Corporatism and Foul Economic Weather
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CORPORATISM AND FOUL ECONOMIC WEATHER: RATIONAL CO-OPERATION, COMPARATIVE PERFORMANCE, AND THE SWEDISH CASE. Richard A. Sandiant Thesis presented for PhD at the London School of Economics Political Science 1993 UMI Number: U056347 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI U056347 Published by ProQuest LLC 2014. Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code. ProQuest LLC 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106-1346 " “^ A F ^ Of t' \ ? ?oW c*V u IvSk + $l\Oc& U 0 'Z>o ABSTRACT. The thesis examines corporatism from a rational cooperation, comparative and case study perspective. It analyses how corporatism distributes gains in "fair economic weather" and costs in "foul economic weather". Fair or foul weather outcomes are determined more by factors exclusive of the degree of corporatism. Corporatism aims to achieve a pareto-optimal exchange between three actors: Labour, Capital and Government, who confront collective action problems. Labour, in particular, is fragmented into high and low pay workers. Foul weather results in a relative inequality shift, and the iterative and centralised bargaining solutions to the prisoners' dilemma become much more susceptible to "insider-outsider" behaviour in foul weather. The analysis suggests that growth-based corporatism breaks down in foul weather, and reassesses the role of centralisation and encompassing group behaviour. The thesis examines corporatist performance in fair and foul economic weather empirically using cross-national data. A typology is defined and performance is compared in terms of economic indices and indices which reflect general societal welfare. Corporatism succeeds more in terms of sustaining employment and societal welfare than in terms of producing superior economic performance and avoiding foul weather. Sweden is identified as a critical case study of corporatism in foul weather. The evolution of Swedish corporatism is analysed and the operation of the model is shown to have been dependent on fair weather and the distribution of gains. Decentralisation of wage bargaining in Sweden provides strong support for the theorised impact of foul weather and insider-outsider problems of conditional cooperation involving high and low pay workers. But the Swedish system also makes a series of efficient adjustments to foul economic weather. Swedish comparative wage restraint performance is examined empirically and shown to be remarkably strong. It is not therefore possible to conclude that rational cooperation has broken down in Sweden. TABLE OF CONTENTS. PAGE INTRODUCTION. 1 Growth-Based Corporatism. 5 Methodological Approach. 10 1. CORPORATISM AS RATIONAL COOPERATION. 15 1.1. Actors and Processes. 17 1.1.1. Labour and Capital. 19 1.1.2. The Role of Government. 22 1.1.3. Collective Action Difficulties. 26 1.1.4. Iteration and ConditionalCooperation. 32 1.2. Two Fundamental Problems. 38 1.2.1. Inequality. 39 1.2.2. Bargaining. 43 1.3. A Simple Model of Outcomes. 46 Conclusion. 63 2. FOUL ECONOMIC WEATHER AND TRADE UNION COOPERATION. 67 2.1. Trade Unions as Economic Actors. 69 2.2. The "New Institutionalism". 76 2.2.1. The Central, Peak Federations. 82 2.2.2. High Pay Unions. 86 2.2.3. Low Pay Unions. 90 2.3. Cooperation in Fair and Foul Weather. 95 Conclusion. 110 3. CORPORATISM AND ECONOMIC COMPETITIVENESS. 113 3.1. Identifying a Foul Weather Corporatist Country. 117 3.2. Corporatism and Distributive Conflict. 130 3.3. Corporatism and Economic Growth, Output 134 and Productivity. 3.4. A Competitiveness Index of Foul Weather. 139 Conclusion. 145 4 . THE IMPACT OF CORPORATISM ON SOCIETAL WELFARE. 147 4.1. Unemployment versus Inflation. 148 4.2. The "Happiness” Index and the "Misery" Index. 163 4.3. Public Employment. 167 4.4. Societal Welfare. 169 Conclusion. 175 5. EVOLVING MODELS OF SWEDISH CORPORATISM. 178 5.1. The Swedish Model as a Growth Strategy. 179 5.1.1. A Strong Starting Position. 187 5.1.2. Early Developments. 195 5.2. The Rehn-Meidner Model. 198 5.4. The EFO and FOS Models. 211 5.5. Swedish Corporatism and Foul Weather. 224 Conclusion. 229 6. WHY SWEDISH CORPORATISM HAD TO CHANGE. 232 6.1. Foul Economic Weather in Sweden. 234 6.1.1. External Shocks. 234 6.1.2. Internal Shocks. 240 iv 6.1.3. Employment Consequences. 242 6.2. The Rise of the New Actors. 247 6.2.1. The Public Sector. 247 6.2.2. The White Collar Unions: TCO,SACO-SR, PTK. 250 6.3. Wage Drift. 260 6.4. Decentralisation. 279 Conclusion. 280 7. SWEDISH WAGE RESTRAINT: A COMPARATIVE PERSPECTIVE. 282 7.1. How Effective was the Swedish Response? 284 7.1.1. The 1970s. 285 7.1.2. The 1980s. 292 7.2. Cross-National Comparison of Wage Restraint. 303 7.2.1. Nominal and Real Wages. 306 7.2.2. Wage Drift and Contractual Increases. 315 7.2.3. Wage Breakouts. 319 7.2.4. Wages and Employment. 322 Conclusion. 333 CONCLUSION. 336 The Corporatist and Liberal Alternative. 337 The Future of Corporatism. 342 METHODOLOGICAL AND STATISTICAL APPENDIX. 352 Theoretical Models. 352 Data Analysis. 354 Data Ranking. 356 Fair and Foul Weather Plots. 356 v Data Supplied by LO. 360 OECD Data 1970-1989. 368 OECD Data 1981-1987. 373 Primary Sources. 385 BIBLIOGRAPHY. 387 Acknowledgements. This thesis was funded through a Commonwealth Scholarship, 1989-1992. Many thanks to the British Council and the Association of Commonweath Universities. Acknowledgements also to the Government Department and staff of the LSE, the Swedish Consulate in London, the students and staff of International Hall (University of London) and to my supervisor, Professor Patrick Dunleavy, who was always very helpful. Apologies to students at Kings College, University of London, and the former Polytechnic of Central London (now University of Westminster), where I taught some of this material. Thanks to Bengt Blomqvist, Martin Hornqvist, Annika Hilding, and other Swedes who endured my questions. Thanks to Desmond King and Brian Barry, and the ECPR Essex Summer School. Any mistakes are, of course, my own. TABLES. Number Title Page 1 . 1 . The Two-Player Prisoners' Dilemma. 32 1 . 2 . The Strategies Which Lead To A Prisoners' 52 Dilemma. 1.3. A Comparison of Outcomes Under Different 58 Conditions and Strategies. 2 .1 . Government and the Encompassing Trade 98 Union Actor. 2 .2 . The Attraction of Corporatism in Fair 103 Economic Weather. 2.3. Corporatism in Foul Weather. 106 2.4. The Prisoners' Dilemma of Cost Distribution. 108 3.1. A Scale of Corporatism: Encompassingness, 120 Centralisation, Political Exchange and Consensus. 3.2. Change In The Corporatist Typology, 1980s. 122-123 3.3. Corporatism and Strike Activity. 131 3.4. Corporatism and Economic Growth. 135 3.5. Corporatism and Manufacturing Productivity 138 3.6. Corporatism, Inflation and Current 140 Balance Performance. 3.7. Comparison of Competitiveness 143 and Strike Rates. 4.1. Corporatism and Inflation, Unemployment, 150 and Government Outlays. 4.2. Rankings: Inflation, Unemployment and 164 Government Outlays. 4.3. A Comparison of Performance on 165 Joint Indicators. 4.4. Rankings: Public Employment and 168 Employment Growth. vii 4.5. Mid-1980s Expenditure on Welfare. 172 6.1. GDP Growth Per Employee, 1960-1989 244 (Percent Per Year). 6.2. Trade Union Federations as a 248 Percentage of the Labour Force. 6.3. The Wage Bargaining Areas. 256 6.4. Wage Increases and Wage Drift: A Comparison 262 of the LO/SAF and PTK/SAF Areas. 6.5. Wage Increases in the LO/SAF Area: Contractual 268 Increases and Wage Drift. 7.1. 1977: Decrease in Unit Labour Costs. 289 7.2. Swedish Wages Performance. 317 7.3. Comparative Wages Performance in Sweden. 320 7.4. The Relationship Between Nominal and Real 324 Wages in the FBT and Chemical Sectors, and Inflation and Unemployment, 1970-1989, in Five Countries. 7.5. The Relationship Between Nominal and Real 330-31 Wages (Corrected for Employment) in Three Sectors, and Inflation and Sectoral Employment, 1981-1989, in Five Countries. viii FIGURES. Number Title Page 1.1. Three Wages Strategies. 51 1.2. Three Investment Outcomes. 52 1.3. The Impact of Growth in a on the 54 "Militant" Strategy. 1.4. The Impact of Growth in /3 on Investment 55 Outcomes. 1.5. The Impact of Growth in 0 on Wages Outcomes. 56 1.6. Effect on Wages of a Shift to a "New Restraint" 57 Strategy. 1.7. Effect on Output, Investment, and Wages. 58 1.8. Zero Wages Growth With Increasing 0. 59 1.9. The Effect of a Fall in Wages on 60 Investment and Output. 1.10. The Return to Consumption Growth. 61 1.11. The Adjustment Effect on Output, Investment, 62 and Incomes. 3.1. GNP Growth In Fair And Foul Weather. 136 4.1. The Fight Against Inflation in the 1980s. 151 4.2. The Tradeoff Between Inflation and Unemployment. 155 4.3. Corporatism and Inflation Performance. 157 4.4. Corporatism and Unemployment Performance. 158 4.5. Taxation as a Percentage of GNP. 171 5.1. The Rehn Model. 208 6.1. The Decentralised LO Bargaining Strategy. 277 7.1. Nominal Manufacturing Wage in Fair 307 and Foul Weather. ix 7.2. Real Manufacturing Wage in Fair 308 and Foul Weather. 7.3. Unit Labour Costs in Fair and Foul Weather. 309 7.4. Nominal Wages Growth: FBT and Chemical 310 Industries.