What were the faults of the Swedish Model?

What were the faults in the Swedish Model?

The University of Kent at Canterbury
Department of Business Administration
International Industrial Relations and Human Resource Management

Submitted: 

Susanne Jung

December 2002

Index

Introduction  1

Historical backround and characteristics of the SM  1

Elements of the SM  2

Analysis  4

Conclusion  7

Bibliography  9

Introduction

The Swedish Model (SM) was made famous because of its special character relating to industrial relations. The reasons for the failures of the system are complex. In the following some points about its failure are mentioned, however there are several other aspects, which can be discussed. The theme of this essay will be the changes in environment and their impact on the SM that can be seen as symptoms of the failures in the SM. The main reasons for the problems in terms of the SM are the static assumptions or framework of the system without covering dynamic effects and necessary reactions to changes. The main assumption of the class compromise between capital and labour cause many problems, however, it also made SM very unique and was the reason for the admired welfare system and economic growth. The problems and the interdependences between developments in respect of changes in environment will be analysed below.

Historical backround and characteristics of the SM

While talking about the SM and its problems it is necessary to look at its characteristics first. Based on social democracy the SM is characterised by a class compromise, the so-called Basic (Saltsjöbaden) Agreement, since 1938 that is built upon various forms of collaboration and conflict resolution between the parties in the Swedish labour market. It was an agreement between capital and labour. To enable more stable conditions in economy and greater profitability capitalists agreed to produce a return to the workers in form of higher wages and welfare conditions. Many believe that Sweden went the “third way between capitalism and communism” (Wilks, 1996: 91-5) because of its capitalistic way of economy and its system of welfare and social security and because of the strengthening of the position of the workers due to power of employers. Wilks mentions that the compromise maintains private property, guaranteed labour peace, promised a welfare expansion and higher wages because of its stable conditions and greater profitability. (Wilks, 1996: 95). Furthermore, Sweden became famous because of its exemplary welfare system and its simultaneous economic growth. “Sweden has had the highest level of public social expenditure amongst western states over the past two decades” 33% of GDP in 1995 were public social expenditure.” (Ginsburg, 2002: 199). Another attribute is the well organised and properly funded, strong unions, which cover 90% of the blue-collar and 80% of the white-collar employees. They have a high level of centralisation in decision-making.

There are two levels of collective bargaining, national and local bargaining (Ahlberg, 1997: 1). Central agreements were the practise between 1956-82 and guaranteed industrial peace for a defined period as well as including components relating to wages, job security, working time, training and skill development (Berg, 2002: 1). During this period local bargaining occurred and when wage increases outside the central agreement were reached, so-called “wage-drifts” occurred. In the 80`s wage drifts appeared quite regularly and caused problems such as inflation (Bamber/Lansbury, 2001: 229-35).

Elements of the SM

There are three main elements characterising the SM.

1. First, there was (and still is) a common interest to stimulate economic growth, rationalisation and also productivity growth for both employers and employees. Therefore unions and employees take full responsibility for wage formation without the invention of the government during the process of collective bargaining. The unions have the right to co-determination in terms of wage negotiation and, in exchange the unions accept the management’s right to decide on the production process as well as the right to manage. Employment relations were generally negotiated between employers and employees. However, conditions changed by problems like unemployment, which occurred during the 80´s and 90´s (Bamber/ Lansbury, 2001: 232-6).

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