Sipilä’s social contract: is the government very clever, very inexperienced or simply dumb?

Stubb Soini Sipilä hallitusneuvottelijatAs the first step of our analysis of the Finnish government’s programme, we focus on the so-called “social contract” proposed by Sipilä to the social partners.

The Finnish collective bargaining system is fairly standard for the Nordic countries, with negotiations of collective agreements that starts at the national level to secure the framework on wages and develop some topical social issues (training rights, gender equality, maternal or paternal leave, etc.) and more specific agreements implementing these guidelines at the branch level and then the company level. The state plays a rather modest role, facilitating the conclusion of agreements by proposing some changes to legislation to implement the agreements, or by granting public financing of some of the measures.

A social contract which is pure blackmail, with the trade unions confronted with Sophie’s choice

Prime Minister Sipilä’s government has taken a very different and more prominent approach. Mr Sipilä had already presented to the social partners the same social contract aiming at improving competitiveness just after the elections, but his proposals had failed to reach consensus: on the contrary, employees’ representatives considered that the price was too high and the employers themselves were not very keen on certain measures such as executive’s salary moderation. Furthermore, in the words of the President of the confederation SAK, Lauri Lyly “You do not change Finland’s collective bargaining system in a few days.”

The same social contract comes back with a serious change: if the social partners refuse to sign on Sipilä’s proposals, the government programme includes in its annex 2 a list of punishments for Finland’s population. This list, which adds to the already 4 billion euros of budget cuts focusing on  culture, education, health, social programs, public pensions and allowances, consists of further cuts at the level of 1,5 billions euros in the following domains:

  •  limiting the reimbursement of medical and dental visits and consultations; reducing funds for vocational training for adults and student aid;
  • halving the indexation on inflation for conventional private sector pensions
  • reducing the level of unemployment benefits
  • ending the system helped by the state of “job alternation” where an employee may take leave and be replaced by an person unemployed
  • removing certain parental benefits
  • increasing of income tax through an absence of indexation on inflation of the different levels
    ending the possibility of reduction of income taxes for housing loans.

The words “ultimatum” and “blackmail” come to the mind when looking at the government’s programme: “By no later than 30 July 2015, the Government will make a proposal to social partners on measures (social contract) to reduce unit labour costs by at least 5% as well as on change security and a related education model. Government expects social partners to commit comprehensively to a social contract by 21 August 2015. If social partners accept the Government’s proposal, and the measures are clearly having an effect in March 2017, the Government will withdraw the conditional expenditure savings and tax increases it had decided”.

Reducing the unit labour cost can mean 3 things which can also be combined: diminishing the salaries, increasing the number of weekly or monthly working hours and reducing holidays. This morning, Jyri Häkämies, the CEO of the Confederation of Finnish Industries, EK, said that he thinks the mandatory double pay on Sundays is outdated, saying that he thinks many people would be prepared to work on Sundays, which means less money every month for those who work on Sundays. This is going to be one main element in the “improved competitiveness“.

So Finnish trade unions, even if they are ready to help Finland to regain competitiveness, are facing the equivalent of Sophie’s choice: choosing between bad treatments for workers, or punishment of large parts of the Finnish population. A big worry is to know if the social dialogue in Finland, which is an important part of the stability of the country, is going to survive the government’s policy.

(you can read more here)

A major mess in the government’s communication

In order to add to the confusion, the Finnish newspaper Iltalehti citing an unnamed source in the government reported that there was a secret list of anti-trade unions measures that the government would decide if negotiation would fail: increased fines for illegal strikes, removing the tax deduction for union contributions and creation of an unemployment insurance fund that would compete with those managed by unions. Mr Sipilä has denied the existence of this list, but it looks now like a possibility, even if it is not a government’s official document.

Almost at the same time, the new Minister of Employment (Jan Lindström, True Finns) suggested that any new austerity plan might include restoration of employer contributions to the Finnish social security, Kela, suppressed in 2010, for approximately € 1 billion. The unions said ironically that the measure, which would balance the efforts required from employees, should have been included in the official government’s programme. Again, M. Sipilä was obliged to disagree with his Minister of Employment and contradict him.

Finland at risk because of a global lack of experience in Sipilä’s government

When reading about it, it looks incredible, as this kind of violence in social relations has not been seen here in Finland in the past 40 years. The big question is to know if this is part of the Sipilä’s method , who would be the mastermind behind this plan to weaken the Trade Unions and oblige them to accept decisions that even the National Coalition Party would not have dreamt to implement. But there are big risks: the first one is unpopularity, but it is not necessarily bad for Mr. Sipilä in the first months of his mandate, and the first polls seem to show that the population does not hold it against him; the other possibility is to trigger a conflict which could take the form of a general strike, which would not be good for the Finnish economy; the trade unions may also accept the deal, but at the end the policy may be unsuccessful, as we will see in one of our next articles..

We do not believe this governmental team is really dumb, even if their knowledge of macro-economy and of social relations may seem limited. So the most probable hypothesis is that Sipilä’s government is not yet up to the task, as proved by these leaks and the ministerial declarations. Sipilä is obliged to contradict publicly his ministers, as noted by some observers and a number of newspapers. Even the recent publication by the Ministry of Finance of a paper showing that the recently agreed upon government cutbacks and tax changes will affect negatively mainly pensioners, families with children, and the unemployed, and will be favourable  for the richest part of the populations, did not demonstrate any trace of communication skills in the new team (read the paper here).

We just have to remember that Sipilä is new into politics, that the True Finns are not prepared to manage a country (read here and here for being convinced), and it explains a lot. The National Coalition Party is apparently using them to push its own ideas through the governments’ programme. There are some chances that Sipilä is going to regret not to have taken the social-democrats in the coalition, as hoped by the majority of his party: it would have provided a better balance in the government’s programme and made it possible to have a deal with the social partners. We are going to miss Antti Rinne’s common sense, moderation  and experience of negotiations in a time when the country is dearly needing them…

Categories: Economy, Social

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