Twenty-first century breakdown: Negotiating new regulatory regimes in the Nordic lands

Introduction

While a great source of misery for the common man, the global financial crisis has been something of an opportunity for regulation theorists: liberalism as a regulatory guiding principle has run out of steam, yet national policy-makers vary enormously in their repudiation of the liberal paradigm. In countries such as Britain, the touchstones of liberalism – government and financial market deregulation, slashes in social spending – have persisted in the face of insurmountable evidence against them. Social upheaval and political action in the wake of the crisis have been guided by the right in a campaign against big government and regulation, even though the unrestricted growth of finance capitalism drove nations to the brink of ruin in the first place. In the Nordic countries, by comparison, the crisis prompted a resurgence of governmental controls, coordinated efforts by the social partners to manage the economic malaise, and a redirection of investment into emergent green technologies. ¹

Perhaps this national divergence is not surprising, since Scandinavia has been something of an outlier in the past quarter-century of liberalism. Despite some disorganisation among workers and some penetration of neoliberal ideology, continuing high levels of labour market coordination prevented the soaring rise in inequality that was so ubiquitous among other advanced countries, and strongly organised social partners have negotiated comparatively solidaristic pacts in response to the challenges of globalisation and deindustrialisation (Martin 2004; Munck 2007). Yet after the crisis, countries faced a different set of challenges, such as the reduction of global linkages and the decline of major service sectors, and it was not certain a priori that the recipe for success before the crisis would be equally attractive or deliver felicitous outcomes thereafter.

The mystery of these alternative cross-national responses invokes a broader question about how regulatory regimes evolve: how (and whether) countries adopt new organising principles in response to fundamental economic transformations, and how new regulatory systems are invented. Following the path-breaking work of Antonio Gramsci, regulation theorists have recently pondered the role of ideas in transforming the regulatory landscape, and these insights help us to understand why transformations sometimes fail to occur (Dannreuther and Petit 2006; Jessop, this issue). While changes in the regimes of accumulation are driven, at the core, by technological change, ideological change is necessary to complete the move to a new regulatory regime. Ideas do not land in a desert, and the institutions structuring class relations provide the landscape for the contested terrain in which the new organising principles evolve (Coates 2001).

This essay delves into the institutional structures that underpin the social relations of production, shape class conflict and cooperation, and enable the shift in dialogue leading to a new regulatory organising principle. I suggest that institutions defining the social relations of production regulate class coordination within the political sphere as well as class conflict within the domain of economic production. Variations in the capacities for class coordination have a critical impact on the ability of nations to adjust their regulatory regimes in response to major economic transformations. This observation has bearing on the Nordic countries’ responses to the crisis. The institutional capacity to renegotiate the regulatory system in Scandinavia has permitted new commitments to social partnership to be forged in the heat of the crisis. Certainly path dependencies of the social democratic model eased the task of responding to the financial crisis and led policy-makers away from a resurgence of liberalism; but in addition, the dynamic processes of negotiation embedded in the social relations of production helped to enable the Nordic countries to correct more easily some of the excesses of liberalism.

The ultimate significance of the alternative social-democratic course remains to be seen, and it is too early to predict what this middle way entails for the future of capitalist regulation. The challenges of global contradictions in capitalist competition may simply swamp national solutions of all kinds, and there is a plausible case to be made that global processes of engagement are necessary for coping with the international contradictions in capitalist production (Ryan and Worth, 2010). Yet to date, the social-democratic countries, with their large public sectors and high degrees of coordination, have flourished rather than unraveled in the wake of the financial decline; and it behooves us to delve deeper into these pockets of resistance to liberalism in our search for a new regulatory order.

In the following pages, I initially reflect on how one might make use of regulation theory to understand the global financial crisis. I then consider the circumstances under which countries may use the crisis to renegotiate their regulatory regimes, and suggest that Scandinavian countries are better equipped for profound adjustments than other varieties of capitalist economies. I offer evidence from the Scandinavian experiments in the post-crisis period to substantiate these claims, and conclude by considering the processes by which regulatory regimes respond to new economic challenges.

Regulation theory and the global financial crisis

The global financial crisis was not merely an accident of excess, but rather represented a culmination of capitalist crisis tendencies inherent in the processes of dialectical materialism: capitalist economies develop internal contradictions that contribute to their decay, even as they grow to a state of maximum efficiency. Economies are governed by overarching regimes of accumulation, which allocate productive assets between consumption and accumulation. Modes of regulation are necessary to bring about the reproduction of these regimes: to guide capital investment, to allocate economic surplus between wages and profits, and to shape patterns of consumption (Lipietz 1987: 14; Aglietta 1987: 12-13).

The economic implosion of 2008 had its origins in the bankruptcy of the Fordist regime of accumulation and the neoliberal efforts to restore corporate profits. In the wake of the Second World War, Fordism produced unnatural and unprecedented high rates of investment and output, with rapid growth rates in productivity and wages related to the shake-out of obsolete capital stock and the opening of new European markets. Yet this accumulation regime had clearly run out of steam by the late-1960s and 1970s: while new markets led to the expansion of US multinationals abroad, they also led to over-capacity. The ‘solution’ to the failings of Fordism was the rise of liberalism that, at once, enabled the capitalist class to offset the falling rate of profit (associated with the declining accumulation regime) by exploiting workers and to reduce constraints on capitalist accumulation placed by the nation state (Bowles, Gordon, Weisskopf 1990; Jessop 2002).

Yet while the grand neoliberal unleashing of markets seemed to revitalise economies exhausted by Fordism, neoliberalism created its own set of contradictions. Global capital flows reinforced exchange-value over use-value, and much of the apparent success of the new regulatory regime, in reality, stemmed from successive national bubbles (Bresser-Pereira). Thus, finance capital drove growth through assets bubbles in shares, housing, and commodities such as oil, and this was facilitated by an expansion of credit, a decline of savings ratio and conspicuous consumption (Gamble 2009: 7-15). The ‘financialisation’ of markets created fictitious financial wealth and strengthened international financial capital over productive capital. The hegemony of finance crisis had its own embedded crisis tendencies: in the words of Bob Jessop, ‘The revenge of the “real economy” can be seen in the current liquidity, credit and financial crises’ (Jessop 2010: 43). Moreover, a beggar-thy-neighbour dynamic allowed a string of ascendant model countries to claim success at the expense of their close competitors. Thus, Japan in the 1980s rose in Germany’s ashes, and the USA became the standard bearer of economic renewal in the 1990s, while Ireland was viewed as a winning model after 2000 (Jessop 2010; Brenner 2001).

The global crisis of finance capitalism initially seemed to call into question the legitimacy of the growth model based on the deregulation of finance capital, the validity of neoliberal ideology, and the appropriate role of the state in the economy. Pundits pointed to the need for systemic solutions and argued that the state must intervene to solve market externalities: while the prior financial regime put a high priority on depoliticised economic management, the crisis encouraged a revisiting of debates on the appropriate role of states, and a return to repoliticised forms of financial management (Burnham 2001). In the wake of the crisis, there was a huge rise in the use of expansionary fiscal policies and government stimulus programmes, and a seeming break with the monetarist policies of Thatcher and Reagan.

Yet the crisis has decidedly not ushered in another era of big government. For one thing, ‘deregulation’ only imperfectly captures the regulatory approach of the past quarter century, and Block (2009) points out that the era is better characterised as one of ‘reregulation’, in which firms were allowed to renege on worker commitments and to create new risky derivatives markets. For another thing, the crisis also highlighted the perils of stimulating demand with consumer debt, and anxieties about debt-driven consumption have dampened the resurgence of massive government intervention and undercut social investments. Bubble economies created fiscal slack for social solidarity, and high rates of employment created a labour market need for the low skilled workers. Yet after the fall, financial woes have both reduced economic slack and increased unemployment. While the crisis prompted budgetary deficits everywhere, cross-national variations reflect the size of the automatic stabilisers, fiscal positions in advance of the crisis, and the severity of the crisis in the country (Cameron 2012).

Moreover, the crisis hurt core advanced countries less than their less wealthy counterparts, many of whom were damaged by rich nations seeking new investment opportunities. In the years before the crisis, coordinated countries were like college undergraduates on spring break in Eastern Europe, encouraging risky financial ventures with low-interest loans. The heavy investment in Eastern Europe by Austria, Italy and Sweden came to a screeching halt with the financial crisis. The main Latvian bank had to be nationalised, the housing bubble burst, and the country’s credit rating was downgraded to junk status (Economist, 28 February 2009: 27). Thus the crisis had mixed impacts on economic regulation, and it is to this issue that we now turn.

Renegotiating regulatory regimes

Despite its apparent bankruptcy, the liberal regulatory model has persisted in many advanced countries post-crisis, and therein lies the puzzle. I suggest that the tenacious attachment to liberalism has been a default option for societies that lack the coordinating capacities for reinvention. Thus we must analyse the social relations of production and their capacities for the collective renegotiation of new regulatory organising principles. or what Jessop refers to as ‘economic imaginaries’ (Jessop 2010).

The persistence of liberalism after the global financial crisis reflects on the broader question of how countries make the transition to new regulatory regimes. A great advantage of regulation theory is its provision of an institutional analysis of the origins and mechanisms of economic transformation, as it roots change in the contradictions of capitalism and class conflict over the management of these contradictions (Dannreuther and Petit 2006). Yet regulation theory has traditionally emphasised material relations to the exclusion of information exchange: a somewhat determinist reading suggesting that regimes of accumulation emerge from technological change, and that the emergence of a new regulatory principle reflects major shifts in the organisation of capitalist production. These materialist accounts are challenged by those who suggest that new regimes, while constrained by the material base, are born of political struggle (Lipietz 1987; Aglietta 1987).

Recent significant advances in regulation theory have focused on the definitive role of ideas in transforming the regulatory regime (Dannreuther and Petit 2006; Jessop 2010). At points of significant economic disjuncture, ideological transformation contributes to the emergence of new modes of regulation. In this vein, Jessop (2010) suggests that ‘semiosis’ and the construction of economic images play a key role in the reconstruction of social relations and the espousal of new regulatory principles, which point the way forward to recovery from the crisis of the prior order. Yet while economic images certainly sow the seeds of new regulatory orders, they must fall on fertile ground: these transformative ideas not only reconstruct social relations, but their successful adoption is predicated on the institutional context in which they are offered. Institutions – and especially those networks that trade in the exchange of information – should have a profound impact on the evolution to the next regulatory order (Kessler 2006).

Certainly the importance of the social structures of accumulation, or institutional structures providing the socioeconomic environment for accumulation, are an important tool for regulation theory analysis in accounting for the evolution of new of regulation (Bowles, Gordon and Weisskopf 1990). But the theory has historically focused more on the institutional context’s mediation of class conflict in the production sphere, and less on its capacity to foster class coordination in the political sphere. Yet the capacities of the diverse classes (and class segments) to reflect collectively on emergent economic challenges and ideas should have a powerful influence on the adaptation of new regulatory organising principles. The capacity to adjust to capitalist crisis tendencies at each critical juncture should be broadly informed by the institutions for collective negotiation that permit or work against the collective endorsement of the new regulatory ideas that emerge with the shifting economic climate (Martin and Swank 2004). Two institutional features of advanced societies, in particular, matter to countries’ capacities to respond to the crisis: the organisations for labour-market coordination, and the public sector.

First, the institutions for labour-market coordination are crucial for laying the groundwork for class conflict. Moreover, in social-democratic countries, these institutions were important locations for sustaining relative equality against the ravages of neoliberalism before the crisis, and are likely to continue to play an important role thereafter. As Duane Swank and I (2012) have shown elsewhere, highly coordinated peak business and labour organisations have combated market inequality and dualism, and augmented investment in workforce skills. Highly organised corporatist business and labour associations aid government policy entrepreneurs in their efforts to reintegrate marginal groups into the core economy, and make firms more likely to support social protection, redistribution and relative levels of equality. The structure of associations shape employers’ preferences for social policies, and highly coordinated associations have a collective action effect, in fostering collaboration on the provision of skills with, for example, highly coordinated vocational training systems. Moreover, macro-corporatist associations have cognitive effects: employers have a range of possible interests, and highly organised business associations help employers recognise the profit-maximising benefits of social policies and bring them into contact with policy experts from other realms. Highly coordinated, centralised bargaining also produces wage compression and a narrow wage gap between the most- and least-skilled blue-collar workers. Wage compression motivates employers to eliminate low-skilled jobs, and provides a rationale for business to support high levels of vocational training, and unemployment insurance to encourage workers to invest in specific skills. These effects are especially important to investments in policies for marginal workers, and countries with high levels of macro-corporatism have the highest levels of spending on active labour-market programmes, redistribution and relative equality (Martin and Swank 2004, 2012).

Second, the state sector is an important location for conflict and negotiation about policy solutions to the instabilities of capitalist transformation. Countries with large and capacious public sectors sustained higher levels of labour market coordination before the crisis, and these are likely to ease the pain of the economic transformation as well. A large public sector creates higher levels of employment (and eases the task of employing low-skilled workers), provides supply-side benefits of training, and reduces reliance on social assistance (thus diminishing zero-sum conflicts between skilled and unskilled labour) (Martin 2004; Martin and Thelen 2007). While large public sectors give rise to fears that they may be a drag on private investment and a source of budgetary deficits, high levels of public spending have a multiplier effect and create higher levels of employment. In contrast, tax increases during times of slow growth, intended to balance the budget, constrain both employment and GDP growth (Riedl and van Winden 2001).

Bureaucrats in the Scandinavian countries with large public sectors have demonstrated a great need to improve productivity within the state sector, and to enhance the skills of low skilled workers, many of whom end up working within government. Faced with fiscal austerity, public bureaucrats turn to the social partners to help share in the pain of managing economic transition. Thus, a large public sector makes both public and private-sector employers more likely to employ the low-skilled, and more interested in developing the skills of these workers. In addition, because public-sector workers are predominantly female, both women and their employers recognise the special needs for welfare-state services for women, and prefer that these services not be linked to employment status. A large public sector gives the state the means to push social groups into coalitions for social solidarity, because public-sector unions and sectoral employers’ association gives state actors greater political power in collective bargaining forums. Private employers and workers, in fact, may become more willing to cooperate to preserve their jurisdiction against the intrusion of a large state: they are loathe to lose their own policy-making authority, and tend to participate in these state campaigns to stay in charge. Thus, a Danish association representative told me that ‘business and labor are like Siamese twins’ in seeking to preserve their jurisdictional authority against the state (Martin and Swank 2012).

Thus, even before the financial crisis, some countries resisted neoliberal attacks on the welfare state and the challenges of deindustrialization, and sustained relatively higher levels of equality. Countries with the highest level of coordination – where one might most expect the greatest departure from the old arrangements – had the most success in sustaining social pacts among business, labour and the state.

The Scandinavian response to the global financial crisis

This section discusses the Scandinavian response to the global financial crisis, exploring in particular how the coordinating capacities of the Nordic countries have aided in protecting against exposure to the crisis and in moving toward a new regulatory regime. At the outset, it is important to note that the financial crisis has had quite a powerful negative impact on economic growth and employment in Scandinavia, as in other countries. With the sharp contraction of private consumption, GDP growth in 2013 is projected to be 2.8 per cent in Sweden, 2.6 per cent in Norway and only 1.4 per cent in Denmark, compared to 2.6 per cent in the USA and 1.9 per cent in the UK (OECD 2012, ‘Real GDP’, Employment Outlook, Table 1). In Scandinavia, celebrated as an employment miracle a few years before, unemployment also increased precipitously, although the levels are comparable to post-crisis rates of unemployment among liberal countries as well. In 2013, unemployment is projected to be 7.5 per cent in Denmark, 7.6 per cent in Sweden, and 3.2 per cent in Norway, compared to 7.6 per cent in the USA and a huge 9 per cent in the United Kingdom. Continental countries – with the worst rates of unemployment before the crisis – have performed with varying rates of success since the crisis. Germany is projected to have unemployment at 5.2 per cent in 2013, France, 10 per cent; and Italy, 9.9 per cent (OECD 2012, ‘Unemployment Rates,’ Table 13).

Denmark, for example, enjoyed very high rates of economic and employment growth until the summer of 2008, but after the crisis, it endured a sea change from being noted as one of the most vibrant economies in the world to joining other countries in having much slower rates of economic growth and much higher rates of unemployment. Exports fell dramatically in Denmark, in part because Sweden, Norway, and the UK engaged in currency devaluation; but exports began to stabilise after the initial drop. Sweden’s export economy also suffered greatly with the crisis, and youth unemployment significantly exceeded the EU average in 2009 (Loven 2010).

Yet while the immediate figures on economic and employment growth appear bleak, the Scandinavian countries have managed to persevere in other ways. Financial deregulation was more muted in Scandinavia to begin with, and leading banks have made major gains in market share in the wake of the crisis (Carr 2010). Sweden had gone a long way in terms of deregulating the financial sector in the 1980s, with the reduction of lending ceilings and government bond requirements; however, a rapid decline in asset values in the early 1990s caused a crisis of the banks’ bottom lines, when the large banks could not meet their regulatory capital requirements, and a liquidity crisis ensued. Sweden rather dramatically interrupted its trajectory of financial deregulation after this banking crisis, and brought together a group of financial experts and major stakeholders across the political spectrum to put into place a new regulatory system. These consensual negotiations – with broad societal support – permitted a very rapid response in which the needs of the banking system were placed above the interests of bankers and shareholders, and transparent rules were implemented to protect against future financial instability (Bayram, DeWit and Steinmo 2011). The Swedish state assumed control over banks in exchange for an influx of emergency cash, and then sold off its holdings after the crisis had passed (Jackson 2008), later implementing a bank ‘stability’ fee to help banks manage their own recovery (Saltmarsh, 21 January 2010). Denmark was the first country to guarantee all its deposits and liabilities in sound banks, and though it initially endured a run on the kroner, it successfully defended the currency. Parties joined forces to approve of the plan, which the New York Times (27 October 2008) attributed to Denmark’s being a ‘well-governed nation’. The Danish bailout plan won high praise from the EU, as the Danish government promised to guarantee all deposits in sound banks, and Denmark repaid much of its foreign debt (EIU Views Wire 2009.) The Lausanne Institute for Management Development ranked Denmark number one in regard to its response to the crisis (Financial Times, 25 February 2009).

The institutional capacities for coordination have been important to these countries’ capacities to recover, and the Scandinavian countries with the largest public sectors have surprisingly fared the best in offsetting budget deficits. High support for the tax state meant that these countries largely enjoyed budget surpluses before the crisis; therefore, the budgetary implications were not as severe as they were elsewhere. For example, Denmark had an estimated surplus of 3.3 per cent of its GDP in 2008, and Sweden’s was 2.2 per cent. Although governmental budgets worsened across the world, by 2013, Sweden is projected to have a surplus again of 0.3 and Finland of 0/0 per cent of GDP; while the other countries are in deficit: Denmark is projected to be at -2.0 per cent, the USA -6.5; the United Kingdom -6.6; Germany at -0.6, and France at -3 per cent of its GDP (OECD 2012, General government fiscal balances, Economic Outlook 91, Table 27). European countries with deficits of less than half the EU average (of around 9 per cent) include Norway, Finland, Denmark and Sweden (as well as Switzerland and Hungary), and these are not expected to have any fiscal consolidation after they have ended temporary fiscal stimulus packages. In comparison, neoliberal countries comprise many of the OECD countries with more than the EU average: these include the USA, the UK, Ireland and Spain, and these are expected to require seven years of fiscal consolidation. Finally, the countries with a medium level of coordination tend to have a medium amount of financial deficit (defined as greater than 4.5 per cent but less than 9 per cent), and are expected to require three years of consolidation. These include countries such as Germany, France, the Netherlands, Austria and Italy, as well as Australia and Canada (OECD 2008, Economic Outlook 85: 231). Coordinated economies with proportional party systems typically have strong fiscal controls in place to prevent the run-up of debt that can accompany multiparty legislative decision-making; these countries rely less on fiscal policy responses to business cycle crises, and are in better shape now (Carlin and Soskice 2008).

In part, the lower budget deficits reflect the struggle by Scandinavian countries to improve public-sector productivity over the past few decades, and this effort has been a source of strength in the current crisis. Beginning in the 1980s, politicians on both the left and right have urged that municipalities adopt a New Public Management philosophy in order to become more productive, and local governments have been given block-grants to allocate public funds among various social goals. Municipal employers were perhaps even more inspired to enhance public-sector productivity and to augment skills than their counterparts in other countries because with low rates of unemployment, it was more likely that they would be forced to hire low skilled workers (Martin and Thelen 2007).

Scandinavian countries have also pursued a Keynesian fiscal policy in the wake of the crisis, to the end of stimulating economic growth rather than cutting budget deficits. After restoring liquidity through the banking intervention, Denmark passed a tax cut to stimulate the economy – from 63 per cent to 55 per cent in the top bracket. Denmark planned to compensate for the tax cuts by increasing taxes on pollution and energy consumption, although it has held back from implementing these tax increases in order to avoid depressing the economy further (‘Denmark plans tax cuts to spur spending,’ Financial Times, 25 February 2009). According to Sweden’s chief economist, investments by municipalities were an important economic stimulant, especially since this export economy is so vulnerable to international markets. Moreover, local governments managed to engage in economic stabilisation policies without excessive deficits, so that only 26 of the 290 municipalities produced deficits for 2009 (Chefsekonomens blogg, 2010). In sharp contrast, UK Prime Minister David Cameron sought a major scaling back of the social gains of the Blair years, although he later retreated significantly from some of these early plans (Beckett 2010).

Although the significant industrial restructuring prompted by the crisis has put stress on industrial relations, the social partners have largely managed to sustain processes of negotiated bargaining, and have advocated creative non-zero-sum policy solutions to the new climate of economic scarcity. Indeed, the macro-corporatist countries’ greater capacities for coordination have been a boon to their responses to the financial crisis. Moreover, the BMI ranks Denmark as the second-best business risk environment in the world, and Norway the fifth, whereas Britain comes in at number 11 (BMI 2012: 27).

Both Denmark and Sweden decentralised collective bargaining in the 1990s; however, both retained high levels of coordination, unionisation and social partner involvement in significant policy-making projects. The Danish social partners moved to establish framework agreements in the late-1990s that coordinated wage movement across sectors. The most recent collective bargaining round was more stressful than prior rounds concluded during economic prosperity, but the centralised bargaining model endured, and the social partners have struggled to find creative ways to cope with the reductions associated with recess (Jørgensen 2010).

In Sweden, the stresses of the financial crisis and subsequent restructuring also appeared in the most recent collective bargaining round: for example, the Swedish Service Employers’ Association has said that the Swedish system for resolving industrial conflicts is outdated and that industrial relations should become more flexible (Loven 2009). The Association of Swedish Engineering Industries left the bargaining round, which deeply angered both employers and workers in other parts of the economy. Ultimately, however, the main associations on both sides made serious concessions to cope with the economic crisis: the Confederation of Swedish Enterprise (the main employers’ association) accepted about half of the wage increases demanded by the Trade Union Confederation (Landsorganisationen i Sverige, or ‘LO’), and a broad collective agreement was achieved survived despite fiscal stress and industrial restructuring. Some analysts concluded that the greatest victor was the model itself (Kullander and Henriksson 2010).

Right-wing parties have made ideological attacks in some of these countries, but macro-corporatism has contributed to the capacities of these countries to stay the course against such ideological attacks. For example in Denmark, a new partisan coalition on the right, the Liberal Alliance (formerly ‘Ny Alliance’), is committed to neoliberal, laissez-faire economic and social policies (most significantly tax reduction) and values of ‘individual liberty, personal responsibility and freedom from governmental restraints’ (see <www.liberalalliance.dk>). But both employers’ associations and unions have defended the system of social protections and worker retraining against threatened cutbacks by bourgeois politicians.

The Danish social partners’ capacity to resist right-wing party policies were in evidence even before the financial crisis – for example, when Anders Fogh Rasmussen’s Liberal Party gained control of the government in November 2001 and sought to engineer a neoliberal makeover. The government sought to create greater freedom in the labour market (and, consequently, to erode the social partners’ control of the industrial relations system), and to create more private social benefits (and, consequently, to expand dualism in social provision) (Statsministeriet 2001).

Resisting an erosion of their jurisdictional authority, the social partners resisted these neoliberal reforms. For example, Fogh Rasmussen proposed cutting back the amount spent on ‘activating’ individuals in active labour-market programmes by 1.5 billion kroner (Statsministeriet 2001). Both the peak union (LO) and the Confederation of Danish Employers (Dansk Arbejdsgiverforening, or ‘DA’) strongly objected to the budget cuts in active labour-market policy, fearing that this would result in bottlenecks. Thus, according to the DA’s Tina Voldby, this move would risk putting many into long-term unemployment, and could cost more in the long run (‘LO og DA enige i kritik af besparelser’, LO Aktuelt, 10 January 2002). The bourgeois government proposed legislation to give individuals a statutory right to work part time, which would not fall under the rules of collective bargaining, and this move prompted severe criticism by both employers’ associations and unions (Statsministeriet 2001). The DA testified to Parliament that a law guaranteeing the implementation of the part-time directive was acceptable only if it built on a negotiation by the labour-market partners and guaranteed a directive at a minimum level (Muntzberg, 10 January 2002). The DA’s director, Jørn Neergaard stated to the Danish paper, Extra Bladet, that the part-time legislation was an ‘intrusion into the free system of negotiated talks and collective bargaining’. Dansk Industri joined LO in signing an open letter to Parliament, protesting that politicians had no right to legislate when collective agreements had already been concluded. The LO applauded the DA’s criticism of the reform (‘LO tilfreds med DA’s kritik af deltidsforslag’, 11 March 2002).

Flexicurity as a successful coordination process

Since the financial crisis, the peak employers and labour organizations have worked hard to offer innovative and non-zero-sum solutions to the unemployment generated by the financial crisis, such as job-sharing arrangements, and in warding off the political assaults on the welfare state by neoliberal forces on the right. ² Employers and workers have been exploring job-sharing arrangements rather than advocating major welfare-state cutbacks. Two of the leading socially responsible Danish companies, Grundfos and Danfoss, began job-sharing arrangements in 2009. The National Labour Market Authority (Arbejdsmarkedsstyrelsen) reported that 107 companies issued pink slips in early 2009, compared with 21 in 2008; however, job-sharing had increased from 33 cases in 2006 to 500 in the first two months of 2009. The social partners, DA and LO, jointly asked the government to take the lead in developing more flexible work-sharing rules, so that companies could be protected from making deeply invasive cuts. In March 2009, the government proposed faster access to training, a national alert system, expanded monitoring of labour-market trends and more flexible rules for work-sharing: for example, employees would be permitted to work for two weeks and then take one- or two-week’s leave. But both employers and workers expressed dissatisfaction that the government’s efforts to create more flexible work-sharing rules did not go far enough. Peter Norman (Danfoss’s HR manager) explained, ‘We have reached a point where it is almost impossible to fire people without hurting the company deeply. Only core competences are left, and if they are lost it will be very difficult to recover when the recession turns and the capacity of the industry will be needed again’ (Jørgensen, 1 June 2009).

While employment has declined since the crisis, many Danes have continued to receive high levels of worker retraining, and the safety net remains strong. The active labour-market policies put in place in the 1990s, which sought to take people from passive welfare roles and to reintegrate them back into the core economy, have a more difficult time working in an economy dominated by high unemployment. Yet there has been less pain than one might have predicted: indeed, the Danish model of ‘flexicurity’ was intended to work precisely as macro-economic events have predicted. In a flexible labour market with very few labour-market regulations, firms can hire and fire at will. This flexibility tends to elevate employment during periods of rapid economic growth, but depresses employment more rapidly during recessions. Steen Bocian, the chief economist of Den Danske Bank, noted that while employment in Denmark fell more rapidly than the EU average in 2009, production levels fell in other countries at a similar rate, but labour-market rigidities prevented lay-offs (Elmer and Hansen 2010).

Thus, in the face of the economic crisis, Danes are much more optimistic about getting another job than citizens of other countries, and brief periods of unemployment have a more limited significance. Danes feel more secure in their work; even though they lack job security, they have broader employment security, according to economist Per Kongshøj Madsen, a major proponent of Danish ‘flexicurity’. Thus 67 per cent of Danes believe that they would find a new job within six months if they got laid off, compared to only 45 per cent of all EU citizens (Hansen 2010).

Sweden has a somewhat more rigid labour market than Denmark, but in the past decade both employers and workers have been fascinated with the Danish flexicurity model. Thus the Confederation of Swedish Enterprise called for ‘more Danish design’ in the construction of the economy (Ludvigsson 2006). Since the crisis, the Swedish bourgeois government has moved toward greater centralisation of the labour market-board, in an explicit recognition of the failed experimentation with private service delivery, a central principle of the neoliberal new public-management philosophy. Thus while devolution to private service providers was once considered a way to improve the efficacy and efficiency of the welfare state, centralised government control came back into fashion after the crisis (Niklausson 2011).

Flexicurity has advantages in advocating a spirit of Schumpeterian creative destruction, and some parts of the Scandinavian economies are making the most of the crisis with industrial restructuring. With limited labour-market rigidity, there are weaker impulses to succumb to ‘lemon socialism’. A movement has been afoot in Denmark to take advantage of the crisis in restructuring the economy by making the economy more ‘green,’ both to cut back damage to the environment and to boost the economy by achieving more efficient use of energy. The social partners have, in fact, been more proactive in this regard than the bourgeois government: government-issue policy packages to spur lending had no ‘green’ aspect; and an environmental bill (‘Green growth – a green vision of growth for nature, environment, climate and agriculture’) set a priority on environmental protection, but largely ignored energy concerns and economic growth. In sharp contrast, much more aggressive interventions were advocated by the Environmental Economic Council (Det Miljøøkonomiske Råd), an advisory board made up of business, labour, environmental and government representatives, which felt that the government’s interventions were insufficiently ambitious and largely covered by EU directives (Jørgensen, 8 September 2009).

Danish firms are benefiting from strong institutions for business-government coordination during these troubled times; thus the Danish Ministry of Foreign Affairs declared the crisis good for Danish energy companies, because vibrant public-private cooperation would improve firms’ competitive positions (‘Financial crisis is good for Danish energy companies’, 28 October 2008).

The Swedish government has been criticised by the social partners for failing to integrate sufficiently the tasks of jump-starting the economy with a stimulation package for immediate job creation, and of advocating for green industry, with extensive environmental plans. These two ambitions have been most successfully unified in the Swedish automobile industry, where the state invested €273 million in a joint-stock company for auto R&D, and offered credit guarantees for loans by the the European Investment Bank to firms that would adopt green technology (Olsson, 2009).

Conclusion

This essay reflects on the impressive cross-national variation in national trajectories after the financial crisis, and more broadly, on the processes by which regulatory regimes change in response to new economic challenges. Specifically, while many advanced industrial countries have clung to neoliberal tenets by rejecting expanded state controls and cutting social protections, the Nordic countries have sustained comparative equality and strengthened their reliance on government in this moment of adversity. Path dependence undoubtedly has made the Scandinavian task of responding to the crisis easier: financial deregulation was simply more muted before 2008, and this more limited experimentation in neoliberalism protected the Nordic lands (except, of course, Iceland) from the worst ravages of the crisis.

Yet I suggest that the Nordic response was also shaped by the high levels of cooperation among labour, employers and the state, which reinforced rather than allowed the erosion of social pacts. The processes of renegotiation also benefited from these countries’ institutional capacities to renegotiate the regulatory system, and to forge new commitments in the heat of the crisis. The Scandinavian countries have begun to use the crisis as an exercise in creative destruction – to move toward more solid economic footing and green technologies while protecting their citizens from the worst insecurities of the transition. While it is unlikely that any strong state (or strong societal institutions) can eradicate all capitalist crisis tendencies, the social-democratic accord – with its high levels of coordination among the social forces of production – seems to prove an appealing alternative at this critical juncture.

The case of the 2008 financial crisis is informative in its insights into the processes of regulatory regime change. While path dependencies clearly lay down a track for future policy incarnations, moments of economic and political upheaval permit a broader repertoire of response. Capacities for reinvention are shaped by the institutional arrangements connecting the social partners which influence the types and range of adaptation; and ultimately, these different processes of adaptation and adjustment – delimited by societal patterns of engagement – shape whether a country is capable of profound redirection, or whether it must be satisfied with a more limited set of responses. The social embeddedness of regulatory adaptation makes the Nordic model exceedingly difficult to produce elsewhere. In the wake of the global financial crisis, liberalism has been the default option and the one chosen by countries lacking the state and societal power to pursue a more imaginative route to regime transformation.

Moreover, in the long term, it is not certain that Scandinavian countries or any nation state can survive the pressures of international economic and political integration (Ryan and Worth 2010; Munck 2007). A main challenge for regulation theory has been to appraise the intersection of national modes of social regulation and international economic forces in a way that transcends the boundaries of the nation state (Dannreuther and Petit 2006). National policy-making systems are embedded in and swamped by larger contestations of the social classes, and international capital flows, for example, do not halt at national borders. It is not even clear that the European Union has the capacity to preserve social-democratic ideals against the encroachment of liberalism (Strange and Worth 2007: 2). Thus, it is too early to say whether the deepening crisis is a blip in the cyclical fortunes of capitalism, or a longer-term structural breakdown.

In a more profound sense, while the Nordic havens of social democracy may seem to be the most appealing show in town in sustaining a comparatively large measure of social solidarity, one wonders: ‘Solidarity for whom?’ Are we only concerned about the insular countries of Western Europe, or should we worry about a broader cross-section of humanity? Perhaps the financial crisis reinforces our beliefs about the benefits of coordination and a strong state, but one wonders what will be the impact of the end of finance capitalism on the citizens of the world beyond Fortress Europe. The ultimate challenge of social democracy is to perpetuate equality beyond the North–South divide.