Tuesday, 14 June 2011

Wasn't "unfunded liability" a clue?

Some time ago I was party to an interesting conversation with a former colleague.  In a previous role he had been on the employer side of negotiations with trade unions over needed reforms within the industry.  What was described to me sounded like the kind of experience that would have left me banging my head against the table as the union were unwilling to give an inch and to concede that any of the employer proposals could be explored.  That evening the two parties agreed to have dinner together, but would not include negotiations.  It was during these that one of the union negotiators talking to my colleague observed that the employers were right in what they were saying about the needed reforms and that although they accepted the need for them, that wasn't their job.  Their job was to disagree and to slow things down for as long as possible.

I'm always reminded of that story when I see union disputes and once again it sprang to mind as I saw Richard North's observation about the latest potential strike action from the public sector unions over pension reform.

Its a story that polarises opinion among the public depending on whether they are currently private or public sector employees.  I get it because I've sat on both sides.  I know that many public sector employees are not all state employed leeches.  Many a time I sat with colleagues and marvelled at the waste and ridiculous spending that took place before our very eyes, particularly by those who had portrayed themselves as class warriors.  They would spend it whilst the remainder would scratch our heads and wonder why we couldn't just give it back to the public.  My point is that the public sector is filled with people with families who share everyday concerns like putting food on the table and keeping the mortgage payments coming.  They go along to get along.

All that said, the issue with public sector pensions is very simple - there's no money for them.  They are not sustainable.  The posh phrase for them is that they are unfunded liabilities.  In other words it was typical of the modern day politician. Promise something in the short term to ensure their place at the trough, hopefully safe in the knowledge that when it blew up in someones face it would be long after they had passed from power.

There are several things here.

Firstly the unions are as aware as everyone else that there is no cash to cover the pension liability.  As with the story at the top of this post, its irrelevant.  They can criticise the need for reform whilst at the same time, knowing that it needs to happen.  For them however, it is not their problem to solve.  They are particularly fond of pointing out a problem without ever having to offer a workable solution to get round it.  If they don't offer anything they can see how much they can get away with sometimes getting a bigger result than they anticipated.

One of the popular narratives they are currently thriving on at the moment is trotting out greedy bankers and the rich in general and how we should hit them up for the money.  It all sounds very plausible if you don't examine the numbers behind that too hard.  To see a simple explanation of the problem take a look at how US commentator Bill Whittle ran through this observation.  It's a little simplistic and tongue in cheek but it effectively captures the problem with relying on the eat the rich type argument, especially when you bear in mind that some of that money Bill is talking about was made by US companies in this country so we would have wanted some of it too.

The other point for me is the window dressing on this "assault on our members pensions".  This unfunded liability is not a new one.  It was unfunded long before now.  Nor was it a secret.  Every day nobody did anything about it was simply making it worse.  So my question is when did the unions know about the problem?  And if they knew some time ago as many analysts had been commenting on it, why did they sit on it?  Surely it would have been "in the interests of their members" to warn them of this so that they could take their own alternative action in order to plan for their future.  Why do they only now appear to be fighting on this issue?  Where were they when the political party they bankroll was in government on this issue?  Is it coincidence that this dispute now puts them in a face off with their old traditional enemy the (albeit fake) Conservative Party?  It certainly does raise the question of exactly whose interests this battle is representing.

And then there is the final problem.  To the unions, the outcome they want is simple.  Carry on as before.  Just give them the money and all will be okay.

Erm.  Erm. Erm.  I'd like to point out there's no money.  We're borrowing more than we take in via tax.  The institutes and nations loaning the money are also in debt and so are those who are loaning them money. If you don't understand the problem, take a look at my previous post.  That's fine while everyone keeps pretending there's money and shuffling the numbers around but as soon as one party stops doing it (cough - Greece) it all goes a bit pear shaped.

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