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From Conflict to Cooperation
Norwegian Labor Market Institutions in the Making
Jon Reiersen*
Vestfold University College P.O. Box 2243, 3103 Tnsberg
Norway
Abstract:
The signing of the so-called Basic Agreement between the Norwegian Employers Confederation (NAF) and the Norwegian Confederation of Trade Unions (LO) in 1935 marks a turning point in the history of labor relations in Norway. The Basic Agreement produced a lasting drop in the level of strikes and lockouts, and it was an important early step towards centralized wage bargaining. What made the Basic Agreement possible? From the early 1920s to the mid 1930s Norway had one of the highest levels of industrial conflicts in Europe. Class conflicts were intense and the relationship between employers and unions was marked by widespread mistrust. What explains the transition from conflicts and mistrust to the kind of unique cooperating relationship that characterizes the Norwegian model of labor relations even today? The article asserts that the situation the parties in the labor market faced can be viewed as a coordination game, where the decision to cooperate or not is determined by the parties beliefs about each other. The article identifies critical events that transformed the parties beliefs in the years before 1935 beliefs that earlier made it difficult to overcome the situation of mistrust.
* Paper prepared for the conference A Nordic Model?, University of Flensburg, June 7 9, 2013. I thank Kalle Moene and Theo Schewe for helpful comments.
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1 Introduction
The economic model that characterizes the Nordic countries has received
a great deal of positive attention in recent years. What has been of
particular interest is the ability of the Nordic countries to secure high
economic growth and a healthy economy over long periods of time
combined with an extensive equalization of income and living conditions.
What has made this rather unusual combination of efficiency and equality
possible?
Moene and Wallerstein (1995a,b; 2006) argue that coordinated or
centralized wage bargaining has been essential in order to secure both
equality and efficiency in the Nordic countries. They show that many of
the central features often associated with the Nordic model are a direct
result of how wages traditionally have been determined in the Nordic
countries. They share with many others the view that that centralized
wage bargaining has been essential for the development of the Nordic
model.1 Moene and Wallerstein provide several arguments to justify their
claim. For instance, centralized wage bargaining produces a higher
willingness among the unions to moderate their wage demands, even
when unemployment is low. This has made it easier for the governments
in the Nordic countries to maintain full employment through their
standard policy instruments. Another important consequence of
centralized wage bargaining is wage equalization. Centralized wage
bargaining has made it possible implement so-called solidaristic wage
policy. Solidaristic wage policy is based on the idea that that the wages of
1 See also Cameron (1984), Calmfors and Driffil (1988), Moene and Wallerstein (1993), Iversen (1999), Layard, Nickell and Jackman (2005), Pontusson (2005) and Mares (2006) among many others.
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the lowest paid should be lifted while the wages of the highest paid should
be held down and this type of wage policy has over time produced a
compression of wages and a highly egalitarian distribution of income in
the Nordic countries. Centralized wage bargaining has also made it
possible to put the export industries in front, meaning that the wage
growth in the economy as a whole is fixed to the growth of wages in the
export sector. This has produced a situation where wages throughout the
economy has been tied to the conditions in the export sector and the
competition they face on the international market. This arrangement has
been essential for the Nordic countries since they are small open
economies, heavily dependent on securing their competitiveness. In
addition centralized wage bargaining and solidaristic wage policy has
contributed to high productivity and competitiveness by stimulating the
growth of efficient and innovative enterprises. When wages are set on a
centralized level, firms with high productivity are able to get away with
moderate wage premiums, pushing up profits and investments in high-
productivity firms. At the same time, firms with low levels of productivity
are prevented from staying in business by paying low wages. Altogether
this contributes to a virtuous circle of structural change in the economy.
Based on these arguments it is fairly safe to say that centralized wage
bargaining has helped the Nordic countries in achieving a fairly efficient
allocation of resources and a relatively egalitarian distribution of income.
An issue that has been far less studied, however, is the forces that
initially contributed to the formation of centralized wage bargaining.
What made the Nordic labor market model possible? Under what
conditions were the first steps toward centralized wage bargaining taken?
In Norway, an important step was taken with the signing in 1935 of the
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Basic Agreement between the Norwegian Confederation of Trade Unions
(LO) and The Norwegian Employers Confederation (NAF). The Basic
Agreement established the labor markets peak organizations right and
obligations, and it sat down rules for collective bargaining at the industry
level. The establishment of the Basic Agreement represented an
important contribution towards an extensive collaboration between two of
the main actors in the Norwegian labor market a collaboration that has
been essential for the development of centralized wage bargaining in
Norway, and for the Norwegian labor market model in general. Although
the Basic Agreement has been altered throughout the years in order to
respond to new circumstances, the agreement still plays a key role in the
regulation of the relationship between the parties of the Norwegian labor
market.
It was not, however, given that the parties of the labor market in Norway
would develop a collaboration between labor and capital that was as
extensive as the one outlined by the Basic Agreement of 1935. It is a
general view among Norwegian historians that the signing of the Basic
Agreement marks a turning point in the history of labor relations in
Norway. It produced a lasting drop in the level of industrial conflicts. The
years prior to 1935 are often referred to as the period of crisis and
struggle in Norway. Unemployment was at a record high, as was the
level of labor conflicts. During the period from 1921 to 1935, 1,100 labor
conflicts took place almost the same amount of conflicts that have taken
place in Norway in the entire postwar period (see Figures 1 and 2 below).
During the same period, 23 million work days were lost in strikes and
lockouts an extremely high number for a small country with just under
three million inhabitants (at that time). Along with Sweden, Norway had
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one of the highest levels of labor conflicts in Europe during the interwar
period. The relationship between the parties of the labor market was in no
way characterized by trust, cooperation and compromises concepts that
are emphasized today when the Nordic model is described.
Widespread conflicts and lack of trust are of course not a good starting
point for establishing cooperation. The high level of conflicts between the
unions and the employers contributed in shaping the parties beliefs about
each other beliefs that indicated that the opposite party was not
prepared to cooperate. It was not, however, only the numerous and
extensive conflicts that shaped the parties beliefs about each other. A
significant production of ideas took place that further deepened the
mutual mistrust. The employers and the labor process were interpreted by
the labor movement using Marxist-inspired concepts like conflict and
struggle. From the beginning, the labor movement built upon a
worldview in which the struggle between the working class and the
capitalists served as its basis. This was viewed as being a struggle that
would not end before the unjust class society was abolished, and a new
social order based on socialist organizations of production was
established. Within this interpretive framework, cooperation with the
employers implied a legitimization of an opposing party whose removal
was actually desired. This obviously made the strategy cooperation
difficult to think of for the unions. At the same time, it was difficult for
the employers to accept an opposite party that believed their existence
was undesirable, and in addition created injustice.
The relationship between the parties of the labor market during the
interwar period was indeed problematic, and these problems was related
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both to the struggle of how values should be distributed and to how they
perceived the other partys long-term goals. As pointed out by Moene and
Wallerstein (2006) trust, cooperation and mutual respect were in no way a
prerequisite for the Nordic model, as many international observers seem
to believe. Trust, cooperation and mutual respect should instead be
regarded as being a result of the Nordic model.2 But this begs the question
of how it was possible to make the transition from deep ideological
conflicts and open class struggle to the trusting cooperative relationship
that emerged in the Norwegian labor market during the interwar years?
What led the parties, both of which carried a historical experience of the
other as the enemy, to begin to seek out cooperation? How did LO and
NAF manage to unite behind a broad cooperative agreement in 1935 an
agreement that laid out the foundation for an even more extensive
cooperation in the period that followed?3
The central argument of this paper is that cooperation is difficult to
achieve if the parties involved have a belief that opponent is not willing to
cooperate and this was the situation in the Norwegian labor market in
the interwar period. After several years with intensive conflicts the
parties in the labor market carried with them the beliefs that the other
party was not interested in cooperation. This led both to choose conflict
as their main strategy. The outcome was conflict, which in turn confirmed
the parties beliefs that the opposite part was not interested in
cooperation. The parties were caught in a situation where distrust and
2 The relationship between the unions and the employers in the interwar period in Sweden shared many of the same features as in Norway. Sweden got their Basic Agreement in 1938. 3 Rothstein (2005) asks the same question with reference to Sweden. My analysis is heavily influenced by the way Rothstein frame the question, except that my empirical case is Norway and not Sweden.
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lack of cooperation led to reinforced distrust and lack of cooperation. But if
you have ended up in a situation like this, how do you get out of it? I
argue that during the interwar period several events took place which
contributed to a gradual change in the parties beliefs about each other.
These events where related to changes in both internal and external
factors, changes that that transformed the parties mental maps and led
them to change their main strategy.
The rest of the paper is organized as follows. In the next section, I give a
short description of the Norwegian labor market during the interwar
period. The objective is to demonstrate that this period was marked by
problematic industrial relations and extensive conflicts. These conflicts
shaped the beliefs of the employers and the members of the trade union
movement beliefs that made it difficult for the parties to reduce the level
of conflict and to seek out compromises. In section 3, this idea is
formalized within a simple game theoretical framework. I argue that the
situation the parties faced has the character of a coordination game and
that the beliefs the parties carry with them are critical for the outcome of
this game. In section 4, I identify several events that were important for
the gradual change in beliefs both among the employers and in the trade
union movement. These changes in beliefs were necessary in order for the
parties to move away from conflict as their main strategy and to seek
cooperation. These cooperating efforts calumniated with the signing in
1935 of the famous Basic Agreement.
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2. Struggle, conflict and mistrust
The Norwegian labor market had been through exceptionally conflict-
filled years before an important change took place with the signing in
1935 of the Basic Agreement between LO and NAF. This is illustrated in
Figures 1 and 2. During the ten-year period between 1925 and 1935,
there were, for example, just as many work conflicts in Norway as in the
fifty-year period from 1945 to 1996. The conflicts in the interwar years
often lasted long and involved many people. This is reflected in the loss of
workdays in this period (see figure 1). In the ten-year period from 1921 to
1931, an entire 22 million workdays were lost due to strikes and lockouts.
The corresponding number for the ten-year period between 1951 and 1961
was just under two million, while during the period from 1962 to 1972,
only 400,000 workdays were lost.4
However, it was not just the relationship between the parties in the labor
market that was turbulent during the interwar years. The entire
Norwegian economy was affected by powerful up-and-down swings. In
1920, an international recession struck the Norwegian economy, with
falling prices and loss of jobs as an immediate effect. Unemployment
among union members increased from 2.3% to 17.6% from 1920 until
1921. In subsequent years, there was virtually no growth in the
Norwegian economy. In 1927, unemployment among unionized workers
was 25.4% (SSB, 1969).
4 The Basic Agreement included a so-called peace obligation that prohibited strike and lockouts after a central agreement was signed. This peace obligation helped in producing a lasting drop in the level of industrial conflicts in Norway as illustrated in figure 1 and 2.
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Figure1 Millions of workdays lost due to labor conflicts
Source: Statistics Norway
Figure 2 Number of labor conflicts
Source: Statistics Norway
1
2
3
4
5
6
7
8
1920 1930 1940 1950 1960 1970 1980 1990 2000
0
50
100
150
200
250
300
1920 1930 1940 1950 1960 1970 1980 1990 2000
10
In 1930, Norway was hit hard by the international recession following the
Wall Street crash of 1929. Production stagnated again and during the
period from 1931 to 1935, unemployment in Norway was on average at
29% among union members (SSB, 1969).
Stagnating production, high unemployment and falling prices were the
main sources behind many of the labor conflicts in Norway during the
interwar period. In particular, falling prices and demands by employers to
make cuts in nominal pay represented an essential source of conflict. With
the exception of the years from 1923 to 1925, the prices in Norway fell
continuously from 1920 until 1934 the year before the Basic Agreement
was reached.
The year 1931 was particularly filled with conflict created precisely by
the employers demand for deep cuts in wages. When LO did not comply
with this, the employers announced a big lockout. The lockout lasted for
five months, and led to the loss of 7.6 million workdays. The actual
intention of the lockout has been much debated, but LO interpreted it at
that time as being to () force the entire union movement to its knees.
(Bjrgum, 1985). The economic downturn with record high unemployment
had weakened LO. The strike funds were almost empty, something that
the employers were fully aware of. In addition, the employers were in a
politically strong position. The political right had secured a majority at
the election in 1930, and in the dominant conservative press there was a
massive agitation against the union monopoly and union tyranny.
Thus, the great lockout of 1931 was at that time interpreted as if the
employers were looking for a final confrontation with the unions
(Bjrgum, 1985).
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The year 1931 was also characterized by one of the most dramatic events
in modern Norwegian labor history, the so-called Battle of Menstad. The
incident started with several thousand union members demonstrating
with demands to stop what they considered to be strike-breaking at the
warehouse and offloading place, Menstad. The police were called to stop
the demonstration, but were chased away. The government therefore
decided to send in armed military forces against the workers. This
decision was made even though the government knew that five workers
had been killed by military troops called in as backups for the police in a
similar incident in dalen in Sweden, just four weeks prior to the
Menstad conflict. The Battle of Menstad garnered huge symbolic
importance (as did the dalen shootings in Sweden). For many within the
trade union movement the event served as a confirmation that the
workers interests could not be secured through cooperation with the
employers. Fundamental changes in society were needed. This standpoint
was also publicly expressed by the Labor Party, who were (and still are)
LOs closest ally. The Labor Party adopted the following statement at its
party conference in 1930: The labor movement must have complete
freedom to act toward the capitalist class and the capitalist state. The
party is therefore an opponent of every form of cooperation between classes
(). It is worth noting that this statement was written and approved
only a few years before the Basic Agreement was negotiated between LO
and NAF.
There were also several large conflicts in the years prior to 1931, conflicts
that make it difficult to explain how the parties in the labor market could
unite behind a comprehensive cooperation agreement in 1935. The years
from 1921 until 1928 were particularly turbulent. Large segments of the
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Norwegian working class had been highly radicalized after the Soviet
revolution in 1917. In this political setting, the employers main goal was
to fight down the radical opposition within LO. NAF strongly feared the
consequences of an increasingly politicized labor movement, and they
were therefore in close contact with the government to gain assurances
that the military would intervene in any illegal actions taken by unions.
The government gave this assurance. They publicly stated that they
would intervene with force and that they were well prepared for a full
confrontation with the labor movement if necessary (Knutsen, 1985).
Feeling that they had the government on their side, and with steadily
growing unemployment, the employers got on the offensive. They
demanded huge cuts in wages cuts that were impossible for the unions
to accept. In 1921, for example, seamen were faced with a demand for a
33% nominal wage cut, which despite falling prices, meant a substantial
reduction in real wages. LO was convinced that other groups of workers
would face similar demands if the seaman had to give in. Thus, they took
120 000 workers out on strike, a number that was nearly the equivalent of
LOs entire membership. However, the employers had no problems with
recruiting strikebreakers, and violent confrontations arose between the
strikers and strikebreakers in several places in Norway. The police and
soldiers were called in to protect the strikebreakers, and later the
government also passed new laws that were intended to protect the
strikebreakers. The general strike had to be broken off after several
weeks and ended with an absolute defeat for LO. Many did not get their
jobs back after the strike, and LO lost 36% of its members. The conflict led
to intensified bitterness, not just between LO and NAF, but also between
LO and the government.
13
The tension between LO and NAF was maintained with more strikes and
lockouts throughout the 1920s. The source for these conflicts was in most
cases NAFs demand for substantial reductions in wages. Small local
conflicts were often expanded to wide-ranging lockouts, which severely
drained LOs strike funds. NAF hoped that the pressure would be so great
that LO would eventually capitulate and accept the cuts in wages.
However, LO demonstrated a greater ability to refuse the cuts than the
employers had initially counted on (Dahl, 1981).
In 1927, a new dimension was introduced into the relationship between
LO and NAF, and between LO and the government. NAFs lockout that
year was interrupted by a state-imposed resolution. The resolution was
clearly in the employers favor. For the first time in Norway, forced
arbitration was used to drive down the workers real wages (Dahl, 1981).
LO felt too weak to fight (that is, engage in an illegal strike) against the
resolution, which thereby determined the wages that year. The wage
settlements in 1928 were also determined by forced arbitration. Again the
employers had every reason to be satisfied. The ruling involved a wage cut
by 12%, which meant a reduction in real wages by 4% (Dahl, 1981).
However, this time the workers did not accept the ruling. A number of
illegal strikes broke out and these were just as much directed towards
the governments ruling on wage determination as they were against the
cuts in real wages. The employers expected that the authorities would
intervene in order to put a stop to the illegal strikes. However, the
antagonism, bitterness, and mistrust between the parties had intensified
to a point where the government wanted to withdraw entirely from the
wage bargaining process. They seemed to have realized that they were
practically powerless in preventing conflicts to develop. Entering the
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1930s the parties in the labor market were left more or less alone to
decide future agreements.
3. The problem with cooperation
How did the parties within the Norwegian labor market manage to move
out of a state characterized by open conflicts and distrust to a situation in
which labor peace and cooperation emerged is the dominant picture?
Some concepts from game theory will help to illustrate that stepping out
of conflict is not an easy task, even when the parties is well aware that
they have much to gain by establishing an agreement without going to
conflict.
Assume for simplicity that LO and NAF have two strategies available;
conflict (C) and cooperation (CO). The matrix in Figure 3 specifies the
payoff for the two parties for the different strategy combinations, where
> > > (and the payoff for LO on the left in each square). The
game illustrated in Figure 3 is an Assurance game, or a Coordination
game as it is also sometimes labeled. This game has two Nash equilibria
in pure strategies: CO/CO and C/C. If LO chooses CO, it is best for NAF
to choose CO. If NAF chooses C, it is best for LO to choose C. The same is
true if we consider the situation from NAFs perspective. The game does
not say anything about which equilibrium the parties actually end up in,
and this is true even though both parties prefer CO/CO to C/C. If both
parties initially believe that the other player will choose C, both will chose
C, and the equilibrium CO/CO will be out of reach.
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Figure 3 The Assurance Game
The Assurance game formalizes a typical situation where the rational
thing to do is context dependent. That is, it can be rational to cooperate
but it can also be rational not to cooperate. The choice of strategy depends
on how the players perceive the probability that the other(s) will
cooperate or not. The Assurance game also illustrates that it can be very
difficult for the parties to move out of the equilibrium C/C when the
parties find themselves in that situation. As Figure 3 shows, there is a
clear risk associated with choosing CO. In choosing CO, when the other
player chooses C, the first player will receive the lowest payoff . The
dilemma for both players is thus that CO gives the opportunity of
receiving the highest payoff , but also a possibility of receiving the lowest
payoff . In other words, in choosing C, a player safeguards itself against
the worst outcome. In order for the parties to be willing to choose CO, they
must have a clear understanding (an assurance) that the opposite party
will also choose CO. Viewed in the light of the Assurance game it is
therefore not difficult to explain why LO and NAF, as soon as they found
themselves in a situation characterized by constantly open conflicts, acted
NAF
LO
Cooperation Conflict
,Cooperation
Conflict
,
, ,
16
in a way that reproduced that same situation. The parties belief of reality
was that the opposite party had no intention of cooperating, beliefs that
were formed by several years of conflict. Holding this belief it made no
sense for them to choose the strategy cooperation.
This reasoning can be made more explicit by defining as player As belief
about the probability that B will cooperate. Cooperation gives an expected
payoff of +(1 ), while conflict gives an expected payoff of +
(1 ). Player A chooses cooperation if +(1 ) > + (1 ),
which gives
(1) >
+
(1) says that if A perceives the probability that B will cooperate as less
than , A will choose conflict. Alternatively put, A will only cooperate if A
trust that B will reciprocate cooperation, where the parties trust is
reflected in the belief they have about the probability that the other side
will cooperate. The situation is also illustrated in Figure 4. The extensive
labor conflicts in the 1920s and 30s were costly for both the employers and
the employees. Still, none of the parties had any incentive to refrain from
threatening with continued conflict in order to get their demands met as
long as the opposite party used the same strategy. As noted, refraining
from conflict would easily imply getting a worse outcome than they could
have otherwise managed to push through ( instead of ). However, when
both parties threaten with conflict, such conflicts are also constantly going
to arise, since the threat of conflict is only credible over time if a party
actually chooses to carry out what it has threatened.
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Figure 4 The willingness to cooperate depends on the level of trust
The extensive labor conflicts in the 1920s and 30s were costly for both the
employers and the employees. Still, none of the parties had any incentive
to refrain from threatening with continued conflict in order to get their
demands met as long as the opposite party used the same strategy. As
noted, refraining from conflict would easily imply getting a worse outcome
than they could have otherwise managed to push through ( instead of ).
However, when both parties threaten with conflict, such conflicts are also
constantly going to arise, since the threat of conflict is only credible over
time if a party actually chooses to carry out what it has threatened.
If we relate this reasoning to Figure 4, we can say that in the interwar
period in Norway the parties in the labor market carried with them beliefs
about the probability of the opposite party to cooperate that lied to the left
of the critical point . Conflict thereby became a self-reinforcing process,
where the players beliefs shaped the players actions, which in turn
affected the players beliefs, etc. The parties had beliefs telling them that
the other party was not prepared for cooperation. This led both to choose
conflict. The outcome was conflict, which in turn confirmed the parties
beliefs. LO and NAF were trapped in a situation where distrust and a lack
p 0 1 p *
Conflict Cooperation
Mistrust breeds mistrust
?
Trust breeds trust
18
of cooperation led to reinforced distrust and lack of cooperation. This leads
us to the question of how the parties managed to move out of this state.
What directed the parties, both of which carried with them a belief about
the other as enemy, to seek out cooperation?
4. Changes in beliefs
It is possible to pin down a number of events that led the parties of the
labor market to gradually change their beliefs about each other, changes
that finally led them to agree on the famous Basic Agreement in 1935.
The fight against unemployment and the question about how the
economic crisis that characterized Norway should be met, was particularly
important. But, as illustrated in Figure 5, there were also other events
that contributed to a change in the relationship between LO and NAF,
and the beliefs they had of each other. These events will be further
discussed below.
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Figure 5 Development of trust
4.1 The partnership of the top leaders
Despite all the conflicts during the interwar period, there was clearly a
willingness among LO and NAF to cooperate and compromise. Yet this
willingness was primarily expressed though informal contacts and
meetings between the top leadership of the two organizations (Bull, 1984;
Knutsen, 1985). It has been documented that these informal meetings
affected the outcome of several of the conflicts in the 1920s (Knutsen,
1985). Still, the indirect effects of these meetings were probably more
important. They contributed to the gradual establishment of trust
between the top leadership of the two organizations.
Partnership of the leaders
Withdrawal of the government
Rationalization
Power balance
Growth of fascism
Fights against unemployment
Crisis plans
New alliances
TRUST
20
An early example of contact between the leadership of LO and NAF is
related to the struggle against the syndicalist and communist opposition
groups within the union movement. With an increasingly radicalized labor
movement, the leadership of NAF took the initiative to cooperate with the
leadership of LO in the early 1920s. They wanted to support and
strengthen the position of the more moderate leaders within LO.
However, the leadership of NAF did not get support for such a
collaborative strategy within its own organization. The employers in
general thought there was no reason to show deference to LO. They were
convinced that the government would intervene resolutely on any illegal
actions on the part of unions. Even so, the event illustrates a certain
change in attitude, particularly among the leaders of the two
organizations. A new form of trust was established.
A somewhat later example of the fact that there was a willingness to
compromise throughout the conflicts is the contact that LO and NAF had
prior to the wage settlement in 1925. This was negotiations at the highest
levels between the two organizations, negotiations that took place in the
utmost secret (Knutsen, 1985). Similar negotiations also contributed to
ending the extensive and illegal construction workers strike of 1928
(Bjrgum, 1985). Yet this time, it was not a goal to keep secret the fact
that the leadership of the two organizations had reached a compromise.
For the first time, the parties publicly expressed a desire to cooperate, and
that this could be of benefit to both parties. The LO chairman officially
referred to the occasion as () a victory for both organizations.
(Knutsen, 1985: 407). A clear understanding of the benefits of dialogue,
negotiations and compromises seemed to have been developed.
21
4.2 The withdrawal of the government
As noted, several arbitration rulings throughout the 1920s were clearly in
the employers favor, and these served as confirmation that the employers
had the government on their side. However, this situation changed toward
the end of the 1920s. The government seemed to be increasingly powerless
with regard to the many of the labor conflicts that were typical during this
period. In 1927-28, the conservative government gave increasingly clear
signals that they wished to withdraw from the wage bargaining process
and leave the wage settlement to the parties of the labor market. This
position was affirmed by subsequent governments. Without guarantees
from a powerful third party who could enforce a particular resolution
(often in the employers favor), it became increasingly clear that the
employers had to make a decision between continued confrontation, and
greater efforts toward cooperation. The last strategy seemed to gradually
gain internal ground among the employers.
4.3 Rationalization
The 1920s were also a time during which the question of modernization
and rationalization of the production process became increasingly more
relevant. Technological changes and the improved efficiency of the work
process forced the labor movement to take a stand to the question of
whether rationalization was a good or an evil. Would rationalization lead
to increased production with fewer jobs or is rationalization necessary in
order to make space for increased wages and the creation of jobs? Leading
actors within LO eventually got behind the last viewpoint. A belief spread
throughout the union movement that increased productivity and higher
earnings for the companies could be more effective in achieving the goals
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of work for everyone, increased wages and better work conditions, than
strikes and class-struggle. Improved productivity and increased
production also implied that the cost of production stops grew. Lockouts
therefore seemed less and less attractive for the employers. Cooperation
with the unions looked more appealing in order to hinder production
standstills.
4.4 Power balance
In 1931, the most wide-ranging labor conflict in Norway to that date took
place. There is a widespread view among Norwegian historians that this
conflict ended in a draw but with great financial losses on both sides.
NAF had built up significant debt and LOs strike funds were nearly
empty. A power balance appeared to have been established. It had been
seriously demonstrated to NAF that the organized labor movement had
come to stay, and LO understood from its perspective that if it was going
to safeguard the members income and jobs, they had to seek out solutions
that did not threaten the companies existences. Both parties seemed to
realize that labor and capital were tied to one another whether they liked
it or not. Hence, the massive conflict of 1931 was an important
contribution in promoting an understanding among both parties that
conflict and struggle were neither in the workers nor the employers
interest. Cooperation over modernization and a reasonable distribution of
the profits was necessary.
4.5 Shift to the right
Throughout the 1930s, the international political climate was increasingly
characterized by a rightward shift in state and society. Fascisms growth
23
in particular represented a serious threat to the organized labor
movement. In countries like Italy, Spain, Germany and Austria, a
deliberate policy was carried out in order to destroy and split up the union
movement. Incidents throughout Europe in which union leaders had been
imprisoned, abused and killed were continually reported in the press. In
Norway, the Farmers Party took over the government in 1931. This
marked a transition to a policy that was more hostile towards unions, and
a clearer right-wing activism in the rest of the society. This shift in
politics led to it being increasingly more important for the leadership in
LO to avoid big conflicts with the employers and the government which
could then lead to the labor movement being gradually left essentially on
its own. An escalation of the conflicts could threaten the labor movement
even in Norway. It became more and more apparent to the leadership of
LO that cooperation over pragmatic solutions was necessary precisely to
avoid ending up in the same desperate situation that the labor movements
in many other countries found themselves in.
4.6 Fighting unemployment
The fight against the record high unemployment also played an important
role for bringing LO and NAF closer together. The official and most
utilized unemployment statistic shows an unemployment rate at 33% in
Norway in 1933. With unemployment at this level there is reason to
believe that LO understood that it had a responsibility in the efforts to get
unemployment down, and that the constant labor conflicts represented an
obstacle to this. The statement made by the LO chairman at the LO
congress in 1932 can be interpreted as being an expression for such an
understanding: The Norwegian Federation of Trade Unions must now
24
take political and social factors into consideration based on the collective
working class interest.
4.7 Crisis plans
In an attempt to address the high unemployment and economic recession,
the Labor Party launched their so-called Crisis plan in 1934. This plan
marked an initial cautious alternative to the dominant economic thinking
at the time. In order to increase production and employment, the state
was ascribed a more active role in the effort to stimulate demand. The
Crisis plan was inspired by modern economic theory, which was also
introduced around this time. Yet it was difficult to formulate an effective
recovery policy as long as the parties of the labor market were unwilling
to cooperate. In particular, the challenge was that increased government
spending would increase the bargaining power of those who were already
employed, especially those employed in firms sheltered from international
competition. If increased demand should result in rising wages of insiders
in the labor market, this would not only limit growth in employment, but
also affect firms that competed on the international market. In order for
the Keynesian policies to work as intended, local militant unions had to be
brought under control (Moene and Wallerstein, 2006).
The employers were the first to seek out a solution to this problem
(Bjrgum, 1985; Bowman, 2002). In order to take the wages out of the
hands of local unions, NAF worked hard for a centralization of the wage
bargaining process. Their approach was not, however, to ban unions in
order to hold wages down. Their strategy was to give more power to the
leaders of the labor movement as a whole, and thus strengthen unions as
institutions. This was an idea that the leadership of LO could easily
25
support. Thus, both NAF and LO seemed to gradually realize that without
industrial peace the recovery policy would not work. But even more
important, they seemed both to understand that increased government
spending would work best if wage bargaining were structured in a
centralized manner. Yet, such an arrangement required extensive
cooperation between the parties of the labor market.
4.8 New alliances
Within the labor movement, it was especially labor unions who
represented workers in the export sectors that supported the idea of a
more centralized system of wage setting. These unions feared that
militant unions within the sheltered sectors of the economy (e.g. unions
organizing construction workers) would drive up wages if aggregate
demand should go up as a result of increased government spending. High
home-market wages would make it very difficult for union leaders in the
export sectors to maintain the wage moderation required for international
competitiveness. As a result, an implicit coalition consisting of unions in
the export sectors, in particular the union representing metal workers,
and the employers arose (Swenson, 2002). Both parties considered
centralized wage coordination as essential for controlling wage growth in
firms sheltered from international competition.
In practice, the extent and effect of the crisis policy that was put into
effect in Norway the 1930s was modest (Hodne and Grytten, 2002).
However, the implicit coalition between the employers and the unions
organizing workers in export oriented firms represented an important
institutional response to problems that could threaten the effects of a
more active stimulation of demand an economic policy that became more
26
relevant after the Second World War (Moene and Wallerstein, 2006).
Again, it seemed increasingly apparent that LO and NAF had shared
interests.
5. Beliefs, trust and cooperation
During the 1920s and 30s a series of events took place which led to a
mental reorientation among the parties of the labor market in Norway.
This mental reorientation was necessary in order to move the parties out
of the difficult situation they found themselves in. There are reasons to
believe that the parties of the labor market were well aware of the high
costs related to the many strikes and lockouts that were initiated. Still,
this fact is not enough in itself to explain why the parties managed to
move on from conflict to cooperation. The basic problem was that the
parties did not have trust in each other in the first place. They were in
conflict, they had been in conflict over a long period of time and they
therefore held the belief that the opposite party did not have the intention
to cooperate. As long as these beliefs remained, the parties had no reason
to change their strategy. Rather, the contrary was true, since they risked
getting the short end of the stick if they backed off when the opposite
party continued to stand firm. A change in beliefs was needed. Both
sides needed to be assured that the opposite party would choose
cooperation in order for they themselves to do the same.
If we again relate the discussion to Figure 4, we can interpret the events
discussed in section 4 as essential for bringing the parties beliefs above
the critical value , making cooperation the rational strategy to
27
implement. Both external and internal events were important for the
gradual change in beliefs. Among important external events were the
governments withdrawal from the wage negotiations, the growth of
fascism and economic crisis, while important internal events were a trust
between the top leadership, balance of power between LO and NAF and
new alliances across the two organizations. With the start of the 1930s, a
situation emerge where all these events join together with rationalization
and improved productivity which make the rewards of cooperation
increasingly greater. Together, this creates a state in which the parties
step away from conflict as their main strategy and start working for more
peaceful industrial relations.
Viewed in this way, the signing in 1935 of the Basic Agreement in Norway
was not a result a spontaneous declaration of trust among the two main
parties of the labor market. A gradual change in beliefs served as the
decisive factor. Yet when the Basic Agreement was in place, it led to the
further development of mutual trust between the parties. Without this
trust, the Basic Agreement would not have achieved the significance it
ended up having for the system of centralized wage bargaining, and for
the Norwegian model of labor relations in general.
28
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