Modern Day Serfdom

Saturday, July 01, 2006

I was running errands last evening listening to that rapidly deteriorating news source NPR and caught a few minutes of a segmant on GM's woes. GM, which announced earlier this week that it will eliminate a quarter of its work force, attributes much of its falling fortunes to the ballooning costs of its pension plans. Much of what I heard, while weaving in and out of traffic, was a sober discussion of the bite pension plans are taking out of the big three. But what my NPR affiliate did not mention -- at least in the time it took me to drive home from my neighborhood Lowe's -- is that the pensions that are bleeding these corporations dry are not those of the unionized, "blue-collar" employees who will be displaced by GM's early retirement and buy-out deal. It's the massive pensions that are going to top tier executives.

As discussed in my most recent entry and in the ensuing comment thread, the United States is degenerating into a system of serfdom; a fact which is not lost on Madman in the Marketplace. His excellent diary on Liberal Street Fighter, "Providing for the Lords," is must reading. Drawing primarily from a Wall Street Journal report on this gauling pension disparity, he brings us to the inevitable conclusion; that working men and women in this country are devolving into a Medieval style peasantry in desperate need of torches and pitchforks.

Here are a few tidbits from Wall Street Journal's fine reporting.

To help explain its deep slump, General Motors Corp. often cites "legacy costs," including pensions for its giant U.S. work force. In its latest annual report, GM wrote: "Our extensive pension and [post-employment] obligations to retirees are a competitive disadvantage for us." Early this year, GM announced it was ending pensions for 42,000 workers.

But there's a twist to the auto maker's pension situation: The pension plans for its rank-and-file U.S. workers are overstuffed with cash, containing about $9 billion more than is needed to meet their obligations for years to come.

Another of GM's pension programs, however, saddles the company with a liability of $1.4 billion. These pensions are for its executives.

This is the pension squeeze companies aren't talking about: Even as many reduce, freeze or eliminate pensions for workers -- complaining of the costs -- their executives are building up ever-bigger pensions, causing the companies' financial obligations for them to balloon.

Thanks to WSJ's reportage we now know that it is the executive salary and pension costs that are tearing through these companies like pathogenic viruses, displacing America's workforce and imperiling the health of the companies themselves -- a fact buried in many corporate financials by lumping executive and low level employee pension figures together. Not only are the pension plans of average employees not a threat to corporate solvency, the earmarked dollars have been providing investment revenue. Just not enough to compensate for the massive bite taken by the pensions promised to chief executives.

When General Motors cites retiree costs, the giant auto maker has a point: It owed nearly 700,000 U.S. workers and retirees pensions that totaled $87.8 billion at the end of last year.

But $95.3 billion had already been set aside to pay those benefits when due.

All of these assets are earning investment returns, which offset the pensions' expense. GM lost $10.6 billion in 2005. But deep as its losses have been, they would have been far worse without the more than $10 billion per year in investment income that the GM pension plan for the rank and file generates.

The pension plan for GM executives is another matter. Unfunded to the tune of $1.4 billion, it detracts from GM's bottom line each year.

Just how much is a mystery, because GM doesn't break out the figure. It said executive pensions are "a very small portion of our overall expense" but declined to give the figure.

There is much more in both Madman's diary and the WSJ piece, including a sobering explanation of how both parties have enabled this disaster, guaranteed to raise the blood pressure. Highly recommended.


Simon Malthus said...

great post... and thanks for the recommendation. i'd seen that diary but not read it. still haven't... but i'm more likely to now.

one point about serfdom, as i happen to be reading a bit on the transition from it to the capitalist system: ideally, the feudal system was predicated upon a dynamic of mutual responsibility between peasants and lord. in order for capitalism to emerge the old system of responsibilities had to be broken.

though we think of the end of the feudal age as the beginnings of liberty, there were actually quite a few peasant revolts over the destruction of existing patterns of mutual obligation and local belonging. this because the new system was less about human freedom than it was about the liberation of capital from social obligation.

of course it wasn't presented that way. whereas the psychological and spiritual focus of feudal society was submersion of individual selfishness in the Holy Body of the Christian State (the common good), advocates of the free market imagined that the common good would best be served by unleashing individual avarice. selfish motivations long considered vices became virtues through the magic of market dynamics - by means of which individual evils were alchemically transformed into mutual gain.

i was surprised to learn - particularly because it makes so much sense - that systems of state welfare were instituted specifically to address the alienation brought about by the death of the old economic order and the birth of the new. with the commons subjected to ownership and patterns of local obligation abandoned and abolished, those people who now belonged nowhere and to no one - the collateral damage of economic liberalization - became the responsibility of the state.

anyway, pardon this recapitulation of the well known. i'm just starting to grasp the context of economic and ideological transformation that, once combined with technological innovation, gave birth to the industrial age.