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The result could be a government bureaucrat sitting on

every corporate board, a prospect that has divided advocates

of government investing.  Some have claimed that the gov-

ernment would be a "passive" investor--that is, it would

refuse to vote its shares or take positions on issues af-

fecting corporate operations.  Others, such as the AFL-CIO's

Gerald Shea, have suggested that the government should

exercise its new influence over the American economy, claim-

ing that government involvement would "have a good effect on

how corporate America operates."11

The experience of state employee pension funds suggests

that governments may not be able to resist the temptation to

meddle in corporate affairs.  For example, in the late

1980s, state employee pension plans in California and New

York actively attempted to influence the election of a new

board chairman for General Motors.12  According to a report

by the U.S. House of Representatives, state employee pension

plans are increasingly using their clout to influence "the

corporate role in environmental improvement, humanitarian

problems, and economic development."13

Supporters of government investment claim that the

government would remain a passive investor, refusing to vote

its shares.  However, that would require an extraordinary

degree of restraint by future presidents and congresses.

Imagine the pressure faced by a congress if the government

were to own a significant interest in a company that was

threatening to close its plants and move them overseas at

the cost of thousands of jobs.  Could politicians really

remain passive in the face of such political pressure?

Even if the government remained passive, its very

ownership of large blocks of stock would, in effect, create

a situation favoring certain stockholders and corporate

managers.  As the General Accounting Office has pointed out,

if the government did not exercise its voting rights, other

stockholders would find their own voting power enhanced and

could take advantage of government passivity.14

The GAO also warns that regardless of what stock voting

rules are adopted when the program begins, Congress can

always change the rules in the future.15

Social Investing

Even if the government avoids directly using its equity

ownership to influence corporate governance, there is likely

to be an enormous temptation to allow political consider-