Free Markets and Retirement Security. (Humanistic Economics)

By Buell, John | The Humanist, September-October 2002 | Go to article overview
Save to active project

Free Markets and Retirement Security. (Humanistic Economics)

Buell, John, The Humanist

With the bankruptcy of WorldCom, workers have even more reasons to worry about retirement. Enron had already highlighted risks in some pension plans, but World-Com's demise has led many to distrust all the information they receive from corporations and financial analysts. The very volatility of these markets now threatens broader economic recovery. Yet, unfortunately, much of the sensational coverage of financial markets and corporate crime glosses over the deeper problems in corporate governance. Jailing a few outrageous liers and cheaters is likely to amount to little more than the quest for sacrificial victims. Without greater democratization of the U.S. corporation and more just structures of compensation, most workers will have little to look forward to in retirement.

Enron's employees lost money in part because they were deceived and handcuffed. The company's auditors, who also had consulting contracts with the firm, had a financial incentive to sugarcoat information. Workers couldn't sell their Enron stock before age fifty.

Not to worry, says Republican stalwart Phil Gramm, just a few days before the WorldCom crash. The market is now aware of this problem. The New York Stock Exchange is demanding that corporations on its list hire independent directors. Corporations are bending over backward to provide comprehensive and honest annual reports. The market will punish firms that play games. And George W. Bush promises increased criminal penalties for overt fraud. Further reforms aren't necessary.

Enron- and WorldCom-style fraud was probably rare even in the heady days of the high-tech bonanza. The larger problem lies in the charades that go on between corporate managements and Wall Street brokerage houses and more broadly in the structure of corporate governance itself. The Washington Post points out that, even after admonitions to provide candid information, most corporate reports ignore bad news or blame it on "uncontrollable factors such as the weather, the economy, the stock market, or government regulation. There is precious little data and analysis on the key operating measures that executives themselves look at to assess the company's performance--things such as inventory turns or the cost for each new subscriber."

Conservatives argue that the job of investment houses is to sort through this fluff so that clients can make sound investments. Brokerage firms that buy corporate image will fail in the marketplace. They are probably right in the long run, but all of us don't retire in the long run. Right now many brokerage houses still have an incentive to join corporate CEOs in sugarcoating information. The most influential firms enjoy many investment-banking relations with large corporations. Even if analysts' incomes are structured to depend on the wealth achieved by individual investors, the income of the firm itself is still partially sustained by investment banking fees. Individual analysts, with their income now tied to the paper wealth of their clients, themselves may often still have an interest in getting aboard or helping to foster new market bubbles.

Even utterly scrupulous industry analysts and auditors will have difficulty in many situations. Those managements that can skillfully massage the news will continue to induce interest in their stock. The stock price will rise and analysts who don't get on the bandwagon will look foolish. They may not last long enough to mutter, "I told you so," as the bubble bursts.

If pension funds are to become equitable retirement instruments, our corporate order must start by providing more equal information to all.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Cite this article

Cited article

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

Free Markets and Retirement Security. (Humanistic Economics)


Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?