Monday, April 14, 2008

Defense of the Bozio-Piketty Plan

Petitsuix ably defends Bozio-Piketty, which is not surprising, as he confesses to an intimate relationship with one of the authors. The post should be read in its entirety, but because a small part of it is a response to a critique made here, I will focus on that. My doubt, you will recall, had to do not with the substance of the B-P proposal but with the possibility of political opposition, particularly from the unions, which derive rents from their participation in the current gestion paritaire. Petitsuix responds by detailing the benefits to union members of the reform and remarking that the reform "should respond to the concerns of a majority of them," as one can infer from an examination of the unions' ardent defense of universal old-age insurance, better benefits for workers with long careers, etc. He objects to the "caricatural" criticism of the unions as "obstructionists and conservative corporatists."

Indeed, I agree with everything he says and regret that my remarks might have lent themselves to such a construction. I do nevertheless think that Petitsuix minimizes the principal-agent problem that I thought I was raising. He argues that union members (and the much larger number of free riders) will be amply compensated for their acceptance of the transition to the new system, but he doesn't discuss what will become of the union organizations themselves. Indeed, one of the roots of the problem is that unionization rates in France are quite low, so that the interests of the organization and the interests of workers in general can diverge quite radically. Petitsuix ably demonstrates that union leaderships should support the reform he advocates if their interests are identical with the interests of those for whom they act as agents. But are they? What compensations would be proposed to the organizations themselves for the potential loss of income? I'm not well enough versed in the arcana of pension management in France to carry on this debate. But it would be good to hear from a scholar such as Bruno Palier, whose work on the governance of the system as opposed to its economics is pertinent to the question I am raising.

1 comment:

Antoine said...

Hi Arthur: It's always a pleasure to read your analysis of French politics. Be assured that my description of the common "caricatural description of French unions" did not apply to your remarks but more generally to comments from readers in Le Monde or other blogs. I only mentioned your critique because I found it valuable to read.
I completely agree with you that there is a possibility that this reform might be hindered by governance problems but I am very uncomfortable to assume that unions or civil servants will automatically reject this proposal even if it is in their interest to support it. I view my role as an economist in the public debate to stress possibilities, consequences and cost of various reforms. I admit that I tend to minimize issues relating to governance but it's in part because I tend to stress the fact that all possible options are rarely available in the public debate. Reactions to our proposal suggest that most people (even educated and interested about social policies) had never heard of the swedish pension reform nor even imagined that it was possible to maintain a pay-as-you-go system with individual notionnal accounts. I don't really want to suppose anything about how unions might react to this proposal. In many respect this new system protects much more the rights or workers they are supposed to defend.

This said, I really welcome any critique you might have on this proposal and I will try answer them as best as I can.