The Guardian March 20, 2002


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

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