Will there be too many pensioners? (2004)

From the November 2004 issue of the Socialist Standard

Last month the former head of the CBI, Adair Turner, presented his report to the government on future pension provision. It made for scary headlines. “Pension crisis looming for 12 million workers”, worried the Times (13 October).  “Harsh truth is that we must save more or risk retiring in penury,” and went on:

“The root of the problem is increasing life expectancy and lower birth rates. By 2050, the proportion of British people over the age of 65 will increase from 28 percent today to 48 percent. This will leave Britain with dwindling numbers of taxpayers to support a massive retired population.”

Is this true? Will society be unable to cater for future pensioners at the same standard of living as they have today? Is there going to be a sort of class war between the generations, between those at work and those who have retired over how the national income should be divided between wages and pensions?

    

The short answer is: No. These are scare stories put around by employers, who want to reduce the contributions they pay into company pension schemes and the taxes they pay for state pensions, and by insurance companies, who want to sell more private pensions.

    

They've got one thing right though: in any society those who don’t work have to be maintained out of what is produced by those who do work. Everybody would agree that this is fair enough as far as people over a certain age are concerned, as well as for younger people who for one reason or another are unable to work.

    

But, in present-day, capitalist society there is another group of people who don’t work, and have to be maintained by those who do, namely, those who live off what used to be called “unearned income”, income in the forms of rents, interest and dividends derived from property ownership. That in fact is a good starting definition of a member of the capitalist class: someone owning sufficient profit-yielding assets to be able to live without having to work.

   

The source of all such unearned income (and indeed of the fat cat incomes of top directors, which is only unearned income disguised as earned income) is what Marx called the surplus value produced by wage and salary workers over and above what they are paid, which generally speaking corresponds to what they need to keep themselves fit to work at their particular trade or profession. It is out of this unpaid labour that not only the idle rich but the whole non-productive superstructure of capitalist society (the armed forces, civil service, legal system, banks, insurance and other money-handling activities) has to be maintained. What allows capitalism to maintain an enormous – and still growing – non-productive sector is the high level of productivity in the productive sector, a productivity which increases slowly but steadily all the time, historically at a rate of one to two percent a year.

    

Pensioners too are maintained out of this surplus but pensions are not a transfer payment from workers to pensioners, as the scare stories suggest; they are not paid for by ‘workers paying taxes’ since the burden of taxes paid by workers is in the end passed on via labour market forces to employers. Pensions are a transfer payment from the profits of the capitalists, even if ultimately these profits come from what workers produce. So, even if the ‘over-burdened pension system’ was to be reduced, this would not benefit the working population since the capitalist class would not dream of passing this on as higher wages and salaries.

Growth of pension schemes

One of the non-productive activities that the capitalist State has to undertake is the maintenance of the poor, those members of the working class who are unable to work and therefore have no income from a wage or salary paid by an employer: the sick, the handicapped, the unemployed and of course the old. This used to be done under what was called, appropriately enough, the Poor Law, which required local parishes to maintain the poor from within their boundaries. The fate of poor old people was the workhouse.

    

The history of the “Poor Law” is the gradual nationalisation of the system, accompanied by changes of name such as social insurance, national insurance, social security, national assistance, income support, pension credits, and the substitution of money payments for so-called “indoor relief” in a workhouse. By the turn of the last century, the authorities began to discover that so-called “outdoor relief” – a monetary payment – was actually cheaper than “indoor relief” and in 1909 stingy old age pensions were introduced for some workers aged 70 and over. This was financed by contributions from employers and workers and from general taxation and was baptised “social insurance”. It is still the basis of the State Old Age or Retirement pension in Britain today.

    

The level of the basic State pension has always been fixed as below the official poverty line, with the result that an increasing proportion of pensioners are on means-tested benefits to bring them up to the poverty line. As these top-up “pension credits” are tied to average earnings, the number of pensioners on means-tested benefits is expected to go up year by year. Turner – and the so-called “pensions industry” – are against this scheme as it discourages people from buying private top-up pensions (what they mean by “saving”) since most of any such pensions are deducted from the State's means-tested benefit.

    

To start with and until 1948, the State scheme only applied to a section of the working class, essentially manual workers in private industry. A different situation had evolved for people working for national and local government – so-called “superannuation” schemes (superannuation is just another word for pension), under which in return for contributions related to their salary, workers received a pension also related to their salary. These schemes were not funded, i.e. the money from contributions did not go into a fund that was invested, but went directly towards paying existing pensioners, a system known as “pay-as-you-go”. The logic was that funding was unnecessary since it would always be possible to find the money to pay pensions as governments don’t go bankrupt.

    

Superannuation schemes were also introduced, for office and supervisory staff, in the private sector. Eventually, these all came to be funded, to separate the money for pensions from the firm’s capital and so stop it being raided if the firm ran into cash flow problems or went bankrupt (a protection which has exactly not proved 100 percent efficient in recent years.)

    

A funded scheme means that contributions from members and their employers are paid into a fund which is then invested in government bonds or in shares or in property, and pensioners are paid out of the interest and capital gains on these. In recent years, with the slump in stock market prices, there have been capital losses rather than capital gains and these schemes have run into financial difficulties. Employers have been using this as a reason for cutting benefits, at least for new entrants. Increasingly, these are being forced into schemes which offer smaller and less secure pensions that are no longer related to wages or salary but purely to the amount invested and to the vagaries of the stock market.

    

A third type of pension arrangement is an entirely personal one where the pension payable depends on the contributions (and the income from investing them) of  the individual person concerned. These are basically savings for retirement arrangements which also involve placing the money on the stock exchange and so have run into difficulties for the same reasons as funded pension schemes. They are the ones that are notoriously subject to so-called “mis-selling”.

    

Funded schemes are based on strict actuarial principles and have to be to remain financially viable in the sense of having enough money to be able to meet all their obligations to future as well as present pensioners. What actuaries do is to take statistics on life expectancy and a likely real interest rate over a long term to work out, given the pension benefits under the scheme, how much money needs to be paid into a pension fund to allow it to pay all the pension rights acquired at a particular time. Clearly, if people are living longer – as they are – that means pensions are going to be paid for longer, which means that the scheme is going to need more money to pay them. In actuarial terms, this means more money has to be paid into the scheme, i.e. contributions have to be increased.

    

In this sense, for funded schemes, the fact of people living longer does indeed mean that the pension contributions for working members have to increase. But actuaries have known for years about likely future population trends and pension schemes will have already taken this into account. What has caused the current financial problems for such schemes has been the unanticipated slump in stock exchange prices. This is mentioned by Turner but almost in passing, since he is all in favour of people’s pensions being dependent on the vagaries of the stock market.

    

One idea mooted by Turner to save money on pensions is for the normal pension age to be raised from 65 to 70. This of course would mean that pensions wouldn’t have to be paid for so long and, as the TUC has pointed out, no pension at all would have to be paid to those who die between 65 and 70, as one in five existing pensioners do (Times, 19 July).

The ghost of Malthus

But this problem only applies to invested, funded pension schemes and cannot be validly extended into a general social problem of “too many old people” or “people living too long” (even though it would be typical of capitalism to regard what is after all an improvement in the human condition as a problem). The fallacy is that the narrow financial criteria that apply to funded pension schemes don’t apply when it comes to considering the economy as a whole. Here the broad economic, rather than the narrow financial, position is what counts:

“Over the twentieth century the British population grew from about 36 million in 1900 to 56 million in 2000. People aged over 64 grew from about 1.8 million (five percent of the total population) to about 8.6 million (fifteen percent of the population). So the total number of mouths to feed and support rose by one-half, the proportion of elderly rose three times and the numbers of elderly rose nearly five fold. All these increases were dwarfed by the seven-fold rise in annual wealth production.”

And for the future:

“The long-term record of productivity growth alone undermines the claim of a demographic time bomb in the future. Even without any increase in the size of the active workforce, productivity growth at this long-run trend of about two percent a year means a near doubling of annual output over the next 40 years” (The Challenge of Longer Life: Economic burden or social opportunity?, Catalyst pamphlet, 2002, p. 28).

The “too many old people” doom merchants are making the same mistake as Malthus made two hundred years ago with his (completely wrong) predictions about “overpopulation”: they are ignoring that productivity also increases over time, so that whereas there are indeed proportionately less workers engaged in production they are able to produce proportionately more wealth. It is the increasing productivity that will go on between now and when existing workers retire that will mean that society, even capitalist society, will be able to support the expected increased proportion of retired people in the population. There is in principle no problem here.

    

So why the scare? Basically, because there’s a vested interest involved – the self-styled “pensions industry”. They want to reduce the State’s involvement in pension provision to paying a basic minimum pension so that they can themselves make money out of providing any pension over and above this. They’ve got their greedy eyes on the £57 billion a year “shortfall” mentioned by Turner and on the commissions they can make on this if the government forces both employers and employees to “save” this amount, or even a proportion of it, each year.

    

What in fact is ironic – or rather, it’s a bare-faced cheek – is that they are not an “industry”, i.e. not part of the productive sector, at all. They are part of the non-productive sector maintained, just as much as pensioners are, out of the surplus-value produced in the productive sector. Not one person working in insurance companies and other private companies engaged in pensions provision produces a single item of wealth. From an economic point of view they, too, are a burden on surplus value. But don’t expect any government report to point that out.

    

The real question facing workers is whether they should continue to support the whole non-productive superstructure of capitalist society when, if it were to go, along with capitalism itself, how we they going to survive in old age wouldn’t be a perpetual worry, since in socialism every member of society, including the old, would have free access, as a matter of right, to what they needed to live and enjoy life.

Adam Buick

Reforms, Revolution and the Left (2005)

From the February 2005 issue of the Socialist Standard

Most people can think of aspects of  capitalism that they'd like to change.Individual changes can theoretically be made, but does reformism work as an overall strategy for real change?

Socialists are revolutionaries: we believe that the establishment of a Socialist society will involve a fundamental change in the way people live, and will necessitate the capture of political power by the Socialist working class. As revolutionaries, we do not advocate reforms, that is, changes in the way capitalism runs, such as alterations to immigration policy or the health service or the tax system. Reforms, however ‘radical’, can never make capitalism run in the interests of the workers. Nor should supporting reforms be some kind of tactic pursued by Socialists to gain support from workers, for workers who joined a Socialist Party because they admired its reformist tactics would turn it into a reformist organisation pure and simple. Socialists must reject reformism as a distraction from the revolutionary goal.

The reform–revolution issue is a long-standing one that has occasioned much debate over the years. In 1890 William Morris wrote an essay ‘Where are we now?’, as he left the Socialist League and looked back over his time in that organisation and the Social Democratic Federation. He saw two ‘methods of impatience’, as he termed them. One was futile riot or revolt, which could be easily put down. The other was, to use the then-popular label, ‘palliation’, what we would now call reformism. Morris resolutely opposed both, since they would be carried out by people who did not know what Socialism was and so would not know what to do next, even if their efforts were successful on their own terms. Instead he advocated propagating Socialist ideas:

"Our business, I repeat, is the making of Socialists, i.e., convincing people that Socialism is good for them and is possible. When we have enough people of that way of thinking, they will find out what action is necessary for putting their principles in practice. Until we have that mass of opinion, action for a general change that will benefit the whole people is impossible."

Morris thus rejected the reformist ideas that permeated the SDF and prefigured the Socialist Party’s view on this issue.

Another important discussion took place a few years later in the German Social-Democratic Party (the SPD). Eduard Bernstein, who enjoyed the prestige of being Engels’ literary executor, argued that reforms were all that should be aspired to: ‘The final goal, no matter what it is, is nothing; the movement is everything’. This was partly because Bernstein considered that some of the unpredictability of production under capitalism could be mitigated by the provision of credit and the founding of employers’ organisations (cartels and trusts). He also envisaged reformist politics and trade unions as gradually eliminating capitalist exploitation and ushering in Socialism.

 Bernstein’s main critic at the time was Rosa Luxembourg, in two articles reprinted as the pamphlet Reform or Revolution. Damning his work as ‘opportunist’, she pointed out that trade unions could only," limit exploitation, not abolish it", and claimed that his views were tantamount to abandoning Socialism. Certainly we can agree that reforming capitalism will not turn it into Socialism. But even Luxembourg did not oppose reforms.

"Can the Social-Democracy be against reforms? Can we contrapose the social revolution, the transformation of the existing order, our final goal, to social reforms? Certainly not. The daily struggle for reforms, for the amelioration of the condition of the workers within the framework of the existing social order, and for democratic institutions, offers to the Social-Democracy the only means of engaging in the proletarian class war and working in the direction of the final goal — the conquest of political power and the suppression of wage labour. Between social reforms and revolution there exists for the Social-Democracy an indissoluble tie. The struggle for reforms is its means: the social revolution, its aim."

And she made no real attempt to relate reformist policies to the final goal, other than in statements such as: " as a result of its trade union and parliamentary struggles, the proletariat becomes convinced of the impossibility of accomplishing a fundamental social change through such activity and arrives at the understanding that the conquest of power is unavoidable. "

This, however, offers no reason why a revolutionary organisation should advocate reforms. And how has the reformist argument fared over the last hundred years? Have reformist movements and reforming governments made any contribution to Socialism? The answer to this question is a resounding No! Reformist governments, like all governments, do what they have to do: they administer capitalism in the interests of the ruling class, though they do make some effort to claim that their actions benefit the whole population. The Labour Party, for instance, has abandoned any pretensions about fundamentally changing society, and is now unashamedly the Tory Party Mark II.

Reformist movements try to get elected to government or attempt to influence the government of the day, all with the aim of carrying reforms into practice or of defending the status quo against some ‘anti-reform’. For the reformer’s work is never done under capitalism, which continually throws up new problems which need the reformer’s attention and constantly undermines any existing ‘gains’, however feeble. The list of potential reforms is as long as your arm; in the course of just one recent week in Manchester, there were meetings/campaigns dealing with ‘rights’ for homeworkers, the new Immigration and Asylum Act, the police ban on a picket outside Marks and Spencer, flood relief in Bangladesh, and the pollution caused by urban 4x4s. Which of these and many other worthy causes should the committed reformer give priority to?

The ‘Left’ may claim that it enjoys the best of both worlds, both supporting reforms and advocating revolution. But in fact its revolutionary posturing is just a matter of words, for its practical policies are purely reformist. Take the biggest Left organisation in Britain, the Socialist Workers Party, for instance. The 18 December issue of its weekly paper Socialist Worker carried an article on the pension myths being peddled by the government (for the Socialist take on this, see the November Socialist Standard). Here is part of the SWP’s ‘solution’ (from their website at http://www.socialistworker.co.uk):

"We don’t want the present miserly level of pensions and care, we want better.
So say we did want to increase the share of GDP spent on the old by 5 percent of GDP or more. This only means increasing the tax rate by 0.1 percent of GDP a year for 50 years, a tiny amount.
It might mean returning top tax rates to closer to the ones which Margaret Thatcher’s governments used for most of their time in office.
Or it might mean taxing private pensions of the rich, or returning corporation tax rates on big business to a decent level".

It is obvious that, in speaking of the rich and tax rates, the SWP envisage the continuation of capitalism, rather than its abolition. It might be argued that they are only trying to attract support on the basis of reformist policies but that they really aim at revolution. But firstly, it would be quite dishonest to do this, to get workers’ support on the basis of saying one thing while really wanting something quite different. Secondly, there is no reason why anyone who goes along with increasing corporation tax should, as a consequence of supporting this, somehow be won over to Socialism. And thirdly, the SWP are utterly silent about revolution and Socialism, suppressing all mention of ‘the suppression of wage labour’. Rosa Luxembourg, as we saw, viewed reforms as the means and revolution as the aim. Like the rest of the Left, the SWP have effectively embraced Bernstein’s view, abandoning revolution for reformist measures.

The Socialist response to all this is straightforward. If you want to get somewhere, aim for that destination directly, rather than going on detours and trusting that you will eventually, by however roundabout a route, arrive at where you want to be. There is, and can be, no reformist road to Socialism, nor can there be a mixture of reformist and revolutionary policies. The Socialist Party has just one aim, the establishment of Socialism.

Paul Bennett

Hype and Hypocrisy – the Magna Carta (2015)

From the June 2015 issue of the Socialist Standard

The good burghers of the borough of Runnymede are getting excited, and Surrey county council is thrilled to bits, because on 15 June 2015 they will be celebrating the 800th anniversary of the sealing of the Magna Carta.  A committee and an advisory board has been set up.  Members of these bodies range from Trevor Philips, the chairman of the Equal Opportunity Commission, to Mrs. Franklin D. Roosevelt, Jr. who, according to the website magnacarta800th.com, is a ‘Magna Carta private owner’.  Nearby Royal Holloway College is preparing quite an array of events, courses and a Smartphone app to mark the anniversary.

The strapline for the celebrations?  ‘Commemorating 800 years of democracy’.  Imagine, democracy for 800 years, encompassing the evisceration of John Ball after the Peasants’ Revolt in the second century of ‘democratic’ England, the shooting of leveller Robert Lockyer by Cromwell in 1649, and the hanging of 12 year-old Abraham Charlston for Luddite activity in 1812.  Democracy?

Clearly not democracy.  So what are Surrey Council, Runnymede Borough, Royal Holloway and any number of other organisations celebrating exactly?

King John, known as Lackland (king of England from 1199-1216) had had many disagreements with his richer subjects.  Things came to a head in London on Sunday, 17 May 1215 when, whilst many people were in church, the City gates were opened to the rebel landowners by sympathetic rich Londoners.  With the capital full of his opponents and too difficult to take by siege, the king had to negotiate.  For a few weeks, a peace was brokered between representatives of Lackland and the barons; a document was put together, agreed to, and given to the spigurnels (chancery clerks responsible for sealing documents) to do their work.  Copies of this document would have been distributed throughout the country, signifying this accord between the king and the barons.  Peace, then, had broken out.

A few weeks later the document was made ‘null, and void of all validity forever’ by the Pope, in response to a request from the King.  Nine barons and all the citizens of London were excommunicated.  The civil war was back on.  In response to resistance throughout the country, John’s soldiers destroyed villages, raped and thieved first in the North, and then down to East Anglia and across to Oxford.  But not long afterwards, the French prince Louis, having been invited to invade by the barons, entered London in June 1216.  Then on 18 October the King died from dysentery and within ten days his son Henry III was crowned.  The document was given a few tweaks and reissued in November as a peace offering by the new King, but with little immediate effect.

It was only after a few more battles in the following year, including those of Lincoln and Sandwich, that peace was agreed with the Treaty of Lambeth in September 1217, and the French prince left the country with a bribe of 10 thousand marks.

The document was issued for a third time, with further tweaks, and named ‘Magna Carta’ to distinguish it from another, smaller, issue, the Charter of the Forest.  This latter document took the bits in the previous document that pertained to the forests – that is, land set aside for royals to use for hunting.  It has been said that this document relates more to ordinary people than does the Magna Carta.  It is true that, amongst its demands that foresters mutilate their dogs’ paws so they can’t chase deer, there is a clause that bans the removal of limbs, or life, for stealing venison.  However, the document does not explicitly ban blinding, a punishment at that time.  The prescribed punishment in the Charter of the Forest was a fine as heavy as can be levied according to the thief’s means, and if it could not be paid then it’s a year and a day in prison followed, if the money was still not available, by being kicked out of the country (i.e., they must ‘abjure the realm’).

These documents were regularly reissued throughout the thirteenth century, generally when the king was in need of more revenue.  From starting its life as an attempt to negotiate a peace with a king, the Magna Carta seemed to turn into a way of generating taxes.

By the sixteenth century, with the Reformation and the rise of Protestantism, it is hardly surprising that a document that spoke of the rights of the (Catholic) church, and drawn up in a time in his reign when Lackland felt it expedient to submit to papal authority, would not be something to flash around.  Shakespeare’s King John, for instance, does not mention the Magna Carta.  When the Chief Justice, Edward Coke, suggested that the king was not above the law, James I had him dismissed, leaving him with free time to write The Institutes of the Lawes of England, which expressed his view that the Magna Carta was the basis of the common law.

In the seventeenth century, with the conflicts between parliament and king, it became fashionable, although not with the Lord Protector Cromwell, who is said to have referred to it as the ‘Magna Farta’.  Levellers such as John Lilburne and Thomas Overton saw it differently, Lilburne invoking it at his trials for treason against Cromwell, quoting Coke’s Institutes, and Overton quoting the charter in An Arrow Against All Tyrants.

The leveller William Walwyn, however, had a more astute understanding.  In A Remonstrance of Many Thousand Citizens he says: ‘Magna Carta itself being but a beggarly thing, containing many marks of intolerable bondage, and the laws that have been made since by parliaments have in very many particulars made our government much more oppressive and intolerable…’

Onwards into the 18th century, we see the United States considering it as a basis of their constitution and Bill of Rights.  The symbol of the state of Massachusetts is a man holding a copy of the Magna Carta.

So there we have it.  This is the focus of the celebration.  A document that lasted in law for a few weeks in a failed attempt to prevent handbags at dawn between a king and his rich subjects, which was then split into two documents over the course of the century, and reissued whenever a thirteenth century monarch wanted more money.  These bits of vellum have become a fetish that signifies democracy.

It offers protection under the law for free men.  By free men, of course, it doesn’t mean the likes of us (putting gender aside for the moment).  It means protection for the rich.

And it is argued that this is the first time a king has been held to account, and a limit set to his power.  Yet the Anglo-Saxon Chronicle tells of the power of the Witan – the councils of ‘wise’ men – in pre-Norman England, and their influence on the monarchs.

Meanwhile, back in Surrey…

In woodland, close to where the Magna Carta is purported to have been sealed, lies the Runnymede Eco-Village community.  It is on land occupied by the group Diggers 2012, land that has been vacant and otherwise unused since 2007 when Brunel University left the area, having sold it to a property developer, who soon afterwards was given planning permission.  For around three years these hippies have been building shelters, setting up solar electricity and growing vegetables.  Or, as the Daily Mail website puts it, ‘Dope-smoking anarchists sully site where King John sealed the Magna Carta with litter-strewn shanty town’ (odd that the Mail believes that the king sealed the Magna Carta with a litter-strewn shanty town and not some kind of wax on a stick).

The landowners are in the process of going to court to evict Diggers 2012.

And on 15 June there will be a celebration of democracy in Runnymede, in the presence of the Queen –  a non-elected hereditary head of state, it seems, is the perfect example of these ‘800 years of democracy’.  That and a thirteenth century document resulting from a hissy fit between royalty and rich men.

And perhaps freedom will be celebrated by the force of the law booting a few hippies off nearby land.

And two final commentaries written not so far apart:

‘...it is implied that here is a law which is above the King and which even he must not break. This reaffirmation of a supreme law and its expression in a general charter is the great work of Magna Carta; and this alone justifies the respect in which men have held it.’

Winston Churchill

‘… it's through that there Magna Charter,
As were made by the Barons of old,
That in England today we can do what we like,
So long as we do what we're told.’

(Marriott Edgar)

Vincent Jones