The Wonders of Investment
November 29th 01:17:44 PM
The People's Republic of China announced today that it has awarded the investment of its National Social Security Fund to ten investment companies, two of which manage U.S. equities. This marks the first time that China has chosen international investment managers for its retirement fund and speaks to the commitment of the country's National Council for Social Security Fund to achieving a competitive rate of return on its assets. This is a good example of careful, diversified investment that could be made even better if the funds were held by Chinese citizens rather than the government. Nonetheless, citizens are no doubt thankful that the government is creating a real trust fund with appreciable assets tied to economic growth.
On the opposite side of the spectrum, we see a free market economy providing an example of what not to do. In Italy, workers contribute to a severance fund that is held by their employers, who promise to pay back individual contributions plus interest when an employee leaves the company. As an article in the Wall Street Journal explains (subscription required), the government decided that it wanted in on this arrangement, and it has since passed a law which makes the social security administration responsible for a portion of future severance payments in exchange for a portion of the money that each worker currently contributes to his or her employer. The trouble is that the liabilities of future severance claims have not been reflected in the government's budget, a move which makes the additional funds appear to come at no cost. The government intends to use the additional funds to help reduce Italy's deficit.
China and Italy provide two clear examples of the power of money, and it is a sad fact that we see more of our Social Security system in the Italian "accounting miracle" than we do in the Chinese investment plan.
Posted by Ryan Lynch
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