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Rethinking the Welfare State

The Political Economy of Pension Reform

Edited by Martin Rein and Winfried Schmähl

In this book a distinguished group of contributors discuss the changing political economy of pension reform. They focus on those countries which have launched a significant reframing of their pension system. Each chapter provides a detailed review of recent pension reforms and offers institutional evidence of the extent to which these reforms suggest a redirection of the welfare state towards a more public-private mix of policies. The countries were selected to represent the variety of new directions which mature industrial countries as well as countries in transition have taken.
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Chapter 7: Individual Accounts and the Continuing Debate over Social Security Reform in the United States

Barry L. Friedman


Barry L. Friedman The United States has taken another step in the debate over social security reform. The president’s Commission to Strengthen Social Security submitted its final report in December 2001. This commission clearly favours individual accounts: all three of its alternative plans include them. In the debate over reform advocates of the current system have argued that ‘minor tinkering’ would be sufficient to solve its problems without individual accounts. In contrast, the commission believes that the current system has structural problems and that these need structural reforms. The commission probably made a better effort at addressing the criticisms of individual accounts in its design plans than all the numerous previous proposals. It sought to create individual accounts that would have a good chance of making retirees better off. There is potential pain in its recommendations, but it is mostly not from the individual accounts. On the other hand, the timing of the commission was unlucky. Its report came out in the midst of a prolonged downturn in financial markets. Moreover, the report was written in a style that did not clearly set out the accomplishments of its recommendations. Since the report came out, it has received barely any attention, while critics have been vocal in criticizing ‘privatization’, the somewhat inaccurate term that has come to be used for individual accounts. While the debate over social security reform has gone unresolved for years, the private sector pension system in the USA has been moving ahead with its own...

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