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Financialization and the Construction of Peripheral Business Power in the Chilean Pension System

Part of the International Political Economy Series book series (IPES)

Abstract

This chapter explores the relationship between financialization and the construction of business power from a dependency perspective. Focusing on the Chilean pension system, considered an exception among global social security systems due its long-term and sustained continuity as a privately administered and heavily financialized pension system, the chapter exposes how the financial expropriation of social security contributions from workers becomes a source of accumulation for international capital, and of structural and instrumental power for local and foreign business groups. Based on this, it concludes that privatized social security systems act as a “financial valve” mediating local and foreign businesses in what is called “dependent and associated financialization.”

This research was funded by CONICYT scholarship number 22170449.

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Fig. 10.1

(Source Author’s own elaboration based on Superintendencia de Pensiones [2020])

Fig. 10.2

(Source Author’s own elaboration based on Superintendencia de Pensiones [2020])

Notes

  1. 1.

    In Latin America for instance, the Argentinian and Bolivian governments re-nationalized pension funds, reverting to the privatisation and financialization dynamics of the 1990s (Becker et al., 2013; Naczyk & Domonkos, 2016). In Eastern and Central Europe, though during the last three decades there had been partial retrenchments of occupational pension schemes (encouraging the development of private fully-funded pension systems), this tendency started to be reversed after the 2007–2008 financial crisis (Naczyk, 2013; Naczyk & Domonkos, 2016).

  2. 2.

    While the first perspective is unsuited to explain the Chilean case due to the fact that Chile was often taken and diffused by other countries as an example of pension privatization to be imitated (rather than the other way around), the absence of a consolidated financial market and related business actors in the country at the outset of reform (investment funds, insurance companies and other financial companies) speaks against the second (see, e.g., Santillán et al., 2010).

  3. 3.

    Mandatory contributions to individual accounts amount to 10% of the salary of dependent workers. This is not supplemented by either employer or state contributions. The publicly funded pillar offers a minimum non-contributory pension for those who do have funds in their individual accounts. It also provides a supplementary pension contribution for those individual-account pensions higher than the minimum pension, but below a certain threshold.

  4. 4.

    The armed forces and police were spared pension privatisation and maintained their previous publicly funded pay-as-you-go system in 1981. After four decades, armed forces and police pensions show better results than the civil pension schemes. In practice, the pensions received by these groups are on average five times higher than those in the system for the civilian population (Solimano, 2017). For analysis purposes I only present data for civil pension expenditures. If expenditures in military and police are considered, during the last twelve months public expenditure in pensions rises to 76% and the relative amount payed in pensions by AFPS is reduced to only 24% of total pensions expenditures (CENDA, 2020).

  5. 5.

    Tables 10.1 and 10.2 present the cumulative results from March 1981 to October 2020 of expenditures and incomes of the civil pension system in Chile as reported by CENDA (2020). The exchange rate used USD 1 = CLP 649 (2017 average).

  6. 6.

    According to the latest information published by the pension regulator (Superintendencia de Pensiones, 2020), in 2018 96.81% of this category—or 39.86% of the total pension fund—is invested in foreign capital market instruments (investment funds, shares and alternative assets).

  7. 7.

    During its first decade, the institutional regulation of the system did not allow the pension funds to be invested abroad. The legislation was changed in 1991 and that is why this sector starts playing a role only from 1993 onwards.

  8. 8.

    In Chile there were mainly three cycles of privatisation policies. The first focused on state-owned enterprises in the 1970s. The second focused on the public service system (health, education, pensions) in the 1980s (Boccardo et al., 2020). The third focused on the incorporation of business actors in the administration and provision of public services (such as water and electricity) through the mechanism of “public–private partnerships” during the 1990s.

  9. 9.

    The term “denationalized” is used to account for a trajectory in which the control of the administrator ceased to be in the hands of Chilean economic actors. By contrast, with “internationalised” we refer to the processes of alliance between local and foreign capital.

  10. 10.

    The Enel group in Chile is an alliance between the former Enersis group (of Chilean origin) and the Italian transnational Enel Group.

  11. 11.

    USD millions. Exchange rate: 1 USD = 649 CLP (2017 average).

  12. 12.

    There are other important factors excluded from this work due to extension issues. For instance, several corruption scandals around pension management, regarding civil and military pension systems, that occurred since the late 2000s have impacted public opinion, contributing to a strong cry against AFPs and the privatised social security system in Chile. For a more detailed view on this process, see Mejías and Panes (2018) and Ruiz Bruzzone (2019).

  13. 13.

    I prefer this denomination to “dependency theory". As stated in the introduction to this volume, within this tradition there are diverse rather than unified approaches. I also adhere to the idea of conceiving the analytical approach of the dependentistas more as an “approach” than as a “theory".

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Ruiz Bruzzone, F. (2021). Financialization and the Construction of Peripheral Business Power in the Chilean Pension System. In: Madariaga, A., Palestini, S. (eds) Dependent Capitalisms in Contemporary Latin America and Europe. International Political Economy Series. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-71315-7_10

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