Banking on Death or Investing in Life: The History and Future of Pensions

Capital & Class, Summer 2005 by Messkoub, Mahmood

Robin Blackburn Banking on Death or Investing in Life: The History and Future of Pensions Verso, London, 2002, x 550 pp. ISBN 1-85984-409-X (pbk) £15 ISBN 1-85984-795-1 (hbk) £20

Barely a week passes without a news headline of one kind or another related to pensions, whether it is the threatened takeover of Marks & Spencer and the question of who should plug the hole in its pension fund, or the trade unions trying to protect their long-established pension rights-rights that should, perhaps, be called deferred wages.

Pensions have become the natural next target for the political Right, following its successes against the State in other areas such as privatisation, deregulation and the imposition of legal restrictions on trade unions.The apparent reason for this interest in pension reforms is the 'sudden realisation' that the world population, particularly in economically developed countries, is ageing, and that the cost of supporting this growing old-aged population will put unbearable pressure on state finances and require higher taxes.

The popular appeal of this position has been based on the assertion that future generations of working people will have to pay for the retired and other members of the non-working, and therefore dependent, population. At first glance this looks very persuasive; especially since, in Europe, the proportion of over those over sixty years-of-age in the total population will increase from one-in-five in 1999 to one-in-four in 2020, and to one-in-three in 2040. Obviously then, the ratio of those who are over sixty to those of working age in the population will increase.

However, what we consume has to come out of what is produced at any given point in time-there is a limit to how many cans of baked beans we can stash away for future consumption. At the most general level, claims over the output of any economy are fundamentally related to the social and legal frameworks that govern its production and distribution, with property rights at the heart of the economy. Any meaningful analysis of the social and economic implications of demographic ageing has to get a handle on the good old-fashioned class struggle over the ownership of national resources and the distribution of national output and income. Moreover, output is produced with the accumulated capital, knowledge and skills of both the past and the present generation. Production depends upon the inherent logic of intergenerational solidarity, something that is so wilfully missing from the literature on intergenera-tional conflict.

Blackburn's book is a welcome and long overdue intervention from the Left on this complex subject. Banking on Death is unique for its blend of historical, sociological, as well as plain discussion of the economics of retirement. It is very well researched, based on the author's work over many years, and will remain a standard text for anybody who wants to develop a knowledge of the multifaceted pension debate and the links between demographic shifts and sociological and cultural aspects of old age, as well as the involvement of high finance in order to make money out of ageing.

Blackburn puts pension funds and the control of them-or more aptly, lack of it-by their owners at the heart of his analysis of the relationship between property ownership and provision for old age. In 1999, the value of employee pension funds was put at $13 trillion, which was equivalent to nearly half of the world's GNP.The central thesis of the book is that employee pension funds are of crucial importance in the global economy. Consequently, they should be managed in a socially responsible manner in order to reduce poverty in old age, as well as to ensure economic growth and to act as an intergenerational link and source of social solidarity. For the attainment of these multiple objectives, the author argues for a mandatory system that is regulated by the State through the establishment of independent trust funds. This is essentially a fully funded pay-as-you-go social security system, which accumulates contributions within mutual funds that invest them in a socially responsible manner, using criteria such as humane labour relations, the social usefulness of projects and environmental sensitivity. The funds would be subject to a variety of government taxation and other rules in order to reduce market volatility. An early attempt by us President Roosevelt to organise a fully-funded compulsory pension scheme was challenged because of the power-a consequence of their size-that such mutual social funds would have over the workings of the capital market. Some right-wing commentators saw this proposal as a big step towards socialism (pp. 74-75). Little wonder, then, that current supporters of prefunding pensions shy away from proposing a compulsory national scheme and instead promote occupational or individual account models.

In order to argue his case, Blackburn starts with a history of modern old-age care and pension provision, going back to the early seventeenth century. The English Poor Law offered some local support to those elderly people in need who had been born in the parish. At the same time, occupational pensions of a sort were introduced in France, in order to reward high-ranking officials and the military. Similar developments were also taking place in Holland, and then in Britain. It was only in 1889 that the first universal pension scheme was established by Bismarck in Imperial Germany. This was followed by similar schemes across Europe, and later in the us. What is remarkable about these developments is that they came about as a result of some kind of public pressure for change from social movements and trade union activism. Many of the current issues, too, have been present in earlier debates on pensions. A matter of debate, then and now, was the balance between individual responsibility and state support; another was the question of means-testing versus a universal pension.This was especially the case in the Anglo-Saxon model, with its puritanical/individualistic approach to provision for old age, i.e. one in which personal and family responsibility and prudence are emphasised above state provision. The tendency is to try to limit the state pension to alleviating poverty in old age.