Tuesday, April 19, 2005

Great Britain - How is privatization doing?

The Washington Post also looked at how privatization has worked in Great Britain.

”What President Bush is proposing for the United States closely echoes the privatization plan that then-prime minister Margaret Thatcher -- an apostle of rolling back the modern welfare state -- implemented in Britain in the late 1980s. Millions of Britons flocked to Thatcher's plan, egged on by government subsidies, by hard-selling private investment funds and by state-sponsored advertisements showing a pair of hands breaking free from the chains of government regulation.

“But for many investors Thatcher's plan has fallen flat. Many investment funds charged huge commissions and fees, leaving contributors worse off than they would have been in the state system. The stock market collapse four years ago compounded their losses. Meanwhile, many private pension plans have gone bust, after companies drained those plans to pay off rising debts.

“These days many of the same insurance companies and banks that heavily sold their funds are sending out letters suggesting that customers rejoin the state system. Since November alone, an estimated 90,000 clients have followed that advice.”

Essentially, the article points out that the private accounts were oversold. Very few of the people covered under them were expected by actuaries to get more from private accounts than from the previous government system. Then, the funds placed in private accounts were frequently siphoned off by the managers, who then reneged on the benefit promised. In short, private accounts have been most unsatisfactory in Great Britain.

Not a very promising comparison for Bush’s suggestions.


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