blackburn - age shock, how finance is failing us (2011)

Age Shock How Finance Is Failing Us Age Shock How Finance Is Failing Us ^ ROBIN BLACKBURN To the memory of Rudolf Meidner (1914±2005) First published by Verso 2006 This paperback edition first published 2011 Robin Blackburn # 2011 All rights reserved The moral rights of the author have been asserted 13579108642 Verso UK: 6 Meard Street, London W1F 0EG US: 20 Jay Street, Suite 1010, Brooklyn, NY 11201 www.versobooks.com Verso is the imprint of New Left Books ISBN 13: 978 1 84467 765 8 British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data A catalog record for this book is available from the Library of Congress Typeset in Bembo by Hewer Text UK Ltd, Edinburgh Printed in the US by Maple Vail Contents Preface to the Paperback Edition ix Introduction: The Need for a New Collectivism 1 The Grey Wave 12 Overall Pension Needs 16 Questioning the Anglo Saxon Model 20 Chapter 1 The New Life Course: Its Shape and Costs 29 The Debt Generation 34 Old Age Poverty and the `Risk Shift' 39 The Third Age 46 Crisis, What Crisis? 51 Raising the Birth Rate 57 Pension Costs as a Share of GDP 61 Chapter 2 The Divided Welfare State and the River of Time 75 The Puritan and the Baroque 82 The Option for Pay As You Go 88 The Divided Welfare State 92 Generational Arbitrage 96 Frailty and Free Time 102 Chapter 3 Commercial and Corporate Failure 109 DC Plans as Leaky Buckets 116 The Agony of `Defined Benefit' 125 Jobs versus Pensions 131 `Turn Around Kings' or `Vulture Capitalists?' 135 Public Sector Pension Schemes 145 Thumbs Down for Private Pensions 147 Chapter 4 The Murky World of Grey Capital 153 A Double Accountability Deficit 156 Passive Investors and CEO Enrichment 164 Financialization and the Disposable Corporation 172 High Finance and Distressted Debt 175 Perilous Ways of Hedging Risk 177 Fooling the Tax Man 182 Chapter 5 The Limits of Reform and Shareholder Activism 195 Gaming Your Customers: The Emptiness of Mutuality 204 The Scope of the New Regulations 210 Insurance Lost in the Bermuda Triangle 213 Putting the Brooms Back in the Closet 215 Shareholder Activism and SRI 217 Chapter 6 The Need for Strong Public Pensions 227 Privatization Proves a Hard Sell 230 A Scheme of Inter Generational Justice 237 Unemployment Saps European Solidarity 242 Swedish Wage Earner Funds 245 The Logic of Pay as You Go 248 Chapter 7 How to Finance Decent Pensions ± and Tame the Corporations 263 Searching for the Best Taxes 267 How a Share Levy Would Work 272 The Yield of a Share Levy Over 27 Years 275 Theoretical and Practical Objections 277 The Scope for Re regulation 285 Implementing the Fund Network 292 The Shape of the New Pensions Regime 296 Transitional Measures Towards Responsible Accumulation 299 Epilogue: Living in the Presence of Our Future Selves 311 Afterword: Social Protection after Globalization: Proposal for a Global Pension 321 Index 351 vi age shock List of Tables 1.1 Old Age Poverty Rates: Some Cross National Comparisons c. 2000 41 3.1 The Decline of Income after 52 Years of Age 112 6.1 Pay As You Go: Varying Cohort Problem (with Collapse) 250 6.2 Pay As You Go: Varying Cohort Problem (without Collapse) 251 6.3 Projections of GDP and Pension Spending in France 254 Acknowledgements I would like to thank Perry Anderson, Larry Beeferman and Matthieu Leimgruber for reading the MSS and making many helpful suggestions. I have also greatly benefited from the advice of Yally Avrampour, Ted Benton, Christopher Blackburn, Per Berglund, Diane Elson, Nancy Fraser, Jay Ginn, Miriam Glucksmann, Lydia Morris, Lucinda Platt, John Scott, Lance Taylor and Erik Olin Wright. Of course, none of the foregoing are responsible for my mistakes or conclusions. R B, Wivenhoe, July 2006 Preface to the Paperback Edition [...]... contraction caused by a steep decline in profitability There was to be much argument over the precise causes and extent of this underlying crisis Western governments did their utmost to sustain an illusion of unending growth Loose credit conditions encouraged households, en terprises and local government institutions to take on large amounts of debt While entrepreneurs found capital easy to raise, consumer... be a nightmare in the making Now, the disaster has happened ± but because of the vices of financialization, not the burden of welfare The disease had quite different origins and causes from those that were forecast by the doom mongers, but the medicine needed for this incapacitating ailment is ± so they claim ± just the same as before Grotesquely, a crisis caused by the banks has to be solved at the... large sums, the value of savings has suffered and prospective yields are very disappointing But in the medium term it is quite possible, even likely, that the trends which produced the crisis will gain added momentum In this new preface to Age Shock, I give an account of the multiplying woes of the post crisis world, focusing on their impact on pensions I also build on the proposals for radical reform... in Chapter 4) The weak and worsening data on US savings and retirement prospects showed the hollowness of Washington's `success' in tackling the crisis Moreover, the impetus to international cooperation was not maintained and the huge global imbalances that led to the crisis persisted The balance sheets of many financial institutions still harboured unrecognised losses While Wall Street and the City... very undesirable wedge By this time, however, angry citizens were prepared to urge their governments' repudiation of what were increasingly seen as `illegitimate' or `odious' debts.34 The persistence of the crisis stemmed from the continued weakness of demand The stimulus programmes were too weak and too little focused on investment The economic weather was being created as households and banks ran down... and capital flows must be addressed and regulated in ways that empower and inform the citizens and communities across the world With this in mind, in Age Shock I look at how best to meet the rising costs of the ageing society on a country by country basis, but with a view to concerted measures on a regional and global scale Measures favourable to inclusive pensions and elder care provision can be taken... median, real wages rose by just 5 per cent.'42 Real wages have risen in China, India and Brazil ± but labour organization and agitation will be needed to secure and spread such gains which are very unevenly distributed Levels of inequality have been rising sharply in China, India and Russia; in Brazil levels of inequality have dropped in recent years but remain high We also see that the crisis has brought... total transactions on the US markets in the years leading up to the crisis Goldman was frequently found betting huge sums of other people's money on both sides of many `merger and acquisitions' events While clients took risks, Goldman could trade on its own proprietary account Did it ever use customer information to place safe bets? As they say on the Street, `Goldman are not missionaries' As Goldman... sequence of crises ± the most serious since the thirties ± and Rochet's total must have climbed by at least a dozen Between the onset of trouble in 2008 and June 2011 the IMF responded to 22 appeals for crisis lending, but while its resources were generously ± though not always effectively ± used to ease the predicaments of heavily indebted EU states, large poor states like Ukraine and Pakistan received... political factions and sustain key `think tanks' There is a restless search for methods of tackling the rising costs of an ageing society, methods that socialize losses and privatize profit Extensions of health care and elder care are designed to offer guaranteed business to commercial suppliers and insurers, despite the latter's poor cost ratios This approach compromises what might otherwise be positive extensions . Age Shock How Finance Is Failing Us Age Shock How Finance Is Failing Us ^ ROBIN BLACKBURN To the memory of Rudolf Meidner (1914±2005) First published by Verso 2006 This paperback. caused by a steep decline in profitability. There was to be much argument over the precise causes and extent of this underlying crisis. Western governments did their utmost to sustain an illusion. can the eurozone issue bonds, since its own fiscal powers are so modest; the fiscal power remains with the member states. Credit is a wonderful thing, but it must be used to nourish the real economy