Academic journal article Journal of Economic Issues

Under What Circumstances Do Social Accords Work?

Academic journal article Journal of Economic Issues

Under What Circumstances Do Social Accords Work?

Article excerpt

Social accords can provide wide-ranging macroeconomic benefits, including low unemployment and inflation, economic stability, and real improvements in the material conditions of the most disadvantaged. More debatable is the extent to which successful experiments with social accords are replicable across countries and durable, once established, within each country. In this paper we locate social accords within business systems theory. Thereafter, we assess the track record of social accords and the organizational and institutional prerequisites for a successful social accord. Finally, we explore their relative durability and seek to draw a distinction between temporary suspensions of centralization and broader systemic crises.

Comprehending Social Accords

What are social accords? There are numerous definitions, but there is agreement that they have several key characteristics. First, accords are negotiated, national-level agreements between the state, the union federations, and/or employer federations. Second, the negotiation process for these pacts is characterized by consultation and inclusiveness: policy is developed through co-ordination rather than through recourse to pure market forces or by central decree. The emphasis is on building consensus, promoting compromise, and enhancing mutual understanding, with the objective of, above all, finding a mutually acceptable mechanism for centralized wage setting (Arestis and Marshall 1995, 8). Third, accords typically have one or more macroeconomic goals as aims, including inflation control, fiscal balance, industrial peace, increased economic growth, decreased economic inequality and poverty, and improved international competitiveness. Fourth, to achieve these goals, accords typically involve trade-offs between the parties. For instance, unions may agree to low wage increases in return for some improvement of social security benefits (Riach 1995).

Social accords are grounded to some extent in specific national institutions which help to define the relations among labor, capital, and the state. We refer to relatively stable and enduring configurations of these institutions as business systems. Business systems "are particular ways of organizing, controlling and directing enterprises ... particular arrangements of hierarchy-market relations which become institutionalized and relatively successful in particular contexts" (Whitley, quoted in Pedersen and Thomsen 1999, 46). In other words, a business system represents "the stamp in terms of the modes of organizing and managing that belonging to a certain country leaves on firms" (Foss 1999a, 4). As M. Schneiberg argued, the institutions of capitalism "tend to cohere in a limited number of stable configurations" (2001), profoundly shaping the manner in which firms respond to changes in the nature of the global economy. The business systems approach provides "a framework for comparing and contrasting the different ways of organizing economic activities which have become established in different institutional contexts" and for suggesting "how some key characteristics are interrelated in particular kinds of business systems" (Foss 1999b).

Richard Whitley identified three characteristics that define business systems (1999, 34). These are ownership coordination, non-ownership coordination, and employment relations. Ownership coordination encompasses owner control mechanisms, the extent of ownership of production chains, and the extent of ownership integration across sectors. Non-owner coordination includes the extent to which alliances are used to coordinate production chains and sectors and the degree of collaboration between sectors. Employment relations, or work management, refers to the degree of trust employers have in employees and their willingness to delegate complex tasks and responsibilities to them, and the degree of employer-employee interdependence. These different dimensions are synergistic and complementary. …

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