## Financial Markets and the Common Good

## Source details

**Canonical URL:** [Financial Markets and the Common Good](https://www.imf.org/-/media/files/publications/fandd/article/2022/december/book-review-mccartin.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/fandd/article/2022/december/book-review-mccartin.pdf.md)
- [Structured JSON version](/-/media/files/publications/fandd/article/2022/december/book-review-mccartin.pdf.json)

---

### Central thesis and scope
- Sanford M. Jacoby’s Labor in the Age of Finance: Pensions, Politics, and Corporations from Deindustrialization to Dodd-Frank traces US labor’s efforts to use pension-fund capital as a tool to reshape corporate behavior.
- The book explains why 1970s ambitions that union-controlled pension assets could transform American capitalism did not materialize, attributing failure to a combination of obstacles, contradictions, and unintended consequences.

### Key obstacles and institutional constraints
- Fiduciary duty: Union pension fund trustees had a duty to maximize returns to ensure secure retirements for members, constraining activist investment strategies.
- Declining union membership: As union membership shrank after the 1970s, fewer unionized employers paid into pension funds, increasing pressure on trustees to prioritize returns.
- Divergent beneficiary interests: Pensioners’ interests did not align neatly with those of active workers and unions; ensuring pensioner retirement security could conflict with activist investing.

### CalPERS, the “cookbook,” and unintended consequences
- CalPERS (California Public Employees’ Retirement System) pioneered a codified set of corporate governance principles in the 1990s, described as the “cookbook.”
- Cookbook principles included limits on CEO pay, board member independence from CEOs, and greater transparency in corporate financing.
- Outcomes of the cookbook and related activism:
  - Failed to narrow the compensation gap between executives and employees.
  - Contributed to shifting executive compensation from salary toward stock options.
  - Stock options incentivized executives to downsize and outsource work to inflate stock prices and personal incomes.
  - Reinforced the “shareholder value” worldview in equity markets.

### Achievements and limits of labor’s financial strategies
- Notable successes: Some unions, such as the Service Employees International Union via its Justice for Janitors campaign, deployed financial leverage to achieve breakthroughs.
- Overall limitations:
  - Labor’s financial strategies fell far short of the grand hopes of the 1970s.
  - The 2008 crash, the Great Recession, and the 2010 Dodd-Frank financial regulation legislation revealed persistent dysfunction that labor had sought to correct and which Dodd-Frank largely failed to remedy.

### Assessment and significance
- Jacoby’s narrative argues that institutional constraints, incentive misalignments, and unintended market responses substantially limited the capacity of pension-fund activism to produce broad systemic change.
- The volume is characterized as “smart and sober” and recommended as an unsurpassed starting point for those seeking to understand the difficulty of making financial markets more accountable to the common good.

### Publication details
- Sanford M. Jacoby, Labor in the Age of Finance: Pensions, Politics, and Corporations from Deindustrialization to Dodd-Frank, Princeton University Press, Princeton, NJ, 2021, 354 pp., $35.00.

*Review by JOSEPH A. MCCARTIN, history professor at Georgetown University and executive director, Kalmanovitz Initiative for Labor and the Working Poor*

---


_Source: https://www.imf.org/-/media/files/publications/fandd/article/2022/december/book-review-mccartin.pdf_