Brazil: Capitalization is the only way to save Social Security
In order to understand social security in Brazil, first it must be noted that it carries two major problems: it was created in deficit and in the myth of retiring to live in heaven as if the value covered all costs of the retiree.
Social security depends on today’s workers, because they are those who pay for the retirement of the people who worked yesterday. This economic model is considered a crime against the economy. The National Institute of Social Security, as well as the whole of Brazil’s public welfare system, is nothing more than a speculation where productive individual pays today in hope that someone else will do so in the future as well. But why doesn’t the state fit this law in the same way as the private sector? Simple, the state is always above the law and often demands from the population what it’s unable to do.
At the same time, the population has been taught that retirement is the stage in which they must enjoy life and therefore it should be enough for the unproductive individual to lead a good life. This requires more and more contributions to support this growing part of the population. So, what would happen if the government changed the law and each productive being started to save its resources in an account or own fund for this future retirement? That’s right, millions of people would stop receiving retirement, and chaos would settle in the country.
The moral dilemma that arises from this system can be understood or rather explained by two strands of philosophy: utilitarianism and objectivism. But strangely enough, the two strands will have totally opposite answers to the question: “Is it fair that today’s producers pay the cost for the mistake of those who have not fought in the past for a fairer system in which every worker saves his money and not that it would support a retired person to repeat this cycle in the future? ”. While objectivism will say no, since the individual must satisfy himself and, therefore, should choose the welfare system that best provides him with a future retirement, utilitarianism will answer that it’s fair, because society must seek to satisfy the greatest possible number of people even if it’s necessary to sacrifice some individuals.
Unfortunately, the dilemma between which answer is more correct isn’t just part of the lives of Brazilians but of most countries in the world. While public policy around the world is not based on philosophy itself, it’s possible to detect and rank these nations into those best suited to utilitarianism and objectivism, making it possible to compare the development of these societies.
Over time, most nations have decided to accept the ideals of utilitarianism as a response, sacrificing generations and generations of productive beings in the name of social welfare. The only difference is that, gradually, these countries have taken the weight of young people from sustaining a layer that no longer produces value for society. And those who give the individual the power of decision about their life become more productive and richer.
The capitalization pension system, albeit compulsorily, is a fairer model for the worker and more efficient for the employer. From the perspective of the individual, the system brings higher yields and the certainty that it will receive the amount contributed in the future; this is much better than the immoral scheme filed by the Brazilian government. If we look at the employer side, capitalization cuts costs for them. While in Brazil companies pay 20% of payroll tax plus 9% of income as Social Contribution on Net Income and 7.6% of income for Contribution to Social Security Financing (yes, social security in Brazil used to be the best in the world), in most countries that adopt the capitalization system, this percentage is only 15% of the payroll.
With populist politicians questioning about the social security deficit, there is no denying that it’s in fact in deficit. If this deficit is already large today, soon where the population will be older and young people will be a smaller portion of the population, this gap will lead the country to bankruptcy. Radical reform is needed to prevent most of public budget from being earmarked for future pension expenditures. Even though the compulsory capitalization system is not ideal, it’s a system that would best fit the political climate in Brazil.