Social Insecurity

Social Insecurity

At Kenneth S. Apfel's confirmation hearing as Social Security commissioner last month, social policy guru Sen. Daniel Patrick Moynihan, D-N.Y., declared Social Security "the single most important domestic program in the federal government." Apfel certainly didn't quarrel with that assessment. He called the massive system of retirement, disability and survivors' benefits that he would soon be running "the most successful government program in our nation's history."

For all of Social Security's success, however, in providing what President Roosevelt called "some measure of protection . . . against poverty-ridden old age," the signature program of the New Deal is now at a crossroads. The 76 million Americans born between 1946 and 1964 will begin retiring early in the 21st century. Before long, the payroll taxes of the smaller generations behind the baby boom won't be able to meet the federal retirement program's costs. If the program stays on its current course, estimates are that payroll tax revenues will lag behind annual spending by 2012 and that the Social Security trust fund will go bust by 2029.

So now, 62 years after it was created, Social Security is in for some changes. With this year's balanced budget deal behind him, President Clinton has pledged to tackle entitlements next. He's due to name members to a commission on the future of Medicare by Dec. 1. In the meantime, his economic advisers are scrambling to figure out just when and how to broach the explosive subject of Social Security reform.

Treasury Secretary Robert E. Rubin, Office of Management and Budget director Franklin D. Raines and National Economic Council (NEC) chairman Gene B. Sperling have been mulling reform options at recent NEC meetings. Apfel, a former associate director for human resources at OMB, will also be a key player in the overhaul effort.

There's some sentiment among Clinton's economic advisers that Social Security reform should be tackled before Medicare, on the grounds that the Medicare changes in the recent budget deal should be given time to play out in the rapidly changing U.S. health care market. But although the President read some Social Security briefing papers during his summer vacation, no major decisions on the substance or timing of the Administration's efforts have been made so far.

Determining the program's future will be "the most fundamental debate we have in the next several years," Apfel told the Senate Finance Committee on Sept. 10. Evolution is nothing new for the program, he emphasized, quoting former Health, Education and Welfare Secretary Wilbur Cohen's remark that "each generation should be free to remake it and remold it to its needs and to its liking."

Still, while everybody seems to agree that Social Security needs fixing, the key question is just how much change is in order. Does the program's machinery need fine-tuning, retooling, or a complete redesign?

The effort to update the Social Security program certainly isn't going to take place in a vacuum. With the program's future up for grabs, would-be reformers at think tanks and interest groups have been churning out press releases and proposals for change. They're positioning themselves to mold the debate in Washington and around the country, with some advocating a completely privatized national pension system and others calling for various "middle-ground" plans. Those less-radical schemes would both shore up the government-run retirement program and establish individual retirement accounts that would let workers invest their pension money in the stock market.

At the same time, defenders of the traditional approach to social-insurance programs are beginning to mobilize. They're busy decrying what they consider alarmism over the future of Social Security and speaking out against privatization and other wholesale program changes. Incremental fixes to Social Security, they insist, are all that the program requires.

Here's a look at some of the players and interest groups who will be driving the Social Security debate in the months and years to come.

Privatization's Friends

Any who's who of Social Security privatizers has to begin with the Cato Institute, the free-market think tank that looks to private markets to solve many social-policy problems that others regard as the province of government. Cato is spending some $3 million on its multiyear Project on Social Security Privatization to develop and market a blueprint based on Chile's transition from a public to a private pension system.

"It's Cato's No. 1 issue," said Leanne J. Abdnor, the group's vice president for external affairs. "As far as think tanks go, we're doing far and away more than anyone else." She estimates that she's spending 95 percent of her time on the privatization project, which is headed by Cato scholar Michael Tanner. Its advisory board is co-chaired by Jose Pinera, the architect of Chile's system, and William Shipman, a principal at the State Street Global Advisors investment firm.

State Street has chipped in $20,000 toward Cato's Social Security project. Other corporate contributors, which Abdnor said have typically donated between $20,000 and $50,000, sometimes for two or three years running, include American Express Co., Citibank, Alex. Brown Inc., the insurance giant AIG, International Business Machines (IBM) Corp. and Digital Equipment Corp. Such donations--particularly contributions from banks and investment companies--tend to buttress the suspicions of privatization foes that Wall Street firms, which stand to gain from a system of personal retirement accounts, are driving Social Security reform efforts. But some other groups advocating Social Security privatization insist they've had no luck raising funds from Wall Street, perhaps because investment firms fear that they will appear greedy if they publicly support individual accounts.

Cato's offensive includes position papers, op-ed pieces and educational videotapes (including one titled An American Crisis: Social Security and You). The think tank also sponsors frequent policy forums and conferences. In December, it will hold a major international gathering in London--"Solving the Global Public Pension Crisis: Opportunities for Privatization"--cosponsored by The Economist magazine. A Cato delegation met recently with the NEC's Sperling to make its privatization pitch.

Libertarians aren't the only ones looking to revamp Social Security. Democrat Sam Beard, a onetime aide to the late Sen. Robert F. Kennedy who has spent nearly three decades as head of a Delaware-based nonprofit group called the National Development Council, is crusading for private retirement accounts through Economic Security 2000, a group he founded in 1995. He and his small staff travel the country speaking to Rotary Clubs, editorial boards and civic groups in an effort to build a state-by-state grass-roots network of volunteer activists. Their goal: replacing today's pay-as-you-go Social Security program with a funded pension system of individual accounts invested in the stock market. "If there's no grass-roots pressure, we won't adjust Social Security until there's a crisis, and then it's too late," Beard said in an interview.

The organization has chapters in 23 states so far, with about 10,000 members. But its size pales in comparison with the 200,000-strong membership roster of the Concord Coalition, the grass-roots anti-deficit group founded by the late presidential candidate Paul E. Tsongas. But Beard's group has plenty of organizing experience--several of his young employees got their start working for Tsongas and Concord--and he hopes to boost the group's membership and its finances with a direct-mail campaign early next year.

Economic Security 2000 also works in tandem with larger organizations such as the United Seniors Association, the 60-Plus Association, the National Association for the Self- Employed, the United States Junior Chamber of Commerce (Jaycees) and the National Grocers Association. The group has a budget of about $750,000 for 1997 and aims to raise $2.5 million in 1998. It has received grants from several foundations, including the John M. Olin Foundation, the M.A. Schapiro Fund, the Milliken Foundation, and the J.M. Kaplan Fund, which has provided financial backing to several organizations working on privatization plans.

Beard's group has also received personal donations from two board members: Robert W. Galvin, the former CEO of Motorola Inc.; and Edgar S. Woolard Jr., the chairman of the board of E.I. Du Pont de Nemours & Co.

Interlocking Directorates

The world of Social Security reformers is a small one, full of overlapping activities and interlocking directorates. Another central player is Mark A. Weinberger, the former chief of staff to the President's 1994 Bipartisan Commission on Entitlement and Tax Reform, who's now an attorney with the law and lobbying firm Washington Counsel. A tax lawyer by training, Weinberger was chief tax and budget counsel to former Sen. John C. Danforth, R-Mo., then moved on to the entitlement commission, which was co-chaired by Danforth and Sen. Bob Kerrey, D-Neb.

Weinberger sits on Cato's privatization advisory board, although he doesn't advocate outright privatization. Instead, he prefers a "two-tiered approach" that would address the long-term solvency of the system while also introducing private retirement-savings accounts. He also sits on a 24-member panel on retirement policy established this year by the Center for Strategic and International Studies, a Washington think tank better known for its right-of-center foreign policy analysis. Weinberger's firm itself held a major Social Security conference last year, hosts speakers on a regular basis and is planning a series of conferences for 1998 to review the status, politics and substance of the retirement policy debate.

Weinberger said his personal interest in and knowledge of the subject--and not any paying clients--are what drives his involvement in the issue. "We don't really have any clients who pay us to lobby on Social Security," he said. "I'm not aware of a lot of people paying for Social Security representation, mostly because most people don't know what the right answer is." He's among those who believe many Wall Street firms have been scared away from actively backing private accounts by articles in The Wall Street Journal and elsewhere suggesting that investment houses are salivating at the prospect of hundreds of millions of dollars in new commissions. Still, Weinberger said, "I do think, over time, this debate is going to...attract a lot of attention and resources."

Weinberger and a dozen other retirement-policy reformers sit on the board of a new organization called the Retirement Security Alliance, which they formed recently to coordinate the multitude of Social Security overhaul initiatives now under way. Headed by 34-year-old Jonathan Edwards, a Tsongas campaign veteran who went on to become Massachusetts director of the Concord Coalition, the alliance is run from a small office provided by Weinberger's downtown Washington firm. The group hasn't united on a particular Social Security proposal--its mission statement calls vaguely for "public education" and "innovative solutions"--but its members are clearly sympathetic to some variation on the theme of private retirement accounts invested in the stock market.

The coalition's board members include Abdnor of the Cato Institute (who also sits on the board of the Secure Retirement Coalition, a networking group of Washington women who follow retirement policy); representatives of the Jaycees, IBM, Pfizer Inc., State Street Global Advisers and the Securities Industry Association; Brian Keane, the executive director of Economic Security 2000; representatives of the National Urban League and the National Association of the Self-Employed; Martha Phillips of the Concord Coalition; and Richard Thau, who heads the fiscally conservative Generation-X advocacy group Third Millennium and who first began efforts to organize a reform coalition last November.

With the federal deficit now on the wane, Concord recently launched its own entitlement reform campaign, dubbed the Paul Tsongas Project, with financial support from the National Association of Manufacturers. By hosting public forums around the country, the project will play up the need for far-reaching Social Security and Medicare reforms. It will also use a role-playing game, modeled after Concord's anti-deficit exercises, in which participants review policy options and draw up reform plans.

And yet another grass-roots effort to push for Social Security changes will soon be undertaken by Citizens for a Sound Economy (CSE), which has close ties to GOP legislators. The Washington-based free-market advocacy group has 250,000 members and offices in eight states.

Elizabeth Tobias, CSE's director of tax and budget policy, offered few specifics about the group's plans, but said in an interview that the budget for the Social Security initiative will be "in the millions of dollars."

Fighting the Onslaught

So what are anti-privatization groups doing to defend the traditional Social Security program from this onslaught of advocacy? To some extent, labor and senior citizens' groups seem to be keeping their powder dry, as they wait to see what specific proposals emerge when the White House and Congress take on retirement policy in earnest. After all, the burden of proof--and the highest political risk--will probably lie with those who want to significantly transform Social Security.

Meanwhile, just like their adversaries, traditionalists are talking about the need to educate the American public. But unlike the privatizers, they believe the key lesson to pass on is that the sky is not falling, and that dramatic changes will cause more problems than they solve.

Gerald Shay, an AFL-CIO social policy analyst and a top aide to the labor federation's president, John J. Sweeney, said the labor group's leadership has been engaged in "an internal process" to decide what kind of educational campaign it wants to undertake. The effort will be launched this fall, he said, and would have started even sooner had the union not been sidetracked by this year's budget battle and the ongoing debate over fast-track trade-negotiating authority.

"I expect this to be a major, long-term campaign because of the importance of the issue," said Shay, who served on the sharply divided 1994-96 Advisory Council on Social Security, which issued its final report in January. He was a member of the traditionalist contingent led by former Social Security commissioner Robert M. Ball. That group strongly opposed the varying degrees of privatization proposed by the two other factions, although it did suggest that the government itself might boost Social Security returns by investing a portion of payroll tax revenues in private securities.

Shay said the labor group has not yet decided on a clear battle plan for the fight ahead. "We don't really know what shape the policy debate will take, and that will determine what specific tactics we use." He noted that the AFL-CIO's internal polling shows that union members support Social Security even more strongly than other groups do, which means that the AFL-CIO's approach to mobilizing its own members will most likely be somewhat different from its efforts to shape the general public's perception of the program.

Still, Shay made clear that the labor federation can bring plenty of muscle to bear on the issue when it decides the time is right. He pointed to its recent efforts to oppose fast-track trade authority: $1.5 million in television ads, nearly a million pieces of mail sent to voters in the districts of 80 House Members who are crucial swing votes in the debate and plans for making half a million phone calls from paid phone banks. "That's an example of the kind of thing that we would do over Social Security legislation," Shay said. Labor unions have also contributed to liberal advocacy groups such as the Campaign for America's Future, which has taken a strong stand against privatization.

At the American Association for Retired Persons (AARP), the talk is also of education and outreach. "With respect to the long-term solvency of [both] Social Security and Medicare, we believe the next step is to begin a public debate about the nature of the problem," said the group's chief lobbyist, Martin Corry. "That's the first step, as opposed to what I think some people would like to do, which is get a bunch of policy makers and policy wonks in a budget hearing room, get out the [Congressional Budget Office] options book and cook up a bill."

Corry said the AARP hasn't ruled out policy options such as raising the Social Security retirement age, but the 30 million-strong advocacy group for the elderly clearly views the problem as eminently manageable within the current model. "There isn't a looming crisis," said Corry. The notion that Social Security is a ticking fiscal time bomb "is maybe convenient if you're trying to hot-wire some sort of solution, but we doubt the public is going to be spooked into something when they understand that it could lead to large increases in their taxes or large cuts in their benefits."

Corry said there may be room for some changes to Social Security, and noted that baby boomers and Generation X-ers talk a good game about taking greater personal responsibility for their retirement security. But he complains that outright privatizers "have been a little less than forthcoming about the transition costs" that would be required to pay promised benefits to retirees while moving to a system of private accounts. As for the Chilean system that Cato is so fond of: "With all due respect to the Chileans," said Corry, comparing the United States to Chile "is like comparing the Sistine Chapel to cave drawings."

At bottom, the debate about the future of Social Security is really about what sort of social contract the nation wants. "To totally privatize is really to say, `We really don't look at people in this country as spreading the risk and helping each other . . . you're on your own,' " said Martha McSteen, a former Social Security commissioner who now heads the National Committee to Preserve Social Security and Medicare, a 5.5 million-member advocacy group for the elderly. And privatizers, while often stressing that they want to retain a retirement safety net, don't necessarily disagree--they're all in favor of self-reliance. Why, they ask Americans, should the government insist on investing your money for you at a miserable rate of return, when you could do much better on your own?

Taking those disparate worldviews and turning them into a viable retirement policy won't be easy for lawmakers or private citizens. But Cato, the AFL-CIO and numerous interest groups in between will see to it that they get plenty of help making up their minds.

NEXT STORY: The "Black Helicopter Caucus"