This article attempts to address the gap in the existing literature regarding the process of development in the institutions making Icelandic financialisation socially and politically possible. By focusing on the development of the occupational pension funds, my goal is to retrace the macro-social and political foundations of the strategies and behaviours of economic actors during the building process of the financial architecture in Iceland since the early 1990s. In particular, this paper attempts to mount a challenge to conventional perspectives on the role labour organisations are normally conceived to play in the generation of national economic policy.
In a small market context such as Iceland's, occupational pension funds are one of the most important players in the country's financial markets (Jonsson, 1999: 32-35), closely integrated into private banking, the investment system, and industrial relations. Pension fund assets experienced an apparently endless growth, reaching an astonishing share of 133 per cent of GDP at the end of 2007. They increased by more than twenty times in real terms from 1980--the second highest increase among OECD countries, after the Netherlands. At the same time, workers retirement savings soared to 31 per cent of total domestic saving in 1997 (even higher than the bank savings share), providing a fundamental source of liquidity that underpinned the financial industry. The enormous importance of pension funds in the national economy makes trade union leaders, who control them in cooperation with the employers and 'pension funds money managers', very influential in the economic and political life of the country. As Asmundur Stefansson, the president of the Icelandic Federation of Labour (ASI) from 1980 to 1992, proudly declared, 'ASI has broken away from political conflict and is now a leading force in the country, not the political parties. It is rather the political parties that seek assistance from ASI ... It is no question that we have managed to regulate many things in the last years' (Baldvinsdottir, 1998: 158).
Iceland's peculiar development, therefore, makes it especially useful as a case study for analysing how markets do not automatically produce 'the various prerequisites that are necessary for their implementation' (Hollingsworth and Boyer, 1997: 434); or, to put the matter in another way, how the impressive expansion of financial activity was sustained by powerful extra-market forces. In general, this expansion has often been referred to as 'financialisation', and identifies the building process of the 'pattern of accumulation in which profit making occurs increasingly through financial channels rather than through trade and commodity production' (Krippner, 2004: 14). The range of phenomena that gives concrete life to the concept of financialisation--from the deregulation of the financial sector to the rise of speculative investment associated with the re-emergence of the rentier--has shaped the pattern of accumulation in many capitalistic economies in the last twenty to thirty years. Although the extent to which these phenomena prevailed in one country as opposed to another has been quite uneven, there are five striking traits that characterise the new finance-led regime of accumulation:
1) The deregulation of financial markets, new technologies and financial innovations leading to an increase of capital flows.
2) Increased profits of both financial and non-financial corporations that do not promote increased productive investment.
3) The ideological ascendancy of 'shareholder value' in guiding corporate governance.
4) Consumption expenditures become the driving force for growth as households gain improved access to credit.
5) The penetration of finance into what we might call social and economic workers' reproduction (Stockhammer, 2008; Fine, 2009).
The most influential theoretical perspectives that tackle the question of financialisation --from Marxism to post-Keynesians--legitimately focus on the first four points, i.e. the economic side. On one hand, by analysing its causes, they rightly trace the expansion of the financial sphere back to the stagnation of production in the mid-1970s. On the other, many scholars put considerable effort into describing the effects of the growth of finance, mainly focusing on poor economic performance compared to the previous period, the increasing instability of financialised economies, and so on. Without a doubt, these questions are at the heart of the matter, and are worthy of deep investigation. Yet by excluding the penetration of finance into social and economic workers' reproduction, in which labour organisations are still heavily involved, the relationship between the two fundamental classes within capitalism is forced into the background, which 'ignore[s] the impact of the envisioning institutions of power with which trade unions constantly interact' (Hyman, 1975: 69). At worst, the working class's withdrawal is seen in terms of trade union bureaucracy's betrayal of member's interests, materialised by unions leaders' accommodating union behaviour to employers' prerogatives. At best, labour organisations are simply considered as passive subjects, substantially weakened in their traditional form, by changes in the political sphere and the response to neoliberalism of the social-democratic parties to which unions were historically linked (McIlroy and Daniels, 2009: 7). The result is that, since social relations between classes are thrown out of the analysis, the institutional building process that supports financialisation is often interpreted either in terms of an agency problem or, at the other extreme, as an objective and impersonal path. In both cases, the fact that social relations determine institutions is overlooked because the former are the conditions of existence of the latter, in the sense that social relations transfer their contradictory social content to institutions (Carchedi, 2001: 7).
To focus on the infiltration of finance in social and economic workers' reproduction might prove useful in order to throw light on the socio-political prerequisites underlying the new paradigm of accumulation centered on finance. Put another way, the goal is to reintegrate the class analysis in the academic discourse regarding the phenomena of financialisation. Two factors explain the decision to inquire into the financialisation of workers' income. First, although taking different forms compared to past phases, the fuel that directly and indirectly drives capitalism in all its forms still flows from the very relationship between labour and capital, i.e. surplus value. As mentioned above, financialisation represents a profound shift away from direct investment in productive capacity, towards the open financial markets in which profitability can be temporarily boosted through speculative operations in the stock markets (Lucarelli, 2011:113-115). In this process, the transformation of the future streams of income into marketable and traded assets in the form of equities or bonds (Vasudevan, 2009: 30) through privatisation of social provisions is strongly interrelated to the ascendancy of a finance-led regime of accumulation. In fact, the parallel process of public welfare retreat has meant that workers and their families have come to rely on the market for social provision such as pensions. In this way, they have been increasingly forced into the arms of the financial system, triggering massive flows of lendable money capital. Nevertheless, the incorporation of financial markets into the process of welfare provision meant a shift away from the common strategy of exploiting labour into the production sphere, towards the short-term strategy of extracting profit directly out of wages and salaries into the sphere of circulation. This movement of purchasing power between actors in the economy is what Lapavitsas named 'financial expropriation', because savings across society are pooled and transformed into loanable money capital from which interest can be earned. Thus financial markets expropriate workers' savings. However, within the new financial domain, enterprise and workers are motivated by different goals. The former focuses on the expansion of exchange value (profits) by appropriating loanable money capital originating in wages. The latter, instead, focuses on obtaining use-values like pensions, seeking to secure their future consumption for tomorrow's retirement (Lapavitsas, 2009).
Second, although it is undeniable that the disciplinary force of the financial markets is often at odds with labour wages as well as welfare state expansion, in many countries the trade unions constituted a fundamental actor in the definition and in the implementation of the macro and micro-policies underpinning the process of economic financialisation. While in some countries like the UK and the USA, the deflation road included a frontal attack on labour organisations, in some others, like Iceland, the Netherlands, Sweden or Ireland, it can safely be stated that trade unions became increasingly ready to collaborate in the definition and the implementation of some macro-economic policies, such as the privatisation of the social risk (Trampusch, 2006; Belfrage and Ryner, 2009; Baccaro and Howell, 2011: 545-547). In this framework, one of the crucial extra-market institutions that matters most in the social construction of financial markets is the occupational pension fund, which appears as a key component in forging a broader class alliance in favor of neoliberal restructuring (Dumenil and Levy, 2004: 129). By redefining the power relationships in the national arena and within the firms, pension funds, on the one hand, constitute a central mediating mechanism between the financial markets of transnationally mobile capital, core reproductive functions of the welfare state, and everyday saving and consumption over the life...