Everyone knows what castro’s idea of May Day is – tanks, turbas, thugs and long, long, long speeches about dictatorship of the proletariat and yanqui imperialismo. It’s hard to mess up a holiday to the extent he has.
But over in Chile, a nation that in 1973 escaped castro’s grasp, fought him off and kicked out his 40,000 goons –err, ‘trainers’ — before he could create a second slave state (he tried), May Day has a different meaning: worker empowerment.
What happened there 30 years ago today is something that looks like a small thing that turns out wasn’t such a small thing.
Chile swapped its castroite food ration books for La Libreta pension savings books – which are full of money. José Piñera shows what one looks like.
May 1 marks the 30th anniversary of the world’s first pension privatization. It took Chile’s bankrupt Social Security system and turned it into a system of personal retirement accounts. Investor’s Business Daily in ‘Chile’s Private Social Security System Turns 30‘ describes why Chile’s pension reform succeeded and why it can work here, too.
By privatizing pensions, Chileans liberated themselves not only from castro, whose calling card was murder – even of his obedient pawn, Salvador Allende – but from Otto von Bismarck, too.
Chile had a Social Security system exactly like ours that was borrowed from the Prussians in 1925. (Ours came in 1935). These Bismarckian set-ups, where a younger group of workers pays the retirement of an older group of workers, sound good in theory but they always goes bankrupt. That’s because of demographics – more workers taking benefits than paying them in. On top of this, all kinds of special interests are grabbing at the money coming in – which is why our ‘trust fund’ is bankrupt. Well, Chile had the same thing in 1980.
But unlike us, Chile privatized and changed its fate forever. On Nov. 4, 1980, the same day the great Ronald Reagan was elected U.S. president, Chile passed a law saying pensions would go private. Had we done that too on that date, we’d all be taking home something like $55,000 Social Security pensions instead of $18,000 pensions (see IBD link above) we get now.
The system’s architect, Labor and Social Security Secretary José Piñera specifically chose May 1 for the implementation to change the meaning of the holiday. Instead of a nasty castrofest, May 1 became a day of real dignity for workers.
Chile maybe didn’t know so at the time, but it was enacting the biggest de-castro-ing agent ever invented. Nobel-prize-winning economist Gary Becker said as much. Money was yanked out of the greedy, grasping hand of big government and put into individual accounts where workers make all their own choices – what to save, how to invest, when to retire.
And by a law embedded in the 1980 constitution by Pinera himself – no government can ever lay a hand on these accounts. Result: workers started to care about the entire economic fate of the country because it affects their pensions, instead of what they could extract as special interests from the government. A culture of property and personal responsibility took root.
That’s toxic to the likes of castro and all the new waves of pawns he’s got out there claiming redistribution is the answer.
Meanwhile, Chile’s accumulated savings soon came to equal 100% of GNP and as savings built all that extra cash went on to develop the country. That’s why Chile is a nice place to live – it didn’t happen out of nothing. It now looks and feels just like California during its better days except with highway signs in Spanish … and the country has NO NET DEBT. Eat your heart out, bearded beast!