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August
11, 2007. The Economist publishes an article about the
consequences of the Chilean Revolution titled "A country that pioneered
reform comes close to abolishing poverty".
January
29, 2007. At an event in New York honoring Milton Friedman, who
died a month ago, I am invited to speak about his international
impact. Here are my remarks
defending the concept of "principled engagement in an imperfect
world". The other
speakers are William Niskanen, Cato Institute's Chairman, and Paul
Gigot, Wall Street Journal Editorial Page Editor.
January
2, 2007. The "Index of Economic Freedom" compiled by
the Heritage Foundation and The Wall Street Journal for 2006 places
Chile in the extraordinary position of No 11 among 157 countries
ranked. Hong Kong is No 1, followed by developed
countries like Singapore, Australia, USA, New Zealand, UK, Ireland,
Luxembourg, Switzerland and Canada. And then comes Chile, the first
country from the vast emerging world. After Chile comes Estonia, and
then Denmark, Netherlands, etc. The last two are
communist Cuba (156) and North Korea (157). Venezuela is No 144,
below Bangladesh (143). On "Property Rights" protection,
Chile shares the top ranking position with countries like the USA
and the UK.
December
15, 2006. "In Chile's history there are only three
inflection points: the independence from Spain, the Pacific War, and
the free market economic revolution carried out during the Pinochet
government" (Cesar Barros, Que Pasa magazine).
December 5, 2005. Gradual privatization of education. For the
first time in Chilean history, in 2004 more children were in private
schools (50.66%) than in municipal (or government) schools (49.34%,
down from 70% ten years ago). According to the trends, it is
projected that only 36% of the children will be in a government
school by 2010. In another of our reforms of the early 80s, parents
were allowed to choose a private school for their children, in which
case the school receives a monthly payment by the government (an
imperfect voucher system). An expert has concluded that "the
most recent studies find significant differences in test scores
berween student educated at private voucher schools and those
educated at municipal voucher schools" (Claudio Sapelli,
"The Chilean Education Voucher System", in What
America Can Learn from School Choice in Other Countries, Cato
Institute, 2004). The Heartland Institute affirms in an article
that "Chile and Sweden are two countries that have
experienced vast increases in private (independent) schools as a
result of voucher systems launched within the past two decades."
November
6, 2005. Two contrasting paradigms. On
Nov. 6, 1917, Lenin takes power in Russia and admonishes: "Workers
of the world, unite" (Of course, under the dictatorship of
Lenin). On Nov. 4, 1980, Chile creates a pension system that allows
every worker to become a small capitalist, and originates a much
more appealing vision: "Workers of the world, become owners
and thus free".
November 4, 2005. 25 years. In "Venticinque
anni dopo. La rivoluzione liberale di Reagan e Pinera", the
Istituto Bruno Leoni celebrates 25 years since the election of
Ronald Reagan and the approval of Chile's pioneering Social Security
Reform, both on November 4, 1980. "Il
4 Novembre che cambiò il mondo", writes Professor Carlo
Lottieri in an Op Ed in the Italian newspaper Il Indipendente. The Cato
Institute also celebrates this day
stating that "Ronald Reagan was the most eloquent spokesman
for limited government of our time" and that "the
success of the Chilean system has served as a model for pension
reform around the world." A good day to read NYT's John
Tierney dossier
on the success of Chile's private pension system.
October 29, 2005. FTA with China. Chile closed a Free Trade
Agreement with China, our second biggest trade partner after the
USA. It will be signed on november 17. This is the first such
agreement of China with a non-Asian country. Chile now has FTAs with
countries representing 74.4% of the world GNP. As suggested in my Agenda
2010, presented two years ago, China was a priority and the next
steps should be FTAs with Japan and India in 2006.
October
24, 2005. Pension portfolio diversification. The AFPs,
extraordinarily succesfull in getting a high rate of return for all
its workers-clients (annual average of 10% real for 24 years), have
also exercised, sheparded by the law, a remarkable degree of
prudence in investing the pension funds. The portfolio composition
of the private pension system is the following: 29.3 % invested in
the financial sector, 28.9% abroad, 24.8% in corporate bonds and
stocks, and only 16.9% in government bonds (less than the gov. share
of the economy). As I explained at lenght 25 years ago in my weekly
TV commentaries, pension fund investing should be guided by the
common sense rule of "not all eggs in the same basket". It
has worked.
August 26, 2005. Constitution of 1980: amendments and further
consolidation. Law 20.050 is published today with amends to the
Constitution. The non-elected institutional senators and the
decorative National Security Council are eliminated, among other
adjustments related to the political process (also a welcomed 4 year
presidential term, without reelection). The crucial chapter on
"individual rights" is kept intact, as well as the basic
institutions and orientation of the Constitution of 1980. The
governing Concertación wrongly attempted to change the definition
that "Chile is a democratic Republic" (Article 4) for
"Chile is a social State", but failed to get the necessary
votes. Nobody even mentioned the need to eliminate the anachronistic
clause prohibiting CODELCO to have private shareholders. The
bipartisan amendments were approved in Congress by 150 votes in
favor, three against, and one abstention.
August 11, 2005. Real solvency. The transition
financing from a paygo to a personal accounts retirement system
proceed even better than planned 25 years ago. Chile will have at
least a 4% of GNP budget surplus in 2005, helped by very high copper
prices and production levels. This surplus is 'after' spending
another 3 percent of GNP on the retirees of the unfunded paygo
government pension system and a further 1.2 percent of GNP on paying
"Recognition Bonds" to workers reaching retirement age in
the private pension system (these are zero coupon Treasury bonds
used in the 1980 Pension Reform to compensate, for past
contributions, those workers that freely decided to opt out from the
paygo system). Since the hidden pension debt is fast dissapearing in
Chile and the government external debt is only 8% of GNP, the day
will come when world capital markets will recognize that Chile's
sovereign debt is much safer than that of developed countries with
huge implicit pension liabilities like France, Germany, Italy and
Spain.
July 1, 2005. Pro-Americans. "It isn't
hard to come up with examples of famous pro-Americans, even on the
generally anti-American continents of Europe and Latin America.
There are political reformers such as Vaclav Havel, who has spoken
of how the U.S. Declaration of Independence inspired his own
country's founding fathers. There are economic reformers such as José
Piñera, the man who created the Chilean pension system, who admire
American economic liberty. There are thinkers, such as the Iraqi
intellectual Kanan Makiya, who openly identify the United States
with the spread of political freedom. All of these are people with
very clear, liberal, democratic philosophies, people who either
identify part of their ideology as somehow 'American', or who are
grateful for American support at some point in their countries'
history." (Pulitzer Prize's Anne Applebaum, In
Search of Pro-Americanism, Foreign
Policy, July/August,
2005).
June 1, 2005. Private mining contribution. Ten private mining
companies, that decided to invest in Chile after the 1981
Constitutional Mining Law ensured full respect for property rights,
will pay aprox. US$ 2 billion in income taxes in 2005 (around 25% of
the total government foreign debt). The total tax contribution is
still higher, since that figure does not include many other indirect
taxes generated by the process of mining production (income taxes of
suppliers and workers, VAT, etc). Chile's copper production may
reach 5.5 million tons this year (up from 1 million in 1981) and so
the country will turbo-benefit from the historically high prices.
May 1, 2005. Long-term capital for the economy. After 24
years of operation, without ever losing a peso for the workers
through fraud or improprieties, the Chilean private pension system
has accumulated US$ 80 billions (equivalent to 75% of GNP). That
figure is composed of US$ 67 billions in the pension funds and US$
13 billions in the insurance companies that provide the life
annuities originating from the capitalization system. It is
estimated that the system's resources may peak at 100% of Chilean
GNP. All Chilean workers in the system (7.1 million) have benefitted
from a compounded average real (above inflation) rate of return of
10.1% over 24 years (The Social Security system of the United States
provides current workers an equivalent rate of return of only 1%).
February 1, 2005. Facts are facts. The
influential socialist author Robert Heilbroner dies, but not before
reaching this conclusion: "Capitalism has been as
unmistakable a success as socialism has been a failure. Here is the
part that's hard to swallow. It has been the Friedmans, Hayeks, and
von Miseses who have maintained that capitalism would flourish and
that socialism would develop incurable ailments. All three have
regarded capitalism as the 'natural' system of free men; all have
maintained that left to its own devices capitalism would achieve
material growth more successfully than any other system. I draw the
following discomforting generalization: The farther to the right one
looks, the more prescient has been the historical foresight; the
farther to the left, the less so." (Dissent, Fall 1990)
January 1, 2005. Chile, top 11. The 2005
version of the Index of Economic Freedom, compiled by the Wall
Street Journal and the Heritage Foundation, places Chile as No 11 in
its ranking. Since the United States is No 12, this is an
extraordinary achievement of the Chilean free-market revolution. The
next highest ranking Latin American country is El Salvador (No 24),
while Argentina is No 114. The bottom one is, naturally, communist
North Korea (No 155). Hong Kong is No 1 and Estonia, the Baltic
Tiger, is No 4.
November
23, 2004. "A successful revolution." Fareed Zakaria
writes in a column at The Washington Post: "The U.S.
government can claim little credit for Chile's remarkable and
successful free-market revolution. But the University of Chicago --
which trained most of the economists who spearheaded those reforms
in Santiago -- can. Foreign students return home from the United
States bringing with them an appreciation for U.S. values, ideas
and, indeed, for America itself."
July
21, 2004. Assault on mining is rejected. The Chamber of
Deputies and the Senate rejects the government project
to change the Constitutional Mining Law in order to weaken
property rigths and impose a special tax on mining. Very good news.
May
28, 2004. Pensions and roads. A Business Week article
celebrates the role of a funded retirement system in creating robust
capital markets: "Drivers in Chile don't have to wait until
they're 65 to enjoy their pension benefits. Every day thousands do
so when they speed from Santiago to Viña del Mar along the Rutas
del Pacífico toll road, which opened on Apr. 13 with funding from
the country's deep-pocketed pension funds. A billboard reminds
passing motorists: 'Your savings are financing this highway, and
this highway is financing your retirement'."
December
11, 2002. FTA Chile-USA. It is announced in Washington that a
Free Trade Agreement has been signed between the two countries. Thus
(almost) concludes the process of opening the economy began in 1975.
In the press conference, the US negotiator, Ambassador
Robert Zoellick, states: "One
of the nice things in this agreement is that we have some additional
access in Chile to pension fund management within a social security
system that I wish we could imitate."
Reversing its previous position of seeking a Mercosur agreement,
President Lagos signs the FTA with the United States and the Chilean
Congress approves it almost unanimously.
October 6, 1999. Thatcher on Chile. "What about the
fact that Chile was turned from chaotic collectivism into the model
economy of Latin America? What about the fact that more people were
housed, that medical care was improved, that infant mortality
plummeted, that life expectancy rose, that highly effective
programmes against poverty were launched? Why don't they tell the
world that it was Senator Pinochet who established a Constitution
for the return to democracy?" (Margaret Thatcher, Speech
at the Conservative Party Conference in Blackpool).
September 27, 1999. Promoting the human spirit. John
Kasich, Chairman of the Budget Committee of the US House of
Representatives, writes to José Piñera after his testimony: "I
could not be more grateful for your recent appearance before the
House Budget Committee. You fundamentally transformed our Social
Security debate: You got us thinking not about numbing statistics,
but about how best to promote the human spirit. Your obvious
commitment to an idea - of making every man and woman a shareholder
in their nation's economy - and your focus on people rather than
numbers made your testimony compelling even for Members who favor an
approach different from yours. I look forward to working with you in
the months ahead. Our approach clearly will be tailored to our own
circumstances, but the experience of Chile and other countries will
offer valuable guidance. Your impressive command of the issues, as
well as your personal experience, can teach us a great deal."
August
5, 1998. "The awesome power of ideas." James Flanigan
writes in the Los Angeles Times: "In a sense, it all began
in Chile. In the early 1970s, Chile was one of the first economies
in the developing world to test such concepts as deregulation of
industries, privatization of state companies, freeing of prices from
government control, and opening of the home market to imports. In
1981, Chile privatized its social-security system. Many of those
ideas ultimately spread throughout Latin America and to the rest of
the world. They are behind the reformation of Eastern Europe and the
states of the former Soviet Union today... which demonstrates, once
again, the awesome power of ideas."
September
18, 1997. "Making a difference". George W.
Bush, future President of the Unites States, writes to José Piñera
after dinner and a brainstorming at the Governor mansion in Texas:
"Thanks for coming to Austin to share your wisdom. All of us
enjoyed your comments. Congratulations on making a difference."
January
26, 1996. "The mother of all reforms". Mack McLarty,
President Clinton's chief of staff, writes to José Piñera after a
meeting in Santiago: "Without doubt, the reform of Chile’s
pension system has been a critical contributing factor –some have
called it the mother of all reforms—to Chile’s ongoing economic
success. The social security reforms which you developed and fought
for have put your country on a stable footing for the future.
Although the Chilean and North American experiences are different in
several key respects, I believe we can learn a great deal from your
country’s bold initiative, which is widely envied throughout the
hemisphere. Jose, you are a strong and thoughtful voice for economic
reform; your legacy is secure."
June
26, 1991. Free trade path. Reversing his previous positions and
the Aylwin candidacy program, Alejandro Foxley, Finance Minister,
announces that the flat tariff policy will be maintained and
announces its reduction from 15% to 11%. This is an important step
in the consolidation of the Chilean Revolution, since it gives a
clear signal that the Aylwin government will follow the strategy of
open trade and no tariff discrimination.
April
1, 1991. A martyr of the Revolution. Extreme leftists
assassinate senator Jaime Guzman, the leader of the center right
opposition. For years, many members of the center left opposition
had conducted a campaign of demonizing Guzman because he was one of
the main authors of the 1980 Constitution and a key ally of the team
of free market economists. They were shocked when Guzman was elected
to the Senate in the parliamentary elections of December 1989 and
became arguably the best senator in Congress. His assassination
decapitated the opposition and deprived the country of an
extraordinary human being. He was one of my closest personal and
intellectual friends, and we fought together many battles for
liberty, democracy and human rights.
March
11, 1990. End of the transition to democracy. According strictly
to the transitory articles of the 1980 Constitution, and once the
institutions for democracy were in place, President Pinochet, in a
formal ceremony in the new Congress building in Valparaiso, hands
the traditional presidential sash to Patricio Aylwin, winner of the
December 1989 presidential election (interestingly, Aylwin was the
Christian Democrat former senator who wrote the conclusions of the
Resolution of August 22, 1973, that demanded the removal of
Allende). A great day for Chile, and especially for the
Reconstruction Government economic and civilian team, that had
fought persistently for this peaceful and constitutional transfer of
power, that ensured the survival of the free market revolution, the
consolidation of the structural reforms, the insertion of Chile into
the global community, and the consolidation of a free society.
Through the power
of ideas, a new Chile has emerged.
November
9, 1989. The fall of the Berlin Wall. A great day for freedom.
Chile was a pioneer in defeating communism in 1973, inflicting an
unexpected defeat to the expansionist policies of the Soviet Union
and Cuba. Years later, Anne Applebaum will describe communism
as a story of horrors in her review
of "The Black Book of Communism" and in her book
"Gulag". The free market reforms in Chile also
preceded those of Thatcher (elected in 1979) and Reagan (elected in
1980), and thus the subsequent international movement toward
markets, open borders and private initiative.
October
10, 1989. An independent Central Bank. Law 18.840 establishes
the structure and operation of an independent Central Bank, taking
away monetary policy from the government for the first time in the
history of Chile. Another key achievement of the economic team. In a
gesture of civic friendship, the goverment reaches an agreement with
opposition leaders on the composition of the five members Board and
even allows an economist from their ranks to be the first Chairman.
September
29, 1989. TV is open to private initiative. Law 18.838 allows
the private sector to establish TV channels, until now only reserved
to the State (directly through a government channel and indirectly
through the channel of the state owned University of Chile) and the
Catholic Church. This is a great step for freedom of expression.
July
30, 1989. The Constitution is validated. A referendum takes
place to approve some adjustments to the Constitution. The text is
negotiated between the government and all the political leaders.
With an approval vote of more than 90%, the Constitution of 1980 is
further validated.
October
5, 1988. Presidential plebiscite. According to the 1980
Constitution, a yes/no plebiscite takes place to decide whether the
government candidate (general Pinochet) should be President for
another term. President Pinochet obtains 44% of the vote, and
therefore, as contemplated in the transitory articles, an open
presidential election is called for December 1989, together with the
election of the members of a renewed Congress.
May
20, 1988. Firing Line. I am the guest of William F. Buckley
Jr.'s TV program "Firing Line" in a session titled "Chile
and a novel approach to Social Security" which airs
today in PBS (program number 1738). This is the comment distributed
later by the Firing Line Newsletter: "The discussion is at
least as much about Chile´s struggle toward democracy as it is
about social security. The key to the hour is Mr. Piñera's
persuasive charm. He describes his hopes for his country's political
and economic future with eager confidence, and it is easy to see how
he convinced a government that must have been dubious at best to try
something new and daring. Mr. Green tries hard to burst Mr. Piñera's
bubble. His efforts yield more interesting information on the
Chilean economy, but ultimately fail to undercut Mr. Piñera's
optimistic projections." The "devil's advocate"
is a well known New York leftist activist, Mark Green (future
candidate for major of New York), who unable to attack the results
of the private Chilean pension system, decides to doubt the
success of our fight to restore democracy in Chile. We had a lively
confrontation and I even invite him to Chile to be a witness of the
coming transition process.
February
12, 1985. Privatization program. My former advisor at the Labor
Ministry, Hernán Buchi, becomes Finance Minister. His mission is to
overcame the economic downturn and to consolidate the economic
model. He launches a radical program of privatization in the
energy and telecommunications area.
August
31, 1983. The opposition. It must be said
that the free market reforms were subject, from the very beginning,
to the most unfair attacks by the leading leftist politicians that
were, directly or indirectly, responsible in the 60s and early 70s
for the destruction of Chile's democracy and its quasi civil war.
After the 1982 Latin American and Chilean economic crisis, the
attacks reached unprecedented levels. Today former Christian
Democrat presidential candidate (1970) Radomiro Tomic made the
following statement: "If the Mining Law remains, we will
loss a hundred times the value of the Patagonia in the next half
century". Later he will say: "The Mining Law
is the greatest crime committed against Chile since O'Higgins to
these days" (30.11.83). This sort of opposition made it
much more difficult for the pro-democracy camp inside the
Reconstruction government to accelerate the process of power
devolution. One is reminded of the statement done by an adviser
during the Thatcher's government in the 80s: "Our role is to
stay here until it emerges in the UK a sane opposition".
June 30, 1982. The crisis that almost
destroyed it all. The
fixed exchange rate system, that pegged the peso at $39 per dollar
since June 1979, is abandoned after President Pinochet fires Sergio
de Castro, the Finance Minister who insisted in keeping the peg
against all evidence showing the enormous loss of competitiveness of
the Chilean economy. This Titanic mistake led to a huge crisis and almost destroyed the economic
model and the transition to democracy. In his Memoirs, Nobel Laureate Milton Friedman
states: "In
the euphoria of the rapid decline in inflation and rise in economic
growth, the authorities decided in 1979 to peg the exchange rate of
the Chilean peso to the U.S. dollar. The rate of inflation in the
U.S. at the time was in the low double digits –high for the United
States but lower than inflation in Chile. By pegging, the Chilean
authorities hoped to bring the Chilean rate of inflation to the U.S.
rate. They got more than they bargained for, thanks to the economic
policy introduced by President Reagan in 1981, which brought
inflation down sharply in the U.S. and led to a sharp appreciation
in the U.S. dollar. The peg imposed strong deflationary pressure on
Chile, resulting in severe recession. Gross domestic product fell by
13 percent in 1982 and by 3.5 percent in 1983. The architect of the
peg, Finance Minister Sergio de Castro, was relieved of his post in
April 1982, and the peg was abandoned...Once
the peg was dropped and the exchange rate allowed to adjust, rapid
real growth resumed. The sharp recession left its mark and
undoubtedly was one reason why a plebiscite in October 1988 on the
Pinochet government yielded a different result than that in 1980."
("Two Lucky People", Chapter 24, pp. 405-406)
December
1, 1981. The Constitutional Mining Law. Ten years after Allende´s
constitutional reform abolishing property rights in this crucial
sector of the Chilean economy, the Constitutional
Mining Law is approved today reversing that process and
initiating an explosive period of huge wealth creation. The
Constitutional Tribunal of independent, life, judges approves it
seven to zero. On December 2, I resigned voluntarily and
definitively from my Cabinet post to fight more freely for liberty
and democracy, mainly as publisher and chief editor of the monthly
opinion magazine "Economia y Sociedad".
October
11, 1981. Invited by Thatcher government. For a week, I
visit the United Kingdom as an official guest of the government
presided by Prime Minister Margaret Thatcher. Weeks before my visit,
leftist political leaders from the UK (among them, Michael Foot,
leader of the Labor party) and Chile (Mrs Tencha Allende) assemble
in the historic Trafalgar Square to protest the invitation. But
"vini, vidi, vinci" anyway. Meetings with governments
experts, keynote speech at the annual meeting of the London Metal
Exchange, lunch with Evelyn Rothschild and entrepreneurs in the
City, coffee with editor Andrew Knight at The Economist, tea with
historian Hugh Thomas at the House of Lords, dinner with businessman
James Goldsmith, well attended conferences
at both the Institute of Economic Affairs (with Lord Harris
presiding) and the Adam Smith Institute. Enormous interest in
Chile's free market experience, and especially in the pension, labor
and mining reforms
October 9, 1981. At Sadat's funeral. I preside
the Chilean delegation to the funeral of the assasinated President
of Egypt. In an El Cairo under state of siege, I join the funeral
procession with heads of state and authorities of all the major
countries. Among them,
Prince
Charles, King Baudoin, Menahem Begin, Valery Giscard d’Estaing,
and many others. The US delegation is headed by Secretary of State
Alexander Haig, and includes three former presidents–Nixon, Ford
and Carter- and Henry Kissinger.
September 25, 1981. Work freedom in ports. Law
18.032, promoted by Labor Minister Miguel Kast, ends the trade union
monopoly in Chilean ports. Soon after, productivity in ports
experience a significant increase as work begin to be organized
freely and efficiently, eliminating a potential bootleneck to
Chilean exports.
August
4, 1981. La Escondida mine. Today I am informed by the
executives of Utah International that they have discovered what
could become the largest copper mine in the world, located near the
northern city of Antofagasta. The initial investment required to
develop it would amount to at least US$ 2 billion. Without a law
protecting mining property rights, this wealth would remain for ever
under the ground.
April 27, 1981. Private health. DFL No 3 creates the system
of ISAPRES. These are private health companies that provide an
insurance plan that can be bought with the mandatory health
contribution of 4% of wages by those workers who choose to do so.
This option was made possible by the Pension Reform of 1980.
April
1, 1981. Confrontation with Pinochet. In a Cabinet meeting,
generally just informative ones given Chile's presidential and not
parliamentary system, a military aide enters the room and, in an
unusual act of indiscretion, tells aloud to President Pinochet that
the leftist trade union leader Manuel Bustos is going to be exiled
that same night for calling for violent street demostrations. I fear
that this action may derail the whole transition process. So,
I decide to
confront the President and argue respectfully but strongly against
this decision. I make the case that exile is not only a cruel
punishment to anyone, but also completely contradictory with this
period of constitutional government, despite the emergency powers
granted to the President by transitory article 24. General Pinochet
reacts angrily. To him, not
only I am Minister of Mining and thus interfering outside my field
in an issue he considers a national security one, but he resents the
fact that I am compelled by circumstances to confront him in front
of the full Cabinet with several generals and admirals among them.
To his credit, he finally rescinds the order and announces that
Bustos will not be exiled "this time". To fight more
effectively for freedom and democracy, I then decide to leave
voluntarily the Cabinet after the Mining
Law is approved by both the Legislative Junta and the Constitutional
Tribunal.
March
11, 1981. A constitutional government. Today we celebrate the
return of Chile to constitutional rule. In fact, a new Constitution,
replacing the suspended one of 1925, was approved by referendum on
September 11, 1980. It established, beginning March 11, 1981, a
transition period, headed by President Pinochet, under the norms of
the 1980 Constitution, which could not be reformed without a
referendum. This period task was to gradually create the
institutions for an effective democracy: an independent Central
Bank, private television, an electoral system, a Constitutional
Tribunal, etc. Without these institutions, the return to a
democratic system would be fragile and unstable. As Alexander
Solyentysin would say many year after, refering to the problematic
Russian transtion to democracy: "The road to democracy takes
time and patience and that applies to both intellectuals and
politicians. An automobile cannot come down from a high mountain by
driving off a cliff. It needs to take the long series of
switchbacks. People wanted a democratic Russia overnight, without a
period of transition, of learning and of growing accustomed to it."
January
3, 1981. Freedom to establish universities.
Until now, only the State and
the Catholic Church were allowed to have universities in Chile (and
TV stations). From now on, there is complete freedom to establish
new universities, subject to an accreditation mechanism, as well as
professional institutes and centers of technical training. A few
months later (15.9.81), the National Fund for Science and Technology
(Fondecyt) is created, substituting the criteria of distribution of
state subsidies to R&D. Instead of a lump sum to the traditional
universities, a method was created to allocate subsidies on the
merits of specific research projects, decided by a jury of experts.
December
1, 1980. Hayek and the Revolution. The first free
market think tank is founded by a group related to the classical
liberal economists. The "Centro de Estudios Publicos" has
the former Finance Minister, Jorge Cauas, as President, and Nobel
prize laureate, Friedrich Hayek, as Honorary President. Cauas
travels to Friburg University to meet Hayek, explain him the Chilean
Revolution, and offer the Honorary Presidency , which he accepts and
holds until his death. Hayek travels in 1981 to Chile to the
inauguration of CEP and leads with an essay the No 1 issue of
"Revista de Estudios Publicos".
November
4, 1980. A revolutionary Pension Reform. After two years of
extremely hard work with my team to design the new system, define
hundreds of important technical details, devise a viable transition
strategy, write the bills, and educate the public, today it is
approved the Social
Security Reform. It creates a new pension paradigm based on
freedom and personal responsability, and fully replaces the
collectivist, state managed, pay-as-you-go system. This Reform
signals the climax of the Chilean Revolution and Chile become a
world pioneer in this area. (In this same day, Ronald Reagan is
first elected President of the United States).
September 11, 1980. A new Constitution is approved. In a
referendum, the new Constitution is approved by 67% of the vote
against 30%. On March 11, 1981 it will replace the Constitution of
1925.
August 14, 1980. Poland confronts communism. At 6 a.m. three
workers at Gdansk's Lenin Shipyard declare a strike. Within hours,
thousands of others join their sit-in. By 11 am, Lech Walesa, a
former electrician at the yard, scale its perimeter wall and takes
charge of an impromptu strike committee. The Solidarity movement in
Poland is born, marking the beginning of the end of the Soviet
empire.
August
8, 1980. The transition begins. In a Cabinet meeting, we all
sign the project of a new Constitution for Chile, to be submitted to
a referendum on September 11. There are important advances in the
permanent text (especially in the field of individual rights), as
well as some provisions that are either wrong (the National Security
Council) or should have been part of the transitory articles
(designated senators). The extraordinary achievement is that it
enshrines a path toward the devolution of political power from an
emergency authoritarian to a fully democratic government.
July
24, 1980. "General trial-run for the restoration of
democracy". Former Minister of Labor under Eduardo Frei,
William Thayer, calls the free election of thousands of trade union
leaders "a general trial-run for the restoration of
democracy." He adds in an interview in the magazine Que
Pasa: "The Plan Laboral has been
an enormous act of courage of Minister José Piñera, his team and
the government. It creates a full trade union democracy in a country
that is still in a situation of emergency in the most important
areas. It is remarkable that it has been in the labor sector where
democracy has been first completely re-established."
October
1979. Pendulum arbitration is tested. The new Trade Union Code
contemplates the possibility of market-disciplined strikes when
workers and employers do not reach agreement in the collective
bargaining process (so-called "chaos strikes" at any
moment and for any reason are prohibited). Only in a handful of
companies-generally state monopolies in "strategic" areas
like water, telephone, oil, electricity- the failure of agreement
does not lead to strike, but to compulsory arbitration by
independent arbitrators (not by the government). An original
provision of the Plan is the introduction of "pendulum
arbitration" (the arbitrator has to choose between the last
positions of one side or the other, but not the middle way). In this
way management and labor are encouraged to make responsible contract
offers, lest the other side's full proposal be mandated by the
arbitrator. This mechanism is succesfully tested and proven in the
case of the state oil company, ENAP.
June
30, 1979. A new Trade Union Code. The so called "Plan
Laboral" reinaugurated union activity in Chile, after six years
of suspension, under a new pro-employment and pro-democracy
paradigm. The new Code reconciled collective bargaining with an open
market economy, made union affiliation totally voluntary, and
fostered internal democracy. A constitutional change is also
needed to include the powerful copper mining workers, whose
monopolistic trade union structure ("El estatuto de
trabajadores del cobre") is enshrined in the Constitution.
December 26, 1978. A worthy cause. I accept the invitation to
enter the Cabinet. Before doing so, I tell President Pinochet
that my cause is not only prosperity, but also freedom and democracy
(the full story about this meeting is in my book "La revolucion
laboral en Chile", 1990). I feel a moral duty to
contribute to my country in an extremely difficult moment (the
challenge to rebuild an economy and a democracy, an inminent war con
Argentina and a trade boycott threat from the AFL-CIO). Though I was
offered initially the Ministry of Economy, I become Minister of
Labor and Social Security in order to focus on two great structural reforms that I have been promoting in public debate
(Pensions and Labor), reforms that can have significant
economic, social and political consequences.
May 25, 1978. A road map for democracy. A "perfect
storm" was threatening Chile: an antagonistic Carter
presidency; a trade boycott threat by the AFL-CIO; an agressive
Argentine military Junta that rejected a Crown arbitration ruling
about the Beagle islands; the abominable assassination of Allende's
Minister Orlando Letelier in the streets of Washington; a proposal
by the powerful group of "duros" (hardliners) inside the
Reconstruction government to install a "war economy" and
stop any movement toward democracy; a Junta member, Air Force
general Gustavo Leigh, and Army generals of the Comite Asesor,
vacillating about the economic strategy. With Jaime Guzman, leader
of the "gremialistas" group, we plan a secret dinner at
his apartment with three key government ministers. We invite
Minister of Interior Sergio Fernandez, Minister of Finance Sergio de
Castro, Minister of Foreign Affairs Hernan Cubillos, and leading
free market entrepreneur Manuel Cruzat. We review the extremely
dangerous internal and foreign situation. We agree to renew efforts,
in all dimensions, to go for a new Constitution setting the
timetable for the re-establishment of democracy and at the same time
accelerate the economic and social free market reforms. I remember
Marechal Foch's dictum: "My rear is blocked, my flanks are
giving away, so I attack!"
March 3, 1978. Chile in the front line of a colossal struggle. Professor
Jeffrey Hart of Darmouth College writes in his "Letter from
Santiago" in National Review: "During the First World
War, many American writers experienced a powerful desire to see the
Western Front in France. These Americans needed to feel the reality
of the trenches. They knew that something important was happening
there. It was with some analogous conviction that I decided to go to
Chile. Warfare now takes more complex forms. But there can be no
question that Chile is an important sector of the front line in a
colossal global military-political-ideological struggle that makes
World War I look like an Indian raid."
May 27, 1977. The Conference. In the
annual conference of the Alumni Foundation of the School of
Economics of the Catholic University, I present a paper that
postulates that Chile can be a developed and free country if it
undertakes a coherent and radical set of liberty-oriented structural
reforms. I postulate that Chile can double its historic rate of
growth of only 3% (around 1% per capita), emphasizing that if a 7% average growth rate is achieved, GNP could double in 10
years and quadruple in 20, making possible a substantial reduction
in poverty and a stable free society. Inmediately after, I am asked to
repeat the same presentation to President Pinochet, whom I have
never met, the Legislative Junta of the Commanders in Chief, the
full Cabinet, and all the deputy
Ministers. It seems to be that President Pinochet and the Junta is
convinced by this vision and by the proposal of a freedom revolution
based on the vision of the Founding Fathers of America and the ideas
of Friedrich Hayek.
(Prologue. I was at Harvard during the Alllende
government. As The Economist stated in an editorial, Allende and his followers were to blame
for the destruction of democracy in Chile. On September
11, 1973, obeying the Chamber
of Deputies Resolution of August 22, 1973, that accused the
government of twenty violations of the Constitution, the Armed Forces had removed marxist
President Salvador Allende. The country was in ruins. At the end of 1974, I faced a difficult choice:
to either remain in Boston enjoying the academic life I loved so much or
to go
back to help found a new country from the ashes of the old one. I
decided to go back. In March 1975 I began promoting the ideas of economic, social, and
political liberty in public debate, and informally helping Finance Minister
Cauas).
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