Social protection: What workers and trade unions should know

Labour Education 2000/4 No. 121

Contents

Editorial V

Overview Globalization and social protection: Myths, utopias and realities, by Alejandro Bonilla García 1 Social dialogue on pensions: The experience of industrialized countries, by Emmanuel Reynaud 6 Social security: Towards a renewed commitment for universality, by Mohsen Ben Chibani 11

Africa From humanitarian aid to sustainable protection, by Lambert Gbossa with Bernardin Gauthé 17 Inventory of social protection in Portuguese-speaking African countries, by Alessandro Giuliano 23

Asia-Pacific Region Improving public financing of social protection in Asia: The cases of China, Thailand and Lao People’s Democratic Republic, by Anne Drouin 29

Central and Eastern Europe Pension restructuring in Central and Eastern Europe: An analysis of recent trends, by Elaine Fultz and Markus Ruck 39

The Americas Experiences in the Americas with social security pensions and their reform: Lessons for workers and unions, by Carmelo Mesa-Lago 51

III

Editorial

Social protection has been at the centre of debates, at times heated ones, in many countries over the last few years. Where it is hardly existent, discussions have focused on what level of protection should be granted, who should benefit, who should pay and who should manage it. Where social protection has been anchored for generations the debate has centred on whether present schemes are sustainable in the long term and what reform, if any, should be introduced to secure sustainability. There is no secret that for millions of workers in the developing countries, deprived of any sort of social protection, the security “enjoyed” by workers in the “North” is regarded with hope. Yet this “security” is the result of long- lasting struggle and social dialogue in which trade unions played a sig- nificant role. And this “security” remains fragile as reforms at times become a recipe for dismantlement or disguised attacks on fundamental rights. Everywhere social protection is on the agenda. And, most appro- priately, it is on the agenda of this year’s International Labour Conference in June where it will be the subject of a general discussion. On the eve of such an important debate, the first at international level, Labour Education decided to take stock of the situation and explore ways forward both to extend social protection to all and to examine experiences in different parts of the world. Much has been said about social security, and misconception, exag- geration, preconceived ideas and peremptory judgements are not absent in the talks. Labour Education attempts in this issue to examine the ques- tion with sobriety. Social security is too vital an area for millions of peo- ple to substitute ideology or profit for experience or common sense. First, social security is not a luxury. It is a fundamental human right, included in the International Covenant on Economic, Social and Cultural Rights. And, as one of our contributors rightly stresses, it remains one of the key mandates of the International Labour Organization (ILO). Secondly, too many people are still deprived of this basic right; in fact half of the world’s population remains without access to social pro- tection. The Social Security (Minimum Standards) Convention, 1952 (No. 102), has only been ratified so far by 40 countries. Thirdly, the growth of the informal sector, the lessons of the Asian crisis, the rapid transformation of the economies of transition countries and the experience of structural adjustment all point to the need, in these times of globalization, for making efficient social security accessible to as many workers as possible, not for its dismantling. And fourthly, there can be no doubt that social security has con- tributed to major economic and social progress where it has been best implemented. All of these points have to be borne in mind when discussing the future of social protection. And the aim of the debate should be to exam- ine ways and means of ensuring that as many workers as possible are brought within the scope of social security schemes based on solidarity

V principles, and of ensuring the coverage of new needs, in particular those aimed at establishing equality and abolishing discrimination still affect- ing women workers in many places. Although privatization is sometimes presented as a panacea, there is no evidence that privatized social security schemes would fare better than pay-as-you-go systems. In fact, most of the contributors to this issue are questioning the reliability of private schemes (without minimizing the problems facing the long-term future of public systems). Most warn of the real dangers of making social protection subject to the vagaries of the financial markets. Whether publicly or privately organized, the very purpose of social security remains solidarity. Indeed, solidarity between the young and the older generation, between the healthy and the sick, between workers in employment and those deprived of it remains the best bet for the future of protection and for economic and social progress. There is yet another reason for trade unions, employers and gov- ernments to be concerned with the future of social protection: avoiding exclusion and alienation, a recognized role of social protection, also ensures that participation in the political process, the heart of democracy, is not undermined. A caring and solidarity-based society needs to be a priority for this new century as it is central to economic and social justice and to the spreading and strengthening of democracy.

Manuel Simón Velasco Director ILO Bureau for Workers’ Activities

VI Overview

Globalization and social protection: Myths, utopias and realities

Alejandro Bonilla García Policy and Research Coordinator of the Social Protection Sector International Labour Office*

“and yet it moves” Copernicus

As fate would have it, the start of the mil- quantity that it is frequently difficult to distin- lennium was marked by three meetings of the guish between one thing and another. In that utmost importance for economic and social regard, this document aims to examine some of development. The first two were the world the many myths, utopias and realities marking forums held in January 2001. The Economic the third millennium. Forum in Davos, Switzerland and the Social I shall deal first of all with the myths. One Forum in Porto Alegre, Brazil. The third meet- of the first myths is the claim that the global- ing was the Thirty-ninth Session of the Social ization process is something extremely “mod- Development Commission of the United ern” and inevitable and that it maintains all of Nations Economic and Social Council held in humanity in a state of expectation. February 2001 in New York and whose priority As for “modernity”, it is interesting to exam- theme was “Enhancing social protection and ine the following advertisement by a leading reducing vulnerability in a globalizing world”. computer firm, stating: “We have doubtless The effective and efficient incorporation of embarked on a new era, a post-industrial stage protection into the present process of globaliza- where the capacity to use information has tion poses major challenges to all, in particular, become decisive. This new era is known as the to the multilateral system to which it falls to pro- ‘information age’.” The advert dates back to mote initiatives with integrated approaches at 1977 and was already proclaiming the start of both the economic and social levels. Obviously, a new era. the real difficulty resides not in the setting of The myth of the information age crosses objectives but in attaining them. For that reason, paths with that of the age of globalization and these initiatives must surely include concrete that of the new economy. Whatever the name and efficient means of inter-institutional coordi- we give it, conservative estimates are that this nation, that is, the elaboration of analytical new era has been with us for two decades now, frameworks in which to devise international and which makes it inappropriate to keep on national policies that do not imply hegemony of describing it as “new”. Consequently, in mak- the one over the other, but which represent chan- ing a provisional evaluation, the analysis can- nels for reinforcing development at both levels. not be confined to the promises of what will The question may nevertheless be legiti- happen in the future; instead, we must look at mately asked as to how to consider and make what has already taken place, at the orientation concrete proposals when the matter of econ- we are able to discern and at how necessary and omic globalization and its implications and possible it may be to do something about that linkages with the “social sphere” is surrounded orientation. by a mixture of myths, utopias and realities that The subject of self-orientation and self- come in such rapid succession and in such projection towards the future or of evolution- ary and participatory development also raises the issue of the “inevitability” of globalization, * The views expressed in this article are exclusively those of the author and do not necessarily represent the opin- of the current globalization, or of any global- ion of the ILO. Please send your comments to [email protected]. ization whatsoever.

1 The law of gravity accepted by the majorities, through dialogue and democratic participation. In an article recently published in Spain,1 Mario Vargas Llosa makes a somewhat “Mal- The North-South myth inchean” reference2 and, as a Latin American, blushes at what to his mind is a characteristic A second myth, that of the war between that has been a constant in the history of Latin North and South, can also be regarded as a America: the rejection of the real and the possi- modern-day one. In both North and South, ble in favour of the imaginary and the fantastic, advocates of different types of globalization are and of the risks being run by those who, in the perceived by those with a different vision as social domain, bet against “reality”. Vargas opponents of it or as unconditional supporters Llosa draws an elegant parallel between the of just about “any” kind of globalization. The absurdity of resisting the force of gravity and “global village” does not exist at present; what resisting the globalization process, and deplores does exist is a series of archipelagos with global the role of the self-styled opponents of global- identities and interests. ization, whom he calls “modern-day luddites”.3 Most of the legal and illegal enterprises and The not-so-novel character of the globaliza- activities that are successful in the new global tion process, the outcomes to date, the equally economy in one way or another have ramifica- worldwide questioning it has elicited, as well tions, as much in the North as in the South, that as Vargas Llosa’s reference to the law of grav- are creating a web of interdependencies, also ity “inevitably” reminded me of Copernicus legal and illegal, as regards both strategic goods and “his” contemporary cosmic reality. Coper- and superfluous and even harmful articles such nicus argued that the planets and the Earth as drugs. revolved in orbit around the Sun, a theory that Who represents the North and who repre- was deemed unacceptable by most of his con- sents the South when in both camps there are temporaries, who were all of the view that the advocates of different kinds of globalization? entire universe revolved around the Earth.4 The democratic manoeuvres of the various Other famous and anonymous scientists fol- countries in the North and South will inevitably lowed in the wake of Copernicus,5 all of whom influence the constant quest for the new glob- were sometimes right and sometimes wrong alization for today and tomorrow. National and concerning the gravity to which Vargas Llosa international statements for or against the var- refers. They all espoused a different vision and ious types of globalization are but part and par- interpretation of the “reality” of the universe. I cel of that quest and of natural evolution. This do not doubt that each in his day was most search must none the less mature and intensify likely called a “luddite” because of his contin- over time, as criticism, however constructive, uous search for “another reality”. The “silence cannot continue indefinitely. It is essential to of the lambs”, in other words, the rejection of formulate concrete, viable and democratically the very dynamics of reality in flux, has never accepted proposals. These do exist and I shall served as a driver of development. Einstein, for subsequently be outlining the essence of the example, was so aware of his mistakes and of proposals from the International Labour Organ- the need to admit them and work ceaselessly to ization, but it is first necessary to complete the correct them, that in December 1915 he said of analysis of the myths and consider the utopias. himself: “My friend Einstein always manages The myth to which we must now turn is in to retract what he wrote the year before”. It was fact a double reflection of one and the same a long way since Copernicus, but Einstein image: the guarantee. One is the image of the arrived at his definitive version of general rel- “guarantee of success”, of “assured success”, ativity, though inevitably, it is now fortunately whilst the other is the image of the guarantee being reviewed and improved upon. of failure, “the announced failure”. Should we not recognize that globalization In tackling the two-fold myth of the guar- is in its infancy and that its present form and antee of success and of failure, I cannot resist our perception of it can and must change over the temptation to refer to the Olympic Games. time, based on its successes and its inevitable Whenever I watch the Olympic Games on tele- errors and shortcomings? The questions being vision I cannot help reflecting on the fact that raised about the structure, outlook and interim the first three who reach the finish line, who achievements of globalization are part of real- jump the highest, or who are the strongest, ity and must be considered when shaping a receive all the laurels and … eternal glory? It globalization process that is acceptable and matters little whether the winner’s abilities had

2 been detected early, whether she or he had a the only certainty is uncertainty. There are no generous scholarship, specialized trainers, guarantees that what succeeded yesterday will facilities equipped with the latest advances, a succeed tomorrow. What worked for some may proper diet and the best of encouragement. The not work for others. For some time the less starting point and the finish line is the same for developed countries believed that by following the participant who probably trained secretly in the footsteps of the more developed countries in a run-down building, alone and poorly nour- they were assured of economic success and ished. What matters is success, winning the development. Development was perceived as prize. In contrast, the Olympic Games always an imaginary line in which some were lagging leave aside a majority who, despite having behind others, but all in one and the same com- given their all, end up losing. Often the losers’ parable line. The less developed countries are only consolation is the satisfaction of having forced to seek their own path, though, above all, tried and of having participated. without following the one that led to the devel- When I watch the Olympic Games on tele- opment of the countries that achieved success. vision, I also cannot help thinking of the mil- As Antonio Machado would say, “Traveller, lions of spectators, and of the non-spectators. there is no path, the path is made as you walk” The spectators have a “manipulated” vision of (but do not follow the path that I have walked). the reality; the non-spectators may well have no The development of today’s most advanced vision of reality for lack of means. There are mil- countries came about by means of a combina- lions and millions of people in the world who tion of economic and social processes, including may be “involuntary luddites” because they economic stimulation policies with a dose of have no contact with the mass media. Others prudent and selective protection and trade lib- may be “involuntary lambs” because they are eralization, a clear role for the State, the encour- unable to make a distinction between seeing agement of democratic participation by econ- and understanding the manipulated reality. omic and social players, and the development The inevitable competition that is attendant of systems of social protection. The argument on globalization and the different perceptions most commonly wielded by the developed of reality have found the various countries at countries, which are currently recommending different starting points but with similar finish that the less developed countries do not follow lines. Nevertheless, the laurels and the eternal the policies and strategies that brought them glory seem to evade them all. No optimism or success, is that formerly the economy did not pessimism lasts forever. One day’s good news operate according to the dialectics of globaliza- and successes are wiped out by the next day’s tion. The most popular argument amongst the bad news; solid efforts can be cancelled out by developed countries which are nowadays fail- the lack of adequate expectations: a black Tues- ing to comply with certain general recommen- day can be relegated to oblivion by a glorious dations geared towards the less developed Friday and vice versa. countries, in particular those related specifically Even as the world boasts of the present to the opening of markets, is indeed that they resilience of the global economy and the absence have already attained high levels of develop- of crisis, the economic expectations of practically ment that could be needlessly jeopardized. all its economies are being reviewed down- In seeking their own path to success, some wards. More and more questions are legitimately less developed countries could run into a demo- being asked in the light of the facts and expecta- cratic-mathematical paradox as well as renewed tions. Can the present globalization yield results? competition with new and gigantic players. It is Are the years of solid and sustained growth of well known in systems theory that the opti- the leading world economies now a thing of the mization of the parts does not necessarily mean past? Are the good years now just memories? the optimization of the whole. Just as there are How will the future be, soft or harsh? What will “degrees of freedom” to seek solutions in math- be the impact on the standards of living of those ematical systems, one may well wonder what who benefited from the boom years? And worse are the degrees of freedom available to non- still, what will be the situation of all those who viable world enterprises, or even, what are the even then reaped no benefits? What are in fact chances of democracy for those countries where the best and worst expectations? What is the it may not be viable or where it would be out- expectation of a “better” reality? What about the dated in terms of a global logic. Is there a glob- risk and consequences of a “worse” reality? alization alternative in which all are winners or There is no doubt that the future is no longer will there be a perpetual combination of win- what it used to be. It would seem at present that ning and losing countries and enterprises? Is

3 inclusive globalization where everyone wins a ests shared by all, without exclusions. There is utopia, an oxymoron6 or a possibility? growing evidence that the “present” globaliza- tion is helping to create greater inequality Globalization: Advantages between the more advanced and the less devel- and shortcomings oped countries. Similarly, inequality is becom- ing accentuated both within the developed and It does not seem to me to need too many the less developed countries themselves. arguments to confirm that globalization in Exclusion is a poor companion to democracy which everyone wins is still an oxymoron. It is and surely the worst enemy of efficient and clear that in the present globalization not all are integral globalization. winners and that it is neither acceptable nor Beyond all doubt, one of the most telling accepted by all. Exclusive globalization is an impacts of the present form of globalization has oxymoron and must of necessity evolve to been the rapid transformation of the world of become at least a utopia or a possibility. work. Informal work is extremely dynamic The defenders of globalization at all costs worldwide. Its dynamism seems to rival and would seem to favour a certain “e-utopia” in perhaps outstrip only that of the criminal econ- which the present routes to globalization are omy comprised of robberies, assaults, kidnap- acceptable for attaining higher levels of devel- pings, crimes of greater or lesser dimension and opment. The categorical opponents of global- sophistication, money laundering, drug traf- ization would seem, for their part, to support ficking and corruption in all its forms. The an “anti-e-utopia”, whereby no element of the heightened sense of insecurity should therefore present globalization should be retained in come as a surprise to no one. order to achieve higher levels of development. As pertains to “formal” work, greater By virtue of the contemporary reality of worldwide competition has caused numerous globalization with its advantages and short- job losses and the creation of new forms of comings, and considering the very real influ- work, and measures to counteract or offset the ence and power of its promoters, and the need effects and lend support have lagged far to make it acceptable and accepted by the behind. The present globalization has brought majorities in a democratic setting, it is neces- sharply into focus the grave consequences of sary to do away with the new bipolarity of neglecting the aspect of social protection. seemingly irreconcilable utopias and to devise new concepts and strategies that will lead to Fundamental ingredients economically dynamic, comprehensive, effi- cient globalization based on social equity and There is an undeniable correlation between environmental sustainability. insecurity on the one hand, and the quantity The progression from Copernicus to Ein- and quality of work that is “available” and stein necessarily entailed many mistakes, many within the reach of the majorities on the other. successes, much hard work and much imagi- Less work means lower labour costs and less nation. To best understand and explain the spending on social protection, but also fewer macro- and micro-spatial balances and imbal- consumers. Who will consume the national or ances, it was necessary to find a constant to international products of this or any other glob- serve as a reference, the speed of light. Simi- alization? Who will have the capacity to save larly, globalization needs a set of constant fac- and hence foster future financing and develop- tors and values that will make for progress in ment? How will people resist the fast-yielding seeking and achieving results that will enable criminal economy, when all the other forms of all parties to advance and develop. economic activity do not manage to satisfy even After the so-called “luddites” and “lambs” the basic necessities? at either end of the spectrum of globalization, Undoubtedly, effective democracy and con- an effectively realistic generation must now structive dialogue are fundamental ingredients emerge or re-emerge forcefully and energeti- of tomorrow’s globalization. Work is the con- cally – one that regards dialogue as a corner- stant, the connecting element that will facilitate stone of economic and social stability. However, the transition from the present globalization to the opening up of markets, as well as social a new, more mature and sustainable globaliza- development must be preceded by an opening tion. Clearly, if this unifying objective is to be up of mentalities and wills so that the differ- attained, it is not just any form of work that must ences of approach and interests can be accepted be promoted, as the results could be disastrous. and alternatives proposed on the basis of inter- It is not merely a matter of creating jobs, they

4 must also be of acceptable quality. The amount such as international migration and the AIDS of employment cannot be dissociated from its pandemic must be tackled appropriately. quality. Work must be able to yield resources for The solutions pertaining to decent work and housing, food, education, social protection and its social protection component are not all to sufficient income, under conditions of freedom, hand. So far, the list of questions is still longer fairness, security and human dignity. than that of answers, but there is no doubt that The work called for by current and future efforts must continue to study, raise questions globalization must strive towards the universal and put forward creative alternatives at all lev- observance of fundamental principles and els: the individual, family, community, local, rights at work, creating more and better job national, with the national and international opportunities and income for women and men, private sector, organizations of workers, civil improving the quality and extending the cov- society and the international community. The erage of social protection systems, and towards new alternatives and proposals could include furthering the social dialogue. Such work has elements and combinations of reforms, ways of been encapsulated by the ILO in the concept of strengthening social protection systems, micro- “decent work” and constitutes the underpin- insurance, social reinsurance, social protection ning and integrator of its programme and networks, security and living conditions in the strategic objectives. new labour environment, together with effi- It is clear that imagination is a process that cient and democratic management of all these precedes creation and that the transition from new and changing social risks. the idea to the act calls for great commitment Like the Aztecs who sacrificed maidens to above all. Besides, there is no favourable wind satisfy the gods, the defenders of the emerging for those who do not know where they are globalization thought that its viability called for going. The leaders of the ILO, the organizations a sacrifice in the social domain, and of social of employers and workers and the govern- protection in particular. In the same way, the ments have given their full support to promot- defenders of the social aspect believed that by ing decent work as a development strategy. sacrificing globalization they would meet social Social protection is a fundamental compo- aspirations. nent of the concept of decent work and is linked The reality of the start of the millennium is with the objectives of social dialogue, the pro- that the social and economic domains need motion of employment and the respect of the each other and are mutually supportive, and fundamental rights of workers. To confirm the are joined together like Siamese twins in an foregoing, it suffices to consider that more than “Ilonian” judgement on survival, development half the Conventions adopted by the ILO and mutual viability, which states: address social protection. Adequate social pro- “If you want globalization, promote decent work tection is therefore a key element of the viabil- and social protection for all. If you want decent work ity and acceptability of economic globalization. and protection for all, promote globalization”. Besides, the capacity to offer suitable social pro- tection to most of the population calls for a suc- cessful world economy. Notes In spite of its accomplishments and its 1 El País, Saturday, 3 February 2001, No. 1737, Spain. limitations in the economic sphere proper, 2 In reference to Malinche, partner, translator and adviser any globalization that prides itself on being of Hernán Cortés. successful and accepted needs to correct 3 In reference to the violent uprising by the so-called the tremendous underdevelopment of social “quiebraquilos” in Brazil who, at the end of the nineteenth protection. century, were opposed to the introduction of the decimal The bulk of the world’s population lacks metric system. 4 adequate social protection. National, regional It should be stressed that Copernicus was indeed right about the orbits but wrong about their shapes as he saw them and international strategies ought to incorpo- circular while in fact they are elliptic. rate the need to improve and extend the cover- 5 Among others, Galileo, Euler, Newton, Lagrange, age of all dimensions of social protection sys- Hamilton, Jacobi, Maxwell, Lorenz, Poincaré, Grossmann, tems, namely security of income, health and Planck and Einstein. safety at work, working conditions and envi- 6 “In an oxymoron, one applies an adjective to a sub- ronment, the health of the family, retirements stantive in such a way that it contradicts it, hence gnostics and pensions. Priority must be given to effec- spoke of an obscure light and alchemists of a black sun”. Jorge Luis Borges. Title of the speech delivered by sub-comman- tive equality of opportunities between the sexes der Marcos at the World Social Forum, Porto Alegre, Brazil, and new processes and emerging challenges 25-30 January 2001.

5 Overview

Social dialogue on pensions: The experience of industrialized countries

Emmanuel Reynaud Social Security Policy and Development Department International Labour Office

Pensions are currently at the centre of public United States, Germany, France and Spain, or debate throughout the industrialized world and whether they are based on the amount of con- all the countries concerned have been making tributions paid, as in the new systems estab- adjustments to their pension schemes for lished by Italy and Sweden, they are all con- roughly the last 20 years. In spite of the wide fronted with the same technical constraints. In diversity between countries in terms of the the long run, it always comes down to balanc- design and organization of pension systems, the ing out resources and expenditure so as to problems experienced are fairly similar. Over ensure that commitments are honoured over and above very strong national particularities, time. All the countries concerned have resorted there are a number of common points, of which to a range of measures in order to guarantee this two should be highlighted. First of all, the exist- balance, which include increasing contribu- ing systems were established at the same time, tions, widening funding sources, changing the for the most part in the wake of the Second rules governing calculation and indexation of World War, and have now reached maturity. pensions, extending the retirement age and During the first decades of their existence, they protracting the contribution period. This aspect went through a maturing process, that is, con- of the reforms has been often described and is ditions were particularly favourable for their fairly well known (for a more comprehensive management since there were then relatively study of pension systems, see Gillion et al., few benefits to pay out in relation to contribu- 2000). However, issues relating to the decision- tions paid. That period is now past and the pen- making process and the route leading up to the sion system could now be considered as being adoption of the reforms are still generally in a stable state. Secondly, in all industrialized unclear (however, see the Chronique interna- countries, pension systems have, for several tionale de l’IRES, 1997; Reynaud, 1999; Brooks years, had to adapt to a context that is entirely and James, 1999; Palier and Bonoli, 2000; Myles different from the one which existed when and Pierson, to be published). These are, none they were first introduced. This complete change the less, fundamental aspects of the reform of circumstances is due to several factors, in process. particular changes in the labour market, the In this respect, a preliminary observation organization of the economy, demography, could be made. The pensions-related measures life expectancy, family structure and relations introduced in industrialized countries over the between men and women. Furthermore, by their last few years are seldom based on unilateral very existence these systems have created new decisions by the legislator. For the most part, prospects for life after retirement and raised they have been adopted as a result of various expectations among workers in that regard. kinds of consultation, negotiation and public It has become clear everywhere that there is debate. These consultation mechanisms, which no easy solution to the problems facing pension are subject to different conditions depending on systems. Whatever the organization style or the the country in question, have been crucial to the nature of the systems, the problems posed are adjustment of pensions systems. In some coun- similar. Whether pensions are flat-rate, as is the tries, such as France, the Netherlands and Swe- case in the United Kingdom, the Netherlands den, in addition to the statutory social security and Japan, or are earnings-related, as in the schemes, there is also negotiated management

6 of pensions by social partners at national level ernment formulated the basic principles of the within the framework of wide complementary reform which were subsequently adopted by schemes based on collective agreements (see Parliament in June 1994. A working group was Reynaud, 1997b for the French example). then set up, consisting of parties represented in Generally speaking, it has become evident Parliament who were favourable to the reform, that industrialized countries, each with their in order to translate these general principles own unique institutional context and traditions, into bills. In September 1994, following a have established procedures and advisory bod- change in the majority, the Social Democrat ies allowing for participation by various actors Party returned to power but this did not have in the pension policy decision-making process. any significant effect on the reform process. Three features of the reform process stand out Moreover, the composition of the parliamen- from a comparative point of view. First of all, tary working group responsible for drafting the there is a clear intention in most countries bills remained unchanged. At the same time, an to achieve consensus on pension reform. Sec- internal debate in the Social Democrat Party ondly, there are two issues at the heart of the with some persons voicing their opposition to discussion: the design of systems with regard certain aspects of the project, led to the launch- to equity and redistribution, and the length of ing of fresh negotiations among the five parties the period of transition to a new system. Lastly, supporting the reform. It was in the spring of it appears to be essential to have follow-up 1998 that the proposal of a new system was mechanisms over and above the actual reforms finally tabled in the Parliament and later themselves. adopted in June of that same year. In Spain, during the 1990s, there was a sim- The search for consensus ilar desire among the major political forces to achieve consensus (see Lagares Pérez, 1999). In There has been generally a marked desire the face of the worrying situation facing the among political and social players in most pension system and in view of the obstacles to countries to arrive at consensus on the issue of attempts at reform, the Spanish parliament pensions. In fact, pensions play a very specific decided, in February 1994, to set up a working role in contemporary democracies. First of all, group comprising representatives of all parlia- they are a major aspect of the security which mentary groups. A year later, in February 1995, industrialized societies guarantee their citi- the group’s work led to the signing of a politi- zens, but they also embody the notion of time. cal agreement between all the major parties – Pension commitments are carried over a large the so-called “Toledo Pact”. The aim of the number of years – up to 60 or even 70 years or Pact was to consolidate the existing pension more – and their sustainability has to be guar- system and to prevent it becoming an issue and anteed over the very long term. Consequently, being used as a political pawn during electoral some conflict may arise between this long-term campaigns. The United States could also be aspect of pension systems and the relatively cited where, in 1983, reform of the state pen- short-term political alternation which is a fea- sion scheme resulted from an extremely ture of parliamentary democracies. unusual agreement between Republicans and As a result, a number of rather “exceptional” Democrats. procedures and practices have been introduced Germany provides a counter-example in this in most countries. In many cases, the political regard, notwithstanding a long tradition of con- majority and opposition have reached agree- sensus seeking, especially as far as pensions are ment on pension policy. Sweden is quite exem- concerned. Recently there has been a break with plary in this regard (see Wadensjö, 1999). In fact, this tradition and the exception confirmed the in June 1998 it adopted sweeping reforms rule, so to speak, demonstrating the difficulties resulting from a lengthy process during which which can arise from unilateral decisions. In the main parties came to a common position. It 1997, the last Kohl government imposed a was decided to form a commission made up of reform in spite of the opposition of the Social members of all the parties represented in the Democrats and trade unions. This imposition no Parliament which, in March 1994, proposed a doubt had an impact on the elections and very complete review of the system. The proposal likely contributed to the Christian Democrats’ was supported by the four parties comprising electoral defeat in 1998. Following the change in the ruling coalition and the main opposition majority, the new government challenged the party – the Social Democrat Party. On the basis previously adopted legislation. Since then, the of this proposal, the liberal conservative gov- reform process has been restarted, firstly by an

7 agreement between the Social Democrats and the Government and trade unions which, in the the Green Party and, secondly by the opening Austrian case, was until recentlycommon prac- up of the discussion to include other political tice much beyond pension issues. and social forces. In this general context, characterized by a This desire for compromise and consensus clear desire for consensus and continuity, one is often evident in the deep involvement of country runs against the grain – the United social partners, especially trade unions, clearly Kingdom. Alternation between Labour and exemplified in Spain. After the Toledo Pact was Conservative governments since the end of the concluded between the parliamentary groups, Second World War has regularly brought about the Spanish Government negotiated an agree- marked changes in pension policy. On the ment directly with the two largest trade union whole, the desire for consensus on pension confederations – the Workers’ Commissions issues is very weak in the United Kingdom. The (CCOO) and the General Workers’ Union Government uses its parliamentary majority to (UGT). Through this accord – the Consolidation push through its own proposals in Parliament. Agreement – it was decided to extend the agree- Therefore, since the 1960s there has been what ment reached between the political parties to could be called an “alternate pattern” (Davies, the social level. Employers who were doubtful 1999, pp. 23 and 24) whereby bills proposed or about the financial viability of the Toledo Pact introduced by a government are systematically dissociated themselves from the measure. The challenged once there is a change in the parlia- Government later tabled a bill in Parliament mentary majority. Throughout this period, which reflected the general principles of both trade unions have usually backed Labour the Toledo Pact and the Consolidation Agree- whereas employer organizations have often, ment. The bill became law in July 1997. but not always, put their weight behind Con- A similar situation occurred in Italy where, servative proposals. The uncertainties and as happened in Sweden, a thorough reform of instability inherent in such an approach raises the pension system was made (see Antichi and both the issue of confidence with respect to the Pizzuti, 1999; Reynaud and Hege, 1996). In continuity of commitments and the overall 1994, after a first set of reforms had been intro- coherence of the state pension system. duced in 1992 by the Amato government against the backdrop of monetary crisis, the Equity, redistribution Berlusconi government sought parliamentary and the transition period adoption of a number of measures despite trade union opposition. This caused a major social Pension issues are closely linked to national conflict in October and November 1994. After a contexts, especially in relation to the character- number of strikes were declared in several istics of existing systems which have their own towns, the trade unions called a general one- form of inertia and which result from the choices day strike, the most successful initiative of its made by the societies concerned. However, kind for many years. There was growing oppo- worldwide comparisons of the reform processes sition to the draft, in particular, with a major of the last few years have highlighted two basic demonstration in Rome. Under the threat of points which are common to the different another general strike, the Government finally national systems: the design of systems with signed an agreement with the trade unions regard to redistribution and equity, and the which excluded the principal measures of the gradual nature of the transition to a new system. initial agreement. The next government, the Italy is the only industrialized country, Lamberto Dini government, chose to negotiate besides Sweden, to have introduced sweeping on the content of the reform directly with the reform of the pension system, and its example three trade union confederations (the CGIL, the clearly illustrates the substance of these two CISL and the UIL, respectively Confederazione issues (see Reynaud, 1997a ). One of the major generale italiana del lavoro, Confederazione aspects of the Italian reform has been the depar- italiana sindicati lavoratori and Unione italiana ture from a client-based approach and the del lavoro). It subsequently tabled and had attempts to make the pension system more equi- adopted by the Parliament a bill which reflected table. This search for equity, which is shared by the terms of the agreement reached with the all the actors involved, has basically translated trade union organizations. Austria also pro- into harmonization of schemes with regard to vides a good example of trade union participa- different professional categories and the elimi- tion in the reform process. The 1997 reform nation of redistribution mechanisms which have resulted from extended negotiation between favoured the more fortunate. The concept of

8 equity underlying the reform consists of estab- Similarly, under the Swedish reform, the lishing strict proportionality between benefits new system was introduced gradually based on and contributions. Limits are placed on the inter- the birth date of contributors. Pensions for per- nal redistribution mechanisms of the system and sons born in 1954 or after are based entirely on an assistance programme, which is completely the new system; persons born between 1935 separate and apart from the insurance system, and 1953 fall under both systems: 19/20 under was set up to guaranteee a means-tested mini- the old system and 1/20 under the new for per- mum pension depending on resources. sons born in 1935; 18/20 and 2/20 respectively This notion of equity is applied in a similar for those born in 1936, and so on. Furthermore, way in the Swedish reform. However, the gen- a mechanism was designed for persons caught eral tendency to establish a more direct link between both systems to ensure that rights between benefits and contributions is common acquired prior to 1995 under the new system do to most of the reforms introduced in industrial- not result in pensions falling below a certain ized countries, especially within the European level (i.e. complementary pensions which they Union. The central issue of the debate concerns would have acquired under the old system). the balance to be struck between benefits which strictly correspond to contributions paid in and Monitoring and managing those that do not. In other words, it is a ques- the systems tion of drawing a distinction between what is based on contributions and what is based on the The example of industrialized countries principle of solidarity. In that context, the ques- highlights the importance of follow-up mecha- tion arises as to the periods or activities for nisms over and above the actual reforms them- which “free entitlements” should be granted: selves. In a domain as technical as pensions, it unemployment, maternity leave, difficult occu- would seem to be essential, first of all, to have pations, pursuit of studies, childcare, care for credible, reliable information that is acceptable the elderly and the physically disabled, etc. This to the different actors with regard to the finan- approach, which increases the transparency of cial status of pension systems and their transfers, calls for specific choices to be made on prospects for development. Such information redistribution and justice. These are related both forms the basis for discussion and debate and to the scope and forms of solidarity to be imple- allows for informed political choices to be made mented and the respective participation of each from among the possible options. The way in of the players – workers, employers, the State – which this technical knowledge is used varies in the financing of such solidarity. from country to country. In the United Kingdom, The other key element of the reform process for example, it is provided through an indepen- is the period of transition from the old to the dent institution within the government structure new system. Time is essential to the question of – the Government Actuary’s Department. In the pensions. The time perspective for pension United States, financial monitoring is the schemes is the very long term and reforms have responsibility of the Board of Trustees of the to be gradually introduced, especially in sys- social security trust fund which must include the tems which have reached maturity. The transi- opposition party. In Germany, figures are pro- tion from an old to a new system poses prob- duced by such reputable institutions as the Fed- lems for commitments made and rights eration of Pensions Insurance Institutions, the acquired which, just for credibility alone, can- Federal Statistical Office and the Federal Bank. not be changed too abruptly. In Italy, for exam- Formulas vary in keeping with national contexts ple, this was one of the main areas of negotia- but the different examples show that technical tion between the Government and trade information on pension schemes should be unions. The problem was solved by distin- available and totally credible. guishing between three groups of worker: new Most countries tend to set up advisory bod- entrants on to the labour market, workers who ies or working groups, whether on a permanent had contributed for less than 18 years by the or temporary basis, to participate in the deci- end of 1995 and workers who had contributed sion-making process relating to pensions. In for 18 years or more at the same date. The first some countries, such as Germany, the United category is covered entirely by the new system; States and Japan, advisory boards have been the second is based on the old system for rights part of the system’s follow-up and periodic acquired up to the end of 1995 and under the review procedures for a number of years. Japan new system for rights gained as of 1996; the is particularly systematic in this regard and the third is completely covered by the old system. law provides for an obligatory review of the

9 pension system at least once in five years. Advi- pension systems are a good way of making sory boards, although known by various names agreed decisions on income distribution and in different places – “Sozialbeirat” in Germany, post-retirement security. They are also key “Advisory Board” in the United States, “Nenkin instruments for ensuring a new balance between shingikai” in Japan, “Conseil d’orientation des work, leisure and lifelong training. What is retraites” in France and so on – are fairly simi- important now is to provide the means for mak- lar in composition. They normally comprise ing these collective choices. Therefore, pension representatives of employer and trade union reform ultimately leads to a wider issue, namely organizations, academics and other competent democracy and how it functions concretely in persons. In a complex and highly technical field contemporary industrialized societies. such as pensions, these advisory boards provide a forum for examining the system and elabo- rating compromise which contribute to the deci- sion-making by legislators. In several countries, Bibliography it has been the parliamentary working groups which have played a major role in the reform Antichi, Massimo and Felice Roberto Pizzuti (1999), “The public pension system in Italy: Observations on the recent process, in order to achieve consensus on a reforms, methods of control and their application”, potentially controversial topic. In Sweden, pp. 81-96, in Emmanuel Reynaud (ed.), Social dialogue and reform bills were drafted by the group set up in pension reform, Geneva: International Labour Office. 1994 comprising representatives of the ruling Brooks, Sarah and Estelle James. 1999. “The Political Econ- four-party coalition and the main opposition omy of Pension Reform”, presented at the World Bank Research Conference, 14 and 15 September 1999. party – the Social Democrat Party. Similarly, in Chronique internationale de l’IRES. 1997. Special issue “L’avenir Spain, the work was done by a group made up des retraites en débat”, No. 48, September. of representatives from all the parlimentary Davies, Bryn (1999), “The structure of pension reform in the groups, leading to the signing of the Toledo Pact. United Kingdom”, pp. 11-24, in Emmanuel Reynaud Generally speaking, experience shows that, (ed.), Social dialogue and pension reform, Geneva: Interna- apart from institutionalized mechanisms, the tional Labour Office. pensions issue is dealt with in a variety of ways, Gillion, Colin et al. (eds.) (2000), Social security pensions: Devel- whether through the creation of ad hoc com- opment and reform. Geneva: International Labour Office. mittees, the production of numerous reports Lagares Pérez, Ana Maria (1999), “The process of pension reform in Spain”, pp. 97-107, in Emmanuel Reynaud and White Papers, or the organization of semi- (ed.), Social dialogue and pension reform, Geneva: Interna- nars and meetings by the political authorities. tional Labour Office. But on the whole, it would appear that the pen- Myles, John and Pierson, Paul (to be published), “The Com- sions debate tends to develop outside the reg- parative political economy of pension reform”, in Paul ular institutional framework. It occupies a large Pierson (ed.), The new politics of the Welfare State. Oxford: part of the public domain and involves numer- Oxford University Press. ous actors, which points to the importance and Palier, Bruno and Giuliano Bonoli (2000), “La montée en puis- sance des fonds de pension: une lecture comparative des complexity of the issue. However, this may lead réformes des systèmes de retraite, entre modèle global et us to question the very idea of a pensions cheminements nationaux”, L’année de la régulation, Vol. 4, reform. We often tend to speak about the reform pp. 209-250. of the pensions system as if a reform could solve Reynaud, Emmanuel. 1997a. “Réforme des retraites en Italie: the problem once and for all. In fact, the impor- principaux aspects et questions soulevées”, Revue d’éco- tant issue is not so much the need for reform nomie financière, No. 40, March, pp. 65-84. but the constant need to monitor and manage —. 1997b. “France: A national and contractual second tier”, pp. 65-98, in Martin Rein and Eskil Wadensjö (eds.), Enter- pension systems in accordance with the prise and the Welfare State. Cheltenham, UK: Edward Elgar. changes that affect them so as to guarantee their — (ed.). 1999. Social dialogue and pension reform: United King- long-term viability. dom, United States, Germany, Japan, Sweden, Italy, Spain. The current adaptation process, which is Geneva: International Labour Office. generally seen as a “crisis”, is part and parcel of —; Hege, Adelheid. 1996. “Italy: A fundamental transforma- the functioning of pension schemes which have tion of the pension system”, in International Social Secu- reached maturity. The salient feature of these rity Review, Vol. 49, No. 3/96, March, pp. 65-80. schemes is precisely their adaptability which Wadensjö, Eskil. 1999. “Sweden: Reform of the public pen- sion system”, pp. 67-80, in Emmanuel Reynaud (ed.), allows for the continuity of extremely long-term Social dialogue and pension reform, Geneva: International commitments. In industrialized democracies, Labour Office.

10 Overview

Social security: Towards a renewed commitment for universality

Mohsen Ben Chibani Specialist in social security International Confederation of Free Trade Unions (ICFTU)

It might be worth, in the highly controver- for a strengthening of the social sector, not its sial debate on social security, to recall that one undermining. Yet, more than half the world’s of the key mandates of the International Labour population is deprived of any social security sys- Organization (ILO) remains to achieve “the tem. In sub-Saharan Africa and southern Asia, extension of social security measures to provide the level of protection is between 5 and 10 per a basic income to all in need of such protection cent of the working population and falling. In and comprehensive medical care.”1 India, for example, no more than 10 per cent of Yet, there is no doubt that many of the exist- the working population were in the formal econ- ing systems of social protection are under pres- omy or received social security cover in the mid sure. There are questions about their viability 1990s, compared with over 13 per cent ten years in places where the social security regimes have earlier. In Latin America, the level of cover ranges performed so far, there is also in many places a from 10 per cent to 80 per cent and is stagnating. crying need to establish much-needed but inex- In South-East Asia, the range is from 10 per istent social safety nets and there are now cent to 100 per cent, depending on the country, attempts at reforms that call into question the and thanks to the lessons of the Asian crisis it public nature of certain schemes. is slowly rising. In the transition countries of The general discussion that will take place eastern Europe, the rate varies from 50 per cent at the International Labour Conference in June to 80 per cent, while in most industrialized 2001 will hopefully provide for a renewed com- countries the figure is close to 100 per cent. mitment by the ILO and its constituents to safe- “Avoiding exclusion and alienation is impor- guard and further develop or extend the nor- tant not only for obvious social and economic mative framework that is based on universal reasons but also to ensure that participation in values and principles. The challenge is not so the political process, which is at the heart of much about whether or not to “privatize” social democracy, is not weakened” stresses a report security, as some may like to orient the debate. published last year by the International Con- It is about modernizing and optimizing sys- federation of Free Trade Unions ( ICFTU).2 tems, enlarging and increasing benefits and With structural adjustment programmes above all extending protection to as many peo- having left whole sectors of the populations ple as possible. This is the view of many trade with no social security and with everywhere a union leaders and organizations as to the ques- danger of breakdown of traditional support tion on the future of social security. While mechanisms, trade unions increasingly see examining calls for a redefinition of the State’s social security as part and parcel of social dia- welfare role, they also intend to assert their own logue with a need for each of the partners to role as key interlocutor in this debate. assume responsibility.

Social protection and globalization Breaking ground in Africa With the rampant growth of the informal “Since the Head of State agreed to leave the economy, the lessons of the Asian crisis and the management of the social security system to the rapid transformation of the economies of the social partners, we have gone from a chronic transition countries, globalization clearly calls deficit to a CFA 15 billion reserve (US$21 mil-

11 lion)” Madia Diop, General Secretary of the ployment benefit. Medical care and sick pay, National Workers’ Confederation of Senegal with the exception of countries like Gabon or (CNTS) told fellow labour leaders meeting in Algeria which have national sickness insurance Abidjan not so long ago for an Africa trade systems, are usually left to the employers’ ini- union conference on social protection. The tiative, and their contribution is usually partial meeting had been called by the ICFTU’s African and temporary” said the specialist. regional organization AFRO, and brought Even where systems exist, they fall desper- together trade unionists from 20 French-speak- ately short of the mark. A leader of the national ing African countries and the ILO to discuss the workers’ union of Congo recently explained future of social security on their continent. As that “a sick worker or peasant used to be able Africa’s most senior trade union leader recalled to get treatment at a state hospital at minimal the past, a feeling of déjà vu filled the meeting cost. Today they just get a prescription and have room: a cousin of the President appointed to to buy the medication themselves. Often it is take charge of social security funds, a minister either very expensive or not available.” Family who built a hospital for 7 billion CFA francs allowances in French-speaking African coun- while the bills totalled barely half that sum, a tries range from 200 to 2,000 CFA francs per dignitary from the regime who dipped into child per month, in other words a maximum of social security funds to finance a trip abroad … US$3. “The allowances have stayed the same The speech provoked an avalanche of anec- for decades” deplored Felix Ibara, a trade union dotes, each more colourful than the last, from leader from Congo Brazzaville. A comparable the purchase of a jet by an African dignitary to situation exists in all the countries. And in most the construction of an airport, in short all the of Africa, the list of officially recognized occu- perks that those entrusted with the responsible pational diseases is still based on those of the management of social security funds cheerfully industrialized countries, and therefore fail to allow themselves. None of those present chal- take into account diseases specific to the lenged the analysis of a representative of the African continent. World Bank who stated bluntly that “in many For a long time traditional support networks countries social security systems have become centred on the family or the community made the milk cow of States on a collision course to up for the institutional shortcomings: an bankruptcy”. employee could in some cases meet the needs But, while the trade unionists condemned of several generations of his family. But then the excesses of States in their management of structural adjustment came along. Many trade social security funds, they remained fiercely unionists believe it is responsible for the sharp opposed to plans promoted by the international rise in unemployment, exacerbated by a rural financial institutions and aimed at privatizing exodus that continues inexorably. In Cameroon, the systems. On the contrary, African union unemployment figures are as high as 29 per cent leaders agreed that “the State must shoulder its of the working population and in Guinea civil responsibility as regulator of the social security service staff have been cut back by 16 per cent. system, while allowing the social partners to In the Democratic Republic of the Congo, administer it.” In fact, any analysis of the crisis there are only one million employees, out of a in French-speaking Africa’s social security sys- tem that would look solely at the dubious role played at times by governments would only The Social Security (Minimum Standards) give part of the picture. Convention (No.102), adopted in 1952 pro- As seen above, the social security system in vides for minimum standards in nine dis- French-speaking Africa today only covers on tinct areas: average 10 per cent of the working population. • Medical care People without formal work are excluded and • Sickness benefits are limited to family allowances and • Unemployment pensions. • Old age “There are nine risks identified by the Inter- national Labour Organization’s Convention 102. • Employment injury Most French-speaking African countries at best • Family cover six” according to Albertine Bankole, a • Maternity Labour Administrator for Benin, and author of • Invalidity a report on the social security situation in Africa • Survivors’ benefits (see box).3 “None of the systems provide unem-

12 population of 45 million. As a result, social Social security in Asia was usually limited to security contributions are shrinking rapidly. In retirement funds, health care and workplace Côte d’Ivoire, the social security fund today accident insurance, usually in the formal sector receives fewer contributions than in 1990. of the economy only. With a few rare exceptions, On top of this are the demographic devel- there was no unemployment insurance. “The opments. “In 1972 Senegal had five active social security safety net amounted to the sav- workers for every pensioner. Now the ratio is ings of individuals and families and the role of two to two”, noted Madia Diop. The same trend the State is virtually non-existent” stated the can be seen in Tunisia where, according to the ILO. Repeated devaluations and the collapse of General Workers Federation of Tunisia (UGTT) Asia’s financial institutions shrunk savings there were eight active workers for each pen- accounts to nothing. Worse still, the much- sioner in 1960, and today there are four to one. proclaimed fall in the level of poverty at the Economic issues are also among the factors, beginning of the 1990s has been reversed. With therefore, that have caused the trade unions to rapidly expanding informal economy and a turn to the informal economy in order to large migrant workforce, also lacking any social enlarge the support structures for social secur- protection, the risk of a social explosion did not ity. Beyond the cliché, albeit a true one, of shoe escape the attention of trade union organiza- shiners, street vendors and peddlers, the non- tions or the ILO, which had been warning of the structured sector also harbours a tradition of dangers since the crisis began. Events in coun- tax evasion. tries such as Indonesia, Thailand, Malaysia and According to Célestin Nansis, a social secur- South Korea confirmed this analysis. ity specialist in Benin, a national survey has Today the importance of an effective social shown that 59 per cent of the people who make security system needs no further proof. It is their living through the informal economy now one of the top priorities for trade unions would earn enough to contribute to a social in the region as one can judge from the article security system. by Anne Drouin in this issue. It is generally acknowledged that a well- managed social security system can play a To the East – painful changes major role is reducing poverty, notably through the constraints it imposes on introducing or The challenge has been somewhat different maintaining rights. This is particularly true in in countries of the former Eastern bloc where the area of family allowances where these con- the abandonment of state-based social security straints reduce maternal and infant mortality in systems is confronting the new leaderships childbirth (because there has to be medical with a lot of problems. supervision in order to receive benefit) and How do you shift from a state system that, encourage sending children to school (because despite its defects, assured a minimum level of certificates must be produced proving atten- social cohesion, to another one which, while dance at school). For African trade unions, social economically balanced, is in danger of adding security “must be based on the principles of to the sufferings of a population already sorely equity and social justice, taking into account the tested by the restructuring? fact that all workers need social security cover”. Henri Lourdelle, who was commissioned by the European Trade Union Confederation 4 The lessons of the Asian crisis (ETUC) to write a White Paper on the subject, explains that: “Even if in certain countries the Never was this need as obvious as at the social protection systems belonged to an older time of the Asian crisis. “The years of spectac- tradition – dating back to 1912 in Romania and ular growth led the leaders of the Asian coun- 1918 in Bulgaria – the integration into the Soviet tries to believe that growth in itself provided a bloc led to an “assistance mentality” and a total social security safety net. We are seeing the loss of any sense of personal responsibility”. damage caused by that belief,” said the general The same defects characterize today’s badly- secretary of APRO, the Asian and Pacific functioning systems: a lack of transparency Regional Organisation of the ICFTU, Takashi between income and expenditure which means Izumi. The APRO had consistently and firmly that spending is not properly controlled and a denounced the casino-style economy practised system totally funded from business enterprises in the continent and the lack of any social pro- which does not include contributions from the tection worthy of the name. Events have regret- individuals concerned. Paradoxically the initial tably proved the trade unions right. measures taken at the end of 1989 at the time of

13 the political implosion of Communism did So, this is the diagnosis, but what are the nothing to improve the situation. The headlong remedies? The trade unionists are anxious not rush into “all-liberal” solutions as the remedy to throw out the baby with the bath water and for the “all-state” system has only compounded are militating to keep a system of universal the problems. (See also article by Elaine Fultz social security. Their governments are some- and Markus Ruck in this issue). what more circumspect but, as a whole, their In all these countries, the State provides desire to join the European Union (EU) is seek- health care – except dental care – free of charge. ing solutions that line up with the “European In Poland, as in Bulgaria, Hungary and the social model”, even if attempts are being made Czech Republic, hospitalization is free of to marginalize trade unions in the handling of charge, but we are witnessing the development social funds which too often are still perceived of private systems, or even, as in Poland, the as a part of the state budget that can be used as creation of clinics financed by foundations governments decide. within existing hospitals. One of the system’s This means that the Central and Eastern black spots remains the “bribes” often asked for European countries will have to reconcile the by public doctors, who are still very poorly law of the market and social cohesion. There is paid. Medicine, except in Bulgaria and the obviously a great temptation to “privatize” Czech Republic, remains free of charge. Poland and, for example, to place the health system, as and Hungary have none the less instituted a the Czech Republic has done, into the hands of system of payment by the patients, even if they private insurance. “Underlining this debate is are reimbursed later. the fundamental problem: is health a universal In general, the numbers of medical practi- right? If it is, it cannot be privatised, because it tioners, pharmacists and hospitals is deemed to should not enter entirely into the domain of the be satisfactory, but they are badly distributed market economy, which would end up accept- geographically. And here, as elsewhere in ing only those that can pay”, says Henri Lour- Europe, attempts to rationalize have run up delle, adding that “if privatisation was a mira- against the hostility of practitioners and users. cle solution, the recipe would already have While the health system is in difficulties, the been applied elsewhere”. situation as regards pensions is dramatic. Actually it has been. But the results have been Pensions, which are proportional to occu- mixed to say the least. In the homeland of neo- pation and age (with the exception of Latvia), liberalism, the United States, the private health are insufficient and mean a major drop in care system is not only the most expensive in the income. Faced with this situation, these coun- world, it also excludes 44 million Americans tries have adopted a two-pronged strategy. who are deprived of any medical cover. First of all, age criteria have been changed. For example, by the year 2006, men in the Czech Latin America: Reform and Republic will have to reach age 62 before they privatization – good or bad? can retire and women 61. Secondly, pension funds are being set up using fiscal incentives. It is in Latin America where social security Right now there are 44 pension funds in the has recently undergone massive privatization Czech Republic, involving more than a million and reform, often closely linked to reforms in people. A path that Bulgaria is timidly trying to labour legislation. The process has entailed follow. huge costs which have been justified on the The biggest novelty in Central and Eastern grounds that it will “make the system work bet- Europe has been the introduction of insurance ter”. Yet, Argentine and Brazilian workers may against unemployment – a phenomenon that soon discover that the only way to finance was swept under the carpet in the former peo- social security deficits, resulting from privati- ple’s republics. And with everyone having to zation, will be to pay more tax. start from scratch, the solutions vary from one Furthermore, given that members of private country to the next, even if the principles remain pension schemes contribute in some cases up to identical. There is an original experiment in 2 per cent of their monthly salaries to pay for Poland where unemployment pay depends on the administrative costs of their pension funds, one’s place of residence. A worker losing we need to ask why this contribution bears no his/her job receives benefit for six months only relation to the amount of pension the worker if s/he lives in an area with a low unemploy- receives upon retirement. ment rate, but this is extended to one year if s/he Luis Anderson, General Secretary of the is in an area where work is harder to find. ICFTU’s Inter American regional organization,

14 ORIT, believes private pension funds must not solid financial institutions, notably in Africa be exposed to high rates of risk, which happens where privatization is often presented as the if they are dependent on the performance of the answer to everything by institutions such as the economy in which they are invested (and the World Bank and the International Monetary ups and downs of the economic cycle). “Over Fund. the last 20 years in Latin America, these swings Despite all the (expensive) publicity cam- have been very pronounced, and the profits of paigns for private pensions, 88 per cent of ben- the funds have been affected. What is even efits in Europe are still provided by public sys- more disturbing is that the pensions members tems. And public pension schemes are not receive may be too low for a decent standard of destined for ruin, as the advocates of private living in retirement” he notes. pensions plans would have you believe. While There are limits to how well it is possible to the problems facing the long-term future of evaluate the efficiency and effectiveness of pri- such systems should not be minimized, the vate pension schemes, as most reforms are reality calls for a more sober approach. In the aimed at solving the problem of financing ser- United States, where an overhaul of the public vices and not at providing sufficient funds to system is called for in some quarters, studies be able to meet the commitment made to future show that benefits are guaranteed for the next generations of pensioners. The ORIT maintains 37 years, or even the next 75 years if economic that reforms are needed, but that these reforms growth continues at its current pace. “Privati- must have the clear objective of “ensuring that zation by itself will do nothing to reduce the schemes are sustainable in the long term and costs of supporting the baby boom generation considerably improve the services to affiliates in retirement,” says an expert quoted in the at the lowest possible cost”. ICFTU report. Experience shows that social security reforms may solve the financing problems of Burden or investment? pension schemes in the short term, but that they do not solve the fundamental problem of dis- “Social protection should not be seen as a tribution and equality for the retirement of burden, it should be considered an investment. future generations of workers, or of the exclu- It does need to be modernized, but the State sion of the most vulnerable groups who, when must continue to play the essential role of reg- they reach retirement age will swell the ranks ulator,” argues the ICFTU. The trade unions of the very poor. Reforms have not guaranteed hope to make that message clear when delegates long-term sustainability, which should be the of the International Labour Conference meet to real goal of pension funds. discuss this issue. That only 40 countries have Anderson spoke of the need to find “an so far ratified the International Labour Organi- appropriate and viable formula for pension zation’s key Convention on social protection schemes in Latin America, which should adopted in 1952 and that there is a perceived include those hitherto excluded (workers in general trend of undermining this still very informal economy and rural workers), and be unequal protection, are in themselves sufficient faithful to the principles of solidarity and uni- reasons for the ILO to make universal social versality, as the trade mark of social security.” security one of its highest priorities. Although much has been written about the future of pension systems, in its June 2000 report, the ICFTU recalls that 90 per cent of the people of working age are not currently cov- Notes ered by a pension scheme. “For all too many people, being too old to work but too young to 1 Philadelphia Declaration, art. III, para f. die means becoming a burden on their family, 2 ICFTU: A global priority – strengthening social protection in who themselves may be in difficulty”, it says. the 21st century, Report published on the occasion of the Spe- The ICFTU also warns of the dangers of cial Session of the General Assembly “The World Summit for making pensions subject to the vagaries of the Social Development and beyond: Achieving social develop- financial markets. In Chile, where pensions ment for all in a globalising world” (Geneva, June 2000). have been privatized, a dip in the stock market 3 AFRO: The social security situation in Africa: Principles, problems and outlook, Abidjan, September 1998. in June 1998, resulting from the Asian crisis, 4 threatened to do lasting damage to the pension European Trade Union Confederation: Livre Blanc sur la protection sociale dans les pays d’Europe centrale et orientale, coor- fund system. The effects would be ten times dinated and edited by Henri Lourdelle, Brussels, October worse in the poorest countries, devoid of any 1999.

15

Africa

From humanitarian aid to sustainable protection

Lambert Gbossa Director, ILO Kinshasa Bernardin Gauthé Consultant

In pre-colonial Africa, social protection for Since the advent of independence to the vari- persons who were indigent or incapable of pro- ous countries, the inequalities have been prac- viding their own subsistence was provided tically maintained in the personal sphere and either by the extended family or through com- little has been done either to create new ben- munity solidarity. The colonial period saw the efits or to extend the programmes to other development of a new system of social insur- population groups. ance related to economic development, the political system or the method of production. The operation of the systems Alongside new forms of social protection organized by charitable, religious or ethnic Almost everywhere, social protection cover associations in urban areas, more organized is generally less than 10 per cent all told, both forms of social protection emerged. The colo- with respect to personal rights and derived nial powers first extended the social security rights, and distributed revenues amount to systems to their expatriate compatriots in the barely 1 per cent of GDP. There have been inter- colonies. Extension to indigenous workers was nal reasons for deterioration in the management concentrated on workers in urban and indus- of pension schemes: trial areas for the primary purpose of stabiliz- • Generally speaking and virtually every- ing the workforce or to placate indigenous where, life expectancy at birth has adversely trade union organizations, which were then affected pension systems. It has increased mobilizing to combat injustices. Yet the bulk of by an average of four years every ten years. the population remain without social security Life expectancy at the retirement age of 55 cover: the system put in place was extremely was around 17 years in 1960. It reached 19 limited both from the standpoint of the number years in 1990. At present, whilst the rapid of persons covered (personal sphere) and from spread of HIV/AIDS is seriously under- that of the risks covered (risks sphere). In the mining this increase in life expectancy, it is English-speaking countries, apart from indus- also hitting the world of work just as hard trial accidents and benefits in the event of work- and is weighing on the finances of social related invalidity, there was only a non-con- protection systems. tributory pension benefit, before 1976 in Zimbabwe for instance, for non-Africans over • The operation of the systems has been 60 years of age. Even after independence in handicapped, especially by unfavourable 1980, the benefits of that system were retained employment trends; the lack of good gover- only for persons having effectively or poten- nance or of social dialogue to consolidate tially acquired rights during the preceding the participation of the social partners in the period. In the French-speaking countries, the management of the systems. risks covered were usually related to family • The administrative functioning and the orga- benefits, industrial accidents and pensions. It nization of the institutions have been defi- took virtually another ten years in some places cient in some cases. In several countries, the to bring about an improvement in the existing institutions have been generally incapable benefits (for instance, pensions granted in of making operational contact with contrib- French-speaking Africa under the IPRAO). utors for lack of adequate filing systems. On

17 account of its sluggishness and its adminis- tries and a good many theoreticians believed trative complications, the system has penal- that the modern sector would continue to ized those it covers or has been incapable of employ a large and no doubt growing part of effectively ensuring normal collection of the active population, so much so that no-one contributions. paid any attention to that population, which took refuge in a range of informal activities. Almost everywhere, the financial viability of Over the third development decade, 1980-1990, the system has not always been assured. The a phenomenon that everyone considered fleet- technical reserves that should have been built ing and expected quite simply to disappear, up to defray the cost of benefits were not pos- was buttressed by three factors: first, runaway sible at a technically ideal level. Neither have population growth that each year threw up they been managed with all the requisite strict- large numbers of first-time job-seekers; second, ness. But over and above the aspect of financial a serious economic crisis bordering on reces- management capacity, they have suffered from sion, or wars that affected or diminished the a lack of investment opportunities owing to the absorptive capacity of the modern sector; and absence of regulatory machinery within the last, the growing momentum of the rural exo- institutions and of an appropriate legal frame- dus compelled many people to move to the work or a monitoring system. The investments cities and find odd jobs. The proportion of actually made did not conform to the rules and young people, and more particularly of first- were not capable of guaranteeing counterpart time job seekers, is rising constantly. At the pre- commitments towards those insured. sent rate, the level of occupation of wage-earn- The administrative cost of managing the ers could be no more than 2 to 3 per cent at best overall social security system is rather high. For in the coming 25 years. This being the only pop- example, in a Central African country, to pay ulation group that benefits from an organized out just under five dollars in benefits (pensions) social security system, there is a foreseeable an agent costs over $3,000. This is surely an deterioration of the social profitability of the extreme case, but there are similarities every- system of social security coverage. where. Objectives for the years ahead: The social profitability Extension of cover of social protection systems Countries are undergoing a range of politi- Against that backdrop, benefits are inade- cal changes (promotion of democracy), econ- quate or even many years in arrears in many omic changes (promotion of a more liberal sys- countries. Confidence in the system has been tem and evolution towards a State with an completely eroded. essentially more regulatory role), social changes (an expanded role in national development for A profound and predictable crisis economic players and community groups), and cultural changes (making allowance for cultural Yet the crisis besetting the social protection factors in the development process). Together systems is also quite profound. Per capita with these factors, population and employment income has been falling in the sub-Saharan trends would dictate that these systems should African countries since 1986. Public invest- be extended. ment has all but dried up. While population The notion of extension is not new in the pressure is strong, the volume of employment sphere of social protection. Indeed, many social has contracted and is still dwindling in both security laws that were enacted just after inde- the public and private sectors. In some cases, pendence contain two types of specific provi- especially in the civil service, wages have sions for the extension of social security cover- depreciated or have failed to keep pace with age. The first address the material sphere of inflation. With mounting poverty, reduced application of the systems. Hence, alongside national consumption has led to company fail- the area of occupational risks and pensions, the ures. Workers have left the system of social pro- laws provide in most cases for the improve- tection, thereby losing their entitlement to ment of coverage by stipulating that: “… the social security benefits. system shall be responsible … […] for servicing In less than a generation, the socio-economic all other social security benefits to be instituted divisions of the world of work have changed. subsequently for salaried workers …”. Another At the close of the 1970s, all the leaders of coun- series of provisions cover the personal field of

18 application of the existing system. Indeed, be followed so as to devise a strategy for under many current regulations it is possible extending social security coverage. This strat- for all natural persons to insure themselves for egy could be based on the following principles: old age or against occupational risks at their (a) situating the matter of extended cover request. Such are the provisions that are still within a global vision of national social pro- present today in positive social security law, for tection, drawing up a comprehensive, more instance, in Madagascar (CPS, art. 259), in flexible policy of social protection under Rwanda (Decree-Law of 22 August 1974, art- which various options would be possible, icles 1 and 3), in Benin (Ordinance of 17 Janu- enabling different categories of workers to ary 1973, articles 1 and 5), in Djibouti (Law of choose amongst various types of social se- 19 June 1989, article 4), etc. Yet the hoped-for curity contracts. evolution, that is, the extension of social cover- age, has not materialized. (b) entrusting the responsibility for extension to States have become aware of the links the communities by transferring to individ- between social protection, the promotion of uals the obligation to secure their own employment and social dialogue. That was one insurance. It would be a matter of making of the main lessons learned from the meetings these communities responsible for protect- held in Dakar (1994), Abidjan (1996) and in ing themselves against risks and for bearing Yaoundé (1997). This latter occasion was used the cost of some types of benefits. to formulate recommendations for the reha- (c) assigning the State a regulatory role – the bilitation and reform of the system of social State guarantor rather than the State man- protection. ager – by strengthening institutional capac- But the discussion on improvements to the ities for setting up regulatory machinery social protection system has been limited to the that favours private initiatives. formal sector, to restoring financial balance by raising the level of deduction from wages. Such This approach should contemplate three deductions are becoming increasingly unbear- levels of social protection. able as their amount is dwindling relative to the population as a whole. The discussion has all (a) The first level: The safety net but overlooked the fundamental question: the lack of coverage for the bulk of the populations, This first level of social protection would the capacity for communities to organize them- consist, so to speak, of a safety net intended for selves and their input into the development of the hardship categories of resident populations the system of social protection. Despite the lim- which can neither insure themselves nor take itations that have beset institutional systems of part in their own protection. The basis of the social protection, little attention has been paid system would be national solidarity, of a dis- to endeavours by populations to organize soli- tributive nature, and the responsibility for darity-based systems in their immediate prox- funding would rest both on communities and imity and evaluations of social protection pro- the State. The problems faced so far in realizing grammes continue to ignore the efforts of this level stem inter alia from the financial con- communities. straints affecting the State. Not enough atten- The discussion should be taken beyond the tion has been paid to those constraints and it original narrow framework to which it has has been believed that it was enough to organ- always been restricted, that of replacement ize this level by resorting to taxation. income, so as to open the way for addressing In the case of Benin, it has been shown that the totality of the new needs stemming simul- with an average poverty threshold estimated at taneously from mounting poverty, the expan- US$240 per urban household and that with 31 sion of the informal sector, the link between per cent of the population being very poor social protection and the promotion of employ- (with an absolute poverty threshold estimated ment both in this sector and in communities. at around US$140 per annum), it would be dif- What should be done today to extend social ficult for the State to implement the safety net protection? What we do know is that there is for the entire indigent population. Neither the neither a recipe nor a solution that can be trans- national budget nor salary deductions can posed from one country to another. On the guarantee such benefits. As such, the safety net other hand, guidelines could be used to orient covering the entire population is an illusion and the actions of decision-makers and administra- it is therefore understandable that it has been tors. At any rate, a regulatory approach could difficult to organize to date.

19 (b) The second level: been attained. In essence, therefore, this Mandatory protection would be a matter of globally regulating the system, though in no way interfering with The second level of social protection should the various functions of supervising admin- essentially operate along the lines of insurance. istrative activities or human resources. The The aim would be to provide social security high authority would therefore be respons- cover for all population groups that are able to ible for drawing up the nation’s social bud- finance their own protection. Fully funded by get; contributions paid exclusively by the insured, • arbitrating any dispute arising within the such a mandatory and pay-as-you-go system various social security institutions. would be intended to ensure horizontal redis- tribution from young people to the elderly, How to effect the extension: from single persons to heads of families, from novel approaches the able-bodied to the sick, from working peo- ple to retirees. Much is being attempted nowadays to sup- port the activities undertaken by the informal (c) The third level: sector or in rural communities for their own Complementary protection development. Not only is the link between employment Also along the lines of insurance, the aim and social protection a real one, but it is also would be to provide benefits additional to those becoming increasingly relevant to the process distributed under the primary social security of combating poverty. It is now conceptually systems. This third level would therefore be possible to establish a bridge between micro- intended for all population groups (wage-earn- enterprise and micro health insurance. The ers, self-employed people, etc.) who were able micro-credit granted to individuals creates to participate fully in their own protection but jobs, generates income and should therefore be would like to improve on the basic social se- protected by health insurance. In other words, curity benefits. micro-credit alone is not enough to rescue indi- viduals from poverty. Organizing the harmonious Disease is one of the leading causes of and coordinated development default on loans. Identifying suitable candi- of the system of social protection: dates must constitute the first stage of a strat- A high authority egy to articulate and put into action the trilogy of micro-enterprise, micro-credit and micro- Making the system of social protection more insurance from a community and mutualistic responsive to economic developments and to standpoint. The major challenge facing the community organization would call for mea- structures involved in these three components sures to ensure harmonious development. is that of placing their actions on a long-term Indeed, this raises the question as to how to har- footing by associating social protection with an monize the three levels and how to assess the education programme. progress made or the activities to be under- Social security through mutual benefit taken, how to ensure that the various players health insurance companies is one way for- best discharge their functions at all times. It is ward in that it is based on the principles of from this standpoint that the creation of a high group solidarity and equity. The members of a authority for social protection could be war- mutual company are bound together by pro- ranted. It would be a consultative structure rep- fessional, cultural or geographical proximity. resenting all the stakeholders in the system One guarantee of the success of this type of (administrators, beneficiaries and providers of health insurance is the effective participation funds), who must play a threefold role: of members in the managing bodies democra- tically elected by them. The mutual company • acting as a coordinative and information is therefore a place for learning good gover- body for government authorities, issuing nance and, being a group, facilitates negotia- reasoned opinions on all matters pertaining tion with health care providers and represen- to social protection in the country; tation before higher bodies responsible for • acting as a regulatory body for verifying the setting health policy. overall goals assigned to the three levels of The system could have the following fea- protection and whether the set targets have tures:

20 (a) Decentralization Insurers (the mutual companies) and health Unlike the institutional system structured in care providers (health centre) come within a a centralized manner, the model adopted system where they may freely negotiate the would be decentralized and based on geo- costs of benefits in line with market condi- graphical proximity. tions. A duly signed agreement between the two parties would guarantee the content of (b) Assigning responsibility on the basis of: benefits. As such, the principle adopted is • participatory and democratic adminis- not payment for each act but a lump-sum tration; annual payment per insured person and for all the health care providers determined • benefits linked to the payment of contri- (consultations, cost of drugs …). Periodi- butions, hence not an aid scheme; cally, insurers and health care providers will • elected administrators whose activities analyse operating data and determine the are directly monitored by members. cost per beneficiary based on the average cost per insured person. (c) Mandatory insurance. Mandatory insurance for all, implemented (g) The role and place of the State: monitoring on a phased basis: all those who are able to and guaranteeing operation. pay for their membership – wage-earners, While allowing the freedoms to operate, the urban or rural informal-sector workers who State as supervisory authority would: have joined or who join an income-genera- • organize the regulatory framework; tion programme. The extension of the sys- • grant or withdraw authorizations tem of social protection is thus linked to job (mutual company, health centre …); creation and to an income-generating programme. • monitor the proper provision of services (subsequent monitoring); (d) But a system based on the free choice of the • arrange to guarantee the proper func- insured persons. tioning of the system: state guarantor Insurance is compulsory but the insured rather than state manager. person is free to chose: • the mutual company (h) Dovetailing the various levels of social pro- • the health centre tection. Formal institutionalized system and decen- Depending on the insured person’s real tralized system: cooperation, technical assessment of the quality of the benefits assistance amongst: received, she or he may also change their • mutual companies and social security insti- mutual company or health centre if they so tutions; wish, according to prescribed procedures. • hospitals and health centres.

(e) Direct control by beneficiaries: Organized in this way, the system would • The insured persons themselves appoint help to promote employment and would their administrator and are the adminis- foster the creation of: trator’s employer. • mutual companies; • As administration is based on proximity • health centres; and contributions are directly related to • pharmacies. the cost of benefits, the insured persons will themselves directly control the right to benefits. Detection of new needs of countries in crisis or in conflict • Lastly, the freedom of the insured per- sons to choose their membership means Almost two-thirds of African countries are that they exercise some control over the in crisis or are being affected by conflict. While mutual companies and the health centre. priority attaches to adaptation and the quest for a new formula for social protection, above all (f) Freedom to conclude a cooperation agree- health protection, so as to meet the demands of ment between mutual company and health affected or vulnerable population groups, it centre. none the less seems difficult to apply the classic

21 scheme of social protection to all categories of tance programme for which there is no “service the active population and in all situations, not rental contract” and a service rental contract for least of all in crisis and post-conflict periods. public-interest activities, which could be paid For example, in a crisis or post-conflict situ- for either in cash or in kind. This correlation of ation, humanitarian problems take priority. the link between humanitarian work and This raises the question of how to make com- humanitarian social protection would form mon cause with this humanitarian aid, with the part of an approach that assigns responsibility support of development cooperation systems, and excludes any form of permanent assistance including that of the United Nations, so as to and paves the way for overcoming the crisis by organize the funding of health care, prepare for dovetailing the development of protection with the exit of humanitarian aid and establish a emergency actions taken. durable system of social protection for the pop- The aim is to become involved at the start of ulations concerned. In short, it is possible and the humanitarian process so as to fashion pos- desirable to establish the link between a sible long-term solutions through income- humanitarian programme and a development generating activities, by organizing mutual programme. That link would make it possible benefit health insurance companies. to draw a distinction between a social assis-

22 Africa

Inventory of social protection in Portuguese-speaking African countries

Alessandro Giuliano Social Security Policies and Development Branch International Labour Office

Although geographically remote from one security crisis stemming from the national another, the five countries generally referred to socio-economic contexts or its endogenous as the PALOP (Pays Africains de Langue Offi- aspects, which normally fall within the field of cielle Portugaise – Portuguese-speaking African competence of the bodies which are working to countries), i.e. Angola, Cape Verde, Guinea- build the social security fabric, i.e. the supervi- Bissau, Mozambique and Sao Tome and sory bodies, the board of administration and Principe, have common characteristics by the management board.1 What we shall endeav- virtue of their culture, language and history, our to do, on the other hand, is to briefly analyse which draw them together into a coherent sub- the effort which these countries have been mak- region. This coherence also applies to their ing to create efficient social security systems social protection systems in general, and to and to develop them and ensure that they meet social security in particular. The fact is that, the urgent needs of the vast majority of the having emerged from very similar situations, population. these countries have implemented comparable solutions or solutions which at least obey the The genesis of social security same basic philosophy. in the PALOP In the present context, the PALOP are not spared by the social security crisis which is State social security systems are a relatively plaguing the other African countries. In some recent phenomenon in the PALOP which, with- of these countries the impact of the economic out exception, turned to the international orga- crisis on structural adjustment policies is com- nizations, and in particular to the ILO, for sup- pounded by political instability whose reper- port in their efforts to set up the schemes. This cussions are seriously aggravating a situation must be interpreted to mean that the various already precarious in terms of employment States want to share values, standards and pro- development. A very large percentage of the cedures at the international level with a view to working population is thus relegated to the managing an essential sector of economic and fringe of the labour market and, in order to sur- social life. It is thus no coincidence that the leg- vive, is obliged to work as casual labour in what islation currently in force in each of the five is commonly known as the informal sector, countries is based largely on Convention rather than practise an occupation. This sector No. 102 concerning minimum standards of is taking on impressive proportions in some of social security. these countries, since the vast majority of those But let us proceed chronologically. When who work in it are above the poverty level. Fur- they obtained independence, these countries thermore, the wars which have marked several inherited a structure which had been set up by of these countries have left an aftermath of the former colonial power and which consisted invalids, orphans, homeless and refugees, who of multiple corporatist funds which paid essen- have swelled the ranks of the unemployed in tially short-term benefits – sickness and occu- the cities, contributing to the paralysis of the aid pational risks in Angola and Mozambique, structures – particularly health care – which the complemented with old-age pensions and sur- governments had struggled to set up. vivors’ pensions in the case of Cape Verde, It is not our purpose in this article to go back Guinea-Bissau, and Sao Tome and Principe. over either the exogenous causes of the social The protection provided by these funds was

23 strengthened through the intervention of efficient management of the systems. The new mutual benefit insurance companies (Mon- bodies were set up progressively. Angola and tepíos), which paid supplementary benefits or Mozambique created theirs simultaneously social protection benefits in the broadest sense with the promulgation of the Act; Cape Verde of the term (credit, death grants, etc.). With the and Guinea-Bissau chose to concentrate the introduction of the first general Social Security management of private insurances and the Act in the various countries these funds were social security scheme in the same institute to abolished and their assets were transferred to begin with, and it was not until later that the the social security body specifically created for institutes whose sole mission is to run the social enforcing that Act. In return, that body had to security system were set up – in 1991 and 1997 fulfil the funds’ obligations regarding comple- respectively; Sao Tome and Principe entrusted mentary protection services, for example, a ministerial department provided for that pur- except in Angola, where the funds were main- pose with the running of the scheme provided tained pending their possible reconversion. by the first Social Security Act, which was pro- From the very outset, the concern of the leg- mulgated in 1979, pending the establishment of islator in each of these five countries was to a management body vested with the necessary rationalize the existing social protection mea- administrative and financial autonomy; that sures. The choice of personal and/or substan- body was subsequently created in 1994. tial scope thus did not really arise, since it was The geographical field of application of the a question of covering all income earners irre- Social Security Act was gradually extended spective of their occupation by one single gen- throughout the national territory, particularly in eral law guaranteeing a range and level of uni- Angola and Mozambique, where, it will be form benefits which would ensure income recalled, the social security schemes were set up protection. Public employees were not affected in the middle of a civil war. Mozambique by this process, since their schemes were main- decided to cover the capital and the surround- tained, except in Angola and Sao Tome and ing province first of all, subsequently setting up Principe, which opted to include coverage for regional delegations of the management body, public personnel in the new general scheme giving precedence to provinces with the high- with the exception of members of the armed est concentration of income earners until the forces and the police. Health protection was not entire national territory was eventually cov- taken into account, since it was considered to ered; Angola maintained a centralized system fall within the competence of the national pub- but has only been able to extend insurance cover lic health services and had to be financed to the provinces under government control. through taxation. By proceeding in this manner the countries The table below outlines the situation of demonstrated a remarkable degree of adapt- insurance cover in the five countries in terms of ability and pragmatism with regard to national insurance areas covered and the date on which conditions and needs. the legislation entered into force. Pragmatism thus prevailed in the estab- The countries opted to create specific bod- lishment of the present social security systems ies to run the basic schemes, since they consid- in the PALOP, a process which required con- ered that the previous institutions did not ful- siderable effort due to the political and socio- fil the necessary conditions for the modern and economic conditions, which were often diffi-

Table 1. Areas covered by social security in PALOP

Country Year Benefits Angola 1990 Sickness benefits (employer obligation, 1962); maternity; occupational risks; old age; survivors; death Cape Verde 1982 Sickness benefits; maternity; occupational risks (employer obligation, 1978); old age; survivors; family allowances Guinea-Bissau 1986 Sickness benefits; maternity; occupational risks (1980); old age; survivors; family allowances ; death Mozambique 1990 Sickness benefits; maternity; occupational risks; old age; survivors Sao Tome and Principe 1990 Sickness benefits; maternity; occupational risks (1979); old age; survivors; death

24 cult. This pragmatism also governed the legis- based largely on the laws of the market. This lators’ choices regarding the substantive and process has led the public authorities to pull out personal scope of these social security schemes, of a number of activities. After operating as which was normally limited to wage and salary entrepreneurs and direct managers, the States earners (mainly in public enterprises) and pub- have chosen to become facilitators and coordi- lic employees, for a limited number of insur- nators, while retaining the right to supervise ance areas. For, on the one hand, the manage- activities of public benefit for all citizens. The ment bodies had to be given the opportunity to public authorities in these countries have also master the management techniques first of all decided to call in private-law corporations to in order to be able to envisage taking on other manage specific economic and social activities categories of workers and, on the other hand, for all or part of their populations according the economies of the countries had to be given to the rules of the industrial and commercial a chance to grow in strength so that new areas sector. could be covered. However, perhaps with the From the economic point of view it must be exception of Cape Verde, which has been try- underlined that financial sector dynamism is a ing to move towards extending the scope of the constant priority objective in the efforts to Act, this has not been possible in the other develop a market economy. With this aim in countries, where the number of income earn- mind, the public authorities have expressed ers in the modern sector has decreased and that their intention to achieve both quantitative and of workers in the informal sector has risen. qualitative improvement in the level of finan- The cleavage between the formal and the infor- cial savings, which have hitherto been virtually mal sector constitutes the real limit of the so- non-existent in most of these countries. Unfor- cial security systems in these countries at the tunately, the succession of crises which have present time. seriously affected the economies of these coun- Aware of these limits, the governments tries, such as frequent galloping inflation and banked on measures to extend coverage to cat- stagnation of all productive activity, have can- egories of workers not yet covered and on celled out the efforts targeting small-scale schemes for fighting poverty. To achieve this economic agents on the one hand and all hold- the five countries decided – two years ago – to ers of long-term financial contracts specializing launch an extensive programme for reforming in the mobilization of contractual savings on or restructuring social protection comprising the other. These efforts actually included plans various components: social dialogue, action to for creating a function of investment of reserve develop employment, measures to develop funds released from the social security system, social protection and action to combat social but most of the countries in question have not exclusion. yet managed to do so. As regards the social organization of these The terms of the on-going reform countries, the sources of law grant citizens a of social protection number of social rights, such as the right to health, protection of the family, state aid for The present article cannot purport to needy citizens, etc. In the final analysis, all of describe an on-going reform in detail before the these rights correspond to the primary objec- process has been completed. However, it can be tives of social protection and constitute “oblig- of interest to examine the trends and philoso- ations owed”, rights held by individuals to phy of that reform; furthermore, in order to bet- receive performance by the State, claims which ter define the broader issue of reform, the fea- can only materialize by means of a programme tures specific to each individual country will of social protection based either on a system of not be mentioned. Given the similarities which assistance or on a system of insurance, or on have been observed in the situations in the five both. Furthermore, the various States have all countries, a certain degree of generalization is dictated a number of concepts designed to gov- justified, although, inevitably, the general ern the social organization of their respective analysis may not always tally with local speci- countries, such as the concept of transparency ficities. or of the participation of citizens in the running It must be borne in mind that the PALOP of their affairs. These concepts are appropriate have been undergoing a process of far-reaching for any form of organization of modern social economic transformation for some time, which security systems. is designed to allow them to move from a The overall strategy of reform is based planned centralized economy to an economy essentially on the following ideas:

25 (a) The interlinking of social protection strategy The permanent structure which has been and economic strategy. established by the reform is based on three lev- Social protection strategy cannot be els of protection according to the criteria set out designed in isolation from the strategy devel- in the previous article on social protection in oped by governments in the economic field. Africa,2 and it considers the world of the per- For these strategies are closely linked in that sons to be covered according to their ability to par- the scope and quality of social protection ticipate in the financing of their protection or to depend on the economic health of the coun- cover the cost of that protection in its entirety. Lev- tries. For social protection, even in the broad els 2 and 3 of social protection are thus intended sense, is inconceivable in the absence of for the latter categories respectively, i.e. the gen- income-generating activities, even if that eral compulsory scheme, which corresponds to income does not suffice to cover protection a logic of insurance and is based on joint liabil- costs in their entirety. ity, and the voluntary complementary scheme, which is designed to provide a better level of (b) The preservation of the joint liability mech- protection and is based on individual insur- anism as the main element of the permanent system. ance. The extension of level 2 protection obvi- It is known that the concept of extended ously requires creating schemes for the self- joint liability, which is the foundation of social employed in the various economic sectors as security, has worked well on the whole for the well as special schemes for specific categories categories of persons protected. The necessary of workers with special needs. Workers who pooling of risks and resources has enabled the can only cover part of the cost of their own pro- system to respond to the needs of the individ- tection constitute a separate scenario, for which uals concerned by this protection and, in par- the reform has made provision for the applica- ticular, to the most disadvantaged of those per- tion of techniques connected with micro-insur- sons. By virtue of the horizontal and vertical ance through programmes for combating social forms of joint liability and of the solidarity exclusion, which use the support of structures between successive generations, which form in civil society and the development of vertical the core of the system, the categories of the pop- forms of joint liability which supplement these ulations falling within the scope of the system persons’ inability to contribute. Where neces- enjoy fairly extensive protection. sary, these workers could be allowed to enjoy level 1 protection, where benefits are normally (c) The integration of private initiative into all intended for the indigent, i.e. for persons totally of the components of the system. unable to participate in their protection. This pro- The fact that the PALOPhave agreed to open tection, which is based on a pure logic of assis- up to the market has become an important fac- tance, would be managed directly by the local tor which the social protection system can no authorities and would be financed through longer disregard. Private initiative must partic- taxes. ipate directly in the social cover of the popula- Young persons who have been left to their tions by distributing a whole series of volun- own devices, a widespread phenomenon in the tary benefits in addition to the compulsory PALOP, constitute a specific example of persons benefits. But it is above all the tried and tested who are devoid of means of participating in techniques of the private industrial and com- their protection. They are known in these coun- mercial sector which are imperative as the most tries as “street children” and constitute a par- effective form of management for any social ticularly serious problem in some of them security institution. because of war or poverty. The possibility is currently being examined of developing verti- When all is said and done, this strategy cal forms of joint liability in the national and leads to the achievement of a system which is international sector to cover these children. intrinsically more coherent, socially more equi- table and economically more suited to an envi- The participation of workers’ ronment geared more to the market. It goes organizations without saying that the process that has been implemented obeys both strict organizational As has been seen, the task which the PALOP and structural principles, which must be estab- have undertaken to reform the social protec- lished, and criteria of caution in the realization tion system with a view to extending coverage of the systems and of efforts to match resources and achieving greater equity for their citizens with the needs observed. is an ambitious one, and its implementation

26 will necessarily be progressive. It is a task Notes which requires tremendous effort involving the participation of all dynamic forces in the 1 Readers who are interested in these issues can easily countries in question. The workers’ organiza- consult the article by the same author entitled “The present tions must be in the forefront of the reform situation of public social security schemes in French-speak- process in order to defend the interests of ing African countries south of the Sahara: an inventory”, which was published in “Reflections on strategies for reform- income earners, as they already do, but also to ing social protection”, ILO, Geneva, 2000. defend those of other workers who are not 2 See the article entitled “Pensions and social protection union members, for the general benefit of the in Africa” in the present issue, the objective for the years that national community. lie ahead being to extend coverage.

27

Asia-Pacific Region

Improving public financing of social protection in Asia: The cases of China, Thailand and Lao People’s Democratic Republic

Anne Drouin Social Security Specialist East Asia Multidisciplinary Advisory Team International Labour Office

When referring to social protection, the def- In Asia, there is a vast diversity in the types inition of the term must be carefully addressed. of systems providing social security benefits, in The meaning can be very broad indeed, bear- the contingencies covered and also in the cov- ing in mind that benefits can be provided in erage of the populations. A few countries in the many different ways and through different region have national provident funds. The main channels. According to the ILO World Labour contingencies covered are employment injury, Report 2000, social protection is defined to old age, invalidity and survivors’ pensions. Few include not only public social security pro- countries in the region have unemployment grammes but also private or non-statutory benefit programmes (other than severance pay schemes with a similar objective to social se- legislation) but some form of short-term sick- curity schemes, including publicly financed ness and maternity benefit provisions exist in social assistance programmes. Social security is the majority of cases. In countries where new in turn defined as the protection which society social security schemes are developing, such as provides for its members through a series of in Thailand, Lao People’s Democratic Republic public measures. These may include: and Viet Nam, the intentions of the law are ori- • programmes intended to offset the absence ented towards the eventual universal coverage or substantial reduction of income from of the population allowing alternative mecha- work resulting from various contingencies nisms of social insurance to be put in place. The (notably those accounted for in the ILO objective in these countries is to provide a basis Social Security (Minimum Standards) Con- for improving the well-being of workers and vention, 1952 (No. 102); their families by initially prioritizing provisions aimed at wage employees in the formal econ- • wide-scope subsidized health care pro- omy. It is felt that such a gradual approach grammes; and should ensure a sound basis to develop national • measures aimed at providing benefits for capacities to meet the needs for social protection families with children or dependants. of the population. This paper focuses on the considerations The financing of social protection is nor- surrounding the public financing of social pro- mally provided through the allocation of pub- tection in Asia with particular reference to three lic taxation revenues, earmarked social security typical countries where on-going develop- contributions, revenues from the investment of ments are taking place. The countries covered social security funds and sometimes through include China as a transition economy, Thai- external funds donated by third parties, such as land as a middle-income economy and Lao international financial institutions. Public PDR as a least developed country. The paper social protection expenditures are normally argues that the amount of public resources allo- disbursed through various channels of admin- cated to social protection is too limited in the istration ranging from the central to the village- region in general. It concludes that there are level institutions or their representatives. preconditions to be met so as to achieve an effi-

29 cient allocation of resources for social protec- “social safety nets”, targeting the destitute and tion which are closely linked to the develop- excluded groups. As long as social insurance ment of existing capacities of institutions and measures are not available and applicable to the human resources in charge of administering majority of the population, the burden on gov- social protection programmes. The role of local ernments to deliver social assistance will administrations must be strengthened for remain very high, especially in times of econ- enforcing the mandatory registration of work- omic crises. Also, the number of poor is grow- ers under social security schemes – thus raising ing in countries where national priorities social security income – to assess the needs for strictly aim at providing transfers and support social protection of the population and to to the needy at the expense of providing safe- administer social protection programmes. guard measures to those who may not be in Finally the paper raises the issue of vulnerabil- need but whose earning capacities face poten- ity and limitations of social protection pro- tially precarious conditions. This has been the grammes as a result of globalization. It argues inevitable case of thousands of workers who in favour of an increased role of regional forums became unemployed as a result of the crisis and and institutions to arrange programmes that who then became in need of social assistance as would collect resources at the regional level and there was no available social insurance protec- redistribute resources across countries. tion available in most cases. Financing of social protection must be I. A balanced financing planned through carefully determined com- of social protection prehensive national strategies that embrace the entire needs of the population. These must aim There is an apparent necessity to raise addi- at both preventing poverty and assisting those tional resources or reallocate existing ones for already in poverty. An assessment of gaps the purpose of social protection. In the early between the needs and the available social pro- 1990s, social security expenditure accounted on tection should be based on a thorough knowl- average for less than 1 per cent of GDP in about edge of needs and existing mechanisms. A half of the countries of Asia, including sound review of the current situation requires Bangladesh, Fiji, India, Malaysia, Philippines inputs from local-level administrations, enter- and Thailand. Since then, the proportion of prises, workers’ representatives and other com- social expenditure to GDP has slightly munity groups that are likely to have a better increased but generally remains low, notably in knowledge of the specific realities faced by the relation to other regions of the world. Despite population. National priorities for the provi- larger budget allocations towards social pro- sion of social security and social assistance can tection programmes, the relatively low share of then be better designed in close coordination GDP spent on social protection may be with national employment and economic poli- explained by the fact that real GDP growth was cies. At all times, public consensus should be around 7 per cent annually until the Asian cri- sought to adopt policies that reflect the desires sis whereas real social security expenditure and necessities of society, including what it can grew by only 2.6 per cent annually. This implies afford and need as a minimum through public a social development evolving at a slower pace programmes, and respect the roles played by than the economic development. This is espe- existing individual and private initiatives (e.g. cially relevant in the cases of the Republic of extended family support). Korea, Malaysia and Thailand. The recent experience in the aftermath of the The limitations underlying the slower pace Asian financial crisis of 1997 has shed much of social development are largely attributed to light on the deficiencies of the present systems the lack of legislation provisions and public in place. Policy and administrative reviews infrastructures. have concluded in many cases that the further The planning of the extension of social pro- development of social protection must be first tection measures and capacities require careful based on a build-up of national and local capac- consideration of the needs of the populations ities to deliver the social protection. and the available mechanisms to meet such demands. The ILO normally prioritizes social Financing social assistance insurance as the most viable approach to build up self-sustained long-term social protection. The sources of financing available for sup- Such an approach should be complemented by porting social assistance include mainly state state-financed social assistance, namely through budget allocations. Some least developed coun-

30 tries benefit from significant amounts from the Government pays one-third of social security international donor community. contributions on behalf of insured workers. The The scope of social assistance normally provision of such government subsidies to reflects political priorities and its effectiveness social security schemes is usually justified is de facto related to whether local governments when the coverage is nearly universal. It is, are more active or able than others. The financ- however, discouraged in countries where the ing of social assistance is normally limited and coverage is still less than maximal, as this hence universally provided social assistance is implies a cross-subsidization by the non-cov- rarely found in developing countries. Pro- ered groups of the population who contribute grammes normally determine specific target to some extent to the government revenues groups whose needs are not addressed other- through different taxation, e.g. value-added wise. In-kind and cash benefits are usually pro- taxes being paid by every consumer. Using vided to those who have passed a means test. state budget revenues for social security financ- The cost of administration of such programmes ing may be inappropriate, especially as most is normally very high. The ILO normally countries draw public income from sources favours the provision of “categorical” social other than personal income taxes, e.g. import assistance benefits whereby entitlements are duties and excise taxes, and business licence determined in reference to objective sets of cri- fees. Government contributions are, however, teria that may be based on obvious physical, required in case of contributions representing age or regional characteristics. The role of the the employer share for public workers. State is determinant as social assistance pro- The definition of benefit provisions ought to grammes are dependent on the willingness of take into account actuarial considerations so as the politicians who are responsible to approve to ensure the long-term financial sustainability budgetary allocations on a yearly basis. The of social security. The role of the State should monitoring of social assistance programmes extend beyond the scope of policy-making to should be determined in reference to objective include the regulation and monitoring of the indicators that are readily available, such as the performance of social security schemes. The percentage of persons receiving protection in State should be the ultimate financial guaran- relation to the total number of persons in need. tor of social security schemes which makes it Benchmarks should be determined and public responsible for adopting benefit provisions that administrators made accountable for perfor- are financially sustainable. In countries where mances that do not meet the minimum stan- individualized approaches to social security dards set by such threshold. The actors con- exist, e.g. where provident funds are found, the cerned should involve those policy-makers as State should be responsible for providing min- well as administrators. Due consideration imum benefit guarantees in case of a bad invest- must, however, be given to the provision of suf- ment performance or bad management of the ficient administrative capacities to meet such provident funds. Also, provisions should be benchmarks. made for some minimum form of income trans- fers towards the most vulnerable groups of Financing social insurance workers, e.g. women in precarious employ- ment situations with less than maximal work- The personal coverage of social security ing careers who may not have an opportunity schemes in Asia normally refer to workers in to raise sufficient savings to obtain a decent wage employment first as their earnings capac- benefit protection. ity is more easy to track. Thailand, the Philip- In view of the limitations of national social pines and the Republic of Korea have been security programmes to cover the majority of planning to extend the mandatory coverage of the working population, community adminis- their schemes to self-employed groups of the trations should be encouraged to stimulate vol- populations. This is a tedious task as the cost of untary social insurance arrangements with a administration increases as soon as smaller size linkage to national social security, at least for enterprises and self-employed workers are the purpose of financial guarantee and for covered. technical expertise. The financing of social insurance usually The funding reserves of social security relates to the capacity to pay contributions by schemes should be handled according to regu- workers and by employers. Some national lated provisions encouraging the build-up of social security schemes in the region receive operational contingency reserves – e.g. at a government subsidies, e.g. in Thailand the maximum of two to three times annual expen-

31 diture during stable times – and of pensions • the administration of social protection funds. Such regulations should, however, dis- should rely on well-trained staff at all levels courage over-accumulations of reserves. of administration; • public reporting of performance; and II. Limitations of income redistribution • an efficient legal system allowing timely through social protection responses to ensure an efficient administra- tion and delivery of the social protection. Social assistance measures are useful means to channel resources towards those in need but their effectiveness directly depends on the III. Decentralization of policy availability of sufficient resources and effective and financing of social assistance delivery mechanisms. In Asia, redistribution of and social insurance income through social assistance programmes In China has proven to be of limited effectiveness. This is partly explained by the relatively small The reform of the social security system for amounts of resources made available as a result urban populations of China is a parallel neces- of the small size of government income as a per- sity to achieve the successful restructuring of centage of GDP. medium- and large-size state-owned enter- The provision of social insurance can be prises (SOEs) within the next three years. The developed in gradual stages with a clear recog- measures adopted and proposed are expected nition that it should start on a sound basis with to increase social stability as a matter of prior- reasonable expectations, notably in terms of the ity. The reform of social security addresses effective coverage of the population. The pub- mainly the needs of urban populations whilst lic support for social insurance is crucial. Its it is expected at this stage that the Government financing provisions must give due recognition should encourage self-help approaches for the to the understanding of what can be afforded rural populations. The situation of the main and what can be promised in relation to the statutory social protection programmes can be delivery mechanisms. summarized as follows: Financing of social security is hardly possi- ble for population groups whose earnings are Social insurance for difficult to determine and monitor. The in- the urban labour force volvement of locally based organizations and administrations should be instrumental in It is mandatorily provided to the urban developing arrangements aimed at such popu- labour force although the actual coverage only lation groups, including informal, agricultural amounts to 44 per cent. Provisions include pen- and home-based workers. sions in case of old age, invalidity, death, unem- There are prerequisites for the efficient use ployment cash benefits (UI), medical insurance of financial resources for social protection. They (MI) and maternity benefits. The Government refer to practical elements surrounding the is responsible for the enormous deficits of environments of social protection schemes municipalities where the collected contribu- which can be summarized as follows: tions do not suffice to meet the promised ben- • the collection of contributions should cover efit, namely for the payment of old-age pen- a large proportion of the income earnings sions to retired SOE officials who previously base; relied on their respective enterprises to look after their various social protection and hous- • endorsement by the public and the corpor- ing needs throughout their active and retired ate sector should be secured through inten- lives. The municipal Labour and Social Bureaux sive public information campaigns and (MOLSS) are responsible for the policy and accessible social protection administrations; administration of social insurance. The large • schemes should be operating free of politi- pool of migrant workers are usually denied cal pressures through tripartite manage- protection from the social insurance schemes. ment that is accountable on the basis of clearly defined performance indicators and benchmarks; • measures should be introduced against cor- ruption, including lax corporate gover- nance;

32 Re-employment Centres’ Support persons, i.e. 9.5 per cent of the rural population, Programme for laid-off urban and medical insurance is provided to 20 per employees cent of them. Rural Cooperative Medical Insur- ance was initiated in the 1970s at which time it This is an enterprise-based and temporary experienced a good degree of success, covering programme to provide support to workers most of the rural population. Later reforms laid-off for economic reasons. The labour con- have more or less banished such cooperatives. tracts of laid-off workers remain valid for Social assistance is normally provided in the approximately three years during which com- form of relief in case of natural disasters and is pensation is paid and support is provided to financed through ad hoc central and territorial find new employment. The UI system and the budget allocations. Provisions for the poor also local government budgets are supposed to exist but their extent varies greatly and their cover two-thirds of the associated costs. All Re- application appears subjective in some cases. employment Centres should cease to operate Social security schemes are highly seg- by 2003. This implies a significant and difficult mented, according to the allocation of govern- shift of the burden of unemployment to the mental responsibilities. Their financing and municipally operated UI schemes. The admin- management are highly decentralized and istration is coordinated between the SOEs and depend to a large extent on the economic con- the Municipal Labour and Social Bureaux ditions found at the local level. As a result, the (MOLSS). recent economic progress has led to increasing income gaps between eastern coastal cities and Minimum Urban Living Standard rural areas and less developed regions of west Subsidies Scheme China. The problems are exacerbated by the growing migration of the young labour force of Introduced in 1998, this social assistance rural areas to work in coastal cities, leaving programme is expected to provide financial large numbers of dependants behind. The assistance of last resort to urban residents liv- municipal authorities of the western and rural ing below the locally set poverty line. Cash ben- areas have thus fewer sources of income from efits are modest and below flat-rate social insur- workers and a heavier burden to provide social ance benefits whilst the provision of health care security benefits to the dependants of workers is not standardized. This scheme was expected who have gone to the east. to bridge the gap left by bankrupt enterprises whose workers and dependent retirees and The role of the central State families were left to account for their own social protection needs. The scheme is contested in The role of the central State is largely for the various areas of China as it provides neither formulation of policies which serve as guide- sufficient nor timely benefits to those in need. lines and set limits for developing specific reg- Adaptations of this scheme are found in some ulations at the provincial level. These are rural areas, notably where farmers are found intended mainly to maintain a certain degree of demonstrating against the authorities because uniformity across the country. The overall of low earnings and high local taxes. The redistribution of social protection resources municipal bureau of the Ministry of Civil across provinces and generations is very diffi- Affairs is in charge of this scheme. The policy cult to achieve because of the limited pooling coordination with the MOLSS programmes of funds that takes place at local administration could be improved. levels. It must resort to alternative sources of financing to cover deficits incurred by local Rural pensions, medical insurance social security schemes. The central Govern- and social assistance ment supervises the financial and demographic developments throughout the provinces. There The Ministry of Civil Affairs supervises is limited cooperation between the policy-mak- social security provisions for the rural popula- ing and monitoring of social security schemes tions with the support of Village Councils. (under the supervision of the Ministry of There are great variations across localities with Labour and Social Security) and social assis- some areas having no infrastructure. Benefits tance programmes (under the supervision of are voluntary and provided only on the basis of the Ministry of Civil Affairs). prior contributions paid by individual rural residents. Pensions cover around 85 million

33 The role of provincial administrations are covered by some form of pension scheme and less than 20 per cent by medical insurance The provincial authorities decide on the schemes. Recent experiences indicate that they definitive benefit design provisions within the lack financial resources to meet the needs of boundaries set by the guidelines provided by rural populations. Social security provides the central State, including financing provi- somewhat inadequate protection as there is no sions. For example, the contribution rate for financial guarantee in case of bad investment public pensions cannot be set above 20 per cent experiences and it provides limited support for of earnings without prior approval by the cen- those not contributing or doing so at low lev- tral State.There is a limited pooling of social els. The provision of social protection largely security resources. In some provinces, 5 per depends on fiscal resources of the local gov- cent of the contribution income collected by the ernments that are in themselves very limited, municipal Labour and Social Bureaux is trans- due to the low incomes of their resident popu- ferred to the provincial administration for the lations. Over time, this has led to the introduc- purpose of redistributing income revenues tion by localities of a vast spectrum of ad hoc towards municipalities where benefit expendi- taxes charged to the few productive units, ture is higher than the amount of contributions notably agricultural farmers. Where personal collected. The provincial authorities oversee income levels are the lowest, the level of the administration and reporting of financial resources available for social protection is obvi- situations and requests of cities for central allo- ously the lowest, whilst social protection needs cations of “redistributed income”. are the highest. Local governments incapable of meeting the basic social protection needs of The role of municipal administrations their populations must present a request for subsidies by way of extraordinary budget allo- They administer the actual social security cations granted by provincial and central gov- schemes: register enterprises and their work- ernments. Given the often limited provincial ers, inspect them, collect contributions, receive budgets and national state budget, needs for benefit claims, pay benefits, handle public social assistance cannot all be met. At the information and appeals. This is where most of national level, those allocations are usually the administrative burden is found. The finan- determined in relation to priorities for main- cial management of social security schemes is taining social stability at the local level. The determined by Municipal Labour and Social main purpose of social protection financing Bureaux. They work in close cooperation with thus prioritizes allocations towards regions enterprises, as some social security schemes, where social stability is not guaranteed. notably for the provision of unemployment Overall financing of social security follows insurance benefits, must provide one-third of a bottom-up approach in China. In addressing the resources needed to support enterprise- the query whether this is the best approach for based social security initiatives, such as, for a country as vast as China, one must under- instance, re-employment centres although stand the advantages and disadvantages of the these are due to close down by 2003. Municipal current approach versus other options. bureaux must also work in close cooperation The current approach puts much of the bur- with local fiscal authorities that are the finan- den of financing social protection on local cial guarantors of social security schemes. They administrations where the pooling of social must also transfer taxation resources to social security funds is done. If in deficit, the local fis- assistance programmes. When local finances cal resources should bridge the financial gap. cannot meet the local demands for social pro- This inevitably leads to the drainage of finan- tection, requests for transfers from the provin- cial resources for other economic development cial and central governments are presented. at local level. This also implies inequitable and This represents a major drawback of the Chi- inadequate social assistance as localities where nese approach to social protection financing. fiscal resources are relatively small cannot afford to meet social assistance needs. The The role of rural administrations localities where resources are most limited are likely to be the ones where the need for social They are mostly involved with voluntary transfers are greatest. For social insurance, the social insurance schemes and social assistance issues are relatively similar but slightly less programmes, notably in case of natural disas- critical in principle as there are some ear- ters. Only 10 per cent of the rural population marked funds, although very small in size,

34 channelled to the higher levels of administra- ers and private workers in large enterprises of tion for redistribution towards social security 100 employees or more. Other public transfers schemes in difficulties. are mainly for the purpose of education. To a large extent, child welfare is a priority in Thai In Thailand society. The central Government retains control of In Thailand, the scope of social protection is most of the decisions for the policy-setting and limited, as national social insurance measures financing of social welfare programmes. The have mainly been developed since the intro- administration is controlled by the central gov- duction of the Social Security Act of 1990. Pub- ernmental authorities that rely on the available lic welfare programmes are numerous, but their support for benefit delivery at the local level actual outreach is as limited as the financial that is sometimes found to be associated with resources allocated. Subsidized public health political groups who are assumed to know bet- care plays a significant role as official figures ter the local needs for social welfare where gov- estimate that 70 per cent of the population ben- ernment infrastructures are weak. There is, efit from some form of insured or subsidized however, a sign of important changes as the health care. These figures are, however, not con- Parliament of Thailand adopted a legislation in firmed by socio-economic surveys that put 2000 that foresees the decentralization of up to health care coverage at 45-50 per cent of the 35 per cent of public budgets to local-level population. The quality of the subsidized administrations. This is scheduled for imple- health care is sometime contested. mentation over a period of ten years so as to Recently, the efforts of the newly-elected ensure that local capacities are able to admin- government have been significant in planning ister such budgets for the purpose of social to introduce a universal health care system assistance. whereby patients only pay 30 baht per medical Overall, the management of social expendi- visit (approximately US$0.70). Such a universal tures is weak in Thailand because of a limited health care system is initially to be piloted for infrastructure for the delivery of social protec- two years. There has been important scepticism tion. For social welfare, this means that there is raised in relation to the sustainability of public insufficient capacity to monitor, report on and universal health care in the future. Several administer the delivery of benefits. For social options are under consideration. For the initial insurance, this means that there are too few local years, the aim is to rationalize other govern- branch offices to ensure that the extension of the ment expenditures and to channel savings mandatory social security coverage of the pop- towards the universal health care system. Also, ulation is enforced and supported by the pub- the current expensive medical insurance lic. The recently adopted reforms are, however, scheme for civil servants and retired public ser- expected to remedy this over-centralization of vants – operating on a purely pay-as-you-go the management of social protection. Care must basis – will be merged with the statutory be taken to ensure that local capacities exist national social security scheme. This should before resources are channelled to the commu- result in significant state budget savings that nities. There is evidence that it may be better can also serve to finance partially the cost of not to provide resources to localities until universal health care. capacities and mechanisms are in place to Public financing of social security in Thai- ensure appropriate governance. In this respect, land is also provided through the payment of reference is made to the recent experience one-third of the contributions paid on behalf of observed in relation to occupational social wel- insured workers under the social security fare programmes providing pools of funds to scheme. The coverage of the latter is manda- local committees. Many localities targeted by tory for all enterprise workers in firms of ten or these programmes, although providing limited more employees. However, the level of com- funds, have had mixed experiences, due to a pliance to register is limited to 42 per cent lack of understanding of the purpose of such (1999) in the medium-sized enterprises of 10- funds, and entrenched, politically biased 99 employees, whilst it is significantly higher behaviours tended to distort their use. This lim- at 91 per cent in large enterprises employing its the efficiency of decentralizing social pro- 100 or more workers. tection financing. The overall social expenditures of Thailand are characterized by a large proportion of social insurance benefits paid to public sector work-

35 In the Lao People’s Democratic Conclusion: Republic Public financing of social protection a necessity Lao is classified as a least developed coun- try according to the World Bank. The capacity The role of the State in financing social pro- of the State to provide social protection is tection is often limited by practical considera- largely limited due to the lack of government tions. In most East Asian economies, the devel- resources, ethnic disparities, the non-moneta- opment of institutional capacities for the rized economy outside of the capital Vientiane assessment of social protection needs should be and other large cities. The current poor state of prioritized. This is necessary so as to raise addi- the economy is largely attributed to the conse- tional resources for the purpose of social pro- quences of the war that ended more than 25 tection. In addition, it would be reasonable to years ago and to the policies of the centrally reallocate larger proportions of government planned economy. expenditures towards social protection pro- Most social protection funding is provided grammes. through international donor support, mainly Alternatives should give due consideration for health and educational purposes. Priority is to the delivery of self-financed social security given to the development of institutional through employer and employee contribu- capacities through reinforced education. tions. The gradual phasing of social insurance Statutory social protection programmes are measures should allow the development of nearly non-existent, with the exception of the sustainable infrastructures able to deliver social security scheme for public servants. They social protection and redistribution of income contribute 6 per cent of their wages and the to persons facing specified “social risks”. In state budget covers the remaining costs of Asia, the limitations on social security pro- social security benefits. The scheme is expen- grammes are largely explained by the poor sive and the benefit protection provided is lim- management by governments in general and ited. In December 1999, the Prime Minister of limited capacities of governmental human Lao signed Decree 207 providing for the intro- resources. duction of a mandatory and contributory social Given the low level of social protection security scheme for enterprise workers of the expenditures in most countries of Asia, where private and state-owned sectors. Its operations less than 10 per cent of the Gross Domestic are scheduled to begin in June 2001. Originally, Product is spent on social protection, the ILO pressure to introduce such a scheme came from encourages the countries to carefully plan an the corporate sector, as they were threatened by increase in their resources for social protection. the European Union of having their exports A typical strategy could pursue the following limited on the grounds that they did not pro- practical lines: vide decent working conditions to their work- • a thorough assessment of social protection ers. This represents the beginning of social needs through the active participation of insurance in Lao. reinforced local administrations and public It may be difficult at this stage to foresee any consultations; more public financing of social protection in • a review of existing social assistance and Lao in view of the limited public finances avail- social insurance programmes and the able and public infrastructures. The ILO’s causes of inefficiencies; advice is that the development of social pro- tection should follow a gradual approach • where the basic structure of existing pro- closely linked to the development of the econ- grammes is considered adequate, improve- omy, namely outside of the capital city of Vien- ments should build on the further develop- tiane. Close cooperation with village adminis- ment of such programmes (as opposed to trations should be sought as they often have a introducing costly new programmes); better knowledge of the needs and realities of • where there is a deficient basis for the pro- local populations and the potential capacities to vision of social protection, the national strat- provide them with social protection. egy should foresee the introduction of sus- tainable social programmes that meet the needs of the populations, both in the near future and in the long term, and that are in line with institutional capacities for benefit delivery;

36 • the strengthening of the human resources’ impact of globalization on the provision of capacities of local administrations; social protection. National governments are inevitably facing limited capacities to protect • a concerted national approach should be their populations in view of the movements of monitored on a regular basis through the capital across borders and often linked to use of publicly accepted indicators of per- prospects of stability and the provision of low formance and clear accountability; and production costs. There is an apparent neces- • financing of social protection programmes sity to reinforce international and regional ties should give priority to approaches that to develop mechanisms that could eventually allow for some degree of income redistribu- foresee the financing of social protection through tion across regions, income groups and gen- transfers of resources beyond national borders. erations. This necessity was recently raised by Thai offi- cials envisaging the introduction of a statutory As a final comment in relation to the financ- unemployment insurance scheme. ing of social protection, reference is made to the

37

Central and Eastern Europe

Pension restructuring in Central and Eastern Europe: An analysis of recent trends

Elaine Fultz Senior Specialist in social security Markus Ruck Expert in social security ILO Regional Office, Budapest

The restructuring of national pension undertaken across the region during the 1990s. schemes has been a major and contentious issue These are discussed in two broad categories, in most Central and Eastern European (CEE) restructuring of public schemes and privatiza- countries in recent years. The reforms being tion, and a set of early implementation patterns pursued involve both reducing pension scheme is identified. The third part draws conclusions costs and making benefits more individualized and offers recommendations for strengthening and related to earnings, thereby departing from pension policy deliberations. the universal and redistributive pension poli- cies of the former socialist governments. In addition, some countries – i.e., Hungary and I. The context for reform Poland – have adopted so-called radical A. Pre-transition pension schemes reforms which partially replace public pension schemes with mandatory systems of commer- One of the legacies of the socialist era in CEE cially-managed individual savings accounts. countries was the State’s large role in provid- The result of these changes is growing differ- ing retirement benefits: pensions were a major entiation both within and between countries in responsibility of the government, and there the extent of old age protection provided. were almost no private arrangements. Pensions This paper describes these reforms and were financed on a pay-as-you-go basis through identifies a set of early patterns in their imple- transfers of funds from state-owned firms to a mentation. The analysis has three parts. The social insurance budget within the state bud- first provides background, portraying the pen- get. There was little transparency in the collec- sion schemes which were inherited by CEE tion and allocation of resources. governments, the impact of the transition, and Retirement ages in CEE countries were the expected role of demographic changes in somewhat lower than those in OECD, as shown coming decades. Part two describes the reforms in Table 1. In many CEE countries, male work-

Table 1. Average retirement ages, 1950 and 1990

1950 1990 OECD countries Male 68.5 62.2 Female 66.0 60.0 CEE countries Male 67.6 60.9 Female 62.5 57.6 Source: Latulippe, D., “Effective Retirement Age and Duration of Retirement in the Industrial Countries between 1950 and 1990”. Issues of Social Protection, International Labour Office, Discussion Paper No. 2 (Geneva) 1996.

39 ers could retire at age 60 with 25 years of ser- countries, the percentage decline in employ- vice, while women could often retire at 55 or, in ment was greater than that in output (with the some countries, at an age determined by the exception of the Czech Republic), while in other number of children raised.1 There were also countries the drop in unemployment was less, many avenues to early retirement, and young reflecting hidden unemployment in the form of pensioners often continued to work while shorter working hours or unpaid leave. While receiving benefits. many transition countries have now had two to In general, the pre-reform schemes were six years of output recovery, employment has designed to redistribute income, and the link continued to shrink or stagnate.4 between contributions and benefits was weak. High unemployment caused a drop in pen- However, there were many so-called privi- sion scheme contributions and an increase in leges – i.e., lower retirement ages and higher benefit payments. The number of scheme con- benefit amounts for occupations favoured by tributors declined by 30 per cent in Bulgaria, 45 the State. In many countries, privileges were per cent in Latvia, and over 60 per cent in Alba- extended not only to workers in risky and nia, while less severe losses occurred in the strategic occupations but also to entire indus- Czech Republic, 7-8 per cent, and the Slovak trial sectors (e.g., to mining management and Republic, 5 per cent.5 In addition, many firms administration as well as underground work- failed to make regular contributions on behalf ers) but were financed through contributions of the workers they retained due to financial paid on behalf of all workers, resulting in difficulties, leading to large accumulations of adverse redistribution. Benefit adjustments arrears. Those displaced workers who found were generally not sufficient to take account of employment in the region’s expanding infor- inflation or nominal wage increases. mal sector generally fell beyond the reach of social security collection agencies. In some B. The impact of transition countries, these workers now total a quarter or more of the national workforce: in Lithuania, In most countries, the transition brought a the portion of unregistered workers is 22 per sharp contraction in output and employment, cent and, in Albania, 28 per cent.6 with production levels declining by 20-50 per On the cost side of the pension financing cent below 1989 levels.2 The CEE countries gen- ledger, many governments liberalized disability erally resumed growth in 1993 and regained and early retirement provisions to deal with ris- their pre-transition output levels in 1997.3 They ing unemployment. This use of pension schemes were followed by the Baltic countries where as a cushion in absorbing excess labour substi- growth generally resumed in the second half of tuted for welfare and unemployment schemes, the decade. Growth in south-east Europe, while which were still being developed in many coun- now underway, has been less decisive. In CEE tries. However, it was considerably more costly

Table 2. Ratio of young, working age, and elderly to total population (percentages)

Country 1998 2020 -19 20-59 60+ -19 20-59 60+ Albania 42 49 09 325512 Bulgaria 26 53 21 14 58 28 Czech Republic 25 57 18 19 54 27 Estonia 27 54 19 18 56 25 Hungary 26 55 19 n.a. n.a. n.a. Latvia 26 54 20 18 57 25 Lithuania 28 54 18 23 55 21 Poland 30 54 16 25 53 22 Romania 31 52 16 n.a. n.a. n.a. Slovakia 30 55 15 19 58 22 Slovenia 24 57 18 22 52 26 FYR Macedonia 33 54 13 23 54 23 n.a. = not available Source: Phare Consensus (1998), p. 63.

40 than direct provision of unemployment benefits II. Approaches to reform and placed a strain on pension scheme financ- ing that will continue for many years. In the mid and late 1990s, most CEE coun- tries undertook major pension reforms; but the C. Demographic projections pace of decision-making and implementation has differed markedly from country to country. Though demographic changes have not In some countries, legislation has been approved begun to be felt in most countries, projections and is now being implemented (e.g., Hungary, indicate that they will raise future pension costs Poland and Slovenia), while in others debate is considerably. Over the next 20 years the pro- still underway (e.g., Slovakia, Ukraine). The portion of elderly will increase by a third in reforms aim not only at reducing system depen- many countries, while the young population dency ratios but also at adapting some of the pre- will contract significantly. See table 2. How transition design features to new economic and these projected rates of demographic depen- political conditions. In many countries reform dency will translate into actual rates of depen- has also entailed a shift toward greater reliance dency on national pension schemes depends on the private sector for pension provision. Table heavily on economic and labour market factors 3 shows the progress of pension reform across as well as on policy decisions concerning the the region. The X mark shows at which stage of pension benefits provided. It appears that the the process reforms are. process of ageing will pose major challenges for It is useful to consider the reform measures most countries. in two broad categories: adjustments in the basic

Table 3. Status of pension reform in selected CEE countries

Country Major first tier of reform Introduction of mandatory Additional voluntary (mandatory) second tier (supplementary) arrangements In prepa- Approved Legis- In prepa- Approved Legis- In prepa- Approved Legis- ration lated ration lated ration lated Albania X X Bulgaria X X X Croatia X X post- X poned 1 Czech Republic X X Estonia X With- X drawn 2 Hungary X X X Latvia X X, delayed X to 1/7/01 Lithuania X X X Poland X X X Romania X X X Slovakia X X X Slovenia X rejected X Ukraine X X, post- X poned 3 FYR Macedonia X X X 1 Implementation of the Croatian law has been postponed by the new government pending improvements in the econ- omy. 2 The Ukrainian proposal calls for implementation only at the point when specified economic and political pre- requisites are achieved. 3 The Estonian government withdrew a proposal for a mandatory pillar, citing concerns about high transitional costs. Sources: Phare Consensus (1999), p. 55, Pensions International (2000 issues), and updating information provided by conference participants.

41 parameters of existing public schemes and estab- Retirement age increases are shown in lishment of new private arrangements. Virtually table 4. As can be seen, increases have been all countries are pursuing the first approach. The enacted by most countries, in the range of two reforms underway include increasing national to three years for men and three to six years for retirement ages, reducing redistribution and women. Most of these new statutes are the rates of wage replacement in benefit formulas, result of political compromise, with larger curtailing benefits to privileged categories of increases having been proposed initially and workers or providing separate sources of financ- reduced through negotiation with trade unions ing for them, and strengthening procedures for and, in some cases, employers. In some coun- collecting contributions. tries (e.g., the Czech Republic and Latvia), a sec-

Table 4. Retirement ages in selected countries

Country Current law Men Women

Albania 1995 60 with 35 years of service; 55 with 35 years of service; 50 with partial pension with 20-35 years. 30 years of service and six children; partial pension with 20-35 years. Croatia 1998 Increasing to 65 with 15 years of cov- Increasing to 60 with 15 years of ered work by 2007. Anticipatory pen- covered work by 2007. Anticipatory sion, increasing to age 60 with 35 pension, increasing to age 55 with years of covered work. 30 years of covered work. Czech 1995 Increasing from 60 to 62 with 25 53-57, depending on no. of chil- Republic years of service, at a rate of 2 m. per dren, increasing to 57-61 at a rate year between 1996 and 2006. of 4 m. per year between 1996 and 2007. Estonia 1998 62.5, increasing to 63 in 2001. 57.5, increasing to 63 in 2016. (in force, 2000) Hungary 1997 62 57, increasing to 62 in 2009. Latvia 1998 60 with 10 years of insurance. 57 with 10 years of insurance, increasing to age 60 by increments of six months each year. Lithuania 1994 61, increasing in increments of 2 m. 57, increasing in steps of 4 m. per per year to 62.5 in 2009. year to 60 in 2009. Poland 1998 65 with 25 years of service. Early 60 with 20 years of service. Early retirement being phased out. retirement being phased out. Romania 2000 Increasing from 62 (with early retire- Increasing from 57 (early retirement ment at 60) to 65 by 2013. at 55) to 60 by 2013. Slovakia 1988 Normal retirement age is 60; Normal retirement age is 53-56, for selected professions, 55-58 with depending on no. of children 25 years of service. raised, with 25 years of service. Slovenia 2000 Increasing from 61 to 63 for full Increasing from 53-58 to 58-61 for full retirement with 40 year qualifying retirement with 38 year qualifying period, minimum retirement age 58. period, minimum retirement age 58.

FYR 2000 Will become 64 (31/12/01) with 15 Will become 62 (31/12/07) with 15 Macedonia years of work. Transition period until years of work. Transition period 2005 during which workers can retire until 2005 during which workers with 35 years of work (no min. age) if can retire with 30 years of work (no more beneficial. minimum age) if more beneficial.

Sources: Social Security Programs Throughout the World (US Social Security Administration, 1999), International Social Security Association, Databases – Social Security Worldwide (www.issa.int), Phare Consensus (1999), p. 33-8; and updat- ing information provided by participants to the conference.

42 ond round of increases is under discussion as a and in Poland in 1999. As shown in table 3, sev- means of addressing the expected ageing of the eral other countries are also planning such population. reforms or considering them. Countries have taken differing approaches Both approaches are necessarily long-term to revising benefit formulas. Latvia and Poland undertakings, due to the political difficulty of have replaced traditional (defined) benefit for- building consensus for changes, the time mulas with so-called notional defined contribu- required to construct new systems for more tion systems, in which retirement benefit levels individualized administration and regulation are based not on wages but on a worker’s life- of private pension providers, and the need, rec- time contributions and an estimate of the aver- ognized in most countries, to avoid abrupt age life expectancy of the age cohort to which he losses for workers. While the recency of these or she belongs at the pensionable age. Other reforms makes it difficult to reach definitive countries have retained traditional defined ben- conclusions, several early patterns are dis- efit systems but with lower pension accrual rates cernible. for each year of work. In Slovenia, for example, the accrual rate was reduced from 2.0 to 1.5 per 1. The transitional costs of moving to a mixed cent of average wages for each year; and a larger pension scheme are higher than projected in Hun- number of years is being used in computing gary and Poland, due to the unexpected strength of average wages, strengthening the relationship worker preferences for private pensions. Countries between a worker’s lifetime earnings and his or incur transitional costs in moving from pay-as- her benefits. you-go to mixed pension systems because they Action to curtail pension privileges is also must build up reserves for the new pre-funded uneven. Some countries have eliminated such tier while continuing to meet existing pay-as- privileges or provided a separate source of you-go benefit commitments. In CEE, this financing for them (e.g., Hungary, the Czech build-up involves specific problems, since most Republic, Lithuania, Slovenia), while in other countries are operating under a constraint that countries the issue remains on the national prohibits increases in contributions. This con- policy agenda (e.g., Poland, Slovakia and straint derives from the current rates, which are Ukraine).7 high in comparison with other parts of the Some CEE countries are seeking to improve world (see table 5). Governments striving for contribution collections through so-called uni- international competitiveness are under pres- fied collection systems. Here a single enforce- sure to decrease these rates or at least stabilize ment agency collects contributions to fund sev- them and thus must meet transitional costs in eral schemes (e.g., pensions, health care, other ways. unemployment, sickness, employment injury) The Polish Government redirected about and may collect income taxes as well. While one-fifth of contribution revenues from the holding promise for improving collections in public, pay-as-you-go scheme to fund the new the formal sector, this approach is less useful in private tier (7.3 per cent out of the 32.52 per cent reaching self-employed workers and workers contribution rate for each second-tier scheme in the informal economy. Unified contribution member). It is planning to address the resulting systems are being developed in Latvia, Lithua- deficit in the public scheme with increased bor- nia and Poland and are under active consider- rowing, effectively issuing new bonds to ation in Slovakia and Ukraine.8 retrieve contributions allocated to the new pri- The second category of reforms, new private vate system. In Hungary, the Government also pension arrangements, differs from the reallocated about a fifth of contributions (6 per approach to privatization taken in some Latin cent of the 30 per cent contribution rate for each American countries where public schemes second-tier scheme member) to the new funded were fully replaced. Here the objective is to second tier. It too will cover the resulting deficit structure mixed pension systems under which in the public system by issuing more debt.9 future retirees will receive benefits from two The increase in transitional costs over earlier sources, the public scheme and a second projections derives from the discretion, that both mandatory tier consisting of commercially- Hungary and Poland gave large segments of the managed individual savings accounts. Work- current work force, to join the new scheme or ers are usually given a choice of pension man- not. In Poland, all workers between age 30 and agement firms and the right to transfer from 50, and in Hungary, all current workers, were one firm to another. Mandatory second-tier given the option. In each case, the numbers schemes were launched in Hungary in 1998 which moved to the mixed system exceeded

43 Table 5. Worker and employer contribution rates in selected countries 1999 and 2000 (per cent of insured wages)

Country Employers Employees Albania* 26 10 Bulgaria* 34.7 1 Croatia** 8.75 10.75 Czech Republic** 19.5 6.5 Estonia** 20 0 Hungary** 22 8.1 Latvia* 23.58 9 Lithuania** 22.5 2.5 Poland** 16.26 16.26 Romania* 23.2 5.3 Slovenia* 15.54 8.85 average5 Slovakia* 21.6 5.9 FYR Macedonia* 20 0 * Rates for 1999. ** Rates for 2000. 1 For workers in the mixed system, 6 percentage points go to the funded private tier, 2 to social insurance. 2 23 per cent for normal working conditions; for arduous and very arduous working con- ditions, the contribution rates are 28 per cent and 33 per cent, respectively. 3 For supplementary pensions. 4 Vary- ing contribution rates, in average 15.50 per cent of earnings (employee pays entire cost, employer reimburses employee for employer contribution.) 5 Varying contribution rates, in average 8.85 per cent of the payroll. Note: These rates are not fully comparable as they may apply to different wage bases in some countries; in others, they apply only to wages up to a ceiling. Sources: Phare Consensus (1999), p. 49 and SSA (1999), p. 286; for Croatia, the University of Zabreb, Faculty of Law; for the Czech Republic, Ministry of Labour and Social Affairs; for Estonia, Ministry of Social Affairs; for Hungary, Institute of Economics of the Hungarian Academy of Sciences; for Lithuania, Social Policy Unit (SPU) of Lithuania; and for Poland, Ministry of Labour. official estimate significantly. In Poland, the agement will be costly.14 This results in part Government estimated that 6 million workers from reduced economies of scale inherent in a would switch while 10.6 million did so. As a system of multiple private management firms, result, the Government had to increase the year in part from the need to allow workers to switch 2000 state subsidy to the public scheme by zlo- from one firm to another, and in part from tys 2.7 billion (US$650 million) over the 1999 advertising expenditures which private firms level.10 In Hungary it was estimated that 800,000 incur in competing for members. In Hungary, would switch in 1998, but 1.4 million actually operational costs hovered around 8 per cent of did so and, since then, private scheme member- contribution income during 1999, or more than ship has grown to over 2 million. In its wake, the four times the rate for the public pension Fidesz Government repealed legislation redi- scheme. However, these revenues turned out to recting two additional percentage points of the be insufficient, requiring the parent companies 30 per cent contribution rate to the private funds, of the new pension management firms (i.e., leaving the second-tier rate at 6 per cent rather banks and insurance companies) to provide than 8 per cent.11 Given this repeal, private fund occasional, and in some cases, frequent subsi- assets are estimated to rise to 35 per cent of GDP dies.15 In Poland, administrative costs fluctu- over the next century compared to a previous ated considerably over the short period of the projection of 47.6 per cent.12 With significantly private management firms’ existence. In mid- reduced revenues allocated to private savings, 1999, they were in the range of 13-15 per cent statutory guarantees of the second tier are more of contribution income but fell to 6.5-10 per cent likely to be triggered in future years, further as the result of firms’ efforts to attract more increasing the costs of reform.13 clients by the end-of-year deadline for switch- ing to a private fund.16 At the close of 1999, all 2. The administrative costs of private commer- firms recorded substantial losses (zlotys 1.6 bil- cial firms exceeded allocated resources last year, con- lion, or US$403 million). These resulted pri- tributing to financial losses. Pension privatization marily from high promotional costs, agent com- carried out in other parts of the world (e.g., missions, and advertising, the latter of which Chile and the UK) suggests that private man- exceeded zlotys 400 million (US$100 million).17

44 3. Privatization laws are being implemented 5. Frequent changes in CEE governments are with key issues concerning benefit payments unre- resulting in mid-course revisions in pension policy. solved. The Hungarian and Polish privatization Change of government has been a sustained laws contain little detail on benefit payments phenomenon in many CEE countries: since and, in implementing them, both governments 1990, Latvia has had five governments; Lithua- have placed emphasis on getting the new sys- nia, Slovakia and Slovenia have had four; Esto- tems for private management up and running, nia, the Czech Republic, Hungary and Poland further deferring resolution of issues related to have had three; and Croatia, two.20 The impact benefits. In Hungary, a major uncertainty on pension reform seems to vary according to relates to inflation adjustments, which by law its stage. When a reform proposal is still under must be based on annual wage and price consideration, a governmental change may changes in equal proportion. While govern- result in a policy shift or reversal; but when it ment is in a position to guarantee such protec- is legislated, the more likely effect is an incre- tion by virtue of its taxation authority, it is not mental adjustment in implementation. The first clear how private firms can do so.18 In Poland, phenomenon is observable in the Czech Repub- the unresolved issues are broader, relating to: lic and Slovakia: the current Czech Govern- (i) the means of converting a worker’s accu- ment abandoned the previous regime’s plans mulated savings to an annuity at the time of for privatization in favour of reforms of the retirement and the associated costs (will there existing public system, and the current Slovak be multiple, competing annuity companies or a Government dropped the previous regime’s single national company?); (ii) whether the dif- plan to follow the Czech model for reform of fering life expectancies of men and women will the public system in favour of privatization. be taken into account in calculating pensions Variations on the second pattern are observable (i.e., unisex or gender-specific life tables); (iii) in Hungary, Croatia and Latvia. In Hungary, how private benefits will be indexed; and (iv) leaders of the Fidesz Government opposed whether there will be provision for lump-sum pension privatization when they were in the withdrawals at the time of retirement. With minority and, upon returning to power, these major issues unresolved, workers who repealed a provision which would have were given a one-time choice as to whether to increased the rate of contributions allocated to join a private savings scheme lacked knowl- the new private savings pillar (subsection 1, edge with which to make an informed decision. above). In Croatia, the new government at first The absence of information on these matters delayed a pension privatization law enacted by also precludes an assessment of the reforms in the Tudjman regime but in recent months has terms of the key criterion of retirement security. accelerated the preparation effort.21 In Latvia, the 1997 pension reform has since been 4. Private pension management firms are invest- amended nine times and in late 1999 was sub- ing heavily in public, rather than private, assets. Pro- jected to a national referendum; these events ponents of pension privatization offer as a key slowed down privatization, but the most recent rationale the potential for workers to obtain the government has given it new momentum. higher yields on private securities. However, in Poland provides a noteworthy exception to this Poland, 68 per cent of worker savings was pattern: there a change of government in the invested in Treasury and National Bank of midst of reform deliberations (late 1997) did not Poland bonds at the end of 1999, with 28 per cent have a significant impact on pension restruc- in shares.19 In Hungary, the tendency toward turing. This is attributable in part to broad pub- public investment is more pronounced: approx- lic support for the reform and, in particular, to imately 85 per cent of funds were invested in a tripartite consensus in favour of the second- government securities at the end of 1999 and and third-tier proposals. In this environment, about 9 per cent in corporate bonds. This partic- the political parties agreed tacitly to keep pen- ularly low level reflects the volatility of the sion reform on track and avoid making it a cam- Budapest Stock Market, where the main index paign issue. lost two-thirds of its previous value following the Russian Crisis; and pension management 6. In many countries, however, social dialogue firms reduced their private equity holdings by on pension reform is limited; and tripartite consen- half, from about 14 to 7 per cent of investments. sus is not often achieved. In Hungary, trade A market resurgence was predicted for early unions were divided with respect to radical 2000, but this has not occurred; and pension pension reform, as were national experts. In funds have continued to invest cautiously. Slovenia, consensus was achieved only at the

45 parliamentary level after a requirement for a Estonia, the Government dropped a proposal to mandatory private pillar was deleted from establish a mandatory private tier due to con- reform legislation. In Croatia and the FYR of cerns about high transitional costs. Instead it is Macedonia, radical reform proposals were redrafting the legislation to establish an optional enacted over strong trade union objections, second tier with subsidies from the public which continue in the wake of parliamentary scheme for those who participate. action. The failure to reach consensus is attrib- In addition, some governments have adopted utable in part to trade union objections to cuts reform strategies which involve restructuring in benefits which workers believe they have their public schemes without privatization. In earned and have come to expect – a situation December 1999, the Slovenian parliament which is not unique to the region. However, deleted a proposal for a new mandatory savings CEE countries also have difficulties which stem scheme for all private sector workers from a from the lack of a tradition of consultation with comprehensive pension reform bill, approving the social partners, from some governments’ those provisions which strengthen the financing failure to recognize the need for it, and from of the existing public scheme.26 In the Czech lack of experience on the part of workers and Republic, the prospect of high transition costs employers in fulfilling their roles. These diffi- led the current government to reject the previ- culties are accentuated by the greater weight ous government’s plans for privatization. While given to macroeconomic effects in pension it is still in the process of deciding on additional reform debates in recent years – i.e., increasing public reforms, the two countries taken together national savings rates and investment levels – suggest a second pattern of pension reform in a shift which has overshadowed more basic CEE which serves to strengthen and restructure issues of social protection and has tended to the existing public system. marginalize the role of the social partners. While this shift of focus has a greater impact on III. Conclusion trade unions, it also affects the region’s new employer’s associations. Similar difficulties These early patterns are not necessarily pre- exist with respect to the tripartite boards of pen- dictive of long-term outcomes, since some may sion schemes in some countries, where work- disappear with time or be altered by events and ers and employer representatives are often conditions which are not yet obvious. They do, unsure of their roles and unfamiliar with the however, provide some surprises in relation to operating principles of social security schemes. earlier projections and suggest a need to look This lack of experience is reflected in dissatis- again at claims and predictions based on these. faction with the performance of pension boards What conclusions, if any, should be drawn at in some countries.22 this stage? Recognizing a need for caution, the authors offer three observations. 7. The diversity of regional reforms is increasing, First, early experience provides little indi- with momentum for privatization slowing in some cation that radical reforms are well suited to countries and, in others, new efforts are underway to CEE political and economic environments. In restructure existing public systems. The adoption Hungary and Poland, the high transitional of radical reforms in Hungary and Poland led expenditures required to build a private pre- some observers to predict that most of Central funded tier while continuing to meet pay-as- and Eastern Europe would eventually follow you-go benefit obligations are raising the cost their model.23 As can be seen in table 3, several of reform, above what would be required to other governments have since adopted similar restructure the existing system, in the neigh- statutes or are at various stages of considering bourhood of 0.5-1.3 per cent of GDP per year. or planning this. However, this momentum Added to the high contribution rates already in slowed somewhat during 1999 and early 2000. effect, these costs are increasing the burden of In Romania, parliament approved legislation to pension financing considerably in both coun- restructure the public scheme in mid-2000 but tries; and they will make it more difficult to has been debating pension privatization without comply with the fiscal limitations set by the a resolution for more than a year.24 In Ukraine, European Union.27 In addition, the prohibition the Government responded to widespread against raising contributions which is created opposition to radical reform by amending its by high existing contribution rates creates a proposal to add explicit criteria which will delay financial interdependence between the first and implementation of a mandatory second tier until second tiers, making it possible to finance pri- the economy and fiscal outlook improve.25 In vate benefits only by depriving the public pen-

46 sion system of needed revenues and vice versa. the region, few changes have occurred in dis- Both scenarios pose risks which threaten work- ability pensions since the early years of the tran- ers’ future retirement security, though in dif- sition, when standards were lowered as a ferent ways. Growing understanding of these means of dealing with increased unemploy- burdens and risks is reflected in decisions by ment. As a result, there are significant numbers several CEE governments – i.e., the Czech of disabled pensioners with some residual Republic, Estonia and Slovenia – not to under- work capacity but few opportunities or incen- take radical pension restructuring. tives to find employment. Similarly, only lim- In terms of investment patterns, the concen- ited consideration has been given to the gender tration of private savings in public, as opposed aspect of reform in CEE economies where many to private, securities may well be the most pru- women are affected disproportionately by dent strategy in CEE countries, given the small increases in the retirement age and the elimi- size and volatility of most private financial mar- nation of redistributional elements in benefit kets; but it also means that workers will have formulas. Athird unaddressed issue is growing limited access to the higher yields which private exclusion from social protection due to expan- investments can offer, be they more risky. With- sion of informal work. Most CEE scheme offi- out higher earnings, the large administrative cials recognize the need to find new ways to fees being charged by private management firms identify excluded workers and extend protec- can be expected to erode savings and reduce the tion to them, but few experiments are under- adequacy of future benefit payments. The pat- way. Action on all these issues can be encour- tern of mid-course policy corrections observed aged through research which documents the in several CEE countries also seems poorly situation and needs of the target groups and suited to radical reforms, which require an identifies best practices within the region, in extended implementation period. Though the Western Europe, and elsewhere to serve as results of shifting political priorities over this models for reform. There is a pressing need for period are hard to predict – e.g., the Fidesz Gov- such studies to serve as a catalyst for a wider ernment’s repeal of an increase in second-tier reform. revenues – they are likely to differ from those Finally, the fact that pension restructuring is sought when radical reform was adopted. proceeding without social consensus in many Some observers have argued that, despite countries is a cause for serious concern. Few these difficulties, privatization is still the most would argue that reforms can succeed in the viable approach to pension restructuring in long run without acceptance by key stakehold- CEE, since only radical change can overcome ers, that this acceptance can be gained without resistance from entrenched interests such as giving them a role in shaping the content of the pensioner associations and trade unions. How- reform, or that they can participate effectively ever, actual experience fails to confirm this without a solid understanding of the roles they notion. As described in section II, pension priv- are expected to play and of the issues being ileges have been curtailed in the Czech Repub- debated. Yet social dialogue continues to stand lic, Lithuania and Slovenia without privatiza- out as a weak or missing element in the plan- tion, while the Government of Poland ning of pension reforms in many CEE countries, continues to struggle with this issue in the wake and many worker’s and employer’s organiza- of enacting its privatization law. The same three tions continue to search for ways to influence countries have also succeeded in raising their pension policy with only limited success. Train- national retirement ages, and Slovenia has ing is among the measures needed to address enacted major reform legislation which will this problem. It should be geared to support the cause future pensioners to receive a full 25 per social partners in formulating objectives which cent less than current retirees. Still other coun- reflect both long-term and immediate concerns, tries, e.g. Slovakia, are considering major pri- as well as in developing concrete strategies for vatization proposals without provisions to pursuing these objectives. It should also pro- increase the retirement age or to deal with pen- vide opportunities to learn from successful sion privileges. This early experience presents counterparts in the region and elsewhere, to a mixed picture which fails to support the analyse the technical aspects of pension financ- notion that privatization is the single viable ing and the pros and cons of various reform route to pension restructuring. strategies, and to obtain empirical information Second, the focus of reform has been rela- on the early impacts of reforms implemented in tively narrow to date. While the restructuring other CEE countries. Such training could of retirement benefits is a major concern across strengthen social dialogue on pension reform

47 very signficantly across the region and, through 18 One approach would be for the Government to issue it, help ensure that the pension policies adopted bonds whose yields are indexed for inflation and wage increases. A few developed countries offer inflation indexed by governments can be implemented success- bonds, but none to date has offered wage indexing; and the fully and sustained. Hungarian government has not issued either form of secu- rity. 19 This portion more than tripled between September and Notes December 1999, as firms attempted to raise their yields to attract more customers in the final weeks of member regis- tration. 1 Hagemejer, Krzysztof. “The Transformation of Social 20 Security in Central and Eastern Europe”, in Katharina Muller, Economist Intelligence Unit, Country Profiles for 2000, Andreas Ryll, and Hans-Jurgen Wagener (eds.), Transforma- at www.eiu.com/schedule. For the purpose of this compar- tion of Social Security: Pensions in Central-Eastern Europe (Hei- ison, changes of government are counted only if they were delberg: Physica-Verlag, 1999), p. 49. results of general elections or involved a change in political 2 party. If one counts additionally changes within the ruling It should be noted, however, that the base on which this party or coalition between elections, the numbers would be comparison is drawn, 1989, renders it uncertain because of higher still. For example, in Lithuania, the overall number of lack of reliable statistical data on GDP and employment for changes of government is 11 (see web site of the Lithuanian the pre-transition period. government at www.lrvk.lt), whereas the number of changes 3 Hagemejer in Muller (1999), p. 35. which involved a change in the ruling party or coalition was 4 Augusztinovics, Maria. “Pension Systems and Reforms four. in the Transition Countries”, in Economic Survey of Europe 21 Under amendments passed in June 2000, the second (Economic Commission for Europe and United Nations, mandatory tier will be initiated on 1 January 2002. 1999, Vol. 3), p. 91. 22 In Hungary, the bipartite pension board was dissolved 5 Palacious, R., M. Rutkowski; X. Yu. Pension Reform in by the current Fidesz Government upon taking power amid Transition Economies, World Bank, Washington, D.C., June allegations of corruption, though these were never pursued. 1999. The decline in Albania was accentuated by the privati- In Lithuania, Government limited the powers of the national zation of agriculture. Here low levels of collection were pension board (i.e., removed its authority to appoint the attributable in part to weaknesses in the collection system scheme director) due to what it regarded as a lack of after privatization and in part to lack of cash income among assertiveness in scheme oversight. In Slovakia, the govern- small subsistence farmers. ing board of the national pension scheme has been relatively 6 inactive, due in part to the limited powers granted to it by Phare Consensus Program, Change and Choice in Social the government. Protection: the Experience of Central and Eastern Europe (Pan- 23 theron: The University of York, 1999), p. 52. For example, this prediction is made by World Bank offi- cials advocating privatization in CEE. Bank officials often dis- 7 In Slovakia, preferences were eliminated in the mid- play a map with most of the region darkened in the year 2010, 1990s but are extended annually in response to strike threats. indicating the adoption of mandatory second-tier systems. 8 Poland has unified contributions for social security 24 A major question in this debate is whether Romanian benefits and health care but not tax revenues. capital markets are sufficiently developed and regulated to 9 Simonovits, A. “The New Hungarian Pension System accommodate a mandatory second tier. Doubts were and its Problems,” in Katharina Muller, Andreas Ryll, and renewed in May 2000, when Romania’s largest investment Hang-Jurgen Wagener, (eds.), Transformation of Social Security: fund collapsed. Operated by members of the former Com- Pensions in Central-Eastern Europe, (Heidelberg: Physica-Ver- munist secret police, the fund had 300,000 investors and lag, 1999), p. 220. US$120 million under management. It had claimed falsely 10 Pensions International, January 2000, p. 6. that the deposits were insured. The operators withdrew their 11 investments before the collapse. Financial Times, “Romanian The legislation called for an increase to 7 per cent in Anger At Fund Collapse,” 31 October 2000, p. A-2. January 1999 and 8 per cent in January 2000. 25 These include: (1) no deficit in the public pension 12 Presentation by Tibor Parniczky, State Private Funds scheme; (2) a state budget deficit no greater than 1 per cent Supervision of Hungary, at the OECD Private Pension Con- of GDP; (3) two years of national economic growth; (4) devel- ference, Prague, 3 April, 2000. opment of the banking system and national financial mar- 13 Provided via a complex formula, the statutory guar- kets (what is meant by development is not specified); (5) antee essentially states that no worker will lose more than 7 establishment of a system of individualized record keeping per cent of the benefits he or she would have earned under for pension contributors and launching of a unified system the public system. Simonovits (1999), p. 222. of collections; and (6) consideration of the experience of vol- untary savings schemes. 14 Administrative costs are estimated to consume about 26 40 per cent of a worker’s contributions over his or her life Described previously, these include a retirement age time in the UK and about 25 per cent in Latin America. increase, a significant cut in future benefits (25 per cent), and Quiesser, Monika, “Towards more individual choice in social a limit on the indexing of pensions in payment. Labour Min- protection?” presented at a conference of the International istry officials explain this action in part as a response to trade Social Security Association, Luxembourg, 19-21 May, 1999. union opposition but also as reflecting views widely held in 15 Slovenia that the proposed privatization was not consistent State Private Funds Supervision, Report for the Third with the country’s tradition or with Western European pen- Quarter of 1999, p. 16. sion schemes. 16 Pensions International, November 1999, p. 6. 27 The Maastricht Treaty (protocols to Article 109) calls 17 Pensions International, June 2000, “Profits scare for Pol- for annual budget deficits (including social security) of nor- ish COPF operators so far”, at www.pensionsinternational. mally not higher than 3 per cent of GDP and accumulated co.uk. debt of less than 60 per cent of GDP.

48 Bibliography Muller, Katharina. 2000. Ten Years After: Pension Reforms in Central and Eastern Europe and the Former Soviet Union, Augusztinovics, Maria. 1999. “Pension Systems and Reforms Frankfurt Institute for Transformation Studies, Frankfurt in the Transition Countries”, in Economic Survey of Europe, (Oder), February. Economic Commission for Europe and United Nations, Palacios, R., M. Rutkowski; and X. Yu. 1999. Pension Reform Vol. 3. in Transition Economies, Washington, DC, World Bank. Economic Intelligence Unit. Country Profiles for 2000, at Pensions International. 1999 and 2000 issues. www.eiu.com/schedule. Phare Consensus Program. 1999. Change and Choice in Social Hagemejer, Krzysztof. 1999. “The Transformation of Social Protection: The Experience of Central and Eastern Europe, Security in Central and Eastern Europe” (in draft, 1999), Pantheron: The University of York, 1999. in Katharina Muller, Andreas Ryll, and Hans-Jurgen Simonovits, A. 1999. “The New Hungarian Pension System Wagener (eds.), Transformation of Social Security: Pensions and its Problems”, in Katharina Muller, Andreas Ryll, in Central-Eastern Europe, Heidelberg: Physica-Verlag. and Hans-Jurgen Wagener (eds.), Transformation of Social Hausner, J. 1996. Security through Diversity: Conditions for Suc- Security: Pensions in Central-Eastern Europe, Heidelberg: cessful Reform of the Pension System in Poland, Collegium Physica-Verlag. Budapest, Institute for Advanced Study, Discussion Paper, US Social Security Administration. 1999. Social Security Pro- No. 49. grams throughout the World. IBUS Briefing Service. 1999 issues. Latulippe, D. 1996. “Effective Retirement Age and Duration of Retirement in the Industrial Countries between 1950 and 1990. Issues of Social Protection, Discussion Paper No. 2, International Labour Office, Geneva.

49

The Americas

Experiences in the Americas with social security pensions and their reform: Lessons for workers and unions

Carmelo Mesa-Lago Distinguished Professor Emeritus of Economics University of Pittsburgh Professor and Research Scholar Florida International University

I. Historical background scheme only; at the beginning of the twenty- first century the United States still lacks a The history of social security in the Ameri- national health insurance programme. When can continent began in Latin America under the they were part of the British Commonwealth, influence of the programmes founded in Ger- Canada and most of the non-Latin Caribbean many in the late 1880s. Occupational hazard (NLC) followed the social security programmes schemes appeared at the beginning of the 20th established in the United Kingdom, hence, they century and by 1920 eleven countries had them developed national health systems. The first in place. Pension programmes (old-age, dis- pension schemes in the NLC did not appear ability and survivors’) for strategic sectors and until after they won their independence, start- powerful groups of civil servants and workers ing with Jamaica (1966) and ending with Belize were introduced next in the so-called pioneer (1979); sickness-maternity schemes began in group: Uruguay (1919), Chile (1924), Brazil and Barbados (1966) and the last was established in Cuba (1920s), and Argentina (1930s); sickness Grenada (1983). or maternity insurance followed soon after. A In the same manner that Latin America second group of countries (intermediates) imple- played a vanguard role on social security, it was mented social insurance mostly in the 1940s also the first to suffer financial crisis and intro- (under the influence of the Beveridge report), duce radical reforms. During the first 50 years as well as in the 1950s: Costa Rica, Mexico, Peru, of operation in the pioneer countries, social Colombia, Bolivia, Ecuador, Paraguay and security was extended to their populations and Venezuela. Finally, a third group (latecomers) delivered adequate benefits. But in the late established their schemes in the 1960s and 1960s and the 1970s these countries began to 1970s: Dominican Republic, Guatemala, El Sal- experience several problems, including finan- vador, Nicaragua, Honduras and Haiti. Only a cial imbalances, which forced “parametric” few countries have unemployment compensa- reforms (changes in entitlement conditions, tion and family allowances schemes. The incep- contributions, and so forth) and state subsidies tion of social security was closely related to the to cover the deficit. The causes of those prob- level of development in the countries, hence, lems were multiple: concession of new benefits the most developed were first and the least without providing adequate financing; signifi- developed last. But the power of pressure cant state debt, as well as evasion and payment groups, including trade unions, played a sig- delays in the private sector; poor investment nificant role, together with the state, in the evo- management of the reserves; high administra- lution of social security. tive costs and inefficiencies; and excessive gov- The Latin American pioneer group pre- ernment intromission and use of the funds for ceded the United States, whose Social Security purposes other than social security. In addition, Act was not enacted until 1935 and created the pioneer countries, being the oldest both in unemployment compensation and a pension their pension programmes and population,

51 began to confront a demographic problem: the pension reform in ten countries and their fea- number of insured contributing to social secu- tures, the role of the private sector and the State, rity relatively decreased vis-à-vis an increasing the outcome of the reform and how it may affect number of pensioners (a declining “active to the insured and future pensioners as well as the passive ratio”). The severe, prolonged and economy, and extract lessons for the workers widespread economic crisis of the 1980s and unions. In addition, the positions concern- inflicted another blow to social security because ing pension reform in the United States are of hyperinflation, increasing non-compliance, briefly examined. cuts in state subsidies, and deterioration of benefits. At the start of the 1980s, under the influence II. The features of the pension reform of the neoliberal ideology, the military govern- in Latin America ment of Chile introduced radical reforms in A. Three models of structural reform both pensions and health care schemes which involved various degrees of “privatization”. “Parametric” or non-structural pension These reforms did not influence the rest of the reforms were frequent in Latin America until region until the 1990s, largely because of the the beginning of the 1980s, to improve and negative image of the Chilean regime, and also strengthen the social security system (hereafter due to strong opposition from unions, insured called “public”). The new type of reform is workers, the social security bureaucracy, asso- called “structural” because it radically trans- ciations of pensioners and some political par- forms the essence of a conventional public sys- ties. In the 1990s two events changed that situ- tem, either replacing it or making it an alterna- ation: democracy was restored in Chile and the tive or integrating it with a new system that will new government endorsed the social security be called “private” for simplicity purposes. The reforms making them politically acceptable; Chilean pension reform is usually presented as and the World Bank published two reports, on a single universal model but the countries that health care and pensions, which largely advo- have enacted such reforms have actually fol- cated the types of reforms introduced in Chile lowed three diverse general models and with sig- (through conditions attached to loans, the nificant differences among the ten countries World Bank pushed for such reforms in Latin based on their peculiarities and needs: America and elsewhere). In 1993-2000 nine Latin American countries enacted radical pen- 1. Substitutive, similar to Chile’s and imple- sion reforms and five health care reforms; the mented in Bolivia (1997), Mexico (1997), El Sal- latter, however, involve more multiplicity of vador (1998) and Nicaragua (2000), which administrators and providers, as well as a closed the public system by prohibiting new lower degree of privatization, than the former. affiliations in it. The public system had the fol- Although the Latin-American pension lowing characteristics: (a) pay-as-you-go reforms have influenced similar changes in (PAYG) collective financing (revenues were Eastern Europe (Czech Republic, Hungary, used to pay benefits with solidarity among Poland) and even in Western Europe (Sweden), income groups and generations), although they have not yet prompted reforms in the rest some had partial funding (reserves); (b) wage of Europe. In Canada, in addition to the con- contributions that tended to increase over time ventional pension plan that applies to the due to the ageing of both the scheme and the anglophone provinces, a Quebec Plan was cre- population (a declining active to passive ratio); ated in 1966 for the francophone region and is and (c) “defined” benefit because the law set a managed as a private fund but with public minimum pension, a formula for calculation of administration. Non-Latin Caribbean countries benefits, and so forth, and the State guaranteed continued with their conventional pension pro- its payment (after the crisis, some of these fea- grammes and this is true of the United States tures were not guaranteed, for instance, real also; in the latter, however, a debate on pension pensions decreased due to inflation). The pub- reform began in the 1990s and became accentu- lic system was replaced or substituted with a “pri- ated during the presidential elections of 2000. vate” system with the following features: Because of the long and varied experience (a) fully-funded and individual financing, that on pension reform in Latin America and the fact is, the contributions are deposited in the that it involves a deeper and wider privatiza- insured’s own individual account and invested, tion than health care reform, this article focuses adding the yield (capital return or interest) to on the former. It reviews the various models of such account; hence, there is no solidarity

52 among income groups or generations; have multiple administrators. The percentage (b) “defined” contribution because it is fixed of insured in the “private” system or compo- through time (although may have to be raised nent varies significantly among the countries: in the long run due to rising life expectancy of 100 per cent in Bolivia and Mexico, 97-99 per the pensioners); (c) “undefined” benefit cent in Chile and El Salvador, 78-79 per cent in because the amount of the pension is uncertain, Argentina and Peru, and 49-50 per cent in as it will depend on the insured’s salary, den- Uruguay and Colombia (no data are available sity of contributions and the investment yield yet on Costa Rica and Nicaragua). Note that, generated by the fund deposited in the indi- with one exception, parallel and mixed systems vidual account; and (d) administration by pri- rely on multiple types of management. vate corporations of exclusive dedication (can Furthermore, state intervention has proven only manage pension funds), except in Mexico to be essential for a proper functioning and sus- were management is “multiple” (private, pub- tainability of the system: (a) it is mandatory lic and mixed institutions). instead of voluntary; (b) it is strongly regulated by the State, as well as controlled, monitored 2. Parallel, implemented in Peru (1993) and and sanctioned by a supervisory public insti- Colombia (1994), in which the public system is tution which is state-financed in several coun- not closed but becomes an alternative option to tries; (c) investment instruments are regulated a newly introduced private system. The public and ranked by a public institution; and (d) the system continues with the same characteristics State provides heavy fiscal subsidies and cer- but it is reformed either partially or totally; tain guarantees, as explained below. while the private system has similar character- Reforms of the substitutive and parallel istics to the one in Chile, except that its admin- models generate three heavy fiscal costs: (a) the istration is multiple in Colombia. deficit in the public system which occurs because it is left without contributors or a 3. Mixed, implemented in Argentina (1994), minority of them, but with the burden of all cur- Uruguay (1996) and Costa Rica (2000), in which rent pensions and those that will be eventually the public system is not closed but becomes one granted to the insured who stayed in that sys- of two components of a mandatory integrated new tem, the State finances such deficit in all coun- system: the public component guarantees a tries; (b) the value of the contributions paid to basic pension and the private component pays the public system by all the insured who move a supplementary pension. The public compo- to the private system (often called “recognition nent keeps the same characteristic but is bond”), such value is annually adjusted to infla- reformed, while the private component has the tion and two countries pay also an interest rate same characteristics of Chile’s except that its (Colombia and Chile), the State is responsible administration is multiple. for this cost in all countries except in Mexico and Uruguay (Peru has granted relatively few B. “Privatization” and recognition bonds); and (c) a guaranteed mini- the role of the State mum pension for all insured in the private sys- tem whose accumulated sum in the individual The new system has been labelled “private” account is insufficient to finance such pension, for lack of a better word, but that term is vague, the state is responsible for the difference in five politically loaded and does not fully explain the countries, neither Bolivia nor Peru effectively nature of that system. For instance, only half of grants this benefit. Under the mixed model, the the ten pension reforms have exclusive admin- public component may generate a deficit or not, istration by private corporations, all of them but there is need neither for a recognition bond within the substitutive model: Chile, Bolivia, El nor for a guaranteed minimum pension in the Salvador and Nicaragua (also Peru in the par- private component, because the insured stays allel private system). Conversely, in the paral- in the public component which pays a basic lel models of Colombia and Peru the public sys- pension. Additional state guarantees and ben- tem is administered by social insurance; in the efits are: (a) a social assistance pension to poor three mixed systems (Argentina, Uruguay and non-insured workers (in Argentina, Chile, Costa Rica) there is a combination of public Costa Rica and Uruguay); (b) adjustment of administration in the basic component and pensions to inflation including the minimum multiple administrators in the supplementary pension; (c) a minimum annual yield of the component; and both Colombia’s parallel “pri- investment in case that the administrator’s vate” system and Mexico’s substitutive system funds are insufficient to pay it; and (d) payment

53 of pensions in case administrators go bankrupt A. Elimination of the employer and their insured and pensioners are left with- contribution and increase out protection (in Argentina, Chile, Colombia in the insured contribution and Uruguay). Pension systems are financed mainly by C. Freedom of choice payroll contributions imposed on employers and insured workers (prior to the reform, the A key objective of the reform is to break the employer share averaged three times the public system monopoly and grant freedom to worker share), but there is an unsolved debate the insured to select the system, choose admin- on whether employers actually pay their con- istrators and change them; and yet those free- tributions or transfer them to their workers or doms are occasionally denied altogether or sig- to consumers. Chilean reformers and the World nificantly restricted. For instance, those insured Bank allege that employers indeed pay their at the time of the reform in Bolivia and Mexico contributions and, to eliminate or reduce them, did not have a choice to stay in the public sys- substitute capital for labour, hence, decreasing tem, but all of them were mandatorily moved job creation; this argument was used in Chile, to the private system. Furthermore, in Bolivia Bolivia and Peru to eliminate the employer con- the Government divided the insured between tribution. And yet, if there is a transfer of con- the only two existing administrators, based on tributions there should not be any adverse their domicile, and prohibited switching impact on employment; this argument, com- between the two except in the case of a change bined with constitutional principles and strong in domicile. With two exceptions, all new opposition from workers and unions, led four entrants into the labour force who are covered countries to leave the employer contribution must join the “private” or mixed system. In untouched (Argentina, Costa Rica, El Salvador three countries (El Salvador, Nicaragua and and Mexico) and one to slightly reduce it Uruguay) the insured at the time of the reform (Uruguay), while three increased it (Colombia, was divided by age and only the younger had Costa Rica and Nicaragua). Conversely, the an option to stay in the public system. insured contribution was raised in six countries Argentina and Colombia offer maximum free- (Bolivia, Colombia, El Salvador, Nicaragua, dom because both the insured at the time of the Peru and Uruguay), and kept unchanged in reform and the new entrants in the labour force three (Argentina, Costa Rica and Mexico). The can select between the public and private/ financial burden of the reform, therefore, has mixed systems and change among them. been shifted in most countries from the Within the private system or component, the employer to the insured, and the elimination of freedom to change administrators is limited to the employer contribution has led to an one or two per year in six countries. Finally, the increase either of the insured contribution or insured cannot select investment instruments the fiscal subsidy. or the profile of his/her portfolio as these are decided by the administrators, and at the time B. Decline in protection of the labour of retirement the insured cannot withdraw the force and gender discrimination sum in his/her individual account but only choose among three options: an annuity, a pro- Prior to the reform, the percentage of pen- grammed pension or a combination of both. sion coverage of the labour force was positively correlated with the level of development, par- III. The outcome of the reform ticularly with the size of the formal, salaried sec- in Latin America tor. The most developed countries had the largest formal sector and the highest coverage, Reforms have been in operation for almost while the least developed had the largest infor- two decades in Chile and from three to seven mal sector (self-employed, domestic servants, years in another seven countries (they have just employees of micro-enterprises, unpaid family begun in two), therefore, it is important and fea- workers, temporary workers), as well as agri- sible to evaluate their performance on the fol- cultural labour force and, because all these lowing crucial aspects: contributions, coverage groups were excluded, their labour force cover- of the labour force and gender discrimination, age was the smallest. The ten countries with competition and administrative costs, capital pension reform, divided into the three groups accumulation and investment yields, and identified already, exhibited the following per- impact on capital markets and national savings. centages of coverage: pioneers (Argentina,

54 Chile and Uruguay, as well as Costa Rica) from reasons: (a) women’s salaries are usually lower 70 per cent to 80 per cent; intermediates (Colom- than men’s in the same job; (b) female insured bia, Mexico and Peru) from 32 per cent to 44 per density of contributions are also lower than cent; and latecomers (Bolivia, El Salvador and male because of pregnancy and temporary Nicaragua) from 12 per cent to 23 per cent. absence from the labour force to child rearing; The percentage of the labour force covered and (c) the age of retirement of female insured after the reform has been estimated based on is often five years lower than male in Latin two different numbers: (a) affiliates, all those America, but the former tend to live an average who have join the system at some point in their of four years longer. Public systems may partly working lives, and (b) active contributors, the correct these problems due to internal solidar- affiliates who contribute regularly to the sys- ity and male-to-female transfers, but private tem; the former is considerably higher than the pension systems leave that discrimination latter. At the end of 1998, the resulting percent- untouched. ages based on the two estimates were: 72 per cent and 66 per cent in Uruguay; 109 per cent 1 C. Inadequate competition (statistically impossible) and 59 per cent in and high administrative costs Chile; 63 per cent and 30 per cent in Argentina; 44 per cent and 23 per cent in Colombia; 36 per A fundamental objective of structural pen- cent and 23 per cent in Mexico; 29 per cent and sion reform is to secure adequate competition 20 per cent in El Salvador; 26 per cent and 13 among administrators of private systems, per cent in Peru; and 13 per cent in Bolivia (no because it is essential to improve efficiency and data on active contributors). Estimates on affil- reduce managerial costs. Theoretically, admin- iates before and after the reform indicate a istrators compete for the insured and these decline in coverage in four countries; excep- have proper information to select the best, tions being Uruguay and El Salvador (no sig- based on the payment of the highest investment nificant change) and Chile and Colombia (an yield and the lowest commissions charged for increase, but of doubtful magnitude in the for- their services. Latin American data indicate, mer). Estimates of coverage based on active however, that competition is not working prop- insured cannot be compared with data prior to erly. The eight pension reforms demonstrate the reform but they are significantly lower than that the higher the number of insured, the those based on affiliates; a main reason is that higher the number of administrators, and vice only an average of 55 per cent of the affiliates versa, as follows: Mexico has 14 million of are active contributors (ranging from 46 per insured and 14 administrators; Argentina 8 mil- cent in Argentina to 65 per cent in Uruguay); lion and 13; Chile 6 million and 8; Colombia 3 the increase in insured contributions could be million and 6 (but it has multiple types of a contributing factor. administrators, which facilitate entry); Peru 2 The decline in coverage of the formal labour million and 5; El Salvador 670,000 and 2; and force is probably an outcome of both the Bolivia 492,000 and 2 (recall that in Bolivia the increasing trend of the informal sector in the insured was assigned by the Government region and “flexibilization” of the labor force as between the two according to domicile and a result of globalization. This problem raises cannot choose between them, so there is no concern on four important issues: (a) social competition but a duopoly). security must adapt to changes in the labour Furthermore, there is a significant concentra- market to maintain current coverage of the for- tion of insured in the biggest three administra- mal sector and design new ways to cover the tors: 100 per cent in Bolivia and in El Salvador; informal sector, part-time workers and other 78-85 per cent in Chile2 and Peru; 69-70 per cent unprotected jobs; (b) the worsening protection in Uruguay and Colombia; 54 per cent in of the poor in view of a rising poverty incidence Argentina; and 45 per cent in Mexico, which sets and very few countries that provide social a maximum of 17 per cent to each administrator. assistance pensions and, even in those, pen- Concentration would not be bad if the biggest sions being insufficient to cover basic needs; three administrators were also the best, but stud- and (c) the very small proportion of social secu- ies conducted in Chile and Colombia show that rity expenditures and GDP which are allocated those three have not, systematically through to social assistance pensions and subsidies for time, charged the lowest commission and paid special low-income groups to join the system. the highest investment yield. If they are not the Female insured often receive lower pen- best, then why do the insured select them? The sions than their male counterparts, for three reasons are: (a) the work of salesmen who earn

55 a commission for every insured they switch to $8,300 and 2.5 per cent in Mexico; $2,925 and one of those administrators (in Chile there were 2.3 per cent in Colombia; $2,274 and 2.5 per cent 19,000 salesmen in 1998, a ratio of one for in Peru; $472 and 4 per cent in Bolivia; $591 and 160 active contributors); (b) gifts and other treats 3.5 per cent in Uruguay; and $211 and 1.7 per given to the insured as an incentive to move; cent in El Salvador. Variations among countries (c) lack of insured information and/or skills to are not only the result of better investment but make educated decisions on the selection of the of other factors also: the time the reform has best administrators; and (d) huge advertisement been in operation (almost 20 years in Chile but which is essentially symbolic and does not pro- two years in El Salvador); the development of vide data on performance. the capital market and the size of the insured If competition does not work properly then market and GDP; and the salary level, the managerial costs should not decline – a con- amount deposited in the individual accounts, clusion supported by data from nine countries. and the investment yield. The commission, exclusively paid by the Annual real average yields, from the start of insured and usually imposed on the salary is: the reform until the end of 1998 or 1999, have 4.1 per cent in Mexico; 3.8-4.0 per cent in Peru, been fairly high also: 13 per cent in Argentina; Colombia, Argentina, El Salvador and 11 per cent in Chile; 10 per cent in Colombia; 8 Nicaragua; and 2.6-3.5 per cent in Uruguay, per cent in Mexico; and 7.5 per cent in Bolivia, Chile and Bolivia. The commission is divided Peru and Uruguay. But those yields should be into two components: the charge by the admin- interpreted with some caveats: (a) they are istrator for handling the old-age individual gross and the high administrative costs should account, which is the major component and be deducted to obtain the net yields; (b) all sys- shows significant oscillation but little or no tems, except Chile, began to operate in the reduction; and the premium transferred by the 1990s when international markets generated administrator to a commercial insurance com- very high yields; (c) the average yield prior to pany to cover disability and survivors’ risks, 1995 was considerably higher, the regional which is the minor component and exhibits a crises of 1995 and 1997-1998 reduced the yield declining trend. The combination of the two considerably.3 The latter means that the oscilla- trends results in a stagnant commission or very tions of the capital market can generate quite little reduction. The heavy administrative bur- different pensions in times of boom or bust (the den on the insured can be assessed by the per- so-called “stock market roulette”), thus in centages of wages that go to the commission Chile, an insured who entered the system in the over the total discount (commission plus 1980s will have a significantly higher pension deposit in the individual account): 32-39 per that one who joined later. cent in Peru, Argentina, El Salvador and Mex- ico; 26-30 per cent in Colombia, Chile and E. No evidence of development of Bolivia; and 17.5 per cent in Uruguay. capital market and national saving D. High capital accumulation and Two studies conducted on Chile, the coun- investment yield but with caveats try with the longest reform in operation, have tested the assumptions that the reform pro- Supporters of the reform (including the motes both the development of the capital mar- World Bank) argue that it generates a virtuous ket and national saving, with negative or incon- cycle in the economy: increase in capital accu- clusive results. The first study, commissioned mulation, which leads to a rise in investment in and published by the IMF, concluded that: the capital market, which develops such mar- (a) the empirical evidence coincided with the ket and promotes portfolio diversification, claim that the pension reform had contributed which boosts investment yields, which gener- to capital market development, but cautioned ates an increase in national saving and higher that such results did not establish watertight growth. Data from eight countries do support proof that the reform had been the decisive fac- a few of those assumptions but reject most of tor in that outcome (other factors might have them. played the key role); and (b) the assumed pos- There has been significant capital accumu- itive impact of the reform on national saving lation in the pension funds; in US million dol- was doubtful at best, hence, the reigning opti- lars and percentages of GDP in 1998-1999 they mism in Latin America and Eastern Europe, respectively are: $33,616 and 52 per cent in which view pension reform as an easy vehicle Chile; $16,787 and 5.6 per cent in Argentina; to boost national saving and growth, is

56 unfounded. The second study, by a high official ical rate of 7 per cent annually, future pensions of the Ministry of Finance in Chile, demon- should be higher that current ones. Critics of this strated that the net effect of the pension reform proposal note three flaws in it: withdrawing half on national saving was negative: in 1981-1996, of the surplus from the fund will generate a the annual average saving in the individual deficit 14 years earlier than anticipated; the price accounts was 2.7 per cent of GDP, but the fiscal of managing millions of individual accounts cost was -5.7 per cent, therefore resulting in a will be huge (recall the Latin American case); negative net outcome of -2.6 per cent of GDP. and workers who retire on recession years will have a much lower pension than those who 4 IV. The debate on pension reform retire in boom years. Finally, the proposal in the United States would cut taxes by US$1.6 billion, increasing the national debt and reducing fiscal resources to The US social security pension scheme has cope with the deficit when it surges earlier. undergone “parametric” reforms over the years Mr. Bush was elected by a very small margin (increasing the contribution percentage and the and losing the popular vote; furthermore, the ceiling, as well as the retirement age from 65 to Senate was split exactly half and half between 67). These changes will keep the system in bal- Republicans and Democrats. Although in his ance until 2037 when the surplus will turn into first speech as president-elect Mr. Bush ratified a deficit, projected to reach US$1.7 billion by his original reform proposal, some prominent 2050. A declining active to passive ratio will be Republicans have publicly expressed reserva- a cause of that deficit: when the current gener- tions on the feasibility of such a plan and sug- ation of “baby boomers” (who have fewer chil- gested instead partial reforms that could count dren and will live longer than previous gener- with bipartisan support in Congress. ations) retire, they will stop contributing and According to actuaries, to achieve long run start collecting pensions for a longer period of solvency of the pension programme, the retire- time. During the 2000 presidential election, ment age will have to be gradually raised (from there was a heated debate in which George 67 to 70), as well as the contribution ceiling W. Bush advocated a drastic reform while Al (which will have a more progressive impact on Gore pledge to avoid it, but both promised not distribution than a raise in the percentage con- to raise further the contributions and retire- tribution); otherwise the benefits will have to ment age. be cut, through a tougher calculation formula, Former Vice-President Gore proposed a lower pensions or less generous adjustment to modest and discriminated tax cut, as well as an inflation. Some or all of these changes have allocation of US$3.5 billion of the projected bud- been introduced in most Latin American get surpluses over the next 12 years to pay the reforms. entire national debt, then put into the fund the resulting annual savings in interest payments, V. Lessons for workers and unions which would extend the fund solvency for 17 years. In addition, workers earning less than 1. Demography seems to be inexorable in US$100,000 annually would be able to open vol- the long run, although nations with younger untary savings accounts with a matching schemes and populations have more time than amount deductible from taxes to build a sup- those that are older in both. Parametric changes plementary pension. Critics noted that, if bud- can prolong the period of equilibrium but not getary surpluses do not materialize, the Gov- indefinitely. ernment would have to pay the deficit and 2. Privatization is a vague term that needs either increase income taxes or raise social secu- precision and it is not a panacea; furthermore, it rity contributions or cut pensions, and that the would require a crucial role of the State both in plan would only postpone the impending terms of regulation-supervision and paying the deficit but not solve it (these problems, however, heavy triple costs of the reform. Alleged free- would be aggravated under the Bush proposal). dom of choice among insured does not exist or President Bush, partly inspired by the Latin has been drastically reduced in some countries. American reforms, propose to allocate half of 3. The Latin American reform experience the social security fund surplus (US$1 billion) to shows that: the elimination of the employer give young workers the choice to divert one contribution has resulted in either a heavier sixth of their contributions to private individual burden on workers or higher fiscal subsidies; accounts and invest that money in stocks and labour force coverage has declined; the lack of bonds; if the capital market continues it histor- solidarity leads to lower pensions for women;

57 competition is inadequate and administrative 3 The Chilean annual yield in 1981-94 was 13.8 per cent, costs are very high and have not declined sig- but in the period 1995-99 it was 2.6 per cent due to negative yields in 1995 (-2.5 per cent) and in 1998 (-1.1 per cent), result- nificantly. Conversely, capital accumulation ing in an average of 10.1 per cent for the entire period. and investment yields have been high, 4 To cope with the “stock market roulette”, the plan calls although both show significant variation for a guaranteed minimum pension, but it will aggravate the among countries and the yield must be care- deficit. fully interpreted with several caveats. There is no evidence that the reform has led in Chile to a development of the capital market, but there Bibliography is proof that it has resulted in a negative impact on national saving. Arenas de Mesa, Alberto. 2000. Efectos fiscales del sistema de pen- siones en Chile: Proyección del déficit previsional 1999-2037 4. There is no single universal model of (Santiago: CEPALSerie de Financiamiento del Desarrollo). reform; three general models have evolved in Cruz-Saco, María Amparo; Carmelo Mesa-Lago (eds.). 1998. Do Latin America and the ten countries have options exist? The reform of pension and health care systems in adapted them to their peculiarities and needs. Latin America (Pittsburgh: University of Pittsburgh Press). This experience and the debate in the United Gillion, Colin et al. 2000. Social security pensions: Develop- States indicate that some sacrifices must be ment and reform, Geneva: ILO. made, either on the contribution or the benefit Holzmann, Robert. 1997. Pension reform, financial market devel- side or both, in order to achieve long-term equi- opment and economic growth, preliminary evidence from Chile? (Washington, DC: IMF Staff Papers No. 44). librium of the system. Mesa-Lago, Carmelo. 1998. “La reforma estructural de pen- siones en América Latina: Tipología, comprobación de presupuestos y enseñanzas”, in Pensiones en América Notes Latina: Dos décadas de reforma, Alejandro Bonilla y Alfredo Conte-Grand (eds.), Geneva and Lima: ILO. 1 Besides being impossible to have more than 100 per cent —. 2000. Estudio comparativo de los costos fiscales en la transi- covered, that figure does not include 3 per cent of the labour ción de ocho reformas de pensiones en América Latina (Santi- force covered by the public system and 3 per cent by the ago: CEPAL Serie Financiamiento del Desarrollo, No. 93, armed forces, plus 23 per cent uninsured. March). 2 Concentration in Chile steadily increased from 59 per —; Fabio Bertranou. 1998. Manual de economía de la seguridad cent to 78 per cent in the period 1983-1999. social latinoamericana (Montevideo: CLAEH).

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