Privatization is a seemingly harmless term that has very important
implications for America. George W. Bush has spearheaded a privatization
effort of standard American benefits like Social Security. The
idea behind privatization is that citizens will get a smaller
amount of guaranteed federal aid upon retirement, instead having
personal accounts that they can manage.
But the current system is pay as you go—meaning, that
the taxes working folks are paying right now is given to older
folks who qualify for it. There is no Social Security (SS) fund—it’s
a fluid transfer of funds from taxpayers to SS receivers. Take
out the payers in a shift towards private accounts, and a big
chunk of recipients are left without the SS payments that they’ve
worked for and expected for years. You can ask people to pay
twice—simultaneously into the system until privatization
takes hold and into their personal accounts, but who wants to
pay for something that won’t benefit them?
True, any SS reform has to take the pay-as-you-go issue into
account, but privatization is too problematic to be the course
we choose. Conservatives like to think that giving citizens
private accounts for SS will allow people to invest and increase
their funds beyond anything the government could ever provide.
They are partly right; Americans will be forced to invest for
their personal funds to be any kind of asset.
According to the U.S. Social
Security Administration, workers need about 70 percent of
their pre-retirement earnings to comfortably maintain their
standard of living. Under current law, if you have average earnings,
your SS retirement benefits will replace only about 40 percent,
meaning that Americans already must supplement their benefits.
At the same time, labor
compensation is growing at its slowest rate since WWII.
Simultaneously, Americans’ take-home pay relative to national
income is lower than it has been in over 70 years, while the
cost for health care, gasoline, and education have skyrocketed.
Together these facts mean that as retirement benefits are reduced
and the effectiveness of personal funds are reduced due to poor
labor compensation and high costs of necessities, more Americans
would have to rely heavily on “supplements”.
These supplements would primarily be investments. With privatization,
a very large new group of potential investors is created. Supposedly,
these new investors are supposed to help the economy boom while
at the same time increasing their own ‘nest egg’.
But more likely, this new group of investors— including
Americans of lower income, financially constrained, and inexperienced
in money managing—will become the targets of economics
exploitation. Think there are scams going on now in Wall Street
and corporate America? Imagine when the pool of victims is indefinitely
increased. As P.T. Barnum might say today, there’s a sucker
entering retirement every minute.
This phenomenon is not unprecedented. The rights revolution
made more people cognizant of what they were owed as individuals—perhaps
overly cognizant, and lawyers have taken advantage of that awareness.
The emerging pre-eminence of personal recompense opened up a
whole new market for lawyers, as their services were applicable
to a myriad of persons and situations.
But the preponderance of the lawyer in our society also led
to a drop in the reliability and general trustworthiness of
legal pursuits. It is easy to see how lawyers have consciously
profited the new essentialness ascribed to their profession.
“Have you ever been personally injured?” ask local
lawyers in a poorly produced advertisements. Most viewers don’t
know if they have or haven’t—but attorneys are more
than happy to ‘consult’ you in order to inform you
that you are, in fact, a victim.
A privatization revolution will give birth to a similar phenomenon
among the investment community. It will lead to an increased
pool of inexperienced potential investors, and the investing
community is going to respond by taking ‘reaching out’
to lower income Americans in a similar fashion. Desperate to
support themselves and leave something for their children as
their life draws to a close, low to moderate income senior citizens
make perfect targets. One can imagine the day when third-rate
investment advisors have local television ads claiming, “
you are entitled to improving your future through investing
your retirement funds!”.
There are, of course, services that exist to help you invest
and take care of your investments. But these services cost money.
Assuming the elderly become a viable source of investments,
these services presumably would be made more readily available
to them. But how are we to ensure the quality of these services?
How many of Morgan Stanley’s “big clients”
are going to be low income elderly Americans?
No, most elderly Americans will be forced to use other services.
There are pension and mutual funds out there, yes, but there
are also hedge funds-- which are exempt from Securities and
Exchange Commission reporting requirements, as well as from
regulatory restrictions. Further, employees of companies approaching
retirement could very well be encouraged to invest their SS
funds in floundering company stock and get ripped off, a la
the Enron scandal.
No matter what the method, successful investing takes the consultation
of a stockbroker. The leverage and lack of accountability granted
to this profession once an entire society relies on it as the
primary experts on retirement stability is mind-boggling. The
fact that the world in which these men and women navigate is
already ripe with abuses, fraud, and scandal, makes the prospect
of placing Americans’ futures in their hand less than
Privatization would have to be coupled with regulation and
education to be even marginally beneficial. Government initiatives
for free investment clinics would be necessary. Investment education
would become crucial. Corporate regulations would have to be
strengthened across the market, or regulated funds would have
to he aggressively marketed and promoted. Corporate accountability
laws would have to be enforced strongly and consistently. Retirement
funds are something that our government has assured its people
for decades—if the government is to encourage the elderly
to throw their money in the market, they have to ensure the
integrity and benefits of those funds.
But the proponents of privatization are also the proponents
of small government; They don’t like regulation and accountability.
They want to lower capital gains taxes and reduce regulations
in order to encourage people to invest. Show that they have
more to gain, and people invest. But they don’t see that
increasing precautionary measures for the sake of the investors
also encourages investment. Show that they have less to lose,
and people also invest.
Privatization proponents never speak on the issue of increased
regulation—probably because they don’t particularly
care. The biggest advocates of privatization are corporate bigwigs
such as American Express and Merrill Lynch, and conservative
politicians with strong ties to the business world—the
folks most likely to profit off the backs of retiring Americans
through privatization. The vulnerability of the American worker,
the character of privatization advocates, and the focus on above
all lowering ‘barriers’ to investment, makes it
clear that privatization will be coupled with exploitation long
before it is coupled with the appropriate education and regulation.
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