July 30, 2001

July 30, 2001 | Commentary on Social Security

Sputnik and Social Security

If members of the president's Social Security commission are interested in the latest thinking on pension reform, all they have to do is book a flight to Beijing.            

China announced in July that it will experiment with reforming its social security system. Under a trial program in one Chinese province, millions of workers will be able to invest a portion of their retirement funds in China's stock markets, the Dow Jones financial news service has reported.

Now this is weird. Suddenly China-home of communism, a state-enforced one-child-per-family policy and the 1989 Tiananmen Square massacre-is the chic capitalist, investing in the stock market to make sure its workers have enough money for retirement. Meanwhile, the United States-home of Wall Street, the Nasdaq and baby-faced day traders-clings to a government program that's changed little since it started more than 65 years ago.            

Many Americans, including President Bush and my Heritage Foundation colleagues, understand the need to modernize the Social Security system. The program is expected to start running deficits in 2016, just as millions of baby boomers-the ones now giving it windfall surpluses through their payroll taxes-are retiring.

It's a demographic time bomb, as fewer workers are forced to support a growing number of retirees (who, thanks to better diets and medicine, will live far longer than their parents did). In 1950, there were 16 workers for each Social Security recipient. Today, there are only about three workers for every retiree. By 2030, the ratio will be 2 to 1.

The financial ramifications are enormous: By 2037, the program, if left on autopilot, will be able to pay only three-quarters of what it promises. A draft report from the president's commission, released in mid-July, estimates that an additional $7 trillion (yes, "trillion"-with a "t"-as in $7,000,000,000,000) will be needed by 2040 to meet the program's shortfalls.            

Yet despite the warning signs, one Congress after another has done little more than provide temporary fixes-all the while demagoguing the issue. China, meanwhile, with an oppressive government run by communists, has shown the resolve to do the right thing.

And it's not alone. From Europe to Africa to South America, dozens of other countries are modernizing their systems. Australia's done it. Great Britain's done it. So have Chile, Mexico and Germany. Even Sweden, the paragon of "cradle-to-grave" socialism, has turned to personal investment accounts to shore up its pension system.

Hopefully, China's small step toward reform will embarrass U.S. lawmakers into moving faster on Social Security reform here at home. Playing catch-up with other countries is hardly a new phenomenon: On Oct. 4, 1957, the Soviet Union launched Sputnik, a satellite that could orbit the Earth in 98 minutes. Caught off guard, we jumped head-long into the space race by building better rockets and stressing science and math in our schools. Barely 12 years later, American astronauts landed on the moon.

The stakes on Social Security reform may not seem as high as they were in the space race. (One scientist in 1957 said the American way of life was "doomed to rapid extinction" if kids didn't study more science). But like the space race, we can pull ahead by creating a better Social Security system -- one with personal investment accounts that easily outperform what U.S. workers can expect from their government pensions.

Social Security reform is long overdue. It's time to fix the program-even if some of the instructions on how to do it are written in Chinese. 

  Edwin Feulner is president of The Heritage Foundation (www.heritage.org ), a Washington-based public policy research institute.

About the Author

Edwin J. Feulner, Ph.D. Founder, Chairman of the Asian Studies Center, and Chung Ju-yung Fellow
Founder's Office

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