Public and Private Approaches for Redesigning Social Security
The economics and demography of financing retirement transcend geography and ideology. In the United States, both the Republican-dominated Congress and the Democratic president advocate, though to different degrees, cuts in Medicare and Medicaid and the reform of welfare programs. Similar discussions are gaining prominence in Latin America, Eastern and Central Europe, the former Soviet Union, and countries of the Organisation for Economic Cooperation and Development. Even Scandinavia, the mecca of social programs for the elderly, is not immune. In 1994, Sweden's opposition Social Democratic Party ran in the national election on a platform of raising taxes and cutting both social and defense spending in order to reduce the country's bulging budget deficits and massive national debt. This center-left political party, which had been responsible for building one of the world's most advanced welfare states, managed to win on that platform. Almost everywhere, in industrialized and developing countries alike, the same demanding question is being asked: Which offers better ways to provide for the older population now and in the future--public or private approaches?
In this chapter, I will summarize the World Bank's recent criticisms of social security programs and its proposal for a multipillar system of welfare payments and savings. I will then address the important issues of privatization and the major reasons for the financial problems of social security