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The Swedish Production System

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The Swedish Production System The Swedish Production System Gustavo Abel Carrillo Guzmán Universidade Federal de Minas Gerais Caixa Postal 209 CEP 30161-970 Belo Horizonte MG gguzman(arroba)campus.cce.ufmg.br Abstract. This paper examines the Swedish Production System from a broad perspective. It shows how innovations in work organisation are function of the wider macro economic and institutional context. It suggests that production systems functioning can only be understood by examining both micro and macro level dimensions. Área: Estratégia e Organizações Key Words: Production Systems, work organisation, contextual conditions 1. INTRODUCTION The Swedish production model have contributed in significant way to the development of production engineering. Yet, it have been little studied and understood as a whole package. Both production engineers practitioners and academics usually apply specific techniques (eg work group, cellular manufacturing) in isolated way without considering contextual conditions. This constrains its implementation and, in many cases, lead to failure. This paper contributes to the understanding and learning of the Swedish production system from a broad perspective. The uniqueness of Swedish national institutions and organisational features seems to be an important factor in explaining the success of the Swedish production system. Macro economic, political and institutional conditions of the 1980s such as full employment policies, compressed inter-sector wage and export dependence, provided favourable conditions for the development of the Swedish production system (Pontusson, 1990). Democratic ideals are the contextual factor in which production and economic issues are discussed and settled on. To understand the functioning of the Swedish production system 2 dimensions have been differentiated: macro economic issues and micro (firm level) work related issues (Sandberg et al, 1992; Durand, 1993). 2. THE MACRO LEVEL DIMENSION Three events made possible the relative achievement of a 'balance of power' between capital and labour (Meidner, 1994; Milner, 1990). Firstly, the historic 1938 Saltsjobaden accord in which workers collective associations (specifically The Swedish Workers Confederation of blue-collar unions - LO) signed an agreement with the employers associations (The Swedish Employers Confederation, SAF). This accord supported workers' and employers' associations to negotiate without government interference. It focused exclusively on 'distribution' issues leaving aside 'production' issues. Distribution issues concern the creation of conditions for stable economic growth at a sufficient rate to secure full employment. In the early post-war period TUs started to bargain on wage issues as part of a strategy to implement full 2 employment, as a key mechanism to reduce economic inequality. This however did not leave room for TUs to discuss workplace related issues (ie production issues) such as rationalisation programs for increase productivity. Secondly, TUs have been well organised, strong (for example, 90 % of metal workers are unionised) and possessed significant influence on labour market deployment. Thirdly, the Social democratic party (SAP), who is ideologically linked to LO, has been at office for 53 of the last 59 years. The combination of these factors supported stable economic growth accompanied by consistent improvements on both working conditions at the firm level and raising living standards at a societal level. To promote full employment demand was maintained slightly below the breaking point. Demand deficits were compensated by active labour market policies in specific sectors, trades or regions. Active labour market policies were not only complementary to market, industrial and regional policies (to pursue economic stability) but they were also a complement of solidaristic wages. Further more, employment services improved labour market's flexibility, training and retraining programs increase the supply of skilled labour as well as subsidies for the disabled integrated them to productive work (Meidner, 1997). The equity policy was also promoted by the establishment of a strong public Education and Health system. Three specific economic mechanisms were used to achieve the above: the co-determination law, wage solidarity and wage-earner funds. Despite these mechanism worked relatively well, they also brought political challenges as " ... the coherence between full employment and price stability on the one side and between egalitarism and efficiency, are the principal problems Swedes need to address " (Meidner, 1994: 46). The 1976 Co-determination Act (MBL) provided a legal framework to support the reaching of consensus decisions. Despite employers continuing to have the decision-making power, the MBL made room for TU intervention in the decision-making process, both formally and informally. Management, nevertheless continue having the last word on decision making. The wage solidarity program (equal pay for equal work) was designed and proposed by LO's economists to further promote equality. Under this policy inefficient firms unable to pay average wages disappear. Dismissed workers were quickly absorbed by efficient firms as active labour market initiatives provide for additional training needs including financial compensation while unemployed. To address the problem which emerged in the case of highly efficient firms, which can pay higher wages, a specific mechanism was created to re-distribute capital surpluses. Wage earner funds (WEF) financially support the solidaristic wage policies. WEF were financed by 20 % surtax on the firms pre-tax profits paid partly in money and partly in shares. These funds and shares were controlled by TUs. This scheme worked well while the socialist government was in office, despite the fact non-socialist parties out pressure on the government to cancel the project. In 1991, when a non-socialist government took office this fund was eliminated (see section 4). 3. THE FIRM LEVEL DIMENSION By the late 1960s both technological and organisational changes brought about by employers resulted not only in higher productivity levels but also involved higher work intensity and decrease the quality of work, specially for women and older workers. This triggered an increase in staff turn-over, absenteeism and difficulties in hiring young educated workers. These events convinced TUs of the need to gain the power to deal, on an equal footing, with 3 productivity and rationalisation related issues. Firms, on the other hand, were interested in addressing the high turn-over rates, accompanied by low unemployment levels, that occurred between the 1970s and 1980s, to obtain economic growth. Then, the development of work issues occurred in Sweden along 2 strands. One led by employers (SAF) and other by TUs (mainly LO). SAF's initiatives were more directed towards the achievement of higher productivity and efficiency than to the improvement of better working conditions. Conversely, LO's efforts were directed more towards the improvement of working and job conditions than to productivity increases. Both parties, from different perspectives however, pursued the increase of the overall efficiency of the firms as this would directly support their full employment macro economic goals. These developments are outlined next. SAF's "New Factories " : The key contribution of this initiative was the development of the idea of product or flow oriented production instead of functional orientation. This supports efficiency through the simplification of short-term production planning issues, shorter lead time and work-in-process involved as well as material handling on the productivity side. On the social side, group organisation supported a wage system rewarding groups - and not individuals- as well as increasing leeway for workers to self-manage their immediate work environment. Firstly, 'co-ordinated independence in small systems', was achieved by dividing up large technological systems in subsystems to manufacture complete parts or components. The production unit is then controlled by measuring outcomes. Secondly, 'stability of production' was sought through the use of one layout to one product and via the insulation of the unit from external disturbances. New Production Concepts at Volvo: In order to improve factory whole performance Volvo's corporate management and workers' association representatives decided that traditional Tayloristic production organisation needed to be substituted by a 'Human' approach in which productivity gains came from highly skilled workers performing holistic tasks. This nevertheless, was not an straight forward process. External and internal factors contributed to shape the alternative solutions. Externally, high competition, raising quality standards word- wide as well as uncertain economic growth in world markets were key factors considered. Internally, prevailing the pluralistic views regarding the path to take, in both workers and employers associations made this change of approach difficult. Christian Berggren (1989, 1992) in his longitudinal study has synthesised the key production and work organisation innovations that evolved in the Swedish automotive industry in final assembly from 1970 to 1990. He concluded that Swedish automotive manufacturers developed and used a large variety of technical and organisational concepts in different plants producing different product lines, at different times and responding to specific product markets, productivity pressures and firm's managerial
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