Enron: capitalism in a nutshell (Part 5):
Ripped off at work, ripped off in retirement
by Anna Pha "It's unconscionable that hard-working, dedicated workers were forced to sacrifice their life savings to prop up a failing company", said Edwin Hill, President of the International Brotherhood of Electrical Workers (IBEW), testifying before the Senate Commerce, Science and Transportation Committee in December 2001. "Those who ran the company into the ground certainly aren't wiped out financially — just the workers who made their success possible." "Little did those of us working hard every day to make the company successful know what was going on at the top of Enron", Bob Vigil, an electrical machinist working foreman, told the Senate Committee. "We trusted management's glowing reports of strong financial growth and opportunity. Then in October 2001, Enron's house of mirrors came crashing down." Bob is one of almost 1000 members of IBEW Local 125 who worked at Portland General Electric (PGE) in Oregon, which was taken over by Enron in 1997. He worked there for 23 years. The shares in his retirement savings account automatically converted to Enron stock at the time of the takeover. Now they are almost worthless. Tragic losses Bob Vigil gave examples of some of the devastating losses suffered by other PGE workers: Tim Ramsey, age 55, 33 years with PGE, lost US$995,000; Roy Rinard, age 53, 22 years with PGE, lost US$472,000; Al Kaseweter, age 43, 21 years with PGE, lost US$300,000 plus,.... "There was a time not so long ago when we all thought [Enron CEO] Ken Lay was just the most wonderful person in the world", said Shane Yelverton "but now we're hearing all this stuff: that he was selling off stock, even while he was telling us not to sell our stock. It's disgusting." Charles Prestwood, who retired in October 2000 with US$1.3million worth of shares in his Section 401(k) retirement fund is more than disgusted. "All those dreams are gone now", Mr Prestwood said. "I've lost everything I had. I'm just barely surviving." When Enron shares were in free fall, all employee shares in Enron's retirement schemes were frozen while Lay and the other executives sold their shares as fast as they could. Lay even encouraged workers to buy more shares while selling his. The executives cleared out on their golden parachutes raking in US$1.1 billion in a matter of weeks. When the freeze on workers' shares was lifted, the biscuit barrel was bare and Enron and Arthur Andersen's shredders were working overtime. The 11,000 employees lost more than a billion dollars and are suing the corporation to try to freeze the US$1.1 billion — if it has not already been stowed away in secret bank accounts in the Hayman Islands. Shareholders have joined in a class action, accusing Enron of perpetrating "one of the most serious securities frauds in history". While the regulators, politicians, state officials, banks, accountants and courts were looking after the executives of Enron, nobody in officialdom was looking after Enron workers. Enron workers not alone Many US corporations are implementing Enron's practices, forcing employees to put their retirement funds into their employer's stocks and shares. For example, over 75 per cent of the retirement fund for workers at Texas Instruments is in company shares. At Proctor & Gamble as much as 95 per cent are in company stock. At Pfizer it is 74 per cent, at McDonald's more than 74 per cent. "On average, 43 percent of the savings in retirement plans run by the nation's largest employers are comprised of their own stock..." ("The New York Times", 17-1-02) "People's capitalism" The spread of share ownership serves a number of economic and ideological purposes. Firstly, it means that workers give back to the company much of their hard earned wages with no guarantee that the bits of paper they receive in return will be worth a cent when they retire or wish to withdraw savings. It provides the capitalist class with an additional pool of capital to invest, thieve and gamble with — someone else's savings at no risk for the managers in control. It has the aim of tying workers to their employer and denying the existence of two contending classes — labour and capital. "Work hard, don't go on strike; don't demand wage rises or shorter hours; we have common interests in seeing the company does well." It is presented as a "win — win" situation. The reality, as Enron and others show, it is a "win — lose" system, with the winner being the big shareholders, auditors and others in control of the corporation's affairs. Lessons of privatisation Tim Wheeler, writing in People's Weekly World reports that 31 state and local pension funds lost a combined US$1.5 billion in the collapse of Enron. The Florida state pension fund lost US$335 million when its 7.6 million Enron shares plunged from US$80 to 28 cents per share. The Florida system, covering public sector workers, is managed by 60 private "money managers". An Enron director was on the executive of one of these "managers". He allegedly convinced the Florida pension fund managers to pour millions into Enron, including US$7 million when Enron was losing millions and the Securities Commission was carrying out an investigation into Enron. The shares were only sold when the share price had plummetted to 28 cents - - two days before Enron filed for a Section 11 bankruptcy. Tony Hill, a former Jacksonville longshoreman who served two terms on the Florida legislature spoke to "People's Weekly World" about governor Jeb Bush's (brother to the President) plans to completely privatise the Florida's state pension system. "If you think this Enron collapse is a scandal, consider what will happen if Jeb Bush succeeds in turning over the $110 billion in our state pension fund to the greedy folks on Wall Street", warned Tony Hill. "Already we are moving from a defined benefit pension system to a defined contribution system. That means the benefits will go down when the stock market goes down." "We are allowing people to opt out of the defined benefit plan and take their money somewhere else, trusting companies like Enron to guard our retirement money." In Australia In Australia, there has been a rapid growth of workers' retirement savings in the form of industry funds (workers' superannuation) and a shift in the type of scheme from defined benefit (where a predetermined pension is paid) to a lump sum which depends on the performance of the fund. In the 1980s, the Hawke/Keating Labor Government legislated for compulsory occupational superannuation. Up to that point workers had paid taxes during their working life and on retirement could expect to receive a government aged pension of a specific amount. Compulsory superannuation was extended to most workers. Previously, superannuation was mainly confined to public sector and professional employees. The commitment to a universal aged pension was dropped, stricter means and asset testing were introduced and workers with superannuation cover were encouraged to switch from the defined benefit schemes to ones where a lump sum is paid on retirement from superannuation funds. The proportion of the workforce belonging to a superannuation fund rose from 51 per cent in 1988 to 81 per cent by November 1995. The plug is gradually being pulled on the public pension scheme. Bit by bit more retirees are disqualified. At best, it will become a minimal "safety net" for those who were on extremely low wages, were only in the workforce for short periods or whose superannuation scheme went bust or the employer failed to make the compulsory contributions. Shifting the risk Superannuation funds have provided financial institutions with a new, ever increasing, source of funds to manage and, at the same time, to increase their control over the economy as they decide what will be invested and where. At present there are restrictions on workers' superannuation being invested in company shares but Australian employers would like to move closer to the US system, where companies can hoe into their employees' retirement savings. The shift in focus to self-provision by individuals undermines the collective philosophy underlying a universal pension provided by the state. The state withdraws from its responsibilities to protect the well being of the people. It is a process that is also under way in health, education and social security. The Financial System Inquiry (FSI) produced a discussion document (November 1996) on the results of financial deregulation in Australia. It stated that one of the implications "of the trend away from [bank] deposits towards managed funds is that customers are increasingly taking on risk in financial transactions. With a state pension the risks are shared by society — the government is in effect guarantor and can draw on its huge resources as well as regular payments [taxation] by workers. With an old fashioned bank account, a deposit was made, a set interest rate paid and the full deposit was repayable. The bank took responsibility, regardless of how well it invested the deposit. Private superannuation and the many other investment schemes now being promoted shift the risk onto the investor. There are no guarantees. The big banks and financial institutions take no responsibility. It is the investor's capital which is at the mercy of "market forces". The investor risks all and could lose all as did Enron shareholders. The final FSI report (Wallis Report, March 1997) points out that "Since the value of market linked investments can rise and fall, households are directly bearing a greater proportion of market risk". At the same time, the privatisation of the Commonwealth and State banks and insurance offices has resulted in the loss of any government guarantee of funds. The investor is supposed to weigh up the pros and cons of investment schemes and the potential to make (or lose) big bucks or smaller bucks. It is one big gamble were investments are controlled by the big financial institutions, accountants, law firms and corporations. Some Australian workers have already had a taste of the same capitalist depravity as has overtaken Enron workers. The bankruptcies of Ansett, HIH and FAI have all been associated with the non-payment of workers' entitlements. Inevitably, more will occur as capitalist economic crisis intensifies.
* * *Next week: How to change things