Investor Class Warfare
Lee Drutman
July 07, 2005
TomPaine.comLee Drutman is the author of The People’s Business: Controlling Corporations and Restoring Democracy.
After far too many months of watching President Bush ramble around the American heartland in his folksy “Strengthening Social Security” medicine show tour, actual bills are finally making the rounds in important committees, and the possibility of actual Social Security “reform” legislation lingers in the air of a hot and steamy Washington summer.
Yet despite the resounding failure to build popular support for plans of privatization, Bush and company continue to do everything they can politically to make sure private accounts happen. Such insistence, however, begs the question: Why do they want private accounts so badly? And does understanding the prize that Republicans are after provide the Democrats with a better political strategy than mere obstructionism?
I think the answer to the second question is a resounding yes.
But to understand why, we need to understand why privatization might be so important to Bush and company. Much of the thinking on this so far follows a simple and powerful follow-the-money approach.
Consider: Who were George W. Bush’s top contributors in 2004? 1) Morgan Stanley; 2) Merrill Lynch; 3) PriceWaterhouseCoopers; 4) UBS Americas; 5) Goldman Sachs; 6) MBNA Corp., 7) Credit Suisse First Boston; 8) Lehman Brothers; 9) Citigroup Inc.; 10) Bear Stearns. It's practically a clean sweep for Wall Street.
And who would make an estimated one trillion dollars in profits from charging management fees if private accounts went public? 1) Morgan Stanley; 2) Merrill Lynch, and so on down the list.
Yet, in today’s politics, when Republican power struggles and corporate greed have merged into a synergistic mutual beneficiary moloch (think “the K Street Project”), something more is likely behind the unyielding push for private accounts than merely pleasing Wall Street donors.
I refer to the November 22, 2004, edition of the conservative Weekly Standard magazine, in which editor Fred Barnes quotes Bush Campaign Manager Ken Mehlman as “insisting Bush's ‘ownership society’ agenda will lock in millions of voters by "changing the incentives of politics.’
Changing the incentives of politics? The short of it is this: Mehlman argues that if instead of turning to government for answers, individuals start turning to the private sector for answers, they will be more likely to support Republicans because Republicans support the private sector more.
Hence privatization.
If people rely on the stock market for their retirement instead of on government Social Security, they will be more likely to support Republicans, because Republicans are the party of big business and hence stock market growth. (Never mind that the stock market actually has historically done better with Democrats in the White House.)
Mehlman’s contention is supported by some recent polling numbers. Consider, for example, a recent Washington Post survey, which found that “at every income level, direct investors are more likely to identify themselves as Republicans than are non-investors.” For instance, among voters with income less than $50,000, 34 percent of direct investors classified themselves as Republicans, as compared to 23 percent of non-investors who classified themselves as Republicans.
Similarly, in a recent Wall Street Journal article, pollster John Zogby noted that the “response to a single question—‘Do you consider yourself to be a member of the investor class?’—is a far greater determinant of how [people] will vote and how they see their world than income, religion, race, marital status, or size of individual portfolio.” According to Zogby’s numbers, among voters in the $50-$75K range, self-identified investors favored Bush 64 percent to 36 percent, but non-investors favored Kerry 55 percent to 45 percent.
Additionally, in a recent National Review article, Republican strategist and ownership society cheerleader extraordinaire Richard Nadler reported that, according to his own study, “a 6-point Democrat advantage among workers in 401(k) plans for less than 5 years became an 8-point Republican advantage among workers who had been in such plans more than 10 years. Both free-market opinion and Republican partisanship increased statistically with time-in-market, portfolio size, and the workers' own self-identification as an investor.”
Following the logic of some GOP strategists, Republicans would benefit from transforming Americans into a adoring flock of self-identified investors who believe that the Republicans’ unabashed support for big business will bring them riches, too.
A brilliant strategy and one deserving of the impressive opposition that Democrats have so far mounted to privatization?
Perhaps.
But the problem with mere opposition is that while Social Security privatization remains a bad idea with little popular support, plenty of bad ideas with little popular support have become law, and there are plenty of ways that one can imagine this bad idea becoming law as well, even despite Democrats’ stalwart opposition. (Imagine, for a second, a closed conference committee door).
What Democrats can thwart, however, is the Republican attempt to realign politics through a growing investor class.
Instead of mere opposition to private accounts, Democrats should follow the lead of New York Attorney General Eliot Spitzer, who has shown that one can win the support of small investors by taking on the mutual funds and investment banks that prey on inexperience and ignorance.
Already, more than half of all households have money in the stock market—a number that keeps growing—and most of those folks are inexperienced small investors who depend on a healthy dose of government regulation to avoid getting ripped off by investment broker and mutual fund sharks. They are there for the winning over.
And considering that Republicans, for all their pro-business rhetoric, have shown a marked inability to take advantage of this opportunity by doing things like nominating free-market ideologue Christopher Cox to head the Securities and Exchange Commission (practically begging for another Enron-type disaster), Democrats have a golden opportunity to do well by doing good.
Certainly, Democrats should continue to oppose private accounts for what by now have become the obvious reasons in progressive circles. But they also need to be savvy about foreclosing any potential political benefits that Republicans could draw from privatization. Democrats can do this very easily: By reaching out to one of the fastest-growing demographics in American politics—the newly minted small investors—and proving that they are willing to take on the rampant greed that preys on them, often far too easily.
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