The Finnish incomes policy as corporatist political exchange: development of social capital and the social wage

The paper is concerned with the history of the Finnish incomes policy, covering the period from the Second World War to the present. It deals with the Finnish incomes policy as a special type of political exchange between the social partners and the Government. In pursuing wage moderation, governments have used welfare reforms as a means of exchange for solving certain externalities arising in wage bargaining. The continuity of political exchange between the social partners and the Government requires a common ground of values and trust. In the paper, these prerequisites are characterised by the use of the concept of social capital. Social capital can be interpreted as a relationship of horizontal trust between the social partners and the Government. This interpretation is closely related to Bo Rothstein’s concept of organised social capital. Accordingly, the paper emphasises the importance of the institutional framework within which incomes policy negotiations have been carried out as an important promoter of social capital between the social partners and the Government. The paper also emphasises the importance of centrally negotiated incomes policy agreements as an important institutional framework within which the Finnish welfare state has evolved. For example, the earnings-related pension scheme has been developed mostly within the framework. The paper discusses not only the history but also the present and the future of the Finnish incomes policy. Owing to the traditionally close relationship between centrally negotiated incomes policy agreements and welfare reforms, the end of centrally negotiated incomes policy agreements declared by one of the social partners, the Confederation of Finnish Industries, is likely to affect not only the manner in which wages are negotiated in the future but also the tradition of political exchange between the social partners and the Government. The end of centrally negotiated incomes policy agreements may put an end to political exchange, too. Furthermore, it may give rise to a deterioration of social capital between the social partners.