LO Sweden: Can an Old Model be Renewed?

LO Sweden is starting a high-level commission on a “new Swedish model”. Long ago, Sweden was known for what was called the Rehn-Meidner model. The idea was that union wage strategies and government policy should be combined to promote full employment and fair distribution while respecting the autonomy of unions and employers. The basic element was a “solidaristic” wage policy which would raise the income level of low-income groups and simultaneously speed up structural change and thereby create more jobs in the future. Unemployment benefits and active labour market programmes would give workers security in the process of change; a “security of the wings”, as Gösta Rehn, LO economist at the time, phrased it. In this guest post, Ingemar Lindberg discusses the huge task of this new commission: How to re-establish a strategy for these goals in our times?

Sweden has a semi-centralised wage setting system, in which negotiations between the social partners in industry are expected to “set the mark” for other sectors. Union affiliation is still around 70 per cent and collective agreement coverage 90 per cent. But full employment is far away; the rate of unemployment remains around 8 per cent. Moreover, wages have not increased in line with productivity; actually Sweden beats Germany (and even China) in export surplus seen over the last ten to fifteen years. This is not very solidaristic with workers in other countries.

In the 1950s and 1960s – the hey-days of the old model – LO Sweden, the blue-collar confederation, could still dominate the scene on the union side. Today, two other confederations – TCO for salaried employees and Saco for professionals –have together more members than LO and negotiate two thirds of the total wage sum. Differences between the three confederations are not easy to bridge. Many TCO and Saco unions have accepted individual wage setting models. And LO’s insistence on its link with the Social-Democratic party is a hindrance for closer collaboration with the other two.

Also, in the hey-days of the old model, the Swedish employers were part of the handshake. The leaders of LO and the Employers´ Confederation SAF toured the US together, presenting the case for a compromise of this kind. The employers actually saw this model as a constructive way of working together with labour and create a good climate at the workplace. Now, however, major fractions on the employer side seem to have lost all national or long-term interests, focusing instead on transnational production networks or short-term financial transactions.

Even more challenging is the persistent high rate of unemployment. The old model was based on global capital controls of the Bretton-Woods era and on Keynesian macro-economic management at national level. There was political agreement across all parties that if unemployment rose towards 3 per cent, active stimuli through fiscal and/or monetary policies were called for. And the tools were available at the national level. The national government ruled over fiscal and monetary policy.

A central issue for the new commission is bound to be how far a national government in a small and open country like Sweden can master its own policies for full employment. No one would deny that national policy space has shrunk. But some, including myself, would argue that the real limits are larger than the perceived ones. Excessively low aggregate demand seems to be the main reason for this “prolonged crisis of democratic capitalism” (Streek). And Sweden is no exception. Could not the share of wages to GDP be raised? Could not the inflation target be elevated and fiscal norms relaxed, now that stagnation is more of a threat than inflation? Could not a huge-scale public investment programme with green ambitions be started, now that idle resources need be put to use?

Photo by Arjan Richter

However, the basic role of unions is not politics, it is negotiating good contracts for workers. My own guess is that priority No.1 for LO will be to maintain and renew its mandate to coordinate central wage negotiations. This will require some kind of common understanding with the unions of salaried employees and professionals. But also politically I would think that LO will gradually shift towards more emphasis on coordinating with TCO, and to some extent even with Saco. In this process LO will have to distance itself substantially from the Social-Democratic party SAP. I think that in the long run they will both benefit from a more detached mutual relationship. The old model was built on the LO/SAP axis. Now LO has no hegemonic position, nor has SAP. But a strong wage earner strategy for full employment and fair distribution would certainly influence also the non-socialist political parties.

There are several other new elements which the commission will most probably have to consider. One is “globalization”, meaning the organization of production and distribution in trans-national networks, and the extreme mobility of financial capital. These two elements of a neo-liberal world order threaten both unions and democracy. More effective tools for transnational union responses need to be developed.  And simultaneously, a reasonable degree of national policy space – for full employment, labour market regulation and welfare programmes – needs to be defended and restored.

At its 2012 Convention, LO Sweden elected a complete set of new leaders. A new generation took over. Establishing a high level commission with a task like this is certainly a brave thing to do. The commission is required to report in 2015 and decisions will be taken at the 2016 LO Convention. It will be interesting to see how far and in what way the commission will tackle these challenges.

Ingemar Lindberg is a former researcher and social policy adviser to the Swedish Confederation of Trade Unions (LO). He has written a number of books and articles on labour and globalisation.