Under that law, new workers will pay into a private system of savings and investment accounts instead of traditional Social Security, much as Chilean workers were allowed to do almost 20 years ago. While Russia is still a chaotic country where effective implementation of such reform remains uncertain, the bold move by the former citadel of communism dramatizes an accelerating policy revolution in Social Security that is sweeping the planet.
Supposedly communist China has indeed already adopted such reform. Workers there now pay half their retirement payments into an individual investment account system, and half into a traditional Social Security system. This trend is in fact poised to sweep the entire former communist world. Hungary started its private system at the beginning of this year, and Poland plans to do so next year. Lithuania, Bulgaria, Romania, Kazahkstan, and others may soon follow.
The revolution has spread to these lands from Latin America, where it began with Chile’s famously successful privatization plan adopted in 1981. Similar plans have now been adopted in Argentina, Peru, Colombia, Mexico, Bolivia and El Salvador. Private Social Security systems have also been adopted in Great Britain and Australia.
Last month, representatives from 38 countries met in London at a conference sponsored by the Cato Institute and the Economist to discuss Security privatization in their countries. Nobel prize winner Gary Becker and economists from the World Bank gave their support to the effort. This worldwide revolution is now beginning to take hold among America’s political leaders. In his Jan. 6 speech laying out his view of the long-term reform agenda for the United States, House Speaker Newt Gingrich called on every member of Congress to help build a nationwide grassroots network to discuss and support fundamental Social Security reform. The goal, Mr. Gingrich said, would be to build “the best and safest retirement system possible.” He then indicated what kind of system he thought that would be, saying, “Anyone who tells you we only have painful choices about Social Security doesn’t understand the marketplace. We shouldn’t have painful choices. We ought to have better choices with better returns and with greater opportunities. The power of compound interest means that the young people of today ought to have a better return on their investment and a higher value added. They ought to be able to retire with more money, not less. And anybody who says that can’t happen should be introduced to the market. The fact is that we can do this.”