This paper provides an in depth analysis as to why the privatization should not be assumed.

Abstract

It can not be disputed that a significant percentage of Americans benefit significantly from the social security program. In the recent past, the sustainability of this program has been questioned and concerns regarding its long term financing have been raised. Relevant stakeholders have proposed various intervention measures that can be used to counter the scenario. The underlying aim of this program is to safeguard the health of the American population as well as their pension. Among the options that have been suggested to address the inherent issues pertain to privatization of the program. This paper indicates that privatization at this point of time will impact adversely on the welfare of the beneficiaries. As such, other options especially pertaining to review of taxes need to be explored to provide viable solutions.

Key Words: Social security, anti-privatization, health

Anti-Privatization of Social Security

The social security program of the United States began in 1935 under the leadership of President Roosevelt. The main aim of this was to offer a safety net and protect the health of American workers as well as their families during incidences of early death, disability or retirement. Since then, the program has greatly benefited the American population and currently, statistical evidence shows that a significant fifty six million are beneficiaries. However, concerns regarding the sustainability of the relative program have been raised in the recent past. In particular, it as been projected that this program would not be able to sustain its operations as cost benefits is likely to exceed the tax revenues by 2016. This will have far reaching implications on its holistic welfare and it might be threatened by insolvency by 2032. Certainly, intervention measures need to be undertaken in a timely manner to counter this. Regardless of the inherent urgency, the privatization suggestion is not worthwhile and should not be assumed. Besides having negative effects on the beneficiaries, it very implementation is compounded by various complexities. This paper provides an in depth analysis as to why the privatization should not be assumed. To enhance coherence, it suggests an alternative solution that can be used to address the current problem.

To begin with, offsetting a privatization system is costly and will probably impact negatively on the already vulnerable situation. In order to enhance a harmonic transition, the government would be required to continue providing for the beneficiaries with required services. In other words, the process would run parallel to the current system; implying the need to source for alternative funds to finance the implementation process. According to Holman, this will cost it an estimated one to two trillion dollars in extra (Holman, 2009). Generally, the upfront costs that are essential for implementing the program are massive. Other relative costs would be employed in carrying out capacity building to the public. Further, there would be need to consult amongst major stakeholders in order to capture their individual views regarding the issue. The need to mainstream all concerns in the implementation process is fundamental as it enhances sustainability. Notably, the process is bureaucratic and is likely to consume a significant percentage of resources. For a system that is already susceptible to financial problems, privatization at this stage is apparently harmful.

Currently, the social security program has a centralized system of operation. All benefits are provided by a single institution and dictated entirely by the government. Thus the procedures are simple and well defined. This has made follow up of certain concerns easy and has improved its efficiency. Swedniman and Nicola (2008) posit that privatization is likely to alter the current state of affairs and culminate in decentralization of the process. In order to enhance optimal functioning, this would be compelled to factor in diverse preferences and opinions of millions of individuals. In addition, the process would be expected to incorporate the complex expectations of the stakeholders such as investors. Although this is important, it is worth noting that it is likely to have far reaching effects on the beneficiaries. Moreover, the relative policies are likely to be altered in order to capture these concerns. For instance, Koitz (2001) indicates that privatization is likely to reduce integral insurance protections like survivors insurance an disability insurance that are currently provided by the system. Reportedly, these cuts would be expected to go towards financing the program. In the long run, Koitz (2001) contends that the program is likely to undermine the quality of life of the Americans that benefit immensely from it.

In their review, Orszag and Diamond (2005) cite that privatization essential entails putting the retirement benefits of the public in stock exchange. This environment has potential problems, is volatile and can be risky because of the inherent uncertainty. This is particularly so because the stock market is crowded with unscrupulous stock brokers whose main aim is to fulfill their financial dreams. This would make the retirement benefits liable to being misused or lost altogether in ambiguous deals. Moreover, it limits the autonomy of the owners of these benefits who would be willing to explore their individual investment options. Besides, effective participation in it requires a clear understanding of the economic and financial trend of the country. Notably, the intricate relations that characterize the environment are complex and most of the public is not conversant with constituent procedures. Modigliani (2003) contends that indeed, the structure o the stock market and investment portfolio is very complex. As such, it may not be easily understood by the public that does not have background information or interest in the system. This exposes the beneficiaries to an uncertain environment and compromises their ability to benefit from the system. Undoubtedly, this has adverse effects on its holistic wellbeing.

In conclusion, it is certain that the privatization of social security is a complex process that has potential negative impacts on the beneficiaries. As it has come out form the preceding analysis, the costs of starting the process are very huge because of the need to continue financing the current system simultaneously. Then, privatization is likely to culminate in decentralization of the process and relative policies regarding cuts in benefits impacts negatively on the quality of life of the beneficiaries. Also worth appreciating is the investment in the stock market issue that risks the retirement benefits of the affected population. Besides the public having little knowledge about the complex structure of the stock market, the very market is compounded by volatility and uncertainty. At this point, it can not be disputed that irrespective of the dire need to counter the current shortcomings in the social security system, privatization does not offer the best solutions. The most viable solution would be to implement tax reforms that would boost the financial welfare of the system. In particular, the solution lies in pushing for a regressive value added tax or a flat tax. This would ensure that the working segment of the population contribute a bigger share towards the system. Comparatively, it is better than privatization.

References

Holman, J. (2009). Can Obama make government solvent? Wall Street Journal, 3 (1), 12-13

Modigliani, F. (2003). Rethinking pension reform. UK: Cambridge University Press.

Koitz, D. (2001). Seeking the middle ground on social security reform. Stanford: Hoover Institution.

Orszag, P., & Diamond, P. (2005). Saving social security: A balanced approach. Washington: Brookings Institution Press.

Swendiman, K., & Nicola, T. (2008). Social security reform: Legal analysis of social security benefit entitlement issues. Congressional Research Service, Aging.Senat.Gov, 1 (1), 5-8.