{ "title": "Financial Markets and the Common Good", "sourceUrl": "https://www.imf.org/en/publications/fandd/issues/2022/12/book-review-financial-markets-and-the-common-good-jacoby", "canonical": "https://www.imf.org/en/publications/fandd/issues/2022/12/book-review-financial-markets-and-the-common-good-jacoby", "overlayPath": "/en/publications/fandd/issues/2022/12/book-review-financial-markets-and-the-common-good-jacoby/index.md", "summary": "IN THE 1970s, labor activists came to believe that if US unions mobilized the enormous latent financial leverage in the growing pension funds they had won for their members, they might transform American capitalism, using labor’s investing power to modify corporate behavior.", "sections": [ { "heading": "Overview", "content": "- Article: \"Financial Markets and the Common Good\"\n- Author: JOSEPH A. MCCARTIN\n- Publication: F&D Magazine\n- Date: December 2022\n- Summary focus: Review of Sanford M. Jacoby’s history of US labor’s strategies to mobilize pension-fund capital to influence corporate behavior." }, { "heading": "Key findings", "content": "- 1970s belief: Labor activists thought mobilizing pension funds could \"transform American capitalism\" and modify corporate behavior.\n- Early external expectation: Management guru Peter Drucker predicted “the accumulation of pension assets would bring socialism to the United States.”\n- Main conclusion: Grand dreams of labor transforming corporate behavior through pension-fund investing “never materialized.”" }, { "heading": "Obstacles and contradictions identified", "content": "- Fiduciary duty constraint: Union pension fund trustees had a duty to maximize returns to ensure secure retirements for union members.\n- Demographic and membership pressures: As union membership shrank after the 1970s, fewer unionized employers paid into pension funds, increasing pressure on trustees to maximize returns.\n- Interest misalignment: Pensioners’ interests did not align neatly with those of active workers and unions; ensuring pensioners’ retirement security could conflict with activist investing." }, { "heading": "Case study: CalPERS and the \"cookbook\"", "content": "- Actor: California Public Employees’ Retirement System (CalPERS), described as the nation’s largest public employee pension fund.\n- Period: 1990s\n- Strategy: CalPERS codified a set of corporate governance principles—labeled the “cookbook”—advocated by pension funds.\n- Cookbook principles included:\n - limits on CEO pay\n - board member independence from CEOs\n - greater transparency in corporate financing\n- Tactic: Pension funds pooled influence to advance these principles." }, { "heading": "Outcomes and unintended consequences", "content": "- Mixed results from pension-fund activism:\n - Failed to narrow the compensation gap between executives and their employees.\n - Contributed to a shift in executive compensation from salary toward stock options.\n - Stock options incentivized executives to downsize and outsource work as means of inflating stock prices (and their incomes).\n - Pension funds’ shareholder activism helped legitimize the \"shareholder value\" worldview in equity markets.\n- Systemic implications: The limitations of labor’s financial strategies were starkly revealed by:\n - the 2008 crash\n - the Great Recession\n - the 2010 Dodd-Frank financial regulation legislation, which \"largely failed to rectify the dysfunction that labor had fought for decades to correct.\"" }, { "heading": "Notable exceptions", "content": "- Examples of successful financial activism:\n - Service Employees International Union (SEIU), through its Justice for Janitors campaign, deployed labor’s financial leverage to achieve breakthroughs." }, { "heading": "Implications and assessment", "content": "- Overall assessment: Achievements of labor’s financial strategies \"fell far short of grand 1970s dreams.\"\n- Scholarly value: Jacoby’s volume is described as \"unsurpassed as a starting point\" for understanding both the urgent necessity and the enormous difficulty of making financial markets more accountable to the common good.\n\nSource: Financial Markets and the Common Good — JOSEPH A. MCCARTIN, F&D Magazine, December 2022.\n\n---\n\n Content in this bundle\n\n- Financial Markets and the Common Good\n - Financial Markets and the Common Good (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Financial Markets and the Common Good (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/fandd/issues/2022/12/book-review-financial-markets-and-the-common-good-jacoby" } ], "bullets": [ "[Markdown version](/en/publications/fandd/issues/2022/12/book-review-financial-markets-and-the-common-good-jacoby/index.md)", "[Structured JSON version](/en/publications/fandd/issues/2022/12/book-review-financial-markets-and-the-common-good-jacoby/index.json)", "[Bundle manifest](/en/publications/fandd/issues/2022/12/book-review-financial-markets-and-the-common-good-jacoby/bundle-manifest.json)", "Authors: JOSEPH MCCARTIN", "Published: December 1, 2022", "Article: \"Financial Markets and the Common Good\"", "Author: JOSEPH A. MCCARTIN", "Publication: F&D Magazine", "Date: December 2022", "Summary focus: Review of Sanford M. Jacoby’s history of US labor’s strategies to mobilize pension-fund capital to influence corporate behavior.", "1970s belief: Labor activists thought mobilizing pension funds could \"transform American capitalism\" and modify corporate behavior.", "Early external expectation: Management guru Peter Drucker predicted “the accumulation of pension assets would bring socialism to the United States.”", "Main conclusion: Grand dreams of labor transforming corporate behavior through pension-fund investing “never materialized.”", "Fiduciary duty constraint: Union pension fund trustees had a duty to maximize returns to ensure secure retirements for union members.", "Demographic and membership pressures: As union membership shrank after the 1970s, fewer unionized employers paid into pension funds, increasing pressure on trustees to maximize returns.", "Interest misalignment: Pensioners’ interests did not align neatly with those of active workers and unions; ensuring pensioners’ retirement security could conflict with activist investing.", "Actor: California Public Employees’ Retirement System (CalPERS), described as the nation’s largest public employee pension fund.", "Period: 1990s", "Strategy: CalPERS codified a set of corporate governance principles—labeled the “cookbook”—advocated by pension funds.", "Cookbook principles included:", "Tactic: Pension funds pooled influence to advance these principles.", "Mixed results from pension-fund activism:", "Systemic implications: The limitations of labor’s financial strategies were starkly revealed by:", "Examples of successful financial activism:", "Overall assessment: Achievements of labor’s financial strategies \"fell far short of grand 1970s dreams.\"", "Scholarly value: Jacoby’s volume is described as \"unsurpassed as a starting point\" for understanding both the urgent necessity and the enormous difficulty of making financial markets more accountable to the common good.", "**Financial Markets and the Common Good**" ], "related": [ { "title": "Financial Markets and the Common Good", "role": "document", "sourceUrl": "https://www.imf.org/-/media/files/publications/fandd/article/2022/december/book-review-mccartin.pdf", "summary": { "path": "/-/media/files/publications/fandd/article/2022/december/book-review-mccartin.pdf.md", "mime": "text/markdown" }, "binary": { "path": "/-/media/files/publications/fandd/article/2022/december/book-review-mccartin.pdf", "mime": "application/pdf" } } ], "alternates": { "markdown": "/en/publications/fandd/issues/2022/12/book-review-financial-markets-and-the-common-good-jacoby/index.md", "json": "/en/publications/fandd/issues/2022/12/book-review-financial-markets-and-the-common-good-jacoby/index.json", "bundleManifest": "/en/publications/fandd/issues/2022/12/book-review-financial-markets-and-the-common-good-jacoby/bundle-manifest.json" }, "generatedAtUtc": "2026-09-15T18:12:35.241Z" }