In April 1950, Charles Wilson, president of General Motors started a revolution by proposing a pension fund in the form of an investment trust to the UAW for GM workers. A growing number of older workers quickly accepted the offer and the GM pension fund began operating in October 1950.
"Within one year after its inception, 8000 new plans had been written - four times as many as had been set up in the 100 years before. Every single one of the new plans copied GM's one radical innovation, which has since been written into most of the older company plans as well."
Chapter 1: The Revolution No One Noticed
The GM investment trust would be broad - based and invest in America's productive assets. Contributions are personal savings which are then converted into transfer payments from active workers to retirees with the benefits most likely to be spent on consumption.
"As more and more of the beneficiaries age and begin to draw retirement benefits, the funds will increasingly need cash income rather than capital gains. They will need dividends, in other words, and will have to put pressure on the companies they own to increase dividend pay-out and to decrease retained earnings - and with them capital formation."
Chapter 2: Pension Fund Socialism: The Problems of Success
The surplus business profits of the economy are supporting retirees and this makes capital expensive and scarce. The corporate pension fund helps provide seniors with an income which reduces dependence on charity and family members. The best working economic policy is one that creates capital formation. This channels capital into productive investment.
Pension fund socialism has created an economic claim on the future. Future growth must be based on capital investment instead of on consumption. Productivity must increase in order to support the fast and growing older population. It's unrealistic to believe that workers suddenly become unproductive at age 65. A policy of late retirement is needed for economic and humanitarian reasons.
Peter Drucker was educated in Austria and England and has worked as a management consultant for the biggest corporations. He has also written several books on business management and economics.