(Weekly Organ of the Communist Party of India (Marxist)
September 25, 2011
Public Pensions and the World Bank
K K Theckedath
ago the workers of Milan and other cities of Italy brought the country
shutdown to oppose the government’s plans to curtail pensions. This was
followed the next year by the working class in France along with the
and youth, who occupied the streets for a fortnight to protest against
restrictive conditions on jobs. An estimated 3.5 million workers and
marched nationwide in
On March 24,
2011 the government of
of pensions and their replacement by other ‘pillars’ of old age support
programmes undertaken by these governments strictly according to the
outlined by the World Bank in their 1994 Policy Research Report: Averting the Old Age Crisis. Simply put,
taking courage from the collapse of the
The World Bank admits that, “In the republics of the Soviet Union and East Europe, old age pensions were included as part of the cradle-to-the-grave security that communism was supposed to provide all workers (page 106)”. However, it argues that such commitment from the governments is no longer possible, nor is it advisable.
Although the title of the World Bank document refers to old people, the recommendations have less to do with the old people and their problems, than with the crisis the present capitalist governments would face if the pension schemes are continued. In fact, every attempt is made to pit the rest of society against the retirees. The World Bank does not look at pension payment as redemption to those who have toiled for society for over thirty years and as a recognition of the dignity of these employees, but merely as a part of the poverty alleviation programme of the government. The document compares the pension of retirees with the condition of the others in society who are destitute and need greater attention. Then, turning attention to the generation of funds, the World Bank pits the retirees against those who are at present working and from whom, through taxes, funds are required to be diverted to the old. The retirees are also shown as agents who are coming in the way of the economic march of the State. Surprisingly, the document lists longevity as one of the risks that “the old are specifically vulnerable to”. (page 233). Thus longevity is not treated as a good to be ensured for those who have served society, but as a risk to the rest of society.
The crisis that the World Bank is looking at is the economic crises that the various capitalist countries are facing in the post-1991 period. In the late twentieth century, following prescriptions of economists like Fredrich Hayek, Joseph Schumpeter and Milton Friedman for a free market economy (namely, deregulate business and trade, restrict State intervention, and let the energies of entrepreneurship and free flowing capital generate wealth for all of those who participate in the economy), the USA and UK embarked on the neo-liberal economic path. This new path dominated by finance capital and speculative growth, demands great amounts of liquid money. The huge pension funds with the State treasuries are seen as the godsend solutions to help the limping economies to move forward. This is the driving force behind the World Bank proposals to privatise pensions.
While suggesting a move away from publicly funded pensions, the World Bank is proposing privately managed and funded occupational pensions and mandatory savings schemes. These are supposed to be the two ‘pillars’ to support the employees when they retire. The World Bank’s neo-liberal cat is out of the bag when it criticises the present pension schemes by saying that “pension funds are often legally constrained from investing in foreign assets”, and decides to title this section as Liberating Pension Funds: An Idea whose Time has Come. Thus the whole endeavour is to get the present funds out into the capital market for the operation of speculative market forces.
The World Bank
Report makes a self-congratulatory reference to the US experience after
pension funds were liberated from the earlier strict conditions on
: “In the United States, pension funds and life insurance companies
main forces behind financial innovations after the Employee Retirement
Security Act (ERISA) of 1974, which imposed minimum funding
sharply increased the demand for hedging instruments. New instruments
tailored to the needs of pension funds (such as zero-coupon bonds,
collateralised mortgage obligations, mortgage-backed securities,
futures and options, and guaranteed income contracts). These financial
instruments have transformed illiquid loans into highly liquid and tradeable securities and enabled new forms of risk
sharing, facilitating both business investment and housing finance.
The World Bank's arguments are centred on how the pension reserves can be utilised for economic growth and how the States can be relieved of the responsibility of paying pensions. According to it, old age protection should be wholly left dependent on market regulated schemes like the privately funded pensions, occupational pensions and mandatory savings schemes. The argument is that it is better to let the market forces work for the welfare of the retirees.
The Theoretical Side
Investments in the new financial products offer higher returns precisely because the risks are higher. At the time when this World Bank Report was written, the 1990s, the dominating economic philosophy in the capitalist world was ‘market-fundamentalism’. It was the faith, first propounded by Adam Smith, that if we leave things to the market forces, what will turn out will be the best and most efficient outcome. Ideas ascribed to the market fundamentalists include the belief that markets tend to an equilibrium, and that the best interests of society are achieved by allowing its participants to pursue their own financial self-interest with no or little restraint or regulatory oversight. Theoretically, the formal mathematical proof specifying the conditions under which this was true was provided by Gerard Debreu and Kenneth Arrow. However, in 1986 a basic result was proved by B Greenwald and Joseph Stiglitz showing that when information is imperfect or markets are incomplete, then competitive equilibrium is not efficient.
financial crisis of 2007-2010 put paid to all such hopes of human
through the markets. Joseph Stiglitz described the crisis as the end of
fundamentalism. The free flow of information and market completeness
to have been deliberately thwarted by powerful players in the financial
markets. The European Commission has now instituted two anti-trust
into possible collusion of 16 investment banks in the marketing of
default swaps (CDS). It should be remembered that in the
It is on such
an unsustainable model that the World Bank proposes to ensure the
the retirees. The ruling classes in