GLOBAL COOPERATION NEWSLETTERAPRIL 2013
In this issue:Governments, Markets, and Social Security: Recent Experience from Centraland Eastern Europe
Launch of the European Observatory for Social Work and SocialDevelopment
OECD considers innovative approaches to socio-economic development forthe post 2015 agenda
Useful resources and links

 Featured article: Governments, Markets, and Social Security: RecentExperience from Central and Eastern Europe By Elaine Fultz

Elaine Fultz (JMF Research Associates, Philadelphia) is retired
from the International Labour Organization, where she served as sub regional director inMoscow and social security specialist in Budapest and Harare (Zimbabwe). Prior to that,
she was a professional staff member in the US House of Representatives, Committee onWays and Means. She holds a PhD in public administration from New York University.

In the two-plus decades since the collapse of the Soviet bloc and the transition to market
economy, the countries of Central and Eastern Europe (CEE) have provided rich empiricalevidence to inform international understanding of the pitfalls that confront efforts toprivatize public social security systems. CEE governments inherited well-developed social
security systems as a legacy of state socialism. Those systems covered nearly all of theworkers in the economies and addressed the full range of contingencies defined by thePage 1 of 6

International Labour Organization.1 However, the systems were costly and not wellmatched to the market economies that the new governments sought to build. In the late
1990s and early 2000s, following the template of the World Bank (1994) 2, many CEE
governments adopted what was promoted as the market-based approach to pension
reform. In so doing, they mandated the diversion of a portion of each worker’s
contributions from the public pension system to fund a personal, commercially managed
investment account. Workers were, in general, required to participate but were free tochoose their fund manager. Benefit levels were no longer set in law but were determinedby market performance. The new schemes’ proponents held that those changes would
actually increase workers’ retirement security as (i) workers would own their accounts asprivate property, and (ii) private management would reduce the risks of politicalinterference by governments (Holzmann, 1997). A look back today shows importantdifferences between the market-based model and actuality.
1.
Continuing state involvement –The rhetoric of privatization promised a shift ofadministration from state to private players. What stands out in Central Europe is,however, the continuing centrality of governments in pension management. In mostcountries, legal statutes require large segments of the workforce to invest with commercialfunds, creating captive markets for management firms.3 State agents collect contributions,passing them on to private managers, who collect substantial fees from workers. To datemost managers have eschewed private investment instruments in favor of government
bonds, thus returning the worker funds to state coffers.To ensure that workers’ funds areproperly allocated and accounted for, most governments continue to play a substantial
role in record keeping. While private funds do not guarantee benefit levels, mostgovernments provide a minimum guarantee. In short, privatization has not moved Central
European governments out of the pension business.
2.
Missing or incomplete benefit packages – Most of the schemes in place today
still lack key rules for paying benefits. In their absence, many workers do not know whatinstitution(s) will convert their account balances into annuities (monthly benefits, payablefor life) at retirement, or under what terms. The main obstacles are two-fold. First, majordifferences exist between the benefit features characteristic of public systems –regularadjustments to reflect inflation and gender equality in benefit computation – and those ofprivate pension funds –unindexed benefits, computed to reflect gender differences in life
expectancy.4 While the World Bank urged national authorities to formulate legal
specifications for the private benefit package in ways that follow private market practices,many governments have been reluctant to accept the resulting losses of worker
protections. Second, economies of scale in annuity markets enable large companies tooffer customers substantially lower prices. Such significant price differences create a1

As defined in ILO Convention 102, Social Security (Minimum Standards), the contingencies are old age, disability,survivorship, sickness, disability, employment injury, maternity, plus the need for medical care and subsidies for childrearing.
2Hungary did so in 1998; Poland in 1999; Latvia in 2001; Bulgaria, Croatia and Estonia in 2002; Lithuania in 2004; Slovakia
in 2005; FYR Macedonia in 2006; and Romania in 2008.
3
Lithuania is an exception, but once a worker voluntarily joins the private system, he/she cannot leave.
4
Equal treatment is generally interpreted to mean that women and men who accumulate identical account balances during
their careers and retire at the same time would receive equal monthly benefits. Because women as a group live longer thanmen as a group, that would require a cross-subsidy from men to women. Public pension schemes typically provide suchcross-subsides, but few private schemes do so.
Page 2 of 6

rationale for a single national annuity provider – an approach resisted by proponents ofprivatization as being at odds with the concept.
The continuing impasse shows the difficulties in delivering the kinds of social security
benefits that politicians and workers most value – regular inflation adjustments, genderequality in benefit computation, and low-cost administration – through market-basedsystems.
3.
High vulnerability to political risks – As noted earlier, some proponents ofprivatization claimed that private accounts would shield workers from government
interference. No claim has proven more at odds with actual experience. After the global
economic crisis, many Central European governments abruptly retrenched their privatesystems, suspending, reducing, or terminating funds for private accounts.5 Hungary
ceased funding individual accounts altogether and nationalized most workers’ balances,thus discrediting earlier claims that, as private property, those assets were beyond
governments’ reach. Poland retained its accounts but trimmed their revenues by morethan half. Latvia and Lithuania made similar funding cutbacks, drafted as temporary laws,
but have extended them repeatedly. Retrenchment continued, even after the crisis
subsided: Slovakia reduced its funding of individual accounts by more than half in 2012,
and Bulgaria is now contemplating similar action.
In sum, the CEE experience suggests that “privatization” is itself misnamed. These socalled privatized systems are largely run by governments that mandate worker
participation and provide costly services to support private commercial involvement. Whatmatters to the success of social security is not whether the state is involved but how. Most
crucially, there is a need for governments to provide legal frameworks for social security
systems that define benefits levels and conditions of eligibility as a matter of right. The
need for strong state involvement in both these regards is reflected in the Social Security
Conventions of the International Labour Organization, and most recently, in the ILO’s
Recommendation on National Social Protection Floors (No. 202).
ILO Social Protection Floors Recommendation, 2012 (No. 202)The Social Protection Floors Recommendation, 2012 (No. 202) was adopted by theInternational Labour Conference in June 2012.
The Recommendation expresses Member States' commitment to build comprehensive social
security systems by establishing national floors of social protection. It complements
existing ILO Conventions and Recommendations related to social security.
The Recommendation provides guidance to Member States aimed at ensuring that all
members of society enjoy at least a basic level of social security throughout their lives. It
provides a framework for governments in – Establishing and maintaining national socialprotection floors as a fundamental element of their social security systems, andImplementing their floors within strategies for the extension of social security that
progressively ensure higher levels of social security to as many people as possible, guidedby ILO Social Security Standards.

5Estonia, Lithuania, and Latvia in 2009; Hungary in 2010; Poland in 2011; and Slovakia in 2012.
Page 3 of 6

While Recommendation 202 is of central importance for developing countries seeking tobuild social security systems, it also has high relevance for developed market countrieswith privatized pension systems. Workers in market economies face many forms of risk,
yet the core of the privatized systems – benefit levels based on market performance –leaves them without guarantees of pension adequacy in old age. By putting in place social
protection floors, CEE governments have helped to restore that critical dimension ofprotection.
Significantly, the Recommendation assigns governments themselves the lead role indevising such floors, including responsibility for defining national social guarantees,
financing them on principles of solidarity and ensuring that benefits are adequate andpredictable.
References
Holzmann, R. 1998. “Pension Reform: A World Bank Perspective.” Washington, D.C.: The WorldBank Social Protection Sector.
World Bank. 1994. Averting the Old Age Crisis: Policies to Protect the Old and Support Growth.
Opinions expressed in this article are those of the author and do not necessarily reflect
views of the ICSW Management Committee Launch of theDevelopment

EuropeanObservatoryforSocial

WorkandSocial

The European Observatory on Social Work and Social Development was launched inIstanbul at the end of the conference of the European Network for Social Action held in
Istanbul from 16 to 19 April 2013
Susan Lawrence (President of the European Association of Schools of Social Work),
Christian Rollet (President of ICSW Europe) and Cristina Martins (President of IFSWEurope) said: ‘We welcome the creation of this joint initiative to record and promote thesocial activities that address the major social problems facing Europe. In these times ofsocial crisis and austerity in Europe, it is essential that social workers and social
development professionals find effective ways to document what is happening in ourcontinent. The Observatory will give us an opportunity to showcase what makes a positive
difference and gather evidence to inform the United Nations, the European Union andother regional bodies and national governments.’
The European Observatory is the regional arm of The Global Observatory, which wasestablished by the International Association of Schools of Social Work (IASSW), theInternational Council on Social Welfare (ICSW) and the International Federation of Social
Workers (IFSW). The Observatory is set up to report activity under the Global Agenda forSocial Work and Social Development and monitor its implementation.
The European Observatory has invited submissions on the current state of social work andsocial development in Europe. The framework for submitting evidence is available fordownloading on the websites of all 3 organizations.
Page 4 of 6 OECD considers innovative approaches to socio-economic development forthe post -2015 agenda
The 2013 OECD Global Forum on Development (4-5 April) focused on “InnovativeApproaches to Poverty Reduction, Social Cohesion and Progress in the post-2015 world”.
The topic promoted strong interaction among over the 350 stakeholders who attended,from OECD and developing countries. Sharing ideas and good practices was one of the toppriorities of the discussions.
The corollary was that, while eradicating poverty should remain a central concern for thepost-2015 agenda, we also need to broaden our understanding of poverty by going
beyond income measures (and adding other key dimensions that matter to people’s lives),
by tackling the question of relative poverty, inequality and social cohesion, and by
introducing more forcefully the question of sustainability.
The members of the Global Network of Foundations Working for Development (netFWD)
subsequently joined the OECD Global Forum. The voice of foundations was prominent witha keynote speech by Heather Grady, Vice President of the Rockefeller Foundation, whoreiterated the importance of using the post 2015 momentum for philanthropies to engage
further in partnerships for development.
Members reaffirmed netFWD’s role as a platform to influence policy and share innovative
practices on philanthropy for development. The participants reiterated that they came to
the OECD meeting to exchange lessons and focus on concrete workstreams such as (i)unfolding the drivers and value-added of “Enterprise Philanthropy”; (ii) the centrality ofdata sharing to enhance impact; and (iii) innovative approaches to support youth
empowerment. The central issue of where foundations fit within the “Development Galaxy”
was raised, following a keynote speech by Michael Green, (co-author of Philanthrocapitalism: How giving can save the world), on the possible “clash of civilizations” between
traditional development co-operation and philanthropy.
For more details: http://www.oecd.org/dev/developmentcentre-newsletterapril.htm

 Useful resources and links.
According to a recently released UNICEF report entitled Improving Child Nutrition: The
achievable imperatives for global progress, undernutrition in the first 1,000 days ofchildren’s lives can have irreversible consequences. For millions of children, it means they
are forever stunted, more susceptible to sickness in the future and could have a shorter
life-span. According to some estimates about one third of under-five mortality isattributable to malnutrition. This is a tragedy for the 165 million children under the age of
5 afflicted by stunting in the world today. It is not only a violation of their rights, but alsoa huge burden for nations, whose future citizens will be neither as healthy nor as
productive as they could have been.
At last, the gravity of under nutrition and its long-term effects are being acknowledged
and acted upon – with increasing urgency. This is, in large part, happening in recognitionof the ever-growing body of compelling evidence on the short- and long-term impacts ofPage 5 of 6

stunting and other forms of under nutrition. Slowly, treatment is expanding but, still, too
many children remain out of its reach. For more details please go to:
http://www.unicef.org/publications/files/Nutrition_Report_final_lo_res_8_April.pdf

The 2013 edition of the Economic Report on Africa co-authored by the United Nations
Economic Commission for Africa (ECA) and the African Union, and entitled Making the mostof Africa’s Commodities: Industrialization for Growth, Jobs and Economic Transformation, argues
that Africa needs to frame specific policies for commodity-based industrialization for eachcountry so as to ensure initiatives that foster linkage development and accelerate thatprocess, through leveraging Africa’s abundant resources and high commodity prices andthe changing global production process.
Advocating the “appropriate development planning framework” the Report says that,individually and collectively, African countries must embark on a “bold transformation”
towards a commodity-based industrialization strategy that would allow the continent totake charge of its own development, which is necessary if African countries are to be able
to address the youth unemployment, poverty and gender disparities, and other pressing
socio-economic challenges they face.
For more details please go to:

http://www.uneca.org/sites/default/files/publications/unera_report_eng_final_web.pdf
The content of this Global Newsletter may be freely reproduced or cited provided the source isacknowledged. Views do not necessarily represent policies of ICSW.
Newsletter Editor: Sergei Zelenev, Executive Director
Address: ICSW, P.O. Box 28957, Plot 4, Berkeley Lane, Off Lugard Avenue,Entebbe, Uganda
Phone + +1 718 796 7417, +256414321150
E-mail: szelenev@icsw.org, icsw@icsw.org
Website www.icsw.org;
If you wish to cease receiving this newsletter, please click 'here' providing your name and emailaddress

Page 6 of 6