Requiem for a national ideal? Social solidarity, the crisis of French social security, and the role of global financial markets

It is well appreciated that demographic trends threaten the integrity of continental European systems of social security. For France, these trends imply a long term financial crisis as well as a crisis of confidence in national economic and social institutions. The payment of social security entitlements is a recurrent and largely unresolved political issue; proposals for comprehensive reform are heavily contested and often stymied by organised interests willing to go to the streets. At the same time, incremental changes introduced by governments from the left and right will likely discount the expected value of future retirement benefits. In this paper, I begin by sketching the logic of pay-as-you-go social security, identifying the basic economic principles and social institutions that sustain such systems. One goal of the paper is to articulate the economic and philosophical roots of social solidarity and the importance of the state as the custodian of the social contract between generations. In doing so, I sketch-out the French ideal: a coherent social security system based upon self-reinforcing mutual obligations and institutions. A second goal of the paper is to show how and why the French social-security system became unsustainable. Demographic trends have been exacerbated by the use of the retirement system as a form of labour market compensation policy, thereby undercutting both its financial integrity and its political legitimacy. The third goal of the paper is to indicate how and why global financial markets may play a significant role in resolving the crisis of social security. Basically, I dispute the argument that national systems of governance necessarily persist; internal inconsistencies and the possible defection of those not served by such institutions when combined with external opportunities may overturn the past. By making this argument, I do not mean to suggest that the Anglo-American model is obviously superior to social security systems based on social solidarity. Rather, my point is entirely argumentative: solemn incantations that defend the past, whatever their best intentions, may simply reinforce the nature and significance of the pending crisis. Acknowledgements. Research for this paper was provided through a grant from the ESRC Future Governance programme (with Adam Tickell), and an EC 4th Framework grant on corporate governance and financial markets (co-ordinated by William Lazonick and Mary O'Sullivan). The author would like to express his gratitude to Robert Hirst and Joe Cassano (AIG), Adam Tickell (Bristol) and Edward Page (ESRC) and Mary O’Sullivan and William Lazonick (INSEAD) for their support. I have benefited from conversations with my colleagues, participants in the ESRC Future Governance programme, and industry commentators. In particular, I wish to record my thanks to Ronald Dore and Noel Whiteside for provoking my argument. Simon Baule, Chloe Flutter and Zoe Morrison provided research assistance, Ian Scargill and Dariusz Wojcik provided comments on a previous draft, and Jan Burke processed and re-processed the manuscript. None of the above should be held responsible for any opinions, errors or omissions.