Abstract
Since the 1990s, most Latin American countries have significantly expanded noncontributory pension programs. In explaining this wave of expansion, research has focused on the protagonism of left parties and social movements and on electoral competition, generally disregarding the roles of organized business and conservative policy experts. This article demonstrates, through a detailed analysis of Chile’s 2008 noncontributory pension reform, that conservative economists played active roles in formulating a noncontributory pension policy characterized by moderate, targeted, and “incentive-compatible” benefits and financed by the general budget. The conservative design of the program facilitated broad support from employers and private pension funds, critical for the eventual passage of the reform. The analysis illustrates the need to incorporate business interests into explanations of welfare state reforms in Latin America and the broader Global South, in particular by distinguishing the interests of employers and private providers and by focusing on their interaction with conservative policy experts.
Keywords
In 1981, Chile became the first country in the world to privatize its contributory pension system fully, triggering a global wave of policy diffusion. 1 Twenty-seven years later, in March 2008, Chile’s socialist president, Michelle Bachelet, signed into law a major re-reform of the country’s pension system that introduced two new tax-financed benefits: a near-universal minimum pension for those without a private contributory pension and a top-up pension for those with relatively low contributory pensions. The reform doubled public expenditure on noncontributory pensions from 0.4 percent to 0.8 percent of GDP—a significant improvement by Latin American standards. 2 Welfare state scholars have celebrated the reform as the “most important achievement” of Bachelet’s first presidency. 3 It can also be seen as a milestone in the implementation of “basic universalism” in the Global South, referring to the idea “that social policy be oriented toward providing basic income support and access to social services . . . as a social right guaranteed by the state.” 4 With specific reference to Chile’s noncontributory pension reform, Bachelet was later appointed to chair the advisory group that helped develop the International Labour Organization’s 2012 Social Protection Floors Recommendation. 5
Chile’s landmark noncontributory pension reform has generally been viewed as the product of left political strength and increased electoral competition, 6 a perspective, this article suggests, that has been critically incomplete. Chile’s 2008 pension reform was formulated largely by conservative economists and adopted with the broad support of organized business interests. Conservative economists in the finance ministry and the broader pension policy network enjoyed substantial autonomy in designing a noncontributory pension policy characterized by moderate, targeted, and “incentive-compatible” benefits, financed entirely by the general budget. That conservative policy design, together with a favorable macroeconomic context in the mid-2000s, led employers to consent to the reform. The pension fund industry, a particularly powerful segment of Chilean business, also consented to the introduction of the moderate new minimum pension. It even actively pushed for the introduction of the new top-up pension, which functions as a demand subsidy that incentivizes regular private pension contributions. The decidedly conservative policy design and broad business support made opposition support in parliament possible and led to the passage of the reform.
My findings on noncontributory pensions have significant implications for our understanding of recent welfare state politics in Latin America and the broader Global South, where a variety of noncontributory social policies have been expanded over the last two decades. They invite us to revisit the debate over the role of business interests in welfare state development, 7 particularly relevant in Latin America in view of its long history of powerful employer organizations, the emergence of new interest groups of private welfare providers during the neoliberal era, and the continued influence of conservative economic ideas. The strong influence of such conservative interests and ideas forces us to reconsider existing explanations of recent welfare state expansion in Latin America, which have focused on left parties, social movements, and electoral competition.
This article demonstrates that one of Latin America’s most lauded social reforms of the past two decades, Chile’s 2008 noncontributory pension reform, was decidedly moderate, conservative, and business-friendly. 8 It should therefore not be understood as a major political victory for progressive forces. The article does not mean to belittle the positive effect that policies such as noncontributory pensions can have on the social protection of the poor. Nor does it question the theoretical consensus that major social policy expansions are usually initiated by left parties and progressive social movements. Rather, it seeks to highlight the continued influence of conservative interests and ideas, especially those of organized business and conservative economists, which appear to have ensured that many of the social reforms passed in Latin America over the past two decades did not fundamentally challenge the neoliberal model.
The next two sections discuss existing research on the political causes of the recent expansion of noncontributory pensions in Latin America and outline how the Northern literature on the role of organized business in welfare state development can be adapted to provide a useful framework for the analysis of Latin American welfare state development. After a brief discussion of the article’s research design, I conduct a detailed empirical analysis of Chile’s 2008 noncontributory pension reform, with particular focus on the roles of employers, private pension funds, and conservative economists. I then briefly discuss how the emergence of a major pension reform movement (No Más AFP) and a wave of social unrest have led to further rounds of noncontributory pension expansion. I conclude by summarizing the article’s findings on the roles of employers, private providers, and conservative economists and by discussing how these findings might travel to other countries and other social policy areas.
The Expansion of Noncontributory Pensions in Latin America
Since the 1990s, low- and middle-income countries in the Global South have experienced a wave of expansion in the field of noncontributory pensions, a development that has been particularly pronounced in Latin America. 9 Noncontributory pensions are “cash transfers for the old,” 10 usually financed through general taxes, also known as “social pensions” or “social assistance pensions.” 11 A few Latin American countries first introduced noncontributory pensions much earlier (e.g., Uruguay in 1919), but most countries in the region expanded them after the mid-1990s. 12 Noncontributory pension expansion therefore often occurred after the privatization of contributory pension systems that diffused from Chile to many other Latin American countries in the 1990s. 13
This Latin America–wide expansion of noncontributory pensions has motivated welfare state scholars to develop political explanations of the phenomenon, not least to assess the potential for further welfare state expansion in the Global South. 14 A first group of scholars emphasized favorable macroeconomic conditions during the 2000s that substantially increased the capacity of Latin American governments to expand tax-financed social programs. 15 Other scholars have focused on public opinion patterns, arguing that growing economic insecurity and informality have increased popular demand for noncontributory social policy among insiders 16 or that noncontributory programs are among the few welfare state programs that the poor actually support. 17 Yet another group has argued that the wave-like expansion of noncontributory pensions has been aided by increased transnational advocacy in the early 2000s, in particular by HelpAge International, together with regional diffusion dynamics. 18
Regarding the key political actors in noncontributory pension policy at the domestic level, research has tended to focus on the roles of left parties and social movements. Together they are assumed to push for expansion against the resistance of right parties, organized business, and higher-income voters. In their seminal analysis of Latin American welfare state development, Evelyne Huber and John Stephens focus on the balance of class power and argue that left parties were central to the recent expansion of redistributive social policy in the region. 19 Subsequent studies have further developed that theoretical approach, arguing that programmatic left parties with strong constituency ties are more likely to introduce universalistic social policies and that the left’s struggle for social policy expansion can be facilitated by strong labor and social movements. 20
This Latin American power resource theory is well suited to explain some cases of noncontributory pension expansion. In Uruguay, for instance, the center-right Colorado Party increased the age limit for noncontributory pension eligibility from sixty-five to seventy in 1995, as part of a comprehensive pension privatization, whereas the left-wing Frente Amplio government reduced the age limit again to sixty-five in 2007. 21 But power resource theory, at least by itself, struggles to explain many other cases of noncontributory pension expansion. Why, for instance, have right-of-center governments in Colombia and Mexico also expanded noncontributory pension programs? And, especially relevant for this article, why did Chile’s right-wing opposition lend unanimous support to Bachelet’s 2008 noncontributory pension reform?
To explain such cases of right political support for noncontributory social policy, recent studies have looked at growing electoral competition between the left and the right, in particular for the votes of welfare state outsiders. 22 Others have emphasized that noncontributory social policy has encountered limited opposition from nonbeneficiary voters. Alisha Holland and Ben Schneider, for instance, argue that the broad expansion of noncontributory pensions has been possible because those programs are relatively inexpensive and institutionally layered on top of existing contributory pension systems without altering them. That policy design gave rise to “broad political coalitions,” including not only poor beneficiaries but also the “wealthy, professional middle-class and labor-market insiders.” 23 Taken together, such studies suggest that the expansion of noncontributory pensions across Latin America has been made possible by support from nonleft political parties and nonbeneficiary voters, support that, in turn, is rooted in the specific policy design of noncontributory pensions.
Although these recent contributions on bipartisan political dynamics have critically advanced the debate over the causes of the wave-like expansion of noncontributory pensions in Latin America, the literature still fails to take into account one of the single most influential actors in Latin American politics—organized business. 24 The few studies that consider it question the relevance of noncontributory pensions to organized business and, conversely, the relevance of organized business for noncontributory pension reforms. Christina Ewig and Stephen Kay, for example, argue that Chile’s “private pension funds did not oppose the introduction of the Basic Solidarity Pension” because the pension “did not directly affect the system of individual accounts.” 25 Similarly, Tomás Bril-Mascarenhas and Antoine Maillet assert that noncontributory pensions are “an area of pension regulation in which [private pension funds] had no strong preference against or in favor of such reform.” 26 Others suggest that organized business interests have in general been relatively inconsequential for Latin America’s recent social policy expansion, with Tasha Fairfield and Candelaria Garay arguing that business plays only an indirect role for social policy expansion by constraining available tax revenues. 27
Such widespread disregard of the role of organized business and its allies in the literature on Latin American welfare state development is puzzling given the general importance of organized business in Latin American politics. As Ben Schneider succinctly put it, in “every country of Latin America . . . vast, diversified, family-owned conglomerates, best known as business groups, control large swaths of their economies and wield enormous political power. Why, then, does nearly everyone ignore them?” 28 Indeed, recent scholarship has demonstrated that “political systems and practices in Latin America are remarkably accommodating for business interests, especially narrow or individual interests of big business.” 29 Organized business is especially influential in Latin American pension politics, where a privatization wave in the 1980s and 1990s gave birth to a powerful new interest group—private pension funds. 30 Given the pronounced power of organized business interests in Latin America, it seems evident that a comprehensive account of the region’s recent wave of noncontributory pension reforms must consider their role in the policy process.
Employers, Private Providers, and Conservative Economists in Welfare State Reform
In examining the expansion of noncontributory pensions in Latin America, a useful point of departure is the literature on the role of organized business interests in the historical development of European and North American welfare states. 31 The standard view is that employers generally oppose welfare state expansion, as it increases taxes and decreases labor supply and productivity, thus reducing profitability. 32 That view was challenged by scholars who asserted that employers may actually initiate welfare state expansion, in particular businesses that are large, in need of skilled employees, or exposed to international trade. 33 Even if some employers might ultimately benefit from a larger welfare state, historical analyses suggest that they seldom initiated welfare state expansion. 34 Despite its internal disagreements, this literature demonstrates that the power and interests of organized business matter greatly for welfare state reforms and therefore need to be studied empirically. While providing the basis for a useful analytical framework, this literature has three important shortcomings that must be addressed before it can be applied to the analysis of noncontributory pension reforms in Latin America.
The first shortcoming has been an almost exclusive focus on the protagonists of welfare state expansion and a discounting of the causal relevance of “mere consenters.” At the height of the debate over capitalists’ role in early Northern welfare state expansion, Walter Korpi introduced a useful distinction between three kinds of actors: “protagonists” set the agenda and initiate welfare state expansion, “consenters” later agree to welfare state expansion as a second-best option, and “antagonists” persistently oppose welfare state expansion. 35 Korpi convincingly argued that employers are unlikely to be protagonists of significant welfare state expansion, even though they may frequently become consenters. But Korpi also discounted the causal relevance of consent, arguing that “the extent to which such interest organizations [of the rich] become consenters rather than antagonists . . . is not critical to analyses of the origins of that expansion.” 36 However, understanding why organized business interests sometimes consent to expansionary social reforms is crucial for understanding why such reforms succeed or fail, especially in countries where business power is continuously high. More recently, Thomas Paster argued that when “other actors promote the adoption or expansion of social programs and these plans appear likely to succeed . . . employers will try to limit the reform effort by promoting policy choices that are less costly to them but that still appear capable of winning a majority.” 37 But the types of social policies that are acceptable to employers and other business interests under such conditions remain unclear.
A related second shortcoming of the literature on business and welfare state development is its almost exclusive focus on employers. This comes at the neglect of private providers, such as financial service providers or pharmaceutical producers, who play an increasingly important role in contemporary political economies. There is no reason to assume that the interests of providers regarding welfare state development are the same as those of employers (who relate to the welfare state primarily through the taxes they pay). Studies that do consider the reform interests of private providers suggest that they favor privatization and retrenchment. For instance, financial service providers supported pension system privatizations across Latin America. 38 The private insurance industry was also one of the main supporters of partial pension privatizations in Europe. 39 Given that public provision is the antithesis of private provision, the financial sector’s preference for less public and more private provision is hardly surprising. 40 In contrast, private providers may well support higher public spending, as long as it finances more private provision. In the United States, for instance, the pharmaceutical industry supported both the Bush administration’s 2003 Medicare Modernization Act and the Obama administration’s 2010 Affordable Care Act, as both reforms promised large increases in pharmaceutical market size while not introducing significant price controls. 41 History thus suggests that including provider interests in the analysis of welfare state reforms is crucial, as providers can apparently be forces of either retrenchment or expansion.
A third and final shortcoming has been the literature’s neglect of the role of conservative economists as potential allies of organized business. 42 As like-minded government technocrats and policy advisers, conservative economists—including radical neoliberals as well as more centrist liberal-conservatives—can influence welfare state reforms in the direction of business interests 43 and may also contribute to guiding and articulating private-sector perspectives on concrete reform proposals. Although economists at times may be “captured” by the business community, 44 through lucrative consulting engagements, for example, they often remain relatively autonomous. Indeed, Eduardo Dargent has argued that “proximity” between economic experts and business should not be mistaken for “dependence.” 45 Conservative economists’ support for business-friendly policies is in large part due to the elective affinity between their economic convictions and the private sector’s rational self-interest in, for instance, privatization or lower taxes. The role played by such business-friendly but independent economists is distinct from the more instrumental role of the business community’s “own” economic experts, especially those employed by business-financed free-market think tanks. 46 The independent influence of conservative economists on welfare state reforms is particularly plausible in Latin America, with its long history of technocratic policymaking and liberal-conservative economic thought. 47
In this article, I propose that taking into account the roles of employers, private pension providers, and conservative economists is central to explaining the recent wave of noncontributory pension reforms across Latin America as well as the generally conservative design of these reforms. I will demonstrate that all three groups played significant roles in the formulation and introduction of Chile’s landmark 2008 noncontributory pension reform. The influence of organized business interests and conservative economists was mutually constitutive. The anticipated veto power of employers and private pension funds arguably contributed to the appointment of conservative economists to key technocratic positions, as they were more likely to formulate policies capable of winning over business (and opposition) support. The central role of conservative economists, in turn, contributed to the formulation of a noncontributory pension policy that was decidedly conservative in design and hence fundamentally agreeable to employers and private providers.
Research Design
To investigate the roles of employers, pension funds, and conservative economists in Latin American noncontributory pension reform, I focus on the Chilean case. As discussed above, theories of noncontributory pension expansion that focus on the protagonism of left parties and social movements can relatively easily explain cases in which such progressive protagonists were strong, such as Argentina, Bolivia, Ecuador, and Uruguay. But they struggle to explain cases in which progressive protagonists were weaker, such as Chile, Colombia, Mexico, and Peru. To develop an explanation of noncontributory pension expansion in countries with weaker progressive protagonists—and thus of the wave-like expansion of noncontributory pensions—I conduct a case study of Chile’s 2008 noncontributory pension reform. Despite four consecutive center-left governments between 1990 and 2010, Chilean welfare politics have long been characterized by strong conservative opposition. After Chile’s return to democracy, employer and provider associations were able to prevent major social reforms in the fields of health, pension, labor, and tax policy. 48 Much has also been written about the influence of conservative economists and technocrats in preserving Chile’s neoliberal economic model. 49
Focusing on the case of Chile also allows me to deal with a particular methodological problem that complicates analyses of business interests in welfare reform. The “problem of preferences” refers to the difficulty of determining “whether a particular policy stance reflects a genuine preference or reluctant acquiescence in light of a weak political position.” 50 Studying the case of Chile provides leverage over this problem, as preference misrepresentation should theoretically be more likely in periods of relatively low business power such as Bolivia during the Morales years. Chile during the 2000s, in contrast, represents a case of relatively high business power and therefore a least likely case of preference misrepresentation by organized business.
My analysis of Chile’s 2008 pension reform is based on a wide range of sources, including statements by business associations in expert and parliamentary committee hearings as well as internal statements by business associations and business-financed think tanks, going back to the 1980s. The article also draws on twenty-one semistructured interviews with policymakers, business representatives, and conservative economists, conducted between November 2016 and December 2017. Based on this data, I process-trace the formulation and adoption of the reform’s noncontributory pension component, in order to establish the causal connection between the active role of conservative economists, support by employers and private pension funds for a conservative policy design, and the eventual adoption of noncontributory pension expansion in 2008.
The Politics of Chile’s 2008 Noncontributory Pension Reform
All contemporary Chilean pension politics must be understood against the backdrop of radical pension privatization. Chile’s previously public pay-as-you-go pension system was dismantled during the dictatorship of Augusto Pinochet. 51 The 1981 reform privatized contributory pensions—except those of the armed forces—and created mandatory private pension funds (Administradoras de Fondos de Pensiones, AFPs). 52 In the new privatized system, savers’ pension entitlements are a direct function of the contributions they have made throughout their working lives and of pension funds’ performance in managing their savings. Privatization therefore eliminated mechanisms of redistribution within the contributory pension system.
The reform did maintain, however, two tax-financed pension benefits. First, dating back to 1975, a social assistance pension (Pensión Asistencial, PASIS) provided a means-tested minimum pension benefit, the value of which in 2003 was 37,412 Chilean pesos (CLP), at the time equivalent to 52 USD or 32 percent of the Chilean minimum wage. 53 Besides the relatively low value, a key limitation was that the social assistance pension program provided only a limited number of new pensions each year, which gave rise to wait lists and made the program effectively nonuniversal. Second, the state provided a minimum pension guarantee (Pensión Mínima Garantizada, PMG) to all those who had contributed to the private pension system for at least twenty years. In 2003, the value of the minimum pension guarantee was 75,211 CLP (104 USD) or 65 percent of the minimum wage. The state would finance beneficiaries’ pensions at the level of the minimum pension guarantee after their accrued private savings were used up. 54 A major shortcoming of the minimum pension guarantee program was that only few Chileans ever qualified for it, as the great majority of pension fund affiliates that achieved a contributory pension below the level of the minimum pension guarantee had not made contributions for at least twenty years. Figure 1 schematically depicts Chile’s pension system before the 2008 reform.
Chile’s Pension System before the 2008 Reform.
The socioeconomic system created under military rule was largely maintained initially after Chile’s democratic transition in 1989–90. However, reform pressure rose in the 2000s. Pension reform was considered but not pursued under the administration of Ricardo Lagos (2000–2006) and then became a key issue of Bachelet’s 2005 presidential campaign. Bachelet announced in a television debate that large-scale pension reform would be her first legislative project to address social inequality and that she would make the PASIS program a “universal right.” 55 Her campaign manifesto specifically committed to three overarching reform objectives, namely, increasing the density of contributions to the contributory private pension system, which she acknowledged as the ultimate key to higher pensions; reducing discrimination within the pension system against women and low-income workers; and increasing the financial return on pension savings by reducing administrative costs and increasing competition among pension funds. In particular, Bachelet promised to “restructure and consolidate” the pension system’s “solidarity pillar,” representing society’s guarantee of a minimum standard of social security. 56
After Bachelet’s second-round victory against Sebastian Piñera in January 2006, she assembled an expert commission, known as the Marcel Commission, to develop a detailed reform proposal from her campaign promises. On the basis of the commission’s proposal, the government prepared a draft bill, passed with some changes by the congress in January 2008. The law introduced two new noncontributory benefits: the Pensión Básica Solidaria (PBS), a minimum pension of 75,000 CLP (151 USD), and the Aporte Previsional Solidario (APS), a noncontributory top-up benefit (linearly decreasing from 75,000 CLP) for pensioners with contributory pension entitlements up to 255,000 CLP (512 USD). Both the PBS and the APS are targeted at the poorest 60 percent of the population and are regularly adjusted for inflation. Figure 2 schematically depicts Chile’s pension system after the 2008 reform.
Chile’s Pension System after the 2008 Reform.
Chile’s 2008 reform significantly increased the coverage of noncontributory pensions. The coverage of the PASIS program had evolved from 0.31 million in 1990 to 0.45 million in 2007. In contrast, the new PBS (0.58 million) and APS (0.75 million) programs covered a total of 1.33 million people in December 2015. 57 The reform also led to a significant increase in public expenditure on noncontributory pensions (PASIS, PMG, PBS, and APS), which had remained relatively stable, between 0.25 percent and 0.4 percent of GDP, from 1990 to 2007. Expenditure increased from 0.36 percent of GDP just before the reform in 2007 to 0.79 percent of GDP when the reform was fully implemented in 2012, indicating an increase of 0.43 percent of GDP due to the reform. Figure 3 shows that PBS expenditure increased initially but then fell and that the lion’s share of the increase comes from the APS program.
Public Noncontributory Pension Expenditure in Chile, 1990–2017.
Although I agree with Evelyne Huber and John Stephens, who view the reform as an “important move toward noncontributory basic income security,” 58 it is important to note that its policy design was decidedly conservative. Following Bachelet’s 2005 campaign promise to make the PASIS program a “universal right” and to create a “solidarity pillar” that guarantees a minimum standard of social security, a variety of policy designs were possible. 59 The government could have proposed a truly universal solidarity pension, paid to all Chileans on the basis of citizenship. 60 The left-wing economist Manuel Riesco had, for example, developed a proposal of a public solidarity pension, initially 100,000 CLP per month, that would cover 85 percent of the elderly. 61 Instead, the government’s bill proposed a means-tested minimum pension of 75,000 CLP, targeted at the poorest 60 percent of the population. The Bachelet government could further have proposed to finance the expanded first-pillar pensions through additional income taxes or social security contributions, rather than the general budget, which would have made the reform more redistributive. 62
Existing Explanations of Chile’s Noncontributory Pension Reform
To explain the passage of Chile’s 2008 noncontributory pension reform politically, Huber and Stephens develop a partisan account, according to which the reform was driven by the ascendance of left-wing parties, in particular the presidencies of Ricardo Lagos and Michelle Bachelet. 63 In contrast, Candelaria Garay argues that the Pensión Básica Solidaria was introduced because of increased electoral competition between left and right parties for the votes of welfare state outsiders. Garay demonstrates that competition for outsider votes, which had been very low during the 1990s, significantly increased in the 2000s, and she calculates that in the January 2006 presidential runoff election between Bachelet and Piñera “close to 60 percent” of outsider districts experienced electoral competition. She argues that “fearing electoral defeat . . . Bachelet initiated social policy expansion to ensure the support of outsiders and the continuity of the Concertación in office.” 64
Bachelet’s noncontributory pension reform received broad support from the right-wing opposition. The final bill was approved with unanimous bipartisan support in the House of Deputies in January 2008, that is, with the support of all right-wing congressmen. 65 The Senate had previously approved the bill, after the Senate’s joint Finance and Labor and Social Security committee had not only left intact the government’s proposed noncontributory pension programs but unanimously agreed to increase the eligibility threshold for the Aporte Previsional Solidario benefit from CLP 200,000 to 255,000. 66 That support from the right-wing opposition is significant because the right had the power to seriously challenge the expansion of noncontributory pensions. By January 2008, the ruling left-wing Concertación no longer had a majority in the Senate, after the senators Fernando Flores and Adolfo Zaldívar had left their parties and realigned with the right-wing opposition. 67 The new alliance of the right-wing Alianza with Flores and Zaldívar, controlling nineteen of the Senate’s thirty-eight seats, had already eliminated the pension bill’s most controversial component, the creation of a public pension fund. 68 Those nineteen senators also had the votes to challenge noncontributory pension expansion. Instead, they unanimously approved it.
The question, then, is why Chile’s right-wing opposition lent its support to Bachelet’s noncontributory pension reform, which many analysts have considered a partisan issue. I agree with Garay that electoral competition played an important role. After all, poor voters, the primary beneficiaries of the Pensión Básica Solidaria and Aporte Previsional Solidario benefits, turned into an increasingly important constituency of the right-wing Alianza during the 2000s. As Juan Pablo Luna demonstrates, in the 2001 and 2005 elections, the right-wing Unión Demócrata Independiente was “the fastest growing political party among the country’s poorest [bottom 10 percent of] districts.” 69 At the same time, the density of private pension fund contributions among the poorest 10 percent of the Chilean population was only 1.1 percent in the early 2000s, 70 meaning that the poorest 10 percent of the population was set to gain the most from noncontributory pension expansion.
Although the right’s electoral calculations were certainly important in motivating its support for the government’s noncontributory pension reform, that account ignores the existence of significant constraints on the right’s policy positions. It misses the fact that the Alianza—as well as the more conservative forces within the Concertación, namely, the Partido Demócrata Cristiano—were able to support the government’s reform proposal because noncontributory pension expansion enjoyed the consent of organized business, a powerful actor in Chilean politics.
The Centrality of Business Support for Reform Passage
The disregard of the role of organized business in existing explanations of Chile’s noncontributory pension reform is striking, given the consensus on the high power of business in Chilean politics in general and over pension policy in particular. 71 It is beyond the scope of this article to discuss in detail the power sources that Chilean business exerts over pension policy. However, I begin this section by introducing three of the most relevant sources of instrumental power, namely, business cohesion, partisan linkage, and technical expertise. 72
That Chile’s business sector is among the most cohesive and well organized in Latin America 73 strengthens its position in bargaining with policymakers and reinforces the legitimacy of that position by making it appear more universal. 74 Chile’s business sector is led by an economy-wide employers association (Confederación de la Producción y del Comercio, CPC) and a manufacturing industry association (Sociedad de Fomento Fabril, SOFOFA). Chile’s private pension funds are organized in a well-funded sectoral association (Asociación Gremial de Administradoras de Fondos de Pensiones, AAFP) and are also dominant in the Santiago-based international pension fund association (Federación Internacional de Administradoras de Fondos de Pensiones, FIAP). 75 Both employer and provider associations largely acted in unison with regard to Bachelet’s pension reform proposal. This cohesion also has a material dimension. Private providers naturally support the privatized pension system, as it is the sine qua non of their business activity. For employers, the private pension system is a major source of capital and credit. By the 2000s, private pension funds had “become the most important minority shareholders in most of Chile’s listed corporations, and a major source of debt financing for public and private companies.” 76 Private pension funds are therefore both a significant owner and a creditor of Chile’s general business sector, which enhances cohesion between employers and providers.
The power of employers and providers over pension policy is also rooted in a strong partisan link with Chile’s right-wing parties. Organized business is the core constituency of the Unión Demócrata Independiente (UDI) but is also well connected with Renovación Nacional (RN). 77 One dimension of this linkage is financial. In 2005 and 2009, UDI and RN (followed by the centrist Partido Demócrata Cristiano) received the largest amounts of so-called reserved campaign contributions, 78 which are usually made by business groups and wealthy individuals. 79 Another dimension is personnel. A large number of UDI and RN party leaders have held top positions in the private sector, particularly in the financial sector. 80 This link is particularly clear in the case of private pension providers. Guillermo Arthur, for instance, a founding member of UDI and former labor minister under Pinochet, led the sectoral association (AAFP) between 1999 and 2014 and has been leading the international pension fund association (FIAP) since 2014.
A third key channel of business power over pension policy has been the private sector’s technical expertise, which is produced and transmitted by a series of business-financed free-market think tanks. In the field of pensions, the three most influential think tanks have been the Center of Public Studies (Centro de Estudios Públicos, CEP), Liberty and Development (Libertad y Desarrollo, LyD), and the Corporation for Research, Study and Development of Social Security (Corporación de Investigación, Estudio y Desarrollo de la Seguridad Social, CIEDESS). CEP and LyD are general think tanks that work across a broad range of policy areas. 81 CEP, for instance, was led and financed, from 1987 to 2015, by Eliodoro Matte Larraín, longtime chairman of the Matte group, Chile’s third-largest business group. 82 CIEDESS is a more specialized social security think tank. It is operated by the Chamber of Construction (Cámara Chilena de la Construcción), one of Chile’s best-organized and most influential sectoral business associations, which also owns 40 percent of the pension fund AFP Habitat. CIEDESS has the capacity to “crunch numbers” and prepare complex technical reports and is often commissioned by business associations as well as state institutions. The business sector’s technical expertise in the field of pension policy led to its substantial representation in the Marcel Commission. Of the fifteen commission members, three were working or had worked directly for a private pension fund (Axel Christensen, Martín Costabal, and Augusto Iglesias), and two were working for business-affiliated think tanks (Harald Beyer and Rossana Costa).
Given those levels of cohesion, technical expertise, and partisan linkage, it appears that Chile’s employers and pension funds had the power to derail Bachelet’s noncontributory pension reform. As a matter of fact, that is exactly what occurred with regard to another component of the 2008 pension reform, namely, the proposed creation of a public pension fund, strongly opposed by AAFP and FIAP and eventually eliminated from the bill by the right-wing opposition in the Senate. 83 Noncontributory pension reform, in contrast, passed the Senate unanimously. What then were the interests of employers and pension funds regarding noncontributory pensions? And how did those interests influence the reform process?
Drawing on Korpi’s classification of business actors as protagonists, consenters, or antagonists, 84 the remainder of this section discusses the positions and interests of organized employers and providers regarding noncontributory pension reform, distinguishing their positions regarding the Pensión Básica Solidaria and the Aporte Previsional Solidario programs. Employers were concerned primarily with the potential fiscal effects of a noncontributory pension reform, whereas providers were concerned with its implications for privatized second-pillar pensions. However, the reform’s conservative policy design and the macroeconomic context at the time neutralized those concerns and gave rise to broad consent by organized business. In the case of the Aporte Previsional Solidario benefit, private providers even acted as protagonists. Table 1 summarizes what kinds of actors organized business interests were with regard to the two different components of noncontributory pension reform.
Business Interests in Chile’s 2008 Noncontributory Pension Reform.
Organized employers’ main concern with noncontributory pension reform was its potential cost and financing. For instance, the economy-wide employers association (CPC) argued that noncontributory pension benefits should be financed by the state’s general budget and not by additional mandatory contributions or a redistributive “solidarity fund.” 85 CPC also emphasized that the reform should involve neither increases in (employer or employee) contributions nor increases in taxes. 86 Similarly, the manufacturing industry association (SOFOFA) emphasized that the poor should be helped by the state but that it was “most important . . . to facilitate and incentivize [private] saving,” so as to “minimize the fiscal burden.” 87 In particular, SOFOFA argued that the level of the new noncontributory pensions should rise only as more fiscal resources become available over time because of the decreasing transition cost. During a later hearing in the House Finance Committee, CPC again emphasized the importance of “maintaining a fiscal equilibrium” with the planned introduction of new social assistance pensions, noting that “it is imperative not to give in to pressures to raise the [Pensión Básica Solidaria].” 88
Favorable macroeconomic context and conservative policy design helped counter employers’ fiscally centered opposition to the reform. The years leading up to noncontributory pension reform were, in fiscal terms, among the best in Chilean history. The government’s budget surplus steadily rose from 2.1 percent in 2004 to 8.8 percent in 2007 (a trend reversed by the 2008 financial crisis). Capitalizing on those surpluses, the Lagos administration, in December 2006, introduced the Pension Reserve Fund, which annually receives between 0.2 percent and 0.5 percent of GDP, to serve as a supplementary funding source for noncontributory pension expenditure. The 2000s were also an inflection point for public pension expenditure. The 1981 reform required the Chilean state to shoulder the massive transition cost implied by pension privatization: annually between 5 percent and 7 percent of GDP during the 1980s and 1990s. 89 Yet by the mid-2000s, the operational deficit was projected to decline steadily over the following years, 90 freeing up resources for higher noncontributory pension expenditure without the need to increase taxes. Those trends allowed the Bachelet government to present its reform proposal as inexpensive, if not fiscally neutral. It appears that a key mechanism linking fiscal policy space and welfare expansion is the facilitation of business consent. 91 Counterfactually speaking, if noncontributory pension expansion had required increases in taxes or social security contributions to finance additional expenditure of around 0.4 percent of GDP, employer organizations would have likely opposed the reform.
It is important to emphasize that Chilean employers, in line with power resource theory, were no protagonists of noncontributory pension expansion. Employer association leaders were mostly silent on the issue during the 1990s, apparently of the opinion that the existing social assistance pension and minimum pension guarantee programs were sufficient. The CPC’s president in 1995, for instance, emphasized that the existing minimum pension guarantee, as a support measure “only for the most needy,” was a correct expression of the “subsidiary role of the state.” 92 However, when Lagos and Bachelet began working on noncontributory pension reform in the 2000s, employers consented, given the favorable macroeconomic conditions at the time and the reform’s conservative policy design.
Whereas employers were concerned primarily with the cost of noncontributory pensions, private pension funds were more concerned with their design and implications for second-pillar pensions. During a congressional hearing on the draft bill in August 2007, the president of the pension fund industry association (AAFP), Guillermo Arthur, mentioned the “strengthening of the noncontributory pillar” and its “better integration with the contributory [AFP] system” as the number one “positive aspect” of the draft bill. 93 To understand this apparent support from the pension fund sector, it is important to recall that the reform introduced two separate noncontributory benefits: a minimum pension and a top-up pension. The pension fund industry’s support for the new minimum pension, the Pensión Básica Solidaria (or PBS), was largely passive and arguably driven by a desire to avoid a more progressive reform and to enhance the legitimacy of Chile’s privatized contributory pension system. That strategic support was possible because the proposed PBS benefit was low and sufficiently targeted so as not to affect the market of private pension funds negatively.
Although the pension fund sector “merely” consented to the introduction of the PBS, it acted as a protagonist with regard to the reform of the minimum pension guarantee and the eventual introduction of the Aporte Previsional Solidario (APS). A reform of the minimum pension guarantee was relevant to the pension fund sector for its potential to incentivize lower-income groups to contribute regularly to their respective pension fund, thus increasing “contribution density.” 94 Initially, that is before and during the consultations of the Marcel Commission, private providers supported the idea of introducing a gradual minimum pension guarantee, 95 although it was clear that doing so would increase take-up and thus the fiscal cost of the program. 96 After the Marcel Commission dropped the idea of a gradual minimum pension guarantee in favor of a gradual demand subsidy (the APS benefit), private providers supported that idea just as strongly. A very strong indication that private providers had a genuine (rather than just a strategic) preference for the APS was given during a congressional hearing when AAFP’s president, Guillermo Arthur, closed his testimony by proposing that APS benefits should be introduced less gradually than the government itself had proposed. 97
Further evidence for the protagonism of private providers comes from an early AAFP report examining policy options to increase incentives for independent and informal-sector workers to make regular pension contributions.
98
The report discusses a gradual minimum pension guarantee, pointing out that this option had first been proposed by the pension fund sector in 2001 and 2002.
99
The report suggests that a gradual minimum pension guarantee would be effective in incentivizing continuous contributions and would have only moderate fiscal cost. Remarkably, the report also discusses the idea of a demand subsidy, as eventually introduced in form of the APS in 2008.
100
The report considers such a subsidy potentially more effective than a gradual minimum pension guarantee but notes that it may not be an easy political sell, as it was probable that some groups would argue that workers should not be subsidized to buy a program from a private provider and that, in consequence, they would use the opportunity to argue that subsidized independent workers should instead be affiliated with . . . a public pension fund.
101
The broad support by employers and providers was reflected also in the work of business-affiliated think tanks. Liberty and Development, the Center of Public Studies, and CIEDESS all brought up the same issues: new noncontributory pension benefits should be financed through the general budget and should be incentive-compatible. A CIEDESS informant emphasized that organized business would never propose to raise new taxes to finance additional expenditure for higher Pensión Básica Solidaria (PBS) and Aporte Previsional Solidario (APS) benefits. Instead, increases should always be financed through the reorganization of public finance and by “spending less on ineffective programs.” The same informant also emphasized the importance of incentive compatibility, arguing that the level of APS eligibility should always rise with the level of the PBS benefit, in order to “maintain incentives to contribute.” 102 An informant with Liberty and Development made clear just how acceptable the 2008 noncontributory pension reform was for organized business, telling me that “if we decide to introduce solidarity to the pension system, then this [pointing at a graphical illustration of the PBS and APS] is the way to do it.” 103
The view that basic noncontributory pensions were the appropriate instrument to make Chile’s pension system more redistributive was not new among the right and the private sector. In a 1988 contribution, a right-wing social security regulator and two business executives responded to criticisms that Chile’s privatized pension system was unsolidaristic, arguing that if one’s aim was to help the chronically poor, “the most appropriate way to achieve this is to increase the amount of the [minimum pension guarantee and social assistance pension benefits], instead of infringing on the efficiency of the pension system by trying to pursue two different purposes with a single instrument.” 104
Although employers, providers, and their allied think tanks did not actively push for noncontributory pension reform, they clearly had a preferred policy design should the government decide to reform noncontributory pensions, namely, a tax-financed expansion of targeted and relatively low benefits that were “incentive-compatible,” so as to maintain or even increase individual incentives to contribute to the private pension system. Given organized business’s clear consent and its high political power (in particular in 2008, when the left had lost its Senate majority), one can conclude that business consent was central to the passage of Chile’s landmark noncontributory pension reform.
Facilitating Business Support: Conservative Economists
One might be tempted, in view of organized business’s broad support of noncontributory pension reform, to assume that business directly influenced the conservative policy design of the reform through lobbying. However, business support was mostly post hoc, and the conservative design of Chile’s noncontributory pension reform was the result of the substantial autonomy enjoyed by conservative economists in Chile’s pension policy network. 105 Specifically, the fiscal conservatism of the reform (key to facilitating employer consent) was shaped by the conservative economists in charge of Chile’s Finance Ministry, while the incentive-compatible design of benefits (key to facilitating pension fund support) was shaped by the even more conservative economists who have long dominated Chile’s broader pension policy network. Conservative economists shaped Chile’s noncontributory pension reform through a variety of roles. Some were technocrats with direct political power, while others worked at universities or think tanks and enjoyed more indirect influence. Some were from the center-left government’s own conservative wing; others were directly associated with Chile’s political right.
The first major policy network involved in the reform’s policy elaboration was situated within and around Chile’s powerful Finance Ministry (Ministerio de Hacienda). At the center of this network was Alberto Arenas, the Hacienda’s budget director and member of Bachelet’s Socialist Party (Partido Socialista de Chile). Arenas had long studied Chile’s pension system, including in a PhD dissertation written at the University of Pittsburgh under the supervision of Carmelo Mesa-Lago, one of Latin America’s most distinguished social security experts. The second key person in this network was Mario Marcel, Arenas’s former mentor and predecessor as budget director, who eventually became the president of the 2006 Marcel Commission (and since 2016 has been the head of Chile’s central bank). Also a Socialist, Marcel had a strong reputation as a fiscal conservative. He had been a key figure behind the introduction of Chile’s fiscal rule, and during his tenure as budget director, the Hacienda also introduced the Pension Reserve Fund mentioned above. The business community clearly welcomed Marcel’s key role in the policy process. As one AAFP informant put it, “When we heard that Mario Marcel was in charge, we were very happy. We knew this would be a reasonable process,” adding that Mario Marcel was “just as free-market as the opposition.” 106 Another AAFP informant pointed out that the Marcel Commission was “a success,” because Marcel had previously worked in the Hacienda, which organized business viewed as a safeguard against radical changes. 107 The presence of these two fiscally conservative technocrats helped reassure organized business, employers in particular, that the proposed noncontributory pension reform would be fiscally “responsible.” And indeed it was the policy network around Arenas and Marcel, together with President Bachelet, who decided on several basic parameters of the reform, including the maintenance of fully funded second-pillar pensions, a commitment to the “fiscal sustainability” of the reform, and the financing of the reform by general tax revenue—all supported by organized business.
Although these Hacienda-based fiscal conservatives made key decisions concerning the (limited) cost and (indirect) financing of the reform, they left questions of benefit design largely open. What should the new noncontributory pension look like? The answer was delegated to another group of conservative economists and social security experts, several of whom had a background of working for or with the pension fund industry. Those conservative experts came together in the Marcel Commission but also included others who were not formal commission members, most notably Guillermo Larraín and Salvador Valdés, key protagonists in the design of Chile’s noncontributory pension reform. Mario Marcel presided over the Marcel Commission, which gave the Hacienda significant overview and control, but the critical issue of benefit design appears to have been decided by the commission itself, and in particular by its working group on noncontributory pensions.
When the Marcel Commission began discussing the policy design of noncontributory pensions, it could draw on a rich body of research and concrete proposals. Those proposals had been developed during the Lagos presidency, which had planned to introduce a reform bill but later abandoned the idea. 108 Developed by conservative economists, those proposals were concerned more with the reform of the existing top-up benefit (PMG) than with the reform of the existing minimum pension (PASIS). Many of the proposals were presented and discussed at the November 2004 seminar “Challenges of the Chilean Pension System: Competition and Coverage,” jointly organized by the Chilean Pension Superintendency and the business-financed Center of Public Studies. They all displayed fundamental support for Chile’s private second-pillar pension system and identified increasing the density of private contributions as the major challenge to increasing the coverage of the pension system. To achieve that density, the proposals focused on a reform of the minimum pension guarantee to create stronger incentives for private contributions, in particular by informal workers.
The proposal of a gradual minimum pension guarantee was developed in detail by the Pension Superintendency, which from 2003 to 2006 was under the leadership of Guillermo Larraín, a member of the centrist and economically liberal Partido Demócrata Cristiano and who had previously worked in the research department of one of Chile’s pension funds (BBVA Provida). Under Larraín, the Pension Superintendency developed the concrete proposal of a gradual minimum pension guarantee, which after an initial level of ten contribution years would reach a higher level each 2.5 additional contribution years. In his 2006 presentation to the Marcel Commission, Larraín pointed out that each of these steps would have an “incentive effect” for workers to make regular pension contributions or to pressure their employers to make them. In that way, a gradual minimum pension guarantee would “generate a positive culture of responsibility and involvement with the pension system.” 109
At the same time that Larraín and the Pension Superintendency proposed the gradual minimum pension guarantee, which was already economically liberal and had the support of private providers, 110 the decidedly conservative economist and pension expert Salvador Valdés developed a competing proposal of a gradual demand subsidy. Valdés, a professor at Chile’s Catholic University with close ties to the Unión Demócrata Independiente, first outlined his idea in a paper jointly written with Harald Beyer, the academic coordinator of the Center of Public Studies (CEP), 111 which Valdés later specified for CEP’s presentation to the Marcel Commission in 2006. 112 Although Valdés was a vigorous supporter of Chile’s private pension system, he was also a vocal critic of the “bad design” of the existing social assistance pension and minimum pension guarantee programs, which created disincentives to contribute and were not sufficiently targeted at the poor. 113 On those grounds, Valdés also criticized the superintendency’s proposal of a gradual minimum pension guarantee, as it would supposedly favor regular employees over seasonal workers and provide weak contribution incentives for the very poor (who might not expect to complete even ten full years of contributions). Valdés instead proposed a gradually receding subsidy that would top up (and therefore incentivize) any contributions made up to a certain maximum level of pension entitlements (Valdés proposed 250,000 CLP per month “or more”). Hence, the motivation for Valdés’s proposal was to improve the design of publicly financed noncontributory pensions to make them both more efficient in poverty alleviation (through more rigorous targeting) and more “compatible” with the private contributory system by “creating incentives so that [even] an extremely poor affiliate contributes.” 114
The Marcel Commission eventually adopted Valdés’s proposal of a gradual demand subsidy and a phasing out of the minimum pension guarantee program. The decision was aided by Mario Marcel’s choosing Harald Beyer, then academic director of the business-financed Center of Public Studies (and later education minister in the first Piñera government), to head the commission’s working group on noncontributory pension reform. 115 This does not mean that all the conservative experts on the Marcel Commission were in perfect agreement with the commission’s final noncontributory pensions proposal. Harald Beyer, Rossana Costa, and Augusto Iglesias penned a dissenting opinion, in which they argued that the targeting of noncontributory benefits should be even more rigorous, requiring means testing on the household level rather than the individual level. 116 Liberty and Development’s Costa later argued that the commission’s proposed value of the Pensión Básica Solidaria (PBS) benefit was set too high, which could create “a disincentive to contribute.” 117 But although the conservatives may have preferred stricter means testing or a lower level of the PBS, they were in full support of the design of the Aporte Previsional Solidario (APS) program, which was directly based on the proposal of a very conservative economic expert and previously considered in an AAFP report as a preferred policy instrument but a difficult “political sell” to the left. 118
It is therefore understandable that conservative experts endorsed the APS program. Their at least tacit support for the PBS program is a bit more puzzling. However, given the Chilean right’s historical concern with the eradication of (extreme) poverty, conservatives actually turned out to be ideologically relatively open to the idea behind the PBS. Explaining their support in principle, several conservative economists pointed out to me that the PBS was actually nothing new—just “a new name” for the existing social assistance pension (PASIS) program. Indeed, the military government had initiated a poverty eradication plan as early as October 1973. In a first step, Chile’s National Planning Office (ODEPLAN), in collaboration with the Catholic University, began developing a “Map of Extreme Poverty,” which was supposed to inform the regime’s policy interventions. The introduction of the PASIS program in 1974–75 was the first concrete policy innovation of the plan. 119 A conservative economist told me that the military government introduced the social assistance pension not out of concern with public support or social unrest but because it provided a “moral high ground” for the right, who had long criticized the left’s “elitist” social welfare program “that did not really reach the poor.” 120 Against that historical backdrop and policy legacy, it is intelligible that many Chilean conservative economists during the 2000s did not view the principle of state-led poverty eradication and the specific instrument of a relatively low, means-tested noncontributory pension as foreign to their ideology.
The ideological openness of conservative economists to noncontributory pensions was further aided by dominant new international policy ideas on the topic. One economist pointed out that the World Bank’s three-pillar model, as developed in its 1994 report “Averting the Old Age Crisis,” offered a conceptual framework for the “legitimate combination” of a fully funded second pillar with a state-financed first pillar. 121 That report left open how exactly the noncontributory public pillar should be designed, but it provided a clear rationale for the combination of a privatized second pillar and a public first pillar, which is exactly what Chile adopted with its pension reforms of 1981 and 2008. 122
This section has demonstrated that both the conservative design and business’s support of the 2008 reform were rooted in the dominance of conservative economists in the policy networks charged with drafting its details. The question remains why those networks were constituted so conservatively. There are several potential explanations. Assume for a moment that the Bachelet government would actually have preferred a more progressive reform (e.g., an unconditional minimum pension of 100,000 CLP per month): it is possible that organized business directly influenced the constitution of the policy networks; that the government empowered conservative economists freely, anticipating business opposition to more progressive policy designs; or that the “available” pension experts just happened to be more conservative. It is, of course, also possible that the Concertación’s own “Third Way” ideology actually favored a more conservative policy design. Future research will have to answer this question empirically, with a focus on the preferences and decision making that led to the nominations, for example, of Alberto Arenas as budget director, of Mario Marcel as president of the Marcel Commission, or of Harald Beyer as head of the noncontributory pension working group. However, it is clear that business consent was crucial for passing the reform and that business consent must be understood in relation to the conservative economic experts who developed it.
Social Protest and Further Noncontributory Pension Expansion
Shortly after the passage of Chile’s 2008 pension reform, political demands for further and more comprehensive reforms grew louder. Labor unions became more critical of Chile’s private pension funds after the latter recorded significant losses in the financial crisis of 2008. 123 In that context, a group of labor unions emerged that organized the movement No Más AFP in 2012 and began mobilizing for pension system renationalization. 124 In 2012, during the first presidency of Sebastian Piñera, the center-left senator Eugenio Tuma initiated a special senate committee (the Tuma Commission) to discuss the performance of the country’s privatized pension system. On her return to the presidency in 2014, Bachelet’s government assembled another expert commission (the Bravo Commission) to develop yet another pension reform proposal. Deep political divides regarding reform of Chile’s contributory pension system became apparent when the Bravo Commission ended up making not one but three different reform proposals. In contrast, there continued to be broad consensus that existing noncontributory pension benefits should be further expanded. 125
Protest rallies organized by No Más AFP in 2016 began to attract mass participation, and reform pressure escalated. 126 Although the protests voiced middle-class grievances and addressed the contributory pension system, Parliament’s immediate response was to pass a 10 percent increase of noncontributory pensions. 127 The value of the Pensión Básica Solidaria benefit increased to 102,897 CLP (158 USD), and public noncontributory pension expenditure ticked up from 0.80 percent to 0.86 percent of GDP between 2016 and 2017 (see Fig. 3). As with the 2008 introduction of these noncontributory pension benefits, this increase was legislated with broad bipartisan support and enjoyed substantial consent from organized business and conservative economists. A few days after the first mass protests, the president of Chile’s manufacturers association categorically rejected the idea of renationalizing the country’s contributory pension system but proclaimed that noncontributory pensions were “something that had to increase.” 128 In 2015, Salvador Valdés, a key conservative figure behind the incentive-compatible design of Chile’s reformed noncontributory pension system, had advocated raising noncontributory benefits by around 10 percent. 129 In the same year, Augusto Iglesias, another conservative economist and undersecretary of social security during the first Piñera government, proposed a 15–20 percent increase of noncontributory benefits. 130 That is not to say that conservative forces, organized business in particular, had a genuine preference for further noncontributory pension expansion. But the episode confirms that the expansion of noncontributory pensions, especially if they are designed in a targeted and incentive-compatible manner, is among the social reforms most agreeable to organized business, conservative economists, and the political right.
The same political dynamics reemerged in October 2019, when a public transportation fare increase triggered massive social unrest across Chile. 131 One of the first responses of the (second) Piñera government was to present a social reform package that prominently featured increased noncontributory pensions. 132 To allow for swift legislation, the government detached noncontributory pension reform from a more comprehensive pension reform project, and in December 2019, Chile’s Parliament approved a 50 percent increase of noncontributory pensions, raising the Pensión Básica Solidaria to 165,302 CLP (205 USD). 133 This most recent episode shows how thoroughly Chile’s conservative political forces have embraced a kind of noncontributory pension populism, not only because noncontributory pensions are broadly agreeable to them but also to prevent more radical reforms, such as a dismantling of the country’s private contributory pension system. 134
Conclusion
This article has traced the long history of conservative political support for noncontributory pensions in Chile and has demonstrated that conservative economists and organized business played central roles in formulating Chile’s 2008 pension reform and making it politically viable. Welfare state scholars should therefore be careful not to view this and similar social reforms as singular achievements of progressive political forces. I conclude the article by summarizing its major findings and discussing how they might travel to other countries and other social policy areas.
First, this article has shown that Chilean employers, together with business-financed think tanks, were important consenters to the expansion of noncontributory pensions. This confirms theories that employers are unlikely to initiate progressive social reforms. 135 Although Korpi and others have long focused on distinguishing employer protagonism from “mere consent,” the article suggests that the difference between antagonism and consent may be just as important for explaining welfare reform outcomes. Chilean employers’ primary concern with expanding noncontributory pensions was about the potential consequences for social security contributions and taxes. The reform’s conservative policy design alleviated this concern. Targeted and relatively low benefits promised to contain the overall cost, and that cost, in turn, would be covered by the general budget and a pension reserve fund, minimizing the degree to which employers had to pay for extended benefits. The extremely favorable macroeconomic context in 2007 also helped to mute employer opposition. A budget surplus at historically high levels, together with the decline of the government’s pay-as-you-go pension liabilities, freed up resources and created the promise that noncontributory pension expansion could be financed without the need for additional taxes. Policy design and fiscal context were therefore central in turning employers from antagonists into consenters. This finding advances theories linking fiscal policy space with social policy expansion by suggesting that good economic times enable social policy expansion by muting employer antagonism.
Second, the article has also provided evidence that private pension providers may have a genuine (rather than just a strategic) preference for a certain type of noncontributory pension expansion. It may be that the literature’s skeptical view of business protagonism in welfare state expansion has been driven by its focus on employers. 136 In contrast to the fiscal concerns of employers, it is the specific design of welfare benefits that affects providers. Thus, the primary concern of Chilean providers with noncontributory pension reform was its implications for contributions to the private pension plans under their management. They consented to the Pensión Básica Solidaria because it was low enough not to disincentivize private contributions seriously, and they were actually early supporters of the demand subsidy idea behind the Aporte Previsional Solidario, which promised to expand the market for private pension plans to lower-income sectors. Examining provider interests in a context of welfare state expansion allows us to conclude that they may indeed have a genuine preference for welfare state expansion so long as public social expenditure is used to finance or incentivize private provision. By implication, providers are likely to oppose expansionary welfare reforms that limit private provision. This finding is particularly relevant in Latin America, where privatizations of pension and health systems have led to influential provider associations. 137
Third, this article has demonstrated the central role of conservative economists in facilitating business support for noncontributory pension expansion. My analysis confirms theories that emphasize the central role of experts in Latin American policymaking, 138 an insight that needs to be taken more seriously by welfare state scholars. My analysis also qualifies recent theories that posit that the homogeneity of expert networks as such drives successful social reforms. 139 It suggests instead that Chile’s noncontributory pension reform was passed because the policy experts who formulated the reform were homogenously conservative. If, by contrast, the policy network had been homogenously progressive and had excluded conservative economists, the resulting reform proposals would almost certainly have been strongly opposed by organized business and, as a result, never passed in Parliament. The implication is not that conservative economists are drivers of welfare state expansion. But in contexts where organized business is powerful, such as Latin American pension policy, conservative economists can facilitate the business consent needed to pass (moderate) social reforms.
I would expect these findings about the roles of employers, private providers, and conservative economists to travel well to other countries with at least partially privatized pension systems and politically influential business communities, such as Colombia, Mexico, and Peru. But the dynamics of noncontributory pension expansion are likely to be substantially different in countries without large private pension funds, such as Brazil and Ecuador, where private providers are less likely to influence the introduction of noncontributory pensions politically; the result might be more generous and less targeted programs. Future research should also investigate the roles these actors have played in other social policy areas. In the field of conditional cash transfers, one could expect similar roles for employers and conservative economists, whose relative influence might be even higher because of the general absence of private providers of cash transfers. 140 The reverse is probably the case for health insurance, where a variety of private providers, such as pharmaceutical producers and private hospitals, tend to advocate for more public coverage of private services, and the results are likely to conflict with employers’ primarily fiscal concerns. 141
This article’s analysis of noncontributory pension politics in Chile suggests that the literature’s previous focus on electoral competition and the protagonism of left parties and social movements in Latin America’s recent wave of social policy expansions may have been not incorrect but critically incomplete. Given the influence of business in Latin American politics, the legacy of welfare state privatization in the region, and the continued dominance of neoliberal ideas, future analyses of Latin American welfare politics should pay more explicit attention to the roles of employers, private providers, and conservative economists.
Footnotes
Acknowledgements
For comments and suggestions that helped improve this article, I thank Kimberly Morgan and the other editors of Politics & Society as well as Erdem Aytaç, Tomás Bril-Mascarenhas, Ayşe Buğra, Evelyne Huber, Aldo Madariaga, Antoine Maillet, Paul Marx, Katharina Müller, Ziya Öniş, Thomas Paster, Jennifer Pribble, Ben Schneider, Eduardo Silva, Peter Starke, Kurt Weyland, and Oya Yeğen, and participants at meetings of the German Political Science Association, the International Sociological Association’s RC19, the Nordic Political Science Association, and the Latin American Political Economy Network (REPAL).
Declaration of Conflicting Interests
The author declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: The research for this article was funded with a doctoral scholarship from the German Academic Scholarship Foundation (Studienstiftung des deutschen Volkes).