Online at: http://politicalaffairs.net/article/articleview/659/1/75/

Chile's Privatized Pensions Spell Disaster

By José Cruz
Archives - Dates and Topics 2005 – online January – February 2005 Feb. 7 - 12 click here for related stories: social security


From People's Weekly World Newspaper

As the Bush administration pushes to privatize Social Security, many people are looking at countries where state-funded pensions have been privatized. One of them is Chile. President Bush lauded Chile’s privatized social security system as a "good example" for the U.S. when he visited Santiago last November to participate in the Asian-Pacific Economic Cooperation summit.

Today even the government itself and the AFPs have admitted that at least half of the Chilean people will never accumulate enough to be able to get the minimum pension equivalent to $100 (US) monthly.


Chile’s privatized pension plan, however, has not lived up to its promises. The Chilean experience shows that Social Security privatization is only part of a wider scheme of neoliberal economic policies that seek to shore up corporate profits while reversing gains won by the working class.

Chile’s state-sponsored pension plans were created in 1924 and 1925, making Chile the first country in the Americas with a social security program, 10 years before the United States. The leftist Popular Unity government of Salvador Allende in the early 1970s expanded the program to encompass about 75 percent of the workforce.

After the 1973 fascist coup headed by Gen. Augusto Pinochet, trade unions were outlawed, the minimum wage abolished, state-owned enterprises were privatized, and social programs were abolished. Only later, in the face of an acute economic crisis, was Pinochet forced to ease these policies.

Pinochet adhered to the monetarist policies of the "Chicago Boys" — Milton Friedman and other economists at the University of Chicago — who believed in "trickle-down" economics. The Chicago Boys said that giving tax breaks and other economic incentives to the rich would prompt them to turn around and invest that money in the Chilean economy, thus creating more jobs.

It didn’t work out that way, just as Ronald Reagan’s trickle-down theories didn’t work here. And reducing taxes on the rich has meant less funding for social welfare programs.

The first generation of Chileans is retiring under the system put in place by Pinochet 25 years ago. The plan gets no funding from employers. All of it comes from the workers, who are required to "invest" 10 percent of their earnings in the plan, which is administered by one of 15 Pension Fund Administrators (two of which are owned by U.S. corporations), investment firms that charge fees for "managing" the individual accounts.

Any financial company can set itself up as an AFP, as the companies are known by their Spanish acronym. While proponents of this system say that this promotes competition to get better returns, in reality all AFPs make more-or-less the same investments.

Because of poverty, unemployment, and the crapshoot of the stock market, together with the cut the AFPs take, Chileans are discovering that the promises made to them have not panned out. Retirees are also suffering because they haven’t received cost-of-living raises.

Today even the government itself and the AFPs have admitted that at least half of the Chilean people will never accumulate enough to be able to get the minimum pension equivalent to $100 (US) monthly. The Chilean Center for Alternative National Development (CENDA) has said that "two-thirds of the population will never qualify for a minimum pension." Manuel Riesco, CENDA’s director, added that "the Chilean private pension system will provide pensions on its own only to the upper-income minority."

If there is one sector in Chilean society that has benefited from the privatized system, however, it is the AFPs. Many have former Pinochet cabinet officials on their boards of directors and they are among the most profitable companies in all of Chile.

Just like in the U.S., the people’s movement in Chile is fighting not just against the privatization schemes, but to expand programs for people’s needs. Its trade union federation, CUT, has set as one of its six priority "points of struggle" for 2005 "to change the current pension system" so that there is greater coverage and that it pays at least 70 percent of wages after retirement. CUT is also calling for an end to "the abuse of excessive fees by the management of the pension funds," as well as stopping the fund monies from becoming profits for the AFP owners.

The key architect of the Chilean plan under the fascist dictator Pinochet was José Piñera. Where is Piñera today? He’s a senior fellow at the Washington-based, libertarian Cato Institute, one of the main proponents of Social Security privatization in the U.S.

If George W. Bush’s uses the "good example" of Chile to revamp and privatize the Social Security System here in the U.S., it’s a good bet that workers, women, African Americans, Latinos and other lower-income sectors of the population will be worse off.


--José A. Cruz (j.a.cruz@comcast.net) is editor of Nuestro Mundo.



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