A graph showing annual economic growth in Chile over the last hundred years looks like a hockey stick. From the early part of the twentieth century until 1980, the line is flat, averaging less than one percent growth per year. But beginning 1980, growth takes off in a vertical surge, averaging over 4% per year.
One of the most sweeping reforms, done by Jose Pinera, then Chile’s Minister of Social Security, was the transformation of Chile’s government Social Security system, identical to what we now have in the U.S., to a system of individually owned private retirement accounts. Chile’s payroll tax based government system was broken and bankrupt, as ours is today.
The reform, enacted in November 1980, restored the solvency of Chile’s retirement system and brought personal ownership and wealth to Chilean workers. After 30 years, these personal accounts have averaged annual returns of 9.2% above inflation.
Writing about the decision to take on this ambitious reform, Pinera notes: “I remember reiterating to my team that there was nothing as satisfying in life as to do something others deem impossible.”
Surely a sentiment that the team who just rescued the 33 Chilean miners must feel today.
At a time when Americans struggle for our own soul, we can look to Chile as a source of inspiration for the very ideals of freedom which drove what we recall as the American dream.