When the battle does begin in earnest, both privatizers and Social Security traditionalists will bring enormous resources to bear. The AFL-CIO and scores of allied groups pledge an all-out effort to defend the system from attack, and the American Association of Retired Persons will plop its considerable weight down against privatization. "Our board is opposed to any carve-out," says John Rother, the AARP's political director, referring to privatization plans that would "carve out" part of the 12.4 percent employer-employee FICA contribution for private accounts. "This is the No. 1 issue for '99."

Four years ago, the idea that Social Security might be privatized was confined to a small coterie of conservative and libertarian ideologues, centered on a handful of Washington, DC, think tanks like the Cato Institute and the Heritage Foundation, along with the Dallas, Texas-based National Center on Policy Analysis. Leading the pack was Cato's Project on Social Security Privatization, a high-powered task force that churned out a steady stream of policy papers and Congressional testimony and conducted background briefings for members of Congress and the Washington policy community. Financed by, among others, a handful of Wall Street donors--including Salomon Brothers, Prudential Securities, T. Rowe Price and the SIA--Cato recruited a team of executives to its advisory committee on Social Security privatization, with backing from American Express Financial Advisors and KPMG.

The project, which had a budget of $700,000 last year, is co-chaired by William Shipman, principal at State Street Global Advisors, part of State Street Boston, a huge financial-services company [see sidebar]; and José Piñera, who formerly served as minister of labor in Gen. Augusto Pinochet's Chilean dictatorship and who engineered the privatization of that country's public pension system.

More than any other entity, Cato deserves the credit for getting the Social Security privatization ball rolling. But for most in Congress, as well as a number of major players on Wall Street, Cato--which describes its own plan as "radical"--was too far out to attract much support. Its proposal for wholesale privatization of the system, financed by dramatic cuts in Social Security benefits and draconian reductions in other government spending, was seen as politically unpalatable, and it scared off many potential backers. According to Michael Tanner, Cato's director of health and welfare studies, who oversees the Social Security privatization project, Cato tried but failed to garner the support of banks, stock and bond brokers, and other Wall Street firms. Julie Domenick, ICI's executive vice president for public affairs, calls the Cato Institute "reactionary," adding that ICI "made a specific decision not to give money to Cato." Expressing similar caution, Robert Pozen, president of Fidelity Management and Research, says, "We don't like the word 'privatization,' because it suggests the dismantling of the Social Security safety net."

Yet by beating the drum so consistently Cato has helped move the debate far beyond where it was just a few years ago. "First we had the question of whether or not the system is in serious trouble," says State Street's Shipman. "That took awhile. Then it was, Should Social Security rely on the markets? That took a while, but there was an extraordinary shift about two years ago, and now everyone is talking about investing in the markets for Social Security." Now, Shipman says, the question is not whether but how to utilize the private markets as part of Social Security reform.

The Cato Institute's project is still going strong, with co-chairman Piñera prominently featured on a panel at the White House Social Security conference. (Eerily, even as Piñera spoke, British courts were struggling to decide whether to extradite General Pinochet to Spain for "crimes of genocide and terrorism.") But the momentum started by Cato and its allies has been assumed by more mainstream players.

Most important is the National Commission on Retirement Policy, a project of the Center for Strategic and International Studies, a conservative Washington, DC, think tank. Founded in 1997, the commission included senior executives from Fidelity Investments, the parent firm of Fidelity Management, and Aetna, and was co-chaired by Marron of PaineWebber. With an overall budget of around $700,000, financed by PaineWebber, Fidelity, a number of Fortune 500 companies and a few leading foundations, including New York's J.M. Kaplan Fund, the NCRP brought together four key Congressional players: from the Senate, Democrat John Breaux of Louisiana and Republican Judd Gregg of New Hampshire; from the House, the two chairmen of the House privatization caucus, Republican Jim Kolbe of Arizona and Democrat Charles Stenholm of Texas. According to Stenholm, the caucus has grown to include about seventy members.

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