Market Approval

The World Bank pushes private pensions.

Ed Carson from the February 1995 issue

The World Bank, traditionally a bastion of statism, suddenly is taking on social security systems. A recent World Bank report calls for greater reliance on private savings and less on government-run programs.

The report, "Averting the Old Age Crisis," says that the number of people over the age of 60 is projected to grow from 500 million in 1990 to 1.4 billion by 2030 and that most government retirement programs won't have enough money to cover them. (See "Retirement Wrangle," November 1994.) And, it argues, public plans that require current workers to pay for current retirees' benefits hurt the economy: "Such social security arrangements may have discouraged work, saving and productive capital formation."

The report recommends that most retirees instead be covered by privately managed but closely regulated mandatory savings programs. Chile, Argentina, and Singapore already use some variation of this system. In contrast to "pay-as-you-go" plans, these programs are expected to encourage economic growth and provide a much higher rate of return for retirees.

But the World Bank isn't cheerfully embracing a free-market solution; there simply was no viable alternative. Estelle James, the report's research team leader, says, "We support privately managed systems because the history of publicly managed systems has been disastrous."

The report is part of a larger ideological shift at the World Bank, notes Ian Vasquez, who studies multilateral aid institutions, including the World Bank, for the Cato Institute. He says that the collapse of communism, the rapid growth of free-market developing countries, and the absence of any correlation between World Bank assistance and economic growth is forcing the post-war institution to reevaluate its positions on market systems.

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