A tale of Chilean social security system and how Lewinsky prevented reform of the same in US….

José Piñera was Chile’s secretary of Labor and Social Security and architect of the country’s successful reform of its pension system (now at Cato).

In this speech, he speaks on how the social security system was revamped in Chile but failed in US (due to the famous Clinton-Lewinsky scandal):

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.”

But while Tocqueville’s 1835 treatment contained largely effusive praise of American government, the second volume of Democracy in America, published five years later, strikes a more cautionary tone. He warned that “the American Republic will endure, until politicians realize they can bribe the people with their own money.” 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 help enormously 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.

Nice tale of creating opportunities and missed ones:

But regrettably it was not to be. Just as Clinton was gearing up to reform Social Security, he found himself unexpectedly mired in the Monica Lewinsky scandal. The affair was a disgraceful event indeed, but it was the process of impeachment of the president that buried the possibility of making this reform at that moment.

Reality quickly set in: the besieged president could not deliver on his proposal, no matter how genuinely he knew the country needed it. As a New York Times editorial asserted the day after his address, “since the Republicans control Congress and the impeachment battle will probably leave a bitter aftertaste, the President’s plans are certain to be more of a conversation opener than a blueprint for the future.”

Even though Clinton was acquitted by the Senate and thus allowed to remain in office, the ordeal exhausted both his political capital and his resolve to tackle major reforms. Clinton would not spearhead any major legislation during the remainder of his term. The Social Security time bomb would be passed along to a successor. A vital opportunity had been squandered.

In his 2002 book The Natural: The Misunderstood Presidency of Bill Clinton, Joe Klein, after many hours of conversations with the former president, drew the following conclusion:

The Lewinsky scandal had a powerful, if usually overlooked, impact on the substance of Clinton’s last two years in office as well. When I asked the President what he might have accomplished absent the scandal, he said that he wasn’t sure. When pressed, Clinton acknowledged that he might have been able to reform the Social Security and Medicare systems if the Republicans — and the media — hadn’t been provided with an alternative form of diversion in 1998 and 1999. In fact, Clinton was poised, at the moment he delivered his “Save Social Security First” challenge in the 1998 State of the Union message, to do something few presidents ever had: to end his second term with a valedictory surge of significant accomplishments. He had tamed the Republican Congress. There were huge budget surpluses to play with. “Both parties were behind the curve on the big issues,” said Bruce Reed, Clinton’s domestic policy advisor. … “We could have added a private-investment option on to Social Security benefits.”

As one journalist stated, Clinton sacrificed “an enduring legacy when he had an affair with Lewinsky, the young White House intern. Liberal Democrats were opposed to his pension changes, so to get their support to avoid impeachment, Clinton postponed the package of reforms.”



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