DOMAIN LINKAGES AND PRIVATIZATION IN SOCIAL SECURITY
International Studies on Social Security
Volume 6
Chief Series Editor
STEIN RINGEN
Series Editors
ERIK SCHOKKAERT
PHILIP R. DE JONG
JUN-YOUNG KIM
PER-GUNNAR SVENSSON
Domain Linkages and Privatization in Social Security
Edited by
JUN-YOUNG KIM
PER-GUNNAR SVENSSON
First published 2000 by Ashgate Publishing
Reissued 2018 by Routledge
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ISBN 13: 978-1-138-72343-6 (hbk)
ISBN 13: 978-1-315-19304-5 (ebk)
Contents
Stein Ringen
Jun- Young Kim and Per-Gunnar Svensson
Martin Rein and Barry Friedman
Philip R. de Jong
Joseph F. Quinn
Jochem Jagob and Werner Sesselmeier
Anne Corden
Jun-Young Kim
Yoshihiro Kaneko
Robert L. Clark and Joseph F. Quinn
Hannele Savioja and Katri Hellsten
Sara Stendahl
Merita Xhumari
Barry Friedman and Martin Rein
Brenda Morginstin, Nira Shamai and Tamar Haron
Stein Ringen
This volume is the sixth in a Series of International Studies on Issues in Social Security. The series is published in close cooperation with the Foundation for International Studies on Social Security (FISS) which takes care of selecting, editing and formatting the texts to include.
The series can be seen as a platform for academic discussion between scholars of different disciplines and countries. Articles included discuss studies on social security, welfare, and health care in a cross national setting. They preferably spell out the relevance of the analysis and the findings for practical issues in the design and implementation of social policy. One of the series aims is to confront different academic approaches with each other and with public policy perspectives. Another is to give analytic reports of cross-nationally different approaches to the design and reform of welfare state programs. Articles included form an edited selection of papers presented at the conferences and seminars of FISS. Other articles, offered for publication, may be accepted in the future.
The present volume, edited by Jun-Young Kim and Per-Gunnar Svensson, is based on papers presented at the Sixth International Research Seminar on Issues in Social Security, held by FISS on 1215 June 1999 in Sigtuna, Sweden. It was organized in cooperation with the Swedish Federation of Social Security Offices (Frskringskassefrbundet, FKF) in Stockholm. The Federation also acts as an important financial sponsor.
Finally, we would like to thank Piet van Diest at Van Diest Word Processing in The Hague, The Netherlands, for providing excellent technical assistance in producing the camera-ready copy for this volume.
Jun-Young Kim and Per-Gunnar Svensson
This book relates to the present discussion about the merits of improving the incentive structure of social security programs by privatization.
The first part contains two important chapters. The opening one, by two social scientists, Martin Rein and Barry Friedman, looks at the interaction between programs and how they make one of them to serve the purposes of the other. This mechanism is termed domain linkage, where the different programs are considered as domains. They illustrate it, first, and briefly, by a rather unorthodox example, that of jails serving as hosting place for the mentally ill, a role they take up, in the U.S., to a larger extent than psychiatric hospitals. Then, more extensively, by the struggle to separate the different income support programs for the unemployed and the disabled in Britain and The Netherlands. And finally the various social services in kind in the health care and welfare area in the U.S. They discuss the various historical and logical origins of the attempts to differentiate between such domains. The findings are then tentatively generalized to the whole area of public programs.
This chapter is followed by one written by Philip R. De Jong, an economist. This chapter deals with welfare state programs that contains behavioral risks, like health insurance, sickness benefits, unemployment and disability insurance where moral hazard is a potential problem. It considers in a general way the flaws in the incentive structure of social security programs and the way privatization of programs can help to improve this structure. It gives first a description of the harmful effects of inadequate design of cash benefit programs but also pays attention to potential loss of benefits when changing such designs to improve the incentive structures. A balanced approach, then, also requires treatment of, what may be called, the efficiency of equity, which is given. Moral hazard is considered the core analytic concept to diagnose, and treat, the incentive problems that plague working-age transfer programs. The presumption here is that the cross-country differences shown by a recent OECD study can be largely attributed to varying incentive structures. The author dicusses finally the contribution of privatization as a device to promote disciplined spending.
To curb moral hazard four instruments can be used. Co-insurance and experience rating may promote prudent, care-taking, behavior of both insured workers and their employers by confronting them with the financial consequences of their risk behavior. Strict definition of the risks covered, and stringent application of these definitions, are two more ways to contain welfare loss due to moral hazard. The common element of these instruments is that they increase efficiency by having more of the risks borne by individual workers and firms, at the expense of reduced income solidarity. Those who administer politically defined eligibility rules should be put in an environment that confronts them with the financial consequences of their award policies. For those risks that can be privately insured one may choose between a market or a bureaucratic setting. Private delivery of mandatory social insurance is attractive as a self-regulatory system that contains the appropriate checks and balances but only if such a social insurance market is open and transparent. Moreover, private delivery involves large transaction costs, such as those for marketing and litigation.
