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Social Corporatism: a Superior Economic System? Edited by Jukka Pekkarinen, Matti Pohjola, and Bob Rowthorn This is a rekeyed full text file of the volume Social Corporatism: A Superior Economic System? Edited by Jukka Pekkarinen, Matti Pohjola, and Bob Rowthorn Originally published in 1992 by Oxford University Press the book is now out of print and the copyright has reverted to UNU-WIDER. File produced by Macmillan Publishing Solutions, Chennai WIDER Studies in Development Economics embody the output of the research programmes of the World Institute for Development Economics Research (WIDER), which was established by the United Nations University as its first research and training centre in 1984 and started work in Helsinki in 1985. The principal purpose of the Institute is to help identify and meet the need for policy-oriented socio-economic research on pressing global and development problems, as well as common domestic problems and their inter-relationships. Social Corporatism: A Superior Economic System? Edited by Jukka Pekkarinen, Matti Pohjola, and Bob Rowthorn A Study prepared for the World Institute for Development Economics Research (WIDER) of the United Nations University CLARENDON PRESS • OXFORD 1992 Oxford University Press, Walton Street, Oxford 0x2 6DP Oxford New York Toronto Delhi Bombay Calcutta Madras Karachi Petaling Jaya Singapore Hong Kong Tokyo Nairobi Dar es Salaam Cape Town Melbourne Auckland and associated companies in Berlin Ibadan Oxford is a trade mark of Oxford University Press Published in the United States by Oxford University Press, New York © The United Nations University 1992 World Institute for Development Economics Research (WIDER)— The United Nations University 42C, 00100 Helsinki, Finland All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of Oxford University Press British Library Cataloguing in Publication Data Data available Library of Congress Cataloging in Publication Data Social corporatism: a superior economic system? / edited by Jukka Pekkarinen, Matti Pohjola, and Bob Rowthom. p. cm.—(Studies in development economics) “A Study prepared for the World Institute for Development Economics Research (WIDER) of the United Nations University.” Includes bibliographical references and index. 1. Sweden—Economic policy. 2. Corporate state—Sweden. 3. Sweden—Politics and government—1905– 4. Scandinavia—Economic policy. 5. Corporate state—Scandinavia. 6. Scandinavia—Politics and government—1945– 7. Economic policy. 8. Corporate state. I. Pekkarinen, Jukka, 1947– . II. Pohjola, Matti. III. Rowthom, Bob. IV. World Institute for Development Economic Research. V. Series. HC375.S6855 1992 338.9485—dc20 91–5027 ISBN 0–19–828380–6 Typeset by Alliance Phototypesetters, Pondicherry Printed and bound in Great Britain by Bookcraft (Bath) Ltd. Midsomer Norton, Avon FOREWORD Post-war macro-economic management in OECD has long pursued what seemed an elusive ‘Holy Grail’. This was a combination of high growth with low inflation and high levels of employment. For many OECD countries the reduction of inflation has meant the acceptance of socially and politically problematic levels of unemployment. Attention therefore has increasingly centred on a group of economies described as corporatist which had succeeded in the 1970s in reconciling these apparently conflicting objectives. What the so-called corporatist economies have in common is an annual central wage bargain involving an annual centralized process of wage bargaining with the employers as a group meeting labour unions as a group, with the whole process being mediated by the political system usually involving a coalition. Since growth in the developing world is still largely a function of successful recipes for growth in the developed world the cor- poratist experiment was a natural focus for WIDER research. Indeed the wage-bargaining process was a particular focus of the report of WIDER’s World Economy Group.1 The group asserts that: ‘If EEC countries wish to return to full employment and stay there, they could do worse than look at Sweden.’ The present volume, taking the common feature of what may be de- scribed as social corporatism as a working definition, namely the centralized wage bargain, seeks to probe the conditions under which corporatism succeeds in actually finding the Holy Grail. There are corporatist success stories, notably the Scandinavian countries—Sweden, Finland, Norway, and Denmark—and there are the failures such as The Netherlands. The working definition that has been adopted for the purpose of this research permits the corporatist label to be extended to countries as diverse as Austria and Australia, and the extent to which these experiments have suc- ceeded is also reviewed. The broad conclusion of the research is that the centralized wage bargain is a necessary but by no means sufficient condition for the successful reconciliation of otherwise incompatible objectives. The Swedish experience is particularly instructive in that unemployment has never exceeded 3.5 per cent and now stands at under 1.5 per cent. In addition to centralized wage determination there are two other features common to the social corporatist success stories, namely unemployment benefits that run out after a year or so, and major training programmes for the unemployed. The Swedish labour market policy specifically has four main ingredients. First, a placement and counselling service operated by 1 World Imbalances, WIDER World Economy Group Report (Helsinki, 1989), ch. 3: ‘European unemployment’. vi FOREWORD employment exchanges where each staff member has a case load of 15 unemployed compared with 375 for example in Britain. Secondly, there is provision for retraining of workers even before they become unemployed and about 1 per cent of the labour force are on training courses of this kind. Third, recruitment subsidies are given to employers for recruiting workers who have not been placed within six months. The subsidy is 50 per cent of the wage and lasts for six months. Fourthly, there is provision for temporary public employment and a right to work. The public sector, in effect chiefly local authorities, becomes the employer of last resort and work is available to anyone whose unemployment benefit entitlement has run out. While such policies are expensive and Sweden spends nearly 1 per cent of national income on them, there are substantial savings resulting from the resulting reduction in unemployment benefit. While unemployment benefit takes up 1.5 per cent of GNP in the EEC, it costs 0.7 per cent in Sweden. Overall, therefore, while Sweden may be spending 1.7 per cent of GNP on her full-employment programmes, or about as much as the EEC overall, the output gains of substantially lower unemployment mean that the pro- gramme is largely self-financing. The WIDER study suggests that developing countries could do well to emulate the example of the successful corporatist countries in building the necessary institutions at an early stage of their development. Indeed as the pivotal centrally planned command economies of Eastern Europe move increasingly over to market solutions they will have the opportunity to profit from the lessons of the corporatist experience by incorporating the key ele- ments in rebuilding structures that are now very much in the melting-pot. Lal Jayawardena Director, WIDER CONTENTS LIST OF CONTRIBUTORS ix LIST OF FIGURES xi LIST OF TABLES xiii 1. Social Corporatism and Economic Performance: Introduction and Conclusions 1 Jukka Pekkarinen, Matti Pohjola, and Bob Rowthorn 2. Lessons from ‘Corporatist’ Theorizations 24 Göran Therborn 3. Corporatism and Wage Bargaining 44 Matti Pohjola 4. Corporatism and Labour Market Performance 82 Bob Rowthorn 5. Corporatism, Patterns of Employment, and Access to Consumption 132 Andrew Glyn 6. Saving and Economic Growth from a Nordic Perspective 178 Katri Kosonen 7. Social Corporatism and Long-Term Economic Performance 210 Michael Landesmann and Juhana Vartiainen 8. Industrial Policies and Social Corporatism 242 Michael Landesmann 9. Exchange Rate Policy and Employment in Small Open Economies 280 Sixten Korkman 10. Corporatism and Economic Performance in Sweden, Norway, and Finland 298 Jukka Pekkarinen 11. Corporatism: Success or Failure? Austrian Experiences 338 Alois Guger 12. The Swiss Model: Corporatism or Liberal Capitalism? 363 Wolfgang Blaas 13. The Unexpected Emergence of Australian Corporatism 377 Robin Archer INDEX 419 Acknowledgements The papers published in this volume are the outcome of a research project on social corporatism carried out in 1988–1989 with financial contribution provided by the Ministry for Foreign Affairs of the government of Finland. The project was organized under the joint auspices of WIDER and the Labour Institute for Economic Research in Helsinki. The authors would like to thank the staff of these institutes for their help and encouragement. We should also like to thank the participants in the various seminars and meetings organized in connection with this project, in particular, Tariq Banuri, Lal Jayawardena, Pekka Korpinen, Stephen Marglin, Juliet Schor, and of course all the contributors to this volume. J.P. M.P. B.R. LIST OF CONTRIBUTORS ROBIN ARCHER, Balliol College, Oxford, UK. WOLFGANG BLAAS, Associate Professor of Economics, University of Technology, Vienna, Austria. ANDREW GLYN, Fellow, Corpus Christi College, Oxford, UK. ALOIS GUGER, Senior Research Fellow, Austrian Institute of Economic
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