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  • Print publication year: 2008
  • Online publication date: July 2010

3 - The Institutional Transformation of Social Security


How do social institutions that have long been stable and reinforcing become subject to fundamental, path-departing change? This chapter continues the theoretical inquiry into this puzzle by analyzing three questions that are central to the politics of institutional change as it occurs in the privatization of old age pensions. The first asks how the decline in barriers to the movement of capital and goods across borders, or “globalization,” has influenced the decision to launch such reforms. Even though research on social welfare reform typically views globalization as a source of inexorable downward pressures on state social insurance programs – particularly in the developing world – the analysis in the last chapter casts doubt on this conventional view by showing that it is not the most capital-scarce countries, nor those that are most financially integrated, that are more likely to privatize old age pensions. By contrast to the predominant views of globalization as either a source of downward pressure or a catalyst for compensatory expansion of social protection, I argue that globalization generates both incentives and constraints for governments to restructure old age pension systems; in other words, globalization places governments seeking to enact costly reforms in a powerful double bind. These paradoxical effects are particularly influential for the most vulnerable, cash-strapped governments. For these, global financial integration has heightened the attraction to privatization as a means to achieve long-term macroeconomic goals like raising private savings and building capital markets; however, it has also threatened to punish governments in the short term for overstepping – even temporarily – their financial means.