Monday, December 29, 2008

Gurumurthy's views on Social Security - A rebuttal

I have a lot of respect for Mr. S. Gurumuthy, a columnist, chartered accountant, with several other distinguished laurels in India. I recently came across some YouTube videos on the Global Financial Crisis Impact to India, in which he aired his strong views on the Social Security system in the US. He said it is good India doesn't have it. If India had social security, he contends families will be destroyed - the US had literally nationalized families, and since the government cannot bear all the burden, and instead privatized government functions such as building roads, airports etc.

I don't agree with his assessment. The underlying problem is how much liability can you impose on a young Indian man or woman? How much will their income permit relative to their expense? Today, in India, most families feel two incomes are needed for a decent living (sending kids to good school, buying a nice flat) - typical desires of an average family are not met by one income. Just look at the matrimonials, and you'll see that most grooms are seeking working brides. This means the young man is not able to (or willing to) even support his wife and children with just his income. Why would he also be able to support parents, which can get pretty expensive in terms of medical bills, not to mention the emotional baggage of everyone living under the same roof? What sense does it make to require him to do so, instead of coming up with an alternative?

The case of young women is still worse. A friend of mine followed up on a matrimonial educated working girl as a prospective bride, and the response from the girls parents: "We are not really looking for a groom now, since her income is helping us get by - her dad is retired, and we have some hospital expenses..." The matrimonial was just to keep her happy that some search was going on. Such is the plight of imposing such direct liability on young men and women.

Mr. Gurumurthy acknowledges that the US came up with the social security system because sons were not able to (or not willing to) take care of ageing parents. The point of flare-up had happened way back in the 1940s, when the US "nationalized" the process of taking care of aged parents. The concept in simple terms - current young workers pay 6% of their income as social security tax, and the employer matches with another 6% - all this money is pooled and used to pay out current retirees a monthly minimum pension (social security benefit), and their medical expenses (medicare benefit). So, the US government is only acting like a broker or escrow, and this by itself is not a big burden. This works well if current generation population is higher than the past generation, as there will be more workers to pay fewer retirees.

I am sure Mr. Gurumurthy understands that other government functions such as building roads and airports are privatized for many other reasons - in fact, India is also privatizing roads and airports, even without this social security burden. Social security takes the emotional sting out of the system. The fact that I will not be on the street in my retirement, come what may, makes me more entrepreneurial, confident and relaxed in relationships.

The same elder abuse flare-up has happened in India too, prompting the government to act. They have recently passed the "The Maintenance and Welfare of Parents Act", to keep tabs on sons who inherited property from parents, which in my view is really a reactive, superficial, patch work and piece meal approach, typical of what contemporary India comes up with, as opposed to a well thought out, comprehensive approach such as the Social security system in the US. Instead of solving the problem, the law is aimed at sending an earning, economically productive young man or woman to jail - which means other productive young men and women will pay for his or her stay in jail, and there is an expense in maintaining courts and judges for this purpose. What about those who do not have enough property to pass on? What about those who do not have sons or daughters to take care of them? If sons and daughters can address elder needs, why should some Indians have guaranteed pension and Provident Fund benefits? How do you take the emotional sting out of the system? Imposing an emotional baggage only causes unethical, unlawful (domestic violence) behavior.

Mr. Gurumurthy also talks about how the west believes in contract based approach to managing relationships, and how this has caused the collapse of family as a cultural, economic and socially functional unit, citing 51% families in the US are single-parent. I respectfully disagree that there is collapse - none of the single parent families are interested in the relationship based approach, to get back into broken families that they were originally part of. They are instead exploring ways to successfully be a single parent functional unit.

Bottomline, I think with ongoing growth in India, the lifestyles permitted by the current and future wages, requirements to be in fast paced environment that has little time for taking care of people around, it is time for India to embrace the west in the "nationalized" approach for elder care, and adopt contract based approach to manage relationships like the west. I think it will happen over time, whether Mr. Gurumurthy likes it or not.

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