A miracle has been happening in South America. The amazing thing is that it is occurring because people in South America took some sound advice from some Americans—advice that America itself has rejected. Here is the story.
Chile Makes Remarkable Turnabout
During most of the 1970's, the little South American country of Chile, with a population of just 13 million people, suffered under the rule of it's Marxist President Salvador Allende. Then in the late 1970s, they defeated Allende and went looking for better answers.
When General Augusto Pinochet came to power, he could have done what many military dictators have done—retired with millions in Swiss bank accounts. Instead he realized the old economic system in South America, a system to benefit the ruling elite, was collapsing under a mountain of foreign debt.
Pinochet began listening to a group of brilliant economists who had been trained by Milton Friedman at the University of Chicago. Their proposals: free trade, fiscal and monetary reform, privatization, deregulation, a paring of inefficient bureaucracies, and social security reform. With the courage of a battlefield general, Pinochot began the reforms. The biggest challenge was Chile's bankrupt social security system. Chile's system was based on exactly what America's social security system is based on—taxing the workers to give pensions to the elderly—a government welfare system.
The Only Way Out
The biggest problem was how to pay off the pensions in the old state-run system. The answer: be austere enough to run a surplus. Jose Pinera, the Chilean labor minister who implemented the plan in 1981 said, "We sold off state enterprises, cut a lot of spending. It was wonderful: every time the military asked for more destroyers, I said no—we need the money to pay off Social Security!" Chilean leaders were determined to be true to the government's commitment to the elderly.
Chilean Leaders Sell A New System of Social Security to the People
When the new system was announced there was wide-spread skepticism. Many thought it was just another scam. The leaders were asking every young worker to give up his state-funded old age pension and join a new system. They made it sound good. First of all, a worker would pay less—13 percent of his salary, as opposed to the current 20 percent. A worker could choose from more than a dozen private, mutual investment funds. The funds would be invested conservatively and be strictly regulated. Every four months a worker would receive a statement showing how the fund was doing and if he didn't like the way the fund was performing, he could switch to another. It sounded good but still the talk among workers was that they didn't trust the government. One worker said, "I was secretary of my union, the textile workers. I felt a responsibility to be cautious: would the money really be ours, or would the government find some way to take it? I waited several months before I joined." That was in 1981. As of 1994, this man, at the age of 47, has accumulated 9,778,950 pesos ($23,620), a huge amount of money in Chile. His private retirement fund has grown an average of 17 percent per year. When he tums 65, he will retire with a pension larger than his current salary!
Chile Now Leads Way to Prosperity
The success of Chile's privatized social security system is a symbol of the new confidence and explosive economic growth in South America. The pool of private investment capital in the small country has grown to $22 billion, 50% of the country's gross national product and is expected to reach 100% in 2005. Chile has found the key to building an economy on wealth rather than on debt.
"We are like an Asian tiger," says Julio Bustamante, the Chilean official who manages the pension program. "Our national savings rate is 24 percent." This compares to only 6 percent in the United States.
The Chilean system is now being emulated or studied in six other Latin American nations. One writer commented it is the first significant social-policy idea to emanate from the Southern Hemisphere.
Chilean authorities have commented that the "experts" are astounded. "It's a common-sense system", says Pinera, "and is more easily understood by the average Chilean mother than by social security experts." The big benefit of the system is in investing much of the proceeds in job-creating, wealth-creating private-sector investments rather that being paid out in social welfare programs. One Chilean private pension fund CEO reports, "the system is based on very simple and reasonable principles: that people care about their money, that they will work harder if they see the benefit to themselves and that putting it in private hands is more efficient than with the government."
Even the Big Bankers and Socialists are Impressed
Neil Allen, a Bankers Trust official in Latin America said, "We were looking for an alternative to sitting on Chilean debt." Bankers Trust did a debt-for-equity swap into Provida, the largest private pension fund in Chile. The second largest is mostly owned by Aetna Life and Casualty. Like U.S. mutual funds, and utterly unlike the U.S. Social Security system, the Chilean pension funds compete on the basis of investment returns and services.
Jaime Estevez, a Socialist Party member of Chile's Parliament says, after experiencing the new system, "I would not advocate the end of this system…It has many attributes." Other Socialists feel confounded because with wise investments from the pension funds Chile's workers now own the means of production or at least a good part of it.
(Information taken from Newsweek, December 12, 1994, Fortune, November 1, 1993 and Forbes, October 28, 1991)
American Ideas Rejected by American Leaders
Ironically, the ideas which are creating miracles in Chile came from the United States. In the late 1970's and early 1980's our social security system was said to be close to bankruptcy. At that time, three separate organizations put forth plans to convert it to a private pension system. Nobel prize winning economist, Milton Friedman, the Heritage Foundation and the National Center for Constitutional Studies tried to convince the president and congress there really was a better way.
Our own Dr. W. Cleon Skousen wrote personal letters and delivered to the White House and to each member of Congress a very achievable program entitled A Program of Social Security Reform Which Should Please Everybody. NCCS received compliments for the work but in the end our national leaders rejected the ideas of all three groups and "solved" the problem by raising Social Security taxes to guarantee solvency through the year 2030. Now experts are predicting Social Security will fail by the year 2005.
Think what marvelous economic news Americans could tell today if our leaders did in 1981 what Chile's leaders did. It's pretty bad when others have more faith in our system than we do.
Influential Author Advocates Demise of the U.S. Constitution
The popularity of Future Shock and The Third Wave (1980) has propelled author and "futurist" Alvin Toffler into one of the most quoted people on college campuses, and among economists and politicians. Even House Speaker Newt Gingrich calls Toffler's latest book, "one of the great seminal works of our time." (Time, Jan. 23, 1995, p. 204)
In his book, Toffler explains that the second great wave, the Industrial Revolution (and Constitutional Era) of 200 years ago must give way to the third wave of the computer-driven Information Age. With it, he contends, there needs to come a whole new approach to government and a consignment of the present U.S. Constitution to a political mausoleum. On pages 432-434 of his book, Toffler writes this letter to America's founders:
To the Founding Parents
You are the revolutionists dead. You are the men and women, the farmers, merchants, artisans, lawyers, printers, pamphleteers, shopkeepers, and soldiers who together created a new nation on the distant shores of America. You include the fifty-five who came together in 1787 to hammer out, during a broiling summer in Philadelphia, that astonishing document called the Constitution of the United States. You are the inventors of a future that became my present.
…I want to thank you, the revolutionary dead, for having made possible for me a half century of life as an American citizen under a government of laws, not men, and particularly for that precious Bill of Rights, which has made it possible for me to think, to express unpopular views, however foolish or mistaken at times—indeed, to write what follows without fear of suppression.
For what I now must write can all too easily be misunderstood by my contemporaries. Some will no doubt regard it as seditious. Yet it is a painful truth I believe you would have quickly grasped. For the system of government you fashioned, including the very principles on which you based it, is increasingly obsolete, and hence increasingly, if inadvertently, oppressive and dangerous to our welfare. It must be radically changed and a new system of government invented—a democracy for the twenty-first century.
You knew, better than we today, that no government, no political system, no constitution, no charter or state is permanent, nor can the decisions of the past bind the future forever. Nor can a government designed for one civilization cope adequately with the next.
You would have understood, therefore, why even the Constitution of the United States needs to be reconsidered, and altered not to cut the federal budget or to embody this or that narrow principle, but to expand its Bill of Rights, taking account of threats to freedom unimagined in the past, and to create a whole new structure of government capable of making intelligent, democratic decisions necessary for our survival in a new world.
I come with no easy blueprint for tomorrow's constitution. I mistrust those who think they already have the answers when we are still trying to formulate the questions. But the time has come for us to imagine completely novel alternatives, to discuss, dissent, debate, and design, from the ground up, the democratic architecture of tomorrow.
Not in a spirit of anger or dogmatism, not in a sudden impulsive spasm, but through the widest consultation and peaceful public participation, we need to join together to reconstitute America.
You would have understood this need. For it was one of your generation—Jefferson—who, in mature reflection, declared: "Some men look at constitutions with sanctimonious reverence and deem them like the ark of the covenant, too sacred to be touched. They ascribe to the men of the preceding age a wisdom more than human, and suppose what they did to be beyond amendment…. I am certainly not an advocate for frequent and untried changes in laws and constitutions…But I also know that laws and institutions must go hand in hand with the progress of the human mind…. As new discoveries are made, new truths disclosed, and manners and opinions change with the change of circumstances, institutions must advance also, and keep pace with the times."
For this wisdom, above all, I thank Mr. Jefferson, who helped create the system that served us so well for so long, and that now must, in its turn, die and be replaced.
If you've kept your ear tuned to news accounts, you have no doubt heard this smooth talk from influential politicians. Americans must awaken to the fact that a bigger push than ever is mounting to replace our inspired Constitution. By the way, the oft quoted paragraph from Jefferson is taken completely out of context. He was trying to get his contemporaries to quit hanging on to old British forms of government and to build their state governments on principles of liberty and individual freedom.
However, More Americans Than Ever Want to Know About the U.S. Constitution
A hearty thanks to Dan New and Greg Warren for another successful Making of America seminar experience in Conroe, Texas, just north of Houston. Lots of work yielded lots of excited people!
Here is the schedule of upcoming Constitution Seminars
Date, Place, Contact, Phone
Sep. 9 Rochester NY Walter Meyers 716-352-8997
Sep. 16 Lexington KY Joe Alexander 606-276-2550
Sep. 23 Philadelphia PA (Longhorne) Catherine Bonaventu 215-750-1703
Sep. 30 (2 hr.) Scottsdale AZ Stan Farb 602-946-1567
Oct. 7 Boston, MA Lara Christensen 617-489-6528
Oct 14 Grand Island, NE Mike Nolles 402-244-5473
Our Growing Teaching Obligations Needs Your Support
As you can see, our new teaching year beginning in September is booked solid. We think this is indicative of the next 12 months. Your regular monthly contribution is urgently needed and appreciated to help make this happen. Please read the reverse side of the enclosed product flyer for NCCS's mission statement and how you can support it.
Earl Taylor Jr.