Cover your posterior isn't the long-term answer

Future Generations

Politicians have a problem with posterity. Benjamin Disraeli wrote that "the youth of a nation are the trustees of posterity", and the youth vote is certainly something that politicians try to chase. But if you look at what politicians do, rather than what they say, the record is abysmal.

Take two hot political issues of the autumn, the environment and pensions. In a couple of weeks' time there will be another global summit on the environment, in Kyoto, Japan. You have probably already noticed that there is a row brewing. If the build-up of global warming gasses is to be curbed action is needed now: the longer the delay the more serious the problem. But the developed world, already failing in the main to meet the CO2 emission targets agreed at the last earth summit in Rio, is now finding great difficulty in agreeing on a new set.

The US in particular finds itself in the dock, but for others to shout at the present US Administration is pretty pointless. The problem is not with the Administration, for the vice-president, Al Gore, author of Earth in the Balance, is one of the US's most articulate environmentalists. No, the problem is democracy: voters in America - and not just America - will not support the significant increase in energy taxation which might curb energy use.

The difficulty is not confined to developed countries: the developing world, to generalise, is even more reluctant to accept curbs on the growth of emissions - even though the long-term impact of climatic change would seem a more serious threat to most developing countries than to the developed. Countries in temperate zones could cope more easily with global warming than those in the tropics.

Now take pensions. Pay-as-you-go pensions - where each generation of people of working age pays the pensions of the previous generation, now retired - are the standard model for state pensions in the developed world. But a system designed for a ratio of about six workers to every pensioner (the norm in the 1950s) cannot work when there are only two workers for every pensioner - as will be the case in 2030 when people now in their 20s and 30s will be drawing their pensions.

Every politician with a social security brief knows this. The IMF has calculated that the projected deficits of the social security systems of Italy, France, Japan and Germany will by 2050 be more than three times their GNP.

But hardly anything is being done. By rights governments ought to be running large surpluses now to take into account these future liabilities, but with a couple of exceptions they all run deficits. Here at least we are now thinking of pension reform, and it looks as though we will move to some kind of system where people who can afford to save for their own pensions will be encouraged, even forced, to do so.

We are lucky, too, in having a developed system of private sector pensions. In that sense we are perhaps more advanced in our pension planning than any other large democracy. But, despite this, in his first budget the Chancellor actually increased the tax burden on company pension funds. Somehow we will all have to save more. Later this month, when the outline budget for next year is presented, look at what he actually plans to do about taxation of savings, not what he says.

If politicians find it hard to think long-term, what alternative is there? In some areas financial markets can help. It may seem strange to argue that markets have a longer-term focus than politicians. But whenever a government issues a bond maturing in 30 years' time, the investors are taking an implicit view on credit-worthiness and inflation over the next 30 years. Investors who buy companies whose shares trade on 30 years' earnings are making a long-term judgement that these companies will prosper.

So to some extent - and I think pensions are very good example - the markets are more appropriate mechanisms for making a judgement than politicians. To whom would you rather entrust your pension: a big life assurance company like the Pru or the unknown politicians who will be running the show in 2040?

But there are some problems that markets cannot fix. Coping with global warming is one. The outcome is too uncertain, the period too long, for markets to signal now that, say, the price of oil should be three times its present level. Of course we should be conserving energy now, in the interests of the generations to come. But the markets will not make us do so.

What can? What mechanism can there be which will counter-balance the short-termism of democratic politics? I suppose the question would seem odd to any other generation. Our ancestors who built the medieval cathedrals understood perfectly the idea of creating something that would not be finished in one's own lifetime. Individually we still are prepared to make sacrifices now for people to benefit from in the future. But collectively we do not seem to be able to do so.

Or at least not through government. Surveys repeatedly show disdain towards politics, particularly among the young. But maybe that is because choices are not presented in full. That surely is the enormous challenge for politicians: to explain the consequences on future generations of present policies, and where politics cannot solve a problem, move the decision- making process out of the politician zone. I suppose handing monetary policy to the central bank is a good global example of politicians accepting that influencing the value of a currency is too important to be left to elected representatives. But not every decision can be relocated, even if politicians wanted to withdraw from present areas of power.

I have no magic wand here, but I can suggest a place to start. It is for politicians to test every idea, every policy for its impact one generation hence. Perhaps the Government should be required to attach a "posterity impact statement" (on the model of environmental impact statements) to every bill it presents to Parliament. They should ask the question - how will this policy affect people in, say, 2020? - and try and give an honest answer. Who knows, it might even attract the youth vote. It would certainly perform that other function, expressed by US author William Safire: "Cover your ass - the bureaucrat's method of protecting his posterior from posterity."