Retirees, public-sector workers, and social spending represent three challenges that structural reform must address through a fair, realistic, and sustainable transition.
THREE GORDIAN KNOTS
By Dr. Nelson Jorge Mosco Castellano
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To build a serious proposal and avoid falling into simple liberal demagoguery, we must confront the three Gordian knots that any structural reform must untie: current and future retirees, surplus public-sector workers, and the sustainability of social spending.
If a fair, realistic, and economically sound way forward is not offered to these sectors, any reformist discourse legitimately collides with people’s understandable fears.
Here is the unvarnished answer for each of these fronts:
Retirees: From the Broken Promise to Protection Through Capitalization and Growth
The current problem: Traditional pay-as-you-go pension systems are financially broken because they tie the payment of today’s pensions to today’s active formal workers. With automation and the contraction of the human labor base, this scheme is an arithmetic time bomb. Moreover, inflation and discretionary political adjustments erode retirees’ incomes.
The solution under the new model:
Absolute respect for acquired rights: The rules of the game cannot be changed overnight for anyone who is currently retired. Commitments already made must be honored.
Replacement with a model of real capitalization and productivity dividends: For active generations, the transition is toward a system in which each worker owns their individual savings, invested in high-yield global and local instruments, complemented by a social dividend derived from greater government efficiency and the appreciation of public assets (sovereign wealth funds free of bureaucracy).
The end of inflationary erosion: By putting public finances in order and reducing superfluous spending, the money-printing machine is eliminated, ensuring that retirees’ purchasing power is not destroyed by the inflation tax.
Surplus Public-Sector Workers: From the Trap of Political Employment to Real Autonomy
The current problem: For decades, the State has been used as a gigantic political employment agency and a refuge from unemployment, creating oversized payrolls in which a huge proportion of employees perform redundant or unproductive functions, or directly hinder management, while remaining trapped in meager government salaries that do not allow them to prosper.
The solution under the new model:
Truth and a protected transition: We must stop treating public employees as the “enemy” and acknowledge that they are victims of a perverse system that used them for electoral purposes. An oversized State is unsustainable.
Retraining programs, intelligent severance packages, and seed capital: The drastic reduction of the state apparatus through agentic digitalization must be accompanied by a massive exit plan: robust severance packages financed through debt restructuring and the sale of useless public assets, combined with low-interest loans and total tax exemptions for several years for those who decide to become entrepreneurs, retrain in technological and digital fields, or enter the expanding private sector.
Incentives for the dynamic sector: In an economy freed from constraints and with low taxes, the private sector (technology, global services, advanced agribusiness, smart manufacturing) more than absorbs these workers and pays salaries infinitely higher than unproductive public-sector employment.
Social Spending: From Clientelist Welfare to an Effective Safety Net
The current problem: Current social spending is, to a large extent, an inefficient bottomless pit. Millions are spent on intermediary state bureaucracy (ministries, institutes, commissions) that supposedly “manage” poverty, but only a minimal fraction reaches those in need directly. Moreover, traditional welfare traps people in perpetual dependency to secure votes.
The solution under the new model:
Eliminate bureaucratic intermediation: Drastically reduce the administrative apparatus that consumes the social budget before it reaches its intended recipients.
Direct and transparent assistance through technology: With the digitalization and traceability of the agentic economy, safety nets for those who truly need them (emergencies, disability, critical transitions) must be direct, targeted, and temporary, using transparent digital platforms that prevent corruption and political clientelism.
The true social spending is growth: As Milton Friedman used to say, the best social program is an expanding free market.
When we lower the cost of living, eliminate the monopolies that make food and energy more expensive, and open up massive employment opportunities through investment, the need for state welfare assistance collapses because the vast majority of the population generates its own income with dignity.
In summary
The proposal is not to leave people exposed or confiscate acquired rights.
The proposal is to put an end to the business of patronage politics in order to rescue both retirees and public employees from certain decline.
The alternative is not social cruelty; the real cruelty is maintaining a system that consumes itself until it explodes, leaving everyone in ruin.
Sustainable pension transition
Public-sector workforce transition
Redesign of social spending
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