‘Holland’s single most important weapon’ A CPE-inspired Common Sense Analysis of the Consensus on Wage Restraint in the Netherlands Tom van de Haar 10379029 09-07-18 De Deken Abstract Although wage restraint is often used as an explanans for the Dutch ‘miracle’, it is rarely viewed as an explanandum: that which needs to be explained. This thesis investigates how wage restraint became the ‘go-to’ solution during economic downturns in the Netherlands. Despite the occasional reluctance of trade unions to accept lower wage increases, the consensus of the social partners on wage restraint and its apparent benefits throughout the last few decades has been remarkable. To understand why trade unions have subscribed to a logic that not necessarily seems beneficial for its members it is necessary to adopt a CPE-inspired common sense framework. With the help of this framework, this thesis argues that the consensus of the government and the social partners on wage restraint has been underpinned and shaped by a competitiveness discourse, which over time has been incorporated into common sense. This competitiveness discourse has been propagating an unequivocal positive link between wage restraint and employment. The incorporation of the logic of the competitiveness discourse into the common sense of a variety of actors opened up space for a synthesis of the different perspectives, and subsequently fostered a broad-based consensus on wage restraint. 2 Table of contents 0: Abstract 2 0: Introduction 4 1: Theoretical Framework 7 1.1: The wage restraint-employment nexus 8 1.2: The consequences of wage restraint 10 1.3: The explanations for the consensus on wage restraint 12 2: Research design 16 2.1: Research objective 16 2.2: Research questions 17 3: Methodology 19 3.1: Research methods 19 3.2: Framework for analysis 20 3.3: Data 23 4: Analysis 24 4.1: The Keynesian crisis and the variety of responses 26 4.2: The selection of the competitiveness discourse 31 4.3: The use & transformation of the competitiveness discourse 38 4.4: The retention of the competitiveness discourse 41 4.4.1: Repetition of the discourse 42 4.4.2: Incorporation into common sense 43 4.5: The role of technology in the selection and retention of the discourse 47 5: Conclusion 50 6: Bibliography 53 6.1: Literature 53 6.2: Analysis 57 3 Introduction In 1995 the Netherlands Bureau for Economic Policy Analysis (CPB) claimed that wage restraint has been “Holland’s single most important weapon in international competition (as cited in Hemerijck & Visser, 1997: 26)". The quote perfectly captures the broad-based consensus on the benefits of wage restraint that has dominated the Dutch wage bargaining process in the last 40 years. Wage restraint is, as an economic strategy, strongly embedded in the culture as well as the formal institutions of the Netherlands. The emphasis on wage restraint has had clear consequences for labour’s share of income. Following the majority of capitalist economies, the Netherlands experienced two interrelated phenomena from the late 1970s onwards: a downward trend in labour’s share of income, and the emergence of a persistent gap between real wage growth and labour productivity growth. Although once regarded as a stylised fact (see Kaldor, 1957; or Keynes, 1939), the alleged stability of the proportion of national income received by labour and capital has in the last few decades been seriously challenged by a vast amount of research (see i.a. OECD, 2012; ILO, 2013). After the post-war period until the 1970s real wages in the Netherlands and similar western capitalist countries typically grew in proportion to labour productivity (van Klaveren, Salverda & Tijdens, 2009: 414). However, after the 1970s labour was no longer able to translate productivity growth into real wage growth (Lavoie & Stockhammer, 2013: 3; Stockhammer, 2013: 1). The extra real income generated as a result of increasing levels of labour productivity has, instead, been largely appropriated by capital, which resulted in big shifts in the national income away from labour and towards profits (Mitchell, 2013: 6- 7; Lapavitsas, 2013: 190). In the Netherlands the real wage-productivity nexus has deliberately been broken, since supressing real wage growth forms an integral part of the Dutch export-led growth strategy. The signing of the famous Wassenaar Agreement in 1982 heralded the (re)introduction of wage restraint, and marked a turning point in the Dutch political economy. The social partners subscribed to the logic that increasing the profitability of companies and improving the international competitiveness of the Dutch economy was the way out of the turbulent economic times of the early 1980s (Visser & Hemerijck, 1997: 13, 16; Hemerijck & Schludi, 2000: 159). In the subsequent decades wage restraint became an indispensable tool for promoting job growth, and was almost continuously pursued by both the government and the social partners. Wage formation in the Netherlands has since 1982 been characterised by voluntary wage restraint in exchange for jobs, resulting in a real wage growth of around 0% between 1982 and 2015 (de Beer & Keune, 2017: 223; see also Storm & Naastepad, 2013: 101). 4 However, an increasing number of voices argue either that wage restraint has not been the best strategy for the Netherlands (see i.a. Kleinknecht et al., 2006; Vergeer & Kleinknecht, 2007; Storm & Naastepad, 2013) or that in the current economic climate there is no need to restraint the wages (see i.a. Eggelte et al., 2014). Even the president of the Dutch Central Bank Klaas Knot has in the last few years repeatedly argued for stronger wage increases (de Boer, 2017). These pleas have so far not resulted in a significant rise of real wage growth. The consensus of the social partners on wage restraint and its apparent benefits throughout the last few decades has been remarkable. Wage restraint enjoys an almost unquestionable legitimacy in the Netherlands. The wage bargaining process has been dominated by concerns surrounding the international competitive position of the Netherlands (see i.a. Salverda, 2013: 371; Visser & Hemerijck, 1997: 26, 109; Becker, 2001: 26), which begs the question where these specific concerns originated from, and how these concerns were able to secure a place at the forefront of the Dutch social dialogue. Different explanations for the Dutch consensus on the wage restraint strategy have been put forward. The majority of these explanations offer either a depoliticised narrative that frame wage restraint as a long-awaited sensible decision, or stress that trade unions simply lacked the power to oppose to the wage restraint wishes of the employers. However, the first type of explanations cannot account for the shaky theoretical and empirical foundation on which the proclaimed benefits of wage restraint are build; while the second type of explanations fall short in explaining why the strategy of wage restraint has been embraced by the social partners in the Netherlands for the last 40 years but not to a similar extent in the other countries. To understand why trade unions have subscribed to a logic that not necessarily seems beneficial for its members it is crucial to adopt the Gramscian notion of common sense. This thesis argues that the consensus of the government and the social partners on wage restraint has been underpinned and shaped by a competitiveness discourse, which over time has been incorporated into the common sense of the relevant actors. The hegemonic discourse that presents wage restraint as unambiguously beneficial for the general interest gained legitimacy and became throughout the years widely accepted. The discourse has been an essential instrument in producing and sustaining the necessary support for the wage restraint strategy. The Dutch preoccupation with (unit) labour costs and the profitability of firms has been premised on the pervasive beliefs that the competitiveness discourse propagates. The thesis is structured as follows. The first chapter examines the debates in the literature. The second chapter presents the research objective and the research questions. Chapter three discusses 5 the research methods, and explains the guiding framework for the analysis. The fourth chapter presents the analysis. Lastly, chapter five offers a conclusion. 6 1: Theoretical Framework A number of economic shocks, such as the end of the Bretton Woods system (1971), the first (1973) and the second (1979) oil crisis, and the subsequent global economic recession of the early 1980s, left many Western capitalist economies in dire straits. For the Netherlands the period was characterised by economic difficulties and societal conflicts. Because of the severity of the problems, the term ‘Dutch disease’ was coined to describe the political and economic stagnation of the Netherlands during the 1970s and early 1980s (Visser & Hemerijck, 1997: 9). The country experienced a high level of unemployment, a big current account deficit, a declining level of competitiveness, falling growth rates, and a rapidly rising public debt (Hemerijck & Schludi, 2000: 158); while on a societal level fierce labour conflicts dominated the labour relations (Scharpf, 2000: 60; van der Velden, 2009: 84, 143). To combat the economic deterioration the Dutch reformed their welfare state, and reintroduced their post-war strategy of wage restraint (Visser & Hemerijck, 1997: 9). This strategy included a chain of reasoning that started with wage restraint and ended with job growth. Wage restraint was therefore regarded as the correct medicine to cure the ‘Dutch disease’ of high and sclerotic unemployment, which was over 11% in 1982 (Storm & Naastepad, 2013: 101). The ‘sick man’ image of the Netherlands changed profoundly in the second half of the 1990s. While the majority of western economies experienced stagnation, the Dutch economy was one of the few that was able to perform comparatively well (Becker, 2001: 19; see also Engelen, 2016: 116). The relative success of the Netherlands had not gone unnoticed.