However, there is a country in the world where Labour Day deserves its name. 1 May 1981 was the day when Chile gave its workers the opportunity to opt out of the patronage-driven public pension system, and become individual property-owners instead. Widespread ownership of stocks and bonds was to replace the unreliable promises of the public system – a labyrinth of different pension formulas and entitlement programmes even experts were unable to comprehend. Acquisition of private property via personal retirement savings accounts, with free choice of fund management company, investment strategy and pension payout mode was the new mantra.
And it worked. Historical real returns since May 1981 were around 9%, despite the losses from the current global crisis. Diversification of investment portfolios increased steadily while management fees fell. Ever more people joined the scheme, and the total accumulated asset wealth went through the roof.
Clearly, especially from a liberal perspective, there remains much to be criticised about compulsory saving systems. In countries that have attempted to imitate the Chilean way, pension fund markets are often rigidly regulated. Governments draft people into one particular way of providing for their old age, and prevent the emergence of possibly better ways of doing so. The discovery function of the market is thus severely disabled. Standardisation prevails where flexibility, diversity and adaptability would be required. This raises the question whether government should be involved in old-age provision at all. But the point is that mandatory saving schemes can at least be improved from within through liberalisation, while public PAYGO systems are intrinsically defective.
Chile’s reform did not only create a reliable, lucrative way to secure people’s twilight years. It also took old-age provision largely out of the political machinery, and gave workers a degree of personal autonomy and self-determination that was previously inconceivable. In this sense: Viva el día de los trabajadores!