Rudolf Meidner, chief economist of the LO, Sweden’s largest trade union federation, and an immensely practical socialist visionary, died in December. If Meidner had not been a Swedish citizen, and still a controversial figure at the age of 91, he would very likely have been awarded the Nobel Prize for economics. Meidner was, after all, the co-architect — with Gosta Rehn — of the Swedish welfare state, an achievement which, by itself, would have merited such a nomination. Those responsible for this prize tend to prefer theory to policy but it should be clear to everyone that the Rehn/Meidner model was based on its own distinctive theoretical insights and that policy-oriented economics is anyway deserving of recognition.
Building on Keynes and James Meade, the two men understood that welfare and corporate finance needed to be thought through together if high employment levels were to be maintained and inflation avoided. Remarkably enough, their model did for long succeed in delivering on both fronts — something which, sadly, cannot be said about other European welfare states, where monetary stability was achieved at the expense of a long and debilitating toleration of high levels of unemployment, with younger workers, older workers and ethnic minorities the worst affected.
From the time of the introduction of the second pension system, the ATP, in 1959 the ‘Swedish home’ could accumulate a trust fund so that in future asset income as well as current taxes could be drawn on to pay ATP entitlements. Continental European pension systems were more purely reliant on pay-as-you-go. The famous wage-bargaining round was another device which Rehn and Meidner integrated into their model, helping it to avoid the twin perils of hyperinflation and persistent, high joblessness. Meidner’s position as the chief economist of the LO, the main trade union federation, must have been important in promoting a species of solidaristic wage-bargaining in which the fruits of productivity advances were widely shared. In recent years the Netherlands has had good results with a similar approach.
Another crucial mechanism for maintaining macro-economic balance in the Rehn/Meidner model was the investment reserve. Whereas Anglo-Saxon companies are encouraged to take ‘contribution holidays’ — and put nothing into their pension and health-care funds during upswings of the business cycle — Swedish corporations were encouraged to stow operating profits in special tax-exempt reserves. More generally the Swedish welfare state guaranteed secondary pensions and health care to all citizens, instead of offering private corporations tax incentives to take on the task of supplying social insurance to their own workers. The latter formula — Anglo-Saxon style corporate welfare — has proved to be a trap for employees, depriving them of their promised benefits and threatening their jobs as once-famous companies plunge into bankruptcy and entire industries — steel, airlines, auto and telecoms — are ravaged by the burden of pension and health entitlements. The corporate pensions crunch destroys good jobs and their replacement by low-wage, insecure service employment — MacJobs — is scant compensation.
I am aware that Sweden’s welfare state and social market economy faced its own near-collapse in the early 1990s and that the Rehn/Meidner model did not emerge unscathed. This crisis was deemed to reflect badly on the model though both Rehn and Meidner had stepped down long before, and their advice had anyway not been heeded. Looking back over three or four decades, there remains something very distinctive about the Swedish achievement, something which owes much to the original model. Swedish welfare remains comparatively generous and Swedish unemployment only a little over a half of the core EU rate. Swedish parents have access to better child-care, and Swedish women have better-paying and more flexible jobs than are to be found in other advanced countries.
Meidner’s achievement goes beyond his role, important as that was, in helping to set up the ‘Swedish home’. He saw that an ageing and learning society would require social expenditure on a scale unprecedented in peacetime (one could easily add such challenges as ecological degradation and climate change). Meidner came to believe in the need to establish strategic social funds — ‘wage-earner funds’ – to be financed by a share levy. The huge controversy which was provoked by this proposal generated more heat than light.
The Social Democratic party leadership did not share Meidner’s vision and did a poor job of presenting it to the Swedish people. Meidner’s plan was very radical and they were not. With hindsight there were aspects of the plan that needed adjustment but those made by the SAPD went in the wrong direction. Having, as they saw it, burnt their fingers, the Social Democratic leaders began to see Meidner as an embarrassment, or as a relic of a by-gone age. He was consigned to the shadows and no part of his thinking was more disdained than the ‘wage-earner funds’.
Yet financing pensions, research and education becomes increasingly difficult throughout the OECD countries. Does it really make sense to pay for public programmes only out of current tax revenues and not to pre-fund them, or to introduce even the most modest tax on shareholding wealth. It is a striking fact that while most governments are happy to tax the homes people live in, they all refuse to have any direct levy on share-holding wealth or to allow — as Meidner boldly imagined — social funds to exercise control over the large corporations.
Increasingly, it seems, we live in a society like the French Ancièn Regime before 1789. Then the wealth of the feudal aristocracy was largely exempt from tax; now it is the holdings of the corporate millionaires and billionaires that escape taxation. Other signs reminiscent of the age of Louis XVI include the spirit of ‘après nous le deluge’, the reliance on lotteries, and the emergence of modern variants of ‘tax farming’ — for example, laws which oblige citizens to pay their taxes (pension contributions) to commercial fund managers rather than to an accountable public body. But the taboo on effective taxation of corporate wealth is the most crucial sign of the reign of privilege.
Rudolf Meidner’s share levy, unlike so many modern taxes, was extraordinarily difficult to evade. On the other hand it was not at all punitive. Unlike traditional corporate taxation, it did not subtract from the cash-flow or resources which the enterprise needed for investment. It diluted shareholder wealth without weakening the corporation as a productive concern. According to the original plan every company with more than fifty employees was obliged to issue new shares every year equivalent to 20 per cent of its profits. The newly issued shares — which could not be sold — were to be given to the network of ‘wage earner funds’, representing workplaces and local authorities. The latter would hold the shares, and reinvest the income they yielded from dividends, in order to finance future social expenditure. As the wage earner funds grew they would be able to play an increasing part in directing policy in the corporations which they owned.
The idea that workers ands citizens should tame the corporations by establishing control of financial instruments was an echo of ideas that Meidner imbibed in his youth from the debates of German and Austrian Marxian economists like Rudolf Hilferding and Karl Polanyi. For Meidner was not born in Sweden but arrived there as a refugee in 1938.
Meidner’s visionary scheme was warmly welcomed by many trade unions and by members of the Social Democratic party but strongly opposed by the press and by the ’20 families’ who then dominated the country’s large corporations. It was adopted by the LO in 1976 and, much more cautiously, by the Social Democrats a couple of years later. Opponents of the scheme, claimed that it would aggrandize the trade unions who would dominate the ‘wage-earner funds’. It was also alleged that the scheme unfairly favoured employees in the private sector since they were to be the first to receive shares from the levy. Scare campaigns persuaded the governing Social Democratic not simply to reduce the size of the levy — 10 per cent of profits would have been a perfectly good starting point — but to abandon the principle of the levy itself. Likewise they did not improve the funds’ accountability but instead prevented them from having any say in corporate policy. By 1992 even the scaled-down social funds owned 7 per cent of the Swedish stock market but, to prevent them getting any larger, were wound up by the Conservatives in 1992 and the proceeds used to finance a string of scientific research institutes. So Meidner’s plan has yet to be properly tried, though even in its diluted form the social funds helped to propel Sweden to the forefront of the knowledge-based economy.
Rudolph Meidner, as a radical social democrat, an egalitarian and an organic intellectual of the labour movement was committed to a ‘third way’ that was actually the antithesis of the doctrine of that name subsequently espoused by Tony Blair. Were Blair is vague and rhetorical, Meidner was precise and institutionally specific. Where Blair encourages the privatization and commodification of everything, Meidner was dedicated to the ‘de-commodification’ of welfare, education and research. And his proposal for a network of regional funds broke with the traditional socialist practice of concentrating more power in the central state.
It is now a long time since governments of the Left have dared to tried to tame the corporations and ask whether the owners of the large corporations might be obliged to contribute more to the wider society, without which their own profits would be impossible. The most far-sighted attempt to think through the types of new finance that would be needed to guarantee generous social provision remains that of Rudolf Meidner and this will be his legacy to the 21st century.
ROBIN BLACKBURN is Visiting Distinguished Professor at the New School for Social Resaerch in New York and professor of sociology at the University of Essex, UK. He is the author of Banking on Death: the History and Future of Pensions (2002) and is an editor of New Left Review.