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March 12, 2005

Politics of Chile's "Private" Pensions

CBS News tries to put a happy face on Chile's privatized pension sytem, although even they have to admit, burying what could be a lead:

Nearly half of Chile's workforce is self-employed and many are seasonal workers who rarely declare income, pay taxes or contribute to their pensions. These people have little to retire on, other than the government's guaranteed payment of $150 a month.
So we are supposed to even talk about a system leaving half the population in poverty in their old age as a model?

Who Controls Chile's Pensions? But there is another issue, the oft-repeated statement that this privatized system fed economic growth:

Nearly $60 billion worth of retirement assets have been put to work in the Chilean stock market. Supporters of private accounts say all this investment in local companies has helped fuel an unprecedented economic boom.
It's fascinating that conservatives are promoting this kind of industrial policy, forced savings by individuals directed by the government into specific investments in the country's industry. I've argued in the past that we should be using social security money to encourage direct investments in the US economy, but most conservatives supposedly object to such political use of government-controlled capital.

So why the love by conservatives of Chile's system? Let's be real. Conservatives don't really object to government money subsidizing the corporate sector; they just fear that it may be subject to democratic controls and thus be invested in ways conservatives might object to. So Chile is a wonderful model since it hands the money over to rightwing-controlled funds:

Chile's six pension funds, whose trustees include at least 17 Cabinet members of the former military regime that imposed the system...have become one of the most profitable industries in Chile, reporting a higher return on equity than Chile's biggest utilities.
Here's the question then. Since even privatized systems end up with the government engaging in industrial policy with the investments, why not cut out the middleman of private accounts, with all their complications, and just have the government invest some portion of social security directly in private investments in lieu of the current investments only in Treasury bonds? This would be a far more accountable approach to deciding how to allocate so much capital in our society.

Avoiding Talking About Pensions & Jobs: What's remarkable is that both liberals and conservatives largely talk about social security in terms of personal finance, but studiously ignore that we are talking about how to invest trillions of dollars of capital in the economy, an inevitably political question that both sides seem to want to dodge for different reasons, conservatives because they think they can quietly hand the money over to friendly capitalist firms on Wall Street, liberals because they are afraid to actually talk about the government taking a pro-active role in job creation.

But the social security debate is about more than just social insurance for the elderly and disabled. It's about how we as a society are going to invest a big hunk of capital controlled by the government over the next few decades. We can use it to encourage broadly-shared economic growth in our economy or we can blindly hand it over to multinational corporations who may well use workers' money against those workers and send their jobs overseas to sweatshops.

For all conservatives talk about an "ownership society", even mutual funds don't give workers any real say in how money invested in their name gets used in the economy. What we need is a system where we actually debate the social and economic choices of how to use money collectively invested through our pension system.

Posted by Nathan at March 12, 2005 04:38 AM