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They Invested Years in Private Accounts
WASHINGTON — Back in 1997, proponents of overhauling Social Security met with the man who would become their most powerful convert: Texas Gov. George W. Bush, whose presidential ambitions were beginning to gel.
The governor dined with Jose Piñera, architect of Chile's 1981 shift from government pensions to worker-owned retirement accounts, in a meeting that helped bring Bush a big step closer to embracing a similar plan for Social Security in his emerging presidential platform.
"I think he wanted to support the idea but needed to be convinced," said Edward H. Crane, president of the libertarian Cato Institute, who was at the dinner. "I really think Jose convinced him."
This week, President Bush's plan to allow younger workers to divert Social Security taxes into personal investment accounts will be a centerpiece of his State of the Union address and a barnstorming tour of the country. It is a tough sell to an uncertain public, but Bush has a secret weapon: A generation of free-market conservatives like Crane and Piñera has been laying the groundwork for this debate.
"It could be many years before the conditions are such that a radical reform of Social Security is possible," wrote Stuart Butler and Peter Germanis, Heritage Foundation analysts, in a 1983 article in the Cato Journal. "But then, as Lenin well knew, to be a successful revolutionary, one must also be patient and consistently plan for real reform."
Now, Bush is drawing on a deep reservoir of resources — including policy research, ready-to-hire experts and polling on how to discuss the issue — that conservatives have created over the last 20 years.
When he needed a committed ally at the highest levels of the Social Security Administration, Bush two years ago tapped Cato's staff. When Bush told African American leaders last week that blacks would especially benefit from his proposal, he drew from a controversial 1998 Heritage Foundation paper arguing that African Americans were shortchanged by the current system because of their shorter life spans.
Thanks in part to the work of think tanks like Cato, Heritage and the National Center for Policy Analysis, Bush is also benefiting from a public opinion climate that is far more receptive to changing the government retirement system than it was 20 years ago.
That is partly because these groups have broadcast a consistent message: Social Security is financially unsustainable and will collapse after the baby boom generation retires. Although that is debatable, polls show that most Americans lack confidence in the program's future.
"It started as the third rail of politics, but over a period of time conservatives kept at it until [their assumptions] began to sound like common sense," said George Lakoff, an expert in political communication at UC Berkeley.
Critics of personal accounts, such as the AFL-CIO and the seniors lobby AARP, have mobilized to counter that Social Security is in good health and sustainable with minor modifications. They also argue that to pay for worker-owned accounts, the government would have to cut benefits or take other steps that undermine the health of the system.
Critics also point to the Chilean program that Bush cites as a model, and say it demonstrates the potential pitfalls of private accounts. Recent reports indicate that, as the first generation of Chilean workers on their new system begins to retire, many believe it is failing to deliver as much in benefits as they would have received under the old system.
But Dan Maffei, spokesman for Democrats on the House Ways and Means Committee, concedes: "Democrats are playing catch-up, because they haven't done 20 years of groundwork."
When free-market economist Milton Friedman advocated privatizing Social Security in 1950s and 1960s, it was mostly an academic argument. By 1977, when Crane established the Cato Institute to advance libertarian ideas, Social Security was a signature issue.
Even as a young man, Bush was sympathetic to revamping the program. When he ran for Congress in 1978, he argued that the program would go broke by 1988 if people were not given the ability to invest the money themselves, according to the Texas Observer. But Bush lost that House race and apparently was not persuaded to push the issue again until decades later.
Most politicians of both parties remained skittish about Social Security changes, even after President Reagan was elected in 1980 on an anti-government platform.
Edwin Feulner, president of the Heritage Foundation, remembers meeting in the Capitol with House Republicans to discuss policy after Reagan's election. After discussing such topics as transportation and foreign aid, Feulner broached Social Security, but Rep. Robert H. Michel (R-Ill.), then the House GOP leader, interrupted by placing a cautionary hand on his arm.
"We don't talk about changes to Social Security inside this building," Michel said.
Reagan quickly learned why. In 1981, he proposed cutting benefits to shore up the retirement fund, which was close to insolvency. That drew a hailstorm of criticism and contributed to heavy GOP losses in the 1982 elections.
Social Security was instead rescued in 1983 by a commission that gave scant consideration to offering a private accounts alternative. The panel recommended bailing out the program with payroll tax increases and benefit cuts, a plan approved by a bipartisan majority of Congress.
After that experience, analysts Butler and Germanis argued in their prescient 1983 article — provocatively titled "Achieving a 'Leninist' Strategy" — that privatizing Social Security required a calculated, long-term campaign to transform the political environment.
The steps they recommended were strikingly similar to the course Bush has taken: reassuring retirees that their benefits would not be cut and arguing that Social Security is financially unstable.
"Our reform strategy involves what one might crudely call guerrilla warfare against both the current Social Security system and the coalition that supports it," they wrote. "An economic education campaign
must be undertaken to demonstrate the weaknesses of the current system."
What's more, they argued, "building a constituency for Social Security reform requires mobilizing the various coalitions that stand to benefit from the change
. The business community and financial institutions, in particular, would be an obvious element in the constituency."
That foreshadowed the course conservatives took through the 1980s and 1990s.
They issued studies detailing Social Security's long-term financial problems, promoting the idea that the program would go bankrupt. They wrote that benefit checks represented a low rate of return on each worker's tax payments, an idea pioneered by the Heritage Foundation. By viewing tax payments as a poorly performing investment, they challenged the long-standing image of Social Security as a form of pooled, national insurance for the elderly.
But as of 1996, changing Social Security was not Republican orthodoxy. Steve Forbes endorsed the idea when he ran for president that year, but he was hammered for it by Sen. Bob Dole of Kansas, who became the GOP's nominee.
The political climate changed significantly over the course of the 1990s. Even some Democrats, such as Sen. Daniel Patrick Moynihan of New York and President Clinton, warned about Social Security's long-term financing problems and started toying with the idea of private accounts.
A 1999 Cato report gave Republicans a new rationale for market-oriented change. The study found that people with stock investments were more likely to sympathize with Republican policies of cutting taxes and curbing government spending. That bolstered a view, shared by some Bush advisors but rarely expressed publicly, that changing Social Security to increase the number of people with a stake in the stock market would help the Republican Party expand its base.
By 2000, every GOP presidential candidate except for Gary Bauer supported worker-controlled retirement accounts.
Bush's support was prodded by his 1997 meeting with Crane and Piñera. At the time of the meeting, arranged by Cato supporters in Texas, Bush had reservations about whether the issue was too politically explosive to campaign on, Crane said. But Bush was already clearly well-versed in the subject.
"I was pleasantly surprised by the kind of intelligent questions he asked," said Crane.
When he finally put together his presidential campaign, Bush found the idea of expanding private investment through Social Security an especially appealing part of his theme of "compassionate conservatism," according to a former Bush aide.
"There is a fundamental difference between my opponent [Democratic nominee Al Gore] and me," Bush said in May 2000. "He trusts only government to manage our retirement. I trust individual Americans. I trust Americans to make their own decisions and manage their own money." It was the kind of free-market argument that fellow conservatives had been honing for years.
During his first term, Bush appointed a commission to recommend changes in Social Security that was as heavily stacked with proponents of personal accounts as the 1983 commission was stacked against them. It produced a report that outlined three options, all of which included some form of personal accounts.
Now that he is pushing for Congress to act, Bush is tapping the community of long-standing advocates of private accounts. The White House regularly consults the think-tank experts who have been writing about Social Security for decades. The administration's point man on Social Security, Charles P. Blahous III, is former executive director of a business coalition formed to lobby for personal accounts.
The revolving door has swept a top Cato analyst into the upper echelons of Bush's apparatus for promoting the new policy: Andrew G. Biggs, who spent several years at Cato, now is associate commissioner for retirement policy at the Social Security Administration.
For these free-market devotees, winning the Social Security battle would be more than just the capstone of Bush's second-term agenda. It would also be the culmination of a generation-long drive to chip away at the New Deal's cornerstone and transform the role of the federal government.
"You have extremely high expectations among conservatives that real change is going to take place," said Stephen Moore, an activist who backs overhauling Social Security. "Conservatives have waited 20 years for this alignment."
Staff writer Warren Vieth contributed to this report.