The privatization of Social Security: the Chilean neoliberal case (I)

The terrible history of Chile, beginning in the crucial year of 1973 with the coup d'état led by General Augusto Pinochet, is well known. This act of betrayal targeted the constitutional government of Salvador Allende, whom he served as Commander-in-Chief of the Chilean Army. He betrayed and undermined the Constitution and the regime to which he had sworn allegiance. From then on, the economic interests of transnational corporations triumphed overwhelmingly under the banner of total privatization. However, this occurred in a way that concentrated economic power in the hands of a few groups friendly to the military, something completely contradictory to the theory of high competitiveness touted by the neoliberal theoretical framework as inherent to the system it supposedly intends to implement.

Today, the results of this process, which falsely pointed to the reconfiguration of Chilean society and its economic development, are clearly beginning to expose its most terrible face. The human impact of the privatization of pensions is one of these dimensions, and it was approved at the time without parliamentary or relevant public debate; that is, a typically authoritarian approach was adopted to address a central issue in society. This failure is illustrated by the figures from the NO+AFP (No More AFP) collective, which indicate that the average number of retirement pensions is 355 people whose average benefits fall well below the minimum wage. This scenario of weakness is also expressed in the perspective outlined by the Presidential Advisory Commission, which predicts that between 2025 and 2035, approximately 50% of retirees will receive about 15% or less of the average of their earnings from their last years of work.

Thirty-eight years have passed since the Chilean neoliberal pension reform implemented in November 1980, which began operating six months later with the AFPs (Pension Fund Administrators) under Decree-Law 3.500. José Piñera, then Minister of Labor and Social Security under Pinochet and brother of the current Chilean president, Sebastián Piñera, played a decisive role in this structure. The results achieved so far are largely unsatisfactory for the vast majority of the population, but at the time were praised by the International Monetary Fund (IMF), which, as always, acts as an efficient battering ram for the interests of large transnational corporations. This is the model already classified as an "international anomaly" that is taken as ideal by the current anti-democratic Brazilian government, a model that the New York Times (September 13, 2016) acknowledges is on the verge of collapse, given the tense relationship between the dissatisfaction of people who need to continue working even after their retirement age while the private companies that manage the funds have enormous profit margins.

I recently visited Santiago, Chile, and spoke informally with many people from diverse social backgrounds. It's safe to say there's at least one point of absolute convergence: the system needs to be changed. From this perspective, a minority still sees some positive aspects in the system—people who, coincidentally, occupy positions of relative privilege. However, the overwhelming majority expresses profound displeasure and even deep disgust with the structure and type of response offered by the system imposed upon them, which deprives them of resources at the most sensitive time of their lives: old age, when their strength wanes and they are left with only a meager retirement pension.

Chile was the first country to adopt a complete privatization model for its pension system, something that only textbooks had dared to propose until then, and which, given its effects on the population, only a dictatorial regime is capable of imposing, given the impossibility of political support and popular agreement with a system that expropriates the minimum rights that enable existence. The Chilean system basically consists of the idea that each individual should enjoy monthly amounts in retirement proportional to what they have been able to save and contribute to the capitalization system during their life. Chile implemented a system in which each worker organizes and builds their own savings and deposits them into an individual account managed by Private Pension Fund Administrators (AFPs), which hold a monopoly on the management of these funds, reinforcing their power through the Association of Pension Fund Administrators (AAFP), with the main operators and controllers being foreign companies, such as Metlife, Citigroup, Principal Financial Group, BTG, and Grupo Sura.

The Chilean pension system does not propose the creation of a collective fund managed by the State, nor even a mixed system, but rather a savings fund to which neither the State nor companies contribute. This is the change currently under debate in Chile, in which, initially, companies would contribute 4% of their payroll. This type of system only exacerbates inequalities, and in the Brazilian case, it would further deepen the globally known abyss between its disadvantaged citizens and an elite already highly favored by the tax system.

Chile adopted a privatizing model that promotes the concentration of wealth and frankly fosters inequality through the distribution of resources from the poorest to the oligarchy controlling the AFPs (Pension Fund Administrators) and the application of their resources. This neoliberal systemic conception overestimates the importance of the fiscal deficit and underestimates the social deficit, showing complete disregard even for the moderate advances proposed by John Rawls' political philosophy through his difference principle, preferring to build a system that operates in favor of the crudest social Darwinism in which inequality and lack of assistance are not miscalculations, but well-thought-out purposes of the created structure. It is this constitutive inspiration of the Chilean pension system that is being challenged in the neighboring country, and it is no longer just a matter of proposed reforms, but of a structural review of the current pension system. This is precisely the model that Brazil now wishes to implement – ​​this original Chilean model that has already given ample and indisputable proof of its failure for the vast majority of the population.

As important and serious as the issue of the obscene inequality fueled by self-proclaimed Victorian prudes regarding morals is the growing loss of sovereignty. What is at stake in the neighboring country is the ability of large corporations to manage a pension system exclusively according to their interests at the expense of the population's most basic needs, and this gives a clear measure of the damage these groups can inflict when entrusted with managing a gigantic fund of resources, as would be the case in Brazil. These powerful transnational groups have their headquarters and main interests to protect located abroad, not in the territories of the countries where they operate, and therefore, in the event of a clash of interests, it will not be those of millions of workers in these countries that will be prioritized.

The funds deposited by workers are invested in the financial market and made available to large companies by fund managers, who charge an administration fee without taking responsibility for, or even sharing in, the losses that the market routinely imposes according to the logic of the global casino, whether this occurs due to cyclical crises, losses suffered by companies, or other random reasons. In any case, small savers will bear the losses, but the companies will continue to charge their administration fees in any situation, maintaining a position of distance from any business risk. The insecurity of this system for savers is brutal, since what is called "investment" of workers' resources can well be classified as a mere application in a large casino that acquires global dimensions, subject to all the risks that its logic imposes on the players, even in the case where supposedly regulatory rules for these applications are drafted by the managing companies. In fact, the resources painstakingly saved by workers are transformed into mere chips used in the vast and unstable global casino, thrown into play without any consideration of the risk to those who manage them.

The current Chilean pension system requires workers to deposit at least 10% of their salary earnings for a minimum of 20 years in order to claim retirement benefits. This is entirely based on radical individualistic beliefs. The objective result of the current neoliberal pension system is tragic, since about 90% of the first retirees under this system receive no more than US$184,00, which is equivalent to approximately 50% of the Chilean minimum wage. Naturally, after a long and arduous life of effort to save modest sums to build up savings that efficiently support old age, the current response imposed by neoliberal economic logic is frustrating. This scenario has fueled a high degree of dissatisfaction among Chileans, leading the country to experience a process of social upheaval, articulating efforts to reverse the absolute dominance of the AFPs (Pension Fund Administrators).