The BBC has an interesting bit on French Prime Minister Jean-Pierre Raffarin’s attempts to reform France’s national pension system. As Raffarin is quickly finding, the labor unions and protests are making that job impossible despite the fact that the French pension system no longer correlates with the aging population and low birth rates.
This is why I don’t see the European Union as being economically workable in the long term. Systems like this are common throughout Europe, and removing them is virtually impossible without government-toppling waves of protest. The only option the EU has is expansion in the hopes that the more dynamic economies of Eastern Europe can pick up the slack. It’s boils down to a form of economic exploitation as Western Europe lures the East into the EU with offers of more open trade, then saddles them with burdensome regulations and locks them into EU foreign policy.
Even expansion cannot cure the EU’s underlying structural problems. Only vigorous efforts at reform in core member nations like France, Germany, and Italy can keep the EU afloat in the long term. However, given the way in which the populations of those countries decry any attempt at cutting social benefits the chances of that happening seem slim.
(Thanks to Justin Paul for the link.)
UPDATE: Merde in France has this amusing French joke that’s been circulating around.
Generally, requesting a single person or group of people to reduce their quality of life will not be a popular suggestion. Certainly Europe’s welfare state and low birth rate are serious challenges which are in some ways making them victims of their own fruitful standard of living.
While conservatives are often useful at recognizing these problems so that policymakers can work to fix them, they always manage to lose credibility when their solution is disassembly of these social programs that have indisputably raised living standards for citizens. Therein lies the inherent dysfunction of an ideology that panders to the values systems of more than a century ago. They do not perceive rising living standards as beneficial to the people they care about most. One would think they would view the increased capacity of consumerism made possible through social programs and various other free-market regulations as being a chief contributor to their own stratospheric upward mobility of the past half century, but instead they view it as a zero-sum game….a game where every dollar that goes to the lowlife peasants for their pension is a dollar that’s taken away from me.
This philosophy cuts both ways, but these days is most frequently employed by conservative interest groups boo-hooing about paying their taxes and preserving the gains made to quality of life in past decades. The EU’s standard of living is well worth preserving as a model for the world, but conservatives will always view its challenges as just cause to reduce their quality of life.
It reminds me of the small business owners in my hometown who were jubilant back in 1983 when it was announced that the meatpacking company that was largest industry in town was cutting wages by 40%. “They make money than I do and I’m a chamber of commerce member. It’s high they took a cut in pay,” was the prevailing, and public, mindset by several prominent businesspeople in town. They got their wish and the workers took their pay cut…and in several cases the financial carnage that followed and trickled-down to other industries in town ended up leaving these same business owners with empty stores just a few years later. Apparently, people taking a pay cut wasn’t such a wonderful event after all, but that would still be news to most conservatives who think there’s no problem that can’t be taken care by reducing the paychecks of the average person.
Similarly, the business interests most eager to see money taken from the pockets of the peasants across the tracks in EU nations also believe their nation’s will be better off if consumers have less to redistribute into their businesses. History is not on their side, but the way things are going, they’ll just have to learn their lesson the hard way.
Please, take a basic course in economics.
The problem with a entirely government-funded pension system is that it lowers the quality of life for the next generation. As a population ages, more people draw benefits. This is a fairly straightforward concept.
Now, where does that money come from?
It sure as hell doesn’t come from some magic money tree. It comes from other workers. Which means that as there are more people drawing from the system, there needs to be more workers putting in. If the retirement rate exceeds the birth rate, that means there are fewer people putting money in and more people taking it out. Which means that sooner or later that supply of money will dry up, or each worker will have to pay much more out of their pocket for everyone else.
It’s basic economics. One can’t continue robbing Peter to pay Paul, as Peter is soon going to be out of money.
That’s why unless there is significant reform to the pension system in France, it will be unable to pay. That means either restricting benefits, raising taxes, or encouraging more private investment to make up the shortfall. Mr. Raffarin is wisely choosing the latter option, and trying to keep benefits at a reasonable level while encouraging private investment as a supplement to government pensions. If only policymakers in the US would follow suit.
I’m aware of the economics…and as I said, tough times are ahead and aggressive solutions are needed. But let’s be honest here. You’re not talking about private pension payments as a “supplement” to state-funded pension payments, you’re talking about a replacement. Once the foot gets in the door for “partial privatization”, lucrative public pension funds will most likely be chipped away at until there’s nothing left.
Even though the wolf is at the door for pension financing, I would still be picketing on the streets if I were a Frenchman since private-sector pensions are anything but a security net. Between the widespread pension theft that will only be made easier through the continued deregulation of everything related to business, and the impending marketplace collapse that will come in the not-so-distant future when perennial deficit-spending by all industrial nations catches up to them, there’s little justification to trust the gold-toothed “reformist” who is handing you an olive branch that he later intends to thrash you with.
In an ideal world, a public-private pension collaboration would work, but unless France comes up with a genius plan that the US wasn’t, I don’t expect to see France better 25 years now for downsizing one of the building blocks to their high quality of life. Easy answers are almost always bad ones, and privatization is the most oft-repeated easy answer to any question by the same narrow minds. Not a good combination.
The point of partial privatization is that for some people, it will act as a replacement. Even with Enron, WorldCom, and all the other financial scandals of the last few years, a private pension plan that was created 30 years ago will still have produced a much greater rate of return than Social Security or another government funded pension system. Had privatization existed in even a partial form back then, those people would no longer need to be drawing from the general Social Security fund, and the system could remain solvent for those who truly need the money.
The easy answer is to just ignore the problem, leave the system as-is and and allow it to eventually collapse or spiral out of control. Either way, the people who depend on that pension money will lose out, along with the workers who drive the world economy. The must more political difficult but economically necessary answer is to allow the market to ease the pressures on the system. Unfortunately, that solution will likely not come for either France or the US until the situation gets to the point where it can no longer be contained.
Why is it that impending bankruptcy of retirement programs is so vitally important to you, but the impending bankruptcy of the entire nation through perennial 12-figure Republicans deficits hasn’t been worthy of your mention once in the three months I’ve been posting here?
Mainly because the US economy is growing while the Social Security trust fund is not. The current deficits are projections based on the current economic outlook. Chances are that by next year the economy will look much different than it does now. (Barring another war or terrorist strike.)