Pensions: A Radical Alternative Andrew Sayer, Lancaster University March 2014

Basics 1.Economics concerns how societies are organised to provision themselves. 2.We are social - i.e. dependent – beings, relying on care for significant parts of our lives. Independent living is impossible. 3.Young/future lives are no less valuable than old/present ones... 4.Our well-being depends on that of the planet, on stopping global warming 5.Discounting principle is ethically and environmentally suspect

Earned and Unearned Income Earned: derived from work - production of use-values (productive work-based – private or public) Transfers: unearned but donated, warranted: to the elderly, infirm, young, disabled, structurally unemployed (needs-based)] Extracted unearned - ‘because they can’: derived from ownership of assets wanted by others rather than from contributions to the production and distribution of goods and services (asset-based) Recovering a lost vocabulary: ‘rentiers’, ‘property without function’ (Tawney), ‘improperty’ (Hobson), ‘illth’ (Ruskin), ‘functionless investor’ (Keynes), ‘the class of parasites’ (Marx)

Sources of unearned Income (asset-based) Dependent on producers producing a surplus – i.e. free riding – through: Rent Interest Profit deriving from ownership Dividends – shares are claims to unearned income Capital gains, value-skimming, speculation

‘Investment’ Use-value/object-focused definitions – focus on what is invested in (e.g. infrastructure, equipment, training). Investment 1 Exchange-value/’investor’-focused definitions – focus on the financial gains from any kind of lending, renting, trading of financial assets or speculation – regardless of whether it contributes to any objective investment 1, or benefits others. Investment 2

Compound interest Insane from an environmental point of view - requires compound economic growth (green growth is a pipe-dream) Ethically– the worst kind of usury, allowing the strong to take advantage of, and free-ride on, the weak Increases likelihood of debt crises “the eighth wonder of the world” (J.P.Morgan and John D. Rockefeller) “the most powerful force in the universe” (A.Einstein)

Private Pensions Invested in financial products - stocks, property, and other assets likely to inflate, and in hedge funds Primarily investment 2 – asset-based unearned income, benefitting from surfing asset-bubbles Big business funds most of its productive investment internally. Only 20% of bank lending goes for productive investment Redistribute wealth from the asset poor to the asset rich, and favour men Subject to value-skimming by fund-managers, diminishing pensions’ final value Problems of information asymmetry, mis-selling Environmentally/ethically dubious investment 2 : BP shares = 1/6th of the invested value of pension funds in the UK* ; USS pensions invest in Shell * Marriot, J. (2008) ‘BP and the fuelling of Heathrow’, Soundings, 39: and

‘A stake in the growth of the economy’? Mainly based on asset-inflation, e.g. property prices – unearned income for asset rich, ‘fortunate 40%’, declining share for asset-poor. Dysfunctional and unjust Predicated on unsustainable growth

Pensions in the UK today July 2013: number of people in an occupational pension scheme had plunged to 8.2 million or 35 per cent. This compares with 12.2 million in 1967 and is the lowest recorded since Favour men anyway. Why?: collapse in final salary schemes, + plunge in savings rates + pressure on parents to cut savings to find money to help make ends meet. The number of men topping up their workplace pension with a private scheme has also plunged to 35 per cent, down from 54 per cent as recently as Just 32 per cent of women have a private plan. Source: The Telegraph, 16 th July 2013

Combined wealth of 1000 richest people in UK in 2013 = £450 billion - Sunday Times Rich List 2013 (1997 figure = £98 bn) UK Central Government Spending 2013 Total Spending£675.1 billion Pensions£139.1 billion Health Care£124.4 billion Education£87.3 billion Defence£42.2 billion Welfare£116.6 billion source: planned outturn

Pensions: rescued or delivered to feral finance?

Pensions should be: 1. Based on transfers – needs-based/donated (unearned income), not asset-based unearned income, which depends on power to extract wealth others have produced, or will (?)produce in the future. 2. Be sustainable: i.e. consistent with Contraction and Convergence policies – part of comprehensive zero-growth and green investment policy, euthanasia of rentiers I.e. tax-funded state pensions, democratically-regulated. Individuals can also save for retirement to top this up, but shouldn’t expect a positive real rate of interest on savings, unless used for productive investment consistent with 2.

Contraction and Convergence Source: Global Commons Institute

Pensions should be: 1. Based on transfers – needs-based/donated (unearned income), not asset-based unearned income, which depends on power to extract wealth others have produced, or will (?)produce in the future. 2. Be sustainable: i.e. consistent with Contraction and Convergence policies – part of comprehensive zero-growth and green investment policy, euthanasia of rentiers I.e. tax-funded state pensions, democratically-regulated. Individuals can also save for retirement to top this up, but shouldn’t expect a positive real rate of interest on savings, unless used for productive investment consistent with 2.