With the grant from the Latin American Studies Program this summer 2005, I spent five weeks traveling through Chile, conducting interviews with workers and retirees from a variety of jobs and a broad socio-economic spectrum. I began by working with professors from the University of Valparaiso and the University of Chile to gain a better understanding of the details of their social security system, and their opinions on the pros and cons of privatization. After working with the professors, I began the interviews. Throughout the process I heard many personal accounts about effects of privatization and acquired the perspectives of the Chileans, about the successes and failures of their system. Although I head a variety of opinions, the majority of the people I interviewed expressed dissatisfaction.
One of the short comings in the system can be seen among the sector of self-employed workers. The privatized model places a responsibility on independent workers to plan for their future by voluntarily starting a pensions saving account (PSA). Although the idea of individual responsibility is valid, it also carries the assumption that people are in a financial position to allocate their current income for the future. In reality, many people are using every last bit of their income just to get by. When a percentage of workers’ income is not automatically contributed to the PSA by an employer, it inevitably goes to the more imminent expenses such as food, bills, or other everyday living costs. Currently, 89% of self-employed workers are not covered by the system.
Bahía Inglesa is a costal community about 12 hours north of Santiago where a significant portion of the population is self-employed as fishermen or artisans. These workers are dependant on money earned mostly in the tourist season of the spring and summer months. I conducted various interviews in the town and discovered some of the reasons that 89% of self- employed workers are not included in the system.
One man that I interviewed is an artisan and earns his living by making and selling jewelry. He is in his mid-thirties and does not have a PSA because he “has to worry about life one day at a time.” (Interview #4, Bahía Inglesa). I interviewed him in the winter during the low tourist season. He told me that he is living day to day on what he can sell to the occasional tourist that comes through the town. His sporadic earnings in the winter months are not enough to sustain basic needs, thus, he must spend the little savings he has from the previous summer. He feels that it is almost impossible to think of saving for retirement when he must thing about saving for the next off season. Most of the people he knows in Bahía Inglesa are seasonally employed as artisans, fishermen, surf instructors or leaders of other tourist excursions, and are not part of the privatized system either. He feels that one of the downfalls of the privatized pension system is that it excludes such a large amount of the population (at least the population he knows in Bahía Inglesa). He expressed that “maybe the system works better for people that have stable work situations, but it is not effective for seasonal workers.” (Interview #4, Bahía Inglesa).
A fisherman that I interviewed from the same town told me he “had no incentive to put his already insufficient income into a PSA.” (Interview #3, Bahía Inglesa). He said that the income does not grow enough in the PSA and that the companies are the only ones that really benefit. He said that if he had extra income, he would save it to buy his own boat so he and his family could continue to fish and earn a greater profit. This fisherman feels that saving to buy a boat is a more practical for the lifestyle that he lives than contributing to a PSA.
Even many independent workers with comparatively stable financial situations, find it difficult to allocate income for retirement when they seem to have so many current expenses. Manola from Valparaiso, for example, is a single mother of a high school age son and a daughter in college. She is self employed and earns an average income of between 400,000 and 600,000 pesos a month by housing foreign exchange students and providing them with services such as cooking, laundry, and cleaning. Although the family lives in a comfortable house and has a nice lifestyle, Manola is 48 years old and has yet to start PSA. She expressed frustration telling me “every month I tell myself that I am going to start a fund, but something always comes up.” Paying for house upkeep so she is able to continue having foreign exchange students, paying college tuition for her children, and paying costs to the retirement home for her mother are expenses that take priority at the moment. She is concerned for her own retirement and “[has] no idea what [she is] going to do” but cannot neglect her current obligations. I spoke with many of her friends who are also self-employed and are in similar situations. Even when people are not living at the poverty line, it is human nature to secure present necessities before planning for the future. Although advocates claim that the privatized system is effective in providing independent workers with the opportunity to start a PSA, the reality is that most people are in situations that for one reason or another prevent them from doing so.
The effect of privatization on self employed workers is one of the many topics in my interviews that that has not been thoroughly addressed by advocates of privatizing social security in the United States. Many of the people who work on lobster boats in Maine, for example, may face similar challenges to the people who I interviewed in Bahía Inglesa.
Few Chileans reported being satisfied with the relatively new privatized system. Most said that they would have preferred the system from before or some variation. Those who were content with the system were mostly young workers and were not well informed about what they would actually be receiving upon retirement. My experience in Chile this summer leads me to believe that we have many ideological and practical issues that we must discuss before we can even consider the proposals to privatize social security in the United States.