In opposition to liberal theories that understand individuals as independent agents motivated by personal gain, convention theory argues that human beings as essentially interdependent. To realise objectives, all need to anticipate the reaction of others to their initiatives. The theory demonstrates how collective confidence and trust are central to human activity: collectively accepted systems of co-ordination are required to promote successful social and economic action.
In this context, market mechanisms – based on judgements of quality and relative costs and reliant on competition to foster maximum choice at optimal prices – offer but one form of co-ordination. Other co-ordinating conventions involve acceptance of common codes (of measurement in engineering or medicine, for example) or moral duties (fostered by religious observance, perhaps) or civic obligations (to abide by the decision of the majority when drafting laws).
These are merely examples of the multiple ‘worlds of value’ (to cite Boltanski and Thevenot, 2006) within which individuals justify their actions, to gain public understanding by referring to collectively respected systems of socio-economic ordering. In this respect, the state is the ‘co-ordinator of last resort’: enforcing collective judgement and guaranteeing the harmony of compromises between different ‘worlds of worth’ as decided by the polity. Public deliberation creates new compromise, so accepted action is modified and public judgement about the ‘right’ and ‘wrong’ way of doing things changes: the theory is essentially dynamic.
When translated from the means people use to engage with the world to address issues in social policy and collective welfare, we similarly enter a world of moral judgements that determines who has a right to a social service or benefit – and on what grounds. For a century or more, such factors have commonly involved citizenship, or work record (as signified by a record of social insurance contributions), or both. Sickness benefits have sometimes been circumscribed by whether the problem is self-inflicted (by, for example, alcoholism or drug addiction), denoting other collective expectations concerning personal behaviour.
Equally, not all without work can automatically claim unemployment benefits: there are expectations about job-seeking behaviour or willingness to undertake training and, in periods of recession, claimants may be required to take any work they are physically capable of doing (rather than holding out for a job in their previous profession). In the process of its implementation, therefore, social policy outcomes involve moral judgements that are constantly modified to reflect changing circumstances.
Pension policy can illustrate this point. Historically, the earliest pensions were supplied to armed service personnel. Here, judgements reflected rewards due to those put their lives at risk on behalf of the collective, but who were now too old (or wounded) to serve any longer. The pension was commonly a lump sum to enable the recipient to purchase another means of earning a living. The association between a pension and actual retirement dates from the 1940s and far larger sums had to be involved.
In recent years, as life expectancy rises and the baby-boom generation retires, previous financial balances have come under strain and new pension schemes are introduced to supplement falling state provision. In keeping with prevalent neo-liberal theory and encouraged by burgeoning returns on global financial markets in the closing decades of the twentieth century, funded personal schemes became the fashion – either to supplement the state pension (Riesterrente) or to replace it (as in CEE states).
According to market-based arguments, personal funded pensions allow the individual to choose a ‘best value’ pension and markets offer personalised products at optimal prices. However, asset returns have been poor recently and problems have emerged.
- First, choice is expensive: ‘externalities’ (associated administrative costs) are high for personal, particularly voluntary, pensions – exacerbated by the multiplication of products and providers.
- Second, as levels of financial literacy are inadequate, principal – agent problems proliferate: astute salespeople can take advantage.
- Third, as people move, change name (etc.) voluntary personal schemes generate orphan funds among those who move in and out of employment, or who migrate (these pensions are rarely portable). Such people are often on low incomes and the costs they incur are higher, exacerbating income disparities already apparent in working life into old age. This is particularly the case for women, whose working lives rarely conform to the 40+ years full-time standard on which pensions are calculated.
- Finally, few people understand how annuity markets work and the final pension is frequently a single-life, non-indexed pension that leaves the widow stranded when the recipient dies. Women form the majority of the population of pensionable age. The whole system reflects a male breadwinner model from which it is derived and only offers value to a minority of pensioners.
Nearly all these issues reflect co-ordination problems: as they have become more apparent, so governments have moved in to regulate out some of these effects. While this is both necessary and praiseworthy, it raises compliance costs and creates increasingly uniform pension products, thereby constraining competition based on quality and price that are the supposed advantage offered by market-based personal pensions.
This is not to argue that state-based pensions of the traditional type can and must be revived: edicts imposed by EMU make this impossible – a judgement endorsed by global bond markets. However, future retirement provision must command collective confidence and trust if it is to be viable and this means a renegotiated settlement that offers security for all rather than exacting penalties on the most vulnerable in the community.Noel Whiteside