A lot of coverage of the sale of Neiman Marcus by the private equity companies than own it to new private equity companies seems to me to be missing what’s interesting here. David Gelles at Dealbook, for example, said the buyers are “a group led by Ares Management and a Canadian pension plan.”
But it’s not just a Canadian pension plan. It’s the Canada Pension Plan.
Which is to say the luxury retailer has been bought by Canada’s version of Social Security.
People have largely forgotten about this, but back in the 1999–2001 era instead of complaining about the deficit being too high conservatives were obsessed with the need to prevent the national debt from getting too low. The reason was that they feared that there might not be enough “on-budget” debt for the Social Security Trust Fund to buy, which would lead the Social Security Trust Fund to act like the Canada Pension Plan and start investing in equity and other financial vehicles. This, according to Alan Greenspan and others, would rapidly put us on the road to serfdom.
But as sovereign wealth funds are spreading from Persian Gulf petrodictatorships to oil-free dictatorships (Singapore) and oil-rich democracies (Norway) and now even America’s friendly next door neighbor Canada, I think it’s time to rethink this opinion.
The 401(k) concept of trying to turn working- and middle-class Americans into broad stock owners through tax subsidies has been a dismal failure. But the theory that it’s better for your retirement security to contain a prefunded element that’s invested in equities and other asset classes makes real sense. The ostensible concern that a Social Security Investment Fund would be so gigantic as to distort the global economy makes some sense. But it’s relatively easy to address. Instead of the funds being invested by a single enormous SSIF, people could be randomly assigned to one of 10 separate Canada-sized SSIFs.
My suspicion is that the real source of opposition to going Canada-style isn’t concern that it won’t work, but concern that it will work too well. Social Security is a program that economic elites despise on a profound level for profound reasons, and they desperately want it to be the case that it’s unsound on an accounting level. Anything that makes it easier for people to have security retirements is anathema to a business elite that wants people desperate to work for a living. Add to that the fact that the very fees that make 401(k) plans so crappy are a lucrative income stream for various companies. So there’s a real lack of interest out there in making the Social Security Trust Fund better. But this is the way smart countries around the world are going and America ought to be trying to learn some lessons.