NETWORKS OF FINANCIAL POWER IN ICELAND THE LABOUR MOVEMENT PARADOX A Thesis submitted for the degree of Ph.D. by Herdís Dröfn Baldvinsdóttir BA in Psychology University of Iceland, Reykjavík, Iceland MA in Organisational Analysis and Behaviour Lancaster University, Lancaster, UK Department of Behaviour in Organisations Lancaster University The Management School September 1998 © Dr.H.D.Baldvinsdóttir 1999 DECLARATIONS This work has not previously been accepted in substance for any degree and is not being concurrently submitted in candidature for any degree. Signed Date © Dr.H.D.Baldvinsdóttir 1999 In Memory of my parents, my daughter and my brother, who have all contributed in their own way to this thesis. © Dr.H.D.Baldvinsdóttir 1999 ACKNOWLEDGEMENTS This study could not have been completed without the encouragement and assistance of many people and it is a great pleasure to have now the opportunity to thank them. The project has been supported financially with assistance from the Icelandic Student Loan Fund and by grants from the British Council and The Icelandic Science Foundation, Rannís. Menningar og Minningarsjóður Kvenna, Starfsmannafélagið Sókn and Verkakvennafélagið Framsókn also supported this work. For that I am extremely grateful. I would like to thank all those who have helped and supported me over the last eight years and made this study possible. I would especially like to thank Gillian Benn and Martin O’Loughlin, they have been there for me and my family from the first day. Suzanne Thorpe, Lilja Mósesdóttir, Rómulo Sánchez and Robert Berman, who travelled this road with me and have shared in the pleasure and the pain. Maria Hudson, Colleen Thomas and Ívar Jónsson, thank you for your help and inspiration. Dr. Mike Noon deserves special thanks for reading my work and giving me very valuable support. I also remain very grateful to my other friends in England and all over the world, especially José Malavé and Juan Mejia, which have been a constant source of encouragement. Finally, I would like to thank my supervisor Alan Whitaker for his help and support Lastly but not least, I am in debt to my family and friends in Iceland. Thank you all very much for your help and support. Conducting research on Iceland from England can be difficult as the source material is mainly to be found in Iceland. I, therefore, had to rely heavily on the hospitality and genorosity of family and friends during my visits to Iceland. Furthermore, I often had to ask someone to look something up for me, and they have always done it promptly and efficiently. There is no way to mention you all individually but a few must be named. My sisters Bergljót, Hrafnhildur and especially Valborg, which looked after all our affairs in Iceland, thank you and your families very much. Lilja, Torfi, Sibba, Hafdís and my mother-in law Júlíana Isebarn, I am grateful to you all. Most of all I need to thank my husband Sveinn Ágústsson and my two sons Ágúst Orri and Sigurður Baldvin for all their assistance, encouragement and patience. I realise that you have had to put up with a lot while I have been engaged in this study. Still you never gave up the belief that this work would eventually be finished and that kept me going. Without you I could not have done this and this thesis is just as much your work as mine. © Dr.H.D.Baldvinsdóttir 1999 ABSTRACT The study aims to explore co-operation between employers and the labour movement in the financial sector in Iceland, especially in the private pension fund industry. The thesis objective is to assess the consequences of this co-operation and the paradox it poses for the labour movement, in that it renders them strong and weak. Another main objective of the thesis is to give an insight into the current power structure in Iceland. The study uses social network analysis and the concept of interlocking directorships to guide the research and the analysis. The data is predominantly relational data. That is, the data collected are contacts, ties and connections, which relate one actor to another and so can not be reduced to the properties of the individual actors themselves. Relational data emphasis upon the investigation of the structure of social action and structures are built from relations, such as interlocking directorships, kinship patterns, corporate and community structure. The evidence shows that there exists a strong ‘ruling élite’ in Iceland, which has its basis in the large corporations and financial institutions, has potential control over the corporate community and plays a major role in shaping the social and political climate. The ‘ruling élite’ is socially and economically cohesive, which is manifested in common stock ownership and most visibly in the complex pattern of interlocking directorships that unites the corporate community and creates a dense communication network. This has contributed to economic concentration and centralisation. The findings indicate that through co-operation with employers in the private pension fund industry, the labour movement has been incorporated into this external power structure, through a vast and complicated network of personal, financial and interlocking directorships. That is the main paradox of the labour movement: it has become weak for its members and strong for the ‘ruling élite’. © Dr.H.D.Baldvinsdóttir 1999 CONTENTS List of Figures vi List of Tables viii List of Abbreviations ix CHAPTER 1: INTRODUCTION The Labour Movement Paradox 1 Where has the paradox come from? 6 Outline of the research 16 CHAPTER 2: CONTEXTUAL BACKGROUND OF ICELAND Introduction 22 Size and population 22 Industries 23 Economic and labour market development from 1960 24 - Working hours 25 - Wages 25 - Taxation 27 - Welfare 28 The political party system in Iceland 29 - The coalition pattern 34 Actors in the labour market 37 - The development of ASÍ 38 - The labour movement structure 41 - Collective bargaining 42 - Membership 43 © Dr.H.D.Baldvinsdóttir 1999 i Economic and historical development from early this century to 1960 45 - 1904-1930 47 - 1930-1960 52 - The bank management 1886-1960 59 Conclusion 68 CHAPTER 3: NETWORK THEORIES Introduction 70 The development of social network analysis 72 Network analysis in organisational studies 79 - Intraorganisational networks/socio-technical system theory 79 - Interorganisational networks/interlocking directorships 83 Networks as a model of co-ordination 87 Network as associations 89 Actor-Network Theory (ANT) 93 - Actor-network and actor-world 96 - Intermediaries 97 - Translation 99 - Translation centres/centres of calculation 101 - Phases of translation 101 - Power 104 - Convergence and irreversibility 105 - Simplification and punctualisation 106 Conclusion 111 © Dr.H.D.Baldvinsdóttir 1999 ii CHAPTER 4: METHODOLOGY AND DATA COLLECTION Introduction 114 Data and sampling procedure 114 Methods 116 Historical analysis 117 Social networks 119 Shareholding 121 Interlocking directorships 123 Interviews 124 Problems 126 Conclusion 127 CHAPTER 5: THE PENSION FUND INDUSTRY IN ICELAND Introduction 128 The development of the pension fund industry 130 The Pension Funds Assets and Investment 133 Assets 133 The pension funds net cash flow 137 Investment 138 - Loan to members 139 - Investment in the public sector 139 - Investment in financial institutions 140 - Investment in the private sector 143 The structure of the pension funds 148 - The management structure 153 Conclusion 159 © Dr.H.D.Baldvinsdóttir 1999 iii CHAPTER 6: FINANCIAL INSTITUTIONS Introduction 161 The banking industry 1960-1998 163 The People’s Bank 169 Íslandsbanki h.f. 172 Iceland Stock Exchange and investment funds 178 Insurance companies 181 Conclusion 183 CHAPTER 7: SHAREHOLDING AND CONTROL IN PRIVATE COMPANIES IN ICELAND Introduction 185 A review of the main historical trends of corporate control and finance capital 186 Icelandic industries 193 The marine sector 195 - The quota system 196 - Shareholding 201 The fish export sector 209 The manufacturing sector 212 The oil companies 214 The transport sector 216 - Shipping lines 216 - Airlines 218 The tourism sector 219 Conclusion 220 © Dr.H.D.Baldvinsdóttir 1999 iv CHAPTER 8: INTERLOCKING DIRECTORSHIPS AND CONTROL IN PRIVATE COMPANIES IN ICELAND Introduction 226 The significance of interlocking directorships 227 Accumulation of positions in Iceland: multiple directors and the network of 233 interlocking directorships in private companies on the stock exchange Interlocking directorships from the centre 243 The centre and kinship ties 252 Conclusion 257 CHAPTER 9: CONCLUSION: REVISITING THE PARADOX Outline and main outcome of the study 259 Main Conclusions 264 Some concluding remarks: Actor Network Theory (ANT) and the paradox 272 Suggestions for further research 275 BIBLIOGRAPHY 277 © Dr.H.D.Baldvinsdóttir 1999 v LIST OF FIGURES Figure 2.1 Bank managers and multidimensional roles: 60 The Bank of Iceland 1904-1930. Figure 2.2 Bank managers and multidimensional roles: 63 The National Bank 1886. Figure 2.3 Bank managers and multidimensional roles: 65 The Fisheries Bank 1930-1988. Figure 2.4 Bank managers and multidimensional roles: 67 The Agricultural Bank 1930. Figure 6.1 The board of directors and multidimensional roles: 171 The People’s Bank. Figure 6.2 The main shareholders in Íslandsbanki. 173 Figure 6.3 Íslandsbanki and interlocking. 175 Figure 6.4 Íslandsbanki - shareholding and connections. 177 Figure 6.5 The financial market – shareholding and connections. 180 Figure 7.1 Breakdown of employment by sectors, 1994. 193 Figure 7.2 Contribution of industries to GDP, 1994. 194 Figure 7.3 Number of quota-holders, 1984-1994. 198 Figure 7.4 Quota-distribution, 1984-1994. 199 Figure 7.5 Fish processing companies – Division of turnover in 202 1993. Figure 7.6 Intercorporate shareholding within the fishing industry. 203 Figure 7.7 Multiple shareholders across fishing companies. 206 © Dr.H.D.Baldvinsdóttir 1999 vi Figure 7.8 Intercorporate shareholding across industries. 222 Figure 7.9 Shareholding between the interlinked companies. 223 Figure 8.1 Interlocking directorships across industries.