Global threat fails to break spirit of Sweden’s labour model

January 6, 2014 9:52 am

Global threat fails to break spirit of Sweden’s labour model

By Richard Milne in Stockholm

Three quarters of a century ago, Swedish workers and employers sat down and hashed out a remarkable accord. The Saltsjöbaden agreement, signed on December 20 1938, provides the basis for Sweden’s consensus-driven approach to labour relations and is the bedrock of the much-admired Nordic model of capitalism.But with Sweden’s export-reliant economy sluggish in recent years despite recovering from the global financial crisis, and with youth unemployment stuck stubbornly above 20 per cent – likely to be a big issue in September’s parliamentary elections – does the Swedish model still stack up?

Signed in the coastal town of Saltsjöbaden to the south of Stockholm, the agreement followed a period of unregulated labour conflict. So LO – the Swedish trade union confederation – and the Swedish employers’ association got together and came up with a set of rules governing industrial action and collective bargaining.

Many of the principles – the so-called Saltsjöbaden spirit – remain today, with the two sides together determining much of the country’s pay policy, and an accord that strikes should only take place after negotiations have been exhausted.

It all adds up to an atmosphere between workers and companies that is far removed from the conflicts of countries such as France or Italy, and one that is a crucial part of the Nordic model that has drawn admirers from Bill Gates and The Economist to Scottish politicians.

The model is still strongly supported by many in business as well as the unions.

Keith McLoughlin, the American chief executive of Swedish appliances group Electrolux, says he found it “a little bit shocking at first” when he realised union members sat on company boards in Sweden.

But he adds: “It works fundamentally because the union members I have met start with the premise that what is in the best interest of the union and workers is that the company is successful . . . That is not true in lots of parts of the world.”

On the union side, Karl-Petter Thorwaldsson, president of LO, says: “We will win more rather than lose from a close connection between employers and trade unions.”

He argues that the consensus model gives him a greater degree of influence than that of his more voluble European counterparts: “If you see other European countries with lots of strikes, it’s more a sign of a lack of power rather than power.”

Mr Thorwaldsson – some might say counterintuitively for a union leader – is pragmatic towards globalisation. He has spoken in favour of the US-EU trade talks and the 2.2m jobs he claims it could provide, saying such a stance enhances the influence of the unions with companies. “A trade union working for growth, working for foreign trade – they will also listen more to us on the negative side,” he says.

It works fundamentally because the union members . . . start with the premise that what is in the best interest of the union and workers is that the company is successful

– Keith McLoughlin, Electrolux’s chief executive

However, the spirit of Saltsjöbaden is not universal. Discussions between unions and employers over a youth unemployment pact broke down last year amid mutual recriminations.

Similarly, bitter negotiations over new contracts at SAS, the struggling airline, led Mr Thorwaldsson to call the airline’s stance “a crime against all the Swedish model stands for”.

Youth unemployment, which stood at 22.6 per cent in November, has also played a role in the early skirmishes between Fredrik Reinfeldt, the centre-right prime minister, and Stefan Löfven, his centre-left challenger and current favourite in the polls.

Mr Reinfeldt is focusing on tax cuts in the run-up to his election campaign. But Mr Löfven says this is the wrong priority and that the focus should be on jobs. In a debate in October, he said: “I hate unemployment . . . We have a higher unemployment rate than when you took office. You can’t escape that.”

Some fear the struggle to maintain Sweden’s social contract amid the strains of global competition are putting the model under threat and that it needs to be reaffirmed.

“We can see that the Nordic model was created after the model of Saltsjöbaden. It’s 75 years old and in some ways it would be good to renew it,” says Mr Thorwaldsson.

Concerns about the erosion of its principles are not confined to the unions. Leif Johansson, chairman of Ericsson, bemoans the rise of temporary agency jobs for many young workers. “If I were young I would be sceptical to that whole arrangement,” he says. “Youth unemployment in demographic terms always scares me.”

However, some businesspeople question whether Sweden’s consensual approach – making sure everyone is on board over a decision – is suitable for an increasingly competitive and fast-paced world.

Annika Falkengren, chief executive of bank SEB, says: “The challenge for Swedes is always that you go back to this consensus, that you always ask everybody around the table what they think and then if you think differently you try to persuade everybody to think the same thing and then you all decide together. It gets a bit cumbersome, sometimes.”

Despite the strains, the signs are that after 75 years the Swedish system is still giving companies stability through a relative lack of strikes and providing workers with a good deal in terms of pay. “That is why the Saltsjöbaden agreement still works,” says Mr Thorwaldsson. “It’s a good share of power between work and capital.”