Unexpected Privatizations: Politics and Social Security Reform in the Southern Cone

Abstract

Throughout the world governments are faced with the politically hazardous task of containing rising social security expenditures.' Private, individually capitalized investment accounts are currently being touted as the financial solution to social security crises in developing and industrialized countries alike. Latin America is the first region where social security privatization has become politically viable.2 In this comparative study of Argentina, Brazil, and Uruguay, the role of interest group actors and political institutions in shaping political conflict over social security reform is analyzed in order to specify the political conditions that favor or disfavor privatization. Social security privatization introduces new costs, risks, and potential rewards and has generated fierce political opposition from labor, pensioners, and other interests with a stake in the old state-sponsored systems. The extent to which these interest groups were able to influence policy reform outcomes depended on the degree to which political institutions provided opportunities for interest groups to shape policy by acting as veto players. Governments have therefore been more successful at privatization in Argentina and Uruguay than in Brazil. By the early 1990s a consensus emerged that the region's state-sponsored pay-asyou-go (PAYG) social security systems were in need of reform (PAYG is the system used in most of the world where worker, employer, and government contributions fund benefits for pensioners). However, there was little popular support for privatization, a policy experiment first implemented in Chile, where workers fund their own retirements through contributions to personal investment accounts. Many analysts claimed that, while privatization could be achieved under a repressive dictatorship like Chile's, similar reforms would be unlikely to occur in democratic countries due to opposition from labor and middle class interests.3 However, since 1993 the region has been the site of dramatic policy reforms that are to varying degrees transforming old age, disability, and survivorship insurance from public pay-as-you-go systems to private individually capitalized social security plans. Argentina, Brazil, and Uruguay were the first countries with democratically elected governments and social security programs comparable to those in the OECD (in terms of rate of coverage, demography, and expenditures as a percentage of GDP) to attempt privatization. Consequently, the role of politics in shaping the