Social security and support of the elderly: The Western experience

Abstract

The Western experience with Social Security is a curious one. Despite enormous national differences in social structure and political ideology, the majority of old people in most capitalist democracies now depend on state-administered income security programs for most of their income. In the first part of this article the reasons for this historical “bias” in favor of public over private solutions are considered by comparing these two forms of provision for old age in terms of effectiveness (product quality) and efficiency (relative cost). Then two recent criticisms of this reliance on public Social Security for the elderly, are examined—criticisms that emerge from a presumed welfare-efficiency trade-off, on the one hand, and a welfare-equity trade-off on the other. The author's general conclusion is that only in societies that are economically and socially stagnant is it possible to ensure income security for the elderly by means of decentralized private insurance schemes. In contrast, by enhancing general security, centralized state-administered programs facilitate the development process.