NCPA - National Center for Policy Analysis

Few Countries Invest Pension Funds In Stocks

January 22, 1999

President Clinton's proposal to have the government invest some Social Security surpluses in stocks is a rare and radical departure from the practices of other nations. Few other countries do so, and those that do are primarily in Asia. And despite administration assurances that investment decisions would be insulated from political tampering, such investments elsewhere have tended to be highly politicized, experts report.

  • Malaysia's pension system has come under heavy criticism for making loans on concessionary terms to state-sponsored projects -- such as the capital's new airport.
  • Last year, Hong Kong poured public money into the stock market to ward off "speculators" -- and must now decide how to get rid of its massive holdings.
  • World Bank economist Robert Palacios says Sweden's pension fund has for years been making low-interest housing loans as a social policy -- thus earning lower returns for retirees.

Here at home, state and local governments have occasionally shuffled public money for political purposes:

  • Pennsylvania in the 1970s financed a Volkswagen plant that closed a decade later, according to Yale University professor Roberto Romano.
  • Kansas' pension fund invested in a steel mill that closed and a savings and loan that failed.
  • The Texas State Board of Education last year had its Permanent School Fund dump 1.2 million shares of Disney to protest alleged sex and violence in films made by asubsidiary company.

Romano says that after studying all 50 state plans between 1985 and 1989, she found that the more political and "ex-officio" appointees a plan's board had, the lower its returns were.

Source: Greg Ip, "Can Social Security Funds Be Invested Free of Politics?" Wall Street Journal, January 22, 1999.

 

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