SOCIAL DEMOCRACY, VARIETIES OF CAPITALISM AND GLOBALIZATION : SKETCH OF A PAPER

for conference and volume on “What’s Left of the Left: Liberalism and Social Democracy in a Globalized World”

May, 2008

Jonas Pontusson

In discussing the current situation and future prospects of social democracy, we need to be clear about what we mean by “social democracy.” For the purposes of this paper, I conceive “social democracy” as a more or less coherent package of policies or, in other words, a distinctive approach to “managing capitalism.” In identifying the core elements of this package, I rely on the postwar experience of Scandinavian countries and emphasize policy complementaries. In short, I conceive “social democracy” as a coherent set of policies pursued by Nordic social democrats in power. My justification for this unabashedly Scando-centric (even Swedo-centric) perspective is as follows: (a) Scandinavia is the one place where social democracy can be said to have been politically hegemonic (and, to some extent, remains hegemonic); and (b) partly for this reason, Scandinavian social democrats (and especially Swedish social democrats) developed a more coherent approach to “managing capitalism” than did social democrats elsewhere. The paper proceeds to explore whether the social democratic project presupposes and/or promotes a particular type of capitalism. This is the core of my discussion: my goal here is to argue against the way that much recent work in comparative political economy, particularly the “varieties-of-capitalism” (VofC) literature, tends to conflate social democracy with the institutional characteristics of “coordinated market economies” and/or assumes that social democratic policies are only viable under these institutional conditions. From this perspective, the question of whether the social democratic project remains viable in a “globalized world” boils down to the question of whether coordinated market economies remain viable. In my view, by contrast, there is no obvious reason why social democratic policies are not viable in liberal market economies as well. Related to this, I want to argue that trajectory of the Nordic economies since the 1990s is

2 markedly different from that of the coordinated market economies of continental Europe (the EU heartland). The Nordic economies have grown faster and have also undertaken more far-reaching deregulatory reforms of capital and product markets. I do not want to suggest the social democratic project is compatible with any and all forms of liberalization. As I will elaborate below, I believe that strong unions and coordinated collective bargaining are an essential institutional underpinning of the social democratic project, from a political as well as an economic point of view. Also, let me note up front that the following discussion focuses primarily on the political-economic viability of the social democratic project and does not deal very much with the conditions under which parties pursuing social democratic policies will be electorally successful. This is, of course, an important limitation: the social democratic project may be perfectly viable from a political-economic point of view, as I argue, but no longer realizable from a political-mobilizational point of view.

1. Alternative conceptualizations of social democracy

There are at least three other ways one might conceptualize “social democracy:” (1) social democracy as an ideology or political philosophy (exemplified by Sheri Berman’s contribution to the volume); (2) social democracy as a type of political party or political movement, with a distinctive social base and organizational structure (along the lines of Gerassimos Moschonas’ contribution); and (3) social democracy as a distinctive type of capitalism or, more accurately perhaps, a distinctive “social formation” (as in “welfare capitalism”). I don’t want to spend a lot of time on this, but I want to recognize

3 these alternative conceptualizations and provide some justification of my own approach, which conceptualizes social democracy as a “policy package.” I don’t want to claim that this approach is inherently better, simply that it is a useful approach. In particular, my paper is premised on the idea that it is useful to distinguish between “social democratic policies” and “institutional forms of capitalism” as this enables us to explore the historical relationship between the two. Berman’s conceptualization is relevant to my discussion in that “pragmatism” is a crucial feature of social democratic policies. (These are policies guided by the achievement of particular outcomes. The policy instruments themselves are secondary and it is the direction of policy effects that matters: small steps in the right direction are quite acceptable). Also, Moschonas’ conceptualization is obviously relevant in that it speaks to the question of the social groups (coalitions) that have historically constituted the social base of social democratic policies.

2. The social democratic project

Again, my approach derives the “social democratic project” from the postwar experience of the Scandinavian countries. This exercise involves identifying policies or “policy outputs” that (a) distinguish the Scandinavian countries and (b) can be linked to the influence of social democratic parties or, more broadly, social democratic labor movements. Several things should be clarified at the outset. First, I’m interested in specifying what Scandinavian social democracy has actually achieved rather unfulfilled promises or long-term trajectories imputed by its fans or critics. (This means that “wageearner funds,” for example, are not part of my conceptualization of the social democratic

4 project). Secondly, the influence of social democracy in the Scandinavian countries extends beyond the direct exercise of government power and legislative authority by social democratic parties. As commonly noted, non-socialist governments have often pursued “social democratic policies” in these countries (because of electoral calculations and also because institutionalization makes policy reversals difficult). Thirdly, I want to avoid a laundry list of policies pursued by Scandinavian social democrats. My goal is to identify policies that add up to a coherent “project.” I begin by briefly discussing policies that are mistakenly associated with social democracy in some of the existing literature. I then specify what I consider to be the policies that constitute the core of social democratic project. Finally, I will spell out common themes and specific complementarities among these policies.

A. What the social democratic project is not

1). Expansionary fiscal policy The idea of “social Keynesianism” captures something important about postwar social democracy (redistribution to low-income households boosting aggregate demand), but postwar Scandinavian social democracy is not distinguished by a commitment to expansionary fiscal policy in the narrow sense of “deficit spending.” Quite the contrary, the famous Rehn-Meidner model held that fiscal policy should be restrictive, to hold down inflationary price increases and, more specifically, to curtail wage drift in firms that enjoyed “excess profits” by virtue of solidaristic wage policy. “Hate inflation” was Rehn’s motto in the 1950s, embraced by Finance Minister Gunnar Sträng (former trade-

5 unionist) in the 1960s. As shown by Garrett (1998), among others, budget surpluses distinguish the countries that score high on his measures of “social-democratic corporatism” prior to the international recession of the mid-1970s. In Sweden, social democratic governments in the 1980s and again after 1994 made the restoration of budget balance a top priority. It is commonplace to characterize this policy orientation as a retreat from traditional social democratic principles, in response to pressures from global capital markets. My point is that it actually represents a return to traditional social democratic principles.

2). Employment protection Here I want to make two points: (a) employment protection was not a prominent feature of the reformist agenda advanced by Scandinavian labor movements in the heydays of their political dominance and (b) high levels of employment protection, as measured by the OECD, is not an outstanding characteristic of the Scandinavian countries. Cognizant of Sweden’s export dependence, and the need for economic restructuring in response to changes in world markets, Swedish union leaders and social democratic politicians very explicitly eschewed the idea that the government could and should provide workers with security in their current jobs. The stated goal of Swedish social democracy in the 1950s and 1960s was to provide for “security in the labor market,” as distinct from “job security.” This entailed generous unemployment compensation, to protect workers against the income losses associated with unemployment, but also active labor market policies, to improve the ability of workers to find new, better (higher-paying) jobs. In the context of severe industrial adjustment

6 problems, the Swedish labor movement pushed for new laws restricting the ability of employers to fire workers in the 1970s, but this was essentially a defensive move— arguably a retreat from the social democratic project. As commonly noted, Denmark stands out as one of the West European countries with the least restrictive laws governing the ability of employers to fire workers. Sweden’s score on the OECD’s EPL index is above average, but the Swedish score is arguably misleading, for Swedish employment protection legislation allows firms and unions to negotiate alternative arrangements (and they typically do so). Relative to the continental countries, the Scandinavian countries are distinguished by their reliance on collective bargaining rather than government legislation to regulate employment conditions.

3). Codetermination Related to the last point, I think that it is a mistake to conceive of “codetermination” or, in other words, worker participation in corporate governance as something distinctively social democratic.1 It is well known that the German system of codetermination was introduced (and designed) by Christian Democrats in 1951-52. The Swedish labor movement did not become interested in the issue of codetermination until 1970s. Cross-nationally, there seems to be no straightforward association between social democratic power and the extent of codetermination rights. To the extent that we can speak of distinctive social democratic (or Scandinavian) approach to codetermination, it

1

Strictly speaking, codetermination is an “institutional arrangement” rather than a “policy.” This ambiguity becomes less troublesome since I do not treat it as part of the social democratic project.

7 has to do with vesting codetermination rights in local unions, as distinct from works councils. To my mind, this is a secondary issue.

B. Core elements of the social democratic project

1). Solidaristic wage policy As commonly noted, the Rehn-Meidner model articulated the egalitarian goals of the labor movement as part of a strategy to promote productivity-enhancing economic restructuring. On the one hand, a concerted union effort to provide low-wage workers with higher increases than market forces dictated would squeeze the profits of less efficient firms (sectors) and force them either to rationalize production or go out of business. On the other hand, the wage restraint by well-paid workers implied by the principle of wage solidarity would promote the expansion of more efficient firms (sectors). For the unions to pursue this strategy the government needed to develop active labor market measures that would ease the transition of workers from less efficient to more efficient firms and sectors and also to curtail wage drift caused by bottlenecks in the supply of labor. The insight at the core of the Rehn-Meidner strategy is the idea that low wages represent a subsidy to inefficient capital. At the same time, Rehn and Meidner recognized that wage differentials were necessary as an incentive for workers to acquire skills and to take on more responsibility in the production process. The goal of union wage policy should be to eliminate differentials based corporate profitability while maintaining differentials based on skills and effort. In other words, the goal of union

8 wage policy should be "equal pay for equal work," as distinct from "equal pay for everyone." In practice, it proved difficult for Swedish unions to maintain the distinction between "good" and "bad" wage differentials and most observers agree that solidaristic wage policy became “too egalitarian” in the course of the 1960s and 1970s, producing a generalized profits squeeze and, ultimately, an employer campaign to decentralize wage bargaining in the 1980s. However, the Swedish system of wage bargaining remains quite coordinated (though formalized bargaining is primarily sectoral these days). In the next iteration of this paper I will present data that show that wage compression remains a distinctive characteristic of the Nordic countries as a group.2

2). Active labor market policies to promote labor mobility and upgrading of skills I don’t have a lot that I want to say about active labor market, but it clearly needs to be part of my list of “core elements.” Again, it is central to the logic of the RehnMeidner model. For my purposes, the crucial point is to show how the thrust Scandinavian activation policy differs from neo-liberal workfare, emphasizing positive incentives and facilitation of employment rather than being “punitive.”

3). Welfare-state universalism and public-sector services As the comparative welfare state literature demonstrates, public provision of social welfare does not itself distinguish countries dominated by social democratic parties and ideas from countries dominated by Christian Democratic and ideas in the postwar era. 2

In my presentation of cross-national data, Finland will be grouped with the Scandinavian countries. At some point, I will need to say something about the role of social democracy in the Finnish case. Crudely put, Finland ends up with social democratic without ever having had a hegemonic social democratic party.

9 Adjusting for taxation of benefits, Germany and France more on income transfer programs (in percent of GDP) than Sweden and Denmark. What distinguishes the social democratic welfare states is the principle of integrated social insurance systems, as distinct from occupationally segregated systems, and their reliance for services provided directly by the public sector. Both features—universalism and public services—suggest ways in which “socialism” remains a relevant an ideological reference point for the social democratic project.

4). Public investment in comprehensive education While the aforementioned elements of the social democratic project have been discussed extensively in the existing literature, this is a topic that has only recently begun to receive the attention that it deserves. The next iteration of the paper will present data (from my 2005 book) in support of the following propositions: (a) public spending on primary and secondary education per school-age child is much higher in the Nordic countries than in any other OECD countries, and (b) these countries are also distinguished by higher average test scores and a more compressed distribution of basic literacy and numeracy skills than other OECD countries. High scores at the lower end of the distribution of educational achievement are particularly noteworthy. As I will discuss below, the VofC literature emphasizes vocational training (firm- and industry-specific skills) as the distinctive strength of coordinated market economies. By contrast, I want to argue that the Nordic countries excel with respect to general skills. While German-style vocational training still appears to be important in Denmark, postwar educational reforms in Sweden, based on the principle of comprehensive secondary

10 schooling, effectively eliminated this type of vocational training. The category “vocational education” in OECD statistics covers very different things depending on the country in question. The dramatic expansion of higher education in the Nordic countries since the early 1980s also has to be noted here.

5). “Child-centered social investment” combined with policies to promote female laborforce participation and gender equality Various measures to support children or families with children, most notably generous family allowances and heavily subsidized public childcare, are also part of the social democratic policy package. Esping-Andersen’s (2002) idea of a “child-centered social investment strategy” captures this feature well and highlights its connection to policies associated with the Rehn-Meidner model, combining redistributive policy purposes with the goal of enhancing of the productive potential of the economy. As commonly noted, the Nordic countries are not only distinguished by the high levels of support for children (or families with children) and low rates of child poverty, but also by high rates of female employment (and particularly high rates of employment among women with children). Key policies specifically design to promote women’s employment over the lifecycle crystallized in the 1970s: individual income taxation, subsidized public childcare and generous parental leave insurance.

11 C. Common themes: empowerment, egalitarianism and productivity

To my mind, the preceding discussion calls into the question Esping-Andersen’s (1990) use of the concept of “decommodification” to capture to the essence of social democracy. In emphasizing that social democratic welfare states emancipate workers from their dependence on the labor market, Esping-Andersen misses the important redistributive effects of these welfare states as well as their “employment orientation.” Arguably, social democratic welfare states reduce worker dependence on particular employers, but they do not reduce dependence on employment. None of the policies enumerated above involve “decommodification” in the latter sense. Quite the contrary, the thrust of the social democratic project, as I understand it, is to bring people into the labor market and to empower them as sellers of labor power. It would make more sense to use the concept of “decommodification” to capture the thrust of policies (or institutional practices) associated with Christian Democracy and other strands of traditional conservatism on the European continent (including the Mediterranean countries): employment protection, early exit from work, and policies designed to keep women in the role of home-makers. In addition to empowerment, egalitarianism represents another prominent theme behind social democratic policies: equality of opportunity (education and family policy) as well as equality of rewards (solidaristic wage policy and redistributive social spending). As noted above, this egalitarianism pertains to gender as well as classes or income groups. The third theme is that the links different elements of the social

12 democratic project is, of course, the idea of that redistributive policies can/should be designed to promote productivity.

D. Policy complementarities

Beyond the broad themes identified in the previous section, I want to dwell briefly on specific complementarities among the policies that I have identified as the core elements of the social democratic project. (This idea is inspired by the discussion of “institutional complementarities” in the VofC literature). To begin with, there is the set of complementarities between solidaristic wage policy, active labor market policy and (restrictive) fiscal policy articulated by the RehnMeidner model (see above). Less commonly noted, I want to emphasize complementarities between education (skills) and solidaristic wage bargaining. Labor economists (notably Blau and Kahn) point out that compression of educational achievement provides can be invoked to explain cross-national variation in wage inequality. On the other hand, the more egalitarian distribution of household income (and living conditions more generally) would seem to be an important reason why children from low-income households seem more able to take advantage of educational opportunities in the Nordic countries (cf. Huber and Stephens). More specifically, I want to argue that relatively good skill levels at the low-end of the skill hierarchy has enabled employers in these countries to cope with the challenges posed by solidaristic wage policy, allowing them to deploy new technologies (and improve productivity) with low-skilled workers. Also, the expansion

13 of university education has undoubtedly curtailed the growth of returns to education in these countries. In short, social democratic education policies have made it easier for unions to practice wage solidarity. A third set of policy complementarities concerns women’s employment. As commonly noted, the expansion of welfare-related public-sector employment in the 1960s and 1970s pulled women into the labor force. Also, solidaristic wage policy played an important role in boosting the relative wages of jobs that tended to be dominated by women, providing further stimulus for women to enter the labor force.3

3. Varieties of capitalism

The VofC literature conceives the Nordic economies as part of a broader category of “coordinated market economies” (CMEs), which are distinguished from “liberal market economies” (LMEs) in terms of the institutions governing three sets of relations at the core of capitalism (cf. Hall and Soskice 2001, among others): (a) relations between investors/owners and managers of firms; (b) relations between firms; and (c) relations between firms and their employees or, more broadly, between employers and unions. (As commonly noted, much of the VofC literature downplays the role of the state and business-state relations). In each of these spheres, CMEs (often exemplified by 3

Regarding women’s employment, the conventional critique of Scandinavian social democracy is that it has perpetuated labor-market segmentation by gender. My sense is that this critique is somewhat dated and that women have moved into more qualified and well-paid positions over the last 15 years or so. I will try to find some data on this for the next iteration of the paper. This issue is related to the importance of general skills in the economic growth of the Nordic countries since the crisis of the early 1990s (see below).

14 Germany) are characterized by strategic or “non-market” forms of coordination, while LMEs (often exemplified by the US) are characterized by arms-length relations and coordination through market transactions. For now, very brief review of the institutional arrangements that matter in the VofC literature will suffice. • Corporate finance and ownership structure. CMEs are distinguished from LMEs by their reliance on bank lending as the primary source of external corporate finance and/or by concentrated ownership (“tightly held firms”). This feature reflects the smaller size of their equity markets. Strategic investors are more patient, provide firms with longer investment horizons, and thus provide the basis for long-term, trust-based with workers and other firms. Cross-shareholdings between firms also serve as a mechanism of coordination among firms. • Corporate governance. The corporate governance arrangements characteristic of CMEs not only provide weaker protection for minority shareholders, but also provide for representation of other kinds of “stakeholders,” most notably banks and employees (through codetermination at the plant level or the board level or both). By contrast, LMEs rely on markets for corporate governance and stock options to align the interests of owners and managers. • Business associations. CMEs are characterized by dense networks of business associations, including territorially-based chambers of commerce, as well as sectorallybased trade and employer associations. These networks coordinate industrial relations as well as business-state relations and also provide for technology sharing and possibly

15 market-sharing. (The latter types of coordination are particularly relevant for small and medium-sized firms and often take regional forms). • Collective bargaining. CMEs are also characterized by well-institutionalized unions and more or less centralized coordination of collective bargaining. Unions coordinate amongst themselves and so do employers. As a result, industrial relations at the firm level as well as the sectoral level are more “cooperative.” The VofC literature emphasizes institutional complementaries across different spheres. At least in some formulations, “patient capital” constitutes the lynchpin of coordination of inter-firm relations and industrial relations. Leaving recent developments aside for the time being, the Nordic economies do indeed fit the “CME model” as articulated by Hall and Soskice. The question that I want to ask is: what does this have to do with the success of social democracy in the Nordic countries? Much of the VofC literature seems argue, at least implicitly, that social democratic policies (or outcomes) presuppose “CMEness.” There are at least two components or versions of this argument. The first holds that the comparative advantage of CMEs lies in high-wage, high-quality production of (diversified) industrial goods and that this type of production profile is supportive of social democratic policy. The second, more specific, version focuses on the connection(s) between skill formation and the welfare state. The argument here is that employers in CMEs need workers with firm- and industry-specific skills and that employment protection and unemployment compensation are necessary to “incentivize” workers to acquire such skills. Business associations and unions not only help manage German-style vocational training, but also share a common

16 interest in creating/maintaining systems of social protection (cf. Estevez-Abe, Iversen and Soskice). From the VofC perspective, then, the viability of the social democratic project seems to hinge on the viability of CMEs in the global economy. The VofC literature takes a sanguine view of the prospects of CMEs and argues strenuously against the proposition that capital mobility favors the LME model (and thus generates convergence on the LME model). The standard formulation holds that CMEs and LMEs generate different comparative advantages: CME firms and LME firms pursue different innovation and production strategies, but these strategies are equally viable. Rather than generating pressures for convergence, globalization actually serves to crystallize differences between these two types of economies. The “Thatcher revolution” is commonly as an example of this process. More or less explicit, the argument here is that the postwar British welfare state and system of industrial relations were inconsistent with the essentially “LMEness” of the British economy and that these features had to be restructured to conform to that essential “LMEness” as international competition intensified. Put differently (and overstating the point) there is no space for “social democracy” in liberal market economies. In the next iteration of this paper I will develop the following critique of the VofC perspective. To begin with, the sanguine view of the prospects of CMEs is very manufacturing-centered and also ignores differential growth rates across different industrial sectors. CME firms specializing in incremental innovation may well be able to thrive in the new world economy, but if sectors characterized radical innovations is grow at twice the rate of sectors of sectors characterized by incremental innovation this surely

17 poses a problem for economies (countries) with firms specializing in incremental innovation. More importantly for my purposes, the VofC perspective (at least in my rendition above) conflates the social democratic project with “social protection” and German-style vocational training. As noted above, neither employment protection nor unemployment compensation constitutes distinctive features of social democratic welfare states. On the training side, the social democratic approach emphasizes public investment and comprehensive schooling. In short, I do not see any obvious reason why the policies that I have identified as the core elements of the social democratic project presuppose business coordination in order to be effectively implemented or, in other words, why their effects on income distribution and productivity would be different in LMEs than CMEs. By the same token, I don’t see any obvious reason why intensified competition in product markets or increased international capital mobility renders these policies less viable. (Note: space permitting, I will include a brief discussion of the literature on the consequences of globalization for welfare state and social democracy here. Most relevant, Swank’s analysis suggests that, by comparison to liberal and conservative welfare states, social democratic welfare states have been less rather than more vulnerable to pressures associated with globalization).

4. Strong unions as an institutional underpinning of social democracy

The point of the previous section is that the linkage between social democratic policies and CME institutions is less tight than the VofC literature believes. Now I want

18 to qualify this interpretation of the social democratic project as universally applicable. To my mind, successful social democracy does not presuppose the entire institutional framework of CMEs, but it does presuppose strong unions. By “strong unions,” I have in mind both high levels of unionization and an organizational structure makes coordination among unions possible. The latter feature is not adequately captured by centralization of authority in the hands of national union officials. Union strength involves limits on the autonomy of locals/shop stewards, but also, perhaps more importantly, clear jurisdictional boundaries and the absence of inter-union competition over members. It is noteworthy that Scandinavian unions are distinguished by strong locals as well as strong peak associations. Union strength is important to the social democratic project in (at least) two specific ways. First, strong and coordinated unions are critical to the implementation of solidaristic wage policy. (Strong unions and centralized wage bargaining tend to go together, reinforce each, but I think that a case can be made that it is union strength that is the key variable that explains why some countries have more compressed wage structures than others. A recent paper by Scheve and Stasavage shows that across the twentieth century there is no consistent association between bargaining centralization and wage compression, but there is a consistent association between unionization and wage compression). Secondly, and less commonly noted, strong local unions made it possible for Scandinavian social democrats to eschew excessive legislation on employment protection, instead relying on local unions to protect workers against unfair dismissals. Conversely, the continental European countries, especially Southern European countries, ended up with restrictive employment regulations at least in part because unions were

19 relatively weak. Arguably, negotiated employment protection is more flexible than legislated employment protection and therefore has less negative effects on employment growth. Does union strength in turn depend on the broader institutional framework of nonmarket coordination? Leaving aside Belgium and the Nordic countries, it is not the case that union density is higher in CMEs than LMEs, nor is it the case that union membership has held up better in CMEs than LMEs over the last 25 years. In my view, some of the institutional features of continental CMEs have actually contributed to union decline. The practice of extending bargained wage contracts to firms (or workers) that were not party to the contract poses the obvious question of why workers would choose to join unions in these countries. Similarly, employment protection legislation and works councils arguably deprive unions of an important role at the local level. Here then is another complementarity (or “virtuous circle”) that I want to bring out: the social democratic project depends on strong unions, but it also sustains strong unions.

5. Trajectories of Nordic and continental economies

Inspired by the VofC literature, I used to argue that Sweden was becoming more like Germany in response to globalization and the decline of Fordist mass production (just like Britain was becoming more like the US). This argument focused on two Swedish developments: (a) the shift from peak-level to industry-level bargaining and greater wage differentiation; and (b) public-sector employment cuts, tilting the public provision of social welfare in the direction of greater reliance on social insurance (and

20 means-tested social assistance). I now think that this notion of social democratic CMEs converging of the German model was fundamentally wrong. To the contrary, the Nordic economies and the continental economies have become more distinctive since the early 1990s. (A recent article by Martin and Thelen makes the same argument). In part, this divergence is related to long-standing differences, related to social democratic policies, that have become more pronounced. There are three main aspects to the contrast that I want to develop here:

1). Economic growth The Nordic economies performed much better than continental European economies in terms of overall growth and productivity growth in particular. By many indicators, their performance has been at least as good as that of the US and other LMEs (with the exception of Ireland). Also, Nordic growth has assumed a new, distinctively “post-industrial” cast, with knowledge-intensive manufacturing and services leading the way. By contrast, the improvement in Germany’s economic performance in the last few years seems to be largely attributable to manufacturing exports of the kind that has always been Germany’s comparative advantage. (I will present data on this in the next iteration of the paper).

2). Labor-market dualism The continental economies, most obviously Germany and France, have become increasingly dualistic over the last decade or two. The core manufacturing retains the qualities emphasized by the VofC literature, including good social benefits provided by

21 the state, but more precarious forms of employment have expanded other sectors (private services in particular). Politically, insider-outsider conflicts have become more salient. While there are certainly some tendencies in this direction in the Nordic countries as well, they are far less pronounced.

3). Deregulation My third point is that the Nordic countries (with the exception of Norway) have undertaken more far-reaching deregulatory reforms than the continental countries. The reforms I have in mind primarily pertain to capital markets, corporate governance and product markets (rather than labor markets and public welfare provision). Most notably in the Swedish case, stock markets grew rapidly between 1990 and 2005, and corporate finance and governance became more market-oriented. Foreign capital entered on a massive through portfolio investment, but also through foreign acquisition of Swedish firms. Public utility and telecommunications monopolies were broken up and state assets partially privatized. More broadly, domestic markets for goods and services have been extensively deregulated.

With respect to deregulation (or liberalization), the key point that I want to make is that these reforms did not entail further decentralization of wage bargaining or welfarestate retrenchment. Quite the contrary, they seem to have been part of a political process that also shored up the core elements of the social democratic project. Indeed, one might well argue that the restoration of the social democratic project made these reforms politically possible.

22 I also want to argue that egalitarianism has contributed to the success of the Nordic economies over the last decade. In so doing, I will focus on four “causal mechanisms:” • Coordinated wage bargaining with strong unions has kept the lid on the growth of wage differentials based on corporate profitability differentials and has been a source of pressure on firms to improve productivity in knowledge-intensive services as well as well private services. The Rehn-Meidner model still works: in fact, it works better as decentralization of wage bargaining has reduced the unions’ need to pursue interoccupation leveling. • Universalistic welfare schemes have facilitated comprehensive readjustment of pensions and other social benefits as well as a renewed emphasis on activation. • The supply of general skills generated by the investment in public education (and families) over several decades has paid off as the importance of traditional manufacturing in the process of economic growth has declined. Again, the broad base of general skills strikes me as critical, with respect to the quality of new consumer markets as well as the use of information technology in the production of goods and services. • The Nordic economies have benefited, in lots of more or less tangible ways, from high levels of female labor force participation and relatively high levels of gender equality.

6. Conclusion

I’m running out of time… The bottom line: continental European welfare systems are less egalitarian but also less “market-conforming” than Scandinavian

23 welfare systems. Egalitarianism and markets as “mechanisms of coordination” do not necessarily run counter to each other. It makes more sense to think of these as orthogonal dimensions of contention in the politics of managing advanced capitalism. The core policies of the social democratic project are still relevant under conditions of globalization and domestic liberalization, but their political-economic viability hinges on unions being able to play an active role in regulating employment conditions and setting wages.