Wall Street Quietly Promotes
Overhaul of Social Security
By JACKIE CALMES
Staff Reporter of THE
WASHINGTON -- It would take lots of time and money to persuade Americans
to end Social Security as they know it. But some in the financial industry
are spending both, with just that end in mind.
Their ideal alternative would privatize the government's biggest and
most popular program, replacing Social Security with millions of individual
retirement accounts earning higher returns for savers -- and millions of
dollars in commissions for the money managers. But given the industry's
obvious self-interest, its biggest challenge is not to appear too eager.
"Overt lusting for this would be self-defeating," warns Rep.
Earl Pomeroy, a North Dakota Democrat. Some consumer and labor groups already
are raising red flags.
So proponents are keeping a low profile and digging in for a campaign
of at least several years. Led by the likes of pension company State
Street Boston Corp., they are sponsoring public-policy forums and bankrolling
think tanks to put an intellectual face on the issue, stoke a national
debate and, they hope, eventually make the sale.
It's not traditional lobbying, says Rep. Pomeroy, a skeptic about privatization,
"but it's very influential."
And there are early signs of progress. Until just recently, politicians
uttered the very term "privatization" at their peril. But on
the eve of last month's election, GOP Rep. Jim Kolbe of retiree-haven Arizona
did just that in town meetings. At the Capitol, his new bipartisan caucus
on the issue will regroup when Congress returns in January. More significant,
given Democrats' traditional fealty to the current system, Senate Minority
Leader Thomas Daschle last week went beyond anything the noncommittal Clinton
administration has said and endorsed a limited plan by which the government
would invest some trust funds in stocks as well as Treasury bonds.
The industry would go much further than that. State Street lays out
its case for replacing Social Security with private savings in a new book
by its chairman, Marshall Carter, and William Shipman, a principal at the
firm. "I believe State Street would benefit. I certainly hope it would
benefit," acknowledges Mr. Shipman. "And all of our competitors
would benefit. But the more important thing is the whole U.S. economy would
benefit and, most importantly, low-income workers would benefit."
The industry's push, low-key as it has been, nevertheless has spawned
opposition that signals the political hurdles ahead. Labor, liberal and
consumer groups recently held a news conference to condemn what they called
"Wall Street's hush-hush campaign to privatize Social Security."
The potent seniors' lobby, the American Association of Retired Persons,
doesn't rule out more diverse government investments but is cold to industry's
ideas for individual accounts. "There is large money being poured
into this, and it's coming from the financial industry," says Evelyn
Morton, an AARP legislative representative.
Supporters consciously laid low this election year, for fear that campaign
rhetoric would polarize the issue; as it happened, candidates from President
Clinton and rival Robert Dole on down avoided the politically charged topic.
Now that the election is over, pro-privatization forces hope the debate
can begin with the imminent report of a Social Security advisory commission
that Mr. Clinton named two years ago.
The divided 13-member panel actually will propose three separate remedies
for Social Security to meet the looming financial challenge of the Baby
Boomers' retirement costs. One idea would have the government invest a
portion of the current surplus in stocks, in hopes of higher earnings to
fatten the trust funds; that's the sort of option Sen. Daschle supports.
Two proposals closer to what industry wants would mandate that individuals
invest some of their own payroll taxes -- but at the cost of raising payroll
taxes to maintain current retirees' benefits.
Different as those plans are, what gives Wall Street hope is that common
to all is support for the concept of investing in the stock market at least
some of the Social Security payroll taxes, now about $400 billion a year.
Besides pushing its own plan, State Street is seeding other research
groups with about $100,000 in grants -- including about $20,000 each to
the libertarian CATO Institute's privatization project, of which Mr. Shipman
is a co-chairman, the centrist Democrats' Progressive Policy Institute
and the Employee Benefit Research Institute, which is hosting a Social
Security conference Wednesday. Last month, State Street sponsored a Council
on Foreign Relations program on Social Security and public-pension systems
world-wide, along with Fidelity Investments and J.P. Morgan & Co.
CATO has a $2 million budget over three years to fund research, conferences
and other activities to involve groups, members of Congress and their staffs.
Benefactors include, besides State Street, the insurance company American
International Group Inc., American
Express Co., discount brokerage company Quick
& Reilly Group Inc., Digital
Equipment Corp. and International
Business Machines Corp. Yet Michael Tanner, a CATO director, says,
"Wall Street has been cautious about committing money to this, partly
out of a sense of how the self-interest factor will be criticized."
Seeking Grass-Roots Support
Sam Beard, president of the business-financed, pro-privatization group
Economic Security 2000, says he has nearly met a budget goal of $1 million
annually for three years, with help from Motorola
Inc., DuPont Co. and Morgan Stanley
& Co., among others. He aims to influence the debate by traveling widely
to build grass-roots support. "If this simply becomes a business initiative,
we're going to lose," he says.
Citizens for a Sound Economy, financed by businesses and wealthy conservatives,
has budgeted about $2 million for media ads and other activities in the
next year. And industry groups are active, notably the Investment Company
Institute, which lobbies for the mutual-fund industry, and the Securities
Industry Association, along with the Chamber of Commerce, National Association
of Manufacturers and other business lobbies desperate to duck higher payroll
But with the issue so new, and ideas so diverse, "It's not ripe
to be taking any case" to Congress, says Mark Weinberger, a partner
in the lobbying firm Washington Counsel. Instead, that firm, which counts
among its clients Investment Company Institute, Merrill Lynch & Co.
and Aetna Inc., in September hosted experts from across the political spectrum
to discuss "Social Security Reform: Putting the Markets to Work."
At the Progressive Policy Institute, vice president Rob Shapiro says
he will participate in three forums this month alone, and he turned down
a fourth. Privatization proponents are eager for the Democrat's support,
but instead Mr. Shapiro has grown more skeptical. His own emerging proposal
would experiment with mandatory savings accounts but rely more on such
traditional Social Security fixes as raising the retirement age and limiting
Privatization advocates, he says, "are way ahead of the debate,"
as the public isn't convinced of the need to change a system currently
in surplus. "Politically they're kind of endangering the whole reform
movement," Mr. Shapiro says. "There's a story line out there:
'Wall Street is trying to steal Social Security.' "
Democratic Rep. Robert Matsui of California says that, to his surprise,
constituents do raise the issue, chiefly younger workers dubious about
Social Security's future. But he adds, "It's easy to talk now [about
privatization] when the markets are doing so well."
Yet if a stock market crash is the worst nightmare for privatization
supporters, the Wall Street "story line" is an ever-present danger.
Says Rep. Kolbe, who insists that Wall Street interests had nothing to
do with his pension caucus's formation, "There are just some things
that the industry has to take a back seat on."