Pension Reform Pied Piper Loves Private Accounts

By Matt Moffett
[The Wall Street Journal, March 3, 2005] [En Español]

This January, when Slovakia started allowing workers to divert 9% of their wages into individual savings accounts, José Piñera stuck another red pin on a map he has that charts the advance of private social security plans around the world.

In the early 1980s, Mr. Piñera pioneered the use of private accounts as labor minister of Chile, and he has since served as an informal adviser to about 20 other countries that have adopted them. While Slovakia was debating its privatization plan during the past few years, Mr. Piñera visited the country twice to meet with legislators and government officials and received a high-level Slovakian delegation that came to Chile.

After the proposal passed the Slovakian legislature, Labor Minister Ludovit Kanik wrote Mr. Piñera a letter saying, "Your visit to Slovakia started an intense discussion about the pension reform and enormously influenced the generation of a favorable political climate."

It was a typical turn for Mr. Piñera, the son of a former Chilean ambassador to the United Nations, who has become the pied piper of global pension reform. The 56-year-old Mr. Piñera combines the nuts and bolts know-how of a Harvard-trained economist with a proselytizing style that prompted the Chilean magazine Capital to dub him "Jose the Evangelist."

Over the years, those qualities have helped Mr. Piñera influence governments representing a wide ideological spectrum. He has advised Margaret Thatcher's Tory government in England, as well as Socialists in Sweden and the Solidarity labor government in Poland.

U.S. Republicans also have looked to him for advice, including George W. Bush when he was Texas governor. In 1997, Mr. Bush invited the Chilean economist to Austin, Texas, for dinner at the governor's mansion.

Now, Mr. Piñera is diving deeply into the U.S. debate over the Bush administration's plan to adopt private accounts. Dividing his time between Chile and Washington, he has been writing opinion pieces, briefing legislators on Capitol Hill and speaking at the Cato Institute, a libertarian think tank. He considers his services to governments as a "mission, a calling, a moral cause."

He argues that the U.S. Social Security system is headed for a crisis, with a dwindling number of workers supporting an increasing number of retirees. "Demographics is destiny," he recently wrote on SocialSecurityChoice.org, a pro-privatization Web site. "If Americans don't want to have more babies, they need to put money in a personal retirement account." Mr. Piñera maintains that, aside from the financial arguments for them, individual accounts also would do away with the culture of dependence on government and foster more personal responsibility.

"I think he is as strong and reasoned and compelling of a proponent of personal accounts as there is," says Republican Sen. John E. Sununu, of New Hampshire, who plans to re-introduce legislation to create private accounts along the lines Mr. Piñera advocates. He says that when the Chilean visited New Hampshire a couple of years ago, he connected with locals by talking about "values and savings and retirement security, and hopes and aspirations for their children and grandchildren."

Even Gene Sperling, a former Clinton White House economic aid, who is sharply critical of privatizing Social Security, calls Mr. Piñera "a very passionate and engaging advocate." In 1998, Mr. Piñera addressed a Clinton administration summit on Social Security.

Mr. Piñera's International Center for Pension Reform is essentially a one-man operation he runs out of a Santiago office building resembling a scaled down Chrysler Building. He says he supports himself with money earned on the international speaking circuit, which allows him do his social security work on a pro bono basis and leaves him free to speak his mind.

After meeting with Russian President Vladimir Putin for four hours at his dacha last May, Mr. Piñera wrote an article in the Moscow Times praising the Russian leader's emphasis on attaining rapid economic growth, but also bluntly urging Mr. Putin not to seek a third term in office. He quoted the Russian poet Alexander Pushkin: "Oh, kings, you owe your crown and writ/To Law, not nature's dispensation."

Mr. Piñera says former Eastern Bloc countries are especially receptive to his ideas, because "they know collectivism and the indignity of a monopolistic system."

But some of the countries that have adopted individual accounts have performed poorly. In Argentina and Bolivia, for instance, as some payroll taxes started flowing into private accounts instead of government coffers, the government had less money to pay existing retirees. Argentina and Bolivia had to make up the difference by borrowing, which contributed to economic crises.

Mr. Piñera insists those countries' problems stemmed from the execution of the plans, rather than the idea itself. "If you make a reform half way, you get half way results," he says. "I believe half way is still better than zero."

For some, Mr. Piñera's early privatization work in Chile, where personal accounts still flourish, will always be tarnished by the fact that it was carried out under the harsh dictatorship of Gen. Augusto Pinochet. Mr. Piñera, who had been teaching at Harvard University in 1973 when a coup led by Gen. Pinochet ousted a democratically elected Marxist government, says he has no doubt that coming home was the right thing to do. "The world is imperfect and moral courage is not to stay in universities or abroad criticizing the 'men in the arena,' but rather dare to engage an imperfect government, turn it around with all the imaginable difficulties, and deliver freedom and democracy," he says.