Abandon Text!

W. H. Auden once said: "Poems are not finished; they are abandoned." I have been abandoning writing projects for many years, since only the pressure of deadline and high expectations ever got me to finish, or even start, anything of merit. This blog is an attempt to create a more consistent, self-directed writing habit. Hopefully a direction and voice will emerge.

Saturday, August 26, 2006

Sharing risk & reward

In this week's New Yorker Malcolm Gladwell had an interesting treatment of the economic incentives and disincentives that marked the private pension plans of big auto and steel manufacturers in the U.S. The basic thesis is that overall economic success (in a family, a business, or an entire contry) can be strongly correlated to the dependency ratio: how many able-bodied workers there are compared to how many dependants, those too young or too old to work. For instance, many Third World economies that are struggling have high dependency ratios, because of their many children compared to workers. The breakout economies of the world (China, Korea, Ireland, etc.) are those that have managed to drastically lower their dependency ratios, through cultural changes, urbanization, education, and availability of contraception.

Gladwell extends that same analysis to the big unionized industries that have recently run afoul of their huge pension obligations. Contrary to popular conception, it's not that the benefits they offered were too generous -- it's just that they had a lot of workers forty years ago, and the growth in their industry has not kept pace with the number of workers aging out of the workforce. Ironically, the auto and steel makers had the chance to get in on broad collective pension plans that spanned many industries, which might have spared them their current plight, but they had opted instead to pursue private pension plans to retain greater control over their workers.

All this is perceptive and interesting . . . as far as it goes. The only problem is that Gladwell offers this up as an open-and-shut argument for universal healthcare and pension benefits. After all, shouldn't industries insulate themselves from the risks of demographic shifts in their particular industry, by sharing that risk with the whole national economy? And why should a private company bear the added burden of providing benefits, when the government could do it for them? Their competitors overseas don't have those burdens, since they have universal coverage.

I'm a little disappointed in Gladwell for being so quick to declare the solution obvious. There are massive holes in such arguments. Universal coverage does not wave a magic wand and suddenly Poof! companies aren't paying for healthcare and retirement any more. They are still paying for it -- in taxes. Really, really high taxes. And if you think that the competing nations in Europe are more competitive for their universal coverage, you might ask yourself why many of them are building manufacturing plants in the U.S. Countries with more socialist schemes for looking after their own are staggering under the burden as much as GM or Bethlehem Steel ever did.

Nor does sharing the demographic risk with an entire nation completely eliminate demographic risk. Hasn't he been paying attention to the whole Medicare-is-doomed talk of the last four years? Isn't the entire nation already facing a demographic bubble in entitlement obligations? He seems to ignore the solution that he himself describes as saving Bethlehem Steel: scrap pensions altogether and go to fixed-contribution plans like 401(k)s.

There may be other perfectly good reasons to embrace universal healthcare coverage. But the dependency ratio is not one of them.


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