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Salvo 05.04.2021 10 minutes

Sell Wall Street and Buy American

Bill Gates Delivers A Speech At The Fundraising Day At The Sixth World Fund Conference In Lyon

Public pension funds should invest in local businesses.

Public pension fund overseers in blue states routinely impose social or environmental investment guidelines on the trillions of dollars they control. New York City’s pensions, for instance, are divesting from fossil fuels, and other liberal localities demand that companies adopt diversity-driven hiring quotas to qualify for investment. By the same logic, red state comptrollers and other fiduciaries should reform their government worker pensions to move funds—at least in part—away from international corporations and toward small and medium-sized in-state businesses that employ local workers.

This reform will align with the interests of state and local regulators and educators with the interests of the people they serve. If a secure retirement depends on the success of the Fortune 500, public high school and college employees, or environmental and zoning bureaucrats, have little reason to worry about how medium and small home-town businesses are faring. But if their comfortable retirement depends on local prosperity, then educators will have a greater stake in their students’ ability to make a good living in the towns where they grow up, and government employees will see the local community, not Wall Street, as the font of prosperity.

Dump Global Corporatists

Major corporations, their executives, major shareholders, and human resources departments increasingly hate red state America. They take its tax breaks and economic development cash and land, while dictating to red states how to govern and be governed, threatening them if they don’t toe their cultural, political, and economic lines. They throw heavy economic support behind liberal partisans facing popular challenge. Why would any state’s people, or the governments they elect, tolerate their public workers’ interests being aligned with such imperialism?

One also has to wonder from a fiduciary perspective what the future of the Fortune 500 as a long-term retirement investment really is, as companies internalize wokeness, crony capitalism, critical race theory, and overt hostility to large segments of their markets. None of these trends characterize enterprises that are built to last in the way a retirement portfolio needs them to be. To the contrary, the irrationalism and woke trendiness in publicly traded boardrooms suggests complacency about their market position and lack of attention to maintaining it.

Despite their moral posturing, many of these companies have questionable ethics. At the same time that woke companies wring their hands about the legacy of American slavery, there is little expressed concern about slavery and coerced labor in other nations, like China. Should we be indifferent to the ties of Fortune 500 companies to regimes like China’s, or should we put our money where our morals are?

For many years, the California legislature has excluded particular countries from its state pension portfolios. The Golden State took steps to divest in companies doing business in Iran many years ago, as well as companies doing business in Sudan whose operations were complicit in the Darfur genocide. China is a repressive one-party regime that coerces abortions and is engaged in a genocidal campaign of atrocities against a growing number of its minority populations. Yet many U.S. publicly traded companies are heavily invested in China, source much of their global supply chain from there, and see China as the most important market for their future.

Invest State Workers in State Businesses

What does an alternative look like in practice? Instead of holding a portfolio of publicly traded equities, state pension funds could make loans available to local companies who employ home state workers. This could be done directly by the pension funds, but might be more effectively implemented through local, state-chartered banks. These banks are themselves local businesses, and have struggled in many parts of the country as national banks have captured market share while federal regulation has driven up the relative costs of compliance for smaller lenders and made them less competitive.

To help ensure that the loans are and remain sound and that the pension funds (and their beneficiaries) remain invested in home-state business success, pension funds should not repackage and sell the loans to outside investors. This will require a somewhat different investment culture, with a different type of business expertise, to manage. Partnering with community banks is a way of assembling and deploying this expertise more quickly. And as pension fund managers increase their expertise in good business planning and execution for local businesses that serve local markets, home state taxpayers who own and work in these businesses will benefit.

State pension funds could also make equity investments, also either directly or through venture capital firms that specialize in home state start-ups and established businesses which are ready to expand. Think of it as a new Silicon Valley—America’s.

This reform should also parallel a decreased emphasis on economic growth through recruited investment from publicly traded national and global enterprises, and instead building local and regional economies organically.

Getting Bureaucratic Skin in the Local Economy

With state and local government worker pensions re-invested in local businesses and employees (and no longer in Wall Street and China), those government workers will pay a different kind of attention to how they regulate land use and business development. A city planner whose retirement bread is buttered at the local bakery instead of by Wall Street will be much more interested in processing the expansion the bakery needs approval for. Building inspectors won’t put off doing inspections and issuing certificates of occupancy. State environmental regulators will be more reasonable about increased agricultural development. And police departments will be keener about protecting private businesses during “mostly peaceful” protests.

The benefits run in both directions. Taxpayers and business owners and employees who see better service and greater respect for their economic liberties, along with greater alignment between their interests and their government, may be less grudging about the taxes they pay and less skeptical of the virtues of bureaucracy.

Align Public University Faculty Interests With Local Prosperity

States should also invest their pension funds in educational loans for home state students at local colleges and trade schools, where reasonable underwriting criteria indicate that the loans can be paid back. Requiring state colleges to accept such loans, and to be partially at risk if graduates fail to perform, would further align the faculty and administrations of such schools with the interests of their students and of state taxpayers. This approach would reprioritize education toward knowledge and skills useful in the real world.

A useful pilot project might be to select one state college, recharter it to exclude the use of federal education dollars and assistance and run it on this model instead. This experiment could include operating the college with a lean administrative structure, minus an army of associate deans and vice-presidents.

A combination of measures that puts public colleges at the service of the community by reducing real cost of attendance, prioritizing education and skills development that promise a good living in the local economy and support self-government, and aligning the interests of faculty and administration with the interests of the populace, can all be implemented by investing college staff pensions in the livelihoods of their students and the businesses in their college towns.

Woke capital, like the railroad barons of 150 years ago, leverages its economic power for its own privileges and purposes, increasingly inimical to those of red state workers, voters, and taxpayers. It is indefensible that red state governments are heavy investors in an economic structure dedicated to their repression, and that state workers have their long-term economic interests aligned against their own employers, the taxpayers. State pension funds should sell Wall Street and buy American.

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