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Pensions Dull America's Global Edge, Economist Says

Federal, state and local governments, along with many private companies, are struggling to get their finances in order, and many are looking at one major cost: pensions. Many pensions in the U.S. aren't sustainable, one economist says, and they've been dulling America's competitive edge for years.

"Companies have to make investment decisions, and having inordinate or very sizable pension costs means that their business strategy inherently has to change," says Dambisa Moyo, who has worked for investment firm Goldman Sachs and the World Bank.

"This has made American companies relatively uncompetitive when compared to their international counterparts, which have much more flexibility in the labor space and have not had the burden of pension costs anywhere to the degree that Western industrial companies have."

Moyo, the author of How the West Was Lost: Fifty Years of Economic Folly — and the Stark Choices Ahead, tells Morning Edition's Steve Inskeep that the problem with U.S. pensions is the way they're structured.

"These are essentially what in financial terms were called 'out of the money options,' " she says. "They absolutely rested on the fact that we needed a larger, younger workforce that was always going to pay for an older generation."

But the shift in demographics means many more old-age pensioners are relying on a much smaller and shrinking work base, she says: "And we knew this, but it's one of these very convenient things that policymakers have been able to kick to the future."

Many corporations have been cutting pensions in recent years, either walking away from them — often illegally — or negotiating to get rid of them, or some have been handed off to the federal Pension Benefit Guaranty Corp.

Moyo says companies are doing this simply because "something has to give." And although the private sector seems to have come to terms with that idea "very begrudgingly," there isn't much clarity on how the public sector is handling it.

But "arguably the biggest problem that the United States faces over the medium term," she says, is Social Security — which Inskeep calls "the biggest of all pension plans."

Social Security, Medicare and Medicaid combined account for around 40 percent of the U.S. budget, she says.

"Your programs have to be viable, and something has to give," she says.

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