We are told that socialism is dead; yet everywhere we see signs of the return of collectivism. A recent Guardian poll, for example, revealed 73 per cent support for a return of the railways to public ownership. We think of the US as a nation dedicated to private enterprise. Yet its water supply remains in public hands, as do some important rail lines; and there are no plans to privatise the federal mails. US college education - which covers a higher proportion of the population than any competitor - is mostly underwritten by public finance, and even "private" universities are organised on a not-for-profit basis.
Further, when economists scrutinise the remarkable US boom of the 1990s, they discover that its secret includes a series of lavishly funded public programmes for education, health and pensions. Though healthcare provision in Britain is more collectivised, and far more efficient, than the US system, public spending in the US is greater, as a proportion of national income (let alone absolutely) than in the UK. Britain's pharmaceutical companies and medical equipment manufacturers would be thrilled if the NHS achieved levels of spending anywhere near those sponsored by Medicare and other US public healthcare programmes.
By far the most dramatic portent of a revived collectivism has been the rise of funded pensions, whether public or private. Milton Friedman's nightmare has always been that some demagogue would persuade Congress "to (1) fully fund obligations under social security (ie, pensions) and (2) invest the accumulated reserve in the capital market by purchasing equity interests in domestic corporations". Friedman calculates that if the US system had been fully funded from the beginning (1937), and if those funds had been invested in the equities market, then the US economy today would be wholly socially owned. Now his nightmare has, at least partially, come true. President Bill Clinton proposes that the state-managed retirement pension should indeed accumulate a big fund (with $2,800 billion to be pumped in over the next 15 years) and that a portion of it should be invested in the stock market. In Friedman's view, this plan, which has been taken up by both Al Gore and Bill Bradley, the front-runners for the Democratic nomination in the forthcoming presidential elections, threatens "social security socialism". And the New York Times fears that Congress would use the funds for political ends, steer-ing them "into environmentally friendly companies rather than, say, tobacco companies".
In Britain, as in the US, we tend to think that the pension and insurance funds which now dominate the capital market are wholly private. But they are not. They depend heavily on state funding - in the disguised form of tax breaks which, according to a recent official estimate, cost as much as £17 billion a year. Here we find what may be called weak collectivism because the funds, despite their huge public subsidies, are not required to display any sense of responsibility, either to policy-holders or to society at large.
Hayek was not wrong about everything. He argued that in the absence of responsible links between agents (managers) and principals (owners), there would be scope for every type of feckless and self-interested mismanagement. Today the financial institutions that, with government encouragement and subsidy, own more than a half of all British companies, constitute a looming grey cloud of unanchored property rights, blown this way and that by every puff of speculation and vulnerable to the electronic storms of globalisation. Since most of this money is in pension funds it is doubly appropriate to call this "grey capitalism" and to point out that it is at the beck and call of managers who, even if capable of better things, are structurally condemned to the dictates of short termism and the herd instinct.
Karl Marx coined the term "alienation" to describe the fate of employees who lost control of the economic fruits of their labour. Today's pension fund is a species of redoubled alienation since policy-holders can easily find their savings being used to speculate against their own jobs, or to condemn the areas where they live to decay.
The policy-holders are not in any sense purely middle class. They include most trade union members and nearly all public sector workers. But they have no say in the way the funds are run. The funds have failed to nurture British manufacturing; rather, they have indulged company managers who award themselves lavish pay rises while neglecting research and development. They hold about a third of their assets overseas, often in property in countries such as Belgium and the US.
In the old days, labour correspondents reported on mass meetings where workers voted for or against strikes. Now the story has migrated to the business pages: for example, 1,500 British Airways pensioners held a mass meeting last summer where they overwhelmingly opposed a BA plan to raid a £6 billion pension fund in order to raise capital to replace lost profits. Such activism, both among those now drawing pensions and among those contributing to schemes, is on the increase.
Our pension arrangements, then, are inherently collectivist, and I believe that they are likely to remain so. When Margaret Thatcher and Keith Joseph launched their revolution for "popular capitalism", they almost certainly hoped that the result would be hugely to boost the number of individual shareholders. But in fact Sid sold his shares to the institutions; he understandably preferred to enjoy the windfall, rather than keep an asset which would never generate a significant income. Meanwhile, the numbers belonging to an occupational or personal pension scheme continued to rise under Thatcher as they had under previous "old Labour" governments.
Personal pensions, people quickly discover, are nearly always a bad deal because the administration charges are so much higher. In the UK the charges levied on personal schemes can easily absorb a third of contributions in the early years. (Note that administration and marketing soaks up 2 per cent of the asset value each year of Chile's famous private pension funds, while it accounts for only 0.2 per cent of the assets of the publicly run Singapore Provident Fund.) The occupational schemes, where employers absorb much of the administrative cost, generally yield a much better return. In fact, people in an occupational scheme with "defined benefits" (ie, benefits linked to final salary) were almost bound to be worse off if they joined a personal pension plan. Hence the huge dimensions of the pensions mis-selling scandal: 1,500,000 bad deals and compensation of nearly £20 billion for those lucky enough to live long enough to claim it.
Yet even personal pensions operate largely on a collectivist basis. Notwithstanding the industry's patter about the individual's "pot" of contributions, the funds do not earmark particular assets to a particular individual and it would be prohibitively expensive to do so. And when you die the assets that have been used to pay your pension do not pass to your heirs but are re-absorbed back into the general fund for all members.
Under the antique provisions of trustee law, however, policy-holders enjoy about as many rights as women or minors in the 18th century. Pension schemes must respect a curious financial orthodoxy, which reposes great faith in the inflated values of the world's bourses.
Some people on the left may see all this, together with the patently irresponsible behaviour of the fund managers, as a good reason to wind the schemes up and revert to exclusive reliance on the pay-as-you-go method of the state pension. But the horse has bolted: British pension funds are now worth £800 billion, almost 90 per cent of GDP. It would be ruinously expensive and extraordinarily disruptive to wind up the schemes; the government would be accused of penalising the thrifty.
But without hurting hard-won savings, it is only right and proper that such tax- privileged entities as the pension funds should be scrutinised and reformed to make sure that they really do serve the interests of their members, that they act in the public interest and that the benefits they offer are available to all. Indeed, if they can meet such criteria they may deserve further public encouragement.
The argument for the kind of funded provision offered by the pension schemes is not the often-quoted horror of the demographic revolution, which raises the spectre of ever-growing millions of oldies being supported by dwindling numbers of active workers. The truth is that the income of future pensioners will have to be met out of future production, whether this is done from public revenue or from the income generated by the funds.
But there are other advantages in building up a social fund. First, it offsets the burden of the national debt imposed on successive generations; by reducing the payment of interest to rentiers, it makes it easier to pay decent pensions. Second, regulation of pension funds could foster a more healthy and sustainable pattern of growth if the funds were encouraged to respect social priorities when making investments.
This is not to deny that today's pensioners should get something more resembling a decent income. The state pension for a single person is still considerably less than £4,000 a year - when average male earnings are £20,000 - and should be sharply increased. And although the "basic pension" is often described as a "universal" benefit it is paid only to those who have a lengthy contribution record. As presently organised the state pension is an engine of social exclusion as well as being quite inadequate; it excludes something like half of all adult women simply because so much of their work, inside or outside the home, was underpaid or irregularly paid, if not completely unpaid. The pension should be paid to all citizens over the prescribed age limits regardless of their past contribution records. If a new mandatory funded pension scheme gave tangible guarantees to younger people, it would create the political and economic climate - contributions to pension schemes count as saving and so allow more scope for public spending on other things - for more generous treatment of today's pensioners.
A decent state pension would start at about £6,000 a year at age 65 and rise to about £7,000 at 70. But it would not remove incentives to take part in secondary funded schemes, since most people will hope to retire on at least half if not three-quarters of the income they are accustomed to. At present, one in two adults lacks a secondary pension and that is undoubtedly a cause of poverty in old age. The government hopes to go some way towards meeting this gap through its proposed voluntary stakeholder pensions. These try to cater for those presently excluded from secondary pensions by obliging employers to administer, and the financial industry to offer, a personal pension plan in which charges account for no more than 1 per cent of contributions. The complaints from the financial industry about this limit suggest that it has been set at about the right level.
The problems with the stakeholder pensions are likely to be poor take-up among those for whom they are intended and the danger that they will undermine much better occupational schemes. What is really needed is a comprehensive and radical scheme to supply secondary pensions to all, with the government making contributions for carers and the unemployed. The most generous tax concessions should be available only to socially or mutually owned schemes which (1) give some direct representation to benefit holders; (2) qualify as social or ethical funds; and (3) allow for a modicum of redistribution from those with higher lifetime earnings to those with lower lifetime earnings.
Under existing legislation the pension funds have to satisfy certain minimum criteria when making their investments; for example, they are required to put a certain percentage of their money into gilt-edged securities. This sort of principle should be extended to favour social investment, monitored by an independent regulatory agency. The social criteria could favour the bonds of companies that make long-term investments and conduct high levels of research and development.
The government could also, as Gerald Holtham of Norwich Union has suggested, float a series of long-term bonds to fund urgently needed social investment in schools, universities and hospitals. Further, it could insist that, when it stumps up large subsidies - for example, for rail modernisation - shares in the subsidised companies could be limited to pension funds. Such hypothecated collectivisation would ensure that future windfalls would meet genuine need.
A nationwide system of social pension funds, based on occupation, trade union, affinity group, region and so forth, could give a choice of social saving to the contributors. To offset risk, people could be required to have at least three such accounts. University departments could be engaged, for a standard fee, to act as advisers to such funds.
Even with the best advice there will be winners and losers, though these need be only relatively small deviations from the average. Money invested in pension funds is, above all, money invested for the long term, and several techniques are available to spread risk over time so that only a long-term slump would cause real damage. Indeed, the enhanced social control over investment and accumulation that would be the result of such a collectivist reform of pensions would itself furnish the means to tackle fundamental problems of underperformance were they to arise.
It would all be a far cry from the nationalisation of yore but not so far from the "best obtainable system of popular administration and control", nor from a society run by and for "the many not the few".
The writer is professor of sociology at the University of Essex and editor of "New Left Review". More details of his pension reform proposals can be found in issue 233 of "NLR", published in January-February 1999