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December 1, 2023

Chilean Model: What Henry Kissinger thought, as recounted by Chilean economist Jose Pinera

By Monica Showalter

Amid all the sludge of hate-tweets from ignorant people about Henry Kissinger, who died this week at the age of 100, there are a few gems here and there, from those who one way or another had firsthand encounters with the great statesman at pivotal moments in history.

I found one that intrigued me from Chilean economist José Piñera, who created the great Chilean Model of private savings accounts that has done so much to make Chile a rich, prosperous country with a huge middle class.

Piñera put out three fascinating tweets, describing his experience as a young economist of the "Chicago Boys" school who was then creating an economic revolution in that country as a government minister, encountering Kissinger.

 

 

 

Interesting that Kissinger brought up Bismarck, who instituted the Social Security system as it is known today in the new Germany he forged from tiny fiefdoms in the late 19th century, and which was widely admired at the time and copied in the U.S. as well as Chile, where it eventually went bust under the socialism of Salvador Allende, leaving desperate pensioners there with just pennies. Bismarck was widely admired in Chile (the military uniform that Gen. Augusto Pinochet is famous for wearing was based on the Bismarck Prussian style, too) and copied in many things.

But as Kissinger contemplated the impact of that, he also appreciated the replacement that Piñera created, replacing the Prussian model with what's now known as the Chilean model -- and calling it equal in its revolutionary significance.

Wise old Kissinger, speaking with the young "Chicago Boys" economist in his worn-out old office driving his beat-up car, could tell he was dealing with a real revolutionary focused on real revolution, and not a swamp thing making himself comfortable in office.

He also was right about the Chilean Model being the upgrade to Bismarck's Social Security idea, which took money from current workers and gave it to pensioners, which only worked so long as there was a growing population and money that was not devalued by inflation. The Chilean Model, by contrast, which relies on private savings invested for retirement, didn't have those problems, and it had the knock on effect of creating a vast pool of investment capital that was used to develop the country -- roads, schools, and the like.

Today, more than 30, 51 countries have adopted that upgraded Bismarck model.

 

 

That's the word of Klaus Schmidt-Hebbel, the former chief economist of the OECD, affirming that more than a quarter of the world's countries have embraced this model.

Schmidt-Hebbel adds: Pension assets managed by private companies such as AFPs are equivalent to 105% of GDP in OECD countries.

That's a lot of capital for a developing country to work with -- and the opposite of the curse of developing countries, which is debt.

Argentina's newly elected president, Javier Milei, is the latest to announce that he will embrace the Chilean Model of private savings for retirement. 

How intriguing indeed that Kissinger brought up Bismarck and knew enough about what Bismarck did to be able to rightly weigh what Bismarck did -- and what Chile did.

It speaks very well for Kissinger, the famous realist, to have spotted that, and recognized its significance. We ought to have a few more realists of this stripe in power in the U.S. again.

Image: Twitter screen shot

 

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