Abstract
In the opening pages of Michael McCarthy’s Dismantling Solidarity, we find a troubling statistic: about half of all households have no savings for retirement. Even those that do have some retirement savings are losing confidence that it will be enough to see them through old age. While some of this insecurity stems from the continuing fallout of the financial crisis of 2008, in Dismantling Solidarity, McCarthy makes the case that if we want to understand the precarious position that too many prospective retirees find themselves in, we need to look back over the history of US pension reform and situate it within the class politics, and structural pressures, of US capitalism.
The transformation of the US pension system from the solidaristic, universalist promise contained in the New Deal’s Social Security Act toward the heavily marketized and financialized pension system that most workers’ retirement security is wrapped up in today is, McCarthy argues, an outcome best understood by asking two distinct, but related, questions. The first is why is old age income security so heavily dependent on the employer-provided, private pension system? The second is given that the pension system is employer based, why do beneficiaries bear the risk that their pension investments may not be sufficient to carry them through their retirement years? To answer these questions, Dismantling Solidarity works its way through three critical historical moments: the growth of private, bargained pension plans in the wake of World War II; the passage of the Employment Retirement Income Security Act (ERISA) in 1974; and the growth in defined-contribution, 401(k) pension plans during the Reagan Administration. In each of these cases, McCarthy shows that changes to the pension system had less to do with experts and actuaries wrangling over policy details and more to do with political elites trying to keep the wheels of capitalist accumulation turning while facing pressure from competing labor and business interests.
Coming out of World War II, the Truman administration was looking at an economy that was running white hot and about to be starved of fuel. This ‘reconversion problem’ – how to reorient an economy built around fighting the Axis powers toward satisfying basic consumer demands – was made all the more acute by the strength and militancy of the US labor movement. Because the more conservative bloc of Southern Democrats joined forces with the Republican Party to stop the expansion of the welfare state – including national health insurance and expansions to the Social Security System – organized labor began to demand bargained pensions from their employers. Truman, whose political future depended on solving the ‘reconversion problem’ while maintaining the support of Northern Democrats and the trade unions actively intervened in postwar labor disputes, helped to enforce labor’s claim that they had a legal right to bargain over pensions. As a result, private pension coverage expanded rapidly among blue-collar, hourly workers over the next decade.
Given this broadening, and deepening, of the private pension system in the United States, the value of pension assets ballooned in the postwar period. And yet, despite the fact that these plans were negotiated between capital and labor, US trade unions were never able to take control of this pool of funds and use it for solidaristic investments. Why not? Here, the story becomes decidedly more complex as McCarthy weaves together the familiar story of declining trade competitiveness and the emerging crisis of US capitalism in the late 1960s and early 1970s with the less familiar story of policy debates around pension reform. With US manufacturers losing ground to European and Japanese competitors, President Nixon faced an uphill battle selling his pro-business, trade liberalizing Fair Trade Act to a public growing concerned about the influx of foreign imports. In an effort to garner trade union support for this measure, Nixon backed proposals for tighter federal oversight of pension programs that had been languishing in the legislature for years. As McCarthy shows, many unions had already lost control over their pension funds as part of the Taft-Hartley Act’s raft of provisions to curb labor’s power, so with the exception of a few unions (like the Teamsters) that negotiated multi-employer pension plans for their members, most unions had little ability to direct the investment of their pension assets and supported tighter regulation of pension funds as a means of protecting their members’ retirements.
The legislation that came out of these complex negotiations was the ERISA which mandated that pension investment decisions be guided, first and foremost, by the need to maximize the rate of return on invested assets. As McCarthy notes, this rule made it very difficult for unions to use their pension assets for solidaristic purposes and accelerated the movement of pension assets into the riskier equities market, thus completing the financialization of pensions.
Less than a decade after ERISA’s passage, the Reagan administration further tightened regulations on pensions which, on the surface, appeared to protect retiree incomes by pushing firms to fully fund their pensions. As McCarthy shows, this move was really a part of the Reagan administration’s strategy for trying to revive an economy that continued to suffer through stagnation and high inflation. Reagan’s economic agenda was shaped by the belief in what economists call cost-push inflation; high labor costs – driven mostly by aggressive trade unions – force businesses to increase prices in order to remain profitable. New regulations on pensions were part of a broader attack against organized labor as the administration sought to weaken unions, like the Teamsters, which still managed to control their own pension assets. As a consequence of this new regulatory burden, many firms opted not to provide their employees with traditional, defined-benefit pensions (where the retiree is guaranteed a certain income) and increasingly turned to providing defined-contribution pensions, like 401(k)s, where workers accumulate a pool of retirement assets during their working years, and hope that this pool is sufficiently deep to carry them through retirement.
Through his extensive use of primary documents and careful selection of cases and counter-factual examples, McCarthy works through the difficult task of connecting the intricate details of pension reform to a broader argument about the pressures that economic crises place on state elites and the way in which the balance of forces shapes the concrete policies that emerge. It is a compelling and convincing argument, though given the scope of the project – both in terms of the history that it covers and dimensions of political economy that it connects – it should come as no surprise that important parts of the story of pension reform in the United States get left out. I was surprised by the absence of any discussion of pension systems for public sector employees. While on the one hand I can imagine that this story would follow many of the main plot lines in McCarthy’s narrative, the fact that it is among public sector employees that we still find widespread participation in defined-benefit pension plans, and the related fact that the costs of such pensions have loomed large in state and local politics – particularly in the 1970s and 1980s when state and local governments really struggled to pay their bills – I am curious to know how the particular politics of public sector pensions and public sector unionism factored into the policy reforms of the 1970s and 1980s.
McCarthy navigates his theoretical terrain deftly and efficiently, taking the heavily dog-eared body of structuralist-Marxist state theory (Block, O’Connor, Offe, and Poulantzas) and makes it feel fresh even if there is not a lot of theoretical innovation here. I was not particularly convinced by the idea of ‘structured contingency’, the concept that McCarthy introduces to surmount the overly deterministic weaknesses of his theoretical inspiration. In the context of the analytical, historically driven chapters, the concept works fine as a shorthand way of saying that each of these moments of transformation of the US pension system was driven by class conflict between organized labor and the business community that was itself shaped by broader conditions in US capitalism at the time. But its application to concrete historical cases reveals that it still contains too much of the weaker tendencies of that earlier generation of structural Marxism. McCarthy’s historical narrative undercuts any possibility of drawing such a neat distinction between US capitalism’s structural and contingent pressures, at least as far as policy making is concerned. And while the contingent side of that couplet – the side that stands in for a careful reading of the factors shaping the balance of power between capital and labor – does a great deal of the lifting in the analysis, the structural side contributes much less, other than to point out that policy makers are always confronting an economy that, in some form or another, can be seen as teetering toward crisis.
These quibbles aside, Dismantling Solidarity joins a welcome influx of new scholarship that, in its framing and focus, calls attention to the fact that ours is a political moment that hungers for smart class analysis. Indeed, though this kind of Marxian political economy remains marginal in the field of sociology, McCarthy reminds us that these are potent theoretical tools. We only need to learn to use them without getting bogged down in stale debates about structural determinism versus historical contingency that have pushed a lot of people to put these tools back on the shelf, or never pick them up in the first place. Dismantling Solidarity reminds us that there are more important issues at stake here: the hope for a comfortable, dignified retirement not the least among them.