employment relations in central and eastern europe in 2000: the road to the eu

Industrial Relations Journal 32:5ISSN 0019-8692

Employment relations incentral and eastern Europein 2000: The road to the EU

Roderick Martin and AnamariaCristescu-Martin

Introduction

The process of incorporating central and eastern Europe (CEE) into the internationaleconomy, the dominant economic process throughout the 1990s, continued through-out 2000. The internationalisation process had both economic and political dimen-sions. The economic performance of CEE countries depended upon their develop-ment of exports capable of competing successfully in western markets and on successin attracting foreign investment, both portfolio investment and foreign direct invest-ment (FDI) by multinational corporations. Hungary was the most successful countryin attracting such investment throughout most of the 1990s, although by 2000 themuch more heavily populated Poland was securing a larger total amount of invest-ment. The activities of incoming multinationals became a major influence on the rateof growth in GDP, on the level of demand for labour and on wage levels. The result,as in the UK, the most successful west European country pursuing the same strategy,was more rapid growth and lower unemployment, if at the cost of increasinginequalities between groups and between regions. Even countries less attractive toforeign investors, such as Bulgaria and Romania, were increasingly dependent uponinternational economic conditions. Politically, the continuing process of negotiationover EU accession dominated national politics, as the date for accession of at leastthe ‘front runners’ approached. Accession negotiations may play a significant role indevelopments in employment relations, since countries joining the EU are of courserequired to accept the social partnership practices of the Union, but the ‘social part-ners’ played little role in accession negotiations in 2000. As open societies, with rela-

❒ Roderick Martin is Professor of Organisational Behaviour and Director, School of Management,University of Southampton. Anamaria M. Cristescu-Martin is Lecturer in Business Studies, Schoolof Social Sciences, King Alfred’s College of Higher Education, Winchester.

Blackwell Publishers Ltd. 2001, 108 Cowley Road, Oxford OX4 1JF, UK and 350 Main St., Malden, MA 02148, USA.

480 Industrial Relations Journal

tively fragile economic and political systems, the CEE countries were heavily influ-enced by external pressures and the internationalisation process.

The paper proceeds by outlining the major economic trends in the region in 2000,before turning to employment relations specifically. Economically, 2000 was a betteryear for the region than 1999. All countries experienced growth, ranging from 1.6per cent in Romania to 7.6 per cent in Russia. Inflation rates were lower than in 1999everywhere except Bulgaria and, at lower levels, Poland, Slovenia and the BalticStates. Despite growth and the control of inflation, earnings remained low through-out the region, with levels of earnings in dollar terms falling in even the most econ-omically successful countries, Hungary and Slovenia. Unemployment remained aserious problem, with only four countries, Hungary, the Czech Republic, Estoniaand Latvia with rates below 10 per cent. The second section examines changes inemployment relations specifically. There were few major developments in employ-ment relations in the region; employment relations did not hit the headlines. Thetrends which had existed throughout the 1990s continued: decline in trade unionmembership; the slow development of collective bargaining at the shop floor level;limited industrial action, primarily associated with the restructuring of state indus-tries; and impoverished public services. Trade unions continued to follow politicallyoriented strategies, with increasing concern over the process of negotiating EUmembership, as well as continuing concern over unemployment levels. Employmentrelations remained largely un-institutionalised in small and medium sizedenterprises, with low levels of union membership despite legislative encouragementfor the development of participation and collective bargaining institutions. The thirdsection is a brief conclusion, seeking to assess the basic features of the emerging post-Socialist employment relations system.

Economic and political context

As Table 1 shows, all countries in CEE experienced significant growth in 2000. Recov-ery was especially pronounced in Russia: the 7.6 per cent growth in GDP was thehighest by a large margin since the start of the Russian transformation. Russian dom-estic demand rose, whilst the rising international oil price produced a highly favour-able balance in international trade. Multinationals believed that the political risks ofdoing business in Russia were declining and profits were returning to the levels

Table 1: Trends in GDP for selected countries, 1996–2000

GDP change on previous year (%)

1996 1997 1998 1999 2000

Bulgaria −10.9 −6.9 3.5 2.0 5.8Czech Rep 3.9 1.0 −2.3 −0.9 3.1Estonia 4.0 11.4 8.0 −3.9 6.4Hungary 1.3 4.4 4.9 4.1 5.2Latvia 3.3 6.5 3.6 −1.3 5.4Lithuania 4.7 6.5 5.1 −4.8 3.3Poland 6.1 6.8 4.8 2.3 4.1Romania 3.9 −6.6 −5.4 −3.9 1.6Russia −3.5 0.8 −4.6 1.8 7.6Slovakia 6.6 6.5 4.4 1.8 2.2Slovenia 3.1 3.8 4.3 4.5 4.6

Sources: Business Central Europe Key Data 1990–98.Business Central Europe Monthly Update: February 2001: 57.

Employment relations in CEE 481 Blackwell Publishers Ltd. 2001.

achieved before the 1998 Russian financial crisis. The Russian recovery helped torevive the economies of the Baltic States (Estonia, Latvia and Lithuania) which hadcontracted in 1999. Economic growth also rose to new levels in Hungary, with recordlevels of exports from multinational corporations using Hungary as a base for manu-facturing for the EU; by 2000, 80 per cent of Hungarian exports were generated byforeign owned companies. Growth resumed in the Czech Republic, after two yearsof decline, driven by exports and by foreign direct investment. Similarly, increasedFDI and exports led to increased growth in Slovakia. In Poland, GDP growthincreased to 4.1 per cent, significantly above the 1999 level but well below the levelachieved in the ‘European Tiger’ years of 1996 and 1997. Despite this growth theEconomist Intelligence Unit’s assessment of the Polish situation in 2000 was pessi-mistic, citing weakening demand and immense competitive pressures; Polish tradeunionists shared this pessimism (The Economist Intelligence Unit, 18 May 2001).

Romania and Bulgaria remained as the major laggards. In Romania, growthrevived, but only to 1.6 per cent, after three very poor years. Foreign direct invest-ment increased after 1997, most substantially with Renault’s purchase of the Daciacar manufacturing company, and multinationals were more positive about invest-ment than the macro-economic indicators suggested was justified. However, the elec-tions in November 2000 resulted in the election of a ‘centre left’ government led bythe former Communist leader Ion Iliescu, previously President between 1990 and1996. Although committed to increasing the rate of structural reform and to encour-aging FDI, the record of economic management and structural reform during hisearlier periods in office was poor. Bulgaria recorded an increase in economic growth,largely on the basis of exports, but also an increase in inflation. Domestic demandremained depressed in both countries.

Except for Romania, with inflation at 40.7 per cent, and Russia, with inflation at20.2 per cent at the year end, inflation in the region had been brought down towestern levels; and even in Romania and Russia inflation was on a downward trend(see Table 2). The control of inflation was achieved by pursuing tight fiscal and mon-etary policies. In Poland, for example, interest rates were raised to 11 per cent, toprevent ‘overheating’. Real wages were kept down, as Table 3 shows. Earnings incurrent dollar terms were lower in 2000 than in 1999 in every country in the regionexcept Lithuania and Poland and, at very low levels, Romania and Russia. The Polishincrease (from $458 to $474 per month) was seen by multinational corporations as a

Table 2: Trends in inflation for selected countries, 1996–2000

Inflation (%)

1996 1997 1998 1999 2000

Bulgaria 123.0 1082.0 1.0 6.2 11.4Czech Rep 8.8 8.5 6.8 2.5 4.0Estonia 23.0 11.0 8.2 3.3 5.0Hungary 23.6 18.3 11.2 10.6 10.1Latvia 17.6 8.4 4.7 2.4 2.0Lithuania 24.7 8.9 N/A 0.3 1.4Poland 19.9 14.9 11.8 7.3 8.5Romania 38.8 154.8 40.6 54.8 40.7Russia 47.8 14.7 66.7 50.5 20.2Slovakia 5.8 6.1 5.6 14.2 8.4Slovenia 9.9 8.4 6.4 7.8 8.9

N/A: Not available.Sources: Business Central Europe Key Data 1990–98.Business Central Europe Monthly Update: February 2001: 57.

482 Industrial Relations Journal Blackwell Publishers Ltd. 2001.

Table 3: Trends in average monthly wage for selected countries, 1996–2000

Average Monthly Wage (current $)

1996 1997 1998 1999 2000

Bulgaria 75.5 N/A 112.0 111.0 101.0Czech Rep 356.4 333.4 374.0 378.0 335.0Estonia 234.3 256.9 265.5 286.9 271.5Hungary 307.0 310.5 322.0 324.0 284.0Latvia 179.0 228.6 211.8 237.8 226.5Lithuania 193.5 202.3 N/A 242.5 273.0Poland 323.0 352.7 421.0 458.0 474.0Romania 138.4 121.8 157.0 125.0 127.0Russia 157.2 181.9 71.0 67.0 86.0Slovakia 266.0 285.7 293.0 278.0 246.0Slovenia 953.9 901.2 1024.0 953.0 807.0

N/A: Not available.Sources: Business Central Europe Key Data 1990–98.Business Central Europe Monthly Update: February 2000: 57.

sign of the rigidity of the Polish labour market. Earnings remained at poverty levelsin the Balkans and in Russia. There was little sign that the region was losing itscompetitive advantage as a low wage area overall, although some multinationalsbelieved that wage inflation was becoming a serious problem in parts of the CzechRepublic, particularly the Prague region, where unemployment was negligible.

Unemployment increased throughout the region; in 2000 only four countries hadrates below 10 per cent (Estonia, Latvia, the Czech Republic and Hungary), as Table 4shows. In Poland, the largest country in the region after Russia, unemployment roseto 15 per cent, with low rates in the Warsaw region compensating for the significantlyhigher rates in the old industrial areas such as Wroclaw and in rural areas. In Hun-gary, unemployment was concentrated in the older and younger age groups, and inthe eastern and south western parts of the country. Although unemployment was

Table 4: Trends in unemployment for selected countries, 1996–2000

Unemployment (%)

1996 1997 1998 1999 2000

Bulgaria 12.5 13.7 11.1 14.7 17.9Czech Rep 3.5 5.2 7.0 9.0 8.8Estonia 10.0 10.5 4.0 5.2 5.9Hungary 10.5 10.4 9.3 9.2 6.0Latvia 7.2 7.0 9.2 9.1 7.8Lithuania 7.1 5.9 6.4 8.1 12.6Poland 13.2 10.5 9.9 12.5 15.0Romania 6.6 8.8 9.5 11.1 10.5Russia 9.2 10.9 13.9 11.7 10.2Slovakia 11.1 11.6 15.6 19.2 17.9Slovenia 13.9 14.4 14.6 13.0 11.9

Sources: Business Central Europe Key Data 1990–98.Business Central Europe Monthly Update: February 2001: 57.


relatively low, the Hungarian union federation MSZOSZ was concerned about thelow participation rate, with only 52.9 per cent of the working age population inemployment (MSZOSZ, 2000). The economic slowdown in the EU, especially in Ger-many, inevitably led to reduced employment in CEE, since many EU companies haddiverted their production for the EU to CEE; companies operating in the outwardprocessing trade were particularly exposed. This decline was only partially compen-sated for by the increased demand following the Russian revival.

One of the consequences of economic internationalisation was uneven develop-ment, with an imbalance between countries and between regions within countries.Hence rates of growth in GDP, and other macro-economic indicators, varied widelywithin the region, with north central Europe experiencing higher growth rates andlower levels of unemployment. Regional imbalances are found throughout the region.However, they are most evident in Hungary. In Hungary, the central and easternregions of Hungary – especially around Budapest in the centre and Szekesfehervarin the west, are regions of dynamic growth. Szekesfehervar, indeed, may be classifiedas a region of dynamic growth on a global scale, with high levels of inward invest-ment, low unemployment and high earnings in internationally oriented manufactur-ing sectors, including VW-Audi and an increasing number of car industry componentsuppliers. At the same time, north eastern Hungary remains economically depressed,with high unemployment and low earnings. The population is migrating from thenorth east to the west, with increasing pressure on the housing stock and other facili-ties in western Hungary.

The process of international differentiation in economic performance that hadexisted since 1990 continued. The increasing economic differences in CEE betweennorth central Europe and south eastern Europe shown in the macro-economic indi-cators were reflected in employment experience and in daily life; there was a majorcontrast between, for example, Warsaw and Bucharest, and even between the ruralregions in the two countries. Such differences have important consequences, for thepolitical economies of the region, for EU accession and for employment relationsspecifically. It is possible to envisage Poland, the Czech Republic and Hungary with-standing the competitive pressures of EU membership and matching the productivitylevels of western Europe in a generation, but impossible to imagine a similar econ-omic performance by Romania or Bulgaria. The economically weaker economies ofsouth eastern Europe grew weaker in the 1990s. However, the political reasons forincluding south eastern Europe within the EU grew stronger, with continuingpolitical instability in the former Yugoslavia and the need for a stable Europeanperiphery.

Three aspects of this differentiation process were becoming especially evident in2000, with long term significance. First, the development strategies available to differ-ent countries diverged. As a large country, with almost 40 million people, Polandoffered an attractive market in its own right for multinational corporations. More-over, the domestic market provided a sufficient basis for domestic enterprise devel-opment. Such a domestically oriented strategy was impossible for the much smallerHungary, with little alternative to an internationally oriented strategy. Hungary isseeking to act as a research and development ‘hub’ for multinational firms, with basicmanufacturing operations carried out elsewhere in CEE. Hence the development ofR&D facilities at GE’s former Tungsram light bulb manufacturing company, and theincreasingly sophisticated development work in the Audi engine plant are seen assuggesting the future pattern of development for Hungary. In this emerging scenariolabour intensive manufacturing, as for shoes and textiles, is transferred to the Balk-ans. Slovenia is similarly developing high value added manufacturing and investingin Croatia for less sophisticated manufacturing. The second aspect is the increasingselectivity of multinational corporations regarding their operations in CEE. Multina-tionals operating in Poland, the Czech Republic and Hungary, importing or produc-ing primarily for regional markets, perceive such markets as becoming too competi-tive; they are beginning to show western European levels of competition, withoutthe level of income to sustain the competition. In Poland, for example, multinationals


report a growth in demand for locally produced products, and the revival of localbrands. Thirdly, there is increasing Russian involvement in CEE, with the beginningsof regional multinationals. Gazprom is especially active in the region, with the pur-chase of a major oil refinery in Bulgaria, the construction of trans-Balkan oil pipelinesand increasing involvement in Hungary.

The political context of employment relations was increasingly dominated by theissue of EU accession. Throughout the region the political and economic elite consen-sus remained strongly for EU accession. The consensus was articulated most fullyin Hungary, where the political elite saw EU accession as the natural expression ofHungary’s national destiny, as well as being economically necessary. ‘Since the for-mation of an independent Hungarian state 1000 years ago, [Hungary] has beenclosely linked to western cultures and values. Within the newly established demo-cratic institutional framework the political conditions for re-integration into the maintrend of European development are now fulfilled. For Hungary, joining this processand using the achievements of European integration to carry out fully its social andeconomic modernisation is a historical necessity. It is also a unique possibility, forwhich there is no real alternative’ (Memorandum accompanying Hungary’s appli-cation for EU membership, 1994, cited in Borbely, 2000: 1). There was majority elitesupport for EU accession elsewhere in the region, if with less enthusiasm than inHungary. In Poland there was increasing irritation at the pace of the negotiations,and strong opposition from many farmers. There was widespread opposition to thesale of land to foreigners in Poland and elsewhere in the region. In Romania, theextreme nationalist candidate secured the second largest vote in the November Presi-dential election, and a substantial block of MPs in Parliament, although even theright wing nationalists did not express hostility to the EU.

By 2000 some central and eastern European countries (Poland, the Czech Republic,Hungary, Slovenia) were facing economic and political environments not vastly dif-ferent in kind from western European countries. Rates of GDP growth, inflation, andunemployment approached and in some cases exceeded western European levels.Western business regarded such countries as no different from southern Europe ascountries in which to carry out their operations. The political context was also domi-nated by similar considerations, especially relations with the EU. However, the absol-ute level of income remained low and integration into the international economicsystem rather fragile. In south eastern Europe (Romania, Bulgaria) the context wasbleaker. Rates of growth in GDP were lower than in the northern part of the region,inflation and unemployment higher and real incomes lower. The prospects for EUmembership were also less promising.

Industrial relationsIndustrial relations developments in 2000 continued the patterns of the late 1990s;there was no marked discontinuity. There are four main features on which we wouldlike to comment. The first feature is the continuing decline of collective organisation.This is shown in trends in trade union membership and in the continuing weaknessof shop-floor organisation. Second, the structures of tripartism at national level anddecentralised collective bargaining at the enterprise level continued, but with con-siderable strain on tripartism in major countries. Third, the level of industrial conflictremained low, but significant strikes occurred involving limited groups of workers,primarily in the public sector. Fourth, trade unions sought to articulate a unitedpolicy on accession to the EU, although their role in negotiating the acquis communau-taire was limited.

Collective organisation

At the beginning of the 1990s trade union density was higher in CEE than in the EU(outside Scandinavia). In Poland, for example, union density stood at 60 per cent.


The high levels of union membership which had been characteristic of industrialrelations in late Socialism survived into the early years of post-Socialism in stateowned enterprises, even if in some areas the membership survived in form ratherthan substance, with retired and unemployed workers boosting apparent levels ofunion membership. Although trade unions were associated with many unpopularaspects of Socialist regimes, and not highly regarded, union membership providedaccess to major social amenities and a very limited measure of employment protec-tion. However, the process of restructuring and privatisation reduced employmentlevels in the state sector, and even in the state sector the economic environmentmade it difficult for unions to organise for collective bargaining and to exert effectivebargaining power. Union organisation was rare in private companies, even in theearly 1990s. Union membership figures are notoriously difficult to interpret; unionshave a natural interest in claiming high levels of membership, maintaining adminis-trative records in periods of rapid economic transformation is very difficult and prac-tices in claiming unemployed and retired workers as members differed betweencountries and unions. However, it is clear that union membership declined through-out the 1990s. By 2000 union density had declined to 17 per cent in Poland, thecountry in which union organisation had been strongest in the early 1990s. Unionmembership was concentrated in the state sector, where 60 per cent of state sectoremployees reported that trade unions were operating in their enterprise, comparedwith only six per cent of employees in private companies (Kozek, 2000: 3–4). Withinthe private sector, smaller companies and internationally owned or part owned com-panies were less likely to have union organisation. This is little different from theEU. In Hungary there was a similar process of membership decline. In 1995 the sixmajor trade union confederations had 1,330,000 members, at the beginning of 2001735,000 members, scarcely more than half the membership five years earlier (Borbely,2001). As older workers retired and younger workers failed to join union organis-ations the level of union membership inevitably declined. Changes in the employ-ment structure, changes in employers’ strategies and changes in employee orientationcombined to reduce union membership.

The level of collective organisation at enterprise level differed between countries.Trade unions remained relatively strong at enterprise level in Poland, especially instate, municipal and co-operative enterprises. Hence enterprise collective agreementswere reported in 1999 in 10,600 enterprises (Kozek, 2000: 7–8.) The negotiation of theagreement was often at management initiative, designed to establish coherent andacceptable wage structures. Union members had little awareness of the process –although awareness of the outcome obviously enhanced union standing in theenterprise. Relations between managers and employees at the enterprise levelremained primarily co-operative, based upon shared concern for securing jobs. Wagesettlements usually matched the rate of inflation, rather than representing an increasein real wages. There was less union presence in private firms, especially small privatefirms and firms with foreign ownership or foreign participation. Collective organis-ation remained weak at the sectoral level. Even in Poland, with Solidarity and OPZZ(the All-Poland Alliance of Trade Unions, the successor to the Communist tradeunion movement) embedded in the social and political system, neither union feder-ation had the resources to develop continuing shop-floor organisation from above,and there was insufficient rank and file support to sustain on-going shop-floor organ-isation from below.

Hungarian evidence also suggests that collective organisation through union mem-bership at the enterprise level had only limited influence upon wage levels, evenwhere collective agreements were locally negotiated. Overall, trade unions wereunable to achieve significant economic gains for their members through collectivewage bargaining. Neumann’s careful research in Hungary showed ‘a nearly zeroaverage value of the union relative wage difference’ (Neumann, 2000: 21). The weak-ness of trade unions is shown in their limited success in negotiating company tariffagreements and where tariffs are negotiated, ‘the tariffs do not have a strong regulat-ory force’ (Neumann, 2000: 21). ‘Company trade unions do not represent any substan-


tial barrier to the management to increase productivity and lay off employees’ (Ibid.,22). Trade unions are unable to ‘directly and definitively influence individual wagedetermination, or [. . .] to substantially countervail direct labour market influencesand unilateral wage determination by the management’ (Ibid., 18). The major effectof union influence is to compress individual differential amongst lower paid workers.

Trade unions were less likely to have a significant presence in multinational cor-porations than in domestically owned enterprises. Polish research shows a negativerelationship between foreign participation and union membership (Wozek, 2000: 3).Similarly, in Hungary foreign multinationals were less likely to have collective agree-ments than domestically owned enterprises (Neumann, 2000: 19). The reasons for thedisinterest in, or hostility towards, unions differed. In some sectors, especially motorvehicles, large internationally oriented manufacturing firms (VW-Audi, GeneralMotors, Ford, Fiat, Suzuki) operated their standard international human resourcemanagement policies (Van Tulder and Ruigrok, 1998). These involved the develop-ment of internal labour markets, functional flexibility and the use of ‘non-standard’contracts of employment (to use the term in vogue in Hungary). In exchange, suchmultinationals offered higher rates of pay than domestically owned enterprises.Other multinationals, operating in labour intensive sectors such as textiles and foot-wear, opposed unions for very different reasons: the need to exploit their labourforce to ensure continued existence (e.g., Clean Clothes Campaign, 1999). Hence Bal-kan firms seeking to compete on price with west European firms frequently operatedon the basis of low pay, unregulated overtime and high production quotas.

Tripartism and collective bargaining

As previous papers have shown (Martin and Cristescu-Martin, 1999, 2000) theemployment relations systems in CEE combined national level tripartism with sec-toral and enterprise level collective bargaining. Tripartite decisions provided theframework within which the bargaining process occurred, the impact of the frame-work differing between countries. In 2000 the process of weakening the significanceof tripartism continued. The weakening was most evident in Poland. The TripartiteCommission for Social and Economic Issues was in disarray. In place of the requiredfour meetings in 2000 the Commission met only twice. The OPZZ, aligned with the‘centre-left’ Democratic Left Alliance (SLD) suspended its participation in the Com-mission at the end of 1999, on the grounds that the ‘centre-right’ Buzek governmenttook little notice of its discussions. According to OPZZ, ‘Lack of competence, arro-gance, disregard for social partners – these are the features of the present authorities.The social dialogue has been destroyed, protesting people are dispersed, also withthe use of weapons. Hypocrisy, dictate (sic) and promises without cover – this is whatthe present cabinet calls “social dialogue”’ (OPZZ, 30 September 2001: 1). AlthoughSolidarity continued to participate, even Solidarity adopted a defensive attitudetowards its participation: ‘The position of the Tripartite Commission weakened sinceOPZZ left the forum and the trade union party lost a lot of its representation. How-ever, the sessions of the Commission are still carried on [. . .] even if sometimes itlooks like the interests of one party prevail in the taken decisions, all in all the com-mon good is in stakes (sic) since both the government, unionists and employers areriding the same horse. The Government position is especially strong due to the factthat e.g. in establishing the minimal (sic) wages in public sector or budgetary sectorthey can not exceed a concrete level since this would cause an increase of inflationor would create a gap in the state budget and necessary cuts in other sociallyimportant issues. Therefore in case of lack of agreement in this question the Govern-ment alone makes the decision on the increase of wages taking all the responsibilityand the risk of social protests’ (Solidarnosc, The Newsletter, No. 3, 2000: 2).

Government dominance was also evident in Hungary. As the MSZOSZ reportedto the special meeting of the six major union federations at Matrahaza to discussrelations with the EU in May 2000: ‘Social [dialogue] has reached its nadir; the socialpartners – employers and trade unions – and civil organisations are denied the possi-


bility of taking part in decisions on issues decisive for the future. That is why thegreater part of the population, and the trade unions and civil organisations rep-resenting them, feel excluded and rightly believe that governmental and parliamen-tary decisions are taken over their heads. [. . .] There are no institutional linkagesto the preparation of decisions, thus even measures having favourable effects areoccasionally taken with reservations and animosity’ (MSZOSZ, 2000: 4).

Tripartite discussions had a direct impact upon the wages of public sectoremployees. The level of the minimum wage also had significance for low incomeworkers and for employees whose wages were determined by reference to the mini-mum wage. However, the major processes of wage determination primarily involvedcollective bargaining at the company level. In Hungary, for example, the nationallevel agreement between the social partners determined the level of the nationalminimum wage and suggested annual rates of wage increase. Also, collective bar-gaining occurred at the sectoral level. But ‘the company is clearly the most importantlevel of bargaining’ (Neumann, 2000: 2). The impact of collective bargaining uponearnings depended upon company specific factors, including the product and labourmarket position of the enterprise. Similar processes occurred elsewhere in the region.In many instances wages were determined unilaterally by management, in the lightof labour market factors, the minimum wage and the level of earnings necessary toavoid union involvement.

The involvement of trade unions in tripartite organisations inevitably reinforcedthe orientation of union leaders towards political action. In some countries, especiallyPoland, this link between trade union federation and political party was institutional-ised, in others (e.g., Bulgaria) it was a working practice. In some countries the closeassociation between trade unions and political organisations was perceived asundermining the ability of trade unions to defend their members’ interests. In Poland,for example, survey evidence indicated the belief that the close association betweentrade union leaders and political leaders reduced their responsiveness to members’interests. ‘The two dominant trade union centres in Poland, that is, OPZZ and Soli-darity have been active political subjects for years. In the opinion of the averageunion member, this involvement results in the decrease in the care of union leadersfor union member interests, concentrating on symbols, apparent battles carried outwithin the ruling elite. Trade union protests are organised in ritual forms: marches,demonstrations, blocking public buildings in order to make a mark of a politicalnature’ (Kozek, 2000: 6). Even the national level leadership of Solidarity recognisedthe difficult position in which its linkage with Solidarity-AWS placed it, publishinga highly critical resolution from the General Assembly of NSZZ Solidarnosc at theDaewoo-FSO large car plant. ‘Polish society is tired with playing with politics, arti-ficial programme discussions, conflicts in specific social groups and propaganda. Weput the blame on the present politicians, especially the elite of our union being mem-bers of the Parliament, Government and local governments. NSZZ Solidarnosc cannot be an umbrella for the realised policy’ (Solidarnosc, 2000: 6).

Industrial action

Despite the overall co-operative relations between management and employees,strike action occurred especially in the state sector and in the large privatised sectorsundergoing restructuring. As in 1999 the most extensive industrial action was inRomania, with strikes on the railways, in education (university as well as schoolteaching), in mining, amongst electricity workers and even amongst lawyers andworkers in the finance sector (Martin and Cristescu-Martin, 2000). The strikes wereusually brief, and directed at securing public and political attention. The strikes onthe railways, in coal mining and with the legal profession were settled largely onterms acceptable to the strikers. The disputes in education proved longer runningand the strikers’ grievances do not appear to have been remedied.

There was also significant industrial action in Hungary. The longest large-scaleindustrial action was the national railway strike in Hungary, following industrial


action in 1999. After a brief three day stoppage in January 2000, the railway unionsbegan an indefinite strike on 3 February. The major demand by the railway workerswas for an increase of 12–13 per cent, whilst the employers’ offer was only 8.5 percent. The strike proved to be highly effective, stopping national and internationalrail transport in Hungary of both goods and people, and causing major financiallosses to the Hungarian State Railways system. The strike ended on 17 February,after 14 days (Central Europe Review, 2000). The terms of the settlement were closerto the initial offer by the Hungarian State Railways, 8.5 per cent, than to the uniondemands. In addition, the settlement included a three year no-strike pledge by therailway unions. The strike indicated that union members could paralyse the railwaysystem, even without 100 per cent organisation or support, provided that key groupsof workers supported the strike; in 2000 the train drivers strongly supported thestrike. The strike also indicated that the three major union federations in the railwayindustry could organise effective industrial action together. However, the strike alsoindicated that determined employer opposition could be successful. Other groups ofHungarian public sector workers also took industrial action. Between the accessionof the Orban government in April 1999 and the end of 2000, transport workers (bus,aircraft mechanics), health, education, police and farmers have all taken industrialaction. The action frequently resulted from the poor financing of public services, suchas health and education (Borbely, 2001: 65–6).

Elsewhere, industrial action was less extensive than in Romania and Hungary. InSlovenia, for example, industrial relations were initially more adversarial than inHungary after 1989. However, by 2000 the pattern in Slovenia began to resemble thepattern elsewhere in central and eastern Europe. By the late 1990s strike action hadbecome rare. In Slovenia, industrial relations were organised on ‘Rhine’ capitalistlines, with relatively high levels of union membership and state legislated industrialrelations institutions (Stanojevic and Vrhovec, 2001). In the early 1990s there wererelatively high numbers of strikes, especially in the largely publicly owned manufac-turing sector. In 1992, for example, there were 189 working days lost per 1000employees; by 1994 the ratio had dropped to 112 per 1000 employees, but in 1996the number of days lost was still 137 (Op. cit., 32). The strikes were usually smallscale (mean size 372 in 1992, 189 in 1994) and brief (mean length 2.2 days in 1992,5.5 days in 1994). In these respects, Slovenia was quite similar to high strike pronecountries in western Europe such as Ireland, France and Italy. However, by 2000 thenumber of days lost per 1000 workers had dropped – to 4.8 days per 1000 employees,the average size had dropped (to 112 employees) and the average length of strikeshad dropped to 2.6 days. Within the context of low levels of strike action, the numberof strikes in the service sector was increasing. As shown in Chapter 2 above, Sloveniawas characterised by relatively high wages, alongside high unemployment – a clearillustration of employment relations based on the dynamics of carrots and sticks.

Trade union attitudes towards the EU

Trade unions, like other groups in CEE, were strongly in favour of EU accession. Forexample, in Poland, resolutions at both the Solidarity and OPZZ congresses stronglysupported accession, although the emphasis upon social protection was predictablygreater at the OPZZ Congress. Similarly in Hungary, all six major Hungarian unionfederations expressed strong support for EU accession at a special meeting in May2000. Both major trade union federations in Bulgaria, Podkrepa and CITUB, stronglysupported accession. The trade union movements saw EU accession as a means ofachieving major improvements in living standards. According to the Hungarian fed-erations, ‘workers expect that accession to the European Union will bring about anassertion of their interests, an improvement of their quality of life. [. . .] They expectapproximation of their living standards, their social security and social benefits tothose in the targeted countries of the European Union’ (MSZOSZ, 2000: 3). Morespecifically, Hungarian trade unionists sought greater employment security, moregenuine social dialogue and ‘performance-proportionate wages of higher purchasing


power’ (Ibid.). Polish trade unionists echoed these sentiments, but were more con-cerned with unemployment than their Hungarian colleagues, as might be expectedin view of the much higher level of unemployment in Poland than Hungary.

Survey results from Poland echo the leadership’s support for accession. In a surveyof members’ opinions, over 70 per cent of trade unionists said that they would votefor accession in a referendum, 21 per cent were uncertain and only 5.5 per cent saidthat they would vote against. Few respondents had clear ideas about the likelyimpact of accession upon their personal lives: 51 per cent stated that it was ‘difficultto say’, 31 per cent expected personal improvement and 11 per cent expected losses.There was a more widespread belief that accession would be better in general, 39per cent claiming that accession would be better for both Poland and the EU, and29 per cent stating that the EU would gain more. Trade unionists expected thataccession would lead to an improvement in the quality of Polish goods (79 per cent),better environmental protection (75 per cent), and improved conditions for youngerpeople (61 per cent). A significant minority expected a decline in social benefits (19per cent), a more difficult labour market (19 per cent) and a deterioration in publicsafety (16 per cent). The most frequently mentioned positive results of accession wereaccess to new technologies, freedom of movement and financial support for localgovernments. The most frequent issues of concern were a probable deterioration inthe condition of Polish agriculture, the purchase of land by foreigners, increasedunemployment and loss of control over Polish industry (Solidarnosc, 2000: 13).

The discussion of accession helped to foster greater unity amongst trade unionistsin the region. In Hungary the six major federations established the National Inte-gration Commission of Hungarian Trade Unions (NIC) in 1996. NIC initially actedlargely as an educational and propaganda body, but gradually articulated a commonstrategy. The federations agreed a joint strategy in 2000, which included an attemptto assess the likely impact of accession upon specific economic sectors. Despite thisconcern, the trade union movement had no place in the process of negotiating theaccession agreements and little impact upon the negotiating process: ‘since the officialnegotiations have started the trade unions have been looking to find their place inthem’ (Borbely, 2000: 6). Hungarian accession negotiators did not wish to introducegreater complications into the negotiating process by involving extra parties, andHungarian trade unions lacked the resources to make a significant technical inputto the negotiating process. Instead, trade unionists hoped that EU accession wouldlead to a more secure position for social partnership in the region. The trade unionswere concerned to protect the losers from the integration process, to secure freedomof movement for labour (whilst recognising the dangers of a brain drain fromHungary), and to reduce the gap between Hungarian and EU average wage levels).

ConclusionTrade unions in CEE operate in considerably less favourable macro-economic con-ditions than trade unions in western Europe. From the perspective of employees,higher levels of GDP growth in CEE have not compensated for lower income levels,higher unemployment and higher levels of inflation. However, the major features ofemployment relations in CEE and western Europe overlap. In both, there has beena massive decline in trade union membership. In both, there has been a massivereduction in the level of industrial conflict, with strikes at historically low levels. Inboth, the major areas of industrial conflict have involved public sector workers, aspressures on state budgets (and/or an ideological commitment to neo-liberalism)have led to confrontation between the state and unions representing stateemployees – health sector workers, teachers. In both, multinational capital has beenseen as the major source of capital investment, and the source of new jobs. In both,the inward investment has been secured at a significant cost, both financially withinvestment incentives and, in CEE, with concessions on labour regulation. In CEE,as in western Europe, financial incentives have been provided by regional as well asnational governments. In return, multinational corporations have provided exports,


job security for a small number of employees, technology transfer and, generally,higher wages than local enterprises. In both CEE and western Europe, securing aposition in the international division of labour has involved accepting the creationof a periphery of smaller firms, acting as suppliers to multinationals, with wages andemployment conditions significantly worse than in the multinationals themselves.Finally, unions in both regions have expressed concerns about labour mobility, andthe potential threat to domestic jobs from incoming migrants; Germany’s concernabout Polish migrants is matched by Hungary’s concern about Romanian migrants.

The issue of regional imbalances grew in importance. The major imbalance in econ-omic development remains between countries in the region, with greater prosperityin the north than in the south. There are also major imbalances between regionswithin countries. In Poland, the Czech Republic, Slovakia, and Hungary there is awide gap between the prosperity of the capital cities and the historical centres ofmanufacturing industry, and between both and the rural areas. The capital citieshave higher rates of growth, significantly higher earnings, lower levels of unemploy-ment and show the benefits of privatisation and a market economy. The amenitiesresemble those of western European capitals, if with a more rundown infrastructure(more the UK than Germany). Inward investment is also ‘capital-centric’, withadditional incentives required to attract investment to regional centres, especially inregions distant from western Europe. Hence Microsoft was attracted to invest ineastern Hungary only by special government incentives. Even in less developedcountries in the region, Romania and Bulgaria, there are major contrasts betweenthe capital city and elsewhere – the Mercedes and Volvos and are mainly in thecapital cities.

The institutional arrangements established to manage employment relations differbetween countries. In all countries, there is at least a two tier structure, involvingtripartite social partnership institutions at the centre, with collective bargaining atthe company level. Wage determination is formally based on collective bargaining,supported by a legislated national minimum wage. Countries differ in the extent towhich the collective bargaining arrangements are centralised at the national level ordevolved to enterprises. In the most advanced countries the system combines a struc-ture of national level framework tripartite institutions with decentralised bargainingstructures. In 2000 the tripartite institutions of social partnership continued to declinein importance.

Macro-economic conditions have given considerable power to managers in theregion. The decline in real income since 1989 and the increase in unemployment(whether made obvious in increasing unemployment rates or disguised by changesin the overall employment rate) have strengthened the bargaining power of man-agers. The impact of macro-economic conditions has been reinforced by the weaknessof state institutions. A technocratic alliance between managers and state bureaucratshas enabled managers to dominate employment relations. Even where legislationfavouring employees has been passed, for example to meet the requirements of multi-national financial institutions or the EU, the machinery for enforcement has beensketchy.

Although trade unions have survived, they have been significantly weakened.Membership levels have declined, and even where membership has remained at arespectable level there has been little ability to mobilise members. Collective actionhas occurred, especially in relation to state employees. But the action has taken theform of protests and demonstrations rather than coherent industrial action. Demon-strations by state employees have on occasion been successful. Where industrialaction has occurred within the context of collective bargaining it has occurred inareas where employees have particular strengths (electricity generation and supply,gas workers, aircrews and aircraft mechanics).

What type of employment relations system is emerging? It is now over a decadesince the beginnings of the transformation in CEE, and the shape of post-Socialiststructures should be becoming apparent. The post-Socialist employment relationssystem emerging is that characteristic of politicised managerial capitalism. This com-


bines elements of both Anglo-American and ‘Rhineland’ capitalisms. Political con-siderations play a greater role in employment relations than in Anglo-American sys-tems, as shown, for example, in the debates on social partnership in Poland.Managers represent the dominant group in employment relations, with weak tradeunions, largely impoverished state institutions and still embryonic capital markets.The constraints exercised by product and labour markets, both international anddomestic, are those of international capital. In the early 1990s the rhetoric of Anglo-American capitalism prevailed, with the central importance of the IMF and the WorldBank pressing the benefits of privatisation, competition, deregulation, and flexibility.At the same time, the centralised institutions and working practices of late Socialismretained force in some countries, e.g., Bulgaria. The growing importance of the EUas a source of advice and finance, as well as the pivotal role of German capital inthe restructuring process, inevitably strengthened the influence of the Rhenish model.The employment relations system emerging is thus a mix of two systems, differentfrom both. On the one hand, the ‘partner’ institutions integral to the Rhenish struc-tures have been established. At national level variously termed Tripartite Com-missions for Socio-Economic Affairs have been established. At enterprise level variedstructures for employee participation have been established for all but the smallestfirms. On the other hand, the cohesion and discipline which are supposed to becreated by such structures have not been achieved. There is a greater degree of vari-ation and decentralisation than implied by the Rhenish model. Hence the system ofcollective bargaining is decentralised, as in Hungary and the Czech Republic, andeven in Slovenia. Such a system provides the potential for controlling inflationthrough social partnership arrangements with the flexibility to respond to varyingproduct and labour markets through enterprise collective bargaining. It also providesthe potential for accelerating inflation through generalising the productivity gains ofspecific enterprises throughout the economy. In 2000 the managerial domination ofthe employment relations system ensured control of inflation, whilst providing lowwage levels and high unemployment. The new millennium saw CEE in the processof integration into the international economy, but at a high price for employees.

References

Borbely, S. (2000), Hungary: EU Enlargement and Trade Unions, (http://www.business.matav.hu.uzlet/mszeib/eng/news/seer/htm).

Borbely, S. (2001), ‘Industrial Disputes in Hungary’, South-East Europe Review for Labour and SocialAffairs, 4, 1, 51–71.

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employment relations in central and eastern europe in 2000: the road to the eu

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