What is "Privatization" in all truth?

Question

If Social Security is a CONTRACT, between the government, and its people, then what is "Privatization"? If "Privatization" is better, for America, then why hasn't Merril Lynch, A.G. Edwards, Charles Schwab, or the other, major, investment houses endorsed it? Isn't "Privatization" just another name for "speculation", or "playing the markets"? Is there any "guarantee" to Privatization, as there is, with Social Security?

Answer 1

First of all social security is not a contract, nor is there a guarantee. It is simply a political promise to do something in the future and is worth what most political promises are. In a private defined benefit plan, the trustee is required to maintain real reserves adequate to meet future obligations. In a government run defined benefit plan (such as social security or most state employee plans), there is no such constraint. Which do you think is more actuarially sound?

The only real guaranteed plans are defined contribution plans, and the guarantee there is only to return to you whatever your account is worth. Had social security been set up that way instead, the value of the social security fund would be so immense today that it would be paying out enormous benefits to current retirees.

Answer 2

Privatization is the incidence or process of transferring ownership of business from the public sector (government) to the private sector (business). In a broader sense, privatization refers to transfer of any government function to the private sector including governmental functions like revenue collection and law enforcement.  

Answer 3

Privatization is simply the transferring of a role previously performed by the government to private industry.  The theoretical justification is that private businesses can make a profit that depends on how well they provide the service, while government can't.  Therefore private industry has a motive to perform the service better than the government would.

In practice, it is a least ambiguous whether privatization is more effective that government control, with several notable success stories (e.g. Deutche Post) and several notable failures (e.g. British Rail).

As for social security, the situation is (IMO intentionally) muddled.  The SS system has always been a system where current workers support the retired, with no particular savings -- current revenue from taxes is sent directly to current recipients.  The only reason why there's a "social security slush fund" now is due to the baby boom's impending retirement, which was planned for by building up a reserve to supplement tax revenue during those years (and that reserve is now invested in US treasuries).

The advocates for privatizing social security want to both privatize it, *and* replace it with a system where you save for yourself -- your contributions go to a private investment account to support you when you retire, like a 401k.  And that is what is making for the potential chaos.

Answer 4

Privatization works well only when there is lots of competition between many private companies.   And it works better than management by the government.  Because government bureaucracy is a kind of monopoly that doesn't have any competition.  And that's why quite often government bureaucracy is so inefficient and wasteful.

But when there isn't much competition between private companies.  Then they can be just as wasteful and inefficient as the government bureaucrats are.  Perhaps in some cases private companies can be even more wasteful and inefficient than the government is.