Ohio Working Capital Conference

May 19^th and 20^th , 2003

Leo Gerard Speech

I had a number of things to say and just by listening to the last panel, then seeing my friend Rob Hilliard here and looking at the agenda, I can only assume that everything that needed to be said has been said. It just hasn’t yet been said by everyone.

It’s interesting that the last question to the last panelist was about executive compensation. As I walked into the hall this morning, I saw a copy of USA Today sitting on a table and I’m happy to tell you that God has finally joined our fight. Nuns and priests joined in the crusade against sky-high executive pay; and with the labor movement, plus the religious community, I can’t see how we could lose.

Let me just say to you, people need to quit thinking about lots of the stuff we’ve been force-fed over the last forty years about pensions. You go through a whole bunch of stuff that until recently was given to us and regurgitated all the time as the way it was with pensions.

When I started back in my old stomping grounds in District 6 of the Steelworkers in Ontario, Canada, for a long time I would not use the word “pensions” until I had defined it as: workers’ deferred wages that are held in the form of future benefits called pensions.

You’ve got to ask yourself, what is a pension, especially if you’re in the labor movement, if you’re in a collectively bargained environment. When you sit down to bargain your collective agreement, you use a set of accepted actuarial assumptions and you determine how much of your current wage increase to have deferred based on those assumptions so that you could get that deferred wage at some point in the future. The assumptions that were given to you were generally designed by so-called “professionals.” Then that money was taken and put in a reserve fund and people were assigned to manage that fund so they could meet an obligation, a trust, a promise.

If you go back to the Second World War, pensions basically didn’t exist, did they? The labor movement designed pensions, like we designed the weekend. And as we designed the pension plan, as we designed the weekend, as we designed health care benefits, they became pretty attractive vehicles. You’ve got to give Capitalists, right-wing Republicans and anti-labor folks their due. They saw early on that if they didn’t do something to handcuff us, we could end up running the capital system of the world.

It’s like, what do you want? Do you want a million dollars now, or do you want a penny every week multiplied and doubled? As dumb as we used to be, we’d say we want the million dollars now. They knew their penny doubled every week was more. Welcome Taft-Hartley. Welcome all the asset managers, all the advisors, all the regulators, and all of those who decided they needed to control, manage and feed off of the deferred-wage food table. As I talk going forward, I want you to keep one thing in perspective: because as representatives of workers — even some folks who may be asset managers or want to be asset managers — we sometimes have a hard time knowing what a number really means.

What is a billion? Can anybody tell me what a billion is? Let me put it in perspective:

¨ A billion seconds ago, it was 1959.

¨ A billion minutes ago, Jesus was alive.

¨ A billion hours ago, dinosaurs were here and we were in caves.

Last year’s manufacturing trade deficit was five hundred billion dollars. The Wall Street collapse, the stock market scams, the accounting frauds, this round of corporate governance lapses cost the economy seven trillion dollars. I wish I could tell you what a trillion seconds takes us back to. I can’t. But keep in mind what a billion seconds, or a billion minutes or a billion hours does and that will give you some idea of the magnitude of the damage that’s been done.

Tom Croft made reference to a lot of things that we’ve all worked on for a long period of time, but I think as custodians, either as negotiators or as trustees, of trust funds of workers’ deferred wages, we need to keep things in perspective. I have this theory. In order to think forward, you’ve got to look backward. In order to think and dream and have a vision of what could be accomplished in ten years, you need to look back and see what’s happened in the last ten. In order to think of what could be in the next generation, try to look and see what was in the previous generation. Fifty years is a very short period of time. Fifty years ago there were literally no pension funds. Minor things, insignificant pension funds. Now they’re the largest single source of capital in North America, possibly the largest single source of capital in the industrialized world. And it is nothing more than workers’ deferred wages.

But then you ask yourself, what is the trust supposed to do? This is where we come face to face with the conflict between us and those who feed on the pension chain. All that the trust is supposed to do is earn a sufficient rate of return to guarantee the benefit. It doesn’t have to maximize the rate of return as we have been told. That’s bull. The maximization that they search for is to defer the obligation.

Take yourself back two, three, four years, five years, part of the fights we were having when we were going out and talking about capital strategies, capital stewardship, the obligation was 9% or 8% and the funds had to be funded at 100%. You could even let it go as far as 80% or 90% because you’d build up over time. And as funds got funded at 110, 120, 125, 130%, where did the surplus go? It went to the profits. How many companies got wiped out in mergers and acquisitions because their pension funds were over funded? Where did that surplus go? Who did it belong to? What did we do? Those were our deferred wages. If someone invested so they superseded the trust obligation, who should have benefited?

I heard someone earlier today talking about a conference in Berkeley. When we had the Heartland forums and were going around, we sponsored a conference in Berkeley with, I don’t know, a couple hundred people? And some bozo from the Department of Labor was on the panel. I had invited him. He managed to be on before me; I enjoyed that a lot. He proceeded to try and terrify everyone in the room, literally. So when I got to speak. I was very clear about what I thought about him, I was very clear about what I thought he had just done, and he sat next to me at the podium and he said, that’s not true. I said, “Everyone in the room who will feel safer now about your next decision to make an investment as a trustee, raise your hand after you’ve heard this guy. [Nobody did.] Everybody who’s more worried now that you’ve heard this guy, raise your hand.” Everyone in the room raised their hand. I said, “There, you’ve done your job. You came here and terrified people so they won’t do the right thing now.”

And the right thing is simply, as was explained, the prudent man rule. You don’t have to maximize any investment. And why is an investment in a union operation that can meet your average rate of return that’s needed over time less valuable than deciding to invest in a dot com? In fact, I said to the guy — that was one of the times I really enjoyed myself — I said to him at the time, “If you’re right, why aren’t you prosecuting everybody in Orange County? They’ll all be in jail, because they invested in derivatives, they invested in the Asian tigers, they did all that speculative investment, they rolled the dice and they were wrong. So they weren’t prudent. Put them in jail before you come here and tell a whole bunch of us what we can’t do.” Shame on us, shame on the labor movement, shame on us as individual leaders in the labor movement, shame on us as staff, shame on us as trustees, shame on us as workers that we’ve tolerated this baloney.

Take yourselves back to the savings and loan scandals. How many billions of dollars were lost in the savings and loan scams? Does anybody know? It quit getting reported after it was about $600-700 billion, right? It got up to that and then they arrested that gray-haired guy, whatever his name was, I can’t remember now. Keating, that’s it. Got a perp walk. He’s probably living in Florida someplace now. The Bush boys made off scot-free; everybody knew they had done the same thing as Keating, but they walked off scot-free, and anywhere between $500 and $800 billion dollars, gone. Now if you check a little bit, probably a couple hundred billion of that was workers’ deferred wages — gone.

The Asian tigers, 1995, ’96, ’97, ’98, think back. Wall Street Journal, The NY Times, every financial magazine, every asset manager would walk into your pension trustees meeting and tell you that you don’t have enough money in Asia, you don’t have enough money in foreign investments. There’s money to be made. Invest in the Asian tigers, wherever the hell they were in a half dozen Asian countries. And you didn’t know if you were investing in apples, bananas or oranges. You didn’t know if the stock market was regulated, unregulated, crooked or uncrooked. But it was some kind of hot economy.

Our union and the folks we were working with at the Heartland Fund made it our business to start running around the country saying that was absolutely crazy. Why would you take workers’ deferred wages, and move them to a country that’s going to start a business that’s going to undermine the living standard of the workers you’re representing? They’re going to ship that business back here to put your plan participants out of work. We funded the Asian development with North American workers’ deferred wages. We’re building Nike sweat shops, we’re building aluminum plants for Alcoa, we’re building car plants for General Motors and Ford that are putting Auto Workers, Steelworkers and UNITE workers and obviously construction workers out of business if we’re not building plants here. And we tolerated that bull. Then when the Asian economy collapsed, we lost up to a trillion dollars before they quit talking about it. How much of that was workers’ deferred wages?

Let me talk just a minute about the stock market bubble and the work that we did with Dean Baker of the Center for Economic and Policy Research on the investment practices of the pension fund industry. I would encourage you to read the highlights in the press release and to get a copy of the document off the Steelworkers web site at www.uswa.org. We’re going to try to promote this first level of research and we’re going to start to do a second level of research. But just a couple of highlights. Just the stock market bubble. Just the bubble. Not the fraud and corruption and not the scandals and what not, but just that bubble, cost private pension funds, Taft-Hartley and single employer funds, about $550 billion. Remember, what’s one billion? One billion seconds takes you to 1959. A billion dollars would fill this room with $1 bills. It’s not just a number. Public pension funds also lost about $560 billion dollars.

Now there’s an off-shoot to this. Anybody got car insurance, you got insurance for your own cars? Has your car insurance gone up this year? Has your house insurance gone up this year? Has your health insurance gone up this year? Do you know any insurance that hasn’t gone up this year? And gone up by astronomical amounts. That’s why I’m so ticked off at the doctors too, by the way. I wake up every morning ticked off at somebody. There’s such a list to pick from. Health care costs are going through the roof. If you’re a doctor, you’ve got to buy malpractice insurance. Doctors, you’d think are smarter. In fact, they make so much money, they lost their shirt in the stock market. But if you follow what doctors are doing, they’re out trying to blame tort reform for the reason they can’t buy reasonably priced malpractice insurance when the reality is, Sisters and Brothers, the insurance company lost its shirt in the stock market too! Insurance companies don’t make a lot of money on the premiums. Insurance companies were making a lot of money by investing the premiums in the market. And when the market collapsed, they not only lost the premium, but they lost the investment. So if they lost 35% plus the premium, and they’re coming back this year to try to make it back, what are they going to do? They’re going to charge you the premium, plus 35%, plus next time’s profit. So all of a sudden, your insurance has gone up 40% and you’re scratching you head saying, what the heck, I never had a fire, never hit anybody.

We don’t have to be very smart. We just have to think a little bit and try to do something about it. Instead, we accept the gobbledygook that’s on the 7 o’clock or 6 o’clock news, we accept the crap that’s in newspapers like the USA Today and all that stuff, and we go about our lives wishing for something better. We’re never going to get anything better unless we’re ready to fight for it. And for far too long, workers and workers’ representatives deferred our responsibility to so-called professionals.

We all got a bit complacent in the late 1990s, me included. I was looking ahead saying, I’m going to be OK. I put a little bit of money away in a 401K, put a little bit of money away here, mortgage rate was not too bad, wife said, I’d like to get rid of the little three cylinder car and get whatever they call those kind of country minivans. Yeah, OK, we can do that. How much can we afford for that? If I want to put an addition on the cottage, OK, how much can we afford for that? All kinds of folks thinking that they had good decent pension plans, thinking that health care was under control, thinking the economy was hot, and all that jazz, went out and loaded themselves up with personal debt. According to the research that we had done, close to $600 billion in additional personal debt by individuals was directly related to the stock market bubble.

Now, you can pick up any community newspaper almost any day of the week and read about normal folks going bankrupt. The level of personal bankruptcies this last year is the highest on record. But you’ve also got 400 corporations in the year 2001-2002 during the Bush presidency that were capitalized at a $100 million or more that went into bankruptcy. A whole bunch of them liquidated. Now this isn’t talking about the mom and pop restaurants and mom and pop this and mom and pop that, the small business guys. This is corporations of a $100 million or more. The stock market bubble and its investment scam with workers’ deferred wages has been devastating.

For most folks, it’s not a couple of perp walks of Enron executives and that other old guy from Adelphia. I think we saw five or six perp walks. Then they all disappeared and posted bond of a million dollars; if I’ve got a billion, that leaves me nine hundred and ninety nine million left. I’ll make it. Then I’ll take off for some place else and wait until my court date which may happen in two, three, four years; I may be sick and old or dead. We go on with our lives. We let somebody else fight our fight.

Last but not least, in the United States on a regular basis, year after year after year after year, somewhere between $200-400 billion a year are taken out of the workers’ deferred wages in the form of fees for pension asset managers, advisors, lawyers. You ever meet an asset manager that was willing to make as much money as plan participants?

Pension fund advisors theoretically are supposed to be some of the better guys. First time I served as a trustee of a pension, I thought they could teach me and I asked to have a session before the first trustees meeting so I would know what the rules were. After about half an hour, they had worked real hard convincing me that if I made any decision other than what they would recommend, they were never that clear, but the message was clear, if I was to try and vote any decision other than what they recommended, I needed to be very careful because I could be sued. There could be some disgruntled plan participant somewhere who would be very upset that I didn’t follow the professional advice of the advisors and I could have a very, very difficult time defending that suit and the economic consequence of that could be very severe. I said, “Well, you really don’t know me. I’ll tell you what I’ve got. I’ve got a $195,000 mortgage, I’ve got a Chevy truck and I’ve got a wife. You can take two of the three.” My wife said they could take all three. But, if you’re a trustee, I can guarantee that you’ve had that experience because they need to protect their food chain and we need to remember what we’re dealing with.

We’re working with workers’ deferred wages. We need to make sure that the fund has the economic wealth to meet its promise and then we need to invest in a way that’s best for the plan participants. It might just take a very broad look at the world. Take the Oregon teachers fund or the Washington State Teachers Pension Fund and they give two or three billion dollars to some Wall Street investment house that takes that money and invests it in China to build an aluminum smelter for Alcoa. Alcoa will then shut down its aluminum smelter in the State of Washington and, in the town where that smelter was, the town will disappear and 200 teachers will lose their jobs. Is that a prudent investment? Should some plan participants sue? Did I maximize the return? Did I reach beyond where I needed to reach? What’s the outcome of that decision and why should I sit on the sidelines? The same thing applies to all of us.

The trade deficit in America last year pushed $500 billion. As we speak, under this president, under this deregulated economy, with this collapse, we lose 563 jobs per hour, the average of the last twenty-six months. I’m not the smartest guy in the world, but that’s about 9.5 jobs per minute. So if I’ve been speaking for close to a half-hour, that’s what, about 285 jobs lost. All with our money. Our money is being used against us.

Stocks die, the dollar slides. The dollar is over valued. They work like heck to try and keep the dollar hot. They needed the dollar hot to keep a hot stock market, a corrupt stock market that people are very hesitant to get back into. We’ve got the health care industry out of control — not just health, all insurance is out of control. They tried to recoup their losses on the backs of all of us in society. We’ve got a $500 million trade deficit, we lost two million jobs in the last two years, manufacturing jobs. And the public sector has not hit rock bottom yet, because state after state after state is cutting, cutting, cutting, and we haven’t seen how many kids are going to get screwed in the system as each state starts to cut kid programs, health care for kids, cutting its welfare recipients, it’s cutting everything for the people at the bottom who have the least voice. The folks at the top are still getting their tax cuts. You’ve got a budget deficit that going to be out of control. Even the apologists for Bush are starting to have a hard time trying to defend it.

The one piece that I really think is missing, and I don’t quite know how to do this, and I want to spend some time thinking about it, but I think we need to take a group of labor Taft-Hartley funds and we need to form a coalition, we need to go and find the meanest, toughest junk yard dog lawyer and we need to sue the blazes out of every Wall Street investment fund. I don’t even care if we get any money. I just think we’ve got to get the junk yard dog and take it all on contingency. I’m serious. I’m not joking. I don’t mean this as a laugh. We’ve got to think about this as a tobacco case for workers. These guys, over the last ten years, have cost our members — they cost your kids and grandkids — billions of dollars. And God bless Elliot Spitzer. He got a billion dollar fine when you blew out five hundred billion. I heard this morning as I was lost on the highway someplace that they made a settlement with MCI Worldcom. MCI Worldcom is going to pay out a billion and a half dollars. $750 million of that will go to a lot of its bankers, etc., who thought they were hard done by. The rest should get a couple bucks.

The whole labor movement, and all of our Taft-Hartley funds, need to form a coalition and go find the meanest junk yard dog. Somebody that’s that mean and that vicious, that much of one of us, and we want to try to form more coalitions. We want to go after the state funding. We ought to shame them into filing lawsuits against their buddies. Why doesn’t the Governor of Ohio and the Treasurer of Ohio see how much they lost in Enron, in Worldcom and in the derivative scam and in the stock bubble scam, in the fraud scam, in the accounting scam, and figure all that out and sue the whole bunch of them and try to recover money for the taxpayers, try to recover money for the plan participants? This whole thing, folks, is not inside out to us. If anyone’s going to change it, it’ll be people like the people in this group.

Let me just close by saying that the AFL-CIO, Canadian Labor Congress, people like Rob Hilliard, president of the Manitoba Federation, Bill Burga, president of the Ohio state fed, Bill George of Pennsylvania, and a whole bunch of state fed presidents, are trying to get their arms around this. We need to help them. We need to give them our kind of support because this is as important an issue to workers as almost any other issue we deal with.

We made a very, very, very, very tough decision fifty years ago or more when we decided as a labor movement that the only way we could make sure that we’ll have something in our old age was to pay into a system where we can put something away in our younger age. And we helped to design a system where we would defer our wages during the time while we were working so that we could have something for the time we are not. It was part of the three-legged stool in both countries. It was the part of the stool that said, you have help here. You have your “private personal pension” and you have some form of public assistance, social security. And with those three legs of the stool, we should be OK in our old age.

We’ve done something, but we haven’t done enough. Now they’re in the process of systematically sawing the legs off the stool. The tragedy is we’re not sawing the legs off at the same level at the same time. If you fall off the stool, I’m not sure what part of your anatomy is going to be broke. I can tell you I’ve personally been to too many meetings, far too many in the last two years, and see people who counted on the system, who counted on the union, who lost their health care or their pension. They simply keep taking the crap. And we need to make the decision to support those who are willing to lead the fight, and we need to make the decision that we’re going to invest all the intellectual capital we have to figure out how to participate in the fight.

No one can stand at any podium and ever tell you that they have the answer because there never is one answer. I can tell you what I tell Steelworkers all the time. I tell Steelworkers every chance I get: If you choose to fight, I can’t guarantee that you’ll win; I can guarantee you’ll be part of the greatest fight to win. But if you choose not to fight, I can guarantee you that you’ll lose. I really believe fundamentally that in the current battle about workers’ capital, workers’ deferred wages, the labor movement, and our allies, the priests and the nuns, other progressives, if we develop a strategy and the commitment to fight, we will change and influence the system. No one can promise you what that will take, but anybody that stands at one of these podiums can promise you that if we don’t choose to fight, our kids and our grand kids as well as possibly ourselves in our retirement, are going to be much, much, much worse off.

I want to close by congratulating Bill Burga of the Ohio AFL-CIO, all the folks that participated in putting this conference and many others together, the National AFL-CIO, this is something we’ve only been doing now for a handful of years. So if you look back five years to see where we were, see how far we’ve come. Look ahead five years and you can see a vision of where we could be and how much better it could be for our kids and our grand kids.

Thank you very much.

gerardspeech