To AFR columnist Jennifer Hewett, the CFMEU complaining about ethical standards in investment strategy is ‘almost hilarious’.

Secretary John Setka has been hounded in the financial press for campaigning to get members of the Victorian Branch of the union to leave the superannuation scheme Cbus, as punishment for investing in Grocon. He has also been criticised by much of the financial establishment, the federal minister covering superannuation and industrial relations, Bill Shorten, among other Labor figures, and the Coalition.

The dispute with Grocon boils down to the construction company’s safety record and how safety issues are industrially managed on site. The building unions are again protesting next to the collapsed wall that killed three pedestrians in Melbourne’s CBD one month ago.

The dispute has also torn the labour side of the superannuation industrial complex apart. One of the architects of that system, Garry Weaven, told me ‘there needs to be due regard paid for the integrity of the system, and not feeding the interests of the enemies of the system.’

Beneath the wrath, and beneath even the compromising tone of figures like Weaven, lie numerous political ironies in how the system has developed to arrive at the current crisis.

To the University of Sydney Business School’s Mike Rafferty, whose work focuses on superannuation and employment issues, a ‘paradox’ for the unions is that ‘one of the appeals of superannuation was that workers capital was going to give them leverage over invested savings to use their capital ethically’. But as superannuation has unfolded, ‘the idea has hardly ever been tested.’

‘Now the main power seems to that of exiting the fund,’ he said.

From governance to the market

The oddly tripartite neoliberal project in Australia, involving labour, employers and government under Hawke and Keating, reformed the economy towards a free market ideal. Yet superannuation has created a situation in which trade unions are potentially more indignant today over how a part of capital is used, or abused, than they were when social democrats and socialists campaigned for government pensions.

Financial journalist Christine St Anne records in A Super History the labour movement’s early industrial campaigns for superannuation funds managed by unions, often with the assistance of employers. Some companies were so fearful of the idea that they offered higher wages rather than give the unions a foothold in superannuation. Maoist leader of the Victorian BLF Norm Gallagher was reluctant, feeling pensions should be paid by government.

Current ETU Victoria Secretary Troy Grey says ‘it was never either free market or socialisation’.

Garry Weaven was intimately involved the eventual transformation of the industrial campaign for compulsory superannuation into a pragmatic power-sharing deal between unions and employers on the governance of Industry Funds.

That arrangement has also provided hundreds of former union officials with well-paid roles in superannuation administration and sales teams. Today, almost all Industry Funds have less than a majority of union representatives on trust boards, requiring power sharing and compromise.

But the blow John Setka now claims to be able to deliver against Cbus by removing some $5 billion to $7 billion relies on the market power of union members, not on the governance structure of Industry Super. It is because the building unions are fed up with the governance structure that they are threatening to leave, flexing the market power of workers capital.

Ironically, it is the political Right that is the most scathing of the new democracy in the market. The Australian’s John Durie described the building unions’ ‘contemptible’ decision to invite Cbus to argue its case to remain the default fund as ‘a commercial tender to get its own money back’.

In order to switch funds, building workers need to add a new fund to enterprise bargaining agreements, many of which expire in 2014. Their choice rests on their industrial strength to negotiate agreements and their willingness to switch funds.

Garry Weaven calls the prospect of the building unions leaving Cbus a serious mistake, but ‘the establishment has been advocating choice for years, I don’t know why they get so upset about it now’.

Re-asserting governance

Against this backdrop, the attack on the unions’ role in superannuation governance is a non sequitur, at least in the building industry.

The Coalition has indicated it will implement reforms to require more independent directors on Industry Super boards.

‘Independent’ trustees are in fact generally appointed by the existing board or fund CEO. That is why, as a compromise between unions and employers, right-wing former ALP politicians tend to fill these roles. Former Keating-government treasurer John Dawkins is the independent director for Cbus.

Some have speculated that the Coalition will use the Grocon dispute as a pretext to remove union representation entirely. This would remove from the Cbus board CFMEU figures such as Dave Noonan, who is campaigning to keep the union in the fund. It would do nothing to curb the influence of Setka.

Dismantling or further diluting the power-sharing deal within most Industry Super funds would be a heavy blow to the union movement as a whole but it makes no sense in the building industry.

For most industries, the non-market governance structures of Industry Super boards probably overestimate the real power of unions in markets today.

But Garry Weaven admits the building unions could probably go it alone, with no employer representation, if they wanted to. Troy Grey from the ETU says it’s an option they haven’t ruled out. To combat that scenario and put building workers’ money back under corporate control, the government would effectively need to seize their assets – in other words, nationalise them.

No matter which way you look at it, to stop unions exercising the market power of workers capital, the government would need to attack ‘choice’ and re-assert a top-down governance structure. It means attacking the most precious ideological commodity of the system.

Regulating choice

The attack on Setka’s lack of fiduciary responsibility, such as by Sally Patten in AFR, is effectively this call to re-regulate control of superannuation savings. The constant references to Setka’s criminal record by many commentators are thrown in to boot.

But if the difference of opinion between the unions and Cbus over Grocon’s safety record really does come down to the legal responsibility of superannuation trustees to act in the best interests of members, as investors, then the opposite must also be true. Trustees are perhaps legally required not to take their members best interests, as workers, into account.

That is a problem for a trade union leader. If better safety threatens higher profits, trustees are being asked to go with higher profits. Thankfully, Setka is unlikely to become a director of Cbus due to his criminal record, according to the financial press.

In other words, from the point of view of fund members as workers, Setka’s lack of fiduciary responsibility and his criminal record could make him a very honest trade union leader when it comes to superannuation – perhaps one of the most honest to participate in the system in a generation.

The advantage in being outside the system stems from the rulebook of the financial industry, which attempts to prevent the concerns of workers from influencing investment decisions,  regardless of the governance structure of Industry Funds. As the Australian Prudential Regulation Authority’s deputy chairman Ross Jones told The Australian ‘the focus should be on the behaviour of the board’ and ‘The structure is less important.’

Trustees are only allowed to into account a narrow definition of members’ financial interests – excluding the wages of members working in the industry for example.

The concerns of fund members may be financial, ethical, related to their own work safety, sustainability, or any matter relating to how their money is used. But if any of these interests contradict with a purely capitalist mentality, they could constitute a ‘conflict of interest’.

Troy Grey believes member representatives on super-fund boards may even have fewer incentives than normal corporate managers to make investments that have additional benefits to their members. A strict interpretation of ‘sole purpose’ means these could be seen as a conflict of interest – one that employers or independent directors do not share.

‘This is the perverse outcome of a system that was intended to give workers some representative input into investment governance,’ he says.

Unlike employers and independent directors, union representatives are democratically accountable to a sizable portion of the fund’s membership. In some funds, members actually elect their own trustees – a model that has on occasion been rejected by both union and employer reps, fearful of losing their power. Either way, the more democratically accountable representatives are, the more they will be subject to the genuine, and potentially diverse, concerns of fund members, as people. Fiduciary responsibility literally means being responsible to a person’s assets.

Financial regulation effectively imposes a kind of split personality onto member representatives on super boards – indeed onto fund members themselves. It attempts to separate the interests as workers from the interests as investors even though in the unions-Cbus-Grocon dispute, they are largely the same group of people.

Workers with capital

If workers are influencing investment decisions this does not automatically mean they will choose less money for more ethical outcomes. In fact, all political shades of labour within the superannuation industrial complex appear to ultimately justify their positions in terms of higher investment returns.

Grey is convinced that within the construction industry, safety and industrial problems are typically the result of cash-flow, legal and other mismanagement issues, all of which make Grocon a bad investment. He has written that the Grocon dispute ‘could be the start of the quiet revolution in workers’ capital, as companies consider the safety of their workers as a core condition for receiving much-needed institutional investment.’

Weaven claims the main difference between Industry Funds and their retail rivals is the former’s better returns, not an alternative ethical or economic framework.

Likewise, Mike Rafferty’s research indicates a correlation between the not-for-profit structure and higher member returns, but he has not found a substantive difference in the types of investments Industry Funds make in terms of say ethical issues or labour standards.

Nevertheless, the Cbus dispute raises the prospect of taking into account economic benefits that cannot be measured by a bank statement. This is similar to Labor’s ‘social wage’ argument of the eighties, except that it is not the state doing the socialising.

Workers with super invested in their own industries have no reason to necessarily favour more money over better safety, or perhaps choosing what is constructed in their communities to suit themselves.

How far workers could take this logic if they pushed for it under the current superannuation arrangement is anybody’s guess. It’s difficult not to see the renewable energy company Pacific Hydro, owned through subsidiaries by a large number of Industry Funds, as an investment already made under a slightly different ethical framework. Garry Weaven is the chair of Pacific Hydro’s board, and is one of the most powerful advocates for action on climate change in Australia.

The implications of workers taking into account a wider range of economic choices might fit well within the ‘more is better’ ideology of our society, and still threaten the business community.

Pacific Hydro effectively closes the circuit of production owned by workers capital – cutting out middlemen in intermediate markets between labour and finance. While a bureaucracy still mediates between workers and their savings, pockets of the superannuation system have nevertheless fostered an ideological link between work, savings, ownership of capital and control of production. This is a potentially dangerous idea.

Earthworker in Victoria aims to establish a cooperative that manufactures solar hot water units in Morwell, and eventually to ‘invite superannuation funds to partner with Earthworker’, according to their website. Testimonials include economist Ross Garnaut and ACTU president Ged Kearney (a director of Cbus).

If super funds were to invest in projects like Earthworker, it would add a democratic structure to the shop floor of a superannuation model, with the profits going to retirees.

For the moment, Earthworker is engaged in a ‘100,000 Australians’ campaign to raise the funds to get the project off the ground. Meanwhile blue-collar unions campaign for government subsidies for for-profit manufacturing in the hope that jobs will trickle down. The strategy has proven grossly inefficient.

To date, there remains no financial connection between projects like Earthworker, initiated and supported by unionists, and the trillion plus dollars in workers’ capital within the superannuation system, managed with the assistance of the unions. The split personality of workers capital remains, more or less, intact.

Split personalities

An economics lecturer of mine once diagnosed Robinson Crusoe with schizophrenia to explain why he sold apples to himself on the island. The neoclassical economist was not, as far as I know, drawing on Deleuze and Guattari’s Capitalism and Schizophrenia for this insight.

Australia’s superannuation system provides a similar way of looking at the economy. It’s your money, often invested in the industry in which you work – in a sense making you a part-employer of yourself. At an aggregate it makes workers part-employers of workers.

But workers are not allowed to consider the impact of superannuation investments on themselves, even financially, if these considerations contradict how employers or corporate manager might look at the situation.

Instead of adding a small degree of socialisation to the economy, therefore, it can be argued the defined-contribution and volatile-returns system has instead grown to play an important role in tying workers to the needs of capital. Workers worry about their retirement savings, and can potentially be asked to support reactionary measures to ensure profitability, even against themselves if necessary.

To the cynic, this is entirely the point. Yet the process can also happen in reverse.

The building unions’ fight with Grocon, via financial markets, raises the prospect of rationalising capital to the real needs of workers’ lives, rather than striving for capital accumulation for its own sake.

For this reason, after the rally at the collapsed Grocon wall, and with a decision on Cbus expected shortly, we will likely see more calls from the Right for the re-regulation of superannuation as the prerogative of employers or the state – even if this seems contradictory in a neoliberal era.