Empowering Workers in Chile

A specter is haunting the world. It is the specter of bankrupt government-run pension systems. The pay-as-you-go pension system, created in the 19th century by Prince Otto von Bismarck and that reigned supreme through most of the 20th century, has a fundamental flaw, one rooted in a false conception of how human beings behave: it destroys, at the individual level, the link between contributions and benefits, that is between effort and reward. Whenever that happens on a massive scale and for a long period of time, the final result is a disaster.

Two exogenous factors aggravate the consequences of that structural flaw: the global demographic trend toward decreasing fertility rates and the medical advances that are lengthening life. As a result, fewer workers have to support more and more retirees. Since the option of increasing payroll taxes generates unemployment, sooner or later promised benefits have to be reduced, a telltale sign of a bankrupt system. Whether benefits are reduced through inflation or through legislation, the result is the same: anguish about old age is created, paradoxically, by the inherent insecurity of an unfunded "social security" system.

In Chile, the Pension Reform of November 4, 1980 introduced a revolutionary innovation. The Reform gave every worker the choice of opting out fully from the government-run pension system and instead putting the former payroll tax in a privately managed Personal Retirement Account (PRA). The disability and survivor insurance system became an integral part of this system. 

This comprehensive Reform has changed dramatically Chile's economy and society. Since 99% percent of the employed workers are now in the PRA system, the end result was a "privatization from below", that is reflecting worker's wishes, of Chile's pension system. It should be noted that this same Reform allowed workers to opt out from the monopolistic government health insurance system with all their mandatory contribution (7% of wages), as long as they are able to buy with that money a minimum health insurance plan provided by private sector companies  (the companies that offer diverse health insurance plans are called ISAPRES).


How It Works

Under Chile's new pension paradigm, what determines a worker's retirement benefit is the amount of money he accumulates in his PRA during his working years. Neither the worker nor the employer pays a payroll tax. Nor does the worker collect a government-funded benefit. Instead, 10 percent of his wage coming from the previous payroll tax is deposited, tax free, by his employer each month in his own PRA. A worker may contribute up to an additional 10 percent of his wage each month also deductible from taxable income, as a form of voluntary savings. The return on the PRA is tax-free. Upon retirement, when funds are withdrawn, taxes are paid according to the income tax bracket at that moment.

A worker may choose any one of the private pension fund companies (called AFP, or "Administradora de Fondos de Pensiones") to manage his PRA. A key provision is totally free entry to the AFP industry, for both domestic and foreign companies (foreign companies can own up to 100 percent of an AFP) in order to provide competition and thus benefit workers. Those companies can engage in no other activities and are subject to strict supervision by a government entity, the Superintendency of AFP (www.safp.cl), that was created in 1980 to provide highly technical oversight.

Each AFP operates five mutual funds (Funds A, B, C, D and E) with different bond/share allocations, and the workes chooses among them according to their risk/rewards preferences. Older workers have to own the mutual funds highly invested in fixed income securities, while young workers can have up to 80 percent of their funds in shares. Investment decisions are made by the AFP, but the worker can choose both the AFP and, within limits, the preferred fund. The law sets only maximum percentage limits both for specific types of instruments and for the overall mix of the portfolio; and the spirit of the reform is that those regulations should be reduced progressively as the AFP companies gain experience and capital markets work better. A key provision from the first days is that the AFP has no obligation whatsoever to invest any money in government bonds or any other security. Legally, the AFP companies and the mutual funds are separate entities. Thus, should an AFP go under, the assets of the mutual funds-that is, the workers' investments-are not affected at all and only the AFP's shareholders lose their capital.

Workers are free to change from one AFP company to another, and from one fund to another. There is then competition among the companies to provide a higher return on investment, better customer service, or a lower commission. At the beginning each worker was given a PRA passbook (to use if he wanted to update his balance by visiting his AFP) and receives a statement by mail every three months informing him of how much money has been accumulated in his retirement account and how well his investment fund has performed. The account bears the worker's name, is his property, and will be used to pay his old-age retirement benefit (with a provision for survivors' benefits).

As should be expected, individual preferences about old age differ as much as any other preferences. Some people want to work forever; others cannot wait to cease working and indulge in their true vocations or hobbies. The pay-as-you-go pension system does not permit the satisfaction of such preferences, except through collective pressure to have, for example, an early retirement age for powerful political constituencies. It is a one-size-fits-all scheme that may exact a high price in human happiness.

The PRA system, on the other hand, allows individual preferences to be translated into individual decisions that will produce the desired outcome. In the branch offices of many AFPs, there are user-friendly computer terminals on which a worker can calculate the expected value of his future retirement benefit, based on the money in his account, the life expectancy of his age group, and the year in which he wishes to retire. Alternatively, the worker can specify the retirement benefit he wishes to receive and determine how much extra money he must deposit each month if he wants to retire at a given age. Once he gets the answer, he simply asks his employer to withdraw that new percentage from his salary. Of course, he can adjust that figure as time goes on, depending on the actual yield of his pension fund or other relevant variables (for example, longer life expectancies).

The Pension Reform of 1980 created a "safety net" for poor pensioners. A worker who had contributed for at least 20 years but whose benefit, upon reaching retirement age, was below what the law defined as a "minimum pension", was entitled to receive that benefit level from general government revenues once his PRA has been depleted. (Those without 20 years of contributions could apply for a welfare-type retirement benefit at a lower level). In 2008 these benefits were adjusted and its benefits increased and extended, since the growth of the country and its fiscal solvency allowed a stronger safety net.

The old government-run disability and survivors' program, a source of systematic abuse, given the nonexistence of incentives to control its fair use, was also fully privatized. Each AFP has to provide this service to its affiliated workers by taking out, through open and transparent bidding, group life and disability coverage from private life insurance companies. 

A key feature of the reform was the change in the meaning of "retirement." The old legal retirement ages of 65 for men and 60 for women were unchanged (those were the ages in the former pay-as-you-go system and were not discussed or changed during the reform process because they were not a structural characteristic of the PRA system). But in the PRA system, workers with sufficient savings in their accounts to buy an annuity equal to 70 percent of the average salary of the previous 10 years, as long as it is higher than the "minimum pension", can cease working at any time, begin withdrawing their money, and stop contributing to their accounts. Of course, workers can continue working after beginning to retire their money. A worker must reach the legal retirement age to be eligible for the government subsidy that guarantees the minimum pension. But in no way is there an obligation to cease working, at any age, nor is there an obligation to continue working or saving for retirement benefit purposes once you have assured yourself the benefit described above.

Upon retiring, a worker may choose from three general payout options. In the first case, a retiree may use the capital in his PRA to purchase an annuity from any private life insurance company. The annuity must guarantee a constant monthly income for life, indexed to inflation (there are indexed bonds available in the Chilean capital market so that companies can invest accordingly), plus survivors' benefits for the worker's dependents (wife and orphans under the age of 21). Second, a retiree may leave his funds in the PRA and make programmed withdrawals, subject to limits based on the life expectancy of the retiree and his dependents; with this option, if he dies, the remaining funds in his account form a part of his estate and can be given to his heirs basically tax-free. In both cases, he can withdraw as a lump sum the capital in excess of that needed to obtain an annuity or programmed withdrawal equal to 70 percent of his last wages. And third, he can choose any mix he wishes of the previous two.

The PRA system solves the typical problem of pay-as-you-go systems with respect to labor demographics: in an aging population the number of workers per retiree decreases. Under the PRA system, the working population does not pay taxes to finance the retired population. Thus, in contrast with the pay-as-you-go system, the potential for intergenerational conflict and eventual bankruptcy is avoided. The problem that many countries face-huge unfunded pension liabilities does not exist in a PRA system.

In contrast to company-based pension systems that generally impose costs on workers who leave the company before a given number of years and that sometimes result in the loss of the workers' retirement funds-thus depriving workers of both their jobs and their pension rights (such as in the infamous Enron case in the United States), the PRA system is completely independent of the company employing the worker. Since the PRA is tied to the worker, not the company, the account is fully portable. Given that the pension funds must be invested in tradable securities, the PRA has a daily value and therefore is easy to transfer from one AFP to another. The problem of "job lock" is entirely avoided. By not impinging on labor mobility, the PRA system helps create labor market flexibility and neither subsidizes nor penalizes immigrants. As PRA systems spread around the world, I envision portability between countries as well, which will help people who are more internationally mobile (such as professionals or unassimilated immigrants).

A PRA system can accommodate flexible labor styles. In fact, some people are deciding to work only a few hours a day or to interrupt their working lives-especially women and youngsters. In pay-as-you-go systems, those decisions may entail no right at all to a retirement benefit, despite years of contributing to the system. Not so in a PRA system, scheme where stop-and-go contributions do not impinge on the right to get back the totality of one's contribution, plus the return on it.


The Transition

In countries that already have a pay-as-you-go system, one crucial challenge is to design and implement the transition to a PRA system. In Chile we set three basic policy rules:

1. The government guaranteed those already receiving a pension check that their benefits would not be touched by the Reform. It would be unfair to the elderly to break the promises made. I stated this basic rule in this way: "Nobody will take away your grandmother's check."

2. Every worker was given the choice of staying in the pay-as-you-go system or moving to the new PRA system. Those who opted out of the former system were given a "recognition bond" that was deposited in their new PRAs. That bond was indexed to inflation and carried a 4 percent real interest rate. It was basically a zero-coupon Treasury bill maturing when the worker reaches the legal retirement age. The bonds can be traded in secondary markets, so as to allow the worker to use them to build the capital necessary for early retirement. The bond was calculated to reflect the rights the worker had already acquired in the pay-as-you-go system. The exact formula was in the law and was widely and simply explained to the people. Thus, a worker who had paid social security contributions for years did not have to start at zero when he entered the PRA system.

3. All new entrants to the labor force were required to enter the PRA system. This requirement ensured the complete end of the pay-as-you-go system once the last worker who remained in it reaches retirement age. From then on, and for a limited period of time, the government has only to pay benefits to retirees of the old system.

To give all those who might be interested in doing so an equal opportunity to create an AFP, the law established a six-month period during which no AFP could begin operations (not even advertising). Thus, the AFP industry is unique in that it had a clear day of conception (November 4, 1980) and a clear date of birth (May 1, 1981). Note that in this way we transformed May Day into a day celebrating the empowerment of workers.

We also ended the illusion-artificially maintained by lawmakers around the world-that both the employer and the worker contribute to social security. As economists know well, all the contributions are ultimately paid from the worker's marginal productivity, and employers take into account all labor costs-whether termed salary or social security contributions-in making their hiring and pay decisions. So, by renaming the employer's contribution an additional gross wage, our reform made it clear, without reducing workers' take-home pay, that all contributions are paid ultimately by the worker and that he can control his own money. Of course, at the end of the day, wage levels will be determined by the interplay of market forces.

The financing of the transition is a complex technical issue that we addressed successfully without raising taxes and that each country must resolve according to its own circumstances. The key insight in this regard is that, contrary to the widely held belief, there is no "economic" transition cost, because there is no cost to GNP due to this reform (on the contrary). A completely different, and relevant, issue is how to confront the "cash-flow" transition cost to the government of recognizing, and ultimately eliminating, the unfunded liability created by the pay-as-you-go system.

The implicit pay-as-you-go debt of the Chilean system in 1980 has been estimated by a World Bank study at around 80 percent of GDP. As that study concluded, "Chile shows that a country with a reasonably competitive banking system, a well-functioning debt market, and a fair degree of macroeconomic stability, can finance large transition deficits without large interest rate repercussions."

We used five "sources" to finance the fiscal costs of changing to a PRA system:

1. Using debt, the transition cost was shared by future generations.  The government issued bonds at market rates of interest. Some of them were bought by the AFPs as part of their investment portfolios. 

2. Using a fraction of the payroll tax. Since the savings rate needed in a PRA system, like the PRA, to finance adequate retirement benefit levels was lower than the existing payroll taxes, a fraction of the difference between them was used as a temporary "transition tax" (which was gradually reduced to zero, lowering the cost of hiring labor and leading to more employment).

2. Selling government owned assets. In a government's balance sheet, there are liabilities-such as pension and health obligations, but also government-owned enterprises, land, and other types of assets. In a deliberate sequence, we first created the pension funds and then privatized large government-owned companies, thus getting funds for the transition and also allowing workers to benefit from the upside of more efficient privately run companies. Thus we increased the efficiency of these companies, spread ownership and reduced the level of politization of the economy.

4. Reducing government spending. The need to finance the transition was a powerful incentive to reduce wasteful government spending. Prior to the reform, the government deliberately created a budget surplus, and for many years afterwards the treasury minister was able to use the need to "finance the transition" as a powerful argument to contain the permanent pressure from all sources to increase government expenditures.

5. Unleashing economic growth. The increased economic growth fueled by the PRA system substantially increased tax revenues, especially those from the value-added tax.


The Results

When the PRA system was inaugurated in May 1981, one-fourth of the eligible workforce signed up in the first month of operation alone, and today 99 percent of employed Chilean workers are in the PRA system. When given a choice, Chilean workers have voted with their money overwhelmingly for a free-market-based retirement system.

Since the system began to operate on May 1, 1981, to September 2014, the average real return of the balanced Fund (Fund C) has been an extraordinary 8,6 percent per year (during 33 years). Of course, the annual yield has shown the oscillations that are intrinsic to the free market-ranging from minus 3 percent to plus 30 percent in real terms, but the important yield is the average one over the working life of a person (say 40-45 years) or the full working plus retired life (say 55-60 years) if a person chooses the programmed withdrawal option.

Retirement benefits under the PRA system (with a mandatory savings rate of only 10 percent, almost half of the one under the pay-as-you-go system) have been many times higher than under the old, state-administered system, which required a much higher payroll tax. It should be noted that upon retirement, workers may withdraw in a lump sum their "excess savings" (above a 70 percent of last salaries threshold). 

The pension funds have already accumulated an investment fund equivalent of 70 percent of GNP, and experts forecast that that percentage will rise to 100 percent of GNP when the system reaches full maturity. This long-term investment capital not only has helped fund economic growth, but has spurred the development of efficient financial markets and institutions. The decision to create the PRA system first, and then privatize the large state-owned companies second, resulted in a "virtuous sequence." It gave workers the possibility of benefiting handsomely from the enormous increase in productivity of the privatized companies by allowing workers, through higher stock prices that increased the yield of their PRAs, to capture a large share of the wealth created by the privatization process.

One of the key results of the new system has been, then, to increase the productivity of capital and thus the rate of economic growth in the Chilean economy. The vast resources administered by the AFPs have encouraged the creation of new kinds of financial instruments while enhancing others already in existence but not fully developed. The pension system has helped enormously the sound operation and transparency of the capital market, has created a domestic risk-rating industry and has improved corporate governance. The AFPs appoint independent directors of the companies in which they own shares.

The Pension Reform of 1980 has also made a significant contribution to the reduction of poverty, by increasing the size and certainty of old-age, survivors', and disability benefits; by the indirect but very powerful effect of promoting economic growth and employment; and by eliminating the unfairness of the old system. According to conventional wisdom, pay-as-you-go schemes redistribute income from the rich to the poor. However, when certain income-specific characteristics of workers and the modus operandi of the political system are taken into account, those systems generally redistribute income to the most powerful groups of workers, who are obviously not the most vulnerable or poor.

The Reform of 1980 restored the solvency of the government. According to William Lewis ("The Power of Productivity", 2004), total government expenditures in Chile as a percentage of GDP declined from 34.3% in 1984 to 21.9% in 1990, and of that 12.4 points decline, pension and welfare changes accounted for half. 

Finally, by increasing savings and improving the functioning of both the capital and the labor markets, the Pension Reform of 1980 was the single most important structural change that contributed to the doubling of the growth rate of the economy in the 1985-1997 period (from the historic 3 to 7.2%).

It is not surprising that the PRA system survived intact four center-left governments in the period 1990-2010. Not only has it been untouched in its structural design, but some technical adjustments have improved it, for example, by allowing more competition in the management of voluntary retirement savings and enlarging the choices of funds.

For Chileans, their PRAs now represent real and visible property rights. Indeed they are the primary sources of security for retirement, and the typical Chilean worker's main asset is not his used car or even his small house (probably still mortgaged) but the capital in his PRA. The new social security system has given Chileans a personal stake in the economy. A typical Chilean worker is not indifferent to the behavior of the stock market or interest rates. He knows that a bad economic policy can harm his retirement benefits. When workers feel that they themselves own a part of their country's assets, not through party bosses or a Politburo, they are much more attached to the free market and a free society.

The overwhelming majority of Chilean workers who chose to move into the new system freely decided to abandon the government system even though some of the national trade union leaders and most of the political class advised against it. I have always believed that common workers care deeply about and pay a lot of attention to matters close to their lives, such as social security, education, and health, and make their decisions for the well-being of their families, not according to political allegiances or collectivist ideologies.

The ultimate lesson of the Chilean experience is that the only revolutions that are successful are those that trust the individual and the wonders that individuals can do when they are free.



Why first in Chile? What was the political context? How did you manage to do it? Those are invariably the first questions I am asked whenever I explain the Pension Reform of 1980 in my travels around the world. So let me answer them briefly here.

It all began in 1956 when the Faculty of Economic Sciences of the Catholic University of Chile signed a three-year agreement of cooperation with the Department of Economics of the University of Chicago. The agreement was renewed twice, for a total of nine years. The extraordinary transfer of ideas that took place created the best economics faculty in Latin America. In the 1960s hundreds of students such as myself were learning rigorous economics and discovering public policy ideas based on individual freedom and private enterprise.

Soon there was a critical mass of free-market economists, with a common diagnosis of the country's economic problems and similar views on the needed solutions. Since ideas have consequences, this group began to influence the public debate and began to be referred to as the "Chicago Boys." When I got my economics degree in Chile in 1970, I decided that after four years of intensive and rewarding study in a faculty that, from an intellectual point of view, was a "wholly owned subsidiary" of the University of Chicago, it would be enriching to go to another university for my postgraduate studies. So, breaking tradition, I went to Harvard University for my M.A. and Ph.D. in economics. Years later, when I was already a minister, some newspapers began calling me a "Chicago Boy" but a "Harvard Man." I am really proud of being both.

In my four years in Cambridge (Massachusetts), not only did I deepen my knowledge of economics and other social sciences, but I immersed myself in the exhilarating climate of freedom of American society. In search of the ultimate causes of the success of America, I became a passionate admirer of the Founding Fathers and their two great legacies to all the world: the Declaration of Independence and the Constitution of the United States. 

I also found great inspiration in the works of thinkers on liberty such as John Locke, Adam Smith, Frederic Bastiat, Friedrich Hayek, Karl Popper, Ludwig von Mises, and Milton Friedman (in whose 1962 book, Capitalism and Freedom, I first read about the idea of privatizing social security). During those years, I became convinced that only fundamental economic and political reforms based on individual freedom could deliver my country from poverty and all forms of oppression.

In the meantime, the communist takeover of Cuba in 1959 and its government's efforts to create, in the words of Che Guevara, "multiple Vietnams" in Latin America, led ultimately to the breakdown of democracy in Chile. Soon after, the new military government decided to invite some of the "Chicago Boys" to help reconstruct a destroyed economy and the real revolution began in Chile: a radical, comprehensive, and sustained move toward free markets. This "Chilean Revolution" doubled Chile's historic rate of economic growth (to an average of 7 percent a year from 1984 to 1998), drastically reduced the proportion of people living in poverty, and unleashed the forces that brought liberal democracy and the rule of law.

At the end of 1974, I faced a very difficult choice: remain in Boston enjoying the academic life I loved so much or go back to help found a new country from the ashes of the old one. When I went back, I knew the road ahead was full of dangers and risks.

Almost immediately, I became very active in promoting the ideas of economic, social, and political liberty in public debate. Two years later, in 1977, I gave a speech in which I described a possible future for the country should we choose to make a dash for economic freedom. The next day, I was invited by President Pinochet, whom I had never met before, to repeat the speech to him and the full cabinet. A year later, I was offered to become Chile's secretary of labor and social security with two big goals: creating a new social security system and reforming the rigid and anti-employment labor law of my country. As I have narrated it in my young memoir, "El Cascabel al Gato" (1991), I told the President that I accepted only if and that at the same time I could fight for the advance of freedom on all fronts, for the respect of human rights and for a peaceful and constitutional transition to democracy.

My ideas for pension reform were then part of an overall vision of a free market and a free society in Chile. At the ministry, I assembled an excellent team to help me design not only the new system but also a transition strategy. For decades in Chile, those striving for pension reform had failed, because their plans were partial and flawed. I decided that we should "take the bull by the horns." My motto was that we needed a "radical reform with a conservative execution." I remember often reiterating to my team that there was nothing as satisfying in life as to do something others deem impossible. We were bound together by our faith in the power of ideas and by the conviction that we could make a difference for millions of Chilean workers.

During my two years as Minister of Labor and Pensions, I divided my seven-day work week equally between excruciating work with my team, perfecting every detail of the reform project, and educating people on the values and logic of those ideas. I had countless meetings with workers across the country, and I began a weekly, three-minute explanation of the reform on one of the prime-time TV news programs. Those TV appearances, promoting the reform in the most simple and truthful terms, were crucial to building the popularity of pension reform among the nation's workers.

Let me share two revealing anecdotes regarding the temptations a reformer faces and must avoid. At some moment, it seemed very likely that the pension reform would finally be approved, as the idea was gaining support everywhere. But some special interest groups thought they could hash out some last-minute compromises. One day, I was petitioned to attend, by myself, a closed-door meeting with the top union leaders of the country. After a round of cordial greetings, their spokesman explained that, although they were ideologically opposed to the reform, they knew that it was likely to be passed. "We have come to suggest to you that our support could be helpful in the future. After all, you are a young man of 30, maybe with a promising political career in front of you. . . . So, we are willing to immediately give you our public support, as long as you are reasonable and modify a single detail in your project: instead of giving workers the right to choose the manager of their individual accounts, it should be the exclusive decision of the directors of the unions to which workers belong." He continued: "The workers, Mr. Minister, do not know how to make a decision of that nature. If we can come to an agreement about this, we will be very pleased to be of use to you in the future."

I must confess to having been surprised, not only by the brazen nature of the offer, but also by the Olympian contempt they showed for the freedom and dignity of the workers. In formulating a response, I opted for humor. "Unfortunately, I cannot accept the offer that you have come to tender, because I am concerned with saving your souls." "How is that, by God?" shouted several of them at the same time. "It's just as you heard it, gentlemen. As we all know, union leadership in our country has always been highly politicized, but it is not corrupt. If the manager selection becomes a union leader decision-as opposed to one made by each worker-you directors would be inundated by so many pressures that it would not be easy to maintain your integrity. The pension managers, who would love to manage the retirement savings of large groups, will find it much cheaper to corrupt union officials than to compete for the accounts in the free market by offering better returns or lower commissions. I will not accept that, because it will lend itself to temptations which none of you would want to face." Nobody raised his voice after that. The meeting was quietly adjourned, though much less cordially than it had begun.

The next visit was that of the chairmen of the most powerful banks in Chile. They told me they fully supported the concept of private individual retirement accounts, but that they wanted the system to be managed only by the banks. One of them even made an impassioned argument against allowing "foreign" financial institutions to manage the workers' retirement savings. As I had the trade union leaders', I pondered their arguments but rejected their position completely. Competition was crucial. It was out of the question to restrict workers' choices and to grant Chilean financial businessmen a monopoly on managing the system. I knew I was creating adversaries, but there is nothing more dangerous than diluting the coherence of a reform in order to please those with vested interests. It is not only moral and intellectual dishonesty, but also very bad policy.

Those two meetings reminded me of Thomas Jefferson's words, which had been engraved on my mind and soul since I first read them in my years at Harvard: "Whenever a man casts a longing eye on public office, a rot begins in his conduct." The key phrase here is "a longing eye," by which Jefferson distinguished between the necessary role of public men and the illegitimate desire to hold office for its own sake. That wise man saw the need for real leadership in order for a republic to survive and prosper. But he also illuminated clearly the difference between leadership and the mere quest for power.

On November 4, 1980, the Pension Reform was finally approved. The law gave the pension fund companies six months to start up, which would have set May 4 as the date. An idea suddenly hit me: to move the inauguration date up to May 1, the international Labor Day. It is a date that historically has had a special meaning for workers but that regrettably had been turned into an occasion for protest fueled by the rhetoric of class warfare. For Chile in the future, I foresaw that day as one of celebration of a reform that gave freedom and dignity to our nation's workers.

With this minor adjustment approved, I rushed to my office to share the good news with the rest of the team. In the midst of all the cheering, a voice broke through the noise: "We did it! We took the bull by the horns! Viva Chile!"

I arrived home very late that evening. I was extremely happy but completely exhausted. To relax, I turned on the TV news. They were announcing the breaking news that Ronald Reagan had just been elected president of the United States. 

As I slept that night, my dreams were filled with hope for Chile and hope for the world.


This essay is a revised version of the original "Empowering Workers: The Privatization of Social Security in Chile" published in 1996 as Cato's Letter No. 10. Originally published in the Cato Journal, Vol. 15, Nos. 2-3 (Fall/Winter 1995/96).

José Piñera is founder and president of the International Center for Pension Reform, Distinguished Senior Fellow of the Cato Institute and co-chairman of its Project on Social Security Choice (www.cato.org). As Chile’s Secretary of Labor and Social Security from 1978 to 1980, and of Mining in 1981, he was responsible for three key structural reforms: the Pension Reform, the Trade Union Code, and the Constitutional Mining Law that restored private property rights in mining. He holds an M.A. and a Ph.D. in economics from Harvard University. 




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