www.umwa.org/journal/VOL113NO4/jul4.shtml
UMWA Home Page The Selling of a Social Security Privatization Scam: President Bush Got Sold on the Failed System in Chile. Back in 1996, readers of the United Mine Workers Journal learned of the growing signs that the privatized Social Security system in Chileimplemented under a murderous military dictatorshipwas turning out to be a disaster (July-August 1996, page 20). Readers met former miners like Juan Irribarra, who warned, "it's a large black hole here. Bush, then still in Texas, wasn't reading this magazine, or talking with workers like Irribarra or union leaders and economists who were beginning to see all the signs of a colossal failure in the making. According to several press accounts, it was a 1997 visit from Pinera, who now works at the Cato Institute, a conservative Washington "think tank," that sold Bush on privatization. Pinera briefed the then-governor of Texas on the "indisputable success" of the system of mandatory individual investment accounts with which he replaced Social Security in Chile while serving as Minister of Labor. Pinera was not the only source of pro-privatization propaganda. The Wall Street Journal, Time, the TV program 20/20, scores of newspaper editorials, dozens of corporate-funded studies and numerous speeches by politicians have all touted the 20-year history of privatized Social Security in Chile as a system providing comfortableeven lavishretirement income for working people. The United Nations Program for Development's 2000 report on Human Development in Chile provides the sorry details. The amount of this guaranteed minimum pension is set at 75 percent of the (poverty level) minimum salary. The percentage will be even higher in the traditional coal mining areas of the south. In the years before the 1973 coup, the Chilean Social Security system expanded to cover more than 75 percent of workersin a nation that still has no tradition of company or industry pension plans. With an impressive package of benefits, Social Security did the job of providing a decent retirement income and a good life for most retirees. This package included na-tional health-care, low-interest housing loans and hefty severance pay packages upon retirement. The formula varied by sector, but employers generally had to pay about two-thirds of the costs. A 1973 military coup backed by the Nixon administration and the reign of terror that followed sent thousands of trade unionists to their graves or to prison and exile, and outlawed the once powerful trade union movement. Enter Jose Pinera and his system of individual accounts. It became a mandatory replacement for Social Security for all young Chileans entering the workforce beginning in 1981. Employers no longer had to contribute anything, while employees were required to kick in 10 percent of their salary plus another 10 percent for terrible, predatory health insurance, greatly weakened disability insurance and pension fund administrative costs. None of this was supposed to matter because the private investment accounts, Pinera still tells anyone who will listen, have had "double digit returns" since they were started. With the money in CDs, their savings would have gone up 42 percent. Needless to say, the private pension companies took care of themselves. They made $808 million in profits, reaping in 20 percent profits even in years when the individual accounts lost money. It's not hard to figure out why: under an initial privatization proposal floated by President Bush, they'd rake in an estimated $240 billion in commissions in just the first dozen years, according to the AFL-CIO. The government in Chile had to continue paying Social Security benefits to retirees, without new tax money coming into the system. It also promised to pay on generous "recognition bonds" (based on years of participation in Social Security) to active workers who switched to the new system upon retirement. The military dictatorship froze wages and Social Security benefits for a number of years and greatly slashed spending on health care and education to fund the transition. By the mid-1990s, the number of senior citizens needing welfare payments had jumped a whopping 400 percent. Even before he was elected Chile's president late in 1999, Socialist Ricardo Lagos expressed grave concern about what was unfolding in his country. As the UN study cited above shows, the burden on the Chilean government will be huge in the coming years as large numbers of people begin retiring under the private system. And unlike under Social Security, benefits cannot be raised. The burden will be especially hard on women who are less likely to accumulate 20 years of pension contributions because of child rearing, earn less and live longer than men. With Social Security benefits no longer indexed to inflation, with once free health care transformed into a predatory for-profit industry and Social Security retirement bonuses a thing of the past, it's a dismal existence. When working, Maria Louisa Morral had been able to buy her own home thanks to a low-interest loan from Social Security. The hefty retirement bonus she got from Social Security was wiped out by medical costs under the new system. Under the old system everything would have been taken care of," she explained in 1996. There's reason to believe that Chile's military rulers knew that Social Security was much better than the private system they forced on the Chilean people. That's right, Social Security and national health care still exist for the armed forces and law enforcement in Chile. The generals who ruled Chile might have been brutal murderers, but they weren't fools.
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