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State, Labor, and the Transition to a Market Economy

Egypt, Poland, Mexico, and the Czech Republic

Agnieszka Paczyńska

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ISBN: 978-0-271-03437-9

292 pages
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2013
Second Edition

State, Labor, and the Transition to a Market Economy

Egypt, Poland, Mexico, and the Czech Republic

Agnieszka Paczyńska

“In explaining the variation in the ability of labor organizations to determine the nature and pace of privatization design and implementation, Paczyńska thoughtfully examines the historical legacies of state-labor interactions and shows how past interactions influenced the resources available to labor when lobbying for particular strategies of structural reform. Scholars of privatization, labor politics, postcommunist transition, and structural adjustment will all value the clarity and empirical richness of this work.”

 

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In response to mounting debt crises and macroeconomic instability in the 1980s, many countries in the developing world adopted neoliberal policies promoting the unfettered play of market forces and deregulation of the economy and attempted large-scale structural adjustment, including the privatization of public-sector industries. How much influence did various societal groups have on this transition to a market economy, and what explains the variances in interest-group influence across countries?

In this book, Agnieszka Paczyńska explores these questions by studying the role of organized labor in the transition process in four countries in different regions—the Czech Republic and Poland in eastern Europe, Egypt in the Middle East, and Mexico in Latin America. In Egypt and Poland, she shows, labor had substantial influence on the process, whereas in the Czech Republic and Mexico it did not. Her explanation highlights the complex relationship between institutional structures and the “critical junctures” provided by economic crises, revealing that the ability of groups like organized labor to wield influence on reform efforts depends to a great extent on not only their current resources (such as financial autonomy and legal prerogatives) but also the historical legacies of their past ties to the state.

This new edition features an epilogue that analyzes the role of organized labor uprisings in 2011, the protests in Egypt, the overthrow of Mubarak, and the post-Mubarak regime.

“In explaining the variation in the ability of labor organizations to determine the nature and pace of privatization design and implementation, Paczyńska thoughtfully examines the historical legacies of state-labor interactions and shows how past interactions influenced the resources available to labor when lobbying for particular strategies of structural reform. Scholars of privatization, labor politics, postcommunist transition, and structural adjustment will all value the clarity and empirical richness of this work.”
“In this ambitious and innovative study, Paczyńska draws upon an unusual pairing of very different countries—Poland and Egypt, Mexico and the Czech Republic—to produce an important addition to the comparative literature on organized labor and market reform.”

Agnieszka Paczyńska is Associate Professor at the Institute for Conflict Analysis and Resolution at George Mason University.

Contents

List of Tables

Acknowledgments

List of Abbreviations

Introduction

1 Parties, Unions, and Economic Reforms

2 Ruling Parties, Organized Labor, and Transitions to Democracy: Poland and Czechoslovakia

3 Ruling Parties, Organized Labor, and Continued Authoritarianism: Egypt and Mexico

4 Labor and Privatization in Poland

5 Labor and Privatization in Egypt

6 Labor and Privatization in the Czech Republic and Mexico

Conclusion

Bibliography

Index

Introduction

In the 1980s, sharp increases in foreign debt and severe macroeconomic instability combined to produce urgent economic crises throughout the developing world. Drawing on newly influential economic analyses that identified state intervention as the primary culprit, reform programs sought to confine the state to a minimal regulatory role while permitting unrestrained market forces to set relative prices and thus govern resource allocation. The emerging dominance of the neoliberal paradigm was further reinforced by the changes in the structure of production, finance, and communications technologies associated with economic globalization.

The recalibration of state-economy relations was as profound as the construction of welfare systems among industrialized capitalist economies during the 1930s. In that decade, the state took on an important role in economic management. Now the state was seen as the problem rather than the solution and the politicians who ran it as corrupt, rent seeking, and ineffective. The policies that flowed from this new neoliberal analysis meant that governments facing profound crises would have to fundamentally restructure their economies. As a result, social contracts that had been in place between the state and society would have to be renegotiated. Employment guarantees would be scrapped, consumer goods subsidies would no longer be provided, and employment possibilities and prices would now be determined by market forces.

Not surprisingly, groups that had benefited from previous arrangements were often deeply concerned about the impact of these changes. How did they respond to the restructuring of the economy? And more important, were social actors able to influence and shape these structural adjustment policies? The empirical record is mixed. In some cases, social actors played a significant role, while in others reforming governments had the ability to push through restructuring policies with little input from social actors, be they business associations or labor unions. What explains these differing patterns of social groups’ influence?

This book explores what facilitates and what hinders social group attempts to influence the process of economic restructuring and hence the reconstruction of state-society relations. It examines the reasons for the very different responses of social actors to economic restructuring programs and their vastly different abilities to shape and influence the content and pace of implementing these reforms. It explores these dynamics by focusing on one social group, organized labor, and one feature of structural adjustment policy programs, the privatization of the public sector during the first decade of reforms. Specifically, it analyzes how organized labor in Poland, Egypt, Mexico, and the Czech Republic responded to and attempted to shape the processes whereby privatization programs were designed and implemented.

All four states, Mexico in the 1980s and Egypt, Poland, and the Czech Republic in the 1990s, faced deepening economic crises and embarked on ambitious economic restructuring programs. Among other reforms, all four programs contained plans for selling most public sector enterprises to private investors. Organized labor in the state-owned firms targeted for divestiture was keenly interested in how these privatization programs would be designed and implemented. Yet its ability to shape the design and implementation of public sector reform in the four cases differed. In Egypt and Poland organized labor was able to significantly influence both phases of the reform program. In Mexico and the Czech Republic, by contrast, organized labor had difficulty in effectively inserting itself into these policy debates or shaping the content of restructuring plans. This variation is not well explained by the extant studies of the political economy of reforms.

This book advances a two-stage argument to account for the observed variation in labor’s ability to shape privatization policies. The first stage of the argument explains the variation in organized labor’s influence on privatization policies by pointing to the resources available to labor organizations at the time when structural adjustment programs began. Among the most important resources are legal prerogatives and the financial autonomy of labor from the state as well as experiences of past confrontations with the state. Labor organizations that have acquired these resources before reforms begin have a greater ability to ensure that their voices become part of the debate about the shape of the reforms themselves. Their ability to draw on legal prerogatives, financial resources, and historical experience means that the political costs of silencing labor organizations are much higher then in cases where labor organizations do not have such resources.

This explanation, however, raises another question, namely, how and through what processes organized labor acquires these resources in the first place. The second stage of the argument addresses this question, through a theoretical framework that links labor resources to the historical legacies of labor’s prior relationship with the state. Specifically, this book traces how the inability of ruling parties in Poland and Egypt to construct corporatist labor institutions meant that over time these parties were forced to grant more concessions to labor in order to retain workers within their political coalition. It locates the reasons behind the unsuccessful corporatist experience in the continuing internal struggles within the ruling parties and, in particular, in the lack of adequate incentive structures to enforce the loyalty of party members and punish their disloyalty. By contrast, the ability of the ruling parties in Mexico and Czechoslovakia to manage elite conflicts facilitated maintaining effective corporatist institutions.

Privatization and Organized Labor

Having identified excessive state intervention in economic matters as the main cause of the crisis, the neoliberal prescription for restoring growth focused on reducing the state’s control over and involvement in the economy. Dubbed the Washington Consensus, the policy recommendations had a number of common features. Structural adjustment programs emphasized restoring fiscal discipline, reducing public expenditures, allowing the market to set interest rates, making the exchange rate competitive, liberalizing the trade regime, encouraging foreign direct investment, and privatizing the parastatal sector.

Privatization became a central component of restructuring programs and one of the most important mechanisms for curtailing state involvement in the economy. Neoliberalism viewed public sector enterprises as inherently inefficient. In many developing countries state elites had historically turned to public sector enterprises to fulfill production quotas as well as to ensure high employment levels. Public sector firms also provided the means for the distribution of political patronage. In the long term, these varied economic, social, and political goals resulted in overstaffing, inefficiencies, stifled initiative and innovation, and mounting debts that were a drain on the state budget.

Selling state-owned enterprises, according to reform proponents, would therefore have a multitude of benefits. Not only would these enterprises no longer have to be financed by the state, thereby reducing the persistent budget deficits, but the taxation of newly privatized companies would provide new sources of revenue for the state. Furthermore, once in private hands, these enterprises, relieved of their social and political roles, would be able to produce more efficiently. Through a process of letting the market perform its magic, rather than one of allowing inefficient and overstaffed industrial mammoths to remain on life support, those entities that could not survive in a free-market environment would simply go bankrupt. By making the whole economy function more dynamically, these bankruptcies would in the long run result in higher economic growth rates, higher employment levels, and improved standards of living. Although later experience with implementation of reforms in general and privatization in particular exposed deep flaws in this neoliberal logic, during the first decade of economic restructuring, shedding of the public sector was firmly at the very center of the reform agenda. At the same time, precisely because of the central role that state-owned enterprises played in economic, social, and political life, privatization became one of the most contentious components of economic restructuring programs.

Although all social groups were affected by economic restructuring, the costs and benefits of reform were not distributed evenly. While some benefited from the changes, others quickly found themselves struggling to cope in the new economic environment. Similarly, the costs and benefits of discrete reform measures varied for different social groups. Consequently, we can anticipate that different groups will attempt to mobilize and influence different components of the structural reform package. Farmers are likely to watch carefully debates revolving around agricultural subsidies. Trade unions, by contrast, can be expected to pay particularly close attention to restructuring and privatization proposals, since such measures have an immediate and direct impact on workers within the public sector. While many other reforms associated with structural adjustment will affect workers’ standard of living and job prospects, the effects of measures such as trade liberalization are likely to be more diffuse and not as readily apparent. They are therefore less likely to trigger labor mobilization. Privatization that threatens job security as well as benefits and wage levels is likely to be immediately felt by workers and hence more likely to elicit labor response.

Labor’s ability to respond to these threats, at least theoretically, is much greater than that of many other interest groups within society. Not only do unions have established institutions that can be used in organizing collective action, but such flexing of the political muscle is not easily ignored by governments. Strikes can have profound impact beyond the factory gates and affect broader macroeconomic conditions within a country. Even in countries with low union density in which much of the population is involved in either agricultural production or is employed within the informal sector, unions are usually present within the public sector. Industrial enterprises also tend to be clustered together in urban areas, thereby facilitating interaction and communication between workers. Furthermore, as Zolberg has noted, in many developing countries even when trade unions appear weak and not well organized, “it is relatively easy for them to make trouble for their employer, and since their employer often happens to be the state their behavior is politically threatening.” Privatization, therefore, directly affects what is frequently one of the few organized groups within society.

Despite organized labor’s anticipated interest in state sector reforms and potential ability to translate that interest into policy influence, the actual experience with public sector reform design and implementation has proven to be more complex. Many early observers of economic reforms anticipated that organized labor was likely to present a major challenge to the implementation of structural adjustment. In their view, overcoming labor resistance was crucial to consolidating the reforms. When reforms were not abandoned, the analytic pendulum swung in the opposite direction and initial concerns about the power of organized labor were brushed aside. Geddes summed up this emerging consensus on labor’s powerlessness well when she pointed out that the lack of political upheavals such as “regime breakdown” or “defeat of incumbents at the polls” or “wholesale abandonment of market reforms” made evident that organized labor was unable to affect reform dynamics. Empirical evidence suggests, however, that neither view is fully persuasive. In some cases, organized labor was able to significantly shape both stages of the reform agenda. In other cases, it was not.

The Reform Experience

Poland

In Poland organized labor emerged as an influential player during the first decade of public sector reform design and implementation. Polish organized labor that emerged following the 1989 political transition was highly fragmented. However, most workers belonged to one of two large union federations, the National Confederation of Trade Unions (OPZZ) or Solidarity. These groups, because of their divergent affiliation with two different political currents, were frequently in conflict at least at the national level. Both federations fielded candidates in parliamentary elections. However, Solidarity chose to play a much more direct role in politics and it both offered political backing to governing coalitions and formed its own political organization, becoming directly involved in governing. Alongside trade unions, each state-owned enterprise had a workers’ council. In spring 1990 the government submitted its privatization program to the parliament, setting the stage for the first significant confrontation between the state and organized labor. The government proposal emphasized the need for a quick sale of state assets and gave state agencies the power to initiate and oversee the sales process. The reaction of organized labor was both swift and negative. One of the main points of contention between the government and organized labor was the issue of actual ownership of public sector firms. Union-backed deputies quickly presented the parliament with an alternative privatization plan which proposed greater social control over the process.

The final version of the privatization program represented a major victory for labor. Workers’ councils were granted the right to initiate restructuring and privatization procedures and to decide on the privatization path for their enterprise. Most important, without the approval of the workers’ council, sale of the company could not move forward. Labor organizations thus managed to significantly modify the privatization program during the design phase and played an equally significant role during implementation. In the first years of reform both trade unions and workers’ councils did little to block the restructuring of enterprises and in many cases were active promoters of these changes. At the national level, Solidarity extended a “protective umbrella” over the reforms, containing strike activities and promoting enterprise restructuring. When organized labor’s support for reforms became more tenuous and workers’ councils became reluctant to approve restructuring measures, the pace of sales of state firms slowed noticeably.

The change in organized labor’s stance forced the government to rethink its public sector restructuring strategies. The resulting Commercialization and Privatization Act of 1996 gave organized labor additional incentives to back privatization programs through allocation of free shares in enterprise and increase in workers’ representation on company supervisory boards. The new law, however, did little to accelerate the pace of sales or to make the first decade of reforms less contentious. Polish labor organizations thus managed to significantly influence the process of privatization implementation by affecting the privatization methods employed as well as the pace of sales.

Egypt

In Egypt organized labor also became an influential player in the process of reform design and implementation. The way it pursued its goals differed, however, because of the lack of political opening that accompanied market reforms in Poland. In fact, as the Egyptian regime sought to liberalize its economy, it began retreating from the political liberalization experiment of the 1980s. Despite growing political repression, organized labor succeeded in modifying the privatization program during the design phase, shaped other pieces of legislation directly affecting the pace of divestitures, and significantly slowed the implementation of the public sector restructuring program.

The first confrontation between the Egyptian Trade Union Confederation (ETUC) and the government erupted during the parliamentary debate in the summer of 1991 over the adoption of the Public Enterprise Law (Law 203), which was to guide the privatization process. The ETUC opposed the original government proposal. Because the government wanted the ETUC’s endorsement before adopting the plan, however, it agreed to a number of concessions, including guarantees against mass layoffs of workers and that only the adoption of a new labor code could override these provisions. In addition, the ETUC was guaranteed participation in all future decisions affecting the public sector.

As the privatization program moved into the implementation phase, the ETUC continued to have substantial influence over the process. Two government proposals directly related to the implementation of the privatization program encountered especially strong objections from organized labor. One involved changes in the labor code and the other concerned the adoption of an early retirement scheme for public sector workers. The most contentious were negotiations over new labor market regulations. Both government and business groups wanted more flexible employment contracts that would allow employers to dismiss unneeded workers. Labor opposed this change but wanted the right to strike, which business and the government rejected. The negotiations lasted almost a decade and the lack of progress contributed to the slowdown in the pace of sales. Negotiations over the early retirement scheme were also contentious. In the end the ETUC succeeded in ensuring a higher compensation package and the voluntary nature of the program. The latter provision in particular affected the pace of enterprise restructuring and sales. At the same time and without ETUC approval or support, many restructuring measures also came up against enterprise-level labor opposition. Because the regime feared social unrest, the intensification of labor protests made the implementation of public sector restructuring policies politically difficult.

The Czech Republic

In the Czech Republic organized labor had little input into the design and implementation of public sector restructuring. In March 1990, following the fall of the Communist regime, a congress of trade unionists officially dismantled the seventeen industrial unions of the Revolutionary Trade Union Movement and established the Czechoslovak Confederation of Trade Unions (ČSKOS), which grouped labor organizations of both the Czech and Slovak Republics. As in Poland, trade unions were initially supportive of the economic reform program, though not of all proposed restructuring measures. Unlike in Poland, however, the unions had difficulty in formulating counterproposals and ensuring that they would be considered by the parliament and the government as the reform program was being designed in the second half of 1990. The privatization plan adopted by the parliament in January 1991 did not reflect trade union demands.

Once the privatization program was approved by the parliament, unions proved equally powerless to influence the process of implementation. Large-scale privatization, which included most state-owned assets in industry, agriculture, and trade, was implemented in two stages in 1993 and 1994. Although unions were concerned about the decline in real-wage levels, they did not manage to affect the pace of divestitures or to shape other reforms, in particular, the new labor code. The Tripartite Council, which was to facilitate government-business-labor negotiations, proved a source of frustration to unions. They felt that the government treated the council, not as a forum where agreements could be hammered out, but as a rubber stamp for decisions already taken. Yet during the first decade of reforms, even ČSKOS’s threats of strikes and demonstrations did little to influence the process of reform implementation.

Mexico

As in the Czech Republic, in Mexico organized labor was unable to shape the process of privatization design and implementation. However, the interaction between organized labor and successive Mexican administrations was more complex. The labor movement was composed of official unions affiliated with the ruling Institutional Revolutionary Party (PRI) as well as independent unions. All the major official trade union confederations, the Mexican Labor Federation (CTM), Revolutionary Confederation of Workers and Peasants (CROC), and Regional Confederation of Mexican Workers (CROM), were organized under the umbrella of the Labor Congress (CT). Also belonging to the CT were a number of smaller federations and a few large industrial unions. There were also independent unions not affiliated with the PRI.

When the economic reform program began during the administration of Miguel de la Madrid (1982–88), the official unions were willing to back the government if it guaranteed adequate minimum wages. The willingness of the government to disregard that pledge was the first sign that the PRI was prepared to abandon its long alliance with organized labor as the former shifted economic policies.

Here too privatization of the public sector was at the center of the restructuring program. Despite the long and close relationship between the official labor unions and the ruling PRI, the administration of de la Madrid and that of Salinas (1988–94) did not consult the unions during the process of privatization design and, despite intense lobbying, the CTM was unable to ensure that provisions offering protection to employees of privatized companies would be included in the program.

Initially the CTM responded with caution and was unwilling to mount outright opposition to the program’s implementation. Some independent union organizations as well as official union locals did on occasion resist restructuring plans. However, the government was prepared to ignore such opposition and, if necessary, crush it. When the worsening economic situation led to increasing criticism from the lower levels of the official union hierarchy and from the rank and file, the CTM and CT took a more confrontational stance and demanded a rethinking of restructuring policies. This shift in official union position, however, did little to change government policies. Nevertheless, despite its inability to shape public sector reform policies, the CTM and CT, were never prepared to completely break their traditional alliance with the party and join forces with the independent unions.

Framing the Question

The ability of organized labor to influence and shape the process of privatization design and implementation thus varied across the four cases. However, the four cases differ significantly in their cultural, historical, regional, and political background. Additionally, during the first decade of economic restructuring programs, two cases remained under authoritarian rule, while two made a dramatic transition from authoritarianism to democracy. In particular, studies of both Central and Eastern Europe and of the Middle East have tended to present these regions as unique or even exceptional as a result of their particular sociocultural, religious, and political dynamics. In light of these differences, can we draw any broader conclusions about what factors shape organized labor’s ability to influence reform process?

Despite these differences, the struggles over the form of the new economic order playing out in Central and Eastern Europe, Latin America, the Middle East, and elsewhere stem from similar sources and are a response to similar pressures. In all these regions, deep economic crises and high levels of foreign debt forced these state-dominated economies to initiate market reforms. These structural adjustment policies had many similar features and posed a challenge to groups that had benefited from previous socioeconomic arrangements. By comparing the experiences of state-labor encounters we can thus gain a better understanding of the complex dynamics of social response to economic restructuring that are relevant across a wide range of cases. The choice of these four cases, which despite many differences shared a number of crucial similarities in the pre-reform period, allows for a systematic investigation of the factors that shape organized labor’s influence on economic change.

What are these crucial similarities? Prior to reform initiation, all four states were authoritarian ones in which the ruling party explicitly appealed to the working class for political support and promised revolutionary socioeconomic restructuring of the society. In all four cases, the ruling party sought to construct corporatist labor organizations with the dual goal of politically mobilizing labor in support of the ruling party while at the same time establishing firm control over unions and workers. While labor was expected not to challenge the state, in return for its political quiescence workers gained access to a whole host of subsidies and other privileges that resulted, at least for a time, in improved standards of living.

In the decades prior to the initiation of market reforms, all four countries pursued import-substitution policies, relying heavily on the public sector both as the driving force behind economic development and as a means of achieving other sociopolitical goals. All four faced a deepening economic crisis and began implementing structural adjustment programs. In all four, privatization of public sector enterprises was a central component of the reform agenda.

At the same time, while Egypt and Mexico initiated economic restructuring without transforming their political systems, Poland and the Czech Republic simultaneously embarked on market reforms and democratization. This case selection thus allows me to investigate whether and in what ways the legacies of the dynamics of state-labor relations persist over time and survive dramatic breaks with the past such as those that took place in Eastern Europe. It also permits a careful exploration of the extent to which historical legacies affect the patterns of labor influence during economic restructuring.

In other words, as the following section will further elaborate, our case selection allows for controlling for various explanatory variables that have often been central to explaining reform dynamics in the extant literature. For instance, there is no correlation between how labor is organized institutionally and its ability to shape and affect policies. Neither centralized nor fragmented trade unions are a good predictor of labor’s influence on public sector reform policies. The existence of technocratic teams also proves to be a poor predictor of organized labor’s ability to shape reform processes. Similarly, contrary to arguments in numerous studies of economic reform, political regime type is not a good explanatory variable for the observed variation. Among the cases analyzed here, there is no correlation between the nature of the political regime and the influence of labor organizations on privatization policies. In one democracy, the Czech Republic, organized labor’s demands were largely ignored during the design and implementation of the privatization program, while unions in the other democratic example, Poland, came to play a prominent role during both phases of the reform project. Similarly, in one authoritarian state, Mexico, organized labor was unable to influence the public sector reform program, whereas in the other, Egypt, organized labor was able to significantly shape both phases of the restructuring program. The age of the regime, also sometimes noted as an important variable explaining the level of interest group influence, does not correlate with the empirical evidence that emerges from these cases.

In other words, the nature of the regime does not significantly affect the ability of organized labor to influence reforms. This at first glance seems surprising. As will be discussed below, many analysts have argued that authoritarian regimes are more readily able to push through painful reforms because they can silence opposing voices more easily than is the case in democracies. Authoritarian regimes can resort to coercion and break up a strike; place union activists in jail; or even, in extreme cases, shoot and kill protesters without fear that they will have to pay for using repression and violence at the ballot box. Yet authoritarian regimes are sometimes very reluctant to resort to outright violence to quell the protests and ignore the demands of workers. Democratic governments, by contrast, sometime ignore popular protests and demonstrations and push through highly unpopular policies.

This does not mean that regime type is irrelevant. However, as these four cases will demonstrate, regime type matters in shaping strategies used by organized labor as it seeks to shape privatization program design and implementation. Strategies that are useful in a democratic context, for instance, lobbying parliamentarians, are less practical in an authoritarian system. How effective these different strategies are in influencing policy, however, seems to depend more on variables other than regime type. Specifically, the legal, financial, and experiential resources that organized labor acquired prior to reform initiation shape its ability to translate these different strategies into policy influence. By comparing states where authoritarianism has persisted with states that experienced a transition to democracy, I am better able to show how historically acquired resources can persist across even dramatic breaks with the past and shape policy dynamics.

Theoretical Approaches

One of the most important variables in the extant studies explaining interest group influence on economic policy making has been the regime type. The role political institutions play in shaping interest group influence has long been a matter of controversy. Many of the arguments marshaled during the debates between modernization theorists and those working within the bureaucratic authoritarianism tradition that took place in the 1960s and 1970s are reflected in contemporary studies. Modernization theorists posited that democracy and economic development were compatible with each other. Critics pointed out that democracy in fact posed numerous challenges to launching successful economic development because special interest groups and popular participation generated increasing demands on the state. The state, lacking adequate resources, could not satisfy these demands without sacrificing economic efficiency. These studies, drawing in particular on Latin American experiences, argued that authoritarian systems are more capable of undertaking ambitious development projects, thanks to their greater insulation from popular pressures. Democratic governments, however, are constrained by their need to win elections. They are therefore more likely to yield to political pressures from special interest groups and more hesitant to push through policies that may facilitate long-term economic growth, but undermine short-term electoral support. In other words, according to this approach, the ability of interest groups to influence policy making is directly linked to the regime type: in democracies interest groups will have a greater capacity to shape reform policies, whereas in authoritarian systems such influence is less likely to occur. These debates gained new currency as more countries began to initiate structural adjustment policies in the 1980s. The cases analyzed in this study, however, suggest that regime type provides at best an incomplete explanation.

As more democratic governments began to undertake economic restructuring, it became apparent that in fact democratically elected governments can impose heavy costs on their populations and still remain in power and, more important, continue policies that often hurt politically important social groups. This resilience of some democratic governments suggested that regime type may not be a fully satisfactory explanation of interest group influence on economic policy making. An alternative set of explanations looked to not just the regime type but also regime age. Some argue that consolidated democracies and authoritarian states have the ability to repress social demands and hence may have advantages in initiating economic reform programs. Newly established democracies, by contrast, face particular challenges, since they must simultaneously attempt to consolidate the new political system and initiate economic restructuring. Alternatively, others predict that newly established representative governments are likely to benefit from a honeymoon period, when large reservoirs of popular trust, support, and willingness on the part of the public to incur even substantial hardships means that few social groups will attempt to block the reforms being implemented.

These explanations of interest group influence, however, do not fully account for the patterns observed in the four cases examined here. Although the type of political regime in existence when reform began shaped the types of strategies labor organizations employed to press their claims, their ability to make their voice heard was influenced by variables other than regime type and age. While none of the four cases examined in this book qualified as consolidated democracies when reforms were initiated, the other anticipated variation between states does not hold. In one old authoritarian system (Mexico), labor found it extremely difficult to have much input into policy making, while in the other (Egypt), labor had substantial influence. Similarly, in one new democracy (the Czech Republic), trade unions were unable to influence the privatization program, while in the other (Poland), their input was considerable.

Other studies suggest that it is the internal characteristics of a state rather than political regime type that accounts for the differences in the ability of governments to push through reforms without interest group influence. In this view, the cohesion and autonomy of the state are crucial variables affecting restructuring processes and the role that social actors come to play. Especially significant, and signaling autonomous state decision making, is the existence of change teams, insulated from popular pressures and with the bureaucratic capacity to push through the measures that shape the process of economic reform implementation. Such change teams are seen as indispensable to reform promotion, since they are composed of people who possess technical knowledge about the restructuring process and are not beholden to or dependent on old political patronage networks. Advocates of the so-called shock therapy approach to economic restructuring, in particular, have emphasized the importance of technocratic teams, fully committed to reforms. As Sachs has pointedly noted, “In times of crisis there simply is no consensus to build upon, only confusion, anxiety, and a cacophony of conflicting opinions. . . . The reform team must make its reforms an accomplished fact.” Similarly, Balcerowicz, both a theoretician and a practitioner of this approach, has argued that change teams, working far away from the political limelight, must make use of the period of extraordinary politics that frequently exists at the beginning of the reform process and, swiftly, without engaging in much political debates, initiate reforms. Moments of political transition when a new political elite comes to power may thus be a particularly auspicious time for pushing through reforms without interest group interference.

From this perspective, the existence of change teams not only makes interest group influence on policy making less likely, but such lack of influence is unambiguously seen as essential to successful reform process. Although change teams may indeed facilitate state autonomy from interest group pressures in some instances, the cases examined in this book suggest that such teams are at best a necessary but not sufficient condition for blocking interest group influence on policy making. The Polish case in particular suggests that the existence of a technocratic change team in itself does not block interest groups from being able to shape the reform process.

Analyses of structural adjustment and economic globalization have also explored how these processes have affected organized labor. A mixed picture emerges from these studies. In the view of some analysts, organized labor is no longer the powerful social, economic, and political force it once was and is unlikely to again reclaim its position. According to the pessimists, a nearly perfect storm has permanently weakened unions. On the one hand, structural adjustment policies have targeted the bastion of union strength, the public enterprise sector, and have shifted winning political coalitions toward the business sector and away from labor. On the other, changes associated with globalization appear to have further undermined the power of organized labor. Others, however, are less pessimistic both about how organized labor has fared in the changed economic environment and about what its future is likely to be.

For the pessimists, two distinct, albeit interrelated, changes associated with globalization have had a profoundly negative impact on this social group. First, the emergence of truly global multinational corporations, the segmentation of production, and the just-in-time production process have combined to create an increasingly integrated global economy, thus heightening competition between workers in different locales. Corporations can now use the threat of moving production elsewhere, thereby undermining labor’s bargaining power. Workers across cases have been caught in a relentless “race to the bottom” of lower wages, lower social spending, and less worker-friendly market regulations. Second, many analysts contend that globalization processes have been weakening state sovereignty, thus reducing the scope of economic decision making available to national governments. This has led to the convergence of macroeconomic policies that favor business over labor interests. The pressure toward policy convergence is especially acute in developing countries that have been saddled with foreign debt, which further reduces state decision making autonomy. Many students of East European transitions are among the most pessimistic about organized labor’s ability to continue playing a significant role in the contemporary era. Among the telling signs of labor’s weakening in this view are dwindling union membership rolls, the decline in the number of labor disputes and strikes, the move away from manufacturing and the growth of the service sector, and the shrinking of enterprise size. As posited by the pessimists, we should expect to see a uniform lack of organized labor’s influence on policy making. Yet there is great variation in the four cases examined in this study.

Not all studies of how organized labor has responded to and been affected by the processes of globalization and marketization have been so pessimistic. A number of analyses suggest that social groups, including organized labor, have reacted to these changes in more complex ways. Such studies maintain that the structure of domestic-level institutions and political struggles at the local level continue to influence the shape of macroeconomic, regulatory, tax, and other policies.

Various institutional factors emerge from these studies as playing a particularly significant role in shaping labor’s response to economic restructuring. For instance, Murillo argues that the ability of labor organizations to affect policy reform varies both across countries and across sectors within countries, depending on “incentives created by partisan loyalties, partisan competition and union competition.” Levitsky and Way note that “the strength of the government party, level of union competition, organizational overlap and autonomy of union leaders from party-controlled resources and the rank and file” accounts for government-labor cooperation. In a similar vein, Bellin argues that key to understanding labor response is its dependence, both political and financial, on the state as well as the degree of organized labor’s aristocratic position within broader society. Burgess sees the explanation for the variation in union support for government policy in the ability of affiliated party leaders to punish disloyal unionists and the degree to which there is a strategic contradiction between loyalty to the party and loyalty to workers among union leaders and locates the sources of variation in union responses in the costs imposed on them by political leadership. Depending on the distribution of these costs, union leaders may choose exit, voice, or loyalty strategies. Alexander, by contrast, points to workplace institutions as the crucial explanatory variable of effective labor mobilization when confronted by privatization. Finally, Pripstein Posusney argues that workers will oppose government policies when they perceive them as breaking the social contract.

The present study builds on the insights of these recent works on organized labor responses to economic restructuring, which point us in the direction of domestic-level institutions as key variables to understanding how and with what consequences for state-society relationships international economic pressures are translated into the local context. Pripstein Posusney’s analysis alerts us to the central fact that the existence of corporatist labor institutions should not be equated with organized labor’s inability to shape policies. Studies by Murillo and Burgess provide valuable explanations of particular strategies that organized labor chooses when confronted with market reforms. Murillo goes further and also explores under what conditions these strategies are effective in extracting concessions from the state. However, she sees historical legacies primarily in terms of organized labor’s dependence on the ruling parties and how that dependence shapes union and partisan competition. By downplaying other resources that organized labor can draw upon as it seeks to influence policies, this model overestimates the extent to which both kinds of competition weaken labor and lead to “resistance” or “unsuccessful militancy.” Polish coal mining unions, for instance, despite high levels of partisan and union competition, retained their ability to affect sectoral restructuring policies. As we shall see, this capacity was a result of resources that organized labor acquired in the pre-reform period.

Furthermore, both Murillo and Burgess limit their analysis to cases where market reforms are initiated by parties with institutional links to organized labor and where the initiation of neoliberal reforms puts strains on these relationships. But in many countries changes in either the regime type or governing party preceded the initiation of market reforms. In this study I explore two questions left unanswered by Burgess and Murillo: First, how does organized labor that used to benefit from a close relationship with a ruling party react to structural adjustment in cases in which the regime has changed? Are these responses different from those of organized labor in which labor-based parties have retained power, and if so how? Second, and more important, are there significant differences in whether organized labor can influence economic reform measures between cases where labor-based parties retained power and where political transitions occurred?

To answer these questions, I emphasize the importance of resources that organized labor can draw upon as it confronts a state undertaking structural reforms. Levitsky, Way, and Bellin note the importance of fiscal autonomy in explaining organized labor’s ability to influence policy reform. In addition to fiscal autonomy from the state I highlight the importance of two other resources in shaping labor’s ability to affect reform policies—legal prerogatives that organized labor had won prior to reform initiation and experiential resources gained from past contentious encounters with the state.

The book is organized as follows: In the following chapter I develop the theoretical framework of the study and explore the linkage between the conflicts over economic restructuring between states and organized labor with the historical patterns of state-labor interaction. Chapter 2 traces the internal dynamics within the Communist parties in Czechoslovakia and Poland from their creation following World War II and the transition to democracy and explores how the differences in these dynamics affected the ruling parties’ relationship with organized labor and shaped the types of resources that labor was able to acquire in the decades prior to reform initiation. Chapter 3 explores these dynamics within the ruling parties in Egypt and Mexico and examines how they affected the parties’ relationship with organized labor. Chapters 4, 5, and 6 examine how organized labor in the four cases sought to influence the process of privatization design and implementation during the first decade of reforms. Here I focus both on the strategies that organized labor used in attempting to shape the two phases of the reform process as well as on the degree of success of these strategies. In these chapters I explore how the resources that organized labor had at its disposal when governments in the four cases initiated market reforms influenced their ability to shape privatization policies. I also link the financial, legal, and experiential resources available to organized labor when economic restructuring commenced to the pre-reform dynamics of state-labor relationship analyzed in Chapters 2 and 3. Finally, the Conclusion revisits the main themes discussed in the previous chapters. Here I also briefly explore the continuing institutional changes of the following decade of reforms. Finally, I discuss the implications of this study for understanding patterns of state-society interaction as well as institutional change.