Social Security Privatization is a Disaster in Chile; Anti-Union Politicians and Wall St. Still Want It Here

SAN FRANCISCO, California, Aug. 16 -- The International Longshore and Warehouse Union issued the following news document:

Editor's note: The following article looks at Chile's disastrous experiment with privatizing their once-public Social Security system. The conversion from public to private was encouraged by Milton Friedman, an economist at the University of Chicago who despised labor unions, minimum wages, Medicare and Social Security.

The possibility that something similar could happen here is real. President Trump's Economic Advisor, Larry Kudlow, says he supports privatization, as does House Speaker Paul Ryan and Ryan's likely replacements. The same people also support privatizing Medicare, the nation's public, non-profit, single-payer health insurance system for older Americans.

After winning the election, President Trump first pushed massive tax cuts for corporations and the super-rich. Then he appointed an anti-union justice to the Supreme Court, and is now nominating a second anti-union justice. In Congress, anti-union members are using the budget deficit they created with the tax cuts to justify reductions and changes to Social Security, Medicare and Medicaid.

When the mid-term elections are over this November, expect more calls from anti-union politicians to cut and convert Social Security, Medicare, Medicaid into private, profit-making insurance schemes. Wall Street likes privatization because it would generate billions in fees and give them access to massive capital for lucrative investments here and overseas. Privatization would leave retirees responsible for losses in a stock market that experts say is hopelessly rigged against small investors. Understanding what happened in Chile can help us avoid making the same mistake here.

Mobilizing for a better future: Citizens in Chile are fighting a failed retirement system that was privatized by the military dictatorship who ruled their country - with U.S. backing - from 1973-1990.

When I last wrote for The Dispatcher from Chile in 1996, the private pension companies (known as AFP's) who ran Chile's system of individual pension accounts were already unpopular. Independent economists and union leaders warned then that the system would eventually fail.

The privatized social security system was imposed on Chile in the early 1980s by the brutal, U.S.-backed military dictatorship of General Augusto Pinochet. After thousands of murders, widespread torture, imprisonment and repression of once- powerful unions, the country became a laboratory for imposing extreme free market ideas generated by University of Chicago Economist, Milton Freedman. A group of Chilean economists who worshipped Friedman were known as "the Chicago Boys," and they oversaw the sell-off of public-owned companies, deregulation of business and privatization of education, healthcare and Social Security. Chile's public programs dated back to the 1920s and included a comprehensive national healthcare system.

A conservative, young Chilean economist who hated unions, Jose Pinera, was appointed Minister of Labor. He imposed a new labor code that destroyed the power of unions to stand up for workers and instituted a system of private retirement accounts, financed solely by mandatory 10 percent contributions from workers, and no contributions required from employers. New workers were required to open a private AFP account when they were hired. Existing workers with Social Security accounts were pressured to switch to the private AFP accounts - saving employers two thirds of the cost they had been paying to fund the Social Security accounts.

A one-sided propaganda campaign funded by Pinera's Ministry of Labor and private investment firms eventually made everyone switch. By 1996, Pinera was co-chairing a well-funded Cato Institute project that lobbied for privatizing Social Security in the U.S. The U.S. media often reported Pinera's claims uncritically, including his assertions that Chilean workers were becoming "the owners of Chile," and would be "rich in retirement."

Conservative Republicans in Congress, along with some corporate Democrats, used Pinera's unfounded claims to attack Social Security and Medicare, which they regarded as dangerous "socialist" programs. When the Supreme Court installed George W. Bush as president in 2001, the privatizers had a champion in the White House. But unlike Chile, resistance from U.S. unions and allies was able to stop the plan to privatize Social Security and Medicare - at least for the time being.

While I was visiting Chile earlier this year in April, my cab driver, Mauricio Sanhueza, told me, "Things have gotten a lot worse since you were here in 1996." He added, "Jose Pinera is hated everywhere in Chile." Pinera had promised Chilean workers that the AFP system would provide 70 percent of their salary when they retired, but this "replacement rate" is now in the 30-35 percent range, says financial advisor Alvaro Gallegos, who served briefly as Superintendent of Pensions under a recent democratically-elected government. "In another decade," he adds, it will be down to 15 percent."

During this year's trip, I asked many people, but had trouble finding any working person who believed that they will be able to retire with dignity under the private system. They know that the AFPs are ripping-them-off with high fees and confusing rules designed to keep pension payouts as low as possible.

Hector Manuel, 75, was working as a hospital orderly and expected a good retirement under Social Security. "I was told that I had to switch" and he "retired" in 2005, but now has to keep working as a cleaner at another hospital. "The more I think about it, the more anxious I get, but I will never be able to stop working."

Seamstress Sonia Garcia, puts it in even glummer terms: "I will have to work until I die. I just hope I can save enough to pay for my coffin."

The Wall Street financial collapse of 2008 brought crisis to Chile as well. The value of private accounts dropped 30-35 percent and set the stage for a massive reform movement. A group of unions stepped-up to create an organization called No Mas AFP in 2013, and grassroots organizing began throughout Chile.

"Our second major mobilization, in 2016, had two million people marching in cities throughout Chile, the largest march in our history," says Luis Mesina, President of the Confederation of Bank Workers and a top leader of the movement.

Two million Chileans marching in their nation of 18 million would be the equivalent of almost 40 million people protesting in the U.S. Last year, No Mas AFP ran a nationwide referendum supervised by two universities that ensured that each registered voter could only vote once, "We had 8,500 volunteers who helped conduct the referendum throughout Chile; union members, seniors, students and even some conservative people," adds Mesina. "The results showed that 1.74 million of Chile's 3 million registered voters participated, and that 96.7 percent of them opposed the AFPs.

But that doesn't mean that fundamental change will come easily. Dozens of people interviewed for this article had the same response when I asked them if they remembered Pinera promise that workers would become the owners of Chile. Each of them told me, "It is the AFPs that have become the owners of Chile."

The six AFPs--three of which are totally or partially owned by U.S. companies like Met Life and Prudential--control assets equal to about 70 percent of Chile's Gross Domestic Product. They wield enormous political and economic power that holds influence over politicians - and administrations - whether they lean left or right. The system has been tweaked with various regulations and even contributions of government money to top off investment accounts for those with meager retirement savings.

"But nothing has changed fundamentally," adds Mesina "and the people of Chile will have to build great political power to overcome a very entrenched system." Leaders like Mesina understand that it is hard for a movement to sustain a high level of intensity, and a period of more quiet grassroots organizing is now underway. "Our greatest advantage is that pensions keep getting worse," he notes.

Despite this reality, the Cato Institute insists that Chile's system has been a great success and many politicians like Vice President Pence and House Speaker Paul Ryan still favor privatizing Social Security in the United States.

It turns out that General Pinochet himself worried the AFPs would grow too powerful, and that the system of privatized pensions would eventually fail to deliver on promises made by their promoters. That's why he insisted on exempting military and police forces - who are among the few that remain in the nation's once robust public Social Security system. He may have been bloody dictator, murderer and torturer, but he wasn't a fool.

Fred J. Solowey has written several previous articles for The Dispatcher and is now a retired editor and communications director for various unions. He is a member of the National Writers Union, UAW Local 1981.