As we live longer, employers are closing their pension schemes and many claim that public treasuries will not be able to cope with the retirement of the babyboomers. Banking on Death analyzes the challenge facing public schemes and the malfunctioning of private retirement provision, concluding with a bold proposal for how to pay for decent pensions for all.
Robin Blackburn argues that pension funds have been depleted by wasteful promotion and used as gambling chips by ruthless and overpaid top executives. This is the world of ‘gray capitalism,’ where employees’ savings are sequestrated from them and pressed into the service of corporate aggrandizement. Even the best companies find it hard to run a business and a pension fund at the same time—especially when the latter is larger than the former. The fund managers’ notorious short-termism and herd instinct, and their failure to curb the greed and irresponsibility of the corporate elite, lead to obscene inequalities and a blighted social landscape.
The pension privatization lobby, Blackburn shows, has lost major battles in France and Germany, the United States and Italy, because of the popular fears it evokes. And the case for privatization looks intellectually threadbare after withering critiques from such notable theorists as Joseph Stiglitz and Pierre Bourdieu. Banking on Death shows that pensions are political dynamite, and have undone governments from France and Italy to Argentina. Popular outcries led Reagan, Clinton, and Blair to change tack: will this happen to George W. Bush too? Blackburn argues that the aging society will generate increased costs but, so long as the new life course is properly financed, all age groups will gain. He proposes a public regime of asset-based welfare, drawing on the ideas of John Maynard Keynes and Rudolf Meidner, that could ensure secondary pensions for all and foster a more responsible, egalitarian and humane pattern of economic development.
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Banking on Death
Or, Investing in Life: The history and future of pensions
By ROBIN BLACKBURN
VERSO The Baroque and the Puritan: A Short History of Pensions and Pension Funds
Copyright © 2002 Robin Blackburn.
All rights reserved.
[T]he inequality, dependence and even misery which ceaselessly threatens the most numerous and most active class in our society ... can be in great part eradicated by guaranteeing in old age a means of livelihood produced partly by their own savings and partly by the savings of others who make the same outlay but who die before they need to reap the reward; or, again, on the same principle of compensation, by securing for widows and orphans an income which is the same and costs the same for those families which suffer an early loss and for those which suffer it late.
(Antoine-Nicolas de Condorcet, Sketch for a Historical Picture of the Human Mind, 1793)
Nous avons servi la patrie Vous le servez à votre tour.
(Adresse des vieillards, Hymne pour la fête de la Liberté, Paris, 1793)
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 anupheaval and erroneously believe they can actually gain much by it.
(Otto von Bismarck, speech in the Reichstag, 1889)
Let mankind enter into a HobbesRousseau social contract in which the young are assured of their retirement subsistence if they will today support the aged, such assurance to be guaranteed by a draft on the yet unborn.
(Paul Samuelson, 'An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money', Journal of Political Economy, December 1958)
Contemporary pension provision builds on institutions and proposals which can be traced back to the early modern period, especially in those regions of Europe where cash income first and most completely replaced self-provision as the source of livelihood. The pressure of making ends meet in a market society limited what wage labourers could save. As the modern period unfolded, a gradual lengthening of adult life expectancy meant that more now outlived their savings. Some might be able to call on their children for support but a significant proportion would be without surviving children and, for many, family budgets were anyway very tight. In England municipal and parish authorities were expected to make some allowance for the elderly pauper. In the new industrial districts workers formed mutual-benefit friendly societies which stretched to funeral benefit, and perhaps temporary help in sickness, but not to the provision of a permanent income in later life. The ability of offspring to take care of their parents in old age was limited by their own earning power and the family's access to property. In the countryside owning land was the best insurance for old age but in the growing towns and cities of the nineteenth and twentieth centuries only a small minority had family businesses which could offer a similar cushion. In the pre-industrial and early industrial context masters were accustomed to keep on the older worker in less demanding work at lower pay but this paternalist approach became less common as production line methods were adopted. Public authorities feared the cost of accepting responsibility for the aged, and long believed that to do so would encourage improvidence. They grudgingly arranged for local provision of poor relief but were alarmed at the likely cost of a national system of pensions for the rising number of the aged.
As modern bourgeois society established itself in Europe the more comfortable layers of the population could buy public bonds or enter an annuity contract with an insurance house, and in this way provide for their own old age. The development of mathematical techniques for calculating life tables established principles of insurance which could also be used to calculate the cost of supplying a pension to an individual or to a surviving spouse or other relative. While any individual's life-span was unknowable, the insurer could use actuarial principles to predict the cost of annuities for several score or hundred such individuals. The inherent collectivism of this procedure could be adapted to ensure a pension to a larger group of employees or citizens, should the will and resources be present. The first public pension schemes were devised as an inducement to attract or retain favoured of strategic civil servants; a select band of well-established corporations was able to adopt the same practice. Institutions which could furnish pensions, of guarantee them, were able to offer an attractive reward and to obtain a surety of good service. The example of elite schemes prompted emulation from those outside the charmed circle. Consequently the history of pension provision is marked by popular pressure and even class struggle. It is also marked by political and interstate rivalry, as competitors sought to display their ability to furnish coveted social guarantees. While the democratic revolution of the modern epoch raised new demands for income security in old age, even the most conservative authorities were sometimes drawn to pre-empt such a challenge by advancing their own pension proposals.
Culturally the field of pension provision drew on two distinct traditions, the puritan notion of industry, prudence and individual responsibility, on the one hand, and the baroque idea of a well-ordered public space and beneficent, universal public power, on the other. The puritan tradition was nourished by commercial and financial oligarchies from seventeenth-century Amsterdam and London to twentieth-century Boston and New York. It is still invoked by the Anglo-American pension fund industry, with such flagship concerns as the Boston-based Fidelity and the London-based Prudential, while the baroque still finds some echo in the elaborate state-sponsored pension schemes to be found in Germany, France and Italy. The puritan emphasis was always on trust and thrift, probity and self-reliance. It should not, perhaps, surprise us that the world's largest money managers concerns like Barclays, Putnam and State Street, in addition to the two previously mentioned parade their Bostonian or evangelical roots to this day. The puritan promise is that individual prudence will eventually reap its reward. The baroque tradition emphasises the pastoral role of the state as an instrument of social harmony. Its roots are in absolutism and the Counter-Reformation, offering the monarch and the Church formulas for re-establishing their authority and leadership by exalting them as instruments of Divine Purpose. Monarchs found in pensions a method to strengthen the central state, to reward those who had given faithful service, to prove their beneficence to all subjects, to banish social exclusion and to exalt hierarchy. Of course baroque claims were always compromised and flawed by the special interests which the royal order protected. Louis XIV awarded pensions to strategic members of the French nobility in a successful attempt to avert another Fronde. But the vision of social harmony which some of the more enlightened servants of absolutism projected was, paradoxically, to resurface in the inclusive social republican tradition, which was to see universal pensions as an engine of communal solidarity. This development, as we will see below, first surfaced in France, homeland of the benchmark absolutism, site of the Great Revolution, its modern history punctuated by great upheavals which have helped to install and extend a pension system built on répartition, or sharing. But if republican democracy initially sponsored the idea of universal pension provision, it was first put into practice by Bismarck and the Emperor Wilhelm II in Germany. Thereafter the institution was to be adopted, refined and elaborated by a diversity of states, partly because of the rivalry between them and partly because they were gripped by similar, though not identical, domestic trials. As so often in the evolution of human institutions, there was to be both conscious imitation and unwitting innovation, under the pressure of new economic and political challenges.
Some analysts of the world of pension provision distinguish between the 'Anglo-Saxon model', found in the United States, Britain and other English-speaking countries, and embracing a strong element of private provision, on the one hand, and, on the other, the more collectivist provision, with a 'dominant public pillar', found in continental Europe and some former European colonies. In recent times 'Anglo-Saxon' economics has been twinned with a 'residual' liberal welfare state, with its safety net, while collectivist pension provision has come in both social democratic and corporate paternalist forms. While such classification certainly helps us make sense of contemporary welfare models, the history of pension provision has been marked by imitation and adaptation under the pressure of economic distress and rivalry, social unrest, war and occupation. This has ensured that actually existing welfare and pension regimes embody dynamically evolving hybrids and mixtures. Today, in the epoch of globalisation, there is pressure for all countries to adopt 'Anglo-Saxon' arrangements; and, at the same time, there is resistance to this pressure, even in the 'Anglo-Saxon' states themselves. In Britain this resistance focuses on the failure to tie the state pension to the growth of incomes while in the United States the future of Social Security is at the centre of a major political debate. In the spirit of globalisation all countries are encouraged by the IMF and World Bank to transfer as much pension provision as possible to the financial services industry. Today both the puritan and the baroque images of the good life are menaced by consumerism and by the increasing commercial colonisation of private life and fragmentation of the public sphere.
But the market does not carry all before it. Companies depend on the legal and political contexts furnished by states to defend their property rights and contractual claims. The dependence of private pension providers is even greater since their business would not exist without tax favours. So today the state is being asked to play a far-reaching role as sponsor even by many stern advocates of market discipline. In different ways 'compassionate conservatism', the 'Third Way', 'ethical' funds and a revived social republicanism claim to act as saviours of an imperilled social fabric. The following brief history of pensions and pension funds seeks to trace the origins and variant forms of pension provision.
The First Pensions
In fact, pension promises have been the stock in trade of every rising social institution since the dawn of the modern epoch four or five centuries ago. Notwithstanding their lacklustre reputation, pensions have historically conferred great prestige on the providers and have elicited gratitude from the recipients. Successive ruling institutions guilds and magnates, absolutist monarchs, commercial oligarchies, the landed gentry network, paternalist corporations, nation-states, political parties, financial institutions have each in their time identified pension promises as a source of strength. The monarchs and magnates of the late feudal epoch gained prestige from the number of their retainers.
Aspiring absolutist monarchs, like the English Tudors, sought to absorb or control the prebends and pensions which had been in the hands of the guilds or the Church, together with the property which underwrote them. But such arrangements were linked to particular individuals and posts. In 1598 Elizabeth's Parliament voted a pension to soldiers who had fought for queen and country but even this limited measure did not yet become a permanent institution. Colonisation plans in Ireland and the New World drew off large numbers, but there was still a problem of the aged landless poor in the countryside. The possession of land was the best insurance against old age; sons or daughters were rarely able to support their parents but they might help them work land with a view to inheriting it. Those without land, including younger sons, were expected to work until they dropped. Following the dissolution of the monasteries there was greater pressure on the landed gentry to organise public charity. Kett's rebellion of 1548 and similar outbreaks showed the discontent and restiveness that followed in the wake of the spread of capitalist social relations. The Elizabethan Poor Law of 1601 was legislation with national scope, codifying earlier provisions, and a response to the need for social protection in a country where a flexible and disruptive new regime was transforming rural existence. This was a dynamic, decentred agrarian capitalism. Britain had a monarch and a court but very little by way of a central state administration. The Poor Law did not create one; instead it conferred obligations towards the needy, including those too old to work, on each parish. The cost of meeting these obligations was to be met from locally levied poor rates, to be paid by local proprietors and tenant farmers, small and large.
A census of 1570 in Norwich, a rich spinning centre, described three widows of 74, 79 and 82 as 'almost past work'. With the Poor Law, if not before, these women would eventually qualify for an allowance from the parish, providing that they were of good character and had worked until they were no longer able to. The urban poor houses and the rural parish authorities invariably demanded work, and retained discretion as to who they deemed worthy of a measure of support. The Puritan governors of Salisbury in the 1630s made regular church attendance a qualification for poor relief and supplied successful applicants with what they deemed 'essential goods'. According to a law of 1662, parishes were only responsible for those born within their boundaries, or those married to such people, or for those who qualified by dint of long and respectable residence. The individual could appeal against parish decisions to the magistrates but would only encounter the same criteria. Fear of poverty in old age was thus a strong motive for deference to the local gentry and parish authorities.
Provision for the aged pauper was probably more extensive in England in the seventeenth and eighteenth centuries than it was in most parts of continental Europe or than it was to be in eighteenth- or nineteenth-century North America. The decentralised, parish-based Poor Law system helped to conceal this. The conflicts of the seventeenth century resulted in a state geared to the priorities of independent property and trade, but still administratively weak and committed to the view that the burden of poverty could best be identified and shouldered by the proprietors and householders of the parishes. Demographic shifts and the emigration of younger adults meant that in the period 1670 to 1740 those aged over sixty came to comprise a tenth of the English population. Average life expectancy might be only a little more or less than thirty-five years. But this was because of high infant mortality and childhood mortality. Most of those who reached the age of fifteen were likely to live into their fifties or sixties. The responsible exercise of public charity helped the gentry and burghers retain their leadership of a society in which democracy was stirring. Those deemed to be 'past work' received a weekly stipend paid at the rate of a labourer's wage. But many in their sixties or seventies continued to toil. Occasionally, relatives would be given an allowance if they took in an elderly person who could not look after him or herself. Those deemed to be bad characters might find benefit withdrawn. Thus, even though there was quite widespread payment of parish relief to the aged, there was still much that was ad hoc and discretionary about it. Moreover, to be in receipt of poor relief was demeaning. The true pension, on the other hand, has usually been a source of honour of pride to its recipient.
Excerpted from Banking on Death by ROBIN BLACKBURN. Copyright © 2002 by Robin Blackburn. Excerpted by permission. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.