Financialization, Pension Restructuring, and the Logic of Funding

As early as 1976, management guru Peter Drucker declared the US to be the first real socialist eco nomy. Since the early 1950s when General Motors set up a corporate pension fund, the share of private pension savings in the total amount of accumulated capital has increased steadily, reaching almost one third in the year Drucker’s book was published. Drucker predicted that pension funds would possess more than 70 per cent of the publicly quoted shares and over 40 per cent of the bonds in the early 1990s. Drucker’s predictions proved wrong. Nevertheless he did get one thing right: the presence of public and private pension funds in worldwide share and bond markets has become overwhelming, as has their role, so I will argue, in the worldwide tendency to model corporate governance systems on the US benchmark. Hence, the decision to shift the burden of pension provision from public to private pension plans and from a pay-as-you-go to a funded system is sure to set in motion far reaching chances in nonliberal institutional environments. Recently it has dawned among students of comparative political economy that pension systems are a crucial ‘nexus’ between welfare regimes and the production system. However, the exact logic underlying this nexus has been left largely unexplored. Using recent insights from financial geography, I argue that the need to maximize returns, minimize risks, minimize costs and the availability of sufficient cash, forces pension funds to reap economies of scale, turning them willy-nilly into carriers of the financialization of the economy . The standardized, financial knowledge that is readily and cheaply available in financialized environments induces pension funds to make speculative, shortsighted investment decisions, which clearly stand at odds with the committed ownership that is expected from them by progressive observers. I end the paper with a sober assessment of the ‘new politics of ownership’ that is built upon the immense amount of capital amassed by pension funds.