Boeing, Labor Solidarity, Pension Risks & Opportunities

Kshama Savant, Seattle’s new Socialist City Councilmember, dreams of a Boeing owned by workers who produce mass transit vehicles for the commonwealth.  In the meantime, Boeing’s Machinists Union recently voted to approve a new contract that includes several “takeaways.”

Reaction to the close vote has been mixed.  State officials, who approved billions of dollars in tax breaks and other concessions, say the agreement is “good for the region’s economy.”  But many Boeing workers say the union shouldn’t have capitulated to Boeing’s demand that employees bear the financial risks associated with their pensions.

Here’s what struck me about this episode in the struggle between labor and capital.

1. Labor Solidarity in the PNW.  It’s hard not to be impressed by the willingness of union members to set aside their own personal interests for the sake of their comrades.  Boeing’s contract offer included the creation of a separate pension system for new hires.  Instead of Boeing’s current defined benefit pension plan (similar to Social Security), new employees would be enrolled in a defined contribution pension plan (similar to the individual retirement accounts favored by proponents of privatizing Social Security).  Leaving the details aside for the moment, a point worth stressing is that, while the pension system for current employees isn’t directly affected, the union still opposed Boeing’s two-tier pension proposal.  In effect, the union was willing to take considerable risk to protect the interests of workers (new hires) who aren’t even members of the union. 

Granted, union management has an organizing interest in maintaining union solidarity, which a two-tier pension system tends to fracture.  But let’s consider another local case of union altruism.  In 2008, during the City of Seattle’s budget crisis, most of the unions representing City workers voted to take unpaid days off (furloughs) in exchange for fewer layoffs.  Since individual layoffs are determined by seniority, very few union members actually faced the risk of being laid off.  Yet the overwhelming majority of union members still voted to accept furloughs, and their willingness to do so reduced the risk facing fellow union members who lacked the protection of seniority.

One notable exception, however, was Local 77, representing Seattle City Light’s electrical workers.  They voted against taking furloughs even though this meant more layoffs.  And unlike the Boeing dispute, the vote on furloughs didn’t involve a strategic bet on whether management would capitulate if the union rejected its offer.  This case was, in my view at least, a straightforward choice between sharing costs among all union members or “letting the devil take the hindmost.’”

2. Pensions and The Labor Movement.  Several decades ago, some left-wing thinkers believed that the huge pension funds being amassed to pay union retirees would give labor a stronger voice in the allocation of capital.  Perhaps unions would be able to bargain over the disposition of their pension funds, investing in companies that produced, say, buses rather than warplanes.  But this hope was not realized for a variety of reasons, and Boeing is now following the lead of most corporations by shifting to a more “individualistic” pension model based on self-managed retirement accounts.  The vision of “union pension power” was probably out of reach to begin with, since even public agencies, which also command massive pension funds, have done little to influence their investment practices (disgorging investments in South Africa and Sudan being notable exceptions).  Do the unions in Seattle pressure the Mayor and City Council to divest the City’s Pension Fund of its holdings in oil companies or Private Equity funds (a bastion of the top 0.1%)?  Quite the contrary, as far as I know (and I worked for the City for 28 years) City employees on the Pension Fund’s Investment Committee, union and non-union alike, have never voted against such investments.

3. Brave New World.  Boeing’s new hires won’t enjoy the safety of a defined benefit pension, which pays a fixed amount regardless of the pension fund’s investment performance.  Instead, these employees will have to manage their own portfolios in a defined contribution plan and bear the risks associated with their investments.  Yet, claims to the contrary notwithstanding, defined benefit pension plans aren’t risk-free.  To be sure, City of Seattle employees will get their defined benefits in spite of the Retirement Fund’s poor investment performance.  But they will get these benefits only because City workers are paying roughly 25% more in pension contributions, and the City is paying roughly 50% more in pension contributions than they were a few years ago.  I hope Boeing’s workers, with a natural antipathy to “money managers,” will reject the City’s practice of making costly bets on financial “wizards” who promise superior returns, but very rarely “beat the market.”

Councilmember Savant can’t do much about Boeing’s bargaining power, but perhaps she can convince the City’s represented employees and their unions to take a closer look at how the City’s $2,000,000,000 Retirement Fund is being invested.  And, if Socialism means what I think it means, Ms. Savant may wish to publicly declare that, when the City’s budget must be cut, policy making will favor unions willing to share this burden for the common good.