Why Democrats May End Up on the Wrong Side of the Social Security Privatization War

"Congress rejected Social Security privatization in 2005 and should reject it again in 2007 -- whether it's for Americans, Peruvians or Canadians. The promise of a secure retirement shouldn't stop at America's borders."

This was the reaction of William McNary, a leading Social Security activist, after finding out that some Democrats are supporting a Bush NAFTA expansion for Peru that would give Citibank, a major Democratic donor, the right to sue the country if it reverses its failed Social Security privatization.

Fair trade activists already knew that an important part of the push to cover the planet in trade deals is to give foreign investors new "rights," including the right to sue governments for compensation when public interest regulations wind up hurting their bottom line.

But the latest Bush trade proposal goes even further. Buried in the Peru pact's hundreds of pages are provisions that could empower foreign investors involved in Peru's privatized Social Security system to demand compensation from the Peruvian government (in U.N. and World Bank tribunals) if the privatization were reversed.

To top it all off, the only U.S. company involved in the lucrative "private retirement account" industry in Peru is Citibank, which has recently come under fire for its offshoring of U.S. service jobs, as well as its close ties to leading Democratic politicians. The amount that Citibank could demand under the "free trade agreement" (FTA) rules could be considerable. In fact, the corporation could make virtually unlimited claims for "lost" future profits, as the license to provide the private accounts is not time limited under Peru's privatization statute and can only be removed for cause. Not surprisingly, Citibank has stepped up its lobbying on trade in the new Congress. And the financial services industry has been in a mad push to support the Peru FTA, cheering the pact for providing a precedent for similar provisions in future trade deals.

Peruvian groups say the FTA provisions would severely chill their ability to reverse the privatization, because the government would not be able to afford to pay major damages for the right to restore a public service.

"For 25 years, Peru's governments have faithfully implemented neoliberal policies supported by Washington, [while] income per person in Peru has scarcely grown in a generation," said Julio Cesar Bazán, president of the Unitary Confederation of Peruvian Workers, and a leader of a recent two-day general strike in Peru against the FTA. "The Peru-U.S. FTA not only does not get us out of this socioeconomic hole, it gives corporations like Citibank the tools to make sure we're forced to stay there."

Trade pact sneak attack

When Democrats regained control of Congress -- in no small part thanks to numerous House and Senate candidates nationwide who focused their successful campaigns on ending Bush's damaging NAFTA expansion agenda -- the prospect of stopping Bush's NAFTA assault seemed certain.

Then on May 10, in a surprise news conference, some Democratic leaders announced a deal with the White House to support pending FTAs with Peru and Panama. Although not one U.S. union or environmental, faith or development group supports the deal, it would revive these expansions of NAFTA and facilitate their passage by the majority of the congressional GOP and a minority of the Democrats. Tragically, the Peru FTA's social-security-threatening provisions were not removed by this "deal," despite demands in advance from Bazán and other Peruvian labor and retiree leaders, a Peruvian archbishop and U.S. faith and fair trade groups.

McNary and his allies in the United States want to know how the Social Security provisions -- which are unrelated to international trade and have only to do with domestic regulation -- could wind up in a trade pact in the first place. "The same corporate forces that tried to destroy our Social Security, under the guise of free trade, are trying to destroy the Social Security system in Peru," he said.

Democrats face hypocrisy charges

In the 1990s, support for Democrats from their natural base of middle-class working families suffered after various economic policy proposals that positioned the party at best as GOP-lite, and at worst, a tool of unmitigated corporate rule. In the minds of many middle-class voters, the Clinton administration's knock-down, drag-out promotion of NAFTA and its toying with the idea of Social Security privatization cemented that notion.

But during the Bush administration, Democrats proved increasingly willing to challenge entrenched corporate power. They fought CAFTA and Social Security privatization in 2005, and campaigned strongly on fair trade messages in the 2006 elections. The "fair trade freshmen class" also has been active in reminding more senior Democrats about the vulnerability they would face if the party started to backtrack on that stance.

For many who have supported the Democrats in these efforts, the failure to correct the Social Security problem not only exposes them to charges of hypocrisy, but also poses an avoidable political liability.

"The Democrats got in right when they enacted Social Security in the 1930s," said Amy Isaacs, National Director of Americans for Democratic Action. "They got it right again when they improved it in the 1960s. They got it right a final time when they defended it in the 2000s. Now is not the time to go backwards by giving corporations like Citibank the right to use a U.S. trade agreement to undermine Peruvian citizens' abilities to reverse the failed privatization of Social Security -- this would go against a century of getting it right."

For more information:

• On the Social Security-threatening provisions of the Peru FTA, see the joint report (PDF) released this month by Americans for Democratic Action, USAction and Public Citizen.
• On the recent "deal" in Congress, see Wallach and Tucker's previous Alternet contribution.