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dynamism and an economic competitive challenge. Similar argu-
ments are made for East Asia and Japan where there is also an
absence of private pension funds. In that region enterprises tend
to carry unsecured liabilities for future pensions to their employees
when they retire. Such policies are in line with the paternalistic
employment patterns found in Japan, where investment is domi-
nated by a large banking sector; bank assets are larger than those
of stock and bond markets combined. By contrast in the USA,
stock and bond markets are four times larger than bank assets
because of the pension structure.33 Japan has the oldest average
age of all industrial nations, and both the demography and the
financial structure of pensions in that country have been advanced
as reasons for the Asian economic crisis at the end of the 1990s.
The social changes behind pension fund capitalism
This enormous growth of private pension assets reflects:
" the demography of the baby boom ;
" the rapid post-1950 expansion of employment;
" increased participation in employer-based private pension
schemes;
" changing legal and institutional basis for pension savings and
financial markets in general.
94 old age and intergenerational conflict
In other words this tidal wave of international capital reflects
a generation feature of society: the demography of the baby-boom
generation, its employment opportunities and opportunities
for saving, together with legal and administrative changes
which enhanced its welfare interests. Population growth in the
post-Second World War era created expanded markets, enlarged
the labour force and increased the opportunities for economic
growth.
From the free marketeers perspective the spread of private
funded pensions to dominate the global economy, and the finance
industry in particular, is based on four global trends.
1. The demand for pensions. Global ageing and steadily increasing
life expectancy is an opportunity for the finance industry,
driving demand for its pensions products. From the same
perspective the competition from other sectors is in trouble
because global ageing is straining PAYG public pension
systems and corporate pension systems.
2. The demand for investment capital. Increasing international
investment which has expanded dramatically in recent years
is driven on the one hand by investment managers seeking to
diversify risk by investing in a range of countries and on the
other hand industries all over the world looking to global
capital markets for finance. In 1990, US external investment
by pension funds was less than $350 billion but is rapidly
approaching $2 trillion in 2002.
3. New technological and institutional opportunities. The increasingly
complex investment strategies adopted by those controlling
capital can be related to changing information technology and
new financial instruments. Changes in financial services
technology, and the rapid evolution of new types of financing
such as derivatives , futures , hedge funds and so on channel
funds to new markets. These new methods of trading in money
from one perspective may be thought to aid speculation and
financial instability. From another point of view they intro-
duce a new and beneficial fluidity to capital markets. They
old age and intergenerational conflict 95
enable good investment opportunities to find the capital to
back them.
4. Opportunities for growth. The creation of funded pensions that
are financed by investment returns, rather than by redistri-
butions mediated by government, increases the stock of capital
and, it is argued, increases the rate of saving in the economy.
The free market sees a virtuous circle of increased investment,
stock market growth and increased capital gains such as was
powering the American economy in 1990s.34
PROBLEMS WITH THE ECONOMIC ARGUMENTS FOR
PENSION FUND CAPITALISM
Many identify the triumph of American capitalism with the
success of the pension fund industry. It has brought capitalism
and its benefits to the masses. They therefore argue that this
success can be exported and form part of a globalisation of
capital. However, there are considerable problems associated
with these developments. The collective rationality of economic
individualism, namely individuals being responsible for their
own financial provision in old age, is problematic. The overall
consequences of individuals looking after their own interests may
have unintended social consequences. These may be understood
as a series of contradictions; that is, ways in which the social
change undermines itself: the more it succeeds and expands the
greater the social difficulties that arise.
" There is a contradiction between savings as a source of
investment and savings as deferred consumption. Put another
way, stock-market values, and families, go through cycles.
Sometimes stock markets boom, sometimes they slump, and
sometimes families need to cash in their savings, sometimes
they can save. Unfortunately there is no mechanism by which
these are synchronised. No-risk investments yield poor
returns.
" Further, there is a contradiction between social cohesion and
96 old age and intergenerational conflict
long-term financial security for older people on the one hand
and the increasingly global and efficient financial markets
through which their pension funds are invested on the other.
Markets both need and undermine social solidarity.
" Finally, there is a contradiction between the need to save and
people s ability to see their savings work in their own interests
rather than against them. It may be in the interests of their
pension fund that the factory in which they work closes.
I will deal with each of these in turn.
Generational cycles of investment and disinvestment
Free market accounts of the benefits of private funded pension
schemes are partial. They appear to be authoritative because they
come from people who wield enormous financial power. However,
they do not dwell on the implications of stock-market failure.
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