Pension Funds As Porous Boundaries Between Labor and Finance

Thursday, 2 July 2015: 4:00 PM-5:30 PM
CLM.3.06 (Clement House)
Sabine Montagne, Universite paris dauphine, Paris, France; CNRS, Paris, France
Except for the case of the intimate relationship between Finance and the State, relationships between finance and the other social spheres have tended to be seen as unilateral: finance exports its norms, imposes its mental categories and understandings. Financialization is colonization.

Of course socio-economic processes outside finance have been taken into account but have often been considered conditions of possibility for the expansion of financial activities or effects of the unilateral financial power. Conflicts of power and insiders struggles, inside the other spheres, have hardly been examined as causal mechanisms or forces able to shape some institutional or organisational characteristics of finance.

Of course, financial work and rules establish professional jurisdictions but I suggest to give up a substantialist view of groups and cultures that are supposed to constitute Finance. Following  Abbott's (1995) assertion “Boundaries come first, then entities”, I will expand on the idea of finance as an emergent and porous entity.

The case examined here is the expansion of the US pension funds. Pension funds are generally considered both creatures of capital/labour compromises and powerful financial actors (Clark, 2000). So they seem to be located at the junction of two distinct social spaces (labour relations and financial work). Tensions between these spaces interact in everyday transactions as well as in investment policies, governance and the constitutional status of pension funds. I will show that investment policies and governance of pension funds are definitively influenced by the fact that pension funds are labour compromises. So, financial practices and beliefs of the pension industry are directly shaped by interest and conflicts between non-financial agents, workers and employers. In the words of Abbott, struggles between labour and employers come first; pension industry as a financial sphere emerges from their negotiations.

To examine this emergence, I will take tow main legal characteristics of these funds :  pension funds are Trusts and they must invest according to the standard of prudence. On the one hand, I will analyse a sample of court cases (extraction from the data base findlaw) and  investment conflicts (described in the literature) in order to measure how much the passive model of ownership, inherited from the Trust (Alexander, 1993), is still alive after the liberalization made by ERISA and the expansion of 401k plans. On the other hand, I will examine the transformations of the meaning of the standard of prudence and show how much this standard is always a stake for employers, politicians, economists and jurists, who work at keeping the impact of the norm on investment behaviour — and more generally on relations between employees and the world of finance — under control.

Linking together the study of the Trust (as the “structure” of pension funds) and the history of the prudent investor standard (as a “multi process” definition of the meaning) will illustrate my approach: anchoring emerged financial practices and agents into the conflicts and changing socio-economic arrangements of other spheres.