Argument: Privatization of Soc Sec has disappointed in most places
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- Debate: Privatizing social security - con argument.
Greg Anrig and Bernard Wasow. "Twelve reasons why privatizing social security is a bad idea." The Century Foundation: "Reason #4: privatization has been a disappointment elsewhere.": "Advocates of privatization often cite other countries, such as Chile and the United Kingdom, where the governments pushed workers into personal investment accounts to reduce the long-term obligations of their Social Security systems, as models for the United States to emulate. But the sobering experiences in those countries actually provide strong arguments against privatization. A report last year from the World Bank, once an enthusiastic privatization proponent, expressed disappointment that in Chile, and in most other Latin American countries that followed in its footsteps, “more than half of all workers [are excluded] from even a semblance of a safety net during their old age.”5 Other cautionary points made in the World Bank report and other studies about the experience in Chile: Investment accounts of retirees are much smaller than originally predicted— so low that 41 percent of those eligible to collect pensions continue to work; Voracious commissions and other administrative costs have swallowed up large shares of those accounts. The brokerage firm CB Capitales calculated that, when commission charges are taken into consideration in Chile, the total average return on worker contributions between 1982 and 1999 was 5.1 percent—not 11 percent as calculated by the superintendent of pension funds.7 That report found that the average worker would have done better simply by placing his or her pension fund contributions in a passbook savings account.
In the United Kingdom, which began encouraging workers to divert payroll taxes to personal investment accounts in 1978, many citizens suffered from poor investment choices as well as unscrupulous brokers. The national government was left with substantial new administrative expenses, lost tax revenues, and responsibilities to bail out some failed private pension plans. Indeed, the problems were so wide-ranging that even the most enthusiastic supporters of private accounts now say that the United Kingdom simply did not do it right.
A British government commission headed by Adair Turner reported in October 2004 that Britain had been living in 'a fool’s paradise' by thinking it had solved its pension problems.9 According to pension experts at the Organization for Economic Cooperation and Development (OECD), the Adair Turner report has sounded alarm bells. 'What looked like a very good idea from a financial perspective in cutting costs has put pensioner poverty, which had been all but eradicated, back on the agenda.'"