Something has gone badly wrong when major companies pay dividends that are five times the amount they spend on supporting their under-financed pension schemes. The BHS (British Home Stores) saga, brought to our attention by its former owner Philip Green, has focused the plight of hundreds of pension schemes hit by low interest rates.

Their pension is the only source of income for many retirees. Through their working lives they saved into their company’s pension scheme confident that their retirement costs were taken care of – not just for themselves but also for their spouse should they die first. Many of these pension schemes are now on the way to going bust. What were all those savings for?

Not everyone has a pension. Everyone should. We should all have the opportunity to be provident and save for our old age and the medical and care costs that go with it. After all, we are told that living sensibly, even frugally, and saving for a rainy day is our duty to our dependents and in order that we may avoid society having to support us with charity.

Doing so only works if money reasonably retains its value and costs do not sky-rocket out of reach. Money values have been totally disrupted by the overwhelming amount of debt in the world. Much of it can never be repaid but, in fact, it will be repaid by those who have saved and have provided for their old age. The value of their savings is being decimated, swamped by the printed money central banks have loaded into the world. Now it seems that many of their pension schemes will fail too. We shall rue the day we stared Quantitative Easing.

Surely governments will come to the rescue? It is a widely held myth that governments have money. They don’t. They have only your money and mine. Governments don’t earn money, they take your money, re-distribute it and spend it. So if they are going to put money into the pockets of those who have lost their pensions they will take it from someone else’s pocket. The net result of this is that you and I will end up subsidising companies’ pensions.

But why should shareholders suffer if a company’s pension scheme fails? For the very same reason they should suffer if the company is badly managed. As shareholders they have a responsibility to keep watch on how the business is run. Of course, if they merely demand bigger and bigger dividends and to hell with the future of the business they, in effect, steal from the other responsibilities of the business and, in the end, bankrupt it.

Of all the consequences of the irresponsible financial behaviour of the world the one I regret most is the message that saving is for the birds. “Eat, drink and be merry” was a phrase used in jest only a few years ago. It described the feckless who gave no thought to their future or that of their children and grandchildren.

It is beginning to look as though it was meant to be serious advice. That stinks.

One thought on “When capitalism smells

  1. John,

    I think the main reason for this problem is “short termism” .

    Business leaders and politicians make decisions based on what kind of outcome can be expected in the short term.
    It is selfish, with little consideration for long term effect.

    As we know, it is the shareholders and the voters that keep these decision makers in their positions. That is why corporations
    even borrow money (ExxonMobil just did), to continue to curry favour their shareholders.

    The downside to democracy is the fact that politicians also need to make popular decisions. In this day of age, you do not win
    an election, telling your voters that you can only offer them a future of blood, toil, tears and sweat. Those days are gone,
    even though in fact they are needed.

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