Monday, May 31, 2010

Retirement and entitlement

Last tuesday I participated to a demonstration against the projected reform of the French retirement system. It was nearly mandatory for me to be seen there, on strike (but still paid, that is one of the advantages of being a politician) and holding a party banner. Yet, all moderates present felt the whole thing was an act, a mere baroud d'honneur before an unavoidable defeat. Even the very peak energy unaware Socialist Party recognizes, privately, that the current French retirement system cannot stand unchanged and anybody even vaguely peak oil aware will agree that retirement itself is going to become a thing of the past. Yet, here we were, clamoring in the street in defense of a system we knew is unsustainable. The truth was simply unspeakable even for those few who could think it. Any left-winger audacious, or stupid, enough to question this “to the last ditch” attitude, would quickly be ostracized as an ally of the right and lose whatever position he had acquired inside his organization. As absurd as it sounds, it is the reality anybody willing to bring out a constructive response to our predicament must face. The main obstacle is not some elite plot but a far more diffuse, and formidable, obstacle : this feeling of entitlement so pervasive in developed societies.

The French retirement system is a complex hodgepodge of individual retirement plans or institutions, so complex in fact that a same individual may have to deal with several of them as he reaches retirement age – this will (or rather would have been) probably be my case as I worked a few month in the private sector before becoming a civil servant. All, or nearly all, work the same way, however. Every month a significant part of your wages go to a retirement fund (in my case the CNRACL) which uses said money to pay the pensions of the retirees affiliated to it.

This system works fine as long as working people are significantly more numerous than the retirees they support, which is unfortunately less and less the case. As birth rate decreased during the seventies and high unemployment became a permanent feature of the economy (8% is an absolute minimum here), a growing number of retirees has to be supported by a stagnating or even decreasing number of workers. Moreover, those retirees began their careers during the years of rapid growth, when there still were still a lot of highly paid jobs up for the taking, so the standard of life of most of them is actually superior to the one of most of the workers supporting them.

This would not be an unsolvable problem, should the resources available to society continue to grow. We know, however, it won't be the case. Our civilization is reaching the limits pointed out by the Meadows Report thirty years ago where continued real growth is made more and more difficult due to the depletion of key resources. Add in the limits of social complexity as a problem-solving strategy pointed out by Tainter in his seminal work The Collapse of Complex Societies and it becomes obvious that there only two possible fates for the French retirement system, both equally unpleasant.

First we can choose to go the deflation way. As the economy contracts in real terms and less and less resource are available to society, unemployment will skyrocket and an increasing number of people will turn to the domestic or underground economy for survival. As a consequence, the amount of money retirement management agencies will be able to collect will decrease and it will be only a matter of time before one goes bankrupt. The most sensible solution would be to let it crash and burn, but the political cost would be staggering. What will happen instead is that the state will step in, assume the debts and impose lower benefits for higher payments. This is basically what happens today, except that the government does not seem too eager to assume any debt but its own (and even that...)

Since the available net energy is bound to decline to near pre-industrial levels, there are no reason for this process not to repeat itself again and again until the whole French retirement system is down to a purely symbolic level. Of course, by this point, something really nasty would surely have already happened, making the whole issue quite irrelevant anyway.

We could also choose the inflation way, create a lot of money to fuel a fake growth and pay our debt with it. Of course inflation will quickly rise its ugly head – not necessarily Zimbabwe level inflation, but high enough to make any rise in nominal pensions illusory. All we'll have to do then is let pensions – and wages – stagnate and inflation will quickly make retirement history. That is what happened in Russia after the collapse of the Soviet Union, when pensions kept their nominal value while the ruble plummeted.

Were I to say that in the speech I am commissioned to write for the forthcoming departmental rally of the left, I would probably have to find myself another job, and certainly not because I would have uncovered some sinister elite plot to deprive workers of their birthright. The problem is that pensions have been so thoroughly cut from work that most people – including politicians – have come to consider it not as the result of one's labor but as an inalienable right.

At the beginning, pensions were supposed to be socialized wages and a number of unions and political groups still cling to this idea and repeat it like a mantra. They may have been perceived as such during the early fifties, but now they are just subsidies raining down from distant bureaucracies. The result has been a contradictory feeling of helplessness and entitlement. Unless what might have happened within the local chapter of an old style fraternal order, the individual worker has no say in the pension policy. It is decided either directly by the government or by the unholy alliance of workers' and corporations' unions which manages most French retirement organisms. All citizens can do is accept or protest.

Even if the ideology of progress had not been so pervasive in our society, this disempowerment would have been sure to generate a deep sense of entitlement. Retirement is no longer something you work for but something you wait for and, as always, when your expectations are not met, the result is frustration and anger.

And it does not help that Frenchmen – like Americans – live in what would have seemed unimaginable luxury to a medieval baron.

Of course, it could be possible to imagine sustainable retirement solutions without reverting to pure family solidarity – which supposes you do have a family and it has the means to support you – or charity – which basically puts your survival in the hands of whatever church happens to rule the area. The Islamic zaqat system might be a way, provided it is organized at a community level and not taken over by the state or some large private organization, as it is too often the case in the Islamic world. The fraternal orders of the English and American nineteenth century might be another. Neither fits very well within the framework of today's French – or American for that matter – society and both would be stiffly resisted by Unions and political parties alike, as would be the suggestion that there are ideas to be found among the Amish, the Hutterites or the other groups born from the radical Reformation.

The necessary shift from bureaucracy and entitlement toward community empowerment, local resilience and personal responsibility will have to grow locally, through our own efforts, and that may mean accepting the hardships which come with it. That is exactly what most people – and the political elite represents them well in that matter – don't want to hear. That is exactly why they will cling to unsustainable structures until they collapse... while we'll grow alternatives in the cracks


  1. Nice summation of the problem and the inability to find solutions within the existing political/economic/social structures.

    Here, many call it "extend and pretend" which has malignantly metastasizing from banking into the whole of society.

  2. I really don't have a problem with most of your statements or analysis, but surely many retired people did labour (many very diligently) to pay into a retirement system. Many corporations have robbed pensions systems, and now governments are taxing the retired disproportionately to make the wealthy wealthier.

    The sad fact is the meritorious class of all Western societies have manifestly atomised societies so as to intentionally create alienation. Succour is meant to be found in commodities not communities. Communities do not create profits for the meritorious class. So the meritorious class has very consciously created our current conditions in order to feed their obsession with wee bits of paper (fiat currency). It isn't a conspiracy because it occurs in the broad light of day driven by a well oiled propagandistic machine called the Main Stream Media. But it's still rotten to the core.

    The rot starts at the top not with workers. It isn't feasable that right wing authoritarian socialist parties can change the game. They are part of the game. Socialism (with a very small S) will have to be practised at the local level, if at all. Right wing authoritarian Capitalists are very content with the current system of pyramid money and grand larceny. The masses walk in a dream like state that must turn into a nightmare for most.

    The US has created a new class called the working poor (work full time and can't pay the basic bills) and they've arrived in the UK and Ireland. When the credit runs out, the working poor must become the destitute. I wonder if they'll be the first to recognise that the great Con called the modern economy and demand and take a portional share of the remaining resources. I doubt it, and most can't fathom any alternative. It seems things must get messy.

    As for myself, when our government made it legal (mandatory) for private nursing home to seize one's assets when too old to function, I overtly decided I'll leave nothing but a few spuds and turf when I go to the wrong side of the daisies. Let's see the feckers turn that meagre asset base into wee bits of paper.

  3. Edward, indeed, when faced with a problem we tend to add another layer of complexity to a society which has accumulated a very dangerous surplus of them. It was stupid enough when we had plenty of resource, today it is a recipe for disaster.

    Blagroll, remember that French retirement plans are not corporate. They are either state-run or state backed and Unions participate to their governance. Nobody makes a profit out of them -except, maybe a few Union bureaucrats. The problem is elsewhere.

    Nobody forced the French people to trade community for commodities. Sure, media helped and so did government, but in that they merely answered popular expectations, not some elite plot - after all, the loss of community also meant the loss of traditional hierarchies and it is something French elites stiffly but vainly resisted.

    Now local socialism may be a way. It certainly worked in the past and is still working among hutterites, for instance. It is not the only way, however. The Amish society is almost sustainable, yet they do not live communally.

    Spending the totality of one's asset before one's death is certainly a solution for some people. After all, your money won't be of any use to you on the other side. For most people, however, it is not an option because of something called children

  4. Just a comment on retirement. I didn't spell out the detail on the law re: nursing homes. They are legally able to take your assets (a fraction now, but it will increase every year). When you finally fall off the twig, your kiddies won't have anything to inheret as the private nursing home will have all by law. You could have the kiddies take care of you in order to get your estate, and incur the med costs. Alternatively you can give the kiddies the assets before incapacitation(along with a big tax bill). The system is designed to suck your assets dry one way or another. Better to teach them skills and help with the their purchase of assets than trying to circumnagivate a fixed system.

    I profoundly disagree with the analysis re: social engineering. I never suggested a plot. But I cannot discount the manner in which education, zoning laws, business infrastucture and the plethora of govt rules and regulations have overtly created the means and story line for social alienation and atomisation. These traits and their outcome didn't occur haphazardly. The traits and outcomes have been well thought out and implented. Obviously, the situation in Ireland will be different from France.

    bon chance,and keep up the insightful articles

  5. What you describe is very close to what the Los Angeles government is facing (or rather, refusing to face) with their pension plans, whose planning is based on an entirely fantastic assumption of 8%/year growth in income.

    I'm thinking that the nascent Transition Initiatives here (of which I'm a part) will need to find ways to offer the kinds of alternatives you describe toward the end of your post. Are there Transition initiatives going in your area? If so, are they considering issues like this?

    As always, enjoying your perspectives and ideas.

  6. Blagroll, if that's the law in Ireland, it is indeed plain stupid and evil. No contest in that. Now for the fact that the present atomization of the society - both France and Ireland - did not happen by chance, it is obvious, no more than idustrialization or the collapse of the Roman Empire. There was a part of chance in the chain of events which led to it, but they were the result of deep cultural trends.

    Where I tend to disagree is when you suggest these trends were more or less consciously engineered. To take an example, the mess that French urban Ghetto has become is clearly the result of political decision made during the seventies... but at that time nobody wanted to create urban ghettoes populated by alienated jobless immigrants. What everybody wanted was to build modern apartments for the middle class. Suburbs apartment were them far more comfortable than the average downtown flat.

    Of course, the whole thing went totally out of control and the former model districts have become the urban ghettoes we all appreciate and love.

    Don't forget what Napoleon said : Never ascribe to malice that which is adequately explained by incompetence.

    Dwig, you are right. The worst thing is that some executive may be aware of the situation but cannot extract themselves from the groupthink, lest they loose their job.

    Transition initiatives are definitely a part of the response even if they are not without their shortcommings. There is none in my area (but I plan to do something about it) and only one in France, which is hardly surprising - this is France, after all.

  7. Damien, thanks for your blog, much appreciated. - from a regular reader.

    I was surprised that in this post you did not mention anything dealing with ‘more equality.’ I agree with yr treatment of ‘entitlement’ and the almost insuperable problems we in the West (and elsewhere for that matter) face.

    In Switzerland, where I live, the 3 tier ‘pension’ system is touted as a miracle of a combo of ‘state support’ and ‘private savings/investment’.

    Tier 1 is "AVS" - state old age pension, which is for some part, considerable, is independent of ‘work’ history and supposedly furnishes the very bare minimum required for ‘life’.

    It is paid for by all employees/employers/private persons (e.g. not working), month by month. (Variable straight transfer payments.)

    Tier 2 is employer-organized, sort of ‘private pension fund’ but transferable from job to job or can be put on hold in case of no income, etc. It is very heavily supervised/mandated by the state, quite rigid.

    Tier 3 is private savings (attractive because = forced savings in part tax deductible, and can in certain conditions be withdrawn as a lump sum, e.g. to buy a home, set up a business, or at retirement age.) In times of growth this system, which only became really solidified or generally applied in the middle 70s - early 80s has worked so well that older ppl are far richer and more comfortable than younger ones.

    The latest Swiss studies on ‘standard of living’ have thrown this obvious disparity into cruel light. One needs not the studies - all you need is eyes. Boomer parents have money or jobs, cars, homes even if only a ‘small’ rental, some discretionary cash (restaurant, vacations, etc.) while the younger generation, aged 17 - 30 say, are pulling the devil by the tail and have a hard time reaching independence / maturity / proper paying jobs / marriage.

    This state of affairs has lead to informal solidarity transfers, family based, that are outside of the state organised tax system.


  8. part 2 of 2

    Greece deserves mention here. In Greece, 75% of businesses are family owned, and children often work for their parents/uncles etc., and in this way their education is wasted (paid for by the community), their creativity stifled, they must bow to ‘elder’ authority in often small structures to be able to live.

    In Switz. I am seeing the beginning of such a phenomenon, though it has always been anathema, in the hyper-liberal, (libéral in the French sense) Swiss system, where education is heavily invested in, and each to his own aptitudes, gifts, entrepreneurship is king, etc. Traditionally, this kind of generational support or hand-downs were (supposedly) the exclusive province of the very rich, and the upper political class, and was mocked. (“Fils à papa.”)

    The second disparity that comes to light is an urban / rural divide, with rurals being far richer and more comfortable than urbans. (In contrast with France, which is completely different re. such a comparison.) This is because ‘rurals’ (I am boiling down a lot of factors to just 2 categories; rurals excludes close suburbia, but includes part of far off ex-burbs) have more space, bigger homes, better med services, better communities, more nature, more cash available, etc. - these might be called accidents of geography. However, it appears that they are benefitting from transfer payments from the rich centers (e.g. Zurich ‘gnomes’) to the poorer ‘cantons‘ (states, districts, mountain communities, etc.), to an illegitimate degree. (Péréquation, in French. The US has a similar structure, with the Blue Coasts paying in some part for the Red hinterland. Blue = Dem or progressive...)

    So the discussion on the left is in part devoted to how to now have more fair sharing and eliminate these disparities. (I dislike the Swiss socialist party, never support them in any way, just to be clear. Lame! ) While the canton-to-canton financial transfers are, I judge, going to be fixed, if slowly or only partially at first, the generational ‘gap’ is far more important and so complex, so beset with contradictions, so much a symptom of ‘lack of growth’ that nobody really knows what to do. New tax structures, maybe, etc. etc. Still, discussions are ongoing.

    France is not living up to its reputation (post Revolution) ;) or am I mistaken?


  9. Ana, Frenchmen talk a lot about equality, but it comes to practice... there are tens of retirement plans, all more favorable than the mail one and you can count on those who enjoy them to defend them teeth and nail, and even to enlist those who don't so that they defend their privileges. That is what happened in 1995. It is called "tous ensemble" ;-)

    The inequality you point out in Switzerland exists also in France. The difference in wealth between the generations is logical in a time of decline. Older people made their fortune in better times and keep it while younger ones struggle. There is probably nothing to do... except wait for biology to do its work

  10. Re Transition initiatives, there seems to be a growing movement:

    and another article here: