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Why Nearly Everyone With Retirement Investments Are Waging "Class War." And How To Change That

David Callahan

One of the most simplistic fictions is that corporate elites are spearheading a "class war" all on their own, driving down wages to squeeze out higher profits in the name of greed. 

Of course, that's not actually the way modern shareholder capitalism works. Instead, most CEOs and executives -- and the boards who hire and fire them -- wake up every day worrying about how they are going to please you and me. (Assuming you, like me, have money invested in stocks through your 401k or whatnot.)

The second these managers let up on the gas, and profits start to sink, we investors bolt for the exit door. We want our nest eggs to grow, not stagnate, and so we go looking for better places to invest. Or at least our proxies do who run our money. And those corporate managers who let profits go flat and drive investors away? Their heads eventually roll -- and they're replaced by a new team. It's easy to think of CEOs as arrogant. But anxious is a better description of these folks. 

Automated trading that moves money in and out of stocks faster than ever has only made things worse. It's harder to argue with an algorithm that your long-term strategy will eventually raise share prices. 

To be sure, management certainly has discretion in terms of how workers are treated, and some companies like Costco and Trader Joe's, to name just two, pursue a high road model that produces strong returns on shareholder value while also paying workers well. 

But as a general rule it's investors who are mainly driving the train in corporate America. And those investors want their stocks to go up every single quarter. 

It wasn't always like this. The early postwar era was the golden age of managerial capitalism, before the rise of a mass investor class. Managers had wider discretion over how to grow profits and there wasn't so much focus on short term gains. 

Even more importantly, corporate leaders had a broader view of their mandate -- one that took into an account a wide variety of stakeholders, not just investors. 

All this is a reminder that systemic reform must be the main focus of progressives worried about corporate greed and misbehavior. Castigating CEOs who are behaving rationally, responding to prevailing incentives, doesn't get us very far. We need to change the incentives. That includes broadening the legal mandate of corporations so that they must take account of a wider array of stakeholders, including their workers. And it means enacting changes that incentivize investors to hold stock for longer periods of time and otherwise take the focus off of short-term profits. Something as small as dropping the SEC's requirement that all companies report their earnings quarterly could have an important impact. 

Another helpful step would be to scrap the failed 401k system, where so many investors are making decisions about corporate profitability. It would be easier for corporations to argue for the long view with smaller numbers of professional investors managing large pooled investments -- which is how retirement savings would be invested under a plan for American Retirement Accounts that Demos put forth last year. The golden age of managerial capitalism, it may be recalled, was also the golden age of defined benefits pension plans. 

Sure, there are malevolent corporate leaders motivated by greed and callous to the needs of workers. But the real problem is a corporate system that needs to be fixed.