Global Trends

Creeping Privatization of Social Security

BRAZIL—The government-run social security system in Brazil is supposed to provide both health insurance and retirement pay. But the near-bankruptcy of the system is encouraging entrepreneurs to carve out a new market for themselves in both areas.

Since 1977, several banks, insurance companies, hospitals, and a host of smaller companies mostly owned by groups of physicians have offered health-insurance plans to individuals and groups. Practically all large and medium-sized enterprises have contracted with these private companies to provide medical care for their employees, and smaller enterprises are gradually adopting similar plans. By last year, 3 million Brazilians—2.3 percent of a population of 128 million—were covered by private health insurance. In addition, several hundred thousand individuals who are not satisfied with their company's insurance plans or wish to supplement them, or who are self-employed, have bought private plans.

The growth of private health insurance is understandable. The government system is a fiasco, and although everyone pays into it, large sections of the middle and upper-middle class say they never use it.

The social security system was created by fascist dictator Getulio Vargas, "the friend of the working man," who ruled Brazil between 1930 and 1945. It was later expanded by conservative and social-democratic governments. Employees' "contributions" to the system have risen from 6 to 10 percent in the last decade, with another 10 percent coming from employers. Calls for raising this level even higher have fallen on deaf ears. But when economist Paulo Rabello de Castro, a former student of Milton Friedman's, proposed total privatization of social security, his suggestion was violently condemned. Still, the system as it has been in the past is withering away.

Its decline is accelerated by the fact that since 1981, several banks and insurance companies have offered a variety of retirement plans, partially spurred by the growth of Individual Retirement Accounts (IRAs) in the United States and private opting out of social security in Britain. These Brazilian retirement plans have become "the mother lode of financial groups," according to one publication. So far, over 300,000 Brazilians have bought such plans. The potential market is estimated at 1.5 million initially and about 8 million total, or 20 percent of the employed population.

The main reason for the growth of private retirement plans seems to be that regardless of the amount "contributed," the social security system's retirement check will be a meager 39 percent of a worker's average income in the year before retirement. This 39 percent is further reduced by constantly manipulated government statistics, "correction" for inflation being sometimes as much as 43 percent below real inflation levels. The market, on the other hand, is offering flexible plans with contracts guaranteeing a specific monthly amount paid after x years of contributions, fully corrected for inflation and lasting until death.

In spite of the fact that Brazil's problematic distribution of income—a legacy of decades of massive government intervention in the economy and restrictions on market entry—has reduced the number of people who can afford private social security, the present trend may whittle away political and ideological opposition to further privatization, not only in social security but in other fields, as well. Indeed, a trend in that direction is already apparent.

—Jose Italo Stelle

Dutch Treats

THE NETHERLANDS—The queen's birthday here is always a grand occasion. The celebration takes place at the end of April, the birthday of the present queen's mother, Princess Juliana.

In Amsterdam, as in several other Dutch cities, one of the important features of the celebration is the traditional vrijmarkt, "the free market." On the queen's birthday, anyone may set up shop on the sidewalks of the city without being subject to taxes or regulations. The whole of Amsterdam becomes the equivalent of a flea market, carnival, and neighborhood party all rolled into one.

In the center and in many other quarters of the city during this year's celebration, the sidewalks were lined with people selling old clothes, toys, books, and miscellaneous items. A great number of food stands and bands playing every imaginable kind of music lent a festive air to the occasion.

Some residents of Amsterdam have complained about the increased commercialization of the festivities in recent years, a far cry from the times when many of the street merchants were youthful entrepreneurs in the lemonade-and-baked-goods business. But the flurry of economic activity might well serve as a lesson to those who see the answer to economic problems in higher taxes, greater regulation, and bigger government.

Over the Royal Palace in Amsterdam is a statue of Atlas, holding the world on his shoulders. Celebrations such as these may show that, deep down, the Dutch are indeed conscious of who it is that sustains the world.

—Paul St. F. Blair

Global Roundup

• Turkey: state under siege. Since his election as Turkey's prime minister last December, Turgut Ozal has moved swiftly to fulfill his promises to cut back the state and implement more market-oriented policies throughout the nation (see Global Trends, Feb., page 22). Though the head Turk hasn't actually sold off the Bosporus Bridge, his scheme to sell revenue bonds in the profitable span—as well as in other state-owned enterprises—made it through parliament. Among his other reforms have been the deregulation of interest rates, abolition of certain import barriers, formation of tax-free zones, and reduction of the minimum income-tax rate from 36 to 30 percent.

• Bank on freedom. In a May referendum, voters in Switzerland voted 3 to 1 against a Socialist Party proposal to do away with the traditional secrecy of Swiss banks. The proposal would have required banks to open their customers' records to Swiss and foreign tax authorities. On the same day, Swiss voters rejected a right-wing party's measure banning sales of residential property to foreigners.