Executive Intelligence Review
This article appears in the February 4, 2005 issue of Executive Intelligence Review.

Arnie Tries To Dismantle CalPERS

by Paul Gallagher

With George W. Bush's scheme to privatize Social Security under nationwide attack, leading ideologues of "privatization" have turned their eyes to the "muscle" of California's populist/fascist Governator Arnold Schwarzenegger.

Ahnuld, they hope, will force the replacement of the $177-billion California Public Employees Retirement System (CalPERS) by private 401(k) accounts, and do it hard enough and fast enough to put Bush's multi-trillion-dollar Social Security privatization swindle back on the political track.

Wall Street, and Schwarzenegger's patron George Shultz, need his immediate success, to raid the $500-billion-a-year Social Security Trust Fund and pump up the collapsing dollar debt bubble. And Arnie's plan itself, the Los Angeles Times noted Jan. 25, "would net Wall Street investment firms hundreds of millions of dollars in commissions."

National right-wing operative Grover Norquist, of Wall Street's American [wealthy] Taxpayers' Union, referred hopefully to Schwarzenegger's Hollywood violence-cult celebrity on Jan. 25: "It's nice when good policy also has star quality." Stephen Moore, head of Wall Street's Social Security raiders, the Club for Growth, left the Club on Jan. 10 to become an economic advisor to Schwarzenegger. Moore complained on Jan. 24 about the President's scheme that "the chance of getting reform done this year [in Congress] is starting to look unlikely." Michael Tanner of the Cato Institute, cog-wheel since 1995 for plans to dismantle Social Security, told Reuters on Jan. 24 that he had hopes for the combination of Arnie and Bush, "to get things done."

The strong West Coast LaRouche Youth Movement (LYM) is mobilized to defeat Schwarzenegger in the state, as it defeated him in Los Angeles and the Bay Area in the 2003 Recall, and as the LYM is mobilized to defeat Bush's privatization nationally. California's labor movement and Democratic legislators will try to stop Arnie's drive to dismantle CalPERS. AFSCME union official Richard Ferlauto told the Jan. 22 New York Times, "The debate around private accounts will be fought in California before the outcome of the Social Security debate is determined. The attempt in California is the stalking horse for whether private accounts can be sold to the American public."

1.5 Million Pensions at Stake

Schwarzenegger is ahead of Bush in "creating the crisis" necessary to privatize. He is using the brute-force "Chile model" of drastically cutting and underfunding CalPERS, while giving California public employees an "offer they can't refuse" to opt out of it into private 401(k)s, or face lower pensions and much higher mandatory tax contributions. Margaret Thatcher's first government took the same course with Britain's old-age pension system in the early 1980s, and stampeded nearly 4 million British workers out of the system into private stock and bond accounts; they fared so badly that Tony Blair's government had to order them compensated 15 years later, as if they'd been hit by a hurricane.

Arnie's forced march goes far beyond the 15 other states which in recent years have merely given public employees the option to take their pension plans private. (Few have done so; Florida's 7% opt-out is typical.)

And in CalPERS, Schwarzenegger is trying to dismantle the nation's largest employer pension system, on which 1.5 million people and their families depend—along with Social Security—for their retirement.

The last decade's stock and bond collapses have obviously cut the CalPERS trust fund's returns. But it has still earned 3.5% annually since 2004 (the same period in which Sen. Bill Frist, Bush's big privatization leader, managed to lose $400,000 or his own $1.1-million campaign committee fund, in the stock market).

It is California's own special economic meltdown, brought to it since 2000 by Dick Cheney's and Ken Lay's "Enron electricity deregulation," which has hit CalPERS hard; some busted municipalities have been defaulting on their payments to the pension fund, leaving it, for the first time, slightly underfunded in the long term.

Schwarzenegger directly benefited from that collapse—it was used by George Shultz, Warren Buffett, and Ken Lay to make him Governor. He has made it far worse in a single year in office, ballooning the state's debt by 50%, its debt service to 8% of its budget, and its budget deficit to $8-9 billion. In early January, he submitted a two-year state budget which cuts the state's contributions to CalPERS (and the state teachers' pension fund, CalSTRS) by $765 million. That cut nearly 10% of the funds' 2004 contributions from all employers, state and municipalities.

He also used right-wing media attacks to force out the head of CalPERS, Sean Harrigan, and to appoint to the CalPERS board insurance executive Marjorie Berte, a political officeholder of previous Republican Governor Pete Wilson.

The cuts are part of Schwarzenegger's notorious "hit the poor to protect wealth and business" strategy in the state budget crisis he helped create. He wants to eliminate a renter's credit for low-income seniors, and cut payments to caretakers for disabled persons down to minimum wage; but he doesn't want to change a well-known real-estate tax loophole for business partnership which is costing the state $1 billion a year.

After Arnie's blows to CalPERS, Republican Assemblyman Keith Richman, backed by the populist Taxpayers' Association, introduced legislation to move all public employees hired after 2006 out of the CalPERS guaranteed-benefit plan, and into a risky 401(k) with a low cap on the state's matching of their contributions. Essentially, they'd be on their own in the falling markets. They'd lose CalPERS' extraordinarily low 0.2% average administration fee, and instead pay mutual fund operators 1-3% or more.

Schwarzenegger's budget goes beyond this, to force existing public employees to "opt out" of CalPERS as well. His budget resolution says that public employees who stay in CalPERS will have to double their own tax contributions to it, while the state's contributions—and probably the benefits—are cut. If they "opt out" into a 401(k), they'd get a one-year state "good-bye" payment as a bribe.

This is exactly how Thatcher moved in Britain in 1981-84; and before her, how fascist Gen. Augusto Pinochet and his Labor Minister José Piñera moved in Chile in 1978-81. The result, in both cases, is recognized now as a disaster for the pensioners.

Schwarzenegger says he'll do this by legislation—or by referendum. His move to preempt Congress for Bush, is his calling card as fascist Presidential candidate for 2008. Its defeat will change the U.S. political map.

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