State, Labor, and the Transition to a Market Economy - Agnieszka Paczyńska

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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 Egypt, Poland, 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 than 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

      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.

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