clearly hungry and ready for the next big advances in American progress. Let this Labor Day, and those in years to come, mark our journey towards these advances.

[1] “Movement to Increase McDonald’s Minimum Wage Broadens Its Tactics,” The New York Times, http://www.nytimes.com/2015/03/31/business/movement-to-increase-mcdonalds-minimum-wage-broadens-its-tactics.html

2] “Faith in Values: Working Full Time and Still Poor,” Center for American Progress, https://www.americanprogress.org/issues/religion/news/2013/02/20/53929/working-full-time-and-still-poor/

[3] Richard B. Freeman, “Unions, Pensions, and Union Pension Funds,” National Bureau of Economic Research, vol. Pensions, Labor and Individual Choice, http://www.nber.org/chapters/c7131.pdf, (Chicago, IL: University of Chicago Press, 1985), 89-122.

[4] Even back in the 1880s, the Knights of Labor union, a million-member strong, fostered the birth of 200 worker co-ops as part of their plan for “cooperative commonwealth.” See, John Curl, For All the People: Uncovering the Hidden History of Cooperation, Cooperative Movements, and Communalism in America, (Oakland, CA: PM Press, 2012).

[5] OECD, G20/OECD High-Level Principles of Long-Term Investment Financing by Institutional Investors (Paris, September 2013).

[6] M. Tonello and S. Rabinov, The 2010 Institutional Investment Report: Trends in Asset Allocation and Portfolio Composition (New York: Conference Board, 2010).

[7] Ibid.

[8] Towers Watson, Global Pension Asset Study 2015 (2015).

[9] “You Deserve a Raise Today. Interest Rates Don’t,” The New York Times, http://www.nytimes.com/2015/09/07/opinion/you-deserve-a-raise-today-interest-rates-dont.html?ref=opinion

[10] “Working, But Still Poor,” The Week, http://theweek.com/articles/468159/working-but-still-poor

[11] “Faith in Values: Working Full Time and Still Poor,” Center for American Progress, https://www.americanprogress.org/issues/religion/news/2013/02/20/53929/working-full-time-and-still-poor/

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