The Three Pillars of Wisdom? A Reader on Globalization, World Bank Pension Models and Welfare Society


Arno Tausch

The demographic changes that are ahead of us additionally increase the importance of regulations concerning the incomes and the economic fortunes of the elderly.

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In an age of uncertainty and change, it is the task of social science to at least present solid evidence that allows a beam of light into the darkness. One might be tempted, perhaps, to state that on the morning of September 11th 2001 in Manhattan, globalization had reached its limits, and that from now on, like during the 1920s, the pendulum will swing again against the principle of the market economy on a global scale. Since the late 1970s and early 1980s, a new phase of worldwide capitalism began to take shape in the Pacific rim countries and spread globally, and throughout the world neo-liberalism substituted Keynesianism as the main economic paradigm, moving to radically change the hitherto existing public pension models that were based on contributions paid in a particular year by current workers (Pay-As-You-Go, PAYGO financing). The demographic changes that are ahead of us additionally increase the importance of regulations concerning the incomes and the economic fortunes of the elderly.

Thus we are confronted with a deep and thorough re-writing of the social contract that evolved in the late 19th Century and guaranteed the welfare of the elderly in a great number of countries. Not only in Latin America, where Chile under the generals paved the way, but also in East Central Europe after the end of communism, and even in some former advanced welfare democracies like Australia, Denmark, the Netherlands, Switzerland and the United Kingdom, far-reaching measures to reform the PAYGO pension systems were introduced. The list of countries with privatization or pre-funding of the pension system grows longer and longer, and even in Sweden, the classic example of a Keynesian social welfare state from the 1930s onwards, the pension system has been drastically reformed. There are 18 countries, according to the World Bank, that fully introduced a three pillar, funded model, and many of them also introduced notional pension accounts following the Swedish model.

Ever since the days of German Imperial Chancellor Otto von Bismarck (1815-1898), the idea of social security and the capitalist state have been closely linked. Radical moves to change the balance, established by the public pension systems, require the closer attention not only of the international social policy debate, but also of the world systems research community. There is no doubt that in the United States under President Bush, in the remaining countries of the European Union, and in many other states around the globe, the conversion of still existing public PAYGO pension systems to (partially) funded pension systems, especially those based on a compulsory funding system, will further intensify and gather speed.

The present volume tries to close this gap. The reader thus is intended to bring together two discussion strings, the world systems debate and the pension reform debate, that rarely met each other before. The basic message to the reader is that however we evaluate the funded pension reform alternatives, they will qualitatively and quantitatively become a major force in the capitalist world economy and they will transform the nature of the capitalist system substantially over the coming years.

Moves to radically alter existing pension systems merit the attention of world systems research. For Volker Bornschier, the core countries grouped around the triad formed by the United States, Japan, and the European Union have experienced successive waves of change marked by phases of ascent, unfolding, and decay of societal models, of which social security along the lines of the PAYGO model formed an integral part. What according to Bornschier seemed stable and predictable in past decades came close to collapse or broke down entirely. A new order, with a fresh, basic consensus around an overarching set of norms that allows problems to be solved efficiently, has not yet crystallized. The role of social security would play an integral part in such a consensus, and

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