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Former PM Lipponen: Unions alone can't be blamed for lost competitiveness

Paavo Lipponen saw a similar economic downturn in Finland's economy twenty years ago when he was appointed prime minister. The Social Democratic Party heavyweight says that even though the government has failed to agree on a labour accord with the unions, all is still not lost.

Suomen entinen pääministeri Paavo Lipponen Ylen Ykkösaamussa.
Suomen entinen pääministeri Paavo Lipponen oli vieraana Ylen Ykkösaamussa 5. joulukuuta. Image: Yle

Finland’s 47-year old system of three-level collective working condition bargaining is looking increasingly likely to go the way of the dodo bird these days, after Prime Minister Juha Sipilä’s fourth attempt to forge a so-called social contract with the leading union confederations has once again fallen flat. This time it may be for good however, as the country’s leading employer’s association EK has announced that it will no longer be a party to centralised income policy agreements, and Sipilä says he will abandon his efforts and explore the potential of industry and company-specific labour negotiations instead.

Paavo Lipponen is a grand old man of Finnish politics, who served as prime minister from 1995 to 2003 and chair of the Social Democratic Party from 1995 to 2005. After his reign as prime minister, he was the parliamentary speaker for another four years and even ran for president as the SDP candidate in 2012. Lipponen was interviewed on Yle’s morning programme on Saturday about his view of the government’s failed negotiations with the labour groups.

“I suppose we could ask ourselves how we got to this point. We have had a centre or right-leaning government in Finland since 2003. That makes five conservative prime ministers before Sipilä. In was in this time that we lost our competitiveness; during Vanhanen’s second cabinet term when the government interfered in the labour markets in a way that led to a downward wage spiral,” he said.

Lipponen says the trade unions have been unfairly branded as the scapegoat in the current scenario. 

“I’m not looking to blame anyone. I would rather we all show a little humility, in the spirit of the three-level bargaining tradition. All is not lost. I think it’s great that Juha Sipilä is determined to solve these pressing problems. I would hope that everyone understands that we have to pull together if we want to move forward and reach a solution. We still have time; I wouldn’t bury our age-old cooperation scheme for good quite yet,” he said.

Lipponen says that Sipilä is on the right track with what he is trying to achieve. He says it is up to the prime minister and his cabinet to raise Finland out of its economic crisis and bring about structural reform.

Seen it all before

In 1995 when Paavo Lipponen was appointed Finland’s prime minister, Finland was also in the midst of a difficult economic situation. He sees several parallels between the situation now and 20 years ago.

“Finland was taking on debt then at a rapid pace. This gave rise to a real one-of-a-kind team spirit at the time. The labour organisations were willing to meet me halfway.”

He says the current situation is much more complex, however.

“During the 1990s, everyone fully expected the economy to grow and global trade to provide constant demand. The last seven years in Finland have been bleak in this regard and the world economy is no longer much help. Finland has to find the means to improve its competitiveness and make structural changes on its own,” said Lipponen.

But the veteran politician says there is still a way out of the stalemate, if a common will can be found.

“Our situation is not that bad: we are not impossibly in debt and we have many advantages, like a highly educated workforce, strong innovation and good solid companies. It’s not just that we have to get our costs under control, we also have to adopt a more positive attitude on the world market and show some self-confidence.”

So what will change?

For years in Finland, collective bargaining used to take place at three levels: national, industry and company. National level agreements, known as general income policy settlements, were negotiated between the national union confederations and the national employers’ associations like the EK, and covered the whole economy. The government often played a key role in these negotiations, for example, making changes to taxation or social assistance programmes, dependent on their outcome.

These national level agreements produced recommendations to negotiators at the industry level. Industry level negotiations set rates and basic conditions for each industry, which provided a minimum standard that was binding for all employers in that industry in most cases, even if they were not a direct party to the negotiations.

Below the industry level there are company negotiations, which have become more important in recent years. Company level negotiations, which take place with the framework of industry level agreements, can produce improvements on the industry settlement, but may also involve other changes.

Employers have for some time pressed for greater flexibility in the system and this is one of the goals Prime Minister Sipilä was reaching for in his social contract negotiations. Now that the talks have failed for the fourth time, however, Sipilä said on Friday that he now planned to focus on the potential of expanding the bottom negotiation level: workplace-specific income policy agreements.

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