Money in One Lesson by Gavin Jackson

Author:Gavin Jackson [Jackson, Gavin]
Language: eng
Format: epub
Tags: Non-Fiction, Currency, Economics
ISBN: 9781529051872
Publisher: Pan Macmillan UK
Published: 2021-11-26T17:00:00+00:00

9. How do we save money?

In 2019 protests rocked Chile.1 The causes were diffuse: originally sparked by a 30-peso rise in the price of rush hour metro tickets in the capital, Santiago, the set of grievances quickly broadened out. An estimated million people took to the streets demanding a wholesale change in how the country operated. Some adopted the slogan ‘It’s not about 30 pesos, it’s about 30 years’.2

The protests marked three decades since the transition to democracy following the military dictatorship of General Pinochet.3 Optimism had since faded. Economic growth had slowed, inequality was high and the expectations of the country’s growing middle class had been routinely frustrated.4 Towards the top of the list of grievances, however, was something that rarely provokes such intense feelings: pensions.5 The Pinochet-era system, now in its fourth decade, had failed to ensure Chileans saved as much for their retirement as anticipated, leaving thousands trapped in old age poverty.

The problems with Chile’s pension system were a reflection of a common challenge facing all of us: how do we save for the future? How do we make sure that we will have enough to survive when or if we can no longer work? How can you transfer money you get today to when you will really need it and be sure it will still be there?

In the early 1980s Chile had introduced a system of individual pension saving accounts that earned plaudits from the World Bank and became the model for similar reforms6 across poorer countries. Previously Chile had only used a pay-as-you-go system: workers were meant to contribute throughout their lives, and these funds were immediately transferred to the retired. When the currently contributing workers reached their retirement age, the next generation would bear the responsibility for funding their pensions.7 With little connection between the amount workers paid in and the amount they received, most would pay only the minimum – or avoid it altogether. It became more and more expensive for the few who could not avoid contributing to support the rest.

José Piñera, the Minister of Labour under Pinochet, oversaw the privatization of this system. He was part of a group that became known as the ‘Chicago Boys’8 – Chilean students who had studied economics at the University of Chicago under Milton Friedman and brought back ideas for reforming the country’s economy. Piñera said that reading Friedman’s classic Capitalism and Freedom as a student had changed his life. That experience would, in turn, change his country and become an experiment, closely watched by the rest of the world, into whether financial markets and a purely private pension system could be enough to save for the future.9

Pinochet’s brutal regime turned to the Chicago Boys to provide his anti-communist military coup with an economic vision, restoring the nation after the hyperinflation during the prior democratically elected socialist government.10 For their part, while sympathetic to anti-communism, the Chicago Boys also saw in the regime a chance to transform the economy along ‘scientific’ and ‘technical’ grounds absent political pressure.

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