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breakneck speed. Sufficient time must be allowed for programs to be carefully drafted and political support to be mobilized.

The issue of political support was mentioned under Principle 6. The more thoroughly the public understands both the social costs and the likely benefits of reform, the readier it will be to support the reform. If at all possible, time must be allowed for citizens to adapt to the new situation. The problem of differing degrees of adaptability was mentioned under Principle 2. Reformers must display calm insight and compassionate understanding of the fact that people have different powers of adjustment. To illustrate this, let us consider the example of transforming the pension system.

The younger generation can justifiably be called upon to accept radical changes. Their whole active working life lies before them. Let them, and their employers, pay the sums needed for retirement into individual accounts and entrust these to pension funds that will put them to good use. In due course, they will receive pensions that represent the fruits of their own efforts and savings. In line with Principle 1, there should be a close connection among earnings, propensity to save, and retirement income, spanning the whole life cycle.10

The same cannot be said to those who are already receiving pensions. In their case, the state must fulfill the obligations undertaken by previous governments (see Kornai, 1996). They are no longer capable of adapting to a new pension system. Apart from the fact that the state is legally required to meet these obligations, Principle 2, the principle of solidarity, dictates that society must continue to maintain the "pay-as-you-go" system, whereby the active members of the labor force pay taxes that finance state pensions.

As for the intermediate generations, I would propose that they be given a choice. They could leave their accrued pension entitlement with the state, or, if they so chose, could transfer it (after the deduction of reasonable conversion costs) to an individual account with a nonstate pension fund.

Returning to the more general plane of discussion, to the extent allowed by the state of the economy, the sufferings caused by the introduction of these changes should be mitigated, and the process of adaptation encouraged, through assistance to those who suffer severe losses as a result of reform. Long-term assistance should be given, however, only to those who are really unable to adapt. For everyone else, assistance should be granted only for a temporary period. Individuals should have a grace period, but they must recognize that they will have to adapt to the new situation once that period is over.

10  

As explained in the discussion of Principles 3 and 5, I think it would be wrong to reject the possibility of a state "pillar," even for young people, alongside the other "pillars" of pension insurance. If the majority of the population feel this enhances their sense of security and declare their willingness to fund it through taxation, they should have it. Sooner or later, however, it will be expedient to reach the point where state pensions cover only a small part of retirement income.



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