Archive for the ‘Universal Transfers’ Category

new UN case studies of pension reform

Tuesday, November 25th, 2014

From this month’s International Update, published by the Social Security Administration of the United States:

Recently, the United Nations released Reforming Pensions in Developing and Transition Countries—a series of country case studies that updates the global discussion on pension reform. According to the study, since World War II, there have been two significant trends in pension reform:

1.    the introduction of privately managed individual account programs that supplement or replace existing public programs (beginning in the 1980s in more than 30 countries), and

2.   the rapid growth of universal noncontributory pension programs as the preferred public policy tool for alleviating poverty among older populations in both developing and transition countries [emphasis added].

The study finds that despite the ever-changing nature of national pension programs, driven by demographic and fiscal considerations, coverage levels around the world remain extremely low, with only 50 percent of the working population covered in Latin America; 30 percent in Asia, North Africa, and the Caribbean; and less than 15 percent in Sub-Saharan Africa. And, even when populations enjoy a higher level of pension coverage, as in the former republics of the Soviet Union, benefit levels may not be high enough to move older persons above the poverty line.

US Social Security Administration (SSA), “United Nations”, International Update, November 2014. (Scroll down to end.)

The publication referred to is

Reforming Pensions in Developing and Transition Countries, edited by Katja Hujo (Palgrave Macmillan/United Nations Research Institute for Social Development, August 2014).

The full 369-page book can be purchased from eBooks.com for 132.00 Canadian dollars plus tax (or equivalent in other currencies) at eBooks.com. You can preview the first 37 pages, without charge, here.

I am eager to discover how UNRISD defines “universal noncontributory pension programs”. I suspect that they include all noncontributory pensions, universal or not. I will let readers of TdJ know my finding once I obtain access to the full report.

 

Reforming Pensions in Developing and Transition Countries by Katja Hujo

 

universal basic income

Thursday, November 13th, 2014

Timothy Taylor, in his regular column in  the current issue of Journal of Economic Perspectives (Fall 2014 , pp. 227-234) points us to an article that extols the virtues of a policy that promises to end poverty immediately, with administrative efficiency and maintenance of incentives to get up and go to work each morning. The author is Edwin G. Dolan (born 1943), an American economist with an impressive cv.

Are you frustrated by the interminable quest to end poverty in the face of ideological division and widespread cynicism? Why not just cut to the chase, sending everybody in the country a monthly check that covers the rudimentary needs of even the poorest among us? ….

The concept goes by many names: unconditional basic income, basic income guarantee, demo-grant. I prefer “universal basic income,” or UBI for short. Whatever you call it, though, the feature that distinguishes a UBI from other sorts of social safety nets is its universality. Unlike other income-support programs, it is not means-tested. Instead, a UBI would provide subsistence-level grants to everyone, regardless of need, earned income, age or job status. …

Hardly anyone sees a UBI as a perfect safety net. It offends conservatives by offering something for nothing. And it raises serious questions for progressives who worry there is more to poverty than a lack of income—that a UBI would not do enough to transform the culture of poverty that weighs down the underclass. But it has pragmatic advocates (including me) who believe that a UBI offers a better compromise than do other income-support programs among the mutually incompatible criteria of effectiveness in reducing poverty, maintenance of work incentives, administrative efficiency and accurate targeting.

A big worry, of course, is that a UBI would end up as budget-buster or require a raid on private wealth to finance it. However, as shown, it need be nothing of the sort—provided it were part of a bargain in which other antipoverty efforts (save medical care) were abandoned, and middle-income earners traded in a hodgepodge of tax breaks for the universal basic income grant.

The most encouraging sign is that the liveliest debates over a UBI today are taking place within, rather than between, the main ideological camps. At a time when macroeconomic forces and the politics of big money are leading to ever- greater inequality, perhaps America is still capable of finding common ground for a pragmatic antipoverty effort.

Ed Dolan, “The Pragmatic Case for a Universal Basic Income”, Milken Institute Review, Third Quarter 2014, pp. 14-23.

This is a universal age pension, with a qualifying age of 18 or even zero rather than 65 or 70. None of the links above are gated. Enjoy!

universal pensions in Iceland?

Wednesday, November 12th, 2014

The US Social Security Administration (SSA) has published, since 1937, very useful periodic reports on “Social Security Programs Throughout the World“. I often consult these volumes for information on specific countries. For the first time, I decided to use these reports to examine changes, over time, in the number of countries with universal pensions.

The SSA consistently describes Iceland’s basic old-age pension as a “universal pension”. In an article published in World Development (January 2007) p. 38, I classified Iceland as a country with “recovery-conditioned” basic pensions, i.e. pensions that are clawed back from other income that otherwise qualified applicants declare. This is a form of income-testing, so such a pension is clearly not universal. It is subject to an income test, in addition to the usual age and residence tests.

Nonetheless, nearly all sources, including the Government of Iceland, describe the pension as ‘universal’, most often with no explanation.

The ILO (International labour Organisation) follows the crowd in describing Iceland’s non-contributory pension as “universal”. But the ILO helpfully provides detailed information:

8. National basic pension – Old age pension

No means-test

Determining factors in old-age pension are duration of residence in Iceland and income. Pension rights are calculated pro rata according to periods of residence, minimum is 3 years and maximum 40 years. Old-age pension for a single person after 40 years of residence: Full basic old-age pension (grunnlífeyrir) for a single person after 40 years of residence is ISK 297.972 (Euro 3,401) per year. Reduced when annual capital or income from work criterion exceeds ISK 2.056.404 (Euro 23.475) and withdrawn when it exceeds ISK 3.049.644 (Euro 34.813).

ILO, “Iceland – Overview of schemes – 8. National basic pension – Old age pension“, accessed 12 November 2014.

An income test exists, so it is not true that there is “no means test” for this pension. The annual €3,401 benefit (€285 a month) is clawed back from annual income in excess of €23,475 (€1,956 a month) at the rate of 30%. This is a very small pension for such a high-income country as Iceland (the figures are for 2010), and it is clawed back from those who have other pension income and/or continue to be gainfully employed in old age. I would like to know what proportion of older persons in Iceland are affected by the clawback, but such information is not readily available.

I conclude that the pension is not universal, and fail to understand why it is described as such. For age pensions, the term ‘universal’ is frequently used as a synonym for ‘non-contributory’. This is a constant source of confusion, for it becomes difficult, if not impossible, to distinguish means-tested pensions (which are very common) from  universal minimum pensions (which are less comon) and truly universal pensions (which are quite rare).

That concludes my rant of the day. I am upset because loose use of the term ‘universal’ makes my work more difficult.

Hong Kong MUST Stand Up

Friday, November 7th, 2014

The long-awaited book of essays drafted by proponents of a universal pension is now on sale in Hong Kong bookstores. It was published by Alliance for Universal Pension, an umbrella group (no pun intended) of more than 80 Hong Kong NGOs. The book is 332 pages long. Only three essays are in English. The rest are in Chinese, with no translation, so I have not read them.

My contribution (“Hong Kong Report Calls for Universal Pension”) appears on pp. 1-3.

You can download a scan of the covers, and my three page introduction, by clicking the link below.

Larry Willmore, “Hong Kong Report Calls for Universal Pension”, in Hong Kong MUST Stand Up (Alliance for Universal Pension, Hong Kong, 2014), pp. 1-3

 

 

Cover Stand Up_Page_1_Image_0001

improving public healthcare in Pakistan

Sunday, October 19th, 2014

BBC News brings us the heartwarming story of one man’s struggle to provide free, world-class care to millions of Pakistan’s kidney patients. (more…)

Income policies with ageing populations

Wednesday, October 8th, 2014

Michael Littlewood compares the experience of New Zealand with that of Australia, drawing lessons regarding the effects of public policies on incomes of older citizens. He concludes a concise essay with four key questions “to focus policy attention on the things that matter”: (more…)

universal vs contributory pensions in Bolivia

Thursday, September 11th, 2014

As promised, here is a blog on the Bolivia chapter of the UNRISD book. It is wonderful, but I limit myself to copying and pasting part of the concluding section.

The Bolivian experience since 1996 clearly illustrates the respective capacity of contributory and non-contributory pension schemes to deliver income security to older people in low income countries. Put simply, it demonstrates that non-contributory social pensions are much better suited to this task. By 2007, the contributory system paid out pensions to around 65,000 older people, of which only 12,000 were paid by the new private scheme. In 2004–5, this contributory system absorbed around 5 per cent GDP in government subsidies, not including substantial indirect subsidies of up to 40 per cent of the annual transition costs through treasury bonds. …. By contrast, the [universal] social pension pays out over 830,000 benefits at a cost of less than 2 per cent of GDP. ….

The most obvious lesson for other developing countries is that non-contributory social pensions are a much more efficient means of meeting the welfare needs of older people than contributory schemes. …. In countries where both exist, government spending on social pensions is usually a fraction of spending on contributory ones. The Bolivian experience also shows that contributory pension funds create powerful vested interests among privileged groups of workers who can resist substantial reforms, even under radical non-elite governments. Only six years after Morales took office was the contributory system meaningfully modified, although many of its essential features remain.

Peter Lloyd-Sherlock and Kepa Artaraz, “Pension Reform in Bolivia: Two Models of Income Security in Old Age”, chapter 9 of Reforming Pensions in Developing and Transition Countries (Palgrave Macmillan, 2014), edited by Katja Hujo, pp. 267, 270.

I came to a similar conclusion in an earlier study of Bolivia:

The cost of the [universal] Bonosol is not low, but benefits go to the entire population of elderly. The annual fiscal cost of reform of the contributory scheme is four times greater, and benefits go to the few, none of whom are poor. Actual costs of reform of the contributory system are more than twice those projected at the beginning of the reform, largely because of fraud, but also because of increased generosity in transferring income from taxpayers in general to the small number of salaried employees (fewer than 12% of the labour force) who participate in the contributory scheme. ….

The Bonosol is a godsend for the poor of Bolivia. …. The World Bank and the Inter-American Development Bank, in a joint report (2004) use strong language to recommend “The Bonosol should be maintained, as it represents a strong redistributive policy with minimum fiscal impact.” For the World Bank, this marks a reversal of earlier views that questioned the worth and the wisdom of the Bonosol, whereas the views of the IMF continue to be quite negative.

Larry Willmore, “Non-contributory Pensions: Bolivia and Antigua in an International Context“, Financiamiento del Desarrollo 167 (United Nations, Santiago, Chile, May 2006), p. 28.

Great minds think alike!

My essay is not as good …. but it is freely accessible.

 

 

basic income for all

Tuesday, September 9th, 2014

[M]ost people [do not] know what the phrase “basic income” means. With that in mind, here are the basics (get it?) of the idea, in eleven questions.

1) What is basic income?

“Basic income” is shorthand for a range of proposals that share the idea of giving everyone in a given polity a certain amount of money on a regular basis. A basic income comes with no categorical eligibility requirements; you don’t have to be blind or disabled or unemployed to get it. Everyone gets the same amount by virtue of being a human with material needs that money can help address.

There are a number of different names this idea has gone by over the years. “Universal basic income” and “basic income guarantee” are used frequently. “Guaranteed minimum income” and “negative income tax” are generally used to refer to versions of the plan that also impose a tax that gradually eats up the cash transfer, as a means of reducing the cost of the policy. “Demogrant” was popular in the ’70s, and “citizens’ dividend” and “social wage” get used from time to time.

2) Who supports basic income?

Surprising people! Arguably the biggest popularizer of the idea in the 20th century was libertarian economist Milton Friedman, who specifically favored a negative income tax as a replacement for much of the welfare state. Many left-of-center economists, like James Tobin and John Kenneth Galbraith, were also on board. ….

Martin Luther King Jr. endorsed the idea in his book Where to Go From Here: Chaos or Community?, writing, “I am now convinced that the simplest approach will prove to be the most effective—the solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income.”  ….

3) Has a basic income been implemented anywhere?

Not exactly, but a lot of countries have generous cash transfer programs of one variety or another. ….

[Well, you get the idea. Here are the remaining eight questions.]

4) Wouldn’t this destroy the economy?

5) Could a basic income ever happen in the United States?

6) I believe it’s customary to provide a music break. (“Money for Nothing” video)

7) Will a basic income save us from the robot uprising?

8) What’s the liberal/leftist case for basic income?

9) What’s the conservative/libertarian case for basic income?

10) What’s the liberal/leftist case against basic income?

11) What’s the conservative/libertarian case against basic income?

Dylan Matthews, “Basic income: the world’s simplest plan to end poverty, explained“, Vox, 9 September 2014.

Click on the link above to continue reading. Keep in mind, though, that Vox.com should not be confused with VoxEU.org.

VoxEU.org is very serious. It was set up by the Centre for Economic Policy Research to promote research-based policy analysis and commentary by leading academics. Its posts, almost always, are summaries of working papers.

Vox.com, in contrast, is non-academic. It is run by Vox Media, an online publisher based in Washington DC. The postings are jargon-free, opinionated, easy and fun to read. Its target audience is similar to that of Planet Money.

This article is the first that I have read on the site. Its simple text is illustrated with numerous graphics and embedded videos. My only complaint is that one of the promised 11 questions (#6) is not a question! Highly recommended for those who find economic writing to be boring, with impenetrable jargon.

A universal age pension is basic income restricted to older citizens/residents. Without an age restriction, the pension would be a universal basic income grant.

 

Reforming Pensions in Developing Countries (new publication)

Monday, September 8th, 2014

UNRISD (the United Nations Research Institute for Social Development) has just released a new publication on pension reform in developing and transitional countries. The 368-page volume contains nine chapters of case studies written by various scholars, plus an introduction and conclusion authored by Katja Hujo. So far I have read only the introduction and conclusion, plus chapter 9 (a superb case study of Bolivia).

The book contains a wealth of information, and I will blog on some of the case studies as I read them. First, though, I would like to complain that the book pays little attention to universal  pensions, concentrating on social assistance (means-tested) pensions and on contributory pensions.

I would like to remind TdJ readers of the definition of “universal pension” – at least the definition that I use!

Age and residence/citizenship are the only tests for this pension. It is not necessary to actually retire from work to receive the pension. Benefits might be taxable as income, but only at normal rates, without surcharges to recover them.

Larry Willmore, “Types of Social Pensions“, 22 April 2012.

The UNRISD publication uses a broad definition of “universal”, which includes pension-tested schemes. (See p. 18 of the introduction.) If a social pension is given only to those without a contributory pension (or too small a pension), by definition it excludes part of the elderly population, so is not universal.

The most comprehensive treatment of universal pensions (without using the term!) is in the first sentence of last paragraph of p. 18:

Most countries have social pensions that target the elderly poor, but some countries have implemented non-contributory pension programmes covering all citizens and residents in the country – as in Bolivia, Nepal, Mauritius, New Zealand and Brazil (rural sector).

A number of examples of universal pensions in developing countries could (and should) have been added to this list: most notably rural Mexico, Mexico City, Namibia and Botswana, but also Guyana, Samoa, Brunei and Kosovo. Regrettably, there is no case study of Mauritius, a country with a long and successful history of universal pensions (from 1958). More regrettably, there is almost no mention of Mauritius in the rest of the book, and the sentence above is the only mention of New Zealand. Neither Mauritius nor New Zealand are listed in the book’s extensive index.

The paragraph at the bottom of p. 18 concludes with arguments for and against universal schemes:

As with other social transfers and services, opinions diverge on the pros and cons of targeted versus universal social provisioning. As Chapters 9 [on Bolivia] and 10 [on Argentina and Chile] explore in more detail, there are strong arguments in favour of universal schemes in countries with widespread poverty, weak administrative systems and where there is a need to strengthen social cohesion, a sense of citizenship and social solidarity. On the other hand, international financial institutions (IFIs) tend to favour the introduction of means-tested targeted transfers because they hold that these schemes are less costly and more effective in terms of poverty reduction.

Support for a universal pension is at best tepid. Strong arguments exist for universal pensions even in countries like New Zealand and Mauritius, which do not have widespread poverty nor weak administrative systems. It is a pity that the case for universal pensions was not articulated better.

Neither Argentina nor Chile have universal pensions, so I am eager to learn in what way these case studies are relevant for policymakers contemplating introduction of universal pensions. Katja Hujo (editor) is co-author, with Mariana Rulli, of chapter 10.

Below is the full reference for this publication, and the link to a site where you can download it. All quotes above are from the introduction, which can be downloaded as a free “sample chapter”. The complete book (hardcover, 368 pages) is available from Palgrave for the high price of 115 US$ plus shipping.

Katja Hujo (editor), Reforming Pensions in Developing and Transition Countries (Palgrave Macmillan, 2014).

Reforming Pensions in Developing and Transition Countries

The study of pensions in Bolivia (Chapter 9) is the best I have seen. It was written by Peter Lloyd-Sherlock (University of East Anglia) and Kepa Artaraz (University of Brighton). I will blog on it shortly.

free schools (friskola) in Sweden

Thursday, August 28th, 2014

Six years ago, while updating an essay on education published in Economic Affairs (December 2004), I reviewed a radical reform begun by Sweden in 1992. Sweden’s embrace of free choice and competition impressed me. Here are highlights from pp. 14 and 15 of the 2008 update.

Prior to 1992, Sweden’s school system allowed for little choice. Government assigned pupils to their closest school, and parents had little to say in the matter, short of moving to a different neighbourhood. Very few private schools existed; most were faith-based and accounted for less than one percent of students in compulsory schooling, which in Sweden is nine years starting at age 7.

In 1992 everything changed. Anyone can now open a school, and municipalities are required to finance it on the same per-pupil terms as a government school. ….

There are no restrictions on ownership of private schools. Schools can be and are run by religious groups (Christian, Jewish, Muslim), teachers’ co-operatives, parents’ co-operatives or for-profit corporations. If a registered school attracts and retains students, it receives funding from the students’ respective municipalities. Sweden has created a market for schooling, but it is a very egalitarian market because there is no price competition and each consumer has the same access to schools. Precisely because Sweden does not allow private schools to charge fees or select students, its system has attracted criticism from libertarian groups …..

By no means all Swedish parents have deserted government schools, but the private share of enrolment has increased, and came to exceed 10 percent in 2008. Surprisingly few of the new private schools are faith-based, but many are run for profit, some as chains of schools. ….

Three econometric studies [2003, 2005, 2007] have examined the effect of introduction of school choice on the quality of education in Sweden …. All three studies exploit the fact that private schooling varies by municipality, and all find that everyone gains from competition—pupils who remain in government schools as well as those who choose a private option. The reason this happens is that government schools, faced with competition from private schools, must improve their performance or lose pupils and funding.

Larry Willmore, “Basic education as a human right redux“, MPRA Paper 40478, 28 July 2008.

The private share of enrolment has reached 20% – double the proportion of students enrolled in 2008. Nonetheless, writes FT journalist Helen Warrell, many Swedes are questioning the merits of their schooling reform.

Two decades on from the audacious experiment in opening up state education to the market, a fifth of pupils, or about 312,000 children, attend [independently run free schools, known as] friskola. Of these, two-thirds go to institutions run by companies rather than co-operatives or charities ….

No other European country has entrusted so much of its children’s education to private companies. ….
Swedish schools
But as friskola have proliferated, Sweden’s confidence in for-profit schools has been shaken. Traditionally top of the class in education, Sweden has tumbled in international test rankings, with the OECD’s most recent Pisa results showing scores falling dramatically in reading, maths and science to a position well below the average for developed nations. …. [Pisa is the Programme for International Student Assessment that the OECD administers to fifteen-year old students every three years.]

One of … [the for-profit schools], Rytmus, specialises in music and has a cult following among Swedish teenagers. Lars Ljungman, its headmaster, spent 20 years teaching in the public sector before taking over the free school two years ago.

“I was curious to find out what it would be like because within the public schools it was always said that [the education companies] were so greedy, that they didn’t give to the students,” says Mr Ljungman. “I was thinking about whether I would have less money to spend on my students but on the whole, I have more to distribute for my pupils and teachers.” ….

However,… one Rytmus teacher is less complimentary. “These companies are like parasites, nothing more nothing less,” the teacher says. The expansion of the highly popular Rytmus model … is financially driven …. “Rytmus is like KFC, it is a brand. Expansion is just a way of making more profit. It is about ‘reaching future customers’.” ….

Mr [Jonas] Sjöstedt [leader of the Left party] says there is no question that profitmaking businesses are at fault for the national crisis now known as the “Pisa shock”.

“They’re not [running schools] because they like kids or because they’re interested in education,” he says. “They are doing this because they’re interested in fast money.”

Mr Sjöstedt … admits [though] that drawing a definite link between the poor Pisa results and the increase in private provision is “more complicated”.

“It’s not always the fact that the private schools get worse results … but they do harm [to the system] because traditional municipality schools have to adapt to a market system and they often lose their best pupils,” says Mr Sjöstedt.

This is the most common complaint about free choice in schooling ….. Critics contend that middle-class parents are likely to be drawn to the newer free schools, leaving poorer children stuck in poorly performing older institutions.

Helen Warrell, “Free schools: Lessons in store“, Financial Times, 28 August 2014.

Ms Warrell’s report, though interesting, omits important information and leaves many questions unanswered. A major omission is the fact that privately-run schools receive the same funding per-pupil as municipal schools, and are not allowed to charge top-up fees. Nor are schools, with rare exceptions, allowed to discriminate among applicants for admission.

There is no economic reason, then, for wealthier parents “to be drawn to the newer free schools, leaving poorer children stuck in poorly performing older institutions.” If the attraction of private schools results from advertising and branding (“like KFC”) why, then, should advertising attract a disproportionate number of children from wealthier households? Why do government schools lose their best students to private schools? Do the best students tend also to have wealthy parents?

The stark division of rich from poor, bright from dull, if true, is an anomaly of the reformed Swedish system.