Social Security and Privatization

The United States government spends significant amount of money to care for its disabled and aging citizens and other sectors of society that need government attention. Through the Social Security Administration (SSA), eligible citizens receive monetary remuneration for the period of their disability and retirement. Social security benefits usually come from payroll deductions which are taxes on the wages paid by firms to their employees. Revenue from payroll taxes is earmarked to pay for social security benefits when the employee attains a certain age or when the employee becomes incapacitated. Social security is a program that supports the aging elderly population. On the other hand, Medicare is a program managed by the government that has been created to provide medical services to the retired population.

According to Prasad and Gerecke (2010), social security has significant impacts on the social, political, and economic arrangements of a nation. It has been the major lubricator of many functions such as the war against poverty and inequality, human rights, generation of economic growth, and nation building. Social security payments have enabled many governments to uplift the living standards of its growing elderly population.

 Since everyone in a democratic society has the right to social protection, social security promotes individual economic growth and modernized human capital. Social security is contained in Article 22 of the Universal Declaration of Human Rights. It guarantees everyone the right to social security. The same universal declaration calls for the provision of social security to those in need of resources as a result of circumstances beyond control or as a result of aging, unemployment, or widowhood.

In the next two decades, the number of people attaining age 65 or older is expected to double. The overall general population of the U.S. is expected to increase by less than a quarter percent (Quinn, 2002). According to Quinn (2002), the ratio of social security contributions to beneficiaries fell to 3.3 to 1 a decade ago while it was 5 to 1 in 1960. This drastic decline in social security contributions has been a worrying trend for many political leaders determined to make a difference in the lives of the aging and disabled Americans. Economists are rarely right but never in doubt about their economic projections and so the motto: raro cum verita; numquam in dubito (Quinn, 2002), has long been the factor behind the many predictions we see in many scholarly writings. No doubt reforming social security is inevitable and that leaving it to its current state may spell disaster in the near future.

Equity and Efficient in Social Security

Beginning with Augusto Pinochet’s pension privatization reform of Chile in 1989, there has been concerted efforts globally in the movement from distribution in social security to efficiency in public policy (Brooks, 2002). In developed nations, two factors may be realized as being behind social security reforms: demographic and economic changes. Equity and efficiency in social security are two aspects that need to be given utmost attention. Since social security dispersions are based on needs and earnings histories, it is wise to ensure recipients are treated equally. There has to be a nationwide efficiency in the distribution of social security benefits to recipients.

To ensure retirees receive their benefits in full, the government has to raise the ratio of those making contributions to social security. According to Hyman (2011), the birth rate in the U.S. has been falling drastically and this sends a red signal that in the future, those contributing to social security could fall below the projected expectations.

As Hyman (2011) postulates, pay-as-you-go is a pension program that finances retired workers where contributions come from taxes paid by or collected from currently employed workers. The current global social security system has come a long way with Germany starting the arrangements followed by a succession of European countries including UK, France, Sweden, and Italy respectively (Hyman, 2011). It is not the first time changes have been made to social security. It happened in 1977 and 1983. Under current law, workers may retire at age 67 to be eligible for social security benefits.

Partial privatization of social security

There have been proposals for the privatization of social security for sometime and whether it becomes a credible program that sticks around is a subject of much concern. Social security can be privatized only if it can be handled with care by the entity that wins the contractual rights. Under close observation by the government, social security can be left in the hands of private enterprises and still deliver the right effects. Social security can be partially privatized by allowing investments to be made in private equities and mutual funds. In privatizing social security, retirees will have personal responsibility and make serious decisions about their retirements and induce them to add important elements missing from their portfolios (Quinn, 2002). On the other hand, social security recipients will have the chance to make decisions in making more saving plans for their future.

The partial privatization of social security will lead to income inadequacy and individual equity (Quinn, 2002). Initially, social security was created as a way of protecting aging citizens and not as savings vehicle. Therefore, it must not be perceived as an investment scheme that generates returns but rather as an investment that is directed to the common good. According to Gandásegui (2011), one question Barak Obama has not answered to this day is whether he will oppose the privatization of social security that has been an issue of disputation among previous administrations. There has been growing debate in the political arena on social security reforms and social security privatization. Social security reform has been debated during the Clinton and Bush years (Quinn, 2002) and even to this day, under Obama, Americans seem to have several options for social security.

At times, fighting for social security benefits come with quandaries since the age limit is making would-be retires plunge into unnecessary criminal activities. Take for example the case of the 62-year old employee who was laid off after the drug manufacturer he worked for shut down its door in 2003. Timothy J. Bowers of Ohio found that it was better to commit a crime so he could end up in jail for three years and upon his release he would attain age 65 and start drawing social security benefits (Cooper, 2008).

Not all people are able to manage their finances prudently. Privatizing social security may benefit some and put others at a loss. While some critics may argue against the current system in place, others feel it has to be given a facelift so that recipients have a chance to play a role. Hyman (2011), borrowing a leaf from the recommendations of the Advisory Council on Social Security, gave several options on the privatization initiative. The first option which is maintaining benefits calls for leaving social security in its current state while making slight adjustments. The second option that is in reference to individual accounts amounts to 1.6 increase, in taxes, beginning 2011 for retirees attaining age 67. The third option, personal security accounts is the most radical of all. This is the 5 percent portion paid by employers which would be allocated to social security trust fund. Social security, a program that has been in existence for years and service to millions, will remain debatable for years to come. It all depends on how the men and women in leadership will handle in the near future. Supporters and opponents of this great initiative will have to tread carefully and ensure the aging population is treated with respect and care. Making minor alterations may lead to greater mistakes and spell disaster and consequently put the lives of millions at risk.

References

Brooks, S.M. (2002). Social protection and economic integration: The politics of pension reform in an era of capital mobility. Comparative Political Studies, 35 (5), 491-523.

            DOI: 10.1177/0010414002035005001

Cooper, M. (2008). The inequality of security: Winners and losers in the risk society. Human Relations, 61 (9), 1229–1258. DOI: 10.1177/0018726708094911

Gandásegui, M.A. (2011). President Obama, the Crisis, and Latin America. Latin American Perspectives, 178 (38), 109-121. DOI: 10.1177/0094582X11407609.

Hyman, D.N. (2011). Public finance: A contemporary application of theory to policy (10^th ed.). Mason, OH: Western, Cengage Learning.

Prasad, N. & Gerecke, N. (2010). Social Security Spending in Times of Crisis. Global Social Policy, vol. 10 (2), 218–247. DOI: 10.1177/1468018110366627

Quinn, J.F. (2002). Social Security Reform: Options for the Future. Journal of Applied Gerontology, 21(2), 257-272. DOI: 10.1177/07364802021002008.