Coordination as a Political Problem August 2004, 1 Coordination as a Political Problem in Coordinated Market Economies

The purpose of this article is to explore the political dynamics of employer coordination in three well-known “coordinated market economies.” We examine differences in how employer coordination has been organized in Germany, Sweden, and Japan in the area of industrial relations, and we examine the extent to which such coordination represents a selfsustaining equilibrium, as some of the most influential treatments suggest. To preview the findings, we argue that developments in the last two decades have introduced new strains in industrial relations institutions in all three countries, as an intensification of cooperation between labor and management in some firms and industries has disrupted the more overarching forms of coordination on which these systems previously rested. All three cases are characterized not so much by a full-blown breakdown of coordination, but rather by the emergence of new or intensified forms of dualism—different in each case based on different starting points—in which continued coordination within a smaller core has in some ways been underwritten through the breaking off of other, more peripheral, firms and workers. Coordination as a Political Problem August 2004, 2 A relatively new and highly influential line of thought in the literature on the political economy of advanced capitalism draws attention to the central role of employer coordination in the construction and maintenance of distinctive “varieties of capitalism” (see, especially, Hall and Soskice). Whereas much of the earlier literature on democratic corporatism cited the central importance of labor strength and centralization to a variety of institutional and macroeconomic outcomes, this newer body of work argues that the capacity of employers to coordinate among themselves is what holds the key to understanding a range of outcomes that in the past were associated with corporatism (Soskice). The varieties of capitalism literature has provided a powerful corrective to a previous wave of theorizing that saw traditional labor institutions, especially in “coordinated market economies,” as extremely fragile in the face of neoliberal ideology and more volatile international markets since the 1980s. Much of the previous literature was premised on the idea that globalization would push all countries toward neoliberalism and deregulation, encouraging firms to lower labor costs and increase labor market flexibility while undermining the power of unions to prevent these (Kapstein; Katz and Darbishire; Martin and Ross). However, convergence theories predicting a uniform slide into deregulation have not been borne out (Berger and Dore; Ferner and Hyman; Boyer and Hollingsworth; Wallerstein, Golden, and Lange; Zysman). Moreover, theories that attributed the resilience of traditional bargaining institutions in some countries to successful union defense do not provide much purchase, either, on observed cross-national patterns of stability and change (e.g., Katz; Turner). Coordination as a Political Problem August 2004, 3 The varieties of capitalism (hereafter VOC) perspective is premised on a distinction between “coordinated” versus “liberal” market economies, which points to differences in the extent to which employers can coordinate among themselves to achieve joint gains. These differences are expressed in different clusters of institutions in the two types of political economies—including particular kinds of financial institutions, collective bargaining institutions, vocational training institutions, even welfare state institutions—that in turn support distinctive types of employer strategies in the market (see also Ebbinghaus and Manow). Because of their divergent arrangements, the two types of political economies are associated with efficiency in the production of different sets of goods (Hall and Soskice, 3644). The VOC literature suggests that—far from convergence—we should see continued diversity and indeed even stronger divergence between the liberal market economies and coordinated market economies (see also Iversen, Pontusson, and Soskice; Kitschelt et al.). Rather than universally embracing deregulation, employers in the developed democracies will seek to confront new market challenges by building on and deepening previous sources of comparative institutional advantage. Thus, while employers in the United States and United Kingdom may well seek deregulation, employers in countries such as Germany, Sweden, and Japan will hold to traditional arrangements, because the strategies they have developed in the market rely on a high degree of labor cooperation, strong worker investment in skill acquisition, and peaceful plant relations—all of these being elements that traditional labor relations institutions and practices provide. 1. The nomenclature has gone through several iterations, but despite some changes in labels, the countries understood to belong to each of these broad types have remained the same. Thus, coordinated market economies include Norway, Sweden, Japan, Germany, Switzerland, and Austria, while noncoordinated or Coordination as a Political Problem August 2004, 4 In short, and in contrast to convergence or even “common trajectory” theories (Pontusson), the VOC literature if anything predicts heightened divergence across systems. The argument above all draws attention to how employers themselves have become invested in various institutions (including centralized wage bargaining in some of Europe’s corporatist democracies, but also traditional industrial relations practices such as lifetime employment and seniority wages in Japan’s coordinated market economy). The basic logic is that, because employers have organized their competitive strategies around these institutions, and especially because these institutions now act as crucial supports for these strategies, employers will not abandon them in the face of new market pressures. To the extent that the theory sees employers as supporting of, and indeed dependent on, existing institutions, all feedback within the system is, so to speak, positive and supports the maintenance of traditional institutions. PROBLEMS WITH THE VOC FRAMEWORK AND THE CONCEPT OF EMPLOYER COORDINATION In general, the emphasis of the varieties of capitalism literature on employers’ own continuing interest in traditional labor relations institutions in the coordinated market economies does, we think, provide a better explanation of the surprising resilience of such institutions in the face of new competitive pressures than rival theories that attribute these outcomes to “institutional inertia” or successful union defense (Thelen 2001; Thelen 2002; Thelen and Kume). liberal market economies comprise the Anglo-Saxon countries—Britain, the United States, Ireland, Canada, and Australia. Coordination as a Political Problem August 2004, 5 However, as an empirical matter, we know there have been and in some cases continue to be rather significant tensions at work in traditional industrial relations institutions in coordinated market economies, including those that are the focus of this article, Sweden, Germany, and Japan. In Sweden, tensions were already high in the 1980s but came to a head in 1990 when the national confederation of Swedish employers (SAF) dismantled its own bargaining unit and (a year later) withdrew entirely from the tripartite structures that had traditionally defined that country’s particular (and particularly centralized) version of coordination. In Germany as well, serious strains in traditional industrial relations institutions have been evident, especially since the 1990s as declining union membership and problems within key employer associations have resulted in a noticeable drop in collective bargaining coverage in some core industries. Finally, in Japan as well, recent years have witnessed some well-publicized retreats on the part of key employers from traditional practices including, above all, seniority wages and to a lesser extent commitment to lifetime employment. Such tensions and changes in these institutions are enormously difficult to get a handle on if we stay within the varieties of capitalism framework, and we think that a part of the problem has to do with the key concept of “coordination.” There are several related issues (for elaboration, see Thelen 2002). First, employer coordination is a quite undifferentiated and, in practice, often essentially bimodal concept that often enters into the analysis as a “condition” or characteristic that some countries have and others lack. Second, and related to this, much writing in the VOC literature (including, self-critically, Thelen 2001) is based on a very stylized and highly composite (national-level) picture of employer interests. Thus, in this literature, employers (as a whole—within a given country) in Coordination as a Political Problem August 2004, 6 coordinated market economies are seen as “invested” in various institutions (wage bargaining institutions, etc.), and from this it follows that they will have an interest in maintaining these institutions—among other things, as the site within which they can continue to coordinate among themselves, to the benefit of all. In what follows, we examine employer coordination as a political problem in Sweden, Germany, and Japan in the contemporary period. Rather than looking at employer interests from the perspective of a highly composite view, we focus on the problem of sustaining employer coordination in a context in which the interests of various segments of capital (and for that matter, labor) are diverging in the face of new market conditions, and where coordination is sustained in part by a political settlement among them (often also the exercise of power or dominance of some firms or industries over others). Contemporary market conditions do not just activate new conflicts between labor and capital (as is widely known and theorized); they also activate new tensions and strains among firms and industries that are differently situated in domestic and international markets. Rather than thinking of coordination as a “thing” or “state of affairs” that whole countries either have or don’t have, we think it is much more useful to conceive of coordination as a political process and something that is not at all self-sustaining but in fact has to be constantly nurtured and “patched up,” and sometimes renegotiated entirely. By disaggregating “employers” (and “labor”) and by adopting a more explicitly political approach to the problem of “coordination,” we are able to embrace and incorporate some of the core insights of the VOC perspective, especially regarding the continuing interests of some employers in traditional industrial relations institutions and practices. At the same time, we address the tensions in these institutions that the VOC literature tends to Coordination as a Political Problem August 2004, 7 ignore or minimize. In contrast to the VOC literature, which sees all feedback in these systems as positive and stabilizing, we argue that precisely the intensification of cooperation between labor and management in some firms and industries (that the VOC literature emphasizes) has paradoxically had deeply destabilizing feedback effects that have undermined or are undermining these systems as they were traditionally constituted. The next sections lay out the dynamics for Sweden, Germany, and Japan, respectively. SWEDEN Among the coordinated market economies, Sweden was notable for the high level of centralization that traditionally characterized industrial relations there. Between 1956 and 1983, the broad parameters for wage settlements covering most of the economy were set at the national level in peak negotiations between the main (blue-collar) union confederation, LO, and the national confederation of Swedish employers, SAF (Martin, 1). This system broke down, in a halting way in the 1980s but decisively and apparently irreversibly in the early 1990s when SAF eliminated its own bargaining unit (leaving its counterpart on the union side, LO, no one to negotiate with) (Pontusson and Swenson 1996b, 224). Wallerstein and Golden single out Sweden as one of two cases—along with Britain—of significant institutional change in collective bargaining in the 1980s and early 1990s (Wallerstein and Golden). Developments since the early 1990s do not, however, point to a full breakdown of all coordination and a free fall into decentralization; instead, wage bargaining has reequilibrated on the basis of a very different pattern of coordination. Currently, the Swedish system is characterized by highly coordinated bargaining across industries within the export sector Coordination as a Political Problem August 2004, 8 (including much stronger cooperation than ever before between unions organizing blue-collar and white-collar workers)—combined however with much looser coordination between the exposed and sheltered sectors of the economy. Sweden’s touted system of solidaristic wage bargaining, which had resulted in a significant compression of wages across the economy, was a main casualty in the reorganization, as reflected in growing wage differentiation within and especially between these broad bargaining clusters (Wallerstein; Hibbs and Locking). Many accounts treat the breakdown of the traditional Swedish model as the result of an “employer offensive,” either politically or economically motivated (Pontusson and Swenson 1996b; Martin). Swedish employers had originally agreed to centralized bargaining as a way of ensuring wage moderation; however, over time the system had come to deliver wage settlements that were both rigid and highly inflationary (Martin 1991, 33). Pontusson and Swenson (1996b) explain the demise of the old system with reference to developments in the late 1960s and early 1970s that turned employers against it by extending the terms of wage solidarism in ways that fuelled rather than dampened wage rivalries across and within sectors. First, the less productive public sector, which had been excluded from solidaristic wage policy as it was originally conceived, demanded and won agreements that brought its workers’ wages in line with those in the higher-productivity private sector. This was accomplished through so-called earnings guarantee clauses that compensated workers in sectors that did not experience postnegotiation wage drift for gains made by workers in those that did (Martin, 35; Pontusson and Swenson 1996a, 232-233). Second, early solidaristic wage policy focused only on intersectoral wage disparities and did not touch on differences 2. In the system that prevailed prior to the developments described here, there was high coordination across industries in bargaining for blue-collar workers (under the auspices of the trade union confederation for blue-collar workers, LO) but white-collar workers were organized into their own unions (TCO and SACO, Coordination as a Political Problem August 2004, 9 between skilled and unskilled workers. However, in the late 1960s unskilled workers were able to use their political power within the LO to win clauses in central contracts that would compensate them for skilled workers’ previous year’s wage drift. These provisions had produced a chronic, institutionalized ratcheting up of wages, as wage drift in manufacturing rose in the 1980s to 50 percent for both whiteand blue-collar workers (Elvander 1997, 13; Martin, 35). The negative effects of these developments were felt especially intensely in the engineering industry, and the employer association in that sector (Verkstadsföreningen, or VF; later renamed Verstadsindustrier, or VI) led the drive for bargaining decentralization in the 1980s and 1990s. The VF/VI had opposed the wage-leveling clauses cited above as early as 1974 (Martin, 85) but its appeals found no resonance among employers in other industries that were less affected by them. In the absence of movement on these issues in national negotiations, the VI in 1983 decided to go it alone and withdrew from traditional peak (confederal) bargaining altogether, striking a separate deal with the metalworkers’ union, Metall. This dealt a decisive blow to the traditional nationally coordinated system, one from which that system never really recovered. While it is clear that employers (and specifically employers in the engineering industry) led the charge against the old system, on closer examination what is sometimes coded as a neoliberal employer offensive against the traditional Swedish system is better characterized as a cross-class realignment that brought together employers and unions in the among others ) and bargained separately with the peak employer association, SAF, under the auspices of a bargaining cartel, PTK. 3. In three negotiating rounds subsequent to this, peak negotiations did take place. However, in each case these came about as a result of either direct government intervention or special circumstances (as in 1986, in the aftermath of Olof Palme’s assassination). Since 1993 (and in the aftermath of SAF’s retreat from corporatist bargaining structures mentioned above), there has never been peak bargaining along the old lines. Coordination as a Political Problem August 2004, 10 export sectors (but especially in the engineering industry), at the expense of traditional, more encompassing forms of coordination and solidarity (see also Iversen). First, and notably, the initial break with centralized bargaining (in 1983) was not accomplished through conflict, but instead took the form of a deal in which the VF offered the metalworkers’ union (Metall) a wage increase above what the union had demanded, but in exchange for decoupling negotiations from the peak bargain and eliminating contractual provisions that compressed the wages of skilled and unskilled workers (Pontusson and Swenson 1996a, 228). A wage offer that exceeded the union’s own demand would in any event have been hard to decline. However, in addition, Metall had also developed its own reasons for disliking aspects of the wage system as traditionally constituted and as practiced under the new (expanded) terms of wage solidarity discussed above. Among other things, engineering workers had come to think of public-sector workers as “pay parasites” (Pontusson and Swenson 1996a, 234) and deeply resented their ability to free-ride on the productivity gains in engineering through the compensation clauses mentioned above. Beyond this, the interoccupational leveling clauses (between skilled and unskilled workers) had also become a problem for Metall, which had increasingly found itself in competition with its private-sector white-collar counterpart, SIF, for high-skilled members within the metalworking sector. As Martin has pointed out, developments in engineering had blurred the line between skilled blue-collar and white-collar occupations, so that the work of some metalworkers was similar to that of SIF members but at a lower rate of pay (Martin, 36). The elimination of the interoccupational leveling clauses sought by employers thus resonated in some ways with the 4. These longstanding tensions broke out into an open quarrel at the LO’s annual congress in 1986 between the heads of Metall and the union of municipal workers (Kommunal) (Martin, 36). Coordination as a Political Problem August 2004, 11 union’s own interests, and the 1983 contact added a fourth pay category on top of the previous three (Martin, 36). Since the late 1990s, Sweden has seen the reequilibration of bargaining on new terms, with the export-dependent industrial sectors coordinating strongly (both across sectors and also between blue-collar and white-collar unions)—but separate from the sheltered, lowerpay public and service sectors. Bargaining might have resettled at a somewhat lower level of coordination (separate bargaining for each industry, for example). However, the 1995 bargaining round was crucial in highlighting the potential pitfalls (for employers) of a lack of cooperation across the industry sector. In that year, a very high settlement in the (thenbooming) paper and pulp industry disrupted negotiations in the metalworking industry, leading to costly work stoppages and, ultimately, a higher settlement (see Thelen 2001 for a more extended version; also Elvander 1997, 49-50; Kjellberg). While employers continue to oppose vociferously any recentralization of national bargaining under the auspices of the LO and SAF, the events of 1995 underscored the disadvantages of completely uncoordinated (industry-level) bargaining in a context in which unions are capable of backing up their demands with actions that export-dependent industries find extremely expensive in highly competitive and tightly integrated global markets. The lessons employers learned in 1995 set the stage for a reconfiguration of bargaining that is based on a strengthening of cooperation between labor and capital within the export sector, but largely at the expense of more encompassing forms of solidarity on the union side. In a move spearheaded by the head of the metalworkers’ union, Göran Johnsson, Metall and other LO unions in export sectors joined with the white-collar SIF (the TCO :Tjänstemännens Centralorganisation union for salaried employees in industry), and in 1996 Coordination as a Political Problem August 2004, 12 issued a public invitation to their counterparts on the employers’ side to engage in joint negotiations over wage formation and mediation procedures (Dagens Nyheter, 1 June 1996, A4; see also Elvander n.d., 15). The result, less than a year later, was a new “Agreement on Industrial Development and Wage Formation” that among other things is designed to support “constructive negotiations” and to avoid “the need to resort to industrial action” (18 March 1997, appendix A, paragraph 1). The industrial agreement promotes coordination among employers and cooperation between unions and employers on a number of fronts (see especially Elvander n.d., on which we draw here). The agreement calls for the parties to it to appoint an “Industry Committee” composed of equal numbers of representatives of unions and employers who then oversee the implementation of the agreement. Among other things, the Industry Committee puts together special joint working groups to promote ongoing exchange of views and joint opinion formation on a variety of issues such as EU legislation, research and development, and the like. In addition, the Industry Committee established an Economic Council for Industry (ECI) in 1997 which is composed of four independent economists who produce reports to inform collective-bargaining positions and negotiations. The deal also puts in place new mediation procedures designed to facilitate coordination across the export-oriented industrial sector and avoid costly industrial conflicts. To this end, the Industry Committee selects a group of five to ten impartial chairmen who can then be tapped individually to accompany industry-level wage negotiations, to facilitate peaceful compromise within industries, and to broker informally coordination across the exposed sector (and ensure that these industries set the pattern for the economy as a whole). The powers commanded by the impartial chairman are much enhanced over the previous 5. This is a major innovation compared to previous arrangements, in which economists who produced such reports were specifically linked to (and often directly employed by) either labor or employer associations. Coordination as a Political Problem August 2004, 13 rather weak form of mediation that had existed in Sweden. Among other powers, under the new agreement the impartial chairman can request a response from one or both negotiating parties to questions put to them by the independent Economic Council, put forward proposals of his or her own aimed at resolving particular issues (or, if the parties agree, even direct that individual issues be resolved through arbitration), and delay industrial action for up to 14 days (Elvander n.d., 22). It is especially important that under the new agreement, negotiations (under the guidance of the impartial chairman) are taken up well in advance of the cancellation of existing agreements. For the unions, but especially for Metall, the agreement was important in prompting the VI to abandon its earlier efforts to push for full decentralization, thus ending years of struggle in this key industry over the structure of negotiations. Employers for their part have praised the new conflict-mediation procedures that lie at the center of the agreement and that they see as crucial to managing their heightened vulnerability to interruptions in production, including of course strikes. As Elvander has put it, the agreement “covers by and large the whole competitive sector in the Swedish economy, it bridges old class distinctions [between blue and white collar] on the trade union side, and it presents an entirely new model for collective bargaining and conflict resolution” (Elvander n.d., 15). The agreement by and large puts to rest the wage competition between blocs (public versus private and blue versus white collar) that had previously been so detested by employers. It does so by de-linking bargaining in the exposed from that in the sheltered sectors, and by facilitating a closer interface between whiteand blue-collar contracts in industry. 6. Indeed, VI was the last to sign onto the deal in 1997, and some prominent firms in the association only reluctantly abandoned their demands for a more radical solution. Coordination as a Political Problem August 2004, 14 Precisely these developments signal and institutionalize the end to solidaristic wage bargaining as it had come to be practiced in the 1960s and 1970s. As such, these developments have been associated as well with heightened “tensions between unions representing low-paid groups and other unions whose members are in a better position” (EIROnline, October 1997; SE9710145F). Indeed, and as many commentators have noted, in the pattern bargaining system that has emerged under the industry agreement, local government and private-sector service workers have more or less been “left behind” (EIRO online October 1997; SE9710145F)—an outcome that is fully embraced not just by employers but also by unions in the key export sectors. In the 1998 collective bargaining round (which in industry took place under the auspices of the IA), there was some informal coordination among blue-collar unions in the LO, but prominent unions in the export sector (above all metalworkers and paper workers) “threatened to back out if the low-paid were given ‘too much’” (EIROnline SE 9710145F). These new arrangements sideline the national trade union confederation LO rather completely, which is why the organization has been generally unenthusiastic (if resigned) about the industry agreement. The LO has generally been casting about for a way to resuscitate some national-level forum in which it could continue to play a central role. One opportunity appeared to present itself in 1999 when the government (partly in response to the success of the mediation procedures adopted in the export sector) formed a commission to explore the possibility of creating a new national mediation authority. Initially, the LO had favored the idea, hoping that an overarching national arrangement would supercede and subsume the industrial sector and on the assumption that national mediation machinery would facilitate the linking of wage settlements across the economy and, with that, restore Coordination as a Political Problem August 2004, 15 the LO to an important role in the bargaining process. However, representatives of the export sector (on both the labor and employer sides) opposed any government machinery that would circumvent or supercede the successful procedures they had worked out for themselves, a position that was respected in the legislation that ultimately emerged in 2000. Public-sector workers, for their part, were concerned with protecting their relatively newly won (1965) right to strike and hurried to conclude voluntary agreements along similar lines to the industry agreement in order to keep themselves out of government mediation machinery (interview with representative of Kommunal, 2000, Stockholm, also SE0105195F and SE0203105F). The government Mediation Institute that ultimately emerged does not supercede these voluntary agreements (instead, it specifically promotes and works around them), and thus now mostly covers only those industries—transportation and retail trade among them—that have no such voluntary agreement (EIROnline, SE9912110F). Important for the present argument, the negotiations and consultations surrounding the establishment of the Mediation Institute revealed the constellation of interests and power relations behind the “new” Swedish model. The LO’s initiatives in the context of the debates on government-sponsored mediation were, as some commentators have noted, the LO’s “last cry for help.” However, neither the recommendations that came out of the commission nor the ensuing legislation reflected the LO’s interests. All intimations of a resurrection of wage coordination on an economy-wide basis were vehemently rejected not just by SAF and the main employer associations for industry, but also by unions of white-collar salaried workers—whose wages had traditionally been held back in the old system. More important, they were also decisively rejected by leading industrial unions such as Metall. Far from 7. Sixty percent of Swedish workers are covered by collective agreements that contain provisions for mediation and are therefore exempted from the statutory system set up in 1999-2000. Coordination as a Political Problem August 2004, 16 longing for the old system, Metall wants no part of any movement that would revive or reinstate the previous power of the peak union confederation, LO. All indications are that Metall is much more interested in cooperating with white-collar unions (and employers) within the metalworking sector than with coordinating with other blue-collar unions within the LO (interview with Nils Elvander, 2000 Uppsala, interview with representatiave of Metall, 2000 Stockholm, see also Kjellberg). Summarizing developments from the early 1980s to the present, one could conclude that in the Swedish case, “employer coordination” has proved more resilient than adherents to a strict neoliberal offensive thesis might have predicted. Full decentralization to the plant level—as advocated in the 1980s and 1990s by prominent firms such as ABB, Volvo, and Ericsson—has been averted, and there is significant coordination across the industry sector as a whole. At the same time however, the issue of “who is coordinating with whom” has shifted decisively—from coordination at a very encompassing, confederal level (but with whiteand blue-collar workers negotiating separately), to coordination across the blue/whitecollar divide and across export industries (but separate from public and private service sectors). The changes described above amount to a significant renegotiation of the terms of coordination, accomplished in two steps. In the first move, from confederal to industry-level bargaining, employers sloughed off several layers of coordination that they had come to view as a drag on their ability to restructure production on the shop floor and to compete www.eiro.eurofound.eu.int/2001/feature/se0105195f.html. 8. One telling episode occurred in 2000, when Hans Karlsson, head of the LO negotiating department, was planning a bid to be elected second chairman of the LO (while keeping his role in the negotiations department). This was opposed by Metall chief Göran Johnsson, who was against LO making any bid to resume its old role in wage coordination and any return to wage solidarity on the old lines. Karlsson in fact Coordination as a Political Problem August 2004, 17 effectively in increasingly competitive international markets. Above all, VI’s initial withdrawal from peak negotiations dealt a double blow to solidaristic wage bargaining as traditionally practiced in Sweden (i.e., producing wage leveling both across industries and between skilled and unskilled workers within individual sectors). While some of the literature had treated this first move as an example of a neoliberal offensive by employers against labor, we have argued that it is actually more properly understood as the result of an intensification of cooperation between labor and capital in the metalworking industry at the expense of solidarity and coordination across sectors. The second phase of reorganization/recoordination of bargaining across the industry sector (but separate from bargaining in the public and private service sectors) solidified and in some ways shored up this new arrangement. It solidified the arrangement by relinking the metal industry to other export industries, thus bringing potential rogues (such as the paper and pulp industry, which in 1995 had agreed to an overly high settlement, causing pressure and conflict in other industries) back into a form of coordination organized around what the industry sector as a whole can bear. It shores up this new arrangement, moreover, by acknowledging the negative effects (on both sides) of industrial conflict and by underwriting mutual restraint through the new mediation procedures. We can say that Sweden is a coordinated market economy before and after. But something significant has shifted. Above all, the LO has been decisively relegated to the distant sidelines when it comes to wage negotiations, and with that, wage solidarity on the old terms is irretrievably gone. Employers are, as one employer representative put it, “dead against” any return to national-level bargaining (under whatever auspices, either LO or under resigned both positions in the face of Metall mobilization against him and the likely prospect of defeat at the next LO election. Coordination as a Political Problem August 2004, 18 the auspices of the new national mediation institution that would supercede their own industry-level arrangements) but in their campaign against any such recentralizing initiatives they have been massively aided and abetted by the most powerful industrial unions (especially Metall) which have their own reasons to support the arrangements described above, and which rest on a new form of accommodation between labor and capital within key export industries. GERMANY A great deal of scholarly attention has been directed at the current strains in Germany’s collective-bargaining system, and much of the literature is quite pessimistic. No one predicts a complete convergence of Germany’s relatively centralized model on, say, the U.S. system, but here too it seems clear that there are serious and undeniable pressures at work—and the outcome is in many ways still much more in flux at present than in Sweden. The most sobering recent trend in Germany, by far, is the current organizational disarray in the Association of German Metalworking firms (Gesamtmetall) and its union counterpart (IG Metall), which together have played the key flagship role in Germany’s de facto system of pattern bargaining over the last several decades. Whereas in Sweden bargaining coordination had traditionally been formally institutionalized and at the national level, in Germany coordination was more informal and occurred in pattern bargaining at the multi-industrial level under the informal leadership of the metalworking industry. This is precisely where new and significant “cracks” in the system have appeared. On the employer side, a number of firms within the metal association have grown increasingly critical of “rigid” central contracts and have begun calling for reforms that would inject much greater Coordination as a Political Problem August 2004, 19 flexibility to adapt central bargains to the needs of individual firms. More consequentially still, a significant number of firms have voted with their feet, withdrawing from the association and thus also from the terms of the central bargains it negotiates with the union. The origins of these tensions go back in part to a divergence in interests between different employers within Gesamtmetall itself. The system has traditionally rested on a particular kind of accommodation between the country’s large export firms and its sizeable sector of small and medium-sized firms (Mittelstand). The core of the deal was one in which large firms dominated the employer association (and its main decision-making bodies), but typically also bore the burden of industrial conflict in order to secure moderate settlements with the unions on a range of issues, including but not limited to wages. These settlements, it is important to note, did not exhaust the ability of these large firms to pay, but corrections were made at the local level in the form of wage drift and other forms of übertarifliche Leistungen. Changes in the market context over the last 15 or 20 years have disrupted this basic deal. In the face of more competitive markets (and also tightly linked production networks relying on just-in-time production), the costs to firms of industrial conflict have gone up dramatically (for example, as disruptions in production result in lost market shares that cannot be recovered). In this context, core firms that have traditionally dominated the employer association have become conflict averse in the extreme. Until the mid-1990s, the usual ritual was for any union strike to be met with a more or less equally effective lockout (or plausible threat of lockout) by the employer association; however, starting in 1995 9 A change emphasized to me, especially by Dieter Kirchner, former head of the Metal Employers Association, Gesamtmetall. The example he gave was the automobile industry, where producers such as Daimler could dominate the high end market and customers would wait for the product and also pay the quality premium – a Coordination as a Political Problem August 2004, 20 (arguably much before, it only became manifest in the midto late 1990s) the association was simply unable to continue this pattern. Those employers who were affected by or threatened with industrial conflict openly shied away from any hard-line position and instead pressed the association to settle. The kinds of firms that had traditionally borne the brunt of industrial disputes for the association as a whole simply refused to do so. These were firms that could anyway absorb a somewhat higher wage settlement and much preferred that to shouldering the burden of a conflict with unions that would bring losses in the market for which they could not be compensated by the association and from which they could not easily recover. This situation led to a series of industry settlements in the late 1990s and early 2000s that came much closer than ever before to exhausting the ability of the strongest firms to pay. Evidence suggests that the flexibility previously afforded by übertarifliche Leistungen began to evaporate in these years. On the basis of a survey of nearly 8,000 firms (in eastern and western Germany), Bellmann, Kohaut, and Schnabel show that the percentage of firms paying wage increases over the collective bargain dropped from 60.6 in 1993 to 48.9 in 1997. Among those firms paying higher wages higher than those in the collective bargain, the amounts they were paying in excess of the negotiated increases had also fallen by two percentage points (averaging across all firms) over those four years. What this means is that the weaker firms were being forced to pay wages much closer than before to those of the strongest companies. situation that obviously changed when other producers (such as Japanese automakers) moved into the high end, often with lower prices. 10. Lutz Bellmann, Susanne Kohaut, Claus Schnabel, “Ausmaß und Entwicklung der übertariflichen Entlohnung,” IW-Trends, 2/1998, Jg. 25. 11. Hassel and Schulten (1998), “Globalisation and the Future of Central Collective Bargaining” and Hassel (1999), “The Erosion of the German System of Industrial Relations.” This appears to be one of the Coordination as a Political Problem August 2004, 21 These developments have produced highly corrosive feedback effects, prompting a hemorrhaging of the employer association itself, as weaker firms opt out of the industry-level contract altogether. Sometimes these firms are cut loose entirely; in other cases they find their way into new employer associations that have been hastily constructed by, and alongside, the old organizations and that promise all the previous benefits of membership but do not commit member firms to the terms of the contracts negotiated with the unions (Verbände ohne Tarifbindung). Either way, these firms are no longer covered by industrywide collective bargaining. This has snowball effects, because of course the more the weaker firms opt out, the more the bargaining comes to center on the strongest and most conflictaverse companies (Thelen and van Wijnbergen). Employer associations in Germany always had to deal with divergent interests of highly heterogeneous membership bases. In the past, the German system allowed for a significant degree of wage flexibility across firms. However, as we have seen, the previous “buffer effect” of wage drift that helped to hold diverse firms together has begun to evaporate. Intensified reliance of Germany’s core firms on continued peace and stability in their relations with labor at the plant level has begun to feed back in deeply paradoxical ways, stabilizing the system in a formal sense (by deflecting demands for formal decentralization and allowing the union to reach settlements with employers in collective bargaining rounds), while at the same time undermining the deeper foundation on which the system rests (because central bargaining over time comes to cover a shrinking number of firms). Union victories in specific collective bargaining rounds in the late 1990s (due in large part to lack of unity among employers) were therefore highly ambiguous, since union leaders saw clearly reasons why, against the trend in most other advanced industrial countries, wage inequality in Germany has been declining, not increasing. We thank Jim Mosher for suggesting this to us. Coordination as a Political Problem August 2004, 22 that their own ability to conclude binding and encompassing agreements hinges on continued organizational viability on the employer side as well. This explains why in the 1990s, in the wake of a particularly successful bargaining round (from the union’s perspective) leaders of the metalworkers union worried openly about the weakness of the employer association, seeing employer weakness as one of labor’s most pressing problems. These developments pose new and difficult dilemmas for unions like the IG Metall, as the breakdown of employer solidarity produces feedback effects that complicate enormously the problems of coordination on the labor side as well. The workers in Germany’s core firms (on whom, traditionally, the union too has relied to carry it through in organized large-scale conflicts with employers) know perfectly well how conflict-averse their employers are, and where employers are willing to pay more it is very difficult—to say the least—for the union to ask them for less. The particular composition of German unions magnifies this dilemma. Whereas Swedish unions organize nearly the entire workforce (8090 percent), the German unionization rate is—has always been—significantly lower (30-35 percent). Traditionally, the weaker presence of the union in other firms (especially smaller firms) was compensated by the fact that these firms were members of the employer association, which meant that their workers, too, would be covered by the industry contract. However, as these employers defect from the system, collective bargaining becomes more narrowly concentrated on core firms, implying the danger for the union that it becomes increasingly clientelistic and focused even more narrowly on the stronger rather than weaker 12. See Offenbach Post, 10 December 1996, which quotes a representative of the union as saying, “Chaos reigns at Gesamtmetall; it is a catastrophe.” See also union president Klaus Zwickel’s response to the IG Metall victory in the 1995 strike. Far from gloating, Zwickel was openly worried about Gesamtmetall’s organizational problems and emphasized that “collective bargaining autonomy requires strong bargaining partners,” Frankfurter Allgemeine Zeitung, 6 April 1995. See also, more recently, Zwickel’s comments in Handelsblatt, 24 March 1999, which argue that the union wants strong associations that are able to bring “strays” back into line. Coordination as a Political Problem August 2004, 23 segments of the working class. The problems for employers in maintaining solidarity and coordinating capacity have thus spilled over and begun to affect internal politics within the union. There have long been thinly veiled disputes within the union between those advocating a more hard line position in negotiations with the employers and those who favor a more reformist path that seeks to shore up social partnership though targeted concessions including concessions on employers’ demands for greater flexibility in bargaining arrangements. Such internal disputes account for the union’s hesitant and at times seemingly erratic strategic course in recent years. Overtures and signals by the IG Metall of a willingness to accept some trade-off between wage restraint and employment have often been followed by determined calls for an end to moderation (Ende der Bescheidenheit). Some union leaders have been willing to agree to more moderate collective bargaining outcomes (e.g., greater differentiation in industry-wide deals along dimensions such as working times). However, such concessions are becoming harder to sell internally. Indeed, every movement in that direction exposes advocates to challenge from internal opponents who push for a more aggressive stand by the union. Internal disputes were vividly on display during and after an ill-conceived strike in the eastern metalworking industry in 2003. The specific demand on the table was a reduction in weekly working times in the east, from 38 to 35 hours, to match levels in the west. The demand was widely criticized by economists and had been rejected by union leaders in a number of regions the previous autumn (Spiegel, 23/2003, 83). The head of the union, reformist Klaus Zwickel, had warned that a push for general working time reduction in the East had no chance in the current economic and market environment (ibid.), but his vice Coordination as a Political Problem August 2004, 24 president Jürgen Peters pushed forward and (narrowly) carried the day in the relevant decision-making bodies. The strike failed, a first for the IG Metall since the 1950s. Early signs of trouble were reports of strike breakers—normally not a problem in Germany—and controversies about the presence of western workers on eastern strike posts. The strike collapsed entirely when workers in western plants in industries affected by the conflict refused to allow the union to expand the strike to the west—a sign of lack of solidarity that had its roots in the western workers’ conviction that they were not prepared to upset harmonious relations in their own companies in the context of what they considered an ill-conceived campaign. The behavior of employers in this conflict was also noteworthy—and especially in light of their own internal difficulties. Gesamtmetall president Martin Kannegiesser specifically did not take advantage of a golden opportunity to capitalize on the IG Metall’s weakness and internal strife. Instead and quite to the contrary, Gesamtmetall appeared willing even in the rather late stages of the strike to do what it could to help union leader Zwickel arrive at an agreement that would allow the union to save face (Tagesspiegel, 29 June 2003, 24). To no avail, however, as Zwickel had long since lost control of the situation. Summarizing again: In Germany, elements of stability and change are inextricably linked in fact. The intensification of cooperation between large firms and works councils (which lies behind some relatively generous settlements of the 1995-2001 period among other things) had helped to fuel discontent within the employer camp. These developments, 13 The conflict amounted to the playing out of a power struggle within the union itself, and the most consequential fallout of the strike was to bring these divisions and conflicts vividly and painfully into the public spotlight. The schism that emerged centered on competing factions associated with contending candidates for the union leadership. Reformists and hard-liners each blamed the other for the loss of the strike, but so deep is the schism and so evenly divided between the two sides that the union has recently decided to allow the leaders of both factions to (try to) govern together. Coordination as a Political Problem August 2004, 25 in turn, undermine solidarity as well on the union side, as they play into a natural divide between workers in more profitable and productive enterprises and those in more marginal firms. In other words, the German case makes it clear that the feedback effects generated by intensified cooperation between labor and management within traditional institutional arrangements interact with changes in the external environment in ways that introduce new strains (or in this case, render old ones salient in a new way). What we see here is that employer coordination rests on a particular balance of power within key employer associations and between these and unions. That being the case, the continued viability of these institutions is not really a question of labor’s successful defense of the system (as in the neoliberal offensive thesis), nor however does it follow automatically from the efficiency effects of these institutions (as in the VOC perspective). Rather, continued stability relies on the reproduction (or perhaps renegotiation) of the political settlement on which these institutions rest. And, against the overall optimistic leanings of some of the VOC literature, it seems there is nothing to guarantee that German employers (or unions, for that matter) will succeed in reconstituting their organizations on the basis of a new coalition or internal balance of power, despite the fact that their failure to do so might well be against their individual and collective interests.