Economics Of Europe The Effects of Post-Industrialism On the Political Economy of Western Europe The Decline of Corporatist Bargaining The sustained, high economic growth in Western Europe during the post-war period until 1973 led to dramatic changes in the region’s political economy. As advances in transportation and communication extended the reach of international trade into new areas of the world, as technological advances allowed establishment of manufacturing facilities overseas, and as European real wages climbed to unprecedented heights, the industrial base that had served as the foundation for rapid Western European growth in the 1950’s and 1960’s increasingly moved to Western Europe’s poorer neighbors. As the industrial base moved, so did the jobs of a large quantity of unskilled manufacturing workers who populated the assembly lines. In recent years, the liberalization of international trade has clearly demonstrated that European industry can no longer compete in traditional, large-scale industrial sectors. European successes have increasingly come from specialized, high value-added industry and from intelligent, flexible companies able to shift production quickly to capitalize on movements in world demand. The net result of these changes has been a transition to a post-industrial society, where the stable economic order of mass employment in large-scale industry has given way to mass unemployment and a breakdown of the political and social consensus that held sway throughout the post-war period.
These changes have fundamentally altered the Western European labor market. This paper will show how post-industrialism has dramatically reduced the ability of many Western European countries to deliver full employment, not simply because of changes in employment structure, but more importantly because those structural changes have undermined the institutional framework that allowed Western European countries to control prices while pursuing full employment policies, and have left Western Europeans widely dissatisfied with their political system. Western European countries demonstrated varying abilities to control inflation and unemployment in the 1970’s and 1980’s. Cameron argues that two variables explain much of the differences in economic performance: 1) the presence or absence of corporatist institutions and practices,1 and 2) the role of leftist, Social Democratic political parties in government (Cameron: 144). Centralization of labor representation facilitates corporatist bargaining. Conversely, fragemented labor representation makes agreement difficult. The greater the number of parties, the less likely that they will find a solution palatable to all negotiators.
According to measurements of labor organizational unity by the European Yearbook, countries with the most unified labor during the 1970’s and 1980’s, Austria, Sweden, Norway, Germany, Denmark and Finland, were all among the best in Europe at controlling unemployment and inflation, while the countries with the most disunited labor, Italy, France and Spain, were less successful. The shift to a post-industrial economy has increased the dissolution, fragmentation and differentiation of the Western European labor market. Most countries have suffered high and remarkably stable unemployment. Unemployment rises during economic downturns, but no longer seems to recover in a boom economy. Many blame post-industrialism for this phenomenon, complaining that technological improvements have led to a ‘workerless’ economy. While post-industrialism is a cause of higher unemployment, the explanation is not that it has eliminated jobs, but that jobs have changed.
New industrial jobs have increasingly required specialized technical skill, while the service sector has created jobs for skilled, semi-skilled and unskilled workers. One crucial difference between the old jobs and the new are that traditional unions played a much larger role in the labor market for industrial jobs than in the labor market for post-industrial white collar and service jobs. Some countries, Sweden for example, have strong public sector unions that include large numbers of non-industrial employees, but private employees in post-industrial sectors (professionals, managers, skilled and semi-skilled service employees) are less likely to belong to unions than their industrial counterparts. Unions face large obstacles to organizing these workers. Many of the new jobs are in smaller enterprises, hindering communication between the unions and prospective members. But the most serious problem is the individualization of the labor market.
The post-industrial labor market is more fragmented than the industrial labor market. Workers increasingly organize in functionally specialized unions and collective bargaining has shifted to the local level(Crook, Pakulski & Waters: 98). Accordingly, interests among those responsible for negotiating on behalf of post-industrial workers increasingly conflict. Price stability, exchange rate policy and competitiveness have become important to large portions of workers in the post-industrial economy, often leading them to oppose fiscally expansionary full employment policies. Governments that value price stability face less pressure to deliver full employment in return and fiscal restraints have decreased the political will to spend their way to full employment. It is interesting to note that Norway, whose North Sea oil revenues have kept it fiscally sound, has made extensive use of public sector job creation to keep unemployment in check.
A more typical Western European examples is Italy, who, in the face of large budget deficits, gave up costly public sector industries to privatization even during periods of high unemployment. Economic conditions in the 1980’s and 1990’s also led to declining union membership. Economic downturns and high unemployment raise the probability of worker disorganization (Western: 194-195). Also, the increasing volatility of world markets calls for more flexible labor arrangements, such as those common in Northern Italy. The informality of these labor relationships does not mix well with traditional, industry-wide union representation. Western blames the decline of unions on the effects of the economic changes on the political identification of potential union members, citing the erosion of class as an organizing principle as a reason for lower union membership (Western: 179).
Some unions remain very powerful. Small unions populated by skilled workers who are critical to production, such as the German metal workers, are often able to win large concessions from employers. But the decline in overall union membership and the decreasing ability of different unions to agree on broad, macroeconomic policies have hurt labor’s ability to participate in formulating corporatist solutions to economic problems. The shift to a post-industrial economy that has fragmented unions has created parallel fragmentation within the mass-integration political parties that have governed Western European countries in the post-war period. Parties find their traditional membership increasingly divided on the use of fiscal policy, maintenance of exchange rates and other crucial areas of government policy.
The internationalization of markets has also diminished the State’s capacity for intervention in the economic sphere. Thus not only labor, but also government finds itself handicapped in its efforts to continue the strategy of corporatist bargaining. Unable to control both unemployment and inflation without labor cooperation, governments have limited their efforts to one or the other. Due to external constraints such as large fiscal deficits and the Maastricht criteria for participation in the European Monetary Union, most Western European countries have chosen to control prices at the cost of high unemployment. The resulting joblessness has extracted large political costs, particularly for social democratic parties in government and abandonment of full-employment as a primary policy goal has alienated a large portion of their constituencies, undermining their support.
Social democratic parties are currently on the run even in countries where they delivered the best economic results, such as Sweden and Austria. Without the means to increase employment, many countries have tried instead to discourage participation in the labor market. Germany has called for a shorter work week, France has made extensive use of early retirement, and almost all European countries have cut back on legal immigration in an effort to lower unemployment figures and reduce the perceived social cost of their price control policies. The ascension of right-wing or right-center parties in many Western European countries, such as Austria, Italy, France and Sweden, creates two additional, significant barriers to a return to the corporatist solutions of the past. First, most of these parties display a clear policy preference for price control over full employment.
Even Jacques Chirac, who campaigned on a platform of job creation, quickly reaffirmed his commitment to the franc fort immediately after he won the election. Second, recall that Cameron argued that both corporatism and leftist government contributed to economic success in Western Europe. Trust between strong unions and their allies in leftist governments formed an important basis for making and enforcing wage restraint agreements under corporatist bargaining. Unions have less faith that neo-liberal governments will take the necessary steps to protect employment and are accordingly less likely to compromise in wage negotiations. To conclude, post-industrialism has led to dramatic changes in Western European labor markets and Western European politics.
These changes have severely undermined the usefulness of the most successful Western European macroeconomic strategy of the 1970’s and 1980’s–corporatist bargaining. The current levels of high unemployment will continue so long as European society is able to support, both economically and philosophically, a large, marginalized class of unemployed people. Eventually, Western Europe will have to develop a new mechanism of reaching societal consensus on wage restraint. This might happen in response to even larger levels of unemployment or a to breakdown in the government’s fiscal ability to support the current levels of unemployed. Economics.