Has the collapse of Enron finally pushed social security “reform” off the political agenda for the foreseeable future? Half the stock in Enron employees' 401(k) retirement plans was Enron paper, contributed as a company match, for which of course Enron took tax deductions. Then, when Enron went into its final plunge, the company's executives froze the stock in the 401(k) plans, thus denying workers any chance to salvage their retirement nest eggs, even as the company's stock went through the floor. Senior executives skipped clear of the rubble with millions, even as they sent in “grief counsellors” backed by cops to subdue their furious employees.
September 11 interrupted many political conspiracies in America, none more fraught than the long campaign by the mutual funds industry to refashion Social Security. And as with many other nefarious projects, September 11 placed the Bush team on far more favorable ground than the mire in which the President found himself at the end of the summer, unable to balance the books with a raid on Social Security's famous “lock box,” rhetorical shorthand for a pledge not to use the Social Security account for other purposes.
In these days of the great War on Terror, Bush hasn't had to worry about the sort of promises he was spouting on the campaign trail in 2000 when, four days before the election, he told a crowd in Saginaw, Michigan, that protecting the Social Security trust fund was going to be one of his top priorities. Employees' Social Security taxes, he pledged, were “only going to be spent on one thing, what they're meant for, Social Security. We're not going to let Congress touch them for any other reason.”
Now the fall of Enron, whose CEO Ken Lay gave Bush $2 million, has once again put the “reform” lobby on the defensive. But for how long? Consider what a close call the system had in the Clinton years.
Accounts by Clinton White House insiders this last summer have made it clear that had it not been for Monica Lewinsky's captivating smile and inviting snap of that famous thong, President Bill Clinton would have consummated the politics of triangulation, heeding the counsel of a secret White House team supervised by Treasury's Larry Summers. Late in 1988 or in the State of the Union message for 1999 a solemn Clinton would have told Congress and the nation that just like Welfare the Social Security system was broke, had to be mended and its immense pool of capital tendered in part to the mutual funds industry. The itinerary mapped out for Clinton by the Democratic Leadership Committee would have been complete.
It was a desperately close run thing. On the recent accounts of members of Clinton's secret White House team assigned to map out the privatization path for Social Security, they had got as far down the road as fine tuning the account numbers for Social Security accounts to be released to the captious mercies of Wall Street. But in 1998 the Lewinsky scandal burst upon the President and as the months sped by and impeachment swelled from a remote specter to a looming reality Clinton's polls told him that his only hope was to nourish the widespread popular dislike for the hoity-toity elites intoning his death warrant.
By the end of 1998 the secret team concluded with heavy heart that the escalating Lewinsky scandal might doom all their efforts. The President was desirous of being seen as doing something dramatic for Social Security, not anything deemed risky to the retirement plans of ordinary pensioners. It could be controversial, but controversial in the direction of doing more for the program, not endangering it. In an instant Clinton spun on the dime and became Social Security's mighty champion, coining the slogan, Save Social Security First.
In his 1999 State of the Union address Clinton seized the initiative from the privatizers with a bold new plan that gave substance to the “Save Social Security First” slogan. He proposed that 62 per cent of the budget surplus be used to build up the Social Security trust fund. He promised to veto any attempt to divert Social Security funds to other uses and he urged that 15 per cent of the trust fund should be invested in the stock market, not by individuals, but by the Social Security administration.
The Clinton plan as a whole went down well with the American people. Republicans were swiftly moved to insist that they too would give priority to Social Security. Pessimism about the future of the program was replaced by a swelling consensus that the program must and could be saved. All that was needed was the will and a resolve not to squander the trust fund.
Despite the political perils, Social Security reform will always be on the agenda. The question is: on what terms? Government can either hand over chunks of the system to Wall Street and court the risk of Enron writ large. Or government can build on the original mandate of Social Security as a public endeavor, including one element of the 1999 Clinton strategy, namely the idea that the Trust Fund should acquire its own assets.
In a recession-hit economy these assets could include public bonds linked to investment in education or urban renewal, or they could involve the injection of funds into sectors downcast by post-bubble blues.
This would, it's true, go further than Clinton ever suggested, but it would be in the spirit of the hopes of many of the proponents of the original trust fund when it was added to the program in 1939.