Pension Fund Capitalism and Financialization: The United States, the Netherlands and Finland Compared

Recent studies of financialization in the area of pensions have focused predominantly on the introduction of funded components in traditional PAYGO systems. Few studies have investigated financialization processes within pension systems with historically high levels of funding. This paper hopes to contribute to scholarly understandings of institutional change by focusing on financialization processes within three funded pension systems:  the United States, the Netherlands and Finland. Each of the three pension systems shows a high degree of financialization, both in terms of accumulated assets (in absolute terms and as savings per capita) and in terms of the type of investment practices prevalent in the pension industry (associated with modern portfolio theory). Still, the three pension systems differ vastly with regard to the degree of coverage, the nature of the pension schemes (DB versus DC) as well as the distribution of risk among employers and employees. To explain these differences, the current paper draws on insights from comparative political economy and financialization studies. We argue that the financialization of these three pension systems is not the inevitable result of the funded nature of each system, but rather the (at times unintended) outcome of specific processes of coalition-building among state, business and labor actors in the area of pension policy. In the Netherlands and Finland, for instance, unions embraced modern portfolio theory, because they believed increased investment in riskier assets was necessary to maintain the generous benefits promised to their members. Meanwhile, in the United States, the introduction of federal legislation allowed business actors to shift investment risk from the employer to the individual employee. The three historical case studies presented in this paper will be supported by evidence from both primary and secondary sources.