Between Concrete and Abstract, there is the Law

Hans Stegeman shares with us today an important reflection on the need for inquiry at the level of ideas:

Many people prefer to talk about politicians rather than politics. About bankers instead of banks. Rather about tangible things than abstract ideas. I am regularly told that my columns and presentations should be more "concrete". The most common comment: can you give an example?

...

Focusing on people and 'concrete examples' obscures what is really going on. What is the underlying ideology? What is the real purpose of policy or action? We hardly talk about that.

https://www.dhirubhai.net/posts/hans-stegeman_veel-mensen-praten-liever-over-politici-dan-activity-7259825636431605760-pwUh

Between the concrete and the abstract, the is the liminal space of the legal fiction: the legal person that is created by law, and exists only in the law, as an institution that is constituted by the laws of its creation with agency to act in the law as if it were a real thing, because it is invested by the law with authority to really exercise control over real things.

Politics is an institution of the law. So are banks.

So are corporations.

And the capital markets.

And universities, and research institutes, and publishing houses and performing arts centers, and community centers and all the other institutions of civil society.

So, we can look for examples of these legal fictions, and take an inventory of the institutions that we have created, and sustain, as legal fictions with real agency and authority over real things (and real people).

And as we complete these inventories, we can go back to the text, and re-read the law of the creation of these institutions, to find clarity about their lawful agency and social purpose.

Armed with that clarity, we can find the levers of their accountability, for authenticity and integrity in their institutional exercises of their institutional (that is, legally constituted) authority/power true to their institutional (that is, legally constituted) agency/purpose/mission.

And we can begin to hold these legally constituted institutions legally accountable, in accordance with the laws of their creation. We can have examples. But more importantly, we have the text.

And when we do go back to the text of the creation of our institutions of agency within society, we will discover the Mid-Century Modern social innovation of the social trust for the social purpose of socially provisioning the social safety net of Workforce Pensions.

And as we read about these social trusts, we will learn from the laws of their creation that they are accountable under the law to exercise their legal authority to control the money aggregated into their control with:

the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims

And as we continue to read the laws, we will learn that the aims of all these social trusts is:

to invest money for income as well as safety to assure income security in a dignified retirement for evergreen populations of current and future retired workers

And as we continue to read, we will also learn that each of these trusts is constructed by the laws of their creation with the character of:

• vast size (each alone, controlling billions to tens of billions, to hundreds of billions; all together, aggregating to tens of trillions);
• programmatic purpose (to invest money for income as well as safety to assure income security in a dignified future - see "aims", above); and
• forever time (they just keep going, as long as there are any workers still working for income security in their own personal and individual dignified retirement).

Here, we have to leave the law, and look to the facts, to see that their character of vast size, programmatic purpose and forever time gives these social trusts, in fact, the capacity to use the circa 1980s vintage technologies of spreadsheet math, desktop publishing and digital communication to negotiate with enterprise of any size, in any business, anywhere on the planet.

For concrete examples of this capacity, we can look to the real world reality of Private Equity, that uses the money sourced from pensions to financially engineer value creation through direct negotiation, using the technologies of spreadsheet math, desktop publishing and digital communication to contract investments as ownership for sale to extract profit from the buyer.

As we look at Private Equity as negotiated agreement on ownership for profit extraction through gain on sale, we will see that becoming an owner of something that you buy in order to sell bends your loyalty toward that sale, and the selling price.

For Private Equity managers whose only purpose, as a business trust, is to maximize the highest possible purely pecuniary profit extraction from the thing that you own in order to sell, that loyalty to the sale, and the selling price is not problematic.

For a social trust whose legally constituted purpose and mission is to provision the payment of contractually calculated amounts to contractually qualified persons at contractually specified intervals, through investment for income as well as safety to assure income security to evergreen populations of current and future retired workers, loyalty to a sale, and a selling price, too often comes at the expense of loyalty to the dignified future they are constituted by law to provision.

There is an alternative. We can see it by looking at the Real Estate version of Private Equity, to see that in Real Estate the capacity to negotiate is used to negotiate for equity paybacks to an agreed cost of money, plus opportunistic upside, from enterprise cash flows that are prioritized by contract for suitability, longevity and fairness under the circumstances then prevailing.

These equity paybacks are more like stewardship than ownership. They do not rely on profit extraction as gain on sale, and do not bend their loyalties towards that sale, and a selling price.

Instead, the design of the investment is financially engineered to align with the purpose of the investor, for socially beneficial cash flows for income as well as safety, to flow the right money to the right enterprises, in the right way, for their use in doing the right work, in the right way, for the right time, at the right cost and on the right terms, to form the right businesses for forming the right technologies for forming the right choices for forming the right economy for forming a secure society and keeping it ongoing into a dignified future, as a private benefit for some, directly, that is also a public good for us all, consequently.

This shows us the way for pension trusts to exercise their capacity to negotiate for purpose.

If we look at the facts of how pension trusts are actually using that power today, we will see that they are negotiating exclusively with Asset Managers to financially engineer business trusts (every mutual fund or managed fund is legally equivalent to a business trust for business purposes) for profit extraction, either through price-taking in the public or value creation in the private alternative capital markets as Asset Owners Allocating Assets Across Asset Classes, and within classes, selecting Asset Managers peer-benchmarked by Consultants for excellence in maximizing the highest possible purely pecuniary profit extracted through price-taking in the public, or value creation in the private alternative, capital markets, as the case may be, solely in the financial best interest of the capital markets, and capital markets professionals, on the axiomatic (and therefor unquestioned, and declared to be unquestionable - divine rights of kings, anyone?) assertion that what is best for the capital markets is also and always what is best for all of us.

Now, you have to ask yourself,

Does this make sense to my common sense?