Steve Coulter of the LSE examines the state of workplace cooperation in Europe and finds some cracks, as well as some shards of light, in the edifice of social partnership

Social partnership – or institutionalised co-operation between business and labour, sometimes overseen by governments – has been a feature of most European economies since the Second World War. Many informed commentators, not just on the political Left, view it as having been an essential ingredient in Europe’s economic and political transformation. Since Jacques Delors mandated social partner involvement in regulating the Single Market at Val Duchesse 30 years ago, it has also become institutionalised at the European Union level. But, with Austria’s government preparing to ditch social partnership, is such cooperation now on the slide?

The signs are ominous, although not uniformly so. Southern European economies have seen steep declines in collective bargaining since the start of the decade, weakening trade unions without necessarily improving the position of employers. In north Europe, the rot set into Germany’s model of social partnership over a decade ago, as analysed by Streeck and Hassel (2003), with levels of inequality mounting in apparent response as new divisions open up in Germany’s labour market.

Now, Austria, one of Europe’s most corporatist countries, appears to be standing on the brink of abandoning social partnership, or at least withdrawing institutional support for it (see the earlier blog piece by Lucas Lehner here). On the other hand, important partnership agreements have also been recently concluded on Spain, the Netherlands and Belgium. What is going on?

Crises and megatrends

The Financial and Eurozone crises clearly had a negative impact on social partnership in Europe generally. A recent survey by Eurofound (2016) shows how union membership has declined in lockstep with the fall in employment during the financial and eurozone crises, but has not picked up as fast as the bounce-back in employment once the recovery got underway. The only countries which have seen a trend towards re-centralisation of bargaining have been Finland and, to a limited extent, Belgium (Glassner and Keune 2012).

In many ways the crisis probably simply exacerbated the effects on labour relations of several other ‘megatrends’ that were already underway: the decomposition of global production into ‘value chains’ dominated by multinationals; as well as the growth of automation and the rise of the Platform and ‘gig economies’ – workers in these emerging sectors being notoriously hard to organise in trade unions.

Other factors at play also include the growing segmentation of labour markets. Some large employers increasingly adopt a ‘divide and rule’ approach to groups of employers with differing levels of productivity within the same firm, excluding less productive workers from company-wide deals. Segmentation undermines collective bargaining and reduces the benefits of union membership for some workers. Lower membership, in turn, makes trade unions less attractive as bargaining partners for both governments and employers (whose membership of collective associations remained constant during the crisis periods).

Fighting back?

The difficulty of defending social partnership from a purely economic perspective (i.e. in isolation from other concerns, such as inequality and social justice) is that changes in global production networks and in the organisation of work itself, may appear to call for the entire concept of social partnership to be rethought. Many on the free-market Right argue that social partnership introduces too much ‘grit’ to the economic system, hindering the reallocation of resources necessary to take advantage of new technologies.

On the other hand, there seems no reason to abandon the idea that good labour relations go hand in hand with economic efficiency. As the European Commission argues: ‘…the evidence of the most successful EU Member States suggests that well-structured social dialogue contributes to coping with complex socio-economic changes required in a modern economy’, and furthermore that the evidence points to ‘’the viability of a ‘high-road’ to international competitiveness that harnesses the problem-solving potential of social dialogue’’ (Commission 2014). These sorts of strategies, the Commission acknowledges, emphasise a range of factors that contribute to competitiveness besides low costs, such as the quality of the goods and services provided and the productivity and commitment of the workforce required to produce them.

But critics point out the EU policy has not always acted to underpin these worthy aims. During the eurozone crisis a number of country-specific recommendations imposed on indebted member states went well beyond budgetary and economic matters to interfere directly in wage-setting institutions and policies. These interventions were not generally done in a manner intended to shore up social dialogue and concertation – let alone underpin a wider sense of social partnership.

What next?

Is social partnership worth preserving? There are plenty of grounds for thinking so. The Eurofound study argued that sound, effective and well-functioning industrial relations systems produced better business performance and more equitable outcomes. They were useful tools for redistributing income and achieving social peace. The linkage between social partnership and economic growth rates is not easy to measure accurately. But, at the firm level, poor industrial relations are certainly not conducive to a stable business environment, high levels of training and worker commitment and productivity.

The UK provides some instructive examples here, being one of the first countries in Europe to abandon social partnership. Since the radical de-collectivisation of industrial relations under Margaret Thatcher in the 1980s, levels of collective bargaining remain low and there is little institutional support for social partnership. Attempts by the Trades Union Congress to revamp it in the late 1990s under Tony Blair’s New Labour government met with limited success.

Nevertheless, the UK is not necessarily the barren, hostile environment for social partnership it sometimes appears. Noting the differences between sectors where it has died, and where it persisted or has been revived, is instructive. At the national level, the UK is a lot more unequal than other North European countries, such as Scandinavia, where social partnership has survived.

In terms of economic performance, while the UK’s model of capitalism supports a successful high-technology sector reliant on venture capital and a highly-educated but flexible workforce, other areas of the economy are characterised by a long tail of firms distinguished more by their low productivity, weak management and poorly trained and motivated workforces.

Where does social partnership survive? Agreements are well established in parts of the UK’s public sector, especially health because of the large numbers of people working in the National Health Service. But some private sector companies also now operate a form of social partnership. These include the retailer John Lewis – a market leader and one of the UK’s most admired companies.

The UK’s success in reviving its once dormant car industry is often put down to the extremely good labour relations now prevailing in the industry, which convinced international firms to invest. The process was kick-started during, ironically, the late 1980s, when Nissan and the GMB union worked out a long-term agreement that could certainly be termed a partnership.

Companies following the partnership route are rewarded with fewer strikes and higher labour productivity. Productivity is an area of increasing concern to policymakers. Productivity per worker in the UK has been negative over the last decade and is one of the lowest in the developed world.

Andy Haldane, the Bank of England’s chief economist, blames a ‘long tail’ of poor performing firms for this. Such firms are often characterised by a low level of engagement with their workers, evidenced by low wages, high staff turnover and an unwillingness to invest in training. Austrian politicians toying with abandoning an economic model that has served them well should take good note of the Janus-faced structure of the UK economy and be careful what they wish for.

Is partnership the answer to these types of economic challenges? It’s at least part of the answer. Countries looking to deregulate labour relations and abandon social partnership soon find out, the hard way, that the low road is expensive, inefficient and unequal.

Dr Steve Coulter is Visiting Fellow at the European Institute of the London School of Economics and Political Science.

This piece originally appeared on the Arbeit Wirtschaft blog.

Bibliography:

European Commission (2014). ‘Industrial relations in Europe.’ Luxembourg. Publications Office of the European Union.

Glassner, V and Keune, M (2012). The crisis and social policy. The role of collective agreements.’ International Labour Review. Vol 151, 4, pp 351-75.

Eurofound (2016). Mapping key dimensions of industrial relations. Publications Office of the European Union.

Streeck, W and Hassel, A. (2003). The Crumbling pillars of social partnership. West European Politics, Vol 26, 4, pp 101-124.