The Micro-implications of a disintegrating social contract : public pension funds and community investing in New York City

Abstract

Public pension funds are increasingly investing in cities. On the one hand, this appears as a positive development, as an organization traditionally based on exclusionary membership shares its benefits with the larger society. On the other hand, that this is occurring in the context of a disintegrating social contract could be a troubling feature, where private citizens are subsidizing their communities in the absence of state support. The Merriam-Webster dictionary defines "social contract" as "an actual or hypothetical agreement among the members of an organized society.. .that defines and limits the rights and duties of each." The past thirty years in U.S. history have seen a drastic deterioration in the tacit social contract binding the State, Capital and Labor. Transformations affecting these three actors have re-shaped their interactions and bargaining power. Through a discussion of the Varieties of Capitalism and Institutional Change literatures, the first objective of this paper is to make the case that community investing by pension funds is an institution (broadly defined) that has emerged in part because of the historic-economic forces driving the disintegration of the social contract: financialization, neoliberalism, and the decline of the labor movement. The second objective of this paper is to address the following research questions at the city level: What is the relationship between community investing by pension funds and the changing roles of Capital, Labor, and the State? How, in turn, does the design and organization of these institutions impact their ability to influence this relationship? This research finds that pension fund capitalism in New York City may both blunt and obscure the impacts of the weakened social contract. The pension funds could possibly strengthen the position of labor and increase benefits to communities if they incorporated opportunities for learning and capacity building into their programs.