Privitazation Foes Push Government Investment

August 3, 2001

More and more opponents of privatization are endorsing government investment as an alternative to individual accounts. The latest such proposal was offered by Senator John Corzine (D-NJ) and Representative Ellen Tauscher (D-CA) at a press conference sponsored by the National Committee to Preserve Social Security and Medicare. Corzine and Tauscher suggested that 10 to 13 percent of the Social Security surplus would be invested directly in private capital markets. They proposed that the Federal Reserve Board could manage the funds, and that the investments would be in mutual funds that tracked broad market indexes.

However, while Corzine and Tauscher cited state and municipal pension funds as an example of successful government investment, those programs have actually been highly politicized. Roughly 44 percent of state, county, and municipal pension programs contain targeted investment requirements (such as a requirement to invest in renewable energy, housing, or in-state industries). An additional 25 percent of funds have restrictions on their investments (such as prohibitions on investing in tobacco stocks or companies doing business in Cuba or Burma.) State pension funds have also attempted to use their influence to dictate corporate policy, allowing the government to interfere in the marketplace.

For more information on the dangers of government investment, see "The Perils of Government Investing," by Michael Tanner, (Cato Briefing Paper no. 43, December 1, 1998.)

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