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WHAT CAPITALISM?<br />

SOCIO-ECONOMIC CHANGE IN<br />

CENTRAL EASTERN EUROPE.<br />

PROCEEDINGS OF THE WORKSHOP THE 29/30 OCTOBER 2009<br />

COLLABORATIVE RESEARCH CENTRE <strong>580</strong> IN COOPERATION WITH<br />

THE UNIVERSITY OF OSNABRÜCK, LONDON SCHOOL OF ECONOMICS AND<br />

THE OTTO-BRENNER FOUNDATION<br />

Agnieszka Cianciara, Péter Csizmadia, Alexandra Janovskaia,<br />

Alexandra Krause (Ed.), Kathrin Loer, Martin Mendelski, Abel Polese,<br />

Catherine Spieser, Ivett Szalma, Bernadett Szél, Vera Trappmann (Ed.),<br />

Lyudmyla Volynets<br />

<strong>SFB</strong> <strong>580</strong> MITTEILUNGEN 2010 36


36 <strong>SFB</strong> <strong>580</strong> MITTEILUNG<br />

Heft 36, August 2010<br />

Sonderforschungsbereich <strong>580</strong><br />

What Capitalism? Socio-Economic Change in Central Eastern Europe.<br />

Proceedings of the Workshop the 29/30 October 2009<br />

Collaborative Research Centre <strong>580</strong> in Cooperation with the University of Osnabrück,<br />

London School of Economics and the Otto-Brenner Foundation<br />

Sprecher:<br />

Prof. Dr. Everhard Holtmann<br />

Martin-Luther-<strong>Universität</strong> Halle-Wittenberg<br />

Institut für Politikwissenschaft und Japanologie<br />

06099 Halle (Saale)<br />

Verantwortlich für dieses Heft:<br />

Dr. Alexandra Krause<br />

<strong>Friedrich</strong>-<strong>Schiller</strong>-<strong>Universität</strong> <strong>Jena</strong><br />

Institut für Soziologie<br />

Carl-Zeiß-Straße 2<br />

07743 <strong>Jena</strong><br />

Tel.: +49 (0) 3641/ 945564<br />

Email: alexandra.krause@uni-jena.de<br />

Logo:<br />

Elisabeth Blum; Peter Neitzke (Zürich)<br />

Cover & Satz: Romana Lutzack<br />

Druck:<br />

<strong>Universität</strong> <strong>Jena</strong><br />

ISSN: 1619-6171<br />

Diese Arbeit ist im Sonderforschungsbereich <strong>580</strong> „Gesellschaftliche<br />

Entwicklungen nach dem Systemumbruch. Diskontinuität, Tradition und Strukturbildung“<br />

entstanden und wurde auf seine Veranlassung unter Verwendung<br />

der ihm von der Deutschen Forschungsgemeinschaft zur Verfügung gestellten<br />

Mittel gedruckt.<br />

Alle Rechte vorbehalten.


WHAT CAPITALISM?<br />

SOCIO-ECONOMIC CHANGE IN<br />

CENTRAL EASTERN EUROPE.<br />

PROCEEDINGS OF THE WORKSHOP<br />

THE 29/30 OCTOBER 2009<br />

COLLABORATIVE RESEARCH CENTRE <strong>580</strong> IN COOPERATION<br />

WITH THE UNIVERSITY OF OSNABRÜCK,<br />

LONDON SCHOOL OF ECONOMICS AND THE<br />

OTTO-BRENNER FOUNDATION


REFERENCES LITERATUR CONTENTS<br />

Chapters<br />

1<br />

Editorial<br />

Alexandra Krause, Vera Trappmann ...........6<br />

Varieties of Capitalism<br />

2<br />

3<br />

The Varieties of Capitalism Approach Goes East:<br />

Institutional Complementarities and Law Enforcement during<br />

Post-Communist Transition<br />

Martin Mendelski ...........8<br />

Polish business – politics relations and their impact on national<br />

lobbying at the EU level<br />

Agnieszka K. Cianciara ..........45<br />

Companies in transition<br />

4<br />

5<br />

Germans on their way East – Austrians staying at home<br />

Kathrin Loer ..........62<br />

Automotive MNCs in Central Europe: The enterprise as a<br />

source of competitive industrial capabilities<br />

Aleksandra Janovskaia ..........80<br />

Seite page 4


REFERENCES LITERATUR CONTENTS<br />

Chapters<br />

6<br />

Organisational Innovations in the Hungarian Knowledge-intensive<br />

Business Service Sector: Lessons from a Company Survey<br />

Péter Csizmadia .........103<br />

Welfare state and labour markets<br />

7<br />

8<br />

The politics of labour market adjustment in post-1989 Poland.<br />

Trajectory of policy reform, politics of social change and emerging<br />

welfare regime<br />

Catherine Spieser .........121<br />

Analysis of the Hungarian labour market by deliberative methods<br />

Szalma Ivett/Szel Bernadett .........155<br />

Welfare Insights from the Ukraine<br />

9<br />

At the origins of informal economies: some evidence from Ukraine<br />

(1991-2009)<br />

Abel Polese .........200<br />

10<br />

Industrial Relations and post-socialist transformation: the case<br />

of the Ukraine.<br />

Lyudmyla Volynets .........217<br />

Seite page 5<br />

Authors .........242


REFERENCES LITERATUR EDITORIAL<br />

EDITORIAL<br />

1<br />

Alexandra Krause and Vera Trappmann<br />

Seite page 6<br />

Twenty years after the fall of the<br />

Berlin wall, it is due time for a balance<br />

sheet of whether the transition from<br />

a planned economy to a market economy<br />

in Central and Eastern Europe has been<br />

accomplished or is still under way - in both<br />

cases, we would like to know what economic<br />

system has emerged. The workshop held at the<br />

<strong>Friedrich</strong>-<strong>Schiller</strong> University in <strong>Jena</strong> in October<br />

2009 brought together researchers offering<br />

answers to this question. The approach was<br />

two-fold. First, we had empirical contributions<br />

of young scholars, two of which focused on<br />

Poland, Hungary and the Ukraine, respectively,<br />

whereas two additional contributions analysed<br />

offshoring and management strategies in<br />

the automobile industry from a comparative<br />

perspective. Altogether, these papers provide<br />

evidence of the variety of capitalism in the<br />

region. Diversity, in terms of the level of<br />

modernization and market regulation achieved,<br />

is still large. Moreover, the Ukraine is not at<br />

the same level as the Visegrad four, even<br />

considering the level of corruption or informal<br />

economy alone. This finding, however, provokes<br />

the question of how to deal with this variety? Is<br />

it mirrored at other world regions? Do some<br />

countries resemble those in Western Europe?<br />

How do we explain variety among the extransition<br />

countries, in terms of different elite<br />

constellations, as Eyal, Szeleny and King have<br />

suggested, or path dependencies or the varying<br />

influence of foreign direct investments?<br />

Therefore, in a second step, we had conceptual<br />

contributions that attempted to assess whether<br />

the emergent capitalisms and the ongoing<br />

social changes in the region can still be best<br />

analyzed by transformation theory or whether<br />

the region has become affluent of a particular


ALEXANDRA KRAUSE, REFERENCES LITERATUR VERA TRAPPMANN<br />

theory. Assuming the latter, we invited experts<br />

in the field to elaborate on existing analytical<br />

paradigms for socio-economic change and<br />

examine their adaptability to Central Eastern<br />

Europe.<br />

Professor Elena Iankova fom Cornell University<br />

dealt with the VoC paradigm and industrial<br />

relations; Professor Lawrence King from<br />

Cambridge University presented neoclassical<br />

sociology arguing for a re-evaluation of the<br />

role of the state in economic change in CEE;<br />

and Professor Christoph Köhler from <strong>Jena</strong><br />

discussed the challenge-and-response approach<br />

developed by the Collaborative Research<br />

Centre <strong>580</strong>.<br />

The event was part of a series of workshops<br />

for post-graduates and early career researchers<br />

studying Central and Eastern Europe.<br />

The network of these young scholars is<br />

supported by the Otto Brenner Foundation<br />

and benefits from the generosity of the<br />

various host institutions. While in the past<br />

the London School of Econmics, under the<br />

head of Aleksandra Janovskaia, organized the<br />

meetings, we are very grateful of the support<br />

of the <strong>SFB</strong> <strong>580</strong> for the meeting in 2009, which<br />

was organized by two <strong>SFB</strong> projects dealing, in<br />

particular, with Central and Eastern Europe.<br />

The A2 project compares economic elites in<br />

Poland and Hungary with those in Germany,<br />

while B2 compares employment relationships<br />

in Russia with Germany. The workshop in 2010<br />

will take place at Osnabrück University. The<br />

following workshop is planned in Bratislava. If<br />

any of the readers feels inspired by this project,<br />

please do not hesitate to host one of the future<br />

workshops!<br />

Finally, we must say that it has been extremely<br />

fruitful to engage the young researchers in a<br />

dialogue with the senior researchers of the<br />

field, who participated in the workshop. We,<br />

therefore, would particularly like to thank<br />

Katharina Bluhm, Elena Iankova, Lawrence<br />

King and Christoph Köhler for their helpful<br />

comments and a lively debate.<br />

We are even more fortunate to be able to<br />

present the empirical workshop contributions<br />

here to a broader audience and would like to<br />

thank all authors for revising their papers for<br />

this publication.<br />

Seite page 7


THE VOC EINLEITUNG APPROACH GOES EAST<br />

ABSTRACT<br />

THE VARIETIES OF CAPITALISM APPROACH<br />

GOES EAST:<br />

INSTITUTIONAL COMPLEMENTARITIES AND<br />

LAW ENFORCEMENT DURING POST-COMMU-<br />

NIST TRANSITION<br />

Martin Mendelski<br />

2<br />

The Varieties of Capitalism (VoC) approach<br />

is a popular paradigm used to<br />

explain the institutional diversity and<br />

economic performance in developed market<br />

economies. Does the VoC approach also have<br />

explanatory power for post-communist economies<br />

from Central and Eastern Europe and the<br />

former Soviet Union? This guiding question<br />

will be answered by analyzing the role of institutional<br />

complementarities and coordination<br />

for institutional diversity and development. It<br />

is argued that, while the VoC approach can<br />

serve as an analytical framework of analysis<br />

and in parts as a tool for classifying transition<br />

economies regarding their modes of coordination,<br />

it is less suited to explain the process of<br />

path-dependent and volatile institutional development<br />

in most transition countries because<br />

of its static perspective and the negligence of<br />

enforcement. Therefore, the VoC approach can<br />

be applied only restrictively to post-communist<br />

economies.<br />

1. INTRODUCTION<br />

Seite Page page 8<br />

With the accession into the EU, transition<br />

seems to be over for most post-communist<br />

countries. Remaining work is to be done in<br />

Central Asia and South-Eastern Europe (SEE),<br />

where transition has not yet come to an end. A<br />

comparison of countries from SEE, Central<br />

Eastern Europe (CEE) and Central Asia on<br />

the basis of selected institutional indicators (e.g.<br />

EBRD transition indicators 1989-2007; World<br />

Bank governance indicators, 1996-2007) reveals<br />

dissimilar institutional trajectories during the<br />

last two decades. According to the average


MARTIN SEMENOVA MENDELSKI<br />

transition score in the EBRD 2006 report,<br />

countries from SEE (except Bulgaria, Croatia<br />

and Romania) and the former Soviet Union<br />

still lag behind the development of the CEECs<br />

and the Baltic States (see EBRD 2006). So why<br />

do institutional quality and reform progress<br />

differ between post-communist countries?<br />

What accounts for persisting differences of<br />

institutional systems?<br />

Research on institutional diversity is addressed<br />

by scholars of the VoC literature (Albert 1993;<br />

Whitley 1999; Hall/Soskice 2001; Amable 2003;<br />

Crouch 2005). The VoC approach, elaborated<br />

most prominently by Hall and Soskice 2001,<br />

sees institutional complementarities behind<br />

the persisting institutional and organizational<br />

diversity of developed Western countries.<br />

Hall and Soskice emphasize limited diversity<br />

of capitalism (institutional diversity) and<br />

limited ways to economic success (comparative<br />

advantage/economic growth). The reason for<br />

limited diversity can be found in complementary<br />

institutions, i.e. mutual enhancing institutions,<br />

which leave basically two possibilities for the<br />

coordination of economic activities, via market<br />

and non-market relationships (Hall and<br />

Soskice 2001, p.8).<br />

The VoC approach has mainly been applied<br />

to developed Western countries and has<br />

only recently been extended to countries<br />

from CEE, SEE and Central Asia (Hancke/<br />

Rhodes/Thatcher 2007; Lane/Myant 2007).<br />

Scholars who apply the VoC approach to<br />

post-communist countries attempt to explain<br />

institutional diversity (type of emerging<br />

capitalism) and institutional development<br />

during transition. They do so by grouping<br />

post-communist countries into successful<br />

and less successful clusters, by comparing<br />

selected countries in qualitative case studies<br />

or by analyzing single countries. Dynamic<br />

comparative studies including all transition<br />

countries are rare (Knell/Srholec 2007) and<br />

the recent application of the VoC approach to<br />

post-communist countries seems to have only<br />

explanatory power for the most successful<br />

transition countries such as Slovenia and<br />

Estonia (Feldmann 2007; Buchen 2007).<br />

What makes it so difficult to extend the<br />

approach to other post-communist countries<br />

from the region? Unfinished transition in<br />

several states and methodological difficulties<br />

(missing data, comparability of data) could<br />

be part of the answer, but there are additional<br />

reasons, as well.<br />

This paper’s aim is to explore these reasons why<br />

the VoC approach has only limited explanatory<br />

power in post-communist countries.<br />

Particularly, the question should be answered<br />

whether certain VoC concepts (institutional<br />

complementarity, coordination concept) can<br />

be helpful in explaining institutional diversity<br />

and institutional development during postcommunist<br />

transition. The basic argument of<br />

the paper is that the creation of institutional<br />

complementarities is more difficult to achieve<br />

under conditions of transition (i.e. uncertain<br />

environmental conditions, changing power<br />

relations of diverse actors, capacity restrictions)<br />

than under conditions of stability,<br />

prevailing in developed countries.<br />

Such difficult transition conditions Seite Page page 9<br />

as well as persisting institutions from<br />

the past make the enforcement of<br />

new formal institutions difficult and require a<br />

cautious application of the VoC to transition<br />

economies.


THE VOC EINLEITUNG APPROACH GOES EAST<br />

The outline of this paper is as follows. The<br />

next section gives an overview of the literature<br />

attempting to apply the VoC to post-communist<br />

economies. The third section elaborates the<br />

limits and possibilities of the VoC approach<br />

to explain divergent transition outcomes. In<br />

this section, I will attempt to reveal whether<br />

the concept of institutional complementarity<br />

and that of pure types of coordination are<br />

helpful in the transition context. I argue<br />

that, in general, the VoC approach can be<br />

useful as a framework of analysis, but that its<br />

application in the transition context also has<br />

certain limits. In particular, I identify three<br />

limitations (uncertainty resulting from a<br />

changing environment, diversity of actors, lack<br />

of capacity) that restrict the ex ante design of a<br />

complementary institutional system. In the last<br />

section, I will conclude that the VoC approach<br />

is less suitable to explain institutional quality<br />

and diversity during transition and, therefore,<br />

is restrictively applicable to the still evolving<br />

capitalist systems in most post-communist<br />

countries.<br />

2. VARIETIES OF CAPITALISM AND POST-COM-<br />

MUNIST TRANSITION (LITERATURE OVERVIEW)<br />

Before giving an overview of the VoC literature<br />

focusing on post-communist countries,<br />

some basic differences must be kept in mind<br />

when comparing capitalist systems.<br />

By considering four types of capitalist<br />

classification (coordination, re-<br />

Seite Page page 10<br />

gionalism/nationalism, development<br />

stage, origin), the deeper underlying<br />

assumptions and sources of capitalist diversity<br />

should become clearer.<br />

A first possibility to distinguish among<br />

capitalist systems is to classify them according<br />

to regional and national characteristics. This<br />

popular typology is based on similar national<br />

or regional logics of organization, which are<br />

related to socio-cultural and geographic factors.<br />

Forms of regional developed capitalist systems<br />

were labeled Scandinavian, East Asian, Latin<br />

American or Mediterranean capitalism. National<br />

typologies of capitalism are, for instance, British,<br />

Dutch, Prussian, American and Japanese. Most<br />

of these national and regional categories refer<br />

to developed economies; and only recently have<br />

scholars begun to label the evolving forms of<br />

capitalism among post-communist countries<br />

as East European Capitalism (Stark 1996;<br />

Iankova 2002), Central European Capitalism<br />

(Lawrence/King 2007), Russian capitalism<br />

(Woodruff 1999) or post-soviet capitalism<br />

(Tholen 2005, p. 228). 1<br />

A second method to classify capitalism is<br />

according to the dominant logic of coordination<br />

(e.g. Hall/Soskice 2001). Scholars focusing on<br />

different modes of coordination between subsystems<br />

of the political economy identified<br />

liberal market economies (LMEs), where<br />

firms coordinate via competitive market<br />

arrangements, coordinated market economies<br />

(CMEs), where firms interact strategically<br />

with other actors via non-market relationships,<br />

and mixed market economies (MMEs), which<br />

face high state intervention on the supply side<br />

(Hall/Gingerich 2004, p. 17).<br />

A third criterion of classification is the degree<br />

of “capitalism ripeness”, i.e. the stage in capitalist<br />

development. This criterion makes more sense<br />

to distinguish between evolving capitalism in<br />

post-communist and developed capitalism


MARTIN SEMENOVA MENDELSKI<br />

in the West. Developed economies, which<br />

have already reached a certain level of stable<br />

and settled market economy, possess a more<br />

developed and settled form of capitalism<br />

than post-communist economies, which are<br />

still building their economic and institutional<br />

systems. Given the different stages of<br />

development between the developed West<br />

and the lagging East, it is not surprising that<br />

there is a different organizational logic in postcommunist<br />

countries. This special logic in postcommunist<br />

countries is driven by institutional<br />

and economic catch-up strategies in still young<br />

and evolving capitalist systems. Nevertheless,<br />

the degree of capitalism ripeness differs even<br />

among post-communist countries. On the one<br />

hand, very advanced frontrunners (Estonia,<br />

Slovenia) have already established clear and<br />

settled institutional structures and are classified<br />

in the Hall/Soskice framework as either LME’s<br />

or CME’s. On the other hand, laggards from<br />

South-Eastern Europe, Central Asia and the<br />

Caucasus are still constructing and improving<br />

their institutional system. Under such transitory<br />

conditions, their still unsettled institutional<br />

system does not allow for a classification in<br />

Hall/Soskice’s framework. However, even the<br />

situation of stable but mixed type of capitalism<br />

in the Visegrad States makes categorization<br />

difficult and would imply a need for additional<br />

criteria describing capitalist variety.<br />

A fourth method to classify capitalist systems<br />

is according to their origin. Basically, two<br />

forms are possible, internally or externally<br />

driven capitalism. Internally driven capitalism<br />

indicates a domestic and gradual development<br />

of capitalist institutions over time. Successful<br />

Western capitalist systems were developed<br />

internally (e.g. in USA, Great Britain, Prussia)<br />

and formal institutions could be adjusted to<br />

local conditions. In contrast, externally induced<br />

capitalism stands for imported capitalist<br />

institutions from abroad. Such institutional<br />

transfers based on Western models occurred in<br />

CEE after the end of Habsburg domination at<br />

the turn of the 19 th century and again after the<br />

end of communism in the 1990s. Institutional<br />

development in the CEECs has been based on<br />

the imitation of technological or organizational<br />

leaders from the West, characterized by<br />

institutional or economic catch-up strategies<br />

and institutional recombination (Stark 1996)<br />

leading to an institutional patch-work system.<br />

According to the VoC literature, such mixed<br />

systems should not be very successful (Hall/<br />

Soskice 2001; Cernat 2006).<br />

Which criterion matters most to explain postcommunist<br />

capitalist diversity? Is it possible to<br />

apply Hall/Soskice’s VoC framework to postcommunist<br />

economies? Before trying to answer<br />

these questions myself, I would like to give an<br />

overview of what other scholars have written<br />

so far. Literature related to the application<br />

of VoC in post-communist countries can be<br />

divided into four kinds of analyses: single<br />

country case studies, comparative case studies,<br />

static comparative analysis and dynamic<br />

comparative analysis.<br />

Single country case studies focus on institutional<br />

development in a single country<br />

(see Charman 2007; Christophe<br />

2007; Myant 2007; Hanson/Teague; Seite Page page 11<br />

Korosteleva 2007). While this<br />

frequent approach, conducted as a<br />

qualitative case study, is able to reveal complex<br />

agency-structure relationships over time, it<br />

does not allow one to identify the sources


THE VOC EINLEITUNG APPROACH GOES EAST<br />

of capitalist divergence at a general level of<br />

analysis.<br />

Another popular method to study VoC is the<br />

comparative case study of few selected countries<br />

(Mykhnenko 2007; Feldmann 2007; Buchen<br />

2007; King 2007). Although this approach<br />

allows for institutional change over time,<br />

generalized findings are not possible, as only few<br />

CEECs are compared. However, this approach<br />

requires detailed information and sufficient<br />

data for a thorough qualitative analysis. For<br />

lagging post-communist countries data is<br />

still not available. Another problem is that<br />

most data is not standardized and, therefore,<br />

difficult to compare. Thus, researchers prefer<br />

to focus on countries where distinct structures<br />

of capitalism are clearly discernible such as<br />

Estonia and Slovenia. Other country studies<br />

(on SEE and Central Asia) are rare, mainly<br />

because their institutional systems are still<br />

evolving and data is difficult to obtain.<br />

In static comparative analysis of a larger group of<br />

countries, different indicators (e.g. state control,<br />

proportion of FDI, stock market capitalization)<br />

are compared at a certain point in time (Lane<br />

2007). The authors of such studies are able<br />

to identify diversity among post-communist<br />

countries in terms of institutional and socioeconomic<br />

indicators. Although these broad<br />

studies provide an overview of the current<br />

situation and enable the grouping<br />

of countries into clusters, their<br />

Seite Page page 12<br />

snapshot approach does not capture<br />

the dynamics of institutional change.<br />

Therefore, important dynamics, such<br />

as the transfer from one type of capitalism<br />

to another, are overlooked. Such changes in<br />

institutional and organizational structures are<br />

especially likely in transition countries where<br />

structures are still developing, enforcement is<br />

weak and complementarities seem to be not yet<br />

developed. A static comparison brings about<br />

the danger of overlooking important changes<br />

and, therefore, incorrectly classifying postcommunist<br />

transition countries.<br />

A sophisticated approach to consider<br />

institutional change and capitalist transfer is<br />

dynamic comparative analysis (Knell/Srholec<br />

2007; Paunescu/Schneider 2004). These studies<br />

compare several countries over time and are able<br />

to capture dynamics and change to a certain<br />

extent, but unfortunately are quite rare. Because<br />

of data and comparability constraints, dynamic<br />

comparative studies of CEE often consider<br />

few countries (e.g. Paunescu/Schneider 2004<br />

consider just three CEECs) and only a short<br />

period of time (Knell/Srholec 2007 analyze the<br />

period 2001-2004). If the problem of obtaining<br />

and comparing data could be overcome, dynamic<br />

comparative studies are most promising for the<br />

analysis of capitalist diversity.


MARTIN SEMENOVA MENDELSKI<br />

Table 1. Summary of VoC literature on post-communist countries<br />

Publication<br />

Lane/<br />

Myant 2007<br />

(edited<br />

volume)<br />

Conclusion<br />

Lane: Most post-communist economies have a high state control, a high proportion of<br />

foreign direct investment and a low market capitalization. Three types of capitalism are<br />

identified: Continental type, hybrid state/market uncoordinated type, non-capitalist type.<br />

Knell/Srholec: The diversity of production regimes is measured. Most post-socialist economies<br />

have liberal welfare systems (except SLO, BLR, BIH, CZ), coordinate business<br />

regulation (except RUS, LIT, HU, EST) and mixed forms of labor market regulation<br />

(period: 2001-2004). The difference of post-communist capitalist models is attributed to<br />

historical legacy.<br />

Buchen: The VoC approach is used to identify what kind of capitalism has been emerging<br />

in Estonia (LME) and Slovenia (CME), two post-communist countries with high degrees<br />

of complementary institutions.<br />

Myant: The Czech capitalist system shows institutional features of LMEs (wage bargaining)<br />

and CMEs (social policy). The hybrid Czech system is not a consequence of<br />

institutional complementarities, but the result of diverse interests and political compromises<br />

(government, management and foreign firms’ interests), the need to comply with EU<br />

membership conditions, the legal heritage and state budget constraints. The VoC approach<br />

needs modification in order to be applied in the case of the Czech Republic.<br />

Hanson/Teague: The VoC approach is not useful to explain Russia’s capitalist development<br />

as still many features of developed capitalism (financial system, independent judiciary,<br />

government efficiency) are lacking and other explaining factors must be considered<br />

(important role of the state, natural resources, international market integration, informal<br />

institutions). The VoC criteria which are applied to assess Russia produce a misleading<br />

picture and mask the economic role of the state.<br />

Charman: Kazakhstan has a still an unsettled dual-type economic structure (“state led<br />

liberal economy”) resulting from two parallel developments (LME focus and hegemonic<br />

role of the state).<br />

Christophe: The VoC paradigm is difficult to apply in Georgia because the transfer of contradicting<br />

institutions from abroad (Germany, USA) has resulted in a non-complementary<br />

institutional system, because institutional subsystems (e.g. capital market, welfare system)<br />

are still underdeveloped and formal institutions are rarely enforced.<br />

Bartlett: The application of the VoC approach is difficult. War-torn Western Balkans<br />

relied on policy and institutional transfer from different international organizations, which<br />

created non-complementary institutions. Additionally, the strong reliance on informal<br />

institutions makes capitalism classification difficult. An attempt of classification is made:<br />

Continental European model (Croatia, Macedonia), LME with strong influence of informal<br />

institutions/organized crime (Albania, Kosovo), Mediterranean model with informal<br />

economy/black market activities (Serbia, Montenegro, Bosnia and Herzegovina).<br />

Seite Page page 13<br />

Korosteleva: Belarus does not fit in conventional VoC type classifications and is considered<br />

to be a “state capitalist economy” (state ownership, state control over the economy, price<br />

controls and elements of market economy).


THE VOC EINLEITUNG APPROACH GOES EAST<br />

Hancke/<br />

Rhodes/<br />

Thatcher<br />

2007<br />

(edited<br />

volume)<br />

King: The VoC can be applied to CEE as a framework of analysis, but it has to consider<br />

post-communist similarities (importance of backwardness, lack of working-class pressure)<br />

which are more important than the respective differences in terms of VoC typology. Two<br />

expanded typologies, “liberal dependent capitalism” in Hungary and Poland and “patrimonial<br />

capitalism” in Russia, are identified as a consequence of dependency conditions<br />

in the former (dependency on FDI and technology transfer, lack of domestic banks and<br />

stock markets, denationalized vocational training) and patrimonial network structures in<br />

the latter, resulting from financial crisis.<br />

Feldmann: The VoC approach is applied successfully to explain institutional diversity in<br />

Slovenia and Estonia. Diversity is explained by a different degree of old networks between<br />

economic actors, which were built under socialism and influenced by policy choices during<br />

transition (e.g. mode of privatization).<br />

Mykhnenko: Poland and Ukraine are institutional hybrids (mixed market economies)<br />

which can function successfully and escape predetermined trajectories. No complementarity<br />

effects between science/technology education system and revealed comparative trade<br />

advantage are detected. As institutional and organizational factors explain only a part of<br />

macroeconomic performance of post-communist countries, there is a need to integrate<br />

exogenous factors (internationalization, globalization, Europeanization) into the national<br />

state-oriented VoC approach.<br />

Cernat<br />

2006<br />

In the Romanian case, the inconsistent mixture of domestic and external institutions<br />

(“cocktail capitalism”) explains poor economic performance during post-communist transition.<br />

Bohle/<br />

Greskovits<br />

2007<br />

The VoC approach is difficult to apply to Eastern Europe as institutions are still not<br />

consolidated. Four types of capitalist systems, based on institutional configurations and<br />

performances are identified: state crafted neoliberalism of the Baltic States, world-market<br />

driven neoliberalism of the CIS countries, embedded neoliberalism of the Visegrád countries,<br />

and neo-corporatism in Slovenia. Capitalist diversity is explained by differences in<br />

external factors and state capacity.<br />

Paunescu/<br />

Schneider<br />

2004<br />

Crowley<br />

2008<br />

Several OECD countries moved towards the liberal market model in a relatively short period<br />

of time (1990-1999). Poland, Hungary and the Czech Republic have mixed systems.<br />

The VoC framework is successfully applied to assess the type of capitalism which has<br />

developed in CEE, particularly in the sphere of industrial relations (labor). However, the<br />

VoC logic fails to explain the outcome in this sphere because it neglects the role of labor (its<br />

absence and presence), the state and international actors as the main drivers of change.<br />

Source: Own elaboration.<br />

Seite Page page 14<br />

Table 1 gives an overview of conclusions<br />

on the VoC studies in postcommunist<br />

countries. On the basis<br />

of these conclusions, four summarizing statements<br />

are made:<br />

a. Variety defined in most studies based on postsocialist<br />

economies. However, this variety often<br />

refers to the stage of institutional and economic<br />

development (e.g. FDI proportion, stock<br />

market capitalization, privatization proportion),<br />

which is explained as an outcome of historical


MARTIN SEMENOVA MENDELSKI<br />

(socialist legacy) and current factors (EU<br />

membership, policy choices, wars). Because<br />

many different variables are chosen to explain<br />

variety, sometimes one and the same country is<br />

put in different clusters of countries. Therefore,<br />

classification of countries depends strongly on<br />

the level of analysis (micro/macro level), the<br />

research design, the length of the study period<br />

and the sectors chosen (Deeg 2007; Deeg/<br />

Jackson 2007).<br />

b. No consistent relationship between economic<br />

performance and complementary institutions. The<br />

institutional trajectories of post-communist<br />

countries do not confirm a correlation of<br />

economic success and institutional system<br />

purity. On the one hand, countries with<br />

complementary institutions are economic<br />

frontrunners (Slovenia and Estonia) while<br />

countries with non-complementary institutions<br />

(most countries from SEE and the former<br />

Soviet Union) are economically less successful.<br />

On the other hand, there are mixed political<br />

economies with non-coherent institutions that<br />

are also economically successful (e.g. Poland,<br />

Czech Republic, Hungary).<br />

c. Unfinished transition process to capitalism. In<br />

most post-socialist countries, the transition<br />

towards a certain type of market economy is still<br />

unfinished and unsettled. Especially in South-<br />

Eastern Europe and former Soviet Republics,<br />

capitalist structures are underdeveloped and<br />

institutional enforcement is low. Therefore, it is<br />

difficult to classify these economies and predict<br />

which type of capitalism will emerge.<br />

does not capture the development of postcommunist<br />

transition countries because of the<br />

peculiarities of the former socialist societies<br />

(path dependent informal institutions, diverse<br />

communist legacies). As a result, scholars<br />

propose an extention of the CME and<br />

LME typologies and, with that, introduce<br />

additionally some “mixed type” or “hybrids<br />

of capitalism” (e.g. Bartlett 2007; Charman<br />

2007; Cernat 2006; Lane 2007a; King 2007).<br />

Moreover, Hall/Soskice’s VoC approach<br />

is extended by bringing in other actors<br />

(state, international organizations, political<br />

entrepreneurs, networks between economic<br />

actors) that bargain over institutional reforms<br />

under different political systems (authoritarian<br />

or repressive state) and are constrained by<br />

informal institutions and history. In summary,<br />

VoC literature on post-communist Europe<br />

claims that capitalist diversity cannot be<br />

explained solely by internal complementarities<br />

between institutional sub-systems and firms as<br />

the main actors. Instead, explaining capitalist<br />

diversity and institutional change must<br />

include diverse historical and future variables,<br />

which can be internal (national state, national<br />

interest groups, structural legacy) or external<br />

(EU, international organizations).<br />

Seite Page page 15<br />

d. Extension of VoC proposed. Most authors,<br />

especially those in the volume edited by Lane/<br />

Myant 2007, conclude that the VoC approach


THE VOC EINLEITUNG APPROACH GOES EAST<br />

3. THE POSSIBILITIES AND LIMITS OF THE VOC<br />

APPROACH TO EXPLAIN INSTITUTIONAL DIVER-<br />

SITY AND INSTITUTIONAL DEVELOPMENT DURI-<br />

NG TRANSITION<br />

3.1 The possibilities of the VoC approach in<br />

the analysis of transition economies<br />

Despite the critiques and the need of the<br />

extension mentioned in the previous section,<br />

the analyzed literature gives several ideas of<br />

how the VoC approach can be applied to postcommunist<br />

economies.<br />

First, the VoC approach can serve as an<br />

analytical framework to classify economic<br />

institutions in post-communist countries. It<br />

can serve as a point of departure for ex post<br />

analysis. Therefore, it can help to conduct<br />

descriptive and explanatory research. Indeed,<br />

several researchers have employed the VoC<br />

approach as an analytical framework in their<br />

comparative case studies of post-communist<br />

countries (e.g. Crowley 2008; Buchen 2007;<br />

Mykhnenko 2007; Feldmann 2007; Knell/<br />

Srholec 2007).<br />

Second, by shifting the focus of attention to<br />

coordination and complementarity between<br />

institutional sub-systems, the VoC approach<br />

opens up a fruitful perspective from which the<br />

transition process can be analyzed. The study<br />

of institutional complementarities<br />

and their relationship with economic<br />

Seite Page page 16<br />

performance has been widely<br />

neglected in the transition literature.<br />

Given its relational perspective on the<br />

outcomes of complementary institutions, the<br />

VoC approach could help to refocus transition<br />

research on complementarity aspects. Studies<br />

which analyze complementarity in transition<br />

economies (e.g. Knell/Srholec 2007; Buchen<br />

2007) are rare and there is still much potential<br />

for future research.<br />

Third, to put the firm’s behavior into the focus<br />

of attention can be a refreshing counterbalance<br />

to the strong emphasis of the state (and its role<br />

in reform strategies) by transition researchers.<br />

Considering the firm as an important<br />

actor during transition shifts attention to<br />

important long-term drivers of economic<br />

growth such as innovation, technology,<br />

research & development, cooperation and<br />

skills. Although Hall/Soskice’s approach sees<br />

firm behavior as an outcome of institutional<br />

structure, an extended version of the VoC to<br />

post-communist economies should consider<br />

–besides the supply side of institutional change<br />

(state, international actors)– the demand side as<br />

well, i.e. firms’ pressure for institutional reforms<br />

and particularly, the influence of foreign firms<br />

on institutional and organizational change (see<br />

King 2007; UNECE 2001, p. 186).<br />

To sum up, the VoC approach can function as a<br />

reference model of an ideal type of coordination<br />

between different institutional sub-systems and<br />

the firm. Such a model shows the researcher<br />

how a capitalist system should look, i.e. which<br />

institutions it should contain and how the<br />

relationships between those institutions should<br />

be. Applying the VoC approach to understand<br />

the relationships between institutional subsystems<br />

can be useful in explaining what<br />

kind of market economy has evolved in postcommunist<br />

countries. Given its theoretical<br />

and conceptual strength, Drahokoupil argues<br />

that the VoC approach “seems to fill the<br />

theoretical vacuum left by the death of the


MARTIN SEMENOVA MENDELSKI<br />

‘transition’ debate in the political economic<br />

research on Central and Eastern Europe” and<br />

provides a “major post-transition research<br />

agenda” (Drahokoupil 2008, forthcoming). At<br />

the same time, the uncritical and mechanical<br />

application of the concepts and preconditions<br />

of the VoC to post-communist countries can<br />

also be misleading (Bohle/Greskovits 2007;<br />

Drahokoupil 2008, forthcoming). In the next<br />

two sections I will share this critical view and<br />

describe some limitations of the VoC approach<br />

when applied to post-communist transition<br />

countries.<br />

3.2 The limits of institutional<br />

complementarities in the transition context<br />

How useful is the VoC approach to explain<br />

divergent institutional development trajectories<br />

during transition? I will try to answer this<br />

question by focusing first on institutional<br />

complementarity, the central concept of Hall/<br />

Soskice’s approach. According to Hall and<br />

Soskice, institutions are complementary “if<br />

the presence (or efficiency) of one increases<br />

the returns from (or efficiency) of the other”<br />

(Hall/Soskice 2001, p. 17). 2 Institutional<br />

complementarities are basically positive synergy<br />

effects, i.e. they create additional efficiency 3 for<br />

institutional performance. In a short formula<br />

we can portray institutional complementarity<br />

as follows:<br />

efficiency (institution A + institution B) ><br />

efficiency (institution A) + efficiency (institution<br />

B)<br />

As this formula shows, institutions are<br />

complementary if the combined efficiency of<br />

two institutions is larger than the efficiency<br />

of the single efficiencies, i.e. if the left side<br />

of the equation has a higher value than the<br />

right side. The main message of institutional<br />

complementary is that institutions are<br />

not only important alone, but also in their<br />

composition.<br />

Hall/Soskice are mainly interested in<br />

complementarities between institutional subsystems<br />

of the political economy (education<br />

and vocational training, corporate governance,<br />

inter-company-relations, industrial relations). 4<br />

Complementarity between these spheres will<br />

lead to limited clusters of capitalist systems.<br />

Political economies can be classified according<br />

the modes in which firms resolve coordination<br />

problems, namely via corporate hierarchies<br />

and market relationships (LMEs) or via<br />

non-market modes of coordination (CMEs),<br />

such as relational contracting, networks,<br />

associations and collaborative relationships<br />

and strategic interaction with other actors<br />

(Hall/ Soskice 2001, p. 8-10). Typically, LMEs<br />

are exemplified by the organizational system<br />

of the United States and CMEs by that of<br />

Germany. Developed economies, which lie<br />

between these two ideal poles of coordination,<br />

are identified as non-complementary, mixed<br />

systems (France and other Mediterranean<br />

economies). Hall/Soskice assume that in the<br />

long-run complementary institutions are more<br />

efficient than non-complementary ones and,<br />

therefore, advise that “nations with<br />

a particular type of coordination in<br />

one sphere of the economy should Seite Page page 17<br />

tend to develop complementary<br />

practices in other spheres as well”<br />

(Hall/Sockice 2001, p. 18). In an empirical<br />

study, Hall/Gingerich confirm the theoretical<br />

assumptions of limited diversity as well as the


THE VOC EINLEITUNG APPROACH GOES EAST<br />

correlation of complementarity with economic<br />

performance in developed economies (Hall/<br />

Gingerich 2004). Kenworthy, however, does<br />

not find such a correlation and questions the<br />

importance of institutional complementarity<br />

for economic success (Kenworthy 2006).<br />

Despite such diverse empirical results, why<br />

should institutional complementarities be so<br />

important for the functioning of institutional<br />

systems? According to Roland, institutional<br />

systems are not interchangable “modular<br />

constructions”. Rather, they complement each<br />

other, meaning that “replacing one institution by<br />

another can in some cases dangerously disrupt<br />

this systemic consistency” (Roland 2004, p.<br />

113). Such disruptions of the institutional<br />

coherence are not desirable if the system is<br />

performing well economically. However, if<br />

a country loses its institutional comparative<br />

advantage -for instance, due to changing<br />

environmental circumstances- institutional<br />

reforms are greatly required. In this case,<br />

complementary institutions become a burden<br />

because they are more resistant to change than<br />

non-complementary ones (Greif 1998, p. 82;<br />

Jackson/Deeg 2006, p. 37). Disrupting coherent<br />

but socially inefficient institutions is especially<br />

required when system complementarity is<br />

sustained by “brute force” (Mayntz 2007, p. 20)<br />

and provides sole benefits to a small predatory<br />

group (e.g. for the nomenklatura during the<br />

communism).<br />

Seite Page page 18<br />

The 1990s fundamental institutional<br />

reforms, known as post-communist<br />

transition, were a rapid disruption of<br />

an inefficient but coherent communist system. 5<br />

But did institutional complementarities<br />

play a role during this period of system<br />

transformation? I will try to answer this<br />

question by analyzing the extent of conscious<br />

ex ante design versus spontaneous, ex-post<br />

emergence of complementary institutions<br />

during transition. These two possibilities of<br />

conducting institutional reforms are grounded<br />

in two views about institutional change:<br />

institutions by design vs. institutions by<br />

bricolage.<br />

Institutions by design: This view of conscious<br />

design of institutions is reflected in rationalist<br />

theories, such as property rights theory or<br />

rational choice theory (see Williamson 1985;<br />

Demsetz 1967; Shepsle 1989; Calvert 1995).<br />

According to this actor-centered approach,<br />

rational individuals construct and change<br />

institutions on the basis of cost-benefit<br />

calculations. This approach presupposes the<br />

existence of non-selfish designers 6 who are<br />

powerful enough to create efficient institutions.<br />

Transition scholars who follow the design<br />

approach believe that institutions and legacies<br />

from the past can be overcome by adequate<br />

institutional and policy choices ( Johnson 2003,<br />

p. 290). They assume that after getting rid of<br />

formal communist institutions (tabula rasa<br />

approach) and designing the new system on<br />

Western models a successful transition could be<br />

achieved. Therefore, they favor radical reforms,<br />

in the form of “big bang” institutional change<br />

(Sachs 1993; Aslund 1991; Boycko 1992;<br />

Przeworski 1991; Lipton and Sachs 1990).<br />

These authors believe that “big bang reforms”<br />

(i. e. simultaneous liberalization, privatization<br />

and restructuring) are more effective than<br />

piecemeal gradual reforms, as they benefit<br />

from complementarities between different<br />

policies and institutions. Partial reforms,<br />

instead, would eliminate the positive effects


MARTIN SEMENOVA MENDELSKI<br />

of complementarities (Murphy et al. 1992;<br />

Gates et al. 1993) and lead to rent-seeking<br />

and corruption (Havrylyshyn 2007, p. 3). The<br />

prevailing credo of the design view in the<br />

transition context is the introduction of market<br />

economy in one stroke.<br />

Institutions by bricolage (trial-error): This<br />

evolutionary and structure-based view<br />

reflects the ideas of Austrian scholars such as<br />

Menger or Hayek, who see social order not<br />

as the outcome of conscious design but of<br />

spontaneous and unintended human action<br />

(see Ahrens 2002, p.60; Poznanski 1996).<br />

According to this view, historical legacies can<br />

constrain rational institutional design and<br />

produce unintended outcomes (Goodin 1996,<br />

p. 28). Institutional change and institutional<br />

complementarity are endogenous, i.e. driven<br />

by internal dynamics. They are the results of<br />

experimentation, bricolage and learning under<br />

a constantly changing environment (Stark/<br />

Bruszt 1998; Mukand/Rodrik 2005, p. 375).<br />

Referring to the design of complementary<br />

institutions, Amable summarizes as follows:<br />

“There is no social engineer in charge of<br />

the efficiency of institutional design, and<br />

there is no pre-established fit of institutions<br />

either. Economic models, i.e. specific sets<br />

of institutional forms and the associated<br />

complementarities, are not designed from<br />

scratch with all the different pieces intended to<br />

nicely complement each other. The coherence<br />

of a model is usually defined ex post and the<br />

complementarities may sometimes come as a<br />

surprise...“ (Amable 2003, p. 12). Transition<br />

scholars, who adhere to the “bricolage view”,<br />

stress the evolutionary and path-dependent<br />

nature of institutional change and support<br />

gradualist reforms (Portes 1990; McKinnon<br />

1990; Murrell 1995; Poznanski 1996; Roland<br />

2000). Gradualist reformers argue that, in the<br />

presence of aggregate uncertainty, gradual<br />

reforms are politically more acceptable, because<br />

they have lower reversal costs, i.e. lower costs<br />

of trial and error (Dewatripoint/Roland 1995,<br />

p. 1209; Roland 2000). Therefore, this view<br />

stresses a sequenced design of reforms, i.e. to<br />

start with reforms that are socially less costly<br />

and provide constituencies for more difficult<br />

reforms. An example for sequenced reforms is<br />

to do privatization before painful restructuring<br />

(Zecchini 1997, p. 174-175).<br />

Which view has more explanatory power for<br />

post-communist transition? Initially, without<br />

a doubt, transition period was one of conscious<br />

institutional design. In all former communist<br />

states, basic institutions of a capitalist system<br />

were missing and had to be constructed in a<br />

short period of time. Post-communist states<br />

designed their formal institutional framework<br />

on the basis of Western models. Because<br />

capitalist knowledge was limited, reformers<br />

had to rely on advisors from the West, who<br />

were mostly advocates of the big bang<br />

approach (e.g. Jeffrey Sachs, David Lipton,<br />

Anders Aslund). Market-oriented institutions<br />

(e.g. fiscal and financial institutions, property<br />

rights) and government agencies (e.g. Central<br />

Bank, Finance Ministry, anti-monopoly<br />

agency) had to be created from scratch.<br />

However, supporters of radical reforms<br />

forgot that the degree of communist Seite Page page 19<br />

implementation differed among<br />

communist countries. Some states<br />

(Hungary, Poland, Yugoslavia) had already<br />

undertaken market-oriented reforms during<br />

the last decades of communism and, therefore,


THE VOC EINLEITUNG APPROACH GOES EAST<br />

had superior economic and institutional<br />

starting conditions (EBRD Transition Report<br />

1999, p. 29) than states with more rigorously<br />

implemented communism (e.g. the Soviet<br />

Union, Romania, Bulgaria, Albania). The<br />

more beneficial communist legacy of Hungary,<br />

Poland and Yugoslavia was reflected in a less<br />

centralized economy, enterprise autonomy,<br />

small private sector, entrepreneurial skills, or<br />

even tax and banking regulations that were<br />

similar to Western ones (Szalai 2005, p. 9;<br />

Rona-Tas 1997, p. 130; Fischer/Gelb 1991,<br />

p. 92f ). Because of this advanced starting<br />

position, in some economic or political areas<br />

institutional design from scratch was more<br />

pronounced in former Soviet republics than in<br />

CEECs. While the Baltic and Central Asian<br />

states had to design commercial laws anew,<br />

Poland, for instance, could rely on its precommunist<br />

commercial code (Havrylyshyn<br />

2006, p. 35). Rather than designing institutions<br />

from scratch, CEECs had to redesign them,<br />

i.e. to recombine old institutions with new<br />

ones (Stark/Bruszt 1998). In some cases, new<br />

institutions substituted for old ones, in other<br />

cases, new institutions only supplemented old<br />

ones (Grzymala-Busse/Jones Luong 2002,<br />

p. 542). What is important to see is that<br />

institutional reforms were not done on a tabula<br />

rasa, and no matter which transition strategy<br />

was used (big-bang or gradualism), historical<br />

formal and informal legacies influenced the<br />

functioning of new institutions. 7<br />

Seite Page page 20<br />

One has to bear in mind that the good<br />

intention to design a complementary<br />

institutional system is always subject<br />

to hindering factors. Unintended events (wars,<br />

external financial crisis) and historical structural<br />

restrictions can hinder the implementation of<br />

formal reforms and policies. Although in all<br />

post-communist countries institutional subsystems<br />

were (re)designed, the relevant question<br />

is how strongly radical or gradual designers<br />

insisted on institutional complementarities<br />

(efficiency aspects) during post-communist<br />

transition and whether complementarities can<br />

explain post-communist institutional variety<br />

and performance. I will argue that the design of<br />

ex ante complementary institutions is difficult<br />

due to three limitations: changing environment,<br />

lack of resources/capacity for law enforcement<br />

and changing power relations of diverse actors.<br />

Changing environment (uncertainty): All<br />

institutional designers face a changing external<br />

environment and an uncertain future (Streeck<br />

2004, p. 102 and p. 112). These changing<br />

conditions guarantee neither that the goal<br />

to build complementary institutions can be<br />

maintained, nor that initially complementary<br />

institutions will remain complementary in the<br />

future. Future environmental changes are not<br />

always easy to predict by institutional designers.<br />

Thus it is not straightforward to evaluate<br />

which institutions will be complementary<br />

in the next years. According to Streeck “…<br />

institutional complementarity is hard to predict<br />

and provide for ex ante. Where it exists, it is<br />

mostly generated ex post, through corrective<br />

intervention and piecemeal mutual adjustment.<br />

Rather than being planned and designed in<br />

one step, complementarity seems the product<br />

of continuous, more or less improvised debugging<br />

of perceived frictions...“ (Streeck<br />

2004, p. 107). A good example for changing<br />

effects of the same institutional configuration<br />

comes from Japan and Germany. The Japanese<br />

and German institutional systems, which were<br />

praised as highly complementary and efficient


MARTIN SEMENOVA MENDELSKI<br />

in the second half of the 20 th century, are<br />

regarded some decades later as hard to reform<br />

and inefficient. The explanation according<br />

to Streeck is that, with the technological<br />

change in form of micro-electronic revolution,<br />

the formerly complementary institutional<br />

systems, although still coherent, became less<br />

complementary (Streeck 2004, p. 112).<br />

As post-communist countries experienced<br />

a great deal of geopolitical and economic<br />

uncertainty, institutional adjustments and<br />

experimentation were strongly required during<br />

the transition period (McFaul 1999, p. 28).<br />

Initial variation in uncertainty among transition<br />

countries can be explained by different exit<br />

modes from communism. Whereas CEECs<br />

(e.g. in Hungary, Czech Republic, Poland)<br />

created competitive democracies in roundtable<br />

negotiations “in Bulgaria and Romania, for<br />

example, the collapse of incumbent regimes<br />

caused greater uncertainty than in the<br />

negotiated transitions of Central Europe…”<br />

(World Bank 2002, p. 108). Similarly, the<br />

initial degree of uncertainty was relatively high<br />

in concentrated political regimes emerging<br />

from former regional blocks (Soviet Union,<br />

Yugoslavia).<br />

Even if institutions were designed ex ante<br />

as coherent, they could not be sustained in a<br />

rapidly changing environment. For instance,<br />

in SEE (Croatia, Serbia, Bosnia-Herzogovina,<br />

Macedonia, Albania, Moldova), the Caucasus<br />

(Armenia, Azerbaijan, Georgia) and Central<br />

Asia (Tajikistan), economic and geopolitical<br />

uncertainty increased because of wars, ethnic<br />

conflicts or spillovers from the Russian financial<br />

crisis. It is not surprising that under such<br />

quickly changing and uncertain conditions the<br />

design and implementation of complementary<br />

institutions was difficult. Wars and conflicts<br />

sharply reduced living standards and the<br />

capacity of the state (World Bank 2002, p.<br />

110). In the presence of negative feedbacks<br />

and aggregate uncertainty about reform<br />

outcomes, the leaders of unstable economies<br />

relied on former practices. According to<br />

Grzymala-Busse and Jones Luong, elites<br />

in Central Asia and the Caucasus relied on<br />

old formal and informal institutions (e.g.<br />

patronage) because of the rapidity of statebuilding<br />

and a weak central state apparatus<br />

(see Grzymala-Busse/Jones Luong 2002,<br />

p. 535 and p. 541). In contrast, geopolitical<br />

and economic uncertainty disappeared in the<br />

Baltic States, CEECs, Bulgaria and Romania<br />

with NATO and EU membership. The EU<br />

has served as an “outside anchor” (Berglöf/<br />

Roland 1997) and, through its membership<br />

criteria, conditioned the applicants to reform<br />

their political and economic institutions. An<br />

unstable environment (high uncertainty in<br />

the short-run) explains why complementary<br />

institutional design was not possible for a<br />

certain time during transition. It also explains<br />

why economic cooperation based on trust<br />

and repeated interaction was difficult in wartorn<br />

countries. But why was complementary<br />

institutional design also complicated in<br />

peaceful transition countries? The answer is<br />

closely related to lack of resources (low state<br />

capacity) and a weak enforcement of<br />

rules.<br />

Seite Page page 21<br />

Lack of resources (time, capital, state<br />

capacity) can prevent the implementation<br />

of coherent institution building, despite the<br />

focus of institutional designers on institutional<br />

complementarity. During rapid institutional


THE VOC EINLEITUNG APPROACH GOES EAST<br />

building, reformers do not have the time<br />

to collect and evaluate “facts” about the<br />

environment (Grzymala-Busse/Jones Luong<br />

2002, p. 541). Furthermore, institutional<br />

reformers can be constrained by financial<br />

resources and weak state capacity. Lacking the<br />

financial means, third parties (state agencies,<br />

courts) are not able to enforce new institutions,<br />

especially when other informal mechanisms<br />

of enforcement (shaming, gossip, ostracism,<br />

shunning) are absent (Ostrom 2005). The<br />

available state capacity to enforce institutions<br />

can result from historical structural deficits or<br />

from current environmental context (external<br />

shocks).<br />

Post-communist transition involved both<br />

socio-economic and political reforms, which<br />

left relatively little time to conduct an<br />

analysis of the most efficient combination of<br />

institutions. As transition countries had to<br />

simultaneously conduct reforms in different<br />

areas (Elster/ Offe/Preuss 1998), they often<br />

did not have the time for long-term master<br />

plans of complementary institutional systems. 8<br />

The simultaneity of reforms compelled actors<br />

to prioritize and neglect some areas of reforms<br />

(McFaul 1999, p. 31). Whereas developed<br />

countries had built up democracy and market<br />

economy over a period of several decades,<br />

post-communist countries had to do so in only<br />

a few years (Grzymala-Busse/Jones Luong<br />

2002, p. 535). Similarly, EU candidate<br />

countries were under time pressure and<br />

Seite Page page 22<br />

the adoption of EU legislation (acquis<br />

communautaire) was often carried out<br />

as a rapid legislation passing in the<br />

parliament without a correct implementation. 9<br />

According to Sadurski “…the sheer volume of<br />

the acquis meant that parliaments had to adopt<br />

fast-track procedures for passing the related<br />

laws…“ (Sadurski 2006, p. 34). Such hastened<br />

institutional reforms could not have produced<br />

complementary institutions.<br />

Similarly, resource constraints (resulting from<br />

the past, from financial crises or wars) hindered<br />

the enforcement of institutions and did not give<br />

way for a complementary design of institutions.<br />

The leaders of economically instable countries<br />

had to postpone reforms, relied either on<br />

transitional institutions or even alternative<br />

solutions by half-legal private actors. Initially,<br />

informal and unofficial practices (black market)<br />

were a popular means to resolve coordination<br />

problems in almost all transition states.<br />

However, there were strong regional differences<br />

in terms of informal practices. According to<br />

the estimations of Johnson et al., the average<br />

share of unofficial economy in CEE was at its<br />

peak with 21,3% in the year 1992 much lower<br />

than in former Soviet countries, which had its<br />

highest value with 36,2% in the year 1996 (See<br />

Johnson et al. p. 182-183). 10<br />

With progressive institutional reforms, some<br />

transition countries (e.g. Poland, Hungary,<br />

Slovenia, the Baltic States) overcame these<br />

initial problems of the shadow economy<br />

and were able to provide a stable business<br />

environment and attract FDI. Why? Higher<br />

state capacity seems to be an important key to<br />

success. Better state capacity in CEE can be<br />

attributed to structural differences of the past 11<br />

as well as the absence of wars and financial<br />

crisis (World Bank 2002, p. 13 and p. 110). In<br />

contrast, reform laggard countries from SEE<br />

or CIS neither had the “beneficial legacies”<br />

nor the resources to train lawyers, bureaucrats<br />

and teachers to change quickly to capitalist


MARTIN SEMENOVA MENDELSKI<br />

mentality and guarantee the enforcement of<br />

capitalist institutions. While transplanted<br />

formal institutions were often the same,<br />

enforcement and implementation were not.<br />

Otherwise, best practices (first-best institutions)<br />

would have had the same effect everywhere.<br />

The Worldwide Governance indicators from<br />

the World Bank provide some evidence that<br />

enforcement and legal quality differed. Rule<br />

of law 12 has on average been lower in CIS<br />

(Commonwealth of Independent States) and<br />

SEE than in CEB (Central Eastern Europe<br />

and the Baltic States) between 1996 and 2006.<br />

Whereas average scores on legal quality have<br />

been constantly high in CEC (around 70%),<br />

SEE had a considerably lower and fluctuating<br />

development (score between 33% and 43%)<br />

and the CIS even a deterioration from about<br />

24% to 19% (see table 2).<br />

Table 2. Regional average scores on the rule of law in transition countries<br />

CIS SEE CEB<br />

1996 24.3 33.3 69.4<br />

1998 20.8 44.2 68.8<br />

2000 18.6 33.9 68.2<br />

2002 18.3 36.7 69.2<br />

2004 19.8 40.8 70.2<br />

2006 19.1 42.7 68.0<br />

Source: Worldwide governance indicators 1996-2006, World Bank.<br />

Note: The Scores are calculated on a scale of 0 to 100, with 100 being the highest possible score.<br />

This general evidence on different quality<br />

of the institutional environment is reflected<br />

in more specific economic institutions. The<br />

EBRD’s legal indicator survey 13 from the year<br />

2005 provides some evidence that enforcement<br />

(legal effectiveness) of corporate governance<br />

laws differed among transition countries and<br />

that “even excellent laws can suffer from poor<br />

implementation” (see EBRD Report 2005,<br />

Annex 1.2.: Corporate governance, p. 30).<br />

EBRD survey data reveals on average a weaker<br />

legal effectiveness of corporate governance 14<br />

in CIS and SEE than in Central Europe<br />

and the Baltic States (see table 3). Although<br />

some countries in SEE (e.g. Macedonia)<br />

and in the CIS (e.g. Armenia, Kazakhstan,<br />

Moldova) have high compliance with<br />

international standards and score high on legal<br />

extensiveness (quality of “laws on the<br />

books”), they score only poorly on<br />

legal effectiveness, i.e. the laws do not Seite Page page 23<br />

work well in practice. In contrast, the<br />

corporate governance legislation in<br />

most Central European and Baltic States is in<br />

most cases reasonably well implemented.


THE VOC EINLEITUNG APPROACH GOES EAST<br />

Table 3. Regional average of corporate governance effectiveness in 2005<br />

CIS SEE CEB<br />

Effectiveness of disclosure 4.74 5.32 5.73<br />

Effectiveness of redress 4.74 4.98 5.35<br />

Source: Source: EBRD Legal Indicator Survey 2005 and author’s own<br />

calculation.<br />

Note: The scores are calculated on 0 to 10, with 10 being the highest possible<br />

score. Data on SEE does not include Kosovo.<br />

This implementation gap in SEE and former<br />

Soviet countries in contrast to CEECs<br />

recurs in other areas of legislation. The<br />

difference for these three groups of countries<br />

among extensiveness and effectiveness<br />

(implementation gap) is especially obvious<br />

in the area of commercial laws (see figures<br />

2 and 3 in appendix), insolvency regulation<br />

(see figure 4 in appendix), concession laws 15 ,<br />

securities markets legislation (see EBRD’s<br />

legal indicator survey 2007) and labor market<br />

institutions. 16 Using survey data from three<br />

different sources, 17 Pistor et al. 2000 confirm<br />

a weak institutional environment and weak<br />

implementation of economic institutions in<br />

most countries from SEE and the CIS (see<br />

Pistor et al. 2000).<br />

Legal and economic research on<br />

institutional enforcement has shown<br />

Seite Page page 24<br />

that there are important constraints<br />

to implementation of economic<br />

institutions (most notably in the CIS<br />

and also in SEE) and, consequently, limits to<br />

a coherent or complementary system in this<br />

region. Thus, lower institutional quality and<br />

absent institutional complementarity in these<br />

regions can be explained. But what accounts for<br />

different institutional configurations among the<br />

most advanced transition countries? Why did<br />

only Slovenia and Estonia develop coherent<br />

institutional systems and the other CEECs<br />

(Poland, Hungary or the Czech Republic,<br />

Lithuania, Latvia) did not? The rule of law<br />

indicator for the CEE group may indeed explain<br />

coherence in Slovenia and Estonia, as these<br />

countries have the highest scores on effective<br />

legal environment (see figure 5 in appendix).<br />

However, as Hungary and the Czech Republic<br />

have similarly high levels, but less coherent<br />

institutions (see Knell/Srholec 2007, p. 60),<br />

even an overall good institutional environment<br />

(high enforcement) does not guarantee a<br />

coherent system. Another explanation why<br />

coherent and complementary institutions<br />

were difficult to create during transition could<br />

have been the degree of diverse interests and<br />

ideologies of domestic and external actors<br />

during transition.<br />

Power relations (diversity of actors): Scholars<br />

stress the increasing importance of actors over


MARTIN SEMENOVA MENDELSKI<br />

institutions during transition and emphasize<br />

the role of the state for institutional reforms<br />

(Hanson/Teague 2007; Charman 2007;<br />

Schmidt 2008; Higley/Pakulski/Wesołowski<br />

1998). 18 However, it must be considered that<br />

institutions and institutional complementarities<br />

are not only created at the regime level alone,<br />

but are the outcome of many actors with<br />

diverse interests and power positions (Streeck<br />

2004, p. 111). Institutions are often the result<br />

of a political compromise and not an optimal<br />

solution to a given problem or, as Amable<br />

puts it: “…institutions do not emerge as the<br />

result of a welfare-maximizing process. They<br />

are the outcomes of a political process. The<br />

whole set of institutions is not chosen all at<br />

once, by agents possessing a clear view of all<br />

the interdependencies between institutions<br />

concerning all areas of the economy” (Amable<br />

2003, p. 63). Both Streeck and Amable remind us<br />

that the pursuit of political and economic power<br />

can limit rational design of complementary<br />

institutions. This is particularly true if there is no<br />

benevolent “dominant social block” (Callaghan<br />

2008, p. 9) and when institutional reformers<br />

have opposing ideological backgrounds. But<br />

even when ideologically diverse reformers<br />

find a compromise, this compromise will<br />

not necessarily lead to the first best solution<br />

(complementary institutions).<br />

The emerging post-communist state was not<br />

a unitary actor with uniform authority, but<br />

underwent a formation process characterized<br />

by “multiple actors, domestic as well as<br />

international” (Grzymala-Busse/Jones Luong<br />

2002, p. 533). Let me first focus on domestic<br />

actors 19 and explain why so few complementary<br />

systems emerged during transition. A main<br />

reason can be found in opposing ideologies and<br />

changing power relations of these actors. After<br />

the demise of communism, old power structures<br />

changed and a battle for political and economic<br />

power began among different domestic actors.<br />

Communist rulers lost their legitimacy and<br />

previously constructed institutions were<br />

contested. The early transition years became a<br />

period of bargaining about political power and<br />

the future institutions to stabilize this power.<br />

Institutional change was not an outcome of<br />

designed complementarities, but of conflicts<br />

and compromises between different domestic<br />

actors. It is difficult to imagine that the<br />

competing interests between internal actors<br />

were reconciled in all post-communist countries<br />

and led to ex ante creation of complementary<br />

institutions. Although in some countries a<br />

political compromise by consensually united<br />

elites was reached, such as Poland, Hungary<br />

and Slovenia (Higley/Burton 2006, p. 83), in<br />

other countries (e.g. Bulgaria, Russia, Croatia,<br />

Serbia, Belarus and Romania) disunited<br />

political elites hindered the implementation<br />

of coherent transition strategies (see Higley/<br />

Burton 2006, p. 90 and p. 171). In these<br />

countries, quite often reform strategies<br />

changed with a change in the government<br />

(see Havrylyshyn 2007). Although electoral<br />

backlash and some modification of initial<br />

policies occurred even in advanced transition<br />

countries such as Poland, Hungary and the<br />

Czech Republic (King 2002, p. 8), the general<br />

reform paths were not altered.<br />

Changing power relations and the Seite Page page 25<br />

redesign of institutional reforms were<br />

often the result of changing economic<br />

conditions, which differed among transition<br />

countries. In former Soviet Republics<br />

and SEE, prolonged economic decline


THE VOC EINLEITUNG APPROACH GOES EAST<br />

and deteriorating living conditions made<br />

cooperation between domestic actors more<br />

difficult. Intense struggle among different<br />

domestic actors or ethnic groups, which also<br />

produced violence (e.g. in Yugoslavia), did not<br />

leave room for stability and a complementary<br />

institutional system. In war-torn countries<br />

(e.g. Azerbaijan, Georgia) and countries with<br />

high concentrations of political power (e.g.<br />

Moldova, Russia, Ukraine, Kyrgyz Republic),<br />

powerful domestic groups actively influenced<br />

institutional reforms (see World Bank 2002, p.<br />

106). Influence of such actors is nothing bad,<br />

as long as the state remains powerful enough<br />

and will not be captured by powerful internal<br />

business groups or oligarchs, who seek to extract<br />

rents from the state. The composite index<br />

of state capture 20 provides snapshot evidence<br />

that in the year 1999 the influence of firms on<br />

institutional and policy reforms was on average<br />

more pronounced in SEE and the CIS as<br />

compared to CEB (see table 4).<br />

Table 4. Regional average of state capture among transition economies in 1999<br />

CIS AM AZ BY GG KZ KG MD RU UA UZ<br />

regional<br />

average<br />

state capture index 7 41 8 24 12 29 37 32 32 6 22.8<br />

SEE ALB BG HR RO<br />

state capture index 16 28 27 21 23<br />

CEB CZ EE HU LV LT SK SI PL<br />

state capture index 11 10 7 30 11 24 7 12 14<br />

Source: Calculations based on Hellman./Jones/Kaufmann, 2000, p. 9.<br />

Note: The index is constructed as the average proportion of firms responding that their businesses are directly affected by private payments<br />

made to public officials to influence decision making in one or more of the following six institutions: parliament, the executive<br />

apparatus, the criminal courts, the civil courts, the central bank, and political parties (Hellman/Kaumann 2001).<br />

While dealing with institutional<br />

change and institutional complementarity<br />

during transition, ex-<br />

Seite Page page 26<br />

ternal actors should be taken into<br />

account. Post-communist institution<br />

building has been subject to pressure<br />

from Western consultants, international organizations<br />

(IMF, World Bank, USAID),<br />

multinational corporations and foreign banks.<br />

The EU was particularly important for<br />

institutional reforms. 21 Although international<br />

actors initially produced institutional and<br />

policy similarities (best practices), at the same<br />

time multiple conditionalities and interests<br />

hindered coherent institutional strategies, as<br />

well. Bartlett shows, for instance, that former


MARTIN SEMENOVA MENDELSKI<br />

Yugoslavian states became dependent on<br />

financial aid from external actors (IMF, EU,<br />

World Bank) who were able to impose their<br />

own diverse interests and thus hindered the<br />

creation of a complementary institutional<br />

system (Bartlett 2007). However, because of<br />

different geopolitical locations and economic<br />

resource bases, external pressure to adopt the<br />

same institutions was far from universal among<br />

post-communist states (Grzymala-Busse/Jones<br />

Luong 2002, p. 547).<br />

Even in states with a similar geopolitical<br />

location and resource endowments (EU<br />

candidate states from CEE) diversity persisted.<br />

Similar EU impact on economic institutions<br />

of candidate countries (see for instance Myant<br />

2007; Cernat 2006) does not automatically<br />

mean a convergence towards a complementary<br />

“EU logic of coordination”. According to<br />

Philip Hanson, who analyzed the impact of<br />

EU membership on economic institutions<br />

(labor market regulation and business<br />

regulation), considerable institutional diversity<br />

among the new EU members has persisted.<br />

His explanation of diversity is that economic<br />

accession requirements left a “wide scope for<br />

institutional variation” and that institutional<br />

convergence towards either state or market<br />

coordination was not enforced by the EU<br />

(Hanson 2007, p. 97 and p. 100). By setting the<br />

goal (minimum standards) of the institutional<br />

reform, yet leaving enough room for the method<br />

to implement the economic regulations, the EU<br />

did not necessarily induce a full convergence,<br />

but rather a divergent convergence. However,<br />

despite persisting differences, the EU’s indirect<br />

influence on post-communist diversity as a<br />

whole must be acknowledged. By accelerating<br />

institutional reforms in reform laggard<br />

countries (Romanian, Bulgaria), the EU<br />

accession process widened the gap with<br />

post-communist countries without an EU<br />

membership perspective.<br />

Let me briefly assess the EU’s role regarding<br />

complementary institutions. I would not<br />

consider external conditionality as the optimal<br />

solution to create complementary institutions,<br />

as it brings in additional external interests and<br />

is not based on a strategy of coherent design.<br />

However, I would consider EU conditionality<br />

as a second-best solution to accelerate<br />

institutional reforms in the short-run. This<br />

would imply that institutional reformers have<br />

to make a trade-off between institutional<br />

effectiveness (enforcement), which can be<br />

improved in the short-term and institutional<br />

efficiency (complementarity), which is a rather<br />

long-term goal. The best example for the EU<br />

impact on improved institutional quality in<br />

a short period of time comes from Romania,<br />

Bulgaria and Slovakia (see Schimmelfennig/<br />

Sedelmeier 2005; Vachudova 2005). However,<br />

whether the improvement in institutional<br />

effectiveness will translate into long term<br />

complementarity is an open question that can<br />

only be answered in the future.<br />

The last puzzle which remains to be solved<br />

is why Slovenia and Estonia have created a<br />

coherent institutional system, while Hungary,<br />

Poland and the Czech Republic,<br />

which had similar state capacities,<br />

beneficial historical legacies and the Seite Page page 27<br />

EU membership perspective, did<br />

not. According to Feldmann, the mechanism<br />

behind coherent institutions in Slovenia and<br />

Estonia are economic networks between key<br />

economic actors (Feldmann 2007, p. 337).


THE VOC EINLEITUNG APPROACH GOES EAST<br />

He argues that the combined effect of<br />

communist legacy (degree of centralization<br />

under communism) and policy choices during<br />

transition (privatization strategy, monetary<br />

policy, centralization of wage bargaining)<br />

encouraged network-promotion in Slovenia<br />

and network-disruption in Estonia and<br />

created two diverse but coherent systems.<br />

Although this may be an explanation for<br />

these two countries, Feldmann cautions: “The<br />

conditions necessary to promote or disrupt<br />

networks may in fact be quite stringent, and<br />

Estonia and Slovenia may be quite exceptional<br />

in terms of their combination of legacies and<br />

political preconditions for their reform paths”<br />

(Feldmann 2007, p. 348). Broader comparative<br />

analysis is required to clarify this remaining<br />

puzzle.<br />

If we recapitulate the arguments on the design<br />

vs. spontaneous emergence of institutions<br />

(agency-structure importance), it is most<br />

reasonable to seek a reconciliation of both<br />

approaches. Particularly, if we conceive<br />

institutional change occurring simultaneously<br />

as a short-term change (e.g. agency design,<br />

external shocks) and long-term change (e.g.<br />

structural change, enforcement, informal<br />

institutions) it makes sense to see both views<br />

as complementary rather than contradictory.<br />

Institutional change is an interplay between<br />

agency and structure. It is an interaction between<br />

the old structure (historical legacy),<br />

the current agency actions (policy<br />

Seite Page page 28<br />

and institutional choices) and future<br />

possibilities (e.g. EU membership or<br />

new opportunities due to scarcity of<br />

resources). In such an interdependent process,<br />

where in the short-run the causal direction<br />

can run from economic performance to<br />

institutions, institutional complementarities<br />

can be no more than one consideration among<br />

others to explain institutional divergence.<br />

I have mentioned some limitations of the<br />

complementarity concept to explain shortterm<br />

institutional diversity in post-communist<br />

countries: a changing external environment<br />

and uncertainty, diversity of actors and power<br />

relations, weak enforcement of institutions<br />

due to lacking capacity. If such limitations<br />

are absent thanks to beneficial legacies, or<br />

become absent, for instance after economic<br />

and geopolitical stabilization, the design of<br />

complementary institutions could be easier.<br />

Generally, the argument of complementarity<br />

is more convincing in the evolutionary, long<br />

run emergence of institutions. Nevertheless,<br />

particular institutional or policy reform areas<br />

(e.g. policy complementarities 22 between<br />

macroeconomic stabilization and price<br />

liberalization), where fewer actors or resources<br />

(lower state capacity) for enforcement are<br />

required, may make complementarity relevant<br />

in the short-run. The transformation of an<br />

entire economic system, however, requires time<br />

and experimentation.<br />

3.3 The limits of pure types of coordination in<br />

the transition context<br />

The VoC approach insinuates that, because of<br />

efficiency considerations, developed economies<br />

tend to converge towards two ideal types<br />

of coordination (LMEs and CMEs) and<br />

institutional complementarities constrain<br />

switching between CMEs and LMEs. After<br />

being criticized for not considering change in<br />

coordination logics (Goodin 2003; Blyth 2003;<br />

Watson 2003; Jackson/Deeg 2006), Peter Hall,<br />

together with his co author(s), responded to


MARTIN SEMENOVA MENDELSKI<br />

the criticism and underlined the importance<br />

of politics for institutional change (Hall/<br />

Soskice 2003, p. 245; Hall/Thelen 2005; Hall<br />

2006). A recent empirical study by Paunescu/<br />

Schneider has confirmed switching from state<br />

to market coordination for several developed<br />

economies (Paunescu/Schneider 2004). The<br />

relevant question for transition countries is<br />

whether mixed logics of coordination can<br />

become complementary and converge towards<br />

pure LMEs and CMEs or rather remain noncomplementary<br />

hybrids. Put differently, will<br />

there be dual convergence towards pure forms<br />

of organization or rather a lock-in of mixed<br />

organizational logics?<br />

In my opinion, sustained mixed logics of<br />

coordination (second-best solution) are<br />

possible due to positive feedbacks resulting<br />

from increased enforcement, i.e. more<br />

effectiveness. Let me illustrate a more dynamic<br />

model of capitalist diversity (see figure 1) to<br />

explain the fundamental differences between<br />

developed economies (CMEs, LMEs) and<br />

transitional market economies (TMEs). In<br />

contrast to transition economies, developed<br />

economies have strongly enforced and<br />

effective institutions. While in developed<br />

economies the possibility to increase economic<br />

performance by increasing the quality of<br />

institutions (effectiveness) is nearly exhausted,<br />

performance can still be improved by making<br />

institutions complementary (efficiency).<br />

Given that complementarity depends on<br />

external environment changes, developed<br />

countries can improve efficiency by adapting<br />

to external pressures by switching their logic of<br />

coordination (horizontal shifts between CMEs<br />

and LMEs). 23 These horizontal shifts tend to<br />

be slow due to institutional complementarities,<br />

path dependence and certain reforms (e.g.<br />

better protection of minority shareholders,<br />

adopting international accounting standards)<br />

and often do not have a major impact on other<br />

sub-systems or corporate strategies. Therefore,<br />

despite “liberalizing” reforms, switching of<br />

coordination modes should remain difficult in<br />

developed economies (Hall/Thelen 2005, p. 26<br />

and p. 31).<br />

While gradual institutional and economic<br />

development may be true for developed market<br />

economies, transition economies experience<br />

rapid formal institutional change. Due to the<br />

unfinished stage of capitalism (lower economic<br />

development) and high uncertainty (transition<br />

as an open-ended process), institutions in<br />

post-communist economies have initially a<br />

transitory character, i.e. they are only weakly<br />

enforced. Because of weak enforcement,<br />

institutional change is easier and, at least<br />

in the short or middle-run, there are more<br />

alternatives for capitalist trajectories than in<br />

developed economies. 24<br />

Seite Page page 29


THE VOC EINLEITUNG APPROACH GOES EAST<br />

Figure 1. Modes of coordination under consideration of different levels of development<br />

high<br />

LMEs<br />

CMEs<br />

level of development<br />

TMEs<br />

low<br />

low<br />

high<br />

Source: Own elaboration<br />

At a lower level of (capitalism) development,<br />

TMEs can move vertically and diagonally.<br />

The paths of institutional and economic<br />

development are not yet fixed and can develop<br />

towards LME, CME or a mixed form of<br />

both. In the absence of positive feedback,<br />

development towards a stronger role of the<br />

state and even less capitalism is possible (e.g.<br />

downward diagonal shift in Venezuela and<br />

Belarus). Such upward and downward diagonal<br />

and vertical shifts are reflected in capitalist<br />

reforms or reform reversals and are possible<br />

because political and economic institutions are<br />

enforced only weakly. 25<br />

Seite Page page 30<br />

How does the model reflect the<br />

transition period? At the beginning of<br />

transition, the initial strong decline of<br />

GDP and a lengthy and burdensome recovery<br />

hindered positive feedbacks to stabilize<br />

the institutional system. Weakly enforced<br />

institutions (“frames without content”) could<br />

be changed more easily and reform reversals<br />

were the case in states with a low capacity<br />

(e.g. in Russia, Romania and Bulgaria).<br />

Transition countries, which succeeded in<br />

increasing state capacity and enforcing formal<br />

institutions, created a stable institutional<br />

environment for economic cooperation and<br />

entrepreneurship. The Visegrad states, for<br />

instance, although having missed the chance to<br />

build complementary institutions, nevertheless<br />

established a stable and relatively effective<br />

institutional system. Institutional quality in<br />

Poland, Hungary and the Czech Republic<br />

was increased through better enforcement,<br />

not through better complementarity. If we<br />

consider positive feedback and lock-in effects,<br />

these non-coherent systems should be difficult<br />

to reverse for a while. As long as efficiency<br />

or effectiveness gains are possible through<br />

improved enforcement or other means (for


MARTIN SEMENOVA MENDELSKI<br />

instance, by increasing the compatibility<br />

between formal and informal institutions),<br />

mixed market economies should persist.<br />

The success story of transition frontrunners<br />

with non-complementary institutions shows<br />

that the primary step to an efficient institutional<br />

system and system stability is enforcement of<br />

rules. While enforcement does not exclude<br />

a focus on institutional complementarity,<br />

it should be a secondary step to increase<br />

efficiency. The main reason for precedence<br />

of enforcement over complementarity are<br />

capacity restrictions (time constraints, financial<br />

and human resource constraints), which make<br />

it difficult to create complementary (efficient)<br />

and well-enforced (effective) institutions at<br />

the same time. A look at the ranking of three<br />

post-communist countries in the coordination<br />

index constructed by Knell/Srholec 2007 will<br />

make my argument more clear. According<br />

to this index, Estonia, Armenia and Russia<br />

have all a strongly liberalized system with<br />

coherent formal institutions. However, because<br />

of weak enforcement capacity in Russia and<br />

Armenia (low effectiveness), coherence did not<br />

translate into complementarity and good de<br />

jure institutions are being undermined by the<br />

interests of powerful companies. In contrast,<br />

Estonia’s coherent and well enforced institutions<br />

have facilitated competition and cooperation<br />

and translated in complementary institutions.<br />

Enforcement does not mean enforcing<br />

every detail of the political economy and<br />

restricting critical institutional entrepreneurs<br />

and arbitrageurs who are discovering the<br />

weaknesses of the system and create a demand<br />

for improvement. What it does mean is that<br />

the state has to establish and enforce a set<br />

of core institutions, which guarantee the<br />

rule of law and stability for a stable business<br />

environment, while experimentation and<br />

change are still possible at the periphery. Such<br />

an approach, which distinguishes between<br />

core and peripheral institutions, allows for the<br />

exploitation of possibilities of both enforcement<br />

and complementarity. When enforcement<br />

is guaranteed for a set of central institutions<br />

across different sub-systems, complementarities<br />

between these core institutions can be<br />

established with less effort and resources than<br />

in the case of complementarities between all<br />

institutions (including peripheral, less enforced<br />

institutions). In other words, the basic skeleton<br />

of the political economy could be initially<br />

designed, but the flesh should be developed in<br />

a trial and error process.<br />

Although I am suggesting that institutional<br />

complementarity should not be that important<br />

for transition and developing countries lacking<br />

enforcement capacities, it could become more<br />

important with increasing enforcement.<br />

Consolidated transition countries (e.g. Slovenia<br />

and Estonia), where efficiency gains resulting<br />

from good enforcement of institutions were<br />

already exploited, can increase their institutional<br />

and economic performance by focusing on<br />

complementarity aspects. In contrast, nonconsolidated<br />

transition economies (e.g. most<br />

economies in the CIS and SEE) should<br />

focus on the enforcement of core<br />

institutions or, if possible, pair-wise<br />

complementarities (e.g. between Seite Page page 31<br />

financial institutions and institutions<br />

regarding inter-firm relations).<br />

Only when a certain level of enforcement is<br />

achieved, should institutional complementarities<br />

bring about additional efficiency.


THE VOC EINLEITUNG APPROACH GOES EAST<br />

What we have to keep in mind is that the<br />

ability of enforcement and complementarity<br />

depend on the context (external environment,<br />

historical legacy, state capacity). As this context<br />

varies among transition countries, every country<br />

should conduct reforms that take into account<br />

different environmental pre-conditions in<br />

terms of economic development, geographic<br />

situation, resource endowment, human<br />

resources, networks and informal institutions.<br />

In my opinion, institutional complementarity<br />

in the transition context should be understood<br />

more broadly, namely as compatibility in time,<br />

space and existing structures. A good model<br />

of institutional change in post-communist<br />

economies should, therefore, incorporate<br />

resources, geography, history and the dynamic<br />

interplay between the economic and political<br />

arenas during transition.<br />

The complementarity of institutions depends<br />

on changing environmental circumstances.<br />

This means that coherent institutions will<br />

be beneficial in the “good times” (i.e. when<br />

fundamental reforms are not required), but<br />

detrimental in the “bad times”, when change<br />

is most needed. Because of a changing<br />

environment, institutional complementarity<br />

and enforcement should be understood as<br />

dynamic concepts, i.e., there should always<br />

be room for experimentation and adaptation<br />

of the institutional structure (see North<br />

1990). To enable change and<br />

flexibility, adaptive institutional<br />

Seite Page page 32<br />

complementarity is required. If<br />

too much emphasis is put on static<br />

institutional complementarity, the<br />

political economy can become inflexible and<br />

lose its comparative advantage. The emphasis<br />

on enforcement, which I made before, does not<br />

necessarily produce inflexibility and institutional<br />

inertia as long as enough room is left for<br />

institutional experimentation and competition.<br />

The dynamic approach of adaptive institutional<br />

efficiency would enable institutional change<br />

within particular types of institutions without<br />

necessarily changing the entire institutional<br />

sub-system. Allowing Siemens, Infineon or<br />

IBM to increase engineers’ wages to cope with<br />

low supply of engineers, without changing the<br />

overall wage policy, is such an adaptive way of<br />

specific peripheral change. A second example for<br />

experimentation, under continuing dominant<br />

logics of coordination, is the introduction<br />

of temporary work agencies to reduce labor<br />

market rigidities in Germany (Höpner 2005,<br />

p. 333). Within such an adaptive process of<br />

change, learning and the adoption of new skills<br />

are important. However, learning does not<br />

mean transferring best practices from abroad,<br />

but rather searching for functional equivalents<br />

and local solutions.<br />

4. CONCLUSION<br />

The research question I started with was<br />

whether the VoC approach and, particularly,<br />

its concepts of institutional complementarity<br />

and limited coordination modes can be<br />

helpful in explaining institutional diversity<br />

and institutional development during postcommunist<br />

transition. The answer is: “yes, but<br />

only in parts”. Let me summarize my results by<br />

evaluating the usefulness of the VoC approach<br />

for every research step in a comparative analysis<br />

(table 5).


MARTIN SEMENOVA MENDELSKI<br />

Table 5. Concluding evaluation of VoC’s application to post-communist economies<br />

Research steps in a comparative analysis of post-communist economies<br />

VoC’s<br />

usefulness<br />

1. Classification of institutions Yes<br />

2. Explaining origin institutions No<br />

3. Explaining institutional development (enforcement of institutions) No<br />

4. Classifying type of market economy based on coordination Yes/No<br />

5. Explaining link between complementary institutions and economic success Yes<br />

Source: Own elaboration<br />

As I argued before, the VoC approach can<br />

be used as analytical framework and point<br />

of departure to classify formal economic<br />

institutions (step 1). The VoC approach is also<br />

partly useful to identify which market economy<br />

has emerged in post-communist countries<br />

(step 4). Thus, it can help shed some light on<br />

the formal institutional diversity of capitalist<br />

systems. Furthermore, its theoretical insights<br />

can be used to test the relationship between<br />

institutional complementarity and economic<br />

performance (step 5). However, the VoC<br />

approach in its current form has difficulties<br />

explaining institutional origin and institutional<br />

development of institutions (step 2, 3) and<br />

needs to be extended by theories of institutional<br />

change (e.g. New Institutional Economics,<br />

Historical institutionalism) in order to account<br />

for institutional enforcement and other actors<br />

(e.g. the state) than firms.<br />

On the whole, Hall/Soskice’s VoC approach<br />

can only be restrictively applied to postcommunist<br />

economies. Post-communist<br />

transition demonstrates that institutional<br />

complementarity is not a short-term project.<br />

Complementarity is more difficult to create<br />

in times of turmoil, rapid socio-economic<br />

change, low state capacity and diverse interests<br />

of actors. Although there are also diverse<br />

actors in stable and developed economies,<br />

well-enforced institutions control both state<br />

actors and other groups from predation<br />

(rent seeking, state capture). The dynamism<br />

of transition implies that mechanisms other<br />

than complementarities explain institutional<br />

diversity and performance. It has been argued<br />

that enforcement rather than complementarity<br />

is such a mechanism. If enforcement of rules<br />

is guaranteed, institutional stability will<br />

produce a good business climate for economic<br />

cooperation, innovation and FDI.<br />

What are the implications of institutional<br />

complementarity for future Seite Page page 33<br />

reforms? As certain institutions (e.g.<br />

financial institutions and institutions<br />

regarding inter-firm relations) are established<br />

with less financial resources and<br />

time than others (e.g. educational or labor


THE VOC EINLEITUNG APPROACH GOES EAST<br />

market institutions), there is room for the<br />

design of pair-wise institutional complementarities.<br />

However, an entire complementary<br />

institutional system (including core and peripheral<br />

institutions) is a long-term project<br />

that cannot be designed and implemented in<br />

several years. Therefore, the concept of institutional<br />

complementarity can be applied mainly<br />

in countries where the capacity for enforcement<br />

of institutions works (the developed<br />

West, advanced transition countries). Where<br />

the capacity for enforcement is low (the CIS,<br />

SEE), a first step should be the strengthening<br />

of enforcement and only then the fine<br />

tuning of efficiency through complementarity.<br />

In other words: Prefer second-best institutions<br />

that are implemented over first-best<br />

institutions that are not enforced (need for<br />

“small and pragmatic solutions that work” in<br />

the short-run).<br />

NOTES<br />

1<br />

The notion of „Central Asian capitalism“ still does not appear in<br />

the literature. However, a recently initiated research project aims<br />

to discover whether a distinct form of capitalism is emerging in<br />

Central Asia. For details see www.centralasiaproject.de.<br />

2<br />

The concept of institutional complementarity was debated in<br />

detail elsewhere (Boyer 2005; Deeg 2005; Amable 2003; Crouch<br />

et al. 2005; Streeck 2004; Höpner 2005).<br />

3<br />

Hall/Soskice define efficiency as the “net returns to the use of an<br />

institution given its costs” (Hall/Soskice 2001, p. 17).<br />

4<br />

Note that Hall/Soskice’s notion of institutions also includes<br />

organizations (Hall/Soskice, p. 9-10). Therefore, institutional<br />

complementarity should not be understood as a complementarity<br />

among rules only, but also among policies, relationships, strategies<br />

and skills.<br />

5<br />

On the coherence of the classical communist system (Stalinist<br />

system), see Kornai 1992.<br />

6<br />

In reality, this is seldom the case, especially in countries that lack<br />

the political institutions to control the grand designer (state).<br />

7<br />

For the impact of communist legacies (initial conditions) on<br />

institutional and economic outcomes during transition, see Jowitt<br />

1992; Elster/Offe/Preuss 1998; Ekiert/Hanson 2003; Fischer/<br />

Gelb 1991; De Melo et al. 1998; Falcetti et al. 2000.<br />

Seite Page page 34<br />

8<br />

According to Michel Camdessus, the former managing director of<br />

the International Monetary Fund, “…there was no master plan<br />

and scarce relevant experience to guide action. In the economic<br />

sphere, a host of proposals quickly filled the vacuum, jostling with<br />

the force of events and circumstance to determine what happened”<br />

(Camdessus 1999, p. 9).<br />

9<br />

In Hungary’s June parliamentary session in 1999, the majority<br />

of EU-required laws were passed in parliament without any<br />

debate (see Schimmelfennig/Sedelmeier 2005, p. 2).


MARTIN SEMENOVA MENDELSKI<br />

10<br />

Despite these different average results, there are some exceptions<br />

in these two groups of countries. In the period 1990-1995, Hungary<br />

had a constantly high share of shadow economy (approx.<br />

30%). Uzbekistan (around 10%) and Belarus (around 15%) had<br />

instead relatively low ones.<br />

11<br />

The better structural and economic conditions in CEE in<br />

contrast to the CIS are reflected in better starting conditions.<br />

For evidence, see the initial conditions indicator in the EBRD<br />

Transition Report 1999, p. 29.<br />

12<br />

The rule of law indicator „measures the extent to which agents<br />

have confidence in and abide by the rules of society, in particular<br />

the quality of contract enforcement, police, and courts, as well as<br />

the likelihood of crime and violence (http://info.worldbank.org/<br />

governance/wgi/pdf/rl.pdf ).<br />

13<br />

The quality of legislation (“laws on the books”) is based on<br />

the EBRD’s annually conducted survey of legal experts from 27<br />

transition countries. See legal annex of various EBRD Transition<br />

reports.<br />

14<br />

By analyzing the effectiveness of corporate governance laws,<br />

the 2005 EBRD survey tries to reveal how well minority shareholders<br />

are protected in each transition country. Legal effectiveness<br />

is assessed in terms of information disclosure for minority<br />

shareholders and effective mechanisms to obtain redress (legal<br />

actions).<br />

15<br />

See EBRD Concession assessment project report on the quality<br />

of concession legislation in early transition countries. http://<br />

www.ebrd.org/country/sector/law/etc/etccon.pdf.<br />

16<br />

On the different degrees of enforcement regarding employment<br />

protection legislation in the CIS, SEE, and CEE, see Rutkowski/<br />

Scarpetta 2005, p. 37.<br />

17<br />

Sources: Experts’ assessment from the Central European Economic<br />

Review; EBRD legal indicator surveys; World Business<br />

Environment and Enterprise Performance (BEEPS) survey (see<br />

Pistor et al. 2000, p.341-342).<br />

18<br />

This is particularly true in a rapidly changing environment,<br />

when newly introduced rules are only forms without meaning.<br />

Then it is more plausible that the direction of influence goes<br />

mainly from actors to institutions.<br />

19<br />

Internal actors are political parties with opposing ideologies<br />

(e.g. former communists, non-communists), oligarchs, business<br />

groups, trade unions and cultural or military elites.<br />

20<br />

Hellman and Kaufmann define state capture as „ the efforts<br />

of firms to shape the laws, policies, and regulations of the state to<br />

their own advantage by providing illicit private gains to public<br />

officials“ (Hellmann/ Kaufmann 2001).<br />

21<br />

The EU’s influence on institutional development has been<br />

acknowledged by the Europeanization literature (Grabbe 2001;<br />

Schimmelfennig/Sedelmeier 2005; Vachudova 2005) and the<br />

most recent VoC literature (Menz 2005; Schmidt 2002; Callaghan<br />

2008).<br />

22<br />

On policy complementarities during transition, see Braga De<br />

Macedo/Martins 2008; Staehr 2005.<br />

23<br />

Although most economies tend to shift towards the liberal model<br />

of coordination, Paunescu/Schneider’s study shows that France<br />

and Belgium moved between 1990 and 1999 in the opposite<br />

direction, i.e. towards more state coordination. On the switching<br />

of coordination regimes, see Paunescu/Schneider 2004.<br />

24<br />

There are more options to achieve institutional efficiency than<br />

in developed states. This was, for instance, the case when Taiwan,<br />

South Korea and Singapore were transition/developing<br />

countries and achieved economic success by developing a different<br />

type of capitalism than in the West.<br />

25<br />

The assumption of a beneficial effect of enforcement<br />

is only true when there is no predatory authoritarian<br />

regime, who has designed institutions<br />

to their benefit and who maintains the status quo<br />

by force.<br />

Seite Page page 35


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Havrylyshyn, Oleh 2006: Divergent Paths in Post-Communist<br />

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Havrylyshyn, Oleh 2007: Fifteen Years of Transformation in the<br />

Post-Communist World Rapid Reformers Outperformed Gradualists,<br />

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159-239


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Johnson, Juliet, 2003: Past Dependency or Path Contingency?<br />

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Zecchini, Salvatore, 1997: Lessons from the Economic Transition:<br />

Central and Eastern Europe in the 1990s. Dordrecht:<br />

Kluwer Academic Publishers.


THE VOC EINLEITUNG APPROACH GOES EAST<br />

APPENDIX<br />

Figure 2. Perception of commercial law extensiveness over time<br />

Source: Ramastry 2002 and EBRD Legal Indicator Survey 1997-2001.<br />

Figure 3. Perception of commercial law effectiveness over time<br />

Seite Page page 42<br />

Source: Ramastry 2002 and EBRD Legal Indicator Survey 1997-2001.


MARTIN SEMENOVA MENDELSKI<br />

Figure 4. Extensiveness and effectiveness of insolvency legal regimes<br />

Source: EBRD Legal Indicator Survey, 2004.<br />

Seite Page page 43


THE VOC EINLEITUNG APPROACH GOES EAST<br />

Figure 5. Rule of law in Central and Eastern Europe<br />

Seite Page page 44<br />

Source: Kaufmann/Kraay/Mastruzzi 2008: Governance Matters VII: Governance Indicators for 1996-2007.


AGNIESZKA REFERENCES LITERATUR K. CIANCIARA<br />

SUMMARY<br />

3<br />

POLISH BUSINESS – POLITICS RELATIONS<br />

AND THEIR IMPACT ON NATIONAL LOBBYING<br />

AT THE EU LEVEL<br />

Agnieszka K. Cianciara<br />

There are differences in businesspolitics<br />

relations between CEEC and<br />

Western Europe that stem from the<br />

specificities of the post-communist capitalist<br />

model. The communist heritage, as well<br />

the three simultaneous processes of change<br />

(transformation to capitalism and democracy,<br />

Europeanization, globalization) have created<br />

hybrid institutions at the CEE national level.<br />

Polish capitalism is characterized by significant<br />

public sector, weak corporate governance<br />

mechanisms, relatively poor business climate,<br />

inefficient governance structures and weak<br />

institutionalization of civil and social dialogue,<br />

as well as extremely weak legitimization of<br />

lobbying. This is translated into specific types<br />

of relations between business and political<br />

elites: clientelistic relations of state-owned<br />

companies, oligarchic relations of biggest<br />

national private companies and weak organization<br />

of SMEs, while professional lobbying<br />

strategies are used mostly by multinational<br />

companies. How do these domestic patterns<br />

of relations between business and politics<br />

affect mobilization, resources and strategies<br />

of Polish business interest representation at<br />

the EU level? It appears that post-communist<br />

formal and informal heritage still plays an<br />

important role in politics-business relations.<br />

In the Polish case, this is manifested in the<br />

degree of embeddedness in domestic<br />

clientelistic and oligarchic networks,<br />

the level of internationalization and Seite Page page 45<br />

resulting autonomy vis-a-vis national<br />

political elites, as well as a lack of tradition,<br />

institutionalization and legitimization<br />

of pluralist interest representation.


POLISH BUSINESS REFERENCES LITERATUR – POLITICS RELATIONS<br />

INTRODUCTION<br />

Twenty years after the fall of communism,<br />

Central-European member states of the<br />

EU are still struggling with the transition to<br />

democratic market capitalism (Hancke, et al.,<br />

2007). It is argued that the Polish economy<br />

has not yet reached the level of institutional<br />

development comparable to developed economies<br />

of Western Europe. According to the<br />

World Bank, in 2009 Poland was still classified<br />

as an ‘emerging market’, although it shifted,<br />

together with Hungary, to the sub-group of<br />

‘advanced emerging markets’ 1 . Economically,<br />

Poland should be perceived, in the light<br />

of the theory of world system, in terms of<br />

‘semi-periphery’ or ‘internal periphery’ of<br />

the European Union ( Jasiecki, 2004). Other<br />

authors differentiate between Visegrad and<br />

Baltic countries, while treating the latter as<br />

‘semi-periphery’ and characterizing the former<br />

by ‘semi-core’ features (Greskovits, 2008).<br />

In this article, I argue that differences in the<br />

development of capitalism and market economy<br />

between the Western and Eastern members of<br />

the European Union (EU) are translated into<br />

divergent patterns of relations between politics<br />

and business at the national level. In turn, these<br />

patterns affect mobilization, resources and<br />

strategies of business representatives at the EU<br />

level. The EU business lobbying environment<br />

is determined by Western models<br />

of consolidated democracy and<br />

Seite Page page 46<br />

developed market economy. Thus,<br />

the observed institutional differences<br />

between national CEE and European<br />

levels explain, to a significant extent, the<br />

perceived ineffectiveness of Polish national<br />

lobbying in EU institutions. Both scholars<br />

and public affairs practitioners would argue<br />

that the effectiveness of lobbyists in the EU<br />

depends on the position and function lobbying<br />

occupies in their country of origin (Van<br />

Schendelen, 1994, p. 15; Greenwood, 2007,<br />

p. 14; Chorus, 05.03.2007). Consequently,<br />

in order to analyze strengths and weaknesses<br />

of national interest representation, one must<br />

look at the institutional environment at the<br />

national level, which provides opportunities<br />

but also constraints and barriers to active<br />

and effective lobbying strategies. Among the<br />

intervening variables, one does not only find<br />

the critical resource dependencies (Beyres<br />

& Kerremans, 2007), but also institutional,<br />

structural and normative specificities of the<br />

Central-European context of post-communist<br />

(advanced) emerging economy.<br />

The particularities of Central-European, or<br />

in this case Polish, capitalism stem from the<br />

incomplete consolidation of the formal market<br />

institutions, as well as from the informal socialist<br />

heritage, which is present in the spheres of both<br />

economic and political governance. Within the<br />

transformation process, the emerging marketoriented<br />

network of institutions is constrained<br />

by path dependency. Thus transformation is of<br />

incremental and continuous nature, as various<br />

actors attempt to improve their situation by<br />

forcing subsequent institutional changes (North,<br />

1999). Consequently, the socialist burden and<br />

the three simultaneous processes of change<br />

(transformation to capitalism and democracy,<br />

Europeanization 2 and globalization) have<br />

created a hybrid environment of formal and<br />

informal institutions. This hybrid institutional<br />

context plays a crucial role regarding relations<br />

between the state and economic, political and<br />

business elites.


AGNIESZKA REFERENCES LITERATUR K. CIANCIARA<br />

The institutionalist-evolutionary approach<br />

provides the most adequate perspective for<br />

socio-economic analysis of business-politics<br />

relations in the CEE hybrid environment.<br />

This is in line with the so-called 4 th wave of<br />

transition studies, which are rather suspicious<br />

of modernist logics of linear transformation<br />

and the centrality of markets, liberalization<br />

and liberal politics for the social re-engineering<br />

of post-socialist economy (Pickles, 2008).<br />

Instead, emphasis is put on cultural studies,<br />

social theory, historical legacies and new forms<br />

of regional economic analysis that account for<br />

specificities of state rule and economic practice.<br />

Varieties of post-communist capitalist models<br />

derive from cultural and historical contexts and<br />

greatly depend on the state of institutions in<br />

the initial phase of transformation (Lissowska,<br />

2008).<br />

The purpose of this article is thus to analyse<br />

how business-politics relations at the<br />

national level, structured by the processes of<br />

transformation and consolidation, affect the<br />

effectiveness of Polish lobbying 3 at the EU<br />

level. To this end, I draw on recent literature<br />

on post-socialist politics and economic change,<br />

varieties of capitalism, Europeanization and<br />

business interests at the national and EU levels.<br />

The empirical analysis is carried out on the<br />

basis of interviews (March 2007-March 2009)<br />

with Polish representatives of state-owned<br />

companies, national federations and european<br />

federations based in Brussels.<br />

POLISH CAPITALISM: MAIN FEATURES SHAPING<br />

BUSINESS-POLITICS RELATIONS<br />

The crucial factor shaping capitalism in Poland,<br />

including relations between political and<br />

business elites, is the socialist or post-socialist<br />

heritage transferred directly or indirectly in<br />

the transformation process. Namely, Poland<br />

inherited a system of ‘destroyed capitalism’<br />

(Balcerowicz, 1997). The socialist economy was<br />

based on fundamentally different incentives<br />

and organizational forms than the ones proper<br />

to the market economy. Therefore, remnants<br />

of this system constitute barriers to effective<br />

functioning of mechanisms of the developed<br />

capitalist economy. Under socialism, private<br />

economic activity was subject to strict state<br />

control, notably through the granting of<br />

licenses, or permissions and enforcement of<br />

changeable maximum levels of production,<br />

as well as employment limits. Officially,<br />

social ownership was supported by the state,<br />

regardless of its economic efficiency, while<br />

private initiative was regarded as the necessary<br />

evil. Due to unstable conditions of economic<br />

activities and fully discretionary character of<br />

administrative decisions, the entrepreneurs<br />

were restraining their activities, cutting on<br />

investments, employing temporary, instead<br />

of long distance, business perspectives and<br />

counting for immediate gains without paying<br />

attention to economic or social consequences<br />

of their activities ( Jasiecki, 2002).<br />

Such thinking survived the transition<br />

in the form of lack of strategic<br />

planning, lack of social responsibility<br />

and limited trust towards law or<br />

decision-makers.<br />

Seite Page page 47


POLISH BUSINESS REFERENCES LITERATUR – POLITICS RELATIONS<br />

In terms of social status, a paradoxical<br />

situation emerged, where private owners<br />

constituted a privileged group in terms of<br />

income, but operated at the margins of the<br />

official socio-economic life and enjoyed little<br />

social prestige. Growing consent of authorities<br />

to private economic activities resulted only<br />

from the basic needs of the society that<br />

could not be satisfied in the framework of<br />

the normative socialist order. In terms of<br />

assumptions underlying the communist<br />

system, private ownership was perceived as a<br />

systemic deviation. But it led to the emergence<br />

of new pathological phenomena, taking the<br />

form of informal adaptation mechanisms.<br />

The latter involved practices of ‘arranging<br />

things’, abuse of public resources for private<br />

gain, creation of interdependent networks of<br />

the management of state-owned companies,<br />

administration and party officials based on<br />

bribery, as well as trading of permissions and<br />

licenses (Balcerowicz, 1997). These networks<br />

have survived the transformation process,<br />

particularly in the heavy industry sector,<br />

blocking restructuring efforts and privatization<br />

as well as petrifying clientelistic ties between<br />

political and economic elites.<br />

The socialist system led to an emergence of<br />

specific forms of interest representation, fully<br />

dysfunctional from the point of view of market<br />

economy and democratic governance. As the<br />

expression of particularistic interests<br />

was excluded for ideological reasons<br />

Seite Page page 48<br />

and administration enjoyed utterly<br />

arbitrary power over the economy,<br />

influence could only be exerted<br />

through secret and corruptive means. In the<br />

absence of channels of dialogue between the<br />

state and society, corruption became the sole<br />

facilitator of communication with authorities<br />

(Lissowska, 2008).<br />

Economically speaking, transformation from<br />

socialist to market economy consisted of<br />

macroeconomic stabilization, microeconomic<br />

liberalization and institutional change. Due to<br />

serious economic crisis in Poland, emphasis was<br />

placed on the former two while institutional<br />

change was neglected. As a consequence,<br />

market mechanisms were introduced, while<br />

no efficient governance institutions (economic,<br />

judicial, and political) were in place to support,<br />

control and correct those mechanisms in the<br />

first period. This is one of the main elements of<br />

the specificity of hybrid Polish economy, which<br />

is well reflected in the field of privatization and<br />

corporate governance in the privatized and<br />

state-owned companies (Kozarzewski, 2006,<br />

pp. 73-74).<br />

As a consequence, the ‘semi-periphery’ or ‘semicore’<br />

capitalist systems of CEEC have a number<br />

of features that distinguish them from the<br />

developed market economies of Western EU<br />

member states. These features are embedded<br />

in the initial transition paths from socialism<br />

to capitalism 4 . The relative domination of one<br />

of the paths in each particular state determines<br />

the degree of success in transformation to<br />

market economy. Capitalism from above leads<br />

to patron-client relationships, notably typical<br />

for Ukraine and Russia. On the other hand,<br />

capitalism from without, with its substantial<br />

reliance on foreign investors, leads to a more<br />

liberal, but also more externally dependent<br />

market economy (King, Szelenyi, 2005; King,<br />

2007). Foreign direct investments also play an<br />

important role in technology transfer, gradually<br />

modernizing outdated technological structures,


AGNIESZKA REFERENCES LITERATUR K. CIANCIARA<br />

resulting from the late and largely obsolete<br />

industrialization under state socialism.<br />

In the Polish case, a crucial role was played<br />

in the privatization process by multinational<br />

corporations, which ensured capital, technology,<br />

know-how and access to foreign markets for<br />

the restructured companies. However, the first<br />

transformation phase was to a large extent<br />

dominated by capitalism from above created<br />

by the economic and technocratic elites of<br />

the ancien regime. Finally, success of private<br />

companies that did not have access to resources<br />

of the socialist economy, only became visible<br />

after the year 2000. The economic crisis in the<br />

late ‘90s eliminated actors that relied mostly on<br />

political resources and were not able to cope<br />

with requirements of the competitive market<br />

economy. The expansion of Polish private<br />

capital was also accelerated by EU membership<br />

and prospects for greater internationalization<br />

of Polish firms. However, it appears that<br />

Europeanization of economic activities has<br />

been progressing faster than Europeanization<br />

of interest representation.<br />

Polish capitalism is thus characterized by a<br />

relatively large public sector (slow pace of<br />

privatization), weak corporate governance<br />

mechanisms (especially in public sector), a<br />

relatively poor business climate, inefficient<br />

governance structures of the state, weak<br />

economic and political culturea, as well as weak<br />

institutionalization of interest representation.<br />

The public sector accounts for approximately 3%<br />

of firms operating in Poland. However, 7 out<br />

of the 10 largest companies in the year 2008<br />

were at least partially state-owned (‘500 biggest<br />

firms in Poland’ by daily Rzeczpospolita, 2009).<br />

In 2005, 162 (12.5%) of 1300 biggest firms<br />

in Poland were at least partially state-owned,<br />

but they generated 22.5% of net income and<br />

employed more than 40% of the workforce<br />

(CASE, 2007). Though in the years 2002-<br />

2007 the number of public firms among the<br />

500 biggest companies decreased from 128<br />

to 81, this was linked to the rapid expansion<br />

of Polish private capital after joining the<br />

EU in 2004, rather than to the process of<br />

privatization. The level of internationalization<br />

of Polish firms is still low and 96.3% of them<br />

are micro-firms, employing up to 9 people<br />

(Ministry of Economy, 2009).<br />

Weaknesses of the corporate governance system<br />

are particularly visible in the biggest stateowned<br />

companies 5 . In post-communist state,<br />

due to private capital shortages, the German<br />

(internal control through supervisory board),<br />

rather than Anglo-Saxon system (external<br />

control mechanisms by dispersed shareholders)<br />

was introduced. However, Central-European<br />

experience shows that control is much<br />

more effective when a company is being<br />

restructured by a foreign strategic investor.<br />

In case of continuous state ownership,<br />

the commercialization of the enterprise<br />

constitutes only a minor adjustment to formal<br />

market requirements, while petrifying existing<br />

economic, political and social networks of<br />

informal nature. Consequently, supervisory<br />

and executive boards of state-owned<br />

companies often demonstrate classic<br />

traits of political corruption ( Jarosz, Seite Page page 49<br />

2006). These executives are strongly<br />

embedded in political elites, thus the<br />

rotation in these posts depends on the current<br />

constellation of the unstable political scene.<br />

Posts are perceived as rewards for party loyalty,


POLISH BUSINESS REFERENCES LITERATUR – POLITICS RELATIONS<br />

or a comfortable ‘waiting room’ before entering<br />

into high politics ( Jasiecki, 2004). Research<br />

clearly demonstrated clientelistic dependence<br />

of Polish economic elites on political elites<br />

and the role of the state as both the greatest<br />

investor and client in the economy throughout<br />

the 1990s ( Jasiecki, 2002).<br />

According to World Bank 2009 Doing Business<br />

ranking, Poland occupies position 72 (out of<br />

183 countries examined) when it comes to the<br />

ease of engaging in and conducting economic<br />

activities. There were only 3 EU member<br />

states with even poorer business climate: Czech<br />

Republic (74), Italy (78) and Greece (109).<br />

Moreover, Poland’s position has not changed<br />

over the last 3 years, which suggests a limited<br />

reform effort 6 . The Polish score is also quite<br />

ambivalent: the country enjoys a relatively<br />

high level of investor protection (41), while<br />

rules for granting permits in the construction<br />

sector are among the least business friendly in<br />

the world (164). The generalized problem with<br />

granting permits and licenses in many business<br />

sectors (lengthy and difficult administrative<br />

procedures, high levels of officials’ discretion,<br />

and politicization of decision-making) is highly<br />

conducive to corruptive practices, which is also<br />

confirmed by Poland’s unsatisfactory score in<br />

Transparency International rankings. Finally,<br />

in the 2009 Index of Economic Freedom (Wall<br />

Street Journal and Heritage Foundation),<br />

Poland was classified as the last of all<br />

the EU member states (position 82 out<br />

Seite Page page 50<br />

of 179 countries). Main factors constraining<br />

economic freedom involved:<br />

high level of corruption (as measured<br />

by CPI - corruption perception index),<br />

excessive state intervention in the economy,<br />

as well as inefficiency of the judicial system.<br />

In terms of efficiency of governance structures of<br />

the state, research indicates a prevalent practice<br />

of subordinating long-term goals to short-term<br />

political gains, an underestimation of continuity<br />

and the role of experts, as well as consultative<br />

bodies and procedures in the policy-making<br />

(Raciborski, 2006). Decision-makers perceive<br />

experts’ opinions more in terms of support for<br />

decisions that were already taken, rather than<br />

a factor determining the content of decisions.<br />

Similarly, little understanding for social and<br />

civil dialogue, as well as for socio-economic<br />

programming is observed (Hausner, 2007).<br />

Consequently, decisions in the sphere of socioeconomic<br />

policy produce ineffective, façade<br />

and poorly legitimized solutions. At the same<br />

time, Europeanization of the administration<br />

was visible mostly among young officials of<br />

departments dealing with European affairs<br />

in each ministry. Research conducted in<br />

2005 among Polish officials pointed out their<br />

perceptions of Western administrations as<br />

more professional, less hierarchical, more open<br />

and transparent (Kochanowicz, et al., 2007).<br />

Meanwhile, Polish administration continues<br />

to function within a culture of secrecy, where<br />

power is understood more in terms of privileges<br />

than responsibility, and where technological<br />

and organizational distance from Western<br />

counterparts still poses serious governance<br />

problems.<br />

Empirical material gathered by R. Inglehart<br />

indicates that beliefs and values typical for<br />

the socialist economic system have, to a large<br />

extent, survived the transformation process and<br />

co-exist with the new capitalist institutions.<br />

Polish economic culture is characterized by<br />

egalitarian attitudes, a lack of trust towards<br />

private business and more importance


AGNIESZKA REFERENCES LITERATUR K. CIANCIARA<br />

attached to state control, than freedom of<br />

economic activity. Polish society represents<br />

more materialist attitudes (preponderance of<br />

survival values), which results from permanent<br />

deprivation typical for socialist economy. Thus,<br />

despite the remarkable economic development<br />

and growth in welfare over the last 20 years,<br />

Central-European societies are still classified<br />

as materialist. Relative scarcity of postmaterialist<br />

values is also visible among Polish<br />

entrepreneurs, in particular in their attitudes<br />

towards CSR - corporate social responsibility<br />

(Lewicka-Strzałecka, 2006).<br />

Contrary to what is often upheld by Western<br />

scholars, basing their arguments on the<br />

experience of Solidarity movement, Poland is<br />

characterized by weak civil society organization,<br />

together with weak institutionalization of interest<br />

representation. In fact, Polish society has hardly<br />

any traditions of constructive civil involvement,<br />

as it was historically focused on protest and<br />

opposition. Social dialogue in the form of<br />

tripartite councils is formally well established,<br />

but produces questionable results and lacks<br />

autonomy, as it is dominated by the government<br />

(Gardawski et al., 2008). Other forms of<br />

involvement of business interest representation<br />

practiced in the modern governance systems, be<br />

it in the form of consultations in the framework<br />

of impact assessment procedures, or in the form<br />

of public hearings, are frequently of facade<br />

nature. They do not contribute to mobilization<br />

and consolidation of interest groups. Finally,<br />

and contrary to developments at the EU<br />

level, lobbying activities are not legitimized<br />

in Poland and are not considered part and<br />

parcel of the democratic decision-making by<br />

both the public opinion and political elite<br />

(Burson-Marsteller, 2009).<br />

BUSINESS-POLITICS RELATIONS IN POLAND:<br />

FROM TRANSFORMATION TO CONSOLIDATION<br />

PHASE?<br />

The above mentioned characteristics of the<br />

institutional environment of Polish capitalism<br />

structure business-politics relations to a<br />

significant extent. Inefficient governance<br />

structures in the largest (usually state-owned)<br />

companies, a low level of political culture of<br />

decision-makers conducive to high levels of<br />

corruption, a relatively unfavourable business<br />

environment due to substantial administrative<br />

burden and very weak legitimization of<br />

lobbying as an element of democratic<br />

decision-making – all these factors hamper<br />

the development of interest representation<br />

procedures compatible with those developed<br />

at the EU level.<br />

At the same time, patterns of Polish capitalism<br />

are obviously subejct to processes of change<br />

over time. Notably, the pattern of change<br />

from transformation phase to consolidation of<br />

market economy and democratic governance is<br />

assumed, in particular due to Europeanization<br />

process ( Jasiecki, 2008). It is worth underlining<br />

the fact that different companies and sectors<br />

belong to different phases of development<br />

(for instance, compare energy and ICT<br />

sectors). The passage from transformation<br />

to consolidation phase is also linked to the<br />

growing level of autonomy of business<br />

elites from political elites, which<br />

heavily affects their mutual relations. Seite Page page 51<br />

It is expected that with the progress<br />

of consolidation phase, professional<br />

lobbying would gradually weaken and replace<br />

clientelistic and oligarchic ties. Nevertheless,<br />

as experience of Western democracies and


POLISH BUSINESS REFERENCES LITERATUR – POLITICS RELATIONS<br />

developed market economies shows, the latter<br />

are never completely eliminated, no matter<br />

how advanced transparency and consultation<br />

procedures are.<br />

It is stressed that the low level of autonomy of<br />

economic elites, typical for the transformation<br />

phase, is reflected in clientelistic relations<br />

of state-owned companies and oligarchic<br />

relations of biggest national private companies<br />

with decision makers ( Jasiecki, 2004,<br />

2008). Another important element is poor<br />

organization and interest representation of<br />

SMEs - small and medium-sized enterprises<br />

(they account for 99.8% of all companies in<br />

Poland). Under such conditions professional<br />

lobbying strategies are used almost exclusively<br />

by foreign and multinational companies, as<br />

they dispose of much higher levels of autonomy<br />

vis-a-vis national political elites.<br />

Thus, if ownership structure and size of firms<br />

are taken as key variables, four strategies of<br />

business-politics relations can be enumerated.<br />

These strategies are typical for economic elites<br />

of the transformation phase, undergoing<br />

a process of professionalization. Whereas<br />

clientelism is the characteristic of relations<br />

maintained by state-owned companies<br />

(especially heavy industry and energy sectors),<br />

the largest Polish private firms tend to exploit<br />

oligarchic links 7 . In terms of professional<br />

interest representation, such strategies<br />

constitute pathological behaviour,<br />

Seite Page page 52<br />

generating corruption and suboptimal<br />

distribution of resources. In Poland,<br />

the most emblematic example of<br />

political-economic clientelism is delivered by<br />

sectoral networks forming a closed system<br />

of interdependence between politicians,<br />

management of state-owned companies (usually<br />

party-affiliated) and economic environment of<br />

these companies (Gadowska, 2002; Jasiecki,<br />

2004). In fact, decisions-making processes in<br />

these companies depend on current, shortterm<br />

party interest and particularistic personal<br />

gains, and not on economic calculation. In<br />

case of highly symbiotic, oligarchic relations,<br />

a company monopolizes delivery of certain<br />

services to the state and relies on a single<br />

client – the state, while avoiding competition<br />

on the market. Cost on the state budget is very<br />

high, while size and certainty of state contracts<br />

guaranteed by public funding enable the<br />

emergence of huge fortunes at low risk, thus<br />

creating conditions for the so-called ‘political<br />

capitalism’ (Staniszkis, 2001).<br />

However, a question emerges, whether patterns<br />

described above persist, petrifying businesspolitics<br />

relations typical for the period of<br />

economic and political transformation to<br />

capitalism? Or, whether they are becoming<br />

marginalized with the progression of the<br />

consolidation phase of market economy and new<br />

economic elites? On the one hand, the post-<br />

2004 expansion of Polish private capital (slightly<br />

mitigated by the 2008 crisis) both domestically<br />

and abroad, together with the incremental<br />

Europeanization of public administration,<br />

seems to confirm the consolidation hypothesis.<br />

On the other hand, despite recent political<br />

declarations, the privatization process is not<br />

accelerating and governance standards in public<br />

sector are not improving.<br />

Equally, the public affairs market in Poland is<br />

not yet developed. Few domestic companies<br />

are operating, with their services focused<br />

mostly on foreign players. Subsidiaries of


AGNIESZKA REFERENCES LITERATUR K. CIANCIARA<br />

international consultancies are concentrated<br />

on public relations, media relations, or crisis<br />

management communication, only occasionally<br />

dealing with actual lobbying (Matraszek,<br />

24.08.2009). The relatively new phenomenon<br />

concerns the quasi-lobbying activities of law<br />

firms that provide clients with legal arguments<br />

and expertise necessary to influence the<br />

decision-making process. We thus observe a<br />

certain degree of professionalization in terms<br />

of argumentation, but not of the core formal<br />

and informal institutions that define businesspolitics<br />

relations and access to decisionmakers.<br />

Large parts of the business elite are<br />

still interdependent and closely linked with<br />

personal ties to the world of politics, thus<br />

lacking autonomous status.<br />

At the same time, new members of the<br />

business elite emerged in the aftermath of the<br />

post-accession economic boom. The 1998-<br />

2002 economic crisis, together with new<br />

opportunities offered by the single market,<br />

have enabled growth of private companies that<br />

disposed of real competitive advantage. In the<br />

rankings of fastest growing firms, a substantial<br />

change is also evident, as the new generation<br />

of successful businessmen is too young to have<br />

been socialized in the former system, as well as<br />

benefit from the early transformation period,<br />

its unclear rules and ambiguous opportunities.<br />

This part of the elite demonstrates a high<br />

degree of autonomy from the political elite, but<br />

also avoids active participation in any forms of<br />

collective action and interest representation.<br />

To sum up, various forms of business-politics<br />

relations co-exist in Poland, depending on sector,<br />

ownership structure, size and resources of the<br />

company, as well as socialization background<br />

of management. Consequently, heterogeneity<br />

reigns among the business elite, where some<br />

groups demonstrate characteristics typical for<br />

the (early) transformation period, whereas<br />

others belong to the modern, internationalized<br />

elite of consolidated capitalist system.<br />

However, this partial consolidation seems not<br />

yet to be translated into mobilization and<br />

effective lobbying of Polish business interests<br />

at the EU level. Consequently, I argue<br />

that the short period of participation and<br />

learning process within the EU governance<br />

structures (after accession in 2004) cannot be<br />

seen as the main explanatory factor. Nor do<br />

the critical resources (Beyers & Kerremans,<br />

2007) such as membership density, funding<br />

and sector consolidation provide sufficient<br />

explanation in the case of mobilization and<br />

impact exerted at the EU level by economic<br />

interest groups coming from post-communist<br />

CEE member states. It appears that postcommunist<br />

formal and informal heritage<br />

still plays an important role in businesspolitics<br />

relations. In the Polish case, this is<br />

manifested in the degree of embeddedness in<br />

domestic clientelistic and oligarchic networks,<br />

level of internationalization and resulting<br />

autonomy vis-a-vis national political elites, as<br />

well as lack of tradition, institutionalization<br />

and legitimization of pluralist interest<br />

representation.<br />

EXPLAINING THE EFFECTIVENESS OF<br />

POLISH BUSINESS LOBBYING AT THE<br />

EU LEVEL<br />

Studies on Europeanization of interest groups<br />

suggest that membership density, funding and<br />

sector consolidation constitute critical factors<br />

Seite Page page 53


POLISH BUSINESS REFERENCES LITERATUR – POLITICS RELATIONS<br />

of mobilization and exerting influence at the<br />

EU level. Reflection on Polish interest groups<br />

in a comparative perspective leads us to the<br />

conclusion that their resources are rather<br />

scarce, which results in weaker mobilization<br />

and influence compared to groups from<br />

Western Europe.<br />

In terms of membership and funding, a<br />

comparison of Spanish and Polish member<br />

organizations of Business Europe (largest EUlevel<br />

business umbrella organization) shows<br />

that while Polish PKPP has 3000 members,<br />

Spanish CEOE accounts for 1 million of<br />

them (in both cases these are mostly SMEs).<br />

This is translated into 1.5 million euro in<br />

membership fees for Polish organization and<br />

more than 20 million euro for the Spanish one;<br />

however, their membership fees in Buiness<br />

Europe are roughly the same (Karaszewska,<br />

04.08.2009). The Brussels office of PKPP<br />

employs 2 lobbyists, whereas CEOE employs<br />

6. Not only does this juxtaposition indicate<br />

important disparities in terms of capacities<br />

of exerting potential influence, it also points<br />

to the fact that activities at the European<br />

level constitute a huge financial effort for the<br />

Polish organization, incomparable with the<br />

one the Spanish association is experiencing.<br />

The importance of sector consolidation is<br />

best depicted by the example of the chemical<br />

industry. A relatively small number of large<br />

companies allows for more efficient<br />

mobilization, both at the domestic<br />

Seite Page page 54<br />

and European level. In fact, the<br />

sectoral EU umbrella association,<br />

CEFIC, with its huge funding and<br />

relatively smooth and timely decision-making<br />

process, is typically mentioned as one of the<br />

most efficient corporate groups in Brussels.<br />

However, the critical resources approach does<br />

not offer plausible explanations to a number<br />

of questions, which are particularly evident in<br />

the CEE context. Why do large and wealthy<br />

Polish companies not engage in EU level<br />

lobbying or only at a very late stage? Why<br />

do groups and companies with substantial<br />

resources tend to choose the national route of<br />

influencing EU affairs, even if they are aware<br />

of the fact that the number of national officials<br />

occupying key Brussels posts is extremely<br />

limited? Why do Polish representatives of the<br />

chemical sector not see themselves influential<br />

despite relatively high sectoral consolidation<br />

and active participation in CEFIC works? In<br />

order to solve these dilemmas, I offer three<br />

additional explanations based on the argument<br />

of direct impact of domestic business-politics<br />

relations on mobilization patterns and lobbying<br />

strategies at the EU level.<br />

It is widely acknowledged that EU impact is<br />

largely mediated through, and conditioned<br />

by, existing domestic institutions, policies,<br />

cultures and identities. There is no automatic<br />

shift of loyalties and activities to the European<br />

level (Ladrech, 1994). Much of the literature<br />

emphasizes that the Europeanization process of<br />

interest groups is constrained at both European<br />

and national levels (Woll, 2007). Notably, a<br />

negative correlation is found between the extent<br />

to which a group is embedded in domestic<br />

policy networks and the extent of its integration<br />

in European networks (Beyers & Kerremans,<br />

2007). Thus, mobilization and lobbying<br />

strategies of interest groups are conditioned by<br />

the immediate institutional and organizational<br />

environment of the domestic groups and the<br />

level of dependence or autonomy of groups visà-vis<br />

this environment.


AGNIESZKA REFERENCES LITERATUR K. CIANCIARA<br />

Accordingly, privileged access to domestic<br />

decision-makers, especially in the form of<br />

clientelistic or oligarchic relations, is to decrease<br />

motivation for interests’ mobilization at the<br />

EU level. Actors that are heavily embedded<br />

in domestic networks have a tendency to<br />

rely on routine contacts with national-level<br />

decision-makers and are unwilling to develop<br />

new networks in Brussels. In fact, existing<br />

literature suggests that the national route<br />

is typical for Southern (Italy, Greece) and<br />

Eastern member states (Greenwood, 2007).<br />

Such a path-dependent strategy allows<br />

for avoiding additional costs, but prevents<br />

influencing actors other than the national<br />

government representatives in the Council of<br />

the EU. In particular, with the growing impact<br />

of bargaining in the European Parliament on<br />

the entire decision-making process, illustrated<br />

notably by the cases of services directive (2006)<br />

or regulation on spirit drinks (2008), such an<br />

approach is ineffective 8 .<br />

The largest Polish companies, which are<br />

usually state-owned, are constantly entangled<br />

in politics. Frequently changing and partyaffiliated<br />

executives, who often dispose of<br />

doubtful management competences, do not<br />

usually promote long-term strategic planning.<br />

Interest representation instruments, such as<br />

public hearings, which are common at the EU<br />

level, are often underestimated. Regular data<br />

gathering, reporting and impact assessments,<br />

aiming at supporting arguments, are neglected<br />

(Lubiewa-Wieleżyński, 24.08.2009). Consequently,<br />

benefits of the high consolidation<br />

of the sector cannot be realized, as companies<br />

are subjecting their decisions to demands of<br />

current party politics and are often unfamiliar<br />

with procedures of professional and expertisebased<br />

lobbying. Awareness of the necessity<br />

to defend the industry’s interests in Brussels<br />

is still not well developed among the largest<br />

Polish companies; and EU-oriented attempts<br />

of influence are often limited to isolated<br />

consultations with a national vice-minister<br />

responsible for the dossier. Such a method<br />

fits very well into a tradition of ‘arranging<br />

things’ with an acquainted politician, often<br />

in exchange for concrete benefits. This shows<br />

a huge difference in the rules of the game<br />

operational in EU and Polish politics.<br />

It is thus argued that the preference for the<br />

national route is reinforced by uncertainties<br />

stemming from the distinctively different<br />

institutional context of the European level,<br />

in comparison to the hybrid, post-communist<br />

environment. In fact, formal and informal<br />

institutions that exist at the European level<br />

are more conducive to open and participatory<br />

interest representation than those present in<br />

post-communist countries, including Poland.<br />

Clientelistic and oligarchic strategies, practiced<br />

by the largest Polish companies at the national<br />

level, cannot be applied in the EU due to<br />

multiple points of access and a high level of<br />

bureaucratization of the decision-making<br />

process. This is further reinforced by the<br />

scarcity of Polish politicians and high officials<br />

occupying key posts in Brussels. Sticking<br />

exclusively to the national route is particularly<br />

inefficient for a new member state, as<br />

the number of its officials is limited<br />

due to a short period of presence in Seite Page page 55<br />

Brussels institutions. At the stage<br />

of agenda-setting and preparing<br />

proposals in the European Commission, it is<br />

necessary to go beyond national ties and gain<br />

access to decision-makers working directly on


POLISH BUSINESS REFERENCES LITERATUR – POLITICS RELATIONS<br />

the dossier in question notwithstanding their<br />

nationality.<br />

Moreover, the repartition of Polish deputies<br />

among the European Parliament committees<br />

is not at all functional from the point of view<br />

of business interest representation. Poland is<br />

overrepresented in the foreign affairs committee,<br />

whereas membership in committees<br />

dealing with single market or environmental<br />

issues is more than scarce (the tendency has<br />

been similar after the 2009 EP elections). Thus<br />

the potential for opinion shaping in economic<br />

matters is considerably limited.<br />

At the same time, the specificities of Polish<br />

capitalism discussed above result in a relatively<br />

weak level of internationalization of Polish<br />

business and an absence of large national corporations<br />

capable of attracting and mobilizing<br />

smaller players into national and European<br />

business associations. Just as in the third sector,<br />

business organizations are seriously underdeveloped<br />

in terms of membership and financing<br />

in comparison with the situation in Western<br />

member states. Meanwhile, company size, together<br />

with the level of internationalization,<br />

constitutes a crucial resource for mobilization<br />

and influence in the EU arena.<br />

In fact, the more transnational ties and activities<br />

the company has, the more it is interested<br />

in influencing the regulation of the<br />

single market. Such a company is<br />

Seite Page page 56<br />

naturally much more affected by<br />

acquis communautaire than a company<br />

operating locally within one member<br />

state. The expansion of economic activities can<br />

also be accompanied by socialization to the<br />

international management standards. Finally,<br />

an important position on the European market<br />

should make the firm more autonomous<br />

towards domestic political elites. Meanwhile,<br />

a low level of internationalization impedes<br />

mobilization and implementation of effective<br />

lobbying strategies, while the company is<br />

focused on domestic market and traditional<br />

linkages between the world of business and the<br />

world of politics. In particular, this occurs with<br />

a high level of dependence on politicians and<br />

administration due to the overwhelming and<br />

burdensome intervention of the latter in the<br />

economic activities of private entrepreneurs.<br />

Finally, policy-making in the EU is technical in<br />

nature; and the EU governance system relies to<br />

a significant extent on knowledge and expertise,<br />

which is reflected in the great number of advisory<br />

and expert committees in the Commission and<br />

public hearings in the Parliament. At the same<br />

time, the nature of Polish business-politics<br />

relations has been traditionally based not so<br />

much on information exchange but more on<br />

‘making deals’, nepotism, and corruption. Both<br />

the government and interest organizations are<br />

not yet prepared to play the game by European<br />

rules, too often relying on populist arguments<br />

of national interest or veto (Rey, 09.03.2009;<br />

Karaszewska, 04.08.2009).<br />

Lobbying is far from being the dominant<br />

form of relations between business and politics<br />

in Poland. Socialist tradition of interest<br />

representation as systemic deviation contributed<br />

to the delegitimization of the pluralist game<br />

of interests. Lobbying is not recognized as a<br />

legitimate element of the democratic decisionmaking<br />

process. As interest representation<br />

strategies of argumentation, persuasion and<br />

opinion formation are not well developed


AGNIESZKA REFERENCES LITERATUR K. CIANCIARA<br />

nationally, actors are poorly socialized to<br />

develop the necessary strategies at the EU<br />

level. For instance, consultations and public<br />

hearings are poorly institutionalized in Poland,<br />

which is impeding active engagement in similar<br />

practices in the Brussels arena.<br />

Polish lobbying at the European level is also<br />

characterized by an ad hoc approach. On one<br />

hand, this is due to high costs of permanent<br />

presence in Brussels. On the other hand,<br />

companies still do not possess the awareness<br />

as to the importance of the continuous opinion-shaping<br />

at the EU level. They often limit<br />

themselves to the participation in works of an<br />

EU-level trade association but use it more for<br />

an informative purpose than active interest<br />

representation. The lack of long-term planning<br />

and continuity in business strategies might be<br />

considered a result of a specific economic culture<br />

derived from the post-communist heritage,<br />

in particular business-politics relations<br />

in state-owned companies. Meanwhile, the ad<br />

hoc practice of ‘arranging things’ is fully dysfunctional<br />

in the formalized and highly institutionalized<br />

lobbying environment of the EU.<br />

CONCLUSIONS<br />

Specificities of Polish capitalism are particularly<br />

well reflected in existing patterns of businesspolitics<br />

relations and lobbying. In this<br />

article, I looked at how the post-communist<br />

heritage, transferred into the institutions of<br />

Polish ‘advanced emerging market’, affects<br />

representation of economic interests at both<br />

national and European levels. I made an attempt<br />

to explain the relative ineffectiveness of Polish<br />

lobbying in Brussels, while going beyond the<br />

critical resources approach and pointing to<br />

the characteristics of the CEE institutional<br />

and organizational environment. It seems that<br />

the perceived ineffectiveness results from the<br />

incompatibility of the hybrid, post-communist<br />

socialization context with the institutions of<br />

consolidated democracy and developed market<br />

economy at the EU level.<br />

As stated above, various forms of businesspolitics<br />

relations co-exist in Poland, depending<br />

on the sector, ownership structure, size<br />

and resources of the company, as well as socialization<br />

background of the management.<br />

The partial consolidation of economic elites,<br />

also resulting from the opportunities offered<br />

by EU membership and internationalization<br />

of economic activities, is not yet translated<br />

into effective mobilization of Polish business<br />

interests at the European level. The critical<br />

resources approach neither fully explains the<br />

low level of mobilization in the EU arena, nor<br />

the use of strategies that are not adequate to<br />

the European rules of the game. Among other<br />

explanatory factors proposed, one can find the<br />

argument about the embeddedness in domestic<br />

networks where specific, post-communist<br />

types of business-politics relations dominate.<br />

Clientelistic and oligarchic strategies practiced<br />

in Poland cannot be successfully used in<br />

the European environment, in particular due<br />

to the high level of autonomy of economic<br />

and political elites, as well as scarcity<br />

of Polish politicians and officials occupying<br />

key posts. A lack of tradition Seite Page page 57<br />

and institutionalization of pluralistic<br />

interest representation and civil society,<br />

together with weak financial and human<br />

resources of business organizations, further<br />

obstruct the capacity to exert influence.


POLISH BUSINESS REFERENCES LITERATUR – POLITICS RELATIONS<br />

NOTES<br />

1<br />

According to the FTSE group ranking (Sept. 2008), all EU15<br />

countries were classified within the group of 25 developed market<br />

economies in the world. Apart from Poland and Hungary,<br />

all the other new member states from Central Europe that joined<br />

the EU in 2004-2007 were still labelled as emerging markets;<br />

www.ftse.com.<br />

2<br />

In his classic essay, Radaelli (2000) defines Europeanization<br />

as ‘processes of construction, diffusion and institutionalization of<br />

formal and informal rules, procedures, policy paradigms, styles,<br />

‘ways of doing things’ and shared beliefs and norms which are<br />

first defined and consolidated in the making of EU decisions<br />

and then incorporated in the logic of domestic discourse, identities,<br />

political structures and public policies’. Understood as process<br />

of adaptation, Europeanization does not lead to homogenization.<br />

As abundant literature demonstrates, due to interaction,<br />

institutional systems undergo adaptation processes according to<br />

their own specific paths (Heritier 2005, Radaelli 2000, Ladrech<br />

1994).<br />

5<br />

Corporate governance is understood here as ‘legal and economic<br />

institutions constituting a system of formal and informal rules,<br />

determining the behaviour of entrepreneurs’ (Kozarzewski,<br />

2007).<br />

6<br />

For instance, Hungary has moved up 19 positions and Romania<br />

16 positions during the same period.<br />

7<br />

The phenomenon of clientelism constitutes a continuation of the<br />

nomenclature system of state socialism in many respects. It defines<br />

the asymmetric governance system, where decisions are taken in a<br />

fully discretionary way, and personal loyalty together with commitment<br />

to exchange goods of unequal value form the backbone of<br />

the relationship. In such a system, the patron uses public resources<br />

in pursuit of private benefits, as the division between public and<br />

private is blurred ( Jarosz, 2004). As for oligarchic patterns, they<br />

are based on social networks, direct contacts with politicians and<br />

administration, abuse of personal ties and reciprocity of favours<br />

( Jasiecki 2002). The classic example is the financing of political<br />

party activities by businessmen in exchange for privileged positions<br />

in public tenders.<br />

3<br />

The scope of this article does not allow for detailed explanation<br />

of the different understanding of lobbying, in particular, in<br />

contrast to notions of interest representation, or social and civil<br />

dialogue. For instance, the understanding of who a lobbyist is<br />

under Polish law is quite different from the definition used by<br />

the European Commission. I assume that lobbying constitutes<br />

one of the forms of interest representation, next to territorial<br />

parliamentary representation and corporatist representation<br />

(Łabno 2009). For different aspects with regard to the conceptualization<br />

of lobbying phenomenon in Polish literature, see:<br />

Wołpiuk 2004, Jasiecki 2006, Wiszowaty 2006, 2008.<br />

8<br />

In these cases, the focus on building a blocking minority in the<br />

Council of the EU was not sufficient, as the main political battle<br />

took place in the European Parliament. With the expanding competences<br />

of the European Parliament (also with the intialization<br />

of the Lisbon Treaty on 1 December 2009), the Council appears to<br />

be losing its crucial bargaining position within the EU decisionmaking<br />

process. This puts the efficiency of the national route of<br />

lobbying into question even further. For details on the lobbying<br />

campaigns with regard to the above mentioned legislative acts,<br />

see: Petsch (2006), Gazeta Wyborcza (2007a, 2007b).<br />

Seite Page page 58<br />

4<br />

There are three transformation models identified, namely capitalism<br />

from below, capitalism from above and capitalism from<br />

without. The first model stipulated that a new private market<br />

sector emerged in the shadow of old socialist redistributive<br />

economy. The second one pointed to the attempts of the socialist<br />

nomenclature to transform the system, while converting<br />

themselves into the grand bourgeoisie and using<br />

the resources (political and social capital) acquired<br />

under the previous institutional setting. Finally, the<br />

third model accounts for dominant impact of foreign<br />

capital and ownership in the transformation process<br />

(King, Szelenyi in Smelser, Swedberg, 2005).


AGNIESZKA REFERENCES LITERATUR K. CIANCIARA<br />

REFERENCES<br />

Balcerowicz, L., 1997, Socjalizm, kapitalizm, transformacja:<br />

szkice z przełomu epok, Wydawnictwo Naukowe PWN, Warszawa.<br />

Gardawski, J. et al., 2008, Socjologia gospodarki, wydanie 2,<br />

Difin, Warszawa.<br />

Greenwood, J., 2007, Interest Representation in the European<br />

Union, 2 nd edition, Palgrave Macmillan.<br />

Beyers, J., Kerremans, B., 2007, ‘Critical resource dependencies<br />

and the Europeanization of domestic interest groups’. In: Journal<br />

of European Public Policy, 14:3, no 4.<br />

Burson-Marsteller, 2009, ‘A guide to effective lobbying in Europe’,<br />

October, availabe at: http://www.oursocialmedia.com/brussels/bursonmarsteller-brussels/effective-lobbying-europe-2009<br />

[accessed: 26.02.2010]<br />

CASE (Centre for Socio-Economic Analyses), 2007,<br />

‘Przedsiębiorstwa sektora prywatnego i publiczneho w Polsce<br />

w latach 1999-2005’, no 89, available at: http://www.case.<br />

com.pl/upload/publikacja_plik/14583751_bre89.pdf [accessed:<br />

26.02.2010]<br />

Jarosz, M., 2006, ‘Okazja czyni złodzieja, czyli proces transformacji<br />

i prywatyzacji w Polsce’. In: A. Dylus et al. ed., 2006,<br />

Korupcja: oblicza, uwarunkowania, przeciwdziałanie, UKSW,<br />

Zakład Narodowy im. Ossolińskich, Wrocław.<br />

Eising, R., 2007a, ‘Institutional context, organizational resources<br />

and strategic choices:explaining interest group access in the<br />

European Union’. In: European Union Politics, Vol. 8 (3).<br />

Eising, R., 2007b, ‘The access of business interests to EU institutions:<br />

towards elite pluralism?’In: Journal of European Public<br />

Policy, 14:3, April.<br />

King, L. P., 2007, ‘Central European Capitalism in Comparative<br />

Perspective’. In: B. Hancke et al. ed., 2007, Beyond the<br />

varieties of capitalism: conflict, contradictions and complementarities<br />

in European economy, Oxford University Press.<br />

Héritier, A., 2005, ‘Europeanization Research East and West: a<br />

comparative assessment’. In: F. Schimmelfennig, U. Sedelmeier.<br />

ed., 2005, The Europeanization of Central and Eastern Europe,<br />

Cornell University Press.<br />

Hausner, J., 2007, Pętle rozwoju: o polityce gospodarczej lat<br />

2001-2005, Warszawa.<br />

Jarosz, M., 2004, Władza, przywileje, korupcja, ISP PAN,<br />

PWN, Warszawa.<br />

Jasiecki, K., 2008, ‘The changing role of post-transitional<br />

Economic Elite in Poland’. In: Journal for East European<br />

Management Studies, Vol. 13, no 4.<br />

Jasiecki, K., 2004, ‘Związki biznesu z polityką: pomiędzy lobbingiem<br />

a korupcją’. In: H. Domański et al. ed., 2004, Niepokoje<br />

polskie, IFiS PAN, Warszawa.<br />

Jasiecki, K., 2002, Elity biznesu w Polsce: drugie narodziny<br />

kapitalizmu, IFiS PAN, Warszawa.<br />

Forum Odpowiedzialnego Biznesu, Bank Światowy, Akademia<br />

Rozwoju Filantropii, 2003, Menedżerowie 500 i odpowiedzialny<br />

biznes: wiedza, postawy, praktyka, Warszawa, available at:<br />

www.etykabiznesu.pl [accessed: 14.08.2009]<br />

Jasiecki, K. et al., 2006, Lobbing – sztuka skutecznego<br />

wywierania wpływu, 2 edition, Oficyna<br />

Ekonomiczna, Kraków.<br />

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Gadowska, K., 2002, Zjawisko klientelizmu politycznoekonomicznego:<br />

systemowa analiza powiązań sieciowych na<br />

przykładzie przekształceń sektora górniczego w Polsce, Uniwersytet<br />

Jagielloński, Kraków.<br />

Kochanowicz, J. et al., 2007, Kulturowe aspekty<br />

transformacji ekonomicznej, Instytut Spraw Publicznych,<br />

Warszawa.


POLISH BUSINESS REFERENCES LITERATUR – POLITICS RELATIONS<br />

Kozarzewski, P., 2006, Prywatyzacja w krajach postkomunistycznych,<br />

ISP PAN, Warszawa.<br />

Ladrech, R., 1994, ‘Europeanization of domestic politics and<br />

institutions: the case of France’. In: Journal of Common Market<br />

Studies, 32(1), March.<br />

Radaelli, C.M., 2000, ‘Whither Europeanization? Concept<br />

stretching and substantive change’. In: European Integration<br />

online Papers, 4/ 8, http://eiop.or.at/eiop/texte/2000-008a.htm<br />

Raciborski, J., 2006, Elity rządowe III RP 1997-2004. Portret<br />

socjologiczny, Warszawa.<br />

Lewicka-Strzałecka, A., 2006, Odpowiedzialność moralna w<br />

życiu gospodarczym, IfiS PAN, Warszawa.<br />

Lissowska, M., 2008, Instytucje gospodarki rynkowej w Polsce,<br />

C.H. Beck, Warszawa.<br />

Ministry of Economy, 2009, ‘Przedsiębiorczość w Polsce’,<br />

Warszawa.<br />

Morawski, I., 28.04.2008, ‘Orlen po raz dziewiąty’. In: Rzeczpospolita.<br />

North, D. C.,1999, Understanding the Process of Economic<br />

Change, Institute of Economic Affairs for the Wincott Foundation,<br />

London.<br />

Sapała, M., 2005, Rola władz terytorialnych w Unii Europejskiej:<br />

formy reprezentacji interesów na forum europejskim,<br />

Akademia Ekonomiczna w Poznaniu.<br />

King, L. P., Szelenyi, I., 2005, ‘Post-communist economic systems’.<br />

In: N. J. Smelser, R. Swedberg, ed., 2005, The Handbook<br />

of Economic Sociology, 2nd edition, Princeton University Press.<br />

Staniszkis, J., 2001, Postkomunizm: próba opisu, Gdańsk.<br />

Wiszowaty, M. M., 2008, Regulacja prawna lobbingu na<br />

świecie, Wydawnictwo Sejmowe, Warszawa.<br />

Wiszowaty, M. M, 2006, ‘Ustawa o działalności lobbingowej w<br />

procesie stanowienia prawa’. In: Przegląd Sejmowy, 5 (76).<br />

Petsch, J., 2006, ‘Dyrektywa usługowa’. In: Analizy Natolińskie,<br />

no 9(13).<br />

Woll, C., 2007, ‘Leading the dance? Power and political resources<br />

of business lobbyists’. In: Journal of Public Policy, 27/1.<br />

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Greskovits, B., 2008, ‘Leading sectors and the variety of capitalism<br />

in Eastern Europe’. In: J. Pickles, ed., 2008, State and<br />

Society in Post-Socialist Economies, Palgrave Macmillan.<br />

Pickles, J., 2008, ‘The spirit of post-socialism’. In: J. Pickles, ed.,<br />

2008, State and Society in Post-Socialist Economies, Palgrave<br />

Macmillan.<br />

‘Polska jeszcze walczy o definicję wódki’,<br />

13.06.2007. In: Gazeta Wyborcza.<br />

‘Przegrana Polski, bananowa wódka unijnym<br />

standardem’, 19.06.2007. In: Gazeta Wyborcza.<br />

Wołpiuk, W. J., 2004, ‘Lobbing – próba ustalenia treści pojęcia i<br />

funkcji prawnopublicznych’. In: Przegląd Sejmowy, 4(63).<br />

Interviews<br />

Chorus, R., Cérame-Unie Secretary General, former President<br />

of SEAP (Society of European Affairs Practitioners) in 1998-<br />

2006, Brussels, 05.03.2007.<br />

Karaszewska, A. , Deputy General Director of the Polish Confederation<br />

of Private Employers and Member of the BusinessEurope<br />

Executive Committee, Warsaw, 04.08.2009.


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Lubiewa-Wieleżyński, W., President, Polish Chamber of Chemical<br />

Industry, Warsaw, 24.08.2009.<br />

Matraszek, M., Executive Director, CEC Government Relations,<br />

Warsaw, 24.08.2009.<br />

Mulewicz, J., Avon, Business Centre Club, Member of EESC,<br />

Warsaw, 28.08.2009.<br />

Rey, B., Director of the PGNiG Brussels Office, Brussels,<br />

9.03.2009.<br />

Sochacka, K., acting Director of the Brussels Office of the Polish<br />

Confederation of Private Employers, Brussels, 05.03.2007.<br />

Websites<br />

http://www.mg.gov.pl/Wiadomosci/Przedsiebiorcy/I+posiedze<br />

nie+Zespolu+ds+Spolecznej+Odpowiedzialnosci+Przedsiebiors<br />

tw.htm<br />

www.doingbusiness.org<br />

www.odpowiedzialnybiznes.pl<br />

http://margaux.grandvinum.se/SebTest/wvs/articles/folder_published/article_base_54<br />

http://www.ftse.com/Indices/Country_Classification/Downloads/FTSE_Country_Classification_Sept_08_update.pdf<br />

http://www.europarl.europa.eu/activities/committees/committeesList.do?language=EN<br />

Seite Page page 61


AUTOMOTIVE REFERENCES LITERATUR COMPANIES GO EAST -<br />

GERMANY AND AUSTRIA<br />

1. INTRODUCTION<br />

4<br />

Ultimately, all automotive companies are<br />

international companies with a global<br />

focus, acting at several locations and<br />

on different markets. While some are actively<br />

engaged in establishing new sites, finding new<br />

cooperation partners and exploring foreign<br />

markets, others seems to act conservatively,<br />

appearing reluctant while focussing on and<br />

strengthening their position in their traditional<br />

markets.<br />

GERMANS ON THEIR WAY EAST – AUSTRIANS<br />

STAYING AT HOME<br />

Kathrin Loer<br />

In this regard the title of this paper must be<br />

explained, as it does not seem to say anything<br />

about the topic. Who is meant by “Germans”<br />

and “Austrians” and what is meant by “way<br />

east” in contrast to “staying at home”?<br />

The following text addresses problems of<br />

the European automobile industry, more<br />

precisely problems and challenges of a certain<br />

segment of the automotive sector: the contract<br />

manufacturers. On the basis of two case<br />

studies, I will explain under what conditions a<br />

German company begins to build production<br />

units in Poland, while its major Austrian<br />

competitor does not follow the trend to use<br />

attractive Central and Eastern European<br />

production sites and still remains competitive.<br />

Seite page 62<br />

From an institutional point of view,<br />

interdependencies between the institutional<br />

surrounding 1 and a company’s economic<br />

performance and (international) competitiveness<br />

can be assumed, whereas the cases show<br />

dissolution of these interrelations and some<br />

weakness of the argumentation. Hence, the<br />

aim of this paper, from a theoretical point of<br />

view, is to show the limits of institutionalist<br />

approaches and the need to broaden or


KATHRIN REFERENCES LITERATUR LOER<br />

modify these approaches in the face of serious<br />

transformations of economic surroundings<br />

and market transformations. Perhaps this<br />

diagnosis could be transferred to other sectors<br />

or market structures. The empirical contents<br />

of this paper will support the assumption of<br />

serious market transformations and their<br />

complexity. To a certain degree, behaviour<br />

and decisions of economic actors are expected<br />

to be rational or the result of figure-based<br />

analyses summing up the situation. The paper<br />

will show that – at the latest – the complexity<br />

of the business environment does not make<br />

it possible to act and decide (completely)<br />

rationally; economic rationality could instead<br />

be used as an auxiliary tool to legitimate the<br />

decisions of an economic actor.<br />

Given a framework of transformation<br />

processes, changes and characteristics of the<br />

automotive sector, this paper will explain how<br />

and why automotive companies invest abroad,<br />

more precisely in Central and Eastern Europe. As<br />

mentioned above, not the whole automotive<br />

industry will be covered but rather a small<br />

sample that might be a representative example<br />

of the complex framework of mechanisms that<br />

restricts, promotes or undermines the actor’s<br />

behaviour. On the basis of the two case studies<br />

of European “contract manufacturers”, this<br />

paper shows under what prerequisites foreign<br />

direct investments in Central Eastern Europe<br />

can overstrain (medium-sized) companies as<br />

well as when disregarding the trend to move<br />

east leads to greater competitiveness. With<br />

a focus on different types of foreign direct<br />

investments of these automotive companies<br />

in CEE transformation processes of the<br />

market, manufacturer-supplier-relations as<br />

well as consequences for industrial relations<br />

will be explored. Before the two case studies<br />

are presented, the theoretical and empirical<br />

framework will be explained in more detail.<br />

2. THE EUROPEAN AUTOMOBILE INDUSTRY –<br />

A STARTING POINT.<br />

In order to first reduce complexity, a simple<br />

picture is drawn: The automobile industry<br />

evolved during the last century from small<br />

factories producing the first, mainly handcrafted,<br />

cars into huge corporate groups with<br />

a very high employment volume (compared to<br />

other parts of the industrial sector) (Altshuler<br />

et al. 1986). Although each region of the<br />

triad has its own specialities regarding the<br />

production models, generally speaking similar<br />

developments can be identified in Europe,<br />

North America (mainly the United States)<br />

and Japan (later: Southeast Asia) after the<br />

Second World War. Common is especially<br />

one characteristic feature: The automobile<br />

is a very complex as well as labour and<br />

knowledge intensive good. The Original<br />

Equipment Manufacturers 2 (OEM) represent<br />

the key players in the sector but do not build<br />

automobiles on their own, which is why a<br />

more or less differentiated supplier industry is<br />

needed for automobile production (Hoetker,<br />

Swaminathan & Mitchell 2007, Helper, Kiehl<br />

2004, Kaufman, Wood & Theyel 2000). In the<br />

Japanese automobile industry, supplier<br />

companies are mostly affiliates of the<br />

OEM (e.g. Toyota), which is a small Seite page 63<br />

deviance to the organization of the<br />

automotive value chain in Europe or<br />

North America. Traditionally, the European<br />

automotive suppliers are independent<br />

companies varying from small and medium


AUTOMOTIVE REFERENCES LITERATUR COMPANIES GO EAST -<br />

GERMANY AND AUSTRIA<br />

to large companies. The automotive supply<br />

chain and its hierarchy can be illustrated with<br />

a pyramid.<br />

Figure 1. Automotive Supplier Hierarchy<br />

(by author)<br />

If it was a simple and successful story, it could<br />

be followed by reports of continuous growth,<br />

expansions, and developments of new markets.<br />

Automobiles would be the main transportation<br />

means, the OEM portfolio would become<br />

increasingly diversified, and automobiles in<br />

nearly all price classes would be offered. There<br />

would be mainly growth prospects for<br />

companies in the automotive sector<br />

Seite page 64<br />

for OEM and the supply industry. As<br />

one can imagine, considering the many<br />

countries and regions in the world<br />

that are still not saturated as far as individual<br />

transport (by car) is concerned, OEMs and<br />

supplier companies would be “lucky devils” in<br />

the era of globalization. Indeed, all that is partly<br />

true, yet accompanied by other developments<br />

and mechanisms:<br />

International production- and distribution<br />

strategies of the large multinational OEMs<br />

are constitutive for all other entrepreneurial<br />

decisions in this sector. Internationalization<br />

and an extensive process of consolidation have<br />

taken place simultaneously since the 1990s –<br />

for the Original Equipment Manufacturers<br />

(OEM) as well as for supplier companies. This<br />

process produces “mega suppliers” as a result<br />

of fusions and takeovers and the reduction<br />

of the in-house production depth on the


KATHRIN REFERENCES LITERATUR LOER<br />

OEM-side. Different reports and consultancy<br />

studies forecast a promising economic future<br />

for the mega suppliers because of vertical<br />

disintegration of tasks, growing specialization<br />

and the need for flexibility (Mercer<br />

Management Consulting 2004, Verband der<br />

deutschen Automobilindustrie (VDA) 2003,<br />

Kinkel, Zanker 2007, Kinkel, Lay 2005). In<br />

an extreme scenario, one could think about<br />

task sharing to such an extent that the OEM<br />

is “merely” responsible for marketing and<br />

distribution as well as for the management of<br />

the automotive brand(s), whereas the supplier<br />

industry performs all steps of the production.<br />

Research and development in the development<br />

of a new automobile model is also vertically<br />

disintegrated. Considering such a high impact<br />

for supplier companies regarding production<br />

activities, one could raise the question<br />

whether relocation of production sites may<br />

be economically advisable to escape high-cost<br />

countries (e.g. Germany or Austria). From the<br />

perspective of (Western) European automobile<br />

producers, this question is asked again given<br />

very attractive conditions for production<br />

activities in Central and Eastern Europe as<br />

well as their proximity to the automobile<br />

producer’s headquarters in France, Germany,<br />

Italy etc. Indeed, the automotive industry<br />

can be identified as a pioneer regarding the<br />

constitution of new sites in Central and Eastern<br />

Europe, not only since the “iron curtain” fell in<br />

1989 (Bandelj 2008) but also with investments<br />

of GM and Suzuki, for example, in Hungary<br />

already in the early 1980s (Sadler, Swain 1994).<br />

As this was the case for the OEM, the supplier<br />

industry also realized the new opportunities or<br />

was forced to follow the OEMs to gain new<br />

contracts.<br />

The automobile industry retains a large volume<br />

of employment as (despite a high degree of<br />

automation) the assembly of automobiles still<br />

requires manpower on a large scale, especially<br />

for the production of certain supply parts as<br />

well as during the last steps of the assembly line.<br />

Workers in the automotive sector unionized<br />

and founded workers’ councils in the early years,<br />

which continuously grew and developed in the<br />

second half of the last century. Particularly in<br />

Europe the development of the automobile<br />

industry was accompanied by the growth of<br />

trade unions (metal unions). Hence, in this<br />

paper the perspective on enterprise’s strategies<br />

and interdependencies between the OEM and<br />

the supplier industry is complemented by the<br />

perspective on power and powerlessness of the<br />

workers’ councils. Negotiation and bargaining<br />

processes between the workers’ councils of the<br />

traditional and established production sites<br />

“at home” influence business and investment<br />

strategies – not only of the respective company<br />

but also of the dependent companies in<br />

the supply-chain (Cooke 2006, Marginson,<br />

Meardi 2006, Doellgast, Greer 2007). The<br />

same is true by looking the other way around:<br />

business and investment strategies as well as<br />

high cost pressure can force the organized<br />

labour of one company to concede or give<br />

up standards or previous conditions or – to<br />

mention an extreme case – to capitulate.<br />

This very brief sketch of major developments<br />

may lead to the assumption<br />

that the supplier companies that survived<br />

the consolidation process and<br />

Seite page 65<br />

grew in the course of joint ventures<br />

and takeovers turn out to be the part of the automotive<br />

sector that continues to achieve high<br />

employment rates and are important, or even


AUTOMOTIVE REFERENCES LITERATUR COMPANIES GO EAST -<br />

GERMANY AND AUSTRIA<br />

Seite page 66<br />

the most important players in the automotive<br />

sector as counterpart of the OEM. Of course,<br />

one can also identify a strong dependency of<br />

supplier companies on the OEMs, insofar a<br />

picture of great interdependence between international<br />

companies arises. The same is true<br />

for the European “contract manufacturers” (or<br />

“0.5-tier suppliers”, see Figure 1) as a special<br />

segment of the automotive industry yet still<br />

very much subject to the OEM. Contract<br />

manufacturers are developing and producing<br />

automobiles on behalf of large automotive<br />

producers, the OEMs. They are capable of fulfilling<br />

all tasks required to produce a vehicle.<br />

In this regard, these companies can be viewed<br />

as “miniature” automobile manufacturers or<br />

“small” OEMs. In addition, most of these<br />

companies are market-leaders for the production<br />

of specific supply modules. The segment<br />

of “contract manufacturers” is chosen to present<br />

two cases from Germany and Austria 3 .<br />

Similar to a magnifying glass, this approach<br />

should help to point out and analyse important<br />

structural changes and actor’s behaviour<br />

within this changing environment. Summing<br />

up, the following aspects are important for this<br />

paper:<br />

<br />

<br />

<br />

High degree of internationalization.<br />

High relevance of Central and Eastern<br />

Europe regarding production sites in<br />

this region for all automobile<br />

companies (European, North<br />

American and Asian) and the<br />

supplier industry.<br />

Interdependence between OEM and<br />

suppliers as well as OEM and contract<br />

manufacturers.<br />

<br />

<br />

<br />

<br />

Importance of workers’ councils and<br />

(metal) trade unions.<br />

Importance of sector with regard to the<br />

whole producing sector of a national<br />

economy.<br />

Large assembly lines and a multiplicity of<br />

automated production steps, but the need<br />

for (highly) skilled workers, manpower<br />

and engineering capabilities to compete<br />

in the sector.<br />

Necessary development of new technologies,<br />

innovations and inventions forces the<br />

companies (OEM and suppliers) to invest<br />

in research and development divisions.<br />

The recent crisis of the automobile industry<br />

just shows the tip of the iceberg. Even if the<br />

bankruptcy of famous automobile companies<br />

is on everyone’s lips in the light of the current<br />

economic crisis, the crisis in the automotive<br />

sector is not a new phenomenon. Automobile<br />

companies have faced several severe problems<br />

during the last two decades. Their economic<br />

drawbacks are mainly caused by changing<br />

circumstances on buyers’ and sellers’ markets<br />

and resulting large overcapacities. Even if<br />

this paper does not discuss these long-term,<br />

structural problems, it is necessary to keep<br />

their influence in the back of our minds when<br />

regarding the following investigations.<br />

2.1 General changes in the automotive sector<br />

If one were to describe the market strategies of<br />

automobile producers not in an analytical and<br />

academic, but rather a heretical and exaggerated<br />

way, a general diagnose could be: The European


KATHRIN REFERENCES LITERATUR LOER<br />

automotive companies, particularly the OEMs,<br />

have dug their own (economic) grave step by<br />

step because of immense overcapacities over<br />

the last decade. Of course, this picture is onedimensional,<br />

as the problem of overcapacities is<br />

not only caused by (independent) management<br />

or executive decisions but is the result of<br />

parallels in the development of the market<br />

that complicate these decisions. To describe it<br />

concisely: The opening of Central and Eastern<br />

European countries opens new markets with<br />

a huge demand and backlog in people having<br />

their own automobiles. This is an example<br />

of a (quite) unexpected potential to expand<br />

for market changes during a short period of<br />

time (van Tulder, Ruigrok 1998, Keune, Tóth<br />

2005). As demand for expensive investment<br />

goods such as automobiles cannot be exactly<br />

predicted, the forecast of trends is sophisticated<br />

and partly coincidently. As new competitors<br />

enter the market and the automotive<br />

industry is profoundly dependent on general<br />

developments of national and international<br />

economies and their rapid shocks and changes,<br />

unilateral criticism against the OEM does<br />

not cope with the complexity of the situation.<br />

However, the impact of market instabilities,<br />

the need for flexibility and fast adaptation<br />

to new circumstances pressures workers and<br />

employees in the sector as their employment<br />

conditions are often seen as an “adjustable<br />

screw” in the eyes of company management<br />

( Jürgens 2005a, Jürgens 2005b, Jürgens 2004,<br />

Kahancová, van der Meer 2006, Charron,<br />

Stewart 2004). Another remarkable change is<br />

related to cooperation between competitors in<br />

the market that reach from buying syndicates<br />

to joint production sites. On the other hand,<br />

new competitors enter the international market<br />

and discover Europe as an interesting economic<br />

region (mostly cheap automotive producers<br />

from emerging markets, India or China…).<br />

In summary the transformation of the automotive<br />

sector proceeds in different respects:<br />

<br />

<br />

<br />

<br />

Growing cost pressure.<br />

Changes regarding the terms and<br />

conditions for workers in the sector.<br />

Growth of new flexible employment<br />

strategies, namely temporary employment,<br />

which produces a segmentation of<br />

employees with permanent staff, on<br />

the one hand, and workers that accept<br />

precarious employment conditions<br />

(continuity, wage levels), on the other.<br />

Organized labour is hardly achievable<br />

and the counterpart of the management<br />

weakened.<br />

After years of implementation, the<br />

concept of “lean production” and the<br />

idea of a “breathing plant” are enforced<br />

to cope with changing circumstances<br />

(Schumann et al. 2006) 4 . The concept<br />

aims at introducing terms of employment<br />

that allow hiring and firing at short<br />

notice, without difficult legal bindings.<br />

Of course, this concept is judged very<br />

differently depending on the perspective.<br />

Employers recognize the need<br />

to be flexible if they want to<br />

stay competitive and search Seite page 67<br />

for solutions in the range of<br />

employment conditions as they<br />

turn out to be the most extensive cost<br />

factor. The employees’ perspective claims<br />

the trend to capitalize the current market


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<br />

situation (particularly on the labour<br />

market) to force the workers to accept<br />

bad conditions. However, the employees’<br />

behaviour in reaction to these changes<br />

also shows their powerlessness, as they<br />

actually widely accept and adapt to these<br />

new situations.<br />

The relation between OEM and<br />

supplier companies alters exceptionally<br />

regarding bargaining position and power:<br />

Cooperation structures of OEMs (from<br />

buying syndicates up to productioncooperation)<br />

form a powerful counterpart<br />

to the supplier companies.<br />

What are the consequences for contract<br />

manufacturers referring to this? These general<br />

changes hit the contract manufacturers hard<br />

due to the fact that they occupy a “niche” of car<br />

production, being experts for special features,<br />

design, and exceptional functionalities and<br />

notably low volume production. Their special<br />

niche productions could be classified in the<br />

“premium segment”, which is difficult to<br />

combine with growing cost pressure. If we think<br />

of economies of scale, this target is also hardly<br />

to be achieved with low volume production. As<br />

far as the flexibility of employment strategies<br />

is concerned, it might be a competitive<br />

disadvantage to rely on skilled workers, highly<br />

skilled engineers and other technical staff to<br />

realize high quality production and<br />

complex products. The dependency<br />

Seite page 68<br />

of OEM was and is extensive with<br />

regard to niche production, which<br />

also changes and creates a very<br />

unstable economic situation. The contract<br />

manufacturers appear to be powerlessness and<br />

– in a way – “abandoned to their fate” as far<br />

as the production of full vehicles is concerned.<br />

Remembering the OEM-supplier hierarchy,<br />

the changes let the 0.5-tier suppliers descent<br />

to 1 st -tier suppliers specialized on modules and<br />

systems. In such times it is doubtful whether<br />

outsourcing to foreign countries like those in<br />

Central and Eastern Europe helps to master<br />

the crisis. If an OEM starts to invest in CEE,<br />

contract manufacturers may get an opportunity<br />

by following them, or are forced to follow?<br />

3. ANALYTICAL FRAMEWORK<br />

In order to compare and analyse the two case<br />

studies, a starting point is defined that regards<br />

similarities and differences, whereas the<br />

similarities are seen as formative for the specific<br />

character and function of these companies.<br />

Therefore, firstly attention is turned to<br />

institutionalist theory that might be helpful to<br />

understand the environmental conditions of the<br />

two companies. In a second step, characteristic<br />

features of the company’s constitution will be<br />

divided into similarities and distinctions.<br />

Considering the classification of the “Varieties<br />

of Capitalism” (VOC), the home countries<br />

of both enterprises fall into the category of<br />

“coordinated market economies” (CME) (Hall,<br />

Soskice 2001) p.19f ). Although the VOC<br />

approach is broadly assailed and enhanced<br />

(Crouch 2005, Jackson, Deeg 2006, Deeg,<br />

Jackson 2007, Hirt 2004, Campbell, Pedersen<br />

2007, Allen 2006), this substantial debate<br />

will not be addressed in this paper. Rather,<br />

the approach is used to emphasize some<br />

characteristics of the coordinated market<br />

economies in Germany and Austria, which are<br />

not challenged by the criticisms of the VOC


KATHRIN REFERENCES LITERATUR LOER<br />

approach. Asked how wages and working<br />

conditions are established in these coordinated<br />

economies, the bargaining structures between<br />

the employers and the organized labour and a<br />

long tradition of unionism are the answer. This<br />

characteristic is important for the case studies,<br />

because wage structure and working conditions<br />

are presumably the most important aspects<br />

when it comes to decisions on new production<br />

sites abroad, vertical disintegration and foreign<br />

direct investments. From this theoretical<br />

classification, one could expect similar<br />

confrontations inside the enterprises in times<br />

of growing cost pressure, increasing difficulties<br />

to gain new contracts and orders. A second<br />

characteristic regards vocational training and<br />

education. The coordinated market economies,<br />

especially Germany and Austria, are famous for<br />

their publicly organized and subsidized training<br />

system (Culpepper 2001). Companies in the<br />

automotive sector take part in the vocational<br />

training system and can, therefore, secure a<br />

skilled labour force. Looking at inter-company<br />

relations, coordinated market economies dispose<br />

of appropriate and manifold institutions. By<br />

using institutionalist approaches, one attempts<br />

to respect the political embeddedness of actors.<br />

Path dependency provides an explanation<br />

for this as well as for why institutions do not<br />

change in a way that completely shifts the<br />

national economy. However, with regard to this<br />

theory, two important remarks must be taken<br />

into account. The VOC-paradigm is an ideal<br />

typology – even though Hall and Soskice bring<br />

forward their argument by using OECD-data,<br />

national figures and statistics and link their<br />

two capitalist models (coordinated and liberal)<br />

to “real” countries. At the latest in the course<br />

of the European Integration process, growing<br />

reform pressure with regard to welfare state<br />

institutions, and considering the Globalization<br />

processes, these countries “move” away from<br />

their ideal type. With the two case studies<br />

in mind, the significance of industrial<br />

relations, vocational training and inter-firm<br />

relation might be doubtful on two counts:<br />

the automotive industry was (and partly still<br />

is) very much affected by a strong influence<br />

of workers’ councils and trade unions. They<br />

might have changed their role and function<br />

but are still an important counterpart of the<br />

company’s management – in Germany as<br />

well as in Austria. Referring to this, but also<br />

with regard to the other two categories (VC and<br />

interfirm-relations), particularly traditional and<br />

regional (rooted) companies adhere to well known<br />

and long established routines and institutions.<br />

Also the cooperation-partners of those companies<br />

(employees, prospective apprentices, chambers<br />

and other organizations dealing with inter-firm<br />

relations) stick to familiar routines. The case<br />

studies can show whether these statements can<br />

be confirmed and, if so, provide an explanation<br />

– particularly as far as the decision about foreign<br />

investments (in CEE) is concerned.<br />

In addition to thoughts about national<br />

economies, some theoretical remarks about<br />

the constitution of the market should be<br />

introduced and linked with the case studies. It<br />

seems helpful to use Beckert’s categories for the<br />

constitution of markets: the “value problem”,<br />

the “problem of competition”, and the<br />

“cooperation problem” (Beckert 2009).<br />

The following paragraph includes all<br />

important aspects that can be used for<br />

the case studies:<br />

„I argue that three coordination problems<br />

in the sense of “mutual coordination” can be<br />

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analytically distinguished: I call them the value<br />

problem, the problem of competition, and the<br />

cooperation problem. These coordination<br />

problems can only be resolved if market actors<br />

are able to form stable expectations with regard to<br />

the actions of other market actors and future<br />

events relevant for their decisions as well<br />

as whether they consider the expected outcomes<br />

to be sufficient in their material interest and<br />

normatively acceptable. In this sense, markets<br />

are understood as “fully social institutions,<br />

reflecting a complex alchemy of politics,<br />

culture, and ideology” (Krippner 2001: 782).<br />

While the notion of the “order of markets”<br />

refers to the macrolevel result of the solution<br />

of the three identified coordination problems,<br />

the expectations formed by actors constitute<br />

the building blocks of this order on the actor<br />

level.”<br />

(emphasis added)<br />

With this understanding of the constitution<br />

of markets, the severe problems and also<br />

contradictions in actor’s (here: company’s)<br />

behaviour and decisions can be explained.<br />

The following case studies will show where<br />

and under which conditions it is remarkably<br />

difficult or almost impossible to achieve the<br />

necessary level of coordination.<br />

4. CASE STUDIES: WHAT IS SO SPECIAL ABOUT<br />

THE CONTRACT MANUFACTURERS – ARE THEY<br />

SPECIAL?<br />

4.1 …some remarks on the empirical studies:<br />

The case studies are based on media reports,<br />

business reports and interviews with decision<br />

makers 5 of these companies and actors in the<br />

company’s environment as the major source.<br />

The aim is to explain corporate decisions<br />

and strategies as well as the dramatic changes<br />

affecting the market segment. The case studies<br />

focus on the following figures: changes of<br />

business sections, company size, company<br />

locations, foreign investments, co-operations<br />

among suppliers and contractors. The two<br />

companies from Austria and Germany were<br />

chosen as the main focus, because they are<br />

(were) by far the leading and largest companies<br />

for contract manufacturing worldwide.<br />

Summarizing the main characteristics for<br />

the segment of niche producers and contract<br />

manufacturers, they mainly produce for the<br />

premium sector, while the production is labour<br />

intensive, requires specialized and expert<br />

knowledge to create unique selling points. All<br />

contract manufacturers have a long tradition in<br />

their home countries and no or few production<br />

sites abroad.<br />

4.2 Transformation of manufacturer –<br />

supplier – relations<br />

Seite page 70<br />

Referring to the main aspects mentioned<br />

above, which show what happens in the sector,<br />

these characteristics can be applied to the<br />

relation between contract manufacturer and<br />

suppliers as well. Due to the interdependencies<br />

between OEM and contract manufacturers,


KATHRIN REFERENCES LITERATUR LOER<br />

these countries are also to a certain degree<br />

internationalized. As the case studies will<br />

explain, there are very different concepts<br />

followed by the contract manufacturers<br />

grounded in different ratings of opportunities<br />

and economic risks but also dependent on their<br />

relation to the OEM. Central and Eastern<br />

Europe attracts investments from all kinds of<br />

automobile industries, contract manufacturers<br />

are not excluded. As far as the interdependencies<br />

between OEM and contract manufacturers are<br />

concerned, there is strong evidence suggesting<br />

less balance and more power of the OEM with<br />

the result that the dependency gains weight in<br />

one direction. It shall not be forgotten that the<br />

automobile industry started with a high degree<br />

of manufacturing in its early years (at the end of<br />

the 19 th century / beginning of the 20 th century);<br />

in the market for “premium cars”, individualized<br />

products, skilled workers, manpower and<br />

engineering capabilities are still important. If<br />

OEMs decide to outsource production, it is<br />

presumably this part of the product portfolio.<br />

The role of Central and Eastern European<br />

countries for this production will be explained<br />

with regard to the case studies.<br />

4.3 Case Study 1.<br />

This case study takes a closer look at the<br />

Wilhelm Karmann GmbH, which was<br />

founded in 1901 (Knust 1996). Until recently,<br />

Karmann employed around 8.000 persons<br />

spread at six locations worldwide (Karmann<br />

2006, Handelsblatt.com 2009a). The company<br />

specialized historically in manufacturing<br />

cabriolets as well as modules necessary to build<br />

cabriolets such as retractable tops. During the<br />

last years, several rounds of layoffs needed<br />

to be executed (still some layoffs could be<br />

prevented). Overall, the situation for the<br />

company staff has worsened since 2006. At<br />

the moment, the insolvency proceedings<br />

are short of being concluded (Handelsblatt.<br />

com 2009b, neue-oz.de 2009). Excluding the<br />

current and ongoing events, the Karmann case<br />

shows interesting aspects for the purpose of<br />

this paper. With regard to different categories,<br />

serious changes can be observed. As a family<br />

business, the company grew steadily and<br />

employed around almost 10.000 people at<br />

the company’s climax. Over time, Karmann<br />

emerged to an established regional company that<br />

was well known nationally and internationally<br />

for its niche production of cabriolets. Long time<br />

tradition and strong regional roots are main<br />

characteristics that can also be identified by the<br />

embeddedness of the principal of the company in<br />

social and political networks. This might be seen<br />

as typical for German family owned business,<br />

but also for the industrial sector and specificly<br />

the metal sector. Especially the grandson of the<br />

founder and also the first successor beyond the<br />

family were very much involved in “old-boysnetworks”,<br />

the traditional, informal German<br />

management-networks used to negotiate and<br />

complete deals, for example at the automotive<br />

fair. As such, Karmann mostly cooperated<br />

with German OEMs for the manufacturing of<br />

automobiles in the 1970s and 1980s. Rooted<br />

in trust, long-time relationships and business à<br />

la “you scratch my back and I’ll scratch yours”<br />

characterized most of the deals.<br />

Trusting in the apparent assurance<br />

to be and stay market leader in the Seite page 71<br />

special niche segment of cabriolet<br />

production, the company was not<br />

bothered with fear for its existence during a<br />

long period, although the production of cabriolets<br />

always had to deal with fluctuations. In former


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times it was not easy to embed the niche<br />

production, especially of cabriolets in larger<br />

production sites or assembly lines of OEMs<br />

with higher volumes. One interview partner<br />

expressed: “Cabrio production will provoke<br />

serious headaches, if it has to be implemented<br />

in OEM’s production sites. That’s why the<br />

OEM give it to contract manufacturers.”<br />

As far as foreign investments are concerned,<br />

Karmann used to be connected to investments of<br />

OEMs (for example: Volkswagen in Mexico<br />

and Brasil, Nissan-cooperation in England)<br />

but did not invest abroad on their own. They<br />

always produced abroad to realize a specific<br />

car production – as a kind of piggyback<br />

international production.<br />

Compared to the recent situation, several<br />

serious changes took place during the last<br />

five to ten years. The company’s heir left the<br />

company in 1990. A manager followed him,<br />

who again remained a comparatively long<br />

time and continued the business practices.<br />

But then more frequent personal changes in<br />

the management could be recorded. As the<br />

“business landscape” internationalized, the<br />

new executives have been less embedded<br />

in social and political networks or these<br />

networks have been very much expanded and<br />

internationalized. If there are new contracts,<br />

they are concluded in the context of complex<br />

treaties that require legal expertise. Technological<br />

change enables OEMs to produce<br />

niche cars and small production series<br />

Seite page 72<br />

within their own assembly lines.<br />

Simultaneously, the importance of<br />

system and module suppliers with<br />

high technological competitiveness grows.<br />

For contract manufacturing, Karmann could<br />

no longer rely on stability and certainty of<br />

following orders – new mechanisms of shorttime<br />

business relations, high flexibility, and high<br />

internationalization replace the old system<br />

of trust and long-term partnerships. The<br />

company tried to explore new ground after the<br />

year 2004/2005 and was “on its way east” with<br />

foreign investments on its own authority: two<br />

investments in Poland that are not piggyback<br />

with an OEM. One of the new Polish sites is<br />

connected with a contract for BMW in Leipzig<br />

but is not a contract manufacturier of a full<br />

vehicles but rather systems and modules. This<br />

might be interpreted as a prognosticator for the<br />

company’s following development. The Polish<br />

site is economicly and legaly independent from<br />

the other parts of the company and was erected<br />

to support an OEM under high cost pressure.<br />

The second site in Poland was founded as a<br />

tooling shop where Karmann wanted to realize<br />

low cost structures. However, problems already<br />

appeared in the early years of those sites:<br />

(Skilled) labour is rare, wages are higher than<br />

expected (and especially the growth rate of wage<br />

levels), institutional conditions in that country<br />

prove to be more difficult than assumed, the<br />

company laments organizational problems. The<br />

increase of transaction costs is enormous. During<br />

the last years, the company was unable to obtain<br />

new orders for the manufacturing of complete<br />

vehicles – regardless of the production site. The<br />

combination of OEMs being able to integrate<br />

small volume and niche production in their sites,<br />

“Standortsicherungsvereinbarungen” binding<br />

employment in the OEMs factories, and the<br />

opportunities for the OEM to build sites in<br />

Central and Eastern Europe to produce special<br />

products (for example Porsche together with<br />

Volkswagen: Cayenne in Bratislava, Slovenia)<br />

seems to be the “knock out” for the German<br />

contract manufacturer Karmann. Negotiations


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with OEMs during the last years showed that<br />

the sites in Osnabrück and Rheine tried to<br />

compete with factories in Central and Eastern<br />

Europe (e.g. with Györ in Hungary / Audi).<br />

From an external perspective it is not possible<br />

to judge whether the wage conditions and<br />

production costs have been the most important<br />

and decisive criteria.<br />

The changes and problems described have<br />

serious impacts on the industrial relations:<br />

Workers’ councils are increasingly forced to<br />

accept conditions that they would not have<br />

accepted in former times. The threat to start new<br />

production sites at cheaper locations, especially<br />

in CEE, with cheaper labour determines the<br />

strategy of the workers’ council. Staggered,<br />

but similar to the changes in the company’s<br />

management, the leaders in the workers’<br />

council have been replaced and bargaining<br />

routines have differed. Now, technical, skilled<br />

staff represents the workforce and has been<br />

transformed to a “co-management” without<br />

strong negotiation power. The downward<br />

tendency of the company has intensified the<br />

feeling of being powerless in terms of ensuring<br />

employment.<br />

4.4 Case Study 2.<br />

Magna Steyr in Graz is an affiliate of the<br />

Austro-Canadian mega-supplier “Magna<br />

International”. The company has a long history<br />

but changed its name: it was well known as<br />

“Steyr Puch” in former times. Originally<br />

founded as an arms manufacturer in 1864,<br />

it transitioned to a bicycle producer. Later,<br />

Puch was specialised in the production of<br />

motorcycles in 1901 shortly before it entered<br />

the automobile-manufacturing sector in 1904.<br />

After a merger with the German automobile<br />

company “Daimler” in 1928, the company<br />

was named “Steyr-Daimler-Puch AG” (since<br />

1935) and started to assemble vehicles ordered<br />

by different European automobile companies<br />

after the Second World War. In 1999, the<br />

Canadian Corporation “Magna International”<br />

took the majority of shares – meanwhile,<br />

Magna Steyr reached comparatively high<br />

volumes and was very successful with new<br />

contracts from a wide spectrum of OEMs.<br />

The Austrian contract manufacturer looks<br />

back on a long time tradition. Similar to its<br />

German competitor, it has strong regional<br />

roots but, likewise, records quite a few<br />

changes regarding the ownership structure. The<br />

interviews showed that, particularly during<br />

the last decades, the continuity of the Austrian<br />

management (as well the Canadian corporate<br />

management in persona Frank Stronach)<br />

and a quite flexible way of bargaining and<br />

finding specific solutions with the workers’<br />

council and trade union form the framework<br />

for (new) strategies. This might be part of a<br />

“secret recipe”. Stemming from a “coordinated<br />

market economy”, strong industrial relations<br />

can be expected – but the way of negotiation,<br />

the bargaining method and interrelationship of<br />

politics, associations, corporate organizations and<br />

management executives might be characterized<br />

with “high flexibility”, pragmatism, and the<br />

ability to agree upon package deals.<br />

Magna Steyr thoroughly continued<br />

to maintain long time partnerships<br />

and cooperation with international<br />

OEMs but was never very much<br />

interwoven with one or more OEMs 6 .<br />

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Regarding its niche competence, the Austrian<br />

company has never had the assurance to be<br />

and stay market leader, although the company<br />

offers a special segment: the 4-wheel-drive.<br />

However, different from cabriolet production,<br />

this special engine technology could be<br />

integrated in the production lines of the OEM.<br />

They have nearly always been competitors<br />

for this production, so that Magna Steyr was<br />

in danger that OEM would undertake this<br />

production on their own. Taking a look at<br />

foreign investments, the Austrians “stayed at<br />

home” as far as production is concerned. The<br />

case study shows a surprising strategy: High<br />

quality services are transferred or established<br />

abroad while all production tasks remain in<br />

Austria. At first glance, this strategy may seem<br />

unrealistic and implausible. But reality shows<br />

that thoughts about relocating high quality<br />

services accompany foreign investments<br />

considerations – regardless of whether<br />

production will remain at the home-site<br />

(Rudas, Witzani & Fritzer-Posch 2003).<br />

Asked if they invest in Central and Eastern<br />

Europe, the interview partners express two<br />

statements. First, they affirm that the niche<br />

and low volume production of premium cars<br />

can only be done adequately with a skilled<br />

labour force and trusted workmen by using<br />

engineer support and experiences located<br />

close to the production sites. In the eyes of<br />

the interview partners, this is only the case<br />

in Austria. Second, an investment<br />

in Central and Eastern Europe for<br />

Seite page 74<br />

financial reasons is not needed, as<br />

supplier parts can easily be purchased<br />

from neighbouring countries (just<br />

a few kilometres from the headquarter in<br />

Graz). Beyond that, the company’s executives<br />

refer to the next migration trend far more east<br />

(because of rising labour cost, difficulties to<br />

recruit skilled employees…).<br />

Although it might be judged as “accompanying<br />

measures” that could be neglected, the institution<br />

of the “Automotive Cluster Steiermark” should be<br />

named. The Bundesland Steiermark initiated<br />

a relatively large-scale and financially wellsupported<br />

institution that provides collective<br />

goods specifically to the automotive industry.<br />

Leading companies are AVL List (an engine<br />

company) and Magna Steyr. Besides offers to<br />

meet staff from other companies in order to<br />

build business-networks, the effort to develop<br />

cluster-specific infrastructure, the cluster acts<br />

as a lobby for the Austrian automobile industry.<br />

The initiative finds acceptance, which is not<br />

self-evident, because the companies have to<br />

pay to be members of the cluster. Therefore,<br />

they staff the decision-making body and are<br />

involved in decisions about new initiatives such<br />

as the constitution of the automotive-specific<br />

cooperation of all Steyrian universities and<br />

research institutes to support the companies.<br />

Regarding all these aspects, one must<br />

emphasize that – compared to other European<br />

contract manufacturers - Magna Steyr proceeds<br />

and decides in a different role. As an affiliate<br />

there are opportunities to compensate. As an<br />

affiliate of a mega-supplier being part of a<br />

large corporation, the company can benefit<br />

from supplier-relations, utilize the corporate<br />

structure and take advantage of corporate<br />

decisions. Furthermore, interviews, reports and<br />

other sources basically rely on information from<br />

the “Magna era”. On closer examination of the<br />

company’s history, it becomes apparent that this<br />

contract manufacturer rather seriously starts to<br />

play in the concert of the European contract<br />

manufacturer since it became part of the Magna


KATHRIN REFERENCES LITERATUR LOER<br />

Group. Decades ago, when the company traded<br />

under the name “Steyr-Daimler-Puch”, the<br />

interconnection with Daimler-Benz was highly<br />

visible and formative.<br />

5. CONCLUSION<br />

Not only are the national boundaries literally<br />

crossed in the course of companies’ investments<br />

in Central and Eastern Europe, the case studies<br />

show that Central and Eastern European<br />

countries are highly competitive regarding<br />

the quality and highly skilled production<br />

and have crossed the boarder that divides<br />

production regions in “low cost” in terms of a<br />

cheap subcontractor (“verlängerte Werkbank”<br />

in German) and “high cost” countries. This<br />

region is no longer (if it even ever was) solely a<br />

low cost production region for the automobile<br />

industry. Of course, parts of the 2 nd -tier or 3 rd -<br />

tier supplier industries can be found in CEE<br />

and might still realize cost advantages, but<br />

with regard to more complex manufacturing<br />

processes, a different picture must be drawn.<br />

The case studies show that, as the companies are<br />

part of the premium segment of the automobile<br />

industry, low-cost production might not be an<br />

adequate option. As OEMs invest in Central<br />

and Eastern Europe – also in the premium<br />

segment, as the examples of Porsche, BMW and<br />

Daimler show – these countries have become<br />

serious alternatives to Western European<br />

production sites. Karmann exported production<br />

to be able to leave high skilled engineering<br />

services at their home site. However, for this<br />

German contract manufacturer it is obvious<br />

that last year’s investments abroad caused<br />

(transaction) costs that must be compensated<br />

by appropriate savings on labour costs, both<br />

in the past and present. This target seems<br />

to be hardly achievable when a company<br />

has started to invest in Central and Eastern<br />

Europe during the last five years with the<br />

objective to start low cost production. On the<br />

contrary, especially the acceding countries to<br />

the European Union became attractive sites as<br />

far as quality production and the involvement<br />

of skilled labour is concerned. As an affiliate of<br />

Magna International (Canada), Magna Steyr<br />

relocated high skilled engineering services<br />

to different countries to keep production<br />

in Austria. The company did not decide to<br />

outsource production to Central and Eastern<br />

Europe. Of course, the proximity to this region<br />

from the Austrian site in the “Steiermark”<br />

might be an argument, as supply parts are quite<br />

easy to purchase from supplier companies in<br />

the Eastern European neighbourhood. I argue<br />

that relocation of production is controversial<br />

and has to be judged critically. As far as<br />

automobile manufacturing is concerned, CEE<br />

is no “cheap region” or low cost region in a<br />

broader sense. It is not the institutional setting<br />

that determines the competitive strength of<br />

the contract manufacturers or hinders their<br />

success (for example regulations in coordinated<br />

market economies). Rather the company’s<br />

configurations, its financial background, the<br />

continuity of cooperation with OEM and –<br />

although from an academic perspective this<br />

might not be satisfying – serendipity<br />

are decisive.<br />

Seite page 75<br />

Returning to the conceptualizing<br />

approach of Beckert regarding the<br />

constitution of the market, the case studies<br />

exemplify how and why the balance of actors<br />

and their competence to solve the “value


AUTOMOTIVE REFERENCES LITERATUR COMPANIES GO EAST -<br />

GERMANY AND AUSTRIA<br />

problem”, “problem of competition”, and<br />

“cooperation problem” is disrupted. Insofar<br />

the developments in the automotive sector can<br />

be operated as counterevidence, the market<br />

for independent contract manufacturing – as<br />

it existed during the last century - nearly<br />

collapses. A specific segment of the automotive<br />

industry may survive by changing its role and<br />

becoming a 1 st tier supplier, giving up the<br />

contract manufacturing by being taken over by<br />

or purchasing an OEM. With regard to the<br />

new capitalist states in Central and Eastern<br />

Europe, it can be identified that they have<br />

the capability to meet all requirements of<br />

the automotive industry. Yet concurrently<br />

they might loose their status as “verlängerte<br />

Werkbank” or as a cheap manufacturing base<br />

and may subsequently have to develop an<br />

equal production and development place of<br />

location.<br />

A second concluding remark refers to the<br />

VOC-debate. Even if the two cases are small<br />

aspects, a narrow picture and just a small<br />

part of the automotive industry, they may<br />

be appropriate to question the similarities of<br />

coordinated market economies. The German<br />

case illustrates how a traditional and regional<br />

(rooted) company can tend and adhere to<br />

well known and long established routines<br />

and institutions. As assumed before, the<br />

cooperation-partners of that company stick<br />

to these familiar routines as well.<br />

In the light of these diagnoses, the<br />

Seite page 76<br />

company’s investment in Poland<br />

produces the impression of a flight<br />

forward. The traditional routines and<br />

reliabilities of the management seem to be<br />

broken, even if the institutional surrounding<br />

did not change markedly. At first sight, the<br />

second case might not be a typical Austrian case<br />

– primarily because it should be titled Austro-<br />

Canadian correctly – but the specificities that<br />

can be identified with regard to industrial<br />

relations and inter-firm relations are nearly in<br />

line with the idea of the “coordinated market<br />

economy”. Heretically, their “interpretation”<br />

and performance of industrial relations might<br />

be seen as betrayal of labour. From a pragmatic<br />

perspective, the case shows an example of how<br />

to save employment and continue to keep<br />

industrial production in a so called high-cost<br />

country.<br />

The link between the case studies and the<br />

chosen theoretical background shows a<br />

balancing act with some weakness, but may<br />

frame the question and presentation of the case<br />

studies in an appropriate way.<br />

The differences regarding investments in<br />

Central and Eastern Europe are hard to judge.<br />

In addition to a certain degree of coincidence,<br />

the proximity of the Austrian company to<br />

Central and Eastern Europe might be an<br />

easy explanation. To benefit from attractive<br />

cost structures as far as supplier-goods are<br />

concerned, the company does not have to<br />

invest abroad but rather can purchase in<br />

the neighbourhood. Moreover, it might be<br />

in a closer relation to get information what<br />

earnings and benefits are realisable effectively.<br />

The mixture of competitive labour force, skilled<br />

workers and engineers, public collective goods<br />

and less unionized labour force is still very<br />

attractive for industrial production.


KATHRIN REFERENCES LITERATUR LOER<br />

NOTES<br />

1<br />

E.g. industrial relations, institutions of vocational training,<br />

corporate governance structures, institutions to support intercompany<br />

relations.<br />

2<br />

I.e. leading companies such as Volkswagen, Renault, Fiat,<br />

Toyota, General Motors and Ford.<br />

3<br />

If the current developments (of the last weeks) are excluded,<br />

the segment of European Contract Manufacturers consists of<br />

six companies: two from Italy, and one from Finland, France,<br />

Germany, and Austria, respectively. They are all automobile<br />

producers “without an own brand” – they produce automobiles in<br />

order of the European or US-American (rarely and under special<br />

conditions Asian) OEMs.<br />

4<br />

The author is aware of the background of this book. It is published<br />

as “Begleitforschung” (translation: accompanying research)<br />

and is taken into account with care because of its proximity to the<br />

sponsor (Volkswagen).<br />

5<br />

These sources are not specifically noted in this paper.<br />

6<br />

This is the case when we are strictly referring to Magna Steyr.<br />

The merger with Daimler (Steyr-Daimler-Puch) must be evaluated<br />

differently.<br />

Seite page 77


AUTOMOTIVE REFERENCES LITERATUR COMPANIES GO EAST -<br />

GERMANY AND AUSTRIA<br />

Seite page 78<br />

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Campbell, J.L. & Pedersen, O.K. 2007, “The Varieties of Capitalism<br />

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in the automobile industry, Palgrave Macmillan.<br />

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relations” in , ed. Global industrial relations, Routledge,<br />

, pp. 326-348.<br />

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Culpepper, P.D. 2001, “Employers, Public Policy, and the Politics<br />

of Decentralized Cooperation in Germany and France” in<br />

Varieties of Capitalism. The Institutional Foundations of Comparative<br />

Advantage, eds. P.A. Hall & D.(.). Soskice,<br />

Oxford University Press, , pp. 243-304.<br />

Deeg, R. & Jackson, G. 2007, “Towards a more dynamic<br />

theory of capitalist variety”, , pp. 149-179.<br />

Doellgast, V. & Greer, I. 2007, “Vertical disintegration and the<br />

disorganization of German industrial relations”, British journal<br />

of industrial relations.- Oxford [u.a.] : Blackwell, vol. 45, no.<br />

1, pp. 55-76.<br />

Hall, P.A. & Soskice, D.(.). 2001, Varieties of Capitalism, Oxford<br />

University Press.<br />

Handelsblatt.com 2009a, 19.2.2009-last update, Bei Karmann<br />

drohen weitere Stellenstreichungen. Available: http://www.<br />

handelsblatt.com/unternehmen/industrie/bei-karmann-drohenweitere-stellenstreichungen;2163414<br />

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bei Karmann eröffnet. Available: http://www.<br />

handelsblatt.com/unternehmen/industrie/insolvenzverfahrenbei-karmann-eroeffnet;2405104<br />

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Market and Non-Market Approaches“, vol. 11, no. 1, pp. 89-<br />

107.<br />

Hirt, O. 2004, Varieties of Capitalism and the Diversity of Productive<br />

Models or the exploration of macro-micro relationships.<br />

Hoetker, G., Swaminathan, A. & Mitchell, W. 2007, “Modularity<br />

and the impact of buyer-supplier relationships on the survival<br />

of suppliers”, Management Science, vol. 53, no. 2, pp. 178-191.<br />

Jackson, G. & Deeg, R. 2006, How many varieties of capitalism?<br />

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Jürgens, U. 2005a, „Charakteristika der europäischen Automobilindustrie.<br />

Gibt es einen europaspezifischen Entwicklungsweg?“<br />

in Und es fährt und fährt... Automobilindustrie und Automobilkultur<br />

am Beginn des 21. Jahrhunderts, ed. G. Schmidt, edition<br />

sigma, Berlin, pp. 11-45.<br />

Jürgens, U. 2005b, “Restructuring the automobile industry and<br />

its workforce: a worldwide perspective” in , ed. F. Garibaldo,<br />

Lang, , pp. 31-56.


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Jürgens, U. 2004, “An elusive model: diversified quality production<br />

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Main.


AUTOMOTIVE MNCS IN CENTRAL EUROPE<br />

5<br />

AUTOMOTIVE MNCS IN CENTRAL EUROPE:<br />

THE ENTERPRISE AS A SOURCE OF COMPETI-<br />

TIVE INDUSTRIAL CAPABILITIES<br />

Employment stability based on the administratively<br />

set output targets was a<br />

key feature of state socialist production<br />

regime. A shift from state socialism to market<br />

economy in this context meant an adaptation<br />

of employment and production numbers to<br />

‘market demands’ and market prices. In market<br />

economies, the volatility in product demand<br />

can imply an increased ‘flexibility’ of production<br />

and, thus, employment levels that could<br />

endanger employment stability. Thus, with the<br />

introduction of a market economic rationale,<br />

state socialist non-economic enterprise institutions<br />

have been challenged by the new logic of<br />

market-driven efficiency and competitiveness.<br />

The combination of private ownership, pressures<br />

of international competition and the increased<br />

role of cost efficiency were expected to<br />

contribute to making enterprises focus more on<br />

their economic competitiveness as the first and<br />

dominant measure of enterprise performance.<br />

page 80<br />

Alexandra Janovskaia<br />

State withdrawal from the production<br />

process and the arrival of foreign owners were<br />

associated with a larger focus on profitability,<br />

the new desired field of managerial action. In<br />

other words, these reforms characterised by a<br />

strong purposeful rationality considered social<br />

relations in the enterprise as means, not ends<br />

of social action. However, this paper argues<br />

that despite important institutional changes in<br />

the structure of markets and firm ownership,<br />

preserving industrial capabilities has remained<br />

an enterprise norm for local actors, an end in<br />

itself. Thus, an understanding of the enterprise<br />

as a social organism and a source of industrial<br />

capabilities remains alive. Despite the new<br />

institutions of increased competition, the<br />

expectation of an enterprise commitment to its<br />

employees survived from state socialist era to


ALEKSANDRA JANOVSKAIA<br />

the present day. This commitment is associated<br />

with what I call a ‘productionist stance’ of<br />

local actors. It is embedded in their desire to<br />

preserve employment numbers and develop<br />

local industrial capabilities, even if it sometimes<br />

goes contrary to the pure logic of cost efficiency<br />

and financial competitiveness.<br />

In the four VW subsidiaries that served as a<br />

case study for this paper – the Czech Skoda,<br />

Slovak VW Bratislava or VW Slovakia, Polish<br />

VW Poznan and Hungarian Audi Györ - an<br />

important industrial upgrading took place<br />

during the late 1990s and early 2000s in<br />

production volumes but, most importantly, in<br />

production depth, product range and strategic<br />

positioning within the VW Group. It also<br />

related this industrial upgrading to a dramatic<br />

increase in employment volumes in all four<br />

subsidiaries. To a certain extent, this industrial<br />

upgrading and employment increase have been<br />

part of the overall group’s strategy, which largely<br />

depended on decisions about transnational<br />

distribution of production volumes and<br />

technology investments mainly made in the<br />

VW Group headquarters. Yet I was able to<br />

identify an important role of local stakeholders<br />

in this process. The valuation of the industrial<br />

capabilities has been an important factor for<br />

industrial upgrading and employment growth.<br />

Despite the new ‘market’ organising logic<br />

of greater efficiency and increased market<br />

competition, local management has preserved<br />

a clear ‘productionist’ attitude in its desire to<br />

attract more investment to the production<br />

location, ensure production over time and<br />

upgrade. This ‘productionist’ norm is rooted in<br />

the experience of state socialism. Its overarching<br />

goal has been to develop local capabilities and<br />

make companies a full-fledged partner within<br />

the VW group. Both local unions and local<br />

management have shared this productionist<br />

attitude. Local managers were looking for<br />

German know-how to modernise their plant,<br />

but they still perceived it as their main task<br />

to ‘develop’ the company. Thus, whenever the<br />

opportunity emerged, local managers, together<br />

with unions, showed through their actions that<br />

high employment and industrial upgrading<br />

remained their highest priority, while market<br />

efficiency rationale remained a secondary<br />

factor.<br />

The rest of this paper develops this<br />

argument further. Several dimensions of<br />

this productionist attitude are brought out.<br />

First, stakeholder attitudes and strategies of<br />

preserving the industrial capabilities at the<br />

time of privatisation are discussed. The role<br />

of local coalitions between government and<br />

unions as guarantors for brand survival for the<br />

case of Škoda is discussed. Second, Section<br />

II disentangles the productionist logic that<br />

underpinned the actions of the stakeholders,<br />

while Section III elaborates the formal<br />

agreements between management and union<br />

representatives that followed this implicit<br />

coalition. The last section underlines the role<br />

of the external dimension – the role of public<br />

opinion – in strengthening and reinforcing<br />

the local ‘productionist’ commitment to firm<br />

industrial capabilities.<br />

This paper argues that the organis-<br />

page 81<br />

ing logic of economic liberalism of<br />

increased cost-efficiency and financial<br />

performance standards affected the firms<br />

when the institutions of ownership and control<br />

changed. Yet the local norms that set up the


AUTOMOTIVE MNCS IN CENTRAL EUROPE<br />

firm as a source of valuable industrial capabilities<br />

remained alive. These norms imply a local<br />

commitment to the preservation of industrial<br />

capabilities independent from pure market efficiency<br />

and competitiveness logic. Thus, the<br />

norms related to economic liberalism have<br />

been challenged by the other, non-economic<br />

enterprise norm that partially goes back to a<br />

state socialist enterprise function. The result<br />

of this constant tension between the organising<br />

logic of efficiency and competition, on the<br />

one hand, and the value of industrial capabilities,<br />

on the other, is that the firm continues to<br />

function as a source of competitive industrial<br />

capabilities.<br />

I. STAKEHOLDER COALITION FOR BRAND<br />

SURVIVAL<br />

The system of state socialist central planning<br />

was characterised by the fact that resource<br />

allocation took place through political decisions<br />

rather than being driven by the economic<br />

rationale of the price mechanism, resource<br />

scarcity and cost efficiency. With the regime<br />

change, direct political allocation of productive<br />

resources disappeared and the ‘market rationale’<br />

officially entered the scene either anew or less<br />

disturbed by ‘social intervention’ in countries<br />

such as Hungary where certain market<br />

reforms were already implemented earlier. In<br />

the company context, the new market<br />

rationale meant three things. First,<br />

page 82 the links to the Communist Party<br />

were dismantled. Second, politicallyoriented<br />

setting of production<br />

volumes and prices stopped as production<br />

orders were left to ‘markets’, which meant that<br />

only orders from customers who were ready<br />

to pay in the hard currency at ‘market’ rather<br />

than at the subsidised rates would be taken.<br />

Finally, the state withdrew from the ownership<br />

structures by privatising the previously stateowned<br />

enterprises.<br />

However, despite the new dominant logic<br />

of market efficiency that was established<br />

in the early years of post-communism, the<br />

company level reality was more complex. The<br />

new organising logic of economic liberalism<br />

formulated and defended by the new political<br />

elites did not penetrate the companies overnight<br />

and did not make the previously existing norms<br />

and commitments towards the enterprise<br />

disappear completely. In an environment of<br />

high uncertainty, a medium- and long-term<br />

‘market value’ of enterprises and their viability<br />

in the future was unclear, yet decisions still<br />

had to be made. The governments and other<br />

stakeholders such as managers and trade<br />

union leaders needed to decide which existing<br />

industrial projects were viable for the market<br />

economy environment. It is in these decisions<br />

that the desire of stakeholders to preserve the<br />

existing industrial capabilities despite financial<br />

difficulties can be identified.<br />

At first glance, market-oriented rationale<br />

entered the scene in a very prominent way:<br />

financial viability of entrepreneurship became<br />

a crucial factor considered by stakeholders.<br />

In 1990, it was acknowledged by many that,<br />

economically, Škoda was not a viable company<br />

as it had large debts, declining sales and<br />

falling orders. Due to high debts, the company<br />

was unable to take out new loans that were<br />

urgently needed to pay day-to-day operations<br />

and the suppliers of components. There were<br />

voices among the Czechoslovak public that


ALEKSANDRA JANOVSKAIA<br />

suggested abandoning car production in<br />

favour of automotive components for foreign<br />

car producers (Pavlínek 2008: 80). Also, the<br />

government, as company owner, did not want<br />

to take a high financial risk and the option of<br />

government-led restructuring of the company<br />

and its subsequent privatisation were ruled out<br />

due to the fact that neither the government nor<br />

the banks were ready to guarantee the capital<br />

needed, despite the fact that the domestic and<br />

foreign demand were estimated to be far above<br />

production capacity (Pavlínek 2008: 80). Thus,<br />

Škoda was a troubled company with its East<br />

European markets collapsing; its financial<br />

position was close to bankruptcy.<br />

Yet market-oriented rationale has been<br />

restrained by non-economic organising logic.<br />

Thus, already during the privatisation process,<br />

next to the market-oriented logic of cost<br />

efficiency and market pricing, a ‘productionist’<br />

attitude of local stakeholders has become visible.<br />

Industrial traditions and industrial capabilities,<br />

rather than pure financial returns-oriented<br />

thinking, were important to local stakeholders.<br />

Due to its over 100-year-old history, Škoda’s<br />

reputation as a ‘family jewel’ was strong. It<br />

gave stakeholders the legitimacy to demand<br />

a continuation of firm activities. A foreign<br />

partner that would enter the joint venture was<br />

expected to invest in the company in order<br />

to improve quality and expand production<br />

volume (Pavlínek 2008). Thus, the solution<br />

of joint venture can, in this light, be seen as<br />

a compromise of the two logics – letting the<br />

‘market forces’ in the form of a foreign investor<br />

enter the scene, while at the same time ensuring<br />

the survival and preservation of already existing<br />

local industrial capabilities. Thus, Škoda’s<br />

example demonstrates that local stakeholders<br />

valued the company as a source of industrial<br />

capabilities and wanted to preserve these.<br />

The dramatic financial situation of Škoda might<br />

even explain the eagerness of the Czechoslovak<br />

government to privatise such an important<br />

industrial project at such a fast pace. In other<br />

Visegrad countries, if important industrial<br />

projects existed, they were either privatised<br />

but remained in domestic ownership, as in<br />

the case of Hungarian industrial giant Raba,<br />

or they were privatised much later following<br />

prolonged negotiations and a search for the<br />

‘right’ partner, as in the case of Polish FSO.<br />

Thus, a comparison across national borders<br />

allows us to conclude that Škoda’s foreign<br />

privatisation in itself can be interpreted in<br />

this context as evidence of the ‘productionist’<br />

logic, as marketisation through privatisation<br />

had as its final goal the strengthening of the<br />

company’s industrial capabilities.<br />

Large-scale government-led restructuring<br />

plans and with them more advantageous<br />

valuations of companies were ruled out<br />

quite early in the three cases of brownfield<br />

investments analysed in more depth in this<br />

study: Czech Škoda, Polish Tarpan and Slovak<br />

BAZ. In the case of Škoda, the government<br />

demands went furthest. This is what makes us<br />

focus on Škoda’s privatisation in the rest of this<br />

section. These demands went beyond general<br />

investment demands and covered,<br />

among other things, preservation of<br />

the Škoda brand. Yet why were these<br />

page 83<br />

advanced ‘productionist’ demands<br />

for preserving industrial capabilities<br />

formulated and followed in Škoda, but not in<br />

its former supplier Slovak BAZ or in Polish<br />

Tarpan? The explanation has to do with the


AUTOMOTIVE MNCS IN CENTRAL EUROPE<br />

power balance and a perceived more prominent<br />

role of the government in the negotiations for<br />

Škoda: the local stakeholders were perceived<br />

to be in a stronger bargaining position<br />

when selling their ‘family jewel’. Focussing<br />

on the company’s medium-term industrial<br />

capabilities, the stakeholders were confident<br />

that Škoda’s reputation and its position in<br />

international markets were good: a large share<br />

of Škoda cars were sold abroad and thus Škoda<br />

was considered by stakeholders to be able to<br />

pass ‘the test of markets’.<br />

Yet, also non-economic rationales have been<br />

important for Škoda’s stronger negotiating<br />

position. Its reputation was strengthened by<br />

the fact that Škoda was among the few East<br />

European car brands that had home-grown<br />

technological developments – many other state<br />

socialist car brands had to buy the technology<br />

in the West. The introduction of its last<br />

model in the late 1980s strongly contributed<br />

to a significant improvement of its previous<br />

international image of a low cost, low quality<br />

car: introduction of Favorit ‘narrowed the gap<br />

between Škoda and its Western competitors in<br />

the class of small passenger cars so that Škoda<br />

could offer a (potentially highly) competitive<br />

product’ (Pavlínek 2008: 75). Thus, privatising<br />

the ‘family jewel’ with long industrial traditions<br />

guaranteed a strategically strong position for<br />

the government to formulate high demands<br />

on the foreign investor. In other<br />

plants, the local stakeholders in and<br />

page 84 outside of the plant were perceived<br />

to be in a weak bargaining position<br />

in relation to the foreign investor: in<br />

Slovakian BAZ and Polish Tarpan the strategic<br />

importance of the plants was considered<br />

low. VW group is argued to have found out<br />

about the BAZ supplier plant only during<br />

government negotiations concerning Škoda. As<br />

a manager in VW Slovakia explained: ‘we did<br />

not have Škoda’s hundred years of industrial<br />

history, this plant was relatively new’ (Interview<br />

March 2007). Thus, it is only in Czech Škoda<br />

where local stakeholders such as management,<br />

but even more importantly trade unions and<br />

government, could have a strong influence<br />

on the privatisation process; in the two other<br />

brownfield locations and, of course, in the new<br />

greenfield Audi Györ plant the new foreign<br />

owner was dominant.<br />

Two rationales dominated Škoda’s early partial<br />

privatisation. First, it was driven by the desire<br />

of local stakeholders - within the company as<br />

well as in the government – to preserve local<br />

industrial capabilities with the help of foreign<br />

investors in the short-term. Apart from having<br />

high debt, practically no long-term investment<br />

capital and thus no chances of being able<br />

to compete in international markets, Škoda<br />

even lacked financing to keep up day-today<br />

production (Pavlinek and Smith 1998).<br />

Sperling believes that:<br />

[T]he government of Czechoslovakia […] was<br />

of course interested in continuing the production<br />

activities of Škoda as a foundation for future<br />

economic development under the conditions,<br />

although the Czechs involved knew too well that<br />

Škoda would not survive in the changing and<br />

more competitive markets without some form of cooperation<br />

with Western manufacturers (Sperling<br />

2004: 184).<br />

The situation of Škoda’s suppliers was also<br />

critical given the following considerations: if<br />

Škoda went bankrupt, the suppliers would have


ALEKSANDRA JANOVSKAIA<br />

to share its fate. At that time, Škoda had 237<br />

domestic suppliers. Its bankruptcy, therefore,<br />

would have had a high impact on the regional<br />

economy (Pavlínek 2008: 80).<br />

However, the time dimension is very important<br />

for the understanding of this privatisation<br />

strategy. Foreign investors were perceived by<br />

the public and the government as a solution<br />

for the company’s short-term survival, but also<br />

as a guarantor of the long-term prosperity of<br />

the company as well as the regional economy<br />

as a whole. Thus, these so-called ‘strategic<br />

privatisations’ were not only motivated by the<br />

short-term financial returns. Preserving the<br />

existing industrial capabilities – even if they were<br />

weak and not up to international competition at<br />

that moment – was considered crucial because<br />

preserving industrial traditions was a symbol of<br />

continuous economic development. It is in this<br />

context that foreign investors were considered<br />

as ‘saviours’ of local companies and guarantors<br />

of long-term enterprise success.<br />

The role of government was important, as it<br />

could dictate the conditions of the joint venture.<br />

The preservation of the Škoda brand was a<br />

precondition for privatisation. It was explicitly<br />

expressed in the privatisation negotiations,<br />

together with other demands such as<br />

maintenance of the labour force, continuation<br />

of relations with local suppliers, continuation<br />

of R&D activities and Czech participation<br />

in company’s management ( Jung, Klemm et<br />

al. 2004). The choice of the foreign partner -<br />

the VW group - was thus made dependent<br />

on the condition of preserving the industrial<br />

capabilities of the enterprise. The other foreign<br />

bidder for Škoda was Renault, yet this major<br />

French car manufacturer was not interested in<br />

preserving and developing Škoda’s industrial<br />

capabilities: ‘to opt for a co-operation with<br />

Volkswagen was the credible commitment<br />

of Volkswagen to keep Škoda as a brand<br />

manufacturer coupled with the promises of<br />

major modernisation’(Sperling 2004: 184).<br />

The joint venture agreement signed between<br />

the VW group and the Czech government<br />

in April 1991 explicitly stated the level<br />

of expected investment on the part of the<br />

German investor and the future production<br />

capacities. It also included clauses concerning<br />

Czech components producers and Škoda’s<br />

employees (Pavlínek 2008). These numerous<br />

special clauses were developed by government<br />

officials and were one of the first expressions<br />

of government stakeholders before a more<br />

formalised process of privatisation was<br />

established. As Pavlinek (2008: 86) points out,<br />

it was only several months after drafting the<br />

Škoda joint venture agreement that the Czech<br />

Ministry for National Property Management<br />

formulated a directive that set out how<br />

privatisation projects should look.<br />

Yet the joint venture plants were made by<br />

government officials in cooperation with<br />

the management and trade unions, and not<br />

against their will. The role of Škoda’s direct<br />

stakeholders - i.e. management and trade<br />

unions - in the privatisation decision was<br />

crucial. Local management supported<br />

the idea of a joint venture with<br />

a foreign company: ‘as a leading<br />

page 85<br />

industry in Czechoslovakia and based<br />

on past trade experience with Western<br />

partners, the Škoda management quickly<br />

realized that drastic measures needed to be<br />

taken if the company was to survive under the


AUTOMOTIVE MNCS IN CENTRAL EUROPE<br />

pressure of competition with Western auto<br />

producers’ ( Jung, Klemm et al. 2004: 206).<br />

The role of local unions was also crucial for<br />

the choice of the foreign partner. Despite the<br />

original preference of government officials and<br />

the broad public for Renault, Škoda unions<br />

persuaded the government to select VW<br />

as the preferred candidate (Pavlínek 2008).<br />

They voted against cooperation with Renault<br />

fearing downgrading and loosing the status of<br />

an independent brand. Volkswagen’s previous<br />

fair treatment of the SEAT – keeping it as<br />

independent brand – gave Czech stakeholders<br />

more confidence that VW promises would be<br />

kept. Union representatives also supported<br />

the German bidder due to strong industrial<br />

relations in Germany (Sperling 2004: 185).<br />

Renault, on the other hand, ‘was seen as a<br />

state company and, hence, not the appropriate<br />

partner for the privatisation process, in which<br />

the main challenge Škoda faced was overcoming<br />

the deficits created by the period as a state<br />

company’ ( Jung, Klemm et al. 2004: 207).<br />

Thus, unions were an important stakeholder in<br />

this choice of the foreign investor. It was with<br />

the agreement of Škoda’s management and<br />

unions that the foreign investor was chosen.<br />

Preserving the labour force was part of the joint<br />

venture agreement between the government<br />

and the VW group. Despite a very large<br />

headcount, the majority of employees were<br />

taken over. The fact that high levels<br />

of employment - around 15,000<br />

page 86 employees in the early 1990s – were<br />

preserved was a direct consequence of<br />

stakeholder demands. In the Slovak<br />

BAZ that then became VW Bratislava, on the<br />

other hand, the influence of local management<br />

and government backing were much weaker.<br />

As a consequence, a very different employment<br />

strategy was chosen: all ‘old’ employees were<br />

laid off and had to go through re-hiring process.<br />

The company restarted with 400 employees in<br />

1992 (Interview March 2007). Also, far fewer<br />

privatisation conditions from the government<br />

side were formulated.<br />

As the VW group experienced a crisis in 1993-<br />

1994 and announced a reduction in production<br />

numbers, lower level of investments and overall<br />

much more modest investment approach – so,<br />

for example, no new engine factory was going<br />

to be built in Škoda despite the original promise<br />

– the Czech government took an active stance<br />

to protect regional industrial capabilities. It<br />

requested an addendum to the existing joint<br />

venture agreement that would clearly stipulate<br />

the group’s continuous commitments towards<br />

Škoda. Although the investment levels stated in<br />

the document signed in November 1994 were<br />

more modest than in the original agreement<br />

of 1991, it was the government’s goal to<br />

have a formal commitment of the German<br />

investor to its Czech investment project. The<br />

state also gained the right to participate in<br />

‘all fundamental decisions regarding the joint<br />

venture and a veto power over any decision<br />

that would dramatically affect Škoda’s activities<br />

until December 1999, when the VW group was<br />

planning to buy the remaining shares of the<br />

company’ (Pavlínek 2008: 90). The government<br />

also added an additional protection for the<br />

Czech suppliers in the agreement: once able to<br />

compete with other suppliers, local component<br />

suppliers had the right to supply the whole<br />

group.<br />

What could be demonstrated by the example<br />

of Škoda is a general pattern of several


ALEKSANDRA JANOVSKAIA<br />

organising enterprise logics being at work;<br />

sometimes in conflict with each other but<br />

sometimes supporting each other. The main<br />

demands to the foreign investor were related<br />

to the non-economic enterprise logics of<br />

brand preservation, employment guarantees<br />

and modernisation of the company, yet market<br />

organising logic has also been visible. It has<br />

been the means to reach the non-economic<br />

ends. Applying this economic logic and<br />

‘second guessing the markets’ allowed Škoda<br />

stakeholders to take a much stronger stance<br />

vis-à-vis the foreign buyers during the joint<br />

venture negotiations.<br />

The valuation of the enterprise as a social and<br />

industrial organism went against other sets<br />

of non-economic norms. For Czechs, such<br />

other non-economic logic was the strong anti-<br />

German sentiment related to World War II.<br />

Thus, the transfer of Škoda’s ownership to the<br />

VW group caused some controversies in the<br />

Czech public during the time of privatisation<br />

talks (Sperling 2004). But also on the German<br />

side, different organising logics co-existed.<br />

Even if the warnings about a potential<br />

cannibalisation of the main Volkswagen brand<br />

that focuses on good quality but more expensive<br />

family sedans by the re-emerging Škoda brand<br />

were expressed, non-economic organising<br />

logics have prevailed. The respect for industrial<br />

capabilities of Skoda engineering tradition has<br />

been stronger than the fear of cannibalisation<br />

of the main VW brand. Even today, when<br />

the evidence of certain cannibalisation of the<br />

German production is large, this issue is hardly<br />

discussed and, as Sperling argues, ‘denied by<br />

the group itself or made to appear harmless’<br />

(Sperling 2004: 187).<br />

This section attempted to demonstrate how<br />

during the privatisation process, despite several<br />

economic and non-economic logics playing<br />

a role, the non-economic organising logic<br />

that conceptuliased enterprise as a source of<br />

industrial capabilities has been crucial. Škoda’s<br />

privatisation has been an example of local<br />

stakeholders - managers, trade unions and<br />

government officials - becoming a coalition<br />

for protection of local industrial capabilities.<br />

II. THE NEW COST EFFICIENCY GOALS RECON-<br />

SIDERED<br />

During state socialism, company goals were<br />

expressed in units of production output. With<br />

the joint venture, these non-economic goals<br />

were supposed to be replaced by other, more<br />

market efficiency-oriented targets. But how<br />

has this change towards new company goals<br />

taken place and what exactly are the new<br />

company performance goals?<br />

Formal administratively set production output<br />

goals were replaced by cost efficiency and<br />

productivity goals. Financial targets and cost<br />

monitoring became a higher priority for local<br />

management that received responsibilities<br />

of ‘profit centres’ within the VW group.<br />

The cost goals are set in cooperation with<br />

the headquarters and play a decisive role in<br />

companies’ affairs. A finance director<br />

at VW Slovakia explained that<br />

the company is ‘managed through<br />

page 87<br />

these cost goals’: the company<br />

has performance and profit goals<br />

(Interview March 2007). Also, the internal<br />

cost benchmarking has become a norm.<br />

There exists comparative data on production


AUTOMOTIVE MNCS IN CENTRAL EUROPE<br />

costs per hour across the group and this data<br />

is communicated to all subsidiaries. Thus,<br />

even among ‘low cost’ production sites of<br />

Central Europe, the headquarters try to build<br />

up competition. As a consequence, greater<br />

attention is devoted to monitoring production<br />

costs. At Audi Györ, the works council leader<br />

stated that ‘We cannot go above 10 euro<br />

[per hour] if we want to remain competitive’<br />

(Interview August 2007). In addition to<br />

the continuous benchmarking, the tender<br />

system of the VW Group that is comparable<br />

with that in most other large automotive<br />

MNCs requires subsidiaries to apply for new<br />

models and, thus, represents an additional<br />

pressure of cost-efficiency for companies. ‘The<br />

competition for new models within the group<br />

is very, very strong. For each new model we<br />

need to apply, there are three criteria: quality,<br />

costs and flexibility’, stated the HR director in<br />

VW Slovakia (Interview March 2007).<br />

Credit institutions impose further ‘hard budget<br />

constraints’. They lend money to the VW<br />

subsidiaries for investment projects. These loans<br />

can be taken without headquarters’ permission.<br />

Thus, normally, no inter-company credits take<br />

place, but loans are taken from private or semipublic<br />

banks. Thus, in case of VW Slovakia,<br />

these banks have been the European Bank of<br />

Reconstruction and Development (EBRD)<br />

and a number of private banks (Interview<br />

March 2007). The manager was<br />

happy to announce that all debts of an<br />

page 88 enormous investment – 1.53 billion<br />

euro over 15 years - have been paid<br />

back by 2006 (Interview March 2007).<br />

Furthermore, the modern auditing concepts<br />

common in market economies such as balance<br />

sheets and own capital ratios have become<br />

widely used (Interview March 2007). Thus,<br />

the level of financial accountability, but also<br />

of financial pressures, increased substantially<br />

to make the previously existing soft budget<br />

constraints disappear.<br />

Productivity pressures that also come from<br />

headquarters’ benchmarking are a further<br />

dimension of the new organising logic of<br />

cost efficiency. Productivity increases are fixed<br />

every year, often they are set quite high. Fixing<br />

expected productivity increases at the level of<br />

inflation is justified by arguing that the wage<br />

increases are covered by inflation increases<br />

without jeopardising the financial stability of<br />

the company (Interview March 2007). The<br />

consequences of these pressures are a greater<br />

emphasis on optimisation and efficiency at<br />

work. A line manager from production unit<br />

explained:<br />

Of course, productivity does not only depend on<br />

production process, but also on design and the<br />

nature of parts and construction. However, the<br />

part of production process and the assembly line is<br />

important. Less mistakes are made, less cars need<br />

to go into repair. […] The group’s goal is a ‘first<br />

in’ quote of 95%, at VW Slovakia this quote has<br />

been 90-95%, sometimes 80% (Interview March<br />

2007).<br />

Also in Škoda, there has been a clear change in<br />

the narratives of management; it underlines a<br />

new orientation ‘towards achievement, quality<br />

and efficiency’ ( Jung, Klemm et al. 2004: 208).<br />

The narratives of constant improvement of<br />

work organisation have become widely spread.<br />

Thus, in Škoda, management introduced the<br />

‘Škoda production model’. The predecessor of it<br />

was ‘fractal production organisation’, a German


ALEKSANDRA JANOVSKAIA<br />

inspired version of the lean production system<br />

introduced in Škoda in 1994 with a new model<br />

Felicia. Apart from following the philosophy of<br />

continuous improvement, the idea behind the<br />

fractal – modular – organisation of production<br />

was to make the production process more<br />

transparent by improving information flows<br />

and more flexible by dividing production in<br />

modular groups (Pavlínek 2008: 95). In other<br />

VW subsidiaries, no ‘extra’ names were given,<br />

but new practices of work organisation have<br />

been introduced in all plants since the mid-<br />

1990s. The idea of continuous improvement<br />

is known and referred to. KVP Kaskaden<br />

– ‘continued improvement workshops’ in<br />

product and process exist where team leaders<br />

from assembly lines come together with<br />

engineers and specialists from industrial<br />

engineering to propose things ‘to make their<br />

work better’. Similarly, a production manager<br />

in VW Slovakia argued that ‘there are always<br />

still reserves that can be optimised: material,<br />

reduction of work errors, maintenance, non<br />

ergonomic movements’ (Interview March<br />

2007). Just-in-time working practices are<br />

omnipresent: in many cases ‘system suppliers’<br />

deliver their products directly to the assembly<br />

line. The manager at VW Slovakia referred to<br />

them as ’Just-in-sequence’, an expression that<br />

implies an even faster turn-around, as delivery<br />

times are very low, usually two hours (Interview<br />

March 2007). Similarly, in Škoda, delivery times<br />

are two to three hours. The visible consequences<br />

of this clear shift to a lean production-oriented<br />

work organisation have been an increased level<br />

of work effort required and an increased work<br />

pace. The director of the sport utility vehicle<br />

(SUV) production at VW Slovakia confirmed<br />

that ‘turnover is high, qualified people are going<br />

away: work at the assembly line is hard, people<br />

prefer to work in the repair shop rather than<br />

on the assembly line’ (Interview March 2007).<br />

Yet the development of tougher productivity<br />

and cost efficiency benchmarks is subject to<br />

certain limits set by the productionist focus<br />

and by the commitment to local industrial<br />

capabilities that has been preserved in the<br />

Central European VW subsidiaries. Next to<br />

embracing the logic of ever higher productivity<br />

and cost efficiency, from the beginning of this<br />

joint venture, the non-economic organising<br />

logic has also been an important rationale for<br />

local management. At the core of managerial<br />

thinking are ‘productionist’ variables related to<br />

employment, industrial upgrading, and product<br />

quality as well as engineering and technical<br />

proficiency. They matter to stakeholders<br />

regardless of their cost-efficiency. Two phases<br />

can be distinguished in the evolution of the<br />

VW subsidiaries: the early 1990s to mid-1990s<br />

and the late 1990s to mid-2000s. During the<br />

second phase - from the late 1990s to early<br />

2000s - the technological and organisational<br />

upgrading took place. The following paragraphs<br />

elaborate how during both phases the role of<br />

‘productionist’ variables remained important<br />

for local stakeholders.<br />

During the first phase in the early 1990s, the<br />

process of adaptation was most intense. It is<br />

especially during the early period of special<br />

‘hardship’ and restructuring where<br />

the objectives related to employment<br />

levels can be identified easily. During<br />

page 89<br />

this early phase, the policies of<br />

employment pursued directly during<br />

and after the privatisation are telling. During<br />

the early 1990s when production numbers<br />

were low, employees were to a large extent


AUTOMOTIVE MNCS IN CENTRAL EUROPE<br />

kept on board at Škoda, at least the ‘core<br />

workers’. In 1994, restructuring of production<br />

organisation meant that 800 Czech workers<br />

and a much larger number of foreign workers<br />

lost their jobs. Among these foreign workers<br />

were 800 Cubans, 700 Poles and more then<br />

1,500 Vietnamese (Pavlínek 2008: 97). Yet<br />

these large lay-offs have still been relatively<br />

small in relation to the overall headcount of<br />

15,000 and 17,000 in the early 1990s. Thus,<br />

labour hoarding, even if at a much smaller<br />

scale in comparison to state socialist times,<br />

was still partially preserved. Also, during the<br />

second phase, examples of temporary ‘labour<br />

hoarding’ still exist. Thus, at Audi Györ, during<br />

the periods of model change when production<br />

volumes are low due to technical restructuring<br />

of the assembly line, the company could afford<br />

to keep employees on board.<br />

The second phase of company developments is<br />

associated with industrial upgrading and, thus,<br />

with another type of ‘productionist’ enterprise<br />

norm. VW group’s internationalisation<br />

strategies in all four production locations<br />

intensified in terms of investment volumes,<br />

production and employment numbers that<br />

went together with industrial upgrading. For<br />

Central European managers, the importance<br />

of engineering and technical proficiency has<br />

been at the heart of this modernisation process.<br />

In Škoda, introduction of the Octavia model<br />

in 1996 was described as a crucial<br />

moment despite the fact that the<br />

page 90 joint venture has been in place since<br />

1991 and two early models - Felicia<br />

and Favorit - were already produced<br />

in cooperation with German headquarters.<br />

These two commonly developed models still<br />

had some elements of the original Škoda<br />

design and technology, but local managers<br />

did not express any regret about them being<br />

replaced by Volkswagen technology (Interview<br />

December 2006). The technical and engineering<br />

supremacy of German know-how definitely<br />

seems to have priority for local managers.<br />

International comparative benchmarking<br />

techniques such as Harbour Report, which<br />

compares data of productivity and efficiency,<br />

are familiar to the production management; but<br />

when confronted with relatively ‘bad’ results for<br />

VW group on financial and productivity figures<br />

from the Harbour Report, Škoda management<br />

did not see a big problem (Interview December<br />

2006). The director for industrial engineering<br />

explained that the low productivity figures of<br />

Central European VW subsidiaries can be<br />

explained by low levels of automation. Thus,<br />

the role of comparative benchmarks in labour<br />

costs does not seem to be high. When costs are<br />

evoked, they are used to justify ‘productionist’<br />

decisions such as keeping a high headcount: it<br />

is acknowledged that the share of labour costs<br />

in Central European automotive production is<br />

relatively low. In Škoda’s case it is 20-30% of<br />

total production costs, which is significantly<br />

lower than the share for the VW group as a<br />

whole (around 50%). It is argued that employing<br />

people is cheaper and more flexible than using<br />

machines. These would need to be replaced,<br />

while people can adapt. This fact allowed for<br />

the retention of a high headcount (Interview<br />

December 2006). A similar argument has been<br />

developed by the HR director of VW Slovakia,<br />

who argued that ‘The sophisticated cars that<br />

we produce here demand a lot of manual work<br />

and manual work is cheap in Slovakia’. He also<br />

explained that: ‘One reason for low automation<br />

is that we wanted employment. [..] Ten years


ALEKSANDRA JANOVSKAIA<br />

ago employment of people was priority number<br />

one. At that time, unemployment was very high<br />

in Slovakia - 20-30%’ (Interview March 2007).<br />

A clear indicator of managerial ‘productionist’<br />

attitude has been its desire of medium-term<br />

modernisation of the plants: the goal has been<br />

to attract more investment to the production<br />

location, ensure production over time and<br />

upgrade the facilities from low value added<br />

to high value added. The overarching goal has<br />

been to develop local capabilities and move the<br />

company’s position within the group from the<br />

periphery to the centre. In Škoda, improvement<br />

in the quality of production has been described<br />

by insiders as one of the crucial reasons for<br />

success. The second reason stated has been the<br />

recognition of the plant as a mature partner<br />

within the VW group (Interview December<br />

2006). Thus, despite the growing importance of<br />

short-term cost efficiency pressures, the focus<br />

on technology and production quality remains.<br />

Responding to the question whether the<br />

financial side has become more important than<br />

the production side, the top finance manager at<br />

VW Slovakia, responded: ‘No, I cannot say that<br />

this is the case. The production and quality still<br />

matter. The allocation of production resources<br />

could have been different’ (Interview March<br />

2007). Thus, despite a shift towards the logic<br />

of cost efficiency, the financial parameters<br />

still have not completely replaced mediumterm<br />

goals of production and employment<br />

parameters in managerial thinking.<br />

A clear desire to build up local research<br />

capabilities has also been emphasised. Even if a<br />

large part of innovation know-how is imported<br />

from the headquarters, especially in the field of<br />

process innovation, the role of local managers<br />

is not negligible. Even if local decision makers<br />

are not fully autonomous, process innovation<br />

still takes place (Interview December 2006).<br />

Thus, the director for industrial engineering<br />

at VW Slovakia was proud to report examples<br />

of process innovation that were introduced in<br />

his company. Thus, for example, the concept of<br />

‘supplier basket’ was introduced in his plant to<br />

deal with variety and complexity of the vehicles<br />

constructed at the same assembly line.<br />

Union representatives – together with<br />

management – also continue to share a strong<br />

‘productionist’ identity. Like management,<br />

company unions see their goal in company<br />

advancement and prosperity. An example of<br />

union adherence to the ‘productionist mode’<br />

is their emphasis on the union function of<br />

assuring production quality and discipline.<br />

Especially since the early 2000s, a high turnover<br />

has been an increasingly important issue in all<br />

plants. For example, in Audi Hungaria, labour<br />

force fluctuation has been 1% per month in<br />

2000, while the goal has been 0.4%. In VW<br />

Slovakia, where turnover rates increased in<br />

mid-2000s from 7-9% to higher levels of<br />

9-10% annually, they are still reported to be<br />

only half of turnover rates of other Slovak firms<br />

(Interview March 2007). Unions have started<br />

to capitalise on their function of assuring<br />

discipline during the production process.<br />

The HR director of VW Slovakia stated that<br />

‘unions are our eyes and ears: what we<br />

don’t see, they see’ (Interview March<br />

2007). Furthermore, a productionist<br />

page 91<br />

part of union identity is also visible<br />

in the fact that unions also started<br />

to develop a discourse based on the valuation<br />

of skills and knowledge. Finally, unions are<br />

directly involved in the issue of industrial


AUTOMOTIVE MNCS IN CENTRAL EUROPE<br />

upgrading. A Hungarian union leader at Audi<br />

Györ stated referring to German management<br />

that: ‘if they do not take our problems seriously<br />

then maybe the best solution for them is to<br />

go home, because we cannot be efficient’<br />

(Interview August 2007). Furthermore, unions<br />

sometimes intervene directly and express their<br />

opinions concerning upgrading. Thus, in 2002<br />

in Škoda, as employees perceived the danger<br />

of degradation of the product profile, a short<br />

protest action organised by trade unions was<br />

staged (Sperling 2004: 191).<br />

The underlying reasons for the productionist<br />

approach among company stakeholders are<br />

complex. First, the highly ‘productionist’<br />

approach of VW group in Germany has<br />

further reinforced the productionist attitude<br />

of Central European stakeholders. A<br />

productionist approach on the German side<br />

meant that core-periphery division between<br />

the headquarters and subsidiaries was not<br />

permanent. The original investment decisions<br />

were driven by the desire to build up low-cost<br />

production locations and access new markets;<br />

the upgrading of the new subsidiaries to the<br />

state-of-the-art production locations was<br />

not the original intention of the VW Group<br />

headquarters. ‘At the beginning, three halls<br />

were constructed here. Now, the whole area is<br />

full of buildings. At that time, no one could<br />

imagine that VW Slovakia would become such<br />

a huge factory’, emphasised the HR<br />

manager (Interview March 2007).<br />

page 92 It was subsidiaries’ initiatives to use<br />

the window of opportunity whenever<br />

it emerged to upgrade their plants.<br />

A productionist norm of technical and craft<br />

proficiency that was also a feature of the VW<br />

group headquarters was the underlying factor<br />

in industrial upgrading of subsidiaries: when<br />

Central European subsidiaries proved that they<br />

were capable to produce highly sophisticated<br />

products, their upgrading was launched. The<br />

HR director of VW Slovakia makes this<br />

argument clear with the example of his plant:<br />

Originally, the plan for this plant was to produce<br />

Passat. Yet in 1994, we were offered an opportunity<br />

to produce a four-wheel ‘Golf for motion’. And it is<br />

in this project that we showed that we were capable<br />

of producing these most sophisticated cars. And this<br />

was the starting point. But this was a coincidence,<br />

not a strategic decision. The headquarters were<br />

looking for a cheap production location, they realised<br />

that in Bratislava there was an empty capacity, so<br />

they decided to give it a try.[..] It was in 2000 that<br />

the strategic decision to produce the SUVs in VW<br />

Slovakia was made. [..] And one of the reasons for<br />

this was that earlier we showed ourselves capable<br />

of producing these sophisticated cars [...], in the<br />

excellent quality (Interview March 2007).<br />

Thus, a high level of openness about the future<br />

upgrading in the VW Group headquarters<br />

has been an important factor supporting the<br />

productionist attitude and the preservation<br />

of the local non-economic enterprise norm.<br />

The local stakeholders were the driving forces<br />

behind the upgrading, yet this crucial role of<br />

local management has been possible due to the<br />

specific control mode and commitment mode<br />

of the German MNC. More generally, Bluhm<br />

(2007) argues that the arm’s length control<br />

mode of the German MNC headquarters<br />

allows certain opportunity structures to<br />

emerge. When these opportunities emerge,<br />

they are capitalised upon by local management<br />

to strategically enlarge the mandate of its<br />

subsidiary within the group.


ALEKSANDRA JANOVSKAIA<br />

Furthermore, VW group has not used any ‘back<br />

door’ strategy to achieve compliance with new<br />

managerial goals but followed a route that took<br />

into consideration the previous experience<br />

of old managerial staff. Replacement of<br />

managerial staff by new people with experience<br />

of working in market economies could have<br />

been a strategy of the headquarters. However,<br />

this happened only to a limited extent. Only<br />

top management was replaced by the German<br />

expatriates, while the large share of local middle<br />

and line management was kept. Even in 2006,<br />

30% of old local managers were still employed<br />

by Škoda. The role of expatriates has been<br />

relatively limited in the medium term. Apart<br />

from Škoda’s experimental three year tandem<br />

program that has attracted a large number of<br />

German managers to the subsidiary, the usual<br />

trend in all subsidiaries is that only the top<br />

management team is dominated by expatriates,<br />

while the human resource manager is usually<br />

a local person. VW Bratislava and Škoda have<br />

several top local managers; Audi Györ has<br />

had the smallest number so far with only one<br />

local top manager - responsible for human<br />

resources.<br />

Another reason for the ‘productionist attitude’<br />

is the technical-engineering background<br />

dominant among local managers, rather<br />

than an orientation towards pure financial<br />

accountability and profit maximization. The<br />

training background of managers in engineering<br />

facilitates their technical-engineering orientation.<br />

This is how Škoda senior manager for<br />

industrial engineering describes his reasons to<br />

come to Škoda:<br />

I’ve studied mechanical engineering. [...] During<br />

my studies, in 1994, I was a trainee in the Audi<br />

plant. This is where I saw the first models of the<br />

new Octavia. And this is the point when I became<br />

fascinated by it. I told myself: ‘If we had this car in<br />

production at Škoda, this would be unbelievable’.<br />

Then, some time later, I saw this car on the street<br />

for the first time and this is when my decision was<br />

made – I wanted to go work for Škoda, because<br />

the cars that they produce there are amazing<br />

(Interview December 2006).<br />

The manager further reports that what was<br />

crucial in the new model was the new level<br />

of quality compared to previous models. Thus,<br />

engineering and technical excellence rather<br />

than pure financial parameters are the defining<br />

features of managerial thinking.<br />

Internal career progression is another factor<br />

that facilitates the preservation of productionist<br />

focus. Internal labour advancement has<br />

remained important and many of senior<br />

managers started as simple blue-collar<br />

workers. The director of motor production at<br />

Škoda was one of them. He has been working<br />

in the factory for 20 years. Originally, he was<br />

a welder, and then moved to the planning and<br />

preparing new models as a technical specialist<br />

before becoming the director of the engine<br />

plant (Interview December 2006). Similarly,<br />

the director of the SUV production at VW<br />

Slovakia was previously a blue-collar worker<br />

(Interview March 2007). Interestingly, the<br />

internal career ladder has also worked<br />

for trade union leader: the head of<br />

VW Slovakia’s human resources was<br />

a trade union leader during state<br />

socialist times (Interview March 2007).<br />

To sum up, the introduction of certain<br />

benchmarking and financial accountability<br />

page 93


AUTOMOTIVE MNCS IN CENTRAL EUROPE<br />

tools in the Central European VW subsidiaries<br />

allowed a new, more market-oriented efficiency<br />

logic of firm valuation to emerge. At the same<br />

time, the headquarters’ lenient approach to<br />

managerial staff as well as training background<br />

and internal career ladder allowed a part of<br />

the old productionist attitudes to persist. The<br />

next section shows the role of local production<br />

coalitions between management and unions in<br />

translating this productionist enterprise norm<br />

into industrial upgrading.<br />

III. COLLECTIVE AGREEMENTS AS PRODUC-<br />

TION COALITIONS<br />

As the previous section demonstrated, local<br />

management in VW subsidiaries has had a clear<br />

‘productionist’ attitude in its desire to attract<br />

investment, ensure production over time and<br />

upgrade. The industrial upgrading has been a<br />

unique phenomenon due to its speed and scale.<br />

To convince the headquarters, management<br />

had to rely on the support of key stakeholders<br />

such as local trade unions. As a consequence,<br />

to achieve the goal of plant modernisation<br />

and upgrading, local management in VW<br />

subsidiaries chose to treat trade unions as<br />

partners1 in issues where unions have legal<br />

co-decision rights. Unions have thus become<br />

important in the industrial upgrading process<br />

of VW subsidiaries. This section brings out<br />

the dominant part of union identity:<br />

between union functions – production<br />

page 94 and protection – union identity<br />

remains strongly ‘productionist’. In<br />

this argument, the last section tried<br />

to disentangle the rationale behind union<br />

productionist attitudes. I argued that also on<br />

the union side, preserving and developing<br />

industrial capabilities was a core goal. This<br />

section, in turn, discusses formal collective<br />

agreements as examples of management-union<br />

coalitions for upgrading.<br />

In the German VW plants, as in most other<br />

German automotive producers, company level<br />

management-labour production coalitions<br />

have become quite wide-spread in the 1990s.<br />

In Germany, the goal of these coalitions was to<br />

‘minimise the costs’ of the economic downturn<br />

or of the increased international competition.<br />

Also in Central European VW production sites,<br />

collective agreements have been used in some<br />

cases for similar purposes. Thus, in 2005 in VW<br />

Slovakia, due to reduced demand, management<br />

sought an arrangement with unions which<br />

was found by reducing the number of hours<br />

worked. The trade-off agreement was reached<br />

between management and unions mainly by<br />

increasing the pay. Thus, management used<br />

cooperation with unions in cases of strong<br />

demand decreases although these cases were<br />

rather exceptional. Yet the main purpose of local<br />

production coalitions in Central Europe has<br />

been different in comparison to Germany. In<br />

Central European VW subsidiaries, company<br />

collective agreements have been the major<br />

examples of enterprise ‘production coalitions’<br />

for upgrading and industrial modernisation. In<br />

this way, the common goal of building up of<br />

industrial capabilities was achieved: collectively<br />

agreed additional, although limited, bonuses<br />

and pay benefits for the core labour force are<br />

traded-off against more working time flexibility<br />

at continuously overall relatively low wages.<br />

Working time flexibility includes the variety<br />

of shift systems and overtime arrangements.<br />

A more flexible use of these arrangements<br />

allowed a more intensive use of machines and


ALEKSANDRA JANOVSKAIA<br />

other productive investment, making Central<br />

European subsidiaries highly competitive<br />

production locations within the VW group.<br />

Local management was the main driver in<br />

the industrial modernisation process, while<br />

unions were the facilitators. Collective<br />

agreements cover the issues of overtime, shift<br />

organisation and time accounts. Working<br />

time and work organisation are two crucial<br />

fields, in addition to wages, where unions<br />

have had legal rights to be consulted and be<br />

taken into account. The case of Audi Györ is<br />

the clearest example of union-management<br />

cooperation for upgrading. The cooperation<br />

only materialised once management saw an<br />

advantage in concluding the agreement. It has<br />

been looking for a ‘win-win situation’ before<br />

engaging in serious collective bargaining. Thus,<br />

collective negotiations took place for six years<br />

without an agreement and only in 2001, when<br />

the Hungarian employment law was amended<br />

introducing more possibilities for negotiating<br />

working time flexibility, did management<br />

became serious about collective bargaining and<br />

the first deal was struck. The manager explained<br />

how introduction of this time flexibility was<br />

fostered by changes in labour law that made<br />

such an agreement with unions possible and<br />

how this allowed the company to save costs:<br />

‘Before we had to pay overtime, once we had<br />

the collective agreement longer working time<br />

periods could be used. […] This was the most<br />

important reason for us [management] to have<br />

this collective agreement’ (Interview August<br />

2007). What these collective agreements<br />

allow is a very high level of working time<br />

flexibility and thus better use of machines<br />

and productive investment. The Audi HR<br />

manager stated that ‘there are 70 working time<br />

models here. It has been very important for<br />

our company to be able to be flexible, ‘to play’<br />

with working time’ (Interview August 2007).<br />

Yet also in other subsidiaries, the collective<br />

agreements have been used by management<br />

more intensively since the late 1990s-early<br />

2000s to achieve the necessary flexibility in<br />

working time, shift structure, etc. Thus, also<br />

in Škoda and in VW Slovakia, management<br />

used collective agreements as a flexibility tool.<br />

HR director at VW Slovakia put ‘enormous<br />

flexibility’ as one of the key reasons for the<br />

success of VW Slovakia: ‘I don’t know if there<br />

is another firm in the group that has such a<br />

high level of flexibility. […] The workers work<br />

normal number of hours, but they also work<br />

Saturdays, Sundays’ (Interview March 2007).<br />

The shift system has been changed from a<br />

three-shift to a four-shift to a continuous shift<br />

system. The latter allows a more intensive use<br />

of machines and people. This ‘flexibility’ that<br />

is praised by management has been possible<br />

due to company level collective agreements<br />

between management and trade unions.<br />

According to labour law and collective<br />

agreements in Škoda, most working time<br />

flexibility measures need to be agreed with<br />

unions. Thus, to introduce new working time<br />

systems for the period of one year, agreement<br />

with trade unions is required. Also working<br />

time systems that extend the work week to the<br />

weekend are agreed with trade unions<br />

two months in advance (Škoda 2005:<br />

18-20). Similarly, in VW Slovakia, all<br />

page 95<br />

important changes in shift systems<br />

are agreed with unions. The collective<br />

agreements create a limit of weekly and annual<br />

over-time thus effectively allowing for working<br />

time accounts. In terms of work organisation,


AUTOMOTIVE MNCS IN CENTRAL EUROPE<br />

a three-shift system operates (with time<br />

accounts2).<br />

Also in VW Slovakia, the ‘extreme flexibility’<br />

of the labour force is presented as a crucial<br />

ingredient for the upgrading success. The<br />

management used agreements with unions to<br />

achieve a level of very high shift flexibility. A<br />

three-shift system was first tested since 1996<br />

and was fully introduced in 1998. In this<br />

system, the weekends were free but employees<br />

could be asked to come to work if necessary.<br />

In March 2007, the system was ‘flexibilised’<br />

further when the three-shift system was<br />

replaced by a ‘continuous shift3’ system with<br />

four shifts a day. In this system, people work<br />

for seven days and then have two to three days<br />

free. It allows the plant to utilise the equipment<br />

and the labour to its extreme: ‘flexibility is one<br />

of the main factors that explain the success<br />

of our plant. […] we are able to do with our<br />

employees everything we need’, explained the<br />

director for human resources in VW Slovakia<br />

(Interview March 2007). The cooperation<br />

with unions was assured after an early stage<br />

of conflict: ‘When we first introduced this<br />

working time flexibility, we met with resistance<br />

from the labour force i.e. the unions’, the<br />

manager reported (Interview March 2007).<br />

In addition to flexible shift systems, most<br />

collective agreements also cover additional<br />

agreements between management<br />

and unions concerning maximum<br />

page 96 allowed overtime. Thus, for example,<br />

while the labour code allows 200<br />

hours overtime per year, the company<br />

collective agreement in Audi Györ made it<br />

possible to increase this level up to 300 hours<br />

overtime per year (Interview August 2007).<br />

Also, in VW Slovakia, the collective agreement<br />

allows overtime to go above the national<br />

legislation maximum of annual overtime.<br />

Similarly in Škoda, the overtime work is<br />

regulated by collective agreements: it sets an<br />

average maximum number of overtime per<br />

week and establishes a yearly account for the<br />

calculation of overtime (Škoda 2005).<br />

The second pillar of these production<br />

coalitions in form of collective agreements<br />

has been important wage moderation. Unions<br />

share management’s new rationale of strong<br />

pressures of international competition. During<br />

most of the 1990s and early 2000s, limited<br />

wage increases have been a substantial part<br />

of these enterprise production pacts. Wage<br />

restraint and inflation indexation remain the<br />

norm, as it is seen by both local management<br />

and local unions as the safest option to secure<br />

additional foreign investment inflows – unions<br />

and management both admit that they do not<br />

want to lose out in international competition<br />

and would like to preserve their low-cost<br />

location advantage. Thus, the HR director at<br />

VW Slovakia states: ‘The main reference point<br />

for us in wage increases have been the inflation<br />

rates. This year, because of tight labour markets,<br />

we decided to implement the planned wage<br />

increase earlier then planned because for such<br />

sophisticated products we need the best people.<br />

But we do need to fit within the VW brand, we<br />

should not go far beyond, otherwise we won’t<br />

be competitive within the brand’ (Interview<br />

March 2007).<br />

The tension between wage increases and<br />

competitiveness is especially strong for<br />

the metalworking industry, as it is hugely<br />

internationalised. Trade unions have been


ALEKSANDRA JANOVSKAIA<br />

very sensitive as far as the competitive<br />

positions of their countries were concerned.<br />

Rather than following the advice of the<br />

European Metalworker Federation, which<br />

since 1998 has been formulating guidelines<br />

insisting that wage bargaining should cover<br />

at least a part of labour productivity increases,<br />

metalworker unions in Central Europe have<br />

not seriously made participation in labour<br />

productivity a part of their bargaining agenda.<br />

Their bargaining demands as well as achieved<br />

outcomes have been much closer focussing on<br />

covering inflation. Union officials confirmed<br />

that it was important to preserve the wage gap<br />

to Germany, as this has been their comparative<br />

advantage: thus, Czech and Slovak wages are<br />

still at about one third of German wages, while<br />

productivity differences are substantial but<br />

smaller (Interview August 2007). This explicit<br />

union goal of preserving wage gap to the<br />

German wages despite very high productivity<br />

increases is a clear sign of competitiveness logic<br />

that unions now share with local management.<br />

To sum up, during the late 1990s and early<br />

2000s, the local management-labour coalitions<br />

have become stronger in VW subsidiaries.<br />

High functional flexibility and low wage<br />

increases have been the two central pillars of<br />

these enterprise production coalitions. These<br />

were traded by unions for company expansion<br />

and product and production upgrading. These<br />

collective agreements represent ‘local pacts<br />

for production’: their intensification went<br />

together with industrial upgrading that took<br />

place since the late 1990s and early 2000s.<br />

Management-union cooperation has thus<br />

been crucial for upgrading: it is the intensified<br />

exchange between labour and management<br />

since the late 1990s that contributed to the<br />

success of industrial upgrading in Eastern VW<br />

subsidiaries. Collective agreements have been<br />

examples of ‘productionist’ attitudes shared<br />

by local management and trade unions. The<br />

productionist legacy of state socialist era has<br />

thus been preserved even if in a very different<br />

institutional form.<br />

IV. INDUSTRIAL CAPABILITIES AS AN ISSUE OF<br />

PUBLIC CONCERN<br />

During state socialism, public ownership of<br />

enterprises was not a monetary ownership<br />

– profits could not be re-invested. Rather, it<br />

was ownership that represented a control<br />

of allocation of productive resources. As<br />

abundance of productive resources was mostly<br />

linked to high employment figures and all<br />

related social provisions, large industrial<br />

projects were also high prestige projects. Thus,<br />

although in state socialism there was no free<br />

public media or free civil society and, thus,<br />

no means for the public to express its opinion<br />

about industrial policies or similar, large<br />

industrial projects still enjoyed high status and<br />

prestige. Furthermore, even if the decisions<br />

concerning industrial priorities might have<br />

served more the particularistic interests of the<br />

Communist Party officials than the broad goals<br />

of economic development, the official version<br />

of events presented company affairs as an issue<br />

of public concern. This section shows<br />

how, to a certain extent, this rationale<br />

of industrial capabilities being an<br />

page 97<br />

issue of public concern has been<br />

preserved from state socialist period<br />

to the current day. What has survived is the<br />

idea that enterprise is not just an issue between<br />

employees and management of a particular


AUTOMOTIVE MNCS IN CENTRAL EUROPE<br />

enterprise, but an issue of public interest. In<br />

other words, public concern has been a further<br />

stakeholder in the industrial upgrading process<br />

that pushed the decision makers to preserve<br />

local industrial capabilities. Central European<br />

VW subsidiaries are a useful case for assessing<br />

the role of public opinion, as these companies<br />

have enjoyed high coverage in the national<br />

media and high public interest due to the size<br />

of these industrial projects, early arrival of the<br />

foreign investor to the region and the strategic<br />

role of the automotive industry in the region<br />

in general.<br />

The role of public opinion in the restructuring<br />

and privatisation of former state-owned<br />

automotive companies cannot be underestimated.<br />

Already during the privatisation<br />

process, public opinion de-radicalised the<br />

intentions of the Czech government to sell<br />

Škoda off completely.<br />

The fear of the public that the German investor<br />

would completely restructure the factory and<br />

implement purely German means of production<br />

and employment led the Czech government to<br />

agree with VW on a form of a Joint Venture,<br />

where government’s share gradually decreased<br />

[…] (Mikulikova 2002: 46).<br />

The role of public opinion also mattered for<br />

management training. Public opinion meant<br />

that the old management structures<br />

that were partially considered as<br />

page 98 obsolete could not be completely<br />

ignored. Thus, Mikulikova (2002)<br />

interprets introduction of management<br />

tandems at Škoda as a consequence of public<br />

pressures. Blazejewski, Claasen et al. (2003)<br />

report a case of a privatised - less known -<br />

large Polish company where the managerial<br />

structures were completely circumvented by<br />

the new German managers, as they felt it was<br />

too cumbersome for the new owner to retrain<br />

the Polish old-school managers. A high media<br />

exposure and media attention to the VW<br />

subsidiaries prevented this from happening in<br />

the VW subsidiaries.<br />

The idea of enterprise and industrial capabilities<br />

being an issue of public concern was explicitly<br />

expressed by company insiders as well as<br />

stakeholders in the automotive sector. Thus, in<br />

Audi Györ, the union leader underlined the role<br />

of ‘public ownership’: ‘On paper this company<br />

is the property of Audi but in our heads it is<br />

our property because this company is based in<br />

Hungary’ (Interview August 2007). The linkage<br />

between company affairs and regional/ national<br />

economic development has also been clearly<br />

identified. The HR director at VW Slovakia<br />

elaborated on his company’s involvement in<br />

improving the deteriorating national industrial<br />

capabilities of vocational training:<br />

Before we had a complete dual system of vocational<br />

training. [With the regime change] the first<br />

thing that enterprises did when they were about<br />

to privatise was to give these schools back to the<br />

state. [..] Today, these schools do not train properly<br />

for vocational training. [..] No one thought that<br />

vocational training would take such a turn, and<br />

you know, now it will take a long time – I would<br />

say 10 years – to make the system work again. You<br />

know, it is much easier to destroy something than<br />

to build it up. [..] The government needs to take<br />

the lead here to improve the system of vocational<br />

training. [..] We cooperate with Kia and PSA<br />

in these issues, even if we are competitors. On<br />

issues of labour markets we are partners [...]


ALEKSANDRA JANOVSKAIA<br />

and we agree on a common position about what<br />

government activities we need. We need to<br />

convince the government to cooperate on that. We<br />

are developing a pilot project that should advance<br />

Slovakia (Interview March 2007).<br />

Thus, company stakeholders see company<br />

affairs and general interest of national industrial<br />

capabilities as closely interlinked.<br />

Across the board, representatives of employer<br />

federations, trade unions and national<br />

chambers of commerce and industry referred to<br />

the importance of strong local manufacturing<br />

traditions as relevant for society as a whole<br />

rather than only as an enterprise relevant<br />

issue. The embeddedness of engineering<br />

and manufacturing capabilities in the local<br />

history and economy is explicitly stated by<br />

practitioners. Thus, in Hungary, the legacies<br />

of state socialist industrial development are<br />

evoked as crucial despite the fact that it did<br />

not have automotive final producers after the<br />

World War II. Yet it is argued that it had strong<br />

manufacturing capabilities in bus production,<br />

engines and other components (Interview July<br />

2008). Similarly in Slovakia, the representative<br />

of the chamber of commerce said:<br />

You cannot create industrial history on this<br />

table. You cannot do that. Either it exists or not.<br />

Czechoslovakia in the past had a tradition of<br />

machinery industry […]. It is not possible just<br />

to say: ‘it is good to make electronics, let’s start<br />

producing electronics now’ (Interview March<br />

2007).<br />

The importance of historical heritage of<br />

machine tools production in the emergence of<br />

a strong automotive industry today has been<br />

evoked by the stakeholders. It has been pointed<br />

out that Audi Györ is located in the area of the<br />

traditional Hungarian engine producer Raba.<br />

In Slovakia, the region of Martin has been<br />

a stronghold of arms production (Interview<br />

March 2008).<br />

The destiny of enterprises and industry is<br />

closely linked to broader societal changes.<br />

Industrial modernisation of enterprises and<br />

country modernisation are often seen as<br />

interdependent. Thus, the representative of the<br />

Slovak chamber of commerce stated:<br />

[After Slovakia’s independence], we did not have<br />

a big choice –we were happy if anyone came to us.<br />

There was not much choice – it was a new country,<br />

new Slovakia, new currency, new government,<br />

and new problems. You know how it is: political<br />

ups and downs. This is like when you go to eat:<br />

when you are hungry, you eat anything, but once<br />

you are half full, you will choose the better things<br />

– it is normal. And it is also like this in business<br />

(Interview March 2007).<br />

Making business is also associated with a longterm<br />

sustainability rather than with short-term<br />

windfall gains. Stakeholders differentiated<br />

between good and bad investment. ‘Bad’<br />

investments are associated with speculation,<br />

while ‘good’ investments are associated with<br />

‘productive investment’ that would develop the<br />

company’s capabilities:<br />

The entrepreneurs of the first wave, they<br />

page 99<br />

are the so called ‘gold diggers’. Everybody<br />

wanted to own a company, but they were not<br />

ready to spend their own lives in it. Neither to<br />

wake up at 6 am, nor to take care of hundreds of<br />

employees, not to take care of the sub-suppliers,


AUTOMOTIVE MNCS IN CENTRAL EUROPE<br />

nor pay attention if exports are working fine, if<br />

the [Slovak] crown is up or down. Buy cheap, sell<br />

expensive. Buy a Lamborghini; go on holidays in<br />

the Caribbean. This was the first privatisation.<br />

They did not know much about the industry. Their<br />

way of thinking was: ‘certainly one day someone<br />

will come who will want to buy it from me and<br />

it is my aim to sell it then. So, it was all around<br />

the speculation motive. […] After a few years,<br />

now it is clearer - the best way was when the<br />

management made a buy-out. It could be a factory<br />

producing colours, painting. They would say: we<br />

work here for 20 years, we know the company well<br />

- we shall decide about its future, we continue to<br />

develop it. This was a positive privatisation<br />

(Interview March 2007).<br />

Investors are thus clearly differentiated between<br />

those with productionst attitudes and the rest.<br />

There are those who are interested in investing<br />

in and developing the company and others<br />

who acquire companies for other reasons:<br />

speculation or reducing the competition.<br />

Thus, ‘real’ businesses are seen as long-term<br />

preservers of industrial capabilities. While<br />

VW subsidiaries are considered as successful<br />

cases of preserving and developing local<br />

industrial capabilities, the stakeholders quoted<br />

a large number of unsuccessful privatisations<br />

where industrial capabilities were destroyed.<br />

One such case is the foreign privatisation<br />

of a previously internationally renowned<br />

Hungarian bus producer Ikarus.<br />

Ikarus, one of the largest Hungarian<br />

page 100 bus producers in the state socialist<br />

era, was bought by an Italian bus<br />

producer Iveco in 1999. Its two plants<br />

were closed down in 2003 and 2007. A trade<br />

union leader wondered: ‘What was the point<br />

for Iveco to buy Ikarus, what was the interest<br />

[of the foreign investor]: to buy a competitor<br />

or to buy a plant with capacity?’ (Interview<br />

September 2008). The implicit argument<br />

behind this question is that the Italian bus<br />

producer bought its Hungarian competitor<br />

to reduce competition in the market and not<br />

to develop regional industrial capabilities –<br />

something the trade union leaders would have<br />

expected, as it would have been conform to the<br />

‘productionist logic’.<br />

CONCLUSION<br />

This paper demonstrated that some enterprises<br />

in post-communist Central Europe still<br />

function as sources of competitive industrial<br />

capabilities. Despite dramatic changes in the<br />

institutions of firm performance associated<br />

with cost efficiency and a stronger focus on the<br />

firm as an actor in product market competition,<br />

the local commitment to industrial capabilities<br />

that existed in state socialist times has at<br />

least partially been preserved. The increased<br />

financialisation of firm performance and the<br />

new cost-efficiency logic did not completely<br />

replace the non-economic old productionist<br />

enterprise norms of firm stakeholders.<br />

Company collective agreements have been good<br />

examples of coalitions of stakeholders with a<br />

productionist norm of upgrading company’s<br />

industrial capabilities and advancement within<br />

the group. In addition, this commitment to<br />

industrial capabilities has also been propagated<br />

outside the firm: enterprise development and<br />

industrial upgrading are considered an issue<br />

of public concern. Preserving and developing<br />

local and national industrial capabilities has<br />

been important for stakeholders inside and<br />

outside the company. Despite the emergence


ALEKSANDRA JANOVSKAIA<br />

of organising logics within the enterprise that<br />

are associated with economic liberalism, the<br />

productionist logic contributes to enterprises<br />

functioning as sources of competitive industrial<br />

capabilities.<br />

NOTES<br />

1<br />

Some other auomtoive MNCs in the region such as Suzuki<br />

Hungaria or Kia in Slovak Republic still do not recognise unions<br />

on their premises or build adversarial relationships with them.<br />

2<br />

The overtime is first put in the time accounts and paid three<br />

months later.<br />

3<br />

Not for workers on the assembly line.<br />

page 101


AUTOMOTIVE MNCS IN CENTRAL EUROPE<br />

BIBLIOGRAPHY<br />

Blazejewski, S., F. Claassen, et al. (2003). Case study: Beiersdorf-Lechia<br />

SA., Poznan. Change Management in Transition<br />

Economies. Integrating Corporate Strategy, Structure and Culture.<br />

H.-J. Stüting, W. Dorow, F. Claassen and S. Blazejewski.<br />

Houndmills, Basingstoke, Palgrave Macmillan.<br />

Bluhm, K. (2007). Experimentierfeld Mittelosteuropa? Deutsche<br />

Unternehmen in Polen und der Tschechischen Republik.<br />

Wiesbaden, VS Verlag für Sozialwissenschaften.<br />

Jung, A., M. Klemm, et al. (2004). Culture Matters - The<br />

Success-Story of the Volkswagen-Škoda Venture. European<br />

Industrial Restructuring in a Global Economy: Fragmentation<br />

and Relocaction of Value Chains. M. Faust, Voskamp, U.,<br />

Wittke, V. (eds.). Göttingen, SOFI Berichte: 201-220.<br />

Mikulikova, M. (2002). Preserving of escaping the German<br />

model of industrial relations? The case of Volkswagen and its<br />

subsidiaries in Central Europe. M.A. Thesis. Budapest, Central<br />

European University.<br />

Pavlínek, P. (2008). A Successful Transformation? Restructuring<br />

of the Czech Automobile Industry. Heidelberg, Physica-<br />

Verlag, A Springer Company.<br />

Pavlinek, P. and A. Smith (1998). “Internationalization and<br />

Embeddedness in East-Central European Transition: The<br />

Contrasting Geographies of Inward Investment in the Czech<br />

and Slovak Republics.” Regional Studies 32(7): 619-638.<br />

Škoda (2005). Tarifvertrag für den Zeitraum 01.04.2005-<br />

31.03.2008.<br />

page 102<br />

Sperling, H.-J. (2004). Going East - a Volkswagen Version of<br />

Globalization. European Industrial Restructuring in a Global<br />

Economy: Fragmentation and Relocation of Value<br />

Chains. M. Faust, Voskamp, U., Wittke, V. (eds.).<br />

Göttingen, SOFI: 181-200.


PÉTER LITERATUR CSIZMADIA<br />

1. GLOBAL CHANGES IN THE WORLD ECONO-<br />

MY: EMERGING SERVICE ECONOMY<br />

6<br />

ORGANISATIONAL INNOVATIONS IN THE<br />

HUNGARIAN KNOWLEDGE-INTENSIVE<br />

BUSINESS SERVICE SECTOR:<br />

LESSONS FROM A COMPANY SURVEY<br />

In the last few decades, the world economy<br />

has undergone a structural transformation<br />

process that can be described by an<br />

increasing role of the service sector within the<br />

national economies at the expense of manufacturing.<br />

According to the OECD, in 2005<br />

the contribution of services to the GDP in the<br />

developed economies was around 70% with remarkable<br />

country differences (OECD 2007).<br />

The proportion of services in the economic<br />

output in the case of the USA is close to 80%,<br />

while it remains below 60% in South-Korea.<br />

In Hungary, services produce 65% of the<br />

GDP, which is around the European average.<br />

The position of the country is better than the<br />

Czech Republic or Slovakia but lags behind the<br />

Benelux-states and the Nordic countries. Table<br />

1 illustrates the growing economic role of the<br />

service sector in some OECD-countries.<br />

Péter Csizmadia<br />

When evaluating the growing international<br />

importance of services, it is important to call<br />

attention to the changing internal structure<br />

of the sector, e.g. the increasing share of<br />

business services representing higher valueadded<br />

activities. Another important factor<br />

shaping the global economy is the different<br />

development dynamics of the manufacturing<br />

and service sectors. Globally, the service sector<br />

achieved 23.6% productivity growth<br />

accompanied by a 20.2 % employment<br />

increase. On the other hand, 28.8 %<br />

productivity growth and a 22.8 %<br />

employment decline were registered<br />

in the manufacturing sector (Sako, 2006).<br />

Seite page 103<br />

Another important tendency is that the


ORGANISATIONAL LITERATUR INNOVATION IN HUNGARY<br />

development ICT facilitates changes in<br />

the inherent characteristics of services.<br />

The majority of the former theoretical<br />

contributions emphasized the following three<br />

basic features of services in distinguishing<br />

them from manufacturing activities: (1)<br />

service is intangible and, therefore, cannot be<br />

accumulated; (2) production and consumption<br />

are simultaneous activities; and (3) services<br />

are produced jointly with the customer (as the<br />

customer represents a basic input for services)<br />

(Kuusisto & Meyer 2003, Chesbrough &<br />

Spohrer 2006). The changing role of ICT<br />

has resulted in a standardisation of services.<br />

Some services are becoming more similar to<br />

manufacturing products: they are standardised,<br />

storable and deliverable (Sundbo 2002). These<br />

changes 1 , which are labelled “productising of<br />

services”, are visible in the increasing weight of<br />

services in the international trade (Sako 2005).<br />

A similar tendency has also taken place in the<br />

manufacturing sector. The basic idea here is to<br />

utilise economy of scale of mass production<br />

and, simultaneously, the greater value added<br />

by the costumer-specialisation of products. As<br />

a consequence, there is a growing interest in<br />

modularisation of products, on the one hand,<br />

and a development of services related to the<br />

products or a shift of activities in direction of<br />

services, on the other (e.g. IBM or Siemens).<br />

This process is often called “servicising<br />

products”. (Sundbo 1999, Kuusisto & Meyer<br />

2003, Sako 2005).<br />

Seite page 104<br />

The changes presented briefly<br />

above, e.g. the standardisation<br />

and “productising” of services, the<br />

modularisation and “servicising” of products<br />

and the blurring boundaries between service<br />

and manufacturing sector, caused radical<br />

changes in the economic weight of services.<br />

In this relation it is important to stress the<br />

increasing role of knowledge-intensive services<br />

in innovation, knowledge development and<br />

transfer that are of particular importance<br />

in opening a new development path for an<br />

economy.<br />

1.1 Distinguishing characteristic of the<br />

service sector: extreme heterogeneity<br />

The aggregated data presented in Table 1<br />

do not provide information on the internal<br />

composition of the service sector nor on its<br />

changes, although it is composed of very<br />

heterogeneous activities representing diverse<br />

productivity, employment, working conditions<br />

and patterns of knowledge use. There have been<br />

several attempts to classify the different service<br />

activities focused characteristics of the sector<br />

such as role of technology, the intangibility of<br />

outputs and modes of innovation (Pavitt 1984,<br />

Porter 1990, Evangelista 2000, Miozzo-Soete<br />

2001, Hollenstein 2003). Salter and Tether<br />

(2006) differentiate three basic types of services<br />

firms in their classification based on economic<br />

function: traditional services, system firms and<br />

knowledge-intensive business services.<br />

Traditional service firms are small and serve<br />

local needs. These firms suffer from poor<br />

technology base, weak managerial and labour<br />

force skills, and a lack of abilities to provide<br />

high value-added services. Traditional service<br />

firms often have no full-time employees and<br />

rely on self-employment or part-time staff.<br />

They are often associated with a “low-skill<br />

equilibrium” in their manpower use.<br />

System firms, on the other hand, are large and


PÉTER LITERATUR CSIZMADIA<br />

complex organisations providing sophisticated<br />

services both on domestic and international<br />

markets. These firms typically operate in<br />

such industries as banking and insurance,<br />

airlines, infrastructural services (gas or water<br />

supply) and supermarket retailing and are<br />

characterised by a well-developed internal<br />

division of labour, sophisticated operational<br />

processes and intensive use of technology,<br />

especially Information and Communication<br />

Technologies (ICT).<br />

The third group of service providers is knowledgeintensive<br />

business service firms (KIBS). KIBS<br />

provide professional services, such as legal and<br />

accounting services, management consultancy,<br />

engineering and R&D activities, and play<br />

a crucial role in creating and transferring<br />

new knowledge and technologies. They rely<br />

intensively on the expertise of their highly<br />

skilled professional employees, often carry out<br />

their activities in projects and are dependent<br />

on close connections to their clients. The firms<br />

belonging to this particularly rapidly growing<br />

area of services are of crucial importance in<br />

economic growth, as they provide intermediary<br />

services to other actors of the economy and<br />

constitute important inputs to the modern<br />

production process (Salter-Tether 2006).<br />

The knowledge-intensive business service sector<br />

is, however, composed of firms that are very<br />

diverse regarding characteristics of the services<br />

they provide, their innovation capacities and<br />

modes of manpower use. Partly due to this<br />

heterogeneous composition, there is no widely<br />

accepted definition of KIBS. According to the<br />

very general definition by Tovoinen (2006:2),<br />

KIBS are “expert companies that provide services<br />

to other companies and organizations”. In contrast,<br />

den Hertog (2000:505) provides a wider<br />

definition that focuses on the characteristics<br />

of knowledge used and created in the service<br />

process and emphasises the importance of the<br />

cooperation between the clients and service<br />

providers: “Private companies or organizations<br />

who rely heavily on professional knowledge,<br />

i.e. knowledge or expertise related to a specific<br />

(technical) discipline or (technical) functionaldomain<br />

to supply intermediate products and<br />

services that are knowledge based”. Miles et al<br />

(1995) identified three basic characteristics of<br />

KIBS: (1) they rely heavily upon professional<br />

knowledge; (2) they either are themselves<br />

primary sources of information and knowledge<br />

or they use knowledge to produce intermediate<br />

services for their clients’ production processes;<br />

and (3) they are of competitive importance and<br />

supply primarily to businesses. Based on these<br />

characteristics, Miles et al (1995) defines KIBS<br />

as “services that involved economic activities which<br />

are intended to result in the creation, accumulation<br />

or dissemination of knowledge”. In addition, the<br />

authors differentiate between the so-called<br />

“traditional professional services” (P-KIBS)<br />

– intensive technology users (business and<br />

management services, legal and accounting<br />

activities, market research, etc.) – and “newtechnology-based<br />

services” (T-KIBS) relying<br />

on ICT and technical activities. The former<br />

group of KIBS is sometimes referred to as<br />

“operational business services” (Viitamo<br />

2007). In their contribution, Müller<br />

and Doloreux (2007) identified three<br />

common elements in the various<br />

classification attempts:<br />

<br />

The term „business services” refers to<br />

services that are provided in order to<br />

satisfy the demands of firms and public<br />

Seite page 105


ORGANISATIONAL LITERATUR INNOVATION IN HUNGARY<br />

<br />

<br />

companies and are not produced for<br />

private consumers.<br />

„Knowledge-intensive” is defined either<br />

in terms of the reliance on highly qualified<br />

labour or in terms of the complex<br />

transaction between client and service<br />

provider.<br />

„Knowledge-intensive firms” are companies<br />

carrying out intellectual activities<br />

where human capital plays a significant<br />

role.<br />

Although, as presented above, the widely<br />

accepted definition on KIBS is still missing,<br />

there is a consensus regarding the labelling<br />

of categories within the classification of<br />

economic activities as knowledge-intensive<br />

business activities. In general, mainly nonroutine<br />

services provided to firms and public<br />

organisations and based on intensive utilisation<br />

of knowledge, e.g. IT services (both hardware<br />

and software), administrative-legal services,<br />

R&D, etc. belong to this category. Concerning<br />

the NACE 2 -categories, the following activities<br />

usually count as KIBS:<br />

Table 1. NACE codes of knowledge-intensive business services<br />

NACE code<br />

Activity<br />

62 Computer programming, consultancy, and related activities<br />

63 Information service activities<br />

649 Other financial service activities, except insurance and pension funding<br />

661 Activities auxiliary to financial services, except insurance and pension funding<br />

662 Activities auxiliary to insurance and pension funding<br />

69 Legal and accounting activities<br />

70 Activities of head offices; management consultancy activities<br />

71 Architectural and engineering activities; technical testing and analysis<br />

72 Scientific research and development<br />

73 Advertising and market research<br />

743 Translation and interpretation activities<br />

773 Renting and leasing of other machinery, equipment, and tangible goods<br />

Seite page 106<br />

78 Employment activities<br />

8110 Combined facility support activities<br />

8122 Other building and industrial cleaning activities<br />

8220 Activities of call centres<br />

855 Other educational activity


PÉTER LITERATUR CSIZMADIA<br />

1.2 Changing role of manufacturing and<br />

services in the Hungarian economy<br />

Similar to global trends, the economic<br />

performance of the service sector in Hungary<br />

increased significantly in the last decade.<br />

Since 1990, the gross output of agriculture<br />

and mining has massively decreased, while<br />

in manufacturing contradictory tendencies<br />

have taken place and the output of the service<br />

sectors has permanently increased. In 2007,<br />

almost two-thirds of the GDP was generated<br />

by the service sector (KSH 2007a). The<br />

economic performance of the manufacturing<br />

sector measured by the gross value added by<br />

industries was different in the various industries.<br />

The performance of the textile and clothing<br />

industry has been steadily decreasing since the<br />

end of the 1990s, while growing tendencies<br />

were registered in the machinery, electronics<br />

and pharmaceutical industries, however, at a<br />

different rate (KSH 2007a).<br />

Between 1990 and 1998, the general level of<br />

employment decreased. In 1998 this tendency<br />

reversed but not in all sectors of the economy.<br />

The agriculture and mining sectors experienced<br />

dramatic job loss. Until 1998 the number of<br />

employees decreased in manufacturing and<br />

construction as well; yet between 1998 and<br />

2002, permanent employment growth was<br />

registered. Since 2002 the number of employees<br />

in manufacturing has been decreasing, while the<br />

opposite tendency was observed in the service<br />

sector. The most dynamic employment growth<br />

has taken place in the categories of “real estate<br />

and other business services” and “retail trade<br />

and repair” (40% and 30%). In general between<br />

1995 and 2006, 90 % of new jobs were created<br />

in the service sector; and, interestingly enough,<br />

more than every second new job (57 %) was<br />

created in the knowledge intensive business<br />

services (KIBS) (ERM Report, 2008).<br />

Besides its role in employment generation and<br />

stabilization, another important indicator of<br />

the service sector’s economic performance is<br />

productivity as a source of competitiveness.<br />

Between 1992 and 2002, the productivity<br />

measured by gross value-added per capita in<br />

the service sector exceeded the one registered<br />

in manufacturing. In addition, when<br />

evaluating firm level performance indicators<br />

such as turnover, export and profitability<br />

during this period, business service and IT<br />

firms performed better that services as a whole<br />

(Hamar, 2005).<br />

We can summarise the tendencies presented<br />

briefly above as follows. The economic<br />

modernisation of the manufacturing sector was<br />

controversial. There are only a few subsectors,<br />

like machinery, electronics or pharmaceutical<br />

industry that were successful in increasing<br />

their economic performance as well as in<br />

integrating themselves in a global division<br />

of labour. The modernisation of these sectors<br />

was based on the leading role of the FDI,<br />

which had positive effects such as increasing<br />

productivity, export growth, diffusion of<br />

leading-edge management practices, etc.<br />

However, as a negative consequence, the<br />

asymmetric character of the economic<br />

modernisation can also be observed,<br />

which is partially reflected in the Seite page 107<br />

growing gap between the innovative<br />

performance of the foreign-owned<br />

and Hungarian companies and the weak<br />

integration of SMEs into the international<br />

division of labour (Makó & Illéssy 2007).


ORGANISATIONAL LITERATUR INNOVATION IN HUNGARY<br />

On the contrary, there is a steady tendency of<br />

growth in the service sector in terms of both<br />

its economic performance and employment<br />

capacity. In other words, services in general<br />

and especially business services represent a<br />

potential sustainable development path in the<br />

Hungarian economic modernisation.<br />

2. INNOVATION IN SERVICES<br />

There is a wide consensus in both the academic<br />

and professional communities that innovation<br />

is at the hearth of economic development and<br />

wealth. The literature dealing with the issues of<br />

innovation makes a distinction of two types of<br />

innovation. The first is often labelled the linear<br />

model of innovation. This model describes<br />

innovation as a linear chain of discrete R&D<br />

activities in which each development stage<br />

is separated from the others. Innovation<br />

is driven by scientific research or direct<br />

market demands. In this model, of particular<br />

importance is codified knowledge, which<br />

originates in scientific research and flows<br />

in one direction. Critiques of this approach<br />

often claim that a linear form of innovation<br />

represents the exception rather than the rule in<br />

practice (Schienstock & Hamalainen 2001).<br />

The second approach is the recursive model<br />

of innovation, which describes innovation<br />

as a novel combination of existing<br />

knowledge. In this model, innovation<br />

Seite page 108<br />

is driven by market needs and new<br />

knowledge is an unintended result<br />

of the complex interdependent<br />

relationship between the various actors.<br />

Multiple feedback mechanisms are important<br />

here, as is the intensive cooperation between<br />

different actors (firms, clients, suppliers,<br />

scientific institutions), as well (Schienstock &<br />

Hamalainen 2001). In this regard, innovation<br />

is open and happens dominantly in complex<br />

networks rather than in individual firms, while<br />

the institutional environment plays a crucial<br />

facilitating role.<br />

In the Hungarian discourse on innovation, the<br />

linear model plays a dominant role, although<br />

the recursive model better suits to the real<br />

characteristics of the innovation process,<br />

especially in the case of service innovation. The<br />

former model places emphasis on technology<br />

largely embodied in machinery, and equipment<br />

as well as the processes involved in the<br />

development and commercial introduction<br />

of new, technologically advanced goods. In<br />

addition, this model neglects such “soft”<br />

elements of innovation such as cooperation,<br />

collective knowledge development and sharing,<br />

trust relations, etc.<br />

According to Salter and Tether (2006:2),<br />

“services were long thought to be laggards with<br />

regard to innovation – they were assumed to be<br />

uninteresting adopters of existing technologies<br />

rather than producers of new technology.” 3<br />

Since the beginning of the 1980s, however,<br />

there has been a shift in this rather one-sided<br />

approach of service innovation. The authors<br />

identified the following four generations of<br />

innovation research in services.<br />

The period of neglecting service innovations<br />

can be characterised by narrow perception<br />

of innovation primarily focusing on the<br />

creation of new technologies, while diffusion<br />

and adaptation of new technologies was<br />

seen as either unproblematic or of secondary


PÉTER LITERATUR CSIZMADIA<br />

importance. The main focus of innovation<br />

research here was the creation rather than use<br />

of new technologies. According to the authors,<br />

this perspective has remained dominant until<br />

today.<br />

The second generation is labelled as the period<br />

of assimilation. In this phase researchers tended<br />

to examine service innovation using the<br />

conceptual framework developed to understand<br />

innovation in manufacturing. They assumed<br />

that innovation shows universal patterns<br />

that should exist both in manufacturing and<br />

services.<br />

The distinction approach in service innovation<br />

appeared in the 1990s as a critique of the<br />

assimilation period. Authors representing<br />

this line of innovation research argued<br />

that innovation in services differs from the<br />

manufacturing sector. Researchers in this<br />

period focused on organisational innovations<br />

and the “soft” skills playing a dominant role<br />

in knowledge-intensive business services, such<br />

as management consultancy, and regarded the<br />

role of “hard” technologies to be less dominant<br />

in the innovation activities.<br />

role of organisational innovations in shaping<br />

the service innovation process.<br />

The latest results of service innovation research<br />

suggest that service innovations are highly<br />

dependent on organisational practices and<br />

represent and open and networked form of<br />

innovation (Salter – Tether 2006). In addition,<br />

in the case of service innovation the different<br />

forms of innovation – product, process and<br />

organisational – are more closely connected<br />

than in manufacturing, which implies that the<br />

economic value of service innovation heavily<br />

relies on the combination of the different<br />

forms of innovation (Hipp et al. 2000).<br />

Finally, Gann and Salter (2000) identified<br />

the following basic characteristics of service<br />

innovations:<br />

<br />

<br />

the role of highly skilled labour in<br />

the creation and exploitation of new<br />

solutions;<br />

the importance of new organisational<br />

practices in supporting the realisation of<br />

new innovative opportunities;<br />

The latest stream of service innovation research,<br />

however, intents to synthesise the experiences<br />

of the traditional innovation research as well<br />

as the experiences stemming from a deeper<br />

understanding of the special characteristics<br />

of services. These researchers highlight the<br />

complex and multidimensional character<br />

of modern services and manufacturing and<br />

focus on such issues as organisational change,<br />

social networks and other, mainly institutional<br />

mechanisms that support innovation in services.<br />

In this approach special attention is paid to the<br />

<br />

<br />

<br />

the cooperation between clients and<br />

producers;<br />

the key role of social networks in generating<br />

and supporting knowledge<br />

creation and exchange; and<br />

Seite page 109<br />

the ‘ad hoc’ or ‘informal’ organisational<br />

form of most knowledge-intensive<br />

service firms.


ORGANISATIONAL LITERATUR INNOVATION IN HUNGARY<br />

Seite page 110<br />

2.1 Organisational innovations<br />

Despite the growing interest in understanding<br />

the main characteristics of organisational<br />

innovations as well as its role in economic<br />

development, there is no single coherent<br />

conceptual framework for the term. The<br />

Oslo Manual distinguishes product, process<br />

organisational and marketing innovations<br />

and defines organisational innovation as<br />

follows: “Organisational innovations refer to<br />

the implementation of new organisational<br />

methods. These can be changes in business<br />

practices, in workplace organisation or in the<br />

firm’s external relations” (OECD 2005:49).<br />

Lam (2005) suggests a more general definition<br />

where organisational innovation is equal to the<br />

creation or adoption of an idea or behaviour<br />

new to the organisation.<br />

In their research, Armbruster et al (2008:646)<br />

define organisational innovation as “the use<br />

of new managerial and working concepts and<br />

practices”. They provide a further classification<br />

that distinguishes between structural and<br />

procedural organisational innovation and the<br />

intra-organisational and inter-organisational<br />

features. Their categories are as follows:<br />

1. Structural organisational innovation, which<br />

may modify the divisional structure of<br />

organisational functions, hierarchical<br />

levels, and information flow, or,<br />

in general, the organisational<br />

architecture of the firm.<br />

2. Procedural organisational<br />

innovation, which may change the<br />

process and operation routines within the<br />

firms, such as improving the flexibility<br />

of manpower and the use of knowledge<br />

through the implementation of team<br />

work, just-in-time (Kan-Ban in Japanese),<br />

or quality circles.<br />

3. Intra-organisational innovation that is<br />

taking place within an organisation, and<br />

4. Inter-organisational aspects of innovation,<br />

which refer to new organisational forms<br />

and processes that exist beyond the<br />

organisational boundaries of the firm.<br />

In the “learning economy”, where the pace<br />

of knowledge erosion is accelerated and the<br />

key source of the economic growth is the<br />

individuals’, firms’, regions’ and national<br />

economies’ capabilities to learn continuously,<br />

organisational innovations are becoming<br />

increasingly important in fostering the actors’<br />

collective learning capabilities (Lundvall<br />

1996).<br />

3. ORGANISATION INNOVATIONS IN THE HUN-<br />

GARIAN KNOWLEDGE-INTENSIVE BUSINESS<br />

SECTOR: LESSONS FROM A COMPANY SURVEY<br />

In the following sections, the preliminary<br />

results of a company-level empirical survey<br />

will be presented with the aim to provide a<br />

general overview on the diffusion and drivers<br />

of organisational innovations and knowledge<br />

development practices in both the Hungarian<br />

manufacturing and knowledge-intensive<br />

business sectors. The survey was carried out<br />

in 2008 by the Institute of Sociology at the<br />

Hungarian Academy of Sciences.


PÉTER LITERATUR CSIZMADIA<br />

3.1 Sample description<br />

In the first quarter of 2008, according to the<br />

National Register of Economic Organisations<br />

compiled by the Hungarian Central Statistical<br />

Office, 4 049 companies with 10 or more<br />

employees were registered in the field of<br />

business services. In order to statistically<br />

represent the organisational population, 200<br />

companies were selected based on the multistage<br />

stratified sampling method. Here, the<br />

basic economic activity of the firms captured by<br />

the NACE code was used as the stratification<br />

variable. This sampling method ensured equal<br />

selection chances to all companies belonging<br />

to the population surveyed and reflected the<br />

heterogeneity of the organisational population,<br />

as well. In other words, the sampling method<br />

takes into consideration the fact that the<br />

number of the companies operating in different<br />

economic activity categories varies within the<br />

population surveyed. For instance, there are<br />

more IT companies within the field of business<br />

services than facility management providers.<br />

The sampling frame was restricted to companies<br />

employing at least 10 persons. Firms with 0 to<br />

9 employees were excluded because, according<br />

to previous research experience, these firms<br />

are rarely available for surveys. In addition,<br />

since the division of labour within these<br />

firms is rather underdeveloped, organisational<br />

innovation characterizing larger firms is absent<br />

(Valeyre et al., 2009).<br />

established between 2000 and 2003 and only<br />

6.5% prior to 1990. The majority of companies<br />

investigated belongs to the so-called de novo<br />

segment of the Hungarian economy, e.g. they<br />

were established after the collapse of state<br />

socialism (Martin 2008). As for the ownership<br />

structure, the share of foreign ownership<br />

among business service firms is considerably<br />

low (20%). The KIBS sector is dominated by<br />

small firms - companies employing less than<br />

50 people have a share of 78.7%.<br />

The survey questionnaire contained questions<br />

regarding the market share and structure,<br />

e.g. the share and location of the primary<br />

and secondary markets within the total sales.<br />

Domestic markets play a crucial role in the<br />

KIBS sector. Hungarian business firms<br />

merchandise their services almost exclusively<br />

in the Hungarian market (95 %).<br />

3.2.1 Diffusion of organisational innovations<br />

According to the theoretical classification of<br />

organisational innovations presented earlier, the<br />

following types of organisational innovations<br />

were distinguished in the questionnaire:<br />

1) Structural organisational innovation:<br />

<br />

<br />

Project-based work;<br />

Lean or flat organisation;<br />

3.2 Basic characteristics of the Hungarian<br />

KIBS sector<br />

<br />

Inter-professional<br />

working groups.<br />

(functional)<br />

Seite page 111<br />

The Hungarian KIBS sector is relatively young.<br />

21.1% of firms have been established in the<br />

last four years, while a further 24.7% were<br />

2) Procedural organisational innovation:<br />

<br />

Quality assurance or continuous improve-


ORGANISATIONAL LITERATUR INNOVATION IN HUNGARY<br />

<br />

<br />

<br />

<br />

<br />

ment process (e.g., ISO, TQM);<br />

Collecting suggestions from workers;<br />

Teamwork;<br />

Benchmarking;<br />

Job rotation; and<br />

Delegation of quality assurance to workers<br />

(decentralization).<br />

In assessing the managerial practices in the firms<br />

investigated, it is visible that procedural forms of<br />

organisational innovation (OI), such as quality<br />

assurance systems, collecting suggestions from<br />

employees, team work, etc., are more widely<br />

used than the structural forms of OI. The<br />

project-based work organisation representing<br />

a structural/radical form of OI is, however,<br />

relatively widespread in the KIBS sector. In the<br />

case of procedural organisational innovation,<br />

the collecting of the employees’ proposals,<br />

team work and benchmarking are the most<br />

organisational practices among KIBS firms.<br />

Table 2. Diffusion of organisational innovations<br />

Types of Organisational Innovation<br />

Share within the KIBS sector<br />

(%)<br />

I. Structural organisational innovation:<br />

Project-based work 34.9<br />

Flat or lean organisation 10.3<br />

Inter-professional (inter-disciplinary) working groups 13.4<br />

II. Procedural organisational innovation:<br />

Quality Assurance and Auditing Systems (e.g., ISO and TQM) 21.9<br />

Collecting suggestions from employees 49.7<br />

Team work 41.7<br />

Benchmarking 37.3<br />

Quality control carried out by rank-and-file employees 23.7<br />

Job rotation 9.7<br />

Seite page 112<br />

Source: Makó et al (2009)<br />

3.2.3 Special focus on differences<br />

within the KIBS sector<br />

In Section 1.1, I have already referred to<br />

attempts that recognized the heterogeneity of<br />

different activities in the knowledge intensive<br />

business sector and attempted to classify the<br />

sector on that basis. Miles et al. (1995) made<br />

a distinction between “traditional professional<br />

services” (P-KIBS) that are intensive technology


PÉTER LITERATUR CSIZMADIA<br />

users (business and management services, legal<br />

and accounting activities, market research, etc.)<br />

and “new-technology-based services” (T-KIBS)<br />

relying on ICT and technical activities. The<br />

former group of KIBS is sometimes referred to as<br />

“operational business services” (Viitamo 2007).<br />

There is a breadth of literature that calls attention<br />

to the importance of production strategies in<br />

the firms’ manpower and knowledge utilisation<br />

practices, innovative capacity and adaptation<br />

to the market requirements. Regini (1995),<br />

however, in analysing the flexible production,<br />

found that a set of different competitive and<br />

production strategies were being adopted by<br />

the European firms’ managements and that<br />

not all of these were consistent with the Post-<br />

Fordist production, which gains competitive<br />

advantage on the basis of quality, product<br />

differentiation and customisation and flexibility.<br />

In this relation, Lampel and Mintzberg (1996)<br />

emphasise the importance of standardisation<br />

and customisation of products and services as<br />

the two dominant strategies in the economic<br />

development of the past 100 years. The authors<br />

refer to these two logics not as “alternative<br />

models of strategic actions but, rather, as<br />

poles of a continuum of real world strategies.<br />

(Lampel & Mintzberg 1996:21)<br />

Mason (2005), in investigating the<br />

competitiveness and skill requirements of the<br />

British plastic processing, printing, logistics<br />

and insurance industries, analyses how product<br />

strategies are developed and implemented<br />

within UK companies as well as the nature of<br />

any barriers that may inhibit companies from<br />

moving to high value added products and<br />

services. He concludes that high value added<br />

production strategies, e.g. attempts to capture<br />

choices made by enterprises regarding product<br />

or service differentiation within particular<br />

markets, take on very different forms in each<br />

industry. In addition, high levels of skill and<br />

knowledge are prerequisites for success in<br />

high value added production along with the<br />

strategic capability of the management to<br />

combine different resources effectively in<br />

implementing new production strategies.<br />

In the following, I intend to examine which<br />

production strategies can be identified in the<br />

Hungarian KIBS sector and how these can<br />

be linked to organisational innovations and<br />

firms’ knowledge of development practices.<br />

In order to classify the production strategies,<br />

two dimensions were applied. The first<br />

one concerns the composition of the firms’<br />

service portfolios, e.g. to what extent they<br />

provide a large or narrow scale of services.<br />

The other dimension intends to capture the<br />

degree of service standardisation. Following<br />

this categorisation, two types of practices<br />

were identified depending on the proportion<br />

of standardised and tailor-made services the<br />

firms dominantly provide. I hypothesize that<br />

diversification of the service portfolio and<br />

customisation of services are the dominant<br />

strategies in the Hungarian KIBS sector. On<br />

the other hand, I assume that firms following<br />

these strategies rely more intensively on the<br />

external knowledge sources and application of<br />

organisational practices that support<br />

the integration of these knowledge<br />

sources as well as the organisationallevel<br />

learning process. Figure 1 sum-<br />

Seite page 113<br />

marises the two dimensions. It must<br />

be stressed here that only the standardisation<br />

versus customisation of services and not that<br />

of the operating processes were examined.


ORGANISATIONAL LITERATUR INNOVATION IN HUNGARY<br />

Figure 1. Typology of the production strategies in the KIBS sector<br />

Based on the two distinctive dimensions<br />

presented above, four types of production<br />

strategies can be identified. The firms providing<br />

a narrow set of standardised services follow the<br />

strategy labelled “simple standardisation” (18%<br />

of firms). The second group was composed<br />

of firms providing different routine services<br />

(diversified service portfolio); their strategy<br />

is called “diversified standardisation” (15.3%<br />

of firms). The third strategic category, “simple<br />

customisation”, includes the firms providing<br />

a narrow set of tailor-made solutions (16.8%<br />

of firms). The last and largest group of firms,<br />

which follow the strategy labelled “diversified<br />

customisation”, provide tailor made services<br />

in different fields (49.5% of firms). The<br />

distribution of various types of activities<br />

moderately correlates with classification.<br />

IT service firms (“New technology<br />

providers”) are overrepresented in the<br />

Seite page 114<br />

group of diversified customisation<br />

strategy, while service diversification<br />

seems to be the dominant strategy<br />

in the case of legal and financial service firms<br />

(“Operational service providers”) independent<br />

from the degree of standardisation.<br />

Engineering and R&D firms (“Science-based<br />

service providers”) also have high prevalence<br />

in the category of “diversified customisation”,<br />

but their production strategies are more diverse<br />

and balanced than the ones of the IT service<br />

providers. Professional service providers (e.g.<br />

management consulting, HRM, call centres,<br />

etc.) represent a rather heterogeneous group:<br />

their dominant strategy is providing diverse<br />

and tailor-made solutions; however, the share<br />

of those who implement simple standardisation<br />

strategies is important, as well (see Table 3).


PÉTER LITERATUR CSIZMADIA<br />

Table 3. The distribution of firms by type of activity and production strategy<br />

Type of activities<br />

Simple<br />

standardisation<br />

Diversified<br />

standardisation<br />

Simple<br />

customisation<br />

Diversified<br />

customisation<br />

IT services 0.0% 13.8% 20.6% 65.6%<br />

Legal and financial services 12.9% 35.5% 12.9% 38.7%<br />

Engineering, R&D 22.5% 10.0% 27.5% 40.0%<br />

Professional services 23.1% 7.7% 10.3% 58.9%<br />

In the following, the connections between<br />

the various production strategies and the<br />

implementation of some organisational<br />

innovations will be examined. Project-based<br />

work organisation represents a structural<br />

organisational innovation that allows firms<br />

to control their costs more efficiently, on one<br />

hand, and support knowledge creation, sharing,<br />

transfer and utilisation, on the other, therefore<br />

creating more space for organisational-level<br />

collective learning (Whitley 2004). There is no<br />

linear correlation between the implementation<br />

of project-based work and the production<br />

strategies. However, the rate of its use is<br />

significantly lower among companies applying<br />

simple standardisation strategies than those<br />

applying other strategies. A similar tendency<br />

could be identified in the case of implementation<br />

of formal knowledge management. Firms<br />

representing the less flexible production<br />

strategy seem to be less reliant on the use<br />

of radical organisational innovations and<br />

systematic knowledge management than firms<br />

following more flexible practices in choosing<br />

their production strategies. In addition, firms<br />

representing a more flexible production<br />

strategy, especially those who follow diversified<br />

customisation, invest more in renewal of<br />

their external relations, which increases their<br />

capability to use external sources of knowledge<br />

more intensively.<br />

Table 4. The distribution of some organisational innovations by type of production strategy<br />

Type of organisational<br />

innovation<br />

Simple<br />

standardisation<br />

Diversified<br />

standardisation<br />

Simple<br />

customisation<br />

Diversified<br />

customisation<br />

Project-based work 9.4% 30.8% 48.3% 38.7%<br />

Seite page 115<br />

Knowledge management<br />

system<br />

6.3% 36.0% 16.7% 16.3%<br />

Renewal of external relations 18.8% 28.0% 26.7% 38.0%


ORGANISATIONAL LITERATUR INNOVATION IN HUNGARY<br />

There are also differences between the<br />

knowledge development practices of the<br />

KIBS firms representing different production<br />

strategies. The share of the followers of simple<br />

standardisation strategies in the different<br />

training practices is significantly lower than<br />

for other categories, which implies that more<br />

flexible production strategies require more<br />

investment in knowledge development (see<br />

Table 5).<br />

Table 5. Knowledge development practice and production strategies<br />

Type of knowledge<br />

development<br />

Simple<br />

standardisation<br />

Diversified<br />

standardisation<br />

Simple<br />

customisation<br />

Diversified<br />

customisation<br />

Courses organized and<br />

financed by the firm<br />

Courses selected by an employee<br />

but financed by the firm<br />

Courses supported by<br />

working time reduction<br />

Relying on customer<br />

knowledge<br />

18.8% 36.0% 33.3% 37.0%<br />

6.3% 6.9% 13.3% 15.2%<br />

1.7% 4.9% 13.8% 3.3%<br />

50.0% 68.0% 65.5% 67.4%<br />

4. CONCLUDING REMARKS AND FUTURE<br />

RESEARCH CHALLENGES<br />

In this paper, I attempted to briefly present the<br />

paradigmatic changes in the world economy that<br />

can be labelled as the rise of the post-industrial<br />

service economy. These changes, which can<br />

be captured by the increasing importance of<br />

the service sector in the performance of the<br />

national economies, has also taken place in<br />

Hungary over the last two decades. According<br />

to global trends, the weight of services<br />

in the Hungarian economy has been<br />

Seite page 116<br />

growing steadily, especially in the case<br />

of the knowledge-intensive business<br />

services (KIBS). The modernisation<br />

of the manufacturing sector was controversial<br />

and affected only a few subsectors. In this<br />

situation, KIBS may represent a possible<br />

new development path for the continued<br />

modernisation of the Hungarian economy. In<br />

fulfilling this role, firm-level facilitators such<br />

as learning and networking capability and the<br />

implementation of organisational practices<br />

as well as the innovations supporting them<br />

play a crucial role in addition to an adequate<br />

institutional environment.<br />

In the second part of this paper, the results<br />

of a company-level questionnaire survey were<br />

presented that was carried out in 2008 among<br />

the Hungarian knowledge-intensive business<br />

firms. The KIBS sector is relatively young<br />

and dominated by Hungarian-owned small<br />

and medium sized firms that provide service<br />

mainly to the domestic market. Examining the<br />

service production strategies that Hungarian<br />

firms apply suggests that knowledge-intensive


PÉTER LITERATUR CSIZMADIA<br />

business firms following flexible and customised<br />

production strategies and providing diversified<br />

service portfolios are overrepresented among<br />

KIBS firms, especially in the case of IT and<br />

professional services. Firms implementing such<br />

production strategies invest more in the various<br />

forms of knowledge development and rely to a<br />

greater extent on the use of such radical forms<br />

of organisational innovation like project-based<br />

work that supports them in integrating external<br />

knowledge sources.<br />

The results presented briefly above call attention<br />

to the necessity of further investigation of the<br />

role of both KIBS and more traditional services<br />

in the economic modernisation of Hungary. In<br />

doing so, researchers should focus on both firmand<br />

institutional level facilitators and inhibitors<br />

of the service sector development. This requires<br />

a combination of research methods: there is a<br />

need for company-level case studies in order to<br />

better understand the internal dynamics of the<br />

service sector as a whole.<br />

NOTES<br />

1<br />

These changes, however, are not observable in the case of several,<br />

mainly personal services, such as hotels and restaurants,<br />

health and social services, etc.<br />

2<br />

NACE: ‘Statistical Classification of Economic Activities’ – an<br />

international statistical system for classification and registration<br />

of economic activities. Source: http://ec.europa.eu/competition/<br />

mergers/cases/index/nace_all.html<br />

3<br />

This view is still dominant in the Hungarian discourse on<br />

innovation.<br />

Seite page 117


ORGANISATIONAL LITERATUR INNOVATION IN HUNGARY<br />

Seite page 118<br />

REFERENCES<br />

Armbruster, H. – Bikfalvi, A. – Kinkel, S. – Lay, G. (2008)<br />

Organizational Innovation: The Challenge of Measuring Non-<br />

Technical Innovation in Large-Scale Surveys, Science Direct<br />

– Technovation no. 28, pp. 644-657.<br />

Chesbrough, H. (2003). “The era of open innovation.” Sloan<br />

Management Review, Summer: 35-41.<br />

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Seite page 120


CATHERINE SPIESER<br />

ABSTRACT<br />

THE POLITICS OF LABOUR MARKET ADJUST-<br />

MENT IN POST-1989 POLAND.<br />

TRAJECTORY OF POLICY REFORM, POLITICS<br />

OF SOCIAL CHANGE AND EMERGING WELFARE<br />

REGIME. 1<br />

Catherine Spieser<br />

7<br />

Labour market adjustment is constructed<br />

by the policies that set the rules for the<br />

governance of employment and unemployment.<br />

Therefore, labour market polices<br />

have redistributive implications. Their orientations<br />

are defined in a process involving various<br />

socio-political actors (unions, employers associations,<br />

government with a partisan orientation).<br />

This has been particularly salient in Central<br />

and Eastern Europe given the pressure for<br />

adaptation to new market conditions resulting<br />

from economic liberalisation. Starting with a<br />

critical review of Esping-Andersen’s concept<br />

of welfare regimes, which places emphasis on<br />

the politics of social risk redistribution, this<br />

paper explores the policies and politics of labour<br />

market adjustment in Poland since 1989.<br />

It builds on original and secondary material<br />

and has a strong empirical component. The<br />

aim is twofold: (i) to identify which welfare<br />

regime (if any) is gradually taking shape and<br />

(ii) to uncover the socio-political compromise<br />

on which it rests. While policies have generally<br />

tended to become minimalist over time,<br />

retracing the trajectory of policy reform in two<br />

domains - unemployment compensation, on<br />

the one hand, and the rules governing employment<br />

relationship, on the other - reveals<br />

that there are two contrasted worlds of ‘labour<br />

market politics’.<br />

INTRODUCTION<br />

page 121<br />

The breakdown of authoritarian communist<br />

regimes consecutive to the fall of the<br />

Berlin wall twenty years ago had one uncontested<br />

immediate effect: it gave rise to a wave


THE POLITICS OF LABOUR MARKET ADJUST-<br />

MENT IN POST-1989 POLAND<br />

page 122<br />

of hope and high expectations for material improvement<br />

as well as improved living conditions<br />

in many of the countries concerned. In<br />

Poland particularly, the free market was seen as<br />

the solution to bring to end the consumption<br />

restrictions that marked the years of shortage<br />

economy (Mazurek 2010). As Leszek Balcerowicz<br />

led the way to macroeconomic stabilisation<br />

while pursuing his ‘shock therapy’ plan<br />

of anti-inflationary policies and quick privatisation,<br />

however, it soon became obvious that<br />

the rise of a capitalist, free market economy<br />

would not take place without another type of<br />

pain: rapidly expanding unemployment. Some<br />

feared that this would trigger labour unrest,<br />

union opposition to the course of reform or a<br />

risk of electoral backlash resulting in former<br />

communist parties returning to power and attempting<br />

to restore the former political order.<br />

None of this happened in Poland, even when<br />

mass dismissals became common in sectors<br />

undergoing privatisation and unemployment<br />

peaked at 20% at the end of the 1990s. More<br />

strikingly, social pains rarely translated into<br />

political mobilisation against new policies,<br />

which suggests that other channels of interest<br />

representation and compensation came into<br />

play. Contrary to the argument of a quick retreat<br />

of the state, I argue that policies – both<br />

new and old undergoing reform as well as both<br />

discourses and effective instruments - played<br />

a major role in establishing the conditions for<br />

a peaceful transition from a centrally<br />

administered universal employment<br />

system to a capitalist labour market in<br />

which individual fates are widely differentiated.<br />

The transformations of the work – welfare<br />

nexus in post-communist Central and Eastern<br />

European countries can be analysed along the<br />

same dimensions as historical developments<br />

that, I argue, are comparable in scope: the<br />

emergence of welfare policies in rising capitalist<br />

states in Western Europe over the last century,<br />

which has been the subject of a wide array of<br />

research. Confronting welfare state theories<br />

within a new setting, the fast changing political<br />

system, economy and society in Poland (and<br />

other Central and Eastern European countries)<br />

allows for further testing of their explanatory<br />

power and validity. Conversely, comparing the<br />

profound, multidimensional transformations<br />

observed in fast-changing environments, such<br />

as Poland and the rest of Central and Eastern<br />

Europe in the aftermath of 1989, with more<br />

established theories of welfare policy-making<br />

offers analytical rigour to the study of this<br />

seemingly unique phenomenon and reintegrates<br />

it into the field of comparative politics. 2 The<br />

aim of this paper is thus to examine what the<br />

theories of the welfare state originally derived<br />

from the study of ‘mature’ welfare states in<br />

Western Europe tell us about labour market<br />

policy formation in emerging capitalism, and<br />

what the latter tell us about the former.<br />

In both cases, regardless of the gap in time,<br />

what is at stake is a radical redefinition of the<br />

respective responsibilities of the individual<br />

and the political community of citizens, while<br />

state administration consolidates itself as an<br />

interface between both in times of profound<br />

industrial and economic transformations. These<br />

are best captured through the process of labour<br />

market adjustment, which in turn is governed<br />

not only by firms but also by the institutional<br />

framework available to them, and in which<br />

they are embedded. Placing the emphasis<br />

on policies organising work, employment


CATHERINE SPIESER<br />

and unemployment allows for observing the<br />

transformations of the work-welfare nexus<br />

and the way in which change is negotiated (or<br />

not).<br />

This paper focuses on the explicit part of the<br />

work-welfare nexus at the macro-level, i.e.<br />

the body of rules and institutions governing<br />

employment and unemployment, which are<br />

shaped by distinct policy-making processes in<br />

specific arenas. It also explores cross-sectional<br />

and cross-time variation in a single country,<br />

Poland, and builds on a comparison of policy<br />

dynamics in two domains, unemployment and<br />

employment policy. Unemployment policy<br />

is defined as the composite sphere of labour<br />

market policies addressing unemployment<br />

and the unemployed, whether they aim to<br />

alleviate or counter unemployment or facilitate<br />

employment (as return to employment or<br />

accession to a first job). Employment policy<br />

is the regulation of work and employment,<br />

applying to hiring and firing and designed<br />

to foster equitable employer-employee<br />

relationships while striking a balance between<br />

flexibility and security.<br />

Section one presents a conceptual framework<br />

for the study of a shift in welfare regime. Section<br />

two and three trace the trajectory of policy<br />

reform in the area of employment regulation<br />

and unemployment insurance, respectively.<br />

Section four concludes the paper by comparing<br />

findings and drawing conclusions for the study<br />

of welfare reform politics.<br />

1. A CONCEPTUAL FRAMEWORK BASED ON THE<br />

COMPARATIVE WELFARE STATE LITERATURE<br />

A large portion of studies on social policy<br />

development in the CEECs that attempt to<br />

establish a connection with works on other<br />

geographical areas and theories focus on the<br />

role of path dependency and legacies from<br />

pre-1989 regimes (e.g. Inglot 2003 & 2008).<br />

This tends to provide a misleading picture on<br />

two points: first, it emphasises stability while<br />

the distinctive feature of developments in the<br />

CEECs compared with Western Europe lies<br />

in the extensiveness of the transformations<br />

at stake; and second, it disregards the role of<br />

domestic politics and excessively de-politicises<br />

the process of reforming welfare entitlements,<br />

neglecting the salience of the politics of labour<br />

market adjustment in times of systemic change.<br />

In the search for an alternative framework, I<br />

argue that the comparative literature on welfare<br />

states provides some interesting insights and<br />

ways to overcome these pitfalls. On the one<br />

hand, the typology of welfare regimes allows<br />

for mapping change over time when the<br />

objectives, instruments and institutions of<br />

social policies are all simultaneously at stake<br />

in a process of policy formation and reform.<br />

On the other hand, the welfare state literature<br />

provides a conceptual framework for the study<br />

of political conflicts, bargaining processes and<br />

reform coalitions.<br />

1.1. Mapping a change of welfare<br />

regime in one country over time<br />

page 123<br />

The typologies of welfare systems<br />

(Esping-Andersen 1990 & 1999) help us<br />

understand the nature of the transformation of<br />

the work-welfare nexus in post-1989 Poland,


THE POLITICS OF LABOUR MARKET ADJUST-<br />

MENT IN POST-1989 POLAND<br />

because they facilitate the identification of a<br />

shift of welfare regime. The idea of ‘welfare<br />

regime’ entails a societal and socio-political<br />

embeddedness resulting from the politics of<br />

social policy in modern democratic welfare<br />

states. The concept is heavily contextualised,<br />

however. The development of the welfare state<br />

is closely linked to the rise of the industrial<br />

society in Western Europe when ‘its promise<br />

was not merely social policy to alleviate social<br />

ills and redistribute basic risks, but an effort to<br />

rewrite the social contract between government<br />

and the citizenry’ (Esping-Andersen 1999: 33).<br />

With a view to represent the limited crosscountry<br />

diversity of welfare capitalism, and<br />

building on an earlier distinction between the<br />

residual and the institutional welfare state by<br />

Titmuss (1958), Esping-Andersen (1990)<br />

identified ‘three worlds of welfare capitalism’.<br />

In a residual welfare state, the state assumes<br />

responsibility only when the family or the<br />

market fails; it seeks to limit commitments<br />

to marginal and deserving social groups.<br />

On the contrary, the institutional welfare<br />

state addresses the entire population, is<br />

universalistic and embodies an institutionalised<br />

commitment to welfare; therefore, in principle,<br />

it extends welfare commitments to all<br />

areas of distribution necessary for societal<br />

welfare. The divide between Bismarckian and<br />

Beveridgean systems is often used to contrast<br />

two fundamentally opposed ways of<br />

organising social protection: work-<br />

page 124 related entitlements based on statute<br />

that reproduce income differentials<br />

in the former, and universal flat-rate<br />

benefits that equalise income, especially upon<br />

retirement, in the latter (Arza 2006: 2). While<br />

several waves of reforms in many European<br />

countries from the 1990s onward have blurred<br />

these institutional differences, the two types of<br />

welfare systems remain useful as a cognitive<br />

and historical reference, including in the minds<br />

of contemporary actors. Besides, these regimes<br />

provide a conceptual framework for the analysis<br />

of other empirical cases.<br />

Situating Central and Eastern European<br />

welfare regimes with respect to these seminal<br />

categories is often problematic. On the one<br />

hand, some historical features of their welfare<br />

arrangements dating back to the interwar<br />

period were inspired by Bismarckian welfare<br />

states: Polish territories belonging to the<br />

German Empire inherited Bismarckian-type<br />

social insurance. On the other hand, eligibility<br />

and benefits became universal with socialistera<br />

full employment after 1945. Nevertheless,<br />

in the 1990s, the dependence of welfare rights<br />

upon employment or occupation was still<br />

reflected in the relatively high share of social<br />

expenditure financed through contributions.<br />

The most recent reforms, however, tended<br />

to mirror post-industrial welfare reforms<br />

in Western Europe and a liberal-oriented<br />

perspective emphasizing benefits targeting and<br />

social safety nets (Barr 1994 & 2005). Given<br />

generally poor achievements of the welfare<br />

state in the CEECs, social outcomes may<br />

instead resemble some observations made on<br />

Southern Europe (Ferrera 1996).<br />

The macro-typology is most useful when<br />

understood as a frame of reference of idealtypical<br />

configurations or a repertory of<br />

possible ways in which social protection<br />

may be organized (Palier 2005a), rather<br />

than a classification in which all empirical<br />

cases should fit. 3 One key assumption in the


CATHERINE SPIESER<br />

welfare regime literature is that policies and<br />

institutions develop in a relatively consistent<br />

manner across the different policy domains,<br />

so as to constitute, as an outcome, a coherent<br />

policy regime. ‘Short-term policies, reforms,<br />

debates and decision-making take place within<br />

frameworks of historical institutionalization<br />

that differ qualitatively between countries’<br />

(Esping-Andersen 1990: 80, my emphasis).<br />

Nevertheless, we can extract the functional<br />

logic of ideal-typical welfare regimes in order<br />

to build a conceptual grid for the analysis of<br />

a shift of regime, and more generally, policy<br />

change over time in a given setting.<br />

A change of welfare regime may take place on<br />

the occasion of a radical reform involving an<br />

explicit shift of paradigm (as occured in the<br />

Polish pension reform in 1995-1996, with the<br />

introduction of funded pensions based on the<br />

actuarial principle). It may also happen in a<br />

more gradual way, through the cumulative effect<br />

of successive reforms that, taken in isolation,<br />

seem limited to a recalibration of existing<br />

instruments or minor institutional change,<br />

but considered together and combined lead to<br />

major transformations questioning the general<br />

objectives and principles of the welfare system<br />

(Palier 2005b & 2007). In order to identify such<br />

a shift of welfare regime, we need to trace the<br />

trajectory of successive policy reforms focusing<br />

on in-depth case studies and using a processtracing<br />

methodology (Hall 2003, George and<br />

Bennett 2005, Vennesson 2008).<br />

1.2. Regime politics, risk communities and<br />

reform outcomes<br />

It is in its conceptualisation of the relationship<br />

between welfare institutions and social<br />

outcomes that the theory of welfare regimes<br />

makes its most decisive contribution. Esping-<br />

Andersen (1999: 36) stressed that ‘social policy<br />

means public management of social risks’. Two<br />

kinds of risk – defined as a contingency or the<br />

higher-than-average likelihood of seeing one’s<br />

individual situation worsen through no fault<br />

of one’s own – connected to work or lack of<br />

work are particularly significant in the process<br />

of economic and social adjustment. The first<br />

risk that individuals in employment face is<br />

increasing uncertainty and a deterioration<br />

of their working conditions. The second risk<br />

is losing paid work in circumstances that are<br />

beyond one’s control: unemployment as the<br />

unexpected and involuntary loss of income<br />

from work due to external factors affecting the<br />

employer.<br />

The communist regime eradicated<br />

unemployment by achieving artificial full<br />

employment as it imposed central state control<br />

over the allocation of work and welfare while<br />

eliminating free markets. By contrast, welfare<br />

policies in the capitalist world try to reduce the<br />

exposure to and consequences of labour market<br />

risks in several ways: re-arranging who bears<br />

and manages socioeconomic risks, establishing<br />

collective risk-pooling arrangements and<br />

providing social protection mechanisms<br />

to alleviate the impact on individuals. This<br />

implies providing security over a wide range<br />

of possible aspects: participation in<br />

the labour market, employment, skill<br />

formation and recognition, income, page 125<br />

and representation (Standing<br />

1999: 52). Thus, the welfare state is<br />

‘reapportioning the costs of risk and mischance’<br />

(Baldwin 1990: 1), i.e. redistributing the<br />

capacity to cope with labour market risks.


THE POLITICS OF LABOUR MARKET ADJUST-<br />

MENT IN POST-1989 POLAND<br />

Table 1. Risk-pooling arrangements in selected policy areas<br />

Redistribution of risk /<br />

policy domain<br />

More risk-sharing<br />

Less risk-sharing<br />

Unemployment policy<br />

Passive Active ‘Activated’<br />

Pension system<br />

Employment relationship<br />

Predominant level of risk<br />

management, insecurity<br />

and uncertainty<br />

Social security<br />

(defined benefit, state provision)<br />

Protected and regulated<br />

Collective<br />

Actuarial<br />

(defined contribution,<br />

state or private provision)<br />

Flexible and deregulated<br />

Individual<br />

In that perspective, the defining feature of a<br />

welfare regime is ‘how risks are pooled’, i.e.<br />

‘how social risks are managed and distributed<br />

between the state, market and families’ (Esping-<br />

Andersen 1999: 33-36) as well as how they<br />

are distributed among unequal individuals.<br />

The system of social protection defines the<br />

eligibility or non-eligibility of citizens for<br />

benefits and services (‘the boundaries of rights<br />

and claims’ and the ‘range of human needs that<br />

are given the status of a social right’ in Esping-<br />

Andersen 1990: 80), thereby delimiting<br />

various groups in society. The major dimension<br />

of variation across regimes is the nature of the<br />

(institutional) arrangement that enables social<br />

risks to be pooled - or not.<br />

Labour market adjustment in a<br />

context of systemic transformations<br />

page 126 is also a highly redistributive process,<br />

triggering increased inequality as a<br />

result of ‘the transition from a world<br />

of jobs that were equally good (or equally bad)<br />

to a world of jobs that differ considerably in<br />

terms of job security and reward’ (Rutkowski<br />

1998a: 17). It is a reshuffling process in the<br />

most basic sense: it involves the reorganisation<br />

of job allocation and the redefinition of both<br />

private and collective roles, as well as individual<br />

and state responsibilities. Many individuals are<br />

exposed to a high risk of a loss or a deterioration<br />

of their income and job, but they are affected to<br />

a varying extent.<br />

In a consolidating democratic political<br />

system, the politics of welfare reform can be<br />

interpreted as regime politics. The logic of<br />

conflict combines both politics of transition, i.e.<br />

extraordinary politics of large-scale adjustment<br />

in times of systemic change, and social politics<br />

that approach the ‘politics as usual’, i.e. ordinary<br />

political games that have been a characteristic<br />

of reform processes in Western European<br />

welfare states since the retreat of Keynesianism.<br />

Uncovering the underlying power game,<br />

or compromise, allows for explaining the<br />

orientation of the welfare regime that results<br />

from cumulative, successive reforms, which<br />

together define a policy trajectory in terms<br />

of whether it has become more, or less,


CATHERINE SPIESER<br />

redistributive, and whether it is pooling risks<br />

(and to what extent). This assumes a certain<br />

consistency across branches or policy areas, or<br />

at least that the actors interpret it as such.<br />

Comparative welfare studies provide models for<br />

the explicit or implicit political compromises that<br />

are underlying solidaristic- or individualisticoriented<br />

welfare regimes and ensure their<br />

stability over time. Welfare state generosity<br />

is often thought to be rooted in a democratic<br />

class struggle in which the social democratic<br />

parties and unions prove particularly powerful<br />

(Korpi 1983). However, class is a problematic<br />

concept in Poland where there is little empirical<br />

evidence of class consciousness (Meardi 2000;<br />

Ost & Crowley 2001 and Ost 2005) and<br />

widespread aversion to class-based ideology.<br />

Baldwin’s (1990) idea of risk communities is<br />

more enlightening to explain the emergence<br />

of institutions providing risk-pooling, or their<br />

absence. Social insurance, he argues, introduced<br />

a distinctive political dimension in that ‘the<br />

terms of misfortune’s reapportionment were<br />

determined not privately, but by society as a<br />

whole in accordance with commonly accepted<br />

standards of equity’, a process through which<br />

‘concerns that had formerly been individual<br />

became political’ (ibid.: 2).<br />

Redistributive policies such as welfare<br />

programmes (or income tax) tend to create<br />

‘haves and have-nots’ (Lowi 1964: 691),<br />

redistributive winners and losers. Social<br />

insurance redistributes the cost of managing<br />

socioeconomic risks rather than resources<br />

(Baldwin 1990: 19). Policies respond and give<br />

rise to demands for protection and support,<br />

expressed by certain categories of individuals,<br />

while other groups are satisfied by the primary<br />

distribution of socioeconomic capacities and<br />

security. The ‘risk categories’ group ‘actors<br />

identified and given interests in common by<br />

their shared relations to the means of security,<br />

by their stake in or against the redistribution<br />

of risk promised by social insurance’, in<br />

accordance with ‘the interaction of (...) (1)<br />

the simple incidence of risk as it afflicts the<br />

group in question, and (2) the group’s ability<br />

to shoulder its burdens unaided, its capacity<br />

for self-reliance’ (Baldwin 1990: 11-12). The<br />

simple incidence of risk relates to the effect of<br />

market mechanisms in the allocation of work<br />

and income, especially in the extraordinary<br />

politics of adjustment. The capacity for selfreliance<br />

is evaluated prior to the intervention<br />

of social policies. Therefore, ‘social security<br />

demands are best understood in terms of how<br />

risk communities coalesce. Risk communities<br />

are defined in terms of their relations to the<br />

means of security, and they may or, more likely,<br />

may not coincide with class identity’ (Esping-<br />

Andersen 1991: 225).<br />

Support for social protection is rooted in the<br />

amalgamation of a relatively high exposure to<br />

economic uncertainty, a low capacity for selfreliance<br />

and a capacity for collective action<br />

or political representation. 4 Universal social<br />

democratic welfare states and policies, which<br />

exhibit the highest level of risk-pooling,<br />

arise in the presence of a strong risk-pooling<br />

coalition. Only when such a risksharing<br />

coalition exists can solidaristic<br />

policies be pursued. Conversely, page 127<br />

residual or minimal welfare policies,<br />

placing an emphasis on individual<br />

responsibility, are adopted when the capacity<br />

for self-reliance of risk communities prevails<br />

at the expense of solidarity among them.


THE POLITICS OF LABOUR MARKET ADJUST-<br />

MENT IN POST-1989 POLAND<br />

Finally, Bismarckian policies, or conservativecorporatist<br />

policies, are based on an insider<br />

status enjoyed by a category of individuals<br />

who contribute to social insurance in exchange<br />

for future entitlements. Therefore, they tend to<br />

emphasise the link between contributions and<br />

social security, or individual fairness, rather<br />

than universal solidarity.<br />

The inherited ‘state of entitlements’ (Inglot<br />

2003) in Poland in the early 1990s combined<br />

universal and Bismarckian aspects. With<br />

respect to a shift of welfare regime, three<br />

hypotheses can be formulated. First, generous<br />

universalistic policies tend to become<br />

minimalist residual ones when there is a shift<br />

in, or a breakdown of the coalition among risk<br />

communities in favour of self-reliant ones.<br />

Second, redistributive politics characterised<br />

by a recurrent two-side conflict are likely<br />

to be observed primarily in areas in which<br />

entitlements pre-exist. Third, as a consequence,<br />

Bismarckian (conservative-corporatist) policies<br />

are unlikely to be easily replaced by minimalist<br />

residual ones because they are supported by<br />

identifiable categories of beneficiaries who<br />

gained rights and entitlements in return for<br />

resources invested in the system, and seek<br />

to maintain these benefits. The dynamics of<br />

adjustment in Poland and policies connected<br />

with labour market risks provide new grounds<br />

on which to examine the validity of these<br />

hypotheses.<br />

page 128 With a view to testing these propositions,<br />

sections 2 and 3 trace the trajectory<br />

of successive reforms of un/<br />

employment policy with a focus on two institutions<br />

that can be considered cornerstones of<br />

the post-industrial capitalist welfare state: the<br />

employment relationship and unemployment<br />

insurance.<br />

2. UNEMPLOYMENT POLICY BY DEFAULT: THE<br />

WEAKNESS OF SOCIAL INSURANCE AND THE IM-<br />

PORTANCE OF PARTICULARISTIC REGIMES.<br />

This section reviews the policies that<br />

contributed to the institutionalization (and to a<br />

lesser extent the alleviation) of unemployment,<br />

the management of mass dismissals through<br />

exit to inactivity and the slow emergence of a<br />

broader government program of action against<br />

unemployment, including active labour market<br />

policies eventually seeking to add obligations<br />

to social rights.<br />

2.1. The recent institutionalisation of<br />

unemployment<br />

Unlike other social problems, unemployment<br />

really appeared on the political agenda in 1990<br />

as a result of the first transition measures and<br />

was to be addressed with little experience to<br />

build upon. Unemployment compensation and<br />

labour market policies more generally do not<br />

have a long history in Poland. 5<br />

Unemployment as a new social problem<br />

Prior to 1989, everyone had a constitutional<br />

right to work; and unemployment had been<br />

made illegal (Mlonek 1999). As a result, the<br />

concept of unemployment was rarely used as<br />

an analytical category and was inexistent as a<br />

category of public intervention. While at a<br />

marginal level a form of frictional unemployment<br />

(the gap between one’s job and the<br />

successive one, when one changes jobs) could


CATHERINE SPIESER<br />

be found, the number of people explicitly<br />

unemployed was never significant, as few remained<br />

without a job for long. 6 In that context,<br />

the definition of unemployment was written<br />

in the law only in 1989. The fact that such a<br />

conception of unemployment was the only existing<br />

one in the analyses of labour allocation<br />

carried out before 1989 probably explains the<br />

somewhat prolonged belief of many Polish analysts<br />

and policy-makers that unemployment<br />

was a natural side effect of transition that would<br />

resolve itself through market mechanisms.<br />

In 1989, the initial government proposal for<br />

an unemployment benefit scheme forecasted a<br />

moderate increase in the number of unemployed<br />

(300 000). In reality, registered unemployment<br />

jumped from 55,000 people (0.2%) to<br />

1,125,000 (6.1%) within twelve months; more<br />

than one million people became unemployed<br />

in 1990 alone. The registered unemployment<br />

rate increased steadily during the 1990s and<br />

peaked at 20% in 2002-2003 (see table 2). By<br />

2003, more than one in two registered jobseekers<br />

had been without a paid job for more<br />

than a year. The trend only reversed with EU<br />

accession. In 2005, unemployment started to<br />

decrease, which is explained both by the large<br />

numbers of Poles who emigrated to other<br />

EU countries, which had opened their labour<br />

markets in 2004 (UK, Ireland and Sweden),<br />

and to an increase in job creation in Poland<br />

itself.<br />

The Employment Act of 1989, revised in 1991, set<br />

the basis for new labour market governance and<br />

institutions compatible with a capitalist market<br />

economy and the conditions of eligibility for<br />

unemployment compensation. It introduced<br />

an initially broad definition of unemployment,<br />

which was subsequently restricted on several<br />

occasions in later years. Unemployment grew<br />

as a result of the combination of uncertain<br />

economic conditions, wide-scale economic<br />

restructuring, adaptation to a changing market<br />

environment, hardening budget constraints on<br />

large state-owned enterprises, and dismissals<br />

becoming an option to adjust workforce thanks<br />

to the changing governance of work.<br />

page 129


THE POLITICS OF LABOUR MARKET ADJUST-<br />

MENT IN POST-1989 POLAND<br />

Table 2. Employment and unemployment in Poland (% of active population)<br />

1990<br />

1991<br />

1992<br />

1993<br />

1994<br />

1995<br />

1996<br />

1997<br />

1998<br />

1999<br />

2000<br />

2001<br />

2002<br />

2003<br />

2004<br />

2005<br />

2006<br />

2007<br />

2008<br />

Registered<br />

unemployment<br />

rate<br />

Employment<br />

rate<br />

(LFS)<br />

6.1 11.4 14.3 16.4 16 14.9 13.2 10.3 10.4 13.1 15.1 17.5 20 20 19.0 17.6 14.8 11.2 9.5<br />

n/a n/a 53.3 52.1 51 50.7 51.2 51.5 51 48 47.4 45.5 44.1 44 45.1 45.9 47.5 49.5 51<br />

Source: employment services (data end of year) and labour force survey (Q4)<br />

page 130<br />

The introduction and erosion of the<br />

unemployment benefit<br />

In the early 1990s, policy-makers were<br />

concerned that the surge of unemployment<br />

and a temporary deterioration of economic<br />

conditions could put regime change at<br />

risk. An unemployment benefit was swiftly<br />

introduced as the major instrument in view<br />

of alleviating the consequence of losing one’s<br />

job. While the government response included<br />

both passive and active labour market policies,<br />

the first largely prevailed. The Employment<br />

Act, which became the Act on Employment and<br />

Unemployment in 1991, established a network of<br />

public employment offices, an unemployment<br />

compensation scheme, a dedicated Labour<br />

Fund, and limited active labour programmes 7 .<br />

The Labour Fund, which served to<br />

finance them, was relying primarily on<br />

state subsidies (up to three-quarters<br />

of the total) and, to a lesser extent, on<br />

social contributions.<br />

The first measures could appear generous<br />

in the context. The level of benefit was<br />

initially calculated on the basis of the last<br />

remuneration and length of unemployment<br />

with a starting level of 70% (within the limit<br />

of the average wage) during the first three<br />

months, subsequently falling but unlimited in<br />

time. When a significant rise of unemployment<br />

was expected, this was a generous and<br />

costly scheme, which would quickly become<br />

unsustainable. It is highly likely that the initial<br />

generosity of the scheme aimed to achieve a<br />

peaceful institutionalization of unemployment<br />

in Poland: ‘the government, seeking to gain<br />

social acceptance for its far-reaching reforms,<br />

was more interested in a temporary solution’<br />

(Gardawski 2002c: 2). This law contained some<br />

peculiarities: there was no condition related<br />

to previous employment and young graduates<br />

entering the labour market were granted a<br />

preferential unemployment benefit which could<br />

reach up to 200% of the minimum wage, even<br />

in the absence of employment history 8 (MPiPS<br />

1995: 9; Gardawski 2002c).<br />

Quite logically, from 1991 onwards, a number<br />

of successive measures aimed to impose an<br />

increasing number of restrictions on the


CATHERINE SPIESER<br />

general conditions of eligibility and length<br />

of unemployment benefit. First, a 12-month<br />

limit was introduced, with the possibility of<br />

extending the benefit to 18 months in total<br />

for people with a long employment history.<br />

The level of the benefit was linked to the<br />

local unemployment situation. Both the lower<br />

and upper limit of the benefit amount were<br />

lowered drastically: it could be as low as 33%<br />

of the average wage but not higher than the<br />

average wage. Restrictions on the benefit for<br />

unemployed graduates were also introduced<br />

in parallel. The relationship between the<br />

level of the benefit and one’s wage in the last<br />

job was completely eliminated in 1992: the<br />

unemployment benefit became a flat 36% of<br />

the average wage in the national economy. As<br />

a result, it was perceived as a measure of social<br />

assistance, rather than an entitlement deriving<br />

from one’s contributions paid to a social<br />

insurance fund. In 1996, the mode of calculation<br />

of the benefit level was reformed so that it<br />

would allow for adjustment independently of<br />

a set level of the average wage, which made<br />

it possible for further lowering of the benefit<br />

to wage ratio (Gardawski 2002c). In 2004 the<br />

rules were amended again. Although the Polish<br />

system is formally an unemployment insurance<br />

with obligatory contributions calculated as<br />

a percentage of salary, the benefit has, over<br />

the years, become a flat amount that varies<br />

only slightly according to work experience. 9<br />

Generally speaking, the unemployment<br />

benefit is granted for six months, but this can<br />

be extended in districts (powiats) marked by<br />

a level of unemployment higher for people<br />

who have a long working career behind them.<br />

In 2004, the Act on employment promotion and<br />

labour market institutions also introduced tighter<br />

conditions of eligibility for the unemployment<br />

status. To qualify, one needed to be a Polish<br />

or EU citizen between 18 and 60 (women)<br />

or 65 (men) years of age, not employed, not<br />

involved in training nor in any kind of paid<br />

work, not entitled to an old-age or invalidity<br />

pension, not owning more than two hectares<br />

of land, but willing and available to start full<br />

time work immediately, and registered with<br />

the local employment office.<br />

page 131


THE POLITICS OF LABOUR MARKET ADJUST-<br />

MENT IN POST-1989 POLAND<br />

Table 3. Unemployment benefit coverage and replacement rate<br />

1990<br />

1991<br />

1992<br />

1993<br />

1994<br />

1995<br />

1996<br />

1997<br />

1998<br />

1999<br />

2000<br />

2001<br />

2002<br />

2003<br />

2004<br />

2005<br />

2006<br />

2007<br />

Entitled to benefit<br />

(% of the unemployed<br />

registered)<br />

79 79 52 48 50 59 52 30 23 24 20 20 17 15 14 14 14 14<br />

Unemployment<br />

benefit (% of Polish<br />

average wage)<br />

19.6 34.2 37.9 36 37 36.7 33.4 32 30.5 23.8 23.3 23.1 23.4 22.9 22 21.9 21.5 20<br />

Source: Ministry of Economy and Labour (data end of year)<br />

While 79% of the unemployed received<br />

income support from the unemployment<br />

insurance in 1990-1991, the proportion of<br />

the unemployed covered by the benefit started<br />

to decrease significantly from 1992 (table 3).<br />

In 1999 there were 2.3 million unemployed,<br />

out of which 554 000 (almost one in four)<br />

received an unemployment benefit. In 2002 by<br />

comparison, there were 3.2 million unemployed<br />

(almost one million more) while the number<br />

of recipients of the unemployment benefit<br />

had slightly decreased, with only 539 000<br />

being eligible. The proportion of unemployed<br />

people entitled to the benefit sunk to 14%<br />

in 2004 and has remained at that level since.<br />

Such a drastic reduction of the eligibility<br />

for unemployment benefits was triggered<br />

by the combination of the limited duration<br />

of the benefit and an increasing<br />

unemployment duration. With many<br />

page 132 unemployed remaining jobless for a<br />

long time (more than half for longer<br />

than a year from 2002), the number<br />

of beneficiaries declined mechanically over<br />

the years to become a marginal proportion of<br />

the unemployed, falling below one in five in<br />

2005. The people who stopped being eligible<br />

for benefits over time are unlikely to receive<br />

any other form of income replacement and<br />

may only qualify for basic social assistance like<br />

food aid. As Gardawski (2002c) noted, in 2000,<br />

the average annual subsistence allowance paid<br />

by the social services barely amounted to one<br />

month of the average wage. Survey data on the<br />

economic means of the unemployed confirms<br />

that social assistance is not a source of income<br />

for those left without benefit (ISSP 1997).<br />

Meanwhile, the level of the unemployment<br />

benefit, which is determined by the Ministry<br />

of Labour and Social Policy, decreased in a<br />

severe manner (table3). The replacement rate,<br />

an indicator showing the level of the benefit<br />

in relation to wages 10 , stood at 76% of the<br />

minimum wage and 30.5% of the average<br />

wage in 1998, whereas one decade later it<br />

accounted for only 49% of the minimum wage<br />

(2008) and 20% of the average wage (2007) 11 .<br />

Both developments had an important social<br />

impact: further impoverishment of those who<br />

remained in unemployment for a long time.<br />

In 1997, according to survey data, only 22% of


CATHERINE SPIESER<br />

the unemployed mentioned the unemployment<br />

benefit as their main source of economic<br />

support. 50% relied primarily on partner or<br />

family support and only 5% on social assistance<br />

(ISSP 1997).<br />

2.2. Measures facilitating labour market exit<br />

while bypassing the unemployment status<br />

Neither the worsening economic situation of<br />

the unemployed nor the reforms restricting<br />

the unemployment benefit triggered specific<br />

collective mobilization in Poland. These issues<br />

were not among the priorities on the agenda of<br />

trade unions, except in a few specific instances.<br />

Things differed when a large number of workers<br />

with a strong tradition of mobilization faced a<br />

deterioration of their work situation. In effect,<br />

‘the political threat posed by unemployment’<br />

(Baxandall 2003: 253) was primarily in the<br />

discontent of politically influential workers<br />

still in employment who risked losing their<br />

jobs. There were two major instances: the<br />

process of restructuring of strategic sectors in<br />

which workers had enjoyed a privileged status<br />

and workers with a long career behind them<br />

and no future in the new market society were<br />

concerned. In view of avoiding social conflict,<br />

these categories of people were often granted<br />

special compensation that not only bypassed but<br />

also undermined the standard unemployment<br />

benefit.<br />

This resulted in a segmentation of policies<br />

addressing unemployment: the jobless were not<br />

covered by one universal scheme, but split among<br />

a variety of compensation or social security<br />

mechanisms, which some saw as a deliberate<br />

government strategy to ‘divide and pacify’<br />

groups opposing market reforms (Vanhuysse<br />

2006). Without going that far, these policy<br />

choices clearly gave more favourable conditions<br />

to the groups that had the greatest capacity to<br />

mobilize against economic transformations,<br />

workers with a long career under the previous<br />

regime who had no future in the capitalist<br />

economy, and workers in strongly unionized<br />

sectors such as heavy industry and mining.<br />

Aside these particularistic schemes, the<br />

universal unemployment benefit set up as early<br />

as 1990 quickly became marginal as a result<br />

of successive reforms. The unemployed, hardly<br />

identifiable as a social group, neither developed<br />

a collective consciousness nor uniform<br />

interests in the face of welfare reforms; the few<br />

instances of mobilisation concerned primarily<br />

the conditions of collective dismissals and early<br />

retirement for workers in specific industrial<br />

sectors.<br />

Collective dismissals and severance payments<br />

Trade unions, which gathered the workers<br />

facing the threat of becoming unemployed,<br />

were potentially the strongest organized<br />

opposition group and retained a significant<br />

mobilization capacity in sectors like steel or<br />

mining 12 . In a few cases of large company<br />

or sector restructuring, the conditions of<br />

unemployment, or more precisely, the conditions<br />

of dismissal led to intense negotiations. The<br />

Act on Dismissals of 1989 set the rules of large<br />

workforce reductions and measures<br />

to protect affected employees and<br />

imposed some obligations on the page 133<br />

employer (notification of the trade<br />

unions in advance; stating the reasons<br />

for redundancies and the number of people<br />

concerned; informing the local employment<br />

office; and developing a program for retraining


THE POLITICS OF LABOUR MARKET ADJUST-<br />

MENT IN POST-1989 POLAND<br />

and re-employment). Dismissed employees<br />

would receive redundancy payments of up to<br />

three months wage. Under the influence of<br />

powerful unions, restructuring plans involved<br />

intense negotiations and complex agreements.<br />

As an example, in the years 1994-1997,<br />

under the threat that the miners’ unions<br />

would block the restructuring of the whole<br />

sector, particularly generous social packages<br />

were granted in the form of significant<br />

one-off severance payments 13 . The mining<br />

sector provides an interesting illustration of<br />

negotiated compensation. Concentrated in<br />

Upper Silesia, 14 the mines and steelworks<br />

had a tradition of strong local trade unions<br />

and better than average welfare entitlements;<br />

they enjoyed more state support than<br />

elsewhere. Restructuring was contentious,<br />

for employees were strongly attached to the<br />

mines, which gave access to various benefits<br />

and social institutions. As a result, dialogue<br />

and coordination among the social partners<br />

was high on the agenda. In spring of 1995,<br />

representatives of socio-political, professional,<br />

local government and economic circles agreed<br />

to cooperate in a program for restructuring<br />

and development in Upper Silesia. A fouryear<br />

reform plan prepared by the Ministry<br />

of Industry in 1996 granted special social<br />

transfers and other subsidies. The regional<br />

leader of Solidarność presented an alternative<br />

scenario calling for more involvement<br />

of the national government and a<br />

page 134 wider consultation of regional and<br />

local actors. The outcome reflected<br />

the traditional power structure of<br />

actors in the region, i.e. the prominence of<br />

industrial actors linked to the largest plants,<br />

which made it difficult to envisage innovative<br />

solutions. Half a dozen successive restructuring<br />

plans were drawn up, but most were never<br />

fully implemented due to industrial conflict.<br />

Nevertheless, the workforce was reduced from<br />

a million people in the 1980’s to a quarter of<br />

this by 2003. Conflicts over collective dismissals<br />

were eventually avoided by granting generous<br />

packages, reflecting the bargaining power of<br />

the miners unions: there were reports of sums<br />

exceeding 10,000 euros to secure a definitive<br />

exit of mining employment (Gardawski 2003).<br />

This contrasts with the steel industry, where<br />

employment was reduced in the same proportion,<br />

but under very different conditions. Until 1998,<br />

jobs were lost principally to retirement or<br />

disability benefits, or transfer to other entities.<br />

In 1999 a social package led to further jobs<br />

reductions, among which slightly less than half<br />

were transferred to other companies and the<br />

rest made redundant (Towalski 2003). In 2003,<br />

a second social package for steelworks, focusing<br />

on activation, was adopted by the government<br />

and endorsed by the sectoral tripartite team.<br />

Its major innovation was to facilitate reemployment<br />

in other industries, by linking<br />

severance payments to enrolment in training<br />

contracts. By Polish standards, restructuring in<br />

the steel sector is an unusually positive example<br />

of working social dialogue in a developmental<br />

perspective. In comparison to the mining sector,<br />

this process was also remarkably peaceful and<br />

conflicts were scarce 15 ; a contrast that can be<br />

traced back both to the different role played<br />

by the unions (obstructing restructuring of the<br />

mines while accepting restructuring in the steel<br />

sector), and to the ultimate objective (closing<br />

down the mines as opposed to reducing<br />

workforce to build smaller, competitive steelmelting<br />

plants).


CATHERINE SPIESER<br />

Organizing exit from employment and<br />

the labour market at once: paths to early<br />

retirement<br />

As in Western Europe in the past (Kohli et<br />

al. 1991, Ebbinghaus 2006), early retirement<br />

provided a widely-used alternative to manage<br />

mass dismissals, reducing their visibility by<br />

the same token. While it existed as a privilege<br />

before 1989, its function changed as it became<br />

a mechanism for employment adjustment.<br />

In addition, after 1990, the pension system<br />

continued to allow a long list of professions<br />

to retire earlier with full pension rights<br />

(Czepulis-Rutkowska 1999: 152). Social<br />

plans accompanying firm restructuring made<br />

extensive use of measures allowing to peacefully<br />

get rid of redundant workers and put them on<br />

the two kinds of inactivity pensions available:<br />

old-age retirement and disability. In 1991,<br />

a regulation targeting people who would be<br />

unable to find new employment allowed those<br />

who had been working for 35 (women) or 40<br />

years (men) to retire with full rights regardless<br />

of age if they had been made redundant (ibid.).<br />

An additional pre-retirement benefit financed<br />

by the labour fund, was later created to bridge<br />

the period between becoming unemployed and<br />

reaching the legal retirement age, targeting<br />

especially the long-term unemployed.<br />

Evidence of the scope of early retirement<br />

in practice is provided by several indicators<br />

regarding people moving from work or<br />

unemployment to retirement before the legal<br />

retirement age. The number of people retiring<br />

significantly exceeded those reaching retirement<br />

age in several given years. In 1991 and 1992,<br />

around 40% of all pensioners had not yet<br />

reached the legal retirement age (Golinowska<br />

1994: 33-35; Orenstein 1995: 191). In 1996<br />

again, 39.5% of all men and 28% of women<br />

who retired had not yet reached retirement<br />

age (ZUS, in Müller 1999: 101). In 1999, one<br />

third of the male workers who retired were<br />

below 60, declining to one fourth in 2001<br />

(ZUS figures). In 1999, still, more than 10%<br />

of men receiving an old-age pension were<br />

below 60. While the number of employed<br />

people fell by 14% between 1989 and 1996,<br />

the number of pensioners (including those<br />

on disability benefits) rose simultaneously by<br />

34%. Pensions clearly played the role of an<br />

additional unemployment benefit scheme. In<br />

2003, according to the Ministry of Economy<br />

and Labour, out of around one million of<br />

unemployed who were receiving some kind<br />

of benefit (less than 30%), slightly more<br />

than half received a pre-retirement benefit,<br />

while only the remaining portion received a<br />

proper unemployment benefit. In 2003, over<br />

half a million people were receiving a preretirement<br />

benefit or allowance. Similarly,<br />

the high rate of certified disability suggests<br />

that disability benefits were in part used as<br />

a functional equivalent of pre-retirement<br />

despite the medical examination required<br />

to certify unfitness to work. In 2002, they<br />

were distributed to 13% of the working-age<br />

population (20-64), and up to 18% of those<br />

aged between 40-55 (Burns and Kowalski<br />

2004: 6-7). The government attempt to reform<br />

the scheme and strengthen controls<br />

in 2003 met with little success.<br />

page 135<br />

Therefore, the standard unemployment<br />

benefit was only one of<br />

several policy instruments used to address<br />

rising unemployment, and not necessarily<br />

the prevailing one. With the heavy reliance


THE POLITICS OF LABOUR MARKET ADJUST-<br />

MENT IN POST-1989 POLAND<br />

page 136<br />

on severance payment to ease dismissals in<br />

strategic sectors, on the one hand, and on<br />

inactivity pensions (early retirement and<br />

disability) to ease the exit from the labour<br />

market of a generation of workers with<br />

outdated skills, on the other, governments<br />

privileged selective schemes at the expense of<br />

universal ones. This contributed to the lack of<br />

visibility of the unemployed.<br />

3. THE CHANGING GOVERNANCE OF WORK AND<br />

THE REVIVAL OF LABOUR LAWS<br />

The shift from universal, centrally managed,<br />

protected standard employment towards more<br />

flexible and decentralised labour relations<br />

involved the retreat of the state from certain<br />

aspects of labour regulation (as part of setting<br />

the institutional foundations for a capitalist<br />

economy), a change of regulatory regime,<br />

and a diversification of forms of work and<br />

employment. Pre-1989 institutions and<br />

employment relations played a significant<br />

role. Unlike the issue of unemployment, the<br />

sphere of employment regulation tended to<br />

be perceived as a redistributive policy arena<br />

(Lowi 1964) in which interests were organized<br />

and represented around the opposition of two<br />

sides.<br />

3.1. Institutionalizing a labour market<br />

The end of the employer-state and<br />

the revival of the Labour Code<br />

Polish labour legislation dated back<br />

to the interwar period and was remodelled<br />

into a Labour Code in 1974, but the text had<br />

lost its role in the ‘command economy’ where<br />

unemployment was banned. The 1974 Code<br />

included the right to work (a formal guarantee<br />

of full employment) and kept some elements<br />

of the early codification: an employment<br />

relationship supposedly based on the freedom<br />

to contract, a distinction between the contract<br />

of indefinite duration, the norm, that of predetermined,<br />

short duration, the exception, and<br />

finally rules for employee dismissal (Surdej<br />

2004b: 13). The small number of modifications<br />

of the Labour Code between 1945 and 1989,<br />

ten at most 16 , testifies that it was a rather<br />

inactive piece of legislation (Gardawski 2002a),<br />

which was revived only after 1989.<br />

At the end of 1989, re-institutionalising<br />

market mechanisms for the allocation of work<br />

and jobs became a necessity, especially with<br />

respect to hiring and firing. However, at the<br />

outset of economic transformations, changing<br />

labour law was a lesser priority as ‘there [was]<br />

a prevailing belief that the government should<br />

take care of the economy first and then try to<br />

develop the legal superstructure’ (Swiatkowski<br />

1990: 45). The major laws needed to prepare the<br />

ground for economic restructuring and labour<br />

market adjustment were passed within the last<br />

four days of 1989 with little involvement of<br />

the parliament: the Act on Collective Dismissals<br />

on 28 December 1989, the Act on Employment<br />

and Unemployment on 29 December 1989,<br />

immediately followed by the programme of<br />

macroeconomic stabilization, also referred to<br />

as ‘Balcerowicz plan’ on 31 December 1989/1 st<br />

January 1990. This first series of laws decidedly<br />

set in motion the process of labour adjustment,<br />

by allowing dismissals, re-establishing<br />

the market and defining employment and<br />

unemployment.


CATHERINE SPIESER<br />

From centralised control on wages to plantlevel<br />

wage bargaining<br />

The second major aspect of the state<br />

disengagement from administrating the<br />

workforce was the liberation of salaries and the<br />

withering away of state control on the level of<br />

wages. While wages were centrally fixed prior<br />

to 1989, the liberalisation of the labour market<br />

and the launch of privatisation brought this to<br />

an end in the rapidly expanding private sector.<br />

Following price liberalisation, the necessity<br />

to fight inflation justified the persistence of<br />

state control on wages through tax-based<br />

policies (ILO 1995a). Excess wage increases<br />

were penalised by a progressive taxation 17 to<br />

avoid fuelling inflation, which led to a real<br />

wage decline. Regulation was mainly targeting<br />

the public sector, thus virtually all workers<br />

initially, and then a decreasing share of them.<br />

The potential for union pressure on wages<br />

was considerably restricted as a consequence.<br />

Tax-based income policies were abandoned in<br />

1995-1996, leaving wage determination to the<br />

social partners.<br />

The Tripartite Commission, in its first version,<br />

provided a forum for wage negotiations<br />

primarily in the state sector. It established<br />

common positions on the growth of average<br />

monthly wages in enterprises during the<br />

third and fourth quarters of 1994; the level of<br />

resources to be allocated to wages in budget<br />

sector institutions in 1995; the maximum<br />

annual growth rate of average monthly wages<br />

in enterprises for 1995, 1996 and 1997; the<br />

expected level of average pay in budget sector<br />

and pay differential in sub sectors (Casale 2001:<br />

10). Union leverage was strengthened by voting<br />

powers which equalled those of government<br />

and employers representatives taken together<br />

(Pankow 1996), but it was undermined by<br />

a lack of cooperation between OPZZ and<br />

Solidarity and the self-restraining behaviour<br />

of the latter. Negotiations were suspended<br />

at the end of 1996. The Commission had<br />

practically no influence on wages in the private<br />

sector, where the absence of both unions and<br />

minimum standards allowed for employer<br />

opportunism and unilaterally imposed wages<br />

and employment conditions. In the mid 1990’s,<br />

wage-bargaining was taking place at the local<br />

plant level in more than 80% of Polish firms<br />

(ILO 1997), often without the presence of a<br />

shopfloor union.<br />

The minimum wage was formally recognised<br />

by the Polish Constitution in 1997 and set at<br />

a uniform rate by the Ministry of Labour and<br />

Social Policy. The government had planned to<br />

differentiate it according to regions in order to<br />

match the variation of average wages, but this<br />

was not adopted (Surdej 2004b: 11). Solidarnosc<br />

stood for a higher level set at 40 % of the average<br />

wage (Solidarity 2001) while opposing the<br />

indexation of the minimum wage on inflation<br />

and the introduction of a lower separate<br />

minimum wage for labour markets entrants<br />

(Casale 2001). A reform of the minimum<br />

wage in October 2002 increased the amount,<br />

changed the way it is set, and established<br />

a lower rate for school leavers 18 (Czarstaty<br />

2002b). According to the new law,<br />

from 2003 onwards the minimum<br />

wage is subject to negotiation in the page 137<br />

Tripartite Commission on the basis<br />

of a government proposal. It is one<br />

of the few subjects on which the trade unions<br />

always managed to cooperate (Kruszczinski,<br />

interview), with little result however. Since


THE POLITICS OF LABOUR MARKET ADJUST-<br />

MENT IN POST-1989 POLAND<br />

page 138<br />

2000, the minimum wage has been wavering<br />

between 35% and 37% of average wage, one<br />

of the lowest rates among EU countries,<br />

nearing the pre-poverty income level which is<br />

estimated at 30% of average wage 19 .<br />

3.2. Successive reforms of the Labour Code:<br />

flexibility po-polsku<br />

They took place in four stages. In 1995-1996, a<br />

first, limited attempt to modify the text aimed<br />

at adapting it further to the new economic<br />

context. Between 1997 and 2001, the second<br />

attempt to modify the labour code was subject<br />

to trade union pressure to protect standard<br />

employment against deregulation. From 2001,<br />

a clear move toward de-regulation and greater<br />

institutionalised flexibility signalled a revival<br />

of the Labour Code reform. Nevertheless,<br />

interestingly, the government stepped<br />

backwards on some issues in 2003-2004 when<br />

it had to align rules with European framework<br />

legislation and policy guidelines in accordance<br />

with the EU accession process.<br />

A limited move to further adapt the old<br />

Labour Code (1995-1996)<br />

The issue of a fundamental reform of the<br />

labour code came back on the political<br />

agenda in 1995 as it became clear that the<br />

existing labour code did not provide a suitable<br />

framework; for instance, it did not<br />

impose any limitation on the renewal<br />

of fixed-term contracts, which came<br />

to be widely used.<br />

In 1996, the initiative for changes in the labour<br />

law came from a government supported by a<br />

centre-left coalition (SLD-Labour Union<br />

[UP]-Polish People’s Party [PSL]). To prepare<br />

for this, an Extraordinary Parliamentary<br />

Commission for the Modification of Labour<br />

Law worked from July 1994 until February<br />

1996 under the guidance of Wit Majewski, an<br />

SLD representative. However, most proposed<br />

modifications were elaborated by an expert<br />

committee for the reform of the labour law<br />

composed mainly of labour law professors,<br />

operating as a standing advisory body to the<br />

Ministry of labour and social policy since<br />

1990, with the implicit mission to design a new<br />

labour law for a social market economy (Surdej<br />

2004a). The Parliamentary Commission, acting<br />

to draft an acceptable reform compromise,<br />

held meetings with the participation of<br />

representatives of the major trade unions<br />

(OPZZ and Solidarnosc), employers associations<br />

(the KPP confederation, Business Centre Club<br />

[BCC], Polish Business Roundtable [PRB])<br />

and two public institutions closely involved<br />

in the matter: the Social Security Institution<br />

(ZUS) and the National Labour Inspectorate<br />

(PIP). A law was voted that eliminated<br />

outdated legal provisions and brought greater<br />

uniformity of regulation for employment in the<br />

public and private sectors (Kwiatkowski et al.,<br />

2001: 25; Czarzasty 2002a).<br />

The most contentious issue was the definition<br />

of the employment contract. The spreading<br />

practice of bypassing the labour code by using<br />

task-based contracts for assignments that, given<br />

their regularity and a unique employer, would<br />

normally require more binding employment<br />

contracts, had revealed loopholes in the<br />

existing legislation. This happens at the expense<br />

of worker’s protection: the Labour Code by<br />

definition only governs employment contracts,<br />

while contracts covering the execution of a


CATHERINE SPIESER<br />

precise task within a specific, limited time<br />

frame (the so-called Polish civil contracts)<br />

fall under the rules of the Civil Code, which<br />

means that the contractor is neither considered<br />

an employee nor protected against employers’<br />

abuse (Streeck 2005). In an attempt to remedy<br />

the situation, the Extraordinary Parliamentary<br />

Commission put forward a proposal to modify<br />

the legal definition of employment (Surdej<br />

2004a, 30).<br />

The trade unions, the labour inspectorate<br />

(PIP) and the Social Insurance Institution<br />

(ZUS) called for the introduction of a legal<br />

provision stating that every job automatically<br />

implied an employment contract unless the<br />

employer proved that it qualified for an agency<br />

contract. The proposal was opposed by the<br />

Ministry of Labour and Social Policy and<br />

eventually rejected with the argument that<br />

it would have created legal uncertainty and<br />

high implementation costs. The compromise<br />

consisted in adopting a solution that defined<br />

the employment contract as ‘a work under<br />

principal’s supervision’ (Surdej 2004a: 30-31),<br />

as opposed to task-based contracts designed<br />

in principle for independent workers. This<br />

seems an insufficient measure given that some<br />

enterprises were already using civil contracts<br />

in abnormal situations. A few other changes<br />

were introduced in the Labour Code, without<br />

putting its continuity into question. The most<br />

important of these is a restriction on multiplying<br />

fixed-term contracts: only two such contracts<br />

between a given employee and a given employer<br />

can succeed to each other, with a renewal for a<br />

third contract automatically taking the shape<br />

of an undetermined, long-term one.<br />

While the two main trade union federations<br />

proved satisfied with the changes, the Labour<br />

Code in general continued to be criticised by<br />

employers for being too employee-friendly, too<br />

rigid for small businesses, and insufficiently<br />

amended (Czarzasty 2002a; Surdej 2004a). In<br />

effect, the lack of radical changes to the Code<br />

at this stage could be seen as a union-friendly<br />

compromise of the ruling coalition composed<br />

of the Democratic Left Alliance (SLD) and<br />

the Polish People’s Party (PSL) (Czarzasty<br />

2002a).<br />

Trade unions, the protection of standard<br />

employment and the defeat of reform attempts<br />

(1997-2001)<br />

By 1997, the SLD and PSL coalition had<br />

thus introduced some non-radical revisions<br />

to the labour code while keeping the bulk of<br />

it unchanged, which was seen as damaging<br />

for business and interpreted as an indication<br />

of both union power and employers’ failure<br />

to organize and lobby efficiently for their<br />

interests. With rising unemployment, labour<br />

law reform was taken more seriously; it was<br />

on the agenda of the AWS coalition (Electoral<br />

Action Solidarity), which returned to power<br />

in 1997. Employers also became more active,<br />

putting forward a large number of proposals<br />

to amend the labour code. Two reform projects<br />

were especially significant: the union proposal<br />

for shortening the work week and a series<br />

of liberalising measures proposed<br />

by businesses; they triggered an<br />

ongoing battle over labour law reform page 139<br />

opposing the two sides for several<br />

years (McMenamin 2005: 224) 20 .<br />

The Labour Code reform was also put<br />

on the political agenda by a coalition of


THE POLITICS OF LABOUR MARKET ADJUST-<br />

MENT IN POST-1989 POLAND<br />

business associations that brought together<br />

the Confederation of Polish Employers<br />

(Konfederacja Polskich Pracodawcow – KPP) 21 ,<br />

the Business Centre Club, the Polish Chamber<br />

of Commerce, and the Association of Polish<br />

Artisans, which represented small-sized craft<br />

businesses. This was a well-coordinated effort<br />

benefiting from the administrative support and<br />

technical analysis of the Business Centre Club.<br />

The coalition worked to prepare a detailed<br />

and radical draft bill, aiming to significantly<br />

increase flexibility and reduce labour costs.<br />

Their first proposal was a draft bill focusing on<br />

improving conditions for small and medium<br />

enterprises (SMEs) 22 , a theme to which both<br />

the Freedom Union, the party of Leszek<br />

Balcerowicz, and AWS were attached; but, in<br />

fact, a number of measures adopted within this<br />

frame concerned all enterprises and were aimed<br />

at reforming the labour market in general. The<br />

draft included measures concerning overtime<br />

and fixed-term contracts, which were of<br />

interest to all employers (ibid.: 229-230).<br />

The way in which the bill was presented<br />

largely explains its rejection. Unions saw it as a<br />

provocation. The text had been shown neither<br />

to the government nor to the trade union<br />

Solidarnosc before reaching parliament. It was<br />

discussed only in a specific SME committee, a<br />

favourable audience a priori, but a committee<br />

with no history of passing legislation and no<br />

political weight (ibid.: 232). AWS<br />

and SLD were committed to rejecting<br />

page 140 the proposal. After the SME bill was<br />

rejected in its first parliamentary<br />

reading, business associations and<br />

their political allies turned to a more efficient<br />

active lobbying strategy, i.e. talking to<br />

politicians of the opposite side to see which<br />

elements could become acceptable and trying<br />

to persuade them, lobbying the government<br />

directly and using personal channels rather<br />

than institutional ones (ibid.: 232-234).<br />

In the meantime, a distinct project explicitly<br />

aiming to reform the Labour Code was taking<br />

shape. During the debate on the SME bill,<br />

both left- and right-wing political forces were<br />

publicising proposals concerned with the<br />

duration of the working week and working<br />

time, primarily aiming to satisfy union demands<br />

for a shorter working week. This led to two<br />

draft bills: one from the governing coalition<br />

and one from the opposition, both appearing<br />

sympathetic to unions’ concerns.<br />

The first draft bill was proposed in the Senate<br />

by Solidarnosc and only supported by a faction<br />

of the related political party. It focused on two<br />

measures: reducing the 42-hour working week<br />

to forty hours with no reduction in pay and free<br />

Saturdays in place of old designated free days.<br />

The proposal also included practical provisions<br />

for the implementation of these changes in a<br />

worker-friendly way, and other pro-union or<br />

pro-worker adjustments to regulations (ibid.:<br />

235-236).<br />

The second draft bill was proposed by SLD in<br />

the Sejm. It was supported by the leadership<br />

of the party and was more likely to represent<br />

a compromise between the pro-union and<br />

pro-business factions. The bill ‘was designed<br />

to ensure that AWS could not take the<br />

credit amongst workers, as the party that had<br />

shortened the working week. However, it also<br />

had something to offer employers and was, to<br />

some extent, inspired by the small enterprise<br />

bill. The bill simply declared a 40-hour week


CATHERINE SPIESER<br />

and increased the overtime limit from 150 to<br />

200 hours per year’ (ibid.: 236). In comparison<br />

with the former, the proposal of the left would<br />

have raised the cost of labour significantly, but<br />

it was less of a threat to employers since it did<br />

not provide for free Saturdays and raised the<br />

overtime limit. Both proposals, however, were<br />

leading to more uniform working conditions<br />

across industries (in many state sectors, such as<br />

steel, energy and mining, the shorter 40-hour<br />

week already existed).<br />

Taking its time, the government published a<br />

unique draft in September 1999 attempting<br />

to bring together the three previous proposals,<br />

a ‘compromise between the pro-union bills of<br />

AWS and SLD and the pro-business bill of the<br />

SME committee’ (ibid.: 240). Workers had free<br />

Saturdays, a gradual implementation of the 40-<br />

hour work week, plus two extra days off on the<br />

annual minimum leave. Employers obtained<br />

an extension of maximum overtime allowed, a<br />

cut by half of overtime pay, and the abolition<br />

of restrictions on sequential temporary<br />

contracts. The unions were strongly opposed to<br />

most measures, arguing that not all measures<br />

involved had been discussed in the Tripartite<br />

Commission; and the proposal was buried in<br />

October 1999 as the unions announced that<br />

the MPs connected with them would vote<br />

against the bill (ibid.: 241).<br />

After this failure, the government decided to<br />

limit itself to implementing what the unions<br />

called for: the 40 hour and five-day week, with<br />

a two-year phase-in for the former. This was<br />

passed without the support of the Freedom<br />

Union, while two renewed attempts to pass<br />

bills that would liberalise the labour code were<br />

defeated: a resurrection of the failed SME bill<br />

by the Freedom Union, and a bill introducing<br />

a specific, more liberal labour code for SMEs<br />

aside the regular one (ibid.: 243). Finally, a bill<br />

banning work on Sunday in firms employing<br />

more than 5 people, proposed by a faction<br />

of AWS, was passed with the support of the<br />

Peasant party, small parties and independents.<br />

In the face of many opposing voices, the<br />

law, probably aimed at the foreign-owned<br />

hypermarket chains, was eventually vetoed by<br />

the president.<br />

In conclusion, the period of the third Sejm<br />

was marked by repeated attempts to liberalise<br />

or bypass the labour code, but the continued<br />

pressure of trade unions (in particular<br />

Solidarity, given its strong link to the AWS<br />

coalition) and business lobbying inefficiency,<br />

led to a consolidation of the standard<br />

employment contract. Conditions even<br />

improved with a shortened work week, while<br />

new legal or administrative burdens fell on<br />

employers, such as the requirement to establish<br />

internal company bylaws and social funds<br />

(Gardawski 2002a). SMEs remained subject<br />

to the same requirements as large companies.<br />

Nevertheless, the debate had clearly moved:<br />

the “left” had made some significant steps<br />

towards a more business-friendly position, at<br />

times departing even from the pro-workers<br />

movements of some parts of AWS. Thus, two<br />

increasingly separate types of cleavage were<br />

emerging on the issue of labour law<br />

reform: the usual left-right divide and<br />

a workers-business opposition, while page 141<br />

the Left and workers’ side, on the one<br />

hand, and the Right and employers’<br />

side, on the other hand, were not necessarily<br />

overlapping.


THE POLITICS OF LABOUR MARKET ADJUST-<br />

MENT IN POST-1989 POLAND<br />

The Labour Code and the institutionalisation<br />

of flexibility (2001-2003)<br />

Following general elections in 2001, in the face<br />

of rapidly rising unemployment, the new left<br />

coalition government taking office in autumn<br />

made boosting economic development the<br />

highest priority on the agenda. 23 To achieve<br />

its agenda, the government planned reforms<br />

aiming at a combination of improving<br />

flexibility of the labour market and supporting<br />

SMEs. When Jerzy Hausner (SLD) took up<br />

his post of Minister of Labour and Social<br />

Policy, he declared his intention of introducing<br />

profound changes to the Labour Code in view<br />

of reducing financial costs and administrative<br />

burden for enterprises 24 .<br />

Although the right-wing incumbent<br />

government had been defeated, altogether,<br />

business forces appeared to be better represented<br />

in both the government and parliament.<br />

While a number of trade unionists lost their<br />

seat, a group of deputies representing private<br />

businesses appeared in the Sejm. Jacek<br />

Piechota’s (SLD) nomination as Minister for<br />

Economy – he had previously chaired the<br />

parliamentary committee on SMEs – was a clear<br />

signal: his first intervention was to draw up<br />

and circulate a list of demands from SME<br />

owners (Gardawski 2002a).<br />

A renewal of the government’s<br />

approach to law-making also contri-<br />

page 142 buted to changing the political<br />

climate. In contrast to earlier government<br />

practices, Hausner signalled<br />

his commitment to pursuing such a serious<br />

reform in consultation with all the significant<br />

institutional partners. His first task was,<br />

therefore, to revive the Tripartite Commission,<br />

the institution for social dialogue paralysed<br />

since OPZZ’s withdrawal. The innovative<br />

method was initially welcomed by the trade<br />

unions, since it appeared to be radically<br />

different from the way in which the previous<br />

government had prepared a law – behind closed<br />

doors, without consulting all sides involved.<br />

Measures geared towards enterprises were<br />

grouped in the programme ‘Enterprise above<br />

all’, which was approved in the beginning of<br />

2002. The title of the document clearly reflects<br />

the strong belief of government elites that easing<br />

the burden for entrepreneurs would speed<br />

up economic growth and ultimately increase<br />

the number of jobs available. A proposal for<br />

changes to the labour code was prepared by the<br />

Ministry of Labour and Social Policy.<br />

The package of labour law changes was<br />

presented and discussed with the social<br />

partners in a Tripartite Commission meeting<br />

on 28 January 2002. 25 The initial negotiations<br />

appeared to be promising, with media reports<br />

in early 2002 stating that agreement seemed<br />

imminent between the leadership of OPZZ<br />

and Solidarnosc. The two main trade unions<br />

seemed to agree on measures aiming to reduce<br />

administrative costs falling on enterprises,<br />

although they rejected the measures aiming to<br />

reduce the role and function of trade unions in<br />

collective agreements (a right for employers to<br />

dissolve collective agreements against unions)<br />

(Gardawski 2002b). The course of events took<br />

another direction, however, with Solidarnosc<br />

eventually rejecting the proposal.<br />

Nevertheless, the trade union OPZZ, the<br />

employers associations PKPP and the Polish


CATHERINE SPIESER<br />

Craft Association (ZRP) worked out a<br />

common position, stating their reservations on<br />

several aspects, ranging from the dissolution of<br />

collective agreements and conditions of leave,<br />

to severance and overtime pay (Gardawski<br />

2002b). Two agreements were signed on 19<br />

April and 8 May 2002, without Solidarnosc.<br />

The union demonstrated in Warsaw against<br />

the government proposal 26 . However, the<br />

consequences of this opposition were limited as<br />

the union had lost parliamentary representation<br />

and protest remained circumscribed 27 . The<br />

government made some changes to the<br />

proposal consistent with trade unions’ demands<br />

and decided to move forward and submit<br />

the project to Parliament, despite the lack of<br />

unified support of the social partners.<br />

The Sejm adopted the law modifying the<br />

Labour Code on 26 July 2002 with the votes<br />

of the governing social-democratic coalition<br />

supported by the Civic Platform (PO),<br />

following which it was passed at the Senate<br />

on 7 August 2002 (Surdej 2004a: 34). For this<br />

success, and his reactivation of social dialogue<br />

at the national level, Hausner was deeply lauded<br />

by Gazeta Wyborcza, one of Poland’s most<br />

influential (liberal) daily newspaper, which<br />

praised him in the following terms: ‘rather<br />

than endlessly reminding all and sundry about<br />

social justice, Minister Hausner has created<br />

a language in which he combines economic<br />

slogans with ones about the building of civil<br />

society, with academic knowledge thrown in<br />

for good measure. (…) he has gained standing<br />

(if not necessarily affinity) among trade union<br />

people’ (18 October 2002, cited by Gardawski<br />

2002a). Unions, on the other hand, seemed<br />

to have fully internalised the constraints of a<br />

market economy and given the unemployment<br />

climate, started to buy the argument that a<br />

limited degree of de-regulation was beneficial<br />

to counter unemployment, and in the final<br />

analysis, employment-friendly (Kruszczinski<br />

interview, OPZZ interview).<br />

Meanwhile, before the government proposal<br />

was to be examined by parliament, PO<br />

had presented its own, more radical project<br />

which was subsequently abandoned. It<br />

contained many business-friendly measures:<br />

the elimination of rule limiting the number<br />

of successive fixed-term contracts, the right<br />

to terminate the employment contract of an<br />

employee absent for longer than a month,<br />

a reduction of sick pay entitlements and a<br />

lowering of the employer burden in sick pay<br />

to the first week, a significant increase of<br />

overtime allowance (from 150 to 240 hours<br />

per worker per year), and finally the right<br />

for an enterprise in danger of bankruptcy to<br />

suspend some provisions of the Labour Code<br />

(Czarzasty, 2002a).<br />

The actual changes introduced by the law of<br />

2002 are well captured by the redefinition of<br />

the employment relationship, aiming to limit<br />

the substitution of the employment contract<br />

by task-based contracts not subject to the<br />

Labour Code. The employment relationship<br />

exists ‘irrespective of the name of contract<br />

made by the parties’ (article 22.1.1) and<br />

establishes that ‘the employee agrees<br />

to perform a specified type of work<br />

for and under the directions of the page 143<br />

employer, in a place and at times<br />

designated by the employer, and the<br />

employer agrees to employ the employee in<br />

return for remuneration’ (Labour Code, article<br />

22.1). Furthermore, a ban on abusive civil


THE POLITICS OF LABOUR MARKET ADJUST-<br />

MENT IN POST-1989 POLAND<br />

contracts is spelt out as follows: ‘a contract of<br />

employment shall not be replaced by a civil<br />

law contract on the same terms of performing<br />

work as those specified’ (article 22.1.1). While<br />

the aim was to render illegal the practice<br />

of dependent self-employment based on<br />

unprotected civil contracts, these rules remain<br />

insufficient to grant an effective protection<br />

given weak enforcement.<br />

Aside this, a considerable amount of measures<br />

introduced by these new laws had the effect<br />

of increasing the flexibility of labour. First, the<br />

law of 2002 suspended, until the day of EU<br />

accession, the rule imposing that after two<br />

fixed-term contract an employee should be<br />

offered a undetermined one 28 . This can be seen<br />

as a way to increase numerical flexibility, but it<br />

is detrimental to employment stability since it<br />

allows for an indefinite number of short-term<br />

contracts in a row. Secondly, by modifying<br />

the law on collective dismissals of 1989, it<br />

diminished both their cost, as it introduced<br />

more restrictive conditions for being granted<br />

severance payment, and their visibility by<br />

limiting the consultation requirement to<br />

the enterprise union instead of, previously,<br />

the regional office. Procedures for collective<br />

dismissals were also shortened and simplified.<br />

However, as the next session will show, new<br />

legislation in 2003 had to step back on some<br />

of these measures. Thirdly, the law expanded<br />

working time flexibility as it modified<br />

the way in which working hours are<br />

page 144 calculated, allowing for more flexible<br />

arrangements in the organisation of<br />

work and making maximum working<br />

time less of a constraint. Furthermore, it<br />

cut significantly the level of overtime pay,<br />

for which the employer can from then on<br />

also grant free time. In accordance with the<br />

government objective of facilitating economic<br />

activity, SMEs were granted an exemption<br />

from a number of internal company regulations<br />

considered bureaucratic and cumbersome<br />

procedures of little use in these small units<br />

(working and remuneration codes), while<br />

health and safety regulations and procedures<br />

were simplified for all employers.<br />

The synergy between the government objective<br />

of stimulating economic development and<br />

labour and social reforms was reinforced when<br />

the Ministry of Economy and the Ministry<br />

of Labour and Social Policy were merged as<br />

one single portfolio placed in the hands of<br />

Jerzy Hausner in July 2003.29 In the summer<br />

2002, a special legal commission for the<br />

revision of the Labour Code (Commission<br />

for the Codification of Labour Law - Komisja<br />

Kodyfikacyjna Prawa Pracy) was instituted for a<br />

duration of four years 30 . An independent body<br />

gathering experts in the matter of labour law, it<br />

was headed by Michal Sewerynski, a recognized<br />

Law professor (who later became Minister of<br />

education in 2005). While such commissions<br />

are regularly instituted in Poland to reform a<br />

wide body of laws constituting a Code, this<br />

intensified the technical character of both<br />

labour law reform and the transposition of the<br />

EU acquis into national law. In sum, it resulted<br />

in further de-politicizing the process. In reality,<br />

the commission had an implicit objective to<br />

rewrite the Labour Code entirely: its primary<br />

mission was to elaborate the foundations for a<br />

‘re-codification of individual labour law’ and a<br />

‘codification of collective labour law’, as well as<br />

drafting legal projects to meet EU standards<br />

with a view to accelerate the integration of EU<br />

provisions into Polish law.


CATHERINE SPIESER<br />

Legislative changes induced by EU accession:<br />

limits on flexibility? (2003-2004)<br />

Although this was at the margin of legislative<br />

alignment with the EU acquis, labour market<br />

regulation was affected by the preparation for<br />

EU membership 31 . The requirement to integrate<br />

the EU acquis into national law applied in two<br />

areas that relate to employment regulation: a<br />

large body of detailed and binding rules needed<br />

to implement the free movement of persons<br />

and, more of interest, selected provisions<br />

concerning employment and social policy<br />

(negotiation chapter 13), which contained little<br />

binding regulations at the time, but a number<br />

of directives requiring transposition into Polish<br />

law.<br />

Therefore, the terms of the debate on lawmaking<br />

slightly changed, taking a more<br />

technical character with the urgent necessity to<br />

bring Polish legislation in line with European<br />

norms as accession became a tangible and<br />

proximate deadline set on the 1 st of May 2004.<br />

The accession negotiations were closed at the<br />

Copenhagen Council on 13 th December 2002.<br />

In 2003, legislative work focused on completing<br />

the integration of the acquis in the area of free<br />

movement and social policy and employment,<br />

leading to the adoption of three texts: the<br />

Act of 13 March 2003 on special rules for<br />

terminating labour relations for reasons not<br />

tied to the employees, 32 the Act of 9 July 2003<br />

on the hiring of temporary workers 33 and the<br />

Act of 14 November 2003 on amendments to<br />

the Labour Code and related laws, 34 aiming to<br />

refine certain aspects of labour legislation and<br />

finalise the adaptation of individual labour law<br />

to EU requirements.<br />

The impact of this legislation in terms of<br />

flexibility and security is a mixed picture. On the<br />

one hand, it is a step backwards in comparison<br />

with previously adopted measures aiming<br />

at greater flexibility. The ban on more than<br />

two consecutive fixed-term contracts was reintroduced,<br />

albeit with a list of exclusions. The<br />

Act of 13 March 2003 on collective dismissals<br />

considerably expanded the requirement for<br />

information and consultation of employees<br />

in the case of mass layoffs: the right could be<br />

exercised even in the absence of a union within<br />

the enterprise concerned; a 30-day notice<br />

should be respected; all employees dismissed<br />

for reasons beyond their control were eligible<br />

for severance payment without exceptions; and<br />

the labour office should also be notified. On<br />

the other hand, the rules concerning working<br />

time were in some respect changed again,<br />

introducing a more flexible calculation and an<br />

increase in the daily working hours, along with<br />

new rules facilitating work during the weekend<br />

(Saturday and Sunday). The latter, however,<br />

was better specified, allowing for separate<br />

contracts to be created for weekend work.<br />

More decisively, the Act on temporary work<br />

formally institutionalised this type of flexible<br />

work, thereby, giving temporary workers a real<br />

status by providing them with protection under<br />

the labour law. It also defined their rights and<br />

obligations, introduced a desperately needed<br />

regulation for temporary work agencies and<br />

regulated the relationship between<br />

the last employer, the temporary<br />

worker and the agency.<br />

page 145<br />

Altogether, elements from thirty<br />

different directives were integrated into<br />

the Polish Labour Code in preparation for<br />

membership of the European Union 35 . In the


THE POLITICS OF LABOUR MARKET ADJUST-<br />

MENT IN POST-1989 POLAND<br />

page 146<br />

majority of cases, the coordination, monitoring<br />

of, and information on these legal changes were<br />

carried out by a small legal office responsible<br />

for labour law within the Ministry of Labour<br />

and Social Policy. On the eve of accession,<br />

the last ‘Comprehensive Monitoring Report<br />

on Poland’s preparations for membership’<br />

published by the European Commission in<br />

October 2003, reported two areas where further<br />

attention and action was deemed necessary.<br />

First, it stressed that the combination of high<br />

unemployment and low employment rates<br />

constituted a key economic issue that the<br />

government needed to address. Secondly, the<br />

Commission assessment reported as follows<br />

on the state of legal readiness: ‘Poland’s<br />

Labour Code is only partially aligned with<br />

the acquis on labour law and completion of<br />

transposition must be prioritized. Legislative<br />

alignment still needs to be completed in the<br />

fields of working time (including sectoral<br />

working time), part-time work, transfer of<br />

undertakings and posting of workers’ (EC<br />

2003: 39). Some of these issues were simply<br />

remedied in the law passed in November 2003.<br />

However, since Poland joined the EU in May<br />

2004, the pressure of conditionality and the<br />

objective of accession have disappeared and the<br />

transposition of European norms has become<br />

a more politicized process. This was illustrated,<br />

for instance, by the negotiations surrounding<br />

the drafting of the law on information and<br />

consultation of employees, which<br />

required the design of institutions<br />

for employee representation at the<br />

enterprise level (a particularly salient<br />

issue for unions).<br />

4. POLICY OUTCOMES, EMERGING WELFARE RE-<br />

GIME AND THE POLITICS OF REFORM<br />

For the past twenty years, Polish labour<br />

market policies were being put on the agenda<br />

with varying degrees of priority, introduced,<br />

reformed and fine-tuned. In the early 1990s,<br />

a mix of universal and corporatist features<br />

could be identified: an insurance-based income<br />

replacement scheme with universal eligibility,<br />

but decreasing levels of benefits. In later years,<br />

policies concerning unemployment resemble<br />

those in a minimalist welfare state: more<br />

restrictive eligibility criteria, unemployment<br />

benefits of shorter duration and lower coverage<br />

rate. The social insurance logic is fading and<br />

income support to the unemployed failed to<br />

become a legitimate part of the welfare state.<br />

Unemployment was institutionalized as a<br />

social status giving limited rights while policies<br />

heavily relied on inactivity benefits to ease exits<br />

of the labour market, addressing primarily the<br />

political threat posed by unemployment rather<br />

than seeking to provide a universal support<br />

to alleviate social deprivation associated<br />

with joblessness. In 2002-2004, formal<br />

and discursive compliance with European<br />

guidelines and instruments served to reestablish<br />

labour market policies as a central area<br />

of public policy and triggered a re-orientation<br />

in favour of activation measures. Despite this,<br />

policies addressing labour market risks remain<br />

essentially minimalist and residual; priority was<br />

given to the fight against unemployment, as the<br />

debate on reforming labour law exemplify.<br />

Employment regulation, primarily based on<br />

labour law, was gradually aligned with the<br />

functioning of a capitalist labour market before<br />

encountering the challenge of organising flex-


CATHERINE SPIESER<br />

ibility that other European countries have<br />

faced. The early reforms of labour law consisted<br />

in re-establishing market mechanisms for the<br />

allocation of work, adjustment of the workforce<br />

and wage setting. The re-commodification of<br />

labour triggered a decentralisation of decisions<br />

on hiring and firing, but also of the governance<br />

of work more generally, starting with the<br />

negotiation of pay and working conditions.<br />

The issue of ‘deregulation’ then dominated the<br />

debate and the search for the most adequate<br />

legal framework, and flexibility became a major<br />

policy objective toward the end of the 1990s.<br />

The successive attempts to reform the Labour<br />

Code sought to achieve, even if some targeted<br />

the objective more explicitly than others. The<br />

employment contract was redefined. From<br />

2002, various provisions increased working<br />

time flexibility and simplified conditions and<br />

procedures to the advantage of employers.<br />

Overall, however, the rules governing standard,<br />

full-time employment changed less than the<br />

conditions applicable to atypical forms of<br />

work: flexibility was achieved primarily by a<br />

rapidly growing share of workers not covered<br />

by standard employment contracts, but rather,<br />

for instance, work-based contracts ruled by civil<br />

law. While these practices initially developed in<br />

a relatively spontaneous manner, in more recent<br />

years a number of acts were adopted with a<br />

view to providing minimal regulation of the<br />

flexible forms of work (for instance, temporary<br />

workers in 2003), largely with the impulse<br />

of European directives. We are left with a<br />

‘permissive regulation of working conditions’<br />

and ‘permissive labour relations through<br />

deviation’ (Bluhm 2008: 67).<br />

With respect to Esping-Andersen’s welfare<br />

regimes, referred to as ideal-typical<br />

configurations, Poland followed a trajectory<br />

marked by several shifts of regime: a shortlived<br />

universalistic welfare state (initially,<br />

extensive eligibility and unconditional generous<br />

benefits) quickly became unsustainable and<br />

turned into a corporatist system privileging<br />

certain branches (eligibility restricted mainly<br />

to certain well-organised and well-represented<br />

categories), and eventually into a minimalistresidual<br />

welfare state (stricter eligibility and less<br />

generous benefit, accompanied with a discourse<br />

emphasizing greater control and obligations).<br />

The inherited contributory regime in the area<br />

of pensions was consistent with universal<br />

benefits so long as universal employment<br />

with little income differentiation was the<br />

rule; however, it appeared as a contradiction<br />

when this was no longer the case, fostering<br />

the agenda for reform. Some features recall<br />

Southern European welfare systems, which are<br />

based on social contributions but marked by a<br />

high level of segmentation, missing a universal<br />

anti-poverty safety net and concentrating a<br />

high share of expenditures on pensions (Ferrera<br />

1996). They are also known to be impaired by<br />

clientelism and fiscal or contribution evasion<br />

and low administrative capacities, all of which<br />

are well illustrated in Poland, too. Finally, a<br />

fragmentation of social protection replicates<br />

the differentiation of labour market situations<br />

- another distortion typically observed in<br />

Bismarckian and Southern European welfare<br />

states. The whole population is no<br />

longer covered by the same principles<br />

and institutions. Instead, insiders with page 147<br />

full-time, permanent jobs continue<br />

to enjoy relatively good protection<br />

and significant benefits, while ‘outsiders’ with<br />

atypical jobs become increasingly marginalised<br />

by the welfare system.


THE POLITICS OF LABOUR MARKET ADJUST-<br />

MENT IN POST-1989 POLAND<br />

In the original analysis, a welfare regime is<br />

also understood as a stable socio-political<br />

configuration revealing a particular kind<br />

of social contract and consistent policy<br />

orientations across all branches of the<br />

welfare state. In this perspective, the striking<br />

contrast between, on the one hand, the active<br />

involvement of the trade unions in the debate<br />

over labour law reform and, on the other,<br />

their complete absence in the face of the<br />

retrenchment of unemployment compensation<br />

is puzzling. The idea of a consistent ‘welfare<br />

regime’ is undermined by the co-existence of<br />

two worlds of ‘labour market politics’ involving<br />

distinct configurations of actors, which tend to<br />

constitute two separate ‘public policy arenas’. 36<br />

entitlements, is hardly politicised at all. Political<br />

conflict tends to be restricted to particular<br />

regional or sectoral arenas, and what is at stake<br />

is a particularistic compensation rather than<br />

a universal solution. In theory, the actors who<br />

are explicitly involved in the decision-making<br />

process are very similar to those found in the<br />

employment policy arena, but the salience of<br />

policy reform is not, since the unemployed are<br />

not well represented by the union side. The<br />

political salience of unemployment was high<br />

only when it appeared as a threat to workers<br />

in highly unionised sectors, while the general<br />

debate focused on the issue of employment<br />

creation, and thus the flexibility of employment<br />

conditions.<br />

page 148<br />

In what could be termed the ‘arena of employment<br />

regulation’, we can observe something<br />

that resembles ‘a stable and continual conflict<br />

that can only be understood in class terms’<br />

(Lowi 1964: 715), in other words, a typical<br />

configuration of redistributive politics. Two<br />

sides can be identified, as employers and trade<br />

unions were actively negotiating the orientation<br />

and reform of rules governing labour relations,<br />

in terms of a trade-off between flexibility<br />

and employee protection (security). However,<br />

rising unemployment resulted in a convergence<br />

of the seemingly antagonistic policy preferences<br />

of the two sides in a compromise in favour<br />

of more flexibility. The Tripartite Commission<br />

was an important deliberative forum<br />

in which to discuss such compromises,<br />

although in effect agreements were<br />

rarely reached there.<br />

By contrast, in the ‘unemployment policy arena’,<br />

defining the conditions of income support to<br />

the unemployed, even in the face of reducing


CATHERINE SPIESER<br />

NOTES<br />

1<br />

Revised version of the paper presented at the workshop “What<br />

capitalism? Socio-economic change in Central Eastern Europe”,<br />

<strong>Jena</strong>, 29-30 October 2009. I wish to thank the participants for<br />

comments and suggestions.<br />

2<br />

Kornai (2006) gives a good account of the unprecedented and<br />

multidimensional nature of post-communist transformations<br />

3<br />

The issue arises out of ‘a confusion between ideal-types and cases,<br />

with the latter being seen as exemplifiers of the former, rather<br />

than the former being seen as constituents of the latter’ (Crouch<br />

2005: 23).<br />

4<br />

The capacity for self-reliance is seen as a stronger determinant<br />

of a group’s stance on social policy reform than ideological motives<br />

(Baldwin 1990).<br />

5<br />

The experience of unemployment in Polish history in the 1930’s<br />

is only referred to by academic observers, it is not part of the<br />

cognitive frame in which policy-makers and other actors reason<br />

two or more generations later.<br />

9<br />

In practice, the Ministry fixes the amount of the standard<br />

unemployment benefit for people who have worked between 5<br />

and 20 years; those who have worked less than 5 years receive<br />

80% of the standard benefit and those with more than 20 years<br />

work experience are entitled to 120%.<br />

10<br />

Because the unemployment benefit is calculated as a flat<br />

amount unrelated to one’s previous wage, the reference indicators<br />

are the minimum wage and the average wage in the Polish<br />

economy. This should not be confused with the replacement rate<br />

used in contexts where the benefit is calculated on the basis of<br />

one’s previous individual wage, which takes into account individual<br />

wages.<br />

11<br />

These figures are useful indicator for the purpose of crosscountry<br />

comparisons. They should be interpreted in relation to<br />

the growth of real wages before drawing conclusions on their<br />

evolution over time.<br />

12<br />

The illegitimate character of mass dismissals is reflected in<br />

public opinion surveys which reveal a broad consensus on the<br />

idea that ‘the government should provide jobs for everyone’,<br />

as compared to an important divide on the provision of an<br />

unemployment benefits, which is supported by only half of the<br />

respondents (ISSP 1997 and 2006).<br />

6<br />

Frictional unemployment was estimated as not exceeding half<br />

a percentage point in the people’s Republic of Poland (Mlonek<br />

1999). However, universal employment was achieved at the<br />

price of a higher number of workers than needed in many productive<br />

units.<br />

13<br />

In counterpart, they lost their rights to unemployment benefits<br />

(Gardawski 2002c).<br />

14<br />

At the outset of transition, 64 out of Poland’s 66 deep coalmines<br />

and one of the two major steelworks were located in Upper<br />

Silesia (Blazyca 2002: 26).<br />

7<br />

Small business loans, loans to employers for creating jobs, training,<br />

public service employment, and wage subsidy programs.<br />

15<br />

Most strikes in this sector date back to the first<br />

half of the 1990s.<br />

page 149<br />

8<br />

The special benefit was lowered (though not cancelled) in 1991;<br />

yet it remained higher than the standard unemployment benefit<br />

(MPiPS 1995: 9).<br />

16<br />

To be compared with 20 amendments between 1989 and<br />

2002.


THE POLITICS OF LABOUR MARKET ADJUST-<br />

MENT IN POST-1989 POLAND<br />

17<br />

The tax on wage increase (popiwek), was initially targeting<br />

the total wage bill of enterprises, which came at the expense of<br />

employment. It was revised in 1991 to target average individual<br />

wages.<br />

24<br />

Changes in labour law in 2002 ‘were meant to reduce bureaucracy<br />

in labour relations, reduce the costs associated with hiring of<br />

workers, and to increase the flexibility of working time.’ (MEL<br />

2004: 20)<br />

18<br />

Such a measure aimed to foster youth employment, at a time<br />

when unemployment was exceeding 40% for people in the 15-24<br />

age range.<br />

19<br />

To be compared with 34% in Spain (lowest in the EU) and<br />

37% in the UK, where the minimum wage is a relatively recent<br />

introduction. In Poland, the 1997-1998 pension reform<br />

established an anti-poverty social safety net by introducing a<br />

minimum pension fixed at a level of 35% of the average wage.<br />

20<br />

This sub-section draws on McMenamin (2005) who specifically<br />

studied business lobbying in relation to the reform of<br />

the labour code in this period. Given the difficulty to reconstruct<br />

a policy process ex post as time passes, since it implies tracing<br />

the individuals who were involved and relying on their possibly<br />

distorted memories, his work based on a series of interviews<br />

carried out closer to the events provides extremely valuable<br />

information.<br />

25<br />

Prime Minister Marek Belka presented a document on the<br />

government projected economic strategy, Marek Kossowski,<br />

undersecretary of State of the Ministry of Economy presented<br />

the ‘Entreprise above all’ programme and Minister of Economy<br />

Jerzy Hausner presented the ‘First job’ programme (Communiqué<br />

of the Tripartite Commission 28.01.02)<br />

26<br />

On this occasion, it seems that the representative of NSZZ<br />

Solidarność, J. Sniadek, who was sitting at the Tripartite Commission<br />

on behalf of his organization took a stance that was<br />

invalidated by the rest of the union leadership. His position was<br />

rejected by the Presidium.<br />

27<br />

Between several thousands and several tens of thousands<br />

people demonstrated on 26 April 2002, depending on sources<br />

(Gardawski 2002b).<br />

21<br />

The Confederation of Private Employers (Polska Konfederacja<br />

Pracodawcow Prywatnych – PKPP Leviatan), which later<br />

became the leading employers organization, was founded only<br />

in 1999.<br />

28<br />

This could only be done until the date of accession since it<br />

breaches European rules defining minimum employment<br />

standards, including a restriction on the number of consecutive<br />

fixed-term contracts.<br />

22<br />

SMEs are an important segment of the Polish economy: they<br />

constituted 95% of all enterprises and employed 50% of the<br />

working population in 2002<br />

29<br />

Later, however, Hausner expressed his difficulty to work<br />

with the new Prime Minister Marek Belka, who, an economist<br />

himself, kept challenging the decisions and views of the super-<br />

Ministry of Economy.<br />

page 150<br />

23<br />

The economic programme of the new government<br />

consisted of three packages: ‘Enterprise above all’<br />

(Przede wszystkim przedsiebiorczosc), ‘First Job’<br />

(Pierwsza Praca) and ‘Infrastructure – the key to<br />

development’ (Infrastruktura- klucz do rozwoju).<br />

The latter is not directly of interest. ‘First Job’ is a<br />

programme to support jobs for young labour market<br />

entrants.<br />

30 Regulation of the Council of Ministers on the creation of the<br />

Commission for the Codification of Labour Law, 20 August<br />

2002 (Dz U 2002/139 item 1167).


CATHERINE SPIESER<br />

31<br />

The number of transposition acts needed in the area of labour<br />

and social security was lower than in many other domains<br />

covered more extensively by the acquis: according to transposition<br />

commitments as expressed in the National Pre-Accession<br />

Programmes, four acts related to labour regulation were scheduled<br />

for adoption in 2000, another four in 2001 and only three in<br />

2002 (Zubek 2005).<br />

32<br />

Dz U 90 item 844.<br />

33<br />

DZ U 166, item 1608.<br />

34<br />

Dz U 213, item 2081.<br />

35<br />

To name a few: the Directive on employment contract information<br />

(91/533/EEC), working time (93/104/EC), parental leave<br />

(96/34/EC), part-time work (97/81/EC), etc. The complete list<br />

can be found in any recent edition of the Code (Kodeks 2004:<br />

257).<br />

36<br />

I developped this argument further in my PhD thesis (Spieser<br />

2009).<br />

page 151


THE POLITICS OF LABOUR MARKET ADJUST-<br />

MENT IN POST-1989 POLAND<br />

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SZALMA IVETT / SZEL BERNADETT<br />

INTRODUCTION<br />

8<br />

ANALYSIS OF THE HUNGARIAN LABOR<br />

MARKET BY DELIBERATIVE METHODS<br />

Szalma Ivett and Szél Bernadett<br />

European welfare states are under<br />

increasing pressure from a number<br />

of directions. Population ageing<br />

and shifts in family patterns increase needs,<br />

while the pressures of globalization on national<br />

competitiveness restrict the capacity to<br />

finance expansive welfare policies. In comparison<br />

to other EU member states, Hungary is<br />

characterized by a low employment rate, high<br />

inactivity and moderate unemployment. Hungary<br />

is a post-socialist country in which the<br />

capitalist regime has been around for almost<br />

20 years. As Dahrendorf (1994) elaborated<br />

upon this, different spheres pass through the<br />

transition phase with different speeds: while<br />

the fundamentals and institutions of political<br />

democracy can, in principle, be enforced<br />

in six months, and transition to the market<br />

economy can be carried out in six years, the<br />

(re)emergence of the values and norms takes<br />

a whole generation (60 years). It is a question<br />

whether the heritage of the socialist regime is<br />

still vivid in Hungary, in addition to whether<br />

people expect the government to take care of<br />

them in several aspects or whether they are<br />

ready to take care of themselves and have<br />

lower expectations of the state. It is another<br />

question what other European, non-postsocialist<br />

countries think about the role of the<br />

state and what connections can be detected<br />

between current expectations and a<br />

nation’s past.<br />

page 155<br />

In Hungary several national studies<br />

show that people hold a paternalistic<br />

state ideal (Ferge, 1996; Utasi, 2008). This<br />

phenomenon is said to have its roots in the<br />

socialist regime, because the state ensured


ATTITUDES TOWARDS LABOUR MARKET<br />

REGULATION IN HUNGARY<br />

workplace for all its citizens; thus, the<br />

responsibility of the individual was much lower<br />

than it is now. In 1989-91 the change of the<br />

political era brought many new development in<br />

this area: the dissolution of heavy industry, the<br />

closing of factories and privatizations. These<br />

kinds of changes triggered unemployment ;<br />

and employees began to worry about losing<br />

their jobs. At the same time, there is a vivid<br />

discussion about how to make the economy<br />

competitive. Nevertheless, as competitiveness<br />

improved, it resulted in many cases in cutting<br />

back the paternalistic state. The peak time of<br />

changes was in 1993 when the unemployment<br />

rate reached 17% among the active population.<br />

After this period, the unemployment rate<br />

decreased. Unemployment means financial and<br />

psychological difficulties for the individuals.<br />

Moreover, in Hungary there is a large chance<br />

of remaining unemployed for a long time (Sági,<br />

1997). Those people who cannot find a job for<br />

a long time are usually have little education,<br />

live in unfavorable regions and come from<br />

larger families (Spéder, 2002). Some authors<br />

call them underclass, which refers to their<br />

social status: they are poor, uneducated and do<br />

not have the chance to find a job, also, their<br />

norms and values differ from those of the<br />

main society. Their only chance to survive is<br />

by registering at the Regional Employment<br />

Office, which provides for some social benefits<br />

(Laky, 2001).<br />

The current paper examines what<br />

page 156 expectations EU-nations have towards<br />

their governments regarding<br />

employment and social services and<br />

seeks answers concerning whether a coherent<br />

European answer can be given to the problem<br />

of state involvement in job market<br />

disequilibrium. Related to this problem area,<br />

the second chapter explores the job market<br />

related expectations Hungarians have towards<br />

the government to date. An explanation is<br />

given to the observed attitudes. Finally, a<br />

deliberative analysis is presented showing<br />

how the participants’ opinion about the labor<br />

market related role of the state changes upon<br />

dissemination of relevant information.<br />

1. EXPECTATIONS TOWARDS GOVERNMENTS AT<br />

THE EUROPEAN LEVEL<br />

The goal of this chapter is to explore the kind<br />

of expectations the European population<br />

has towards governments as well as how<br />

the accomplishment of welfare measures is<br />

evaluated. Europe has been facing the problem<br />

of the contradiction between economic<br />

efficiency and social supportiveness for decades.<br />

The main four types of critiques opponents of<br />

the social state usually emphasize are as follows<br />

(Tomka, 2009). The neoliberal conservatives’<br />

criticism focuses on restrictions of individual<br />

liberty that are imposed for the sake of societal<br />

equity. The second perspective points out that<br />

state-owned institutions are not efficient –<br />

they do not allocate resources in the optimum<br />

way, while wasting resources and providing<br />

opportunities for misuse. Moreover, as another<br />

typical criticism echoes, the social state<br />

influences economic performance in a negative<br />

way: the labor force will not be motivated to<br />

work because of the unemployment benefits;<br />

in addition, taxes imposed to finance social<br />

expenditures reduce savings and investments<br />

and, with that, the activity of enterprises and<br />

employment, as well. Finally, factors beyond<br />

financing social politics threaten the operation


SZALMA IVETT / SZEL BERNADETT<br />

of the system - mainly demographic changes<br />

and the effects of globalization.<br />

Based on the economic rationale, both in<br />

the OECD-countries as well as in the EU-<br />

15, welfare expenditures – in proportion of<br />

GDP – were increasing until 1995. Since<br />

then, they have been decreasing (Table 1). It is<br />

an important point how people relate to this<br />

process: how they interpret social welfare, what<br />

they expect form the government, and how they<br />

perceive the contradiction between economic<br />

and social aspects. In the following chapter,<br />

these questions will be addressed empirically.<br />

Table 1. In proportion of GDP welfare expenditures in the OECD-countries and the EU, 1980-2001<br />

1980 1985 1990 1995 2001<br />

OECD-21 17,7 19,6 20,5 22,5 21,9<br />

EU-15 20,6 22,9 23,4 25,6 24,0<br />

Source: OECD Social Expenditure Database [www.oecd.org]<br />

The fourth wave of the European Social<br />

Survey was conducted in 2008. For the<br />

current analyses, the following 20 countries<br />

are included in the comparison: Belgium,<br />

Bulgaria, Cyprus, Denmark, Estonia, Finland,<br />

France, Germany, Hungary, Norway, Poland,<br />

Portugal, Romania, Russia, Slovakia, Slovenia,<br />

Spain, Sweden, Switzerland, and the UK;<br />

34949 respondents were surveyed. The fourth<br />

block of questionnaires is a rotating module<br />

addressing questions regarding welfare and,<br />

more specifically, attitudes towards welfare<br />

provision, size of claimant groups, views on<br />

taxation, attitudes towards service delivery and<br />

likely future dependence on welfare.<br />

In our empirical analysis four questions are<br />

addressed.<br />

1.<br />

Expectations European citizens have from<br />

their governments;<br />

2. Perception of social measure efficiency;<br />

3. Regional differences;<br />

4. Beyond the regional aspect what else may<br />

influence the attitude towards social<br />

measures and institutions; here particularly<br />

information-awareness is measured via<br />

education and Internet use.<br />

1.1. Expectations towards the governments<br />

When measuring attitudes on the European<br />

level, it is visible that the majority of respondents<br />

expect the state to be present and<br />

take care of employees on the job<br />

market. Table 2, 3 and 4 reinforce<br />

page 157<br />

this conclusion; they show that, in<br />

terms of avoiding unemployment,<br />

taking care of the unemployed and ensuring<br />

adequate child care services, the majority of<br />

respondents are rather explicit in this respect.


ATTITUDES TOWARDS LABOUR MARKET<br />

REGULATION IN HUNGARY<br />

Table 2. It is the responsibility of the state to ensure a job for everyone who wants one<br />

Frequency<br />

Valid Percent<br />

It is not the responsibility of the state. 5890 18.3<br />

It is party the responsibility of the state. 12583 39.1<br />

It is the responsibility of the state. 13741 42.7<br />

Total 32214 100.0<br />

Missing 1191<br />

Total 33405<br />

Table 3. It is the responsibility of the state to ensure a reasonable standard of living for the unemployed<br />

Frequency<br />

Valid Percent<br />

It is not the responsibility of the state. 3906 11.9<br />

It is party the responsibility of the state. 14880 45.5<br />

It is the responsibility of the state. 13910 42.5<br />

Total 32696 100.0<br />

Missing 709<br />

Total 33405<br />

Table 4. It is the responsibility of the state to ensure sufficient child care services for working parents<br />

Frequency<br />

Valid Percent<br />

It is not the responsibility of the state. 1775 5.4<br />

It is party the responsibility of the state. 9779 30.0<br />

page 158<br />

It is the responsibility of the state. 21028 64.5<br />

Total 32582 100.0<br />

Missing 823<br />

Total 33405


SZALMA IVETT / SZEL BERNADETT<br />

However, when examining how people would<br />

choose between tax decreases and a drop in<br />

social services and benefits or a tax increase and<br />

spending more on social measures, we see that<br />

the majority (63.5%) would prefer the former<br />

(Table 5). This result shows that expectations<br />

for social services exist, but when it comes<br />

to the individual budget, citizens are careful<br />

about how resources should be allocated.<br />

Table 5. Government should decrease taxes and spend less on social services and benefits<br />

Frequency<br />

Valid Percent<br />

Disagree 10768 36.5<br />

Agree 18726 63.5<br />

Total 29494 100.0<br />

Missing 3911<br />

Total 33405<br />

1.2. The efficiency of social measures<br />

Respondents were asked to judge to what<br />

extent they agree with the following statements.<br />

Social services and benefits in the respondent’s<br />

county:<br />

1.<br />

2.<br />

3.<br />

4.<br />

5.<br />

place too great a strain on the economy.<br />

prevent widespread poverty.<br />

lead to a more equal society.<br />

encourage people from other countries to<br />

come and live here.<br />

cost businesses too much in taxes and<br />

charges.<br />

Agreement with the first, fourth and fifth<br />

statements reflects a conservative attitude,<br />

while agreement with the second, third and<br />

sixth statements indicates that the respondent<br />

is closer to a social approach.<br />

Based on Table 6, we can see that the majority<br />

of respondents – 39.5 percent – disagree<br />

with the statement that social services and<br />

benefits in the respondent’s county place too<br />

great a strain on the economy. One third of<br />

respondents agree with this statement and<br />

more than one quarter of the sample would<br />

not give an exact answer.<br />

page 159<br />

6.<br />

make it easier for people to combine work<br />

and family life.


ATTITUDES TOWARDS LABOUR MARKET<br />

REGULATION IN HUNGARY<br />

Table 6. Social services and benefits in the respondent’s county place too great a strain on the economy<br />

Frequency<br />

Valid Percent<br />

Agree 10542 33.6<br />

Neither agree nor<br />

disagree<br />

8436 26.9<br />

Disagree 12402 39.5<br />

Total 31380 100.0<br />

Missing 2025<br />

Total 33405<br />

Table 7 shows that the majority of respondents<br />

(58%) consider social services and benefits as<br />

an efficient tool in preventing the spread of<br />

poverty. On the other hand, 21% believes that<br />

poverty cannot be stopped by social measures,<br />

while a further 21% is undecided.<br />

Table 7. Social services and benefits in the respondent’s county prevent widespread poverty<br />

Frequency<br />

Valid Percent<br />

Agree 18705 58.0<br />

Neither agree nor<br />

disagree<br />

6765 21.0<br />

Disagree 6797 21.1<br />

Total 32267 100.0<br />

Missing 1138<br />

Total 33405<br />

page 160<br />

The majority of respondents (50.9%)<br />

believe that social services and<br />

benefits will lead to a more equal<br />

society. Around one quarter do not<br />

trust in developing social equity via social<br />

expenditures, while almost a quarter does not<br />

have an explicit opinion (Table 8)


SZALMA IVETT / SZEL BERNADETT<br />

Table 8. Social services and benefits in the respondent’s county lead to a more equal society<br />

Frequency<br />

Valid Percent<br />

Agree 16359 50.9<br />

Neither agree nor<br />

disagree<br />

7711 24.0<br />

Disagree 8087 25.1<br />

Total 32157 100.0<br />

Missing 1248<br />

Total 33405<br />

The relative majority of respondents - 39.6%<br />

- believe that businesses are overburdened by<br />

social measures. On the other hand, almost<br />

one third disagrees with this statement, while<br />

28.2% is undecided regarding the relation<br />

between businesses and social welfare<br />

expenditures (Table 9).<br />

Table 9. Social services and benefits in the respondent’s county cost businesses<br />

too much in taxes and charges<br />

Frequency<br />

Valid Percent<br />

Agree 12014 39.6<br />

Neither agree nor<br />

disagree<br />

8567 28.2<br />

Disagree 9761 32.2<br />

Total 30342 100.0<br />

Missing 3063<br />

Total 33405<br />

According to the majority of respondents<br />

(56.7%), social measures help to establish<br />

work-life balance; only 16.8% believe that<br />

social services and benefits do not have<br />

such a positive effect in this sense.<br />

Again, more than one quarter of the<br />

respondents do not have an explicit<br />

answer (Table 10).<br />

page 161


ATTITUDES TOWARDS LABOUR MARKET<br />

REGULATION IN HUNGARY<br />

Table 10. Social services and benefits in the respondent’s county make it easier<br />

for people to combine work and family life<br />

Frequency<br />

Valid Percent<br />

Agree 17828 56.7<br />

Neither agree nor<br />

disagree<br />

8331 26.5<br />

Disagree 5284 16.8<br />

Total 31443 100.0<br />

Missing 1962<br />

Total 33405<br />

The majority of the respondents (55%) believe<br />

that immigrants are attracted by the social<br />

expenditures; one quarter oppose this statement,<br />

while almost 19% are undecided (Table 11).<br />

Table 11. Social services and benefits in the respondent’s county encourage people<br />

from other countries to come and live here<br />

Frequency<br />

Valid Percent<br />

Agree 17278 55.0<br />

Neither agree or<br />

disagree<br />

5945 18.9<br />

Disagree 8220 26.1<br />

Total 31443 100.0<br />

Missing 1962<br />

Total 33405<br />

Based on analyses of European<br />

countries as a whole, we may conclude<br />

page 162 that Europeans usually believe that<br />

social measures are efficient in terms<br />

of creating social balance in the<br />

population. In addition, they believe that these<br />

services and benefits would also attract people<br />

from other countries.<br />

1.3. Regional differences in terms of<br />

perceiving social services and benefits<br />

It should not be assumed that Europe as a<br />

whole considers the relationship between social<br />

expenditures and economic rationale univocally.<br />

In order to examine differences in how the<br />

diverse regions of the continent think about


SZALMA IVETT / SZEL BERNADETT<br />

these questions, a hierarchical cluster analysis<br />

was performed. The averages of respondent’s<br />

opinions were adjusted to each question in<br />

case of each country before the algorithm was<br />

applied.<br />

Based on this analysis, the following three<br />

clusters were identified (Figure 1).<br />

1.<br />

The Northern dimension and Switzerland,<br />

Cyprus: Finland, Norway, Sweden,<br />

Denmark, Switzerland and Cyprus.<br />

2.<br />

3.<br />

The Western dimension: Germany, the<br />

UK, Spain, Belgium and France.<br />

The Eastern dimension and Portugal:<br />

Bulgaria, the Russian Federation,<br />

Slovenia, Estonia, Poland, Slovakia, and<br />

Portugal.<br />

The only country that could not be assigned to<br />

the above clusters was Hungary.<br />

Figure 1. Dendrogram using Average Linkage<br />

The opinion of 19 European countries’ citizens on the efficiency of social welfare expenditures<br />

1= Belgium; 2=Bulgaria; 3= Cyprus; 4= Denmark; 5=Estonia; 6=Finland; 7=France; 8=Germany; 9=Hungary;<br />

10=Norway; 11=Poland; 12=Portugal; 13=Russia; 14=Slovakia; 15=Slovenia; 16=Spain; 17=Sweden;<br />

18= Switzerland; 19=UK<br />

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1.4. The effect of information-awareness on<br />

expecting and perceiving social services and<br />

benefits<br />

The empirical analysis between the level<br />

of education and expectations from the<br />

government shows that, in case of higher<br />

education, expectations from the state<br />

decrease. Both in the cases of job market<br />

regulation [“It is the responsibility of the<br />

state to ensure a job for everyone who wants<br />

one”] and unemployment services [“It is the<br />

responsibility of the state to ensure a<br />

reasonable standard of living for the<br />

unemployed”], respondents with advanced level<br />

tertiary education expect less from the state:<br />

significantly fewer highly educated respondents<br />

say that social services and benefits are the duty<br />

of the state than less educated respondents<br />

(Table 12 and 13). The opposite is also true:<br />

among highly educated respondents, more<br />

explicitly say that the state is not responsible<br />

for the given social measure than respondents<br />

with only a basic level of education.<br />

Table 12. Crosstabulation between the level of education and<br />

“It is the responsibility of the state to ensure a job for everyone who wants one”<br />

It is the responsibility of the state to ensure a job for<br />

everyone who wants one<br />

It is not the<br />

responsibility of<br />

the state<br />

It is partly the<br />

responsibility<br />

of the state<br />

It is the<br />

responsibility<br />

of the state<br />

Total<br />

Basic level education 12.2% 36.1% 51.7% 100.0%<br />

Intermediate level<br />

education<br />

Advanced level<br />

tertiary education<br />

19.2% 39.3% 41.5% 100.0%<br />

25.0% 42.6% 32.4% 100.0%<br />

p


SZALMA IVETT / SZEL BERNADETT<br />

In the case of childcare services, the same<br />

tendency as above exists but is much milder<br />

in the sense that even respondents with higher<br />

education expect more from the state (Table<br />

14). A possible explanation is that childcare<br />

services enhance being present on the job<br />

market. Respondents with higher education<br />

invested a lot for a successful job carrier and<br />

can feel that they deserve some governmental<br />

assistance when it comes to their children.<br />

Table 14. Crosstabulation between the level of education and “It is the<br />

responsibility of the state to ensure sufficient child care services for working parents”<br />

It is the responsibility of the state to ensure sufficient<br />

child care services for working parents<br />

It is not the<br />

responsibility<br />

of the state<br />

It is partly the<br />

responsibility<br />

of the state<br />

It is the<br />

responsibility<br />

of the state<br />

Total<br />

Basic level education 4.7% 29.4% 65.8% 100.0%<br />

Intermediate level<br />

education<br />

Advanced level tertiary<br />

education<br />

5.8% 29.3% 64.9% 100.0%<br />

5.8% 31.8% 62.3% 100.0%<br />

p


ATTITUDES TOWARDS LABOUR MARKET<br />

REGULATION IN HUNGARY<br />

Table 16. Crosstabulation between the level of education and “Social services<br />

and benefits in the respondent’s county cost businesses too much in taxes and charges”<br />

Disagree<br />

Neither agree,<br />

nor disagree<br />

Agree<br />

Total<br />

Basic level education 25.7% 28.6% 45.7% 100.0%<br />

Intermediate level<br />

education<br />

Advanced level tertiary<br />

education<br />

33.0% 28.7% 38.3% 100.0%<br />

38.5% 27.2% 34.3% 100.0%<br />

p


SZALMA IVETT / SZEL BERNADETT<br />

Table 19. Crosstabulation between the level of education and “Social services and benefits<br />

in the respondent’s county make it easier for people to combine work and family life”<br />

Disagree<br />

Neither agree,<br />

nor disagree<br />

Agree<br />

Total<br />

Basic level education 15.6% 26.2% 58.2% 100.0%<br />

Intermediate level<br />

education<br />

Advanced level tertiary<br />

education<br />

17.6% 28.1% 54.4% 100.0%<br />

17.2% 24.4% 58.5% 100.0%<br />

p


ATTITUDES TOWARDS LABOUR MARKET<br />

REGULATION IN HUNGARY<br />

Table 21. Crosstabulation between the level of education and<br />

“Government should decrease taxes and spend less on social services and benefits”<br />

Agree Disagree Total<br />

Basic level education 63.9% 36.1% 100.0%<br />

Intermediate level<br />

education<br />

Advanced level tertiary<br />

education<br />

64.8% 35.2% 100.0%<br />

61.0% 39.0% 100.0%<br />

p


SZALMA IVETT / SZEL BERNADETT<br />

Table 23. Crosstabulation between Internet penetration and “It is the<br />

responsibility of the state to ensure a reasonable standard of living for the unemployed”<br />

It is the responsibility of the state to ensure<br />

a reasonable standard of living for the unemployed<br />

Has Internet access<br />

at home<br />

Does not have<br />

Internet access at home<br />

It is not the<br />

responsibility of<br />

the state<br />

It is partly the<br />

responsibility<br />

of the state<br />

It is the<br />

responsibility<br />

of the state<br />

Total<br />

12.4% 46.8% 40.9% 100.0%<br />

10.0% 39.7% 50.3% 100.0%<br />

p


ATTITUDES TOWARDS LABOUR MARKET<br />

REGULATION IN HUNGARY<br />

Table 25. Crosstabulation between Internet penetration and “Social services<br />

and benefits in the respondent’s county place too great a strain on the economy”<br />

Social services and benefits in the respondent’s county<br />

place too great a strain on the economy<br />

Has Internet access<br />

at home<br />

Does not have<br />

Internet access at home<br />

Disagree<br />

Neither agree,<br />

nor disagree<br />

Agree<br />

Total<br />

38.9% 27.2% 34.0% 100.0%<br />

42.8% 25.4% 31.8% 100.0%<br />

p


SZALMA IVETT / SZEL BERNADETT<br />

Table 27. Crosstabulation between Internet penetration and “Social services<br />

and benefits in the respondent’s county lead to a more equal society”<br />

“Social services and benefits in the respondent’s<br />

county lead to a more equal society”<br />

Has Internet access<br />

at home<br />

Does not have<br />

Internet access at home<br />

Disagree<br />

Neither agree,<br />

nor disagree<br />

Agree<br />

Total<br />

23.8% 24.0% 52.2% 100.0%<br />

31.2% 24.0% 44.8% 100.0%<br />

p


ATTITUDES TOWARDS LABOUR MARKET<br />

REGULATION IN HUNGARY<br />

The majority of respondents cannot say<br />

explicitly whether social measures should be<br />

diminished and, with that, the taxation level.<br />

This is valid both among those with private<br />

Internet access as well as those who do not<br />

have Internet at home (Table 30). There are<br />

slightly fewer respondents in the former group<br />

saying that taxes should be decreased. On<br />

the other hand, there are more respondents<br />

who disagree with decreasing the level of<br />

social services and benefits among those with<br />

private Internet access, even though they know<br />

that the level of taxation would also decrease.<br />

Both a higher level of education and Internet<br />

access available in private homes are related to<br />

a positive attitude towards the effects of social<br />

services and benefits.<br />

Table 30. Crosstabulation between Internet penetration and<br />

“Government should decrease taxes and spend less on social services and benefits”<br />

Government should decrease taxes and spend<br />

less on social services and benefits<br />

Has Internet access<br />

at home<br />

Does not have<br />

Internet access at home<br />

Disagree<br />

Neither agree,<br />

nor disagree<br />

Agree<br />

Total<br />

25.9% 37.6% 36.5% 100.0%<br />

23.7% 39.5% 36.8% 100.0%<br />

p


SZALMA IVETT / SZEL BERNADETT<br />

In this research, the state role is measured by the<br />

following questions: What do people think about<br />

the deregulation of the labor market? What do<br />

people think about the following statements?:<br />

Finding a job is one’s own responsibility or the<br />

government should provide jobs for all citizens;<br />

Unemployment cannot be totally avoided vs.<br />

unemployment should be avoided at all cost;<br />

The government should prevent all illegal work<br />

vs. the government should not do anything<br />

against illegal work; The government should<br />

cut taxes vs. the government should not spend<br />

more on education, health care and pensions.<br />

Not only descriptive statistics (answers given in<br />

percentages) will be discussed. We also attempt<br />

to uncover differences among the social groups<br />

(based on demographic character, cultural<br />

capital and employment status) regarding these<br />

items through logistic regression modelling 1 .<br />

The qualitative method is carried out by<br />

analyzing two group conservations. The focus<br />

is on what people think about the role of the<br />

state , and how their opinions have changed<br />

during deliberation. Finally, we compare the<br />

results of the two methods.<br />

rate among the 15-64 year old population,<br />

Hungary came before Poland and Malta in the<br />

EU. In the same year, the mean activity rate<br />

was 64.5% in the EU. The activity rate exceeds<br />

the target set in the Lisbon Agreement -<br />

70% - in the following countries: Denmark,<br />

the Netherlands, Sweden, Great-Britain and<br />

Austria. In international comparison, the low<br />

activity rate in Hungary is explained by the<br />

fact that less educated people have a smaller<br />

chance of obtaining employment and the rate<br />

of less educated people is higher than the EU<br />

mean (Girasek-Sík, 2006).<br />

In Hungary, there are great differences in<br />

unemployment rates between the different<br />

regions. The first chapter of this paper contains<br />

a deliberative analysis of the expected role<br />

of the government regarding the job market.<br />

Somogy County, where the deliberationprocess<br />

took place, is part of Southern Transdanubia<br />

where unemployment rates are the highest in<br />

the more developed Transdanubian part of<br />

Hungary (Table 31).<br />

2.1. Unemployment and activity in Hungary.<br />

Distinguishing factors about County<br />

Somogy<br />

It is important to note that the activity rate in<br />

Hungary is low. Therefore, the real problem is<br />

not so much the high unemployment rate but<br />

rather the low activity rate. This characterizes<br />

the Hungarian labor market in comparison to<br />

other member states of the EU. In 2006 the<br />

unemployment rate was 7.5% in Hungary,<br />

while the mean unemployment rate of the EU<br />

members was 8.2%. With its 53.7% activity<br />

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ATTITUDES TOWARDS LABOUR MARKET<br />

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Table 31. Number of employed persons of the population aged 15-74 (in thousands of persons)<br />

NUTS1, NUTS2 2000 2006 2007 2008<br />

Central Hungary 64.4 66.7 62.1 60.2<br />

Central Transdanubia 22.7 30.1 24.6 28.4<br />

Western Transdanubia 19.0 26.1 22.8 22.1<br />

Southern Transdanubia 30.4 34.7 37.2 38.6<br />

Transdanubia 72.1 90.9 84.6 89.1<br />

Northern Hungary 48.0 52.3 59.4 63.3<br />

Northern Great Plain 51.5 65.1 63.2 69.7<br />

Southern Great Plain 27.7 41.8 42.6 46.9<br />

Great Plain and North 127.2 159.2 165.2 179.9<br />

Country total 263.7 316.8 311.9 329.2<br />

Without Central Hungary 199.3 250.1 249.8 269.0<br />

Source: Labour Force Survey, HCSO<br />

The rate of unemployment was 17% in<br />

Somogy County at the end of the 2007, while<br />

the national average was 10%. In Figure 2, the<br />

South Transdanubian region where Somogy<br />

County is situated is marked in red. The<br />

figure shows that – in terms of unemployment<br />

– the NUTS3 region is one of the most<br />

problematic in Hungary and is in the least<br />

favorable situation in the relatively more<br />

developed West. The position of Somogy is<br />

the 4th worst in the country in this respect.<br />

Furthermore, one third of unemployment<br />

cases lasts more than one year, which again is<br />

a very unfavorable condition (Summary of the<br />

Results, 2008).<br />

Figure 2. Unemployment rate of population aged 15-74, 2008<br />

page 174


SZALMA IVETT / SZEL BERNADETT<br />

2.2. Who attended the deliberation<br />

weekend?<br />

First, 1514 people were polled on the targeted<br />

issue in May of 2008 (T1). This sample<br />

represented the population of the Kaposvár<br />

Region. In this paper, this survey will be<br />

referred to as the representative survey research.<br />

At the end of the questionnaire, the respondents<br />

indicated whether they wished to participate in<br />

a deliberation event. 350 people indicated their<br />

intention to participate. All were invited to the<br />

DP weekend on 21st – 22nd June, 2008. Finally,<br />

108 people attended the event. During the<br />

deliberation weekend, participants completed<br />

the questionnaire of May twice. First, they filled<br />

in the questionnaire when they arrived (T2).<br />

We told them that they did not have to recall<br />

their answers of the representative survey of<br />

May. We will call this survey research the predeliberation<br />

poll. Then they filled in the same<br />

questionnaires for the third time following<br />

deliberation (T3). This makes it possible to<br />

measure the effects of the deliberation. We will<br />

call this survey the post-deliberation poll.<br />

The sample who filled in the pre- and postdeliberative<br />

polls will be called deliberation<br />

weekend participants / small groups (as the 108<br />

participants were assigned to one of 15 groups<br />

during the weekend). There was no significant<br />

difference in the gender and age structure or<br />

educational background between the two<br />

samples (representative survey research; small<br />

groups). However, the deliberation weekend<br />

participants have more unfavorable positions:<br />

60% are economically inactive. Those living in<br />

Kaposvár are also overrepresented.<br />

According to the theory of deliberative opinion<br />

polling, the resulting changes inopinion represent<br />

the conclusions the public would reach<br />

if people had the opportunity to become more<br />

informed and more engaged in the issues.<br />

2.3. Hypothesis<br />

H1 People in unfavorable positions (women,<br />

less educated people, those who are out of the<br />

labor market, the old and those who do not use<br />

the internet or speak any foreign language) 2<br />

will object to the deregulation of the labor<br />

market. They are more likely to believe that<br />

the state should provide job opportunities for<br />

every citizen.<br />

H2 Risk groups will support the passive policies<br />

(social benefits) to tackle unemployment.<br />

Those of higher social status will prefer active<br />

policies (encouraging job creation) to tackle<br />

unemployment.<br />

H3 As for illegal work, we believe that those<br />

in favorable positions (men, those who are in<br />

the labor market, the young and those who are<br />

supplied with cultural capital) will more likely<br />

believe that illegal work should be eliminated.<br />

H4 Related to tax reduction, we assume that<br />

those in favorable positions will be supportive,<br />

while those in unfavorable positions will prefer<br />

tax increases in order to keep social<br />

benefits.<br />

page 175<br />

H5 The fifth hypothesis is related<br />

to the change of opinion caused by<br />

the deliberation. We generally expect that,<br />

following deliberation, people will have more<br />

information about deregulation and the state


ATTITUDES TOWARDS LABOUR MARKET<br />

REGULATION IN HUNGARY<br />

role. The information gained during the<br />

deliberation will decrease the effects of socialdemographic<br />

position on the opinion about<br />

liberalization of the labor market, employment<br />

policies, illegal work, and tax cuts. The various<br />

points of views will get closer to each other.<br />

H1, H2, H3 and H4 refer to all of the survey<br />

polls, while H5 refers only to the pre-and<br />

post- deliberation polls.<br />

2.4. Regulation versus liberalization of the<br />

labor market<br />

First, we will discuss the issue of labor market<br />

deregulation. This question was measured on a<br />

seven degree scale. The first degree means the<br />

respondent strongly agrees with the following<br />

statement: Governments should let employers<br />

hire and fire as they see fit. The seventh degree<br />

means that the respondent strongly agrees with<br />

the following statement: Governments should<br />

make it very difficult for employers to fire. The<br />

results of each questioning session are shown<br />

in Table 32.<br />

Table 32. What do people think about the deregulation of the labor market?<br />

Measured on a 7 degree scale<br />

1-7 degree scale%<br />

Governments should let<br />

employers hire and fire<br />

as they see fit. (1-3)<br />

The middle of<br />

the scale (4)<br />

Governments should<br />

make it very difficult<br />

for employers to fire<br />

(5-7)<br />

Mean<br />

In the survey research<br />

(T1)<br />

Pre-deliberation in<br />

the small (T2) groups<br />

Post-deliberation in<br />

the small groups (T3)<br />

8.4% 17.6% 74% 5.7150<br />

12.8% 18.3% 68.8% 5.6422<br />

5.5% 16.5% 78% 5.9907<br />

T1 – T2: Statistically non-significant change (t=1.161, p>0.05) 3<br />

T2 – T3: Statistically significant change (t=-2.87 p


SZALMA IVETT / SZEL BERNADETT<br />

no significant changes occurred. However,<br />

the deliberation caused significant changes in<br />

the way the weekend participants think about<br />

the deregulation of labor market. Before the<br />

deliberation, twice as many people said that<br />

the government should have let employers hire<br />

and fire as they see fit than afterwards. After<br />

the deliberation, the percentage of those<br />

who thought that government should make it<br />

very difficult for employers to fire increased by<br />

10 percent. The author believes this change<br />

occured because people often talked about the<br />

importance of keeping their jobs during the<br />

deliberation.<br />

Table 33 shows which social-demographic<br />

variables have significant effects on choosing<br />

one of the statements in the logistic regression<br />

model.<br />

page 177


ATTITUDES TOWARDS LABOUR MARKET<br />

REGULATION IN HUNGARY<br />

Table 33. Determinants of the probability of supporting regulation versus deregulation<br />

of labor market in logistic regression model (Q5)<br />

All<br />

N=1462 (1514)<br />

Pre- Deliberative Poll<br />

N=108<br />

Post- Deliberative Poll<br />

N=107<br />

Independent Variables B Sig. Exp(B) B Sig. Exp(B) B Sig. Exp(B)<br />

Gender (Women) .164 .143 1.178 1.333 .017 3.791 .316 .547 1.371<br />

Level of education* .036 .017 .028<br />

Vocational school .081 .590 1.084 .828 .247 2.289 -.302 .676 .739<br />

Completed Secondary<br />

General School<br />

Tertiary Degree<br />

(BA or MA)<br />

.121 .443 1.129 -.982 .153 .375 -1.209 .085 .298<br />

-.406 .055 .666 -1.770 .062 .170 -2.656 .006 .070<br />

Employment status** .002 .375 .862<br />

Working full-time -.294 .117 .746 .064 .924 1.066 .532 .430 1.703<br />

Not working:<br />

Unemploymen<br />

.264 .275 1.302 .177 .807 1.194 .492 .511 1.636<br />

Not working: any<br />

other reason 5 -.676 .008 .509 -1.726 .129 .178 .667 .607 1.948<br />

Using Internet (Yes=1) -.392 .007 .676 -.845 .158 .430 -.689 .232 .502<br />

Speaking foreign<br />

language (Yes=1)<br />

-.180 .209 .835 .231 .730 1.260 .066 .919 1.068<br />

Age Group *** .025 .261 .730<br />

30-55 -.392 .034 .676 -.962 .378 .382 -.413 .694 .662<br />

Over 55 -.643 .007 .526 1.813 .177 6.126 .023 .985 1.023<br />

Constant .766 .004 2.151 .397 .788 1.487 1.436 .270 4.203<br />

-2Log Likelihood. initial 2025.052 144.342 140.375<br />

-2Log Likelihood. model 1969.174 111.641 115.320<br />

Model Chi-square 55.878 32.701 25.054<br />

Degree of freedom 11 11 11<br />

Significance 0.00 0.01 0.021<br />

Nagelkerke R Square 0.050 0.337 0.259<br />

page 178<br />

*Reference Category=Maximum Completed Primary School; **Reference category= Not working: Retired permanent<br />

job; ***Reference Category=under 30<br />

Recoding of variables: Values between 1 and 6 were recoded into 0. Value 7 was recoded into 1 in order to apply the<br />

recoded variable as a dependent variable in the logistic regression model. 6


SZALMA IVETT / SZEL BERNADETT<br />

The first observation to be made from the table<br />

above is that much more dependent variables<br />

have significant effects in the representative<br />

survey than in the small groups. Those holding<br />

a tertiary degree prefer the liberalization<br />

of the labor market in comparison to the<br />

reference groups in each of the sessions. In<br />

the representative sample, using internet has<br />

the same effect as holding a tertiary degree. It<br />

seems that those who have more cultural capital<br />

are more likely to support the de-regularization<br />

of the labor market. This finding corresponds<br />

to our expectations. Surprisingly, most of<br />

the oldest age group (over 55) supports the<br />

liberalization of the labor market. The author<br />

supposes the explanation may be that the<br />

labor market status of the youngest age group<br />

(under 30) is the most uncertain. They might<br />

not have obtained enough experience due to<br />

their age. The members of the oldest age group<br />

must be retired, so they do not take any risk<br />

if they support the liberalization of the labor<br />

market. The same mechanism can be found<br />

behind the fact that those who are not working<br />

for some other reason (mostly students or<br />

people on maternity leave) mostly support the<br />

liberalization of the labor market.<br />

In the pre-deliberation groups, there are two<br />

significant variables: gender and educational<br />

level. Women seem to object to liberalization<br />

as compared to men. As for educational level:<br />

highly-educated people prefer liberalization<br />

compared to the reference group.<br />

In the post-deliberation groups, the only<br />

variable found to be significant was educational<br />

level: those who completed higher education<br />

support liberalization of the labor market most.<br />

2.5. One’s own responsibility to get a job<br />

versus the state should provide jobs for every<br />

citizen<br />

This question refers to the role of the state<br />

similar to the previous one. Respondents had<br />

to express to what extent they agree with the<br />

given statement on a seven degree scale. The<br />

first degree signifies that the respondent totally<br />

agrees with the following statement: ‘Finding<br />

a job is one’s own responsibility’. The seventh<br />

degree indicates that a person completely agrees<br />

with the following statement: ‘Providing jobs<br />

for all citizens is the government’s responsibility’.<br />

The results of each survey session are shown<br />

in Table 34.<br />

page 179


ATTITUDES TOWARDS LABOUR MARKET<br />

REGULATION IN HUNGARY<br />

Table 34. What do people think: finding a job is one’s own responsibility or<br />

the government should provide jobs for all citizens? Measured on a 7 degree scale<br />

1-7 degree<br />

scale %<br />

In the survey<br />

research<br />

Pre-deliberation<br />

in the small groups<br />

Post-deliberation<br />

in the small groups<br />

Finding a job is one’s<br />

own responsibility. (1-3)<br />

The middle of the<br />

scale (4)<br />

Providing jobs for all<br />

citizens is the government’s<br />

responsibility. (5-7)<br />

Mean<br />

32.9% 31.5% 35.6% 4.0596<br />

33.9% 26.6% 39.4% 4.0917<br />

46.2% 33.6% 20.2% 3.2920<br />

T1 – T2 Statistically not significant change (t=0.656, p>0.05) T2 –T3 Statistically significant change (t=3.689, p


SZALMA IVETT / SZEL BERNADETT<br />

Table 35. Determinants of the probability of considering it one’s own responsibility to<br />

find a job versus the sate has to ensure jobs (responsibility for finding a job Q9)<br />

All<br />

N=1485 (1520)<br />

Pre- Deliberative Poll<br />

N=108<br />

Post- Deliberative Poll<br />

N=112<br />

Independent Variables B Sig. Exp(B) B Sig. Exp(B) B Sig. Exp(B)<br />

Gender (Men=1) .357 .002 1.429 .940 .055 2.560 -.203 .722 .816<br />

Level of education* .080 .176 .072<br />

Vocational school -.005 .975 .995 -.251 .672 .778 -.852 .197 .427<br />

Completed Secondary<br />

General School<br />

Tertiary degree<br />

(BA or MA)<br />

-.144 .366 .866 -1.271 .048 .280 -1.568 .041 .209<br />

-.562 .015 .570 -.165 .841 .848 -2.939 .020 .053<br />

Employment status** .408 .106 .894<br />

Working full-time .017 .931 1.017 -.456 .468 .634 -.328 .674 .721<br />

Not working:<br />

Unemployment<br />

.325 .176 1.384 .841 .201 2.318 .043 .956 1.044<br />

Not working: any<br />

other reason 7 .176 .497 1.192 -1.344 .218 .261 .530 .677 1.699<br />

Using Internet (No=1) -.421 .006 .657 .483 .386 1.620 1.198 .077 3.312<br />

Speaking foreign<br />

language (No=1)<br />

.000 1.000 1.000 -.083 .895 .921 -.750 .375 .472<br />

Age Group **** .653 .680 .226<br />

30-55 -.167 .375 .846 .567 .575 1.763 1.732 .154 5.652<br />

Over 55 -.190 .437 .827 .167 .883 1.182 1.028 .459 2.796<br />

Constant -.449 .101 .638 -.886 .455 .412 -1.812 .209 .163<br />

-2Log Likelihood. initial 1934.116 145.207 114.310<br />

-2Log Likelihood. model 1885.644 131.817 98.572<br />

Model Chi-square 47.198 13.390 15.162<br />

Degree of freedom 11 11 11<br />

Significance 0.00 .269 .175<br />

Nagelkerke R Square .043 .158 .199<br />

*Reference Category=Maximum Completed Primary School; **Reference category= Not working: Retired permanent job;<br />

***Reference Category=under 30<br />

Recoding of variables: Values between 1 and 4 were recoded into 0. Values between 5 and 7 were recoded into 1 in order<br />

to apply the recoded variable as a dependent variable in the logistic regression model. 8<br />

page 181


ATTITUDES TOWARDS LABOUR MARKET<br />

REGULATION IN HUNGARY<br />

Women are more likely to think that providing<br />

jobs for all citizens is the government’s<br />

responsibility in both the representative sample<br />

and the pre-deliberation group. However,<br />

in the post-deliberation session, the effect of<br />

gender disappeared: agreeing with the statement<br />

that it is the individuals’ responsibility<br />

to find a job is independent of gender in the<br />

post-deliberation group.<br />

The effect of educational background was<br />

almost constant, which means that those who<br />

have a higher level of education emphasize<br />

more the responsibility of the individual in<br />

finding jobs than the reference group in each of<br />

the sections. Those who use the internet tend<br />

to agree with the statement that ‘Finding a<br />

job is one’s own responsibility’ than those who<br />

do not use the internet in the representative<br />

sample and the post deliberation group. These<br />

results confirmed our first hypotheses: those<br />

who are in a favorable position are more<br />

likely to support the liberalization of the labor<br />

market.<br />

2.6. Unemployment cannot be avoided versus<br />

it should be avoided at any cost<br />

We will now discuss what people think about<br />

unemployment; respondents were asked to<br />

tell how much they agree with the given<br />

statements on a 7 degree scale. One indicates<br />

that the respondent totally agrees with the<br />

following statement: Unemployment cannot<br />

be avoided totally. Seven means that the<br />

respondent totally agrees with the following<br />

statement: Unemployment should be avoided at<br />

any cost. The other degrees show the relation<br />

to the statements. The results of each round are<br />

shown in Table 36.<br />

Table 36. What do people think: unemployment cannot be totally avoided<br />

vs. unemployment should be avoided at any cost? Measured on a 7 degree scale<br />

1-7 degree<br />

scale %<br />

Unemployment cannot<br />

be avoided totally. (1-3)<br />

The middle of the<br />

scale (4)<br />

Unemployment should be<br />

avoided at any cost. (5-7)<br />

Mean<br />

In the survey<br />

research<br />

Pre-deliberation in<br />

the small groups<br />

Post-deliberation in<br />

the small groups<br />

37% 18.7% 44.3% 4.17<br />

37% 15.7% 47.2% 4.15<br />

49.6% 13.7% 36.8% 3.52<br />

T1 – T2: Statistically not significant change (t=1.004, p>0.05) T2 – T3: Statistically significant change (t=2.021, p


SZALMA IVETT / SZEL BERNADETT<br />

This is an important question, because<br />

people’s lives have been organized by work in<br />

industrialized societies. However, substantial<br />

changes have taken place in many ways.<br />

According to Claus Offe (1991), the developed<br />

countries have entered a new stage of the<br />

economy, where the growth of the economy<br />

does not mean that everybody has work. The<br />

forms of flexible work are spreading (parttime,<br />

temporary contracts, self-employment),<br />

which predicts that the essence of life should<br />

not be work. It seems that deliberation helped<br />

participants to understand that we have<br />

to live together with the phenomenon of<br />

unemployment.<br />

Table 37 presents which social-demographic<br />

variables have significant effects on choosing<br />

one of the statements using the logistic<br />

regression model.<br />

page 183


ATTITUDES TOWARDS LABOUR MARKET<br />

REGULATION IN HUNGARY<br />

Table 37. Determinants of the probability of thinking whether the<br />

unemployment can be dissolved or not (Q17)<br />

All<br />

N=1484 (1520)<br />

Pre- Deliberative Poll<br />

N=107<br />

Post- Deliberative Poll<br />

N=111<br />

Independent Variables B Sig. Exp(B) B Sig. Exp(B) B Sig. Exp(B)<br />

Gender (Men=1) .248 .026 1.281 .867 .070 2.380 .363 .441 1.438<br />

Level of education* .366 .361 .668<br />

Vocational school .250 .090 1.285 -.554 .368 .575 -.227 .706 .797<br />

Completed Secondary<br />

General School<br />

Tertiary degree<br />

(BA or MA)<br />

.106 .492 1.112 -1.111 .083 .329 -.540 .394 .582<br />

.032 .878 1.033 -1.085 .206 .338 -1.004 .236 .366<br />

Employment status** .649 .911 .139<br />

Working full-time -.197 .291 .822 .263 .662 1.301 1.221 .048 3.390<br />

Not working:<br />

Unemployment<br />

-.156 .505 .856 .267 .690 1.306 .212 .760 1.236<br />

Not working: any<br />

other reason 9 -.017 .948 .984 -.331 .760 .718 1.667 .165 5.298<br />

Using Internet (No=1) -.153 .287 .858 .187 .738 1.206 .603 .300 1.827<br />

Speaking foreign<br />

language (No=1)<br />

-.443 .002 .642 -1.251 .069 .286 -1.043 .130 .353<br />

Age Group **** .197 .112 .220<br />

30-55 -.289 .110 .749 -1.997 .066 .136 1.687 .157 5.405<br />

Over 55 -.396 .092 .673 -1.417 .242 .242 2.244 .086 9.430<br />

Constant .078 .767 1.081 1.784 .170 5.956 -2.688 .045 .068<br />

-2Log Likelihood. initial 2037.744 148.100 147.247<br />

-2Log Likelihood. model 2007.478 130.776 131.785<br />

Model Chi-square 30.165 15.832 15.460<br />

Degree of freedom 11 11 11<br />

Significance .001 .148 .162<br />

Nagelkerke R Square .027 .184 .177<br />

page 184<br />

*Reference Category=Maximum Completed Primary School; **Reference category= Not working: Retired<br />

permanent job; ***Reference Category=under 30<br />

Recoding of variables: Values between 1 and 4 were recoded into 0. Values between 5 and 7 were recoded into 1 in order<br />

to apply the recoded variable as a dependent variable in the logistic regression model. 10


SZALMA IVETT / SZEL BERNADETT<br />

Gender has a significant effect on both the<br />

representative sample and the pre-deliberation<br />

group. After deliberation the gender-effect<br />

disappeared. The educational background<br />

influenced the answers of respondents in T1<br />

and T2. Those who completed vocational school<br />

are the most likely to agree with the statement<br />

‘Unemployment should be avoided at any cost’<br />

than the reference group in the representative<br />

sample. While those who completed secondary<br />

school are less likely to agree with the statement<br />

‘Unemployment cannot be totally avoided’ than<br />

the reference group in the pre-deliberation<br />

group. Nevertheless, the educational effect<br />

also vanishes in the post-deliberation group.<br />

At the same time, employment status has a<br />

significant effect only on the post-deliberation<br />

group: those who are working full-time are<br />

more than three times as likely to think that<br />

‘Unemployment cannot be avoided totally’<br />

than the reference group.<br />

Those who speak a foreign language are more<br />

likely to believe that unemployment cannot be<br />

totally avoided than those who do not speak<br />

a foreign language in T1 and T2. However,<br />

this difference also disappears in T3. The age<br />

variable has a significant effect on the small<br />

groups: those between 30-55 years are most<br />

likely to think that unemployment cannot be<br />

avoided in T2, while those over 55 are most<br />

likely to believe that unemployment should be<br />

avoided in T3. These results also verify our first<br />

hypotheses.<br />

2.7. Employment policies<br />

Employment policies are regulatory activities<br />

of the state to tackle unemployment.<br />

Theoretically, employment policies are usually<br />

divided into two groups: active employment<br />

policies and passive employment policies. The<br />

aim of passive employment policies is to take<br />

care of people who lost their jobs. On the<br />

contrary, the intention of active employment<br />

policies is to help the unemployed find a job.<br />

First, we examined whether the theoretical<br />

structure of employment policies (active<br />

and passive) exists in the minds of people in<br />

the representative survey. In the T1 and T2<br />

interview sessions, factor analyses did not<br />

suggest that the theoretical structure could be<br />

found in the minds of participants. However,<br />

we found a factor structure (active and passive<br />

employment policies) in the post-deliberative<br />

session. We think that the existence of<br />

theoretical structure in the post-deliberation<br />

session is due to the fact that the moderators<br />

aggregated the employment policies several<br />

times during the deliberation, so people<br />

learn of the employment policies during the<br />

deliberation. The results of T3 interview are<br />

shown in Table 38.<br />

page 185


ATTITUDES TOWARDS LABOUR MARKET<br />

REGULATION IN HUNGARY<br />

Table 38. The grouping of the employment policies in the post-deliberation group<br />

How strongly would you favor or<br />

oppose each of the following as ways<br />

of dealing with unemployment?<br />

Active Policies<br />

Factors<br />

Passive Policies<br />

Labor market services<br />

.681<br />

.055<br />

Training support<br />

.834<br />

.002<br />

Wage-and contribution-type subsidies 11<br />

.555<br />

.317<br />

Support for self-employment<br />

.282<br />

.162<br />

Job search allowance and benefit<br />

.111<br />

.777<br />

Regular social aid<br />

.149<br />

.879<br />

Maximum Likelihood factor analyses, with Varimax rotation<br />

KMO indicator value:0.650,<br />

Bartlett test value: 144.975; Sig.:0.00<br />

This question was measured by on a 5 degree scale where the first degree means oppose it strongly and fifth degree<br />

means favor it strongly.<br />

We can see that there are two factors in table<br />

38. The first includes the following items:<br />

labor market services, training support, and<br />

support for self-employment. The mentioned<br />

policies belong to the active employment<br />

policies, so we call this factor Active Policies.<br />

The second factor includes the following<br />

items: job search allowance, benefit and regular<br />

social aid. The two mentioned items belong to<br />

the passive employment policies, so we called<br />

this factor Passive Policies. Table 39 presents<br />

which social-demographic groups prefer the<br />

applying of the active and the passive policies.<br />

page 186


SZALMA IVETT / SZEL BERNADETT<br />

Table 39. Effects of dependent variables on choosing between active and passive employment policies<br />

Independent variables<br />

Gender<br />

Mean of the Active employment<br />

policies in the postdeliberation<br />

session<br />

Mean of the Passive employment<br />

policies in the postdeliberation<br />

session<br />

Men .0160243* -.0745066*<br />

Women -.0121785* .0566250*<br />

Age group<br />

Under 30 .0458470 .6137456<br />

30-55 .1489792 .1232090<br />

Over 55 -.1593003 -.2025254<br />

Educational level<br />

Max. completed primary schools -.1194293 .1172068<br />

Vocational school .1568382 .0234950<br />

Grammar school .0346563 .0869121<br />

Tertiary school -.3193728 -.4701077<br />

Employment status<br />

Having a job -.0882782 .0252327*<br />

Unemployed .2053722 .5046878*<br />

Retired -.0731706 -.2320810*<br />

Not working for any other reason .2923586 .1865640*<br />

Using internet<br />

Yes .1209967 -.0440701<br />

No -.0772680 .0055342<br />

Speaking a foreign language<br />

Yes .1914047 .0547550<br />

No -.0415927 -.0183208<br />

*Statistically significant change ( p


ATTITUDES TOWARDS LABOUR MARKET<br />

REGULATION IN HUNGARY<br />

active policies than women, while women<br />

are more likely to support the passive policies<br />

than men. The results supported the second<br />

hypotheses.<br />

2.8. Liquidation vs. toleration of illegal<br />

work 12<br />

If the labor market is regulated too rigidly<br />

and the cost of hiring or laying off is too<br />

high while the supervision of the labor market<br />

is weak, some people will be employed<br />

without paying taxes. The issue of illegal<br />

work is extremely relevant in Hungary, as the<br />

main problem is not the high unemployment<br />

rate, but the low activity rate (the number of<br />

legally employed people). With its 53.7%<br />

activity rate among 15-64 year olds, Hungary<br />

is lagging behind the EU members, where the<br />

mean activity rate is 64.5%.<br />

The following question concerns what<br />

people think of illegal work. This question<br />

was measured on a seven degree scale. One<br />

indicates that the respondent strongly agrees<br />

with the following statement: ‘Government<br />

should prevent all illegal work’. Seven means the<br />

respondent strongly agrees with the following<br />

statement: ‘Government should not do anything<br />

against illegal work’. The results of each<br />

questioning session are shown in Table 40.<br />

Table 40. What do people think: government should prevent all illegal<br />

work vs. government should not do anything against illegal work? Measured on a 7 degree scale<br />

1-7 degree<br />

scale %<br />

Government should<br />

prevent all illegal work<br />

(1-3)<br />

The middle of the<br />

scale (4)<br />

Government should not do<br />

anything against<br />

illegal work (5-7)<br />

Mean<br />

In the survey<br />

research<br />

Pre-deliberation<br />

in the small groups<br />

Post-deliberation in<br />

the small groups<br />

61.8% 18.3% 19.8% 2.78<br />

65.4% 20.2% 14.4% 2.61<br />

64.6% 20.4% 15% 2.57<br />

T1 – T2: Statistically not significant change (t=-0.932, p>0.05)<br />

T2 – T3: Statistically not significant change (t=0.292, p>0.05)<br />

The deliberation did not bring any<br />

page 188 significant change in this issue, as<br />

we can see in table 40. In all three<br />

sessions, more than 60% of the people<br />

said that the government should prevent all<br />

illegal work, while less than 20% declared that<br />

the government should not do anything against<br />

illegal work. Table 41 shows which socialdemographic<br />

variables have significant effects<br />

on choosing one of the statements.


SZALMA IVETT / SZEL BERNADETT<br />

Table 41. Determinants of the probability of agreeing with ‘Government<br />

should prevent all illegal work’ vs. ‘Government should no do anything against illegal work’.<br />

All<br />

N=1455 (1520)<br />

Pre -Deliberative Poll<br />

N=103<br />

Post -Deliberative Poll<br />

N=107<br />

Independent Variables B Sig. Exp(B) B Sig. Exp(B) B Sig. Exp(B)<br />

Gender (Men=1) .132 .241 1.141 -.401 .411 .670 .093 .845 1.098<br />

Level of education* .019 .890 .270<br />

Vocational school .368 .014 1.445 -.457 .453 .633 -.286 .646 .751<br />

Completed Secondary<br />

General School<br />

Tertiary degree<br />

(BA or MA)<br />

-.026 .871 .975 -.179 .779 .836 .502 .430 1.652<br />

-.108 .612 .898 -.391 .646 .677 -.854 .329 .426<br />

Employment status** .370 .227 .170<br />

Working in full time .206 .273 1.229 -1.184 .079 .306 -.599 .358 .549<br />

Not working:<br />

Unemployment<br />

.415 .077 1.515 -.287 .675 .751 .787 .246 2.196<br />

Not working: any<br />

other reason 13 .188 .462 1.207 .352 .741 1.422 1.160 .326 3.190<br />

Using Internet (No=1) -.091 .533 .913 .836 .144 2.306 .332 .563 1.393<br />

Speaking foreign<br />

language (No=1)<br />

.059 .681 1.061 -1.358 .044 .257 -.582 .363 .559<br />

Age Group **** .013 .515 .106<br />

30-55 -.462 .011 .630 -.311 .734 .733 -2.286 .061 .102<br />

Over 55 -.656 .005 .519 -.966 .367 .381 -1.596 .221 .203<br />

Constant -.050 .851 .951 .980 .378 2.664 1.397 .284 4.044<br />

-2Log Likelihood. initial 1996.915 139.264 145.621<br />

-2Log Likelihood. model 1952.339 128.509 128.070<br />

Model Chi-square 44.576 10.755 17.551<br />

Degree of freedom 11 11 11<br />

Significance .000 .464 .093<br />

Nagelkerke R Square .040 .134 .203<br />

*Reference Category=Maximum Completed Primary School; **Reference category= Not working: Retired<br />

permanent job; ***Reference Category=under 30<br />

Recoding of variables: Values between 1 and 3 were recoded into 0. Values between 4 and 7 were recoded into 1 in order<br />

to apply the recoded variable as a dependent variable in the logistic regression model. 14<br />

page 189


ATTITUDES TOWARDS LABOUR MARKET<br />

REGULATION IN HUNGARY<br />

The first observation to be made from the<br />

table above is that gender does not influence<br />

the answers of the participants in any interview<br />

period. Educational background, however, had<br />

a significant effect in T1 period: those who<br />

completed vocational school are more likely<br />

to agree with the statement ‘Government<br />

should no do anything against illegal work’<br />

than the reference group. Employment status<br />

influenced answers in the T1 and T2 periods:<br />

the unemployed are more likely to agree<br />

with the statement ‘Government should not<br />

do anything against illegal work’ than the<br />

reference group. While those who are working<br />

full- time are more likely to agree with the<br />

statement ‘Government should prevent all<br />

illegal work’ than the reference group. The<br />

effect of the employment status disappears in<br />

the T3 session.<br />

Regarding age, those over 55 are more likely to<br />

agree with the statement ‘Government should<br />

prevent all illegal work’ than young people in<br />

the representative sample.<br />

We can notice that fewer variables have a<br />

significant effect in the small groups than in the<br />

representative sample. In the pre-deliberation<br />

session, only full-time work and the knowledge<br />

of a foreign language have significant effects<br />

on the dependent variables. Those who speak a<br />

foreign language are more likely to agree with<br />

the statement ‘Government should<br />

prevent all illegal work’ than those<br />

page 190 who do not speak a foreign language.<br />

In the post- deliberation group, only<br />

the 30-55 age group has a significant<br />

effect: they are more likely to agree with the<br />

statement ‘Government should prevent all<br />

illegal work’ than the reference group. The third<br />

hypothesis has been confirmed by these results.<br />

We can draw the conclusion that working<br />

illegally is a defensive strategy of people whose<br />

status is unfavorable in the Hungarian society.<br />

2.9. Government should cut taxes versus<br />

spend more on education, health care and<br />

pensions<br />

Hungary is among the countries where the tax<br />

rates are high. Tax awareness is very low and<br />

people do not know much about the tax system.<br />

In addition, voters in Hungary falsely perceive<br />

the state role in the social sector and the cost<br />

of state programs (Csontos, Kornai, & Tóth,<br />

1996). For example, the majority of people<br />

underestimate the cost of pensions and medical<br />

services, while they overestimate the cost of<br />

social benefits. Sometimes they do perceive the<br />

relationship between social benefits and the<br />

tax rate. This question examined what people<br />

think the government should do: decrease taxes<br />

or spend more on education, health care and<br />

pensions. The respondents were asked to what<br />

extent they agree with the given statement on<br />

a seven degree scale. One indicates that the<br />

respondent totally agrees with the following<br />

statement: Government should decrease taxes even<br />

if this means less funding for education, health care<br />

and pension. Seven means that one totally agrees<br />

with the following statement: Government<br />

should spend more on education, health care and<br />

pension. The results of each questioning session<br />

are shown in Table 42.


SZALMA IVETT / SZEL BERNADETT<br />

Table 42. What do people think: Government should cut taxes vs. Government<br />

should no spend more on education, health care and pension? Measured on a 7 degree scale.<br />

1-7 degree<br />

scale %<br />

Government should<br />

decrease taxes even if this<br />

means less funding for education,<br />

health care and pension. (1-3)<br />

The middle of<br />

the scale (4)<br />

Government should spend<br />

more on education, health<br />

care and pension. (5-7)<br />

Mean<br />

In the survey<br />

research<br />

Pre-deliberation<br />

in the small groups<br />

Post-deliberation<br />

in the small groups<br />

39.2% 34.9% 25.9%<br />

3.61<br />

30.5% 34.3% 35.2%<br />

4.14<br />

29.8% 35.6% 34.6% 4.14<br />

T1 – T2: Statistically significant change (t=-2.717, p0.05)<br />

Table 42 proves that there are significant<br />

differences between the T1 and T2 sessions.<br />

Deliberation did not bring significant changes<br />

in this issue, as we can see in table 42. Both in<br />

the pre- and post- deliberation small groups,<br />

around 30% of respondents prefered decreased<br />

taxes, even if this means less funding for<br />

education, health care and pensions. On the<br />

other hand, 35% declared that the government<br />

should spend more on education, health care<br />

and pension. It is surprising that the deliberation<br />

did not bring any significant changes, because<br />

the most important result of earlier research<br />

on the tax awareness (Csontos, Kornai, &<br />

Tóth, 1996) was that if the citizens know<br />

more about the cost of the state programs they<br />

will change their opinion about the role of<br />

the state, subsequently prefering to decrease<br />

the role of the state and emphasizing more the<br />

role of the market.<br />

The differences between T1 and T2 might<br />

be due to the composition effect and/or the<br />

briefing materials. The composition effect can<br />

be excluded by focusing the analyses on those<br />

people who took part in the small group conversation<br />

(Table 43). In Table 43 the component<br />

effect has been excluded because answers<br />

of the same people can be found there. Still,<br />

the significant differences between T1 and T2<br />

remain. Consequently, it is assumed that the<br />

variance is caused by the briefing materials.<br />

page 191


ATTITUDES TOWARDS LABOUR MARKET<br />

REGULATION IN HUNGARY<br />

Table 43. What do people think: government should cut taxes vs. government should no spend more<br />

on education, health care and pension? Measured on a 7 degree scale.<br />

(Focusing only those who participated in small groups as well)<br />

1-7 degree<br />

scale %<br />

Government should<br />

decrease taxes even if this means<br />

less funding for education, health<br />

care and pension. (1-3)<br />

The middle of<br />

the scale (4)<br />

Government should spend<br />

more on education, health<br />

care and pension. (5-7)<br />

Mean<br />

In the survey<br />

research<br />

Pre-deliberation<br />

in the small groups<br />

46.2% 27.4% 26.4% 3.36<br />

29.4% 35.3% 36.4% 4.16<br />

T1 – T2: Statistically significant change (t=-2.826, p


SZALMA IVETT / SZEL BERNADETT<br />

All<br />

N=1416 (1520)<br />

Pre- Deliberative Poll<br />

N=104<br />

Post- Deliberative Poll<br />

N=102<br />

Independent Variables B Sig. Exp(B) B Sig. Exp(B) B Sig. Exp(B)<br />

Gender (Men=1) .205 .112 1.228 .852 .146 2.344 1.079 .058 2.943<br />

Level of education* .321 .019 .031<br />

Vocational school -.283 .101 .753 -.554 .436 .575 .494 .455 1.640<br />

Completed Secondary<br />

General School<br />

Tertiary degree<br />

(BA or MA)<br />

-.087 .622 .917 -2.498 .003 .082 -1.702 .026 .182<br />

.049 .834 1.050 -1.801 .066 .165 -.552 .544 .576<br />

Employment status** .544 .095 .136<br />

Working full-time -.289 .178 .749 .171 .795 1.186 .549 .394 1.731<br />

Not working:<br />

Unemployment<br />

-.280 .307 .756 -2.614 .023 .073 -1.591 .080 .204<br />

Not working: any<br />

other reason 15 -.357 .221 .700 .517 .679 1.677 -.295 .798 .744<br />

Using Internet (No=1) .018 .915 1.018 -.040 .953 .960 -.380 .548 .684<br />

Speaking foreign<br />

language (No=1)<br />

Table 44. Determinants of the probability of agreeing with<br />

‘Government should decrease the taxes versus should increase the tax’ (Q19)<br />

-.003 .985 .997 -.474 .569 .623 .<strong>580</strong> .421 1.786<br />

Age Group **** .340 .423 .262<br />

30-55 -.295 .157 .745 .613 .649 1.845 -1.002 .352 .367<br />

Over 55 -.170 .525 .844 1.386 .336 3.999 -.084 .944 .920<br />

Constant -.709 .018 .492 -.638 .648 .529 -.280 .816 .756<br />

-2Log Likelihood. initial 1624.609 134.177 131.202<br />

-2Log Likelihood. model 1604.400 100.998 108.788<br />

Model Chi-square 18,163 33.628 22.404<br />

Degree of freedom 11 11 11<br />

Significance .078 .000 .021<br />

Nagelkerke R Square .019 .381 .272<br />

*Reference Category=Maximum Completed Primary School; **Reference category= Not working: Retired<br />

permanent job; ***Reference Category=under 30<br />

Recoding of variables: Values between 1 and 3 were recoded into 0. Values between 4 and 7 were recoded into 1 in order to<br />

apply the recoded variable as a dependent variable in the logistic regression model. 16<br />

page 193


ATTITUDES TOWARDS LABOUR MARKET<br />

REGULATION IN HUNGARY<br />

Astonishingly, none of the independent<br />

variables have a significant effect on the<br />

representative sample. In the small group,<br />

almost the same variable has a significant<br />

effect: those who completed secondary general<br />

school tend to think that the government<br />

should decrease taxes in comparison with<br />

reference group. The unemployed are more<br />

likely to agree that the government should<br />

decrease taxes than the reference group. In<br />

the post-deliberation session, gender also has<br />

a significant effect: women are more likely to<br />

agree with the statement ‘Government should<br />

spend more on education, health care and<br />

pension’ than men.<br />

2.10. A Qualitative Analysis<br />

We conducted a qualitative analysis based on<br />

conversations in two groups 17 (groups 10 and<br />

14). There were 4 pensioners, 1 employee and<br />

1 student in group 10. As for the gender ratio,<br />

there were 2 men and 4 women. In group<br />

14, there were 1 unemployed, 1 mother on<br />

maternity leave, 1 employee, 2 pensioners and<br />

1 disabled pensioners. Of these participants, 1<br />

was male and 5 female.<br />

In group 14, the moderator asked participants<br />

directly how the state regulated the labor<br />

market and whether they preferred a strong<br />

or weak state influence on the labor market.<br />

It seems that participants are aware of<br />

the fact that a strong state influence<br />

page 194 restricts the labor market, while a<br />

weak state influence makes employees<br />

defenseless. The participants believe<br />

that role of the state should be somewhere in<br />

between. They also understand the operation<br />

of the tax system. In both groups there are<br />

some people who are against the high tax rate,<br />

which makes the situation of the entrepreneurs<br />

difficult: ‘There are a lot of forced entrepreneurs<br />

who are almost up to their neck in taxes. Less<br />

tax should be imposed’ (group 10). At the same<br />

time, they realize that the missing amount<br />

should be supplied from other sources: ‘The<br />

state has to take money from somewhere in<br />

order to decrease the tax rate; money must be<br />

taken from where it is wasted’ (Group 14).<br />

Participants emphasized job security, which<br />

they miss on many levels. First of all in the<br />

training: People should be trained (given such a<br />

profession) so that they can also find a job in 5 to<br />

10 years (Group 10). At the same time, they<br />

speak a lot about life-long learning, meaning<br />

that people must continually invest in their<br />

human capital in order to stay competitive on<br />

the labor market.<br />

The expectation that people gain knowledge<br />

in public schools, which will guarantee them<br />

fa job decades after they left school without<br />

a need to obtain new skills or qualifications<br />

continually required by the labor market is not<br />

realistic. This is shown by the fact that, among<br />

less educated people, the activity rate is very<br />

low, since the skills required by the labor market<br />

(for example, readiness to study) are missing.<br />

The following example is the reaction of an<br />

unemployed woman in group 14 who was asked<br />

if she attended a retraining program supported<br />

by the job center. Her answer was: „I have not<br />

learned for 30 years; I am afraid I might not be able<br />

to”. The negative opinion about training and<br />

education makes the situation even worse. They<br />

believe it is not worth learning and obtaining<br />

a higher education level, since the situation of<br />

highly educated people is even more difficult:


SZALMA IVETT / SZEL BERNADETT<br />

„Even those who have qualifications cannot get a<br />

job. Even more people with more than one degree<br />

are not wanted by the labor market” (group 10).<br />

We are past the society of work (Offe, 1991;<br />

Beck, 1999), which means that it is not<br />

guaranteed that everybody can find a job.<br />

Therefore, we do not let individuals to judged<br />

by their work. We should not let the society<br />

be split in two parts: the majority, who has a<br />

job according to the traditional norms, and the<br />

remarkable minority, which is out of the labor<br />

market. Although, the participants value work,<br />

as they regard it as the essence of life: ‘It is not<br />

good if people live without work and they do not<br />

have job opportunities” (group 14).<br />

They miss the security of workplaces: ‘The<br />

employers get support if they employ unemployed<br />

people, but they will just employ them until they<br />

get the support, then they are going to fire them.<br />

It is not worth doing this procedure. The employers<br />

will not invest anything in their skills. Why do<br />

employees train themselves? This is not a longterm,calculable<br />

job opportunity. The employers<br />

should employ the employees for at least 5 years, so<br />

the employees would be secure for at least 5 years,<br />

in this case they would be able to plan” (group<br />

10). The only solution for people to find or<br />

keep their jobs is to be ready to adapt to the<br />

new situations (job, position and environment<br />

changing). Project work is spreading, which<br />

means that employees get temporary job<br />

contracts. Yet, it seems that most of the people<br />

are not yet ready for flexible employment.<br />

The participants are not against illegal work.<br />

Even more, they commiserate with illegal<br />

workers: ‘People accept illegal jobs, because they<br />

have to live on something” (group 10). At the<br />

same time, they do not feel the same solidarity<br />

with the employers. They believe employers<br />

are the beneficiaries of illegal work by tax<br />

evasion: ‘Employers are always searching for<br />

loopholes. You (employee) are defenseless, but<br />

you have to undertake this game” (group 14).<br />

They emphasize that the defenseless position<br />

forces employees to accept illegal work: ‘You<br />

know this is not correct but you do not have any<br />

other choice” (group 14). In accordance with<br />

quantitative analysis, we can find that people<br />

who are in unfavorable position in society use<br />

the illegal sector.<br />

3. SUMMARY<br />

In the deliberative analysis, the first hypothesis<br />

was partly supported. Those who posses more<br />

cultural capital (higher education, access<br />

to internet) are more likely to support the<br />

deregulation of the labor market. Concerning<br />

educational level, those who completed<br />

tertiary school are more likely to agree<br />

with the deregulation of the labor market<br />

than the less educated people. Educational<br />

background had a significant effect in each of<br />

the sections. Those who use internet prefer the<br />

liberalization of the labor market in T1. The<br />

fact that older people are more likely to agree<br />

with the liberalization of the labor market<br />

than the young is exactly the opposite of what<br />

we had expected. We believe that this<br />

is due to the fact that those who are<br />

over 55 are mostly out of the labor<br />

page 195<br />

market. Thus, if the labor market was<br />

more deregulated than it is today, it<br />

would not mean any uncertainty for them, but<br />

would mean uncertainty for people in their<br />

active age. As for the employment status, I


ATTITUDES TOWARDS LABOUR MARKET<br />

REGULATION IN HUNGARY<br />

page 196<br />

could show that the unemployed demanded<br />

the regulation of the labor market. The effect<br />

of gender and the ability to speak a foreign<br />

language were not significant.<br />

Our hypothesis concerning employment<br />

policies was also partly supported. We could<br />

find the theoretical structure in the postdeliberation<br />

group. We also showed that<br />

women and unemployed people are more likely<br />

to support passive employment policies than<br />

men and those who are on the labor market. We<br />

assumed that people over 55 support passive<br />

employment policies. It has been revealed<br />

that people over 55 oppose both employment<br />

policies. Pensioners are the ones who oppose<br />

passive employment policies the most. One<br />

explanation can be that they might be afraid<br />

that greater support for the unemployed may<br />

decrease their benefits. The effects of other<br />

independent variables (using the internet,<br />

speaking a foreign language, education level<br />

and age group) were not significant.<br />

Our hypothesis regarding illegal work was also<br />

supported. Regarding the effect of educational<br />

level, we found that those who completed<br />

vocational school are more tolerant regarding<br />

illegal work than other educational groups.<br />

The effect of other independent variables<br />

(using internet, speaking a foreign language,<br />

employment status) was not significant.<br />

However, we found that unemployed<br />

people are very tolerant towards<br />

illegal work, as we expected it in our<br />

hypotheses in the post-deliberation<br />

poll.<br />

Our fourth hypotheses was not entirely<br />

supported either. We found that pensioners do<br />

not want to cut taxes. Concerning educational<br />

level, we supposed that highly-educated people<br />

are most likely to want tax decreases. On the<br />

contrary, in the representative survey session<br />

we found that those who completed vocational<br />

school were most likely to be in favor of<br />

decreasing taxes. However, this tendency<br />

became non-significant in the post-deliberation<br />

session, while the effect of completed tertiary<br />

school became significant. They are more likely<br />

to be in favor of decreasing taxes. Surprisingly,<br />

those who do not use the internet are more<br />

likely to agree with the decrease of taxes<br />

than those who use the internet. The effects<br />

of other independent variables (speaking a<br />

foreign language, gender, age groups) were not<br />

significant.<br />

We can accept our last overall hypotheses, as<br />

we found that in the post-deliberation the<br />

opinions of the participants converged. For<br />

example, the effect of gender disappeared in<br />

the liberalization of the labor market issue and<br />

the effect of employment status disappeared in<br />

the tax rate issue. We obtained the same results<br />

from the qualitative analyses. We did not find<br />

any contradictions between the results of the<br />

qualitative and quantitative research.<br />

As a conclusion, based on the deliberative<br />

analysis perfomed in Hungary, we can see that<br />

– in a post-socialist country – the population<br />

would expect a patronizing state, but has little<br />

consideration about how the necessary funding<br />

can be secured for the preferred social measures.<br />

We have also learned that education or any<br />

kind of authentic and efficient information<br />

dissemination can help people understand<br />

interrelations between welfare measures and<br />

taxation, but can also generate a more plausible


SZALMA IVETT / SZEL BERNADETT<br />

picture of how governmental institutions work.<br />

A remarkable sociological research showed<br />

that people in Hungary considered the role<br />

of the state to be very important in the 1990s<br />

(Ferge, 1996).<br />

Based on our research, it is visible that this<br />

expectation still exists, not only in postsocialist<br />

Hungary, but also in the majority of<br />

the EU. It has also been shown that not every<br />

citizen expects the same level of state care and<br />

influence on markets. The current sociological<br />

research in Hungary shows that risk groups<br />

and individuals with less education require<br />

more state support: they would prefer greater<br />

state influence while putting less emphasis<br />

on the responsibility of the individuals. They<br />

expect the state to provide job opportunities<br />

and financial security (Utasi, 2008). On the<br />

European level, it has been shown that the<br />

majority of citizens prefer a strong social<br />

perspective in their country as well as tax<br />

decreases. Citizens with a higher education<br />

level believe in the efficiency of social measures<br />

to a greater extent as well as that businesses<br />

suffer on expenditures related to social services<br />

and benefits to a certain extent.<br />

page 197


ATTITUDES TOWARDS LABOUR MARKET<br />

REGULATION IN HUNGARY<br />

NOTES<br />

1<br />

I decided to use logistic regression instead of ordinal regression,<br />

because, while results do not differ substantially between the two<br />

methods, those of logistic regression are easier to interpret.<br />

12<br />

Illegal work means that taxes and social insurance are not<br />

paid.<br />

13 People in this category are mostly students or mothers on maternity<br />

leave.<br />

2<br />

Women’s position on the labour market is more uncertain than<br />

men because, when they have small children, they must be out<br />

of the labour market due to a lack of child care services and<br />

part-time jobs. Those who are over 50 belong to the risk group<br />

because employers prefer to employ younger people. Those who<br />

do not have enough cultural capital (do not use internet, do not<br />

speak any foreign language and are less educated) are also in<br />

unfavourable position on the labour market.<br />

3<br />

Measured by Paired Samples T-test.<br />

14<br />

The method of recoding was chosen according to the mean and<br />

distribution of the variable.<br />

15<br />

People in this category are mostly students or women on maternity<br />

leave.<br />

16<br />

The method of recoding was chosen according to the mean and<br />

the distribution of the variable.<br />

4<br />

Measured by Paired Samples T-test.<br />

17<br />

The author choose 10 th and 14 th groups for analysing.<br />

5<br />

People in this category are mostly students or women on maternity<br />

leave.<br />

6<br />

The method of recoding was chosen according to the mean and<br />

distribution of the variable.<br />

7<br />

People in this category are mostly students or women on maternity<br />

leave.<br />

8<br />

The method of recoding was chosen according to the mean and<br />

distribution of the variable.<br />

9<br />

People in this category are mostly students or mothers on maternity<br />

leave.<br />

page 198<br />

10<br />

The method of recoding was chosen according to<br />

the mean and distribution of the variable.<br />

11<br />

The only items that were part of both dimensions<br />

are wage and contribution subsidiaries. It can be assumed that<br />

participants were confused by the phrase.


SZALMA IVETT / SZEL BERNADETT<br />

REFERENCES<br />

Beck, Ulrich (1999) Túl renden és osztályon? [Beyond Class and<br />

States] In. Angelusz Róbert (szerk.): A társadalmi rétegződés<br />

komponensei. [The Components of Social Stratification] Új<br />

Mandátum Könyvkiadó, Budapest<br />

Csontos László – Kornai János – Tóth István György (1996)<br />

Adótudatosság és fiskális illúziók.[Tax-awareness and fiscal<br />

illusions] In. Társadalmi Riport 1996<br />

Dahrendorf (1994) A modern társadalmi konfliktus.[The Modern<br />

Social Conflict] Gondolat<br />

Kiadó, Budapest<br />

Spéder Zsolt (2002) A szegénység változó arcai. [The Changing<br />

Faces of Poverty] Századvég Kiadó, Budapest<br />

Summary of the Results – Deliberative Poll about Unemployment<br />

and Job Creation in the Area of Kaposvár, 2008<br />

Tomka Béla (2009): Jóléti államok az ezredfordulón: válságjelek<br />

vagy válságmítoszok? [Welfare States at the Turning Point<br />

of the Millennium: Signs of Crisis or Myths of Crisis?] Magyar<br />

Tudomány, 2009/02, pp.197.<br />

URL: http://www.matud.iif.hu/09feb/10.html<br />

Utasi Ágnes (2008) Éltető kapcsolatok. [Life-source relations]<br />

Új Mandátum Könyvkiadó, Budapest<br />

Ferge Zsuzsa (1996) A rendszerváltás megítélése. [The Perception<br />

of Transition] In. Szociológiai Szemle 1996/1.<br />

Girasek Edmond – Sík Endre (2006) Munkaerőpiac és<br />

informális jövedelem.[ Job market nad informal income] In.<br />

Társadalmi Riport 2006.<br />

Laky Teréz (2002) Munakerőpiaci tükör Magyarországn 2001-<br />

ben.[The Job Market in Hungary in 2001] In Fazekas Károly et.<br />

al. Munkaerőpiaci Tükör 2002.<br />

MTA Közgazdaságtdományi Kutatóközpont, Országos Foglalakozatási<br />

Közalapítvány, Budapest<br />

Offe, Claus (1991) A szociális állam és a foglalkoztatási válság:<br />

a biztosítás biztosításának problémái. In. Ferge Zs. – Lévai K.<br />

(szerk.): A jóléti állam. T – Twins Kiadó, Budapest<br />

Sági Matild (1997): Társadalmi folyamatok a rendszerváltás<br />

után.[Social Processes after the Change of<br />

the Regime] Budapest, Országos Közoktatási Intézet<br />

URL: http://www.oki.hu/oldal.php?tipus=cikk&kod=Jelentes<br />

97-hatter-Sagi-Tarsadalmi<br />

downloaded: 10/17/2008<br />

page 199


AT THE ORIGINS OF INFORMAL ECONOMIES:<br />

THE UKRAINIAN CASE<br />

ABSTRACT<br />

AT THE ORIGINS OF INFORMAL ECONOMIES:<br />

SOME EVIDENCE FROM UKRAINE<br />

(1991-2009)<br />

Abel Polese<br />

9<br />

Drawing evidence from participant<br />

observations and informal interviews<br />

between 2003 and 2009, when the<br />

author spent around four years working in<br />

Ukraine as a lecturer and consultant in the non<br />

governmental sector, this article explores the<br />

conditions that make the informal sector blossom<br />

in transitional countries. In this respect, it<br />

will be suggested, informal economies originate<br />

from tensions between citizens and the state,<br />

in which the former feels compelled to respect<br />

decisions and policies imposed from the latter<br />

with no possibility to express their opinions or<br />

react politically.<br />

In such a context, the only way to react is to<br />

use informal economies as weapons of the weak<br />

(Scott 1984). Through informal payments,<br />

(petty) fiscal fraud or suitcase smuggling,<br />

people may reverse the effects of state decisions<br />

that are not tailored to a local context. This, in<br />

turn, may allow people to participate politically<br />

even when a participatory democracy is not<br />

immediately available (Gupta 1995).<br />

INTRODUCTION<br />

page 200<br />

Ukraine gained independence in 1991. Coming<br />

out of a period of nationalist movements, worker<br />

and student strikes as well as an attempted<br />

golpe, the future president Leonid Kravchuk<br />

played the card of a radical rupture with the<br />

past in the hope to rapidly gain stability and<br />

sustainability.<br />

Although a full republic within the USSR,<br />

Ukraine still lacked some of the international


ABEL POLESE<br />

institutions that a sovereign country needs. The<br />

Ministry of Foreign Affairs had been based in<br />

Moscow as well as the national bank, both of<br />

which would have to be created ex novo and<br />

based in Kiev.<br />

In an effort to gain credibility and international<br />

recognition, the country initiated a number of<br />

political and economic reforms at domestic and<br />

international levels. As a first step, the country<br />

became a presidential republic in 1991and<br />

Leonid Kravchuk was elected as the first president.<br />

In addition, the communist party was<br />

formally banned (though re-admitted into<br />

politics in 1993) and its property nationalized.<br />

In spite of this, a consistent number of communists<br />

remained in politics by adopting a new<br />

political identity (most went into the Socialist<br />

Party, while others have run as independent<br />

candidates or found themselves distributed in a<br />

number of other parties, Polese 2008).<br />

Because of Russian proximity and claims (on<br />

gas and foreign debts, the Ukrainian territory<br />

and domestic politics due to consistent Russian<br />

minorities in the country), international recognition,<br />

assistance and support were also sought<br />

to counterbalance these pressures. The country<br />

applied and was accepted into the Council of<br />

Europe in 1995 ; and a partnership and cooperation<br />

agreement with the EU entered into<br />

force in 1998, one year before the Common<br />

Strategy on Ukraine (and Russia) was put<br />

forward by the EU Commission. Programmes<br />

of assistance like TACIS or IREX were set up<br />

and Ukraine was allowed to become a main<br />

recipient. The IMF and World Bank were also<br />

welcome to give advice and collaborate with<br />

the local government in an attempt to protect<br />

the country from harsh crises.<br />

However, this international attention had a<br />

double effect. On the one hand, the transfer<br />

of knowledge enabled domestic companies<br />

and public industries to potentially catch up<br />

with the rest of the world. On the other, it<br />

exposed the very essence of a society based on<br />

informal exchanges and social networks that,<br />

consolidating in Soviet times, had become a<br />

main feature of the country’s economy after<br />

the end of socialism. If, on the one hand,<br />

macroeconomic reforms and performance of<br />

the Ukrainian economy was a main concern<br />

(Kravchuk 2002, Van Zon 2000), an increasing<br />

number of firms mentioned informal practices<br />

and suggested that their liquidation would<br />

have a positive effect on the country’s transition<br />

(Aslund 2009, Aslund and Mesnil 1999, De<br />

Cornelius and Lenain 1997, Kuzio 1998).<br />

Researchers focusing on economic development<br />

in Ukraine could be divided into two<br />

mainstreams. Some assess informal transactions<br />

as harmful for the country (Freedom<br />

House, Transparency International, World<br />

Bank) and hold the opinion that the economic<br />

transition should pass through a cultural transition<br />

from Soviet deltsi (equivalent of businessman<br />

in Russian but with a different moral<br />

attitude) to businessmen (Papava 2001, Papava<br />

and Khaduri 1997). Others, however, argue for<br />

a dinstinction between pure corruption and<br />

the informal sector, suggesting that the most<br />

effective way to deal with extralegal<br />

activities was to integrate them into<br />

the official economy (Kaliberda and page 201<br />

Kaufmann 1996, Kaufmann 1994).<br />

The account on corruption given by most<br />

international organizations, and sometimes<br />

diligently adopted by local actors (Zerkalo


AT THE ORIGINS OF INFORMAL ECONOMIES:<br />

THE UKRAINIAN CASE<br />

page 202<br />

nedeli), might have several weakenesses. One<br />

is that ‘international standards’ do not always<br />

take into account the local cultural and social<br />

context, especially when dealing with corruption<br />

(Polese 2008, Werner 2003). Legal systems,<br />

if allowed to develop autonomously, may also<br />

generate definitions that differ radically. 1<br />

A further weakness arises in the case of small<br />

transactions, happening on a daily or regular<br />

basis, that allow common people to survive<br />

once the state is unable to secure their needs.<br />

In such contexts, the very word ‘bribe’ and its<br />

meaning may be questioned (Humphrey 2002,<br />

Patico 2002, Polese 2008).<br />

A commonly agreed upon definition of<br />

corruption is as follows: ‘corruption is the use<br />

of a public function for a private advantage’.<br />

However, if the public function (a doctor, a<br />

teacher, a civil servant), that is, the fact that an<br />

individual works for the state, is not supported<br />

by the state (de facto, either because the state<br />

is not paying salaries or is paying too little<br />

to survive) then the very meaning of public<br />

function should be re-discussed and, with it, the<br />

meaning of corruption (Polese 2008, 2006b).<br />

Drawing evidence from participant observation<br />

and informal interviews between<br />

2003 and 2009, when I spent around four<br />

years working in Ukraine as a lecturer and<br />

consultant in the non governmental<br />

sector, I explore in this article the<br />

relationship between the state and<br />

the citizen in order to understand the<br />

origin of such informal transactions.<br />

In particular, I address the questions what<br />

conditions encourage or discourage success of<br />

an informal economy. In this respect, I suggest<br />

that informal economies originate from tensions<br />

between citizens and the state, in which<br />

the former feels compelled to respect decisions<br />

and policies imposed from the latter with no<br />

possibility to express their opinions or react<br />

politically.<br />

In such a context, the only way to react is to<br />

use informal economies as weapons of the weak<br />

(Scott 1984). Through informal payments,<br />

(petty) fiscal fraud or suitcase smuggling people<br />

may reverse the effects of state decisions that<br />

are not tailored to a local context. This, in turn,<br />

may allow people to participate politically even<br />

when a participatory democracy is not immediately<br />

available (Gupta 1995). To support this<br />

argument, the next sections will narrow down<br />

the concept of informal economies, as defined<br />

in this article, and discuss how informal transactions<br />

are performed.<br />

DISCUSSING THE INFORMAL SECTOR AND THE<br />

ILLEGAL-LEGAL BOUNDARY<br />

Agreement to consider the informal sector<br />

within a national economy is relatively recent.<br />

The informal sector was first defined as ‘unregulated<br />

economic enterprises or activities’<br />

(Hart 1973) until, in 1993, the International<br />

Conference of Labour Statisticians (ICLS<br />

1993) decided to include all unregistered<br />

enterprises below a certain size – for example,<br />

micro-enterprises owned by informal employers<br />

as well as entrepreneurial operations owned by<br />

individuals who may employ family members<br />

or employees on an occasional basis.<br />

This definition, however, may fail to include


ABEL POLESE<br />

persons engaged in very small-scale or casual<br />

self-employment activities. In addition,<br />

anthropologists objected this perception of<br />

labour. In her work on women labour in Turkey,<br />

for example, White (2004) pointed out that<br />

activities such as child caring or piecework<br />

production, generating revenue according to<br />

Western legal codes, is generally not perceived<br />

by women themselves as work but rather as<br />

their duties as mothers and wives to contribute<br />

to household survival.<br />

A main result of this international debate is<br />

that the informal sector is no longer considered<br />

separate from the formal economy (ILO, 1972;<br />

Sethuraman, 1976; Tokman, 1978), representing<br />

only small scale activities (Moser, 1978;<br />

Castells and Portes, 1989) or large enterprises<br />

attempting to fraud the government (de Soto,<br />

1989). Also, the idea of a transitional informal<br />

sector has been challenged. The sector might<br />

survive long enough so that it is no longer a<br />

subject for economic policy (Maloney 2004)<br />

but a persisting and lasting part of the national<br />

economy with an impact on the GDP. In this<br />

way, this definition would subsequently include<br />

non-standard wage workers as well as the self<br />

employed, which might prompt governments<br />

to reconsider it use when deciding on a political<br />

and economic development strategy (Chen,<br />

Martha, Joann Vanek and Marilyn Carr. 2004).<br />

Because the definition of informal economies,<br />

or the informal sector, might come to include<br />

virtually anything, a study on informal economy<br />

should, as the first task, explain what part of the<br />

informal sector will be the focus of analysis.<br />

A distinction that might be worthy of use is the<br />

one between illegal, unreported, unrecorded<br />

and informal economies (Feige 1990:7). Illegal<br />

economies refer to those perpetuated in<br />

violation of legal statutes defining the scope of<br />

legitimate forms of commerce (1990:8), which,<br />

at least in principle, should be of interest for<br />

criminologists or law students. Unreported<br />

economies consist of activities that circumvent<br />

or evade the institutionally established fiscal<br />

rules so that tax authorities are not informed<br />

of the activity. Finally, unrecorded economies<br />

are all activities producing income that<br />

the state does not consider to be revenue<br />

producing, such as household production.<br />

In developed countries, it is estimated that<br />

such activities account for between 25 and<br />

50 percent of the GDP (Feige 1990: 9) and<br />

can strongly bias data on unemployment<br />

and production. Finally, according to Feige<br />

informal economies include all activities that<br />

circumvent costs and are excluded from the<br />

benefits and rights incorporated in the laws<br />

and administrative rules governing property<br />

relationships, commercial licensing, labour<br />

contracts, torts, financial credit and social<br />

security systems (1990:10). This illegal-legal<br />

boundary is difficult to trace and might be<br />

mobile: for example, how should politically<br />

motivated embargoes or bans be handled that<br />

directly affect traders who become smugglers<br />

overnight?<br />

Accepting that the boundary between legal<br />

and illegal is much more fluid in reality than<br />

in theory, I will use, as narrative of<br />

this paper, transactions that one could<br />

call ‘illegal-legal’ or ‘potentiallylegal-illegal’.<br />

Illegal-legal refers to<br />

page 203<br />

deeds that may be considered illegal<br />

in a given context, for they are not regulated,<br />

registered, or fully recorded, but could also be<br />

considered legal in a different context or when


AT THE ORIGINS OF INFORMAL ECONOMIES:<br />

THE UKRAINIAN CASE<br />

performed by different people. As the desire to<br />

remain covert is often due to the incapacity of<br />

the state to invite people out of extralegality<br />

(Bovi 2001, de Cornelius and Lenain 1999,<br />

de Soto 2002), illegal-legal transactions may<br />

be illegal in a given moment (and context) but<br />

potentially legal if only the state would modify<br />

the legal framework – i.e. a businessman<br />

whose company is not registered because the<br />

registration procedure is too complex, or someone<br />

importing a product that is temporarily<br />

banned. Conversely, this classification excludes<br />

covert operations that would be very difficult<br />

to consider legal even by the most liberal government,<br />

such as selling narcotics.<br />

Another distinction between illegal-legal and<br />

fully illegal may be found when examining the<br />

beneficiaries of as well as those harmed by an<br />

action. Smuggling, selling with no licence, or<br />

failing to pay taxes may harm the state directly<br />

but might benefit the fellow citizen, who is<br />

able to buy things not available on the market<br />

otherwise or simply at a lower price (Polese<br />

2006). Citizens are, in this case, only indirectly<br />

harmed as they may not benefit from services<br />

the state might put at disposal with a higher<br />

budget. However, actions like selling or<br />

trafficking narcotics or burglary directly harm<br />

the fellow citizen and the state (directly or<br />

indirectly) and are harder to be considered<br />

legal or even potentially-legal.<br />

Potentially legal transactions are<br />

page 204 ambivalently considered in literature<br />

on post-Soviet transition. In Ukraine<br />

there have been some efforts to<br />

integrate informal economies in an economic<br />

framework to understand their impact on the<br />

economic transition (Kaufman 1994, Schneider<br />

and Enste 2000) as well as explore whether<br />

they can be integrated into the legal sphere of<br />

economic life (Hussmanns 2004, Kaliberda<br />

and Kaufmann 1997). However there is a<br />

portion of the literature, in Ukraine as in other<br />

former USSR republics, suggesting that we<br />

can understand the reasons behind those informal<br />

economies by understanding how they<br />

work, the way people survive in post-socialism<br />

(Humphrey 2002, Pavlovskaya 2004, Polese<br />

2006, 2006b, 2006c, 2008, Wanner 2005) and<br />

how, in particular, the relation state citizen may<br />

affect the relevent action (Patico 2002, Polese<br />

2008, 2010, Sebinova Peter 2005). This may<br />

be due to the fact that people participate in a<br />

whole range of economic practices on a daily<br />

basis, many of which can be defined in noncapitalism<br />

terms (Pavlovskaya 2004: 334). By<br />

exploring not only the way the state address<br />

citizen’s needs but also the perception of the<br />

state by the citizens (i.e. whether or not they<br />

feel their needs are met), we can understand the<br />

way and the extent to which informal economies<br />

are formed and the reason why they may<br />

persist over time.<br />

Informal economies, as explored in this paper,<br />

seem to show a partially transitory or nonpermanent<br />

nature. They exist because citizens<br />

need to survive in their daily life and not<br />

because of a desire for fullfillment through a<br />

maximization of profits. In this we can see the<br />

Weberian distinction between consumption and<br />

acquisition (Schluchter Weber [1908] 1998)<br />

that helps to narrow our sphere of investigation<br />

to the consumption-oriented actions.<br />

However, priority of consumer interests<br />

normally characterize traditional economic<br />

structures, which is in line with the fact that


ABEL POLESE<br />

informal economies tend to deny the role of the<br />

state as social or economic mediator among citizens.<br />

Informal transactions take place directly<br />

between two or more citizens and either leave<br />

no place for the role of the state or occur in a<br />

context in which the state is superfluous.<br />

Currently it might difficult to find a national<br />

territory in which the state is absent, although<br />

there may be cases in which it is partially absent<br />

in spatial or temporal terms. That is, the state<br />

might be absent ‘sometimes’ or ‘in some places’.<br />

I refer here to the possibility that the state, while<br />

attempting to regulate economic life, might fail<br />

to do so in some cases (e.g. for some sectors or<br />

industries or in some regions) or in some time<br />

periods (e.g. during an economic crisis).<br />

Alternatively, the state might be unable to<br />

boost even regional development by neglecting<br />

some regions, thus encouraging engagement<br />

in informal transitions. The more often this<br />

occurs, in temporary and spatial terms, the<br />

more the state might be considered a failure.<br />

This perception may occur despite the fact<br />

that the actual situation likely falls somewhere<br />

between a failed and a perfect state; and<br />

informal economies are present in virtually<br />

every country irrespective of development<br />

status (Williams 2005).<br />

In Ukraine there is a tendency to renegotiate<br />

state policies and informally tailor them to a<br />

local reality in terms of language and identity<br />

policies (Polese 2009). In this context, the<br />

very presence of a state, as well as its work,<br />

generates tensions between habits, structures<br />

and dynamics consolidated over time, which in<br />

a Weberian perspective are the very source of<br />

power. The state attempts to regulate economic<br />

life and the relations between citizens.<br />

However, citizens may feel they are already<br />

able to regulate themselves on their own and<br />

feel unable or unwilling to further participate<br />

in the life of a given state. Those willing to<br />

participate, but at the same time feel somehow<br />

excluded, may provide informal transactions<br />

another meaning, in that they become a way to<br />

participate in the country’s political life (Gupta<br />

1995). Every action aimed at contrasting<br />

what the state imposes on citizens becomes a<br />

weapon (Scott 1984), so that informality may<br />

be seen as a way to reshape political decisions<br />

that were not accurately tailored for a given<br />

context (Polese 2010). To find confirmation<br />

of this statement, we need to look at the way<br />

informal economies function, their genesis<br />

and their perceptions by actors other than the<br />

state.<br />

WHERE WILL ALL THE BABUSHKI BE GOING?<br />

Kiev, a Wednesday afternoon, one of the<br />

hundreds of podzemnyj perekhod (subterranean<br />

passages used to cross wide roads that offer<br />

protection from the weather, especially in<br />

winter) of the city.<br />

Ukrainians, as they often do, are shopping.<br />

Sellers (mainly elderly women, but also<br />

some younger sellers) have arrived from the<br />

countryside or the neighbourhoods<br />

to sell their goods. Some offer a pot<br />

of marinated cucumbers, others have page 205<br />

collected and dried wild mushrooms,<br />

and still others sell apples. The more<br />

organized have a whole stand and a wider<br />

range of products. Some sell clothes, others<br />

biscuits and sweets or several kind of nuts.


AT THE ORIGINS OF INFORMAL ECONOMIES:<br />

THE UKRAINIAN CASE<br />

Perekhody are crossing places, used to go home<br />

or change connections, so that Kievlyans, while<br />

busy going home, may hurriedly stop at some<br />

stands to buy whatever they might need for<br />

dinner or the evening. This type of shopping<br />

is not time consuming and can be done in the<br />

time between transfering buses.<br />

Suddenly several police officers arrive and<br />

ask the sellers to leave. They are in the right:<br />

none of the sellers have a permit to be there. In<br />

addition, since Soviet times there is a strong<br />

inhibition (and diffidence) when dealing with<br />

the police, so resisting is not an option.<br />

However, conversely to what might happen<br />

elsewhere, the police officers are not keen<br />

to fine the sellers or confiscate their goods.<br />

They simply order them to leave. Some<br />

of the elderly women may ask for mercy,<br />

adding that this is the only way they can<br />

earn money. The officers will reply that<br />

they cannot do anything, that their job is<br />

to implement orders received from the state.<br />

To the accidental observer, this situation is<br />

perfectly logical. There is a group of people<br />

acting illegaly, while another group is paid to<br />

re-establish order and keep things under the<br />

control of the state, so that the state can get its<br />

revenue and take care of its citizens. However,<br />

following an approach suggested by Geertz<br />

(1973) it might be worthwhile to<br />

explore this situation and its context,<br />

page 206 in order to understand who the street<br />

sellers and police officers are as well<br />

as why people engage in such transactions<br />

and challenge the state to such degree.<br />

The reason why those babushki (grandmothers,<br />

elders) are there and the policemen chase<br />

them is a main issue in Ukrainian transition<br />

nowadays and a main conflict. The women<br />

are there because, in most cases, they have no<br />

better choice. The policemen go there because<br />

the government is pursuing a strategy to crack<br />

down on informal transactions and increase<br />

hygienic standards.<br />

There are several motivations for regulation.<br />

Informal shops in the street take revenue out<br />

of the taxable transactions and, thus, from the<br />

state budget. In a world in which the state must<br />

provide citizens with certain services, money<br />

must be obtained from several sources. With<br />

fewer taxes, there are less funds at disposal.<br />

Second, this is unfair competition for those<br />

who pay taxes; it damages their businesses by<br />

causing higher costs in turn for operating legally.<br />

This, in turn, encourages more individuals<br />

to leave the legal and enter the illegal sector.<br />

Finally, there is an issue of quality control.<br />

How can the state have control over quality of<br />

what is offered to the citizens if those sellers,<br />

who do not exist officially, buy from unknown<br />

producers or produce at home? As far as the<br />

state knows, the mushrooms and berries sold<br />

in such contexts might have been collected in<br />

radioactive areas; yet in the case of unregistered<br />

sellers who are at that particular location only<br />

temporarily, there is no accountability. Sellers<br />

would not have to respond to anybody should<br />

their products cause someone harm; and the<br />

state would bear the costs of hospitalization<br />

and loss of labour.<br />

Following this logic, Ukrainian politicians, and<br />

especially those in charge of Kiev, have started<br />

a crusade against ‘unhealthy food’, banning<br />

shaurma (kebab) and fried cakes on the ground<br />

that they are prepared in unhealthy conditions.


ABEL POLESE<br />

The same is happening to dairy sections of<br />

several bazaars in Kiev where, for fear of unhygienic<br />

conditions, the simplest solution seems<br />

to be a ban on selling of dairy products and a<br />

push for citizens to buy only in supermarkets.<br />

However, as street food is something available<br />

almost everywhere in the world, it is sufficient<br />

to regulate it. Why is it not possible to apply<br />

some form of control on street food so that<br />

people can know what they are eating, thus<br />

making it unnecessary to deny work to street<br />

vendors? And more, where do the babushki go<br />

after they are kicked out of a passage?<br />

Further questions would then be why such<br />

street vendors are there as well as why people<br />

tend to sell what they have at home and do<br />

so without a licence? A first point is that, to<br />

differing degrees, all those living on state<br />

pensions have seen both their savings and their<br />

income eroded by inflation. It is sufficient to<br />

think of all those already retired in 1991 to ask<br />

what has happened to their ruble-calculated<br />

pension after inflation skyrocketed and the<br />

national currency was changed. In addition,<br />

the inflation has been relatively high even after<br />

1996 and depends on the exchange rate, which<br />

has been highly unstable, even in recent years, so<br />

that even wages have proved unable to keep up<br />

with the price of living. This is why it is almost<br />

impossible to find someone who is comfortably<br />

living, after a life of hard work, on their statepaid<br />

pensions; and pensioners have to take up<br />

odd jobs to supplement their incomes. Some<br />

work in real estate, some as concierges, some do<br />

little reparations and some sell on the street. If<br />

elderly citizens live alone and have no relatives<br />

but needs money, the cost of their labour/time<br />

is extremely low. Thus, even selling a couple of<br />

kilos of self produced apples might be enough<br />

to finance their day to day lives.<br />

Registering a business requires an initial capital<br />

that most of these people do not have. Simply<br />

to obtain a permit or purchase a vendor outlet<br />

on the street to sell goods is not a possiblity,<br />

not to mention the bureaucratic complications<br />

of registering a business, which is often<br />

complicated further by those very same state<br />

officers with the goal of obtaining personal<br />

benefits. In addition, elderly citizens, who<br />

typically lived most of their life in the USSR,<br />

have less capacity to learn new regulations,<br />

especially in such a fast changing environment<br />

like Ukraine. Without support, they might get<br />

lost in all the necessary steps of registering a<br />

business, as we will see in the next case study.<br />

Alexei is a businessman. During the 1980s he<br />

completed his PhD in engineering and began<br />

working at a university but rapidly understood<br />

that this was not leading far. As soon as the<br />

country became Independent, he started his<br />

own business with a colleague from the university.<br />

His life in the business environment<br />

of the 1990s is reminiscent of the novel by<br />

Andrei Kurkov ‘The Penguin’. He had to hide<br />

several times outside the city, often with his<br />

own family. Although he was able to register<br />

his business, he was often operating between<br />

legality and illegality. One day he lost his<br />

company. His partner had falsified<br />

documents stating that Alexei had<br />

sold his share of the business to his page 207<br />

partner and then threatened to harm<br />

his family if he attempted any retaliation.<br />

Alexei began from zero again and, moving


AT THE ORIGINS OF INFORMAL ECONOMIES:<br />

THE UKRAINIAN CASE<br />

from one business to the other, slipped so far<br />

into illegality that he got arrested and convicted<br />

for a petty crime (exchanging money<br />

on the black market). This was also due to<br />

the fact that somebody was after him and his<br />

apartment in the centre of the city, which he<br />

eventually sold to bear his legal costs.<br />

Released from prison, he was unable to get<br />

a job and started working as a taxi driver.<br />

Anybody can work as taxi driver in Ukraine,<br />

as long as they have a car. There are registered<br />

taxi companies with official fares as well as private<br />

citizens who supplement their salaries by<br />

accepting to give lifts to other fellow citizens.<br />

He finally got a job in a communication<br />

company and acted as managing director of a<br />

department but was fired after approximately<br />

two years. The story of his employment in<br />

the company is an interesting outlook on the<br />

business world in Ukraine. Alexei was paid a<br />

thousand dollars a month, a respectible salary<br />

for somebody over forty in Ukraine. However,<br />

his official stipend was only two hundred<br />

dollars, paid directly into his bank account. The<br />

bulk of this money was paid to him in a white<br />

envelop. This is also a method, imposed from<br />

companies, to avoid paying income taxes; and<br />

employees tend to agree with this practice, as<br />

the services offered by the state in exchange for<br />

the taxes are very poor. Either way, employees<br />

have little choice.<br />

page 208 One of the drawbacks was that, once<br />

he applied for a bank loan, he could<br />

not prove he was earning enough to<br />

pay the loan back so that his wife (working for<br />

the state and thus declaring the whole of her<br />

revenue) had to guarantee for him.<br />

The director of his department was a<br />

relative of the company’s president, and thus<br />

almost untouchable, despite the fact that<br />

his management was far from being honest.<br />

When purchasing electronic components from<br />

abroad, he would inflate the price and pocket<br />

the difference. When the company decided on<br />

a salary increase for the employees, he would<br />

also pocket the difference, as no control over<br />

the white envelop was exercisable. As a result,<br />

Alexei and his colleagues had the lowest salary<br />

at the company (with no promotion in 2 years)<br />

and no right to protest.<br />

During this period, Alexei rediscovered his<br />

entrepreneur skills and registered a company.<br />

This time he used his in-laws as owners and<br />

distributed the assets so that it was not possible<br />

to steal it as a whole. He started repairing electronic<br />

devices that his employer threw away and<br />

sold them using his contacts in the company<br />

network. Several of his colleagues in different<br />

Ukrainian cities, unhappy with their salary or<br />

working conditions, helped him to create a<br />

national network able to dispatch anywhere in<br />

Ukraine. Meanwhile, he tried to convince his<br />

colleagues to denounce the abuses of their boss<br />

to the president. The director, probably expecting<br />

this, decided to get rid of him and waited<br />

until Alexei went abroad for a holiday to fire<br />

him and forbid his colleagues to talk with him.<br />

Alexei could not take any immediate actions<br />

and, probably tired of the situation, let things<br />

go, also reassured by the fact that his small firm<br />

was doing well.<br />

Today, he is still struggling to consolidate his<br />

position on the market but is able to survive.<br />

He says that the business environment has<br />

improved since the 1990s and no one has ever


ABEL POLESE<br />

tried to step on his way, not least because his<br />

business is too small to bother (which would<br />

not have been a deterrent in the 1990s).<br />

Here is a difference to some years ago. Because<br />

the economic situation has improved, and there<br />

seem to be more controls, people are less willing<br />

to take risks for few dollars. If, on the one hand,<br />

this seems to be an improvement, on the other<br />

it is not. Ukraine is an extremely bureaucratic<br />

country and very often legal acts are impossible<br />

because of the cumbersome bureaucracy.<br />

Think of a truck transporting animals or fresh<br />

fish at the border. If they have to wait 4-5 days,<br />

the load is lost. Especially after the 2004 Orange<br />

Revolution, the pro-Western direction of<br />

Ukraine and the compliance with international<br />

standards and control has made people afraid<br />

of getting caught. This means truck drivers<br />

have to play fair and wait until the custom<br />

officers are able to process the documents,<br />

which means the food might spoil. Or, because<br />

there is more risk involved in accepting informal<br />

payments, now officers expect you also to<br />

pay for their risk (so there is an extra tax on<br />

bribes) – either because they have to bribe their<br />

superior so that they will not be reported, or<br />

because prices are also higher with greater risk.<br />

One illuminating example is what happened to<br />

Alexei once he tried to import electronic components<br />

from China. Because they are trying<br />

to expand and produce in Ukraine, and some<br />

electronic devices are very expensive to import,<br />

he has been looking for a factory that produces<br />

radio components that can be assembled in<br />

Ukraine, allowing him to be more competitive<br />

on the market. He ordered one component to<br />

try to mount it and check whether it would<br />

be worth buying a whole lot. When this was<br />

shipped through DHL to Kiev, he found<br />

himself in a paradoxical situation: to be able to<br />

pay the exact custom duty, the product had to<br />

be registered by customs. However, to register<br />

the product, one had to go to the Ministry of<br />

Trade and produce that very same good, so<br />

government experts could evaluate it. How<br />

was it possible to register a good before import<br />

if, to register a good, one had to have already<br />

imported it?<br />

The custom rejected his parcel and he found<br />

it more convenient to send it to Moldova,<br />

where the DHL office had no trouble with<br />

the regulations, then send it to Odessa by bus,<br />

where there is a price for everything, registered<br />

or not, and then handle it to a train inspector<br />

who, in exchange for a small tip, brought it to<br />

him in Kiev.<br />

We could discuss whether Alexei and his colleagues<br />

are victims or accomplices, as Miller<br />

(et al. 2000) debate. However, there are several<br />

things that would not happen in a more<br />

transparent environment. The problem is not<br />

only the pressure of regulations defending the<br />

worker. For one thing, eager to attract foreign<br />

investments, Ukraine has tried to make some<br />

concessions to investors and simplify their life,<br />

although this might mean a worsening of workers’<br />

lives. Moreover, even if trade unions are a<br />

long time tradition in former Soviet countries,<br />

their role was quite ambiguous in the<br />

past and they might not be truly used<br />

to lobby for the good of the workers page 209<br />

as they claim.<br />

Dimitry is a university professor – that is,<br />

teaching at the university is one of his many<br />

jobs, as his university salary is not enough to


AT THE ORIGINS OF INFORMAL ECONOMIES:<br />

THE UKRAINIAN CASE<br />

pay his bills. Normally, university professors<br />

are paid for their teaching hours, conducting<br />

research and writing in their leisure time. A<br />

salary package would start at 200 US dollars,<br />

increasing with the workload (for instance<br />

if some administrative or teaching tasks are<br />

undertaken). In his case, he is willing to do several<br />

other jobs at the same time and, when we<br />

meet, I usually have to accompany him around<br />

the city to meet the most diverse people before<br />

we can finally sit to drink a tea and chat.<br />

Dimitry is not against accepting ‘presents’ from<br />

students. He says: ‘if the student comes to me<br />

and wants to pass my exam, I know that, if I<br />

fail them, they will bounce around until they<br />

finally pass another exam. Why shall I complicate<br />

things if those people were not born to<br />

study? In exchange, if after the exam they want<br />

to give me a bottle of kon’yak (brandy) or wine,<br />

I shall not refuse’.<br />

Dimitry is not alone, most university professors<br />

have to face the problem of low salaries and<br />

motivation. Some can tap from international<br />

programmes like IREX, CEP (now AFP),<br />

USAID and, more recently, Marie Curie and<br />

receive money for traveling or their research.<br />

However, the majority of them, and especially<br />

those who do not know English and thus<br />

cannot connect with the Western world, are in<br />

a more critical situation. They might<br />

look for a number of remedies: they<br />

page 210 might get a second job at a private<br />

university, using the prestige of the<br />

public one they work for. They might<br />

give private lessons to their students. Or they<br />

might accept informal payments in different<br />

ways and modalities.<br />

Under pressures from the international community,<br />

Ukraine has come to outlaw flowers<br />

and chocolate, a traditional present from<br />

students to the teachers but defined as bribes<br />

in a desperate effort to limit corruption at universities.<br />

However, I have argued that the main<br />

problem is low salaries, rather than greedy<br />

teachers (Polese 2008).<br />

A further question, however, would be why a<br />

student who does not want to study is at the<br />

university. Why are hundreds of such cases<br />

found at the university? The answer is that,<br />

with no university degree, it would be extremely<br />

hard to find a job that is decently paid. With<br />

a high unemployment rate, competition for any<br />

kind of job is great. To succeed, it is necessary<br />

to have higher qualifications than the others,<br />

even to work in a shop or as a cleaner.<br />

Aware of such conditions, parents are willing<br />

to do anything to secure their children a future<br />

and invest their savings into an university<br />

education. With an increasing number of<br />

students willing to enter a university, the first<br />

consequence is that universities accept more<br />

students than they should and classes become<br />

overcrowded. Once a limit is reached, the old<br />

law of supply and demand applies and prices<br />

to enter a university rise. I am not talking of<br />

official prices but, rather, the extra costs parents<br />

will have to pay to secure a place for their<br />

children.<br />

The most prestigious universities become<br />

places where prices are exceedingly high; and<br />

even universities with no real perspective on<br />

the Ukrainian job market (like ethnography or<br />

history) are in demand. Some meritocracy still<br />

applies, but what university is not willing to


ABEL POLESE<br />

obtain extra money from students in times of<br />

economic crisis when university expenditures<br />

are low? This also means that students,<br />

becoming a source of revenue for the university,<br />

are untouchable. To fail a student means to get<br />

into trouble as a professor, who would even<br />

risk being fired. This is an extra motivation to<br />

allow cheating on exams. The result is a huge<br />

fraud to the state, with universities producing<br />

unprepared students, while professors and<br />

faculty receive extra money and many students<br />

enter the job market with a (fake) degree. All<br />

this occurs while the state is trying to persuade<br />

universities to implement the Bologna process<br />

and teachers to use ‘interactive teaching’<br />

methods during their classes. The main looser is<br />

the job market. Students might learn a job even<br />

with little university education. The problem<br />

is that they learn that such behaviours like<br />

paying for an exam or cheating are tolerated in<br />

society and might continue this tradition when<br />

working.<br />

THE INFORMAL SECTOR: PROBLEM OR SOLUTION<br />

OF TRANSITION?<br />

What do the actors mentioned above have<br />

in common? The first element is a desire or<br />

necessity to engage in informal transactions<br />

with other fellow citizens. The nature of those<br />

relationships is always fluid, oscillating between<br />

the legal and the illegal, depending on the point<br />

of view (and on the moral code) adopted.<br />

However, they also have in common a conflictual<br />

relationship with the state or its subordinates.<br />

In the case of a public worker, this is all<br />

the more visible, as it is direct: the state either<br />

does not pay enough, pays late, or does not pay<br />

at all (Polese 2006b, 2008). The case of the<br />

pensioners is also similar, with the state not<br />

providing enough to live on. Where we have<br />

a doctor in a hospital or a teacher accepting<br />

informal payments, we have somebody else<br />

paying. The fates of the above mentioned<br />

people are, thus, entangled, each receives and<br />

gives money depending on the situation and<br />

the economy turns. Perhaps not the way the<br />

government would like, but we have circulation<br />

of liquidity and a quasi functioning economic<br />

system.<br />

The case of the private worker is less direct, but<br />

it is important to remember here that, where<br />

the state is in charge of the management of a<br />

country, it normally has two options – it either<br />

takes care of all the sectors (central planned<br />

economy) or creates the conditions for external<br />

institutions to regulate the economic life of<br />

the country. Neither of the mentioned options<br />

applies to Ukraine, where employees have little<br />

defence against their employers, who in turn<br />

have little defence against larger companies<br />

and so on.<br />

The case studies explored are situations generating<br />

tensions, directly or indirectly, between<br />

the citizen and the state. However, because of<br />

the political situation in Ukraine, it might not<br />

always be possible to directly oppose political<br />

decisions or confront the political elites, as it<br />

might happen in a country with more<br />

interaction between the political<br />

class and the people. The best way page 211<br />

people can cope is to officially accept<br />

the change but then de facto reject<br />

it. Informal economies, thus, may be seen as<br />

generated by tensions between the state and<br />

the citizen. But change, the shift of an equi-


AT THE ORIGINS OF INFORMAL ECONOMIES:<br />

THE UKRAINIAN CASE<br />

librium, always generates tension, the level of<br />

which will depend on how hard it will be for<br />

citizens to adapt to the new rules. If people<br />

can live with this change, they will slowly pass<br />

from one stage to the other. If people cannot<br />

live with it, they will oppose it through civil<br />

society, political or other actions popular in<br />

a given context. Either a government will<br />

understand that it will loose popularity and<br />

revoke the measure or it will loose popularity<br />

and political power and most likely some other<br />

elites will use this to gain power.<br />

During the adjustment phase, tensions between<br />

what the state wants and the citizens<br />

are willing to give will generate tensions that<br />

may, in turn, develop into informal economies.<br />

We may see informal economies, thus, as<br />

something transitory that will disappear once<br />

the tension will be solved in one or another<br />

direction.<br />

However, there is another situation, in which<br />

people are captured between adaptation and<br />

political struggle, which does not move for the<br />

better or worst. Should this persist, informal<br />

economies would, as well.<br />

The question would then be ‘how long is transitory’.<br />

Is there a way to distinguish informal<br />

economies created to make up for a temporary<br />

state inefficiency from those that will stay?<br />

Informal economies can act as a buffer<br />

page 212 between the state and the citizen and<br />

shall be seen as something moving<br />

and fluctuating but existing in every<br />

single country in the world. When they are<br />

strong, it means there is much tension between<br />

the state and the citizen. When they are weak,<br />

it means the state is more able to meet the<br />

needs of its citizens.<br />

The informal sector may be seen, not as the<br />

problem or the solution, but as an indicator of<br />

the wealth of a society and the performance of a<br />

state. The more active it is, that is the more the<br />

society is based on social network rather than<br />

on state-led actions, the more room there is for<br />

a change of state attitudes that should be revisited,<br />

because it means the state does not address<br />

the needs to which citizens give priority.<br />

CONCLUDING REMARKS<br />

Informal economies may be generated either<br />

by a lack of a state or by its incompetence. I<br />

have suggested that in Ukraine the small<br />

amount of money allocated for hospitals has<br />

made informal payments the rule rather than<br />

the exception and this is the only way doctors<br />

and nurses can survive on the wages the state<br />

allocates (Polese 2006, 2006b, 2008).<br />

In this respect, informal transactions are not<br />

the disease but the solution, as de Soto (1989,<br />

2002) suggested. The main problem, according<br />

to the Peruvian economist, is that Western<br />

capitalist models of development, in particular<br />

property laws and practices, were drawn from<br />

practical experience rather than blindly imposed<br />

on the citizens (when trying to do so, the<br />

authorities faced open or hidden resistance).<br />

But those very models, practices and rules,<br />

elaborated through historical experience, are<br />

now imposed on transitional countries in the<br />

credo that, as long as they work in the West,<br />

they must work everywhere.


ABEL POLESE<br />

Recently, mainly anthropologists have started<br />

questioning the imposition from the top of<br />

such normative categories that limit domestic<br />

initiatives and are bound to shame politicians<br />

or people for failing to line up with capitalist<br />

standards. When talking of gift exchange<br />

practices in Kazakhstan, hurriedly classified as<br />

corruption by Western organizations (Transparency<br />

International or the World Bank),<br />

Werner (2003) suggested that it might be useful<br />

to compare the definition of international<br />

organizations with local and cultural standards,<br />

agreeing with other scholars that a contextual<br />

analysis is needed when theorising informal<br />

economies (Rasanayagam 2003). This might<br />

ultimately lead to an acceptance that standards<br />

depend on a particular economic situation<br />

(Wanner 2005) before trying to separate the<br />

formal from the informal, the legal from the<br />

illegal.<br />

In a context where decisions are imposed from<br />

above, informal economies become a way to<br />

react to economic measures with which citizens<br />

cannot comply. Once an unorganized struggle<br />

challenges an economic policy, by simply failing<br />

to comply with the economic instructions of<br />

the government, this failure may become a sign<br />

or way to respond to decisions and have a voice<br />

in the political arena (Gupta 2005, Thompson<br />

2003, Scott 1977, 1985, Tarrow 2005) to oppose<br />

too abstract rules that would make life<br />

impossible to anyone willing to survive. In a<br />

number of countries, registering a business<br />

following the official legal procedures could<br />

take several years and is much more expensive<br />

than remaining in the shadow. The drawback<br />

is that even accumulation of capital becomes<br />

informal and, thus, the country remains ‘poor’.<br />

In Ukraine, as in many other countries, laws<br />

often contradict themselves and come to reject<br />

social practices that people need to survive.<br />

Social and economic interactions, with the<br />

subsequent indebtedness, become a way to<br />

maintain relations and be able to ask for help<br />

when needed (Lolinka 2002, White 2004).<br />

On their side, international organizations,<br />

by proposing an international standard to all<br />

contexts, sometimes come to deny historical<br />

practices and the very social fact of the gift,<br />

as Werner (2003) has remarked for the World<br />

Bank.<br />

NOTE<br />

1<br />

Perhaps the most striking example is quoted by<br />

Robert Whiting in his book Tokyo Underworld. The<br />

authors describe tensions between American and Japanese<br />

anti-corruption authorities due to the fact that in Japan<br />

corruption involves a direct favour and a counterfavour by the<br />

other part, otherwise it is a simple gift that helps maintain social<br />

relationships.<br />

page 213


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LYUDMYLA REFERENCES LITERATUR VOLYNETS<br />

ABSTRACT<br />

10<br />

IINDUSTRIAL RELATIONS AND POST-SOCIALIST<br />

TRANSFORMATION:<br />

THE CASE OF UKRAINE<br />

Organized interest representation<br />

is central for transformation processes<br />

(incl. economic, political<br />

and social systems) to be completed. Unless<br />

workers’ interest is articulated in an organized<br />

manner, the prospects for democracy and a<br />

market economy in Ukraine, like elsewhere,<br />

are threatened. The complex structuring of<br />

industrial relations (IR) under the conditions<br />

of emerging capitalism in Ukraine embraces<br />

changes at all possible levels: arenas, legal and<br />

institutional settings, actors and their agency.<br />

Together with the enterprise-related restructuring,<br />

it leads to the segmentation of the IR<br />

systems. From the actor-centred perspective,<br />

this article demonstrates how unions-related<br />

changes (conceptualized as formative processes)<br />

have shaped the differences across<br />

enterprises and segments of IR in Ukraine.<br />

Lyudmyla Volynets<br />

INTRODUCTION: SEGMENTED INDUSTRIAL RE-<br />

LATIONS SYSTEMS<br />

The structuring of business systems in the<br />

countries of Central and Eastern Europe<br />

(CEE) led to the emergence of segmented<br />

capitalisms (Martin (2008)) 1 . Industrial Relations<br />

(hereafter IR) constitute one element<br />

of such business systems and are understood<br />

here in terms of the shifting frontier<br />

of control over working conditions<br />

between workers and their unions Seite page 217<br />

and employers. Accordingly, the<br />

low integrity and incoherency of<br />

the emergent IR systems within the present<br />

segmented business systems (Martin und<br />

Christescu-Martin 2006) resulted in the rise


INDUSTRIAL RELATIONS REFERENCES LITERATUR IN THE UKRAINE<br />

of certain segments operating according to<br />

different IR dynamics. Hence, each of the segments<br />

(state budget sector, privatized or about<br />

to be privatized enterprises, emergent private<br />

sector, and Transnational Corporations) were<br />

claimed to produce a different pattern of IR<br />

(Kabalina und Komarovsky 1997, Martin und<br />

Cristescu-Martin 2004, 2006, Sidenko und<br />

Kuziakiv 2003, Slomp, van Hoof und Moerel<br />

1996, Peng 2000) 2 .<br />

It should be recognized that while certain<br />

segments are conducive to certain types of IR,<br />

these arguments do not apply in full for the<br />

example of Ukraine. In education and medical<br />

services in Ukraine workers and independent<br />

unions were quite assertive in terms of their<br />

rights and demands. In contrast, unions remained<br />

salient in many privatized enterprises;<br />

and IR followed old-style paternalistic logic.<br />

Similarly, the continuity in the original IR<br />

practices in foreign companies was questioned<br />

elsewhere (e.g. Cooke 2006, Tholen 2007).<br />

Hence, the segmentation of the business systems<br />

alone is not sufficient in explaining IR<br />

outcomes. Rather, some insights are necessary<br />

into how the new IR system is structured and<br />

institutionalized. Whereas its institutional<br />

design is driven much by international practices<br />

and principles, the bottom-level change<br />

in enterprises, employers and unions proceeds<br />

more slowly. Here IR actors, in particular, still<br />

find themselves in the processes of<br />

formation, while their agency does<br />

Seite page 218<br />

not always conform to the patterns of<br />

action imposed institutionally. I argue<br />

that the dynamic perspective of actors’<br />

formative processes and their interaction is<br />

superior in explaining the local segmentation<br />

of IR.<br />

IR INSTITUTIONAL DESIGN AND ACTORS’<br />

FORMATION<br />

Such unique simultaneous re-building of postsocialist<br />

IR arenas and actors can be addressed<br />

as the evolution of IR arenas in the sense of<br />

Müller-Jentsch’s actor-centered institutionalism<br />

(Müller-Jentsch 1996). On the one hand,<br />

the new institutional design is developed<br />

across former Soviet countries (hereafter<br />

FSU) in convergence with the principles<br />

of the International Labour Organization<br />

(ILO) and the European Social Model 3 . Such<br />

institutionalization from above (and from<br />

outside) is difficult in its deterministic view of<br />

the local processes (Burawoy und Verdery 1999,<br />

Grabher und Stark 1997, Stark 1998, Wollmann<br />

1997). Not least because the newly imposed set<br />

of rules regulates the patterns of interest and<br />

prescribes patterns of action that are still to<br />

emerge. As the construction of autonomous<br />

interest organizations is not completed (Slomp,<br />

van Hoof und Moerel 1996, Schienstock 1992),<br />

actors find themselves in the processes of (re)<br />

defining their roles and functions (Rippe 1985,<br />

Schienstock, Thompson und Traxler 1997).<br />

Therefore, it is not surprising that the new<br />

rules of the game laid down with international<br />

assistance cannot be institutionalized. This is<br />

confirmed by deficits in the functionality of<br />

law, collective bargaining and social dialogue in<br />

the region 4 .<br />

In the process of the institutionalization,<br />

currently fluid and contested IR arenas will<br />

be re-shaped during the processes of actors’<br />

formation and their capacity to mobilize the<br />

resources providing for their strength. From<br />

the perspective of the actor-centered institutionalism,<br />

institutions are treated in terms


LYUDMYLA REFERENCES LITERATUR VOLYNETS<br />

of actors’ interest and cultural ideas being the<br />

building blocks of institutions. IR arenas are<br />

addressed as “a complex institutional system<br />

that determines which interests and actors are<br />

to be admitted … [and which] set boundaries<br />

for the courses of action open to the actors…”<br />

(Müller-Jentsch 1996: 31). Such an approach<br />

allows one to address the linkages between the<br />

progress of the institutionalization and actors’<br />

formation, on the one hand, and the tensions<br />

between the macro-level (system) and microlevel<br />

(actors) institutionalization (Wollmann<br />

1997) on the other. It further advances the<br />

understanding of the IR segmentation.<br />

Advancing such a perspective pre-supposes the<br />

recognition of actors’ strategic choices as well<br />

as the scope of changes they go through. Firstly,<br />

those authors highlighting the role of union<br />

discretion over IR (Trif und Koch 2005a,b,<br />

Huzzard, Gregory und Scott 2005, Hanke und<br />

Mense-Petermann 2001) show that even under<br />

the present constraints, unions still have been<br />

able to impose strategic choices on employers.<br />

In spite of union weaknesses, they could be<br />

effective in some IR areas. For example, on<br />

the national level Avgadic (2003) develops an<br />

understanding of union effectiveness that has<br />

resulted from the pre-history of state-unions<br />

interactions and their learning processes. A<br />

similar, process oriented concept was developed<br />

by Frege (2002) pointing that a process of unionmanagement<br />

relationships is determinant<br />

for union effectiveness. It facilitates longterm<br />

union transformation and goes back to<br />

unions’, members’ and managers’ attitudes and<br />

perceptions. Thus, sorting out unions’ choices<br />

in the processes of their relationships with<br />

the management is helpful in tracing unions’<br />

formative processes and the linkages between<br />

the institutional and behavioral aspects of IR<br />

institutionalization.<br />

Secondly, union formative processes go beyond<br />

a solely organizational formation of unions to<br />

their roles and functions. Structural reforms<br />

alone would not be enough to re-constitute<br />

unions’ roles as workers’ representatives 5 . In<br />

this dilemma, unions’ choices are more embracing.<br />

Unions can either resist or collaborate<br />

(subordinate) with employers and the state<br />

(Clarke 2005). Which way unions follow<br />

depends on how they address changes in the<br />

course of their formative processes, meaning<br />

in relation to union identity, agenda, structure,<br />

relationships with members, employers, and<br />

conflict articulation. Such a scope of necessary<br />

changes allows one to capture them as formative<br />

processes. Depending on the progress of<br />

union formative processes, the latter is a part<br />

of the explanation of a variety of enterprisebased<br />

IR ranging from subordination through<br />

union-management cooperation against state<br />

to cases of resistance and contestation. The<br />

formative processes of unions are directly<br />

affected by union embeddedness into interactions<br />

with employers and, in broader terms, by<br />

transformation.<br />

THE INTERACTIONS OF MANAGERS AND UNIONS<br />

ACROSS FSU<br />

Transformation exposes IR actors<br />

to significant challenges originating Seite page 219<br />

from the interplay of the socialist<br />

past and present choices, external<br />

and endogenous factors, as well as those that<br />

come from the interplay between the formal<br />

dimension of policy-making and its informal


INDUSTRIAL RELATIONS REFERENCES LITERATUR IN THE UKRAINE<br />

dimension referring to actors’ behaviours.<br />

Both independent and ex-official unions find<br />

themselves at the intersection of these three<br />

dimensions of post-socialist transformation.<br />

Whereas actors have not grown up to the<br />

roles the new IR framework prescribes, they<br />

continue to structure their interactions outside<br />

the formal framework. In their formative<br />

processes, they combine the results of learning<br />

with experiences accumulated in the past. The<br />

learning of managers and unions is facilitated<br />

by the integration of the IR into the broader<br />

processes of globalization. Approaching actors<br />

from such a dynamic perspective (as formative<br />

processes offer) means to understand the<br />

scope and advance of choices they make. The<br />

complexity of changes on different dimensions<br />

of union formation (identity, agenda, structure,<br />

resources, relationships and conflicts management)<br />

defines union positioning in relation to<br />

IR. A trade union is likely to commit to the<br />

democratic model of unionism (on all dimensions)<br />

depending on its positioning within<br />

the current formal and informal settings and<br />

arenas, union origin and evolution, and the<br />

degree of insertion into the international trade<br />

union movement.<br />

Certainly, union positioning within the IR<br />

arenas is not a sole determinant of the final<br />

shape of IR, as unions are embedded in the<br />

interactions with employers meaning that<br />

local IR patterns reflect the process<br />

of interactions of both actors. For<br />

Seite page 220<br />

example, where employers remain authoritarian-paternalistic<br />

(as in many<br />

state and privatized enterprises), they<br />

will be likely to remain aggressive to independent<br />

unions, but will pursue cooperative<br />

relationships with the subordinate unions.<br />

As ownership and enterprise strategies diversify,<br />

so do managerial approaches to IR.<br />

The structuring of economic elites across<br />

FSU follows intra-entrepreneurial cleavages<br />

between old-style (administrators of former<br />

state enterprises) and new (newly emerging<br />

entrepreneurs) (Kabalina und Komarovsky<br />

1997). Respectively, traditional, Soviet-type IR<br />

patterns are most likely to be insulated within<br />

enterprises managed by old elites and leaving<br />

union structure intact. Change is rather unlikely<br />

here, as the inflows of new human capital<br />

remain low (Barberis, Boycko, Shleifer und<br />

Tsukanova 1996). This “conservatism” has been<br />

paralleled by informalization and individualization<br />

of work relations, often accompanied<br />

by the strengthening of the authoritarian style<br />

of management. Here management is increasingly<br />

hostile to trade unions “in anything<br />

other than their former role as accessories to<br />

management” (Pollert 1999: 214). In such a<br />

view, IR segmentation embraces the insulation<br />

of traditional IR in some segments and their<br />

individualization in the others.<br />

If managerial agency 6 is linked to the business<br />

system structuring, then the segmentsrelated<br />

IR dynamics can be better explained.<br />

It becomes clear that one or another business<br />

system segment is more conducive to certain<br />

managerial styles than the other and is able to<br />

explain outcomes in IR related to the assertiveness<br />

of trade unions. The differences within<br />

unions’ and managers’ approaches to IR impact<br />

the shape of IR and, for trade unions, the form<br />

of unionism they want to institutionalize.


LYUDMYLA REFERENCES LITERATUR VOLYNETS<br />

VARIETIES OF UNIONISMS IN FSU<br />

Despite the introduction of pluralist principles<br />

across FSU countries, IR arenas do in fact<br />

continue to be dominated by previously existing<br />

(ex-official) trade unions. This situation hinges<br />

on differences in labour’s formative processes.<br />

Existing unions across FSU adapted their roles<br />

and conducted “cosmetic” reforms (Kabalina<br />

und Komarovsky 1997). Newly established<br />

unions, in order to develop their roles, initially<br />

embark on the contestation of arenas by means<br />

of collective action and strikes. As independent<br />

unions emerge, even if they fail to break the<br />

dominance of ex-official unions, they challenge<br />

their adaptive role which leads to rivalry and<br />

incoherence of labour movement across CIS 7 .<br />

The initial position from which ex-official<br />

unions in CIS countries entered the formation<br />

process was characterized by subordination, a<br />

“transmission-belts” identity, pro-management<br />

interest, and dependence on the resources<br />

provided by the state and management. New<br />

unions were established in protest to continuing<br />

subordination and a pro-management position<br />

of unions at the point when workers’ grievances<br />

multiplied (also Kubicek 2004). Both<br />

membership and resources were absorbed by<br />

former official unions and must be established<br />

from scratch by new unions. In fragile, semidemocratic<br />

regimes, democratic principles of<br />

unionism appear as embarrassing. Here, independent<br />

unions are viewed with suspicion by<br />

the presiding authorities and ex-official unions 8<br />

and are opposed by both.<br />

From these somewhat different starting conditions,<br />

there emerge different trajectories of<br />

union formation. For ex-official unions, striving<br />

to ensure their institutional survival and<br />

retaining their dominance becomes a priority.<br />

Ideally, in order to sustain long-term they<br />

need to break from subordination and acquire<br />

independence. For newly established unions,<br />

the formative processes are about the contestation<br />

of arenas dominated at present by the<br />

ex-official unions. They are about gaining recognition<br />

and extension of membership base. In<br />

the view of above mentioned differences, the<br />

kind and sources of union weaknesses cannot<br />

be generalized in the same manner for both<br />

former official and newly established unions.<br />

WEAKNESSES OF THE TRADE UNION MOVE-<br />

MENT IN THE CONDITIONS OF POST-SOCIALIST<br />

TRANSFORMATION<br />

Crowley (2001) and Crowley und Ost (2001)<br />

shaped the definition of union weaknesses<br />

while arguing that “… workers and unions<br />

were unable to shape conditions of work and<br />

public policy in accord with their interests…<br />

it has been the object and not the subject of<br />

the postcommunist reform” (Crowley und Ost<br />

2001: 219-220). In terms of aggregate macro<br />

indicators (e.g. membership decline, low wages<br />

and weak union input to policy-making),<br />

unions are correctly argued to remain weak.<br />

However, locally the issues of union weaknesses<br />

play out differently as the conditions of<br />

the same severities local IR outcomes vary 9 .<br />

For example, whereas union membership<br />

decline could be explained by Seite page 221<br />

structural factors 10 , notable is that former<br />

official and independent unions<br />

do not reveal similar membership dynamics.<br />

Here, the drastic fall in ex-official union density<br />

was contrasted by slow but steady growth


INDUSTRIAL RELATIONS REFERENCES LITERATUR IN THE UKRAINE<br />

of independent unions. Similarly, in the CEE<br />

countries data on unions’ membership loss<br />

(Pollert 1999) demonstrate the variance in the<br />

degree of union revitalization. In particular,<br />

in Ukraine the former official unions loose<br />

around a million of members each year. Even<br />

if slow, newly established unions succeed in<br />

extending their membership rates in a sustainable<br />

manner. As regards weaknesses in union<br />

militancy, one can apply a similar logic of argumentation.<br />

In spite of a low record of strikes<br />

already in 1993, more strikes were recorded in<br />

Ukraine than in Russia, whereas the number<br />

of days lost during strikes also exceeded those<br />

in Russia 11 . The distribution of strikes demonstrates<br />

that independent unions more actively<br />

cultivate mobilization and striking activities<br />

within the settings of social partnership (e.g.<br />

Crowley 2000) than the ex-official unions do.<br />

The dimensions of transformation vary in<br />

their effects on the kinds of unionism. Informal<br />

politics used by ex-official unions for the<br />

purposes of exclusion and marginalization of<br />

independent unions pre-emptively preclude<br />

the contestation of arenas by new trade unions.<br />

The most recent examples of a bill “on social<br />

dialogue” in Ukraine submitted by the exofficial<br />

union federation clearly explicate it<br />

in that it strived to marginalize and exclude<br />

the majority of newly established independent<br />

trade union organizations out of official IR<br />

mechanisms. This is in spite of principles<br />

of pluralism enshrined in law.<br />

Seite page 222<br />

Legacies of the past, as the second<br />

impacting factor, find probably the<br />

strongest expression in the case of unions.<br />

Legacies might no longer be so evident on<br />

the level of identity and mission as all unions<br />

declared themselves independent. However,<br />

further levels of ex-official union choices and<br />

operations demonstrate the continuity with<br />

the past, and with it - how symbolic a change<br />

in the unions’ mission was. The scope of union<br />

activities and services (social and welfare<br />

benefits) still too greatly resembles socialist<br />

practices, even though meets workers’ demands<br />

on unions for the time being.<br />

Independent unions relying on mobilization<br />

and collective action have to struggle with<br />

such workers’ legacies. On the one hand, bizarre<br />

co-existence of socialist collectivity and<br />

individualism and passivity does not express<br />

itself into workers’ effective collective action<br />

and self-organization (Ashwin 1996). On the<br />

other hand, deep cultural limits to the role of<br />

interest representation in workers’ perceptions<br />

re-enforce a legalistic and individualized approach<br />

of workers to articulate their grievances,<br />

which is, indeed, spread across CEE (Pollert<br />

1999). Such legacies constrains new unions’<br />

opportunities to extend their major resource<br />

– militant membership. So, where ex-official<br />

unions inherit resources (membership and<br />

property) facilitating their survival, newly established<br />

unions are attacked in the resources<br />

that would ensure their successes.<br />

External influences are catalysts in that they<br />

pressure unions for renewal (Ashwin 2007).<br />

The discourse of social partnership facilitated<br />

the establishment of union freedoms and<br />

pluralism, at least on the constitutional and<br />

legislative levels. In institutional terms, it basically<br />

opened arenas of IR for newly emergent<br />

unions and provided a necessary degree of relegitimizing<br />

unions (Pollert 2000) as interestrepresenting<br />

institutions. Emerging and still


LYUDMYLA REFERENCES LITERATUR VOLYNETS<br />

fighting for recognition, unions could have<br />

extracted further benefits, as social partnership<br />

provided for room for control and pressure<br />

mechanisms (e.g. ILO) on the implementation<br />

of pluralist principles in the area of IR.<br />

Independent unions could also draw on bilateral<br />

cooperation with European and American<br />

unions. However, social partnership precluded<br />

the articulation of workers’ interest by means<br />

other than conciliation. Thus far, the rhetoric<br />

of social partnership “was no more consistent<br />

with independent forms of workers’ organization<br />

than had been the rhetoric of “socialism”<br />

before it” (Clarke und Fairbrother 1994: 379).<br />

It prescribed conciliatory and concessiondriven<br />

activities for all IR actors on the cost of<br />

increasing their strength by collective action.<br />

The prospects of the trade union movement<br />

in CIS might not look promising. The prevailing<br />

response of unions was “to exchange the<br />

subservience to management and the state<br />

in the name of “socialism” for subservience<br />

to management and the state in the name of<br />

“social partnership” (Mandel 2004: 59). Indeed,<br />

prospects are provided by the consequent development<br />

of the independent trade unions.<br />

THE STATE OF IR IN UKRAINE<br />

At the onset of transformation, Ukraine was assumed<br />

to quickly catch up with Western living<br />

standards (Mandel 2004). Later on, however,<br />

Ukraine was identified as the slow transformation<br />

country (Wittkowsky 1998) compared to<br />

the others. The lack of transformation progress<br />

was attributed to a lack of political will of<br />

then-Ukrainian governments, strong embeddedness<br />

of the rent-seeking interests (e.g.<br />

Aslund 2002, Wittkowsky 1998), and heavy<br />

economic dependence of Ukraine on Russia<br />

(Mandel 2004). The following section, firstly,<br />

suggests a brief overview of the economic and<br />

political developments since Ukraine gained<br />

its independence in 1991 as well as the social<br />

consequences. It is then followed by a review<br />

of the institutional re-arrangement of IR and<br />

the regulation of union activities. It is once this<br />

Ukrainian context of IR is set that differences<br />

in emerging unionisms are outlined.<br />

POLITICAL AND SOCIO-ECONOMIC SITUATION<br />

Ukraine declared its independence in 1991,<br />

but the advance of economic reforms hardly<br />

took place until the late 1990s. Notably, as no<br />

clear rules were laid down in the first years<br />

of the transformation, rent-seeking interests<br />

that have originated from nomenklatura<br />

(party top positions) acquired strong positions<br />

in both economics and politics. This tight<br />

overlapping of economic and political<br />

interests resulted in the promotion of reforms<br />

and corrupt privatization serving the profit<br />

and power-oriented needs of wealthy elites.<br />

Business elites that consolidated in 1990s were<br />

identified as oligarchs 12 , clans, and financialindustrial<br />

groups 13 (Kowall und Zimmer<br />

2002). The symbiotic relationships between<br />

the political and economic core actors (and<br />

businesses direct representation in<br />

the Parliament and ministries) led to<br />

the blockade of the economic reforms Seite page 223<br />

(e.g. Pleines 2006, 2008) and “region<br />

capture” (Zimmer 2002). Hence,<br />

prior to 2004 one speaks about Ukraine as<br />

the system in the form of oligarchy (Kowall<br />

und Zimmer 2002) and autocracy (Franzen,


INDUSTRIAL RELATIONS REFERENCES LITERATUR IN THE UKRAINE<br />

Haarland und Niessen 2005).<br />

In 1994 the neo-liberal programme of<br />

reforms (embracing standardized IMF’s<br />

policy prescriptions) was adopted under then-<br />

President Leonid Kuchma with the assistance<br />

of the International Monetary Fund (IMF)<br />

and the World Bank. Neo-liberal reforms<br />

exacerbated the structural economic problems<br />

Ukraine inherited 14 and led to a steep economic<br />

decline. “Ukraine is the only transition country<br />

to have known nine consecutive years of<br />

economic decline” (1991-9) (van Zon 2002).<br />

The first signs of economic growth appeared<br />

only in 2000 (Merkel 2008). Then Ukraine<br />

showed the highest performance in Europe<br />

with the growth of 15.8% and 12.5% in the<br />

years 2003 and 2004, respectively (Chernyshev<br />

2006). Meanwhile, subsidies and social<br />

spending were reduced and wages and their<br />

increase freezed (Mandel 2004). Until growth<br />

resumed, official employment declined by<br />

one-third between 1990 and 1999, given the<br />

40% reductions in industry and agriculture<br />

employment (Chernyshev 2006).<br />

By 2001, three fourths of the economy (as<br />

of 2005, 78.3%) was claimed to be private.<br />

However, these estimations also included the<br />

enterprises in which the state retained its share<br />

(Franzen, Haarland und Niessen 2005). They<br />

employed 73.8% of the total workforce (Statistics<br />

Annual of Ukraine – 2005 cited<br />

in CASE 2007). However, by value of<br />

Seite page 224<br />

the assets, the state and communal<br />

authorities still retained over one half<br />

– 54.8% - of the assets (CASE 2007),<br />

mainly huge strategic enterprises that have been<br />

excluded from the privatization, but which play<br />

a significant role in the Ukrainian economy.<br />

The Ukrainian governments were anything<br />

but successful in developing socially oriented<br />

responses to the economic decline. In the<br />

period of hyper-inflation, the indexation of<br />

wages was ceased between 1992 and 1997 15 ,<br />

leading to a significant fall in workers’ real<br />

wages. Even though the government regulated<br />

wages through legally-set minimum wage, it<br />

failed to increase it to the levels of the legally<br />

set subsistence minimum, thus violating its<br />

own laws. Workers’ earnings were far from<br />

adequate 16 . Even after the freeze of wages was<br />

abolished, both insolvent and economically active<br />

enterprises continued to accumulate wage<br />

debts. Wage increases driven by improved<br />

economic performance still left one fourth of<br />

the population below the poverty line in 2004<br />

(Chernyshev 2006).<br />

Corrupt and rent-driven policy making<br />

were interrupted by the mass protest of 2004<br />

identified under the term “Orange Revolution”.<br />

Caused by the vote frauds during the<br />

presidential elections, these protests resulted in<br />

the election of expectedly more democratically<br />

oriented President Yushchenko. Whereas his<br />

Presidency allowed for more freedoms (not<br />

least, media and independent union freedoms),<br />

he has been consistently criticized for his inability<br />

to overcome intra-governmental cleavages<br />

and a failure to advance the socio-economic<br />

development of Ukraine. The slight increase in<br />

living standards brought on by the economic<br />

growth of recent years (since around 2005) was,<br />

however, anything else than long-term and sustainable,<br />

as achievements were soon smashed<br />

away by the global financial crisis. Since 2008<br />

the Ukrainian economy, together with the<br />

living standards of the population, entered a<br />

downturn again.


LYUDMYLA REFERENCES LITERATUR VOLYNETS<br />

There is no need to stress that living conditions<br />

of the Ukrainian population have deteriorated<br />

enormously since Ukraine gained<br />

independence. The transformation towards<br />

capitalism in its Ukrainian version has led to a<br />

deterioration in working conditions and workers’<br />

earnings, facilitating an erosion of social<br />

security. According to the People’s Security<br />

Survey conducted by the International Labour<br />

Organization and the State Statistics Committee<br />

of Ukraine in 2003, a monthly income<br />

per capita amounted to less than $100, 40% of<br />

wage earners suffered from wage arrears, over<br />

two-thirds were dissatisfied with their wages,<br />

and about 85% of adults could not even cover<br />

their healthcare needs.<br />

INSTITUTIONAL FRAMEWORK OF IR IN<br />

UKRAINE<br />

In spite of pressures, the institutional framework<br />

in Ukraine is generously supportive of workers<br />

and unions. It allocates a broad scope of rights<br />

to trade unions to regulate employment, working<br />

conditions and workers’ pay. Surprisingly,<br />

unions have failed to derive maximum benefits<br />

from this. The inability to assert workers’ interest<br />

and interest antagonism and give effects to<br />

the collective bargaining represent their major<br />

failures. But the regulation of workers’ rights<br />

has been under attack and the processes of deregulation<br />

already begun. As the labour market<br />

is changing, so are the forms of employment. In<br />

contrast to full-time employment of indefinite<br />

duration, civil-law, self-employment, employment<br />

by small entrepreneurs and informal employment<br />

were introduced. All these emerging<br />

forms of work have hardly found any relevance<br />

with trade unions.<br />

LABOUR CODE<br />

The central piece of the codification of labour<br />

rights has been the Soviet Labour Code<br />

adopted in 1971. As in socialism, current<br />

labour legislation remains pre-conditioned on<br />

the employment contract and implicitly on<br />

trade union membership, thus leaving workers<br />

without the written labour contract and<br />

unions outside. Such conditionality goes back<br />

to the socialist regulatory traditions. The most<br />

detailed legal and administrative regulation of<br />

IR ever, the Soviet labour law, was designed<br />

in part to strengthen labour discipline and<br />

increase productivity (as opposed to defend<br />

workers). State paternalism implicitly excluded<br />

the voluntary regulation of work by workers<br />

and employers. Workers felt responsible for<br />

regulating everyday small issues but delegated<br />

all other responsibilities to the state. This is<br />

the case even today, as only less than ten per<br />

cent of workers would go to unions in cases<br />

of violations of their labour rights (Razumkov<br />

Centre 2001).<br />

With the background of influx economic<br />

developments and enterprise-specific changes,<br />

labour rights have remained heavily regulated<br />

through the Labour Code of 1971. The initial<br />

amendments of the Labour Code did not<br />

go beyond formal and superficial changes.<br />

A more intensive revision process that has<br />

been on-going since 2003 prompted<br />

a degree of the de-regulation. Summarized<br />

in the new draft and adopted Seite page 225<br />

in the first reading in 2008, the new<br />

Labour Code aimed to adjust labour<br />

legislation to market conditions, according to<br />

its initiators – surprisingly – from trade union<br />

leaders 17 . The adoption of this draft was post-


INDUSTRIAL RELATIONS REFERENCES LITERATUR IN THE UKRAINE<br />

poned by union pressure until certain amendments<br />

by trade unions were incorporated<br />

(KVPU, new release of 27.05.2009). Unlike<br />

in Russia, where a strongly neo-liberal Labour<br />

Code has been in place since 2000, Ukrainian<br />

trade unions were more pro-active in delaying<br />

the de-regulation process 18 .<br />

The effects of the new labour legislation will<br />

be deteriorating for workers and weaken trade<br />

unions in their protective capacity. The work<br />

day will be prolonged to 10 hours (compared<br />

to 8 hour-days at present). Employers will dismiss<br />

workers within two weeks without union<br />

approval. They will regulate enterprise-based<br />

IR by means of their own internal provisions.<br />

The new code no longer obliges employers to<br />

sign collective agreements nor report on their<br />

implementation. For disputes related to agreements<br />

they can no longer be taken to labour<br />

courts. In a similar manner, employers will no<br />

longer be obliged to provide unions with office<br />

premises or check-off systems of dues 19 .<br />

COLLECTIVE BARGAINING<br />

Collective bargaining in the existing form has<br />

been present in Ukraine since 1993 20 . It was<br />

introduced as an institution aiming at the<br />

regulation of labour relations and socio-economic<br />

interest of both workers and employers<br />

and extended to all levels and forms<br />

of ownership. First in the history of<br />

Seite page 226<br />

its existence, bargaining was designed<br />

according to the principles (Conventions<br />

and Recommendations) of the<br />

ILO. As a result, in 1995 a mechanism was set<br />

to increase wages through the development of<br />

negotiatable coefficients.<br />

However, in spite of the growing number<br />

of collective agreements, its effectiveness<br />

remained low. Workers did not consider<br />

bargaining to be their responsibility; and collective<br />

bargaining remained an act to be done<br />

between the administration and trade union<br />

committee. Yet both parties revealed a low<br />

degree of responsibility for the promotion of<br />

workers’ interests by means of collective agreements.<br />

Firstly, whereas the Federation of Trade<br />

Unions of Ukraine (FPU) alone unites around<br />

120,000 primary organizations, the total number<br />

of signed collective agreements as of 2007<br />

constituted only 95,781, almost half of which<br />

are in state administering (the highest number<br />

of agreements by sector), education, and health<br />

and social assistance (State Statistics Committee<br />

of Ukraine 2008). Respectively, collective<br />

agreements cover slightly under 10 million<br />

workers, only 82.4% of pay-roll workers and<br />

hardly extends to those not on pay-rolls.<br />

Secondly, employers spent (as of 2007) only 283<br />

hryvnya (equivalent to ca. 30 Euro) per worker<br />

as a result of additional benefits set by bargaining.<br />

Upom closer examination, it appears that<br />

collective agreements mostly re-state legal<br />

provisions, as the minimum tariff scales are the<br />

same as that in law in 70.8%, and in only 26.6%<br />

are they higher (State Statistics Committee of<br />

Ukraine 2008). 2.6% of agreements even set the<br />

tariff coefficient lower than those in law, while<br />

5.6% of agreements set lower tariff coefficients<br />

than in the Sectoral Agreement (the same<br />

source). Thirdly, officially the compliance with<br />

the collective agreements amounts to 94-96%<br />

in average (the same source). However, according<br />

to the Chief State Labour Inspector, Ihor<br />

Sumovs’ky, violations are detected in 90-95%<br />

of audited enterprises 21 . As these data demon-


LYUDMYLA REFERENCES LITERATUR VOLYNETS<br />

strate, collective bargaining is ineffective.<br />

Beyond the weaknesses in union ability to<br />

enforce the regulation of IR, collective agreements<br />

can be considered arena of contestation<br />

between different trade unions. In particular,<br />

in the case that more unions exist at the same<br />

enterprise, they must establish a joint representation<br />

body to negotiate and sign agreements.<br />

Respectively, if unions fail to establish such<br />

a body (a quite probable case in light of the<br />

intra-union rivalries), employers can choose<br />

the union to negotiate with. This allocates<br />

some advantages to the ex-official unions and<br />

basically marginalizes or excludes independent<br />

trade unions from the arena of such regulation<br />

of working conditions.<br />

COLLECTIVE LABOUR DISPUTES AND SETTLE-<br />

MENT PROCEDURES<br />

The institutions of dispute settlement were<br />

implemented in Ukraine only in 1998. They<br />

are based on the procedure of conciliation between<br />

the contractual parties, and envisage the<br />

disputes solution by labour arbitrary and National<br />

Service of Mediation and Conciliation.<br />

The latter is responsible for the registration of<br />

disputes and issues non-binding recommendation<br />

to solve the relevant issues. Interestingly,<br />

the facilitation of the collective disputes by the<br />

national conciliation service acquired the forms<br />

of the suppression of protest actions undertaken<br />

in cases of disputes. Only in the case that the<br />

parties to the dispute have completed all mediation<br />

and conciliation procedures can strikes<br />

be declared. Otherwise, strikes are illegal. Thus,<br />

the legislative regulation of labour disputes, in<br />

fact, prompts the individualization of labour<br />

conflicts and their resolution through long,<br />

drawn-out judicial procedures rather than on<br />

the basis of mobilization 22 .<br />

This kind of regulation originates from the<br />

promotion of social partnership in Ukraine<br />

by ILO. The benefits of the consensus-driven<br />

policy process are undeniable - the articulation<br />

of labour disputes is channelled into an<br />

arbitrary sphere by law in a way that creates<br />

obstacles for workers’ collective action at<br />

times where interests can be pursued solely<br />

in a militant manner. Many union leaders<br />

explain the lack of strikes by these legal preconditions<br />

23 . In particular, major obstacles<br />

arise out of this for independent trade unions.<br />

Whereas the emergence of many unions is<br />

conflict-driven, independent trade unions are<br />

established in cases where conflicts that arise<br />

are not absorbed by any mechanisms of their<br />

institutional articulation. Until the conciliation<br />

procedures are completed, unions are all<br />

too often pressured and destroyed. The spread<br />

of such experiences among new trade unions<br />

makes the further establishment of independent<br />

trade unions more difficult 24 .<br />

THE SCOPE OF UKRAINIAN TRADE UNIONISMS<br />

Notably, in early socialism trade unions were<br />

basically imposed on workers: membership<br />

was automatic, trade unionism was<br />

modelled on the monolithic principles,<br />

and workers’ relationships to Seite page 227<br />

the unions were structured along<br />

distributor-consumer principles. Instead<br />

of articulating workers’ concerns (other<br />

than the violation of the law) through trade<br />

unions, workers were disciplined by them.


INDUSTRIAL RELATIONS REFERENCES LITERATUR IN THE UKRAINE<br />

And instead of receiving increases in wages,<br />

workers received discounted holiday vouchers<br />

and holiday presents. Here trade unions<br />

appeared as an entity external to workers and<br />

in which workers’ involvement and participation<br />

was restricted to the obedience to labour<br />

discipline and productivity targets. Workers<br />

find points of contact with the unions only in<br />

relation to their social and welfare interests.<br />

Hence, beyond atomizing workers (Ashwin<br />

1996, 1999), system legacies find its expression<br />

in structuring union-workers’ relationships not<br />

along representation but rather consumerism.<br />

This nature of the linkages between unions<br />

and workers also continues, to a large extent,<br />

to structure union-workers relationships post-<br />

1991 25 .<br />

Shortly before the collapse of the Soviet Union,<br />

there appeared the signs of the activization<br />

of the union movement outside the existing<br />

union structures. These predictions of union<br />

change were initially inspired miners’ strikes<br />

of late 80-s in Russia and Ukraine. Notably,<br />

workers’ militancy resulted in the emergence<br />

of alternative union-like structures, giving the<br />

first split to the monolithic unionism model<br />

existing so far. Initially identified as striking<br />

committees, workers’ self-organizations are<br />

developed later on into trade union organizations<br />

(interviews).<br />

As unions’ militancy over time has<br />

decline and current wage levels signalled<br />

unions’ inability in these areas,<br />

Seite page 228<br />

it became clear that neither ex-official<br />

nor alternative trade unions were<br />

ready to fully overtake the function of workers’<br />

protection. In the literature, alternative unions<br />

were perceived as playing no significant role<br />

in IR, facing marginalization or slipping back<br />

into a traditional mould (Clarke und Fairbrother<br />

1994). Meanwhile, the Ukrainian cases<br />

deserves attention, as the share of trade unions<br />

affiliated with the ex-official Federation of<br />

Trade Unions of Ukraine (FPU) shrank from<br />

100 per cent in 1993 to claimed 55.8 per cent<br />

in 2004. In contrast, trade union organizations<br />

belonging to other trade union federations<br />

increased threefold during 2000-2004 (Chernyshev<br />

2006).<br />

Upon closer examination, it becomes clear<br />

that in case of Ukraine one speaks not about<br />

pure fragmentation of union movements along<br />

old-style ex-official and newly established<br />

alternative unions, but indeed, along different<br />

visions of unionisms. In particular, on the way<br />

towards finding their role and niche in the patterns<br />

of organized interest representation, one<br />

finds unionisms in Ukraine differentiating in<br />

terms of their ideologies and identities, organizational<br />

structures, prioritized resources, and<br />

a set of relationships with members, employers<br />

and the state. Sometimes (e.g. in case of conflict<br />

articulation as Kozina (2005) shows) they<br />

even oppose each other. As the processes of the<br />

searches on such dimensions are still on-going<br />

(and the framework of IR is still in making),<br />

such formative processes of different unionisms<br />

provide useful insights into the prospects of<br />

the transformation of IR in Ukraine. Notably,<br />

both unionisms are placed into a set of different<br />

immediate external conditions (defined by<br />

relationships with employers and authorities);<br />

and managers are more likely to deal with exofficial<br />

than independent unions.<br />

The current union density in Ukraine still constitutes<br />

approximately 50% of the workforce


LYUDMYLA REFERENCES LITERATUR VOLYNETS<br />

according to unions themselves (down from<br />

almost 100 % in late 1990s) (interviews). Notably,<br />

behind it is formal membership. According<br />

to survey results (e.g. Razumkov Centre 2001)<br />

in 2001, 43.7% of members have remained in<br />

the union by tradition from the Soviet days,<br />

and 20.2% members joined because it was customary<br />

at their enterprise. In addition, 12.2%<br />

reported that trade unions were established at<br />

their enterprises in a centralized manner and<br />

no one had ever asked for their consent to be a<br />

trade union member (the same sources).<br />

Stronger than structural reasons of union<br />

decline, workers’ disillusionment with trade<br />

unions and their withdrawal (sometimes in<br />

whole organizations) are better placed to explain<br />

membership drops. Only 18.7% of union<br />

members believed in unions as an institution<br />

protecting their rights (Razumkov Centre<br />

2001). This trend was hardly countervailed<br />

by unions with a comprehensive organizing<br />

strategy, as organizing was unfamiliar to them.<br />

Surprisingly though, in the view that the institutional<br />

preconditions were conducive for<br />

expanding their activities, unions were guided<br />

by own self-interests. Not least, this also explains<br />

their reluctance to recognize and address<br />

the employment effects brought about by the<br />

economic structuring processes and the consequent<br />

loosening of work regulation.<br />

Remarkably, membership as a resource (as<br />

unions are normally dependent on membership<br />

for financial means in the form of dues) lost its<br />

relevance for ex-official trade unions. Whereas<br />

under socialism unions were imposed on workers<br />

as an external body (see this argument in<br />

the previous section), they were provided with<br />

resources and their recognition and power was<br />

granted by the Party. As all the financial and<br />

material resources could have been retained<br />

by the Federation of Trade Unions of Ukraine<br />

(FPU), organizing as such lost its importance.<br />

The assets inherited from the predecessor’<br />

trade union amounted to approximately 3<br />

billion dollars (interviews); and commercial<br />

activities could be launched. In 1993 then-<br />

FPU President Olexandr Stoyan declared that<br />

it is necessary for the FPU to strengthen the<br />

financial base of the trade union federation by<br />

means of commercial activities (“Trade unions’<br />

newspaper”, 6 February 1993) 26 . Consequently,<br />

the Federation came out of socialism as an<br />

organization that has been independent of its<br />

members. Its existence (at least in financial<br />

terms) is no longer contingent on members<br />

and dues. By means of such choices, however,<br />

the FPU put itself into the dependence<br />

relationship in relation to the government,<br />

as the legitimacy of the FPU’s ownership of<br />

these resources was questioned and attacked<br />

elsewhere.<br />

The structuring dynamic looks different in<br />

these regards in the case of the trade unions<br />

emerging bottom up from workers’ selforganization.<br />

Remarkably, an impetus for this<br />

organization became the invalidity of existing<br />

trade unions in the area of workers’ representation<br />

and protection (interviews). In arising<br />

conflicts the existing unions took the part<br />

of the management, including the<br />

public discussion of labour disputes<br />

in courts (interviews). The spread of Seite page 229<br />

this kind of unionism allowed for a<br />

structural consolidation of different<br />

alternative unions into the Association of<br />

Free Trade Unions of Ukraine (1997) and its<br />

reform in 1998 into the Confederation of Free


INDUSTRIAL RELATIONS REFERENCES LITERATUR IN THE UKRAINE<br />

Trade Unions of Ukraine (hereafter KVPU).<br />

At this starting point, the KVPU united only<br />

two sectoral and one regional union and was<br />

basically founded on the initiative and base of<br />

the Independent Trade Union of Miners of<br />

Ukraine (NPGU). In total, the then 90 000<br />

members within the KVPU were certainly<br />

non-comparable to the declared 14-million<br />

in the FPU (that had already almost halved at<br />

that point in time). However, it placed in the<br />

centre of unions’ activities the need for expansive<br />

strategy and spured the solidarity over the<br />

frontiers of the enterprise and sectors. Now,<br />

ten years later, the KVPU has slowly, but in a<br />

sustainable manner, expanded to unite 275,000<br />

members through the establishment of the<br />

further all-Ukrainian unions. Even though<br />

this number still appears non-comparable to<br />

the now around 10 million members left in<br />

the FPU, the dynamic of extending unionisms<br />

across the branches, professions and enterprises<br />

speaks for a more sustainable formative strategy.<br />

Notably, the model of unionism to which<br />

the KVPU commits is closer to the class-based<br />

union ideology in the classical understanding<br />

of unions.<br />

As the legalization procedure for unions was<br />

simplified, the certificate from authorities was<br />

not enough to gain recognition from workers,<br />

employers, and authorities. Moreover, the very<br />

notion of unionism was already discredited.<br />

Neither was the social partnership<br />

able to ensure a degree of recognition<br />

Seite page 230<br />

of these organizations. In particular,<br />

newly emerging bottom up structures<br />

had to frequently turn to the collective<br />

action as a means of recognition and<br />

subsequent consolidation of the specific workers’<br />

interest (also mentioned by Kabalina and<br />

Komarovsky 1997) and so recommended itself<br />

as more militant organizations.<br />

EX-OFFICIAL UNIONS<br />

The structuration process of ex-official trade<br />

unions includes the reforms of then-existing<br />

Council of Trade Unions of the Ukrainian<br />

Soviet Socialist Republic into the Federation<br />

of the Independent Trade Unions of Ukraine<br />

(in 1990). In the course of the further developments,<br />

the latter was renamed the Federation<br />

of Trade Unions of Ukraine (hereafter FPU), as<br />

it is still known today. In spite of reforms, the<br />

FPU was characterized as “a largely conservative<br />

organization that did little more than issue<br />

hollow proclamations while millions of workers<br />

were pushed into poverty” (Kubicek 2004:<br />

29). The reforms undertaken by the FPU were<br />

criticized in public as cosmetic, as they did not<br />

go beyond the organizational restructuring on<br />

the principles of confederation or federation<br />

(interviews). The decentralization of the organizational<br />

and membership-dues structures<br />

(as opposite to previously practiced democratic<br />

centralism) resulted in a disconnection between<br />

different levels of union activities. For example,<br />

enterprise-based unions find themselves in isolation<br />

in the face of employers (interviews) 27 ;<br />

and regional and national unions can no longer<br />

impose their decisions, also concerning the<br />

transfer of membership dues to the top.<br />

Structural reform did not go beyond the statements<br />

of the re-establishment of the FPU as<br />

workers’ organization. Whereas the principles<br />

of democratic centralism were abolished and<br />

the organizational structure decentralized, it<br />

still has not reflected the clear demarcation


LYUDMYLA REFERENCES LITERATUR VOLYNETS<br />

of the FPU from employers. In particular, the<br />

FPU “preserved a Soviet trade union tradition<br />

of simultaneous membership of hired workers<br />

and employers” (National Security and Defence<br />

2001, 8: 28). Symbolically in relation to<br />

reforms is the fact that the FPU removed the<br />

symbols of socialism (hammer and sickle) from<br />

the front of its headquarters only in 2003 28 .<br />

Prior to 2001, the formative processes of the<br />

FPU embraced its attempts to preserve its<br />

withdrawing membership. However, the preservation<br />

strategy was hardly complemented by<br />

attempts at expansion in response to the restructuring<br />

of the labour market. Respectively,<br />

its membership density further declined with<br />

the growth of the private sector, newly established<br />

enterprises and mushrooming small<br />

firms.<br />

The activities of the Federation have been<br />

characterized by frequent changes in political<br />

position the 1990s. Declaratory criticism of the<br />

politics has never resulted in national strikes<br />

or protests. Meanwhile, the government policy<br />

was criticized and challenged by ad hoc actions<br />

of some enterprise-based union organizations<br />

in their effort to protect their enterprises, quite<br />

often jointly with employers. For example, in<br />

response to the President’s decree dated 16<br />

March 1995 on the strengthening of the financial<br />

discipline, workers of the ship construction<br />

plant in Mykolaiv went on strike against the<br />

decree even though it did not have any direct<br />

effects for workers’ interests. Workers striked<br />

after the ship plant director informed them<br />

that, due to the decree, they will no longer get<br />

their wages (interviews).<br />

The lack of cohesion between different levels<br />

of union activities is demonstrated by the positioning<br />

of the top-level FPU and its regional<br />

and branch structures. At the background of<br />

the deteriorating living standards throughout<br />

1990s, branch and regional unions associations<br />

demand concessions for their branches<br />

or regions, yet their demands lag behind<br />

class-driven. Some regional councils of unions<br />

(e.g. Donets’k, Kharkiv and Dnipropetrovs’k)<br />

even went on to declare pre-strike situations<br />

demanding that minimum wages increase<br />

up to the subsistence level. At this time, the<br />

President of the Federation publicly declared<br />

that “trade unions of Ukraine support the<br />

President’s request to retreat from strikes”<br />

(UTN, 4.04.1994). In December 1995, Olexandr<br />

Stoyan, then-President of the FPU,<br />

received together with then-Prime Minister of<br />

Ukraine, the award of the Foundation ”Social<br />

Partnership” for the ”particular contribution<br />

to the conclusion of the General Agreement,<br />

the social partnership development and peace”<br />

(Mist, 29.10-05.11, 1995).<br />

The FPU’s legitimacy was meanwhile questioned<br />

and challenged elsewhere. In 1996<br />

many miners’ strikes took place in Ukraine<br />

with demands for payment of wages arrears.<br />

The FPU was forced to act but was cautious<br />

about damaging its relationships with the<br />

government and authorities. It declared the<br />

country-wide strikes against the general<br />

fall in the living standards and<br />

stopped work at enterprises for one Seite page 231<br />

hour. As one could have imagined,<br />

it is much easier to sustain one hour<br />

stoppage than a normal strike. Such tactics<br />

were used by the FPU on a regular basis for<br />

some time throughout 1990s.


INDUSTRIAL RELATIONS REFERENCES LITERATUR IN THE UKRAINE<br />

Shortly before the Presidential elections of<br />

2004, the FPU concluded the alliance with<br />

then-Prime Minister and candidate for<br />

presidency, Viktor Yanukovych, who was<br />

alleged of vote frauds once the elections took<br />

place. The FPU, nevertheless, remained loyal<br />

to its candidate. During the mass protests<br />

against the vote fraud and this candidate,<br />

identified later on as the Orange Revolution,<br />

PU Olexandr Stoyan publicly appealed to the<br />

President of Ukraine to use all possible means<br />

to insure peace and prevent people from<br />

protesting. In response, workers occupied the<br />

central FPU building and Stoyan flee.<br />

The new FPU President, Olexandr Yurkin,<br />

initiated some reforms within FPU. As he told<br />

in one of the interviews, the FPU embarked on<br />

the process of the “internal reforms” bringing<br />

the Federation out of the organizational forms<br />

of the old Soviet unions’ association VTsRPS,<br />

including the strengthening of the primary<br />

organizations, branch trade unions, oblast<br />

(provincial) union councils, and broadening of<br />

their authorities. “Either we all modernize, or<br />

die”, stated the FPU President 29 . The structural<br />

reforms have hardly ever beenrealized, partly<br />

because the activities of the trade unions were<br />

often concentrated on retaining its property<br />

and partly due to the resistance of the union<br />

leaders of the regional and branch trade<br />

unions.<br />

Meanwhile, great efforts were put<br />

Seite page 232<br />

into the enhancement of the public<br />

image and PR-policy. Under his<br />

presidency, a new concept of the FPU<br />

development 30 and a detailed plan of actions 31<br />

come out. Both set an extensive scope of quite<br />

ambitious goals for the FPU over the next<br />

five years, including the creation of 4 million<br />

workplaces, wage increases of four or five<br />

minimum wage levels 32 , and the increase of<br />

the living standards of workers up the Western<br />

European ones. Unions committed themselves<br />

to reform the medical and education spheres,<br />

and facilitate the growth of the housing<br />

markets. FPU also committed itself to finally<br />

establish cooperation with other trade unions<br />

and coordinate union activities across the<br />

country 33 .<br />

Following Yurkin’s resignation, the new congress<br />

of the FPU, in spite of its announcement, has<br />

never taken place. In November 2008, the FPU<br />

Council elected the Party of Regions MP and<br />

the President of the Donetsk regional council<br />

of trade unions, Vasyl’ Khara, as the FPU<br />

President. The FPU remained committed to<br />

its previously adopted concept of development<br />

and a plan of action under Khara’s Presidency.<br />

But Khara’s presidency has been constantly<br />

surrounded by numerous controversies. As he<br />

was elected by the FPU Council and not by its<br />

Congress (as the FPU Constitution stipulates),<br />

the court of the city of Kyiv cancelled the decree<br />

and legal findings issued earlier by the Ministry<br />

of Justice confirming the legitimacy of Khara’s<br />

election and presidency 34 . Meanwhile, the FPU<br />

refused to cooperate with other trade unions<br />

and concentrated on the preservation and<br />

further commercialization of its properties.<br />

In this light, the activities of the Federation<br />

cannot be identified as those representing and<br />

defending workers. Rather reforms of some<br />

enterprise-based unions and attempts within<br />

the branch unions remind us that the FPU<br />

structure is far from being homogeneous and<br />

coherent.


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INDEPENDENT TRADE UNIONS<br />

Since 1989 in the Eastern region of Ukrainian<br />

Donbass there have emerged first striking<br />

committees among miners giving rise to<br />

independent bottom-up unions. These unions<br />

emerged in the opposition to the activities of<br />

the existing miners’ trade unions that proved<br />

indefinite to workers’ growing complaints.<br />

As no trade union law existed at that point<br />

of time in the Soviet Union, miners’ unions<br />

acquired legitimacy and recognition by the<br />

scale of their collective action. Miners’ strikes<br />

across the Donbass were partly responsible for<br />

the collapse of the socialist system (Crowley<br />

2000). Similar initiatives emerged among<br />

transportation workers.<br />

The years before 1998 became the years of<br />

establishment, structuring and consolidation<br />

of the oppositional trade union movement<br />

of Ukraine identified in the literature as new,<br />

independent, free, or alternative. The overall<br />

situation within trade unions made it clear<br />

that a solely sectoral unionism has hardly<br />

any prospects in the view of the continuing<br />

dominance of the ex-official trade unions.<br />

Hence, it was necessary to structure and improve<br />

the shape and expand this unionism into other<br />

sectors. Such understanding prompted leaders<br />

of independent unions to launch quite early the<br />

debate on spurring workers’ solidarity across<br />

the mining sector frontiers. Significant in this<br />

regard was the training on organizing provided<br />

by the Solidarity centre of the American unions<br />

AFL-CIO.<br />

In the course of the structural consolidation<br />

of the independent trade union movement,<br />

the lack of the united vision of how this<br />

unionism should look became evident.<br />

The crisis originated in the split among the<br />

leaders of different independent unions 35 in<br />

their negotiations of the all-Ukrainian strike<br />

planned on 18 January 1994 that aimed at<br />

the retreat of the then Prime-Minister. This<br />

resulted in the withdrawal of some unions from<br />

the first Free Trade Unions Association; and<br />

the Association dissolved. Upcoming actions<br />

and strikes were organized by separate branch<br />

trade unions in an uncoordinated manner, first<br />

of all by miners and railway drivers.<br />

Meanwhile, as the economic situation<br />

worsened and workers’ wages could not even<br />

ensure the necessary food for workers, miners<br />

again went on strike. In the course of the<br />

miners’ march to Kiev in 1996, organized<br />

by the Independent Miners’ Union, workers<br />

walked 600 km to the capital city of Ukraine<br />

and demanded the payment of wages arrears.<br />

Afterward, under the autocratic Presidency<br />

of Kuchma, the leaders of the march were<br />

threatened with imprisonment. Under threat<br />

of a new strike, the government had to stop<br />

the criminal allegations against union leaders.<br />

However, independent unions offices were<br />

illegally searched, their safes seized and their<br />

documentation stolen. In answer to this<br />

persecution, miners went on hunger strike.<br />

In October 1996, new attempts to consolidate<br />

independent unions were undertaken.<br />

Leaders of some independent unions<br />

established Consultative Council of Seite page 233<br />

trade unions (miners, railway workers,<br />

metro workers, textile workers) that<br />

grew in 1997 in the Association, and changed<br />

in 1998 into the Confederation of Free Trade<br />

Unions of Ukraine (KVPU). It spread its


INDUSTRIAL RELATIONS REFERENCES LITERATUR IN THE UKRAINE<br />

Seite page 234<br />

presence to five branches (teachers, miners,<br />

transportations, medical workers and football<br />

players) but remained too small to break the<br />

dominance of ex-official unions.<br />

Remarkably, throughout 1994-1996 the leaders<br />

of independent trade unions could not work<br />

out an effective work strategy in conditions<br />

of economic crises (Razumkov Centre 1997).<br />

With the background of harsh economic<br />

conditions, these unions lacked organizational<br />

experience and technical capacities except<br />

organizing militant actions. While the FPU<br />

employed one of the best economists and<br />

lawyers, independent unions could employ<br />

experts only – mostly those who could not find<br />

another job. However, financial resources of<br />

these unions were limited (interviews). It also<br />

lacked experienced leaders in newly emerging<br />

enterprise-based unions, as the capacity of the<br />

KVPU to educate all new-comers was also<br />

restricted. It should be recognized that such<br />

a disadvantage originates from the initially<br />

unequal starting conditions of both – ex-official<br />

and independent unions. While the former<br />

retained and expanded their financial base (as<br />

described in the previous section), alternative<br />

trade unions could solely offer their members<br />

benefits of the solidarity-driven struggle for<br />

better life but none of immediate material<br />

benefits implicitly expected by workers.<br />

Meanwhile, the non-agreement of these unions<br />

with the prevailing consumerist-like<br />

union-worker relationships makes<br />

further attempts at expansion more<br />

resource-demanding.<br />

The expansion of independent trade unions<br />

within the traditional core branches of the<br />

economy (coal-mining and metallurgy)<br />

coincide with the consolidation of oligarchies<br />

and financial-industrial groups. The resulting<br />

harassment and persecution of the free<br />

trade unions intensified in the late 1990s<br />

under Kuchma’s Presidency. Between 2002<br />

and 2004, the KVPU President was beaten<br />

five times by the police in public places. His<br />

family members were persecuted and in 2004<br />

his son was kidnapped and heavily beaten.<br />

Leaders of regional and local trade union<br />

organizations were persecuted, as well. Many<br />

newly established local union organizations<br />

were literally immediately destroyed either by<br />

local authorities or employers and independent<br />

unions (interviews and the numerous KVPU’s<br />

complaints to the ILO). Because of the heavy<br />

persecution and harassment, the KVPU filed a<br />

complaint to the ILO Committee on Freedom<br />

of Association (Case 2388). While it took<br />

the ILO and the government several years to<br />

investigate the complaint, the government<br />

tried to deny any assaults and kept excluding<br />

the KVPU representatives from the delegations<br />

to the annual ILO conferences. It is only after<br />

2004 when Yushenko came to be elected<br />

President of Ukraine did the constraints on<br />

the Confederation’s activities on the part of the<br />

government became looser.<br />

As the example of independent miners’ unions<br />

demonstrates, the prospects of the collective<br />

action, more common in the independent than<br />

ex-official trade unions, have been constrained,<br />

as no law on industrial protests was adopted<br />

and no procedures for their solution put in<br />

place. At that point of time, making actions<br />

illegal appears an easy means to prevent them.<br />

It is worth noting that the adoption of the<br />

law on collective labour disputes (see above)<br />

correlated with the decline in union militancy.


LYUDMYLA REFERENCES LITERATUR VOLYNETS<br />

One explanation could be the legal procedure<br />

that makes any protest prior to the longlasting<br />

solution procedure illegal. The second<br />

explanation originates from the persecution of<br />

independent trade unions.<br />

CONCLUSION<br />

This paper explained the segmentation of IR in<br />

Ukraine through analysis of the development<br />

and impact of unions into the IR outcome. It<br />

was argued that, with the background of the enterprise-specifics<br />

developments, IR are shaped<br />

by the interactions between management and<br />

unions. As Ukrainian unions find themselves<br />

in the formative processes, two kinds of unionism<br />

are emerging in Ukraine that contribute to<br />

different IR outcomes.<br />

Such ideological incoherency and a divide<br />

within labour movement are central to explain<br />

labour dynamics and its formative processes.<br />

Former official unions seem to have little<br />

prospects for reform, at least at the current<br />

stage of development. Locally, many former<br />

official unions on the enterprise-level succeed<br />

in breaking away from such subordination<br />

relationships. But this has not taken on a<br />

broader scale so far. Independent unions offer<br />

more prospects for workers’ interest articulation.<br />

But they also face serious barriers to their<br />

development, as they threaten established<br />

informal order both nationally and locally.<br />

The development from transmission belts to<br />

social partnership demonstrates very little<br />

progress of labour revitalization, because the<br />

contestation of IR arenas is still much more<br />

constrained for independent union development<br />

and, not least, the agency imposed by<br />

external settings is not enough to challenge<br />

the current state of things. On both trajectories<br />

of developments, one may speak of dependencies.<br />

In the case of ex-official unions,<br />

it is dependency on the management and the<br />

state. In the case of independent unions, it is<br />

dependency on members that are at this point<br />

passive, individualistic, and consumerist.<br />

The review of the developmental trajectories<br />

of the FPU and KVPU in Ukraine confirmed<br />

the arguments advanced earlier. Major<br />

centres of union activities are put in place<br />

and identifiable in terms of two different<br />

models of unionism. They embody the two<br />

differentiating logics of unionism they follow.<br />

Whereas the FPU pursues conciliatory politics<br />

and strives to preserve its membership on the<br />

basis of its commercial activities, the KVPU<br />

commits itself to the vision of unionism<br />

structured along the lines of class antagonism.<br />

Militancy and action are more likely in case of<br />

independent unions. Although the autonomy<br />

of the ex-official Federation is limited,<br />

it still finds itself in the more supportive<br />

settings, originating from its dominance and<br />

collaborative relationships with employers<br />

and government. In contrast, independent<br />

trade unions originate from worthier starting<br />

conditions (in terms of resources) and initially<br />

find themselves in more constraining settings<br />

determining their further development, than<br />

do ex-official unions.<br />

The consistent decline in the FPU Seite page 235<br />

membership still does not allow any<br />

conclusions on the prospects of the exofficial<br />

unions; and the bottom-level processes<br />

within the FPU are often contradictory. At this<br />

point, it is evident that national-level union


INDUSTRIAL RELATIONS REFERENCES LITERATUR IN THE UKRAINE<br />

approaches to some extent constrains the<br />

bottom-up formation of its affiliated unions<br />

(as also claimed by Mandel 2004). Whereas<br />

from 1989 on independent trade unions<br />

have consistently increased their presence,<br />

they have still remained under-resourced in<br />

their capacities and too small to break the<br />

dominance of the FPU. They are recognized<br />

by the state and could have influenced certain<br />

policy areas (e.g. the new law on miners’ work<br />

allocating many additional privileges to miners<br />

was initiated by the independent miners’<br />

union). However, much needs to be changed<br />

to ensure the implementation of their trade<br />

union vision.<br />

NOTES<br />

1<br />

Here, the four “critical axes of structural change” were argued<br />

to have shaped the simultaneous changes in IR and their institutions<br />

(Martin 2008: 141).<br />

2<br />

For example, in the public budget sector, IR are in crisis and<br />

workers’ interest is hardly articulated. In contrast, in the privatized<br />

sector IR are found turbulent as a result of the bargaining<br />

power of actors. Yet in the new private sector no unions exist; IR,<br />

thus, are informalized. Lastly, foreign companies were claimed to<br />

follow their international IR practices.<br />

3<br />

Once socialism collapses, the countries of the former Soviet<br />

block legally commit to the freedoms of association and collective<br />

bargaining, as well as establish procedure for strikes and wages<br />

determination in convergence or resemblance of those found in<br />

established capitalist economies and formalized in the form of<br />

the ILO International Labour Standards and European Social<br />

Model.<br />

4<br />

See, for example, Ashwin (2004), Borisov und Clarke (2006),<br />

Casale (1997), Cox und Mason (2000), Gerchikov (1995), Hethy<br />

(1994), Kabalina und Komarovsky (1997), Mason (1995),<br />

Meardi (2007), Ost (2000), Schroeder (2004).<br />

5<br />

As well known, unions in the socialist system had different functions<br />

(related to productivity and social and welfare benefits).<br />

The degree of differences between socialist and capitalist unions<br />

(even if they appear similar) was so high that Vyshnevs’ky,<br />

Mishenko, Pivnyevet al. (1997), for example, when comparing<br />

different dimensions of unionism, define socialist unions as “antiunions”.<br />

6<br />

Managerial agency can be directive (authoritarian), directive but<br />

welfare-oriented (paternalistic), negotiational (constitutional),<br />

or participative (Schienstock 1992 in reference to Poole 1988).<br />

Seite page 236<br />

7<br />

Certainly, such a strict distinction cannot be made in practice.<br />

Within the formerly socialist Federation of Trade Unions of Ukraine<br />

(FPU), for example, there are progressive leaders and local,<br />

or sectoral, unions that already succeeded, or that are on the way to<br />

reconstitution. Given the constraints imposed by non-progressive<br />

and traditionally-oriented leaders in such cases, it is still too<br />

early to speak about a broad-scaled, successful transformation of<br />

ex-official unions.


LYUDMYLA REFERENCES LITERATUR VOLYNETS<br />

8<br />

Independent leaders were harassed and persecuted in socialist<br />

(Grancelli 1988) and post-independence regimes (examples are<br />

listed in Kubicek 2004).<br />

9<br />

In many enterprises, workers suffer from wages arrears and<br />

administrative leaves. In others, they succeeded in gaining wage<br />

increases and more social protection even in spite of the generally<br />

poor economic conditions.<br />

10<br />

Decline in production and outputs, employment shedding, the<br />

emergence of private sector, and the abolishment of “universal<br />

membership”.<br />

11<br />

Kubicek cites ILO data: 462 strikes and 260,400 strikers in<br />

1993 (in comparison to 264 strikes and 120,000 strikers in<br />

Russia) and 1,269 strikes and 171,400 strikers in 1996 (in comparison<br />

to 8,278 and 662,000 in Russia, respectively). Another<br />

interesting detail is the number of days lost due to strikes, whereas<br />

this number remains quite high in Ukraine (10.28, 12.45, and<br />

10.54 in 1993, 1996, and 1999, respectively) and significantly<br />

higher than those in Russia (1.97, 6.04, and 7.66, respectively)<br />

(ILO 2000 in Kubicek 2004).<br />

12<br />

The term „oligarchs“ appeared in the second half of the 1990s. It<br />

referred to different economic actors who obtained economic and<br />

political power and gained influence on the process of the political<br />

decision-making in Russia under El’tsyn (Kowall und Zimmer<br />

(2002) and in Ukraine under the Presidency of Kravchuk and<br />

Kuchma. In particular, in Ukraine, their consolidation proceeded<br />

in an unrestricted manner until 2004.<br />

13<br />

The financial capital that the groups initially accumulated<br />

from the gas trade is further channeled into the other branches,<br />

like metal processing, coal mining, energy, banks, food processing,<br />

and media. The financial industrial groups develop vertically<br />

integrated structures along the value chains (Zimmer 2002:<br />

45-46).<br />

14<br />

Its economy was concentrated around the heavy metallurgy and<br />

was dependent on the Russian economy for supplies. It possessed a<br />

huge agricultural sector that had not been modernized for years,<br />

even though Ukraine used to be the bread basket of the Soviet<br />

Union. And finally, the Ukrainian economy was heavily dependent<br />

on Russia for energy supply.<br />

15<br />

According to the law on the temporary seize of income indexation<br />

nr. 7-92 dated of 9 December 1992.<br />

16<br />

The depth of the problem is demonstrated by the fact that,<br />

until recently, the gap between the legally set minimum wages<br />

and the minimum subsistence level could not be overcome. It is<br />

only in October 2009 that the minimum wages were set higher<br />

then the subsistence minimum. However, it hardly changes the<br />

situation, as this time the subsistence level was decreased in real<br />

terms. The originally suggested minimum wage for 2010 (before<br />

the government increased it to 3 Euro under pressure of trade<br />

unions) was even below the official poverty line according to the<br />

Federation of Trade Unions of Ukraine (FPU, 22 September<br />

2009).<br />

17<br />

The draft was submitted by the current President of the largest<br />

trade union association FPU Vasyl’ Khara, the former President<br />

of the same Association Stoyan, and the MP Sukhyi, see „Кодекс<br />

рабовласника“ (The Code of the Owner of Slaves), Glavred,<br />

online-news, dated of 08.07.08, available at http://glavred.<br />

info/archive/2008/07/08/131548-5.html, last visited on 5<br />

October 2009.<br />

18<br />

The new discussion of the draft Labour Code is scheduled for<br />

the beginning of 2010.<br />

19<br />

All remarks taken from KVPU appeal to the ILO, dated of<br />

11.06.2008, KVPU news-release dated of 28.11.2009, Glavred,<br />

08.07.08, as well as “Новий Трудовий кодекс опинився<br />

«під слідством“ (The new Labour Code under investigation),<br />

KVPU news-release, dated of 28.11.2009, available at http://<br />

www.kvpu.org.ua/ua/news/112, last visited on 5 October<br />

2009.<br />

20<br />

Notably, collective agreements also existed in the Soviet Union.<br />

Then, bargaining was addressed as “an economic-political<br />

measure to mobilize workers and servants around the successful<br />

fulfilment and over-fulfilment of the people’s<br />

economic plan” (Council of Ministers of the USSR,<br />

6.03.1966). In this form collective agreements did<br />

not serve as IR regulating mechanisms and were of<br />

symbolic nature.<br />

21<br />

Interview with Ihor Sumovs’ky, State Chief Labour Inspector<br />

of Ukraine, Kyiv, 27 August 2009.<br />

Seite page 237


INDUSTRIAL RELATIONS REFERENCES LITERATUR IN THE UKRAINE<br />

22<br />

Ashwin und Clarke (2003) make similar conclusions for<br />

Russia.<br />

23<br />

E.g. Interview with S.Ponomarchuk, the Vice-President of<br />

the Donetsk Oblast Council of the Construction and Building<br />

Materials Industry Workers’ Union of Ukraine (CBMIWUU),<br />

Donetsk, 22 August 2009.<br />

24<br />

Interview with the KVPU President, Kyiv.<br />

31<br />

Програма Дій Федерації професійних спілок України<br />

(2006-2011 роки) (A plan of actions of the Federation of Trade<br />

Unions of Ukraine (2006-2012), № 5з-3, adopted by the Vth<br />

FPU Congress on 05.04.2006, available at http://www.fpsu.<br />

org.ua/images/stories/images/2009/August/programa.doc, last<br />

visited on 10 October 2009.<br />

32<br />

As compared to minimum wages amounting to 80-90% of the<br />

subsistence minimum at that point of time.<br />

25<br />

E.g. the interview with the President of the Mykolaiv Oblast<br />

Trade Union Committee of the Agro-Industrial Workers’ Unions,<br />

Mykolaiv, 2008.<br />

26<br />

Later investigations into unions’ properties uncovered the ownership<br />

by the Federation of joint American-Ukrainian firms<br />

and a lot of premises. The office premises of the FPU are even<br />

today rent to different firms.<br />

27<br />

E.g. Interview with the President of the DBK-4 trade union<br />

committee, Krychkevych, Kyiv, 27 August 2009.<br />

28<br />

“The big cover-up”, Kyiv Post, web-news, dated of 28 August<br />

2003, available at http://www.kyivpost.com/nation/17797/<br />

print, last visited on 15 October 2009.<br />

33<br />

The same sources.<br />

34<br />

“Court cancels election of Khara as chairman of Trade Union<br />

Federation of Ukraine”, Kyivpost, issues dated of 03.10.2009,<br />

available at http://www.kyivpost.com/city/50022, last visited<br />

on 12 October 2009.<br />

35<br />

The negotiating unions included the Associations Free trade<br />

Unions, Free trade Unions of railway drivers, Trade Union<br />

Association of the pilots, Federation-Trade Union of the aviation<br />

dispatchers of Ukraine, Independent Trade Union of the textile<br />

workers of the Donetsk cotton factory, trade union of the aviation<br />

of engineers and technicians of Ukraine, Independent Trade<br />

Union of the Illichivsk see commercial port and Solidar Trade<br />

Unions of Ukraine.<br />

29<br />

„Олександр ЮРКІН: «Угода важливіша за вибори»<br />

(Olexandr Yurkin: the Agreement is more important than elections“,<br />

Дзеркало тижня», № 8 (587), dated 4 — 10 March<br />

2006, available at http://www.dt.ua/2000/2650/52762/, last<br />

visited on 10 October 2009.<br />

Seite page 238<br />

30<br />

Концепція розвитку Федерації професійних<br />

спілок України (The conception of the development of<br />

the FPU), NP-4-5 , adopted by the FPU<br />

Council on 09.12.2005, available at http://<br />

www.fpsu.org.ua/index.php?option=com_<br />

content&view=article&id=26%3A2009-07-<br />

14-17-36-08&catid=10%3A2009-07-06-16-<br />

44-54&Itemid=36&lang=uk, last visited on 10<br />

October 2009.


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Hampshire [u.a.]: Palgrave Macmillan, 179 - 198.<br />

Vyshnevs’ky, Yuri, Mishenko, Olexandr, Pivnyev, Yevgeni,<br />

Pylypchuk, Romana und Masalova, Lyudmyla (1997): ????<br />

?????????? ? ??????? ??????? ? ???????? [Trade union role<br />

in Ukraine: pretended and real]. Kyiv: Democracy Foundation,<br />

300.<br />

Wollmann, Hellmut (1996): Institutionenbildung in Ostdeutschland:<br />

Rezeption, Eigenentwicklung oder Innovation?<br />

in: Institutionenbildung in Ostdeutschland: zwischen externer<br />

Steuerung und Eigendynamik, A. Eisen und H. Wollman (eds.),<br />

Opladen: Leske & Budrich, 79-112.<br />

Seite page 241<br />

Wollmann, Hellmut (1997): Between Institutional Transfer<br />

and Legacies: Local Administrative Transformation in Eastern<br />

Germany, in: Restructuring networks in post-socialism - Legacies,<br />

Linkages, and Localities, G. Grabher und D. Stark (eds.),<br />

Oxford: Oxford Univ. Press, 324-342.


AUTHORS<br />

Agnieszka Cianciara (1981) is a PhD candidate at the Institute of Political<br />

Studies, Polish Academy of Sciences and Academic Assistant in the<br />

College of Europe, Warsaw/ Natolin Campus. Main research areas: EU<br />

governance and institutional reforms, lobbying in EU and CEEC, European<br />

Neighbourhood Policy.<br />

Contact: a.cianciara@wp.eu<br />

Péter Csizmadia (1973) is a researcher at the Institute of Sociology of the<br />

Hungarian Academy of Sciences. Main areas of research: non-technical<br />

innovations, organisational learning, knowledge-intensive business services.<br />

Contact: pcsizmadia@socio.mta.hu<br />

Alexandra Janovskaia is a PhD student at the London School of Economics,<br />

UK. Main areas of research: political economy of transition, varieties of<br />

capitalism, MNCs.<br />

Contact: sasha.janovskaia@gmail.com<br />

Kathrin Loer (M.A. in European Studies) is a research associate for<br />

Comparative Social Sciences and lecturer in European Studies at the<br />

University of Osnabrück. Her research interests include economic sociology<br />

with a focus on the automotive sector as well as welfare state politics within<br />

the European Union. She previously worked for the German Bundestag, the<br />

Ministry of Economics, Technology and Transport and several consulting<br />

agencies.<br />

Contact: kathrin.loer@uni-osnabrueck.de<br />

page 242<br />

Martin Mendelski is a research fellow at the Private University of Applied<br />

Sciences in Göttingen and a Ph.D. candidate at Goethe University<br />

Frankfurt. He holds two Master‘s degrees, one in European Studies from<br />

the European University Viadrina Frankfurt (Oder) and one in Business<br />

Studies from Mannheim University. His current research addresses market<br />

economies in Eastern Europe and the role of institutional complementarities<br />

in economic performance. He was visiting researcher at several universities<br />

(Bilkent University, Harvard University, European University Institute) and<br />

research institutes (Max Planck Institute for the Study of Societies in Köln,<br />

CEPS/INSTEAD in Luxembourg).<br />

Contact : mmendelski@hotmail.com


AUTHORS<br />

Abel Polese is Marie Curie Fellow at the Institute of Geography of the<br />

University of Edinburgh and Research Fellow at the Institute of Sociology of the<br />

Ukrainian Academy of Sciences. Main areas of research: informal economies,<br />

nation building and identity policies, civil society and democratisation<br />

contact: apolese@ed.ac.uk<br />

Catherine Spieser is a post-doctoral researcher at the centre for the study<br />

of employment and labour market policy (Centre d‘études de l‘emploi)<br />

in Paris. She completed her PhD at the European University Institute in<br />

Florence in 2009. Main areas of research: comparative social and labour<br />

market policy, politics of socio-economic policies, political sociology of the<br />

welfare state.<br />

Contact: catherine.spieser@eui.eu<br />

Ivett Szalma (* 1980) is a researcher at the Hungarian Academy of Sciences<br />

(HAS), Institute of Sociology and Ph.D. candidate at the Corvinus<br />

University of Budapest. Main areas of research: labour market, deliberative<br />

polling, social policy, partnership formation, childbearing<br />

Contact : szalma@socio.mta.hu<br />

Bernadett Szél (* 1977) is a Doctoral Candidate in Sociology at the Institute<br />

of Sociology and Social Policy at the Corvinus University of Budapest<br />

and Leader Councilor of the Hungarian Central Statistical Office. Main<br />

areas of research: Identifying and measuring patterns and mechanisms<br />

supporting partnership cohesion, consequences of labor market uncertainties<br />

on partnership formation, corruption research<br />

Contact: bernadett.szel@uni-corvinus.hu<br />

Lyudmyla Volynets (1982) previously worked as International Secretary<br />

at the Confederation of Free Trade Unions of Ukraine and is currently<br />

working on her PhD in political sciences at the Free University of Berlin<br />

(Germany). Her research interests lie in different aspects of Industrial<br />

Relations, collective action, and trade unions.<br />

Contact: lyudmyla.volynets@gmx.de<br />

page 243


AUTHORS<br />

Alexandra Krause is assistant professor at the University <strong>Jena</strong> and associate<br />

at the Collaborative Research Centre <strong>580</strong> in <strong>Jena</strong>. Main areas of research:<br />

Employment systems, flexible labour markets, social inequality and social<br />

justice.<br />

Contact: alexandra.krause@uni-jena.de<br />

Vera Trappmann is assistant professor at the University Osnabrück and<br />

associate at the Colloborative Research Centre <strong>580</strong> in <strong>Jena</strong>. Main areas of<br />

research: Employment, labour politics and welfare states in Eastern and<br />

Western Europe.<br />

Contact: vera.trappmann@uos.de<br />

page 244


<strong>SFB</strong> <strong>580</strong> - GESCHÄFTSFÜHRUNG (2010) ISSN 1619-6171

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