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The Rise of Finance and the Decline of Organised Labour in the AdvancedCapitalist CountriesJohn Petersaa Dept of Political Science, Laurentian University, Canada

First published on: 05 November 2010

To cite this Article Peters, John(2010) 'The Rise of Finance and the Decline of Organised Labour in the Advanced CapitalistCountries', New Political Economy,, First published on: 05 November 2010 (iFirst)

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The Rise of Finance and the Declineof Organised Labour in the AdvancedCapitalist Countries

JOHN PETERS

The goal of this article is to provide a comprehensive evaluation of the impacts offinance and corporate governance reforms on organised labour since 1980. Theargument is made that contemporary institutional and Varieties of Capitalismas well as Varieties of Unionism perspectives on labour market reform haveoverstated the power of states, institutions and organised interests in deflectingglobal economic pressures. Drawing on a range of recent Organisation for Econ-omic Cooperation and Development (OECD) statistics and qualitative studies, it isclaimed that current developments in finance and corporate governance mark afundamental break with post-war developments. Capital has reasserted itspower over organised labour and labour markets not only in the US and UK,

but throughout Western Europe as well. In assessing how far this reversal hasgone, the article focuses on three key political economic changes: i) the rise infinance and adoption of corporate shareholder systems; ii) the expansion ofmergers and acquisitions and their negative effects on unionisation and manufac-turing jobs; and iii) the effects of financial pressures and corporate reform on col-lective bargaining and wages. This is the first study to report on comparativechanges and qualitative reforms to both finance and labour in 13 OECD countriesbetween 1980 and 2005.

Keywords: Finance, corporate governance, labour market, labour unions

Since the 1980s, the scope of changes to finance and labour has generated a greatdeal of debate among observers. For some academic analysts, the impacts of econ-omic globalisation have been exaggerated, and despite unemployment and risingpension problems, it is argued that firms and labour markets have made only incre-mental adjustments to competition, and countries have not converged towards aderegulated, American-style labour market.1 Instead it is commonly claimedthat there have only been gradual and incremental changes to the worlds offinance, production and employment, in large part because of the slowly changing

New Political Economy, iFirst, 2010

John Peters, Dept of Political Science, Laurentian University, Canada. Email: [email protected]

ISSN 1356-3467 print; ISSN 1469-9923 online/10/000001-27# 2010 Taylor & FrancisDOI: 10.1080/13563461003789746

New Political Economy, iFirst, 2010


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nature of corporate governance and wage-bargaining systems, as well as becauseof the importance of politics.

Most typically in a range of work that draws on institutional and Varieties ofCapitalism (VOC) approaches, it is claimed that despite recent changes tofinancial markets, European companies are still run on the basis of patientcapital long-term bank financing, family ownership, cross-shareholdingamong companies that props up less profitable industrial branches, and, in somecountries, government ownership and control of large firms that ensures financialand employment stability.2 Even where finance has changed, it is argued that firmstructures, corporate governance models, and wage-bargaining institutions haveremained largely intact.3 Moreover, it is noted that countries have enacted arange of policy responses to unions, collective bargaining, public sector employ-ment, early retirement, and employment protection policies that have underpinnedlabour markets and employment growth (Thelen 2001; Brady 2007). Unions too

have continued to play major roles in everything from workplaces, to wagebargaining arrangements, to politics, especially in Western Europe, whereunions have signed partnership agreements or in some cases nationalsocial pacts to protect jobs and improve social distribution in return for wagerestraint and competitive changes to industrial relations (Frege and Kelly 2004).

Looking to add to this debate, the goal of this article is to provide an assessmentof what has happened to finance, firms and labour markets since the early 1980sand what were some of the impacts on organised labour. It goes beyond thetypical contemporary concerns of standard literatures to explore changes tocapital markets and stock markets over the past 25 years, and examines their

impact on corporate governance systems and labour markets throughout 13countries in North America and Western Europe. It looks at how the widespreadcorporate adoption of shareholder value led many companies to restructure andchange their employment practices. Finally, it seeks to broaden the discussion offinancial and corporate change by assessing their effects on unions, industrialemployment, collective bargaining, wages and wage share.

The argument is made that there are good reasons to be sceptical of argumentsabout the positive or negligible impacts of finance on the real world of workand labour. Over the past three decades, new forms of finance in everythingfrom hedge funds to collateralised debt obligations not only gave investment

banks the ability to make billions of dollars in stock and bond markets. They alsogave business equal opportunity to reform corporate governance and restructurefirm operations in order to boost profits and lower wage costs. Twenty years ago,business used to finance itself from commercial bank loans. Now the vast majorityof large companies use combinations of debt and equity for financing. Moreover,under pressure from shareholders and hedge funds for better earnings, as well asdirected by Chief Executive Officers (CEOs) on short-term contracts with compen-sation tied to share prices and bonuses, the vast majority of companies have adoptedmuch more aggressive and much more short-term investment and managementstrategies.

What these changes have meant is more sharp entrepreneurs using debt to buyout other businesses, restructure entire operations and lower labour costs bycutting good jobs and expanding low-wage employment. It has also meant more

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multinational corporations (MNCs) focusing on driving down costs and maximis-ing the flow of profits to stockholders. Many firms have revamped their operationsalong more short-term shareholder lines and sought to rewrite collective agree-ments.4 On top of this, as financial volatility has increased, rather than investingmuch in the way of new capital many North American and European employersfound it more profitable to adopt one of two strategies: either add minimalcapital, downsize the workforce, cinch down wage costs, and intensify productionwhile using finance to boost dividend shares; or, as in many labour-intensiveprivate service industries, simply add low-wage workers and extend workingtime rather than capital stock.5

At the same time, even if many unions adopted a range of responses some ofthem modestly successful in retaining benefits like pensions on the whole capitalhas been far more adept in shifting its share of income and in restructuring industrialand employment relations to increase profitability. Over the course of the 1980s and

1990s, when faced with employer demands for concessions, wage rollbacks, andgreater workforce flexibility, many unions tried out new bargaining strategiesbased on partnership and wage and benefit concessions, hoping that new invest-ment and new training dollars would protect jobs and ensure job security. Unfortu-nately, such strategies have often only opened the way for employers to hire evenmore workers on the cheap. Union density has continued to decline, and decen-tralised bargaining has often fragmented organised labour, directing permanent

jobs with good benefits towards an ever shrinking few. Neither social pacts nor part-nership deals with employers have slowed job loss or prevented the decline oflabours wage share of income. And of even greater concern is that as organised

labour and its political coalitions have fallen into disarray, governments haveenacted a number of changes to labour relations and employment protection thathave not only lowered wages and worsened jobs, but have made labour movementseven weaker and the economy more fragile.

In assessing how far this reversal has gone, this article updates quantitative andqualitative data on finance and labour to show how widespread the fundamentalshifts in the balance of political economic power have been over the period1980 2005. Examining 13 Organisation for Economic Cooperation and Develop-ment (OECD) countries here that are most representative of Nordic and continentalEuropean social market economies (SMEs) as well as the Anglo-American

liberal market economies (LMEs), the article provides an assessment of howfinance has developed new assets, and business has subsequently created new man-agerial strategies across a range of political-economic regimes. Focusing on threekey changes: i) the rise in finance and reforms to corporate operation; ii) the expan-sion of mergers and acquisitions and the subsequent decline of industrial jobs andunion density; and iii) the growth of finance and its impact on weakening collectivebargaining, wages, and wage share, the article claims the rise of finance and devel-opment of shareholder corporate governance has forced unions into retreat.

Global finance and the spread of shareholder capitalism

The push to drive down costs and maximise the flow of profits to stockholdersbegan in earnest in the 1980s and 1990s, as governments sought to restore

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profitability by curbing inflation and labour movements. With the rapid decline inprofits and equally rapid rise of inflation in the 1970s, North American and WestEuropean governments moved to liberalise finance and deregulate the banking andfinancial sectors in order to increase the reach and size of capital and at the sametime increase the competitive pressures to boost profitability and raise productivity(Dumenil and Levy 2004). As a number of scholars have shown, with the fallin profitability and the rise of inflation in the 1970s, there was a dramatic turntoward neoliberalism across advanced capitalist countries. The decline in profit-ability in the 1970s and the 1980s set off a strong push by corporate managementand financial markets to improve bottom lines. In this section, I present evidenceto support the proposition that changes to finance and corporate governancehave been common throughout North America and Western Europe over thepast 25 years.

Among the key moves advanced industrial economies enacted to counter stag-

nating economic demand, states first underwrote ever greater volumes of debt, andby the late 1980s, when this had failed to boost demand and stimulate profitability,they adopted more powerful forms of stimulus. Lowering interest rates in the 1990sto historic lows, advanced industrial economies boosted unprecedented amounts ofhousehold borrowing for mortgages and consumer goods that fed into rocketinghouse prices and further consumer borrowing (Brenner 2006: 316 23; Glyn2006: 536). Following the US lead, West European governments then enactedfinancial liberalisation and abandoned capital controls on foreign exchange andderivatives trading throughout the 1980s and 1990s. They went on to loosenrestrictions on the international buying and selling of domestic equity, with the

hope that capital market and product market liberalisation would boost foreignborrowing and investment, subsequently spur domestic enterprises to restructureand expand, and thereby increase profits and employment growth.

In Europe, the launch of the European Economic and Monetary Union (EMU) in1990 led all 12 participating countries to abolish exchange controls, and by 1999, 11countries gave up their national currencies for the Euro and a single capital market.Governments also signed investment treaties to water down foreign direct invest-ment requirements in order to spur competition and inflows of foreign direct invest-ment (FDI), and eased the restrictions on the types of assets and equities that pensionfund managers could invest in. In addition, states passed new laws allowing the

securitisation of loans that is, giving businesses the opportunity to packageloans into bonds that were sold on capital markets to pension funds and mutualfunds. Other reforms included the lowering of bank liquidity ratios, the repeal oflegislation on share buybacks, lower taxation on capital gains from equity sales,the legalisation of hedge funds, removing restrictions on foreign acquisition offinancial firms, and the abolition of tax on stock exchange dealings.6 Then, follo-wing European Union (EU) directives, most governments repealed legislationrestricting the foreign ownership of stock and equity.

Finally, government reforms to pension funds fuelled the rise in cross-borderequity flows and contributed to firms integrating financial and corporate oper-ations in the attempt to attain better stock prices. With the rise of private,defined benefit occupational pension schemes, trust, insurance and pensionfunds began to play larger roles in finance and equity ownership. Lobbying

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hard for deregulation of private and public pensions, the financial sector was suc-cessful in getting government to remove regulations that allowed them to invest incorporate equities and junk bonds rather than safe government bills. By 1998,defined benefit and defined contribution schemes managed by the financial ser-vices industry in the United States were worth 3.8 trillion (Blackburn 2002).With such enormous revenues at their disposal, American and British financialinstitutions poured their money into corporate equity. By 2000 financial insti-tutions (banks, investment banks, and pension funds) held 40 per cent of equityin corporate assets in the US and 50 per cent in the UK, and by 2005 foreign inves-tors led by the large pension funds and banks held 40 per cent of equity of publiclylisted firms throughout Western Europe.7

Across advanced industrial countries, the result was an explosion in the trade,financing, and purchase of corporate equity and bonds over the 1980s and 1990s(Table 1). In the Scandinavian countries, the deregulation of finance and pension

funds along with the opening of stock markets led to massive new inflows ofinvestment and equity financing. In Finland and Sweden, for example, the stockmarkets became among the most internationalised in the world, with more than66 per cent of equity owned by foreign investors in Finland and 41 per cent inSweden, primarily in the information and technology sectors (Yla-Anntila et al.2005). But, as Table 1 indicates, inward and outward stock flows of portfolioinvestment increased in many countries by over 400 per cent in 10 years 19902000 and are now at levels of 90 per cent of gross domestic product (GDP)throughout northern Europe.

Belgium, Luxembourg and the Netherlands led the way in experiencing

massive new amounts of financial activity. With its forgiving accounting andtax laws that allowed international holding companies to undertake ever morebaroque financial restructurings, Luxembourg was something of a special case.However, across North America and all EMU countries, gross portfolio flowsincreased dramatically as foreign institutional investors bought up the stock ofthe largest European MNCs, and private European firms sought to expand interna-tionally through mergers and acquisitions. The Nordic countries of Denmark,Sweden and Finland experienced the highest proportional increases in FDI debtand stock flows a more than 30-fold rise in the case of Finland, and a 25-foldincrease in Sweden. In contrast, the US only saw a doubling of financial activity

in stocks and bonds. However in absolute terms, US stock and investment flowshave until recently continued to dwarf all others, accounting for over a quarterof all global portfolio investment and more than a third of total OECD directinvestment outflows, giving the US financial sector the lead role throughout theworld (OECD 2005: 17).

The surge in flows of institutional money much of it buoyed by Americansub-prime mortgages converted into collateralised debt obligations alsoallowed private firms to expand and boosted many private equity takeovers (Fer-guson 2008). Taking advantage of investment firms and the rise of hedge funds,private firms throughout North America and Western Europe engaged in amassive splurge of buy-outs and new ventures. In 2005 about E72 billion wasraised in new capital in Europe, well over double the amount in 2004, and mostof that, E57 billion, was for buy-outs of existing firms (The Economist 2007).


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TABLE 1. The growth of FDI, stocks traded, market capitalisation (% of GDP), 1980

FDI Inward and Outward Flows a Stocks traded, total value

1980 1990 2000 2005 1990 2000 2005

Austria 9 34 55 45 11 5 15

Belgium 10.5 46.6 148.0 206.2 3 16 31

Canada 29.4 34.4 53.0 67.1 8 57 59

Denmark 9.2 12.4 92.5 88.4 3 171 142

Finland 2.5 12.0 63.5 70.5 9 82 69

France 7.4 16.2 53.8 66.8 29 56 63

Germany 8.9 15.7 43.5 51.3 4 71 63

Italy 3.6 10.9 28.0 29.2 13 175 121 Netherlands 34.4 59.6 148.2 160.7 12 36 66

Norway 11.2 20.0 44.4 50.0 7 161 130

Sweden 5.0 26.4 90.7 104.1 28 127 189

United Kingdom 26.8 43.8 92.9 98.2 12 89 76

United States 10.7 14.4 26.4 27.5 30 326 173

Mean 9.2 20.0 55.0 67.1 11.3 81.6 69.0

Sources: UNCTAD online database Handbook of Statistics Online,International Finance - Foreign Direct Investment, Inward and Outward FDI as percentage of GDP;World Bank, World Development Indicators Online; OECD Stan Indicators Database Online.

Note: (a): FDI stock flows include all sales and purchases of corporate equity and bonds by other companies, banks and i

for associates and subsidiaries, net sales of shares and loans (including non-cash acquisitions made against equipmenparent company plus the parent firms share of the affiliates reinvested earnings plus total net intra-company loans (shparent company.

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In 2000, the United States was still ahead of Europe in some aspects of globalfinance, like hedge funds and mutual fund assets. But by 2005, their rankingwas reversed Europe accounted for 46 per cent of corporate debt worldwide,North America only 43 (The Economist 2006). What all firms discovered overthe course of the 1990s and early 2000s was that there were many more waysthan banks or stock markets to raising money and grabbing market share above all hedge funds and corporate bonds that provided the quickest sources ofleverage for buy-outs and takeovers.

As Table 1 also shows, the other significant change in the 1990s was the rise ofstock markets throughout North America and Western Europe and the rapid turn-over of equity trading (as percentage of share trades by value against market capi-talisation). Throughout Europe, companies quickly drew on initial public shareofferings (IPOs) to raise capital, fend off takeovers, and allow executives tocash in their chips (The Economist 2007). So too did the expansion of foreign

MNCs as in Sweden and Finland lead to massive inflows of investmentinto domestic stock markets. Likewise, the privatisation of utility, financial andmanufacturing companies in France, Germany, Spain and elsewhere contributedto the boom in equity markets and the rise of traded firms and foreign ownershipas IPOs of public sector corporations often sold on the cheap were easy targetsfor cash rich foreign firms (OECD 2003). All were helped by investment banksand hedge funds that allowed financial and manufacturing firms alike to increasetheir debt to equity leverage ratios to record levels (Gowan 2009: 1015).

Equity markets as a result grew rapidly in both North America and WesternEurope throughout the late 1990s until finally sharply falling with a series of

global financial crises in the late 1990s and early 2000s. By 2005, even thoughmore firms were turning to private financing and bond markets for capital,market capitalisation rates had returned to earlier levels, with over 16 trilliondollars in the EU, and 25 trillion in the US, and even more notable was that inthe EU volumes of IPOs were about three times that of the US.8

As Table 1 indicates, despite the small dip in equity markets caused by theeconomic downturn in the wake of 9/11, over the past 25 years, the move byfirms to increase market capitalisation was widespread. Whether in NorthAmerica or Western Europe, publicly listed companies began replacing bankloans and internal financing with public equity and market-based debt (OECD

2006a: figure 5.2). Many companies also turned to the debt market for finance.In 1990, for example, there were just 610 hedge funds with $38.9 billion, butby 2006 there 9,462 with $1.5 trillion under managements (Ferguson 2008).Such financial markets allowed both private and public firms use debt marketsto finance mega-deals. With such easy credit available, more firms went privateafter 2001, and there was a small proportional decline of stocks traded andmarket capitalisation of publicly listed firms from former peaks.

But as Table 2 shows, by 20003 only in Austria did firms still rely predomi-nantly on bank loans for financing. Everywhere else, firms had turned to new com-binations of equity and debt, in order to buy up their own stock and pay outdividends, or pay off debts and merge with other global entities. As Table 2also indicates, over the past 20 years, the move by firms to increase market capi-talisation was widespread. Whether in North America or Western Europe, publicly


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listed companies replaced bank loans and internal financing with public equity andmarket-based debt. Helped along by banks that increasingly merged investmentand commercial functions and that lent money backed on the basis of ever morecomplex asset-back securities, firms used finance to expand and restructureoperations.

The biggest transformations came in many of the social democratic countries ofFinland, Denmark, Norway and Sweden, where businesses expanded their marketcapitalisation nearly three-fold and turned to bond and equity markets for finan-cing. In absolute terms, Austria saw the largest rise in market capitalisation, butin relative terms, as Table 2 reveals, Austrian firms by 2005 were still in theearly stages of adopting market based financing. Also notable is the UnitedStates long seen as the most advanced of shareholder systems for financing which also witnessed non-financial companies going into debt, and usingupwards of 70 per cent of their cash flows to buy their own stock to prevent take-over and maintain upward pressure on stock prices, while others used privateequity for expansion, leveraged buyouts, and stock buybacks (Crotty 2005: 979; Brenner 2006: 273).

Unsurprisingly, with the growth in firm capitalisation rates, equity tradingexploded. Seeking better rates of return and profit differentials, fund managersmoved quickly to dump underperforming shares for those with higher returns.Exempt from capital gains taxes or often indifferent to tax rates, institutionalinvestors rapidly turned over portfolios on the basis of short-term movements instock price (Blackburn 2002: 130; Jacoby 2005: 35). With investment banksbacking ever higher leverage ratios and often with investment banks themselves

joining in the speculative surges firms and traders alike bought and sold secu-rities with the belief that the asset-price boom would go on endlessly.

In the late 1990s, the competitive pressures were so intense to realise better ratesof return in the New York and London exchanges that many fund managers began to

TABLE 2. Firm finance: Loans, private equity, bonds, shares 20002003

Bank loans Pr-Equity Bonds Shares

Austria 67.0 0.0 22.9 10.2Germany 52.6 0.0 23.1 24.3

Norway 47.5 12.0 14.7 25.8

Italy 46.2 0.0 22.6 31.2

Netherlands 43.7 0.0 16.2 40.1

Denmark 43.4 0.0 37.1 19.4

Belgium 41.4 0.0 22.6 36.0

UK 41.4 0.0 11.0 47.6

France 39.8 0.0 19.1 41.1

Sweden 34.4 0.0 17.5 48.0

Canada 30.1 13.6 10.1 46.2

Finland 22.5 0.0 8.8 68.8US 15.1 24.9 26.5 33.4

Source: OECD (2006b: Figure 5.2).

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speculate heavily in equity and junk bonds, as well as in new technology stock,driving price/earning ratios to record levels and price bubbles that helped fundmanagers and corporate CEOs to record compensation, but did little to createnew capital or sustain growth (Henwood 2003: 187217). In New York, equitytrading went up ten-fold, rose five-fold in London, and increased more than nine-fold on the Paris/Euronext exchange between 1990 and 2005. Other countrieswith smaller exchanges saw less dramatic increases. But, as Table 1 highlights,common for all countries, with the sole exception of Austria, was the rise ofequity trading in search of better dividends and higher profits.

The consequences of this internationalisation of stock markets and asset own-ership on corporate operations and strategies were not only record levels of com-pensation for CEOs, bankers and traders, as well as a shift in income towards thefinancial sector. Just as profound were the impacts of financial development oncorporate operation and management. Because of takeovers or public listing,

North American and European MNCs rapidly found themselves under pressureto adopt financial planning to meet market expectations, as well as implementcapitalisation and restructuring strategies in order to grow and capture marketshare. In the US and the UK, the money poured by financial institutions (banks,investment banks and pension funds) into corporate equity led many non-financialcorporations to borrow heavily in order to buy their own stock so that dividendswould rise and meet investors expectations. Meanwhile, throughout WesternEurope, the majority of managers willingly burned up net present value tomeet short-term earnings benchmarks, and more and more firms sacrificed invest-ment for share buybacks and dividend payments.

As important, the rapid growth of secondary money markets and new capitalassets in real estate, as well as portfolio investments in currencies, bonds andstock futures, and financial derivatives put additional pressures on firms toachieve comparable rates of returns for shareholders. So too did the entry ofbanks and institutional investors into international lending and equity markets,place new demands on firms to generate cash-flows to justify companies floatingrecord amounts of corporate bonds and commercial paper and ever higher debtloads. By the early to mid-1990s, large projects from manufacturing and domesticenterprises had to meet the profitability benchmarks of institutional investors andprofessional analysts.

Some European firms were able to resist these financial pressures to increaseprofits and share dividends for a time. For example, even where firms increasedtheir stock issues and corporate debt, as for example with VW in Germany andPorsche in Italy (at least until recently), families and insider stockholdersretained control through dual share systems or ran a cascade of companiesthat allowed the tiny company at the top to continue to control all operations.In addition, many small and medium-sized enterprises, without direct access tocapital markets, were little affected by changes to finance and corporate govern-ance. They continued to work within long-term business networks, and underthe restraints set by collective agreements and vocational training systems.

However, by the early 2000s, financial and corporate reform was widespread.Mergers and acquisitions grew dramatically throughout the 1990s and 2000s,rising to more than US$1 trillion dollars in 2005, and typically led to managerial


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changes and corporate makeovers. As Table 3 shows, throughout Western Europe,firms sought to expand market share by acquiring others, with the total number ofmergers and acquisitions (M&As) for these 13 countries rising from 10,172 in1990 4 to 19,604 in 2000 5.9 Under new ownership, many firms bothpublic and private not only put in place new directors, but also institutionalisedindependent boards of directors with the responsibility of maximising shareholdervalue. Even where foreign firms were not successful in their takeover bids, dom-estic firms and conglomerates often undertook changes at the board level to meetthe challenges of takeover bids and better share price returns and cash flows.10

Consequently, firms especially those in competitive export sectors began toadopt new procedures for financial and strategic operation. Many introduced inter-national accounting principles and disclosure to investors. Many also instituted thereporting of business results by business sector and value-oriented performancetargets, all with the intent of evaluating division performance within companies

and forcing management to meet profit targets and continuously increasing pro-ductivity benchmarks. Anglo-Saxon models of technical budgeting proceduresand targets such as discounted cash flows and investment rate of returns for

TABLE 3. Trade union density and M&As, 19802005

Trade union density

a Mergers and acquisitions -sales b

1980 1990 2005 Change 1990 94 1995 99 2000 05

Austria 57 47 33 224 154 276 369

Belgium 54 54 53 21 280 405 589

Canada 35 33 29 26 750 1337 1688

Denmark 79 75 72 27 242 273 454

Finland 69 72 72 3 246 387 419

France 18 10 8 210 1132 1263 1793

Germany 35 31 21 214 1263 1690 2208

Italy 50 39 33.5 217 598 766 829

Netherlands 35 25 21 214 494 730 879

Norway 58 59 552

3 198 320 418Sweden 78 81 76 22 377 521 804

United Kingdom 51 39 28 223 1775 3104 3413

United States 22 15 12 210 2663 4294 5741

Mean 51 39 33 210 494 730 829

Sources: OECD 2004, 2006; UNCTAD, Foreign Direct Investment Online Database, (http://stats.unctad.org/fdi/)

Notes: (a) union density is union membership as a percentage of the wage and salary earners inemployment. These figures are based on the update and standardised measures of the OECD 2004,2006. It excludes active union members who are retired. It is also adjusted to count only one memberper person (first-job ratio), rather than union members who may work two or more jobs in the labour

force. It also excludes non-paying members or supporters outside the movement, students, self-employed, and is adjusted for the unemployed.(b) Mergers and acquisitions, by country and region, domestic sales.

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strategic long-term planning also became common place among companiesseeking to go international.

Moreover, to seal the incentive for corporate makeovers, it was increasinglycommon throughout Europe for corporate boards to tie CEO compensation tostock options and share price. In France, stock options were directed towardsthe top one per cent of executive employees. In Germany, stock options as com-pensation exploded among the top companies in the late 1990s, growing by morethan 100 per cent in the largest eight companies. By 2003 stock options accountedfor upwards of 61 per cent of total income for executives. Through these types ofmeasures, the corporate governance of many firms was significantly overhauled tomake corporate executives restructure their enterprises and hit annual earningstargets.11

Also overhauled were two-share systems that allowed families or a small groupof owners to run their companies on more long-term bases. Under shareholder

pressure often foreign companies as diverse as Electrolux in Sweden andthe Orkla Group in Norway abolished older preferential share systems in theattempt to raise share value as well as capital for expansion. EU directives foropen markets of corporate control led to even further changes in vote structures,with countries such as the Netherlands passing legislation abolishing unionvoice on supervisory boards, and giving shareholders full say on managementdecisions. Subsequently, shareholder groups in everything from the MNCs likePhillips and Corus to telecommunication giant KPN actively pressed managementto deliver greater value through sell-offs, outsourcing and closures. These moveshave meant that the principle of equal representation for capital and labour

within large companies has been largely eroded a trend mirrored throughoutEurope, as now some two-thirds of European companies apply the principlethat one share equals one vote.

The famous house bank relationships between German financial and manu-facturing firms was likewise changed. Under European Community (EC) require-ments, West European governments liberalised their banking systems byremoving barriers to entry of foreign banks. In response, banks consolidatedand began to cut ties with companies in order to enter in more lucrative investmentbanking and reform in ways that conform to open markets and shareholdersystems. Several large private banks reoriented to global investment portfolios,

and cut bank credits to large corporations. Others pulled out of directorship pos-itions in firms, fearing that too close relationships with firms would weaken theirreputation as objective financial service providers. Now many European banks nolonger maintain direct monitoring of firms despite continuing to hold significantshares and instead firms rely more and more on capital markets and equity forfinancing, and much less on long-term financing from banks.

Finally, what also made firms adopt shareholder capitalism corporate strat-egies were stock and capital market pressures. With the takeoff of better financialresults on many stock markets, large conglomerates especially found themselvespenalised on stock markets due to their lower returns on investment and com-paratively lower levels of stock market capitalisation. For example, inGermany, Europes largest engineering conglomerate Siemens still held ontothe belief as late as 1995 that patient long-term strategies would work, and that


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financial markets should not play a strong role. However by 1998, under marketpressure to increase stock value and cash flows, Siemens had introduced a new10-point programme that led to the sell off of divisions, layoffs of over40,000 workers, and by 2001 the targeting of all decisions towards companyvalue in the preparation of a public share offering in the United States.

Similarly, in France, stock market pressures forced corporate giants such asGroupe Danone and Suez-Vivendi after a succession of takeovers and the wide-spread dispersion of shares to sell off their cross-shareholdings, dismantle theirconglomerate structures, and lay off thousands, all in the effort to raise shareprices and boost dividends. With increasingly integrated international capitalmarkets, such developments have been widespread in Europe over the past 15years. Even where companies have retained insider or cascade ownership struc-tures and are still run by a few, corporate performance was strongly affected byshare value and the profit targets of investment and hedge funds. All such

demands have forced companies to push for even better profits and performance.

Finance, M&As and the decline of good jobs

What has this meant to labour? In most cases a great deal, and in most cases theimpacts have been largely negative. In general, the maturation and spread ofshareholder capitalism has led to changes in labour management and industrialrelations that have lowered wages and created poorer jobs. Finance-driven corpor-ate restructuring has also meant lay offs and systematic pressure to worsen collec-tive bargaining and weaken union power. Yet much of the literature influenced by

VOC approaches has continued to maintain that such changes were common onlyto the liberal market economies, while throughout Europe, unions were able touse collective bargaining, work councils or strong employee participation rightsto protect jobs and incomes.

With equity markets becoming more liquid throughout the advanced industrialworld, American as well as European corporate executives have typically soughtto do everything possible to boost profit and raise stock values. Some engagedinvestment banks and accounting firms to create new synergies in financing inorder to boost share price and increase executive compensation. Others laid offworkers, cut research and development (R&D), and increased production by

having the remaining employees work harder with existing capital. Others stillbought new companies in the attempt to realise economies of scale and protectmarket share through lay offs and international integration of operations (Headand Ries 2008).

One of the most common tactics companies used to achieve better returns in theface of new forms of finance and pressures from reformed corporate boards was toengage in a wave of M&As and then subsequently restructure operations andworkforces across regions and countries (Macaire et al. 2002; Pedersini 2006).Such restructuring has negatively effected manufacturing jobs and unionisedemployment throughout the majority of advanced industrial economies.

In the OECD over the period 1987 2001, M&A sales represented more than 82per cent of inward FDI, while purchases of foreign assets through M&A accountedfor 71 per cent of outward FDI (Brakman, Garretsen and van Marrewijk 2008: 5).

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In buying mode, corporations expanded their outward foreign direct investment11-fold from US$513 billion in the early 1980s to US$6.1 trillion by 2000.Over two-thirds of FDI in the 1990s was directed to the purchasing of companiesin other advanced capitalist countries, and despite a short decline of FDI inflowsinto the US and Western Europe in the early 2000s, by 2004 FDI flows returned tonormal levels, while OECD investments to the rest of world attained recordpeaks, pouring more than USD US$261 billion abroad. As Table 3 shows,within North America and Western Europe, the result of increasing FDI was asteady rise in M&As in all countries throughout the 1990 2005 period.

American companies were the largest overseas investors as well as largest hostto European and Japanese investors. Within the EU, cross-border M&As werewidespread, with French, German and Dutch companies the most aggressivebuyers, and British firms the most sought after purchases. Not content withsimply buying up existing assets, leading MNCs and growing numbers of small

and medium-sized enterprises in everything from chemicals to industrialmachinery, instruments and food expanded their operations abroad from174,900 affiliates in 1990 to 450,000 in 1998 and 866,119 in 2002, with wellover half located in South and South-East Asia (UNCTAD 2004: 45).

Subsequently, in response to the competitive pressures this financial and corpor-ate restructuring created, many global MNCs sought to reduce wage and overheadcosts throughout the various phases of production by introducing best-practicesthroughout their entire production chains by rationalising jobs and firm location.Most commonly this meant firms introducing new technology, downsizing firms,outsourcing, and intensifying output through lean production practices and nego-

tiating more flexible wage agreements, especially in sectors with stagnatingmarkets and large factories (Brewster et al. 134). Other firms simply failed torenew contracts, froze new hiring, and rapidly expanded their part-time andtemporary labour force in both home and subsidiary operations.

Theoretically, such actions were supposed to strengthen companies and createjobs, allowing the mother company to specialise in activities where its competi-tive advantages were strongest, while relocating other activities to subsidiaries,and taking advantage of the intra-firm trade of intermediary products or services.Apart from a few exceptional cases, the results over the past 25 years were muchbleaker for labour: the loss of good, often core industrial jobs and declining

unionisation. In their wake, many unions have engaged in concession bargaining,while others have signed collective agreements that split the workforce betweeninsiders and outsiders (that is, workers with full-time jobs, as well asbonuses and stock options, and workers with precarious jobs, poorer wages andfew benefits).

Mergers, closures and cutbacks explain a good deal of the loss of industrialjobs, which as Table 4 demonstrates was substantial. In 1980, there were approxi-mately 89.3 million industrial jobs throughout the Group of Seven (G7) countries.By 2005, there were fewer than 79 million, with the largest decline in industrialemployment coming in the United States and Western Europe occurring overthe period 20005 some three million in the US, and more than a million inEurope. Among the 13 countries here, only Canada, with the highest rate of popu-lation growth among advanced industrial countries, saw any substantial increase


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in industrial jobs. But Table 4 also reveals the widespread decline of industrialmanufacturing as a proportion of overall civilian employment, with the closureand turnover of manufacturing firms and the continued rise of financial andconsumer service industries. Even in Canada, the growth of industrial jobs wasentirely offset by the growth of non-union, private service jobs, as industrialemployment fell as a proportion of the labour force by 6 per cent. Overallthroughout the G7, industrial employment fell as a percentage of civilian employ-ment, from 34.5 per cent to 23.7 per cent, and in the EU industrial employmentmakes up only 27 per cent of the workforce.

The impacts of the loss of industrial and manufacturing jobs as well as share-holder capitalism on union density and organised labour are well known inCanada, the US and UK (Blackburn 2002: 13064; Henwood 2003: 2026).Over the course of the 1990s, with the maturation of shareholder capitalism andthe deregulation of commercial and investment banking operations, stock

markets exploded in all three countries, and firms loaded up on debt and equityin the attempt to realise better financial returns. Market capitalisation increasedas investment banks and pension funds cross-promoted shares, and as CEO com-pensation was tied to share value and stock options, firms focused on capitalgrowth and dividend payments as their top priorities and rapidly developed soph-isticated union-busting techniques to keep unions out.

Unsurprisingly, with these changes, in many American and British firms, aswell as US MNCs operating in Canada, the emphasis on financial returns fromequity markets percolated down to all levels of operation. Company time horizons

TABLE 4. The decline of manufacturing jobs

Civilian employment in industry (000s)

Industrial employment as

percentage of civilian

employment

1980 1990 2000 2005 1980 1990 2000 2005

Austria 1236 1260 1144.1 1053.4 40.3 36.9 30.6 27.6

Belgium 1269 1056 1063.5 1045.5 34.7 28.3 25.8 24.7

Canada 3138.6 3191.5 3327.4 3555.8 28.6 24.4 22.5 22.0

Denmark 750 726 712.0 653.0 30.4 27.5 26.4 24.1Finland 803 758 642.0 619.0 34.6 30.4 27.6 25.9

France 7664 6549 5718.0 5514.0 35.7 29.7 24.1 22.5

Germany 11592 11132 12200.0 10849.0 43.7 38.6 33.7 30.0

Italy 7699 6845 6766.9 6940.1 37.9 32.3 32.4 31.1

Netherlands 1563 1646 1588.6 1586.2 31.4 26.3 20.2 19.6

Norway 556 494 492.0 475.7 29.7 24.8 21.9 20.9

Sweden 1364 1310 1022.0 938.9 32.2 29.2 24.6 22.0

UK 9412 8667 6814.0 6224.0 37.6 32.3 25.2 22.2

United States 30315 31123 31500.0 28074.0 30.5 26.2 23.0 19.8

EU .. .. 59204.3 57984.8 .. .. 29.3 27.6

G7 89380.6 88797.5 86456.3 78906.9 34.5 30.3 26.7 23.7

Source: OECD. Annual Labour Force Statistics, Data extracted 26 May 2009.

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were shortened. Businesses adopted financial measures to determine internalcapital allocations. Most sought to reduce labour costs. This entailed everythingfrom businesses announcing lay offs to funding early retirement, to MNCspushing for new employer-friendly forms of collective bargaining andwatered-down employment standards and employment protection legislation.

Two of the most frequent responses of Canadian, American and British firms tofinancial pressures were lay offs or the closure of unionised workplaces and thetransfer of industrial activities into non-union regions (Pencavel 2004: 200;Moody 2007: 426). Helped along by trade liberalisation and tax cuts, employersin manufacturing, mining and steel, transportation, telecommunications, airlines,construction and car parts drove out unions by the thousands in the US and the UKover the course of the 1980s and 1990s. Traditional union strongholds were thehardest hit, with double digit losses in union density in mining, manufacturing,construction and public utilities.

The other customary response to market pressures was for domestic andforeign-owned unionised manufacturing operations to downsize, outsource, stripout managerial layers, shed thousands of jobs, and then buy other companies. Inauto manufacturing in the United States, for example, unionised membershipdeclined from 450,000 from the late 1970s to 73,000 in 2005 despite the factthat the number of auto production workers actually rose by some 200,000 overthe course of the 1980s and 1990s. Typically auto, auto parts and consumergoods manufacturers established production chains that contracted parts and com-ponent production to low-wage companies as well as to non-union contractors innearby states or provinces within advanced countries. Takeover firms and new

boards of directors then shed peripheral operations and laid off employees tolower wage costs.

Now less than 23 per cent of all US autoworkers belong to a union, with thelargest expansion of Japanese and foreign auto manufacturing in the US south,where right-to-work open-shop legislation effectively prohibits union organis-ing. In the UK, with similar openshop union legislation, new firms in everythingfrom manufacturing to low-end service work were nearly twice as likely over thepast 20 years to open non-union workplaces, and have rapidly increased their useof non-standard, part-time and temporary employees to drive down wage costs(McGovern et al. 2004).

In Europe, the impacts of financial pressures, industrial restructuring andM&As on industrial decline and organised labour have been slightly morevaried. Recent trends point strongly to similar developments of finance and firmrestructuring creating more income inequality, poorer jobs and greater job insecur-ity. From 19702000, millions of industrial jobs disappeared, many of them inunionised sectors, as industries like steel, shipbuilding, machinery and autosclosed facilities and reduced production capacity. Over the past few years, thisis a trend that has continued. As the European Restructuring Monitor (ERM)has recently reported over the period 20027, approximately 3.7 million more

jobs were lost as a result of restructuring over a million in manufacturing andsome 7 per cent of all job losses (or about 240,000 jobs), arising from caseswhere mergers or acquisitions were immediately involved (Irastorza and Storrie2007: 4 & tables 2 and 6; Morley and Ward 2009: 9).


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In part, the job losses in the EU have been due to restructuring, as companieshave sought to boost productivity and meet investor expectations through layoffs and capital investment. In part, job loss was due to manufacturing enterprisesin the EU-15 countries, in everything from auto and electronics to steel and tex-tiles, outsourcing jobs to the new European member states in Eastern Europe,while telecommunication and information technology jobs have been predomi-nantly moved to Asia (Morley and Ward 2009: 9). Privatisation also fosteredby EU directives on capital market liberalisation has also played a role in union-ised job loss as mining, steel, utilities and telecommunications companies ration-alised operations through plant closure and job cuts in the thousands. So too didthe downturn from 2000 1 lead to a wave of cutbacks and bankruptcies,especially in telecommunications and airlines, where thousands more werethrown out of work (Irastroza and Storrie 2007: 48).

However, M&As and the internal restructuring that typically followed within a

two- or three-year period also appear to have been very significant causes ofredundancies in good paying jobs (Brewster et al. 2008: 9). Until the late 1990sneither hostile takeovers nor continuous domestic takeovers, or the announcementof large-scale redundancies following M&As, were common in Europe. This is nolonger the case.

The financial sector (banking and insurance) has recently gone through severalperiods of restructuring and an intense M&A-led consolidation process as inAustria, Belgium, France, Germany, Greece and Italy which has led to massredundancies in countries where this practice was formerly rare. In retail, thetrend has been towards consolidation and rationalisation, involving the growth

of large companies, with small firms being pushed towards survival strategies,including price and cost cutting, and narrowing product ranges. In manufacturing,cut-throat competition has led many firms to outsource work, reduce employmentand close subsidiaries. Unions have paid the price with fewer members, and withfewer members, unions have had fewer resources to uphold pattern bargaining andgood collective agreements.

Finance and the decline of bargaining power, wages and wage share, 19802005

The impacts of changes to capital and financialisation on organised labourscapacity to bargain have been equally harmful. One of the reasons is because aspressures to meet market expectations rose, firms sought to free their handsfrom unions and work councils, and restructure internal and international oper-ations in accordance with the ever-lowering benchmarks of their competitors,doing so through forms of decentralised bargaining or under government aegisand social pacts. In response, unions often made use of concessions on wages,full-time jobs and pensions, hoping this would secure jobs and investment, andcreate the basis for greater labour-management cooperation (Fairbrother andStewart 2003: 1705; Moody 2007: chs. 25). In addition, often opting for con-sensus and cooperation in the face of plant closings and downsizing, many unionmovements developed partnership agreements or employment pacts, with the

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expectation that greater cooperation in the introduction of lean production systemswould secure training and job security.

For the majority of unions and workers in North America and Western Europe,the costs of financialisation alongside partnership and pacts appear to have faroutweighed the benefits. For not only have unionised industrial jobs continuedto disappear, but weaker collective bargaining systems have given firms moreflexibility to cut better deals in plants at the expense of wages and full-timeemployment for the majority of workers. As Table 3 illustrates, in 10 of 13OECD countries, the rise in M&As was strongly correlated with a declinein union density which has contributed to the weakening of union bargainingpower.

In countries as institutionally diverse as Austria, Italy, the Netherlands, and theUK, large increases in FDI and M&As were closely associated with falls in unionmembership. Looking more broadly at the OECD, since 1980, only two out of 20

national labour movements withstood this common trend Belgium and Sweden,both countries with a Ghent system of unemployment benefits. The United Stateswas also something of an exception, experiencing lower inflows of FDI as its owncompanies and institutional investors provided the bulk of financing for M&As,but still union density declined by half as large US firms operated under share-holder management systems that increased financial pressures for better returnsat the expense of workers.

As a comparison of Tables 1 and 3 reveals, the general drift was increasedfinancial pressures forcing through corporate restructuring, lay offs and earlyretirement key dynamics in lowering active union membership throughout

North America and Western Europe. In seven OECD countries, includingAustria, Italy and the Netherlands, union density fell by over a third as FDIstock flows rose four-fold and more and the number of M&As increased by 50per cent and more. In Canada and Germany, the rise in integrated finance pro-ceeded more slowly, but in both countries the near doubling of M&As alongsiderapid increases in market capitalisation went with declines of one-quarter inunionisation. Only in Belgium, Finland and Sweden, did widespread corporaterestructuring not lead to substantive declines in the unionised workforce, as sec-toral coordinated bargaining and the expanding unionisation of service workerskept density rates high, even as unionised industrial employment fell.

Overall, as Miriam Golden and Michael Wallerstein (2006: 12) have shown, thesmall size of the Nordic countries along with Belgium did little to stop the basictrend of union density declining throughout the OECD from 47 per cent to 39 percent of the workforce. And when actually weighted by size of the dependent work-force, the decline was even worse in 1980, one-third of workers in advancedindustrial countries were union members; by 2000, only 22 per cent belonged toa union, a decline of one-third over two decades. This compares with a generalfour-fold increase in FDI stock flows, the near doubling of M&As throughoutthe OECD, and the strong statistical correlation with declining union density.

Even where there was an appearance of stability in wage setting, the actualinternal changes in wage setting have come at the cost of labour. On thesurface, the fact that wage-setting institutions and collective bargaining onlydeclined in eight countries, was stable in six, and still covered generally two-


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thirds of workers with the exceptions of Switzerland and Central and EasternEurope, has been seen as evidence of institutional inertia and strong citizenresistance to labour market change. Moreover, union coverage (the share of work-force covered by a union contract under statutory extension), it is noted, did notdecline in Western Europe, and approximately 80 per cent of workers werecovered by a union contract in 2004 in spite of the decline of union density.

In practical terms, internal restructuring, M&As and product market compe-tition, along with rising turnovers in portfolios and increasing market capitalisa-tion, forced firms to make changes to their labour management and collectivebargaining practices regardless of political or institutional makeup. Typically,business restructuring took two forms: either businesses sought to break thekinds of pattern bargaining and strategies that unions set up to keep wages high,or as in North America and the UK more commonly firms sought toescape out from under union contracts altogether. Just as typically, in the

attempt to make their labour forces more flexible, governments deregulatedlabour markets and restructured industrial relations along more business friendlylines. Unions have dealt poorly with these economic and political shifts, and manyhave retreated into concessions, partnership agreements and social pacts none ofwhich have maintained industry wage patterns, and all of which have typicallylowered the strength and appeal of unions.

Partnership agreements did not stop membership loss, nor the decline of union-ised industries. Employers used bankruptcy proceedings and non-union subsidi-aries to negotiate further concessions and cuts. Often managements verysuccessfully defined cooperation on their own terms and subsequently laid off

more workers, contracted out work, and made pay and benefits more flexible(Fichter and Greer 2004). As a consequence, union cooperation with capital notonly failed to improve jobs or wages, but by focusing on employer pacts, manyunions have also seen job losses that have undermined their legitimacy with thewider working population.

In Western Europe, unions have seen similarly poor rewards in pay, employ-ment and work organisation though in many cases, these poor returns are notonly from employment pacts at the company level, but also the result ofemployer pressures for decentralised bargaining and the negotiation of socialpacts. Through organised or controlled decentralisation bargaining, many

European governments have sought to accommodate employer demands for flexi-bility, and in Austria, Denmark, Finland, Germany, Norway or Sweden, recentwage-setting arrangements have widened the scope for additional bargaining atcompany level and/or have introduced opening clauses that allow companies todiverge from certain collectively agreed standards at national or sectoral levels.

This has given large employers as well as employer associations significant newplant-level powers and incentives to retire older workers, outsource, lower wages,and introduce more flexible work practices which now includes everythingfrom firing more workers, laying off others for short periods of time, and hiringmore part-time and temporary workers (King and Rueda 2006). By contrast, inadopting jointness and partnership strategies, union leaders have increasinglytied their members job security to the fate of companies in a highly competitiveworld, and subsequently seen their role diminish. The results have very often been

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one-sided: for capital, falling labour costs and a more flexible work force that hasboosted productivity and share prices; for labour, wage and job concessions, flex-time, more part-time and temporary employment, and more employers operatingoutside of collective agreements the often bitter returns of devil or the deepblue sea bargaining processes.

As Table 5 illustrates, the returns of collective bargaining for labour throughoutNorth America and Western Europe have often been poor declines in real wagesand poorer wage settlements that have failed to keep pace with economic growth.Because of the loss of industrial jobs, declining unionisation and the adoption ofconcession-style bargaining, unions were little able to improve their bargainingposition. Left with poor wage settlements and declining memberships, as wellas fewer resources and strategies that failed to mobilise memberships, unionswere often left with few organising and mobilising alternatives. From the 1980sonward, despite the rise in financial incomes and competition that were supposed

to lead to firms to increase investment and improve employment, nominal hourlycompensation declined steadily from annual averages of 13 per cent in the 1970sto 2.8 per cent in 20005 at a rate faster than inflation. Whether in Norway or theUS, the Netherlands or Germany, as financial markets and institutional investorsgrew in importance, labour realised ever poorer real wages, averaging less thanone per cent per annum over the entire 25 year period for these 13 countries.

On average, after labour achieved real wage gains in the 1970s of 4 per cent,from the 1980s onward real wage growth averaged a little more than one percent, with only full-time workers seeing slightly better earnings. For those inlower-wage and non-standard employment, the returns were far poorer

figures often hidden by the extraordinary rise of returns for top wage earners intotal labour compensation that have made national figures appear much betterthan the reality for many.12

In the United States, for example, where finance, insurance and real estate(FIRE) and businesses services have the largest share of value added in theeconomy, increasing financial activity in a context of low union density and work-place wage-setting institutions led employers to push for wage rollbacks from itslargely non-unionised workforce. Real wage growth averaged only 0.2 per centbetween 1979 95, while for the bottom 60 per cent of the labour force primarilyin retail, hotel, and financial and business services real wages fell by 9.8 per cent

(Brenner 2006: 209). In the late 1990s, with increasing productivity, better profit-ability did lead to a short-lived increase in real wages. But since 2001, US realwage growth has again fallen to below 20.5 per cent (Table 5). Similarly, inGermany, with the rapid rise in FIRE and business services, real average hourlyincome averaged 1.3 per cent in the 1990s, but between 2000 and 2004, it plum-meted to 0.6 per cent, and fell even lower in metal manufacturing.

Likewise in Canada, over the past 25 years, only the top income earners sawany gains from growth, with the majority of workers experiencing stagnant realwages, and the largest declines in real wages felt by workers in the low tomiddle-income deciles. In the Netherlands, real wages consistently fell over thecourse of the 1990s and early 2000s driven by the expansion of precarious employ-ment; in Italy, they were stagnant. With the exceptions of Sweden and Finland,this decline in wages among low- to medium-wage earners accounts for a good


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TABLE 5. Wage share, real wages and value added shares, 19802005

Wage share Real wages

1980 2005 Change 198090 1991-2000 200105

Austria 89.7 65.4 217.3 1.1 1.3 0.3

Belgium 70.8 63.6 27.2 1.0 1.3 0.5

Canada 73.2 66.0 27.2 0.1 0.3 0.4

Denmark 71.7 58.3 214.6 1.4 0.8 1.2

Finland 72.2 57.6 218.6 1.9 0.8 2.8

France 79.9 61.4 211.8 1.2 1.5 1.3

Germany 71.3 59.6 213.4 1.2 1.3 0.6

Italy 77.4 61.82

12.2 1.62

0.6 0.0 Netherlands 75.5 63.3 29.3 20.6 21.2 21.6

Norway 74.3 65.0 29.3 24.7 0.6 21.0

Sweden a 88.6 65.1 223.5 0.2 1.0 2.8

United Kingdom 82.2 73.0 215.6 1.5 1.5 1.0

United States 72.8 63.5 29.3 0.3 1.6 20.5

Mean 76.9 63.4 213.5 0.5 0.8 0.6

Sources: Wage Share - OECD Economic Outlook, courtesy of Paul Swaim, Economics Dept., OECD; Real Wages astatistics from OECD Stan Indicators Database Online, and supplemented with national statistics databases.

Notes: The wage share corresponds to the share of total labour compensation in the income generated by the business based on nominal labour compensation per unit labour input business sector excluding agriculture divided by annual a

Services Value Added Shares Relative to Total Economy defined as output minus intermediate consumption.Value added and wage share statistics do not add up perfectly to 100. The value added figure includes wages in the fincapital returns, less intermediate consumption and depreciation. a Swedish wage figures based on manufacturing 1

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deal of the drop off in wage share in the overall income generated in the businesssector over the past three decades.

The recent decline of wages marked a complete reversal of the previous trend ofrising wages underpinning national income and economic demand. In the 1970s andearly 1980s, the wage share of income reached highs of 89 per cent in Sweden andAustria, and the peak average for the thirteen countries reached 78 per cent. Butsince then wage share has steadily declined as income from profits, stock dividends,interest and rents has risen. In 1990, wage share had fallen to 71 per cent on average.In 2005, it fell further to 63 per cent. In Sweden, even though workers primarily inthe public sector saw some real wage gains in the early 2000s, they still gave upmore income to business and finance than anywhere else through coordinated sec-toral bargaining 23.5 per cent (see Table 5).

Workers in France, Austria and the Netherlands were not far behind in sacrifi-cing income for better corporate and shareholder returns. The US with its already

high levels of financialisation, and the highest levels of both low-wage labour andwage and income inequality in North America and Western Europe, saw workerswage share fall only by a further 9.3 per cent over the period. For the 13 advancedindustrial countries surveyed in Table 5, the average decline was 10.6 per centover the 19802005 period.

Only two countries bucked the trends of corporate restructuring and labourmarket deregulation worsening jobs, weakening unions, and widening incomeinequality over the course of the 1990s and early 2000s Belgium andDenmark.13 In both, governments remained committed to social spending, main-taining unemployment benefits, using early retirement pensions and supporting

vocational training, as well as expanding subsidised work and outplacement pro-grammes. In both, unions refused to engage in concession bargaining, withBelgian locals leading strikes at firms that tried to close, and Danish unions nego-tiating the continuation of generous unemployment benefits and strong activelabour market programmes, while simply accepting plant closures where theyoccurred. In both, organised labour continued to play a strong role in wage-bar-gaining arrangements that have closed off low-wage options for employers, andmade businesses contribute to finding other jobs or vocational training.

Belgium and Denmark may be better examples of exceptions that have provedthe rule that over the past two decades, in that concession bargaining and business

partnership agreements were fundamentally weakening union movements in theface of corporate reforms and financial globalisation. And in both countries,recent signs of change are hardly auspicious in terms of continuing positiverewards for workers. Denmark and Belgium avoided some of the worst aspectsof finance because their insider corporate governance systems and small firm struc-tures blocked widespread hostile takeovers and lay offs. But now many of theirmanufacturing and high-tech firms have been the target of foreign companies,and as firms market capitalisation rates have doubled and equity trading increased,MNCs and subsidiaries are relocating into Western and Eastern Europe as well asChina.

Both countries have also seen retrenchments in social spending that haveseriously reduced unemployment and the generosity of active labour marketpolicy (ALMP) programmes at a time of expanding precarious employment. In


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addition, Danish firms have pushed for and won the introduction of flexibleworking time, and with low levels of employment protection, manufacturingand retail enterprises rapidly shifted to hiring and lay off practices on flexibleschedules that rivalled those of the United States.14 Belgian firms have alsoadopted similar part-time and flexible work strategies, and non-standard workhas risen rapidly over the past two decades. If earlier patterns seen in NorthAmerica and Western Europe are any indicator, such developments suggest thatlabour movements and governments in both countries may soon face larger pro-blems with the current economic downturn, bank bailouts, rising deficits and wide-spread lay offs.

Conclusion

How widespread have financial reforms been? Has organised labour continued to

effectively employ wage bargaining and corporatist means of coordination tomake ever larger and more financially powerful firms bargain? Has labour beenable to ensure better wages and incomes and preserve the strategic capacitiesof coordinated market economies, while ensuring that firms maintain their high-skills, high-value, high-wage strategies?

The evidence suggests that whether in North America or Western Europe, therise of financial capitalism along with the global financial integration of stock andcapital markets either directly through the rise of new financial key actors(including extensive foreign ownership) or indirectly through altered incentivestructures strongly influenced corporate governance and firm operations

throughout North America and Western Europe. As all the key financial indicatorsshow from FDI stock flows to market capitalisation rates to equity trading andM&As the shifts in finance and corporate functioning were broad and extensive,affecting all countries, including Austria, Italy and Norway that formerly hadexceptionally stable insider corporate governance systems. So too were changesin companies production and employment practices equally significant.

Quantitative and qualitative evidence highlights that many MNCs reacted tofinancial globalisation by rapidly adopting M&As, undertaking internal restructur-ing, and engaging in lay offs, outsourcing and relocation that subsequently droveforward a process of deindustrialisation and reindustrialisation across continents

that cost many unionised workers their jobs. Just as commonly, firms reacted tofinancial pressures by using partnership strategies to lower wage costs whilethey two-tiered their workforce, and frequently denied labour representativesinfluence over investment, lay offs or training, and only reluctantly funded earlyretirement packages, all the while complaining of rising social costs.

For organised labour, the impact of these changes to finance and corporate man-agement were largely negative. It certainly was true that despite the pressures offinance, unemployment and economic competition, political institutions alongsidemarket regulations and wage-bargaining institutions continued to shape firm be-haviour and economic change. Equally true, businesses and governments soughtinnumerable ways to become more competitive in the global economy, andundertook a variety of measures from decentralised bargaining and social pacts,to privatising pensions and deregulating employment protection in order to

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lower wage and social costs and enforce wage restraint. It was also the case thatunions resisted and used existing wage-bargaining systems as well as new oneslike national social pacts in the attempt to protect jobs, older workers and unem-ployment programmes.

But the policy tradeoffs that unions received for engaging in partnerships, socialpacts, cooperation, and wage restraint should make any argument about this being afair or equitable trade-off highly suspect. For across North America and WesternEurope, in the wake of financial pressures, the consequences of countries attempt-ing to preserve their strategic capacities was not firms becoming more sociallyresponsible, but rather the opposite businesses becoming more profit drivenand efficient while labour bore the costs. With the exceptions of Denmark andBelgium, financialisation provided opportunities for business to redistributeincome upwards in favour of the few, while pushing forward processes thatshrank wages and good jobs for the majority. Firm efforts to achieve competitive-

ness worsened these trends, forcing many unions to shift their collective bargaininggoals more towards ensuring firm success and cash flows, rather than improvingwages and work conditions for all. Such outcomes make claims that recentreforms have resulted in something like a reasonable trade off between efficiencyand equality appear rather questionable. Just as questionable has been the assump-tion that labour market deregulation and wage restraint would provide the basis forlong-term economic growth and sustainable employment.

Future research that adopts a power resource model and focuses on the histori-cal actions and changing capacities of capital and labour within advanced indus-trial economies should provide a much more robust account of fundamental

conflicts of interest. It should also provide a far more nuanced appreciation ofhow institutional equilibria have come undone under the pressures of capitalistcompetition, and of how the key transformative processes of financial changehave worked with the government deregulation of labour markets to weakenunions, lower incomes and worsen job quality throughout the OECD.

Notes

Thanks to Stella Yeadon, Alan Zuege, Stephen Hellman and the anonymous reviewers for editorial comments and

suggestions.

1. Two recent works that highlight the differences in politics, production regimes and industrial relations areAmable (2003) and Pontusson (2005). Continuing divergence in industrial relations and employment are

also underscored by Regini (2003) and Visser (2005).

2. Common arguments on the patient nature of European capital include Amable et al. (2005), Hall (2007),

and Jacoby (2000).

3. More recent assessments of the limited impacts of finance on corporate governance, collective bargaining,

and the labour movements are Deeg (2005), Goyer (2007), and Vitols (2005).

4. More critical and comprehensive treatments include Epstein (2005), Gospel and Pendleton (2005), and

Panitch and Gindin (2005).

5. Two of the best political economic surveys of contemporary capitalism are by Robert Brenner (2006) and the

late Andrew Glyn (2006).

6. Legislative changes to finance and banking have been recently discussed by Gowan (2009), Roe (2003), and

Van Treeck (2008).7. On the dominant role of institutional investors in the American and British equity markets see Glyn (2006:

56) and Pendleton and Gospel (2005: 6163). For details on the expansion of foreign capital and foreign


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ownership in Europe see Huizinga and Jonung (2005). The extent of financial integration is detailed in the

latest European Commission report (2007) on finance and financial integration.

8. On IPOs and market capitalisation rates, see the recent European Commission report (2007: 34) and chart 4.3;

on market capitalisation rates, see the reports Annex II, chart 3.4.

9. The UN currently tracks a number of financial indicators, including mergers and acquisitions by country andregion, See the Foreign Direct Investment Online Database (http://stats.unctad.org/fdi/).

10. Some of the best in depth coverage of changes to corporate governance and industrial relations across

Western Europe has come out of the European Industrial Relations Observatory. See, for example,

Edwards (2002), Macaire et al. (2002), and Pedersini (2006). The qualitative, country survey evidence on

which much of Edwards report is based can be accessed at: http://www.eurofound.europa.eu/eiro/2002/

09/study/index.htm .

11. Good country studies of recent changes to corporate governance in Western Europe include: Aguilera (2005)

on Spain; Rose and Mejer (2003) on Denmark; Goyer (2003) on France; Jackson et al. (2005) on Germany;

Poustma and Braam (2005) on the Netherlands; Reiter (2003) on Sweden; Yla-Anntila et al. (2005) on

Finland.

12. On the wide variation and inequality in real wages, see Andrew Glyn (n.d: 2) and Mishel et al. (2007:

12033, 2026). On the widening gap in personal earnings between full-time workers and those in non-

standard employment see, OECD (2008: 824).

13. For discussions on Denmark see, Jrgensen (2006), and Andersen and Svarer (2006). Rochet (2006) provides a

number of direct responses to question on the impacts of MNCs and relocation of production to work and indus-

trial relations in Belgium. For an overview of recent trade union actions in Europe, see Gajewska (2008).

14. The most comprehensive survey of labour market deregulation in the OECD including changes in

Denmark is found in the country surveys provided by Brandt et al. (2005).

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