Global Policy Forum

The World Bank and the Attack on Pensions in the Global South


Susanne S. Paul and James A. Paul

Published as a Research Paper by Global Action on Aging and Global Policy Forum, December, 1994

Published in the International Journal of Health Services, Vol. 25, No. 4 (1995), 697-725
Published as Asalto a las jubilaciones in Montevideo by Instituto del Tercer Mundo (1995)

1. Introduction
2. Early Growth of Pension Systems
3. The Gathering Storm
4. The Great Pension Crisis
5. Pension Plans Come Apart
6. Attack on Pensions
7. State Pensions and the Alternatives
8. Links to Privatization and the Role of Foreign Firms
9. Pension Outlook in China
10. "Reforms" Worldwide
11. Family Support as an Alternative to Pensions
12. Income Support and Family Planning
13. Old-Age Poverty versus Children's Poverty
14. Means-Tested Welfarism
15. Provident Funds
16. Pensions, Income Security and the Very Poor: Alternatives
17. The "Dependency Ratio" Issue snd the Unemployment Trap
18. Pensions and the Future

1. Introduction

Seventy-three-year-old Paula Duarte lived in a small rooming house on the Avenida de Mayo in downtown Buenos Aires. When the Argentine government slashed pensions in early 1992, she began looking desperately for work. On August 20, 1992, still unemployed, she hanged herself with a nylon cord from a tree outside the University of Buenos Aires Law School. In her purse were just two pesos. (1)(2)

In the weeks that followed, news of other elder suicides shocked Argentina. In Rosario, Maria del Carmen Castillo, 67, and her sister Maria Josefa, 59, killed themselves in the Parque Independencia; in Mar del Plata, Manuel Adolfo Calvo, 83, and Amadeo Natalio Montero, 76, shot themselves in the head; in the capital, a man of 70 hanged himself from the crossbars of a swing in the Parque Patricios; Juan Labagarre, 77, and Juana Suarez, 77, threw themselves under railroad trains; and in Rosario, Lionel Maniero, 65, walked into the headquarters of the government Program for the Elderly and shot himself in the bathroom. Twenty-three elder suicides of this kind in less than two months. (2)

Bowing to pressure from the World Bank, the government of President Carlos Menem had cut payments for most of Argentina's three million pensioners to just $150 per month -- less than half the minimum needed for food and shelter in a country where urban prices are close to those in the United States. Even the country's middle class elderly--former teachers, government workers, corporate employees--found themselves suddenly among a "new poor," on the very margins of survival. (3) "They have seen their whole life expectations dissolve," commented Nélida Redondo, a writer on aging. "This is a very hard reality." (1)

The Menem government's action reversed a long tradition of support for older citizens in Argentina, dating back to the early 1900's. Eva Peron, legendary wife of President Juan Peron, championed social security in the late 1940's, winning the hearts of the poor descamisados. Later governments built on her legacy, improving levels of support and extending pensions to nearly every citizen, even in the countryside. But in 1989, under pressure from international lenders, the government imposed a strict austerity program, setting the stage for the pension crisis three years later. By mid-1992, pensions had fallen to one sixth of their former level. "My husband and I paid into social security for forty-two years," commented angrily pensioner leader Norma Pla. "Where is that money now that we have reached old age?" (4)

Similar cutbacks destroyed the incomes of millions of other pensioners in the South in the 1980's and early 1990's -- mainly in the industrialized countries of Latin America, where retirees had previously enjoyed the broadest and best-funded programs. Mexico's pension fund reserves collapsed to half their former level in the decade from 1977 to 1987. During the 1980's, pensions in Venezuela fell to just a sixth of their former value. Deep cuts and austerity-based reforms hit retirees in Uruguay, Chile, Brazil, Colombia, and Peru, reversing decades of pension growth.

2. Early Growth of Pension Systems

Industrializing Latin American countries set up government pension systems decades ago. Brazil established pensions for national railway workers in 1888 and broadened pensions to many others sectors in the 1920's. Argentina started a pension scheme for all government employees in 1904. Other Latin states, including Chile, Uruguay and Cuba, followed suit in the 1920's and '30's. Famous political leaders like Getulio Vargas of Brazil and Juan Peron of Argentina built their power with pension programs for workers and the poor. Pensions stood among their best-known and most popular achievements.

Pensions arrived piecemeal, in the heat of political battles. Army officers (often influential in Latin politics) won early and well-padded public pensions. Then came civil service workers, teachers, energy and transport workers, public sector workers, and workers in private industry--usually in that order. Each new group gained its own unique benefit package, including health and disability insurance, financed by a separate "fund." Uruguay, with dozens of such funds, even set up a separate retirement package for racetrack jockeys in the 1920's!

Sixty years later, workers in Argentina, Brazil, Chile, Cuba, Uruguay and Costa Rica had won nearly universal pension systems and most of the elderly in those countries depended largely on retirement monies for survival. The countries built advanced social security systems because their economies were strong, their societies quite urbanized, and their political systems responsive to pressures from trade unions, political movements, and the poor. As in Europe, when older citizens were driven from the workplace, they demanded and got income support -- a "social wage."

By the early 1980's, 90 countries of the global South, facing similar trends of urban wage work, had adopted some kind of income security programs for older citizens. But most lands in Asia, Africa and the Caribbean were far poorer, more rural and less democratic than the countries with developed pensions in Latin America, and many had only recently emerged from colonialism. No powerful urban workers' movement existed to wrest pensions from the government. So most of these countries set up pitifully small pension programs, covering adequately only the national elite -- often just military officers and top civil servants. Other pensioners got only a pittance. In the Philippines, 1990 pensions covered just 8 percent of the population and paid on average just $20-30 a month -- compared to $123 the government figured was needed for a family to survive at subsistence level.

China, with its collectivist system, moved farthest to protect broad sectors of the elderly, while richer free-market urbanized countries like South Korea, Singapore and Taiwan edged only very slowly towards pensions, insisting that individual initiative and strong family values would protect their older citizens. In some prosperous lands, notably Hong Kong, the government refused to establish any general pension system.

In Liberia, Abigail Newton earned a pension after working more than twenty years in the Treasury Department in Monrovia. But when she retired at age 60 in 1974, her monthly benefits did not even cover her grocery bills. Luckily, she was energetic and in good health. To support herself, she worked part-time for a church, cooked and sold bread and candies, and made quilts -- working nearly every day, until her late 70's. (5) Many retirees, in ill-health or lacking work opportunities, are not so lucky. In the crisis-ridden economies of the 1990's, work is much harder to come by, so Abigail's children emigrated to the US rather than face poverty and hunger in old age.

Some who retire from urban jobs return to their rural villages -- a step governments encourage, to ease the pressure on city housing. Once established in the countryside, pensioners often find their meager stipends inaccessible. A resident of Zaire reports on his father's painful experience in the 1970's: The pension payment office was located 55 kilometers away from the village. With his reduced energy and deteriorating health, it took him two days to walk to the office in order to obtain his pension. If he went by truck, the only means of public transportation available in the Lukanga region, the fare would have been greater than his pension benefits. No proxy, not even that of his own children, was accepted by the pension officers. (6) Twenty years later, with the Zairian treasury virtually empty, pensions are even harder to get. And the great majority of African and Asian elderly still have no claim to pensions, however small.

Optimists once thought that pensions would grow and spread worldwide, as a natural result of economic growth and prosperity. The International Labour Organization (ILO), an affiliate of the UN, sponsored an international convention in 1952 that set universal standards. The ILO drew up model pensions programs for newly-independent countries of the South and the affiliated International Social Security Association pressed for universal pension coverage. At an ILO conference in Canada in 1966, members affirmed enthusiastically that "the idea of social security already constitutes an integral part of the national conscience and its general development is an irreversible process." (7) But, unlike the richer countries of Latin America, where the pension movement was strongly-rooted in national politics, Asia, Africa and the Caribbean witnessed only slow and uneven development of income support for the elderly.

3. The Gathering Storm

By the mid-1970's, as global economic conditions worsened after thirty years of expansion, optimism fell among policy makers and aging advocates. Economists recognized that growing numbers of poor elderly had not benefitted from the effects of economic growth and were condemned to destitution in the emerging world economy. But the experts were generally at a loss on what to do. Even advocates of welfare measures like Indian economist Amartya Sen began to doubt whether universal Western-type social security measures could have any relevance to poor, backward countries. (8)

Many pension programs in the South stopped growing or began to contract. At first, economists blamed temporary setbacks like the oil crisis, the debt crisis, and budget deficits. Finally some concluded the problem was permanent and structural: "excessive" numbers of elderly. By the early 1980's, experts in the rich countries began to warn that countries in the South could not afford social insurance at all, or at least that major "reforms" would soon be necessary. (9)

In Latin America, as the number of elderly shot upwards and life expectancy grew, pensions and other social security payouts like health insurance claimed a third or more of the national budget by the early 1980's. Such expenses offered a large, vulnerable target in a policy climate of austerity and upward income redistribution. Other potential targets for savings, such as military budgets, remained largely immune to criticism and cuts.

In 1983-84, pressure on Latin pension systems mounted. Hoping to avert a crisis, the UN's Economic Commission for Latin America and the Caribbean (ECLAC) sponsored a comparative study of social insurance among the 20 countries of Latin America. A short time later, the World Bank commissioned its own studies, with an eye towards far-reaching cutbacks. Forcing social insurance agencies to yield confidential data, the Bank threatened to turn down urgently-needed loans unless governments made deep pension cuts. This kind of linkage, known in Bank parlance as a "conditionality," forced the first pension changes in Chile during the rule of the right-wing military government of Gen. Augusto Pinochet. Other countries, in desperate economic circumstances, later acceded to Bank pressures as well. (10)

4. The Great Pension Crisis

In the late 1980's, the era of slumping economies and structural adjustment programs, many of the most generous pension systems collapsed. Their financial base had eroded with drastic layoffs of workers, wage cuts and other austerity measures.

The large Latin American pension systems proved especially vulnerable. Decades earlier, at a time of far lower life expectancy, authorities had set retirement as early as age 45 or 50 or after just 25 years of work and they had fixed payments as a high proportion of wages. Now that retirees were living much longer, pension costs had risen dramatically. Each year, active workers had to support a larger burden of retirees. But with high unemployment, no one proposed raising the retirement age, for fear of swelling joblessness among younger citizens. Short of wider employment, there was no apparent solution.

In the economic crunch, often with government complicity, employers flouted laws mandating payments into the retirement funds--or they delayed payments to take advantage of soaring inflation which reached 50 percent or more each month. Some systems, like Brazil, collected less than half the sums due, while the government did little to enforce compliance. (11, pp. 23-24)

Corruption and bad investments sapped the pension funds as well. Millions disappeared into the pockets of politicians, union leaders and their cronies, often spirited out of the country with the help of complicitous foreign bankers. Governments forced fund managers to invest in low-interest treasury bonds that lost value in inflationary times--in effect, raising current revenues at the expense of retirees' future income. Venezuelan pension reserves lost an average of 15 percent per year in the 1980's, Costa Rica's declined 10.5 percent, Peru's an astounding 37 percent. (12, p. 128) As official finances grew more precarious--and foreign creditors more insistent--governments dipped ever more flagrantly into the pension till.

No one in power wanted to save the pension systems through needed reforms. The military didn't want to reduce their comfortable early retirements, business owners were content to keep postponing their fund payments, and politicians hoped they could go on lining their own pockets as well as financing the national treasury out of the pension system. In Colombia, when the press denounced corruption in social security, the government did not prosecute the offenders. Instead, it closed down the official Inspection Department! (11, p. 25)

Most pension systems labored under extremely generous benefits for military officers and high civil servants. After the 1973 military coup in Chile, military pensions rose rapidly and the leading newspaper, El Mercurio, reported in 1985 that nearly two-thirds of military pensions were over 50,000 pesos, while only about one in thirty civilian pensions reached that level (13, p. 69)

The World Bank officially disapproved of "privileged benefits." But far worse, in the Bank's view, was the "massification of privilege"--its description of decent benefits extended to ever-larger sectors of the population. "What was financially viable for a minority," complained Bank expert Carmelo Mesa-Lago, " . . . could not work in the long run for the mass of the insured." (11, p. 85)

5. Pension Plans Come Apart

Beginning in the mid-1980's, under pressure from international lenders, and facing huge debt repayments, several Latin American governments with large pension programs took desperate measures. They simply stopped making payments to their pension systems (for instance, payments for civil service pensions) and they even appropriated pension taxes deducted from their workers' paychecks. Countries like Colombia, Ecuador, Peru and Panama owed hundreds of millions of dollars to their social security funds--sums which ballooned further by the end of the decade. (11, p. 27) In Brazil, pension authorities lowered retiree benefits in order to keep the pension system solvent; they delayed paying benefits by several months, allowing rapid inflation to reduce payments to a fraction of their nominal value. In Argentina, when public authorities cut payouts, pensioners sued, charging that the government had failed to comply with the law that required pension payments 82 percent of a worker's final wage. With actual payout less than a quarter of the mandated level, the government responded by declaring a "national social security emergency." (11, p. 111) The government eventually promised to sell of the huge public energy company in order to raise monies to pay off the pensioners, who were owed $11 billion in back pensions in 1993.

A snowball effect followed the adjustment programs in the mid- and late 1980's, when the World Bank forced governments to reduce--often drastically--the number of workers in the public sector. Governments offered many workers early retirement, swelling the numbers of those claiming retirement benefits at just the moment the pension systems were coming under maximum stress. It is hard to imagine that the World Bank did not anticipate these results or that it did not understand how they might push the pension systems over the edge of financial viability.

6. Attacks on Pensions

Pensions might not have collapsed if governments had stepped in to rescue the funds, re-finance them, and take advantage of the opportunity to improve collection of contributions, tighten up on payout, unify fragmentary systems, and lower administrative costs. Employment programs for older workers would have greatly eased pressures on pension costs and meant a new approach to aging. But many governments let the pensions fail, with no substitute program, risking domestic opposition because they faced overwhelming international pressure for social austerity measures. Government ministers in Argentina told the public that past pension levels were a luxury that only rich countries of the North could afford. "Is it a luxury to eat?" responded the destitute pensioners, to massive public sympathy.

While pensions declined, military and other unproductive government expenses remained virtually untouched. As one commentator said bitterly:

It is surprising how many Third World governments are able to mobilize the resources to build luxury conference and sports centers, equip the army with the latest in military technologies, and purchase airliners for the use of ministers but claim, at the same time, that there are no funds . . . to care for the needy elderly. (14)

The World Bank and the IMF, advocates and orchestrators of the pension crises, share primary responsibility with corrupt and irresponsible national politicians for the pension debacle. The banks' "conditionalities" never took aim at military profligacy, or ministerial self-indulgence, or vast and growing inequalities of income, or the smuggling by corrupt officials of huge sums abroad for deposit in foreign banks, not to mention gigantic and wasteful public works projects that the Bank itself promoted. Critics could well wonder why the World Bank, if it were truly interested in "equity," never addressed the enormous "pensions" salted away in foreign banks by corrupt politicians and deposed dictators.

None of those at the top, it seems, gave much thought to the human costs of the pension-cutting policies, as they crashed into the lives of ordinary people. When asked about the wave of elder suicides, Argentine President Carlos Menem insisted that "the index of suicides for pensioners is normal." And when pressed to explain why older people were taking their lives, he answered grandly, "I am the President of the Republic, not a psychologist or sociologist." (2)

As a solution to the elder income crisis, Menem urged destitute pensioners to go back to work--at a time when unemployment stood at record levels. Economy Minister Domingo Carvallo cavalierly insisted that families step in with support. Reporters discovered that Carvallo was earning $10,000 a month under questionable circumstances in the midst of the crisis, but he protested he could not live on less. Interior Minister José Luis Manzano, exposed in a multi-million-dollar corruption scheme, fled to comfortable exile in the United States. (15)

The World Bank's numerous reports on pensions pass in silence over these facts. They also fail to consider the elderly as human beings, whose livelihood and decent treatment should be a litmus test of social policy. Instead, the Bank discusses pensions in arcane, abstract and dehumanized language, full of terms like "information asymmetries," "capital market failures," and "moral hazard." The Bank refers to older people mainly as economic burdens--dependents who no longer have anything further to contribute to the economic machine. (10)(11)(12)

Trade unions, powerful forces in most Latin American countries, denounced the pension reforms and the simultaneous wage cuts brought on by the adjustment programs. At a 1992 ILO conference in Caracas, trade union delegates accused their countries of breaking the rules of the ILO Conventions to which they were signatories. A union leader from Chile said his country's new plan was "not a good example to be followed" and the union delegate from Uruguay insisted that the reforms were a great step backwards away from justice and social solidarity, an ill-disguised means to lower workers' pensions. (16) Journalists, priests, legislators all joined the chorus of protest; in 1993 the Catholic bishops in Argentina denounced the new elder poverty.

The economic crisis in Latin America was so deep and the international financial pressure so intense, that struggles by the trade unions, political parties and elderly movements did not succeed in preventing major pension cuts, though strikes and demonstrations rocked the capital cities. Elderly Argentines even fought pitched battles with the police, winning eventually minor victories. In one concession, the government agreed to sell the country's richest asset, the state petroleum company, and fund pensions with part of the proceeds. After President Menem vetoed a congressional bill giving retirees direct proceeds of the selloff, the government eventually agreed to give pensioners a partial settlement with government bonds.

In June 1993, the government completed its privatization of the company, but rather than paying off the bonds, it offered company shares to the retirees--shares that had to be held for at least one year. Unable to wait, many impoverished elderly sold their bonds or stock rights to speculators at only a fraction of the face value. In the end, pensioners will get only a small part of what they were due. Speculators and bankers have already taken by far the biggest share. New York-based Citibank and its local partners walked away with more than $1 billion in profits from the privatization moves, raising eyebrows even in the U.S. financial press over the brash and sordid dealmaking. (17)

Government ministers, facing widespread sympathy for the dispossessed elderly, made dramatic gestures to appease public opinion. Argentina's Carvallo wept on television ("crocodile tears" countered Norma Pla, leader of the elderly protest movement). And Ministers of Labor from across the continent, assembled at a conference in the fall of 1992, condemned the neo-liberal policies of the Bank and the Fund and called for a more humane approach to development and for new efforts to protect those hardest hit by the crisis. (18)i But the new policies remained intact.

7. State Pensions and the Alternatives

The Bank, the Fund and other financial institutions had typically placed the burden of the economic crisis on all those with least power to resist--including especially the elderly. To justify their policy, they developed a deeply flawed analysis that sought to blame the economic crisis on the pension systems' inefficiencies and inequities. The Bank's critique is worth analyzing in detail, because it has been used to attack, discredit and abolish public pension programs around the world. As the Chilean case will show, the Bank's own data prove its core arguments to be flagrantly false and misleading.

The right-wing government of Gen. Augusto Pinochet, which came to power in a coup in 1973, provided the Bank with its first opportunity for far-reaching pension change. As part of a broad package of social austerity steps, Pinochet undermined one of Latin America's oldest and best-run pension systems and then totally reconstructed it in May of 1981. The old system, though it had faults, had achieved very broad and high-level coverage among employees of all kinds, including special programs to extend income security to the poor elderly. Only a military dictator could have imposed these changes.

The Chilean "reforms" substituted privately-managed annuities (a kind of personal savings account), under government regulation, for public pensions. The new law requires all employers to deduct 10 percent of employees' earnings and pay the sums into annuities operated by companies called Administradoras de Fondos de Pensiones or AFP's. Neither employers nor the government make any additional payments or have any additional responsibility, except a shaky "safety net" program for the elderly poor. The government regulates and supervises the AFP's through a special agency called the Superintendencia.

Using the World Bank's own criteria, the new Chilean system appears problematical in areas that the Bank claimed were of greatest concern: (10)(11)(12, pp. 101-163)

Inequity The Bank complained that the old state pension system was inequitable, that it channeled too many resources to "privileged groups" in society. But the Bank-induced reforms did not reduce high military pensions or high pensions for other privileged social groups in Chile. The military still get the lion's share of government-funded pension monies, paid directly out of taxes levied mostly on middle and low-income citizens. And now, because pension payout are based on a compulsory deduction from employee wages, with no redistribution, the most highly-paid officers, managers, and government bureaucrats receive an even greater slice of the national pension pie. Pension accounts of high-income people have been found to grow much faster than those of low-wage earners in Chile. (19) And since employers no longer have to make contributions to their workers' pensions, another important dimension of pension equity has been lost.

The Chilean pension reforms were themselves part of a larger package of reforms and government action, which should be measured in terms of its overall impact on equity. While the government claimed it had no resources to pay for pensions, it underwrote soon afterwards $3.5 billion in debts owed by private Chilean banks to international private lenders, rescuing the investment of a few wealthy Chilean banking families from the effects of the debt crisis. (20) Had the authorities applied this sum to the pension crisis, they could have solved it easily within the old system. Their priority hardly seems to have been equity-based.

Protection of the vulnerable The Bank complained that the state pension system did not take adequate care of the most socially "vulnerable," that it short-changed the poor. Under the new system, though, the poor are far worse off. A pitiful government "safety net," called Pensiones Asistencial, now pays barely enough to keep a person from starving to death--about enough for a loaf of bread and a cup of coffee each day. In the beginning of 1992, the ILO reported this pension as 12,690 pesos per month, or roughly $36--a little more than a dollar a day. Worse, still, the government limits these pensions to 300,000 recipients, regardless of the number of those in need. In 1978 while the old pension system was still in effect, there were just 78,000 recipients in the safety net program. But by the 1990's, after years as the World Bank's model economy for Latin America, more than four times as many older people needed emergency assistance. Pitiful as the benefits were, thousands were excluded by the numerical limit and an extremely harsh means test.(21)(19) The government simply was not dependably supporting the poorest of the poor.

Adequacy of Benefits The Bank claimed that the old system did not provide adequate benefits for all those who worked hard and paid their way. But for most elderly Chileans, the new system has only made matters worse. The government required all pre-reform retirees--about a million people--to stay in the old pension fund. Since the fund no longer gets payments from active workers, it now depends on subsidies from the government budget. The government has set subsidies that allow only very low pensions--with a minimum of just $66 per month in 1992.

The new system, through its philosophy of individualism, offers no sharing of risk, no social solidarity, and no progressive income re-distribution among participants or across generations. Under the new system, the concept of social insurance is abandoned. Each worker is on his or her own. Those who suffer unemployment, disability or other loss of income will find their pensions proportionately lower. Those with very low incomes cannot even accumulate enough pension to live on. Those in the large "informal sector" are left out in the cold.

Benefits for the majority of Chile's current retirees have turned out to be unacceptably low. But even if the new system works according to predictions, future retirees and their families will suffer as well. Accumulations for low-wage workers are bound to be inadequate and spouses of even high-wage workers will get sharply-reduced pensions. Women's pensions, because of earlier retirement and longer life, will be substantially less than mens'. Most workers will probably get a pension of only 30-45 percent of their wages. Colin Gillion, social security chief at the ILO, has estimated that under the reformed Chilean system, at least half of all retired workers will get benefits below the poverty line. (22)(10)(19)

Inadequate Coverage The Bank complains that state pension systems cover too small a proportion of the population. Ironically, Chile had very broad pension coverage before the reforms. About three-quarters of all workers were eligible. After the reforms, about one in five workers lost coverage--a drop of coverage by nearly a third. With so many marginalized workers, actual coverage was even less. In December of 1990, only 1.6 million workers were paying into the funds, out of a total Chilean labor force of 4.7 million, just a little over 40 percent.(23) Average coverage for women workers was even lower.

Inefficiency The Bank claims that public pension systems have large, highly-paid and inefficient bureaucracies that are parasites on society. Chile's pensions costs before the reforms were estimated by the Bank at 8-9 percent of total outlays--a rate that is high by contrast with European or American levels (which average less than one percent) but moderate in a country of the South (where costs can be as high as 25 percent). Under Bank-sponsored reforms, administrative costs in Chile soared to 25 percent of income by 1989. (24)(19, p. 180)(11) Another estimate suggests that for low-income contributors, costs may be over 30 percent. (23, p. 37) The many private firms that manage the retirement annuities added a heavy load of new costs--for profits, for advertising, and for duplicated services. Ironically, the Bank has been critical of the waste involved in multiple "funds" under government-sponsored pension systems, urging always a process of "unification," which is actually a positive and necessary reform. But in Chile, the competitive private system advocated by the Bank produced the same multi-fund waste and inefficiency, further magnified by other factors like advertising and profits. As firms battle one another for accounts, expenses on advertising and sales commissions continue to mount. Profits have reportedly been extremely high. Chilean government reports have covered up these high costs, while stressing instead the positive growth of invested capital. (23)

Uncollected Taxes The Bank points out that public pension systems often don't collect their payroll taxes. The Chilean public system actually did not suffer as much from this problem as other countries. But now, under the private system, Bank documents show that Chile's employers are not sending in the contributions of poorer workers and government regulators are doing little, if anything, to enforce employer compliance. By the early 1990's, half of all covered workers' accounts were in arrears.

Long-Run Performance & Regulation During the first few years, the pension annuities performed well as investments. Thanks to a fast-growing Chilean stock market and a related real estate boom, they chalked up an annual growth rate through 1987 of 13.8 percent. (11, p. 29) This helped to increase the popularity of the reforms and convince people in other countries that they were worthwhile. But the pensions monies fueled a speculative frenzy on the thinly capitalized stock market, hardly a solid basis for long-term growth. In fact, the bubble is almost certain to burst. We simply do not know what the long-range performance of the Chilean private pension companies will be and how effectively the government regulation and guarantees will work. One economist has calculated that in spite of reports of high performance, real rates of return (after deducting company profits and other costs) will work out at only about three percent over the long run. According to this analysis, many workers would be better off with interest-bearing accounts in the national bank. (23, p. 46) Other observers believe that risky investments and lax government regulation will lead to scandals, bankruptcies and thefts of pension monies in the years to come. The memory of the crisis of Chile's private banks in the early 1980's is still fresh. Chile's military officers--having imposed the new system on everyone else--opted to keep the old system for themselves; not exactly a vote of confidence by those with the power and information to make sure their interests are well cared for. Nowhere in the Bank's reports do we find reference to these anomalies.

Stimulating Investment The Bank insisted that public pensions soaked up funds and put them into low-return, unproductive investments like government bonds, or channelled them directly into current consumption. The new pensions would help the country prosper, it was claimed, by providing a higher rate of savings. The resulting funds for capital markets and bank lending would eventually flow into job-creating private investments. Much more investible savings would result from fully-funded annuities than from the old pay-as-you-go system. The new Chilean pension system is credited with an increase of the Chilean savings rate to a high 20 percent per year.

With over 44 percent of the Chilean funds invested in government securities and another 16 percent invested in bank deposits, the new system does not have a financial base radically different from the old. Only about ten percent of the funds are invested in the stock market. Even so, Chile's expanding economy and booming stock market gave some credence to the Bank's positive view. But in the early 1990's, as Chile's economy began to slow down and financial markets turned downward, pensioners' situation in the new system looked less rosy. A downturn in the building boom, financed by mortgage securities held by the funds, seemed likely to burst the pension bubble. So, while additional savings undoubtedly had been mobilized, the huge new pension investments had largely fueled speculation rather than real investment. As the bloom came off the rose, pension managers in 1990 won the right to invest outside of Chile, a step which may help stabilize pensions but which will hardly contribute to Chile's own economic development.

Workers' Control Over Pension Monies Though the Bank never raised the issue of control over investments, many critics of the new system have complained that the private investment firms give workers no control over their savings. Some of the major companies are not even Chilean-owned, but affiliates of giant U.S. banks and insurance interests. Workers' control could potentially lead to more so-cially responsible investment decisions, or promote investments that would create jobs or channel funds to poor regions or neighborhoods. Election of worker repre-sentatives to the investment boards of pension organizations should be obligatory, but both the Bank and Chilean financial interests kept it off the reform agenda.

Underlying Pension Finance The Bank's logic--that it is safer and wiser to save individually for old age--appeals to conventional wisdom among affluent managers and intellectuals. But in making this argument, the Bank ignores the most fundamental concept of pension economics--that pensioners' current consumption can only come out of workers' current production. If firms and the government employ fewer workers, as has happened under Bank-inspired adjustment plans, current (as well as future) pensions will have a smaller economic base. Chile has had less unemployment recently than many other Latin American countries. But as Chile's boom ends and global trends begin to push up Chilean unemployment, the savings-based pensions will face the same general structural crisis as a public pension system would, exacerbated by problems such as higher costs, speculative distortion and waste in the economy, and the double-burden on current workers (see below). (25)

The Switch-Over Crunch The hidden tragedy of pension privatization lies in the switchover from public to private systems. By moving from public pensions to private annuities, the government forces the present generation of workers to assume a large added burden: to support today's one million pensioners and save for their own retirement. In the Chilean economy, with many workers living on the margin of survival, the burden has become intolerable. By pitting employed workers against those already retired, the government has set the stage for a steady reduction of the remaining public pensions--pushing most of Chile's current pensioners into deeper poverty. It has also created conditions in which deep cuts in other government social spending are highly likely, with negative results for Chileans of all ages. Roger Beattie of the ILO Social Security Office has underscored this problem, in a scathing critique of the World Bank reforms. If the government is asking current workers to increase their burden, Beattie wonders, why not use the extra resources to expand pension coverage to those not now enjoying it? (25) By putting the issue this way, Beattie shows clearly that the Bank's goal is not "poverty reduction" or "equity."

Bank Ignores Problems The Bank has chosen to overlook all these problems in the Chilean system, while it has pressed for similar "reforms" in other countries. Peru, under a new dictatorship, adopted in June 1993 a plan similar to Chile's, based on what economist James Schulz calls a system of "forced personal savings" for wage earners. (9) A state system continues to exist but, as in Chile, will be increasingly starved of funds. Venezuela has also gone down the same path, even though its own financial system is in almost total disarray. Argentina, Colombia and Mexico introduced in 1994 mandatory savings as a supplement to reorganized and greatly reduced state-sponsored pensions. Bolivia has a plan which begins in 1995.

Predictably, pensions throughout the whole region have plunged. On average in 1993, 14 million Latin American pensioners received just $132 per month, less than half the $327 needed for "minimum necessities." In Venezuela, the average pension paid only $90 a month, while necessities cost $185. In Peru, pensions paid $90 while necessities cost $250. In Bolivia, the sums were $78 vs. $307, in Colombia $123 vs. $510. The minimum pensions were still lower: just $18 per month in Bolivia, $31 in Ecuador.(26) The Bank had struck its blow against the "massification of privilege."

The Bank is well aware of the effects of its reforms, especially the hardship caused to present retirees. Claims that "poverty reduction" is its top priority appear ludicrous in this light. The Bank has pressed forward in spite of copious evidence in its own reports that the new systems were a heavy blow to the poorest and most vulnerable citizens. Private financial appropriation, not increased equity and well-being, appear to have been the sole guiding motive for policy.

The pension "reforms" have redistributed staggering sums to foreign debt holders and the local upper class. If we assume conservatively that 14 million pensions were reduced by half, to about $1,500 on average, we arrive at a cash flow of $21 billion annually, the equivalent of return on an investment of about $400 billions. A tidy transfer for an institution that claims to specialize in "poverty reduction."

Links to Privatization & Role of Foreign Firms

The pension reforms have increasingly been linked to privatization and other economic changes aimed at creating open market systems within the Latin American economies. To sweeten the pill of pension reforms and head off public opposition to privatization, governments have used privatization assets to set up new pension schemes. Argentina led the way with its sale of the state petroleum company and bond distribution to pensioners. In 1995, Bolivia will use shares from privatized companies to fund a new private pension plan, with a direct distribution of shares into worker retirement accounts. "We are turning all Bolivians into capitalists," said President Gonzalo Sanchez enthusiastically. (27)

Foreign firms, especially from the United States, have rushed into the market and now control a large segment of the new retirement fund management sector. Their pressure to open up these markets has certainly been a key factor in explaining the Bank's enthusiasm for the reform program. Among the big U.S. insurance companies are Metropolitan Life and New York Life in Argentina, Aetna in Peru and Chile, and American International Group in Argentina, Chile and Peru. Banks include Bankers Trust in Chile, Bank of America in Peru, Bank of Boston in Argentina and Citibank in Argentina, Chile, Colombia and Peru. (27)

9. Pension Outlook in China

China, with the world's largest senior population, is passing through a different but painful transition on its way to a capitalist, market-based economy. Here, too, especially in the 1990's, the Bank and the Fund are actively influencing policy decisions and presiding over yet another appropriation of pension resources.

The Chinese rural welfare system, once world famous, went into steep decline as the government de-collectivized agriculture in the late 1970's and early 1980's. Funds of the collectives had been the mainstay of support for millions of poor elderly in China's villages, people who could rely on "five guarantees" to insure their housing, food, clothing, medical care and funeral costs. When the government introduced the current "household responsibility system," the old guarantees started to evaporate and they barely existed by the early 1990's.

Regional governments and the central Ministry of Civil Affairs took up some of the slack, but far less effectively. Poor and childless elderly suffered especially. By 1990, twelve years after decollectivization, only 630 out of 2,000 counties had developed alternative systems of social security. (28, p. 440) At the village level, prospering new cooperative industries and high-yield farms were able to step into the breech in some places. But as unemployment among Chinese peasants grew swiftly, gripping tens of millions of households by the early 1990's, elder support in many families and villages fell to the lowest level in decades.

Many elderly in China's cities lost out as well. Until the late 1980's, most were able to depend on relatively good pensions--about 75 percent of wages--provided by their own "state enterprise" or "collective enterprise" employer and in 1986 the government even improved pension benefits. A 1989 World Bank study team concluded that these pensioners were well taken care of--too well, the Bank said ominously. But market-driven inflation started to eat into the pensions' value (as a Chinese saying goes: wages are dead but prices are alive). Because inflation is relatively new, pensions are not indexed to price or wage rates, even though they are periodically adjusted by enterprises and propped up by new government subsidies or special allowances.

As state firms lost government subsidies or were privatized, some went bankrupt, leaving their workers dependent on local government agencies. Insiders expect that as many as half of all state enterprises will go bankrupt in the course of the current economic reforms. Firms like the enormous Wuhan Iron and S teel Company are also downsizing their workforce. Wuhan alone is pushing 80,000 workers (two-thirds of its workforce) into new low-wage subsidiaries or into early retirement, leaving a huge load of accumulated pension costs to be picked up by the government. (27) Amid the growing chaos, Chinese authorities have tried to shift enterprise-based pensions to pension pools administered by local or regional governments, a move which in theory can provide more stable pension protection, but in practice exposes all retirees to pension cuts. Already, younger "contract workers" theoretically participate in these pools, though in practice many are not covered.

Beginning in the mid-1980's, the Chinese pension system was beset by the same local "experimentation" that hit the country's health care system. With the tacit agreement of the central government, firms and localities introduced new arrangements, more directly influenced by a market-based environment and pressures to lower pension costs. In some cases, pensions were cut outright. In others, pension awards were subject to what one expert calls "arbitrary and capricious" decisions of enterprise managers. (29) At about the same time, population aging drove up the number of retirees. Retiree numbers also rose because of the government's efforts to push older workers out of the workforce to "make room" for the younger unemployed. In just ten years, from 1978 to 1988, the number of state sector retirees grew from 2.8 million to 15.4 million and total support outlays grew even faster--from 1.63 billion yuan to 25.7 billion. (29) For all these reasons, the system came under great stress.

Chinese retirees have been very worried, and for good reason. Some have sent delegations to Beijing, others have staged angry protests in their home cities. In Wuhan, a major industrial city, pensioners blocked traffic over a major bridge, creating a serious political crisis in the spring of 1994. (27) Younger workers are less concerned. But they should be. Pensions are almost nonexistent for new private enterprises (and for many new collective enterprises as well) and there is no national legislation to cover private-sector workers (though such a law was under study in 1994). Most new firms offer few pension benefits, or none at all.

Some workers pay into personal retirement funds, offered by the government-sponsored People's Insurance Company. Reports in mid-1994 suggest that foreign private insurance companies are now moving into this market as well. The self-insured sector covers only the most affluent workers. The rest will remain uncovered unless the government adopts mandatory coverage.

The World Bank is pushing to accelerate the changes. In 1985 (just as it was getting involved in Latin American pensions) the Bank began to explore pension reform in China. A team of Bank consultants and experts worked intensively in China throughout the late 1980's, focusing especially on the issue of "excessive" pension benefits. In 1990, the study team produced a confidential in-house study emphasizing the need for extensive changes. (30) Soon after, the Bank moved towards implementation.

In late 1993, the Bank announced the final review of a $600 million loan to China's Finance Ministry, to promote "de-linking the social responsibilities of public enterprises." The loan will cover some of the costs of transferring pensions--as well as housing and other benefits--to new entities, like municipally-based pension funds or private housing companies, in five pilot cities. Firms will strengthen their balance sheets and so become more attractive to private investors. (31)ii Pension benefits are likely to decline sharply, maybe by as much as half, even though China's economy is booming. No one is ready to admit just how deep the cuts will be, though Chinese experts hint they will be severe. (32) "It's a pretty confusing picture," says actuarial expert Stuart Leckie, "Everybody is trying to shy away from responsibility." (33)

To head off a social explosion in the globe's largest country, international experts are now working with the Chinese government in an intensive effort to consolidate the patchwork of enterprise, local and regional pensions and develop a coherent nation-wide retirement system. A host of consultants has descended on Beijing--from the World Bank, the International Labour Organization, the World Health Organization, the UN Development Program, universities and private consulting firms. Among them, the Bank is the major player. Insiders say that a struggle is under way between two models of pensions--a social security model sponsored by the Ministry of Labor and a savings-based model (favored by the Bank) sponsored by the State Commission for Reform of the Economic System. Decree 33, issued by the State Council in 1992, has set out the ground rules. Already, the city of Shengzhen, near Hong Kong, has adopted the savings-based system known as a Provident Fund (see below). No one can be certain which version will ultimately prevail, but the Bank's opinion will carry a lot of weight. Sometime in 1995, the Bank will issue its own comprehensive a set of recommendations.

Hong Guodong, one of China's most influential authorities on aging, admits that the elderly will be asked to accept more "individual responsibility" and he insists that the government has no choice but to reduce its pension outlays. He points to the sharp drop in the ratio of active workers to elderly: from 30:1 to 6:1 in just the decade 1978 to 1988. (28, p. 435) But with a plunging birthrate and far fewer children to support, the total number of "dependents" in China (children and elderly combined) has actually declined, (34) a matter that Guodong and other experts have chosen to overlook.

Apparently, rural Chinese pensions will be based on individual insurance accounts (Chile model), mostly funded by individual payments but with some support from local and central governments. No one has figured out how the system will work if the number of rural unemployed keeps growing. Or how people living at the subsistence level are supposed to save for the future. Experts also warn of the bureaucratic and financial nightmare of setting up this new system, covering hundreds of millions of people. Vast numbers of officials will be needed as administrators. Corruption will almost certainly take its toll. Most observers believe that in China, the elderly will pay a particularly heavy price for the new market-based approach to modernization.

10. "Reforms" Worldwide

In Turkey, the government is considering far-reaching pension reforms and the Bank is pushing hard for the usual mix of public pension cutbacks and private savings schemes. The Bank has made reform studies a "conditionality" for a recent loan to help the government privatize public-sector companies. The ILO is involved in the process as the primary consultant and "partner" of the Bank. In Hong Kong, in spite of strong public pressures, a government pension plan has never materialized. At the same time, in the former Soviet Union and Eastern Europe, deep pension cuts have already pushed millions into poverty. (35) (36) (37) Many other governments all over the world are studying or implementing pension changes, as part of broader measures of austerity, including wealthy countries like Italy and Sweden. A million Italians came into the streets to demonstrate against pension-cutting in 1994.

From the harsh Chilean reforms in the early 1980's to the massive shifts in China today, support monies in old age are at risk virtually everywhere in the global South. Though millions of elderly paid their share of taxes during a lifetime of work, and though their work laid the basis for today's productivity and wealth, governments are no longer honoring their claims. The World Bank and its partners have changed the rules, just when income support for older citizens is more needed than ever.

11. Family Support as an Option to Pensions

Government ministers from Argentina to Zambia have called on families to step in and give succor to their older members in times of pension cutbacks. Governments and conservative analysts have even argued that family support is better than pensions, because allegedly it reenforces family unity and solidarity. According to these theories, pensions and other forms of government support weaken families by undermining their mutual dependence.

Most research shows that outside sources of income support strengthen rather than weaken family ties. When family resources are extremely scarce, and there is not enough to go around, younger family members are caught in a difficult moral dilemma and they can become angry and abusive towards those they would like to help but feel they cannot. Families are far less likely to collapse when older members have some income. In India's Kerala state, a program of support for widows greatly increased family support, by reducing pressure on the family budget as a whole. (38)

Family support provides a poor substitute for pensions or other broad income-support systems, because families are such a narrow basis for risk-sharing. As James Schulz points out, people need to pool their life risks with the largest possible number of others to protect themselves against hard times. (39)iii Humanitarians see this risk-pooling as social solidarity, but pragmatists also know it makes sense in terms of luck and other factors beyond individual control. Families provide a poor base for risk-sharing because they are relatively small in number and all members tend to be exposed to similar risk conditions.

Older people cannot depend on family support because too many families are just too poor. And because not everyone has a family to support them. The elder suicides in Argentina provide ample proof that pensions are absolutely essential in increasingly urban societies where most people work for wages--as long as employment options for seniors are not available. Family generosity, support and care-giving are important sources for the well-being of older people, but they cannot substitute for employment or a proper social insurance system.

12. Income-Support and Family Planning

In spite of declining family support, many parents say they want lots of children, as a guarantee of care in later life. A survey in the 1980's found that old-age security was a major reason for 95 percent of couples' decisions to have children in Java (Indonesia), 77 percent in Turkey and 50 percent in South Korea. (40) World Bank data, based on different surveys, is largely consistent with this pattern--old age security being "very important" in fertility decisions among 78 percent of couples in Java, 69 percent in Thailand and 78 percent in the Philippines. (12, p. 57) These hopes for family-based security add pressure for high birth rates and contribute to population-related economic and environmental problems throughout the global South. Policy makers who want to check population growth may have to strengthen (not dismantle) government programs for income-support in later life.

Many other factors affect couples' decisions on how many children to have, including cultural values and the availability of contraception and most researchers are reluctant to make clear-cut conclusions about the old age factor. But again and again, researchers have found that young adults who feel secure in their old age are more inclined to opt for smaller families. (41) An extensive research project funded by the ILO in Costa Rica and Thailand provides recent evidence of this. (42) Family planning initiatives must not ignore this important dimension of their work; sustainable global development is inseparable from the well-being of older citizens.

In a recent article, Prof. Hong Guodong, Head of the China Research Center on the Elderly, pointed out evidence from Muping County in China's Shandung Province, where the Chinese government had recently introduced a particularly successful rural pension scheme. According to Hong, family planning officers in the county were surprised to find that couples' decisions on how many children to have were very quickly affected by the new pension system even though the retirement benefits were "comparatively low." Hundreds of couples who had obtained permission to have a second child voluntarily decided against conception, reassured that their future was assured even without a male child to take care of them. (28, p. 440)

13. Old Age Poverty vs. Children's Poverty

The World Bank and other advocates of pension-cuts have recently adopted a new argument: that older persons are less impoverished than children, thus less deserving of public support monies. (12, pp. 76-80) Pensions should be cut, they say, so that child welfare programs can be increased. This argument has gained a certain amount of respectability and analyses of this type have appeared in serious and socially-responsible publications. Millionaire pension-reduction advocate Peter G. Peterson has made child-welfare and "generational equity" part of his weaponry of assault on pensions. (43)

The child-welfare argument does not appear at all in the World Bank's pension studies in the 1980's and early 1990's. By contrast, Averting the Old Age Crisis, the Bank's 1994 study, converts the children-vs.-elderly tradeoff into a central theme of analysis. (12, pp. 4, 11, 77-80)

The data on age-based income differences sustain the Bank's argument, but only if used very selectively and in a highly-aggregated fashion. High income people live longer than the poor and poor people have more children, so if aggregates are used, it can nearly always be shown that children are poorest, on average. Once disaggregated, though, the deep poverty of later life shows up in the data: a few aging millionaires on the one side and thousands of dirt-poor ordinary people on the other. Income polarization gets much greater in later life. Generally, then, a higher percentage of older people than children suffer from absolute poverty.

Childhood poverty remains a scourge. But why propose alleviating it at the expense of yet another group that suffers from poverty? Why doesn't the Bank propose instead addressing childhood poverty by reducing the income of social groups that are rich? The Bank ignores such obvious options. The results on record, where pensions have already been cut under Bank auspices, show that child welfare benefits do not rise. In actual practice, the Bank's aim is evidently not to alleviate childhood poverty, but rather to cut government social programs of all kinds--for children and elderly alike.

14. Means-Tested Welfarism

To provide a "safety net" for the poor elderly, who have neither work nor pensions nor family support, the World Bank has proposed minimal government-sponsored payments--a kind of subsistence welfare system to prevent old people from starving to death. To qualify for these programs, usually called "social assistance," people have to prove that they are legitimately poor--that they have neither adequate income nor assets--a process known as a "means-test."

Nearly four hundred years ago, the government of England developed means-tested programs to stave off starvation for paupers, most of whom were elderly. The system, known as the "Poor Laws," forced people in later life into "work houses"--or "poor houses" as they were later called in the United States. As poverty forced more and more people into the work house in later life, the public eventually rejected this approach, in favor of the universal pension systems we know today.

Schultz argues persuasively that those who shape public opinion tend to treat people in means-tested programs as morally inferior. Further, politicians provide absurdly low funding for these programs or cut them whenever pressures for economy arise. Means-tests lead to cheating, which then undermines public confidence and support for the programs, opening the way to under-funding. (39, p. 6) There is plenty of evidence in the countries of the South to confirm Schulz' position. Hong Kong's public assistance program provided US$192 per month in 1993 in one of the world's most expensive cities--a sum so little that many recipients couldn't afford both to eat and to pay rent. Many of the 80,000 recipients (about one in ten of Hong Kong's elderly) worked part-time as coolies or in restaurants, but they still couldn't afford proper housing.

Most recipients of public assistance are women--77 percent of the 1.3 million getting this aid in Argentina, where payments amounted to only $4 per day in 1993. (44) In Chile, where women also are in a large majority, public assistance payments barely cover the cost of a couple of loaves of bread; a numerical limit prevents tens of thousands of destitute elderly Chilean women from getting any support at all.

Means-test recipients often are subject to unreasonable rules as well. In Hong Kong, a visit to family in China for over six weeks led automatically to an assistance cutoff, even if a person had lived and worked in the city for decades.

By contrast, in universal programs, citizens see their benefits as a "right" or entitlement. Even in hard times, the programs maintain broad political support and promote social solidarity. Though even these broad programs have come under attack, and suffered cuts, they almost always provide comparatively much better benefits.

Means tests have another drawback: they tend to create a large welfare bureaucracy to carry out the tests. The costs of this bureaucracy eat up a large proportion of the funds that should be going to the very poor. These bureaucrats often use the means tests as a tool of power--sometimes for political ends, sometimes to assert their own authority and arbitrary control. Not uncommonly, those handing out benefits pressure recipients to vote for the ruling party at election time.

The World Bank insists that universal social insurance is just too costly and that targeted "poverty reduction" programs are the answer. Bank funding has supported cash grants to the poor elderly to prove this point. But the Bank's emergency programs remain at the level of short-term "charity" and offer a poor substitute for employment, economic well-being and real social insurance. Experience with the Bank's efforts has shown that its means-tested programs are pathetically inadequate, that they last only for a relatively brief time (often just long enough to muffle political opposition to Bank-imposed "reforms") and that they short-change the poor, both in the short and in the long-run.

15. Provident Funds

England set up "Provident Funds" for urban workers in many of its p oor colonies in Africa and Asia. These funds, built up by regular deductions from workers' pay (and sometimes employer contributions as well), were a form of forced savings, developed as cheap options to regular pensions. Unlike a pension, the funds were available in a lump-sum payout at the time of retirement (Some funds may be available even before retirement, to cover maternity leave, to finance buying a house, or to pay for the funeral of a family member). The fund payment (grown through compound interest) in theory helped its beneficiary to buy a small farm or a store or to obtain another source of income. During thirty or forty years of accumulation, the capital was available as a pool of investment loans to make the local economy grow.

Today, through many Provident Funds have been converted into social security systems, quite a few Funds remain, especially in Africa and Asia (including Ghana, India, Indonesia, Kenya, Malaysia, Nigeria, Sri Lanka and Uganda). Best-known is the Singapore Provident Fund, which covers most workers and is said to be very popular. Singapore Fund accounts build up faster than those elsewhere because of high worker payments--currently a quarter of salaries--plus an employer contribution (now 15 percent). The Fund accumulates into a sum which is large enough to help buy an apartment and to eventually buy an annuity at retirement which can provide an adequate income. With a state-of-the-art electronic system, workers can check their fund totals and recently they have been able to switch some of their fund investments as well. Singapore with its booming economy and high-tech banking system can support such a scheme, but few other countries could. But Singapore's fund is far from ideal. The government has invested the great majority of the funds in low-rate government bonds, thus subsidizing government infrastructure-building and other capital programs at the expense of the elderly.

In most poor countries, Provident Funds are even farther from the ideal--not just for lack of financial sophistication, but also because of the nature of the funds themselves. Usually based on a small percentage of a small salary, they rarely accumulate into a substantial sum, even after years of investment. Worse still, they are not adequately protected against inflation and often they lose their value. Paid out in a lump sum, they are all-too-often used to buy a house, take a trip or finance a daughter's wedding. They rarely provide for the real need: income security in later life.

16. Pensions, Income Security and the Very Poor-alternatives

A few countries of the South have developed income support programs which protect their poor elderly without means-testing or with very limited qualifications. The programs target those who usually are missed by wage-based pension schemes and who are typically very poor in old age--agricultural workers, small farmers, fishers, and people working in the informal sector. In 1963, the Goulart government in Brazil set up the Rural Workers' Assistance Fund (FUNRURAL). Financed out of general government revenues, it has provided small pensions and other social coverage such as simple health care.

Though an army coup swept away the Goulart administration the year after FUNRURAL was put in place, the military leaders preserved the program in a bid for public support. By 1975, FUNRURAL had expanded to cover not only rural workers but also domestic servants, the self-employed, small rural employers and virtually all destitute elderly, 42 million people in all--or about 40 percent of the country's population! (14, p. 202) Several other countries in Latin America followed suit, notably Colombia, Ecuador and Mexico. Now, under severe austerity, the Brazilian government no longer provides adequate funding for FUNRURAL, and poverty among the elderly has seriously worsened. But FUNRURAL remains an important model for income support, which should be revived in Brazil and introduced in many other poor countries.

India has also pioneered in income support programs for the elderly. There, state governments rather than the central government have taken the lead in providing income support--states with strong labor movements and powerful grassroots-based political parties. The State of Uttar Pradesh developed a general old-age pension system in 1957 and Kerala State set up special pensions targeting widows and others likely to be destitute in 1961. Kerala extended pensions to low-income agricultural workers in 1980--a program that had 286,000 beneficiaries by 1986. (13, p. 75) Other Indian states, such as Tamilnadu and Maharashtra, have followed suit.

Another poor country, Gabon in Africa, has developed a special social security program for many of its low income citizens. Known as the National Social Guarantee Fund, it was introduced in 1983 and covers government workers who are not covered by existing pensions and the self-employed, including small farmers.

Mexico and Argentina also launched programs of this kind in the 1970's, with very positive effects. Mexico's COPLAMAR (National Plan for Depressed Areas and Marginal Groups), with its emphasis on rural areas, was set up in 1977 and integrated with the national social security system in 1983. Researchers found that even very small payments to old people living in poor, rural areas had a big impact on their lives, since they lived partly on a subsistence basis. The grants not only helped the elderly, they improved the living standards of families and communities, too. But austerity born of structural adjustment has undermined the financial base for these programs, as governments have been forced to slash budgets, especially budgets of social entitlement programs. Advocates of these programs have been concerned that they may be abolished completely or that they will be so weakened that they will eventually be scrapped.

An important recent Indian study reaffirms the feasibility and the urgent need for government programs to overcome poverty in old age through a serious social security safety net. It argues that means-tested anti-poverty programs, such as those the Bank has been advocating, have enormous administrative costs (bureaucrats who must determine whether or not someone is "poor") and that they usually fail to provide help to those most desperate in need--elderly poor. Instead, says the author, governments should expand simple, general social security benefits to all citizens in risk categories, including widows, physically handicapped and the elderly. (8)

According to the study, new programs in the State of Tamilnadu, introduced in 1989, provide an encouraging example. A popular new government, elected with strong grassroots support, made great progress in overcoming poverty among the elderly, even in hard times and at relatively small expense (about one percent of the state budget). The author thinks that a similar approach can be applied to India as a whole and that optimism and experimentation should replace the reigning pessimistic "realism". (8, pp. 14-23, 23ff.) The social security movement as a whole needs to recapture its enthusiasm and sense of purpose through practical visions of this kind.

17. The "Dependency Ratio" Issue and the Unemployment Trap

Opponents of pensions remain unconvinced by Tamilnadu and other positive experiments. A common argument points to the growing proportion of elderly within the total population, especially the proportion of pensioners to active workers. This proportion, known in the technical literature as the "dependency ratio," has a aura of mathematical certainty about it that has convinced even some elderly advocates to limit their demands. The argument from dependency ratios is this: as more and more workers retire and live long lives, fewer and fewer active workers are left to support them. So the burden on the active workers and on the "economy" is getting too great. The only solution, supposedly, is to cut pensions or to base them entirely on personal savings.

The "dependency ratio," for all its patina of science, is actually based on a number of questionable assumptions. First of all, it counts only those considered "in the labor force" (i.e. wage workers) as non-dependent and implies that all others are somehow getting a free ride. Yet no society can function without cooking, housekeeping, child-care, care of the sick, and so many other humane and voluntary efforts that are not counted within the "labor force" or the "gross national product." Women, as well as children and the elderly, become burdensome "dependents" in this scheme of things.

Work responsibilities constantly change and so do the mix of ages, as economies change, urbanize and industrialize. The pension-cutters prefer to overlook these dynamics. For example, more women are working outside of the home, placing more child-care responsibilities on elderly grandparents and making for fewer "dependent" younger women. And the number of children is rapidly declining, making for fewer younger "dependents" and reducing costs for food, clothing, schools, youth clubs, pop music and all the rest. In most countries of Asia and Latin America, the number of children has declined faster than the number of elderly has grown since the 1970's, making for a steady decline of "dependents" for the next fifty years or more, according to UN projections. (45) Africa will enter the same phase in the near future as well. In China, the dependency ratio is projected to fall from 81 percent in 1988 to 63 percent in 2020. In Tunisia it will fall from 117 percent to 70 percent and in Costa Rica from 100 percent to 71 percent. The apocalyptic visions of the "dependency ratio" experts ignore these facts.

Most important of all: many "dependents" would like to have jobs in the wage sector but cannot find them. The great majority of urban elderly are frustrated job-seekers, who--by all accounts--would far prefer employment to impoverished "retirement." So when World Bank policy-makers coolly deny millions of people jobs on the grounds that the market does not need them and then deny them the most basic income support because the "dependency ratio" is too high, they play a cruel, self-serving and irresponsible ideological trick. The "dependency ratio"--if it has any reality--is the result of mass unemployment and structural adjustment, not uncontrollable population shifts. The Bank's neo-Darwinian policy jettisons the weakest and makes their suffering a precondition for the prosperity of a few.

18. Pensions and the Future

Pension-cutting is outrageous. But pensions and other income-security systems have a fatal flaw. They tend to legitimate the concept of "old age" and the expulsion of people from wage work, irrespective of physical abilities, personal preferences and capacities for productive social contribution. Pensions create dependency that can lead to blaming and victimization. Far from providing security, they have all too often proven terribly insecure.

The challenge is how to combine basic income security with the right to stay productive in wage work or be rewarded for productive but unpaid work (like taking care of grandchildren). Remunerated work not only would benefit the elderly, but also would put their talent and labor more fully at the service of society. Full-employment (in a new and expanded sense, for all those who can and wish to work) must become the foremost priority for aging advocates. In a world of great prosperity, wealth and productivity, nothing less should be acceptable.

But what about those who are too infirm to work, or who cannot find productive and paid labor? In an increasingly global economy, where the fates of all are closely intertwined, and where individual nation-states are often too weak to protect their own citizens, a global solution to income security is needed, including support for people in frail old age. Arthur H. Westing, in a book published by SIPRI in 1988, was one of the first to propose a international social security system, based on a world-wide tax. (46) As the global economy becomes more and more productive--and less and less dependent on labor--the need to distribute the social wealth in radically new ways becomes ever more pressing. And the claims of the impoverished elderly become ever more urgent and compelling.

The tradition of social solidarity in pension and income-security systems remains a powerful force, which is likely to attract increasing support in the decades ahead. The great flaw of age discrimination in employment must be eliminated as income-security for all is re-thought. Justice requires new projects to support and broaden income security systems throughout the global South--projects which are not designed with mere survival in mind.

Three initial steps are necessary. First, the global economy must engage the productive capacity of all and provide everyone with a decent sustenance--nothing less should be acceptable. Second, serious reforms must strengthen public income support and pension schemes--including better and more honest administration, rigorous collection of taxes, inflation-indexed payments, and the like. And third, pensions and income support guarantees should be extended to wider categories of the population, including agricultural workers, domestic workers and the self-employed, so that coverage will eventually reach the entire population. Broadening coverage for women, including those that work in the home, is especially critical.

These steps presuppose changes in the international economic order, including re-thinking the role of the World Bank and the IMF with their extremely narrow, profit- and market-centered definition of economic success and development. Globalization of employment and income security, for people of all ages, is the only way to insure a decent livelihood and opportunities for productive work to everyone, the elderly included.


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