America is at a crossroads, thanks to the combinationof UnitedAirlines’ record $10 billion pension default and the Pension Benefit Guaranty Corp.’s operating deficit. A major challenge to conservative thinking is taking shape before our eyes. Capitalists are urging socialist measures to address the looming pension crisis. Unless clear thinking prevails in Congress, American corporations will succeed in shifting their employee obligations from the private sector onto the taxpayers.
This goes far beyond corporate welfare. The new deal corporations are seeking in a global economy is to offload their costs onto government, while preserving transnational access to markets, consumers and labor. We saw the glimmerings of this nascent era of capitalist-socialism in the 2004 presidential campaign. CEOs from smokestack and high-tech industries supported the concept of universal health-care as a way to shed the burden of employer-provided health insurance. And no wonder. With the annual price of premiums rising at double-digit rates, health insurance now ranks alongside pension benefits as costs that sink troubled companies into bankruptcy.
U.S. corporations are fighting for survival in an increasingly competitive global economy, trying to keep up with competitors operating in countries where most workforce benefits, from health-care to pensions, are either provided by government or non-existent. Sending jobs offshore is one response; cutting benefits at home in order to trim labor costs is another. Whether they individually want to or not, the pressures of globalism are forcing America’s CEOs into becoming the vanguard of capitalist-socialism.
United’s pension default brings us to the threshold of this new era. To understand why, one must grasp the basics of America’s pension crisis. Most of the 30,000 defined-benefit pension plans that exist today are concentrated in our least-competitive industries. Collectively, these pension plans are underfunded by $450 billion. Every three days on average, a company defaults on its pension promises to employees and shifts the burden to the Pension Benefit Guaranty Corp., or PBGC.
In accordance with the 1974 Employee Retirement Income Security Act, the federally chartered PBGC will pay a portion of the retirement benefits due to United retirees, as it does for retirees hit by 2,000 other pension defaults since 1986. Under the 1974 law, the PBGC is privately funded through premiums paid by the companies whose defined-benefit pension plans it insures. No taxpayer money is involved. For 30 years, the PBGC managed very well with this system. But an unprecedented wave of pension-plan terminations over the past 18 months has damaged the PBGC’s financial condition.
The PBGC is $23 billion in the red. Therein lies the rub. While it has sufficient reserves to pay its current obligations for several more years, unless the PBGC gets an infusion of money it will eventually go broke. There is no funding crisis now, but one is coming.
Earlier this year, the administration proposed legislative changes that preserve the current system of private financing and ensure the PBGC’s solvency. Business groups are fighting the changes because they create new costs for companies. As a result, Congress and the White House are considering a taxpayer bailout.
If corporations succeed in making this matter of private contract law a social obligation, we will have taken the first step into capitalist-socialism.
It would be a serious mistake to toss aside the 30-year philosophy of reliance on the private sector to fund the pension benefit insurance program. Government cannot afford to start paying for promises to employees that corporations break, especially when tax revenues are inadequate for government to keep its own promises under Social Security and Medicare. Why should Congress become the insurer of last resort for retirees from Bethlehem Steel, U.S. Airways and United Airlines when millions of other workers who will have only Social Security to rely on face benefit cuts of 30 percent or more? Instead of appropriating funds to guarantee corporate retirees’ paychecks, Congress should enact the administration’s proposals to require business to “pay-as-you-go” into the PBGC’s coffers to keep the system self-sustaining.
This is the first skirmish in what will be a long war. Under the grind of globalism, corporations are driven to cut costs. If business lobbies succeed in getting Congress to pick up the tab for employee pensions corporations can no longer afford, a corrosive precedent will be established. Health insurance will be next.
Conservatives, who see themselves as champions of free enterprise, are unaccustomed to thinking of CEOs and corporations as adversaries. Yet in this contest, corporations and conservatives are on opposite sides.
The crucial challenge is to devise conservative solutions to the crises in health care, retirement and the middle-class squeeze to fill the gap that will be created as corporations withdraw from providing employee benefits. Without viable conservative alternatives (and in my opinion there are none on the table today adequate to the problems) the pressure for government solutions will become uncontainable.
America, like China or the European Union, will end up with a capitalist economy but a socialist state.
John B. Roberts II served in the Office of Planning and Evaluation and the Office of Political and Intergovernmental Affairs in the Reagan White House.