Towards A Good Samaritan World

Thursday, January 27, 2005

While this article about Chile's experience with private pension accounts is mostly negative, this fascinating little nugget of information is buried near the end:

Those problems have emerged despite what all here agree is the main
strength of the privatized system: an average 10 percent annual return on
investments. Those results have been obtained by the pension funds largely by
purchasing stocks and corporate and government bonds, which have helped fuel an
economic expansion that has given Chile the highest growth rate in Latin America
over the last 20 years.

"The great success of the system is its high profit rate, more than double
what was initially projected," said Guillermo Arthur Errazuriz, executive
director of the Association of Pension Fund Administrators. "In total, workers
have set aside nearly $61 billion, which is invested in the sectors of the
economy that show the most potential."

Among other achievements emphasized by advocates of the privatized funds
here are the creation of a modern capital market, cheaper credit for companies
that formerly could turn only to banks when they wanted to expand and a brake on
deficit spending by the government. Critics respond that the privatized system
has been less successful in ensuring a dignified retirement for the elderly.

"What we have is a system that is good for Chile but bad for most
Chileans," said a government official who specializes in pension issues. "If
people really had freedom of choice, 90 percent of them would opt to go back to
the old system."

"Good for Chile but bad for most Chileans." Hmm. A paradox. Maybe it means that the system's inconveniences are readily apparent, while its macroeconomic benefits are diffuse. Better capital markets is the type of program benefit that is mystifying to ordinary people. Mystifying-- but precious beyond all the gold and silver of the earth.


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