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Stop Attacks on Social Security

Government Pension Privatization Causes Disasters in Britain and Argentina
by Adam Price |
February 1, 2005
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Commentary

George Bush is trying to scare the American people into privatizing Social Security by claiming that there will be a crisis 40 years from now. Before jumping on the privatization bandwagon, it would be a good idea to look at two countries that already partially privatized their government pension programs: Britain and Argentina.

Following their reelection in 1984, Britain's Conservative Party passed a law allowing workers to opt out of the guaranteed government pension program and into private investment accounts. The Conservatives had already reduced the government pensions by linking them to prices instead of workers wages (another idea the Bush administration is throwing around). The result of privatization? "A bloody mess," according to the Financial Times, a major business newspaper in Britain.

British government pensions are now the lowest in Western Europe. The privatization scheme cost the government billions of pounds (at current exchange rates a British pound is worth about two U.S. dollars). The real benefits went to insurance companies and other financial institutions that skimmed off as much of 30% of workers' contributions. These so-called investments were so bad that financial companies were later forced to reimburse retirees to the tune of 12 billion pounds. With the private investment accounts in such a mess, a half million British workers gave up their accounts last year and moved back to the government pension system.

Argentina's privatization effort ended up being bad not only for retirees, but also played a part in the country's recent economic crisis. As part of their free-market policies, Argentina partially privatized their government pension program in 1994. Tax revenues were diverted to private accounts, forcing the government to go deeper into debt. Economists Dean Baker and Mark Weisbrot estimated that the cost of privatization (including interest) was the same as the Argentine government deficit during the years after 1994. These deficits contributed to the eventual government default on their loans, and the painful economic crisis that saw the Argentine peso lose two-thirds of its value, drove the unemployment rate over 20%, and led to a further cut in government pension benefits.

With a track record like this, why would the Bush administration make such a strong push to privatize social security? It is part free-market ideology and part payback to Wall Street. But whatever the reasons, it is a recipe for disaster - not only for workers, but also for the economy as a whole.

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