Pension Politicization

October 26, 1999

Monday's Los Angeles Times gives as good an example as any as to how easily government investment of pension funds can become politicized. The California Public Employees Retirement System (CalPERS), the nation's biggest public pension system, controls $155 billion in workers' retirement assets. Yet, CalPERS's investment practices have drawn it into a historical grudge match between Turks, Greeks and Armenians.

CalPERS invests a portion of its funds in Turkey. A recent report sent to CalPERS about Turkey's investment environment downplayed Turkey's World War One-era mistreatment of ethnic Armenians, which resulted in untold numbers of deaths. California's State Treasurer Philip Angelides, who is of Greek descent, has protested the report. In turn, CalPERS Chairman Charles Valdes (whose descent is unknown) has attacked Angelides, saying that the historical Greek animosity toward Turks has colored Angelides judgment of the situation.

This whole ugly affair raises two larger questions for the Times: "Does public money have a social conscience? Or is the sole focus of pension funds to make the maximum return for the retiree?" Yet, the Times misses the real question: "Who decides?" Do individuals decide how their money is to be invested, or do politicians make those decisions for them? Do individuals decide whether their money should have a social conscience, or does someone else force their own social views on them?

Under a system of personal accounts, nothing prevents a worker from making socially responsible investments, according to his own definition of social responsibility. But nothing forces him to, either. Government directed investment doesn't just make lower returns; it turns personal decisions into political issues, with the results like those seen in California.

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