Sweden's Experiment with Economic Democracy
Philip Whyman
Post-Keynesianism, socialization of investment and
Swedish wage earner funds
What is the general problem in capitalism to which wage earner funds might be an answer?
1. Instability of investment spending
United States
India
Instability of investment is a problem because…
Investment booms and busts create uncertainty and leads firms to be focused on short-term (5 year) projects rather than undertake longer-term (5-20 year) projects
Investment booms and busts do not deliver long-term full employment, and workers are left bearing the brunt of layoffs as though it was their fault that the firm had over-produced during the boom and was now cutting back
Economic growth is stunted when investors lose confidence in the future and pull back on capital spending, and so the entire country—workers, students, elderly, state, corporations lose
2. Private control over investment decision making prevents sustained redistribution of wealth and power
When π are high savings of the stock-owning class are high more investment funds are available growth GDP rises and the government can collect taxes to fund public goods and redistribute some of the wealth to the lower classes
When π are low savings of stock owning class are low less investment funds are available because firms hoard cash growth falls GDP falls and the government can’t collect taxes to fund public goods and cuts back on transfer payments to unemployed
NO SUSTAINED REDISTRIBUTION OF WEALTH & POWER
Corporate profits as a share of GDP: 1940 – 2018 in US
“While current profits remain high, and expectations of future returns provide incentives for capital accumulation, sufficient investment should be forthcoming to ensure capital accumulation consistent with full employment.
“However, this suggests a ‘fairly rigid lower limit to the profit share’ beneath which profits cease to fulfil both functions, thereby severely limiting the income redistribution achievable by government or trade unions.” (p. 51)
“Thus, redistribution through fiscal policy and/or wage bargaining cannot permanently shift the distribution of income between wages and profits over the long term beyond a ‘functional’ level, nor achieve a more equal distribution of wealth.
“That requires fracturing ‘the link between profits and personal income so enabling investment to increase without reducing equality.” (p. 51)
In short…private control over investment is the source of wealth inequality
The top 1% own 40% of all wealth in the US in 2017
America’s 1% hasn’t controlled this much wealth since before the Great Depression
There appears to be less
Interest in investing in
Public goods – including
Airports, bus terminals, railroads
Public schools, public water systems
Public sewer systems
Community centers
Lakes, national parks, city public spaces
3. Problem of asymmetry of union power and general mistrust between trade unions and employers
“Organized labor is in a ‘prisoners’ dilemma’ to the extent that, while unions can squeeze profits to the extent that investment declines, they cannot guarantee that wage moderation leads to increased investment.”
Threaten to strike can squeeze profits and cause I to fall
Agreeing to wage moderation doesn’t necessarily mean that businesses will continue to invest
Wage earner funds – An answer??
WHAT ARE THEY?
Socialization of a portion of the most profitable sections of a nation’s industry
Purpose of Wage Earner Funds
Workers as a united whole would collective own the investment funds
It would give all Swedish working people a share in the stock holdings of the country and a right to vote their shares of stock in determining the boards of directors of Swedish firms
It would allow representation of Swedish working people on corporate boards
It would make economic democracy possible
Sweden’s experiment with wage earner funds: 1983 - 1991
Introduced with the promise that
They could distribute part of any increase in capital accumulation (Profits) to employees without the need for a potentially inflationary wage struggle
It could boost corporate profits and stimulate business expectations with resulting benefits for the expansion of investment and output
They could facilitate reallocation of national profits to high productivity, export-oriented sectdors, thereby enhancing allocative efficiency.
What was the track record?
Fixed business investment rose from 10.5% of GDP in 1982 to 15% by 1990.
Track record
Economic growth rates improved, rising from average of 1.4% from 1974-84 to 2.5% between 1984 and 1990
Sweden maintained full employment in face of significant problem of high and rising unemployment rates across most OECD and EU nations.
Trade union restraint
Unions kept their word and Swedish manufacturing earnings and labor costs were kept below international averages
“The ‘WEF period’ coincided with a general improvement in those variables the funds were intended to influence.
Though the scale of the WEF economic impact was undoubtedly limited by their size, the direction of their influence appeared to be largely positive.
Employment, inflation rate, economic growth
What about the democratic side? Workplace harmony and worker participation in management?
WEF’s were Sweden’s 8th largest shareholder group – they held 2.6% of the total stock market value on Swedish stock exchange at end of 1991
They did not hold enough stock to make significant challenges to existing boards of directors
WEF fund managers weren’t trying to target specific companies for “worker takeover”
What about the financial impact?
Compared to private investment funds in Sweden, WEF’s matched or exceeded the average return on funds
WEF’s protected their assets – they did not lose capital
WEF’s were focused on investment in export-orienged companies and did not lose during the property bubble