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First, many of the industry's concerns over the past 12
years--surplus distribution, the retirement and investment education of a rapidly
aging population, and the fragmentation and overlapping regulation of the pension
industry--are still unresolved. Unfortunately, these issues are likely to remain
concerns for the next decade or more.
Second, the world has changed enormously in the last 12
years, and the impact of those changes will affect the pension industry as much as
any other. The end of the Cold War brought with it many things-- lower government
spending to pay off deficits, disinflationary economic growth, declining barriers
to trade, a stream of new technologies that have brought people closer together and
the real possibility that wealth creation would spread around the world.
At the same time, financial responsibility for life after
work moved rapidly from government and employers to employees. In many Canadian
organizations, defined benefit plans morphed into defined contribution plans, while
tax-sheltered retirement plans were curtailed. It didn't seem to matter much what
professionals or laymen knew about investing. No matter what the asset mix,
everyone was making money as markets rose without serious interruption for a decade
or more.
It matters now, though, as interest rates have fallen to
40-year lows and equity markets, in both the high-technology and traditional
sectors, demonstrate a volatility that hasn't been seen for two generations.
A NEW THREAT
Today, the Western world faces a threat of unknown dimension. In our lifetime we
have seen burst bubbles (silver in the 1980s and technology last year), bear
markets (1972-75, 1987 and 1990-91) and recessions (1982 and 1990). None of that is
new. What's new now is the combination of all these factors and the terrorist
attacks on the U.S.
So far, the American and other administrations around the
world have meted out the proper policies to deal with the violent impact of
terrorism on North American economies, such as rescue packages and lower interest
rates to go along with the earlier tax cuts.
The big question, which the future of 400 million North
Americans (and billions of people around the world who aspire to something akin to
it) depends on, is the military, political and diplomatic success the West achieves
in stopping terrorist activity abroad and at home.
WAR ON THE WEST
From my perspective, we are waging a war of ideas and values. It calls into
question an issue that we thought was settled with the collapse of the
U.S.S.R.--just how universal are Western values?
The problem of achieving success is that the terrorists are
using the very avenues that brought us economic growth and wealth creation--the
Internet and the increased flows of trade and people--to attack the West. Stopping
terrorists may very well mean stopping prosperity.
How we can achieve success on this front is well beyond the
scope of this column and it is clear that the war on terrorism has implications
that touch every aspect of our lives. But just to keep this column in focus, it has
vast implications for how each of us rethinks our personal financial and lifestyle
goals. It has even greater implications for pension professionals who strategize
and invest other people's money.
Let us pray that strategists in every discipline count in the
war of ideas and values, and get it right. BC
Dian Cohen is the co-author of a recently published
book, Net Results, about the promise and potential of expanded trade and
telecommunications, and the bleak outlook for the world should they be shut down.
www.netresults2002.com.
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