Abstract
A wage and economic-policy programme for full employment, price stability, growth and equity was developed by two Swedish trade-union economists in the early post-war period. A restrictive macroeconomic policy, a wages policy of solidarity and an active labour-market policy are the cornerstones of the Rehn–Meidner model. The model was influenced by Hans Singer's analysis of the fallacies of incomes policy under full employment conditions. However, it is difficult to find equivalences in contemporary economics to the model's combination of policy goals and instruments, its proposed relation between the instruments, or to its emphasis on the role of actual profits in wage formation.
Acknowledgements
A draft paper was presented at the 8th Nordic Conference on the History of Economic Thoughts, 29–31 August 2008, in Oldenburg, Germany. The author would like to thank the conference participants, and also Rolf Henriksson, Winton Higgins, Svante Nycander, Claes-Henrik Siven and two anonymous referees for valuable comments. The author had Gösta Rehn (1913 to 1996) as a colleague at the Swedish Institute for Social Research from 1977 to 1987 and Rudolf Meidner (1914 to 2005) as a colleague at the Swedish Institute for Work Life Research between 1988 and 1990 and between 1993 and 1996.
Notes
1 The term ‘Rehn–Meidner model’ was used in Sweden from the 1960s – for example, by Rehn – while Meidner unpretentiously talked about ‘the Rehn model’. Erik Lundberg also referred, as many other Swedish economists, to the ‘Rehn model’ until the 1980s when he made it synonymous with the RM model. According to Rehn, the notion of ‘the Rehn–Meidner model’ was already used at the 1951 LO Congress. See Meidner (Citation1969a: 190), Lundberg (Citation1972a: 470 and 483; 1980: 78; 1985: 17–18) and Rehn (Citation1969: 163 and 170).
2 In his memoirs, the Prime Minister Tage Erlander writes that he came to espouse the RM labour-market policy at a meeting with the LO leadership in March 1955 (Erlander Citation1976: 38–41).
4 See Arbetarrörelsens efterkrigsprogram (1944) and Beveridge (Citation1944: 198–207). Ernst Wigforss was treasurer from 1932 until summer 1949, and also the chairman of the committee responsible for drafting the post-war programme of the Swedish labour movement.
5 Export prices increased particularly for the raw materials industries representing more than one-half of Swedish export value during the 1940s and 1950s.
6 The abandonment of the policy of permanently low interest rates had been delayed by the coalition government in 1951 to 1957. This government brought together representatives of the Social Democratic Party and the Agrarian Party, Bondeförbundet (Centerpartiet from 1958).
9 Erlander (Citation1974: 234–40) and Ekdahl (Citation2001: 175–6 and 262–71). Erlander was sceptical towards ‘the querulous group's’ proposed new economic policy. According to his diaries, Erlander was even more critical towards Rehn and Meidner's ideas in 1947 to 1951 than he admits in his memoirs (Erlander Citation2001a, 2001b).
12 Meidner made a few references to the possibility that inflation (through wage–wage spirals) might increase profits' shares of Gross Domestic Product, and even reduce production (Meidner Citation1948: 22–3). However, in the latter case, Meidner probably had in mind inefficiencies in labour markets and firms during boom conditions.
19 Rehn and Meidner's neutral attitude to restrictive fiscal and monetary policy means in later works is shown by Meidner (Citation1969a: 190–1), Rehn (Citation1969: 164–6 and 160–70; 1977a: 221–2; 1986: 74).
20 Cf. Meidner (Citation1969a: 189–95), Rehn (Citation1948b: 36 and 51; 1950: 74; 1953: 284). However, the LO's and the social-democratic government's revival of industry-policy ambitions in the late 1960s was also manifested in Meidner's work (Meidner Citation1969a: 195–8).
21 The 1951 report was ambiguous on whether the mobility-enhancing labour-market policy should be market-conforming or should meet certain industrial-policy ambitions. The report claimed that the transfer of labour should benefit regions, firms and industries ‘where the prospects of expansion are favourable’. But the report also maintained that labour should be transferred ‘to places where it is most needed’ (see LO Citation1951: 93 and also Rehn Citation1948b: 47). Strikingly, Erlander declared in his memoirs from the mid-1970s that he was committed to the mobility-enhancing labour-market policy in its planning aspects (Erlander Citation1976: 41). Thus Erlander opposed a market-led reallocation of economic resources through labour-market policy means.
22 During most of the 1950s Rehn was on leave from the LO. For the greater part of that time he worked for governmental committees on macroeconomic policy. During 1959 to 1962, Rehn was head of the economic department of the Ministry of Finance.
31 See Meidner (Citation1948: 25), LO (Citation1951: 25–6 and 34–5) and Rehn (Citation1948b: 43–4n). The notion of ‘rationalisation’ was a broad one in the 1951 report, including reductions of production slacks, organisational changes, labour substitution and even the adoption of new technologies (LO Citation1951: 24). We will reserve the concept for the case of reductions of production slacks.
38 The post-war programme recommended mobility-enhancing labour-market policy and solidarity wage policy (Arbetarrörelsens efterkrigsprogram 1944: 12–13, 15 and 74–8). But there were no arguments for these policy measures in terms of structural change and low inflation, as in the RM model. In the discussion of price stability, the post-war programme focused on the risk of deflation in Sweden and other countries. Moreover, inflation was seen as an exceptional, speculative phenomenon, not as a consequence of expansionary macroeconomic policy and full employment (Arbetarrörelsens efterkrigsprogram 1944: 6 and 47–61).
41 Lundberg and Ohlin emphasised disorganisation problems (e.g. through high absenteeism) and excessive labour turnover rates in an overheated economy. Rehn and Meidner added the risk of more work accidents and less occupational training. See LO (Citation1951: 37), Lundberg (Citation1950: 70–1; 1952: 9) and Ohlin (Citation1949: 10–26).
42 See, for example, Lundberg (Citation1950: 69; 1972b: 12–13; 1980: 78). Despite his conviction that Rehn's ideas were path-breaking, Lundberg did not, as an evaluator, consider Rehn as qualified for a position as professor in economics in the early 1970s. Furthermore, with considerable personal conflictedness, Lundberg ranked Rehn as number three only among the applicants for a position as professor in labour-market policy at the Swedish Institute for Social Research. Lundberg stressed that Rehn had not published works that sought to make a scientific contribution. The most important exception is the article on Swedish wage drift written with Hansen. But Lundberg (correctly) added that Hansen was the originator of the underlying wage model. (Lundberg Citation1972b: 18–19). Rehn was ultimately awarded the professorship by the social-democratic government.
43 Lundberg (Citation1972a: 470–4; 1972b: 12; 1985: 17–18). In the Salter–Solow vintage model, all firms pay the same wage for uniform labour in competitive labour markets.
44 Cf. Leibensten (1966: 408–9 and 412–13) and Rehn (Citation1969: 151–2 and 157; 1977a: 214–15).
45 Lundberg (Citation1950: 67; 1953: 413–22; 1972a: 480–5; 1985: 19).
46 There is not even an hypothesis in Svennilson's ‘Growth and Stagnation in the European Economy’, that firms' productivity will increase through rationalisation during recessions. Productivity varies procyclically in Svennilson's theory, not contercyclically as in the RM model.
48 See Erixon (Citation2000: 25–9; 2001: 23–4), Hansen and Rehn (Citation1956: 89), LO (Citation1951: 92–3) and Rehn (Citation1948b: 32–43; 1957c: 231; 1969: 163 and 170; 1982: 31; 1987: 65–8). In some works by Rehn, including the Rehn–Hansen article, this hypothesis about manager/owner psychology (X-inefficient wages) is combined with another about wage-earner psychology similar to one in the modern efficiency-wage theory – high profits will provoke employees, concerned about equity, to demand high nominal wage increases; Rehn (and Hansen) also suggested, as modern efficiency-wage theorists do, that profit-maximising firms would accept these wage claims to prevent destructive labour performance. Cf. Akerlof and Yellen (Citation1990: 268–9), Hansen and Rehn (Citation1956: 89–90) and Rehn (Citation1957b: 106; 1982: 2; 1986: 76–7; 1987: 65, 68 and 76).
49 Rehn and Meidner emphasised the threats to full employment from wage–wage–price spirals, but also that high inflation with expansionary macroeconomic policies would lead to lower productivity, or call forth (together with current-account problems) either restrictive macroeconomic policy measures, threatening full employment, or regulations hampering productivity (LO Citation1951: 89–91).
50 Hansen was critical of solidarity wage policy (and also of mobility-enhancing labour-market policies). He censured it for not permitting wage earners to remain in a certain workplace or region by accepting lower wages (Hansen Citation1961: 124). However, Hansen ignored here that wage-leading (large) companies in the export sector are putting wage pressure on ‘marginal’ firms in an economy of the Swedish type regardless of the wage policy of solidarity (see the Scandinavian inflation model).
51 James Duesenberry's relative-income hypothesis focused on the importance of relative income positions for household saving, not for wage formation (see Duesenberry Citation1949).
52 See Solow (Citation1980) and Tobin (Citation1972). In the Aukrust model, higher profits will result in higher nominal wages in the wage-leading open sector by boosting firms' self-financing capacity and by weakening their resistance to high wage claims, exactly as in the RM model (Aukrust Citation1977: 115). The relation between the RM model and the Aukrust/EFO model is explored in Erixon (Citation2000: 31–4). One important difference is that productivity is given in the Aukrust/EFO model, while enhanced by a profit-margin decline in the RM model.
53 Rehn and Meidner adopted this job-oriented perspective in the analysis of education and training. But there are some ambiguities in Rehn's approach. He sometimes recommended a wage premium for adults; that is, for experienced workers (Rehn Citation1980: 65).
54 Gösta Bagge had used a similar static market-equilibrium model to analyse the effects of changes in the composition of labour demand on unemployment, wage differentials between sectors and structural change (Bagge Citation1917, Citation1931). Bagge underlined, as Rehn and Meidner would later, the importance of slow labour mobility for either unemployment or wage gaps for similar jobs between sectors (Bagge Citation1931: 80–1 and 87–8). What is more, Bagge too emphasised that the higher risk of unemployment in some sectors would stimulate labour mobility at a given wage development. However, Bagge's rationing mechanism was triggered by changes in the composition of labour demand between sectors under wage rigidity, or by exogenous (collective) wage increases in some sectors – not through wage equalisation between sectors (Bagge Citation1917: 324–43; 1931: 86–7). In the Rehn–Meidner theory, job opportunities would be enlarged in sectors favoured by solidarity wage policy.
55 Profit differentials will increase in the RM model, not only through solidarity wage policy but also through ALMP facilitating dynamic firms' recruitment of scarce labour. See LO (Citation1951: 90–4), Meidner (Citation1969a: 193) and Rehn (Citation1969: 157; 1977: 214; 1980: 43–6; 1982: 44; 1987: 67).
57 In the mid-1950s Rehn had criticised a ‘Schumpeter–Lundberg’ argument about dynamic competition – Rehn maintained that the expansion of innovative industries will be prevented by wage increases in a ‘free’ market (Rehn Citation1953: 280). But he ignored here the possibility that wage differentials might speed up the reallocation of labour across industries. Furthermore, there is a tendency to equal pay for identical work even in ‘free’ labour-markets, a tendency that affects all industries (and companies), while innovative industries (at least temporarily) still enjoy a competitive advantage.
58 Translation from Swedish. There are indications that Singer had an influence on Meidner's speeches from July 1948 (Ekdahl Citation2001: 245–6). It is noteworthy that Meidner in 1997 held that Singer's article 50 years earlier was a flash in the pan –‘I had never heard of Singer before, he got his brilliant idea and was never heard of again’ (Greider Citation1997: 226).
59 In the 1980s, Rehn made references to The General Theory to justify his hostility to incomes policy (Rehn Citation1980: 29). However, it was not clear from Rehn's reference that Keynes did not question the possibility of trade unions to affect employment, and therefore functional income distribution, but only that this relationship could be analysed without considering endogenous changes in effective demand (see Keynes Citation1936: ch. 19). Rehn, Meidner and Singer's scepticism to incomes policy was based on their idea that trade unions have limited possibilities to control general wage developments under overheated economic conditions.
60 Cf. LO (Citation1951: 97–8) and Singer (Citation1947: 453–5). The 1951 LO report had expressed doubts about a systematic job evaluation, and also argued for wage equalisation between different occupations in similar terms as LO would later do so in the 1960s (see LO Citation1951: 98).
63 The qualification must be made, however, that the LO definition of a solidarity wage policy was unclear in the 1930s and early 1940s, according to Meidner (Citation1974: 11–14).
64 Öhman (Citation1974: 11–19) and Wadensjö (Citation2001: 4). However, by influencing the LO policy, Rehn was a central agent behind the expansion of ALMP measures in Sweden in the late 1940s. Moreover, Rehn always maintained that the extent of mobility-enhancing labour-market policy measures in the RM model constituted an innovation (Rehn Citation1977a: 207 and 225).
65 There were many examples in the 1960s of Swedish union representatives at the industry and local levels accepting the disappearance of jobs in stagnating low-wage industries (the textile and clothing industry in particular), referring to the need for labour mobility and structural change. See Meidner (Citation1974: 67) and Rehn (Citation1977a: 217–18; 1980: 64).
66 See Tinbergen (Citation1956: 55–6). The Tinbergen solution (for an open economy) to the problem of under-determination (more goals than instruments) cannot be applied in the Rehn–Meidner case (cf. Tinbergen 1856: 120–4). First, incomes policy is not a policy instrument in the RM model to check inflation in the short and medium term. Second, the RM model considers only one fiscal measure – indirect taxes. Third, reductions in selective indirect taxes is a possible measure in the model, to achieve full employment, not to sustain (or increase) economic growth as in Tinbergen's equation system.
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