José Piñera

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José Piñera

Born October 6, 1948 (1948-10-06) (age 59)
Santiago, Chile
Residence Santiago, Chile

José Piñera (born October 6, 1948, in Santiago, Chile) is the architect of Chile's private pension system based on personal retirement accounts. Piñera has been called "the world's foremost advocate of privatizing public pension systems" [1] as well as "the Pension Reform Pied Piper" (by the Wall Street Journal) [2].

Contents

[edit] Early life

José Piñera is the son of José Piñera Carvallo, Chile's Ambassador to the United Nations during the government of President Eduardo Frei Montalva (1964-1970). His uncle Archbishop Bernardino Piñera was twice elected President of Chile's Council of Bishops. He has three younger brothers: Sebastián Piñera, a businessman and politician; Pablo Piñera, a former member of the Board of the Central Bank; and Miguel Piñera, a musician. He also has two sisters, Guadalupe and Magdalena. The Piñera family comes from Asturias, Spain.

Piñera graduated in 1970 as an economist from the Universidad Católica de Chile, at that time closely associated with the Department of Economics of the University of Chicago. In this same year, 1970, he began graduate studies at Harvard University. In 1972 he received his M.A. and in 1974 his Ph.D. in economics. He was a Teaching Fellow at Harvard and an Assistant Professor at Boston University. Piñera returned to Chile in 1975 as a professor of the Catholic University of Chile. He has written eight books (some of them translated to English, German, Polish and Korean) and numerous essays and articles.

[edit] Government career

[edit] Overall review

After promoting a plan of free market reforms that he considered could double Chile's annual rate of growth to 7%, he became, first, Minister of Labor and Social Security (1978–1980), and then, Minister of Mining (1980–1981), in the cabinet of President Augusto Pinochet. As such, he was responsible for four structural reforms: the creation of a retirement system based on private personal accounts (the AFP system), the opening of the private health insurance system (the ISAPRE system), the design of a pro-employment labor code that reestablished democratic trade union elections, and the constitutional law on mining that established property rights in this key area of the Chilean economy. He also was a leading promoter, and he signed it as member of the Cabinet, of the new 1980 Constitution that established a bill of rights and a gradual transition path to a return to democracy.

[edit] First actions

José Piñera entered the cabinet in December 1978 when Chile faced two serious external threats: a possible war with Argentina over the disputed Beagle Islands and a trade boycott by the American AFL-CIO trade union. Piñera quickly announced that Chile would soon promulgate a new trade union law reestablishing labor democracy in Chile (suspended since September 11, 1973) and a new collective bargaining law. That announcement, together with a process of dialogue with the head of the AFL-CIO, George Meany, conducted through J. Peter Grace, led to the lifting of the threat of a boycott in January 1979. At the same time, the Vatican offered mediation over the Beagle Islands.

[edit] Labor Reform

Piñera followed up on June 29, 1979, announcing a package of four related laws that transformed trade union legislation in Chile:
a) D.L. 2.756 reinstituted free trade unions, requiring secret votes to elect union officials and allowing free union affiliation within a company;
b) D.L. 2.757 regulated the creation and operation of trade and professional organisations;
c) D.L. 2.758 created a new decentralized collective bargaining process, whose main pillars were: c.1) bargaining takes place between the trade union and the employer at the company level, rather than the traditional industry or national level; c.2) the right to strike is defined as one of refusal to work without being fired, but not necessarily as one entailing the forced closing of productive activities; c.3) allowed employers to impose a lockout and, after 60 days, to lay off striking workers; c.4) prohibited any government intervention in the process; c.5) instituted a mechanism of "pendulum arbitration" (also known as final offer) in public services, where disagreement led not to strikes but to compulsory arbitration by private sector arbiters, who were mandated by law to choose either the last company offer or the last trade union demand, but could not split the difference.
d) D.L. 2.759 solved specific labor problems and strengthened the anti-monopoly law.

Ministry of Labor statistics show that, after this legislation, 97% of collective bargaining processes in Chile have reached agreements without the need to strike.[verification needed] Those that have reached the strike level, were resolved after an average strike period of 12 days. After a few initial cases of pendulum arbitrations (for example in ENAP, the state oil monopoly), workers and management have agreed on working conditions without needing the arbitration process. This labor legislation has been the subject of academic studies by, among others, Stanford University Professor John Pencavel.[verification needed]

[edit] Social Security Reform

On November 4, 1980, Piñera introduced the Social Security Reform (D.L 3.500 and D.L 3.501), that allowed workers to opt out of the government-run pension system and instead put the former payroll tax (10% of wages) in a privately managed Personal Retirement Account (PRA). New workers were automatically enrolled in the new system. These measures resulted in a privatization of Chile's social security system. This same Reform introduced two important changes to the health system: a) it fully privatized the disability insurance system, which became an integral part of the so-called "AFP system" (the AFPs are the private companies that manage the PRAs on workers' behalf); and, b) it allowed workers to opt out from the government health insurance system with all their mandatory contribution (another 7% of wages), as long as they were willing and able to buy with that money a minimum health insurance plan in what became the "ISAPRE system" (ISAPREs are private companies that offer diverse health insurance plans).

The above mentioned reform had a major impact on Chile's economy and society. By February 2007, 7.7 million individuals had a PRA. Because of movements in and out of the labor force, this number cannot be directly related to the current labor force of 7 million, out of a working-age population of 12.6 million. As regards ISAPREs, they counted for 1.2 million contributors in December 2006, who with their dependants provided health coverage to 2.7 million persons, representing about one-sixth of the total Chilean population of 16.5 million at that time. The proportion of persons covered by ISAPREs has been reducing since the mid-1990s, when it peaked at just over 25% of the population.

The PRAs annual average rate of return has been 10.1% a year, above inflation. The resources accumulated in the workers' PRAs amount to $90 billion, or approximately 80% of Chile's GNP. According to William Lewis, total government expenditures in Chile as a percentage of GDP declined from 34.3% in 1984 to 21.9% in 1990, and of that 12.4 points decline, social security and welfare changes accounted for half.[3]

As Paul Craig Roberts has noted, "Chile was the first country in the world to privatize Social Security. José Piñera played the key role. Privatizing the pension system would have been enough to earn José Piñera his place in history, but he also oversaw the privatization of health care".[4]

A report submitted in 2006 by a bipartisan, government-appointed, Commission [2]</ref>) concluded that the system was working better than expected for the employed workers, that it was now technically possible and socially advisable to make the capitalisation system also compulsory for the self-employed, and that the fiscal savings arising from the transition process allowed for a strenghtening and extension of the already existing safety net (consisting of a "pension asistencial" and a "pension minima", that will be combined into a "pensíon basica"). In March 2008, the Congress appproved, by a unanimous vote, these parametric changes and other minor adjustments, keeping the capitalisation system intact. The monthly "pension basica" will rise from $49.000 to $60.000 in 2008, and to $75.000 (USD $150) in 2009, an amount clearly affordable in a country with a fiscal surplus of 8% of GNP forecasted for 2008.

[edit] Mining Reform

On December 1, 1981, José Piñera obtained approval for the Constitutional Mining Law that protected property rights in this crucial sector of the Chilean economy. The law was ratified by a 7-0 vote in the Constitutional Court. This law and the free market economic framework stimulated investment, resulting in a fivefold increase in Chile's copper output (from 1 million to 5.4 millions tons a year), and a sixteenfold growth in private copper production.[verification needed] Chile is now the largest copper producer in the world, accounting for more than 45% of global output.[verification needed] Chile is also the world's largest producer of natural nitrates, iodine and lithium, the second in molybdenum, the fifth in silver and the thirteenth in gold.

The Constitutional Mining Law also created the intellectual framework supportive of the subsequent privatisation of large state-owned companies, notably in the energy and telecommunications sectors. In the 1990s, the concession system introduced by the Mining Law was extended into the infrastructure sector - highways, ports and airports - which had traditionally been part of the so-called "public works" carried out by the State.

[edit] Transition to democracy

It was reported that on April 1981 Piñera confronted President Pinochet in a cabinet meeting to prevent the leading trade union leader, Manuel Bustos, from being exiled. As a result, the order was rescinded.[5] Whereas the transition to full democracy had started only a month before on March 11, this action was considered important to the consolidation of democracy.[verification needed]

On December 2, 1981, the day after approval of the Mining Law, Piñera resigned in order to restart his opinion magazine Economia y Sociedad, which was dedicated to fight for the transition to a democratic system and the consolidation of the free-market economy.[6] In those years, still under the military regime, Pinera wrote seventy articles in the press in defense of human rights and democracy.[7]

In 1990, after Chile's successful and constitutional transition to democracy, he founded the "Proyecto Chile 2010" with the goal of making Chile a developed country at its bicentenary. In 1992, in an attempt to prove that the poor could understand free market solutions to their problems, he ran and was elected city councilman for one of Santiago's poorest and Leftist neighborhoods, Conchalí.[verification needed] In 1993 he ran a testimonial campaign as an independent candidate for President of Chile, finishing third among six.

[edit] Promoter of privatized pensions

In 1994, Piñera founded The International Center for Pension Reform in order to promote the Chilean model throughout the world. In 1995, he became also the co-chair of the United States Cato Institute's Project on Social Security Choice.[8] Since then he is said to have visited around 80 countries, 28 of which have implemented personal retirement accounts following the "Piñera model" although most of them just combined it with their former state-run defined-benefit pension scheme. The President of the International Federation of Pension Fund Managers describes this approach in this way: "Towards the end of the year 2006, 28 countries (11 in Latin America, 12 in Central and Eastern Europe and five in other parts of the world) had already introduced mandated pension programs based on individual capitalization in their respective social security systems. A total of 100 million workers now have pension savings accounts in this type of program and have built up funds of over US$ 255 billions. Ukraine and Romania have already enacted reforms - to be implemented between 2008 and 2009 which include the introduction of mandated capitalization programs in their respective social security systems." In June 2007, the South African press published an article titled "Applying passion to break poverty" reporting on Dr. Piñera's conferences in Cape Town, Johannesburg and Durban.

[edit] Awards

[edit] Additional information

[edit] External links and sources

[edit] Notes

  1. ^ "Against the Dead Hand. The uncertain struggle for global capitalism" (John Wiley & Sons, 2002), by Brink Lindsey (vice president of Cato Institute, a libertarian think tank), p. 224.
  2. ^ "Pension Reform Pied Piper Loves Private Accounts" [1] by Matt Moffett, The Wall Street Journal, March 3, 2005.
  3. ^ "The Power of Productivity" (University of Chicago Press, 2004), by William W. Lewis.
  4. ^ "The Capitalist Revolution in Latin America" (Oxford University Press, 1997) by Paul Craig Roberts and Karen LaFollete Araujo, p. 32.
  5. ^ "La Historia Oculta del Regimen Militar" (La Epoca, 1988), por Ascanio Cavallo, Manuel Salazar y Oscar Sepúlveda, p. 275.
  6. ^ "Pinochet. La Biografía" ( El Mercurio-Aguilar, 2002) by Gonzalo Vial Correa, p. 433.
  7. ^ "Camino Nuevo" (Proyecto Chile 2010, 1993), Appendix by Soames Floweree titled "What Jose Pinera said about human rights and democracy during the military regime".
  8. ^ "The Triumph of Liberty" (The Free Press, 2000), by Jim Powell, p.453.