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The following articles appeared in Left Business Observer #67, December 1994. They were written by Doug Henwood, editor and publisher. They retain their copyright and may not be reprinted or redistributed in any form - print, electronic, facsimile, anything - without the permission of LBO.
Is Social Security going bust?
When LBO last visited the pension issue (issue #28), it was to argue that the push to cut back on Social Security in the U.S. was part of a generalized attack on public retirement systems around the world. Calling it a plot may be a bit conspiratorial, but that's in fact what it is though the plotters occasionally show their hand in tedious technical documents that few but the like-minded read.
As the Organisation for Economic Cooperation and Development (OECD) put it in a 1988 report, "what was onceconsidered as a central achievement of the welfare state is now being evaluated differently." That is, systems that now provide a secure and dignified retirement, even in the nor mally stingy U.S., must be scaled back sharply in the interests of fiscal prudence. Or, as the Interna tional Monetary Fund put it in its 1986 take on pension reform, "to assume that real 1980 benefit levels can be held constant is not realistic." "Realism," like "reasonableness," is a term often de ployed to lend an air of inevitability to what are really political decisions. And over the last decade, most of the rich countries have cut back on their public pension systems, typically through raising the retirement age or cutting the level of benefits relative to pre-retirement wages (the "replacement rate"). The U.S. has done both, as well as boosting the Social Security tax rate.
Two events prompt a revisit to the pension reform issue: the largely failed attempt by the Kerrey Commission to agree on a plan for hacking away at the U.S. Social Security system, and a report published early this fall by the World Bank, Averting the Old Age Crisis: Policies to Protect the Old and Promote Growth (Oxford University Press). Though the Kerrey Commission couldn't agree on a set of recommendations, the issues they raised will stick around for years to come.
The development that the World Bank calls a crisis is that people are living longer, and the share of the population over 60, or 65, or whatever age you want to