Pensions and Corporate Restructuring in American Industry: A Crisis of Regulation.

• Author: Burkhauser, Richard V.

Few economic events are more painful than the collapse of a large corporation and the subsequent unemployment of its workers. When this is compounded by the loss of their promised pensions after a lifetime of service, as was the case for many Studebaker workers in the 1960s, cries for reform fill the air. This economic calamity was in fact the impetus for the Employer Retirement Income Security Act of 1974 (ERISA). Yet in the downsizing of the 1980s it has been argued that ERISA was not an effective mechanism for protecting workers' pensions.

In this book, Gordon Clark, who is director of the Institute of Ethics and Public Policy in Industrial Relations at Monash University, wrestles with fundamental issues of equity and efficiency as they relate to ERISA and the effectiveness of the Pension Benefit Guaranty Corporation (PBGC) in protecting the rights of workers to promised pension benefits. He uses three case studies--Gavalik v. Continental Can Co.; Wisconsin Steel Company v. International Harvester Corporation, and PBGC v. LTV Corporation--as evidence that "regulation has lost its moral force, being now understood by managers and business consultants alike as just another cost of doing business. This attitude stands in contrast to the attitudes of unions and their members who look to the courts and the legal rules . . . . as the embodiment of social right and wrong". Most economists will have less trouble accepting the author's first assertion than his second.

In Gavalik the courts found that Continental Can was systematically dropping workers just prior to vesting. In Wisconsin Steel, the PBGC accused International Harvester of a sham sale to avoid pension liability and in PBGC, LTV was accused of illegally declaring bankruptcy to shift pension liability to the PBGC. The author uses these three cases to argue that "many other corporations may be deliberately and secretly circumventing their legal responsibilities".

The author develops standard economic models of rational decisionmaking to reinforce his claim that corporations cannot be trusted to do the right thing with respect to their workers. But he criticizes the work of economists who have used those same models to explain the behavior of unions, declaring that "I do not intend justifying here, at least, my opinion that union officials have a more complex set of motives and reasons for action than corporate executives". Game theory is used to show that "straightforward maximizers"...