Indusrial relations and the management of flexibility - Factors shaping developments in Austria and Sweden.

GCSE Business Studies

MSc in Human Resource Management

‘Employment Relations in the EU’

(Professors Peter Turnbull and Paul Blyton)

INDUSTRIAL RELATIONS AND THE MANAGEMENT OF FLEXIBILITY

Factors shaping developments

in Austria and Sweden

Peter J Samuel

Cardiff Business School

May 2000

Introduction

Labour flexibility has been heralded as ‘the way forward’ in the response to the challenges of the global economy in general and the European Union (EU) in particular (Baglioni, 1990; Casey et al, 1997). However, the EU comprises member states with different societies, institutional structures, cultural traditions and historical contexts, that give rise to both similarities and differences in their respective approaches (Cousins, 1999; Ferner and Hyman, 1998). Thus to facilitate the identification of patterns, the focus is upon two member states: Austria and Sweden.

Following a discussion on the interpretation of ‘flexibility’ as it shall be used throughout this paper, two groups of theoretical issues concerning industrial relations (IR) are introduced to assist comparative analysis. The current context of each state in terms of current flexibility trajectories and key economic and labour market indicators is then examined, followed by an exposition of Dunlop’s (1958, 1993 update) systems framework to explore the interactions giving rise to these outcomes. Finally, it will be argued that the fundamental relations between capital and labour is the bedrock from which flexibility trajectories are launched.

Defining Flexible Labour

Labour flexibility is a value-laden term, especially when linked to phrases such a ‘improved economic growth’ (Casey et al, 1997). Its synonyms have few negative connotations: adaptability, responsiveness, adjustability and so on, and is invariably described as ‘a good thing’. The wealth of literature on labour flexibility suggests it can be defined in many different ways (Boyer, 1988).

Four sources of labour flexibility can be identified (Blyton and Morris, 1992):

1. Functional or task – internal flexibility in labour deployment across tasks through job design, and adaptability by multiskilling through training and development;

2. Numerical – external flexibility in the supply of labour, achieved through ‘atypical’ working, policies of ‘hire and fire’ and subcontracting;

3. Temporal – flexibility in labour deployment through the variation in patterns of working hours: decoupling working hours from operating hours;

4. Financial – flexibility in labour costs through variable and contingent reward systems.

Aspects of temporal and financial flexibility appear to be achieving greater prominence across western economies, while the general focus of the debate has tended to rest upon the development of increased functional and numerical flexibility. These two approaches have been characterised as ‘offensive’ versus ‘defensive’ (Boyer, 1988), with the key distinction being made between dual systems of ‘permanent’ and ‘contingent’ labour (Cousins, 1999). Temporal and financial flexibility may be associated with either.

However, in distinguishing two broad ‘ideal’ types of labour flexibility, the influence of capital-labour relations has been ignored. Consequently, a brief theoretical discussion follows to highlight how the relationship between capital and labour may (pre)determine approaches to the management of flexibility .

Industrial Relations – a theoretical perspective

The comparative study of IR and its effect upon particular strategies of flexibility raises two groups of theoretical issues. These can be grouped into issues raised by the institutionalist approach and those concerning the relationship between capitalism and the state.

Institutional theory (Ross and Hartman, 1960) argues that industrial conflict generates the institutions of its own regulation. Thus it is hypothesised that open conflict declines as institutionalisation develops. There have been four broad challenges to this model based on critiques of pluralism (see Fox, 1973; Goldthorpe, 1974; Hyman, 1972). First, power relations between the primary parties are assumed to be equal thus legitimising fundamental inequalities. Second, the state is assumed to be neutral, when one of its primary functions is the maintenance of the capitalist system. Third, by marginalising conflict, fundamental ideological issues are ignored. Finally, fourth, open conflict has not declined.

With regard to the relationship between capitalism and the state, there are two pertinent perspectives: corporatism and labour movement theory. Theories of corporatism rest on the notion that the increasing organisation of capital (eg: conditions of monopoly and oligopoly) leads to a decline in the efficiency of market mechanisms (Schmitter, 1974). As the state acquires additional functions to compensate, interest organisations become increasingly concerned to influence its machinations. Increased economic conflict (or military conflict) pressurises the state and interest groups to co-operate in the national interest. It is hypothesised that ‘industrial peace’ is a result of the integration of labour into the capitalist state. This approach has been challenged from apparently radical perspectives (see, for example, Pontusson, 1984). It is countered that institutions used to control labour come to represent labour, which will ultimately lead to ‘rationality crises’ that endanger the capitalist economy.

Theories of Labour Movement centre on the notion that industrial rationalisation and concentration speeds up the maturation of capital and paves the way for socialism. (Lewin, 1975; Scase, 1976). Planning is seen as a more effective method of extending public control, enabling the state to gradually assume the the functions of capital until capital itself is functionless. Progression is thus achieved from political, through social, to economic democracy, legitimising collective ownership in terms of the democratisation of society. It is hypothesised that ‘industrial peace’ is the result of labour acquiring political control of the state apparatus to advance its own interests. This approach, as above, is not without criticism (see Gamble and Walton, 1976). First, it is countered that the state is ultimately dependent upon the international capitalist system which constrains its instrumentality. Second, it assumes that the conflict can be overcome between the labour movement’s political dependence upon labour and its economic dependence upon capitalism.

Austria and Sweden in Context

Austria and Sweden are industrial societies of similar size, with strong labour movements and similar patterns of IR, though their differences have been accentuated in recent years. The table overleaf lists some key economic and employment indicators.

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Austria and Sweden in Context

Austria is one of the smallest states in the EU. In 1998, it had a population of just over eight million, including a total labour force of just over five million, of which approximately four million were in employment (Employment in Europe, 1999). A key element of the relatively high employment and low unemployment, is the traditional consensus approach of the social partners, smoothing out business cycle effects (European Economy, 1998).

* European Economy (1999)

** 1997 data

Source: Employment and Social Affairs (1999)

Social Partnership is based upon social democracy and Austria is one of the most corporatist of all western countries, with its roots in the Nazi occupation of 1938. With the elites of both labour and capitalism exposed to Nazi persecution, each side resolved with each other to replace class struggle with co-operation. In line with corporatist theory, concertation thus became, and remains, the guiding principle following the defeat of Nazi Germany (Traxler, 1998).

Austrian corporatism derives its strength from two foundations. First, labour is integrated into the state which features a highly centralised collective bargaining structure. Second, its material base rests on the relative weakness of capital, which elicits the support, and co-operation of labour. This weakness poses a threat to the international competitiveness of the open Austrian economy. Thus, the task of economic modernisation is incapable of being left to market forces, but must be politically guided. The state’s interest in achieving economic modernisation can only be achieved through its willingness to share economic and social governance with capital and labour under a system of ‘state corporatism’ (Traxler, 1998; see Schmitter, 1974, cited in Fulcher, 1991).

As an open economy exposed to competition on a global, rather than a national basis, products and processes have become more differentiated in recent years. Consequently, labour markets are undergoing reform to increase flexibility for both employees and employers. Most importantly, working time rules have resulted in labour market rigidity and a recent legislative amendment to enable the annualisation of hours and the operation of working time ‘accounts’, seeks to increase temporal flexibility (Tableau de Bord, 1996). Recent collective agreements have also introduced changes to the wage structure. Agreements in the metal industry allows for the possiblity of lowering to company level, previously industry-wide wage negotiations, in exchange for a stronger increase for high-performing workers (European Economy, 1998). Part-time and fixed-contract work, though highly regulated by law, have seen a modest increase, however, part-time work availability constrains female labour market participation, as does the lack of appropriate childcare provision (ibid).

Few economies are as concentrated and internationalised as Sweden’s. In 1998 it had a population of just under nine million, including a total labour force of just under six million, of which approximately four million were in employment (Employment in Europe, 1999). Total employment has been falling throughout the 1990s as a result of weakened economic activity, although still remaiting one of the highest employment rates in the EU (european Economy, 1999). The Swedish labour market is characterised by its emphasis on investment in human capital, through training and skill development in the workplace, with ‘teamworking’ a central element of work organisation, first emerging from the Volvo plants in the 1970s (Cully et al, 1999).

Based upon the ‘historic compromise’ of the 1930s, the ‘Swedish Model’ relied upon centralised ‘self-regulation’ up until the 1980s (Delsen, 1995; Korpi, 1978, 1983, cited in Kjellberg, 1998). The strength of the system was based upon intimate links between party and union movement, providing a two-way ‘influence conduit’ thus making labour legislation largely unnecessary. Employers also came to use informal channels of influence rather than support conservative parties and openly challenge social democracy for fear of a lurch towards socialism. Thus, confrontation gave way to co-operation under ‘free corporatism’ (Heckscher, 1963, cited in Fulcher 1991). Since the 1960s, however, the model came under increasing pressure. Self-regulation was ultimately abandoned and labour legislation introduced to increase union influence. In tandem with the election of the conservatives in 1976, employers launched a strong ideological and political counter-offensive with the result that the balance of power shifted gradually in their favour. The peak employers’ association, the SAF, viewed the dismantling of the corporatist system as a way of reducing union influence over the state apparatus. However, the labour movement successfully resisted attempts to introduce neo-liberal reforms by the conservatives, and increasing social unrest led to the return to power of the social democrats in 1982, with the rejection of the austerity policies of the previous six years, albeit with a more neo-liberal agenda tha before (Kjellberg, 1998).

Sweden has long been exposed to competition on the global level, with products and processes differentiated on the basis of ‘flexible specialisation’ for many years (Kjellberg). Consequently, there is little evidence of recent major labour market reforms to increase flexibility (indeed there appears to be little scope for such reforms save a dramatic shift to overt neo-liberalist deregulation). However, working time has been targeted as creating labour market rigidity and a committee established to investigate the reduction of working hours and the incorporation of flexible hours into labour legislation (Tableau de Bord, 1996). Part-time and fixed-contract work, also highly regulated by law, are at a higher level than Austria. Part-time work availability encourages female labour market participation, as does the provision of appropriate childcare (ibid).

The Industrial Relations systems of Austria and Sweden

Actors – the State

Austrian IR is highly regulated by social democratic legislation. The Works Constitution Act (ArbVG) governs collective labour relations in the private sector distinguishing between relations within the firm and at multi-firm level. The Works Council (WC) in the main representative body within the firm, which is legally bound to act in a co-operative manner. Management decisions that may affect labour ‘control systems’, PRP and internal labour transfers, for example, are subject to WC ratification. Plant agreements on working time and work organisation are legally enforceable, as are higher-level collective agreements. A notable feature of the law is that, with only rare exceptions, it authorises only representatives at multi-employer level to conclude collective agreements. The regulatory levels are ordered to give a clear predominance of the actors at the multi-employer level over those below. Unions are ‘superior’ to WCs. Thus the ArbVG defines a highly regulated system of IR, reflecting the principle that provisions most favourable to labour overrides others on the same issues (Traxler, 1998).

In contrast, Swedish IR is characterised by the desire of both employers’ and workers’ organisations to be free from state intervention in their affairs (Rhen and Viklund, 1980). Largely respecting this ‘rule’ of non-intervention, the state has always preferred ‘cajolement’ to direct intervention, using the latter as last resort to prevent conflict damaging ‘third parties’ and society as a whole. In addition, the state has shown a tendency to induce co-operation with incomes policies through tax concessions and subsidies rather than seek compliance through legislation (Fulcher, 1991). However, following its 1988 election success, the social democrats shifted further to the right in a context of growing international economic integration. Their adoption of neo-liberal deregulatory and supply-side policies (much as in the UK with the election of new Labour in 1997) was applauded by employers and conservatives. However, this rightward shift has not resulted in much privatisation or diminution of the welfare state and public sector. To an extent, this been resisted by what is regarded as the strongest labour movement in the world, with the state ‘forced’ to seek corporatist solutions to labour market disorders (Fulcher, 1991).

Actors – Employers

The relative weakness of Austrian capital contrasts strongly with the organisational strength of the central employer’s association, the BWK – Europe’s most comprehensive, well-resourced and politically influential association (OBI, 1985, cited in Traxler, 1998). With Austrian firms generally small, this co-existence is not coincidental. High associational concentration and centralisation compensates for the low economic concentration of small firms, which in part has been stimulated by the comprehensive, centralised nature of Austrian unions (Traxler, 1998).

Individual employers generally have a free hand in personnel management, due to unions’ preoccupation with quantitative demands above the level of the workplace. In recent years, employers have called for deregulation and increased flexibility echoing the international trend. These demands have focused on numerical and financial flexibility which, almost without exception, have been rejected by the unions, with financial flexibility in particular, remaining an issue to be dealt with at company level. Yet, this opposition to flexibility in whatever form, has also met with some degree of employer hostility. Small firms do not possess the skills and resources necessary to implement flexibility options and are largely dependent upon a Vocational Education and Training (VET) system (modelled on Germany’s) as the source of skills formation. Consequently, firms tends to operate flexibly within a conventional personnel management framework (Traxler, 1998)

Again, the Swedish scenario is in contrast to the Austrian. Since the 1980s, employers have increasingly challenged centralised bargaining (and thus trade union influence), arguing that central agreements function as a floor for wage increases rather than a ceiling, thereby threatening competitiveness (Rhen and Viklund, 1990). Thus, employers view decentralisation as the means of securing increased financial flexibility at the workplace level. However, workplace bargaining is governed by the downward transmission of principles and norms established at central level (eg: wage solidarity, renewal funding), thus inflexibility is imposed. Consequently, employers’ abilities to use pay as a tool to promote flexibility, productivity and quality in line with their pursuit of functional flexibility through teamworking and multiskilling in the light of economic integration has been severely constrained. Employers, therefore, continue to press for greater decentralisation (Kjellberg, 1998).

Actors – Unions

Austrian unionism is the most centralised in Western Europe, organised in a modified industrial pattern under one key confederation - 14 affiliates under the OGB encompassing the whole economy (Traxler, 1998). They adopt a consistent position based on long-term co-operation with capital. The OGB’s main goal has always been to preserve employment through economic growth, which has facilitated increases in income without conflict generation. Consequently, productivity guides Austria's incomes policies. Wage flexibility is higher than in most countries due to the priority given to employment over wages. Wage bargaining is sensitive to business cycle fluctuations and OGB has assisted in keeping unemployment relatively low. Nevertheless, union density rates have declined from 58% in the 1960s to 40% in 1995 (Visser, 1998). In the absence of any ideological opposition to unions, this decline may be symptomatic of an increased tendency for trade unions to operate at the macro-level, leaving workplace issues largely to workers themselves.

Similarly, Swedish unionism is organised under three main confederations on an industrial basis, with LO, TCO and SACO representing sectoral groups. However, its density is amongst the highest in the world and is the reverse of the Austrian pattern, with 66% in the 1960s rising to 88% in 1995 (Visser, 1998). This high membership bestows upon it significant, organisational, institutional and market power. due to its wide-ranging policies of social justice which include unemployment funding, and the inclusion of part-time workers in membership, with a high proportion of female active participation (Kjellberg, 1998), consequently, it is unsurprising that state intervention, when enacted, tends to favour labour (Rhen and Viklund, 1990).

Collective Bargaining

Pressures towards issues of flexibility have led Austria to undergo ‘organised decentralisation’ towards lower bargaining levels while retaining strong tripartite macro-economic co-ordination (Traxler, 1998). Collective bargaining is highly inclusive covering more than 90% of employees. Bargaining tends to be differentiated according to employment status, reflecting the peak organisations’ internal structures, sectors and regions. Exposed sectors (eg: engineering) tend to be recognised as pace setters for sheltered sectors in terms of average wage increases, therefore, wage differentials are comparatively high. Extra pay and benefits tend to be conceded unilaterally by management or settled in negotiations where effective WCs exist. However, since WCs are not authorised to negotiate wages, they are only able to conclude informal (unenforceable) plant-level agreements, which permit a flexible adaptation of rewards to the business cycle and to competitive performance (ibid).

Two tendencies have dominated Swedish collective bargaining in the 1990s, both evident in the 1980s. On is the continued advance of ‘disorganised decentralisation’ in the sense of extended scope for workplace negotiation within the framework of national industry agreements. The second is increased state activity in the co-ordination of national agreements and in making them compatible with low-inflation and other economic policy goals. Thus, national collective agreements are less detailed giving a substantive edge to local agreements. This ‘centralisation by state regulation’ does not entail a return to the traditional three-tier system of the 1980s, but signals economy-wide co-ordination of tripartite collective bargaining, while paving the way for increased financial flexibility at workplace level to promote productivity and quality (Rhen and Viklund, 1990; Kjellberg, 1998).

Conclusion

Increased ‘labour flexibility’ is central to the pan-European debate on sustaining increased economic performance in the global economy. Flexibility strategies have been generalised into two broad categories: offensive and defensive, largely ignoring the nature of regulation and IR in individual countries. Thus the critical influence of specific capital and labour relationships upon the management of flexibility tends to be missed.

Having considered institutional, corporatist and labour movement perspectives so as to be able to ‘pattern’ outcomes in Austria and Sweden, contextual comparative analysis demonstrates that the highly centralised, regulatory institutions in both states, together with the relatively deep integration of labour into the capitalist state is facilitating reform and modification towards increased temporal flexibility, predominantly from the perspective of labour need in the context of increased global competition. Organised labour in both states appears able to contest employer demands for flexibility of labour use, shifting bargaining towards social democratic notions of equality and harmonisation, skills investment, workplace justice and employment security, all of which echo the ‘high road’ of functional flexibility.

Given the long-standing social democratic traditions of both states and the relative power of organised labour through integration into the state apparatus, it is not surprising that functional flexibility is not an issue in either country, whereas numerical flexibility and its exploitative connotations most certainly would be. Nevertheless, since the 1980s, the Swedish model has confounded theoretical prediction with increasing conflict and state intervention, whereas the Austrian model has remained relatively stable.

The case of Austria supports theories of corporatism (low levels of industrial conflict, consensual macroconcertation, with predominantly temporal workplace flexibility), while the case of Sweden suggests an oscillation between corporatist and labour movement models (fluctuating levels of industrial conflict, ‘virtual’ political control of the state by labour, with predominantly skills-based functional workplace flexibility). While Sweden teeters on the brink of full blown socialism, as described by labour movement theory, it appears that labour engages in pragmatic brinkmanship, using political power to suppress the economic superiority of employers and constrain the underlying neo-liberal tendencies of the state. Austria, on the other hand, requires little such manouevering. Its highly regulated system of social partnership, and correspondingly high level of industrial peace, appears to ‘buffer’ the effects of an apparent global shift towards neo-liberalism.

What this analysis has served to underline is the need to recognise the wider relationship between capital and labour which will fundamentally influence employers’ management of labour. Thus in Austria and Sweden, differeing degrees of corporatism, in tandem with strong and organised labour institutions, tend to successfully resist employer-led calls for increased flexibility unless such reforms advance the collective interest of labour.

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