Swedish Wage-Earner Funds An Experiment in Economic Demo.docx

Swedish Wage-Earner Funds: An Experiment in Economic
Democracy
Author(s): Jonas Pontusson and Sarosh Kuruvilla
Source: ILR Review, Vol. 45, No. 4 (Jul., 1992), pp. 779-791
Published by: Sage Publications, Inc.
Stable URL: http://www.jstor.org/stable/2524593
Accessed: 04-04-2018 11:11 UTC
JSTOR is a not-for-profit service that helps scholars,
researchers, and students discover, use, and build upon a wide
range of content in a trusted digital archive. We use information
technology and tools to increase productivity and
facilitate new forms of scholarship. For more information about
JSTOR, please contact [email protected]
Your use of the JSTOR archive indicates your acceptance of the
Terms & Conditions of Use, available at
http://about.jstor.org/terms
Sage Publications, Inc. is collaborating with JSTOR to digitize,
preserve and extend access to
ILR Review
This content downloaded from 132.198.50.13 on Wed, 04 Apr
2018 11:11:50 UTC
All use subject to http://about.jstor.org/terms

SWEDISH WAGE-EARNER FUNDS:
AN EXPERIMENT IN ECONOMIC DEMOCRACY
JONAS PONTUSSON and SAROSH KURUVILLA*
This article analyzes the performance of the "wage-earner
funds"
established in Sweden in 1983-collective share-holding funds
financed
by special payroll and profits taxes. The authors' analysis
indicates that
although the wage-earner funds generally met the financial
objectives
set by the 1983 legislation, their significance in promoting
"wage
solidarity" (wage determination based on the work performed
rather
than on firm or industry profitability) and in providing workers
with
substantial influence over corporate decisions was limited by
the size of
their stockholdings and the seven-year (1984-90) restriction on
the
inflow of revenues into the funds. The authors conclude that
the funds
achieved little in terms of furthering economic democracy
when
compared to the effects of the network of industrial and
economic
democracy legislation enacted in the 1970s in Sweden.
SWEDEN'S extensive and universalistic

welfare state has long attracted the
attention of foreign observers. More re-
cently, Sweden has been invoked not only
as a model of progressive social policy, but
also as a model of industrial and economic
democracy (see, for example, Milner
1989). This article explores the most
distinctive feature of the Swedish ap-
proach to industrial and economic democ-
racy: the idea of collective share owner-
ship as a means to enable employees and
their unions to influence strategic eco-
nomic decisions.
In the mid-1970s, Sweden's powerful
confederation of blue-collar unions (Lands-
organisationen, or LO) endorsed a proposal
whereby the government would require
corporations to share their profits with
their employees by issuing new equity
* Jonas Pontusson is Associate Professor of Gov-
ernment and Sarosh Kuruvilla is Assistant Professor
of Industrial and Labor Relations, both at Cornell
University.
shares to "wage-earner funds" (lintagar-
fonder). Commonly known as the Meidner
Plan (its principal author was Rudolf
Meidner), this proposal entailed a gradual
transfer of ownership from private indi-
viduals and institutions to collective enti-
ties, governed by union-appointed direc-
tors and providing for direct employee

representation at shareholder meetings
via stock holdings. Many foreign observers
hailed the Meidner Plan as a bold,
innovative, and radical attempt to further
economic democracy (see, for example,
Albrecht and Deutsch 1983).
The defeat of the Social Democratic
Party (SAP) in the 1976 elections, how-
ever, preempted any legislation along the
lines of the Meidner Plan, as it resulted in
the formation of Sweden's first "bour-
geois" (non-socialist) government since
1932, a government strongly opposed to
wage-earner funds. In the ensuing years,
organized business mobilized a massive
and very effective campaign against the
idea of wage-earner funds, and the labor
Industrial and Labor Relations Review, Vol. 45, No. 4 (July
1992). ( by Cornell University.
0019-7939/92/4504 $01.00
779
2018 11:11:50 UTC
780 INDUSTRIAL AND LABOR RELATIONS REVIEW
movement retreated from the more radi-
cal features of the Meidner Plan. After the
Social Democrats returned to power in

1982, they introduced a much-watered-
down version of wage-earner funds legis-
lation, which was enacted in 1983.
Recent developments in Sweden render
the future of wage-earner funds highly
precarious. Having won three consecutive
elections in the 1980s, the Swedish Social
Democrats suffered a severe election de-
feat in September 1991. If they honor
their pre-election promises, the parties
that now hold government power will
dismantle the wage-earner funds by 1994.
The process of dismantling is yet to be
decided. It is therefore possible that the
innovative wage-earner fund experiment
may turn out to be an "historical parenthe-
sis." Yet, economic democracy is likely to
remain a major concern of the Swedish
labor movement, and may become a major
concern for other labor movements as
well. In any case, the present moment
appears an opportune one to take stock of
the Swedish experience of wage-earner
funds.
Although there is a plethora of descrip-
tive articles about the idea of wage-earner
funds and the politics surrounding the
1983 legislation (for example, Martin
1984; Asard 1985; Heclo and Madsen
1987), there exists, to our knowledge, no
scholarly attempt (in English or Swedish)
to analyze the activities and significance of
the wage-warner funds created in 1983.
The activities of the wage-earner funds

have been evaluated on an annual basis
for the Office of Government Auditors,
but its reports (Riksrevisionsverket 1989,
1990) focus rather narrowly on financial
performance, and are not available in
English. The evaluations undertaken by
various interested parties (LO 1988; Ndr-
ingslivets Ekonomifakta 1989, 1990) ad-
dress the broader significance of the 1983
legislation, but they do so in ways that are
obviously biased by political consider-
ations.
In this article, we situate wage-earner
funds (henceforth, WEFs) within the
broader framework of industrial and
economic democracy in Sweden, and
assess the extent to which they have met
the specific goals articulated by the 1983
legislation as well as the broader goals of
the labor movement. More specifically,
our assessment focuses on three major
issues. First, has the existence of WEFs
facilitated LO's policy of wage solidarity?
Second, have the funds' investment activi-
ties resulted in meeting the industrial
policy functions expected of them? Third,
have the funds provided employees and
their unions with a significant voice in
corporate decision-making?
The Framework of Industrial and
Economic Democracy in Sweden
Following Poole (1989), we conceive of

industrial democracy and economic de-
mocracy as distinct but related constructs.
Economic democracy denotes a variety of
forms of employee participation in the
ownership of enterprises and the distribu-
tion of economic rewards. Collective own-
ership of enterprises, capital sharing,
employee stock ownership plans, and
various forms of profit sharing arrange-
ments all fit under the rubric of economic
democracy. The primary respect in which
these plans differ among themselves is the
degree of employee participation in own-
ership. Industrial democracy, on the other
hand, refers to the notion of worker
participation in decision-making within
the firm. Worker directors and other
board representation schemes, works
councils, self-management systems, and
co-determination arrangements are exam-
ples of industrial democracy.
Poole suggests that these constructs are
interrelated; the two may advance in
parallel, or acceptance of one form may
gradually lead to acceptance of the other.
But it is possible to see advances in one but
not the other. For instance, it can be
argued that in the United States, with the
passage of laws relating to employee stock
ownership plans, advances were made in
economic democracy without any legisla-
tive progress toward the attainment of
industrial democracy.
As developed in the 1970s, the Swedish

Social Democratic vision of economic
2018 11:11:50 UTC
SWEDISH WAGE-EARNER FUNDS 781
democracy integrates the concepts of
industrial and economic democracy. The
Swedish view identifies industrial democ-
racy with the micro level and economic
democracy with the macro level, and holds
that progress toward economic democracy
should be achieved via legislation that
enhances employee influence at various
levels within and outside the firm (Asard
1980).
To empower employees at the strategic
level of the enterprise, the Swedish Riks-
dag (parliament) enacted SAP-sponsored
legislation on worker directors on corpo-
rate boards in 1972. Revised in 1976 and
1987, the legislation provides for the
election of two worker directors (three in
the case of companies with more than
1,000 employees) in all companies and
financial institutions employing more than
25 persons. Elected from among employ-
ees of the company, worker directors have
the same duties, responsibilities, power,
and standing as other directors, with the

proviso that worker directors should not
be involved in decisions regarding corpo-
rate strategy with respect to collective
bargaining. As Edlund and Nystrom
(1988:46) note, the unions regard the
right of board representation primarily as
a means for employees to gain informa-
tion about corporate plans, and less as a
means to influence such plans directly.
At the workplace level, numerous laws
combine to provide the Swedish worker
with substantial protection against, and
influence over, management decisions.
The Shop Stewards Act of 1974 provides
shop stewards with paid leave to under-
take union work, and provides detailed
rules regarding working conditions and
the seniority status of shop stewards. The
Security of Employment Act (1974, 1982)
limits the ability of the employer to hire
workers for limited periods of employ-
ment, requires advance notification of
layoffs, and provides for mandatory layoff
compensation and detailed safeguards
against unfair dismissal. The Work Envi-
ronment Act of 1974 mandates extensive
employee rights with respect to occupa-
tional health and safety issues, seeking to
ensure that working conditions are
adapted to the physical and mental re-
quirements of the employees.
The legislative offensive launched by the
labor movement in the early 1970s was

capped by the Co-determination Act of
1977 (Medbestdmmandelagen [MBL]). This
act was conceived as the enabling legisla-
tion, to be followed up by collective agree-
ments on the procedures for co-determina-
tion, but it specifies certain fundamental
provisions. Most important, the Co-deter-
mination Act requires the employer to ini-
tiate discussions with the union with respect
to any change contemplated in the terms
and conditions of employment. As Edlund
and Nystrdm (1988:47) note, terms and con-
ditions are defined in the widest possible
terms and may include "questions of per-
sonnel reallocation, recruitment, manage-
rial appointments, new working methods
and production, budgetary factors and other
organizational changes." The Act also re-
quires the employer to keep the unions con-
tinuously informed about all such matters.
If co-determination negotiations do not
result in an agreement, the company may
introduce such changes unilaterally. The
act provides unions with a veto over
certain issues regarding subcontracting,
however, and states that in contractual
disputes regarding non-wage issues,
unions have a priority right of interpreta-
tion, that is, union interpretation of
disputed contract language shall take
priority over employer interpretation until
the dispute is formally settled.
Motivation for Wage-earner Funds

The concept of collectively owned in-
vestment funds is neither new nor pecu-
liarly Swedish. In fact, the original
Meidner Plan of 1976 drew inspiration
from a proposal for collective profit
sharing put forth in the 1960s by German
economist Bruno Gleitze (Gleitze 1968;
Swenson 1989). Similar proposals were
also advanced in Austria, the Netherlands,
and Denmark in the late 1960s and early
1970s; these proposals were dropped in
the face of considerable political opposi-
tion (EIRR 1983:5; Matthews 1989), but
variants of them are still under discussion
2018 11:11:50 UTC
in Denmark and, more recently, in Czech-
oslovakia and Poland (Wall Street Journal,
June 28, 1991). Collective capital forma-
tion in the form of pension funds is quite
common in Western Europe. The legal
rules governing the investment practices
of pension funds, however, typically re-
strict their ability to hold assets that
involve risk or yield influence over corpo-
rate decisions. In the Swedish case, less
than 1% of the savings generated within
the public pension system had been
invested in corporate shares prior to the

WEF legislation in 1983 (Pontusson 1992).
We can distinguish five basic motives
behind the Swedish labor movement's
pursuit of collective profit sharing and
collective share ownership.' The first
motive, and clearly the most important
objective of the original Meidner Plan, was
to facilitate the implementation of the
"solidaristic wage policy," one of the
cornerstones of the Swedish collective
bargaining model. The principle of the
solidaristic wage policy espoused by the
confederation of blue-collar unions, Land-
sorganisationen (LO), is that the wages
must be based on the work performed
rather than on the profitability of differ-
ent firms and industry sectors. In addi-
tion, inter-occupational differences should
be narrowed to bring about a more
egalitarian society. Although LO did
achieve a significant compression of inter-
sectoral wage differentials in the 1 960s
and early 1970s,2 the resistance to this
policy has grown in recent years.
The successful implementation of the
solidaristic wage policy presupposed some
degree of wage restraint by better-paid
employees irrespective of the ability of
their firms to pay more wages. Highly
' See Meidner (1978) for an abbreviated, English
language version of the original WEF proposal. The
following discussion also draws on Asard (1978),
Albrecht and Deutsch (1983), Martin (1984), Heclo

and Madsen (1986), and Swenson (1989).
2 The differences between wages paid to workers
above and below the average wage, and the average
wage, declined from 30% in 1959 to 13% in 1979
(Rehn and Viklund 1988:12). In addition, as Figure
1 indicates, wage differentials narrowed steadily until
198 1-82.
successful and export-oriented companies
earning high profits actually benefited
from this policy, since wage restraint on
the part of their employees resulted in
even greater profits relative to less profit-
able companies. Profitable firms were
willing, however, to concede to the de-
mands of their employees for wages above
those negotiated at the national level, in
order to recruit and retain the best
workers. Consequently, substantial wage
drift ensued, resulting in upward pressure
on wages in the economy, and presenting
a serious threat to the success of a
solidaristic wage policy. Highly paid blue-
collar and white-collar workers began to
chafe at the implementation of the solidar-
istic wage policy, since it involved consid-
erable wage sacrifices. It was to encourage
wage restraint, and the sharing of these
excessive profits among workers by means
of a system other than wages, that
Meidner and his colleagues proposed the
introduction of WEFs. Consistent with the
principles of a solidaristic wage policy,
such sharing of profits would be at a
collective, not an individual, level.

The second motive behind the pursuit
of WEFs was the reduction of inequalities
of wealth. Although less pronounced than
in West Germany, Britain, or the United
States, the inequalities of wealth in Social
Democratic Sweden are considerable. In
1976, the richest percentile of households
owned about 17% of total net wealth (total
assets assessed for income tax purposes
minus standard deductions), the richest
5% owned about 38%, and the richest
decile owned about 55% of the nation's
net wealth (Spant 1980:24). In terms of
stock ownership, 0.3% of all households in
Sweden held 50% of all corporate shares
in Sweden in 1975 (Spatnt 1980:25).
The objective of counteracting the con-
centration of wealth and power was closely
linked to a third goal identified by
Meidner and his colleagues, namely, to
reinforce and extend industrial and eco-
nomic democracy. LO viewed collective
share ownership as a complement to
co-determination rights based on legisla-
tion, and expected that the collectivization
of ownership would provide employees
2018 11:11:50 UTC

with influence over corporate decision-
making that would result in significant
employee input into decisions regarding
new investment and layoffs. LO suggested
further that WEF might help to prevent
foreign multinationals from taking over
Swedish firms and Swedish multinationals
from moving vital employment-sustaining
operations abroad.
Endorsed by the LO congress of 1976,
the Meidner Plan was revised by a working
group appointed jointly by LO and SAP.
The proposals presented by this group in
1978 and 1981 reiterated the three objec-
tives identified by Meidner, but also
introduced a fourth objective: promoting
the supply of investment capital to Swed-
ish industry. Accordingly, collectively
owned investment funds were to serve a
national or regional development purpose
by providing industry with capital for
technical and productive investment with-
out redistributing income from workers to
private owners, thereby facilitating the
extension of societal influence over the
pattern of economic investment. The
shifting of the emphasis from wealth
redistribution to capital formation pro-
vided the LO and SAP with a more
politically defensible rationale for the
introduction of WEFs, but at the cost of
diluting the original Meidner Plan sub-
stantially.

Finally, seeking to garner popular sup-
port for the WEF proposal, LO and SAP
contrived to link WEFs to the supplemen-
tal pension system (ATP) by specifying that
WEFs should pay a portion of their return
on investments into the supplemental pen-
sion system. The Swedish pension system
has two components: a basic old age pen-
sion, financed by tax revenues, payable to
everyone above 65 years of age; and an
income-related supplementary pension
(ATP), financed by employer payroll fees,
payable to people over 65 years old. To-
gether, the two pension schemes provide a
retiree with an amount roughly equal to
two-thirds of his or her average earnings
during the final 15 years preceding retire-
ment. Supplementary pension contribu-
tions by employers and self-employed per-
sons are paid into the National Pension
Insurance Fund, commonly known as "AP
Funds," which invest savings generated by
the pension system. By early 1980, pension
payments had caught up with pension con-
tributions, and the pension funds began to
shrink. In this context, shoring up the pen-
sion system came to be invoked as yet an-
other justification for the introduction of
WEFs.
It should be clear, however, that the link
to the pension funds served as a device to
market the concept rather than as a
fundamental objective of the plan. As
Myrdal (1980:326) notes, "the only advan-

tage of linking wage-earner funds to the
pension system is that an otherwise hardly
popular method of socializing Swedish
industry is made to look like pension
reform. If the objective was to increase
pension funds, that could have been
directly accomplished by an increase in
employer contributions to the NPIA."
From the point of view of marketing
the concept, the linking of WEFs with
pension funds served two purposes. First,
it provided individual citizens with a
more direct material stake in the WEFs.
Second, it rendered the WEFs com-
parable to the Fourth AP Fund, which
had been created in 1974 for the pur-
pose of investing a small share of ATP
savings in the stock market. Quite contro-
versial at the outset, the Fourth AP Fund
had become broadly accepted as a natu-
ral component of the mixed economy by
the early 1980s (Pontusson 1992a). By
linking WEFs to the ATP system, the
SAP sought to project the WEF proposal
as an extension of existing arrangements
rather than as a radical new departure.
The WEFs that were finally introduced
in 1983 were closely modeled on the
Fourth AP Fund. In fact, the 1983
legislation might be summed up by
saying that the government created five
smaller Fourth AP Funds. At the end of
1989, the assets of the Fourth AP Fund
were worth almost exactly as much as the
combined assets of the five WEFs, corre-

sponding to roughly 3% of the total
value of listed corporate shares in Swe-
den (Annual Reports of the Wage-earner
Funds).
2018 11:11:50 UTC
The Wage-Earner Funds of 1983
The legislation enacted in 1983 estab-
lished five WEFs organized on a regional
basis.3 The legal provisions governing
their activities can be summarized as
follows.
Administration. Appointed by the gov-
ernment, the boards of directors of WEFs
reflect the regional affiliation of each
fund. The legislation stipulates that five
out of the nine board members are to be
"wage-earner representatives." In prac-
tice, these representatives have been nom-
inated by LO and TCO (the white-collar
union federation). The other board mem-
bers have been appointed directly by the
government. As private businessmen have
thus far refused to serve as board mem-
bers, the government has nominated
members from academia, cooperative en-
terprises, local government, and the civil

service. Each fund is independent, with its
own headquarters and administrative per-
sonnel.
Financing. WEFs were financed by two
revenue sources. One was a tax of 20% on
pre-tax profits exceeding one million SEK
(about $150,000) or 6% of a firm's total
payroll costs, whichever was higher, after
appropriate allowance was made for infla-
tion and other appropriations.4 This
profit-sharing tax was paid by all Swedish
companies (including foreign-owned com-
panies incorporated in Sweden). The
second financing source was a 0.2% tax of
total payroll costs of all corporations,
private and public. Each of the WEFs got
one-fifth of the revenues generated from
these two sources, although an inflation-
adjusted ceiling (set at 400 million SEK
[about $60 million] for 1984) was imposed
on each fund. Any revenues in excess of
this ceiling were absorbed by the ATP
system.
3 For simplicity, we refer to the funds by their
number. Each fund has adopted a name that reflects
its regional affiliation. In numerical order, their
names are: Sydfonden, Fond Vast, Trefond Invest,
Mellansvenska Ldntagarfonden, and Nordfonden.
4The threshold for the profit sharing tax was
raised from SEK 500,000 to SEK 1,000,000 in 1986.
One SEK (Swedish Kroner) equals approximately
U.S. $.15.

Most important, the WEFs were subject
to a "sunset clause" (Rock 1987), whereby
this financing was provided only for a
seven-year period following the 1983
legislation. Given the marked opposition
to the WEFs from opposing political
parties and employers, the SAP felt that
such an experimental period was neces-
sary. In the absence of further legislation,
1990 marked the end of new revenue
inflows into the funds. Since 1990, the
funds have been confined to managing
their existing assets.
Investments. The 1983 legislation permit-
ted WEFs to invest in both listed and
unlisted securities and in stocks of incor-
porated societies (cooperatives). Invest-
ments are restricted to Swedish compa-
nies, thus meeting the fundamental aim of
improving the supply of capital that will
benefit Swedish production and employ-
ment (Law No. 1092, 1983, paragraph
34). Beyond this legislative stipulation, the
law provides that the investment activities
of WEFs should be guided by three
criteria: investments should be widely diver-
sified (to spread the risks), should be
long-term in nature, and should generate a
"good" rate of return on investments. With
respect to the return on investments, the
legislation requires the WEFs to contribute
to the ATP system a sum corresponding to
3% of the inflation-adjusted value of the
tax revenues they have received. In other
words, the WEFs are required to obtain an

annual real rate of return on their
investments greater than 3% in order to
grow.
To encourage the WEFs to diversify
their portfolios, and to protect private
owners against takeovers by the WEFs, the
1983 legislation stipulated that each fund
cannot control more than 8% of the voting
stock in any one corporation or enterprise.
A 10% ceiling on ownership engagement
already applied to the Fourth AP Fund.
Together, then, the five WEFs and the
Fourth AP Fund could theoretically con-
trol up to 5.0% of voting stock in a
corporation, provided they coordinated
investments. When a Fifth AP Fund was
created in 1988, with a 10% ceiling on
investments in any single corporation, the
2018 11:11:50 UTC
ceiling for individual WEFs was lowered to
6%, thus maintaining the theoretical 50%
limit of collective ownership. (As it is
common in Sweden to issue shares with
differential voting rights, the funds' share
of equity capital may exceed these limits so
long as their share of voting stock does
not.)

Voting rights. In an effort to meet the ob-
jective of providing workers with influence
over corporate decisions, 50% of the voting
rights associated with the WEF's stockhold-
ing in any company must be delegated to
the employees or trade union locals of that
particular company, if the employees or
trade union locals so request. In case there
is more than one trade union at that com-
pany, the unions must agree on how the
voting rights are to be exercised, and in the
absence of such agreement the manage-
ment board of WEFs shall apportion voting
rights on the basis of the number of mem-
bers of each union working at the company.
The legislated version of WEFs contains
numerous departures from the original
Meidner proposal. The differences may
be summarized as follows. Whereas the
Meidner Plan envisaged the build-up of
WEFs exclusively on the basis of profit
sharing, the enacted WEFs relied on
payroll tax (symbolizing wage restraint) as
well as a tax on profits. And whereas the
Meidner Plan entailed the obligatory issue
of new shares, the WEFs as enacted relied
on market transactions as the mechanism
whereby share ownership would be trans-
ferred from private individuals or institu-
tions to WEFs. In other words, WEFs can
become owners only if existing owners of
shares are willing to sell shares in the stock
market. The 1983 legislation also de-
parted from the Meidner Plan in restrict-

ing profit sharing to "excess profits,"
confining the build-up of WEFs to a
seven-year period, and imposing a ceiling
on ownership of voting stock by WEFs. In
contrast, the Meidner Plan envisaged the
continuation of profit sharing ad infinitum,
without any limits on collective ownership.
One final difference should be noted.
In the Meidner Plan, the dividends re-
ceived by WEFs were to be used to finance
adult education, wage-earner consultants,
and other activities designed to help
wage-earners and union leaders to learn
to exercise the new ownership role be-
stowed upon them. Under the 1983
legislation, dividends were used for pen-
sion payments or further investment in
the stock market (or both).
These modifications of the Meidner
Plan represent a retreat in the face of
massive opposition from organized busi-
ness and the non-socialist parties (Pontus-
son 1987). It must be noted, however, that
many prominent figures within the Social
Democratic party leadership were, from
the very beginning, critical of the more
radical aspects of Meidner's plan. Divi-
sions within the SAP and the labor
movement certainly contributed to the
public opinion success of the campaign
against the WEFs.5
Appraisal of Wage-Earner Funds

Wage-Earner Funds, Economic
Growth, and Wage Policy
Due to an unprecedented stock market
boom,6 each WEF realized a rate of return
far in excess of the stipulated 3% during
its first five years in operation. Having
received 15.2 billion SEK ($2.53 billion) in
revenues (at 1989 prices), the five WEFs
together held assets with a total market
value of 22.7 billion SEK ($3.78 billion) at
the end of 1989. The WEFs also contrib-
uted 1.2 billion SEK (at 1989 prices) to
pension payments during the period
1984-89 (Riksrevisionsverket 1990). To
get some perspective on the latter figure,
it might be noted that the annual deficit of
the ATP system was 4.5 billion SEK ($0.7
5 The proportion of voters declaring themselves in
favor of WEFs dropped from 33% in 1976 to 22% in
1982, and the proportion declaring themselves
against WEFs increased from 42% to 61% during the
same period (Holmberg 1984:170, 186). Most telling
are the figures for SAP voters, whose support for
WEFs declined from 55% in 1976 to 43% in 1982.
See Pontusson (1987, 1992a) for a more extensive
discussion of the debate over wage-earner funds and
an analysis of why the labor movement was forced to
retreat from the Meidner proposal.
6 The stock market index of the Stockholm stock
exchange increased from 120 at the end of 1979 to
an all-time high of 1,689 in August 1989.

2018 11:11:50 UTC
billion) in 1989 (SCB 1992). Clearly, the
WEFs have contributed to shoring up the
ATP system, but the long-term viability of
the ATP system depends on the perfor-
mance of the Swedish economy, and from
this perspective the crucial question is
whether (or to what extent) the WEF
legislation of 1983 has contributed to
economic growth and competitiveness.
The Swedish labor movement originally
viewed collective profit sharing as a means
to facilitate the implementation of the
solidaristic wage policy. Subsequent WEF
proposals explicitly linked this objective to
the exercise of wage restraint. When the
Social Democrats returned to power in
1982, they opted for an economic recov-
ery strategy that sought to raise corporate
profits, and hence the rate of investment,
by means of a massive devaluation of the
Swedish Kroner and a sustained effort to
keep the lid on wage increases.7 The WEF
legislation of 1983 should be seen as part
of the package deal whereby the govern-
ment secured union cooperation in this
recovery strategy.

This recovery strategy coincided with the
general worldwide economic recovery, and
was very successful at the outset. As corpo-
rate profits soared, industrial investment,
employment, and output grew at a steady
rate in the mid-1980s. However, this "eco-
nomic miracle" proved short-lived. The
Swedish rate of inflation remained higher
than the OECD average throughout the
1980s, and accelerated while the average
OECD rate decelerated in 1988-90. The rea-
sons for this appear to be fairly straightfor-
ward: high corporate profits generated wage
drift and inter-union wage rivalries, mak-
ing it increasingly difficult for LO and the
other union confederations to comply with
the government's insistence on contractual
wage increases below the rate of inflation.
The excessive wage drift contributed to wid-
ening wage differentials and a weakening
of the solidaristic wage policy. As Figure 1
illustrates, the long-term tendency for wage
7See Pontusson (1992b) for a more detailed
discussion of the recovery strategy adopted by the
Social Democrats in 1982, and the reasons for the
failure of the strategy.
differentials to decline was reversed in the
1980s.
In Figure 1, selected percentiles in the
annual wage distributions in the economy
are tracked in proportion to the average
wage for the period 1970-87. The figure
shows that wage differentials declined

steadily until 1982, but increased steadily
beginning in 1983. In Hibbs's (1991)
terms, to move from the 2nd percentile of
wages to the 99th percentile of wages
(going from the lowest-paid to the highest-
paid), one would have needed a wage
increase of 138% in 1970, but a wage
increase of only 73% in 1982, indicating
substantial compression and a success of
the solidaristic wage policy. By 1989,
however, one would have needed a wage
increase of at least 88% to move from the
2nd to the 99th percentile, suggesting a
significant weakening of the policy.
With the benefit of hindsight, the
experience of the Social Democratic gov-
ernments of 1982-91 confirms what the
LO economists had argued ever since the
early 1950s: over the long run, it is
impossible to reconcile full employment,
high corporate profits, and wage solidar-
ity. The WEF legislation of 1983 did not
enable the Swedish labor movement to
escape this "trilemma" (Swenson 1980).
One might perhaps argue that the
problems of wage drift and wage differen-
tiation would have been even greater in
the absence of any form of collective profit
sharing (LO 1988), but it seems doubtful
that such a limited scheme as the 1983
WEF legislation could have had any major
impact on the process of wage formation.
In this context, the limited scope of the
1983 legislation is perhaps best illustrated

by the fact that Volvo's liquid assets were
greater than the combined assets of WEFs
and the Fourth AP Fund at the end of
1987 (Bergstrom 1988:52).
We have not been able to determine how
the distribution of wealth has changed since
the introduction of WEFs, given the ab-
sence of data. By the end of 1989, WEFs
accounted for roughly 3% of corporate as-
sets listed on the stock market (Annual Re-
ports of WEFs). In comparison, in 1984, 25
private companies owned 17% of the stock
2018 11:11:50 UTC
1.6
1.5
1.4
Percentile 99
1.3
1.2 _ -___
-_____ __ Percentile 90
1.1 ~ ~ -----_ _________ _____ _______ __ ___ ___ ___ ___--

Percentile 80
Percentile 70
1.0 ---Percentile 60
?-__ __________________________________-----_ __ _ _ _
Percentile 40
Percentile 30
0.9 = _---- --- ----- Percentile 20
Percentile 10
0.8 ~-~
Percentile 2
0.7
0.6 I I I I I
70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88
Source: Hibbs (1991:40).
Figure 1. Pay Compression Under Solidarity Bargaining in
Sweden, 1970-1988.
(Hourly Wages)
market value and 8 insurance companies
owned about 15% (Hedlund et al. 1985:
85). Given that these patterns of ownership
of wealth have not changed appreciably
since then, the limited scope of the 1983
legislation and the stock market boom of

the 1980s lead us to expect that inequalities
of wealth may have remained constant or
even increased. The redistributive effects
of collective profit sharing may have been
offset by the boost to stock prices provided
by the investment activities of the WEFs
themselves.
Wage-Earner Funds and
Industrial Policy
In the 1970s, the labor movement
conceived of WEFs as an institutional
mechanism whereby the unions would be
able to influence the allocation of new
investment. Specific objectives that the
unions would pursue through this mecha-
nism, however, were never clearly speci-
fied. The 1983 legislation defined the
overarching goal of WEFs as providing
risk capital for "the benefit of Swedish
production and employment," and stated
that the funds were to undertake long-
term ownership engagements. At the same
time, the legislation emphasized that their
fiduciary responsibilities required the
WEFs to diversify their holdings and to
avoid subsidization of inefficient produc-
tion.
Examination of the WEFs' financial
performance, using the Fourth AP Fund
as a benchmark, suggests that they par-

2018 11:11:50 UTC
tially met these legislative criteria. On
average, each WEF held shares in 62 listed
corporations and 9 unlisted corporations,
and the 5 largest holdings accounted for
33% of the total value of its portfolio at
the end of 1989. As Table 1 (column 1)
illustrates, the degree of portfolio concen-
tration varied considerably across the five
WEFs, but in four out of five cases, the
degree of portfolio concentration was
significantly lower than for the Fourth AP
Fund. This discrepancy is all the more
remarkable because the WEFs are very
small by comparison to the Fourth AP
Fund.
Although the WEFs have certainly ful-
filled the government's diversification re-
quirement, their investment activities ap-
pear to be somewhat at odds with the
government's stipulation that they under-
take long-term ownership engagements.
Calculated on an annual basis, the average
portfolio turnover rate of the WEFs
during 1987-89 was 30%, a figure that
was higher than that of the Stock Ex-
change as a whole (23%) and twice as high
as the portfolio turnover rate of the
Fourth AP Fund (15%). Clearly, the high

portfolio turnover rates suggest consider-
able speculative activity by WEFs. Table 1
(column 2) indicates that there were
considerable variations in portfolio turn-
over among the five WEFs, but in each
case the turnover rate was greater than
that of the Fourth AP Fund.
Interviews with fund managers suggest
that this short-term orientation reflects their
efforts to outperform the stock market.8
8These interviews were conducted by Jonas
Pontusson in April 1990. Although interviews were
conducted with many officials involved with the five
WEFs, we draw heavily on the following interviews:
Dan Anderson, LO representative on the Fourth
Wage-earner Fund; Lennart Laftman, Executive
Director of the Fourth Wage-earner Fund; Bo
Bahlgren, Director of the Third WEF; and Kurt
Norberg, Director of the Fifth WEF. We also
benefited from various conversations with the follow-
ing persons prior to 1990: Lennart Dahlstrorn,
Executive Director of the Fourth AP Fund from
1974 to 1979; Sten Wikander, Executive Manager of
the Fourth AP Fund from 1974 to 1988; Lars Ljung,
LO representative on the board of the Fourth AP
Fund; Kurt Lanneberg, TCO Representative on the
Against the background of the political con-
troversy surrounding their creation, the
WEFs have been very preoccupied with gain-
ing legitimacy as stock-market investors, and
they have conceived of their performance
relative to the market index as a test of le-
gitimacy. Consequently, the criterion of re-

turn on investment was given more impor-
tance than meeting the long-term investment
criteria specified by the legislation. In addi-
tion, the fact that government auditors and
the mass media commonly evaluate the
funds' performance by comparing them to
each other has arguably further accentu-
ated this short-term investment orientation.
The high rate of portfolio turnover
raises some doubts regarding the extent to
which the WEFs have provided investment
capital for the benefit of Swedish produc-
tion and employment, a fundamental
motivation for their creation. Similar
doubts arise when we examine the compo-
sition of WEF investment portfolios by
industry sector (see Table 2).
As the figures in Table 2 indicate, relative
to the Stock Exchange Index, engineering and
chemical firms were significantly under-
represented, and financial corporations over-
represented, in the average WEF portfolio at
the end of 1989. The opposite was true of the
Fourth AP Fund, in which 83% of the port-
folio was concentrated in manufacturing
firms. In contrast to the Fourth AP Fund, the
WEFs have not articulated or pursued indus-
trial policy objectives to a significant extent.
The WEFs have, however, followed the
Fourth AP Fund's lead in investing in
small and innovative businesses not yet
listed at the Stock Exchange. As the law
does not impose any ceiling on invest-

ments in unlisted firms, such engagements
often involve sizeable stakes, commonly in
the range of 15-35% of voting stock. All
but one of the WEFs have concentrated
this part of their investment activity on
industrial firms in their own region, and
Fourth AP Fund since 1974; and Lars-Oloff Peter-
son, formerly of the LO Research Department. See
also Anderson (1988) for public statements by board
members and the manager of the Fourth WEF. Our
analysis also draws on the annual reports of the
Office of Government Auditors (Riksrevisionsverket
1989, 1990).
2018 11:11:50 UTC
Table 1. Investment Patterns of Wage-Earner Funds in Sweden,
1989.
Percentage Percentage
of Capital of Voting
Portfolio Portfolio Stock' Stock'
Concentrationa Turnover' Held by Held bv
Fund (Percent) (Percent) WEFs WEFs
WEF 1 44.6 28 1.7 1.0

WEF 2 29.6 21 2.8 1.6
WEF 3 27.9 45 4.4 3.3
WEF 4 33.7 28 1.7 1.2
WEF 5 30.2 24 3.0 1.8
Fourth AP Fund 39.5 15 4.9 3.4
a The five largest holdings as a percentage of the total market
value of each WEF's portfolio.
b Portfolio turnover rate is calculated by relating total new
purchases and sales of stock to the average real
capital of each fund in a year; the figures refer to the average
annual rate over a three-year period (1987-89).
c Percentage of holdings in corporations listed on the stock
exchange in which each fund has investments.
Sources: Annual reports of the Wage-Earner Funds and Office
of Government Auditors (Riksrevisionsverket),
1990.
have thus assumed a role in promoting
industrial development on a regional
basis. But the limited scope of investment
in unlisted corporations must be noted:
unlisted assets accounted for 2.6% of total
WEF assets at the end of 1989.
Wage-Earner Funds and
Industrial Democracy
Finally, we consider the significance of
the WEFs as a mechanism for employees

and unions to influence corporate deci-
Table 2. The Composition (percent) of
Portfolios of the Fourth AP Fund, the
Wage-Earner Funds, and the Stock Exchange
Index, by Industry Sector, 1989.
Stock Fourth WE
Market AP Funds
Sector Index Fund Average
Engineering 32% 42% 28%
Chemicals &
Pharmaceuticals 10 22 6
Forest Products 7 7 12
Other Manufacturing 11 12 13
Real Estate &
Construction 13 11 14
Wholesale & Retail 1 1 4
Shipping 1 0 4
Development Corporations 2 2 2
Holding Corporations 14 2 9
Banks 9 2 8

Source: Office of Government Auditors (Riksrevi-
sionsverket (1989, Appendix 5).
sion-making. It is worth noting that the
potential for such influence is severely
restricted by the limited financial re-
sources of WEFs, the ceiling on WEF
investments in listed corporations (origi-
nally 8%, now reduced to 6%), and the
highly concentrated character of share
ownership in most Swedish corporations.
As Table 1 (columns 3 and 4) indicates,
the percentages of holdings of capital and
voting stock in listed corporations vary
across the five WEFs, but their holdings
are, on average, very small, ranging from
1% to 3.3% of voting stock and 1.7% to
5% in the case of capital stock. It is
necessary to distinguish between equity
capital and voting stock because of the
Swedish practice of issuing shares with
differential voting rights, ensuring that
control remains in "safe hands."9
In theory, collective share-holding funds
could hold as much as 50% of the share-
holder votes in any one corporation, but in
practice they seem to have done the oppo-
site of coordinating their acquisitions to
maximize influence. At the end of 1989,
there were only nine listed corporations in
which two WEFs each held more than 2%
of voting stock, and none in which three
WEFs each held more than 2% of voting

9 Typically, Swedish corporations issue shares with
differential voting rights. For example, the Wallen-
berg group holds about 45.8% of the voting stock in
Electrolux AB, even though they own only 3.7% of
total equity stock (The Economist 1990).
2018 11:11:50 UTC
stock (Annual Reports, WEF 1-5). In every
one of the 20 corporations in which the
WEFs and the Fourth AP Fund together
held more than 8% of voting stock at the
end of 1988, there existed a single private
owner (or owner group) that held a larger
percentage of the votes. On average, the
difference between the funds' share of votes
and that of the largest private owner in these
20 corporations was 28.4 percentage
points. '0 Given the small size of their share-
holdings, for the funds to have a significant
voice in corporate affairs, they must join
forces with private owners.
On average, the WEFs delegated 50%
of their votes to union locals in 37 out of
the 43 listed corporations that they held
during 1988. More so than the Fourth
AP Fund, the WEFs have actively encour-
aged union locals to exercise their right

to be represented at shareholder meet-
ings. The unions appear to value such
representation even if their voting rights
are limited. Anderson (1988) suggests
that it provides them with greater insight
into corporate affairs, and greater legiti-
macy in the eyes of management. It must
be noted, however, that the industrial
democracy legislation of the 1970s al-
ready provided unions with substantial
rights of co-determination and board
representation. By comparison to these
legislative measures, the significance of
WEFs as a vehicle of industrial democ-
racy is very limited indeed.
Conclusions
The wage-earner funds (collective share-
holding funds financed through special
payroll and profits taxes) established in
Sweden in 1983 have attracted consider-
able international attention as a bold,
radical experiment in economic democ-
racy. Their end is now very likely at
hand, since the non-socialist government
formed in 1991 intends to liquidate them
by 1994. We have attempted to evaluate
the WEF experience
10 Calculated from data in Sundkvist (1989).
Sundkvist provides detailed figures of ownership in
all Swedish companies in his book.
to date, in terms of the goals of the 1983
legislation as well as the original goals

articulated by the labor movement. In
evaluating the WEFs' behavior as institu-
tional investors, we have used as a
benchmark the Fourth AP Fund, which
invests savings generated from the pen-
sion system. (Given the uniqueness of the
WEFs, there exists no comparable experi-
ence in other countries that could be
used as a benchmark.) Our findings
might be summarized as follows.
In terms of the financial-fiduciary stip-
ulations of the 1983 legislation, the WEFs
have performed quite well. The value of
their assets has increased significantly,
more or less in line with the rise of the
Stock Exchange Index; they have avoided
risks through portfolio diversification; and
they have made a substantial contribution
to pension payments.
The WEF experience, however, falls far
short of the broader, democratizing ambi-
tions articulated by the labor movement in
the 1970s. The scope of profit sharing has
been too limited to have any major impact
on wage formation and wealth distribu-
tion. The WEFs have played an active role
in promoting small, innovative business on
a regional basis, but the ways in which they
have managed their portfolios of listed
corporations do not differ very much
from the practices of private investment
companies. As the case of the Fourth AP
Fund suggests, the WEFs could have
opted for an investment strategy more

attuned to the long term. Most important,
the limited resources of the WEFs and the
legal restrictions on their stock ownership
have severely restricted the potential of
employee representation through voting
at shareholder meetings. As a mechanism
of industrial democracy, delegation of
voting rights commensurate with WEFs'
current holdings is of small significance
when compared to the influence workers
have already gained through existing
arrangements such as the 1970s legislation
on worker directors and co-determina-
tion.
Although the original Meidner proposal
had considerable potential to increase
economic democracy in Sweden, the wa-
2018 11:11:50 UTC
tered-down version that was finally en-
acted in 1983 falls far short of this goal. In
the context of the larger network of
industrial and economic democracy in
Sweden, the WEF legislation is of rela-
tively small significance. To be sure, the
WEFs amount to something, and some-
thing is better than nothing, but the

Swedish experiment with wage-earner
funds can hardly be construed as a
successful model of economic democracy.
It is its shortcomings that are instructive.
REFERENCES
Albrecht, Sandra L., and Steven Deutsch. 1983. "The
Challenge of Economic Democracy: The Case of
Sweden." Economic and Industrial Democracy, Vol. 4,
pp. 287-320.
Anderson, Dan. 1988. Mitt i steget: Om dgande och
inflytande infJr 90-talet. Stockholm: Tidens Fdrlag.
Asard, Erik. 1978. LO och lntagaifondsfraigan. Stock-
holm: Rabin och Sj6gren.
. 1980. "Employees' Participation in Sweden,
1971-1979: The Issue of Economic Democracy."
Economic and Industrial Democracy, Vol. 1, pp.
371-93.
Bergstrom, Villy. 1988. "Program och Ekonomisk
Politik." In Klaus Migeld, Karl Molin, and Klas
Amark, eds., Socialdemokratins Samhdlle. Stockholm:
Tiden, pp. 19-56.
The Economist. 1990. "A Survey of the Swedish
Economy: A Change of Course." Mar. 3, pp. 1-22.
Edlund, Sten, and Birgitta Nystrdm. 1988. Develop-
ments in Swedish Labor Law. Stockholm: The

Swedish Institute.
EIRR. 1983. "News: Economic Democracy Formally
Dropped." European Industrial Relations Review, No.
118 (November), pp. 5-6.
Gleitze, B. 1968. Sozialkapital und Sozialfonds ais Mittel
der Vermogenspolitik. Cologne: Bund Verlag.
Hibbs, Douglas A. 1991. "Wage Compression Under
Solidarity Bargaining in Sweden." Economic Re-
search Report No. 30. Stockholm: Fackf6renings-
rorelsens Institut for Ekonomisk Forskning.
Heclo, Hugh, and Hendrik Madsen. 1986. Policy and
Politics in Sweden. Philadelphia: Temple University
Press.
LO (Landsorganisationen). 1988. Three Years with
Employee Investment Funds: An Evaluation. Stock-
holm: Tribatryk City.
Martin, Andrew. 1984. "Trade Unions in Sweden:
Strategic Responses to Change and Crisis." In
Peter Gourevitch et al., eds., Unions and Economic
Crisis. London: Allen & Unwin, pp. 189-259.
Matthews, John 1989. "The Democratization of
Capital." Economic and Industrial Democracy, Vol. 10,
pp. 165-93.
Meidner, Rudolf. 1978. Employee Investment Funds: An
Approach to Collective Capital Formation. London:
George Allen & Unwin.
. 1981. "Collective Asset Formation Through

Wage Earner Funds." International Labour Review,
Vol. 120, No. 3, pp. 303-17.
Milner, Henry. 1989. Sweden: Social Democracy in
Theory and Practice. Oxford: Oxford University
Press.
Myrdal, Hans-Gbran. 1981. "Collective Wage Earner
Funds in Sweden: A Road to Socialism and the
End of Freedom of Association." International
Labour Review, Vol. 120, No. 3 (May-June), pp.
319-34.
Ndringslivets Ekonomifakta. 1990. Lintaga ifonderna
Under Sex dr-och de Nya Stegen. Stockholm.
. 1989. Fern ar med Ldntagaifonder. Stockholm.
Pontusson, Jonas. 1992a. The Limits of Social Democ-
racy: Investment Politics i n Sweden. Ithaca, N.Y.:
Cornell University Press.
_ 1992b. "The Political Economy of Class
Compromise: Labor and Capital in Sweden."
Forthcoming in Politics and Society, Vol. 20, No. 3.
. 1987. "Radicalization and Retreat in Swedish
Social Democracy." New Left Review, Vol. 165, pp.
5-33.
Poole, Michael. 1989. The Origins of Economic Democ-
racy: Profit Sharing and Employee Share-holding
Schemes. London: Routledge.
Rehn, Gdsta, and Birger Viklund. 1988. Recent

Developments and Future Prospects for Trade Union
Policies and Industrial Relations in Europe. Stockholm:
Arbetslivcentrum.
Riksrevisionsverket. 1990. Fjdrde Fondstyrelsens, Femte
Fondstryrelsens och Ldntagarfondstyrelsernas Medelsfdr-
valtning Rdkenskapsaret 1989. Stockholm: Riksrevi-
sionsverket.
. 1989. Fjdrde Fondstryrelsens och lbntagarfondsty-
relsernas Medelsfbrvaltning Rdkenskapsdret 1988.
Stockholm: Riksrevisionsverket.
Rock, Charles P. 1987. "Recent Reforms Democratiz-
ing Swedish Institutions."Journal of Economic Issues,
Vol. 21, No. 2, p. 337-345.
SCB. 1992. Statistical Yearbook of Sweden. Stockholm:
Statistiska Centralbyran.
Spant, Roland. 1980. "Wealth Distribution and Its
Development in Sweden." Report on the Swedish
Commission on Wage-earners and Capital Growth.
Stockholm: Arbetslivcentrum.
Sundkvist, Sven-Ivan. 1989. Owners and Power in
Sweden's Listed Companies, 1989. Stockholm: Dagens
Nyheter.
Swenson, Peter. 1989. Fair Shares: Unions, Pay, and
Politics in Sweden and West Germany. Ithaca, N.Y.:
Cornell University Press.
Wall Street Journal. 1991. "Poland to Privatize
Industry by Giving Stake to All Adults." June 28,
pp. Al, D5.

2018 11:11:50 UTC
Contentsp. 779p. 780p. 781p. 782p. 783p. 784p. 785p. 786p.
787p. 788p. 789p. 790p. 791Issue Table of ContentsIndustrial
and Labor Relations Review, Vol. 45, No. 4 (Jul., 1992) pp.
641-848Volume Information [pp. ]Front Matter [pp. ]Studies of
the Effectiveness of Advance Notice of LayoffAdvance Notice
and Unemployment: New Evidence from the 1988 Displaced
Worker Survey [pp. 645-664]The Impact of Advance Notice: A
Comment on a Study by Nord and Ting [pp. 665-673]The
Impact of Advance Notice: A Rejoinder [pp. 674-682]Studies of
Grievance and Arbitration ProcessesHow do Arbitrators Treat
External Law? [pp. 683-696]Salary Arbitration and Pre-
Arbitration Negotiation in Major League Baseball [pp. 697-
710]A Comparison of Interest Arbitrator Decision-Making in
Experimental and Field Settings [pp. 711-723]A Simultaneous
Analysis of Grievance Activity and Outcome Decisions [pp.
724-737]An Empirical Analysis of Employed and Unemployed
Job Search Behavior [pp. 738-752]Salary Dispersion, Location
in the Salary Distribution, and Turnover among College
Administrators [pp. 753-763]The Determinants of Labor
Absence: Economic Factors and Workgroup Norms across
Countries [pp. 764-778]Swedish Wage-Earner Funds: An
Experiment in Economic Democracy [pp. 779-
791]CommunicationsComment on Alan B. Krueger, "The
Evolution of Unjust-Dismissal Legislation in the United States"
[pp. 792-796][Comment on Alan B. Krueger, "The Evolution of
Unjust-Dismissal Legislation in the United States"]: Reply [pp.
796-799]An Alternative to Bemmels's Method of Investigating
Biases in Arbitration [pp. 800-804][An Alternative to
Bemmels's Method of Investigating Biases in Arbitration]:
Reply [pp. 804-805]Review SymposiumEditor's Introduction
[pp. 806-807]Comments by Reviewers [pp. 807-813]Book
ReviewsLabor-Management RelationsReview: untitled [pp. 814-

815]Review: untitled [pp. 815-816]Labor and Employment
LawReview: untitled [pp. 816-817]Review: untitled [pp. 817-
818]Review: untitled [pp. 818-819]Economic and Social
Security and Substandard Working ConditionsReview: untitled
[pp. 819-820]Review: untitled [pp. 820-821]Review: untitled
[pp. 821-822]Review: untitled [pp. 822-823]Labor
EconomicsReview: untitled [pp. 823-824]Review: untitled [pp.
824-825]Review: untitled [pp. 825-826]Human Resources,
Personnel, and Organizational BehaviorReview: untitled [pp.
826-827]Review: untitled [pp. 827-828]Review: untitled [pp.
828-829]Review: untitled [pp. 829-830]Review: untitled [pp.
830-831]International and ComparativeReview: untitled [pp.
831-832]Review: untitled [pp. 832-833]HistoricalReview:
untitled [pp. 833-834]Research in Progress [pp. 835-837]Back
Matter [pp. ]
Introduction to the Swedish Economy – Barry Clark
THE THIRD WAY
https://www.youtube.com/watch?v=XU_pVLG1uI4
Maslow’s Hierarchy of Needs
Abraham Maslow – (1908 – 1970)
Higher needs generally won’t be pursued until lower needs are
met.

Current Statistics
Sweden’s small, open, and competitive economy has been
thriving and Sweden has achieved an enviable standard of living
with its combination of free-market capitalism and extensive
welfare benefits. Sweden remains outside the euro zone largely
out of concern that joining the European Economic and
Monetary Union would diminish the country’s sovereignty over
its welfare system.
Timber, hydropower, and iron ore constitute the resource base
of a manufacturing economy that relies heavily on foreign trade.
Exports, including engines and other machines, motor vehicles,
and telecommunications equipment, account for more than 44%
of GDP. Sweden enjoys a current account surplus of about 5%
of GDP, which is one of the highest margins in Europe.
GDP IN COMPARISON – 2017
household consumption: 44.1% - 68%
39.1%
government consumption: 26% 17.3%
14.5%
investment in fixed capital: 24.9% 17.2%
42.7%
investment in inventories: 0.8% 0.1%
1.7%
exports of goods and services: 45.3% 12.1%
20.4%
imports of goods and services: -41.1% -15%
-18.4%
SWEDEN UNITED STATES CHINA

Basic Domestic Macroeconomic Relationships
Y
C
S I
T G
INDUSTRIAL PRODUCTION GROWTH RATE - 2017
SWEDEN – 4.1%
UNITED STATES - 2.3%
CHINA - 6.1%
TAXES AND OTHER REVENUE RECEIVED BY THE
GOVERNMENT – AS A % OF GDP
SWEDEN – 50.6%
UNITED STATES – 17.0%
CHINA - 21.3%
Total taxes and other revenues received by the national
personal and corporate income taxes
value added taxes
excise taxes
tariffs

Other revenues include social contributions - such as payments
for social security and hospital insurance - grants, and net
revenues from public enterprises.
EDUCATION EXPENDITURES - 2017
SWEDEN - 7.7% OF GDP
UNITED STATES - 5% OF GDP
CHINA - NA
HOUSEHOLD SAVINGS
https://data.oecd.org/hha/household-savings.htm#indicator-chart
BRIEF ECONOMIC HISTORY
ORGANIZED CAPITALISM: 1870 - 1932
19th century
No feudal past
Communal cooperation in agricultural villages
Industrialization – 1870-1930’s
Swedish industrial labor
bor - migration
of farm labor to cities
HOWEVER
Supply of labor > Demand for labor

Industrial wages DROPPED below poverty levels
Mass emigration (25% of population) to United States
Creation of Swedish cooperative societies to address widespread
Swedish poverty
1899 = Consumer Cooperative Union – national organization
that operated retail stores and offered insurance policies –
farmers’ coops and food coops
Cooperative (Co-op)
A business that is owned and democratically governed by its
members, the people who use its products or services, or are
employed by the business.
PURPOSE: not to accumulate profit for investors, but to meet
the goals and aspirations of its members.
Any surplus generated by a co-op is reinvested in the business
or returned to the members based on their use of its services.
Membership in the co-op is obtained through the purchase of a
member share in the business, which does not change in value
(in contrast to publicly traded corporations) and entitles the
member to one vote in matters that come before the members.
Deterioration of Swedish Economy

1899 – Swedish Social Democratic Party (SAP) founded
promotes socialism
Won first parliamentary election
From its founding in 1889, the SAP has been committed to the
creation of an egalitarian society. It has led Sweden’s
government for most of the period since 1932.
The party suffered a split in 1917, when some members left and
eventually formed the Left (Communist) Party.
From 1932 to 1976 (except for a brief period in 1936), the SAP
held power continuously, sometimes in coalition with various
groups on the left. By the time it left office in 1976, it had
transformed Swedish society.
Implementing Ithe policy of folkhemmet (“people’s home”),
the idea that society should provide a place of safety for the
people, the SAP created one of the world’s most comprehensive
systems of welfare.
Measures included allowances for children and for housing,
health insurance, pensions, and a reform and expansion of the
educational system.

This was largely the work of two SAP leaders—Per Albin
Hansson, who served four terms as prime minister between 1932
and 1946, and Tage Erlander, who served as prime minister
from 1946 to 1969.
Olof Palme, head of the SAP from 1969 to 1986 and twice
prime minister (1969–76, 1982–86), worked to preserve the
policies of his predecessors until he was assassinated in 1986, a
crime that shocked the country
Rehn-Meidner Model
Sweden’s postwar welfare state had been built around a model
designed economists Rudolf Meidner (1916-1996) and Gösta
Rehn (1914-2005).
The model stressed
Keynesian fiscal policies,
centralized collective bargaining between unions and
employers,
low inflation,
push for wage equalization through a “solidarity in wages”
policy.
BACKGROUND TO REHN-MEIDNER MODEL
Primary argument:
The US/European KEYNESIAN strategy for fighting inflation in
an economy approaching full employment is ineffective

WHY?
Profit margins are high when economy is a full employment and
high AD
Soaring profits are a threat to price stability because HIGH
EXPECTED PROFITS CREATES EXPECTATIONS OF
Incomes policy cannot prevent wage drift
Conflicts would develop between trade unions representing
manufacturing workers vs. those in more competitive sectors
Secondary argument: An economy that is dependent on export
earnings must maintain low and stable prices and wages.
How?
Wage solidarism and active labor management policies managed
and implemented by the government
19

Solution
to profit-wage-inflation cycle
Wage Solidarity: Active Labor Management Policies
Occupational retraining
Training to avoid being laid off
Relief work
Youth terams
Recruitment support
Cradle-to-grave welfare state programs
Universal health insurance system (1955)
Universal Public pension system (1959)
5 weeks paid holidays (1989)
3 month maternity leave (1945) expanded to 18-month general
parental leave at 90% pay (1991)

90% of salary for unlimited sick leave
How to pay for the welfare programs:
Sweden has highest % GDP devoted to government spending,
including transfer payments of any market economy
The rising trend of government transfers paid for by increased
taxes or financed by cutbacks in other areas of government
spending, notably infrastructure investment
CountrySpending 2014 (includes defense, infrastructure, social
programs)Transfers
2014Sweden51.527.1Denmark55.029.0Norway45.822.4France57
.331.9Italy51.029.0Germany44.124.8Canada41.916.8Finland58.
130.2United Kingdom43.821.9United
States38.018.8Japan42.123.1
In order to raise a lot of income tax revenue, income tax rates in
Scandinavian countries are rather high except for in Norway.

Denmark’s top marginal effective income tax rate is 60.4
percent. Sweden’s is 56.4 percent. Norway’s top marginal tax
rate is 39 percent.
Taxes in comparison
Scandinavian income taxes raise a lot of revenue because they
are actually rather flat. In other words, they tax most people at
these high rates, not just high-income taxpayers.
The top marginal tax rate of 56.9 percent in Sweden applies to
all income over 1.5 times the average income in Sweden
From the American perspective, this means that all income over
$75,000 (1.5 times the average income of about $50,000 in the
United States) would be taxed at 60 percent.
Compare this to The United States. The top marginal tax rate of
46.8 percent (state average and federal combined rates) kicks in

at 8.5 times the average U.S. income (around $400,000).
Comparatively, few taxpayers in the United States face the top
marginal rate.
High Value-Added Taxes
In addition to the high payroll and income taxes, all
Scandinavian countries collect a significant amount of revenue
from Value-added taxes (VATs). Value-added taxes are
equivalent to sales taxes, but levied on businesses throughout
the production process.
Denmark collects about 9.6 percent of GDP through the VAT,
Norway collects about 7.8 percent, and Sweden collections
about 9 percent of GDP. All three countries have VAT rates of
25 percent. The United States does not have a national sales tax
or VAT. Instead, states levy sales taxes. The average rate across
the country is about 7 percent.
The much lower rate only collects about 2 percent of U.S. GDP
in revenue.

Corporate Taxes
Distribution of household net wealth
Swedish Wage Earner Funds
(part of the Rehn-Meidner plan)
to counteract the concentration of ownership which, from a
general equality perspective, must be regarded as unacceptable;
to increase wage earners’ influence in economic life through
ownership of capital;
and to facilitate the continuation of the solidaristic wage policy
by a mechanism to deal with excess profits (which could also be
seen as an element in lessening the concentration of capital).

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
Financing the Wage Earner Funds
Tax of 20% on pre-tax profits exceeding one million SEK
(about $150,000) or 6% of a firm's total payroll costs,
whichever was higher, after appropriate allowance was made for
inflation and other appropriations.
Paid by all Swedish and foreign companies
Tax of 0.2% on total payroll costs of all corporations, private
and public.
Each of the WEFs got one-fifth of the revenues generated from
these two sources, although an inflation- adjusted ceiling (set at
400 million SEK [about $60 million] for 1984) was imposed on
each fund.

34
Economic Democracy: Meaningful, Desirable, Feasible?
Author(s): Robin Blackburn
Source: Daedalus, Vol. 136, No. 3, On Capitalism & Democracy
(Summer, 2007), pp. 36-45
Published by: The MIT Press on behalf of American Academy
of Arts & Sciences
Stable URL: http://www.jstor.org/stable/20028127
Accessed: 04-04-2018 10:52 UTC

REFERENCES
Linked references are available on JSTOR for this article:
http://www.jstor.org/stable/20028127?seq=1&cid=pdf-
reference#references_tab_contents
You may need to log in to JSTOR to access the linked
references.
JSTOR is a not-for-profit service that helps scholars,
researchers, and students discover, use, and build upon a wide
range of content in a trusted digital archive. We use information
technology and tools to increase productivity and
facilitate new forms of scholarship. For more information about
JSTOR, please contact [email protected]
Your use of the JSTOR archive indicates your acceptance of the
Terms & Conditions of Use, available at
http://about.jstor.org/terms
American Academy of Arts & Sciences, The MIT Press are
collaborating with JSTOR to
digitize, preserve and extend access to Daedalus

2018 10:52:55 UTC
Robin Blackburn
Economie democracy:
meaningful, desirable, feasible ?
JLo some, economic democracy is
self-evidently a good thing if it means
spreading economic opportunities more
widely, giving workers a greater say in
the workplace, and allowing communi
ties to participate in the investment de
cisions that shape their future. Indeed,
a classic argument has it that political
democracy - universal suffrage, civic
freedoms, and all that is needed to make
them practical and effective - will work

better if accompanied by 'social' or 'eco
nomic' democracy. Absent the latter,
real civic participation will be low and
big money will corrupt the political pro
cess, especially in complex societies
where commercial networks can shape
political agendas and the cost of cam
paigning is high.
While few deny the need to reform
the way elections are run and financed -
a source of recurrent scandal in nearly
every rich country - another line of
thought would challenge the conclu
sion that it makes sense to aim for eco
nomic democracy. The very phrase is
thought to be a contradiction in terms,
or a category mistake. Economic pro
cesses are too complex to be governed
by votes and electioneering. Govern
ments can and must lay down some ba
sic ground rules, but, as Friedrich Hay
ek showed, they lack the locally specific
information required to run complex

enterprises effectively, still less to plan
the entire economy. On the one hand,
consumer needs are too intricate and
changeable ; on the other, the myriad of
specific investment opportunities at the
local level can never be known at the
planning center.
While Hayek's critique of central
planning was in many ways compelling,
it failed to acknowledge the extent to
which markets rely on the wider social
context in which they are embedded. It
also did not demolish the argument that
public initiative and collective resources
are necessary to meet large-scale and
manifest threats.1
Robin Blackburn is Distinguished Visiting Pro
fessor of Historical Studies at the New School for

Social Research. He is the author of "Banking
on Death or Investing in Life : The History and
Future of Pensions" (2002) and "Age Shock:
How Finance is Failing Us" (2006).
> 2007 by the American Academy of Arts
& Sciences
i I sought to address Hayek's argument in "Fin
De Si?cle," in Robin Blackburn, ed., After the
Fall : The Failure of Communism and the Future of
Socialism (New York: Verso, 1991).
36 D dalus Summer 2007
2018 10:52:55 UTC
Votes can be effective if directed at a

few, simple large-scale choices - alterna
tive policy packages - on a national or
even global scale. Ideally, this political
democracy would extend to such ba
sic concerns as how best to address cli
mate change or improve public health.
In principle, voters would also decide
the scope of taxation and of social pro
grams. But there is a widespread sense
that prevailing power structures and
interest groups narrowly constrain ac
tual outcomes. Economic democracy
might be a way to allow greater, more
effective citizen input.
Jtolitical democracy is based on the
principle of one person, one vote. In
national politics this principle is easy
enough to apply, and one might imagine
it playing some role in a more democrat
ic global order. But how would the idea
of one person, one vote translate to the
everyday economic world?

When I took the equivalent of Eco
nomics 101 we still used Paul Samuel
son's classic textbook. It opened with
the observation that we could think of
markets as a sort of electoral process in
which dollars work like votes. When a
consumer makes a purchase, or a busi
nessman an investment, their dollars
function like votes in favor of what they
choose. Aggregated across the economy,
these 'votes' steer output in one direc
tion or another.
But dollars, unlike votes, are not equal
ly distributed among the citizenry. In the
postwar period, the heyday of that text
book, such an objection seemed weaker
because both wealth and earnings had
undergone a 'great compression.' CEOs
did not like to be seen taking too much
out for themselves and, instead, show

ered their employees with benefits.
We all know that things stand very dif
ferently today. Most of the gains since
1980 have been garnered by the rich and
the superrich - not the top 1 percent of
households, but the top 0.1 percent and
0.01 percent. If we take residential prop
erty out of the equation, the concentra
tion of wealth is even greater: the top 1
percent own half of all corporate securi
ties and money-market bonds, while half
of U.S. households own no productive
property at all.2
Such plutocracy is especially difficult
to justify when it derives, as it now so
often does, from chief executives being
extravagantly rewarded for indifferent
or even negative results, or from back
dated options, or from monopolistic
forms of financial intermediation. Eliot
Spitzer, the New York attorney general,

revealed systematic abuse of the latter
sort in investment banking, fund man
agement, and insurance in the years
2002 - 2006. These investigations led
a Republican Senator, Peter Fitzgerald
of Illinois, to describe the U.S. financial
services industry as "the world's largest
skimming organization."3
Basically, the corporate-securities and
money-market instruments not owned
by the very rich are held by institutions,
supposedly in the interests of millions of
middle-class holders of 40i(k)s or mem
bers of employer-sponsored pension and
health plans. This institutional wealth,
however, constitutes 'grey capital,' since
the property rights and privileges it con
fers are very unclear. It gives leverage not
to the beneficiaries, but to financial and
Economie
democracy :
meaningful,

desirable,
feasible ?
2 Thomas Picketty and Emmanuel Saez, "In
come Inequality in the United States, 1913 -
1998," The Quarterly Journal of Economics 118 (1)
(2003) ; G?rard Dum?nil and Dominique Levy,
"Class and Income in the U.S.," New Left Review
30 (November - December 2004) : 105 -133,112.
3 John Plender, "Broken Trust," Financial
Times, November 21, 2003.
D dalus Summer 2007 37
2018 10:52:55 UTC
Robin
Blackburn
on

capitalism
& democ
racy
corporate executives whom the benefi
ciaries have no way of controlling.4
Moreover, the classic function of cap
ital markets and financial institutions
was to direct capital to where it could
most profitably be invested. In the era
of financialization they have discovered
another vocation : to sustain the mo
mentum of sales by reorganizing and
extending credit networks. Large com
panies like General Electric and Ford
now have profitable finance arms, which
lend money or devise leasehold arrange
ments in order to facilitate product sales.
For their part, the swanky investment
banks display great interest in mortgages

and consumer debt - especially those of
the risky subprime variety because they
attract the best rates. They purchase
huge amounts of this debt, repackage
it in credit derivatives, slice it up into
ten tranches according to their degree
of risk, hedge each tranche according
to a different formula, and sell on the
resulting collateralized debt obligation
(CDO) to pension and mutual funds.
This practice has been very profitable,
but in a changed business climate the
magic could evaporate.5 Instead of help
ing to sustain demand, it could squeeze
it remorselessly, as interest rates rise and
bad debts inflict losses on the holders
of the CDOs. Regrettably, elected gov
ernments have only deregulated finan
cial institutions to allow the party to
continue.6
JLhe financial inflation of demand is

essentially a way of putting purchasing
power into the hands of consumers
without redistributing wealth toward
them. In addition to challenging the in
flation of demand (and the way it masks
the growing inequality in wealth), we
must also ask ourselves how much we
control what we demand and how that
demand is met.
To a certain extent the consumer is
sovereign, since rivalrous corporations
must attempt to ingratiate themselves
more successfully with consumers. But
to represent this consumer-oriented
commercial complex as economic de
mocracy would be very much a step
too far. Naomi Klein's No Logo and Joel
Bakan's The Corporation furnished vivid
accounts of corporate marketing to con
dition our desires. As Klein and others

revealed, an insidious barrage of adver
tising shapes consumers' views of what
they want and need - beginning at a
young age. Children's peer-group rival
ries direct taste, and their 'pester power'
mobilizes adult spending. Even those
with miniscule incomes on the global
periphery of capitalist exchanges are
entangled in this consumer logic.
This is not to say that the consumer's
needs are entirely unreal. The need for
food, clothing, and shelter are certainly
real. But they can be met in a myriad of
different ways, each of which will reflect
cultural taboos or socially instilled ideals
of what is satisfying and appropriate.
Consumers also have very little say
over how demand is met. We can trace
this phenomenon back to the origins of
capitalism in the sixteenth and seven
teenth centuries. Commercialized agri

culture had put money in the hands of
farmers, landlords, merchants, profes
4 Robin Blackburn, Banking on Death or Invest
ing in Life : The History and Future of Pensions
(London : Verso, 2002).
5 Michael Gibson, "Understanding the Risks of
Synthetic CDOs," Federal Reserve Bank, Work
ing Paper No. 36, 2004.
6 Andrew Glyn, Capitalism Unleashed : Finance,
Globalization and Welfare (Oxford: Oxford Uni
versity Press, 2006) ; Robin Blackburn, "Fi
nance and the Fourth Dimension," New Left
Review 39 (May-June 2006) : 39 - 72.
2018 10:52:55 UTC

sionals, and even day laborers, enabling
them to buy exotic luxuries like sugar,
tobacco, spices, dyestuffs, cotton, and
coffee. But it was enterprising merchants
(grocers) who decided to meet that de
mand by organizing plantations staffed
with indentured servants and slaves.
As Thomas Holt observed, the English
housewife buying a packet of sugar by
means of her penny-votes was helping
to set in motion a gigantic new social
order based on the antithesis of individ
ual choice and freedom.7 If you like, a
certain type of economic democracy
was breeding another type of economic
bondage and tyranny.
We continue to live in a world where
the apparently innocent acts of the
Western consumer are linked to sweat

shops and the depletion of scarce vital
resources. The difficulty with dollar
power is not only that it is very unequal
ly distributed but also that it only con
fers a second-order say, leaving the cor
porations and capital markets to make
most of the crucial decisions about how
demand will be met. Governments can
regulate, but they are often too remote,
too ignorant, and too clumsy to make
any difference. Social movements can
agitate, but their boycotts tend to have
only a momentary impact. Corpora
tions are flexible and have staying pow
er; public concern is fickle. It can tire of
activist stridency and succumb to the
determined wooing of any apparently
contrite corporation.
Jrlow can we construct a responsible
economic democracy? How can more
participate in the making of economic
decisions? How can we distribute eco

nomic resources more fairly and thrifti
ly? While we will never be able to con
struct institutions that guarantee ethical
ways of producing and consuming, some
arrangements may facilitate responsible
behavior and social justice, just as too
many of today's institutions do the op
posite. In the following sections, I will
present some negative and a few posi
tive examples.
The nonstatist socialist Left of the
twentieth century - especially of the lat
ter half- was drawn to the idea of work
ers' self-management. When Tito's Yu
goslavia broke with Stalin, it turned to
this concept as an alternative to a com
mand economy. For a while it worked
rather well, and by the late 1960s the
country was beginning to bring a mea
sure of prosperity to most regions. But
Yugoslavia remained a one-party regime,

and even though it exercised a compara
tively mild dictatorship, this political sit
uation hobbled democracy in the enter
prises as much as anywhere else.
A further problem was that even
where managements were genuinely
responsive to the workforce, what of
those workers who were not employed
at all, or who were employed by other
enterprises ? This problem became
acute in the 1970s and 1980s when sig
nificant unemployment surfaced. Enter
prise managements were quite solicitous
of the interests of core workers, but not
of those who were casually employed or
unemployed.
And if two enterprises had different
ideas about regional priorities, would
the company with the most employees
have to prevail? Obviously, the absence
of real democracy in the wider society
meant there was no legitimate arbitra

tor. But even moves toward a little more
democracy did not help ; indeed, it was
Economie
democracy :
meaningful,
desirable,
feasible ?
7 Thomas Holt, "Marking Race, Race Making
and the Writing of History," American Historical
Review 100 (1) (February 1995) : 1 - 21, 7. See also
Robin Blackburn, The Making of New World Slav
ery : From the Baroque to the Modern, 1492 -1800
(New York: Verso, 1997).
2018 10:52:55 UTC

Robin
Blackburn
on
capitalism
& democ
racy
accompanied by aggravated nationalism
in the Federation's constituent repub
lics.
Because these self-management struc
tures had such limited power, it would
be absurd to hold them responsible for
the tragedy that unfolded in the 1990s.
But what transpired demonstrated that
fairly positive microgovernance arrange
ments do not necessarily add up to a
good solution to macroeconomic prob
lems, which included, in this case, infla
tion, regional inequality, and unemploy
ment.8

The German system of mitbestimmung,
or comanagement, whereby workers are
represented on the second of a two-tier
management board, presents similar
difficulties. With this system Germany
overtook the United States, in 2005, to
become the world's largest exporter.
But Germany's other indicators of mac
roeconomic well-being, especially a
stubbornly high unemployment rate of
around 10 percent for the last two de
cades, tell a less inspiring story.
Another version of enterprise-level
economic democracy is employee share
ownership plans (ESOPS). One can
make a case for employees holding some
stock in their employer. Such ownership
might give them some channels of infor
mation and the prospect of a share of
the profits. But there are also big risks.

When Enron collapsed in 2001, its em
ployees held, on average, about half of
their 40i(k) savings in the form of En
ron shares. Therefore, they lost not only
their jobs but also half of their savings.
Although the unhealthy nature of such
concentrated risk has led to greater cau
tion, many U.S. employees still hold too
much of their 40i(k) savings - over a
quarter on average - in their employer's
stock. Employee stock ownership has
been high at a number of troubled cor
porations - such as United Airlines -
where employees were offered stock in
exchange for wage or benefit cutbacks.
This example points to another com
mon problem : employers often find it
easier to issue stock than to stump up
cash when contributing to employee
savings plans.
Neither does possession of such cor

porate securities give employees added
leverage. In fact, it sometimes seems to
increase their exposure to employers'
blackmail: 'Abandon your benefits or
see your job and savings destroyed.' Fur
thermore, the modern corporation is so
vulnerable to the capital markets that
small-scale individual shareholding al
ready confers only what are known on
Wall Street as 'subordinated' rights of
ownership. Otherwise put, individual
shareholders have little clout: they are at
the end of the line of those with a claim
over a company's assets.
JLhe most successful example of em
ployee self-ownership and self-manage
ment is the Mondragon Cooperative
Corporation, based in the Basque coun
try of Spain. Mondragon grew from
eight cooperatives in i960, employing
395 worker-members, to ninety-two

cooperatives in 1980, employing over
18,000 worker-members. By 2004, the
group was Spain's seventh-largest cor
porate entity, with combined assets of
18.6 billion euros and 70,000 worker
members. The group produces electri
cal goods, automobile components, ma
chine tools, and furniture. It has a con
struction division and a retail chain, and
maintains important research and train
ing programs.
Crucial to the post-1980 growth and
diversification of the group has been a
8 Robin Blackburn, "The Break-up of Yugo
slavia," New Left Review 199 (May-June 1993):
100-119.
2018 10:52:55 UTC

bank, the Caja Laboral Popular, which
supplies overall financial coordination
and planning, and an Enterprise Board,
which guides each new start-up. By 1995,
Caja had 1,380 employees and was a ma
jor force in the Basque region.
In the early days, the small size of the
group, and the shared Basque and Cath
olic background of most members, eased
the tasks of governance. Once the group
grew larger and more diversified, howev
er, finance made a crucial contribution
to its expansion and coherence, exerting
a certain discipline on each of its con
stituent enterprises. In the late 1980s,
overall leadership of the entire group
was vested in a Cooperative Congress,
representing every constituent coopera
tive, and in an elected Standing Congress

Committee.9
Mondragon is still only an island of
community collectivism within a capi
talist context, but it is a more plausible
stepping-stone toward economic de
mocracy than other variants of self-own
ership or self-management. Mondragon
employee-members have some concen
tration of risk, but the now quite diver
sified nature of the group's assets and
activities has served to reduce this. The
ability of Mondragon to sustain growth,
to defend an egalitarian pay structure,
and to make provision for the education
al and cultural needs of its members,
notwithstanding the pressures of global
ization, is certainly an achievement and
belies the determinism of 'flat world'
prophets like Thomas Friedman.
But Mondragon, framed by the wider

Spanish and global context, is at best an
incomplete recipe for a whole society.
Any strategy for a more democratic eco
nomic order would still have to reckon
with the corporate organization of the
modern capitalist economy, and the
greatly unequal distribution of produc
tive wealth.
other path toward greater collective
participation in economic decision mak
ing stresses the potential role of regional
or municipal government. Dynamic lo
cal economies often display the benefits
of cooperation among local govern
ments, universities, and businesses. On
the one hand, enterprises can count on
social inputs that would have been too
costly for any given concern to have paid
for by itself, while, on the other, such
enterprises know they must ensure that
the whole community shares in their

success. China's Township and Village
Enterprises draw on such logic and have
made a large contribution to the coun
try's overall advance. But, often, much
depends on a local notable and his con
nections, with little scope for genuinely
democratic feedback.10
The Brazilian city of Porto Alegre, and
its attempt to develop 'popular budgets,'
offers a different model of local mobi
lization. In the 1990s the Brazilian Work
ers Party (pt) won the city's election
and decided on a model of extended civ
ic participation that would begin rather
than end with their assumption of office.
While the PT had its own ideas about
how the municipal budget should be
raised and spent, it handed detailed de
liberation and implementation over to
A?

Economie
democracy :
meaningful,
desirable,
feasible ?
9 See Robert Oakeshott, Jobs and Fairness : The
Logic and Experience of Employee Ownership (Nor
wich : Michael Russell, 2000), 448 - 493 ; and
the website of the Mondragon Cooperative
Corporation.
?o Jean Chun Oi, Rural China Takes Off: Institu
tional Foundations of Economic Reform (Berkeley :
University of California Press, 1999) ; Angus
Maddison, China's Economic Performance in the
Long Run (Paris: OECD, 1998); Chun Lin, The
Transformation of Chinese Socialism (Durham
N.C. : Duke University Press, 2006), 106 -107.

2018 10:52:55 UTC
Robin
Blackburn
on
capitalism
& democ
racy
assemblies in every district where citi
zens could voice their own priorities and
concerns. The system was so popular
that it even survived the 2005 elections
in which the PT lost its majority on the
municipal council.
Today about fifty thousand people in
a city of 1.5 million play an active role in
the budget process. Although this num
ber represents less than a tenth of the

adult population, it still reflects greater
civic participation than what one would
find in most states, where only a third
or a half of the population even vote, let
alone play a direct role in shaping collec
tive decisions.
It is worth noting that participation is
higher in the city's small, manageable
neighborhoods than in its large, anony
mous central district. The system's real
limitation, however, stems from the con
straints on the municipal government's
ability to raise revenues. Even though
local authorities often aim to stimulate
local production, they are revenue-con
suming rather than revenue-producing
entities. If it is to have real substance,
economic democracy should be about
organizing wealth production as well as
the disposal of the wider economic sur
plus.11

V_yne of the most innovative attempts
to construct an economic democracy in
and against a developed capitalist con
text was - and to some extent still is -
the Swedish welfare state, or the 'Swed
ish Home.' The architects of this system,
Gosta Rehn and Rudolf Meidner, were
economists for the LO, Sweden's main
trade-union federation. Influenced by
John Maynard Keynes and James Meade,
the two men understood that they would
need to think through welfare and cor
porate finance together if Sweden was
to maintain high employment levels and
avoid inflation. Remarkably, their model
succeeded in delivering on both fronts
for a long time. The same cannot be said
about other European welfare states,
where monetary stability was achieved
at the expense of a long and debilitating
toleration of high unemployment levels,
which affected younger workers, older
workers, and ethnic minorities the most.

The Swedish welfare state also guaran
teed its citizens secondary pensions and
health care. This policy is a significant
departure from the more prevalent for
mula, which offers private corporations
tax incentives to take on the task of sup
plying social insurance to their employ
ees. Corporate welfare has proved to be
a trap for employees, depriving them
of their promised benefits and threaten
ing their jobs, as once-famous compa
nies plunge into bankruptcy and entire
industries - steel, airlines, automobile,
and t?l?coms - stagger under the bur
den of pension and health entitlements.
The corporate pensions crunch has de
stroyed many good jobs. In their place
are now Mcjobs - low-wage, insecure
service employment.12
The cornerstone of the Swedish mod
el was the annual national wage-bar
gaining round. This device allowed for

a debate on social priorities while safe
guarding high levels of employment.
High employment rates are, of course,
positive, but they can result in inflation
when the bargaining power of key work
ers is strong and their wage demands
high. The wage round ensured a degree
of restraint in wage demands from the
best-placed workers in return for new
il Marion Gret and Yves Sintomer, Porto Ale
gre : L'espoir d'une autre d?mocratie (Paris : n.p.,
2002).
12 I document this process in Robin Blackburn,
Age Shock : How Finance Is Failing Us (New York :
Verso, 2006), chap. 3.
2018 10:52:55 UTC

social guarantees. But this still left the
problem of well-placed corporations
garnering superprofits because their
employees had moderated their claims.
Meidner's response to this issue set the
scene for an ambitious attempt to bring
about a new dimension of economic de
mocracy, one which did not seek to sup
press the market but rather to democra
tize the investment process.
Meidner's proposed resolution was
to establish strategic social funds -
'wage-earner funds.' These funds would
be financed by a 'share levy' on the large
corporations that were going to bene
fit from the wage-bargaining round.
In other words, to prevent the excess
profits from going solely to sharehold
ers, the corporations would have to do
nate shares equivalent to a fifth of their

annual profits to a regional network of
wage-earner funds. A portion of these
funds would go to an enterprise-level
body run by the employees, who would
thereby acquire a growing stake in their
employer. But the bulk of the funds
would be channeled to the regional net
work, representing local communities
and trade unions. The shares acquired
by the funds would not be sold but held
to generate future revenue. The funds
would also be able to influence the large
corporations by voting their stock at
AGMs. In exchange, the corporations
would gain from publicly provided coor
dination and services, and a healthy and
well-educated workforce.
The Meidner plan was a response to a
specific challenge, but it is not difficult
to see that it might have given a novel
twist to the classic left-wing dream of
an equal and self-governing society, in
which workers by hand and by brain

would assume the leadership of socie
ty. Unfortunately, Sweden did not fully
adopt the plan, even though the LO en
dorsed it in 1976. Indeed, the federation's
normally stolid ranks greeted its passage
at that year's conference with cheers
and rounds of the "Internationale." The
membership of the Social Democratic
Party was also enthusiastic.
The party leadership, however, did
not share Meidner's vision, and did a
poor job of commending it to the Swed
ish people. Meidner's plan was very rad
ical ; they were not. In hindsight, aspects
of the plan were also ill-advised. The
management committee of the funds
should, perhaps, have been solely re
sponsible to all the citizens of a locali
ty, with no special position for trade
unions. The proposed structure aroused
fears, even among trade unionists, of
excessive concentration of power in the

hands of trade-union leaders. The pri
vately owned media ran quite a success
ful campaign focusing on this issue. But
the modifications made by the Social
Democratic leaders went in the wrong
direction and handed control of the
funds to financial technocrats. Oppo
nents of the plan also played up the fact
that private-sector workers would get
ahead of public-sector employees.
When the social funds were eventual
ly set up in 1982, the corporate contribu
tions were quite modest, and no longer
furnished a means whereby citizens
could channel future revenues to social
objectives or regional growth.13 More
over, Sweden faced a severe financial
crisis in the early 1990s, and the Rehn/
Economie
democracy :

meaningful,
desirable,
feasible ?
13 The best overall account of Meidner's strat
egy is found in Jonas Pontusson, The Limits of
Social Democracy (Ithaca, N.Y. : Cornell Univer
sity Press, 1992). The original plan for wage
earner funds is set out in Rudolf Meidner, Em
ployee Investment Funds (London: Allen & Un
win, 1978). For an account of the struggles over
its implementation see Jonas Pontusson, "Swe
den : After the Golden Age," in Perry Anderson
and Patrick Camiller, eds., Mapping the West Eu
ropean Left (London : Verso, 1994), 23 - 54.
2018 10:52:55 UTC
Robin

Blackburn
on
capitalism
& democ
racy
Meidner model did not emerge un
scathed. Rehn and Meidner had stepped
down long before, and their advice had
not been heeded anyway. The social
funds, by this time, controlled 7 percent
of the shares quoted on the Swedish
stock exchange. They were wound up,
and the proceeds used to establish a
string of scientific research institutes.
But even in its diluted form, the Meid
ner plan helped propel Sweden to the
forefront of the knowledge-based econo
my. Since Meidner, however, the corpo
rate contribution he sought to raise has
been in decline, whether in the shape of

taxes or employer-sponsored health and
pension plans. Increasingly, we live in
societies resembling the French ancien
regime before 1789, when the wealth of
the feudal aristocracy was largely ex
empt from tax - now it is the holdings
of the corporate millionaires and billion
aires. Other signs reminiscent of the age
of Louis XVI include the spirit of apr?s
nous le deluge, the reliance on lotteries,
and the emergence of modern variants
of 'tax farming' - laws that oblige citi
zens to pay their taxes (pension contri
butions) to commercial fund managers
rather than to an accountable public
body.
But the taboo on effective taxation of
corporate wealth is the most crucial sign
of a reign of privilege. Meidner's share
levy, unlike so many modern taxes, was
extraordinarily difficult to evade. Those
who stowed their shares in a tax haven

Swedish Wage-Earner Funds An Experiment in Economic Demo.docx

Swedish Wage-Earner Funds An Experiment in Economic Demo.docx

Recommended

Recommended

More Related Content

Similar to Swedish Wage-Earner Funds An Experiment in Economic Demo.docx

Similar to Swedish Wage-Earner Funds An Experiment in Economic Demo.docx (18)

More from AASTHA76

More from AASTHA76 (20)

Recently uploaded

Recently uploaded (20)

Swedish Wage-Earner Funds An Experiment in Economic Demo.docx