In recent news, France's lower parliament passed a bill raising the retirement age to 62 despite over one million French workers taking to the streets to protest the proposal (Fraser, 2010, http://www.bbc.co.uk/news/world-europe-11317138). Government officials claim the country will save 70 billion euros which will be used to close widening deficits. Labor unions oppose this decision stating it is "unfair", "unjust", and not sustainable. The US faces a similar dilemma with social security. Officials forecast that by 2037 the government will only be able to cover 75% of promised benefits (Meckler, 2010, http://online.wsj.com/article/SB10001424052748704476104575439792287255372.html?KEYWORDS=US+social+security). While minimal effort has gone into addressing this crisis both parties have stated their expected platforms during midterm elections. Not surprisingly, Republicans propose benefit cuts while Democrats advocate tax increases.
The solutions proposed by the US and France greatly reflect the cultural dynamics that are constantly shaping the policy decisions of these two governments. We can see from the background section provided by Adolino and Blake that France has been undergoing major tax reforms due to the changes in government leadership over the past ten years. Coalition governments, like the one in France, "find it more difficult to work out a shared vision of sweeping tax reform" (Adolino and Blake, 2010, p. 205). However, the recent election of Nicolas Sarkozy resulted in deep tax cuts that many citizens opposed and now blame for the economic woes befallen the country. Conversely, the current tax structure relies heavily on individual contributions to fund pensions and favors indirect taxing versus direct taxes like those collected from sales. Citizen's expectations of government greatly hinder its ability to look to alternative methods like private pensions or increasing direct taxes to bolster funds. A rationale is "[t]here has always been more trust in the state than in financial markets, and that is even more the case after the recent crisis. To Frenchmen the state is supposed to be the fair distributor of wealth. When they tamper with that, people get upset, which perhaps explains the scale of the recent demonstrations" (Fraser, 2010, http://www.bbc.co.uk/news/business-11293187).
In the US partisan politics is to blame for the inaction on this issue. Over the last 15 years partisan control of the government has directly affected the course of social security policy. Adolino and Blake state "the effect of partisanship will be greatest when a single party controls the executive and legislative branches" (p. 205). Evidence of this relationship is apparent in the Bush administration tax cuts of 2002 where Republicans held a majority in the House and passed new tax cuts rather than focusing on consumer spending (Adolino and Blake, 2010). It's evident that the future of social security will most likely fall in the hands of Democrats but we can expect Republicans to thwart any chances of real reform.
Hi Lindsey, thanks for the well written post. French president Sarkozy was willing to make an unpopular policy decision by increasing the retirement age from 60-62 in attempts to reduce the 14 billion debts in the French pension system. Knowing that this would most likely lead to low approval ratings, and potentially hurt his chances to be re-elected if he decides to run again in 2012. In a country where labor unions traditionally have held more power than in the US; some say this victory is a sign that their power is eroding in France. Perhaps only when countries are in dire economic straights will the policy makers on either side of the spectrum be willing to make the “right” policy choices in order to benefit its citizenry, and improve their countries economic health remains to be seen.
ReplyDeleteIn the US, benefits come from the nation’s social security system that has a long running deficit; employer sponsored pension system that only covers about half the private workers in US, and 401 (k) plans that have only moderate balances. Employers have reduced, frozen or eliminated these pension systems because of the current financial crisis. In the end, the US policy makers definitely have their challenges of balancing and improving adequate benefit levels with the sustainability of public and private pension plans especially now during these tough global economic and financial times.
I enjoyed your thoughts on this topic Lindsey. It’s interesting to see the differences between the United States and France when it comes to social security or retirement benefits. Moving the age from sixty to sixty-two doesn’t seem like such a big deal when we notice, as you mentioned, that the age in the United States keeps going higher, and we likely won’t get social benefits until we are much older.
ReplyDeleteMeanwhile, the French are up in arms about the age adjustment, even though the policy is driving the country into debt. Having a million people in a march is a very powerful message. Most people want their government services provided to them but they do not want to have to pay for them.
From a personal perspective, in the United States I think most people are beginning to realize that social security is starting to become top heavy, and is a policy that will either put the country into debt or drive up taxes. I say top heavy because it’s a policy that relies on increasing birth rates so that the many can support the few. However, with drastic improvements in healthcare people are both living longer as well as having fewer babies. This will ultimately undermine the intentions of social security as the dynamics of society are altered. France is more union driven and more adverse to this policy change whereas the United States might be more open to change.
The issue of Pensions/social security benefits is one that shall over the coming decades bedevil policy makers around the world. Mike and Dean pointed to one of the issues: advances in healthcare have lengthened life expectations and individuals are living longer on social security than initially anticipated. In addition, there are demographic changes (Dean spoke of this), whereby decreasing birth rates are likely to result in fewer workers paying for a bulging elderly corp. This issue may not be acute in the U.S. but is becoming a significant concern in Scandinavia, Japan and parts of Europe. Course of action to remedy this include adjusting retirement age, increasing immmigration or cutting benefits. All alternatives rife with political problems.
ReplyDeleteOn explaining the difficulty in reforming social security in the U.S., I would like to include interest group politics in to the mix. One of America's most active and influential interest/lobby groups is the AARP, which is singularly focused on matters relating to the elderly. Its opposition to parts of Bush's social security plan (as well as partisanship) played a role in scuttling Bush's proposals.
Social Security is also a political minefield, considered the "third rail" of American politics, reforming it is likely to meet broad political opposition no matter which side of the isle is in control or proposes reform.