2005 – Death of the nanny company
It is inevitable that the debate
surrounding the proposed reforms from the Pensions
Commission, chaired by Adair Turner, will become
enmeshed in economic and political argument.
Concerns continue to be expressed
in the language of gloom, foreboding and fear.
Employers are already resisting what they characterise
as the “burden” of the contributions
they would be expected to make if employees opt
to stay in a proposed national pension scheme.
Pension provision is perceived
generally as a problem for government, society
and individuals. Rarely do I see it expressed
as a happy problem brought about by the prodigious
success of our society in raising living standards,
average incomes, material wealth and the standards
of health care.
It is part of human nature, perhaps,
that the cloud receives more attention than its
silver lining. In the case of an ageing western
society that is no longer seeking to replace itself
in the way that demand-led, growth-obsessed economists
have grown to admire, the cloud has changed its
Attitudes to pensions and retirement
were shaped at a time that Britain’s towns
and cities were struggling to overcome the pressure
of cramped housing, pollution and disease associated
with rapid industrial change that had outpaced
the social systems and legislation necessary to
ensure a stable and healthy society. Politicians
were fearful of Malthusian predictions of overpopulation
This was the age when Charles
Booth, the social reformer, invented the idea
of the “poverty line”, an arbitrary
level, below which people might be recognised
as poor. His great statistical work, Life and
Labour of the People of London, published in 1889,
may have been packed with dry statistics, but
it provided him with the essential evidence he
needed to make a case for old age pensions. Almost
one-third of the poverty he found in some boroughs,
he concluded, could be put down to old age.
Many of the elderly at that time
were forced in to workhouses designed originally
as relief centres, but which very quickly became
recognised as degrading institutions where no
effort was made to handle the different needs
of young and old. Booth fought against this separation
of the elderly poor from their families.
Not only was it plain wrong,
older people, as Booth recognised, still had much
to contribute in their communities. They could
still provide neighbourly favours, mind babies
and do various manual jobs, he argued. Surprisingly
Booth did not conceive of any greater role for
the elderly yet in so-called “primitive”
tribal societies age has always been associated
with wisdom and accorded a level of veneration
Even in capitalist society a
sense of corporate community was retained for
much of the 20th century where large companies
and their employees signed up to the concept of
deferred pay and final salary pensions that rewarded
a lifetime of loyal service.
But the notion of the company
as a community appears to be in retreat. Baroness
Thatcher’s famous remark that “there
is no such thing as society” is particularly
applicable to the modern company. Nor do I quibble
with the line of Lady Thatcher’s reasoning
in that she went on to say: “There are individual
men and women and there are families.”
In a free democratic society
the responsible interests of the individual and
the family should come before the company. But
if we recognise companies, like communities, as
the building blocks of society, it is reasonable
that they should shoulder a degree of social responsibility.
The pensions debate has brought
in to sharp focus the extent to which companies
should be responsible for the future welfare of
their employees. Rising employment costs, not
just those of salaries, but of holiday entitlements,
pensions, sickness, maternity and, now, paternity
cover, in addition to the ease of access to other
cheaper labour markets, have led to an outsourcing
revolution in business.
A greater pension burden - if
that is how it will be perceived by small employers
in particular- is likely to encourage even more
contracting out of work among outsourcing companies
or with self-employed suppliers who must look
after their own pension and other arrangements
for social support.
Ronald Coase, the economist,
explained the existence of companies as mechanisms
for reducing the burden of transaction costs involved
in doing business. As long as it is cheaper to
have work performed internally the company will
continue to exist as a community of centrally-rewarded
and managed employees. When those internal costs
can no longer be justified internal employment
is no longer sensible.
Robert Laubacher and Thomas Malone,
both academics at the MIT Sloan School of Management,
have argued that within a few decades the integrated
company might be viewed as nothing more than a
transitional arrangement for the supply of work.
Just now, as companies continue to grow by merger
and acquisition this prediction looks as remote
as it ever was.
But it should also be recognised
- and Mr Coase does not include this in his list
of transaction costs underpinning the purpose
of companies - that many people like to work for
a company. They enjoy a regular income and some,
even though they may complain at times, prefer
to devolve responsibility to their bosses. It
is as intrinsic a part of human nature as the
In that sense companies have
become greater than the sum of their parts. They
have developed a life of their own to the extent
that I wonder if some, at least, are simply there
because they are there.
Now the world has changed. As
competitive pressures increase alongside the success
of information-rich enterprise shorn of most fixed
assets, many companies have chosen to source much
of their labour where they can find the best people
at the best prices. The practice has become so
ingrained I read that one outsourcing association
was worrying about the “growth of insourcing”.
I assume it meant employment.
There was a time when some big
companies appeared to glide serenely within the
marketplace. But in most of today’s corporate
swans the feet – represented by employees
- are paddling furiously beneath the surface.
The pace of work is killing us softly, so much
so, we might be forgiven for seeking alternative
employment and pension arrangements.
If Lady Thatcher was doubtful
about Society, she was unshaken in her belief
in Victorian values. If, by this, she was referring
to the idea of “self-help” espoused
by Samuel Smiles I think she had a point. However,
there must remain a safety net for those who need
it. But should this include a state pension for
all, regardless of their income, simply because
they paid a National Insurance stamp? National
Insurance should be nothing more than an insurance
against ill health and poverty, underpinning the
health service, not supplementing the better off.
Those who can look after themselves should
be encouraged to build their own pensions, making their
own provisions in individual self-administered tax-friendly
funds, if they choose to do so. A nanny company is no more
desirable than a nanny state.