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New Political Economy


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The Rise of Finance and the Decline


of Organised Labour in the Advanced
Capitalist Countries
John Peters

Dept of Political Science, Laurentian University, Canada


Published online: 05 Nov 2010.

To cite this article: John Peters (2011) The Rise of Finance and the Decline of Organised
Labour in the Advanced Capitalist Countries, New Political Economy, 16:1, 73-99, DOI:
10.1080/13563461003789746
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New Political Economy, Vol. 16, No. 1, February 2011

The Rise of Finance and the Decline


of Organised Labour in the Advanced
Capitalist Countries

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JOHN PETERS

The goal of this article is to provide a comprehensive evaluation of the impacts of


finance and corporate governance reforms on organised labour since 1980. The
argument is made that contemporary institutional and Varieties of Capitalism
as well as Varieties of Unionism perspectives on labour market reform have
overstated the power of states, institutions and organised interests in deflecting
global economic pressures. Drawing on a range of recent Organisation for Economic Cooperation and Development (OECD) statistics and qualitative studies, it is
claimed that current developments in finance and corporate governance mark a
fundamental break with post-war developments. Capital has reasserted its
power over organised labour and labour markets not only in the US and UK,
but throughout Western Europe as well. In assessing how far this reversal has
gone, the article focuses on three key political economic changes: i) the rise in
finance and adoption of corporate shareholder systems; ii) the expansion of
mergers and acquisitions and their negative effects on unionisation and manufacturing jobs; and iii) the effects of financial pressures and corporate reform on collective bargaining and wages. This is the first study to report on comparative
changes and qualitative reforms to both finance and labour in 13 OECD countries
between 1980 and 2005.
Keywords: Finance, corporate governance, labour market, labour unions

Since the 1980s, the scope of changes to finance and labour has generated a great
deal of debate among observers. For some academic analysts, the impacts of economic globalisation have been exaggerated, and despite unemployment and rising
pension problems, it is argued that firms and labour markets have made only incremental adjustments to competition, and countries have not converged towards a
deregulated, American-style labour market.1 Instead it is commonly claimed
that there have only been gradual and incremental changes to the worlds of
finance, production and employment, in large part because of the slowly changing
John Peters, Dept of Political Science, Laurentian University, Canada. Email: jpeters@laurentian.ca
ISSN 1356-3467 print; ISSN 1469-9923 online/11/010073-27 # 2011 Taylor & Francis
DOI: 10.1080/13563461003789746

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John Peters
nature of corporate governance and wage-bargaining systems, as well as because
of the importance of politics.
Most typically in a range of work that draws on institutional and Varieties of
Capitalism (VOC) approaches, it is claimed that despite recent changes to
financial markets, European companies are still run on the basis of patient
capital long-term bank financing, family ownership, cross-shareholding
among companies that props up less profitable industrial branches, and, in some
countries, government ownership and control of large firms that ensures financial
and employment stability.2 Even where finance has changed, it is argued that firm
structures, corporate governance models, and wage-bargaining institutions have
remained largely intact.3 Moreover, it is noted that countries have enacted a
range of policy responses to unions, collective bargaining, public sector employment, early retirement, and employment protection policies that have underpinned
labour markets and employment growth (Thelen 2001; Brady 2007). Unions too
have continued to play major roles in everything from workplaces, to wage
bargaining arrangements, to politics, especially in Western Europe, where
unions have signed partnership agreements or in some cases national
social pacts to protect jobs and improve social distribution in return for wage
restraint and competitive changes to industrial relations (Frege and Kelly 2004).
Looking to add to this debate, the goal of this article is to provide an assessment
of what has happened to finance, firms and labour markets since the early 1980s
and what were some of the impacts on organised labour. It goes beyond the
typical contemporary concerns of standard literatures to explore changes to
capital markets and stock markets over the past 25 years, and examines their
impact on corporate governance systems and labour markets throughout 13
countries in North America and Western Europe. It looks at how the widespread
corporate adoption of shareholder value led many companies to restructure and
change their employment practices. Finally, it seeks to broaden the discussion of
financial and corporate change by assessing their effects on unions, industrial
employment, collective bargaining, wages and wage share.
The argument is made that there are good reasons to be sceptical of arguments
about the positive or negligible impacts of finance on the real world of work
and labour. Over the past three decades, new forms of finance in everything
from hedge funds to collateralised debt obligations not only gave investment
banks the ability to make billions of dollars in stock and bond markets. They also
gave business equal opportunity to reform corporate governance and restructure
firm operations in order to boost profits and lower wage costs. Twenty years ago,
business used to finance itself from commercial bank loans. Now the vast majority
of large companies use combinations of debt and equity for financing. Moreover,
under pressure from shareholders and hedge funds for better earnings, as well as
directed by Chief Executive Officers (CEOs) on short-term contracts with compensation tied to share prices and bonuses, the vast majority of companies have adopted
much more aggressive and much more short-term investment and management
strategies.
What these changes have meant is more sharp entrepreneurs using debt to buy
out other businesses, restructure entire operations and lower labour costs by
cutting good jobs and expanding low-wage employment. It has also meant more
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The Rise of Finance and the Decline of Organised Labour


multinational corporations (MNCs) focusing on driving down costs and maximising the flow of profits to stockholders. Many firms have revamped their operations
along more short-term shareholder lines and sought to rewrite collective agreements.4 On top of this, as financial volatility has increased, rather than investing
much in the way of new capital many North American and European employers
found it more profitable to adopt one of two strategies: either add minimal
capital, downsize the workforce, cinch down wage costs, and intensify production
while using finance to boost dividend shares; or, as in many labour-intensive
private service industries, simply add low-wage workers and extend working
time rather than capital stock.5
At the same time, even if many unions adopted a range of responses some of
them modestly successful in retaining benefits like pensions on the whole capital
has been far more adept in shifting its share of income and in restructuring industrial
and employment relations to increase profitability. Over the course of the 1980s and
1990s, when faced with employer demands for concessions, wage rollbacks, and
greater workforce flexibility, many unions tried out new bargaining strategies
based on partnership and wage and benefit concessions, hoping that new investment and new training dollars would protect jobs and ensure job security. Unfortunately, such strategies have often only opened the way for employers to hire even
more workers on the cheap. Union density has continued to decline, and decentralised bargaining has often fragmented organised labour, directing permanent
jobs with good benefits towards an ever shrinking few. Neither social pacts nor partnership deals with employers have slowed job loss or prevented the decline of
labours wage share of income. And of even greater concern is that as organised
labour and its political coalitions have fallen into disarray, governments have
enacted a number of changes to labour relations and employment protection that
have not only lowered wages and worsened jobs, but have made labour movements
even weaker and the economy more fragile.
In assessing how far this reversal has gone, this article updates quantitative and
qualitative data on finance and labour to show how widespread the fundamental
shifts in the balance of political economic power have been over the period
1980 2005. Examining 13 Organisation for Economic Cooperation and Development (OECD) countries here that are most representative of Nordic and continental
European social market economies (SMEs) as well as the Anglo-American
liberal market economies (LMEs), the article provides an assessment of how
finance has developed new assets, and business has subsequently created new managerial strategies across a range of political-economic regimes. Focusing on three
key changes: i) the rise in finance and reforms to corporate operation; ii) the expansion of mergers and acquisitions and the subsequent decline of industrial jobs and
union density; and iii) the growth of finance and its impact on weakening collective
bargaining, wages, and wage share, the article claims the rise of finance and development of shareholder corporate governance has forced unions into retreat.
Global finance and the spread of shareholder capitalism
The push to drive down costs and maximise the flow of profits to stockholders
began in earnest in the 1980s and 1990s, as governments sought to restore
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John Peters
profitability by curbing inflation and labour movements. With the rapid decline in
profits and equally rapid rise of inflation in the 1970s, North American and West
European governments moved to liberalise finance and deregulate the banking and
financial sectors in order to increase the reach and size of capital and at the same
time increase the competitive pressures to boost profitability and raise productivity
(Dumenil and Levy 2004). As a number of scholars have shown, with the fall
in profitability and the rise of inflation in the 1970s, there was a dramatic turn
toward neoliberalism across advanced capitalist countries. The decline in profitability in the 1970s and the 1980s set off a strong push by corporate management
and financial markets to improve bottom lines. In this section, I present evidence
to support the proposition that changes to finance and corporate governance
have been common throughout North America and Western Europe over the
past 25 years.
Among the key moves advanced industrial economies enacted to counter stagnating economic demand, states first underwrote ever greater volumes of debt, and
by the late 1980s, when this had failed to boost demand and stimulate profitability,
they adopted more powerful forms of stimulus. Lowering interest rates in the 1990s
to historic lows, advanced industrial economies boosted unprecedented amounts of
household borrowing for mortgages and consumer goods that fed into rocketing
house prices and further consumer borrowing (Brenner 2006: 316 23; Glyn
2006: 53 6). Following the US lead, West European governments then enacted
financial liberalisation and abandoned capital controls on foreign exchange and
derivatives trading throughout the 1980s and 1990s. They went on to loosen
restrictions on the international buying and selling of domestic equity, with the
hope that capital market and product market liberalisation would boost foreign
borrowing and investment, subsequently spur domestic enterprises to restructure
and expand, and thereby increase profits and employment growth.
In Europe, the launch of the European Economic and Monetary Union (EMU) in
1990 led all 12 participating countries to abolish exchange controls, and by 1999, 11
countries gave up their national currencies for the Euro and a single capital market.
Governments also signed investment treaties to water down foreign direct investment requirements in order to spur competition and inflows of foreign direct investment (FDI), and eased the restrictions on the types of assets and equities that pension
fund managers could invest in. In addition, states passed new laws allowing the
securitisation of loans that is, giving businesses the opportunity to package
loans into bonds that were sold on capital markets to pension funds and mutual
funds. Other reforms included the lowering of bank liquidity ratios, the repeal of
legislation on share buybacks, lower taxation on capital gains from equity sales,
the legalisation of hedge funds, removing restrictions on foreign acquisition of
financial firms, and the abolition of tax on stock exchange dealings.6 Then, following European Union (EU) directives, most governments repealed legislation
restricting the foreign ownership of stock and equity.
Finally, government reforms to pension funds fuelled the rise in cross-border
equity flows and contributed to firms integrating financial and corporate operations in the attempt to attain better stock prices. With the rise of private,
defined benefit occupational pension schemes, trust, insurance and pension
funds began to play larger roles in finance and equity ownership. Lobbying
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The Rise of Finance and the Decline of Organised Labour


hard for deregulation of private and public pensions, the financial sector was successful in getting government to remove regulations that allowed them to invest in
corporate equities and junk bonds rather than safe government bills. By 1998,
defined benefit and defined contribution schemes managed by the financial services industry in the United States were worth 3.8 trillion (Blackburn 2002).
With such enormous revenues at their disposal, American and British financial
institutions poured their money into corporate equity. By 2000 financial institutions (banks, investment banks, and pension funds) held 40 per cent of equity
in corporate assets in the US and 50 per cent in the UK, and by 2005 foreign
investors led by the large pension funds and banks held 40 per cent of equity of
publicly listed firms throughout Western Europe.7
Across advanced industrial countries, the result was an explosion in the trade,
financing, and purchase of corporate equity and bonds over the 1980s and 1990s
(Table 1). In the Scandinavian countries, the deregulation of finance and pension
funds along with the opening of stock markets led to massive new inflows of
investment and equity financing. In Finland and Sweden, for example, the stock
markets became among the most internationalised in the world, with more than
66 per cent of equity owned by foreign investors in Finland and 41 per cent in
Sweden, primarily in the information and technology sectors (Yla-Anntila et al.
2005). But, as Table 1 indicates, inward and outward stock flows of portfolio
investment increased in many countries by over 400 per cent in 10 years 1990
2000 and are now at levels of 90 per cent of gross domestic product (GDP)
throughout northern Europe.
Belgium, Luxembourg and the Netherlands led the way in experiencing
massive new amounts of financial activity. With its forgiving accounting and
tax laws that allowed international holding companies to undertake ever more
baroque financial restructurings, Luxembourg was something of a special case.
However, across North America and all EMU countries, gross portfolio flows
increased dramatically as foreign institutional investors bought up the stock of
the largest European MNCs, and private European firms sought to expand internationally through mergers and acquisitions. The Nordic countries of Denmark,
Sweden and Finland experienced the highest proportional increases in FDI debt
and stock flows a more than 30-fold rise in the case of Finland, and a 25-fold
increase in Sweden. In contrast, the US only saw a doubling of financial activity
in stocks and bonds. However in absolute terms, US stock and investment flows
have until recently continued to dwarf all others, accounting for over a quarter
of all global portfolio investment and more than a third of total OECD direct
investment outflows, giving the US financial sector the lead role throughout the
world (OECD 2005: 17).
The surge in flows of institutional money much of it buoyed by American
sub-prime mortgages converted into collateralised debt obligations also
allowed private firms to expand and boosted many private equity takeovers (Ferguson 2008). Taking advantage of investment firms and the rise of hedge funds,
private firms throughout North America and Western Europe engaged in a
massive splurge of buy-outs and new ventures. In 2005 about E72 billion was
raised in new capital in Europe, well over double the amount in 2004, and most
of that, E57 billion, was for buy-outs of existing firms (The Economist 2007).
77

78
TABLE 1. The growth of FDI, stocks traded, market capitalisation (% of GDP), 19802005

Austria
Belgium
Canada
Denmark
Finland
France
Germany
Italy
Netherlands
Norway
Sweden
United Kingdom
United States
Mean

Stocks traded, total value

Market capitalisation of listed


companies

1980

1990

2000

2005

1990

2000

2005

1990

2000

2005

9
10.5
29.4
9.2
2.5
7.4
8.9
3.6
34.4
11.2
5.0
26.8
10.7
9.2

34
46.6
34.4
12.4
12.0
16.2
15.7
10.9
59.6
20.0
26.4
43.8
14.4
20.0

55
148.0
53.0
92.5
63.5
53.8
43.5
28.0
148.2
44.4
90.7
92.9
26.4
55.0

45
206.2
67.1
88.4
70.5
66.8
51.3
29.2
160.7
50.0
104.1
98.2
27.5
67.1

11
3
8
3
9
29
4
13
12
7
28
12
30
11.3

5
16
57
171
82
56
71
175
36
161
127
89
326
81.6

15
31
59
142
69
63
63
121
66
130
189
76
173
69.0

7
32
42
29
16
25
21
13
39
22
40
86
53
28.8

15
79
118
67
244
109
67
70
166
39
136
179
155
108.9

41
88
133
69
108
80
44
45
117
65
113
139
137
88.0

Sources: UNCTAD online database Handbook of Statistics Online,


International Finance - Foreign Direct Investment, Inward and Outward FDI as percentage of GDP;
World Bank, World Development Indicators Online; OECD Stan Indicators Database Online.
Note: (a): FDI stock flows include all sales and purchases of corporate equity and bonds by other companies, banks and institutional investors. It also includes
for associates and subsidiaries, net sales of shares and loans (including non-cash acquisitions made against equipment, manufacturing rights, etc.) to the
parent company plus the parent firms share of the affiliates reinvested earnings plus total net intra-company loans (short- and long-term) provided by the
parent company.

John Peters

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FDI Inward and Outward Flows a

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The Rise of Finance and the Decline of Organised Labour


In 2000, the United States was still ahead of Europe in some aspects of global
finance, like hedge funds and mutual fund assets. But by 2005, their ranking
was reversed Europe accounted for 46 per cent of corporate debt worldwide,
North America only 43 (The Economist 2006). What all firms discovered over
the course of the 1990s and early 2000s was that there were many more ways
than banks or stock markets to raising money and grabbing market share
above all hedge funds and corporate bonds that provided the quickest sources of
leverage for buy-outs and takeovers.
As Table 1 also shows, the other significant change in the 1990s was the rise of
stock markets throughout North America and Western Europe and the rapid turnover of equity trading (as percentage of share trades by value against market capitalisation). Throughout Europe, companies quickly drew on initial public share
offerings (IPOs) to raise capital, fend off takeovers, and allow executives to
cash in their chips (The Economist 2007). So too did the expansion of foreign
MNCs as in Sweden and Finland lead to massive inflows of investment
into domestic stock markets. Likewise, the privatisation of utility, financial and
manufacturing companies in France, Germany, Spain and elsewhere contributed
to the boom in equity markets and the rise of traded firms and foreign ownership
as IPOs of public sector corporations often sold on the cheap were easy targets
for cash rich foreign firms (OECD 2003). All were helped by investment banks
and hedge funds that allowed financial and manufacturing firms alike to increase
their debt to equity leverage ratios to record levels (Gowan 2009: 10 15).
Equity markets as a result grew rapidly in both North America and Western
Europe throughout the late 1990s until finally sharply falling with a series of
global financial crises in the late 1990s and early 2000s. By 2005, even though
more firms were turning to private financing and bond markets for capital,
market capitalisation rates had returned to earlier levels, with over 16 trillion
dollars in the EU, and 25 trillion in the US, and even more notable was that in
the EU volumes of IPOs were about three times that of the US.8
As Table 1 indicates, despite the small dip in equity markets caused by the
economic downturn in the wake of 9/11, over the past 25 years, the move by
firms to increase market capitalisation was widespread. Whether in North
America or Western Europe, publicly listed companies began replacing bank
loans and internal financing with public equity and market-based debt (OECD
2006a: figure 5.2). Many companies also turned to the debt market for finance.
In 1990, for example, there were just 610 hedge funds with $38.9 billion, but
by 2006 there 9,462 with $1.5 trillion under managements (Ferguson 2008).
Such financial markets allowed both private and public firms use debt markets
to finance mega-deals. With such easy credit available, more firms went private
after 2001, and there was a small proportional decline of stocks traded and
market capitalisation of publicly listed firms from former peaks.
But as Table 2 shows, by 2000 3 only in Austria did firms still rely predominantly on bank loans for financing. Everywhere else, firms had turned to new combinations of equity and debt, in order to buy up their own stock and pay out
dividends, or pay off debts and merge with other global entities. As Table 2
also indicates, over the past 20 years, the move by firms to increase market capitalisation was widespread. Whether in North America or Western Europe, publicly
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John Peters

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TABLE 2. Firm finance: Loans, private equity, bonds, shares 20002003

Austria
Germany
Norway
Italy
Netherlands
Denmark
Belgium
UK
France
Sweden
Canada
Finland
US

Bank loans

Pr-Equity

Bonds

Shares

67.0
52.6
47.5
46.2
43.7
43.4
41.4
41.4
39.8
34.4
30.1
22.5
15.1

0.0
0.0
12.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
13.6
0.0
24.9

22.9
23.1
14.7
22.6
16.2
37.1
22.6
11.0
19.1
17.5
10.1
8.8
26.5

10.2
24.3
25.8
31.2
40.1
19.4
36.0
47.6
41.1
48.0
46.2
68.8
33.4

Source: OECD (2006b: Figure 5.2).

listed companies replaced bank loans and internal financing with public equity and
market-based debt. Helped along by banks that increasingly merged investment
and commercial functions and that lent money backed on the basis of ever more
complex asset-back securities, firms used finance to expand and restructure
operations.
The biggest transformations came in many of the social democratic countries of
Finland, Denmark, Norway and Sweden, where businesses expanded their market
capitalisation nearly three-fold and turned to bond and equity markets for financing. In absolute terms, Austria saw the largest rise in market capitalisation, but
in relative terms, as Table 2 reveals, Austrian firms by 2005 were still in the
early stages of adopting market based financing. Also notable is the United
States long seen as the most advanced of shareholder systems for financing
which also witnessed non-financial companies going into debt, and using
upwards of 70 per cent of their cash flows to buy their own stock to prevent takeover and maintain upward pressure on stock prices, while others used private
equity for expansion, leveraged buyouts, and stock buybacks (Crotty 2005: 97
9; Brenner 2006: 273).
Unsurprisingly, with the growth in firm capitalisation rates, equity trading
exploded. Seeking better rates of return and profit differentials, fund managers
moved quickly to dump underperforming shares for those with higher returns.
Exempt from capital gains taxes or often indifferent to tax rates, institutional
investors rapidly turned over portfolios on the basis of short-term movements in
stock price (Blackburn 2002: 130; Jacoby 2005: 35). With investment banks
backing ever higher leverage ratios and often with investment banks themselves
joining in the speculative surges firms and traders alike bought and sold securities with the belief that the asset-price boom would go on endlessly.
In the late 1990s, the competitive pressures were so intense to realise better rates
of return in the New York and London exchanges that many fund managers began to
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The Rise of Finance and the Decline of Organised Labour


speculate heavily in equity and junk bonds, as well as in new technology stock,
driving price/earning ratios to record levels and price bubbles that helped fund
managers and corporate CEOs to record compensation, but did little to create
new capital or sustain growth (Henwood 2003: 187217). In New York, equity
trading went up ten-fold, rose five-fold in London, and increased more than ninefold on the Paris/Euronext exchange between 1990 and 2005. Other countries
with smaller exchanges saw less dramatic increases. But, as Table 1 highlights,
common for all countries, with the sole exception of Austria, was the rise of
equity trading in search of better dividends and higher profits.
The consequences of this internationalisation of stock markets and asset ownership on corporate operations and strategies were not only record levels of compensation for CEOs, bankers and traders, as well as a shift in income towards the
financial sector. Just as profound were the impacts of financial development on
corporate operation and management. Because of takeovers or public listing,
North American and European MNCs rapidly found themselves under pressure
to adopt financial planning to meet market expectations, as well as implement
capitalisation and restructuring strategies in order to grow and capture market
share. In the US and the UK, the money poured by financial institutions (banks,
investment banks and pension funds) into corporate equity led many non-financial
corporations to borrow heavily in order to buy their own stock so that dividends
would rise and meet investors expectations. Meanwhile, throughout Western
Europe, the majority of managers willingly burned up net present value to
meet short-term earnings benchmarks, and more and more firms sacrificed investment for share buybacks and dividend payments.
As important, the rapid growth of secondary money markets and new capital
assets in real estate, as well as portfolio investments in currencies, bonds and
stock futures, and financial derivatives put additional pressures on firms to
achieve comparable rates of returns for shareholders. So too did the entry of
banks and institutional investors into international lending and equity markets,
place new demands on firms to generate cash-flows to justify companies floating
record amounts of corporate bonds and commercial paper and ever higher debt
loads. By the early to mid-1990s, large projects from manufacturing and domestic
enterprises had to meet the profitability benchmarks of institutional investors and
professional analysts.
Some European firms were able to resist these financial pressures to increase
profits and share dividends for a time. For example, even where firms increased
their stock issues and corporate debt, as for example with VW in Germany and
Porsche in Italy (at least until recently), families and insider stockholders
retained control through dual share systems or ran a cascade of companies
that allowed the tiny company at the top to continue to control all operations.
In addition, many small and medium-sized enterprises, without direct access to
capital markets, were little affected by changes to finance and corporate governance. They continued to work within long-term business networks, and under
the restraints set by collective agreements and vocational training systems.
However, by the early 2000s, financial and corporate reform was widespread.
Mergers and acquisitions grew dramatically throughout the 1990s and 2000s,
rising to more than US$1 trillion dollars in 2005, and typically led to managerial
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John Peters
changes and corporate makeovers. As Table 3 shows, throughout Western Europe,
firms sought to expand market share by acquiring others, with the total number of
mergers and acquisitions (M&As) for these 13 countries rising from 10,172 in
1990 4 to 19,604 in 2000 5.9 Under new ownership, many firms both
public and private not only put in place new directors, but also institutionalised
independent boards of directors with the responsibility of maximising shareholder
value. Even where foreign firms were not successful in their takeover bids, domestic firms and conglomerates often undertook changes at the board level to meet
the challenges of takeover bids and better share price returns and cash flows.10
Consequently, firms especially those in competitive export sectors began to
adopt new procedures for financial and strategic operation. Many introduced international accounting principles and disclosure to investors. Many also instituted the
reporting of business results by business sector and value-oriented performance
targets, all with the intent of evaluating division performance within companies
and forcing management to meet profit targets and continuously increasing productivity benchmarks. Anglo-Saxon models of technical budgeting procedures
and targets such as discounted cash flows and investment rate of returns for

TABLE 3. Trade union density and M&As, 19802005


Trade union density
a

Austria
Belgium
Canada
Denmark
Finland
France
Germany
Italy
Netherlands
Norway
Sweden
United Kingdom
United States
Mean

Mergers and acquisitions -sales b

1980

1990

2005

Change

199094

199599

200005

57
54
35
79
69
18
35
50
35
58
78
51
22
51

47
54
33
75
72
10
31
39
25
59
81
39
15
39

33
53
29
72
72
8
21
33.5
21
55
76
28
12
33

224
21
26
27
3
210
214
217
214
23
22
223
210
210

154
280
750
242
246
1132
1263
598
494
198
377
1775
2663
494

276
405
1337
273
387
1263
1690
766
730
320
521
3104
4294
730

369
589
1688
454
419
1793
2208
829
879
418
804
3413
5741
829

Sources: OECD 2004, 2006; UNCTAD, Foreign Direct Investment Online Database, (http://stats.
unctad.org/fdi/)
Notes: (a) union density is union membership as a percentage of the wage and salary earners in
employment. These figures are based on the update and standardised measures of the OECD 2004,
2006. It excludes active union members who are retired. It is also adjusted to count only one member
per person (first-job ratio), rather than union members who may work two or more jobs in the labour
force. It also excludes non-paying members or supporters outside the movement, students, selfemployed, and is adjusted for the unemployed.
(b) Mergers and acquisitions, by country and region, domestic sales.

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The Rise of Finance and the Decline of Organised Labour


strategic long-term planning also became common place among companies
seeking to go international.
Moreover, to seal the incentive for corporate makeovers, it was increasingly
common throughout Europe for corporate boards to tie CEO compensation to
stock options and share price. In France, stock options were directed towards
the top one per cent of executive employees. In Germany, stock options as compensation exploded among the top companies in the late 1990s, growing by more
than 100 per cent in the largest eight companies. By 2003 stock options accounted
for upwards of 61 per cent of total income for executives. Through these types of
measures, the corporate governance of many firms was significantly overhauled to
make corporate executives restructure their enterprises and hit annual earnings
targets.11
Also overhauled were two-share systems that allowed families or a small group
of owners to run their companies on more long-term bases. Under shareholder
pressure often foreign companies as diverse as Electrolux in Sweden and
the Orkla Group in Norway abolished older preferential share systems in the
attempt to raise share value as well as capital for expansion. EU directives for
open markets of corporate control led to even further changes in vote structures,
with countries such as the Netherlands passing legislation abolishing union
voice on supervisory boards, and giving shareholders full say on management
decisions. Subsequently, shareholder groups in everything from the MNCs like
Phillips and Corus to telecommunication giant KPN actively pressed management
to deliver greater value through sell-offs, outsourcing and closures. These moves
have meant that the principle of equal representation for capital and labour
within large companies has been largely eroded a trend mirrored throughout
Europe, as now some two-thirds of European companies apply the principle
that one share equals one vote.
The famous house bank relationships between German financial and manufacturing firms was likewise changed. Under European Community (EC) requirements, West European governments liberalised their banking systems by
removing barriers to entry of foreign banks. In response, banks consolidated
and began to cut ties with companies in order to enter in more lucrative investment
banking and reform in ways that conform to open markets and shareholder
systems. Several large private banks reoriented to global investment portfolios,
and cut bank credits to large corporations. Others pulled out of directorship positions in firms, fearing that too close relationships with firms would weaken their
reputation as objective financial service providers. Now many European banks no
longer maintain direct monitoring of firms despite continuing to hold significant
shares and instead firms rely more and more on capital markets and equity for
financing, and much less on long-term financing from banks.
Finally, what also made firms adopt shareholder capitalism corporate strategies were stock and capital market pressures. With the takeoff of better financial
results on many stock markets, large conglomerates especially found themselves
penalised on stock markets due to their lower returns on investment and comparatively lower levels of stock market capitalisation. For example, in
Germany, Europes largest engineering conglomerate Siemens still held onto
the belief as late as 1995 that patient long-term strategies would work, and that
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John Peters
financial markets should not play a strong role. However by 1998, under market
pressure to increase stock value and cash flows, Siemens had introduced a new
10-point programme that led to the sell off of divisions, layoffs of over
40,000 workers, and by 2001 the targeting of all decisions towards company
value in the preparation of a public share offering in the United States.
Similarly, in France, stock market pressures forced corporate giants such as
Groupe Danone and Suez-Vivendi after a succession of takeovers and the widespread dispersion of shares to sell off their cross-shareholdings, dismantle their
conglomerate structures, and lay off thousands, all in the effort to raise share
prices and boost dividends. With increasingly integrated international capital
markets, such developments have been widespread in Europe over the past 15
years. Even where companies have retained insider or cascade ownership structures and are still run by a few, corporate performance was strongly affected by
share value and the profit targets of investment and hedge funds. All such
demands have forced companies to push for even better profits and performance.
Finance, M&As and the decline of good jobs
What has this meant to labour? In most cases a great deal, and in most cases the
impacts have been largely negative. In general, the maturation and spread of
shareholder capitalism has led to changes in labour management and industrial
relations that have lowered wages and created poorer jobs. Finance-driven corporate restructuring has also meant lay offs and systematic pressure to worsen collective bargaining and weaken union power. Yet much of the literature influenced by
VOC approaches has continued to maintain that such changes were common only
to the liberal market economies, while throughout Europe, unions were able to
use collective bargaining, work councils or strong employee participation rights
to protect jobs and incomes.
With equity markets becoming more liquid throughout the advanced industrial
world, American as well as European corporate executives have typically sought
to do everything possible to boost profit and raise stock values. Some engaged
investment banks and accounting firms to create new synergies in financing in
order to boost share price and increase executive compensation. Others laid off
workers, cut research and development (R&D), and increased production by
having the remaining employees work harder with existing capital. Others still
bought new companies in the attempt to realise economies of scale and protect
market share through lay offs and international integration of operations (Head
and Ries 2008).
One of the most common tactics companies used to achieve better returns in the
face of new forms of finance and pressures from reformed corporate boards was to
engage in a wave of M&As and then subsequently restructure operations and
workforces across regions and countries (Macaire et al. 2002; Pedersini 2006).
Such restructuring has negatively effected manufacturing jobs and unionised
employment throughout the majority of advanced industrial economies.
In the OECD over the period 19872001, M&A sales represented more than 82
per cent of inward FDI, while purchases of foreign assets through M&A accounted
for 71 per cent of outward FDI (Brakman, Garretsen and van Marrewijk 2008: 5).
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In buying mode, corporations expanded their outward foreign direct investment
11-fold from US$513 billion in the early 1980s to US$6.1 trillion by 2000.
Over two-thirds of FDI in the 1990s was directed to the purchasing of companies
in other advanced capitalist countries, and despite a short decline of FDI inflows
into the US and Western Europe in the early 2000s, by 2004 FDI flows returned to
normal levels, while OECD investments to the rest of world attained record
peaks, pouring more than USD US$261 billion abroad. As Table 3 shows,
within North America and Western Europe, the result of increasing FDI was a
steady rise in M&As in all countries throughout the 1990 2005 period.
American companies were the largest overseas investors as well as largest host
to European and Japanese investors. Within the EU, cross-border M&As were
widespread, with French, German and Dutch companies the most aggressive
buyers, and British firms the most sought after purchases. Not content with
simply buying up existing assets, leading MNCs and growing numbers of small
and medium-sized enterprises in everything from chemicals to industrial
machinery, instruments and food expanded their operations abroad from
174,900 affiliates in 1990 to 450,000 in 1998 and 866,119 in 2002, with well
over half located in South and South-East Asia (UNCTAD 2004: 45).
Subsequently, in response to the competitive pressures this financial and corporate restructuring created, many global MNCs sought to reduce wage and overhead
costs throughout the various phases of production by introducing best-practices
throughout their entire production chains by rationalising jobs and firm location.
Most commonly this meant firms introducing new technology, downsizing firms,
outsourcing, and intensifying output through lean production practices and negotiating more flexible wage agreements, especially in sectors with stagnating
markets and large factories (Brewster et al. 13 4). Other firms simply failed to
renew contracts, froze new hiring, and rapidly expanded their part-time and
temporary labour force in both home and subsidiary operations.
Theoretically, such actions were supposed to strengthen companies and create
jobs, allowing the mother company to specialise in activities where its competitive advantages were strongest, while relocating other activities to subsidiaries,
and taking advantage of the intra-firm trade of intermediary products or services.
Apart from a few exceptional cases, the results over the past 25 years were much
bleaker for labour: the loss of good, often core industrial jobs and declining
unionisation. In their wake, many unions have engaged in concession bargaining,
while others have signed collective agreements that split the workforce between
insiders and outsiders (that is, workers with full-time jobs, as well as
bonuses and stock options, and workers with precarious jobs, poorer wages and
few benefits).
Mergers, closures and cutbacks explain a good deal of the loss of industrial
jobs, which as Table 4 demonstrates was substantial. In 1980, there were approximately 89.3 million industrial jobs throughout the Group of Seven (G7) countries.
By 2005, there were fewer than 79 million, with the largest decline in industrial
employment coming in the United States and Western Europe occurring over
the period 2000 5 some three million in the US, and more than a million in
Europe. Among the 13 countries here, only Canada, with the highest rate of population growth among advanced industrial countries, saw any substantial increase
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John Peters
in industrial jobs. But Table 4 also reveals the widespread decline of industrial
manufacturing as a proportion of overall civilian employment, with the closure
and turnover of manufacturing firms and the continued rise of financial and
consumer service industries. Even in Canada, the growth of industrial jobs was
entirely offset by the growth of non-union, private service jobs, as industrial
employment fell as a proportion of the labour force by 6 per cent. Overall
throughout the G7, industrial employment fell as a percentage of civilian employment, from 34.5 per cent to 23.7 per cent, and in the EU industrial employment
makes up only 27 per cent of the workforce.
The impacts of the loss of industrial and manufacturing jobs as well as shareholder capitalism on union density and organised labour are well known in
Canada, the US and UK (Blackburn 2002: 130 64; Henwood 2003: 202 6).
Over the course of the 1990s, with the maturation of shareholder capitalism and
the deregulation of commercial and investment banking operations, stock
markets exploded in all three countries, and firms loaded up on debt and equity
in the attempt to realise better financial returns. Market capitalisation increased
as investment banks and pension funds cross-promoted shares, and as CEO compensation was tied to share value and stock options, firms focused on capital
growth and dividend payments as their top priorities and rapidly developed sophisticated union-busting techniques to keep unions out.
Unsurprisingly, with these changes, in many American and British firms, as
well as US MNCs operating in Canada, the emphasis on financial returns from
equity markets percolated down to all levels of operation. Company time horizons
TABLE 4. The decline of manufacturing jobs

Civilian employment in industry (000s)

Austria
Belgium
Canada
Denmark
Finland
France
Germany
Italy
Netherlands
Norway
Sweden
UK
United States
EU
G7

Industrial employment as
percentage of civilian
employment

1980

1990

2000

2005

1980

1990

2000

2005

1236
1269
3138.6
750
803
7664
11592
7699
1563
556
1364
9412
30315
..
89380.6

1260
1056
3191.5
726
758
6549
11132
6845
1646
494
1310
8667
31123
..
88797.5

1144.1
1063.5
3327.4
712.0
642.0
5718.0
12200.0
6766.9
1588.6
492.0
1022.0
6814.0
31500.0
59204.3
86456.3

1053.4
1045.5
3555.8
653.0
619.0
5514.0
10849.0
6940.1
1586.2
475.7
938.9
6224.0
28074.0
57984.8
78906.9

40.3
34.7
28.6
30.4
34.6
35.7
43.7
37.9
31.4
29.7
32.2
37.6
30.5
..
34.5

36.9
28.3
24.4
27.5
30.4
29.7
38.6
32.3
26.3
24.8
29.2
32.3
26.2
..
30.3

30.6
25.8
22.5
26.4
27.6
24.1
33.7
32.4
20.2
21.9
24.6
25.2
23.0
29.3
26.7

27.6
24.7
22.0
24.1
25.9
22.5
30.0
31.1
19.6
20.9
22.0
22.2
19.8
27.6
23.7

Source: OECD. Annual Labour Force Statistics, Data extracted 26 May 2009.

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The Rise of Finance and the Decline of Organised Labour


were shortened. Businesses adopted financial measures to determine internal
capital allocations. Most sought to reduce labour costs. This entailed everything
from businesses announcing lay offs to funding early retirement, to MNCs
pushing for new employer-friendly forms of collective bargaining and
watered-down employment standards and employment protection legislation.
Two of the most frequent responses of Canadian, American and British firms to
financial pressures were lay offs or the closure of unionised workplaces and the
transfer of industrial activities into non-union regions (Pencavel 2004: 200;
Moody 2007: 426). Helped along by trade liberalisation and tax cuts, employers
in manufacturing, mining and steel, transportation, telecommunications, airlines,
construction and car parts drove out unions by the thousands in the US and the UK
over the course of the 1980s and 1990s. Traditional union strongholds were the
hardest hit, with double digit losses in union density in mining, manufacturing,
construction and public utilities.
The other customary response to market pressures was for domestic and
foreign-owned unionised manufacturing operations to downsize, outsource, strip
out managerial layers, shed thousands of jobs, and then buy other companies. In
auto manufacturing in the United States, for example, unionised membership
declined from 450,000 from the late 1970s to 73,000 in 2005 despite the fact
that the number of auto production workers actually rose by some 200,000 over
the course of the 1980s and 1990s. Typically auto, auto parts and consumer
goods manufacturers established production chains that contracted parts and component production to low-wage companies as well as to non-union contractors in
nearby states or provinces within advanced countries. Takeover firms and new
boards of directors then shed peripheral operations and laid off employees to
lower wage costs.
Now less than 23 per cent of all US autoworkers belong to a union, with the
largest expansion of Japanese and foreign auto manufacturing in the US south,
where right-to-work open-shop legislation effectively prohibits union organising. In the UK, with similar openshop union legislation, new firms in everything
from manufacturing to low-end service work were nearly twice as likely over the
past 20 years to open non-union workplaces, and have rapidly increased their use
of non-standard, part-time and temporary employees to drive down wage costs
(McGovern et al. 2004).
In Europe, the impacts of financial pressures, industrial restructuring and
M&As on industrial decline and organised labour have been slightly more
varied. Recent trends point strongly to similar developments of finance and firm
restructuring creating more income inequality, poorer jobs and greater job insecurity. From 1970 2000, millions of industrial jobs disappeared, many of them in
unionised sectors, as industries like steel, shipbuilding, machinery and autos
closed facilities and reduced production capacity. Over the past few years, this
is a trend that has continued. As the European Restructuring Monitor (ERM)
has recently reported over the period 20027, approximately 3.7 million more
jobs were lost as a result of restructuring over a million in manufacturing and
some 7 per cent of all job losses (or about 240,000 jobs), arising from cases
where mergers or acquisitions were immediately involved (Irastorza and Storrie
2007: 4 & tables 2 and 6; Morley and Ward 2009: 9).
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John Peters
In part, the job losses in the EU have been due to restructuring, as companies
have sought to boost productivity and meet investor expectations through lay
offs and capital investment. In part, job loss was due to manufacturing enterprises
in the EU-15 countries, in everything from auto and electronics to steel and textiles, outsourcing jobs to the new European member states in Eastern Europe,
while telecommunication and information technology jobs have been predominantly moved to Asia (Morley and Ward 2009: 9). Privatisation also fostered
by EU directives on capital market liberalisation has also played a role in unionised job loss as mining, steel, utilities and telecommunications companies rationalised operations through plant closure and job cuts in the thousands. So too did
the downturn from 2000 1 lead to a wave of cutbacks and bankruptcies,
especially in telecommunications and airlines, where thousands more were
thrown out of work (Irastroza and Storrie 2007: 4 8).
However, M&As and the internal restructuring that typically followed within a
two- or three-year period also appear to have been very significant causes of
redundancies in good paying jobs (Brewster et al. 2008: 9). Until the late 1990s
neither hostile takeovers nor continuous domestic takeovers, or the announcement
of large-scale redundancies following M&As, were common in Europe. This is no
longer the case.
The financial sector (banking and insurance) has recently gone through several
periods of restructuring and an intense M&A-led consolidation process as in
Austria, Belgium, France, Germany, Greece and Italy which has led to mass
redundancies in countries where this practice was formerly rare. In retail, the
trend has been towards consolidation and rationalisation, involving the growth
of large companies, with small firms being pushed towards survival strategies,
including price and cost cutting, and narrowing product ranges. In manufacturing,
cut-throat competition has led many firms to outsource work, reduce employment
and close subsidiaries. Unions have paid the price with fewer members, and with
fewer members, unions have had fewer resources to uphold pattern bargaining and
good collective agreements.

Finance and the decline of bargaining power, wages and wage share, 1980
2005
The impacts of changes to capital and financialisation on organised labours
capacity to bargain have been equally harmful. One of the reasons is because as
pressures to meet market expectations rose, firms sought to free their hands
from unions and work councils, and restructure internal and international operations in accordance with the ever-lowering benchmarks of their competitors,
doing so through forms of decentralised bargaining or under government aegis
and social pacts. In response, unions often made use of concessions on wages,
full-time jobs and pensions, hoping this would secure jobs and investment, and
create the basis for greater labour-management cooperation (Fairbrother and
Stewart 2003: 170 5; Moody 2007: chs. 2 5). In addition, often opting for consensus and cooperation in the face of plant closings and downsizing, many union
movements developed partnership agreements or employment pacts, with the
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The Rise of Finance and the Decline of Organised Labour


expectation that greater cooperation in the introduction of lean production systems
would secure training and job security.
For the majority of unions and workers in North America and Western Europe,
the costs of financialisation alongside partnership and pacts appear to have far
outweighed the benefits. For not only have unionised industrial jobs continued
to disappear, but weaker collective bargaining systems have given firms more
flexibility to cut better deals in plants at the expense of wages and full-time
employment for the majority of workers. As Table 3 illustrates, in 10 of 13
OECD countries, the rise in M&As was strongly correlated with a decline
in union density which has contributed to the weakening of union bargaining
power.
In countries as institutionally diverse as Austria, Italy, the Netherlands, and the
UK, large increases in FDI and M&As were closely associated with falls in union
membership. Looking more broadly at the OECD, since 1980, only two out of 20
national labour movements withstood this common trend Belgium and Sweden,
both countries with a Ghent system of unemployment benefits. The United States
was also something of an exception, experiencing lower inflows of FDI as its own
companies and institutional investors provided the bulk of financing for M&As,
but still union density declined by half as large US firms operated under shareholder management systems that increased financial pressures for better returns
at the expense of workers.
As a comparison of Tables 1 and 3 reveals, the general drift was increased
financial pressures forcing through corporate restructuring, lay offs and early
retirement key dynamics in lowering active union membership throughout
North America and Western Europe. In seven OECD countries, including
Austria, Italy and the Netherlands, union density fell by over a third as FDI
stock flows rose four-fold and more and the number of M&As increased by 50
per cent and more. In Canada and Germany, the rise in integrated finance proceeded more slowly, but in both countries the near doubling of M&As alongside
rapid increases in market capitalisation went with declines of one-quarter in
unionisation. Only in Belgium, Finland and Sweden, did widespread corporate
restructuring not lead to substantive declines in the unionised workforce, as sectoral coordinated bargaining and the expanding unionisation of service workers
kept density rates high, even as unionised industrial employment fell.
Overall, as Miriam Golden and Michael Wallerstein (2006: 12) have shown, the
small size of the Nordic countries along with Belgium did little to stop the basic
trend of union density declining throughout the OECD from 47 per cent to 39 per
cent of the workforce. And when actually weighted by size of the dependent workforce, the decline was even worse in 1980, one-third of workers in advanced
industrial countries were union members; by 2000, only 22 per cent belonged to
a union, a decline of one-third over two decades. This compares with a general
four-fold increase in FDI stock flows, the near doubling of M&As throughout
the OECD, and the strong statistical correlation with declining union density.
Even where there was an appearance of stability in wage setting, the actual
internal changes in wage setting have come at the cost of labour. On the
surface, the fact that wage-setting institutions and collective bargaining only
declined in eight countries, was stable in six, and still covered generally two89

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John Peters
thirds of workers with the exceptions of Switzerland and Central and Eastern
Europe, has been seen as evidence of institutional inertia and strong citizen
resistance to labour market change. Moreover, union coverage (the share of workforce covered by a union contract under statutory extension), it is noted, did not
decline in Western Europe, and approximately 80 per cent of workers were
covered by a union contract in 2004 in spite of the decline of union density.
In practical terms, internal restructuring, M&As and product market competition, along with rising turnovers in portfolios and increasing market capitalisation, forced firms to make changes to their labour management and collective
bargaining practices regardless of political or institutional makeup. Typically,
business restructuring took two forms: either businesses sought to break the
kinds of pattern bargaining and strategies that unions set up to keep wages high,
or as in North America and the UK more commonly firms sought to
escape out from under union contracts altogether. Just as typically, in the
attempt to make their labour forces more flexible, governments deregulated
labour markets and restructured industrial relations along more business friendly
lines. Unions have dealt poorly with these economic and political shifts, and many
have retreated into concessions, partnership agreements and social pacts none of
which have maintained industry wage patterns, and all of which have typically
lowered the strength and appeal of unions.
Partnership agreements did not stop membership loss, nor the decline of unionised industries. Employers used bankruptcy proceedings and non-union subsidiaries to negotiate further concessions and cuts. Often managements very
successfully defined cooperation on their own terms and subsequently laid off
more workers, contracted out work, and made pay and benefits more flexible
(Fichter and Greer 2004). As a consequence, union cooperation with capital not
only failed to improve jobs or wages, but by focusing on employer pacts, many
unions have also seen job losses that have undermined their legitimacy with the
wider working population.
In Western Europe, unions have seen similarly poor rewards in pay, employment and work organisation though in many cases, these poor returns are not
only from employment pacts at the company level, but also the result of
employer pressures for decentralised bargaining and the negotiation of social
pacts. Through organised or controlled decentralisation bargaining, many
European governments have sought to accommodate employer demands for flexibility, and in Austria, Denmark, Finland, Germany, Norway or Sweden, recent
wage-setting arrangements have widened the scope for additional bargaining at
company level and/or have introduced opening clauses that allow companies to
diverge from certain collectively agreed standards at national or sectoral levels.
This has given large employers as well as employer associations significant new
plant-level powers and incentives to retire older workers, outsource, lower wages,
and introduce more flexible work practices which now includes everything
from firing more workers, laying off others for short periods of time, and hiring
more part-time and temporary workers (King and Rueda 2006). By contrast, in
adopting jointness and partnership strategies, union leaders have increasingly
tied their members job security to the fate of companies in a highly competitive
world, and subsequently seen their role diminish. The results have very often been
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The Rise of Finance and the Decline of Organised Labour


one-sided: for capital, falling labour costs and a more flexible work force that has
boosted productivity and share prices; for labour, wage and job concessions, flextime, more part-time and temporary employment, and more employers operating
outside of collective agreements the often bitter returns of devil or the deep
blue sea bargaining processes.
As Table 5 illustrates, the returns of collective bargaining for labour throughout
North America and Western Europe have often been poor declines in real wages
and poorer wage settlements that have failed to keep pace with economic growth.
Because of the loss of industrial jobs, declining unionisation and the adoption of
concession-style bargaining, unions were little able to improve their bargaining
position. Left with poor wage settlements and declining memberships, as well
as fewer resources and strategies that failed to mobilise memberships, unions
were often left with few organising and mobilising alternatives. From the 1980s
onward, despite the rise in financial incomes and competition that were supposed
to lead to firms to increase investment and improve employment, nominal hourly
compensation declined steadily from annual averages of 13 per cent in the 1970s
to 2.8 per cent in 2000 5 at a rate faster than inflation. Whether in Norway or the
US, the Netherlands or Germany, as financial markets and institutional investors
grew in importance, labour realised ever poorer real wages, averaging less than
one per cent per annum over the entire 25 year period for these 13 countries.
On average, after labour achieved real wage gains in the 1970s of 4 per cent,
from the 1980s onward real wage growth averaged a little more than one per
cent, with only full-time workers seeing slightly better earnings. For those in
lower-wage and non-standard employment, the returns were far poorer
figures often hidden by the extraordinary rise of returns for top wage earners in
total labour compensation that have made national figures appear much better
than the reality for many.12
In the United States, for example, where finance, insurance and real estate
(FIRE) and businesses services have the largest share of value added in the
economy, increasing financial activity in a context of low union density and workplace wage-setting institutions led employers to push for wage rollbacks from its
largely non-unionised workforce. Real wage growth averaged only 0.2 per cent
between 1979 95, while for the bottom 60 per cent of the labour force primarily
in retail, hotel, and financial and business services real wages fell by 9.8 per cent
(Brenner 2006: 209). In the late 1990s, with increasing productivity, better profitability did lead to a short-lived increase in real wages. But since 2001, US real
wage growth has again fallen to below 20.5 per cent (Table 5). Similarly, in
Germany, with the rapid rise in FIRE and business services, real average hourly
income averaged 1.3 per cent in the 1990s, but between 2000 and 2004, it plummeted to 0.6 per cent, and fell even lower in metal manufacturing.
Likewise in Canada, over the past 25 years, only the top income earners saw
any gains from growth, with the majority of workers experiencing stagnant real
wages, and the largest declines in real wages felt by workers in the low to
middle-income deciles. In the Netherlands, real wages consistently fell over the
course of the 1990s and early 2000s driven by the expansion of precarious employment; in Italy, they were stagnant. With the exceptions of Sweden and Finland,
this decline in wages among low- to medium-wage earners accounts for a good
91

92
TABLE 5. Wage share, real wages and value added shares, 1980 2005

Austria
Belgium
Canada
Denmark
Finland
France
Germany
Italy
Netherlands
Norway
Sweden a
United Kingdom
United States
Mean

FIRE and business services value


added share

Real wages

1980

2005

Change

198090

1991-2000

200105

1980

2003

Change

89.7
70.8
73.2
71.7
72.2
79.9
71.3
77.4
75.5
74.3
88.6
82.2
72.8
76.9

65.4
63.6
66.0
58.3
57.6
61.4
59.6
61.8
63.3
65.0
65.1
73.0
63.5
63.4

217.3
27.2
27.2
214.6
218.6
211.8
213.4
212.2
29.3
29.3
223.5
215.6
29.3
213.5

1.1
1.0
0.1
1.4
1.9
1.2
1.2
1.6
20.6
24.7
0.2
1.5
0.3
0.5

1.3
1.3
0.3
0.8
0.8
1.5
1.3
20.6
21.2
0.6
1.0
1.5
1.6
0.8

0.3
0.5
0.4
1.2
2.8
1.3
0.6
0.0
21.6
21.0
2.8
1.0
20.5
0.6

12.3
17.6
17.1
19.8
13.4
23
18.5
15.8
15.8
14.6
16.1
15.5
22.1
17.0

22.4
28.6
24.8 b
24.4
21.4
31
30.5
27.3
26.7
19.5
24.8
30.3
32
26.6

10.1
11
7.7
4.6
8
8
12
11.5
10.9
4.9
8.7
14.8
9.9
9.4

Sources: Wage Share - OECD Economic Outlook, courtesy of Paul Swaim, Economics Dept., OECD; Real Wages and Value Added share calculated on
statistics from OECD Stan Indicators Database Online, and supplemented with national statistics databases.
Notes: The wage share corresponds to the share of total labour compensation in the income generated by the business sector of the economy. Real wages is
based on nominal labour compensation per unit labour input business sector excluding agriculture divided by annual average inflation. FIRE and Business
Services Value Added Shares Relative to Total Economy defined as output minus intermediate consumption.
Value added and wage share statistics do not add up perfectly to 100. The value added figure includes wages in the financial sector along with profits and
capital returns, less intermediate consumption and depreciation. a Swedish wage figures based on manufacturing 1980-1993. b Canada 2000.

John Peters

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Wage share

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The Rise of Finance and the Decline of Organised Labour


deal of the drop off in wage share in the overall income generated in the business
sector over the past three decades.
The recent decline of wages marked a complete reversal of the previous trend of
rising wages underpinning national income and economic demand. In the 1970s and
early 1980s, the wage share of income reached highs of 89 per cent in Sweden and
Austria, and the peak average for the thirteen countries reached 78 per cent. But
since then wage share has steadily declined as income from profits, stock dividends,
interest and rents has risen. In 1990, wage share had fallen to 71 per cent on average.
In 2005, it fell further to 63 per cent. In Sweden, even though workers primarily in
the public sector saw some real wage gains in the early 2000s, they still gave up
more income to business and finance than anywhere else through coordinated sectoral bargaining 23.5 per cent (see Table 5).
Workers in France, Austria and the Netherlands were not far behind in sacrificing income for better corporate and shareholder returns. The US with its already
high levels of financialisation, and the highest levels of both low-wage labour and
wage and income inequality in North America and Western Europe, saw workers
wage share fall only by a further 9.3 per cent over the period. For the 13 advanced
industrial countries surveyed in Table 5, the average decline was 10.6 per cent
over the 1980 2005 period.
Only two countries bucked the trends of corporate restructuring and labour
market deregulation worsening jobs, weakening unions, and widening income
inequality over the course of the 1990s and early 2000s Belgium and
Denmark.13 In both, governments remained committed to social spending, maintaining unemployment benefits, using early retirement pensions and supporting
vocational training, as well as expanding subsidised work and outplacement programmes. In both, unions refused to engage in concession bargaining, with
Belgian locals leading strikes at firms that tried to close, and Danish unions negotiating the continuation of generous unemployment benefits and strong active
labour market programmes, while simply accepting plant closures where they
occurred. In both, organised labour continued to play a strong role in wage-bargaining arrangements that have closed off low-wage options for employers, and
made businesses contribute to finding other jobs or vocational training.
Belgium and Denmark may be better examples of exceptions that have proved
the rule that over the past two decades, in that concession bargaining and business
partnership agreements were fundamentally weakening union movements in the
face of corporate reforms and financial globalisation. And in both countries,
recent signs of change are hardly auspicious in terms of continuing positive
rewards for workers. Denmark and Belgium avoided some of the worst aspects
of finance because their insider corporate governance systems and small firm structures blocked widespread hostile takeovers and lay offs. But now many of their
manufacturing and high-tech firms have been the target of foreign companies,
and as firms market capitalisation rates have doubled and equity trading increased,
MNCs and subsidiaries are relocating into Western and Eastern Europe as well as
China.
Both countries have also seen retrenchments in social spending that have
seriously reduced unemployment and the generosity of active labour market
policy (ALMP) programmes at a time of expanding precarious employment. In
93

John Peters
addition, Danish firms have pushed for and won the introduction of flexible
working time, and with low levels of employment protection, manufacturing
and retail enterprises rapidly shifted to hiring and lay off practices on flexible
schedules that rivalled those of the United States.14 Belgian firms have also
adopted similar part-time and flexible work strategies, and non-standard work
has risen rapidly over the past two decades. If earlier patterns seen in North
America and Western Europe are any indicator, such developments suggest that
labour movements and governments in both countries may soon face larger problems with the current economic downturn, bank bailouts, rising deficits and widespread lay offs.

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Conclusion
How widespread have financial reforms been? Has organised labour continued to
effectively employ wage bargaining and corporatist means of coordination to
make ever larger and more financially powerful firms bargain? Has labour been
able to ensure better wages and incomes and preserve the strategic capacities
of coordinated market economies, while ensuring that firms maintain their highskills, high-value, high-wage strategies?
The evidence suggests that whether in North America or Western Europe, the
rise of financial capitalism along with the global financial integration of stock and
capital markets either directly through the rise of new financial key actors
(including extensive foreign ownership) or indirectly through altered incentive
structures strongly influenced corporate governance and firm operations
throughout North America and Western Europe. As all the key financial indicators
show from FDI stock flows to market capitalisation rates to equity trading and
M&As the shifts in finance and corporate functioning were broad and extensive,
affecting all countries, including Austria, Italy and Norway that formerly had
exceptionally stable insider corporate governance systems. So too were changes
in companies production and employment practices equally significant.
Quantitative and qualitative evidence highlights that many MNCs reacted to
financial globalisation by rapidly adopting M&As, undertaking internal restructuring, and engaging in lay offs, outsourcing and relocation that subsequently drove
forward a process of deindustrialisation and reindustrialisation across continents
that cost many unionised workers their jobs. Just as commonly, firms reacted to
financial pressures by using partnership strategies to lower wage costs while
they two-tiered their workforce, and frequently denied labour representatives
influence over investment, lay offs or training, and only reluctantly funded early
retirement packages, all the while complaining of rising social costs.
For organised labour, the impact of these changes to finance and corporate management were largely negative. It certainly was true that despite the pressures of
finance, unemployment and economic competition, political institutions alongside
market regulations and wage-bargaining institutions continued to shape firm behaviour and economic change. Equally true, businesses and governments sought
innumerable ways to become more competitive in the global economy, and
undertook a variety of measures from decentralised bargaining and social pacts,
to privatising pensions and deregulating employment protection in order to
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The Rise of Finance and the Decline of Organised Labour


lower wage and social costs and enforce wage restraint. It was also the case that
unions resisted and used existing wage-bargaining systems as well as new ones
like national social pacts in the attempt to protect jobs, older workers and unemployment programmes.
But the policy tradeoffs that unions received for engaging in partnerships, social
pacts, cooperation, and wage restraint should make any argument about this being a
fair or equitable trade-off highly suspect. For across North America and Western
Europe, in the wake of financial pressures, the consequences of countries attempting to preserve their strategic capacities was not firms becoming more socially
responsible, but rather the opposite businesses becoming more profit driven
and efficient while labour bore the costs. With the exceptions of Denmark and
Belgium, financialisation provided opportunities for business to redistribute
income upwards in favour of the few, while pushing forward processes that
shrank wages and good jobs for the majority. Firm efforts to achieve competitiveness worsened these trends, forcing many unions to shift their collective bargaining
goals more towards ensuring firm success and cash flows, rather than improving
wages and work conditions for all. Such outcomes make claims that recent
reforms have resulted in something like a reasonable trade off between efficiency
and equality appear rather questionable. Just as questionable has been the assumption that labour market deregulation and wage restraint would provide the basis for
long-term economic growth and sustainable employment.
Future research that adopts a power resource model and focuses on the historical actions and changing capacities of capital and labour within advanced industrial economies should provide a much more robust account of fundamental
conflicts of interest. It should also provide a far more nuanced appreciation of
how institutional equilibria have come undone under the pressures of capitalist
competition, and of how the key transformative processes of financial change
have worked with the government deregulation of labour markets to weaken
unions, lower incomes and worsen job quality throughout the OECD.
Notes
Thanks to Stella Yeadon, Alan Zuege, Stephen Hellman and the anonymous reviewers for editorial comments and
suggestions.
1. Two recent works that highlight the differences in politics, production regimes and industrial relations are
Amable (2003) and Pontusson (2005). Continuing divergence in industrial relations and employment are
also underscored by Regini (2003) and Visser (2005).
2. Common arguments on the patient nature of European capital include Amable et al. (2005), Hall (2007),
and Jacoby (2000).
3. More recent assessments of the limited impacts of finance on corporate governance, collective bargaining,
and the labour movements are Deeg (2005), Goyer (2007), and Vitols (2005).
4. More critical and comprehensive treatments include Epstein (2005), Gospel and Pendleton (2005), and
Panitch and Gindin (2005).
5. Two of the best political economic surveys of contemporary capitalism are by Robert Brenner (2006) and the
late Andrew Glyn (2006).
6. Legislative changes to finance and banking have been recently discussed by Gowan (2009), Roe (2003), and
Van Treeck (2008).
7. On the dominant role of institutional investors in the American and British equity markets see Glyn (2006:
56) and Pendleton and Gospel (2005: 6163). For details on the expansion of foreign capital and foreign

95

John Peters

8.
9.
10.

11.

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12.

13.

14.

ownership in Europe see Huizinga and Jonung (2005). The extent of financial integration is detailed in the
latest European Commission report (2007) on finance and financial integration.
On IPOs and market capitalisation rates, see the recent European Commission report (2007: 34) and chart 4.3;
on market capitalisation rates, see the reports Annex II, chart 3.4.
The UN currently tracks a number of financial indicators, including mergers and acquisitions by country and
region, See the Foreign Direct Investment Online Database (http://stats.unctad.org/fdi/).
Some of the best in depth coverage of changes to corporate governance and industrial relations across
Western Europe has come out of the European Industrial Relations Observatory. See, for example,
Edwards (2002), Macaire et al. (2002), and Pedersini (2006). The qualitative, country survey evidence on
which much of Edwards report is based can be accessed at: http://www.eurofound.europa.eu/eiro/2002/
09/study/index.htm.
Good country studies of recent changes to corporate governance in Western Europe include: Aguilera (2005)
on Spain; Rose and Mejer (2003) on Denmark; Goyer (2003) on France; Jackson et al. (2005) on Germany;
Poustma and Braam (2005) on the Netherlands; Reiter (2003) on Sweden; Yla-Anntila et al. (2005) on
Finland.
On the wide variation and inequality in real wages, see Andrew Glyn (n.d: 2) and Mishel et al. (2007:
12033, 2026). On the widening gap in personal earnings between full-time workers and those in nonstandard employment see, OECD (2008: 824).
For discussions on Denmark see, Jrgensen (2006), and Andersen and Svarer (2006). Rochet (2006) provides a
number of direct responses to question on the impacts of MNCs and relocation of production to work and industrial relations in Belgium. For an overview of recent trade union actions in Europe, see Gajewska (2008).
The most comprehensive survey of labour market deregulation in the OECD including changes in
Denmark is found in the country surveys provided by Brandt et al. (2005).

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