President Clinton and the Chilean Model.

By José Piñera

Midnight at the House of Good and Evil

"It is 12:30 at night, and Bill Clinton asks me and Dottie: 'What do you know about the Chilean social-security system?'” recounted Richard Lamm, the three-term former governor of Colorado. It was March 1995, and Lamm and his wife were staying that weekend in the Lincoln Bedroom of the White House.

I read about this surprising midnight conversation in an article by Jonathan Alter (Newsweek, May 13, 1996), as I was waiting at Dulles International Airport for a flight to Europe. The article also said that early the next morning, before he left to go jogging, President Bill Clinton arranged for a special report about the Chilean reform produced by his staff to be slipped under Lamm's door.

That news piqued my interest, so as soon as I came back to the United States, I went to visit Richard Lamm. I wanted to know the exact circumstances in which the president of the world’s superpower engages a fellow former governor in a Saturday night exchange about the system I had implemented 15 years earlier.

Lamn and I shared a coffee on the terrace of his house in Denver. He not only was the most genial host to this curious Chilean, but he also proved to be deeply motivated by the issues surrounding aging and the future of America. So we had an engaging conversation. At the conclusion, I ventured to ask him for a copy of the report that Clinton had given him. He agreed to give it to me on the condition that I do not make it public while Clinton was president. He also gave me a copy of the handwritten note on White House stationery, dated 3-21-95, which accompanied the report slipped under his door. It read:

Dick,
Sorry I missed you this morning.
It was great to have you and Dottie here.
Here's the stuff on Chile I mentioned.
Best,
Bill.

Three months before that Clinton-Lamm conversation about the Chilean system, I had a long lunch in Santiago with journalist Joe Klein of Newsweek magazine. A few weeks afterwards, he wrote a compelling article entitled,[font color="green"] "If Chile can do it...couldn´t North America privatize its social-security system?" [/font color]He concluded by stating that "the Chilean system is perhaps the first significant social-policy idea to emanate from the Southern Hemisphere." (Newsweek, December 12, 1994).

I have reasons to think that probably this piece got Clinton’s attention and, given his passion for policy issues, he became a quasi expert on Chile’s Social Security reform. Clinton was familiar with Klein, as the journalist covered the 1992 presidential race and went on anonymously to write the bestseller Primary Colors, a thinly-veiled account of Clinton’s campaign.

“The mother of all reforms”

While studying for a Masters and a Ph.D. in economics at Harvard University, I became enamored with America’s unique experiment in liberty and limited government. In 1835 Alexis de Tocqueville wrote the first volume of Democracy in America hoping that many of the salutary aspects of American society might be exported to his native France. I dreamed with exporting them to my native Chile.

So, upon finishing my Ph.D. in 1974 and while fully enjoying my position as a Teaching Fellow at Harvard University and a professor at Boston University, I took on the most difficult decision in my life: to go back to help my country rebuild its destroyed economy and democracy along the lines of the principles and institutions created in America by the Founding Fathers. Soon after I became Secretary of Labor and Social Security, and in 1980 I was able to create a fully funded system of personal retirement accounts. Historian Niall Ferguson has stated that this reform was “the most profound challenge to the welfare state in a generation. Thatcher and Reagan came later. The backlash against welfare started in Chile.”

But while de Tocqueville’s 1835 treatment contained largely effusive praise of American government, the second volume of Democracy in America, published five years later, strikes a more cautionary tone. He warned that “the American Republic will endure, until politicians realize they can bribe the people with their own money.” In fact at some point during the 20th century, the culture of self reliance and individual responsibility that had made America a great and free nation was diluted by the creation of [font color="green"] “an Entitlement State,”[/font color] reminiscent of the increasingly failed European welfare state. What America needed was a return to basics, to the founding tenets of limited government and personal responsibility.

[font color="green"]In a way, the principles America helped export so successfully to Chile through a group of free market economists needed to be reaffirmed through an emblematic reform. I felt that the Chilean solution to the impending Social Security crisis could be applied in the USA.[/font color]

CONTINUED...

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