Viewpoints on Energy, Geopolitics, and Civilization
John Authers / Bloomberg:
When Pensions Fail, People Get Angry
A complicated phenomenon.
Chile has shown the world that inequality will lead to unrest.
The source goes deeper than fuel prices and transport fares.
A Chilean Chill
If there's one thing in this world that unites us all, it's dislike of being criticized by foreigners. Watching Brexit as an expatriate Briton is, I can assure you, very unpleasant. And Chileans have just had a taste of it. Latin America's wealthiest country is suddenly in the spotlight after a shocking breakdown in civil order over the last few days. You can read my column responding to these events here . Many in Chile have now read it, either in the original or in various Spanish translations and commentaries , published in Chile and elsewhere . I've now had a feast of Chilean reaction. It has been interesting.
Violence in Latin America is a complicated phenomenon. If you are interested in reading further, the classic study of the issue is “Children of Cain” by Tina Rosenberg, which is one of the best books I have ever read, and includes a chapter on Chile. When the world has been shown lurid images of a country in flames, and of soldiers beating up protesters in the streets, it's understandable that Chileans are deeply sensitive.
Responses from Chileans via email, and in a long comments thread in El Mercurio, which I recommend for anyone who can read Spanish, fall about equally into two schools. One says that I blamed the mob, and failed to address the violent response by the security forces. The other is convinced that all the trouble has been coordinated, and long-planned, by infiltrators from the socialist redoubts of Cuba and Venezuela. I am not in Santiago and have no means of doing reporting; but the common thread is a reluctance to believe that any normal Chilean citizens were involved in violent protest.
Whether or not the unrest owes something to agitators and a heavy-handed military, we still have to explain how Latin America's most prosperous nation reached the point where people felt the need to take to the streets over the cost of living. On those underlying causes, the dislike for the president — who is a billionaire, and whose brother designed Chile's now deeply unpopular pension system under the Pinochet dictatorship — is plainly profound, and his behavior in the last few days is passionately opposed. There is also frustration with the country's deeply stratified society. And plenty of the rants in comments threads are depressingly familiar, blaming wastrel youths, immigrants and Jewish conspiracies.
Healthcare arises as a crucial issue. Obesity is a fast-growing problem (I did not know this). Chileans variously take this as evidence that the poor aren't in fact that poor, or that the country is falling victim to an American style of indolence. But complaints that hospitals are running out of supplies and that waiting lists are too long recur again and again.
Many criticize me for saying that this was all about transport fare increases — which I think may be down to mistranslation as I describe this as merely the “catalyst” for what happened. But the most interesting comments concern Chile's pension system, previously admired around the world. It has long been unpopular, despite attempts to defend it by the president's brother .
I will quote from the best response I received, which was from Brenda, a Chilean resident. She said:
“Truth is that people are tired of working 40+ years and putting their retirement money into programs which take 10% each month, just so when you finally retire they give you approximately $200 a month which is not enough to finance the cost of living in Chile . And you might say "hey, but why don't they just get their whole ton of money they saved?" No. They can't. Even if someone has a terminal cancer they will not give them the whole amount of money saved because that's not how the system works...
“When our politicians get $11,000 a month but our minimum wage is $469 approximately, which is what most of the country gets a month, that inequality is violent. When our politicians pass laws to raise their wage in less than a week, but laws to have a better health plan and release money for medical supplies take months and months, that's violence.”
As well as being well argued, this also expresses the most potent reason why the situation in Chile should worry the rest of the world. The Chilean pension system has plainly not delivered — and yet many other pension systems have been modeled on it. Providing an adequate pension is a universal problem. In the western world, the focus so far has been on defined benefit plans, where companies are struggling to meet the guarantees they have made to workers. But once people with defined contribution pensions begin to retire in mass, it will grow clear that the same underlying mathematical problems applied to them — and it will be individuals, not companies, who are hit.
So, Chileans, I believe you have shown that inequality will lead to unrest, and that fuel prices and public transport fares are merely the catalyst. Inequality is in many ways the bequest of history, and it has actually diminished slightly over the years in Chile; but it has become intolerable now because Chile's attempts to provide public healthcare and pensions, critical social levelers, are seen by the public to have failed. Thank you. The rest of the world should take note.
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John Authers is a senior editor for markets. Before Bloomberg, he spent 29 years with the Financial Times, where he was head of the Lex Column and chief markets commentator. He is the author of “The Fearful Rise of Markets” and other books. Petroleumworld reprint this article in the interest of our readers.
Editor's Note: This article was originally published by Bloomberg, on Oct. 23, 2019. All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld.
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