Demolishing Employee Pensions: The Race to the Bottom to Compete Globally
North American companies aren’t the only ones hell bent on wiping out the pension plans of employees and retirees. Japanese countries have been active as well. In a BusinessWeek article A Tear in Japan’s Safety Net, it’s estimated that the combined shortfall in pensions of the country’s top 278 firms is a staggering $230 billion.
Reputable companies like Mitsubishi is underfunded by $2.8 billion. Because of the introduction of new accounting rules in 2012, Japanese companies are desperately trying to reduce their pension deficits. The new rules will dictate that companies must disclose their full underfunded pension liabilities; to date they’ve been able to spread these liabilities over many years.
Defined benefit plans, which provide retired workers with guaranteed incomes for life, are about to become almost as rare as dinosaur eggs. Even public servants in North America will start to feel the squeeze in the coming years as state, provincial and federal governments face difficult decisions as the result of mounting fiscal debts.
Just witness the mind-blowing rapid descent of Nortel Networks, at one time the single largest spender on R&D in Canada. The scavengers have been picking at the best juicy parts of this once-proud company. I have two relatives who worked for Nortel. One was due to retire this summer, but that plan went out the window. He was picked up by a company that purchased one piece of Nortel, but it’s not responsible for the lost pensions of the former Nortel employees it acquired. Another relative, mid forties, just lost his job at Nortel and has only some contract work until December 2010. So much for his pension contributions. In the U.S. the corporate pension risk has been pushed on to workers through 401(k) contribution plans.
The “R” word (risk) is now what it’s all about in our new uncertain–and brutal–world of work. As companies become increasingly less loyal to national boundaries, as technology enables the shifting of almost any type of work to almost anywhere on the planet, and as emerging economies gain more self-confidence in their capabilities as they take on the industrialized West, North American and Western European workers are about to be given a very cold wake-up call.
The opposing tension to this tsunami of change is the critical need to maintain aggregate demand in Western economies, especially in an environment of fiscal deficits and debts, all the while when healthcare costs are mushrooming (along with other social programs). If Generations X and Y face the certain likelihood of assuming the full risk for their pensions, while simultaneously helping support ageing Baby Boomers, many of whom lost all or significant chunks of their own pension plans, then the situation could get pretty ugly.
In the BusinessWeek article, Motohiro Morishima from Hitosubashi University spoke on the “erosion of trust” that will emanate from the failure of Japanese companies to keep their promises to employees. He foresees a negative impact on Japan’s work culture, renowned for its commitment to quality, and the country’s competitiveness. Japan, as I noted above, is not alone–misery loves company.
TRUST forms the nucleus of any organization’s effective functioning. When that bond is broken through unethical leadership, broken promises and deception, the result is typically the hollowing out of that organization’s soul. The race to the bottom to ostensibly compete globally by attempting to shift as much of the corporate fiscal burden as possible on to the backs of workers will eventually explode in our collective faces. Just as the recent financial meltdown (and ongoing fallout) has devastated the lives of millions of North American workers, so too will the issues of underfunded pensions and weakened aggregate demand.
At the core of this problem is leadership, and in particular the lack of it by those running corporations. We hear loads about corporate social responsibility and how employees are “our most valuable resource.” Really? I’m sure that former Nortel employees feel reassured with those words.
We’re all in the same (sinking) boat as a society if people continue to be treated as commodities, heaved overboard when another perceived better deal comes along, such as offshoring work to a far-off destination, or when senior management treats itself to gold-plated bonuses at the expense of employee remuneration and benefits.
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