Social Democracy and Rational Choice

SOCIAL DEMOCRACY AND RATIONAL CHOICE

Is it possible, in this post-socialist world, for equity and efficiency to be reconciled? Or is a productive welfare state a contradiction in terms? This book addresses these questions in theory and in practice—the practice being that of a social democracy in the Nordic countries. Henry Milner presents an institutionalist analysis of social-democratic regimes which seek distributive justice as well as optimal economic performance, showing that the dual aims are not incompatible and can indeed be complementary. The author develops a rational-choice based framework to analyse the choices that shape and are shaped by economic, political and cultural institutions. He argues that attempts to attain a combination of distributive justice and optimal economic performance are most commonly thwarted by inbuilt opportunities for individuals to free-ride and he examines arrangements which can make such free-riding less attractive. The framework is applied in contrasting institutions in corporatist/socialdemocratic societies and those in laissez-faire orientated societies such as the United States. The book surveys developments in the Nordic countries in the 1990s, addressing the question of whether they have undermined corporatist and socialdemocratic principles. In this light Dr Milner investigates the challenge posed to Nordic institutional arrangements by integration into the European Union. Social Democracy and Rational Choice will appeal to readers interested in comparative institutional and policy analysis, and in particular to those concerned with the future of the welfare state and the latest developments in the Nordic countries. Henry Milner is Professor of Political Science at Vanier College, Montreal and Adjunct Professor at Université Laval. He has been visiting researcher at the universities of Stockholm and Turku. His previous publications include Sweden: Social Democracy in Practice (1989).

SOCIAL DEMOCRACY AND RATIONAL CHOICE The Scandinavian experience and beyond

Henry Milner

London and New York

First published 1994 by Routledge 11 New Fetter Lane, London EC4P 4EE This edition published in the Taylor & Francis e-Library, 2002. Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 © 1994 Henry Milner All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by an electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library. Library of Congress Cataloguing in Publication Data A catalogue record for this book is available from the Library of Congress. ISBN 0-203-21307-6 Master e-book ISBN

ISBN 0-203-21355-6 (Adobe eReader Format) ISBN 0-415-11699-6 (Print Edition)

CONTENTS

viii ix

List of figures Preface INTRODUCTION The prospects for social-democratic institutional arrangements Post-socialist social democracy Towards social-democratic political economy Sustainable egalitarian distributions

1 1 3 6 9

Part I Towards a social-democratic political economy 1 THE POLITICAL ECONOMY OF DISTRIBUTIVE JUSTICE Economics and institutions Equality and efficiency in economics The economics of redistribution

19 19 20 27

2 THE USES OF RATIONAL CHOICE A wealth of practice: a poverty of theory Rational choice and its applications Welfare economics and public choice

33 34 38 44

3 PREFERENCES, CHOICES AND OUTCOMES: THE USES OF GAME THEORY Altruism, selfishness, and human nature The prisoner’s dilemma and other games The logic of institutional choices The institutional context of organizational choices

48 50 52 56 62

4 POSITIONAL COMPETITION AND KNOWLEDGE FAILURE Information and knowledge Positional goods and rational choice

65 65 69

v

CONTENTS

72 74

The effects of advertising Commercialism and rational choice Part II From theory to practice 5 SOCIAL-DEMOCRATIC POLITICAL ECONOMY— INITIAL GUIDELINES The buffer zone and its uses Solidarity and positional competition Inclusionary services and appropriate incentives Enhancing visibility and structured participation

79 79 82 85 89

6 COMMERCIALISM AND THE KNOWLEDGE FOR RATIONAL INSTITUTIONAL CHOICES The pervasiveness of commercial television The television generations Commercialism, religion and violence The schooling of the television generation The Scandinavian alternative

95 97 100 105 107 109

7 CORPORATISM, ORGANIZATIONS AND INSTITUTIONAL CHOICE The emergence of neocorporatism The U-shaped curve The Austrian case The ‘German model’ The rational actor under corporatism and pluralism Conclusion

114 115 118 120 123 126 128

8 RATIONALITY, ACCOUNTABILITY AND STRUCTURES OF GOVERNMENT Legislatures, executives and electoral systems Structures connecting and circumscribing communities From structures to behaviour Conclusion

131 133 140 143 146

Part III The prospects for Nordic social democracy 9 THE INSTITUTIONS OF SCANDINAVIAN SOCIAL DEMOCRACY TODAY AND TOMORROW: I The Nordic countries: similarities amid differences Setting the stage Sweden: the present context I A setback for labour II The non-socialists in power vi

149 149 153 156 159 161

CONTENTS

III Medium-term prospects for Fördelningspolitik IV The crisis deal 10

THE INSTITUTIONS OF SCANDINAVIAN SOCIAL DEMOCRACY TODAY AND TOMORROW: II The present context: Finland The present context: Norway The present context: Denmark

11 THE EC, THE NORDIC COUNTRIES AND THE INSTITUTIONAL ARRANGEMENTS OF SOCIAL DEMOCRACY The Nordic countries and the New Europe I Norway II Denmark III Finland and Sweden A European Community in transition A social Europe?

165 167

171 171 181 189

196 199 199 202 206 211 214

CONCLUSION The challenge to the Labour Movement The multinationalization of business The limits of Europhoria: the Danish experience Preserving the essentials

221 223 225 227 230

Notes Bibliography Index

233 268

289

vii

FIGURES

0.1 0.2 0.3 1.1 3.1 5.1 5.2 7.1

The Lorenz curve Income inequality in two societies compared The equality-efficiency trade-off The Lorenz curves for one Gini coefficient The Prisoner’s Dilemma The three spheres of the social order Institutional choices, arrangements and outcomes The U-shaped curve

viii

10 11 12 30 53 80 93 120

PREFACE

I began working on this book early in 1990, a year after completing the final editing of Sweden: Social Democracy in Practice. That book had two closely related themes, the workings of Swedish institutional arrangements and the institutional arrangements of social democracy. When these two subjects diverged, Swedish institutional arrangements took precedence. When I turned directly to the more theoretical analysis in starting on this book, the world was entering a period of change more rapid and significant than anything my generation had known. Getting at the foundations of social democracy became at once more urgent and problematic. For one thing, drawing a portrait of any part of Europe meant working on a new and uncertain canvas. With the support of the Social Science Research Council of Canada and Fonds d’Aide à la Recherche du Québec, which I gratefully acknowledge, I was able to follow developments at first hand, spending altogether more than six months in the four Nordic countries between 1991 and 1993. The disruptions to home and family were considerable, and, were it not for my wife Frances Boylston, my most perceptive critic and unflagging supporter, the work would have come crashing to a halt on more than a few occasions. It had already been slowed by events in my life which, in the end, affected not only the timing but also the approach taken. Late in 1990 my father succumbed to cancer. His illness and death forced me to confront obligations and make choices which, in retrospect, influenced the direction my intellectual work was to take. Some of the choices concerned preserving his business in a period of economic crisis. My experience, in its small way, reinforced the lesson in the fall of the Berlin Wall: only a society in which individuals can see the fruits of their own choices and efforts rewarded through the market can prosper. But my father’s illness taught another lesson: a day will come when we will be entirely dependent on the acts and choices of others. This too was part of the human condition; even those most adept at sowing and reaping the fruits of the market would one ix

PREFACE day be excluded from it and dependent on something else—something we today call the welfare state. It is in its capacity to reconcile these two fundamental aspects of the human condition that the validity of any overall approach to the workings of society, including social democracy, rests. Yet, until the Berlin Wall came down, social democrats concentrated their intellectual efforts on defending the state, welfare and otherwise, against the forces of the market. But human experience teaches that the threat to the institutional arrangements through which we care for each other—the welfare state—are threatened not by some collective entity or class interest, but by the choices we ourselves make as individuals. In responding to our father’s illness, each member of the family wanted everything possible to be done for him; yet we had our own lives to get on with. To avoid the unthinkable, a situation in which each left responsibility to the other, we worked out certain rules for dividing and exercising responsibility. Society is built on such rules. Individuals find it in their narrow interest to substitute income derived from market-defined productive work with income derived through welfare state programmes. But as in our family, so in society: if everyone acts on personal narrow interest, the outcome will be undesirable to all. Thus everyone gains from setting and following appropriate rules. Society’s rules, which are called institutions, though more complex, are still the product of human choices. A theory of appropriate institutional arrangements for society, like social democracy, rests or falls, ultimately, on the plausibility of the ‘institutional choices’ expected of its members. As the project evolved, it became increasingly clear that these institutional choices were best understood and analysed as rules of a game which constrain the players so that all can benefit from playing. Application of this analysis required delving into the wide contemporary literature of game theory and rational-choice political economy. If social-democratic regimes were to be understood as viable despite the profound changes taking place, they had to be explainable from within this perspective. In other words, could social-democratic societal arrangements be understood as the outcomes of rational individual choices? The result is an analysis of welfare states inspired by social-democratic principles that departs fundamentally from conventional approaches, one guided not by presumed class or other collective interests, but by an understanding of the real choices of human beings, beginning from those we know best—our own. Lest there be any misunderstanding, this book does not take any sort of psychological approach; the author will not reappear in person after this preface. x

PREFACE But ‘I’ the individual, as rational actor making institutional choices, (usually referred to in the third person as ‘she’) is present throughout. The reader may also rest assured that jargon has been kept to a minimum. In attempting to follow and unravel the intellectual threads of rational institutional choice, I have drawn upon several specialized literatures in the social sciences and philosophy. The use of unfamiliar concepts thus proved unavoidable. But every effort has been made to clarify their meaning and relevance in the text, with the more theoretical implications relegated to footnotes. Moreover, the formalistic mathematical language that increasingly characterizes these literatures has been avoided—the issues raised are too important to exclude readers unversed in such language. So much for theory. The main empirical task of the project was to investigate developments in the four Nordic states at the beginning of the 1990s, to see to what extent these changes meant new and fundamentally different institutional choices. Starting from the post-war Swedish ‘model’ of institutional arrangements, I follow Swedish developments in the past decade, comparing them with those in Norway, Finland and Denmark. Do these developments, I seek to discover, foretell new and different institutional arrangements, and how compatible will these be with the principles of social democracy? I draw frequent contrast with the United States—and, to some extent, Canada, my homeland—in the effect of different institutional arrangements upon the choices confronting individuals. This is because the US is there; there in the author’s experience, and in the experience of many of the writers whose analytical work is drawn upon. A project as ambitious and wide-ranging as this one necessarily relies on the help of many knowledgeable people. Some charted the theoretical waters I was entering. On this side of the pond, these include Mario Iaccobacci, Bryan Campbell, John Richards, Arthur Milner, David Rolland, Kent Weaver, Richard Coughlin, and Francois Petry. Among Europeans are Jan-Otto Andersson, Hannu Nurmi, Heikki Paloheimo, Jan-Erik Lane, Keith Dowding, and Heikki Patomaki—several of these latter also made helpful suggestions on developments in the Nordic countries. A large number of individuals drew my attention to pertinent empirical development in these countries and their explanations. Useful suggestions on Sweden were provided by Gösta Rehn, Hans Bergström, Anders Mellbourn, Diane Sainsbury, Jan-O Karlsson, Eric Åsard, Agne Gustafsson, Robert Taylor, Elmire af Gejerstam, Sjell Treslow, Tomas Lundén, Olof Ruin, Donald Lavery, Lena Daun, Michele Micheletti, Bo Rothstein, Klas Eklund and Sverker Gustafsson.

xi

PREFACE On Norway, I owe a dept to Aslak Bonde, Geir Högsnes, Henry Valen, Per Vassbotn, Lars Mjöset, Bjorn-Erik Rasch, Ove Langeland, Kare Hagen, William Lafferty, and John Fossum; on Finland, it is Paavo Lipponen, Kimmo Kuusela, Hannu Uusitalo, Lauri Karvonen, Esko Antola, Matti Wiberg, Olli Kivinen, Pertti Ahonen, Matti Pohjola, Jörn Donner, Timo Bergman and Veikko Reinikainen; and on Denmark, Lise Lyck, Sven Bislev, Hans Neilsen, Gunnar Sjoblom, Morton Kelstrup, Eric Einhorn and Benedikte Schaltz. Pertinent information on Austria and other European countries came from Markus Marterbauer, Alois Guger, Paul Luif, Peter Kreisky, Wolfgang Blaas, and Bernard Hoetjes. At Routledge, I wish to especially acknowledge the help of Caroline Wintersgill and Diane Stafford. Finally, my appreciation goes to Gregor Winslow for his invaluable assistance in the preparation of the typescript and the tables. With such a varied group of contributors, it goes without saying that no one other than this author is responsible for the content. Nevertheless, if this book does have some merit, then it reflects on those contributions, acknowledged and unacknowledged, for without their help it could never have been written. Henry Milner Montreal, May 1994

xii

INTRODUCTION

THE PROSPECTS FOR SOCIAL-DEMOCRATIC INSTITUTIONAL ARRANGEMENTS Among the novel objects that attracted my attention during my stay in the United States, nothing struck me more forcibly than the general equality of condition among the people. I readily discovered the prodigious influence that this primary fact exercises on the whole course of society; it gives a peculiar direction to public opinion and a peculiar tenor to the laws…It has no less effect on civil society…it creates opinions, gives birth to new sentiments, founds novel customs, and modifies whatever it does not produce. (de Tocqueville, 1945:3)

Writing 150 years ago, Alexis de Tocqueville found in the United States a manifestation of the egalitarian democracy only beginning to emerge in Europe. He was determined not merely to describe this phenomenon, but also ‘to carry all his ideas to their utmost theoretical conclusion’ (de Tocqueville, 1945:16). A similar theoretical challenge is posed by the leading egalitarian democracies of today, namely the Nordic countries. And, ironically, as inegalitarian France provided the contrasting case then, so the United States serves that purpose today. This book seeks to take up that challenge. The chapters to follow explore the uniqueness of social democracy as it has been practised in the Nordic countries1 and ask whether it has a future. To judge by much of what one hears these days, not only does social democracy lack a future, but its grim fate is well deserved. To its opponents, the collapse of state socialism in nearby Eastern Europe and the USSR proved their case— especially when the new leaders of the former communist states showed little interest in Scandinavian-style social democracy (Lindström, 1991). The Conservative Swedish Prime Minister, Carl Bildt, had no trouble interpreting this lack of interest. ‘Between success and failure,’ he said upon his election in autumn 1991, ‘there can be no middle way.’ A ‘middle way’ between capitalism and socialism is how the Swedish ‘model’ has been cast since the 1930s. The Swedish Social Democrats prefer the expression ‘third way’. The reality is that there is no longer any viable ‘second 1

SOCIAL DEMOCRACY AND RATIONAL CHOICE

way’—unless it is along the route taken by the Scandinavians themselves. But it is one thing for small peripheral nations to carve out a path between two major roads, and quite another to proclaim it the alternate route. And it’s even harder to do so when economic conditions are very unfavourable—as they became early in the 1990s. Furthermore, any such proclamation was likely to fall on the deaf ears of the younger generation at home. For while taking the benefits of social democracy for granted, educated young Scandinavians were increasingly rejecting the rules and compromises on which it was built as old-fashioned and inhibiting. They were looking instead to a barrier-free Europe which promised to liberate their energies and ambitions. So although the Social Democrats remain the dominant political force in the Nordic countries, one hears little these days of a Scandinavian alternative or ‘model’. Yet, in the not very distant past, the Nordic countries,2 with Sweden in the lead, provided just that. And it wasn’t just the work of self-proclaimed Social Democrats. Indeed, terming the institutions developed in these countries ‘social democratic’ as we do is only a shorthand, for parties other than the Social Democrats upheld many of the principles and developed many of the programmes we shall see to be associated with these institutions. In itself, therefore, the coming to power of a ‘bourgeois’ administration in Sweden is hardly earthshattering. But at the level of public discourse, the change has been more profound. Mr Bildt, who has learned to make the cautious policy compromises required of the leader of a divided coalition, can none the less dismiss long-held principles with a single phrase: ‘No one believes in the Swedish model anymore,’ he says. Of course talk is cheap, as we shall see in Part III, and abolishing programmes that people have come to take for granted is a lot harder. But talk can be costly as well. Dismissing the Scandinavian alternative is no minor gesture. At this point in history, Scandinavian experience is the best we have of a genuine practicable democratic alternative to the more laissez-faire variety of a market economy manifested especially in the United States. If we abandon the Scandinavian ‘model’, what remains of the widely held hope of living in a productive community that doesn’t abandon a quarter of its population to poverty and ignorance and bequeath to its future generations a legacy of environmental and cultural degradation? In the long run, this is what is at stake in a discussion of the future of social democracy. During much of our lifetimes the Nordic countries showed the industrial world that equality and efficiency can be compatible. Should we be so quick to give this up and, instead, learn to look with pride at the trappings of wealth and the degradation of poverty as the rightful recognition of excellence and achievement? We have not yet reached this point. If satisfaction at inequality between rich and poor places one at the right-hand pole of the political spectrum, 2

INTRODUCTION

and outrage places one on the left, then most people remain somewhere to the left of centre in their feelings. But feelings are one thing, rational understanding is another. Intellectually, the left has been losing the battle. POST-SOCIALIST SOCIAL DEMOCRACY Leftists have taken an intellectual beating in past decades—and deservedly so. There is truth in The Economist’s assessment that the heart of the success of the political right has been its ability to use the genuinely value-neutral research and theory of economists …the left’s failure [has been]…to assume that developments in contemporary political economic thought would go away.3 (17 June 1989:105) Too many intellectuals hung on to the tenets of Marxist socialism when they knew better. For Marxism is ‘based on…one crucial assumption—the proletariat’s natural affinity for socialism—for which it has never been able to supply even a vaguely plausible rationale and for which the historical evidence is overwhelmingly negative’ (Van der Berg, 1988:501). Substituting outrage against social inequality for practical actions to lessen it, Marxism in the end came to serve as a sophisticated rationalization for eschewing ‘reformist’ actions. Inevitably the egalitarian political project (‘to each according to his needs’) went nowhere when taken over by the Marxists—a failure that reflected not intellectual mediocrity, but quite the opposite. Leading Marxists proved so intellectually nimble they managed to build an impressive edifice on faulty foundations, thereby winning wide academic respectability, and, tragically, diverting the efforts of many fine minds and noble spirits into ultimately sterile intellectual pursuits. The Marxist presumption that improving the world consists of ‘scientifically’ identifying a class of people assigned by history the mission of building an egalitarian society simply could not stand up against the onslaught of accumulated knowledge about human behaviour. ‘Class interest’ cannot account for individual action or failure to act. Even if class interest accounts for a position espoused by an individual with respect to a given set of rules within a given context (that is, institution), actual behaviour cannot be assumed to conform to that position, but will hinge on ‘opportunity cost’: whether the net benefit derived from compliance outweighs the cost paid in the form of resources (time, energy, money…) no longer available for other purposes, including unselfish ones.4 Marxists can no longer ignore opportunity costs, dismissing their critics as bourgeois ideologists; the resounding message from 3

SOCIAL DEMOCRACY AND RATIONAL CHOICE

the bitter experience of the now free-to-speak intellectuals and officials in the former USSR and its ex-satellites is that an economy based on planning rather than individual choice cannot do the job. Even under ideal conditions, with democratically chosen, public-spirited, highly trained planners at the helm, replacing markets with governments doesn’t work. Similar conclusions guide intellectual developments in Africa, Asia and Latin America, where, sometimes after a heroic early phase, the ‘socialist road’ invariably led to economic stagnation. Despite the defeat of state socialism, people in the industrialized world have not been won over to rightist sensibilities. Eyewitness accounts in the media continually evoke the immorality of extreme inequality. The ideal—the enlightenment vision of the good society as a community of free and equal people—is still very much alive. But we lack a theoretical framework through which we can covert our sensibilities and ideals into practical real-world choices that decrease inequality. For all the writing and discussion, there is no distinguishable social-democratic or egalitarian political economy to replace the failed Marxist one, no systematic analysis of institutional arrangements in a society of free choice on the basis of their performance in producing and— fairly—distributing resources. It is not that the elements of such an analysis are not to be found—we shall see just such elements in the corporatist analysis of the welfare state in Part II—but limitations inherent in the corporatist approach, as well as reluctance on the part of social democrats to pursue its implications, keep it from serving the needed theoretical purpose. The attraction of religion for those who seek a better world is that it skips over this problematical middle rung of political economy that lies between moral philosophy and action, and it provides a built-in agent—God and His Church. Marxism also tried to skip the middle step; its religion was scientific socialism and its church the working class. When Gorbachev dissolved the church of Marx and Lenin, it had already been abandoned by many of its disciples. But abandoning Marxism did not mean, for this writer as for many others, abandoning the egalitarian ideals that had made Marxism attractive in the first place. Indeed, it opened the possibility of redirecting the idealistic energies up to now diverted into Marxism into social-democratic political economy—the practical and theoretical construction of institutions through which people can choose freely to act in such a way that productive efficiency and fair distribution is the outcome. Fruits of these efforts are to be found in the now rather unfashionable concepts of the (neo)corporatist school, adapted and incorporated in Part II of this book. The book comes at the end of a stage in a long intellectual journey through the ideas of contemporary political economy and a more practical one through the institutions of the Nordic countries. The object of the search is a practicable 4

INTRODUCTION

egalitarianism. My investigation of the evolution of institutions in the Nordic countries, starting from the concrete experience of Scandinavian social democracy, has left me both hopeful and pessimistic. In Norway, Finland and Denmark, as in Sweden (Milner, 1989), I found a healthy respect for markets built into the workings of institutional arrangements associated with social democracy, which, even Carl Bildt admits, worked pretty well over two generations, fostering the development of economies that were both productive and remarkably equitable. If originally influenced by Marxism, once in power, Scandinavian social democrats came to understand that replacing markets with governments doesn’t work. For two generations, they initiated and refined measures to improve life for those at the bottom without compromising the economic efficiency of markets; when required, they built coalitions with other parties and secured the active collaboration of employers. The leading force in this process was the Swedish Social-Democratic Labour party (SAP). Soon after it entered government in 1920, the SAP created a ‘socialization committee’ to identify industries suitable for nationalization, in conformity with its programme which called for socialization of the means of production. The committee’s conclusion was firm: while inequalities had to be fought, and industrial policy was one arm of such a struggle, the high costs and limited benefits of nationalization in the productive sector made it more likely to be an impediment to, rather than a means towards, achieving greater equality (Tilton, 1987).5 But practice did not entirely find its way into the party’s programme. Though silent as to policy implications, the SAP programme still gives a vague legitimacy to a soft Marxism with expressions to the effect that ‘democratization of the economy’ is the way to overcome social inequality. Members generally understand such expressions to be merely rhetorical, but are also reticent to jettison the old formulations unless and until they see a new set of principles consistent with their underlying objectives, and distinct from that of other parties. Formulating a new set of principles in the absence of a new unifying theoretical foundation is a tall order to ask of a party programme. The residues of outdated ideologies to be found in the programme cannot but cast doubt on the legitimacy of practical reforms. Such was the situation faced by the SAP leaders at the end of the 1980s with regard to reforms giving greater place to market incentives. They found their programme attacked by their bourgeois opponents during the 1991 election campaign in the same language they had used to defend those reforms against party traditionalists. Similar developments had taken place earlier in Denmark, Norway and Finland, except that the result there was that some supporters switched to more dogmatic parties on the left. We shall look first (in Parts I and II) to Swedish soil as native to social democracy: the SAP remains the most powerful social-democratic party 5

SOCIAL DEMOCRACY AND RATIONAL CHOICE

in the world. As such, its lack of a comprehensive programme linking theory and practice and based on a coherent and consistent analysis is especially acute. Before the demise of state socialism it was possible to learn by doing, lying low in the ‘middle’ as the ideologues of capitalism and socialism slugged it out. No one paid too much attention if Scandinavian social democrats didn’t bother to fully dissociate themselves from the socialist ideologues who claimed them as allies. But now, having lost their theoretical cover, they must try to build the realities of the market as firmly in their programmes as they have in their policies in government.6 Yet how does one concede that one’s adversaries had a point all along without seeming to abandon the principles which set one apart? Is it possible to ground one’s principles of action in a theory of socialdemocratic institutional arrangements? Such a theory could serve to distinguish the fundamental from the transient, providing a basis from which to judge whether ongoing compromises are consistent with the institutional logic of social democracy, or whether they undermine it—as conventional wisdom suggests is happening today. It is to the elaboration of such a theory that Parts I and II of this book seek to contribute. Being an outsider looking in at the Nordic countries limits the depth and extent of this writer’s knowledge, but it does provide a perspective from which to distinguish fundamental from transient institutions, a perspective usually lacking among insiders, for whom these institutions are part of everyday life. TOWARDS SOCIAL-DEMOCRATIC POLITICAL ECONOMY It should already be clear that I value the Scandinavian alternative to laissez-faire capitalism and believe it should not be discarded without a struggle. It is the theoretical side of that struggle that is in need of assistance at this point, the effort to construct an egalitarian political economy compatible with the real choices of individuals. As a contribution to such an effort, this book is ambitious not in trying to break new theoretical ground nor in accumulating original data; it is ambitious because it attempts to bring together a body of theory in order to extend it to practices that have effectively been precluded both by the conventions of the theoreticians and the ideology-based presuppositions of the practitioners. These practices are associated with the policies of Nordic social democrats in office or, in the language of Part II, the corporatist welfare state. On the theoretical side, the starting point is what we might call mainstream political economy and, more specifically, the rational-choice perspective which starts from the individual who weighs the costs and benefits of alternative choices based on his or her interests. The unconventional if not heretical claim advanced here is that rational-choice theory and social-democratic practice can be complementary. While there is much useful analytical work from which 6

INTRODUCTION

we can and do build in making this argument, there is little that explicitly takes this route. The residues of a Marxism they had discarded in practice discredited efforts by the practitioners of social-democratic policies to overtly ground their programmes in mainstream ‘bourgeois’ economics. With the intellectual props of Marxism now removed, some look to alternative paradigms on the fringes of contemporary economics. 7 But, though intellectually stimulating, these cannot serve the needed purpose, since the fundamental development in that indeterminate zone between economics and the softer social sciences has been the progress of rational-choice political economy. The strategy proposed and adopted in Part I is to build on rational-choice theory and take advantage of the cumulative explanatory power of its applications in mainstream economics to further our understanding of the institutional arrangements of the corporatist welfare state. Why should the poor, who stand to benefit most from such arrangements, be deprived of potential applications of such knowledge? At this point at least, ‘radical political economy’ as a comprehensive alternative to mainstream (rational-choice) political economy is a conceit analogous to the ‘Marxist physics’ envisaged by the Bolsheviks. Socialdemocratic political economy can be nothing other than the elaboration and application of the accumulated knowledge of political economy for egalitarian ends. Unfortunately, egalitarians have contributed little to advances in political economy in this century, so that applications of rational choice have been associated with the work of people (presumed) unsympathetic to egalitarian ends. In other words, the absence of egalitarian rational-choice political economy proved to be a kind of self-fulfilling prophecy. Much vital effort has been wasted, much valuable time has been lost; what follows is part of the effort required to catch up. Chapter 1 provides an overview of the place of equality in mainstream political economy as it has developed. Statistical measures of inequality are introduced and applied to Western countries, making concrete the distinction between egalitarian and inegalitarian systems of institutional arrangements set out here. The fundamental contention that more than one distributional outcome is compatible with overall societal efficiency, that is, that different levels of equality corresponding to different systems of institutional arrangements are sustainable, is developed in Chapters 2 and 3. Of course, there are limits of sustainability. Systems that redistribute above—and below— a certain limit are unsustainable. To simplify the analysis, we take the limits as corresponding to levels of equality and inequality in existing democratic societies. Thus Western industrial democracies are conceptualized as lying between two poles in both institutions and outcomes, with the four8 Nordic countries at 7

SOCIAL DEMOCRACY AND RATIONAL CHOICE

the corporatist/egalitarian end and the US at the laissez-faire/inegalitarian one. Others are situated between these two poles, most European countries lying closer to the Nordic pole, Canada closer to the US. To take one frequently cited statistic among the many that will be presented in the course of this book, the 1993 UN human development index based on a combined indicator of education, wealth and longevity ranks the four Nordic countries third, fifth, thirteenth and fourteenth. Adjusting for gender disparity, the countries are ranked first, second, fourth, and fifth. On these two ratings the US ranks sixth and ninth, and Canada second and eleventh (UN, 1993:11, 16). Yet while there are reams of relevant statistics, an element of subjectivity cannot but enter our choice over which are pertinent. Lawrence Summers of the World Bank points out that the US is usually regarded as the richest society in the world, but a child has a worse chance of surviving to his or her first as well as seventieth birthday in New York than in Shanghai. Is it in fact the richest country? The author has lived in the Nordic countries and the US long enough to remain an outsider, but no longer just a visitor. I have regularly visited many European countries. And my home is in Canada, a country, in spirit at least, somewhere between the Nordic and American ways of life. Overall, the best conclusion I can draw both from the literature and my experience is that at the onset of the 1990s the egalitarian Nordic countries were comparable to the inegalitarian United States and Canada in terms of economic development.9 Both the social-democratic systems of institutional arrangements of the Nordic countries and the laissez-faire systems of the US and Canada have proved themselves sustainable in the sense that they are compatible with the free democratic choices of individuals. But the choices correspond to a different institutional logic. To oversimplify, the logic in the US system is inegalitarian— no more equality than a (democratic) society of free choice will require—while in the former the logic is egalitarian—no less equality than democracy will require. Though comparable in economic terms, I suggest that there is a fundamental difference between the laissez-faire and corporatist countries in human terms. Residents of the Nordic countries know that the basic goods and services from the institutions they count on—the stores they buy from, the workplaces that provide employment, the schools, hospitals and clinics, the day-care centres for the children and the retirement homes when they are old, the town buses and intercity trains, the libraries, sporting and recreational activities, newspapers, radio and television programmes—can be had at a level of quality that satisfies the better off and at a price within the means of the worse off. Such accessibility is the crucial feature—and not whether service providers are public, private or mixed.10 Accessibility incorporates an objective dimension, 8

INTRODUCTION

measurable, say, in income distribution, but also—and crucially so—a subjective dimension linking fairness in distributive justice with the continued existence of the community. This is what Tawney called a common culture…incompatible with the existence of sharp contrasts between the economic standards…of different classes, for such contrasts have as their result…servility or resentment… and patronage or arrogance…It involves, in short, a large measure of…equality of environment, of access to education and the means of civilization, of security and independence, and of social consideration which equality in these matters usually carries with it. (cited in Goodin, 1988:108–9) In this book the contrast is most often drawn between the Nordic countries and the US. This is not to suggest that all societies can choose between the two sets of institutional arrangements; indeed the opposite is the case. The analysis provided identifies constraints on the institutional choices available; in effect, Nordic arrangements are not a real option for the US.11 The contrast with the US is provided rather to illustrate what may lie at the end of the path of those societies which, in a position to choose, opt for laissez-faire/inegalitarian institutional choices. SUSTAINABLE EGALITARIAN DISTRIBUTIONS From the vantage point of the workings of the economy, Scandinavians, like Americans, live under market capitalism. But from the vantage point of those at the bottom, their systems are anything but the same. While moral philosophy can provide other, more profound arguments in favour of social redistribution, the case can be made in terms of individual calculation compatible with rationalchoice analysis. It is based on the following proposition: if people in a democratic industrial society are given the opportunity to choose between living in one of two roughly equally rich societies, most would choose the one where wealth is distributed more equally and poverty less extensive than the one with greater extremes between rich and poor. This choice is visualized in the three Lorenz curves drawn below. The Lorenz curve displays the share of total (that is, either gross, taxable or disposable) income received by the bottom X per cent of 9

SOCIAL DEMOCRACY AND RATIONAL CHOICE

Figure 0.1 The Lorenz curve

income units (individuals or households). (Figure 0.1 shows that the bottom 50 per cent of income units receive 28 per cent of total income.) In Figure 0.2 we superimpose a second Lorenz curve outside the first one. The total societal income is the same, but the inequality represented in the second curve is greater, especially at the lowest income levels, indicating severe deprivation. Though some individuals are risk takers for themselves, of these, most will seek to reduce risk once the well-being of dependents and descendents is at stake. Hence it is plausible to assume that, for most individuals, the marginal utility of a given unit of income decreases as overall wealth increases. As a consequence, since they cannot be certain of their future position or that of their children, they will prefer distribution A to B. (This assumption is strengthened by the degree of altruism among the better off towards the worse off.) If the world were as simple as the choices portrayed in the mathemat10

INTRODUCTION

Figure 0.2 Income inequality in two societies compared

ical figures, we would have many more egalitarian societies than we have today. But theoretical distributions are not necessarily sustainable ones. This is where the philosophers’ analysis ends and that of the political economists begins. In effect, mainstream political economy challenges us as to whether the choice depicted in Figure 0.2 is realistic. Mainstream economists, at least until recently,12 would characterize the real choice as between (not curve A but) curve A’ and curve B (as depicted in the stylized Figure 0.3), making the assumption that, beyond a certain minimum, there is a trade-off between efficiency and equality: that the more equally the pie is shared, the smaller it gets.13 In reality, extreme inegalitarianism as well as extreme egalitarianism—when the Lorenz curve approaches the diagonal—are impediments to efficiency. For example, income inequality, as measured by the multiple of the income of the richest to the poorest 20 per cent of households, is lowest in the three fastest growing industrializing economies in the 11

SOCIAL DEMOCRACY AND RATIONAL CHOICE

Figure 0.3 The equality-efficiency trade-off

1980s (China, South Korea and Taiwan), while it is highest in the slowest growing ones (a multiple of 4 to 6.5 compared to one of 11 to 15).14 The economically advanced democratic regimes do not operate at the extremes, however, but rather within the margins of alternative policies acceptable to a majority of the population. If the choice thus constrained still comes down to that depicted in Figure 0.3, between B and A’, then outcome B will be the result and the more egalitarian distribution precluded. For, once a certain threshold is crossed, people perceive the redistributive measures as necessarily entailing falling economically behind a comparable neighbouring society. Armed with this perception, they will vote against these measures first with their feet (by moving resources to the neighbouring society) and then with their hands. Hence the fundamental question can be posed as follows: What institutional arrangements allow for the choice facing individuals to be that depicted in Figure 0.2 rather than that depicted in Figure 0.3? 12

INTRODUCTION

This is where rational-choice analysis comes in. For the obstacle to distribution A is not the will of a minority—or even of the majority; it is the separate everyday choices of individuals. The problem is not selfishness but free-riding. We can see this by conceptualizing the difference between the alternatives depicted in Figures 0.2 and 0.3 for households riot as statistical units but as groups of people. An urban household in a country with an egalitarian profile typical of a Scandinavian welfare state wants a clean, safe, healthy, environment, with good schools nearby and medical and related services guaranteed. This is effectively secured through the normal operations of institutions available to the great majority (outcome A). Employment can thus be sought based on interests and abilities, and place of residence chosen on the basis of proximity to place of employment and homes of friends and family, etc. In contrast, a household operating within a US-type of institutional framework does not face the same choice matrix. To fulfil the same wants, its members aspire to live in an urban ‘condo’ with all appertaining amenities (private security service, private school nearby, etc.) or an exclusive suburb, which entails acquiring significantly more disposable income than the economy can provide to the average income-earning household (outcome B). This entails accumulating income through a high-paying position. Paying taxes, or otherwise contributing to public amenities, shrinks the resources required for achieving these objectives while not significantly contributing towards them (outcome A’). Both the US citizen, in ‘free-riding’ by withdrawing resources from public amenities resulting in outcome B, and the Scandinavian citizen, in investing money and effort towards outcome A, are making rational choices within their own institutional framework. We have assumed that, given the choice, most people prefer to be in the first situation (A) rather than the second (B). But rational-choice analysis draws our attention to institutions that reinforce free-riding.15 Moreover, free-riding can be linked to the insufficiency of knowledge about the outcomes of individual choices in the context of the choices of others in a complex society. In the language of rational choice, the problem is one of the ‘rational ignorance’ of the electorate.16 Why pay the cost of assimilating difficult facts and concepts relevant to policy decisions if having that knowledge does not meaningfully change my ability to affect those policy decisions? But I, and others like me, will make inappropriate choices in the context of an inadequately understood set of institutional arrangements. In a society with egalitarian distribution A, the aggregate effect of such choices can result in comparatively inefficient outcome A’, the final consequence of which is the rejection of existing institutional arrangements in favour of alternative arrangements leading to inegalitarian outcome B. 13

SOCIAL DEMOCRACY AND RATIONAL CHOICE

Of course, if I am the only ignorant person, the effect of my choices will be minimal. This is indeed my preference. The outcome of my remaining ignorant is clearly efficient as long as others assimilate the needed knowledge to choose appropriate policies. Rational ignorance is thus a specific form of free-riding. Tax evasion is the most common manifestation of free-riding: if everybody pays but I evade, distribution A will be unaffected, since my tax contribution is proportionately negligible: I can have my cake and eat it too. Except that whatever motivates me to free-ride likely motivates my neighbours. In the language of game theory to be explored in Chapter 3, we are in a ‘prisoners’ dilemma’. The solution lies in institutional reform: I should, if in a position to do so, rationally support stringently enforced tax laws and similar institutional choices. In our analysis of the institutions of the Nordic countries, we will place great emphasis on those concerned with the dissemination of knowledge, that is, accurate and useful information which reduces the cost of informing oneself. We will go from there to other institutions, those that discourage free-riding generally, again laying stress on the inadequately explored knowledge dimension of such choices. Moreover, unlike for mainstream practitioners of rational choice, the measure of success will not be pure efficiency. Postulating that realization of a similar preference has greater utility for a worse-off individual than for a better-off individual, we seek to develop a theory of ‘positive’ institutional choices, that is, choices over institutions which make attainment of efficiency and equality complementary rather contradictory, which allow for choices between outcomes A and B rather than A’ and B. In Chapter 1 we set out a number of specific facts and figures comparing Western countries17 that illustrate that the Nordic countries have achieved the most egalitarian distributions, as well as providing a measure of comparable economic performance. Such figures provide grounds for questioning the assumption that equality and efficiency are necessarily incompatible, and suggest instead that within an appropriate institutional framework, the choice can be that depicted in Figure 0.2. The stage is thus set for developing, in the rest of Part I, a theory enabling us to identify the elements of such a framework and, in Part II, elaborating a series of guidelines for applying them. Setting out these theoretical guidelines is in fact setting out the parameters of a choice between social-democratic and laissez-faire institutional frameworks. While one cannot readily imagine a scenario under which Americans could act to fulfil a preference for a Nordic-type welfare state, one can, given recent developments, pose the question in reverse. Are the people of the Nordic states in their actions at this time choosing to retain or to abandon their egalitarian institutional 14

INTRODUCTION

arrangements? If the latter is the case, one can hardly expect other societies in a position to do so to opt for those arrangements. In the final part of this book we will be in a position to address the choices facing contemporary Scandinavians, and thus the future of the Scandinavian model. We go, therefore, from abstract theories of human choice behaviour to the practical realities of the Nordic countries. Chapter 2 develops the logic of a rational-choice-based political economy and explores the requirements for its being reconciled to the egalitarian orientation set out here and in Chapter 1. Chapter 3 begins the reconciliation process by looking at more complex choice situations incorporating elements of game theory in developing the concept of positive institutional choice. Chapter 4 systematically brings the crucial dimension of knowledge into the analysis. In Part II we derive a series of guidelines from the theoretical exposition in Part I. Chapter 5 sets out a framework within which general guidelines concerning policy choices affecting institutions at three levels or dimensions are developed. The first level takes in those institutions affecting the knowledge individuals bring to bear in making institutional choices; those at the second level affect the strategies adopted by organizations in attaining their goals; at the third level, institutions affect the choices made by governmental actors. Each of these three dimensions and the literature relevant thereto is then explored in a separate chapter and more specific guidelines developed. Chapter 6 stresses the obstacles facing individual acquisition of the requisite knowledge in a society where commercialism dominates the media of communication. Chapter 7 surveys the extensive neocorporatist literature on institutional arrangements affecting organizational participation in societal decisions. By re-examining the choices facing individuals in the context of corporatist institutional arrangements, the chapter finds a common ground between neocorporatist analysis and the rationalchoice critique of that analysis. Chapter 8 extends the analysis to wider political and governmental structures around the related theme of accountability. While the chapters in Part II draw upon relevant examples from the experience of the Nordic countries (usually in contrast to that of the US), Part III examines that experience per se. Chapter 9 returns to the institutional arrangements and outcomes common to the four Nordic countries, and then focuses on the potential impact of contemporary developments in Sweden. In Chapter 10, the same exercise is conducted, though not in quite the same detail, with regard to Finland, Norway and Denmark. Chapter 11 assesses current developments and debates on EC participation in each of the four in the context of the choices being posed. 15

SOCIAL DEMOCRACY AND RATIONAL CHOICE

In a sense, these last chapters constitute a second book. I had originally planned to write only the first, to portray theoretically a social-democratic system of institutional arrangements based on over fifty years’ experience of reconciling the twin objectives of efficiency and distributive justice. Ongoing economic developments both domestic and international left no choice but to go from there to write the second one, to try to answer the question of whether this system has a future.

16

Part I TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

What guidelines could a society composed of rational individuals operating within a market economy follow in designing and maintaining institutions that distribute wealth in such a manner as to eliminate poverty and reduce inequality? To ask the question is to answer it: none are readily to be found. Social democrats rarely look to mainstream political economy; and mainstream political economy seldom addresses the egalitarian considerations social democrats bring to bear. Yet, although there is no rational-choice egalitarian school of political economy or anything comparable to be found, important, if often unconnected, developments are taking place. A potentially fruitful, though as yet uncertain, intellectual process is gaining strength. We noted in the Introduction that rational-choice theory is increasingly breaking out beyond the economic realm to explain the workings of political and social institutions. As rational-choice theory occupies parts of this terrain, it finds itself forced to defend its flanks and, even on its home economic terrain, to take into account certain wider social concerns central to the work of the social theorists whose terrain it is invading. The scene is thus set for important theoretical developments in political economy. Though not necessarily inspired by egalitarian considerations, these developments nevertheless break open new intellectual space for potential advances in social-democratic political economy. Rational choice’s crossing over the indeterminate boundary between economics, the ‘imperial’ social science, and the ‘softer’ social sciences was precipitated both by the intellectual vacuum left by the collapse of Marxism and the proliferation of electronically transmitted and computed information. Its application has generated significant rethinking of fundamental theory at the centre of the disciplines of political science and sociology and affected work in philosophy and psychology. In their eagerness to jump on the 17

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

bandwagon driven by mathematically expressed propositions about society testable through computerized data—a territory heretofore occupied almost exclusively by those formally trained in economics—these new political economists are producing a great deal of quantitatively based research. Some is of doubtful quality and without lasting value; yet much may yet prove relevant to development of the theoretical framework required for a socialdemocratic political economy. But the process is just in its early stages. Contemporary neoclassical economists increasingly invade the other social sciences’ terrain, seeing economic man at work (and play) just about everywhere—‘the economic approach is a comprehensive one that is applicable to all human behaviour’ (Becker, 1986:112). But economists continue for the most part to ignore the work of social scientists, producing elegant mathematical models based on assumptions which severely limit their application to the actual behaviour of individuals and organizations. In those areas of research where economics and the other social sciences meet, however, promising developments are taking place (Swedberg, 1990). At the heart of these developments is the widening application of rationalchoice theory to the workings of institutions, ‘the humanly devised constraints that shape human interaction’ (North, 1990a:182). Individual preferences and institutional constraints are coming to be understood as linked through a synthesis: ‘institutions are viewed not only as important determinants of preferences over alternative actions, but also…as endogenously determined by individual preference, tradition, and transaction costs’ (Ordeshook, 1990:25). In the course of these next chapters, reference will be made to scholars at the forefront of these efforts, such as Douglass North, Jon Elster, Elinor Ostrom, James Buchanan, Fred Hirsch, Kenneth Shepsle and, especially, Mancur Olson. North, who shared the 1993 Nobel prize, well formulates our theoretical preoccupation. Institutions are a creation of human beings; hence our theory must begin with the individual. At the same time, the constraints institutions impose on individual choices are pervasive. Integrating individual choices with the constraints institutions impose on choice sets is a major step towards unifying social science research. (North, 1990a:5) In belatedly recognizing the work of Ronald Coase with the 1992 prize, economists were moving away from the narrow neoclassical paradigm that took the institutional context as fixed, given and exogenous (Shepsle, 1989:132).

18

1 THE POLITICAL ECONOMY OF DISTRIBUTIVE JUSTICE

ECONOM ICS AND INSTITUTIONS Political economy is built on the individual choices and actions of human beings, that is, the assumption that the individual is the ultimate arbiter of his or her welfare. This utilitarian democratic postulate states simply that individuals, acting according to the logical prescriptions of rational action (see Chapter 2), seek to efficiently achieve their aims. Institutions facilitating such actions are said to be efficient.1 There is a renewed interest in institutions among social scientists consistent with the approach of political economy. The form and structure of institutions are increasingly being analysed for their effect on policy outcomes, no longer dismissed as mere by-products of the conflict of interests or classes. Individual action is assumed to be optimal adaptation to an institutional environment, and the interaction between individuals is assumed to be an optimal response to each other. Therefore the prevailing institutions (the rules of the game) determine the behavior of the actors, which in turn produces political or social outcomes. (Tsebelis, 1990:40–1) For example, if the institutional constraints result in the highest payoffs in the economy being criminal activity, or the payoff to the firm is highest from sabotaging or burning down a competitor, or to a union from engaging in slowdowns and make-work, then we can expect that the organization will be shaped to maximize at those margins. On the other hand, if the payoffs come from productivity-enhancing activities, then economic growth will result. (North, 1990b:396) This ‘new institutionalism’ is thus gradually removing the artificial barrier set at 19

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

the end of the last century between political science and economics. Economists no longer assume that once their methods identify rational policy choices, political institutions ‘rationally’ implement these. Political science can no longer consign economic choices to a lower order of concern distinct from the processes resolving the great issues that politics addresses. It is increasingly accepted that the analysis of policy choices within the ‘Paretooptimal’ framework is constraining when institutions are taken into account. Pareto-optimal transactions are defined as those where at least one individual is made better off, but no individual is made worse off; thus Pareto-optimal assessments serve to identify rational, that is, welfare-enhancing, transactions, but in a narrow arena. Once the choice concerns the rules governing transactions, that is, institutions, Pareto-optimality leads to few interesting outcomes. The challenge facing political economy is to widen the parameters for assessing institutional arrangements without degenerating into subjectivity and ideology. For example, Pareto-optimal considerations would leave the choice to employers as to whether to train their workers—a choice resulting in an increase in aggregate welfare. But institutional arrangements get in the way. In a free labour market, entrepreneurs can ‘poach’ workers trained at great expense by their competitors. Such poaching is by definition Pareto-positive since both the worker and the new employer voluntarily enter into the ‘poaching’ transaction (except where the knowledge that she2 might have to pay the external costs of this transaction discourages the original employer from providing the training in the first place). The overall effect of this state of affairs on aggregate welfare is thus hardly positive. In the language to be developed here, the theoretical challenge is to incorporate such institutional or ‘second-order’ considerations into political economy. Applications of game theory, as we shall see, provide a fruitful means of taking up this challenge. EQUALITY AND EFFICIENCY IN ECONOMICS Once we are in a position to incorporate second-order considerations, we can be concerned not only with economic growth in a democratic community but also its capacity to distribute resources fairly, and thus to take rational-choice theory into areas of political economy traditionally dominated by the left. In order to incorporate redistributive justice into political economy we need to add a second postulate. Rational-choice political economy is built on an economic expression of the first postulate, that of democratic utilitarianism, or efficiency. The straight definition of efficiency usually invokes the notion of Paretooptimality. An outcome is efficient if it is impossible to increase the welfare of one individual without reducing that of another. According to this definition, a 20

POLITICAL ECONOMY OF DISTRIBUTIVE JUSTICE

measure, the effect of which is to take a dollar from the richest individual and provide two dollars to the poorest cannot be presumed to be efficient. Such a measure, however, is sometimes defined as ‘potentially Pareto-optimal’ since it places the community in a position to compensate the rich man made worse off. The notion of potential Pareto-optimality thus opens space for redistribution, but only limited space. For if the amount available to the poorest individual were only one dollar, the transaction could not be efficient. In order to add a second postulate alongside that of efficiency, one of equality, we must transcend even potential Pareto-optimality. The argument has already been broached in the Introduction through alternate distributions A, B and A’ presented in Figures 0.2 and 0.3. Because of diminishing marginal utility, welfare is increased when a greater proportion of a fixed aggregate income is in the hands of the poor. The reasoning behind this is disputed by few professional economists (Olson, 1990): the marginal utility of an additional unit of income decreases with the amount the individual receives, and vice versa. From such reasoning we can make interpersonal comparisons of utility since, while we cannot presume that poor individual X will gain greater utility from the dollar than rich individual X, we can presume that the average utility for all the poor from this additional dollar will be greater than for all the rich.3 Such considerations have generally not been incorporated into mainstream political economy. It is not, I suggest, a matter of excluding normative factors. Adding the second postulate does not make political economy normative. The second postulate is indeed normative, but so is the first. Any theory based on utilitarianism is normative. If I as a believer in the natural superiority of the landed aristocracy, or the rich, or better educated, or more fair skinned (and these were hardly extreme views at many points in world history) reject the first postulate, there is no non-normative means of convincing me of the contrary. The same is true if I am convinced that the pursuit of economic growth—the natural outcome of the efficiency postulate—is wrongheaded since it comes at the expense of man’s divine mission on earth. It is ultimately no less normative to take the maximization of individual utility as axiomatic than it is to start from the desirability of redistribution based on the postulate of equality. Why then has practice placed the first postulate into the realm of science and the second into that of morality? Leaving aside the explanation that economists are part of some international bourgeois conspiracy, we come upon the simple answer. Political economy is a hard business, and it is easier to limit comparisons to Pareto-optimal distributions and build a body of work upon only the single postulate of utility maximization or efficiency than to attempt to synthesize two potentially contradictory postulates. Adding a second postulate, namely that of equality, to the single postulate of efficiency complicates the model. If efficiency 21

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

is the only consideration, then the mathematical process of translating individual choices into social choices allows for more elegant theoretical models; hypotheses can be more readily formulated mathematically. Indeed, the elegant geometrical figures that grace the published work of economists, in which welfare gains and losses are captured by the different geometrical shapes formed where lines and curves meet, are meaningful in terms of a single postulate of utility. Incorporating any consideration of equality in distribution confuses the picture. The above is not meant to deprecate work in the mainstream which can and does sufficiently approximate real-world behaviour and attitudes to generate useful explanations and even applications. A great deal of knowledge has been accumulated about the relationship between institutional arrangements and economic growth under given conditions. Work in political economy which has spurred on the richest explanations, investigations and applications has sought to identify and analyse those institutional arrangements compatible with economic growth pure and simple. And there is some truth in the idea that considerations of distributive justice take a higher billing as the level of overall wealth rises. Thus in many places in the world, including the ruins of the staterun economies in Eastern Europe and the former USSR, applications based on such considerations are justifiably being sought out. But, at least among the mature industrial democracies (the OECD countries), analyses based on economic growth to the exclusion of any concern with distribution are inadequate. It is thus considerations of practicality and not ideology that mainly account for the fact that no systematic social-democratic political economy has emerged. Apart from the difficulty of the task, there is, I suggest, no intrinsic obstacle to the development of a political economy applicable to the institutional arrangements of industrial democracies based on the combined postulates of democratic efficiency and distributive justice. As noted in the Introduction, the two postulates are clearly in contradiction at the extremes, where both equality and inequality inhibit efficiency. But within the limits set by the most and least redistributive existing industrial democracies, there are clearly a number of sustainable outcomes, or ‘structurally induced equilibriums’ (Shepsle, 1989:137) based on different systems of institutional arrangements. The underlying premise was stated in the Introduction: people in a democratic industrial society, given the opportunity to choose between living in one of two roughly equally rich societies, could be expected to choose the one where wealth is distributed more equally and poverty is less extensive. When we buy insurance, we give up consumption when resources are greater in order to have them available when resources may be lesser. Similarly, since we cannot know whether we will be in a stronger or weaker position in the future, we rationally protect ourselves (and our loved ones) through supporting redistributive policies. 22

POLITICAL ECONOMY OF DISTRIBUTIVE JUSTICE

Rational individuals favour efficient public social insurance programmes that redistribute income within lifetimes (such as pensions or unemployment insurance), since in this manner lifetime utility is maximized. Social insurance is a good example to illustrate the complexity of goals being pursued by an efficient social-democratic innovation. A well designed social insurance programme seeks to correct market failures (e.g. myopia, the tendency to discount the future too heavily) and hence improve on the efficiency of the private market. At the same time, it makes possible a measure of redistribution consistent with most people’s preferences. But altruism will not sustain inefficiencies in redistribution. Well-designed social security systems achieve internal efficiency through co-insurance or some other means of discouraging free riding, similar to that in private insurance. The seller of insurance reduces the price of the premium by adding a deductibility provision requiring those insured to pay the first part out of their own pockets. This is a disincentive to reduce what is known as ‘moral hazard’, the increase in the likelihood the contingency insured against will occur because of the insurance. Moral hazard is faced by insurance companies insuring against acts (like car accidents) that can be voluntarily self-inflicted (Olson, 1987:216). There is a second-order logic here: without recourse to co-insurance, insurance premiums would increase significantly to pay for self-induced claims (or for the investigators needed to ferret them out), and hence fewer people could afford to protect themselves against adversity. This result is anti-efficient, but also antiegalitarian as those left out are usually the most vulnerable. It also sets in motion a logic that erodes the cultural base for socially responsible and potentially altruistic behaviour, since it tells those who are not ‘ripping off the system that they are the ones being ripped off in high premiums. Rational choice teaches us that we cannot ignore the need to reward wealthpromoting risk and to punish unproductive rent seeking. One ignores incentives and disincentives at the cost of diminishing the pie out of which pieces are to be cut to help the needy. Americans ended up paying hundreds of billions for bad debts incurred by savings and loan companies after the Reagan Congress allowed the savings and loans to invest just as they wished and still guaranteed the depositors’ money. Similarly, the Scandinavian Social Democrats opened up financial markets in the 1980s which enabled the banks to speculate on property under a taxation system that rewarded borrowing money to invest in real estate. The result was a bubble the recent bursting of which forced the governments, at great cost, to bail out several banks. Americans pay exorbitant medical fees to cover insurance premiums for medical practitioners at the mercy of a system of litigation which (through allowing lawyers to be paid on a contingency basis) places no disincentives on 23

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

taking court action. In Sweden, sick-leave and long-term disability policies failed to take into account that workers might call in sick when healthy in the absence of any financial disincentive, especially when their employers had no financial incentive to monitor their actions. Yet sick leave was the exception that proves the rule for, as a rule, people pay deterrent fees when receiving medical services, prescription drugs, etc. in the Nordic countries. Undoubtedly the intellectual challenge of finding complementary applications of the two postulates is immense, for we seek not just to explain, but to generate guidelines for action of real human beings, what Hargreaves-Heap (1989:210) calls ‘useful theory’. Generating such guidelines makes exacting demands on the theory. In order to show that an institutional goal is feasible, we must show that at every practical stage in the formation of the desired institution, institutional requirements are compatible with concurrent individual behaviour. If at any stage the institutional structure is not compatible with the behaviour of individual agents, the former will be altered by the latter, and the final outcome may very well be different. Yet the task is not impossible. In the chapters to follow we will draw on the insights of new institutionalist rational-choice theorists like Ostrom (1990) and Bates (1990) and on the accumulated knowledge of human behaviour in game situations under conditions of uncertainty. These theorists argue that rational individuals will pay the cost of creating and adhering to mutually beneficial rules by communicating to others their intention to do so and thereby establishing trust and a sense of community: in other words, individual rationality can lead to societal coherence.4 The project thus conceived will not be to the taste of those who find abhorrent the idea of tying the philosophy of social betterment to a model of man as rationally calculating: that only good men can build a good society. But if we are interested in applying our social philosophy to the real world in order to practically improve it, we must take man as he is, and rational choice and game theory is as close as we can get to a starting point. A case in point is the work of Mancur Olson which will be cited frequently. Olson served as deputy assistant secretary in the Department of Health, Education and Welfare in the ‘liberal’ Johnson Administration, but his scholarship places him closest to the public-choice variant of rational choice, often associated with neoconservatism, and his findings have cast doubt on many cherished presumptions of the left—that trade unions are inherently socially progressive organizations, for example. But, overall, Olson’s work serves to explode the unrealistic expectations of those on the side of the weak and vulnerable to enable them to more practically refocus their efforts. He thus sees no contradiction between his methods and liberal sensibilities: ‘The same analysis of incentives and behaviour that is the staple of public or collective choice also shows 24

POLITICAL ECONOMY OF DISTRIBUTIVE JUSTICE

that…resources should be transferred to the poor’ (Olson, 1987:222). Not so different sentiments are expressed in these oftrepeated words by left-wing Polish social philosopher and historian, Leszek Kolakowski. The trouble with the social-democratic idea is that it does not stock nor does it not sell any of the exciting ideological commodities which various totalitarian movements, communist, fascist or leftist, offer dream-hungry youth. It has no prescription for the total salvation of mankind, it cannot promise the fireworks of the last revolution to settle definitely all conflicts and struggles. It requires, in addition to commitment to a number of basic values, hard knowledge and rational calculation, since we need to be aware of and investigate as exactly as possible the historical and economic conditions in which these values are to be implemented. It is an obstinate will to erode by inches the conditions which produce avoidable suffering, oppression, hunger, wars, racial and national hatred, insatiable greed and vindictive envy. (cited in Jenkins, 1988:142) In following the course needed to acquire the ‘hard knowledge’ and make the ‘rational calculation’ required to erode avoidable suffering, we find ourselves enlisting rational self-interest in a great idealistic project. Socialism has traditionally elicited public-spiritedness and eschewed self-interestedness. It has laid claim to human nobility and sought to cloak its conservative opponents with human baseness. However limited its practical successes, the socialist enterprise has at least retained a certain innocence. The enterprise here strips social democracy of such innocence, and that innocence will not be given up readily. The question must, in the end, come down to weighing the cost of lost innocence against the potential gains (to those at the bottom) of following the path towards a practical social-democratic political economy. That path first leads backwards before Marx and before economics congealed as a discipline. Marx set up a dichotomy: responding to his individual interests in the capitalist world, man necessarily oppressed his fellow man; only under socialism could man’s individual concerns coincide with those of the community. But under socialism, as it existed in reality, this did not occur; the dichotomy proved to be a false one. The real question was that posed earlier, in the Enlightenment, for example, as formulated by Rousseau in The Social Contract: how to pursue one’s own interests in harmony with the common interests of the community of which one is part. The early economists did not dismiss this question. From Adam Smith to John Stuart Mill, they made a distinction between 25

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

individual interests and wider moral or societal interests. They had no doubt that there were higher satisfactions than the purely material ones, and that economics as such had little to say about those. Several wrote works of moral philosophy quite separate from their efforts as economists. Mill struggled to recast utilitarian principles in terms of their usefulness to practising the ‘art of life’ (Riley: 1988; Rhoads, 1985:175–7). The classical economists were not only prepared to make moral distinctions, they were open to redistributive justice, though their views were tempered by the concern—arising from claims by Malthus and Ricardo—that the expression of such humane considerations would prove to be self-defeating, arguments vulgarized by a later generation of social Darwinists. The early neoclassical economists, notably Marshall at the end of the last century, did not reject the distinction between the economic and the moral. Leaving moral philosophy to others, they consciously narrowed their own concerns as economists simplifying the material world by excluding complex historically-determined phenomena like changes in the quality and quantity of the labour force. Instead, the supply of productive factors was taken as given; the problem was to allocate them efficiently, that is, to give optimal results according to consumer preferences.5 The neoclassical economists who succeeded Marshall were quite explicit in making this break (Nicolaides, 1988). A great chasm opened between economists and other social scientists who sought functional (if not Marxist) explanations that emphasized ‘the integrative capacities of group membership’ (Coughlin, 1989:3–4). This division of labour created an almost hermetic seal between the work of neoclassical economists and that of the social scientists, despite the fact that both were ostensibly looking at the relationship of man and society. There have been influential economists who deplored this state of affairs, but, as we shall see in Chapter 2, none who developed an alternative to the dominant paradigm. As a result, considerations of distributive justice were relegated to non-economists. A wide sociological literature on poverty and social class emerged, rich in descriptive analysis, but either atheoretical or falling back theoretically upon a vague, often unstated Marxism. Now that rational choice is founding colonies among sociologists and political scientists, it is only right to return the favour by bringing distributional concerns relegated to sociology and political science back to political economy.

26

POLITICAL ECONOMY OF DISTRIBUTIVE JUSTICE

THE ECONOM ICS OF REDI STRI BUTION Having briefly set the theoretical stage, we can reformulate the project at hand. While all good political economy is normative; we have chosen at the outset to be explicitly so; we seek to identify institutional arrangements which work better than others. An institution is a set of humanly devised rules that constrain the action of people in a given context and thus shape human interaction. Arrangements surrounding institutions include mechanisms determining who is eligible to monitor and enforce the rules, in which arenas the particular rules apply, what aggregation methods are to be used and what rewards and penalties to be applied (Ostrom 1990:51). Well-functioning institutions not only constrain choice action, they also enable it by providing more or less reliable information regarding the likely actions of others (Hodgson, 1993). Better arrangements are those that function efficiently, that is, achieve desired results more reliably and at less cost than other arrangements. But better arrangements also bring us closer to egalitarian outcomes, that is, conditions under which resources are distributed so that everyone has enough in the way of resources to live decently and the freedom to act as she wishes, including the freedom to participate meaningfully in those arrangements. Our objective is to identify the characteristics of a system of institutional arrangements through which people will freely choose from alternative sustainable institutional arrangements those that result in such conditions. In order to do so, we seek systematically to apply empirical findings and theoretical advances in political economy. To serve these purposes, an egalitarian political economy must provide two things: guidelines that when applied result in a relatively egalitarian distribution of resources, and a logic explaining why individuals and organizations will freely and rationally choose to act according to these guidelines. The most attractive system of institutional arrangements is but an artificial construct unless its principles correspond to the way people actually act. We noted in the Introduction that this entails outcomes that keep up economically with comparable neighbouring societies, otherwise people will choose to ‘exit’ by moving resources there. What do we mean by equality in this context? Equality was presented as the second of two central postulates for a social-democratic political economy, the first being that of efficiency. The second criterion of equality or distributive justice can be defined as the attainment of the greatest possible equality in the distribution of resources compatible with institutional arrangements based on free individual choice. There are two separate aspects to equality. The first can be termed social citizenship, a term first used by T.H.Marshall, similar to what 27

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

Titmuss calls the element of ‘solidarity’ in welfare state policy (Titmuss, 1958:64; see Goodin, 1988:83–4). Social citizenship is realized when the group falling below a ‘poverty line’ of resources required by individuals to participate in the community is composed effectively only of those, such as students, interns and apprentices, hippies, and monks, who are temporarily or voluntarily poor. The second aspect, that of wealth dispersion, concerns the reduction of inequalities in income distribution. It can be expressed, as one writer phrased it, as, ‘minimum practicable inequality’ (Bowen, 1970): inequality in income and other resources is no greater than required for a level of economic efficiency sufficient to achieve a rate of (environmentally-sustainable) growth comparable to that of neighbours and trading partners.6 Accordingly, no level of inequality is inherently just; however, at any given time and place, redistribution is constrained by the comparative productive capacity of the society. The term ‘comparable’ rather than equivalent is deliberately chosen since the presence of altruism means that under appropriate circumstances individuals will be willing to trade off some measure of consumption for greater redistribution. But we do not know the extent of altruism and cannot, therefore, assume any given tolerable level of sacrificed societal wealth. The best we can do, since we know that altruism applies most unambiguously to the genuinely destitute, is to link altruism to social citizenship by assuming the trade-off to be roughly equivalent to the overall welfare loss caused by measures seeking to ensure that the income curve, even at its lowest point, does not descend below the floor defined by the criterion of social citizenship. In other words, the pure loss in efficiency caused by transfers to the least advantaged is sustainable, that is, no greater than the sum the rest of the population are willing and able to sacrifice in order to help them.7 Let us try to express these principles empirically. The standard conceptualization of wealth dispersal is through the Gini coefficient, with variations to be found in the Atkinson and Theil inequality indices. While the latter are technically slightly advantageous (Jenkins, 1991), by far the most commonly used is that of the Gini coefficient, and we rely on comparative relative inequality data usually presented in that form. (Fortunately, as far as fundamental differences in inequality is concerned, the three measures provide consistent results—Smeeding, 1991.) The Gini coefficient is a mathematical expression derived from the Lorenz curve (see Figure 0.1 in the Introduction). Once we have plotted the Lorenz curve by applying the appropriate statistics, we derive the Gini coefficient as follows:

28

POLITICAL ECONOMY OF DISTRIBUTIVE JUSTICE

A Gini of 0 would mean absolute equality while that of 1 means that all income is in the hands of the wealthiest fraction (usually decile) of the population. Because of the variance in income sources, tax allowances, and the definition and calculation of income subject to tax among countries, one should avoid rankings based on fine differences in the Gini coefficient. In addition, calculating pre- and post-tax and transfer Gini coefficient (see Castles and Mitchell, 1992) enables us to measure two separate components of income inequality, the equality of distribution of income through employment, and the role of taxes and transfers upon that result. But we are here interested in outcomes from the sum total of institutional arrangements, not just state redistributive programmes. Our emphasis is thus on measurements comparing the differences among households as far as disposable income is concerned.8 When we compare countries with significant and unambiguous Gini differences, the overall trend unmistakably confirms the starting point of our distinction between inegalitarian and egalitarian systems: the Nordic countries are on the egalitarian pole in income and wealth dispersion while the US and Canada are on the inegalitarian one. Detailed analyses of inequality measured in post-tax and transfer disposable income found the US to have the highest and Sweden and then Norway the lowest level of inequality among the eleven OECD countries investigated, both adjusted and not adjusted for family size (Smeeding, 1991), while a similar study showed Finland to have reached a level lower than Norway’s by 1980 (Uusitalo, 1989). Useful recent comparative data in this area is usually directly or indirectly derived from the Luxembourg Income Survey (LIS) which has carried out the most thorough and genuinely comparable studies of income inequality in Western countries. By using household as units and assigning different weights to the first adult and the remaining members of the family, and including transfers and excluding taxes, the LIS results reveal a sharp contrast between the US and Canada on one side, and Sweden, Norway and Finland on the other, with Gini levels of 32.6 and 29.9 versus 20.5, 22.5 and 24.3 respectively (Uusitalo, 1989:80). There are no directly comparable figures for Denmark. The pretax Gini measures place it with the more egalitarian EC countries like Germany rather than the Nordic countries. But posttax and transfer figures would tell a different story. Danish families pay the highest income tax in the OECD (The Economist, November 21, 1992:123) and, as we shall see, receive among the highest unemployment insurance payments and other benefits. Moreover, in warning against inappropriate inter-country comparisons of income equality due to differences in definition of income sources, the OECD used a comparison of Denmark to the US to illustrate an appropriate use of Gini data. By all 29

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

Figure 1.1 The Lorenz curves for one Gini coefficient

measures, whatever the income unit or whatever the measure of income, Denmark, the least egalitarian of the Nordic countries, was unmistakably more egalitarian than the US (OECD, 1990b:70–2, 225).9 Differences in social citizenship are not manifested in the Gini coefficient. But we can use Lorenz curves to compare countries on social citizenship. A stylized illustration is provided in Figure 1.1 by (West) Germany and the UK, two countries whose Lorenz curves intersect. The Gini coefficient, which captures average inequality, is quite close with (West) Germany at 0.25 and the UK at 0.26 (Castles and Mitchell, 1992:22); while the two Lorenz curves intersect at about the middle of the income units. This means that the worse-off half of Germans were proportionately relatively better off than the comparable British group. In other words, Germany concentrates its unequal distribution at the top, but provides a comparatively solid floor for those on the bottom, making it 30

POLITICAL ECONOMY OF DISTRIBUTIVE JUSTICE

stronger on social citizenship than on wealth dispersion (O’Higgins et al, 1990; Atkinson, 1975:47). We can directly gauge this social-citizenship dimension by taking advantage of another series of data available from the adapted LIS figures, as well as elsewhere. Again, the Nordic countries are at one pole. The post-tax and transfer disposable income of the bottom quintile in the early 1980s was 10.6 per cent of the total in Sweden, and 9.9 in Norway and Finland compared to 5.1 per cent in the US and 6.7 per cent in Canada (Uusitalo, 1989). According to the OECD, in the US (in the late 1980s), the top 10 per cent received almost six times as much income as the bottom 10 per cent, compared to just over twice as much for Sweden (The Economist, 24 July 1993:71). Or if we wish to look even further down the ladder, we can compare poverty rates (household income below half the median household income). The adapted LIS data shows Norway and Sweden lowest at around 5 per cent,10 Finland at 7 per cent, just below West Germany, the UK at 9 per cent, Canada at 12 per cent and the US at 17 per cent (Gustafsson and Uusitalo, 1990:254). Similar tendencies were noted in a comparison of especially vulnerable groups. The poverty rate among singleparent families was almost 60 per cent in the US compared to less than 10 per cent in Sweden (Ringen, 1986; Smeeding, 1991). A more recent set of statistics from the Joint Center for Political and Economic Studies in Washington found that, when it came to families with children under the poverty level, the percentages were as follows: US 40, Canada 30, UK 23, West Germany 18.8, Netherlands 13.1, France 9.1, Sweden 5.3. One apparent weakness of income-based measures of distributive justice is that they leave out transfers received in the form of services provided without charge by the state in health, education, housing, recreation, and the like. While it is sometimes argued that the middle classes take a larger share of such services,11 Åberg (1989) uses Swedish data to show that it is smaller than their income share, while Uusitalo concludes that in Finland redistribution through public services had a significant equalizing effect (1989:53), with a clear correlation between Gini rating and social spending (1989:83). Generally speaking, there is a close correlation between the proportion of GNP used for social expenditure and the Gini rating in household disposable income inequality. On both of these scales Sweden, Finland and Norway are at one pole with the US and Canada at the other (Uusitalo, 1990:13). We shall return to the systematic exploration of the experiences of these egalitarian nations later. But much preliminary theoretical ground must first be covered. One final point before we turn to that task. Little has been said about freedom and individual rights. We start from the assumption that all the Western countries 31

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

being compared have attained a level of individual freedom which guarantees free expression and political participation, as well as other civil rights (right to travel and associate freely, freedom from arbitrary state action, etc.). Confirmation with regard to the Nordic countries—if needed—is found in the 1991 United Nations Human Development Survey cited earlier which compared countries on a ‘human freedom index’ based on 40 indicators. Sweden and Denmark tie for first at 38, that is, they scored positive on all but two indicators; Finland is tied for fourth at 36, and Norway tied for seventh at 35. Canada at 34 ties for eleventh and the US at 33 ties for fourteenth (UN, 1991:56).

32

2 THE USES OF RATIONAL CHOICE

A number of points have already been made about the kind of theory required, and the kind of outcomes worth pursuing. In this chapter and the next we shall endeavour to merge them. The project is a daunting one, for there remains a wide theoretical gap for the democratic left to fill. It didn’t look all that difficult twenty-five years ago. Knowing that the world needed improving and knowing what needed to be done seemed much the same thing. With hindsight, we can see that the radicals of the 1960s and 1970s too often ignored the institutional context of the principles espoused, as if the values inherent in them were somehow detachable from the ways of life in which they were imbedded. But the naïveté born of seemingly unceasing economic growth was not to last. First came the OPEC-ignited recession, then the rise to power of neoconservatives in the US and UK, their positions bolstered as evidence of the failure of rhetorically egalitarian systems in the East mounted. Authorities from Gorbachev down confirmed their diagnosis: the egalitarian paradises in fact suffered from sclerosis of the economic arteries blocked by well-placed elites invoking the official ideology to protect their privileges. Their position so dramatically vindicated, neoconservative politicians and ideologues in Western countries triumphantly announced their contention proven—equality and efficient markets do not mix—and headed off into resolute battle on the domestic front against a democratic left demoralized by an onslaught for which it was intellectually unprepared. Politically, of course, the democratic left is not dead. History may speak, but the voters do not always listen: politicians calling themselves social democrats are still deciding on policies in not a few countries; the social-democratic ideal of a society of free and equal members is still quite alive. But history has left a chasm between the ideal and the policy choices made, laying bare the theoretical void, the absence of an operational theory from which to derive guidelines for choosing or maintaining institutional arrangements resulting in egalitarian outcomes. This is true even in those countries seen in chapter 1 to have achieved such 33

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

outcomes. Even where it is politically strong, the democratic left is intellectually insecure, finding it difficult to admit and accept in principle the constraints of practical political economy that it has long accepted in practice. Doing so entails— as we begin to do with this chapter—consciously replacing class-based analysis with one based on a theory of individual action and choice. It requires deriving guidelines both from the experience of social-democratic policies in practice and the failures of state socialism, and setting them in a theoretical context by bringing to bear the accumulated knowledge of political economy. A WEALTH OF PRACTICE: A POVERTY OF THEORY It is the absence of any well-defined school of thought to fit the project here undertaken that makes it so ambitious an effort. Such a school, were it to exist, would not have to start entirely from zero. The work of a number of scholars in the mainstream of political economy, such as those cited below, does lend itself to egalitarian applications. And much is known about the different policy mixes that have resulted in guaranteed social citizenship and relatively egalitarian wealth dispersion in the Nordic countries. Unfortunately, the standard explanations for these outcomes ignore the dimension of individual choice, often paying lipservice to a class-based theory discarded in practice. In devising policies that avoided sacrificing efficiency in order to attain greater equality, Nordic policy makers operated within the framework of mainstream political economy. But the residues of Marxism remained just strong enough to keep them from building systematically on that experience by contributing their perspective and experience to the development of mainstream (rational-choice) political economy.1 Naturally enough, now that the intellectual props of Marxism have fallen away, social democrats are floundering, unable to reach out publicly and unambiguously to mainstream political economy for theoretical inspiration, and thus able to point only to past accomplishments and vaguely defined doctrines when trying to link policy and theory. Moreover, non-Marxist egalitarians are reluctant to embrace rational-choice political economy. Some of these, influenced especially by the efforts and recent writings of sociologist Amitai Etzioni (1988), have come to rally under the vague banner of ‘socioeconomics’. A particularly eloquent statement of such thinking is to be found in the work of left-centre British political scientist David Marquand. Marquand (1988) draws a neat parallel between what he calls neosocialism and neoconservatism, neither of which, he says, can logically accommodate the notion of a political community that is, among other things, ‘a web of reciprocal duties and rights…. The health of the community depends as much on its members’ willingness to perform duties as on their ability to enjoy rights’. Neosocialists and neoconservatives, he adds, rule out ‘the notion of a common civic morality 34

THE USES OF RATIONAL CHOICE

taming individual and class appetites’, leaving a polity that is nothing but ‘an arena for the pursuit of interests—of individual interests in the case of the neoliberals, and of class interests in the case of the neosocialists’ since these interests are products of prior individual preference or objective class situation, and therefore not subject to change by argument or debate…. Politics as, among other things, a process of mutual education, in which the members of a community listen to and learn from each other, and in doing so re-define their interests, is therefore impossible. (Marquand, 1988:67–8) Marquand is no woolly-headed idealist. He shows a fine appreciation for the growth enhancing capacity of the market. Yet he is too quick to lump rationalchoice analysis in with neoconservative ideology by drawing a hard and fast distinction between individual interest, the basis of rational choice, and, what he terms, civic morality, to assume rational choice to be incompatible with ‘mutual education’. In fact, rational-choice analysis of individual action enables one to make sense of, and therefore devise institutions to enhance, such mutual education. In order to imagine a process through which individuals redefine their own interests, one must begin with those interests. For the communication required for mutual education to take place, there must be a presumption of individual rationality, and individual rationality has to do with comparing the means of attaining individually set objectives. Learning, mutual or private, has to do with increasing knowledge about the relationship between means and ends. In Elster’s words, communication and discussion rest on the tacit premise that each interlocutor believes in the rationality of the others, since otherwise there would be no point to the exchange. To understand other people, we must assume that, by and large, they have consistent desires and beliefs and act consistently upon them. (Elster, 1986:27)2 In the end, mutual education comes down to individuals seeking to reach common definitions of their shared situation in order to coordinate their individual plans through an exchange of information based on a mutual recognition of rationality. Unless we presume prior individual preference and rational calculation, we cannot develop a scientific understanding of the process by which, as Marquand puts it, ‘members of a community listen to and learn from each other, and in doing so redefine their interests’. 35

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

The socioeconomists offer no alternative to working from shared understandings of human social behaviour with those in the mainstream of political economy, and no theoretical alternative to rational choice. The choice theoretic approach is essential because a logically consistent, potentially testable set of hypotheses must be built on a theory of human behavior’ (North, 1990a:5). Rational choice, we suggest, can be made compatible with a communitarian ethic such as expressed by Marquand if extended to the institutional context. Individuals will make rational choices based on their interests; how they define and apply them will reflect their institutional contexts. We have already pointed to the negative side of this institutional logic under the heading of moral hazard. There is a positive side: for example, employees who have an investment in the firm, residents who own a share in a cooperative rather than merely renting an apartment, opposition parties facing a government proposing an unpopular but necessary measure in electoral systems where coalitions rather than one-party governments are the norm; each will choose rationally—but differently.3 Institutions matter, but institutions arise and are maintained through the choices of individuals. And human choices are best understood through rational choice. A useful political economy must incorporate individual calculation balancing opportunity costs against marginal benefits at any decision-making point. This is where socialist theory and practice foundered. In a market economy, producers can make rational choices since they have a good idea of their marginal (capital and labour) costs and the market prices of their own and alternative products or services, and they are rewarded when they succeed. The marginal costs and benefits of alternative production decisions are invisible to state planners since they can hold little information about the relative production costs of each good or service (see Kornai, 1986:70–3), and have no independently derived market prices to which to refer. How have intellectuals accomodated the lessons experienced by socialdemocratic practitioners? The work of Korpi and Esping-Andersen (see Chapter 7, note 1) is the closest thing to an ‘official’ Scandinavian social-democratic political economy, and has influenced much of the research into Scandinavian welfare states. For Korpi (1978), Swedish institutional arrangements constitute a historic compromise in the democratic class struggle over the distribution of ‘power resources’, or, in Esping-Andersen’s (1985) terms, the struggle ‘between politics and markets’. For the latter, the Scandinavian working class’s relative triumph is primarily through the political regulation of labour markets. This has resulted in the ‘decommodification’ of labour which, taken to its logical extreme, means that all work becomes voluntary (see Kolberg and Esping-Andersen, 1992). Such an analysis, however appealing, disregards opportunity costs and marginal benefits, that is free-riding. It wishes away the efficiency/equality paradox inherent in the not infrequent interest of the individual worker not to work as opposed 36

THE USES OF RATIONAL CHOICE

to that of the collectivity (of other workers, not just capitalists) that everyone work. This is not to say that the individuals writing on the welfare state, many influenced by Korpi and Esping-Andersen, are not doing useful empirical work; quite the contrary, and we shall be citing this work in the more empirical sections below. But as far as theory is concerned, we look instead at the work of writers not normally identified with social democracy. For social-democratic theory has continued to diverge from practice as intellectuals associated with social democratic parties in Britain, as in France, Spain, Canada, and Italy, papered over the differences between neosocialists and social democrats (Jenkins, 1988), and minimized their debt to mainstream approaches in designing government policies. A parallel tendency is to be found in the evolution of the Swedish Social Democrats (SAP). In practical terms, the most important economic theoretician of the contemporary Scandinavian labour movement has been Gösta Rehn.4 The policies he and colleague Rudolph Meidner developed at the end of the 1940s guided Swedish labour market reforms for the next twenty-five years. Influenced by the ‘Stockholm School’ of policy-oriented economists, Rehn grounded his analysis on an understanding of choice behaviour drawn from mainstream economics: in the long run, trade unions—even socialist ones—like employers’ associations, would make rational choices based on their members’ interests. This understanding made him skeptical of non-selective macroeconomic stimulation since it left it to the unions to contain wage demands, a certain longterm prescription for fuelling inflation. Non-inflationary growth could be achieved only through labour-market policies based on selective programmes that would stimulate the supply of appropriately trained workers and, along with tax incentives where needed, make it rational for employers to hire them and thereby still enhance productivity, while high employment and welfare state guarantees provided incentives for workers to take advantage of the opportunities presented. Rehn was concerned with SAP government and trade union policies, on which his influence was enormous, and his ideas guided a generation of labouroriented economists in the Nordic countries. Yet when it came to theory, Rehn’s ideas did not serve to directly challenge the implicit ideological framework underlying the party’s programme. He directed his theoretical contributions— largely unsuccessfully5—to mainstream economic policy debates. Finnish Social Democrats, like the present generation of those in Norway and Denmark, but not Sweden, have had to learn to live with permanent minority status, governing only with the support of centrist parties. It may very well be that the work of associated intellectuals has benefited from this realization.6 A case in point: the present Norwegian Education Minister, Gudmund Hernes, founder of the research institute of the Norwegian Confederation of Labour 37

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

(FAFO) has long sought to bring rational-choice sensibilities into research into the ‘negotiated economy’, of the Nordic countries, an effort especially appreciated in Denmark (see Neilson and Pedersen, 1988). For their part, the German Social Democrats (SDP) embraced their country’s ‘social market regime’ at Bad Godesberg in 1959, leaving only a last-resort role for public ownership, and invoking socialism as but a set of values (Jenkins, 1988:148), thus opening a great deal of intellectual space for pursuit of theoretical questions. It is not surprising that perhaps the best current work in rational-choice political economy associated with social democracy is to be found in the work of an SPD-linked intellectual, Fritz Scharpf (1991). The sum of these efforts upon social-democratic theory has, however, been marginal. With the collapse of state socialism, the lack of fit between theory and practice becomes especially worrisome, especially in the Nordic countries where social-democratic institutional arrangements have taken deep root. There, disheartened by the bankruptcy of state socialism, this lack of fit may mean that people—as we shall explore in Part III—are passively and unknowingly inviting a gradual erosion of key institutions. Absence of analytical clarity over the criteria by which to weigh the contribution of given institutions to desired outcomes then becomes more than an academic matter. It becomes more important than ever to identify and elaborate the operational principles inherent in the institutional arrangements characteristic of the egalitarian market democracies. In this effort, the body of ideas found in social-democratic party programmes, even when elaborated by social-democratic intellectuals, prove insufficient. To fill this gap, we have no choice but to return to the mainstream of political economy. RATIONAL CHOICE AND ITS APPLICATIONS In contrasting the experiences of democratic industrial societies where social democrats have played a central role to societies where their influence has been negligible, we build on the rational-choice framework. Only we postulate diminishing marginal utility and, thereby, allow for interpersonal utility comparison. We assume that, based on such a comparison, people would prefer to—and will, when given the opportunity—act in such a way that the outcome is one that serves both their individual and common (community) interests. Economists do not normally view the matter in this manner. But I have contended that this is largely because it cannot readily be expressed in the kind of elegant mathematical formulation favoured by the academy, and not because redistributive justice is incompatible with rational choice. Pigou was not unrepresentative of economists when asserting late in the last century that 38

THE USES OF RATIONAL CHOICE

any cause which increases the absolute share of real income in the hands of the poor, provided that it does not lead to a contraction in the size of the national dividend from any point of view, will, in general, increase economic welfare. (cited in Breit, 1974:6) But the Pigovian tradition of egalitarian welfarism faded in the economics profession. In Britain, the Fabians, legitimate but not mainstream, inherited the redistribution orientation, but the First World War and rise of fascism and Stalinism undermined their naïve confidence in a rational benevolent state. The alternative, pessimistic or Paretan strain, which allowed for no interpersonal comparisons of utility, gained strength. While important theoretical developments did ensue, the overall result was that, for much of this century, egalitarian concerns—with the exception of Keynes and his students, who operated at a different level—were banished from mainstream political economy as the focus of (micro)economics shifted to the (Pareto-optimal) efficient allocation of given factors of production according to consumer preferences. Within this narrowed context, and with the advance of computerized mathematical modelling, political economy nevertheless made significant progress, allowing for far more sophisticated applications. There is no reason why egalitarian political economy cannot draw from these developments, even from work considered inimical to social democracy. Theoretical insights should not be confused with fashionable ideological affirmations. Scientific explanations begin by breaking down complex phenomena into their constituent elements. A political economy aspiring to provide a cumulative scientific understanding of institutional change, must be built on clear, testable assumptions about the principles underlying individual choices. Though not everyone concerned has yet adopted the term ‘rational choice’ to denote these principles, it is by far the most commonly used in both economics and political science (Whitehead, 1989:11; Ordeshook, 1990:10). Fundamental to the rationalchoice approach is the notion of man as rational calculator. This conception begins with individuals (methodological individualism) and presumes them to act as maximizers of utility able to choose the most efficient means to translate their given preferences into action. Individuals are assumed to order their preferences, which cannot be contradictory, in a logical, that is connected and transitive, way. As Elinor Ostrom (1991) put it: ‘By rational choice approach, tradition or framework I mean all work which is based on methodological individualism and assumes that individuals compare expected benefits and costs of action prior to adopting strategies for action.’ To avoid any temptation to enter into the quagmire of motivational psychology in treating individual choices,

39

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

the proposition is, to paraphrase Ostrom, that individuals act as if they compare expected benefits and costs of action prior to adopting strategies for action. If a rational individual evaluates the costs versus the benefits of a given action compared to those of possible alternatives, and chooses the optimal one to achieve the sought-after goal, it means that under similar circumstances, and with the same relevant knowledge, individuals with the same preferences could be expected to make the same choices. Since we cannot know exactly, our theory teaches us that if they do not make the same choice, rather than presuming one individual to be irrational, we presume them to differ in knowledge or preferences. This is not a terribly radical presumption. It does not assume that preferences are always clear: people can be uncertain, conflicted—especially when emotions are at play. It has little to say about choices over which calculation is not possible, such as between loved ones competing for one’s affection—though it does expect that those loved ones will act strategically in trying to win that affection. Moreover, it does not assume that people always compare all expected costs and benefits before acting, which would be patently absurd. It says merely that when they do not do so, it is because circumstances are such as not to permit it—that is, the costs are too high. For example, two neighbours, A and B, in similar socioeconomic circumstances make different choices: to buy a similar basket of products, A drives to the supermarket, while B walks to the corner store. Though B spends more, this does not make her behaviour irrational. While both like the convenience of having the corner store nearby with its longer hours, this is more important to B who places greater utility on neighbourliness, since, say, she has recently arrived from a small town where doing business with a neighbour has been culturally valued. Perhaps B simply underestimates—due to high ‘information costs’—the actual price differential. She may even lack the knowledge that just because she once won the lottery with a ticket bought at the corner store does not make her any more likely to win a second time. Such ignorance, though ‘irrational’, is not incompatible with the presumption of rationality: rationality is orderly only at the margin (Hardin, 1992:323), at a certain point, comparative price, quality and convenience will determine the matter. Thus rational-choice theory allows for culturally based differences, but it starts from the only possible common ground from which one can transcend relativism. If we treat social action as meaningful only within a given cultural configuration, then we are unduly limiting ourselves. Critics of rational-choice analysis portray it as reducing man to economic man; in the final analysis, the opposite may prove closer to the truth. Without a framework that transcends relativism, no principle for elaborating mutually acceptable resolutions involving conflicting interests is conceivable, since, whenever it is in one’s interest to do so, one can call upon one’s cultural specificity to overcome objections.7 Similarly, 40

THE USES OF RATIONAL CHOICE

rational choice also scales the walls we have erected between the disciplines in the human sciences. In applying rational-choice thinking as we do here, we will in the course of this book incorporate important contemporary findings not only from economics and political science, but also from sociology, psychology, and philosophy.8 Finally, viewed from a different angle, the rational-choice approach also breaks down the barrier between the producer and the consumer of knowledge. Scientific explanations of human choices in real settings do not exist in and of themselves. They are directed at individuals, that is the consumers (readers) of those explanations. The assumption of rationality allows for such communication. By adopting rational-choice explanations of the workings of institutions, a successful argument consists, in effect, of ‘persuading the reader that the action undertaken was optimal and that she would have adopted the same course of action under the circumstances’ (Tsebelis, 1990:46–7). It seems reasonable to conclude that overall human betterment is served by moving towards a commonly accepted framework for evaluating institutions based on free individual choice. Choices are entirely free in a perfect market where the consumer depends only on herself for information and the outcome of the transaction is not affected by the actions of other consumers. Once institutions enter the scene, rational choice must incorporate the choices of other individuals. This dimension of rational choice is developed through a branch of mathematics known as game theory. Consider again the two neighbours and their choice of where to shop. Each wants cheaper products and a larger selection, but each would like the corner store to stay in business because of its convenience and its contribution to the vitality of the neighbourhood. However, this second factor is more salient for B. When A shops at the supermarket, she is, in effect, free-riding on B’s actions, something she knows she cannot count on indefinitely. In the contractual language of game theory, a solution lies in ‘side-payments’, in which A subsidizes part of B’s extra cost, or in their alternating shopping at the corner store. If A and B were the only shoppers, as neighbours they could be expected to arrive at such solutions, but not as strangers lacking the access to the knowledge to make monitoring each other’s behaviour effectively costless. In reality, there are far more than two shoppers involved, most of whom are strangers to each other, with interests generally similar to those of A and B. In this ‘n-person’ game, players cannot be expected to organize side-payments or to schedule alternating shopping arrangements. Does this rule out all except pure market solutions? Not necessarily. A solution lies, for example, in a local ordinance barring supermarkets from selling beer and wine, or from being open on evenings or Sundays. Being subjected to such a law inconveniences each player marginally, but the benefit may outweigh the cost if it ensures the survival of the corner store. Writ large, this is the type of institutional choice between alternative 41

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

distributional arrangements alluded to in the Introduction and addressed in Part II. The complexity of such choices is great, but the underlying principles for addressing them are those that apply to such game situations. This rather straightforward example already raises a series of complex theoretical issues that are the substance of later chapters. For one thing, the solution is not strictly Pareto-optimal since the owners of supermarkets would lose out. Even more profound questions are raised by the very idea of regulating consumption. What principles can be brought to bear in making such choices; what information must be marshalled in support of them? Operating within a rational-choice framework obliges us to address the problem of such regulations falling into the hands of self-serving lobbies, in this case small merchants’ associations, whose interests prevail over rivals and also consumers. It also makes it possible to enlist the (work of) mainstream political economists in seeking answers. But enlisting their efforts need not mean attempting to cast everything within the neoclassical economic paradigm and excluding the lessons of the other social sciences. Neoclassical economic models of human behaviour are most useful and least suspect ‘at the margin’: the world is taken as is—what Marshall called the ‘market period’—and then the effects are modelled on the basis of changes in the status quo. What would be the effect on behaviour of higher interest rates, a weaker exchange rate, an investment in labour force training, a change in property laws and regulations, a reduction in the price of energy…? The economists’ model treats the aggregate of marginal individual responses as being the outcome of interest maximizations. It need not, however, treat any particular individual decision as such. Moreover, it need not presume the status quo before the changes take place—the ‘original distribution’—itself to be the outcome of such rational individual decisions.9 Mainstream economic analysis cannot and need not capture the complexity of the choices affecting environmental pollution. Though saving the planet cannot be expressed in simple cost-benefit terms, rational-choice logic serves, for example, to justify use of tradeable permits to attain certain specified targets in pollution abatement.10 Applications of rational-choice modelling in other specific areas have served, for example, to demonstrate the cost-benefit advantages of cash versus certain in-kind transfers by quantifying the welfare loss due to attempting to regulate actions that can safely be left to individual choice (Brander, 1988:293– 4; see also Ng, 1983). Other helpful applications identify the actual beneficiaries from certain government programmes, distinguishing them from those for whom they are ostensibly intended (Rhoads: 1985:97–9). Still others have allowed for an assessment of the costs and benefits of alternatives in specific welfare policies, such as means-tested versus universalistic entitlements, high versus low public utility rates, and positive economic incentives versus fines and other penalties 42

THE USES OF RATIONAL CHOICE

to induce conformity with regulations (Barr, 1987). In each case, the validity of the conclusions is limited to a particular range of goods and services. The range of applications is also affected by the way in which the social context ‘frames’ choices that seem to be at odds with rational behaviour . ‘I would not mow my neighbour’s lawn for 20 dollars, but neither would I pay my neighbour’s son more than 8 dollars to mow my own, identical lawn’ (Elster, 1986:24). We know that people are often risk-averse, placing higher values on money already in their pockets as compared to additional money of the same amount (Tversky and Kahneman, 1986, 1990). Framing explains a seemingly opposing irrational tendency: while X would not wager $100 at a 45 per cent chance of doubling it, she will do so at a 1 per cent chance of winning $4000. This is because she could, say, work overtime to get the extra $100, but has no other way to possibly acquire a lump sum of $4000. The context helps to establish a distinction between different categories of goods and services. The argument that cash transfers are more efficient than inkind ones does not apply to ‘merit goods’, such as health care and education, for example, where there could be a net welfare loss due to people trading their right to education or health benefits for cash. From within a rational-choice perspective the problem of ‘merit goods’ (or ‘demerit goods’, like cigarettes and addictive drugs) is best dealt with as a problem of information, and thus information costs: if individuals truly knew the overall costs and benefits of any good or service they would consume the optimal amount. But certain players are in a position to manipulate choice through restricting information; therefore, due to such ‘information assymmetries’, choices may not result in optimal outcomes (Barr, 1992). The rational-choice model can accommodate this situation by the use of ‘information costs’. Asymmetries occur when the opportunity costs of additional information exceed its marginal benefits. In other words, the information costs to the individual to reach the higher-rated outcome are higher than the additional return. Hence the choice made is in fact optimal after all. Yet this solution raises a more fundamental problem related to information. On what basis are we to assess the likely outcome of assimilating the additional information? The answer lies in institutional arrangements. We are dependent on the institutions concerned with the dissemination of knowledge, and we cannot assume that they provide the knowledge without cost. Thus choices imposed by information costs are, ultimately, choices over institutions. In the chapters to follow, we shall apply an institutional rational-choice perspective to this problem which might be termed ‘knowledge failure’. Indeed, we shall argue that an understanding of knowledge failure is central to the analysis of institutional choices introduced in this book. But we are not yet in a position to do so directly; we need first to explore

43

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

extensions of rational-choice thinking in game theory, welfare economics and public choice. WELFARE ECONOMICS AND PUBLIC CHOICE Our trek through mainstream political economy towards institutional analysis next takes us to welfare economics, defined simply as the systematic application of economic analysis to policy matters. But welfare economics is constrained by its rigorous application of the criterion of efficiency. Though its practitioners often accept the legitimacy of considerations of distributive justice, with few exceptions they effectively exclude them from their analytical model (Sugden, 1981:55), imposing the criterion of Pareto-superiority11 upon any policy measure. The effect is that in any situation approaching a perfect market, application of welfare economics leaves no room for policy intervention. But welfare economics is not unsympathetic to government action where pure markets fail to operate. Especially in today’s environmentally conscious world, welfare economists are called upon to address ‘externalities’, benefits or costs not accounted for in the price of the transaction.12 For welfare economists, this entails government’s acting to replicate market conditions, the effect of which is for third parties to be compensated in a Pareto-optimal manner just as if they were party to the transaction. Thus the use of tradeable permits not only efficiently reduces environmental pollution but can be Pareto-optimal if the amounts collected for the permits are used to compensate those directly hurt by the polluting plants at just the level they would require if they themselves were selling the permit. Inherent in the assumption that government is capable of applying costeffectiveness modelling in such a way as to best approximate the aggregate outcome under a competitive market (Bobrow and Dryzek, 1987:31–8) is the notion of a rational and benevolent state. This is where the public-choice version of rational choice comes in. Public choice challenges the assumption that government acts according to theory, producing and delivering just the goods and services it is asked to produce and deliver in an efficient manner, stepping in only in cases of clear market failure and exclusively to institute necessary correctives. It takes its cue from turn-of-the-century Swedish economist Knut Wicksell’s insight that there can be ‘government failure’ as well as market failure, and the pessimistic ‘Iron-Law-of-Oligarchy’ assumptions of the ‘Italian School’ of Pareto, Mosca and Michels. Before public choice, economics excluded any analysis of the institutions of public policy. Welfare economists could advocate microeconomic policy interventions to problems of market failure, and Keynesians could call for macro-economic fine tuning, simply building government’s rational benevolence into their equations. But if economic man is 44

THE USES OF RATIONAL CHOICE

not benevolently disinterested, asks public choice, why should political man be so? Why should we presume Jones to act any differently in the voting booth than in the grocery? If political agents act like everyone else, government failure is only to be expected: ‘politicians will seek any excuse to create budget deficits’ (Buchanan, 1989:21). Public choice developed through the combined, and sometimes collaborative, efforts of economists and political scientists. Finding that political science had no theory of individual choice to guide them, some political scientists adopted the neoclassical paradigm, reducing social and political choices to aggregates of individual choices (e.g. Downs, 1957). At about the same time, economists led by Tullock and Buchanan applied rational-choice analysis to government-supplied ‘public goods’. Models of the ‘political market’ analogous to those of economists could be drawn in which elected politicians were expected to respond to incentives imposed upon them by constituents rather than to considerations of public interest. For public choice, the individual is a self-interested rational maximizer over the supply and demand of products and, similarly, over the supply and demand of public policy decisions. Policy makers—whether administrators, politicians, or their clients—are entrepreneurs who use their position and access to resources to maximize their own individual or organizational resources (if need be) at the expense of others.13 But while the invisible hand turns self-interestedness into Pareto-optimal welfare outcomes in the private marketplace, no such hand guides the public sphere, which is a source of huge ‘rents’ to political entrepreneurs in the form of monopolies, tariff protections, and favourable regulations. The concept of rent-seeking geometrically captures the cost of these political rents: In markets, potential profits emerge from increments to value that are created by entrepreneurs who put together new resource combinations or who meet new demands. In the non-market setting where rent-seeking takes place…the value that potential rent-seekers attempt to secure is artificially created through interferences with resource adjustment. (Buchanan, 1987:21) For the leading practitioners of public choice, rent-seeking is more than a fact of life, it is an ‘is’ that leads to an ‘ought’. When the state intervenes to correct market failure, the medicine is likely to be worse than the disease; one ought, therefore, to reduce access to resources available to those in a position to affect public policy by limiting the state’s power to regulate and the capacity of organizations to pressure the state to do so (see Brennan and Buchanan, 1980; 1985). Given such a perspective, it is understandable why public choice has been associated with neoconservatism and its doctrinaire attachment to the 45

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

unfettered marketplace. In this book we usually refer to an institutional regime operating according to such principles as ‘laissez-faire’. Indeed, it is difficult for an economist, taking a Pareto-optimality approach to welfare economics and sharing public choice’s association of government action with unproductive rent seeking, to come to any but neoconservative policy guidelines.14 It should come as no surprise that this author does not share these ideological predispositions. Moreover, taken to its extreme, public choice leads to a selfcontradiction since it means that the proposals of all policy analysts, including those of the practitioners of public choice themselves, must be discounted as rent-seeking. Yet there is much in the approach that is healthy. By challenging the simplistic assumption of a benevolent state actor, public choice has forced economists and political scientists to enter the public policy arena, to identify and describe institutions that are favourable to desired outcomes, and in the process to cast light on the direction that theoretical work must follow. To attack public choice head-on in the name of a public-interested as opposed to self-interested policy maker and voter, as does Lewin (1991), is too easy. Political economy has no better tool than rational individual calculation as a basis for analysing the effectiveness of institutions. Instead, we shall try to show how rational choice can be compatible with socially responsible, ‘public-interested’ behaviour . To do this, we take issue with public choice on its own terrain: Does the unfettered market actually provide the information needed to make optimal choices as public choice must presume? This question is often left unasked since the institutions of knowledge dissemination to adults—except in the technical sense of job-related skill training—are considered to be beyond the scope of political economy. Yet the ‘efficiency’ of these institutions cannot be taken for granted, nor their effect overstated. If there can be government failure, why not knowledge failure? The neoclassical paradigm underlying the rational-choice analysis to be found in the standard economics textbook excludes the possibility that welfare can be systematically mistargeted due to faulty information. For it means that one cannot assume that what someone does (as a rational maximizer operating within one’s existing array of choices) is necessarily what she wants to be done (Sen, 1973). To make and apply that very real distinction, however, seems to involve falling foul of the core democratic principle of free individual choice, namely that the observers not impose their own—or any other external—standard on the preferences of individuals. While the liberal principles we have inherited enshrining freedom of expression require us to assume that what we know is part of our make-up as individuals, it is in reality much more a product of the institutions in and through which we interact. In our example, realization of B’s comparatively straightforward objectives in choosing where to shop depended

46

THE USES OF RATIONAL CHOICE

on the quality of the information she had about the outcomes of alternative choices. The notion of information costs introduces a dynamic element into the rational-choice model. If the firm or other organization invests in knowledge that increases the productivity of physical or human capital inputs or improves the tacit knowledge of the entrepreneur, then the resultant productivity increase is also consistent with the growth of the economy. (North, 1990:78) By the same reckoning, the society, by reducing aggregate information costs through better education or record-keeping, increases overall welfare. Moreover, even where information in the narrow sense is not lacking, institutional factors may inhibit its being brought to bear through a process of rational calculation, say through pressure to act precipitously. Institutional arrangements that diminish such pressures therefore also increase aggregate welfare. Such an application of the notion of information costs to institutions, we shall argue below, opens up an exploration of the element crucial to the proper application of rational choice— namely, adequate knowledge. Hence, fostering choices that reduce the cost of acquiring knowledge—or, inhibit rational ignorance—emerges as a key policy guideline. To address these like other complex institutional decisions, game theory is the method of choice.

47

3 PREFERENCES, CHOICES AND OUTCOMES The uses of game theory

In our effort to develop a theory of institutional choices that allow for egalitarian outcomes, we have so far just cleared away the undergrowth. We can now address the question directly, beginning where any rational-choice based theory must begin—the individual. How are we to understand individual choices that are compatible with outcomes of distributive justice in a manner consistent with the overall thrust of work in mainstream political economy, so that its methods and findings can be harnessed to the task? The classical economists took feelings of human solidarity for granted: they were what made man human and linked him to his creative self (or to his Creator), making it possible to act morally and achieve glory. Modern neoclassical economists, in whose world universal moral standards are no longer matters of faith, have been prone to subsume such behaviour under the term altruism, an admirable but marginal form of action, or, in the extreme, to exclude it outright, finding a rent-seeker lurking beneath the most unselfish of altruists. It is easy to criticize the reduction of the human being to the rational, calculating economic man, but such criticism takes us a scant distance in our quest for a practical egalitarian political economy. More promising, we shall see, is to raise the discussion to the level of institutions. According to the rational-choice model, the individual seeks to achieve a number of outcomes. For each attainable outcome she attaches a utility, and evaluates the costs of achieving it. She then chooses the outcome whose net contribution to her utility is greatest among the sustainable set of outcomes. The overall outcome that emerges from the multitude of such individual choices is assumed to be optimal—unless there is ‘market failure’. Because of market failure, contracts need to be enforced through laws and regulations, which—in contemporary language—reduce transaction costs. And, where third parties are affected, welfare economics sets out institutional solutions to achieve Pareto48

THE USES OF GAME THEORY

optimal distributions of external costs and benefits. Though there may be grounds for disagreement as to where such ‘externalities’ begin, as long as free choice is restricted no more than clearly justified, the society, it is presumed, is about as efficient—aggregate utility (welfare) is about as high—as it can be. The model as thus conceived does not incorporate the preferences of others except through the concept of altruism. Altruism is defined as my preference for others realizing their preferences. The problem is that in reality we cannot often easily distinguish the realization of others’ preferences from those of our own: realization of the preferences of others usually constitute obstacles to, or instruments towards, the fulfilment of my preferences. Even as personal a matter as my choice of clothing may have more to do with the message communicated through it, and therefore the expectations of others and the conventions of the community, than with any intrinsic physical property of the clothing itself.1 This is where game theory comes in. The simplest formulation of interdependent outcomes is in the form of a game. The players in a game can achieve their objectives only in relation to the actions of the other players. As in real life, realizing the sum total of preferred individual outcomes is not the same as achieving the optimal outcome, since attaining certain desired outcomes cancels out others. In the past few decades there has been significant progress in efforts to develop game theory and incorporate it into the rational-choice model. In a game situation optimizing behavior takes place by laying down rules according to which 1. players are identified, 2. prospective outcomes are determined, 3. alternative modes of deliberations are permitted, and 4. the specific manner in which revealed preferences over allowable alternatives, by eligible participants, occurs. (Shepsle, 1989:135) Game theory thus widens rational-choice theory in allowing for its application to choice situations characterized by interdependent outcomes by incorporating choices over the rules for allocating goods and services among the actors. In other words, game theory makes it possible for rational-choice theory to be applied to institutions. It allows us to build upon the analysis of rationally calculated individual choices in developing an understanding of social choices in which individuals work together to achieve common objectives. Of particular interest are those institutions concerned with information. The dimension of knowledge—defined for now as useful and correct information— looms large, since A needs knowledge of the preferred outcomes of B in order to make rational interactive choices, and vice versa. We shall see that in addressing those institutional arrangements disseminating the knowledge required for 49

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

optimal social choices, we in fact open the rational-choice paradigm to outcomes that take into account distributive justice as well as efficiency. ALTRUISM, SELFI SHNESS, AND HUMAN NATURE In the great debate over the nature of man, the right claims man to be selfish, the left, altruistic. Yet a society of pure egoists or altruists is inconceivable. The Khmer Rouge tried to eliminate bourgeois selfishness and Cambodia is still mourning their victims; some economists who professionally recognize only selfishness are the souls of generosity in their personal lives. Defining rationality as selfishness may make a theory mathematically elegant, but it distances it from reality. Explaining away unselfish behaviour by saying that making others happy is selfish because it makes us happy strips words of their usefulness. As long as there is interdependence in the realization of preferred outcomes, rationalchoice theory need not restrict rationality to narrow self-interestedness. Instead, it allows for the incorporation of the work of all those who use rationality as a means of attempting to aggregate individual preferences into desired social choices. Rather than dividing human relationships into separate realms, those in which market criteria apply and those which do not,2 we assume instead that complex human relationships have both a selfish and an altruistic dimension (see Margolis, 1982), and try to incorporate this duality into the single theoretical framework of rational choice. Man is neither selfish nor altruistic; or, rather, he is both. Rational existence that is not self-interested, that does not aim at the preservation and affirmation of the self as a psychological and physical being, is a contradiction in terms. The impulse of striving towards self-sufficiency is with us every time we take a breath, every time we use our senses or extend our limbs. Only I can feel my hunger, monitor my physical and psychic needs and respond to them, preserve my past self in my memories and sentiments. The very notion of my welfare is meaningless without the presumption of my looking after it. But this is not all there is to it. The neoclassical application of the rationalchoice paradigm, taken to its extreme by critics as well as certain of its practitioners, stops here in its conceptualization of man’s nature. In this Hobbesian world, others are merely competitors for scarce resources; the relationship of man to man is, to use the language of game theory, one of zero sum: the more you have, the less there is for me. But life is not like that. A human existence devoid of human fellowship, is in fact not human. Just as self-interest is human, so is social solidarity. Just as acquisition is human, so is sharing. Indeed, they are but two sides of the same coin. The agent of the most basic need satisfaction is not the individual, but another—the parent. While only the infant can feel the hunger and thirst, only 50

THE USES OF GAME THEORY

the parent can satisfy it. Social obligation begins not as convention, nor artificial construct, but as a necessity of life. The obligation of parent to child lies at the heart of human existence. But it is more than a biological instinct. Humans go through stages in life: at the beginning, but also, usually, at the end, comes a stage of dependency. Thus social obligation is part of the human condition, something stronger and more profound than altruism. If self-interest is based on the natural instinct for self-preservation, social obligation is based on the equally natural responsibility of parent towards child, both equally fundamental to human existence.3 The cared-for child soon learns that dependency is temporary, to be followed by self-sufficiency, and, eventually, responsibility for dependent children. Moreover, at a certain point, the parent, grown old and feeble, will be the dependent one. Thus while the goal of achieving self-sufficiency is natural to man, it is coupled with the realization that self-sufficiency is temporary: one began life in a state of dependency, will return to it one day, and can be returned to it any day by accident or misfortune. Knowledge is the key. Man is apparently unique among the species in this regard, his particular burden is to be conscious of his interdependent state. Moreover, man’s consciousness extends to the consciousness of others of his species; and he knows that they too are conscious of their interdependence and of his. The human condition is a knowingly shared one: the individual assumes that others have attitudes and concerns towards those close to them similar to hers. Indeed the distinction is one of intensity and not of kind. While dependency and obligation is sharpest in the parent-child—parent relationship, it extends to others in the family,4 and beyond, to those affected by one’s actions. The division of labour is a form of interdependence giving rise both to aspirations for greater economic self-sufficiency and to expectations of social responsibility. Once responsibility towards others is assumed to be rational, we can begin to comprehend acts of self-sacrifice.5 What makes sense of the coexistence of human callousness and human generosity towards the plight of others is not what man wants but what he knows. In the case of my choice of coming or not coming to the aid of emergency victims, the cost to the victims of my free-riding (expecting others to aid them) could very well be immense. I am far more likely to come to their aid than, say, to the aid of the urban homeless: the marginal benefits to the homeless are likely to be low, while the opportunity costs of my intervention are high. Not acting does not mean not caring; doing nothing does not mean wanting nothing done. The same ‘callous’ individual who rejects a street beggar will come to the aid of the disaster victim. The outcome of doing nothing does not in either case accord with her preferences, but her actions are affected with her knowledge of the circumstances. Were these to change, so that the outcome of 51

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

her actions combined with those of others would be that the homeless be aided in a meaningful manner, her actions would change accordingly. THE PRISONER’S DILEMMA AND OTHER GAMES To bring in institutions, let us return to the simplest relationship, that between siblings in the nuclear family. The full-grown self-reliant child recognizes her obligation towards the well-being of her ageing parents. But what if there are several children, all in the prime of life at the time their parents reach the point of dependency? What happens to social obligation under these conditions? It is possible, after all, for one sibling to free-ride by divorcing her desire for her parents’ needs being met from her own actions, simply by assuming that the other(s) will do it; that is, in effect, placing the obligation to care for the parents on the shoulders of the other siblings. Game theory serves to incorporate this rather complex reality into the analytical framework of rational choice by mapping out the different possible paths individuals (or groups—the generic term used is agents or players) may rationally choose, based on their expectations of what other agents will do. The single parent-child relationship can be viewed as a two-person game with a winning outcome: the parent uses some of her resources to care for the child, and to teach it social responsibility; the grown-up child then has the resources to care for the parent grown elderly and feeble. Total welfare is clearly much higher than it would be without the exercise of social responsibility, a fact visible to anyone not blind to the reality of human ageing. The exercise of social responsibility has a similar positive value when there is more than one child. But now the winning solution is a problem, a problem due not to selfishness, but to free-riding. Selfishness is no more at play when there is one child or several children. But free-riding becomes possible in the latter situation. Free-riding is not the same as indifference to the needs of others; it is simply an individual’s acting on the possibility of realizing a preference that others in the same situation act socially responsibly so that she be relieved of that obligation. The possibility of free-riding creates a potential social trap or problem of collective action, that is, a situation in which acting upon individual rationality results in collective irrationality. A great deal of analysis has gone into the ‘Prisoner’s Dilemma’ (PD), the prototypical social trap in which rational actors arrive at Pareto-inferior results. Rapoport (1992) aptly describes the anecdote about two prisoners—arrested for a crime they committed together—having to separately decide whether to confess or not, as a ‘cover story’. The structure of 52

THE USES OF GAME THEORY

the classic Prisoner’s Dilemma is presented in Figure 3.1, where D, that is defecting (by confessing), is the dominant strategy: Prisoners 1 and 2 each obtain a higher pay-off (that is, a lighter sentence) for defecting no matter whether the other player chooses C (cooperating by refusing to confess) or defects. (In the traditional PD the outcomes are as follows in years of prison sentence: S=10; P=8; R=1; T=0.) Thus both rationally defect, and they both end up with P rather than their optimal outcome which is R, the result of both cooperating.

Figure 3.1 The Prisoner’s Dilemma

Ostrom (1990) calls the Prisoner’s Dilemma a metaphor. It is based on complete information by each player of the choices available to the other and the pay-offs for them. Communication between the players leaves the PD intact, since any agreements made cannot be binding (Taylor, 1987:14–15). Moreover, the PD excludes any value being placed on ‘altruism’, that is one prisoner gaining sufficient satisfaction from his comrade’s sentence being reduced to affect his own behaviour. This is not the case in the family. If players 1 and 2 are two siblings, each with the resources to care for their sickly parents, but with other demands on those resources as well, we can presume that each prefers to freeride, that is, to have the parents cared for by the other sibling. But free-riding is tempered by the human capacity for introspection; each knows that if her sister does as she wishes to do, their parents will be left helpless, an outcome neither wants. Though potentially a social trap, the ‘game’ of the two siblings is not a Prisoner’s Dilemma, in that the result of the parents being left uncared for is less acceptable to each sibling than that she alone bear the entire burden. Hence the pay-off structure in this example would be T>R>S>P; cooperation is both rational and Pareto-optimal. In the language of game theory, the structure is that of a ‘Chicken’ game; cooperation is not the only rational strategy, since each player has reason to try to free-ride—but only if confident that the other 53

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

will cooperate. The solution to a Chicken game lies in credible communication. If, as is reasonable, the siblings know that they are not fundamentally different from each other, and know that their relationship is such as to monitor freeriding, communication between them can be expected to lead a cooperative solution. The siblings might, for example, see fit to jointly fund some form of independent fiduciary agent legally required to foster the interest of the parent, or one might pay the other to assume day-to-day responsibility due to being closest in proximity or less encumbered by other obligations. While such formal contractual arrangements may not be necessary among siblings, they are required among the members of a community where, as rational individuals, we expect acts of cooperation from others, and them of us, and the effects of our actions upon others are not easily visible (see Elster, 1979). Starting from the relationship of parent to child, interdependence generates a powerful impetus towards social obligation. At a minimum, all but the most desperate individuals in a community have an interest in social peace deriving from voluntary observance of laws ratified by the majority. This interest can be defined as the difference between the cost of the contribution we make towards that social peace and the additional cost each of us will be forced to pay due to the failure of all of us to make that contribution. Moreover, social peace allows not merely for the pursuit of narrowly individual aims, but also the pursuit of fellowship, the sharing of those satisfactions with others capable of experiencing them.6 The pay-offs for cooperation are clearly real. The problem is that we cannot be expected to know the pay-offs of the game situation in which we find ourselves. Though we know that the problem of collective action is less serious in the Chicken game (due to the cost-benefit difference between being the only one to defect versus both defecting—see Taylor, 1987:18–19) where it can be resolved through credible communication, we are seldom presented real life situations with nice and known mathematical expressions of pay-offs of the other players as in the length of the prisoners’ sentences in the classical PD. Moreover, it becomes increasingly difficult to presume any given level of altruism once we get beyond the family or narrow friendship group. We are thus unable to readily know how the other players comparatively value the pay-offs from cooperation and defection, and, therefore, the structure of the game being played. As a result, we have no choice but to agree with Elster that the basic collective action problem in a society is the ‘hard’ one of the Prisoner’s Dilemma. This being the case, the possibility of cooperative overall solutions would be limited 54

THE USES OF GAME THEORY

if we were limited to Prisoner’s Dilemmas that are ‘one-shot’ games. But we are not. PDs can occur as recurring games, which have been analysed as Iterated Prisoner’s Dilemmas (IPDs). The archetypal IPD story is that of the ‘tragedy of the commons’: a farmer adds an additional animal to his herd even though the land farmed in common is at its capacity. The story is retold today about fish stocks, whale herds and elephant tusks, common-pool resources (CPR) situations insightfully analysed by Ostrom (1990) in which actors may or may not escape the tragedy of the commons through appropriate institutional choices which ‘eliminate the prisoner’s dilemma problem…, facilitate communication and monitoring, permit binding contracts, modify the payoff matrix of the game, transform the game, create an asymmetric framework, or create an iterated play’ (Tsebelis, 1990:110).7 The escape from a social trap may be narrowly individualistic, but may also transcend narrow individualism. As in the case of the siblings’ arrangements, or of the neighbours choosing where to shop, or the fundamental institutional choices addressed in Part II between arrangements that lead to the withdrawal of resources from public amenities versus ones that promote their being contributed, the underlying logic is the same. The rational individual will favour workable arrangements that efficiently reduce free-riding when it comes to the establishment of institutional structures. Though the contracts (to pay one’s share of taxes, fulfil one’s duties as citizen, etc.) arising from this logic are rational human choices, they set up ‘arrangements that make unselfishness less costly’ (Mansbridge, 1990:137). The human condition is indeed a contradictory one—but the matter is one of institutions, not human nature. In seeking to take care of my basic physical or psychological needs, I am prepared to diminish the welfare of others to the extent that their objectives stand in my way. Yet I wish this were not the case, for I also seek the welfare of others, strongest when it comes to the members of my own family and gradually weakening as social distance increases—though usually not to zero.8 My preferred outcome is to avoid having to choose between the welfare of another and my own needs; or, to put it positively, to be in a situation where others’ needs are complementary to mine. In the simplest of game situations, I prefer to be in one with a positive rather than zero sum solution. And in the complex situations where there is a social trap at play, I prefer to be in a Chicken game with credible communication and, failing that, in an IPD rather than a one-shot PD situation. These are here termed ‘second-order’ preferences, adding a second dimension to rational-choice theory since such 55

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

choices correspond not to immediate outcomes of choices but to the range of choices at a later moment thus opened. THE LOGIC OF INSTITUTIONAL CHOICES Second-order preferences are not unknown to economists.9 Hahn speaks of preferences over preferences, or ‘preferences over alternative selves’ (Hahn, 1982:191; see also Boulding, 1985). According to Thurow, individual preferences can be separated into those that concern the ideal rules of the economic game…and the optimum distribution of economic prizes…and those that concern the maximization of personal utility within any given economic game or distribution of prizes. Occurring at different levels, these preferences differ from each other without being logically self-contradictory, for example, there is nothing self-contradictory in seeking to become extremely wealthy and powerful in our current economic setup yet believing that a better one would award no extremely wealthy prizes. (Thurow, 1977:91–2) Such distinctions are the stock-in-trade of philosophers. For example, Gauthier (1982) draws a distinction between social man acting under ‘constrained maximization’ and man in the state of nature’s ‘straightforward maximization’. Harsanyi distinguishes the individual’s ‘personal preferences’ from moral preferences…which will guide his thinking in those—possibly very rare—moments [when he casts] a special impersonal and impartial attitude…upon himself. His moral preferences, unlike his personal preferences, will by definition always assign the same weight to all individuals’ interests, including his own. (Harsanyi, 1982:47) The efforts of what are sometimes called the ‘new institutionalists’ are being directed at introducing a similar distinction into rational-choice political economy. The term used here is that of ‘institutional choice’.10 Such choices are directed not at the actual allocation but the framework in which the allocative decision is (will be) made—choices of rules rather than within rules. The dean of the publicchoice school, James Buchanan, distinguishes between choices among goods and services and choices among rules governing the process of distribution or allocation of products and services, terming the latter ‘constitutional choices’, deliberately chosen constraints on choice behaviour. The individual chooses 56

THE USES OF GAME THEORY

within a set of previously and separately selected precommitments which set out a personal constitution for the individual’s choice behaviour. Buchanan poses ‘the constitutional challenge…of constructing and designing framework institutions or rules that will, to the maximum extent possible, limit the exercise of such interest in exploitive ways and direct such interest to furtherance of the general interest’ (Buchanan, 1989:22). His approach parallels Rawls’ summoning of a ‘veil of ignorance’ that keeps those negotiating the principles of social organization from knowing how they personally will fare from the application of any given principle. But Buchanan’s conception of a general interest to be pursued in establishing such principles does not correspond to that of Rawls for whom social and economic inequalities are justified only if they are to the benefit of the least advantaged members of the society (Rawls, 1982). Buchanan eschews rules that guide the policy maker towards redistribution. He prefers, rather, to apply the rules negatively, to minimize the capacity of ‘political entrepreneurs’ to draw rents from their positions in, or access to, the hierarchy. He would impede decision makers from redistributing through a constitutional amendment imposing a balanced U S budget, summoning his readers to check ‘the emerging tyranny of the unconstrained state’ (1989:31).11 The term ‘institutional choice’ is used here to refer to all choices directed at the framework or rules in which the actual allocative decisions will be made. This leaves the term ‘constitutional choices’ for the subclass among institutional choices that concern specifically political institutions and structures, as discussed in Chapter 8. Institutional rules can be set by the individual herself, what Elster (1983) terms ‘character planning’: making decisions now about diet, exercise, study, and the like which we believe will enable us to make future choices not available now.12 Despite its personal nature, character planning usually affects and often requires the collaboration of others. My family’s choices will affect my sticking to my diet and my self-imposed limitations on TV viewing. Character planning is insufficient for most organized activities which require, if not constitutionally established rules, at least some form of enforceable contract. Ice hockey players who will eschew wearing protective helmets unless so obliged indeed wish to be so obliged. As Schelling puts it, we want there to be enforceable social contracts so that we could act differently from the way that we do in the absence of such contracts (Schelling, 1974). A simple example can be used to illustrate the logic of institutional choice, that of a group dining together deciding in advance how many cheques will be used to pay the bill. They each know (and know that each knows) that if they pay their own bill, each pays the entire cost of what she eats, while if they share equally in one bill among the n diners, they pay only 1/nth the cost of any food 57

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

they order above the mean. They know further that the marginal cost thus being lower in this second case, each has an incentive to order more than they would in the case of the single cheque—producing a non-optimal outcome. If the members’ objective is to limit their spending (and their caloric intake), they will find persuasive this public-choice rationale for separate cheques. The diners’ logic is negative in that it inhibits any institutional intervention into the outcome. Yet there is a positive institutional choice logic even in this set of circumstances. If this is a group of friends or colleagues regularly dining together, they are unlikely to free-ride significantly and thus risk the continuity of the group, but instead develop and abide by certain rules of mutual respect when it comes to ordering meals. This brings into play a positive logic allowing for the realization of a preference for the convenience and camaraderie achievable with the single cheque (through being able to share a bottle of wine or side dish, or order a birthday cake, without having to split the cost among specific bills after the meal, specifying who had what, etc.). In effect, the meal comes to take the form of a classic IPD in which the same individuals meet each other again and again, are able to recognize each other from the past, and recall how the other has behaved—and know that the relationship will continue into the future.13 In the realm of public policy decisions, the following is an illustrative case of positive institutional choice. Let us suppose that as a city planner I am involved in deciding on which of two sites to build the new municipal planning office building and on which to build a municipal bus terminus. The available sites are equally suitable, except that one is next to a clinic serving frail, elderly patients. Positive second-order reasoning places the office building next to the clinic by posing the following question: Am I more likely to come to the aid of the patients needing assistance on their way to or from the clinic as a municipal employee or a bus passenger? The answer is derived from the logic of the two situations. Like the others in the same position, co-workers or passengers, I prefer that the distressed persons be helped by someone else. But, rather than merely leaving them in distress, I would prefer sharing the costs and seeing them helped. The likelihood of my preferences being realized is, however, quite different in the two situations. Co-workers who interact regularly in the planning office could, say, set up a rotation to come to the aid of patients—but not bus passengers who just happen to be in the same place. My choice is, in effect, an IPD institutional structure over a PD one. In the group of diners, the possibility that individuals will cooperate by keeping the value of their meals close to the mean price is realistic only in an IPD situation. Were the diners together only on a one-shot or irregular basis, the negative logic of separate cheques would prevail. A useful analogy can be drawn between the diners’ choice in such a PD situation and the fiscal rules governing a federation. Do the residents of each province pay for their expenditures or 58

THE USES OF GAME THEORY

should they finance them out of a common kitty (Savoie, 1989)? It is not hard to see that a federal-provincial finance ministers’ meeting represents not an IPD but a PD, analogous to the irregular dinner gathering in which the negative logic of public choice is particularly appropriate. Applied in this manner, game theory has room for both the negative perspective of public choice, and the positive perspective here linked to egalitarian, social-democratic institutional arrangements. It is in principle able to incorporate standards of efficiency (such that aggregate outcomes are ranked by summing up the cost to each individual of her choices), and equality (that the worse-off individual’s marginal benefit is given greater weight). The missing factor is the knowledge players bring to their immediate choices as revealed in our comparison of the diners’ and planner’s decision. The planner’s decision to place the municipal office building adjacent to the clinic constitutes a positive institutional choice. The positive outcome illustrated in the example depends on institutional arrangements that bring knowledge of the consequences of alternative choices to bear. That knowledge is not so much a matter of technical—in this case, planning—expertise, but one of the breadth of considerations entering the selection process. Specifically, are the interests of the clinic’s patients brought to bear in the decision? The question of the considerations brought to bear in organizational choices has been addressed most fully in the work of Mancur Olson, and a brief summary of his central argument is appropriate here. In his early work, Olson argued that American observers exaggerated the power and misunderstood the behaviour of interest groups in presuming that the interest of the group was the same as that of the member. In reality, he said, free-riding was an attractive and often-taken option, especially among members of larger ‘public interest’ groups. As a result, small groups with particularistic interests can be expected to be better organized than large ones with widely shared interests in which it does not benefit any individual to incur the cost in time and money of organizing the group. The few defeat the many’ (McFarlane, 1983:332). In his later work, Olson reflected on the effect of interest-group activities on society as a whole, concluding that the existence of powerful institutionalized interest organizations eventually leads to economic decline as market forces are weakened through Institutional sclerosis’. This occurs when special interest legislation and favouritism in appointments and contracts resulting from the activities of coalitions of interest groups, public administrators, and politicians bring a decline in innovation, mobility, and economic performance (Olson, 1982). Olson’s analysis was clearly influenced by public choice; but unlike most publicchoice inspired political economists who generalize from American institutions and political behaviour, Olson drew widely on comparative, especially European, experience. Indeed, his analysis of institutional sclerosis gave rise to the expression 59

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

‘Eurosclerosis’, a term seized upon by laissez-faire oriented opponents of the regulations characteristic of European institutions. In this, however, they were drawing upon only one side of Olson’s explanation: ‘Suppose we are talking about a labor union, the members of which earn wages that are in the aggregate one per cent of the national income’, he asks. If they get one per cent of the benefits of their action and bear the whole costs of their action, then it will pay them to try to make the society more efficient and prosperous only if…the cost—benefit ratio is better than a hundred to one. Hence it pays our…group to seek to redistribute income to its own members even if this reduces the national income by up to 100 times the amount redistributed. (Olson, 1983:11–14) But Olson also allowed for an opposing tendency. Suppose, by contrast, that an organization for collective action encompasses half of the income-earning capacity of a country. If that organization uses some of its resources to make the country in which its constituents live more efficient and prosperous, the constituents of the organization will get, on the average, one-half of the increase in the national income. Thus such an organization has some incentive to strive to make the country more prosperous. (Olson, 1986:72) On the whole, Olson is dubious about the resilience of such encompassing interest organizations. Subsets of members that would gain from monopolizing a particular market, or from special-interest legislation for that market, may be able, if ‘selective incentives’ can be found, to organize a caucus or lobby within a neocorporatist organization to pressure it to serve the sectional interest at the expense of the encompassing interest…. In the very long run, how could a society prevent subsets of members of the neocorporatist organization with a legal monopoly of representation from being controlled in large part by internal lobbies working on behalf of internal sub-groups? (Olson, 1986:77–9) In the long term, then, powerful groups cannot be counted upon to act in the interests of the weak in society. Instead, sclerotic institutional arrangements benefit the privileged. Redistributing to the poor is humane and civilized and 60

THE USES OF GAME THEORY

only modestly anti-efficient, but subsidizing unionized skilled workers and promoting cartels of professionals sacrifices ‘the very muscle of the national economy’ (Olson, 1983:22). Yet how to accomplish one without the other? This is a question he returns to frequently, notably in seeking to comprehend the institutions of egalitarian and yet relatively unsclerotic Sweden. Olson helpfully focuses on Sweden’s exceptional ability to stand up to cartels seeking handouts and tariff protection (Olson, 1990), but, as discussed below, his public-choice perspective appears to stand in the way of his fully explaining this phenomenon. We shall return to the wider implications of institutional sclerosis in Chapter 7 when we take up the question of the resilience of encompassing organizations that are central to the analysis of the corporatists as well as Olson. The fundamental question concerns the relationship between rational individual choices, institutions and organizations: under what conditions will individuals act in such a way as to sustain organizations acting cooperatively and the institutional arrangements in which they operate, and when will they defect? Part of the answer lies in specific incentives: to take a specific example, a worker might choose a large industrial union over a craft union because it provides superior benefits. But this is not the entire answer: the incentives operate in the context of a wider set of preferences. At their widest, they could include a preference for an institutional framework characterized by encompassing rather than narrow organizations, a preference to maintain what Rawls calls ‘the community of mutual concern.’14 If that were the case, the worker would seek out and reinforce in her choices an institutional framework—including an appropriate incentive structure—so that the interests she acts upon coincide with those of an encompassing industrial union acting in a wider (corporatist) framework. If such positive institutional choice is conceivable, then Olson’s long-term dismal logic need not be compelling. If we judge the worker’s preferences as expressed simply by her actions in a small craft union, we rule out the very possibility that her underlying preference is for the outcomes of choices she knows to be possible only in an encompassing union setting. Under such positive second-order logic, actors seek to make their individual interests complementary rather than hostile to those of other actors, and thus choose alternative arrangements that offer this possibility over ones that do not. A similar logic can be applied to the act of voting. The fundamental problem encountered by Downs (1957) and his successors in applying the rational-choice perspective to electoral behaviour is an inability to explain the simple fact that educated people in liberal democracies vote regularly. With the possible exception of those few elections closely contested between radically different parties, the marginal benefit for the individual voter of casting a vote could not possibly equal the inconvenience caused by (or the opportunity cost of) voting. Indeed, 61

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

in Anglo-American majoritarian systems, voters in most constituencies cannot reasonably expect their vote to have any effect whatsoever on the outcome.15 But if we see preferences in wider terms, the problem is surmounted. The publicity given to an election serves to remind attentive people of the importance of the laws and norms that reconcile self-interest with the general welfare. The act of voting is the means of public affirmation of these institutional rules and, through them, one’s membership in the community, just as paying dues to an encompassing trade union is an affirmation of support for corporatist institutional arrangements. THE INSTITUTIONAL CONTEXT OF ORGANIZATIONAL CHOICES The fundamental societal choice posed in the Introduction can now be restated in the language of institutional choice. A Nordic and an American household both have similar basic preferences: a clean, safe, healthy environment, with good school and medical services, and an interesting and sufficiently remunerative job. Yet the behaviour of those within the households is often quite opposite. The American needs to (gain the credentials to) get a job or otherwise acquire the financial and other means in order to acquire a well-guarded urban ‘condo’ (see Reich, 1991:196–240) or a home in an exclusive suburb. Taxes eat away at the needed disposable income. Any contribution to wider public services and amenities beyond that required to keep streets and highways in repair and the homeless from invading the condo or suburb16 is irrationally altruistic. The second-order logic that prevails is basically negative—just as public choice teaches. But this is not the situation normally faced by an individual under Scandinavian institutional arrangements. Effectively, households are linked together through networks of institutions providing good quality services, starting with day-care and public school. Hence, place of residence can be chosen in relation to convenience of access to job, family and friends, as an expression of one’s affinities to the community. Paying taxes and contributing one’s time and resources is thus rational—especially if there are, as we shall see, institutions inhibiting free-riding and efficiently disseminating knowledge of the costs and benefits of existing and alternative arrangements. Choices exercised thus correspond to preferences but within the constraint of the institutional framework. Can we not conceive of choices between institutional frameworks, at least in principle? If the American were given the real possibility of fulfilling her preferences in a Nordic type social system, might she not take it—even if all the while having rejected the possibility as unrealistic?17 For while acted-upon preferences are limited to choices in fact available, underlying preferences may not alter so readily. It is both true18 and insufficient, 62

THE USES OF GAME THEORY

to build, as do March and Olsen (1989), an explanation of choice behaviour upon the ‘logic of appropriateness’ based on institutional imperatives. We do not know if, were there a possibility of efficient transfers, Americans would still be unsympathetic to the requisite institutional arrangements. The fundamental question still to be posed is how, as we have assumed, the worker, active voter or Nordic citizen knows the kind of effort required to sustain their institutions. The crucial question shifts from selfish versus altruistic human preferences, to knowledge of alternative institutional arrangements. Olson indirectly opens up this whole line of reasoning. Finding highly redistributive Sweden’s relative economic success to lie in its ability to resist quota and tariff protection to manufacturers and thus to avoid some of the welfare losses associated with these ‘implicit redistributions’, he invokes an almost cultural explanation: the quality and influence of Swedish professional economists (Olson 1990:75). While Olson leaves the matter there, we shall extend this explanation to the institutional arrangements disseminating the relevant knowledge—including that produced by the professional economists—enabling actors to make the appropriate choices. In so doing, we shall be furthering our understanding of Nordic institutions and working towards a series of policy guidelines leading towards cooperative-egalitarian outcomes based on rational-choice analysis. Accepting the analytical framework of mainstream political economy means taking rent-seeking and disincentives into account in elaborating guidelines. Concrete choices made by individuals can undermine the lofty intentions of policy reform. There is no shortage of examples: trade unions transferring wealth to workers occupying strategic positions in the industrial sector and service network; demand stimulation programmes transferring wealth to those benefiting from the increased economic activity and away from those unsheltered from the resulting inflation; tariffs transferring wealth from consumers to shareholders and employees of inefficient industries. Our response is not to retreat from redistribution on all fronts; it is to identify the institutional arrangements for doing so that allow for a sustainable level of allocative efficiency, that is one roughly comparable to that attained through more pure market outcomes. The fundamental concern of social-democratic political economy, to elaborate and implement policies in such a manner as to maximize their redistributive effects, thus entails carefully evaluating the effect of institutional choices upon the range of individual choices, and from these to derive appropriate policy guidelines. In principle, though not in order of magnitude and thus difficulty, this is the same challenge faced by the individual in the family setting.19 Caught up with her own concerns, she feels a direct responsibility towards her children, her aged parents, her spouse, and other family members needing her care. Having been cared for in time of weakness—and expecting one day to be again in need of care from the others—she feels an obligation to look after their welfare. Knowing 63

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

of the danger of free-riding upon the welfare of the others—and ultimately herself— she will support institutional arrangements with siblings and others in a similar position. The same—though less intensely—is true of others in the wider society and the institutions that link her to them. Thus given the existence of the requisite social bonds and awareness of the wider consequences of her actions, the individual can be expected to respect social contracts in the knowledge that such contracts permit her to act differently from the way that she acts in their absence. The need for such contracts is now assumed by economists when it comes to externalities such as actions that pollute the environment. The same concern, we argue, applies to arrangements affecting distributive justice. But the existence of these social bonds and, especially, the adequacy of the dissemination of the required knowledge, are not givens, but rather themselves the subject of institutional choices. How are we theoretically to approach such choices? In the next chapter we shall take advantage of insights into these questions in the work of political economist, Fred Hirsch.

64

4 POSITIONAL COMPETITION AND KNOWLEDGE FAILURE

The central argument advanced in this chapter is that the knowledge underlying positive institutional choices provides a crucial link between rational individual choice and institutional arrangements favouring more egalitarian distributions. The individual in question is not Robinson Crusoe, but a member of a real community. Conversely, the social bonds and communications networks linking the members of the community are affected by combined individual choices. Since the individual supports institutional arrangements that enable her to act in such a way as to reconcile her interests with those of the wider community, she will try to avoid undermining the social bonds. To do this, however, she must have adequate knowledge of the effect of her actions and choices upon others and upon the society. I NFORMATION AND KNOWLEDGE The idea of adequate, and therefore inadequate, knowledge adds a controversial new element to the analysis. Classical rational-choice-based approaches to political economy assume that adults have the necessary information on which to evaluate the outcomes of alternative choices. Such knowledge need not be complete, merely adequate to measure the costs of getting ‘better’ information against the possible benefits such information can be expected to generate. But even this assumption is unrealistic. Socializing children is not simply providing them with information enabling them to act rationally on their preferences; it is teaching them which preferences are better, and how to judge among them. Children need adults for this purpose. Adulthood does not mean that such a need is gone, rather that individuals are in a position to be selective in the sources of reinforcement. It displaces the parental role upon family, church, community opinion, etc., supported by social bonds and networks of communications, whose role, simply put, is to teach the rules of social relationships, such as obeying implicit contracts, being punctual, knowing when playfulness is appropriate and when it is not, etc. (Marquand, 1988). 65

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

With this understanding, we operate from rational choice’s starting point of methodological individualism and its assumption of exogenous preferences as the only basis for a systematic analysis of social betterment based on free choice. Individuals capable of free choice must be capable of acting rationally in their transactions with others. If I do not assume another agent to have preferences independent of our relationship, and whose exchanges with me are understandable in light of those preferences, I cannot undertake any continuing free exchanges with that person. Of course, like mine, her preferences can change due to changes in tastes and new knowledge. What matters is how we interpret the signals communicating each others’ preferences. Through common language, symbols, rituals, we refine recognition abilities so as not to mistake cooperation for defection (Axelrod, 1984). In our simple example of a group of co-workers deciding on how to pay for their restaurant meal, each diner requires not only specific information, such as the prices charged, tipping customs, etc., but also knowledge of factors affecting the continued existence of the group. This includes reliable information about future intentions of the members and also some knowledge of a more structural nature, concerning, say, plans for plant shutdowns, or major changes which involve transfers of personnel. Our operational distinction between knowledge and information needs to be further clarified at this point. At one level, knowledge is simply accurate information. But this distinction is unhelpful from the point of view of the individual making a choice based on that information. Thus, knowledge is better viewed as providing a means of processing information and assessing its accuracy. To take a simple example: in choosing whether to acquire foreign currency, over what period and in what amounts, one needs information on the best exchange rates to be found, and the recent fluctuations of that currency against one’s own. But to make full use of this information requires some knowledge of what factors cause exchange rates to rise and fall. A more complex example concerns racetrack betting. Information about the horses’ previous record is available at a small cost, while information on the track’s ‘take’ and whether the racetrack is ‘fixed’ is available only at greater effort (cost). But many bettors lack knowledge of relevant mathematical principles, frequently believing that the odds of something happening increase with its failure to do so, so that, every time they lose, they think the odds of their horse winning improve (Etzioni, 1988).1 This typology gets at the distinction between information and knowledge. At one end is information which takes the form of a simple commodity available to individuals free, or at a low known cost, such as the $2.00 racing form the cost of which can be estimated against the likely pay-off from that information. More complex choices made to reduce information costs include consumers’ willingness to pay more for a drug under an advertised label (Arrow, 1966:87), 66

POSITIONAL COMPETITION AND KNOWLEDGE FAILURE

and of firms (who save on the cost of testing the quality and measuring the quantities of newly arrived products) paying a premium to suppliers with whom they have long-standing relationships on the condition that if poor quality is detected, the relationship is severed (Arrow, 1974:49).2 These indirect means of reducing information costs bring us further towards the knowledge end of the continuum. Unlike pure information, knowledge is a merit good by its very nature undervalued by the market. In part, the problem is one of rational ignorance. I am reluctant to expend the cost of assimilating difficult facts if having that knowledge does not meaningfully increase my ability to affect decisions that affect me. Yet rational ignorance does not fully capture the problem of knowledge failure. As a bettor, how do I assess the cost-benefit of the steps taken to meaningfully assure me that the racetrack is not fixed, let alone the appropriate level of expenditures on adult education to educate bettors to the fact that losing does not increase their chances of winning? The functioning of the free market presupposes adequate knowledge; it does not necessarily supply it. Consider the choice of dentists in private practice. It is fair to assume that a rational individual will, in the long run, learn to choose the dentist whose efforts result in the fewest return visits over the one who puts off needed but painful treatments. Yet all dentists stand to benefit by more frequent visits. What protects the patient from dentists promoting unnecessary checkups or failing to adequately counsel appropriate preventive measures? Not the market, surely. Rather, the public relies on the enforcement of professional codes and knowledge dissemination institutions free of vested interests. In this case, on the whole, this reliance is not unreasonable. But it evidently does not apply to all needed services provided through the market, especially where advertising and television enter in the picture. For the basic message of television commercials is that a product provides a solution to a problem. If you are unpopular, lonely or unfulfilled, a certain beer or car will change that: indeed, you are unhappy because you are ignorant of the appropriate consumer product.3 Chapter 6 argues that a significant part of the population, especially in the US, operates in a culture circumscribed by commercial television, one in which the illusions of commercialism become real. If I therefore have reason to believe that the spread of commercial television increases (the effects of) rational ignorance, while support out of public funds for non-commercial electronic and print alternatives has the opposite effect, I might very well support such a policy—even at the cost of my paying greater taxes and sacrificing some variety in the choice over TV entertainment. But in the absence of such initial knowledge, I cannot make the required second-order distinctions—as I could in weighing the costs of buying the racing form against the likelihood of additional winnings. This problem may be termed one of 67

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

knowledge failure. I am dependent on institutional arrangements to supply the required knowledge, yet to evaluate rationally the benefit of the existence of such arrangements against my cost of contributing to them, I need the knowledge they must provide me in the first place. Economists admit that knowledge failure is a frequent occurence in making relatively simple choices, such as in formulating union wage demands, since ‘economically it is often extremely hard to say who wins and who loses in any pattern of behavior’ (Boulding, 1985:125). Swedish economist Gunnar Eliasson has developed a powerful analysis of firm performance based on the distribution of managerial or economic competence. In so doing, he rejects the notion that such competence is fixed, or supplied by an efficient market (e.g., Eliasson, 1987; 1992). Mancur Olson’s explanation of Sweden’s unexpected successful economic performance implicitly raises this question of knowledge failure. Redistribution to the poor, he says, is closer to the form of unconditional cash transfers with their lower deadweight costs than tariffs, quotas, subsidies and similar implicit redistributions, which are inconspicuous, that is, their cost is concealed. Small organized groups take advantage of rational ignorance to effect these implicit redistributions. Sweden’s success was due to its resisting these implicit redistributions, that is, that it was able to reduce the level of rational ignorance over such complex matters (Olson, 1990). But Olson does not ask what made Swedes less prone than, say, Americans to remain uninformed on these complex matters by, in effect, trying to free-ride on others’ assimilating the needed information. To pose this question is to direct the attention of political economy to the institutions of knowledge dissemination per se. Though consistent with rationalchoice theory, posing this question violates certain underlying conventions. We enter the forbidden world of subjectivity, of the quality of the information individuals acquire and use in making decisions. Policy choices designed to improve the quality of knowledge disseminated4 are easily denounced as thought control and manipulation. It is much safer to avoid the question entirely and pretend that the individual’s capacity to make rational choices is unrelated to the functioning of knowledge-disseminating institutions, that some invisible hand equips the adult individual with the ability to evaluate the quality of information as she does the quality of apples at the supermarket. Doing so, however, entails depriving ourselves of a crucial explanatory variable. Olson’s attributing part of Sweden’s success at resisting implicit redistributions to the quality and influence of its professional economists opens a path to an explanation we shall pursue built on that country’s emphasis on active lifelong learning as opposed to passive consumption of commercial culture. According to such an explanation, the economists’ knowledge is disseminated through particular 68

POSITIONAL COMPETITION AND KNOWLEDGE FAILURE

institutional arrangements, while others remove obstacles from economists’ insights being applied to social choices by making it possible for people to know the outcomes of alternative decisions. An example of such an arrangement is that of tax return information in Sweden being in the public domain (see Chapter 5). Though posing the question of ‘knowledge failure’ takes us beyond the neoclassical model of economic man it is not, fortunately, along an entirely untrodden path. But it is a path obscured by time. Though given great, and largely positive, attention when first published in 1976, Fred Hirsch’s Social Limits to Growth disappeared rather rapidly from public view,5 its decline probably due to its being linked in the public mind with what turned out at the time to be a short-lived ‘small-is-beautiful’ movement buried by the OPEC-ignited recession. In fact, Limits was only tenuously linked to the anti-growth ideology. It remains, to this writer’s knowledge, the only attempt at systematically incorporating directly into the classical economic model the distinction between what the individual in contemporary society wants from what she (operating within existing institutional arrangements) settles for. POSITIONAL GOODS AND RATIONAL CHOICE Fred Hirsch assumes ‘sociability’ to have utility, and thus, conversely, associates a cost with the weakening of social bonds and the values that support them. As Daly and Cobb (1989:51) put it: ‘the market does not accumulate moral capital, it depletes it. Consequently, the market depends on the community to regenerate moral capital just as it depends on the biosphere to regenerate natural capital.’ Generally speaking, says Hirsch, individuals seek to sustain social bonds since they realize that they underlie the trust that makes possible continuing economic and social relationships. Moreover, they are well aware that the choices they would make in specific situations would be different from the ones they do make in the absence of these bonds. In making this distinction, Hirsch draws attention to the increasing importance of ‘positional’ goods for which individual demand is not equivalent to what it would be if those individuals could see and act on their combined preferences. While ‘material goods’ consist of output amenable to continued increase in productivity per unit of labor input,…positional goods, services, work positions, and other social relationships…are either scarce in some absolute or socially imposed sense or subject to congestion or crowding through more extensive use. (Hirsch, 1976:27)6 69

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

Because of this, ‘the choice facing the individual in a market or market-type transaction in the positional sector, in a context of material growth, always appears more attractive than it turns out to be after others have exercised their choice’ (p. 52). The suburban home is finally purchased, but the quiet living and easy access to city and countryside is denied by congestion; the educational credential is attained, but not the job it was supposed to guarantee. The Smiths’ gain in real income affords no necessary gain in positional goods; indeed, it entails a loss compared to the Jones’s, whose real income has risen more rapidly. The fundamental distinction between material and positional goods, Hirsch contends, is ignored in the way economists, and Western society in general, look at wealth and welfare. Our system of national accounting treats all consumption by individuals as adding equally to wealth. But consumption of positional goods should be seen as analogous to intermediate consumption, that is, of materials used by firms in producing goods not tabulated in national accounts (pp. 62–3). Intermediate consumer goods include ‘defensive’ goods, a whole range of private expenditures to enhance security, or to offset ‘some deterioration in the individual’s position, as trivial as extra laundry costs due to a smokier atmosphere’ (p. 57), as well as outlays relating to travel to and from work. As positional goods become more important in their lives, people in effect act on the supposition that they are wealthier than they are, making inefficient choices—just as a distorted national accounting system leads to irrational allocative choices. If indeed modern society is characterized generally by an increase in positional competition, then the individual finds herself with a lengthened chain of necessary intermediate consumption, which mainstream economics identifies as due to a change in tastes, but is in fact not so, since individuals would shift their demands for positional goods and services if they could see and act on their combined choices. Thus consumer choices in the positional sector turn out to be a misleading guide to real preferences. ‘Once defensive consumption is acknowledged, the signals of market demand lose reliability as guides to economic welfare’ (p. 63). Hirsch applies his ideas especially to the educational domain. An example of a process becoming ‘less efficient in the technical sense of requiring a larger input to produce a given output’ is when ‘additional years of full-time education are required to attain the credential necessary for entry to a given job. In such cases, increased expenditures on the intermediate good…actually will leave the consumer no better off in terms of the object of his or her consumption’ (p. 57). 70

POSITIONAL COMPETITION AND KNOWLEDGE FAILURE

The market for educational credentials turns out to be a primary arena in the positional battle.7 As Ng puts it, ‘to the extent that the relative performance in education is important in getting jobs…there is an element of external costs involved…that may offset to a large extent the external benefits of education’ (1983:276). Hirsch concludes pessimistically that the frustrations caused by raising expectations tied to educational credentials for scarce, highly rewarded jobs, which are ‘doomed to non-fulfillment’ for the great majority since they are attainable only by a minority, is what led the US to adopt racial quotas to maintain social peace. Growing racial tension and anti-social behaviour generally are concrete expressions of this intensified competitive game in which there will be many losers since there can be only few winners. The general ‘inference for action’ drawn by Hirsch is that policy must seek to reduce the cost that faces individuals in orienting their objectives towards social objectives by reducing the incidental benefits from positional precedence (p. 183). Without saying just how this should be done, he sets as the first target the income differentials attached to jobs. In theory, differentials should fall as the availability of competent personnel rises faster than the stringency of job requirements; this is not the case due to the proliferation of distributional coalitions and various forms of rent-seeking, a phenomenon well explained by the public-choice theorists.8 The goal is thus to moderate the positional struggle for the extra educational credentials expected to win high-paying jobs first and foremost by reducing the pay differentials. To complement this, there should be a limitation on what money can buy, for example, by seeking to remove positional goods, such as access to education, green space, historical treasures and so on from the competitive commercial sector.9 Though insightful, these suggestions do not in themselves address the institutional arrangements that place agents in a position to adopt them, or likely to gain access to the knowledge needed to endorse them—something we attempt to do in Part II. The analysis of positional goods proves useful in the endeavour. We can cast our earlier distinction between institutional arrangements surrounding the choices of a Nordic citizen versus an American one in Hirsch’s terms: despite similar preferences, fulfillment for Americans lies much more in positional goods—scarce and subject to congestion by nature—than for the Scandinavians. The American profile overvalues the pay-off from winning and results in far greater disparity between ‘winners and losers’.

71

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

TH E EFFECTS OF ADVERTISING Hirsch (1976) lays great stress on the negative impact of the growing influence of advertising in heightening positional competition. It brings: a sharpening of individualistic calculation [which] erodes conventions of social responsibility and obligation. Such conventions… are necessary to counter the tendency of individualistic calculation to leave the community with less sociability than individuals themselves would choose if they felt the full consequences of their actions…. [By] sharpening positional calculation…consumer periodicals, and the press at large, pay increasing attention to management of personal finances, including advice on tax avoidance: fully rational on the individualistic calculus, but also likely to discourage and to erode feelings of social obligation. (pp. 82–3) Having argued that demand in the positional sector is a misleading guide to real preferences since individuals would shift their demands if they could see and act on their combined choices, Hirsch laments the tendency of advertising to increase that demand. We are thus brought back to the problem of knowledge failure hinted at in Olson’s analysis of costly implicit redistributions (1990) when he refers to the ‘30 second commercial’ as a vehicle for distorting the costs of tariffs and other subsidies to the rich and powerful. We suggested that Sweden’s unusual openness to economists’ recommendations is due to institutional arrangements which disseminate economic knowledge and remove obstacles to these recommendations being acted upon by enabling people to appreciate the real outcomes of their combined choices. Hirsch teaches that a key lies in reducing the level of commercialism in communications which stimulates positional demands which lead people to act on other than their real preferences by concealing the effects of their combined choices. We noted earlier that raising the question of the quality of knowledge amounts to entering a forbidden zone, opening one to accusations of elitism and, worse, attacking sacred freedoms. Advocating restrictions on media advertising can bring accusations of favouring censorship and repression. The weight of tradition makes this a heavy burden for critics to carry. Centuries ago, the assertion of liberty of economic action and of freedom of thought were united against the same forces. It was natural, in the name of freedom of expression, to exclude from policy consideration what had been universally acknowledged until then— that some wants or tastes are superior to others—since such assertions had been 72

POSITIONAL COMPETITION AND KNOWLEDGE FAILURE

used to restrain the material and intellectual development of the mass of the people. Today, however, the opposite is the case. Freedom of commercial expression is, if anything, that which holds back such intellectual development. We should not fear to apply the notion of ‘merit goods’ not only to formal learning but to the useful knowledge which enables individuals to make rational distinctions. Pelikkan, for example, distinguishes between organizations operating on the supply side where market competition is the best way to encourage the most economically competent people to become managers of productive organizations, and on the demand side, since: ‘not all consumers can be expected to have sufficient competence to demand the optimum quantity of education’ (Pelikkan, 1991:9, 11). In Etzioni’s words: ‘rationality is not a self-sustaining attribute. If no maintenance efforts are undertaken, the capacity to act rationally will diminish over time.’10 Above, we noted that the individual has a sense of the value if not the content of missing information and can thus rationally decide whether the added search cost is likely to be compensated in greater rewards. Knowledge, in contrast, is likely to be undervalued and depends on appropriate institutional arrangements to assure an optimal supply. But neither Hirsch nor other critical economists offer guidelines for increasing the supply of this merit good. The question is complex indeed. Knowledge is a commodity needed for the rational consumption of commodities. And, if we take the problem to its ultimate logic, we are faced with an infinite regression: we need to know where to find the knowledge to know where to find the knowledge to…get what we want. Rational choice assumes us to have begun from an ‘original position’ in the distribution of commodities. The original position in the distribution of knowledge is thus one where each agent is assumed capable of knowing where and how to gain access to necessary commodities—including information. The classical model assumes that unless there is market failure due to externalities or excessive transaction costs, voluntary exchanges of commodities altering agents’ original position must be optimal in their outcomes. When it comes to the market for knowledge to educated adults, the possibility of market failure is thus excluded. One need fear only the repressive dictator and his thought police. In fact, as Hirsch warns, and as we shall see in Chapter 6, it is very much within the free market at its most sophisticated, the world of consumer advertising through the medium of television, that positional demands stimulated by advertising lead people to make choices they would not make if they had the requisite knowledge of the effects of their combined choices. Even Hirsch would have been astounded by the mushrooming number of money-making- and taxavoidance-oriented periodicals and articles in mainstream periodicals in the 1980s (Shames, 1989:xi). And advertising is even more pervasive now. 73

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

Like increased spending on positional goods, which is instrumental to the enjoyment of something in reality little attainable through it, such advertising raises unrealizable aspirations for attaining happiness through positional goods. Television advertising is very seldom if ever oriented towards directly improving consumption skills by providing knowledge useful in allocating resources efficiently or using products proficiently. There is in effect a contradiction between the medium of supply—television advertising—and the supposed objective of that supply—increased aggregate individual welfare—which lead to suboptimal decisions and actions.11 The fundamental tack of the TV advertiser is to create the sensation that satisfying superficial wants somehow fulfils the individual’s deeper wants. This is what Hirsch was getting at; only the techniques for accomplishing this have ‘advanced’ enormously since he wrote. The KGB’s form of censorship proved hopelessly out of date in this world of electronic information. But manipulative techniques learned from advertsing were effectively used by American politicians,12 especially Ronald Reagan. Cynically manipulated on the basis of superficial wants, American voters acted accordingly—the result of which was different from what it might have been if voters had been provided with the knowledge to make informed choices based on underlying preferences. The 1992 election saw a dissatisfaction with such manipulation, of which the Perot phenomenon, and the new significance of the candidates’ appearances on TV interview shows, were the two main indications.13 But only highly improbable institutional choices altering campaign spending laws, the electoral system, and the presidential system (see Chapter 8) on the one hand, and the availability of high-quality public television as part of an overall transformation of adulteducation policy, on the other (see Chapter 6) could permanently change this situation. COM MERCIALISM AND RATIONAL CHOICE Because of its fleeting, ephemeral nature and the passivity of the receiver, television is an inappropriate communication medium for transmitting knowledge. Combined with commercialism, it becomes unreliable even as a transmitter of information. In the words of an American television news executive, every time a newspaper includes a feature which will attract a specialized group it can assume it is adding at least a little bit to circulation. To the degree a television news program includes an item of this sort…it must assume that its audience will diminish, (cited in Postman and Powers, 1992:112–13) 74

POSITIONAL COMPETITION AND KNOWLEDGE FAILURE

At the end of the 1980s there were on average 38 minutes less of foreign news on combined network news programmes than at the beginning of the decade (Harpers Index, July 1993). Knowledge enables the individual to distinguish positional consumption from material consumption, to link future options with present choices, and to concretely apply such knowledge in life choices concerning not only consumption but work, voluntary participation, and political action (or inaction). This is what makes an ‘educated public’, as one American educator put it. To make policy that is truly public, that is in the larger public interest, people must not only have the facts, but they must know what those facts mean to other people, people different from them. Beyond an understanding of differences, an educated public has to find out what is common to all of the different perspectives on an issue, so it can find a basis for action. (Oliver, 1987:143) Viewed as a merit good, knowledge increases—and its absence diminishes—the information-processing capacity of an individual. We can conceive of the individual’s decision-making capacity operating over two dimensions. Commercialism decreases the societal informationprocessing capacity over both of these. One of these is breadth of information brought to bear. The second has to do with the time frame: the length of time in the future over which one considers the effects of alternative actions (or opportunity costs) in making a decision. Over this second dimension, commercialism can be seen as fostering myopic behaviour, that is, reducing the time-frame within which individual decisions are taken. In the long run, this causes a deterioration analogous to that caused by long-term unemployment, namely a ‘scarring’ effect on human capital and thus productivity. Economists since Adam Smith have seen literacy as intrinsic to the original position, essential to man’s ability to operate rationally. We are here suggesting that knowledge is the modern technological society’s version of literacy. Like literacy, knowledge is a merit good, likely to be undervalued. In keeping with the analogy, commercialism (after a certain point) becomes a ‘demerit good’ like harmful addictive drugs, whose consumption, left to the price mechanism to determine, is excessive (Ng, 1983:286). In the next two chapters we discuss policy guidelines the successful application of which in appropriate institutional choices results in, among other things, increased knowledge dissemination and decreased commercialization. Anticipating somewhat, we would expect as a consequence a reduction in the level of frustration and violence and more tolerance of the desires, and concern 75

TOWARDS A SOCIAL-DEMOCRATIC POLITICAL ECONOMY

for the needs, of others. Competition would be channelled towards activities giving rise to material rather than positional growth. Aggregate welfare would be higher due to the reduced ‘transaction’ costs (see North, 1981) in the form of expenditures on defensive goods, and on enforcing laws to prevent anti-social behaviour. Citizens, being more informed, would place fewer contradictory expectations on governmental and other societal institutions enabling them to operate within a longer timeframe, and to support policies that reinforce these institutional arrangements. The cost of providing more (better) information should thus be offset by the gains caused by individuals being able to make better decisions as consumers in allocating their limited resources, and as more efficient producers. As Hirsch would remind us, in pure GNP terms such a society may appear no wealthier than a comparable one run on laissez-faire principles in which commercial advertising is pervasive. Yet the people, we could assume, would have the knowledge to accurately assess their real comparative economic position. If most individuals indeed prefer institutional frameworks in which others’ needs are complementary to theirs to one where they have to choose between the welfare of others and their own, then the institutions disseminating knowledge required to attain this outcome would be reinforced by positive institutional decisions. Seeing the benefits of the institutional arrangements that disseminate the needed knowledge, they would act to strengthen those arrangements, and know how to do so. Conversely, a society failing to act to limit commercialization of the communication media would be one in which adults increasingly depend on commercial television for the information and knowledge which it appears to—but in reality does not—deliver. As a result, the great majority of people in such a society operate within a short time-frame and narrow perspective when it comes to choosing between alternatives, in effect making choices the outcomes of which are not those they would have preferred if they had access to the requisite knowledge of the result of their choices in light of those of others. This is a chilling prospect. Indeed, it is more than a prospect as our description of the television culture in the US in Chapter 6 makes all too clear. But it is not inevitable: the Nordic alternative is there as well. The point is that choices over institutions matter. Just as we cannot apply Marx’s nineteenth-century analysis of commodity markets to capitalist institutions today, so we cannot apply eighteenth-century liberal principles about free expression to twenty-first-century instruments of communicating that expression. In Part II we try to derive a more appropriate set of principles to apply in evaluating the institutions, especially those concerned with knowledge dissemination, of democratic market societies at the end of the twentieth century.

76

Part II FROM THEORY TO PRACTICE

Part II takes us from the elaboration of our theoretical approach based on rationalchoice and game theory to the practice of social-democratic institutional arrangements. Chapter 5 derives a number of general guidelines drawn from Part I and links them to the practices of the Nordic countries over the past two generations. Next, drawing frequent contrasts with those of less egalitarian systems, we schematically portray Scandinavian institutional arrangements at three levels or dimensions of social action: the individual-social, the organizational-economic, and the governmental-political—each in a separate chapter. Yet the analysis therein constitutes an integrated whole: it is the fit or complementarity of these arrangements that are seen to make possible the reconciliation of efficiency with distributive justice. Chapter 6 takes up the discussion anticipated in Chapter 4, on the institutions affecting the dissemination of the knowledge individuals bring to bear in making institutional choices. Chapter 7 concerns itself with the choices exercised through, and the forms of, organizations in the context of the (corporatist versus laissezfaire) institutional arrangements in which they operate. Building on the same corporatist logic, Chapter 8 examines individual and organizational choices within the framework of alternative governmental-political structures. It identifies as pivotal a cluster of institutions: small relatively homogeneous political units linked through confederal economic arrangements, run by parliamentary governments, and selected through proportional electoral systems. In these chapters we thus become more specific about the kinds of arrangements envisaged in applying the concepts so far established. To recapitulate briefly: we are concerned with institutional choices that transform, reinforce or undermine institutional arrangements; we assume that individuals act rationally when making decisions, and, self-interested though not necessarily selfish, prefer to reconcile their interests with those of others and those of the community as a whole. Institutions affect the realization of that objective by discouraging or encouraging free-riding. This is the paradox captured by the 77

FROM THEORY TO PRATICE

Prisoner’s Dilemma (PD) at the heart of game theory. If institutional arrangements are such as to turn PDs into Iterated Prisoners’ Dilemmas (IPDs), then free-riding is potentially reduced. Yet these arrangements are themselves the product of complex choices. For such choices to have the desired effect, to be what were termed ‘positive institutional choices’, actors must possess the required knowledge of the effect of their alternative choices in light of choices made by others. Such knowledge is disseminated through institutional arrangements which are themselves the outcome of institutional choices. We have been spared from depending entirely on deductive logic by drawing inspiration from the practices of the Nordic countries with their high levels of distributive justice. So far, however, we have limited ourselves to a highly abstract comparison of imaginary Scandinavian and American citizens with similar preferences that are acted upon in quite antithetical ways due to the institutional framework in which choices are cast. In Part II we make this comparison more concrete in exploring the different institutional arrangements that together constitute this framework.

78

5 SOCIAL-DEMOCRATIC POLITICAL ECONOMY— INITIAL GUIDELINES

THE BUFFER ZONE AND ITS USES Figure 5.1, based on distinctions between models of social order advanced by Streeck and Schmitter (1985), divides human interaction into three spheres, each with its own guiding principle: solidarity in sphere I; market competition in sphere II; and authoritative regulation in sphere III. There are, in addition, ‘buffer zones’ lying between the spheres, similar but not identical in conception to Streeck and Schmitter’s fourth, ‘associational’ model. Mainstream political economy based on rational individual choice captures the second sphere of human activity, that of the market, providing goods and services at a price reflecting both the level of consumer demand and the costs of production. Information conveyed through the price system makes possible optimal choices as to consumption, effort and investment. The basic rule of this second sphere is: ‘you get what you pay for and you pay for what you get’. Institutional compliance with this rule is far from an inconsequential achievement. Eighteenth-century thinkers, from Montesquieu and Condorcet to Paine saw the market as a civilizing influence, allowing human relationships to become easier and more gentle (Hirschman, 1992:106–8). Bowie (1991) concludes that since markets reward ‘contractual values: honesty, trust and fair dealing’, the growth of markets is associated with the spread of these values. In this sense, the rise of well-functioning markets, apart from making societies more productive and thus making social betterment possible, allowed man to transcend the exclusivity and defensiveness against outsiders of the traditional community (sphere I). Political economy also assumes the existence of a sphere of non-market supplied goods and services to correct market failures due to transaction costs and externalities. These goods and services are guaranteed to the individual on the basis of citizenship, their price not directly related to its costs of supply or level of expressed demand. The operating principle in this, third, sphere is: ‘you get what you are entitled to’. 79

FROM THEORY TO PRATICE

Figure 5.1 The three spheres of the social order A specific set of institutions can be associated with each sphere. These set out the conditions under which expectations are to be lived up to, that is, contracts, explicit and implicit, be respected. Choices made in a given sphere must comply with the operating rules of that sphere. Suppliers (sphere II) must be relied upon to provide the good or service purchased or guaranteed under the stipulated conditions, while recipients (sphere III) must be relied upon to meet their obligations either through payment, tax contributions or reciprocal expressions of solidarity and to limit their demands to services to which they are legitimately entitled. Institutional choices can be viewed schematically, as choices not among specific services or goods but over which sphere is expected to supply them—and therefore which rules to apply. Negative second-order logic is invoked by public choice in defending sphere II against III—against losers on the market who use political relationships to compensate themselves, thereby diminishing aggregate efficiency.1 Negative second-order logic is appropriate for goods and services in the productive economic sectors, but fails where merit goods like education and health are concerned (see Barr, 1992). In between are many intermediate cases where blanket rules are inadequate. The approach taken here is to emphasize not the contradictory logic of choices in the three spheres, but the complementary 80

INITIAL GUIDELINES

aspect of such choices. Our starting point in guiding institutional choices is, where possible, to avoid zero-sum situations where the individual’s own benefit can be enhanced only at the expense of others. The means to achieve this can be expressed in the most general of terms as our first guideline: to enlarge and strengthen the buffer zone. The buffer zone is understood as the subset of institutional arrangements that merge the different spheres into a complementary relationship, primarily through the operations and interrelations of intermediate organizations that operate in more than one sphere.2 The stress here is on complementarity, rather than choices among spheres. As Ostrom (1990:192–4) concludes in her analysis of common-pool resource problems (CPR), we should look beyond the usual forms of solutions to CPR’s—those of government regulation, leviathan’ (sphere III) and pure market solutions, ‘privatization’ (sphere II)—to self-governing, voluntary organizations, to what she terms ‘self-financed contract-enforcement games’. A narrow economic interest given a say over public policy will likely use it to seek rents—as public choice warns; but an encompassing and accountable one may reduce transaction costs by contributing to a practical comprehension of the policy’s effects that state bureaucrats might otherwise miss, as well as to a greater degree of public legitimacy. In arguing, as we do, that knowledge dissemination to adults cannot be left to the market sphere, we add that the solution does not lie in confining it to the state-political sphere either. Rather, buffer-zone structures like the Scandinavian state-subsidized, adult-education associations linked to major interest organizations can serve the needed purpose. And their experience shows that curtailing the level of commercialism in electronic communications is not inconsistent with an important role for business representatives on the various institutions linking educational and cultural institutions with the human resource needs of the economy. The capability of buffer-zone institutions to overcome knowledge failure through cooperative solutions provided by IPDs is usefully illustrated in a particular feature of the Swedish co-determination system. It concerns the role of Swedish labour-consulting firms set up under the co-determination law (MBL) and the agreement based on it between the trade unions (LO and TCO) on one side, and the employers’ federation (SAF) and public employers on the other. Trade unions in enterprises or agencies planning organizational changes and lay-offs due to economic downturns or technological changes are entitled to engage one of these firms. Typically, the firm’s partners have union links as well as specific professional skills: managerial, accounting, public finance, law. The employer pays the cost and opens its books to the consulting firm, knowing that the latter’s professional reputation depends on its maintaining confidentiality. Union members thus have good reason to accept the consultant’s recommendation since, having neither the skills nor the time to arrive at a fully 81

FROM THEORY TO PRATICE

informed opinion on the employer’s proposal, they know that the consultant is both informed and has their best interests at heart. In the language of game theory, the situation in the absence of the consultant is one of Chicken: labour and management are on a collision course both wish to avoid, but preferably at the expense of the other. The obstacle to the solution of a Chicken game is the absence of credible communication, a void filled by the labour consulting firms. Such firms are examples of organizations operating in the buffer zone between the spheres. It is reasonable to expect buffer-zone institutions such as these to complement rather than undermine the functioning of enterprises (sphere II) or public service agencies (sphere III) with which they work. In Ostrom’s (1990:90) terms, one of the conditions for successful cooperation is that individuals have access to low-cost arenas to resolve conflicts. In general, such mechanisms make it possible for individuals to effect choices reconciling their own and wider interests in the demands they place upon representative organizations and thus on policy makers, and in the support they give to the implementation of the resulting decisions. SOLIDARITY AND POSITIONAL COMPETITION We have associated the first sphere with that of community. While the community’s geographic frontiers are often uncertain, and sometimes—as in the former Yugoslavia—savagely contested, these exceptions prove the rule that individuals cannot but be viewed as members of a community from which they derive their primary social identity. This ‘nation’, as it is usually called, is the extension of the clan or tribe which is itself an extension of the family based on parent-child interdependence and the human need for fellowship. (We shall have more to say in Chapter 8 about the rules associating state boundaries to national communities.) A general second guideline emerging from Part I is that institutional arrangements should complement the sense of solidarity that is the defining characteristic of the community. The application of game theory enables us to conceptualize this guideline in terms of institutional choices. In the ‘Chicken’ game of two siblings whose elderly parents need care (see Chapter 3), each incurs a greater penalty if both defect than if she cooperates and the other free-rides. The problem of collective action is less serious in such a Chicken game than it is in the classical Prisoner’s Dilemma, where the penalty for each if both defect is no greater (see Taylor, 1987:18–19), represented, say, by the case of the siblings being strangers to the elderly couple and deciding whether to help them do a chore the couple can no longer do by themselves. But we can be sure of the nature of the game only if we can compare the pay82

INITIAL GUIDELINES

offs of the players, which entails making certain assumptions about order of preferences. Not knowing the relationship of the two individuals to each other or to the elderly couple, we can none the less assume that the more tightly knit the community they are all members of, the more likely the relationship to take the form of a Chicken game rather than a PD. Thus, to put it otherwise, our guideline expressed in game-theoretic terms amounts to fostering institutional arrangements the effect of which is that collective action problems take the form of Chicken rather than PD. The means of doing so are indirect, corresponding to several of the more specific guidelines advanced below, which, as Hirsch puts it, reduce the cost that faces individuals in orienting their objectives towards social objectives. Such choices are subtle and complex, and application is often in terms of what to avoid rather than what to do: state-sponsored patriotic propaganda, for example, is likely to be counterproductive to fostering the required sensibilities, since, like advertising, it tacitly promises what it cannot deliver. Similarly, recommendations based on what we have called negative logic designed to reduce rent seeking, should be cast in cost-benefit terms and not target the legitimacy of community institutions, something libertarians often fail to do in attacking state economic intervention. Buchanan laments the decline of ‘constitutional citizenship’ in the US insisting that ‘we must attend to the rules that constrain our rulers, and we must do so even if such attention may not seem to be part of a rational-choice calculus’ (1989:31). But had he addressed the institutional arrangements fostering constitutional citizenship, he would have encountered circumstances where defending ‘the rules that constrain our rulers’ undermines the required community solidarity thus discouraging constitutional citizenship. We shall argue just this point when we consider institutional choices affecting knowledge dissemination. Here, we can take legal structures as a case in point. No less a defender of markets against government regulations than Gordon Tullock, who practised law before taking up economics, argues in favour of the continental European ‘inquisitorial’ court system and against the adversarial one in the US, which promotes rent seeking on the part of lawyers (Tullock, 1975). To reduce the immense cost of American litigiousness3 bemoaned by Tullock requires placing trust in state institutions. The state thus is viewed as a legitimate expression of the aspirations of the community. Such legitimacy has always been more imbedded in the political cultures of continental Europe than in the Anglo-Saxon ones, where it has fallen victim to the spread of adversarial culture not only in the courtroom, but in the relentless neoconservative attack on the legitimacy of government action.

83

FROM THEORY TO PRATICE

In applying the second guideline, we cannot, as some on the left would still have us do, assume human nature to be cooperative and thus see injustice as the outcome of a Chicken game the solution to which is the abolition of capitalism. In reality, while the increased overall social solidarity called for by our second guideline turns some relationships from PD to Chicken ones, we cannot know which. Hence, unless we know otherwise, we must assume the pay-off structure of any given relationship relevant to institutional choices to be that of a PD for which cooperative outcomes are plausible only if the PD is an iterated one. Iteration requires social stability in individuals’ patterns of interactions. If a community is constantly in flux, the necessary pattern of reciprocal expectations cannot develop, impeding the overlapping networks of knowledge…I may not know whether A’s interests are well served by our convention, but B will know…. The more people whose behavior one must know well enough to consider it predictable, the less one will be able to know about them on the average. (Hardin, 1982:182–5) Citizens in such a community are more likely to be able to predict how others will react to their choices simply by understanding those choices. Clearly the size and relative homogeneity of the political community is a factor here; the relevant political institutional arrangements will be addressed under the third dimension in Chapter 8.4 Hirsch provides a different formulation for applying this principle in his stress on reducing positional competition, in effect contending that allocation of goods and services that are subject to congestion and crowding through more extensive use should be removed from the second sphere, where they have the effect of making people run harder to stay in the same place. In policy areas such as urban transit, access to green space and to ocean-front property, and development of historic sites, market-oriented elements should be integrated through the buffer zone with the public policy mechanisms of sphere III in such a manner as to bring to bear counterforces to the disincentives against optimal choices that rent control, for example, often brings. Appropriate arrangements would give important roles for example to voluntary associations. We can draw upon certain policies that were developed in the Nordic countries as illustrations. In such policy areas as access to green space and ocean-front property, open-air recreation, and preservation of historic sites, market-oriented elements are embedded in public policy mechanisms supplemented by the involvement of buffer-zone mechanisms like non-profit corporations, users clubs 84

INITIAL GUIDELINES

and cooperatives. For example, voluntary associations operate youth hostels, wilderness chalets, ski centres and mountain trails. Through these and other activities being organized in cooperation with state agencies, access to unspoiled natural settings becomes a matter of right for everyone.5 In the area of urban development and transit, while a great deal has been invested in renewing the housing stock, urban development conforms to clearly defined rules of land use and green-space conservation. So, while many envy the lucky few owning downtown apartments,6 the availability of good housing in green suburbs situated on efficient mass transit lines means that people are not forced onto the kind of positional treadmill described by Hirsch characteristic of many congested metropolitan centres of North America and Europe. For the entire Stockholm region, for example, access to a comprehensive coordinated system of trains, metro, buses and boats to the archipelago is provided at relatively low cost through monthly passes (often subsidized by employers). With bus (and taxi) lanes, bicycle paths, and expensive in-town parking, the private car becomes a less convenient choice than public transport for most forms of travel in the city. And with social crowding relatively insignificant, competition over positional goods is kept down; thus social bonds and the values that support them are more secure.7 The positional good stressed by Hirsch, the credentials associated with education, is considered in the next chapter’s discussion of reducing the cost of acquiring useful knowledge and deemphasising commercialism in the communications media. As far as formal education is concerned, reducing positional competition entails a combination of free public education to those qualified—thus removing obstacles to one’s being able to go as far as one’s aptitudes and interests take one—paired with institutional arrangements limiting the prospect of additional lifetime income gained due to additional educational credentials, especially those which provide access to jobs carrying incentives of high status and job satisfaction. These arrangements come under the general heading of reducing disparities in the distribution of income, to which we now turn. INCLUSIONARY SERVICES AND APPROPRIATE I NCENTIVES Institutional arrangements concerning the provision of services and the distribution of income were first addressed in comparing the choices facing a household in a country with an egalitarian profile typical of a Scandinavian welfare state and a similar household operating within the institutional framework 85

FROM THEORY TO PRATICE

characteristic of the US. Both want a clean, safe, healthy, environment, with good schools nearby and good-quality medical and other necessary services guaranteed. For members of the first household, this is effectively secured through the normal operations of institutions available to all; thus they act rationally in paying taxes and participating in the network of service agencies. Equally rationally, the members of the second household seek to escape to an urban ‘condo’ or an exclusive suburb. The Scandinavian profile calls attention to a fundamental principle in the application of the third guideline, that of reducing disparities. Generally speaking, highly inegalitarian distributions can be anti-efficient, for example by reducing mobility. The greater the range of wages, the less likely it is that workers in high-wage sectors will allow themselves to be forced into another sector or occupation. Furthermore, since productivity depends not only on individual performance but on cooperation, large wage differentials do not provide appropriate incentives. This is because productivity and competitiveness in areas of high-tech development requiring teamwork are often associated with ‘tacit knowledge’, the knowledge that comes from experience and is contained in people’s hands and minds rather than in reference manuals or textbooks. Since people will avoid passing this knowledge on if doing so would jeopardize their living standards, low income disparities promote cooperation between divergent actors with complementary tacit knowledge (Schmid, 1991). A specific application of our third guideline is the use of what we term inclusionary rather than exclusionary public services.8 We have already seen an application of this guideline in urban public transit. Practically speaking, it means that services are provided to everyone at a level of quality and dependability so that above-average income earners find it in their interest to use them rather than seek (the disposable income to afford) exclusionary, market-provided alternatives (Hirschman, 1970). Inclusionary services provide those at the bottom with a level of security for themselves and their families reducing the incentive to resort to anti-social behaviour.9 As an overall principle, then, such services are to be provided through the third (public) sphere, rather than the second (market) sphere. Nevertheless, the more efficient the system of redistribution (is perceived to be), the less the individual is inclined to seek to evade contributing her share, and the more likely is the system to be fair and be perceived as such. Thus the spread of choices within public networks (see Part III) supplying schooling, medical care and other services is to be welcomed. Participation of the middle class is, however, insufficient to assure the needed level of quality and efficiency over time. This is where buffer-zone mechanisms come into play. Buchanan argues that ‘overextension’ of the welfare state is 86

INITIAL GUIDELINES

inevitable: however reasonable the original redistribution scheme, say to the bottom fifth, politicians seeking broader electoral support will extend it towards the bottom half, and this will in turn generate wasteful activities on the part of groups in search of their share of such rents (Buchanan, 1988). But is overextension indeed inevitable? 10 The matter can be seen as one of complementing inclusivity with other guidelines designed to eliminate perverse incentives which lead individuals to violate the rules, to free-ride. If property rights are clear, simple, and fair, an inclusive welfare state need not be inefficient. An economy that experiences more theft and embezzlement, or must engage in greater bribing of officials, is at a competitive disadvantage (through direct losses and additional monitoring costs) to one that can count on the honesty and trust that come with heightened social security. This leads directly to our fourth guideline of avoiding disincentives to desired behaviour, or, to be more positive and specific, selecting redistributive mechanisms that distort the price and incentive system as little as possible. The principle that services be universal does not mean that they be free of any investment on the part of the recipient. The Swedish Social Democrats’ error in ignoring incentives— inviting employees to abuse sick-leave guarantees was the exception; as a rule, the Nordic countries discourage waste of scarce resources by placing deterrent fees upon otherwise free medical and related services.11 Such measures are reasonably fair in the Nordic countries because they are complemented by other measures resulting in low levels of inequality in disposable income. Moreover, in the context of low income disparities and inclusive services, a similar effect results from the tax system relying heavily on consumption taxes. Such taxes discourage positional competition while they reduce the incentive to free-ride. This is because there is little pay-off from evasion since, at each stage of the production and distribution process, the amount of VAT paid out in purchases is subtracted from the amount remitted out of sales. Evidently, providing inclusive services while avoiding incentives to free-ride can be a delicate balancing act. Nevertheless, in the context of appropriate institutional arrangements, it is a feasible one. Recent tax reforms in the Nordic countries have steered such a course bringing income taxes for high-income earners down to 50 per cent. Kept to this level, the tax system has a dual effect on economic activity: though effort is reduced as leisure becomes comparatively more attractive (the ‘substitution effect’), it is increased to compensate for lost income (the ‘incentive effect’). For what they’re worth, survey results from the USA and UK consistently show that over 70 per cent of respondents say that tax has no effect on their hours worked, while the rest are evenly split between income and substitution effects. (Lewis, 1982:200). 87

FROM THEORY TO PRATICE

Comparative studies of tax ethics and tax avoidance provide a good proving ground for hypotheses linking efficiency and redistribution. Unreported income in the US, where tax avoidance levels are lower than in much of Europe, was estimated at 16 to 24 per cent of reported adjusted gross income in 1981, a figure significantly higher than twenty years earlier (Feige, 1989:54). Critics attributed this to rising tax rates. But in the same period there was ‘a constancy for tax evasion as a share of GDP in Sweden…in the range 3.8 to 5.5% as a best guess…as a share of GDP’ (Hansson, 1989:230–1), despite taxes there rising even faster (222). Evidently other factors were at work, such as an increase in resources devoted to audits of tax returns, and new bookkeeping obligations upon firms. In addition, an increased proportion of taxpayers were employed in the public sector and in large firms where internal controls are stricter, and where people without close ties to the employer are involved in reporting taxes (231). These factors reinforced cultural predispositions. In 1958, 77 per cent, and in 1978, 75 per cent, of Swedes surveyed declared underreporting income a very or fairly serious offense (Hansson, 1989:222). In the context of existing institutional arrangements, it was not irrational for Swedish taxpayers to contribute high taxes and disdain free-riding, as it was based on an assessment that their system worked as it was supposed to in supplying services and distributing the tax burden fairly.12 Underlying judgements about fairness inform the enlightened self-interest of individuals who contribute to meeting the needs of others in their time of need, knowing that they or their dependents could also find themselves needing assistance. But fairness implies responsibility: all those seeking assistance are not equally deserving. Are they incapable of providing for themselves, like the aged parent, or dependent child? This is a matter of willingness to work—but also of the availability of work—of individual will, but also institutional conduciveness, and, finally, of knowledge. Institutional conduciveness is a reflection of the successful application of public policies. In the Nordic countries, generous support is extended in appropriate forms to those needing assistance involuntarily outside the labour market: the sick, the injured, the elderly, the young. Those apt to work are helped—and expected—to work. Thus people accurately perceive their taxes to go to others whose state of dependence is one that could very well befall them. The principle can be stated positively as the fifth guideline: wherever possible, encourage transfers through employment. It underlies labour market policy in Sweden,13 as well as, to varying degrees, its Nordic neighbours. Low income disparities achieved through centralized patterns of contractual negotiations ensure that the rewards to work are greater than the (comparatively generous) transfer stipends, while full employment makes redistribution through jobs possible. And, as we shall 88

INITIAL GUIDELINES

see in Part III, the principle of transfers through jobs is an expression of fundamental consensus over full employment—a consensus shaken but not cracked by recent economic problems. To sum up this last section, the crucial characteristic is that rules are respected; but they are respected because they are rational. Respect for societal rules is embedded in the traditions of the Nordic societies, but institutions are arranged so that the respect is seen to pay off. The question is: How exactly is it seen? ENHANCING VISIBILITY AND STRUCTURED PARTICI PATION There are two kinds of welfare gains due to knowledge dissemination. The first has to do with making informed choices over complex matters. The second has to do with discouraging free-riding. The knowledge dimension, explored in the next chapter, is built into many of the guidelines. We can express the matter here in the form of a sixth guideline, that of enhancing visibility: clear, systematic, reliable knowledge about the accessibility, cost, and benefits of services and the taxes that pay for them should be made available at the lowest cost to individuals. One application of the principle of visibility is through open government: that all members of the public have full access to all records of all public institutions (except those few specifically identified as intrinsic to state security), including documents, minutes, and correspondence concerning expenses incurred, and projects undertaken.14 Application of the principle is facilitated by ombudspersons who help individuals to gain the information and institutions to provide it. Regulations such as these inhibit free-riding by altering the pay-offs to alternative choices. If the outcomes of Smith’s actions are blurred, then Jones’s suspicion as to whether Smith is actually living according to the rules as she claims, are aroused. And once Jones chooses to free-ride, Smith will free-ride as well—even if she wasn’t doing so originally. In contrast, knowing that what one does is visible creates a context favourable to individuals choosing to ‘set an example’ for others. Ostrom (1990:138) describes how behaviour changed when voluntary associations for face-to-face discussions were established for certain water basins in California in the 1940s and 1950s. Once each gained certain common information and had a way of knowing what the other was up to, it was possible to set up mechanisms to collectively manage a common scarce resource. She sets as a major condition for successful cooperation that the individuals who benefit from the collective goods are so identified (Ostrom, 1990:90). While this may sound uncontroversial, application of the principle of visibility through the divulgation of tax records is unimaginable in North America, the 89

FROM THEORY TO PRATICE

effect of which is to encourage tax evasion as well as public ignorance over a key input factor determining policy outcomes. Yet, though the administrative details differ in the Nordic countries, all the information from personal, corporate and organizational returns is in the public domain, and, in Sweden and Norway at least, its being made public each year is given significant attention in the press.15 This practice is taken for granted; it is assumed that only someone with something to hide insists on keeping her income secret, since otherwise she would not want to arouse suspicion. The same principle applies to competitive practices in the marketplace. For example, the Danish Competition Act, which came into force in 1990, does not outlaw anti-competitive practices. Rather, the publicly appointed Competition Council is empowered to act where there are harmful effects, and where voluntary compliance does not succeed. The overriding principle is that of transparency. The control mechanism built into the law is of public access to all information about restrictive practices including bids, prices, discounts, bonuses, and the publication of the findings of all investigations (Sölvkjaer, 1992). The principle of visibility should be distinguished from that of privacy. My income is not my business only: where my money comes from and where it goes affects the community directly; my choices as to lifestyle do not. The public’s right to knowledge is not the same as the public’s right to know. The Scandinavian media are very reticent to publish or broadcast personal details about the lives of even ‘public’ personalities.16 Traditional Scandinavian culture grew out of a stable system of authority, at the centre of which was a state church, which left in its wake a strong respect for law, government and administration, combined with an expectation of thrift and honesty by officials (Koblick, 1975). The personal lives of leaders, as long as unrelated to their official functions, is their own business. But even minor ethical violations affecting their official duties, taking advantage of what are elsewhere considered normal ‘perks’ that come with the job, are subject to public scrutiny and rigorous sanction, since officials set a public example when carrying out their obligations (Heckscher, 1984). Setting too high standards risks inviting disaffection from political leaders, and, ultimately, alienation from community political institutions. In that sense, it violates the second guideline. As we shall see in Part III, the Nordic countries have not been spared from this universal phenomenon. Parties of protest on the right and left have sprung up, and in some cases prospered. There is a delicate balance to be maintained here too, between organizational efficiency in getting the job done, and respecting fundamental principles, just as there is in balancing disincentives against universal accessibility. 90

INITIAL GUIDELINES

Finally, enhancing visibility has an active dimension beyond that of ensuring transparency in taxing and spending. It entails gathering detailed and reliable information about the costs and benefits of alternative public policies and delivery systems. Investment into high quality scientific research into social conditions, and wide dissemination of its results in accessible yet objective form is required. The Nordic countries are, in general, very advanced in this area (Milner, 1989a), manifested especially in detailed longitudinal studies into living conditions (Ohrström, 1991:48–51) and intensive surveys of labour market conditions and the potential effects of alternative policies.17 Various national agencies (often in coordination with each other), usually supported by both state funds and those of affiliated interest organizations, coordinate research in specific subject areas. Government investigatory commissions, whose members include representatives from interest organizations as well as state bureaucrats and politicians, provide a public sounding board for researchers to present their findings and recommendations. The highly read print media, as well as noncommercial television and radio, frequently report and comment on this research. And specific organizations like the adult education associations, cooperatives, consumers’ organizations and trade unions have specific programmes to disseminate the information for purposes of discussion (Strombeck, 1991). Organizational cooperation is, of course, not confined to research into social policies and their effects. Indeed it forms a second, ‘corporatist’ dimension to institutional arrangements to be explored in Chapter 7. It is also practically connected to our earlier guideline of inclusivity in social service delivery. We noted above that the Nordic citizen has reason to actively contribute to the quality of the publicly distributed services. The general rule is that standards are universal, set centrally, but that local agencies autonomously deliver the services. Residents are prepared to be active on the boards or in working groups of these agencies since their families benefit from their contributions. Free-riding is not free: their contribution, and thus lack of it, is visible (in conformity with guideline six) to neighbours and friends in the knowledge that, if they too fail to contribute, it will bring a decline in the standards of the services. Thus participation is related to acceptance of responsibility. The Danish Parliament made explicit this expectation as it entered Phase I I I of its decentralization of services plan early in the 1990s to give ‘more influence to the users of services, [expecting]…more responsible behaviour…because [the voluntary organizations’] representatives on the board get budgetary accountability’ (Bogason, 1993:2). Moreover, many of these organizations are local sections of encompassing organizations; hence representation is set in the context of a wider set of ‘corporatist’ institutional arrangements (the peak levels 91

FROM THEORY TO PRATICE

of which are involved in setting and monitoring the overall standards) discussed in Chapter 7. The principle is that the local, regional and national public agencies (sphere III) delivering the required services should be, as is typical of the Nordic countries, responsible to boards on which sit representatives of encompassing organizations (especially business and labour from sphere II). We can refer to this seventh guideline as decentralized corporatist participation in public services. These guidelines, which will be fleshed out in institutional arrangements described in the next three chapters, are cast in such a form so as to flow out of the rational choices of living human beings—the defining characteristic of political economy. The classical political economists premised their theories on individuals having a rational interest in institutional arrangements that provided for a police force, an army, a system of highways and lighthouses, and, later, a system of public schools, subways, airports, etc. From that assumption, they took it for granted that individuals would find ways of obliging each other and themselves to pay for and run the required institutions. In much the same way, we assume that rational individuals have an interest in upholding the institutional arrangements that allow for complementarity between efficient allocation of resources and the maintenance of social solidarity. But, as experience clarified by the accumulated knowledge of political economy has taught, we cannot take it for granted they they will be able to act upon that interest. The overall configuration of a society based on institutional arrangements operating on democratic-egalitarian principles of political economy (what we term social democracy) has so far taken shape in the form of general guidelines, illustrated by practices in the Nordic countries. It is hypothesized that individuals in their actions, in voting, paying taxes, openly participating in voluntary associations and public agencies, and acquiring knowledge disseminated to them, are complementing policy choices that conform to the kinds of guidelines here identified. But for individuals to act in such a way, their expectations must realistically correspond to what they knowledgeably expect the institutional arrangements to be able to deliver.18 Comparative data cited above shows tax avoidance to be lessened by higher educational attainment and increased knowledge of fiscal matters. In order to act rationally, we have to know a great deal about the complex world in which we live, to understand the consequences of our choices upon the choices of others and thus on the institutional arrangements that structure our community. And, thus, most important among these institutional arrangements, are those that shape that very knowledge to which we turn in the next chapter. Figure 5.2 portrays the relationship between institutional arrangements a nd t h e o u t c o m e s o f i n d i v i d u a l c h o i c e s i n d e m o c r a t i c s o c i e t i e s . 92

INITIAL GUIDELINES

Figure 5.2 Institutional choices, arrangements and outcomes

Standard individual choices take place within the context of existing institutional arrangements, while institutional choices affect these arrangements directly or indirectly, so that institutional arrangements are themselves outcomes of institutional choices. Institutions are depicted as operating at three levels, the individual, the organizational, and the governmental, and are correspondingly arranged according to three dimensions, that of knowledge dissemination, the degree of corporatism, and the accountability of political structures. Figure 5.2 illustrates how these fit together. Outputs result from the choices of individuals directly as well as indirectly, as members of organizations such as firms, and through the policy process. To summarize, we have in this chapter set out certain guidelines for positive institutional choices, that is choices that sustain institutional arrangements resulting in egalitarian outcomes. We stress, as we have throughout, that they 93

FROM THEORY TO PRATICE

do not stand alone, that the effects of each impinge on the others. Moreover they are guidelines, not rules in the strict sense; even under appropriate institutional arrangements individuals in strategic positions at certain historical moments will make choices that, had they been otherwise, could have significantly changed the development of institutions. Scharpf (1991) provides a fascinating analysis of the choices of the governments, trade unions, and central bankers of four European countries which, faced with the oil shock, made different strategic decisions, the consequences of which they are still living today.

94

6 COMMERCIALISM AND THE KNOWLEDGE FOR RATIONAL INSTITUTIONAL CHOICES

As highlighted in Figure 5.2, the dimension of institutional arrangements most directly impinging on individual choices is that of knowledge dissemination. Application of the guidelines derived in Chapter 5 is contingent on people having the needed knowledge of outcomes of their combined choices: an increase in ignorance and uncertainty make the expressed preferences of individuals less ‘true’ (see Mesthene, 1974), less ‘substantively rational’ (Elster, 1983:2). The guideline most directly related to this first dimension is that of ‘enhancing visibility’. Ignorance as to the outcomes of the actions of others encourages freeriding by allowing for rationalizations based on assuming the worst. Specific policy choices, such as not keeping income-tax return information secret, make a difference. Accurate information allows us to make efficient choices over the consumption and production of goods and services. Similarly, it gives us a basis for confidence as to the what others are doing in paying taxes, participating in voluntary associations, voting, obeying the laws, and informing themselves about policy issues—even attending political meetings or otherwise acting to change or maintain laws or regulations. It allows us to act openly in making such choices since we want to contribute visibly to strengthening rather than eroding community bonds, ‘setting an example’ for others. Such information, as we noted in Chapter 4, is not costless. In a complex society, useful information must be gathered, assembled and analysed using accepted standards of valid research—in other words, scientifically. This entails social investment; it also requires public understanding of the need for such investment. And it requires educated adults able to make use of the knowledge gathered, able therefore to distinguish between scientifically valid and invalid information, as well as between bogus and legitimate credentials for claims of scientific authority (Milner, 1976). Without pushing the terms any farther than required, it requires, simply put, a citizenry capable of distinguishing science from magic. 95

FROM THEORY TO PRATICE

Once assembled, scientific information relevant to policy choices must then be disseminated in clear, accessible form. For the individual faces opportunity costs in the acquisition of such knowledge, characterized as the problem of rational ignorance. Understood as a form of defection in a game situation, rational ignorance gives rise to a positive institutional choice dynamic: since informing ourselves takes time and effort, we have an interest in being ignorant; but since choices based on ignorance will lead to poor policy outcomes, we have an interest in the community being informed. The solution is to be found in institutions that lower the costs of becoming informed for all members of the community— including ourselves. But how do we know (enough) to implement such a decision in the first place? It is here that historical factors enter, such as inherited Scandinavian cultural values. The Lutheran Church insisted that it was the responsibility of all adults to be able to read the Bible and other appropriate texts, and its efforts were largely responsible for the attainment of full reading literacy in Sweden by the seventeenth century. And despite the decline of the church as an institution in modern times, there remains a strong respect for the traditional institutions of the community (Koblick, 1975:10–13), including those prizing and regulating knowledge acquisition (Milner 1989:50–2). But inherited cultural factors are at most predispositions and not determinants of policy choices. This chapter looks at the institutional arrangements concerned with the dissemination of knowledge. Knowledge, for the purposes herein is the equivalent of information fostering rational choices. The choices of primary concern here are institutional ones in keeping with the general guidelines so far articulated, such as enlarging and strengthening encompassing organizations in the buffer zone, reducing positional competition, promoting efficient property rights, enhancing visibility, and reducing disparities. Fostering the dissemination of knowledge raises the challenge of supplying at low-cost, high-quality lifelong education. At the end of this chapter we shall look at certain Swedish policy choices in continuing education, consumer information, and support for popular culture as exemplary of the Nordic approach to knowledge dissemination. Discussion of knowledge dissemination is typically associated with the education of minors through the formal schooling process. Keeping discussion within these bounds avoids the difficult issue of freedom of expression. As long as knowledge is being directed towards the unformed minds of children then education is, in principle, distinct from manipulation. But when we consciously direct knowledge at adults, we run into the problem of who is to define just what appropriate knowledge is, since, by definition, each adult in a democracy is assumed to be as knowledgeable in deciding as any other. Except that we know full well that, in a complex society such as ours, this is not and cannot be the case. 96

COMMERCIALISM AND INSTITUTIONAL CHOICES

Given the rapidly changing world, knowledge dissemination must be undertaken as a lifelong project. Moreover, a comprehensive system of permanent education frees up the formal system of educating young people—once it has assured the teaching of the ‘fundamentals’, including the means of distinguishing science from magic—for closer alignment to the human-resource needs of the labour market. Such an alignment with human-resource needs is to be contrasted with credentialism which, as discussed in Chapter 4, results in a waste of educational resources. We argued then that better educated people within an appropriate institutional framework will work at highly sought-after jobs with far less additional remuneration than they receive in the US and elsewhere. We added that, especially if education is free, qualified young people will invest in their own schooling so that their talents may best be developed and utilized in their working lives without expecting significantly more pay in compensation. Operating within such general principles, a system of continuing education— widely defined—could be given the resources to disseminate the knowledge needed to appropriately educate adults: resources allocated to the system are such as to enable adults to make rational informed choices. The opportunity costs involved, that is the cost of acquiring such knowledge, would thus be brought down to the level of the marginal benefits of being informed rather than ignorant. But appropriate arrangements do not emerge sui generis. If adult education is left to the market, to the second sphere, then it will be both insufficient and distorted. For the market imposes its own content upon adult education—it is called commercialism, and its favourite means of transmission today is television. We need not be overly theoretical or speculative on this subject, for we have an almost clinical case study available: the contemporary United States. THE PERVASIVENESS OF COMM ERCIAL TELEVISION It is hypothesized in Chapter 4 that the fundamental threat to the acquisition of the knowledge needed to make appropriate choices lies in the commercialization of culture. Commercialism fosters an inability to clearly distinguish immediate gratification from the satisfaction of long-term interests and needs. In a commercial culture where the media of communication are dominated by television, choices are reduced to ones of immediate, individual consumption. Rather than increasing enjoyment in consumption by providing knowledge useful in choosing and using products, contemporary electronic advertising blurs over the logical distinctions necessary for rational informed choices. The distance between rationality and advertising is now so wide that it is difficult to remember 97

FROM THEORY TO PRATICE

that there once existed a connection between them. Today, on television commercials, propositions are as scarce as unattractive people’ (Postman, 1985:128). Linear thinking that links causes to effects and allows for logical consistency is, ultimately, incompatible with a culture dominated by commercial television. It is difficult to exaggerate this state of affairs in the US where most people can now choose among up to fifty or more television channels. Actively choosing to use television as a means of informing oneself becomes increasingly moot; instead, television, unlike every other form of art and communication, is simply there.1 There is an element of risk and uncertainty in life outside the home—and the mall. Television strips the world of such risk and uncertainty, and thus of awareness of the need to coordinate human efforts to operate within it. The nature of the medium combined with its message—‘you the individual consume what you the individual want irrespective of (indeed abstracted from) the wants or needs of others’—raises the terrifying fear that, at a certain point, consumers of television are rendered incapable of the kind of institutional choices on which rationally ordered complex communities depend. Americans own almost twice as many TV sets per capita as Europeans (UN, 1993:199). The US spends roughly 1.5 per cent of GDP on advertising of which 35 per cent is on television advertising (compared to roughly 0.9 and 25 for Europe (Maggiore, 1990:93–8). It is hard to see the US turning back on a road it has gone so far along. This is not to say that there is no awareness of the situation: quite the opposite, as the publications cited testify. Indeed, many of the hundreds of thousands of Americans who make voluntary donations to their local public television station are engaged in an effort to turn back the tide of commercialism. But there is no indication of any institutional alternatives appearing on the political landscape. While network television has declined in hours viewed in the last fifteen years, pure-entertainment pay TV, and narrowly focused cable-based networks have taken up the slack. Above we distinguished the principle of visibility from that of privacy. In a commercial culture my income is my business—though my getting and spending it hardly affects only me. But consumerism strips away real privacy. Data-bases exist filled with detailed information of interest to marketers about most American families, including age and income brackets, dwelling type, history of purchases and credit. Based on such profiles, people then are targeted by direct mail and automatic dialing campaigns (Smith, 1992) as well as the TV shopping channels. In 1990, the US post office delivered 63 billion pieces of junk mail, and canned messages were sent by telephone at 7 million per day (Baldwin, 1992). Subject to billboards and the like almost everywhere they look, Americans push shopping 98

COMMERCIALISM AND INSTITUTIONAL CHOICES

carts (in supermarkets often open 24 hours, seven days a week) equipped with monitors advertising and locating products they should buy. Of course cultural characteristics rooted in the pre-television age are also factors here. Americans, in the big cities at least, are often ready to discuss the most intimate aspects of life on a bus or an elevator, in front of strangers, something inconceivable in Northern European countries where not even friends, much less strangers, would pry into those aspects of one’s life. But are such cultural attributes beyond the reach of commercial institutional arrangements? By the 1970s, American corporations, following the lead of pioneers such as Disney Corporation, seem to have significantly altered American culture— irrespective of region. Disney world is the ultimate world of advertising: it undermines the very notion that products are there to serve a use, to meet a human need. Cartoon characters are made to seem as real as humans or animals; trees shading picnic tables turn out to be plastic; reality is appearance.2 Films about comic-book characters like Batman sell products, and the Disney television channel attracts advertisers seeking the child-centred market. Disney stores in the best malls sell 5 million Mickey Mouse souvenirs per day (Harper’s Index, July, 1985:9). Many Americans spend much of their lives outside home, work and school in these huge air-conditioned malls, where the advertisers’ message is so much a fact of life that it is largely imperceptible. Young people proudly wear clothes displaying name brands. Consumption homogenizes the culture, invading even the recesses of consciousness. Employees serving the public in these malls—and in the hotel, restaurant, entertainment, and travel industries—are, à la-Disneyworld and the TV commercial, trained to smile, to use first names, and deliver a carefully rehearsed patter—all designed to give the client the impression of being a personal friend. American experience shows how, by homogenizing communication signals in this manner, regional cultures are broken down. As multinational service enterprises adopt these practices, we can foresee a parallel ‘Americanization’ of distant and disparate cultures. The main force is, of course, television. In the US, print is following the lead of television, in such popular publications as People Magazine and USA Today, turning personal situations into ‘media events’. Daytime television incessantly invades the most intimate corners of life,3 while just about every well-publicized dramatic incident of violence finds its way into fictionalized TV dramas. In the neverending struggle for a greater share of the product-buying audience, the only criterion is the capacity of a programme to draw the viewers’ attention. In the words of Canadian critic, Morris Wolfe, American programmers discovered some time ago that most of us have short attention spans and that those attention spans can be easily manipulated. 99

FROM THEORY TO PRATICE

They realized that if a long time goes by without a jolt of verbal or physical or emotional violence on the screen, or if the picture doesn’t change quickly enough as a result of a jolt of rapid editing or camera movement, or movement by people or objects within the frame, or if the soundtrack doesn’t have enough decibels, viewers will switch to a channel and a program that gives them more of those things…’. Children graduate from Sesame street not to books but to high JPM (jolts per minute) adult TV… (Wolfe, 1985:15–19) THE TELEVISION GENERATIONS I have argued that the notion that education is limited to childhood has created an unfortunate obstacle to even discussing institutions disseminating knowledge to adults. Television advertising recognizes no distinction based on age. Its most harmful effects are on the young. A study by neuro-psychologist, Jane Healy4 noted that the child’s brain in the early years up to age 7 is plastic, restructurable. TV, she concludes, brings an estimated 20 per cent decline in creativity, in effect structuring the brain against learning. And advertising begins to take effect when young, before the educational resources can (one hopes) be acquired to glean information from manipulation. Television advertising aimed at the young in the US is notorious for its use of cartoon and media heroes directly integrated into programmes to sell products. In 1986, there were 62 US children’s programmes in which the key character was (based on) a toy they could buy in the store (Lapham, et al., 1987:53); 80 per cent of children’s TV programmes were produced by toy companies (Carlson-Paige and Levin, 1992). Such practices are inconceivable in most other Western countries, especially since a number of studies of prolonged childhood exposure to television demonstrate a positive relationship between exposure and physical aggression (Centerwall, 1993). The Nordic countries especially place very tough restrictions on war toys and the content of children’s shows. A 1970s National Science Foundation Study found three out of four American 10 year-olds watched television on a given day, more than twice the percentage for any other medium (OECD, 1982:13). Of American children 50 per cent watch a daily average of 6 or more hours of television (Gerbner and Gross, 1976). US children in the 1970s watched an average of 20,000 television commercials annually (OECD, 1982:13). In fact, children constitute a key advertising market. For example, in the November 1988 issue of its free magazine, Sky, Delta Airlines, ‘Official Airline of Walt Disney World’, advertised its new magazine, Fantastic Flyer given to children aged 2–12 on its flights along with a 100

COMMERCIALISM AND INSTITUTIONAL CHOICES

free Mickey Mouse visor and other trademarked items. Potential advertisers are told on page 106 that this is the way to reach millions of children on their way up in the world…. Fantastic Flyers are even more fantastic buyers. They’re the fastest growing market in the country. Influential kids, with affluent parents. Part of a powerful brandloyal market that impacts the purchase of food, clothing and electronics to the tune of $40 billion a year. No one has written more powerfully about the generation that grew up in front of the TV set than novelist Jerzy Kosinski: On television the world is exciting, single-faceted, never complex. In comparison, their own lives appear slow, uneventful, bewildering. They find it easier to watch televised portrayals of human experience—violence, love, adventure, sex—than to gain the experience for themselves. (in Newcomb, 1976:148–9) Two of Kosinski’s Experiments’ provide a highly disturbing picture. Once I invited students (from ten to fourteen years of age) to be interviewed singly. I said to each one, ‘I want to do an interview with you, to ask you some very private and even embarrassing questions, but I won’t record our conversation or repeat to anyone what you tell me. To start with, do you masturbate?’ And the kids, quite shocked…all hedged…. When I finished, I said, ‘Now, I’ll tell you why I asked you those questions. You see, I would like to film the interview and show it on television for thousands and thousands of people to see…’ An instant change of mood occurred…I told the kids…‘Your parents, your friends, strangers, the whole country will see it…. Each child was then asked to introduce himself or herself: full name, age, and address. They all answered without hesitation…about the most incriminating subjects, ranging from less common sexual experiences to acts of violence, thievery, acts of betrayal of one’s family, friends, etc. As long as the camera was on and the students could see themselves on the monitor they talked and talked and talked…looking directly into the camera with a straight face. (in Newcomb, 1976:150–1)

101

FROM THEORY TO PRATICE

I sat before the blackboard telling a story. Suddenly, an intruder from outside the room—prearranged, of course—started arguing with me and pushing and hitting me. The cameras began filming the incident and the fracas appeared on both screens of the monitors…. According to the record of a third camera, which filmed the students’ reactions, the majority seldom looked at the actual incident in the center of the room. Instead, they turned towards the screens which were placed above eye-level and therefore easier to see than the real event. Later…the children explained that they could see the attack better on the screens…without being frightened by ‘the real thing’…. And all during the confrontation despite my yelling, his threats, the fear that I showed—the kids did not interfere or offer to help. None of them. They sat transfixed as if the TV cameras neutralized the act of violence. (in Newcomb, 1976:142–5) These kids are now in their thirties, the second television generation. To what extent have the characteristics of the first television generation been compounded in their children and, soon, grandchildren? According to Harper’s Index (November 1991:19), 13 per cent of Americans describe themselves as addicted to television. Kubey and Csikszentmihalyi (1990:7) define learning as the ‘means to process information that stretches one’s present capacity to assimilate it’. Their wide-ranging study concluded that television viewing was inimical to learning. TV viewing was typically related to a low level of concentration and cognitive effort; choices were largely passive, ‘determined much more by scheduling and viewer availability than by content’ (pp. 79–80). There is good evidence that people who watch a great deal of TV tend not to follow plots; responses to questionnaires following the programmes show them to miss out on key facts (Moyers, 1989). In the mid-1970s, a study of that first generation compared the one-third of adults who watched more than four hours of TV to those who watched two or less hours daily. While the differences found were reduced somewhat when controlled for education, they remained significant. Only age proved a meaningful independent factor: the over-thirties, who had been children before television was pervasive, were less influenced than those under thirty. The heavy viewers were 35 per cent more likely to respond ‘can’t be too careful’ to the question ‘can most people be trusted’, and 33 per cent more likely to expect to be involved in some kind of violence, more often overestimating the percentage of law enforcement employees in the population (Gerbner and Gross, 1976).5 One study compared three Canadian communities at a two-year interval in the mid1970s, one of which obtained television for the first time in that period. It 102

COMMERCIALISM AND INSTITUTIONAL CHOICES

suggested a correlation between television and the problem-solving abilities of individuals. Residents of a town without television solved the…problem faster than residents of towns with television, and those who were not successful kept trying longer. Two years after the arrival of television, Notel residents still persisted longer [but] so few solved this problem that performance comparisons could not be made. (Williams, 1986:402–3) Obviously television as entertainment and information can be a positive element in people’s lives, especially people living alone. But, while choosing what to watch may appear a simple market choice, it is not usually so; it is more like being offered unlimited amounts of unwholesome food, drink and drugs at no cost. The talk shows seem to satisfy the thirst for knowledge at no cost. Yet just because they are effortless, requiring no prior knowledge, no follow up, no direct cost and—unlike print—no real possibility of verification, they are obstacles more than means to knowledge acquisition—if knowledge is understood to include the capacity to explain, to link cause to effect in a complex institutional environment. Television’s capacity to rapidly bring scenes of a natural disaster into one’s living room can elicit spontaneous generosity from people halfway around the world. As long as the disaster is of the nature of an earthquake—immediate, dramatic, unavoidable, simple to understand, usually remote, and requiring short-term rapid assistance, television best serves the needed purposes of providing visibility. But such disasters, however devastating, are the exception when it comes to human misery; most problems causing human suffering are undramatic and long lived. Complex economic, geographical and historical information are needed to enable people to make sense of the images they see given the shading that surrounds most controversial issues and events. Lasting printed information is essential. Yet there is only one daily paper sold for every four Americans; only 40 per cent of Americans under 30 say they read a daily newspaper (Harper’s Index, October 1990:17).6 The limitations of the television as a conveyor of complex information combined with its being driven by commercial considerations makes for a lethal compound. One example; in 1994, California passed a much-criticized law condemning perpetrators of a third felony to automatic life imprisonment. The cause of this drastic action was not rising crime rates—violent crimes had actually declined—but the publicity surrounding certain violent crimes—one in particular. High ratings sell advertising; visually dramatic news stories delivered by 103

FROM THEORY TO PRATICE

handsome, charming newscasters bring ratings, complex explanations of difficult problems do not. Local newscasts are especially vulnerable to such considerations, following a well known rule: ‘if it bleeds, it leads’. The practically universally commercial US broadcasting system is at one extreme here with the Nordic countries7 at the other, and other European countries in the middle. In Europe, there is still a widespread assumption that television is primarily a medium of public service (Lange and Renaud, 1989:56). ‘As is the case with the radio sector, public television also enjoyed a dominant position in 1990 with only two exceptions, France and the Flemish speaking community of Belgium’ (Sanchez-Tabernero, 1993:81). The European nations have reached an agreement limiting advertising interruptions to every 45 minutes or more in feature films, and otherwise to 30 minutes or more, on the stipulation that the programme’s integrity is not compromised (Maggiore, 1990:34). While non-commercial television is a distinct feature of European cultural life, it is a jarring deviation from that in the US. Though US public broadcasting provides high-quality (low jolts per minute) entertainment—usually through importing it—and sometimes incisive documentaries, PBS is timid with regard to any issue considered ‘political’. To be safe, the PBS ‘McNeil-Lehrer News hour’, which is especially sensitive to any charge of bias, gives the airwaves to those with legitimate entrenched positions, careful to give both sides equal time regardless of the merits of their positions. Such confrontations, especially on a medium such as television, can be expected to shed heat rather than light on an issue. But PBS is a minor player; Americans by and large rely on commercial television for information needed to cast their votes. One study concluded that political advertising can overwhelm news coverage (Kern, 1989). In a series done for PBS in 1989, Bill Moyers portrayed how candidates test television speeches just as agencies test programmes or commercials. The reaction of sample viewers are measured by electronically recording responses to each ‘blip’ and the speech restructured accordingly. Television’s multi-modal character makes it a uniquely effective vehicle for communicating deceptive claims…. We can retrieve meaning from televised communication quite readily, as compared to the cognitively more demanding media of print or radio. But there’s a trap. A central tendency is for information processors to assume that pieces of information communicated via different channels, but at the same time or in the same space, are consistent with one another. Television communication can take particular advantage of this tendency because it is…visual, aural and verbal. …We are not trained to decode it…. [For example] the Bush ad attacked the Massachusetts furlough program, showing an apparently endless ream 104

COMMERCIALISM AND INSTITUTIONAL CHOICES

of convicts passing in and out of prison through a revolving door…. At one point in the ad, the narrator speaks of first-degree murderers escaping from the program. This is followed immediately by a caption reading “268 escaped.” …This juxtaposition…conveys the unspoken claim that hundreds of murderers escaped from the furlough program when, in fact, only four escaped. (Boiney, 1993:7, 13; see also Jamieson, 1992) Michael Deaver, who was responsible for Ronald Reagan’s media image, candidly told Moyers that he didn’t care what reporters said about Reagan as long as they transmitted the visual and sound package he devised to portray Reagan as he wished. Moreover, network executives sometimes edited out comments by the reporter which did not jell with the visuals and audios as conflicting with the ‘public’s desire’ for positive content. Ironically, Moyers found that many viewers, when asked, exclaimed dissatisfaction in their own manipulation by the campaign publicity—even as they admitted its effectiveness in getting their attention. COMM ERCIALISM, RELIGION AND VIOLENCE At some level, it seems, many Americans are aware of the limitations the world of commercial television is imposing on the knowledge of the range of choices open to them; yet it is a level they know that they cannot act upon. From the perspective taken here, decisions such as these over the institutions disseminating knowledge, are the most crucial for institutional choices. As it fosters passivity and voyeurism, commercial television divorces awareness from understanding and responsibility. Taken to its extreme, the effect of the commercialization of culture via television is knowledge failure: individuals are rendered less capable of making rational institutional choices. Positive institutional choices, it was seen, can only be expected in the context of an Iterated Prisoners’ Dilemma relationship between those affected by each other’s choices. In effect, commercial television undermines iteration by bringing into one’s home individuals who evoke intense feelings and play upon them to elicit consumption choices, but with whom no interaction is possible and no understanding necessary. Television is literally and figuratively magical. It creates life, bringing magic into one’s home. And what is magic but the removal of the normal constraints that restrict our actions, breaking the link of responsibility between what we do and its consequences. The most successful American films take nice, ordinary Americans into time travel (Back to the Future), to meet extra-terrestrials (E.T.), or back from the dead (Ghost) to solve problems that cannot be solved in the course 105

FROM THEORY TO PRATICE

of ordinary existence. The content of such films subtly conveys a message expressed more overtly in ‘pray TV’, programmes run by ‘televangelists’ to sell their own particular brand of religion. According to the 1987 U.S Statistical Abstract (p. 535), 43 per cent of Americans sometimes watch religious programmes and 18 per cent watch them frequently. Indeed, religious broadcasters are on fertile ground. One particularly revealing aspect of contemporary American culture is the depth of religious belief—despite the US being the country that has longest separated Church and state. Belief in a Personal God is held by 65 per cent of Americans, 85 per cent pray or meditate, 84 per cent believe in a heaven, 67 per cent in a hell, 66 per cent in the devil (Gallup and Castelli, 1989) and 69 per cent in angels (Time, December 27, 1993). These numbers are roughly double those of European countries—Ireland excepted—with the Nordic countries at the bottom (Iannacone, 1991). For a great many Americans, religion today functions very much like television advertising. Pray TV is not, like mainstream religion can sometimes be, a shelter from commercialism, but another manifestation of the same phenomenon.8 Both commercial and religious ‘advertising’ create a magical link between things that are not connected, promising something they are inherently incapable of delivering. Believe in Oral Roberts’ teaching and you will walk again or receive a new car; drink Bud Lite and you will be beautiful and happy and have many fascinating, attractive friends. The connection is subjective through the context created by imagery and sound; the products themselves are unrelated. TV religion, like advertising, raises aspirations it can only frustrate. Many Americans are predisposed to look to miracle cures for physical ailments, for divine intervention in acquiring wealth. Since pray TV is largely Christian in inspiration, it is able to take advantage of a social legitimacy and legal status denied to the many astrologers,9 palm readers, ESP experts and most nonJudeo-Christian religious cults. All of these are forms of magicalism: intrusions of the irrational into everyday life. Religio-commercial television magically turns the consumption of products into the triumph over misery, decay and boredom. The gun is another magical solution, turning the weak into the strong, the impotent into the omnipotent. Six out of 100,000 Americans, 11 of those aged between 15 and 19, die by guns each year (The Economist, June 20, 1990:26). Every day 63 Americans die by the gun; one quarter of them children.10 Time, in its July 17, 1989 issue, pictured 464 Americans killed by firearms during the first week of May of that year; almost half were suicides. Many of the younger ones acted after arguments. Girls shot themselves in front of their boyfriends, husbands killed themselves after their wives left them, desperate men shot their spouses in quarrels and then turned the 106

COMMERCIALISM AND INSTITUTIONAL CHOICES

guns on themselves. The happenstance of an impulse and the ready availability of a gun were the fatal combination. The violence described is an expression of the frustration exacerbated by intensifying positional competition, and probably by increased exposure to television (Williams, 1986), yet hardly a rational one. Few of the 216 suicides described in Time are of elderly persons facing a painful terminal illness. Rather, the presence of the gun turned an impulse into an irrevocable act;11 the same is true for many of the homicides. According to Newsweek (August 2, 1993:45), homicides committed by Americans under 18 using firearms more than doubled (from 800) between 1976 and 1991. The easy access Americans have to firearms is an illustration of an institutional arrangement that promotes irrational behaviour. And television is not absent from this picture.12 Koszinski’s kids have grown up: novelist Don Delillo writes of the narcotic undertow and eerie diseased brainsucking power of television…. People themselves are becoming small branches of the media. There’s a theatrical element to committing acts of violence which has entered the culture. The assassin is acting not only at the present moment, but also at the moment of public consumption—the footage, the television, the photographs, the write-ups. People behave in the third person. They are becoming their own espionage agencies, their own television stations. They are filming police beatings and babysitters slapping on kids. As time goes on, less and less happens in private. (in Leith, 1992:78–9) THE SCHOOLING OF THE TELEVISION GENERATION The ‘failure’ of American schools has been the subject of much discussion and attention from politicians, journalists and academics. Improvements such as a longer teaching year, pay incentives for better teachers, and vouchers to enable parents to ‘buy’ better schooling for their children have been proposed and in some cases implemented. But few have addressed the link between poor knowledge acquisition and the commercialization of culture, despite the clear evidence that children of the same intelligence who watch more TV become poorer readers (Williams, 1986:396).13 The following statement from Benjamin J.Stein, a man who conducts focus groups in Los Angeles, is cited by E.D.Hirsch (1988:6):

107

FROM THEORY TO PRATICE

I have not yet found one single student…in either college or high school, who could tell me the years when World War II was fought …when World War I was fought…when the American Civil War was fought…. Only two could tell me where Chicago is, even in the vaguest terms. The 1990 National Geographic survey found the geographic knowledge of Americans, especially young ones, to be abysmal: in fact proportionately more Swedes than Americans had a roughly accurate picture of the US population. Most young Americans are cut off from the world, not knowing where their own experience fits in, and, unaware of their condition. Living in a geographical and historical vacuum, they know the names of stars of TV shows and rock videos, and can identify product brands,14 but they have no compass to guide their way in the world, to make sense of events and issues, and choose among alternative policies. The well-known American commentator Charles Krauthammer (1993) blames the educational system for its obsession with self regard…. A recent international study compared the mathematical proficiency of 13-year olds in six advanced countries. The United States ranked last…. Asked to rate how good they thought they were at math, the Americans were number one…. They were a modern pedagogical success, the principle aim of primary education today being to instill students with self-esteem. The difficiency in mathematical knowledge feeds the tendency towards magicalism. A study cited by The Economist (October 30, 1993:99) finds that the one-third of Americans who believe in telepathy and other forms of parapsychology are also those who have a poorer grasp of probability. Is it possible to imagine a significant reduction of commercialism in American television, or of a decline in the importance of television viewing? The penetration of commercialism and the average viewing rates are discernibly lower even in nearby Canada whose elites have long battled against Americanization of the media. It would require a major investment in adult education to provide alternative networks of information. To do so within a commercial-televisionbased culture entails institutional changes that are practically inconceivable in the context of American institutional arrangements. A simple indication is provided by the fact that the subject was entirely absent from the discourse surrounding the Clinton campaign (see Marshall and Schram, 1993). At best one can opt out by not owning a television, or watching and supporting PBS. Ultimately this alternative is an individualistic one: to try to earn enough and 108

COMMERCIALISM AND INSTITUTIONAL CHOICES

pay as little as possible in taxes so as to be able to send one’s children to elite private schools that, one expects, create a learning-oriented rather than televisionoriented environment. But in so doing, of course, one reinforces the exclusionary nature of institutional arrangements and thus the inegalitarian outcomes of these arrangements. Scandinavian institutional arrangements show that it can be otherwise—even if such arrangements are unattainable in the American context. THE SCANDINAVIAN ALTERNATIVE The Swedish approach to knowledge dissemination, and that of the Nordic countries as a whole, is diametrically the opposite of that described above. One dimension of the institutional choices relevant to knowledge dissemination in the Nordic countries was explored in the discussion in Chapter 5 of the application of the principle of visibility. Chapter 4 touched upon educational policy in linking it to distribution policies and arrangements. Sweden has gone furthest among Western nations in reducing income differentials tied to educational attainment—even though the trend was reversed somewhat in recent years. In the early 1980s, Swedish graduate economists and engineers net lifetime earnings were estimated to be roughly 25 per cent higher in the private sector and 10 per cent higher in the public sector than those of industrial workers (Hibbs, 1990), and net lifetime income of highly trained medical officers to average less than 1.5 times that of welders (Persson-Tanimura, 1988). Another study found that the wealthiest 3 per cent of adults were only marginally better educated than the average (Vogel, 1990:48). Conversely, though educational credentials are little rewarded by additional disposable income, disincentives towards their attainment are reduced since almost all aspects of comprehensive schooling, including transport and lunches, are free. There are no tuition fees at the post-secondary level, and stipends and affordable loans are readily available. As a result, the positional battle for education is, by American standards, inconsequential. A few who go on to higher levels of education do so for the intrinsic pleasure of learning. However, since this need is addressed through an extensive adult education system, most do so as a means of attaining qualifications for doing the kind of job they aspire to and feel suited for. In its content, Swedish post-secondary education is far more practical and career oriented than in North America, with no equivalent to the general BA or BSc.15 One quarter of all university places are guaranteed to those 25 years of age and over with at least 4 years’ work experience.16

109

FROM THEORY TO PRATICE

The education system for young people is both egalitarian and oriented towards the human-resource needs of the economy. Even in the most academic of courses, students spend some time in on-the-job experiences. From the age of seven to 16 all Swedes go to virtually identical schools. [Then]…they must choose whether to continue on a course that leads towards university or start to learn a trade. Sweden’s obsession with educational equality…[shapes] children’s attitudes towards learning in their early teens. This is when many pupils in other countries are turned off education because they are told they are dunces…. In encouraging all Swedes, even after they have been streamed, to keep on with their general education… [they] managed to keep all their 16-year-olds in some form of education or training for at least two years. (The Economist, November 12, 1989:16–18) Such egalitarian outcomes were not achieved without controversy. Though traditional Swedish education promoted universal literacy and knowledge acquisition, it was elitist and stratified. The egalitarianism of the people’s high schools movement of the nineteenth century and of the public education reforms in this century were contested by conservatives, and there remain important divergences over curriculum and teaching methods as seen in recent changes undertaken by the present Conservative-led government. In opposition, the Conservatives regularly criticized the schools as insufficiently demanding, and, now in power, have moved to reform them by placing more ‘knowledge-based’ requirements in the curriculum. Despite the criticisms, on the whole, the Swedes’ performance in international tests in language and literature, science, and mathematics has been more than adequate (Stenholme, 1984:129–31).17 Beyond divergences over the content of formal schooling, there developed over the years a basic consensus on culture that was consolidated in the early 1970s. An important expression of that consensus is to be found in a comprehensive bill on cultural policy adopted in 1974, when the Swedish Parliament was equally split between left and right. The third goal as expressed in the preamble (the first goal was ensuring freedom of expression, and the second was affording an outlet for personal creativity), was to counteract the negative effects of commercialization. This was to be accomplished especially by emphasizing the experience of neglected groups, fostering cultural and artistic renewal, preserving Sweden’s cultural heritage, and promoting international cultural exchange (Bjorksten, 1991).18

110

COMMERCIALISM AND INSTITUTIONAL CHOICES

Despite worsening economic conditions and government spending restraints, both the Social Democrats in their last (1990/1) Swedish budget, and the bourgeois government in its first budget the following year, found room for expanding resources for cultural affairs. That budget supported a wide range of expositions, museums, and performances of various kinds. In addition, there continues to be significant input from interest organizations in cultural policy development and implementation. Labour as well as business representatives sit on the boards of the Society for Art Promotion which finances and promotes paintings and cultural products, and of Skadebanan, which promotes popular theatre. A key operating principle of the entire Swedish system of knowledge dissemination is the lessening of the cultural distance between the classes. The trade unions take very seriously their mandate of improving the cultural as well as material conditions of their members. Many local unions have designated ‘book ombudspersons’ to encourage and facilitate reading among employees. No hard and fast distinction is made here between cultural institutions and programmes and adult education. Of Sweden’s expenditure on education, 10 per cent is earmarked specifically for adult education. About 50,000 people benefit annually from municipally run courses aimed at enabling adults to complete their formal education. The largest number, fully one-third of adults in any given year, take advantage of free language, mathematics and civics courses as well as a large number of subsidized general-interest study circles offered by the ten adult education associations.19 Swedish adult education is concerned with the primary mission of continuing education as conceived here, namely knowledge for life. The range is almost boundless, from increasing skills in a foreign language, in computers or accounting methods to developing an appreciation of music. Sometimes classes are directly oriented towards gaining the knowledge to make rational, informed choices in specific and complex areas. For example, ABF, the large adult-education society affiliated with the Swedish Labour Confederation (LO), developed ‘games of health’ intended to help people find ways to overcome their particular health problems (Strombeck, 1991). During the nuclear power debate in the 1970s, many thousands participated in study circles on the subject, while in 1993, ABF had approximately 50,000 people participating in study circles on the subject of EC membership. Study circles sometimes receive special state funding to focus discussion on important questions of the day, from local issues such as threatened plant closings and green space in planned urban development to national ones such as the pros and cons of nuclear power in 1979–80 and the uses and abuses of computers in 1982–3 (Oliver 1987:49–51, 57–9).

111

FROM THEORY TO PRATICE

Then there are specific courses aimed at vocational retraining and upgrading. Altogether almost 1.5 million Swedes receive some form of employment training in a given year (Abrahamsson et al., 1990). More than 60,000 of these participate at a given time in various specialized manpower training courses20 averaging (in 1989–90) 38 weeks in length (AMS: 1990:22), and over 25,000 trade union members annually follow labour education courses to improve organizational skills, interpret financial documents, and understand economic and social policies. The first section of the Swedish Social Democrats official position paper on EC membership negotiations is entitled ‘Democracy and Publicity’. It appeals to the experience and activities of Sweden’s popular movements… the distinguishing character of [which] is that it emanates from the conviction that everybody is both desirous and capable of playing a part in the running of society. This in turn is based on the conviction that the individual is capable of acquiring knowledge and insights which will enable him to play a part in the life of the community. (SAP, 1993:6) The related subject of vocational training is taken up in Chapter 9 as well as in the next chapter’s discussion of the ‘German’ approach which places vocational training at the centre of economic strategy and institutional arrangements in the labour market. But the statistical evidence in the education survey of the OECD (1989:37) is unequivocal: the US and Canada place a negligible proportion of young people aged 15–19 in vocational training compared to European countries. In Sweden—along with France and the Netherlands—roughly half of students at this age are in vocational training; in Norway, Finland and Japan21 it is onethird. The leader is Germany, with over two-thirds enrolled in its ‘dual’ system in which young people divide their time between vocational education and onthe-job training. Denmark is close behind. In sum, adult education is the other side of the coin of de-emphasized commercialism. We have already noted that books borrowed in public libraries, or book titles published in the Nordic countries is twice or better that of North America and the EC average. There are about 150 daily newspapers in Sweden with a combined circulation of about 4.5 million or, on a per capita basis, 3 times as many as in the US,22 and their survival is due in part to subsidies allocated to all newspapers except those leading in their markets. There are also 85 weekly newspapers and 46 magazines. Local public libraries provide free home delivery for the housebound. Library services are also provided in hospitals and homes for the elderly.23 112

COMMERCIALISM AND INSTITUTIONAL CHOICES

Comparatively speaking, popular culture is non-commercial. Swedish radio and, up until recently, terrestrial (non-cable) television are commercial-free, supported by licence fees paid by TV-set owners, and run by a public corporation the majority of whose board members come from the adult education associations. The average Swede watches 104 minutes of TV daily. The two television channels devote 40 per cent of weekly viewing hours to programmes that are information rather than entertainment-oriented. The media are able regularly to provide the less upbeat and dramatic information that make for a more knowledgeable public. Still, though commercial inroads into Nordic cultural institutions are not insignificant,24 we are a long way from North American patterns. Above we described the targeting of children by American advertising; the very idea strikes horror among Scandinavians. And, while the examples drawn have been Swedish, we can generalize to the Nordic countries as a whole since what they have in common when it comes to adult education, vocational training, and the deemphasis of commercialism is more significant than where they diverge.25 This commonality is reinforced in wide-ranging cultural exchanges through the Nordic Council and a number of other structures. The low levels of violent crimes (Garnhan, 1991:27–8) and religious attendance (Iannacone, 1991:173) complete the contrast with the US. A North American visitor, used to being bombarded about how, when and where to consume, will find something distinctly missing. The low degree of commercialism belies something more profound, an absence of magicalism in everyday life: a reflection of profound cultural values, but also the result of institutional choices made by an informed population.

113

7 CORPORATISM, ORGANIZATIONS AND INSTITUTIONAL CHOICE

We are making some progress at identifying the principles of social-democratic political economy. Putting into practice a preference for institutional arrangements conducive to the reduction of inequality and the elimination of poverty was seen to encounter two problems. The first is insufficient knowledge about the outcomes of our choices in the context of the choices of others in a complex society; the second is free-riding. In a stable community, the problem of freeriding takes the form of an Iterated Prisoners’ Dilemma, in which members rationally search out appropriate institutional shields against such free-riding. And once the problem of insufficient knowledge is also cast as as a form of freeriding, that of rational ignorance, it too can be incorporated into rational-choice based new institutionalist analysis. Such an analysis, it was proposed, adds a crucial missing element to our understanding of institutional arrangements leading to egalitarian outcomes. Chapter 6 portrayed how unchecked commercialism in the electronic media stands in the way of the requisite knowledge acquisition. It concluded that reduced commercialism plus intensive investment in adult education in its widest sense are key positive institutional choices required to reduce rational ignorance. Institutional arrangements to this effect were characterized as those of the first dimension (as depicted in Figure 5.2). We noted that this first dimension is ignored by all but a handful of scholars in both the rational choice and neocorporatist1 literature. In this chapter we turn directly to that literature. Though more amorphous than the work of the rational-choice/public-choice school of policy analysis, a wide body of writing is to be found bound by the common thread of the distinction between corporatist structures, associated with the Nordic and certain small European states, and ‘pluralist’ structures. Much of this writing self-consciously identifies the workings of corporatist institutions with social-democratic regimes achieving more egalitarian outcomes. We do not quarrel with this association, indeed we build on it. But where 114

CORPORATISM, ORGANIZATIONS AND CHOICE

neocorporatist analysis tends to take this association for granted, as resulting from trade-offs at the top of peak interest organizations, our focus on the individual as member of these encompassing organizations, or as citizen, obliges us to treat it as a problem requiring a solution. The first dimension to the problem is that of rational ignorance. Can we expect corporatist structures to adequately disseminate the knowledge informing individuals of the effect of their choices in sustaining or undermining the very institutions that reduce rational ignorance, including those limiting commercialism in communications and disseminating research-based knowledge through adult education networks? We follow the main thrust of neocorporatist analysis in focusing attention upon encompassing organizations, but we stress the choice situation confronting the individual members when it comes to actions and demands strengthening or weakening these organizations and the institutional arrangements in which they operate. In Chapter 5 we stressed the importance of inclusionary rather than exclusionary public services, and of low income disparities so that the better-off have an interest in contributing to the quality of these services through their efforts and taxes. We noted the role of encompassing interest organizations in this process, in setting and monitoring standards of efficiency and quality and in naming answerable representatives to the boards and agencies at the different levels through which such contributions are made—activities labelled as being in the buffer zone linking the government structures with the private and voluntary sector. We now turn our attention directly to this second, organizational, dimension as depicted in Figure 5.2. Whereas, in addressing the first dimension, we sometimes felt to be entering forbidden territory, the second dimension takes us onto much-travelled terrain. The literature on neocorporatism is so wide that to mention any specific contributions is to overlook others. Our approach will be to set the neocorporatist analysis against the critique of the public-choice school in an effort to develop a kind of synthesis. By incorporating the first—individual—dimension into the analysis, we attempt to mesh the methodological individualism of rational choice with the organization-centred thinking of neocorporatism. TH E EM ERGENCE OF NEOCORPORATISM Developments in the 1980s which discredited Marxism and seemed to vindicate the public-choice/neoconservative critique of the welfare state left a theoretical vacuum for those who valued the redistributive outcomes associated with Scandinavian social democracy. Yet, a contender for filling that vacuum was already on the horizon. Important intellectual developments had been taking place among European social scientists studying the interest groups, 115

FROM THEORY TO PRATICE

organizational networks, and party structures of (smaller societies of) Europe, and operating within a different framework from those of their colleagues in the Anglo-Saxon countries (see Lijphart and Crepaz, 1991). In the 1970s, some American and British social scientists interested in continental Europe added their weight to this school of thinking which had come to be known as ‘neocorporatist’. By the early 1980s the ranks had swelled with the arrival of social scientists previously associated with variants of Marxism (see Cawson, 1986:3). For European neocorporatists, the reality of interest organizations in their countries was not one of competing for the favours of a ‘neutral’ elected government—as the standard ‘pluralist’ American works assumed. In fact, the groups cooperated among themselves and tended to be incorporated by government directly into the decision-making process (Rokkan, 1966). A corporatist society, a ‘negotiated economy’ (Neilsen and Pedersen, 1988), simply defined, is one in which policy is the outcome not of competing interests mediated by the state, but of ‘concertation’ (Goldthorpe, 1984), ‘productive coalitions’, (Streeck, 1988:230), a ‘social partnership’ between ‘peak’ or ‘encompassing’ representative organizations (Schmitter, 1981; 1985). Once developed, the neocorporatist theoretical framework was increasingly applied to societies such as Austria, Sweden and Norway (Lehmbruch, 1984) in which centralized trade unions and social-democratic parties played key roles. Unlike for the pluralists, neocorporatists did not place all interest associations on the same level, stressing the role and structure of organizations operating in the labour market: the trade unions and the business-interest organizations. Measures of corporatism that were advanced included: the percentage of the labour force in trade unions, the degree of centralization of trade union structures, the importance of the peak labour organizations in collective bargaining, the scope of collective bargaining, and the extent of worker participation in management (Cameron, 1984; Lange and Garrett, 1985). Others stressed the scope of government activity (Martin, 1988), the political strength of labour parties (Muller, 1986), the relative strength in the trade unions of workers in the sector exposed to international competition (Crouch, 1990), the extent to which business operates in a cohesive and coordinated manner (Dore, 1990),2 and whether the economy is a small and open one (Cameron, 1978; Katzenstein, 1985). Clearly, several of the key features associated with corporatism are characteristics of countries where social democracy is entrenched; indeed, one recent book describes these structures as in fact constituting the social-democratic form of government (Bergounioux and Manin, 1989).

116

CORPORATISM, ORGANIZATIONS AND CHOICE

We are here interested primarily in the organizational characteristics of corporatism, the second dimension depicted in Figure 5.2. In Chapter 9 we shall be concerned with their supranational aspects as stressed by Cameron, Martin and others. We do not view organizations as unconnected to the ‘cultural’ dimension developed in earlier chapters. For Katzenstein (1985), a culturally based belief in the value of social partnership is a third fundamental characteristic of corporatist societies along with centralized and concentrated interest groups, and a voluntary system of policy coordination. Albert (1991) develops an analysis along this line setting out two competing systems of values underlying a market economy. In the neocorporatist, or ‘Rhenish’ model as he calls it, since it was developed in the countries along the Rhine, as opposed to the neo-American (pluralist) model, ownership of the means of production is understood to carry with it social responsibility, and expressed through cooperative long-term relationships. Once industrial democracies came to be classified along corporatist/noncorporatist (pluralist or laissez-faire) lines, it became possible to compare them along a whole series of performance indicators3 and thus test a number of hypotheses. Typical classifications put the Anglo-Saxon countries at the noncorporatist pole, while near the corporatist one are found the small Northern European countries and West Germany. With compact computers capable of quickly and cheaply assembling and statistically testing great amounts of data, empirical work applying these classifications has been prodigious, at least in quantity. One observer summed up the data as revealing that ‘a consensual political structure and practices of a corporatist mode of interest intermediation and conflict regulation leads to a more reasonable economic performance’ (Keman, 1984:166).4 Korpi, a neocorporatist in all but name, divides Western countries into those characterized by pluralism, and those characterized by societal bargaining,5 in which groups with differing interests take those of the other parties into account in informal or formal tri-partite bargaining.6 At least until recently, corporatist institutional arrangements were positively associated with the level of employment in a society, but when economic growth and inflation are included as measures of performance, the picture becomes blurred (Scharpf, 1981; 1987). Yet, with the high-employment Nordic countries and Austria doing reasonably well in overall economic performance from the 1950s up to the late 1980s, most neocorporatists, since they tended to give great weight to employment levels, discerned a positive correlation between economic performance and the level of corporatism—especially if Japan is kept out of the non-corporatist category.7 According to Keman and Whiteley, (1987:207), the development and existence of corporatist characteristics marks a movement from conflict to cooperation in societal economic policy-making. 117

FROM THEORY TO PRATICE

THE U-SHAPED CURVE Not all neocorporatists were comfortable with a unidirectional analysis. There was general agreement that the Nordic countries and Austria, with their encompassing interest organizations, social-democratic parties continuously in or near power, small size and economic vulnerability, were successful at implementing the ‘neo-corporatist strategy for economic growth’ (Paloheimo, 1984), or running a successful Keynesian welfare state (Martin, 1988). But even before recession set in as the 1990s began, certain analysts were discovering an economic growth curve that changed directions. At the other end of the curve there was a non-corporatist path, the ‘laissez-faire strategy for economic growth… which succeeds in certain countries with dominant neo-conservative parties and where there are weak and fragmented trade unions’ (Paloheimo; 1990, see also Pohjola, 1991; Steinmo, 1988). The relationship between economic performance and degree of corporatism was pictured as a ‘U-shaped curve’ as in Figure 7.1. The success of both the laissez-faire8 and neocorporatist strategies depend on the ‘fit’ between the specific characteristics. Only in the highly unionized countries did more centralized bargaining correlate with lower rates of inflation and unemployment (Paloheimo, 1990).9 As long as it was largely confined to political scientists and sociologists, neocorporatist thought was deprived of sufficient cross-fertilization with the public-choice school which is attuned essentially to developments in mainstream economics. But the fading respectability of alternatives to the market system brought neocorporatists closer to mainstream political economy. In Chapter 2, we saw in the work of Scharpf an example of a neocorporatist scholar turning to game theory conceptualizations within a rational-choice framework. In this framework, corporatist arrangements are modelled as cooperative solutions to a prisoners’ dilemma, that of a macroeconomic social contract or trade-off at the top in which potential losers are adequately compensated. Perceiving their interests in a wider context and over a longer time frame, highly representative and centrally focused (encompassing) groups choose actions that reduce the (information and transaction) costs of economic activities. Labour restrains demands for money-wage increases and collaborates on industrial adjustment in return for a ‘social wage’ in the form of social security and full-employment policies; the additional cost that the social wage places on firms is balanced by benefits in the form of greater wage stability, fewer work disruptions and more openness to new technology. Hence both sides realize a net welfare gain.10 Such a conceptualization of corporatist institutions complements the notion of a U-shaped curve when it comes to outcomes by making room for the efficiency considerations advanced by economists. It has recently been taken up by a 118

CORPORATISM, ORGANIZATIONS AND CHOICE

group of economists who have adopted and adapted neocorporatist analysis (see Pekkarinen, 1992). The best known work is that of Calmfors and Drifill (1988). Calmfors and Drifill first developed their own simplified corporatist scale which measured the degree of centralization of national union and employer federations by combining the number of federations with their degree of cooperation. Wage restraint is at the centre of their analysis of the U-shaped curve: in countries near the laissez-faire pole, corporations keep down wages because they cannot raise prices without weakening themselves in the product market; on the corporatist pole, wage restraint comes from a knowledge that real wage rises are dissipated in higher prices for the workers, while in the middle of the curve, both of these restraining forces are absent, and inflation is high.11 In other words, a medium level of corporatism is worse than a high one, leaving one at the bottom of the ‘U’. The classic case here of a semi-corporatist nation is Britain in the 1970s (Marquand 1988:162–5; Renshaw, 1986), where the strong but not encompassing trade unions proved unable to play the required corporatist role, bringing on the Thatcherite counterrevolution.12 At the corporatist end of the spectrum, conditions approximate those of an IPD. Because of their individual power and small number…agents have the incentive to behave strategically, taking explicit account of how their actions will affect others—and what the resulting feedback to themselves will be…. As the theory of repeated games shows, such [ongoing and repeated interactions] are conducive to compromise and to forms of cooperative behavior which are to the mutual benefit of all concerned. (Rowthorn, 1992:84–5; see also Freeman, 1988) Figure 7.1 plots a simplified U-Shaped curve for developed countries with economic performance on one axis and degree of corporatism on the other. The literature tells us that a bimodal or U-shaped curve will emerge with one peak in economic performance on the pluralist (laissez-faire) extreme occupied by the US and Canada, and the other on the corporatist one occupied by the Nordic countries and Austria. If we give significant weight to levels of employment among the measures of economic performance then the corporatist peak will rival that of the pluralists.13 No matter how we classify the doubtful cases, the corporatist countries to the right of Figure 7.1 have higher levels of social spending and lower levels of income inequality (Ringen, 1987:260; Heidenheimer et al., 1990:226). And no one disputes that the four Nordic countries and Austria lie at the corporatist and the US and Canada at the pluralist end of the continuum. As far as unionization of the labour force is 119

FROM THEORY TO PRATICE

Figure 7.1 The U-shaped curve

concerned, Sweden, Iceland, Finland, Denmark, Norway and Austria occupy the top six positions (OECD, 1991a: 101). Calmfors and Drifill (1988) rate Austria first followed by the four Nordic countries. In this book Austria has not been placed in the same category as the Nordic countries. It is worth briefly seeing why. THE AUSTRIAN CASE Structurally speaking, Austria is probably the most corporatist of states,14 given the fact that the Chambers of Commerce, Labour and Agriculture, in which membership is compulsory, play a significant role in regulating the labour market, planning the social security system, and coordinating trade policies (Marterbauer, 1993:460). Not only is organized labour closely affiliated with the Socialists, but business has an equally strong formal link to the People’s Party. The trade unions even own shares in the Central Bank and are thus represented on its board. Yet when it comes to outcomes, Austria appears not much further from the pluralist than the corporatist pole. As far as employment (rather than unemployment) and wage dispersion—and specifically the relative pay of men and women—are concerned, the Austrian profile is more Southern than Nordic. The 50-per cent female labour force participation is typical of Catholic countries (Rowthorn, 1992:124), and the wage differentials between women and men, and among income earners generally, are among the highest in the OECD (Rowthorn, 1992; Guger, 1992).15

120

CORPORATISM, ORGANIZATIONS AND CHOICE

Austria’s form of corporatism in fact conforms most closely to the standard neocorporatist analysis, which we would term ‘top-down corporatism’. It is unique in conforming to the standard neocorporatist analysis while seemingly impervious to the critique from the public choice perspective, articulated most convincingly by Mancur Olson, and presented in Chapter 3. Olson is familiar with the neocorporatists’ argument and acknowledges its legitimacy when he admits that an encompassing organization for collective action has some incentive to collaborate in making the country more prosperous. Olson’s explanation of Austria’s post-war growth rests on the War’s destruction of sclerotic institutions, which allowed for the development of a full rather than partial set of ‘distributive coalitions’ capable of collaborating to achieve prosperity (1982:91). But Olson, as noted, doubts the long-term viability of the neocorporatist strategy for economic growth, since sectional interests can be expected to win out, as ‘encompassing organizations break down or fail to act in ways that serve their clients interests’ (1990:77). Austria seems largely to have defied these predictions. The fact that its corporatist institutions are very highly integrated into the political structures function as incentives to keep members in line. And post-war Austria has often been ruled by a ‘grand’ coalition of the mainstream parties of the left and right. On the other hand, it has seen some of the features of institutional sclerosis in the form of ‘proporz’, the cozy parcelling out of appointments and subsidies to satisfy members of both parties (and their closely linked labour and business allies). Arguably, the strongly felt need to keep closed the wounds of wartime divisions, as well as to be able coherently to take advantage of Austria’s location as an extension of Western Europe into the East, explain the durability of its corporatism. Overall, Austria has delivered the goods: its economic performance remains solid overall (The Economist, May 23, 1992:111), despite strong cartels and monopolies that have kept costs artificially high in food and professional services (Guger, 1992:355). Most Austrians seem to agree that more good than bad has issued from Austrian corporatism. Despite a few juicy scandals and dramatic resignations, self-restraint has been a continuing feature. One method has been to tie the Schilling to the strong German mark, an external means of imposing wage and price moderation upon themselves. The same attitude helps explain Austria’s rapid conversion in 1990 to EC membership, seen as an effective external means of undermining the cartels and monopolies (Luif, 1990). While not explored by Olson, it would seem that choices of this kind affecting constitutional arrangements and relations with neighbouring countries (discussed in the next chapter) are a factor in keeping high the corporatist end of the UShaped curve—and averting the disintegration of encompassing organizations and, with them, corporatist institutional arrangements. 121

FROM THEORY TO PRATICE

Yet though the corporatist country par excellence, Austria’s overall redistributive profile is in the middle, European category, only somewhat closer to Scandinavia than to the US. The trade unions have no explicit distributive goals: their policy is based on a firm growth ideology…. Wage policy is not [seen as] an effective redistributive instrument…. Progressive income taxes and high public expenditure are considered as appropriate… [though] the overall tax system is not progressive. (Guger, 1992:359) In the long term, Austria will likely move either towards a more moderate corporatism, as Olson would predict, or to adopt more Nordic-type institutional arrangements related to the dissemination of knowledge and the more equal distribution of jobs and the wages from them. The Austrian case demonstrates that corporatist institutions, though necessary, are not in themselves sufficient conditions for achieving egalitarian outcomes. With its only moderately redistributive profile, Austria is less interesting to Olson—and to this analysis. Olson, as we noted, concentrates on Sweden, the most redistributive of the corporatist states. Not himself fully convinced by ‘observers on the Swedish scene who point to events that would appear to be consistent with the theoretical logic…that the long-run dynamics of neocorporatist organizations are likely to lead to anti-social developments’ (1986a:165), he himself insightfully explored Swedish outcomes (1990), yet only scratched the surface of the institutional arrangements accounting for Swedish exceptionalism. To do so one must, as noted earlier, account for individual choices that reinforced the distinction drawn by Olson, supporting ‘explicit’ redistributions while rejecting ‘implicit’ ones. Neocorporatist theory is inadequate here. Corporatist policies can succeed when individuals make complementary choices. But we know that only under appropriate institutional arrangements is what is rational for the individual complementary to what is rational for the community. The organizational member can be expected to compare the net benefit to the group or community from her contribution to it, to the opportunity cost paid by its not being used by her for other purposes. For example, entrepreneurs can choose to invest in technological changes and their employees in retraining, or, instead, seek subsidies through political contacts. The former choice can be the rational one when the individuals in question hold positions at the top of encompassing organizations. Neocorporatist writers have convincingly explained why encompassing trade unions or employer organizations’ interests are served by such choices which reinforce corporatist institutional arrangements.16 One ingenious portrayal draws 122

CORPORATISM, ORGANIZATIONS AND CHOICE

the analogy between a corporatist system and a joint stock company which gives many individual shareholders a common interest in the success of the company. If, instead, each owned a particular piece of equipment, they would force the company to hold on to redundant equipment, and invest in non-specific assets that could be transferred to other uses, rather than the specialized ones required by technological changes (Rowthorn, 1988). Yet shareholders have no incentive to free-ride. The same cannot be said for individuals, as members of trade unions or employers’ associations—or simply as voters. How can the individual as member and voter be expected to support policies encouraging entrepreneurs and unions to support technological changes and training? How can she know to resist the pressure to protect existing jobs and industries with tariffs and subsidies, seeking instead compensating measures designed, in a planned and coordinated manner, to move workers towards jobs in advancing sectors through appropriate occupational retraining with income and entitlement guarantees during the transition? The German experience is especially relevant here. THE ‘GERMAN MODEL’ If the neocorporatist analysis insuffienctly accounts for the choices of ‘ordinary’ individuals, it is more open to improvement than the opposing public-choice analysis. Conceptualizing the relationship between institutional arrangements and economic performance as a twin-peaked U-shaped curve allows for a kind of detente between corporatist and laissez-faire systems. Paloheimo, for example, concludes that ‘we should henceforth see liberal-pluralism and corporatism…as complementary sub-theories of a more general political and economic theory’ (1990a: 405). On the other side, even as moderate an exponent of public choice as Olson does not leave much room for such agnosticism. He subjects the corporatist strategy to a thoroughgoing critique based on the argument that interest-group leaders and their political allies ultimately being unable to resist protectionist demands at the base. To head off the resulting institutional sclerosis, he comes down on the side of the neo-conservative economic strategy based on weak unions, fragmented business associations, limited government, and narrowly based institutions—the left side of the U-curve. Yet a parallel critique can be made if the public-choice position—one also based on the preferences and choices of individuals that underpin the macro-organizational logic of institutions. German neocorporatist authors building on the German experience provide a macro-level starting point for assessing the efficiency losses of laissezfaire institutional arrangements.

123

FROM THEORY TO PRATICE

At the base of the German economic model is a highly skilled and mobile work force. Indeed, given the monetary and fiscal restrictions resulting from the prevailing consensus that inflation is to be avoided at all costs, the only instrument available to the concerted efforts of management and labour to promote growth and employment is manpower training and retraining. The logic of investment in upgrading human resources is similar to that of R&D ‘Employment relationships related to research and development are characterized by high performance ambivalence, strong interest congruence and teamwork necessities, and by extremely high investment risks’ (Schmid, 1991). The longterm investments in research and development and in training required to maintain the international competitiveness of firms is unrealizable under high uncertainty and high sunk costs (Traxler and Unger, 1991). It is in these areas that we find a manifestation of the economic drawbacks of the laissez-faire system. Comparing the machine tool industries of Germany and the US, Traxler and Unger describe the American strategy as one of ‘risk minimization’ with large firm size and market segmentation through vertical integration, product specialization and standardization. In contrast, embedded in a complex corporatist network, the German firms benefit from inter-firm cooperation in know-how transfer and product development, industry-university cooperation in precompetitive research and development, and cooperation between unions, business associations and government in vocational training. Such a strategy based on ‘externalizing risk’ proved superior as the industry was forced to adjust in the early 1980s, enabling the German firms to adopt long-term innovative strategies, which the US firms were reluctant to do since they had internalized all the costs. Similarly, in the automobile industry, adjustment was forced by the oil crisis and the corresponding shift in demand to more fuel-efficient cars as well as by increasing Japanese competition. The alternatives were attempting to defend their share in mass markets or moving ‘upmarket’ with higher quality. The American firms’ ability to lay off workers led them to favour strategies adjusting employment levels to market fluctuations. In Sweden and Germany, where employment protection is comparatively elaborate, the firms thus adopted a strategy of increasing adaptability through improving skills and greater flexibility in work schedules and task assignments so as to customize products and improve quality. The most important voice in this ‘school’ is that of Wolfgang Streeck (e.g., 1987). Streeck notes that as long as labour was justifiably regarded as comprised of unskilled ‘hands’, the classical notion of wages declining to meet increasing supply was tenable even if morally repugnant. But when increasingly sophisticated technology came to require equally sophisticated operators, the classical model broke down. The technology is the property of the entrepreneur; 124

CORPORATISM, ORGANIZATIONS AND CHOICE

the skilled operator is the property of no one. Moreover, the neoclassical solution of turning to the state by regarding investment in human resources as a public good from which the entire society gains has been contradicted by new developments. Increasingly it is only the corporations themselves that can provide the crucial on-the-job, hands-on component of the needed training, keeping abreast of the needs of industry at the frontiers of technological development. But since individual employers cannot capture sufficient returns from investment in training workers, they will underinvest in training. Thus the laissez-faire economy at the pluralist end of the continuum suffers from an overall underinvestment in the kind of training needed. As a result, entrepreneurs, unable to count on having the necessary skilled operators and mechanics, forego acquiring the technology to become more efficient and productive. For Streeck, the solution to this Prisoner’s Dilemma lies in an IPD linking business organizations, the state (through the educational authorities) and organized labour. It takes several related forms. One is the system of vocational training in Germany, in which over two-thirds of high-school age young people are enrolled in its rigorous ‘dual’ vocational training system in which they spend part of their time in technical schools and part in on-the-job training. But vocational training is not confined to the young. In 1991, the OECD published a report on adult education and labour force training in (West) Germany. It showed that of the 35 per cent of Germans who had participated in some form of further education in 1988 (up from 23 per cent in 1979), just over half, 6.4 million, were in vocational training. Half of these received their training directly through their place of employment; the remainder was split among courses provided by employers’ organizations and professional associations, trade unions, and public and private educational institutions, a proportion increasing significantly as special training and retraining centres become more widespread.17 Germany thus provides an appropriate regulatory environment needed to make enterprises accept responsibility for the generation of work skills as collective resources…to transform the enterprise itself into a place of learning…a ‘lernstatt.’ It has developed institutional arrangements to overcome a set of constraints upon individual employers that is above and beyond what the employer would be inclined to do on his own, but would voluntarily see imposed upon himself and all the others—‘capitalism may just be too important to be left to the capitalists’. (Streeck, 1987a:33–4) These arrangements include: a system of wage determination that keeps wages higher, and variations between wages lower; an employment protection system to keep more employees on the payroll longer; a set of rules that oblige employers 125

FROM THEORY TO PRATICE

to consult their workforces and seek their consent beyond what many would find expedient;18 a vocational training scheme that obliges employers to train more workers with more skills;19 and a system of work organization rules that oblige employers to define jobs more broadly and more comprehensively (Streeck, 1988a: 419–21). In following such rules, continental policy makers in coordination with business and labour leaders are reinforcing choices supporting corporatist institutional arrangements. Just as trade unionists have learned that an ‘employerfree environment’ (socialism) is not worth pursuing, so employers in a corporatist context reject the idea of a ‘union-free environment’, which remains at the centre of mainstream political economy’s conception of a perfect labour market, as articulated in Anglo-American neoconservatism. Rather, unions are welcomed in the plant and at the negotiating table. Indeed, labour and management favour wide and relatively centralized rather than narrow and decentralized bargaining units, and see the value of collective incentives, such as a stake for the unions in the unemployment and social insurance system (OECD, 1991a:119), and the capacity of central business organizations to sanction individual employers who renege on their responsibilities.20 The economic difficulties of the early 1990s made more acute by the integration of the former East Germany has not undermined these arrangements and understandings. Collective bargaining has intensified as management has tried to restore declining competitiveness through winning greater flexibility in the workplace. But in so doing it has nevertheless sought to preserve the basic corporatist arrangements: Many of the firms campaigning for reform of the collective-bargaining system do not want to destroy it…. In truth, neither the employers nor the unions seem eager for a fight. Both see advantages in the pay-bargaining system that has served them well for so long. (The Economist, October 23, 1993:81)

THE RATIONAL ACTOR UNDER CORPORATISM AND PLURALISM So far, analysis of the advantages of German-style corporatist institutional arrangements has focused on the choices of leaders in the peak union and business organizations. Where does the rank-and-file member and ordinary citizen fit in? In earlier chapters we argued that, given the opportunity, citizens seek to reconcile their individual interests with those of the community. Thus, where 126

CORPORATISM, ORGANIZATIONS AND CHOICE

sufficient knowledge to this effect has been disseminated and adequate disincentives against free-riding are in place, choices by members of organizations can be expected to complement those of the leaders.21 In a pluralist context, the primary objective of organizations is to divert resources to the members, the leader chosen for skills at doing so—and therefore herself suspect as capable of diverting resources to herself. Hence the very choice of leaders amounts to a choice between corporatist and pluralist institutional arrangements and the values underlying them (Marquand, 1988:217–20). In the corporatist context, voluntary organizations, which replace the clan, parish and guild do more than divert resources to members. Members choose leaders whom they rely upon to act appropriately based on the information available: the leaders are mandated to act together with representatives of other organizations on the basis of mutual needs and concerns, and bring knowledge to the deliberations of the rank and file, reminding them—the members—of the consequences of their choices and actions. In this context members choose the level and quality of their own participation, being in a position to affect institutional choices. It becomes realistic to see the individual as member and voter supporting policies encouraging promoting technological changes and the development of training programmes and opposing protection of existing jobs and industries with tariffs and subsidies in favour of compensating measures promoting flexibility and mobility. In Chapter 3 we distinguished the choices open to a worker within a pluralist context as a member of small craft union in an economic setting characterized by laissez-faire institutional arrangements, from one operating within a corporatist context as a member of a large industrial union in an economic setting characterized by corporatist institutional arrangements. Seeking to reconcile immediate self-interest with the interests of (others in) the wider community, the worker can reasonably be expected to prefer the latter context, since she understands it to promote such a reconciliation, though she may nevertheless not attend meetings or pay dues. The employer faces a similar choice between poaching skilled workers and their knowledge from other firms and participating in and supporting her business interest association’s participation in the tripartite structures that oversee technological research and worker training. In a well-structured corporatist context, the worker and employer will complain about specific actions of their union or associations, but will stop short of taking action that could potentially undermine those institutions—which would be like renouncing their right to vote because politicians do not live up to expectations. Knowledgeable action, as we have argued, is nevertheless far from a simple matter. Choosing to vote is a comparatively simple matter, yet even here, the context matters, as evidenced by the differences in turnout rate. The cumbersome voting registration procedure of the US reduces participation, but knowledge of politics, and years of education generally, correlates positively with voting. The 127

FROM THEORY TO PRATICE

knowledge required for choosing actions that complement the corporatist institutional framework is a more complex proposition. In making decisions affecting the future of the union and industry, the industrial worker needs to know: 1) the importance of manufacturing exports to the country’s welfare and the relative importance of her own industry’s exports; 2) the cost factors on which the competitiveness of her industry depends; 3) how her family’s social and economic security would be affected if the industry, and the economy generally, declined in competitiveness; 4) whether her income after taxes and the services provided constitute a fair share of the good things the economy has to offer; 5) what effect her own trade union confederation plays in the process; and 6) how honest its leaders have been in doing their jobs and communicating the necessary information. Armed with such knowledge as well as specific information concerning immediate questions, say the effects of potential technological changes, she would be able to rationally choose at what level to participate, what choices to make regarding wage and other demands, and whether to support an organic link to a (labour) party. Complementary institutional arrangements come into play here. In Chapter 3 we mentioned the Swedish labour consulting firms which provide a credible third party to confirm the value of certain variables important to a bargaining relationship. Another example is found in the Netherlands where collective agreements in certain sectors require employers to pay a certain sum per worker per year into a fund for vocational training, health and safety, etc. The funds have amassed and redistributed large sums of money, especially in construction and metalworking. As a result, relations between labour and business have become more harmonious, since the availability of these sums give both sides an incentive towards concluding collective agreements with the common interest in mind (Van Waarden, 1991). Then there are the already noted corporatist institutional arrangements affecting knowledge dissemination. It is still the case (see Chapter 9) that in the Nordic countries especially, interest organizations participate in public bodies investigating, implementing and monitoring policy decisions, either alone or in concert, and provide important services related to the dissemination of information: gathering data, organizing systematic research, publishing newsletters and the like. The more informed their members, the more they are likely to participate, and vice-versa.22 CONCLUSION Positive institutional choice is a dynamic element in corporatist arrangements. Through participation and concrete choices the individual reinforces corporatist institutions and, in so doing, helps create and strengthen the context in which 128

CORPORATISM, ORGANIZATIONS AND CHOICE

she, among other individuals, will act to do so in the future. This context consists of the continued existence of the encompassing organizations and the institutional arrangements concerned with putting into practice general guidelines such as those outlined in Chapter 5, those involved with the dissemination of knowledge to adults (and resistance to the spread of ‘disknowledge’ caused by the omnipresence of commercial television), as described in Chapter 6, and those concerned with business-labour-government coordination especially in human resource development set out here. A knowledgeable population is a prerequisite for economic efficiency and redistributive justice. The dissemination of knowledge (the opposite of that fostered by commercialized electronic media) makes it possible for individuals to comprehend how various policy orientations fit together. Adapting economic institutions to technological changes by allowing them to respond to changing market signals is linked to inclusive social and educational services, plus highquality manpower retraining and other adaptation-promoting programmes which allow for optimal individual and institutional adjustment to whatever shocks the economy experiences. The knowledge involved is not static. The effects of these changes are closely monitored through comprehensive and accessible research into changing conditions and their effects on the outcomes of policies on people. Such information is collected and disseminated among government agencies, via and to concerned parties including encompassing labour and business organizations. Operating within an appropriate institutional framework, individuals share a certain level of social solidarity and quite rationally do not see an inevitable, ubiquitous conflict between their own interests and those of the wider community. Free-riding on the efforts of others (for example, a company opting out of the sectorial training programmes) is an expression of desolidarization from the community, to be avoided if economically sound alternatives exist, and to be discouraged through institutional choices. Encompassing organizations linked through appropriate contractual arrangements are able to impose a cost on such free-riding upon members. Dissemination of the necessary knowledge makes clear the existence of these alternatives and the effects of particular actions and decisions, and reduces the possibility of error and self-delusion in such institutional choices. The de-emphasis on commercialism minimizes recourse to the positional economy consolidating bonds of social obligation and responsibility, just as labour market, social, and cultural policies serve to reinforce the underlying social solidarity. In practice, of course, the existence of these mechanisms does not eliminate the dangers of institutional sclerosis that public choice so well depicts, but they do add a positive dimension to the regulations and constraints associated with corporatist systems—especially with regard to knowledge dissemination, the 129

FROM THEORY TO PRATICE

achilles heel of the laissez-faire system of institutional arrangements favoured by public choice. In this chapter we have seen laissez-faire arrangements to result in underinvestment in vocational training. In Chapter 4 we saw them to lead to overinvestment in educational credentials, and in Chapter 6, by turning television over to commercial interests, to result in knowledge failure. Institutional choices require knowledge of other people and how they will act in a given situation, that is, in the context of existing and potentially existing institutions. Commercial television does the opposite: it turns people, ideas, and institutions, into images (Collins and Jacobson, 1992), and thus indirectly undermines the institutional arrangements they jointly need to attain their social and economic goals. We began from the premise of the existence of a shared sense of community, and have been concerned with institutional choices that preserve and reinforce this sense of community. We do not set community against economic efficiency, rather we see them as linked in the form of a culturally and institutionally rooted perception that the preservation of the social bonds on which the community is built depends, ultimately, upon the efficiency of its economic institutions. So far we have delved into the first, knowledge, dimension, as well as examined the degree of corporatism in relations among organizations, what we termed the second dimension. We turn now to the final, geopolitical, dimension starting from community size and including aspects of both internal and external political structures. In the recent experience of the Nordic countries set out in Part III, we shall see the development of a set of institutional arrangements that have generally conformed to these guidelines for each of the three dimensions: 1) a knowledgeable population able to choose to maintain the organization, level of taxation, and range of programmes underlying these institutional arrangements and their comparatively egalitarian outcomes; 2) labour markets characterized by structured cooperation between encompassing unions and employers’ organizations working (with government agencies) to help workers adjust to economic change supported by inclusionary services; and 3) to which we now turn, small and relatively homogenous countries with an open economy and operating within (inter)governmental structures and electoral systems favouring cooperation and accountability. This third dimension raises the traditional ‘constitutional’ question of political science. We shall approach it here within a framework of political economy stressing the choices of individuals and organizations, again combining the theory with the concrete experience of the Nordic countries.

130

8 RATIONALITY, ACCOUNTABILITY AND STRUCTURES OF GOVERNMENT

The analysis in this chapter shares the newly rediscovered interest of political scientists in institutions as constraints on political choices (e.g., March and Olsen, 1989), but lays equal stress on the ‘constitutional’ choices giving rise to institutions. Chapter 5 concluded with the general guideline of enhancing visibility in institutional choices. Up to now that guideline has been developed in the discussion of institutional arrangements disseminating knowledge about the accessibility, cost and benefit of services. The basic principles of representative democracy—political freedom, peaceful change of government, majority rule, freedom of expression, protection against discrimination, equal treatment under law, and judicial independence—are taken as givens in this discussion. Applied to the workings of representative democracy, visibility can be expressed as accountability. Just as individuals must be able to see the outcomes of their choices, so they must be able to hold officials accountable for theirs. In assessing political structures, the first test is whether they foster or inhibit the capacity to hold appropriate parties accountable for their actions or inaction. The stress is on the word appropriate, for knowing whom to hold accountable means not looking to hold inappropriate parties accountable. More accountable constitutional systems are more democratic ones; they can also be more efficient ones. It can be assumed that more accountable structures produce better outcomes since, other things being equal, the more political leaders are judged on the basis of what they actually do—and know this to be the case—the more likely they are to do well. For their part, citizens can only hold decision makers accountable if they—the citizens—are in a position to see the outcomes of existing and alternative policy choices. To do so, in a meaningful sense, requires knowledge of the content and consequences of choices taken. Thus a question posed throughout of alternative constitutional arrangements is the degree to which they promote dissemination of such knowledge. In rational-choice terms, we ask: Do the institutions provide pay131

FROM THEORY TO PRACTICE

offs for political leaders to act to reduce the effects of ‘rational ignorance? Like Buchanan, our goal is to identify constitutional choices among institutions that direct individuals’ interest to furtherance of the general interest. But Buchanan’s choices are limited essentially to those facilitating the exchange process; policy makers are discouraged from being concerned with altering its outcome (1989:17). We have already noted how such a policy-choice perspective precludes the very possibility of ‘knowledge failure’, that is market failure in the dissemination of knowledge.1 We too are interested in the efficiency of the rules, but we are also interested in distributional outcomes. Once outcomes are taken into account, adding the principle of distributive justice to that of economic efficiency, a series of guidelines emerge—some of which conform to those of public choice, such as the emphasis on avoiding disincentives to investment and effort discussed in Chapter 5. When we arrive at constitutional choices as we have defined the term in Chapter 3, the choices advocated diverge significantly from those associated with public choice. They include the following elements: state boundaries in which the population and territory is relatively both small and culturally homogeneous, a constitution that is unitary but subject to the rules of a wider economic confederation (like the EC), a parliamentary form of government, and a proportional system of elections. Building on earlier work (Lijphart, 1984), Lijphart and Crepaz (1991) usefully explore the close link between the aspects of what they term ‘consensual’ (as opposed to ‘majoritarian’) democracies (discussed in this chapter) and corporatist structures (taken up in the last). The institutional arrangements resulting from appropriate constitutional choices are complementary to corporatist organizational institutional arrangements. We have already made the link between corporatist arrangements and those institutions linked to the dissemination of knowledge. In this chapter we complete the discussion by incorporating the third—political—dimension (in Figure 5.2) with the first two, the individual (knowledge), and the organizational. In referring to political structures affected by constitutional choices in this chapter we run the gamut of institutional arrangements surrounding government and politics from seemingly technical ones, such as the type of electoral system, to the very setting of the boundaries of the community, a choice much constrained by geography and history. Yet technical choices are also fundamental ones. Even majority rule is a technical choice, not a simple application of the democratic principle of political equality. Indeed the principle of political equality would be better served if a minority that lost on a number of legislative decisions would automatically win after a certain point—but such a technical adjustment would undermine the functioning of a political system built on political equality. 132

RATIONALITY, ACCOUNTABILITY AND GOVERNMENT

LEGISLATURES, EXECUTIVES AND ELECTORAL SYSTEMS We begin with the system of government. Here the distinction commonly drawn is between a presidential or congressional system, in which executive and legislative powers are separated, and a parliamentary system in which they are fused. In a parliamentary system, the executive directs the actions of the legislature, but is ‘responsible’ to it, that is, depends on the ‘confidence’ of the legislative majority to remain in office. Buchanan finds the parliamentary constitution as insufficiently constraining, preferring the American presidential constitution: In the United States…it is recognized that ordinary politics takes place within the constraints defined by the set of rules defined as the constitution. The very purpose of these rules is to constrain ordinary political choices…. We are, as United States citizens, fortunate in that our political structure embodies a much more evident conceptual distinction between the set of constraining rules and the choice-making of politics within the set of rules. Parliamentary democracies, which do not embody such clarity in this discussion, generate confusion. (Buchanan, 1989:39) This argument is extended especially by Riker (1982), to the effect that individuals face the instruments of government in a kind of zero-sum relationship: the more capable of concerted action the government institutions, the weaker the individual. I argue quite the opposite. From a rational-choice perspective such a constitutional system does not stand up against the European model. Indeed, I suggest that there is an implicit contradiction in Buchanan summoning his readers to constitutional citizenship and what amounts to the repudiation by public choice of the mechanisms required to provide the wherewithal for such citizenship. This is because not only effort on the part of the individual, but also complementary institutional arrangements, are required to allow for informed political choices, especially constitutional ones, since such choices require a sophisticated understanding of the consequences of policy alternatives on the workings of institutions. The first arrangement suggested by this line of thinking is therefore that a parliamentary system of government is preferable to a presidential one since it allows for basing the continuity of government on the existence of disciplined—accountable—political parties. The Prime Minister is chief legislator. 133

FROM THEORY TO PRACTICE

Not being chief legislator, the President can enforce little in the way of party discipline. Legislators remain in office independent on the President’s will. In contrast, in normal circumstances, in a presidential system such as in the US, there are no stable, coherent, identifiable voting blocs. It becomes impossible for the electorate to accurately attribute responsibility for general policy decisions: a president can and usually does blame a recalcitrant Congress, yet congressional representatives and senators are elected on parochial issues, and, as a result, incumbents are seldom defeated. People are frustrated, but powerless. For example, 69 per cent of Oregonians voted in November 1992 to limit senators to two terms at the same time as they were re-electing Bob Packwood to his fifth term. As McConnell’s classic treatment showed, the decentralized and fragmented structure of American political institutions are such that narrow interests, represented especially in powerful congressional committees, fragmented administrative policy networks, and local authorities, are able to regularly defeat the wider public interests potentially represented in the presidency and the public policy forums in Washington (McConnell, 1987). So far, our critique parallels that of Olson. Olson is especially concerned with the capacity of interest organizations allying with officials and politicians to affect ‘implicit redistributions’ in the form of tariffs, quotas, and subsidies. The victims of distributional coalitions…lose only because of their rational ignorance and the shortcomings of the ideologies they accordingly rely on. They may have been persuaded by the propaganda of the organized interests that only qualified solicitors should be allowed to convey real property, that only barristers should be allowed to try cases in court, that it hurts workers to allow the stores to be open any hour of the day or night, that strong unions help the unemployed, that farmers must be subsidized now to prevent starvation during wartime, and so on. But if they had not been propagandized they would have different views. (Olson, 1989:299–300) For Olson, the antidote for manipulation of rational ignorance by distributional coalitions lies in the political elite (including not only politicians and bureaucrats but also journalists and academics) which has ‘no important personal stake on most issues [and is]…usually motivated in large part by some broad public interest’ (Olson, 1989:301). Elites can potentially harness the publicly spirited if rationally ignorant masses through elections. A crucial factor is the form of party system favoured by the constitutional and electoral system. In contrast to Buchanan, Olson (1989) comes out squarely in favour of the Westminster model. 134

RATIONALITY, ACCOUNTABILITY AND GOVERNMENT

A political party leader in a country with a first-past-the-post-wins electoral system has an incentive to represent at least a plurality of the society and this plurality of voters is an encompassing interest. So encompassing political parties not only have relatively constructive incentives, but they also have (at least when they are running the country) an incentive to gather information on what will work, so that they can run for re-election on a you-never-have-it-so-good record. Thus the leaders of encompassing political parties (or, more probably, their advisors) are people through whom better ideas can influence social outcomes. (Olson, 1989:303) In so far as the comparison is with the US presidential system of checks and balances, Olson will find no disagreement here. But Olson also associates the virtues of the Westminster model with an aspect of the British system it shares with the US and Canada, the first-past-the-post electoral system. Olson explicitly compares this system favourably to the proportional representation (PR)-based systems common in Europe as aggregating support behind two encompassing political parties. This is where we part company. While there is indeed a cost side to PR in the form of potential abuses—especially where, there are inadequate thresholds to safeguard against the proliferation of parties—the evidence suggests that on balance, PR-based multi-party parliamentary systems do a better job of reducing the effects of rational ignorance than do the two-party systems. Parliamentary government, in and of itself, can cause as many problems as it potentially resolves. Its value is manifested when it is combined with certain other political institutions. Accountability in a parliamentary system is best served if the electoral system is proportional. Even with the use of a 3 to 5 per cent popular-vote minimum or threshold to keep one-issue or narrowly based parties from making government unworkable, the composition of the legislature under proportional representation reflects the sentiments of the electorate far more accurately than under opposing—majoritarian—systems used in the UK, Canada and the US.2 Contrary to Olson, it is argued here that a parliamentary system of government is efficient when combined with certain other political institutions, specifically an appropriate proportional electoral system (with a threshold of roughly 4 per cent to avoid a proliferation of parties) as opposed to those based on a first-past-the-post electoral system. I contend that there is a logic underlying PR explaining why the political system in European states, where PR has now been in use for much of this century, has evolved towards greater cooperation and consensus through the sharing of power among parties. In game theory terms, under PR, a zero-sum relationship is transformed into a Prisoner’s 135

FROM THEORY TO PRACTICE

Dilemma (PD) where there are potential pay-offs from mutual cooperation as opposed to mutual defection. Moreover, with appropriate complementary institutional arrangements, the PD takes the form of an Iterated PD in which it is possible for the parties to in fact take advantage of these pay-offs. Katzenstein (1985:100–3) illustrates how the smaller states of Europe have most extensively used PR since their cohesiveness made it possible to take advantage of the possible benefits it provides. Larsen (1992) found not only consensus but pride in PR among the 400-odd Norwegian mayors who responded to his questionnaire, expressing approval for a municipal PR electoral system which forced them to compromise.3 In the 1950s and 1960s, the consensus among political scientists, based on their assessment of the turbulent period before and after World War II, was that PR systems lead to instability. Experience since has proven the contrary to be the case: coalition governments under PR have generally proven stable ones. A learning process has evidently been at work. ‘The institutions most conducive to cooperation are…often found in multi-party parliamentary systems [which]…have simple processes for making decisions. The least conducive arrangements are in highly majoritarian systems’ (Quirk, 1989:918). The former are slower to respond to pressures for change, but when they do so, they are more likely to ‘get it right’ (Stewart, 1992:254). It is now clear that under PR electoral outcomes are fair—fairness being the raison d’être of PR—and allow for stability. What the voters see in the composition of the legislature corresponds to what they know of the parties’ support in the population. In this sense, a knowledgeable electorate is built into the very nature of proportional representation, while distortion is built into the foundations of the majoritarian system. Moreover, the distortion directly affects the behaviour of legislators. It is my contention that the political leaders elected under PR are more likely to contribute to the dissemination of the knowledge required by an informed electorate—to act, that is, to reduce the effects of rational ignorance— than under majoritarian systems. In this sense, an institutional choice in favour of PR constitutes a solution to a Prisoners’ Dilemma since in the long run all actors have an interest in institutional arrangements that reduce the effects of rational ignorance. To see this, we compare the logic facing legislators under PR and under the first-past-the-post electoral system which regularly delivers undeserved majorities to the largest party. The effect is to distort political reality for legislators (as well as state officials and parliamentary journalists) who cannot avoid forming a picture of the political world outside parliamentary walls in which there is a coherent majority—just like in the chamber. The first victim of this myth is the governing party. Holding an absolute majority in the legislature it finds itself 136

RATIONALITY, ACCOUNTABILITY AND GOVERNMENT

expected by supporters and opinion leaders to implement the party programme as if it had received the informed mandate of a majority of the population. The result is that electoral success leads to legislative failure. The British ended up with an incoherent fiscal and social security system, by nature a complicated matter, as successive post-war Conservative and Labour governments profoundly reformed the system on contradictory principles (Steinmo, 1988). Nor is it mere coincidence that the British economy grew increasingly uncompetitive as successive governments ritually nationalized and denationalized the steel and road haulage industries.4 Major reforms require not just a fleeting electoral majority, but a large measure of consensus to assure that institutions and organizations accommodate those reforms. Otherwise, they risk failing in their objectives, discrediting the government, and being dismantled by the subsequent administration. The likely result is inefficient governance. One study found political systems with this Westminster model to average lower economic performance than multi-party systems (Jankowski, 1993). But what of the needed specific reforms Olson suggests are inhibited because special interests prey on a rationally ignorant public? Under which system are the political elites likely to challenge regulations (and the ideas underpinning them) such as those in Britain restricting solicitors from trying cases in court, etc.? A governing party under the Westminster model knows that by confronting the interest in question it will be attacked by that interest, an attack that will, for political reasons, be supported by the opposition parties in the name of the people. The governing party may go ahead, believing itself to act in the common interest. The problem is that there is every chance that in fact the aggrieved interest—its cause legitimized by the support of the opposition parties who in reality represent a majority of the population—will succeed in its claim to speak for the majority, discrediting the government. Learning from such experiences, a governing party will forego necessary reforms except in the rare cases it expects a visible improvement to result before the next election. Of course there are exceptions—but these tend to be those that prove the rule. A good example is to be found in the political demise of Conservative Canadian Prime Minister Brian Mulroney. If we put aside Canada’s neverending efforts to amend its federal constitution, Mulroney’s governments struggled with two fundamental issues: tax reform (the GST) and North American free trade (the FTA and NAFTA). In both cases, it undertook wide-reaching reforms which were vociferously opposed by the other parties. With a parliamentary majority, there was never a question, as is regularly the case in the consensual democracies, of the Conservatives seeking broad-based multi-partisan support for the needed, but controversial reforms. 137

FROM THEORY TO PRACTICE

As a result, enactment of the GST and ratification of the FTA and NAFTA could only be viewed as illegitimate, fanning the flames of voter resentment. There are two negative consequences to this kind of scenario. First, implementation of these reforms fails to live up even to their limited notices as individuals feel justified in working against the measures in their own narrow interests, for example in cross-border shopping and otherwise avoiding paying the GST.5 The second effect is on the legitimacy of the political system as a whole, on the willingness of people to believe the assertions of political leaders. The main responsibility lies in the hands of the opposition parties who find themselves in a classic Prisoners’ Dilemma. In the short run, their interests are served. Knowing that they will have no input into legislation throughout the life of the parliament, they find it in their interest to do whatever makes the government’s measures look bad before the voters, to denounce unpopular but necessary policies in the strongest terms.6 For example, opposition parties in Canada regularly demand defence spending cuts while embracing UN-sponsored peacekeeping. It is a measure of the opposition’s success when the government drops a necessary but unpopular bill, a fact the governing party is well aware of.7 In sum, under the majoritarian system, parties approach politics from a zero-sum strategy: you lose; I win. In the long run, however, the parties’ own long-term partisan interests are poorly served. For having undermined confidence in the political process, the former opposition leader now in power finds herself required to take virtually the same unpopular decisions and, in her turn, facing the same kind of opposition her party had provided. Except that the public has grown more cynical at the evident insincerity for which it blames all politicians, not the electoral system. Such an alienated electorate is—when it comes to being able to select among feasible alternatives—necessarily misinformed. In contrast, under PR, majority government is, effectively, unrealizable; collaboration among parties is unavoidable, and—unless there are structural impediments such as deep, geographically-based ethnic, linguistic or religious cleavages—becomes the cultural norm. Facing an entrenched interest group standing in the way of needed reform, a PR-based government seeks to build up support from all parties not tied to the interest group in question, and the reform is likely to be adopted, albeit with some delay and in a diluted form. Under PR, in attacking the policies of the government of the day and offering their alternatives, opposition parties know full well that they may, tomorrow, form part of that government. Constructive criticism is the rule not the exception, making collaboration on fundamental reform possible. Constructive criticism is but another way of saying disseminating the knowledge required by an informed electorate and thereby reducing rational ignorance. 138

RATIONALITY, ACCOUNTABILITY AND GOVERNMENT

After an election, the bargaining process that leads to coalition building under PR is visible, contributing to an informed public, which is not the case when a single party forms the government. The process may not be terribly attractive; indeed it is often petty. But political coalition building is more than a matter of reconciling grand rhetorical principles. ‘Voters can be expected to understand elections not as definite choices between policy alternatives but rather as the creation of power platforms from which to conduct negotiations about policy’ (Anckar, 1992:12). Of course, outcomes may not meet public expectations—for example the largest party may find itself excluded. Yet given pre-electoral commitments and the accuracy of opinion polls, voters in PR systems can usually discern the likely alternatives for participation in government before voting.8 Where compromise and coalition is a built-in feature of the political process, opponents can collaborate even when they disagree.9 For example, under PR, in Sweden, the ‘bourgeois’ parties and Social Democrats managed to cooperate on tax reform, EC membership, and, in September 1992, on a wide-ranging austerity programme to deal with worsening economic conditions. In contrast, Canada did not achieve (nor attempt) any comparable agreements, yet ideological differences among Canada’s parties are certainly no greater than those in Sweden, and the need for tax reform no less urgent. Elected under separate regional lists, as is usually the case with PR systems, parties—even if they are acting within a governmental coalition—can be held accountable by the electorate.10 It is true that governments are defeated slightly less frequently under PR than under the majoritarian electoral system. But accountability means more than kicking out the gang in power; it means knowing why. Replacing one artificial majority with an opposing one creates a myth that the people have spoken clearly—when they have not spoken clearly at all—if by clearly we mean undistortedly. A majority system provides a clear, that is decisive, out-come—but at the cost of confusing matters by distorting the people’s sentiments. Distortion of reality is built into the structure and thus the culture of the majoritarian system. Politicians are prone to oversimplify complex issues because rhetorical polarization is the rule where the opposition sets the tone. Under P R, political leaders gain less from overblown rhetoric or oversimplification, and thus they engage in it less. It is only when rhetoric is, perceptibly, close to reality, that a genuinely informed electorate, and therefore, a meaningfully accountable political system, become possible. It seems more than coincidence that France’s governing and opposition parties have had the most difficulty in finding a rational compromise with their nation’s farmers over the GATT reductions in unproductive agricultural supports, while the minority of anti-European British MP’s on both sides of the spectrum were able to keep Britain from fully taking its part in the EC (and delay Maastricht). 139

FROM THEORY TO PRACTICE

These are the two European countries using majoritarian rather than proportional electoral systems. STRUCTURES CONNECTING AND CIRCUMSCRIBING COMM UNITIES We turn next to the relations between regions and the central political structures, by contrasting the EC confederational model with federalism. Federalism is defined as the division of constitutional powers between two separately elected levels of government, as practised in Canada and the US. We argue that federalism, like the checks and balances in the presidential system, makes it difficult for citizens to hold accountable decision makers, who, as public-choice logic explains all too clearly, seek to pass responsibility for unpopular decisions (such as raising taxes) to the other level, and to maximize the exercise of distributive power, with resources to match, at the level at which they operate. The logic facing regional governments under federalism parallels that of opposition parties under majoritarian electoral systems: regional governments facing popular discontent find that blaming central government policies pays off at no cost—except, of course, that of an uninformed electorate. The alternative to federalism is not centralization, but rather administratively decentralized unitary structures. Under such arrangements, general policy guidelines are adopted at the centre but administrative application takes place at the regionlocality.11 Decentralized unitary structures require collaboration between the levels of administration within the formal institutions of government and also through the political party structures, since parties find themselves with little choice but to operate at more than one level if they are coherently to approach the electorate.12 In the US and especially Canada, the links between party organizations at the state/province versus central level are typically quite tenuous, while municipal parties, where they exist, are distinct from the parties operating at the other levels. In Europe, proportional systems of elections at the regional and local levels assure that the party constellation is such as to facilitate such collaboration. One should not oversimplify matters; other factors are often at play. The very distance between populated areas in Canada means that farflung regions will insist on some constitutional limitations upon legislators from the metropolitan areas. Moreover, federal structures, as in Canada, were often imposed upon founding fathers (sometimes externally) as a means of reconciling socio-cultural differences, if not historical antagonisms, between regions. Yet, the existence of such barriers and differences, rather than justifying federalism 140

RATIONALITY, ACCOUNTABILITY AND GOVERNMENT

as ‘second best’, raises—as with Quebec—the even more difficult question of the setting of state boundaries in the first place. Though the setting of state boundaries is beyond the scope of the discussion here, it is clear that the structure here being advocated presumes that wherever possible, state boundaries are set to allow for small countries with a relatively homogenous cultural composition.13 In such a community rational ignorance is reduced since a citizen likely shares values and interests with other citizens and can relatively accurately predict how they will react to her choices by understanding her own actions and reactions (Anckar, 1992). State boundaries along these lines, rather than isolating the population from the outside world, enable it to face that world with sufficient cohesion to enter and promote economic confederations. Similarly, membership in an economic confederation makes it easier to consider redrawing state boundaries through rational accommodation, an argument made by Flemish nationalists in Belgium, Scottish nationalists in Britain and Catalonian nationalists in Spain vis-à-vis the EC, as well as Quebec nationalists vis-à-vis the FTA and NAFTA. Unlike under federalism, in the context of confederal arrangements there is no ambiguity about where the primary locus of political debate and decision— and thus accountability—is located: it is at the level of the national government. In the long run, nevertheless, such small states have no practical choice other than seeking membership in a second tier structure, such as the European Community. But the principle of economic confederation, based on mutual rational self-interest, should not be confused with federalism; in fact, as I suggest in Chapter 11, this confusion presently risks undermining the EC. This is less apparent to the Germans and French, who can see the EC as the extension of their own national community, or the people of relatively artificial states like Belgium and Luxembourg. But it is a profound matter for the Nordic peoples, both the Danes, as expressed in their initial vote over Maastricht, and the Norwegians, Swedes, and Finns as they consider EC membership. In rejecting the Maastricht agreement on European Union in June 1992, the Danes affirmed that they were Danes (and Scandinavians) before they were Europeans. They had managed to operate within tight monetary constraints in the pre-Maastricht EC and still keep the fundamentals of their welfare state intact. They understood that closer economic coordination required closer political coordination. But one can adjust to the removal of economic barriers and the resulting competitive pressures only when the identity of the community making the internal tradeoffs allowing for such adjustments is clear; and Maastricht, especially for what some interpreted it to mean, put that at risk for the majority of Danes. We shall return to this discussion in the concluding chapter. 141

FROM THEORY TO PRACTICE

For small, relatively homogenous, well functioning nation-states, membership in supranational bodies is justified by the requirements of economic integration, enabling the people of the member communities to achieve the goals they have in common.14 Membership in a confederal body is best understood as a series of institutional arrangements, like, say, accepting UN peacekeepers in a nationally divided state; it is a means by which the parties impose rules on each other (and themselves) they all benefit from but would not separately undertake. ‘Eurocrats’ in Brussels are assigned the task of imposing monetary fiscal and regulatory constraints upon the member states in an ‘above politics’ manner, enabling the national politicians to say: ‘this is not our ideal policy choice, but, if we want to benefit from economic confederation, we have no alternative.’ This role attributed to the EC Commission and Council can thus be compared to the role often played by third parties operating as coalition partners in PR-based parliamentary systems.15 External constraints from Brussels serve a useful purpose in making it possible for national leaders to withstand unrealistic pressures from below. Blaming Brussels for any problems has very limited political usefulness since the Brussels bureaucracy cannot be voted out of office. Either one leaves the confederation; or one accepts the constraints that membership entails, and looks to the national politicians to arrive at policies for optimally adjusting to the constraints. These constraints are primarily economic, to ensure the free movement of goods, labour and capital, but there is a social dimension to make sure that workers also benefit from such movement and that the weak and vulnerable—and the environment—are protected. This social dimension is important as a stop-guard— desirable because of its indirect effects: as economic integration allows poorer regions to grow, their social standards will rise with that growth. This dimension should not be confused, however, with the advancement of redistributive justice which, I argue in Part III, is best left up to member states. National political leaders have no choice but to explain why the Brusselsimposed constraints are manifestations of the facts of economic life and not of some bureaucratic whim, facts that cannot be changed by throwing the bums out at the ballot box. To put it otherwise, in an economic confederation, unlike under federalism, there is a real pay-off for informing the electorate directly of existing constraints and thus an incentive for fostering institutional arrangements that do so. Turning the EC into a federal system by giving the Strasbourg Parliament real power would invite politicians to lead people to vainly believe that escape from economic constraints lies in the European-level ballot box. In sum, by bringing the objective economic constraints upon choices into political reality, economic confederations focus decisions on real rather than rhetorical alternatives. Membership in them enhances rational institutional 142

RATIONALITY, ACCOUNTABILITY AND GOVERNMENT

choices in the same way as the other constitutional choices proposed here: parliamentary systems of government, proportional representation, and state boundaries corresponding to small and relatively homogenous communities. Operating within political structures composed of these various elements, individuals and organizations are rendered capable of positive institutional choices. Their relationship is potentially one of an IPD—stable, with shared language and cultural symbols, and structures of government built upon them. In combining these four political guidelines under the heading of accountability we have thus added a third complement to corporatist organizational arrangements and the reduction of rational ignorance. FROM STRUCTURES TO BEHAVIOUR The logic of positive institutional choice applied to political structures is diametrically opposite to the public-choice logic which takes Madisonian checks and balances to the extreme of treating all political mechanisms facilitating collective choice as inherently suspect. On such grounds, Riker (1982), for example, espouses a division of power between executive and legislature, bicameral legislative chambers, a federal distribution of power, powerful independent judiciaries, and short mandates. In the last part of this book we describe institutional arrangements in the Nordic countries which conform more than others to the guidelines outlined in the past three chapters—including the political structures discussed here. For public choice, these are, in effect, the worst structures. In the last two chapters, we tested the relevant American institutional arrangements against the criterion invoked by its public-choice defenders, that of efficiency, and found them wanting when it came to knowledge dissemination and investment in human resource development. A similar critique applies to American political institutions. In making it, as in the earlier cases, we are not necessarily calling for reform; indeed we are more often than not skeptical of the possibility of reforming American institutions. The critique is meant to show rather the limits of publicchoice analysis of institutions analogous to the public-choice critique of the corporatist welfare state. There is clearly a relationship between a constitutional design such as advocated by Riker and the appropriateness of a strategy of non-interventionism by government. Once the community is stripped of institutional means for concerted, informed choice, as seems to be largely the case under the American constitution, a laissez-faire approach may very well wreak less havoc than interventionism. Indeed, as already noted and developed above, the large 143

FROM THEORY TO PRACTICE

population and territory of the US alone makes it a poor candidate for the political guidelines here being advocated.16 Thus it is not difficult to understand the attitude of the typical ‘liberal’ member of Congress: no matter how persuasive the argument that increased taxes could be used to help the people, the answer is “‘not on my constituents you won’t” [since] they may be held personally responsible for voting the tax increases while they may find it difficult to take credit for popular spending programs’ (Steinmo, 1988:9). One result is lower levels of services than many Americans would want.17 Voting turnout in the U S is a clear reflection of the perceived nonaccountability of the political system. While a 75 per cent turnout is normal in most Western nations, the US is lucky to get half the population to the polls. Indeed as many as one-third of eligible voters never even get registered. The effect upon the role of legislators has been especially pernicious, as illustrated in the statements of many retiring legislators. The formula is a simple one: incumbents support parochial concerns, receive money from rich and powerful lobbies and avoid taking stands that will offend them. For example, in one short period, both Newsweek (April 24, 1989), and Time (June 12, 1989) ran highly critical features about the US Congress. Time concluded…‘cynics may be justified in thinking there only two kinds of Congressmen: those who get rich, and those who get caught.’ Incumbents, especially congressmen who must face reelection every two years, are preoccupied with gaining visibility before constituents. ‘In the age of television the three keys to success are exposure, exposure, and exposure…. One-third of the bills passed each year are meaningless resolutions designed to make constituents feel good.’18 The savings’ and loan companies’ lobbying activities kept Congress from taking any action to stop the reckless and fraudulent investments being carried on by these ‘thrifts’. The bailout bill was estimated then at $158 billion over fourteen years; ‘not a bad return for $4.5 million worth of congressional donations over six years’ (Time: 41). The combination of a laissez-faire (non-corporatist) organizational structure, a non-accountable constitutional structure, and a system of knowledge dissemination permeated by commercialism was manifested in the 1980s in consumption-driven growth, largely based on imported consumer goods paid for by a huge deficit in the balance of payments, and employment growth largely tied to their sales, the flip side of which was inadequate investment in infrastructure and public services. The resulting increase in the gap between the haves and have-nots brings us back to where we started: to the rationality of seeking access to the exclusive suburb, the elite private school, the country club, and the chauffeured limousine. Why should we be surprised when a congressman expects the same?19 144

RATIONALITY, ACCOUNTABILITY AND GOVERNMENT

The US is still probably the richest country in the world, and for many, especially in the former ‘second world’, stands as the beacon of economic progress. With the world recession and the election of Bill Clinton, there appears to have been somewhat of a dampening of materialism. But even if American values are changing, the institutional arrangements are not. Needed here is a term—the equivalent of ‘Eurosclerosis’—to critically capture the American situation. Perhaps we might settle on hyper-competitiveness as characteristic of not only its economic but also political institutions. Our analysis teaches us that the problems are second-order ones, beyond the reach of the choices among alternatives open to individuals and organizations, just as the public-choice criticism teaches that Eurosclerosis is bound up in European institutional arrangements. One final matter. Just as we insist that Scandinavians are no ‘better’ than anyone else, we insist that Americans are no worse. Human nature is human nature—it expresses itself through different institutional arrangements. It is these that, as we have argued, have built ‘altruism’ into Scandinavians everyday rational actions. Indeed, on the human level, most impressive are the acts of altruism in the US by individuals who, usually against any real hope of making a difference, and at real personal sacrifice, refuse to act ‘rationally’ within the context of their own system. Instead of moving to the suburbs or condos when able to do so, they stay in the inner cities and transitional neighbourhoods and try to help as best they can. We end on the caveat on which we began this section. There is no simple fix. The US population is very large and quite heterogeneous. Indeed, going halfway to accountable political structures could leave the US at the bottom of a Ushaped curve analogous to Britain’s place halfway between corporatist and noncorporatist institutional arrangements, with government interventions that botch things up even worse. It is conceivable that a large, multi-ethnic country like the US might do worse with a proportional system of elections and a parliamentary system of government. But I suspect not. I suspect it would make it easier to discuss and perhaps even effect glaringly needed reforms such as gun control and consumption taxes. It might even be possible to set up countervailing sources of adult education to the commercial communications media—but there I hold out less hope.20 Going further, say, towards the US dividing itself into a series of autonomous regional states in the context of North American free trade, is reasonable in theory but beyond discussion in practice. A good example of the difficulty at enacting needed institutional reform is provided by the native country of this author. Canada, though obsessed with the problem of ‘national unity’, that is, keeping the country from splitting apart when it contains, as one of ten provinces, the culturally and linguistically distinct national community of Quebec. Yet Canada has never looked elsewhere but to 145

FROM THEORY TO PRACTICE

Britain and the US for its political arrangements. Its first-past-the-post electoral system seriously exacerbates regional tensions by disproportionately rewarding parties on the basis of their regional concentration.21 So we see little prospect for institutional reform in North America. It would be very hard to change the electoral system or abolish the upper chamber or change the constitution from a presidential to a parliamentary one. To go from a federal to a unitary system, let alone alter national boundaries, seems outside the realm of possibility. But elsewhere institutions are adapting. Europe especially, East but also West, is changing more rapidly than anyone could have expected. The headlines are full of the horrors of the former Yugoslavia and the potential ones of the former USSR. But there are also positive developments. In the context of a new Europe, new political configurations are being made possible: Spain is not only transforming itself economically but also finding ways of making room for an autonomous vibrant Catalonia. New possibilities have opened for the Slovaks, and maybe soon the Scots. If the German question could be resolved, maybe the Irish one can be too. In this Europe, learning from each other’s political institutions and adapting one’s own seems sometimes, almost, a matter of everyday common sense. CONCLUSION To conclude, then, the guidelines here being advanced are in most cases diametrically the opposite of those advocated by public choice. Yet in arriving at these guidelines, we have invoked the principles of rational choice in analysing the institutional alternatives—just as we did in the earlier chapters of Part II. The fundamental difference has been one of application. Public choice starts from the premise that American-style institutional arrangements are the expression of rational individual and organizational choice and, accordingly, finds European and especially Nordic institutions wanting. For our part, we have started from a rational-choice analysis of Nordic and European arrangements and found American institutions wanting. But the application to Nordic institutions has necessarily been incomplete. It is time, now, to turn in the next part of this book directly to those countries and their institutional arrangements. But this is no ordinary time. Faced with extraordinary challenges, are the people of the Nordic countries—as we asked at the outset, and as many people suggest—in the process of, in effect, violating the guidelines we have set forward? If so, then, perhaps the public choice critique is correct after all.

146

Part III THE PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

In this book, we have, as a rule, treated the institutional arrangements in the Nordic states as of a kind. Examples drawn from one have been presented as representative of all four. Sweden especially has been singled out: as elsewhere, the terms Scandinavian model and Swedish model are, at times, used interchangeably. We placed the Nordic countries together at the egalitarian pole among Western democracies, by generalizing from comparative rates of disposable income distribution over household units, adding other, more indirect measures, as we explored different dimensions of the institutional arrangements linked to combined outcomes of efficiency and redistributive justice. As more and more aspects are brought in, the fit turns out not to be complete. On certain ratings, other countries fit the Nordic pattern. One such case is the Netherlands, with regard to spending on social transfers and development assistance but not unionization and female participation in the work force. The Netherlands has been characterized as a welfare state without social democrats especially in the use of ‘private’ organizations in the administration of benefits and delivery of social services (Sainsbury, 1992:8). Conversely, specific Nordic countries, for example Denmark on the unemployment (but not employment) rate, fit the European rather than Scandinavian profile. Still, an overall composite of the different indicators of equality in outcomes clearly correlates with the cluster of institutional arrangements characteristic of the Nordic countries. Without too much distortion we can refer to three profiles along the three dimensions of institutional arrangements, the individualknowledge, organizational-economic, and governmental-political, set out in Part II. The Nordic states falls on one side and the North American on the other, with the rest of Western Europe somewhere in between in combined levels of knowledge dissemination, corporatism and accountable-consensual constitutional arrangements—as well as in egalitarian outcomes. Australia and New Zealand seem to best fit—with the UK—among the Europeans but leaning 147

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

towards North America, while, of the Europeans, Austria, Germany, the Netherlands and Belgium lean in the Nordic direction. Austria, as noted in Chapter 7, rates as Nordic in level of corporatism, but European in outcomes. It is a small country (population 7.8 million), whose social-democratic party that has ruled in coalition for much of the post-war era. Indeed, it is probably the most corporatist of states in institutional arrangements through the Chambers of Commerce, Labour and Agriculture, and the Parity Commission on wages and prices, and where there is a sole union federation, the OGB (Golden et al., 1993). Yet, we classify Austria as European and leaning towards the Nordic profile rather than vice versa since, as noted, rates of wage dispersion, male/female relative pay, and female labourforce participation are anything but Nordic. In fact, Austria’s dispersion rate among earnings of blue-collar workers widened in the late 1970s and 1980s with the influx of cheap foreign labour (Guger, 1992:359), something of no significant concern to the trade unions (Iversen, 1992). Moreover, its sickness insurance coverage is more continental than Scandinavian (Kangas, 1991:70). But general assertions about the Nordic profile can take us just so far. In Part III we are concerned with the future prospects of the institutional arrangements identified with social democracy in light of new developments such as the elimination of restrictions on capital movements. We start by setting out key similarities and differences among the four countries stressing those most affected by these developments. This is elaborated by a brief account of the process through which each of the four developed its own particular configuration of arrangements. Finally, Chapter 11 poses the question of European integration and briefly charts the course in which each is responding to this process.

148

9 THE INSTITUTIONS OF SCANDINAVIAN SOCIAL DEMOCRACY TODAY AND TOMORROW: I

THE NORDIC COUNTRIES: SIM ILARITIES AMID DIFFERENCES As the 1990s began, the four Nordic countries were at the egalitarian end of the continuum among industrial democracies in distribution of disposable household income; and each, along with the Netherlands and Belgium, topped the 30 per cent level on public spending on medical, educational, and social services.1 Sweden was the earliest to achieve this distinction; Finland the last. Though there were important differences in the methods used to attain these results, there were also similarities, similarities that expressed common principles underlying institutional arrangements. That such principles existed is belied by the fact that each ministry in each state designates an official responsible for taking account of any new legislation in the other three countries in order to avoid incompatibility. Distinctive of Sweden, Norway and Finland, as opposed to, say, the Netherlands or Germany, has been the emphasis on employment. By tabulating a part-time job as half a unit, Rowthorn (1992:102) rates the four Nordic states as highest (along with Japan) among OECD countries with 64 to 70 per cent of the population aged 15 to 64 employed. Sweden, at 70 per cent is highest, but Finland’s level matches that of Sweden when we use full-time job equivalents.2 High employment translates into low rates of unemployment—except for Denmark.3 But, in keeping with the Nordic profile, Denmark is closer to Sweden than to its EC partners in public spending patterns and levels (Hansen, 1992). At 4.72 per cent of GDP in 1991, Denmark spends more than any other country on unemployment insurance (Trehörning, 1993:49), providing both the highest level of compensation and the longest benefit period (Hagen, 1992; Logue and Einhorn, 1989:145). Hansen (1992a) shows that despite spending a great deal more in unemployment compensation than all other European countries, 149

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

Denmark is halfway between Sweden and the EC average in the proportion of GDP publicly spent on various active labour market schemes (see also OECD, 1990e:39–41, 56), and this despite being limited by the rule that jobs thus created cannot compete with private sector. The numbers also translate into comparatively short average working weeks of 35 to 36 hours (in 1984) for Sweden, Denmark and Norway, with Finland close to the OECD average at 39 (Olafsson, 1992:49). Finally, to achieve relative income equality, Norway and Finland have traditionally used transfers more than reduction of wage dispersion (wage solidarity), though Finland has moved closer to Sweden and Denmark on this score. Thus wage dispersion rates are relatively high in Norway, though still low by OECD standards, while the other three rate lowest in the OECD (Freeman, 1988).4 To raise the money needed for redistributive programmes, Denmark, like the other Nordic countries, uses high value-added taxes (which create problems for it in the single market with its lower-VAT EC partners). On the other hand, unlike Sweden and the other Nordic and European countries generally, Denmark draws little revenue from employer and employee social security contributions (1.9 per cent of GDP in 1987—compared to 13.7 for Sweden) thus leaving it with the highest personal income tax level, amounting to 25.6 per cent of GDP (Hansen, 1992:153). We shall return to these differences when looking at the development of institutions in each of the four countries below. It is important, first, to stress that these are differences in means to attain what are, from a comparative perspective, similar ends. Equality is more than income distributions; it is also as we have seen a matter of expectations, of political culture. Common to the Scandinavian ‘model’ is the fact that people can count on the network of good-quality universally accessible (inclusionary) public services. Knowledge of this fact is rooted in experience out of which has grown a shared expectation woven into the inherited political culture (Milner, 1989:46–53). One writer succinctly summed up this feature as a universal demand for fairness…. We must all have the same right to institutional care. If someone breaks a leg, the leg is to be set quickly no matter who the patient is. We consider it natural that such care should not be linked to production, status or ability to pay…preferential treatment not be given to different categories of patient. (Selle, 1991:147) (The commonly used Scandinavian word for this principle is Fördelningspolitik.) The cultural side of this egalitarian orientation is not unrelated to the Lutheran 150

TODAY AND TOMORROW I

background that these secularized societies share. The 1982 world values’ survey found the proportion of Swedes and Norwegians considering themselves to be religious to be lowest among the 19 Western countries surveyed (Reif and Inglehart, 1991:21), while Iannacone’s (1991) survey of Church attendance placed the four Nordic countries’ rates of from 3 per cent (Denmark) to 7 per cent (Norway) lowest among 18 OECD countries. But traditional patterns have not simply been discarded; priests are paid officials with civil responsibilities, many churches serve primarily as (well attended) concert halls that play largely spiritual music. Practical moderation, public-spiritedness, equity, and the work ethic: these are the values that observers discern in the Nordic states—values compatible with, if not integral to, social democracy. The roots of these values are in the pre-industrial villages, which, though hardly egalitarian, placed rigorous standards of competence and honesty upon the gentry. A passion for equity led some to America in search of a land where all could be equal, and others into movements for social change. In this century, equity triumphed institutionally; even the Scandinavian languages were transformed to reflect the new classlessness and informality. Through the immense changes they have experienced, Nordic societies have none the less maintained an underlying cultural continuity largely incomprehensible to the people of the new, pluralist nations of North America. Though their religious content has all but disappeared, traditional festivals are almost universally celebrated, their practice built into evolving social patterns linking family, friends and neighbours through workplaces, schools, and various voluntary associations (see Milner, 1989:46–78, 73–85). The relationship between institutions and culture is always a complex one. A cultural predisposition towards both sexual equality and the intrinsic importance of work (Olafsson 1992:70) must be a factor in accounting for the high level of female employment and the comparatively low pay differentials by gender (Rowthorn, 1992:90–2), and, indirectly, the high-profile political role played by women: in the early 1990s, the four Nordic legislatures led the world in the proportion of women MPs—from Finland’s 38.5 per cent to Denmark’s 33 per cent. Cultural predisposition gave rise to and combined with appropriate institutional choices to result in such outcomes. Institutional arrangements going from centralized collective bargaining to proportional representation electoral systems, and policies including extensive and inexpensive day-care, generous parental leaves, educational recruitment encouraging girls to take jobs traditionally associated with boys and vice versa, and part-time leaves without loss of seniority, create a context in which aggregate individual choices produce relative gender equality.5

151

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

Culture exists only in the minds of human beings, and minds are shaped by the knowledge they acquire. But knowledge dissemination is itself not unaffected by institutional arrangements, a subject explored at length in earlier chapters, both generally and in the specific patterns of the Nordic countries. The contrast was drawn between the emphasis on lifelong education and de-emphasis on commercial television there, with the—opposite—pattern in North America. While not neglecting the importance of inherited cultural expectations, our analysis has thus placed more weight on the effect of choices over institutional arrangements affecting cultural awareness, specifically the Nordic countries’ large investment in continuing education, museums, expositions and publications of various kinds, and public libraries, the impact of which is reflected in the levels of readership of daily newspapers, library books borrowed, and book titles published. Except in newspaper readership, where Denmark is closer to the European average than to the Nordic one, in every case the proportion in each of the Nordic countries was found to be twice or better that of North America and the EC average (UN, 1993:199). As for hours of television watched, an analysis of 14 European countries plus the US found Finland close to the European average, and Denmark and Sweden at roughly two-thirds of it (Norway is not included, but rates there are known to be no higher than Sweden’s), with the US at three times the European average (Lange and Renaud, 1989:122). A knowledgeable population, it was argued, was able to make institutional choices to reinforce the encompassing organizations and structures underlying corporatist institutional arrangements. This helped explain why the four Nordic countries placed high on the various measures of corporatism and were also characterized by what we termed accountable political structures, namely that each is unitary in structure but decentralized in operation (UN, 1993:69), and that each operates within unicameral parliamentary structures and chooses its legislators through proportional representation. Partly as a result of these factors, each has a strong social-democratic party.6 The Nordic countries, it was further noted, start from propitious geopolitical circumstances: they are small, with from four million to eight million in population, relatively homogenous—with no more than 10 per cent of the population of ethno-linguistic origin different from that of the majority—and open economies, with exports accounting for at least 25 per cent of GDP (Lane et al., 1991:19, 55). Institutional choices contributed to these circumstances. The separation of Norway from Sweden in 1905, and the autonomy that Finland won from Russia in the last century as well as the independence from the USSR it was able to secure in this one, were achieved through political (constitutional) choices. The same is true today of their intricate relationships. All are members of the Nordic council, as well as a number of special purpose joint bodies. Only Denmark and 152

TODAY AND TOMORROW I

Norway are members of NATO. So far, only Denmark is a member of the EC, but the others are members of the European Free Trade Association (EFTA) which negotiated a wide ranging trade agreement, the EEA, with the EC, and (see Chapter 11) are each contemplating EC membership. The consequences of possible EC membership is only one dimension of the challenge facing the Nordic peoples. Across the Baltic a very different Eastern Europe is taking shape. And hard questions are being posed more insistently than ever by people in each of the four countries, sometimes different, often the same. These questions and the possible answers to them are the main theme of this part of the book. We begin with Sweden in this chapter, and in the next we take up the cases of Finland, Norway, and Denmark. Addressing these questions entails going beyond the generalizations, to specific features of the countries in question. I make no claim to exhaustive knowledge of all the particulars. I am most familiar with Sweden and least with Denmark, as will be reflected in the level of comprehensiveness of their treatment here. SETTING THE STAGE Let us first set the stage. The facts and figures already cited hint at differences in institutional arrangements and outcomes in the four countries. In almost every case, it is Sweden that has led the way, that has, as some would put it, gone to the extreme. The simplest, and crudest, measure of redistributive effort is called ‘tax pressure’, the overall proportion of GNP collected by governments. By this measure, Sweden has led throughout the last generation (47 per cent in 1970; 62 per cent in 1988), followed by Norway (44, 55), and Denmark (42, 59), with Finland (34, 46) in last place.7 It is Swedish critics who led the way in questioning this overall direction of policy and the appropriateness of existing institutions. Some put it rather bluntly, such as Conservative Party Secretary Per Unckel rubbing salt in (ex)Marxist wounds, proclaiming that social engineering would end up on the ‘garbage heap of history’. The underlying argument goes something like this: as long as economic growth was sufficient, trade-offs that allowed for both efficiency and equity were possible, and corporatist structures, despite their flaws, helped bring them about. When growth slowed to just about the lowest in the OECD in the 1980s, trade-offs continued, but, inevitably, at the cost of required long-term, growth-enhancing adjustments. In the context of extremely tough competition from Japan and other efficient economies, and the constraints imposed by an evolving EC, a point was reached where trade-offs through the old institutional structures were the problem, not the solution: the real solution requiring the abolition of many of these structures themselves. In other words, as Olson 153

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

predicted, corporatist accommodations have degenerated into distributional coalitions with institutional sclerosis the result. And some, like Meyerson (1992), conclude: if abolishing these arrangements means abandoning Fördelningspolitik, so be it. While few Swedish politicians, even among the Conservatives (officially the Moderates), put the case as starkly as this, it has effectively become the position of the Swedish Employers’ Association (SAF). ‘After a long illness, the Swedish model is dead,’ said SAF chairman, Ulf Laurin (Pestoff, 1991:12). While SAF was not alone in grumbling that many of the initiatives taken by the Social Democrats in the 1970s gave the unions through legislation what they could not win in negotiation (Rexed, 1991:3)—symbolized most dramatically by the wageearner funds—it was not until the end of the 1980s that SAF publicly concluded that the corporatist structures were no longer desirable (see Albåge, 1986). This move paralleled a gradual push towards a more decentralized form of contractual negotiations, SAF presenting itself as the lobby for, and no longer the negotiating arm of, Swedish business (Swenson, 1991; Iversen, 1992). In 1990, SAF officially abolished its central bargaining unit and in 1991 it gave official notice that it would remove its representatives from the boards of central decisions-making public bodies. Such tripartite bodies, as we have seen, are a central feature of Nordic corporatist institutional arrangements. To complement this change in its own orientation, SAF called for the abolition of state contributions to voluntary bodies, another feature of Nordic corporatist institutional arrangements. This rejection of corporatism never became unanimous among Swedish employers;8 opposition to SAF’s new direction is still to be found especially among the service industries, and at the regional and local levels. The main evolution has taken place in the attitudes of heads of the export-oriented manufacturing firms dominant in SAF. Perhaps the most important figure in this evolution was the former ASEA and SAF chairman Kurt Nicolin. Nicolin came to prominence as a fierce opponent of the wage-earner funds and was instrumental in SAF’s supporting a network of publishing and communications activities in support of anti-corporatist views, the best known of which is Timbro, a think-tank and publisher. In 1991 SAF itself edited a book of readings with Timbro entitled ‘A Farewell to Corporatism’. In the same year, Timbro initiated a research project aimed at finding alternatives to universalistic social programmes led by well-known sociologist Hans Zetterberg (Rothstein, 1992:21). It is difficult to evaluate the actual effects of the changes at the apex of the employers’ organizations in Sweden. As of this writing, SAF’s counterparts in the other Nordic countries have not withdrawn from central agencies; and SAF itself agrees to continue to play an active consultative role. For example, in June 1992, the new bourgeois government removed interest group representatives 154

TODAY AND TOMORROW I

from the most important corporatist body, the National Labour Market Board (AMS); instead, it appointed them to a newly created AMS advisory council. Moreover, the more important local-level, practical cooperation between employers, labour, and relevant public agencies (Logue and Einhorn, 1989) shows every indication of going on as before. Yet there has undeniably been a clear evolution in business’ public stance. To explain it, we cannot look to developments in government policy since, practically speaking, business worked well with Social Democratic (SAP) Prime Minister Ingvar Carlsson, far better than with his predecessor, Olof Palme (Pestoff, 1991:23). The key change was in public attitudes. In 1989, SAP support declined to below 35 per cent, its lowest rating since the 1930s (Holmberg, 1991). While SAP seldom strayed from policies encouraging efficient business enterprises in setting its agenda in government, business was always required to be circumspect in affecting that agenda. With public opinion shifting, the context had changed: Labour, long used to being the key player, was placed on the defensive; business could flex its muscles as it had almost forgotten how. Its spokespersons condemned the gamut of corporatist institutional arrangements as obstacles to efficiency and competitiveness: government needed merely to reduce taxes and payroll levies, and remove organizational constraints. Yet this neoconservative rhetoric must be taken with a grain of salt. Scandinavian employers know full well that they did not fare all that badly under the old corporatist arrangements, and that in practice there was no great distinction between the approach of labour and business to adjusting to the new international realities. Under Labour governments, the Nordic countries in the late 1980s deregulated significantly, especially in their financial markets, in response to changes in Europe and in anticipation of EC participation either directly or through the EEA. The gap between the views of business and labour is not as wide as the rhetoric would imply. The trade union leadership, especially in Sweden where large unionized export-oriented corporations predominate, links achieving labour’s objectives to the capacity to work with employers to compete successfully in the wider European context (SAP, 1991:16). In practice, the position of Ingvar Carlsson, Norwegian Prime Minister Brundtland, Danish PM Rasmussen, and the new Finnish Social-Democratic leader, Paavo Lipponen, have much in common with that of business leaders; the difference is that the former regard theirs as the means of preserving social-democratic achievements. The question of adjusting to the new international (and especially European) environment poses itself differently in the four countries. Natural-resource-based industries such as Finland’s pulp and paper and, especially, Norway’s oil and gas, are constrained primarily by world prices. It is in Norway where, as we shall see, the very assumptions of the pro-European orientation are contested, 155

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

especially by farmers, fisherman, and workers in hinterland communities whose industries are based on cheap energy and other state ‘subsidies’ tied to these resources. Sweden and Finland, where export-based large-scale manufacturing is significant, must give more weight to operating from within the framework of the European market. Denmark, already in the EC and with an economy in which small manufacturing companies and agriculture play an especially significant role, is in quite a different position. With a relatively pluralistic economic structure and little exposure to the shocks of fluctuating world prices of staple resources, it has not developed several of the policy instruments common to the others. For example, the role of the Danish state has been significantly smaller in regulating credit, the opposite of Norway to which it is often closely aligned (Fagerberg et al., 1992). Institutional arrangements in the Nordic countries face similar challenges but in divergent contexts. To assess their likely response to the challenges, we focus on those institutions identified earlier as central and which are affected by these divergences. We look especially at the functioning of corporatist institutions in the labour market and in the policy-making process stressing the evolution of the structure of trade unions and employers’ associations and the role of government in collective bargaining. The starting point in each case is the longlasting alliance between the largest and oldest trade union confederation and the Social Democratic/Labour Party, and the corresponding coordination of employers’ interests. Quite early in the process, important differences emerged among the four. In Denmark, trade unions organized more on craft than on industrial lines. Compared to Norway, the trade unions in Sweden, Denmark and Finland are centralized; membership is high, due in part to unions having at their disposal certain selective incentives, especially over eligibility for unemployment insurance,9 as well as the fact that the union federations do not compete among themselves. Finally, and as a result, in Norway and Denmark government has been more directly involved in collective bargaining. These differences are the outcome of, as well as the explanation for, different historical experiences in each of the four—to which we now turn. SWEDEN: THE PRESENT CONTEXT The first stop is Sweden, where the ‘model’ is both most fully developed and hotly contested. So far, we have encountered specific features of what is known as the traditional Swedish model. These have been recast in the theoretical framework here developed, stressing institutional arrangements surrounding the dissemination of knowledge, corporatist relationships in the labour market, 156

TODAY AND TOMORROW I

and complementary state structures. We now address the multiple challenges facing the institutional arrangements of Scandinavian social democracy. Are they of a nature and strength to undermine the model? If so, then the answer to the question posed in the introduction is yes. We will indeed have to abandon our goals of eradicating poverty, of building a productive community that doesn’t abandon a quarter of its population to poverty and ignorance. If the model is to be dismantled, it may very well be Sweden which will lead the way, just as it was Sweden which led the way in its construction. The guiding spirits behind—though by no means the only contributors to—what came to be known as the ‘Swedish Economic Model’ were the leaders and intellectuals of the Swedish labour movement. By the time it achieved political power in a Social Democrat—Agrarian government in 1932, the SAP had come around to the understanding that what mattered was not the form of ownership, but the combined outcomes of government policies and organizational (especially trade union) actions. These policies came to include generous inclusionary pensions and benefits paid largely out of employers’ contributions but not linked to the job, the low income dispersion (wage solidarity), and, later, co-determination in the workplace. Underlying the specific measures was the understanding that the guarantor of continued improving working conditions was the maintenance of a sellers’ market for labour through full employment. Full employment became the lynchpin of the Rehn-Meidner economic policy model adopted by the Swedish labour movement in the 1950s. According to this model, full employment contributes to industrial efficiency because workers, backed up by inclusionary services and active labour market policies (massive investment in training and retraining, mobility grants and, as a last resort, public works) are prepared to move to high-tech jobs in expanding industries. Over time income disparities are reduced. Full employment underpins inclusionary social services since it removes the resentment felt by workers supporting non-workers with their taxes. Under these conditions, inflation, which normally accompanies (and puts an end to) full employment, is restrained through centralized collective bargaining. Employers have an interest in their organizations inhibiting them from outbidding each other for scarce labour (and thus setting off an inflationary wage spiral), while leaders of encompassing unions take into account the inflationary and unemployment effects of wage increases. A Norwegian economist, Odd Aukrust, first set out what in Sweden came to be known as the EFO formula (Milner, 1989:94–6), a comprehensive procedure for wage setting under centralized collective bargaining, based on the wage costs of export-oriented manufacturing. EFO proved partially successful in orienting contractual negotiations from the late 1960s to the 1980s in both countries. 157

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

To take some of the pressure off union leaders, who they realized would be hard pressed to play their part in keeping down inflationary pressures, Rehn and Meidner stressed selective programmes to encourage profitable corporations to use profits to keep levels of employment high and enable workers to move to higher paying jobs (Rehn, 1980; 1987). In this they were in effect early supplysiders, wary of the inability of Keynesian non-selective methods to adequately fine tune an economy to keep down underlying inflation. Rehn often complained of Swedish politicians who did not sufficiently clamp down on inflation as required by the model. But, overall, the performance of Swedish institutional arrangements over almost three decades came close enough to expectations to merit the international recognition it received. Previous chapters have stressed complementary features that are less well known internationally, especially those concerned with promoting active acquisition of practical knowledge. These include, first, the small income differentials tied to educational attainment combined with free education up to the highest level, and, second, the widespread availability of inexpensive continuing education in every form. In addition, the practical orientation of both compulsory and higher education, and a cultural policy oriented towards counteracting the negative effects of commercialization were stressed, as well as the fact that interest organizations, especially labour and business, were expected to oversee or themselves provide many of these cultural and educational services, supported by generous, locally administered state funding. Finally, a connection was drawn between those policies and the tendency of Scandinavians to inform themselves through organizational activities and reading rather than watching television. Commercial non-cable television existed in Finland and Denmark before coming to Sweden at the end of 1991, and its impact has so far been limited. But a different kind of cultural change was observable in Sweden, and, though less so, in the other Nordic countries, one in the range and content of political discourse. The accompanying rhetoric was one of epoch shift, a rejection of the model, a turning away from a failed system—as articulated especially by big business and its political allies. To judge by the statements of SAF leaders cited earlier, there remains little sympathy for the old institutional arrangements. Nor did the challenge to prevailing arrangements come only from big business; many younger, educated Swedes seemed to reject not only the Social Democrats, but the way of life associated with social democracy. As state socialism was repudiated, the tone of opponents of social democracy harshened.10 Following the return to power of the SAP in 1982 after a six-year interlude, business became increasingly outspoken in its criticism of the Palme government, especially after implementation of the wage-earner funds (despite the fact that 158

TODAY AND TOMORROW I

the 1983 legislated version was much watered down from the original LO proposal—Milner, 1989:130–7). That same year, after two decades of centralized bargaining, the Swedish Engineering Employers’ Association (VF) concluded a separate agreement with its workers. Palme’s assassination early in 1986 led business to temporarily return to a more conciliatory stance and to the central bargaining table (Iversen, 1992). But as the SAP ran into increasing problems at the end of the decade and its ratings sagged in the polls, the more conservative elements of business, which had come together to mobilize against the wageearner funds, saw their opportunity and seized it. In 1988 the centralized bargaining system again began to unravel, and the pattern seems to be a continuing one, despite agreement in 1990 on a centrally mandated incomes-policy framework based on the recommendation of the Rehnberg commission (Iversen, 1992:28). At this time, SAF leaders were coming to disdain the old consensus in their public pronouncements (Pestoff, 1991), influenced by the rapidly changing international environment which cast doubt upon all that was associated with the left, all that was seen to stand in the way of the free flow of market forces. Business was happy to cast its sails, as Carl Bildt liked to put it, in the winds blowing from Eastern Europe. But the question to be posed is just how much of this is rhetoric, designed to stake out a strategic position, to strengthen business’ hand in its efforts to integrate operations into the wider European context—and how much reflects real disengagement from corporatist institutions. I A setback for Labour In 1991 the SAP averted the disaster many expected, winning over 38 per cent of the vote. But it was Carl Bildt’s Conservatives, who won 22 per cent of the vote, who formed a ‘bourgeois’ coalition government with the Liberals, Christian Democrats and the agrarian-based Centre Party. In the 1985 and 1988 elections the bourgeois leaders had failed to undermine confidence in the Social Democrats’ economic management. But the next three years proved especially hard on the Swedish economy. A government crisis in 1990 almost forced a premature election, and ended the political career of Finance Minister K.-O.Feldt, architect of the ‘third way’ economic strategy situated between Mitterandiste reflation and Thatcherite austerity. The foundations for this strategy were laid by the devaluations of 1982, which, in a sense, worked too well. Resulting labour shortages exacerbated the already high absenteeism, and vice versa. As the new decade began, on any given day, 15 per cent of Swedish workers were absent but paid to work (Kolberg and Esping-Anderson, 1992). Most were taking advantage of generous parental 159

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

and study-leave programmes, but too many were on illness-related absences in which Sweden led the OECD with 5 per cent, followed by Norway (which has no early retirement and where standard retirement age is 67) and the Netherlands, both at 3.8 per cent, well above Denmark and Finland—and the European average—at 1.5 per cent (OECD, 1991a:182).11 The figures confirm what became commonly held impressions. Absenteeism counterbalanced the beneficial effects of full employment. A syndrome was developing dangerously reminiscent of that of people under laissez-faire systems to withdraw from contributing to systems of publicly provided services amounting to the calculation: ‘Why should I not shirk since everyone else does?’ The result was not lost on the voters. Exit polls on election day in 1991 showed that economic issues cost the SAP the election, but the most commonly held ‘economic’ complaint was of the shortage of service providers attributed largely to absenteeism. Stories abounded of teachers who took long-term disability after being verbally abused at parent-teacher meetings, of middle-aged immigrant women who did so because their husbands wanted them home, and of hinterland municipalities where public-sector jobs were shared by rotating such leaves. The SAP government was attacked in editorials for eliminating remaining disincentives against absenteeism just as immigrants and younger workers who did not share the old Lutheran work ethic were taking their places in the labour force. In the biting words of internationally-known economist Assar Lindbeck: when the reasonable principle of equal pay for equal work was changed to equal pay for unequal work, only then to move towards a system of equal pay whether you work or not, serious problems arose: the destruction of financial incentive in Sweden was a fact. (quoted in Meyerson, 1992:6) The absenteeism further slowed an already sluggish economy; but inflation accelerated, reaching double digits at the end of 1990, largely due to wage drift12 as workers took advantage of labour scarcity to make up for the purchasing power lost in the devaluations. Public-sector workers, who could not avail themselves of wage drift, tried to compensate through the central agreements, thereby further eroding solidarity among the different sectors. The climate of distrust was fuelled by stories of instant millionaires from stock market manipulation or real-estate speculation.13 Employers in the large export-oriented manufacturing firms, still smarting from the wage-earner funds, were increasingly hostile to centralized bargaining. Moreover, labour shortages, absenteeism, and high wages led many to take advantage of the new freedom to move capital and 160

TODAY AND TOMORROW I

invest abroad rushing to get into Europe before the 1992 single-market deadline. Though the trade balance continued to register a surplus, Sweden’s balance of payments situation deteriorated badly in the 1980s. Despite some success at incorporating market-type efficiency mechanisms into public-sector budgeting and organization, and, especially, at reforming the tax system to reduce marginal taxes,14 the SAP came under increasing attack from business and the press. Among the most effective critics, subjecting the welfare state to mocking ridicule, were the leaders of a new populist conservative party, New Democracy, which won over 6 per cent of the vote in 1991, much of it among young voters. The established bourgeois politicians were more circumspect; the joint electoral programme of the Conservatives and Liberals had been careful not to challenge the basic principles of the Swedish model. In fact, as joblessness began to climb in the year before the election, the SAP’s main opponents attacked it on its home turf of full employment. There is none the less a strong libertarian element in the Conservative Party, especially its youth wing, and it is to this element Carl Bildt appeals in the comments of a more philosophical nature he is wont to make, leaving the impression that his party would like to go further in dismantling institutions than provided for in the joint programme or in the policies of his coalition government. Bildt described the 1991 election outcome as an ‘historic defeat for the left’ in which Sweden joined the rest of Europe in ‘fleeing socialism’. II The non-socialists in power Upon taking office, the new government hit the ground running. Cutbacks in interest-rate subsidies for home owners and in family allowances were announced, and several state agencies were abolished.15 As promised, the burden of taxes and social contributions fell more on workers and less on employers, but the latter were made responsible for paying out sickness compensation benefits for the first two weeks (as in Norway)—one effect of which was to give employers an incentive to improve the work environment. Succession duties and capital gains tax rates were lowered and the wealth tax slated to be abolished in 1994. Privatizations were planned in pharmaceuticals, paper and steel. The spring 1992 revised budget removed energy taxes on businesses and announced a decline in the VAT from 25 to 22 per cent for 1993. Spending reductions were anticipated through a planned tightening of the qualifying criteria for occupational injury benefits and the gradual phasing out of housing subsidies. But rather than recovering, the economy declined further through 1992. Major banks had to be rescued from financial collapse. From a surplus of 5.5 per cent in 1989, Sweden’s budget deficit for 1992 was 8 per cent of GDP and 161

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

rising, with public debt expected to equal GDP by 1997. With the government cutting back on the public sector, and big companies investing abroad if at all, unemployment jumped, crossing the 5 per cent line in summer 1992. The government raised the allocation for building and repairing roads, schools, and public buildings; and activated a special fund for projects to improve the working environment. These and other active labour-market programmes were, by September 1992, occupying 2.2 per cent of the work force, one and one-half times the figure of a year earlier.16 The lack of investment capital slowed down planned privatization schemes. While taxation declined as a percentage of GDP, public spending actually increased from 63 to 65 per cent as the economy contracted. Efforts did proceed in the effort to augment efficiency and widen the range of choices in the public sector in education, pensions, day care, parental leave, and unemployment insurance. In his inaugural address, Bildt had promised a ‘revolution of freedom of choice in welfare policy’. In fact, in several of these measures, he was starting where the SAP had left off, and none per se constituted an explicit turning away from Fördelningspolitik. Neither the Conservatives’ coalition partners, nor the majority of Swedes were prepared to repudiate the principle that all people regardless of status or ability to pay be able to count on a network of quality public services and that no one be able to procure preferential treatment. But is there an implicit and subtle process taking place, the long-run effect of which could undermine Fördelningspolitik? In such a scenario the change takes place not through readily identifiable explicit central government edicts but through the aggregate effects of many imperceptible local and individual choices indirectly promoted by government policy. Is this the ‘revolution’ Bildt had in mind?17 Local governments play a significant role in service delivery. The SAP had already opened the door to ‘complementary private activities’ in service production (Wise and Amnå, 1992) and provided financing to local and county governments through sectorial rather than earmarked grants. The new government stepped up this process to coincide with the results of the 1991 municipal elections (which take place at the same time as national ones), in which Conservative-led coalitions took power in 59 of the 65 cities with over 50,000 population. Soon after the election, Stockholm County (regional) Council began to institute a system under which hospitals and alternative providers compete for clients (Berleen et al., 1993), and are paid per operation. And in autumn 1992, Stockholm City Council set into operation the Ministry of Education’s new guidelines to enable parents to exercise practically unlimited choice among its schools.

162

TODAY AND TOMORROW I

In moving towards sectorial grants tied to specific geographical and demographic conditions, and in giving municipalities and counties greater say in education, health and welfare, the new government began to implement its promise to allow privately provided health clinics and senior residences to compete with the public ones. Private day-care centres were made eligible for the same grants as public ones. The goal, the government insisted, was to widen choice and not reduce accessibility since all services would be financed entirely by the state.18 At the same time, it announced that there would be a 7.5 billion SEK ($1.3 billion) cutback in transfers to the municipalities in 1993, while freezing municipal income takes. Under such circumstances, one can anticipate private institutions appealing to the better off by offering certain ‘frills’ at a supplementary cost. Over time, the result could be the two-tier system envisaged for example by Per-Martin Meyerson, economic adviser to the Federation of Swedish Industries which would drastically prune the public sector…with regard to coverage. Only a certain level might be guaranteed through general methods, for instance. On top of this base security, everyone would choose to what extent and how he would like to increase his protection. (Meyerson 1992:8) Yet bourgeois political leaders, including those of New Democracy, shy away from overtly retreating from solidaristic health care and other social programmes (Rothstein, 1992:20). Finance Minister Anne Wibble was clearly speaking for the government when she told a 1992 Harvard audience that she was optimistic for the survival of the Swedish model, let it be in a different shape…. I believe in the welfare state. It is one of the great inventions of our time. All citizens should be given equal chances in life. They have a right to equal access to education, health care and the provision of other basic needs…. Because social equity, a well educated population and an active labour market policy represent investment in human capital, the welfare state can be a source of competitive advantage. Ms Wibble’s Liberals and the Conservatives’ other coalition partners could not be party to any attack on Fördelningspolitik. The Centre Party leadership had entered the coalition with some misgivings, its parliamentary leader publicly critical of a planned reduction in housing subsidies. But they and the Christian Democrat leaders have little room to manouevre, since their socially conservative 163

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

electorate is unlikely to sanction action that puts the SAP back into power. That leaves the pivotal role to the Liberals who have consistently supported the principles of a generous—though efficient—welfare state (‘social welfare without socialism’) from the time when Anne Wibble’s father, the respected economist Bertil Ohlin, was leader in the two decades after the War. The Conservatives steered a course of action designed to allow the Liberals to close ranks against SAP attacks. The Liberals defended the transfer of social charges from employers to employees and other measures as consistent with those taken in cooperation with the previous SAP government, and accused the SAP of hypocritically denouncing practices it itself had adopted in office. There was some truth to this charge, as it seemed that the SAP would fall back to the old rhetoric of class solidarity and attacks on those who would tear down the ‘people’s home’ after its election defeat. But the SAP leadership was by and large uncomfortable with such behaviour, more sympathetic to young reformers in the party prepared to work on common objectives with bourgeois politicians— even Conservatives. The reformers have been publicly disdainful of the ‘betongsosse’ (literally ‘cementhead social democrats’) who hold that there is a bureaucratic solution for every problem, their approach reflecting the reality of the more prosperous, more bourgeois South, (while the SAP’s traditions lie in the more proletarian and less sophisticated, but also, increasingly, less populated, North). Key reformers are prominent in the next generation of SAP leaders, and close to Ingvar Carlsson’s likely heir-apparent, iconoclastic Mona Sahlin (born in 1957), chosen in spring 1992 as SAP Party Secretary. An important expression of the reformers’ approach is found in a hard-headed comprehensive analysis of the economic adjustments facing Sweden in the 1990s articulated in a report by former Undersecretary of Finance, Klas Eklund. Their influence has been felt in a profound transformation at the higher levels of the public service during the 1980s (Linde and Ehn, 1990): Feldt, Eklund and their allies prevailed over the ‘betongsosse’ bringing efficiency considerations to the fore, borrowing a page from reforms of the Danish non-socialist governments (Eliason, 1992:574). By 1992, the SAP had returned to its 1980s level of support of 45 per cent— though partially at the expense of its ex-Communist (VP) allies, who fell below the 4 per cent minimum as had the Greens in 1991. The SAP thus found itself looking to the Liberals. The Liberals were stuck at 7 per cent support in the polls, down from 9 per cent in 1991, an already low figure not much greater than that of the Conservatives’ other coalition partners and New Democracy. But the Liberal Party’s influence is heightened by its power base in the educated urban middle classes. It is endorsed by Sweden’s leading newspaper, Dagens Nyheter (DN). It is this group whose view will determine whether the political 164

TODAY AND TOMORROW I

future lies on the Centre-Right or Centre Left. Hans Bergström, DN’s political editor, well represents the views of this group, critical of the SAP’s initial opportunism in opposition in alluding to non-existent Keynesian alternatives, he finds it to have become more responsible as the economic situation worsened. III Medium-term prospects for Fördelningspolitik Even though it lacked a parliamentary majority, the coalition expected to complete its full term in office. But only so much could be changed in three years, especially under unfavourable economic conditions. More fundamental changes needed a longer period of gestation. But remaining in power proved increasingly problematic. The initial prospect was of successfully exploiting Carl Bildt’s rising stature as a European political leader in the context of European integration. A new government might be formed with more direct support from a growing New Democracy and a weakened Liberal Party which would tilt the coalition further to the right and away from the principles that we have seen to have guided Swedish institutions for two generations. In 1991, Bildt gave the Liberals a more central position in the coalition than merited on the basis of their popular support, building on his close working relationship with Liberal leader Bengt Westerberg as state secretaries in the previous bourgeois government. Westerberg was named Deputy Prime Minister, as well as Social Affairs Minister, a position from which he staunchly defended Fördelningspolitik.19 Two other Liberals figured prominently: Anne Wibble at Finance, and Birgit Friggebo at culture and immigration.20 But apart from being high-profile, these were, in recessionary times, thankless jobs. Thus, while cementing the alliance, Bildt’s appointments indirectly contributed to the Liberal’s slippage, weakening their position in any future coalition. Westerberg is a stumbling block to any cooperation with New Democracy21 which despite its proving an unreliable ally, Bildt would not hesitate to deal with. Indeed Westerberg has stated his preference for an SAP government over a bourgeois one depending on New Democracy, but it is not at all certain that he has his party’s support on this. In the unlikely event of an even more Conservative coalition ruling in the mid-1990s—when EC membership presumably would take effect—we can anticipate a real erosion of the underlying institutional arrangements, one that goes beyond words to far-reaching actions. A key arena would be education. In introducing his spring 1992 plan for post-secondary education reform inviting wide-open competition among universities for students and funding, Minister of Education Per Unckel dismissed Swedish policies in higher education as ‘25 years of failure’. Yet for all his contempt for ‘social engineering’, Unckel did not 165

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

touch the principle of free universal access, just, as in extending the principle of free choice at the primary and secondary level of schooling, he stopped short of placing any cost on the student. But, in the long run, the effect of greater choice could be to undermine the inclusionary principle: as especially motivated parents select better schools and day-care centres for their children, quality in these selective institutions improves in contrast with the schools left behind. In this way, identification with local community schools is slowly eroded, replaced by school-based class distinctions, as independent schools are made eligible for public money at the same level as the public schools.22 While the government explicitly rejects the idea that quality of schooling should be related to parents’ ability to pay, the changes may thus be laying the groundwork for a two-tier system. Public (state) schools seeking to attract parents who would otherwise choose independent schools would find themselves pressured to offer costly and selective programmes and thus, with budgets tight, seek the right to charge parents the supplementary costs. This sets in motion a logic where the additional costs imposed upon parents choosing elite schools serves as a screen to keep out less desirable elements. As this process becomes generalized, the main concern has shifted from that of preserving Fördelningspolitik to one of gaining access to the upper tier of, in this case, educational institutions. Once a two-tier system of services takes root, rational individuals aware of the stakes involved will seek access to the upper tier for their families, and the disposable income to do so. As those who succeed at attaining these incomes withdraw from the lower tier, the demands on the quality of services provided at the lower tier lessen and service deteriorates. The result is an even greater incentive to withdraw to the higher tier. The breakdown of Fördelningspolitik is the end result of this ‘negative’ second-order logic in which effects of present choices alter arrangements under which future choices will be made, the effects of which are apparent only later. Does this possibility mean that Scandinavians could be—inadvertently— choosing the laissez-faire American profile of institutional arrangements? Not quite, for there are counterforces built into existing arrangements. The evidence so far is that relatively few parents have chosen to change their children’s school. It is not easy to abandon your neighbourhood school, not in the faces of your neighbours and your children’s teachers (especially if they too are neighbours). As Odd Eiken, Undersecretary-of-State for Education, told the Oidel symposium in France in November 1993, schools founded to take advantage of the new law have been mainly religious or alternative in character. Educators have not shown interest in starting schools as businesses.

166

TODAY AND TOMORROW I

Such counterforces have been discerned in other areas of public policies.23 In health services, the universality principle is so well established in countries like Sweden and Finland that experts (e.g. Saltman and Von Otter, 1992) argue that wide-ranging consumer choice can be introduced, as is being done among public hospitals, nursing homes and clinics in Sweden (Haggroth, 1993), and proposed for Norway (Erichsen, 1993) without opening the door to private, profit-oriented suppliers of these services.24 This is clearly the preference of most Swedes.25 And for all the critical talk, there is still a reservoir of national pride in the accomplishments of the universalistic system. According to the Swedish International Press (July 27, 1992): At the Swedish Pavilion at Expo 92 in Seville, Sept 15–18, students from the College of Arts, Crafts and Design in Stockholm have been commissioned to visualize the welfare system and the role it plays at different stages of life…. A series of seminars it arranged, covering such issues as every person’s right to receive care in old age or in the case of disability; the “work for all” strategy; measures to reduce unemployment among young people; parental insurance…. The event is sponsored by the National Board of Health and Welfare, the National Labour Market Board, and the National Social Insurance Board. Minister of Health and Social Affairs Bengt Westerberg and Minister of Culture Birgit Friggebo will be among the speakers.

IV The crisis deal By the end of the summer 1992, the severity of the economic crisis was driven home to Swedish politicians. Severely affected by the depression were the skilled industrial workers, the backbone of the Swedish economy. Both Volvo and Saab26 announced significant layoffs. Kalmar, symbol of Volvo’s team assembly revolution was slated for closing in 1994, while Uddevalla, Volvo’s team-assembly showpiece for the 1990s, where a regional infrastructure had been developed to complement the Volvo plant, shut its doors in April 1993. Meanwhile, Swedish banks were pulling back from investing in order to repay foreign debts from speculative deals at home and abroad. The sector worst hit was construction with many highly skilled workers out of work for the first time in their lives. The cost of unemployment compensation and active labour market policies, plus over 50 billion SEK to underwrite the banks, set against the shortfall in revenues due to decreased economic activities and higher interest charges on 167

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

debt payments, confronted the state with a deficit equivalent to almost 15 per cent of GNP. Due to these factors as well as volatile external money markets, Sweden faced a run on the Krona. On September 6, the Bank of Sweden was forced to take the drastic step of raising the overnight interest rate to 500 per cent. The crisis forced opposing parties to meet in emergency negotiations, and an historic agreement to deal with the economic crisis was reached. Indeed the term used, that of a ‘crisis deal’, was exactly that used in 1933 to cement the famous redgreen agreement which led the way to the implementation of the first phase of the Swedish welfare state. The outcome of the two-part deal between the government and the SAP opposition and supported by the employers and trade unions, was to reduce the expected state deficit by almost 50 billion SEK for 1993–4, the equivalent of 2.5 per cent of GNP. The main savings in the package included making the first day of sick leave unpaid—for public employees it was to be two days—with the level for the second day set at 60 per cent (later changed to 75 per cent for days 2 and 3), with the rest of the first year at 80 per cent.27 Paid vacation was reduced by two days. The pension age was set to gradually rise from 65 to 66, and pension payments to decline slightly through the elimination of indexation. The planned increase in child allowances was to be suspended—as was a plan to extend the allowance for a parent who stays home with the children—a cherished programme of the Christian Democrats. Housing subsidies were to be reduced an additional 3 billion beyond the 15 billion SEK already voted. There was to be a reduction in defence spending and foreign aid. Additional revenues would be raised through the equivalent of a $300 tax increase at lower levels and a $900 increase at higher brackets. The VAT on food and passenger traffic was increased from 18 to 21 per cent, while the 3 per cent reduction in the overall VAT was postponed. There would be higher environmental, gasoline and tobacco taxes. The government agreed not to remove the wealth tax as planned and to postpone the tax reduction on capital and property. Incorporated into the agreement were key concerns of both the government and the SAP, of business and labour. Each had to make major concessions to retain the essential and try to restore confidence in the Swedish economy. Labour had to accept reductions it had fervently denounced just months earlier, to accept that part of the employers’ social security contributions be assumed by employees. Government and business abandoned plans to strip trade unions of control over the unemployment insurance funds, to reduce the stipend during labour market training and to require the unemployed to take jobs at a lower level. The Conservatives also retreated on dismantling the wage-earner funds and privatizing state-owned companies. Success at reaching agreement allowed 168

TODAY AND TOMORROW I

the government to promise to keep threatened banks afloat with state money, and to make money available to provide more on-the-job traineeships and additional educational opportunities for young people out of work. The deal brought a reduction in marginal interest rates which, by early 1993, had descended below 10 per cent. While exports rose 7 per cent in volume in 1993, the overall economic situation did not improve. The 1993–4 budget foresaw a decrease in GNP for the third straight year with unemployment to continue to rise. Further spending cuts amounting to $1.7 billion were announced, leaving an expected deficit equal to 12 per cent of GDP. The cuts included bringing down the level of unemployment insurance and of pay during employment schemes by 10 per cent, a reduction in compensation levels and a rise in the qualifying age for partial pensions, a rise in medical user fees, and a reduction in student stipends. SAP opposition was relatively muted as not all LO economists agreed upon the advisability of the SAP’s alternative of tax increases to finance short-term construction projects.28 And the government had included measures to help low-income pensioners, the severely handicapped and unemployed young people, as well as raising contributions for day-care and development assistance. In the autumn of 1993, with the budget deficit expected to come in at 14.5 per cent of GDP, the government raised taxes on petrol, tobacco and alcohol, as well as pension contributions. It also increased unemployment insurance contributions for employees and made participation compulsory, and announced planned increases in fees for medical services and pharmaceutical drugs. In addition, to the consternation of the unions, it lengthened the period for temporary and trial work contracts to 12 months, and made it harder for unions to veto contracted-out work. On the other hand, labour market spending was increased by adding 30,000 places in training courses for the unemployed and through tax breaks to be allocated to firms hiring new employees.29 The economic crisis, and the perception that it had been exacerbated by speculators and bankers, weakened the Right. By late autumn 1992 SAP support approached 50 per cent. The crisis agreement was largely seen as a success for Ingvar Carlsson, both for the fact that it took place and for its content, reinforcing the moderate position in the SAP. But Carlsson had some difficulty convincing the 1993 SAP Congress that the ballooning national debt meant that expansion could only come from the private sector. The Congress’ position cast some doubt on the likelihood of a left-centre coalition. Carlsson had formally invited the Liberals and Centre to join him in a coalition, an invitation extended even if the SAP were to win a majority of the seats.30 Although the 1993 SAP Congress dampened his ardour, Westerberg remained open to the idea of a left-centre coalition.31 But Westerberg’s position is contested by other Liberals and his leadership weakened by his inability to raise the level of party support. 169

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

While hope of any repeat of the crisis deal faded as the three-year electoral term neared its end, the prospect of a return to SAP rule has not triggered a new round of rhetorical polarization between Labour and Business and their political allies. In fact, government and opposition in January 1994 were able to reach agreement on a scheme to revamp the entire public pension system. Growth of at least 2 per cent was forecast for 1994, but with high unemployment persisting and public-sector debt still threatening, Swedes expect organizational leaders to surmount their narrow interests and look to their common interests as they have done in the past. Rhetoric at centre stage gives way to action at the base. Employers at the local level make good use of the corporatist relationships denounced by their representatives at the centre. Local unions talk to employers about contributing towards raising productivity; workers in the service sector seek ways to foster positive relationships with clients. In 1991, in an effort to achieve greater efficiency, the leader among Swedish multinationals, ABB, offered its employees in Sweden a contract abolishing distinctions between blue- and white-collar, and supervisory and production work. In April 1993, a collective agreement covering 400,000 engineering workers was reached. Its centralized nature satisfied the unions, but employers gained flexibility to take the responsibility and judgement required in a particular job into consideration. With rising interest rates, a new SAP government will have to take tough action to keep debt from growing faster than the economy. The fundamental challenge will be to hold down public sector spending through maintaining reduced levels of compensation and making service delivery more efficient, thus following recommendations proposed, for example, by the high-profile Lindbeck Commission. The Commissioners, though committed to preserving the welfare state and reducing unemployment, were not kind to the Swedish model. In the name of flexibility they called for even more decentralization of collective bargaining and further dismantling of corporatist institutions.32 In fact, the opposite development seems more likely and, indeed, appropriate. The trade unions can go along with the needed economic policies only in the context of a renewed social partnership. Business, given the increased competitiveness of Swedish industry and political strength of the SAP, should be far more cooperative than the last time the SAP was in power. Does that mean that the institutional arrangements of the Swedish welfare state can be adapted to safeguard the outcomes associated with Fördelningspolitik? To answer we shall need to look at external forces impinging on such adaptation.33 But first, what can we learn from the experience of the other Nordic countries?

170

10 THE INSTITUTIONS OF SCANDINAVIAN SOCIAL DEMOCRACY TODAY AND TOMORROW: II The institutional arrangements associated with egalitarian outcomes have not been as much contested in the other Nordic countries as in Sweden. This is largely due to the fact that in Finland, Norway and Denmark the institutions are typically more modest in conception and operation. As one Finnish editorialist put it: if you take only two instead of three steps forward, you less frequently have to take a step backward. The explanation for this modesty lies mainly in Labour’s not having been in as strong a political position as in Sweden. But the differences have been in policy styles and applications rather than in underlying institutional arrangements. Relative to other Western democracies, there is a basic commonality in these four societies, one which allows us to identify the features, events and choices which account for the main differences. THE PRESENT CONTEXT: FINLAND We begin with Finland. Books on Scandinavian political systems or welfare states usually exclude Finland, leaving the impression that Finland is qualitatively different.1 It is true that Norwegians, Danes and Swedes can understand and read each other’s languages, but cannot understand a word of Finnish. Nevertheless, on balance, Swedish institutions are probably closer to Finnish ones than to the other two. The corporatist consensus in Finland at the end of the 1980s was poignantly reminiscent of Sweden 20 years earlier—a time when Finland would not have ranked high on anyone’s list of Western countries likely to succeed. Isolated by language and geography, with a small population (now 5 million), few natural resources besides trees, little fertile land, and a very short growing season, Finland has known less than a century of political independence. And the first half of that century was marked by deep internal divisions. Caught between the Germans and the Russians, Finland suffered thousands of casualties in the Second World War which also left it with hundreds of thousands of refugees from Karelian territory seized by the USSR. To make matters worse, there were heavy reparations to pay to the USSR and no Marshall Plan money. 171

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

Finland made a strength of its very weakness. It was obliged to seek consensus by the Soviet menace, and forced to industrialize to pay reparations. When the indemnity to the USSR had been paid off, deliveries continued on a commercial basis. Just as it began to modernize its culture and infrastructure while under the tutelage of Imperial Russia in the nineteenth century, so Finland learned to make the best of its precarious relationship to the USSR in this century, an adjustment most Finns still regard with some pride and object to the negative connotations of the term ‘Finlandization’.2 Modern Finland put to good use the Swedish administrative and educational structures it had inherited as it strove to heal the wounds of war and division. Even in the difficult earlier days, a spirit of cooperation was nurtured in the many voluntary associations, and especially the cooperatives, which were significant not only in primary production, but in banking, retailing, hotels and restaurants. It was during the War, in January 1940, that the Finnish Employers’ Association (STK), and the Finnish Confederation of Labour (SAK) paralleling developments in Sweden, issued a joint statement recognizing each other’s legitimacy, which was followed by a general agreement signed in 1944. Once legislation restricting parties and organizations was repealed at the end of the War, the effects of the provision of the constitution requiring a two-thirds majority for important legislative acts3 came fully into play. As a result, the principle of broad-based coalitions was woven into the very fabric of political life. The most important instrument of this broad-based consensus was the rural-based Centre Party, guided by long-time Finnish president, Urho Kekkonen. Kekkonen used the broad powers of his office to carve out a close working relationship based on mutual self-interest with Moscow, and his party assumed a leading position in the shifting coalitions of the 1950s and 1960s. As late as the early 1950s, more than half of Finnish employment was based in the primary sector, with forest products making up 80 per cent of exports. Economic development policy consisted essentially of using the powers of the state to foster resource-industry development while keeping down the relative costs of exports. Unlike its Scandinavian counterparts, the Finnish government did not adopt Keynesian countercyclical fiscal policies or provide much in the way of welfare state guarantees (Pekkarinen, 1992). Hundreds of thousands of Finnish workers and their families found employment in Sweden in the years after the War, a fair number of whom returned in the boom years of the 1970s and 1980s. In 1966, the Social Democrats, having finally overcome their divisions, reunited and re-emerged as the major force they had been between the Wars; though, in contrast to their Scandinavian counterparts, they had to compete with a strong—if declining—Communist Party for the support of the workers. A 172

TODAY AND TOMORROW II

series of stable coalitions based on cooperation between the Social Democrats and Centre emerged at this point, and, as the former gained strength, priority shifted to expanding welfare-state programmes and institutionalizing an ‘incomes policy’ which gave the state an important role in centralized collective bargaining. The Social Democrats’ pivotal role was confirmed in 1982 when their leader, Mauno Koivisto, succeeded Kekkonen. Nevertheless, the two-thirds majority provision guaranteed that change would be gradual and consensual, usually gaining the support of the opposition Conservatives. As a result, Finland continued to take a more orthodox and less Keynesian approach to macroeconomic policy than Sweden and Norway.4 It was able to do so since there was a large pool of excess farm labour available to keep wage demands down (Pekkarinen, 1992). But the situation began to change after 1968 when the blue-collar SAK, which had split into two rival union federations, was reunited, and a check-off system introduced with STK’s consent (ETUI, 1989). Between 1965 and 1975, trade union membership jumped from 300,000 to 900,000: from 40 per cent to just below Sweden’s world-leading 85 per cent work force unionization level. The first comprehensive, state-monitored central agreements came into force in 1967. After SAK reunited and the Finnish Markka was devalued by 31 per cent, the incomes-policy arrangements set the stage for a period of rapid growth. Then, faced with the OPEC oil shock in 1973, the government quickly abandoned the OECD-inspired bridging strategy as costs rose dramatically. Policy reverted to traditional procyclical methods, setting aside incomes policies and cutting back on spending and public-sector growth, and thus inducing higher unemployment (Mjöset, 1987). It was only in 1977 and 1978 that the government turned to devaluations to speed up the economy again, and, then, reimplemented the major elements of the incomes policy. These measures were especially hard on labour; but in the end, the prevailing consensus held fast. A key moment came in 1976 when a railway traffic controllers’ strike threatened to disrupt trade and severely damage the economy. On that occasion, Kekkonen went on television after mediation had failed, and announced that he would sign no government proposal giving concessions to the controllers (Arter, 1987:101). This successful intervention set the stage for the new incomes agreements in which the trade unions accepted restraint to foster competitiveness in return for expansion of welfare state guarantees. The new consensus was commonly referred to as the spirit of Korpilampi, where the partners met in 1977. Finland thus found itself in an excellent economic position for an upswing in the 1980s. It was also fortunate in being cushioned against the 1979–80 oil shock by its barter trade for oil and gas at world prices with the USSR. 173

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

The central participant in the income agreements on the side of labour was the SAK, which now has 1,100,000 members. But, unlike its counterpart in Norway, as we shall see, SAK has been relatively closely aligned with the whitecollar federation, the 400,000-member TVK and, though less so, with Akava, the professional union with 300,000 members, and STTK, composed of 150,000 technicians. SAK was thus able to negotiate corporatist institutional arrangements providing for consultation on labour, industrial, social and economic policy to complement the incomes policy deals. SAK’s leaders accepted adjustment as part of the cost of competitiveness and, for the most part, continue to apply this thinking to the rather drastic adjustments entailed by European integration. They were quite explicit in their position that only under corporatist institutional arrangements is the required adjustment feasible, and that meant selective incentives that enhance the position of the central organs, including the principle that non-unionized employers are bound by the central agreement. Such thinking was largely shared, at least until recently when they began to question corporatist arrangements, by STK, whose members employ 560,000 persons. Alongside STK, LTK negotiates with 300,000 employees in the service industries, and MTK with 260,000 farmers, many of whom are part-time workers. Real differences emerged in the 1991–2 round of negotiations between the exportoriented manufacturing firms that dominate STK and the smaller firms that predominate in the other two. Harmony had prevailed on the labour market from 1978 to 1991 during which time Finland experienced practically uninterrupted growth and attained Scandinavian levels of social guarantees. Indeed, little changed in 1987 when the Conservatives replaced Centre in the ruling coalition with the Social Democrats. During this period, growth averaged 3.4 per cent, the highest in Europe. Performance expectations were being so well met that the government, in a 1988 law, guaranteed jobs to the long-term unemployed in high-unemployment regions. And it guaranteed to young people graduating from compulsory school either a position with on-the-job training, a place in further education, or vocational schooling (Lilja et al., 1990:213). Local authorities and state agencies were able to meet these commitments—until economic crisis struck in 1990. The incomes policy agreements proved successful through this period,5 though government played a far more important role in the process than in Sweden, partly to offset the relative weakness of SAK which has no power to force its affiliated unions to accept the central ‘framework’ agreements. The annual incomes policy determination process begins with the tabling of the budget bill in September by the Minister of Finance, who, advised by the Bank of Finland, sets out guidelines for the agreements, holding out the carrot of complementary tax and other reforms. In the months that follow, the negotiations take place 174

TODAY AND TOMORROW II

under the watchful eye of designated state officials. As the February deadline approaches, media attention focuses on the negotiations. As a result, even when no formal framework agreement is reached, as in 1977 and 1980, the affiliated unions are predisposed to arrive at industry-based settlements within the guidelines (informally) established in the negotiations. Indeed, some observers claim that because of the consensus over what factors should influence wage negotiations, the degree of uniformity has actually been greater in years of decentralized settlements (Lilja et al., 1990:7). Making the process visible in this way enhances the likelihood of a corporatist outcome set out in the logic explored in the theoretical sections of this book. It places individuals, not just organizations, on the spot. In this sense, it parallels the fact that individuals play a more important part in the political process than in the other Nordic countries.6 The elector, in Finland’s unusual proportional system, votes for a candidate, the vote being awarded to the candidate’s party list in the district; and the party’s seats thus derived are in turn assigned to its candidates in order of their personal popularity (making Finnish political careers more precarious than in the other Nordic countries where one works one’s way up the party list). Moreover, academics do not shy away from public life as they tend to do elsewhere in the Nordic countries. It is commonplace for prominent Finnish professors and researchers to appear on television and radio, or to publish a regular newspaper column, from which it is but a short step to direct political involvement.7 Such differences make Finland appear un-Scandinavian. But this appearance is deceiving. No one ever talks about a ‘Finnish model’, but that is partly because the Finnish Social Democrats, used to governing only in coalition, are not prone to getting carried away with their own rhetoric—something their Danish and Norwegian counterparts have had to learn in the past twenty years. Finns—like Norwegians—feel their bureaucracy is less intrusive, with more left up to individual choice, than in regulated Sweden, partly because they have been able to learn firsthand from Sweden’s experience. Yet, overall, they are as committed to Fördelningspolitik, and to the principle of work being available to—and expected of—all, as are their Scandinavian neighbours. Education is public and free, and as demanding of students as any in Europe. In fact, Finland allocates a greater proportion of its public spending on education than any other OECD country (The Economist, November 21 1992, Supplement, p. 16). Completing most university programmes requires a master’s rather than bachelor’s level of achievement, which typically takes from five to eight years. Years of education are reflected in comparatively higher income differentials than in Sweden and Denmark. Yet, conversely, intergenerational mobility has been extremely high in Finland with the result that elites are probably more 175

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

mixed in social background than anywhere in Europe. There is no equivalent to the Swedish Wallenbergs, relatively absent are the old-line capitalist families with a tradition of public service going back to aristocratic days. This mobility may explain the fact that though education-based income differentials are higher that in Sweden, household income is almost as evenly distributed (Uusitalo, 1989) in that high intermarriage between spouses in different occupations would, given Finland’s high rate of full-time female employment, balance out salary inequalities. The fact that women are taking important elite positions is a main feature of the recent transformation of Finland. With women (after the 1991 election) constituting 38.5 per cent of the Eduskunta (parliament), the days when the cabinet could meet in the sauna are gone forever. And while the old generation looked eastward, to the link with the USSR, as well as westward towards Sweden, as the geo-political key to Finland’s identity, the new generation looks southwest— and its lifestyle reflects this. One-third of Finns have vacation homes. Finland has been the pace setter in certain areas of social development.8 Topquality health services using the latest technology are available even in the most remote parts of the country. Its success in developing and exporting healthbased technologies, leads one observer to refer to Finland’s ‘Health Care Industrial Complex’ (Ahonen, 1991). In 1982, Finland was designated as the ‘model country’ by the World Health Organization. It ties with Denmark in nurses per capita, and, at 5.8 per 1000 live births, is second lowest (after Japan) in infant mortality (World Bank, 1992:272). Finland’s infant mortality rate is evidence of the success of its programme for miscarriage avoidance. Maternity benefits are denied to any woman who does not visit a maternity clinic9 before the fifth month of pregnancy. Indeed, Finland is at the frontier of advances in preventive medicine. A famous study found very high levels of mortality due to heart disease, especially in the eastern region of Karelia, linked to diet. It led to a public nutrition campaign, including incentives for employers to provide meal coupons so as to encourage a healthy diet, which seems to have had significant positive effects (Helenius, 1993). The combined effect of new social programmes and incomes policies was redistributive through to the mid-1980s (Uusitalo 1989), bringing Finnish levels of equality in disposable income second only to Swedish ones. And unlike in Sweden, one seldom heard complaints about bureaucratic delays.10 Like Sweden and Norway,11 Finland has been moving towards bloc funding of health and related expenses to municipalities which makes it harder to pass spending costs up to the central government (Saltman and Von Otter, 1992:69–70). This has reduced social spending especially as state revenues plummeted with the economic crisis; but municipalities are constrained in efforts to cut services by a 176

TODAY AND TOMORROW II

constitutionally entrenched social charter which guarantees appropriate standards of treatment to all, wherever they may live. Economic crisis struck in the latter half of 1990. The economy, which had grown an extraordinary 5 per cent in 1989, ended 1990 with no growth at all, and in 1991 declined by 6 per cent. By the end of that year unemployment had reached 9 per cent, and continued to rise over the next two years, leaving deep scars upon a younger generation that has known only full employment. Indeed, the recession hit Finland hardest of all, as several things happened simultaneously. There was the low international price of paper, a factor that traditionally adversely affects the Finnish economy.12 More unexpectedly, the sudden upheaval in the USSR resulted in Finland effectively losing a market which had accounted for as much as 100,000 jobs (The Economist, October 23, 1993:68) and 20 per cent of its exports, concentrated in manufactured products, from clothes to icebreakers. Since much of this production was effectively sheltered from competition, it could not be channelled towards an alternative market—even in good times. Moreover, the Soviet collapse meant that Finland lost its attractiveness to foreign investors as a service point—just as Finnish companies were reducing investments due to the world recession. These factors, plus cuts in state spending, meant that every economic sector declined at the same time. From a budget surplus of 2.9 per cent of GDP in 1989, Finland’s budget deficit reached 9 per cent in 1992. The ensuing credit crunch threatened even highly efficient firms. The rapid deregulation of financial markets combined with a tax system that encouraged indebtedness, had created a climate in which the banks themselves played the stock market, unable to resist seemingly guaranteed easy money (Andersson et al., 1993). Indeed, inexperienced at dealing with boom conditions, Finnish banks encouraged their corporate clients to speculate on the stock market. Thus when it came, recession brought a plunge in share prices.13 Finland met its worst economic crisis with its least experienced government in many years. For the first time in a generation the Social Democrats were in opposition. In the March 1991 elections, Centre reversed its decline, going from 40 to 55 seats in the 200-member Eduskunta, and from third to first place; its new leader, 36 year-old Esko Aho, became Prime Minister. Aho called for a grand coalition to help Finland face mounting economic problems; but, beset by internal divisions, the Social Democrats chose to stay on the outside. President Koivisto, taking a low profile on domestic matters, declined to persuade his former comrades to join the coalition. Thus Centre was left in partnership with the third-place Conservatives, officially the National Coalition Party, who, with 40 seats, had suffered the biggest losses. The eight Centre and six Conservative 177

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

members were joined in the cabinet by two from the perennial coalition members, the Swedish Peoples’ Party, and one from the Christian Party. The main burden fell on the leading Conservative, Finance Minister Iiro Viinanen, who was ill-prepared for the daunting job of adopting a budget and fostering a suitable incomes agreement during an economic crisis. While trying to persuade labour to support austerity measures, Viinanen could not refrain from, in effect, blaming the unions for ruining the economy. In addition, he sought to appeal to workers over the union leaders’ heads, paralleling the stance of the employers (STK) which, in its initial negotiating demands, attempted to undermine the centralized bargaining and incomes-policy arrangements, challenging the principle that non-unionized employers be bound by the central agreement. Echoing Swedish voices, business leaders contended that existing corporatist arrangements stood in the way of ‘Euromarketization’. But they and Finance Minister Viinanen discovered, as the 1991 bargaining round progressed, that rather than undermining labour solidarity, their strategy served to reinforce it. Gradually, the pendulum swung back towards the corporatist structures. The November 1991 devaluation unblocked the central negotiations. A wage freeze was agreed upon followed by a transfer of certain social contributions from employees to employers. For its part, STK dropped demands for dislodging corporatist mechanisms. This reversal paralleled Viinanen’s abandoning his effort to weaken the position of central union organizations in the unemployment insurance system.14 The conflict was resolved because labour and management wanted to act responsibly, and be seen to do so, both to give the market the proper signal, and to respond to an overwhelming public desire for a consensual attack on economic problems. The agreement did not entirely restore the old consensus: labour was more skeptical about the willingness and ability of the government to live up to its side of the agreement as a neutral third party. Still, Finnish corporatist structures were left essentially intact, and these—despite their being ignored by most of the neocorporatists—were among the most fully developed.15 One study of the boards of 406 subsidiary agencies in the Ministry of Health and Social Security in the early 1980s counted 720 participants from government, 312 representatives of the trade unions, 263 from the employers, and 607 from other organizations including academic and research bodies, political parties, and farmers (Sipponen, 1991:215–6). In 1988, 23 per cent of Danish workers were covered by jointly managed health and safety programmes in the workplace; the figure for Norway was 39 per cent; it was 75 per cent for Sweden and 93 per cent for Finland (Salminen, 1991).

178

TODAY AND TOMORROW II

Finland’s approach to education, training and R&D remains fundamentally sound;16 and no one seems to question the value of labour-management cooperation in institutions operating in this area. Finland has the highest tertiary education enrolment ratio in Europe, and half of its tertiary students, and 70 per cent of its graduates, are in science—highest in the OECD (UN, 1991:179, 181). It has one of the lowest illiteracy and innumeracy rates in the world. Helsinki is the site of the largest science park in Europe, Eureka, which is but one of several such parks in Finland, with new ones planned. They are closely linked to the universities and VTT (The National Research Centre) which has 32 laboratories. (There is a separate research agency for the pulp and paper industry.) On VTT’s board are university scientists, industrialists and a representative of SAK. VTT works closely with Tekes (the State Technology Development Centre) which finances 400 projects a year through 20 technical institutes often located in the science parks which provide companies with advisory services, of which the first five days are free. Tekes serves also as a transmitter of R&D and related information, relying on the services of industrial attaches in the embassies. Finnish vocational training and retraining programmes follow Swedish lines. The 1990 central agreement provided for labour ministry-run training programmes with up to 90 per cent remuneration. Adult education is perhaps even more intensive than in Sweden. It was estimated that in a given year 50 per cent of adults are enrolled in some form of education, including manpower training, degree-oriented and ‘open’ evening and summer courses in the technical schools and universities and in fifty remote centres which provide ‘distance teaching’ through the use of special computer link-ups, as well as at 300 workers’ institutes.17 Cooperation at the political level declined with the departure of the Social Democrats from government. With the exception of their former leader, Kalevi Sorsa, from his position on the board of the Bank of Finland, they stayed aloof from the 1991 incomes negotiations. They found themselves in a position, with support from the Left-Wing Alliance, to deny the government the two-thirds majority required to pass the economic reforms it deemed needed to meet the recession. Divided among themselves, the Social Democrats wished neither to appear obstructionist,18 nor to be seen to support the government, especially in light of the anti-labour statements of the Finance Minister. As unemployment mounted, they gained support at the expense of the SDP’s two major rivals, especially after the selection of Ulf Sundqvist, president of a labour-affiliated cooperative bank, as leader in November 1991.

179

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

In the September 1992 national municipal elections, the Social Democrats won 27 per cent, 8 per cent more than both Centre and the Conservatives. Sundqvist, however, proved a victim of public resentment against the huge bailout of the banks in the wake of allegations of bank mismanagement when a dubious loan made by Sundqvist’s bank to his brother was made known. He was forced to resign, and replaced by his outspoken colleague, European policy critic, Paavo Lipponen. Lipponen19 had publicly criticized the record of the government in which his own party played a leading role, pointing out that its action to bring down costs by revaluating the Markka in 1989 was dissipated by an expansionary 1990–1 pre-election budget. And he added that, since there was little public pressure to do so, the Finnish Social Democrats in government did not, like the SAP, make a serious effort to streamline the public service. Finland had been on a spending spree, living beyond its means during the good years, overprotecting food production and housing construction through state subsidies, coddling its service industries while sheltering some of its manufacturing through barter with the USSR. A blatant manifestation was in woodlot owners receiving about 30 per cent more for their timber than in Sweden. Finland had in effect ‘papered over’ these inefficiencies as the world price of paper rose just when the price of oil went down, which left it saddled with the highest living cost in the OECD. The interests of a cartel made up of public-sector unions, local politicians and institutional suppliers came before those of citizen-consumers. Ten years earlier Denmark and Sweden confronted an analogous situation; Denmark acted, Sweden waited until too late. In choosing Lipponen to lead them through the economic crisis, the Finnish Social Democrats announced that they would wait no longer. Finns on all sides realized that real wages would have to be reduced—either by reducing nominal wages, or by freezing them and devaluating the Markka. In general, the unions favoured the latter strategy, since workers regard a wage reduction as a personal sacrifice. But devaluation was opposed by the Bank of Finland, and by many economists on the premise that since a large percentage of public and private debt was foreign, that debt would increase as the Markka decreased against foreign currency, and with it confidence in the Finnish economy. Soon the question proved moot as anticipation of imminent devaluation fed on itself. Raising interest rates, to shore up the Markka against those selling it off awaiting devaluation, bought a bit of time in Finland’s efforts to reduce costs and regain competitiveness—but not enough, as it was forced to allow the Markka to float in September 1992, which meant another 12 per cent devaluation. This time, exports recovered significantly and interest rates decreased to a manageable level. There were signs of renewed growth as the unions agreed to forego wage 180

TODAY AND TOMORROW II

increases; but unemployment continued to rise, reaching 18 per cent in summer of 1993 and pushing the budget deficit to 10 per cent of GDP. The challenge to Finland’s institutions is enormous. How will the Finns cope with such a large number of people unemployed for a long period? The very severity of the problems may serve to strengthen the resolve to meet the challenges. For they know that their only hope lies in taking advantage of their ability to coordinate efforts to rationally develop and efficiently use human and natural resources. The Social Democrats appear poised to take the required leading role. The victory in January 1994 by their candidate for President, Martti Ahtisaari, former UN representative in Namibia, is expected to set the stage for a Parliamentary victory. There appears to be no one better suited than Paavo Lipponen to lead a coalition capable of taking the needed difficult decisions to restore economic efficiency while maintaining fundamental institutions and the egalitarian outcomes that they generate. It will not have been the first time that Finns have proven able to derive strength from adversity. TH E PRESENT CONTEXT: NORWAY At its northernmost extreme, Norway, like Finland, has a land border with Russia. But while Finland traditionally looked eastwards, Norway looked southwest to Denmark and the British Isles. Yet Finns and Norwegians have more in common than meets they eye. Both are quick—the Norwegians quicker— to distinguish themselves from the Swedes, to see their nation as less interested in playing a world role, more accepting of the limited horizons of a small country. The history of both has tied them to Sweden; Norway was part of the Kingdom of Sweden from 1814 to 1905; it also gained national independence only in this century. Norms of equality that underlie Fördelningspolitik have been traditionally very strong in Norway (Engelstad, 1991), which, in contrast to Sweden and Denmark, never had a real indigenous aristocracy. And even more than Finland, and at the great expense of overcoming natural barriers of mountains and fjords, Norway nurtured the economic viability and cultural vitality of its far-flung Northern hinterland. Self-restraint, central to the traditional Norwegian code of expectations known as Jantelov, applies also to the political system which is distinctly less personalityoriented than in Finland. People do not ‘run’ for office—this would be pushy; their names are put forward by others. While Norwegians rightly regard their society as less regulated than Sweden in areas such as working conditions and the environment, Norwegian law can also be quite constraining: for example,

181

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

the rules under which parties nominate candidates for office are set out in great detail. Though Norway was one of the more politically class-divided of Western societies before the SecondWorld War, polarization diminished afterwards. The major political cleavage today is along North/Southwest or metropolis/periphery lines. It is a gap that only the Labour party has consistently been able to bridge. Labour ruled almost without interruption until the 1980s despite the fact that its trade union partner, the LO, has generally found itself in a weaker position than its Nordic counterparts. Only 56 per cent of the Norwegian labour force is unionized; and the union movement is comparatively divided. The 800,000member LO is in direct competition with the mainly white-collar YS,20 and, though less so, with the professionally-based AF. YS and AF have roughly 150,000 members each, and do not compete between themselves. White-collar workers, and especially part-time workers, are less unionized than in Sweden; conversely, part-time farmers and fishermen are more unionized, providing both LO and the Labour party with a membership base in the hinterland. Agriculture is highly subsidized, yet, unlike in Sweden, there is virtually no counterbalancing consumer lobby. To win back the hinterland regions after the EC referendum, the Labour government promised in 1975 that in six years’ time farmers’ income would equal that of workers. And it delivered on its promise, an impressive feat in a country in which a skilled industrial worker is paid as much as an assistant professor (Högsnes and Veiden, 1992). Norway’s economic base is even narrower than Finland’s. Manufacturing is weak and domestically oriented; much of it tied to processing domestic raw materials, especially minerals, using cheap energy. The effort to invest North Sea oil revenues towards building up domestic manufacturing, especially in shipbuilding and related industries has had mixed results. The oil (and gas) revenues too often provide a cushion against industrial adjustment, one not available to the Swedes, Danes, and, now, Finns. The 25 per cent royalty on oil revenues goes right into the Norwegian state budget. Oil-based activities account for some one-third of GNP, and gas, which is still coming on stream, constituted, in 1991, 6 per cent of European production.21 Analysts refer to an ‘export enclave’ comprising oil and gas as well as those industries based on cheap energy, such as aluminum, that are thereby sheltered from foreign competition. The enclave adds a complicating factor to centralized collective bargaining since the wages it can afford to pay squeeze the rest of the economy (Fagerberg et al., 1992). The enclave is politically unassailable since it is credited with providing the revenues that allow the Northern hinterland to remain viable. Indeed, Norwegians have long been suspicious of treaty obligations that could put the survival of its remote regions in danger. In the 1972 referendum, 182

TODAY AND TOMORROW II

they rejected EC membership, forcing Labour briefly out of government, and strengthening the Socialist Left which had originally split from Labour over NATO. The constraints of a resource-based economy and a far-flung hinterland led successive Labour governments to develop a series of policies that Lafferty (1991) terms ‘the Social Democratic State’. The central and distinctive feature of Norwegian Social Democracy to the late 1970s was the political control of capital investment and credit.22 Pressure for change came in the mid-1970s as incomes rose sharply, and a consumption boom ensued. Returned to power in 1977, Labour acted to reduce costs by devaluating the Krone just as OPEC boosted oil prices. With interest rates kept low, consumption did not slacken and inflation intensified. The pressure was especially intense on what had been a regulated housing market, and the government could no longer ration credit. The stage was set for the minority Conservative government, which took office in 1981, to deregulate the credit market in combination with a cutback in spending. But it could not stay the course: a setback in the 1983 municipal elections forced it to accommodate the centre by adopting expansionary policies. These, along with rising oil revenues, fuelled an even more intense consumption binge, and, in particular, a speculative boom in real-estate prices. The rise of the anti-tax populists in the Progress Party undermined the shaky coalition, and Labour returned to power in 1986 as the only party capable of forming a stable government. But Labour faced an undeniably different economic reality from what it had known. It immediately devalued the Krone, but then effectively eliminated devaluation as a macroeconomic tool by fixing exchange rates and removing remaining restrictions on the free movement of capital (Fagerberg et al., 1992). There was a strategic dimension to this fundamental shift. Labour’s electoral base had shrunk from earlier decades. Its absolute parliamentary majority under Einar Gerhardssen from the Second World War right into the 1960s, had been reduced, by the 1980s, to its status, at best, as a ‘40 per cent’ party. This meant governing by consensus (Lafferty, 1991), seeking to bridge the gap between a hinterland that remains at the core of national identity (and is overrepresented in the Storting), and a growing urban south rapidly developing the expectations of a wealthy consumer society. The new approach was articulated in ‘the freedom campaign’ (see Heidar, 1993) and the arrival to the leadership of Gro Brundtland in 1981 as a pro-European modernizer and consensus politician (Geyer, 1992).23 Labour remained easily the largest party after the indecisive election of 1989, winning 65 of the 165 seats; but having lost eight seats (mainly to the Socialist Left), it made way for a coalition of Conservatives, Christian Democrats and Centre which held only 63 seats, but had the tacit support of the populist Progress 183

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

Party.24 But revival of the EC question soon undermined the coalition: the Conservatives (Högher), whose base was in the south, were strongly pro-Europe; Centre, with its base in the north, was even more strongly opposed, supported by the Socialist Left (SV) which commands 10–15 per cent of the vote, as in Denmark and Finland—but not Sweden. On the right is the Progressive Party similar to its namesake in Denmark (except that it is pro-EC), and to which the Swedish New Democracy has been compared. There is also a fairly strong Christian Democratic (DC) Party at the centre of the spectrum like in Sweden, moderate in its opposition to EC membership. Both DC and Centre refuse to cooperate with the Progressives, while their opposition to EC membership ruled out cooperation with the Conservatives, leaving Labour, even when it bottomed in the early 1990s at 25 per cent support in the polls, as the only possible government, and it was returned to office in 1993. Bolstered by cheap energy, the Norwegian economy, unlike that of Sweden, grew satisfactorily in the late 1980s; nor was it rocked by a deep recession in the 1990s. Indeed, Norway had the highest growth—18 per cent—in industrial production in the OECD from summer 1990 to 1993 (The Economist, October 30, 1993:119). But it has been spared some of the pressures to reduce costs and increase efficiency so as to remain competitive; according to The Economist (February 5, 1992:53), Norway’s labour costs in manufacturing are the world’s highest. Norway has not avoided the financial side of the crisis. Like Sweden, it reformed its tax system, reducing income taxes at the higher levels. One measure taken to replace the lost revenues was to lower the mortgage deduction. This led people to pay off their mortgages, leaving less money for consumer spending, especially home buying. As a result, the property market collapsed and major bankruptcies ensued. Moreover, Norwegian banks had little experience to draw on at avoiding poor investments in a deregulated credit market (Reve, 1992): two were threatened and would have failed had the government not bailed them out. During this period unemployment rose rapidly to the high—by Norwegian standards—level of over 5 per cent, something the government had claimed wouldn’t happen if the unions agreed—as they had—to restrain wage demands. A 6 per cent tax cut in late 1991 somewhat alleviated the unemployment situation. But such traditional Keynesian stimulants only affect cyclical patterns; they do not get at the structural aspects of unemployment. One manifestation of how Norway’s energy bounty deters needed structural adaptation and adjustment is to be found in vocational training.

184

TODAY AND TOMORROW II

Norway’s apprenticeship programme is designed along the lines of Germany’s dual system (see Chapter 7), combining in-school and on-the-job training in different combinations, depending on the content of the programme. But while apprentices in the German dual system receive 25 per cent of the salary they would earn on the labour market, Norwegian employers were required to pay up to 90 per cent. At best, on-the-job placements for 10 per cent of the cohort could be found, compared with up to approximately 70 per cent in Germany. It was only in the 1990s that LO, under pressure from the government, business and its own researchers, agreed to the apprentices’ pay being reduced to 50 per cent of salary. Even so, the traineeships are not optimally distributed among the different specializations because the unions, being in competition with each other, use their influence to set up programmes in sectors where they are strong organizationally. As far as retraining is concerned, Norway did not develop active labour market programmes along Swedish lines. Courses are short and very specific, with the result that a large group falls through the cracks. Retraining courses and other labour market programmes are targeted much more directly at those without jobs, and not for upgrading skills of those with jobs25 since the trade unions oppose this on the grounds that it is unfair to give those without jobs a salary to study while those with jobs have to take loans to do so.26 Norway’s system of collective bargaining and incomes policy is reminiscent of Finland’s, but, as noted, unions are less organized and cohesive. There is a complex set of laws and regulations setting out the terms of mediation, and voluntary, and—if no settlement is reached—compulsory arbitration. The patterns of annual contractual negotiations have varied considerably, especially since 1976 when LO’s rivals appeared on the scene. When a central agreement is arrived at, it is essentially worked out between LO and the main employers and, then, in one way or another, imposed on the others. The typical sequence has been of industry-by-industry negotiations followed by a central agreement; but in 1974 and several times in the early 1980s, such an agreement did not materialize. In certain years compulsory arbitration was required, and in 1979 wages were frozen by law. In 1988 and 1989, wages were set by law, a move supported by the employers (NHO) and by LO, which had agreed on low wage increases in return for policies that would stimulate employment. Even when no law was required, the government was involved in the negotiations process: in 1990 it pressured the parties to finally sign a central agreement, though at first such agreement had been rejected by the union members. In reality, in the free-spending 1980s, the content of agreements counted for less than they appeared to as local employers and unions, which are far stronger than in Sweden or even Finland, ignored central guidelines at will. The extreme 185

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

case was in 1987 when the negotiated wage increase was only 0.2 per cent, but wage drift came in at 7.5 per cent (Pekkarinen, 1992:319). It was this high wage drift that prompted the government to restrict local bargaining between 1987 and 1989, a measure which, as we noted, incurred some resentment from labour since unemployment was not thereby reduced as the government had anticipated. Norwegian employers, unlike workers, are represented by only one central organization, NHO, formed of a merger of the two existing employers’ organizations. NHO’s most influential constituent is the National Federation of Machine shops (MVL). On the other side of the table, MVL faces an LO federation comprising workers in metal, construction and pulp and paper. It is the deliberations of these two organizations that set the tone for the entire negotiations process beyond LO to YS and even to AF. Inter-union rivalry more than anything else distinguishes Norwegian experience. Pushed up by wages in the energy sector, wage drift from 1980 to 1987 annually averaged almost 7 per cent. Public sector workers cannot negotiate for anything comparable since, with the exception of teachers, the law explicitly recognizes only the central labour confederations as public-sector bargaining agents. This unevenness, along with inter-union rivalry which has worked against wage solidarity, has contributed to, as noted in Chapter 9, Norway being closer to the European than Scandinavian average levels of wage dispersion and pretax inequality. Högsnes (1991) points out that the bargaining pattern is essentially one where each union’s concern is to keep up with competing unions in the same sector rather than to catch up with other sectors. Another factor contributing to dispersion is the fact that, in recent years, performance has become a criterion in determining the pay scale for the top civil servants (including municipal managers) who were excluded from centralized bargaining—to the displeasure of LO. Yet we should not overstate this point: institutional inertia has slowed the implementation of performance related pay in the public sector (Laegreid, 1992). Overall, wage inequalities are still significantly lower in Norway than in corporatist Austria, both between skilled and unskilled workers and between those in blue- and white-collar jobs. The salary of a skilled Norwegian industrial worker is 62 per cent that of a full professor; in Austria it is 32 per cent (Högsnes and Veiden, 1992). In the private sector, wage drift is the result of circumstances where local (firm) bargaining is comparatively well developed. This affects attitudes about centralized bargaining and corporatist institutional arrangements generally. Aukrust’s formula for wage setting under centralized collective bargaining, based on the wage costs of export-oriented manufacturing, was accepted by the peak organizations but proved very difficult to enforce on local unions and employers. 186

TODAY AND TOMORROW II

In terms of short-term economic interest, the dynamic is the opposite of Sweden’s and Finland’s. In Sweden, SAP members have an interest in weakening centralized bargaining structures which LO and TCO have an interest to maintain, since the unions are strongest at the centre and weak at the firm level: the situation is reversed in Norway. The Norwegian LO leadership favours centralization both out of principle and in its own organizational interests, but its members in local branches, especially in the export enclave, hold firmly to their autonomy. The employers, for their part, have an interest in centrally coordinating their decisions through the negotiation process. The usual pattern since the mid-1970s has thus been one of the employers coming together and the trade unions fragmenting. In the 1990s, NHO members began to publicly question the appropriateness of corporatist structures. Yet there is good reason to believe that the threat is not as serious as that posed by SAP. ‘Norwegian employers are internally divided over whether they should follow the Swedish example’ (Moene and Wallerstein, 1992:23). Decentralization of negotiations is, in practice, opposed by most employers. While a number of them have taken advantage of existing decentralization to impede application of the laws and arrangements that protect worker safety and security, it is labour that has drawn the most benefit as far as wages are concerned. Only in non-unionized firms can the absence of a central agreement have a downward effect on wages. For the rest, corporatist institutions serve to impose the parameters of central agreements on local unions. The 1990 and 1991 bargaining round introduced a two-tier centrally-negotiated wage increase. Unions normally benefiting from drift received roughly half the increase of those that did not (Moene and Wallerstein, 1992:32). NHO has in recent years been critical of corporatist participation by interestgroup representatives in policy making and implementation. Such participation is well developed in Norway, as revealed by a study by Trond Nordby of the Norwegian Institute for Social Research. In 1988, representatives of the peak organizations sat on 1400 agencies and committees, including 30 central administrative boards. And, as in Sweden, representative organizations are also directly involved in providing services. Most notable is their role in healthrelated services. In 1985, 14 percent of all places in general hospitals, 21 percent of the places in psychiatric institutions, and as much as 35 percent of all places for the mentally retarded were owned by voluntary organizations. Furthermore, voluntary organizations own 60 percent of all places in institutions for alcoholics, and 32 percent of all the places in institutions for child and youth care. (Kuhlne and Selle, 1990:168–9) 187

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

The NHO contends that corporatist participation is unwieldy and expensive; but its language is more temperate than that of SAP. In 1989, the short-lived bourgeois government set up a commission to investigate the question. Despite the addition of two LO representatives by the new Labour government, the commission’s report cast doubt on the usefulness of organizational representation on some of these boards. NHO then announced that it would consider pulling its representatives from certain boards since this would free them to put time and energy into European-wide issues and organizations. While such moves are not inconsequential, they are unlikely to undermine Norwegian corporatism. For here too, informal arrangements are the most significant. One study reported that 95 per cent of Norwegian parliamentarians meet with specific interest group at least once a month (Laegried and Röness, 1991). At the highest level, corporatist coordination takes place through the famous Kontaktutvalget (Contact Committee), on which sit the Prime Minister, the Finance Minister, and the presidents of LO and NHO. The committee meets in camera with some regularity; no notes are kept. Its role in incomes policy decisions is obviously a central one, as there are frequent meetings in the period before the central negotiating proposals are put on the table. The Kontaktutvalget is backed up by a technical calculation committee made up of experts from the government, LO and NHO which presents semi-annual background reports on factors impinging on the incomes negotiations. On the whole, while Norway’s institutional arrangements do not fit the model quite as neatly as those of Sweden or even Finland, they have not undergone the same degree of questioning and dislocation. Indeed, according to one observer, ‘There is no evidence that support for public redistribution has been reduced, and I find it more fair to conclude that it has been slowly increasing’ (Martinussen, 1993:53). One factor is that Norwegian institutions concerned with the dissemination of knowledge are relatively solid and the threat of commercialism weak—even by Scandinavian standards. In 1989, 1,350,000 Norwegians participated in one or another form of adult education, out of a population of 4 million. Non-cable commercial television has not yet arrived, the number and readership of newspapers and periodicals still very high.27 What seems to outsiders as a Quixotic determination to hold onto the national culture in the face of external pressures from the EC can be understood as a reflection of the strength of (attachment to) these arrangements. In a sense, thus, the EC debate is a surrogate for the soul searching as to the viability of existing institutions. In the next chapter we pose the question of whether, and to what extent, the European threat is a real one. Norwegians opposed to EC membership are convinced that fundamental national institutions will be eroded by the European connection and that Norway, because of its 188

TODAY AND TOMORROW II

resources, is in an economic position to resist this. Norwegian employers seem to be disposed—though not as aggressively as in Sweden—to allow them to erode as the price of integrating into Europe. As in Sweden and Finland, Labour’s leadership has maintained that fundamental institutional arrangements are not threatened by EC membership. But it has yet to persuade its supporters just as, as we shall see, Danish labour had great difficulty at bringing its own constituency in line behind Maastricht. THE PRESENT CONTEXT: DENMARK In a poem published in 1820, ‘the prophet of Danish national identity, N.F.S.Grundtvig…produced the ultimate definition of Danishness’. The last two lines read: ‘When few have too much and fewer too little, then we have truly become wealthy’ (Ostergård, 1992:169). It articulated the ideology of the middle peasants who emerged as the dominant political and cultural as well as economic class late in the nineteenth century. Danish cultural and educational institutions embodied and articulated these communal values. It was the middle peasants, and not the urban bourgeoisie, that led the struggle for democracy in Denmark through their local and national organizations. And, they were won over quite early to free trade, developing profitable agricultural exports especially to the UK and the cooperative structures required to process these products. It is understandable why such a culture should have been conducive to social democracy. The importance of the peasantry ruled out the Danish Social Democrats becoming hegemonic as did their sister parties in Sweden and Norway. Nevertheless, though the party’s programme, which stood largely unchanged from 1913 to 1961, reflected an industrial class consciousness based on German reality and Marxist theory, ‘Danish Social Democracy…the most pragmatic of all reformist Socialist parties…was never strong on theory. [In fact, it] embarked upon a policy for the people, and not just for the working class, as early as 1914’. This is quite different from the practices of the German, French and British socialists. The main reason why a libertarian ideology of solidarity ended up dominating a whole nation state was the small size of this particular state…. Danes say…‘Denmark is a little land’ all the time when we want to impress foreigners with how amazingly well we have done. The saying dates back to…Grundtvig. (Ostergård, 1992:169–74) 189

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

What I referred to elsewhere as the ‘small-country mentality’ is evidently alive and well in this the only Scandinavian member (at this writing) of the European Community. It is the importance of export-based agriculture, both economically, but also in the national identity, that distinguishes the position of this the most European of the Scandinavian countries—but a Scandinavian one none the less. We have already noted that Denmark28 can justifiably be fitted into the same analytical category as the other three Nordic countries despite the fact that, on a number of specific characteristics, it lies somewhere between the European and Nordic profile. This latter fact is hardly surprising: geography may not be destiny, but it does rule out a lot of options. Continental Denmark is small; it has few natural resources apart from some oil and the fertility of its soil. Agriculture thus carries substantial political clout. Conversely, Denmark has very few large, multinational corporations which means also that its trade unions are structured far more along decentralized craft lines than those of its Nordic neighbours. Yet its employers organization, the DA, is comparatively quite centralized (Golden et al., 1993) as is the process of collective bargaining. Denmark’s location made EC membership inevitable, though Danes are keen to maintain a strong Scandinavian link to balance off the European one. In 1972, almost two of every three Danes said yes to Europe, while closely associated Norway, which, like Denmark and unlike Sweden, was a member of NATO, turned it down. In outcomes, as we noted, Denmark has relied less than the others on jobs and thus more on transfers to attain equality. Depending on small, labourintensive ‘niche’ manufacturing industries—the classic case here is Lego Construction Toys—as well as agriculture for its exports, and facing quite significant levels of post-war foreign debt, Danish governments were for many years preoccupied with restoring a positive balance of payments that had become chronically in deficit, even at the cost of tolerating unemployment at levels of 8 to 10 per cent. Danish industrial policy has followed a consistently noninterventionist strategy since the Second World War (Lyck, 1992:97–8). The boom of the mid-1960s allowed for a period of full employment, but high external borrowing to stabilize the domestic economy created problems again in the seventies—the outcome of which (combined with EC membership) was a return to 1950s’ levels of unemployment. Unlike in Sweden, where the non-socialist government introduced many such measures during the recession of the late 1970s to early 1980s, the Danes have traditionally eschewed subsidies to uncompetitive industries (Olgaard, 1982), and—though this changed somewhat in the early 1980s when the government sought out the parties for tripartite negotiations over labour market conditions and policies (Norgaard, 1992; 190

TODAY AND TOMORROW II

Andersson, 1992)—placed less emphasis on selective supply-side, employmentoriented policies.29 Danish institutional arrangements are even less complete than those of Norway. The Danish social security system is pluralistic in its administration with three separate systems, one for in the private-sector white-collar, another for private-sector blue-collar workers, and a third for the public sector. Each has its own regulations for sick leave, and the like. Pensions are far less tied to income, more to specific agreements than in the other three. Workers’ compensation is privately administered. There is less of a public role in housing, and 10 per cent of primary schools are private—which sets Denmark apart from the other three where private schools are comparatively very rare. Danish municipalities have traditionally been given greater control over delivery of services: it is estimated that half of public spending is decided at the municipal level—a direction in which we have seen the other Nordic states to be moving. In spite of these features, Denmark is egalitarian in its outcomes. Indeed one OECD study found that additional educational attainment provided even less in the way of extra earnings for 45–64 year-olds in Denmark than in Sweden (Wooldridge, 1992:5). The same study found that Denmark has managed to develop in recent years a system of vocational training that even outdoes the exemplary German system discussed in Chapter 6. And observers agree that Denmark is, on balance, a corporatist society. Internationally, Denmark is in the front rank when it comes to organizing. Only a little less than 10 percent of the Danish population does not belong to any organization whatsoever…. More than 73 percent are members of more than one [of the] 2000 national organizations in Denmark. (Bregnsbo, 1992:47–8) ‘Public authority is delegated to a high number of private and semi-public institutions, and decisions are taken in negotiations among mutually autonomous and collectively organized partners’ (Pedersen, 1991:2). These organizations ‘leave their marks on law-making in all its phases, and they even take it upon themselves to administer and implement the political decisions once they are made’ (Bregnsbo, 1992:54–5). Danish Labour is structured along Swedish-Finnish lines with three main workers federations: LO, with 1.4 million workers, FTF (white-collar) with 320,000 and AC (professionals) with just under 100,000. LO’s central role is less contested than in Sweden or Norway. Unionization, at 75 per cent, is just below Swedish and Finnish levels—a remarkable number for a country with so many small employers (only 2 per cent of firms have more than 1000 employees— 191

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

Lyck, 1992). The employers’ confederation, DA, exercises a veto over lower level agreements. LO and DA are required to take immediate punitive action against their constituent members which engage in strikes or lockouts at the local level once a central agreement is signed. This has ensured a predictable, stable labour market and few strikes.30 The overall wage-setting pattern is comparable to that which has emerged in Sweden, one where sectorial-level bargaining, especially in the engineering and metalworking sectors, is the main determinant in the wage formation process. Thus basic salaries and wages are set across an industry, rather than locally. This applies even to the small unorganized sector, where firms usually respect the central agreement. Thus, despite membership not being compulsory, the great majority of firms are members of DA and its constituents. There is generally quite close cooperation between DA and LO based on the principle of the right of management to manage in cooperation with employees and unions. In fact DA and LO issue joint annual reports. The recent pattern has been of a weakening of the centralized negotiations which had resulted in the 1970s and 1980s in a marked degree of wage compression (Iversen, 1992:24, 30). Still, the presence of so many small firms and of narrow craft unions continues to make it necessary for the state to play a significant role if the corporatist arrangements are to function. The government formally intervened in the collective bargaining process more frequently than even in Finland and Norway; its intervention in 1985 was the 28th since 1933. Since then, however, intervention has declined. The informal role of the government in corporatist arrangements is comparable to Norway. Parallel to Norway’s ‘Contact committee’, informal intervention takes place in Denmark through what is commonly referred to as the ‘Wise men’s’ committee. Its work is facilitated by the Economic council, established in 1962, which gathers information and advises the public. A parallel factor is the already-noted marked decentralization. While Denmark’s population is more concentrated than that of its neighbours, regional feeling is still strong and reflected in political institutions. Denmark’s reform of municipal and regional (county) structures, which reduced the number of administrative units by 80 per cent between 1960 and 1974, was both the most extensive and the most coordinated and consensual decentralization to take place in the Nordic countries. A crucial role in the process of taking decentralization to the people directly affected was played by parliamentary commissions (Kjellberg, 1981). In the early 1970s the Danish Social Democrats appeared politically secure, they had governed through centre-left coalitions almost without interruption from 1926, and successfully guided Denmark into the EC in 1972. But subsequent to that decision, and to some extent due to divisions among party supporters that it gave rise to, the Social Democrats’ position declined even more than did 192

TODAY AND TOMORROW II

that of Labour in Norway. Powerful parties on both fringes of the spectrum similar to those in Norway emerged in the 1973 election. Indeed, with the rise of the anti-tax Progress Party, the 1973 election ‘marked the dramatic breakdown of the classical party system’ (Lane et al, 1993:209). But the Social Democrats’ vote did not stabilize, as in Norway, but rather continued to decline. Though they remain the largest party, their vote since 1984 has not risen above 30 per cent, well below that of Norwegian Labour. Finding themselves ruling alone from 1978 to 1982 during the difficult postOPEC shock years, the Social Democrats were unable to secure a parliamentary majority for their plan to deal with the worsening economic situation. But their strategy of resigning in order to strengthen their position backfired, and they found themselves relegated to opposing governments led by centrist Conservative Poul Schluter. Indeed, it is only a slight exaggeration to say that just as the Danish Social Democrats were traditionally the most pragmatic of social democrats, so ‘the Conservative party is more socialist than most socialist parties of Europe’ (Ostergård, 1992:175). Schluter, who was quoted as describing his party as ‘conservative, but not so much that it matters’, brought in reforms to promote savings, reduce inflation, improve the balance of payments’ profile, and deregulate and decentralize the public sector—but without fundamentally changing the nature of the Danish Welfare state. For example, the electoral commitment to privatization was discharged through the setting up of a specialist committee. The committee’s report was ambivalent and ‘the privatization initiative was quickly pushed aside…. Attempts to dismantle the welfare state were met with intense opposition…. The bourgeois coalition…steered a conventional course in its approach to policy making, emphasizing consensus’ (Eliason, 1992:566). Until his sudden resignation in January 1993, when a parliamentary commission concluded that he had mislead the Folketing over a long simmering issue concerning Tamil refugees, Schluter skillfully managed coalition politics, first in a four-party majority coalition, then in a two-party minority government formed with the Liberals in 1990, staying close to the centre on social policy and maintaining good relations with organized labour. This was apparent after the 1990 election in which the Social Democrats, largely at the expense of the Socialist People’s Party, went up from 55 to 69 seats, while the Conservatives lost ground to parties of the centre dropping from 35 to 30 seats; yet Schluter, and not Social Democratic leader Svend Auken, formed the government. The problem was not ideological, as the Social Democrats had moderated their economic programme even further in 1989 (Maor, 1991), but rather with Auken’s style of leadership.31 Out of frustration at being continuously outmanoeuvred by Schluter, in April 1992, after much bitter internal wrangling, the Social 193

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

Democrats replaced Auken with deputy leader, and now Prime Minister, Poul Nyrup Rasmussen. Though his party was able to draw only 20 per cent of the votes, Poul Schluter regularly topped polls as the appropriate person to head a government, his pragmatic approach bolstered by widespread popular feeling that Denmark’s options were few whatever the political stripes of the regime. With devaluation, which formed a main component of economic policy in the other Nordic countries, all but ruled out by EC membership, and with macroeconomic policies generally more heavily constrained by the tight monetary and fiscal policies of Germany, a higher level of unemployment was inevitable. But Schluter was more successful in these policies than his Norwegian counterpart, Kåre Willoch, who was unable to stay the course when elected in 1981. It seems that membership in the EC ‘disciplined’ the Danes to accept externally imposed constraints, thereby reducing the political costs of tight macroeconomic policies. In 1982, for the first time, ‘Denmark was only “allowed” to devalue half of what was wanted’ (Lyck, 1992a:148). Inflation plummeted from 10 per cent in 1982 to 4 per cent in 1986; by the late 1980s there were surpluses in the current account and trade balances. Through this period, Denmark was able to maintain Scandinavian levels of social benefits, gender equality, and foreign aid. Denmark’s success, as reflected in a record of continued reasonable growth,32 moderate inflation, and low deficit, serves as an example to practical social democrats such as Paavo Lipponen for their contention that only through conforming to the requirements of marketbased economic rationality (in part through EC membership) can the achievements of the welfare state be placed on a solid footing. But the cost in unemployment remained high—by 1993 it was up to 12 per cent—higher than the people in the other Scandinavian countries had been willing to pay. Moreover, the post-1993 EC will not be the same as that which Denmark joined in 1972, as the Danes themselves acknowledged in initially rejecting the Maastricht Treaty, and then winning changes to it. Though one cannot simply presume that Denmark’s relatively successful record in the EC can serve as a ‘model’ for the other three countries in their dealings with it, Denmark’s experience proves instructive as we turn to this theme in the next chapter. We can say of Denmark, as we did of Norway, that while its institutional arrangements corresponded less to the ‘model’, they have also been subjected to less of a challenge. In this context, it is worth noting that the pressure on the Danish Krone following a devaluation in Sweden at the end of November 1992, led the Conservative-Liberal government to reach a compromise with the Social Democrats over the budget. In a show of economic unity, the compromise, 194

TODAY AND TOMORROW II

accepted by six of the eight parties, representing 85 per cent of the seats in the Parliament, envisaged the creation of 25,000 jobs through investment in infrastructure, yet still resulting in deficit reduction. And when Schluter unexpectedly resigned in early 1993, the Left-Centre coalition under SocialDemocratic leader Rasmussen that took over agreed to abide by the compromise. In general, therefore, despite the difficulties brought by the recession, the outlook for the survival of the institutional arrangements we have identified with social democracy is brighter when we contemplate developments in all four Nordic countries rather than Sweden alone. But events are not standing still: one way or another, the future of the institutional arrangements in the Nordic countries will be inextricably bound up with their relations with a changing EC33—to which we now turn.

195

11 THE EC, THE NORDIC COUNTRIES AND THE INSTITUTIONAL ARRANGEMENTS OF SOCIAL DEMOCRACY

In the last two chapters we looked at recent developments in the four Nordic nations, asking to what extent they undermined the institutional arrangements identified in Part II as fundamental to the egalitarian outcomes they have attained. The question was left in abeyance, and we shall return to it in the Conclusion. In this chapter we look at one crucial aspect of recent developments, namely the relationship of the four countries to the European Community. In principle, this relationship should not present a problem. It was noted in Part II that openness to trade—and the internal adjustments it necessitated—has long been part of the Nordic countries’ way of life. Indeed, participation in a second-tier structure like the EC was cited as a successful application of the key principle of economic confederation as opposed to federalism which, it was suggested, compromised the very logic of rational accountability. For small, relatively homogenous nation states, membership in a confederal body is understood as a second-order institutional arrangement enabling them to adhere to certain rules under which they all benefit but could not separately undertake due to the high political cost on domestic political leaders. By and large, this reasoning applies to the EEA (European Economic Area) agreement negotiated with the EC by the members of EFTA establishing common standards and rules governing state aid and procurement to gain access to the Single European Market. But the EEA is in the process of being superseded, as Sweden, Finland, Norway (and Austria) move towards direct EC membership, while the EC, at least in the view of some members states, is moving towards a form of ‘Eurofederalism’. What are we to make of this? There are three factors that make discussion of this question particularly treacherous. The first is that the saga is a continuously changing one: writing about Western European developments in 1993 is like writing about Eastern Europe in 1990, no sooner recorded than out of date. And no one can predict 196

NORDIC COUNTRIES AND THE EC

the wider effects of outbreaks of long-simmering antagonisms and problems associated with the transition to the free market in the former Yugoslavia and elsewhere in Eastern Europe. We have seen something of their effects in the millions of refugees seeking entry to Western Europe and the right-wing forces they have unleashed. Moreover, the supposedly stable European monetary setup proved anything but stable as currencies fluctuated wildly in autumn 1992, and again in summer 1993, resulting in a loosening of the bands of the European exchange rate mechanism (ERM). This was due in good part to Germany placing greater priority on integrating the provinces of the former DDR than on European monetary stability. The second complicating factor is simply the highly complex content and structure of the negotiations with the EC. Finally, despite their technical complexity, the negotiations touch powerful emotional chords linked to national identity. In sum, we find ourselves speculating in this chapter on the outcomes of complex negotiations subject to emotionally charged interpretations. Early in 1994, as this is being written, Sweden, Finland, and Norway are embarked on the rocky road towards EC membership, while Denmark remains somewhat ambivalent about the direction the EC is taking, despite having ratified the Maastricht Accord a year after having narrowly rejected it. The initial Danish ‘no’ in June 1992 had served to bring to the surface divergences over Eurofederalism. The Maastricht Treaty had sought to sweep these under the rug by incorporating British exceptionalism into its very content, an exceptionalism based on a different view of European Union than that prevailing among continental member governments. This diffident attitude, it turned out however, was shared by the peoples of a number of member states—notably France where a September 1992 referendum barely ratified the Accord. The first Danish vote also gave comfort to the forces of opposition to EC membership which had been gaining strength in Sweden, Finland, Norway (and Switzerland and Austria). It had seemed in 1991 that membership for the three Nordic nations would be a routine matter, a logical follow-up to EEA which they had signed with the EC in October 1991. But even the EEA ran into unexpected snags. First, it was temporarily invalidated by the European Courts. Then Norway’s government insisted on renegotiation so as to win the needed parliamentary endorsement. And finally, and unexpectedly, the Swiss narrowly rejected the EEA less than a month before it was supposed to go into effect at the beginning of 1993, thus ruling out Switzerland being considered for membership in the EC.1 On the EC side, the negotiations over the membership of the EFTA countries were used tactically. The southern states linked progress with gaining satisfaction over EC budgetary proposals for the financing of regional development 197

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

(‘cohesion’) funds. And the European Parliament served notice that it would ‘use its right to veto new members unless fresh reforms give it more power’ (The Economist, April 11, 1992:54). Moreover, the deal to be negotiated with the other Nordic countries was tied to the outcome of the Danish deliberations over Maastricht. This understanding cut both ways: on the one hand, it required at least the appearance of flexibility towards Denmark; on the other, any concession would likely be treated as a precedent by Denmark’s sister Scandinavians. In an attempt to alleviate the fears of Eurofederalism, the EC Commission in 1992 presented proposals to elaborate more fully on the principle of subsidiarity,2 and to make the work of the EC ruling bodies more transparent. Yet differences ran deep in the EC. Britain especially was unhappy with France’s willingness to undermine the ongoing GATT negotiations by its unyielding stand over reducing agricultural subsidies, as demanded by the US. France was critical of British Prime Minister John Major’s delay in presenting Maastricht before the British Parliament. And France’s credibility as defender of Europe had been tarnished by its own referendum vote, while the credibility of certain other defenders of Eurofederalist orthodoxy, namely the southern countries and Ireland, was undermined by the fact that their own actions in executing and enforcing EC Council and European Court of Justice decisions (The Economist, September 26, 1992:78) were less than exemplary. It suggested that a concern over transfers from EC coffers really lay behind their demands that Denmark and the prospective new members toe the line on Maastricht. Only the Benelux countries and Germany remained candidates for leadership of the Pro-Eurofederalist bloc. The former were too small—with the partial exception of the Netherlands—to take a leading position. By default, Germany was the leading player; but Germany’s position was a delicate one due to its internal federal constitution which weakened the negotiating hand of its central government, and the historical legacy from the 1930s and 40s it carried. Moreover, Germany was caught up in the economic and social problems of incorporating the former DDR. These factors combined in focusing world attention on Germany’s problems with neo-Nazi attacks on refugees and immigrants from visible minorities. Thus Germany, despite its commitment to maintaining the Franco-German alliance, had to be careful not to alienate Britain or Denmark. Its discrete leadership role consisted more often of accommodating different visions of the EC, than of imposing its own, Eurofederalist, one (Franklin, 1993). While this could not be admitted in so many words, reconciliation of the differences between the Eurofederalist aspirations being expressed in Brussels, Bonn, Paris, Amsterdam, Rome and Madrid, and the more limited objectives of London, Copenhagen and the EFTA capitals amounts to a ‘two-speed Europe’. 198

NORDIC COUNTRIES AND THE EC

Such ‘variable geometry’ as John Major termed it, is preferable to the French and their allies than the alternative scenario, that the process of integration proceed at the pace of the most reticent participants. But the operations of an unofficial two-speed European Union are necessarily ambiguous and nuanced. The formal enactment of the Single Market on January 1, 1993, marked the end of what had been a period of relatively clear developments. Beyond these lay complex political, monetary and, someday, fiscal arrangements that would inevitably affect and involve different member states differently. (Indeed, many provisions of the single market remained to be put into effect.) Each of the four Nordic countries found itself facing the European question just as Europe was entering this new and uncertain era. We begin with the most reticent of the applicants, namely Norway. TH E NORDIC COUNTRIES AND THE NEW EUROPE I Norway Sweden formally applied for EC membership in summer 1991, and it seemed that Norway would soon follow suit. But the outcome of the 1991 national municipal election, in which anti-EC forces on both sides of the spectrum made significant gains, gave Norway’s leaders a rude reminder of the 1973 election. That election came on the heels of the 1972 referendum in which Norwegians turned their backs on the membership agreement negotiated—along with Denmark and Britain—with the EEC. Fearing a repetition of 1972–3, the Brundtland government, despite its known pro-EC inclination, avoided taking a public position; instead, it set in motion a long and intense consultation process within the Labour party. With the bourgeois parties badly divided over EC membership, the heavy mantle for building consensus had fallen on the shoulders of Labour as the only party with a real political base both in the anti-EC hinterland and the pro-EC Oslofjord area. The leadership faced the party’s November 1992 special congress knowing that an even smaller proportion of its members supported EC membership than the 40 per cent of the public responding favourably in the polls.3 The unwillingness of many Norwegians to tie their future to Europe was raised in the previous chapter’s discussion of the importance of Norway’s remote coastal and interior regions. The hinterland settlements which traditionally depended for their survival on fishing, agriculture and lumbering were given a boost when cheap energy came on stream, first hydro power, then North Sea oil and gas. The priority was to use the energy, and the revenues it generated, to 199

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

develop local manufacturing, especially in metal smeltering and shipbuilding, and to maintain the roads, tunnels, and ferries keeping these communities viable. Norway resolutely protects its fishing territory and, through subsidies, guarantees its farmers an income equal to that of industrial workers. Constraints on some of these programmes would result from EC membership; and, for some, this is a matter of life and death. Farmers, fisherman and workers in a hinterland of small communities isolated by high mountains and wide fjords and whose industries depend on cheap energy and other state ‘subsidies’ tied to these resources form the core opposition to EC membership. A somewhat analogous case exists in Finland, but less so in Sweden.4 The hinterland workers have supporters elsewhere in Norway for whom Norway’s national identity is bound up with the ‘norsk hver dag’ the traditional hinterland way of life. They are typically socially conservative, suspicious of Labour, but especially suspicious of the European outlook of the business and professional strata in the greater Oslo region. Yet even among intellectuals and public-sector professionals there is a ‘progressive’ anti-EC opposition. The former are represented especially by the most unequivocally anti-EC formation, the agrarian-based Centre party; the latter by the Socialist People’s Party (SV). In the cosmopolitan Southeast, most people are prepared to see some decline in the hinterland towns and villages if it allows for the reduction of the taxes that, along with a 25 per cent royalty on oil revenues—oil-related activity accounts for some one-third of Norway’s GNP—subsidize the regional economies. They are persuaded that the outcome of negotiations with the EC will leave the required levers in the hands of Norwegian state institutions enabling them to adequately protect the regional economies while adjusting to European conditions. But the people in the hinterlands, who instinctively distrust distant bureaucracies, are anything but reassured. Seeing the civil service in Oslo as blocking the face-toface access to political, administrative and organizational leaders they take for granted, they can only look with horror upon the prospect of decisions affecting their lives being removed to Brussels. In this, they are expressing concerns common to the Nordic countries. How can redistributive policies based on national institutions be integrated into a larger Europe where the free flow of goods, people and capital is the ruling principle? In Norway, such fears are compounded by geography: Norway forms the northernmost boundary of Europe stretching northeast above Sweden and Finland to the Russian border, much of it lying above the Arctic circle.5 Yet, though expression of such fears is geopolitically most salient in Norway, the same kind of fears are natural to any community where distributive justice is built into national institutional arrangements. And this, as we have seen, is what has been fundamental and distinctive about the Nordic countries. 200

NORDIC COUNTRIES AND THE EC

While the opposition to European integration is strongest in Norway, its proponents benefit from the leadership of a governing party well equipped to take on the challenge. Unlike the pro-EC Conservatives, Labour has managed to retain a good part of its traditional hinterland support. Prime Minister Gro Brundtland played a key role in steering through the complicated EEA agreement. She had managed to win the required three-quarters majority in the Storting— including the votes of the wavering Christian party—to enact the changes needed to make Norwegian laws and regulations conform to those of the EC. In the process, she was able to overcome fears for the fishing industry that had led to opposition in the north and the threat that even some Labour MPs from the fishing towns would vote against it. The year-long grass-roots debate Mrs Brundtland then initiated inside the Labour party was widely hailed as a model of participatory democracy. Observers had warned that Norway would ‘miss the train’ that the other EFTA nations were boarding, but she proved right in her judgement that the European train would slow down after Maastricht. The lesson of 1972 had been taken to heart: there’s no point to getting on the train if the majority of people are not coming along for the ride. In the local and regional party meetings leading up to it, and at the November 1992 special convention, Gro Brundtland and her ministers repeatedly assured delegates that the government would safeguard Norway’s control over natural resources in the negotiations. They insisted that EC leaders had learned from Denmark’s rejection of Maastricht and were capable of the required flexibility, pointing to an ‘avis’ by the EC Commission which, in response to a Finnish request, explicitly admitted Arctic areas to have special needs. The wording of the avis was interpreted as referring not only to farming but to all issues affecting northern areas—including protection of fishing waters. With the endorsement of the Labour party congress,6 Mrs. Brundtland, after a vote in the Storting, delivered her country’s application for admission to the European Community. Yet many steps remained on the journey to the EC. The Storting’s 104–55 vote in favour proved a deceptive reflection of popular opinion, for polls showed 55 per cent of Norwegians to oppose membership, and only 35 per cent to favour it, the latter number actually declining to 30 per cent in the preelectoral polls in summer 1993. In part because of its pro-EC stance, Labour support declined, at one point dipping to 25 per cent, well below the 38 per cent it garnered in the 1989 election. Yet there was really no alternative to a Labour government since the anti-EC stance of the smaller parties ruled out a Swedish-style bourgeois coalition.7 Moreover, it was generally accepted that as long as negotiations were proceeding, the Brundtland team’s international profile and wide experience made it best suited to carry them out. Thus, with the EC issue playing only a 201

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

secondary role in the September 1993 campaign, Labour was able to win back some of its supporters, its jump to 37 per cent largely at the expense of the Socialist Left. (On the right, however, the pro-EC Conservatives and Progress Party lost ground to the virulently anti-EC Centre Party.) The conclusion of negotiations did not dispel the ambivalence and anxiety over Europe intensifies. While distrust of integration into Europe is a permanent feature of Norwegian political life, an equally permanent feature is Norway’s close economic tie to the EC. Two-thirds of Norway’s merchandise exports, accounting for one fifth of its GDP—highest among the Nordic countries including Denmark—goes to EC countries (Colchester, 1992:9). Norwegians will not be able to ignore this fact as they decide on how to vote in the referendum to ratify the outcome of the negotiations, but they will know as well that Norway’s economy is doing relatively quite well outside the EC. Indeed, it was not until the eleventh hour, after the deal with Sweden, Finland and Austria had been struck, that Norwegians knew that they too would be voting in a referendum. The Brundtland government had always made it clear that acceptable terms of membership would be difficult to negotiate, especially over fisheries. And in the end it came down to fisheries, with Spain the holdout on the EC side. The compromise had to do with the size of fish quotas in Norwegian waters that Spain—under much pressure from its EC partners was willing to accept. The Norwegian government presented the compromise terms as constituting the breakthrough required to give it a real hope of convincing the population that Norway’s basic objectives were secured in the agreement.8 Parallel events will also have an impact, in particular the results of referenda in Norway, Sweden and Finland.9 As we shall see, a similar constellation of opposition to EC membership developed in Finland and Sweden. We know that the Norwegians were quite prepared to swim against the Nordic stream in 1991 when Swedes seemed almost unanimous in their readiness to seek membership, with the Finns following close behind; now Norwegians opponents are closely linked up with their Swedish and Finnish counterparts. Still we cannot rule out a shift of opinion great enough to allow EC membership to win out. After all, such a shift took place in Denmark over Maastricht in the space of a year. II Denmark All in all, Denmark has been consistent in its attitude towards the EC. For the Danes, the EC from the beginning constituted a trade-off imposing monetary and even fiscal constraints (and thus higher levels of unemployment), but in 202

NORDIC COUNTRIES AND THE EC

return securing markets resulting in the growth required to support the compensatory mechanisms (including the high unemployment compensation payments) that underlay the Danish welfare state. In making this trade-off, the Danes, who trace their history as an independent kingdom back over more than a thousand years, were not choosing to become ‘Europeans’.10 Indeed, they are uncomfortable with the very idea of a European superpower, and cannot imagine themselves as part of it (Lyck, 1992b). ‘Reluctantly the majority of the population has let itself be dragged into European cooperation by the arguments of dire necessity…. But there has never been any enthusiasm, not even among the intellectuals’ (Ostergård, 1992:168). We noted the dominance of the middle peasants late in the nineteenth century, and that it was they, and not the urban bourgeoisie, that won democracy in Denmark. The labour movement too was affected by nationalist sentiments. When the Social Democrats assumed power and, subsequently undertook the construction of the welfare state, internationalism yielded to a sense of national pride and hence to a feeling that the Danes had something to lose in a larger European Union. (Christianssen, 1992:101) Indeed, in calling for a ‘yes’ vote during both the 1972 referendum debate over membership and that in 1986 over the Single European Market, Danish leaders rejected any suggestion that the EC constituted an embryonic form of political union. Maastricht reopened this question. Fears were raised—even among people who had voted ‘yes’ in 1986—that the federal Europe implicit in Maastricht would threaten the bonds of their community and thus the trade-offs and adjustments underlying their welfare state. The Schluter government did not aid its cause when it distributed the Accord to every household. ‘The same politicians who continued to protest overbureaucratization, overcentralization, and overregulation in the Danish public sector were now pushing for a treaty written in inscrutable legalisms’ (Eliason, 1992:572). Overall, Maastricht, though it did enhance the competence of the EC Commission and, especially, the Parliament at the expense of the Council—that is, the member governments—did not open the door to a federal Europe. It still ‘requires a basic consensus of its component states to function…. Even the basic operation of the EC requires consensus, for instance to appoint a new Commission, to agree to a date for European elections’ (Corbett, 1992:297). Though Maastricht went further than the Danes or British could accept, it did not satisfy the goals of federalists. In effect, the deals accommodating first the British and then the Danes, and arguably those negotiated with the three other 203

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

Nordic countries, manifest the existence, in fact though not in name, of a ‘twospeed Europe’.11 For the British Conservatives, it was the social policy chapter that, along with monetary union,12 was unacceptable. The specific social-policy provisions in themselves constitute no problem for the Nordic countries, but, like the British, they are concerned with limiting the monetary and other powers of their legislatures needed to act in areas affecting the well-being of their citizens. There are differences among these ‘outer’ Europeans, and not only between Britain and the Nordic countries, but also among the Nordic states. One need merely contrast the gentle rolling countryside of Denmark and south Sweden to the rugged, cold interior of Norway and Finland to see that the content of the negotiations of the four Nordic nations with the EC will not be identical.13 The four do nevertheless share social-democratic values, and it is these that have given rise both to a certain shared vision of a social Europe, but also to a determination to hold on to the national autonomy necessary to maintain the institutional arrangements that have made it possible to live up to those values. Such commonality, plus the cultural ties that come from similar language, common religion, and many years of working together, assure that informal cooperation14 will characterize the negotiations in which they are embarked. Despite the EEA negotiations having cleared many of the technical hurdles, much ground remained to be made up. In contrast to their Norwegian colleagues, Danish and Swedish leaders had no 1972 lessons from which to learn, and both misjudged popular attitudes about the EC. After the Maastricht Treaty was signed at the end of 1991, the Danish government moved quickly to seek parliamentary approval—more quickly than other EC governments. In February 1992, over 80 per cent of MPs voted in favour, with only the parties on the two extremes opposed. A referendum was called immediately, despite the internal problems of the Social Democrats. In spite of mounting opposition, the government remained convinced that the people of Denmark, like their parliamentary representatives, would not choose to opt out of European integration just as their Scandinavian cousins were opting in. But the proMaastricht forces underestimated their opponents’ strength and overestimated their own.15 Political amateurs successfully portrayed the Accord as a threat to the Danish way of life. Anti-Maastricht forces, led by women’s organizations, environmentalists, and ‘fringe’ parties were able to argue convincingly that the federal Europe of Jacques Delors16—the word ‘federal’ was carefully expunged from all the Maastricht texts—was not the Europe that Denmark joined in 1972, not even that contemplated by the Single Market’s most ardent Danish promoters in 1986 (Schou, 1992). Poul Schluter was pointedly reminded of his statement at the time that ‘Political Union is stone dead’.

204

NORDIC COUNTRIES AND THE EC

It was only in March, when polls revealed 40 per cent of Danes against Maastricht and only 32 per cent in favour, that the government undertook serious efforts to explain the agreement, and in April that the Social Democrats joined the fray under their newly chosen leader Poul Nyrup Rasmussen. By then it was too late. The hope that enough Danes unpersuaded by the arguments for further European integration would nevertheless vote for Maastricht to avoid Denmark’s assuming the role of Europe’s spoilers proved futile as anti-EC sentiment grew in France, Germany, Ireland and Britain. The Danish ‘no’ was followed by the close French vote in September; European union was losing momentum. This made it more difficult to tell Denmark to ‘take it or leave it’, especially as it was likely that, forced to choose, the Danes would, indeed, leave it. A new deal had to be promised to them, and it was up to John Major, Chairman of the EC Council during the second half of 1992, and himself under fire at home for Maastricht-related as well as domestic issues, to come up with a new formula acceptable to Denmark. At the eleventh hour, a deal was struck at the EC Council’s Edinburgh summit: apart from engineering a compromise on the EC budget, thus averting the threat by Spain’s Felipe Gonzales to walk out of the Edinburgh meeting, Major won support from reticent EC leaders for the resolution to the Danish question he had pieced together, one that Poul Schluter affirmed would be ratified by Danish voters in a May 1993 referendum.17 The resolution was in the form of a declaration which left the Maastricht Treaty intact but allowed Denmark to remain outside monetary union by strengthening the wording of a protocol to the Treaty18 that provided for a Danish referendum before the final phase of EMU.19 It also stated that Denmark was not required to participate in aspects of European Union having military implications, and assured legally binding exemptions for Denmark on measures concerning European citizenship,20 and EC-wide coordination in home affairs and administration of justice. Finally, in response to the demands of the Socialist People’s Party, the EC Council agreed to measures allowing for greater decentralization and transparency in the workings of the Council and Commission such as open council meetings and proposals being made available and translated. It also promised a clear expression of the principle that health, cultural and educational policy were national responsibilities so that Denmark would continue to determine its own social standards and set policies affecting distribution of income and social benefits. Edinburgh’s deal with Denmark on Maastricht and compromise over the EC budget cleared the way for the formal start of membership negotiations with the former EFTA states which Spain and the three other ‘poor’ countries had threatened to block. Ironically, Denmark assumed the EC Council Chairmanship for the first six months of 1993, entrusted with launching 205

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

negotiations with the EFTA countries. Moreover, the key Danish figure involved, Foreign Minister and Liberal leader Uffe Elleman-Jensen, soon left the government in the wake of Schluter’s resignation after a commission found him to have misled the Folketing over the case involving Tamil refugees. In the EC Chair, the Foreign Minister in the new Social-Democratic-led government, Neils Helveg Peterson, had to skate between a two-speed Europe, which the people of Denmark insist upon in practice, and a firm, consistent interpretation of Maastricht required of the Chairman of the EC. Danish policy remained consistent, however: the Social Democrats’ three coalition partners had previously supported the Schluter government, and key elements of domestic policies continued to be settled in all-party agreements that remained binding. Moreover, EC-related matters in Denmark, unlike in other member states, are hammered out in a special all-party committee of the Parliament. The outcome of the second Maastricht referendum was closer than expected given the reaction to the Edinburgh compromise. The anti-Maastricht forces— even without the Socialist People’s Party—portrayed the changes to Maastricht as purely cosmetic. The result showed that a solid 40 per cent of Danes remain dissatisfied with European integration. Still, a hurdle had been cleared, and it was followed by British ratification. With the go-ahead given by the German constitutional court in October, the path was finally cleared for the implementation of the Accord. III Finland and Sweden While Sweden and Finland will decide separately, the fate of the latter is closely linked to the former. Opposition to EC membership was slower to develop in Sweden than in Norway, and developments in Finland followed those of Sweden. In 1991, there seemed to be consensus in Sweden behind the SAP government’s application for EC membership. The Finns moved to follow suit, though more out of keeping step with Sweden, than any comparable Europhoria. There seemed to be no alternative since the sudden geopolitical transformation to its east meant that Finland could no longer claim special consideration due to being next door to the Soviet bear. The first step had been the decision to follow Sweden into the ECU monetary area, taken with little consultation and preparation, and which hurt Finland’s economic reputation when it was forced, late in 1991, to devaluate the Markka despite having renounced currency revaluation as an instrument of monetary policy.21 With their eastern market all but disintegrated, and neutrality a hollow concept, many Finns came to view as unthinkable their being outside of economic arrangements in which Sweden, their closest trading partner with a largely parallel 206

NORDIC COUNTRIES AND THE EC

economic structure, participated. At the same time, however, they resented what they saw as a preemptive move by the Swedes to apply for EC membership in 1991, when they were satisfied with the EEA deal. The establishment of EFTA among the six European neutrals22 had especially served Finnish interests at the time since any direct participation in the EC would have constituted a violation of the Finnish-Soviet entente. With the demise of the USSR, the Finns were generally content with the EEA arrangement with the EC which specifically excluded agriculture, a major concern for the Finns, ‘all of whom live North of the line at which Sweden finds that agriculture becomes problematic….’ Once Swedish action put EC membership on the table, the agricultural dimension figured prominently both as a basis for opposition to membership and in Finland’s negotiating strategy. Its spokespersons claimed special recognition and subsidies for its agriculture, justified in part by the need to keep its large indefensible Russian frontier populated with farmers (Colchester, 1992:22). The final deal— though careful not to say so explicity—in effect designated all of Finland as an Arctic region eligible for special agricultural support. Alone among the parties, the Finnish Conservatives, like their pro-business counterparts in the other Nordic states, favoured EC membership from the start. The opposition Social Democrats were only lukewarm, but became more positively disposed when Ulf Sundqvist took over the leadership in Autumn 1991. As in Norway, it was the traditionally nationalist Centre Party, along with the Left-Wing Alliance,23 that was most reticent. But, as in Sweden, Centre found itself in the governing coalition—indeed, its leader, Esko Aho, was Prime Minister. The party’s leadership moved to avoid a split by leaving the decision over EC membership up to its Council rather than calling a party Congress. Once the Council had endorsed EC membership, the government acted and President Koivisto formally applied for EC membership in March 1992. But the Centre Party remains deeply divided: farmers, already alienated by cuts to subsidies in the state budget, comprise roughly one-third of the supporters—as well as the traditional base—of the Centre Party. By the end of 1992 anti-EC opposition in Finland was being organized around dissident Centre Party leaders, and emerged as an important issue leading up to the early-1994 presidential election. Support for EC membership was just above half of decided voters having dropped roughly 10 per cent from 54 per cent from 1992 to 1993. Though faced with as great an adjustment in agriculture as Norway, but without an energy cushion to fall back on, Finland cannot be expected to reject the EC if it appears that Sweden will join. But that eventually is no longer by any means a fait accompli. Swedish public opinion began to change after the SAP defeat in the 1991 election, as many Swedes began to give public expression to a feeling that the Social Democrats had too quickly jumped on the EC 207

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

bandwagon, a bandwagon steered by big business. Moreover, the unexpectedly narrow victory by pro-EC presidential candidate, Martti Ahtisaari, over Elizabeth Rehn, who avoided taking a position on membership, did not provide quite the expected shot in the arm for the pro-EC forces. Swedish business had taken the lead right from the start, with veiled threats by leading industrialists, including Peter Wallenberg, that they would move investment to EC countries if Sweden were not among them. In 1989, SAP launched a highly sophisticated campaign to influence public opinion. One memorable poster featured a smaller Swedish child next to a larger one from a member nation, asking why the latter ‘grew faster’. A quarter of a million European ‘passports’ were distributed in the schools for use in language courses; and on May 8, 1991, SAP staged a great celebration to commemorate the fortieth anniversary of the Schumann plan: forty thousand Swedes attended concerts and were treated to European meals for which they paid lower, ‘European’ prices. When the Labour-led government of Austria applied for EC membership in 1990,24 the Swedish campaign went into full gear. Many factors contributed to Austria’s unexpected decision, including no doubt a desire to create a more firm link with Western Europe as developments in Eastern Europe made its position— like Finland’s—as a crossroads between East and West less comfortable. In addition, EC membership was seen by many Austrian leaders as a means of weakening the quasicartels and quasi-monopolies that kept costs artificially high (Luif, 1990).25 Once Austria had broken the ice by going it alone despite ongoing EFTA negotiations with the EC for access to the Single European Market, other EFTA countries could follow suit. In Sweden, as in Austria, the trade union leadership in the export-oriented manufacturing industries largely shared the employers’ outlook. More generally, the EC of the late 1980s seeming ability to overcome immovable obstacles to economic integration made it appear especially attractive at a time when Swedes were coming to question their own economic institutional arrangements. SAF’s portrayal of the EC as the terrain of opportunity where talent and ambition was recognized and rewarded unrestrained by outmoded national boundaries struck a responsive chord among younger, welleducated Swedes. With their mandate nearing its end, the Swedish Social Democrats feared being caught on the wrong side of the European question. The winding down of the Cold War provided justification for jumping on the EC bandwagon, since the traditional, non-partisan pretext for keeping out of the EC had been to maintain Swedish neutrality. So, without consulting the party or the parliament, the SAP government acted, thus snatching the issue away from the opposition Conservative—Liberal alliance. 208

NORDIC COUNTRIES AND THE EC

Overt Swedish opposition to EC membership was confined to two minor parties, the Greens and former Communists. The declining Centre party, with a constituency parallel to but not as strong as that in Finland or even Norway, went along with the pro-EC bourgeois position. But Centre kept its options open and could still, if the conditions of the agreement worked out in Brussels were unsatisfactory to its supporters, break with its coalition partners on the question. Centre is also particularly sensitive to the potential environmental consequences of what opponents argue to be laxer EC standards. Another complicating factor is the problem of harmonizing Sweden’s comparatively generous refugee policy with that of the EC. Failure to harmonize would potentially open the floodgates, while doing so would be anathema to those strongly committed to Sweden’s policy of generosity—typical of whom are many pro-EC Liberals. On these and other matters, the solidly pro-EC Conservatives must take into account a certain softness among their coalition partners. Even more important is for the government to keep Labour onside. To do this, it ruled out any participation in joint military action through the Western European Union. When the Minister responsible for Europe, Ulf Dunklespiel, opened negotiations with the EC on February 1, 1993, he followed closely the recommendations the SAP had adopted in January. There were two nonnegotiable demands: maintaining free access to public records and unrestricted access to the countryside. An important concern was to be able to retain programmes that subsidize transportation and other costs of firms in Sweden’s northern provinces. The SAP also took a stand close to Denmark’s quoting the Edinburgh declaration that ‘allows each member state to pursue an independent policy with regard to income distribution and preserved or improved social welfare’. In addition, the Social Democrats demanded that Sweden—only when the final design of the EMU’s third stage has been made clear after the conference of governments in 1996—takes a final stand concerning Swedish participation in a common currency and central bank…[joining only if it proves compatible with]…a national policy of sustainable growth, full employment and regional equalization. (SAP, 1993:15) The March agreement did not explicity recognize this right—but it did not reject it either. Sweden did make progress on a thorny point on which it had been forced to take a firm stand, that of retaining state control of alcohol distribution. It could not capitulate on this question—if for no other reason than holding onto the support of dedicated teetotalers—estimated at 15 per cent of the population. 209

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

The bourgeois parties will likely not be in command of that government after 1994, given their slippage in the polls at the expense of the SAP as recession continued into 1993. A November 1992, Statistics Sweden poll found SAP support to have risen to 45.8 per cent, while another, the following May, saw it at 49.8 per cent. And while Labour’s leadership remains pro-EC, main currents of opposition appeared among its supporters. Early in 1992 both the SAP’s women’s and youth associations came out against EC membership. The LO has retreated from its unequivocal pro-EC position, with opposition quite strong among public sector and white collar workers, especially in sectors with large proportions of women. It is unlikely to endorse any arrangement which includes EMU. A December 1992 poll found half of Swedes opposed to membership, with onethird in favour and the remaining 17 per cent undecided. Blue-collar workers and those aged 16 to 29 were especially opposed. In 1993, the ‘no’ vote actually grew more firm; supporters of only the Conservatives and Liberals were predominantly pro-EC. A March 1994 poll found 42 per cent against, 35 per cent for. With opposition concentrated in his own constituency, Ingvar Carlsson has staked his SAP leadership on his EC strategy. He was able to avoid a showdown at the September 1993 Congress, in effect putting any decision by the party off until negotiations are completed. Despite the deep divisions, it is difficult to foresee the highly cohesive SAP breaking ranks over EC membership. Unlike in Norway, Denmark and Finland, the Social Democrats need contend with no significant anti-EC formation to their left. Like their counterparts in the rest of Europe, the SAP leadership argues that the best way to protect the values defended by women, youth and environmentalists is through contributing to a ‘social Europe’. Carlsson told the 1993 Congress that full employment could only be accomplished through European coordination, deriding ‘Keynesianism in one country’. Should it find itself in power before the referendum on EC membership, the SAP leadership would be in a better position to put these affirmations to the test.26 Most observers are persuaded that a Social-Democrat-led government would have a better chance of winning over Eurosceptics just as proved to be the case in Denmark. Such a government, in presenting its case for ratification, would also be able to benefit from closer coordination with the Labour-led governments of Norway, Denmark and probably Finland where the Social Democrats are poised to enter the government, their support having increased substantially since the 1991 elections. For the purposes stressed here, a coordinated social-democratic strategy over EC membership is to be welcomed: it would bring more clearly into the discussion not only the strategic interests of the nations concerned, but also the 210

NORDIC COUNTRIES AND THE EC

deeper question of how best to consolidate and build upon the achievements of Scandinavian social democracy in the context of an integrating Europe. Before completing this chapter, we should look in a little more detail at the more general arguments being advanced in this debate and how these apply to the EC as it is evolving. A EUROPEAN COMMUNITY IN TRANSITION It is difficult in discussing the EC to draw the line between talk and substance; to distinguish the ideal of a European community from a set of specific institutional arrangements. Terms like a ‘social Europe’ sound appealing, but what do they in fact mean in the way of outcomes? In Part II an institutional analysis of egalitarian outcomes, was presented. In terms of that analysis, can we expect the EC to evolve in such a manner as to complement or reproduce the corporatist arrangements that were seen to have resulted in the relatively egalitarian distributions of the Nordic states? Talk of a ‘social dimension’ soothes apprehensions on the part of trade unionists and social-democratic activists confronting an initiative on the part of employers and bourgeois politicians who increasingly regard corporatist arrangements as unjustified restrictions and EC membership as a means of surmounting them. But what of the reality behind the talk? The social-democratic leadership in European member nations and in the Nordic countries views European integration with a measure of realism and idealism. Social Democrats in member nations have stressed that membership on the part of the EFTA countries with their powerful labour movements would strengthen their hand. More generally, the argument is made that since capital is becoming internationalized, labour must be able to organize and build solidarity at the same level. And finally, labour joins business in invoking the argument of necessity to reinforce its position: since Europe is headed towards integration, the EFTA countries must affect the process from within. This was the reasoning behind the EEA, and it proved successful (except in Switzerland). Having thus incorporated some 13,000 pages of EC law into their statutes to gain access to the Single European Market (except for agriculture and energy), the people of the EFTA countries were then told that EC membership is the next step: only through EC membership could they participate actively in the European Union in the making. For social democrats, underlying this call is the unexplored presumption that through the widening and deepening of EC institutions, corporatist social democracy can be recreated on a wider canvass. But by arguing from necessity, rather than having to prove that the new arrangements provide adequate policy211

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

making room to manoeuvre to maintain the relatively egalitarian outcomes people in the Nordic countries have come to expect, they place the burden of proof on their opponents. The anti-EC forces tend to fall back upon vague nationalistic appeals, asserting that the process of European integration threatens those things most fundamental to the way of life of their community (Andersson and Eliasson, 1991). On the left, such an appeal resonates especially within the green and feminist currents which stress respect for local cultures and traditions and identify with the concerns of those most vulnerable to impersonal economic forces. Both pro and anti lobbies appeal to one side of the idealism of the left. The proEC forces invoke universalism, a combination of free trade with proletarian internationalism. Those against call for a defence of local and environmental solidarity. The pro-EC forces in the Nordic countries have the ear of the media of information and are able to count on leading established figures on both sides of the political spectrum as spokespersons, making it difficult to challenge their claim to constitute the voice of realism. But most opponents are not simply impractical dreamers; they seek only to keep links to the EC as narrow as practically possible, which for many equates to the EEA. They reason that since the Nordic countries are generally among the high-tax, high-benefit, highenvironmental standards states, integration into Europe means an inevitable levelling downward, the victims of which will be the more vulnerable: young people, the disabled, women. Put in such terms, EC membership is viewed as a trade-off. As it throws open the doors to the movement of capitals, goods and labour, European integration narrows the limits in which member communities can institutionally adjust to these changes. Are the resulting losses in the capacity to redistribute through jobs and transfers compensated by the benefits of integration? In Chapter 8 we presented the trade-off of EC membership in positive terms, as an example of the kind of successful economic confederation small redistributive communities should seek to join. But what of the post-Maastricht European Union, and the concerns expressed by the Danes? Will it undermine or complement the redistributive institutional arrangements of the small Nordic states? Are the assurances made to Denmark that it would continue to determine its own standards of income redistribution and social benefits compatible with the direction the new European Union will take? Is the SAP leadership right in contending that Sweden’s labour market, regional, social insurance and tax policies will be no more restricted in the EC than they are through the EEA and GATT? There is no simple yes or no answer to these questions; it is a matter of degree, and of one’s criteria for distinguishing acceptable from unacceptable restrictions. 212

NORDIC COUNTRIES AND THE EC

A good example of those who find the costs of membership too high is Finnish economist Jan-Otto Andersson. Andersson’s argument is built on differences in levels of unemployment in the EC countries and the EFTA countries. He begins with the fact that unemployment during the 1980s of the EFTA states averaged roughly 2 per cent, while that in the four comparable EC countries, Belgium, Denmark, the Netherlands, and Luxembourg, was around 9 per cent. Why, he asks, did this occur, when both started out with the same low levels of unemployment at the beginning of the 1970s? He concludes that it cannot have been accidental. The argument goes as follows: economic integration into big countries or tight economic associations increases the need for government action as differences between the outcomes produced by the market mechanism, and the policy goals of full employment, income redistribution, and ecological sustainability, tend to increase. However, integration reduces the capacity of the states to govern efficiently, as the economy becomes more complex, more vulnerable to shocks, and as the distance between the rulers and the ruled grows (Andersson, 1992:7). Andersson contends that small countries are generally more capable of coherence than large ones due to their ability to organize and articulate interests nationally, but that their size makes them more vulnerable to ‘inward internationalization’ and the accompanying loss of internal coherence. Andersson gauges the level of such inward internationalization by a country’s degree of dependence on imports. He finds that while the EFTA countries kept import levels to around one quarter of GDP; for the smaller EC countries the figure was closer to one half. In addition, the latter had higher levels of foreign investment. The EFTA countries high employment levels, he concludes, was due to their ability to maintain the ‘internal coherence of the national productive system’. For example, Finland was able to maintain strong linkages within and between economic sectors, from R&D through to the production of sophisticated products, taking advantage of linguistic and cultural closeness.27 Further economic integration as entailed by EC membership, he warns, will lead to a disintegration of this internal cohesion, the costs, especially for countries like Finland and Norway,28 likely to be greater than any theoretical gains from economic integration (Andersson, 1990, 1991). Yet the same choices can be interpreted in a less positive light. Kurzer (1991) argues that Sweden and Austria, unlike Belgium and the Netherlands, in achieving full employment by detaching themselves from European integration, in effect free rode monetarily on the actions of the EC-member states. The poor economic performance and high unemployment in Finland and Sweden in the 1990s give credence to the idea that the EFTA countries’ low unemployment during the 1980s was the result of a free ride destined, one way or another, to end. 213

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

Nevertheless, the essential distinction—with its positive and negative connotations—between cohesion based on national values and goals and fragmentation based on conflicting sets of rules at the European level remains: uncertainty and risk, as well as conflict and competition, are avoided at the national level through the formation of stable relationships between actors. In very many policy areas at the EC level, there is not the intimate knowledge that often exists between policy actors at the national level, and neither is there sufficient common interest between them to underpin the development of stable agendas and processes. (Richardson and Mazey, 1992:25) Is this the only choice, or can we anticipate European integration gradually achieving comparable levels of cohesion? This is the question we turn to next. A SOCIAL EUROPE? How much is being given up through integration into the EC and what is being gained in return? Given their traditionally pivotal role in the institutional arrangements in the Nordic corporatist states, it is the trade unions and their political allies that must face this challenge most squarely. On the surface, a healthy measure of corporatism is built into the EC structures: in areas affecting working conditions, or, more generally, relating to the social dimension of the single market, the EC Commission and Council are obliged to consult the Social and Economic Committee, made up of representatives from the community’s trade unions (ETUC) and employers’ organizations (UNICE), as well as consumer groups. Moreover, the Social and Economic Committee is free to submit recommendations on its own initiative (Grahl and Teague, 1990). Yet this ‘social dialogue’ (Gorges, 1992) is a far cry from the structured participation we have seen to take place within the Nordic countries. For one thing, the structures are there only in skeletal form. At last count, ETUC, though increasingly consulted both alone and together with representatives of UNICE, had a secretariat of fewer than ten (MacShane, 1991:361–2). Overall, only 5 per cent of the interest groups organized at the European level represent trade union, consumer, and environmental interests (Richardson and Mazey, 1992:7). Are these limitations merely transitional? It is a truism that since business is increasingly multinational, labour cannot refuse to participate in multi-national corporatist structures. But what can one realistically expect from multinational participation on the part of labour? Gorges (1992:13) notes that the antiinflationary and deregulatory predilections of EC monetary and fiscal policies 214

NORDIC COUNTRIES AND THE EC

leave little to use as a trade-off to reward labour in return for its corporatist cooperation. Streeck and Schmitter (1992), blame the ‘failure of Eurocorporatism’, on the inability of labour, due to differences in language, culture, ideology and specific conditions, to act concertedly at the Eurolevel, and on the lack of interest on the part of business in doing so. It is possible to envisage a convergence of interest between European labour and management in order to compete with their American and Japanese rivals giving rise to European-level corporatism based, in a manner analogous to the Nordic countries, on a social contract, trading off adjustments to enhance competitiveness for guarantees of a ‘social Europe’. But within as diverse an entity as Europe must be, how far could Euro-corporatism really go? One need not delve very far beyond the elites of the Benelux countries and certain others to perceive the flimsiness of Euroculture; it is certainly flimsy when set against the minimal requirements of positive institutional choice set out in Part II, namely corporatist institutional arrangements that at little cost disseminate the shared knowledge of the consequences of alternative choices by individuals and organizations. Understandably, then, once we get beyond the talk, we can see limited progress towards a ‘social Europe’. That progress is real, but only when compared to its virtual absence under the neo-Conservative onslaught of the latter 1970s and early 1980s.29 The progress there has been quite recent. In 1986, Francois Mitterand and his Finance Minister, now EC Commission President, Jacques Delors, called for a ‘social dimension’ to accompany the planned 1992 completion of the Single European Market. This meant going beyond the measures prohibiting discrimination against women that had been enacted in the mid1970s and addressing the general protection of workers and others affected by economic integration. Supported by the social-democratic Spanish government, Delors, whose own roots were Christian Democratic, also found sympathy among Christian Democratic governing parties. The key converts proved to be the German Christian Democrats who were themselves in the process of developing a closer working relationship with the German trade unions on economic and social issues. This left the governing British Conservatives outside the consensus, and they, especially after Margaret Thatcher was removed, were prepared to make some concessions on training and workers’ health and safety. Britain nevertheless refused to sign the 1989 Social Charter, a document setting out workers’ rights on such matters as Sunday work, annual leave, part-time employment, minimum pay, child labour, social security, union membership, and collective bargaining (Lodge, 1990). Without unanimous approval, the charter was adopted only as a non-binding ‘solemn declaration’ (Geyer, 1992a). 215

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

The Delors-led Commission at various points proposed specific directives spelling out maximum working hours, minimum health and safety conditions, and standards of vocational qualifications, under a catch-all clause, Article 235, of the Treaty of Rome. But directives under Article 235 required unanimity, giving the British a veto they often used. A good example was their veto of a 1990 draft directive to require multi-nationals with over 1,000 employees and operating in at least two EC countries to set up a pan-European works council.30 To overcome this situation, Delors and his supporters moved to add a social dimension to the agreement on European Union designed to complement the Single European Market. The Maastricht agreement did indeed add a social chapter to those on monetary and political union, but the cause of a social Europe was advanced in an uncertain and ambiguous manner. Because Britain refused to sign, social matters not covered by the original Treaty of Rome were placed in a separate Protocol to the Accord. These concern primarily working conditions, and measures obliging companies to inform and consult workers. The protocol provides for the Commission to take soundings on whether to submit the matter to the full EC twelve, or to all but the UK. In the latter case, that is when the UK demurs, the 11, in the name of the EC, are bound by qualified (roughly two-thirds) majority, though changes significantly affecting social security and the protection of workers in the case of job loss would require unanimity. ‘“The biggest winner at Maastricht”, says a British official who negotiated the Treaty, “was the European Parliament”’ (The Economist, November 13, 1993:65). The Treaty gives the Parliament a quasi codecision role with the Council over laws affecting the single market and consumer protection as well as areas of health, education, culture, the environment and R&D. Maastricht also provides for EC-wide agreements between trade unions and management to be turned into law by a ministerial vote. However, given the reluctance of UNICE’s representatives in the Social and Economic Council to support the required framework agreements with Labour which would extend provisions from existing agreements to non-unionized large firms, this is not a terribly significant provision.31 This British protocol—like those subsequently negotiated for Denmark— displeased opponents of a two-speed Europe. Yet there are more subtle aspects to this de-facto variability: ratification is not the same thing as implementation. There is a subtle cultural factor at work, linked to the distinction between talk and substance, one that applies to differences in attitudes between northern/ Protestant and southern/Catholic countries. Among the former are the British, the Danish and, perhaps soon-to-be members, their Scandinavian cousins. For them, it is only natural to refuse to sign an agreement like the Social Charter if 216

NORDIC COUNTRIES AND THE EC

they expect difficulties in putting into effect their obligations under it. Their approach differs from that of, say, the Italians, who more often see in such agreements statements of valued goals that, in given specific circumstances, are to be honoured more in the breach than the observance,32 or the French, whose government remained as vociferous as ever on European integration after almost half of French voters turned thumbs down on Maastricht. One observer summed up where this state of affairs left Social Europe very succinctly: An upward approximation of protection and conditions will be achieved…in a number of important areas, beginning with health and safety at work, and measures to enhance mobility…. As for the rest, on the other hand, a simple, statutory regulation of the status quo would seem to be inevitable. A reflexive, bargained application of rules to protect the most disadvantaged in the labour force may well be achievable, although even this will face opposition. Moreover, even if accepted, the problems of enforcement will make the application of directives highly vulnerable to evasion, especially where union powers have been weakened, and where extensive, unregulated labour markets are the norm. Thus, for the foreseeable future, national regulatory systems—based on their varying combinations of law and collective agreements—will prevail, and determine the degree to which any supranational framework can be effective. (Rhodes, 1991:273) I see no reason to question such an assessment. It is clear that the EC cannot be counted upon to take up slack that opens up in national regulatory systems in the context of European integration. In the wake of the collapse of communism, with the immediate practical needs of Eastern Europe constantly pressed upon it, the EC, even an EFTA member-strengthened EC, is not about to embark on a social-democratic mission. As Lange (1992:256) concludes: a social democratic or neocorporatist Europe, redistributing to ‘losers’ as markets become freer, is improbable. More likely is a neopluralist social Europe in which temporary coalitions of interests and governments form around proposals for specific European interventions in the social area, while other social issues are left to national or subnational governments or to the results of collective bargaining.

217

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

It is in the context of such choices that EC membership on the part of the socialdemocratic corporatist states must be evaluated. We shall return to factors that make up this context in the concluding chapter. The first conclusion to be drawn from the above is that Nordic social democrats must learn to clearly distinguish joining a ‘social Europe’ from building the ‘social democratic Europe’.33 Evidently, a social-democratic Europe is especially appealing for a labour party trying to fill the symbolic gap left open as it adjusts to the post-communist world. But appeals to solidarity must be based on something more than abstract ideals. In the Nordic countries such appeals to collective solidarity succeeded in reinforcing redistributive institutions and policies because they were grounded in preserving the national way of life. Socialdemocratic solidarity in the EC is of a different order entirely. It is tempting to associate votes for social-democratic candidates to the EC Parliament with progress towards European social democracy. But the strength of social-democratic institutional arrangements is not a function of the size of the socialist caucus at Strasbourg Parliament. The socialist group is the largest and best organized in the European Parliament. Any Socialist who arrives in Brussels…is instantly provided with a wide and well coordinated brotherly network…. There is a curious affinity between the bureaucratic super-state in Brussels and social-democratic ‘statism’…despite the absence of affective corporatism at the community level. (Klausen, 1991:12–3) But it is such ‘affective corporatism’ and not votes in Strasbourg that we know to make possible the egalitarian outcomes that social democrats seek. Institutional arrangements that allow for such outcomes do not result from good, proletarianinternationalist, intentions. There is a crucial distinction between a small open economy operating within confederal economic arrangements like the EC taking advantage of the economic opportunities created while making practical consensual adjustments, and one displacing fundamental institutional arrangements upward onto federal structures, putting one’s faith in an ephemeral Eurocorporatism. Does that mean the Nordic countries should reject EC membership, as the Swiss appear to have done? The analysis here points rather to an effort to join the EC within limits consistent with the institutional arrangements of the Nordic countries. Such a strategy builds upon the example of Denmark, and, in alignment with the British, negotiates a series of specific exemptions amounting to a de facto two-speed Europe. It begins with a coordinated ‘no’ response to defenders of the true EC 218

NORDIC COUNTRIES AND THE EC

faith who expect the new converts from EFTA to adopt pro-Maastricht orthodoxy as the price of admission. Despite the rhetoric, the failure to push Maastricht through by the end of 1992 as planned made such orthodoxy untenable.34 In reality, negotiating flexible arrangements constitutes nothing more than bringing a dose of practical realism into the European faith. This faith, as the pro-EC The Economist put it, is remote from the diverse reality of the EC as it is and must be. The diversity…is so great that the price of one regime for all will be mediocrity, plus that fatal feeling of coercion. This principle needs to be the starting-point in thinking…[not] heresy against the true faith. The examples of such heresy multiply. The architecture of Maastricht’s union, with its pillar for foreign and judicial policy outside the Community, is one. The Schengen passport-free zone is another. The decision to…create social law without Britain, is a fourth. The Franco-German Corps is a stab at another. …Is it credible to imagine Turkey…having full freedom of movement of people within Europe, let alone providing the external frontier of a passport-free zone? Is it sensible…to make one agricultural regime embrace arctic herdsmen and the struggling banana plantations of Crete?…The basis of Community membership could be the single market and its obligations, which would… include a single trade and economicsanctions policy. Beyond that there would be different realms of joint policy—monetary, social, home affairs, foreign affairs and defense, and immigration for which there would be entry criteria. Members would not merely have the right to opt out of them, they could be kept out of them. (Colchester, 1992:30) Within this ‘heretical’ Europe, there is room for the kinds of societies that the Nordic peoples have created, but not within a federal Europe which displaces the most fundamental of institutional arrangements.35 This is a distinction of vital concern to the people of small, relatively homogenous countries. The French or Germans can blur it by conceiving their attachment to a greater Europe as, in effect, the same thing as their attachment to France or Germany. And it is far less a priority for the people of the poorer member countries where transfers and not trade-offs are the main item on the agenda.36 For Sweden, Finland, Denmark, Norway, and, possibly, Austria, membership in a ‘United States of Europe’ could very well undermine the institutional arrangements identified in this book as fundamental to egalitarian outcomes. Changes of this kind are, after a certain point, irreversible: once culturally based expectations of organizations and individuals are altered, they cannot readily be restored. Eastern Europe effectively rejected social democracy in good part 219

PROSPECTS FOR NORDIC SOCIAL DEMOCRACY

because the institutional arrangements of social democracy could not be grown on soil contaminated by state socialism.37 If European integration is an irreversible process at the end of which is a United States of Europe, then the Nordic countries must stay out as long as possible if they wish to maintain their institutional arrangements and egalitarian outcomes. Yet just as the internal developments described in Chapters 9 and 10 were seen as not necessarily destructive to Nordic institutional arrangements, the same is true of external developments. Choices are constrained, indeed, but real ones remain that need not sacrifice continued realization of the practical objectives of Nordic social democrats for the unrealizable ideal of a social-democratic Europe.

220

CONCLUSION

In Part III we explored the internal and external forces threatening to undermine the institutional arrangements of Nordic social democracy. We concluded that while the threat was real, its demise was not inevitable: there was still space for choices that accommodated the new realities yet left intact the fundamental institutions and, therefore, achievements of Nordic social democracy. But the fact that choices exist does not mean that they will be made. Part I of this book developed a theoretical framework for analysing the constraints on rational choices resulting in distributive justice. The pivotal problem was seen to lie not in human nature but in the opportunities and incentives to free-ride built into institutional arrangements, and especially those concerned with knowledge dissemination. Part I I examined the operations of Nordic institutional arrangements, identifying those which, by making free-riding less attractive and reducing the cost of informed participation, resulted in aggregate individual and organizational choices compatible with (relatively) egalitarian outcomes. This last part surveyed developments in the difficult 1990s leading to a questioning—though not necessarily a rejection—of the guiding corporatist principles of social-democratic institutional arrangements. A further threat to these arrangements in the Nordic countries was identified in the form of Eurofederalism. The threat could be averted, it was suggested, through ‘secondtier’ EC membership in which the requisite degree of institutional autonomy would be maintained. Are these hopes realistic? In this concluding chapter we focus on the choices facing the key players, the corporations and the trade unions and their political allies. We have seen how Swedish employers, who in the late 1980s embraced a borderless Europe as the antidote to a corporatism they rejected as the source of all evils, were quite prepared to fall back on Swedish corporatist arrangements to deal with fiscal crisis in Autumn 1992. How much credence are we to give to the employers’ anti-corporatist stance? We know that, as a result of their investments in Europe and elsewhere, many Swedish and other Nordic corporations became more multinational in the 1980s. A necessary response was for labour to seek to meet employers on their own, European, terrain by forming international groupings. But this, it has been argued, should not be taken as an adequate response; for such structures are ill-suited to achieving the outcomes attained through corporatist arrangements at the national level, arrangements which labour abandons at its peril. 221

SOCIAL DEMOCRACY AND RATIONAL CHOICE

Overall, these corporatist arrangements were found not to have changed radically within the Nordic countries, despite all the talk. While attitudes towards economic institutions have evolved considerably in recent years, due largely to the demise of state socialism and the increased stress on international competitiveness, cultural institutions, including those concerned with adult education and knowledge dissemination generally, have not been fundamentally transformed. A greater measure of choice has been introduced into welfare state services, but, by and large, the fundamental principles of Fördelningspolitik remain operative. Finally, though there has been some talk of constitutional reform in Sweden, political structures within the Nordic nations remain intact. But, if institutions have proven resilient, policies have not. On the economic policy front, there have been two fundamental changes in light of recent developments. First, full employment, as especially Sweden has known it, cannot be restored in the foreseeable future. Secondly, additional constraints are being placed on the mechanisms available to transfer wealth: new means of redistribution will have to be found in the context of a post-full-employment society. Adjustment to this new reality will be especially difficult for the Swedish labour movement, for whom redistribution through jobs has been an unwavering creed. Swedish workers remained aloof as their Danish confreres adjusted from a full-employment to a high-employment society at the end of the 1970s as Denmark ceased using devaluation as a macro-economic policy instrument. Some labour leaders will privately admit that the economic problems encountered by Sweden in the 1990s would have been less acute if the Danish example had been followed a little more closely—even if it meant unemployment at, say, 3.5 per cent rather than below 2 per cent. They know that, for the foreseeable future, a realistic target figure is something like 6 per cent. But these facts have yet to be fully and publicly acknowledged. The argument in this book has centred on the capacity of people to make rational choices to sustain institutional arrangements leading to optimal outcomes—if they have the knowledge of alternative institutional choices and their likely outcomes. Can the members of Swedish trade unions be expected to understand the implications of the alternatives confronting their leaders in this new context? Danish experience is not conclusive in this regard. The profound ambivalence of the Danes towards EC membership, especially among traditional socialdemocratic supporters, can be traced to unhealed wounds from the process of adjusting to higher unemployment in the 1980s. As far as transfers are concerned, the unavailability of certain traditional sources of revenue will put existing institutional arrangements to the test. Here Denmark is just now beginning to adjust. With the Single European Market in place, it has been forced to bring its VAT down to the 15 per cent range. A 1989 222

CONCLUSION

estimate by the Danish government set at 5.5 per cent of GDP the shortfall caused by bringing VAT and excise taxes down to EC standards, though more recent calculations arrive at a somewhat lower figure (Hansen, 1992:155). The shortfall will mean higher income and other direct taxes, as well as increased charges on employers and employees which have traditionally been very low. While the lower VAT will reduce the cost of commodities and the pressure to resort to cross-border shopping,1 the replacement taxes will increase production costs and induce business to invest abroad even more, setting further constraints on the government’s ability to tax, and thus increasing the pressure to bring expenditure levels down to the European average. How Denmark and the other Nordic countries cope with such pressures will depend on the resilience of the institutional arrangements here described. It will reflect the choices of individuals as consumers, workers, and voters, but, most importantly, as members of key encompassing organizations. As taxpayers, will they be willing to continue contributing 50 per cent of their income to pay for the services they receive; or will they seek to move themselves and their livelihoods to lower-tax, (and more poorly served) neighbouring countries? Based on the analysis here, that choice comes down to a desire to (support disincentives against free-riding in order to) maintain institutional arrangements secure in the knowledge that the arrangements are functioning as expected, that state revenue is efficiently spent. Such knowledge, in turn, comes from access to reliable information about public expenditure and the benefits and costs of alternative arrangements and policies.2 If Nordic citizens continue to be persuaded that the money and effort is thus well spent, their efforts to gain wider choice in services and service delivery need not threaten Fördelningspolitik. THE CHALLENGE TO THE LABOUR MOVEM ENT Adjusting to the new economic context while maintaining fundamental corporatist institutional arrangements requires, first, a flexible but nevertheless strong, cohesive, and influential labour movement. But how will the labour movement be able to maintain its strength and unity as it must compromise its cherished principles, coming to terms with higher unemployment and more costly or reduced services? It will require workers choosing to support the very trade union organizations they see becoming less effective in delivering traditional economic rewards. Clearly, the institutional arrangements of social democracy— and the analysis set out above—will be put to a severe test. Will labour leaders be able to stay the course and resist pressures to limit their public stance to articulating the frustrations caused by worsening economic conditions? It will depend on the attitude of the members, on whether they are sufficiently informed 223

SOCIAL DEMOCRACY AND RATIONAL CHOICE

of the stakes of excluding themselves from trade-offs that, at the least, allow for more fairly spreading the pains of short-term adjustment. In the absence of such informed choices on the part of the Labour, the erosion of Nordic socialdemocratic institutions becomes inevitable. From what we have seen, we can be reasonably confident that, left to themselves, Nordic trade unionists would not permit such an erosion. But integration into an integrating Europe means that they are not being left to themselves. And ignoring EC-level structures of participation is no bulwark against the effects of such integration. Regulations at the European level are needed to serve as instruments of negative institutional choice restraining ‘social dumping’, that is the tendency of employers to take advantage of lax national labour or environmental standards. Only strong, cohesive national labour movements will be in a position to ensure that appropriate pressure is placed in Brussels. But labour representatives must be able to distinguish such negative institutional choices from the positive ones they pursue at home, to prevent EClevel structures from undermining the workings of corporatist institutions at the national level by circumventing national corporatist arrangements. Despite their newfound status in Brussels, Strasbourg, Frankfurt, and Luxembourg, labour representatives must remain deaf to the siren-song of Eurocorporatism. The Swedish LO made its endorsement of European integration conditional upon the guarantee of continuity in active labour-market, environmental, and social policies. It foresaw that Swedish government policies in R&D, education and training, regional development, and transport—as well as the protection of workers and union rights—would not be secure in an integrated Europe. For LO, the danger lay not in EC membership, but rather in the uncontrolled foreign investment in which Swedish firms were actively engaged during the 1980s. LO hoped through participation in the EC to restrain these firms from acting like homeless multinational corporations availing themselves of the opportunity to operate free of the constraints imposed by a corporatist relationship with labour. In reality, business cannot ignore the position of labour in its calculations. When labour is strong and cohesive but also willing to compromise, the game can take the form of an IPD in which business gains from supporting structures that constrain its individual members from withdrawing from corporatist arrangements. By strengthening the anti-social dumping capacity of EC institutions, labour reduces the pay-off from defection from national corporatist arrangements. Under such circumstances, even if reluctant to say so publicly, business in the Nordic countries will continue to make concrete choices that seek to take advantage of the benefits of corporatism. Being able to count on a relatively stable labour market, a skilled, mobile, and, at the upper levels, less expensive, labour force, business has good reason to invest in domestic high-tech industries. 224

CONCLUSION

Once the European-integration steamroller slows down—as it began to do in 1993—these considerations come to the forefront, and the advantages of corporatist accommodation based on a realistic assessment of long-term costs and benefits returns to the realm of legitimate public discourse. Moreover, to put the matter in such purely ‘bottom-line’ terms is to distort the element of community solidarity. Finnish, Norwegian and even Swedish companies give added weight to investment at home over investments abroad. This is not so much a manifestation of patriotism, as a reflection of an understanding that their comparative advantage lies, in part, in their structural links and cultural-linguistic sensitivity to what J-O Andersson (see Chapter 11) calls the ‘national productive system’. THE MULTINATIONALIZATION OF BUSINESS The above analysis presumes the big corporations to still be fundamentally national ones and not yet the homeless multinationals evoked by the LO. Change has been gradual. As the proportion of its investments abroad increases, a corporation’s fate is loosened from the domestic economy: it can do well while the host economy does poorly and vice versa. As it gains the capacity to avail itself of ‘exit’, as well as ‘voice’, its economic incentive to sacrifice some of its autonomy to a state organ or even a national employers’ organization is reduced: Sweden may need Volvo and Saab, but will Volvo or Saab-GM continue to need Sweden? Multinationalization creates a greater diversity of interest on the employers’ side, thereby increasing the difficulty of forming stable coalitions among employers and undermining the authority of their central organizations… making it difficult to maintain the kind of long-term working relationships between capital and labour which have typified the corporatist economies until now. (Pekkarinen et al, 1992:17) Andersson (1992) is rightly pessimistic about the future of the national productive systems: The drive towards specialization according to international niches reduces the coherence of the national productive systems, as forward and backward linkages become more international. The old basis for a close national cooperation between the different capitalist interests has been eroded. (Andersson, 1992) 225

SOCIAL DEMOCRACY AND RATIONAL CHOICE

But there is another side to the process. We noted at the end of Chapter 9 that, sensitive to developments in Sweden, ABB and its Swedish employees had agreed to abolish distinctions between blue and white collar, and supervisory and production work. ABB is the quintessential Swedish multinational, formed when ASEA merged with the Swiss-based Brown Boveri, the beacon for Swedish manufacturing’s rendezvous with Europe in the new international environment liberating firms from the constraints of state regulations. Yet there is something very Scandinavian in ABB’s CEO, Percy Barnevik’s, approach. Barnevik has repeatedly insisted that ABB is not a multinational, but rather the corporate equivalent of a confederation of national firms, operating within and taking advantage of the strengths of national institutional arrangements. We should be wary of strategic interests behind a proclamation that multinationalization is irreversible. It was noted in Chapter 9 that a number of immediate developments and specific policy choices in the 1970s and 1980s influenced Swedish businesses attitude towards corporatist arrangements.3 It served business’s immediate political purposes to exaggerate its characterization of the EC as a haven from overregulated corporatist institutions back home. The reality facing the large Scandinavian firms is, however, far more complex, both because the Nordic countries themselves deregulated significantly in the 1980s and because Europe is not without complex regulations of its own. Indeed, bureaucratic regulations can result from the absence of a structured relationship among corporate actors, as well as its presence. Mosley (1989) points out that the Nordic countries do not place as many and as severe regulatory constraints upon employers over the length and nature of employment contracts as do certain other European nations. Denmark and Finland are among those who place the least constrains on regular, fixed-term, or temporary employment contracts; Norway is at about the European average. Only Sweden falls among the more restrictive; but even it does not fall among the six most restrictive.4 Thus Nordic employers can expect to find their labour markets as regulated under Brussels as they were under Stockholm, Oslo and Helsinki—only the regulators will be further from them not only in location, but in culture, language and expectations. In general, the tide carrying employers away from national corporatist relationships has somewhat subsided as, buffeted by the economic crisis, they are again seeing compensating value in the national corporatist institutions. Worst hit of all, Finnish business came quickly to the realization that a severe economic crisis was no time to undermine the foundations of structured cooperation; while Norwegian employers, least affected by the crisis, did not develop their counterparts’ disdain for corporatist institutions. 226

CONCLUSION

THE LIMITS OF EUROPHORIA: THE DANISH EXPERIENCE We have stressed throughout this book that the rational individual tries to reconcile her interests with those of the wider community, where such a reconciliation is complemented by institutional arrangements. To imagine that the multinational corporation has broken free of the link to the national community is to accept that individuals acting in its name have become members of some other, wider community. But such a community is nowhere to be found. We know that relatively few people seek employment in EC member states other than their own (The Economist, March 27, 1993, Survey p. 7); and when they do, satellite broadcasting allows them to remain culturally in their home community. While the EC has made some effort to promote unified European cultural programmes, this has been done mainly for ‘negative’ purposes, that is to provide a bulwark against American cultural products. Rules inhibiting national cultural development programmes have been coolly received, especially by the Danes. A 1989 study conducted for the Danish Ministry of Culture into their effects called for an amendment to the Treaty of Rome which would ‘once and for all’ put an end to the various Commission rules regulating culture in the member states (Dueland, 1992). But the impact of these programmes has been relatively weak, limited by the structure of the communications media. Overall, national and not Euro-level broadcasting remains the rule. Danish resistance to Eurowide broadcasting is not an expression of cultural snobbery, but rather of a concern with democratic participation. The Danes take easy access to politicians and public media for granted. Such access accounts for the high level of knowledge manifested in the public discussion of the Maastricht Accord. Out of the discussion following its initial rejection came the conditions (discussed in Chapter 11) under which Denmark would reconsider the Accord. These constituted a reasonable compromise designed to allow Maastricht to proceed but only on the understanding that Denmark remained a sovereign and distinct nation voluntarily participating in a wider, primarily economic, confederation. Throughout its evolution as a modern state, Denmark has remained faithful to a certain national solidarity. This solidarity has been the basis of, not an obstacle to, a different kind of solidarity with people elsewhere, especially in developing countries.5 Two decades of EC membership did not alter this fundamental reality. Danes remain Danes before anything else, 6 and are Scandinavian before they are European. They have thereby adjusted to those 227

SOCIAL DEMOCRACY AND RATIONAL CHOICE

EC rules seen as in the long-term rational interest of all the members, while still (capable of) maintaining the national solidarity to fairly distribute the benefits and compensate for the losses thus entailed. In this sense, they made positive institutional choices in joining the EC in 1972 and adhering to the single market in 1986. The many Danes who voted ‘yes’ in 1986 but balked at Maastricht expressed the fear that the Accord carried the seeds of a United States of Europe and thus threatened to dissolve the cement holding together their institutional structures (see Pedersen, 1991). Let us briefly consider the basis for that fear. Andersen and Kjaer (1992) describe the ‘negotiated economy’ as it has developed in Denmark, as one in which firms are integrated into ‘communities of communication’ around shared notions of socioeconomic responsibility, rationally choosing to support such arrangements as technological service institutions, industrial parks, networks of various kinds, and specialized educational and training institutions. Narrow short-term interests are thus placed second to the wider (often national) long-term objective attained by putting into operation elements of a desired industrial structure. It is these intangible but real networks that Eurofederalism is perceived to undermine. Overall, Denmark is in most ways the least centralized and formalized of the Nordic corporatist welfare states, its industrial policies elaborated and implemented relatively informally.7 It is their very intangible quality that makes Danish institutional arrangements especially vulnerable. When institutions rest on more informal links,8 symbolic threats take on a special significance. Nordic social democracies face the challenge of preserving the benefits of informal corporatism within the confines of a European union. They need to retain the capacity to smooth out the inequalities by cooperatively adjusting to an integrating market. But integration is placing greater constraints upon the traditional informal mechanisms.9 Pekkarinen, Pohjola and Rowthorn (1992) affirm that it is the state that will have to take up the slack left by weakening encompassing national organizations, pointing to what we have seen to occur in Denmark, Norway, and, somewhat, in Finland, namely that government stepped in to replace, reinforce or supplement private centralized bargaining. But will an integrating EC leave its member states strong enough to carry out this responsibility? In the earlier phase, mainly through the workings of GATT and the EC/ EFTA agreements, trade liberalization went hand in hand with the development of the welfare state, with the Nordic countries going furthest in providing a network of services to shelter the losers of the economic adjustments. But 228

CONCLUSION

many, especially those with an ecological bent, (e.g. Daly and Cobb, 1989) argue that the virtuous circle has been replaced by a zero sum. Economic internationalization has reached the point of reducing the capacity of the states to govern, just as the need for governability is increased. For Norwegian economist Fritz Holte (Andersson, 1992), as the capacity to govern decreases, this process undermines the ‘moral community’ of mutual concern, trust and shared hopes. Yet the Danes were reassured enough to accept Maastricht in the end. Though European integration entails a diminution of fiscal and monetary policy autonomy, it need not compromise fundamental principles of distributive justice— but only as long as a clearly understood distinction is drawn between adjusting to externally imposed rules and submerging one’s identity to a wider external reality. There is reason to believe that the Danes have so far been able to make this distinction stick, adjusting to integration without being submerged by it. It was the right-centre coalition of Poul Schluter that negotiated Denmark’s exceptionalism with regard to Maastricht, but it was the left whose votes counted. For the Social Democrats and Socialist People’s Party, there was, in the end, less danger in obstruction than in ratification. But no one confused such wary compromise with Europhoria—not even Danish business, which has never been blindly pro-EC. Very few Danish corporations are large enough to aspire to multi-national status, and their representatives have long years of firsthand experience in Brussels’ corridors of power.10 As a result, they are more likely to see that which their Swedish counterparts see as liberation from bureaucratic meddling as substituting bureaucrats from Copenhagen with others from Brussels. Danish employers have been in good position to realistically weigh the efficiency gains derived from removing restraints that have enabled cartels and monopolies to keep costs high, against the positive effects of corporatist arrangements enhancing the technological and human-resource capabilities of the negotiated economy. In Sweden, huge export-oriented manufacturers took the lead in eschewing the national arena for the wider European one and the unions followed their employers’ example, taking a pan-European perspective in evoking labour solidarity. But the more profound instincts of Swedish business, like those of its trade unionists, have not yet been Europeanized. Faced with monetary crisis, they could not elude their responsibilities for the welfare of their people and fail to heed the call to participate in structures of concertation. Nor could they fail to see the changing political climate as the first generation since the 1930s arrived 229

SOCIAL DEMOCRACY AND RATIONAL CHOICE

on the labour market with no jobs awaiting them. Persistent high unemployment throughout Europe tarnished the image of the EC as an escape hatch out of regulated Sweden, just as full employment under the Social Democrats was coming to be fondly remembered. PRESERVING THE ESSENTIALS Underlying changing attitudes is an awareness similar to that at the base of the Danish reluctance to ratify the Maastricht Accord, namely that European integration does not present a propitious institutional setting for corporatist arrangements and their redistributive outcomes. The scepticism in the Nordic countries with regard to the promise of Eurocorporatism is indeed healthy: the political structures of the EC cannot replace those of the national community. It is very well to speak, as some social democrats do, of a ‘democratic deficit’ to be rectified by transferring powers to the Strasbourg Parliament from the EC Council and Commission. But such a deficit is an abstraction: to conceive of a Parliament accountable to the ‘people of Europe’ there must first be a European people. And even if such an entity were to exist, its size alone would disqualify it for exacting real accountability from its political leaders.11 Most business leaders favouring EC membership have quite limited objectives, namely of overcoming inefficiencies built into Nordic corporatist trade-offs. Their vision is an obstacle—but not a threat—to the wary approach to EC membership favoured here. More menacing are Eurofederalist intellectuals who seek European Union in its political sense. As far as the Nordic countries are concerned, our analysis here leads us to oppose political union. Participation in economic confederations is useful essentially for what have been termed negative reasons. It provides external constraints to stand up to internal pressures to act irresponsibly. If we seek significantly more from our institutions than this—as we have throughout this book—then we must look primarily to those at the national-community level, where genuine, profoundly informed solidarity is possible and practicable, especially in the smaller, more homogenous countries. The fundamental locus of institutional choices must not be displaced towards Brussels or even Strasbourg—especially where the crucial dimension of culture and knowledge is concerned. It must remain firmly in Stockholm, Oslo, Helsinki and Copenhagen. Just as over twenty years of EC membership has not fundamentally altered Danish institutional arrangements, so adapting to the internal and external pressures need not undermine those of the Nordic countries in the next twenty

230

CONCLUSION

years—as long as they remain clearsighted on where to direct their institutional choices. As one foreign observer put it about Finland, the idea of ‘being a Finn’ has such clarity and such appeal…. The myths that support the Finnish national identity are…much stronger and more durable than the fairy stories about European Unity that usually turn out anyway to have been propagated by the French for their own strictly national purposes. (Stuart, 1992:44) The same can be said for Norway, Sweden and Denmark.12 Even with their countries as full-fledged members, Scandinavian social democrats will be able to push the EC only marginally in the direction of a social Europe. To keep their vision alive and flourishing, they will have to turn more, not less, inwards to their own institutions and values, ever vigilant to preserve the space to act—especially in communications and cultural policy—in a distinctly Nordic way. Indeed, membership may spur them on in this direction: The idea of a Nordic Model, harkening back to the imagined Golden Age of welfare state security and economic prosperity might serve as a defense for the…Nordic countries. Efforts at EC integration and the development of an EMU may provoke a regional search for identity…in response to increased emphasis on market mechanisms…in [which] the Nordic area enjoys…the advantages of a language community…. [Ironically] a Nordic identity may emerge…in response to the pressures of EC integration…within the EC. (Mjöset, 1992:670–1) In the past, the peoples of the Nordic countries made wise institutional choices. The outcome was the best combination of democracy, efficiency and equality yet known. These accomplishments are threatened by unprecedented internal and external pressures, mainly economic but also political and intellectual. These will entail changes, sometimes minor, sometimes wide-ranging, changes for which the old ideologies underlying official programmes are of little relevance. But there is still a guidestick to be used. It is provided by the lessons derived from the logic of institutional choices of the recent past—where and how they have succeeded and where not. In this book we have attempted to articulate some of these lessons by drawing on a theoretical arsenal derived from rational 231

SOCIAL DEMOCRACY AND RATIONAL CHOICE

choice and game theory, to which we have added a crucial knowledge dimension. Only experience will teach us whether the paths thereby carved out lead in the desired direction—towards consolidating the institutional arrangements of social democracy and, someday, extending them to bring even greater equality and social justice. Whatever the outcome, the effort is surely justified.

232

NOTES

INTRODUCTION 1 Heclo and Madsen (1987:23) portray Swedish social democracy in this century as hegemonic—playing the tune to which almost everyone dances. Much the same can be said for Norway. A good initial definition of social democracy is provided by Moene and Wallerstein (1992:3):

In political terms, social democracy represents the building of workers’ power through strong unions. The unions represent workers directly visa-vis employers and exert a strong influence over the party,…the dominant actor in parliament. Institutionally, social democracy is distinguished by a large welfare state, encompassing and centralized trade unions and a system of routinized consultation and cooperation between government, union and employer representatives that has been given the label of ‘corporatism’. In terms of policy, social democracy in Northern Europe is characterized by a commitment to wage levelling through solidaristic bargaining, the provision of basic goods and services to all as a right of citizenship, and full employment as the primary objective of macroeconomic policy. 2 We shall refer to the people of the Nordic countries as Scandinavian, since the adjective ‘Nordic’ has a wider meaning. Such terminology legitimately applies to Finland, though the Finnish language is not a Scandinavian language. The formally equal position of the Swedish language (though the Swedish Finns make up only 6 per cent of the population), plus the importance of the cultural legacy of five centuries of Finland’s being part of Sweden, make Finns, as someone put it, ‘Scandinavian by choice’. 3 The Economist continues, ‘throughout the 1980’s, the key writers, thinkers and journalists of the left were conspicuously absent from important seminars on public choice, on government overload, on rational expectations. They fought shy of numbers. And they are now paying the price’ (17 June 1989:105). ‘Public choice’, the application of the rational-choice model underlying mainstream economics to the study of political institutions, is discussed in Chapter 2. Our approach is also to build on rationalchoice foundations, but in a more positive manner, in an effort to transcend public choice’s close association with neoconservative political economy. In this, we part company with The Economist, which remains nonetheless the best current source of data relevant to comparative political economy.

233

NOTES 4 Proletarian altruists may choose to ‘free-ride’ by deciding to leave the revolution to comrades in order to look after an elderly relative (Mclean, 1987:66; see also Olson, 1965:105). 5 During its twenty-year existence, the committee’s only concrete suggestion in the area of manufacturing was for the nationalization of one shoe factory, a recommendation rejected by the party. The committee’s final report, written in 1941, stressed the futility of ignoring the exigencies of the market: whatever the form of ownership, prices for all the factors of production, including labour, had to cover costs. That meant that publicly owned industries would be subject to essentially the same market constraints in pricing, hiring and firing, allocating staff, etc., as privately owned firms. 6 We know from recent experience in various countries that the label Social-democratic’ means little in the way of policy differences. Parties of various hues (including Portuguese conservatives) call themselves social-democratic nowadays. 7 Among the alternative paradigms potentially available to fill the theoretical vacuum in this fertile middle ground are ‘evolutionary’ economics, ‘new institutional’ economics, and ‘socioeconomics’. 8 We leave out Iceland, though in certain ways, especially with its respect to the emphasis on written and de-emphasis on electronic communication, it is the most Scandinavian country of them all. We leave it out because its very small size, remote location and virtual dependency on fishing necessarily set it apart. 9 The usual measure of aggregate wealth, per capita GNP standardized for purchasing power, has well-known, built-in distortions. A country that pollutes and wastes and then spends to dispose of one-way containers is classed as richer than one which recycles. A people that produce sophisticated guns and pay to protect themselves from those guns is richer than one that doesn’t. 10 As we shall see in Part III, universal accessibility is far from problem free. Scandinavians are demanding greater choice when it comes to services, especially in education and health care (Rothstein: 1992); and they are on the lookout for better paying jobs to win more disposable income as well as more fulfilling working environments. But to improve their own lives, to protect their families’ standard of living, institutional arrangements are such that they do not, as a general rule, have to choose their own well-being over that of others. 11 The greater diversity of the US and the fact that certain racial and ethnic groups are seen to especially benefit from certain social transfers is often argued to constitute an obstacle to Nordic-type welfare state policies. 12 In essence, this means that there is a single sustainable equilibrium position corresponding to the most efficient realization of individual wants; any other position would be inefficient, and therefore, unsustainable. We know that this is unrealistic; but many economists subscribe to an instrumentalist position associated with Milton Friedman which is interested only in prediction, and not, therefore, in the plausibility of the assumptions about individual tastes and preferences. This theoretical position has undergone some revision in recent years as imperfect information in labour, capital and certain product markets has been incorporated into rational-choice theory with the result that multiple sustainable equilibria are assumed to be possible (Stiglitz, 1987). Only such a conceptualization can incorporate the kind of comparative institutional analysis here undertaken. 13 Figure 0.3 may give the reader the impression that the overall population has declined from that in Figure 0.2. That is not what is intended. 14 The Economist, 16 November 1991: Survey 17–19. 234

NOTES 15 Free-riding is action in violation of societal rules of behaviour, rational under circumstances in which I can assume that others in my situation still act socially responsibly. A good example of how free-riding alters the equation is provided by Goodin (1988:329). As noted in Chapter 10, the housing market in Norway was tightly controlled until quite recently. This allowed prices in Oslo to be kept down, and people were satisfied. But in the 1970s oil and rapid growth left a great deal of money in consumers’ hands. A black market in ‘side payments’ for housing developed. ‘People…played the game…Yet they were morally indignant’. 16 ‘The more time the citizen spends studying public affairs, the greater the likelihood his or her vote will be cast in favour of rational policies…The gain to a voter from studying public issues…is the value to that one individual of the ‘right’ election outcome multiplied by the [minuscule] probability that this one individual’s vote will change the outcome of the election’ (Olson, 1990:45). 17 We rely especially on the findings of the OECD which has, over the past generation, reported favourably on the economic performance of the Nordic countries more often than not.

1

THE POLITICAL ECONOMY OF DISTRIBUTIVE JUSTICE

1 Not every choice can readily be put in terms of political economy. Institutions regulating abortion are an exception that immediately comes to mind since there is no agreement on whether considerations of welfare are to be applied to the foetus. 2 For brevity, ‘he and she’ will henceforth be replaced by ‘she’—except where inappropriate, such as where the referent is ‘man’; in such a case, ‘he’ is used. 3 On this logic, most economists support progressive income taxes, preferring ‘to prevent avoidable suffering rather than to create opportunities for further self indulgence’ (Mishan, 1974:365). Arneson extends this idea to the principle of

egalitarian welfarism…. Egalitarianism means giving more weight to securing more gains and avoiding losses for the worse-off. Welfarism means taking rational self-interested preference satisfaction as the measure of the good life for individuals…. The worse off in welfare a person is, the greater the moral value of improving that person’s welfare by a single unit. (Arneson, 1990:1128) 4 Similarly, Scharpf (1990) argues that individuals in different game relationships to each other are all embedded in a sequence of ‘truth games’, on which they know that their reputations for telling the truth and keeping commitments will be based. 5 ‘Economics truly became the science that studies the relationship between given ends and given scarce means that have alternative uses’ (Blaug, 1968:299–300). This change has been termed the ‘marginal revolution’. 6 The principle of minimum practicable inequality can be compared to Rawls’ second principle in its original formulation: that any special advantage enjoyed by some must be shown to work in the interests of all (Rawls, 1971:60). Adoption of the two combined principles set out here would achieve outcomes prescribed by Rawls in his final formulation of the second principle: that social and economic inequalities are justified

235

NOTES only if they are to the greatest benefit of the least advantaged members of the society (Rawls, 1971:302; see also McClennen, 1990). 7 Even this is an oversimplification, for making such an assumption depends on whether the programmes chosen target those involuntarily deprived.

[When] competent individuals…act imprudently…[or] choose to sacrifice their own welfare…it is implausible to hold society responsible for rectifying the welfare loss to the individual…. Hence egalitarianism is best construed as holding societies as responsible for providing appropriate opportunities for welfare to individuals. (Arneson, 1990:1128) 8

We should not be surprised to learn that the relationship between labour-market wage dispersion and state transfers is more positive than negative, that is, that nations that have relatively egalitarian wage dispersion rates also redistribute more through taxes and transfers (Smolensky et al, 1979:75). 9 Thus, in Figure 0.2 in the Introduction, Denmark’s distribution is portrayed by curve A and that of the US by curve B. It should be noted that Gini coefficients measure not wealth dispersal, but rather income dispersal. This is the method commonly used not only because comparative income data is more readily available, but also because equality in everyday life is mainly a reflection of what is actually or potentially used for immediate consumption, for which income serves as a better guide than wealth. There seems to be little reason, however, to expect that comparative wealth dispersion figures would show significantly different results. Despite assertions to the contrary, those studies that have attempted to compare wealth distribution, found, for example, that the top 1 and 5 per cent had the lowest percentage of overall wealth in Sweden among the industrial nations studied, with the US somewhere in the middle, below the UK (Pålsson, 1990). It appears that since the 1970s when these estimates were taken, the UK has come down to the American level (Wolff, 1991). 10 Since Sweden includes all full-time students aged 18–24 in this category, rather than only those living separately from their parents as is calculated elsewhere, the Swedish poverty rate actually falls to 4.2 per cent if students living with their parents are excluded (Smeeding and Schmaus, 1990:7). 11 ‘Tullock’s (1971) claim that benefits go disproportionately to the middle class may be more true of the middle class [in the US] than elsewhere’ (Barr, 1992:756). As far as the US is concerned, that disproportionality reaches the wealthy as well. Time (‘Welfare for the Well-off’, February 22, 1993) reports that the richest 4 per cent of American households collect more than 8 per cent of retirement benefits and one-third of tax subsidies for home ownership.

2 THE USES OF RATIONAL CHOICE 1 There is, in fact, a small group of theorists who refer to themselves as ‘rational-choice Marxists’ (see, e.g. Carling, 1990); and rational-choice thinking is central to the recent work of, for example, John Roemer (1992), who still regards himself as a socialist. 2 Rationality means using the best means to realize your ends. Now, let us suppose someone says, ‘I am irrational’, and points to the fact that he consciously and deliberately does not choose the best means to realize his ends. Well, that kind of reaction would make me question if that indeed is his end. Because it seems to me 236

NOTES that the central evidence for imputing ends to other people is their actions. And if they choose means that are not conducive to a given end, that’s the best evidence to think that they don’t have that end. So it’s not as if we had a choice, as it were. We have to assume that people are rational in order to impute ends and goals to them.

(Elster, in Swedberg, 1990:242; see also Elster, 1989; Wittman, 1990) 3 Psychoanalysts, including neosocialists in the tradition of Erich Fromm, recognize this by insisting that patients pay at least a part of the fee as an investment in their own recovery. 4 Rehn’s influence on the new SAP government of the 1980s waned considerably. Both he and Meidner warned of developments that could undermine the logic underlying the central policy orientations necessary to the application of their model. They were critical of the SAP for its ‘third way’ policies which resorted to macrostimulation— especially currency devaluations—rather than selective policies. More profoundly, with the removal of all restrictions on the movement of capital out of Sweden in response to the deregulation of the international capital market, they have had to question the future applicability of the model. Meidner especially deplored this deregulation, going so far as to oppose membership in the EC because it moves Sweden further down this path. Rehn seems to be sympathetic to the choices facing policy makers under the imposed constraints. Despite his disagreements with the macroeconomic thrust of the ‘third way’, Rehn was not unsympathetic to the efforts in the Ministry of Finance under K.-O.Feldt and Klas Eklund (see Chapter 9) to bring considerations of efficiency into the SAP’s approach to public administration. 5 Rehn earned the respect of the international community of economists, but his theories carry little sway. He proved unsuccessful at getting leading economists to incorporate his fundamental notion of ‘non-inflationary expansion policies’, through the use of selective incentives through taxes and programme spending to both encourage more employment and keep down costs (e.g. Rehn, 1980). The reason for his lack of influence, I suspect, lies in the fact that this work fell into the crack that divided the separate realms of macroeconomics and microeconomics until the latter 1980s. Since Keynes, the causes and possible cures for inflation and unemployment had been handed to macroeconomics. By building a theory proposing microeconomic responses to (what the academy defined as) macroeconomic questions, Rehn found himself honoured, but little heeded. 6 In this writers’ experience, economists in the Finnish trade union movement have been especially influenced by the practical approach of Rehn as well as the neocorporatist (see Chapter 7) understanding of the workings of institutional arrangements. A good example is to be found in the work of Jukka Pekkarinen and his colleagues at the Finnish Labour Institute for Economic Research. 7 Certain autocratic and theocratic regimes do this as a matter of course to justify oppression of women and minorities. Rational choice, it is true, opposes such oppression in the name of aggregate utility. It is more appealing to denounce oppression in the name of a grand principle, such as inalienable rights. But by introducing absolute standards, such humanitarian idealism in effect legitimizes theocratic idealism. Denouncing the illtreatment of women, say, in the name of inherent (God-given) rights, invites a parallel defence of such practices in the name of God’s will. 8 Among philosophers, for example, we at various points cite the work of Rawls, Harsanyi and Gauthier, who, though certainly not always in agreement, draw a link between rational choice and moral action. Only Gauthier (1986; 1988) is explicit in 237

NOTES attempting to rest morality entirely on rational choice, viewing morality as the acceptance of constraints upon the pursuit of one’s interests through a contract among rational interacting individuals. 9 Sugden, who is very much a neoclassicist, notes that an original distribution from which neoclassical analysis of transactions can be meaningful is necessarily one in which some community aid has been provided to the handicapped, orphans, etc. Otherwise these individuals are excluded from the possibility of improving their position through voluntary exchange (Sugden, 1981). Were economists more explicit about limiting their analysis to everyday or normal developments at the margin, they would be less open to the condemnation of the socioeconomists of having too narrow a conception of human relationships and morality and thus failing to explain profound social developments (e.g. Etzioni, 1988; Wolfe, 1989). 10 Managers themselves can decide on their own least-cost mix of emission treatment, production curtailment, and continued emission. Those for whom abatement is costly will prefer to pay the charge associated with pollution; those for whom abatement is cheap will cut-back heavily on emissions. In this manner, pollution reduction will occur where it is cheapest. Regulation, in contrast, does not take cost of abatement into account, [nor those of] time consuming, case-by-case battles.

(Bobrow and Dryzek, 1987:29) 11 The outcome of a voluntary transaction, in which everyone concerned is presumed to have acted rationally, according to their own preferences, is by definition Paretooptimal (no one individual is worse-off than before it took place), while, by the same logic, the outcomes of non-market transfers are seldom Pareto-optimal, since someone will end up losing more than gaining. 12 Externalities result from the supply of ‘collective goods’ from which non-purchasers cannot be excluded. Automatic Pareto-optimality is not assured for market transactions in collective goods since some individuals who were not a party to a voluntary transaction are affected. Moreover, institutional arrangements for providing collective goods are by their nature more difficult to measure in their effects (Olson, 1974:303). In such cases, for example when the product supplied is a new discovery, the private market ‘fails’, and government, presumably through economic advisers standing as ‘outside observers’ (Coleman, 1986:149; see also Stiglitz et al., 1989), steps in as a disinterested third party, with patents, copyrights, etc. 13 Wagner (1989), to take a relevant example, argues that welfare bureaucrats will naturally give out more money to fewer recipients since these will need less attention, rather than attempt to help a larger number escape from the poverty trap which requires more continuous effort. 14 This is not to suggest that everyone writing under the public-choice banner necessarily shares these assumptions; some see it as the mere extension of the rational-choice approach to the political arena. The approach here is to place the latter into the more general category of rational choice and treat public choice as a specific subcategory with a more clearly defined political agenda.

3

PREFERENCES, CHOICES, AND OUTCOMES: THE USES OF GAME THEORY

1 This, as we shall see, is a property that advertising plays upon by emphasizing ‘what kind of people use X’ (Hargreaves-Heap, 1989, 99–103; 162–3). 238

NOTES 2 Burns (1990), for example, limits rational-choice behaviour to market activities, applying different choice logics when the relationship is among loved ones or enemies, or hierarchical. 3 In the language of the economists, a precondition for bargaining within the market is that (as part of the ‘original endowment’) bargainers possess the minimal standards of physical and psychological integrity required to engage in rational maximizing activity (Dworkin et al., 1977:12–13). Such attributes are not the result of market processes, but rather of parent-child and related primary relationships. At its most fundamental level, the relationship between self-interest and social responsibility is thus one of complementarity. 4 Despite the legitimacy that divorce attained in American society in the 1960s and 1970s, an informal survey suggests that extremely few spouses leave their husband or wife when they are afflicted with pro-longed non-curable diseases, such as Alzheimer’s Disease, incurable but slow cancer, severe paralysis following stroke and so on—all diseases that are extremely taxing.

(Etzioni, 1988:47) 5 Hirshleifer (1987), for example, presents considerable evidence of people cooperating and not free-riding at times of disaster. We have to look elsewhere than to the ‘nature of man’, namely to institutional arrangements, to explain why in New York City prices of flashlights and candles rose when the power went out in 1965, while, a year earlier after the Alaska earthquake, ‘Safeway lowered the price of orange juice and rationed two cans to each customer. Rents for homes…slightly decreased even though there was severe damage’ (Kunreuther, 1987:147). 6 Only through friendship, or non-self-interested fellowship, can this satisfaction be attained. While one can envisage a case of a Machiavellian individual winning friendship through free-riding by taking undeserved credit for unselfishness, this is possible only if the practice is the exception. Should it become the rule, however, genuine sociability would be impossible. As Rawls puts it,

active sentiments of love and friendship, and the sense of justice itself, arise from the manifest intentions of other persons to act for our own good. As a result of recognizing that others wish us well, we come to care for their well-being in return. (McClennen, 1990:82) 7 Some IPD ‘successes’ can none the less have negative externalities. This is typically the effect of ‘logrolling’ in which members of Congress vote contributions to each others’ pork barrels, and, from the point of view of the generals, of soldiers in opposing trenches finding ways of not killing each other (Axelrod, 1984). But they can also bring about ‘historical compromises’, such as occurred in post-war Sweden, which pave the way for policy achievements inconceivable without them (Lewin 1989:188–96). 8 Surveys (see, for example, Coughlin, 1989; Ringen, 1987:211–17)) repeatedly encounter concern about the welfare of others and support for redistributive policies among informed populations. In the US, according to Katona (1975), 65 per cent of the college educated supported some increase in government activity even if taxes had to be raised, as against 39 per cent of those with grade school or less. That number declined in the 1980s: for example, the Wall Street Journal (November 5, 1992:A16) reported on a CNN exit poll conducted on election day 1992 that showed that in a choice between lower taxes and more government services, 55 per cent 239

NOTES

9

10

11

12 13

preferred the former, and 37 per cent the latter. Still, judging by tax and spending decisions since, the election of Bill Clinton on that day may have signalled a decline in individualism. The experimental literature also supports the argument that Americans are not as individualistic as is sometimes made out. One experiment found that in an IPD situation individuals not only restrained their selfish impulses and interests for the benefits of the group; but that these ‘parochial’ group interests were in turn restrained in favour of universal benefits for persons outside the group when persuaded of the worthiness of the cause—e.g. helping poor children (Schwartz-Shea and Simmons, 1991; see also Etzioni, 1988). ‘We wish to shape our lives and this is an open-ended activity which cannot be fitted into the means-to-given-ends framework of instrumental rationality’ (Hargreaves-Heap, 1989:196; see also Elster, 1983; Riley, 1988; and Suzumura, 1983). Ostrom (1990) distinguishes three categories of choices: ‘constitutional’, ‘collective’, and ‘operational’. For example, the first creates the legislative authority, the second is the statute governing a particular agency, and the third a particular decision of the agency; each setting the framework in which the next is embedded. For our purposes, we collapse the former two into one, institutional-choice category. Shepsle writes of ‘institution selection’ which has recently been explored in an emerging wide literature in theory of the firm, principals and agents, contracts—especially employment contracts, and transaction cost economics. Institution selection grapples with the ‘twin obstacles of imperfect enforcement and imperfect foresight of future contingencies’ (Shepsle, 1989:140). A balanced budget amendment is an example of a ‘negative’ constitutional choice. Another is German Bundesbank-style independence for central banks in setting monetary policies. Some economists go even further arguing that to be effective nowadays even central banks have to act according to binding preset rules (Kydland and Prescott, 1977). Constitutional choices are more typically a matter of political leaders using institutions to impose needed changes on short-sighted public opinion. For example, the German Social Democrats in 1974 relied on the Bundesbank to check inflation in ways that they desired but could not accomplish politically; similarly, the British Labour Government, lacking the benefit of an independent central bank, made use of the conditions posed by the International Monetary Fund late in 1976 (Scharpf, 1991:82, 133). Elster’s classical example is that of Ulysses having himself tied to the mast of his ship so as not to succumb to the siren’s call. When does a PD become an IPD? Goodin sees institutional environments as ‘laundering’ preferences. Collective deliberations on an issue result in people being able to gain a longer view in the context of which people ‘operate more on social/ ethical preferences than on private/egotistical ones’ (Goodin, 1986:90–1). A similar link is drawn by Rawls.

The sense of justice is, at root, a disposition to reciprocate…. It is a disposition not to free-ride, nor to press for new terms more advan tageous to oneself, when one senses that the cooperative arrangement expresses a community of mutual concern, and to free-ride, and press for terms more advantageous to oneself when one senses that the arrangement does not express such a community of mutual concern. (McClennen, 1990:82–86) 240

NOTES

14 In Harsanyi’s terms, such a preference is an expression of ‘rule utilitarianism’ rather than ‘act utilitarianism’. We keep contracts not simply on the utility calculation of breaking or keeping a particular contract, but on the utility of the standard of keeping contracts versus not doing so, in effect asking: Would I prefer to live in a society conforming to standard A or in a society conforming to standard B? (Harsanyi, 1982) 15 For example, many Americans on the West coast have been known to vote in the last few hours of presidential elections, the results of which they know to have already been determined by the votes cast by voters in the time zones to their East. 16 Walled cities…are making a comeback in suburban America…. In California’s Orange County…Woodbridge Village, a town of 27,000 people…the parks and pools are not open to outsiders. All residents seeking to use them must show an identity tag…. Any homeless person who lingers too long may be booted off the property for trespassing. Communities like these are creating a new layer of private government in the US.

(The Economist, July 25, 1992:25) 17 Steinmo (1989) found that the ‘liberal’ American tax-policy activists he interviewed simply dismissed high-tax Scandinavian policies as inapplicable given US institutions, however desirable they might be to their working-class constituents in theory, concluding that preferences differ in different institutional settings. 18 In response to a 1990 questionnaire, 60 per cent of British, German and Italian respondents agreed that ‘it is the responsibility of the government to reduce the differences in income between people with high incomes and those with low incomes’, while only 29 per cent of Americans did (The Economist, March 7, 1992:18). 19 Foster calls such an individual ‘homo creativus who like homo economicus is

‘as agile at taking full advantage of slackly designed incentive systems as he is in finding loopholes in disincentive systems, such as statutory prices and incomes policies…[but] is always keen to co-operate with incentive systems which are ‘fair’ and result in mutual benefit. It is only when he is given a hand-out with no clear guidelines as to what he has to do in return, or when curbs are imposed on him without any compensating advantage, that we can expect non-cooperation. (Foster 1987:256) 4

POSITIONAL COMPETITION AND KNOWLEDGE FAILURE

1 Another example is that 25 per cent of Americans believe that their presence at a sports event affects its outcome (Lapham et al., 1987:82). 2 Such distinctions have given rise to a wide literature on the ‘efficiency-wage’ explanations of segmented labour markets, on the premise that rational firms keep ‘tried and true’ employees even when others of equivalent competence are available on the labour market for lower wages (Okun, 1975).

241

NOTES 3 The advertisement’s composition connects background imagery with products that have not the slightest intrinsic relationship to it: the automobile or cigarette package displayed against a stunning picture of unspoiled wilderness, or the liquor bottle set in a farmhouse full of hand-crafted furniture.

(Liess, 1988:89)

4

5 6 7

8

9

10

In a typical commercial, a young woman is not kissed by Mr Right. ‘What’s wrong with me,’ she asks her popular girlfriend, ‘why don’t men like me as they do you?’ ‘It’s your mouthwash,’ she answers, ‘use mine.’ In the final scene, our young woman is on her blissful honeymoon with Mr Right. In the real world, a meaningful answer from the girlfriend might have been: ‘Look, the problem is you are dull, you never read a book or a newspaper.’ But doing something about that requires effort, time; there are no simple consumer solutions (Postman and Powers, 1992, 120–4). Yet Jefferson himself stressed the importance of educating an informed citizenry: ‘If once they become inattentive to public affairs…Congress and Assemblies, judges and governors, shall all become wolves’ (cited in Barber, 1993:44). And Mill, in the Principles of Political Economy, rejects leaving education to the marketplace because ‘the uncultivated cannot be judges of cultivation’. On the same note, Scitovsky criticizes economists for failing to distinguish between those wants that can be satisfied by mass production, and what he calls the deeper human need for stimulation and novelty, which needs to be enhanced through the acquisition of ‘consumption skills’ (commonly called ‘culture’) which need to be cultivated just as—even economists admit—entrepreneurs must cultivate skills for making productive decisions (Scitovsky, 1976:226). Still relatively young, Hirsch succumbed to a fatal illness only two years after publishing the book. Ng regards both conditions as part of the definition of a positional good (Ng, 1983:273–4). ‘By sending his child to an expensive private school, A surely does not intend to lessen the chances for B’s publicly educated child to succeed in the labor market. Yet his action nonetheless has that effect’ (Frank, 1985:267). In developing their index of sustainable welfare, Daly and Cobb (1989) exclude expenditures on private education which they term defensive in nature. In the US, according to Harper’s Index (September 1989:15) CEO’s in 1988 were paid 72 times the salaries of public schoolteachers, up from 38 times in 1960. They received average compensation 40 times that of a production worker, compared to 20 times in 1960 (The Economist, June 7, 1989:79–80). (On differences in remuneration in the US, Japan and Sweden, see Verba et al., 1987.) Frank (1985) proposes that government wherever possible replace taxes on income by taxes on positional goods, thereby increasing the relative costs of positional luxury goods and diminishing the absolute and relative costs of such goods and services as insurance and medical care. He adds: In addition, the changing environment requires the adaptation of existing patterns of cognitive work, capabilities, even personality and societal foundations, if a given level of rationality is to be sustained. Physicians

must attend workshops, follow journals, etc., to update their knowledge and skills…Societies must appropriate budgets to educate and train the new

242

NOTES

generation to transmit the stock of existing knowledge and to develop new knowledge. (Etzioni: 1988:157) 11 Even in the simplest cost—benefit terms, advertising is found to be wasteful for society (Dixit and Norman, 1978). 12 Advertisers’ messages designed to sell products, services or politicians, like the commercial networks’ TV pilots, are first reduced to momentary visual and aural images to which sample viewers’ immediate reactions to them are registered through their pressing (+) and (-) buttons. The plusses are then combined and the ‘show’ produced (by the best director, composer, lighting, staging, scripting and acting money can buy). To better target their messages, advertisers now have at their disposal ‘people meters’ in the form of sensors that report which member of the household is watching what TV programme when—even recording them turning their face away from the screen (see Larson, 1992). 13 Another manifestation is found in the failure of George Bush’s 1992 campaign on ‘family values’ to catch fire. The relationship between family values and family policies (day-care, aid to single-parent families, etc.) is like that of the cigarette package in the unspoiled wilderness of the TV commercial and the city hospital’s cancer ward. It is perhaps only fitting that this campaign was launched a few months earlier by an attack by Vice-President Dan Quayle on a fictional television character named Murphy Brown.

5 SOCIAL-DEMOCRATIC POLITICAL ECONOMY— INITIAL GUIDELINES 1 It is argued that there is a loss of efficiency even if the effort is unsuccessful since lobbying, log-rolling, bribes and the like divert resources from productive activity (Tullock, 1990). 2 An analogy can be drawn with the ‘third sector’ of nonprofit corporations (Anheier and Seibel, 1991). 3 In 1988, average punitive damages awarded in the US were 28 times that of 1970. Lawyers paid on a contingency basis pocketed roughly one-third of the $25 billion awarded (on the impact of contingency fees, see W.K.Olson, 1992). American litigiousness can be contrasted with Norway where municipal councils name lay conciliation boards to act as tribunals for four year terms. In 1986, 190,000 cases were referred to such boards. Most ended by the default of one side, a minority of cases were settled by mediation, and only a few went to district courts on appeal. 4 In my previous work on Sweden I described the prevailing ‘small-country mentality’, a sense of common vulnerability—and therefore responsibility—in the face of external forces, linked to a culturally rooted understanding that the preservation of the social bonds upon which the community is built ultimately depends upon the efficiency of its economic institutions as a small, long-independent, industrial society with a necessarily open economy. While inherited cultural values and geography evidently impinge here, institutional choices nevertheless prove significant (Milner, 1989:57– 63). 5 This same kind of cooperation is found in controlling pollution, the classic externality under the competitive market. Though admittedly the problems are often less severe than elsewhere in the industrial world, Nordic countries are the leaders in many 243

NOTES

6

7

8

9

10

11

12

environmental policies, with the best outcomes in water treatment, emission controls, and recycling (OECD, 1989a:57, 171). ‘Everyman’s right’ of unrestricted access to the countryside (allemmansratten) is long established and has functioned well. The problem is more difficult when it comes to desirable urban space: despite much housing construction, positional competition for downtown flats intensified in Stockholm during the boom years of the late 1980s. There were several scandals involving officials accused of ‘hoarding’ desirable flats or making speculative gains by selling them. No policy can eliminate the competition caused by more people wanting to live in the central city than it can hold—especially with the very tough zoning and traffic regulations necessitated by environmental concerns. The comparatively high respect for public property is reflected by the relative absence of graffiti and vandalism. Such respect is, of course, reinforced in the knowledge disseminated through the various institutions described below. There is a wide literature on different classifications of welfare state regimes. For the purposes of this chapter, the distinction between inclusionary and exclusionary systems can be said to correspond to the classical one between institutional (or universal), and residual welfare states (Titmuss, 1958; Wilensky and Lebeau, 1965). Compared to EC countries, which generally link the right to social security to the individual’s (or their spouse’s) present or past place in the labour force, entitlement in the Nordic countries, as a rule, is independent of employment, citizenship, or family relationship. For a review of the literature, see Barr (1992) and Esping-Andersen (1992). For a justification of the principle of non-discretionary (inclusionary) services, namely that it allows individuals to be independent agents in their participation in the community, see Goodin (1988). Like full employment programmes, universal services make it easier for workers to move to where their talents can be of most use. When social benefits are universal, career changes do not entail the risk of sacrificing good-quality education, day care, recreation and housing. It need not be the case, as it is sometimes argued, that the middle classes take a larger share of such services—if one measures this share in relation to income and not to population. We have noted that Åberg (1989) shows this to be clearly the case in Sweden, and Uusitalo (1989:53) establishes the opposite to characterize the extension of public services in Finland. Moreover, critics of the welfare state often exaggerate the ‘tax burden’ imposed to raise expenditures by neglecting to take account that much of this money is double counted. Typically, 40 or more per cent of the salaries to public servants in welfare states comes back in taxes as well as pension and other transfers to the middle class. —though not to a level that can affect the quality of care received. To take the example of Norway, 13 per cent of Norwegian state expenditures on health are borne by patients. But no individual patient can be required to pay more than 880 NOK ($150) annually in total health expenses. In general,

tax ethics are negatively and significantly correlated with a general distrust of other people and the suspicion that others cheat; educational level, knowledge of fiscal matters and belief in perceived fairness of the tax burden are all positively correlated with tax ethics. (Lewis, 1982:153–4) 244

NOTES

13 King and Rothstein (1993) insist that the fundamental explanatory factor for different Swedish and British attitudes towards, and accomplishments in, labour market policies are the different institutional choices made in their ‘formative moments’. 14 In beginning negotiations for EC membership, the Swedish Minister in Charge, Ulf Dunklespiel, stressed the tradition of open government, including free public access to official records, as an ‘inalienable part of the country’s political and cultural heritage’ (see Chapter 11). 15 For example, Swedes learned that their king Carl Gustav in 1990 had an income of 7.5 million crowns (roughly $1.25 million) on which he paid 2.8 million crowns in taxes, and that he received a bill for back taxes of 137,000 crowns (reported in Ex magazine, March 1991). 16 This includes not only public officials, and other ‘high profile’ individuals in government, but also people in positions of responsibility in corporations, trade unions, etc. Sweden, like the other Nordic states, has strong protection-of-privacy laws, which, for example, prohibit the publication of names of accused felons—including (a fact made much of at the time in the international press) that of the suspect arrested, tried and released in 1989 in the Olof Palme murder case—before conviction. 17 Alternatives are often drawn from the experience of other Nordic countries: a great deal of such information is gathered and processed through the various activities undertaken and supported by the Nordic Council. 18 Experiments show that expectations which ‘represent biased perceptions… from lack of information…inhibit cooperation’ (Quirk, 1989:913).

6

COMMERCIALISM AND THE KNOWLEDGE FOR RATIONAL INSTITUTIONAL CHOICES

1 While the element of choice exists in viewing a film, going to the theatre or reading a newspaper, magazine, or book, it has essentially disappeared for most Americans as far as watching or not watching television is concerned. 2 Staffers in the theme parks, ‘the most scrupulously planned environments on earth’, (New York Times, July 20, 1989: cl) are all carefully dressed right to their smile, with their prepared friendly greetings. Disney president, Michael Eisner, despite heavy losses at Euro-Disney was in 1993 the highest paid executive in history (Business Week, May 1994). 3 Television breaks down the distinction between the ‘personal’ lives of fictional characters—the subject of literature and drama—and the everyday lives of ordinary people. The barrier was crossed in 1973 when for thirteen weeks Americans watched Bill and Pat Loud and their five children live their lives—including getting divorced— on a television programme entitled The American Family. A current case in point is the Oprah Winfrey Show, with 16 million viewers,

full of confessionals and staged confrontations—one show brought mothers of serial killers to the stage, another was called ‘people who were humiliated in childhood’, another featured women having affairs with their sisters’ husbands—reveal the most abject of human suffering and pathos (Harrison, 1989:46)

245

NOTES

4

5

6

7

8 9 10

11

12 13

14

15

One of Winfrey’s competitors, Geraldo Rivera, in one three-week ‘sweeps period’ in 1989 featured: prison mothers, teenage prostitutes, lady lifers, girls who can’t say no, campus rape, selling of forbidden desires, cocaine cowgirls, transsexual transformations, parents of slain prostitutes, angels of death…(Postman and Powers, 1992:93). The study is entitled: ‘Endangered Minds: Why our Children don’t Think’ (reviewed in the Montreal Gazette, April 24, 1991). Another related study is that reported in February 1993 by Robert Klesjes of Memphis State University who found the metabolism rate of a sample of pre-adolescent girls to be 13 per cent lower watching a popular sit-com on TV than resting. A recent study of a large sample of residents of Illinois (controlling for age, income and education) found a significant correlation between the amount of television watched and the likelihood of overestimating the proportion of Americans possessing tennis courts, convertible cars and swimming pools, employing domestic servants, being members of private spas and gyms, and the frequency of drug use, hospital visits, recourse to prostitution, and participation in satanic cults (O’Guinn and Shrum, 1991). The philosophy of the fast-growing national newspaper, USA Today, which claims 6.3 million American readers, is to apply the standards of television to newspapers. News is instant, stories are short; there is lots of colour and pictures, vast sports coverage. Controversial issues are dealt with by a readers’ poll highlighted by pictures and quotes from ‘ordinary people’ or by short pro and con column’s from selected pundits. Finland, where radio is commercial-free, but television draws 42 per cent of revenues from advertising, (Maggiore, 1990:100) is closest to the European norm among the Nordic countries. Yet it is still lower: 13 per cent of advertising expenditure went to Finnish television in 1990, compared to a European average of 25 percent (SanchezTabernero, 1993:129). In fact, everything from coffee mugs to statues to tea towels are hawked on these programmes as ‘gifts’ in return for suitably generous donations. There are 15,000 astrologers in the US (Lapham, et al., 1987:82). According to Harper’s Index (November 1991:19), in the 1980s, 138,490 Americans were shot by children under six. A 1993 UNESCO study reported that 80 per cent of all murders by juveniles in the industrial world were committed in the US. The Time article reported on a study that found the rate of success in the suicide attempt went from 5 per cent to 92 per cent when a gun was used as compared to other methods. In August 1992 TV Guide counted 1,846 acts of violence in one day of programming on ten Washington, D.C., channels. One study found the average number of words in the written vocabulary of a 6 to 14 year-old American child to have declined from 25,000 in 1945 to 10,000 in 1990 (Harper’s Index, October 1990:17). Only 75,243 students scored 600 or above on the verbal SAT [scholastic aptitude tests] in 1992 compared to 116,630 in 1972, even though more students took the exam. (A. Shanker, New York Times, March 21, 1993:E7.) In what can only be described as a cruel irony, a private firm, Whittle Communications, has succeeded in persuading over 1000 US high schools to counter this situation by presenting newscasts during school hours; two of the eleven compulsory minutes consist of advertising directed at the teenagers. As Lifetime Learning Systems, an educational software company put it in an Advertising Age ad: ‘kids spend 40 percent of each day…where traditional advertising can’t reach them…. Now you can enter the classroom…communicate with young spenders directly’ (quoted in Barber, 1993:43). University students are older: according to The Economist (July 11, 1982:22), more than half of Swedish entrants to higher education are over 25 years old. 246

NOTES 16 In his spring 1992 White Paper on higher education, Conservative Education Minister, Per Unckel, proposed to abolish this provision. 17 The Economist article goes on to note that though Swedish students spend over 9 per cent of their classroom time learning foreign languages—well ahead of the Dutch, who are second—Swedish 10-year-olds still placed first in international tests of reading ability in their own language. This, I suspect, is less a reflection of the standards of the educational system than of the importance of the printed word in Swedish culture. One little-known feature of relevance here is that all non-Swedish television and film is subtitled in Swedish—never dubbed. 18 Another important element was decentralization as the antidote to bureaucratization: the bulk of cultural spending was to take place at the municipality (60 per cent) and regional levels (10 per cent). 19 A sample of Swedish workers were recently asked whether they had taken part in any form of education during the previous year. No fewer than 58 percent of professional workers, 54 percent of other white-collar workers and 43 percent of unskilled workers said yes.

(The Economist, November 12, 1989:18) 20 With the economic crisis that struck late in 1991, these numbers increased significantly. ‘In the autumn of 1992, almost 95,000 people were enrolled in such training’ (Trehörning, 1993:62). 21 Japan is a special case since so much affecting adult education and training happens within the companies themselves.

The great advantage of having people spend their entire working life in one company is that it pays the company to invest heavily in the education of its future executives…. One manager from a Kyoto firm was …assigned to Chicago for five years to learn the customs of the Midwest and perfect his English. (Oaklander, 1991:19) 22 On a per capita basis, among European countries, Norway, Sweden, Finland and Denmark respectively rank first, second, fourth and fifth in daily newspaper titles (Sanchez-Tabernero, 1993:40). 23 I have elected to provide Swedish figures in this section since these were the most comprehensive available. This is not to imply that Sweden is exceptional. Norway is even more generous in a number of these areas, including support for the arts, and support for the distribution of literary works (Dagre, 1989). Both it and Finland generously subsidize daily newspapers (Sanchez-Tabernero, 1993:229). 24 It is uncertain at this writing what effect the new Swedish and Norwegian commercial channels will have. Danish and Finnish experience show that financial considerations will force them away from a public-service orientation, and towards importing cheap US programmes. Whether they will also bring the public stations down towards their common denominator, as some Danish critics claim their commercial channel to be in the process of doing, remains to be seen. 25 The same is true in terms of results. One indication of the capacity of the citizenry to make knowledgeable rational political choices is provided in the results of a Norwegian study of Norway which confirmed an earlier similar Swedish study: voters were too sophisticated to be bribed with their own money, that is, to judge governments on their long-term achievements rather than be swayed by attempts to manipulate macroeconomic conditions for electoral purposes (Sorensen, 1987:31).

247

NOTES

7

CORPORATISM, ORGANIZATIONS AND INSTITUTIONAL CHOICE

1 Terminology can be treacherous. Though much writing on the welfare state is atheoretical and descriptive, where explanation is offered, work of this kind usually calls upon ideas associated with neocorporatist thinking. In this book, I usually refer to corporatist structures and institutions, but to neocorporatist theory and analysis. This latter term is preferred, to distinguish the contemporary writing from the corporatism associated with fascist thought in the 1930s. Indeed, a few scholars prefer more Marxist-inspired formulations, such as ‘historic compromise in the democratic class struggle’ (Korpi, 1978; 1980), ‘reproduction of the social-democratic class base’ (Esping-Andersen, 1985), or ‘decommodification of labour’, (Esping-Andersen and Korpi, 1984). Yet, aside from a few rather sterile polemics between Marxists and neocorporatists (e.g. Panitch, 1988; see also Cox, 1988), the distinction seems, in hindsight, to be essentially terminological (Pekkarinen et al., 1992:12). 2 This measure raises Japan and Switzerland well above the low corporatist rating they receive when labour union density or labour’s role in government is emphasized. 3 Lijphart and Crepaz (1991) usefully summarize the judgements of 12 neo-corporatist scholars in assessing 18 Western countries and their degree of social equality and level of economic performance. 4 It is impossible to cite more than a tiny fraction of this work, examples of which include Hollingsworth, 1982; Blais and McCallum 1986; and Masters and Robertson, 1988. 5 Societal bargaining is found to be common in societies with long-powerful labour parties which force business interests to develop parallel organizational structures, and under constitutions which give minority groups a pivotal role in political decisionmaking, such as in (pluralist) Switzerland and (corporatist) Finland (see Chapter 8). 6 The average level of unemployment in 1985–6 in countries with societal bargaining was 3.2 per cent, as opposed to 0.7 per cent for the pluralist ones. Moreover, from 1972 to 1986 unemployment increased most in the pluralist countries where the left was of medium strength, while in countries characterized by societal bargaining unemployment increases were small (Korpi, 1991:29; see also OECD, 1991a:100–5). 7 Lange and Garrett (1985) place Japan (and Switzerland) in a special category of ‘corporatism without labour’, (see Dore, 1990). Tarantelli (1986), using as criteria the degree of consensus and of interaction of interest groups in the economic and political machinery of the government, places Japan (and Germany) at the top along with the Nordic countries and Austria. Japan is more ‘Rhenish’ than the countries on the Rhine since the principle that ownership of the means of production carries social responsibility is universally accepted and enforced by top civil servants. Korpi (1991) creates a special, third, category just for Japan, one he calls state-led capitalism, in which labour is fragmented to the enterprise level, especially through lifetime employment contracts. 8 We should not forget that the successful laissez-faire road to economic performance is taken at the cost of greater inequality resulting from the carrot and stick incentive structures built into the system. The carrot is increased pay for selling one’s services to expanding firms and sectors, and the stick is the fear of unemployment (and underemployment in low-paid sectors). The combined effect is segmentation of the labour market and comparatively poor conditions for those outside it. We have already described how the better-off in such a system rationally seek to reduce their contribution to institutions providing services to all. In effect, economic inequality engenders social inequality, the inequality built into the labour market finds its way into the 248

NOTES infrastructure, the schools, health provision, recreational activities, which, in turn, exacerbate inequalities to the extent that young workers enter the labour market with even more unequal skill endowments. 9 High unionization and strong labour parties allows for, but does not guarantee, appropriate policy choices. Scharpf’s (1991) analysis links the success of macroeconomic policies in Germany, the UK, Austria and Sweden between 1973 and 1982, with the ‘fit’ between the timing of the (expansive or restrictive) macroeconomic strategy of governments (and central banks, where these are separate players as in Germany), and the strategic action of the key actors, especially the trade unions. The successful laissez-faire regimes, starting with the US, are characterized by both weak labour movements and decentralized bargaining. 10 Examples include Kuttner, 1984:138–68; Marks, 1986; Wilensky, 1976:53; Lange and Tsebelis, 1988, and Wallerstein and Przeworski, 1988. 11 Efficient wage bargaining institutions operate so as to channel the self-interested behavior of individual employer and employee organizations away from purely redistributive activities into well coordinated and socially productive ones…. Real economies do not consist of atomistic agents but of a large number of small and influential interest groups whose non-cooperative behavior can be responsible for poor economic performance…hence either centralize to such an extent that broader macroeconomic interests come to be represented in bargaining or decentralize even more to the extent that interest groups become uninfluential.

(Pohjola 1991) 12 Events came to a head in the 1979 debacle of the Labour government in what came to be known as the winter of discontent.

Britain was not a Sweden, or a Germany…. The pretension of the unions to become a partner in government was, to be fair to them, never wholehearted. Some of their leaders saw it as the only way of reconciling full employment and free collective bargaining but others did not…. The unions did not so much aspire to corporate status; they found it thrust upon them. (Jenkins, 1988:29) 13 Indeed, the corporatist peak could be said to surpass the pluralist one, if one were able to incorporate into the measure of economic growth a means of excluding expenditures on positional, defensive or intermediate goods or those due to cleaning up avoidable pollution, a general argument well articulated by Block (1990). Of course, if the high unemployment in Sweden and Finland in the early 1990s proves to be more than a temporary phase, then this whole line of argument will have to be reconsidered. 14 Another corporatist society that should be mentioned here is the Netherlands, but with less than 40 per cent unionization and female labour force participation half that of males (Lane et al., 1991:25, 33), it has been aptly described as a welfare state without social democrats. In an earlier period, the Netherlands was probably the most corporatist of the European countries. Van Waarden (1991) in describing Dutch business interest associations notes that

249

NOTES

in certain sectors, non-member firms were shut out as the associations of suppliers, customers or workers forbade their members to supply them, buy from them or work for them. The high-point of these agreements was in the 1920s and 1930s, and they were most…effective in sectors with large numbers of small firms, such as construction, printing and small metalworking. They were supported by government policy. They declined starting in the 1950s as the proportion of foreign buyers and… EC rules [took effect]. (Van Waarden, 1991) 15 In contrast, in the Nordic countries the variation in wages in different industries (wage dispersion) is lowest. A 1993 survey comparing acceptance of inequality in earnings between occupations found Austria to rank second after the US among nine countries. Moreover, if only the attitudes of those at the bottom of the occupational ladder are considered, the Austrians favoured the greatest inequality (Kelley and Evans, 1993). Högsnes and Veiden (1992) document the gap in wage inequalities between Austria and Norway suggesting that cultural factors account for this discrepancy. They are referring in particular to the Catholic versus Protestant dimension. I would suggest that the fact that commercial television is negligible in Norway, while in Austria television collects the equivalent of 28 cents on every advertising dollar (Euromedia Group, 1992:13, 180), reflects another kind of cultural difference, one linked to the dissemination of knowledge. 16 One analysis looks at the interests of the permanent employees of centralized union and employer associations to assure their own organizational position (Streeck, 1981), another at the benefits for state managers responsible for the efficiency of the labour market (Hedström, 1986:21). 17 It is estimated that private industry spent 3 per cent of total remuneration on training. Training provided by employers is regulated by the state which sets out rules regarding duration, purpose and remuneration of training leaves, and the right of enterprise works’ councils to participate in relevant decisions (OECD, 1990). 18 ‘Codetermination’, or industrial democracy at the level of the firm, is a feature of German and Scandinavian corporatism, and is more emphasized than in other small European states (Gorges, 1992). 19 A concrete application of this principle in the German metal industries is cited by Thelen (1988). This is a provision in a number of collective agreements which sets pay scales based on training qualifications. In other words, a worker who has completed the training to attain the necessary credentials for a particular category of employment is paid for a certain period as if she occupied such a position. This provides an incentive to train and discourages companies from ‘poaching’ each other’s trained workers. A similar system is used in the Swedish automotive industry. 20 These are classic positive institutional choices resulting in enforceable social contracts under which we are in a position to act differently from the way that we do in the absence of such contracts (Schelling, 1974). A specific manifestation of this contractual approach was the March 1993 ‘solidarity’ pact signed by labour, business and the major parties (in power in the different levels of government) to deal with the fiscal problems caused by integration of the former DDR.

250

NOTES 21 Indeed, the very meaning of leadership is altered by the context—even to the point of leaders and members being viewed, as in the large Japanese corporations, as members of ‘fate sharing’ communities. The intellectual quality of leadership is thus a factor. Olson’s insight into the ‘quality and influence of professional economists’ in Sweden can be generalized beyond both Sweden and professional economists. Among officials in trade unions and business interest organizations in the Nordic countries, the author repeatedly encountered university-trained economists and social scientists familiar with and persuaded by the logic of the corporatist analysis and willing to be so identified. 22 This is illustrated in the surprising fact that the politically active 4 per cent of the Swedish population ‘are entirely representative of the population as a whole…in level of education’ (Vogel, 1990:48).

8

RATIONALITY, ACCOUNTABILITY AND STRUCTURES OF GOVERNMENT

1 Public choice’s confining itself to constraints on government actions, such as a constitutionally-imposed balanced budget—for which Buchanan has campaigned (1989:18)—sets up a self contradiction over leadership. In the name of the common good, it summons the idealistic energies of leaders to restrain their own capacity to effect positive change in the furtherance of the common good, on the premise that they are, in fact, rent seekers who will act in their own narrow interest. In effect, by thus discouraging the selection of leaders whose primary concern is the common good, public choice invites political and administrative positions to be filled by the very rent seekers it fears—and against whom ‘constitutional citizenship’ must be continuously aroused. 2 PR systems allocate seats either by divisor methods or quota methods. The d’Hondt divisor system used in Finland consists of successive divisions of parties’ vote shares by divisors of 1, 2, 3, 4. The result is that each party has a set of ‘comparison numbers’. The seats are then allocated to the parties, one by one, to the largest comparison numbers. The three other Nordic countries use a modified Sainte-Laguë rule, with 1.4, 3, 5, 7…as divisor. The d’Hondt rule tends to give large parties a slight bonus in the share of the seats. The quota system calculates a quota of votes based on the total number of valid votes cast and the number of seats to be distributed. Each party is entitled to one seat for every quota of votes cast in favour of its list, any remaining seats are given to those parties with the largest remainders. The quota created by dividing the total votes cast by the number of seats, is known as the Hare quota, while the Droop quota results from dividing the total votes by the number of seats plus one. A small quota is advantageous to large parties and a large one to small parties. In the single transferable vote (STV) system used in the Republic of Ireland, the voter indicates in addition to her first choice, the names of those candidates for whom her vote is to be counted when her first choice has reached the quota or has too few votes to do so. STV usually, but not always, produces approximately proportional results, giving party leaders less influence on the outcome than under other forms of PR. At the other end of the spectrum in terms of party leaders’ influence are the closed-list PR systems used in the Scandinavian countries, in which voters vote only for a party and not for an individual candidate, and the elected candidates are those at the top of the part-chosen list. In the open-list PR system, used in Finland, a voter gives one vote to one candidate. The vote is counted for both the candidate and the 251

NOTES party. The order of candidates within each party list is determined by the number of votes they have received. In order to avoid excessive fragmentation of the legislature through a proliferation of parties, the Nordic countries like others using PR, set a minimum share of national or regional votes below which a party is denied representation. Usually this legal threshold is 4 or 5 per cent of the overall vote. Moreover, use of the regional district as the electoral unit also adversely affects the chances of small parties. (The author gratefully acknowledges the assistance of Kimmo Kuusela of the University of Turku, Finland, in compiling this information.) 3 Mention should be made here of another constitutional means of achieving rational cooperation among political forces. The Swiss and Finnish constitutions give a form of veto to minor parties. The Finnish constitution requires qualified majorities in the Eduskunta for major laws to become valid.

One third of all MPs can delay the passage of an adopted bill to…the parliament which assembles the year after the delay…. This method has necessitated continuous negotiations between cabinet and opposition parties and has contributed to a significant extent to the appearance of a consensual decision-making climate. (Anckar, 1992:13)

4

5

6

7 8

9

Similarly, the provision of the Swiss constitution allowing relatively small interest groups to force binding referenda has meant that the Conservative and Liberal parties and their business and agricultural allies have to bring the relatively small Social Democratic Party into negotiations before decisions are taken (Korpi, 1991). This pattern continued. After making all sorts of promises to get elected in 1974 which it then had to pay for, in 1976, Labour, under pressure from the IMF, found itself forced to cut back on social spending. It could have, and finally did, meet the IMF demand by selling off government owned shares—but majoritarianism bolstered the old ideology and blocked it from doing what its own leaders understood to be necessary. And even though ideology receded in the latter 1980s, the old forms continue to colour political debate. As The Economist’s Bagehot columnist put it (July 27, 1991): the leaders of both parties remain ‘addicted to the old political games—the old everything-he-says-is-rubbish rhetoric’. The readiness of Canadians to avoid taxes by shopping in nearby US cities is notorious. It seemed to be increasing in the 1990s, rationalized by the unpopularity of the Conservative government’s tax reforms and trade pact with the US. Since expectations of accountability rise as one approaches a position of power, the ‘integrative complexity’, that is, the reticence of politicians to oversimplify issues in public pronouncements, increases the closer they are to actually entering office (Tetlock, 1991). The analogy can be drawn to the courtroom where a sharp defence lawyer ‘wins’ when someone she is quite sure to be guilty is set free. Such discernment is thus achieved without having to turn to a two-ballot majority system as used in France which brings bargaining forward to the pre-electoral period. While preferable to single ballot systems, two-ballot majority systems fall short of the consensus-producing capacity of PR systems. This spirit seems to pervade any important and complex reform project.

252

NOTES

In our interviews with representatives of the parliamentary parties, we found that they agreed that the pension question was such a large issue affecting the long term future of Swedish citizens that…compromise which transcended the political blocs was essential. (Huber and Stephens, 1993:3) 10 I do not wish to belittle the possible disadvantages to PR. There is the danger that, as in Italy, the PR system keeps returning the same (corrupt?) people to office. But even the acknowledged worst case, Italy, for all its problems, has somehow managed to do better than the UK in economic performance. While much of the Italian political system needs reforming, including bringing the minimum support a party must win to gain representation in line with other countries, and eliminating the secret ballot in parliament, the case for replacing PR with a first-past-the-post system as Italy did in 1994 for 75 per cent of the Parliamentary seats, has yet to be made. The people of New Zealand, it should be noted, voted 54–46 in November 1993 to move to a German-style PR system. 11 According to the United Nations Development Programme, local governments in the four Nordic nations account for the highest proportion of both expenditures and revenues in the industrialized world (UN, 1993:69).

In the Nordic countries, decentralization has a longer pedigree. Norway, Sweden, Denmark and Finland have institutionalized a ‘free commune’ experiment. A local authority can ask the central government to relax any control which it regards as inhibiting. This is done on a six-year experimental basis. If no problems emerge, the control is abolished nationwide. (The Economist, August 8, 1992:51) 12 Katzenstein (1987:54–8), among others, stresses the role of the political parties in Germany’s quasi-federalist system. 13 It goes without saying that a change in political boundaries risks giving vent to longstanding grievances and suppressed passions. In an ideal world, the boundaries of the state would coincide with historically defined national communities, where the area and population are sufficiently large to coordinate the infrastructure of a modern economy, but small enough to maintain a certain integrity in its communications networks and cultural institutions. Such a community could be open immigration by people from different ethnic origins, which adds dynamism and variety with undoubted benefits in terms of new skills, contacts and knowledge, but within limits set by the capacity of a society to integrate newcomers while preserving social solidarity. 14 This is not to disparage the lofty idealism of those who saw in the Treaty of Rome the basis for replacing the bitterness and war that had plagued Europe for centuries with peace and cooperation. I note simply that the concrete achievement of peace and cooperation will result from mutual self-interest more than the application of lofty ideals. 15 We have already referred to the example of constraints that lead entrepreneurs to invest in technological research and their employees’ retraining rather than seeking subsidies through government policies. Based on what knowledge is the voter to resist the pressure to cast votes to protect existing jobs and industries with tariffs and subsidies 253

NOTES and seek rather regulations putting into place compensating measures the effect of which is to move labour and investment towards advancing sectors? The constraints imposed upon members of EC-type confederations thus free up party leaders and those of encompassing organizations, putting them in a position to do as they perceive to be necessary but often very difficult in the national context in which each group seeks to reap the benefits but spare its members the costs. Social-democratic parties linked to a mass membership and union base are most affected by such constraints. 16 For one thing, it imposes bicameralism in the form of a territory-based upper chamber. While advisory second chambers, even ones with a short suspensive veto, may well play a useful deliberative role, decisional upper chambers reduce accountability by rendering the process of governing too complicated. 17 In 1991, many states had to stop providing basic services due to lack of funds. For example, civil servants were ‘furloughed’ in Massachusetts, Maine and New York in May 1992. On May 10, New York City shut off 25 per cent of street lamps, closed Bronx Zoo, and cut drug treatment, infant mortality programmes, and hearing and vision tests for schoolchildren. 18 One billion pieces of mail were sent by US legislators in 1987; most of it postage free and composed by sophisticated computer programmes. Congress has a staff of 35,000, its preoccupation:

amassing huge campaign war chests to scare off challengers…. When a member of Congress works on an issue, aides collect business cards from lobbyists with an interest. Later the aides telephone the lobbyists to request a political-action committee (PAC) contribution. (Newsweek, April 24, 1989:30–1) 19 The journalists who watch over the politicians command very high salaries—35 Washington reporters make 10 times or more the national median income. Some command up to $18,000 for speeches to ‘well-heeled business lobbies’, justified by Post columnist Henry Mitchell as being part of the ‘American way…to let people gobble up all the cash they can’ (Rowe, 1989:16–27). 20 In November 1993, a televised debate over NAFTA was held between Vice-President Al Gore and Ross Perot. The debate was held (and frequently interrupted by commercials) on the ‘Larry King Show’ on CNN (owned by media mogul Ted Turner). No one, it seems, thought this inappropriate, and the idea of holding the debate instead on PBS appears never to have come up. 21 In the October 1993 Canadian federal election, the Conservative party won two (of 295) seats with 16 per cent of the vote. The Bloc Québécois, which ran candidates only in Quebec, won 54 seats with 13 per cent of the popular vote.

9

THE INSTITUTIONS OF SCANDINAVIAN SOCIAL DEMOCRACY TODAY AND TOMORROW: I

1 Finland’s rate includes compulsory privately administered supplemental pension and sick leave schemes. (Alestalo and Uusitalo, 1990). A related measure is provided by the ‘social wage’, the availability and compensation level of programmes allowing for absence from paid work which Hagen (1992) estimates to be highest among the Nordic states. Moreover, the four Nordic countries are among the seven with the highest

254

NOTES

2

3 4

5

6

7

8

average pension level and the only ones among those seven where pension coverage is 100 per cent universal (Kangas and Palme, 1992:206). Part-time employment (in 1989) constituted only 7.5 per cent of all employment in Finland, compared to 23.7 per cent in both Denmark and Sweden, (OECD Observer, June-July 1991, Supplement: 12–13). And, as we shall see below, in 1992–3, Finland and Sweden as well. One useful composite measure has been developed by Rowthorn (1992). It subtracts wage dispersion (the inter-industry coefficient of variation in earnings) from employment (the proportion of the population aged 15–64 that is employed). On this scale the mean is 44, with the Nordic countries occupying the top four places, with rates of 51 to 61. Non-corporatist, non-egalitarian Switzerland appears to be an anomaly, as it is sometimes included with the full-employment countries (having an ‘institutionalized commitment to full employment’—Therborn 1986:23). But Switzerland has among the lowest rates of female participation. Moreover, Blass (1992) calculates that if Switzerland had labour force participation in line with that in European OECD countries, and if foreign workers who (unlike in the Nordic countries) are sent back home when the job market loosens, had remained at 1973 levels, unemployment in 1986 would have been 9.8 rather than 0.8 per cent. The low income differentials seem to work in the opposite direction as well. The fact that positions at the top of hierarchies are less rewarded than elsewhere by income differentials reduces incentives for women to break down barriers, and thus seems to account for the fact that women appear to be no more present in Nordic corporate board rooms than in those of other countries. Paloheimo (1988:37) calculated the percentage of cabinet positions between 1974 and 1985 occupied by members of left-wing parties. He found Austria, the Nordic countries and Germany to have the highest scores. Finland’s tax pressure is technically 40 per cent, but a realistic figure is provided by adding the 6 per cent equivalent to compulsory contributions to the total of privately administered pensions (Salminen, 1991:88). It is important to keep in mind that there is a misleading element in such a gross figure. The high pension and other benefits these states pay out are clawed back in income taxes. The overall effect is identical to a system with lower, but untaxed, pensions and benefits—except that in the latter the tax pressure is less. The results of a Swedish 1992 survey demonstrate this. The sample was made up of personnel directors of 300 representative manufacturing firms (employing 40 per cent of the sector’s employees), of which 179 responded. One question asked how they thought their company’s wage level would be affected if all negotiations were conducted at the level of the firm.

There was no clear consensus on the benefits of a move from the current system with both central and local bargaining to a system of only local bargaining. It is indeed hard to escape the conclusion that firms are much less convinced about the advantages of decentralized bargaining than their own central federation. (Agell and Lundborg, 1993:18) 9 Belgium is the only other of the eighteen European OECD countries where unions administer public unemployment insurance benefits, and it, with 75 per cent of the

255

NOTES work force unionized, places fourth after Sweden, Finland and Denmark, all with over 80 per cent (Robinson, 1992:31). 10 For example, ‘Out and about in Stockholm’, the tourist guide distributed at the International Equestrian Exhibition in summer 1990 included the following passages:

[Stockholm’s] suburbs erected after the 1960s are paralysingly alike… universally depressing. If you’ve seen one, you’ve seen them all…. The price of food and spirits is still thought by many to be shockingly high. …You may be tempted to ask how Swedes manage it, we don’t…. Swedish feature films are to be avoided…[Outside] Central Station …is to be found the full range of physical and spiritual misery…. 11 The Swedish figures are for 1988. Sweden’s already leading absenteeism rate actually doubled between 1983 and 1987 (OECD, 1990a: charts 4.4, 4.3). The fact that formal job attachment is maintained during long illnesses, and the high level of employment of handicapped persons only partially account for Sweden’s leading rate. Given Sweden’s very low rate of mortality due to industrial accidents and high standards of public health, there is no escaping the fact that many people abused sick leave and long-term disability compensations, through which it was possible to ‘actually earn more…than going to work’ (Wibble, 1992). It is not until the seventh day of sick leave that an employee was required to produce a medical certificate, making Sweden more trusting than Denmark and Norway and much more so than Finland in this regard (Bislev and Lindqvist, 1992). Moreover, unlike them, until recently the Swedish state absorbed the total costs, giving the employers no incentive to crack down. 12 Wage drift is defined as wage increases outside the parameters of the centralized collective agreements. 13 A good summary of these conflicts and resulting strains in the SAP is to be found in the articles by Bergström, Sainsbury and Premfors in Lane (1991). 14 The tax reform was the fruit of a collaboration negotiated between Kjell-Olof Feldt and Bengt Westerberg leader of the Liberals, and was not too well received by the more traditionalist elements in the labour constituency (see Sainsbury, 1991). 15 For example, the Swedish Tourist Board’s duties were given over to hotelkeepers’ association. 16 As unemployment continued to rise to 9 per cent, the Spring 1993 revised budget provided for as much as 7 per cent of the work force participating in such schemes. 17 It is uncertain where the Conservative party comes down on this matter since it is itself not of one mind: within it is a strong social conservative wing committed to the welfare state (Rothstein, 1992). 18 Rothstein (1992:19) cites the following passage from the 1992 budget statement:

The alternative to the welfare state is a selective system aiming at supporting only those suffering the worst conditions. Such a system… presumes control and means testing…. This leads easily to bureaucracy and to investigations which hurt the integrity of recipients…. Since benefits fall when income rises…many persons risk being caught in the so-called poverty trap. The basic ideology of the universalist welfare state, therefore, continues to be our guidance for the future. 256

NOTES 19 Westerberg’s position is unequivocal. In replying to a New Democracy motion to investigate denying family allowances to the rich, Westerberg, in defence of a hightax universal welfare state, quoted the principles enunciated in the original 1947 SAP Bill. The motion was withdrawn (Rothstein, 1992:20). During his period in the coalition, Westerberg published a book profoundly attacking the two-tier welfare state associated with some of his Conservative colleagues such as Party Secretary Gunnar Hokmark. 20 The appointment of a Liberal to the Ministry of Culture was generally taken as an indication that the basic thrust of cultural policy was not likely to change much. At one level this is true, as funding levels were maintained and no major policy departures undertaken. However, the fact that the portfolio has been combined with the problematic one of immigration meant that the Minister’s attention to matters of culture was limited. (For a discussion of the evolution of immigration and refugee policy, see Ring, 1993.) Meanwhile, many local bourgeois-run administrations made significant cutbacks in support for popular cultural activities, such as libraries. The recession is in part to blame, but ideology also seems to be a factor. 21 Westerberg dramatically walked out of the TV studio on election night in 1991 when New Democracy leader Ian Wachtmeister arrived. 22 The SAP, in a 1993 report by parliamentarian Carl Lindberg, raised just this question in relation to the effects of the proliferation of these schools. The report also contended that this proliferation diminished the resources available to the public schools. 23 An example is found in attempts to introduce financial incentives into the remuneration of public servants in the Nordic countries in the 1980s. (For a discussion of Swedish experience, see Wise, 1993.) While performance-related pay remains fashionable, it has not been very much implemented in practice since it goes against institutional norms, requiring superiors to make judgements they are unwilling or unable to make (Laegreid, 1992). 24 It appears, however, that pilot projects to drastically increase choice in health care in the Dalarna region did not meet with hoped-for success (Huber and Stephens, 1993:5). 25 In 1980 both the US and Sweden spent 9 per cent of GNP on medical care. In 1993 Sweden was down to 8.5 per cent while the US was up to almost 14 per cent. Clearly, fees paid directly by the user reduce both the recourse to medical consultations and drugs and the administrative bureaucracy. In 1992 Bergström concluded that,

Universal insurance should be kept for reasons of equity, but also for reasons of simplicity…. The general picture in Sweden is that the infrastructure is in place: skilled personnel, advanced equipment, health care presence across the country. The pressure for reform is for better incentives, more efficiency, a more customer-oriented direction, greater opportunity for choice, more experimentation, even private initiatives and pluralism…to combine proven values and a new vitality. In fact, hospital queues were drastically reduced in this period, mainly through a provision under which a medical authority unable to supply a (non-urgent) service within three months has to pay another authority to provide it. 26 Saab had actually shown significant improvement, but it is now half owned by General Motors’ which was losing a great deal of money. Saab’s sales are such that more cutbacks could bring it below efficient productive quantity. 257

NOTES 27 When implemented in 1993, the reform provided for 90 per cent compensation from day 4 to day 14, (in most cases to day 90), with the employer paying the 10 per cent difference. 28 Sven Svensson, editor of Sweden Report, concluded, The probability is that the fourparty government coalition and the Social Democrats will be forced to work together in large measure.’ 29 The government was thus taking up a proposal long defended by Labour economist Gösta Rehn (Rehn, 1980), whose contribution is discussed in Chapter 2. 30 The SAP went out of its way to thank Bengt Westerberg for his constructive role in in mediating the crisis deal (Mona Sahlin presented him with a bouquet of red roses). 31 By this point Westerberg had taken some distance from the government’s policy of high-interest rates to defend the Krona. This brought him under fire from economic conservatives in the party who support Ms Wibble. 32 This argument has been challenged by economists including Guy Laroque in the discussion following upon publication of a summary of the Lindbeck Report in Economic Policy (October 1993:220–63). 33 A good starting point is provided by Swank in his conclusion to a study of tax and transfer policies in Western countries in the 1980s and early 1990s. ‘At this juncture…substantial room still [seems to] exist for partisan manoeuvre with regard to income security and tax policy (and perhaps other policies as well)’ (Swank, 1993:49).

10 THE INSTITUTIONS OF SCANDINAVIAN SOCIAL DEMOCRACY TODAY AND TOMORROW: II 1 Possible explanations for this lie in Finland’s seeming remoteness, its (former) special relationship with the USSR or the uniqueness of its main language which is little affected by Slavic, Germanic or Latin influences. 2 The term was apparently coined by German leader Franz-Joseph Strauss. It is only with the collapse of the USSR that Finnish intellectuals and journalists publicly began to ask themselves whether their self-censorship vis-à-vis Soviet communism was justified. 3 This provision had been insisted upon by the Right in 1919 as a way to keep a Labour government from nationalizing private property. 4 One result is that the central bank of Finland is far more autonomous than in Norway and Sweden where a greater degree of control is wielded by the finance ministry. 5 All in all, incomes policy in Finland is of the highly consensual variety: broad-gauge in that the entire spectrum of sectorial interests have underwritten agreements; wideranging in the way wages, prices, taxes and social reforms are written into the package.

(Arter, 1987:215) 6 This is a result of institutional choices and not of inherited cultural traditions. Like the Norwegians, Finns stress simplicity and reserve which they associate with the solitude of their lakes and forests. Indeed, unlike the Swedes, Finns and Norwegians are said to be reluctant to live away from where they grew up (and thus often lacking in the foreign management experience required by large corporations). 7 More than half the members of Conservative-Centre cabinet elected in 1991 had graduate degrees. 8 Though accepting comparatively few refugees, Finland spares no effort at integrating those it does admit by providing language and job training, lodging, transportation, and income. 258

NOTES 9 There is a maternity and child centre, Finnish authorities claim, within pram distance of every mother except in the most remote regions. The maternity benefits, interestingly, are available in kind, made up of a basket of products for the new baby and mother, or as a cash payment worth approximately half the value of the basket. 10 One Finnish economist, after going over the bleak economic figures and the hard choices facing his countrymen and women, spoke with conviction about the fact that unlike on the European mainland where he had lived, all Finns know they will be well cared for when old and frail. The peace of mind that this knowledge brought appeared nowhere in the economic statistics. 11 Norway has instituted a very sophisticated system of general purpose grants to municipalities for social, educational, social and cultural purposes based on a formula taking into account such factors as the age structure of the population, the average travelling time, and the share of social welfare clients. 12 The effect remains greater than in a more diversified economy like Sweden, though modernization led to more indirect effects from the decline in the demand for wood products. Finland ‘exports on one metal leg and one wooden one’: its formula for success was to develop manufacturing around what it knew best, especially forests. For example, Finns make and sell, as well as use, the world’s biggest paper-making machines. 13 The effect of such speculation is multiplied in small stock exchanges like that in Helsinki which are extremely vulnerable to upward manipulation of prices by large investors; see Chapter 7. 14 The major point of contention had concerned the additional coverage beyond the universal payments based on need provided to unemployed union members to bring them up to 70 to 80 per cent of their salaries. This extra benefit serves as a ‘selective incentive’, for many to join union organizations who might otherwise not do so. 15 Despite his excluding it from his analysis, Finland closely conforms to Katzenstein’s principles of democratic corporatism as he outlined them in 1985: an unquestioned prizing of cooperation combined with the existence of encompassing organizations, nation-wide bargaining and complementary labour and state policies (see Andersson, 1987). 16 In the 1980s, an average of roughly 0.7 per cent of the work force was registered in labour market training at any given time (Silvennoinen, 1992:66). A survey on Education and Training by the Economic Council of Canada published in 1992 rated Finland’s overall educational system second best after Germany’s among 18 major OECD countries. 17 Newspaper readership is highest in Finland and Norway, just slightly above Sweden (UN, 1993:199), which, as suggested earlier, corresponds to the high participation in adult education. On the other hand, Finns average 142 minutes of television viewing daily, compared to 105 for Sweden and 98 for Denmark (Lange and Renaud, 1989:122). Twelve per cent of advertising expenditures goes to television in Finland, more than double that in Denmark which is second highest of the Nordic countries— though still way below the OECD average of around 30 per cent (Maggiore, 1990:100– 1). This may decline somewhat as advertising is slated to be removed from TV 1 and 2 and limited to channel 3 (Euromedia Group, 1992:52, 56). 18 Their opposition to a constitutional amendment to eliminate the qualified majority and thus allow the government to enact its policies without a two/thirds majority was hard to justify since they had favoured such a change when they were in power. 19 Lipponen’s views are derived from a long interview conducted by the author in October, 1991. 259

NOTES 20 The major area of competition between LO and YS is among white-collar private sector workers, nurses and other non-university trained professionals. The YS was formed in 1977 by LO members who split away due to their opposition to LO’s proLabour Party position. (Similar dissatisfaction again emerged as unemployment increased under Labour in the early 1990s—Geyer, 1992.) 21 Proven reserves indicate that it could go up to 20 per cent, but that entails investment in pipelines further north, or the establishment of an uncertain and expensive link with Russia. 22 Moene and Wallerstein (1992:24–5) argue that capital controls were a main cause of the exceptionally low productivity of Norway’s capital investment between 1960 and 1989. The government’s intervention into the capital market to ration credit to subsidize home construction and investment in agriculture, fishing, and factories in hinterland areas, through lower interest rates and higher quotas, laudable as it was, proved to be too costly, since it invited rent seeking behaviour. (This is contrasted with the Swedish system where Swedish firms could escape taxes by freezing up to 40 per cent of pretax profits in special funds to be withdrawn upon government approval.) 23 Mrs Brundtland is known for her frequent allusions to Norway’s voluntary national spring outdoor cleanup to illustrate her approach. 24 The Progress party won fewer seats than expected, its failure to oppose EC membership costing it votes even to the socialist left (Valen, 1990). 25 Thus the 5 per cent official unemployment is, in reality, closer to 8 per cent. 26 Since Norway’s system of adult education is not significantly less developed than that of its neighbours (see below), the findings of a recent study which found it to spend roughly 0.65 per cent of GDP on adult education and training combined, compared to 1.45 per cent for Finland, and 3.0 per cent for Sweden (Arvidson and Rubenson, 1991), reflect the inadequacy of the training component. Ongoing efforts to improve the programmes owe much to the efforts of Minister of Education, sociologist Gudmund Hernes. Trained in the US, Hernes was director of research for the LO. Named head of a commission on educational reform in the mid-1980s, Hernes started a lively public debate in suggesting that Norwegian universities did not adequately reward excellence and calling for enhanced flexibility, decentralization, and accountability in higher education. 27 Norwegians watch only an average of one hour of television per day (Euromedia group, 1992:174). Practically the entire country watches the nightly public television newscast. 28 Denmark is not given even the incomplete treatment accorded to Norway in this brief survey. In part, this is simply due to the author’s limited resources in time and energy being inadequate to procure the needed information, which, it appears, is generally not as accessible as in the other three countries. 29 It should be remembered that, measured by proportion of labour employed rather than unemployed, Denmark scores high—much higher than Austria, for example. 30 It is thus seen as perfectly reasonable that the employees of DA are themselves members of unions. 31 It appears that when it came down to negotiating an alliance with the centrist Liberal party, Auken’s reputation for going back on his word proved a major obstacle. 32 An OECD study found Denmark third, after Norway and Turkey, in growth in industrial production from 1990 to 1993 (The Economist, October 30, 1993:119). 33 With the ratification of the Maastricht Accord at the end of 1993, the EC officially became a pillar of the new European Union (EU). In this book, however, we follow common usage at the time of writing and still refer to the EC. 260

NOTES

11

THE EC, THE NORDIC COUNTRIES, AND THE INSTITUTIONAL ARRANGEMENTS OF SOCIAL DEMOCRACY

1 The Swiss setback retarded completion of the EEA, as Spain especially insisted that the other EFTA states make up the Swiss 27.5 per cent of the EFTA countries’ contribution to the regional development funds. The EEA went into effect on January 1, 1994. Interestingly, included under the EEA umbrella was tiny Lichtenstein whose people, despite their very close ties to Switzerland, said ‘yes’ to the EEA after the Swiss said ‘no’. 2 The principle of subsidiarity is derived from Catholic social thought, specifically Pius IX’s 1931 encyclical ‘Quadragesimo Anno’. It is articulated at the beginning of the Treaty of Rome allowing the EC to act ‘only insofar as the objectives of the proposed action cannot be sufficiently achieved by the member-states and can therefore, by reason of the scale or the effects of the proposed action, be better achieved by the community’. 3 The organized anti-EC faction in Labour actually represented a majority in the affiliated trade-unions. Of the union federations, the Labour-affiliated LO is by far the most opposed to the EC (Geyer, 1992:16, 20). 4 In Sweden, which unilaterally acted to remove agricultural subsidies before seeking EC membership, agriculture is less politically salient. A November 1992 survey by Statistics Sweden, finds only a quarter of Swedish farms to be run by full-time farmers. According to an OECD report quoted by the Financial Times (August 16, 1993) Swedish subsidies to farmers at $370 per capita (compared to Finland at $910 and Norway at $970) were $80 lower than the EC average. 5 At the same time, the long western coastline makes Norway, like Britain, more Atlanticist—and thus less European—in orientation than Sweden. 6 The vote was 183 to 106. The support received by Mrs Brundtland was in part personal. At the Congress, she resigned as party leader, though not as PM, in order to deal with the suicide of her son a month earlier. 7 In reality, the differences between Labour and the Conservatives, both of whom, in effect, favour a social Europe, are not very great. As the debate over EC membership heated up, the differences between them receded, while those with Centre, the Christian Democrats and the Socialist Left widened. Objectively, therefore, the most logical government would be a Red-Blue one like that in Finland 1988–91, but this is unacceptable to the rank and file of Labour. The Conservatives, despite the fact that it probably hurt them electorally, avoided pushing hard on the EC and thus risk driving Labour supporters away from supporting EC membership in the Autumn 1993 election campaign. As a result, though negotiations began in April, EC membership was not a major electoral theme. 8 In an astute move, Gro Brundtland had named Jan Henry Olsen from the Northern town of Tröms as Minister of Fisheries. Very popular with the fishermen, Olsen is the only member of cabinet to have publicly opposed EC membership. Olsen had taken a very tough line on protecting Norway’s fisheries, a line supported by the Gro Brundtland who told the Financial Times (April 30, 1993) that failure to reach accommodation on fisheries could block Norway’s entry. Olsen’s support for the negotiated agreement constitutes a very effective endorsement of her achievements at the negotiating table. (It is worth noting here that if Norway ratifies the agreement, thus resolving the fisheries question, Iceland, which is the only EFTA member that has avoided the question, could come on board.) (For a critique of EC fisheries policy, see Friis, 1992.) 261

NOTES 9 The parties accelerated their efforts to complete the negotiations in order for each country to be able to submit the agreement to a referendum in late 1994, in time for the EC to be enlarged in January 1995 and allow the new entrants to participate in the EC restructuring in 1996. The time pressure was due to the need to win approval from the European Parliament before it was dissolved in May to make way for new elections. The timetable almost unravelled in the last weeks of March as EC foreign ministers struggled to find a voting formula for a 16-member EC that increased the ‘blocking formula’ from 23 to 27 and yet satisfied Britain and Spain’s desire to protect the vital interests of the larger countries. As far as the order of the vote among the four is concerned, this is not a technical issue, but a political one. In 1972, Denmark decided to vote after Norway voted; and it still voted ‘yes’. Had the order been reversed, the outcome in Norway might have been different. To create a different—positive—dynamic this time, pro-EC strategists decided that (after Austria) the order follow the sun, that is, Finland first, then Sweden, then Norway. 10 Denmark has consistently placed lowest in popular support for European integration in the regularly conducted Eurobarometer polls (Neilson, 1992). Overall, it elected 40 per cent pro-European, and 30 per cent anti-European members—the rest being described as ‘conditional Europeans’—to the European Parliament in three elections to that body (Sauerberg, 1992:61, 68). In this sense Danes are ‘bad Europeans’. But in another, perhaps more appropriate use of the term, they are not at all bad Europeans; quite the reverse. The Eurobarometer surveys consistently find the Danes to have the most positive attitudes towards EC peoples other than their own. Moreover, the Danes moved most quickly to implement the Single European Act (Colchester, 1992:10). 11 Former Bundesbank president, Karl Otto Pohl, used the expression in Autumn 1992 in calling for a monetary arrangement that would allow for an inner Mark—Franc based zone and an outer one for economies unready or unwilling to accept fixed exchange rates (The Economist, October 3, 1992:14, 50). In fact, this division between an outer, more autonomous layer, and an inner, more federalist one goes back to differences in the late 1960s, with Britain and Denmark on one side, and France and the Benelux states on the other. 12 Even where it was most unambiguous, namely monetary union, Maastricht still provided for Britain being on the outside with the option of ‘opting in’. The treaty provided for the establishment in 1994 of a European monetary institute to evaluate macroeconomic performances (inflation and exchange rate, level of debt and government deficit) on the basis of which member countries would be permitted to participate in the single currency and single central bank system to be instituted in 1999. Even at the time, many doubted that a sufficient number of states would qualify for participation. 13 For example, the Danes would benefit from greater access to the agricultural markets of the other three at the expense of farmers there. Conversely, Denmark would lose out in fish processing if Norwegian fish had direct access to EC markets. On defence, Norway could be more flexible on participating in common defence initiatives than Sweden or even Denmark given the border it shares with the still militarily powerful, unstable Russia. Sweden is especially reluctant to give up frontier controls, while the Finns want to maintain free trade with the Baltic states and a special status for the autonomous island of Aland. But if interests always coincided, there would be little need for cooperation and coordination. The main achievements of informal Nordic cooperation lie in clarifying where interests do not converge so as to elaborate a common position as a basis for individual action. 262

NOTES 14 Informality means discretion: in one case, Mrs Brundtland denied reports from the Nordic Council parliamentary gathering in Århus Denmark in November 1992 that she called for the Nordic countries to speak with one voice. Its very informality makes Nordic cooperation so effective, allowing them to alternate representatives in UN agencies as well as the IMF and International Development Bank for Reconstruction and Development. Habits acquired over many years of cooperation especially over cultural activities and research as well as of coordination on key legislation, undoubtedly are at play. 15 The Social Democrats, though formally pro-Maastricht, were largely on the sidelines, embroiled in internal leadership dispute. Yet this was not seen as a serious problem, since the Social Democrats had told supporters to vote ‘no’ in 1986, and the ‘yes’ won none the less, when, in what turned out to be a well-calculated move, rather than resigning Schluter called a referendum, the legitimacy of which was affirmed by the opposing parties. 16 Opposition forces quoted a speech by Delors to the European parliament in July 1988 where he is reported to have said: ‘In ten years’ time, eighty percent of economic legislation and perhaps social and tax legislation will be of community origin’ (quoted in Eliason, 1992:572). 17 His optimism was due to the Socialist People’s Party, which had opposed Maastricht, agreeing to the compromise. 18 Denmark was singled out by three of the 17 specific protocols attached to Maastricht. The two others provided for prohibiting non-Danes—that is, Germans—from buying land there (a matter also of concern in Sweden) and for special arrangements for its protectorates, the Faroe Islands and Greenland, neither of which are members of the EC. (The Faroes actually withdrew from the EC after a few years.) 19 On monetary union, the protocol states that Denmark will not be party to stage 3 but will be subject to stage 2 constraints. The vagaries of the ERM, plus the fact that the activist measures that will have to be taken to counter high unemployment all over Europe, have led observers to conclude that the EMU timetable is moot (Franklin, 1993). 20 This was largely a symbolic issue, since the grand-sounding notion of European citizenship is given a highly restrictive meaning in the text. Ironically, moreover, Denmark goes furthest among EC members in extending the right to non-Danes to vote in local elections. 21 Finland again effectively devalued by letting the Markka float at the end of the summer in 1992, but this time the entire ERM was under immense pressure and Finland was not alone in succumbing to it. EC-members Italy and Britain saw their currencies drop below the ERM limits, while Spain and Portugal devalued theirs in September 1992; in the period that followed, the Swedish and Norwegian Crowns were allowed to float downwards. 22 Ireland, though a neutral, chose none the less to join the EC in 1972. 23 Unlike in Sweden and in Scandinavia generally, the Finnish Greens have been (conditionally) open to the idea of EC membership. 24 The stakes were somewhat different for Austria, where the prospect of bringing levels of redistribution closer to the EC mean does not present the dilemma it presents for Nordic social democrats. While EC membership ratification by Austria was not a foregone conclusion, the absence of an organized EC faction in Austrian Labour ultimately assured ratification in the June 1994 referendum.

263

NOTES 25 Using the EC to externally push needed but politically difficult institutional reforms is a common strategy for leaders in southern EC countries, in which actors in the more competitive regions of these countries (such as northern Italy) see in European integration a means of imposing their economic agenda upon slow-to-modernize regions (such as southern Italy) and sectors. An outspoken exponent of this position is Carlo de Benedetti, head of Olivetti who, according to The Economist (June 6, 1992:77), ‘says he hopes powerful European institutions will force Italian politicians to make painful choices they have dodged for decades’. In Italy, as resignations and arrest in 1993 revealed, this has meant rampant fraud in public contracts and party financing, and infiltration by organized crime. 26 Under advantageous conditions, the internal debate over the EC could prove salutary for the SAP as it tries to rediscover its mission and adapt to the new realities of the end of the century. The party’s debate over nuclear power from 1978 to 1980, when it was last out of power, can be said to have had such an effect. There are indications of a similar development in the guise of thousands of study circles set up to discuss the issue. 27 Most important here is Finland’s forest industry which comprises a chain from peasant wood-lot owners to the transport, equipment and machinery, chemical, graphics, furniture, and finance industries, all of which are domestically controlled. 28 The Norwegian dilemma has been cast in similar terms:

Norwegian policy networks are tightly knit…[with] access barriers, shared values, common perspectives, social control and strong commitments. Although there are certain counter tendencies, this means that participation in decision-making is guided by strategy rules which impose order and predictability. Participants share responsibility for decisions and their implementation…. Communality is not only a sectorial phenomenon. There is also a high degree of cross-sectorial unity and commitment toward national values and goals. In the EC… national traditions to a varying degree provide actors with conflicting sets of rules…. There is room for opportunistic behavior within and between sectors. (Andersson and Eliasson, 1991:17) 29 The term ‘social’, with its connotations of social welfare, is misplaced in the term ‘Social Europe’. As Majone (1992) puts it, a social Europe will be one that addresses ‘quality of life issues which traditional social policies have neglected—consumer protection and equal treatment for men and women. …[It is] not a supranational welfare state’. 30 `This left it up to voluntary corporate action; the result was that the panEuropean works councils that have arisen are few in number and limited in reach (The Economist, October 31, 1992:70). This may change in 1994 as the 11 signatories to the social chapter are expected to adopt a law on works councils. Some multinationals will find it easier to include than exclude representatives of their British plants on these councils (The Economist, November 13, 1993:65). 31 Not all employers’ associations are opposed. Apparently Dutch, Belgian and Italian employers groups favour framework agreements (Rhodes, 1992), as well as many business leaders in Germany and France.

264

NOTES 32 Of the 105 European Court rulings not obeyed as of the end of 1991, Italy led the EC with 35 (The Economist, September 26, 1992:78). 33 This latter expression was used by Ingvar Carlsson at the 1993 SAP Congress. But it’s more than semantics. The confusion was apparent in early 1991 when SAP posted thousands of large colourful posters with the blue EC flag and its 12 stars surrounding the Social Democratic hand and red flowers were posted throughout Sweden by the SAP when the Swedish government chose to apply to the EC. 34 Fresh ideas are blowing through the French foreign ministry. One official says that the coming of new members is bound to push the EC towards a more flexible structure, now that the precedent of opting out is there. ‘Everyone must take part in core areas…but only some will join in the implementation of monetary union, or common immigration or foreign policies’.

(The Economist, February 6, 1993:56) In Germany, Helmut Kohl has on a number of occasions been forced to condemn leading supporters of his government who have questioned Eurofederalism. A MORI poll reported by The Economist (May 21, 1994:14) found 32 per cent of respondents in EC states to favour a federal Europe, 49 per cent opposed. 35 Sensitivity to this distinction was expressed in the report entitled ‘Put Europe to Work’ adopted in early 1993 by SAMMAK, the Nordic Association of Social Democratic Parties and Trade Unions. Though the report, drafted by a committee headed by SAP finance critic, Allan Larsson, called for concerted efforts towards employment growth and protection of the environment, it none the less sounded a cautious note on social Europe.

The EC countries determine their own policies on social security, health and social services as well as equality between women and men. We wish to underline that it would not be right to coordinate policies on these matters through Community decisions. On the contrary, it is of great importance that national priorities set the tone when measures in the social welfare sphere are devised. One of the reasons why these areas are best governed nationally is the diversity of the historical and cultural origins of the individual countries, (p. 23) 36 It may also be that the people of a Luxembourg or a Belgium (The Economist, October 31, 1992:52) see in European institutional structures substitutes for failed or impossible national ones. In fact, as of April 30, 1992, Belgium and Luxembourg had implemented the lowest number of the measures under the Single European Act, (Colchester, 1992:10). 37 Post-communist Poland tried to create interest organizations along corporatist socialdemocratic lines. The problem was that the experience of interest organizations was of incorporation into rigid state structures. In 1991 bills were presented to the Sejm by the new Bielecki government to reorganize union and employer organizations and set up new mechanisms for settlement of labour disputes, ‘defining precisely the principles, conditions, parties and procedures of the negotiations’. But the problems of implementation proved immense. The attitudes of trade unionists, inside and outside Solidarity proved ‘very often incoherent and sometimes contradictory…. Relations are…tense’ (Hauser and Wojtyna, 1991:14–5). 265

NOTES

CONCLUSION 1 So much business was lost by Danish retailers to competitors in nearby low-VAT Germany that, as soon as frontier collection of VAT ceased upon the single market taking effect on January 1, 1993, one major Danish retailer, Service-Ringen, allowed customers to pick up products bought in Denmark at German outlets (and thus pay only 15 per cent instead of 25 per cent VAT). 2 This requires knowledge of facts and figures and the sophistication to interpret them. For example, they would understand that a more egalitarian distribution gives their country a comparative advantage against equally rich competitor nations required to pay their professionals and technicians greater salary premiums (Lundberg, 1992) and whose companies count on a similarly highly educated and trained work force. 3 An additional factor was the comparatively high level of inflation which created a cost disadvantage for business, a situation that changed drastically with the dramatic fall in the value of the Swedish and Finnish currencies in 1992 and 1993. 4 Sweden’s labour-market measures are not expected to run into problems as far as conforming to EC standards are concerned (Trehörning, 1993:90–1). Far more restrictive are Spain and Italy, where ‘it can cost more than two years’ pay to sack somebody’ (Financial Times, August 16, 1993:11). 5 Denmark placed second after Norway, with 0.96 per cent of (1991) GNP allocated in development assistance (UN, 1993:203). 6 Radio Denmark, unlike other national short-wave outlets, broadcasts only in the national language. 7 Competition regulations provide a useful illustration. Danish law is based on public access to information and control through a competition council, rather than prohibition of anti-competitive agreements (as under EC rules). Upon being informed of such practices and conducting its own investigation, the council attempts to attain a satisfactory result through negotiation with concerned enterprises. The goal is to minimize recourse to adversarial actions with their high costs, and take advantage of existing face-to-face relationships. In the EC, in contrast, adversarial actions are the rule (Sölvkjaer, 1992). 8 Danish informality has run into problems in the EC. While national authorities can select the form and methods of implementing EC directives, the EC Court of Justice has generally ruled that agreements are binding only when enacted in statutory law. Hence Denmark has had to rely more on legislation, specifically in labour-market regulation, than it would otherwise have done (Bruun, 1992:538–9). 9 Marterbauer (1993:472–3) describes how this process will affect Austria.

Real capital market integration is in progress and will be intensified…. A huge influx of foreign capital will ensue. The mobility barriers are highest for labour, especially for low-skilled employees. Language, social and geographical ties, specific skills and other determinants are hindering labour mobility…. Both effects will shift power towards capital in the economic and social partnership…. While Austrian real capital because of the long social partnership tradition may continue the cooperative ideology, the foreign capital will hardly be integrated in the system…. The legislative influence of the economic and social partnership will also diminish, because many areas of economic policy which are currently 266

NOTES

influenced by the social partners will be delegated to the EC authorities, e.g. agricultural-market regulations. On the other hand, the influence of the social partners concerning the social security system and the wage policy would on the whole remain. These parts of economic policy concern the relative immobile factor labour and can, therefore, even in an internal market differ between countries. 10 In the process, they learned to welcome the assistance of national official channels in their dealings with Brussels (Bregnsbo and Sidenius, 1993:88). 11 Despite the Parliament having greater power with the enactment of the Maastricht Accord, turnout for the June 1994 elections decreased from 58.5 per cent in 1989 to 56.4. And those who did vote typically did so to deliver a message to national political leaders on national political issues. 12 Here is J.F.Norstedt’s description of the Swedish identity as cited by Löfgren (1989:14).

To be Swedish is to have experienced the Swedish summer in all its glory, it is Christmas morning, it is the high school graduation. It is to have been dressed up for the last day of school and to have seen the sun set over the edge of the forest, it is to have lit the Advent candles and to have read Elsa Beskow and seen the King. It is to have walked across a barrack square and to have stood by a grave.

267

BIBLIOGRAPHY

Åberg, Rune (1989) ‘Distributive Mechanisms of the Swedish Welfare State—a formal Analysis and an Empirical Application’, European Sociological Review, 5: 167–82. Åberg, Yngve (1984) ‘Productivity Changes in Different OECD Countries 1953–1980’, Stockholm: IUI (Industriens Utrednings-Institut) Research Report No. 25. Abrahamsson, K., E.-S.Hultinger and L.Svenningsson (1990). ‘The Expanding Learning Enterprise in Sweden’, Stockholm: National Board of Education. Agell, Jonas and Per Lundborg (1993) ‘Theories of Unemployment: Survey Evidence from Swedish Manufacturing Firms’, Stockholm: IUI. Ahonen, Pertti (1991) ‘Rooting out Inefficiency, Cherishing Welfare: Reforming National Government Transfers in Finland, with a Special Reference to Health Care’, presented at the International Congress of Administrative Sciences Conference, Vienna, July, 1991. Albåge, Lars-Gunnar (1986) ‘Recent Trends in Collective Bargaining in Sweden’, International Labour Review, 125:107–18. Albert Michel (1991) Capitalisme contre Capitalisme, Paris: Seuil. Alestalo, M. and H.Uusitalo (1990) ‘Social Expenditure: A Decompositional Approach’, International Journal of Sociology, 20(3):37–68. AMS (The Swedish Labour Market Administration) (1990) Annual Report, Stockholm. Anckar, Dag (1992) ‘The Intensity Problem between Beneficient Rule and Responsive Rule’, paper prepared for presentation at the ECPR Joint Session of Workshops, April 1992, Limerick, Ireland. ——and Voitto Helander (1992) ‘Finland in the Wake of European Change’, The Political Quarterly, 1992:118–29. Andersen N.A. and P.Kjaer (1992) ‘Private Industrial Policy Campaigns in the Negotiated Economy: Economic Restructuring in Denmark’, presented at the SASE Conference. Irvine California, March, 1992. Andersson, J.-O, (1987) ‘The Economic Policy Strategies of the Nordic Countries’, in Hans Keman, Heikki Paloheimo and Paul F.Whitely (eds) Coping with Economic Crisis: Alternative Responses to Economic Recession in Advanced Industrial Societies, London: Sage. ——(1990) The 1992 Project from a Small Country Perspective, Stockholm: IUI. ——(1991) ‘Size, Integration and Unemployment: The Nordic Countries facing the European Single Market’, presented at the SASE/IAREP Conference, Stockholm, June, 1991. ——(1992) ‘Economic Integration, the Nordic Models and Unemployment’, presented at the EAEPE Conference. Paris: November, 1992. 268

BIBLIOGRAPHY ——P.Kosonen and J.Vartainen (1993) The Finnish Model of Economic and Social Policy—from Emulation to Crash, Turku, Finland: Economics Department, Abo Academy. Andersson S. and K.Eliasson (1991) ‘National Corporatism and the Challenges of the European Community: Implications for Norwegian Policy Making’, Working Paper #45; Center for European Studies. Oslo: Norwegian School of Management. Anheier, H.K. and W.Seibel (1991) The Third Sector: Comparative Studies of Nonprofit Corporations, Berlin: de Gruyer. Arneson, Richard J. (1990) ‘Is Work Special? Justice and the Distribution of Employment’. American Political Science Review, 84(4):1127–48. Arrow, Kenneth (1966) Social Choice and Individual Values, New York: John Wiley. ——(1974) The Limits of Organization, New York: Norton. Arter, David (1987) Politics and Policy-making in Finland, Sussex: Wheatsheaf. Arvidson, Lars and Kjell Rubenson (1991) ‘Education and Training of the Labour Force in the EFTA countries’, Stockholm: National Board of Education. Atkinson, A.B. (1975) The Economics of Equality, Oxford: Clarendon. Axelrod, Robert (1984) The Evolution of Cooperation, New York: Basic Books. Baldwin, Deborah (1992) ‘The Hard Sell’, Utne Reader, 49:1. Barber, B. (1993) ‘America Skips School: Why we talk so much about education and do so little’, Harper’s, 1722:39–47. Barr, Nicholas (1987) The Economics of the Welfare State, Stanford: Stanford University Press. ——(1992) ‘Economic Theory and the Welfare State: A Survey and Interpretation’, Journal of Economic Literature, 30:741–803. Bates, Robert H. (1990) ‘Macropolitical Economy in the Field of Development’, in James A.Alt and K.A.Shepsle (eds) Perspectives on Positive Political Economy, Cambridge: Cambridge University Press. Becker, Gary (1976) The Economic Approach to Human Behavior, Chicago: University of Chicago Press. ——(1986) ‘The Economic Approach to Human Behavior’ in Jon Elster (ed.) Rational Choice, New York: New York University Press. Bendor, Jonathan and Piotr Swistak (1991) ‘The Emergence of Stability and Cooperation’, presented at the 1991 meeting of the American Political Science Association, Washington D.C. Bergounioux A. and B.Manin (1989) Le Regime Social-Democrate, Paris: Presses Universitaires de France. Bergstrom, Hans (1991) ‘Swedish Politics and the Party System at the Crossroads’, West European Politics, 14(3):8–30. ——(1992) ‘Pressures behind the Swedish Health Reforms’, New York: Swedish Information Service. Berleen, G., C.Rehnberg and G.Wennström (1993) The Reform of Health Care in Sweden, Stockholm: SPRI. Bislev, Sven and R.Lindqvist (1992) ‘Sick-Leave Regimes: The Public-Private Mix in Sickness Provision’, in J.-E.Kolberg (ed.) The Study of Welfare State Regimes, Armonk N.Y.: M.E.Sharpe. Bjorksten, Ingmar (1991) ‘Cultural Vignettes from Sweden’, Viewpoint Sweden, New York: Swedish Information Service.

269

BIBLIOGRAPHY Blaas, Wolfgang (1992) ‘The Swiss Model: Corporatism or Liberal Capitalism’, in Pekkarinen, J., Pohjola, M. and B.Rowthorn (eds) (1992) Social Corporatism: A Superior Economic System?, Oxford: Clarendon Press. Blais, Andre and John McCallum (1986) ‘Government, Special Interest Groups, and Economic Growth’, in David Laidler (ed.) Responses to Economic Change, Volume 27 of the research studies prepared for the Royal Commission on the Economic Union and Development Prospects for Canada. Toronto: University of Toronto Press. Blaug, Mark (1968) Economic Theory in Retrospect, Homewood Ill: Irwin. Block, Fred (1990) Postindustrial Possibilities: A Critique of Economic Discourse, Berkeley: University of California Press. Bobrow, Davis B. and John S.Dryzek (1987) Policy Analysis By Design, Pittsburgh: University of Pittsburgh Press. Bogason, Peter (1993) ‘Decentralization Phase II and III: Towards a Postmodern Welfare State’, paper presented at the ECPR Joint Session of Workshops, April 1993, Leiden, the Netherlands. Boiney, John (1993) ‘You can fool all of the people…Evidence on the Capacity of Political Advertising to Mislead’, presented at the 1993 Congress of the APSA, Washington D.C. Boulding, Kenneth (1985) Human Betterment, London: Sage. Bowen, Ian (1970) Acceptable Inequalities, Montreal: McGill Queens. Bowie, Norman (1991) ‘Economics and the Enlightenment: Then and Now’, presented at the SASE/IAREP Conference. Stockholm, June, 1991. Brander, James A. (1988) Government Policy toward Business, Toronto: Butterworths. Bregnsbo, Henning (1992) ‘The Organizational System’, in Lyck, Lise (ed.) Denmark and EC Membership Evaluated, New York: St. Martins. ——and Nils Sidenius (1993) ‘Adapting Danish Interests to European Integration’, Scandinavian Political Studies, 16(1):73–92. Breit, William (1974) ‘Income Redistribution and Efficiency’, in Harold Hochman and George Peterson (eds) Redistribution through Public Choice, New York: Columbia University Press. Brennan, G. and J.M.Buchanan (1980) The Power to Tax, Cambridge: Cambridge University Press. ——(1985) The Reason of Rules, Cambridge: Cambridge University Press. Bruun, Niklas (1992) ‘Nordic Labour Law and the Internal Market of the European Community’, Scandinavian Studies, 64(4):529–43. Buchanan, Allen E. (1988) Ethics, Efficiency and the Market, Totowa, N.J.: Rowman and Littlefield. Buchanan, James M. (1987) ‘The Qualities of a Natural Economist’, in Charles K.Rowley (ed.) Democracy and Public Choice, Oxford: Basil Blackwell. ——(1988) ‘The Political Economy of the Welfare State’, Stockholm: IUI. ——(1989) Essays on the Political Economy, Honolulu: University of Hawaii Press. Burns, Tom (1990) ‘Models of Social and Market Exchange: Toward a Theory of Games and Social Behavior’, in Craig Calhoun et al. (eds) Structures of Power and Constraint: Papers in Honor of Peter M.Blau, Cambridge: Cambridge University Press. Calmfors, L. and Drifill, J. (1988) ‘Bargaining Structure, Corporatism and Macroeconomic Performance’, Economic Policy, 6:13–47.

270

BIBLIOGRAPHY Cameron, David (1978) ‘The Expansion of the Public Economy: A Comparative Analysis’, American Political Science Review, 72:1243–61. ——(1982) ‘On the Limits of the Public Economy’, The Annals of the American Academy of Political and Social Science, 459. ——(1984) ‘Social Democracy, Corporatism, Labour Quiescence, and the Representation of Economic Interest in Advanced Capitalist Society’, in John H.Goldthorpe (ed.) Order and Conflict in Contemporary Capitalism, Oxford: Oxford University Press. Carling, Alan H. (1990) ‘In defense of Rational Choice: Wood, Brenner, Cohen and the theory of history’, paper presented at the 1990 meeting of the American Political Science Association, San Francisco, California. Carlson-Page, N. and D.E.Levin (1992) ‘The Toy Industry Takes over Children’s Television’, Utne Reader, 49:1. Castles, Frances G. and Deborah Mitchell (1992) ‘Identifying Welfare-State Regimes: The Links Between Politics, Instruments and Outcomes’, Governance, 5(1):1–26. Cawson, A. (1986) Corporatism and Political Theory, Oxford: Blackwell. Centerwall, Brandon (1993) ‘Television and Violent Crime’, The Public Interest, 111:56– 71. Christianssen, Neil (1992) ‘The Danish No to Maastricht’, New Left Review, 195: 67–101. Coase, R.H. (1988) The Firm, the Market and the Law, Chicago: University of Chicago Press. Colchester, Nick (1992) ‘A Survey of the European Community’, The Economist, July 11, 1992. Coleman, James S. (1986) Individual Interests and Collective Action, Cambridge: University of Cambridge Press. Collins, R.K.L. and Jacobson, M.F. (1992) ‘Are we Consumers or Citizens?’, Utne Reader, 49:1. Corbett, Richard (1992) ‘The Intergovernmental Conference on Political Union’, Journal of Common Market Studies, 30(3):271–98. Coughlin, Richard M. (1989) ‘Economic Man in Sociological Context: Case Studies in the Mediation of Self-Interest’, unpublished paper. Cox, Andre (1988) ‘The Old and New Testaments of Corporatism’, Policy Studies, 36:2. Crouch, Colin (1990) ‘Trade Unions in the Exposed Sector: Their Influence on NeoCorporatist Behavior’, in R.Brunetta and C.Dell’Arminga (eds) Labour Relations and Economic Performance, Houndmills, England: Macmillan. Dagre, Tor (1989) ‘Norwegian Culture under International Pressure’, Oslo: Norwegian Information Service. Daly, Herman E. and John B.Cobb (1989) For The Common Good: Redirecting the Economy toward Community, the Environment and a Sustainable Future, Boston: Beacon. Dixit, A. and V.Norman (1978) ‘Advertising and Welfare’, Bell Journal, 9:1–17. Dore, Ronald (1988) ‘Rigidities in the Labour Market’, Government and Opposition, 23:4. ——(1990) ‘Japan: A Nation Made for Corporatism’, in Colin Crouch and Ronald Dore (eds) Corporatism and Accountability, Oxford: Clarendon. Downs, Anthony (1957) The Economic Theory of Democracy, New York: Harper and Row. Drucker, Peter F. (1989) The New Realities, New York: Harper and Row. Dueland, Peter (1992) ‘Cultural Politics in light of the EC’, in Lyck, Lise (ed.) Denmark and EC Membership Evaluated, New York: St. Martins. Dworkin, G., G.Bermant and P.G.Brown (1977) Markets and Morals, New York: Wiley. 271

BIBLIOGRAPHY Eliason, Leslie C. (1992) ‘Reading the Cards on the table: Danish Politics in the era of European Integration’, Scandinavian Studies, 64(4):529–43. Eliasson, Gunnar (1987) The Knowledge Base of An Industrial Economy, Stockholm: IUI. ——(1992) Business Competence, Organizational Learning and Economic Growth: Establishing the SSW Connection, Stockholm: IUI. Elster, Jon (1979) Ulysses and the Sirens: Studies in Rationality and Irrationality, Cambridge University Press. ——(1982) ‘Marxism, Functionalism, and Game Theory’ in Theory and Society, 11: 453–82. ——(1983) Sour Grapes, Cambridge: Cambridge University Press. ——(1985) Making Sense of Marx, Cambridge: Cambridge University Press. ——(1986) ‘Introduction’, in Jon Elster (ed.) Rational Choice, New York: New York University Press. ——(1989) The Cement of Society, Cambridge: Cambridge University Press. Erichsen, Vibeke (1993) ‘The New “Health Care State”—A Challenge to the Scandinavian Welfare State’, paper presented at the ECPR Joint Session of Workshops, April, 1993, Leiden, the Netherlands. Esping-Andersen, Gösta (1985) Politics Against Markets, Princeton: Princeton University Press. ——(1992) ‘The three Political Economies of the Welfare State’ in J.-E.Kolberg (ed.) The Study of Welfare State Regimes, Armonk N.Y.: M.E.Sharpe. ——and Walter Korps (1987) ‘From Poor Relief to Institutional Welfare States: the Development of Scandinavian Social Policy’, International Journal of Sociology, 16:3–4. ——(1984) ‘Social Policy as Class Policy in Post-war Capitalism: Scandinavia, Austria and Germany’, in Goldthorpe, John H. (ed.) Order and Conflict in Contemporary Capitalism, Oxford: Oxford University Press. ETUI (European Trade Union Institute) (1989) ‘The Trade Union Movement in Finland’, Brussels: ETUI. Etzioni, Amitai (1988) The Moral Dimension: Toward a New Economics, New York: The Free Press. Euromedia Research Group (1992) The Media in Western Europe, London: Sage. Fagerberg, Jan, Åden Cappelen and Lars Mjöset (1992) ‘Structural Change and Economic Policy’, Oslo: NUPI. Fallows, James (1988) More Like Us: Making America Great Again, Little Brown. Feige, Edgar L. (1989) The Underground Economies, New York: Cambridge: Cambridge University Press. Foster, John (1987) Evolutionary Macroeconomics, London: Allen and Unwin. Frank, Robert H. (1985) Choosing the Right Pond: Human Behavior and the Quest for Status, New York: Oxford. ——(1990) ‘A Theory of Moral Sentiments’, in Jane Mansbridge (ed.) Beyond Self-Interest, Chicago: University of Chicago Press. ——and Cook, Philip J. (1991) ‘Winner-Take-All Markets’, University of Western Ontario (London): Political Economy Research Group. Franklin, Daniel (1993) ‘The European Community’, The Economist, July 3, 1993, Survey: 5–20. Freeman, Richard (1988) ‘Labour Market Institutions and Economic Performance’, Economic Policy 6:64–80.

272

BIBLIOGRAPHY Friis, Peter A. (1992) ‘Fisheries Policy’, in Lyck, Lise (ed.) Denmark and EC Membership Evaluated, New York: St. Martin’s. Gallup, George Jr. and J.Castelli (1989) The People’s Religion, New York: Macmillan. Garnham, David (1991) ‘The Policy Cultures of Advanced Industrial Societies’, paper presented at the 1991 meeting of the American Political Science Association, Washington D.C. Gauthier, David (1982) ‘Reason and Maximization’, in Brian Barry and Russell Hardin (eds) Rational Man and Irrational Society?, London: Sage. ——(1986) Morals by Agreement, Oxford: Clarendon. ——(1988) ‘Morality, Rational Choice and Semantic Representation’, in Ellen Frankel Paul et al. (eds) The New Social Contract, Oxford: Basil Blackwell. Gerbner, G. and L.Gross (1976) ‘The Scary World of TV’s Heavy Watcher’, Psychology Today, April, 1976. Geyer, Robert (1992) ‘The Contradictions of Integration and Community: British and Norwegian Social Democrats in an Integrating Europe’, presented at the 1992 meeting of the American Political Science Association, Chicago, Ill. ——(1992a) ‘Democratic Socialism and the EC: The British Case’, Journal of European Integration, 16(1):5–28. Golden, Miriam, Peter Lange and Michael Wallerstein (1993) ‘The End of Corporatism’, in Sanford Jacoby (ed.) Work and Society: Global Perspectives, Los Angeles: UCLA Institute of Industrial Relations, forthcoming. Goldthorpe, John H. (1984) ‘Introduction’, in John Goldthorpe (ed.) Order and Conflict in Contemporary Capitalism, Oxford: Oxford University Press. Goodin, Robert (1986) ‘Laundering Preferences’, in Jon Elster and Aanund Hylland (eds) Foundations of Rational Choice Theory, Cambridge: Cambridge University Press. ——(1988) Reasons for Welfare: The Political Theory of the Welfare State, Princeton: Princeton University Press. Gorges, Michael J. (1992) ‘Euro-Corporatism after 1992’, presented at the 1992 meeting of the American Political Science Association, Chicago, III. Grahl, John and Paul Teague (1990) 1992—The Big Market. The Future of the European Community, London: Lawrence and Wishart. Guger, Alois (1992) ‘Corporatism: Success or Failure? Austrian Experiences’, in Pekkarinen, J., Pohjola, M. and B.Rowthorn (eds) Social Corporatism: A Superior Economic System?, Oxford: Clarendon Press. Gustafsson, Bengt and Hannu Uusitalo (1990) ‘Income distribution and redistribution during two Decades: Experiences from Finland and Sweden’, in Inge Persson (ed.) Generation Equality in the Welfare State: The Swedish Experience, Oslo: Norwegian University Press. Hagen, Kare (1992) ‘The Interaction of Welfare States and Labour Markets: The Institutional Level’, in J.-E.Kolberg (ed.) The Study of Welfare State Regimes, Armonk N.Y.: M.E.Sharpe. Haggroth, Sören (1993) From Corporation to Political Enterprise: Trends in Swedish Local SelfGovernment, Stockholm: Allmanna Fp¨rlaget. Hahn, Frank (1982) ‘On some Difficulties of the Utilitarian Economist’ in A.Sen and B.Williams (eds) Utilitarianism and Beyond, Cambridge: Cambridge University Press. Hall, Peter (1986) Governing the Economy: The Politics of State Intervention in Britain and France, Oxford: Basil Blackwell. 273

BIBLIOGRAPHY Hansen, Per Vejrup (1992) ‘Fiscal/taxation Policy’, in Lyck, Lise (ed.) Denmarkand EC Membership Evaluated, New York: St. Martins. ——(1992a) ‘Manpower: Structural Problems of the Labour Market’, in Lyck, Lise (ed.) Denmark and EC Membership Evaluated, New York: St. Martins. Hansson, Ingemar (1989) ‘The Underground Economy in Sweden’ in Edgar L. Feige The Underground Economies, New York: Cambridge. Hardin, Russell (1982) Collective Action, Baltimore: Johns Hopkins University Press. ——(1992) ‘Difficulties in the Notion of Economic Rationality’, in J.M.Gillroy and M.Wade (eds) The Moral Dimensions of Public Policy Choice, Pittsburgh: University of Pittsburgh Press. Hargreaves-Heap, Shaun (1989) Rationality in Economics, Oxford: Basil Blackwell. Harrison, Barbara G. (1989) ‘The Importance of Being Oprah’, New York Times Magazine, June 11, 1989. Harsanyi, John C. (1982) ‘Morality and the Theory of Rational Behavior’, in A. Sen and B.Williams (eds) Utilitarianism and Beyond, Cambridge: Cambridge University Press. Hauser, Jerzy and Andrezej Wojtyna (1991) ‘Evolution of Interest Representation in Poland’, presented at the SASE/IAREP Conference, Stockholm, June, 1991. Heckscher, Gunnar (1984) The Welfare State and Beyond, Minneapolis: University of Minnesota Press. Heclo, Hugh and Henrik Madsen (1987) Policy and Politics in Sweden: Principled Pragmatism, Philadelphia: Temple University Press. Hedström, Peter (1986) ‘From Political Sociology to Political Economy’, in Ulf Himmelstrand (ed.) The Sociology of Structure and Action, London: Sage. Heidar, Knut (1993) ‘The Norwegian Labour Party: En Attendant L’Europe’, West European Politics, 16(1):62–77. Heidenheimer, Arnold, Hugh Heclo and Carolyn Teich Adams (1990) Comparative Public Policy, New York: St. Martins. Helenius, Ralf (1993) ‘Fat Policies in Finland, A Consumer View’, presented at the SASE Conference, New York, March, 1993. Henning, Roger (1978) ‘Sweden: Political Interference with Business’, in M.P.C.M.Van Schendelen and R.J.Jackson (eds) The Politics of Business in Western Europe, London: Croom Helm. Hibbs, Douglas A. (1990) ‘Wage Dispersion and Trade Union Action in Sweden’, in Inge Persson (ed.) Generation Equality in the Welfare State: The Swedish Experience, Oslo: Norwegian University Press. Hirsch, E.D. (1988) Cultural Literacy, New York: Vintage. Hirsch, Fred (1976) Social Limits to Growth, Cambridge Mass: Harvard University Press. Hirschman, Albert (1970) Exit, Voice and Loyalty, Cambridge: Harvard University Press. ——(1982) ‘Rival Interpretations of Market Society: Civilizing, Destructive, or Feeble’, Journal of Economic Literature. 20:1463–84. ——(1992) Rival Views of Market Society and Other Recent Essays, Cambridge: Harvard University Press. Hirshleifer (1987) Economic Behavior in Adversity, Chicago: University of Chicago Press. Hodgson, Geoffrey (1993) ‘The Economics of Institutions’, EAEPE Newsletter, No. 10. Högsnes, Geir (1991) ‘Norwegian Wage Bargaining and the Impact of Different Norms of Fairness’, Oslo: Institutt for Samfunnsforskning.

274

BIBLIOGRAPHY ——and P.Veiden (1992) ‘Wage Inequalities—A Comparison of Austria and Norway’, presented at the SASE Conference, Irvine California, March, 1992. Hollingsworth, J.R. (1982) ‘The Political-Structural Basis for Economic Performance’, The Annals of the American Academy of Political and Social Science, 459:28–45. Holmberg, Soren (1991) ‘A Social Democratic Nosedive: Recent Trends in Swedish Public Opinion’, Gothenberg: Department of Political Science, University of Gothenberg. Huber, Evelyn and J.D.Stephens (1993) ‘The Swedish Welfare State at the Crossroads’, Current Sweden, New York: Swedish Information Service. Huntford, Roland (1971) The New Totalitarians, London: Allen Lane. Iannacone, L. (1991) ‘The Consequences of Religious Market Structure’, Rationality and Society, 3:156–77. Inglehart, Ronald (1988) ‘The Renaissance of Political Culture’, American Political Science Review, 82:1203–30. Iversen, Torben (1992) ‘Trends away from Corporatist Intermediation and the Logics of Consensual Wage Regulation: The Cases of Sweden and Denmark in Comparative Perspective’, presented at the 1992 meeting of the American Political Science Association, Chicago, Ill. Jamieson, Kathleen H. (1992) Dirty Politics, Deception, Distraction and Democracy, New York: Oxford. Jankowski, Richard (1993) ‘Responsible, Irresponsible and Westminster Parties: A Theoretical and Empirical Evaluation’, British Journal of Political Science, 23(1):107–29. Jenkins, Peter (1988) Mrs. Thatcher’s Revolutions: The Ending of the Socialist Era, Cambridge Mass.: Harvard University Press. Jenkins Stephen (1991) ‘The Measurement of Income Inequality’, in Lars Osberg (ed.) Economic Inequality and Poverty, Armonk, N.Y.: M.E.Sharpe. Juster, F.Thomas (1978) ‘Modern Economics and the Prospects for Social Welfare’, in Science, 200:192–4. Kangas O. (1991) The Politics of Social Rights, Stockholm: SOFI. ——and Palme, J. (1992) ‘The Private-Public Mix in Pension Policy’, in J.-E.Kolberg (ed.) The Study of Welfare State Regimes, Armonk N.Y.: M.E.Sharpe. Katona, George (1975) Psychological Economics, Amsterdam, Elsevier. Katzenstein, Peter (1985) Small States in World Markets: Industrial Policy in Europe, Ithaca, N.Y.: Cornell University Press. ——(1987) Policy and Politics in West Germany: The Growth of a Semisovereign State, Philadelphia: Temple University Press. Kelley, Jonathan and M.D.R.Evans (1993) ‘The Legitimacy of Inequality: Occupational Earnings in Nine Nations’, American Sociological Review, 99: 75–126. Keman, Hans (1984) ‘Policies and Consequences: A Cross-national Analysis of Public Policy-formation in Advanced Capitalist Democracies (1967–1981)’, in European Journal of Political Research, 12:147–69. ——and Paul F.Whiteley (1987) ‘Coping with Crisis: Divergent Strategies and Outcomes’, in Hans Keman, Heikki Paloheimo and Paul F.Whiteley (eds) Coping with the Economic Crisis: Alternative Responses to Economic Recession in Advanced Industrial Societies, London: Sage. Kern, Montague (1989) Thirty Second Politics: Political Advertising in the Eighties, New York: Praeger.

275

BIBLIOGRAPHY King, D.S. and B.Rothstein (1993) ‘Institutional Choices and Labour Market Policy: A British-Swedish Comparison’, Comparative Political Studies, 26:147–77. Kjellberg, Francesco (1981) ‘Local Government and the Scandinavian Welfare State’, presented to the Colloquy on the Reforms of Local and Regional Governments in Europe, Council of Europe, Linz, November, 1981. Klausen, Jytte (1991) ‘After Keynesianism: The Political Challenge of European Economic Integration to Social Democratic Labor Coalitions’, presented at the 1991 meeting of the American Political Science Association, Washington D.C. Knack, Stephen (1992) ‘Civil Norms, Social Sanctions and Voter Turnout’, Rationality and Society, 3, 156–77. Koblick, Steven (1975) Sweden’s Development from Poverty to Affluence, Minneapolis: University of Minnesota Press. Kolberg, Jon E. and G.Esping-Andersen (1992) ‘Welfare States and Employment Regimes’, in J.-E.Kolberg (ed.) Between Work and Social Citizenship, Armonk N.Y.: M.E.Sharpe. Kornai, J. (1986) ‘The Hungarian Reform Process: Visions, Hopes, and Reality’, Journal of Economic Literature, XXIV:1687–737. Korpi, Walter (1978) The Working Class in Welfare Capitalism, London: Routledgeand Kegan Paul. ——(1980) ‘Social Policy and Distributional Conflict in the Capitalist Democracies: A Preliminary Comparative Framework’, West European Politics, 3(3):296–316. ——(1991) ‘Political and Economic Explanations for Unemployment: A Cross-national and Longterm Analysis’, presented at the SASE/IAREP Conference, Stockholm, June, 1991. Krauthammer, Charles, ‘The Study of Turtles’, (excerpts from a Commencement Address), in Faculty of Arts Newsletter, McGill University, Fall 1993. Kubey, Robert and Mihaly Csikszentmihalyi (1990) Television and the Quality of Life, Hillsdale N.J.: Lawrence Erlmaum. Kuhlne, Stein and Per Selle (1990) ‘Meeting Needs in a Welfare State: Relations between Governments and Voluntary Organizations’, in Robert RE.Goodin and Alan Ware (eds) Needs and Welfare, London: Sage. Kunreuther, Howard (1987) ‘Comments’, in Robin M.Hogarth and Melvin W. Reder (eds) Rational Choice, Chicago: University of Chicago Press. Kurzer, Paulette (1991) ‘Unemployment in Open Economies: The Impact of Trade, Finance and European Integration’, Comparative Political Studies, 24(1): 3–30. Kuttner, Robert (1984) The Economic Illusion, Boston: Houghton Mifflin. Kydland F. and E.Prescott (1977) ‘Rules rather than Discretion: The Inconsistency of Optimal Plans’, Journal of Political Economy, 85:3. Laegried, Per (1992) ‘Rewards for High Public Office: The Case of Norway’, paper presented at the ECPR Joint Session of Workshops, April, 1992, Limerick, Ireland. ——and Paul Röness (1991) ‘Political Parties, Bureaucracies and Corporatism’, Bergen, Norway: LOS-senter Notat. Lafferty, William (1991) ‘The Political Transformation of the Social Democratic State: As the World moves in, Norway moves out’, West European Politics, 13(1): 79–100. Lane, Jan-Erik (1990) ‘The Epistimoligical Foundations of Public Choice’, Scandinavian Political Studies, 13(1):65–82. ——(1991) ‘Interpreting the Swedish Market’, (special issue) West European Politics, 14(3):1–7.

276

BIBLIOGRAPHY ——, D.McKay and K.Newton (1991) Political Data Handbook: OECD Countries, Oxford: Oxford University Press. ——, T.Martikainen, P.Svensson, G.Vogt and H.Valen (1993) ‘Scandinavian Exceptionalism Reconsidered’, Journal of Theoretical Politics, 5(2):195–230. Lange, André and Jean-Luc Renaud (1989) The Future of the European Audiovisual Industry, Manchester: European Institute for the Media. ’Lange, Peter (1992) ‘The Politics of the Social Dimension’ in Alberto Sbragia (ed.) Europolitics: Institutions and Policymaking in the ‘New’ European community, Washington D.C.: Brookings. ——and G.Garrett (1985) ‘The Politics of Growth: Strategic Interaction and Economic Peformance in the Advanced Industrial Democracies’, in The Journal of Politics, 47:792– 827. ——and George Tsebelis (1988) ‘Wage Negotiations and Strikes: An Equilibrium Analysis’, presented at the 1988 Congress of the APSA, Washington D.C. Lapham, L., M.Pollan and E.Etheridge (1987) The Harper’s Index Book, New York: Henry Holt. Larsen, Helge O. (1992) ‘Political Leadership and the New Political Institutionalism’, paper presented at the ECPR Joint Session of Workshops,April, 1992, Limerick, Ireland. Larson, Erik (1992) ‘Watching Americans watch TV’, Atlantic, March, 1992: 66–80. Lash, Scott and John Urry (1987) The End of Organized Capitalism, Madison, University of Wisconsin Press. Lehmbruch, Gerhard (1984) ‘Concertation and the Structure of Corporatists Networks’, in John Goldthorpe (ed.) Order and Conflict in Contemporary Capitalism, Oxford: Oxford University Press. Leith William (1992) ‘An Interview with Don Delillo’, excerpted from The Independent, Adbusters, 2(2):78–80. Lewin Leif (1989) Ideology and Strategy: A Century of Swedish Politics Cambridge: Cambridge University Press. ——(1991) Self-Interest and Public Interest in Western Politics, Oxford: Oxford University Press. Lewis, Alan (1982) The Psychology of Taxation, New York: St. Martin’s. Liess, William Robert (1988) The Limits to Satisfaction, Montreal: McGill-Queens University Press. Lijphart, Arend (1984) Democracies: Patterns of Majoritarian and Consensus Government in TwentyOne Countries, New Haven: Yale University Press. ——and M.L.Crepaz (1991) ‘Corporatism and Consensus Democracy in Eighteen Countries: Conceptual and Empirical Linkages’, British Journal of Political Science, 21(1):235–56. Lilja, R., T.Santamaki-Vuori and Guy Standing (1990) Unemployment and Labour Market Flexibility in Finland, Geneva: ILO, Lindbeck, Assar (1983) Interpreting Income Distributions in a Welfare State, Stockholm: IIES, Lindblom, Charles (1959) ‘The Science of Muddling Through’, Public Administration Review, 19:79–88. Linde, Claes and Peter Ehn (1990) ‘The Swedish Administrative Elite’, presented at the 1990 meeting of the American Political Science Association, San Francisco, California. Lindström, Ulf (1991) ‘East European Social Democracy: Reborn to be Rejected’, in L.Karvonen and J.Sundberg, (eds) Social Democracy in Transition, Aldershot U.K.: Dartmouth Publishing. 277

BIBLIOGRAPHY Lodge, Juleit (1990) ‘Social Europe’, Journal of European Integration XIII (2–3): 151–67. Logue, John and Eric Einhorn (1989) Modern Welfare States: Politics and Policies in Social Democratic Scandinavia, New York: Praeger. Löfgren, Orvar (1989) ‘The Nationalization of Culture’, Ethnologia Europaea, XIX:5–23. Luif, Paul (1990) ‘Austria’s Application for EC membership: Historical Background, Reasons and Possible Results’ in Finn Laursen (ed.) EFTA and the EC Implications for 1992, Maastricht, the Netherlands: European Institute of Public Administration. Lundberg, Lars (1992) ‘European Economic Integration and the Nordic Countries’ Trade’, Journal of Common Market Studies, 30:23–52. Lyck, Lise (1992) ‘Industrial and Technology Policy’, in Lise Lyck (ed.) Denmark and EC Membership Evaluated, New York: St. Martins. ——(1992a) ‘Monetary Policy’, in Lise Lyck (ed.) Denmark and EC Membership Evaluated, New York: St. Martins. ——(1992b) ‘Postscript: Denmark and the Maastricht Agreement—Perspectivesfor Denmark, EC and Europe’, in Lise Lyck (ed.) Denmark and EC Membership Evaluated, New York: St. Martins. McClennen, Edward F. (1990) ‘Foundational Explorations for a Normative Theory of Political Economy’, Constitutional Political Economy 1(1):27–99. McConnell, Grant (1987) Private Power and American Democracy, New York: McGraw-Hill. McFarlane, Andrew S. (1983) ‘Public Interest Lobbies versus Minority Faction’, in Allan J.Cigler and B.A.Loomis (eds) Interest Group Politics, Washington DC: CQ Press. Mclean, Iain (1987) Public Choice, Oxford: Basil Blackwell. MacShane, Denis (1991) ‘Trade Unions and Europe’, The Political Quarterly 62(3):351–64. Majone, G. (1992) ‘The European Community between Social Policy and Social Regulation’, presented at the 1992 meeting of the American Political Science Association, Chicago, III. Maggiore, Matteo (1990) Audiovisual Production in the Single Market, Luxembourg: Commission of the European Communities. Mansbridge, Jane (1990) ‘The Rise and Fall of Self-interest as the Explanation ofPolitical Life’, in Jane Mansbridge (ed.) Beyond Self-Interest, Chicago: University of Chicago Press. Maor, Moshe (1991) ‘The 1990 Danish Election: An Unnecessary Contest?’, West European Politics, 14(3):209–15. March, James G. (1986) ‘Bounded Rationality, Ambiguity, and the Engineering of Choice’, in Jon Elster (ed.) Rational Choice, New York: New York University Press. ——and Johan P.Olsen (1989) Rediscovering Institutions: The Organizational Basis of Politics, New York: The Free Press. Margolis, H. (1982) Selfishness, Altruism and Rationality, Cambridge: Cambridge University Press. Marks, Gary (1986) ‘Neocorporatism and Incomes Policy in Western Europe and North America’, Comparative Politics, 1986: April. Marquand, David (1988) The Unprincipled Society, London: Jonathan Cape. Marterbauer, Markus (1993) ‘Austrian Economic and Social Partnership and European Integration’, Economic and Industrial Democracy 14:459–72. Marshall, W. and M.Schram (eds) (1993) Mandate for Change: Blueprint for a New America, New York: Democratic Leadership Council—Berkley Books. Martin, Andrew (1988) ‘Labor, Politics, and Changing International Political Economy’, presented at the 1988 Congress of IPSA, Washington DC. 278

BIBLIOGRAPHY Martinussen, W. (1993) ‘Welfare State Support in Achievement-Oriented Hearts: The Case of Norway’, in E.J.Hansen et al. (eds) Welfare Trends in the Scandinavian Countries, Armonk, N.Y.: M.E.Sharpe. Masters, M.F. and J.D.Robertson (1988) ‘Class Compromises in Industrial Societies’, American Political Science Review, 82:1183–202. Mesthene, Emmanuel (1974) ‘On the Ideal-Real Gap’, in Robin Marris (ed.) The Corporate Society, New York: John Wiley. Meyerson, Per-Martin (1992) ‘Where is Sweden Heading?’ Viewpoint Sweden, New York: Swedish Information Service. Miller, Mark C. (1988) Boxed-In: The Culture of TV, Evanston Ill.: Northwestern University Press. Milner, Henry (1976) The Problem of Scientific Authority, Ph.D Dissertation, Carleton University. ——(1987) ‘Corporatism and the Microeconomic Foundations of Swedish Social Democracy: the Swedish Model Revisited’, Scandinavian Political Studies, 10: 239–53. ——(1989) Sweden: Social Democracy in Practice, Oxford: Oxford University Press. ——(1989a) ‘Knowledge for the Many: The Cultural Foundations of the Swedish “Model”’, New York: Swedish Information Service. Mishan, E.J. (1974) ‘On the Economics of Disamenity’, in Robin Marris (ed.) The Corporate Society, New York: John Wiley. Mjöset, Lars (1987) ‘Nordic Economic Policies in the 1970s and 1980s’, International Organization 41:403–56. ——(1992) ‘The Nordic Model never Existed, but Does it have a Future?’ Scandinavian Studies, 64(4):529–43. Moene, Karl Ove and Michael Wallerstein (1992) ‘The Decline of Social Democracy’, presented at the 1992 meeting of the American Political Science Association, Chicago, Ill. Mosely, Hugh G. (1989) ‘The Social Dimension of European Unity: National Standards of Social Protection in a Common Market’, presented to the 1989 meeting of the American Political Science Association, Atlanta, Georgia. Moyers, Bill (1989) The Public Mind Series, Public Broadcasting System, US, Fall 1989. Muller, Edward N. (1986) ‘Distributions of Income in Advanced Capitalist Societies: Political Parties, Labour Unions, and the Industrial Economy’, presented at the American Political Science Association, Annual Meeting, September 1986, Washington D.C. Murray, Charles (1984) Losing Ground: American Social Policy: 1950–1980, New York: Basic Books. Neilson, Hans J. (1992) ‘The Danish Voters and the Referendum in June 1992 on the Maastricht Agreement’, in Kelstrup, Morton (ed.) European Integration and Denmark’s Participation, Copenhagen: Copenhagen Political Studies Press. Neilson, Klaus and Ove Pedersen (1988) ‘The Negotiated Economy: Ideal and History’, Scandinavian Political Studies, 11(2):79–102. Newcomb, Horace (1976) Television: the Critical View, New York, Oxford. Ng, Yew-Kwang (1983) Welfare Economics, London, Macmillan. Nibert, David (1991) ‘The Reemergence of State Lotteries in the United States: Economic Cannibalism in a Troubled Capitalist State’, paper presented at the IARE/SASE Conference, Stockholm, Sweden.

279

BIBLIOGRAPHY Nicolaides, Phedon (1988) ‘Limits to the Expansion of Neoclassical Economics’, Ca,mbridge Journal of Economics, 12:313–28. Norgaard, Gert (1992) ‘Labour Mobility’, in Lise Lyck (ed.) Denmark and EC Membership Evaluated, New York: St. Martins. North, Douglass C. (1981) Structure and Change in Economic History, New York: Norton and Company. ——(1985) ‘Institutions, Transactions Costs and Economic Growth’ (Political Economy Working Paper), St. Louis: Washington University. ——(1990a) Institutions, Institutional Change and Economic Performance, New York: Cambridge. ——(1990b) ‘Institutions and their Consequences for Economic Performance’, in Karen S.Cook and Margaret Levi (eds) The Limits of Rationality, Chicago: University of Chicago Press. Oaklander, Harold (1991) ‘Japanese Life Time Employment Revisited’, presented at the SASE/IAREP Conference, Stockholm, June, 1991. OECD (1982) Advertising aimed at Children. ——(1989) Education in OECD Countries, 1986–87. ——(1989a) OECD Environmental Data, Compendium, 1989. ——(1990) Further Education and Training of the Labour Force: Germany. ——(1990a) OECD Employment Outlook. ——(1990b) The Personal Income Tax Base: A Comparative Summary. ——(1990c) The Tax/benefit Position of Production Workers: 1986–1989. ——(1990d) Main Science and Technology Indicators. ——(1990e) Labour Market Policies for the 1990s. ——(1991a) OECD Employment Outlook. ——(1991b) OECD Economic Surveys: Sweden. O’Guinn, Thomas C. and L.J.Shrum (1991) ‘Mass-Mediated Social Reality: The Social Cognition and Ecology of Economic Norms’, presented at the SASE/ IAREP Conference. Stockholm, June, 1991. O’Higgins, M., G.Schmaus and G.Stevenson (1990) ‘Income Distribution and Redistribution’, in T.M.Smeeding, M.O’Higgins and L.Rainwater (eds) Poverty, Inequality and Income Distribution in Comparative Perspective, Washington D.C.: Urban Institute Press. Ohrström, Lilian (1991) Research: The Swedish Approach, Stockholm: The Swedish Institute. Okun, Arthur H. (1975) ‘Inflation: its Mechanics and Welfare Costs’, in A.H.Okun and G.L.Perry (eds) Brookings Papers on Economic Activity, 1975:2. Olafsson, Stefan (1992) ‘The Rise of Decline of Work in the Welfare State? Equality and Efficiency Revisited’, in J.-E.Kolberg (ed.) Between Work and Social Citizenship, Armonk N.Y.: M.E.Sharpe. Olgaard, Anders (1982) ‘The Danish Economy after 1945’, Copenhagen: Royal Ministry of Foreign Affairs. Oliver, Leonard P. (1987) Study Circles: Coming Together for Personal Growth and Social Change, Washington DC: Seven Locks. Oliver, Pamela, Gerald Marwell and Ruy Teixeira (1985) ‘A Theory of the Critical Mass: Interdependence, Group Heterogeneity, and the Production of Collective Action’, American Journal of Sociology, 91(3):522–56. Olson, Mancur (1965) The Logic of Collective Action, Cambridge Mass.: Harvard University Press.

280

BIBLIOGRAPHY ——(1974) ‘On the Priority of Public Problems’, in Robin Marris (ed.) The Corporate Society, New York: John Wiley. ——(1982) The Rise and Decline of Nations, New Haven: Yale University Press. ——(1983) An Approach to Public Policy that Transcends Outdated Ideologies, Berlin: Wissenschaftzentrum. ——(1986) ‘An Appreciation of the Tests and Criticisms’, Scandinavian Political Studies 9(1):65– 80. ——(1986a) ‘A Theory of the Incentives Facing Political Organizations’, International Political Science Review, 7(2):165–89. ——(1987) ‘Why Welfare-State Redistribution is a Great Idea’, in Charles K. Rowley (ed.) Democracy and Public Choice, Oxford: Basil Blackwell. ——(1989) ‘Is Britain the Wave of the Future?’ L.S.E. Quarterly, 3(4):279–304. ——(1990) How Bright are the Northern Lights? Some Questions about Sweden, Lund: Lund University Press. ——(1990a) ‘Toward a Unified View of Economics and the other Social Sciences’, in James A.Alt and K.A.Shepsle (eds) Perspectives on Positive Political Economy, Cambridge: Cambridge University Press. Olson, Walter K. (1992) The Litigation Explosion, New York: Penguin. Ordeshook, Peter C. (1990) ‘The Emerging Discipline of Political Economy’, in James A.Alt and K.A.Shepsle (eds) Perspectives on Positive Political Economy, Cambridge: Cambridge University Press. Ostergård, Uffe (1992) ‘Danish Identity, European, Nordic or Peasant’, in Lise Lyck (ed.) Denmark and EC Membership Evaluated, New York: St. Martins. Ostrom, Elinor (1990) Governing the Commons, Cambridge: Cambridge University Press. ——(1991) ‘Rational Choice Theory and Institutions’, American Political Science Review, 85:237– 43. Paloheimo, Heikki (1984) ‘Political Struggle and Economic Development in Developed Capitalist Countries’, European Journal of Political Research, 12: 389–406. ——(1986) ‘The Effect of Trade Unions and Governments on Economic Growth’, paper prepared for the Workshop on National Models at the ECPR Joint Session of Workshops, 1–6 April, 1986, Gothenborg. ——(1988) ‘The Effect of Trade Unions and Governments on Economic Performance’, paper presented to the IEA conference on Markets, Institutions and Cooperation: Labour Relations and Economic Performance, Venice, October 1988. ——(1990) ‘Between Liberalism and Corporatism: The Effect of Trade Unions and Governments on Economic Performance in 18 OECD Countries’, in R. Brunetta and C.Dell’Arminga (eds) Labour Relations and Economic Performance, Houndmills, England: Macmillan. ——(1990a) ‘Micro Foundations and Macro Practices of Centralized Industrial Relations’, in European Journal of Political Research, 18:389–406. Pålsson, Anne-Marie (1990) ‘Economic Policy and the distribution of Wealth’, in Inge Persson (ed.) Generating Equality in the Welfare State: The Swedish Experience, Oslo: Norwegian University Press. Panitch, Leo (1988) ‘Corporatism: A Growth Industry Reaches the Monopoly Stage’, with reply by Alan Cawson, Canadian Journal of Political Science, XXI: 813–22.

281

BIBLIOGRAPHY Pedersen, Ove (1991) ‘The Institutional History of the Danish Polity: From a Government centered to a Center Drifting form of State’, presented at the SASE/IAREP Conference, Stockholm, June, 1991. Pekkarinen, J. (1992) ‘Corporatism and Economic Performance in Sweden, Norway, and Finland’, in J.Pekkarinen M.Pohjola and B.Rowthorn (eds) Social Corporatism: A Superior Economic System?, Oxford: Clarendon Press. ——M.Pohjola and B.Rowthorn (1992) ‘Introduction’, in J.Pekkarinen, M. Pohjola and B.Rowthorn (eds) Social Corporatism: A Superior Economic System?, Oxford: Clarendon Press. Pelikkan, Pavel (1987) ‘Towards a Dynamic Analysis of Economic Institutions and Policies’, in Gunnar Eliasson (ed.) The Economics of Institutions and Markets, Stockholm: IUI. ——(1991) ‘The Dynamics of Economic Systems, or how to Transform a Failed Socialist Economy’, presented at the 1991 meeting of European Association for Evolutionary Political Economy, Vienna, Austria. Persson-Tanimura, Inga (1988) ‘The Welfare State and Individual Assets’, Report 23, Maktutredningen (The Study of Power and Democracy in Sweden: Uppsala. Pestoff, Victor (1991) ‘The Demise of the Swedish Model and the Rise of Organized Business as a Major Political Actor’, presented at the SASE/IAREP Conference, Stockholm, June, 1991. Piore, Michael and Charles Sabel (1985) The Second Industrial Divide, New York: Basic. Pohjola, M. (1991) ‘The Future of Nordic Corporatism’, in A.Kasvio, C.Maki and M.McDaid Work and Social Innovation in Europe, Tampere Finland: Work Research Center. Postman, Neil (1985) Amusing Ourselves to Death, New York: Viking. ——and Steve Powers (1992) How to Watch the TV News, New York: Penguin. Premfors, Rune (1991) ‘The “Swedish Model” and Public Sector Reform’, West European Politics, 14:83–95. Przeworski, Adam (1985) Capitalism and Social Democracy, Cambridge: Cambridge Press. Quirk, Paul J. (1989) ‘The Cooperative Resolution of Policy Conflict’, American Political Science Review, 83:905–21. Rapoport, Anatol (1992) ‘Game Theory Defined: What it is and is not’, Rationality and Society, 4(1):74–82. Rawls, John (1971) A Theory of Justice, Cambridge: Harvard University Press. ——(1982) ‘Social Unity and Primary Goods’, in A.Sen and B.Williams (eds) Utilitarianism and Beyond, Cambridge: Cambridge University Press. Rehn, Gösta (1980) ‘Anti-Inflationary Expansion Policies’, Stockholm: The Swedish Institute for Social Research (SOFI). ——(1987) ‘State, Economic Policy and Industrial Relations in the 1980s: Problems and Trends’, Economic and Industrial Democracy, 6:61–100. ——and K.H.Petersen (1980) Education and Youth Employment in Sweden and Denmark, New York: The Carnegie Foundation. Reich, Robert (1991) The Work of Nations. Preparing Ourselves for the 21st Century, New York: Knopf. Reif, K. and R.Inglehart (1991) Eurobarometer: The Dynamics of European Public Opinion, New York: Macmillan. Renshaw, Geoffrey (1986) Adjustment and Economic Performance in Industrialized Countries, Geneva: ILO.

282

BIBLIOGRAPHY Reve, Torger (1992) ‘Learning to Compete in a Deregulated Credit Market: A Lesson in Banking Failure’, presented at the SASE Conference, Irvine California, March, 1992. Rexed, Knut (1991) ‘Swedish Labour During the 1990s’, New York: Swedish Information Service. Rhoads, Steven (1985) The Economists’ View of the World, New York: Cambridge University Press. Rhodes, Martin (1991) ‘The Social Dimension of the Single European Market: National versus Transnational Regulation’, European Journal of Political Research, 12:147–69. ——(1992) ‘The Future of the Social Dimension: Labour Market Regulation in post-1992 Europe’, Journal of Common Market Studies, 245–80. Richardson, Jeremy and Sonia Mazey (1992) ‘Interest Groups and European Integration’, paper presented a the Political Studies Association Conference, April, 1992, Belfast, Northern Ireland. Riker, William (1982) Liberalism Against Populism: A Confrontation between the Theory of Democracy and the Theory of Social Choice, San Francisco: Freeman. Riley, Jonathan, (1988) Liberal Utilitarianism, Cambridge: Cambridge University Press. Ring, Hans (1993) ‘Refugees in Sweden: Inclusion and Exclusion in the Welfare State’, paper presented at the ECPR Joint Session of Workshops, April, 1993, Leiden, the Netherlands. Ringen, Stein (1986) Difference and Similarity: Two studies in Comparative Income distribution, Stockholm: SOFI. ——(1987) The Possibility of Politics: A Study in the Political Economy of the Welfare State, Oxford, Clarendon Press. Robinson, Ian (1992) ‘Labour Movement Power and Union Density: OECD Divergence in Periods of Labour Market Regime Change’, presented at the 1992 meeting of the American Political Science Association, Chicago, Ill. Roemer, John E. (1992) ‘Can there be Socialism after Communism?’, presented at the SASE Conference, Irvine California, March, 1992. Rokkan, Stein (1966) ‘Norway: Numerical Democracy and Corporate Pluralism’, in Robert A.Dahl (ed.) Political Oppositions in Western Democracies, New Haven: Yale University Press. Rothstein, Bo (1992) ‘The Crisis of the Swedish Social Democrats and the Future of the Welfare State’, presented at the 8th International Conference of Europeanists, Chicago: March 1992. Rose, Jonathan (1989) ‘Down and Out in Washington on $89,500 a Year’, Washington Monthly, July-August. Rowthorn, B. (1988) ‘Solidaristic Corporatism and Labour Market Performance’, Cambridge U.K.: Cambridge University, Faculty of Economics. ——(1992) ‘Corporatism and Labour Market Performance’, in J.Pekkarinen, M. Pohjola and B.Rowthorn (eds) Social Corporatism: A Superior Economic System?, Oxford: Clarendon Press. Sainsbury, Diane (1991) ‘Swedish Social Democracy in Transition: The Party’s Record in the 1980s and the Challenge of the 1990s’, West European Politics, 14: 31–57. ——(1992) ‘Welfare State Retrenchment and Restructuring: Policy Choices in the US, the UK, the Netherlands and Sweden during the 1980s’, presented at the 1992 meeting of the American Political Science Association, Chicago, Ill. Salminen, Ari (1991) Organized Welfare: The Case of Finland’s Welfare Bureaucracy—A Nordic Comparison, New York: Peter Lang. 283

BIBLIOGRAPHY Saltman R.B. and C.Von Otter (1992) Planned Markets and Public Competition, London: The Open University. Sanchez-Tabernero, A. (1993) Media Concentration in Europe, Manchester: European Institute for the Media. SAP (Social Democratic Labour Party of Sweden) (1991) ‘Sweden in a New Europe’, Political Report No. 2, Stockholm. ——(1993) ‘Social Democracy on the Eve of the EC Membership Negotiations’, official translation of position adopted by the Parliamentary Group, January 19, 1993. Sauerberg, Steen (1992) ‘Parties, Voters, and the EC’, in Lise Lyck (ed.) Denmark and EC Membership Evaluated New York: St. Martins. Savoie, Donald J. (1989) The Politics of Public Spending in Canada, Toronto: University of Toronto Press. Scharpf, Fritz (1981) The Political Economy of Inflation and Unemployment in Western Europe: an Outline, Berlin: Wissenschaftszentrum. ——(1987) The Political Calculus of Inflation and Unemployment in Western Europe: an Outline, Cambridge Mass.: Harvard University, Center for European Studies. ——(1987a) ‘Interpretation of Inflation and Unemployment in Western Europe’, Journal of Public Policy, 7(3):227–57. ——(1990) ‘Games Real People Could Play: The Problem of Mutual Predictability’, Rationality and Society, 2(4):471–94. ——(1991) Crisis and Choice in European Social Democracy, Ithaca, N.Y.: Cornell University Press. Schelling, Thomas (1974) ‘On the Ecology of Micromotives’, in Robin Marris (ed.) The Corporate Society, New York: John Wiley. Schmid, Gunther (1991) ‘Equality and Efficiency in the Labour Market: A Theory of Cooperative Competition’, presented at the SASE/IAREP Conference, Stockholm, June, 1991. Schmitter, Philippe C. (1981) ‘Interest Intermediations and Regime Governability in Contemporary Western Europe and North America’, in Suzanne Berger et al. (eds) Organizing Interests in Western Europe, Cambridge University Press. ——(1985) ‘Neo-Corporatism and the State’, in Wyn Grant (ed.) The Political Economy of Corporatism, Macmillan: London. Schou, Tove Lise (1992) ‘The New Debate in Denmark on Denmark’sIntegration’, paper presented at the ECPR Joint Session of Workshops, April, 1992, Limerick, Ireland. Schwartz-Shea, Peregrine and Randy T.Simmons (1991) ‘Egoism, Parochialism, and Universalism: Experimental Evidence from the Layered Prisoners’ Dilemma’, Rationality and Society, 3(1):106–32. Scitovsky, Tibor (1976) The Joyless Economy, New York: Oxford University Press. Selle, Per, (1991) ‘The Idea of Equality and Security in Nordic Social Democracy’, in L.Karvonen and J.Sundberg (eds) Social Democracy in Transition, Aldershot U.K.: Dartmouth Publishing. Sen, Amartya (1973) ‘Behavior and the Concept of Preference’, Economica, August 1973:240– 59. ——(1977) ‘Rational Fools: A Critique of Behavioral Foundations of Economic Mn’, Philosophy and Public Affairs, 6:317–44. Shames, Laurence (1989) The Hunger for More: Searching for Values in an Age of Greed, New York: Times Books. 284

BIBLIOGRAPHY Shepsle, Kenneth A. (1989) ‘Studying Institutions: Some Lessons from the Rational Choice Approach’, Journal of Theoretical Politics, 1(2):131–49. Silvennoinen, Heikki (1992) ‘Education in Societal and Entrepreneurial Labour Policy’, LIEF, 4:64–9. Sipponen, K. (1991) ‘The Political Life of Economic Interest Organizations in Finland’, in Matti Wiberg (ed.) The Political Life of Institutions, Helsinki: Tiedekirja. Smeeding, T.M. (1991) ‘Cross-National Comparisons of Inequality and Poverty Position’, in Lars Osberg (ed.) Economic Inequality and Poverty, Armonk, N.Y.: M.E.Sharpe. ——, M.O’Higgins and L.Rainwater (1990) ‘The Significance of LIS for Comparative Social Policy Research’, in T.M.Smeeding, M.O’Higgins and L. Rainwater (eds) Poverty, Inequality and Income Distribution in Comparative Perspective, Washington D.C.: Urban Institute Press. ——and Rainwater, L. (1991) ‘Cross National Trends in Income Poverty and Dependency’, Joint Center for Political and Economic Studies Conference Paper, Washington D.C. ——and Schmaus, G. (1990) ‘The LIS Database: Technical and Methological Aspects’, in T.M.Smeeding, M.O’Higgins and L.Rainwater (eds) Poverty, Inequality and Income Distribution in Comparative Perspective, Washington D.C.: Urban Institute Press. Smith, R.E. (1992) ‘Privacy’s End’, Utne Reader, 49:1. Smolensky, Eugene et al. (1979) ‘Postfisc Income Inequality: A Comparison of the United States and West Germany’, in John R.Moroney (ed.) Income Inequality, Toronto: Lexington. Sölvkjaer, Evan (1992) ‘Competition Law’, in Lise Lyck (ed.) Denmark and EC Membership Evaluated, New York: St. Martins. Sorensen, Rune (1987) ‘Microeconomic Policy and Government Popularity in Norway 1963–1986’, presented at the meeting of the Nordic Association for Political Science, August 20–3, 1987, Copenhagen. Steinmo, Sven (1988) ‘Social Democracy versus Socialism: Goal Adaptation in Social Democratic Sweden’, Politics and Society, 16:403–46. ——(1988a) ‘Sharing Policy Preferences: Political Institutions and Tax Policy Outcomes in the United States, Sweden and Britain’, presented at the 1988 meeting of the American Political Science Association, Washington D.C. ——(1989) ‘Political Institutions and Tax Policy Outcomes in the United States, Sweden and Britain’, World Politics, 41(4):500–35. Stenholme, Britta (1984) The Swedish School System, Stockholm: The Swedish Institute. Stewart, Jenny (1992) ‘Corporatism, Pluralism and Political Learning’, Journal of Public Policy, 12(3):243–55. Stiglitz, Joseph et al. (1989) The Economic Role of the State, Oxford: Basil Blackwell. ——(1987) ‘The Causes and Consequences of the Dependence of Quality on Price’, Journal of Economic Literature, XXV:1–48. Streeck, W. (1981) ‘Qualitative Demands and the Neo-Corporatist Manageability of Industrial Relations in West Germany at the Beginning of the Eighties’, British Journal of Industrial Relations, 14:149–69. ——(1987) ‘The Uncertainties of Management and the Management of Uncertainty’, International Journal of Political Economy, 17:57–87. ——(1987a) ‘Skills and the Limits of Neo-Liberalism: The Enterprise of the Future as a Place of Learning’, presented at the Conference on Changes in work and in Society, Turin: 27–8 November. 285

BIBLIOGRAPHY ——(1988) ‘Comment’, in Kregel, J.A. et al. (eds) Barriers to Full Employment, New York: St. Martins. ——(1988a) ‘Comment on Ronald Dore “Rigidities in the Labour Market”’, Government and Opposition, 23:4. ——and Philippe C.Schmitter (1985) ‘Introduction’, in Wolfgang Streeck and Philippe C.Schmitter (eds) Private Interest Government, London: Sage. ——(1992) ‘From National Corporatism to Transnational Pluralism: Organized Interests in the Single European Market’, in Wolfgang Streeck (ed.) Social Institutions and Economic Performance, London: Sage. Strombeck, Rita (1991) ‘The Swedish Study Circle-Possibilities for Application to Health Education in the United States’, Health Education Research, 6(1): 7–17. Stuart, Andrew (1992) ‘The Finnish National Ethos’, LEIF, Fall 1992. Sugden, Robert (1981) The Political Economy of Public Choice, Oxford: Martin Robertsons. Suzumara, Katoro (1983) Rational Choice, Collective Decisions and Social Welfare, Cambridge: Cambridge University Press. Swank, Duane (1993) ‘Social Democracy, Equity and Efficiency in an Interdependent World’, paper presented at the 1993 meeting of the American Political Science Association, Washington D.C. Swedberg, Richard (1990) Economics and Sociology, Redefining their Boundaries:Conversations with Economists and Sociologists, Princeton: Princeton University Press. Swenson, Peter (1991) ‘Managing the Managers: On the Swedish Employers’ Association and the Fall and Rise of Labour Market Dualism’, presented at the SASE/IAREP Conference, Stockholm, June, 1991. Tarantelli, E. (1986) ‘The Regulation of Inflation and Unemployment’, Industrial Relatons, 25:1–15. Taylor, Michael (1976) Anarchy and Cooperation, London: Wiley. ——(1987) The Possibility of Cooperation, New York: Cambridge. Tetlock, Philip E. (1991) ‘Cognitive Structural Analysis of Political Rhetoric: Methodological and Theoretical Issues’, in S.Iyengar and W.J.McGuire (eds) Political Psychology: A Reader, Durham N.C.: Duke University Press. Thelen, Kathleen (1988) ‘The Politics of Flexibility in the German Metalworking Industries’, presented at the 1988 meeting of the American Political Science Association, Washington D.C. Therborn, Göran (1986) Why Some People are More Unemployed than Others, London: Verso. Thurow, Lester (1977) ‘Government Expenditures: Cash or In-kind?’, in G.Dworkin, G.Bermant and P.G.Brown (eds) Markets and Morals, New York: Wiley. Tilton, Timothy (1987) ‘Why don’t the Swedish Social Democrats Nationalize Industry?’, Scandinavian Studies, 59(2):142–66. Titmuss, Richard (1958) Essays on the Welfare State, London: Allen and Unwin. Tocqueville (de), Alexis (1945) Democracy in America, New York: Knopf. Traxler, Franz and Brigitte Unger (1991) ‘Governance, Economic Restructuring and International Competitiveness. On the Relationship between Efficiency and Regulation from a Theoretical and Empirical View’, presented at the SASE/IAREP Conference, Stockholm, June, 1991. Trehörning, Par (1993) Measures to Combat Unemployment in Sweden, Stockholm: Swedish Institute.

286

BIBLIOGRAPHY Tsebelis, George (1990) Rational Choice in Comparative Politics, Berkeley: University of California Press. Tullock, Gordon (1971) ‘The Charity of the Uncharitable’, Western Economic Journal, 9:379– 92. ——(1975) ‘On the Efficient Organizations of Trials’, Kyklos, 28:745–62. ——(1990) ‘The Cost of Special Privilege’, in James A.Alt and K.A.Shepsle (eds) Perspectives on Positive Political Economy, Cambridge: Cambridge University Press. Tversky, Amos and Daniel Kahneman (1986) ‘The Framing of Decisions and the Psychology of Choice’, in Jon Elster (ed.) Rational Choice, New York: New York University Press. ——and——(1990) ‘Rational Choice and the Framing of Decisions’, in Karen S. Cook and Margaret Levi (eds) The Limits of Rationality, Chicago: University of Chicago Press. United Nations (1991, 1992, 1993) Human Development Report, New York: UNDP and Oxford. Uusitalo, Hannu (1989) Income Distribution in Finland, Helsinki: Central Statistical Office of Finland. ——(1990) ‘The Scandinavian Model of Social Policy’, Helsinki: Helsinki School of Economics and Business Administration. Valen, Henry (1990) ‘The Storting Election of 1989: Polarization and Protest’, Scandinavian Political Studies, 13(3):277–90. Van der Berg, Axel (1988) The Imminent Utopia: From Marxism on the State to the State of Marxism, Princeton N.J.: Princeton University Press. Van Waarden, Franz (1991) ‘Mancur Olson’s Theory of Collective Action: Its Relevance for Understanding the History and Culture of Interest Associations of Business’, paper presented at the SASE/IAREP Conference, Stockholm, June 1991. Verba, Sidney et al. (1987) Elites and the Idea of Inequality, Cambridge Mass.: Harvard University Press. Vogel, J. (1974) ‘Taxation and Public Opinion in Sweden: An Interpretation of Recent Survey Data’, National Tax Journal, 28(4):499–513. ——(1990) ‘Inequality in Sweden: Trends and Current Situation’, in Inge Persson (ed.) Generating Equality in the Welfate State: The Swedish Experience, Oslo: Norwegian University Press. Wagner, Richard E. (1989) To Promote the General Welfare: Market Processes versus Political Transfers, San Francisco: Pacific Research Institute for Public Policy. Wallerstein, Michael and Adam Przeworski (1988) ‘The Centralization of Bargaining and Union Wage Demands’, presented at the 1988 Congress of the American Political Science Association, Washington D.C. Whitehead, Jaan (1989) ‘Freedom, Authority and Rational Choice’, paper presented at the 1989 meeting of the American Political Science Association, Atlanta, Georgia. ——(1991) ‘The forgotten Limits: Reason and Regulation in Economic Theory’, in K.R.Monroe (ed.) The Economic Approach to Politics, New York: Harper Collins. Wibble, Anne (1992) Transcript of speech to the Kennedy school at Harvard on April 28. Wilensky, Harold (1976) The ‘New Corporatism’, Centralization and the Welfare State, Beverly Hills: Sage Press. ——and Charles Lebeau (1965) Industrial Society and Social Welfare, New York: Free Press.

287

BIBLIOGRAPHY Wilff, E.N. (1991) ‘The Distribution of Household Wealth: Methodological Issues, Time Trends, and Cross-Sectional Companions’, in Lars Osberg (ed.) Economic Inequality and Poverty, Armonk, N.Y.: M.E.Sharpe. Williams, T.M. (1986) The Impact of Television: A Natural Experiment in Three Communities, New York: Academic Press. Wise, C. and Amnå, E. (1992) ‘Reform in Swedish Local Government’, Current Sweden, No. 393, Stockholm: Swedish Institute. Wise, Lois R. (1993) ‘Whither Solidarity? Transition in Swedish Public Sector Pay Policies’, British Journal of Industrial Relations, 31(1):78–91. Wittman, Donald (1990) ‘Contrasting Economic and Psychological Analyses of Political Choice: An Economist’s Perspective on why Cognitive Psychology does not explain Democratic Politics’, in K.R.Monroe (ed.) The Economic Approach to Politics, New York: Harper Collins. Wojtyna, Andrzej (1991) ‘In Search of the New Economic Role of the State in the PostSocialist Countries’, presented at the EAEPE Conference, Vienna, November 1991. Wolfe, Alan (1989) ‘Market, State and Society as Codes of Moral Obligation’, Acta Sociologica, 32:221–36. Wolfe, Morris (1985) Jolts: The TV Wasteland and the Canadian Oasis, Toronto: Lorimer. Wooldridge, Adrian (1992) ‘Coming Top: A Survey of Education’, The Economist, November 21, 1992, pp. 64–82. World Bank (1992) World Development Report: Development and the Environment, New York: Oxford.

288

INDEX

aluminum 182 Alzheimer’s desease 239 American see United States Americanization 99, 108 Amnå, E 162 AMS 111, 155 Amsterdam 199 Anckar, Dag 139, 141, 177, 252 Andersson, J-O. 177, 190, 212, 225–6, 229, 259, 264 Andersson, N.A, 228 angels 246 Anheier, H.K. 243 apprenticeship 29, 184–5 appropriateness 62, 143, 153, 187 arbitration 185 architecture 218 Arctic 200–1, 207, 218 aristocracy 22, 176, 181 Arneson 235, 236 Arrow, Kenneth 67 art, arts 27, 98, 111, 167, 247 Arter, D. 173, 258 Arvidson, L. 260 Asia 4 ‘associational model’ 79 associations 37, 42, 81–5, 89–92, 95, 111–12, 116, 123–7, 151, 156, 172, 210, 212, 250, 265 astrologers 106, 246 Atkinson, A.B. 29, 32 Auken, Svend 193–4, 261 Aukrust, Odd 157, 186 Australia 148 Austria 116–22, 148, 186, 196–7, 202, 208, 212, 218, 248–50, 255, 260, 264, 266–7 Axelrod, R. 66, 239

ABB (ASEA, Brown-Boveri) 154, 170, 226 Åberg, R. 31, 244 ABF 111 abortion 235 Abrahamsson, K. 111 absenteeism 160–1, 256 accessibility 9, 89, 90, 131, 163, 234 accountability 15, 91, 93, 130–5, 139– 43, 152, 196, 230, 252–4, 260 active labour market policy 150, 157, 163, 167, 185 activists 211, 241 addiction 43, 75, 102, 252 adult education 67, 69, 91, 97, 108–15, 125, 145, 179, 188, 222, 247, 259–60 advertising 67, 72–6, 83, 97–106, 113, 239, 242–3, 246, 250, 254, 259 AF 182, 186 Africa 4 agriculture 120, 134, 139, 148, 156, 173–4, 179, 182, 189–90, 198–201, 207, 211, 218, 252, 260–63 Ahlmark.J. 258 Aho, Esko 177, 207 Ahonen, P. 176 Ahtisaari, Martti 181, 207 Airlines 100–1 Akava 174 Aland 263 Alaska 239 Albert, M. 117 alcohol 169, 210 Alestalo, M. 254 allemmansratten 244 altruism 10, 24, 29, 47–53, 61–2, 145, 233 289

INDEX Brundtland, Gro Harlem 155, 183, 199, 201–2, 260–3 Brussels 142, 199–200, 209, 217, 224, 226, 229–30, 267 Bruun, N. 266 Buchanan, James M. 19, 45–6, 55, 56, 83, 86–7, 132–4, 251 ‘buffer zone’ 79, 81, 82, 84, 96, 115 Bundesbank 240, 262 bureaucracy 142, 175, 177, 200, 226, 229, 256, 257 bureaucratization 247 Burns, T. 239 Bush, George 104, 243 business and businesses 22, 24, 37, 40– 1, 67, 70, 81–2, 85, 88, 90, 92–3, 98– 100, 111–12, 116, 118–29, 144, 154– 5, 158–9, 161–2, 167–8, 170, 174, 177–9, 185, 187, 190–2, 200, 208–9, 211, 214–5, 221–30, 234, 242–3, 245, 247–55, 258, 260, 265–6

Bad Godesberg 38 balance of payments 144, 161, 190, 193 Baldwin, D. 98 banks 24–5, 144, 162, 167, 169, 172, 177, 180, 184 Barber, B. 242, 246 Barnevik, Percy 226 Barr, N. 43, 80, 236, 244 barristers 134 Bates, R.H. 25 Becker, G. 19 Belgium 104, 141, 148–9, 212, 255, 265 Benedetti, Carlo de 264 Benelux countries 198, 214, 262 Bergounioux, A. 116 Bergström, Hans 165, 256–7 Berleen, G.C. 163 Beskow, Elsa 267 betongsosse 164 betting 43, 66–7 Bible 96 bicameral 143, 254 Bildt, Carl 1, 2, 5, 159–62, 165 biosphere 69 Bislev, S. 256 Bjorksten, I. 110 Blais, A. 248 Blass, W. 255 Blaug, M. 235 Bobrow, D.B. 44, 238 Bogason, P. 91 Boiney, J. 105 Bolsheviks 7 Bonn 199 Boulding, K. 55, 68 bourgeoisie 189, 203 bourgeois parties 199, 210 Bowen, I. 29 Bowie, N. 79 Brander, J.A. 43 Bregnsbo, H. 191, 267 Brennan, G. 46 Britain 31–4, 37, 39, 87, 116, 119, 135– 9, 141, 145, 148, 189, 197–9, 204–6, 214–8, 236, 240–1, 245, 249, 253, 261–2, 264–5 broadcasting 103–6, 227, 246, 260, 266 Brown, P.G. 226, 243

California 89, 103, 241 Calmfors, L. 119, 120 Cambodia 49 Cameron, D. 116–17 Canada 8, 30, 32–3, 37, 99, 102, 108, 112, 119, 135, 137–40, 145, 252, 254, 259 capitalism 2, 6, 9, 84, 125, 248 Capital mobility 221 Carl Gustav 245 Carling, A. 236 Carlsson, Ingvar 155, 164, 169, 210, 265 cartels 60, 121, 229 Castelli, J. 106 Castles, F. 30–1 Catalonia 141, 146 Cawson, A. 116, 248 censorship 72, 74 Centerwall, B. 100 centralization 116, 119, 140, 187 central banks 120, 240, 249, 258, 263 Centre Party 159, 163, 172, 200, 202, 207, 209 Chicago 108, 247 ‘Chicken’ game 53, 54, 82, 83, 84

290

INDEX children 8, 10, 32, 50–1, 63, 65, 96, 99– 102, 106–10, 113, 166, 168, 240, 245–6 China 12 Christian broadcasting 105–7, Christian (Democratic) parties 159, 164, 168, 178, 184, 201, 214, 261 Christianssen, N. 203 church attendance 151 citizenship 28–34, 79, 83, 133, 205, 233, 244, 251, 263 class consciousness 189 Clinton, Bill 108, 144, 240 co-determination 81, 157, 250 Coase, R.H. 19 Cobb, J.B. 69, 229, 242 cocaine 245 Colchester, N. 202, 207, 218, 262, 265 Coleman, J.S. 238 collaboration see cooperation collective bargaining 116, 126, 151, 156–8, 170, 173–5, 182, 185–8, 190– 2, 215, 217, 249; centralized 116–18, 126, 151, 156–59, 161, 170, 173–5, 178–9, 182, 185–88, 190–2, 228, 233, 250, 256 collective goods 89, 238 college see higher education Collins, R.K.L. 130 colonies 27 commercialism 15, 67, 72–6, 81, 85, 95, 97, 98, 105–7, 108–15, 129, 144, 158, 188 commercials see advertising common pool resources (CPR) 54, 81, 89 communications media 4, 15, 65, 72, 76, 81, 85, 90, 91, 97, 99, 100, 104, 105, 107, 108, 112, 114–15, 129, 145, 154, 161, 175, 212, 227, 231, 253–4 Communism 1, 26, 216, 173, 209, 258 companies see business competitiveness 86, 124, 126, 128, 155, 170, 173, 174, 180, 214, 222 complementarity 77, 81, 92, 239 ‘concertation’ see cooperation confederations 77, 140–2, 186, 196, 217, 230, 254 confidentiality 82 congestion 70–1, 84–5

Congress (United States) 24, 133–4, 143, 144, 239, 242, 254, 261, 265 consensus 89, 110, 123, 135–7, 159, 171–5, 178, 183, 193, 199, 203, 206, 214, 248, 255 Conservative (parties) 1, 26, 137, 153–4, 159, 161–5, 168, 173–4, 178, 180, 183–4, 193, 200–04, 207, 209–10, 214, 234, 247, 252–8, 261 constitutional amendments 56, 240, ‘constitutional choices’ 55, 56, 132, 142, 240 constitutions 248, 252 constraints 9, 19–20, 34, 55, 105, 125, 130–3, 141–2, 153, 155, 183, 194, 200, 203, 221–6, 228, 230, 234, 237–8, 251, 253–4, 263 consultation 174, 199, 206, 233 consumers and consumerism 41–2, 62, 67–76, 87, 91, 95–9, 105–7, 145, 223, 235–6 Continental Europe 83, 116 contracts 47, 53–4, 56, 58, 63, 65, 79– 80, 154, 158, 169–70, 226, 238, 240–1, 248, 250, 264 cooperation 53, 56, 66, 82, 85–6, 89, 91, 116–17, 119, 124, 126–7, 129–30, 135–6, 138, 140–1, 154–6, 164–5, 172–3, 179, 184, 188, 190, 192, 203– 5, 210, 214, 226–7, 230, 233, 243, 245, 252–3, 256, 259, 263 cooperatives 85, 91, 172 coordination see cooperation Copenhagen 199, 229–30 Corbett, R. 204 corporations see business corporatism 4–8, 15, 59–61, 77, 91–3, 114–32, 143, 145, 148, 152–9, 170– 5, 178, 186–8, 191–2, 211–17, 221– 30, 233, 237, 248–51, 259 Costs and benefits 7, 36, 40, 43, 47, 61, 91, 225 Coughlin, R. 27, 239 countercyclical policy 172 Cox, A. 248 Craft unions 60, 127, 192 credential 70 credentials and credentialism 61, 70–1, 85, 95–7, 109, 130, 250 Crepaz, M.L. 116, 132, 248 291

INDEX Crete 218 crime 51, 103, 113, 264 crisis deal (Sweden) 167–70, 258 Crouch, C. 116 crowding see congestion Crusoe, Robinson 65 cults 106 culture 9, 67, 69, 76, 83–4, 90, 96–9, 105–10, 112, 139, 150–1, 165, 167, 172, 188, 189, 212, 214–5, 227, 230, 242, 247, 257 cutbacks 161, 163, 257

disincentives 24–5, 62, 84, 87, 90, 109, 126, 132, 160, 223, 241 Disney Co. 99, 101, 245 Disneyworld 99 disparities 8, 71, 85–8, 96, 115, 157 disposable income 13, 30, 32, 61, 86, 87, 109, 166, 176, 234 disproportionality 236 dissemination of knowledge 44, 46, 67, 68, 75, 76, 81, 83, 89, 93, 95–7, 109, 111, 122, 128–30, 132, 143–4, 147, 152, 157, 188, 221, 222, 250 distributional coalitions 71, 134, 154 distributive justice see redistribution divorce 105, 239 Dixit, A. 243 donations 98, 144, 246 Dore, R. 116, 248 Downs, A. 45, 60 Drifill, J. 119, 120 drugs 25, 43, 75, 103, 169, 257 Dryzek, J.S. 44, 238 Dueland, P. 227 Dunklespiel, Ulf 209, 245 Dworkin 239

DA 190–2, 260 Dagre, T. 247 Dalarna 257 Daly, H.E. 69, 229, 242 Danishness 189 day care 8, 61, 151, 162–3, 166, 169, 243–4 Deaver, Michael 105 debt 37, 162, 167–70, 177, 180, 190, 262 decentralization 91–2, 126, 134, 140, 152, 154, 170, 175, 187, 190, 192–3, 205, 247, 249, 253, 255, 260 ‘decommodification of labour’ 36, 248 defection (in game) 52–3, 60, 66, 82, 96, 135 ‘defensive goods’ 76 Delillo, Don 107 Delors, Jacques 204, 214–5, 263 demerit goods 43, 75 democratization 5 denationalization 137 Denmark 5, 6, 15, 30–1, 33, 37, 38, 90– 1, 120, 141, 147, 149–56, 158, 160, 164, 171, 175–6, 179–84, 189–94, 197–206, 209–10, 212, 215–18, 222–23, 226–31, 236, 247, 253, 255, 256, 259, 260, 261, 262, 263, 266 deregulation 155, 177, 183–4, 193, 214, 226, 237 devaluate 207 devaluation 160, 173, 178–81, 183, 194, 222, 237 diet 56, 176 disability 167, 169, 212, 238, 256 discrimination 131, 214

early retirement 160 Eastern Europe 1, 23, 153, 159, 197, 208, 216, 219 EC (European Community) 15, 30, 111–12, 121, 132, 139, 140–2, 149– 56, 165, 182–4, 188–90, 192, 194– 218, 221–231, 237, 244–5, 250, 260– 7; EC Commission 142, 148, 159, 170, 188, 193, 198–9, 201, 203, 205–6, 213–15, 227, 230, 260; EC Council 90, 113, 142, 152, 155, 162–3, 192, 198, 203, 205–07, 213, 215, 230, 245, 259, 263, 266 economics 7, 18–21, 26–8, 37, 39, 41, 45, 47, 70, 83, 118, 233–5 economic growth 20–3, 33, 117–8, 121, 153, 249 economic performance 14, 58, 68, 117– 21, 123, 137, 212, 235, 248–9, 253 economists 3, 11, 19, 21–3, 27, 37–39, 42, 44–9, 55, 59, 62–3, 68–75, 92, 109, 118–19, 169, 180, 234–238, 240, 242, 251 292

INDEX ECU 206 Edinburgh Summit 205–6, 209 education 8–9, 25, 32, 35, 38, 43, 47, 65, 70–1, 73, 75, 80–1, 85, 96–7, 100, 102, 106–12, 125, 128–30, 136– 7, 146, 149, 151–2, 158, 162–3, 166, 169, 172–6, 179, 189, 191, 205, 215, 224, 228, 234, 242, 244, 246–7, 251, 259–60 Eduskunta 176, 177, 252 EEA 153, 155, 196–7, 201, 204, 207, 211–12, 261 efficiency 2, 4–5, 7, 11, 14, 16, 20–4, 28–9, 33–6, 39, 43–9, 58–9, 62, 68, 70, 77–7, 80, 85–6, 88, 90, 92, 95–6 115, 118, 123, 125, 129, 130–32, 135, 143, 147, 153, 155, 157, 161, 162, 164, 170, 177, 181, 184, 229, 231, 234, 237, 243, 249–50, 257 EFO 157, 158 EFTA 153, 196, 197, 199, 201, 206–8, 211–13, 216, 218, 229, 261–62 egalitarian distributions and egalitarianism 1–9, 11–15, 18, 28, 30–4, 38–9, 47, 58, 60, 65, 77, 85, 94, 109–10, 114, 122, 130, 147–51, 171, 181, 191, 196, 211–12, 217–19, 221, 235–6, 244, 266 Ehn, P. 164 Einhorn, E. 149, 155 Eisner, Michael 245 Eklund, Klas 164, 237 elderly, the 51, 57, 82, 83, 88, 107, 112, 234 elections 60, 132, 134–6, 138–140, 142, 145, 159, 162, 164, 176–7, 180, 183, 202, 204, 208, 211, 241, 243, 261–3 electoral systems 60, 74, 77, 87, 130, 132–40, 145–6, 151, 161, 170, 183, 193, 248, 252, 261 Elleman-Jensen, Uffe 206 Eliason, L.C. 164, 193, 203, 263 Eliasson, G. 68, 212, 264 elites and elitism 33, 72, 108, 110, 134, 137, 144, 166, 176, 214 Elster, Jon 19, 35, 43, 53, 56, 95, 237, 240 employees 36, 62, 87, 99, 102, 111, 122, 125, 164, 168, 169, 170, 174, 178, 191–2, 215, 223, 226, 242, 249–50,

253, 255–6, 260, 266 employers 5, 21, 25, 37, 81–2, 85, 88, 122–8, 130, 150, 154, 155, 156, 157, 159, 161, 164, 168, 170, 172, 174, 176, 178, 185–7, 189–91, 208, 211, 213, 221–7, 229, 233, 249–50, 256, 258, 265 employment 8, 13, 30, 37, 71, 85, 88–9, 97, 111, 117, 119–28, 144, 147, 149– 51, 157–60, 165, 168–9, 172, 174, 176, 185–6, 190, 195, 212, 215, 222, 226–7, 230, 234, 237, 240, 244, 248, 250, 254–6, 265; part-time 112, 149, 151, 174, 182, 215, 255, EMU 205, 209, 210, 231, 263 encompassing organizations 60, 91–2, 96, 115, 121–9, 152, 223, 254, 259, 186–7 enforcement 67, 102, 216, 240 enterprises see business entertainment 67, 99, 103, 104 entrepreneurs 21, 45, 47, 56, 122–5, 242, 253 environment and environmentalism 9, 13, 20, 42, 44, 61, 63, 86, 103, 108, 125–6, 142, 155, 159, 161–2, 168, 181, 204, 209–10, 215, 224, 226, 234, 242, 244–5, 265 equality 1, 2, 5, 7–9, 11, 14, 21–3, 28, 30–4, 36, 58, 110, 132, 147, 150–1, 176, 181, 190, 194, 231–2, 236, 244, 248, 265 equity 151, 153, 163, 257, 258 Erichsen, V. 167 ERM 197, 263–4 ESP 106 Esping-Andersen, G. 36–7, 244, 248 ethics 87, 90, 244 ETUC 213 ETUI 173 Etzioni, Amitai 34, 66, 73, 238–40, 243 EU see EC Eureka 179 Eurobarometer 262 Eurocorporatism 214, 217, 230 ‘Eurofederalism’ 196–9, 221, 230, 265 European Community see EC European Union see EC ‘Europhoria’ 206, 227, 229 293

INDEX ‘Eurosclerosis’ 59, 145 Evans, M.D.R. 250 ‘exclusionary services’ 86, 109, 115, 244 ‘exit’ 28, 160, 226, 240 exports 128, 152, 169, 172, 177, 181, 189–90, 202, 259 ‘Export enclave’ 182, 187 ‘externalities’ 44, 47, 63, 73, 79, 238–9, 243

fraud 144, 264 freedom 28, 33, 47, 72, 73, 96, 110, 131, 161–2, 183, 218 Freeman, R. 119, 150 free riding: “free rider’ problem 13, 14, 36, 41, 50–4, 57–8, 61, 63, 68, 78, 87–9, 91, 95, 114, 123, 126, 129, 213, 221, 223, 233, 235, 239–41 friendship 53, 239 Friggebo, Birgit 165, 167 Friis, P.A. 262 Fromm, Erich 237 FTF191 full employment 88–9, 157, 160–1, 177, 190, 209–10, 212, 222, 230, 233, 244, 249, 255

Fabians 39 FAFO 38 Fagerberg, J. 156, 182–3 family allowances 30, 161, 168, 257 farming see agriculture Faroe Islands 263 Fascism 26, 39, 248 favoritism 58 federalism 140–2, 148, 196, 204, 253, 262 Feige, E.L. 88 Feldt, Kjell-Olof 159, 164, 237, 256 fellowship 49, 53, 82, 239 feminism 212 fertility 190 film 99, 101, 104, 245, 247, 256 Financial Times 261–2, 266 Finland 5–6, 15, 30, 32–3, 37, 112, 120, 141, 149–60, 167, 171–92, 196–7, 200–04, 206–13, 218, 226–8, 231, 233, 237, 244, 246–9, 251–64, 266 Finlandization 172 firearms see guns firms see business fishing and fishermen 182, 199–202, 234, 260, 262 Flemish 104, 141 flexibility 124, 126–7, 170, 198, 201, 260 Florida 106 Folketing 193, 206 foreign aid 168, 194 forests 258–9 France 1, 32, 37, 104, 112, 139, 141, 167, 189, 197–9, 205, 216, 218, 231, 253, 262, 265 Frank, R.H. 242 Frankfurt 224 Franklin, D. 198, 263

Gallup, G. 106 games and game theory 14–15, 20–1, 25, 41–2, 44, 47–55, 58, 71, 77–8, 81–4, 96, 111, 118–9, 135, 225, 231, 235, 252 Garnham, D. 113 Garrett, G. 116, 248 GATT 139, 198, 212, 229 Gauthier, D. 55, 238 gender 8, 151, 194 Gerbner, G. 100, 102 Gerhardssen, Einar 183 Germany 30, 31, 32, 38, 112, 117, 121– 126, 141, 146, 148, 149, 171, 185, 189, 191, 194, 197, 198, 205–06, 218, 241, 248–51, 253, 255, 258–9, 263, 265–66, Geyer, R. 183, 215, 260, 261 Gini coefficient 29–31, 236 Goldthorpe, J. 116 Gonzales, Felipe 205 Goodin, R.E. 9, 29, 235, 240, 244 Gorbachev, Mikhael 4, 33 Gore, Al 254 Gorges, M.J. 213–4, 250 governability 229 grafitti 244 Grahl, J. 213 Greenland 263 Greens 164, 209, 264 Grundtvig, N.F.S. 189 Guger, A. 120, 121, 122, 148 294

INDEX guidelines 14–15, 18, 25, 28, 33, 34, 46–7, 62, 73, 75, 77, 79, 81–96, 129– 32, 140, 143, 146, 163, 175, 185, 241 O’Guinn 246 guns 106–07, 145, 234, 246 Gustafsson, B. 32

homeless 50–51, 61, 224–5, 241 homicides 105, 107, 239, 245–6, homogeneity 77, 84, 99, 130, 132, 141, 143, 152, 196, 218, 230 ‘Homo creativus’ 241 ‘Homo economicus’ 241 honesty see integrity hospitals 8, 112, 162, 167, 187, 243, 246, 257 housing 32, 85, 162, 164, 168, 180, 183, 191, 235, 244 Huber, E. 253, 257 Human nature 49, 54, 84, 145, 221

Hagen, K. 149, 255 Haggroth, S. 167 Hahn, F. 55 handicapped, see disability Hansen, P.V. 149–50, 223 Hansson, I. 88 Hardin, R. 40, 84 Hargreaves-Heap, S. 239–40 Harper’s, 75, 99, 102–3, 242, 246 Harrison, B.S. 245 Harsanyi, J.C. 55, 238, 241 Hauser, J. 266 health and health policy 25, 32, 34, 43, 80, 111, 128, 163, 167, 176–9, 205, 214–16, 234, 244, 249, 256–7, 265 Healy, J. 100 Heckscher, G. 90 Heclo, H. 233 Hedström, P 250 Heidar, K. 183 Heidenheimer, A. 119 Helenius, R. 176 Hellander, V. 177 Helsinki 179, 227, 230, 259 Hernes, G. 38, 260 Hibbs, D.A. 109 hierarchies 56, 239, 255 higher education 107, 109–10, 158, 166– 7, 176, 179, 240, 246–7, 252, 260 highways 61, 92 hinterland 156, 160, 181–3, 199–201, 260 Hirsch, Fred 19, 63, 69–76, 83–5, 107, 242 Hirschman, A. 79, 86 Hodgson, G. 28, 86 Högsnes, G. 182, 186, 250 Hokmark, G. 257 Hollingsworth, J.R. 248 Holmberg, S. 155 Holte, F. 229

Iannacone, L. 106, 113, 151 Iceland 120, 234, 262 idealism 35, 211–2, 238, 253 ideologies 4–6, 21, 23, 33, 35, 69, 122, 134, 189, 214, 231, 252, 256–7, 267 Illinois 246 illiteracy 179 illness 107, 148, 154, 161, 242, 256, IMF 240, 252, 263 immigration 160, 165, 198, 218, 253, 257, 265 imports 104, 212, 247 incentives 5, 24–5, 26, 37, 43, 45, 57– 60, 85–87, 107, 119, 121, 123, 126, 135, 142, 156, 160–1, 166, 174, 176, 221, 226, 237, 241, 255–7, 259 inclusionary services 85–7, 91, 115, 129–30, 150, 157, 166, 244 incomes policy 173–4, 185, 188, 258 income distribution 9, 11, 29–30, 85, 119, 150, 205, 212 income tax 30, 150 independence 9, 131, 152, 171, 181, 240 indexation 168 individualism 54, 72, 108, 240 industrialized 4, 11, 172, 253 industrial democracy 250 industrial parks 228 industry 123–8, 170, 174, 179–82, 190, 192, 200–1, 208, 250, 264 inefficiency 13, 24, 62, 70, 87, 137, 180, 230, 234 inequality 1–11, 13, 18, 23, 29–31, 86– 7, 109, 114, 186, 228, 235–6, 249–50 inertia 186 295

INDEX infant mortality 176, 254 inflation 37, 62, 117–19, 123, 157–158, 160, 183, 193–94, 237, 240, 262, 266 information assymetries 43 information costs 40, 43–44, 47, 67 infrastructure 144, 167, 172, 195, 249, 253, 257 Inglehart, R. 151 injustice 84 innovation 24, 58, 124 innumeracy 179 instability 136 instincts 50, 229 institutional choices 4–15, 19–21, 23, 33, 36, 38–49, 54–63, 65, 68–99, 103, 105, 109, 111–15, 121–33, 141– 52, 166, 171, 212, 214, 217–19, 221– 28, 230–31, 237, 240, 243, 245, 250, 258, 264 ‘institutional sclerosis’ 33, 58–60, 121, 123, 129, 154 institutionalism 20, 25, 55, 114 insurance 23–5, 148, 167, 242, 257 integration 124, 126, 142, 148, 165, 174, 199, 201–02, 204–08, 211–16, 219, 224–25, 228–31, 251–2, 262, 264, 266 integrity 79, 87, 90, 104, 151, 239, 253, 256 intellectuals 3–5, 34–8, 72–3, 157, 200, 203, 230–1, 258 interdependence 48–50, 53, 82 interests 7, 13, 20, 26, 27, 35–8, 41–2, 55, 58, 59, 60, 65, 67, 77, 82, 84–5, 97, 116–18, 121–2, 126–7, 129–30, 134, 137–8, 141, 156, 170, 180, 187, 207, 211–13, 216, 226–28, 235, 238, 240, 248–50, 258, 263 interest intermediation 117 interest organizations 58–60, 81–2, 91, 111, 115–18, 126–30, 134, 137–8, 155–6, 158, 187–8, 211–13, 248–52, 265 intermarriage 176 intermediate goods 249 internationalism 203, 211–2 interventionism 143 investing 13, 162, 167 investments 124–5, 143–4, 177, 183–4, 221, 224–5, 226

IPDs 54, 57, 58, 78, 81, 84, 105, 114, 119, 125, 136, 143, 225, 239, 240 Ireland 106, 146, 198, 205, 251, 264 Italy 37, 45, 216, 253, 263–6 Iterated Prisoner’s Dilemmas see IPDs Iversen, T. 148, 154, 159, 192 Jacobson, M.F. 130 Jamieson, K.H. 105 Jankowski, R. 137 Jantelov 181 Japan 112, 117, 124, 149, 153, 176, 214, 242, 247–8, 251 Jefferson, Thomas 242 Jenkins, Peter 26, 29, 37, 38, 249 jobs see employment Jolts’ 99, 104 journalists 107, 134, 136, 233, 254, 258 judiciaries 131, 143, 218, 242 junk mail 98 justice 198, 205, 232, 239, 240, 266 Kahneman, D. 43 Kangas, O. 148, 255 Karelia, 172, 176 Katona, G. 239 Katzenstein, P. 116–17, 136, 253, 259 Kekkonen, Urho 172, 173 Kelley, J. 250 Keman, H. 117 Kern, M 104 Keynes, John Maynard 39, 237 Keynesianism 45, 118, 158, 165, 172–3, 184, 210 KGB74 Khmer Rouge 49 killing see homicide King, D.S. 267 King, Larry 254 Kjaer, P. 228 Kjellberg, F. 192 Klausen, J. 217 Knut 45 Koblick 90, 96 Kohl 265 Koivisto 173, 178, 207 Kolakowski, Leszek 26 Kolberg 36, 160 Kontaktutvalget 188 296

INDEX Korea 12 Kornai, J. 36 Korpi, W. 36–7, 117, 248, 252 Korpilampi 173 Kosinski 101–2, 106–7 Krauthammer, C. 108 Kubey, R. 102 Kuhlne, S. 187 Kunreuther, H. 239 Kurzer, P. 212 Kuttner, R. 249 Kuusela, K. 252 Kydland, F. 240 Kyoto 247

legitimacy 5, 44, 81, 83, 84, 104, 106, 121, 138, 172, 239, 263 Lego 190 Lehmbruch, G. 116 Leith, W. 107 Lenin, V.I. 4 levelling 212, 233 Levin, D.E. 100 Lewin, L. 46, 239 Lewis, A. 87, 244 liberalization 229 Liberal (parties) 159, 161, 163–5, 169– 70, 193, 206, 209–10, 256 libraries 8, 112, 152, 257 Lichtenstein 261 Liess, W. 242 lifestyle 90, 176 Lijphart, A. 116, 132, 248 Lilja, R.T. 174–5 Lindbeck, A. 160, 170, 258 Linde, C. 164 Lindqvist, R. 256 Lindström, U. 1 Lipponen, Paavo 155, 180–1, 194, 260 liquor 242 LIS 30, 32 literacy 75, 96, 110 litigation 25, 83, 243 LO see Labour, lobbies 42, 59, 144, 154, 182, 243, 254 lockouts 192 Lodge, J. 215 ‘logrolling’ 239, 243 Logue, J. 149, 155 London 199 Long-term disability 25, 160, 256 ‘Lorenz curve’ 9–11, 29, 31, 236 Los Angeles 107 LTK 174 Luif, Paul 121, 208 lumber industry 180, 199 Lundberg, L. 266 Lutheran Church 96, 151, 160 Luxembourg 30, 141, 212, 224, 265 Lyck, L. 190–1, 194, 203

labour 5, 21, 27, 36–38, 42, 50, 59, 69, 81–2, 88, 91–2, 97, 111–12, 116, 118–21, 124–30, 137, 142, 148, 155– 61, 167–74, 178–9, 182–93, 199– 203, 209–17, 222–26, 229–30, 234, 237, 240–44, 248–61, 264, 266–67 Laegreid, P. 186, 188, 257 Lafferty, W. 183 laissez-faire 2, 6, 8–9, 14, 46, 59, 76–77, 117–19, 123–25, 127, 130, 143–4, 160, 166, 248–9 Lane, J.E. 152, 193, 250, 256 Lange, A. 104, 152, 259 Lange, P. 116, 216, 248, 249 Lapham, L. 100, 241, 246 Larsen, H.O. 136 Laurin, Ulf 154 laws and courts 1, 14, 25, 47, 53, 59–9, 61, 74, 76, 83–4, 95, 138, 149, 154, 172, 185, 187, 201, 215, 245, 252, 263, 266 Laxer, G. 209 layoffs 81, 167 leadership 155, 163, 164, 170, 183, 187, 189, 193, 198–9, 201, 207–8, 210– 12, 251, 263 learning see education Lebeau, C. 244 left (wing) 3, 6, 21, 26, 49, 84, 121, 123, 159, 161, 212, 229, 233, 248, 255 legislation see laws legislators 133, 136, 140, 144, 152, 254 legislatures see parliaments

Maastricht Accord 139, 141, 189, 194, 197–8, 201–6, 215–18, 227–30, 261– 3 297

INDEX McCallum, J. 248 McClennen, E.F. 236, 239, 241 McConnell, G. 134 Mclean, I. 234 MacShane, D. 213 Madsen, H. 233 Maggiore, M. 98, 104, 246, 259 magic and magicalism 95, 97, 105–6, 108, 113 Majone, G. 264 Major, John 198, 205 majoritarianism 252 malls 98–9 Malthus, T. 27 management 72–3, 82, 116, 124, 126, 159, 178, 186, 192, 214–15, 238, 250, 258 Manin, B. 116 Mansbridge, J. 54 manufacturing 128, 154, 156, 158, 161, 174, 180, 182, 184, 186, 190, 200, 208, 226, 229, 234, 255, 259 Maor, M. 193 March, J.G. 62, 131, 261–2 Margaret 214 marginal utility 10, 38, 42–3, 47, Margolis, H. 49 marketplace 45, 46, 90, 242 markets 4–6, 24, 33, 35–8, 44–7, 76, 79, 83, 90–91, 112, 124, 129–30, 155–7, 167–9, 177–8, 203, 211–16, 225–6, 234, 241–2, 263 Marquand, D. 34, 35, 36, 66, 119, 127 Marterbauer, M. 120, 266 Martin, A. 116–8 Marx, Karl 4, 26, 76 Marxism 3–5, 7, 18, 27, 34, 115, 116, 153, 189, 236, 248 Massachusetts 104, 254 maternity benefits 176, 259 Mazey, S. 213 media see communications media mediation 173, 185, 243 medical services 13, 25, 61, 86, 87, 109, 149, 169, 242, 256–7 medicine 46, 176 Meidner, R. 37, 158, 237 Memphis 246 ‘merit goods 43, 67, 73, 75, 80 Mesthene, E. 95

metal industries 186, 200, 250, 259 methodological individualism 39, 66, 115 Meyerson, P.-M. 154, 160, 163 Michels, R. 45 ‘Mickey Mouse’ 99, 101 Mill, J.S. 27, 242 Milner, H. 5, 91, 95–6, 150–1, 157, 159, 243 minorities 198, 237 minority government 193 Mishan, E.J. 235 Mitchell, D. 30, 31, 254 Mitterand, Francois, 214 Mjöset, L. 173, 231 models 19, 23, 39, 42, 44–5, 79 Moene, K.O. 187, 233, 260 monetary policy 207, 229 ‘moral hazard’ 24, 36 Moscow 172 Mosley, H. 226 Moyers, W. 102, 104–5 MTK 174 Muller, E.N. 116 Mulroney, Brian 137 multi-party systems 135–7 multinational corporations 170 190, 214–15, 222, 224–9 municipalities 160, 163, 177, 191, 243, 259 murders, see homicides ‘Murphy Brown’ 243 museums 110, 152 MVL 186 myth 136, 139, 231 NAFTA 137, 141, 254 Namibia 181 nation 82, 119, 139, 141, 181, 189, 196, 208, 228 nationalism 141–2, 203–4, 207–9, 211– 13 nationalization 5, 137, 234, 258 NATO 153, 183, 190 natural resources 171, 181, 190, 201 Neilsen, H.J. 116 Neilson, K. 38, 262 neoclassical economics 19, 27, 42, 45, 46, 47, 49, 69, 124, 238 298

INDEX neoconservatism 25, 33–5, 46, 84, 115, 123, 126, 155, 233 neocorporatism see corporatism neoliberalism 35 neosocialism 34–5, 37, 237 Netherlands, the 32, 112, 128, 147–9, 160, 198, 212, 247, 250, 265 neutrality 207, 209 newscasts see broadcasting newspapers 152, 165, newspapers 8, 74, 103, 112, 152, 175, 188, 242, 245–7, 259 Newsweek 107, 144, 254 New Democracy 161, 163, 165, 184, 256, 257 New Zealand 148, 253 Ng, Y.-K. 43, 71, 75, 242 NHO 185–8 Nicolaides, P. 27 Nicolin, K. 154 Norgaard, G. 190 Nordby, T. 187 norms 61, 181, 257 North, D. 19–20, 36, 47, Norway 5–6, 15, 30, 32–3, 37–8, 90, 112, 116, 120, 141, 149–57, 160–1, 167, 171, 173–7, 179, 181–212, 218, 225–33, 235, 243–4, 247, 250, 253, 256, 258–64, 266 nursing 167, 176, 260 nutrition 176

Olson, Mancur Jr. 19, 22, 24–6, 58–60, 62, 68, 72, 121–3, 134–5, 137, 154, 234–5, 238, 243, 251 ombudsman 89, 111 OPEC 173, 183 openness 72, 118, 196 Opportunity costs 3–4, 36, 43, 50, 61, 75, 96, 97, 122 Ordeshook, P.C. 19, 39 Oslo 199–200, 227, 230, 235 Ostergård, U 189, 193, 203 Ostrom, Elinor 19, 25, 28, 39–40, 52, 54, 81–2, 89, 240 overregulation 203, 226 Packwood, Bob 134 Pålsson, A.-M. 236 Palme, Olof 155, 159, 245, 255 Paloheimo, H. 118, 123, 255 Panitch, L. 248 parapsychology 108 Paretan 39 Pareto optimality 21–2, 39, 42, 238 Paris 199 Parliaments 91, 110, 132–3, 135–8, 142–6, 151–2, 176, 188, 192–5, 197– 8, 203–4, 206, 209, 215, 217, 230, 233, 252–3, 262–3 party programs 5, 38, 136 patents 238 PBS 104, 108, 254 PD 51, 52–54, 57, 58, 78, 83–4, 135, 136, 240 peasantry 189, 203 Pedersen, O. 38, 191, 228 Pekkarinen, J. 119, 172, 173, 186, 225, 228, 237, 248 Pelikkan, P. 73 pensions 24, 157, 162, 168–70, 191, 244, 253–5 periodicals 72, 73, 188 ‘perks’ 90 Perot, Ross 74, 254 Pestoff, V. 154, 155, 159 Petersen, K.H. 116 Peterson, N.H. 206 petroleum 94, 124, 156, 169, 173–4, 180, 182–3, 190, 199–200, 235 pharmaceuticals 161, 169

Oaklander, H. 247 OECD23, 30–2, 100, 112, 120, 125–6, 149–51, 153, 160, 175, 179, 180, 184, 191, 235, 244, 248, 250, 255–6, 259, 261 OGB 148 Ohlin, Bertil 164 Ohrström, L. 91 Oil see petrolium Okun, A.H. 242 Olafsson S. 150, 151 Olgaard, A. 190 Oliver, L.P. 75, 111 Olsen, J.P. 62, 131, Olsen, Jan Henry 261–2

299

INDEX Pigou, A.C. 39 pluralist 114, 116–17, 119–20, 125–7, 151, 248–9, 257 Pohjola, M. 118, 228, 249 Pohl, Karl Otto 262 Poland 265 polarization 139, 170, 182 police 73, 92, 107 political economy 4–7, 11, 15, 17–23, 26–8, 34, 36, 38–9, 44, 46–7, 55, 62, 65, 68, 79, 92, 114, 118, 126, 130, 233, 235, 242 political science 18, 21, 27, 39, 41, 45, 130 polls 139, 144, 159–60, 164, 184, 194, 199, 201, 205, 210, 240, 246, 262, 264 pollution 42, 44, 63, 234, 238, 243, 249 Portugal 234, 264 ‘positional goods’ 69–71, 74, 85, 242 Postman, N. 74, 98, 242, 246 poverty 2–4, 7, 9, 18, 22–4, 26–7, 29, 32, 34, 39, 59, 68, 114, 157, 212, 236, 238, 256 PR 135–136, 138, 139, 143, 152, 251, 252, 253 preferences 14, 19, 24, 27, 35, 39–40, 47–51, 54–5, 57, 60–2, 65–6, 69–72, 74, 78, 83, 95, 114, 123, 234–5, 238, 240–1 Premfors, R. 256 Prescott, E. 240 press see communications media Prisoner’s Dilemmas see PDs privacy 90, 98 privatization 81, 161–2, 168, 193 productivity 37, 47, 69, 75, 86, 170, 260 proportional representation see PR ‘proporz’ 121 prostitution 245–6 Przeworski, A. 249 psychology 19, 40–1 public choice 25, 44–6, 55, 57–58, 60–1, 71, 80–1, 114–15, 118, 121, 123, 133, 140, 143, 145–6, 233, 238, 251 ‘public goods’ 45 public transport 85–6 publishing 128, 154, 242 pulp and paper 156, 179, 186

Quadragesimo Anno 261 Quayle, Dan 243 Quebec 141, 145, 254 Quirk, P.J. 136, 245 radio 9, 91, 104, 112, 175, 246, 266 Rapoport, A. 51 Rasmussen, Poul Nyrup 155, 194–5, 205 rationality 25, 35, 40–1, 49, 51, 73, 98, 131, 144, 194, 236, 240, 242 rational choice 7, 13–4, 18, 20 24–5, 27, 33, 35–6, 38–39, 41, 44, 46–7, 49, 51, 66, 69, 73–4, 114–15, 146, 231, 237, 238 ‘rational ignorance’ 13–14, 47, 67, 68, 96, 114–15, 132, 134–6, 138, 141, 143 Rawls, J. 56, 60, 235–6, 238–40 Fördelningspolitik 150, 154, 162–3, 165–6, 170, 175, 181, 222–3 Reagan, Ronald 24, 74, 105 recession 33, 69, 118, 144, 177, 179, 184, 190, 195, 210, 257 redistribute 7, 24, 59, 212, 236 redistributed 59, 128 redistributing 56, 59, 216 redistribution 7, 9, 12, 16, 22–4, 27–30, 32, 39, 44, 47, 49, 56, 59, 62–3, 68, 72, 77–8, 86–8, 115, 122, 132, 134, 150, 153, 176, 188, 200, 212, 217, 221–2, 229–30, 239, 249, 264 referenda 182, 183, 197–9, 202–6, 252, 263 refugees 172, 193, 197–8, 206, 209, 257–8 regional development 198, 224, 261 regions 140, 142, 174, 182–183, 199, 259, 264 regulation 36, 79, 81, 117, 125, 142, 216, 226–7, 238, 266 Rehn, Gösta 37, 158, 207, 237, 258 Rehnberg commission 159 Reich, Robert 61 Reif, K. 151 religiosity, 113, 151, 167 Renaud, J-L. 104, 152, 259 Renshaw, G. 119 300

INDEX ‘rent seeking’ 24, 45–7, 56, 81, 83, 251, 260 rent control 84 retraining see vocational training revaluation 180, 207 Reve, T. 184 Rexed, K. 154 ‘Rhenish model’ 117, 248 Rhoads, S. 27, 43 Rhodes, M. 216, 265 Richardson, J. 213 right (wing) 49, 90, 119, 165, 166, 169, 184, 192, 202, 218, 244, 250, 258, 263 Riker, W. 133, 143 Riley, J. 27, 240 Ring, H. 257 Ringen, S. 32, 119 risk 10, 24, 43, 57, 98, 124, 137, 141, 213, 244, 256, 261 Rivera, Geraldo 245 Roberts, Oral 106 Robertson, J.D. 248 Robinson, I 65, 256 Roemer, J.E. 236 Rokkan, S. 116 Rome 199, 215, 227, 253, 261 Röness, P. 188 Rothstein, B. 154, 163, 234, 245, 256–7 Rousseau, J-J. 27 Rowe, J. 254 Rowthorn, B. 119–20, 123, 149, 151, 228, 255 Rubenson, K. 260 Russia 152, 171–2, 181, 200, 207, 260, 263

satanic cults 246 Sauerberg, S. 262 savings and loans 24, 144 Savoie, D.J. 58 scandals 121, 244 ‘Scandinavian model’ see Swedish model Scharpf, F. 38, 94, 117–18, 235, 240, 249 Schelling, T. 56, 250 Schengen 219 Schluter, Poul 193–5, 203–6, 229, 263 Schmaus, G. 236 Schmid, G. 86, 124 Schmitter, P. 79, 116, 214 schools 8, 13, 86, 92, 96–7 107–10, 124–5, 151, 162–3, 166–7, 174, 179, 191, 208, 242, 246, 249, 257 Schou, T.L. 205 Schumann, Robert 208 scientists 19–20, 27, 34, 45–6, 115–16, 118, 131, 136, 179, 251 Scitovsky, T. 242 Scottish 141, 146 SDP 38, 180 ‘second-order choices’ 21, 24, 54–5, 57, 60–1, 68, 80, 145, 166, 196 Seibel, W. 243 Sejm 266 selfishness and self-interestedness 13, 26, 45, 49, 51, 62, 77, 240 Selle, P. 150, 187 Sen, A. 47 sexuality 101, 151 Shames, L. 73 Shanker, A. 246 shareholders 62, 122–3 Shepsle, K.A. 19, 23, 48, 240 shipbuilding 182, 200 Shrum, L.J. 246 sickness see illness sick leave 25, 87, 168, 191, 254, 256 Sidenius, N. 267 Silvennoinen, H. 259 Simmons, R.T. 240 Single European Act (SEA) 262, 265 Sipponen, K. 179 Skadebanan 111 Slavic 258 Slovakia 146 Smeeding, T.M. 29–30, 32, 236

SAAB 167, 226, 257 SAF 81, 154–5, 158–9, 187–8, 208, 226 Sahlin, Mona 164, 258 Sainsbury, D. 147, 256 SAK 172, 173, 174, 179 Salminen, A. 255 Saltman, R.B. 167, 177 SAMMAK 265 Sanchez-Tabernero, A. 104, 246, 247 SAP 5–6, 37, 112, 155, 157, 159–65, 168–70, 180, 206–12, 237, 256–8, 264–5 301

INDEX Smith, Adam 27, 75 smeltering 200 Smolensky, E. 236 sociability 69, 72, 239 socialism 1–6, 26, 34, 38, 120, 126, 159, 161, 164, 189, 219, 222 social bonds see solidarity ‘social charter’ 177, 214–16 ‘social contract’ 27, 118, 214 ‘social Darwinists’ 27 social democracy 1–9, 20–26, 33–9, 76, 79, 92, 112, 115–17, 147–9, 151, 155–9, 183–4, 189, 193–6, 211–17, 220, 221, 224, 230–3, 252, 265 ‘social dumping’ 224 ‘social partnership’ 116–7, 170, 267 social responsibility 50–1, 72, 117, 239, 248 social security 24, 87, 118, 120, 126, 137, 167–8, 178, 191, 216, 244, 265, 267 socioeconomics 34–5, 234, 238 sociology 19, 27, 41 solidarity 28, 47, 49, 63, 65, 69, 79–85, 92, 95, 129–30, 160, 164, 178, 189, 203, 211–12, 218, 221, 225, 228–30, 250, 253, 266, Sölvkjaer, E. 90, 266 Sorensen, R.J. 248 Sorsa, Kalevi 179 Soviet Union 1, 4, 23, 146, 152, 172, 174, 176–7, 180, 206–7, Spain 37, 141, 146, 202, 205–6, 215, 261–2, 264, 266 speculation 97, 161, 167, 169, 183, 244, 259 spheres of human interaction 79–86, 92, 97, sports 241, 246 Stalinism 39 Stein, Benjamin J. 107 Steinmo, S. 118, 137, 144, 241 Stenholme, B. 110 Stephens, J.D. 253, 257 Stewart, J. 136 Stiglitz, J. 234, 238 stimulants 184 STK 172–4, 178 Stockholm 37, 85, 162–3, 167, 226, 230, 244, 256 Storting 183, 201

Strasbourg 142, 217, 224, 230 Strauss, Franz-Joseph 258 Streek, W. 79, 116, 124–6, 214, 250 strikes 113, 173, 192 Strombeck, R. 91, 111 STTK 174 Stuart, A. 27, 231 students 29, 39, 101–2, 108–9, 112, 166–7, 175, 179, 236, 246–7 study circles 111, 264 STV 251 subsidiarity 198, 261 suburbs 13, 61, 70, 85–6, 144–5, 241, 245 Sugden, R. 44, 238 suicide 106–7, 246, 261 Summers, Lawrence 8 Sundqvist, Ulf 180, 207 Suzumura, K. 240 SV 184, 200 Svensson, S. 258 Swedberg, R. 19, 237 Sweden 1–2, 5–6, 15, 25, 30, 32–33, 36–7, 45, 60, 62, 68–9, 72, 87–8, 90, 96, 109–13, 116, 120, 122, 124, 128, 139, 141, 147, 149–213, 218, 221–2, 224–6, 229–31, 233, 236–7, 239, 242–5, 247, 249–51, 253, 255–67 ‘Swedish model’ 2, 15, 147, 154, 157, 161, 163, 170 Swenson, P. 154 Switzerland 197, 211, 217, 248, 252, 255, 261 ‘tacit knowledge 47, 86 Taiwan 12 Tarantelli, E. 248 tariffs 45, 60, 62, 68, 72, 123, 127, 134, 254 Tawney, R.H. 9 taxes 13, 24, 30, 54, 61, 67, 86–92, 95, 108, 115, 128, 130, 140, 143, 145, 150, 155, 157, 161–2, 168–9, 200, 223, 236–7, 239–40, 242, 244–5, 252, 258, 260 tax avoidance 72, 87–8, 92 ‘tax burden’ 88, 244 tax evasion 14, 88, 90 Tax reform 137, 139, 256 302

INDEX Taylor, M. 52, 53, 83 TCO 81, 187 teachers 106–7, 160, 166, 186 teaching see education Teague, P. 213 technology 86, 118, 124, 125, 157, 176, 179, 225 teetotalers 210 Tekes 179 telepathy 108 telephones 98, 254 television 9, 56, 67, 73–4, 76, 91, 97– 108, 112, 129–30, 144, 152, 158, 173, 175, 188, 243, 245–7, 250, 257, 259–60 tennis 246 Tetlock, P.E. 252 Thatcher, Margaret 214 Thatcherism 119, 159 theatre 111, 245 Thelen, K. 250 Therborn, G. 255 The Economist 3, 30, 32, 106, 108, 110, 121, 126, 175, 177, 184, 198, 215, 218, 227, 233, 235, 241–2, 245, 247, 252–3, 261–2, 264–5 threshold 12, 135, 252 Thurow, L. 55 Tilton, T. 5 Timbro 154 Titmuss, R. 28, 244 tobacco 168–9 Tocqueville, Alexis de 1 tourism 256 ‘tradeable permits’ 42, 44 tradeoffs 203, 212, 214, 230 trade 29, 43, 153, 207, 214 trade unions (see also Labour) 26, 37, 62, 81, 91, 94, 111, 116, 118–20, 122–6, 130, 134, 148, 154, 156–7, 168–70, 174–5, 178, 180, 184–7, 190, 192, 211, 213, 215, 221–2, 224, 229, 233, 245, 249, 251, 255, 260, 265–6 traditions 89, 164, 212, 258, 264 traineeships 169, 185 training see vocational training ‘transaction costs’ 19, 47, 73, 79, 81, 240 transfers 29–30, 32, 43, 62, 66, 68, 88, 147, 150, 163, 190, 198, 212, 218, 223, 234, 236, 238, 244

transparency 90–1, 198, 205 Traxler, F. 124 Trehörning, P. 149, 247, 266 Tsebelis, G. 20, 41, 54, 249 Tullock, G. 45, 83, 236, 243 Turkey 218, 261 Turku 252 Tversky. A. 43 TVK 174 ‘U-shaped curve’ 118–19, 121, 123, 145 Uddevalla 167 UK see Britain Ulysses 240 Unckel, P. 153, 166, 247 underemployment 249 unemployment 75, 118, 120, 126, 147, 149, 157, 161–2, 167–70, 173–4, 177, 179, 181, 184, 186, 190, 194, 203, 212–13, 222–4, 230, 237, 248, 249, 255–6, 259–60, 263 unemployment insurance 24, 30, 149, 156, 162, 168–9, 178, 255 UNESCO 246 Unger, B. 124 UNICE 213, 215 unionization 119, 147, 173, 191, 249, 250 unions see trade unions United Kingdom see Britain United Nations 8, 33, 98, 142, 152, 179, 181, 253, 259, 263, 266 United States 1–2, 4, 8, 24–5, 58–62, 68 71, 74–5, 78, 83–5, 87, 89, 97–109, 112–13, 116, 124, 133–37, 143, –47, 166, 214, 218–19, 227–8, 236, 239, 241, 243–47, 254 universalism 43, 154, 167, 212, 256 universities see higher education unselfishness 4, 47, 49, 54, 239 USA Today 99, 246 USSR see Soviet Union utilitarianism 20–2, 27, 241 Uusitalo, H. 30, 32, 176, 244, 254 Valen, H. 260 vandalism 244 Van der Berg, A. 3 Van Waarden, F. 128, 250 303

INDEX VAT 87, 161, 168, 223, 266 Veiden, P. 182, 186, 250 Verba, S. 242 VF 159 Viinanen, Iiro 178 violence 75, 99, 101–3, 105, 107, 113, 246 ‘visibility’ 89–90, 95–6, 98, 103, 109, 131, 144 vocational training 21, 42, 46, 110–13, 122–30, 157, 168–9, 174, 179, 184–5, 191, 214, 224, 228, 247, 250, 253, 259–60 Vogel, J. 109, 251 Voluntary organizations 81, 91, 127, 187 Volvo 167, 226 Von Otter, C. 167, 177 voting 45, 60–1, 92, 95, 127–8, 134, 139, 142, 144, 202, 253, 262; voting turnout 127, 144 vouchers 107 VTT 179

welfare economics 44–7 welfare state 4, 6–7, 13–14, 28–9, 37, 39, 85–7, 115, 118, 141, 143, 147, 161–4, 167–8, 170, 172, 193–4, 203, 222, 229–31, 233–6, 244, 248, 250, 256– 9, 264–5 Westerberg, Bengt 165, 167, 169–70, 256–8 ‘Westminster system’ 134–7 Whitehead, J. 39 Whiteley, P. 117 Whittle communications 246 Wibble, Anne 163–5, 256, 258 Wicksell, K. 45 wilderness 85, 242–3 Wilensky, H. 244, 249 Williams, T.M. 103, 107 Willoch, Kåre 194 Winfrey, Oprah 245 Wittman, D. 237 Wojtyna, A. 266 Wolfe, A. 99, 238 Wolff, E.N. 236 women 120, 151, 160, 176, 204, 210, 212, 214, 237–8, 245, 255, 259, 264–5 Wooldridge, A. 191 works councils 265

Wachtmeister, I. 257 wage-earner funds 154, 159, 161, 168 wage dispersion 120, 148, 150, 186, 236, 250, 255 wage drift 160, 186, 256 wage restraint 119 wage solidarity 150, 157, 186 Wagner, R.E. 238 Wallenberg, Peter 208 Wallerstein, M. 187, 233, 249, 260 Washington 32, 134, 246, 254 welfare 20, 21–3, 25, 29, 39, 43–4, 45, 47–9, 51, 54, 61–3, 70, 74, 76, 89, 118, 128, 162–4, 167, 209, 230, 235– 6, 238–9, 242, 259, 264–5

youth 26, 85, 96–9, 109–12, 125, 161, 167, 169, 174, 187, 210, 212, 246 YS 182, 186, 260 Yugoslavia 82, 146, 197 ‘zero-sum game’ 49, 54, 81, 133, 135, 138, 229 Zetterberg, H. 154

304