EKIP– Expert Club for Economics and Politics A Different Opinion
The upcoming deal with POK Doverie has sparked serious controversy, with one of the most widely circulated opinions being Dimitar Sabev's article "Distrust in the Second Pillar", published on the Solidarna Bulgaria website. As we can assume from the title of the media outlet, the article's bias is quite anti-market (after all, as our friends on the left have repeatedly taught us, solidarity exists only with a gun to our head), but there are still several arguments worth considering.
Already in the second paragraph, the author expresses his indignation that
"The money in the second pillar is public, but it is managed by private companies."
It should be noted that this money is not “public”, it is not a product of the mythical entity “society”. A more appropriate term would be “nationalised”, because it is confiscated from specific working individuals, and the fact that it is provided to a private company does not change its identity as a tax. Social security is in practice a way of additional taxation of income from wage labour, because in the pay-as-you-go system this money is spent immediately on pensions and in practice there is no direct connection between what is paid and what is received from the system. Both quantities are subject to constant adjustment as a result of the political process, the economic situation and the demographic situation. In exchange for current contributions, workers are promised a part of the income of future employees. The ambiguity of what is currently being paid for and what will be received in return for contributions in the future shows a strong resemblance to "ordinary" taxation, where nothing concrete is acquired in return for taxes, but immeasurable quantities and qualities of "security", "justice", "education" and the like.
This fact is very unsympathetic and has to be hidden behind shallow but benign delusions, such as the conditional division of social security contributions into those paid by the employer and by the employee, although in practice both parts go directly into the latter's pocket. Still, it is naive to expect the employer to make an expense if he does not expect to at least fully recover it through the services of the employee. Viewed in this way, it is easy to foresee what incentives this system creates - to pay as little as possible by hiding income and to receive as much as possible from benefits, pensions and other transfers, often by circumventing official criteria.
Even if we ignore the implicit insult that the individual is too stupid and uninterested in his own financial future and it is necessary for the well-intentioned and wise state to take care of him, the problem of the system's inefficiency remains. Chronic deficits are the rule, not the exception in the system - last year the central budget transferred over 4.5 billion leva to the pension system, with the trend showing an increase in the transfer. The annual billion-billion subsidy from other tax revenues only emphasizes the unviability of the system, which relies on a constant demographic pyramid and low unemployment.
It is striking that Mr. Sabev strongly disapproves of the idea behind putting some of the confiscated money into investment instruments rather than spending it immediately. Perhaps the author will be surprised, but from a free market perspective, this action is also not very hygienic. Private corporations enriching themselves with money forcibly collected by the state is crony capitalism in its purest form.
One question that comes to mind is why it is necessary or more appropriate for large segments of the population to become investors, albeit indirectly through professionally managed funds, in order to preserve their savings. Trading in the capital market carries with it risks that cannot be to everyone's taste. Mr. Sabev quite rightly points out that the yield on the UPF lags behind inflation, with the depreciation of money certainly being greater than that indicated by the inflation indices, given the extremely expansionary policy of all central banks. The latter, of course, has just as much to do with the free market as any other state monopoly. In the years before the last links between paper money and gold were severed, the natural tendency for productivity to rise led not only to the preservation, but even to a smooth increase in the purchasing power of money. That is, Before central banks threw off the last remnants of the “golden shackles,” saving money in cash or in a low-interest deposit was a completely rational strategy, unlike now, when it is tantamount to slow or rapid (depending on the rate of currency inflation) impoverishment.
In the last part of the article, Mr. Stoev reaches several conclusions, some of which we tend to agree with:
"If the state wants to make me buy something, for example, pension insurance, let it sell it to me itself. The normal relationships of citizens with private legal entities are voluntary."
The line is very clearly drawn between the voluntary nature of the private sector, where both parties to the exchange expect to win, and the coercive approach of the state, where one party is obliged to participate whether they want to or not. Only the term "buy" is slightly inappropriate in the context of a forced transaction, buying implies voluntariness.
We cannot object to the following statement:
"Mandatory contributions to private pension funds are a state subsidy to financial circles that distorts the stock market and is a breeding ground for the oligarchy."
We would only add that all subsidies, regardless of whether they are for agriculture, green energy, or anything else, distort the market and are an immoral redistribution of confiscated funds to individuals close to power.
Mr. Stoev himself understands that his proposed transfer of funds from private funds to the other pillar will only reduce the deficit in the system, but cannot be a long-term solution. Today's young workers cannot expect a serious income when they leave the labor market from the pension system if it remains in its current form. The discussions on whether there will be a mandatory private pillar, who are the owners behind the funds, are at best of third-rate importance and an exercise in bureaucratic engineering. They will not change anything about the unviability of the pension system, nor its immorality. The growing deficits will be financed by raising insurance rates and/or other taxes, accumulating government debt and inflation. All this strangles the private sector, whose product the state actually redistributes.
And if at the moment it seems utopian to us that the state should deprive itself of the prerogative to dispose of other people's money by giving people a choice whether to participate in the "solidarity" insurance, it can at least show a little honesty and call things by their real names - that contributions are a tax, against which it is not clear what (if anything) you will receive and when. Therefore, do not count on the nobility of the state to provide you with a peaceful old age by stealing from the workers of that time, but take care of yourself now.
