“Law gives way to power”

Europe is entering an era where power has become more important than rules. For decades, the global economy was driven by efficiency, trade, and law. Now, power, identity, and strategic dependency are setting the course. This shift affects not only governments but also institutions that long operated without political turbulence, such as pension funds. That is the argument made by Monika Sie, director of the Clingendael Institute, during the APG Summer Course “Agile and Adaptable.”

The pension sector has many stakeholders, from social partners, administrators, and politicians to regulators. What are their specific roles, how do they view the sector, and how do they respond to the renewed system? In the ‘Power Dynamics’ section, these parties share their perspectives.

According to Sie, the era of hyper-globalization - a period in which international legal norms, free trade, and economic efficiency served as the compass - is over. “We lived in a world that resembled a smooth billiard table”, she explains, “a world where small countries like the Netherlands thrived thanks to the rule of law and multilateral agreements. But that world no longer exists. The rules of the game have been replaced by power politics.”

Today’s reality, she says, revolves around ‘the weaponization of everything’: the potential use of any economic, technological, or social resource as a tool of power. “Trade, energy, data, migration, everything can be used to exert influence. What was once called interdependence is now called dependency. And dependency can be used as leverage.” As a result, states and companies must shift from thinking in terms of just in time to just in case. “What if a trading partner becomes your adversary tomorrow? It may not be efficient to produce your own medicines or chips, but it could be wise. That logic will define everything in the coming years.”

The biggest shock comes from America

While geopolitical attention in recent years has focused on China, Sie warns that the biggest shock now comes from the United States. “The Pax Americana, the post-WWII period in which the U.S. was the dominant global power and ensured relative peace and stability, is now being dismantled by America itself”, she states. “This is an existential shock, especially for Europe. And certainly for pension funds, which have invested a large portion of their assets in the U.S.” She links this to the rise of Donald Trump and his Make America Great Again (MAGA) movement. “They are turning the geopolitical rulebook upside down. Trump isn’t interested in international norms. He doesn’t want to lead, he wants to win. That makes everything we knew fluid.”

Sie notes that Trump, like Chinese President Xi Jinping, is building a powerful national narrative rooted in pain and humiliation. “Xi tells the story of a wounded people recovering from colonial humiliation. Trump tells the story of a country that’s been sold out. In both cases, leaders forge a collective identity that mobilizes people. That makes these movements so powerful, and dangerous.”

Polarization shifts: from politics to culture

In addition to shifting power dynamics, Sie sees a second trend: growing domestic polarization. Where pension policy debates once focused on choices between market and solidarity, they now touch on deeper issues, identity, trust, and the role of elites. “People feel that everything of value is crumbling. That institutions meant to protect them no longer do, or no longer want to. This is a new, cultural dimension of polarization that also affects the pension sector.”

This development makes the societal mission of pension funds more complex. “A pension fund is, by definition, an institution built on trust. It organizes solidarity between generations and sectors. But when communities are under pressure, both internally and externally, that trust becomes fragile.”

Europe must become strategically mature

In this context, Sie sees an important role for Europe and for Dutch pension funds within it. “The Netherlands cannot do this alone. We need to build mass in Europe. And that requires cooperation between politics, businesses, and financial institutions.” She acknowledges that this is a tough challenge. “It’s incredibly difficult to get Europeans on the same page. But especially in times of fragmentation, we must invest in cohesion, politically and economically. Pension funds can play a connecting role by deploying capital to strengthen Europe’s strategic resilience.”

This, she argues, requires a new way of thinking about investing, not solely based on returns, but also on geopolitics and societal values. “Investing is no longer a neutral act. It’s a strategic choice. Ignoring geopolitics means taking risks, financial and moral.”

From ESG to geo-economics

The Clingendael director urges pension funds to look beyond traditional risk indices and ESG lists. “A UN exclusion list or a Freedom House index tells you something, but not enough to assess investment risks. You need to know: who holds power? How does that person or regime use it? And what does that mean for pension fund investments?” She points out that political movements like MAGA in the U.S. consist of various currents: populist, religious, and neoliberal. “As an investor, you must understand that dynamic. It determines market stability and policy direction.”

Sie therefore advocates for structural collaboration between pension funds and knowledge institutes. “We need to engage in co-creation: periodically analyze where the world is heading and what that means for our investments. Because geopolitical risks are no longer external, they are at the core of our work.”

Agile and knowing what you stand for

Sie also links these developments to the theme of the conference: agility. “Agility is essential in today’s world, but without a compass, it’s just spinning in the wind. We must constantly adapt to changing circumstances, but only if we know what we stand for.” She calls for introspection. “This is not only important for politicians and businesses, but also for financial institutions. Every strategic decision begins with a simple question: where do we come from, what do we stand for, and where do we want to go? Without that self-awareness, any geopolitical analysis is meaningless.”

She urges attendees to look beyond returns and risk models. That benefits the sector and the world. “In a time when law gives way to power, institutions that represent stability and trust have a crucial role to play. Pension funds have always contributed to security and solidarity. Now, more than ever, they can show that these values are not only economically, but also geopolitically relevant. And that investments can contribute to the safety and protection of our way of life.”