January 18, 2006
An Unintended Lesson From Chile
By Froma Harrop"Some members of Congress could take some lessons from Chile," President Bush said four years ago, "particularly when it comes to how to run our pension plans." Americans, hold that thought.
Bush was referring to Chile's private retirement accounts, which our conservatives hailed as a model for Social Security. Chileans, apparently, were not as enchanted. The victor in the recent presidential campaign was center-left Michelle Bachelet, who vowed to dump the program and start again "from scratch."
It turns out that up to a third of the money Chile's workers put in their private accounts had vanished into the pockets of the companies that were investing it. Chilean senator-elect Guido Girardi recently expressed the anger of many when he promised: "I am going to do away with these thieves in jackets and ties. We are going to defend the citizenry from these funds that rob people of their pensions."
Not quite a thumbs-up for a program that Bush had called "a great example" for the United States. Americans should further note that the broad discontent follows over a decade of mostly strong economic growth in Chile. Suppose the workers had suffered a sharp stock-market downturn, in addition to paying outlandish fees to investment companies. You don't want to think about it.
One could make a case -- though not a convincing one -- that Washington would do a better job curbing the appetites of the mutual funds that might invest Social Security money. If there is one lesson this Congress does not need to learn from Chile, it's how to enrich corporate interests.
Speaking of which, Americans are now reeling under their first overdose of another privatization scheme -- a Medicare drug benefit run by the insurance companies. Chaos has reigned since the program's launch on Jan. 1. Pharmacists can't reach the insurers. The names of people who signed up for the benefit are nowhere to be found on the government's computers. Alarmed governors have set up "emergency" plans to ensure that elderly citizens obtain their pills.
The turmoil will no doubt lessen once the program irons out the creases. Calm was restored to New Orleans, too. The bigger story will be how much medication is actually being bought at amazing expense to the taxpayers.
Some scrap of self-preservation stopped American workers from getting dragooned into a privatization plan for Social Security. And the examples from Chile and our own Medicare drug benefit should build the antibodies needed to ward off the next such attack.
By now the public knows the early symptoms. You hear the words "ownership, choice and personal responsibility," and you can feel a privatization plan coming on. These words are code for replacing a simple government-run benefit with a bazaar of confusing options. It is always sold as a free-market solution, but in reality it's a means of shoveling taxpayer dollars to private interests. And the more mystified people are by the many alternatives, the easier it is for those interests to siphon off cash.
Recall the recent crusade to privatize our Social Security. The point man for the Cato Institute's campaign was Jose Pinera, who helped design Chile's private pensions. Pinera wrote a long and detailed essay noting that the Chilean system "is based on ownership, choice and personal responsibility." But he apparently ran out of ink when the time came to discuss the fees charged by the investment funds.
Other privatized retirement plans have suffered even greater hemorrhage than Chile's. In Britain's Personal Pensions system, fees and other costs will devour 43 percent of the typical bloke's account over a 40-year career, according to a World Bank study.
Last April, conservative New York Times columnist John Tierney offered his support for Chile's system. In a piece called "The Proof's in the Pension," he recounted the positive experience of a Chilean economist friend. Imagine the airtight case Tierney could have made had he talked to two Chileans. On the other hand, he might not have been able to find the second Chilean.
The candidate who lost to Bachelet was Sebastian Pinera, billionaire businessman and brother of the above-mentioned Jose Pinera. Even he had campaigned to fix his brother's handiwork.
Perhaps Bush was right in ways he never intended: Congress could indeed take some lessons from Chile.
Copyright 2005 Creators Syndicate
http://www.realclearpolitics.com/Commentary/com-1_18_06_FH.html