[North-NV-Greens] Fwd: Privatizing Social Security: Other countries' experience

[Paul Etxeberri]

>
>
>Buying Into Failure
>
>By PAUL KRUGMAN
><http://www.nytimes.com/2004/12/17/opinion/17krugman.html>
>The New York Times
>December 17, 2004
>
>As the Bush administration tries to persuade America to
>convert Social Security into a giant 401(k), we can
>learn a lot from other countries that have already gone
>down that road.
>
>Information about other countries' experience with
>privatization isn't hard to find. For example, the
>Century Foundation, at www.tcf.org, provides a wide
>range of links.
>
>Yet, aside from giving the Cato Institute and other
>organizations promoting Social Security privatization
>the space to present upbeat tales from Chile, the U.S.
>news media have provided their readers and viewers with
>little information about international experience. In
>particular, the public hasn't been let in on two open
>secrets:
>
>Privatization dissipates a large fraction of workers'
>contributions on fees to investment companies.
>
>It leaves many retirees in poverty.
>
>Decades of conservative marketing have convinced
>Americans that government programs always create bloated
>bureaucracies, while the private sector is always lean
>and efficient. But when it comes to retirement security,
>the opposite is true. More than 99 percent of Social
>Security's revenues go toward benefits, and less than 1
>percent for overhead. In Chile's system, management fees
>are around 20 times as high. And that's a typical number
>for privatized systems.
>
>These fees cut sharply into the returns individuals can
>expect on their accounts. In Britain, which has had a
>privatized system since the days of Margaret Thatcher,
>alarm over the large fees charged by some investment
>companies eventually led government regulators to impose
>a "charge cap." Even so, fees continue to take a large
>bite out of British retirement savings.
>
>A reasonable prediction for the real rate of return on
>personal accounts in the U.S. is 4 percent or less. If
>we introduce a system with British-level management
>fees, net returns to workers will be reduced by more
>than a quarter. Add in deep cuts in guaranteed benefits
>and a big increase in risk, and we're looking at a
>"reform" that hurts everyone except the investment
>industry.
>
>Advocates insist that a privatized U.S. system can keep
>expenses much lower. It's true that costs will be low if
>investments are restricted to low-overhead index funds -
>that is, if government officials, not individuals, make
>the investment decisions. But if that's how the system
>works, the suggestions that workers will have control
>over their own money - two years ago, Cato renamed its
>Project on Social Security Privatization by replacing
>"privatization" with "choice" - are false advertising.
>
>And if there are rules restricting workers to low-
>expense investments, investment industry lobbyists will
>try to get those rules overturned.
>
>For the record, I don't think giving financial
>corporations a huge windfall is the main motive for
>privatization; it's mostly an ideological thing. But
>that windfall is a major reason Wall Street wants
>privatization, and everyone else should be very
>suspicious.
>
>Then there's the issue of poverty among the elderly.
>
>Privatizers who laud the Chilean system never mention
>that it has yet to deliver on its promise to reduce
>government spending. More than 20 years after the system
>was created, the government is still pouring in money.
>Why? Because, as a Federal Reserve study puts it, the
>Chilean government must "provide subsidies for workers
>failing to accumulate enough capital to provide a
>minimum pension." In other words, privatization would
>have condemned many retirees to dire poverty, and the
>government stepped back in to save them.
>
>The same thing is happening in Britain. Its Pensions
>Commission warns that those who think Mrs. Thatcher's
>privatization solved the pension problem are living in a
>"fool's paradise." A lot of additional government
>spending will be required to avoid the return of
>widespread poverty among the elderly - a problem that
>Britain, like the U.S., thought it had solved.
>
>Britain's experience is directly relevant to the Bush
>administration's plans. If current hints are an
>indication, the final plan will probably claim to save
>money in the future by reducing guaranteed Social
>Security benefits. These savings will be an illusion: 20
>years from now, an American version of Britain's
>commission will warn that big additional government
>spending is needed to avert a looming surge in poverty
>among retirees.
>
>So the Bush administration wants to scrap a retirement
>system that works, and can be made financially sound for
>generations to come with modest reforms. Instead, it
>wants to buy into failure, emulating systems that, when
>tried elsewhere, have neither saved money nor protected
>the elderly from poverty.
>
>E-mail: krugman at nytimes.com
>
>Copyright 2004 The New York Times Company
>
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-- 
Paul Etxeberri

"Forests precede civilizations and deserts follow"   ---Chateaubriand