My encounter with George W. Bush began on Elba, Napoleon Bonaparte’s island of exile. I was on a cruise along the Italian coast at the invitation of Harlan Crow, Chairman and CEO of Crow Holdings.

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I had met Harlan through his father, Trammell Crow, the legendary Texas real estate entrepreneur. In 1995, I encountered Trammell at a conference on the Chilean model of private pension accounts held at the Federal Reserve Bank of Dallas before an audience of economists and business leaders. He was so enthusiastic about the reform that he invited me to stay at his home during my visit to Dallas, where I had the opportunity to meet his family. Harlan and I subsequently became friends. He combined a deep interest in public policy with exceptional entrepreneurial accomplishment.

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After hearing about my seemingly endless travels across Europe, Harlan invited me to join a cruise in June 1997 with several of his friends. Much of our time was spent admiring the breathtaking scenery and discussing Italy’s history and culture. One evening, Harlan asked me to speak about Chile’s pension reform experience. Among the guests was Gerald Haddock, a successful Texas businessman who showed particular interest. The following day, over coffee in Elba, he suggested that I meet one of his closest friends, the Governor of Texas, George W. Bush. Both men had been associated with the Texas Rangers baseball franchise, and Haddock believed the governor would likewise be interested in the reform.

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I assumed such a meeting would be arranged during a subsequent visit to the United States. Yet shortly after my return to Chile, I received an email from Gerald informing me that Governor Bush wished to meet as soon as possible and inviting me to dinner at his home on September 11, 1997. The night before, I traveled 5,000 miles from Santiago to Austin. Over dinner, we spoke about the history of Texas, and I shared my deep admiration for the Founding Fathers of the United States.

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Afterward, we retired to his study. Governor Bush remarked that while he could read about the reform in reports and memoranda, he preferred to hear the full account directly, with all its practical details. Our discussion was intense and wide-ranging. I concluded by saying: “Governor, if you implement personal accounts, you will create an ownership society. You fundamentally alter the dynamics of a nation when you transform every worker into a small capitalist through personal savings for old age.”

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The meeting lasted two hours. At its conclusion, he said: “Jose, I like what you have done. Social Security reform is the most important domestic issue facing America in the twenty-first century.”

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Mr. Bush was reelected governor later that year. During his 2000 campaign for the White House, his website stated: “Modernization must include individually controlled, voluntary personal retirement accounts, which will augment the Social Security safety net. These accounts will earn higher rates of return, incorporate strict standards of safety and soundness, and help workers build wealth that can be passed on to their children.”

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Personal retirement accounts were also incorporated into the Republican Party’s 2000 platform: “Personal savings accounts must be the cornerstone of restructuring. Each of today’s workers should be free to direct a portion of their payroll taxes to personal investments for their retirement future.”

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Regrettably, the terrorist attacks of September 11, 2001 shifted the priorities of President Bush’s first term. From that point forward, the central focus of his presidency became counterterrorism and the prosecution of two foreign wars—Afghanistan and Iraq.

 

In a markedly different political environment, and without the fiscal surpluses inherited from the Bill Clinton administration, President Bush decided after his reelection in November 2004 to pursue comprehensive Social Security reform. In his 2005 State of the Union Address, he devoted nearly one quarter of his speech to the case for private retirement accounts and the broader virtues of an ownership society. President Bush declared:

 

“As we fix Social Security, we also have the responsibility to make the system a better deal for younger workers. And the best way to reach that goal is through voluntary personal retirement accounts.

 

Here is how the idea works:

 

Right now, a set portion of the money you earn is taken out of your paycheck to pay for the Social Security benefits of today's retirees.

 

If you're a younger worker, I believe you should be able to set aside part of that money in your own retirement account, so you can build a nest egg for your own future.

 

Here is why the personal accounts are a better deal:

 

Your money will grow, over time, at a greater rate than anything the current system can deliver. And your account will provide money for retirement over and above the check you will receive from Social Security.

 

In addition, you'll be able to pass along the money that accumulates in your personal account, if you wish, to your children and -- or grandchildren.

 

And best of all, the money in the account is yours, and the government can never take it away.

 

The goal here is greater security in retirement, so we will set careful guidelines for personal accounts:

 

We'll make sure the money can only go into a conservative mix of bonds and stock funds.

 

We'll make sure that your earnings are not eaten up by hidden Wall Street fees.

 

We'll make sure there are good options to protect your investments from sudden market swings on the eve of your retirement.

 

We'll make sure a personal account cannot be emptied out all at once, but rather paid out over time, as an addition to traditional Social Security benefits.

 

And we'll make sure this plan is fiscally responsible by starting personal retirement accounts gradually and raising the yearly limits on contributions over time, eventually permitting all workers to set aside 4 percentage points of their payroll taxes in their accounts.

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Regrettably, Democratic members of Congress chose to mount an attack on the proposal for private retirement accounts. Rather than engaging the new plan on its merits or advancing substantive objections, many Democrats resorted to demagoguery, portraying the initiative as an assault on the poor. In reality, personal retirement accounts are designed precisely to empower lower-income workers. Should individuals not live long enough to draw the full benefits of their retirement savings, the accumulated assets would become part of their estate and could be transferred to the next generation. This consideration is particularly salient for African Americans, whose life expectancy remains significantly lower than that of whites—often resulting in the payroll taxes they contributed to Social Security over a lifetime being absorbed entirely by the system.

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There were, however, notable exceptions. Two thoughtful and intellectually serious Democratic senators distinguished themselves as supporters of private accounts: Bob Kerrey of Nebraska and Daniel Patrick Moynihan of New York.

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A telling illustration of the obstructionist posture adopted by influential opinion leaders was a March 29, 1998 editorial in The New York Times, entitled “Wrong Way on Social Security,” which criticized Senator Moynihan in the following terms:

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“Proposals from arch-conservatives to chip away at a government program like Social Security shock no one. But when an influential moderate like Senator Daniel Patrick Moynihan proposes to divert Social Security taxes into private retirement accounts, a flawed idea gains ominous support… By reinforcing the false notion that private accounts are far superior to public accounts, Mr. Moynihan risks setting off a political process that would feed the conservative goal to replace virtually the entire public program with private savings.”

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In the end, the Democratic Party failed to elevate the national interest above partisan calculation and succeeded in blocking President Bush’s far-reaching and visionary reform proposal.