The rise of private pension funds is often seen as one of the key drivers of the financialization of capitalism and of the dominance of the credo of shareholder value maximization (Engelen 2003; Langley 2004; Dixon 2008). Since the end of the 1990s, a number of countries – particularly in Central and Eastern Europe – introduced “paradigmatic pension reforms”, by partly replacing their public pension systems with mandatory individual retirement savings accounts, which are managed by the financial services industry (Orenstein 2008). A key motivation behind pension privatization was the conviction that pension funds would create a source of domestic capital that would help boost economic growth. Yet, in the wake of the global financial crisis, some governments have retreated from these paradigmatic reforms, either by nationalizing existing funds or by reducing contributions to them. On the contrary, other governments, which had thus far not privatized their systems, have decided to do so now. The aim of this paper is to explain these diverging trajectories. We hypothesize that the recent decisions to retreat from or to continue supporting paradigmatic pension reforms have to do with politicians’ changing perceptions of how private pension funds contribute to the development of the domestic political economy. If the funds have been seen as contributing to an unsustainable rise in government debt and as leading to increased dependence of the financial system on foreign multinationals, politicians have withdrawn their support for paradigmatic pension reforms. Conversely, if the funds have been seen as instrumental in the emergence of a strong financial centre that helps sustain investment in the domestic economy, governments have been more supportive of pension privatization. We will test our argument using case studies of Hungarian, Polish, Slovak and Czech pension reforms.
