December 11, 1998
There has been a growing consensus that private investment is the key to any future Social Security reform. According to a new study, "The Perils of Government Investing" by Michael Tanner, director of the Cato Project on Social Security Privatization, "The key questions at the center of the upcoming debate on Social Security's future will be what kind of private investment? And who should do the investing?"
"These are critical question because the implications of government control of investment are potentially fraught with peril. Imagine a government bureaucrat sitting on ever corporate board. It is obvious that allowing the federal government to purchase stocks would give it the ability to obtain a significant, if not a controlling share of virtually every major company in America. Experience has shown that even 2 or 3 percent block of share can give an activist shareholder substantial influence over the policies of publicly trade companies.
"There is a nearly infinite list of current political controversies which would be ripe for restrictions if the federal government began investigating Social Security funds. Both liberals and conservatives would have their own investment agendas." For example, should Social Security invest in:
"Tobacco companies? Companies that do business in Burma or Cuba? Companies that extend benefits to the partners of gay employees? Companies that pollute? Or companies that donate to Planned Parenthood?
The bottom line, warns Tanner, is that government investment of the Social Security trust fund would result in a dangerous mix of government involvement in corporate governance and social investing. You are welcome to contact Tanner directly at 202-789-5258.
(Submitted by CATO Institute; Julia Williams.)
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