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George W called it “a great example,” declaring that our country should “take some lessons” from it.
The “it” that so has enamored George is the privatized social security system that was imposed on the people of Chile 25 years ago by the dictatorship of Augusto Pinochet. His system of having workers pay into personal pension accounts managed by private investment banks is called the Chilean Model, and it has long been hailed by laissez-faire think tanks and by the Bushites as a model for privatizing our own nation’s Social Security program.
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Before we swallow this pill of privatization, however, we might want to ask the people of Chile how they have fared under its marketplace magic. Not well. Chilean workers who participate have 10 percent of their paychecks deducted and put into the hands of the private pension bankers. Yet half of the Chilean people cannot afford this deduction – so they end up with no old-age pension whatsoever. Of those who do participate, the rules are so rigged that 40 percent cannot accumulate enough money in the system to have a livable retirement.
As a top official of the economic commission for Latin America bluntly puts it: “The bottom line is that this system does not work.” Well, it might not work for the people – but it’s working very nicely for the bankers. The six funds now running the privatized system are enjoying an average annual profit of 50 percent!
The reason for such astonishing profits is, of course, the same reason that U.S. banks are riding high: exorbitant fees. The World Bank finds that Chilean pension mangers are ripping off between a fourth and a third of the workers payments in the form of commissions and other fees. Compare that to our own Social Security system, which takes only one percent for administrative costs – and covers everyone.
This is Jim Hightower saying… Bush is right – we can “take some lessons” from the Chilean Model. Lesson Number One is: Forget it!
“Chile’s Candidates Agree to Agree on Pension Woes,” The New York Times, January 10, 2006.