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

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 [pounds sterling] ISBN 1-85984-795-1 (hbk) 20 [pounds sterling]

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 pre-funding 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.

Pursuing this fruitful historical approach, Blackburn goes into great detail to show the financial power of pension funds, and the very poor control of individual (i.e. non-company) contributors over them (ch. 2). The limited rights of policyholders means that the capital accumulated by ageing generations meets its fate, for good or ill, based on the decisions made by powerful money managers. The argument turns on the property rights of employees--'a grey area in terms of law and political economy' (p. 115)--and on the question of the relative risks of the defined benefit (DB) and defined contribution (DC) schemes. While contributions are fixed in the present, future benefits are governed by the uncertainty of future economic conditions. Under DB schemes, the employer has to bear the risk of an uncertain future income stream, while under DC schemes, the employee bears the risk. Pay-as-you-go tax-based systems have similar risk concerns to those Of DB schemes. The State commits itself to an ever-larger pension payment (a consequence of an ageing population), which has to be paid for by an income from tax that is made more uncertain because of a smaller working population. Thus, there is the risky politics of increasing taxes, as well as that of uncertainties about economic growth.

To this 'grey' capitalism we should add the 'grey' ownership status of pension funds on company accounts, which was so blatantly violated by Robert Maxwell. Government rules to protect account holders have the double-edged effect of forcing the trustees of these funds to take a conservative market position that limits their investment opportunities, which may well reduce future benefits to account holders. There is no golden solution to this conundrum, according to Blackburn. What is needed is a total rethink about the role of pensions and the financial industry, and a rejection of the Anglo-Saxon economic model that has led to reduced savings and increased risk for pension funds (see ch. 3). The extension of the Anglo-Saxon model and its liberal economic policies outside the us and Europe also comes under scrutiny in chapter 4, where the author argues that certain countries, such as Singapore and Chile, with regulated financial sectors and pension-fund management that includes substantial prefunding, have been able to protect themselves against the vagaries of the market. Besides a highly-regulated financial sector, compulsory pensions--a kind of forced savings--have also been a common feature of pension funds in these countries.

Pension provision and savings for old age have always had an uneasy relationship within the pensions debate: a relationship that revolves around means testing and universal state pensions. Those who oppose a universal state pension argue that it breeds dependency, and reduces national savings levels. They argue for means testing in order to manage the pension budget, as well as to encourage self-help (a cornerstone of the Anglo-Saxon approach). Neither of these arguments holds much water, on closer scrutiny. Theoretical and empirical evidence show that monetised savings are driven more by levels of income and wealth than by the level of pensions; and, secondly, means testing of pensions may well lead to lower savings, as people nearing retirement draw down their savings in order to increase their pension entitlement.

This is an issue that has taken up a lot of space in the current pensions debate in the UK. In chapter 5--'Carrot and stick reform: Implicit privatisation in the UK', the author turns to the inadequacy of 'pay-as-you-go'-funded basic state pensions in the UK, and the substantial tax incentives--and hence tax revenue loss--of private pensions. Up until the early 1980s, the basic state pension was linked to prices, and later to a national average-income, state-earnings-related pension (SERP) scheme, which provided some limited support to those on the pay-as-you-go system. But subsequent changes, introduced as a result of Thatcherite policies, removed the earnings link and led to a reduction in the basic state pension, from 20 per cent of average male earnings to 14 per cent. The debasing of pensions, as well as other areas of public provision, was an important part of the strategy of privatisation. The coming-to-power of the Labour government promised a change of direction with regard to pensions, but the change was limited to periodic increases in the basic pension, rather than restoring the link with average earnings. Nor was means testing removed as one of the criteria for the receipt of a state pension. (This was despite the fact that Frank Field, the minister for Work and Pensions at the time, argued against means testing. He favoured a universal pension system that would reduce the disincentive to save.) A major Labour initiative was the introduction of the 'stakeholder' pension, under which people were offered tax incentives to save regularly in an essentially DC pension scheme. Yet the projected level of pension would not be more than the 'minimum income guarantee'. Small wonder that the take-up rate has been far below the government's desired level.

In his survey of US social security (ch. 6), Blackburn draws our attention to the importance of social security in the us national psyche as a mark of citizenship, and how politically charged the issue of its privatisation has been. Even the most right-wing of Republican administrations has found it difficult to undermine. The author provides an excellent survey of the political struggle, on the part of the Right, to turn social security into a safety net for the poor rather than a vehicle for redistribution--a move that has been a hallmark of the Anglo-Saxon puritanical model since the nineteenth century. An array of neoliberal economic theories 'prove' the non-viability of the social security system in a fast-ageing population, and the need to reform it by allowing the wealthier members of society to opt out. In both the UK and the us, the jury is still out on how far the Right can manage to undermine the universal pension system.

The penultimate chapter provides a useful summary of the key points of the previous chapters, with the discussion of a proposal for replacing public pay-as-you-go systems with privately-run pension funds. It is interesting to note that most proposals for privatisation try to use an important feature of public pension systems--compulsory membership/contribution--thus acknowledging the insurance function of public pensions. More-over, privatisation proposals call for the establishment of large funds in order to reduce management and running costs through economies of scale.

The final chapter is a set of proposals that call for pre-funding in order to manage accumulated funds for the sake of future generations, as well as for the elderly. The book's message goes far beyond supporting the simple provision of a decent pension, because there is much more at stake. The accumulation of capital required to provide for an ever-increasing greying population needs to be addressed at different levels: security of investment; social usefulness, as well as the social accountability of investment; and the economic stability of the capitalist system. Given the scale of the task ahead, the author's proposals lead, at least theoretically, to a socialisation of capital unprecedented in the history of capitalism. A good deal of public mobilisation and pressure would be needed to operationalise this agenda; yet the vision presented in this book is not far-fetched. The historical precedents are there, most notably in the Scandinavian experiments, and the author's case is a convincing one. His alternative would suit the current weakened state of the Left, and could provide a rallying point for mass mobilisation.

The book is written in a lively style, and its photos and the illustrations opening each chapter--especially the dancing granny by Goya (aptly titled 'Content With Her Lot')--brighten up a discussion that, because of its detail, can be tedious. Half of the book is devoted to the Anglo-Saxon model and experience; this is justified because of the model's dominance in the pension debate. The book would have benefited from a consolidated bibliography and a concluding section to each chapter. Perhaps future editions will take care of these minor problems.