Finland: New government challenges tradition of tripartite consensus

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Finland’s new right-wing coalition government has challenged the country’s tradition of tripartite consensus. When taking office in May 2015, its plan to revitalise the economy included a threat of additional austerity measures if the social partners did not agree to a 'social contract' to improve the country’s competitiveness. After some turbulent months with several rounds of negotiations and a major demonstration organised by the trade union confederations, negotiations for such a contract eventually broke down in December. 

Rather than implementing the announced austerity measures, however, the Government seeks to boost the country’s competitiveness by proposing new legislation that would set maximum limits on what can be collectively agreed with regard to annual leave and holiday bonuses, among other things. As many of the proposed changes concern issues that are regulated in collective agreements, such mandatory legislation would significantly limit the social partners’ freedom of agreement.

Background

The new Finnish government is headed by Prime Minister Juha Sipilä from the Centre Party, backed by the Finns Party and the National Coalition Party. Sipilä, a former entrepreneur and businessman, is relatively new to politics, having been first elected to parliament in 2011 and becoming Chair of the Centre Party in 2012. His business background has been mirrored in the way he has formed his government. During the election campaign, Sipilä often suggested running Finland like a company, declaring that the previous government was lacking in business acumen. His government structure has been characterised by pragmatism, where the risk of any ideological barriers to executive ability has been eliminated. 

Content of new programme

The main objective of the Government’s Strategic Programme, entitled Finland, a land of solutions (819 KB PDF), is to ‘bring the Finnish economy to a path of sustainable growth and rising employment’. Finland’s GDP has remained below its pre-crisis level for several years, and potential growth has declined. Apart from suffering from the effects of a weak global economy, Finland has also experienced a rapid decline in some of its core industries. Unemployment is high (10.3% in April 2015, according to Statistics Finland) and, according to the government’s assessment, falling exports bear witness to the country’s weakened competitiveness.

In its strategic programme, the new government announced cuts in public expenditure by about €4 billion, particularly targeting social security, education and social and health care services. Structural unemployment is to be reduced by removing ‘incentive traps’ which prevent people from accepting work, including a reform of unemployment security. The government also announced that it would encourage the social partners to adopt local agreement practices in workplaces, in view of legislative projects that would strengthen the conditions for local agreements.

Social partners under pressure

What stands out in the new government’s strategy is the pressure put on the social partners. The Finnish tradition of tripartite political exchange has relied on consensus, and issues such as social policy, labour law and tax reforms are usually negotiated on a tripartite basis. Prime Minister Sipilä’s government has taken a different approach. The strategic programme stated that if the social partners did not agree to what was referred to as a ‘social contract’, hence comprising measures to improve Finland’s competitiveness by lowering unit labour costs by 5%, by a deadline set in August, additional austerity measures of €1.5 billion would follow. Finnish media generally perceived this as a political move to put pressure on the social partners (in Finnish). The conditional expenditure savings and tax increases were listed in the annexes to the government's programme and included further cuts in unemployment security, child allowances, adult education allowance and student aid. 

While the social partners all acknowledge the grave situation of the country’s economy, there are disagreements about how the problems should be addressed. The Central Organisation of Finnish Trade Unions (SAK), the Confederation of Unions for Professional and Managerial Staff in Finland (Akava), and the Finnish Confederation of Professionals (STTK), announced their willingness to 'shoulder responsibility' early on, but stated that any social contract must be made through balanced negotiations. They also stressed that employees should not be the only ones to bear the cost of reform.

Employers generally approved of the government programme. In a press release, The Confederation of Finnish Industries (EK) said the measures are ‘on the right track’ (in Finnish), and took a positive approach to the envisaged social contract.

Despite the mutual understanding on the need for change, the social partners did not reach an agreement on measures to boost the economy before the Government’s deadline in August, the biggest stumbling block being the cut of unit labour costs by 5% (in Finnish). Where the employers and the government requested an overall rise in working time and other measures mainly to be borne by the employees, the trade unions aimed for a more ‘balanced outcome’, focusing on increasing productivity and wage moderation. 

Massive opposition to government proposals

Following the failure of the labour market agreement, the government did not, however, opt for implementing the additional austerity measures envisaged in the government programme, but presented a list of measures to improve cost-competitiveness to be implemented by legislative means. This included plans to cut workers’ overtime and Sunday pay, holidays and sickness benefits. Such cuts would have hit low-paid employees in the female-dominated social, health care and service sectors especially hard. Furthermore, the proposals were seen as a limitation of the right of the social partners to make their own agreements and strong reactions among the trade union movement as well as among the general public followed. The three trade union confederations organised a major demonstration on 18 September 2015 that brought an estimated 30,000 people to the Railway Square in Helsinki (in Finnish). Public transport, trains and harbours also stood still and a number of shops, nurseries, offices and factories shut down for the day.

Government change course but negotiations break down again

The massive reaction made the government change course, reversing its plan to reduce Sunday and overtime pay and instead proposing a cut in holiday bonuses, which would affect employees more evenly. Holiday bonuses are provided by many collective agreements, amounting to 50% of the pay for the annual holiday. The social partners were also, once again, given the chance to draft a package of alternative measures, which would have the same effect as the Government’s proposal.

The peak-level social partners willingly resumed negotiations yet again on alternative measures. The negotiations continued through the autumn until they eventually broke down in early December when the employers association EK pulled out, stating as a reason (in Finnish), that the SAK-affiliated Transport Workers’ Union AKT – a central transport chain for Finnish import and export – were not willing to join the agreement. SAK on the other hand accused the employers of a lack of real willingness to negotiate (in Finnish), as the Government and the employers had in practice already set an outcome for the negotiations in their aim for lowering unit labour costs by 5%. The alternative ways to improve competitiveness suggested by the trade unions were not accepted. All the negotiating partners expressed their disappointment with the failed negotiations.

Commentary

While the previous government was criticised for its lack of executive ability, the new government’s approach has proven risky. Tripartite dialogue has played an important role in maintaining stability in Finland. The atmosphere in the labour market during the autumn has been   characterised by a power struggle. The trade union confederations are still strongly opposed to the government’s intentions for legislative interventions in employment conditions, although these are well in line with the employers’ aspirations. In particular, the trade union confederations are opposed to what is perceived a limit of the freedom of agreement (in Finnish). Legal scholars are split over the legality of the government proposals (in Finnish), and whether the laws will in fact pass is uncertain. The Government has in any case challenged a fundamental tenet of the Finnish bargaining system; up to now the legislation has set minimum limits on what can be agreed upon in collective bargaining, now the Government wants to stipulate maximum limits in certain cases. Major insecurity and a wave of industrial action are likely to be part of the landscape in future.

 

 

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