Three months before that Clinton-Lamm conversation about the Chilean system, I had a long lunch in Santiago with journalist Joe Klein of Newsweek magazine. A few weeks afterwards, he wrote a compelling article entitled, “If Chile Can Do It … Couldn’t (North) America Privatize Its Social-Security System?” He concluded by stating that “the Chilean system … is perhaps the first significant social-policy idea to emanate from the Southern Hemisphere” (December 12, 1994).
I have reasons to think that probably this piece got Clinton’s attention and, given his passion for policy issues, he became a quasi-expert on Chile’s social security reform. Clinton was familiar with Klein, who covered the 1992 presidential race and went on anonymously to write the bestseller Primary Colors, a thinly veiled account of Clinton’s campaign.
“THE MOTHER OF ALL REFORMS“
While studying for a master’s and a PhD in economics at Harvard University, I became enamored with America’s unique experiment in liberty and limited government. In 1835 Alexis de Tocqueville wrote the first volume of Democracy in America, hoping that many of the salutary aspects of American society might be exported to his native France. I dreamed of exporting them to my native Chile.
So, upon finishing my PhD in 1974 and while fully enjoying my position as a teaching fellow at Harvard and a professor at Boston University, I took on the most difficult decision in my life: to go back to help my country rebuild its destroyed economy and democracy along the lines of the principles and institutions created in America by the Founding Fathers.
Soon I became Secretary of Labor and Social Security, and in 1980 I was able to create a fully funded system of personal retirement accounts. Historian Niall Ferguson wrote in The Ascent of Money that this reform was “the most profound challenge to the welfare state in a generation. Thatcher and Reagan came later. The backlash against welfare started in Chile.”
Unfortunately, at some point during the 20th century, the culture of self reliance and individual responsibility that had made America a great and free nation was diluted by the creation of an entitlement state, reminiscent of the increasingly failed European welfare state. What America needed was a return to basics, to the founding tenets of limited government and personal responsibility.
In a way, the principles America helped export so successfully to Chile through a group of free-market economists needed to be reaffirmed in their home country through an emblematic reform. I felt that the Chilean solution to the impending Social Security crisis could be applied in the United States. Once my country had finished its transition to democracy and once I had done everything possible to ensure the stability of its free market model and its structural reforms, including my own “educational” presidential campaign in 1993, I decided to dedicate my life to sharing the Chilean Model around the world.
At the same time, at the beginning of 1995, when President Clinton was having midnight conversations about the Chilean Model, I received an extraordinary invitation that would greatly help my fight for America. Ed Crane, co-founder and president of the libertarian Cato Institute, invited me to become a distinguished senior fellow and co-chairman of its Social Security Choice Project. I accepted immediately.
Cato had been publishing books and studies on Social Security and private accounts since 1979 and was then gearing up for a new push. In the following years I traveled around the United States sharing the Chilean experience in conferences, town hall meetings, congressional hearings, and media interviews. The audiences were extremely receptive and interested, but what Milton Friedman called “the tyranny of the status quo” made it difficult for political leaders to embrace such a new solution to the growing Social Security problem.
However, in January 1996, Mack McLarty, President Clinton’s special envoy to the Americas and former chief of staff, traveled to Chile and wanted to know firsthand about the success of the first private personal accounts system in the world. We met for hours and he quizzed me about both the principles and the details of the system. A few weeks later, I received a letter from him with an enthusiastic message: