Why did the Finnish Prime Minister Resign?: Tripartite Labour Market Relations in Historical Context
Aaro Sahari| 13 January 2020
◇ Modern History | European History | Economic History | Political History
Finnish labour market negotiations for the year 2020 have started out messily. So far, the most significant result has been the resignation of the Social Democrat (SDP)-led cabinet on December 3 over the prime minister’s role in the Posti (the state-owned postal service) labour relations debacle. While this turn of events led to Sanna Marin becoming the youngest PM in the world to much fanfare, it also highlighted the decades long struggle between employers’ associations (now the Confederation of Finnish Industries EK), employee unions (industrial labour union SAK being the most important), and the government over labour market policies.
Most Finnish academic labour market literature – whether economic, sociological, or historical in nature – is only available in Finnish or Swedish. In this short post I will set the Finnish labour market system in its historical context, to help explain the longer history behind recent events. The analysis is based on our research team’s recent work on Finnish labour market history.
Finland has a history of labour market compromises and tripartism stretching back to the Second World War. The relationship between employers and employees was forged out of necessity. The war with the Soviet Union (1939–40, 1941–1944) and the ensuing war reparations (1944–1952) led to increased state control of markets and a technocratic industrial policy system, wherein labour market associations collaborated with the government in building a Nordic welfare state.
Early tripartist efforts gave way to a fully negotiated system in the 1960s. Central labour associations negotiated all-encompassing agreements that set the tone for years to come. The state typically participated in these negotiations via retirement benefit and tax policy reforms. By the 1970s Finland had developed a centralised, comprehensive income policy system.
Throughout the Cold War the economy grew and the employees’ unions advanced their agenda for better working conditions and benefits. When the leading export industries ran into trouble, the Finnish Markka was devalued time after time. This inflation-devaluation cycle was a sore point for the Bank of Finland and by the mid-1980s its monetary experts had successfully lobbied the cabinet for a stable currency policy. This change was compounded by a mid-decade move to open Finnish investment markets to global competition.
Meanwhile the Confederation of Finnish Industries had started to chafe under the labour market negotiation system. Federation leaders argued that Finland had become rigid and uncompetitive. In the early 1990s they decided to change the game.
As the Cold War came to an end and Finland applied for EU membership directly thereafter, the country was wrecked by the most severe depression since the 1930s. While few industrial or trade experts foresaw it, Finnish bilateral trade with the USSR was in dire straits. Banks collapsed and companies went bankrupt while the Finnish currency was set adrift in 1992. Unemployment soared and social safety networks were strained.
The Confederation of Finnish Industries developed a new strategy to change the labour market system in 1991. The plan was to decrease labour safeguards, to cut employment costs for the employers, and to stop making centralised labour agreements, known colloquially in Finland as ‘tupo’ or ‘tulopoliittinen kokonaisratkaisu’, a collective agreement that all must respect regardless of industry or place of work. The employers’ plan was met with dismay and strict opposition from the labour unions. The centre-right cabinet led by the Centre Party (Keskusta) was under severe pressure and failed to support these policy changes. The cabinet preferred stability in the labour markets over the employers demands for more flexibility in employment. The stage was set for a continued struggle over the fundaments of the Finnish system.
The creative destruction of the early 1990s depression and Finnish EU membership started to change the system. Joining the common market meant monetary policy had to change. Low inflation goals guided the Finnish labour market system towards more nuanced change. The Confederation of Finnish Industries continued to push for the dismantlement of the old tripartite system. Employers were angling for local labour negotiations, despite pushback from the employees’ unions and the state.
Step by step, the Finnish economy transformed and opened up to the common market. Competitive exports remained the yardstick by which the economy was measured. The political climate slowly warmed to liberal deregulation and centre-right cabinets that had once been impossible became commonplace. This slow transformation of the labour system forms the foundation of recent volatility.
In 2015 the Confederation of Finnish Industries single-handedly decided to stop negotiating with the employee’s unions. Facing opposition from the other two poles of the system, the employers opted out and forced labour negotiations at the union level.
The Centre Party won the 2015 parliamentary elections and industrialist Juha Sipilä became prime minister heading a coalition with the Coalition Party and populist right-wing Finns Party. To combat the stagnation of the Finnish economy a new competitiveness leap named ‘kiky’ was introduced in 2017. It became the flash point for grievances across the whole system. The leading newspaper Helsingin Sanomat reported that the leap struck women in low paying jobs far more than male dominated export industries.
These recent changes led to tension and ill will between the central labour market actors. When the SDP won the elections in the spring of 2019 the situation changed. Prime minister Antti Rinne had a background in the labour unions, and the social democrats had long been the primary allies for the largest employee union SAK. This turn of events was not lost on the employers and throughout the year harsh words have been changed between labour market actors.
As collective bargaining was off the table, all parties waited for a bellwether. The postal labour action opened the negotiations. The Posti case is an atypical one for a number of reasons. As a state-owned company Posti falls under guidelines for state corporate steering. Like many other former public bureaus, Posti has been under pressure to be economically successful. As postal and package delivery transforms globally, the company has struggled with its legally mandated responsibilities to deliver post state wide. This mandate ties the case to a third nationally salient issue, Finnish regional politics. To keep all of the country populated, public services are essential in the North and East of Finland. This has historically been at the core of the Centre Party politics, but the party lost many seats in the 2019 elections.
In August Posti decided to move it’s package handlers to a subsidiary company and consequently to a cheaper labour agreement. This action was opposed by employee unions but approved on ministry and cabinet level until it became public knowledge. The company had been under fire for other reasons as well, and in October the CEO had to step down. The PM was caught in this who-said-what row and finally lost the confidence of the Centre party, already a disgruntled cabinet member, and had to resign. The Marin cabinet then continued with the same program and participants.
In short, the Posti labour action became a proxy for many issues other than labour market policy. Intra-cabinet tensions were released with the change of prime minister alleviating the Centre Party’s fears of social democrat labour politics. At the same time the event was an opportunity for the labour unions to raise the stakes for the forthcoming negotiations. The old tripartite labour negotiation system is gone but not forgotten, as Helsingin Sanomat pointed out in November.
As labour unions position for a difficult negotiation round, the very nature of the Finnish system is tested yet again. The employers have had the upper hand for some time now, but the situation remains fluid.
Aaro Sahari is a researcher for the National Museum of Finland and member of the Pitkät kihlajaiset – labour market history project led by professor Niklas Jensen-Eriksen at the University of Helsinki.
 As the state broadcaster Yle recently reported.
 A comprehensive list of references will be found in our forthcoming book Wuokko M. etal. Loputtomat kihlajaiset: yritykset ja kolmikantakorporatismi Suomessa 1940–2020 [Endless engagement: corporations and tripartite corporatism in Finland, 1940–2020]. Helsinki: Siltala, 2020.
 For example, the very word ‘tupo’ was banished from the vocabulary.
 The change forced an extra 24 uncompensated hours of work per annum for all.