Abdication from National Policy Autonomy: What's Left to Leave?

Politics & Society

Volumn 22, Issue 2, 1994, Pages 125-148

  Moses, Jonathon W ^a  

^a NONE

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EID: 84972742737     PISSN: 00323292     EISSN: 15527514     Source Type: Journal    
DOI: 10.1177/0032329294022002002     Document Type: Article

References (50)

1. Ton Notermans, “The Abdication from National Policy Autonomy: Why the Macroeconomic Policy Regime Has Become so Unfavorable to Labor,” Politics & Society 21, no. 2 (June 1993): 133-67.
2. This is, of course, discounting the famous eighteen-day reign of the Hornsrud Det Norske Arbeiderparti-The Norwegian Labor Party (DNA), government from 28 January to 15 February, 1928.
3. There were brief social democratic regimes in the 1920s (Branting: 1920, 1924-25; Sandlaer 1925-26); and Per Albin Hansson's first regime (1932-36) was briefly replaced by a Center Party government (Axel Pehrsson-Bramstorp) before the long stretch of uninterrupted social democratic rule took root in 1936.
4. The careful reader will note that Notermans’ argument in both sections is based on actor perceptions, not “objective” economic conditions. Perceptions are impossible to substantiate, and are often contradictory. Therefore, a substantial discussion of these matters must be grounded in observable phenomena, not hearsay.
5. Obviously, there is something of an endogenity problem built into arguments about deflationary expectations in the 1930s. Inasmuch as deflation led to pressure for reflation, there could have been both perceptions of deflation and expectations that it would be reversed (accompanied by pressure for its reversal).
6. Notermans, “The Abdication from National Policy Autonomy,” 155-6. Emphasis added.
7. See Henrik Jess Madsen “Social Democracy in Postwar Scandinavia: Macro- economic Management, Electoral Support and the Fading Legacy of Prosperity” (Ph.D. diss., Harvard, 1984), 111.
8. The post-war SocialDemocratic coalition governmentin Sweden foresaw political difficulties in the need for higher taxes (needed to finance the new labor market policy) and the maintenance of budget surpluses in order to prevent excess demand in the economy. The Agrarian (later Center) Party, a coalition partner from 1951-58, was particularly insistent on an easy-money policy. All around, there was not much political support for a less expansionary monetary policy.
9. Andrew Martin, Wage Bargaining and Swedish Politics: The Political Implicatons of the End of Central Negotiations (Stockholm: FIEF, 1992), 26-7.
10. For a good general description of Sweden's post-war economic policy, see Leif Lewin, Planhusha&llnings debatten (Stockholm: Almqvist and Wiksell, 1967).
11. LO, Fackfdreningsrorelsen och denfulla sysselsuttningen (Stockholm: LO, 1951). An English translation came out in 1953 as LO, Trade Unions and Full Employment (Stockholm: LO).
12. Actually, Gosta Rehn has dedicated his professional life to the problem of inflation in full-employment economies. A collection of his writings was published in 1988 under the title “Full Employment without Inflation.” See Gbsta Rehn, Full sysselsdttning utan inflation (Stockholm, Tidens, 1988).
13. The LO policy statement presenting the model makes this explicit. See LO, Fackfdreningsrodrelsen.
14. For a description of Norwegian post-war economic policy and strategy, see Bjerve, Norges 0konomi etter krigen; Petter Jakob Bjerve, Planning in Norway 1947-56 (Amsterdam: North-Holland, 1959); and Alice Boumeuf, Norway: The Planned Revival (Cambridge: Harvard, 1958).
15. Gosta Edgren, Karl-Olof Faxen, and Clas-Erik Odhner, Wage Formation and the Economy (London: Allen & Unwin, 1973); and Odd Aukrust, “Inflation in the Open Economy: A Norwegian Model,” in Worldwide Inflation: Theory and Recent Experience, edited by Lawrence B. Krause and Walter S. Salant (Washington, DC: Brookings Institution, 1977), 107-66.
16. With floating exchange rates, Aukrust claims that the Norwegian inflation model is useless. See Aukrust, “Inflation in the Open Economy,” 114.
17. This is, of course, not a novel distinction. Several authors have previously documented the character of different Nordic “models.” See, for example, Lars Mjset, Norden dagen derpac (Oslo: Norwegian University Press, 1986); Lars Mjset, “Nordic Economic Policies in the 1970s and 1980s,” International Organization 41, no. 3 (1987): 403-56; Nordisk tidskrift fdr politisk ekonomi no. 15/16 (1984); and Gosta Esping-Andersen, Politics against Markets (Princeton, NJ: Princeton University Press, 1985).
18. For a useful description of inter-war policies in the Nordic countries, see Hans Chr. Johansen, “Hovedlinier i den 0konomiske udvikling i de nordiske lande i mellemkrig- stiden,” in Kriser och krispolitik i Norden under mellankrigstiden, edited by Nordiska historikermotet (Stockholm: Almqvist and Wicksell, 1974), 13-26; and Svante Beckman, “Ekonomisk politik och teori i Norden under mellankrigstiden,” Kriser och krispolitik i Norden under mellankrigstiden, 27-70.
19. One solution to this policy dilemma may be the reintroduction of income policies. Well-designed income policies have the capacity to deliver some wage flexiblity without turning wage determination directly over to the market.
20. This was mostclearly articulated in aPenge- ogbankkomit6en's report (established March 24,1950), which recommended political control over the central bank, and projected the anticipated path for credit development and regulation in the post-war era.
21. Finans- og tolldepartementet, Innstillingfra den penge- og kredittpolitiske komite: oppnevnt ved kongelig resolusjon 11. november 1960 (Bergen: Reklametrykk A.S., 1964). Translation mine.
22. Jan Fagerberg et al., “The Decline of Social-Democratic State Capitalism in Norway,” New Left Review 181 (May/June 1990): 60-94.
23. The Norwegian export industry was initially focused in industries which were very capital intensive (e.g., shipping and ship building, energy-intensive products, etc.).
24. There is much written on Norwegian credit and monetary policy. See for example: Arne Jon Isachsen, Penger, kreditt og valuta (Oslo: Universitetsforlaget, 1984); Wilhelm Keilhau, Den norske pengehistorie (Oslo: H. Aschehoug and Co., 1951); NOU, Rentepolitikk (Oslo: Universitetsforlaget, 1980); Bjerve, Norges 0konomi etter krigen; Bjrn Tjaum “Norsk penge- og kredittpolitikk i etterkrigstiden,” Bedriftsk0nomiske Institutts Arbeids- notat 15 (Sandvika: Bedrifts0konomiske Institutt, Norway, 1990); and Bent Sofus Tran0y, “Fra styring, via selvregulering til selvsosialisering: staten og kredittpolitikken 1950-1990” (Hovedoppgave at the Department of Political Science, University of Oslo, 1992).
25. This is not surprising in that the Norwegian private financial sector was both late and slow in developing. See Fritz Hodne, Norges 0konomiske historie 1815-1917 (Oslo: J.W. Cappelens Forlag A.S., 1981).
26. State banks were developed specifically, but not exclusively, for housing (1947), agriculture (1948), education (1947), and regional industrial development (1960).
27. Although the Norwegian kroner is currently floating, for all intents and purposes it is linked to the ECU as part of a long-term confidence strategy.
28. Statens Offentliga Utredningar (SOU), Banklikviditet och kreditprioritering no. 16 (Stockholm: 1960). Translation mine.
29. Assar Lindbeck, “The Swedish Experience,” Seminar paper no. 482 (Stockholm: Institute for International Economic Studies, December 1990), 3.
30. Lindbeck does note that devaluations have become an important part of the full- employment tool bag in the 1970s. But it would be wrong to characterize the “Golden Age” Swedish model by the use of devaluations, as this is a relatively new phenomenon.
31. Assar Lindbeck, Swedish Economic Policy (Berkeley: University of California Press, 1974), 39.
32. Government support for subsidies and retraining came when the Rehn model was largely incorporated in government policy with the (1961) report by a public committee on stabilization policy. See SOU, M&l och medel i stabiliseringspolitiken no. 42 (Stockholm 1961).
33. See Erik Lundberg, ‘The Rise and Fall of the Swedish Model,” Journal of Economic Literature 23, no. 1 (March 1985): 17.
34. For a more detailed review of how these controls were applied, see SOU, Valutareglering och ekonomiskpolitik no. 51 (Stockholm 1980); SOU, Kreditpolitiken. Fakta, teorier och erfarenheter no. 53 (Stockholm, 1982); SOU, Oversyn av valutaregleringen no. 52 (Stockholm, 1985); and Lars Horngren and Ann Westman-Martensson, “Swedish Monetary Policy: Institutions, Targets and Instruments,” Sveriges RiksbankArbetsrapport no. 2 (Stockholm, May 1991).
35. In the 1970s these pension funds totaled about 50% of Swedish GNP.
36. Lindbeck, Swedish Economic Policy, 9.
37. Permanent public sector employment-excluding public sector corporations and public utilities-increased from 21% in 1970 to 30% in 1980, measured in the number of employees. See Lindbeck, ‘The Swedish Experience,” 9.
38. Lindbeck, Swedish Economic Policy, 8.
39. Indeed, Englund argues that Sweden's emerging money market opened new possibilities for funding government deficits, which in turn set the stage for even more credit market deregulation. Peter Englund, “Financial deregulation in Sweden,” European Economic Review 34 (1990): 386.
40. The underlying rate of growth of domestic credit cannot exceed an upper bound, determined by the rate of growth of the demand for money, which depends on the world rate of inflation, the rate of growth of real income, and the income elasticity of demand for money. This upper bound may be relaxed to the extent that the central bank borrows abroad to support its reserves, but this cannot continue indefinitely.
41. This was exacerbated by a 1984 rule (since rescinded) which restricts governments from borrowing in foreign currencies. This acts as an enormous constraint on monetary and budget policies. See Horngren and Westman-Martensson, “Swedish Monetary Policy,” 9.
42. Obviously, here is the other potential instrument for leveraging more policy autonomy for the social democracies. Thus far, however, devaluations have remained largely outside the policy circle for fear of inflation and in anticipation of Economic Community (EC) membership.
43. “Three arguments for the impossibility of exchange controls can be discarded right away.” Notermans, “The Abdication from National Policy Autonomy,” 15 1.
44. “It is my contention that the policies of exchange deregulation and (de facto) EMS membership must be understood as an effort to find a nominal anchor for the price system…. [T]he Swedish and Norwegian governments chose to import price stability by imposing the external constraint of the EMS on their domestic economies.” Notermans, “The Abdication from National Policy Autonomy,” 152.
45. The most recent description of this process is John B. Goodman and Louis W. Pauly, ‘The Obsolescence of Capital Controls? Economic Management in an Age of Global Markets,” World Politics 46, no. 1 (October 1993): 50-82. For other examples, see Jeffry A. Frieden, “Invested Interests: The Politics of National Economic Policies in a World of Global Finance,” International Organization 45, no. 4 (Autumn 1991): 425-52; and Arne Jon Isachsen and Ivar Strompdal, Produktutvikling ifinansmarkedene: Finansielle innovasjoner i USA og Norge (Oslo: TANO, 1988).
46. For some specifics on Swedish deregulation, see Englund, “Financial deregulation in Sweden,” and Clas Wihlborg, “Valutapolitiken,” in Frdn rantereglering til inflationsnorm, edited by Lars Werin (Stockholm: SNS, 1993), 196-287. For Norway, see Jarle 0. Thalberg and Olaf Johan Thomasgaard, “Dereguleringen av det norske kredittmarkedet” (Diplomoppgave at the Norwegian School of Management 1992).
47. See L. Oxelheim, Finansiell integration (Stockholm: IUI, 1988).
48. For an interesting description of the Norwegian process along these lines, see Tran0y, “Fra styring, via selvregulering til selvsosialisering.” I tend to see these ideological tide changes as reflections of deeper structural movements, but recognize that the direction of this causal arrow (between structure and ideas) is extremely difficult to substantiate.
49. Using such a method will avoid a slippery argument which relies on actors working under “false necessities.” See Notermans, ‘The Abdication from National Policy Autonomy,” 160.
50. See, for example, Eichengreen, Barry, and Charles Wyplosz. “The Unstable EMS” paper presented to the Brookings Panel on Economic Activity, 1-2 April, 1993.