Economist José Piñera: Chile's Pension Reformer Is No Stranger To Tough Sells

By Peronet Despeignes
[Investor's Business Daily, March 27, 1997]

The U.S. Social Security system is en route to insolvency after three decades of academic papers, talks, news articles, books, debates, speeches and commissions on the subject. Or so the cynics say.

José Piñera is trying to prove them wrong. The 49-year-old economist, who devised the world's most successful privatized pension system when he was Chile's labor minister from 1978 to 1980, has worked for the past 13 years to bring the fruits of his work to others.

His mission: to write, talk, schmooze and persuade the rest of the industrialized world into privatizing bankruptcy-bound state-run pensions. In the process, Piñera (pronounced "Pinyera") hopes to help prevent warfare between generations and avert a "funding crisis of planetary proportions."

Chile was a long-standing democracy when Piñera, whose father was a government engineer, left to continue his college studies in the U.S. By the time he finished his Harvard doctorate in economics, Chile had come under the repressive military dictatorship of General Augusto Pinochet.

"I would have preferred to work under a democratic government . . . but we cannot choose our historic times," he said. "I had to make the most difficult decision of my life and abandon an academic career that I loved," he said. "I sensed a call of duty. I had a Ph.D. in economics and had to go back to my country."

So in 1974 at the age of 26, he returned to Chile as a professor, continuing his research into Chile's economic problems. These were many: soaring debt, rising poverty, growing inequality, sluggish growth, hyperinflation and a bankrupt social security system.

Using every medium within his reach —newspapers, magazines, classrooms academic journals, television and radio —he argued for privatizing state-run finance, mining and social security. He boldly talked about how free-market reforms could double the country's growth rate.

"Everybody said, 'You're crazy,'" Piñera recalled. "'We're Latin Americans; we're not Asians.' "

But Pinochet, excited by the prospect of a reinvigorated economy, invited him to join the "Chicago Boys"—a hand-picked group of ministers dubbed for their postgraduate training at the University of Chicago — to revitalize Chile's economy.

Working under a dictatorship spared him and the rest of the "Chicago Boys" the interest-group-ridden politics of democracies. But Piñera said that in many ways his task was just as rough. He was confronted with "vested interests, ignorance, prejudice and tradition" almost every step of the way. And his group had little precedent to cite for its proposals.

"Pushing our reform proposals was difficult," said Piñera. "But at the end of the day, you are alone, and you have to make the decision to go and risk your intellectual capital, your career and maybe even your friends—but that's the way to change a country. '

The crux of Piñera's social security reform is a shift of control of investment from the government to the individual. Chilean workers still are forced to set aside money for retirement, but now they can put their social security funds into competing mutual funds.

Piñera wanted to do more than just make the program solvent and assure retirees high returns— though those goals have been more than met. He also wanted to empower workers ("make them capitalists") and depoliticize a large part of the economy. He also wanted to defuse the class conflict that had led to the breakdown of Chile's democracy.

He now intends to do the same for everybody else. When he's not in his Santiago office or at his Cachagua home on a bluff overlooking the Pacific ("no phones, no faxes, no computers"), he's a traveling free-market salesman.

He admits that serious debate is only beginning in the U.S., but he's optimistic.

The past four years have made him even more so, as countries like Argentina, Peru and Colombia—all of which Piñera had visited repeatedly over the years—adopted private pension plans of their own. Mexico, El Salvador and Bolivia are scheduled to launch their own privatization efforts in coming months.

"At the end of this year, there will be seven Latin American countries where workers will have their individual pension savings accounts," Piñera says proudly.

Since leaving the Chilean government, where he served as mining minister until 1981, he has worked as a consultant and as head of the Santiago-based International Center for Pension Reform. He is a frequent host to foreign diplomats and travels throughout Europe, Asia and the U.S. In America, he gives speeches and testifies at hearings, seminars and town-hall meetings with businessmen, students, laymen and government officials — Democrats and Republicans. He says his meetings have been positive, but politicians are still balky.

"Nobody ever tells me, 'Look, this shouldn't be done,' or, 'Look, this is impossible,'" he said. "What people generally tell you is, 'Look, this is difficult.' I tell them I leave the easy tasks in life to my children. I take care of the difficult ones. Of course, it's difficult. Anything really valuable in life is very, very difficult."

His ultimate target, he says, is not the U.S., but Europe and Japan: "They have a much larger problem,'' he said.

Piñera hopes either the U.S. or Britain will set the first example for other developed countries. So he continues to sell his plan with data, arguments, passion and the moral authority that comes with widespread recognition of his success.



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