Well thank you very much. I would like to thank my very good friend Roberto Salinas for bringing me here, and looking for me around the world so that I could
be in this event. I am very happy. We worked together in Mexico under very difficult circumstances and we were able to implement this system of retirement accounts.
You may know that now forty million Mexicans have a personal retirement account, and they are now building a nest for their old age. And together with NAFTA
(North American Free Trade Agreement), as well as some other reforms in the energy sector, I believe that Mexico is finally on the right track.
Of course it has a very difficult drug problem, which you have recently heard about. Even so, I am still optimistic that Mexico may be able to
have, in the next years, important advances in the economic, social, and political fields.
Now, as I said yesterday, I want to be very clear on the fact that I see the future of Latin America dependent on whether the Cuban revolution, now taken to
some extent by Venezuelas Hugo Chavez, Bolivias Evo Morales, Ecuadors Rafael Correa, even by the terrible couple of Argentina, the Kirchner couple, triumphs and provides a model for Latin
or the Chilean example, that has been followed to some extent by Peru, Colombia, and Mexico, is the future model for Latin America.
So I see here a big fight in the next two, three, five, ten years maybe, for the souls and minds of Latin America. It is very clear that the appeal of the
Cuban revolution is based on the fact, as I mentioned yesterday, that the history of Latin America has been, to some extent, an economic disaster.
Latin Americans have had five hundred years of the Spanish centralized tradition of state intervention. Therefore, it is a continent blessed with all sorts
of natural resources, as well as an extraordinary, diverse, and rich culture.
It is a continent that is linked to two of the most successful countries in the world, the U.S. and Canada. A continent that really does not have great
linguistic or religious divisions, and yet, it has been poor and underdeveloped.
That has lead to enormous political disabilities; dictatorships, civil wars and so on. So I can understand, you see, the poor people of Cuba when they were
offered by Fidel Castro and Ché Guevara, at the end of the 1950s, a revolution.
Now, the big mistake, as I have said, is that what Cuba needed at that moment, and so did Latin America, was not the Russian Revolution but the American
Revolution. We didnt need Lenin or Marx, but Jefferson and Madison.
But the tragedy is that Castro did his revolution and it has been going on for fifty years. It has followed an interventionist policy, and almost every
Latin-American country has had a lot of influence because, until recently, there was no alternative model, and thats why I want to explain to you briefly what I call the Chilean
It is not only because I am Chilean, so I have to ask you for forgiveness if I feel passionate for what my country has done. But you are not Chilean so I am
stressing this because I believe that the Chilean example is very important for Latin America, and if it is well understood, then we can contrast the Cuban or Venezuelan Revolution with the
Now, Roberto mentioned yesterday, and of course it has been something extraordinary to ask, that in the World Economic Freedom Report, Chile now is number
six. You have to remember that in 1975, the report ranked 72 countries and Chile was number 71.
So in 1975 Chile was the country with the least economic freedom of the world, while thirty years later, Chile is number six; two places ahead of the United
States. The other five countries are the classics: Hong Kong, Singapore, Switzerland, the U.K., the country of John Locke and Adam Smith, and then, a Latin American country, Chile.
Now again, this is extraordinarily important because we have been told that Latin America, that we Latin-Americans do not know how to produce wealth, we
Latin Americans live in tropical climate, we have Catholic religion. You see the classic excuses used by the elites of why we could never grade high on an economic-freedom ranking.
And yet in Chile we are the same Chileans as thirty five years ago; we have not changed the population and yet we are number six. Now, even more, and I love
this report and I know that a lot of the people who do this report are in this room, that as I was preparing for this presentation I asked them for a little favor.
I told them Chile is number six but on one of the forty-two public policy variables, the marginal top rate of personal taxation, Chile is very low because we
still have a forty percent marginal rate.
Some might say, how can a country with so much economic wealth...? Well, it was because the Finance Minister, twenty five years ago, could not take down that
rate and it is a very complicated discussion. But he did something that was quite smart, he fixed the corporate flag tax at seventeen percent and allowed every Chilean to render services and
charge them as a corporation; every Chilean is a corporation.
If I go to the doctor and then I have to pay him, I dont receive a bill from the doctor but from John Smith Inc., so the doctor is a corporation and as long
as he keeps the money as a corporation, he pays a seventeen percent tax rate. So the secret is that most Chileans, almost every professional, pays only seventeen percent.
The ones that are very angry are the members of the board because, of course, the member of a Board cannot charge the Board Fee as a corporation, it would be
too much, so they pay forty percent; but those are a minority. The secret is that most Chileans pay seventeen percent.
So I asked my friends of the report, Where would Chile be if I were able to convince the future government to put in the books the real rate, seventeen
percent instead of forty, when 90% of Chileans are paying seventeen?
Well the extraordinary news they gave back to me were that if Chile were to have in the books, seventeen percent, which is what we really have but not yet in
the legal way, Chile would be number three in the world, only after Hong Kong and Singapore.
And then I told my friends, Well maybe you have missed some piece of news that twelve years ago, Hong Kong ceased to be a country, you see, and China may
contact you to make that clear. And we have an ongoing joke that I believe Hong Kong should get out, for this was to be an index of cities, very free, but Hong Kong is not a country,
regrettably it is not a country, as the U.S. and whatever.
And Singapore, with all due respect to what Lee Kuan Yew has done, is not really a democracy; it is a very authoritarian system with an extraordinarily
successful economic system but its not really a democracy. So, if you were to make the ranking only of the democracies of the world, Chile would be number one. That deserves a
Now of course we can play around with the scenario, but there is something to it you see. If I can go around, well I go around, I live in planes, I go around
the world, and I see this country that was a socialist country, the last with economic freedom is now, maybe, number one. Well, it is an extraordinary example that is needed in the
You see that we have so many bad examples and so many free market people are frustrated, negative and pessimistic because of what happened. Well, not to
mention with the crisis that is going on, the end of Capitalism, and to say that this is equivalent to the fall of Berlin Wall, complete nonsense, you see. The fall of the Berlin wall freed
half of the world population.
This crisis is, of course, very serious but it will not mean the end of capitalism, free market or individual freedom; there is no other alternative model.
Of course it may lead to better financial regulation or to better monetary policy or whatever. But it is not the end of the world and sooner or later we will be fighting the same old fight
between free markets and state interventionism all around the world.
So the example of Chile is very important. Now, as I said yesterday, and let me go a little more inside Chile, we had the first inflection point, and this is
not known at all. It was in 1956, when the Dean of the School of Economics of Chicago decided to implement this huge project of transferring good economics to Chile.
So we begin building a mass of classical liberal economists, later called the Chicago Boys, of which I am proudly one of them because I studied in that
University of Chile that is connected with Chicago and my reading list said Chicago University, because my professor saved on typing and the class used the photocopy to have the reading
So we had a critical mass of economists and those would have been influential in Chile anyway, they were already being influential at the end of the 1960s.
But then something very tragic happened in my country, by a small minority vote, in 1970, and because of the desperation of the masses that had tried governments of the right.
But governments of the right that never dared to change the monopolistic mixed economic model, governments of the center and then in 1970 Chile elected with
36.2% of the vote, the Marxist president, Salvador Allende.
And we said, Okay, lets see what the left, the Marxists president, a great admirer of Fidel Castro, who brought him for one month to Chile, who made an
agreement that ten thousand Cuban people were going to be in Chile, as they were later to Angola and several African countries, really to impose by violence, their views.
So we elected this president that was elected democratically but with 36.2 percent of the vote, and in Chile we had in the Constitution a provision which
states that when someone doesnt get fifty percent plus one, the Chilean Congress could choose between the first majority and the second majority, and the second majority was only thirty six
percent, the other option was the conservative candidate.
So we either had a Marxist or a conservative candidate with an incredible small difference; like George W. Bush and Al Gore maybe. Instead of the Supreme
Court, this was handed to the Congress.
And the Chilean Congress said, Okay Mr. Allende, you had a little more votes but a little more is still more, so we will give you the chance, but since we
know you are a Marxist and you are on the record that you want to impose the communist dictatorship, since that is what Marxists write and boast about around the world,
we will ask you to sign a guarantee that you will not violate the constitution and that guarantee will be introduced into the constitution, so we will change
such document in the month between the Allende vote and the Allende presidency to prevent Chile from becoming a communist dictatorship.
But regrettably, and that is a weakness of democracy, knowing that it is the best system that we have, or the least bad system that we have, Allende and his
followers, with a strong help from Castro, began to take away our liberties, which is exactly what Chavez is doing now: they closed T.V. Channels, they closed newspapers, they began to restrict
our freedom of education.
After all, what the communists did following World War II in Czechoslovakia and in Hungary was to take power in a violent way with a lot of intelligence and
these countries ended up going through fifty years of communism, of anti civilization.
I have very good friend, she won a Pulitzer price and she is now writing a book on the takeover of democratic countries by the communists after the World War
II, and I am helping her with some logistics, and the title of that book will be Anti-civilization; what the governments did there was anti-civilization.
Well, we were at the verge of that, now you would say, Well, but if a government has violated the constitution, as maybe Nixon did, why didnt you impeach
him? Well, regrettably our constitution was very old, created by the Spaniards, and we didnt have a valid impeachment procedure.
So here comes a very difficult question that maybe some of you have a different answer: What do you do when you have an elected president who is violating
the constitution in order to impose a dictatorship, and you cannot remove him? That is Chavez today and the Venezuelans are discussing exactly that.
I have a very good friend, a British historian called Niles Ferguson and he knows very well the history of Europe and we were doing a scenario, the same as
we were doing with the economic freedom in this, and I said to him: "What would happen in Germany if, after Hitler's democratic election to power, the Reichstag in the first month had seen
that he was clearly deviating from constitutional procedures and, before they voted the infamous enabling acts, the Reichstag had said to Hitler, 'you are going toward dictatorship so we will
call on the armed forces to take you out?'"
Now I dont know what would your answer be but mine would have been that I hoped that they would have done it, of course.
Well, in Chile, the Chilean congress met on August 22nd of 1973 and, in a very admirable resolution, which I have in my website in English, they indicted him
and they said that Allende had violated the constitution on twenty grounds.
Incidentally I sent this resolution to Milton Friedman many years ago and he was so astonished, he didnt even know about this resolution. He even said that
it was similar to the indictment of George III by the U.S. Declaration of Independence.
It is an indictment where the Chilean Congress said, You, Mr. Allende, have done this and have done that and have done this. and then at the end, the
resolution says, ' we call on the armed forces to put an end to this constitutional violation in an immediate way.
The only way the armed forces could do that was to remove President Allende which eventually led to a small civil war because Allende had 36 percent of the
vote; both sides lost lives.
Regrettably, when you have civil wars, some people violate human rights and those people, of course we all agree, that should be in jail or should be
charged. But the key element is that we had a year or a year and a half of civil war in Chile.
And then comes the next inflection point in 1975, after the civil war ended, the State of War was lifted in February of 1975, and at that moment the group of
Chicago Boys, who were observing the process and could've stayed outside in the university, criticizing and letting the government go in whatever direction,
because the military government had a clear vision that they should prevent Chile from becoming communist, but they didnt had a clue of what to do with the
economy. Generals don't know what to do with economy, and in principle they are more leaning towards state intervention.
After all, the army is a very hierarchical institution; it is a state owned company and war is a centrally planned operation. So you see generals in
Latin-America that have gone toward the center left or even the left.
And here happened something that many believe its a miracle but it is not a miracle; its the power of ideas. The military government didnt know what to do
with hyperinflation, we had 300% inflation, cows in the balance of payment and they began to call on different groups to provide advice.
They initially called on ten entrepreneurs and asked them, What do we do? Well the problem is that you find ten entrepreneurs and each one will say that the
real strategy is the one that will help his own company or his own industry. So the industrial guy said, Industry is the key to the future so you should have import cuotas and charge.
The agricultural people said no land since the middle ages, and the Mining people said it was mining, and the Banking people said that without a financial
sector, so with ten different opinions you cannot choose such a group. That is why, in my view, it is incredibly important to produce wealth but it shouldnt be the economic team of the
And that is something that sometimes the U.S. doesnt get clearly and they put initially a Wall Street guy as the Treasury Secretary instead of putting a good
economist like you; they should come to the Association for a Treasury Secretary instead of Wall Street.
But, anyway, then the military called the lawyers, well, there were ten lawyers and fifteen opinions, and then they called the Chicago Boys. We have
hyperinflation, what do we do? And each one said: Inflation is a monetary phenomenon, and the monetary crisis is because the fiscal deficit that Allende left was forty percent of GMP, forty
percent of GMP.
Of course the only way to finance that was monetary creation. So we had this hyperinflation that was going to... So the Chicago boys decided to solve the
inflation, they said "What do we do with trade, free trade? And, what do we do with..."
The Chicago Boys had a common solution to the problem and they were chosen because they were eloquent, and they were independent, which is something very
important to them; they had come from the university, they were not in the business sector, they were not of any political party.
And then, we had to take all of us a very difficult decision, we had been trained in Chicago and Harvard, we believed in democracy, we believed in freedom,
we knew it was an imperfect situation where the starting point was not and electoral democracy but we knew that if we introduced free market policies in a very coherent and radical way, we
would create the middle class.
And that middle class would begin to pressure for property rights, for the rule of law, and ultimately, for democracy. And then, finally came the other
inflection point, five years after, we, the Chicago Boys, made what I call sometimes a friendly take over of the government in the economical sphere.
We were able to convince these generals that they should go, and we drafted the Constitution, the 1980 Constitution of Chile, that as we could, we tried to
copy Madison, of course we couldnt do it completely but we have the bill of rights of the Constitution and we protected, and I am very of myself, I was Secretary of Labor, I myself introduced
the right to work, and it said: "No law, no authority, nobody can demand to someone to belong to a union or to have a professional permission to exercise any job in Chile, freedom of
So we had a strong protection of property rights, for example, in the past the Agrarian Reform was made because the Government expropriated the land owners
and paid in the future, a future with inflation, so everyone in Chile was confiscated of their lands by paying in the future.
So we put into the Chilean Constitution that if the Government has to expropriate an even piece of land in order to put a, I dont know, an observatory, they
have to pay the economic value of the property and pay it in cash.
Now, the military said "Come on!" How will we pay in cash? Well, you issue debt in the Capital Markets, why if you are expropriating someone you have to take
both his property and pay him in the future? No, you should pay that person in cash.
Now, the moment you have to go to the Capital Markets to raise money in order to pay an expropriation, that focuses you mind very clearly, on whether you
want to really do that. So from then on, we have not had any expropriation in Chile, and any threat to property rights and thats why in the Economic Freedom Index we are very high on property
rights in Chile.
But, anyway, in that Constitution we also introduced a path toward democracy. And some people say, Well, why didnt you go to democracy immediately, in
Well, there were very difficult issues, we were convincing Generals, who had saved Chile from communism, who were threatened to death by Castro and by the
KGB, there was something called the KGB at that moment, so they didnt want to do it in a rash way.
But also because of a second reason, we believed strongly in creating, before electoral democracy, the institutions for liberty. Farid Zacaria had read in a
book, The Future of Freedom, emphasizing how democracy is not just voting, you have to vote within a limited government, rule of law.
Now in Chile at that moment, for example, we didnt have private television, television only was either the Governments or the Catholic Churches, so every
night we could either see the Government or the Catholic Church. Now, not such a choice! We may like the Government or the Catholic Church, but come on! We introduced the freedom of
So, how can you have a democracy, and we hadn't had a democracy for, well, television was born in the sixties, but with only two T.V. channels? Not
univerities, only the government or the Catholic Church.
We couldnt have had the Francisco Marroquín in Chile before our Constitution. We set freedom of university, now we have forty five universities in Chile, and
we have increased ten times the number of students in universities. We didnt have an independent Central Bank, so we said, No, we have to have an independent Central Bank, a sort of Federal
We didnt have a Constitutional Courtand We spent seven years creating the Institutions for democracy, and then in 1988, we had a vote, and the Government
lost the vote on who would be the next president, and the Generals gave power peacefully, constitutionally, exactly according to the 1980 Constitution, that we signed and is still the law of
the land in Chile.
So when you want to know why Chile is number six, it is because there was a free market economic revolution, very coherent, very independent, yesterday we
were discussing with my friend Carol Boudreau and she made a very good point that we were able to give property to the masses, to the poor people.
It was not like in Russia, where they privatized and the oligarchs and so on, no. When we privatized, we tried to do it through a process that we called
Popular Capitalism. We gave loans to every Chilean that wanted to buy stock in the area of the communication companies.
At the same time, of course, I, in the same year in 1988, I had been able to completely replace the Pay As You Go Social Security System with a defying
Contribution System, where your contributions go into an account and what you get at the end is the sum of your contribution plus a rate of return, let me say here, because sometimes my
American friends believe that the privatization of Social Security is about the Stock Market, its not about the Stock Market, is something much deeper than that, it is about
The Pay As You Go System, the flow of the Pay As You Go System created by this market in the 1970s, the fact that you destroy the link between the
contributions and benefits, between effort and reward.
The benefits of a social security system are defined by law, by a group of people who can give you whatever benefits they decide, so you dont have a link
between contributions and benefits and that leads to Populism, Demagoguery, and Political Irresponsibility and in the end, politicians buying votes, with entitlements.
And thats what they have been doing in the U.S., in the last seventy years, you buy votes with entitlement, promises, but someone will have to pay, the key
element of what we did in Chile was to change what is called a Defined Benefit, and fund it, so the Security System, from to demagoguery and demographic trends, into a defined contribution
Now, whether your funds are invested in treasury bills, stocks, indexes, its a completely different discussion. We have in Chile, one of the alternatives
that is a fully, fixing cofounds, and that fixing cofounds last year in the crisis went down seven percent.
Now, the more stock funds went down, twenty, twenty-five, thirty percent, they were all very much diverse. But its not, the social security organization is
not about investing a stock per se, you can be extremely risk averse, you have only your fixing confine, short term bonds if youre even...
and yet you have ownership of you money which when you reach retirement age you dont look for the political process to give you a benefit, you look to the
balance of your account, you can choose an option where you take monthly withdrawals and you keep the ownership of the money so if you die after five years you give all that money in
inheritance to your wife and your children.
You have the choice of retiring earlier than the retirement age, with your own money if you make extra contributions; this is a whole system of
responsibility and freedom. And stocks are a detail that you could even eliminate if you are really completely risk averse, dont be misled by that.
Anyway, through that reform that we did in 1980, we planned it, before the big privatizations, so the pension funds began to accumulate money in 1986 or
1987. A very good friend of mine, a colleague of mine was Treasury Minister at the moment, he began privatizing the telecommunication company, the energy, everything.
And, who were the big buyers? The pension funds. So the pension funds bought on average thirty to forty percent of each of the privatized companies, so when
the private sector then managed those companies and those companies had gone up on the stock market by a factor or ten or twenty, the great beneficiaries had been the workers of Chile; the
common workers, the poor workers, the minimum wage workers.
And the rate of return to those workers for 24 or 28 years has been nine percent a year above inflation. It was ten percent a year before what the Americans
gave us last year, it was ten percent the year, so when the accounts went down twenty percent last year, but twenty percent in one year, if you have had twenty-eight years of ten percent
returns, brings down the average from ten to nine.
So, would you like nine percent above inflation for 28 years? I always joke that Warren Buffet did better than that, but that was before the crisis. I
understand Warren Buffet is shaking right now, but everything he is very successful, of course.
So, and the beauty of it is that the common work has obtained nine percent a year of contribution, so the money grows exponentially. And you see Chilean
workers with 20 thousand dollars, fifty thousand dollars, a hundred thousand dollars, two hundred thousand dollars in their retirement accounts.
So when we had the transition to democracy in 1989, we had the institutions for democracy, private television, private universities, independent Central
Bank, and every Chilean owning stocks, and not wanting any demagogic politician to take away their money, either by expropriation directly or by mismanaging the macro economy and having
inflation or whatever.
And thats why then weve had four governments that call themselves of the left or third way, tersa vía, but they have not touched the pillars of the system.
So they govern with the rhetoric of the left, you see, they go see Fidel Castro, our president just went to see Fidel Castro, took the usual photograph Fidel Castro wearing Adidas.
I have never understood why he uses that, is Adidas paying Fidel Castro? Why doesnt he put La Habana, I dont know, Varadero, Adidas there? Well, anyway, so
you see our presidents travel around the world, they go to see these lefties they call the progressives.
We just had a meeting in Chile of the progressive with Joe Biden, very elegant arriving there to a meeting with the progressive with Evo Morales. I cannot
see more different people, Evo Morales and Joe Biden, but anyway, it is all fake, really.
They dont have an alternative, the Berlin Wall fell on their heads, now the key element is to do the reform because once you do it, they will not change it.
You see, once you do a revolution you can have, of course, setbacks, you can increase our corporate rate up to fifteen percent, when the transition was, and they have increased it to seventeen
percent with a lot of demagoguery.
Okay, increase it to seventeen; its still a free market economy. So Chile has had stable policies for thirty five years. That has led to that our income per
capita is triple of what it was before, we at ,000 PPP, that is number one in Latin-America, above even Argentina, and we hope to reach Portugal because Portugal is ,000 is growing at two
Chile is growing, on average, at 5 or 6 percent, so we will reach Portugal maybe before ten years. And Chile will be the first Latin American developed
Now, given that example that has been very powerful in Latin America, I have been invited by president Uribe of Colombia, former president Fujimori, we have
been with president Zedillo, Fox, Los Pinos, many times and, you see, the message to them, they dont want to see a PhD thesis of Harvard.
I cannot present myself as a PhD from Harvard, they say we dont care, we see a lot of PhDs from Harvard, and there are good ones and bad ones,
No, no, they want to know how you did the reforms in Chile, whether they would work in Mexico, whether they would work in Colombia, of course you need some
adjustments. The universal values are there, but you need to implement it locally, with due respect to culture, tradition, political, but the basic ideas you see are the same.
So we now have, for example, a system of Personal Retirements Account in Peru, we just celebrated ten years, very successful in Mexico, ten years in
Colombia, in El Salvador, regrettably not in Guatemala; we have been fighting with my friends of Marroquín University.
We were close, we met the president of four or five years ago who said Yes, I am going to do it but okay, political circumstances. You never know when your
seed will blossom, you see, the task of a reformer is to go around the world planting the seed.
Having the right policy on the table and then praying or hoping for a given political situation in which the government will move in the right direction. And
the good news is that now we have thirty countries in the world with personal retirement account. I must say that we would have thirty one but Mark Skousen just...
We were talking that Argentina of course has been the only country in this continent that used the crisis in the opposite direction, you see, the Kirchner
couple said, with an incredible rhetoric, they said that since the U.S. is nationalizing banks, we will nationalize the penitentiary system in Argentina and there was no causality between the
two things but they were able to do it.
And it was basically to postpone another default of the Argentinean debt. Dont buy any Argentinean debt incidentally, nor Venezuelan. I believe that those
countries will default in the next years and that will be the beginning of the end.
But again, for the future of Latin America it is extraordinarily important to understand the Chilean success and be able to imitate it to a certain degree.
Now, some people will say, yes but that was in extremely special political circumstances but, all political circumstances are special.
When I met Fujimori, he was fighting a very vicious guerrilla movement and he was dealing with hyperinflation, at some moment he even closed the Congress,
but he did it, and president Uribe of Colombia has a civil war and he did it.
And president Zedillo, while some people criticize the PRI of not being democratic, well, even our friend Vargas LLosa called it the perfect dictatorship,
but still Zedillo was able to move in the right direction and bring about democracy and bring about reform.
So the future of Latin America, I strongly believe, depends on whether we are able to win the battle of ideas. There is an alternative to Castro and to
Chavez and to Morales and to the Kirchners. And the leaders that are going in the right direction are now the leaders of Chile, Peru, of Colombia, of Mexico. But the solution is clearly
institutions, free markets, Jefferson and Adam Smith.
So I would like to finish here because I would like to leave a lot of space for questions and answers but I have to conclude with an optimistic note; we will
overcome this crisis, and I believe that we have such a powerful case because our ideas are grounded on common sense, on natural rights.
And the key elements, as Roberto has emphasized, is once and again is that we professors should not be only professors in classes, we should be professors
with suitcases, as my, I have my son here who was born in Boston and comes with me to these events, and he told me, "Father you are a sort of a professor with a suitcase".
Because I go basically around the world and instead of making classes, which I love to do, as you do, I try to meet as many leaders as I can, and I meet any
leader, as I said yesterday my line is a principle engagement with an imperfect world. As I have very clear my values, they are freedom, they are democracy, and they are the same as those of
Adam Smith, John Locke and Thomas Jefferson.
But regrettably, the world is an imperfect place and unless you want to help only a Swiss canton, you have to be prepared to meet people who you dont know
who they are.
Once I was in Moscow in a big conference and I gave a very provocative talk because I said that the Russian made a huge mistake at the beginning of the
twentieth century, they didnt need Lenin but Jefferson, not the Russian but the American revolution, really I go with the American Revolution everywhere, and I get an immediate invitation to
meet president Putin, in half an hour.
And I say wonderful, I walk to the crowd, and they say no, no, it was a Friday evening, the president is in his dacha, fifty miles outside Moscow, and I say,
okay but then I cannot meet him in half an hour and they said, yes you can, and then a presidential car takes me in this huge highway.
It was a Friday evening so traffic was very slow, three roads at five miles an hour, one way, another three roads, and the Russian president has an exclusive
lane, in the middle of a highway and we were going at a hundred miles an hour, looking at this other people.
You see, we are economists and we know about opportunity cost. Imagine the opportunity cost, youre not even Bill Gates, and not even Obama could get it. And
so we were going at a hundred miles an hour and the Russian president receives people that way.
You can imagine the impression on Evo Morales, you see, whatever. But to us it was the contrary; we said this is an autocrat, who is this guy who is bringing
us this way who is giving us this incredible privilege.
Well of course that lane was built for Stalin not to be shot. Well, when we were going at that speed I said, be careful to the chauffer, someone could come
in our lane and he said "No, no the last guy who did it in the Stalin years, his grandchildren are still inside prison, so nobody will mess with us".
Well when we arrived there, instead of half an hour we were four hours with Putin, but I never knew what Putin was thinking, you see, hes an incredible
control man who never made clear his opinions, but anyway, I told him exactly what I told you, "you should do the American revolution, you could be a new Peter the Great, Putin the great I even
joked, Putin the Great, but you have to give away power sir,
you have to decentralize economic power, and you don't have to go into re-election", he might love culture so I couldn't push it because he said "Yes but we
Russians never have known liberty", to which I said "Sir, that is the ode to liberty, you kings dont have your divine right, but the rights are given by the people, like a great poet from Saint
Peters book. So dont give me that nonsense.
People love liberty all over the world, so give them liberty and you will be Putin the Great. So, this can be done, I am optimistic, thank you very much,
lets have a lively question and answer.
José Piñera: Mark Skousen here on the front row, freedom fest organizer, Benjamin Franklins great- grandchild.
Mark Skousen: Thank you. One question, now with the Stock Market collapsing around the world, it appears that its dead in the water to
adopt a social security privatization, or so it seems.
JP: Were you sleeping during my speech? I just mentioned...okay...
MS: Well perhaps Argentina is what other countries will do so what Id like to know is: number one, what about China and Asia? Are we
going to see privatization of social security there? And second of all, are you proposing an alternative social security program that is not based on Stock Market performance?
JP: Well, as I said Mark, and I understand you Americans have the stocks everywhere, at every time, at every second, you live in a... The key element of
personal accounts is that you save for retirement in your account, okay, but you can invest those savings in several ways.
First of all in a very diversified portfolio, but you can have cero stocks if you want, I just mentioned it, you can have only fixed income, you can have
treasury bills, you can have treasury index, you can have real estate mortgages, well, not now, and you can have ten, twenty, thirty forty percent in stocks, but if you have them in stocks, you
can have them in a very diversified way, etc.
So the fact that you have had such a crisis in the stock market, doesn't mean necessarily that the systems that are in place are suffering devastating heat,
they are down of course, but for example in Mexico Roberto, the decline is ten percent in 2008, in Chile was 20%, not forty or 45% of the American Stock Market, because there are also bonds,
and bonds sometimes go up, depending on the yield of...
So, please separate the issue of personal accounts from the issue of stock investing.
Now if youre a very yank person, and bullish of the future, of course youd like to have a high proportion of your account in stocks, but for example in Chile
we even have the following; once youve reached sixty, you retire at sixty-five, but once youve reached sixty, you have to begin in a very gradual way, from fifty seven I don't remember, to move
gradually to fixing cofounds so that everyone older than sixty in Chile was not in stocks last year.
So a man retiring is not in stocks his fund is all in short term fixing cofounds, so he didnt suffer at all. Now my son, who is here and is in stocks, but he
is thirty years old, he has thirty-five years to go up, now if you believe that the next thirty five years will be like 2008, well, run away to another planet, you see.
But I want to make this pretty clear, because I have a little problem with, only with Americans incidentally because in al of the rest of the countries the
funds are largely in bonds, in Slovakia they are 70% in bonds and maybe 20% in stocks, but I understand that Americans are generally much invested in stocks, and that is your decision, you can
be, but this is not an essential element of this idea.
Now of course you can tell me, Okay José, but if we are invested in bonds we will get only three percent returned. Yes! And three percent is much better than
the cero that you will get for your social security system, not to mention the negative if your social security system is not able to pay.
So if you want to sleep extremely well, buy treasury index securities that some years ago were trading at three percent above inflation and then you get
three percent a year, and then the Stock Market can go up and down and you sleep extremely well.
The second question, China, and yes China is very interesting, China we have been doing Cato events in China, we have our network inside the government, and
the government is moving in a direction, China moves very slowly, among other reasons, because they know that this will mean decentralizing economic power and the political leaders don't want
to go too fast in that direction.
But I believe China is going in this direction and maybe that will be the trigger for the US because really I am very skeptic about the U.S. being able to do
this before your crisis is full blown. You see, you are going toward the iceberg; you are like passengers in the Titanic, your Medicare, and your social security will simply mean deficits in
the billions and eventually trillions of dollars in ten twenty or 25 years.
But yet, since you are such a rich country, you dont have the crisis right now. The Social Security System is still with a little surplus so politicians are
not focused on the problem because they are still receiving money from the Social Security System and they are not looking into ten or twenty tears, and that is the problem you see with defined
benefit entitlements and who ever implements the entitlement,
even George Bush with Medicare, you dont pay for it, the future government will pay for it. And thats why I believe its so illegitimate the Bismarkian
system, you see, where you promise people the benefit in the future and you legislate in that direction and thats why this system is much more superior.
I believe that China is more in the right direction and I hope that that could be the trigger for American politicians to focus on, to me, the biggest
domestic problem that the US will have in ten or twenty years and it will be the explosion of entitlements. But all the same, that will happen incidentally in Europe.
Manuel Ayau: We Christians are celebrating this coming Sunday the resurrection of Jesus Christ, but I look at the political scene everywhere, I listen
to Sarkozy in France or to Merkel in Germany or to Obama in the US and I get the impression that they are looking in other direction,
they are celebrating the resurrection of John Mynor Keynes, in that resurrected Keynesian world, what are the prospects, in your view, of your great
accomplishments, about personal pension funds?
JP: Okay, well here again I have a little nuance with my American friends, especially from the Cato Institute, I dont fear so much
Keynes, I fear Marx and Lenin and Stalin, you see, we were close to being a communist country, and half of Europe was communist, and China was communist.
Keynes, was a British economist, a Lord, married to the prima ballerina, you see, a man who of course, wrote the general theory, and said that when
there are some circumstances the government has to place a stimulus, we are against the growth of government in the long run.
But whether in the huge crisis like the one you have in the US, the US government or the Western governments are increasing and spending on a Keynesian... I
am against that, but its not the end of the world, you see, I believe there is too much exaggeration of the world going away of the paradigm of basically democratic capitalism.
Now, within democratic capitalism you can have some people that are a little more Keynesian, when there is a crisis and where there is a drop in demands and
wages are inflexible and we know all the discussion and, okay, we can disagree on that but, Keynes was not a communist, nor a Marxist, not even a socialist.
He was a little confused about government spending in a crisis, but its not the end of the world. You see, I am much more afraid of the entitlement crisis of
the US, or France and Germany, that of the fact that in the short run they are increasing the spending or having budget deficit of 3%. So I, please, I am not trying to minimize a good
discussion here, between Keynesians and Friedmanians, or whatever.
In the big...we are not losing the battle, we won the big battle against a real alternative and that was socialism. I believe that against Keynes we can
battle him, and we can defeat him. Not now, now government will increase its power.
But in the crisis of entitlement leaves us, for example, or leaves big European countries or China or the US, to create a system of personal medical accounts
or retirement accounts, we can diminish the size of government by much more than the extra stimulus than a Keynesian fiscal policy creates on the short run.
So honestly, I am... maybe I am genetically optimist but we are on the cold war, in the deep sense of the word, these Marxists and communists and socialists
are an immensely bigger threat to our freedom that an increase in the budget deficit of some countries.
So being against that, I dont give it the threat, you see, I believe that even the entering to American politic, Obama is not a socialist, hes a lefty, hes
confused, and hes not a socialist. I know socialists sir, if you had known socialists youd not use those terms so easily. Larry Summers is not a socialist; he was the president of Harvard
You see, there is a little exaggeration, so let's, I understand in the political rhetoric the parties and rhetoric, people exaggerate a little bit but if we
want to be very rigorous in thinking we have to assess each public policy on its merits, criticize them, rather to scare the people that we have lost the battle, all of the world is going in
the opposite direction and so on.
I believe the economic freedom index is very good for that, freedom has been increasing in the world for the last 20, 30, 40 years. I believe we are still
winning the battle. Now Sarkozy may make a little setback there, but at the end of the day, I dont fear Sarkozy, or Carla Pruni, anyway.
Question: Well, the success of the liberal reforms in Chile is definitely inspiring to this audience. For most of our colleagues in France, in the humanities
and other disciplines, around campus when you say Neo-Liberal Reforms in Chile, they immediately associate with Pinochet and Human Rights repression,
this offers an insiders perspective on the rhetorical and political pushback associated with Pinochet, associated with human rights, and associated with
perhaps, the lefts construction of the Chilean transition.
JP: Of course, very good question, thank you sir. First of all, dont use, you, yourself, the term Neoliberal, we use
Classical-liberal, you see, what happens at the left is that they dont have a clue about the economy but they are great communicators because they study language and poetry and subjects that I
have done in order to confront them. So first of all be careful with words. I would never accept that.
What is Neoliberal? I dont even know. I am a Classical-liberal, John Locke and Adam Smith tradition, and a proud one. So first of all, when you are
discussing with those lefties about the Chilean reform are in the line of Lock and Smith and Jefferson, then you can tell them well, what is the problem? But when they say yes, but they were
done under special circumstances because of the military regime,
well I already explained that the military regime saved Chile from communism. Is that bad? Is that bad to be saved from communism? Do you want to be
communist? Then send him to North Korea for a year.
I always tell my friends if you criticize so much between democratic capitalism why dont you go to live in a communist country? Incidentally a lot of the
Chilean lefties went to live to East Berlin, and they are today the most capitalist of all Chileans because once you have lived in East Berlin and pretend to drive a Trabant, and then you have
the opportunity to buy a Mercedes, then you know it all.
Now, Human Rights, Chile had a civil war, and in civil wars, we all know, people fall from both sides. That is regrettable, that is you have to strive in any
war to respect the rules of war, but tell me the country, the U.K. of Thatcher, not to mention the America of Lincoln, even Lincoln is constantly criticized, so every country where there is a
civil war, well of course there are issues of human rights.
Now the right position is that we deplore, we condemn, any human rights violation, but of course human rights violation has nothing to do with free trade,
with privatizing the energy companies, you see, the human rights problems emerged from the people who began violence in Latin America, so in my view, the human rights problem of Latin America
is clearly the consequence of Fidel Castro and Ché Guevara.
Ché Guevara went to Bolivia to try to ignite in Bolivia a revolution and he spoke about creating in the center of Latin America, multiple Vietnams. And yet
probably your friend in the campus is probably sporting a Ché Guevara (t-shirt) and Ché Guevara is a killer, an assassin, read Alvaro Vargas LLosa's book.
So, when the Cuban said, we have to implement a dictatorship by violence, of course the military in Latin America had to prevent that, and in that fight some
people died. Now, if someone dies in a circumstance that is not war, of course it is a human rights violation, and that person should be condemned by the courts.
Now in Chile we had some of those cases and you may know that the Chilean Chief of Intelligence is in prison for life, so the Head of the CIA of Chile, is in
prison. Tell me whether any head of the CIA of the US, or of the Mossad, or the KGB, is in prison in the world? I don't think so.
So Chile is trying to confront the problem that there were specific incidents. Let me tell you that after the transition to power there was a commission in
Chile created by the government that was opposing the military government, was called the RETIC commission, and the RETIC commission, after a lot of inquire, decided that 2200 people of the
Chilean civil war had died of both sides.
And maybe 400 or 500 by the military because when the military is confronted by the guerrilla they fight and they win the war, that is why you should never
confront the military, but regrettably these people kept saying that the way to power is violence, that is in the essence of Lenin, of Castro and Guevara.
So what do you want? How do you confront that? Now, some people will say, Ive had people say, well, but Mahatma Gandhi... Well but Gandhi was against the
British Empire, my friend. The British Empire didnt do anything to Gandhi, but if you have the violence of Latin America, if someone doesnt stop that violence, the ultimate result is much worse
So the fact that in Chile lost 2,000 people, we are extremely sorry, but you may know that Guatemala lost 200 thousand people in the civil war. No? How many?
37,000? Well, doesnt make a difference for the argument. Two thousand is less than thirty-seven still. And the U.S. lost six hundred thousand, Im going to say five hundred...the Spanish lost a
We lost two thousand in the civil war, we regret every one of them, but what do you want, to win a war without casualties? How did America win the Second
See, theres so much hypocrisy, I am astonished, and yet, a country that has saved itself from communism, with two thousand casualties, and yet went on to
create this free market economy number six in the world, a democracy, and yet they keep mentioning to you the 2000 people who died, and creating a huge event from that.
I recommend you a very good book by Paul Johnson recently called Heroes, he concluded there that after studying the facts about Chile, he declared himself a
great admirer of Chile, and he said, the problem is that the only thing that the KGB had access in the last twenty years was precisely a huge propaganda campaign against Chile.
And we know about that, the KGB archives are already in the Hoover Institution and I have looked at some of them and they spend an enormous amount of
resources in order discredit the Chilean experience because, remember that Chile in 1973 was the first country to confront the Soviet Union.
Afghanistan was in 1979, the Berlin Wall was in 1989. Chile confronted the Soviet Union at the very beginning, and the Soviet Union was stopped in Chile,
in its tracks. We didnt have to live fifteen years under communism. Of course they have an enormous incentive to discredit the Chilean experience and to try to set the case in a way that is not
consisted with historical facts.
Well, as Ayn Rand would have said, "Check your premises look at the facts", and you will se the Chilean Revolution is a success with minimal casualties,
regrettable every one of them, but minimal casualties, and that has created a country of freedom. Okay, thank you very, very much.
Future of Latin America
State intervention throughout the past
Big mistake of the Cuban Revolution
Chile's position in the Economic Freedom of the World Annual Report
Misconception about Latin America
Chilean marginal tax rate
Consequences of reporting the real tax rate
Possibility of reaching first place in the index
First inflection point (1956)
Dean Theodore Schultz, University of Chicago
Election of president Salvador Allende
Strengthening the Constitution
Taking away liberties
Chile's path towards anticivilization
What to do when an elected president violates the Constitution
Chilean Civil War
Second inflection point (1975)
Power of ideas
Chicago Boys' solution
Third inflection point (1980)
Drafting the Constitution of Chile
Right to work
Property rights protection
Path towards democracy
Institutions for liberty
Why is Chile number six in the Economic Freedom of the World
Property for poor people
Defined contribution pension plan
Fix income funds
Privatization of telecommunications and energy
Benefits for the labor sector
Chilean stable policies
Income per capita
Chilean reforms in Latin America
Personal retirement account systems
Task of a reformer
Battle of ideas
Question and answer period
Will China privatize social security? Are you proposing an alternative social security program that is not based on a stock market
What are your prospects on the personal pension funds regarding the renaissance of John Maynard Keynes' ideas?
Could you offer us an insider perspective on the rhetorical and political push back associated with Augusto
Pinochet's human rights repression?
José Piñera explains that the future of Latin America depends on whether the principles of sound institutions and free markets will triumph over the ideas of the Cuban Revolution that continue to influence the region. Piñera analyzes the most significant events of what he calls the Chilean Revolution, emphasizing that country's remarkable growth after key liberal economic reforms were put into place. Piñera explains that by adopting Chile as a model, other Latin American countries could also attain similar degrees of development. In this talk he also describes the process of drafting Chile's new constitution, the establishment of the institutions for liberty, the privatization of telecommunications and energy, and pension reform.
José Piñera is president of the International Center for Pension Reform and a distinguished senior fellow of the Cato Institute. He served as Chile's secretary of labor and social security from 1978 to 1980 and as secretary of mining from 1980 to 1981. He is well-known for engineering Chile's private pension system based on personal retirement accounts. Piñera has received several recognitions, including the 2009 Adam Smith Award from the Association of Private Enterprise Education (APEE), the Golden Umbrella Award from the Stockholm Network in 2007, and the Liberty Award from the Liberální Institut in Prague in 2005. He graduated with a degree in economics from the Pontificia Universidad Católica de Chile and holds a MA and PhD in economics from Harvard University.
Plenary Session I, "Liberty in the Americas: The Challenges Ahead" José Piñera
Thirty-Fourth Annual Conference Guatemala City April 6, 2009
A New Media - UFM production. Guatemala, April 2009 Camera: Mario Estrada, Mynor de León; digital editing: Luis Barrueto; index and synopsis: Sergio Bustamante; content revisers: Sebastian del Buey, Daphne Ortiz, Jennifer Keller; transcript: Lucía Canjura; transcript reviser: Sebastian del Buey; publication: Mario Pivaral / Carlos Petz
This work is licensed under a Creative Commons 3.0 License Este trabajo ha sido registrado con una licencia Creative Commons 3.0