| ECONOMIA Y SOCIEDAD EN INTERNET OPEN LETTER TO SECRETARY OF STATE COLIN POWELL Dear General Powell, With all due respect, may I strongly disagree with your recent uninformed comment about the role of the USA in Chile in 1973. We Chileans, alone, had to depose Marxist President Allende because, although democratically elected (like Hitler, Chavez, and Fujimori), he had become a tyrant, as the historic Chilean Chamber of Deputies resolution of August 22, 1973 clearly established (that presumably you have never read and that, if interested, I could send you). And we Chileans, with the help of the ideas that have made your country such a great one, rebuilt ours from the ashes and established the rule of law, democracy and a free market economy. God bless America and Chile P.S. This brief essay--"How the power of ideas can transform a country"-- may interest you. ------------------------ HOW THE POWER OF IDEAS CAN TRANSFORM A COUNTRY By Jose Piñera Whenever I explain the Chilean Social Security Reform in my travels around the world, invariably the first questions I am asked are: How could such a pioneering reform happen in an emerging (very long and very narrow) country like Chile? How was it done? As Dante said, the only time it is appropriate to speak of oneself is when one's own experience can illuminate a phenomenon and serve others. Please allow me to extract some general conclusions from my personal journey in the pursuit of freedom. It all began in 1956 when the Faculty of Economic Sciences of the Catholic University of Chile signed a three-year agreement of cooperation with the Department of Economics of the University of Chicago. The agreement was strongly promoted by Albion Patterson, the visionary representative in Chile of the US aid program, and was renewed twice, for a total of nine years. The two deans, Julio Chana of the Catholic University and Theodore Shultz of Chicago University, showed remarkable courage, and Professor Al Harberger devoted his life to bring about this so-called "Chile Project". The extraordinary transfer of ideas that took then place created the best economics faculty in Latin America. In the 1960s hundreds of students such as myself were learning rigorous economics and discovering public policy ideas based on individual freedom and private enterprise. Soon there was a critical mass of free market economists, with a common diagnosis of the country's economic problems and similar views on the needed solutions. Since ideas have consequences, this group began to influence the public debate and began to be referred to as the "Chicago Boys." When I got my economics degree in Chile in 1970, I decided that after four years of intensive and rewarding study in a faculty that, from an Intellectual point of view, was a "wholly owned subsidiary" of The University of Chicago, it would be enriching to go to another university for my postgraduate studies. So, breaking tradition, I went to Harvard University for my M.A. and Ph.D in economics. Years later, when already a Secretary, some newspapers began calling me a "Chicago Boy," but a "Harvard Man." I am really proud of being both. In my four years in Cambridge, not only did I deepen my knowledge of economics and other social sciences, but I immersed myself in the exhilarating climate of freedom of American society. In search of the ultimate causes of the success of America, I became a passionate admirer of the Founding Fathers, and their two great legacies to all the world: the Declaration of Independence and the Constitution. I also found great inspiration in the works of thinkers of liberty such as John Locke, Adam Smith, Frederic Bastiat, Friedrich Hayek, Karl Popper, Ludwig von Mises, and Milton Friedman (in whose 1962 book, Capitalism and Freedom, I first read about the idea of privatizing Social Security). During those years, not only I develop the strongest possible attachment to the great country where I was studying (an American born son included), but also a passionate dream: to contribute to the deliverance of my own economic and political reforms based on individual freedom. In the meantime, the communist takeover of Cuba in 1959 and its government efforts to create, in the words of Che Guevara, "multiple Vietnams" in Latin America, led first to violence and terrorism in Chile, and ultimately to the breakdown of a political system that couldn't defend itself against those who made no secret of their contempt for what they called "bourgeois democracy". Soon after, the new military Junta, that was called for by the historic agreement of August 22, 1973 of the Chamber of Deputies after denouncing twenty specific constitutional and legal violations by the Marxist government, decided to invite the "Chicago Boys' to help reconstruct a destroyed economy and the real revolution began in Chile: a radical, comprehensive, and sustained move toward free markets. I missed that drama in my country, but at the end of 1974, I faced a very difficult choice: to remain in Boston enjoying the academic life I loved so much, or to go back to help found a new country, dedicated to liberty, from the ashes of the old one. When I went back, I knew the road ahead was full of dangers and risks. Almost immediately, I became very active in promoting the ideas of liberty in public debate. Two years later, in May 1977, I gave a public speech where I described a possible future for the country should we choose to make a dash for economic and political freedom. The next day, I was invited by the President, general Pinochet, whom I had never met before, to repeat the speech to him and the full cabinet, and in December 1978, I became Chile's Secretary of Labor and Social Security with two big goals: creating a new social security system and reforming the rigid and anti-employment labor law of my country. My ideas for social security reform were then part of an overall vision of a free market and a free society in Chile. At the Ministry, I assembled an excellent team to help me in designing not only the new system, but also a transition strategy. For decades in Chile, those striving for social security reform had failed, because their plans were partial and flawed. I decided that we should "take the bull by the horns." My motto was that we needed a "radical reform with a conservative execution." I remember often reiterating to my team that there was nothing as satisfying in life as to do something others deem impossible. We were bound together by our faith in the power of ideas and by the conviction that we could make a difference for millions of Chilean workers. During those two years in the Ministry, I divided my seven-day workweek equally between excruciating work with my team, perfecting every detail of the reform project, and educating people on the values and logic of these ideas. I had countless meetings with workers across the country, and I began a weekly, three-minute explanation of the reform on one of the prime time TV news programs. Those TV appearances, promoting the Reform in the most simple and truthful terms, were crucial to building the popularity of pension reform among the nation's workers. Let me share two revealing anecdotes regarding the temptations a reformer faces and must avoid. At some moment, it seemed very likely that the Social Security Reform would finally be approved, as the idea was gaining support everywhere. But some special interest groups thought they could hash out some last-minute compromises. One day, I was petitioned to attend, by myself, a closed-door meeting with the top union leaders of the country. After a round of cordial greetings, their spokesman explained that although they were ideologically opposed to the reform, they knew that it was likely to be passed. "We have come to suggest to you that our support could be very helpful in the future. After all, you are a young man of 30, maybe with a promising political career in front of you... So, we are willing to immediately give you our public support, as long as you are reasonable and modify a single detail in your project: instead of giving workers the right to choose the manager of their individual accounts, it should be the exclusive decision of the directors of the unions to which workers belong." He continued: "The workers, Mr. Secretary, do not know how to make a decision of that nature. If we can come to an agreement about this, we will be very pleased to be of use to you in the future." I must confess to having been surprised, not only by the brazen nature of the offer, but also by the Olympian contempt they showed toward the freedom and dignity of the workers. In formulating a response, I opted for humor. "Unfortunately, I cannot accept the offer that you have come to tender, because I am concerned with saving your souls." "How is that, by God?" shouted several of them at the same time. "It's just as you heard it, gentlemen. As we all know, union leadership in our country has always been highly politicized, but it is not corrupt. If the manager selection becomes a union leader decision-as opposed to one made by each worker-you directors would be inundated by so many pressures that it would not be easy to maintain your integrity. The pension managers, who would love to manage the retirement savings of large groups, will find it much cheaper to corrupt union officials than to compete for the accounts in the free market by offering better returns or lower commissions. I will not accept that, because it will lend itself to temptations which none of you would want to face." Nobody raised his voice after that and the meeting was quietly adjourned. The next visit was that of the chairmen of the most powerful banks in Chile. They told me they fully supported the concept of private retirement accounts, but that they wanted the system to be managed only by the banks. One of them even made an impassioned argument against allowing "foreign" financial institutions to manage the workers' retirement savings. As with the trade union leaders, I pondered their arguments but rejected their position completely. Competition was crucial to providing good service. And it was out of the question for me to restrict workers' choices to grant Chilean financial businessmen a monopoly in managing the system. I knew I was creating adversaries, but there is nothing more dangerous than diluting the coherence of a reform in order to please those with vested interests. It is not only moral and intellectual dishonesty, but also very bad policy. These two meetings reminded me of Thomas Jefferson's words, which had been engraved on my mind and soul since I first read them: "Whenever a man casts a longing eye on public office, a rot begins in his conduct." The key phrase here is "a longing eye", by which Jefferson distinguished between the necessary role of public men and the illegitimate desire to hold office for its own sake. That wise man saw the need for real leadership in order for a republic to survive and prosper. But he also illuminated clearly the difference between leadership and the mere quest for power. On November 4, 1980, the Social Security reform creating fully funded personal retirement accounts was finally approved. That same day Ronald Reagan was first elected President of the United States (no vast free-market conspiracy here; for me just the finger of the God in which we trust). The law gave the pension fund companies six months to start up, which would have set May 4 as the date. An idea suddenly hit me: to move the inauguration date up to May 1, the international Labor Day. It is a date that historically has had a special meaning for workers, and that regrettably had been turned into an occasion for protest fueled by the rhetoric of class warfare. But for Chile in the future, I foresaw that day as being one of celebration of a reform that gave freedom and dignity to our nation's workers. So it has been that way for the last 21 years, and with an average annual, above inflation, rate of return of 10% of their accounts, workers indeed have had enough to celebrate every May Day. The "silver bullet" for the political acceptance of this revolutionary reform was to give every worker already in the labor force a completely free choice of either staying in the government system or opting out (with a recognition bond of past contributions) for the new system. The results are eloquent: 95% of workers are today in the system of private retirement accounts. So only 5% of them either were too old to move or are genetically socialist (no problem as long as they are socialist with their own money, and not that of the rest). The rest is history. This "Chilean Revolution" doubled Chile's historic rate of economic growth (to an average of 7 percent a year from 1984 to 1998), drastically reduced the proportion of people living in poverty, and unleashed the forces that brought liberal democracy and the rule of law. Chile's economic and social reforms are now deeply entrenched because they have transformed the mentality of the people, thus creating the most successful Latin economy and a stable democracy. And now, almost fifty years after the establishment of that exchange program between an American and a Chilean university, another trascendental agreement will bound Chile to the United States, the already signed Free Trade Agreement between these two countries. Well, as Carl Sandburg wrote, "Nothing happens unless first a dream".
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