Secretary Cuomo is criticizing his opponent in the Democratic primary, State Comptroller H. Carl McCall, for not using the state’s pension system as a political weapon. At least that’s the best we can parse his campaign’s charge yesterday that the comptroller has been guilty of “social indifference” in his management of the retirement fund for state and local workers. This is a strange charge given that Mr. McCall’s job is not saddled with a social responsibility but rather a fiduciary duty to New York’s government workers. The Cuomo campaign is basing its criticism on a report in the Village Voice that unfavorably compares Mr. McCall’s management of the second largest pension fund in the country to the management of the largest, the California Public Employees’ Retirement System, which adheres to so-called socially responsible investing. A look at CalPERS’s performance compared to New York’s, however, affirms the relatively hard-nosed route that Mr. McCall has taken.

Over the last five years, New York State’s pension fund posted a 9.4% rate of return, outperforming CalPERS, which posted an 8.6% rate of return. It seems that at least some of the difference can be explained by California’s decision to use its employees’ retirement pensions to pursue a leftist vision of the social good. California divested all of its tobacco holdings in October of 2000. This was at the depths of the tobacco industry’s woes, shortly after the national settlement was finalized. Since then, tobacco company stocks have skyrocketed, with the American Stock Exchange Tobacco Index more than doubling. Last summer, Business Week estimated that California had forgone approximately half a billion dollars in appreciation on its tobacco stocks. Meantime, New York held steady on tobacco under Mr. McCall’s direction, halting active buying of tobacco stocks in 1996 — mostly on account of the uncertain legal climate — but not ditching its roughly $640 million worth of stock in Philip Morris, RJR Nabisco, American Brands, and other firms.

Thus New York’s employees profited by holding a steady course, while a political decision by CalPERS led to the system selling at the bottom of a political hysteria. Such are the dangers of politically motivated investment, which is part and parcel of socially responsible investment. Under its socially responsible banner, CalPERS has also decided to blacklist investment in developing countries that don’t measure up to California’s standards for labor regulations and environmental policies. Concurrently, it has okayed $150 million in investment in affordable housing, an enterprise with a remarkably bad risk to return ratio. New York is not immune to such political foolishness. The New York City Employees’ Retirement System last year gave $50 million to the AFL-CIO Housing Investment Trust. Mr. McCall himself has played to labor during the gubernatorial campaign by voting New York’s shares against Stanley Works relocating its corporate headquarters to Bermuda, a ploy which, had it gone through, would have reaped significant tax savings for shareholders. There is a place for socially responsible investing, but it is not with state officials playing games with workers’ retirement money.