Times Gives Chile Savings Plan the Cold Shoulder
Tomorrows State of the Union address is
expected to be filled with visions of fixing the Social Security
mess. President George Bush will probably cite the experiences in
Chile, which went to private accounts more than 20 years ago.
Readers of The New York Times should beware, however. Their paper has already come out and attacked the Chile success story in a slanted and mistake-filled piece that ran on the front page January 27.
The article, written by reporter Larry Rohter, used a mixture of errors and distortions to spin the good news of the Chile program into bad. Rather than dwell on the enormous gains of the private accounts (10% per year above inflation for 24 years), Rohter cited a Socialist politician, a discredited World Bank report, inaccurate numbers and privatization opponents to come up with a truly one-sided result.
Rohter made his position clear from the very start: The Chilean example also makes clear that introducing private accounts does not solve a lot of problems faced in the United States, Europe and Japan, where pay-as-you-go systems remain the principal means of government retirement support.
He looked at Chile where the first generation of workers to depend on the new system is beginning to retire. Rohter didnt point out that they only had, at most, 24 years under the new system and, despite the wild success of the private accounts, would have less than half the normal time to accumulate money as an ordinary retirement plan. Despite this, he persisted in comparing results of the old system with the private accounts.
The article cited Minister of Labor and Social Security Ricardo Scolari saying, It is evident the system requires reform. Not only is the name of the source incorrect (Its Solari), but Rohter left out the point that this particular minister is part of Chiles Socialist Party and, as such, is probably not a real defender of privatized anything. Most journalists would consider that a key bit of information.
The article talked about the massive expense charges applied to the accounts and cited a World Bank study which calculated that a quarter to a third of all contributions paid by a person retiring in 2000 would have gone to pay such charges. Rohter ignored the fact that the study had been discredited as deliberately flawed and biased early in the month.
The actual study, Keeping the Promise of Social Security in Latin America, was written by two bank staffers and a member of the Organisation for Economic Co-operation and Development. According to Investment & Pensions Europe (IPE.com), the book falsely claimed that 80 percent of contributions were consumed in commissions. That article cited Salvador Valdes-Prieto, a professor of economics at the Catholic University of Chile, saying the number is in the range of 0.65% of assets under management. Thats a far cry from Rohters ridiculous claim.
Rohter also mentioned that the military is not part of the new system. The military imposed privatization on the rest of the country, but was careful to preserve its own advantages and exclude fellow soldiers from the system. What he was trying to say was that the military didnt want a pension system that actually made it easy for servicemen to go into civilian jobs. It is expensive to train soldiers and stupid to then encourage them to take new jobs elsewhere.
The Times piece on Chile was just the latest attack on privatization of Social Security from a newspaper that openly rejects fixing a system that will soon be spending more money than it brings in.