Interview: The Month Of Living Dangerously
Unions: Staying Mum
Economics: Precious Metals
Industrial: The Cold 100
History: The Vinegar Hill Mob
Legal: Free Agents
Politics: Under The Influence
International: How Swede It Was
Review: Keating's Men Slam Dance on Howard
The Locker Room
The Power of Ones
How Swede It Was
Rudolf Meidner (1914-2005) and the Swedish trade union movement took on capitalism from within with the wage earner fund policy during the 1970s. Geoff Dow looks at the hsitroical background of Meidner's thought and his legacy.
Rudolf Meidner died on 8 December 2005 after a lifetime spent shaping economic policy on behalf of Sweden's blue collar trade unions. In the process he defined for many the legitimacy of trade union involvement in wages policy (and wage fixing institutions), as well as general economic policy (especially that required to deal with unemployment), anti-inflation policy, and policies designed to reduce social inequality. He contributed to the theory and practice of social democracy and was responsible for probably the most divisive policy proposal in any western country in the postwar era - the ultimately unsuccessful campaign for 'wage earner funds'.
Meidner was born in Breslau (Wroclaw, now western Poland) in 1914, studied in Berlin, fled to Sweden in 1933, commenced work as a trade union researcher in 1945 becoming head of the research department at LO, the Swedish trade union confederation. He was a guest researcher at the University of Wisconsin in the mid 1960s and Wissenschaftszentrum, Berlin, later moving to the Centre for Worklife Research (Arbetslivscentrum) in Stockholm where he edited the journal Economic and Industrial Democracy. There he encountered and impressed quite a few international researchers, particularly Canadians and Australians; the latter took parts of Swedish experience to heart as Australia's trades unions council and its Labor Party forged and debated its corporatist 'Accord' in the early 1980s. Meidner continued to actively work and write until very recently.
Meidner is most commonly associated with Gösta Rehn, the two having authored the so-called Swedish model of economic policy, formulated, debated and refined in the early postwar period. The Rehn-Meidner model was never synonymous with the 'Swedish model'. The latter, known in Sweden as 'folkhemsmodellen', was the expansive system of welfare state universalism guaranteeing 'cradle to grave' security to all citizens. These welfare commitments were never intended to imply open-ended income support in such a way as to discourage productive work and they did not; Sweden has long boasted high labor force participation rates. But it has achieved very highly in the social provision of services (particularly health, education, retraining and urban amenity), outside the market.
However, welfare generosity always presumed a full employment economy. The income compensation promises were a real insurance against economic vulnerability, though affordable only insofar as they were rarely required. The welfare model, a standard feature of social democratic policy-making, emerged in the 1930s and 1940s as a result of efforts by Per Albin Hanson and Tage Erlander, prime ministers at the time, Gunnar Myrdal, Sweden's most famous economist, Gustaf Möller, an influential postwar social security minister, and especially Ernst Wigforss, finance minister until 1949 and an enthusiastic advocate for the extension of the democratic element in economic life.
It was the Rehn-Meidner model which attended to the series of related economic management issues that underwrote Sweden's postwar prosperity. Full employment was ensured by comprehensive 'labor market' training, retraining and relocation measures to facilitate structural change and maintain productivity. The resulting Labor Market Board (Arbetsmarknadsstyrelsen, AMS) became, in the 1950s, Sweden's most powerful and competent public institution. It was also tripartite, being managed jointly by trade unionists, employers and state employees with a keen specialist understanding of sectoral problems. It could deal with the short-term and localized unemployment created by the normal cycles of corporate growth and industrial decline, and with 'normal' instances of structural adjustment. But, although large scale industrial disruption did not lead to job losses in Sweden until the 1990s, labor market policy was less equipped to handle the mass unemployment and global restructuring of the past 30 years.
Rehn and Meidner realized in the late 1940s and early 1950s, that full employment and continuing prosperity would be likely to usher in new types of policy problems - such as those flowing from institutionally strong trade unions and private corporations able to transcend market disciplines. Imaginable consequences were, of course, inflation in an 'over-heated' economy, excess profits in industry (which could potentially fund wage increases) and 'pockets of unemployment' as economic change became more frequent. They set about the task of devising strategies which would differentiate the labor movement's response from the expected deflationary approach of liberal economists and the 'spend and prosper' approach associated with (orthodox) keynesianism. The labor movement had already pioneered central wage fixation (negotiated by the union and employer organizations) and the determination to preserve these arrangements and their egalitarian impulse was inviolate. The Rehn-Meidner solution was for restrictive budgetary policy by the government supplemented by selective spending in areas of need or downturn (such as housing). The objective was to deny employers the capacity for wage and salary increases that would lubricate inflation, beyond those agreed at the central discussions, while encouraging production and productivity-enhancing investment and innovation.
Many critics have noted that successive Swedish governments ignored the 'profit-squeeze' aspects of the Rehn-Meidner programme. This occasioned significant disillusion by Rehn and Meidner; but almost all agree that official dissipation of the model's central elements was a mistake which remains to be corrected.
Australians accustomed to centralized wage fixing (under compulsory arbitration provisions) were both bewildered by and envious of the longevity of Meidner's ideas. On the one hand Sweden's non-legislated bipartite system differed fundamentally from Australia's and it was far easier for the employers to abandon it (as they did fairly suddenly from the mid-1980s). On the other hand, the progressive equalization of incomes surprised many in the union movement. The impressive narrowing of income differentials from the 1950s simultaneously proved a boon to business (because the inability of employers to use low wages to subsidize inefficient firms put unexpected but fortuitous pressure on companies to 'rationalize'). Meidner was one of those who sought, over many years, a more sophisticated basis for work evaluation than generalized equality (equal pay for equal work, pay differentials to reflect the demands on labour not the demand for labour). However, the absence of agreed criteria for classifying income inequalities, did not disrupt the narrowing of income differentials; and the default position was particularly successful for women whose wages as a proportion of men's is the highest in the world. And it provided support for labor's proposition that equality is conducive to, not a detraction from, good overall performance and affluence. Sweden's unemployment from the 1970s to the 1990s averaged only 3.5 percent, its levels of government spending and taxation revenues were the world's highest, its ranking in the UNDP's human development index consistently close to the top, its inequality consistently low and the average number of hours worked fairly low by international standards. (Inflation, though, remained high until the 1990s and economic growth has been reasonably low for thirty years.) Some important post-keynesian propositions are confirmed by these juxtapositions.
The controversial wage earners funds were devised by Meidner (and some of his colleagues at LO) to address problems that had emerged by the 1970s. First, despite the wages policy of solidarity, good times meant that some employers could deliver wage increases to favoured staff thus causing 'wage drift' and undermining the unions' anti-inflation policy. Second, wage restraint by the unions meant employers could pay less in wages than they would have been prepared to pay if asked. As a result employers benefited from what the unions saw as 'unpaid wages'. Third, partly as a consequence of the build-up of excess profits, Swedish industry was becoming unhealthily concentrated, implying a propensity for Swedish industry to under-invest in Sweden. Fourth, in turn, the rate of capital formation in Sweden was beginning to slow and employment generation to falter. For these reasons Meidner proposed 'wage earner funds' an example of collective capital formation. The proposals would have required companies to issue shares each year to the value of 20 percent of profits and transfer them to union-controlled funds where, being untradeable, they would accumulate until voting power in the largest companies would pass from traditional owners to the new collective funds.
Meidner's scheme would not have necessitated any loss of capital from within industry but the subsequent debates were shrill, to put it mildly. The social democrats lost elections in 1976 and 1979 but implemented a watered-down version of the funds upon return to office in 1982. The employers' campaign against the funds reached its zenith in 1984. Meidner and the unions considered the LO funds campaign a failure, generating bad relations between the unions and the social democrats that has not been repaired since. The funds have since been abolished.
For the past twenty years commentary on the proposals has been prolific and Meidner became slowly more jaundiced about the possibility of serious reform to capitalism. He was treated harshly by the Swedish media although, within academic circles, the consensus is probably that, despite globalization, economic democracy remains on the reformers' agenda. Meidner deserves to be recognized as a major contributor to post-keynesian and institutionalist thought. he always thought of the economy in organic, evolutionary terms. His political philosophy is encapsulated in the aphorism Rehn and Meidner attributed to each other: 'There is nothing so revolutionary as genuine reformism'.
Geoff Dow is reader in political economy and political science at University of Queensland
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