Free markets and retirement security. (Humanistic Economics).

With the bankruptcy of WorldCom, workers have even more reasons to worry about retirement. Enron had already highlighted risks in some pension plans, but World-Com's demise has led many to distrust all the information they receive from corporations and financial analysts. The very volatility of these markets now threatens broader economic recovery. Yet, unfortunately, much of the sensational coverage of financial markets and corporate crime glosses over the deeper problems in corporate governance. Jailing a few outrageous liers and cheaters is likely to amount to little more than the quest for sacrificial victims. Without greater democratization of the U.S. corporation and more just structures of compensation, most workers will have little to look forward to in retirement.

Enron's employees lost money in part because they were deceived and handcuffed. The company's auditors, who also had consulting contracts with the firm, had a financial incentive to sugarcoat information. Workers couldn't sell their Enron stock before age fifty.

Not to worry, says Republican stalwart Phil Gramm, just a few days before the WorldCom crash. The market is now aware of this problem. The New York Stock Exchange is demanding that corporations on its list hire independent directors. Corporations are bending over backward to provide comprehensive and honest annual reports. The market will punish firms that play games. And George W. Bush promises increased criminal penalties for overt fraud. Further reforms aren't necessary.

Enron- and WorldCom-style fraud was probably rare even in the heady days of the high-tech bonanza. The larger problem lies in the charades that go on between corporate managements and Wall Street brokerage houses and more broadly in the structure of corporate governance itself. The Washington Post points out that, even after admonitions to provide candid information, most corporate reports ignore bad news or blame it on "uncontrollable factors such as the weather, the economy, the stock market, or government regulation. There is precious little data and analysis on the key operating measures that executives themselves look at to assess the company's performance--things such as inventory turns or the cost for each new subscriber."

Conservatives argue that the job of investment houses is to sort through this fluff so that clients can make sound investments. Brokerage firms that buy corporate image will fail in the marketplace. They are probably right in the long run, but all of us don't retire in the long run. Right now many brokerage houses still have an incentive to join corporate CEOs in sugarcoating information. The most influential firms enjoy many investment-banking relations with large corporations. Even if analysts' incomes are structured to depend on the wealth achieved by individual investors, the income of the firm itself is still partially sustained by investment banking fees. Individual analysts, with their income now tied to the paper wealth of their clients, themselves may often still have an interest in getting aboard or helping to foster new market bubbles.

Even utterly scrupulous industry analysts and auditors will have difficulty in many situations. Those managements that can skillfully massage the news will continue to induce interest in their stock. The stock price will rise and analysts who don't get on the bandwagon will look foolish. They may not last long enough to mutter, "I told you so," as the bubble bursts.

If pension funds are to become equitable retirement instruments, our corporate order must start by providing more equal information to all. Independent board members are a feeble start. A sounder course of action would be to require both worker and consumer representation on corporate boards. These members must have full access to all financial and operating information. Workers and consumers have both the knowledge and the incentive to spot problems that can endanger the long-term viability of the firm

More broadly, now is an ideal time to explore more fully the issues of corporate governance. More honest and efficient corporate performance depends less upon harsh criminal sanctions than it does on the voice and role both workers and the public can have in corporate affairs. The modern corporation is a publicly chartered entity enjoying immense legal privileges. Yet here in the United States, unlike many European nations, most corporate employees enjoy minimal rights to organize, seldom have an equity stake in their firms, and cannot even exercise basic rights of free speech within the workplace. More than half of U.S. workers don't even have pensions to be wiped out by market collapse. In addition, the share of workers who could count on receiving more than half of their current income in retirement fell from 70 percent to 58 percent even during the boom of the last decade. Denying workers minimal rights leave them vulnerable to economic downturns and deprives corporations and the public of capable whistleblowers and vital talents.

As the dust from WorldCom and other corporate swindles fades, investors and policy analysts would do well to step back and take a broad look at the history of the market. The stock market is likely always to remain something of a crapshoot. Left Business Observer editor Doug Henwood points out that $10,000 invested in the market in 1937 would have yielded $250,000 thirty years later, while $10,000 invested in 1972 would yield $73,000 today. Social Security--a frequent target of conservatives--is on more solid foundations than the market. Despite reliance on absurdly pessimistic assumptions about overall economic growth, Social Security trustees can still report the system is financially sound for almost four more decades. Even at that point it would need only modest changes to remain solvent another four decades.

Despite recent declines, the stock market is still trading at a price-to-earnings ratio well above historic averages. For the market to deliver returns equivalent to 1937 to 1967, one must make heroic assumptions about either the rate of growth of profits or long-term changes in the price-to-earnings ratio investors are willing to accept.

If retirement income is to be adequately and reliably supplemented by private pensions, workers must have options that include lower risk, long-term annuities. Employers offering pension should be required to provide both some risk-free options--such as guaranteed annuities--as well as access to genuinely independent advice regarding risks and opportunities.

Secure retirement income requires a healthy Social Security system uncorrupted by risky privatization schemes. It also depends upon pension funds for all workers premised on equal information and opportunities for secure and less risky investments. Gaining such opportunities in turn depends on workers gaining a greater voice in corporate affairs. The stock market is no magic bullet. A secure retirement is unlikely without some heavy political lifting.

John Buell lives in Southwest Harbor, Maine, and writes regularly on labor and environmental issues. He invites comments at [e-mail].