John Ralfe considers himself a realist. In a conversation yesterday about my blog on the application of CDC to Britain’s current pension problems he tweeted that the solution to our DC problem is
@henryhtapper @sus_pension @glesgabrighton Save more, work longer, minimise transaction costs, stay away from magic beans
— John Ralfe (@JohnRalfe1) March 21, 2015
Which demonstrates that whether Ralfe attracts or repels, he is magnetic.
Many people who he repels have difficulty in articulating why, other than he is so assuredly wrong (and often rudely dismissive in the process). But this does not worry him, for within the confines of his world view he is 100% right, and can take on all comers.
But John Ralfe’s world fails; it fails because it is unable to consider things any way than how they are. He cannot, for instance, see how CDC might improve member outcomes as he cannot imagine disintermediation through better governance, efficiencies through mortality pooling and reduced marketing costs feeding through into better DC outcomes.
He has no negative capability, he cannot imagine and is content to dismiss anything which does not sit on his desk as “magic beans”.
This is not the same as “don’t convince me of the facts- my mind’s made up” as John Ralfe will always point to “fact” being what sits on his desk. Fact is the current accounting position of a pension fund, not the possible position according to a series of funding assumptions. Fact is that fund management costs are what they are, not what we imagine they could be….and so on.
I am not dismissing John Ralfe’s way of thinking as it has important advantages. It focusses people on the here and now. Working longer, saving harder and not trusting in a Deus Machina cannot be argued with. I favourited John’s tweet.
But to leave matters there is not good enough.
I first came across the idea of “negative capability” when I was studying John Keats for O level and read his letter to his brothers where he criticised Coleridge in the way I will criticise Ralfe
“I mean Negative Capability, that is, when a man is capable of being in uncertainties, mysteries, doubts, without any irritable reaching after fact and reason”.
For Keats, Coleridge pursued “knowledge” so hard that Coleridge missed the point.
200 years earlier, the poet Andrew Marvell had described
The mind, that ocean where each kind/Does straight its own resemblance find/Yet it creates, transcending these/Far other worlds, and other seas.
Keats’ labelled the point “beauty” which surpassed what we can “know”. Marvell likened it to “annihilating all that’s made to a green thought in a green shade”.
These are formulations that Ralfe will undoubtedly label “magic beans”.
But to leave matters there is not good enough…
Roberto Unger took up the phrase of negative capability and applied it to modern economic theory seeing it as the
“denial of whatever in our contexts delivers us over to a fixed scheme of division and hierarchy and to an enforced choice between routine and rebellion.”
Unger thought that it was through negative capability that we can empower ourselves against social and institutional constraints, and loosen the bonds that entrap us in a certain social station.
If this still sounds at the “top of the ladder of abstraction” to use a Vincent Franklinism, then consider this from Unger
An example of negative capability can be seen at work in industrial innovation.
In order to create an innovator’s advantage and develop new forms of economic enterprise, the modern industrialist could not just become more efficient with surplus extraction based on pre-existing work roles, but rather needed to invent new styles of flexible labor, expertise, and capital management.
The industrialist needed to bring people together in new and innovative ways and redefine work roles and workplace organization.
This sounds very much like what I am after with CDC. I can only see the value of CDC in the context of the constraints placed on DB and annuities (guarantees) and the chaos resulting from non-advised Income Drawdown.
It is the job of some people to see beyond the constraints of the present. That’s how we get progress. That’s why David Pitt Watson constructed the “Towards Tomorrow’s Investor” project through the Royal Society of the Arts. David has done the heavy lifting, I am simply commentating on how the radical application of the negative capability within pensions can be released and applied to better pension outcomes.
There is nothing very abstract in the application of these ideas. John Kay has amply demonstrated that we can improve the amount people get out of pensions, by cutting out layers of intermediation that add little and take away a great deal.
CDC does just this
- It can cut fund management costs by using just one fund which can properly focus on value for money
- It can cut the cost of distribution by being established as a “regulatory own fund”, not a personal pension or an occupational pension (constraining collectivity)
- It can cut the cost of protecting against longevity by reducing the need for insurance or capital products (longevity derivatives)
All of these things are counted as “magic beans” in John Ralfe’s formulations. The only way they could not be, would be to run a CDC scheme for twenty years and deliver the results to John Ralfe’s desk. At that point CDC would become real.
But, for John Ralfe, that cannot happen, as it would involve people wasting their time, on what he considers the fruitless endeavour of making it happen, of chasing after rainbows- magic beans.
Negative capability describes the capacity of human beings to transcend and revise their contexts. If we dismiss it as “magic beans” we are committed to repeating the mistakes of the past – and- as we all know – that way is madness.
