The Diffusion of Innovations: How Cognitive Heuristics Shaped Bolivia's Pension Reform

Abstract

In the age of globalization countries pay considerable attention to policy innovations developed in other, especially neighboring, countries. New models that boldly trans form established policy approaches often serve as especially powerful sources of inspiration. For instance, the system of social protection pioneered by Bismarck in Germany prompted other European countries to introduce similar schemes; in subse quent decades this innovation spread beyond Europe as well. More recently, Ronald Reagan's tax simplification of 1986 spurred similar changes in a number of nations. And the Chilean model of pension privatization has had a particularly strong conta gious effect in Latin America and later in eastern Europe.1 What drives this diffusion of innovations? Why does a variety of nations adopt the same new model? This question is especially puzzling when poor, underdeveloped countries emulate a reform designed in a much more advanced nation, which presum ably faces different needs, opportunities, and constraints. For instance, why do poor African countries that lack a domestic science community create state institutions charged with coordinating such a community?2 Why do nations that confront stark social inequality enact a Reaganite tax reform that lowers income tax rates and thus risks diminishing the revenue inflow from the few better-off people who are obligated to pay income tax? And why do poor countries privatize their social security systems although they have a limited formal sector work force that can contribute to private pension funds and an underdeveloped capital market that can administer such invest ments? The adoption of foreign models in countries where these innovations do not seem to fit well is noteworthy. Why do dissimilar nations enact similar policies? Several arguments have been proposed to explain this spread of commonality amid diversity. One approach claims that central coordination and vertical imposi tion were crucial. Accordingly, pressures from powerful international actors?espe cially the World Bank, International Monetary Fund (IMF), and other international financial institutions?pushed a broad cross-section of countries to follow their uni form blueprints. Strongly committed to neoliberalism, international financial institu tions use powerful carrots and sticks to force the same mold on a multitude of nations. To preserve the purity of their policy principles, they preclude adaptations to the specific needs of the importing country.