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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 14: Latin American and East European Pension Reforms: Accounting for a Paradigm Shift

Katharina Müller


Katharina Müller INTRODUCTION Twenty years after the iconoclastic Chilean reform, half of all Latin American countries had introduced compulsory individually fully funded (IFF) schemes that either compete with, replace or complement the existing public pay-as-you-go (PAYGO) schemes.1 Another wave of pension privatizations has been taking shape in Eastern Europe and the Former Soviet Union.2 This move, that has been referred to as ‘structural’ or ‘systemic’ pension reform, implies a fundamental paradigmatic departure from the previous pension system. It amounts to a shift from an intergenerational contract to individual provision for old age, as well as from the state to the market as the main supplier of retirement pensions. The paradigm change inherent in radical pension reform therefore amounts to a substantial rewrite of the underlying social contract, which is particularly remarkable as pension systems were long thought difficult to reform.3 This puzzle has triggered multidisciplinary research over the past few years.4 Interestingly, however, the similarity of pension reform approaches in Latin America and Eastern Europe has prompted little cross-regional analysis so far. In this chapter, pension privatization in both regions will be analysed comparatively, in an attempt to explore the similarities and differences in Latin American and East European pension policy. FROM BISMARCK TO FRIEDMAN: STRUCTURAL PENSION REFORM IN LATIN AMERICA The origins of Bismarckian-style pension schemes in Latin America can be traced back to the first decades of the twentieth century.5 Coverage and benefits in the pioneer countries were gradually extended from powerful groups such...

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