Social security privatisation: the lessons from the Chilean experience for other Latin American countries and the USA

Abstract

The purpose of this article is to analyse the economic and social implications of the privatisation of social security in Chile and to draw some lessons from the Chilean experience. The focus of the analysis is on the costs and benefits of the privatised system and its impact on social equity. Thus, the main section of the article is devoted to the analysis of the 20‐year‐old Chilean experience. This section is followed by a discussion of privatisation in other Latin American countries and the impact that World Bank's policies have had on the region. The last section looks at the lessons for the United States and argues against the establishment of a partially private plan in the USA.

Chile's neoliberal health reform: an assessment and a critique

“…In 1979, after having brutally repressed opposition to the 1973 coup against socialist president Salvador Allende, the Pinochet regime embarked on a sweeping health sector reform, based on neoliberal doctrines [5][6][7]. A private health insurance system, ISAPRES, was developed alongside the state system and was intended to be the dominant one.…”

Reactions to social security retirement reform proposals in the United States

“…Of these, the 2004-05 Social Secu rity retire ment debate has, in effect, lim ited mat ters to an increase in the pay roll tax if the pres ent self-suf fi cient con cept of Social Secu rity is to be retained. While there are some other options for increas ing Social Secu rity rev enue, such as plac ing trust funds in more pro duc tive invest ment pack ages, these entail risks (Borzutzky, 2003); and the rev enues which would be gen er ated from these mis cel laneous sources are small in com par i son with the rev enues gained from increased pay roll taxes.…”

The Chilean Pension System at 25 Years: The Evolution of a Revolution

“…Some would say that a cornerstone of this individualist, market-oriented approach was the social security system implemented in 1981 (Kritzer 2005). Social Security reform in Chile has drawn a great deal of attention from policy analysts in the United States (Diamond 1993;Mitchell and Ataliba 1997;Kay 2000;Ghilarducci and Ledesma 2000;Madrid 2000;Williamson 2001;Borzutzky 2003;Cypher 2004;Larrraín-Ríos 2005). It has been the subject of controversy with opponents lamenting its disappointing performance while those with an interest in establishing private accounts and utilizing equities to bolster social security rates of returns have pointed to high returns and its influence upon reforms in more than twenty countries (AFP Association 2005a).…”

“…It has been the subject of controversy with opponents lamenting its disappointing performance while those with an interest in establishing private accounts and utilizing equities to bolster social security rates of returns have pointed to high returns and its influence upon reforms in more than twenty countries (AFP Association 2005a). It was the first conversion of a major public Pay-As-You-Go (PAYG) retirement system into a system of privately funded individual retirement accounts (Borzutzky 2003). It has been held up as the model for reform by the World Bank becoming an almost inevitable reference in any discussion about different ways to overcome the economic effects of an aging population and to reduce political risk faced by traditional social security systems around the world.…”