As Bush prepares to disassemble Social Security on the Chilean model (Pinochet’s ex minister of labor, Jose Pinera, bragged recently in the Times that he had talked with Bush when the guy was the governor of Texas about destroying the public pension plan), it is interesting that Chile seems to be moving the other way. The NYT has a large article, spotted with the usual propaganda, about the corruption indulged in by the Pinochet gang: the 15 million the general now possesses, due to the ‘gratitude’ of various businessmen; the 3 million doled out to Tony Jr., his son; the sweet privatization deals that made his son-in-law a millionaire/billionaire; and the cooperation, through the General’s murderous regime, of a consortium of the usual suspects – payments to the General from the grateful Thatcher government – Maggie sometimes ached for the stadium solution for her own left opposition; the money from Reagan’s administration; the money from China.

The article does, however, misrepresent the “shining record of economic achievement” of the General:

“As Chile's strongman from 1973, when he overthrew Salvador Allende, an elected civilian president, to 1990, General Pinochet presided over a purge of political opponents and the creation of a police state. But he also laid the foundations for what has become Latin America's most stable and promising economy - all, as the general's supporters have claimed, without ever stealing a dime.”

Ask Chile’s workers about that. In fact, as we’ve noted before, Pinochet’s radical Chicago style shock therapy resulted, in 1983, with Chile plunging into the a depression comparable to the 30s. In order to get out of it, Pinochet socialized the private debts amassed by the corporations freed by his first round of privatizations. In essence, he socialized Chile’s economy in a manner undreamt of by Allende. On this site, Jörg Sancho Pernas summarizes the ‘reforms’ of the General:


"The cause of the economic growth was the influx of private foreign loans until the dept crisis of the early 1980s. The disadvantage of this kind of miracle was the increase of unemployment: Dieter Nohlen mentions that during the entire dictatorship unemployment was at an average of 17.3 % and sometimes between 20 % and 30 %. He also points out that by comparing the figures of previous years, poverty has increased during the government of Pinochet (Nohlen, Dieter/ Nolte, Detlef (1995): p. 322). Combined with the economic liberalization, the Chilean government introduced a series of social reforms in order to reduce the role of the central government in social security, labor disputes, health care and education. These reforms were created in order to shrink the central government, decentralize administration, and privatize previous state functions. For example, in 1979 the government privatized the health system by establishing private health insurance companies. The transference of the market principles towards the health sector was justified with the following arguments: guarantee of free choice of doctors, more efficiency of the health sector, equity of chances (Friedmann, Reinhard (1990): p. 80/81). At this point it should be marked, that the military regime was deconstructing the welfare state by leaving the citizens at the mercy of the private market. The government focused its social assistance only to provide the basic need of the poorest citizens.

"In 1981, the pension system in Chile was reformed by the military regime. The target was the privatization of the social security. The reason was that by the early 1970s, there had been thirty-five different pension funds (although three of them served 90 percent of contributors) and more than 150 social security regimes for the various occupational groups. This expansion was leading to inequities in the social system. The newly incorporated groups obtained by law special treatments and new benefits. There also had not existed before a standard retirement age for all groups of pension funds. In order to be covered by the pension fund people had needed to have a job, because coverage continued to depend on the employment history of the main beneficiary. So the pension funds had never reached all Chileans. The new social security system was based on private investment companies, the so called AFPs (Administradores de Fondos de Pensiones) which should secure the old age pensions. The AFPs nowadays compete with each other. Since 1983 salaried employees can only contract the obligatory private insurance. But the insurance company can be selected independently by oneself. Changing from the public to private insurance the contributions accumulated have been transferred accordingly. There was a deadline for the insurance change of 5 years. The contributions of the insurance contractors are invested with the new pension system at the private capital market. The contractor gains a share of the profit. The age of retirement amounts to 60 years for women and to 65 to men. The pension is calculated of the accumulated contributions and the profits of the pension fonds. The state still gives a guarantee for a minimum pension by contributing additional payments to the insurance. (Nohlen, Dieter/ Nolte, Detlef (1995): p. 325/326).”

The NYT article continues to play the Pinochet shell game by describing Pinochet’s ‘privatization’ program as if he had inherited a heavily nationalized economy. He hadn’t. Allende’s nationalizations came to an abrupt end, as did Allende, when the General kindly embodied the invisible hand in 1973.

“The Chilean authorities are also focusing special attention on privatizations of former state-owned companies in sectors like steel, electricity, mining and telecommunications, with an eye to uncovering financial gains the general might have secured through those transactions.

The most lucrative privatizations were from 1985 to 1990, when it was clear that the Pinochet government's days were numbered and when even some military officials questioned the wisdom of rapidly selling companies in industries vital to Chile's national security and economic well-being.”

Right. What happened in Chile is what happens periodically in countries in the neo-liberal system that veer to the right. A period of bubble prosperity is succeeded by a period of deep ‘recession.’ During the recession, the people who did not prosper during the bubble, i.e., the majority of the population, has shifted onto its back the debts accumulated by the wealthy to hold their party. This is exactly what happened when, in 1982, the IMF, the huge partisan of privatization, suddenly turned around and demanded that the Chilean government take responsibility for the huge outstanding debts racked up by its new private sector. The government, of course, responded with its bracing rhetoric of individual responsibility. The IMF and World Bank responded by closing Chile’s credit lines. The government then responded by stuffing the individual responsibility crap, nationalizing the debt, which entailed nationalizing most of the economy, and agreeing to pay it off – in other words, the debt was spread over the people of Chile.
This is a pretty standard pattern. After Salinas oversaw the entirely dirty privatization of Mexican banks, the crooks that bought them rode them directly into bankruptcy – at which point their debts were nationalized. Same with Argentina, Russia, etc. Privatization always is a two part shuffle – one part enriches an irresponsible and often corrupt elite, the other part nationalizes that elite’s debts. After the debt situation is taken care of, the elite is then surprised and delighted by a second wave of “privatizations.” It is a beautiful machine, and the Bush gang obviously have studied it. That is the point of the privatization of social security – don’t worry, no administration will allow the private part of the public pension fund, after it bottoms out in some predictable recession, to go to zero – no, the debts there will be quietly nationalized, in the same way S&L debts were nationalized. Under capitalism, this is known as individual responsibility and free enterprise. It is called reform -- a wonderfully civic sounding word. We have wondered why bank robbers don't plead "reform" in court -- "Judge, I was just reforming the deposit structure of the bank!" On this site we are too ignorant to handle those words. We call it moral hazard and stealing.