Similarly, old companies with generous pension plans are sinking as pension liabilities keep climbing. Investors are reluctant to inject new cash into capital-starved industries such as steel and airlines if the new dough will only go to shore up shaky pension funds.
The answer, again, is a form of big government: the Pension Benefit Guaranty Corp. This federally chartered independent corporation insures some 32,500 old-fashioned private defined-benefit pension plans covering 44 million workers. When companies file for Chapter 11, they can essentially terminate their pension plans and shift responsibility to the PBGC.
The PBGC covers the costs of administering and shoring up pensions by selling insurance premiums to participants. But it has the makings of a massive obligation for taxpayers. In testimony last spring, PBGC Executive Director Steven Kandarian described how the restructuring in industries like steel, airlines, retailing, and textiles is taking a toll on his agency's balance sheet. From fiscal 2002 to fiscal 2003, the number of pensioners that the PBGC is directly responsible for will rise from 783,000 to 1 million, with the sum paid out increasing from $1.5 billion to $2.5 billion. The total underfunding in the kind of pensions covered by PBGC exceeds $300 billion. And with these pensions concentrated in what PBGC euphemistically calls "our most mature industries," it's likely the PBGC will require some form of public bailout.
The United States may be heading toward a two-tiered economy, one part like Europe, one like China. Older industries will be able to survive only by persuading the federal government to absorb their massive social welfare obligations—just as occurs in Europe. Meanwhile, newer companies with young work forces, few retirees, and 401(K)s instead of pensions (think Dell) will fight to minimize government intervention and stay free. One fundamental conflict in American economic policy has been business united against government. That may change: The divide may soon be between old businesses that love and need government, and new businesses that don't.