The Global Pension Crisis: From Gray Capitalism to Responsible Accumulation

The ageing society has profound consequences for accumulation in each state and region because pensions represent a claim on future income and output. Today's United States and United Kingdom pension crisis stems from a failing private sector with excessive costs and risk. Public provision using pay-asyou-go payroll taxes has, by contrast, proved highly cost-effective and equitable. However, aging and unequal cohorts create a need for extra resources. Retirement incomes should total 12 to 14 percent of gross domestic product if older people's relative incomes are to be maintained. Raising such a sum solely from payroll taxes would generate the unemployment seen in continental Europe. The alternative is to redistribute capital to a regional network of social funds by requiring each corporation to issue shares equivalent to 10 percent of their profits annually to those funds. The share levy does not subtract from the corporation's cash flow and therefore protects employment and investment, but it does dilute the value of shareholding each year by a small amount. The social funds would not sell their shares but would keep them to generate income for future pensions. The social funds would supply a universal second pension; they could establish criteria of socially responsible governance in their use of shareholder power, and they would be subject to expert and democratic audit.