This is my own private assessment, not necessarily the one of my
government.
Hope you enjoy this paper without the graphs
arno tausch
Critical remarks on the recent pension reform in Poland
by Arno Tausch
Executive Summary: It is shown in this paper, that the huge losses in the
first years of pension reform in Poland, that will reach - according to the
very authors of the system, Gora and Rutkowski - 1.68% of GDP in 2003, will
most probably not be covered by the proceeds from privatization as it is
maintained by the Polish Government, but will be shouldered onto the weaker
sections of society in the long run. Even in Chile, where the system was
introduced in the framework of an already fully fledged capitalist system,
wages shrunk by 0.3% per annum at a time of rapid economic growth of 3.6%
per annum, thus showing the distributional shifts taking place in society
from wage labor to capital, brought along by a three-pillar-World-Bank type
pension model. The very funds, that will benefit from up to 9% compulsory
contributions from wage earners, are still mostly ownedin Poland by the
state class (in alliance with foreign capital), one important qualitative
difference from the Chilean experience, where there existed a strong
private sector before the reform. The model system in Chile has reached a
crisis today, 5 out of 15 funds are making losses, administrative costs are
exploding. It is shown, that the new Polish model is lamentably enough
along the lines of ultra-neo-liberal thought in the USA, and that by
contrast, a reasonable social security reform in Poland should have started
out with a positive assessment of what social security benefits
expenditures in the very long run achieve for the stability of economic
growth and poverty reduction. This is empirically shown with cross-national
data from up to 123 nations of the world with complete data. Symbolically
enough for the weakness of the reform in Poland, the large rural sector is
again left out from the politically prevailing equation that pushed through
the reform.
Poland is among the first countries in Europe to fully introduce the
World-Bank-three-pillar-pension model. The contrast of such a social
security reform model in the 'Cartagena Declaration' tradition to the
classic European model could not be more pronounced (Emerging Markets Debt
Report, March 6, 1998, Vol. 11; see also Die Presse, 07.05.1998;
25.04.1998).
A classic European pension model of the 'Bismarck' type, like in Austria,
presupposes that you work and/or are socially insured for a certain minimum
number of years. Usually, a retiree needs to have accumulated a certain
number of insurance years (say, 15 years contributory periods plus
fictitious qualifying periods) within the last 30 years prior to the
desired time of retirement. Persons, not meeting these criteria are
nevertheless entitled to a pension, when they have accumulated 15
contributory years (without fictitious qualifying periods) or 25 insurance
years in the course of their life. All recipients of incomes among the
working population pay a certain percentage of their income, say 22.8%,
into the social security fund. Upon reaching retirement age, say 65/60
years, the average income of your last 15 or so work years is being
calculated as the basis of assessment, and after some algebraic operations
with certain factors for the year 15, 14, 13 et cetera, the assessment base
is multiplied by a certain factor (say 0.019) for each contributory year,
to arrive at your monthly pension to be paid. There are maximum and minimum
pensions, and special privileges for special groups. The pension in Europe
is most often the basic result of a generation contract between those who
are in retirement and those who work. Some countries, however, base their
pension system entirely on their budget and finance it from taxes. This is
also a solution, but it is not the Bismarck-type of solution.
Critics of the Bismarck system, in Poland, I am afraid, the majority,
pointed out the weaknesses and exploding costs of the particular Bismarck
type of model here in Poland. Generous early retirement provisions, an
exploding demographic proportion between those who work and those who are
out of work by 2005 and after, special privileges for the police, for the
armed forces et cetera were among the most glaring weaknesses of the
system. Only employers, and not employees paid contributions to the ZUS,
the social security institution, and the peasant retirement scheme, known
as KRUS, is up to today a huge single deficit-creating machine, with no
reform whatsoever in sight. But to be just, several weaknesses of the old
system were tackled by the World Bank solution, that was put in place
recently. The only relevant question is, whether or not the system could
survive with these reforms, without a 'second pillar'. Many of the special
privileges could be abolished, the necessary social insurance time was
standardized, and the retirement age was pushed up to 60 years (female) and
65 years (male).
The solution, worked out in Poland, that will be in place from January 1st
onward, combines generous reforms of the still existing 'pillar 1'
(Bismarck) with compulsory payments of all workers and employees into
'pillar 2' (World-Bank-funds). Each employee receives an account number, a
credit-card-format social security card, and has to choose between about a
dozen private funds, having the possibility to switch from one to the other
in the course of development.
In the end, about 50% of the mandatory retirement system will be financed
by the classical PAY AS YOU GO system, while the rest - 50% - eventually
will be funded. Gora and Rutkowski mention the following rates to be paid
from gross incomes, to be in force:
old age (employer + employee 50/50) 19.52%
second pillar (employees) 7.3%
buffer fund 1%
disability and survivor pensions (50/50) 13%
sickness (employee) 2.45%
injury (employer) 0.81%-8.12%
Old Bismarck will receive a Swedish type of overhaul, basically derived
from a 'devaluation' factor, calculated against too high pensions, when
life expectancy is rising over time. The procedure boils down to the simple
arithmetic, that, the higher the life expectancy is in a given year, when
you reach retirement age, the lower will be the pension for the rest of
your life.
Beside pillar 1 ('Bismarck', the classical system) and pillar 2 (the new
pension funds, that will receive 9% of the gross income of all workers and
employees, which will invest the capital in the market but will have to pay
pensions in exchange) there will be also a pillar 3 - private and
enterprise pensions, that will correspond to the demands of the market
(Gora and Rutkowski, 1998). The arguments for and against this system are
manifold. Suffice to mention here, that Gora and Rutkowski themselves
calculate the rising losses to the state budget, caused by the new pension
system during the first years of operation. Since the former 45% social
security contribution paid in Poland, has to be - in a rising proportion -
divided between 'Bismarck', the various other funds (like accident
insurance etc.) and the new capitalized funds, money going to them will be
lacking in the state coffins, until, well - until the moment that these
funds start to dynamize economic growth (at least this is hoped). The
losses will amount to 0.68% of GDP in 1999, rising to 1.68% in 2003, and
only then they should be declining. We should emphasize, that these huge
costs were also existing in Chile, the model country number 1 of the new
system. Real earnings per employee grew from 1970 to 1980 by +8.1%,
although in this period we had the recession of the Allende experiment
years, and the harsh neo-liberal economic recovery program of the IMF after
1973. During and after the introduction of the system, in the 1980s, real
earnings declined by 0.3% per annum, however. Such a leveling of the burden
on the shoulders of the wage earners was - at a time of 3.6% real growth
during 1980-93, practically only possible in a military dictatorship (UNDP,
Human Development Report, 1998). It should also be recalled, that,
technically speaking, privatization in Chile was well advanced already at
the beginning of the 1980s, with a full-fledged private banking and
insurance sector in place, dating back to long years of 'normal' capitalist
development in a country of the Southern cone of Latin America, where
capitalism and democracy existed for decades in a framework of admittedly
still existing social poverty of sections of society, interrupted by a very
brief socialist experiment in the years 1970-73. In Poland, many of the
funds, that form part and parcel of the very structure of the Second
Pillar, still have to undergo privatization. Thus, let us be clear, there
will be a fantastic redistribution of incomes away from wage earners to
pension funds to the tune of several percentage points of GDP each year,
until - in the end - a pay-off in favor of pensioners will take place (if
at all; if all private pension funds disappear at once to the 'Cayman
Islands', the state has to pay out pensions from the meager 36% insurance
base, and not, like today, from a 45% insurance base):
Source: our own compilation from Gora and Rutkowski, 1998
In terms of the budget, this will mean an additional annual deficit of,
say, 1-2% that has to be coped with. The proceeds of privatization will be
used to prop up that additional hole in the budget, that - ceteris paribus
- would face up to all the existing difficulties of the second phase of the
transformation process (steel, coal, agriculture, EU accession). An
implicit additional deficit to the tune of almost the Maastricht criteria
of up to two percent per annum is considerable. No funds for schools, human
capital, research and development, rural regions, the fight against crime
etc. are then available from the proceeds of privatization - the income
from the privatization process have to be used to cover the deficits
incurred in favor of a dozen privileged oligopolistic private firms, called
private pension funds.
In view of the many perceived or real challenges to the present 'Bismarck'
system, critics have maintained that a large part of the savings of society
are being withdrawn. The costs of the system will reflect the relative
privilege or under-privilege of the pensioners in society. Defendants of
the system will maintain, that mass demand, inter-generational
re-distribution and solidarity in the family are enhanced by generous
pensions, and that poverty among the aged works against a high life
expectancy. The relationships between social security benefits expenditures
and poverty reduction are startling indeed.
In line with the re-birth of Keynesian thinking in many capitals in the
Union in recent weeks, we dare to say, that it would be the concentration
on the reduction of poverty and on the formation of human capital by the
Polish government, which, in the end, would yield the most long-lasting and
thorough results for stable economic growth, which would transform Poland
into a really successful new EU member country. Poland's decision makers
should also re-consider the staggering rates of poverty, existing in the
neo-liberal model country number 1, the United States of America:
Table 1: Poverty indicators for industrial countries
UNDP HPI 2 death age 60 functional illiteracy long-term unemployment
EU/OECD poverty line UNDP 14.40$ Real GDP poorest 20% maternal mortality
infant mortality UNDP HDI
CND 12 9 16,6 1,3 11,7 6 5971 6 6 0,96 CND
F 11,8 11 16,8 4,9 7,5 12 5359 15 5 0,946 F
N 11,3 9 16,8 1,3 6,6 3 6315 6 5 0,943 N
USA 16,5 13 20,7 0,5 19,1 14 5800 5 0,943 USA
Ice 8 11 4 0,942 Ice
SF 11,8 11 16,8 6,1 6,2 4 5141 12 8 0,942 SF
NL 8,2 9 10,5 3,2 6,7 14 7109 12 5 0,941 NL
JAP 12 8 16,8 0,6 11,8 4 8987 18 4 0,94 JAP
NZ 12,6 10 18,4 1,3 9,2 4264 25 7 0,939 NZ
SW 6,8 8 7,5 1,5 6,7 5 7160 7 4 0,936 SW
SP 13,1 10 16,8 13 10,4 21 5669 7 5 0,935 SP
BE 12,4 10 18,4 6,2 5,5 12 7718 10 6 0,933 BE
AUS 11 1,1 11 10 5 0,933 AUS
UK 15 9 21,8 3,8 13,5 13 3963 9 6 0,932 UK
AUSL 12,5 9 17 2,6 12,9 8 4077 9 6 0,932 AUSL
CH 9 18,9 1,1 5907 10 6 0,93 CH
IRE 15,2 9 22,6 7,6 11,1 37 6 5 0,93 IRE
DK 12 12 16,8 2 7,5 8 5454 9 6 0,928 DK
GER 10,5 11 14,4 4 5,9 12 6594 22 5 0,925 GER
GRE 9 10 8 0,924 GRE
ITA 11,6 9 16,8 7,6 6,5 2 6174 12 6 0,922 ITA
ISR 9 4539 7 8 0,913 ISR
LUX 11 0,7 5,4 4 7 0,9 LUX
POR 12 3,7 15 7 0,892 POR
PL 20 42,6 11,6 13 2186 19 12 0,851 PL
UNDP Human Development Report, 1998, BMAGS, Bericht über die soziale Lage
1996
Indicators:
UNDP HPI 2 = UNDP Human Poverty Index 2 (UNDP, 1998). Includes EU/OECD
measure, functional illiteracy, long-term unemployment, and age 60 survival
data
death age 60 = percent of people not surviving age 60.
long term unemployment = percentage of unemployed (>12 months) per total
active population
EU/OECD poverty line = percentage of population with an income below 50% of
the national average
UNDP 14.40 $ = percentage of population with an income below 14.40 $ PPP
real GDP poorest 20%
maternal mortality rate per 100000 life births
infant mortality rate per 100000 life births
UNDP HDI Index = human development index
relative poverty (best country = 100)
UNDP HPI 2 death age 60 functional illiteracy long-term unemployment
EU/OECD poverty line UNDP 14.40$ low income poorest 20% maternal mortality
infant mortality low human development good or bad mark in 'social school'
CND 176 113 221 260 217 300 151 100 150 100 CND 1,79
F 174 138 224 980 139 600 168 250 125 101 F 2,9
N 166 113 224 260 122 150 142 100 125 102 N 1,5
USA 243 163 276 100 354 700 155 125 102 USA 2,46
Ice 100 183 100 102 Ice 1,21
SF 174 138 224 1220 115 200 175 200 200 102 SF 2,75
NL 121 113 140 640 124 700 126 200 125 102 NL 2,39
JAP 176 100 224 120 219 200 100 300 100 102 JAP 1,64
NZ 185 125 245 260 170 211 417 175 102 NZ 2,1
SW 100 100 100 300 124 250 126 117 100 103 SW 1,42
SP 193 125 224 2600 193 1050 159 117 125 103 SP 4,89
BE 182 125 245 1240 102 600 116 167 150 103 BE 3,03
AUS 138 220 204 167 125 103 AUS 1,6
UK 221 113 291 760 250 650 227 150 150 103 UK 2,92
AUSL 184 113 227 520 239 400 220 150 150 103 AUSL 2,31
CH 113 252 220 152 167 150 103 CH 1,65
IRE 224 113 301 1520 206 1850 100 125 103 IRE 5,05
DK 176 150 224 400 139 400 165 150 150 103 DK 2,06
GER 154 138 192 800 109 600 136 367 125 104 GER 2,73
GRE 113 167 200 104 GRE 1,46
ITA 171 113 224 1520 120 100 146 200 150 104 ITA 2,85
ISR 113 198 117 200 105 ISR 1,47
LUX 138 140 100 200 175 107 LUX 1,43
POR 150 740 250 175 108 POR 2,85
PL 250 568 215 650 411 317 300 113 PL 3,53
Poland's performance along these 10 poverty indicators is not at all so
bad, even compared to some member states of the European Union, as the
following summary of the above table shows. We calculated, as in the above
Table, column (11), the average from the available 10 poverty indicators
(best country = 100), and divided the result by 100. You can imagine the
result to be a 'school mark' on a scale, ranging from 1 (best) to 6
(worst):
Ice 1,21
SW 1,42
LUX 1,43
GRE 1,46
ISR 1,47
N 1,5
AUS 1,6
JAP 1,64
CH 1,65
CND 1,79
DK 2,06
NZ 2,1
AUSL 2,31
NL 2,39
USA 2,46
GER 2,73
SF 2,75
ITA 2,85
POR 2,85
F 2,9
UK 2,92
BE 3,03
PL 3,53
SP 4,89
IRE 5,05
The social performance of several EU member states suggests, that a
thorough change in the European model could be necessary. Data provided by
the Austrian Federal Ministry of Labor (1997, Bericht ueber die soziale
Lage) show the following connection between social security expenditures
and poverty in the countries of the European Union:
Graph 1: social security benefits expenditures and poverty reduction in
industrial nations
Legend: social expenditures per GDP, 1994; percent of the total population
endangered by poverty, 1993. Compiled by the Austrian Federal Ministry of
Labor.
Table 2 now shows the Pearson-Bravais correlations of social security
benefits expenditures with poverty indicators in the world's industrial
nations:
Table 2: poverty indicators and social security - the correlation evidence
UNDP HPI2 -0,66
EU/OECD poverty -0,61
illiteracy -0,53
infant mortality -0,39
early death -0,17
maternal mortality -0,15
UNDP 14.40$ -0,09
long-term unemployment 0,02
UNDP HDI 0,32
real GDP poorest 0,35
These correlations might be presented graphically in the following fashion:
Graph 3: the effects of social security expenditures on poverty reduction
Proponents of the new system will maintain, that the pension funds
dynamized the once stagnant Latin American economies over recent years, as
the following map from UNDP data will show:
Map 1: growth in the world system, 1990-96
Legend: economic growth (real GNP per capita per year). Source: Fischer
Weltalmanach, 1999. The darker, the higher the growth rate.
But the question arises, how stable this economic growth will be. In the
sense of an economic and social theory, that is in the tradition of the
writings of such authors as A. Sen, G. Myrdal, and K. Rothschild, it can be
even maintained that social security benefits expenditures in the world
economy are conducive to long-run economic growth. Such a statement might
have been more easily accepted by the generation of the founding fathers of
the EU and the European miracle - like Ludwig Erhard, but today, the
'social' component of the market economy all too often tends to be
forgotten.
Which countries had an overall 35 years positive development experience for
the period 1960-95, and which countries had a negative, reverse record? To
achieve a measurement scale, we simply subtracted the year with the lowest
real per capita income from the year with the highest real per capita
income from the UNDP 1998 data-base. Ideally, this will lead to 35 as the
maximum value. The worst performers will have their lowest value in 1995,
and their highest value somewhere in the 1980s or even earlier on. Our map
informs about these trends. Libya, Mauritania, and Chad achieved their
highest income back in 1970, and 82 countries out of a total of 159
classified nations were richer before 1990 than today. 55 countries
followed the 'ideal path' of having their highest income in 1995, while 104
runners out of a total of 159 classified competitors stumbled on their way
to the development marathon finish. Even more dramatically, a lamentable 13
nations - in Africa and the former USSR - were from 1960 to 1995 never as
poor as in 1995; an astonishing number of 34 nations were throughout the
period never as poor as in the 1990s, and 58 nations out of 159 classified
competitors reached their poverty climax in 1980 or after, while only 88
nations can look back at the 1960s as the period of their worst well-being,
measured in real per capita income.
These 'tectonic' shifts in world economic growth 1960-95 are now
exacerbated by the dramatic consequences of the Asian and Latin American
crashes, and the fall in major share values at the New York stock exchange,
which threaten to ruin the little stable growth portions of the world
economy, left from the debacles of the oil crisis, and the recession of the
early 1980s and 1990s. In terms of a marathon race, only the countries
represented by a very dark shade in our map did not stumble on their way or
took a wrong direction, while the countries represented in light shades are
the major problem areas of future world social policy.
Political and/or military power seems to be one of the major pillars of the
stability of growth in the long run. Apart from 'special cases' like Chile,
Colombia or Thailand, whose very long-term economic stability again must be
questioned, most of the 'dark zones' of thoroughly stable capitalist
development throughout the period 1960-95 showed one or more of the
following characteristics
(i) membership in a world political alliance with the US as the hegemonic
power (NATO, ANZUS et cetera)
(ii) membership in the European Union or
(iii) a program of nuclear armaments, like China, India and Pakistan
Map 2: the stability and strength of the growth engine. Development
stability and avoidance of development reversals combined
Legend: Highest value for GDP per capita in 1987 constant real values minus
lowest value for GDP per capita in 1987 constant real values. The darker,
the longer the period of uninterrupted ascending growth. Countries, marked
by white or light colors, had their lowest real income often well in the
1980s and beyond and their highest real income often in the 1960s or early
1970s. The lighter the shade of the country, the greater the setback since
1960.
Social security creates the mass demand that is necessary for mass
consumption; decent pensions are an enormously successful instrument for
the social cohesion of society, and enhance the savings rate as well as a
kind of redistribution from the grandparents to their grandchildren.
Pensioners from the First Pillar, and not Pension Funds, are among the most
stable and best consumers in Europe.
As the Austrian Karl Polanyi, in contrast to his fellow Austrian Friedrich
A. Hayek - who simply tended to oversee the political and social
consequences of the Great Depression - so correctly foresaw, it is society,
that somehow will defend itself against the unfettered mechanisms of the
market, and - in the end - the social protection of the poor and the aged
will determine the future stability of society. The elimination of poverty
among the aged, a clear and decent PAY AS YOU GO pension system without
too many loopholes and a clear policy of unemployment insurance, health
insurance, and a tax and redistribution system in favor of the disabled
remain thus the basic pillars of a world economically successful social
welfare state.
While the monopoly position in the international system, as expressed by
years of membership in the UN, together with the social security effort are
a significant positive contribution to long-run growth, human rights
violations and population density rates are significantly blocking long-run
economic growth. The second equation listed below even more optimistically
mentions social security expenditures, mean years of schooling and the
Human Development Index as a precondition of absolute income growth. In
between them, our predictor variables account for over 80% of the real,
absolute income growth in the world system between 1960 and 1990:
Table 3: the absolute real income increase from 1960 to 1990 in the world
system (n=123 countries)
Violations of Political Rights Violation of Civil Rights Population
Density^0,5 Terms of Trade MNC PEN73 Government Consumption
growth in the -387,6044339 -335,5309726 -38,35553994 -159,3658871
-2,142065598 -38,08417293
sense of Arrighi's and Amin's theory 147,1946027 756,8905041 14,7393743
773,404945 18,01237032 28,8547924
0,80679169
29,78709404 107
t-Test -2,633278848 -0,443301866 -2,602250215 -0,206057497 -0,118921916
-1,319856071
Trade Dependency social security effort UN membership years % Women in
Parliament Women % Labor Force ethno-linguistic fractionalization
3,383706329 353,0850466 14,16819598 58,90557906 -2,079932631 -8,378867087
16,17414266 42,82585478 6,800556167 44,53034007 1,379485421 14,31186935
0,209204679 8,244670153 2,083387833 1,322818981 -1,507759777 -0,585448825
public investment ln(MPR+1)(military personnel) Fertility Rate constant
24,90210293 -166,5370259 137,2074945 3642,23847
7,916573906 280,3858807 209,1100071 2191,222144
3,145565649 -0,593956534 0,656149825
Legend: first row: unstandardized regression coefficients, second row:
standard errors, last row: t-Test. The values immediately below the
standard errors are R^2 (third row, left side entry), F, and degrees of
freedom (fourth row).
Alternatively, one might also express:
Table 4: the social preconditions of world growth, 1960-90 in 123 nations
MNCP85 Govexpenditures Trade Dependency social security UN-member years
Women in Parliament Women % LF mean y ears of schooling HDI ln(MPR+1)
Fertility Rate Constant
absolute -0,1024 -313,04 1145,54 304,721 14,0635 -33,038 -15,546 336,965
28,15 -25,605 -6,937 -907,19
growth 195,851 697,948 1775,06 146,832 17,3298 27,872 15,0547 43,5687
5,40439 15,8157 12,008 1882,33
0,80028
40,4342 111
t-Test -0,0005 -0,4485 0,64535 2,07531 0,81152 -1,1853 -1,0326 7,73411
5,20873 -1,6189 -0,5777
Legend: As in all EXCEL 5.0 outprints in this work, first row:
unstandardized regression coefficients, second row: standard errors, last
row: t-Test. The values immediately below the standard errors are R^2
(third row, left side entry), F, and degrees of freedom (fourth row).
Absolute real income increase is understood to be the difference between
PPP $ income in 1990 to PPP $ income in 1960
As Mrs. Hostasch, the Austrian Labor Minister, and outgoing President of
the EU-Council of Labor Ministers has explained, again and again, Austria
will not introduce a three-pillar-pension system. Time will show, that the
Polish system, adopted now, will prove to be costly and a highly risky
approach.
Thus, from the viewpoint of an Austrian social scientist, closely linked to
the very Austrian social security institutions, the labor movement, and the
Ministry, that built up a social welfare state after the Second World War,
the critique of the three-pillar-model could not be harsher:
the model country of the system, Chile, today shows, that the funds are in
deep crisis. As people like professor Salvador Valdes Prieto from the
Catholic University in Santiago have spelt out, only 2.5 million of the 5.6
million strong labor force are in the system at all, and difficulties of
the system were mounting in recent months (Economist, October 24, 1998;
Quarterly Review of Economics and Finance, 38, 3, 1998 (M. D. Ramirez);
UNDP, Human Development Report, Chile, 1998 (the UNDP report ran a survey,
according to which the majority of Chileans expressed dissatisfaction with
the present day retirement system; see also: Chips, September 07, 1998);
Jonathan Kendall in Institutional Investor, 31, 6, 1997: 'the funds are now
... underperforming or performing moderately'.) Administrative costs of the
system are rising enormously, 5 of the 15 AFP pension funds - as they are
called in Chile - are currently making losses, the returns on assetts under
management have declined dramatically since 1994. Professor Carmelo
Mesa-Lago from Pittsburgh University, one of the world's most famous Latin
America specialists, says: 'the costs of transition (i.e. from the old
system to the three pillar system) are enormous' (Nation's Business, Volume
85, 5, May 1997). Carmelo Mesa-Lago also observes that low-income earners
try to avoid payments for the 'Second Pillar', so that they depend entirely
on Pillar number 1 - the poor man's social insurance. The poorest 20% have
a real income of 1558 $ (PPP per capita GDP), while the richest 20% get
away with 27145 $ (UNDP, Human Development Report, 1998, Table 7)
state guarantees for funds, going bankrupt, will entice fund managers to
pack the 9% of gross earnings of working people received together, and fly
out with full suitcases of money to Caribbean Islands
compulsory payments to private dozen or so funds will increase the monopoly
power of insurance institutions and banks in the economy; in fact,
structurally, the system, thought to the end, very much works like il pizzo
paid to the mafia in Sicily in the 1960s in return for their specific kind
of 'protection'. They also take away by compulsion money and invest it
somewhere else. The system will become a powerful mechanism to discriminate
between the 'ins' (the dozen or so funds) and the 'outs' (the rest of the
banking and insurance market). It will create a privileged zone of a dozen
firms, that can rely on the regular incomes of the working population, and
will work against competition in the insurance and banking sector. Even for
a neo-liberal, the alarm clocks should ring when looking at the Polish
system - several of the banks and insurance companies that are already
accepted parts of the Second Pillar, still have to be privatized, and it is
entirely possible, that the pension system will in fact block the process
of privatization, since the state-class owned banks and insurance companies
will now have ample funds at their disposal. Another, very bleak scenario
thus seems to be entirely likely: the huge costs of the introduction of the
system in the first years - admitted even by Gora and Rutkowski - will be
carried not by the proceeds of privatization, but by the weaker segments of
society, which will be politically powerless in the struggle for the
distribution of budget money, compared to the state-class-owned banks and
insurance companies, with the very best of links to Sejm and Senate
deputies, ministries, and other structures of power.
The system - in my view - also fundamentally contradicts the principle of
consumer sovereignty of those wage earners, that would like to invest the
9% of their gross income in the Third Pension Pillar and not in the Second
Pillar. I also doubt, whether the system as such - with it's element of
compulsion - is compatible at all with European Union law. Once, being a
member, a Polish citizen, forced to pay 9% of his wage for a Second Pillar
fund instead of investing it in a Third Pillar institution of his own
choice, could test this out at the European Court of Justice
the model is very much tied to the present-day logic of the liberalization
of financial markets; in order to make profits, the funds will have to be
engaging in the kind of speculative behavior that dealt a death-blow to the
former real growth region in the world, East and Southeast-Asia. The funds
will greatly increase the kind of casino-capitalism, that pushes up real
interest rates. It is estimated, that Latin American pension funds alone
will have accumulated by 2004 a wealth of $40 billion (Latin American Law
and Business Report, February 28, 1998, Vol. 6).
Henry Aaron, an economist from the Brookings Institutions, spelt out the
entire logic that is behind the system: it can only work well, if the rate
of interest is higher than the nominal increase in the wage bill, i>g, the
so-called Aaron condition (see also, Laski, 1998). The consequence is,
amongst others, a pushing up of interest rates, and thus a strangulation of
full employment, that leaves ever larger and larger holes in the public
budgets, to the detriment of 'Bismarck' pillar 1
the international constellation, that pushes the model, most certainly is
tied to well-known ultra-neoliberal institutions in the USA, like the Cato
Institute. It might be safely assumed that their main line of argument is
absolutely incompatible with what I would like to call le espace social.
The Cato Institute (funded, amongst others, by Netscape Corporation and the
two well-known US industrialists Charles and David Koch) is closely linked
to the ulra-neo-liberal 'revolution' of the politically by now late Newt
Gingrich, and for it, the privatization even of the police in modern
society would be a tolerable alternative (EIU ViewsWire, October 31, 1997;
Observer, August 30, 1998, page 4; US News and World Report, 125, 7, August
17, 1998). But with Poland having completed its Cato-inspired social
security reform, another, and also important question remains: is the new
legislation compatible with the European systems?
Literature:
1) Marek Gora and Michal Rutkowski 'The Quest for Pension Reform. Poland's
Security through Diversity' Office of the Government Plenipotentiary for
Social Security Reform, October 1998
2) Survey of the international press with the search terms like '(Chile or
Chilean or Argentina or Argentine) and (pension and funds)' from the
archive 'world news bundle' at:
3) Die Presse, at: http://www.DiePresse.at
4) UNDP Human Development Reports, current issues
5) Gerald Boxberger and Harald Klimenta (1998) 'Die 10
Globalisierungslügen. Alternativen zur Almacht des Marktes' Munich: dtv
6) Speech by Professor Kazimierz Laski, given at the WIIW 25 Years
Anniversary Conference, Vienna, 11-13 November, 1998