Who's behind privatizing Social Security? Ideologues & moneybags

By DON McINTOSH, Associate Editor

President George W. Bush visited South Bend, Indiana, March 4, and in front of a cheering throng of 6,000 mostly Republicans, he presented his ideas for privatization of Social Security.

In the audience, University of Notre Dame economics professor Teresa Ghilarducci, former assistant director of the AFL-CIO’s Department of Employee Benefits, knew something didn’t add up.

Bush talked about a predicted shortfall in Social Security, and then called for a shift to a system of private accounts.

If the problem is solvency, why would Bush advocate taking money out of Social Security to put it in private accounts? That would make the solvency problem worse, a fact even Federal Reserve Chair Alan Greenspan, the Republican economic superstar, acknowledges.

So what’s the motive for such a major overhaul? What constituency has been clamoring for Social Security privatization — an issue that was on no one’s mind a year ago, and was barely mentioned in the election campaign?

The answer: The campaign was generated by an alliance of right-wing thinkers and top-tier bankers that have waged a two-and-a-half-decade-long campaign to undermine Social Security.


Enter The Ideologues

For a generation, privatizing Social Security has been the objective of the Cato Institute. Cato is a key player in a network of conservative organizations (think tanks, legal foundations, publishers, political organizations) funded and coordinated by a small but wealthy group of conservative foundations.

Cato describes itself as libertarian, espousing principles of limited government, free markets, individual liberty and peace.

Rob Levine describes Cato in less flattering terms. Levine is the founder of MediaTransparency.org, which publicizes the interlocking links of the right-wing network. “It’s libertarian — for corporations,” Levine said. “They argue for things that would benefit them as rich people.”

Cato’s very first hardcover book, published in 1980, was a template for privatization of Social Security. In Social Security: The Inherent Contradiction, author Peter J. Ferrara argued that workers should be allowed to invest part, and eventually all, of the money they now pay into Social Security, in return for a corresponding reduction in their future Social Security benefits.

It turned out that Ferrara’s idea was given its first test run by a Latin American military dictatorship.

Jose Piñera, a Chilean economist, had been teaching at Harvard University in 1973 when General Augusto Pinochet led a bloody military coup against Chile’s elected president. Piñera, who agreed with Pinochet’s far-right ideology, returned to Chile to work for the dictatorship as its labor minister, where he led a privatization of Chile’s pension system. On May 1, 1981, Chile terminated its Social-Security-style system and replaced it with a privately administered system of individual accounts. Tellingly, the most powerful sector in Chile — the military — kept its traditional guaranteed pension. For the rest of Chileans, their standard of living in retirement would henceforth depend on how much their private accounts earned.

Back in the United States, a crisis in Social Security financing occurred in the early 1980s, which Ferrara and others at Cato hoped would help them in their campaign for private accounts. But when Congress debated the matter, other solutions prevailed.

Privatization backers had to regroup and decide what to do.

In a 1983 Cato Journal article that proved to be prophetic, Cato’s Stuart Butler and co-author Peter Germanis from the Heritage Foundation argued that Social Security privatizers would have to adopt a long-term strategic analysis — of the kind used by Russian revolutionary Vladimir Lenin. The article was entitled “Achieving a Leninist Strategy,” and in it Butler and Germanis advocated “guerrilla warfare against both the current Social Security system and the coalition that supports it.”

To win, they theorized, it would be necessary to create a political coalition in support of privatization, including those that would “gain directly from its implementation” such as “banks, insurance companies, and other institutions.”

As for opponents of privatization, the authors wrote: “We must recognize that there is a firm coalition behind the present Social Security system, and … we must begin to divide this coalition and cast doubt on the picture of reality it presents to the general public.”

“The elderly represent a very powerful and vocal interest group,” Butler and Germanis wrote, so privatizers would have to assure “those already retired or nearing retirement that their benefits will be paid in full,” thus “neutralizing the most powerful element of the coalition that opposes structural reform.”

Not that Butler and Germanis were in control of history, but much of what they proposed has come to pass.

In 1995, with the stock market booming, Cato formed its Project on Social Security Privatization, naming Piñera as co-chair.

Piñera pitched his ideas to Texas Governor George W. Bush in 1997.

Bush had been an early believer in privatization. During his 1978 run for U.S. Congress, according to press accounts, Bush predicted Social Security would run out of money within a decade, and advocated private accounts. He lost the race, but in his 2000 and 2004 campaigns for president, he again talked about private accounts, though he didn’t emphasize the idea or go into detail.

In the first months of his first Administration, Bush put together a “President’s Commission to Strengthen Social Security,” composed of a virtual “Who’s Who” of privatization advocates, and staffed by Andrew Biggs, former assistant director of Cato’s Project on Social Security Privatization. The stock market crashed that year, however, and the commission’s recommendations to privatize Social Security were tabled. It seemed a bad time to argue for putting Social Security tax money into Wall Street.

Now that President Bush no longer faces re-election and is surrounded by a Republican-controlled Congress, he can pursue his proposal — and Cato’s — of shifting Social Security into a system of private investment accounts.

To help sell the plan to the American people, privatization backers have helped form the coalition Butler and Germanis wrote about in 1983: those that would “gain directly from its implementation.”

Enlistees include Charles Schwab, Wachovia, Fidelity, and American Express, and dozens of other financial corporations.

The national AFL-CIO Office of Investment has been investigating the links between investment management firms and pro-privatization front groups like the Alliance for Worker Retirement Security.

The Alliance for Worker Retirement Security, for example, has no “workers” in it: It is a coalition of 40 business organizations allied against the idea of an increase in the Social Security payroll tax and for the idea of private accounts. Members include the National Association of Manufacturers, U.S. Chamber of Commerce, the Business Roundtable, National Federation of Independent Business and pharmaceutical giant Pfizer, Inc.

The AFL-CIO is publicizing these and other links on the Web site wallstreetgreed.org.

If Bush succeeds in passing his privatization proposal, the most immediate beneficiaries would be investment management firms.

The chief actuary of the Social Security Administration, in an analysis ordered by the Bush Administration, assumed the account managers would charge 0.3 percent a year to manage the accounts.

Based on that percentage, University of Chicago economist Austan Goolsbee calculated that private accounts could be generating close to $4 billion a year in account management fees by 2020 — a lot of money, but not a tidal wave by Wall Street standards.

Ghilarducci, the Notre Dame professor, thinks fees are a factor, but not the motive, for firms supporting privatization.

“It’s actually the volume that matters.” Ghilarducci said. “Besides the ideological goal of ending government as we know it (and ending retirement as we know it), this is about helping to prop up Wall Street.”

From the folks who want to get rid of Social Security: A proposal to "strengthen" Social Security by adding private accounts

Why would a group like the Cato Institute, which advocates individual freedom from taxes and government — be advocating a system of compulsory saving and investment?

Because it’s the best they can do, given the political reality, Cato analyst Berna Brannon told the Northwest Labor Press. “We’re trying to limit the size of this government program as much as possible,” Brannon said. “Getting rid of [Social Security] isn’t an option politically.”