Pensions may prove Sarkozy's watershed moment

Nicolas Sarkozy has shown himself to be a man for a crisis, but his stand on pensions may well backfire

o Philippe Marlière
o guardian.co.uk, Wednesday 15 September 2010 15.18 BST


The recent financial crisis has again demonstrated the inherent instability of capitalism. It could be argued that the current pensions reform concocted by the Fillon government is showing the inherent instability of Sarkozyism. On 7 September, 3 million people took to the streets for the biggest one-day strike in years. The strike action was supported by 70% of the public. Workers were protesting against the government's plan to raise France's legal minimum retirement age from 60 to 62, and from 65 to 67 to benefit from a full pension.

An employee will have to work 41 years in 2012, 41 years and 3 months in 2013 and 41.5 years in 2020 in order to claim full pension benefits. This change is deeply unfair for unemployed workers, part-time employees (notably women), people who have started to work at an early age and for students who have entered the job market at a late stage. These vulnerable categories will have to work beyond the new statutory threshold of 62 to earn a decent pension.

Yet, the neoliberal narrative says, isn't France the most "privileged" country in Europe when it comes to pension regimes (which are deemed "generous"), public services (obviously "bloated") or working hours (which allegedly make France economically "uncompetitive")? If the Sarkozy-Fillon reform goes through, the Conseil d'orientation des retraites (Cor) estimates that France's system would become one of the harshest in industrialised countries (Germany's new legal minimum of 67 will only be implemented in 2029).

Still, the neoliberal story goes on: isn't there an "insoluble" demographic problem here? The system is allegedly coming under intolerable strain as the postwar baby boomers leave the workforce, with the prospect of a longer lifespan in retirement as a result of improvements in diet, medicine and lifestyle. This is a cynical and offensive argument. First, what matters is not life expectancy in abstracto, but life expectancy in good health. In France, it is 63.1 years for men and 64.2 for women. Blue-collar workers have a good health expectancy, which is 10 years inferior to professionals.

Second, to delay the legal minimum retirement age by two years won't help sort out high unemployment among young people. Third, the "demographic" argument creates a crucial political diversion. The government has refused to consider increasing general contributions, notably employers' contributions. As usual, profits will remain in private hands whereas the public will always foot the bill when banks or firms fail. As a consequence of this deliberate political choice, 84% of the €30bn to be invested in pensions by 2020 will be paid by employees and only 7% by employers. Independent studies have shown that it would take a 15% increase in general contributions between 2010 and 2050 to keep the system afloat – an increase of 0.37% per year.

French people categorically reject British or US-style pension funds and defend their "pay-as-you-go" pension system. Who would blame them? Should they stoically embrace casino-style pension regimes on the grounds that other European countries have implemented them? In the end, it all boils down not to demography, but to politics. European governments have responded to the latest cyclical crisis of capitalism by imposing fierce austerity measures on their peoples. In London, Athens, Berlin or Paris, they pursue the same political agenda (cuts to salaries, public services and pensions), that hits workers hard.

In France, there is more to it. For Sarkozy, the reform carries symbolic importance. It would reverse decades of cutting the time people spend in work (François Mitterrand lowered the retirement age from 65 to 60 in 1983 and Lionel Jospin launched the 35-hour week in 2000). Sarkozy has already accomplished his fair share of "pro-market" reforms: he has loosened labour laws, encouraged overtime and, more infamously, implemented the so-called "fiscal shield", which handed back €586m in taxes to the richest last year.

This pension reform should be seen as the ultimate weapon to split and demoralise his political opponents. But the risky strategy may be about to backfire: unions appear to be galvanised and the left is, surprisingly, united. Even the moderate and inconsistent Socialist party has formally pledged to return the retirement age to 60, should it win the 2012 presidential election.

Sarkozy is treading in muddy waters and he knows it. Hence the hardening of his traditionally tough stands on security issues. These are manifest smokescreens aimed at diverting the attention away from the pensions reform. First, we had the law banning the burqa in public places (it concerns less than 400 women in France) – which yesterday sailed almost unanimously through the French Senate – then the law stripping nationality from naturalised citizens who deliberately endanger the life of a police officer. Now, there is the targeting of the Roma population, which has been quasi-unanimously condemned in Europe.

Interestingly, these gimmicks and gesticulations have done little to boost Sarkozy's approval ratings, which remain abnormally low (34% support his action against 62%). However, his popularity rating has increased by 20% among National Front voters. Yet again, Sarkozy proves a politician who thrives on a crisis (of his own making), and contemplates running a hardline campaign on law-and-order issues in 2012.

Eric Woerth, the pensions minister, has remained in office despite a conflict of interest linked to Liliane Bettencourt, the billionaire heiress of L'Oréal cosmetics empire. This affair touches alleged illegal financing of Sarkozy's UMP party and alleged tax evasion while Woerth was budget minister and leading a clampdown on tax evasion. Only the rich get richer in Sarkozy's France. The trouble for the incumbent president is that the French have noticed it.

Pensions may prove Sarkozy's watershed moment | Philippe Marlière | Comment is free | guardian.co.uk

Originally Posted by contracycle

This change is deeply unfair for unemployed workers, part-time employees (notably women), people who have started to work at an early age and for students who have entered the job market at a late stage.

Agreed on part timers, unemployed and people entering the market late. It is also assuming that companies would be willing to employ people post-50 but, so far, French companies have proved exceedingly resistant to doing so. I am not sure how it is unfair to those that entered early, though...

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First, what matters is not life expectancy in abstracto, but life expectancy in good health.

From a humane point of view, sure. Not from a financial one. The last years of your life and especially the very last year, which is unlikely to be pleasant, are the very very most expensive one(s). That's when the healthcare costs soar like a rocket.

If we shoot everyone at 70-72, I guess we could agree to keep a retirement age of 60...

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Second, to delay the legal minimum retirement age by two years won't help sort out high unemployment among young people.

True. Early retirement doesn't do too much for it, either. It helps but, if it creates a crater in public finance, then, it will end up being a wash: "You could have find work but, alas, the state went bankrupt and the country imploded. Sorry".

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Third, the "demographic" argument creates a crucial political diversion. The government has refused to consider increasing general contributions, notably employers' contributions. As usual, profits will remain in private hands...

There's a difference between taxes linked to employing people (discourage companies from recruiting) and taxes linked to profit (most neutral tax in terms of companies' behaviour - except that countries are outcompeting each others in a race to the bottom)...

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French people categorically reject British or US-style pension funds and defend their "pay-as-you-go" pension system. Who would blame them? Should they stoically embrace casino-style pension regimes on the grounds that other European countries have implemented them?

Well, assuming that the economy grows over very long periods of time and assuming you got a decent asset allocation model, it can be cheaper.

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In the end, it all boils down not to demography, but to politics.

Not quite. It's more like "demographic changes mean a political decision is required. Status quo is no longer possible".

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Even the moderate and inconsistent Socialist party has formally pledged to return the retirement age to 60, should it win the 2012 presidential election.

... without bothering to mention how they would finance it...

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Only the rich get richer in Sarkozy's France. The trouble for the incumbent president is that the French have noticed it.

Yes. That's one difference between the French and the Anglo-saxons. They seem more easily convinced than large inequalities are not natural or beneficial. That's a good thing but can the reformist left build on that? And why did they vote for Sarkozy?

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Yay, vote went through. We're still not entirely defucked, but it's a start.

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So turkeys do vote for christmas.

When the socialists can tell us how they're going to pay for their policies, then I might consider voting for them. Give me grim reality over no reality at all.

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As I've pointed out before, when you're talking about a universal benefit paid for by universal contributions, the idea of a fund distinct from general taxation is a fiction.

Here's another solution: raise the rate of contribution, and also the minimum wage so people can afford it.

It's not rocket science.

Tell that to the Socialist Party. They're the ones proposing to fix all our problems by ignoring them and hoping that they'll go away.

(Though I think I'd be unlikely to vote for an increase in contributions either. Its main effect from my point of view would be to make it even more difficult for me to find a job than it is now.)

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Originally Posted by contracycle

Here's another solution: raise the rate of contribution...

On people or on companies? On people - same effect as prolonging the retirement age in the future: It fucks my generation. On companies - Makes labour more expensive thus incentivise reducing employment.

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... and also the minimum wage so people can afford it.

Stats tend to show that minimum wage legislation is correlated/cause higher level of unemployment. It tends to stratify things and, coupled with legislation making economic firing difficult, it creates a dual-speed system. Where the unemployed cannot find jobs and low productivity people are permanently under-employed while the employed are protected...

Germany doesn't have a minimum wage federal legislation. German workers are not being badly paid nonetheless...

Direct subsidies (financed by a tax on profit) are better.

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Originally Posted by Gilles de Rais

Stats tend to show that minimum wage legislation is correlated/cause higher level of unemployment.

I remind you that exactly the same was predicted when the UK introduced the minimum wage (one of New Labours few positive achievements) and in fact employment grew. Nor have the subsequent incremental increases in the minimum wage had detectable deletrious effect.

This is the standard canard - we all have to impoverish ourselves to get work at all. We have to have piss poor pensions to have any. We have to work long hours, and have insecure employment...

And therefore one has to ask, cui bono? Cos it sure as shit ain't us.

Originally Posted by contracycle

I remind you that exactly the same was predicted when the UK introduced the minimum wage (one of New Labours few positive achievements) and in fact employment grew. Nor have the subsequent incremental increases in the minimum wage had detectable deletrious effect.

Anecdota is not stats. But, brushing up on my research, it seems that the negative effect of minimum wage on unemployment is debated. By people with stats to back it up.

However, I note: "Since the introduction of a national minimum wage in the UK in 1999, its effects on employment were subject to extensive research and observation by the Low Pay Commission. The Low Pay Commission found that, rather than make employees redundant, employers have reduced their rate of hiring, reduced staff hours, increased prices, and have found ways to cause current workers to be more productive (especially service companies).

Basically, minimum wage is likely to induce behavioural modifications and market dysfunctions because it artificially increase the price of a commodity.

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This is the standard canard - we all have to impoverish ourselves to get work at all. We have to have piss poor pensions to have any. We have to work long hours, and have insecure employment...

You beautifully ignoring my suggestion of taxing corporate profits more and redistributing the money raised to, say, the lowest 15% of the pop.

"Direct empirical studies indicate that anti-poverty effects in the U.S. would be quite modest, even if there were no unemployment effects. Very few low-wage workers come from families in poverty. Those primarily affected by minimum wage laws are teenagers and low-skilled adult females who work part time, and any wage rate effects on their income is strictly proportional to the hours of work they are offered. So, if market outcomes for low-skilled families are to be supplemented in a socially satisfactory way, factors other than wage rates must also be considered. Employment opportunities and the factors that limit labor market participation must be considered as well...

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And therefore one has to ask, cui bono? Cos it sure as shit ain't us.

Right now? Companies. Of course. One of their input price is going downwards. As long as they can sell their products, it means their profits are going up. And, of course, the Chinese. Especially the Chinese state. Whose practice of shameless mercantilism is done at the expense of everyone else.

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