The following is an excerpt from Invested in Crisis: Public Sector Pensions Against the Future by researcher Tom Fraser. Fraser traces the rise of the province’s mega-pension-funds by melding history, geography, and political economy to situate this growth in the context of Ontario’s deindustrialization, the rise of finance, and the global politics of the built environment. The book delves deep into the sordid stories of the public sector pension fund investment world: the massive real estate projects, the infrastructure privatization debacles, how unions fight back, and what needs to be done so we can all save for a better future. For more information, visit www.btlbooks.com.

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As Canada’s welfare state apparatus expanded in the postwar period, so too did its public sector labour force, which became a key terrain of labour organizing from the 1950s through to the 1970s. This totally changed the face of organized labour; by 1975, half of Canada’s labour movement was employed in the public sectors. The Canadian Union of Public Employees (CUPE), representing workers in the municipal sector across Canada, grew 140 percent in its first decade following its foundation in 1963. A thousand people were joining CUPE a month. The centre of gravity in organized labour was changing—public sector unions grew rapidly while union decline in the private sector, a by-product of deindustrialization, began to set in through the 1970s. This dramatically changed the gender dynamics of the labour movement, as the public sector had a far greater preponderance of women employees than the industrial private sector.

This shift in union coverage from the 1970s onwards was paralleled by a shift in pension coverage away from defined benefit (DB) plans and towards what are called defined contribution (DC) plans, a process that really got cooking in the 1980s. In contrast to a DB plan, in a DC plan, workers’ and employers’ contributions are invested via individual accounts and the worker receives whatever is in that account at the moment of their retirement. The risk of poor investment performance, therefore, falls entirely on the employee—if financial markets crash the day before their retirement, they take the hit. Because DC plans are significantly riskier for retirees than their DB counterparts and are significantly cheaper for and protect the employer, they are more desirable for employers. As union density has declined in the private sector, DC plans have replaced DB ones.

But the attack on private sector pensions was not limited to the rise in DCs, a by-product of declining private sector union density. It was not just that deindustrialization gutted private sector unions—it also directly attacked workers’ pensions. American companies through the late 1970s and 1980s took advantage of new funding regulations adopted in the mid-1970s to close plants and cash out of pension obligations by pocketing the surplus. More legislative care was taken in the Canadian context to protect workers from the theft of their pensions but these issues were front of mind for Canadian unionists as plant closures made prenegotiated retirement benefits that had seemed guaranteed seem suddenly ephemeral.

While the dissolution of private pension plans during corporate bankruptcy proceedings in the 1980s captured the attention of both media and the labour movement, a more quiet but equally consequential change was occurring outside the public eye. Running parallel to the shift in the labour movement from private to public sectors was an insistence from multiple stakeholders in the pension industry that public sector funds be run like their private sector counterparts.

Public sector pension coverage, which had originally been rooted in notions of service and loyalty, came to be part of the collective bargaining system, as it was in the private sector. Employer-based pensions—in which the employer was the state—through the twentieth century became almost universal in the public sector, just as pension coverage in the private sector was becoming increasingly patchwork. While private sector pension coverage had been part of a welfare system that reinforced the heteronormative family unit by linking women’s access to social security to the employment status and benefits of their husbands, the rise of trade unionism and pension coverage in the growing feminized workforce of the public sector destabilized that traditional family welfare model. Although the employer-based pension system was designed as part of an extremely gendered social welfare system, it outlived it, into a period where that specific social welfare system is, by and large, a thing of the past.

In Canada, 88 percent of public sector workers have pension coverage, compared to just 23 percent in the private sector. Despite the private sector being three times larger than the public sector, there are actually—in raw numbers—more pension plan members in the latter, largely owing to the difference in union density. And, importantly, the megafunds that play critical roles in the capitalist economy are in the public sector—two-thirds of public sector workers are members of funds with over $10 billion in assets. And so the system of employer-based pension provision, designed for the private sector workforce and labelled the private-public welfare state, is now predominantly a public sector phenomenon. In a strange way, it has become a kind of public-private-public welfare state.

The shift in union densities, the rise of private sector DC schemes, and the attacks on private pensions explain why all of Canada’s massive pension funds cover public sector workers, not private sector ones. But the pension funds were not always massive—indeed, once, they were far from it. While major private sector pension funds became enormous capital investors beginning in the 1940s, their public sector counterparts were slower getting there. The “pension fund revolution” that Peter Drucker talked about, in which workers “owned” the US economy through their pension funds, was a fully private sector phenomenon. And yet, the “Maple revolutionaries” described by The Economist are all public pension funds, and together OMERS and OTPP are almost bigger than the entire private sector pension system. How do we get from Point A to Point B here?

Enter the 1986–87 Task Force on the Investment of Public Sector Pension Funds. Mandated to determine how pension investments could “best serve the pension beneficiaries and [advance] the province’s economic development,” the Task Force requested briefs from those they considered relevant stakeholders—unions, pension funds, financial investors, and retirees, mostly—and hosted a seminar in Niagara-on-the-Lake, Ontario, to invite discussion from experts in the pension industry. From that seminar and commissioned reports from pension experts, Chairman Malcolm Rowan submitted the Task Force’s final report In Whose Interest? in late 1987. It would fully change the shape of capitalism in Canada.

The importance of DB pension plans was taken as the Task Force’s first principle; restructuring Ontario’s public sector funds into DC plans was a fringe position in the pension community. James R. Fisher of Weston Foods wrote to Rowan suggesting that “money purchase [defined contribution] is the only equitable approach”—another example of the Weston family’s long history of going out of its way to screw working people. But knowing the unpopularity of that notion, Rowans suggested that Fisher keep his mouth shut at the seminar in Niagara-on-the-Lake, lest he be tarred and feathered.

The issue was not the structure of the plans themselves. There was little appetite for a dismantling of OMERS, the TSF, or any of the other big public sector funds. But there was a frustration that public sector pension funds were governed by a different set of rules than their private sector counterparts, rules that restricted what they could or (more importantly) could not invest in, rules that essentially gave government full authority on their internal governance. The problem, ultimately, was that the pension fund revolution—the transformation of workers’ savings into investment funds—had not fully reached the public sector pension system, leaving billions of dollars in potential investment capital untouched. It would be the Task Force’s job to open the vault.

Tom Fraser’s book Invested in Crisis: Public Sector Pensions Against the Future (Between the Lines) is available now.