Recent changes in Latin American welfare states: is there social dumping?

Abstract

The article evaluates the degree to which the recent wave of pension reform in Latin America can be considered social dumping. While competitive pressures did create incentives for reform, the region's pension systems were already becoming financially unsustainable, consuming greater percentages of GDP throughout the 1980s and 1990s. To the extent that the transition costs of privatization crowd out other – more redistributive – forms of social spending, as occurred in the Chilean case, social dumping may occur. However, it is problematic to speak of a single 'Latin American' trend in social spending in general or in pension reform in particular. The demonstration effect of the Chilean model, International Financial Institution support for privatization, and concerns about economic competitiveness provided incentives for governments to pursue privatization, but policy outcomes were filtered through the prism of domestic politics. Given the dismal financial and distributional picture of the old pay-as-you-go (PAYG) system and its steep transition costs (simply cutting benefits in the old system would be far cheaper), social security privatization is not readily explained as social dumping.