'The Assassins' Gate': Occupational Hazards
- 'The Assassins' Gate': Occupational Hazards
By FAREED ZAKARIA
IN "The Assassins' Gate," his chronicle of the Iraq war, George Packer tells
the tale of Drew Erdmann, a young American official in Baghdad. Erdmann, a
recent Harvard Ph.D. in history, finds himself rereading Marc Bloch's
classic firsthand account of the fall of France in 1940, "Strange Defeat."
He was particularly drawn to a few lines. "The ABC of our profession," Bloch
wrote, "is to avoid . . . large abstract terms in order to try to discover
behind them the only concrete realities, which are human beings." The story
of America in Iraq is one of abstract ideas and concrete realities. "Between
them," Packer says, "lies a distance even greater than the 8,000 miles from
Washington to Baghdad."
Packer begins his absorbing account with the ideas that led the United
States to war. A few neoconservatives, most prominently Paul Wolfowitz, had
long believed that ousting Saddam Hussein would pave the way for a grand
reordering of the Middle East, pushing it away from tyranny and
anti-Americanism and toward modernity and democracy. Others, including
Douglas Feith, explained that eliminating Hussein would be particularly good
for Israel's security. But the broadest reason to intervene in Iraq was that
it was a bold use of American power that mixed force with idealism. Many
neoconservatives were Reaganites who believed in an assertive, even
aggressive, American posture in the world. For them the 1990's - under Bush
p�re and Clinton alike - had been years of retreat. "They were supremely
confident," Packer writes, "all they needed was a mission."
But they wouldn't have had one without 9/11. As one of the neoconservatives
Packer interviewed correctly points out, "September 11 is the turning point.
Not anything else." After 9/11, Bush - and many Americans, including many
liberals - were searching for a use of the nation's power that mixed force
with idealism and promised to reorder the Middle East. In Iraq they found
Packer collects his articles from The New Yorker but goes well beyond them.
His book lacks a tight thesis or structure and as a result meanders at
times, petering out in its final sections. But this is more than made up for
by the sheer integrity and intelligence of its reporting, from Washington,
New York, London and, of course, Iraq. Packer provides page after page of
vivid description of the haphazard, poorly planned and almost criminally
executed occupation of Iraq. In reading him we see the staggering gap
between abstract ideas and concrete reality.
Hard as it is to believe, the Bush administration took on the largest
foreign policy project in a generation with little planning or forethought.
It occupied a foreign country of 25 million people in the heart of the
Middle East pretty much on the fly. Packer, who was in favor of the war,
reserves judgment and commentary in most of the book but finally cannot
contain himself: "Swaddled in abstract ideas . . . indifferent to
accountability," those in positions of highest responsibility for Iraq
"turned a difficult undertaking into a needlessly deadly one," he writes.
"When things went wrong, they found other people to blame."
Packer recounts the prewar discussions in the State Department's "Future of
Iraq Project," which produced an enormous document outlining the political
challenges in governing Iraq. He describes Drew Erdmann's memo, written for
Colin Powell, analyzing previous postwar reconstructions in the 20th
century. Erdmann's conclusion was that success depended on two factors,
establishing security and having international support. These internal
documents were mirrored by several important think-tank studies that all
made similar points, specifically on the need for large-scale forces to
maintain security. One would think that this Hobbesian message - that order
is the first requisite of civilization - would appeal to conservatives. In
fact all of this careful planning and thinking was ignored or dismissed.
Part of the problem was the brutal and debilitating struggle between the
State Department and the Defense Department, producing an utterly
dysfunctional policy process. The secretary of the Army, Thomas White, who
was fired after the invasion, explained to Packer that with the Defense
Department "the first issue was, we've got to control this thing - so
everyone else was suspect." The State Department was regarded as the enemy,
so what chance was there of working with other countries? The larger problem
was that Defense Secretary Donald Rumsfeld (and probably Dick Cheney)
doggedly believed nation-building was a bad idea, the Clinton administration
has done too much of it, and the American military should stop doing it.
Rumsfeld explained this view in a couple of speeches and op-ed articles that
were short on facts and long on polemics. But how to square this outlook
with invading Iraq? Assume away the need for nation-building. Again, White
explains: "We had the mind-set that this would be a relatively
straightforward, manageable task, because this would be a war of liberation,
and therefore reconstruction would be short-lived." Rumsfeld's spokesman,
Larry Di Rita, went to Kuwait in April 2003 and told the American officials
waiting there that the State Department had messed up Bosnia and Kosovo and
that the Bush administration intended to hand over power to Iraqis and leave
within three months.
SO the Army's original battle plan for 500,000 troops got whittled down to
160,000. If Gen. Tommy Franks "hadn't offered some resistance, the number
would have dropped well below 100,000," Packer says. At one point, Franks's
predecessor, Anthony Zinni, inquired into the status of "Desert Crossing,"
his elaborate postwar plan that covered the sealing of borders, securing of
weapons sites, provision of order and so on. He was told that it had been
discarded because its assumptions were "too negative."
As the looting began and went unchecked, the occupation lost its aura of
authority and began spiraling downward. Iraq's first czar, Jay Garner, was
quickly replaced, as were dozens of American officials, in what was the
first of a stream of shifts, countershifts and bureaucratic battles. Garner
was followed by L. Paul Bremer. Bremer was an intelligent man but his
previous administrative experience was confined to running the American
Embassy in The Netherlands. In any event, his two catastrophic decisions
were probably made in Washington - disbanding the Iraqi Army and
de-Baathification, which banned from government service the entire top four
levels of the Baath Party, regardless of whether any of the individuals
affected had been implicated in any crime. (In Iraq, to be banned from the
public sector was effectively to be forced into unemployment.) Packer writes
that "at least 35,000 mostly Sunni employees of the bureaucracy, including
thousands of schoolteachers and midlevel functionaries, lost their jobs
overnight." Thousands more were purged subsequently.
Bremer has often argued that the deBaathification decree was his most
popular act. This is probably true, among the Shiites. But that would be
like saying that had he proclaimed independence for the Kurds, it would have
gone down well in Iraq's northern regions. As a balancing act that kept
Iraq's three communities at peace, it was a disaster. Bremer's decisions
signaled to Iraq's Sunnis that they would be stripped of their jobs and
status in the new Iraq. Imagine if, after apartheid, South Africa's blacks
had announced that all whites would be purged from the army, civil service,
universities and big businesses. In one day, Bremer had upended the social
structure of the country. And he did this without having in place a new
ruling cadre that could take over from the old Sunni bureaucrats.
These decisions did not cause the insurgency, though it is worth noting that
for the first few months of the occupation, Sunni Falluja was much less of a
problem for the United States than was Shiite Najaf. But Bremer fueled the
dissatisfaction of the Sunnis, who now had no jobs but plenty of guns. And
most especially, his decisions added to the chaos and dysfunction that were
rapidly rising in Iraq. "We expected the Americans would make the country an
example, a second Europe," an unemployed electrician told Packer in the
first year of the occupation. "That's why we didn't fight back. And we are
shocked, as if we've gone back 100 years."
Packer describes an occupation that was focused more on rewarding
confederates than gaining success on the ground. Garner received
instructions from Feith and Wolfowitz to be nice to the Iraqi exile leader
Ahmad Chalabi, who was a favorite of the Pentagon. State Department
officials were barred from high posts in Baghdad, even when they were
uniquely qualified. Senior jobs went to Feith's former law partner and to
the brother of Ari Fleischer, Bush's press secretary. Friendly American
firms like Halliburton were favored over local Iraqis.
Packer describes in microcosm something that has infected conservatism in
recent years. Conservatives live in fear of being betrayed ideologically.
They particularly distrust nonpartisan technocrats - experts - who they
suspect will be seduced by the "liberal establishment." The result, in
government, journalism and think tanks alike, is a profusion of
second-raters whose chief virtue is that they are undeniably "sound."
The simplest proof of the myriad American errors is that, starting around
May 2004, Washington began reversing course wholesale. Troop withdrawals
were postponed. The decision to hold caucuses and delay elections was
shelved. The American-appointed Governing Council was abolished. The hated
United Nations was asked to come in and create and bless a new body. In
recent months, the reversal is wholesale. The United States has been bribing
tribal sheiks, urging the Iraqi government to end de-Baathification and make
a concerted effort to bring the Sunnis back into the political process.
Where is Iraq today? The continuing violence in the Sunni areas has kept
most Americans from recognizing what is actually happening in the country.
America's blunders forced Washington, hastily and with little planning, to
hand over power to those Iraqis who were organized for it - the Kurds and
the Shiite religious parties. Iraq is currently three different lands -
though not three different countries. In the north, the Kurds run a
relatively benign form of one-party democracy. In the south, while things
are stable, in several places, Shiite religious groups, often with their own
militias, have imposed their rule. Packer describes the disjuncture: "Inside
the Green Zone, long hours of negotiation about the role of Islam and
women's rights . . . outside a harsh social code enforced by vigilante
rule." And in the center, of course, is a war zone.
Let's be clear: Iraq today is a much better, even more liberal, place than
Saddam Hussein's Iraq. It has elements that are more progressive than many
Arab countries. Divided rule and a federal structure may produce real checks
and balances on absolute power. And its negotiations, debates and elections
have had a positive effect. But Iraq is also plainly not what so many had
hoped it would be - a model and inspiration for the Arab world. For every
day of elections, there are months of chaos, crime and corruption. Things
will improve but it will take years, not months. And the costs have been
unconscionably high - for Americans and Iraqis.
Was all this inevitable? Did the United States take on something impossible?
That seems to be the conventional wisdom today. If so, what to make of
Afghanistan? That country is deeply divided. It has not had a functioning
government in three decades, some would argue three centuries, and yet it is
coming together under a progressive leader. Two million Afghan refugees have
voted with their feet and returned to their country (unlike Iraq, where
people are leaving every day). And the reasons? The United States allied
itself with forces on the ground that could keep order. It handed over the
political process to the international community, preventing any stigma of a
neocolonial occupation (it was the United Nations that created the loya
jirga, the national assembly, and produced Hamid Karzai). It partnered with
NATO for much of the routine military work. In fact the Afghan National Army
is being trained by the United States - and France. And it has accepted
certain facts of Afghan life, like the power of its warlords, working slowly
to change them.
"The Iraq war was always winnable," Packer writes, "it still is. For this
very reason, the recklessness of its authors is hard to forgive." But it is
not just recklessness. The book that Drew Erdmann should have been reading
in Iraq was not "Strange Defeat" but his dissertation adviser Ernest May's
recent emendation to it, "Strange Victory." In it, May explains that the
fall of France was not inevitable at all. It happened because the French
made some key misjudgments. Presciently, May argues that "Western
democracies today exhibit many of the same characteristics that France and
Britain did in 1938-40 - arrogance, a strong disinclination to risk life in
battle, heavy reliance on technology as a substitute and governmental
procedures poorly designed for anticipating or coping with ingenious
challenges from the comparatively weak." Above all, he emphasizes the fatal
cost of arrogance, closing his book with the injunction of Oliver Cromwell
in 1650 to the General Assembly of the Church of Scotland: "I beseech you,
in the bowels of Christ, think it possible you may be mistaken." No one in
the Bush administration ever did, and so we are where we are in Iraq.
Fareed Zakaria is the editor of Newsweek International, the author of "The
Future of Freedom" and the host of the PBS show "Foreign Exchange."
- The End of Pensions
By ROGER LOWENSTEIN
I. THE LATEST FINANCIAL DEBACLE
When I caught up with Robert S. Miller, the chief executive of Delphi
Corporation, last summer, he was still pitching the fantasy that his
company, a huge auto-parts maker, would be able to cut a deal with its
workers and avoid filing for bankruptcy protection. But he acknowledged that
Delphi faced one perhaps insuperable hurdle - not the current conditions in
the auto business so much as the legacy of the pension promises that Delphi
committed to many decades ago, when it was part of General Motors. This was
the same fear that had obsessed Alfred P. Sloan Jr., the storied president
of G.M., who warned way back in the 1940's that pensions and like benefits
would be "extravagant beyond reason." But under pressure from the United
Auto Workers union, he granted them. And as future auto executives would
discover, pension obligations are - outside of bankruptcy, anyway -
virtually impossible to unload. Unlike wages or health benefits, pension
benefits cannot be cut. Unlike other contracts, which might be renegotiated
as business conditions change, pension commitments are forever. And given
the exigencies of the labor market, they tend to be steadily improved upon,
at least when times are good.
For the U.A.W., Miller noted forlornly, "30 and Out" - 30 years to
retirement - became a rallying cry. Eventually, the union got what it
wanted, and workers who started on the assembly line after high school found
they could retire by their early 50's. "These pensions were created when we
all used to work until age 70 and then poop out at 72," Miller told me. "Now
if you live past 80, a not-uncommon demographic, you're going to be taking
benefits for longer than you are working. That social contract is under
Earlier this month, Miller and Delphi gave in to the pressure and sought
protection under the bankruptcy code - the largest such filing ever in the
auto industry. It followed by a few weeks the Chapter 11 filings of Delta
Air Lines and Northwest Airlines, whose pension promises to workers exceeded
the assets in their pension funds by an estimated $16 billion.
The three filings have blown the lid off America's latest, if
long-simmering, financial debacle. It is not hedge funds or the real-estate
bubble - it is the pension system, both public and private. And it is
II. THE MORAL HAZARD OF INSURANCE
The amount of underfunding in corporate pension plans totals a staggering
$450 billion. Part of that liability is attributable to otherwise healthy
corporations that will most likely, in time, make good on their obligations.
But the plans of the companies that fail will become the responsibility of
the government's pension insurer, the Pension Benefit Guaranty Corporation.
The P.B.G.C., which collects premiums from corporations and, in theory, is
supposed to be self-financing, is deeply in the hole, prompting comparisons
to the savings-and-loan fiasco of the 1980's. Just as S. & L.'s of that era
took foolish risks in part because their deposits were insured, the
P.B.G.C.'s guarantee encouraged managements and unions to raise benefits
In such situations, individuals are tempted to take more risk than is
healthy for the group; economists, in a glum appraisal of human nature, call
it "moral hazard." In effect, America's pension system has been a laboratory
demonstration of moral hazard in which the insurance may end up bankrupting
the system it was intended to save. Given that pension promises do not come
due for years, it is hardly surprising that corporate executives and state
legislators have found it easier to pay off unions with benefits tomorrow
rather than with wages today. Since the benefits were insured, union leaders
did not much care if the obligations proved excessive. During the previous
decade especially, when it seemed that every pension promise could be
fulfilled by a rising stock market, employers either recklessly overpromised
or recklessly underprovided - or both - for the commitments they made.
The P.B.G.C. is now $23 billion in the red - a deficit that is expected to
grow, significantly, as more companies go under. The balance sheet for the
end of September will very likely show a deficit of more than $30 billion.
If nothing is done to fix the system, the Congressional Budget Office
forecasts, the deficit will mushroom to more than $100 billion within two
decades. This liability will almost certainly fall back on the taxpayers,
since the alternative to a bailout - letting the pension agency fail - would
force aging former auto workers and other retirees onto the street.
As bad as that sounds, the problem of state and local government pensions is
even worse. Public pensions, which are paid by taxpayers and thus enjoy an
implicit form of insurance, are underfunded by a total of at least $300
billion and arguably much more. While governments have been winking at these
deficits for years, they are now becoming intolerable burdens for taxpayers.
In San Diego, pension abuse has effectively bankrupted the city. Thanks to a
history of granting sweeter and sweeter pension deals that it has neglected
to fund, the city has been forced to allocate $160 million, or 8 percent of
the municipal budget, to the San Diego City Employees Retirement System this
year, with similar allocations expected for years to come. San Diego has
tabled plans for a downtown library, cut back the hours on swimming pools,
gutted the parks and recreation budget, canceled needed water and sewer
projects and fallen behind on potholes.
State or local governments in New Jersey, New York, Illinois, Ohio, West
Virginia and elsewhere face similar budget strains aggravated by runaway
pension promises. According to Carl DeMaio, director of the Performance
Institute, which advocates better government accountability, "There is a San
Diego brewing in every community."
Not only are taxpayers certain to suffer, but senior citizens in the future
may also have to settle for less secure retirements anchored only by Social
Security and whatever they've managed to put away into their 401(k)
accounts. A backlash already has begun in state capitals, where the
political forces that have been lobbying for Social Security reform have
been rallying lawmakers to get out of the pension business altogether.
Alaska's Legislature recently passed a shotgun bill to deny pensions to
future employees. This mimics a trend in the private sector, in which
corporations have been leaving the system, either by paying off their
workers and terminating their pension plans or by "freezing" their plans, a
step recently taken by Hewlett Packard, so that many current employees will
no longer accrue benefits and new employees will not participate at all.
If the pension system continues to wither, it is not hard to envision a
darker future in which - as was true until early in the 20th Century, before
the advent of pensions - many of the elderly would be forced to keep working
to stave off poverty.
III. THE SHRINKING PENSION SYSTEM
Congress has been debating legislation to fix the private system, but it has
been unable to resolve a basic tension: anything it does to ease the burden
on failing or failed pension plans lessens the penalty for failure and
enhances moral hazard. By making it easier for, say, a Delta or a Delphi to
offer benefits, it raises the possible cost of a future bailout.
The tough medicine favored by the Bush administration, which would eliminate
loopholes in the system as well as much of the subsidy that now exists in
the insurance system, would lead to more companies freezing their plans or
leaving the system outright. The number of pension plans would continue to
shrink and in time all but disappear. This would strip the elderly of the
future of what is still the most secure form of retirement income.
The fear of runaway pension costs plainly echoes the Social Security debate,
and many suspect that the Bush administration would not much mind if
pensions did disappear. "I don't think the administration is very interested
in creating a future for traditional pensions," says Julia Coronado, a
senior research associate at Watson Wyatt, a human-resources consulting
firm. "It doesn't fit very well with their vision of the ownership society."
Bradley Belt, executive director of the P.B.G.C., shrugs off the charge.
"The last thing we want to do is chase people out of the system," he says.
Besides, the government doesn't need to chase. As Belt points out, the
number of workers covered by pensions is shrinking without government help.
In 1980, about 40 percent of the jobs in the private sector offered
pensions; now only 20 percent do. The trend is probably irreversible,
because it feeds on itself. Hewlett Packard, for instance, must compete with
younger companies like Dell Computer that do not offer traditional pensions.
Freezing its plan, which was a legacy of the company's famously
employee-oriented founders, was an embarrassing step for H.P.'s present
managers - but freeze it they did.
This may have made economic sense, but federal law has long recognized a
social purpose to pensions as well. By allowing companies to deduct from
taxes the money they contribute into their pension funds, the government
encourages employers to provide a safety net for their workers. This remains
a legitimate function, and if pensions were allowed to die, we would need
something to take their place.
IV. WHY PENSIONS MATTER
To understand why pensions are still important, you have to understand the
awkward beast that benefits professionals refer to as the U.S. retirement
system. It is not really one "system" but three, which complement each other
in the crudest of fashions. The lowest tier is Social Security, which
provides most Americans with a bare-bones living (the average payment is
about $12,000 a year). The highest tier, available to the rich, is private
savings. In between, for people who do not have a hedge-fund account and yet
want to retire on more than mere subsistence, there are pensions and
401(k)'s. Currently, more than half of all families have at least one member
who has qualified for a pension at some point in his or her career and thus
will be eligible for a benefit. And among current retirees, pensions are the
second-biggest source of income, trailing only Social Security.
During most of the 90's the decline in pension coverage was barely lamented.
It was not that big companies were folding up their plans (for the most
part, they were not) but that newer, smaller companies weren't offering
them. As the small companies grew into big ones (think Dell, or Starbucks,
or Home Depot), traditional pensions covered less of the private-sector
landscape. This did not seem like a very big deal. Younger workers
envisioned mobile careers for themselves and many did not want pension
strings tying them to a single employer. And most were able to put money
aside in 401(k)'s, often matched by an employer contribution.
It happened that 401(k)'s, which were authorized by a change in the tax code
in 1978 and which began to blossom in the early 1980's, coincided with a
great upswing in the stock market. It is possible that they helped to cause
the upswing. In any case, Americans' experience with 401(k)'s in the first
two decades of their existence was sufficiently rosy that few people shed
tears over the slow demise of pension plans or were even aware of how
significantly pensions and 401(k)'s differed. But 401(k)'s were intended to
be a supplement to pensions, not a substitute.
From the beneficiary's standpoint, pensions mean unique security. The worker
gets a guaranteed income, determined by the number of years of service and
by his or her salary at retirement. And pensions don't run dry; workers (or
their spouses) get them as long as they live. Because the employer is
committed to paying a certain level of benefits, pensions are known as
"defined benefit" plans. Since an individual's benefit rises with each year
of service, the employer is supposed to sock money away, into a fund that it
manages for all of its beneficiaries, every year. The point is that workers
don't (or shouldn't) have to worry about how the benefit will get there;
that's the employer's responsibility. Of course, the open-ended nature of
the guarantee - the very feature that makes pensions so attractive to the
individual - is precisely what has caused employers to rue the day they said
yes. No profit-making enterprise can truly gauge its ability to meet such
promises decades later.
A 401(k), on the other hand, promises nothing. It's merely a license to
defer taxes - an individual savings plan. The employer might contribute some
money, which is why 401(k)'s are known as "defined contribution" plans. Or
it might not. Even if the company does contribute, it offers no assurance
that the money will be enough to retire on, nor does it get involved with
managing the account; that's up to the worker. These disadvantages were, in
the 90's, somehow perceived (with the help of exuberant marketing pitches by
mutual-fund firms) to be advantages: 401(k)'s let workers manage their own
assets; they were a road map to economic freedom.
Post-bubble, the picture looks different. Various people have studied how
investors perform in their 401(k)'s. According to Alicia Munnell, a pension
expert at Boston College and previously a White House economist, pension
funds over the long haul earn slightly more than the average 401(k) holder.
Among the latter, those who do worse than average, of course, have no
protection. Moreover, pensions typically annuitize - that is, they convert a
worker's retirement assets into an annual stipend. They impose a budget,
based on actuarial probabilities. This might seem a trivial service (some
pensioners might not even realize that it is a service). But if you asked a
65-year-old man who lacked a pension but did have, say, $100,000 in savings,
how much he could live on, he likely would not have the vaguest idea. The
answer is $654 a month: this is the annuity that $100,000 would purchase in
the private market. It is the amount (after deducting the annuity provider's
costs and profit) that the average person could live on so as to exhaust his
savings at the very moment that he draws his final breath.
So the question arises: what if he lives longer than average? This is the
beauty of a pension or of any collectivized savings pool. The pension plan
can afford to support people who live to 90, because some of its members
will expire at 66. It subsidizes its more robust members from the resources
of those who die young. This is why a 401(k) is not a true substitute.
Jeffrey Brown, an associate finance professor at the University of Illinois
at Urbana-Champaign and a staff member of the president's Social Security
commission, notes that as baby boomers who have nest eggs in place of
pensions begin to retire, they will be faced with a daunting question: "How
do I make this last a lifetime?"
V. FROM MANAGEMENT TOOL TO EMPLOYEE BENEFIT
The country's first large-scale pension plan was introduced after the Civil
War, when the federal government gave pensions to disabled Union Army
veterans and war widows. Congress passed an act in 1890 that extended
pensions to all veterans 65 and over. This converted pensions into a form of
social welfare. Over the next 20 years, states and cities added pensions for
police officers and firefighters. By World War I, most teachers had been
granted pensions as well. Governments couldn't offer big paychecks for
workers - teachers, the police, firefighters - so it offered stability and
In the private sector, the first pension was offered by American Express, a
stagecoach delivery service, in 1875. Railroads followed suit. Employees
were required to work for 30 years before they qualified for benefits, and
thus pensions helped companies retain employees as well as ease older
workers into retirement. These employers thought of pensions as management
tools, not as employee "benefits." But in the first half of the 20th
century, as the historian James Wooten put it, government policies turned
pensions into a tool of social policy. First came the tax deduction. This
feature was abused, as companies used pensions to shelter payments to their
executives. The rules were gradually tightened, however, forcing plans to
include the rank and file. World War II gave more incentives to create
pensions: punitive tax rates made the pension shelter enormously attractive
and a government freeze on wages meant that pensions were the only avenue
for increasing compensation.
The effect of these policies was to encourage unions to bargain for pensions
and to pressure employers to grant them. After the war, John L. Lewis, the
legendary labor leader, staged a strike to win pensions for miners. Ford
Motor capitulated to the U.A.W. in 1949. G.M., headed by the reluctant
Sloan, followed in 1950. This led to a so-called pension stampede; by 1960,
40 percent of private-sector workers were covered. Meanwhile, in the auto
industry, the seeds of the problem were already visible.
Companies might establish plans, but many were derelict when it came to
funding them. When companies failed, the workers lost much of their promised
benefit. The U.A.W. was acutely aware of the problem, because of the failing
condition of several smaller car manufacturers, like Packard. The union
didn't have the muscle to force full funding, and even if it did, it
reckoned that if the weaker manufacturers were obliged to put more money
into their pension funds, they would retaliate by cutting wages.
Thus in 1959, Studebaker, a manufacturer fallen on hard times, agreed to
increase benefits - its third such increase in six years. In return, the
U.A.W. let Studebaker stretch out its pension funding schedule. This bargain
preserved the union's wages, as well as management's hopes for a profit,
though it required each to pretend that Studebaker could afford a pension
plan that was clearly beyond its means. Four years later, the company
The Studebaker failure was a watershed. Thousands of employees, including
some who had worked 40 years on the line, lost the bulk of their pensions.
Stunned by the loss, which totaled $15 million, the U.A.W. changed its
tactics and began to lobby in earnest for federal pension insurance. A union
pension expert tellingly explained to Walter Reuther, the U.A.W. chief, that
insurance would reconfigure the "incentives" of both labor and management.
Though business was skeptical of the idea, a decade later, in 1974, Congress
finally passed the Employee Retirement Income Security Act, or Erisa, which,
among other protections, established the P.B.G.C. to insure private
pensions. Erisa, according to Wooten, who wrote a history of the act,
completed the transition of pensions into a part of the social safety net.
It was also the birth of moral hazard.
VI. THE SURPRISINGLY PLIABLE SYSTEM OF PENSION ACCOUNTING
Erisa, which would be amended several times, was supposed to ensure that
corporate sponsors kept their plans funded. The act includes a Byzantine set
of regulations that seemingly require companies to make timely
contributions. As recently as 2000, most corporate plans were adequately
funded, or at least appeared to be. Their assets took a serious hit,
however, when the stock market tumbled. (In retrospect, they had been
cavalier in assuming the bull market would continue.) And they were burned
again when interest rates fell.
Since pension liabilities are, for the most part, future liabilities,
companies calculate their present obligation by applying a discount rate to
what they will owe in the future. As interest rates move lower, they have to
set more money aside because it is assumed that their assets will grow more
slowly. The principle is familiar to any individual saver: you need to save
more if you expect, say, a 5 percent return on your investment instead of a
10 percent return. What is much in dispute is just which rate is proper for
Corporations have been gaming the system by using the highest rates
allowable, which shrinks their reported liabilities, and thus their funding
requirements. The P.B.G.C., when calculating the system's deficit, uses what
is in effect a market rate; whatever it would cost to buy annuities for
everyone covered in a pension plan is, it argues, the plan's true
"liability." The difference between these measures can be extreme. Depending
on whom you talk to, General Motors' mammoth pension fund is either fully
funded or, as the P.B.G.C. maintains, it is $31 billion in the hole.
What is not in dispute is that when interest rates fell, the present value
of pension liabilities (by whatever measure) soared. The confluence of
falling stock prices, plunging interest rates and a recession in the
beginning of this decade was the pension world's equivalent of the perfect
storm. An unprecedented wave of pension sponsors failed and then dumped
their obligations on the P.B.G.C. (To do so, a sponsor generally must prove
that it could not re-emerge as a viable enterprise without shedding its
pension plan.) By far the most costly failures were in airlines and steel,
although the list ranges from Kemper Insurance and Kaiser Aluminum to
Murray, a lawn-mower manufacturer.
As the P.B.G.C. assumed responsibility for more and more pensioners, it
became clear that the premium it charged was way too cheap. Mispriced
insurance, like mispriced anything, sends the market a distorted signal.
Belt, the P.B.G.C. director, who served as counsel to the Senate Banking
Committee in the late 1980's during the savings-and-loan crisis, says that
cheap pension insurance gave rise to flawed incentives: namely it kept
companies in the pension business who didn't deserve to be there. He also
argues, rather convincingly, that lax rules allowed pension sponsors to get
away with inadequate funding.
For example, United Airlines did not make contributions to any of its four
employee plans between 2000 and 2002, when it was heading into Chapter 11,
and made minimal contributions in 2003. Even more surprisingly, in 2002,
after two of its jets had been turned into weapons in the Sept. 11 disaster,
and when the airline industry was pleading for emergency relief from
Congress, United granted a 40 percent increase in pension benefits for its
23,000 ground employees.
Bethlehem Steel similarly enjoyed a three-year funding holiday as it was
going through hard times, letting its liabilities swell in advance of
turning them over to the government. Meanwhile, in order to gain its unions'
approval for plant shutdowns, it agreed to costly benefit enhancements. In
2001 Bethlehem filed for Chapter 11 bankruptcy. It was guided through its
bankruptcy by none other than Miller, now the Delphi C.E.O. Miller disputes
the notion that capital-scarce companies like Bethlehem intentionally game
the system by shirking funding. "Companies don't like falling behind," he
says. "When you have a hard choice between starving the capital base to feed
the pension plan, or making capital investments to become more productive,
to the extent there is permission that's what you do." The point is, they
Neither Bethlehem nor United broke any laws. Both companies made the full
contributions required under Erisa. When the P.B.G.C. seized their plans,
however, Bethlehem was only 45 percent funded, and United was only 42
percent funded. For companies that terminate their pension plans, such gross
underfunding has become the norm. Either assets suddenly vanish when the
P.B.G.C. walks in the door, or, evidently, the system for measuring "full"
funding is broken. As Belt testified to the Senate Committee on Finance in
June, "United, US Airways, Bethlehem Steel, LTV and National Steel would not
have presented claims in excess of $1 billion each - and with funded ratios
of less than 50 percent - if the rules worked."
Even leaving aside the debate over which rate to use in calculating pension
liabilities, there is no doubt that Erisa permits companies to use some
doubtful arithmetic. For instance, the law lets corporations "smooth"
changes in their asset values. If the stocks and bonds in their pension
funds take a hit (as happened to just about every fund recently), they don't
have to fully report the impact. Nor do they have to ante up fresh funds to
compensate for the loss for five years. A similar smoothing is permitted on
the liability side. And though, in theory, Erisa discourages underfunding by
requiring offenders to pay higher premiums, its various loopholes render the
sanction toothless. Thanks to another loophole, companies that contribute
more than the required amount get to skip future contributions even if they
later become underfunded. These companies are awarded so-called "credit
balances," which remain in place even if the actual balance is showing red.
Incredibly, when United's plans were terminated, earlier this year, even
though they were groaning under $17 billion in pension liabilities and a
mere $7 billion in assets, they still had credit "balances" according to
Erisa. (By law, the P.B.G.C. will be on the hook for most, but not all, of
United's shortfall. The agency guarantees pensions up to $45,000 a year;
employees, mostly pilots, who were owed richer pensions are uninsured above
Their dubious funding history notwithstanding, corporations - airlines in
particular - have been lobbying for greater permissiveness for several
years. And they have gotten it. Congress has twice relaxed the rules,
permitting pension sponsors to use a higher rate to calculate their
VII. WHAT BUSH WOULD DO?
Enter the Bush administration: it has essentially declared the era of
permissiveness over. Among other changes, it wants the funding rules
tightened. To tackle moral hazard, it wants to stop companies with poor
credit ratings from granting benefit hikes, or from doling out unfunded
pension benefits to unions who agree to plant shutdowns. It even wants to
prevent workers at some companies whose bonds are given a "junk" rating from
accruing more years of service. This would be painful to employees at many
industrial companies, possibly including G.M.
Indeed, one reading of the administration proposal is that, having seen the
steel and airline industries raid the P.B.G.C., it is drawing the line at
the auto industry - whose initial distress, of course, prompted the agency's
founding. Asked about that before Delphi went bust, Belt admitted: "Eight
auto-parts suppliers have come under Chapter 11 so far this year. No
question our single largest source of exposure is the auto sector."
Since G.M.'s stock was downgraded to junk status earlier this year, the
possibility that it would file for bankruptcy has been the subject of
on-again, off-again debate on Wall Street. G.M.'s pension plan totals an
astronomical $90 billion; a bankruptcy filing would be the P.B.G.C.'s
biggest nightmare. G.M. says the notion is far-fetched. The company seems to
have plenty of liquidity and, just two weeks ago, with retiree costs a major
concern, it reached an agreement with the U.A.W. to trim health benefits.
G.M. and other industrial companies, along with their unions, have harshly
attacked the Bush pension proposal, which would force many old-economy-type
corporations to put more money into their pension funds just when their
basic businesses are hurting.
Alan Reuther, Walter's nephew and the U.A.W.'s legislative director, says
the provisions to restrict benefits would be "totally devastating for
workers and retirees." He makes no apologies for "30 and out" - a fair
reward, he maintains, for hard service on the assembly line - and he wonders
at the post-modern notion that blue-collar workers should be responsible for
their own retirements because giant corporations can't handle it. Also, a
typical G.M. pension for someone with 30 years on the job is about $18,000 a
year. That is hardly to be compared with an airline pilot's. "The P.B.G.C.
is focused on protecting themselves from claims and not on protecting the
claims of workers," he says. "They forget why they were created." Social
safety nets have their price - in this case, a little moral hazard - and
that is really what the debate is about.
What has emerged from the Beltway skirmishing thus far are bills on either
side of Congress that would in some ways tighten funding but give a special
break to airlines. Premiums to the P.B.G.C. would rise from $19 per plan
participant to $30, and variable premiums on distressed companies would be
enforced. The bills would chip away (but not eliminate) gimmicks like
The Senate is still divided, however, on how to treat corporations with junk
credit ratings - the ones most likely to wind up in the P.B.G.C.'s lap.
Hard-liners like Senator Chuck Grassley insist they should be forced to
strengthen their pension plans in a hurry; Senators Mike DeWine and Barbara
Mikulski (both from states with blue-collar constituencies) want to give
such companies lenience. So after months of lobbying, politicking and deal
making, moral hazard is still alive.
VIII. PENSION VS. POTHOLES
The P.B.G.C. does not protect government pensions, but dynamics similar to
those in the private sector have also wrecked the solvency of public plans.
Even in states where budget restraint is gospel, public-service employees
have found it relatively easy to get benefit hikes for the simple reason
that no one else pays much attention to them. In the corporate world,
stockholders, at least in theory, exert some pressure on managers to show
restraint. But who are the public sector "stockholders"? The average voter
doesn't take notice when the legislature debates the benefits levels of
firemen, teachers and the like. On the other hand, public-employee unions
exhibit a very keen interest, and legislators know it. So benefits keep
As a matter of practice, those benefits are as good as insured. Because
public pension benefits are legally inviolable, default is not an option.
Sooner or later, taxpayers will be required to put up the money (or
governments will be forced to borrow the money and tax a later generation to
pay the interest). Thus, unions can bargain for virtually any level of
benefits without regard to the state's ability, or its willingness, to fund
them. This creates moral hazard indeed. At least in the private sphere,
there are rules - ineffectual rules maybe, but rules - that require
companies to fund. In the public sector, legislatures wary of raising taxes
to pay for the benefits that they legislate can simply pass the buck to the
future. This explains how the West Virginia Teachers Retirement System has,
embarrassingly, only 22 percent of the assets needed to meet its expected
liabilities. It also explains how Illinois, a low-tax state, is underfunded
by some $38 billion, or $3,000 per every man, woman and child in the state.
California is a good example of the political forces that have driven
benefits higher. In the 90's, Gov. Gray Davis, a Democrat who was strongly
supported by public-employee unions, pushed through numerous bills to
increase benefits. One raised the pension of state troopers retiring at age
50 to 3 percent of final salary times the number of years served.
(Previously, the formula was 2 percent at age 50, more if you were older.)
Thus, a cop hired at age 20 could retire at 50, find another job and get a
pension equal to 90 percent of his final salary.
The higher benefits trickled down to the local level, as counties that
feared losing police officers to the state felt forced to copy the formula.
Counterintuitively, as benefits were going up, the California Public
Employees Retirement System (Calpers), which was boasting high returns in
the stock market, allowed state agencies and local governments to reduce
Contra Costa County, which adopted the "3 percent at 50" formula for its
Police Department, got by with contributing only $55 million to retirement
costs in 1999, near the market peak. When the market tanked, the county
found itself with lower assets and greater obligations. Six years later, the
county's retirement bill had more than tripled to $180 million. Bill
Pollacek, the county treasurer-tax collector, says the excess earnings from
the bull market were spent, among other things, on higher benefits; "the
losses were left for the taxpayers."
This example was repeated with various twists across the country. In New
Jersey, for example, Christine Whitman, the Republican governor in the 90's,
ultimately relied on buoyant stock-market predictions to finance hefty tax
cuts, which were the centerpiece of her administration. In 1997, New Jersey
borrowed $2.8 billion, at an interest rate of 7.64 percent. The money was
advanced to its pension system, on the convenient theory that its pension
managers would make more in the market than the state paid out in interest.
For a while, they did. The state even raised benefits.
Meanwhile, Trenton achieved a sort of transitory budget balance by
contributing less to its pension system. New Jersey's contribution to the
Police and Firemen's Retirement System was zero in 2001 through 2003. But
during the dot-com debacle, its investments plunged. And the state came
under intense budget pressure because of the recession, and so gave itself a
few years more to start paying down its pension liability (which further
widened the gap). This year, the last easy-funding year, New Jersey will
contribute $220 million to its pension system; by 2010, the annual bill will
be an impossible-seeming $2.5 billion.
I spoke to Jon Corzine and Doug Forrester, the candidates in next Tuesday's
gubernatorial election, and while each expressed the proper horror with
regard to past mismanagement, neither had much to say about how they would
replenish New Jersey's pension system. State pension officials say that if
New Jersey were a private corporation, its system would be nearly bankrupt.
"In the real world this is a P.B.G.C. takeover," Fred Beaver, the head of
the pension division, told me. Raising taxes is politically forbidden
(Forrester has been campaigning to cut property-tax rates).
And the state's reported pension underfunding, officially $25 billion, is
undoubtedly optimistic. It assumes that New Jersey's pension assets will
earn 8.25 percent, a number collectively determined - some say pulled from
thin air - by the state's pension council. Even Orin Kramer, a private
hedge-fund manager who also is also chairman of the council, says that any
assumption higher than 7.5 percent is unrealistic. "The published numbers
are divorced from economic reality," Kramer says. "No one even does the math
for what will happen if you only do 7 percent because it's too serious. You
start firing cops and teachers."
According to Barclay's Global Investors, if you use realistic assumptions,
the total underfunding in all public plans is on the order of $460 billion.
If this figure is even close to true, future taxpayers will be hopelessly in
hock to the police, firefighters and teachers of the past.
Cutting pensions (unlike health benefits) is simply not an option. State
constitutions forbid public entities, even prospectively, from reducing the
rate at which employees accrue benefits. They can tinker with, or abolish,
benefits for future employees, as Alaska did, but for a worker already on
the payroll, benefits - even benefits that might not be earned for many
decades hence - are sacrosanct. These benefits are like headless nails; once
driven in they can never be removed. This year, New York's Legislature
approved 46 new bills - more headless nails - to increase pension benefits,
according to E.J. McMahon, an analyst at the Manhattan Institute. New York's
benefits already rank among the most generous in the country, and the new
bills would expand categories of workers who can retire early, or who can
qualify for higher rates. Such bracket creep is pervasive.
One of the biggest pension offenders is San Diego, where six members of the
pension board, including the head of the local firefighters' union and two
other union officials, have been charged with violating the state's
conflict-of-interest code, a felony. What is interesting about San Diego is
that, juicy details aside, its pension mess actually looks rather
commonplace. The six board members are accused of making a deal to let City
Hall underfund the pension system in return for agreeing to higher benefits
- including special benefits for themselves. Explicitly or otherwise, this
is what unions and legislators have been doing all over the country. A
senior adviser on pensions to Gov. Arnold Schwarzenegger told me he fears
that ever higher benefits are inescapable, given the fact that legislators
control the benefits of people whose support is vital in elections.
Calpers, the country's biggest state-employee retirement system, responds
that the pension system has worked well. And for Calpers's 1.4 million
members, it has. The average benefit for retirees is $21,000 a year, more
than most at General Motors. But at some point, the interest of the public
and the interests of public employees diverge.
Earlier this year, Schwarzenegger tried to move California to a 401(k)-style
defined contribution plan (for new employees), but the Legislature refused
to go along. Schwarzenegger has vowed to revisit the issue in 2006. This
battle is being fought from statehouse to statehouse. Michigan (mimicking
Alaska) has closed its pension plan to some new employees, and various
states, including Florida, Colorado, South Carolina, Arizona, Ohio and
Montana, are taking a partial step of letting employees choose between
defined contribution plans and traditional pensions. This compromise does
not really change much. Most employees who are given the choice opt, quite
naturally, to keep their pensions.
Partly for that reason, the Citizens Budget Commission, a politically
neutral watchdog, concluded that only by ending pensions outright (for new
employees) could New York avert a future fiscal calamity. "Changes in
pension benefits for future workers would yield fiscal gains only slowly,"
the commission noted in a position paper, "but the service to the future
fiscal health of the City and State would be enormous."
Most legislatures are not about to do that anytime soon. There is a
legitimate argument for preserving public pensions, however, if only they
could be put on a sound fiscal basis. Critics like Grover Norquist, the
tax-cut crusader, lampoons pensions as remnants of a stodgy, Old World
economy. The desire to collect a pension, he argues, keeps workers from
moving to better opportunities and shackles employers to workers who are
just marking time.
But while mobility is generally considered a virtue in the modern economy,
it isn't appropriate everywhere. It may be desirable for a software engineer
to move from job to job, notes Robert Walton, a Calpers assistant executive;
"for teachers, firefighters, nurses, engineers, that isn't the type of work
force you want." Stability is a virtue. The trick is to force legislatures
to commit to funding with the same zeal with which they commit to benefits.
De Maio, the San Diego watchdog, is lobbying for a federal law that would
impose Erisa-type rules on public plans. Another solution might be found in
the Texas Municipal Retirement System, which represents 800 cities and towns
in the state. It has a blended system of automatic employer and employee
contributions that are managed by the system and turned into an annuity upon
retirement. These sorts of remedies could avert plenty of future San Diegos.
In principle they are quite simple. It is only the politics that are
IX. HOW DO YOU MAKE SAVINGS LAST A LIFETIME?
On the private side, benefits professionals have been touting so-called
cash-balance plans, a hybrid that in some ways looks like a 401(k), as the
best hope for saving the pension industry. With a traditional pension,
employees accrue benefits very slowly during their first 20 years and very
rapidly during their next 10 (this is why pension plans act as retention
tools; you pay a penalty for leaving early). Thus, an employee who stays at
a company for 30 years gets a much bigger pension than one who works at
three companies for 10 years each. Cash-balance plans were devised to appeal
to younger workers, most of whom do not envision retiring at the firm that
hired them out of college. In these plans, employees accrue benefits
steadily, one decade to the next. There is no penalty for leaving, and
workers who change jobs simply roll their accrued benefits into their next
plan, as with a 401(k). Many firms converted to cash-balance plans in the
90's to attract younger and more mobile workers.
But the downside of giving more to junior employees is that senior employees
get less. When I.B.M. converted, it reduced the rate at which some employees
of long standing would accrue benefits, touching off a firestorm. The
company was sued, I.B.M. lost and the legal status of similar plans remains
in doubt. The pension industry has been lobbying Congress to clarify the
status of existing cash-balance plans, but neither the administration nor
anyone on Capitol Hill has done so.
To some people, this is further evidence that the Bush administration would
just as soon be done with pension plans altogether. I put that recently to
Elaine Chao, the secretary of labor, and while her answer was diplomatic,
she made no bones about the fact that, in the administration's view,
traditional pensions are losing their relevance. "Defined benefit plans have
their advantages," she told me, "but in an increasingly mobile 21st-century
work force, the lack of flexibility of D.B. plans is yielding to greater
usage of defined contributions plans."
It's hard to argue with her, if you look at the numbers. Although 44 million
people are covered by private-sector plans, half are people who have already
retired and are collecting benefits or whose plans have been frozen or
terminated. In other words, on-the-job employees accruing benefits - once
the backbone of the system - constitute only half. At that rate, even
without legislation, the private-sector pension community will mostly die
off in a generation.
And pension sponsors are likely to get another jolt soon. Under current
accounting standards, companies can "smooth" their earnings reports, so that
each quarter's net income reflects the average assumed performance of the
company's pension assets, whether up or down, but not the actual
performance. (Discrepancies from the average are sifted back into the
earnings stream over time.) This means that reported earnings are often
wildly misleading. Robert Herz, chairman of the Financial Accounting
Standards Board, has criticized this practice as "a Rube Goldberg device."
If FASB follows up and disallows it, corporate pension sponsors would have
to cope with a lot more volatility in their earnings. Managers hate
volatility, and such a change would prompt many of them to fold their plans.
If defined benefits are on their last legs, then it would make sense to try
to incorporate their best features into 401(k)'s. The drawback to 401(k)'s,
remember, is that people are imperfect savers. They don't save enough, they
don't invest wisely what they do save and they don't know what to do with
their money once they are free to withdraw it. Quite often, they spend it.
Here there is much the government could do. For instance, it could require
that a portion of 401(k) accounts be set aside in a lifelong annuity, with
all the security of a pension. Behavioral economists like Richard Thaler
have demonstrated that you can change people's behavior even without
mandatory rules. For instance, by making a high contribution rate the
"default option" for employees, they would tend to deduct (and save) more
from their paychecks. If you make an annuity a prominent choice, more people
will convert their accounts into annuities.
Otherwise, it's not hard to predict that as octogenarians and nonagenarians
become commonplace in society, many are going to outlive their savings,
which is even more scary than outliving the savings of the P.B.G.C.
Promoting an annuity culture is probably the single best way to make up for
the demise of pensions. Yet most companies that provide 401(k)'s don't even
give the option of purchasing an annuity when people cash in their accounts.
As Brown, the Illinois professor, notes, "There is no box to check that says
'annuities."' That is a minor scandal. "I wish someone in Washington were
thinking bigger thoughts about what the optimal retirement package should
look like," says Watson Wyatt's Coronado.
What are Secretary Chao's thoughts? She bounced the question to the Treasury
Department. Mark Warshawsky, the Treasury's top economist, has written about
the need for annuities, and in an interview he allowed that as 401(k)'s
become the primary, or the only, source of retirement income for more
people, "I think it is a concern that annuities are not being offered in
those plans." When I asked what the Treasury was doing about encouraging
annuities, Warshawsky merely said that it was under study. Anything that
smacks of regulation (like rules to make sure employees get a particular
menu of choices, whether for annuities or for their portfolios) gives the
administration shivers. This is what you would expect, given the
administration's strong free-market tendencies.
But the government is already deeply involved, since it shelters retirement
savings - pensions, yes, but also 401(k)'s, which are similarly permitted to
grow tax-free. When it passed Erisa, Congress agreed that corporations that
invested tax-sheltered retirement funds - pensions - should have to live by
certain rules. But in the defined contribution world - the world of 401(k)'s
- there are no rules. Employers can contribute or not. Employees can
diversify or blow it all on the company stock (even if it is Enron). If
nothing else, the century-long experiment with pensions has proved that in
the absence of the right rules, the money will not always be there. The
purpose of pension reform should be not merely to avoid a fiscal disaster
but to find a fiscally sound way to preserve the likelihood of secure
retirements. If people are going to retire on 401(k)'s, those should be
subject to rules, and guidance, as well.
It would be nice to think that reform would include a future for pensions,
but on the private side at least, it is doubtful. As Delphi's Miller put it
simply: "A pension plan makes no sense in today's world. It's not wise for a
company to make financial promises 40 or 50 years down the road." Most
American executives would agree. Miller says he has not decided what to do
at Delphi. If workers grant wage concessions, he has said, the pension plan,
which is $4.5 billion shy of what it needs, might even survive. This has the
sound of a bargaining ploy. Knowing that the P.B.G.C.'s guarantee is in
place, the unions will probably insist on keeping their wages as close to
intact as they can, and Miller will probably end up handing the pension plan
over to the agency, just as he did at Bethlehem. Then, Miller and other
executives will get stock and dandy bonuses in a new Delphi that is happily
stripped of pension obligations, and some 45,000 employees and retirees
will, in time, happily collect their pensions - courtesy of the U.S.
Government. Moral hazard at work.
Roger Lowenstein, a contributing writer, has written about Social Security
and health care reform for the magazine.
- History: The Dragons of Expectation by Robert Conquest
REVIEWED BY JOHN CAREY
THE DRAGONS OF EXPECTATION: Reality and Delusion in the Course of History
by Robert Conquest
Duckworth �18 pp272
If Robert Conquest�s thought were not so challenging, it would be easy to
dismiss him as a colossus from a past age. Born in 1917, he counted Kingsley
Amis and Philip Larkin among his friends, and won fame as a poet as well as
a historian. He traversed the whole political spectrum, joining the
Communist party in 1937 and, in the 1980s, writing speeches for Margaret
Thatcher. As an intelligence officer during the war he was posted to
Bulgaria, and it was watching the post-war Soviet takeover there that
disillusioned him with communism. The Great Terror, which he published in
1968, gave a ground-breaking account of Stalin�s purges in the 1930s, and
was furiously denounced by western intellectuals. He followed it, in 1986,
with The Harvest of Sorrow, telling the story of the collectivisation of
agriculture under Stalin, during which millions of peasants died of
starvation. The persistent denial of Stalin�s crimes by the leftist
intelligentsia was, he insisted, �an intellectual and moral disgrace on a
Time has proved him right. After the opening of the Soviet archives under
Gorbachev, Conquest published The Great Terror: A Reassessment, which showed
that he had, if anything, underestimated the atrocities. His new book adds
chilling details from recent archival research, but its eye is on the future
not the past. What can we learn from the Soviet catastrophe, he asks, that
will help us survive? 9/11 has brought home to us that �the world that
Americans and other Westerners full of goodwill want to mount and ride, feed
and pat, is not a sweet-tempered little pony but a huge vile-tempered mule�.
How should we respond? The ideas he comes up with have all been aired
elsewhere in his writings, but that makes The Dragons of Expectation a
useful compendium of his thought, and it is also a cracking read.
His starting point is a distrust of all utopias, theories and abstractions.
He blames the 18th-century continental enlightenment and the French
revolution for spreading these evils among Europe�s thinking classes.
Unfortunately, he notes, intellectuals always feel superior to ordinary
citizens, so they are a prey to �intoxicating generalisations� that common
sense would instantly dismiss. Usually, too, like the founders of Soviet
communism, they are seized with an unshakeable sense of their own
righteousness, which is the most lethal of human infections, and the most
prolific source of slaughter, terror and savagery. It follows, he deduces,
that America and the UK have nothing to learn from 300 years of continental
political thought. Rather their model should be the British enlightenment, a
slow growth dating back to the middle ages, that has evolved a �disorderly
pluralist� society, underpinned by custom and the rule of law, which allows
the maximum individual liberty, and consequently the greatest release of
creative energy into humanly profitable fields.
This, for Conquest, is civilisation, and measured against it the rest of the
world can be divided into �civilised, semi- civilised, and uncivilised (or
decivilised) countries�. The enemies of civilisation can be identified as
minds closed to tolerance and pluralism, as exemplified in Iraq and North
Korea. Fanaticism is always uncivilised. So, too, is over-keenness on
politics. �All the major troubles we have had in the last half century have
been caused by people who have let politics become a mania�. He prefers
apathy, and sees nothing wrong with 30% or 40% of the population not voting.
Boredom with politics and politicians has saved Britain from the worst
excesses of doctrinaire thought, and from the illusion that all problems
have a �solution� that the state can put into effect. One of our few utopian
mistakes, for Conquest, was the introduction of the National Health Service.
Based on the �absurd assumption� that free health care would mean a great
improvement in health, and, therefore, less demand for the service, it has,
he observes, saddled us with limitless expenditure that no party knows how
This judgment, flung off casually in the course of an argument, is typical
of Conquest�s fasten-your-seatbelts thinking. He has little time for the
United Nations. Although it has been offered to the world as the highest
representation of humanity, many of its member states are, he judges,
uncivilised, and hold out no hope of becoming civilised in the future. Its
debates are dominated by the �unreal, high-flown, old continental
vocabulary�, which demands that declarations must be made about �human
rights�, although it is taken for granted that about half the membership
have no intention of conforming. It follows that it cannot be effective in
preventing hunger, poverty and genocide. Conquest proposes instead, as an
immediate stopgap, a new western alliance of the states that supported
America and the UK in 2003. They should, he believes, use military force if
necessary to bring rogue states to heel, and prevent the kind of barbarism
seen recently in the Sudan. Such intervention will, he realises, be
denounced as �imperialism�, but that word, like �fascism�, �racism� and
others, is for him simply one of the �mind-blockers� that befuddle thought
in utopian backwaters such as the UN.
However, the most monstrous modern outgrowth of utopianism is not, he
believes, the UN but the EU. Ruinously expensive, riddled with corruption,
and bureaucratic on a Byzantine scale, it aims, as he sees it, to build a
�regulationist superstate� in pursuit of the kind of high, transcendental
dreams that have always seduced ideologues. Britain should, he counsels,
withdraw from it and join, in due time, a much looser association of
English-speaking nations which he calls the Anglosphere. This would have a
consultative council, with the USA appointing 49% of the members, and the
rest divided between Britain, Canada, Australia, the Caribbean, and others.
The association would be headed by the President of the United States, and
the Queen would be incorporated with �some such title as �Queen in the
Association��. Its Foreign Policy and Military committees would have
competence over the entire world, and would raise its own forces in order,
for example, to prevent coups by pro-totalitarian elements.
All this sounds just as utopian as anything Conquest derides, and it calls
to mind, indeed, the fantasies of HG Wells, who was similarly convinced of
the superior civilisation of the English-speaking races. However, Wells,
like Conquest, has been proved right by history � on such matters as
overpopulation and the destruction of the planet�s natural resources.
Besides, Conquest is careful not to present his ideas as a blueprint, just
the way things might develop, �an exercise in political and cultural
science-fiction�. He has a historian�s long perspective, usefully reminding
us that in a couple of centuries, let alone a couple of millennia, all our
cherished credos and politically correct assumptions may appear as primitive
delusions. This is a book that leftist intellectuals should read a little of
every day, being sure to breathe deeply and loosen any constrictive clothing
Available at the Sunday Times Books First price of �16.19 on 0870 165 8585
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