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Transnational actors and thepolitics of pension reform inSub-Saharan AfricaMichael Kpessa a & Daniel Béland aa Johnson-Shoyama Graduate School of Public Policy,University of Saskatchewan campus, DiefenbakerBuilding, 101 Diefenbaker Place, Saskatoon, Sk,Canada, 57N 5B8Version of record first published: 26 Apr 2011.
To cite this article: Michael Kpessa & Daniel Béland (2012): Transnational actors andthe politics of pension reform in Sub-Saharan Africa, Review of International PoliticalEconomy, 19:2, 267-291
To link to this article: http://dx.doi.org/10.1080/09692290.2011.561125
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Review of International Political Economy 19:2 May 2012: 267–291
Transnational actors and the politicsof pension reform in Sub-Saharan Africa
Michael Kpessa and Daniel BelandJohnson-Shoyama Graduate School of Public Policy,
University of Saskatchewan campus, Diefenbaker Building, 101 DiefenbakerPlace, Saskatoon, Sk, Canada, 57N 5B8
ABSTRACT
Drawing on recent scholarship on transnational actors and on the role ofideas in policy change, this paper analyzes the regional context of the pen-sion reform debate in Sub-Saharan Africa, and shows that, at least since the1980s, there was significant attention to pension reforms in Africa by globalpolicy actors, including the World Bank. However, unlike in Latin Americaand Central and Eastern Europe, where the World Bank proved dominant,the regional environment of pension reform in Sub-Saharan Africa was char-acterized by a fierce competition between the World Bank and the Interna-tional Labour Organization (ILO), with each institution promoting differentpolicy preferences. As demonstrated, in Sub-Saharan Africa pension reform,the ILO has proved more influential than the World Bank. Theoretically, thepaper stresses the role of transnational actors in the global diffusion of so-cial policy ideas. Recognizing the need to explore the interactions betweennational and transnational actors, as well as between transnational actorsthemselves, the analysis explores the dialogical and competitive nature ofthe global politics of ideas.
KEYWORDS
International organizations; World Bank; International Labour Organization;ideas; social policy; Africa.
INTRODUCTION
International political economists studying recent rounds of pension re-forms across the globe argue that World Bank-styled pension reformswere delayed, and for the most part did not occur in Sub-SaharanAfrica (SSA) countries due to the lack of a ‘global politics of attention’
Review of International Political EconomyISSN 0969-2290 print/ISSN 1466-4526 online C! 2012 Taylor & Francis
http://www.tandfonline.comhttp://dx.doi.org/10.1080/09692290.2011.561125
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(Orenstein, 2003, 2005a, 2005b; Orenstein and Haas, 2000). This expres-sion refers to the claim that the World Bank ignored or neglected pensionreform in SSA countries because it could not ‘focus equally on all re-gions of the globe at once’ due to resource constraints (Orenstein, 2003:186). The core of this argument is that the World Bank makes its de-cisions about which countries to target with reforms on the basis of‘a country’s importance in the global economy, ( . . . ) their evaluationof a country’s likelihood and political will for reform, or other factors(p. 189). As a result, because of the processes required for accession intothe European Union, the World Bank targeted Central and Eastern Euro-pean countries as clients with relatively higher chance of successful reform,and thus focused much of its efforts in the region (Orenstein, 2003). Simi-larly, the proximity of Latin American countries to the United States madethem strategically important in the global political economy and thus,compelled the World Bank to prioritize neo-liberal pension reforms in thatregion over reforms in SSA countries (Orenstein, 2003; also Brooks, 2002).
Drawing on recent social science scholarship on transnational actorsand on the role of ideas in policy change, this paper examines the ‘globalpolitics of attention’ claim by analyzing the regional context of the pensionreform debate in SSA, and shows that, at least since the 1980s, there wassignificant attention to pension reform in Africa by global policy actors,including the World Bank. However, unlike Latin America and Centraland Eastern Europe, where the World Bank played a central role in thepension reform debate (Brooks, 2002), the regional environment of pensionreforms in SSA was characterized by a fierce ideological debate between theWorld Bank and the International Labour Organization (ILO), with eachinstitution promoting different policy preferences for pension reform. TheWorld Bank and the ILO led two different coalitions of transnational policyactors to champion their respective ‘preferred’ policy options (Deacon et al.,1997; Orenstein, 2008; Queisser, 2000).
Although it is true that, in many cases, the World Bank asked SSA coun-tries to carry out administrative reforms (Harrison, 2001) prior to launch-ing its global pension reform campaign in 1994 (Orenstein, 2008: 44), thisis not surprising because most English-speaking SSA countries, includ-ing Ghana, Nigeria, Zambia, Kenya, Tanzania, the Gambia and Uganda,had defined contribution pension plans that were quite consistent withthe Bank’s pension model. This arguably explains why the Bank’s adviceon administrative reforms included demands for liberalization of cen-trally managed defined contribution plans to pave the way for competi-tive pension fund management. Thus, contrary to the most recent versionof the ‘global politics of attention’ thesis, according to which SSA coun-tries are poor and therefore not seen as qualified by the Bank to havedefined contribution plans (Orenstein, 2008: 44), there is plenty of evi-dence that the World Bank was actively involved in SSA’s pension reform
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debates, and that the ILO successfully countered its influence in many SSAcountries.
Theoretically, this paper stresses the role of transnational actors in theglobal diffusion of social policy ideas.1 Recognizing the need to explore theinteractions between national and transnational actors, as well as betweentransnational actors themselves (Orenstein, 2008), the analysis explores thedialogical and competitive nature of the politics of ideas in the global pol-icy arena.2 Here, the reference to dialogical processes points to the fact thatglobal actors develop their ideas in opposition to, or at least in relation to,other actors who interact with them in the policy field. The dialogical na-ture of policy ideas is observable at both the national and the transnationallevels. In general, policy ‘alternatives and paradigms have a dialogical na-ture: each of them exists only in opposition to other policy ideas availablein a specific policy environment at a precise moment in time’ (Beland,2005: 9). The same remark applies to the politics of agenda setting andproblem definition (Kingdon, 1995). Finally, framing processes that actorsuse to construct reform imperatives (Cox, 2001) or to attack proposals putforward by other actors are also dialogical in nature (Beland, 2005). Over-all, like national actors, international organizations fight one another andredefine their policy proposals and the frames used to justify them largelyin reaction to the ideas put forward by other actors and policy coalitions.
As our analysis shows, the debate between the World Bank and the ILOin SSA illustrates the dialogical logic at the center of the global politicsof ideas and policy change. On one hand, the World Bank developed acoherent pension paradigm centered on the idea of a ‘demographic crisis’and the perceived need for countries to rely more extensively on advancefunding, among other issues (Merrien, 2001). On the other hand, reactingto this World Bank discourse, the ILO has reframed the traditional socialinsurance paradigm developed decades ago in Europe as the most appro-priate policy model for SSA. Our paper demonstrates that the dialogicalstrategies of the ILO as well as its capacity to work with national policyactors3 have proved quite successful in SSA, where the social insurancemodel advocated by the ILO and typically rejected by the World Bank hasgained ground in SSA since the 1980s.
This discussion about the role of ideas should not hide the fact that, inSSA, specific demographic and institutional realities have empowered theILO against the World Bank. First, the demographic situation in SSA isdifferent than the one in regions like Eastern Europe and Latin America,which reinforce the apparent policy appropriateness of the ILO argumentsin the SSA context. Second, the perceived flaws of existing providentfunds that are part of post-colonial policy legacies in English-speakingSSA countries have made policymakers there more receptive to ILO pol-icy ideas, which offered an alternative to such funds, in contrast with theWorld Bank’s promotion of defined-benefits schemes relatively similar to
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provident funds. In other words, ILO ideas have become influentialpartly because of demographic and institutional factors that have helpedthem seem more credible to national actors involved in the pension re-form process. From this perspective, ideas have combined with material-demographic and institutional factors to shape policy outcomes, a situa-tion consistent with the most recent scholarship on ideas and public policy,which stresses how distinct types of causal factors can reinforce one an-other to produce specific policy outcomes (e.g. Beland and Orenstein, 2009;Campbell, 2004; Orenstein, 2008; Padamsee, 2009; Parsons, 2007).
As for our decision to focus on English-speaking countries, it is legiti-mate because French-speaking countries have long operated social insur-ance schemes consistent with the ILO’s pension paradigm. Although thefact that such countries have not shifted away from these schemes oftencondemned by the World Bank points to the limitations of its impact inSSA, the case of English-speaking countries like Ghana is more relevantfor our study because it shows how some SSA countries have actuallymoved away from the provident fund model consistent with the WorldBank’s neo-liberal paradigm to embrace social insurance against the WorldBank’s advice and while receiving support from the ILO (McKinnon et al.,1997). Ghana is selected to illustrate the central argument of this paperbecause it was the first SSA country to make the shift from defined contri-bution to PAYG thereby serving as the laboratory case for other countriesthat made similar transitions. The empirical analysis is based on fieldworkinvolving interviews and a study of government documents.
The remainder of this paper is organized as follows. The first sectionprovides a brief discussion of the institutional setting of both the WorldBank and the ILO in SSA pension system development and reforms; thesecond section examines the pension reform ideas of the Bank; sectionthree examines the ILO’s response to the Bank’s pension reform ideas aswell as strategies used by both actors in their SSA pension campaigns.The fourth section discusses the influence of the ILO in English-speakingSSA countries, with a particular focus on Ghana while showing how arecent reform in Nigeria further backs our argument. In the fifth section,the paper briefly compares the situation in English-speaking SSA with theone prevailing in Eastern Europe and Latin America, two regions wherethe World Bank has proved more influential than in SSA, at last in the fieldof pension reform. The conclusion of the paper provides a broad overviewof our argument.
INSTITUTIONAL CONTEXT OF ILO AND WORLDIN SSA PENSION ARENA
On one hand, in SSA, the development of pension systems after indepen-dence relied heavily on the expertise and advice of the ILO and its affiliate
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institutions like the International Social Security Association (ISSA). Thediffusion of ILO pension policy standards has been facilitated through theuse of conferences, seminars, training sessions, and through the ratifica-tion of its conventions by African states (ISSA, 2000). On the other hand, inSSA, the World Bank has emerged as the prime lender and financier of na-tional development projects since the 1960s. This is true partly because thelegitimacy and acceptability of postcolonial order was dependent upon theability of African nationalist leaders to honor their promises by buildingroads, factories, and dams, as well as effectively delivering public educa-tion, health services, and quality water. This situation provided both theWorld Bank and post-colonial African elites with an opportunity to justifytheir relevance to the new states in SSA.
Since the 1980s, the World Bank has not only generated intense debateabout pension policy designs and the ‘need to reform’ them, it has alsobecome a major player in promoting alternative ideas and policy prefer-ences for pension reforms based on a neo-liberal paradigm centered onthe promotion of economic competition and individualism (Brooks, 2007;Deacon, 2007; Holzmann and Hinz, 2005; Orenstein, 2003, 2005a, 2008). TheBank has received support from other transnational actors including theInternational Monetary Fund (IMF) and the Inter-American DevelopmentBank (IDB), among others (Deacon, 2007; Orenstein, 2005a).
THE WORLD BANK’S MOBILIZATION AGAINSTPOSTWAR PENSION LEGACIES
In its premier work on pension reforms, the World Bank argued thatchanges in demographic composition, budget difficulties, and potentialinter-generational conflict arising out of problems posed by demography,demanded drastic changes in existing PAYG pension programs in coun-tries around the world (World Bank, 1994). Although 1994 is often taken asthe starting point of the World Bank’s work in pension reform, the organi-zation has long been involved in pension system restructuring within thebroader framework of structural adjustment and capital market develop-ment projects in the developing world. For instance, although the Chileanpension reform that began in the early 1980s is generally credited to the‘Chicago Boys,’ the World Bank was a major participant that provided theideological and financial inspiration for that reform (Brooks, 2004, 2005,2007; Edwards, 1997; Muller, 1999, 2003; Weyland, 2006). Thus, the pub-lication of Averting the Old Age Crisis in 1994 can be seen as the publicannouncement of what the Bank already saw as its policy framework forpension reform, especially in the developing world (World Bank, 1994). Inthe case of English-speaking SSA countries, because the pension environ-ment prior to the 1990s was different from the one in other regions of theworld, sticking rigidly to this starting point ignores the fact that the Bank
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was engaged in pension reforms especially through financial and capitalmarket reforms beginning in the 1980s. Thus, the publication of the Bank’spremier publication – Averting the Old Age Crisis – was only the officiallaunch of the Bank’s intention to take on pensions as a distinct policyissue. The publication of Averting, therefore, could be seen as the initialcrystallization of the Bank’s ideas about pensions. Although it is clear thatthe World Bank pension framework has considerably evolved since 1994(Gil et al., 2004), this report is a good starting point for a discussion aboutthe organization’s role in this policy area (Merrien, 2001).
In Averting, the Bank painted a bleak demographic picture and ques-tioned the sustainability and relevance of existing social protection ar-rangements in an era characterized by accelerated population aging. As astep towards resolving what was portrayed as an aging crisis, the WorldBank and its allies presented a set of options for pension reform based onan amended version of the Chilean model (World Bank, 1994). The WorldBank’s framework is premised on the belief that several distinct pillarsaid in diversifying retirement risk and/or ensuring multiple sources ofretirement income. The Bank and the other supporting transnational ac-tors portrayed the traditional PAYG social insurance systems as obsolete,unsustainable, and detrimental to economic growth. The Bank also em-phasized economic efficiency and the growth advantages of funding andindividual retirement savings (Holzmann, 2000; World Bank, 1994). As aresult, the new pension reform template provided greater scope for privateretirement financing and provision, and only a limited or residual role fordirect, state-guaranteed social protection.
The World Bank’s programmatic pension framework consisted of threepillars: (1) universal flat-rate or means-tested pension (redistribution) forthe purposes of alleviating old age poverty; (2) mandatory pension sav-ings in privately managed individual retirement savings accounts; and(3) voluntary or optional retirement savings in occupational or individualpension savings accounts (Holzmann, 2000; Holzmann and Hinz, 2005;Orenstein, 2005a; World Bank, 1994).The prime objective of the WorldBank was to encourage a shift in pension arrangements from PAYG pro-grams to funded plans with an emphasis on individual responsibility andprivate sector activism.
ILO’S RESPONSE TO THE WORLD BANK
The Bank’s active involvement in social policy beginning in the 1980s wasseen as an attempt to dismantle what the ILO had spent years building, aswell as being an intrusion into a policy domain that defines the existence,relevance, and essence of the ILO as one of the specialized agencies ofthe United Nations (Merrien, 2001). The two institutions have since beenengaged in a dialogical struggle over the future and place of pension policy.
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Unlike the Bank’s preference for a minimum safety net, the ILO operateswithin the notion of social citizenship. Based on its long years in socialsecurity, the ILO argued that there is no pressing reason to dismantle thepublicly managed PAYG social security model. Therefore, it argued that,if implemented, attempts by the World Bank to move beyond this modelcould weaken democratic cohesion and undermine social partnership inpolicy-making processes (Deacon et al., 1997). The ILO, therefore, statedthat pension reforms must be guided by the ‘values society places on theprovision of income security in old age and the resources it is preparedto allocate for the purpose’ (Gillion, 2000: 35). Consequently, even thoughthe ILO recognizes the challenges posed to pension systems by agingpopulations, it differed with the World Bank on the interpretations of thechallenges and options for reform.
Advocates of the policy preferences of the ILO argued that it is unfor-tunate that pension reform has been mixed up with the larger debatesabout privatization and the economic role of governments (Beattie andMcGillvray, 1995). In the case of pensions, creative adaptability measures inthe form of (1) upward adjustment in retirement ages, (2) increasing socialsecurity contribution rates, (3) extending coverage to economic sectors notyet covered, (4) greater taxation of social security benefits, (5) adjustmentin benefit rates, and (6) gender equalization of retirement ages, are all de-picted as workable options available for reforming existing PAYG schemespressured by the fiscal impact of aging populations (Fulz, 2000; Gillion,2000). According to ILO officials, the claim that a move from PAYG pensionplans to funded individual accounts or defined contribution schemes ingeneral would solve existing pension challenges ‘rests on the false analogybetween individual savings and national savings’ for two reasons (Fulz,2000: 5).
First, according to the ILO, any nation that sets aside resources in an-ticipation of an aging population can only make claims against itself. Tospend the resources set aside, the state must withdraw from sectors of theeconomy where the resources are invested. This phenomenon can resultin contraction in the sectors from which the resources were withdrawn.Because funded schemes ‘operate on the principle that pensioners are ablein effect to sell assets to (or use them as collateral to borrow from) anactive generation in order to generate cash income. If the buyer genera-tion contracts, then one must expect asset prices to drop, thereby reducingretirement income of the selling generation’ (ILO, 2001: 55). For the ILO,funded pension plans have no special demographic advantages over PAYGplans.
Second, goods and services consumed by pensioners must be producedat the time they are most needed – around the period of retirement –because it is impossible for both economic and practical reasons to stock-pile goods and services for retirees ‘years ahead in anticipation of larger
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numbers of retirees’ (ILO, 2001: 6). This is because, if at the time of theirexit from the labor market, retirement benefit levels and GDP remain con-stant, an increase in the number of retirees will automatically lead to anincrease in the fraction of the GDP they will consume and a reduction inthe portion of GDP that will be left for the active labor force and otherdependents in the economy. From these two perspectives, the ILO arguedthat funded pension systems have no merit over PAYG systems in dealingwith increases in elderly populations.
THE BATTLE FOR INFLUENCE IN SUB-SAHARANAFRICA
While the World Bank was pointing to an aging population and its eco-nomic impact on existing PAYG plans in a global fashion, the ILO carefullyand systematically contextualized the socio-economic problems againstwhich the Bank and its allies formulated their policy preferences for pen-sion reform. For instance, officials of the ILO argued that Africa is not onlythe ‘youngest’ continent, but it is also one of the few regions where pop-ulation aging is slow (Fulz, 2000). Empirical evidence about demographicchange in SSA is used to back the ILO’s claim. This is true because theregion’s demographic data indicate that, on average, SSA’s population isrelatively young compared to other continents of the world. Even thoughfertility rates are on the decline in all the major regions of the world, theyare still high in SSA countries. For example, while the worldwide averagenumber of children per woman declined from 5.0 in the 1950s to 2.7 in2007, SSA countries still retain the highest average number of childrenper woman at 5.5, which is only 1.2 less than the region’s 1950s average(Population Reference Bureau, 2007). More generally, SSA not only has thelowest dependency ratio, but also the youngest population in the world(Ashford, 2007). Although it is expected that changes in fertility and mor-tality rates will increase the size of the elderly population in SSA, the‘transition will take a long time and the bulk of the African populationwill continue to be young for a while [and] in many countries the age de-pendency will decrease over the next twenty years’ (Barbone and Sanchez,2000: 9). Therefore, as the ILO argues, within the context of SSA, the de-mographic trends are not only different, but the demographic pressuresposed for pension systems elsewhere are almost non-existent. From thisperspective, population aging is not currently a problem for social securityfinancing in SSA countries (Turner, 2001).
By drawing attention to Sub-Saharan Africa’s seemingly favorable de-mographic trends, the ILO challenged the World Bank’s definition of ‘pen-sion crisis’ in the region. Arguably the ILO has an impact on nationalpolicy actors in English-speaking SSA countries. This is true because, al-though the domestic policy environment and existing pension policies at
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the time reflected more of what the World Bank was promoting, these na-tional actors, as discussed in the Ghanaian case below, opted for definedbenefit PAYG social insurance programs advocated by the ILO (Dei, 1997).Beyond that case, ILO officials argued that the Bank’s generalized claimsabout economic impact of aging populations on pension plans did not ap-ply to SSA. On one hand, according to the ILO, the PAYG social insuranceschemes in French-speaking SSA countries were too recent to experiencethe problems the World Bank associates with such schemes. On the otherhand, English-speaking SSA countries operated large defined contributionpension plans (provident fund schemes – a public version of the Bank’spolicy preference) for most workers, and defined benefits inherited fromthe colonial regime for a small portion of civil servants. The ILO arguedthat, in relative terms, pension-related spending in Africa constitutes asmall fraction of the region’s total GDP (ILO, 2001). As explained in Ta-ble 1, Africa ranks very low in a comparative study of pension-relatedspending. European, Asian, Latin American, North American, and Ocea-nia countries spent on the average 12.1%, 3.0%, 2.1%, 7.1% and 4.9% oftheir GDP respectively on pensions in 1990 while African countries onlyspent an average of 1.4% of their GDP on pensions.
In addition to the relatively low levels of pension expenditure, providentfunds in SSA countries were mandatory individual retirement savingsaccounts with benefits directly linked to contributions (Gerdes, 1971; Pauland Paul, 1995). By design, such schemes neither ensure biometric riskpooling, nor intergenerational transfers and redistribution (Gerdes, 1971).As defined contribution programs, benefit payments under provident fundschemes were mostly in lump-sum form (Gerdes, 1971). By and large,the design of provident funds eliminated the intergenerational inequityproblems that bedeviled PAYG schemes, as well as government promiseand the financial commitment inherent to these schemes. However, the
Table 1 Aggregate levels of social security expenditure, 1990
Total socialsecurity expenditure, Percentage
Region of which pensions (%) of GDP
All regions 14.5 6.6Africa 4.3 1.4Asia 6.4 3.0Europe 24.8 12.1Latin America and Caribbean 8.8 2.1North America 16.6 7.1Oceania 16.1 4.9
Source: ILO (2001).
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defined contribution programs in English-speaking SSA countries werealso in crisis by the mid 1980s. They were in a crisis of a different kindrelated to the insufficiency of lump sum payments and the reduced valueof retirement savings resulting from inflation and currency devaluation.These issues, however, were not captured in the World Bank’s analysisof the pension crisis and, as one ISSA official in Africa argued, the Bankdefined Africa’s social security problems and provided reform options onthe basis of socio-economic and demographic realities in Europe in itsusual one-size-fits-all fashion (personal interview in Accra, March 2008).
By the 1990s, the ILO and the ISSA had already been deeply involvedin English Speaking SSA social security circles, notably by encouragingpolicymakers to shift from funded defined contribution schemes to prop-erly designed and managed PAYG programs, as a strategy to escape theproblems undermining the provident fund schemes (personal interviewsin Accra, Ghana, March 2008). Realizing the speed and zeal with which theBank’s pension reform options were being pursued in Latin America andCentral and Eastern Europe, as well as reform trends in OECD countries,the ILO and its affiliate institutions adopted four main strategies to limitand contain the Bank’s influence in pension reform in SSA countries.
First, the ILO reminded policy-makers in SSA countries of the adverseimpacts of structural adjustment programs (SAPs) on defined contribu-tion schemes in the region. Currency devaluation and inflation broughtin by austere economic measures had forced the actual value of money inindividual retirement savings deposited in the provident funds to fall. Asa result, lump sums paid to retirees were lower than expected and gener-ally short of the income required to keep pensioners and their dependentsout of poverty (Cichon and Karuna, 2000). ILO officials have posited thatstructural adjustment programs have not only reduced the number of em-ployees in the formal sector through retrenchment, but have also producedimmense financial difficulties for most statutory programs, due mainly tosevere cuts in social budgets and decline in the number of contributors.This situation has resulted in a large number of vulnerable groups thatcannot be reached by formal pension policy programs (Ginneken, 1999).In this case, ILO officials blamed structural adjustment policies pursuedby the World Bank and the IMF for the breakdown of provident fund de-fined contribution schemes and for the severe financial difficulties facedby PAYG plans in SSA countries.
More directly, however, the ILO officials argued that, based on Africa’sown experiences, one-off lump sum benefits in defined contributionschemes are insufficient to provide income security for the lasting con-tingency of old age because evidence demonstrating the inability of lumpsum benefits to cater for the full range of this contingency is overwhelm-ing. In the ILO’s view, therefore, ‘the World Bank ignores the experience ofAnglophone Africa and its national provident funds, which largely have
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failed to provide social security because the savings have proved to beinsufficient, have been eroded by high inflations, bad portfolio manage-ment and deficient governance in general simply because no profitableinvestment outlets were available in countries in the region’ (Cichon andKaruna, 2000: 92).
Secondly, officials of the ILO and its affiliate institutions attacked thelogic and practicality of funded, privately managed pension plans in frag-ile economic systems such as those found in Sub-Saharan Africa. The ILOargued that there are no clear-cut labor supply and capital market devel-opment advantages in the operations of funded pension schemes (Cichonand Karuna, 2000; Gillion, 2000; Thompson, 1998). Supporters of publicpensions maintained that a shift to a privately managed funded pensionsystem could potentially produce adverse effects on welfare, fiscal balance,and individual labor market decisions because people may choose to leavethe labor market earlier once enough has been saved for that purpose.Beattie and McGillvray (1995) argued that defined contribution schemesdo not provide any greater guarantee of old age income security; instead,they expose individual retirees’ welfare to extreme risks rather than prop-erly designed and well-managed PAYG plans. Orszag and Stiglitz (1999)also pointed out that in less developed countries, lack of efficient capitalmarkets and weak regulatory systems create opportunities for abuse inprivate management of old age income systems.
Third, unlike in Latin America and Central and Eastern Europe wherethe Bank and its allies ignored social partners and influenced pensionreforms through like-minded domestic institutions (Deacon et al., 1997;Madrid, 2005), its ability in SSA countries to bypass core social partners,especially labor groups, was effectively checked and constrained by theILO and the ISSA. For instance, in Latin America and Central and EasternEurope, the Bank gave priority to convincing owners of private financialinstitutions that private pensions were in their interest and rejected re-quests made by trade unions for dialogue on its sponsored pension reforms(ICFTU/Global Unions, 2006). In SSA, however, the ILO and the ISSA ef-fectively confined the Bank’s activities to already established frameworksfor discussing issues relating to social security. The Bank had to tread cau-tiously because its credibility in the area of social policy was low in theregion due to the social hardship that resulted from the implementationof earlier economic programs it sponsored in collaboration with the IMF.The Bank and the IMF were widely blamed for a social policy crisis thatengulfed SSA countries after the 1980s (Aina et al., 2004; Olukoshi, 2000,2007).
In contrast, the ILO and its affiliate institutions enjoyed support fromSub-Saharan Africa policy-makers because they had been in the region fordecades assisting policy-makers in developing their social security pro-grams (Government of Ghana, 1982). For instance, the ISSA developed a
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regional interactive program that brings government officials, employees,employers, and experts in social security together annually to discuss theirnational experiences, share their expertise, and learn innovative practices(ISSA, 2000, 2004). This annual gathering of stakeholders in social secu-rity has created a unique bond between the ILO, the social partners, andgovernment officials around social security related issues.
A fourth strategy adopted by the ILO and its affiliate actors to weakenthe Bank’s influence further in the region was to stress the unique re-gional features of SSA pension problems. In contrast to the Bank, the ILOidentified specific governance, institutional, and operational weaknessesin pension systems in SSA as the main challenges undermining the effec-tive sustainability of old age income support in the region. Officials andsupporters of the ILO argued that the core policy challenges of pensionsystems in SSA include limited coverage, fragmentation without coordi-nation of schemes, inefficient monitoring mechanisms, insufficient quan-titative analysis, mismanagement, and government interference, as wellas institutional, operational, and governance deficiencies (Bailey, 2000;Oliver, 2005). As a result, the ILO insisted that the solution to SSA pensionplan challenges does not lie in the maintenance of or a shift to fundedprograms. Rather, countries in SSA need to focus on building properlydesigned and well-managed defined benefit social insurance PAYG pro-grams with risk pooling and collectivist elements to ensure reliable old ageincome protection (Queisser, 2000; Ross, 2000).
ASSESSING ILO INFLUENCE: GHANA’S SHIFTTO PAYG IN 1991
To assess the outcome of the dialogical and ideational competition betweenthese two transnational actors, reports from various English-speaking SSAcountries provide evidence that the ILO was influential not only in the de-cision to choose social insurance over private pensions, but also in thereform process taking place within SSA countries. Generally, the ILO andits affiliate institutions were seen as partners in social security matters bygovernments and the social partners in the region. As Dei (1997) noted, thedevelopment of modern social security programs in SSA countries was it-self influenced by the fact that they became members of the ILO as a UnitedNations specialized agency. In more recent reforms, because the ILO, likeany other transnational actor (Orenstein, 2008), lacked the institutional sta-tus to be involved directly in the domestic SSA decision-making processes,it oriented its activities in the direction of persuading domestic actors suchlabor groups, employers associations and relevant government ministriesmainly through its tripartite platforms to adopt its problem definitions,preferences, and policy alternatives (on the general relationship betweennational and transnational actors, see Orenstein, 2008).
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Using a variety of channels including the deployment and insertionof experts into domestic arenas of pension reform, workshops for socialsecurity staff and other major players, publication of technical reportsand expert analysis, technical support, conferences, and seminars thatspread information about social insurance, the ILO was able to shape theformulation of the reform agenda as well as foster cooperation amongmajor actors with conflicting interests. As a result of the ILO’s influence,countries such as Ghana, Nigeria, Tanzania, and Uganda among othersthat demonstrated preference for and established (defined contribution)provident funds in the 1960s, had by the end of the 1990s converted thoseplans to PAYG social insurance schemes (Bailey and Turner, 2000; Cheta,2005).
Ghana was the first among these English-speaking SSA countries tomake the move to PAYG social insurance in 1991, and thus it makes anexcellent case for illustrating the impact of the ILO on policy in SSA coun-tries. More importantly, this case shows that in SSA, the active presenceof the World Bank in pension reform began well before the publication ofthe 1994 report discussed above. By studying a key pension reform thatoccurred before 1994, we stress the early involvement of the World Bank inpension reform as well as the success of the ILO in dialogically promotingcounter-ideas consistent with both its social insurance paradigm and thespecific demographic and political situation in SSA countries.
As mentioned above, in the years immediately following independence,Ghana and a number of English-speaking African countries opted for prov-ident fund pension plans instead of the prevailing preference for socialinsurance across the world. The ILO, which was tasked to help with the es-tablished pension plans in the early, post-independent years (Governmentof Ghana, 1982), strongly advised against the adoption of provident fundson the grounds that such plans are ‘highly seductive to governments whichfeel that they can solve the problem of social insecurity – or wish to give theimpression that they have solved it – without being put to . . . spending taxmoney’ (Parrott, 1968: 545). In their quest to utilize funds from the schemeto finance their development projects, policy-makers in English-speakingSSA countries pursued their interest in the provident funds and by thelate 1960s, most of these countries had variations of defined contributionschemes as their major institutional arrangement for old income support(Gerdes, 1971; Turner, 2001).
During the 1980s, in line with the principles of the capital market de-velopment, the IMF and the World Bank encouraged the Ghanaian gov-ernment to not only maintain the defined contribution provident fundprograms, but also transfer their management to private fund managers.As part of the economic recovery measures, the World Bank and thegovernment signed a conditionality loan agreement of US$100 millionin 1988 to reform the country’s financial system. This was regarded as
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a necessary step to boost the economic recovery process (personal inter-views, Accra, March 2008). Consequently, the two launched a FinancialSector Adjustment Programme (FINSAP) to restructure distressed banks,improve capital mobilization strategies, improve regulatory and supervi-sory frameworks, and assist in capital market development. The WorldBank relaunched the FINSAP in 1989 to include restructuring of non-banking financial institutions, especially contractual savings arrangementssuch as provident funds and state owned insurance companies (Mensah,1997).
Because the provident funds were designed in the form of defined con-tribution plans, the World Bank’s reform initiatives in this area emphasizedthe need to retain the structures of the provident funds and improve themanagement and investment practices while linking benefits to contribu-tions. In response, the government reformed the administration, manage-ment and investment practices of the provident fund plans by separatingactuarial and statistical departments into two units. The government alsoupgraded the receiving unit, restructured the benefits department andestablish a new policy framework for investment (Dei, 1997). Ghanaiansocial partners were disappointed that the much-anticipated shift to socialinsurance pension programs was shelved and that the government hadcommitted itself to maintaining the provident funds as demanded by theWorld Bank (Kpessa, 2009). These remarks suggest that the World Bankdid play a direct role in Ghana’s pension debate long before the publicationof Averting the Old Age Crisis in 1994. Yet, as shown below, Ghana endedup rejecting the Bank’s advice and, instead, received support from the ILOin order to discard the provident funds and implement a social insurancesystem consistent with ILO’s advice.
Faced with domestic pressures in the early 1990s, especially from orga-nized labor, retirees and the general public in an era that coincided withthe first multi-party elections to usher in the Fourth Republican Constitu-tion, the military government bypassed the World Bank which was alreadydeeply embedded in policy-making processes in Ghana, and, instead, in-vited the ILO to advise on modalities to convert the provident funds to aPAYG social insurance scheme (personal interview in Accra, March 2008).Following this invitation, the ILO sent experts and actuaries who workedwith Ghanaian policy-makers by participating in the entire process of thereforms. First, the ILO assisted in conducting an actuarial assessment of theprovident funds in order to ascertain their true state prior to the reformsin 1991. In doing this, it helped establish relevant demographic profileson fund members, and also provided simulation tables with projectionsbased on different scenarios. With data obtained from the Regional Insti-tute for Population Studies (RIPS) and the Institute Statistical Social andEconomic Research (ISSER), the ILO developed various models aroundissues such as population structure, birth and mortality rates, economic
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growth, and patterns of job creation to help Ghanaian policy-makers gaina long-term actuarial view of social insurance schemes as compared to theprovident funds (personal interview in Accra, March 2008). The actuarialassessments and the various projections made by the ILO were used byGhanaian policy-makers in designing their social insurance scheme, par-ticularly with respect to contingencies covered, retirement age, minimumand maximum pension contribution rates, and the formula for computingbenefits. In other words, the ILO helped Ghanaian policy actors developan alternative to the provident funds the World Bank wanted them topreserve.
Second, the ILO assisted pension reforms in Ghana by helping to sortout major transitional bottlenecks involved in moving from one pensionsystem to another in a way that helped resolve conflict between the socialpartners and the Ghanaian government. Although all the major actors ex-pressed different preferences for transition based on their institutions, theyall accepted the ILO’s pension credit approach under which all previous con-tributions to the provident funds were to be converted into contributionstowards the social insurance scheme. In accepting the ILO’s proposal, thegovernment argued that the approach would not only allay workers whoentertain fears that they might be worse off under the new scheme, but alsoensure continuity, avoid further institutional fragmentation, and preventdiscrimination against any particular working cohort (personal interviewin Accra, March 2008). The core strength of the ILO’s transitional provi-sion was that it made it possible for all members of the provident funds toautomatically become members of the social insurance program once thetransition took place. According to the social partners, the ILO suggestionmade it possible for previous contributions of their members to be cred-ited into the social insurance programs, which helped persuade them (Dei,1997; Government of Ghana, 1982).
Third, realizing that effective administration of any pension programis dependent to a large extent on the institutional capacity and supplyof technical know-how of the management and staff of the scheme, theILO provided training for the staff and management of the Ghanaianpension plans prior to and after the conversion. For instance, in 2008, whileconducting field research for this project, the ILO, through its affiliateinstitution – ISSA – was facilitating various training programs for themanagement of the Social Security and National Insurance Trust (SSNIT)against the background of contemporary debates about pension reforms.Officials of SSNIT argued that the trainings offered by the ILO in the early1990s, resulted in the complete change in the management structure ofthe pension plans in Ghana (personal interview in Accra, March 2008).These training sessions, which by all accounts take place on a regularbasis, are the ILO’s main means of continuing to influence social securitypolicy-making in Ghana and in most other SSA countries.
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The ILO was able to exert influence on the Ghanaian pension reforms be-cause of its ability to collaborate with all the major players in a consensus-building and problem solving environment of its tripartite arrangement.For instance, in the public education campaigns prior to and during imple-mentation of the social insurance schemes, the ILO served as the resourcefor the key government officials, the social partners, and the managementof the scheme who engaged the public in radio, television, and newspa-per discussions on the changes that were about to occur in the pensionsystem. The leadership of these stakeholders were trained by the ILO invarious workshops and seminars to enable them to explain the meritsof social insurance over defined contribution to their members and thegeneral public. Dei (1997) argues that ‘the process of conversion of theprovident fund in Ghana illustrates that a pension scheme should be forthe people and should be accepted by them and not be imposed on them’(p. 70).
Overall, there is strong evidence that the ILO played a major role in theenactment of the 1991 pension reform in Ghana. Ghanaian officials arguedthat the ILO used the success of their reform as a laboratory case not only toconvince other English-speaking SSA countries to do the same, but also ac-tively assisted them in making similar changes that explicitly went againstthe advice of the World Bank. Thus, soon after the Ghanaian reform, theILO invited other countries with provident funds in the region to visitGhana and draw lesson from its experience. Using its technical support,tripartite platform, actuarial assessments, and institutional capacity build-ing programs, the ILO succeeded in convincing other countries to adoptsocial insurance: for example, Nigeria in 1994, Zambia in 1996 and Tanza-nia in 1997 (Bailey and Turner, 2000; Cheta, 2005; McKinnon et al., 1997).Uganda is still in the process of converting its provident funds into a socialinsurance system (Dau, 2003) and Kenya has recently passed legislation todo so (Mogere, 2005a, 2005b).
In the case of the Gambia, a PAYG social insurance scheme was intro-duced on top of existing provident funds (US Social Security Administra-tion, 2005). Although the World Bank has been active in many English-speaking SSA countries, it is clear that, in pension reform, the ILO hasbecome more influential than the Bank in the region. It is worth notingthat despite the clear success of the ILO in SSA, Nigeria embraced pen-sion privatization in 2004 (Aborisade, 2008). The national new pensionplan in Nigeria has been described as a shift to private pensions (Caseyand Dostal, 2008); however, the content of the act that established thenew scheme left significant room for the continued existence of the Nige-rian Social Insurance Trust Fund (NSIT), which has operated as a PAYGdefined benefit scheme since the 1990s. For instance, the NSIT currentlycontinues to collect employee and employer contributions. It is also taskedwith the responsibility of providing social security services to contributors
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(Orifowomo, 2006). As Casey (2009) noted,
although the new system can be described as ‘funded,’ it is fundedonly in the narrowest sense. It is little more than a pay-as-you-go(PAYGO) system. Contributions are collected and much of the moneyis fed to the central government, which issues the account holderwith an IOU. On retirement, the individual presents the IOU and thegovernment redeems it either from tax or from other current revenuesor it issues new bonds to anyone in the market for them. (p. 6)
In addition, the adoption of individual accounts in Nigeria has beendriven entirely by the fact that the existing PAYG programs becamebankrupt and could no longer honor the promises made to retirees. Bythe mid 1990s, Nigeria had a non-contributory pension scheme inheritedfrom the colonial system intended mainly for public servants, and the othermostly for private sector employees (The National Pension Commission,2006). Both of these defined-benefit schemes could not pay retirement ben-efits largely due to budgetary constraints and a general mismanagementand political interference (Uche and Uche, 2002). Thus, while governmentactors saw the existing non-contributory PAYG programs as a drain ontheir budgets, the social partners were completely disillusioned due to thelevels of destitution among retirees. National actors – both governmentand social partners – decided to adopt a pension program based on in-dividual accounts as a way to stimulate economic development and toensure individual freedom over retirement decisions (Casey and Dostal,2008). This policy decision was contained in the national developmentstrategy report adopted in 1996 but was not implemented due to politicalinstability (Pensions Subcommittee, 1997).
In fact, in 2004, when policy-makers in Nigeria were deliberating im-plementation of the individual accounts, they were advised by the WorldBank not to do so on the grounds that the country lacked the required cap-ital market to sustain such a pension plan. As noted earlier, the Bank hadfor a long time demonstrated preference for private pension in SSA coun-tries (Holzmann, 2003); however, it came to the conclusion of advising SSApolicy-makers against private pensions especially in the 2000s after yearsof experience in the field as well as a dialogical process that helped shapethe cognitive beliefs of transnational actors (Queisser, 2000). In implement-ing the individual account pension program, Nigerian policy-makers drewheavily from the experience of Chile to justify their decision. In fact, at nopoint was the World Bank nor its 1994 report on pension reform men-tioned in the processes leading to the decision. As a previous study onthe Nigerian pension reform suggests, it was purely a case of domesticpolicy learning rather than one featuring the direct transnational influenceof organizations like the World Bank (Casey and Dostal, 2008). Overall,the recent reform in Nigeria does not challenge the argument of this paper
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that the World Bank was outpaced by the ILO in SSA at least in the case ofpension reforms.
CROSS-REGIONAL COMPARISON
This paper suggests that, in the 1980s and the 1990s, pension reforms inSSA countries differed from reforms in other regions of the world whereboth the ILO and the World Bank were also involved. Consequently, itis important to explain why the ILO outpaced the World Bank in theSSA and not in other regions of the world like Eastern Europe and LatinAmerica. Three main domestic factors account for the ILO’s success inSSA, and they point to major domestic demographic and institutionalrealities that made it easier for the ILO to promote its ideas and con-vince national actors to support them. First, scholars studying the shiftto private pensions in Latin America and Eastern Europe show that, inthese regions, the crisis in existing PAYG programs helped in validat-ing the policy prescriptions proposed by the World Bank (Muller, 2003;Orenstein, 2008). This is true of SSA countries, too. The post-independencedefined contribution provident funds were undermined by the economicdownturns that hit the region in the 1970s. Inflation and currency de-valuation meant that the value and purchasing power of individual sav-ings funds were drastically reduced. As a result, governments becameacutely concerned and attentive to ILO’s advice. In a dialogical battle,policy-makers in English-speaking SSA countries expected to hear some-thing different from what they had heard previously in terms of pensionplans, and the ILO provided the alternative that the Bank did not. Inaddition, the ILO’s position was further augmented by the fact the de-mographic shifts used by the Bank in its assessment of existing pensionplans around the world did not really correspond to the realities in SSAcountries.
Second, a major reason why the Bank’s pension reform ideas appealedto policy-makers in Latin America and Central and Eastern Europe wasbecause, theoretically, they provided mechanisms for solving problemsrelated to high public pension deficits in their existing PAYG programs.Available analysis of reforms in these regions suggests that the Bank wassuccessful in building coalitions with finance ministries in pension reform-ing countries because officials in these government departments looked tothe Bank to legitimize their reform ideas in persuading their domestic audi-ences. However, in English-speaking SSA, because the pension programsthat existed before the shift to PAYG social insurance were based on definedcontribution principles, the main policy issues at stake were about nega-tive returns on individual retirement investments brought about by boththe economic crisis and austerity measures embedded in structural adjust-ment policies. Government officials in SSA were therefore less enthused
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about pension reforms basically designed to reduce the fiscal burdenon the state or to solve pension system problems that were at variancewith their own circumstances. Beyond this, SSA countries had a long-standing tradition based on ratification of ILO conventions that bind themto tripartite deliberations of social security issues.
The third major factor that shaped how policy-makers in SSA and otherregions reacted to the dialogical debate between the two transnational ac-tors was domestic politics. For instance, countries in Latin America andCentral and Eastern Europe that adopted reforms incorporating the WorldBank’s advice had to cope with strong opposition from labor unions andother groups even though much of the public had lost confidence in theviability of the PAYG systems (Muller, 2003; Orenstein, 2008). In English-speaking SSA countries, the public lost confidence not in PAYG schemesbut in the provident funds mainly because the unfunded PAYG schemesfor civil servants inherited from the colonial administration continued topay relatively generous benefits while the provident funds were devas-tated by a combination of factors. This type of ‘policy legacy’ (Pierson,1994) played favorably to the position of the ILO in the debate. In addi-tion, the shift to PAYG coincided with a period in SSA when most countrieswere making a transition from authoritarian rule to democratic rule. Gov-ernments seeking labor support in scheduled elections must appease theunions, and converting the defined contribution schemes to PAYG socialinsurance came handy.
CONCLUSION
An independent evaluation of the World Bank’s pension reform activi-ties across the world indicates that the World Bank has been involvedin pension reform efforts in more than a dozen SSA countries since 1984(Andrews, 2006). The World Bank has participated in, and strongly madethe case for, pension privatization in SSA at conferences organized bythe ISSA for African policy-makers since the new pension ideas beganto spread (ISSA, 2000, 2004). Considering this and what was said in theprevious sections, the argument that the lack of a global politics of atten-tion (Orenstein, 2003; Orenstein and Haas, 2000) may explain why SSAcountries did not adopt the Bank’s model in the first 20 years of its globaldiffusion is problematic at best. For instance, since the 1980s, the Bank hastried to convince SSA policy-makers in French-speaking countries to pri-vatize the PAYG social insurance schemes inherited from the colonial sys-tem while recommending that English-speaking ones keep their definedcontribution (provident fund) arrangements as they focus on administra-tive and governance reform of the schemes. Yet, the impact of the Bank’s
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earlier economic policies – currency devaluation, inflation, and retrench-ment – have not only adversely impacted the provident fund schemes,but also they have upset labor unions and employers, and have under-mined governmental ability to engage the social partners on pension issues(Kpessa, 2009). This situation created a window of opportunity for the ILO,which has played a central role in SSA pension reform since the 1980s. Asevidenced above, competing against the World Bank for influence, the ILOmostly won the ideational and policy battle over pension reform in SSA, asituation that contrasts with the World Bank’s relative domination in otherparts of the world.
Overall, this article stresses the dialogical nature of the politics of ideasand its meaning for the analysis of transnational policy struggles involv-ing international organizations like the ILO and the World Bank. Whencompeting against one another for influence, these two organizations at-tempted to convince influential national actors of the validity of theirdefinition of the pension problem and of their proposed solution to it.In SSA countries, demographic realities at odds with the pessimistic dis-course of the World Bank about the impact of population aging as wellas the problematic institutional legacies of the provident funds present inEnglish-speaking countries helped the ILO make a case for its approach topension reform, which was depicted as more adapted to the SSA context.Clearly, it is not financial pressures from this organization but its capacityto convince national actors that the policy alternative (i.e. social insurance)they put forward was the best response to the specific challenges SSA coun-tries face that made a difference. Partly because the ILO found a way todelegitimize the World Bank’s global discourse on pensions by depictingit as out of touch with African realities, the ILO scored many ideologicaland political points while helping national actors implement policies thatactually responded to some demands emanating from national social andpolitical forces. Overall, the World Bank has been active in SSA countriesbut it has thus far faced irresistible dialogical competition from the ILO,a situation that contrasts with the one prevailing in other regions of theworld, where the Bank has proved dominant.
ACKNOWLEDGEMENTS
The authors would like to thank Angela Kempf, Mitchell Orenstein, andthree anonymous reviewers for useful comments and suggestions. Theauthors acknowledge support from the Social Sciences and HumanitiesResearch Council (SSHRC) of Canada and the Canada Research ChairsProgram, respectively.
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NOTES
1 On the role of policy ideas in general, see Blyth (2002), Beland (2005), Belandand Cox (2011), Campbell (2004) and Parsons (2007).
2 The concept of dialogism first developed in literary theory, see Holquist (1991).3 For a theoretical perspective on this issue, see Orenstein (2008).
NOTES ON CONTRIBUTORS
Michael Kpessa is a Post-doctoral Fellow at the Johnson-Shoyama Graduate Schoolof Public Policy (University of Saskatchewan campus). He recently completed hisPhD in political science at McMaster University (Ontario, Canada). His currentresearch projects focus on development, institutional change, social policy reform,and the role of transnational actors in Sub-Saharan Africa and beyond. His cur-rent research is funded by the Social Sciences and Humanities Research Council(SSHRC) of Canada’s post-doctoral fellowship program. Some of his articles haveappeared in journals such as Canadian Public Policy, Canadian Public Administration,Poverty and Public Policy, and Journal of Developing Societies.
Daniel Beland is Canada Research Chair in Public Policy and Professor at theJohnson-Shoyama Graduate School of Public Policy (University of Saskatchewancampus). A political sociologist studying politics and public policy from a compar-ative and historical perspective, he has published more than 60 articles in scholarlyjournals. His eight published books include Nationalism and Social Policy: The Pol-itics of Territorial Solidarity (with Andre Lecours; Oxford University Press, 2008),What is Social Policy? Understanding the Welfare State (Polity, 2010), and Ideas andPolitics in Social Science Research (co-edited with Robert H. Cox; Oxford UniversityPress, 2011).
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