With the advent of a Social Democrat-Green coalition in Germany, with socialists or social democrats in the governments of thirteen out of fifteen members of the eu and with Communists in the French and Italian Cabinets, the European Left faces an historic opportunity. The swing to the Left in Europe coincides with an extraordinary economic conjuncture, with wide-spread turbulence in global markets and nervousness about the launch of the euro, continuing high unemployment and profound anxiety concerning pension and welfare reform.

The French and German governments have already proposed a package of measures designed to create jobs and prevent the stalling of the modest economic recovery already underway. They will need to make sure that these very necessary measures are in harmony with the launch of the euro and the interest rate policy of the European Central Bank. The combination of open-handed fiscal policy and tight monetary policy is not a recipe for sustainable growth. A much overdue assault on the scourge of unemployment has been promised but has yet to assume any clear shape. As far as fiscal and welfare policy is concerned, Oskar Lafontaine, the new German Finance Minister, has proclaimed the need for a harmonization of tax and welfare arrangements to prevent the logic of ‘social dumping’. But there remains an absolutely critical area of social policy—provision for old age—where the strategy of the European left parties remains very indistinct. This is particularly remarkable in view of the fact that the defeat of Berlusconi, Juppé, Major and Kohl, which cleared the way for the formation of these governments of the Left, was, to a significant extent, the result of popular anger at their pension policies.

State pensions are threatened everywhere, as the tax-raising powers of government are squeezed, and as the greying of the population requires today’s workforce to support ever-larger numbers of the retired. The latter, having themselves paid a lifetime of contributions and taxes geared to more generous provision, find that their income plummets on retirement—in the uk the basic pension is less than a fifth of average earnings—and they are deemed an inconvenient burden on the health service. At the same time, workers are being urged to entrust their savings to private pension funds just at a time when world markets are exceptionally fragile. Indeed, it will be the argument of this article that a ‘grey spectre’ haunts capitalist accumulation itself, since private pension and insurance funds have grown hugely in importance, and have contributed in a major way to the turbulence of the world economy.

The speculative lurches and tremors of the exchanges are of vital concern to large numbers of employees as well as to the corporate élite. In Britain, private pension ‘mis-selling’ on a huge scale contributed to the débâcle of the Major government; New Labour, having first canvassed the desirability of mandatory ‘stakeholder’ pensions, to be offered by trade unions and other collectively owned and managed associations, announced in December 1998 that the stakeholder pensions were to be voluntary and to be managed by the private pensions industry.

In what follows, I am going to argue that pension funds help to constitute a new pattern of political economy which is deeply implicated in current economic woes. The doctrines and policies of neoliberalism certainly bear heavy responsibility for market turmoil, but the roots of the latter lie in the innermost structures of the financial complex to which the funds belong. Simply giving more resources and authority to the imf will not restrain the forces of competitive mayhem. And while capital controls and national economic regulation are part of the solution, they will not be effective if they are simply imposed from above by the authorities rather than stimulating an economically active citizenry. The new régime demands a specific response from progressive forces, on the terrain of the new reality and based on recognition that the pension issue joins up with other, even larger, questions concerning the shape and direction of society as a whole. While the Left in Europe now has the possibility, indeed necessity, to address these problems they arise in one form or another in almost every region—and most particularly in the us, where Clinton has proposed a dramatic plan to rescue the social security retirement fund.footnote¹

The world of grey capitalism, in which we now live, is disconcerting to both Right and Left. By ‘grey capitalism’ I refer to a new financial complex and régime of accumulation based on the salience of pension funds in Britain and the United States, a model now spreading to many other countries. In a recent book, Giovanni Arrighi has pointed out that capitalist growth cycles have typically ended in orgies of speculation, as financial accumulation overspills the bounds of production and productivity.footnote²The recent mushrooming of special funds and supposedly sophisticated financial ‘products’ and investment vehicles has been a case in point. Pension fund managers have been at the forefront of those ‘securitizing’ assets and patronizing hedge funds. The value of funds held by pension and insurance concerns has risen fourfold in real terms since 1980. In fact, pension funds alone now control assets equivalent to the total value of shares on the world’s three leading exchanges. By 1994, the total value of such pension funds world-wide had reached $10,000 billion, with those in the uk controlling assets of £650 billion in 1996, rising to £830 billion in 1998. In the uk, pension funds in 1994 owned 27.8 per cent of all shares, and insurance funds 21.9 per cent of all shares, compared with 6.4 per cent and 10 per cent respectively in 1963. Institutional investors of all types held only 12.6 per cent of total equity holdings in the United States in 1960; by 1996 this proportion had grown to 47 per cent, with pension funds accounting for 26 per cent.footnote³ We still hear a lot about multinational companies but these typically command fewer assets than—and in crucial respects are dependent upon—the pension and insurance funds and their managers. It is often the case that an employee’s pension fund—such as that managed on behalf of British Telecom employees—is larger than the capital value of the concern for which they work.

The pension funds are particularly important in the United States and Britain, but they are also significant in the Mercosur countries of South America, in the Netherlands and Japan, and are of growing importance nearly everywhere. Management of these funds is highly concentrated; in the uk, five fund-managing concerns—Merrill-Lynch Mercury Asset Management, Schroder, Deutsche Morgan Grenfell Asset Management, pdfm and Gartmore—control two thirds of all pension fund assets.footnote⁴ The trustees of pension funds rely on a small number of consultants to monitor the workings of the funds and to recommend a move should that be necessary. There are only a few consultants and a recent study found that 65 per cent of fund transfers were the result of advice from just four consultants, among them Watson Wyatt, Bacon and Woodrow, and William Mercer. A recent Financial Times survey of the British pension fund industry concluded that the two interlocking groups of fund managers and consultants ‘have produced a rigidly conservative style of investment in the uk which, many outsiders believe, limits returns and is bad for pensioners.’footnote⁵ In this context, ‘conservative style’ means conformity with the modus operandi of the City of London and the limited returns have actually been below the stock exchange average. These poor results are particularly striking in view of the fact that the London pension funds pride themselves on their ability to cherry-pick the world’s most promising investments; nearly one third of British pension fund assets are held abroad.