By John D. McKinnon And John Harwood, The Wall Street Journal
Maya L. Jackson contributed to this article.
Tuesday, June 12, 2001
Washington -- As the Bush administration officially launches its effort to privatize Social Security, it is about to get a big -- and generous -- helping hand from investment firms.
President Bush's pro-privatization Social Security commission held its first meeting here Monday. Elsewhere, a range of financial-services firms are pooling their efforts, and millions of dollars for advertising, to assist him in raising public concern about the retirement program's woes. But the ad dollars are a pittance compared with the billions at stake for Wall Street should Mr. Bush achieve his goal of carving private accounts from Social Security.
Frank Russell Co., formulator of the Russell stock indexes, has joined executives from State Street Global Advisors, a unit of State Street Corp.; Mellon Institutional Asset Management, a division of Mellon Financial Corp. of Pittsburgh; and other financial-services firms to create the Coalition for American Financial Security. The group plans its advertising campaign for this fall to coincide with Mr. Bush's own barnstorming on the issue.
Luncheon With O'Neill
All told, pro-privatization groups hope to raise as much as $20 million. To help build its own war chest, the coalition will hold a luncheon on Monday at New York's Windows on the World atop the World Trade Center, with Treasury Secretary Paul O'Neill as the keynote speaker. Coalition participants say they expect about 50 executives to attend, from companies that include American International Group Inc.; American Skandia, a unit of Skandia Insurance of Sweden; Caterpillar Inc., Citigroup Inc., Deutsche Bank AG and Morgan Stanley. Dues start at $5,000.
0See a chart with some information on where the public stands on privatization.
Given the stakes -- for business, as well as for conservatives and liberals -- other groups are forming for the Social Security debate ahead. The liberal-leaning Center on Budget and Policy Priorities has estimated that if two percentage points of the 12.4% Social Security payroll tax were channeled to workers' private accounts in 2002, the savings would generate $86 billion for investment. But to make the troubled retirement system sustainable over the long haul, Bush administration officials also have raised the possibility that benefits might have to be cut, or retirement ages raised -- two prospects that trouble organized labor.
"You'll see both sides of this debate willing to devote some fairly substantial resources to it," said Michael Tanner, director of the Cato Institute's Social Security reform project. "I think it's going to be a very nasty and very bloody debate."
Even as members of Mr. Bush's reform commission were sitting down Monday in the chandeliered ballroom of the Willard Inter-Continental Hotel here, labor and liberal groups that oppose privatization were countering with a slickly produced media event just down the hall. Organizations at the news conference included the National Urban League and groups representing older women, younger adults and people with cerebral palsy.
Commission members said they aim to have an interim report in a few weeks outlining the problems with Social Security, which is projected to start going broke midway through the next decade. The commission plans to have a draft report ready for its July meeting. A final report is tentatively scheduled for around Thanksgiving.
In a prepared statement as he left on a European trip, the president urged the commission members to devise a plan to help America become a "nation of owners and savers." Co-chairman Daniel Patrick Moynihan, the retired Democratic senator from New York, echoed that idea at the meeting, calling the commission's work an "enterprise as noble as the one in the 1930s" that led to Social Security's creation.
Commission's Pitch to Blacks
Administration officials also hope they can bolster their case for reform by arguing that blacks and other minorities who have shorter life expectancies than whites are shortchanged by Social Security's current design. Commission member Robert Johnson, founder of Black Entertainment Television, said the commission has an opportunity to make the program fairer for African-Americans.
AOL Time Warner Inc.'s co-chief operating officer, Richard Parsons, noted, however, that the commission has a big challenge in raising awareness of Social Security's problems. Those may be obvious in the capital "hothouse," he said, but in the public's perception, "I'm not even sure it rises to the level of confusion." Meanwhile, the commission also has to worry about alarming current retirees, who are most dubious about private accounts, polls show.
That is where the private sector comes in. In addition to the financial-services coalition, the Alliance for Worker Retirement Security, founded by the National Association of Manufacturers and other big-business associations, has led the way in the privatization effort in recent months. It has supplied key staff for Mr. Bush's panel, known officially as the President's Commission to Strengthen Social Security.
A third major pro-privatization group, known as Universal Savers Alliance, also is taking shape among conservative activists. Backed by veterans of the term-limits movement, it is expected to mount an advertising campaign of its own, though no budget details have been announced.
All the groups are likely to work together with the White House to some degree. Already, the Russell-backed coalition has met several times with White House economic adviser Lawrence Lindsey, as well as Treasury officials, according to people familiar with the interactions. The sign-in sheet of audience members for the commission meeting reads like a who's who of Washington lobbying firms.
Critics Warn of Benefit Cuts
Meanwhile, critics are accusing the administration of using scare tactics about Social Security's solvency to force the issue of private accounts. They warn that the administration and the commission can't create private accounts without cutting benefits. "We need to know whose benefits will be cut and by how much," demanded Linda Chavez-Thompson, executive vice president of the AFL-CIO.
The commission begins its work at a time of shifting political dynamics both in the U.S. Senate and within the community of organizations that lobbies on senior-citizen issues. The AFL-CIO, a staunch opponent of privatization, has disbanded a seniors' organization it had supported and formed a new one, the Alliance for Retired Americans. The alliance, which aims to harness the power of union retirees and already claims more than two million members, has denounced Mr. Bush's Social Security commission as "a trillion-dollar sham."
At the same time, it is unclear what role the traditional senior citizens' lobbying heavyweight, the AARP, will choose to play. To the dismay of liberal groups, which say its political clout has receded, it is trying to balance the demands of a membership divided along partisan lines and by the divergent interests of current and future retirees.
While it has declared partial privatization of Social Security unworkable, AARP has remained open to considering Social Security overhaul ideas backed by Republicans, specifically a proposal pushed in the last Congress by then-House Ways and Means Committee Chairman William Archer of Texas.
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