Pension Crisis?

March 12, 2005 14:45 | by Frank Andrews

A review of Robin Blackburn Banking on Death or Investing in Life: The History and Future of Pensions (Verso, 2002, Hardback, £20 / US$30, Paper £15 / US$19)

This is a very interesting and well-researched book.The historical perspective and analysis is particularly good. Blackburn turns what could have been a very dry and cheerless subject into an eminently readable and fascinating account of the development of pensions in the economically advanced world. His illustrations and quotations (at the beginning of new chapters) are both entertaining and insightful.viz:chapter 1-Otto van Bismarck:

"I will consider it a great advantage when we have 700,000 small pensioners drawing their annuities from the state,especially if they belong to those classes who otherwise do not have much to lose by an upheaval and erroneously believe they can actually gain much by it." (speech in the Reichstag 1889)

A superb example of buying off the workers in an age of revolution!

Blackburn identifies two pension traditions,the baroque,which is exemplified by the Bismarckian system, and the puritan , which stresses individual morality and self-reliance,and is typical of the Anglo-Saxon systems which grew up in Britain and America. He intends this puritan/baroque analysis as a Weberian "ideal type"distinction,for there are many variations along the continuum. It is, however, a useful distinction in that it illustrates the cultural differences between continental Europe with its Catholic Church based absolutism, and the Puritan, individualist, British and Americans.In addition to this excellent historical analysis the author provides us with comparisons of pension systems geographically, as well as providing outlines of the pension systems in Britain, the USA,andseveral continental European countries, we are also informed of the Australian, New Zealand, and Chilean systems.

However, it is clear that the author's main motive in providing us with all this information is to use it as evidence for his critique of neo-liberal solutions to the so called "Pension Crisis". He devotes Chapter 4 to "The Global Drive to Commodify Pensions",and describes in detail the process by which the merchant banks, with the collusion of the World Bank,are making increasing inroads into publicly provided pensions.Particularly under threat are the relatively generous public systems in continental Europe. He also gives us a detailed account of the drive to privatise pensions in Britain and the USA over the last 20 years or so.He refers to the privatisers as "tax farmers", a phrase that conjures up the corruption in pre-revolutionary France. It is worth noting that since this book was published the Bush administration in the USA has intensified its attacks on Social Security (this is American for pension) and many of the arguments referred to by Robin Blackburn in relation to the Reagan administration have been re-cycled 20 years on. The scaremongering which forms the core of these arguments is exposed as such by the author but it is disappointing that he accepts some dubious projections from the U.N which give credence to the idea that there is a demographic crisis.I will briefly examine some of his statistical evidence:

On the first page of the introduction he states that "Those who had already reached sixty years of age in 1900 had a life expectancy of 14-15 more years ,whereas today that figure is over twenty more years." Are we supposed to be impressed? With all the medical advances of the 20th century ,improvements in living standards etc we can, on average only manage to live a measly five or so more years ! It's enough to make you start smoking!

Later on in his introduction (page 19) he reproduces some frightening U.N projections - that all regions of the world face the prospect that the proportion of over sixties in their population will double over the next fifty years. I breathed a sigh of relief when he went on to say that these projections extrapolate from present trends. Is it likely that the demograhers in 1900 would have come up with a figure of 5 or so more years longevity for the over 60s in 2000 if they had been extrapolating from their present trends? I think not! They would not have been able to predict the consequences of two world wars and a global economic depression either and it goes without saying that we are no better at predicting the distant future now than we were in 1900. It seems just as likely that, given the dangers of global warming,viral pandemics,and the proliferation of nuclear weapons,the proportion of over 60s could halve over the next fifty years,and the survivors would consist disproportionately of neo-conservative "tax farmers" and UN statisticians!

Seriously, it is not possible to predict the future ,and given that we have to make our best guesses in order to maintain pension provision it is common sense that these best guesses should allow for the maximum flexibility in order to deal with the unexpected. It would be the ultimate in foolishness to radically change a system that has produced good results without adequate evidence that this is necessary.Of course pension systems can be greatly improved for the benefit of their recipients ,but that is not what the scaremongering agenda is about.

In spite of these criticisms the author does arrive at a reasonable conclusion as far as state pensions are concerned. He recommends that pensions set at 40% of average earnings be provided by the state and funded out of general taxation.For those who would balk at this level of taxation it is worth emphasising that the vast majority would be net gainers ,and for those wealthy enough to be net losers civic duty beckons-"no man is an island entire unto itself…….etc"

So far so good.

Unfortunately Robin Blackburn goes completely over the edge with his proposals for a second pension. He proposes that 30% of average pre-pension income (ie in addition to the state pension) be provided by occupational pensions, and, wait for it, these pensions are to be funded by a share levy on companies whereby they would be required to issue new shares at the rate of between 10 and 20% of their annual profits and these shares would constitute regional pension funds administered by regional pension boards. It beggars belief that someone so knowledgeable about aggressive neo-liberal capitalism could believe that such a scheme would be allowed to see the light of day. He got the idea from Rudolph Meidner, chief economist to the Swedish trade unions in the 1970s. It was never fully implemented in Sweden, let alone anywhere else; but wait a minute, social democratic Sweden circa 1970s, is this nostalgia? I can see the headlines in the Financial Times, 'Chairman of Confederation of British Industry has apoplectic fit'. It is also questionable whether such a scheme would be sound economics if given the chance because the annual issuing of shares on such a scale would inevitably lead to a dilution of the value of the shares on the stockmarkets.Also any countries not operating the scheme would be giving a competitive advantage to companies operating within their borders and this could lead to a flight of capital to those countries.

In another context it would be fine to air Utopian ideas but it is apity that the author has chosen to do it in this book.It mars an otherwise closely argued and impressive piece of work.

The reviewer, Frank Andrews, is a welfare rights adviser who works in the North West of England.