In the late 80s, I worked as a research assistant at the Institute of Economics of the Slovak Academy of Sciences. They were extraordinary times. We wanted to transform the Slovak economy, wrecked by Soviet control, into a free economy. The first step was to create, together with Ivan Švejna, the Hayek Foundation, a liberal economic think tank.

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Starting in 1998, the government pushed a program to liberalize the economy, but it did not propose a pension reform. However, it was becoming increasingly clear that an urgent paradigm shift was required. The payroll tax needed to maintain the pension-to-wage ratio in the existing pay-as-you-go system would have to rise from 27.5% in 1996 to 48.6% in 2040. We then decided to prepare our own reform proposal, for which we looked abroad for someone who could help us with their reform experience.

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In March 2002, I contacted José Piñera for the first time. I didn’t know him personally, but I had studied his achievements in Chile and other countries. I wrote him an email explaining what was happening in Slovakia, what our Foundation was doing, and how a visit from him would help achieve the goal. I remember expecting a response like “I’m busy, my schedule is full, and besides, I charge fees in the tens of thousands of dollars.”

 

On the contrary, he replied immediately:

 

“Yes, I can go. My conditions are: I will not charge you any fee; I expect you to cover a business-class ticket from Santiago, a good hotel, and several cappuccinos in Bratislava. That’s all. And one more thing: I will go to Slovakia only if there is a realistic chance that my presence there will be the push needed to achieve the reform.”

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We welcomed José with a lunch in the Old Town of Bratislava along with the Hayek Foundation team. During the conversation, José suggested to Ludovít Kaník, leader of the Democratic Party, who was preparing the campaign for the upcoming elections, to give top priority to pension reform, to campaign on that proposal, and to try to become Minister of Labor to lead the introduction of a capitalization system.

 

They were prophetic words because, after winning the elections, Kaník took office as Minister of Labor, from where he drove the reform. But there were still several months of intense work ahead to make it happen.

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In his presentation at the Hayek Foundation’s annual conference, José gave an enthusiastic and inspiring speech motivating us to tenaciously undertake the pension reform that would bring freedom and prosperity to Slovakia. And he repeated the same thing, over and over, in press conferences and radio and television interviews.

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In the October 2002 elections, a right-wing coalition led by Prime Minister Mikuláš Dzurinda won, with a program to reform the labor market, the education system, and health care. And, of course, pension reform. The new deputy prime minister, Ivan Mikloš, wrote in a Wall Street Journal column: “We are preparing a pension reform to move from a pay-as-you-go system to one of individual capitalization of pension savings.”

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With this window of opportunity open, we made the strategic decision to send our team of pension reform experts to collaborate with the new Minister of Labor, Ludovít Kaník, who would lead the reform. The team consisted of Ivan Švejna, as the new director general of the ministry, Martin Chren, and Martin Thomay. And, at José’s suggestion, the ministry hired the Chilean economists Augusto Iglesias and Klaus Schmidt-Hebbel, who did valuable work collaborating on the design of the transition from one system to the other. Later, Ivan and Martin wrote the book Pension Reform: The Slovak Way, in which they detail their experience from this reform period.

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In 2003, the team prepared two bills, the Social Insurance Act and the Personal Pension Savings Act, which formed the main framework for the new pension system that we expected to start operating on January 1, 2005. The Social Insurance bill stipulated parametric changes to the unfunded existing pay-as-you-go system. The Personal Savings bill established that 9% of workers’ gross wages would be contributed to an individual retirement account, which would be managed by specialized private companies under the strict supervision of the Capital Markets Authority.

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A parliamentary delegation traveled to Chile to see the Chilean model firsthand and to meet with José. Upon their return, and after passionate debates and negotiations in parliament, Minister Kaník was able to send José the following email on December 19, 2003:

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“I would like to share some good news with you. On Tuesday, December 16, 2003, the Slovak parliament passed the law that introduces a pension savings scheme. Thus, starting January 1, 2005, Slovak workers will begin saving 9% of their gross wages in individual accounts. These savings will be their private property, which can be inherited. Your visit to Slovakia started an intense discussion about pension reform and greatly influenced the creation of a favorable political climate. I am convinced that this reform, born from your inspiration and your significant collaboration, will not only result in better pensions for our workers, but also in greater freedom and confidence in the future. The days of our visit to Chile coincided with a period when we were intensely seeking parliamentary support for the main reform law. The conversations with you in Chile made a great impression on the entire delegation and contributed substantially to our parliament members approving this historic project of a new pension system for Slovakia. Ludovít Kaník.”

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​From my experience, implementing fundamental paradigm changes in public policy requires four key factors: first, an economic crisis, which in Slovakia manifested strongly in the 1993-1998 period due to irresponsible economic policies; second, an inspiring reform model, which we had with José Piñera; third, a powerful and proactive think tank, which we had with the F.A. Hayek Foundation; and fourth, politicians willing to carry out the reforms, which we accomplished through the Minister of Finance, Ivan Mikloš, and the Minister of Labor, Ludovít Kaník.​​

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I am sure that this same thing can be done in every country in the world. I hope that, after reading this story, other countries will be inspired and begin to take the first steps on the path of structural reforms, just as we did in Slovakia.