Robin Blackburn, author of Banking on Death, or, Investing in Life: The history and future of pensions, spoke at the Alliance for Workers’ Liberty London forum on 17 February 2005.
The pension issue is the one which has proved time and again that it can get really large numbers of working people fighting for their rights and for a better world.
In the 1990s three European governments were overthrown as a result of strikes, demonstrations, and agitation relating to pensions. The most dramatic example was the November–December 1995 strike of French workers against the so-called pension reform of the Alain Juppé government. He was forced to abandon his plans, and he was defeated at the subsequent general election.
Around the same time, the first Berlusconi government was defeated in a similar way, and Helmut Kohl too. In this country, I think pension issues were an element in the defeat of the Major government. The pension mis-selling scandal, which swindled one and a half million people out of an important part of their pension rights, contributed to the deep discredit of the Major government. Also, more long term, the fact that Thatcher had begun the immiseration of British public pensions, by removing the earnings link, was a subterranean factor.
Last year we had demonstrations of more than a million people in Italy, in France, and in Austria over pension rights. In recent weeks we have had the largest opposition to the Putin government in Russia over the same issue.
The existence of public pension schemes, and of some collective occupational schemes, especially in the public sector, was the fruit of industrial and political struggle. Here in Britain it is almost exactly a century ago that the trade unions set up a body called the Trade Union Campaign to Endow Old Age. Its agitation was one of the things that led Lloyd George to the first state pension proposals just four years later, in 1908.
The struggle for pension rights is in some ways an extension of the wage struggle. It is a struggle for deferred wages. But it is also about relations between generations — how we view the sacrifices of the older generations — and it is about the struggle for free time, a struggle to live within capitalism and in the end to surpass it.
The struggle for free time takes many forms — the struggle for holiday entitlements, for educational breaks, but also for a decent economic support for life in old age.
The pension issue taps into something deep here. The ideal of expanded free time — which also includes the right to uncoerced free work — is one factor in why the pension issue mobilises so many people.
It is very important that we should be defending the line of no raising of the state retirement age. Part of what the Blair government is doing, and part of the trend of the capitalist society we live in, is to get back to the old days of “work until you drop”, and to add onto it the new imperative of financialised capitalism, which is to make everything you do into a commodity, to commodify your whole existence.
If we can defend people’s right to decent pensions, it does not just mean defending their right to be passive. In fact we know that if people have a decently funded old age, they will be more active, helping their family, helping the community, or maybe getting another job, maybe a part-time one, without any loss of their pension entitlements.
Pension rights were won above all in the period after World War 2. Good occupational schemes were set up, based on a guaranteed link to final salary or an average of the best working years.
Now we are living through a crisis of both public and private pensions, alongside a growing trend to entice the whole population into various forms of debt. Debt is currently at about 120% of disposable income. That is another expression of the imperative of commercialisation and commodification.
The Blair government is currently studying introducing compulsory private pensions. You would have to pay taxes to a bank or an insurance house. That is what is being proposed. There is an Atlantic axis on this. Bush is planning to privatise a whole chunk of Social Security in the United States.
The most obvious aspect of crisis in the public pension system in Britain today is that the pension is simply not enough. It is an insult. It is down to 15% of average earnings. It has declined from being over 20% around 1980, and it is due to go down to about 10%. It is indexed to prices, not earnings, and as earnings have gradually crept ahead of prices that leaves pensioners behind.
The average pension of single women is only £95 a week. It’s a curious feature of discussion of the public pension system is that it is always done in terms of pounds per week. The state pension is described as being £75 per week, or £110 for a couple. Normally it is children’s pocket money we think of in terms of pounds per week, and we describe adult incomes in round annual sums. What pensioners are being asked to live on is considerably less than £5000 a year, and many are on less than £4000.
Of course, the state pensioner can supposedly get a bit more if they apply for an incredibly complicated means-tested supplement, the Pension Credit. But we know that at least half a million older people, and maybe more, for one reason or another, do not in fact claim the credit to which they are entitled.
The answer is to go back to what the TUC was demanding a hundred years ago. There should be a universal right to a decent state pension. And it should be indexed to earnings and not to prices.
It’s not very good to have the whole pension system based on a payroll tax. If you do that, the tax becomes high, and it creates a deflationary climate. Europe still has a strong economy, but unemployment has been very high now for two decades, and that is partly because of the whole baby-boomer generation being in work and so much money being taken out of circulation through the payroll taxes. You have had too few pensioners and too many workers, just the opposite of what you may have been told.
I think we should look at new funding mechanisms which do not attach to labour incomes, a new pension regime which taxes capital.
The answer was already seen by someone who was, in my opinion, one of the most far-sighted strategists of the European workers’ movement of the last fifty years — Rudolf Meidner, the chief economist of LO, the main Swedish trade union organisation.
Meidner understood that the Swedish welfare state was a sort of compromise between labour and capital. In the 1970s he said, comrades, we have come to the point where either capital moves against us, or we move against capital. At the 1975 national convention of LO, he set out the need for what he called wage-earner funds.
He argued for requiring every corporation employing more than 50 people to contribute 20% of its profits each year in the form of new shares, to be held by the wage-earner funds as a social reserve.
He saw the problems looming up, and he said that either they would tip the balance in favour of labour, or in favour of capital. The wage-earner funds were the way to tip things in favour of labour and its social allies.
Meidner was a social democrat, but from a Marxist tradition. He was German-Jewish, not Swedish, in origin, and was a disciple of Rudolf Hilferding.
From the 1950s onwards he designed the Swedish welfare system to ensure decent benefits without unemployment. Right down to this day, even though aspects of Meidner’s proposals have not been introduced, and Sweden has abandoned many of Meidner’s ideas, official unemployment is under 5% in Sweden while it is 10% in Germany and France.
The wage-earner funds proposal was implemented by Olof Palme in a quite diluted way in 1982. It worked for about ten years, and the funds acquired a stake of about 7% of the Swedish stock market. Workers did not have proper control of the wage-earner funds, which had been the original idea, but even so they were seen as a big threat by the twenty families which dominate Sweden’s economy.
The conservatives repealed the wage-earner funds law when they came into office in 1992, and the Social Democrats have been too craven since then to reintroduce it. The money from the funds was used to set up six research institutes, and as a result Sweden has one of the strongest knowledge-based economies in Europe.
We ought to explore Meidner’s idea as a way of properly funding a new layer of state pensions on top of the basic minimum. But first I want to say something about occupational and private schemes.
The big distinction among private pensions is between “defined benefit” and “defined contribution”. In the “defined contribution” method you put in your money — usually the employer puts in not very much — and you get out of it whatever pension the market will grant when you come to retire. With “defined benefit” there is a definite pension promise, usually related to final salary or the best working years or some such formula.
In recent years, increasingly, large companies have phased out the “defined benefit” schemes, where they bear the market risk, and replaced them with “defined contribution” schemes where the worker bears the market risk. The employers used to contribute 12 or 15% of salary to the “defined benefit” schemes, and they are now unlikely to contribute more than 3 or 4% to the “defined benefit” schemes. In some cases they contribute nothing.
Over the lifetime of a scheme, say 30 years, charges will reduce the value of your pension pot by 30% or more.
Occupational pension schemes are much better than the private purchase schemes. The expenses are under control. Sometimes workers have won the right to some say over the conduct of the pension fund. In the USA the unions have made more progress on that than there. In the Californian Public Employee Retirement System, CALPERS, the largest pension fund in the world, the unions organised to get proper representation, and have been able to use it as a vehicle for insisting that the companies that the fund invests in recognise union rights, set ceilings on remuneration of CEOs, and so on.
There is a faulty structure in many private sector schemes which allows the employers to take exorbitant contribution holidays. When the stock market is going up, the employer can take a contribution holiday because they can point to the shares going up and say that the scheme is fully funded. According to the Inland Revenue, £28 billion of contribution holidays were taken by leading British companies between 1988 and 2002. Their pension funds are currently underfunded to the tune of about £70 billion. 40% of that gap — or more if you take into account that the contribution money would have grown if it had been put into the funds — is down to the contribution holidays.
What the big banks are cooking up now, with new waves of mergers and acquisitions, is “liability-shedding”. They take a company that has some assets and come up with a scheme for separating the pension fund from the company. That is what has happened with Allders, the retail chain. What they do is take a company, sell off its valuable assets, and then leave a shell company which has no assets but has the obligation to fix the pension fund. That is how tens of thousands of workers have found that the company’s promise to pay their pensions was empty.
Employers are not contributing to pensions in the way they used to in three crucial ways. Contribution holidays. Not paying tax, and thus constraining public schemes. And making lower contributions to company pension schemes. The heart of the problem is that capital, or the large corporations, are making a steadily declining contribution to pensions.
A Meidner approach is the best way. I have calculated that over 25 years, with just a 10% levy, the Meidner funds could accumulate a £500 billion fund. I have described various ways in which that could be boosted to a £1000 billion fund, capable of generating £14 billion a year in income for pension provision.
Really, what this would be doing is restoring the employers’ contribution. It would also establish new economic agencies with a power of active engagement, able to use the shareholding power to monitor what companies were doing.
It is not a formula for socialism, but it could have a certain transitional logic to it. It would make a strong contribution to a more egalitarian pattern of society. It also puts a spotlight on the wasteful practices of the financial services industry.
Much of the material in this feature is taken from Robin Blackburn’s book Banking on Death, or, Investing in Life: The History and Future of Pensions (Verso).
After summarising the history of the emergence of old-age pensions, the book looks at the rise of “pension fund capitalism” in the 1980s and ’90s.
Pension funds have gathered vast masses of what Blackburn calls “grey capital”. Legally it is not at all clear who owns the pension fund money, but certainly not the workers who have paid the contributions, since they have no say in what is done with it.
Starting from the fact that “we are already immersed in the world of grey capitalism”, Blackburn proposes a capital levy — a tax on profits in the form of compelling companies to issue new shares to hand over to socially-controlled pension funds — as the best measure both to secure a solid asset base, independent of employers and governments, to guarantee pensions, and to gain levers for social monitoring of capital.
Sometimes his argument reads a bit as if he is trying to construct a blueprint for a more “balanced” and “healthy” capitalism, in the style of writers like Will Hutton. But Blackburn criticises Hutton. He explains that he is looking for ways to develop the contradictions within the actual development of capitalism, rather than simply counterposing an alternative social blueprint.
Are there problems with workers acquiring a sort of collective ownership of large capitalist shareholdings? Yes. But workers now have pension funds, and are not going to give them up easily, so the question is, where do we go from here?
Blackburn explains about his proposals:
“Such a profound, if also curious, alteration in property relations… could not be sustained without provoking a fundamental rupture with capitalist social relations… [The] institutional proposals are made not as an alternative to social movements, class mobilisations and political campaigns, but as a complement to them… It is in the nature of both class struggle and political competition that there is a tussle over the specific direction and use of any new social measure.”