Bryan R. Lawrence is founder of Oakcliff Capital, a New York-based investment partnership.
Singapore’s paternalistic government is unappealing to many Americans — media restrictions, one-party rule, harsh penalties for gum-chewing. But Singapore’s retirement system is a model of honesty and transparency compared with Medicare and Social Security.
In 1984, then-Prime Minister Lee Kuan Yew redesigned his country’s retirement system to, as he later wrote, “avoid placing the burden of the present generation’s welfare costs onto the next generation.” Singapore makes no promises but instead requires all citizens to save up to 36 percent of their income for their own retirement and health care. The government invests the savings in stocks and bonds; the money is not used for current expenditures.
The result? Singaporeans have comfortable retirements. Their health-care system delivers better outcomes while costing 80 percent less than ours, according to 2010 findings from the World Health Organization, and all of it is financed without imposing debt on the next generation. Singapore even reported an uptick in medical tourism last year.
Now, compare Singapore’s system to our own. When Medicare was debated and enacted, Paul Samuelson was America’s most influential economist. He was an adviser to presidents Kennedy and Johnson, author of the nation’s best-selling economics textbook and a soon-to-be Nobel laureate. In 1967, Samuelson wrote in Newsweek about the funding mechanism for Medicare and Social Security: “The beauty about social insurance is that it is actuarially unsound. Everyone who reaches retirement age is given benefit privileges that far exceed anything he has paid in. . . . Always there are more youths than old folks in a growing population. More important, with real incomes growing at some 3 per cent per year, the taxable base upon which benefits rest in any period are much greater than the taxes paid historically by the generation now retired. . . . A growing nation is the greatest Ponzi game ever contrived.”
But the baby boom was ending as Samuelson wrote those words. Births per woman had fallen from 3.7 in 1960 to 2.6 by 1967 and then to 1.8 by 1975. By 1990, births were back to 2.0 per woman, but the demographics of the next century had been determined: The rapidly growing population needed to make up for insufficient savings by each generation of Americans was no more.
Anyone could see that this would mean trouble for Medicare and Social Security when the boomers began to retire. But our leaders chose to protect the programs rather than restructure them, and they have used dubious accounting standards to hide the burden placed on younger Americans.
China’s leaders made different choices. With a one-child policy, they could not rely on children to pay for their retirement. Instead, they have designed a system much like Singapore’s: The government makes few retirement promises, and Chinese citizens save significant portions of their income — the average household socked away 38 percent in 2010, Bloomberg Businessweek reported, compared with 3.9 percent for U.S. households. Much of those savings are invested by China’s state-owned banks into U.S. Treasury bonds, which our government sells to finance Americans’ retirements.