Vital Connections: Politics, Social Security, and Inequality in Chile

Latin American Politics and Society, Fall 2003 by Kay, Stephen J

Borzutzky, Silvia. Vital Connections: Politics, Social security, and Inequality in Chile. Notre Dame: University of Notre Dame Press, 2002. Notes, bibliography, index, 300 pp.; hardcover $59-95, paperback $27.95.

Chile's 1980 social security reform has served as a model for countries seeking to institute individual pension savings accounts to replace or complement state-sponsored "pay as you go" pension systems. What began as a radical policy experiment implemented by a repressive dictatorship gained legitimacy in the 1990s when it was adopted (in some form) throughout much of Latin America and was endorsed by the World Bank. The debate over individual accounts now rages in the industrialized countries, including, of course, the United States, where George W. Bush made it a prominent plank of his domestic agenda. Social security reform remains an ongoing process in Latin America as well, most notably in Brazil.

While Chile's reform itself is now world renowned, relatively little has been written in English about the historical origins of Chile's social security policies. This gap in the literature has been remedied by Silvia Borzutzky's new book. It provides an empirically rich account of the development of social security policies in Chile in the twentieth century.

One of the book's primary contributions is that it situates the development of Chile's social security reform in a broad historical context. In particular, it traces the link between ideology and policy outcome during the populist period, 1924-64; the Frei administration of 1964-70; the Allende years, 1970-73; and the post-1973 period. Throughout, the author stresses the government's official line, or "dominant narrative," as it evolved over time, in order to illustrate the significance of social security policies to the politics of the day.

The origins of Chile's social security system are traced back to the 1925 Constitution and restrictive labor legislation that divided the working class and created multiple clienteles in search of favors from political parties. Legislators chose to grant pensions to segments of the working class rather than to create a universal program, and henceforth parties competed for votes by offering benefits to urban workers. Chilean populism flourished amid a pluralistic regime and a multiparty system, unlike the forms founded around a personalistic authoritarian leader, such as Peron in Argentina and Vargas in Brazil. Successive governments seeking to reform the bloated social security system were rebuffed by pressure groups composed of the beneficiaries themselves, who had, by this time, considerable clout. As the author puts it, "The same forces that had coalesced to continually approve new social security benefits for small sectors of the population, creating a stratified, unequal, costly, chaotic, and regressive system, coalesced to prevent the establishment of a universal, unified, and more egalitarian system" (p. 68).

In 1964, the incoming Christian Democratic administration led by Eduardo Frei attempted a host of ambitious reforms designed to alleviate the social, political, and economic crisis aggravated by the exhaustion of the import substitution industrialization model. Land reform, political reform, and social security reform were top priorities. What needed to be done with social security was no secret; the 1,600-page Prat Report, completed in 1964, criticized the inefficiency, inequality, and inadequacy of the health, family allowance, workers' compensation, and pension systems and recommended combining the plethora of subsystems into four unified programs. The administration drafted a reform bill that would alleviate inequalities and reduce the number of pension funds, but postponed its introduction in 1966 for other priorities, including the nationalization of Chile's copper production and the agrarian reform. By 1968, the administration had prepared a watered-down bill that included provisions to eliminate privileged public pensions and to establish a uniform retirement age. Yet this bill was also a political nonstarter as opposition to the Christian Democratic administration increased. In the early 1970s, the Allende administration chose not to expend political capital on reforming the pension system and instead prioritized the healthcare sector.

The dictatorship that took power after the bloody military coup in 1973 sought to banish political activity, eliminate the role of political parties, and establish a new legal-juridical order based on the preeminent role of the market and the subsidiarity of the state. The book traces the evolution of policy under the dictatorship, which was, at first, divided between the supporters of neoliberal economic policies and the corporatist generals who favored policy continuity in line with traditional institutions. By the late 1970s, the neoliberals had prevailed. The 1980 Constitution institutionalized the new regime, and a series of reforms known as the "modernizations" set new parameters for the private and public sectors with regard to rural property, education, local governance, and labor laws. Officials in the new regime argued that the market economy would transform every Chilean into a property owner and eliminate poverty, thereby eliminating the threat of Marxism.