In the eye of the ‘perfect storm’: the final salary pensions crisis and financialisation of Anglo‐American capitalism

Abstract

Click to increase image sizeClick to decrease image size Notes The author would like to thank Louise Amoore, Marieke de Goede and two anonymous reviewers for their constructive comments on an earlier version of the text. 'American pensions: in the red', The Economist, 13 September 2003, pp. 84–5. Richard Minns, The Cold War in Welfare: Stock Markets versus Pensions (Verso, 2001), p.xii. On the prospects for convergence of pension arrangements in continental Europe with the Anglo‐American 'model', see the exchange between Clark and Engelen: Gordon L. Clark, 'Pension Security in the Global Economy: Markets and National Institutions in the 21st Century', Environment and Planning A, Vol. 35, No. 8 (2003), pp. 1339–56; and Ewald Engelen, 'The Logic of Funding European Pension Restructuring and the Dangers of Financialisation', Environment and Planning A, Vol. 35, No. 8 (2003), pp. 1357–72. Chris Daykin, 'Experience and trends in occupational pensions—tour d'horizon in OECD countries', in: OECD (ed.), Regulating Private Pension Schemes: Trends and Challenges, Private Pensions Series No. 4 (OECD, 2002), pp. 10–11. Randy Martin, Financialization of Daily Life (Temple University Press, 2002), p. 9. See, for example, Giovanni Arrighi, The Long Twentieth Century: Money, Power and the Origins of Our Times (Verso, 1994); Robert Boyer, 'Is a Finance‐led Growth Regime a Viable Alternative to Fordism? A Preliminary Analysis', Economy and Society, Vol. 29, No. 1 (2000), pp. 111–45; and Stephen Gill, Power and Resistance in the New World Order (Palgrave, 2003). Arrighi, The Long Twentieth Century, ch. 4. Boyer, 'Is a Finance‐led Growth Regime a Viable Alternative to Fordism?'. Samir Amin, 'The Challenge of Globalization', Review of International Political Economy, Vol. 3, No. 2 (1996), pp. 238–44. Bob Jessop & Ngai‐Ling Sum, 'Pre‐disciplinary and Post‐disciplinary Perspectives', New Political Economy, Vol. 6, No. 1 (2001), p. 92 and p. 95. Marieke de Goede, 'Beyond Economism in International Political Economy', Review of International Studies, Vol. 29, No. 1 (2003), p. 80. See, amongst others, Ash Amin & Nigel Thrift, 'Introduction', in: Ash Amin & Nigel Thrift (eds), The Blackwell Cultural Economy Reader (Blackwell, 2004), pp. x‐xxx; Michel Callon, 'Introduction: the embeddedness of economic markets in economics', in: Michel Callon (ed.), The Laws of Markets (Blackwell, 1998), pp. 1–57; Paul du Gay & Michael Pryke, 'Cultural economy: an introduction', in: Paul du Gay & Michael Pryke (eds), Cultural Economy (Sage, 2000), pp. 1–20; and Larry Ray & Andrew Sayer, 'Introduction', in: Larry Ray & Andrew Sayer (eds), Culture and Economy after the Cultural Turn (Sage, 1999), pp. 1–24. Amin & Thrift, 'Introduction', p. xii. Callon, 'Introduction', p. 2. Ibid., p. 28. Nigel Thrift, 'Chasing Capitalism', New Political Economy, Vol. 6, No. 3 (2001), p. 377. Paul Langley, World Financial Orders: An Historical International Political Economy (Routledge, 2002), pp. 93–9. Ronald Dore, Stock Market Capitalism: Welfare Capitalism (Oxford University Press, 2000). Cf. Gordon L. Clark, Pension Fund Capitalism (Oxford University Press, 2000); and Michael J. Clowes, The Money Flood: How Pension Funds Revolutionized Investing (Wiley, 2000). Martin, Financialization of Daily Life, p. 3. 'American pensions: in the red', The Economist, pp. 84–5. Danny Hakim & Jonathan Fuerbringer, 'G.M. to raise $10 billion for pension gap', New York Times (www.nytimes.com/todaysheadlines), 21 June 2003. 'The amazing shrinking pension funds', The Economist, 22 March 2003, p. 34. Nic Ciccutti, 'Everything you ever wanted to know about pensions but were afraid to ask', Bloomberg Money, No. 66, July 2003, p. 20. UBS Global Asset Management, Pension Fund Indicators 2003: A Long‐term Perspective on Pension Fund Investment (UBS Global Asset Management, 2003), p. 11. The Economist, A Survey of Asset Management, 'Pension pain', 5 July 2003, p. 5; and Florian Gimbel, 'Big pension funds buoy corporate performance', Financial Times, 28 July 2003, FTfm section, p. 3. Mary Williams Walsh, 'New rules urged to avert looming pension crisis', New York Times (www.nytimes.com/todaysheadlines), 28 July 2003. Mary Williams Walsh, 'Discord over efforts at valuing pensions', New York Times (www.nytimes.com/todaysheadlines), 1 May 2003. Mary Williams Walsh, 'Pension reserve: what's enough', New York Times (www.nytimes.com/todaysheadlines), 22 June 2003. Minns, The Cold War in Welfare, p. 154. Engelen, 'The Logic of Funding European Pension Restructuring and the Dangers of Financialisation', p. 1367. Robin Blackburn, Banking on Death, or Investing in Life: The History and Future of Pensions (Verso, 2002), p. 130. Clark, Pension Fund Capitalism, p. ix. Clowes, The Money Flood, pp. 12–13. Clark, Pension Fund Capitalism, pp. 31–2. Clowes, The Money Flood, pp. 7 and 13; and Leslie Hannah, Inventing Retirement: The Development of Occupational Pensions in Britain (Cambridge University Press, 1986), pp. 73–4. Callon, 'Introduction', p. 22. Confidential interview with a representative of the Investment Management Association, London, 1 September 2003. Jan Toporowski, The End of Finance: Capital Market Inflation, Financial Derivatives and Pension Fund Capitalism (Routledge, 2000); and Adam Harmes, Unseen Power: How Mutual Funds Threaten the Political and Economic Wealth of Nations (Stoddart, 2001), pp. 83–119. Blackburn, Banking on Death, p. 177. Confidential interview with a representative of a US‐owned asset management firm, London, 4 September 2003. Ibid. Engelen, 'The Logic of Funding European Pension Restructuring and the Dangers of Financialisation', p. 1366. See, for example, Silvia Ascarelli, 'Equities get the boot', Wall Street Journal, 16 January 2002, available at http://www.johnralfe.com/displayArticle.php Alex Skorecki, 'LSE pension fund dumps shares for bonds', Financial Times Weekend, 13–14 July 2002, p. 2. Williams Walsh, 'New rules urged to avert looming pension crisis'. Kate Burgess, 'Don't fall for Victorian values', Financial Times Weekend, 15–16 March 2003, FT Money section, p. 1. Williams Walsh, 'New rules urged to avert looming pension crisis'. UBS Global Asset Management, Pension Fund Indicators 2003, p. 52. Marieke de Goede, 'Repoliticising financial risk', unpublished paper presented to the British International Studies Association 27th Annual Conference, London School of Economics, 17 December 2002. Cf. Charles P. Kindleberger, Manias, Panics and Crashes: A History of Financial Crises (Macmillan, 1978). Nigel Thrift, ' "It's the Romance, Not the Finance, That Makes the Business Worth Pursuing": Disclosing a New Market Culture', Economy and Society, Vol. 30, No. 4 (2001), pp. 414–15. Blackburn, Banking on Death, p. 175. Hengyi Feng, Julie Froud, Johal Sukukdev, Colin Haslam & Karel Williams, 'A New Business Model? The Capital Market and the New Economy', Economy and Society, Vol. 30, No. 4 (2001), pp. 467–503. Ibid., p. 481. Elmar Altvater, 'Financial crises on the threshold of the 21st century', in: Leo Panitch (ed.), Socialist Register—Ruthless Criticism of All That Exists (Merlin, 1997), p. 59. Karl Polanyi, The Great Transformation: The Political and Economic Origins of Our Time (Beacon Press, 1944). For example, based on LSE figures, pension funds hold around 28 per cent of LSE equities, with insurance companies holding around 22 per cent. Unit trusts and other investment vehicles (including personal pensions) hold an additional 10 per cent. See Minns, The Cold War in Welfare, p. 170. Engelen, 'The Logic of Funding European Pension Restructuring and the Dangers of Financialisation', p. 1365. 'The amazing shrinking pension funds', The Economist, p. 34. Hakim & Fuerbringer, 'G.M. to raise $10 billion for pension gap'. Mary Williams Walsh, 'A plan to recalculate pensions', New York Times (www.nytimes.com/todaysheadlines), 11 April 2003. The discount rate is the rate used in the measurement of the value, in current terms, of a plan's future obligations to members. The discount rate reflects, therefore, expectations about the rate at which a scheme's assets can be expected to increase before its beneficiaries retire. Watson Wyatt, Pension Plan Design Survey: 2003 Update, available at http://www.watsonwyatt.com Ciccutti, 'Everything you ever wanted to know about pensions but were afraid to ask', p. 17. Nicholas Timmins, 'Pension policy attacked from many sides', Financial Times, 28 March 2003, p. 10. Confidential interview with a representative of the Trades Union Congress, London, 2 September 2003. Mary Williams Walsh, 'Judge says I.B.M pension shift illegally harmed older workers', New York Times (www.nytimes.com/todaysheadlines), 1 August 2003; and Mary Williams Walsh, 'Xerox settles pension suit with retirees', New York Times (www.nytimes.com/todaysheadlines), 15 November 2003. DC plans in the US are also often so‐called 401(k) plans as a wide range of DC plans use the 401(k) tax code. 401(k) plans permit employees to reduce current tax liabilities by taking income in the form of contributions (within limits monitored by the Internal Revenue Service) to a pension plan. Hannah, Inventing Retirement, p. 22. Ibid., p. 79; and Tony Cutler & Barbara Waine, 'Social Insecurity and the Retreat from Social Democracy: Occupational Welfare in the Long Boom and Financialization', Review of International Political Economy, Vol. 8, No. 1 (2001), p. 105. Tony Cutler, Barbara Waine & Marcus Whiting, 'Risk and return: the "crisis" of the final salary pension scheme, its causes and implications', unpublished paper presented to the British International Studies Association 27th Annual Conference, London School of Economics, 17 December 2002. Confidential interview with a representative of the Trades Union Congress, London, 2 September 2003. Cutler & Waine, 'Social Insecurity and the Retreat from Social Democracy', p. 100. UK Inland Revenue statistics, in Trades Union Congress, Pensions in Peril: The Decline of the Final Salary Pension Scheme (TUC, 2002), available at http://www.tuc.org/pensions/ Confidential interview with representatives of the National Association of Pension Funds, London, 4 September 2003. In Williams Walsh, 'Pension reserve: what's enough'. Ed Crooks, 'Pensions black hole "is threat to profits": CBI warns £160bn shortfall will hold back growth', Financial Times, 28 July 2003, p. 1. Gimbel, 'Big pension funds buoy corporate performance', p. 3. Government Actuary's Department, Occupational Pension Schemes 2000: Eleventh Survey by the Government Actuary (Government Actuary's Department, 2003), p. 42. Olivia S. Mitchell & Sylvester J. Schieber, 'Defined contribution pensions: new opportunities, new risks', in: Olivia S. Mitchell & Sylvester J. Schieber (eds), Living With Defined Contribution Pensions: Remaking Responsibility for Retirement (University of Pennsylvania Press, 1998), pp. 1–14. Department of Social Security, A New Contract for Welfare: Partnership in Pensions (Department of Social Security, 1998). The new UK insurance agency is to be modelled on the US Pension Guaranty Corporation. It is in large part a response to the current situation whereby the pension benefits of members of a DB scheme are ultimately guaranteed by the equity of the sponsoring corporation. This is particularly problematic should the corporation become bankrupt. For details of a campaign group currently lobbying the UK government for a compensation package for members of DB occupational schemes who have lost benefits as a consequence of scheme wind‐ups that usually take place in the event of the bankruptcy of the sponsoring company, see http://www.pensiontheft.org Alan Pickering, A Simpler Way to Better Pensions: An Independent Report (Department of Work and Pensions, 2002), available at http://www.dwp.gov.uk/publications/dwp/2002/pickering/report.pdf Ron Sandler, Medium and Long‐term Retail Savings in the UK (HM Treasury, 2002), available at http://www.hm‐treasury.go.uk/Documents/Financial Services/Savings/fin_sav_sand.cfm Department of Work and Pensions, Security, Simplicity and Choice: Working and Saving for Retirement, Action on Occupational Pensions (Department of Work and Pensions, 2003). John J. Rodger, From a Welfare State to a Welfare Society: The Changing Context of Social Policy in a Postmodern Era (Macmillan, 2000), p. 3. The Pension Service, A Guide to Your Pension Options (Department of Work and Pensions, 2003), p. 1. Adam Harmes, 'Mass Investment Culture', New Left Review, No. 9 (2001), pp. 105–8. Martin, Financialization of Daily Life, p. 9. Michael A. Peters, Postructuralism, Marxism, and Neoliberalism: Between Theory and Politics (Rowman & Littlefield, 2001), p. 91. David Knights, 'Governmentality and financial services: welfare crises and the financially self‐disciplined subject', in: G. Morgan & D. Knights (eds), Regulation and Deregulation in European Financial Services (Macmillan, 1997), p. 224. Martin, Financialization of Daily Life, p. 10. I explore the making of 'the investor' in Anglo‐American pension reform in considerable detail in The Everyday Life of Global Finance: Saving and Borrowing in America and Britain, unpublished manuscript, ch. 4. See http://www.saversummit.dol.gov Adair Turner, 'The Macroeconomics of Pensions: A Lecture to the Actuarial Profession', London, 2 September 2003, available at http://www.actuaries.org.uk/Display_Page.cgi?url=/pensions/Adair Turnerlecture.html See http://www.saversummit.dol.gov/bush.html Clark, 'Pension Security in the Global Economy', p. 1367. For a thorough critique of Clark's position, see Ewald Engelen, 'The False Necessities of State Retreat', Environment and Planning A, Vol. 35, No. 8 (2003), pp. 1377–80; and Adam Tickell, 'Pensions and Politics', Environment and Planning A, Vol. 35, No. 8 (2003), pp. 1381–4. Richard Murphy, Colin Hines & Alan Simpson, People's Pensions: New Thinking for the 21st Century (New Economics Foundation, 2003). Additional informationNotes on contributorsPaul Langley Paul Langley, School of Arts and Social Sciences, Northumbria University, Newcastle‐upon‐Tyne NE1 8ST, UK. Paul Langley, School of Arts and Social Sciences, Northumbria University, Newcastle‐upon‐Tyne NE1 8ST, UK.