Investing social security trust funds

The beneficiaries should be able to decide either through a vote or a transparent representation system which companies they want to invest in.

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I received a letter recently from Dr. Robert Reich, promoting the concept of profit sharing.  He wrote:

“The original idea for businesses to share profits with workers emerged from the tumultuous period when America shifted from farm to factory. 

“In December 1916, the Bureau of Labor Statistics issued a report on profit-sharing, suggesting it as a way to reduce the “frequent and often violent disputes” between employers and workers, thereby “fostering the development of a larger spirit of harmony and cooperation, and resulting, incidentally, in greater efficiency and larger gains.”

“That same year, Sears, Roebuck and Co., one of America’s largest corporations, with 30,000 to 40,000 employees, announced a major experiment in profit-sharing. The company would contribute 5 percent of net earnings, without deduction of dividends to shareholders, into a profit-sharing fund. Employees who wished to participate would contribute 5 percent of their salaries. All would be invested in shares of Sears stock. The plan’s purpose, according to The New York Times, was “to engender loyalty and harmony between employer and employee.” 

“Sears’s plan was admirably egalitarian. Distributions of shares were based on years of service, not rank, and the longest-serving workers received nearly $3 for every dollar they contributed. 

“By the 1950s, Sears workers owned a quarter of the company. By 1968, the typical Sears salesman could retire with a nest egg worth well over $1 million in today’s dollars. Other companies that joined the profit-sharing movement included Procter & Gamble, Pillsbury, Kodak, S.C. Johnson, Hallmark Cards and U.S. Steel — some because it seemed morally right, others because it seemed a means to higher productivity.”

As described by Dr. Reich, This system seemed to work because the workers were inspired to help their own company.  It also helped the workers manage retirement.

I started to think about this in the context of the social security system.  As you know, the Trust Fund is nearly worth $3 trillion, but it is going to dive very soon.  Back in 1999, there was a discussion of improving social security by raising the SS tax, lowering the benefits, or investing in higher yielding investments. I’m thinking that the latter should be re-examined.

For example, the thirty stocks in the DJIA are worth $8.3 trillion.  If you took $2.5 trillion out of the Trust Fund you could purchase more than a quarter of the stock in the DJIA.  Yes, there would be risk, but it would be spread over 30 huge companies.  The likelihood is that the Trust Fund would make money for quite a while.  Furthermore, with  a quarter of the stock, SS could force the companies to lower the salaries of their CEOs and other highly paid workers.

But my thought further was to invest the money in companies whose services retired people use.  For instance, Kroger (which operates grocery stores all over) is worth $7.88 billion.  It has lots of subsidiaries in the grocery business.   If the Trust Fund invested a mere $4 billion in Kroger stock, it would own half the stock, which would probably be a controlling interest.  It could then advise all of its social security members to buy at Kroger stores.  And I’m sure with a little education they would.  If they didn’t like the way Kroger did business, they could use the social security power as stockholder to modify the way the company did business.

With $1 trillion, SS could buy half interests in about 25 companies with similar values.  The objective would be to purchase successful companies providing services to seniors.  For example, Humana Insurance is worth 51.8 billion dollars.  SS could invest $25 billion, and seniors could all buy health insurance through Humana, since they controlled the company.  Humana pays its top executives about $32 million all together.  SS could probably cut that down to — what? — $6 million and save a bundle on its investment.

In other words, the Trust Fund could buy controlling interests in corporations and then advise SS member to give their business to those companies.  This is basically what was happening with profit-sharing; the workers contributed to their own company and increased its profits.  Here, SS members could use their buying power to help the corporations in which the Trust Fund acquired an interest.  At the same time, they could end some of the gouging practices which the 1% has used to increase its wealth above that of the people who need to rely on social security to survive.

I see this as a way to save Social Security without adding to its costs or by cutting benefits.  The beneficiaries should be able to decide either through a vote or a transparent representation system which companies they want to invest in.

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