Most sensible people wouldn't buy a used car if the engine is leaking oil, the brakes and suspension are shot, and the car will be a danger on the road and cost a fortune to fix.
But back in 1997 then-Texas-Governor George W. Bush made an even more unwise and dangerous "purchase" of a policy idea as he was preparing to run for president.
He listened to a presentation by Jose Pinera, the Chilean economist who privatized the Social Security system in his country in 1981 while serving as minister of Labor and Social Security under the brutal dictatorship of General Augusto Pinochet.
After his meeting with Pinera, according to subsequent press accounts, Bush declared in favor of private accounts, saying: "This is the most important policy issue facing the United States today."
As co-chair of the ultra conservative Cato Institute Project on Social Security Privatization, changed recently to "Choice" to mask its goals, Pinera was telling people all over the United States—and the world—that the system he designed was a great success and could make average American workers wealthy in retirement, too.
But even as Bush and Pinera were meeting, the evidence was mounting that while the privatized system in Chile was good for investment companies and big business, it would not deliver security in retirement for working people
In a 2004 report on human development in Chile, the United Nations Development Program found that:
- Half of Chile's six million workers will not qualify for any Social Security benefits when they retire.
- Another 25 percent will save so little, due to low salaries and high investment account fees, that they will only get the guaranteed poverty-level benefit.
- Chile's private pension companies collected $4.5 billion in fees between 1982 and 1988, "more than a fifth of net contributions to the system."
None of this stopped Pinera from boasting—even on TV programs including ABC's 20/20, in a segment called "Retired and Rich"—of the "double digit" returns for the privatized accounts.
But a second study, by the Chilean brokerage firm CB Capitales, exposed that as a lie, finding:
- When fees are figured in, the real annual rate of return was just 5.1 percent since 1982.
- Workers would have done better putting money in 90-day certificates of deposit (CDs) in banks.
- A young worker just starting out would have lost 6.6 percent through 1998.
- The same worker's account would have gone up 42 percent in bank CDs.
- The private pension companies reaped $808 million in profits, making gains of 20 percent even in years when private accounts lost money.
Under Chilean Social Security—which dated back to the 1920s—things were different. About 75 percent of Chilean workers were covered by the system, which included national health care, retirement lump-sum bonuses and low interest home mortgage loans. Employers generally paid about two-thirds of the cost. There wasn't—and isn't—a tradition of additional company pension plans.
"Retirees could live comfortably," recalled General Electric retiree Luis Vargas. "But thanks to Pinera and Pinochet, we've been shafted."
The shafting began even before the 1981 privatization. Having violently repressed the labor movement after the 1973 coup, the dictatorship froze benefits and greatly slashed spending on health and education to fund the transition to private accounts and make the government systems seem less attractive.
Beginning in 1981, employers were no longer required to contribute anything for either health or retirement benefits. The housing loans and bonuses were discontinued and the new predatory for-profit health providers began leaving retirees—including Vargas and his wife—in serious debt.
New workers were required to open a private retirement account while those already paying into Social Security were bombarded with one-sided propaganda—and sometimes orders from their employers—to switch over. Most did.
Fresia Arcos, a government Social Security attorney and expert on the system knew that the privatization was a con. Just as the Bush administration tried to muzzle U.S. Social Security Administration employees from telling the truth earlier this year, the Chilean government ordered Arcos and others not to defend the public system back in 1981.
Arcos sought permission just to "put out a piece of paper comparing the two systems objectively," but was prohibited from doing even that, she said.
The New York Times reported Jan. 27 that many who stayed in the public system are drawing higher pensions today than those with private accounts.
As studies by the United Nations and others predicted, Chile is facing a large and growing crisis of senior poverty and the need for the government to take care of those the private system can't.
Chilean Minister of Labor and Social Security Ricardo Solari told the Times, "It is absolutely impossible to think that a system of this nature is going to resolve the income needs of Chileans when they reach old age."
Nevertheless, when President Bush visited Chile last November, he praised the privatized system in Chile, calling it "a great example for other countries."
General Pinochet knew that this was nonsense and that Social Security was much better than the private system being forced on the Chilean people: He kept Social Security and national health care in place for the armed forces and police who enforced his dictatorship.
A brutal murderer he was, but not a fool.