Social Security For The 21st Century

James L. Martin

White House critics are shocked, just shocked, that President Bush has named people who agree with him to a new commission that’s supposed to redesign Social Security so the program provides a decent retirement for future generations.

What’s the matter with the president? Doesn’t he understand that the only purpose of a presidential commission is to “study” a program, and that the rules of engagement require him to appoint enough people from the “other” side so the problem never, ever goes away?

Apparently the Austin heretic picked up a few tricks of his own while earning his MBA at Harvard Business School. Lesson one: You want to get something done, put together a team that shares your vision. Lesson two: You want to know how to do something, study those who have done it successfully.

Unlike AARP, the 60 Plus Association recognized years ago that the retirement system designed during the Great Depression is a burden, not a blessing, for today’s younger workers. They will pay FICA taxes for 45 or more years, and if they are fortunate enough to live long enough (retirement age will increase to 67 under present law), they will get back less money from Social Security than they would have earned from U.S. Savings Bonds.

That’s why we want to give our children and grandchildren a chance to do better and as early as 1995 have been urging that younger workers be allowed to put some of their taxes into personal retirement accounts. But how do you structure such a program? Where can the president’s new Social Security commission find information — case studies – on countries that have done this successfully? The answer is — almost anywhere. The list of countries that have privatized their national retirement programs is extensive: Australia. Chile passed the concept in 1981. Great Britain in 1986 (in fact, as a result of their privatization Britain’s pension pool has approached the value of the country’s annual economic output and is, in fact, larger than the pension funds of all other European countries combined). In recent years, Hungary. Mexico. Colombia. Poland. Peru. Even Sweden, the bulwark of enlightened cradle-to-grave socialism, and China, are moving toward privatization. Altogether, more than two dozen countries in Europe, Asia and Latin America have privatized their systems fully or partially. But all we have had to date in the United States is hand wringing and a lot of talk.

The Bush commission will find a large body of literature on the experiences of the other countries, from organizations as diverse as the World Bank and the Heritage Foundation. They should examine the details of all these countries’ programs, to see what worked, what didn’t and why — and design the plan for the United States accordingly.

As Harvard Business School graduates would be quick to tell you, we can learn from both their successes and their problems. And then, having absorbed this information, we can do it better.

There are, of course, some basic principles they should follow: First, make the program voluntary. Nobody should be forced to open a personal retirement account. If the 30-year-old air conditioning repair man, the 26-year-old school teacher and the 43-year-old department manager at Wal-Mart want to stay fully vested in the current Social Security program, that should be their right. But they should understand that when they retire they will just barely get back (if they are lucky to live long enough) what they paid into the system.

Second, make sure the investment component is built atop an adequate, guaranteed base, or “safety net,” so nobody need fear retirement poverty.

When I came to Washington as a newspaper reporter in 1962, John F. Kennedy was president, Neil Armstrong had not yet walked on the moon, Strom Thurmond was still a Democrat and the only person who seemed to recognize Social Security’s long-term problems was Barry Goldwater.

Since then we have had numerous studies and commissions, we’ve increased payroll taxes and raised the retirement age — and Social Security is still facing collapse in the not-too-distant future.

Mr. Bush has done the right thing. He has appointed a commission whose job it is to update the 66-year-old program for the new times we live in, a new and improved system for future retirees.