Until recently, all old-age pensions in Mexico were earnings-related, financed with government subsidies and payroll taxes. For this reason only 22% of older Mexicans had pensions in the year 2000. By 2013, thanks to social pensions, coverage had risen to 88%. Social pensions are non-contributory benefits, which do not require a record of employment or contributions to a retirement scheme.
An elderly woman sells flowers on the street of San Miguel de Allende, Mexico
In a new paper published by HelpAge International, a London-based charity, I chronicle the rise of social pensions in Mexico, and discuss what remains to be done.
The rise in pension coverage began in 2001, with the introduction of a universal pension for residents of Mexico City (the Federal District) aged 70 and older. The scheme was extremely popular, and the governor, Andrés Manuel López Obrador, left office with high approval ratings. He left to campaign for the presidency, promising to extend universal pensions to the rest of the country. He was the only candidate to support a social pension in the 2006 presidential race. Although the promise of a universal pensions resonated with voters, Mr López lost narrowly to Felipe Calderón, who disliked social pensions in general, and universal pensions in particular.
Despite President Calderón’s opposition to social pensions, members of Congress were able to launch a universal 70 y más pension scheme, providing monthly benefits of MX$500 (US$45) for rural Mexicans aged 70 and over. In January 2012 the unthinkable happened – Calderón in his last year of office extended the 70 y más scheme to urban Mexico. The target population (rural and urban) increased from 2.0 to 3.5 million, even though the program now excluded those with earnings-related pensions, so was no longer universal.
In the meantime, 17 of Mexico’s 31 states had followed Mexico City’s lead by introducing social pensions on their own. The federal entities that introduced social pensions are diverse, and have little in common in terms of health, education, income or coverage by earnings-related pensions. Sub-national schemes also vary significantly in terms of coverage and benefit level. Interestingly, the only two federal entities to introduce universal pensions were, respectively, the most developed (Federal District) and the least developed (Chiapas).
By 2012 social pensions in Mexico had shifted from a marginal political issue supported by a single political party, to one supported by the presidential candidate of each major party. Enrique Peña Nieto promised to lower the age of eligibility from 70 to 65 years. He won the election and, on assuming office, immediately extended social pensions to those aged 65-69 while continuing to exclude recipients of an earnings-related pension.
Mexico has moved quickly from limited to near universal pension coverage, but progress is urgently needed in three areas:
Pension coverage is incomplete. Nearly one million older people have no pension. They should be added to the social pension registry as soon as possible.
The social pension currently covers only half the cost of food needed for bare subsistence. It should be doubled immediately, to reach the extreme poverty line.
The social pension should be extended to those with an earnings-related pension, restoring the ideal of a universal pension. Without universality, it will be difficult, perhaps impossible, to increase the size of Mexico’s social pension to the extreme poverty line or higher.
Jeffrey D. Sachs, Director of the Earth Institute at Columbia University and Director of the UN Sustainable Development Solutions Network is an expert on economics, development, and sustainability, and a founding member of IIASA and European Forum Alpbach’s Global Think Tank, which is holding its first meeting in Laxenburg this week.
On Wednesday, 12 March Sachs will give a public lecture on the topic at the Austrian Academy of Sciences in Vienna.
Jeff Sachs speaks at the Alpbach Forum in 2013. Photo Credit: European Forum Alpbach
IIASA: Your work spans a large area of research: from economics, to Earth science, to sustainable development. What is the common thread that ties all this together? JS: The common thread is the challenge that we face on the planet. We can no longer separate economic, environment, and social challenges because we find that if we try to pursue any one of those alone, we end up jeopardizing the others.
For too long, economists have focused simply on economic growth, and clearly that strategy by now has put Earth and humanity at great peril. There’s no shortcut anymore. We have to be able to combine a vision that includes all the major dimensions of the complicated global reality that we face. Economics, divided societies, environmental crises, and rapidly changing geopolitics. It’s not simple to integrate all of these different areas. Our traditional intellectual disciplines do not accomplish that.
IIASA has been one of the world’s leading champions of this kind of integrated vision. Systems thinking applied to massive human problems, bringing together very diverse areas of natural science, social science, and I would say ethical considerations as well. This kind of holistic approach is central to IIASA’s whole strategy. That’s one of the reasons I’m so proud of my connection to the Institute.
What do you see as the biggest problems facing our planet? We have become an enormously crowded and interconnected global society overnight, because of the technological reach of our economies and because of the remarkable growth of the world’s population during the last century. With 7.2 billion people on the planet now, we are putting vast parts of the biosphere and human well-being at dire risk. We are only slowly waking up to this reality.
All of history, humans have faced local challenges, but we have never faced such a confluence of massive global challenges at the same time. We don’t yet have the institutions, the insight, or the moral outlook to handle this set of challenges, and yet they are bearing down on us very fast.
In your lecture you’ll argue that it is realistic to think we could solve many of these challenges, for example, ending extreme poverty. What would need to be done to accomplish that goal, and why do you think it can be done? When one thinks about the challenge of ending poverty you quickly realize that while the challenge is great, we also have unique positive opportunities. With the revolutions in communications technology, communities that until five years ago were isolated, impoverished, and with little prospect of escaping from poverty are now connected to global information, as well as to local markets and health clinics. Schoolchildren can get access to the world of information online. Finance has come to rural areas through mobile banking. All of these are examples of the kinds of breakthroughs that are now possible in addressing what have been extraordinarily tough problems of poverty.
We also see the poverty rate coming down now at an unprecedented speed, even in some of the poorest places on the planet. Major advances have been achieved in East Asia during the past quarter century, and increasingly, Africa too is now finally turning the corner on extreme poverty. I have argued that we could mobilize technologies and use directed investments in public health, education, infrastructure, and agriculture to make a decisive breakthrough within our generation.
In my book, “The End of Poverty,” I said that by 2025 we could end extreme poverty. I am afraid that the date is slipping a little because of the lack of concerted effort, but it’s notable for me and gratifying that the World Bank this past year adopted formally the goal of ending extreme poverty by the year 2030. And I believe that the United Nations member states will also adopt such a goal next year when they create the new Sustainable Development Goals or SDGs.
There are two huge risks that could absolutely defeat this possibility. One is the still greatly excessive population growth in some of the world’s poorest countries. The second is climate change, which left out of control will devastate large parts of the world including regions where many of the world’s poorest people live, for instance the arid regions of the world.
What about climate change? Do you think it’s really possible, at this point, to limit climate change to the internationally agreed target of 2 degrees? I believe that we are at the very last chance to reach that goal. We have cliff ahead of us, with a sign that says, “Do not go beyond this point.” This point is the 2 degrees centigrade limit. We know from all the physical evidence and all the economic trends that we’re just within a hair’s width of exhausting the possibility of meeting that goal. And I worry that if we fail to achieve that goal we are going to slide very far and very fast down the mountainside, as it were. The world is negotiating a climate agreement in Paris in December 2015, and I believe that’s the very last chance to achieve the 2 degree centigrade goal.
I am not especially optimistic, but I don’t think that all is lost yet. Much depends on a much greater seriousness in the next year and ten months than we have shown in the last 22 years since the climate treaty was adopted.
Your lecture is entitled “The Age of Sustainable Development” what do you mean by that term? Why is now the time to be thinking about these topics? I argue that we have entered an era when the concept of sustainable development has become the necessary concept for our time. When I say sustainable development, I mean on the analytical side the integrated vision of economic, social, and environmental dynamics; and on the normative side the shared goals of economic prosperity, social inclusion, and environmental sustainability. I believe that we have a reasonable chance that this will be formally recognized by the UN member states in 2015, when they formally adopt the new Sustainable Development Goals.
My talk in Vienna is about why the concept of sustainable development is so important, and what it means. It’s not a household phrase, and I think there is a tremendous amount of public education that will be needed to understand what the opportunities are and what the threats that we face in this generation are. My basic point is that every generation faces its distinct challenges and sustainable development is our distinct challenge.
What do you see as the role for researchers and for institutions like IIASA in solving these global challenges? I believe that these problems are inherently complex because they are about managing interconnected complex systems. There’s nothing simple about the world economy, nothing simple about global social dynamics, and nothing simple about interconnected Earth systems. And yet we have to master the risks that attend to each of those and the interconnections among them. It’s quite obvious in that regard that IIASA has a unique role to play. IIASA has been in the forefront of climate modeling, demographic modeling, and agricultural modeling for many years. I’ve been a huge admirer of the Institute’s work, and I look forward to working more closely with IIASA in the future.
I’ve been tasked by UN Secretary General Ban Ki-moon with helping to organize a global network of problem solving on sustainable development. This initiative is called the Sustainable Development Solutions Network (SDSN). IIASA will be a very important member and I would say leader of that effort, and IIASA’s Director General, Pavel Kabat, is a member of the leadership council of the SDSN. We have already begun to strategize on this with Pavel Kabat, IIASA Deputy Director General Nebojsa Nakicenovic, and many of IIASA’s world class researchers. There’s a tremendous timely opportunity to work with governments around the world and work with the United Nations to help identify safe pathways ahead.