Twenty years after the promoters of the North American Free Trade Agreement (NAFTA) heralded a new age of prosperity, tens of millions of people in the member nations of the trinational trade and investment pact look forward to an impoverished retirement. While in the United States and Mexico, huge segments of the working-age population could wind up with a retirement income-if any at all- befitting paupers, even in relatively better-off Canada the status of retirees is showing signs of slippage.
As all three NAFTA countries undergo workforce aging trends, the implications of a multinational retirement crisis in the coming years will be profound for the economic and social health of the region. Recent reports, including the one issued last month by the Organization for Economic Co-operation and Development (OECD), carry somber warnings for the futures of millions as they approach their golden years.
For U.S Senator Elizabeth Warren (D-Mass), the emerging retirement crunch is a “crisis that is as real and as frightening as any policy problem facing the United States today.”
Despite U.S. media fantasies of an emerging, vibrant Mexican “middle class,” the country is in the worst shape of the NAFTA states in the retirement category, according to the OECD report. The study found that today’s Mexican workers will likely see a retirement income worth 28.5 percent of their average salary, which is an amount far lower than the OECD average of 54 percent.
According to the report, Mexico’s retirement shortfall is even graver, when considering that nearly four out of ten workers had no retirement plan at all in 2010. The high number, the study’s authors note, is reflective of the “great proportion” of informal employment in the country.
Another recent study by the MetLife insurance company reported that 63 percent of 434 fulltime Mexican workers surveyed expressed fears that their retirement income would be insufficient, while the percentage of Mexico workers who predicted they would have to work until age 71 doubled to 13 percent from a similar survey done in 2011.
In an interview, Elizabeth Flores, director of the Roman Catholic Church’s labor justice ministry in the border city of Ciudad Juarez, spoke about the dual laws governing Mexican retirements, the trend toward privatizing pensions, and the structural weaknesses of a system pushed by government and the financial industry since the late 1990s.
Flores said workers fall under either the pre-1997 law of benefits or a newer system of individual retirement accounts known as AFORES. A joint November 2013 report by the US-Mexico Chamber of Commerce and the federal taxation secretariat revealed that AFORES now total 49.86 million accounts valued at $152.24 billion, or 12.7 percent of Mexico’s GDP.
Although Mexican pensions are required to make minimum payments of 2000 pesos per month, or about $150, the AFORES accounts disappear when the money in them, which is dependent on worker contributions, is spent, Flores cautioned.
“With the salaries we earn, nobody can contribute,” Flores said. “The problem here is that nobody can save.”
Similar to some state programs, a proposal by the Pena Nieto administration to create a universal pension of about $84 per month for anyone over 65 years of age is currently awaiting final action in the Mexican Congress. Flores likened such initiatives to charity, adding that in cities like Ciudad Juarez a retiree needs at least quadruple the pension proposed by President Pena Nieto just to cover basic necessities.
Another big deficiency, she said, is with widows and survivors’ pensions. Flores cited the October 24 explosion at the Blueberry candy factory in Ciudad Juarez that left eight male workers dead. The plant, which has a history of safety and environmental violations, makes candy for large U.S. retail chains.
According to the labor rights advocate, widows of the dead workers are only eligible for 40 percent of 70 percent of each deceased worker’s salary. Additionally, up to three children are eligible for additional payments in the 20 percent range, as long as the total amount paid out does not exceed the sum total of the dead worker’s salary.
“What are the families going to do? How are they going to live?” Flores asked. “All the children are going to have to work.” Unless the families find lawyers willing to sue Blueberry, the survivors are basically on their own, the director of Ciudad Juarez’s Pastoral Obrera said.
“I think we’ve arrived to the situation of the Greeks, when the children of the slaves were slaves,” she added.
U.S. retirement crisis looms
In many respects, the United States is sliding down the same tunnel to retirement hell with Mexico.
In a Washington speech last month, Senator Warren laid out the grim parameters of the looming retirement crisis north of the border. According to the first-term senator, one-third of all working families have no retirement savings at all.
In the private sector, only 18 percent of workers have traditional pensions paying set amounts of money-down from the 35 percent of such workers who had the benefits 20 years ago.
Like Mexican workers with their AFORES accounts, U.S. workers have been steered into 401(k) plans that depend on contributions from the workers and/or their employers. The money is invested in Wall Street, subjecting retirees to “the mercy of a market that rises and falls, and sometimes, at the mercy of dangerous investment products,” Warren said.
The former special advisor to the Obama administration’s Consumer Financial Protection Bureau, Warren warned about the futures of 44 million U.S. workers who receive no retirement assistance whatsoever from their employers.
Some even look to gambling as the answer to their retirement dilemmas, such as the man at the gas station purchasing New Mexico lottery tickets who told the cashier that a big win would mean retirement and a “little house on the prairie ”
Until now, Canadian retirees had much better prospects than their counterparts in the two NAFTA partner nations. Nonetheless, the latest OECD study spots negative trends. Old age poverty, for example, afflicted 7.2 percent of the elderly population, a number well below the OECD average of 12.8 percent, but still an increase of two percentage points from 2007 to 2010.
In an analysis of the OECD’s Canadian findings, writer Yalbaz Sadakova noted a feminization of poverty, especially among older women who might be retired after a work career laced with part-time work, lower wages and professional interruptions.
Since workers in Canada, the United States and Mexico labor in an increasingly integrated economic system, all are affected by the same rules and dynamics that govern trade, investment, wages, and livelihoods.
Attack on pensions
Now a shell of its former self, Detroit could be the poster child for neoliberal economics and workers’ retirement prospects. Hammered by foreign-produced imports and then the offshoring of the auto industry, especially to Mexico, Detroit was additionally bludgeoned by subprime mortgages, high-interest bank loans to a pliant city government, declining tax revenues, and underfunded government contributions to pensions. When the city sank into ruin, retired workers who earn an average of $19,000 per year were asked to pay for the wreckage.
After 20 years of NAFTA economics, Detroit’s urban landscape of 80,000 abandoned properties, according to the count of Dollars and Sense magazine, is strikingly similar to the 50,000 or so abandoned homes reported by the local press in a hub of auto industry offshoring- Ciudad Juarez.
Detroit presents an ominous warning for pensioners everywhere. Overruling the Michigan Constitution that protects public worker pensions, US Bankruptcy Court Judge Steven Rhodes’ rejection this month of a union challenge to the city’s move towards bankruptcy opens the door not only to the slashing of retiree pensions in Detroit but similar maneuvers in other fiscally-troubled U.S. entities, constitutional and labor contract guarantees notwithstanding.
Not to be outdone, the Illinois State Legislature followed Rhodes’ ruling by voting to increase retirement ages and cut cost-of living increases for state workers, including current employees.
Ross Eisenberry, vice-president of the Employment Policy Institute, called the Midwestern developments “wage theft on a huge scale.”
The twin assaults on public pensions marked the latest skirmishes in an ongoing offensive across the NAFTA zone, where state workers are practically the last segment of the labor force enjoying traditional retirements.
In both the United States and Mexico, the pension vandals have achieved a large degree of both ideological and practical success, whipping up sentiment among private sector or non-unionized workers with few pension rights against “lazy,” “irresponsible” and allegedly “privileged” teachers and other public employees.
On a state-by-state basis, the U.S. campaign against public pensions is coordinated by organizations like the conservative State Policy Network, a grouping funded by the likes of billionaire David Koch and the Kraft food corporation, according to London’s Guardian newspaper.
Yet in a graying North America where consumer spending drives the day, cutting wages for relatively stable jobs and slashing retirement incomes stoke a vicious cycle in which less money is going towards pensions in the first place, retirees have fewer dollars or pesos to spend, and local economies suffer the consequences of a reduced consumer spending base.
In the NAFTA zone, struggles over pensions and social security will be at the center of 21st century social and class conflicts.
The battles brewing at national, state and local levels do not always fall along neat partisan lines. For instance, the U.S. Democratic Party is divided between forces supporting retirement austerity like the banker-dominated Third Way organization, staunch Social Security defenders like Sen. Warren and President Obama, who waffles between defending Social Security from Republican molestation but flirts with schemes like the so-called “Chained C.P.I.” of future benefit reductions for program recipients. U.S. Rep. Peter DeFazio (D-Ore.) recently termed the C.P.I. a “cruel attack” on people dependent on Social Security.
A similar political dynamic is underway in Mexico. In Chihuahua, 400 elderly protestors recently staged a demonstration for money due them under a state program that supposedly pays senior citizens an $80 per month “pension” to help tide them over.
Echoes of the U.S., alleged pension raiding at the University of Colima and in the former Ciudad Juarez municipal government are stirring protests and scandals.
In both countries, struggles over the future of retirements will boil down to political choices between strengthening and expanding, in innovative ways, national social security systems that benefit everyone, or continuing along the route of individual retirement accounts subject to the topsy turvy, casino-like fortunes and frauds of Wall Street and the Mexican stock market.
Meantime, raising wages-and by virtue pensions-is an urgent necessity, according to Pastoral Obrera’s Elizabeth Flores. The alternative, she stressed, is a not-so-distant future in which there is an “emergency situation of people dying in the streets, who don’t have anything,” Hovering around $6 a day, Mexico’s current daily minimum wage barely covers a meal out and public transportation to and from work. “The minimum wage has to be a real minimum,” Flores insisted.
Kent Paterson is a freelance journalist who covers the southwestern United States, Mexico, and Latin America. He is a regular contributor to the CIP Americas Program at www.americas.org