National Systems of Labour Relations and the Politics of Embedded Neo-Liberalism

Markets are institutions embedded in social relations. Competitive pressure that emerges from market liberalisation and Euro-global integration induces co-operation and co-ordination at firm level between management and workers in the production of high quality goods and services. But, why do some trade unions and employers adopt ‘collectivist’ strategies at national level over the ‘firm’ level to pursue their economic interests? I want to argue that processes of market liberalisation in small open economies (such as Ireland) induce coordinated labour relations at national level not firm level and therefore require a political explanation. Given certain conditions economic actors will prefer strategies to influence national politics over firm level collective bargaining. This national strategy requires a central role for the state to mediate the conflict between labour and capital. Hence, the political construction of social partnership as a national institution of labour relations and organised interest politics is a case of ‘embedded neo-liberalism‘.

Whilst many scholars studying ‘varieties of capitalism’ accept there has been a  shift in power relations resulting from processes of globalisation in the interest of capital they fail to analyse how this manifests itself politically. That is, they fail to analyse how the state responds to the governance constraints of market competition (beyond the rhetoric of ‘regulation’). True, it is not a case of convergence on a singular model of US style neo-liberalism but it is a case of divergence within converging rules of market integration. It is still capitalist development. All employer strategies, whether they are based on liberalisation or co-ordination, must satisfy the logic of capital accumulation. The state has a central role to play in this process. It must govern. Market relations require a level of social integration and co-operation that economics (as a science of supply and demand) cannot accommodate (nor explanations based on institutional efficiency or economic performance). Social relations are premised on processes of communicative action not zero sum  gain.

Markets are always ’embedded’ in political structures that condition capitalist development. They are the institutional product not the driving force behind societal evolution. The economy and in particular, the market, is a sub-system of society that operates according to a behavioural logic that is increasingly colonising the rest of society.  In this regard, all markets are an ensemble of institutions that are context specific to particular regions. They are structured processes of social interaction between strategic and communicatively oriented actors. National social-wage pacts and the governance process behind this institution of labour relations intermediate between society-state-market.  The governance process is a case of embedded neo-liberalism. Thus, cross national and temporal variation in this institution of wage-relations will go a long way in explaining the politics of change in the governance of contemporary capitalism.

In Ireland, coordinated, social democratic and liberal tendencies exist in its system of  industrial relations and reflected in the dual economy; unionised and non-unionised. When push came to shove; politics decided that the route was a liberal market trajectory. This, to a certain extent, supports the argument that Ireland lacked the institutional complementarities to embed a coordinated or social democratic approach that linked firm, sector and national policy coordination. It was constructed by state actors (for political reasons) but brought down by wider constraints facing the institutional political economy. Does this mean that Ireland’s political economy is a hybrid or a badly functioning liberal market? If it is the former, what is the role of ‘state’? What decisions in industrial, fiscal, labour market and social welfare policy condition a particular model of capitalism? Furthermore, to what extent does the EMU fundamentally change the rules of the game in the politics of industrial relations?

The only way to answer this question is through a sectoral analysis of labour market developments over time; who was unionised and covered by collective wage agreements and who was not? Subsequent to this sectoral analysis we need to analyse the nature of the bargain (and exchange) in different policy areas by the core actors involved at a national level. Thus, we need to trace the national bargain back to sectoral developments and ask whether they support or undermine the liberal market, social democratic or coordinated trajectory (or whether they support a mixed hybrid political economy, premised on ‘public sector employment’ and development of the state’). That is; did the national institution of industrial relations (social partnership) embed a liberal or coordinated market trajectory across the political economy or just in labour relations? Was this based on national ‘competitiveness’ (i.e. economic performance) or organisational politics (i.e. actor-strategy)? If so, who are equipped with better explanations for its rise and demise; the competitive corporatists, the socialist-marxists or the associational democrats?

The question ‘why and under what conditions did Ireland construct a coordinated industrial relations institution via social-wage pacts given its liberal market economy’ will enable us to answer this question.  This requires a diachronic analysis that traces the emergence, institutionalisation and decline of social partnership to the strategy of actors involved, to identify the core causal factors over time. The wider institutional political economy (industrial relations, economic and political) conditioned and structured the strategy of actors. Thus, a liberal market induced a strategy by trade unions to swap economic for political power. Recent events have shown that this could not be sustained over time (in this regard the institutional complementarities argument is correct but much more nuanced in that we need to bring power and politics back in. Twenty three years of coordinated labour relations was not just an anomaly nor a simple case of labour betrayed).

The problem with the socialist analysis is that it does not give sufficient attention to the real institutional constraints facing trade unions as organisational actors and ignores the real improvement in living standards achieved under centralised ‘collectivist’ wage deals. One way to tease this out empirically is to assess whether centralised wage bargaining impacted upon income inequality. The problem with the competitive corporatist literature is that it assumes the primary interest of actors is functional improvement of the economy rather than organisational strategy. Social partnership is evaluated according to economic performance; is positive or negative? This assumes a causal role for social-wage pacts in causing GDP growth.  The associational democrats fail to appreciate political power and assume social partnership is a conflict free zone of associational governance. This is not the case. Thus, all theorists are right and wrong to some degree. I want to synthesise the arguments under the rubric of embedded neo-liberalism. Social partnership is a critical case of liberal corporatism. It is an industrial relations strategy of the state within the constraints of a liberal (employer friendly) market environment. It was designed to maximise the benefits of a small open economy in a global market and evolved as a strategic tool for actors (trade unions, government departments and employers) to pursue their instrumental objectives via networks of communicative action.

A central factor in all three time-periods (emergence, consolidation and decline) is the political role played by the Prime Ministers office in generating the strategic capacity to ‘negotiate a deal’. This is not case of ‘weak government’ but the crafting of ‘strategic governance’ by state managers in the context of weak political democracy. Political parties do not have a monopoly on the governance of contemporary societies. The political process that enabled the construction of a coordinated institution of labour relations was structured around embedded networks of communicative action between civil society and the state. Contemporary interest politics, in this regard, is based on aligning the strategic interest of actors into a shared policy paradigm through the sharing of ‘political space’ by government. Unlike the comparative cases of Austria, Netherlands, Sweden, Finland or Slovenia corporatism in Ireland was not premised on a detailed technical analysis that aimed to improve the use of production, technology or industrial policy. It was designed to minimise political and industrial conflict.

Labour relations, in all capitalist economies (whether liberal, coordinated or social democratic) are conditioned by structured power relations; measured by the extent of collective deterrent power trade unions can exert in the labour market. Trade unions lacked the economic counter-power to sustain ’embedded’ neo-liberalism when the ‘great recession’ emerged given the exclusive and voluntary nature of national social-wage agreements. Furthermore, trade unions and social partnership as an institution contributed to the crisis by legitimising a low tax model of capitalist development. Given the real economic and institutional constraints they were facing this can be explained empirically without recourse to simplistic explanations of trade union leaders betraying the rank and file. Each of the national social-wage pacts were democratically endorsed by trade union affiliates to ICTU on the basis of one worker, one ballot. It was a strategic tool to advance the interests of organised labour that worked in some ways but not in others. The biggest problem it created for trade unions, as an institution, was the consolidation of a growth model that was non-union. The non-union labour market expanded over time, decreasing the economic power that gave them political power in the first place. Hence, the popular equation of trade unionism with public sector employment. Insiders versus outsiders.

In this regard, social partnership as a national system of labour relations and organised interest politics is facing a legitimation crisis. It was part of a political process that embedded a particular model of capitalist development. It embedded low taxes in fiscal policy, generated wage inflation in public sector pay, sustained low paid service sector employment, consolidated an industrial policy premised on multi national non-union employment and institutionalised a social welfare system premised on increased cash payments not social rights. Employment, economic growth and overall living standard improved under its watch, hence its institutional resilience in the ‘Celtic Tiger’ years. But, from a social science perspective, the causal factors that explain the consolidation of this national system of labour relations can be found in the political dynamics of government. It is a non-market institution premised on a cross-class compromise nurtured and sustained by a political settlement that ultimately broke down when the government opted for a market rather than a negotiated solution to the crisis. In the absence of economic and political power, trade unions are now facing an existential crisis.  The government and employers have internalised the governance constraints implied by the neo-liberal design of the EMU.


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