The global pension crisis: From gray capitalism to responsible accumulation

Politics and Society

Volumn 34, Issue 2, 2006, Pages 135-186

  Blackburn, Robin ^a,b  

^a NEW SCHOOL FOR SOCIAL RESEARCH   (United States)

^b UNIVERSITY OF ESSEX   (United Kingdom)

Author keywords

Accountability deficit; Aging society; De commodification; Gray capital; Implicit privatization; Limits of pay as you go; Pension crisis; Share levy; Socially responsible accumulation; Taxing capital not income

Indexed keywords

EID: 33646672904     PISSN: 00323292     EISSN: 15527514     Source Type: Journal    
DOI: 10.1177/0032329206288150     Document Type: Review

References (99)

1. Steven R. Weisman, The Great Tax Wars (New York: Simon & Schuster, 2003), 32;
2. and W. Elliot Brownlee, Federal Taxation in America (Cambridge: Cambridge University Press, 1996), 26.
3. A point stressed in the classic account of the rationale and limits of pay-as-you-go: Paul Samuelson, "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy 66 (December 1958): 467-82.
4. The shared burden solution was first outlined by Richard A. Musgrave, "A Re-appraisal of Financing Social Security," in Richard A. Musgrave, ed., Fiscal Doctrine, Growth and Institutions, vol. 2 of Public Finance in a Democratic Society (Brighton, UK: Harvester Wheatsheaf, 1986), 103-22.
5. I give examples in Robin Blackburn, Banking on Death or, Investing in Life: The History and Future of Pensions (London, Verso 2002), 74.
6. Jacob S. Hacker, The Divided Welfare State: The Battle over Public and Private Social Benefits in the United States (Cambridge: Cambridge University Press, 2002), 124-78.
7. See Gérard Dumenil and Dominique Lévy, "Class and Income in the United States," New Left Review, no. 30 (November-December 2004): 105-33.
8. Gerard Hughes and Adrian Sinfield, "Financing Pensions by Stealth," in Pension Reform in Europe, ed. Gerard Hughes and Jim Stewart (Cheltenham, UK: Edward Arnold, 2004), 163-92, esp. 182.
9. See Blackburn, Banking on Death, 65-78, 266-79.
10. See also François Charpentier, Retraites and fonds de pension (Paris: Fayard, 1998).
11. For Japan and Singapore, see, respectively, Bernard Ecclestone, State and Society in Postwar Japan (Oxford: Oxford University Press, 1989), 97;
12. and Michael Hill and Lian Kwen, The Politics of Nation-Building in Singapore (London: Routledge, 1995).
13. Directorate-General for Economic and Financial Affairs, European Commission, Economic Paper no. 170, May (Brussels: European Commission, 2002). For wider European problems, see Andrea Boltho, "What's Wrong with Europe?" New Left Review 2, no. 22 (July-August 2003): 5-26.
14. A quantitative study of continental European unemployment concludes that 'the rise in labour taxes since 1970 has accounted for almost half of the rise in long-term unemployment'. Christophe Planas, Werner Roeger, and Alessandro Rossi, "How Much Has Labour Taxation Contributed to European Structural Unemployment?" Directorate-General for Economic and Financial Affairs, European Commission, Economic Paper no. 183, May (Brussels: European Commission, 2003), 12. Undeniably there is no single explanation for high levels of unemployment in Europe in recent decades. My reference to the probably negative impact of regressive payroll taxes is quite distinct from attempts to throw the blame on decent levels of benefit. It is the best way to finance those benefits that I address here, and in what follows. In the mid-twentieth century, a broad range of liberal and left economists, including Keynes, James Meade, Nicholas Kaldor, and Maurice Dobb, saw taxing the rich by means of progressive income tax, capital levies, death duties, taxes on 'excess profits' and 'unearned income', property taxes and extensions of public ownership as the best way to finance social expenditures (see Martin Daunton, Just Taxes: The Politics of Taxation in Britain, 1914-1979 [Cambridge: Cambridge University Press, 2002]). I will later be urging a return to this tradition.
15. Taggart Murphy, "Japan's Economic Crisis," New Left Review, no. 1 (January-February 2000): 25-52.
16. Musgrave, "A Re-appraisal of Financing Social Security."
17. Pensions Commission, Pensions: Challenges and Choices, the First Report of the Pensions Commission, December (London: HMSO, 2004), 17.
18. Joachim Palme, "Swedish Welfare Policy," in Pensions in Europe, ed. Gordon Clark and Noel Whiteside (Oxford: Oxford University Press, 2003), 144-67.
19. See Rudolf Meidner, Employee Investment Funds: An Approach to Collective Capital Formation (London: Allen & Unwin, 1978).
20. For a discussion of the fate of the plan, see Jonas Pontusson, "Sweden: The People's Home," in Mapping the Left in Western Europe, ed. Perry Anderson and Patrick Camiller (London: Verso, 1994);
21. and for the overall context, see Jonas Pontusson, The Limits of Social Democracy (Ithaca, N.Y. Cornell University Press, 1992).
22. Edward N. Wolff, Retirement Insecurity: The Income Shortfall Awaiting the Soon-to-Retire (Washington, D.C.: Economic Policy Institute, 2002).
23. For Laslett's visionary outline of the Third Age' as a life stage with huge potential, see Peter Laslett, The New Map of Life, 2nd ed. (Basingstoke, UK: Macmillan, 1996).
24. John Myles, Old Age in the Welfare State: The Political Economy of Public Pensions (Lawrence: University of Kansas Press, 1989).
25. Gosta Esping-Andersen, The Three Worlds of Welfare Capitalism (Princeton, N.J.: Princeton University Press, 1990).
26. United Nations, Analytic Report, vol. 3 of World Population Prospects: The 1998 Revision (New York: United Nations, 2000), 168.
27. For an analysis of aging and associated demographic trends, see Goran Therborn, Between Sex and Power: Family in the World, 1900-2000 (London: Routledge, 2004), 227-60, 288, 308-9.
28. UN Population Division, Replacement Migration (New York: UN Population Division, 2002), 77.
29. Using this study Neil Gilbert points out that so far as Europe is concerned, To keep a constant relationship between the number of people aged 15 to 64 and people of 65 years of age and over requires an influx of over 1.3 billion people over the next 50 years.' Neil Gilbert, The Transformation of the Welfare State: The Silent Surrender of Public Responsibility (Oxford: Oxford University Press, 2002), 34. This book furnishes a good summary of the recent erosion of public provision, though the author's apparent assumption that this is an inevitable process is highly questionable.
30. For a comparative account of employers' varying responses to universalistic, public programs of social insurance, see Peter Swenson, Capitalists against Markets (Cambridge: Cambridge University Press, 2002).
31. The regionally redistributive effects of Social Security are stressed by James K. Galbraith et al., "The U.S. Model," New Left Review 237 (1999).
32. discuss the proposals of Bush's Commission in Blackburn, Banking on Death, 413-20, 435-45.
33. Edmund E. Andrews, "From Bush Aide, Warning on Social Security," New York Times, December 2, 2004.
34. For 'implicit privatization', see Paul Pierson, Dismantling the Welfare State? Reagan, Thatcher and the Politics of Retrenchment (Cambridge: Cambridge University Press, 1994), 71.
35. discuss the fate of the public pension in the United Kingdom in Blackburn, Banking on Death, 279-348.
36. I explore these events in chs. 4, 5, and 6 of Blackburn, Banking on Death.
37. Laurence Kotlikoff and Scott Burns, The Coming Generational Storm (Cambridge, Mass.: MIT Press, 2005), 68.
38. For a critique of 'generational accounting', see Dean Baker and Mark Weisbrot, Social Security (Chicago: University of Chicago Press, 2000), 38-53;
39. and Peter Diamond, "Generational Accounts and Generational Balance: An Assessment," National Tax Journal 49, no. 4 (1994): 597-607.
40. See also Blackburn, Banking on Death, 369-76.
41. Paul Krugman, "The Future of Social Security," New York Review of Books, March 10, 2005.
42. Kotlikoff and Burns, The Coming Generational Storm, 71. Unlike many advocates of privatization, Kotlikoff and Burns accept that there are severe cost problems with commercial fund management: they advocate winding up the Social Security program, abandoning pay-as-you-go, and replacing it with a sales tax (for current pensions) and a publicly managed savings program based on investment in a global index of stocks (for future pensions).
43. This is the conclusion of some of the best recent writing on pension problems. See John Myles, "A New Social Contract for the Elderly?" in Why We Need a New Welfare State, ed. Gosta Esping-Andersen, Duncan Gallie, Anton Hemerijk, and John Myers (Oxford: Oxford University Press, 2002), 130-72;
44. and Nicholas Barr, The Welfare State as Piggy Bank (Oxford: Oxford University Press, 2001).
45. For a critique of attempts to underwrite all spending programs from income taxes while practically ignoring asset levies, see Gar Alperovitz, America beyond Capitalism (Hoboken, N.J.: John Wiley, 2004), 14-27.
46. A federal sales tax would counteract undesirable tax competition between the various states. For the advantages of a universalistic tax regime where everybody pays and everybody benefits, see Roberte Mangabeira Unger, Democracy Realized (London: Verso, 2002).
47. See, e.g., Gosta Esping-Andersen's contributions to Esping-Andersen, Why We Need a New Welfare State; and Nancy Folbre, The Invisible Heart: Economics and Family Values (New York: New Press, 2002).
48. Alperowitz, America beyond Capitalism, 15.
49. Arthur Levitt, Take on the Street (New York: Pantheon, 2002), 257.
50. Pensions Commission, Pensions, 214-24.
51. John Bogle, The Battle for the Soul of Capitalism (New Haven, Conn.: Yale University Press, 2005), 139-91.
52. I have more on this in Robin Blackburn, "The Great Pension Crisis," The Nation, February 16, 2003;
53. and in Robin Blackburn, Age Shock and Pension Power (New York: Verso, 2006), ch. 4.
54. Michael Schroeder, "Big Stakes in Ailing Airlines Raise Questions for U.S. Pensions Agency," Wall Street Journal, November 3, 2005. While accepting shares in these weak companies does raise questions, as the writer of this report says, the courts thought that the Pension Benefit Guaranty Corporation (PBGC) was better off receiving these assets rather than nothing. Below I will consider the rather different proposition that strong as well as weak companies should be obliged to pay all or most of their PBGC contributions in the form of their own shares, giving the insurer a more balanced portfolio.
55. I explore this in Blackburn, Banking on Death, 115-23;
56. and in chap. 4 of Blackburn, Age Shock and Pension Power.
57. See also the excellent study by Michael Useem, Investor Capitalism (Cambridge, Mass.: Harvard University Press, 1996).
58. Robert Brenner, "The Boom and the Bubble," New Left Review, new series no. 6 (November-December 2000): 5-44, esp. 24.
59. See also the expanded account in Robert Brenner, The Boom and the Bubble (London: Verso, 2002).
60. For the role of credit derivatives, see my "The Enron Debacle," New Left Review 14 (March-April 2002): http://www.newleftreview.net/NLR24802. shtml.
61. For the scope of the scandals, see also Nomi Prins, Other People's Money: The Corporate Mugging of America (New York: New Press, 2004);
62. and Abraham L. Gitlow, Corruption in Corporate America: Who Is Responsible? Who Will Protect the Public Interest? (Lanham, Md.: University Press of America, 2005).
63. John Plender, "Broken Trust: The Mutual Fund Scandal Shows How a Flawed Business Culture Conspires against Responsible Investing," Financial Times, November 21, 2003.
64. Robin Blackburn, Banking on Death, esp. 99-225.
65. See also Teresa Ghilarducci, Labor's Capital: The Politics and Economics of Pension Funds (Cambridge, Mass.: Harvard University Press, 1992).
66. Robert Holzmann and Joseph Stiglitz, eds., New Approaches to the Old Age Crisis (Washington, D.C.: World Bank, 2001).
67. In February 2005, the World Bank published a further report retracting the wholesale condemnation of public pension systems. See "Pension Reform: Second Thoughts on the Third Age," The Economist, February 19, 2005.
68. World Bank, Averting the Old Age Crisis (Washington, D.C.: World Bank, 1994), 142, also at http://www-wds.worldbank.org/servlet/WDS_IBank_Servlet? pcont=details&eid=000009265_3970311123336.
69. See the variety of problems registered in the collection edited by Joel B. Slemrod, Does Atlas Shrug? The Economic Consequences of Taxing the Rich (New York: Russell Sage Foundation, 2000).
70. Joseph A. Pechman, Federal Tax Policy (Washington, D.C.: Brookings Institution, 1983), 135-40.
71. This point is stressed in Barr, The Welfare State as Piggy Bank, 146-47, where this author points out that pre-funding only helps if it reduces future spending (e.g., servicing the national debt), sets aside resources to meet future needs, or helps to raise future output. The proposed scheme fits the bill because it would (1) build up socially owned assets which count against the national debt, (2) transfer claims on future dividend income, and (3) certainly aim to contribute to raised output by encouraging effective and responsible shareholding.
72. I assume here that profits will grow at 2.5 percent a year and that the trust fund will earn returns of 5 percent a year; advocates of privatization, such as Martin Feldstein, usually assume much higher rates of return (i.e., either 7 percent or 9 percent). For these calculations and several refinements to the levy scheme, see Robin Blackburn, "The Great Pension Gap," Challenge; The Magazine of Economic Affairs, July-August 2004, 91-112.
73. present a similar, but more elaborate, argument for the UK in Robin Blackburn, "How to Rescue a Failing Pension System: The British Case," New Political Economy 9, no. 4 (December 2004): 559-80.
74. Meidner, Employee Investment Funds;
75. and Jonas Pontusson, 'The Swedish Home in Danger," in Mapping the Left in Western Europe, ed. Perry Anderson and Patrick Camiller (London: Verso, 1994).
76. See also Pontusson, The Limits of Social Democracy.
77. John Maynard Keynes, "How to Pay for the War," in his Collected Writings, vol. 9 (London: Macmillan, 1972).
78. explore such possibilities in Banking on Death, 465-539.
79. For a collection which throws much light on this experience, see Archon Fung, Tessa Hebb, and Joel Rogers, eds., Working Capital: The Power of Labor's Pensions (Ithaca, N.Y.: Cornell University Press, 2001).
80. Michael Calabrese, "Building on Success: Labor-Friendly Investment Vehicles and the Power of Private Equity," in Fung, Hebb, and Rogers, Working Capital, 93-127, 120.
81. Some of the problems here are addressed by William Greider, "The New Colossus," The Nation, February 15, 2005.
82. See Gordon Clark, Pension Fund Capitalism (Oxford: Oxford University Press, 2000), 210-34.
83. Peter Self, Rolling Back the Market: Economic Dogma and Political Choice (Basingstoke, UK: Macmillan, 2000).
84. "Matters of Life and Death," Economist, August 30, 2002;
85. John Chown, "Live Long, Work Long," Times Literary Supplement, August 23, 2003;
86. and Howard Davies, "Cracking the Nest Egg," The Guardian, August 24, 2003.
87. For a guide to SRI by an established practitioner, see Amy Domini, Socially Responsible Investing: Making a Difference and Making Money (Chicago: Kaplan Business, 2001).
88. See James Hawley and Andrew Williams, "The Emergence of Universal Owners," Challenge 43, no. 4 (July-August 2000): 43-61.
89. See also the writings of the 'share activist', Robert Monks, The New Global Investors (Oxford: Oxford University Press, 2001).
90. Gerald F. Davis and Christopher Marquis, "The Globalization of Stock Markets and Convergence in Corporate Governance," in The Economic Sociology of Capitalism, ed. Victor Nee and Richard Swedberg (Princeton, N.J.: Princeton University Press, 2005), 352-90.
91. For a rather similar approach, see Alperowitz, America beyond Capitalism.
92. I explore some of these problems in Robin Blackburn, "Fin de Siècle: Socialism after the Crash," New Left Review 1, no. 185 (January-February 1991): 5-66;
93. also published in Robin Blackburn, ed., After the Fall: The Failure of Communism and the Future of Socialism (London: Verso, 1992).
94. Paul Ginsborg, The Politics of Everyday Life (New Haven, Conn.: Yale University Press, 2005), 103-6.
95. Diane Elson, "Market Socialism or Socialization of the Market?" New Left Review 1, no. 172 (November-December 1988): 3-44;
96. and Nancy Folbre, The Invisible Heart, 209-32.
97. See Roberto Mangabeira Unger, Democracy Realized (London: Verso, 2003);
98. and John Roemer, The Future of Socialism (London: Verso, 1994).
99. Paul Krugman, "America's Senior Moment," New York Review of Books, March 10, 2005.