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

as Chapters 4, 5, and 6 will examine in detail, organized labor, although clearly concerned by many of the restructuring proposals, did not always see itself as just a loser of the reform effort during the first years of restructuring programs. Unions were often keen to address the deep economic crisis, since it negatively affected its rank and file. For example, reform measures aimed at bringing high inflation rates under control met with a positive response from labor. Additionally, unions in state-dominated economies often were well aware that public sector firms were inefficient, corrupt, dysfunctional, and in need of restructuring. A popular Polish saying from the pre-reform period, “We pretend to work, they pretend to pay us,” indicated worker dissatisfaction with the condition of public sector enterprises. They were therefore sometimes willing to consider modifying rather than outright rejecting proposals to reform the public sector.⁶

The fourth reason that the expected and actual behavior of unions differed is that in cases where unions are engaged in a political struggle to displace an authoritarian state, they may well support privatization of the public sector as part of their oppositional political program. In other words, if an authoritarian state supports retaining control over enterprises, opposition unions may well support selling state firms as a way to undercut the power of the authoritarian political elite.⁷ The fact that over the long term many of the policies initially supported by organized labor resulted in a deterioration of workers’ standards of living and employment prospects should not lead us to conclude that organized labor was unable to shape reform strategies.

       Evolution of Corporatist Labor Organizations

      Unions employ different strategies to translate their interest in public sector reforms into policy influence. Sometimes these strategies prove successful; sometimes they are ineffective. How can we account for this variation in patterns of labor influence? As discussed in the preceding chapter, many accounts of interest groups’ ability to influence policy making in periods of reform and of labor’s reaction to economic restructuring provide useful insights into these complex transition processes. However, a fuller picture of the variation in labor influence on policy making during the design and implementation of economic restructuring programs is possible if the resources available to labor organizations when the reforms are commenced are more centrally incorporated into the analysis. Particularly important are legal prerogatives won by organized labor prior to reform initiation, financial autonomy from the state, and experience of successful past confrontations with the state. Whether these resources are available to organized labor depends on its relationship with the state during the pre-reform period.

      Despite numerous differences between the four cases, they share a number of characteristics that makes comparative analysis fruitful. Most important, in the decades preceding the initiation of economic restructuring, all four were states in which the ruling parties looked to labor groups as one of their main pillars of political support. To harness that support and to ensure regime control over politically mobilized labor, these states created corporatist labor institutions.

      In this study, I define ruling-party states as authoritarian political systems in which one political party serves as a tool of governance. While other political parties may be present, they tend to be small, repressed, and not allowed to challenge the ruling party’s hegemony. Corporatist labor organizations are defined here as labor associations organized by the state, functioning under state supervision, and financed by the state. Their primary function, unlike that of other types of trade unions, is not the representation and promotion of workers’ interests but rather the political mobilization and control of labor and support of state policies. In exchange for this political submission to the party-state and loss of autonomy and independence, labor received access to material benefits that ensured its privileged position within the domestic economy.

Many studies of corporatism suggest that such arrangements generally result in the subordination of the working class to the state. The centralization and hierarchical structure of labor federations and the tight control that the state exercises over nominations to union leadership positions and trade union finances make organized labor unable to mount effective action in opposition to the party-state.⁸ The dependence of union leadership on the party-state for finances and career advancement, furthermore, isolates them from the rank and file, thereby redirecting their loyalties away from the workers they nominally represent and toward the party-state.

However, as Stepan points out, maintaining a corporatist system can be difficult.⁹ Corporatist labor institutions do not always function as originally designed by the ruling elite. In some cases, during the pre-reform period the ruling parties succeeded in constructing and maintaining corporatist labor institutions in a subordinate position to the state. In these circumstances, corporatist institutions continued to perform their original functions and organized labor lacked the ability and resources to act as an autonomous interest group. In other cases, state control over corporatist labor organizations gradually weakened. Over time, organized labor extracted concessions from the state, concessions that gave unions the ability to act independently from the state. Thus, the balance of power between the state and labor groups may shift, thereby fundamentally changing the relationship between the two.

      Substantive and Procedural Concessions

In the four cases examined in this study, corporatist labor institutions continued to perform their original functions in Mexico and Czechoslovakia.¹⁰ However, in Poland and Egypt, ruling party control over these institutions gradually weakened, and organized labor succeeded in carving out ever greater autonomy from the state. More important, the types of concessions that the ruling parties were forced to make changed over time in the latter two cases. The types of concessions that organized labor extracted from the state can be divided into two categories. The state may offer organized labor substantive concessions, which include assorted material resources. Especially common are wage increases; expanded benefits packages, including health, pension, recreation and education benefits; housing and child care support; and subsidies on consumer goods. The other type of concessions is procedural, granting organized labor rights and privileges that allow it to have a voice in the management of state firms and in national policy debates on decisions affecting labor. Although both types of concessions are extended by the state in response to labor mobilization and protest, the long-term consequences of these concessions are different.

      In cases such as Egypt and Poland, where corporatist labor institutions weakened over time, we can discern a particular pattern in the interactions between organized labor and the state. The state first responded to labor demands by extending substantive concessions. Although these had budgetary implications, they did not affect the overall balance of power between organized labor and the state. The higher wages, more attractive benefits packages, or additional consumer subsidies tended to defuse worker mobilization and protest, thus restoring social stability and maintaining labor within the ruling party’s support coalition. However, over time recurring economic crises depleted the regime’s resources. Consequently, the party had fewer material goods to offer organized labor as payment for the latter’s continued political support. These financially strapped regimes had few alternatives but to offer organized labor procedural concessions, which were attractive when material resources were scarce, since they did not have an immediate economic price. Thus, by offering these procedural concessions the ruling party could silence labor opposition without incurring significant costs. In most cases, once the immediate crisis was over, the ruling party attempted to rescind the concessions by offering pay increases or other substantive benefits. This kind of an exchange, however, did not always succeed and many procedural concessions remained in place.

      Although they were