Remberto Latorre is a PhD candidate from the University of Vienna, Austria. Remberto is a former Army Officer, Entrepreneur and a recent graduate from a dual MA in Global Studies (University of Vienna and University of Wroclaw) and an MA in Economic Policy in Global Markets (Central European University, in Budapest). Remberto also holds a BA in Commercial Engineering from Universidad del Pacífico (Chile), a BA in Business Administration from Universidad del Desarrollo (Chile) and a BA from the Military Academy of Chile. Remberto is a frequent AtlasOne.org contributor and covers mostly pension related issues.
Since the outbreak of The Great Recession many economies have reversed their pension systems through the full or partial nationalization of the second pillar, bestowing government officials with fiscal space. The tradeoff, however, was the exponential growth of the implicit and explicit debt causing regime uncertainty and confirming the institutional weakness of pension systems. The coercive exchange of accumulated savings for promises of future payments has opened a Pandora’s box insofar as it became a new model for legal plunder. Many countries have followed suit and many more are making the case for reversal. In the present paper I look into the historical evidence and into the growing number of Club SEP countries. Later, I draw on the precepts of robust political economy in order to assess the institutional robustness of pensions. I find that Chile is the only country that passes the test. I conclude that the Chilean success rests on the knowledge-generating properties of dispersed ownership and on the exit properties brought by low switching costs and dispersed administration. I argue against the World Bank’s multi-tier system and in favor of a one-pillar archetype à la Chile.
Keywords: Pension Reform Reversals – Second Pillar – Alleged Commons – Creative Accounting – Institutional Robustness
Rich in detail, the essay by Remberto Latorre Artus on pensions warns against the recent trend of countries (including Hungary and Poland) to go back to pay as you go systems or rely on multi-tier systems. Identifying the shortcomings of mixed and publically funded pensions systems as a distinct ‘tragedy of the commons’ problem, the author favours the one-pillar (privately funded) model of Chile. ‘The empirics from the Chilean model seem to confirm that the most robust pension system built up-to-date is one where not only ownership, but also where knowledge is dispersed’, says Latorre Artus. Being aware of the transition problem, he concludes ‘transition costs of moving toward a single-tier model are dissected as the necessary investment to avoid the forthcoming collapse of the system.’
A very topical essay.
On behalf of the jury,
Prof. Dr. Hardy Bouillon
Academic Advisory Board of the Hayek Institut