In Poverty Begins Responsibility
I know it’s obvious, but this kind of thing gets on my nerves. I know it’s obvious, I know this is The Economist, but still.
When IBM announced an overhaul of its pension plan for employees in America last week, it joined a parade of employers that are shifting more responsibility for saving for retirement on to workers.
Shifting more responsibility. As if those slacker employees have been just flopping around expecting employers to spoon-feed them, because they’re such babies. As if pensions were not simply part of the agreed compensation package, like, you know, wages. If IBM announced an overhaul of its payment plan for employees, which consisted of reducing their salaries by 100%, would that be shifting more responsibility on to workers? Well, yes, that would be one thing to call it, but I can think of other things.
To the extent that this creates and encourages individual choice and responsibility, it is something to welcome rather than to fear.
Excuse me? I beg your pardon? A reduction in pay is something to welcome? A reduction in pay is something to welcome to the extent that it creates and encourages individual choice and responsibility? Is it? But if that’s true, why doesn’t everyone just decide to shift to a zero-pay system, thus creating maximum individual choice and responsibility? Starting with CEOs? They would welcome zero pay and zero pensions and zero stock options, surely – right? And so would people who write for The Economist?
And even leaving that aside, even ignoring the ludicrous and insulting equation of a pay-cut with an encouragement of frontier virtues, there’s another problem with this stupid kind of rhetoric. No matter how responsible one may be, if one works for low wages, one doesn’t necessarily have the spare money to do one’s own saving for retirement. And yes, even responsible people work for low wages; it happens. And since the entire economy depends on people who work for low wages, it’s hypocritical and shameless to blame those very people for working for low wages, and to ignore their existence when equating the absence of pensions with increased responsibility.
Thats why you need a decent trade union movement. Someone to make these companies actually keep their promises.
Shifting responcibility to the employee is just the company shirking its responcibility to honour its contacts of employment.
Well I went through this in my former employer. There was NO reduction in pay. You leap to that conclusion apparently on no evidence. The company contributions continued into the fund at the same level.
There WAS a very genuine change in outcome. Instead of a defined benefits scheme we were joined to a commercial fund whose returns were subject to the market, and very flat to slightly negative through 2000-2003. What was transferred to the employee was a share of risk. That risk was entirely on the company beforehand.
The old system suited the 1970s approach of lifetime employment, but when modern professionals move between jobs it is better to have a solid transferrable fund. Otherwise we were stuck with superannuation locked up in a corporate giant who no longer has your interests in mind. Corporate giants collapse more easily than soundly supervised industry funds.
It’s funny how when the stock market was performing all these companies took contribution holidays, and now it isn’t performing so well they want to shift all the burden onto their emplyees.
Careful OB, it’s one thing to challenge religion, but if you start wondering about the workings of corporate capitalism you’ll attract all sorts of people with a remarkable amount of time on their hands to abuse you, given that they see themselves as the defenders of work….
I agree with OB that the “Economist” is being purely ideological in saying that a transfer of risk encourages responsibility and choice. In fact, in economics, risk has a negative effect in that it promotes overcautious behaviour.
I don’t see ChrisPer’s point. Did you *enjoy* having all that uncertainty dumped on you?
The Economist’s solution to the problem is more financial education. However this is a poor solution to the problem as some people will gain more benefit than others and it will probably be the most vulnerable who will be worst off.
Finally, why *should* we take on all this risk? Risk management is not most people’s area of expertise. It is a waste of time and resources which could be devoted to something else. If one is a nurse then it is better economics (and socially better) to devote oneself to nursing where one has a comparative advantage rather than devoting oneself part time to financial management and doing it badly.
I think at least part of ChrisPer’s point is that there was no reduction in pay and OB claims there was. I can’t find the bit where the article says there was a reduction in pay, but then I’m not a particularly attentive reader.
…why *should* IBM take on all this risk? Risk management is not most large IT companies’ area of expertise. It is a waste of time and resources which could be devoted to something else. If one is a large IT company then it is better economics (and socially better) to devote oneself to IT, where one has a comparative advantage, rather than devoting oneself part time to financial management and doing it badly.
Fair comment. However, it should be pointed out that large organisations are in a far better position to manage (and understand) risk than individuals. IN the absence of anything else corporations should bear risk rather than individuals as they can hedge and diversify their portfolios to a far greater extent.
Of course the answer to this is to have a national *funded* pension scheme. This would solve the comparative advantage problem and it would spread its risks most widely.
Naturally this will never happen as the City would scream blue murder.
In my personal view, senior managment are pushing to close the final salary to existing employees because of what they call a shortfall. But it is a shortfall that has never been actually flagged by the Board of Pension Trustees. For many companies, this is but a competetive strategy using the aging population gambit as a convenient mask. It is really part of a backdoor price-war regarded cynically by executives as a logical extension of all the outsourcing that has driven down costs elsewhere. Let’s not be hoodwinked – these companies are not going to the wall…
The economist spends most of the article discussing how individuals are not always savvy investors, even educated professionals. They also discuss pros and cons of the change. The Economist is a liberal newspaper (in the old fashioned sense of the word). The fact that they are in favour of people making their own decisions should not come as a surprise. They favour individual choice over paternalism.
But rob, given the casino mentality, endemic corruption, self-dealing and excessive fees, the fear of programs like this, no matter how couched in terms of “choice,” is understandable.
At my employer, we have both. I’m not counting very much on my “individual choice,” because the stock market in general has been pretty much stagnant for years
“The fact that they are in favour of people making their own decisions should not come as a surprise. They favour individual choice over paternalism.”
I know, I said that at the outset. But, framing a change from a guaranteed pension to a personal investment scheme as ‘choice’ is, in fact, framing. My reductio was meant to point out that one can do that with anything, including wages, but it’s not necessarily beneficial for employees. In other words, I was flagging up a bit of rhetoric.
http://news.bbc.co.uk/1/hi/programmes/moneybox/4612598.stm
Quit. Seek work elsewhere. Sheesh.