Book reviews for The Journal of Pension Economics and Finance reflect reviewers' own views and in no way represent the views of the institution(s) with which they are affiliated.
Mitchell Orenstein has written a sound book on pension privatization that is worth reading by two separate audiences: those interested in pension reforms, and those interested in the comparative analysis of public policy adoption. By focusing on a particular policy, Orenstein's study has an advantage over the now many competing books: the author presents a very balanced grasp of pension reforms untroubled by larger predispositions towards economics or financial institutions that flaw many other studies. At the end of the book, the reader is rewarded by an excellent review of the experiences of many countries who have considered pension privatization and the reasons why they decided to adopt or not to adopt these policies.
The domain of study is the remarkable diffusion of pension reforms since 1984. The causal onus of the study is on the role of transnational actors, among whom the World Bank plays a prominent role and with whom Orenstein cooperated as a researcher. Orenstein's primary ambition is to gauge whether the World Bank tipped the national decisions toward adoption of pension reforms (largely meaning privatized pension funds). This analysis culminates in chapters 5 and 6 where he presents several country cases and then studies the role of the World Bank advisers. In all, he notes only three countries adopted reform without the World Bank: Chile, the United Kingdom, and Sweden. Chile is rather uninteresting analytically, as its reforms predate the World Bank consensus on the benefits of pension privatization. Thus, we really have only two exceptions. Only three countries were exposed to extensive World Bank efforts and yet refused to adopt the reforms: Korea, Slovenia, and Venezuela. Since Table 2.1 indicates that at least 38 countries were lobbied by the World Bank, the inference is that the World Bank was very successful in its advocacy. The odds of adoption given World Bank exposure are 35/38, which is an error rate that would render a regression envious.
This observation is fairly remarkable and thus the case studies are of particular interest to understand how the World Bank managed to achieve success invariant to the heterogeneity of the adopting countries. Orenstein provides vignette analyses of a few countries which illustrate his typology of the successful influence of transnational policies on the adoption of pension privatization plans by individual countries. The Polish case study is especially interesting in illustrating the political flexibility of the World Bank. The study starts with the veto in 1991 by the World Bank Polish field representative Nick Barr of domestic efforts to privatize and reform pensions. By the mid 1990s, pension reform was being supported by the right and left, with many unions giving support as long as they might control the private pension funds of their members. This political backdrop is a familiar echo of similar contests fought by unions to control retirement funds as a way to consolidate their utility to their membership.
More broadly, the country cases show why cross-country panel analyses have found it difficult to identify political variables, such as right or left governments, as predictors of policy adoption. Given such high adoption rates, the implication is that pension reform is adopted because it somehow permits local actors to arrive at bargained outcomes. The Hungarian case is instructive in this regard. The World Bank worked closely with the Ministry of Finance, particularly with the Finance Minister, Lajos Bokros. Bokros resigned in 1996, later joining the World Bank. The new Socialist minister Peter Medgyessy, however, also subsequently supported the reform, though he showed more willingness to “compromise with other veto and proposal actors within the government”. The other country studies reveal this pattern of compromise and coalition building, though the details of these compromises and the actors vary substantially. No doubt, future studies will find that much of the predictors of the efficacy of these reforms can be traced to the peculiarities of these political bargains.
There might be of course more causal factors in this story than the World Bank advocacy. Since there is little cross-sectional variance in adoption, the supposition might be that there is variation over time. The effects of demographic, economic, and political variables might then be more compelling. In this expanded analysis, the suggested interpretation would be that the World Bank was indeed a patient advocate, waiting for the opportunities to tip a country towards adoption given the historical moment. This no doubt overstates the sagacity of any actor, but it is consistent with the story line proposed by Orenstein.
Orenstein does not address an interesting dimension to his study, namely the legitimacy and accountability of the World Bank in pushing these reforms. Leaving aside reason to doubt quite the causal strength and direction of the claim, the World Bank clearly saw itself as an advocate of pension reform, tying such reforms sometimes to conditionality on their loans, providing technical assistance to countries, working with the AID to finance advertising campaigns to educate the public (e.g. a $1.4 million contribution to Poland in 1997), and persistent “lobbying”. Yet, some academic voices, notably those of Peter Orszag and Joseph Stiglitz (the latter was Chief Economist at the World Bank at the end of the period studied), were critical of these policies citing concerns over the fees as well as the costs of transition. It would have been of interest to understand more carefully how the ideological divides among the transnational actors as individuals affected the adoption of pension reform. While the voyeur in the reader would have liked more details on the internal conflicts and debates at the Bank, the more intriguing implication is that the World Bank took on a very large advocacy role of a policy that did not have consensual support among economists.
Orenstein touches briefly on the evidence that the reforms were successful, noting setbacks in Poland for example in 2000 to 2001. There have been other cases of negative returns. These are the hazards of politics and governments. When they are democratic, they are held accountable for the success and failure. But the issue then is, to whom is the World Bank accountable? That is a good question, one that the book provokes and leaves for our reflection.
