Pensions and the retirement age: the problem is capitalism, not an aging population

Posted: June 29, 2012 by Admin in capitalist crisis, Capitalist ideology, Economics, Labour Party NZ, National Party NZ, New Zealand history, New Zealand politics, Poverty & Inequality, Retirement/pensions, Welfare rights, Workers' rights

by Philip Ferguson

In recent years a powerful discourse has emerged around the retirement age and pensions.  Right-wing economists, the Retirement Commissioner, the Labour Party leadership, mainstream liberal journalists and pundits all seem to agree that the aging population is a problem.  As left-wing journalist Chris Trotter noted in his column last week, we are being presented with the notion that “Everyone” agrees that unless the retirement age is raised to 67, NZ Super will be in trouble, despite the fact that there are quite a few people who oppose raising the age, the most significant being none other than National Party prime minister John Key who stands clearly to the left of Labour on this issue.

It’s an indication of the screwed-up nature of the form of economic organisation we live under, and perhaps of the misanthropy that dominates so much public life and discourse these days, that something we should be celebrating – the fact that people live longer – is presented as posing a serious problem.  Only a couple of decades ago – and people were living longer then than they had been at any time in history – we were being told that the biggest problem we’d face was how to fill up our soon-to-be vastly expanded leisure time as dramatic increases in productivity would substantially shorten our work week while still delivering a high standard of living.  (See here.)

What we’re actually dealing with here is the way in which problems that arise because of the particular economic form of organisation of society appear as ‘natural’ problems and are then treated as such by politicians, pundits and other shapers of public discourse.  In the case of the ‘crisis’ around NZ Super, first you have the spontaneous workings of the system creating a problem (where will the money come from to pay for pensions?), a problem which is really only a problem under capitalism, but appears as a natural problem (the aging population).  So people who take for granted the existence and maintenance of capitalism react to the appearance that the problem takes (an aging population) and respond to that, putting forward ideas on that basis; those ideas are then consolidated and a consensus develops around the consolidation (an aging population means ‘we’ can’t afford the existing Super and so the age of retirement will have to be raised).  And, hey presto, there’s a whole new piece of capitalist ideology appearing as the new ‘common sense’.

Where’s the critique?  Certainly not coming out of universities, where the terms ‘critique’ and ‘social conscience of society’ are used over and over and over, but no real critique is ever produced of existing social relations and how those specific social relations appear under capitalism as natural relations.

Let’s have a look at how the problem is presented by the people who want to make us work more years.  They take something that is true – more people are living longer, the over 65s are a growing percentage of the population and the ratio between the economically-active population and the retired is going down.  For instance, whereas 50 years there were only 200,000 people in this country over 65 and they comprised just 8 percent of the population, there are now 600,000 people over 65 and they comprise 14% of the population.  As of 2008, there were 4.7 people of working-age in New Zealand for each person 65 and over.  These two stats (the increase in people 65 and over and the ratio of them to people of working age) are treated as the key statistics.

But they’re not.

For instance, back in 1901 there was no welfare state, and just under 43 percent of population 15 years and over were in the labour force.  By 1951 a core welfare state had been established, but labour force participation rates had actually fallen in the interim – in 1951 just over 38 percent of those 15 and over were in paid employment.  If the statistics that are being used to justify raising the age of retirement really were the key statistics, then new Zealand in 1951 would have been a complete economic mess.  But, of course, it wasn’t.  In fact, New Zealand in the 1950s, despite a falling rate of labour force participation alongside the expense of a basic welfare state, had the highest standard of living in the world.

Moreover, this wasn’t unusual.  As Michael Yates has noted in his excellent and moving account of the growth of the working elderly in the United States, “we were living longer and had better health during the decades when labor force participation rates were falling.” (See, “Whooppee, we’re all gonna die working”.)

This is because there is a much more important statistic than the ones used to rationalise the failures of capitalism and argue for making us work more years.  This statistic is the overall productivity of the economy, and especially labour productivity.

The reason it was possible to have such high living standards in New Zealand in the 1950 and the basics of a welfare state, and yet have a labour force participation rate that was lower than in 1901, before the creation of the welfare state, is that labour productivity substantially increased in the interim.  (See accompanying graph; the missing section covers the period of the Depression and WW2 for which stats are not available, but the graph clearly shows the substantial increase in labour productivity.)

Moreover, by 1975 the labour force participation rate of those 15 and over had only risen to 40.7%, still below that in 1901, and yet the welfare state had been expanded further with, for instance, the introduction of the Domestic Purposes Benefit in 1974.  Again, this was made possible by further substantial increase in labour productivity.

How was this surge in labour productivity achieved?  There are two key ways in which to make workers more productive.  One is just making them work harder, faster and longer.  The other is expanding investment in plant, machinery, technology, research and development and at the same time consolidating capital and planning production more efficiently.  For a sizeable chunk of the twenty-first century the second method, which is the one that achieves the greatest productivity gains and does so without a lot of wear and tear on workers, was used in the West.

In New Zealand, both have been used at different times.  For instance, during WW2, the Labour government was very good at making workers work longer, harder and faster but also at organising and centralising production, distribution and exchange, resulting in a far more productive capitalism than the market – indeed, the market had led capitalism to the brink of disaster with the Great Depression,  After WW2, throughout the capitalist west, there was a massive expansion in investment in the production process.  Overall output, productivity, living standards all rose although, at the very same time, the working class became more exploited because the difference between the total value of what they produced and what they were actually paid increased too.

In 1973-1974 the long economic boom that followed WW2 came to an end and capitalism entered its more typical round of boom and bust, beginning with a massive economic crisis.  The cause of this was the contradiction at the very heart of capitalism.

We explained how this works in the article “How capitalism works – and doesn’t work”.  It’s worth quoting at length, because it has substantial bearing on the retirement/pensions issue:

In a capitalist society, because it is based on the spontaneous operation of a thing – the market – rather than conscious human control and planning, all kinds of things can and do go wrong from time to time. There can be too much production in one particular sphere of the economy, for instance. However, the fundamental cause of deep-going recessions and depressions like the 1930s and much of the period since 1974 is the tendency of the rate of profit to fall. In the late 1970s, after several years of recession following the end of the postwar boom, the OECD did a study of profit rates in all the major capitalist economies and found that the rate of profit had been falling in all of them for some time, even at the height of the boom. The OECD study was not able to explain this and was somewhat mystified by it.

However, there is no big mystery about why the rate of profit falls once you understand the nature of capitalist economy and the way the surplus is created through exploitation. What happens is that as capitalism expands, more and more capital is invested in plant and machinery in proportion to the amount expended on labour-power. We can make an equation S/(C+V), where S represents the surplus-value and C and V represent the capitalists’ outlay: C is constant capital (spent on plant, machinery, technology, raw materials) and V is variable capital (spent on labour-power). C merely transfers its own value into the new product. V, however, creates additional value through surplus labour-time, as we have explained already.

As C rises more and more, in relation to V (the part which creates new, expanded value), the rate of profit therefore falls. The overall surplus-value may still be large and expanding, so at first there doesn’t appear to be a problem. However, after a period of years, capitalism is faced with re-equipping and modernising not only individual workplaces, but whole industrial sectors and even whole economies. It is at this point that the fall in the rate of profit becomes a problem, because they simply lack the necessary capital for the scale of modernisation required. Thus the first country in which the postwar boom ended and recession began was Britain, because it had the oldest industry.

For instance, take a point in time in which capitalists invest a billion dollars and gain a 10 percent rate of profit. That means $100 million profit. But as the rate of profit falls to five percent, they would have to invest $2 billion to make the same amount of profit.

When the rate of profit falls to a level where ordinary production cannot be sustained, let alone new investment to revitalise industries, economies go into major recessions. How do the employers respond to this situation?

Capitalists often resort to using what profits they do have to speculate in shares, property, foreign exchange and so on, so there is a massive growth of the artificial economy – the sector which produces no surplus-value but plunders overall social surplus-value. This happened on a massive scale in NZ in the mid-1980s, as in other capitalist countries. The unproductive sphere (the artificial economy) expanded massively, while the productive sphere (the real economy) stagnated, starved of investment. This resulted in the October 1987 crash when the real economy could no longer sustain the parasitic, artificial economy and brought it crashing down.

In economic crises, especially protracted ones like that which has followed the end of the post-WW2 boom, capital is forced to do two other essential things.

One is attack workers’ wages and living conditions, in order to cheapen the price of labour-power.

The other is increase the share of surplus-value in the hands of capital by decreasing the amount that is spent, usually by the state, on producing and providing public goods and services below cost.

In New Zealand, these two processes have been at work since the early 1970s, but reached their most ferocious under the fourth Labour government (1984-90) and in the first term of the fourth National government (1990-93).

A recent prestigious Canadian foundation report found that real wages in NZ decreased 6 percent in the 20 years from the mid-1980s on. Many workers, of course, have suffered much greater decreases. Wages, conditions and workplace organisation has been rolled back on a massive scale, as employers have sought to cheapen the price of labour-power in order to boost profit rates. Most workers in NZ have direct experience of this. It reached its peak with the Employment Contracts Act of 1991 and the process has continued under Labour. In fact, the rate of inequality between the “average New Zealander” and the several hundred richest individuals and families in New Zealand expanded more rapidly under Labour than National. It has also become harder for workers to strike.

But the other process is something that people often find more confusing and that is privatisation and the other changes that have taken place in the old state sector. Often people can’t understand why, when these things weren’t broken, the fourth Labour government decided to ‘fix’ them and began selling off state assets and turning other parts of the state sector into SOEs (State-Owned Enterprises), Crown Enterprises and so on.

The main reason, as noted above, is because the state sector in capitalism, as in previous forms of society, is only made possible by – and lives on – the social surplus. In terms of how capitalism operates, the state sector is largely ‘non-productive’ – ie in the sense that it does not produce surplus-value but uses it up. Of course what is ‘unproductive’ for capital may be extremely productive/useful for society. However, private profit, not social usefulness, is the chief imperative in capitalist society.

When the rate of profit fell to such an extent that the postwar boom ended and a crisis began, an important way for capital to escape the crisis was to lessen drains on surplus-value. The less the deductions on surplus-value by the state, the more there was to convert into private profit.

The retirement age and pensions fit into this in several ways.

One is that New Zealand capitalists have leaned strongly on trying to boost profits by making workers work harder, faster and for more hours.  This was made necessary, from the standpoint of the capitalists, by the economic crisis and falling profitability and it was made possible in practice by the defeat of the union movement and working class in 1991 with the Employment Contracts Act.  But the expansion of labour productivity in this way has serious limitations.  Workers working harder, faster and longer hours can only keep it up for so long, so the productivity gains eventually slow down or even stop.  Because capitalists here have resorted to this method of trying to expand productivity, New Zealand has a sluggish economy and lags behind most of the OECD in terms of the level of productivity increases.  As even the Reserve Bank has noted, “this reduced capital investment, while having an immediate negative impact on GDP, has also negatively affected the economy’s future capacity to grow.”  In fact, the bank suggests, the lack of productive investment has halved the potential growth rate!  One of the more insightful economic commentators, Bernard Hickey, describes the problem of lack of productive investment “the central question of our economic era in new Zealand and overseas.”  (Perhaps these people should read Marx.)

When ‘recoveries’ are built on increasing the length and speed of the labour performed by workers, labour productivity and surplus-value growth is sluggish.  The result is that there is relatively less surplus-value to be converted into, among other things, pensions, welfare benefits, health and education services and so on.

Secondly, in the context of these problems, there is an increase in demands by capitalists and their advocates for privatisation and commodification (turning what once were public services, provided free or below cost, into things produced to be sold on the market for a profit).  The money being put aside for pensions is a ripe source of money-making for the same private capital that has shown such reluctance to invest in the productive economy (that is, invest in the things that expand actual production and create new value, as opposed to the artificial economy where investments simply push up the prices of things and make more money without expanding output and productivity).

In the United States, for instance, pension funds controlled by “financial advisers”, banks and employers have been used on a dramatic scale to invest in and inflate the artificial economy even further with the result that the bubble bursts and many workers have found their pension savings gone.

In New Zealand, as Chris Trotter has noted, a bunch of the loudest voices for raising the retirement age in New Zealand are “in one way or another. . . bound up with vast financial corporations, all possessing a powerful vested interest in wrenching the provision of citizens’ basic retirement income out of the hands of the state and into their own, private talons.”  It’s no surprise that Retirement Commissioner Diana Crossan, for instance, comes to the job from AMP, a very large financial institution.  (Given that the loudest voices include Labour, wouldn’t it be logical for Trotter to finally cease his periodic apologies for the Labour Party!)

It’s always important, however, to keep in mind that, whatever the machinations of individual corporate and their go-fors in the state sector, the problem is not some conspiracy to get hold of mum and dad’s pensions.  Rather, the retirement age, the ageing population and pension provision become problems because of the way in which society is currently organised.  It’s nothing to do with individual capitalists and individual flunkeys in the positions of power in the state sector.

If society were organised in a different way – based on production to meet human needs of all rather than production for the private profit of the few  – an aging population would be no problem at all, simply something to celebrate as a wonderful human achievement.  After all, who wants to live in the kind of society where, as Michael Yates reports, “We were in a Wal-Mart in Richfield, Utah. The greeters at the door were an elderly man and woman. Both were in wheelchairs. At a grocery store in Colorado, an old man bagging groceries was so bent over that he could barely look up. In our travels, we have begun to notice a new phenomenon: the working aged.”

As his article notes, “what we need is more security not less, less work not more, time to think, and the resources to do whatever we please. These are the things that will make us “something,” not more years of wage slavery.”

Indeed, it could be added, the only thing stopping us from having a 20-hour week, free health, education and childcare, full employment and no worries about surviving economically in our old age is capitalism.  Isn’t it time we saw it, rather than an aging population, as the problem?

See also:
Low pay, longer hours and less social mobility – welcome to 21st century NZ capitalism

Whatever happened to the leisure society?                                                                                                Labour: a bosses party

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  1. William says:

    Yes Yes Yes,

  2. Grant says:

    Love this paragraph. “Where’s the critique? Certainly not coming out of universities, where the terms ‘critique’ and ‘social conscience of society’ are used over and over and over, but no real critique is ever produced of existing social relations and how those specific social relations appear under capitalism as natural relations.” We have heard for a long time about the production of critical thinking skills and oppositional thought in the University. But critical and oppositional of what?

  3. Don Franks says:

    Who said this on the retirement age subject?

    “There’s got to be initiatives from the Government to increase the wealth of the country, and the skills and the productivity of the country – otherwise nothing’s going to be affordable.

    Clue; a well known unionist with snow on his boots.

  4. [...] and pundits in the late 1960s and very early 1970s. (3 April 2012)Related by the same author: Pensions and the retirement age: the problem is capitalism, not an aging population – June 29, 2012 Also, by EB contributor Michael Yates: Whooppee, we’re all gonna die. . . [...]

  5. Admin says:

    Don, that would be Ken Douglas I assume? Shows how much he learned about Marxism in his decades in the SUP!

    (I did cheat by doing a google search on the quote!)


  6. Don Franks says:

    Yes, that was Ken. he was interviewed in a survey of all the Order of New Zealand holders. As might be expected, these well heeled capitalist approved notaries were heavily into upping the pension age.
    Previous Labour speaker of the house and before that “minister for wine and cheese” Johnathan Hunt carried off the prize for most anti working class stance.

    Hunt insisted the age has to be raised “because otherwise we’re not going to be able to afford it.

    Early pensions for those exhausted by manual work? “Well, I don’t know what’s the evidence for that. I haven’t seen any statistics to back that up.”

    When asked about Retirement Commissioner Diana Crossan’s argument for special payments to those unable to continue working until 65 or 67 Hunt squeaked back “Well, that’s her opinion. I’m not going to comment on that any further. Thank you!”

  7. Admin says:

    Among a plethora of odious Labour MPs, Hunt was right up there. He’s someone I’d like to see performing some manual labour after the revolution, but the wine and cheese and foie gras will finish him off before then.

  8. [...] Pensions and the retirement age: the problem is capitalism, not an aging population [...]