Don Marti

Wed 07 Jul 2010 08:00:00 AM PDT

Andy Grove on jobs, and an idea

Andy Grove has a good op-ed piece up at Bloomberg: How to Make an American Job Before It's Too Late: Andy Grove.

"American companies discovered they could have their manufacturing and even their engineering done cheaper overseas. When they did so, margins improved. Management was happy, and so were stockholders."

But those "stockholders" aren't just heiresses sitting back watching the stock ticker. Through retirement funds, the US middle class is a major owner of US business. Andy Grove works for you. Peter Drucker wrote, "If 'socialism' is defined as 'ownership of the means of production by the workers'—and this is both the orthodox and the only rigorous definition—then the United States is the first truly 'Socialist' country."

The big cheeses of Wall Street are not the owners of US business. You're the owner, and you just sign control over to them. As an employee, you would do much better to get a slightly lower return on investment and keep your job, but right now you're not telling your mutual fund manager about that preference.

Why not?

The total value of an investment in an employer, to an employee or potential employee, is more than its market value. But your mutual fund manager is only motivated to manage for that one part of the total value. Classic Principal-agent problem. You, the worker/investor are the principal, and your agent is the mutual fund manager.

So here's the opportunity. A new type of index fund, based only on job count by state or region. If you work at an Indiana company, you put part of your retirement savings into a new Indiana Employers Fund, just like any other mutual fund. To manage the fund, the company keeps track of public companies that hire in Indiana, and invests proportionally. If a company builds a plant in Indiana, the fund accumulates the company's stock. If it lays off people in Indiana, the fund dumps some stock to keep the portfolio allocation in line with the number of employees.

Managers of employment index funds might choose to count only "good jobs": anything that includes benefits and pays enough to keep a family out of poverty. Otherwise their customers might be over-invested in, say, Wal-Mart.

Much easier than the German system of putting union representatives on boards, and something that can happen in the private sector. And I don't think it would be a hard sell to get major employers in a state to add the fund to their 401(k) choices.