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Social Democracy as a Development Strategy
... Several studies have also recognized that the cooperative and trustful industrial relations present in the Nordic countries have been decisive in producing and maintaining the rather unusual combination of capitalist dynamics and high social protection (Dølvik and Oldervoll 2019;Engelstad and Hagelund 2015;Hvid and Falkum 2019;Moene and Wallerstein 2006;Nymoen 2017;and Swenson 2002, among many others). The core of what is often termed the Nordic model is a high level of collective organization among both employers and employees. ...
... They clearly signalled to the leadership of LO that their approach was not to fight against the unions to hold wages down. Rather, their strategy was to give more power to the leaders of the labour movement as a whole (the leadership of LO) and, thus, strengthen unions as institutions (Bowman 2002;Moene and Wallerstein 2006). The employers thus signalled a clearer willingness to cooperate with LO. ...
... In fact, Sweden was second only to Norway in the level of labour disputes between the world wars. As Moene and Wallerstein (2006) noted, international observers often express the view that the Nordic experiences are not very relevant to other countries. They seem to believe that the Nordic model "(. . ...
Moving a relationship of widespread conflicts and distrust into a virtuous circle of trust and cooperation is challenging, yet the case examined in this article shows that it is possible. A problematic start can indeed lead to a positive outcome. In the early twentieth century, Norway experienced the highest levels of labour conflict in Europe. Class conflicts were intense and often violent, with deep mistrust between the parties in the labour market. This situation changed markedly when the Norwegian Employers’ Confederation and the Norwegian Confederation of Trade Unions signed the Basic Agreement in 1935. This agreement not only led to a lasting decline in labour conflicts, but it also marked a crucial early step towards a system of close collaboration between labour and capital in Norway. By focusing on the intimate relationship between beliefs, trust, and cooperation, this article explores how the labour market parties transitioned from widespread conflict and open struggle to a system of peaceful negotiations and compromises. Changes in beliefs enabled the parties to coordinate on a new cooperative equilibrium, an equilibrium that continues to characterise Norway’s labour market today.
... The NWLM has historically been defined by elements such as the collective bargaining system, arrangements for co-determination, and working environment regulations (Heiret, 2012). The overarching logic of the NWLM is the centralized and strongly regulated nature of working life, which aims to protect and support the entire population, including the weakest (Moene and Wallerstein, 2006). ...
... In Norway and Finland, collective bargaining agreements apply to all parties regardless of trade union membership. Wage compression attained through highly coordinated wage settings has contributed to profitable and well-paid jobs, even for employees with little or no formal competence (Barth and Moene, 2016;Moene and Wallerstein, 2006). This structure can provide a favorable starting point for platform workers with few formal competence requirements to ensure good working conditions. ...
The Nordic working life model (NWLM) promotes ‘good work’ on societal and workplace levels. However, this model is now challenged by emerging business models in the platform economy. This study investigates how digital labor platforms respond to conflicting institutional logics and how platform-mediated work intervenes with the inherent logic of the NWLM. The authors examine platform business strategies and their implications for working environment regulations, co-determination, and collective bargaining. Empirical data comprising 50 interviews with food delivery workers, platform managers, union representatives, employer association representatives, and occupational health and safety regulators from the Norwegian Labor Inspection Authority were analyzed by applying institutional complexity as a theoretical framework. The findings illustrate that a high degree of institutional complexity provides companies with discretionary space, which they utilize to achieve legitimacy and competitive advantages. The authors introduce the term institutional opportunism to describe how adaptation is performed. The study reveals that the platform economy, characterized by workers with limited experience of and knowledge about working life and strong market pressures, poses a challenge to the NWLM.
... High spending welfare regimes have tended to (Lindert, 2004): 229. While social democratic projects in the Nordic states began when these countries were poor and depressed, and facing social and economic conditions that might be compared with contemporary South Africa or Brazil, it is also argued that the Nordic development strategy protected private concentrations of wealth, avoided any disruption to property rights, maintained free trade and compressed the wages of employed workers while achieving rapid productivity growth (Wallerstein & Moene, 2006). ...
... 230. Full employment was a necessary condition for the fiscal sustainability and effectiveness of the welfare programme (Esping-Andersen, 1990), since it simultaneously reduced the demand for transfers and raised the base of taxation, and full employment was achieved largely through export competitiveness (Wallerstein & Moene, 2006). ...
This Expert Panel was established as part of an International Labour
Organisation initiative together with the Department of Social Development
to examine the salience and feasibility of a Basic Income Grant option for South
Africa.
... According to Rojas (1991) and Esping-Andersen (1990), this model preserves the rights to capitalist accumulation while implementing centralized bargaining of wages, creating a balance that supports economic stability and growth. Moene and Wallerstein (2003) and Moene (2003) further explain that this Nordic model harmoniously combines wage compression with a "socially acceptable" high return on capital. This distinctive arrangement results in a notably low inequality of earnings, as highlighted by Fochesato and Bowles (2015), yet it paradoxically coexists with high wealth inequality, as documented by Davies, Lluberas, and Shorrocks (2012). ...
This paper explores the concept, measurement, principal stylized facts, and theoretical aspects of compositional inequality. Compositional inequality refers to how the shares of capital and labor income vary along the income distribution. This analysis is valuable for several reasons. From a macroeconomic perspective, it elucidates the link between functional and personal distributions of income, which is crucial for addressing the drivers of income inequality in a context of rising capital share. From a comparative economic perspective, it locates economic systems on the continuum between two extremes: classical capitalism, where the rich earn predominantly from capital and the poor from labor, and new capitalism, where the composition of capital and labor is uniform across the distribution. We refer to the entire range of systems along this continuum as the distributional varieties of capitalism. Recent empirical studies indicate that, in most countries, we are far from classical capitalism, though with notable exceptions, such as Latin American countries. This underscores the need to evaluate the benefits of compositional equality. The paper concludes that compositional equality is desirable for at least two reasons: it promotes fairness and supports an inclusive, profit-driven regime of accumulation and growth.
... According to Rojas (1991) and Esping-Andersen (1990), this model preserves the rights to capitalist accumulation while implementing centralized bargaining of wages, creating a balance that supports economic stability and growth. Moene and Wallerstein (2003) and Moene (2003) further explain that this Nordic model harmoniously combines wage compression with a "socially acceptable" high return on capital. This distinctive arrangement results in a notably low inequality of earnings, as highlighted by Fochesato and Bowles (2015), yet it paradoxically coexists with high wealth inequality, as documented by Davies et al. (2012). ...
This paper explores the concept, measurement, principal stylized facts, and theoretical aspects of compositional inequality. Compositional inequality refers to how the shares of capital and labor income vary along the income distribution. This analysis is valuable for several reasons. From a macroeconomic perspective, it elucidates the link between functional and personal distributions of income, which is crucial for addressing the drivers of income inequality in a context rising capital share. From a comparative economic perspective, it locates economic systems on the continuum between two extremes: classical capitalism, where the rich earn predominantly from capital and the poor from labor, and new capitalism, where the composition of capital and labor is uniform across the distribution. We refer to the entire range of systems along this continuum as the distributional varieties of capitalism. Recent empirical studies indicate that, in most countries, we are far from classical capitalism, though with notable exceptions, such as Latin American countries.
This underscores the need to evaluate the benefits of compositional equality. The paper concludes that compositional equality is desirable for at least two reasons: it promotes fairness and supports an inclusive, profit-driven regime of accumulation and growth.
... As many before, they …nd that Social Democratic tenure in o¢ ce reduces income inequality Now, the inequality of disposable incomes depends on the inequality of market incomes and on the redistribution through taxes and transfers ("the …sc"). Moene and Wallerstein (2006) discovered some time ago that inequality of market incomes was lower in countries in which unions compressed wages. In their analysis, reduction of wage disparities not only reduced inequality but promoted growth: well performing …rms bene…ted from wages lower than their marginal product while badly performing …rms were eliminated by wages higher than their marginal product. ...
... On the one hand, in a cross-section of countries the results tend to show that countries with high levels of inequality choose lower amounts of public spending. See, e.g., Lindert (1994) and Lindert (1996), Moene and Wallerstein (2005), Schwabish et al. (2006). 5 On the other hand, comparisons across U.S. states and within states over time find that rising income inequality is accompanied by higher government expenditures and increasing progressivity in the state tax code (e.g., Chernick 2005;Schwabish 2008). ...
We build a multi-dimensional model of political decision-making with endogenous political parties to analyse the effect of inequality and demography on public spending. Voters differ in terms of income and age. Political competition determines in equilibrium the tax rate and the allocation of revenue between income redistribution and two forms of public spending—a capital good and a neutral good. All agents value the neutral good equally but the young like capital spending more than the old do. We show that the effect of age (resp., inequality) on equilibrium public spending can go in any direction based on the underlying level of inequality (resp., age). Our findings reconcile a large body of seemingly contradictory stylised empirical findings in public economics.
... 40 My perception is that it does not or at least not unambiguously (see Deyo et al., 1987;Koo, 1984;Wade, 2018: 527). If we use raising the labor share as a proximate objective of a strong labor movement, it is interesting to note that the prominent accounts of the Nordic model emphasize its distributive objectives as limiting wage inequality rather than raising the labor share (Moene and Wallerstein, 2003). A key feature of the Nordic model, solidaristic wage bargaining, was a tool for ensuring wage compression and spurred development insofar as it brought the wage share down in the key growth sector (in high-productivity firms). ...
In low- and middle-income economies, consumption preferences are hierarchical and the production structure is dualistic. Wage demand correspondingly articulates with the domestic industrial sector in a limited fashion. Where capital accumulation is directed at this modern/industrial sector, downward redistributions are less expansionary than commonly outlined, even if capacity utilization is an adjusting variable influencing investment decisions. Insofar as economic development is underpinned by structural transformation, policies aligned with downward redistributions have important sectoral ramifications neglected in one-sector frameworks. This paper explores these and related propositions formally, drawing from the analysis of a two-sector growth and distribution model.
... Supplied with extensive evidence of a relationship between de-unionization and increased inequality in the context of the United States, scholars sought to incorporate centralized wage bargaining into cross-country studies on inequality to test the generalizability of these results. One of the most powerful statements on this relationship is provided by Moene and Wallerstein (2002) who find that countries with centralized wage bargaining tend to exhibit lower levels of wage dispersion. Even the OECD has acknowledged that "there is a fairly robust relation between cross-country differences in earnings inequality and bargaining structures" (OECD 1997). ...
Beginning with the premise that rising economic inequality is an urgent problem burdening some industrialized democratic societies more than others, this paper seeks to examine the primary factors responsible. The purpose is not to provide novel empirical analysis but rather to unite siloed academic discussions and debates under a common theme, to address a problem of mutual concern. The first section frames the puzzle of economic inequality within advanced democracies. Subsequent sections review seminal contributions in five issue areas suggested as likely determinants of growing economic inequality in advanced democracies: technology, globalization, labor institutions, taxes and transfers, and the concentration of markets. I conclude by suggesting that these factors may, in fact, be separate branches of the same tree in that they are deeply intertwined with the economic systems in which they exist. Future work on economic inequality should therefore embrace the Varieties of Capitalism framework as a useful tool for understanding economic inequality.
... For instance, Norway and Sweden experienced the high levels of industrial conflict in the world in the 1920s and early 1930s, way before developing their social democratic policies and labour institutions(Moene and Wallerstein, 2006) ...
This paper analyses the interplay between the allocation of authority within firms and workers’ exposure to automation risk. We propose an evolutionary model to study the complementary fit of job design and workplace governance as resulting from the adoption of worker voice institutions, in particular employee representation (ER). Two organizational conventions are likely to emerge in our framework: in one, workplace governance is based on ER and job designs have low automation risk; in the other, ER is absent and workers are involved in automation-prone production tasks. Using data from a large sample of European workers, we document that automation risk is negatively associated with the presence of ER, consistently with our theoretical framework. Our analysis helps to rationalize the historical experience of Nordic countries, where simultaneous experimentation with codetermination rights and job enrichment programmes has taken place. Policy debates about the consequences of automation on labour organization should avoid technological determinism and devote more attention to socio-institutional factors shaping the future of work.
... If one were to focus on more specific policy instruments, the list of innovations would be obviously larger. The 1953 Rehn-Meidner plan, for example, was an innovation of development strategy that relied on wage compression to eliminate inefficient firms and subsidize efficient ones (Moene and Wallerstein 2005), while preserving private ownership, active anti-cyclical stance, productive social policies and openness to trade. In turn, the innovation introduced in South Korea by Park Chun-He consisted of maintaining a competitive exchange rate by a combination of import tariffs and export subsidies, while continuing to rely on private ownership, full employment instead of social policies and trade openness (see Westphal 1990; Im, Chapter 8, this volume). ...
Upon assuming power for the first time in 1935, the Norwegian Labour Party delivered on its promise for a major schooling reform. The reform raised minimum instruction time in less-developed rural areas and boosted the resources available to rural schools, reducing class size, and raising teacher salaries. We show that cohorts more intensively affected by the reform increased their education and experienced higher labor income. Our main result is that the schooling reform also boosted support for the Norwegian Labour Party in subsequent elections. This additional support persisted for several decades and was pivotal in maintaining support for the social democratic coalition in Norway. These results are not driven by the direct impact of education and are not explained by higher turnout, or greater attention or resources from the Labour Party targeted toward the municipalities most affected by the reform. Rather, our evidence suggests that cohorts that benefited from the schooling reform, and their parents, rewarded the party for delivering a major reform that was beneficial to them.
The Nordic countries are among the world's leading countries in international rankings on prosperity, productivity, social equity, trust, and health. Such positive results may be linked to how these countries have organized their working life. The aim of this article is to describe core elements of the Nordic working life model (emphasizing Norway) and discuss how globalization may challenge the model, and thereby influence public health. Based on an extensive review of relevant research, we show that the Nordic working life model with a coordinated wage bargaining system between well-organized employers and employees results in productive enterprises, small wage differences, good working environments, and a high level of well-being. Global trends of liberalization of working life, increased labor migration, the platform economy, reduced unionization, and more precarious work challenge the Nordic working life model and its reliance on standard working contracts. Such a trend may result in increased inequity, reduced generalized trust, and poorer public health. Politicians and other stakeholders in the Nordic countries should cope appropriately with globalization and technological changes so that the Nordic countries will uphold their well-organized working life and good societal achievements.
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