For those concerned about the future of the European social security Systems, global finance appears particularly threatening. It seems as if financial markets have systematically discounted the European national institutions of social income and welfare. Figuratively and symbolically, London and New York are the enemies of social solidarity and continental European political traditions. This is a common refrain of the left-of-centre and right-of-centre political parties, though for different reasons. It is also a complaint of the European governments albeit masked by arguments over the straightjacket imposed by the Stability and Growth Pact. More abstractly, Claims made for the nation-state as the proper locus of social justice and welfare are thought to be undercut by the financial processes operating across the world, and through time in ways that are inconsistent with national ideals (compare with Miller 2000). The world is increasingly at odds with tradition even if these traditions are less ancient than presumed and even if those traditions carry with them significant costs set against the past benefits of economic growth and development.

On the other side stand the institutions of global finance. Here, ignorance vies with impatience and resignation as the dominant impulses driving Claims that continental Europe is neither sensitive nor responsive to the interests of the future generations of workers and retirees. It is commonplace to suggest that continental Europe is held in a time warp, its future shrouded in a dense fog of inherited relationships. It is a story amenable to exaggeration and to theoretical speculation; witness the applicability of Mancur Olson’s (1982) treatise on the rise and decline of nation-states. Ignorance provides financial institutions a convenient cover; it allows the advocates of neo-liberal Solutions to the looming European pension liabilities a means of (p. 196 ) ignoring those who would protect social justice and equitable income distribution. Impatience provides financial institutions a weapon when lobbying of Continental governments for ‘reform’. Markets will not wait for compromise and negotiation, just as markets will not wait for historians to judge the success or failure of the Euro. And yet, lurking behind the impatience is resignation: a realization amongst some that neo-liberal reforms aimed at promoting private pension arrangements will only succeed if grafted on the skeleton of social solidarity.

In this chapter, I amplify these issues bringing together the threads and themes that have been developed through the book. In doing so my goal is to summarize while opening-up the issues yet to be resolved, rather than prosecute an entirely new argument. So what have we learnt through the project? What do the debates surveyed and the experience of nation-states assessed reveal about the relationship between the European pensions and global finance? To answer these questions requires, in the first instance, a restatement of the lessons learned in each chapter. This is the backdrop for speculation about the evolving relationship between the European pensions and global finance. Whereas much of the debate about the European pensions sets global finance against inherited traditions, there are reasons to suppose that the Continental European retirement Systems may come to rely upon global finance to sustain social justice. If so, this would be a remarkable change in political sentiments and economic expectations. To imagine that global markets rather than nation-states are now the means of insuring national welfare implies a world thoroughly permeated by finance capital. In this sense, my argument is less conclusive than it is a means of looking forward. No one can be definitive, given the flux of current circumstances and possible events (not least of which is the current and future Performance of the Euro).

FINDINGS (CHAPTER BY CHAPTER)

In this section, threads and themes of argument are brought together through a series of findings and related observations. For convenience, these are developed chapter-by-chapter providing a reference point for Statements about the tensions between Continental Europe and the centres of global finance. So as to remind the reader of their place in the book, findings are enumerated by chapter and according to their place (p. 197 ) in each chapter. Let us begin with Chapter 1 and its two principal findings.

1. 1.1 The European nation-state is an increasingly fragile entity, undercut by the reemerging crosscurrents of internal diversity, identity politics, and regionalism (within and between nation-states). This is surely recognized in many works on the welfare State, and is reflected in the changing emphasis of Esping-Andersen’s (1990, 1999; Esping-Andersen et al. 2001) project. At issue, then, is the locus of social solidarity. For so many years we have assumed it to be coterminal with the borders of nations. But the reforms of European social security Systems are increasingly focused upon the options for individuals and for employer and related affinity groups. Their territorial loyalties may be more or less than the nation (see generally Swyngedouw 2000).

2. 1.2 Likewise, the ideal of a national fiscal sovereignty sounds increasingly hollow. The Maastricht Treaty and the Stability and Growth Pact have together imposed limits on the national budgets and expenditures. To spend more on social security now and in the future will require significantly increasing the long-term rate of real economic growth and the flow of revenue to the State and/or shifting budget allocations between competing public goals and organized interests. The mantra of ‘sound money’ is both an economic goal of the EU and an inexorable political imperative driving the pension reform process in nation-states.

3. 2.1 Demographic trends amongst European nations are viewed by many as alarming with respect to the financial integrity of the nation-state PAYG social security Systems. Over the last ten years this issue has come to occupy the very centre of the national and EU policy making, even if the national policy makers attributed initial concerns to the hostile neo-liberal think tanks and the like (e.g. the OECD). In response, however, ‘reform’ has been more often than not parametric rather than structural, discounting the value of future benefits while slowly removing the incentives for early retirement. Feldstein’s (2002) neo-liberal manifesto based on the Anglo-American model is a significant challenge but remains at the margins of debate.¹

4. 2.2 Higher rates of economic growth (compared to long-term averages) are essential (but not sufficient) if the current and future funding of the PAYG social security is to be maintained with respect to the (p. 198 ) promised value of retirement benefits (Visco 2001). But the increased rates of growth are, in part, a function of the capital market efficiency, labour productivity, and technical innovation. Therefore ‘pension reform’ is not just a matter of managing social welfare costs and benefits; it may be also a matter of restructuring the whole economic Organization of European nations and the EU at large. For one, Deutschland AG may have to be transformed in a manner consistent with the Anglo-American capital markets if they are to be the willing servants of future retirees’ welfare.

5. 3.1 Not withstanding Claims to the contrary, the French PAYG social security System will not deliver promised retirement benefits. This is widely recognized amongst French Citizens (as it is recognized by many people with respect to their own national pension Systems across the EU; see Boeri et al. 2001b). Making-up the difference is a crucial issue dominating French politics (Palier 2002). Whereas the institutions of social security have been sites of representation for the social partners, employer groups and industry interests increasingly dispute their role in social security. These groups are committed to private insurance and savings plans as the means of augmenting social security. French Citizens are increasingly important consumers of retirement-oriented financial products.

6. 3.2 It seems that some form of pre-funding of the forecast PAYG liabilities will be introduced. By doing so, some policy makers seek higher rates of return than that provided by the current and forecast rates of economic growth. For other policy makers, pre-funding may enhance economy-wide saving in new kinds of financial institutions thereby adding to the available stock of capital for domestic investment in new industries and regional Clusters of innovation. In this respect, the Anglo-American world represents both a model of endogenous growth worthy of emulation and a possible destination of European investment capital.

7. 4.1 If the PAYG social security is problematic, what of the role and Status of supplementary pensions? In Germany, of course, large manufacturing firms have provided DB or final salary pension benefits for many years. Utilizing book reserve and pensionskassen Systems of pension financial accounting, most firms have systematically underfunded their liabilities (when compared to similar types of commitments amongst the Anglo-American competitors). Globalization has, however, raised important questions about the (p. 199 ) financial propriety of such practices, especially with the introduction of the Anglo-American and international accounting rules amongst the largest German firms.

8. 4.2 The adoption of such financial rules can be explained by virtue of the cost advantages of global financial markets as well as the informational needs of those markets. Another explanation of the adoption of these rules could be the advantages due to the corporate management of dispersed ownership (compared to the German practice of closely-held cross-holdings between related firms). There is evidence that the German model is changing quickly, with the market for corporate control assuming increasing importance for managers and shareholders alike (Wójcik 2002). The consequences for book reserve pension Systems are all too obvious: they represent an unacceptable financial burden on the estimated value of large German firms.

9. 5.1 The new Riester-style tax-preferred private pension arrangements may not grow in importance over the Coming years. As major corporations restructure their supplementary pension Systems according to global financial imperatives, social solidarity may be redrawn in favour of firms, unions, and affinity groups. While Riester initiatives open the way for greater decentralization in retirement income planning, national social insurance will remain a core component of retirement income albeit slowly discounted in value in favour of private arrangements. Also implied is a rather different model of German society, one that is less inclusive and more fragmented than hitherto presumed.²

10. 5.2 On the other hand, the interest of German corporate managers in reaping the benefits of global financial markets implies a realignment of intra-firm alliances and loyalties. Whereas management and labour were arguably closely aligned with respect to the distribution of current income, the managers and shareholders may be closely aligned in the future as the traded value of the firm comes to dominate corporate decision-making. In this respect, the investment and management of supplementary pension Systems is increasingly influenced by the norms and Conventions of Anglo-American practice rather than the consensus-seeking practices of the past. Global markets beckon.

11. 6.1 If the German model and its attendant social insurance and supplementary pension Systems are changing, one alternative is the Dutch model of corporate governance and co-determination. (p. 200 ) For the Dutch, State social security is closely allied with employer-sponsored and funded second pillar private pensions, being a mixture of income streams that provide equitable retirement income benefits. Underpinning the Dutch model, of course, is a System of Joint decision-making linking the workplace with financial institutions and financial markets. The high rates of income replacement combined with Continental expectations about co-determination have encouraged the development of a distinctive European Version of Anglo-American pension fund capitalism (Clark 2000).

12. 6.2 At another level, the Dutch model has become closely attuned to the global market for financial Services. Pension investment regimes, management practices and reporting Systems have come to match and mimic the Anglo-American practices. As the Dutch government introduced legislation designed to ensure the cost efficiency of pension provision, market imperatives have come to discipline the decision-making of jointly-trusteed pension institutions. In these ways, Dutch pensions are both social and financial institutions drawing from and responding to global financial markets.

13. 7.1 If access to the global financial markets is one Solution to the demographic ageing and pensions funding crisis, it is plain that London looms large as an entrée to those markets. It is more than just a trading platform. Indeed, the development of a pan-European electronic trading network would do little to diminish its significance as the world’s most important site for the production of international financial Services. For Europe, London is the gateway to the global economy and the possibility of augmenting state-sponsored social security with the benefits of finance capital. Also, one crucial aspect of London in relation to Europe is the diversity of its financial Services and the depth of talent associated with the provision of those Services. Another crucial element in this respect, however, is the extent to which London’s place in Europe is the object of national and EU rivalry.

14. 7.2 In this respect, global finance is neither ubiquitous nor undifferentiated place-by-place. It represents the accumulated expertise and financial resources of the Anglo-American capitalism and the world that it has made in its image (Clowes 2000). The challenge for the twenty-first Century is to manage global finance on behalf of the interests and needs of nations’ Citizens—if national Solutions to (p. 201 ) retirement income are to be sustained, global finance must be the servant of national aspirations rather than the weapon used by financial institutions to overturn the past. Informed analysts of global finance such as Soros (2002) and Stiglitz (2002) have serious concerns about the consequences of unregulated global financial markets for the economic and social vitality of many nations outside the ‘Washington consensus’.

MODELS OF ECONOMIC GROWTH

One of the lessons of the project is the fragility of the PAYG social security. If a nation’s population grows faster than its replacement rate, and if a nation can attract new younger residents with beneficial fertility and birth rates then the PAYG Systems appear unproblematic. But as we have seen, the PAYG social security is very sensitive to the demographic balance between generations, current and future rates of employment, and the integrity of social security institutions. This is true of continental Europe, just as it is true of the Anglo-American world (witness the debate over ‘reform’ of the US social security; see Aaron and Shoven 1999; Munnell 2002). If society must cope with a demographic mismatch between generations, suppressed rates of employment and labour force participation, and ‘leakage’ of social security reserves from their intended purpose, social solidarity may be just an empty promise (as suggested years ago by Keyfitz 1976 who derided the moral virtues of the PAYG social security).

At any point in time, the cost of social security to a society is the product of two ratios: the benefit to total income ratio and the dependent to active population ratio (as defined in Gillion et al. 2000 and illustrated in Chapter 2). Here, I focus on the second ratio before returning to the issue of an equitable and just income policy. As we have seen in the chapter devoted to France, the dependent/active ratio is significantly affected by:

• • the volume and relative significance of early retirement,

• • the rate of unemployment,

• • the rates of labour force participation, notably amongst women, and

• • the net out-migration of the employable.

All four elements affecting the ratio of active to total population are themselves a function of the current macroeconomic conditions, (p. 202 ) particularly the volume of domestic consumption and Investment. Given the increasing significance of the European and global markets, these factors are also a function of local and global industrial competitiveness. Over the short term, nation-state economic policy makers may be fortunate or skilled enough to beneficially affect the rate of unemployment (and the other three factors) thereby decreasing the current cost of social security to society. During the last years of the 1990s, the Performance of the French economy combined with the positive consequences of the 35-hour week provided a brief respite from the political and economic exigencies of funding social security.

We noted, however, that the EMU and the Stability and Growth Pact have proscribed the fiscal and monetary sovereignty of European nation-states. Consequently, the domestic macroeconomic policy options are fewer and limited in scope. Given the fixed macroeconomic Parameters, short-term domestic growth prospects are increasingly reliant upon the relative efficiency of firms and industries in adapting to global competition. By necessity, their adjustment potential is a function of the capital and labour market flexibility. Microeconomics rather than macroeconomics are arguably the crucial driving forces behind the short-term dependency ratio. Over the long term, however, all four factors are determined by the rate of accumulation of national income and the path of national economic development (amongst other factors some of which are surely social and cultural). Further-more, it is clear that demography (the rate of growth of the domestic population) is an endogenous element of any long-term process of accumulation. French government pessimism about national demographic prospects during the 1930s was overturned by a combination of positive population policy and unanticipated post-war economic growth. I am not convinced that the forecast adverse dependency ratios are inevitable; there is a role for pro-population growth strategies. But any pro-population growth strategy would take years to make a difference and could not be the Solution.

As for the prospects for microeconomic efficiency-oriented policies, this Option may be possible only over the long term. Micro-economic reform has proved to be slow, politically contested, and limited in scope in many continental countries. Even so, microeconomic reform is necessary for long-term growth, just as long-term growth is necessary for employment growth, keeping older people in work, and for increasing the flow of national income. Much has been written about micro-economic reform, its proper logic as well as its European prospects and possibilities. It is the staple diet of think tanks and (p. 203 ) multi-lateral institutions like the OECD, the IMF, and the World Bank. It is also an essential ingredient in EC commentaries on member states’ economic Performance and macroeconomic stability. Not surprisingly, greater urgency has been attributed to needed reforms. But we should resist the temptation to imagine that it is the only or the Single best Solution. Just as the wholesale transformation of European retirement Systems to individual retirement accounts linked to securities’ markets seems implausible, to imagine that European capital and labour markets will become just like their Anglo-American cousins ignores the real world of social solidarity and the commitment to others’ welfare.

There can be no ‘Solution’ to the European demographic ageing and pensions funding crisis without a strong commitment to increasing the long-term real rate of economic growth by perhaps as much as another 1.0 per cent (up to about 3.0 per cent per annum, matching the expected long-term US rate of real economic growth; Jorgenson 2001; Jorgenson and Stiroh 2000). Otherwise, European living Standards within and between generations and compared across the developed world must decline in relative terms. Here, though, the issue is at once simple but extraordinary in scope: what model of economic growth could achieve such a result? To my mind there are three important options more or less related but nonetheless with distinct con-sequences for Europe and its nation-states.

If we take seriously the recent Anglo-American experience, one obvious model is less national and comprehensive in scope than it is regional and highly differentiated in effect. Referencing Silicon Valley, RH28/495 Boston, and Oxford and Cambridge, this Option is one of concentrated growth and development based upon the local Clusters of innovation and technology. Its external impacts and linkages may enhance national growth, but may also leapfrog host nations to other corporate entities and regions spread around the world. As we noted in Chapter 2, this model of accumulation relies upon the intellectual capital and Systems of reward that are personal rather than social, local rather than national, and wealth- rather than income-oriented (see more generally Teece 2000). While it may be fashionable to dismiss this model in the light of the TMT boom, bubble, and bust, it represents a model of the knowledge economy that is the antithesis of national social solidarity and equitable income distribution. As implied by the Lisbon Declaration, it requires new forms and institutions of financial capital as well as a culture of risk and reward. But it is also a distinct social order that would localize the benefits of growth without necessarily making a substantial difference to national employment growth, (p. 204 ) labour force participation rates, and the flow of income to national social security reserves.

Another model of long-term economic growth is the national Champions model: pan-European and industry-dominant corporations that owe their place in the world to the sponsorship of their nation-states (and the sharing-out of industry-dominant Claims between member states of the EU). One can then imagine a certain industrial topography across Europe, combining centres of industry with spatially elongated networks of suppliers and consumers. This model is one that has strong claims in theory (witness the logic of the ‘new’ economic geography associated with Krugman 1991 and others), and in practice (witness the quiet but persistent efforts of nation-states to build national Champions). It is a model that is at once national and European, and it is a model of economic growth that may be resistant to the corrosive forces of globalization. But it is also a model of economic growth that locates social solidarity with the Performance of firms rather than nations. As such, the rewards for those within corporate Champions may be significant but distinguished from those that flow to the rest of society by privilege rather than equity. As a model of wealth creation, it is more akin to the early twentieth-century monopoly capitalism (as described by Berle and Means 1933) and late twentieth-century shareholder-capitalism (as espoused by Jensen 1998 and others) than mid- to late twentieth-century Continental European corporatism.

Equally plausible is economic growth by territorial expansion: EU-enlargement by any other name. The existing national institutions of social security may be paid for by the rate of return due to the colonization of eastern Europe. Larger markets, greater scope for low-cost and higher labour productivity, and population growth may pro-vide the added growth impulses needed to shift overall accumulation to a higher long-term trajectory. Indeed, whereas the knowledge economy of the 1990s provided the United States of America (and to a lesser extent the United Kingdom) a virtuous circle of employment growth, productivity, and wealth creation, territorial expansion may provide the core economies of western Europe the same advantages without the profound microeconomic reform of their labour and capital markets. It may, nevertheless, come at a cost; namely the move of major EU firms into global capital markets so as to take advantage of lower costs of capital. Can such moves to London and New York remain isolated from the mainstream institutions of nation-states? In my view this model, as with the other models, is entirely plausible and already in motion. But none of these models is a comprehensive Solution to the problem of (p. 205 ) insuring income equity within and between the generations in each EU member State.

Here lies the conundrum: the higher rates of economic growth needed to sustain the inherited institutions of nation-State social security carry with them the prospects for greater levels of inequality between working people. My analysis, in this respect, is not that different than that undertaken by Esping-Andersen and others. In effect, my argument is that the European models of economic growth inherited from the second half of the twentieth Century cannot pay for the retirement of the baby boom generation without a significant sacrifice by many of the retired, those working, and those not working. Any plausible model of higher rates of growth promises increased social and economic differentiation. Unresolved at present is the extent to which incremental reform via accommodation to neo-liberal imperatives may be more costly to European society than accelerated structural reform in accordance with the Anglo-American model.

There may be a way out. Europe could become a set of rentier societies based upon the rate of return of financial assets invested in countries with prospective higher rates of real economic and population growth. Could global finance manage what seems impossible whatever the chosen European model of economic growth? Could demographic and economic growth in the rest of the world maintain European income equity within and between the generations? This idea has gained increasing acceptance in theory (Shiller 1995, 1999) and practice (Börsch-Supan 2001). But consider the following.

AN UNBOUNDED WORLD?

The idea that diverse demographic futures apparent in the rest of the world could be or should be opportunities to reap higher long-term returns than those available in Europe over the Coming 20–30 years has considerable appeal. If Continental Europe can mobilize sufficient capital resources, put in place appropriate governance structures, and efficiently funnel those resources through London into the world economy, it may be possible to maintain the current nation-State retirement Systems with a modicum of incremental reform. However, this vision of an ageing Continental Europe sustained by the beneficial consequences of growth in other markets presupposes a global economy regulated in a manner consistent with the protection of (p. 206 ) international capital flows. It would be foolhardy to suggest that this is consistent with contemporary circumstances or likely prospects over the next 5–10 years. The ever-present threat of regional economic and financial crisis feeding in and affecting the core economies of the west is reason enough to be cautious of such grandiose visions. Even so, there is little doubt that much effort has been expended in designing a financial architecture for global stability and growth.

The research by La Porta (1997,1998) and his colleagues have mapped the co-existence of different legal regimes as they affect finance suggesting that even amongst the developed economies of the world there remain significant institutional barriers to capital market Integration. Their work shows, of course, that these legal regimes have deep historical roots stretching back to the European countries’ experience of international trade since the Middle-Ages and the industrial revolution through the eighteenth and nineteenth centuries. This is hardly the occasion to rehearse the history of law in relation to the stages of economic development. Not only have a number of countries driven the regulation of finance and capital, a handful of countries have also been reference points for the developing world in their own regulatory Systems. La Porta et al.’s work also shows that the various legal regimes have quite different implications for the size and scope of the nation-state capital markets just as they have significant implications for the efficiency of those capital markets (compared with one another). It would seem, on the basis of their evidence, that the Anglo-American legal System combined with its finance-related regulatory institutions are more consistent with capital market efficiency than other competing regulatory regimes.

We are back at the point of departure for the entire book: we are at the intersection between the nation-state, its history, and its economic and political practices and the imperatives driving global finance. We are also at that point in the argument where continuity with the past as opposed to convergence upon a dominant or hegemonic model of life threatens the integrity of the nation State. Indeed, amongst many European commentators, there is a sense in which this debate is a debate about Anglo-American imperialism as opposed to the evolving institutions of European nation-states and the EU at large (Clark 2001). Most importantly, those that see virtue in the Continental European traditions such as the inclusion of stakeholders, worker representatives, and Community interests in corporate and financial decision-making are alarmed at the social costs implied by convergence to the Anglo-American model.³

(p. 207 ) By now, it should be apparent that the evidence produced in this book suggests that continuity with the past is a most unlikely outcome. This does not mean that the European Systems of finance and retirement income will somehow suddenly collapse or be rearranged in such a comprehensive fashion that convergence becomes the dominant outcome. Perhaps rather meekly, accommodation seems to be the operative strategy. In effect, nation-states and the EU have sought ways of balancing inherited political constituencies and their interests with those that have a strong interest in succeeding according to the terms and conditions that drive the Anglo-American capital markets. Consequently, negotiation over the matching-up of regulatory regimes has gone through a variety of stages over the past 10–15 years. Whereas, a decade ago mutual recognition was a common negotiation strategy, the co-existence of commonality and difference has not been sustainable. Moves towards harmonization have been one response, thereby rationalizing the nation-state differences according to the collective European interests in enhancing global competitiveness. At the limit, at the level of global capital market Integration, there has also been convergence upon the Anglo-American Standards of reporting and market integration.

Documenting this process of accommodation and its reflection in and through the European Systems of pension and retirement income has been the thread integrating the whole book. Here, however, we need to look beyond Europe to the world at large and in particular the prospects for realizing the potential benefits of diverse global demo-graphic futures—as suggested in the Chapter 7. Most importantly, if one Solution to the ageing of Europe’s baby boom generation is to be found in the outflow of capital to emerging markets we must ask whether or not this is a realistic prospect given the nature and Performance of those countries’ capital market, legal, and financial Systems. To do so, could be a very large project, indeed, one that should properly occupy another book! So at this juncture I simply want to indicate the apparent contemporary constraints on such a strategy referencing research published by the accounting and management Consultants PricewaterhouseCoopers (PwC) (2001). Basically, my conclusion is that the effectiveness of a European global investment strategy is conditional upon making the world safe for global finance!

The PwC conducted interviews with respondents familiar with capital market Performance and regulation in 35 countries during the second half of 2000. Following the lead provided by the World Bank (2000), countries were grouped according to income thereby (p. 208 ) distinguishing between the Upper-income (e.g. Greece), Middle upper-income (e.g. Argentina), Middle lower-income (e.g. Columbia), and Lower-income (e.g. China). The full list of countries surveyed is provided in Table 8.1. At issue was the degree to which individual countries could be characterized with respect to ‘clear, accurate, formal, easily discernible, and widely accepted practices in the broad arena where business, finance, and government meet’ (PwC 2001, p. 3) In essence, the PwC produced an Opacity Index (OI): a means of directly comparing emerging markets according to their perceived riskiness across a set of five different issues or components that affect capital markets. In doing so, contrasts can be drawn between those countries and so-called reference countries characterized by high levels of transparency including the United States of America and the United Kingdom. The reported OI ranges from the lowest score of 36 (US low opacity) to the highest score of 87 (PR China high opacity).

Scoring countries according to the five components perceived to ‘affect the cost and availability of capital’ was the basis of the OI. These components included reference to the nature and extent of corruption, the degree to which the legal system predictably protects shareholder rights, the perceived capriciousness of government policy, the degree to which accounting practices and disclosure Standards are consistent with the fair valuation of traded firms, and the predictability of regulatory policy. By normalizing responses through the common-scaling of each component, the OI allows for a direct comparison between countries’ total scores and between countries’ individual component scores. While I do not intend to look closely at each country’s component scores, it is worth noting that the cross-correlation between component scores suggests that a high score on the perceived corrupt practices would be matched by similarly high scores on other components including, for example, accounting and corporate governance opacity. It can be contended that ‘extreme’ scores such as that registered for China imply a level of risk far beyond that experienced by institutional investors in the West. Not only should the rate of return be commensurate with perceived risk, the cost of capital in these countries would be far higher than in countries with much lower opacity scores.

Surely there are other ways of comparing markets according to their risk premia.⁴ The academic literature is replete with case-studies of corruption in the context of economic development and foreign direct investment.⁵ Furthermore, a number of large, multinational investment firms have specialized in this area recognizing the premium western investors are willing to pay for reliable Information and judgement (p. 209 )

(p. 210 ) about the true worth of emerging market investment opportunities. It is clear that many of the portfolio investment strategies of the Anglo-American and European investment managers presuppose the availability of relatively reliable information buttressed by consistent and autonomous capital market regulatory regimes (see generally Clark and Wójcik 2002; Portes and Rey 2001). These practices and presumptions do not easily transfer into and across emerging markets characterized by opacity scores of more than 50 (Hungary) (an arbitrary cut off point). Take for example the case of Argentina (OI score of 61). Not withstanding the financial reforms of the past 10 years, the failure to control government spending combined with the default on international loans has brought forth extreme measures such as the expropriation of private pension and savings assets.⁶ While perhaps justified by current circumstances, the implications for European investors are obvious and profound—witness the risk premium of 639 basis points.

Here, then, are a number of implications that bear directly upon the prospects of the rest of the world paying for European retirement. In the first instance, there are fewer destinations for European investment than a simple listing of demographic futures would suggest. Indeed, it is clear that a country such as the United States of America characterized by a large and growing population, relatively ‘deep’ capital markets, and technological innovation (Jorgenson 2001) will remain an attractive destination. In the second instance, expanding the scope of Potential destinations for European investment may require concerted Intervention by western countries and institutions into many other countries’ economic, financial, and political practices. Otherwise, the map of international capital flows will be geographically truncated compared to the map of global demographic futures. This could lead to the development of a closer, asymmetric relationship between Europe and North America, wherein Europe depends upon North America for growth and North America depends upon the rest of the world for markets. Here, the emerging map of prosperity may be a bipolar world with a small developed part characterized as relatively transparent, leaving out of the picture much of the rest of the world whose population grows fast but is starved of capital.⁷

In other words, the European pension futures are also global economic futures. The prospects for global finance alluded to in this section and Table 8.1 are highly geographically differentiated. Further-more, the risks involved in European investment outside of countries with an OI of more than 50 are substantial. Therefore, managing global finance is not just a matter of managing the possible contagious effects (p. 211 ) of country-specific currency crises. It is also a matter of managing administrative and regulatory reform in large developing countries with a significant demographic and economic growth potential. This much has been well-appreciated since at least the Asian crisis of the late 1990s. But how are we to accomplish this task? How are we to make the world safe for global finance and the future retirement of Europe’s baby boom generation? Here, then, is a most important political implication: whereas we have assessed the European pensions issue in relation to global finance, it could equally be an issue of global political power mediated and controlled by the United States of America as opposed to Europe (along the lines suggested by Nye 2002).

FINAL OBSERVATIONS

Looking back over the project, I am Struck by the fact that the tensions between the European pension Systems and global finance have only just been realized. So much of the book has been devoted to bringing out into the open the relationship between these forces that we run the risk of supposing the resulting outline sketch exhausts the likely possibilities over the Coming decades. In fact, I would suggest here that there are many reasons to suppose that these tensions will continue to dominate the national and EU politics and economics over the Coming decades. Accommodation may not, in the end, resolve the matter!

So much of the debate about the integrity of national pension Systems is an internal debate to the nations affected. For those who wish to conserve social institutions, ‘reform’ is best thought to be a matter of keeping to a minimum the incremental changes needed to sustain national social welfare. For others, less comfortable with parametric reform and more concerned to reform the structure of European pension Systems, incremental reform is but a first step in the over-haul of European societies according to the Anglo-American model. On the evidence introduced here, accommodation or rather the convergence to Anglo-American practices has been the operative ‘Solution’. Continuity with the past is increasingly unlikely as ‘reform’ gathers momentum albeit intertwined with cautious election manifestos and recurrent Claims of past privilege. Lurking behind this kind of debate, however, is a realization amongst some that the nature and path of reform may be more than a matter of adapting to an outside world. To the extent that national social security and retirement income are (p. 212 ) affected by global capital markets, these institutions may become the objects of systemic reform not just accommodation.

At the same time, debate over the future of European pension Systems more often than not assumes (or hopes for) a constant relationship between the public institutions and private interests. Listening to the debate, one is often Struck by the contested nature of social welfare perhaps because its institutions were so important in setting the terms of the post-Second World War political stability. Most observers of European social policy and welfare make this point. Indeed, it is a building block of comparative social policy (witness Esping-Andersen 1990). But the past seems increasingly remote to private interests now seeking their place in an integrated Single market and the global economy beyond. Accepted relationships such as those between the social partners and corporations as well as those between corporations and their ‘home’ countries are under scrutiny. Do they add value? Are they as effective as the rival institutions of the Anglo-American world? Are there, in the end, universally-accepted best-practice institutional forms as suggested by the Anglo-American Organization theorists such as Jensen (1998)? Perhaps. Whatever the evidence for and against these questions, when transformed into theoretical propositions they are the weapons used by those seeking room to manoeuvre outside of inherited institutions, social customs, and regulatory frameworks.

Most importantly, it could be argued that Europe has not, as yet, taken seriously the implications of demographic ageing for the welfare of those who will retire over the Coming 20–30 years and those who will pay for their retirement. In a number of countries, parametric reforms have made significant changes to the future welfare of many retirees. Often ignored but of considerable importance are the attempts of individual and private institutions to make-up the difference. How will Europe cope, politically and economically, with the increasing inequality of opportunity? Can the European Integration project escape being tarnished by emerging gaps in welfare, the decline in comprehensive social welfare, and the Separation of some from the ideals and commitments associated with nation-State institutions? Perhaps the answer is twofold. On one hand, the aged will increasingly rely as they have done in the past upon local Community commitments and their families. On the other hand, the young will increasingly rely upon the opportunities of enlargement, their place in Europe and the global economy, and their individual trajectories of long-term employment and income. If so, the post-Second World War institutions of national social security and social welfare will be judged to have been relevant (p. 213 ) for a certain époque but will be slowly replaced as the ‘new Europe’ responds to the imperatives of global competition.

The alternative appears alarming. Imagine that Europe ignores demographic ageing. Imagine that the Euro fails. Imagine that as a consequence, internal and external barriers to the flow of capital, labour, and innovation are strengthened. And imagine that those who retire over the coming couple of decades hold the balance of power in nation-states. Imagine if you like the past as the future but older. In a world of growing populations and of accelerating economic development and growth in other nations and regions, how will Europe escape being a retirement village with increasingly poor retirees and fewer opportunities for their children? This is surely not the vision of the EC or the elites of its member countries. And yet, it seems to be the vision of those set against systemic reform and those in global capital markets who believe Europe has neither the capacity nor the will to transform the past.

NOTES