The moral basis for social security reform

SANTIAGO, Chile -- On one recent morning, Jose Pinera, the world's leading Social Security reformer, wore a blue windbreaker and spoke energetically to an American visitor of growing up "one of six children, with a mother who believed in savings. She matched what we saved peso for peso, but we couldn't touch the money until we were 18. She taught punctuality, discipline, honesty, saving." When Pinera grew up, he studied economics at Harvard and learned about the 19th century German origins of social security: "Otto von Bismarck had a big idea, that a worker with a pension depends on the state and so is a more docile worker. Bismarck invented a social security system with a moral flaw, that it destroys the link between effort and reward. It makes benefits the product of political pressure rather than what you contribute by your work." Pinera then explained that Bismarkian social security "has made workers dependent on political demagogues, and that has spilled over into other areas besides retirement. People say, 'Offer me more, and I'll vote for you.' That corruption of both workers and politicians has fed a culture of irresponsibility." Chile's former minister of labor and social security delivered that condemnation with prophetic intensity, but then smiled and explained how society could be saved: He held up what looks like a standard bank passbook from the pre-computer age. "We call this here a Libretita, a deliverer of liberty. Our privatization of social security was for ethical as well as economic reasons. It allows people to have their own funds and not depend on the government." Because of that reform, all working Chileans now own a piece of the country, and that has a political as well as an economic effect. "Ownership changes the way a worker sees life," Pinera said. "He is not at the mercy of a political boss or a union leader." The Libretita has boosted Chile's economy by providing companies with new sources for capital, but Pinera with a grin emphasized the human dimensions: "My secretary will still bring me coffee -- she is Chilean, not American --- but she has 20 years of work and she now has $100,000 in her Libretita account. She sees herself as rich. Chilean workers often go around with their passbooks. Sometimes in the restaurants they recognize me from television, and say, 'Pinera, do you know how much I have?'" The popularity of social security reform in Chile is striking, since reform proposals in the United States have been known as the "third rail" of American politics, with candidates for office electorally electrocuted if they touch it; George W. Bush touched it and barely survived the ire of elderly Floridians and others. But it is the privatized system that "is now the third rail of Chilean politics," Pinera insisted. "Not even the left dares to touch the Libretita." Could social security privatization come to the United States? Only if it is explained to the American public as a moral, as well as an economic, issue. Karl Zinsmeister, the excellent editor in chief of The American Enterprise, notes in his July-August issue that unions representing government employees invest their pension funds in stocks, but then deem that move "too risky" for the personal investment accounts -- our libretitas -- that could become part of Social Security. Zinsmeister explains that the reasons unions, Al Gore and others fulminate against personal investment accounts "have nothing to do with economics. ... What really scares these people is the likelihood that mass investing will change the politics of America." That's because those who control their own investments are more likely to want limited government and an economic climate that fosters entrepreneurship and self-government: "They are, in short, lousy clients for politicians seeking captives -- economically dependent on the state -- who will habitually vote to keep the forces of big government in power." As we celebrate Independence Day next week, we should keep in mind the Pinera way of providing not just a day of fireworks but decades of economic and moral independence. Libretita, anyone?