Does the privatization of social security make sense for developing nations? John B. Williamson and Fred C. Pampel Boston College, Massachusetts, United States; and University of Colorado at Boulder, United States We discuss the privatization schemes of Chile and Argentina following a review of three alternatives to privatization. Our major conclusions are as follows: (1) the Chilean scheme has performed very well during much of the past 15 years, but it is not yet clear what will happen during an extended period of economic stagnation and declining financial markets; (2) for many countries it would make more sense to reform existing public pension schemes than to replace them with privatized schemes, at least until one has a better idea how privatized schemes perform in adverse financial environments; (3) privatized schemes have important distributional effects that deserve more attention. T he issue of whether or not to privatize social security has become one of the hottest debates in recent years among those who analyse interna- tional trends in the social welfare policy world (Arenas de Mesa and Ber- tranou, 1997; Beattie and McGillivray, 1995; James, 1996, 1997b; Myers, 1992; Singh, 1996; World Bank, 1994). The Chilean model has already had a major impact in Latin America and it is even being mentioned in the de- bate over the future of social security policy in industrial nations such as the United States (Advisory Council on Social Security, 1997; US Senate, 1995). The question we will be addressing is whether or not the privatiza- tion of social security makes sense for developing nations and, if so, under what circumstances. Worldwide population trends explain some of this interest. Owing to much higher mortality rates and higher fertility rates, older people make up a much smaller fraction of the population in developing nations than in industrial ones. However, despite having a smaller base of elderly persons, developing countries confront a faster rate of population ageing (Holden, 1996; Kinsella and Taeuber, 1993). Between 1960 and 1990, the percentage Published by Blackwell Publishers, 108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street, Malden, MA 01248, USA 3 © International Social Security Association, 1998 International Social Security Review, Vol. 51, 4/98