Elizabeth Holtzman, Meet Jose

Driving from my home in Westchester to the train station to get to our Manhattan office one morning, I am [...]

October 1 1996 by JP Donlon


Driving from my home in Westchester to the train station to get to our Manhattan office one morning, I am listening to one of The New York Times’ deep thinkers discuss a new book by former U.S. Congresswoman Elizabeth Holtzman. It seems the erstwhile progressive New York poi has come up with the definitive answer why government at the federal, state, and local levels earns low grades on the average citizen’s applause meter. Among her contributing factors is-are you ready?-”too much privatization.”

As a former Upper West Side Manhattanite, I once was accosted by the very same diminutive Democrat at my 96th Street subway entrance when she was running for mayor of New York City. She wanted to know what she could do for us “progressive” West Siders. I suggested she could do us a great service by working to reduce the total take that government demands in combined taxes from its citizens. Wrinkling her brow, she responded that, far from taking too much from its citizens, government deserves more! Yep, good ol’ Liz thought we should cough up more from our weekly paycheck, “because government has so many unmet needs that only it can fulfill.”

Of all the functions traditionally reserved for government, none is more sacrosanct than Social Security. Yet a 1994 poll found that more people in their 20s believe in UFOs than think they will collect a dime in Social Security benefits. And the doubts are increasing each year. A Wall Street Journal/ABC News poll published last year indicated that 29 percent of all Americans expect to receive nothing from Social Security when they retire.

The critical year is 2011. That’s when the first of the baby boom generation turns 65. As more people of this group retire, Social Security expenditures rise sharply. By 2012, the outgoing payments will fly past the Social Security Trust Fund income. By 2019, tax revenues plus interest on the trust fund will no longer be sufficient to pay for promised benefits. That means payroll taxes would have to rise from the current 12.4 percent to 18.8 percent, the Trustees estimate. Otherwise, benefits would have to be cut sharply.

Privatization may be a dirty word in Elizabeth Holtzman’s book, but not in Jose Piñera’s. He served as Chile‘s minister of Labor and Social Security from 1978 to 1980, and led his country’s privatization of its pension system. Having heard the witty and urbane Piñera speak at a Cato Institute gathering in New York, I immediately tapped him to write an article for CE offering readers a blueprint for real reform (see p. 26). What is refreshing about Pinera-and, indeed, the current generation of many Latin American political leaders-is their affirmation that the average citizen is the true beneficiary of free markets and that civic virtue and individual responsibility disappear in a nanny state. Chile had one of the more extravagant state-run pay-as-you-go systems in Latin America. Piñera reports that initially the opposition across the political spectrum was vociferous, particularly among union leaders and government bureaucrats. How did they overcome the objections? Pifiera reaches inside his suit jacket pocket and produces what looks like a blue savings bank book. It’s a Pension Savings Account. Every Chilean carries one. When workers saw for themselves how their private pensions were steadily accumulating wealth, they became the system’s strongest advocates.

In his Capital Ideas column, Pete du Pont argues that CEOs have a stake in privatization. Aside from giving workers true social security as opposed to phony IOUs, privatization would push growth rates up as the savings rate increases and the cost of capital decreases. This being an election year, neither presidential candidate is entirely willing to touch the so-called “third rail” of politics, but the debate has been joined. The 105th Congress and the President, whoever he is, will have to face it. The question is, will he take his cue from a Holtzman or a Pinera?