Privatizing Pensions: The Transnational Campaign for Social Security Reform - Softcover

Orenstein, Mitchell A.

Softcover

ISBN 10: 0691136971 ISBN 13: 9780691136974

Publisher: Princeton University Press, 2008

Synopsis

To what extent do international organizations, global policy networks, and transnational policy entrepreneurs influence domestic policy makers? Have we entered a new phase of globalization that, unbeknownst to most citizens, shapes policies that used to be the sole domain of domestic politics? Privatizing Pensions reveals how international institutions--such as the World Bank, USAID, and other transnational policy actors--have played a seminal role in the development, diffusion, and implementation of new pension reforms that are transforming the postwar social contract in more than thirty countries worldwide, including the United States. Mitchell Orenstein shows how transnational actors have driven change in a policy area once thought to be beyond reform in many countries, and how they have done so by deploying their unique resources and legitimacy to promote new ideas, recruit disciples worldwide, and provide a broad range of technical assistance to government reformers over the long term. He demonstrates that while domestic decision makers may retain veto power over these reforms--which replace traditional social security with individual pension savings accounts--transnational policy makers play the role of "proposal actors," shaping the information, preferences, and resources of their domestic clients. Privatizing Pensions argues that even the most quintessentially domestic areas of policy have been thoroughly globalized, and that these international influences must be better understood.

About this title

About the Author

Mitchell A. Orenstein is the S. Richard Hirsch Associate Professor of European Studies at Johns Hopkins University. His books include "Out of the Red: Building Capitalism and Democracy in Postcommunist Europe".

From the Back Cover

"In this carefully crafted, comprehensive study, Mitchell Orenstein provides a persuasive analysis of the significance of transnational policy actors in pension privatization around the world. The empirical evidence is strong and the theoretical framework is applicable to a wide range of social policy issues. The book presents an important challenge to state-centric perspectives, as well as many of the interest-based assumptions of political economy approaches. This is a first-rate study which deserves attention from both academic and policy-oriented audiences."--Robert R. Kaufman, Rutgers University

"An innovative investigation into the role of transnational actors in national pension policy. Orenstein argues convincingly that transnational actors matter but that they need to be more broadly defined and their influence not reduced to money or coercion. They work through various channels, most importantly through the power of ideas, adaptability to country circumstances, learning from experience, and building coalitions with other transnational and domestic actors. The proposed conceptualization constitutes a major progress in this area."--Robert Holzmann, World Bank

"An excellent book that makes a significant theoretical contribution, and supports it with a great deal of solid empirical research. Orenstein demonstrates that decision making in a crucial area of domestic policy--namely pension system reform--is strongly influenced by transnational policy actors. His argument is novel and important."--Kurt Weyland, University of Texas, Austin

"This is a thoughtful and well-researched book on an important topic. Orenstein argues that international actors--including but not limited to the international financial institutions--exert influence in complex and multifaceted ways on domestic policy processes. The book is the best I know in making this case."--Stephan Haggard, University of California, San Diego

Excerpt. © Reprinted by permission. All rights reserved.

Privatizing Pensions

By M.A. Orenstein

Princeton University Press

Copyright © 2008 Princeton University Press
All right reserved.
ISBN: 978-0-691-13697-4

Introduction

Most Americans know of President George W. Bush's 2005 proposals for new pension reforms to privatize Social Security, but few are aware of a conversation that took place on September 11, 1997, between then Texas Governor Bush and Jos Piera, a former Chilean Secretary of Labor and Social Security. Piera is an internationally known advocate of private, individual pension savings accounts who led the effort to replace Chile's social security system with individual accounts in the late 1970s and early 1980s under the regime of General Augusto Pinochet. Pinochet's regime was highly controversial-as reviled by the left for its human rights abuses as it was lauded by the right for setting Chile on a course to strong economic growth and ultimately to democracy. After planning pension reform in Chile, Piera made a career of spreading pension privatization throughout Latin America and worldwide. He met personally with numerous Latin American presidents as they contemplated reforms to their pension systems and advised organizations such as the World Bank and state officials in countries around the world (see Oravec 2006, 28-43, for a detailed account of his work in Slovakia). Piera's meeting with President Bush took place at the governor's residence in Austin. Piera portrayed pension privatization as a crucial element of an ownership society and helped to convince President Bush to embark on what now looks like a quixotic campaign to restructure Social Security and enact new pension reforms in the United States based on the Chilean model. Bush's campaign for pension privatization cost him a good portion of the political capital he gained in his 2004 re-election campaign and helped to send his popularity ratings plummeting in 2005. Given the high price he paid, it seems that President Bush acted out of conviction on this issue-a conviction that grew in part out of his meeting with Chile's pension reform guru.

This book analyzes the role of transnational policy actors in spreading pension privatization ideas and practices worldwide. Transnational policy actors are defined broadly as organizations (multilateral, state, or non-state) or individuals that seek to develop and advocate well-elaborated policy proposals in multiple national contexts. Through a detailed study of the privatization of state social security systems, this study seeks to answer several fundamental questions: Are national policy makers influenced by transnational policy actors who sell policy ideas from country to country? How much influence do transnational actors have on policies such as pension reform that have long been dominated by powerful domestic interest groups? If transnational actors are important, how are they important? What are the sources of their influence and when do they exert it?

This book addresses these questions by exploring the spread of pension privatization, which I also refer to as the new pension reforms, a set of policy reforms that have radically altered the post-war domestic social contract in more than thirty countries around the world. Pension privatization involves the partial or full replacement of social security type pension systems by ones based on private, individual pension savings accounts. Transnational policy actors, including the World Bank, the U.S. Agency for International Development (USAID), and other multilateral and bilateral aid agencies, transnational policy entrepreneurs, and expert networks, have been deeply involved in the development, diffusion, and implementation of these reforms. While pension privatization has affected mostly middle-income developing countries, these reforms also have been implemented in Sweden and the United Kingdom and proposed in the United States as well as in other developed countries.

Pension privatization represents an important example of the internationalization of public policy making in an area that I have had the opportunity to observe at close quarters over a number of years. In 1998, when I was invited to join a World Bank political economy research team investigating the politics of pension privatization in Europe, Central Asia, and Latin America, I found myself working among a core group of pension experts at the Bank who were advocating pension privatization in all corners of the earth. As a result of participating in a research project on the politics of pension reform worldwide, I had a unique opportunity to interview leading officials involved in pension reform processes in countries around the world. In 1999, I participated in a conference at the World Bank convened by then chief economist Joseph Stiglitz to critique and discuss the World Bank model for pension reform. This provided an opportunity to experience important debates within the Bank over pension privatization first hand. I later helped to edit a 2003 book, Pension Reform in Europe: Process and Progress, that brought together the results of a 2001 expert conference on the political economy of pension reform in Europe. This conference, sponsored by the World Bank, the International Institute for Applied Systems Analysis, and the government of Austria, was attended by scholars of the political economy of pension reform as well as pension officials from across the European Union 27 and a variety of international organizations. Between 1998 and 2004, I produced thorough case studies of pension reform in a number of Central and East European countries and Peru, conducting interviews with dozens of government officials, international advisers, and public interest group leaders. I also advised a Ph.D. dissertation by Ilian Cashu that undertook similar work in a different set of countries.

My close observation of the transnational campaign for pension privatization in the late 1990s and early 2000s seemed to contradict most of what I had been taught about the politics of welfare state development in graduate school. In political science, most accounts of welfare state development emphasize domestic political factors, such as labor mobilization and state political economic strategies. One school of thought suggests that domestic labor force mobilization encourages countries to develop welfare programs (Huber and Stephens 2001). Another emphasizes that welfare states represent national reactions to trends in the global economy. My own dissertation adviser at Yale, David R. Cameron, showed conclusively that smaller, trade-exposed states in Europe build larger welfare states to compensate workers for their greater vulnerability to external economic trends (Cameron 1978). This remains one of the classic statements in the literature and has been verified on a global scale by Rodrik (1998) and others. Pierson's (1994) work on path dependency suggests that national politics also determine the extent and nature of efforts to cut back or "retrench" welfare state institutions. This dovetails nicely with a prominent set of theories on "varieties of capitalism" that emphasizes that states choose a variety of different capitalist institutions and that these choices tend to constrain future behavior. Garrett (1998) and Swank (2002) further show that welfare state programs represent a state's reaction to international economic competition and that national, not international, politics drive their development and change.

Yet my observations of the campaign for pension privatization seemed to clash with this national perspective. I observed a core of pension reform advocates operating globally, advising top political leaders in dozens of countries around the world, and getting results. More than thirty countries around the world have implemented partial or full pension privatization, utterly changing preexisting systems and initiating a major path departure (Hering 2003) in welfare state structure for generations. In many cases, there appeared to be no domestic pressure or precedent for such changes; the ideas seemed to come from the outside, from these transnational actors. What was going on? Had the national perspective on welfare state development outlived its usefulness (Rodgers 1998; Clark and Whiteside 2003)? Had changes in the world system altered the politics of welfare state reform, making it more vulnerable to transnational influence? Was there a difference between the politics of reform in developed European countries, where most welfare state theories were hatched, and developing country welfare states that might be more vulnerable to transnational influences? Or was the transnational activity I observed simply a lot of sound and fury within international organizations that in the end signified nothing? How could one account for the new transnational politics of pension reform?

Transnationalization of Domestic Policy

In conducting further research for this project, I dug deeply into the growing literature on transnational public policy, a literature with roots in international relations theory and organizational sociology (DiMaggio and Powell 1983; Strang and Meyer 1993; Meyer et al. 1997; Strang and Soule 1998; Tolbert and Zucker 1983). In this literature, I found company with a group of scholars who argue that transnational and non-state actors are playing an increasing role in domestic policy development in countries around the world (Reinecke 1998). Pioneering works focused on transnational activist networks (Keck and Sikkink 1998), epistemic communities (Haas 1992), and a variety of other international actors that play a greater role than many scholars had previously thought in the making of domestic policy (Orenstein and Schmitz 2006).

National and transnational perspectives on policy are distinguished largely by their position on the autonomy of transnational actors. Trans-nationalist scholars believe that transnational actors and institutions play a fundamental and relatively autonomous role in policy making in multiple states (Reinecke 1998; Hewson and Sinclair 1999; Kaul et al. 1999; Stone 2003; Barnett and Finnemore 2004), while those working in a national politics or realist tradition see transnational actors as dependent on states that remain the final arbiters of policy decisions. Because the transnational actors that I observed seemed to have a great deal of control over their own agendas, I felt that it was important to integrate the transnational and national perspectives in order to explain the rise of pension privatization.

Ideas and Influence

If transnational actors are relatively independent, what is the source of their influence? One source is their normative and ideological influence. Transnational actors have become vessels for ideational influence on politics worldwide through the creation and diffusion of new policy ideas, norms, metrics, values, and technical expertise. Whereas many previous studies of transnational actors such as international organizations and multi-national companies have emphasized their ability to coerce countries into adopting certain policies, I emphasize their persuasive as well as coercive powers. It is often difficult to separate these two forms of influence, however. Following Jacoby (2004) and Epstein (2008), I question the usefulness of the "norms" versus "incentives" debate and instead focus on discerning specific mechanisms of influence that may combine both norms and incentives. Norms are defined here as principled ideas about how policies should be designed. Norms and ideas are said to be "new" to the extent they have not been previously adopted in a particular domestic context.

Studies that emphasize incentives and coercion, rather than norms and ideas, tend to start from a hard rational or materialist perspective on politics that assumes that the interests of policy actors are fixed. Therefore, actors must be coerced to change their positions. Ideational approaches to politics tend to start from the assumption that rational actors face considerable uncertainty about their interests or how to pursue them; their rationality is bounded by the limits of information and cognition (March and Simon 1993; Druckman 2004). Introducing new normative ideas or information can cause actors to reshape their policy preferences. As a result, interests are less stable than hard rationalists would predict (Druckman 2004). As U.S. Senator John Kerry famously said of a supplemental funding bill for the Iraq war, "I actually voted for the $87 billion before I voted against it." Likewise, in my study of pension privatization, I found many actors who initially opposed such reforms but later ended up supporting them because they gained new information or were persuaded of the normative case for these reforms by reform advocates. Some were also offered selective incentives to encourage compliance. As Juliet Johnson (2008) points out, some actors may be more influenced by norms, while others may only be influenced by material incentives. The most powerful transnational actors use a range of both ideational and material resources as circumstances permit. They apply all the tools they have in an effort to pursue their policy agendas to a successful conclusion.

In presenting an argument that combines both ideas and incentives, this work follows Blyth (2002), who argues that norms and ideas partly constitute actors' interests and policy preferences. Blyth suggests that ideas can help to reduce uncertainty in times of crisis by providing problem definitions that enable actors to understand the situation that they are in. Second, ideas can make collective action and coalition building possible by allowing agents to redefine their interests under conditions of uncertainty and to link up with other actors behind new programs. Third, ideas can be weapons in the struggle over existing institutions. They can help to delegitimize current institutions and the norms and ideas of opponents as well as justify policy preferences of reform advocates. Fourth, ideas can act as blueprints for new institutions, suggesting policies and methods of achieving stated goals. Finally, ideas can make institutional stability possible by providing justifications for institutions' existence and the policies that they transmit (Blyth 2002, 34-41).

Transnational actors, including international organizations, transnational non-governmental organizations (NGOs), expert networks, and individual policy entrepreneurs, have become leading sources of policy norms and ideas in countries worldwide in areas that often exceed their original mandate. Their ability to exercise normative influence depends on their organizational and institutional legitimacy. Barnett and Finnemore (2004) argue that transnational actors often have a unique authority to pursue their goals. International organizations often possess "delegated authority" explicitly granted by countries to pursue certain goals legitimately. Transnational actors may also have extraordinary "moral authority" by virtue of their mission to pursue legitimate and seemingly disinterested moral objectives, such as poverty alleviation or environmental protection. Finally, transnational actors often enjoy "expert authority" and are recognized as storehouses of global expertise in certain areas. Each of these sources of authority enables transnational actors to persuade other actors and organizations to accept their desired policy norms and ideas and join them in global campaigns.

(Continues...)

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Edition details

• Publisher: Princeton University Press
• Publication date: 2008
• ISBN 10: 0691136971
• ISBN 13: 9780691136974
• Binding: Paperback
• Language: English
• Number of pages: 232