Disconnected from reality
A few days ago, a post by Ricardo Salinas Pliego about pensions caused some controversy. "Your pension isn't free", which the author presented as an essay, is really a brief opinion piece explaining how he believes pensions should work. I call it an opinion rather than an essay because an essay should advance a thesis, and a thesis must be supported by research. Had he presented hard data and analysis of pension systems in countries similar to ours where the practices he proposes had been adopted, perhaps we could call it an essay. This short text is instead an opinion piece, and as such it is entirely valid: we are all entitled to our own opinions.
The opinion piece makes some valid points, for example about the low interest rates promoted by central banks and taxes on investment income. Its central argument—the one that caused the controversy—seems to me not merely mistaken but absurd: that neither employers nor the State should be responsible for contributing to workers' retirement savings, and that workers alone should set aside 20% of their income to build a pension. To me, this part of the piece shows that its author is completely disconnected from reality. The purpose of this, my own opinion piece, is to explain why.
First, by way of context, I should explain that I consider myself neither right-wing nor left-wing. Labels of this kind are absurd in a world as complex as ours. On some issues I lean left and on others right. I believe that, in most cases, market self-regulation fosters competition and benefits society; however, I am also convinced that the State must participate in regulating the market—for example, by eradicating monopolistic practices—and in matters of social security. I also believe, without the embarrassment my progressive leanings might be expected to demand, that capitalism is the best economic model we have because it is organic and natural. Neoliberalism does not frighten me, but I believe we should avoid taking it to the extremes seen in some developed countries such as the United States, where medical care and medication, for example, are virtually unaffordable for much of the population. Finally, I can also say that my empathy begins where other people's choices end. What I am trying to convey is that I am neither a radical leftist, an ascetic Franciscan, nor an idealist. What I am, however, is someone connected to the reality of Mexico and its people.
I imagine Salinas Pliego has never gone a day without eating and has certainly never fallen three months behind on his rent. He has probably never emptied the pesos from his pocket to count them and see whether he had enough for the last bus home or would have to walk part of the way. That is the reality from which he is completely disconnected. It is very entertaining to talk about money when you have it: to devise saving and investment methods and strategies, seek the ideal securities portfolio, diversify intelligently, plan for the long term, and manage wealth that will last for several generations. That, however, is not the reality of most Mexicans. According to the most recent CONEVAL figures I could find (2018), only 21.9% of Mexicans (27.4 million people) are considered neither poor nor vulnerable. The remaining 78.1% live in poverty or extreme poverty, or are vulnerable because of their income or social deprivation. Broadly speaking, then, we can describe the distribution as 80/20. Salinas Pliego's proposal dismisses 80% of Mexicans from the outset, but let us think coldly and argue that we care only about the 20% of the population that keeps the country running.
Of that 20%, I wonder how many people can afford to save 20% of their income. Consider an average Mexican among the 20% who are not practically starving—an Elektra salesperson, for example. According to two sources I found (Indeed and Glassdoor), our Elektra salesperson earns between $6,543 and $8,675 pesos a month. Let us average the two figures and assume that this is take-home pay, leaving $7,609 pesos on which to survive for a month. For this example, suppose the salesperson supports two other people—children, parents, a spouse, or any combination of them. Suppose the monthly rent is $2,000 pesos and that, according to figures I found, a $3,208-peso basic food basket is enough for all three people for a month. Imagine that this person needs to take only the Metro and one Metrobús to work, and works only six days a week: counting just four weeks, that comes to about $528 pesos a month in transportation. Add another $300 pesos a month for basic utilities—electricity, gas, and water. Finally, let us acknowledge the need to spend money on miscellaneous items such as school supplies, household repairs, medicine, shoes, and clothing. Suppose these unforeseen expenses for three people consume another $1,200 pesos a month. In the end, even though these three people have spent nothing on recreation, personal fulfillment, or entertainment, only $373 pesos remain—the equivalent of 4% of the income. How useful will those $373 pesos a month be in building a retirement fund? Imagine that our salesperson begins an investment portfolio with $1,000 pesos that fell from the sky, then saves a rounded $380 pesos every month for 20 years in a very aggressive—and therefore very risky—investment yielding 10% annually. According to this BBVA calculator, after 20 years our salesperson—having saved with discipline, imposed restrictions on both self and family, and never indulged in a single treat or luxury—will be able to retire with the magnificent sum of $30,668.45 pesos. Ceteris paribus, that will cover 4.2 months of living expenses. After that, the salesperson will presumably have to jump from the second level of Mexico City's Periférico.
Let us run a more encouraging scenario. Suppose the salesperson manages to save $2,000 pesos a month over the same period and at the same rate. In the end, there will be $132,732.50 pesos—enough to live for 18.34 months. Let us hope this person is one of the many Mexicans who suffer from diabetes, hypertension, and obesity, and therefore does not have a very long life expectancy. Salinas Pliego says we should
Save at least 20% of our income and channel those resources into long-term investments, such as real estate and shares in high-quality companies, leaving only a minimal portion invested in government debt.
What reality does he live in? Does he truly believe that the average Mexican—even among the 20% who do not live in poverty—knows about and understands investment instruments well enough to build a personal portfolio? Was he perhaps referring to the AFORE pension funds here? He does not say. If not, I believe his disconnection from reality is approaching alarming proportions. He also says that
Socially conscious employers will gladly pay part of these savings, regarding it as an investment in maintaining their greatest asset: the company's human capital.
Does he mean that employers "with social awareness" should contribute voluntarily, while those with "social insensitivity" should contribute nothing? By that logic, every law should be optional and apply only to people who possess this supposed "social awareness." I find it troubling that a businessman of such stature—regardless of his shady business dealings—who ought to be a leader in the private sector knows so little about the country where he lives and understands so little about the needs of its people. Personally, I can attribute opinions of this kind only to eccentricity, limited intellectual ability, or signs of age-related dementia. I hope solid succession plans for the leadership of his business group are already in place.