For Labor Unions, Social Security Is A Matter of Clout

Labor unions have left no doubt about their opinion of President Bush's plan to create private accounts as part of Social Security. They hate it. When they aren't sending nasty letters to brokerages that back the proposal, they're staging rallies and news conferences.

The question is, why? Labor leaders say the president's recommendation endangers the retirement of millions of Americans and that they oppose it for the good of all workers. But there's a lot more to their position than that.

Whatever its merits, Bush's Social Security design threatens to undermine one of the few remaining sources of power for the long-faltering labor movement: access to money and the influence it brings. The AFL-CIO and its affiliates are going all-out to kill the president's plan not just out of altruism but also out of a sense of self-preservation.

Union membership has been declining since 1954, when more than a third of the labor force was unionized. Today, that percentage is 12.5 percent; if you take government workers out of the equation, the percentage is a mere 8 percent.

As an antidote to that calamity, unions have been trying to exert themselves not just from the bottom -- by organizing and recruiting new members -- but from the top -- by using their pension funds, which own hundreds of billions of dollars in corporate securities, to compel boards of directors to do what they want.

Unions have been at the forefront of corporate governance initiatives that have restrained executive compensation, required directors to act more independently from management and given shareholders more say in what companies do. Those efforts have put labor on a collision course with business executives more than usual.

Which brings us back to Social Security. The Bush effort would do two things to hurt organized labor.

First, it would speed the demise of the unions' preferred type of pension -- the kind that gives unions the most clout in the corporate world -- called defined-benefit funds. They are for the most part controlled by unions and provide set benefits to their retirees.

In contrast, Bush's private accounts would be defined-contribution funds which, like 401(k) plans, have set contributions but not specific benefits that come out in the end. Defined-benefit plans are already losing adherents. Since 1978, the number of defined-benefit plans has fallen to 26,000 from 128,000. If the president's proposal were to succeed, that trend would probably accelerate and further hobble unions.

Second, Social Security private accounts would flood the markets with money controlled by individuals, not organized labor. That would tend to dilute labor's voting strength on shareholder issues in general.

"Union leaders fear losing the bargaining power they have through their pensions and ultimately fear that the entire union model could become obsolete," concludes John J. Castellani, president of the Business Roundtable, a major corporate lobbying group.

In fairness, corporations would dearly love to see the AFL-CIO stumble on anything having to do with its corporate campaigns. Business groups have for years railed against labor-led proxy battles as costly nuisances if not outright obstacles to higher profits and growth.