Associational Action Offers the Solution to Wage Bargaining / Moving Beyond the Trap of Market Liberalism Toward Solidarity / Centralized Bargaining Will Resolve the Income Gap and Unemployment

This essay matters because it examines whether societies are free to accept or reject a free corporatist system, or whether tradition has tied them to their own industrial relations systems. Australia's experience has been promising so far, and Archer is optimistic about the future of corporatism in his account. The new system has already managed to shift policy, moving away from containing stagflation through wage restraint in d...

Andisheh group: arrangement, modification and editing: Forozan Asif Nakhai: Ajoka Pekarinen, Matipoh Jola and Bob Rothorn, the authors of the book "Social Corporatism", have analyzed and presented it as an economic system different from classical capitalism and socialism. In the introduction of the book, the authors show that, contrary to the conventional ideas of market liberalism, which consider competition between micro agents as the optimal solution, achieving full employment and curbing inflation depends on "bargaining focused on wages" and structured associational actions. By examining the performance of various countries (from the successful Nordic models to the relative failure of Austria and the monopoly model of Switzerland), this research argues that the centralization of the bargaining structure is a necessary condition, but the non-exclusive and egalitarian nature of these structures is a sufficient condition for economic success; in such a way as to prevent underemployment and severe income gaps through the fair distribution of benefits and adjustment burden. You will read this article below:

1.1 The concept of social corporatism

The concept of corporatism as an economic system distinct from both classical capitalism and socialism has seen a revival of interest and intellectual attention since the mid-1970s. This was caused by the diversity in the economic performance of different countries, which required a scientific explanation. In the writings of contemporary sociologists and political scientists, various prefixes or adjectives such as "neo", "liberal", "social" or "sociological" have been attached to this term in order to create a clear distinction between its modern and traditional meaning (for a review of this issue, see for example: Pryor 1988 and Williamson 1989).

The traditional stream of corporatism had its roots in Roman Catholic social thought in the 19th century, as well as German romanticism and idealism. This concept first emerged as a response to the social problems caused by industrialization and believed that class conflict is not an inherent feature of the capitalist way of organizing ownership and production.

In this view, the role of quasi-independent institutions representing all businesses was emphasized in organizing economic activities and parliamentary policies. In the early decades of the 20th century, various political movements—from fascists on the extreme right to social democrats and trade union socialists on the left—developed their own variants of corporatism as an alternative economic system to capitalism or socialism.

The leaders of the first movement (fascists) saw corporatism as a tool to strengthen nationalism, while the leaders of the second movement (socialists) saw it as a way to avoid the excessive centralization of Soviet-style socialism. However, after World War II, papal attention to corporatism declined, and far-right state corporatism became politically discredited.

What remains of this older tradition in modern theorizing of corporatism is the view that corporatism is a variant of "coordinated capitalism" in which interest organizations (especially labor interest organizations) play important roles in organizing economic activity and, as a result, in the economic performance of a country. Links with social democracy also remain strong. But just like capitalism and socialism, the exact meaning of corporatism is difficult to define.

In the second chapter of this book, under the title "Lessons from corporatist theorizing", Joran Treborn writes that the concept has become somewhat like "God": many people believe that corporatism is an important phenomenon, but no one really knows what it looks like! However, this does not mean that it is useless to study it. In fact, his conclusion is that the theorists of corporatism have touched on a very important issue that is difficult to analyze, because corporatism remains a moving sign and target and undergoes various definitions and specifications.

Our project was designed to achieve this goal by defining corporatism in an explicit manner and exploring the explanatory power of the chosen definition. In doing so, we have consciously placed considerable emphasis on the recent achievements of those economists who have studied the functioning of labor markets and their importance for macroeconomic development (for a survey, see Mati Poh Jolla's essay in Chapter 3).

Economists' attention was drawn to corporatism by Bruno Wessex (1985), but they had a prominent pioneer: John Maynard Keynes (1927), who advocated something similar but failed to convince his colleagues. The sociological and political aspects were given less attention in our programs—not because we considered them less important, but because we wanted to focus on the economic consequences of the functioning of organized interest groups.

We began by defining corporatism in its narrow sense: centralized wage bargaining at the national level among highly organized labor and employer unions. But the shortcomings of this concept became apparent during the course of the project. It was found that the degree of concentration by itself cannot explain the diversity of economic performance among countries.

This is reflected in various essays of this book. Corporatism should be defined in more detail. In summarizing these articles, we now find the most useful way to use the more specific concept of "social corporatism"; The concept we mean is an economic system whose labor market is characterized by two fundamental characteristics:

The first feature is bargaining focused on wages. In addition to wages, bargaining may also involve the government's economic and social policies, in which case the government is formally or informally involved in the process.

Thus, corporatism, as opposed to individual or command action, derives from "associative action" and, more specifically, from a specific type of associative action: class organization by both labor and capital. As shown by Treborn in Chapter 2, differences between countries in their historical experiences and legal traditions make some societies more likely than others to experience this type of associational action. In particular, the German-type labor movement and the Nordic-type employers' organizations (Ambassador Arjan: "Nordic Countries" refers to the set of 5 independent countries and their dependent territories in Northern Europe: Finland, Sweden, Norway, Denmark, Iceland) are the basis for political-economic agreements.

The German labor movement is known for working closely with or directing political parties to undertake a common effort at class organization, while the Nordic type has also transferred experiences from parliamentary politics and civil service into the mobilization of the employers' front. The Nordic countries and Austria top the list in various country rankings based on the degree of centralization of the bargaining structure, while the United States and Canada are at the bottom (see the essays by Pooh Jolla and Bob Rothorn in this volume).

The second central feature of social corporatism is its non-exclusive (inclusive) and egalitarian nature. What we mean by this characteristic is, firstly, no exclusion or exclusion of any social group from the labor market and secondly, a high degree of equality in benefiting from the benefits of increasing economic prosperity and also sharing the hardships of recession or the burden of adjustment and adaptation. This feature can be seen as an extension of the political rights of citizens to cover economic activities in order to achieve social order in industrial and labor relations. "Correlation" is its natural companion.

About rebuilding and reforming our definition of corporatism, Treborn offers a perspective. In his essay, he argues that a peaceful industrial order can be achieved in two different ways: either through the institutionalization of participation or consensus (for example in Austria and the Netherlands), or through the institutionalization of conflict (as in the Nordic countries). In the second model, labor and capital are organized from the bottom based on the principles of democracy and are recognized as parties to the labor market whose independence and conflicting rights are respected and not violated. Using economists' terminology, this means that their property rights are well defined. Using our terminology introduced above, organizing labor market relations on the basis of conflict is a way to institutionalize the non-exclusive and egalitarian character of corporatism.

The institutionalization of participation or consensus differs in that industrial peace may be achieved at the expense of the exclusion of groups that are economically or politically too weak to have significant bargaining power; That is, by removing them from the bargaining table. From the essays of Treborn, Rothorn, and Alois Guger, we can conclude that Austria and the Nordic countries are different in that only the Nordic countries (and to varying degrees) meet our second criterion for social corporatism.

The accepted view in economic literature is that perfect competition between small and individual economic agents is a socially efficient way to organize the functioning of product markets and factors of production. By taking into account known adjustments to externalities and economies of scale, private and non-cooperative decisions lead to an efficient and effectively coordinated solution to wages and prices throughout the economy.

According to this view, which we can call here "market liberalism", the lack of competition in output markets and production factors is the cause of a country's poor economic performance. Strengthening competition is seen as a good solution for the problems of unemployment, inflation, growth and productivity. Regarding the labor market and the view that unemployment is caused by too high wages, this policy prescription means that the power of organized labor must be reduced in some way.

Such power generally refers to the ability of labor unions to drive wages to levels above those that equalize labor supply and demand. Neoliberals accept the deregulated markets of countries like the United States and Canada as their paradigm; Markets that, according to them, have flexibility and the ability to adapt to changing economic conditions.

Paradoxically, however, the Walrasian ideal of full employment with roughly equal wages seems best realized in countries with social corporatism. This fact has been noticed in chapters 3 and 4. First, Pooh Jolla's survey entitled “Corporatism and Wage Bargaining” suggests that full employment may be best achieved by countries with highly centralized or highly decentralized bargaining structures, while intermediate economies are likely to do much less well. The basic explanation of this is as follows:

If labor markets are dominated by a small number of medium-sized organizations—each large enough to have significant market power but small enough to pass on the costs of their actions to others—then they all face a Prisoner's Dilemma. Although all employees benefit from wage restraint under some circumstances, any individual group may be far worse off if they accept wage restraint while other groups manage to receive large wage increases.

There are also aspects of the public goods issue: the benefits of nominal wage restraint do not accrue only to the employees who bear its costs, but to the entire society in the form of a reduction in inflation and an increase in output and employment. There are two fundamental ways to deal with such externalities and thereby improve employment performance: either to internalize them by centralizing the bargaining structure, or to eliminate them entirely by decentralizing wage determination. Several reasons have been presented as to why the first alternative may be more socially desirable than the second.

Poh Jola also shows that this analysis needs to be modified in an important aspect. Even countries with moderate bargaining structures are likely to achieve good employment performance under normal conditions of stable economic growth. This is because unions and employers' federations are ongoing organizations: they face each other year after year and are therefore encouraged to act strategically.

They can reach a tacit or implicit agreement on wage formation without any formal arrangement if they understand that cheating and free riding will be punished by others (through others not adhering to the tacit agreement in the future). The result is that bargaining structure may only matter in turbulent and critical situations. Various essays in this book support the view that oil shocks were associated with different economic performance of countries with centralized and centralized bargaining structures in the 1970s and 1980s: the first group fared much better.

Rothorn's essay entitled "Corporatism and Labor Market Performance" adds a new and important aspect to the analysis, namely the role of dispersion and the wage gap. He shows that one of the most prominent features of decentralized labor markets is the dispersion and extreme heterogeneity of incomes. Some workers receive very high wages and enjoy a high degree of job security, while others—mostly female workers—are concentrated in low-wage, low-productivity, and often insecure forms of employment.

This phenomenon is clearly evident in Japan and North America, whose labor markets are segmented (dual) and have a high-wage formal sector and a low-wage informal sector. The resulting labor allocation is inefficient, and much of the employment in low-paying jobs should be accurately described as "underemployment" or "hidden unemployment." Employment performance in these countries (and to some extent Switzerland) is also affected by the fact that unemployment benefits are few, short-term and limited in coverage.

Under these conditions, measured unemployment is understated because job seekers are forced to either accept low-paying jobs or drop out of the labor market altogether. This makes it preferable to use the "employment rate" (that is, employment as a percentage of the working-age population) instead of the "unemployment rate" as an indicator of labor market performance.

Under centralized wage bargaining, this inefficiency and unfairness can be addressed by establishing generally uniform wages across the economy (allowing for allowances for skill, hard working conditions, and the like). But as Rothorn shows in his essay, only the Nordic countries have been able to achieve both high employment and low wage dispersion. Among corporatist countries, Austria's labor market fared much weaker: its employment rate was not remarkably high, while wage dispersion was somewhat high. An important conclusion is that although centralized wage bargaining may be a necessary condition for good performance, it is not a sufficient condition. This draws our attention to the importance of the second criterion of social corporatism: to be successful, corporatism must be non-exclusive and egalitarian.

The essays of Pooh Jola and Rothorn can be seen as marginal on the recent developments in labor economics. Labor markets in the real world are not perfectly competitive. There are many shortcomings (such as the externalities described above) that make Walrasian theory inapplicable. Modern labor economics recognizes this fact, and today there are several theories (such as implicit contract, insider-outsider, and efficiency wage theories) that explain why labor markets may deviate from full employment with equal wages even in the absence of any trade unions. Essays by Pooh Jolla and Rawthorne show that if unions enter the picture within the framework of social corporatism, the economy will actually move towards the Walrasian ideal.

As expected, the above general themes in relation to corporatism need to be adjusted and clarified at the level of individual country experiences. This conclusion is clearly illustrated by country studies: Jukka Pekkarinen's essay in Chapter 10, "Corporatism and Economic Performance in Sweden, Norway, and Finland," and Alois Goeger's essay in Chapter 11, "Corporatism: Success or Failure?" Experiences of Austria". Indeed, as far as economic performance is concerned since the mid-1970s, corporatist countries show considerable variation. There are countries like Sweden that are generally considered success stories during this period.

Some corporatist countries, such as Austria and (in some ways) Norway, often hailed as success stories, faced difficulties during the 1980s. As shown by Rothorn's labor market analysis, Austria never did particularly well in terms of employment, wage dispersion and relative pay between men and women. Moreover, the recent economic problems of Austria and Norway partly reflect the fact that these countries were not very successful in restructuring their economies after the oil shocks (see Michael Landsman's essay in Chapter 8).

On the other hand, Denmark, often regarded as a failed example based solely on its apparently high unemployment rate, actually exhibits strong labor market correlation: its employment rate is among the highest and its wage dispersion among the lowest. Finally, Finland's economy has fared well after a deep recession in the late 1970s, and its corporatist structures have strengthened at the same time.

But the question may be raised whether the improvement of economic performance was due to favorable structural and contextual factors or due to corporatism? In fact, as suggested by Pekkarinen in his research, the strengthening of corporatism in Finland may have itself been a consequence of a strong economy rather than the other way around. This reversal of corporatism's causality and endogeneity is also discussed by Poh Jola in his essay in this book.

Wolfgang Blass's country study of Switzerland in Chapter 12, "The Swiss Model: Corporatism or Liberal Capitalism?" It clearly shows how wrong it is to call this country corporatist. The Swiss model is more similar to liberal-paternalistic capitalism of the Japanese type. Although the business community is strong and concentrated, the labor force is relatively weak. Wage bargaining does not occur at the national level, but at the enterprise or plant level.

The government plays only a secondary role in the organization of social security, which has traditionally been a matter of private initiative. As measured by the unemployment index, the performance of the Swiss labor market has been excellent, as well as somewhat good in terms of employment and wage dispersion. However, the Swiss system is exclusive. This system has been able to maintain full employment and a significant degree of wage equality among Swiss men by excluding women from the labor force and by increasing the flexibility of the labor supply by adjusting the foreign worker population.

Blass calculates that if overall labor force participation had developed in line with other European OECD countries and if the number of foreign workers had remained at the 1973 level, Switzerland would have had an unemployment rate of 9.8% in 1986 instead of the actual rate of 0.8%!

Corporatism has been in retreat in a number of OECD countries since the 1980s. There are various explanations for this fact, including increased economic integration and convergence, the introduction of new and flexible production technologies, and the increasing importance of public and service sector workers. These emerging features tend to weaken the labor relations between labor and capital. Although there are differences between countries (described in the various chapters of the book), the trend has been almost universal.

However, there are certain exceptions. In Chapter 13, "The Unexpected Rise of Australian Corporatism," Robin Archer describes how Australia recently deployed a Nordic-style centralized wage bargaining system in an environment shaped by British-style industrial relations.