How Many Shares Have You? (1975)

From the September 1975 issue of the Socialist Standard

How often have Socialist speakers heard the absurd defence of Capitalism that, because anyone can now own “shares” in companies, everyone is a capitalist. The argument goes on to claim that therefore the working class are no longer the deprived majority of society.

W. S. Gilbert would no doubt have retorted “if everyone is somebody, then no-one’s anybody”. And of course, even if it were true that most people own a handful of shares it would not alter one iota of our fundamental criticism of capitalism. Our criticism is that capitalism is incapable of solving the major social ills that it constantly creates. All it does produce are profits for the capitalist class and problems for the working class.

But the claim is false. It is by the possession of shares that the capitalist class in advanced western capitalism (a different arrangement prevails under Soviet capitalism — no less anti-social) claims most of its ownership of the means of production and of the commodities that are produced. Shares are either owned by individuals or by companies, unit trusts (the so-called “institutional shareholders”) and the like.

As far as individual shareholdings are concerned, there is no doubt that the overwhelming majority of the population don’t own any. In his book Unequal Shares A. B. Atkinson says that 5 per cent of the population own over 96 per cent of the privately held shares and 1 per cent own 81 per cent. That does not leave much for the rest of us. Clearly the majority of workers have never seen a share certificate, let alone owned one.

With institutional shareholdings the position is more complicated. A good deal of the shares are owned by companies whose shares are themselves privately owned. “But what about pension funds and the like?” the defender of Capitalism plaintively bleats. “They are held for the benefit of the workers, for retirement money, injury pay etc. In effect, these are owned by the workers.” Rubbish.

According to the Royal Commission on Income and Wealth (Report No. 1, 1975) only 12.2 per cent of the total number of shares quoted are owned by Pension Funds. These funds are established by large firms like ICI or Fords for sound economic capitalist reasons. And they are set up to benefit the companies (i.e. the shareholders).

Indeed it is a well established principle of British Company Law that all moneys must be used by the company for the benefit of the shareholders only. When the old News Chronicle was closing down in the early 1960s the directors wanted to pay some of the money realised from the sale of the company’s assets to the work force as compensation for their loss of jobs etc. The high court stopped them. Money given to workers was not being used in the best interest of the company it said. The only way the money could be lawfully distributed was to the shareholders.

So in order for these “pension funds” to be lawful, the company must show that they are in the best interests of the company’s owners. And they are. There are many reasons why it is of direct benefit to the company to have pension funds and it would take a whole issue of the Socialist Standard to explain them fully. But some of the more obvious ones are these: —

1. It is another bait for the work force, just as luncheon vouchers or sports facilities etc. are. Workers know too well the miserable pensions the state will pay them when they retire and “non-contributory pension schemes” are one of the things the employer can offer to supplement a low wage.
2. Once employed the worker is encouraged to feel that he has a “stake” in the company and that if he leaves he will lose his right to a pension or it may be reduced.
3. Above all, the money in pension funds belongs to the company. Admittedly it cannot actually be spent by the capitalist class, but then neither can machines. When profits are “ploughed back” into a business these are not lost to the capitalist class. On the contrary, they represent a greater accumulated share of capital than was represented by the company’s assets before. A pension fund is as much a part of the capital of a company as is the factory or the stock-in-trade, and this will be reflected in the value of the shares on the stock exchange.

Capitalism doesn’t give workers shares, it only gives them crumbs. Socialism will mean free access, not unequal shares.

Ronnie Warrington

World View: Japan's Tightrope Act (1995)

From the October 1995 issue of the Socialist Standard

"The Japanese economy is moving into recession following the banking crisis and credit crunch. Property prices are on the slide. Business bankruptcies are increasing” (Socialist Standard, November 1992).

When we warned of worsening prospects for the Japanese economy our view was a minority one. The consensus view expressed in the capitalist media was that by government intervention using tax cuts and increased public spending the economic slowdown could be reversed.

At the beginning of 1993 when signs of a developing trade war appeared, the conventional view was that negotiations among the world’s economic superpowers could settle their differences. We stated however "the present trade war cannot be ended by GATT. NAFTA, or G7 summits. It will, continue in one form or another as long as world production is organised for profit rather than use" (Socialist Standard, April 1993).

At the end of July this year Cosmo, Japan's fifth largest credit union (these are similar to our building societies) collapsed following the withdrawal by depositors of 60 billion Yen (£425 million). Cosmo which has 15.297 members admitted that bad debts were about ¥170 billion in May with interest in arrears on loans of ¥184 billion. The Bank of Japan was forced to lend Cosmo sufficient to cover the withdrawals. The Japanese Finance Ministry quickly produced a rescue plan to weaken the Yen and thereby boost exports and boost the economy. This consisted of intervention along with the US Federal Reserve to bolster the dollar. Japanese insurance companies will now be allowed to lend in foreign currencies. Accounting rules will be changed to "give Japanese insurers more flexible ways to account for foreign bond holdings and will also let them decide whether to report foreign exchange losses in their accounts . . . Such changes may help insurance companies out of their present fix but at the cost of making their accounts less transparent" (Economist, 5 August).

Banking crisis: Excessive lending in the 1980s is estimated to have left the country’s lenders with bad debts of ¥50,000 billion, almost £350 billion (Daily Telegraph, 1 August). Non-performing loans of Japanese banks, trusts and longterm credit banks at put at around ¥12 trillion (The Banker, July 1995). Problem loans, according to the Director of the Finance Banking Bureaux, amounted to about ¥40,000 billion (£290 billion) equal to almost 10 percent of Japan's gross domestic product (Financial Times, 7 July). In a recent speech the governor of the Bank of Japan stated that:

"the late 1920s Showa depression was triggered by the failure of a very small bank. The issue is not the size of the troubled institution but whether any unrest in the financial system could cause a chain reaction of deposit withdrawals throughout the system” (The Banker, July 1995).

Trade wars: These are not over. Following a last-minute compromise agreement over car imports into Japan from the United States, Kodak complained to the American trade authorities that the Japanese Fuji Film Company was obstructing Kodak’s access to the Japanese market. Trade wars ultimately have no victors. They can end in being extended to the battlefields.

The property bubble: Housing in Japan is estimated to be 19 times as expensive as similar properties in the United States and has been estimated at six times Japanese GDP. Cosmo quadrupled its lending in the space of two years by backing property developers. In December 1994, two other credit unions failed after their property-related loans turned sour (Economist, 5 August). Commercial property has fallen by 50 percent of its value since 1991.

Pension funds: Like other developed countries, Japan has an increasing number of aged people but on a scale that is larger than the UK and other European countries with rapidly increasing pension liabilities. The projected pay-outs have been based on assumptions made when the stock-market was far higher than at present and where commercial property values were booming along with their rentals. But in an economic environment where asset values are falling to a level that cannot cover the amounts borrowed against them the projected pension payouts become questionable. In short the welfare system in Japan is undergoing the same demise as it is elsewhere.

Unemployment: This has for the year 1994 increased to 2.94 percent

Interest rates: The recent cut in the Japanese discount rate to a record low of one percent in the hope of stimulating the economy and the stock-market has had no lasting effect. The Nikkei Dow has lost two-thirds of its value in the last five years. Japanese banks enter a large number of their share holdings at their acquisition value which means that with the fall in the Japanese stock-market they are worth less than the balance sheets imply.

Apart from the previous six attempts since 1992 to prop up the Japanese economy with tax cuts, public spending injections even to the extent of getting the postal savings institute to help by investing in the stock-market all have been of no avail. Why should this latest package of measures announced after the Cosmo collapse be anymore effective? Japan’s problems are deep-seated and long-standing. The present scenario is similar to the l929-30s in the United States.

Japan’s problems cannot be viewed in isolation from the rest of the world economy. A full-blown slump in Japan could have knock-on effect by disruption of capital flows if the Japanese overseas investors start withdrawing their assets from overseas. There is also the consequences of lessened demand for imports.

Once again the financial commentators are suggesting that Japan has reached a point where recovery is the only possible outcome of the recent rescue attempts by the Japanese powers-that-be. We have no hesitation in rejecting these arguments. The worsening problems described above are inherent to the capitalist mode of production. Credit crises, trade wars and the problems dealt with above are inevitable in a system where competing capitalist powers struggle for market dominance in their relentless drive for profit.

Terry Lawlor

Pensions, pay and poverty (2002)

From the August 2002 issue of the Socialist Standard

The class war, between the owners of the means of production (the capitalists) and those compelled by threat of poverty to sell their capacity to work (the workers) is an essential and continual feature of capitalist society. Romantic notions of class struggle – of rowdy mass meetings, strikes, battles on the barricades – concentrate on the exceptional forms, rather than the brain-throttlingly dull reality of the class struggle of every day life. In this category we can place things as seemingly dull and complex as retirement pensions.

Pensions account for a massive proportion of economic activity in the UK. According to the Office of National Statistics self-administered pension funds (funds set up by employers to pay occupational pensions, or private pension schemes) had a market value of £765 billion in 2000, paying out a total of £29 billion in benefits in the same year. Between them they account for some £300 billion-worth of shares in businesses, giving them considerable voting power in publicly quoted companies. This is alongside the £38 billion paid out by the government in state retirement pensions.

All capitalists now?

This concentrated ownership through pension funds has led some commentators to claim there has been a fundamental change in the basis of society. It’s not just overt pro-capitalists who look at things this way. Many leftists have seen controlling pension investments as a way of bringing the economy under social control. Indeed, the Labour government still see encouraging pension schemes to invest in riskier long-term venture capital projects as a way of overcoming the British productivity gap.

Funded pension schemes operate by investing the money paid in by or for scheme members on the stock exchange, and paying pensions from dividend income to those members who have contributed enough. Through the investment decisions of the pension trustees, the commentators maintain, the pensioners have control of vast investments. Thus, workers, they claim, must own part of the means of production, and have a vested interest in receiving a share of the profits. They would point out that in 1996 57 percent of pensioners reported to be receiving income from such occupational pension schemes.

The changes made by pension funds, though, are largely illusory. For starters, “an individual’s stake in an occupational pension scheme cannot be ‘cashed-in’” (Social Trends 2002, ONS, p.102), i.e., the pensioners do not own the capital of the pension funds. Coupled with this is the fact that the pension fund trustees are bound by strict legal guidelines regarding the manner of their investment: their first duty is to invest to maximise the profitability of the funds. That is, via their control of the state, the capitalist class exercise a form of collective control over the pension funds to ensure that their investment decisions are aimed at maximising their income from profits. Finally, even though 57 percent of pensioners receive an occupational pension, this accounts for only 27 percent of their total income. In other words, most workers do not earn enough to pay for a pension that will entirely support them on retirement.

From a Marxian perspective huge pension funds still mean capitalism as per usual. The need for pensions arises from the fact that as workers get older, they become less able to work, and become surplus to the requirements of capital. Those workers have spent their lives selling their capacity to work, in return for a wage which represented the cost of maintaining and reproducing their capacity to go on doing that work. If they cannot work, they have no other means of securing their means of living. Since the capitalists do not want to hire them, and workers are unwilling to work until they drop, the capitalist class has to pay out to keep workers alive upon retirement. So in this sense pensions reflect the existence to the class struggle.

As pension payments are a huge burden on them the capitalist class have an interest in ensuring that the pensions paid out do not get too out of hand. The capitalists at the sharp end of wage negotiations are well aware of this, as Larry Elliott noted in his Guardian column, when discussing TUC plans to make it compulsory for employers to make full occupational pension contributions. This, he wrote, “would eventually be paid for by workers through lower wages”. (Guardian, 24 June). That is, pensions are effectively deferred wages, with employers weighing their expected contribution to the pension fund off against current wages laid out (in the 1970s, this calculation was used as a way of circumventing wage restraints via reducing immediate employee contributions or just raising future pensions).

Maximising profits

Capital is always seeking to maximise the profits made from pension funds. In 2000 pension funds paid £3 billion in commission to stockbrokers alone, and paid £329 million in tax. As can be seen from the pension mis-selling scandal, there is plenty of incentive there for private pension funds to want to attract investors, to the extent of fraudulently persuading people to invest. The size of their repayment, £12 billion, indicates the scale of the scandal and the amounts they stood to gain from it.

As the TUC point out in their document Pensions in Peril: the Decline of the Final Salary Pension (http://www.tuc.org.uk/pensions/tuc-4672-f0.pdf), Inland Revenue statistics indicate that employers have netted a sum of £19 billion through reducing pension contributions or taking contribution holidays on the back of the surpluses in the pension funds between 1988 and 2000. That is, they pocketed profits from the pension funds by the back door, using the revenue they generated to cut the amount of money they need to pay to wages out of current receipts. By way of contrast, over the same period the workers only got back some £10 billion out of the surplus by way of reduced contributions and increased benefits.

 

Of course, these are just the legal ways that capitalists seek to gain from pension funds. As has been seen over the years, pension fund present a fabulous opportunity for fraud and chicanery on the part of our masters. Robert Maxwell famously stole £400 million from the Mirror group’s pension fund. “I own the pension scheme,” he declared, and proceeded to use its wealth to prop up his empire. This resulted in substantial changes to the law, including preventing pension funds from investing more than 5 percent of its funds in the employers’ companies.

Of course, it’s not just private employers who try to plunder these shimmering hordes of money. When the bus companies were privatised in 1986 in England, the state withheld £300 million from their pension schemes, and a further £250 million in Scotland. It took until last year, through countless legal wrangles, to get the money back, and even then the treasury held on to £100 million of the money from Scotland.

Due to burgeoning costs, employers are currently scaling back drastically the number of final salary (or defined benefit) pension schemes, that is, pensions where the final annuity is guaranteed as a proportion of the employee’s final salary by the employer. That is, the onus is on them to make up any shortfall in receipts from the fund and pay the pension. This is as opposed to defined contribution pensions, wherein returns are not guaranteed and will only apply according to the sums invested, as with any other personal pension. This exposes the pensioners to the full market risk of investing in the stock market casino. According to the TUC, there were 5.6 million workers on defined benefit schemes in 1991, and this is projected to have fallen to 3.8 million in 2001. This change in pension terms means a fall in employer contributions (defined contribution schemes are cheaper for them) and exposes them to less risk.

Whilst many point to changing demographics – with an increasingly ageing population in Western countries – as a key reason for the pensions problem, there are several other factors impelling capitalists to try and cut back on their pension costs and liabilities. As we have seen recently, one is the problem of a falling stock exchange.

Declining value

Between 1999 and 2000 pension funds’ total value fell from £812 to £765 billion. Contributions from employees and employers remained relatively stable over that period, but the value of shares held by the pension funds fell from £353 billion to £295 billion. This had the knock-on effect of reducing income from dividends – in 2001 dividend receipts fell from £13.02 billion for the previous year to £11.85 billion. According to the Guardian (2 July), over three-quarters of local authorities have deficits in their pension schemes, some of which will be compelled to increase council taxes to cover the cost.

On top of this, changes in corporate accounting, some which were inspired by the ongoing problem of transparency over pensions, mean that companies must quote their potential pension liabilities in their accounts, making them less potentially attractive to investors as they weigh against current profits. When British Airways changed to a defined contribution pension scheme their chief financial officer is quoted as having said that “the change to a defined contribution pension arrangement for future new UK staff is a measured and necessary response to the competitive environment in which British Airways operates”. That is, the competition for investment and profits between capitalists.

Given the scale of the problem, it’s no wonder that pensions are becoming an increasingly large political issue. Several trade unions, mostly noted for their quiescence over most matters, are actually threatening strike action over pension funds – largely since a great deal of the importance of unions lies in their role of negotiating and guarding employees pensions. The Tories, likewise, have begun to harangue the government over pensions, trying to win over workers’ votes by being the party of prudent finance and protectors of pensions.

The government themselves are still recovering from the outrage caused by their pensions increase of 75p in April 2000, and are currently trying to make up for it by providing a series of means-tested benefits. That is, rather than give extra income to pensioners, they guarantee to pay directly for certain items (e.g. winter fuel), with lots of strings attached. Currently, with the ongoing goal of reducing the size of the state sector in mind, the government aims to have 60 percent of pensioners on personal pensions rather than state pensions, moving risk to individuals and moving more money from the current consumption through taxes onto investment and accumulation on the market.

By moving more pensions to the personal and occupational sector, the government will be transferring dependence over to people’s employers and direct wage packets, thus increasing the level of market discipline on the labour force. That is, it is part of the continuing function of the state to impose the wages system on the majority of people and maintain its existence both in terms of physical maintenance of the system and providing its ideology.

There has always been strong ideological side to the pensions system. The Tories, for instance, favour private pensions and individual savings because it promotes the consciousness of personal responsibility and property (and also has the fringe benefit of moving some of the administration costs of pensions off onto the commons of peoples’ free time). Labour, however, historically said it believed in the state pension as a means of generating a sense of social belonging and responsibility.

These, of course, also relate to the different interests between different forms of capitalist appropriation of surplus value and the interests of different sections of the capitalist class. That is, the Tories’ friends in the City of London versus the labour intensive industries backing Labour.

For workers, the struggle is not only over the size of pensions, but over identity, security and, ultimately, working conditions too. The pensions problem within capitalism once more proves the market economy’s incapacity to go beyond the limits of the wages system, and adequately provide for the needs of those who have worked all their lives. As the capitalist class endeavours to encourage us to share their interests, we find our lives opened up to the chaos and insanity of the stock market casino. But the market system cannot provide any security for us in the long run, which is why we need to turn the class struggle on the economic front into a fight for a society based upon the direct satisfaction of needs.

Pik Smeet