Globalizing Employment Relations: Multinational Firms and Central and Eastern Europe Transitions

Globalizing Employment Relations

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Globalizing Employment Relations Multinational Firms and Central and Eastern Europe Transitions Edited by

Sylvie Contrepois Violaine Delteil Patrick Dieuaide and

Steve Jefferys

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Selection and editorial content © Sylvie Contrepois, Violaine Delteil, Patrick Dieuaide and Steve Jefferys 2011 Individual chapters © the contributors 2011 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6-10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2011 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN 978–0–230–25243–1 hardback This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress. 10 9 8 7 6 5 4 3 2 1 20 19 18 17 16 15 14 13 12 11 Printed and bound in Great Britain by CPI Antony Rowe, Chippenham and Eastbourne

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Contents List of Tables and Figures

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Author Details

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Globalizing Employment Relations and Crisis: Multinational Companies and Central and Eastern European Transitions and Transfers Sylvie Contrepois, Violaine Delteil, Patrick Dieuaide and Steve Jefferys

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Part I Foreign Direct Investment, Multinationals and Employment Relations Transfers 1 US Multinationals and Collective Representation in European Subsidiaries: Institutional Resistance and Accommodation Anthony Ferner 2 The Social Transfers of Multinationals in Central Europe: British, US, Austrian and German Experiences Reviewed Guglielmo Meardi, Sonja Strohmer and Franz Traxler 3 Manufacturing and Services FDI Trajectories: Colonial Perceptions and Union Opportunities in Central and Eastern Europe Steve Jefferys

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Part II Employment Relations in Different Sectors in Central and Eastern Europe 4 Surviving the Global Financial Crisis: Automobiles and Finance in Central and Eastern Europe Sylvie Contrepois, Violaine Delteil, Patrick Dieuaide and Steve Jefferys

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5 MNCs, Human Resource Management and Social Dialogue in the Central and Eastern European Food Industry Patrick Dieuaide

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6 Exporting the German Work Model to Central and Eastern Europe Martin Krzywdzinski

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Part III Multinationals and Host Countries in the Crisis 7 Employment Relations and the Opening Up to MNCs in Hungary Jen˝ o Koltay

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8 How French Are French MNCs in Hungary? A Comparison of Two Service Sector Firms Linda Szabó and Viola Zentai

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9 MNCs and the Transformation of Bulgarian Employment Relations Zhelyu Vladimirov

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10 Polish Employment Relations Under the Challenge of French Foreign Direct Investment Anna Kwiatkiewicz

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11 Industrial Relations and Social Dialogue in the Baltic States – Crisis, Conflict and Compromise Charles Woolfson, Epp Kallaste and Janis Berzins

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Part IV European Social Integration, MNCs and Change 12 Internationalizing Firms and Employee Representation: French Multinationals in Central and Eastern Europe Sylvie Contrepois

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13 Central and Eastern European Social Models and the Challenge of Change Violaine Delteil

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14 Is Central and Eastern Europe a Laboratory for New Forms of Employment Relations? Guy Groux

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Index

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List of Tables and Figures Tables 2.1 MNCs in the Czech Republic: intensity of transfers in the area of HR, IR and other areas and HR coordination 3.1 FDI and Greenfield sites in Central and Eastern Europe, 2006–08, ranked by annual average FDI 3.2 CEE10 Trade Unionisms, 2007–08 (ranked by trade union density) 3.3 Employment shares (%) of Goods and Service Sectors, 1975–2005 3.4 Brownfield and Greenfield investments and employee representation ranked in eight French service sector MNCs, 2006–08 4.1 Percentage change in real Gross Domestic Product in six CEE economies, 2006–10 4.2 Unemployment rate as a per cent of total labour force in ten CEE economies, 2004–09 5.1 Shareholder- and family-owned French food MNCs compared 5.2 The employment relations models used in CEE subsidiaries of French MNCs 10.1 Contractual and working arrangements in Poland and selected EU members (2008) 12.1 Eight French multinationals in three countries 12.2 Selected industrial relations features of MNC subsidiaries in Bulgaria, Hungary and Poland influenced by a compartmental approach 12.3 Selected industrial relations features of MNC subsidiaries in Bulgaria, Hungary and Poland influenced by an integration approach

38 46 54 55

59 67 67 87 94 167 204

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Figures 3.1 Economic development and foreign direct investment 3.2 CEE gross domestic product in purchasing power standards compared to the EU27 average, 1997–2008 3.3 Unemployment in the CEE10 and the EU15, 1996–2009 3.4 Union density rates in the CEE and the EU, 1960–2005 vii

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4.1 Numbers of foreign-owned banks in Poland, Bulgaria and Hungary, 1991–2008 4.2 Changes in Hungarian financial asset ownership (per cent) by state-owned or foreign-owned banks, 1991–2008 4.3 Changes in Polish financial asset ownership (per cent) by state-owned or foreign-owned banks, 1993–2008 4.4 Changes in Bulgarian financial asset ownership (per cent) by state-owned or foreign-owned banks, 1996–2008 4.5 Finance and business employment as a per cent of total employment, in the EU15, EU10 (2004 accession countries) and in Poland, the Czech Republic and Hungary, 1992–2005 4.6 Central and Eastern European car production, 2000–08 4.7 Jobs in the European car industry (000s) 11.1 Real GDP growth rate, EU, Estonia, Latvia and Lithuania, 2000–10

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71 76 76 180

Author Details

Berzins, Janis Lecturer in International Political Economy at Riga Stradins University’s Faculty of European Studies in Latvia. Janis’s research is on development problems and the role of ideology in economic policy. Contrepois, Sylvie Senior researcher at London Metropolitan University’s Working Lives Research Institute and member of the CRESPPA-GTM CNRS (National Centre of Scientific Research) institute in France. Sylvie is the author of Syndicats, la nouvelle donne: Enquête au Coeur d’un bassin industriel et ouvrier (2003). Delteil, Violaine Director of the Department of European Studies, University Paris 3 Sorbonne Nouvelle and Assistant Professor in Economics. Author of various articles on European integration and European industrial relations. Dieuaide, Patrick Senior Lecturer, Sorbonne Nouvelle University Paris 3, member of ICEE-Paris 3, and Researcher associated with ENSTA-ParisTech. Author of numerous articles and research papers on the transformations of the work, the strategy of firms and social relationships. Ferner, Anthony Professor of International Human Resource Management at De Montfort University, his main research is on employment practices in multinationals. His books include (co-edited with Phil Almond) American Multinationals in Europe (2006), and (co-edited with Javier Quintanilla and Carlos Sánchez-Runde), Multinationals, Institutions and the Construction of Transnational Practice (2006). Groux, Guy Research Director at CNRS and Sciences Po-Paris. He teaches at Sciences Po-Paris and ESCP-Europe (European School of Management) and is the author of numerous books and articles about trade unions in France and Europe including La Grève (with Jean-Marie Pernot) in 2008. Jefferys, Steve Director of London Metropolitan University’s Working Lives Research Institute and Professor of European Employment Studies, Steve is the author of Management, Work and Welfare in Western Europe: An Historical and Contemporary Analysis (2000) with Mick Carpenter, and of ix

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Liberté, Egalité and Fraternité at Work: Changing French Employment Relations and Management (2003). Kallaste, Epp Current leader of Estonian Centre for Applied Research CentAR, and Ph.D. Student in Economics at the University of Tartu. She has been involved with industrial relations analysis in Estonia since 2008. Koltay, Jen˝ o Research Director at the Institute of Economics in the Hungarian Academcy of Sciences and Professor of Economics at Pannon University, Jeno is the author and editor, with L. Neumann, of Industrial Relations in Hungary (2006) and, with M. Jackson and W. Biesbrouck, of Unemployment and Evolving Labor Markets in Central and Eastern Europe (1995). Krzywdzinski, Martin Researcher in the research group ‘Knowledge, Production Systems, and Work’ at the Wissenschaftszentrum Berlin (WZB Research Centre), Martin is co-author, with Ulrich Jürgens, of Die neue OstWest-Arbeitsteilung. Arbeitsmodelle und industrielle Beziehungen in der europäischen Automobilindustrie (2010). Kwiatkiewicz, Anna Associate Professor at Warsaw School of Economics, Human Resources Management Department and Associate Director at BPI Polska, Employment and Social Affairs Department. Anna is the author of articles for Social Dialogue, the social partners’ quarterly and of Ustawiczne kształcenia zawodowe w krajach Unii Europejskiej (2006). Meardi, Guglielmo Reader of Industrial Relations at Warwick Business School, Guglielmo is author of Where Workers Vote with Their Feet: Social Failures of EU Enlargement (2010). Strohmer, Sonja Senior Consultant at INSET Research & Advisory. Previously, Sonja was employed as a research assistant at the Department of Industrial Sociology at the University of Vienna and authored Czech Employers’ Associations and the Social Dialogue: The Effects of the Czech EU Accession. Saarbruecken (2008). Szabó, Linda Researcher at the Center for Policy Studies of Central European University (CEU), Budapest, Hungary, and a PhD candidate in Sociology and Social Anthropology. Linda has been editing the Hungarian social scientific journal of Replika since 2006. Traxler, Franz Professor and Director of the Department of Industrial Sociology at the University of Vienna until his death in January 2010, Franz Traxler published extensively on economic sociology and European industrial relations.

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Vladimirov, Zhelyu Associate Professor at the Faculty of Economics and Business at the Sofia University St Kliment Ohridski, Zhelyu is the author of Cultural Legacy against Democracy and Market (Bulgaria since 1989–1999) and joint editor of Sustainable Development in Transition Economies: Recovering Economic Flows (2003). Woolfson, Charles Before taking up his current position in 2010 as Professor of Labour Studies at Linköping University’s REMESO (Institute for Research on Migration, Ethnicity and Society), Charles held a Marie Curie chair, living and working in the Baltic states for the previous decade. Zentai, Viola Director of the Center for Policy Studies at the Central European University (CEU), Budapest, Hungary, Viola teaches cultural anthropology and policy studies at the university and is the co-editor, with Janos Kovacs M., of Capitalism from the Outside? Economic Cultures in Eastern Europe after 1989 (2010).

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Globalizing Employment Relations and Crisis: Multinational Companies and Central and Eastern European Transitions and Transfers Sylvie Contrepois, Violaine Delteil, Patrick Dieuaide and Steve Jefferys

The 1990s witnessed the conjuncture of two major economic events: the financialization of global capitalism and the entry of this new, highly mobile capitalism into the Central and Eastern Europe command economies. Central and Eastern Europe (CEE) experienced an unprecedented rapid explosion of inward foreign direct investment (FDI), whose associated risks were lowered significantly by the 2004 and 2007 European Union (EU) accessions of first eight and then two more of the former communist states. Hundreds and then thousands of multinational corporations thus invested in the region either to take advantages of its highly skilled but low-cost labour supply or to position themselves to take advantage of opportunities (many created by massive privatizations) to access rapidly growing local markets. The spectacular growth of FDI supported an equally rapid economic catch-up process. The CEE economies restructured dramatically away from heavy industry and agriculture towards services and industries based on medium- or high-level technologies; much existing manufacturing was modernized and extensive technology transfers took place on a massive scale. This huge contribution of foreign-owned multinationals towards the transition and subsequent high growth rates of CEEs stimulated a considerable debate about the employment relations or social models that accompanied these MNC investments. Would the MNCs be tempted to export their own country-of-origin social models and – in a region with relatively new and potentially malleable employment systems and institutions – to try and influence the national systems of employment relations in the host countries where they were investing? Would their transfer of contemporary ‘Western’ human resource management (HRM) methods and of ‘best practices’ operating successfully in their countries of origin effectively ‘modernize’ CEE social models? Would the MNCs use the opportunity of lower wages and often lower levels of worker and social protection in CEE to undercut wages and 1

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conditions of workers in their countries of origin through ‘social dumping’? Or would the path-dependency of each individual CEE country, each with its own legacy from the communist era, and its distinctive institutional and cultural particularities and economic context, ensure conformity by inward investing MNCs to a wide variety of social models? Throughout most of CEE, however, the extent of pressure by host-country institutions on MNC subsidiaries was quite weak. While there were some variations, their overall trajectories followed the line spelt out first by the Washington Consensus whereby they should be ‘re-educated’ from the communist framework as rapidly as possible, and then by the European Union, which required they adopt the 31 chapters making up the basic rights and duties of EU membership. In reality, for CEE the 1990s and 2000s were decades of a totally unexpected kind in terms of changes in employment regulation. For the predominant structuring of employment systems at individual nation-state level was beginning to be challenged everywhere by globalization and, in particular, by the new exceptional degree of capital mobility. This strengthened the employers as a class, but also encouraged increased international competition between both capitalists and capitalisms. As a consequence, not only did trade union membership come under pressure, but at the same time, at first in external-facing industries and then in internal ones too, collective bargaining, where it continued to exist, shifted to local workplace level, where workers were often at their weakest. Associated changes were a weakening of many employee rights and a much greater flexibility in working time, payment systems and other working conditions. This evolving context directly raised other questions for the latest entrants in CEE. What is the role of FDI and of firm strategies in shaping their employment regulations and practices? How have workers, trade unions and governments responded? Will it be possible to integrate the growing variety of firm-level employment systems within the construction of a broad European employment rights and regulatory system – the European social model? The current book tries to provide answers to these different questions. Bringing together researchers from economics, sociology, industrial relations and management, the contributions provide an original and detailed study of the changing forms of industrial relations in CEE. Globalizing Employment Relations is divided into four parts. In Part I it introduces the global context and debates about the transfers of HRM policies and then focusses in on Central and Eastern Europe. The contribution by Ferner (Chapter 1) provides important insights into the practices of American MNCs based within the EU15. He shows there is no such thing as a simple ‘anti-union’ US model, and that social transfers are usually partial, with firm strategies being negotiated or adjusted in relation to the balance of forces that exist at any one time – and in particular

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between the central US HQ staff, the local management and host-country government representatives. Meardi, Strohmer and Traxler (Chapter 2) also develop the argument of a partial transfer. Basing their chapter on two major company surveys, the authors argue that while a few German MNCs (essentially in the car industry) take a ‘high road’ in terms of transferring strong social rights, most do not. They further note that the differences in CEE between German and American strategies when implementing policies aimed at the participation and representation of workers appear minimal. Jefferys (Chapter 3) stresses the role of FDI in economic growth across CEE and catalogues some of the related issues: a sense of FDI representing a new form of colonialism, the collapse of trade union membership, the destruction of manufacturing jobs and the creation of jobs in the service sector. He also argues the importance of understanding the different impacts of Greenfield or Brownfield investments, where the latter appear much more favourable contexts for the continuation of formal employer–trade union bargaining. Part II groups three contributions concerned with industrial relations from a sectoral perspective. What impact does FDI have on particular industries? Here three key industries are examined, banking, food and automobile, and an assessment is made of the impact on them of the global crisis. The joint chapter by Contrepois, Delteil, Dieuaide and Jefferys (Chapter 4) emphasizes the vulnerability to the 2008 economic crisis of the two sectors that have had the most FDI, which has led CEE economic growth: the finance and automobile industries. Highly dependent on Western European markets, and largely financed by loans, the authors show how the CEE economies have also experienced highly imbalanced growth. At the same time, the responses to the crisis have varied between these sectors. In finance, the crisis showed the high degree of dependence of the banks on foreign capital. In the case of the auto industry the crisis suggested that CEE employment and activity levels depended upon EU15 government policies such as the presence of scrappage schemes. In Dieuaide’s study of Danone and Bongrain (Chapter 5) the role of governance structures (semi-public, fully quoted or family ownership) and firm culture (such as the presence of paternalism or professional HRM) are emphasized as influences on the partial or total absence of social transfers to CEE. Krzywdzinski (Chapter 6) presents an account of the transfer and transfer limits of Volkswagen’s employment relations culture to CEE. The author suggests the importance of the impact of co-determination and a ‘German’ approach to recruitment in partially shaping relationships in CEE subsidiaries. Part III examines the impact of MNCs and of the economic crisis on industrial relations in six CEE countries.

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Developing an overview of industrial relations in Hungary, Koltay (Chapter 7) presents a very critical assessment of the changes taking place. The trade unions are marginalized and open conflict is in free fall, leaving industrial relations largely informal and negotiation almost entirely at individual level. This context is confirmed through Szabó and Zentai’s (Chapter 8) comparison of two French MNCs operating in Hungary. In both the EDF and Accor subsidiaries, the host country’s influence was not felt in the implementation of any specific aspects of the French social model, but it did appear to have had a strong effect on employee representatives’ views of their duties and obligations. The evolution of Bulgarian industrial relations in face of FDI is the focus of Vladimirov’s Chapter 9. He criticizes the lack of ambition on the part of French MNCs like Société Générale and BNP Paribas to modernize their employment relations in Bulgaria: the picture was one of little or no collective bargaining, a very low level of remuneration for high levels of responsibility and very, very weak trade unions. In Poland, Kwiatkiewicz (Chapter 10) finds a not dissimilar picture. While French MNCs like Auchan and Carrefour benefit from local policies aiming at attracting FDI, they tend to establish wage levels and social benefits only slightly above the Polish average, and only rarely and flexibly implement policies identified with the French social model. For Woolfson, Kallaste and Berzins (Chapter 11) writing on the Baltic states of Estonia, Latvia and Lithuania, the pace and depth of the 2008 global crisis was salutary. When important sacrifices were demanded of workers to help stabilize their economies, the consultative national-level social pacts that had appeared to work well in an earlier period of growth were dramatically abandoned. For the first time since the transition, the unions responded by organizing angry public protests. Part IV presents three more general chapters offering broader reflections about the impact of MNC strategies on the Europeanization of industrial relations. Building on fieldwork conducted in service sector MNCs in CEE, Contrepois (Chapter 12) distinguishes two main approaches to the management of international-level employment relations: one is ‘compartmental’ – each CEE subsidiary is kept more or less separate and develops their own employment policies based almost entirely on local host-country norms; the other approach is more ‘integrated’ – there is a stronger sense of experiencing a similar management strategy where participation in European Works Councils (EWCs) is used to help strengthen company culture. The ambiguity of this last approach is that in providing significantly greater resources to the EWCs – which has happened in companies like EDF and AXA, in comparison to the compartmentalized firms – the strategy also provides trade unions with greater opportunities (and challenges) to develop their own internationalism.

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Delteil (Chapter 13) focusses on several key features of the varieties of employment relations systems in CEE. The author demonstrates the presence of active, but minimalist, welfare regimes; of highly fragmented and weakly regulated national labour markets; and of the managerial hegemony over industrial relations. These strong tendencies allow the author to develop a threefold classification of the CEE10: ‘liberal’ economies (the Baltic states), ‘coordinated’ economies (Slovenia, and to a lesser degree Romania) and ‘hybrid’ economies (the rest), which reflect a combination of the other two models. Finally, Groux (Chapter 14) finds that the MNC host-country strategies are increasingly moving away from the European traditions of social and Christian democracy that marked the history of employment relations in Western Europe. Using a comparative approach the author then challenges the argument that the CEE employment systems are becoming ‘ultra liberal’; rather, they are being used as an laboratory to test the new forms and practices associated with the emerging ‘managerial social dialogue’. The editors of the collection owe a great deal to the inspiration of Marie Wierink, whose initial idea it was to extend the realm of research into employment relations in Central and Eastern Europe to include the role of French multinational companies. Many of the chapters arise, therefore, out of the research she commissioned on behalf of the French Ministry of Labour. The collection as a whole suggests that there is much that is still to be debated as to the new paths being taken in terms of employment regulation, rights and systems in Central and Eastern Europe. It also suggests that these paths will be contested.

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Part I Foreign Direct Investment, Multinationals and Employment Relations Transfers

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1 US Multinationals and Collective Representation in European Subsidiaries: Institutional Resistance and Accommodation Anthony Ferner

1. Introduction This chapter examines how US multinational companies (MNCs) manage the issue of collective employee representation in their European subsidiaries. The focus is on the transfer of practices between different national-institutional ‘terrains’. These questions matter. In this era of (albeit sometimes stuttering) US political, military and economic hegemony, American MNCs are undeniably important actors. In 2007 there were 20 US firms in the top 100 non-financial transnationals (UNCTAD, 2009: 225); though significantly down from the early 1990s, this was still by some way the largest single country group. The 20 US firms in the UNCTAD top 100 list alone employed over 2 million people outside the US. In many countries of Europe, including the four European countries reported on in this chapter, US firms dominate foreign investment in terms of the number of companies and the volume of local employment. They are the most important actors in a range of sectors which, depending on the country, include automotive, IT, chemicals, pharmaceuticals and healthcare, logistics and business services. The status of US firms as the standard-bearers of US global economic dominance raises important questions about the scope for capitalist variety. Does US hegemony mean that American MNCs provide the template of practices, in employment relations as in other areas, which other countries’ firms will be forced by the pressures of global competition to adopt? Or is the American ‘model’ more susceptible to host resistance or adaptation than much of the literature, particularly in the field of international business, tends to assume? And does the nature of the host environment make a difference to the nature and extent of the transfer? In short, transfer within US MNCs is important because of the insights it throws up on the scope for national business systems to pursue divergent paths within a context of increasingly 9

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global capitalist competition. These questions are important for Central and Eastern Europe (CEE) as the countries of the region attempt to consolidate new institutional arrangements for organizing economic activity. The argument of the chapter draws on and synthesizes research findings from two projects. The first, based on qualitative case studies of more than a dozen US MNCs (Almond and Ferner, 2006), examined how employment practices and human resources were addressed in US subsidiaries operating in the four contrasting institutional contexts of the UK, Germany, Ireland and Spain. A principal question was how far any American influence was moderated by the constraints – and opportunities – of diverse host environments (for details of the methodology of the project, see Almond and Ferner 2006: 291–9; Butler et al., 2006).1 The second project is a major representative survey of MNCs in the UK (Edwards P. et al., 2006; see Edwards, T. et al., 2007 for details of methodology).2 The survey covered four areas of employment practice: pay and performance, training and development, involvement and participation, and representation and consultation. In addition, it collected information on the international HR function, the international integration of operations and international organizational structure. Over two-fifths of the 302 responses were from subsidiaries of US MNCs. Parallel surveys using comparable survey instruments have been carried out in several other countries, including Canada (Bélanger et al., 2006), Ireland (Gunnigle et al., 2007) and Spain.3 The next section of the chapter discusses the issue of the transfer of employment practices between different institutional domains through the operations of MNCs. The third section reports on findings concerning the transfer of practices in relation to employee representation and collective bargaining. The conclusion examines the wider implications for the ‘travel’ of practices between different institutional domains in the context of US economic hegemony, and the significance of the findings for CEE hosts.

2. The transfer of practices The transfer of practices4 by MNCs between countries can be conceptualized along two basic dimensions: the interest of firms in transferring practices, and their ability to do so – or, in simple terms, motive and opportunity. Writers such as Meardi and Tóth (2006) have criticized some accounts of transfer on the grounds that they assume that transfer will take place. In reality, MNCs may have little interest in transferring practices. Employment practices that are functional for sophisticated core operations may be unnecessary or even dysfunctional in peripheral activities lower down the value chain. Again, where firms pursue a ‘multidomestic’ strategy (Porter, 1990) in which each subsidiary focusses on serving its specific national market and has few linkages with the MNC’s operations in other countries, there

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may be little perceived advantage in diffusing policies from one country to another, compared with situations where operations are highly integrated internationally (Edwards et al., 2007). In general, as Taylor et al. (1996) argue, drawing on the resource-based view of the firm, MNCs will tend to transfer practices where they see an international competitive advantage in doing so. Competitive advantage can be seen in a wider context as related to the embeddedness of MNCs in a distinctive parent-country business environment. It is now a commonplace of institutionalist analysis that employment practices are shaped by the distinctive characteristics of labour and product markets, by the statutory and legislative framework, by the system for reproducing skills and so on. This business environment gives rise to particular ‘institutional complementarities’ (Hall and Soskice, 2001) which provide the basis for specialized competences; MNCs based in a business system draw on such complementarities in order to develop their international competitiveness. The notably unregulated nature of the American labour market and employment relations system, for example, has allowed the proliferation of models of employment relations and experimentation with HR practice. Whether or not MNCs have the ‘opportunity’ or capability to transfer practices abroad depends on the extent to which a practice is viable outside its original setting, or its ‘context-generalizability’ in the term used by Taylor et al. (1996). It has been argued (e.g. Whitley, 2001) that in ‘coordinated market economies’, the web of interrelationships between actors and distinctive business system institutions is such that transfer to other institutional domains is problematic. In contrast, in ‘liberal market economies’ such as the US, where relationships within markets between economic actors tend to be more arm’s length, practices are less context-dependent and more capable of being translated to other institutional environments. Moreover, the US business environment has given rise to a set of generic ‘organizational capabilities’ (Chandler, 1990) that are seen as relatively ‘context-generalizable’. The management of large, heterogeneous businesses on a continental scale has generated management systems for formalizing, standardizing and monitoring practice; such systems are less reliant on tacit knowledge than, say, the consensual processes of decision-making in Japanese firms, and hence are capable of acting as vehicles for the international transmission of substantive policy and practice (Ferner, 2000). In short, the capability of MNCs from the US to transfer practices may be higher than is the case with firms from more regulated and coordinated economies. The other side of the transfer equation is the nature of the host business system to which practices are transferred. It has often been noted that transfer is likely to be constrained where host systems are highly regulated. Germany, for example, has a framework of co-determination: notably a system of works councils underpinned by legislative supports, a highly structured system of vocational education and training, regulated

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sector-level collective bargaining and so on. In contrast, in the UK there are relatively few such institutional constraints shaping the employment practices of firms. In short, the respective degree of regulation of parent and host countries is likely to affect transfer capability. One of the questions which the chapter addresses is how far such institutional differences provide obstacles to transfer. The literature has tended to downplay the power relations that underlie transfer (Edwards et al., 2007; Morgan and Kristensen, 2006). Institutional differences matter, partly because specific institutional structures provide local actors – including managers, employees and employee representatives – with a set of resources with which to resist, or indeed to encourage, the transfer of practices from head office. Transfer can be conceived of as a process of negotiation between actors at different levels of the MNC with differential access to a range of power resources. Such resources are not only institutional. A subsidiary may, for example, have power because of its ability to fulfil targets, generate value or perform vital functions on behalf of the wider MNC. There is also a more ‘macro’ aspect to power relations (Smith and Meiksins, 1995). When the MNC comes from a business system that occupies a dominant position within the hierarchy of the world economy, as is the case with the US, the likelihood of transfer by MNCs from that system is increased. First, the practices of dominant economies are likely to be seen as models worthy of emulation (cf. Locke, 1996). Second, the confidence of MNC corporate managers in the efficacy of their practices is likely to be enhanced. Third, MNCs from dominant systems such as the US are more likely to be present in significant numbers in individual hosts, providing a relatively dense web of host actors with experience of ‘American’ practices and the skills to operate them effectively in the host environment. In the terms of the ‘cost minimization’ approach to the transfer of parent-country policies put forward by Schmitt and Sadowski (2003), the greater the hegemony, the lower the costs of transfer. Transfer is not an ‘either or’ issue. Much research shows that transferred practices may operate in a modified form, sometimes in ways that divert them from their original function. This may reflect the resistive power of local actors to shape imported practices to fit in not only with local institutions but also with local interests. However, hybridization is also seen as necessary for the effective functioning of transferred practices; Morgan and Kristensen (2006) see the more ‘subversive’ subsidiaries, which are deeply embedded in their local context and do not comply faithfully with HQ policy directives, as important for innovation within the MNC. In the sections that follow, the issue of transfer in US MNCs is addressed through empirical data on approaches to employee representation and the implications for pay determination. It considers how far local constraints and circumstances can be circumvented, and how far they permit local actors to resist or mould transfer to their own interests.

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2.1. Unions and collective representation in the US The US business system has a number of distinguishing features relevant to the transfer of practices on collective representation. The American system of industrial relations (IR) has been characterized by a profound antipathy to unions by employers in the private sector. The ‘New Deal model’ of IR (Kochan et al., 1994), based on legally enforceable contracts and highly codified company-level agreements, only partially mitigated this in a limited range of sectors, and only to a substantial degree for a few decades in the middle of the twentieth century. Anti-unionism has been seen to derive from distinctive elements of America’s historical development, such as an ideology of market-orientated individualism, reflecting business’s economic and political dominance in the American system, and the circumstances of rapid industrialization in the second half of the nineteenth century (e.g. Jacoby, 1991). Employer anti-unionism has gone hand-in-hand with union weakness, compounded by: fierce employer and state repression (Jacoby 1991); the fact that the labour movement never had to coalesce into a force for political and democratic rights as in Europe, and the cultural and ethnic diversity of the labour force constantly replenished by mass immigration. Unionism has tended to be moderate and workplace-focussed, and membership rates low. Unionization of the non-agricultural labour force peaked at 36 per cent at the end of the Second World War, then fell consistently (Kochan et al., 1994). This reflected the structural shift away from manufacturing towards services, and away from blue-collar to white-collar and professional occupations. And unionized manufacturers increasingly resorted to non-union greenfield sites in the ‘right-to-work’ states of the south and west where traditions of unionism were weak (ibid.). By 2003, only 8 per cent of the private sector labour force was unionized. Non-unionism, however, has been a complex phenomenon (Foulkes, 1980; Jacoby, 1997; Katz and Darbishire, 2000). While some firms, particularly in cost-competitive sectors such as retail, adopted ‘low-road’ union suppression strategies, many large firms pursued union substitution through a sophisticated non-unionism that Jacoby (1997) calls ‘welfare capitalism’. This was premised on the belief that the company, rather than unions or the state, should provide for the welfare of employees. Such firms adopted good pay, innovative payment systems, relative job security and measures to strengthen the attachment of the employee to the firm. The entry of unions into a firm was regarded as evidence of management failure to perform these functions adequately. The question is how far US MNCs carry this distinctive domestic business context with them into their operations abroad. Given the pervasive and ideological character of anti-unionism, one may expect a preference for non-unionism. One may also expect a degree of differentiation of

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behaviours reflecting the variety of unionized and non-union models. However, it should be stressed that even within unionized manufacturers in America, unionized operations were coexisting from the 1960s and 1970s with non-union plants in newer sites, suggesting that management saw little competitive advantage in the New Deal model. In brief, one would expect non-union preferences to prevail, other things being equal, where host environments permitted. 2.2. Collective representation and US subsidiaries in the UK The survey data give an overall picture of union recognition in US and other foreign subsidiaries. In the UK, US MNCs are less likely to recognize unions for the largest occupational group, and are significantly more likely to describe their policy as being against union recognition (Edwards et al., 2007), although the findings are more muted once the sector is taken into account (Marginson et al., 2010). Relatedly, US subsidiaries have significantly less discretion over policy on union recognition than those of other nationalities (Ferner et al., 2011). Similar findings emerge from the Irish data (Gunnigle et al., 2007): union recognition is lowest among US MNCs and they are less likely to recognize unions in their new sites (even where they are unionized in their existing ones), a phenomenon referred to as ‘double-breasting’. Turning to the case study evidence (for more detailed accounts, see Colling et al., 2006; Collings et al., 2008; Ferner et al., 2005; Tempel et al., 2006), we might expect to be able to trace the practices adopted in the relatively open and ‘permissive’ environment of the UK back to the parent-country heritage of firms. The UK institutional context has many similarities with the US, notably in having relatively weak statutory support for collective representation and bargaining. In general, there are few institutional obstacles to the transfer of non-union models by US MNCs should they perceive a competitive advantage in doing so. The sample included unionized firms with a domestic tradition of ‘New Deal’ industrial relations as well as welfare-capitalist non-union firms. US managers, even from the heavily unionized New Deal engineering firms, tended to express strong preferences for non-union arrangements; unions were associated with ‘straitjacketing’ and ‘adversarial’ relations, and seen as a symptom of poor or ‘stupid’ management. In several cases traditionally unionized firms had moved out of their north-eastern or mid-western heartlands to open non-unionized greenfield plants in other parts of the US. In the UK operations, the pattern was mixed. Some firms pursued strategies that were very similar to their domestic US approach. (For a list of case study firms, see Appendix 1.) Logistico was heavily unionized in the US and recognized unions for collective bargaining in the UK. Engco2, distinctive in the US for its recognition of ‘independent’ (unaffiliated) unions, had long recognized unions in its main UK plants where a ‘problem-solving’

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form of management–union partnership was cultivated. An IT services firm, ITco, rigidly non-union in the US, had maintained a similar stance for decades in the UK. However, subsidiaries did not always mirror their parent approach. Some welfare-capitalist firms engaged with unions in the UK. A non-union manufacturer, CPGco, had recognized unions in its UK manufacturing operations for 30 years. It engaged with the unions over pay and conditions, and it had a close if largely consultative relationship over shop-floor issues such as shift arrangements. Similarly, a non-union welfare-capitalist firm, Healthcare, recognized and negotiated with unions in the UK (while a relatively similar firm, Household, a manufacturer of consumer household products, retained its strict non-unionism in the UK). There was thus a range of permutations of unionism and non-unionism in US and in UK operations. Though there were frequently broad norms stating firms’ preference for non-unionism, and certainly in many cases a pervasive ethos at HQ of anti-unionism, there were rarely instances of direct HQ intervention to impose such norms on the UK operations. The preferences of the parent country were not, therefore, transmitted even to the ‘permissive’ UK environment in any straightforward way. UK operations were characterized in most cases by pragmatism, with an emphasis on problem-solving and the defusing of conflict. Where there were opportunities to roll back union influence, for example by derecognizing a white-collar union as in Engco1, they were taken. But there was little ideological impetus to such efforts. Where unions were recognized, discreet attempts were made to corral their areas of influence. In Engco1, the union’s role was increasingly confined to pay bargaining; its involvement at shop-floor level in issues such as team working or overtime was being limited, and production managers rarely had dealings with shop stewards, except over individual disciplinary matters. A similar picture was found in Engco2. With the company moving towards team-based working, the traditional pattern of communicating through shop stewards was giving way to direct communication with employees. The pragmatism of British managers also allowed ad hoc alliances with unions, as when unions and managers at Engco2 combined forces to resist the harsher provisions of a global redundancy programme. Generally, as long as there were no outbreaks of industrial unrest or disruption of operations, parent companies were happy to remain at arm’s length, and refrained from putting pressure on UK subsidiaries to adopt a more robust anti-union approach. In short, the pattern of union representation in UK subsidiaries only very partially reflected US norms and practices. There are a number of explanatory factors. First, the institutional context of the UK is, despite similarities, distinctive from that of the US. Employers’ dominance has been less farreaching, and there is not the same degree of ideological antipathy to unions. Unionization rates remain higher and since the late 1990s there has been some reassertion of the legitimacy of and statutory support for

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collective organization (Dickens and Hall, 2003). British managers’ discourse on unionism was consequently more pragmatic than that of their US counterparts. Second, some differences appeared to reflect sectoral imperatives. IT services as a sector was characterized by greater hostility to unions and less susceptibility to collective organization. This may have reflected the critical nature of relatively high-skilled technically specialized labour in the delivery of services, and the relatively high proportion of total costs represented by labour costs. Finally, subsidiaries’ approaches to unions retained the imprint of past events in a ‘path-dependent’ fashion (Ferner et al., 2005). In CPGco’s UK subsidiary, unions fought a long and confrontational – and ultimately successful – battle for recognition in the 1970s, despite the persistence of the parent’s resolute brand of non-union welfare capitalism in US operations. Once unions were established in the UK, local managers developed skills, routines and structures for dealing with them. A set of interests was therefore created around unionized employment relations which, in the absence of external ‘shocks’, persisted. The accommodations that grew up in some ways gave CPGco UK added flexibility. For example, the subsidiary was able to introduce ‘broadbanding’ in pay, in contrast with the US parent site where fears over possible unionization campaigns led managers to retain a complex grading system mimicking the bureaucratized New Deal arrangements of unionized firms. There is some survey evidence that the US pattern of competition between the unionized and sophisticated non-union models (e.g. Jacoby, 1997) is mirrored in the UK. Unionized firms were more likely to pay employees above the median. However, if non-union firms are differentiated into more sophisticated ‘welfare-capitalist’-type companies and lower-road cost-cutting firms, sophisticated non-union firms were as likely as unionized firms to pay above the norm.5 This may be observed in microcosm in Pharmachem. British management strongly opposed a worldwide pay freeze on the grounds that the industrial muscle of unionized employees would allow them to bust the pay norm, prejudicing the non-union plants and hence undermining a corporate preference for unitarist, non-union employment relations. 2.3. Collective representation in German, Irish and Spanish subsidiaries The three other host countries represent a varied pattern of institutional environments (for an overview, see Edwards et al., 2006). Of the three, Ireland most closely resembles the liberal market economy model of the UK, with a strong voluntarist tradition in the regulation of employment relations and collective agreements, and with lightly regulated labour markets (OECD, 2004). However, the absence of sharp ideological divisions has permitted a more consensual and coordinated approach to collective bargaining above the level of the firm. In recent decades tripartite deals have set national ‘framework’ agreements for bargaining. Ireland is also distinctive in that

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the small size of the economy permits the dominance of foreign MNCs, especially in manufacturing, and has assured them of considerable political influence. Germany is highly regulated with regards to employment relations, with its statutory framework of co-determination through works councils and employee representation on supervisory boards, and its structured system of sectoral bargaining, which determines a high proportion of total pay and provides for erga omnes extension of agreements to all firms within a sector. Though formally there is no necessary link between collective bargaining and workplace representation, in practice works councils are composed of union nominees, so that notions of ‘non-unionism’ are ambiguous at best, even where membership rates are low. Spain occupies an intermediate position. Ostensibly it is highly regulated, despite significant deregulation from the 1990s (OECD, 2004: 72), with institutional support for a dual structure of representation as in Germany, collective bargaining particularly at sectoral level (including erga omnes) and statutory workplace representation through works committees. Unions derive their strength not so much from membership, but through votes cast in works committee elections, which tend to be dominated by union slates. Overall, however, the impact of these institutional features is variable, both geographically and sectorally. In large parts of the country collective representation is weak. At the same time, the importance of foreign investment in the Spanish development model has promoted an openness to foreign, particularly US, influences in the area of management practice. Our case study companies exhibit a varied pattern of collective representation in these three host environments. 2.3.1. Germany The main concern of US subsidiaries in Germany was to avoid being overly constrained by the framework of sectoral bargaining and union representation (Almond et al., 2006; Colling et al., 2006; Tempel et al., 2006). Works councils, for example, had statutory powers to negotiate and approve merit-based or performance-related pay (PRP) systems at company level, meaning that innovative pay schemes, though possible, were often tightly constrained (e.g. Kurdelbusch, 2002); Kurdelbusch found that in many variable pay schemes, pay was, in practice, not heavily dependent on individual performance. Though firms rarely resorted to the barely legal (or illegal) tactics reported of some ‘low-road’ anti-union companies (e.g. Royle, 2000), a variety of strategies were used to insulate firms from the institutional framework. The impact of union collective bargaining at the sectoral level could be minimized, for example, by paying employees well above the rates laid down in sectoral agreements, as was the case of the consultancy firm, Business Services (Almond et al., 2006; Tempel et al., 2006). Some companies, whose employees were highly qualified and did not have a strong propensity to

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engage with unions, managed to cut themselves off altogether from union influence. One, Silico, avoided both sectoral agreements and company bargaining. In other cases, firms mitigated the pressures by moving between bargaining jurisdictions. Against the background of IG Metall’s shorter working hours campaign, ITco (strongly anti-union, it will be recalled, in the UK and US) moved the bulk of its operations out of the metalworking agreement. One motive was to be able to implement PRP without being constrained by the relatively high base pay of the agreement. In alliance with moderate elements in the works council, ITco concluded a framework agreement with a more moderate union (now part of the services union ver.di), leaving works councils and management in the separate operating companies to reach agreements on pay and working conditions tailored to their specific circumstances (Tempel et al., 2006: 1557–8). The change in jurisdiction allowed the German subsidiary to implement the MNC’s new worldwide variable pay scheme linking pay awards above the going rate to employees’ individual performance. In the case of CPGco, the subsidiary moved from the engineering industry agreement to a sub-agreement of the chemicals industry where sectoral rates and working-time arrangements were seen as more favourable. Again, the move gave the firm more scope for PRP, and provided additional flexibility by reducing the pay level above which employees were non-tariff ‘exempts’, thus increasing the proportion of the workforce without guaranteed annual wage rises. Within firms, the impact of the works council was constrained by a number of mechanisms. Business Services, for example, divided itself into separate operations for support staff and consulting staff; the latter, the bulk of employees, were not represented by a works council, and the company pursued a strategy of sophisticated HR that successfully pre-empted employee demands for a council. This did not give it carte blanche, however. Powerful resistance in Germany to the large differentials between employees based on performance, as laid down in Business Services’ global pay scheme, forced the company to dilute the scheme in Germany to match the expectations of the consulting staff. In some companies, HQ regarded the establishment of a works council as evidence of management failure, leading to discreet attempts to shape the election process and to influence councillors through the provision of training and support. There was a strong expectation on local managers, particularly in a context of competition for investment between MNC sites in different countries, that co-determination should not lead to unnecessary delays in the implementation of company policies. CPGco, at the same time as it moved bargaining jurisdictions, changed its legal status to that of a private limited company. This had the effect of loosening the constraints imposed by the works council whose opposition to central corporate policies was seen to be weakening the subsidiary’s credibility at headquarters (Tempel et al., 2006: 1558–9).

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Thus, even in Germany, the most highly regulated of the hosts, there was considerable scope for management flexibility. Subsidiaries were frequently able to locate ‘spaces’ within the fabric of the institutions of sectoral bargaining and of co-determination, allowing them to implement policies broadly in line with the expectations of corporate headquarters. On the other hand, there were occasions when subsidiary managers formed alliances with their works councils to resist policies inappropriate to local realities. In the oil industry equipment firm Bor-tec, for example, a strong sense of mutual trust developed between management and works council in the face of repeated changes of ownership of the parent company. Reportedly, their alliance was able to ward off the imposition of a global model of teamworking that would not have been appropriate for the highly skilled and experienced engineering workforce in Germany. 2.3.2. Spain In Spain, too, there was considerable scope for US MNCs to find flexibility within apparently constraining institutional arrangements. Sectoral pay levels tended to be relatively low and most case study companies would pay well above sectoral rates. Moreover, since sectoral agreements tended to apply only to non-managerial workers, the pay of managerial and similar staff could be determined on an individual basis. This provided the grounds for innovation in pay systems, in particular the use of PRP systems. At company level, the Spanish survey shows that US firms are significantly less likely to have representative arrangements, such as works committees, compared with firms of other nationalities (23 per cent of US subsidiaries had no bodies compared with only 8 per cent of other firms). Unions were active in some case study firms. Chemco, for example, negotiated a company agreement through the group works committee, though even here managers were still able to operate a discreet PRP scheme. However, a number of welfare-capitalist firms managed to avoid dealing with unions. As in Germany, works committees had to be established at the initiative of employees, and there were processual hurdles to be jumped. Where works committees were present they were in some cases composed entirely of non-union ‘independent’ employees. Managers also used more ruthless, though legal, means of deterring union involvement. In one manufacturer, Household, which was firmly non-union in the US and the UK, the Spanish subsidiary resisted efforts by the unions to organize the workforce during a redundancy programme. The company offered very generous redundancy payments to employees on condition that unions were not involved; managers also worked to keep the works committee union-free. Even where unions were dominant in the works committee, as in the anti-union ITco, the company saw itself as having the option of implementing its policies despite works committee opposition, leaving the committee to decide whether or not to devote considerable

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resources to mounting an uncertain legal challenge through the labour courts. It was, in effect, a rational and calculated risk assessment on the part of management given its understanding of the framework of laws and rules within which Spanish firms operated. As in the case of Household’s uniondeterrence strategy, managers’ ‘insider’ awareness was key to interpreting and ‘playing’ the institutional system. In general, these Spanish managers saw themselves as adopting a sophisticated union-substitution policy, rather than direct union avoidance, repeatedly stressing that they were applying what one manager referred to as ‘preventative medicine’ by looking after their workforce well so that employees did not see the need for union involvement. Thus the apparently constraining institutional environment did not generally prevent subsidiary managers from shaping an approach to industrial relations in accordance with the culture and expectations of parent companies. 2.3.3. Ireland Irish survey data confirm the lower propensity of US MNCs to recognize unions compared with MNCs of other nationalities: nearly 60 per cent were non-union compared with around 40 per cent of other MNCs (Gunnigle et al., 2007). As in the UK, case study evidence shows a mixed pattern of recognition, with companies adopting a generally pragmatic approach (for details, see Collings et al., 2008; Gunnigle et al., 2006). Exceptions to pragmatism were ITco, and another IT firm, Compuco, which were consistently non-union (in ITco’s case, since its arrival in Ireland in the 1950s). In both firms this reflected a well-understood corporate philosophy. While ITco had a welfare-capitalist approach based on union substitution, Compuco’s could be considered more as one of union avoidance in pursuit of a low-cost strategy. In other firms there was a higher degree of pragmatism. Logistico became unionized after initial resistance, and then attempted to limit the impact of recognition to individual representation. The firm was unionized in the US and elsewhere in Europe, but the possibility of union-free operations had been one of the attractions of locating a call centre investment in Ireland. Other firms, such as Pharmaco and Healthco, had longstanding unionized operations. Where unions were present, US headquarters manifested at times strong hostility and distrust of unions, coupled with a degree of incomprehension of management–union relations. This was the case in Pharmaco, where unionized sites were characterized by conflictual IR in which industrial action was routinely deployed as part of the unions’ negotiating repertoire. But generally headquarters left local management to deal with IR, expressing a grudging acceptance that this was how things were. The presence of unions constrained management flexibility. In Pharmaco’s unionized operations, for example, there was a PRP scheme only for managers,

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whereas in the company’s newest, non-union plant, the scheme applied to all employees. Management specifically saw the presence of unions as the obstacle to PRP. Unionized firms, including Pharmaco and Healthco, also regularly negotiated pay increases that were above national tripartite pay norms, in part in order to avoid conflictual IR. There is an important longitudinal dimension to the pattern of collective representation in Ireland. Long-established manufacturing subsidiaries such as Healthco and Pharmaco adopted ‘double-breasting’ (Beaumont and Harris, 1992) in which older sites had union recognition and collective bargaining while new plants did not. This pattern is revealed by the Irish survey of MNCs (Gunnigle et al., 2007) to be a characteristically US feature within the Irish context. The survey found (pp. 47–8) that US firms were far more likely to engage in double-breasting than other MNCs. The case study companies portrayed the trend towards non-union sites as a way of increasing management flexibility and rapidity of response to changing international product markets. As Gunnigle et al. (2006) argue, a change in the Irish institutional framework was an important facilitating factor. In the 1960s and 1970s industrial development agencies explicitly encouraged incoming MNCs to unionize, normally through pre-production agreements, which codified rights and responsibilities and limited multiunionism. By the 1980s, the context had changed: the growth areas of foreign investment were electronics and IT where union traditions were weak. Moreover, Irish plants increasingly faced competitive pressures from other plants within MNCs’ global production networks. Thus development agencies moved away from encouraging union recognition, which was increasingly seen as a deterrent to foreign, particularly US, investors. This reveals the institutional fluidity of the Irish business system, as policymakers strove to adapt IR frameworks to the requirements of a development strategy premised on foreign direct investment (FDI). Thus there is a highly variegated picture of union recognition and employee representation, reflecting both the variety of US traditions from which the case study companies came, and the important degree to which employee representation issues are shaped by local institutional frameworks. A pattern of local managerial pragmatism is generally evident, with the exception of the ICT firms in the study. The underlying American preference for non-unionism continues to find expression, albeit in ways that adjust to the constraints of different host environments. Moreover, as the Irish case illustrates, MNCs as powerful actors within a host context that is dependent on them for its development model are in a position to shape, even if indirectly, the institutional framework (see Gunnigle et al., 2006). In summary, therefore, there are complex sets of accommodations between MNCs and institutional features of the hosts in applying employee representation policies. Rarely are apparent constraints totally constraining, and firms may find means of applying their overall approach – for example,

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creating a discretionary margin for managers to determine a portion of the pay of individuals – by identifying flexible ‘spaces’ within the institutional structures of employee representation. Outcomes are the result of the interaction between actors and systems within the company, on the one hand, and the broader institutional context, on the other.

3. Conclusions The area of employee representation discussed in this chapter is one in which institutional features of the host may be expected to be paramount. It is in some ways, therefore, a useful test of the limits and possibilities of transfer. The findings reveal a mixed picture. First, there is no simple ‘read-off’ from US MNCs’ domestic practices to their practices in the host countries. Non-unionism is not inevitably transferred even in hosts that facilitate it. Conversely, constraints of the more regulated hosts are never allencompassing; there are spaces of uncertainty within which US subsidiaries may opt for a range of strategies. MNCs themselves may create or widen such spaces, notably through the skills of local managers in interpreting and acting within local norms and rules. There is also a general strategy of raising themselves above the ‘floor’ of institutional constraints, for example by paying above sectoral norms. Second, the overall picture confirms hybridization of issues where corporate strategies meet host constraints. What appears to occur is that subsidiary actors use their skills in engaging with the local institutional environment to negotiate outcomes that approximate to – are functional equivalents of – the parent-company strategy. Thus, in the case of norms of non-unionism, functional equivalents cover a wide range of possible actions that serve to strengthen managerial prerogative and flexibility by limiting the arena of the collective. Such actions include: manoeuvring between the range of institutional machineries available (e.g. the bargaining machineries in Germany) to allow engagement with more moderate unions or works councils; confining recognition to core manual workers; restricting unions’ involvement in work organization and workplace issues; and ‘double-breasting’. What one may conclude is that in some cases a process of ‘meta-transfer’ occurred, in which US MNCs were able to transfer the underlying principles of the practice even where the practice itself could not be transferred. Thus the essence of non-unionism lay in a resistance to third-party intervention in areas of managerial jurisdiction, and the preservation of the prerogative to organize work, to relate to employees individually and so on. Elements at least of this could be preserved even where unions and works councils had to be engaged with. Third, the transfer of practices is a negotiated process in which the power resources of organizational actors are deployed in the terrain of institutional structures in which they operate. Actors interpret the force of local

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institutional constraints: these cannot be simply ‘read off’ from a ‘theoretical’ knowledge of the host. Knowing ‘how far they can go’ allows local managers to mobilize inducements or threats appropriate to the environment. Managers could thereby create their own ‘space’ even in the more regulated Spanish and German contexts. For example, they knew how to shape incentives to the workforce to persuade it not to get involved with unions, or how far to risk works committee challenges to policies that were notionally subject to committee approval. They knew how to manipulate the rules and provisions of the statutory framework in their interest, for example by reclassifying staff as aussertariflich (exempts) in Germany so as to subject them to PRP. In short, institutional ‘know-how’ of local managers as privileged interpreters of the local environment was crucial to transferring employment relations policies. Equally, however, the complaisance of local managers towards the corporate centre could not be taken for granted. They may be seen as a hinge between headquarters and the local environment, and they could operate in both directions. At times, local managers felt the need to ally with local unions or works councils because management’s efficacy depended on its ability to establish long-term workable relationships with such actors: these managers were, in Morgan and Kristensen’s term (2006; also Kristensen and Zeitlin, 2005) the ‘subversive strategists’, deeply embedded in the local institutional terrain, who used their embeddedness to fulfil their wider role within the MNC. There were frequent examples of subsidiaries establishing ad hoc coalitions of interest to resist or mitigate the impact of HQ policies seen as inappropriate for the local environment. In such circumstances, the formal constraints of statutory representation or bargaining frameworks provided the managerial discourse for opposing standardized global policy and promoting adaptive modifications. In short, therefore, host institutional contexts provided power resources, both to resist and to smooth the implementation of transferred policy. The implications of institutional constraints are not clear-cut, even in highly regulated hosts such as Germany. There is thus a ‘contested terrain’ between the US HQ and local subsidiary, within which the role of local managers can vary from promoter to resister of transfer. Fourth, US MNCs are powerful actors that can to some degree make the institutional weather by exploiting the indeterminate ‘spaces’ in institutional regulation, even in highly regulated systems such as Germany. This was seen both in more and less regulated hosts. In Ireland, the access of powerful MNCs to circuits of public policy-making, and the reliance of successive governments on a model of growth dependent on foreign capital, facilitated a diffuse influence which, over time, saw a modification of the institutional environment for incoming investors. In Germany, the willingness of US MNCs (and other large firms) to shift between bargaining jurisdictions, and to reach pragmatic partial accommodations with works

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councils, helped subtly redefine host institutional arrangements and adapt them to their own emerging needs. This ongoing process is typical of the conceptualization of institutional evolution by writers such as Streeck and Thelen (2005): institutional change does not require exogenous ‘shocks’ but is generated by the way in which actors routinely define, interpret and operate within institutions. Thus the imprint of the American approach to collective representation is perceptible in the operations of US MNCs in European hosts, even though accommodations to the possibilities and constraints of host environments mean that the imprint may be faint, blurred or distorted. Perhaps the single most significant finding is that even the more regulated host contexts provide spaces for creative actors with local institutional knowledge and resources to find innovative ways of pursuing objectives and implementing practices on behalf of the MNC, and that those same institutional skills allow local actors to adapt or thwart parent-country practice that does not fit with their reading of the local context. What of the implications of these findings for CEE countries? Two broad conclusions suggest themselves. First, to some extent these may be seen as weak institutional hosts, in the process of consolidating themselves, and looking abroad both for investment and for viable templates to replace discredited and discarded former models. Hence, system-dominance effects (Smith and Meiksins, 1995) may be especially significant: US firms may be seen as providing importable models of practice in relation to employment practice, including representation. Other models may be more dominant depending on local concentrations of foreign MNCs; in some countries, German or French MNCs may provide the template, as other chapters in this volume explore (see also Bluhm, 2001; Meardi and Tóth, 2006). The systemshaping role of MNCs as ‘rule-makers’ rather than ‘rule-takers’ (Streeck and Thelen, 2005) may be particularly noticeable in the more malleable institutional environment of the CEE. Second, CEE countries do not, however, represent some kind of blank slate on which American or other models may be inscribed, but are complex institutional terrains, which provide resources for considerable resistive capacity in local actors. An opaque and fast-evolving context, in which there may be considerable divergence between formal institutional rules and actual institutional practice, as well as elaborate layerings of institutional legacies from previous regimes, may well require considerable native familiarity and ‘interpretive’ skills in order to ‘play’ the system. Possession of such skills provides local actors with the power both to thwart and to facilitate the transfer of practices by MNCs. In such circumstances, the micro-organizational relationships as these develop over time in site-level IR are likely to remain a key factor in explaining patterns of representation, and the employment relations that grow up on the basis of them (cf. Kahancová, 2007). Meardi and Tóth (2006) emphasize that the local response is not necessarily one

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of resistance. Instead, there may be what they call ‘pull hybridization’, in which transfer is encouraged by local actors rather than ‘pushed’ by the MNC. Moreover, local actors including unions and employees may draw on surprising sources of competitive advantage: for example, the creative skills generated by coping with the chaotic conditions of state socialism in countries such as Poland or Hungary. Patterns of representation in MNCs in CEE, in short, are likely to be imprinted with the influence both of parent-country models and the institutional constraints of the host. American firms may be expected to search for a ‘meta-transfer’ of practices that conserve managerial prerogative, for example, even where non-unionism is impracticable, but such a meta-transfer has to be negotiated with institutionally skilled local actors with their own interests and agenda.

Appendix 1. Case study firms Firm

Sector

Germany

Ireland

Spain

UK

Business Services

business consultancy

CPGco

consumer and professional products

X

X

X

X

X

X

Engco1

Engineering

Engco2

Engineering

X

ITco

IT manufacturing and services

X

X

Logistico

logistic services

X

X

Healthcare

consumer, medical & pharmaceutical products

Household

consumer household products

X

Silico

IT manufacturing and services

X

Bor-tec

oil industry equipment

X

Chemco

industrial, consumer and healthcare products

X X X X X

X

X

X

Compuco

IT equipment

X

Pharmaco

Pharmaceuticals

X

Healthco

pharmaceuticals and healthcare products

X

Jefferys

X

X

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Notes 1. The British study was financed by the UK Economic and Social Research Council (award R000-23-8350). The participants were: Phil Almond, Peter Butler, Ian Clark, Trevor Colling, David Collings, Tony Edwards, Anthony Ferner, Paddy Gunnigle, Len Holden, Michael Morley, Michael Muller-Camen, Bob Pattinson, René Peters, Marta Portillo, Javier Quintanilla, Lourdes Susaeta, Anne Tempel and Hartmut Wächter. The specific argument of the paper draws extensively on the collective findings of the project but is the author’s own. 2. In addition to the author, the UK survey team comprised Paul Edwards and Paul Marginson (Warwick Business School), Tony Edwards (Kings College London) and Olga Tregaskis (Leicester Business School). The findings reported in this paper arise from the collaborative work of the research team. The survey was funded by the UK ESRC (Award R000-23-0305). 3. I am very grateful to the Spanish team – Javier Quintanilla, Lourdes Susaeta, Rocío Sánchez and María Jesús Belizón – for access to aspects of the findings in advance of publication. 4. Analyses of the transfer process in MNCs, with particular reference to HR and employment practices, include: Edwards and Ferner, 2004; Edwards et al., 2006, 2007; Ferner et al., 2005; Kostova, 1999; Meardi and Tóth, 2006; Schmitt and Sadowski, 2003. 5. For this analysis, a very simple differentiator of low-road and welfare-capitalist firms was used: whether or not a higher level of the MNC (i.e. higher than the UK subsidiary) collected information on employee attitudes, a classic marker of welfare-capitalist strategies (Jacoby, 1997). The analysis should be treated with some caution until confirmed by more sophisticated differentiator measures.

References Almond, P. and Ferner, A. (eds) American Multinationals in Europe: Managing Employment Relations Across National Borders (Oxford: OUP, 2006). Almond, P., Muller-Camen, M., Collings, D. and Quintanilla, J. Pay and Performance, in Almond, P. and Ferner, A. (eds) American Multinationals in Europe: Managing Employment Relations Across National Borders (Oxford: OUP, 2006). Beaumont, P. and Harris, R. Double-Breasted Recognition Arrangements in Britain, International Journal of Human Resource Management, 3(2), 267–282 (1992). Bélanger, J., Harvey, P.-A., Jalette, P., Lévesque, C. and Murray, G. Employment Practices in Multinational Companies in Canada: Building Organizational Capabilities and Institutions for Innovation (Montréal: CRIMT, 2006). Bluhm, K. Exporting or Abandoning the German Model? Labour Policies of German Manufacturing Firms in Central Europe, European Journal of Industrial Relations, 7(2), 153–173 (2001). Butler, P., Collings, D., Peters, R. and Quintanilla, J. The Case Study Companies in their Organizational Context, in Almond, P. and Ferner, A. (eds) American Multinationals in Europe: Managing Employment Relations Across National Borders (Oxford: OUP, 2006). Chandler, A. Scale and Scope: The Dynamics of Industrial Capitalism (Cambridge, MA: Belknap Press, 1990). Colling, T., Gunnigle, P., Quintanilla, J. and Tempel, A. Collective Representation and Participation, in Almond, P. and Ferner, A. (eds) American Multinationals in Europe: Managing Employment Relations Across National Borders (Oxford: OUP, 2006).

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Collings, D., Gunnigle, P. and Morley, M. Between Boston and Berlin: American MNCs and the Shifting Contours of Industrial Relations in Ireland, International Journal of Human Resource Management, 19(2), 240–261 (2008). Dickens, L. and Hall, M. Labour Law and Industrial Relations: A New Settlement?, in Edwards, P. (ed.) Industrial Relations: Theory and Practice (2nd edn) (Oxford: Blackwell, 2003). Edwards, P., Edwards, T., Ferner, A., Marginson, P. and Tregaskis with Adam, D. and Meyer, M. 2007 Employment Practices of MNCs in Organizational Context: A Large-Scale Survey. Report of Main Survey. Available online at: http://www2.warwick.ac.uk/fac/ soc/wbs/projects/mncemployment/conference_papers/. Edwards, T., Colling, T. and Ferner, A. Conceptual Approaches to the Transfer of Employment Practices in Multinational Companies: An Integrated Approach, Human Resource Management Journal, 17(3), 201–217 (2007). Edwards, T., Collings, D., Quintanilla, J. and Tempel, A. Innovation and the Transfer of Organizational Learning, in Almond, P. and Ferner, A. (eds) American Multinationals in Europe: Managing Employment Relations Across National Borders (Oxford: OUP, 2006). Ferner, A. ‘The Embeddedness of US Multinational Companies in the US Business System: implications for HR/IR’ (Occasional Papers no. 61, Leicester: DMU Business School, 2000). Ferner, A. and Almond, P. Introduction: American Multinationals and the CrossNational Management of Employment Relations, in Almond, P. and Ferner, A. (eds) American Multinationals in Europe: Managing Employment Relations Across National Borders (Oxford: OUP, 2006). Ferner, A., Almond, P., Colling, T. and Edwards, T. Policies on Union Representation in US Multinationals in the UK: Between Micro-Politics and Macro-Institutions, British Journal of Industrial Relations, 43(4), 703–728 (2005). Ferner, A., Edwards, P., Edwards, T., Marginson, P. and Tregaskis, O. with Adam, D. and Meyer, M. HRM Structures and Subsidiary Discretion in Multinational, International Journal of Human Resource Management (2011). Foulkes, F. Personnel Policies in Large Nonunion Companies (Englewood Cliffs, NJ: Prentice Hall, 1980). Gunnigle, P., Collings, D. and Morley, M. Accommodating Global Capitalism? State Policy and Industrial Relations in American MNCs in Ireland, in Ferner, A., Quintanilla, J. and Sánchez-Runde, C. (eds) Multinationals, Institutions and the Construction of Transnational Practices. Convergence and Diversity in the Global Economy (Basingstoke: Palgrave Macmillan, 2006). Gunnigle, P., Lavelle, J., McDonnell, A., Collings, D., Morley, M., Turner, T. and Wallace, J. Human Resource Practices in Multinational Companies in Ireland: A LargeScale Survey (University of Limerick: Employment Relations Research Unit, 2007). Hall, P. and Soskice, D. (eds) Varieties of Capitalism (Oxford: OUP, 2001). Jacoby, S. American Exceptionalism Revisited: The Importance of Management, in Jacoby, S. (ed.) Masters to Managers: Historical and Comparative Perspectives on American Employers (New York: Columbia University Press, 1991). Jacoby, S. Modern Manors: Welfare Capitalism since the New Deal (Princeton, NJ: Princeton University Press, 1997). Kahancová, M. One Company, Four Factories: Coordinating Employment Flexibility Practices with Local Trade Unions, European Journal of Industrial Relations, 13(1), 67–88 (2007). Katz, H. and Darbishire, O. Converging Divergences: Worldwide Changes in Employment Systems (Ithaca, NY: Cornell University Press, 2000).

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Kochan, T., Katz, H. and McKersie, R. The Transformation of American Industrial Relations (Ithaca, NY: ILR/Cornell University Press, 1994). Kristensen, P. H. and Zeitlin, J. Local Players in Global Games: The Strategic Constitution of a Multinational Corporation (Oxford: OUP, 2005). Kurdelbusch, A. Multinationals and the Rise of Variable Pay in Germany, European Journal of Industrial Relations, 8(3), 325–349 (2002). Locke, R. The Collapse of the American Management Mystique (Oxford: OUP, 1996). Marginson, P., Edwards, P., Edwards, T., Ferner, A. and Tregaskis, O. Employee Representation and Consultative Voice in Multinational Companies Operating in Britain, British Journal of Industrial Relations, 48(1), 151–180 (2010). Meardi, G. and Tóth, A. Who is Hybridizing What? Insights on MNCs’ Employment Practices in Central Europe, in Ferner, A., Quintanilla, J. and Sánchez-Runde, C. (eds) Multinationals, Institutions, and the Construction of Transnational Practices (Basingstoke: Palgrave Macmillan, 2006). Morgan, G. and Kristensen, P. H. The Contested Space of Multinationals: Varieties of Institutionalism, Varieties of Capitalism, Human Relations, 59(11), 1467–1490 (2006). OECD Employment Protection Regulation and Labour Market Performance, OECD Economic Outlook, Chapter 2, 61–125 (2004). Porter, M. The Competitive Advantage of Nations (with a new introduction) (Basingstoke: Palgrave Macmillan, 1990). Royle, T. (ed.) Working for Mcdonald’s in Europe (London: Routledge, 2000). Schmitt, M. and Sadowski, D. A Rationalistic Cost-Minimization Approach to the International Transfer of HRM/IR Practices: Anglo-Saxon Multinationals in the Federal Republic of Germany, International Journal of Human Resource Management, 14(3), 409–430 (2003). Smith, C. and Meiskins, P. System, Society and Dominance Effects in Cross-National Organizational Analysis, Work, Employment and Society, 9(2), 241–267 (1995). Streeck, W. and K. Thelen (eds) Beyond Continuity: Institutional Change in Advanced Political Economies (Oxford: Oxford University Press, 2005). Taylor, S., Beechler, S. and Napier, N. Toward an Integrative Model of Strategic International Human Resource Management, Academy of Management Review, 21(4), 959–985 (1996). Tempel, A., Edwards, T., Ferner, A., Muller-Camen, M. and Wächter, H. Subsidiary Responses to Institutional Duality: Collective Representation in US Multinationals in Britain and Germany, Human Relations, 59(11), 1543–1570 (2006). UNCTAD, World Investment Report: Transnational Corporations, Agricultural Product and Development (New York & Geneva: United Nations Conference on Trade and Development, 2009). Whitley, R. How and Why Are International Firms Different? The Consequences of Cross-Border Managerial Coordination for Firm Characteristics and Behaviour, in Morgan, G., Kristensen, P. H. and Whitley, R. (eds) The Multinational Firm: Organizing Across Institutional and National Divides (Oxford: OUP, 2001).

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2 The Social Transfers of Multinationals in Central Europe: British, US, Austrian and German Experiences Reviewed∗ Guglielmo Meardi, Sonja Strohmer and Franz Traxler

‘If co-determination didn’t exist, it should be invented’ (Hartz, 2007: 103). These are the words of Peter Hartz, former head of human resources at Dilliner Hütte and Volkswagen and former advisor to Chancellor Schröder for labour market reforms. Yet, if ‘co-determination’ is good for German companies’ effectiveness and economic success, should not they transfer it when they open new sites in neighbouring countries? And would this set an example, or ‘best practice’, for local companies? The new member states of the EU are particularly open industrialized economies, which due to shortage of national capital have been particularly open to foreign direct investment (FDI). Most of the investment has come from so-called ‘co-ordinated market economies’ (Hall and Soskice, 2001), for the largest share of FDI in the region, but liberal-market economies such as the UK and the USA have an important presence as well (Rugraff, 2006). This chapter will assess the expectations that companies from countries such as Austria and Germany would transfer some distinctive employment practices in comparison to the Anglo-Saxon ones. In comparison to studies that focussed only on one sector or country, and only on one period, this chapter will review evidence from two research projects covering a total of 24 companies in four countries in two sectors (automotive and finance) in 2004–05 and 2007–08. Such a scope aims to detect if there are shifts over time in multinationals’ policies. The chapter will conclude pointing at the major limits, across countries and sectors, to the transfer of the social side of Western European production models, and placing such findings within the political economy contest of the enlarged EU. 29

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1. The complexity of FDI Even if the new member states (NMS), given the small size of their economies, are rather small players in global FDI flows, inward investment has been the dominant force of investment for them, accounting for around half of investment in manufacturing in Hungary, the Czech Republic and Estonia, and about a third in the other NMS (OECD data). Growth of FDI inflows has been fast and is now well above world’s average. The ratio of FDI stocks to the GDP in 1989 was less than 1 per cent in CEE (8 per cent in the world); by 2008, in all NMS except the Baltic states it was well above the ‘old’ EU average of 35 per cent (UNCTAD data). In spite of their later entry, the NMS have much higher penetration of FDI than the old member states. In Estonia, Latvia, Hungary and the Czech Republic, multinational companies (MNCs) employ over 40 per cent of the manufacturing workforce, and over 20 per cent of the total. In the other NMS, figures are around the EU average, at 20–30 per cent in manufacturing and 10–20 per cent of total employment (UNCTAD and OECD data). Even if there is little doubt about a significant contribution of FDI to capital formation, technology and growth, question marks remain with regard to the quality of growth and change, and to the social effects. Onaran and Stockhammer (2008), analysing data from the Czech Republic, Hungary, Poland, Slovakia and Slovenia between 2000 and 2004, found that FDI, in the medium term, is associated to slower wage growth. In Poland, the ‘Working Poles’ survey showed that employees of large multinationals are the most satisfied with material working conditions (technology, training), but also, paradoxically, the most dissatisfied with work organization issues: management fairness, trust between management and employees, employee influence on their work, intra-employee relations (Czrazasty, 2009: 398–9). The survey authors conclude, therefore, that ‘foreign capital is most frequently characterized by opportunistic behaviour, rather than participative employment relations’ (ibid.: 417). Bohle and Greskovits (2006) have pointed to the differences between countries and sectors in terms of social effects: labour-intensive export industries such as electronics, clothing and footwear, and furniture have become the leading sectors in NMS. There are differences among countries. In the Visegrád countries (the Czech Republic, Slovakia, Hungary and, to a lesser extent, Poland), skilled labour-intensive industries are prominent, whereas in the Baltic countries, Romania and Bulgaria, unskilled labour-intensive industries prevail. This investment profile means that in the NMS there are generally no preconditions for social compromise of the kind typical of Western Europe, where capital needs labour’s political, economic and organizational co-operation – with the exception of those MNCs with high-skilled labour input that may develop company-based forms of welfare.

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Such an interpretation is confirmed by the fact that foreign investors have also largely avoided joining indigenous employers’ organizations or have created their own (Rugraff, 2006). Even in the case of German companies in Slovakia (i.e., firms with a home history of strong organization in a host country with relatively strong associations), membership of local chambers is low (Tholen, 2007). In Poland, MNCs took the leading role in the creation of a separate employer confederation (PKPP) in 1998. In Bulgaria, foreign employers organized originally in a separate association (the Bulgarian International Business Association), although this later merged into the Confederation of Bulgarian Employers. In Latvia, a new MNC-dominated business association, IF, has been created. MNCs in the region also have the frequent tendency to join national employer federations, but not their sector organizations, as it has happened in Bulgaria, the Czech Republic and Poland. In this regard, a survey of EU countries’ national observatories on MNCs and collective bargaining for the European Industrial Relations Observatories in 2009 adds some more information on the role of MNCs in the region (Marginson and Meardi, 2009). In most NMS, collective bargaining appears to be higher in MNCs than in national companies, but only because MNCs tend to be larger employers (unfortunately, the available information does not allow systematic testing for size). In some countries (Poland and Hungary, plus Romania and Slovenia where coverage is close to 100 per cent for the whole economy), there is no difference – and therefore no positive effect – between MNCs and national employers. Worst of all, in Estonia and Latvia collective bargaining coverage is reported to be lower in MNCs than in the rest of the economy. In these two Baltic countries FDI tends to be concentrated in lower skill, lower value-added sectors, and may follow a labour intensification logic not conducive to social compromises. For a better understanding of the social effects of MNCs, we need to look inside the companies.

2. Evidence from multinationals’ shop floor, 2004–05 To assess more closely the effect of MNCs, we will present the results of two research projects comparing German and Austrian employers with US and UK ones, with regard to the industrial relations models followed in their Central–Eastern European sites. This will help to understand whether the employers from the core countries of the European social model have any distinctive effect, as compared to the Anglo-American ones. Multinationals from liberal and coordinated market economies have been frequently compared and contrasted with regard to their employment practices (see for a discussion Meardi et al., 2009). In fact, while American MNCs’ specificities are illustrated by recent studies of employment relations in their European subsidiaries (Almond and Ferner, 2006), the case of German companies is somewhat different. Since the German business system relies more

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heavily on domestic associations and public institutions, it is more difficult for German-based MNCs to export their practices abroad. Hence, attention has been paid to the limits of practice transfers by German companies abroad (Ferner and Verul, 2000; Meardi and Tóth, 2006; Rosenzweig and Nohria, 1994; Tüselmann et al., 2008). Still, some (positive) ‘German’ specificity in terms of social dialogue was detected in the Central Europe by some early studies (Bluhm, 2001; Galgóczi, 2003). But soon the presumption about the specificity of MNCs from continental Europe with regard to their operations in Central Europe was questioned. Dörrenbächer (2002), Rugraff (2006) and, lately, Bluhm (2007) contend that it is equally plausible that German MNCs are looking to escape certain features of the domestic institutional landscape, including Germany’s robust system of co-determination and consultation and its sector-level collective bargaining arrangements. Further, there may be important ‘intra-national’ variations in the sector- and company-specific expressions of national institutional models, especially between large- and medium-sized companies. A research project conducted in 2004–05 (Meardi et al., 2009) tried to shed more light on this unsolved issue around the time of EU accession. The research was based on a sample of 12 subsidiaries of German and US companies in the components sub-sector of the automotive industry in Poland, Hungary and Slovenia, preceded by an exploratory study of the sector in each host country. Two companies from each country of origin were selected in each of the three Central and Eastern European (CEE) countries, as a two-by-three comparison allows for greater generalization. The automotive industry was chosen because of its high level of internationalization and its importance for FDI in CEE economies. FDI in the component sub-sector is particularly dictated by efficiency considerations as 90 per cent of the production is for export, unlike vehicle final assembly, which is more market-oriented and therefore somewhat less prone to direct cross-border efficiency comparisons. The initial mapping of the population of foreign investors in the sector revealed, counter-intuitively, lower unionization in German than American companies in Poland (the country with the highest number of foreign companies), even controlling for size and mode of entry – already an important blow to the expectation of German companies transferring participation and representation practices. After the mapping, a sample for case studies was constructed according to theoretical significance: market leaders, hightechnology and high-quality companies, which are economically successful and not affected by specific crises, were identified. In addition, one more low-wage, low-cost segment company in each of the host countries was included. Without distorting the overall picture, it provided some variation as to the boundaries of the ‘high road’ to competitiveness in the region. The analysis focussed on nine dimensions of employment practices, where the academic literature has detected systematic differences between the German and US model: corporate culture, employee participation,

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international control, numerical flexibility, pay flexibility, working time, skills and training, teamwork, diversity management (Meardi et al., 2009). The overall findings showed that the home country did have an effect on some dimensions, with systematic variation being evident on three: corporate culture, functional flexibility and working-time flexibility. German companies relied more on multi-skilling, job rotation and internal mobility, and their preferred form of working-time flexibility was the annualization of working hours. Technical knowledge and past tradition were stressed more, reflecting an enduring specific corporate culture governance model. By contrast, US companies tended to rely less on functional flexibility and to achieve working-time flexibility through unilateral imposition of overtime and flexible patterns of shift work. The importance of financial parameters was stressed, and there is less emphasis on technical knowledge. On the other dimensions, it was hard to detect any systematic variation according to home country. Diversity management was, as expected, completely absent from German-owned operations (where questions on the topic were hardly understood at all), but its practice at the two US sites where it was found was ad hoc. German companies made more generalized use of open-ended rather than temporary contracts but their overall numerical flexibility was high nonetheless. Control from headquarters, teamwork and pay flexibility had been, in the process of foreign investment, ‘disembedded’ from home-country models and were characteristic of global ‘best practices’ in the sector. Most important for employment relations and their globalization were the results with regard to employee participation. There was no systematic variation according to home country: German companies were not more likely than American ones to embrace indirect employee participation through either trade unions or works councils, corroborating the survey finding on Poland; at the same time, they were not less likely to use direct participation mechanisms. Only two out of five German companies had given institutional space to employee representation, while three out of five American companies had transferred direct participation or anti-union practices (2 of the 12 case studies were removed from the comparison because of a more complex history or ownership, which distorted the home-country effects). Half the companies departed, in various ways, from their home-country model. To understand why German companies actually differ in their employment practices it is useful to look more in detail at the two German companies in Poland and the two in Hungary, as they displayed striking differences. The first German company in Poland (GER-PL11 ) was the only one following a clear German model. It was part of a large company with a distinctive system of corporate governance allowing a greater-than-usual voice to stakeholders, such as the local authority and workforce. It also had a specific industrial relations tradition and had been in the vanguard in elaborating

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international systems of employee consultation and information. Such features were evident in the company’s corporate culture and were referred to in Poland. This Polish Greenfield site was built in the late 1990s in an area with high structural unemployment. It employed about 1000 people, with plans for further expansion. The company had steadily increased production and employment in CEE, while downsizing had been prefigured in Germany. The importance of the home-country corporate culture was apparent from the status of the German language (commonly used for training and important for career progression). German expatriates were prominent in foreign subsidiaries although their number and role diminished gradually. For 6 years the personnel manager was a German expatriate, eventually replaced by a native Pole. During the research, the German production model was clearly visible in the amount of training and the form that it took (including co-operation with local schools) in work organization (with elected team leaders and daily team meetings) and in industrial relations. In a country where union density was about 15 per cent (and lower at Greenfield sites and among younger employees) GER-PL1 had 76 per cent unionization, a detailed collective agreement (albeit one that followed Polish patterns) and a sophisticated system of consultation: the latter extended to representation on the European Works Council (EWC). The union also had de facto veto power on the appointment of team leaders. Interviews in both Poland and Germany indicated that the role of German managers and trade unions in establishing such a system had been considerable. Interestingly, Polish managers were less enthusiastic than German ones about extensive social dialogue, seeing it as compromising their status and slowing down decision-making. The most direct example of the transfer of the home-country model was working time. With minor adjustments due to different legal regulations, the same system of working-time flexibility operating in Germany was introduced in Poland, through a collective agreement. GER-PL1 had been able to be highly selective in recruiting its workforce: production employees were all men, highly qualified and aged under 32 at the time of recruitment (the current average is 26), while administrative employees were of both genders, almost all with university education, and aged under 35 at the time of recruitment. This age and gender composition was different from that of the company plants in Germany, and reflected the imbalance in the local labour market, and also lack of concern with diversity management. The dimension on which the company sharply departed from German practice (and, conversely, conformed to Polish reality) was pay, which was much more variable than in Germany. Rather than through bonuses (5–15 per cent of earnings), variation was achieved through a system of bi-dimensional classification of jobs, which expanded the pay fork and accorded discretionary power to foremen on how to classify employees and

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their jobs. As a result, the pay system has been strongly criticized by the trade union. The situation was very different at GER-PL2, an investor in the same region with a comparable factory (600 employees, built in 2002) and whose German parent had similar traditions, size and market power to those of GER-PL1. This corporate group was more internationalized: turnover and employment in foreign subsidiaries exceeded that in Germany. In recent years, employment at German sites had been repeatedly reduced, and the headquarters of some divisions had been moved outside Germany. References to the company tradition and to its social responsibility notwithstanding, corporate culture was less clearly German, with more stress on change. Expatriates were less prominent and more international in their experience. GER-PL2’s business language was English and local managers were not expected to learn German, while German managers were required to learn Polish during their secondment. In terms of industrial relations, the trade unions blamed the company for undercutting previously achieved standards of social dialogue. While there had been no strikes in recent years, collective bargaining over pay had been fraught, and one of the main trade unions, Solidarity, had refused to sign the most recent agreement. The other main trade union, post-communist OPZZ (slightly larger than Solidarity), had a more co-operative standpoint. Yet at all levels in the plant, from collective bargaining to shop-floor teams, relations were adversarial. Moreover, there was still no integration of the plant into the EWC. A peculiarity of human resources at GER-PL2 was the deep segmentation of the workforce, between a majority of core older, experienced, skilled (male) workers, a layer of younger and/or female workers, and a marginal but important layer of contract workers, ‘leased’ from job agencies. While the German plants also had a marginal layer of the workforce to facilitate flexibility, at the Polish site this layer was significantly larger and was not covered by union representation. Unlike GER-PL1 (which immediately offered permanent contracts to new employees), GER-PL2 imposed two prior steps of agency work and then temporary contracts for up to 2 years (a common practice among Polish employers). Such practice was perceived negatively by both trade unions and employees, even if the treatment of such employees had improved after a change in Polish law banning differences in pay, social security and working conditions. More typically German in nature was the organization of production, with an emphasis on multi-skilling and training, including co-operation with local schools through apprenticeships, the form of working-time flexibility and also the pay structure. A possible explanation of the difference between these two German companies points at differences at home between the parent companies. GER-PL1’s parent company adopted a distinctive variant of the German

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model, and substantial elements of this model had been transferred to the Polish site. In contrast, a central works council official at the head office of GER-PL2 in Germany indicated that the company had been departing from the traditional German model, through the internationalization of its structure and corporate culture, the building of non-union sites abroad (although not in Western Europe) and extended use of contract workers. In this case, the whole corporation, not just the Central European subsidiaries, have changed. The German works council leader was irritated by the suggestion that employees of the Polish plants might be more flexible than the Germans: ‘we work seven days a week, 24 hours a day; I don’t think the Poles themselves can do more.’ The differences between the two parent companies, which shared a similar past as showcases for the German model, relates to the nature of the companies, their strategies and labour market power. The organization of production seems important in accounting for the different strategies of the two parent companies. GER-PL1 was much more closely integrated with the operations at other company sites in different countries than was the case at GER-PL2. As a result, there were spillover effects at GER-PL1 arising from the cross-border standardization of employment practices, which included cross-border work-related contacts. The degree of internationalization was also different. Home-country operations were still pivotal to the European business of GER-PL1’s parent company, but not so much of that of GER-PL2, a specialist factory whose production was not integrated with other plants belonging to the parent company. Even the central company works council in Germany had little interest in what happened in the Polish factory. These two factors – technological and international – interacted: growing international competition exacerbated differences among German employers, as visible in their attitudes to sector-level wage settlements (Doellgast and Greer, 2007; Fichter, 2005). When combined, these factors explain the differences of the two companies within the same home country: one aimed at a revisited ‘German revival’ model, the other represented a form of ‘globalized German model’, to an extent that, in the industrial relations area, it may be even be defined as a ‘German capitulation’ model. Disintegration within the German model is confirmed by the two case studies in Hungary. Both German-owned companies resisted employee organization and participation rights, rather than promoting them. While GER-H2 was in a low-skill segment, a factor that may itself explain low interest in employee participation, the case of GER-H1 is particularly illuminating. This company, while similar to GER-PL1 in many regards, departed from the home-country model on industrial relations. A large factory with 5000 employees, the Hungarian plant was used for experimenting with new practices rather than transferring a successful home model. It was even conceived as a non-union plant, and union recognition occurred only after 7 years of conflict, pressure from IG Metall in Germany and a change of

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management. Subsequently, an elaborate system of consultation was implemented, but this, far from being the investor’s original aim, was the result of a compromise following changes in the local labour market situation (with shortages and high turnover) and the socio-political one (anti-labour economic policies, which previously prevailed, were replaced by a more conciliatory stance since the late 1990s in Hungary). The overall lesson from these case studies is twofold. On the one hand, GER-PL1 demonstrates that it is possible to successfully implement highroad, high-involvement employment relations in Central Europe. There is no cultural incompatibility between post-communist societies and the European social model, in particular in its German variant. But on the other hand, it is clear that this is the exception, not the rule. The other German investors have preferred to avoid employee representation. Moreover, at the time of research (2004–05) it seemed to have been possible to implement extremely efficient production in CEE despite the absence of those social components (employee participation, self-managed teamwork, negotiated flexibility) previously seen as integral to the German ‘national business’ and ‘production’ model. The outcome is a new, emerging production regime in Central Europe, with some specific features. Labour flexibility is high on all dimensions, despite new EU regulations. Sunday work is commonplace in all three countries. And, as some respondents observed, flexibility in post-communist countries is attitudinal rather than regulatory: even though legal curbs on dismissals may appear analogous to the Western European ones, employees are constantly aware that they should not take their jobs for granted. Both the experience of the transformation crisis in the early 1990s (particularly profound in Poland) and the labour market conditions of 2004–05 affected the contemporary power balance in workplaces. Besides being more flexible than their Western counterparts, the factories investigated had rapidly achieved world-class productivity and quality. They could not be considered as backwards or marginal: indeed some of these factories had become benchmarks for Western plants (as a telling example, Polish workers at Gp1 were proud of having overtaken the German plants in the internal comparison of ‘order and cleanness’). But at the same time, mechanisms for employee representation lagged far behind Western European practice. MNCs had been looking creatively for functional equivalents of Western institutions, and had reproduced work organization principles without other institutional elements. In the case of German companies, it was the industrial relations pillar of the productive model which, in general, was not transferred (with the notable exception of GER-PL1), and when it was, only under host-country pressure and as a compromise. In Central Europe, at least until 2005, weak labour markets, shortage of domestic capital and weak labour organizations have given foreign investors large margins for manoeuvre, including the diversification of practice across

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countries (Kahancová, 2007). Deregulation and international capital mobility following integration into the EU may even have increased such space in the short term. German MNCs could find ‘creaming off’ workers through higher wages, a simpler and cheaper alternative to co-determination.

3. Evidence from multinationals’ shop floor, 2007–08 The regime emerging from the case studies of 2004–05 looked successful, but at the same time it begged the question of whether such an unbalanced model (state-of-the-art technology and organization without employee participation) was socially sustainable in the long term. With this question in mind we embarked on a new series of similar comparative case studies in the Czech Republic in 2007–08. In this case, the research by-passed cross-country comparisons by selecting only the Czech Republic (the most economically advanced and the most ‘Western’ of the Visegrád countries) and narrowed down the focus to employee participation practices, but introduced a cross-sector dimension. The research design focussed on a comparison of transfers in the automotive component sector, where FDI is particularly efficiency-oriented, and in the finance sector, where FDI is more market-oriented. We investigated whether in services where international cost-competition pressures are less relevant, there was more space for transferring and developing employment participation mechanisms. Table 2.1 shows the general picture across the 12 case studies in terms of management practice transfer and standardization. A seven-point scale is used on each dimension, ranging from 1 = very low to 7 = very high, on the Table 2.1 MNCs in the Czech Republic: intensity of transfers in the area of HR, IR and other areas and HR coordination Company

D-INS1 D-INS2 A-BAN1 A-BAN2 US-BAN UK-FIN Finance av. D-CAR1 D-CAR2 A-CAR1 A-CAR2 UK-CAR US-CAR Automotive av.

Product-related transfers 2 4 6 6 4 7 4.83 6 6 6 6 6 6 6

HR coordination HRM transfers IR transfers

1 4 6 4 6 4 4.17 6 6 6 2 6 2 4.67

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2 4 5 4 4 4 3.83 4 4 4 2 4 2 3.33

1 3 1 1 4 4 2.33 2 3 1 1 1 1 1.5

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basis of interview information on the number and relative importance of practices transferred, or of coordination mechanisms. All companies, regardless of sector and with the only exception of D-INS1,2 show significant or massive transfers from the headquarters to the Czech subsidiaries in most business areas related to the product (production, know-how, IT systems, organizational concepts, quality standards, service orientation), while the headquarters’ influence is lower in the area of HR and lowest in industrial relations, with the latter considered as a local matter by most managers. The four management dimensions in the table display continuously declining average scores when moving from product-related issues towards industrial relations, passing through human resource management (HRM). The contrast is, however, much more marked in the automotive sector (high product-related transfers and low/very low IR transfers) than in finance (medium/high product-related transfers and low IR transfers). Transfer of product-related practices is easy to understand. In the car component suppliers, the importance of technology and the integration of markets require a highly coordinated production processes. In the finance sector (especially in the UK-based private finance company), it is the weakness of home traditions in a post-communist country that explains transfers from the West. The finance sector – even more than the manufacturing one – went through a radical overhaul with the transition towards capitalism, as it was very underdeveloped in planned economies. The process of change has been driven by foreign companies, who have transferred their Western practices, not because of international competition and standardization requirements (as in the automotive sector), but for considerations of internal competition, within the host country, against other companies (mostly foreign as well). Also HRM coordination, whether directly through expatriate managers or frequent headquarters’ visits, or organizationally through systematic reporting and benchmarking procedures, appears to be stronger in manufacturing than in services, even if the difference is small. The analysis is more complex on IR and HRM practices. Not only are transfers less frequent than HRM coordination but HR coordination and HR transfers are associated; intense HR coordination does not necessarily imply a high level of HR transfers, the latter being pursued only selectively. From a sector perspective, the notable finding is that transfer seems to be more frequent in the finance sector than in the manufacturing one. This may be related, again, to local competition and radical restructuring in the financial sector. This is explicitly declared by management at US-BAN, who justify the adoption of American management practices (such as performancerelated pay, informality and direct communication) not so much on the grounds of standardization, but for the advantages they produce within the Czech Republic in comparison to the allegedly more bureaucratic Western European competitors.

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Conversely, and within the same logic, the lower transfer in automotive companies is not difficult to understand. Transfer actually occurs, but selectively, on those practices that are directly related to the international standardization of production: working time (D-CAR2), teamwork (UK-CAR), and health and safety (D-CAR1, D-CAR2, UK-CAR). In addition to that, some specific HRM solutions are transferred when they are deemed to constitute company-specific advantages, such as in the case of the appraisals and pay system at US-CAR. Other practices are not transferred because they are not so integral to the production process and they stem rather from home-country institutional or cultural constraints that are endured, rather than chosen, by the multinationals in their home operations. This line of reasoning is even more pertinent in the case of IR transfers. In this area, transfers are very low overall, but we notice again that they are lower in the automotive sector than in the finance one. Once we look at the details of the specific IR practices, it is clear, though, that automotive companies predominantly perceive their home-country IR arrangements as costs, rather than advantages. Therefore, non-transfer, rather than transfer, is a symptom of the relevance of international competition. This is particularly the case in employee representation and collective bargaining. By contrast, the two finance companies with a medium/high degree of transfers (US-BAN and UK-FIN) are from Anglophone countries and transfer exactly the opposite kinds of practices, that is anti-unionism and union-substituting forms of direct participation (surveys, employee interviews, an employee forum). The sector effect operates then in the opposite direction on HRM and, especially, on IR. Here, the same relevance of international competition considerations implies that automotive MNCs do not want to transfer those home-country operations that are perceived as disadvantages and additional costs, and prefer to benefit from the looser regulations of the Czech Republic. By contrast, finance companies, while still not interested in full transfers, engage in exporting those company-specific HRM and IR practices (pay systems, direct communication) that are seen as valuable assets to face the competition they meet within the host country, or to move within it as product innovators with a first-mover advantage. Overall, such a process results in a very pragmatic, or even opportunistic, approach to employment relations in the host country. And one that works against the transfer of the European social model. The outcome is that in only four of the twelve case studies (and only two of the eight German or Austrian ones) there are trade unions, and in none is there a works council (despite the Directive on Information and Consultation of Employees). In five companies, among which are four Germanic ones, anti-unionism and unilateralism are explicit. By contrast, and this is a new development in comparison to the previous study of 2004–05, there is a clear effort towards direct participation. Such effort is particularly developed

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and sophisticated in the Anglo-American companies, which often draw on solutions from the countries of origin. Particularly popular are individual interviews and job satisfaction surveys. The same direct participation methods reveal, however, limitations and a social demand for more information, which at US-CAR has translated in broader scope for trade unions. In this company, employee surveys revealed dissatisfaction with the existing degree of information. In Anglo-American companies in the finance sector, the preference for direct participation is even clearer. US-BAN explicitly rejects trade unions as a ‘third, external part’ distorting the direct unitaristic relationship between employer and employees. Its 3000 Czech employees have no form of collective representation besides the statutory elected representative in the supervisory board, who is a manager. Interestingly, this elected representative has been asked by employees to demand higher salaries, and therefore to play a collective bargaining role, which apparently, to a small extent, he does play. UK-FIN introduced a works council like an ‘employee forum’ in most of its European operations. Interestingly, this was first experimented in Poland and then introduced back in the UK and in other countries, including the Czech Republic. In spite of the great importance given to these bodies, their actual working is questionable: in the Czech Republic, its mandate had expired 2 years before our research visit, all representatives had left the company since, and no new elections had been yet organized because management prioritized the conduction of an employee survey, a more important direct communication tool. Similar limits are apparent in the case of direct participation tools in German- or Austrian-owned companies. Sections of management (at D-CAR2 and D-INS2) are requested to play representative and mediation functions. The suggestion scheme at D-CAR1 is run in a more managementled way than in Germany. In most companies, employees do not participate actively in works meetings. Although the Czech operations of these companies are, overall, successful, the prevalence of direct participation does not seem to have avoided a ‘representation gap’ and a demand for collective services in the workplaces, in a situation similar to that of the US (Freeman et al., 2007).

4. Conclusion The results of our 24 case studies lead us to qualify the view of those researchers who had detected some positive effect of German investors in ´ industrial relations in the NMS (Bluhm, 2007; Jürgens and Krzywdzinski, 2009; Tholen, 2007). The positive cases are not just contingent and partial – they are so rare to be the exceptions to the rule, like GER-PL1. The limited ´ ‘high-road’ model detected by Jürgens and Krzywdzinski (2009) is restricted to the automotive sector, where a core skilled and committed workforce

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is always needed, and a pure ‘low-road’ path is unviable. Their findings actually confirm a substantial departure from Western models, in terms not just of industrial relations (frequent anti-unionism, no works councils), but also more extensive use of agency work, temporary contracts and unilateral restructuring. Moreover, as in our research, the only systematic difference between the German investors and the other companies seems to be in the skill creation area. Overall, our case studies confirm the lack of interest, by Western employers, in transferring any form of employee representation; this has also been noticed among Norwegian (Kvinge and Rezanow, 2008) and Dutch (Kahancová, 2007) employers. By contrast, in the service sector there is transfer of direct participation techniques meant to actually prevent or bypass employee organization. Our first set of case studies, in 2004–05, dismantled the hopes in German investors. Our second set, in 2007–08, dismantled the hopes that the situation could be better in the service sector. Actually, the radical MNC-led restructuring of the (mostly new) service sector in postcommunist countries is often very hard on employees – the Polish retail sector described by Hardy (2009) is one extreme example. MNCs, rather than offering opportunities for organizing industrial relations, have been a centrifugal force for further disorganized decentralization of employment relations. As Rugraff (2006: 455) put it, ‘by their weight in the economy and their determinant role in the co-ordination of these countries’ economies, MNCs impede the emergence of organized industrial relations.’ This happens even if most of them come from continental Europe, the cradle of the so-called European social model. Given the NMS’ dependence on FDI for capital formation, labour relations come to be perceived as a competitiveness issue, resulting in a deep power unbalance between MNCs and local institutions. The former, therefore, are attracted by any opportunity for cost-cutting functional equivalents to their established, but expensive, Western practices. This is not a promising development, even if the possibility of union and political reactions is not to be dismissed were the labour market conditions to change (Meardi, 2007).

Notes ∗

An earlier version of some sections also appeared in G. Meardi, P. Marginson, M. Fichter, M. Frybes, M. Stanojevi´c and A. Tóth, ‘Varieties of Multinationals’, Industrial Relations, 48, 3 (2009). The authors acknowledge the contribution of P. Marginson, M. Fichter, M. Frybes, M. Stanojevi´c and A. Tóth, as well as of Manfred Krenn, to the research this chapter is based on.

1. Companies are referred to by acronyms, indicating the country of origin (Germany or US) and the country of investment (Poland, Hungary or Slovenia). 2. Companies are referred to by acronyms, indicating the country of origin (Germany, Austria, the UK or US) and the sector (cars, insurance or banking).

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References Almond, P. and Ferner, A. (eds) American Multinationals in Europe: Managing Employment Relations Across National Borders (Oxford: Oxford University Press, 2006). Bluhm, K. ‘Exporting or Abandoning the German Model? Labor Policies of German Manufacturing Firms in Central Europe’, European Journal of Industrial Relations, 7, 2, 153–173 (2001). Bluhm, K. Experimentierfeld Ostmitteleuropa? Deutsche Unternehmen in Polen und der Tschechischen Republik (Wiesbaden: VS-Verlag, 2007). Bohle, D. and Greskovits, B. ‘Capitalism without Compromise: Strong Business and Weak Labor in Eastern Europe’s New Transnational Industries’, Studies in Comparative International Development, 41, 1, 3–25 (2006). Czarzasty, J. ‘Warunki pracy i kultura organizacyjna’, in Polacy pracujacy ˛ a kryzys fordyzmu, edited by J. Gardawski (Warsaw: Scholar, 2009). Doellgast, V. and Greer, I. ‘Vertical Disintegration and the Disorganization of German Industrial Relations’, British Journal of Industrial Relations, 45, 1, 55–76 (2007). Dörrenbächer, C. National Business Systems and the International Transfer of Industrial Models in Multinational Companies (WZB Discussion Paper FS 1 02-102, 2002). Fichter, M. ‘The German Way: Still Treading the Path of Institutionalized Labor Relations?’, in Surviving Globalization, edited by Stefan Beck, Frank Klobes and Christoph Scherrer (Dordrecht: Springer Verlag, 2005). Freeman, R., Boxall, P. and Haynes, P. What Workers Say: Employee Voice in the AngloAmerican Workplace (Ithaca, NY: ILR Press, 2007). Galgóczi, B. ‘The Impact of Multinational Enterprises on the Corporate Culture and on Industrial Relations in Hungary’, South-East Europe Review, 1, 27–44 (2003). Hall, P. and Soskice, D. (eds) Varieties of Capitalism: The Institutional Foundations of Comparative Advantage (Oxford: Oxford University Press, 2001). Hardy, J. Poland’s New Capitalism (London: Pluto Press, 2009). Hartz, P. Macht und Ohnmacht: Ein Gespräch mit Inge Kloepfer (Pößneck: Hoffmann und Campe, 2007). Jürgens, U. and Krzywdzinski, M. ‘Work Models in the Central Eastern European Car Industry: Towards the High Road?’, Industrial Relations Journal, 40, 6, 471–490 (2009). Kahancová, M. Making the Most of Diversity: Social Interaction and Variation in Employment Practices in a Multinational Company (Amsterdam: Amsterdam University, 2007). Kvinge, T. and Rezanow, U.A. ‘Do Norwegian Companies’ Direct Investments in Poland Imply Exports of Labour Relations?’, Economic and Industrial Democracy 29, 1, 125–155 (2008). Marginson, P. and Meardi, G. Multinational Companies and Collective Bargaining (Dublin: European Foundation for the Improvement of Living and Working Conditions, 2009). Meardi, G. and Tóth, A. ‘Who is Hybridising What? Insights on MNCs’ employment practices in Central Europe’, in Multinationals and the Construction of Transnational Practices: Convergence and Diversity in the Global Economy, edited by F. Anthony, Q. Xavier, and S.-R. Carlos, pp. 155–183 (London: Palgrave, 2006). Meardi, G. ‘More Exit after More Voice? Unstable Industrial Relations in Central Eastern Europe’, Industrial Relations Journal, 38, 6 (2007).

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Meardi, G., Marginson, P., Fichter, M., Frybes, M., Stanojevi´c, M. and Tóth, A. ‘Varieties of Multinationals: Adapting Employment Practices in Central Eastern Europe’, Industrial Relations 48, 3 (2009). Onaran, Ö. and Stockhammer, E. ‘The Effect of FDI and Foreign Trade on Wages in the Central and Eastern European Countries in the Post-transition Era: A Sectoral Analysis for the Manufacturing Industry’, Structural Change and Economic Dynamics 19 (2008). Rosenzweig, P. and Nohria, N. ‘Influences on Human Resource Management Practices in Multinational Corporations’, Journal of International Business Studies 25, 2 (1994). Rugraff, E. ‘Firmes multinationals et relations industrielles en Europe Centrale: une approche institutionnaliste’, Relations Industrielles/Industrial Relations 61, 3, 437–464 (2006). Tholen, J. Labour Relations in Central Europe. The Impact of Multinationals’ Money (Aldershot: Ashgate, 2007). Tüselmann, H.-J., Heise, A., McDonald, F., Allen, M. and Voronkova, S. Employee Relations in Foreign-Owned Subsidiaries: German Multinational Companies in the UK (London: Palgrave Macmillan, 2008).

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3 Manufacturing and Services FDI Trajectories: Colonial Perceptions and Union Opportunities in Central and Eastern Europe Steve Jefferys

I personally think that they treat us like their former colonies: exploit us as much as they can and then leave. Most likely they will sell us off. – Polish energy sector trade unionist, Kraków, September 19, 2006 They came here to make a profit, not to provide jobs and workplaces or to answer customers’ needs. – Hungarian retail sector trade unionist, Budapest, June 30, 2006 For many workers in Central and Eastern Europe (CEE), the Russian domination of their political and economic systems was experienced as colonialism. It could be more or less paternalistic or more or less oppressive, or even both at the same time. It is not surprising, then, that the exchange of Russian control for ownership by a much wider range of foreign nationals conjures up the Polish energy sector trade unionist’s use of colonial imagery. A Hungarian hospitality sector worker told us that French managers ‘bring an organisational culture and an organisational structure, but they do not take into account local aptitudes, and the reality that certain institutions or infrastructures do not exist’ (Budapest hotel receptionist, May 11, 2006). Even 10 years after their sale to foreign companies, the high level of domination of the top posts in many subsidiaries of foreign-owned companies by exceptionally higher-paid expatriates who lack host-country language skills and often do not intend to learn the local language remains a source of frustration.1 While much has been written demonstrating the positive impact of foreign direct investment (FDI) on recent economic growth in CEE (BoudierBensebaa, 2008; Mickiewicz et al., 2000; Zoubir and Lhabitant, 2003), there is another side, and other arguments. Not only does the pace and scale 45

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of FDI present real economic dilemmas for host national policy-makers as to how to orientate their growth on exports or on import-substitution (Guillén and Suárez, 2005), but FDI’s sectoral dimensions open up major gaps between workers in different industries and different firms (Martin, 2006). Bohle and Greskovits (2006: 7) also make a strong argument that ‘the East European industrial relations and welfare systems have been undermined by labor weakness in relation to transnational capital which has different preferences and can act more powerfully in the East European economic and political contexts than at home.’ To analyse the dilemmas and implications for CEE employment relations, this chapter first sketches the extent of FDI into the CEE economies and then examines the national contexts in which the employment relations systems are evolving. Its third section considers sector differences and their implications for employment relations. Its concluding section argues that it is unwise to make the blanket assumption that strong FDI automatically undermines CEE social models. Colonialism, after all, helped create the social movements within it that eventually led to independence.

1. FDI and a range of welcomes The huge impact of FDI on the national economies of the CEE10 is shown in Table 3.1 in terms of the average inflow of FDI and average percentage of gross fixed capital formation it comprised over the 3 years 2006–08, the Table 3.1 FDI and Greenfield sites in Central and Eastern Europe, 2006–08, ranked by annual average FDI Average annual FDI inflows ($bn)

FDI average annual share of new capital investment (%)

Total number of FDI Greenfield sites 2008

Cumulative inward stocks as a share of 2008 GDP 1990–2008 (%)

Population 2009 (millions)

23 25 83 20 31 21 34 19 21 10

1, 539 1, 532 831 766 1, 031 509 236 249 307 111

30.7 36.7 92.2 52.7 41.4 48.4 68.8 27.2 33.9 29

38.14 21.45 7.61 10.47 10.03 5.41 1.34 3.35 2.26 2.03

2006–08 Poland Romania Bulgaria Czech Republic Hungary Slovakia Estonia Lithuania Latvia Slovenia

19.6 11.5 9.5 8.9 6.7 3.7 2.2 1.9 1.8 1.3

Source: UNCTAD (2009: 212, 247, 251); Column 5 from: http://epp.eurostat.ec.europa.eu/tgm/ table.do?tab=table&init=1&plugin=1&language=en&pcode=tps00001.

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numbers of Greenfield sites ascribed to foreign investment over the 5 years, 2004–08, and the cumulative level of inward FDI stocks as a percentage of gross domestic product in 2008. While the huge levels of FDI created more than one thousand Greenfield sites in Hungary, Poland and Romania, proportionately to their populations the relative size of the cumulative FDI stocks to the current GDP in Poland and Romania were also among the lowest in the CEE10. This reflects both the different sizes of the economies concerned and the choices made by policy-makers. The scale of foreign penetration into CEE was huge by comparison with the much longer experience of Western Europe. In 2005 it was estimated that as many as 26,000 foreign affiliates were located in Hungary; in Poland in 2001 this figure was nearly 14,500, and in 2000 in Bulgaria the estimate was over 7,100. While these figures do not compare the scale of investment, the equivalent numbers for France in 2002 were 10,713 affiliates and for the UK in 2005, 13,667 (UNCTAD, 2007: 217). These massive FDI flows, ranging between $1615 and $513 per capita per year into Estonia and Poland respectively between 2006 and 2008, are directly linked to the politics of privatization. Almost all the privatization of large firms was carried out directly by foreign multinationals or indirectly by national companies borrowing from multinational banks. Between 1990 and 1998 FDI increased 25 times in Central Europe (Mickiewicz et al., 2000: 10) in a real expansion of non-national ownership of services and manufacturing firms. The huge variations in inward FDI reflect judgements about the attractiveness of the host economies being made by multinational companies (MNCs) based elsewhere, but also policy decisions taken at the national level. Work by Guillén and Suárez (2005) suggests host country’s strategies towards MNCs may be analysed as permissive or restrictive, and according to whether they generally aim to boost exports or to develop substitutes for imports. Their model based on these two axes is shown in Figure 3.1. This model offers some insights into variations of FDI into Central and Eastern Europe. Thus, for example, the Hungarian strategy of economic development could best located within the top-left export-orientated and permissive quadrant, both in terms of inward and outward FDI. Zoubir and Lhabitant (2003: 92) confirm the widely held view that ‘Hungary is today one of the most favourable markets for business in Central Europe.’ Hungary was ‘willing to ignore or downplay ownership issues, and to pursue full integration with the global economy or trade blocs in exchange for economic growth and job creation’ (Martin, 2005: 77). In the 1990s, of the total privatization investments in previously state-owned industries, 43 per cent was sourced locally (some of whose capital was loaned through foreign banks) and the rest was FDI. In Poland’s case, while it may also be analysed as having ‘permissive’ policies towards FDI, its economic development policies are located more clearly

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FDI, MNCs and Employment Relations Transfers Economic development strategy Export-orientation

Permissive

Policies towards MNCs

Import substitution

Inward FDI:

Inward FDI:

acquisitions in mature

foreign MNCs viewed as

industries; Wholly owned in

necessary evils; joint ventures

growth industries. Flexible

(JVs) in mature industries; JVs

highly trained and stable labour

or wholly owned in growth

Outward FDI:

industries. Increased salaries

high levels; large

and stable labour force

oligopolistic firms

Outward FDI: low levels

Inward FDI:

Inward FDI:

foreign MNCs kept at arm’s

foreign MNCs opposed to

length to obtain skills in

preserve national sovereignty

technology and marketing; contract work or minority JVs. Restrictive

Figure 3.1

Low wages, union avoidance. Outward FDI:

Outward FDI:

high levels

low

Economic development and foreign direct investment.

Source: Guillén and Suárez (2005: 134).

in the ‘import substitution’ quadrant, where they can ‘sometimes give way to nationalist sentiment’. Writing prior to EU accession, Zoubir and Lhabitant (2003: 147) commented that ‘privatization in Poland is progressing rather slowly, especially in areas the Polish government considers strategic sectors: banking, insurance, telecommunications, mining, steel, defence, transportation, energy and broadcasting.’ More recently, a 2006 Polish law listed the country’s largest copper producer among 15 ‘strategic’ firms for privatization where the government would retain a ‘gold veto’.2 Poland placed a greater emphasis on encouraging ‘foreign multinationals to invest jointly with local businesses’ seeing this as a means to accelerate entry to the ‘technology and capital that the average developing country lacks’. However, the risks of this import-substitution approach are that ‘the multinationals attracted to an import-substitution environment will rarely make the most innovative products, transfer the most sophisticated technology, or spend large sums on workers’ training, given that . . . (they) obtain large profit margins with mature or plainly obsolete products’ (Guillén and Suárez, 2005: 135–6). Slovenia, in contrast to the other CEE10, moved much more slowly and cautiously towards privatization and open invitations to MNCs, and

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simultaneously sought to retain its own manufacturing base. In 2003, when 29 per cent of listed companies in the EU15 were owned by foreign investors, the proportion in Hungary was 73 per cent, in Lithuania 53 per cent and in Poland 39 per cent, but in Slovenia it was only 8 per cent (Huffschmid and Runje, 2008: 2). Slovenia could be situated in the bottom-right quadrant of the model. National policy-makers do play a part in shaping the privatization process and the attractiveness of their economy to outside intervention.

2. FDI, economic growth and trade union power What impact has this high-speed and relatively high volume injection of FDI had on the economies of CEE? There has been high economic growth, particularly in the decade before 2006, but this was accompanied by considerable segmentation of the host economies, by a very rapid transition to new forms of privatized employment relationships and by much employment uncertainty. Nearly universally, trade union membership and collective agreement coverage also declined rapidly. Let us look first at what happened to growth rates in real terms. Figure 3.2 shows the different rates of progress made by CEE countries towards the EU27 average in terms of GDP per person. Slovenia and the Czech Republic, which entered the EU with the highest per capita GDP within 95 90 85 80 75 70 65 60 55 50 45 40 35 30 25

Slovenia

Czech Republic

Slovakia

Hungary

Lithuania Poland

Estonia

Romania Bulgaria

Latvia

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Figure 3.2 CEE gross domestic product in purchasing power standards compared to the EU27 average, 1997–2008. Source: Eurostat. http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=1& language=en&pcode=tsieb010 (Updated 9.4.2010).

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the former communist bloc countries, retained their relatively high ratios to the European average. However, while the relative position of the Czech Republic and Poland improved by just 7.5 per cent and 9.7 per cent respectively between 1997 and 2008, Slovakia (21 per cent), Latvia (22.7 per cent), Lithuania (23.3 per cent) and Estonia (25.5 per cent) all improved their GDP per head ratios to the EU27 average quite dramatically. The other four economies made improvements ranging between 11.3 per cent (Hungary) and 15.4 per cent (Romania). UNCTAD (2009) argues that FDI was the motor of this growth from 1997 until 2006. It contributed three-quarters of the average 3.5 per cent economic growth that occurred in that decade. Even before the impact of the 2008–10 economic crisis was felt on the new EU economies of CEE, the overall picture was nonetheless highly diverse. Bohle and Greskovits (2006: 12) demonstrate that the proportion of total exports made up of highskilled, capital- and labour-intensive goods from the Visegrád countries and Slovenia rose on average from 35 per cent to 49 per cent from 1991–95 to 1996–2002, while the 5 other CEE country averages fell from 29 per cent to 26 per cent. In 2008, output per head in the two most recent accession countries remained at less than half the EU27 average, while in the Czech Republic (80.4 per cent) and Slovenia (90.9 per cent) it was now higher than one EU15 member state, Portugal (which had stagnated at around 75–78 per cent), for the whole period, and Slovenia was catching up with Greece (94.3 per cent in 2008). The consequences of the 2008–10 global finance crisis on the 16 per cent CEE average 11-year climb towards the EU average are uncertain. But the pattern is unlikely to be uniform if the region’s experience of unemployment in the 15 years before 2010 is any guide. Figure 3.3 confirms the impact painful privatization measures and budgetary squeezes had in the second half of the 1990s in much of the region, but also points to two distinctive experiences. In Poland, Slovakia, Bulgaria, Lithuania, Estonia and Latvia, unemployment rose or remained above 10 per cent from 1998 to 2003–04. In these economies it then dipped to between 5 and 10 per cent until 2008 before rising in the crisis. In contrast, in Hungary, Slovenia, the Czech Republic and Romania unemployment started at below 10 per cent and remained below that level throughout the period. In the run up and immediate aftermaths of their EU accessions, the jobless total fell four times more rapidly in CEE EU members than it did in the EU15 member states between 2004 and 2007. But in the crisis the reverse happened: unemployment across the CEE rose three times as quickly as in the EU15 between 2008 and 2009. Nearly all the CEE economies that had become highly dependent upon Western European markets were hit even harder than the EU15 economies. Most of CEE has now undergone three huge cycles of economic transformation within just 20 years. The general picture can be sketched like this,

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20 Slovakia

17.5

Latvia Bulgaria

15

Poland

Lithuania

12.5 Estonia 10

EU15 Romania

Hungary 7.5 Slovenia

Czech Republic

5 2.5 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Figure 3.3

Unemployment in the CEE10 and the EU15, 1996–2009.

Source: Eurostat, http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=1& language=en&pcode=tsiem110 (Last updated 31.3.10).

with some countries moving more or less rapidly along the path. Initially there was a huge recession in the early 1990s when the old Soviet market system simply collapsed without anything replacing it. Then there was a second transition crisis that lasted from roughly 1995–96 to 2002–03 as the economies were privatized and partly fell under foreign control. This process also involved massive redundancies as companies underwent significant modernization. And finally, after a 5-year period of job creation and falling joblessness, the situation reversed very suddenly in 2008 and 2009. This last turn of the screw was met with an instant sharp reaction by the weakened trade unions in the countries most exposed to the crisis: in Latvia, 250,000 people signed a petition to recall parliament, and in January 2009 there were mass angry street demonstrations there and in Lithuania, and in June 2009 a protest strike in Estonia. Since then the demobilizing effects of unemployment have muted the protests. Besides playing a role in helping ‘Europeanize’ these economies in ways that helped prepare the ground for EU accession, Martin (2006: 1353–4) argues that FDI has also helped create a more ‘segmented’ business system and national economic and employment model than existed in the EU15. He suggests ‘capitalism in Central and Eastern Europe is segmented into three types . . . managerial capitalism, in the privatized and about to be privatized state sectors; entrepreneurial capitalism, in the ab initio private sector; and international capitalism.’ He goes on to argue that ‘each form

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of capitalism has its characteristic pattern of employment relations.’ This ‘segmented’ social model should be regarded less, he maintains, as temporary or transitory, and more as rooted in a core dualism: influences that are ‘governed by inheritance from the socialist past’ in tension with ‘aspirations for a free-market future’ (ibid.: 1355). The effects of this segmentation process carving through their national economies and dividing the MNC sector, the nationally owned private large company sector, the public sector, and the large small-scale and informal sectors were felt quite sharply by the CEE trade unions. The dramatic shrinking of the public sector, its privatization into foreign hands or into those of nationally based entrepreneurs (many of whom were former managers or government officials with access to bank credit), sharp and rapid de-industrialization and high levels of unemployment, along with the widespread political and popular discredit arising from the unions’ former close association with undemocratic regimes combined to exert strong structural pressures on the high levels of trade union density that existed at transition. Trade union membership, which before 1989 had been often chosen as a means of ensuring conformity rather than as a vehicle for challenging management, collapsed after transition. The official CEE trade unions had been viewed by most people as indistinguishable from the government: they were not independent of the employer (the government in most cases) and they were not based on workplace activists. After 1989, the claim of almost all CEE unions3 to represent employee voice in a given industry or workplace was, therefore, very difficult to prove. When in the 1990s the movement of jobs out of production and extractive industries into service industries accelerated, the previously strong manual worker unions became pale shadows of their former selves. As in Western Europe it was also extremely difficult to establish unions in ‘new’ high-tech industries. But unlike the EU15, where non-market services had developed over the period 1970–95, providing the trade union movement with a layer of membership to replace that lost in manufacturing, in CEE, the non-market (primarily state) sector just stagnated from 1995. In Hungary it was 23 per cent of employees in 1995 and in 2005, and in Poland it rose marginally from 27 to 28 per cent (EUKLEMS, 2008). Without any obvious new sources of recruitment, and still struggling to articulate a new independent identity, CEE trade union density fell drastically. In Poland the 1998 European Social Survey estimated 24 per density, but this was down to 17 per cent by 2004.4 In Hungary the Labour Force Survey found that density had fallen from 19.7 per cent to 16.9 per cent between 2001 and 2004.5 In Bulgaria a 2004 study suggested an estimated national level of between 20 and 25 per cent.6 By the second half of the first decade of the twenty-first century, trade union density throughout the CEE10 with the

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45

40

35

30

25

20

15 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

EU6

EU9

EU12

EU15

EU12

EU27

Source: ICTWSS database, weighted arithmetic means.

Figure 3.4

Union density rates in the CEE and the EU, 1960–2005.

Source: Figure taken from Visser and Beentjes (2009: 20).

principal exception of Slovenia and with the partial exception of Romania had fallen to below the levels of Western Europe. This sharp decline is clearly demonstrated in Figure 3.4. The following table provides some more recent union density data, and a broader picture of the degree and nature of trade unionism in CEE. Only Latvia has a single peak trade union organization. Elsewhere, there is union (and often employer) fragmentation. This partially reflects the presence in most CEE of ‘continuity’ unions that survived the transition, weakened but often with many of the former leaders and activists continuing to play a role and providing a culture or ideological perspective that often included an emphasis upon working-class interests. It also reflects the presence in many of these same countries of ‘alternative’ trade union centres, built around political opposition to the former regime, often during the period of transition. In the countries with the deepest fragmentation it also represents a combination of political and sectoral differences between trade unions, as well as constitutional and institutional industrial relation contexts that support a plurality of social partner voice. Table 3.2 also suggests a strong relationship between higher levels of trade union membership and the likelihood of the country’s tripartite employment relationships having recently led to the signing of a social pact between the government, employers and unions.

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Table 3.2

CEE10 Trade Unionisms, 2007–08 (ranked by trade union density)

Estonia Lithuania Poland Latvia Hungary Slovakia Bulgaria Czech Republic Romania Slovenia

Trade union membership density % (latest year)

No. of peak trade unions

9 10–12 14 15 17 17 20 21 30–35 44

2 3 3 1 6 2 2 2 4 6

No. of striker days per 1000

n/a 1.6 3.5 0.6 3.5 0.01 n/a n/a 31.5 n/a

% formally covered by collective agreements 25 10 40 24 30 35 36 26 53 96

Social dialogue pacts 2006–10 No No No No No Yes Yes Yes Yes Yes

n/a = Not available Sources: Trade union density from: OECD (2009) Statistical Extracts, ETUI National Industrial Relations country reports or expert communications from Laas in Estonia; Lulle in Latvia; Woolfson in Lithuania; Cziria in Slovakia; Pop and Stoian in Romania; and from Poje in Slovenia. Peak trade unions are the state-recognized national union confederations; Trade union density figures provided by ETUI National Industrial Relations country reports or national experts in private communications as above. Average annual striker-days per 1000 employees (2000–07) from OECD (2009) Statistical Extracts except for Slovakia where the data are just for 2005 with a 0 response for all other years. Collective bargaining coverage data from: ETUI National Industrial Relations country reports or expert communications (as above); for Bulgaria, Skarby (2006); for Poland, Gault (2005). Recent social dialogue agreements from: EIROnline and expert communications (as above).

While change has affected all the economies of CEE, there are clear sectoral differences in trade union density and the presence or absence of welfare between the public sector and the private sector, and between some parts of manufacturing and services, and those areas with high FDI and those without. In addition, the public sector and some parts of the newly private sector with considerable FDI show slightly stronger continuities with the pre-1989 employment regulatory environment than anywhere else. These distinctions are examined in the following section.

3. FDI effects on sectoral trade unions Before the 1990s, global FDI had been largely about investment in raw material extraction, the provision of infrastructure and manufacturing. Thus, services only comprised 49 per cent of world inward FDI in 1990. But by 2005 service sector FDI made up 65 per cent of world inward FDI stocks (UNCTAD, 2005). This new global trend was reflected in CEE. There, raw material extraction such as coal mining was well developed, and manufacturing was widespread, if often using outdated machinery and methods, but there was a huge historic underdevelopment of services. Two processes combined: a

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political transition that swept away institutional barriers to change and economic de-industrialization, as those old production industries that were not taken over by foreign multinationals tended to collapse, and new investments occurred in the service industries. The banking, insurance, retailing, tourism, real estate and telecommunications industries were all in their infancies, and provided a huge opportunity for FDI by service companies. Considering just the cases of Poland and Hungary compared to the EU average and France, Table 3.3 shows the different rates of decline in the share of employment of the goods production sectors of the EU15, France, Hungary and Poland, followed by the different rates of expansion of service employment shares. The employment shares in 1995 of goods and services in the two CEE countries highlighted here were almost exactly equivalent to those in the EU and France around 1975, two decades earlier. In the decade 1995–2005, Poland lost jobs in goods production at twice the rate of France and of the EU15, while Hungary’s job losses were 50 per cent higher. The extent of Poland’s 10-year decline in the share of goods manufacturing had taken 15 years in the EU15. Decision-makers who relocated manufacturing activities into CEE had four main issues in mind: they looked for a well-educated and experienced skilled labour supply ready to work for significantly lower wages than in most EU15 countries but at the same level of quality; they sought tax incentives from host governments to encourage their relocation and preferred a soft, business-friendly regulatory environment; they needed to have good transport available to take exports back to Western Europe and, as a bonus, they preferred locations close to local markets for their wares; finally they preferred industries whose exports could cheapen their country-of-origin assembly processes.7 This series of factors often added up to investment

Table 3.3 %

Goods EU15 France Poland Hungary Services EU15 France Poland Hungary

Employment shares (%) of Goods and Service Sectors, 1975–2005 1975

1980

1985

1990

1995

2000

2005

1995–05 % change

43 44

40 39

35 34

33 31

29 27 42 39

27 24 38 36

25 23 34 33

–4 –4 –8 –6

52 52

55 57

60 62

63 66

67 70 54 57

69 72 59 58

72 73 63 61

+5 +3 +9 +4

Source: EUKLEMS (2008).

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decisions that were more likely to favour Brownfield sites, or Brownfield regions with a highly skilled local labour market. Hence the higher frequency of a trade union presence and some form of existing agreements or custom and practice that influenced the setting of terms and conditions. Where Brownfield sites were selected there were then huge pressures to invest and modernize the facilities and to shed labour in order to raise profitability. In the early 1990s, although some CEE production and extraction industries already included firms that operated to global export standards, employing many highly skilled and experienced workers, this was rarely the case in services. Telephone and computer communication facilities lagged hugely behind developments in Western Europe. Tourism lagged still further behind. Financial intermediaries – banks, building societies, credit unions, financial advisers, pension funds – that offered facilities linking lenders and borrowers were barely developed at all; insurance companies had barely any penetration. This underdevelopment meant that services FDI looked primarily at the CEE host countries for local market opportunities and relatively inexpensive access to these local markets. First, there was the opportunity to participate in massive anticipated market growth. There was an almost guaranteed ‘catch-up’ of sales towards Western European norms in these service industries. Retail distribution attracted massive inward investment in the larger (Poland) and wealthier (Hungary) economies of CEE. Second, there was the immediate lure of quick access to a substantial customer base through acquiring state assets and businesses in the privatization of telephone companies, banks, electricity companies and hotels. MNCs with the right combination of access to capital and service sector expertise were particularly interested. Where new industries like retailing were developing, this often led them to invest in Greenfield facilities. Where, as in banking, an old network of branches was being taken over, the incoming MNC would invest in marketing new products and in training staff to be able to sell them effectively. Similarly, in hotels, where an existing state-run chain was being taken over, the inward investor looked to shed labour and introduce new ‘foreign’ forms of work organization.

4. Manufacturing and services FDI and employment relations Manufacturing FDI generally aims to produce goods that are sold and consumed nationally or internationally. Service sector FDI, in contrast, aims primarily to sell services to local consumers. Banking services are for local people, so are insurance services, local shops, and producers and suppliers of electricity.8 Hotels are slightly different, since they involve selling services to outsiders (from other regions or countries): customers bring money into the local market from outside and then consume local supplies of beds,

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sheets, meals, cleaning, tourist attractions and all the labour involved in these processes. Whereas manufacturing sites can be geographically decentralized, occasionally to even quite isolated locations (provided transport routes are good), service sector industries need to be at or near the heart of population concentrations. Equally, while the occasional geographic remoteness, sometimes high skill requirement, and larger workplace size of manufacturing often enables manufacturing labour to bargain from a relationship of strength, in services where the opposite elements (labour surpluses, medium/low skills, smaller workplaces) tend to apply, labour is more easily replaced and thus universally has less bargaining power. Another significant difference between manufacturing FDI whose subsidiaries supply national and international markets, and locally focussed service sector FDI is that the former systematically attempts to target production norms, quality and productivity levels at international or national standards, while the latter is more concerned to successfully adapt its services so they meet (and exceed) local standards. Hence manufacturing HRM is more likely than much of the service sector HRM to borrow and transfer procedures and practices (including mid-level managers) from other high-performing subsidiaries or from the country of origin. In services, in contrast, only the subsidiary’s most senior executive and an accountant will be expatriates. And, in turn, incoming service sector HRM are more likely to reflect host-country sector employment practices. Even within the service sector, however, there are exceptions to this. Where part of the brand name being sold locally is international reputation, then it is incumbent upon the local subsidiary to capture that reputation without distancing itself too much from the ‘market rate’ for labour and employment conditions. In Poland, therefore, two of the French MNC retailers researched, pay market rates to their staff, but top them up with properly funded benefits and holiday payments. In these cases, paying a slightly higher price for the added ‘quality’ of purchasing from a French organization combines both marketing and HRM strategy, often accompanied by a small price premium to the customer. Where the service sector MNC investor is targeting non-nationals, as in high-class hotels and private banking, HR practices are also more likely to be closer to international norms. Examples of this would be Accor’s five star hotels in Warsaw and Budapest, the BNP-Paribas investment banks in Warsaw, Budapest and Sofia, and Société Générale’s Warsaw bank.

5. Brownfield and Greenfield differences in services Different employment relations experiences were also shaped by whether the FDI was a Greenfield or Brownfield acquisition. This can be illustrated by

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examples taken from research into French MNC activities within the service sectors of Bulgaria, Hungary and Poland (Contrepois et al., 2009). Brownfield acquisitions were typical in the electricity production and distribution industry, where EDF purchased several power plants and took full or large shares of several distribution companies in Hungary and Poland, and through a subsidiary bought a minority share of two hydro-electric plants in Bulgaria. Brownfield FDI also occurred in the hotel sector. Accor initially bought a 20 per cent stake in the Polish Orbis Group in 2000, the year the 80strong chain was privatized. Then it doubled that stake in 2002, and finally raised this to just over 50 per cent in September 2008 (when Orbis had 62 hotels). In Hungary it moved earlier: Accor initially purchased a 51 per cent share of the then 11-hotel Pannonia Group in 1993. In these previously state-owned Brownfield workplaces the incoming French MNC generally found one or more of three forms of functioning trade unionism present: a section of a remodelled national ‘heritage’ trade union federation or confederation, an affiliated section of a national ‘transition’ trade union federation, or a non-affiliated trade union section that had emerged to articulate local employee voice independently of both the national heritage and transition unions. Crucially, the presence of this structured employee voice mechanism during the acquisition period matched French MNC expectations of a social partner with whom they could discuss workers’ jobs and working conditions. Thus, where host-country unions were already present and particularly where, as in EDF and Orbis in Poland, the acquisition by the incoming MNC had to be approved by these unions in advance, or where the law required an agreed redundancy plan, that social dialogue continued before and after acquisition. Greenfield acquisitions, in contrast, tended to have a variety of outcomes in terms of the local social model. So too did the acquisition of the privately owned firms in which no employee representation existed and where there was no tradition of social dialogue. Essentially, these contexts permitted greater choice on the part of the employer as to whether to facilitate the collective expression of employee voice or not. In the retail distribution sector, Carrefour (in Poland and from 2008 in Bulgaria), Auchan (in Poland and Hungary) and Mr Bricolage in Bulgaria all created new (wholly or partly owned) subsidiaries in the CEE and built stores at new sites. Carrefour, in particular, then expanded through a mixture of new stores and purchasing chains from other MNCs that were disinvesting. Despite Auchan and Carrefour holding meetings with the national-level trade unions for commerce and trade, they made no effort to facilitate the development of independent employee voice. Indeed, according to trade union officials whom we interviewed, the two MNCs actually made this more difficult. Where a choice could be made it was to avoid rather than involve trade unions in local-level social dialogue.

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Table 3.4 Brownfield and Greenfield investments and employee representation ranked in eight French service sector MNCs, 2006–08 Multinational

Poland

Hungary

Bulgaria

EDF Accor Carrefour Axa Auchan Mr Bricolage Société Générale BNP-Paribas

BF BF/GF GF/BF BF/GF GF

BF BF/GF

BF BF GF

BF GF

GF GF

GF

GF BF GF/BF

BF = Predominantly Brownfield FDI; GF = Predominantly Greenfield FDI; BF/GF = Initial Brownfield FDI followed by Greenfield; GF/BF = Initial Greenfield FDI followed by Brownfield. Strong shading = Social dialogue with independent trade unions present in most workplaces. Medium shading = Social dialogue with independent trade unions present at one or several workplaces. Light shading = Formal compliance with letter of the law on employee consultation and information.

In banking, BNP-Paribas initially operated new Greenfield single sites with fewer than 150 employees in Poland, Hungary and Bulgaria. In 2007 it flagged up a change in tempo through its acquisition of the market leader in the Bulgarian consumer credit market, JetFinance International. However, in these subsidiaries there was no prior trade union presence and little interest in employee voice among the predominantly managerial staff. Its social model is thus one of virtually unrestrained management rights. Société Générale established an office in Poland as long ago as 1976 when it was still a French state-owned bank. It only started genuinely independent operations after 1989. By 2005 it employed 2300 staff in Warsaw and five other towns. In Bulgaria it bought the private Expressbank chain in 1999, one of the ten largest in the country, with 1100 employees in 2006. However, the social models operated remain those of the exercise of managerial prerogatives without employee voice or social dialogue. The Brownfield (BF) and Greenfield (GF) acquisitions of eight service sector French MNCs are shown in Table 3.4, ranked from the strongest extent of recognition of independent employee voice to the lowest.

6. Conclusion Central and Eastern Europe has experienced four simultaneous transitions in 20 years: shrinking agriculture, de-industrialization, privatization and political democratization. The argument presented in this chapter is that despite the enormity of these transitions, national-level actors, governments, the incoming multinational employers and newly forming host-country

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employer interests, as well as the rebadged or virgin trade unions influence some of the process. As Bohle and Greskovits (2007: 462) rightly argue, support for both continuity (legacies viewed positively) and discontinuity (legacies viewed negatively) ‘had a deep impact on regime types’. Whether the changes were perceived and experienced as a new colonialism or as liberating development aid with few strings attached was dependent both upon the reform elites that took power, but also upon ‘the importance of transnational influences in mediating and consolidating the shape of industrial transformation and social inclusion’. MNC actions, however, also varied significantly between industrial sectors, their skill requirements and the countries they invested in. The argument that there are variations between MNCs and between different sectors in terms of the impact of FDI on employment relations is supported by the 2004 study of 29 Bulgarian MNCs that found that trade union density in those firms was three times higher than in the country as a whole.9 Trade unionists across CEE identify both the gap between MNC practices in different countries, as well as the gap between the best MNC practices and the host-country ‘norm’ as being opportunities for them to make demands on the employers and to organize workers. It is too early to suggest that the ‘new colonialism’ is generating ‘new independence movements’. After two generations of imposed political passivity this would be surprising. However, the trade union led protests in the Baltic states in early 2009 and in Romania in May 2010 against ‘externally imposed’ cuts in welfare and public sector employment suggest that ‘external’ control of national economies will remain an issue around which mobilization takes place.

Notes 1. This paper is based on the research commissioned by DARES, the French Ministry of Labour’s research and statistics division between 2005 and 2009 (see Contrepois et al., 2009). 2. ‘State retains control over 15 privatised companies’, EIRO on-line, January 21, 2006. 3. One partial exception in the early 1990s was Poland, where for a few years the mass opposition movement that constituted the trade union, Solidarnosc, claimed over half the working population as members. 4. http://www.eurofound.europa.eu/eiro/country/poland_3.htm (accessed 24 November 2008). 5. http://www.eurofound.europa.eu/eiro/country/hungary_3.htm (accessed 24 November 2008). 6. http://www.eurofound.europa.eu/eiro/2004/04/feature/bg0404204f.htm (accessed 24 November 2008). 7. Bohle and Greskovits (2006: 13) point out how MNC investment in Hungary from 1996 helped high-skilled labour-intensive exports of electronic and electrical goods to jump from 15 per cent of all Hungarian exports to 35 per cent in 2003, while

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the equally labour-intensive, but low-skilled textile, garment and footwear exports fell from 15 per cent to 5 per cent of the total. 8. Bulgaria is a partial exception in that it also exports some electricity to neighbouring countries. 9. http://www.eurofound.europa.eu/eiro/2004/04/feature/bg0404204f.htm (accessed 24 November 2008).

References Bohle, D. and Greskovits, B. ‘Capitalism Without Compromise: Strong Business and Weak Labor in Eastern Europe’s New Transnational Industries’, Studies in Comparative International Development 41, 1, 3–25 (2006). Bohle, D. and Greskovits, B. ‘Neoliberalism, Embedded Neoliberalism and Neocorporatism: Towards Transnational Capitalism in Central-Eastern Europe’, West European Politics 30, 3, 443–446 (2007). Boudier-Bensebaa, F. ‘FDI-Assisted Development in the Light of the Investment Development Path Paradigm: Evidence from Central and Eastern European Countries’, Transnational Corporations 17, 1, 37–67 (2008). Contrepois, S., Jefferys, S., Kwiatkiewicz, A., Szabo, M., and Vladimirov, Z. ‘Dans quelle mesure le modèle de relations sociales français est-il transférable? Les multinationales françaises et leur influence sur l’évolution des relations professionnelles en Bulgarie, en Hongrie et en Pologne’, London: Working Lives Research Institute (2009). EUKLEMS. ‘Growth and Productivity Accounts’ (2008). Gault, F. ‘Les atouts des CE ont conquis les Polonais’, Entreprise & Carrières, 22 au 28 février (2005). Guillén, M.F. and Suárez, S.L. ‘The Institutional Context of Multinational Activity’, in S. Ghoshal and D. E. Westney (eds), Organization Theory and the Multinational Corporation (Basingstoke, Palgrave Macmillan, 2005). Huffschmid, J. and Runje, J. ‘Privatisation and the European Social Model’, PRESOM Newsletter Issue 9, 1–5 (2008). Martin, R. ‘Politics and Employment Relations: The Power of Labour in Poland after the Fall of Communism’, in H.-J. Stüting, W. Dorow, F. Claassen and S. Blazejewski (eds), Change Management in Transition Economies: Integrating Corporate Strategy, Structure and Culture (Basinstoke, Palgrave Macmillan, 2005). Martin, R. ‘Segmented Employment Relations: Post-Socialist Managerial Capitalism and Employment Relations in Central and Eastern Europe’, International Journal of Human Resource Management 17, 8, 1353–1365 (2006). Mickiewicz, T., Radosevic, S. and Varblane, U. ‘The Value of Diversity: Foreign Direct Investment and Employment in Central Europe During Economic Recovery’, One Europe or Several ESRC Programme, University of Sussex, Sussex European Institute (2000). OECD. (2009). ‘OECD Factbook 2009.’ Skarby, E. ‘Capacity Building for Social Dialogue in Bulgaria’, EIROnline, 19 September (2006). UNCTAD. ‘World Investment Report 2005: Transnational Corporations and the Internationalization of R&D’, New York and Geneva, United Nations Conference on Trade and Development (2005).

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UNCTAD. ‘World Investment Report 2007: Transnational Corporations, Extractive Industries and Development’, New York and Geneva, United Nations Conference on Trade and Development (2007). UNCTAD. ‘World Investment Report 2007: Transnational Corporations, Agricultural Production and Development’, New York and Geneva, United Nations Conference on Trade and Development (2009). Visser, J. and Beentjes, M. ‘Europe’s Industrial Relations in a Global Perspective’, in D. Employment (eds), Industrial Relations in Europe 2008 (Luxembourg, EC, 2009). Zoubir, Y.H. and Lhabitant, F.-S. Doing Business in Emerging Europe (Basingstoke, Palgrave Macmillan, 2003).

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Part II Employment Relations in Different Sectors in Central and Eastern Europe

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4 Surviving the Global Financial Crisis: Automobiles and Finance in Central and Eastern Europe Sylvie Contrepois, Violaine Delteil, Patrick Dieuaide and Steve Jefferys

1. Introduction Over the last 15 years two huge economic events have shaken Central and Eastern Europe: the shift from a command to a market economy in the mid1990s, and the global financial crisis at the end of the 2000s. Within a very brief period of time, most working people in Central and Eastern Europe (CEE) were first exposed to liberalization or privatization and in many cases began to work directly for companies based outside their own countries. Then they were subjected to the consequences of the collapse of the world financial bubble. This chapter explores the interrelationship of the marketization of CEE economic life and the 2008–10 financial crisis, by focussing on the automobile and finance sectors that were among the first to seize the opportunities presented by the new markets and the lower labour costs in the ‘new Europe’.1 The two industries present instructively contrasting examples of the effects of globalization in a period of crisis. The dynamics of the two industries demonstrate clearly the dominant role of foreign direct investment (FDI) in the reconfiguration and re-specialization of East European economies. The comparison also illustrates the diversity of FDI strategies, with a strategy of horizontal investments in the finance sector, motivated by the simple goal of capturing new domestic markets. This has been very different from the transnational automobile strategy, which aims to re-export East European production back to the West. This comparison also allows us to highlight the central role played by FDI as a means of channelling the effects of the crisis from the West to the East. Finally, it underlines the variations in the capacity of different sectors to deal with the crisis, and points to the importance in the degree of resistance of national policies, and to the new tensions that have emerged between them in relation to attempts to save jobs. 65

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Two brief examples illustrate the importance of the new investment flows. Prior to 2008, the relocation of car assembly and of parts production out of Western Europe, for example, had been matched by its relocation into CEE. Hence, when recession struck, the effects on the CEE car industry were quite spectacular. Between February 2008 and February 2009, industrial production throughout the EU27 fell by 17.6 per cent (Newson, 2009). But the strongest contraction in activity recorded was in the car industry (vehicle production fell 41.2 per cent), which was much greater than declines in textiles (30 per cent) or construction (20 per cent). Accompanying and enabling industrial relocation to Central and Eastern Europe of a significant part of Western Europe’s automobile industry was a wholesale shift of financial assets from domestic to foreign ownership. Consider the case of Hungary. On 6 November 2009 the International Monetary Fund (IMF) approved a $15.7 billion stand-by loan facility for Hungary in a desperate attempt to reduce government debt and to maintain liquidity within its national banking system. This topped up a $6.7 billion facility provided the month before by the European Central Bank to help Hungary defend its currency – the first time this was granted to a non-member of the 15-country Euro currency zone. Nearly overnight, Hungary became one of the economies most exposed to more cautious lending strategies of foreign investors, so-called ‘global deleveraging’.2 In return, Hungary has been forced to adopt strict austerity measures. It would have to cut wages and pensions in the public sector and reduce public investment.3 By the end of November 2009, the key actors announced their verdict at a meeting with the IMF and the European Commission: the six EU-based foreign banks who collectively own most of Hungary’s financial assets reaffirmed an earlier decision that they would continue to bail out their Hungarian subsidiaries.4 This chapter first sketches the overall impact of the economic crisis on Central and Eastern Europe. It then focusses on the finance sector, showing how transformations in the finance sector both drove the opening of CEE to globalization and laid the basis for the depth of the crisis in much of the region. The next part of the chapter focusses on the car industry, showing how Eastern Europe and EU membership from 2004 onwards offered real opportunities for manufacturers and for job creation, and how, in the context of crisis, the different national policy-makers tried to minimize the effects of recession on employment. The concluding section of the chapter compares and contrasts these two sets of experiences.

2. Economic crisis and Central and Eastern Europe The onset of the 2007–08 global financial crisis bit very hard indeed on the economies of Central and Eastern Europe. From 2003 to 2008, the eight larger economies in CEE had grown by 6 per cent a year, but Table 4.1 shows that growth was negative in 2009 and was forecast to be very weak in 2010.

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67

Percentage change in real Gross Domestic Product in six CEE economies,

EU15 Bulgaria Czech Republic Hungary Poland Romania Slovakia

2006

2007

2008

2009

2010∗

3.0 6.3 6.8 4.0 6.2 7.9 8.5

2.7 6.2 6.1 1.1 6.8 6.3 10.6

0.6 6.0 2.5 0.5 5.0 7.3 6.2

−4.1 −5.0 −4.8 −6.9 1.7 −7.1 −4.7

0.7 −1.1 −0.8 −1.0 1.8 0.5 1.9

∗ = Forecast on the basis of First Quarter 2010 results. Source: Eurostat (2010).

Table 4.2 Unemployment rate as a per cent of total labour force in ten CEE economies, 2004–09

EU15 Bulgaria Czech Republic Estonia Hungary Latvia Lithuania Poland Romania Slovakia Slovenia

2004

2005

2006

2007

2008

2009

2004–07

2008–09

8.1 12.1 8.3 9.7 6.1 10.4 11.4 19.0 8.1 18.2 6.3

8.1 10.1 7.9 7.9 7.2 8.9 8.3 17.8 7.2 16.3 6.5

7.7 9.0 7.2 5.9 7.5 6.8 5.6 13.9 7.3 13.4 6.0

7.0 6.9 5.3 4.7 7.4 6.0 4.3 9.6 6.4 11.1 4.9

7.8 5.4 4.7 7.7 8.5 11.3 8.1 7.0 5.9 9.3 4.3

9.4 8.3 7.5 15.5 10.6 20.5 15.8 8.7 7.6 14.2 6.3

−1.1 −5.2 −3 −5 +1.3 −4.4 −7.1 −9.4 −1.7 −7.1 −1.4

1.6 2.9 2.8 7.8 2.1 9.2 7.7 1.7 1.7 4.9 2

Source: Eurostat (2010).

While the effects of the recession took time to be felt, and arrived at different moments in different CEE countries, unemployment, which had fallen by an average 4.3 per cent across the ten new member states (NMS) of the EU between 2004 (the accession year) and 2007, rose dramatically by an unweighted average of 4.3 per cent between December 2008 and December 2009. As shown in Table 4.2, this rise in unemployment also hit Western Europe. But in the EU15, unemployment had fallen by less than in CEE between 2004 and 2007, and its rise started earlier than the Eastern Europe average. By December 2009, unemployment in the pre-2004 EU had thus risen by just 2 per cent over the previous year. The high growth in the CEE economies in the 2000s (up to 2007–08) was driven primarily by the expectations fostered by EU accession and the high

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level of FDI, especially in the ‘new’ automobile industry and in the increasingly foreign-owned finance sector. This has had major consequences on the nature and direction of that growth, and in the risks that the host countries were exposed to. We turn now to examine the experience of the finance sector and then of the automobile sector in several CEE economies.

3. Finance: boom to bust? The underdevelopment of the banking and finance sector in CEE before transition has provided enormous opportunities for both the world’s huge global banks and smaller niche banks. In Poland, as recently as 2005, only 45 per cent of adults had bank accounts, compared with twice that level in Western Europe (Barisitz, 2008: 90). When CEE privatizations took off from the mid-1990s, providing huge demand for credit from local managers/potential capitalists as well as the opportunity to service the credit needs of inward-investing multinational companies (MNCs), the CEE financial systems came under increasing scrutiny. Most of Russia’s former satellite economies had operated what has been described as ‘passive’ and ‘one-tier banking’ systems. There was usually one state bank, with sole responsibility for providing cashless (accounting) loans to enterprises; one foreign trade bank; and one state savings bank, which operated solely as a recipient for cash savings of the population (Barisitz, 2008: 7–18). These traditional, highly bureaucratic banks had to be swept aside, split up and/or taken over, and new banks introduced. Western banks could purchase traditional bank networks, provide bank credit services in tune with the higher levels of disposable income than before (credit cards, property mortgages, car finance, etc.), establish Greenfield retail banks or capital investment banks, purchase underdeveloped insurance businesses, develop new insurance businesses and help create local risk capital markets. Figure 4.1 shows how the numbers of foreign banks jumped in the late 1990s, and how their numbers stabilized thereafter in the smaller economies of Hungary and Bulgaria, but continued to climb in Poland. The most obvious consequence was the takeover by the inward-investing finance multinationals of large swathes of the CEE host-country banking and finance systems. In Poland, they increased from ten in 1993 to 60 in 2008, in Hungary the numbers of foreign-owned banks increased from eight in 1991 to 33 in 2000, after which the numbers stabilized, as they did in Bulgaria, where the numbers rose from one in 1994 to 25 in 2000 (Barisitz, 2008: 23, 27, 44; EBRD, 2009). The result of the increasing presence of foreign banks is shown in Figures 4.2, 4.3 and 4.4, which capture the dramatic changes in the shares of national financial assets owned by state and by foreign-owned banks in this period. It suggests that it is not ‘national’ citizens who have taken over

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Poland

55 50 45 40 35

Bulgaria

30 25 20

Hungary

15 10 5 0 1991

1993

1995

1997

1999

2001

2003

2005

2007

Figure 4.1 Numbers of foreign-owned banks in Poland, Bulgaria and Hungary, 1991–2008. Sources: Barisitz (2008) and EBRD (2009).

100 90 80 70 60 50 40 30 20 10 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Hungary foreign-owned

Hungary state-owned

Figure 4.2 Changes in Hungarian financial asset ownership (per cent) by state-owned or foreign-owned banks, 1991–2008.5

the banking system from the former bureaucrats of the command economy, but other, arguably equally undemocratic, elites: the owners and managers of private multinational banks, who are almost all based outside CEE. The decisive change took place at different moments in different countries. In Hungary it was 1995–96, in Poland it was 1999 and in Bulgaria

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100 90 80 70 60 50 40 30 20 10 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Poland foreign-owned

Poland state-owned

Figure 4.3 Changes in Polish financial asset ownership (per cent) by state-owned or foreign-owned banks, 1993–2008.6

100 90 80 70 60 50 40 30 20 10 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Bulgaria foreign-owned

Bulgaria state-owned

Figure 4.4 Changes in Bulgarian financial asset ownership (per cent) by state-owned or foreign-owned banks, 1996–2008.7 Sources: Barisitz (2008), Tables 4.1, 4.2 and 4.6; EBRD (2009), Country reports for Bulgaria, Hungary and Poland.

2000. But by 2005, the share of financial assets owned by foreign banks across the whole CEE stood at 68 per cent, up from one-third just 10 years earlier (Barisitz, 2008: 172). Since then it has crept on upwards, reaching over 80 per cent in Bulgaria and Hungary, and nearly that level in Poland.

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This increase in foreign ownership was not about benevolence: the top seven foreign banks operating in CEE maintained about 20 per cent of their ‘riskweighted’ investments there, but derived 30 per cent of their returns on those investments (BIS, 2005: 6). Despite the job losses that followed from the technological and organizational changes brought about by inward-investing Western banks, the explosion of opportunities in finance saw almost unstoppable employment growth over the next 10 years, as shown across the whole NMS10 (2004) in Figure 4.5: finance and business employment rose from 12 per cent of all jobs in the EU15 in 1995, up to 15 per cent by 2005, an increase of about a quarter, while over the same period the proportion of jobs in the sector increased by nearly a half in the NMS10, and still more rapidly in Hungary and the Czech Republic (by 57 per cent) and in Poland (by 54 per cent). Many positive benefits arose from FDI in the finance sector. Foreign banks introduced new products, technologies and know-how into CEE and helped increase the numbers of bank customers. They tended to be more competitively robust and had access to much more capital (thanks to the ability to borrow more cheaply from international markets) than did the domestic banks that continued to operate after transition. So even where they did not

15 14

EU15

13 12 Poland

11 10 9

Czech Republic

8 EU10 7 6

Hungary

5 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Figure 4.5 Finance and business employment as a per cent of total employment, in the EU15, EU10 (2004 accession countries) and in Poland, the Czech Republic and Hungary, 1992–2005. Source: EUKLEMS (2008).

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simply buy up the state banks on privatization, they were generally able to offer better terms to borrowers, and thus gain market share rapidly. A report of three international banking seminars organized by the Bank for International Settlements (BIS) on financial investments in emerging economies, written after this decade of growth, commented that: the large-scale entry of foreign financial institutions was a powerful force for change. In particular, in CEE countries foreign banks were instrumental in the privatisation of banking institutions and pacemakers for the transformation process. (BIS, 2005: 2) One major Polish domestic bank reported that FDI had helped consolidation in Polish banking and had also encouraged the development of the Polish capital market (ibid.: 5). The same BIS report, however, pointed to a range of potential or existing problems arising from the dominance of foreign banks – a degree of ‘outsider’ control in CEE that is not matched anywhere else in the world except for Mexico (Barisitz, 2008: 170): foreign banks would ‘cherry-pick’ creditworthy customers based on standardized evaluations rather than on ‘soft’ knowledge and long-term customer relationships or networks; they tended to focus largely on the most profitable sectors rather than provide any wider economic support; they tended to loan only to large firms and not to SMEs; they tended to insist that corporate loans and mortgages were in Euros rather than in the national currencies, creating problems when local currencies depreciated; they enjoyed higher net interest income and return on assets than they did in Western Europe; there was a danger that the interests of the MNC parent’s shareholders might not be able to maximize the effectiveness of a particular subsidiary in a host country; and finally, the acquisition of domestic banks by MNCs had led to less timely information being made available publicly, or to central banks and other supervisory authorities in host countries (BIS, 2005). The big question posed by this list of potential problems drawn up by international bankers in 2005 was, what would happen in the event of a major financial crisis? The answer was not very long in coming.

4. The impact of the crisis on CEE finance When the crisis hit the CEE countries in the third quarter of 2008, foreign banks led the way in reducing FDI capital flows, with immediate effects on the volumes of FDI-based liquidity. Some foreign investors also sold portfolios or dividends in order to ease liquidity in their country of origin and repatriate funds. In September 2009, an article in Finance & Accounting argued that ‘foreign headquarters [of companies based in CEE] are milking

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their subsidiaries in the region for funds to plug liquidity holes at home’.8 It quoted the Vienna Institute for International Economic Studies as reporting that repatriation of profits from CEE had averaged 54 per cent in 2006, but climbed to 74 per cent in 2008. An Austrian MNC bank operating in Bulgaria reported sending 50 per cent of its 2008 profits back to its parent company, despite the Bulgarian central bank urging banks to retain all profits within Bulgaria in order to support Bulgarian liquidity. At the same time, many foreign and domestic banks throughout CEE became increasingly reluctant to provide loans, especially to smaller firms and to ‘economies that are perceived to be at the weaker end of the spectrum’.9 Despite a certain logic justifying this drying up of credit after export markets for CEE products declined drastically with the collapse of EU demand, the consequences on local unemployment were considerable. Finally, the exchange rate became a problem. Where, as in the case of Poland, there was no national political decision taken to peg the currency to the Euro, countries were able to reduce interest rates and allow their exchange rates to fall (or rise) against the Euro without impelling central bank interventions. This made imported goods more costly, thus stimulating import-substitution, while keeping exports competitive (without having to introduce major cost-cutting). However, the weaker currency also meant that any household or company loans taken out in Euros became much more expensive – and this too had major negative consequences in reducing liquidity available to keep consumption going. The exchange rate problem was one key element in Romania’s decision to turn to the IMF. As FDI dried up and lenders started repatriating funds, it had to come to terms with the fact that over half of all its domestic credit was in foreign currency. So when the currency started to depreciate against the Euro, repayments became more costly, more people defaulted and international investors decided to pull out of an economy that was looking decidedly riskier than before. To defend the local currency, the Romanian government then had to raise its interest rate to 8.5 per cent, the same as in Hungary, which in turn added to their repayment problems. In February 2010, the Romanian long-term interest rate was still 7.9 per cent and Hungary’s 7.7 per cent. These figures compare poorly with interest rates in Poland and the Czech Republic, where national governments had retained more control over monetary policy: in July 2009 rates were only 3.5 and 1.25 per cent respectively in these countries, though by February 2010, they were 6.1 and 4.3 per cent, at levels comparable to Greece and the UK.10 In the defence of its local currency, the main Hungarian banks announced in October 2009 that they were no longer offering loans in Swiss francs or US dollars. Eighty per cent of new mortgage lending in Hungary had been in Swiss francs up to that point, and the level of mortgage lending had doubled in 2008.

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Where their currencies were no longer variable, having been pegged to the Euro in an attempt to offer investors what had turned out to be a spurious form of currency stability, monetary control was effectively surrendered to the European Central Bank. Local reductions in interest rates to stimulate their economies were not possible. When the Romanian or Hungarian economies could not reduce their prices to remain competitive with the depreciating currencies of their neighbour CEE countries, inflation tended to be higher, and their exports became much more expensive when exporting to non-Euro neighbours. FDI then became crucial in order to support the current account deficit that appeared; when FDI dried up, Hungary had to request a stand-by loan from the IMF, and Bulgaria got very close to doing so. However, bank strategies towards CEE investments do vary. Many foreign banks, particularly those with significant local presences, have clearly decided to stay where they are for the longer haul. They have sought to sustain the capital of their local subsidiaries. Other banks, with less commitment to the region, have left or significantly reduced their exposure to risk in CEE.11 The experience of the car industry was somewhat different. As we will see below, in this sector the attempt by many countries to mitigate the effects of the crisis through schemes encouraging the scrapping of old, larger cars and the purchase of new, smaller models seemed rather to accelerate a shortterm transfer of Western multinationals towards the East. Perhaps in the longer term, Central and Eastern Europe will then lose out to more attractive locations such as Russia and Turkey.

5. Cars: a way out of stagnation in Central and Eastern Europe The difficulties of the European automobile industry predate the 2007 financial crisis. They can be traced to the stagnation of the West European market, which peaked in 1999, when 15 million cars were sold. Since then, annual sales have oscillated between 14 and 15 million units. In this mature market, the relative positions of the major manufacturers are far from being fixed. Over a decade, there has indeed been an almost continuous increase in the market share of the German Volkswagen Group (17 per cent in 1995, rising to 20.4 per cent in 2007) and the Japanese Toyota Group (3.5 per cent in 1999, and up to 6 per cent in 2007). Conversely, after a long period of stability at around 24 per cent, the French Renault and PSA Groups have seen their competitive positions deteriorate as of 2001, with a penetration rate of the European market falling from 26 per cent at that time, to 21 per cent in 2007. These diverging experiences undoubtedly favour the German automobile industry whose export competitiveness depends on massive imports of low-cost components from a network of suppliers located principally in

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the Czech Republic and Poland. German producers also benefit from a tax policy offensive combining relief on social security contributions on wages, lower taxes on companies, the shift of taxation from labour to consumption (the implementation of a ‘social’ VAT), the opening-up of agreements on the 35-hour working week, a downward revision of wages for new hires and changes in the method of overtime payment (Michaux, 2006). The contrast between the performance of the Western European automobile industry and the Eastern may be noted. Car companies located in Eastern Europe have significant scope for raising productivity, as they benefit from undeniable comparative advantage in terms of costs (in a ratio varying from 1 to 6). Margins of companies in the East are three times higher than those in France or Germany. Moreover, Boillot and Lepape (2004) estimate that between ¤15 billion and ¤20 billion have been invested by MNCs to modernize the sector (¤6 billion in the Czech Republic, ¤5.5 billion in Poland, ¤2 billion in Hungary, ¤2 billion in Slovakia and ¤1 billion in Romania). They calculated that the automobile sector accounts for about 15 per cent of all industrial output in the ten new member states. The process of modernization began in the 1990s with strategic acquisitions of local companies (Skoda and BAV by VW in 1991, Revoz in 1992, followed by Dacia by Renault in 1999). In most cases these acquisitions were by German firms, following on from co-operation which existed in the old system. This first wave of investment allowed the installation of several assembly plants. In the 2000s, such developments were backed up by new investments in Greenfield, more capital-intensive sites. These have mainly been situated in the Czech Republic, Poland and Hungary (Marginson and Meardi, 2006). Since 2004, Slovakia and Poland have emerged as the main destinations of FDI in original equipment manufacturers (OEMs). These FDI inflows in the automobile sector (as well as in IT and telecommunications) have contributed to changes in these countries’ specialization, with textiles and clothing being rejected in favour of more complex and higher value-added production (Sachwald, 2005). In the Eurostat (2009) ranking of the 2006 Automotive Industry, the contribution by the sector to value-added in the Czech Republic (5.4 per cent), Hungary (5.3 per cent) and Slovakia (4.3 per cent) were rated just behind Germany (5.9 per cent), but ahead of Sweden (3.5 per cent). The same expansion of the automobile sector in the East can also be illustrated by comparing changes in production capacity, with close to 4 million vehicles produced in the East in 2008, while vehicle registrations stood at 1.3 million in 2007 (the highest level observed before the crisis). Many assembly plants began operating in 2004, and output accelerated in the Czech Republic, Poland and Slovakia (see Figure 4.6). Today, the automotive sector represents 40 per cent of Slovak exports, 25 per cent for the Czech Republic and 10 per cent for Romania. It may also be noted that, in

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1,000,000 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 2000

2001

2002

2003

2004

Hungary Slovakia

Czech rep. Romania Figure 4.6

2005

2006

2007

2008

Poland Slovenia

Central and Eastern European car production, 2000–08.

Source: OICA (2008).

Germany France United Kingdom Spain Italy CEE∗ Figure 4.7

2002

2003

2004

2005

2006

874 283 220 162 170 233

868 288 217 164 164 244

874 279 204 163 167 332

867 276 193 160 167 345

840 268 178 158 166 384

Jobs in the European car industry (000s).

∗ CEE

for 2002–03: Czech Rep., Slovakia, Slovenia, Hungary, Poland. CEE for 2004–06: Czech Rep., Slovakia, Slovenia, Hungary, Poland, Romania. Source: CCFA (2009).

2007, the CEE10 produced more vehicles than France. Moreover, this date coincides with the appearance of a trade deficit of ¤700 million in France’s automobile industry, for the first time. Figure 4.7 above highlights the expansion of the car industry in the East, following the stagnation and subsequent resumption of job creation from the years 2002–03. Finally, although it is difficult to distinguish strictly between relocation and restructuring (Meardi et al., 2009), it is useful to compare the employment situation in Central and Eastern Europe to the job destruction observed in Germany and, to a lesser extent, in France. On the other hand, the opening of international trade in the region could raise the demand for skilled labour (technical progress effects) while exerting downward pressure on the prices of subcontractors and other local suppliers.

6. The impact of the crisis on the CEE automobile sector Initially at least, parts manufacturers and subsidiaries of large Western European groups suffered enormously from the huge drop in local and international demand. This was true for supplies of components and spare

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parts to German manufacturers or the delivery of small cars ready for sale by the French manufacturers. However, in proportion to the decline in production, the CEE suffered greater job losses than those implemented in Western Europe, indicating widespread recourse to external employment flexibility, to the detriment of measures for saving jobs. The speed of these employment adjustments can be explained by several major causes. An initial explanation points to a legal and institutional framework which is less protective in CEE, and which promotes the extensive use of fixedterm contracts and temping.12 A second explanation lies in the scope for adjusting working hours in CEE, an issue which remains largely excluded from collective bargaining agreements at the sector or company levels, as does the organization of work. A final explanation is the priority given by the unions to compensating layoffs rather than putting in place measures to save jobs and (re)-skill staff, neither of which have a real institutional basis. Although the use of external flexibility was mainly concentrated in small firms (suppliers), it has also been relatively successful with most manufacturers. These adjustments have primarily concerned employees on non-standard contracts: workers providing services on fixed-term contracts and temps, as well as regular migrants from neighbouring countries.13 With regard to the latter, a subsidiary of Suzuki in Hungary has also resorted to enforced ‘voluntary’ quits, with the management ceasing to provide daily transportation for employees residing in neighbouring Slovakia. In rarer cases, external flexibility has been partly achieved through rather generous voluntary severance, as at VW Slovakia, where employees gave it a 300-vote majority. This mode of adjustment is not, however, the only one, and some manufacturers have also introduced measures of internal flexibility. This applies to subsidiaries of French and German firms, which have implemented measures tested in their countries of origin, though often in less generous forms. The case of Dacia in Romania is an exception here, as since the onset of the crisis it has preferred to introduce part-time unemployment. While not renewing 920 out of 2800 employees on fixed-term contracts at the plant (with a total of 14,000 employees), the subsidiary stopped production for one-and-a-half months – between October 2008 and January 2009 – using a part-time unemployment scheme co-financed by the state and ensuring the payment of 75 per cent of gross salaries. Among other manufacturers in the region, the temporary reduction of working time has been widely exchanged for wage restraint or mandatory leave. Finally, there is another feature of the current recession to be emphasized: the relatively short period of the turnaround in industrial production, 12 months on average for the entire EU (from April 2008 to April 2009), as opposed to 18 months for the 1992–93 and 2001–02 recessions (Newson, 2009). Many manufacturers have quickly returned to order levels equal or even higher than before the crisis, though to varying degrees across countries and production sites. The case of Dacia is again significant, for as early

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as mid-January 2009, activity had returned to unparalleled levels, leading the firm to increase working time (including work on Saturdays) and rehire staff. As of June 2009, and in response to a strong recovery in orders, the management decided to renew 400 fixed-term contracts, and create 500 new fixed-term contracts, recruiting former, fixed-term employees who had been laid off. As for PSA Slovakia, to meet expanding production plans, it has signed an agreement with bodies representing staff to raise working hours, extending the working day by 1 hour and organizing work on 13 Saturdays in the year.

7. The return of proactive policies in the East? This rapid (and perhaps temporary) recovery of the CEE automobile industry is not surprising, given the specialization of the latter in small low-cost models, which are all the more attractive as sales are boosted by the various scrappage schemes across Europe. The dynamism of the CEE car industry is also the result of deliberate policies implemented by various governments: scrappage schemes, grants for the establishment and development of sites, tax exemptions in exchange for guarantees on job creation. But these also include legislative changes to ensure a relatively flexible framework for managing industrial relations: little job protection, flexible laws on working time, great autonomy for firms in their social dialogue. All these measures structure the various socio-political compromises between states, investors and unions which were forged during the early period of systemic transition. It should be noted that governments have also positioned themselves as defenders and promoters of employment. They have mostly responded to lobbying by foreign manufacturers, facilitating arrangements conducive to organizational flexibility and indirectly helping to ease the financial costs of debts accumulated without precedent on their behalf, during the years of financial globalization (2000–07). This lobbying – whether it works through competition nurtured among CEE states in attracting new Greenfield FDI, or via the threat of new trade-offs between various sites across the world at a time of crisis – goes a long way to explaining the importance of state aid granted by governments,14 since the establishment of PSA in Slovakia through to the car industry component of Romania’s anti-crisis plan.15 Overall, the response of CEE states to the recession in the automobile sector in Eastern Europe may reflect a certain continuity with the previous period, marked by direct support for job creation. Several factors, however, suggest that the present crisis may be a moment when states assert and consolidate their strategic or ‘Porterian’ characteristics (Chavance and Magnin, 2009), as indicated by the emergence of an industrial policy strengthening the car industry. This shifting role is reinforced by targeted subsidies, mainly related to the development of green and advanced technologies, the transformation of productive capacity and even cyclical support for demand. Less significantly, given the sums involved, most countries have

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also drawn on actions in Western European, implementing car scrapping measures to support domestic demand (Slovakia, the Czech Republic and Romania), or measures to support employment with public funding of parttime unemployment (Hungary, Poland, Slovenia and, to a lesser extent, Slovakia). Compared to West European economies (especially Germany and France), measures of job protection implemented in the NMS still remain far removed from the principles of flexicurity. This reality is primarily due to the weakness of arrangements negotiated for the adjustment of working time, which largely remains an employer prerogative. But it also reflects the underdevelopment of vocational training and job reclassification schemes, except for the case of Slovenia, which responded ambitiously to the crisis in the sector by introducing a requirement for re-skilling employees in part-time unemployment. The comparison of measures implemented in the CEE highlights the varying degree of state responses to the crisis, but also the different natures of institutional arrangements. Following the typology proposed by Rugraff (2006), the low level of regulation at work in the Slovak, Czech and Polish economies suggests they may be classified among the liberal market economies. Conversely, the Romanian economy is closer to the model of coordinated market economies, being characterized by more significant state and legal intermediation, both in terms of legal rules on employment protection or the safeguards imposed on FDI, concerning job retention. As for Hungary, it was clearly following the first model until the crisis, but is now in a more intermediate position, given the implementation of measures of concerning subsidized part-time unemployment and the requalification of the ‘employment-creation pillar of the Labour Market Fund’ into a ‘maintenance of employment pillar’.

8. Conclusion The whole of CEE is undergoing the region’s first major recession since the early 1990s. What is different in their experiences from that of Western Europe is that the recession is almost entirely the responsibility of nonnationals. In most of Western Europe, local banks or capital markets played a leading role in building up the credit boom that eventually came crashing down. In CEE, while domestic banks played a small role, they are still essentially driven by institutional banking functions rather than by the markets, and the finance sector is very largely dominated by institutions originating from outside the region. Equally, in most of Western Europe, the automobile companies are again long-standing nationally based businesses, while in CEE the vast bulk of the sector is foreign-owned. Even in the car industry, the future hardly seems rosy, despite the higher growth recorded on many sites in CEE. The dynamism of the sector may be quickly eroded by the termination of the stimulus plans (including

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scrappage schemes). It may also be affected by weakening domestic demand, undermined by the financial fragility of these economies (low savings, limited access to bank credit, pressures on public finances in the context of preparing accession to the Euro area, etc.). This outlook once again underlines the extreme dependence of the automobile sector in Eastern Europe on FDI from Western Europe, which also represents a real factor of fragility. After what appears to be a temporary suspension of the relocation of production from home countries (such as France) to CEE, which has now resumed high levels of auto production, the vitality of the sector remains largely subject to the pace and strength of foreign investments and decisions.16 The latter still have productivity reserves over the medium term, and are suffering from rising doubts about widening structural weaknesses and uncertainties over the adoption of the Euro. However, even within a CEE that was ‘more sinned against than sinning’, there are differences: the finance sector in those economies that were the most permissive (or belatedly took on more permissive policies) are now more exposed to the vagaries of the global finance markets than those which were less permissive and which retained more control over their finance systems (through allowing the exchange rate to vary, through retaining more domestic ownership and through stronger supervisory controls). What the two sectors investigated have in common is that they are both dominated by foreign investors, who clearly take investment decisions very carefully in the light of country-of-origin pressures (largely West European, but also American). But if, in the case of the car industry, the financial crisis appears to have temporarily frozen the relocation process from Western to Eastern Europe and to have weakened the survival chances of many European sites through the acceleration of FDI in the emerging countries (Asia, South America), in the finance sector the higher volatility of FDI appears to have allowed some repatriation of resources towards countries of origin, with significant negative impacts on several CEE countries. In both sectors, however, it is clear that the state (at national and EU level) is also playing a key role in shaping outcomes in ways that much neo-liberal ideology had consigned to the dustbin of history. The consequences of the different responses in these two key sectors to the crisis in Central and Eastern Europe will undoubtedly be important for the survival of the European social model.

Notes 1. These industries had been selected in two parallel research projects, led by the authors, that examined the role of French multinationals in CEE. These projects were undertaken for the French Ministry of Labour between 2005 and 2009. 2. The Hungarian IMF loan followed a similar $17.1bn stand-by arrangement for Romania in May 2009, IMFSurvey Magazine: Countries and Regions (4 May 2009) http://www.imf.org/external/pubs/ft/survey/so/2009/int050409a.

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5. 6. 7. 8. 9. 10. 11. 12.

13.

14.

15.

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htm and a $2.4bn loan for Latvia, IMFSurvey Magazine: Countries and Regions (19 December 2008) http://www.imf.org/external/pubs/ft/survey/so/ 2008/CAR121908A.htm. In May 2009, Poland was the second country after Mexico to be granted access under the IMF’s new Flexible Credit Line, to the tune of $20.6bn. IMFSurvey Magazine: Countries and Regions (6 November 2009) http://www.imf. org/external/pubs/ft/survey/so/2008/CAR110608A.htm. SmartMoney (20 November 2009). The six banks were: Bayerische Landesbank AG (8.3 per cent), Erste Bank AG (7.3 per cent), Raiffeisen International AG (n/a), Intesa SanPaolo SpA (7.4 per cent), KBC Group NV (9.5 per cent) and UniCredit SpA (24.1 per cent). The bracketed figures are estimates by Barisitz (2008: 88) of the shares of total Hungarian banking assets held by foreign banks at the end of 2005. http://www.smartmoney.com/news/ON/?story=ON-20091120-000380& (accessed 30 May 2010). The balance of financial asset ownership up to 100 per cent is held in privately owned national hands. Ibid. Ibid. Haeberle (2009). IFF, Research Note, 3 October 2009, p. 2. European Central Bank (2010) http://www.ecb.int/stats/money/long/html/index. en.html. (accessed 30 May 2010). IFF, May 2009; 3 October 2009. This observation is especially pertinent for German firms which have contained the development of non-standard employment contracts in their original locations: about 5 per cent of total employment, as opposed to 20–30 per cent in their East European sites (Jürgens and Krzywdzinski, 2009). In Hungary, Suzuki laid off, 1500 workers with non-standard contracts. In the Czech Republic, Skoda VW, after having reduced working time, has fired 3500 employees since the start of the crisis, out of a total of 20,000: these have been mainly temporary workers and Poles, and the company is forecasting to cut a further 2500 temporary jobs in 2010. Overall, the Czech Republic is set to experience the destruction of 13,550 jobs in the sector out of 120,000 (or 10 per cent of the workforce). It should be noted that the scale of such aid and its lack of transparency have led the European Commission to intervene. A confidentiality clause was written into the privatization contracts agreed between the Romanian government with Nokia and Ford, and it prevents release of information about the state aid attributed to the two companies. In 2007, the Commission denounced the illegality of this clause and ordered Ford to hand back ¤27m it had received (in 2008). Moreover, in October 2009, the Commission opened an inquiry into ¤49.5m granted by the Hungarian government to Audi, which could distort competition. The Romania plan was indeed partly defined at the behest of foreign investors, led by Dacia. Dacia accounted for 10 per cent of Romanian exports in 2009 (compared to only 1 per cent in 2004), and lobbied the government repeatedly, with its director general making numerous public declarations. In March 2009, he called on the government and the monetary authorities to ‘carry out a certain number of measures to reduce the cost of credit, either using monetary policy or by drawing on Spain’s experience of a scrapping bonus plus credit possibilities running to ¤5,000, interest free’.

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16. For example, the decision by Renault to delay the transfer of production from its French factory to a site in Slovenia in the manufacture of the Clio. Similarly, PSA has delayed an extension to its Slovak site.

References Barisitz, S. Banking in Central and Eastern Europe 1980–2006 (London: Routledge, 2008). BIS. Foreign Direct Investment in the Financial Sector – Experiences in Asia, Central and Eastern Europe and Latin America, Committee on the Global Financial System (Basel: Bank for International Settlements, 2005). Boillot, J.J. and Lepape, Y. Le renouveau de l’industrie automobile en Europe centrale et orientale, Annales des Mines, novembre (2004), pp. 52–6. CCFA (2009) Comité des Constructeurs Français d’Automobiles, http://www.ccfa.fr/ statistiques/. Chavance, B. and Magnin, E. Du changement de système à la crise 2008: extraversion et dépendance chez les nouveaux membres de l’Union européenne, Forum de la Régulation, Grenoble, 1–2 décembre (2009). EBRD. Transition Report 2009 (London: European Bank for Reconstruction and Development, 2009). EUKLEMS (2008), Growth and Productivity Accounts, Available online at: http://www. euklems.net/. Eurostat (2009), Key figures on Europe, Available online at: http://epp.eurostat.ec. europa.eu/cache/ITY_OFFPUB/KS-EI-08-001/EN/KS-EI-08-001-EN.PDF. Eurostat. Labour Force Survey–European Union, Statistical Office of the European Communities (2009). Eurostat. Real GDP Growth rate, Statistical Office of the European Communities (2010). Haeberle, A. Profit Repatriations: Dry Countries, Thirsty Parents, Finance & Accounting, September (2009), p. 40. Jürgens, U. and Krzywdzinski, M. Work models in the Central Eastern European Car Industry: Towards the High Road?, Industrial Relations Journal, Vol. 40, No. 6, (2009), pp. 493–512. Marginson, P. and Meardi, G. European Union Enlargement and the Foreign Direct Investment Channel of Industrial Relations Transfer, Industrial Relations Journal, Vol. 73, No. 2, (2006), pp. 92–110. Meardi, G., Marginson, P., Fichter, M., Frybes, M., Stanojevic, M. and Toth A. The Complexity of Relocation and the Trade Union Responses: Efficiency-oriented Foreign Direct Investment in Central Europe, European Journal of Industrial Relations, Vol. 15 (2009), pp. 27–47. Michaux, F. Comment les entreprises allemandes gèrent leurs coûts, Futuribles, Vol. 238 (2006) pp. 5–22. Newson, B. Recession in the EU-27: Length And Depth of the Downturn Varies Across Activities and Countries, Eurostat, Statistics in Focus, Vol. 97 (2009). OICA (2008) Organisation Internationale des Constructeurs Automobiles, http://www. oica.net/category/production-statistics/. Rugraff, E. Firmes multinationals et relations industrielles en Europe Centrale: une approche institutionnaliste, Relations Industrielles/Industrial Relations, Vol. 61, No. 3 (2006), pp. 437–64. Sachwald, F. Localisation de la production en Europe: impact de l’élargissement et de la mondialisation, in ‘L’Industrie en France et la mondialisation’, Paris. Ministère de l’Économie, des Finances et de l’Industrie CIPC, (2005), pp. 224–248.

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5 MNCs, Human Resource Management and Social Dialogue in the Central and Eastern European Food Industry Patrick Dieuaide

1. Introduction The European-level food industry1 is highly diverse. In the West, while output capacity is substantial, its mature markets are stagnating. In the East, in contrast, there is much potential for growth, numerous investment opportunities and undeniable comparative advantages in costs.2 However, foreign direct investment (FDI) in food is still going mainly to Western Europe, as FDI flows to the East are modest and concentrated in only a few countries, such as Romania, Hungary and Poland (AFII, 2006). This (relative) lack of appetite by multinational corporations (MNCs) for Eastern Europe’s food industry may seem surprising, when compared to the dynamism of FDI flows into the car industry or banking. The relatively slow flow of FDI into the Central and Eastern European food industry is partly explained by the fact that a large number of European MNCs in this sector are ‘regional players’ (Palpacuer and Tozanli, 2008). They are MNCs of medium size who are still strongly present in their original national markets and generally quite specialized in primary food processing, such as the production of cheese or fresh milk products (butter, cream, etc.). Several studies also show that firms operating in the Eastern Europe food industry are tied to specific localities due to the proximity of agricultural supply areas and the fact that many producers in these areas are small-scale, individual farmers (IAMO, 2003; Wijnands et al., 2007). Also, a certain number of conditions in the production and marketing for food products need to be met at the local level including: the existence of enough wholesalers and distributors in an industry that is driven by downstream actors (Gereffi et al., 2005); the respect of strict but necessary regulations concerning 83

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the manufacture of food (hygiene, safety, quality, packaging, etc.); and the need for significant investments in marketing to ensure product recognition, and in logistics to ship goods that are heavy and perishable (transport networks, the cold chain, etc.). Thus, according to Fabrice Hatem (AFII, 2006), the location of MNCs operating in the food industry is mainly determined by access to sufficiently large markets, rather than to low production costs. This observation raises the question of the extent to which it is possible to ‘transfer’ management policies by French MNCs operating in Eastern Europe. In a methodological analysis of this issue, Edwards et al. (2007) have stressed the usefulness of combining ‘market based’, ‘culturalist’, ‘institutionalist’ and ‘micropolitical’ approaches to understand the variety of management policies implemented locally, with respect to the models followed by parent companies. However, the authors are careful in specifying that ‘a key methodological question concerns the evidence constituting a convincing claim that practices have been transferred across borders’ (Ibid.: 205). In the food industry, there is reason to believe that the existence of a specific environment (in technical, regulatory and organizational terms) does indeed provide the background to activities at the local level and is not without consequences for the overall direction and ways in which company social policies are implemented. The research presented here draws on these remarks in order to examine the role of management policies as a factor differentiating the industrial relations model that exists within various food industry subsidiaries in Eastern Europe. Section 1 is based on research by Delteil et al. (2009), and sets out the general framework for analysing such policies.3 Section 2 briefly presents the fieldwork and specifies the profile, organization and strategy of the two groups making up the sample. Section 3 sets out the results of the work, noting especially the particularities of the social groups studied. The last section concludes the work, and looks succinctly at the implications of these policies for the dynamics of industrial relations in Eastern Europe.

2. Although there is no transfer, HR policies matter! Everywhere we found a unanimous refusal by French management of large French companies to export their industrial relations systems. At the same time, the fieldwork in Eastern Europe supports several studies (Bluhm, 2001; Rugraff, 2006) which suggest that national institutional frameworks have only a limited (and variable) impact on management policies and local industrial relations within East European subsidiaries. These two apparently contradictory findings suggest that there is a diversity of industrial relations models in the East, resulting from an original process: there is neither a full transfer nor a passive adjustment by local management to

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local socio-economic conditions. Instead, models vary as a function of targeted HR policies, which are designed and implemented at different levels of organization. These policies demonstrate the ability of senior executives to intervene in the organization and management of local industrial relations. Two important dimensions characterize the patterns of intervention. The first dimension is financial. Policies are largely driven by finance-based strategies covering three main areas: shareholder value principles, dispersed heterogeneity and organizational flexibility. There has been a general convergence of policies on the principles of ‘shareholder value’. The assimilation of these principles by management has contributed to the emergence of so-called ‘strategic’ HR policies, centred mainly on human capital management, the search for organizational effectiveness and communication with financial markets. A second, more cross-cutting area, results from the dispersal of production sites across several countries whose laws and institutions may vary significantly. Such heterogeneity led to problems for companies in optimizing their overall performance and pushed management to implement a minimum of harmonization in the ‘HR process’ (health and safety or even the international mobility of executives). The third area of policy is at local level, and relates to the principles of organizational flexibility that management of subsidiaries has to take into account to reconcile the competitiveness of sites, in the face of markets and the financial profitability of investments. The result is a co-operative approach to industrial relations by management, which has sought to integrate cultural and institutional considerations into its functioning. Depending on the MNC researched, HR policies vary as to how they bring together three functions: a global guidance function (the management of norms and standards), a coordination function of activities across production sites and the function of managing co-operation with employees at the local level. These functions reflect a common management preoccupation found in all the companies surveyed, namely the importance of defining and putting into place measures that simultaneously permit a strong integration of subsidiaries into the strategic objectives of companies, while preserving an extensive autonomy at the various production sites in Eastern Europe. The second characteristic of these policies concerns the permanent search by management for greater efficiency in the work done by their employees, both individually and collectively. Such efficiency requires employees to be implicated in their work, while also adhering to objectives set by management. In Eastern Europe, such behavioural change has been helped by a favourable historical and political context. Indeed, during the first years of transition, investment guarantees for buyers of local firms, the prospects for improved living standards and social guarantees provided by states all

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played a role in guiding union co-operation and persuading employees to accept heavy job cuts. In this climate of relative ‘labour quiescence’ (Crowley and Ost, 2001), management was in a strong negotiating position. It was also able to benefit from ‘disintermediated’ industrial relations (Rugraff, 2006) to introduce new social regulations and develop a social dialogue more suited to the imperatives of competitiveness and organizational flexibility. In sum, the research underlines the great latitude from which management benefited locally, given the ‘permissive’ socio-institutional context of the transition countries. It also underlines the importance of the balance of power between parent companies and their subsidiaries, and the way power is exercised between the various organizational levels (see M. Krzywdzinskiin this book).

3. MNC Profiles, Organizations and Strategies in the Food Industry in Eastern Europe Two firms in the sample (Danone and Bongrain) are particularly representative of large firms operating in the food industry in France. Table 5.1 gives a summary presentation of both firms. There are numerous differences between the two firms. Danone is owned by shareholders. It is a global player operating in all continents, with a clear positioning strategy in the health food sector. At the world level, Danone’s strategy is based on a small number of blockbusters (probiotic food, lowfat products), whose production and sales require significant investments in research and development (R&D) and marketing. In contrast, Bongrain is a family firm, a regional player who owns a portfolio of locally recognized brands, but whose activities need less R&D and are little internationalized. It is also very dependent on local production and distribution networks for milk, given the firm’s upstream positioning in the value chain. As far as the subsidiaries are concerned, the survey indicates that strategies by Danone and Bongrain in Eastern Europe actually share a number of features. Both companies entered the area shortly after the 1989 fall of the Berlin Wall. Similarly, investment based on purchasing medium-sized factories was identical in both cases. From a strategic perspective, Danone and Bongrain have both been motivated by seeking leadership positions in local markets for high quality products. To this end, local plants were restructured and state-of-the-art technology brought in. Upstream of the subsidiaries, both companies developed complex organizations to collect milk from small producers and co-operatives. Downstream, they invested in regional distribution, backed up in Danone in particular by a policy of communicating the quality of its products to local consumers. Overall, the characteristics of strategies by companies in the sample here provide a good basis for analysing the place and role of management

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Shareholder- and family-owned French food MNCs compared Danone

Bongrain

Ownership structure

Shareholder owned

Family owned

Profiles

Turnover (2008):

Turnover (2008):

By sector: Milk products: 57% Water: 19% Nutrition: 24%

By sector: Cheese products: 67% Other milk products: 33%

By zone: France: 14% Western Europe: 29% Eastern Europe: 11% Asia–Americas: 38%

By zone: France: 40% Europe: 41% Rest of World: 19%

Staff (2008):

Staff (2008):

World: 80,143 France: 8815 Western Europe: 10,555 Eastern Europe: 11,190 Rest of World: 49,759

World: 17,700 France: 7080 Europe: 7257 Rest of World: 3363

1980s: External growth and internationalization

1980s: National growth; presence in Eastern Europe and Latin America

1994–2007: Restructuring and strategic concentration

2000s: Rationalization in France, consolidation of positions in the East

1980s–1990s: Breakdown into geographic zones and profit centres

Divisional and decentralized structure (SME networks); significant autonomy granted to local management

Strategies

Organizations

2000s: Development of transversal firms, enhancement of autonomy for sites Subsidiaries surveyed

Hungary (1993): Brownfield – 700 employees Romania (1993): Brownfield – 630 employees

Hungary (1993): Brownfield – not diffused Slovakia (1993): Brownfield – 800 employees

policies for adjusting local industrial relations, and the industrial strategy of companies in different East European markets. From this point of view, the information gathered in interviews highlights a certain number of differences in how the latter were designed and implemented.

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4. Strategic Orientations, the embedding of HR Policies and the diversity of company industrial relations models Not surprisingly, the interviews highlight certain plasticity in HR policies, both as components of corporate strategies and as tools for managing local industrial relations. Interestingly, these HR policies contribute to the plurality of industrial relations. In the food industry, two types of phenomena appear to play a particular role: the structure of capital and the way HR policies are embedded. In Eastern Europe, in some cases, the actual implementation of policies is based on a largely informal social dialogue. 4.1. HR policies that are consistent with the ownership structure of companies Based on the MNCs we researched, it is not possible to state that pressure for shareholder value on HR policies has led to uniformity in management practices. To be sure, if the opposition between family firms and shareholderowned firms does not exhaust the diversity of practices observed, it nevertheless remains the first criterion for differentiating between two types of policies. Thus, in Danone, which is a shareholder-owned firm par excellence, the management favours dividends per share as an objective and is willing to use debt (via leverage effects) to finance growth. In terms of human resources, the company’s management is very centralized, based on a policy of using a strict financial framework, the use of intensive financial assessment and social reporting and benchmarking in order to spread and promote best practices across production sites. The implication and commitment of local management and executives is stressed through the use of compensation based on indexation, which is tightly tied to individual performance (bonuses, stock options). The employability of staff (‘collaborators’) is supported by a worldwide training programme. More recently, innovation has become the heart of HR policy objectives, via the spread of new technological tools throughout the company (collaborative intranets and Web 2.0), personalized development programmes of 15,000 team managers (executives and non-executives) and the creation of a brand to finance projects of societal innovation. In contrast, at Bongrain the firm’s top management does not hesitate in asserting its family-ownership style, which is characterized by an aversion for taking on debt combined with a clear preference for self-financing and the accumulation of equity over the medium- to long-term. In terms of HR, this strategy is accompanied by a very different type of organization compared to Danone: the firm’s central administration functions on the principle of subsidiarity, and local management is given considerable room for manoeuvre. Objectives are designed jointly with local management: personnel policy for senior executives is centralized, but policies on training

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and development, on industrial and social policy, are defined at site level. The same holds for promotion and internal mobility. The variable share of executives’ pay, which is in line with the market, is indexed on company performance (profit-sharing), while workers receive collective bonuses. More generally, the workforce is managed on the basis of an implicit contract that only includes minimal adjustments in HR policies concerning compensation, as well as employment and working conditions relative to local labour law, in exchange for job security. These two management models are quite similar to the ‘hard’ and ‘soft’ models analysed by Storey (2003), and extensively adopted elsewhere to analyse HR policies in British companies (Konzelmann et al., 2006). However, it is also clear that ownership structure is not the only criterion which shapes the actions of top management. To some extent, the research challenges the conventional wisdom that finance imposes HR policies based on unilateral top-down action by management. The interviews suggest that the coherence of HR policies that management strives for, especially in the food industry, actually follows a bottom-up process: the management and development of activities at the operational level is based on behaviours and problems of all sorts encountered or expressed by employees at site level. 4.2. Common preoccupations closely linked to the sector of activity A second criterion identified in the research stems from the way ‘production, the place of work and the workforce are connected within organisations’, to use the words of Chaykowski and Giles (1998: 9). To be sure, it is management’s role to ensure coherence. But the survey shows that the policies implemented are not limited by traditional HR management tools and practices. Instead, they also result from more direct organization, which is less institutionalized, if not informal, and responds to the expectations and demands of employees. Thus, for a company pursuing a differentiation strategy, as Bongrain is in Slovakia, the production of specialty cheeses is based on particular technology and know-how. Yet, as a senior manager stressed concerning the scarcity of competencies available on the labour market, ‘the problems of HR don’t lie in the tools available. They relate more to the senior manager developing a coherence in the management of resources at the local level.’4 Thus, to maintain its competitive advantage in Eastern Europe, Bongrain has to construct original complementarities between specific policies in terms of recruitment, training and career management, as well as company social policy (supplementary retirement, health insurance, etc.). This is done to retain skilled staff at a production site that is far from city centres, ‘in the middle of nowhere’. Recruiting qualified labour is also a problem for Danone in Romania, where competencies needed locally have to fit into extremely formalized processes at the regional or even world level (ISO standards, total quality, just-in-time stock control).

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As a result, it is possible to find numerous common features in the HR policies of the two subsidiaries. On average, wages are 10 per cent higher than the local rate at the Slovak subsidiary of Bongrain, and 30 per cent at the Romanian subsidiary of Danone. Social benefits are also more ambitious, especially in Bongrain, which is sensitive about the need to ‘combine wage and social benefits in an optimal way’.5 As they are concerned about their local reputation, the East European subsidiaries of Danone and Bongrain both also pursue measures to strengthen company identity and ensure good industrial relations. Team meetings, conferences, seminars, debriefings, open days for families and so on are all organized by local managements, carrying on the paternalist culture inherited from the socialist era, with the aim of supporting conviviality and trust among employees with respect to the companies and their executive hierarchies. From this point of view, so-called profit-sharing policies in Eastern Europe are the cornerstone of an industrial relations model which seeks to substitute ever more costly industrial disputes with a more fluid form of industrial relations. It should be noted, however, that on the ground such policies cut both ways. While management views such techniques as a separate way for mobilizing employees, they may also compete with more ‘institutionalized’ forms of social dialogue, thus circumventing unions (Bongrain) or putting pressure on employees in order to prevent union branches being set up (Danone in Romania). Other equally relevant tools may also be implemented to reinforce the attachment of employees to company objectives and strategies: for example, financial incentive policies (employee saving schemes, employee shareholding).6 Furthermore, policies focussed on dialogue and communication never totally eliminate conflicts of interest between individuals or social and occupational groups. In other words, the effectiveness of profitsharing policies is never guaranteed a priori, given the variety of face-to-face situations executives have to cope with. 4.3. Variations in the orientations of HR policies according to company culture This study shows that the coherence that management seeks in local industrial relations is not only built on profit-sharing policies. Thus, the presence of Danone in all continents has led its top management to complement HR policies carried out in its subsidiaries with the advanced institutionalization of its social values, via the signing of numerous transnational framework agreements.7 This policy was recently reinforced by the creation of a global committee, which met in Geneva for the first time in October 2009, in the presence of IUTA and of representatives of national unions from countries in which subsidiaries are located. These initiatives indicate the wish by management to structure industrial relations directly in their subsidiaries, on the basis of values, rules or frames of reference which encourage employees to develop a feeling of

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belonging, an attachment to company objectives and even to company strategy. In France, where minimum social benefits are markedly higher than international standards, this policy does not seem to generate many illusions. As a French trade unionist noted, ‘Danone doesn’t have one but two industrial relations models: one is geared to public relations, while the other, internal model is based on the performance culture.’8 In Eastern Europe, these values were particularly stressed during negotiations on the acquisition of factories, rather than when influencing the social policies of the various subsidiaries. The only area in which the company has left its own imprint in its Eastern European subsidiaries concerns its organization of restructuring. In its approach to Brownfield sites, the company did indeed transpose faithfully the ambitious out-placement programmes that it had developed in Western Europe (of which several aspects have been formalized in an international framework agreement). Concern for reputation played a key role here, as was borne out in the declaration of the firm’s social relations management on the site of its Hungarian biscuit factory, which was ‘kept going for political and public relations reasons, though it was not profitable’.9 Care about the company’s reputation and that of its products has been all the more important given the numerous smear campaigns found in local markets, especially towards the most prominent foreign companies.10 As far as Bongrain is concerned, the management’s strategy does not function in quite the same way. According to a company’s senior HR manager, management via ‘values’ is part of the company’s paternalist heritage and the social Catholicism of the owning family: ‘these values are a distinctive characteristic of the firm.’11 As in Danone, they guide out-placement policies: ‘it is important to reorganize companies without causing social damage [ . . . ]. Bongrain has social responsibilities: we don’t shut down companies, we re-sell them’.12 These values are also important in providing a management framework for East European subsidiaries: ‘a local chief executive who strays too far from the parent-company’s culture will not stay in the job for long.’13 Generally, however, the firm’s headquarters seeks mainly to provide expertise and training to executives in local subsidiaries. That said, these values are much less formalized than in Danone, which is hardly surprising. Local managements are provided with a charter for human resources, which does indeed seek to promote a core level of social welfare across all subsidiaries yet ‘without fixing concrete objectives which the diversity of production units does not allow for’.14 On the ground, the study also shows that employer/employee relations are shaped by a considerable degree of informal dialogue, on a give-and-take basis. This permanent bargaining is not always to the taste of the parent company, which is faced by local managements that are very independent and only concerned about respecting their legal obligations. Thus, the firm’s headquarters was obliged to intervene in its Slovak subsidiary in order to set up pension schemes,

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life insurance, sickness and invalidity insurance, as well as out-placement services to accompany redundancy schemes. In sum, the survey revealed the diversity of strategies and behaviour which exist in the management of industrial relations in Eastern Europe. It also highlighted their singularities. Thus, at Danone, whose activities are strongly embedded in societal issues, the multiplication of international framework agreements between management and union organizations suggest that the quasi-integration of industrial relations in the organization of business and the management of production have indeed become increasingly contractual. Yet, contracts are obviously not the only form of possible mediation. In the subsidiaries of Danone, and even more so for Bongrain where production is strongly embedded locally, the research shows that the management of industrial relations through dialogue or consultation may go through other channels, including company hierarchy, proximity management or via employees. More generally, a significant feature of the study is the way it reveals how industrial relations are tightly linked to HR management measures, leading local managers to take initiatives in a wide range of areas such as working conditions and compensation (bonuses), and hence enter into direct competition with the unions (Guest, 1999). 4.4. Unions that are not very assertive and kept at a distance by management One last major consequence of HR policies revealed by the survey concerns the marginal role played by unions in the social regulation process within East European subsidiaries. This is partly due to the state of the unions themselves, which came out of the transition process weakened and with limited legitimacy. They have had difficulties in finding their place in the new industrial relations landscape in Eastern Europe. But the marginalization of unions is also due to management policies. In Bongrain, the dialogue with employees is not yet ‘a permanent social dialogue’.15 But the dialogue with unions, with membership of 10 per cent and 60 per cent respectively in Slovakian and Romanian factories, is ‘very sporadic as they are very passive’, according to a Slovak executive. As a Slovak employee also pointed out, ‘the unions just about have enough influence to ask for a water fountain in overheated factories [ . . . ]. They do not lodge explicit wage demands, even though the employees want their wages to catch up with the Czech subsidiaries in the company.’16 More generally, according to the secretary of the European Works Council (EWC) at Bongrain, ‘the East European representatives are quite close to management, even when factories are restructured or closed. They do not threaten to strike and prefer to go along with management decisions as all employees were redeployed.’17 There are no unions in the Romanian factory of Bongrain, and the demand for unions by employees is based on quite a narrow view of what they are. According to one women production worker, ‘unions would be welcome

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here, especially to inform employees about promotion possibilities, as well as to ask for profit-related bonuses (collective bonuses) and bonuses for ideas and innovations (individual bonuses) or even to provide help with bank loans for housing, given that rents take up 80% of wages’.18 It may be added, according to the same employee, that there is no collective bargaining in the subsidiary, only inter-individual bargaining: ‘Wages are clearly higher than local pay rates, and the organisation of work and working conditions much better . . . furthermore, managers here listen to staff, which means there’s no reason to have a union.’19 When asked about its Eastern European subsidiaries, a senior manager of social relations at Danone also stressed that unions (which are present in two Hungarian subsidiaries) are not very dynamic. He also regretted the absence of unions in the Romanian subsidiary, which he considered to be a breach of the company’s social values.20 He emphasized his company’s ambition to promote social dialogue, ‘though less with the aim of closing the objective gap within the company but rather to favour local integration’.21 He reckoned that ‘much work still needed to be done to develop the mentalities of local unions.’22 To this end, the management of Danone provides training sessions for employee representatives, quoting the example of training (conducted in Poland) about the economic approach of the company. He also mentioned the intervention by the parent-company in the creation of a works council in one of its East European subsidiaries, but he rejected the idea of intervening directly in subsidiaries to set up unions where they did not exist, as in the Romanian subsidiary. This attitude, however, contrasts with the proposal by a senior management of social relations at Danone to take along a member of the IUF23 to promote a pedagogical and organizational mission aimed at the East European subsidiaries, and in particular to remind union delegates of the existence of international agreements. But the problems which unions have in existing within the East European subsidiaries also stem from the HR techniques and tools mobilized by management–new technology above all. Not surprisingly, the use of ICT is justified by company headquarters as a means of having Human Resource Information Systems (HRISs). These allow hierarchical relationships, which are costly to manage and administrate as well as being slow to react to changes in a company’s environment, to be replaced by decentralized relationships with local management that are direct and effective. At Danone, HRISs are much used to develop reporting activities and to monitor the performance of production sites (productivity, incidents, accident rates). At Bongrain, ICT tools are more a key means for sharing information for the local regulation of employees’ activities (the distribution of tasks, modulated management of working time and of staff, specific bonuses, social benefits). More generally, ICT systems provide management with the means to neutralize union actions and power.

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This is the case for the construction of databases (identifying problems and solutions), the multiplication of downloadable forms (assessment sheets, the dissemination of questionnaires for opinion surveys), the access to labour exchanges or the handling of complaints directly via intranet networks. In all these areas, unions are somewhat poorly equipped to face management, which can provide detailed and personalized responses to the activities and problems faced by employees. To conclude on this point, the working relationships which exist in the East European subsidiaries of these food companies demonstrate the priority given by local management to informal dialogue and consultation, which is often characterized by paternalism. This occurs to the detriment of a more institutionalized dialogue, which when it does exist is largely a formality, given the weakness of unions. The marginalization of contractual social dialogue or collective bargaining, made possible by the weak presence of unions, is also clearly visible in the use of time by local HR directors. They spend 70 per cent of their time managing human resources and only 30 per cent on social dialogue, which is the exact opposite of how time is used in France, where the figures are 30 per cent and 70 per cent, respectively.

5. Conclusions Overall, the series of interviews conducted in French MNCs and their East European subsidiaries in the food industry highlight the variety of existing human resource management models and social regulation. Table 5.2 provides a summary representation of the models in both of the firms studied. Table 5.2 is important because it contradicts the conventional wisdom that the management of local industrial relations is always within the scope of Table 5.2 MNCs

The employment relations models used in CEE subsidiaries of French

Danone

Bongrain

HR Control

Centralized

Decentralized

Social policy

Contractual and global

Paternalist and local

Embedding of values

Societal

Regional

Strategies vis-à-vis unions

Marginalization and acculturation

Circumvention and negotiated involvement

Social dialogue

Instituted globally, or else informal

Largely informal

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local regulation. Indeed, it shows not just that managing industrial relations at the global level on an institutional basis is possible (as is the case of Danone), but also that local industrial relations can function without a regulatory framework (Bongrain). From this point of view, the survey highlights the key role played by HR policies at the firm level in the training and management of differentiated models of industrial relations. It also indicates the weakness of unionism in Eastern Europe, in a context in which actors and social practices as well as areas and levels of regulation are renewed and extended in response to firms’ investment strategies and the shifting of production. Beyond this, the analysis of HR policies by the food industry companies in the present sample leads to three further conclusions. On the ground, the implementation by MNCs of pay norms and social policies, which are a little more generous than compensation levels in domestic firms, prevents the construction of any kind of socio-political compromise between unions and management locally. This policy supports the views of Bohle and Greskovits (2004), who draw on the example of the economic history of Western Europe since 1945. They contend that a compromise between unions and management is only possible in capital-intensive activities that require skilled labour to be sufficiently organized to be able to impose negotiations on wages and working conditions.24 The study also shows the importance of company culture in MNCs as an instrument for regulating and controlling behaviour and the representation of actors. Indeed, company culture stands out as a powerful lever for trying to give extra meaning and legitimacy to management actions. This ‘instrumentation’ was able to function during the whole transition to the market economy period by East European countries, especially during negotiations on restructuring programmes. However, once this adjustment period has ended, it is to be feared that company culture along with ‘declarative management’ (ethics charters, citizenship commitments, etc.) will be viewed for what they are, namely an ideology serving immediate economic and social interests. Finally, the study exposes the fragility of formal rules, the considerable weight of informal arrangements, the hegemony of employers and the limited legitimacy of unions. Without doubt a significant gap still exists between the institutional rules and practices in place in Eastern and Western Europe. That said, this observation does not close the door to the hypothesis of ‘pull hybridisation’, as formulated by Meardi and Tóth (2006), and recalled by Ferner in this book. It underlines more specifically the importance of reinforcing transnational union coordination within companies, and more generally the need to overcome obstacles in the local, social regulation game through the Europeanization of industrial relations.

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Notes 1. The food industry covers all activities relating to the processing of raw materials produced by agriculture, livestock farming and fisheries, in order to make food. 2. A recent report summarized the industry as follows, EC (2009): within the EU, 60 per cent of the food industry’s turnover is accounted for by France, Germany, Italy and the UK alone, compared to a share of only 7.1 per cent for Eastern Europe. Five countries (the Netherlands, Germany, France, Belgium and Italy) also generate two-thirds of all intra-community exports, compared to 7.1 per cent for Eastern Europe. Some 300,000 companies operate in the food industry, of which a large majority (64 per cent) are located in Germany, France, Italy and Spain. Of these, 99.1 per cent are small- or medium-sized enterprises (less than 250 employees), accounting for 63 per cent of total employment in the sector (4.3 million jobs) and 47.1 per cent of value added. Large companies (0.9 per cent of all firms) generate 37 per cent of all jobs and 53 per cent of value added. More generally, the food industry accounts for 25 per cent of the value added of manufacturing industry in the ten Central and Eastern European states that acceded to the EU (Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia, Slovenia, Hungary in 2004, Rumania and Bulgaria in 2007), compared to just 11.5 per cent in the EU15: the figures for employment are respectively 15 per cent (EU10) and 12 per cent (EU15). Spending on food is stagnating at 12 per cent of household budgets on average within the EU15, while it ranges between 14.2 per cent and 29.2 per cent in the EU10. 3. The fieldwork consisted of a series of interviews conducted on location, from 2006 to 2008. Eight French MNCs present in Hungary, Slovakia and Romania were surveyed, operating in the energy, the automobile and the food industries. In total, 115 semi-directive interviews were conducted with actors in parent companies and East European subsidiaries (company headquarters and local managements, unions, employee representatives and salaried employees). Representatives of trade unions and employer federations (national and European) were also interviewed, as were experts. 4. Interview with the company senior manager, Paris, Bongrain, June 2007. 5. Ibid. 6. Such policies are, nevertheless, used little in Eastern Europe. 7. An agreement on information and consultation (1988); an agreement on equality between men and women (1989); three agreements on union rights (1994, 1997, 2005); an agreement on the conduct of company restructuring (2001); an agreement on global, social indicators; an agreement on diversity (2007). 8. Interview with a CFDT union delegate, Danone, May 2006. 9. Ibid. 10. The chief executive of the Romanian subsidiary of Danone recounted a campaign to deride Danone’s brand name, which was accused of using illegal preservatives to prolong its yoghurt’s life to 3 weeks. In fact, the longer shelf life of its products stems from the use of more modern production techniques (infra-red) compared to local companies. 11. Interview, Bongrain, Paris, June 2007. 12. Ibid. 13. Ibid. 14. Ibid.

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15. Interview with an employee, Slovakia, Bongrain, July 2006. 16. Ibid. 17. Interview with the secretary of the European Works Council, Paris, Bongrain, June 2006. 18. Interview with an employee, Romania, Bongrain, September 2006. 19. Ibid. 20. The observations carried out concerning Danone were less exhaustive in CEE. The information collected essentially concerns the Romanian subsidiary of the company. 21. Interview, a senior manager of social relations, Paris, Danone, June 2006. 22. Ibid. 23. International Union of Food Workers. 24. It should be noted that the conclusions of Marginson and Meardi (2006) are much more optimistic, stressing far more the manner in which second-generation FDI leads to the spread of ‘Taylorist social compacts’. According to them, such FDI, which mainly occurs in ‘Greenfield’ sites, is more favourable to the spread of social norms from the home country. Furthermore, they consider that the free circulation of employees should strengthen their bargaining power, in a context of an increasing shortage of labour.

Bibliography AFII, Les tendances de l’investissement international en Europe, Notes et Etudes de l’Afii, n◦ 1 (2006), http://www.afii.fr. Bluhm K., Exporting or Abandoning the German Model? Labor Policies of German Manufacturing Firms in Central Europe, European Journal of industrial Relations, Vol 7, 2, pp. 153–173 (2001). Bohle D. and Greskovits B., Capital, Labor and the Prospects of the European Social Model in the East, Working Paper 58, Center for European Studies, Havard University (2004). Chaykowski, R.P. and Giles A., La mondialisation, le travail et les relations industrielles, Relations industrielles, Vol 53, 1, pp. 13–23 (1998). Crowley, S. and Ost D. (eds), Workers after Workers State: Labor and Politics in Postcommunist Eastern Europe (Lanham, Boulder, New York, Oxford: Rowman & Littlefield, 2001). Delteil, V., Dieuaide, P. and Groux, G. Les Relations professionnelles à l’épreuve de l’élargissement. L’Est: Nouveau laboratoire des relations sociales?, Ministère du Travail, Dares, Rapport de recherche (2009), http://www.univ-paris3.fr/icee. Edwards T., Colling, T. and Ferner A., Conceptual Approaches to the Transfer of Employment Practices in Multinational Companies: An Integrated Approach, Human Resource Management Journal, Vol 17, 3, pp. 201–217 (2007). European Commission, European Industry in a Changing World, Updated Sectoral Overview, Commission Staff Work, Document, 1111 final, July, p. 204 (2009). Gereffi, G., Humphrey, J. and Sturgeon, T., The Governance of Global Value Chain, Review of International Political Economy, Vol 12, 1, pp. 78–104, (2005). Guest, D., Personnal Management: The End of Horthodoxy?, British Journal of Industrial Relations, Vol 29, 2, pp. 151–175 (2009). IAMO, Key Developments in the Agri-Food Chain and on Restructuring and Privatisation in the CEE Candidate Countries, February (2003), www.iamo.de.

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Konzelmann S., Conway N., Trenberth L., Wilkinson F., Corporate Governance and Human Resource Management, British Journal of Industrial Relations, Vol 44, 3, pp. 541–567 (2006). Marginson, P. and Meardi, G. European Union Enlargement and the Foreign Direct Investment Channel of Industrial Relations Transfer, Industrial Relations Journal, Vol 73, 2, pp. 92–110 (2006). Meardi, G. and Tóth, A. ‘Who is Hybridizing What? Insights on MNCs’ Employment Practices in Central Europe’, in Ferner A., Quintanilla J. and Sánchez-Runde C. (eds), Multinationals, Institutions, and the Construction of Transnational (Basingstoke: Palgrave Macmillan, 2006). Palpacuer, F. and Tozanli S. Changing Governance Paterns in Europan Food Chains: the Rise of a New Divide Between Global Players and Regional Producers, Transnational Corporations, Vol 17, 1, pp. 69–97 (2008). Rugraff, E. Firmes multinationales et relations industrielles en Europe centrale: une approche institutionnaliste, Relations industrielles, Vol 61, 3, pp. 437–462 (2006). Storey, J. La gestion des ressources humaines: la perspective du Royaume-Uni, in J. Allouche (Ed.), Encyclopédie des ressources humaines (Paris: Vuibert, 2003). Wijnands, J.H.M., Meulen Van der B.M.J. and Poppe K.J. (eds), Competitiveness of the European Food Industry an Economic And Legal Assessment (Brussels: European Commission, 2007).

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6 Exporting the German Work Model to Central and Eastern Europe Martin Krzywdzinski

1. Introduction The economic structure of Central and Eastern European (CEE) countries is increasingly dominated by foreign companies, with German companies being the most important industrial investors. The production and work models practised by German companies are thus extremely important for the region. Are these companies producing high-quality products in CEE, and placing an emphasis on skilled and well-paid work, or is the CEE being exploited as a low-wage periphery, characterized by ‘hire and fire’ and low-skilled work? For stakeholders in Germany, the issue of whether companies are attempting to transfer the ‘German model’, or whether they are relocating abroad as a means of escaping this model, is also relevant. This chapter concentrates on German companies in the automotive industry and their work models in CEE. The four core elements of the German automotive industry work model are: co-determination and co-operative relations between works councils and management, the recruitment of skilled workers (Facharbeiter), high job security, and compromiseoriented negotiation between management and works councils about work organization. In terms of employment, investment and exports, the automotive industry is the most important industrial sector both in Germany and in CEE. German companies are also the most important actors in the CEE automotive industry, accounting for between 20 and 30 per cent of the workforce, depending on country. Jürgens and Krzywdzinski (2009) argue that CEE has become an important part of the production network of the German automotive industry. Section 2, which follows this introduction, briefly discusses the literature on the transfer of standards in multinational corporations (MNCs) and stresses the importance of their governance structure and the constellations of stakeholders. Section 3 discusses and develops the definition of the German automotive industry’s work model. Subsequently, Section 4 presents 99

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empirical findings on the question of the transfer of the work model to CEE. The core of the section is the analysis of the case of Volkswagen. The choice of Volkswagen is due to its role in the German and CEE automotive industry. It is the largest company in the sector, and it corresponds particularly to the ‘ideal type’ of the German automotive industry’s work model. Following the case study, empirical evidence for the transfer of work models by other German companies will be presented and compared. The analysis in Sections 3 and 4 is based on the results from two research projects concerning the future of the European social model and the changing division of labour between Western and Central Eastern Europe (Jürgens and Krzywdzinski, 2010). In these projects, 131 interviews were conducted with managers, works council members, trade unionists and experts from the automotive industry. Section 5 discusses the interaction between the companies’ work models and the institutions of labour regulation. The transfer of the work models is dependent on specific institutional conditions but can also initiate institutional change. A summary of the argument is drawn in the final section.

2. The transfer of standards in multinational companies Multinational companies (MNCs) are the central actors of globalization. They distribute standards and ‘best practices’ within their organizational structures, and herewith contribute to the global standardization of practices, rules and organizational forms (Edwards, 2004; Martin and Beaumont, 1998). At the same time, differences remain between institutional varieties of capitalism (Hyman, 2004), and between different cultures (Hofstede, 2001). These differences restrict the transferability of standards and ‘best practices’ within companies. A major strand of research literature on the transfer of standards in companies has concentrated on the conceptualization and measurement of ‘home country’ and ‘host country effects’. In this literature, MNCs are regarded as representatives of a particular national model, that is as ‘US-American’, ‘German’, or ‘Japanese’ MNCs. There are now a significant number of studies available and from them the concept of ‘hybridization’ has emerged as the strongest result. Accordingly, through the interaction of the ‘home country effect’ and the ‘host country effect’, the emergence of more or less hybrid forms can be seen (Boyer et al., 1998; Ferner et al., 2001). It is not possible to predict the exact nature of these hybrids at a general level. In the course of the debate, some researchers have developed analytical models for the transfer of standards within MNCs that go beyond a comparison of ‘home country’ and ‘host country’ effects. Of particular interest are models that place an emphasis on the relationships between stakeholders and on the governance structures of companies. Ferner and

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Tempel (2006: 31) emphasize power relations within MNCs as an important determining factor for the transfer of standards: ‘The nature of MNCs as agglomerations of contending interests extending across national borders raises the question of the internal organizational power relations that exist in situations of transfer, both between different organizational groups and across different national-institutional terrains in which the MNC operates.’ Kostova (1999: 313) emphasizes the importance of ‘transfer coalitions’, which, in her understanding, encompass the ‘key managers’ of the subsidiary company, and the ‘experts’ in the functional areas affected by the transfer. In their micropolitical approach, Dörrenbächer and Geppert (2009) highlight the strategies of managers in MNCs’ parent and subsidiary companies, and emphasize the importance of the managers’ nationalities, professional identities, career aspirations and career options for relations between parent and subsidiary companies. These models pick up on elements of the governance structure at the company. However, in my opinion, they focus too strongly (or even exclusively) on the role of managers and employee representatives in the foreign subsidiaries of MNCs. Thereby, the question is for the most part the extent to which these stakeholders support or impede the transfer of standards from the headquarters. In contrast, insufficient attention is paid to the governance structure and the actor constellation in the parent company. This is an important determining factor for the form, extent and success of the transfer of standards and practices within MNCs – as will be shown in the course of this chapter, using the example of Volkswagen. In what follows, the term ‘governance structure’ will first of all refer to the ownership structure of the company, and to the influence and rights of the employee-interest representation. There are also further relevant formal and informal elements in governance structure, such as the hierarchy of management functions and their resources (Jacoby, 2000), which will not be examined here for reason of lack of space. It is important to take into account the variety of different interests within MNC parent companies. While some actors within the management strive for the transfer of standards from the parent to the subsidiary, others might prefer to break with home practices.

3. What is the ‘German work model’? The research literature refers to the ‘German model’ in a variety of different contexts and meanings. At the institutional level, the ‘German model’ indicates a specific constellation of institutions of collective bargaining (industry trade unions, the system of sectoral collective agreements), corporate governance (co-determination, cross-ownership between firms and banks), coordination through intermediary organizations (business associations) and social policy (Streeck, 2009).

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At the level of industry and companies, ‘production models’ are discussed as meaning a coherent combination of product policy, organization of the value chain and work model (Boyer and Freyssenet, 2002). The automotive industry is often considered as the template for a ‘German’ production model (Sorge and Streeck, 1988), although this generalization is not quite appropriate, as industry-specific production models in Germany are considerably diverse (Jürgens, 2004; Lüthje et al., 2002). In this chapter, I will concentrate on the work model of the German automotive industry (and in particular of the automotive manufacturers) and abstract from other elements of the production models. The four main common characteristics of the German automotive industry’s work model concern interest representation, recruitment, job security and work organization (Jürgens, 2003; Jürgens and Krzywdzinski, 2009). What do these characteristics involve? In terms of interest representation, the Metalworkers’ Union has particularly high degree of organization among German automotive manufacturers, encompassing over 90 per cent of the workforce, which also greatly strengthens the position of the works councils. Relationships between management and works councils are generally co-operative. For recruitment for production work, German automotive companies hire for the large part (or exclusively, in some cases) skilled workers with 3 years of vocational training (Facharbeiter). This recruitment model emerged in the 1980s in the context of the automation strategies pursued by the companies at the time, and it has remained stable, despite the rejection of excessive automation and the corresponding changes in the requirements towards the workforce in the 1990s (Jürgens et al., 1993). As far as job security is concerned, the commitment of companies to provide secure employment, and the recognition by the unions of the objective of competitiveness are the basis for co-operative industrial relations. With respect to job security, the works councils and trade unions accept measures towards flexibility and greater cost efficiency. Since the 1990s, so-called employment protection agreements have become a central element in the development of the work model in the German automotive industry. These agreements combine multi-year job guarantees with measures to increase competitiveness (including remuneration or working-time concessions) (Haipeter, 2009). Finally, more characteristic of the German automotive industry than a single model of work organization is the importance of negotiations between management and the works council on the work organization. The specifically German approaches to the humanization of work were largely abandoned in the late 1980s, to be replaced by a general orientation towards lean production (Jürgens, 2003). But work organization remains a subject of negotiation between management and the works council, whereby the works council retains influence and, depending on the situation, can

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put forward demands and concepts for innovative work structuring (job enrichment, job enlargement) (Kuhlmann et al., 2004). This work model is not without tensions (with respect to job security and recruitment, but also with respect to the extent of co-determination). These tensions and conflicts can be understood as driving the changes of the model forward.

4. Selective transfer: VW and other German companies in CEE At the centre of the following analysis of the transfer of work models to CEE is the case study on Volkswagen. The case study will subsequently be compared with findings from other companies. There are three reasons why the Volkswagen (VW) case is particularly meaningful. First, with some 150,000 employees in Germany (including AUDI), VW is the biggest company in the German automotive industry. Second, as a consequence of Volkswagen’s governance structure (more on this below), the work model of the German automotive industry is most strongly pronounced in this company. Finally, with approximately 50,000 employees in CEE, Volkswagen represents about one-quarter of the workforce of German automotive companies in this region, making it by far the largest player in the field. In 2008, Volkswagen had 25,000 employees in the Czech Republic (Skoda), 6000 in AUDI’s Hungarian engine plant, 8500 in the Slovak automotive and component plants in Bratislava and Martin, as well as 6000 employees in the ´ and 1200 in the Polish engine Polish commercial vehicle plant in Poznan, plant in Polkowice. In the following, the VW work model will be presented primarily on the basis of evidence from the Polish plants, supplemented by references to the other CEE plants. 4.1. Governance structure at Volkswagen Volkswagen has a unique position in the German system of corporate governance and co-determination, a result of the so-called ‘VW Law’ and the special ownership structure (Haipeter, 2000). The state of Lower Saxony has virtual veto power at the company. A high degree of union organization (95 per cent in the main plant in Wolfsburg) as well as the possibility of coalitions between employee representatives and government officials on the supervisory board gives the works council a particularly strong position. Volkswagen has ‘a governance structure, which ensured strong state and union influence, and a very special labour relations situation, which allowed a high degree of joint decision-making and codetermination in areas not even stipulated by German law’ (Jürgens, 1998: 273). The Volkswagen governance structure reinforces the German work model outlined above. Job security, the first element of the work model at Volkswagen’s German sites, is a priority of both the works council and the state of Lower Saxony. Since the early 1990s, employment guarantees have

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been laid down in repeated multi-year agreements between management and the works council. The agreements have contained various measures for securing jobs, including the reduction of working hours to 28.8 hours per week in the crisis year of 1993, a transition to flexible working hours and a reduction in overtime pay in the 1990s; 2006 saw an increase in working hours to 35 hours per week without wage adjustment, meaning a cut in hourly earnings. Recruitment for production work, the second element of the work model, relies exclusively on skilled workers who have completed a 3-year vocational training course (Facharbeiter). The hiring of trainees following completion of the apprenticeship is written into the employment protection agreements – a key demand of Volkswagen’s works councils. All new hires are first placed in production, which results in some tensions because the skilled workers are overqualified for direct production work, and aspire to move to specialist departments such as maintenance. Finally, due to the strong position of the works council, work organization is covered by agreements between management and the works council. In the 1980s, the debate about the origins of Japanese competitiveness brought teamwork and quality circles onto the agenda of the automotive industry, and pilot projects for quality circles and teamwork began at Volkswagen (Jürgens et al., 1993). On both issues, agreements were reached between the management and the works council that stated that improvements in the quality of work and competitiveness were equally important objectives, and that the works council would be closely integrated into the processes. However, the subject of teamwork remained contentious among management, which is why a significant variance emerged between VW plants in work organization. In the mid-1990s, the management’s interest in quality circles and teamwork was squeezed out by other issues (above all the economic crisis). Quality circles disappeared and teamwork remained at the pilot project level. New approaches in work organization were tested out largely in the foreign plants (at Martorell, Bratislava, as well as at Mosel in East Germany), without the participation of local employee representation (Jürgens, 1998). Only in 2006, following lengthy negotiations, was a definition agreed upon for a ‘Volkswagen Way’ of work organization, which was intended to become a standard in the company. Typical of Volkswagen is that the ‘Volkswagen Way’ was defined in agreements between management and the works council. The agreements maintained that competitiveness and job security were equally important objectives. They defined a process for the implementation of the ‘Volkswagen Way’, whereby the German works council was involved on equal terms with the management. They also defined teamwork for the German plants (team tasks, team size, etc.), continuous process improvement (implementation, integration of the works council in decision-making, guarantee that process improvement will not lead to

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redundancies) and management by objectives (implementation, integration of the works council) as the three pillars of the ‘Volkswagen Way’. The internationalization of the Volkswagen Group brought new challenges for the Volkswagen governance structure, above all from the late 1980s. Although Volkswagen had already built production plants in Brazil and South Africa in the 1950s, and purchased a plant in Belgium in the 1970s, it was only with the acquisition of Seat in Spain in 1986 and the company’s expansion into CEE from the early 1990s that competition between plants for production contracts began, bringing with it new potential for conflict (Jürgens, 1998; Jürgens and Krzywdzinski, 2009; Widuckel, 2001). The German works council at Volkswagen reacted to this development with a potentially conflictual dual strategy of (a) productivity pacts for job security in Germany and (b) the creation of interest representation for Volkswagen employees at a European and global level. In 1990, representatives from Germany, Belgium and Spain founded the European Works Council (EWC) at Volkswagen. This was recognized by corporate management in 1992, and later joined by representatives from other European countries (Uhl and Lavon, 1997). The Volkswagen Group Global Works Council (GWC) was founded in 1999. A ‘Social Charter’ – valid globally within Volkswagen – was adopted in 2002. It guaranteed International Labour Organization (ILO) standards regarding freedom of organization and working conditions. Werner Widuckel, former speaker of the Volkswagen Group Works Council, and currently human resources manager at AUDI, describes the resulting structure as follows: ‘With this strategic orientation, a standardized, annually recurring consultation process with the leadership of the company developed, in which, from June to November, the corporate plan is prepared on the supervisory board in an extremely dense progression of information, formal and informal discussions and votes, as well as agreements from the plant level through the general German works council up to the European and the global councils’ (Widuckel, 2001: 337). The core principle of the EWC and GWC is ‘solidarity which means the balancing of risks and development opportunities, intended to avoid plant closures and to prevent an imbalance of redundancies on the one side, and hiring and overtime on the other’ (Ibid.: 338). The development of the EWC and the GWC became an important driver of the development of international human resource management (HRM) at Volkswagen. A central personnel department for the entire Volkswagen Group was only founded in the early 1990s, before which the foreign sites had a strong degree of autonomy in terms of HRM. The negotiations with the EWC and the GWC emphasized the importance of the availability of internationally comparable and standardized data and information on personnel systems. The handling of the 1993–95 crisis, however, put the German Volkswagen sites back into the spotlight at the expense of international HRM. The subject of the international standardization of HRM only regained

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importance in 2006 with the commencement of duties of a new head of HR at Volkswagen, whereupon a special ‘International Personnel’ department was created to deal with questions of international HRM standards at Volkswagen (Interviewee 1). A recent landmark in efforts to transfer standards is the ‘Charter on Labor Relations’, which was signed by the corporate management and the GWC of Volkswagen in autumn 2009. It goes far beyond the ‘Social Charter’ of 2002, and represents the hoped-for transfer abroad of the German system of co-determination. The employee representatives in foreign sites are to be given a number of significant rights of co-determination, and to be trained to exercise these rights. Although the charter does not specify a timeframe for implementation, it represents a very ambitious attempt to transfer standards within a multinational company. 4.2. The Volkswagen work model in CEE The support in the creation of employee representative structures in CEE plants, and their inclusion in joint committees with the German works councils were important objectives for the German VW works council, and a response to competition for production volumes between German and CEE plants (Interviewees 2 and 3). In contrast to Germany, employee representation in CEE plants is not formally safeguarded by a works council, but by a plant-level trade union organization. Nevertheless, both the Volkswagen management as well as the German works council are trying to transfer the model of ‘cooperative conflict management’ (Haipeter, 2000: 462; Jürgens, 1998: 274f.) from Germany to management–union relations in the CEE plants. ‘Cooperative conflict management’ prioritizes negotiation and the search for compromises, and the avoidance of labour disputes. In the CEE plants of VW, the transfer of this model of interest representation implies a degree of information and consultation for the union that goes well beyond legal standards (Interviewee 6). The co-determination model, however, has not yet been transferred, and there is considerable variance in the quality of management-union relations between the Polish plants. The head of personnel at the engine plant in Polkowice, which opened in 1999, was a strong supporter of the German model of co-determination. He supported the founding of a Solidarno´sc´ trade union organization in Polkowice, and established a highly co-operative relationship with the union ´ (Interviewee 5). In contrast, in the commercial vehicle plant in Poznan acquired by Volkswagen in 1993, the relationship between management and union was more distant. The management argued that the union had no interest in issues regarding the development of the plant, and was not competent in such matters (Interviewee 6). ´ plant, and 75 per cent in Union density is 60 per cent in the Poznan Polkowice. Plant-level unions in Poland have far fewer available resources than unions in Germany. In accordance with Polish labour law, in 2005

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´ (and Solidarno´sc´ had five representatives released from work at VW Poznan three in the Polkowice plant) – the plant in Hannover, which is twice the size ´ plant, had 39 works council members released from work. Neiof the Poznan ´ do so-called annual ‘site symposia’ meetings ther in Polkowice nor in Poznan between the company board, the plant management and the works council take place, despite the fact that these occur in all German plants, where they discuss the future development of the plant. The membership of trade unions from the CEE sites in the Volkswagen EWC strengthens both their positions in the plants and the transfer of ‘cooperative conflict management’ to CEE (Uhl and Lavon, 1997). The EWC is supported by a range of further communication structures. A network of employee representatives and management representatives from the German and CEE sites meets annually at one of the Volkswagen sites to discuss current issues and developments. The meetings are financed by the company. While attending one of these meetings, the author of this chapter witnessed very open and contentious discussions. Furthermore, regular formal and informal meetings take place between works council and trade union representatives from sites in the same product group. The works council at the Salzgitter VW engine plant reports regular meetings and seminars taking place with trade union representatives from the Polkowice engine plant. The goal is to create solidarity, allowing the reconciliation of employment interests of the sites. Annual meetings also take place between the heads of personnel and employee representatives at the VW engine plants in Germany and Poland (Interviewee 4). Overall, only a partial transfer of the German VW model can be seen to date with regard to employee interest representation. The form of ‘cooperative conflict management’ is being transferred, but not the rights of co-determination. A new step in the transfer, however, is represented by the ‘Charter of Labor Relations’ adopted at Volkswagen in 2009, which provides for the transfer of the co-determination model to the foreign plants. It remains to be seen how well this transfer will succeed given the different national regulatory frameworks and the traditions of industrial relations. The second defining element of the German model, the recruitment of skilled workers (Facharbeiter), is practised abroad by VW only for specialist departments. Production workers are, for the large part, recruited at the ´ and Polkowice after completing high school. Polish VW plants in Poznan In contrast to Germany, the completion of vocational school in a metalworking occupation is not a formal requirement of recruitment; rather, aptitude tests are used, focussing on manual skills and capacity for teamwork. Though it is not a formal requirement, some workers had attended a vocational school that specialized in metalworking; these schools, however, are outdated and do not provide up-to-date training. Following recruitment, workers are given a 2-week introduction and subsequent on-the-job training. Training is completed after about 3 months (Interviewee 7). A special

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form of training has been developed at the site in Bratislava, Slovakia, to introduce workers without vocational training and experience to the Volkswagen production system. It is called ‘Profiraum’ training, Profiraum being a training room in every main production area, where, with the help of a model line, workers can learn about the operation of the production line, line balancing and optimization, and can practise work operations. VW has implemented ‘Profiraum’ training in many of its foreign sites. In contrast to direct work in production departments, recruiting suitable workers for specialist departments, such as maintenance, is a problem in CEE. In response, Volkswagen has set up a vocational training scheme in ´ sites co-operation with local vocational schools at the Polkowice and Poznan (Interviewees 5 and 6); the same approach is followed by VW in the Czech Republic and in Slovakia (Bluhm, 2007: 264f). In the Polish plants, 10–20 apprentices are accepted every year for the 3-year course. The students complete an apprenticeship in mechatronics based on the German curriculum, whereby 30 per cent of the training consists of operational practice, 30 per cent of practical application at school and 40 per cent of theoretical training. Unlike in Germany, there is no formal guarantee of employment for the trainees, although most are hired (Interviewee 7). The fact that the recruitment model is only partially transferred implies a challenge for the German plants. Volkswagen places an emphasis on the implementation of a unified production system in Germany and abroad. It now appears that its production system can be successfully implemented without the recruitment of skilled workers. This experience raises the question of the future of vocational training in Germany, as the skills and knowledge of skilled production workers appear to be applied only to a limited extent. Besides interest representation and the recruitment of skilled workers, job security is a central element of the Volkswagen work model in Germany. This element is being transferred to the foreign plants only to a limited extent. Although, job security is indeed a management objective at the foreign plants, collective redundancies are nevertheless resorted to in difficult situations – something that does not happen in Germany. Particularly noteworthy at the foreign VW sites is the use of agency workers. While the use of agency workers in German VW plants does not exceed 5 per cent of the total workforce, it can at times reach 20–30 per cent in the CEE plants (Jürgens and Krzywdzinski, 2009). One of the justifications for the extensive use of agency workers in CEE is the limited flexibility of working hours in comparison to Germany. Working-time accounts, while common in Germany, are possible only to a limited extent in CEE. As a consequence, fluctuations in production capacity result in additional costs (overtime, absence of cost-neutral reduction of working hours) (Interviewee 6). The final component of the work model in the German Volkswagen plants is the emphasis on negotiation and compromise with regard to

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work organization. This has not been transferred to date to CEE. As there was no standard model for work organization at Volkswagen in the 1990s, plant managers were responsible for defining the work organization, resulting in considerable variance in developments. From the outset, the Polish engine plant at Polkowice established a teamwork concept with small teams of about eight employees, elected team spokespersons, and relatively high self-organization and integration of indirect tasks within the teams ´ plant, however, teamwork concepts were only (Interviewee 5). In the Poznan ´ reported negrecently put into place. German managers working in Poznan ative experiences with teamwork in their own factories in Germany, and complained that responsibility for process optimization had been left to the teams, and that insufficient attention had been paid to support and control through industrial engineering, as well as to standardization of the activities (Interviewees 6 and 8). ‘You can forget about the subject of teamwork here. There’s a healthy sense of authority in Poland, and it should stay like that,’ commented one manager in the plant. Remarkably, the trade union at the ´ plant expressed little interest in teamwork, and argued that there Poznan was still an insufficient sense of quality awareness and responsibility among the Polish workers: ‘Teamwork is something for Japan, where they have a culture of discipline and responsibility. Our society is not mature enough for this’ (Interviewee 9). The first steps towards greater involvement for workers in process improvement were only initiated in 2005 (creation of a suggestion scheme, introduction of continuous improvement workshops). From ´ plant finally began in the 2007, the introduction of teamwork in the Poznan context of the international standardization of the VW production system. Agreements between the management and the works council – typical in the German VW plants – on the aims and forms of teamwork, as well as on process optimization (such as employment guarantees for employees whose jobs are rationalized) are not to be found at the CEE sites. Work organization remains the prerogative of management. Even when management implements innovative forms of work organization to increase the quality of work, the inclusion of in-plant employee interest representation is low. 4.3. Work models in German companies in CEE Volkswagen is a unique company; its governance structure makes it perhaps the strongest expression of the ‘German model’. Nevertheless, the transfer of standards at Volkswagen to CEE countries remains selective. But how are other German companies in the automotive industry behaving in this regard? Most studies on this issue work with cross-industry samples of companies, and with different (if overlapping) definitions of the ‘German model’. I will begin with employee interest representation – in all the studies the most prominent specificity of the ‘German model’. The research consistently shows a high variance in the behaviour of German companies towards

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unions in CEE. The strength of the works councils and trade unions in the German parent company is emphasized by some studies as a key factor in this behaviour (Bluhm, 2003; Fichter et al., 2005; Tholen et al., 2006). This finding is consistent with the argument of this article, that is that the governance structure in the company centres has an influence on the transnational transfer of standards. The Volkswagen case represents a selective but nevertheless far-reaching transfer of German practices, which goes beyond the practice of most of the other companies. The majority of German companies operate somewhere between a ‘formal cooperative’ approach (Voß and Wilke, 2003), which tolerates the creation of unions in CEE plants, but where co-operation with trade unions is limited to the statutory minimum, and a rather negative attitude towards trade unions (Fichter, 2003). This pattern is evident both in cross-industry studies, as well as in studies of companies in the automotive industry (Fichter et al., 2005; Jürgens and Krzywdzinski, 2007; Tholen et al., 2006). The other elements of the work model in the German automotive industry highlighted in this chapter (recruitment, job security, compromise-oriented negotiation of work organization) have received little attention in the research literature to date. Most studies rather focus on the issue of training and identify here the strongest tendency for the transfer of practices from Germany to CEE. Fichter et al. (2005: 23) write about German automotive suppliers in CEE: ‘German companies invest highly in the development of transferable skills, promote employees’ further education, and establish cooperation links with local schools and universities including apprenticeships and tailor-made courses’ (cf. Voß and Wilke, 2003). Jürgens and Krzywdzinski (2007) present the case of a German supplier which, following the takeover of a Polish plant, had maintained the dual vocational training carried out in the plant in co-operation with a vocational school. Bluhm (2007) describes the vocational training conducted in co-operation with a technical college at the Volkswagen subsidiary Skoda and at the supplier Bosch in the Czech Republic. However, she stresses that vocational training projects remain exceptional: ‘A fundamental reason for the lack of interest in vocational training is the classic problem of the collective good, which can be more easily resolved in the German institutional structure than in an institutional environment with weak collective actors and a lack of cross-company standardization of the remuneration policy by collective agreements’ (Bluhm, 2007: 271). In summary, it can be stated that German companies in the automotive industry are pursuing a selective transfer of their German work models to CEE. Willingness to transfer is most strongly pronounced with regard to the training of skilled workers, and goes as far as transferring some German vocational training schemes. However, this transfer remains selective inasmuch as it concerns only the specialist departments and not the regular production workforce. While there is selective transfer with regard to training, there

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does not appear to be any overarching tendency towards the transfer of the German model of interest representation. The variance between German and CEE industrial relations is very high indeed. Volkswagen thus transfers selectively, while also being the company that is most strongly transferring elements of the German work model to CEE. This is significant because, first, it concerns the most important German automotive company. Second, Volkswagen is a role model for other companies. The company union fighting for recognition at a Toyota plant in Poland designated Volkswagen as the ‘best practice’ model in Poland (Interviewee 10). In co-operation with a vocational school, the Polish bus manufacturer Solaris has begun a mechatronics training scheme that explicitly imitates Volkswagen’s approach (Interviewee 11).

5. Institutions for labour regulation in CEE – status and perspectives The work models of German companies in CEE are developing in a specific institutional context. To conclude the analysis, I will discuss how this context influences the companies, and the institutional changes brought about by the investments of German companies in CEE in relation to interest representation, recruitment and training, job security and work organization. Despite different developmental paths, some similarities have evolved in the systems of interest representation in automotive sector of the CEE countries, the first institutional area examined in this section. With the exception of Slovakia, the collective bargaining takes place at the plant level. Although unions can be formally founded relatively easily in companies, they have no rights of co-determination, and often only relatively weakly formulated information and consultation rights. The influence of the trade unions in the automotive sector is thus determined to a greater extent by their ability to mobilize than by the legal framework (Jürgens and Krzywdzinski, 2007; Kohl and Platzer, 2004). The EU Information and Consultation Directive could bring about some changes. In response to this directive, the governments of the Czech Republic (2001), Slovakia (2002) and Poland (2005) introduced works councils (in Hungary, works councils have existed since 1992). The objective of the reforms was to stimulate the formation of employee representation in non-unionized workplaces. This hope, however, is far from being fulfilled (Krzywdzinski, 2009). In addition, works councils have the same weak information and consultation rights as the unions. Against this background, a wide variety of forms of employee interest representation has emerged in the companies: social partnership-oriented models such as in Volkswagen, formal toleration of unions without genuine co-operation, attempts to prevent union organization, and paternalistic, anti-union models in small- and medium-sized companies (Jürgens and

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Krzywdzinski, 2009). There is no pressure from the institutional framework to change the situation, not least because supervisory bodies such as the State Labour Inspectorate and the labour courts lack resources. A change could be brought about, however, by new trade union strategies. While the CEE trade unions have for a long time neglected recruitment and organization, since the late 1990s the Polish Solidarno´sc´ union above all has been involved in successful organizing activities based on the model of the Service Employees International Union in the US (Krzywdzinski, 2009). The second important institutional area for work models is the educational system. Under the communist regime in CEE, vocational schools that were linked to large companies existed. Given the economic crisis of the early 1990s, however, most companies attempted to cut costs by separating from the schools. By the mid-1990s, only a limited number of public vocational schools with outdated equipment and ageing teachers remained (Jürgens and Krzywdzinski, 2007). The CEE countries now focus on higher education; vocational schools are underfunded and do not enjoy a good reputation. Since the EU accessions of the CEE countries, however, companies have faced an increasing shortage of trained workers. While German companies have attempted to deal with the problem, companies from other countries have not participated in training schemes in co-operation with vocational schools. The possibility therefore arises that ‘free-riders’ will poach the skilled workers trained by the German companies and thus gain a competitive advantage by opting out of training costs, thereby undermining training efforts. In turn, the disappearance of a well-trained workforce could promote ‘low-road’ work models that depend on low labour costs and the hiring and firing of low-skilled workers. The economic price of this strategy for the CEE could be a specialization in low-cost products and a decoupling of economic growth and social progress (Jürgens and Krzywdzinski, 2009). The third institutional area to be examined is the regulation of employment protection. The legal regulatory framework in CEE is characterized firstly by limited rights for the trade unions as regards dismissal procedures, secondly by particularly low employment protection for fixed-term contracts and agency workers, thirdly by legal limits on working-time flexibility. Thus, the institutional framework supports external labour flexibility with a ‘hire and fire’ approach (Jürgens and Krzywdzinski, 2007; Krzywdzinski, 2008). Under pressure from foreign companies, and German companies in particular, the CEE countries have made their working-time regulation more flexible to allow working-time accounts. With working-time accounts, overtime can be later offset with leisure time, thereby avoiding overtime pay for employers. The flexibility of working hours is most advanced in the Czech Republic, Slovakia and Hungary. Here, the regular working week of 40 hours may be reached over an average of 12 months, if management and unions agree on this in a collective agreement. This makes working-time accounts

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possible, as practised in many Western European countries. It is noteworthy here that the state has made efforts to use higher flexibility as an incentive for collective agreements. The greater flexibility of working time regulations is accompanied by cautious steps by the CEE countries to more strictly regulate the use of agency workers and fixed-term contracts. To date, however, neither these steps nor the greater flexibility of working-time regulations has resulted in a move away from the extensive use of temporary work. Finally, it should be stressed that the discourse of the ‘humanization of work’ and ‘quality of work’ that developed in Western Europe since the 1970s has a relatively weak tradition in CEE. In the context of the forced industrialization of CEE countries, a discussion about the ‘humanization of work’ emerged in the 1970s which, alongside technical solutions, also took on board issues of job enrichment and employee self-organization (Tatur, 1983). This discussion remained marginal, however, and was forced entirely into the background by the economic and political upheavals of the 1980s and 1990s. Trade unions in Poland and other CEE countries have as good as no experience with the issues around influencing work organization, which is reflected in the absence of union influence on this issue, even in companies with strong unions. Work organization remains the prerogative of management.

6. Conclusions and outlook In summary, a pattern of selective transfer can be seen, both in the Volkswagen case study and in other German companies. The Volkswagen case study also shows the influence of the strength of the German works councils and transnational forms of advocacy such as the EWC on the transfer of standards, particularly with regard to employee interest representation. There are a number of reasons why the transfer of work models by German companies remains selective. Labour regulation in CEE limits the transfer of the work model from Germany. At the same time, companies consciously take advantage of the possibilities of only transferring a partial work model, inasmuch as they limit investment in vocational training to a small group of essential skilled workers, rely heavily on temporary work, and in several cases seek to limit the influence of employee interest representation. The selective transfer reflects in part the different balance of power between management and labour in CEE compared to Germany. Nevertheless, an explicit break with the German model can be seen in only a few cases. Jürgens and Krzywdzinski (2009) have raised the question of the future consequences of the strong dependence on foreign companies in CEE. Are ‘high-road’ work models, which place an emphasis on job security, investment in training and good work conditions, as well as internal flexibility, gaining the upper hand? Or are ‘low-road’ models, which seek to increase

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competitiveness through low wages, and which practise ‘hire and fire’ to adjust to market movements, becoming more common? Both of these progressions are possible. The world economic crisis in 2008 and 2009 did not bring about a fundamental change in the division of labour and in the work models in Germany and CEE. Poland has handled the crisis better than most of Western Europe. Due to the relatively successful economic development of CEE countries, there was no need to rethink their own model of growth and work. In Germany, companies reacted to the crisis by delaying planned investments in CEE and other low-wage countries. But this scepticism about further expansion in CEE lasted only a short time. In years after the crisis, we can expect the continuation of trends which shaped the first decade of the 2000s: expansion in CEE and a selective transfer of work models, stabilization of employment in Germany by means of increasing flexibility (working time, agency work) and wage concessions.

List of interviews 1 – Head of ‘Human Resources International’ department at Volkswagen (September 2008). 2 – Executive secretary of the European Works Council of Volkswagen (February 2005). 3 – Head of works council, VW Hannover plant (June 2005). 4 – Head of works council, VW Salzgitter plant (June 2007). 5 – Head of personnel department, VW Polkowice plant (May 2005). ´ plant (May and July 2005, 6 – Head of personnel department, VW Poznan January 2007). ´ plant (July 2005). 7 – Specialist for vocational training, VW Poznan ´ plant (July 8 – Head of industrial engineering department, VW Poznan 2005). ´ plant (July 2005). 9 – Head of Solidarno´sc´ union, VW Poznan 10 – Head of personnel department, Solaris (November 2006). 11 – Head of Solidarno´sc´ union, Toyota Jelcz-Laskowice plant (May 2007).

References Bluhm, K. ‘Flucht aus dem deutschen Modell? Arbeitsbeziehungen in polnischen und tschechischen Tochtergesellschaften’, in J. Beyer (ed.) Vom Zukunfts- zum Auslaufmodell (Opladen: Westdeutscher Verlag, 2003). Bluhm, K. Experimentierfeld Ostmitteleuropa? Deutsche Unternehmen in Polen und der Tschechischen Republik (Wiesbaden: VS Verlag, 2007). Boyer, R. and Freyssenet, M. The Productive Models: The Conditions of Profitability (London/New York: Palgrave Macmillan, 2002).

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Martin Krzywdzinski 115 Boyer, R., Charron, E., Jürgens, U. and Tolliday, S. (eds) Between Imitation and Innovation: The Transfer and Hybridization of Productive Models in the International Automobile Industry (Oxford/New York: Oxford University Press, 1998). Dörrenbächer, C. and Geppert, M. Micro-political Games in the Multinational Corporation: The Case of Mandate Change, Management Review, 20 (2009): 373–391. Edwards, T. ‘The Transfer of Employment Practices Across Borders in Multinational Companies’, in Harzing, A. and Ruysseveldt, J. (eds) International Human Resource Management (Thousand Oaks, CA: Sage, 2004). Ferner, A. and Tempel, A. ‘Multinationals and National Business Systems: A Power and Institutions Perspective’, in Almond, P. and Ferner, A. (eds) American Multinationals in Europe: Managing Employment Relations across National Borders (Oxford: Oxford University Press, 2006). Ferner, A., Quintanilla, J. and Varul, M. Country-of-Origin Effects, Host-Country Effects, and the Management of HR in Multinationals: German Companies in Britain and Spain, Journal of World Business, 36 (2001): 107–127. Fichter, M. Internationalization of Production: Options and Responses, AICGS/DaimlerChrysler Working Paper Series (Baltimore, MD: John Hopkins University, 2003). Fichter, M., Frybes, M., Meardi, G., Marginson, P., Stanojevic, M. and Toth, A. Varieties of multinationals. Embedding foreign investors in Central Europe, Paper for the GIRA Annual Conference (Trier, October 12–13, 2005). Haipeter, T. Mitbestimmung bei VW (Münster: Westfälisches Dampfboot, 2000). Haipeter, T. Tarifabweichungen und Flächentarifverträge (Wiesbaden: VS Verlag, 2009). Hofstede, G. Culture’s Consequences: Comparing Values, Behaviors, Institutions and Organizations Across Nations (Thousand Oaks, CA: Sage, 2001). Hyman, R. ‘Varieties of Capitalism, National Industrial Relations Systems and Transnational Challenges’, in Harzing, A. and Ruysseveldt, J. (eds) International Human Resource Management (Thousand Oaks, CA: Sage, 2004). Jacoby, S. The Embedded Corporation (Princeton, NJ: Princeton University Press, 2000). Jürgens, U. ‘The Development of Volkswagen’s Industrial Model, 1967–1995’, in Freyssenet, M., Mair, A., Shimizu, K. and Volpato, G. (eds) One Best Way? Trajectories and Industrial Models of the World’s Automobile Producers (Oxford: Oxford University Press, 1998). Jürgens, U. ‘Transformation and Interaction: Japanese, U.S., and German Production Models in the 1990s’, in Yamamura, K. and Streeck, W. (eds) The End of Diversity? Prospects for German and Japanese Capitalism (Ithaca, NY/London: Cornell University Press, 2003). Jürgens, U. An Elusive Model – Diversified Quality Production and the Transformation of the German Automobile Industry, Competition & Change, 8 (2004): 411–423. Jürgens, U. and Krzywdzinski, M. Zukunft der Arbeitsmodelle in Polen, WZB Discussion Paper SP III 2007-301 (Berlin: WZB, 2007). Jürgens, U. and Krzywdzinski, M. Work Models in the Central Eastern European Car Industry: Towards the High Road?, Industrial Relations Journal, 40 (2009): 493–512. Jürgens, U. and Krzywdzinski, M. Die neue Ost-West-Arbeitsteilung (Frankfurt/New York: Campus, 2010). Jürgens, U., Malsch, T. and Dohse, K. Breaking from Taylorism: Changing Forms of Work in the Automobile Industry (Cambridge: Cambridge University Press, 1993). Kohl, H. and Platzer, H. Industrial Relations in Central and Eastern Europe (Brussels: ETUI, 2004).

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Kostova, T. Transnational Transfer of Strategic Organizational Practices: A Contextual Perspective, Academy of Management Review, 24 (1999): 308–324. Kuhlmann, M., Sperling, H. and Balzert, S. Konzepte innovativer Arbeitspolitik (Berlin: edition sigma, 2004). Krzywdzinski, M. Arbeits- und Sozialpolitik in Polen (Wiesbaden: VS Verlag, 2008). Krzywdzinski, M. Organisatorischer Wandel von Gewerkschaften in postkommunistischen Ländern, Industrielle Beziehungen, 16 (2009): 25–45. Lüthje, B., Schumm, W. and Sproll, M. Contract Manufacturing (Frankfurt/New York: Campus, 2002). Martin, G. and Beaumont, P. Diffusing Best Practices in Multinational Firms: Prospects, Practice and Contestation, International Journal of Human Resource Management, 9 (1998): 671–695. Sorge, A. and Streeck, W. ‘Industrial Relations and Technical Change: The Case for an Extended Perspective’, in Hyman, R. and Streeck, W. (eds) New Technology and Industrial Relations (Oxford: Basil Blackwell, 1988). Streeck, W. Re-Forming Capitalism: Institutional Change in the German Political Economy (Oxford: Oxford University Press, 2009). Tatur, M. Arbeitssituation und Arbeiterschaft in Polen 1970–1980 (Frankfurt/New York: Campus, 1983). Tholen, J., Cziria, L., Hemmer, E., Kozek, W. and Mansfeldová, Z. Direktinvestitionen deutscher Unternehmen in Mittel- und Osteuropa (München/Mering: Hampp, 2006). Uhl, H. and Lavon, E. ‘Der Europäische Volkswagen-Konzernbetriebsrat’, in Deppe, Hoffmann, J. and Stützel, W. (eds) Europäische Betriebsräte (Frankfurt/New York: Campus, 1997). Voß, E. and Wilke, P. Modelltransfer oder Anpassung an lokale Verhältnisse? (Hamburg: Bertelsmann Stiftung/Hans-Böckler-Stiftung, 2003). Widuckel, W. Globale Integration von Unternehmen und Interessenvertretung von Arbeitnehmern am Beispiel der Volkswagen AG, Industrielle Beziehungen, 8 (2001): 333–340.

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Part III Multinationals and Host Countries in the Crisis

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7 Employment Relations and the Opening Up to MNCs in Hungary Jen˝ o Koltay

What is the broader context in which multinational companies (MNCs) are playing a role in shaping Hungarian employment relations? Starting from an overview of macroeconomic developments of the last two decades, this chapter will examine different aspects of employment relations, actors, strategies, institutions and practices in order to grasp Hungarian specifics against features common to other new EU members in Central and Eastern Europe (CEE). Building on an extended ‘varieties of capitalism’ analysis (Drahokoupil and Myant, 2009; Feldmann, 2006; Greskovits, 2005; Hall and Soskice, 2001; King, 2007; Nölke and Vliegenthart, 2009),1 this examination will help to highlight how, in an early transitional small and open economy, incoming FDI and MNCs affected the system of industrial relations and, in turn, become one of the coordination mechanisms differentiating economic and political regimes of old and new market economies. In evaluating the impact of MNCs on Hungarian employment relations, home country and host-country effects as well as global tendencies will be considered in terms of the debate as to whether MNC subsidiaries are vehicles of change or outpost test departments.

1. The Hungarian economy: from regime change to global crisis 1.1. Transformation, stabilization and growth (the first decade) In 1989, Hungary could boast a less state-controlled economy and more significant progress in reform than its fellow former Soviet bloc nations. Partial reforms introduced from the late 1960s2 had led to the development of the spirit of enterprise, market relations (particularly in the parallel economy), pronounced wage individualization and significant openings to trade with Europe and the West. These intrasystemic reforms played a role in Hungary’s choice of a ‘gradual’ transition model over the ‘shock therapy’ of Poland or the Czech ‘mass privatization’ approach (Koltay, 1999). This early and gradual transition explains why Hungary’s ‘transformational recession’ (Kornai, 1994) produced a comparatively moderate GDP contraction 119

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of 18 per cent between 1989 and 1993. The rapid restructuring of systems of production, however, did cause rapid growth in unemployment, which stood at 12 per cent in 1993. Privatization and a massive influx of foreign capital reinforced the contribution of the private sector to GDP (85 per cent by 1998), whereas foreign ownership comprised 66 per cent of industry, 70 per cent of financial institutions, 90 per cent of telecommunications and 50 per cent of the trading sector. Along with the inflow of capital, MNCs also brought new management and work organization schemes. By 1995, purchases and new firm creations in Hungary attracted as much foreign direct investment (FDI) as in all other CEE countries combined. Towards the end of the decade, Hungary continued to attract one-third of FDI in the region (CEE and ex-USSR), yielding the highest FDI stock to GDP ratio in the CEE.3 This early, massive arrival of MNCs developed into a ‘structural advantage’ (Greskovits, 2005). Coming mainly from the EU, and concentrated in manufacturing, the FDI induced an export boom (where the share of MNCs and assimilated firms was about 70 per cent). Within a decade, with a gradual shift from textiles and food to vehicle production and high-tech sectors, manufacturing exports increased ten-fold. Productivity gains in industry attained on average 11 per cent per year between 1992 and 1998. The economic transformation of the 1990s thus fuelled an export-led and FDI-based growth and integration perspective in which exports of (higher value-added) products, manufactured in local branches of large MNCs, played a dominant role.4 In 1995, facing a 9 per cent budget deficit and negative balance of payments as well as an external debt ratio of 70 per cent of GDP, the threat of the international financial crisis compelled Horn’s socialist-liberal government to introduce a stabilization programme without consulting the social partners and achieving a social pact. The ‘Bokros package’ (named after the finance minister) included severe budget cuts (−15 per cent), a 9 per cent devaluation of the forint and the adoption of a ‘crawling peg’ regime. Budget and balance of payment deficits dropped almost immediately, whereas the record advances in FDI and privatization revenues significantly reduced external debt from 45 per cent of GDP in 1994 to 32 per cent in 1996. The inflation rate accelerated (28 per cent in 1995 and 24 per cent in 1996, compared to 21 per cent in 1994), and real wages plummeted 12 per cent in 1995 and 5 per cent in 1996. This flexible downward adjustment, made possible by the decentralized fixation of wages, slowed inflation and halted increases in unemployment. The year 1997 saw the return of positive economic growth that enabled the 1999 GDP to rise to 1989 levels. Reform efforts to reduce budget share and increase efficiency in public services (such as health, retirement pensions and education) met with resistance, limiting their effectiveness. Pension reforms were introduced in 1998, creating a three-pillar system with a public (pay-as-you-go) system, obligatory private pension funds and optional private funds, but did not produce

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a long-term sustainable system. Maintaining social cohesion did not allow a strict control on growing social expenditures and agricultural subsidies; without major structural reforms ad hoc expenditure cuts and tax increases tried to correct the endemic budget deficit. The 60 per cent redistribution ratio (of total government expenditure to GDP) in 1992 dipped below 45 per cent in 1999 (less than the Polish or Czech rate), but the budgetary deficit stagnated around 6 per cent of GDP. By the end of the 1990s, Hungary had repaid the entirety of its IMF debt, GDP continued to rise at a rate of 4–5.5 per cent and real wages had returned to their 1989 level in 2002. 1.2. Overspending, austerity, crisis management (the lost decade) Notwithstanding the successful EU accession process, Hungary’s economic outlook deteriorated from 2001 onwards. Economic growth slowed to below 4 per cent in 2002. As a result of subsidized loans and tax credits for home buyers, public sector wage increases (50 per cent in 2002), and generous welfare payments (such as a 13th month pension), Prime Minister Orbán on the political right, and Medgyessy and Gyurcsány on the left – all out bidding each other in election campaigns – allowed the budget deficit rise to 10 per cent of GDP and the government debt to 66 per cent of GDP (a ratio that compared with under 30 per cent in the Czech Republic and Slovakia), and inflation rates to exceed 6 per cent. A significant portion of the financial inflow fuelled state budget deficits, but part also went to businesses and households, with governments encouraging people to take out mortgages.5 The advantages attributed to early accomplished transformation and reform antecedents turned more and more into rigidities, obstacles to further structural/institutional reforms. In 2006, Gyurcsány, once re-elected, unveiled an austerity package to reduce the budget deficit to 3 per cent of GDP as part of efforts to align the economy with Maastricht fiscal rules. While the deficit fell to 3.4 per cent in 2008, GDP growth (around 4 per cent over the previous ten years) began plummeting (to around 1 per cent in 2007–08), a drop that was accompanied by a 7 per cent fall of real wages and continued stagnation in the already low level of employment. Investors criticized the government’s choice of tax increases instead of spending cuts. Without adequate fiscal responses6 and institutional reforms, its high dependence on external financing and weaknesses in the unreformed financial sector rendered Hungary especially vulnerable to the global financial crisis. It became one of the first and hardest hit victims. Downgraded by credit-rating agencies, Hungary raised its interest rate to 11.5 per cent, the highest in the EU, and was forced to turn again to the IMF, the World Bank and the EU, receiving a rescue package of ¤20 billion in October 2008. The ensuing global contraction of demand that spread to countries and sectors purchasing the bulk of Hungarian exports produced an immediate, substantial impact on the Hungarian GDP.7 Gyurcsány resigned in March 2009 leaving Bajnai’s minority government with limited room

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to manoeuvre through procyclical measures. Introducing further spending cuts8 has ensured that the public deficit was below 4 per cent in 2009, and external financing conditions have improved while financial collapse has been averted.9 Following a 6.3 per cent fall in GDP in 2009, the macroeconomic outlook is now somewhat brighter, even in the absence of promising rapid economic recovery (1 per cent growth is expected in 2010) or a healthier labour market (the employment rate fell to 55 per cent, with unemployment above 10 per cent).10

2. Employment relations 2.1. Actors: organization and strategies The employment relations landscape of Hungary is highly fragmented, both in terms of employers and unions. Although the older organizations preserved their sectoral structure from the socialist past, newer associations essentially unite individual businesses, in some cases at the branch or regional level. There are nine employer confederations.11 This fragmented pluralism severely limits the number of potential members and explains why the VOSZ (National Business Association) confederation membership rules, in effect, allow multiple affiliations. Membership dues cover, on average, only one-third of the confederation expenses, the balance being covered by offering a range of member services and financial support from the government for specific activities like training and entry into new markets. Thus many firms, particularly large ones and branch organizations, belong to several confederations in order to widen their field of influence at modest expense. Multiple affiliation, statistical gaps and the reluctance of organizations to publish data concerning their membership also make it difficult to determine employer organization density, estimated to be 40 per cent of employed workers in 2004–05 (Tóth, 2006). The decentralized organization of employers’ representation is an obstacle to branch-level collective agreements. Most of them do not show much interest in the bipartite regulation of employment and labour market and regard trade unions only as partners in tripartism. Indeed, their priority is lobbying the government to defend their economic interests. In this regard, tripartism offers multiple advantages, including access to public procurement and other funds and participation in economic and social regulation, including employment legislation. Employers’ associations differ from the trade unions in having avoided involvement in political parties while staking claims to a role in defining the country’s economic strategy within the framework of tripartism. In 2008, this orientation was made explicit through the creation of the Forum for Economic Concertation (GEF), a two-party organization of employers and

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government whose purpose is to determine the principal directions of economic policy. Organizational weaknesses and lack of expertise, however, continue to significantly limit their influence while concertation with the government can also threaten their ability to oppose certain policies and compromise their autonomy. Despite these problems, employers’ organizations have become wellintegrated into the institutional system and have found operating resources. The primary problem is still divisions among them that stem from their representation of quite disparate interests. For employees’ organizations, freedom of association brought pluralism and opened up competition between older and newer unions for members at every level. This lively competition resulted in the fragmentation of the trade union landscape, composed of six confederations, of which four (MSZOSZ, ASZSZ, SZEF and ESZT) originated in the former single union (SZOT) and two (LIGA and MOSZ) are products of the regime change.12 Altogether, the six confederations along with numerous independent unions count fewer than 600,000 members (compared to 2.5 million in 1992), the 17 per cent union density rate being one of the lowest in CEE.13 Unionization is considerably higher in the public sector, transportation, energy and mines (HCSO Labour Force Survey, 2004) than in other sectors. Initially, at transition, the new confederations had no branch structure, whereas in the older organizations branch-level organizations were practically federations of enterprise unions. In the monopoly, public services craft unions reappeared, like the Union of Locomotive Conductors. Other confederations, such as the SZEF and the Autonomous Unions, concentrated on the ‘material needs’ of their members, and were thus closer to a politically neutral ‘business unionism’ model. Although it later consolidated the social democratic position, at the outset of the transition the MSZOSZ had itself envisioned the development of new member services (bank cards, insurance and legal service) in order to compensate for the loss of traditional services, such as holiday homes, that were casualties of the transition. The liquidation of the state’s possessions, however, limited the ambitions of unions, whose financial difficulties constituted incentives for mergers. Alongside dependence of the union organizations on tripartism because of access to aid and the possibility of lobbying, growing difficulties appeared in mobilizing employees, gaining access to non-union workplaces and facing employer resistance (notable examples being the cases of Suzuki and Hankook). Efforts to consolidate their positions within national tripartism and sectoral dialogue seemed to absorb most of the unions’ energies. The goal of securing autonomous organization in workplaces gradually lost ground to a more corporatist strategy that seeks top-down legitimacy, potentially a better means of justifying the unions’ existence than declining memberships. This strategy is illustrated by the behaviour of unions in turning to the state, still a multifaceted centre of gravity, in order to

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obtain extensions of collective agreements and to remedy the weaknesses of negotiation through legislation.

2.2. Legislation In terms of employee representation, Hungary implemented a dual channel system in 1992. The works council law gave workers more limited rights than those provided for by the German model.14 This legislation, initially opposed by the unions, who feared a reduction in their influence, was subject to successive amendments that ultimately led to limitations in union rights. In 1998 the right-wing government reinforced works councils compared to the unions; the subsequent socialist government in 2002 removed the right of works councils to negotiate and increased the consultation rights of local trade unions. In exchange, the unions accepted the new institution would be the indicator of ‘union representativeness’ measured by works council election results. In order to obtain the right to negotiate, a union must receive 10 per cent of the votes in a works council election, while in order to be able to sign an agreement they must have obtained 50 per cent. In 2003, nearly half of private sector firms had works councils.15 However, despite a significant development of these works councils, most employees continue to have no representation, particularly in newly created firms, the service and building sectors, and in small- and medium-sized businesses. Union representatives elected in the workplace must be consulted over major issues affecting employment, and they have the right to intervene in cases in which employment rules have been breached. The employer must provide the works council with economic information (important investment plans and activity changes, wage developments, working conditions and work time), and must consult it concerning planned measures that have an impact on a large number of employees; such measures include restructuring, outsourcing or privatization, new methods of work organization, setting of performance indicators and questions related to conditions of work. The Labour Code furthermore provides co-decision rights to works councils on the use of social resources that are part of the collective agreement, including cafeterias, workers’ residences, child-care facilities and so on. As consultative organizations that are only sporadically kept informed by employers (almost exclusively during official meetings), works councils, however, have relatively limited power to influence company decisions.16 Employee representation is also assured legally through the presence of employees on company supervisory boards. Although these supervisory boards’ powers are relatively weak (only following-up management decisions and with the capacity to call for action ‘in favour of stake-holders’), the status of membership on the board often benefits union representatives and/or works council members through giving them a certain degree of protection with regard to layoffs and discrimination.

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According to the 1992 Labour Code, both unions and works councils can be parties to a collective labour dispute with an employer (or employers’ association). Before any action, negotiations must be held, and the Labour Mediation and Arbitration Service (MKDSZ) set up in 1996 may also help in reaching an agreement.17 The strike law is rather liberal. It does not specify who is authorized to call a strike; any group of workers may thus initiate a move to strike. Works councils are not permitted to call a strike, and if its members participate their mandate is suspended during the action. Unlike many EU member states, Hungary has no legal provisions for employer lock-outs. The law imposes ‘peace clauses’ in order to prevent strikes from disputing valid collective agreements. With organizational pluralism, the question remains whether the peace obligation is relevant to unions that are not signatories to the agreement. It is required, but not respected in practice, for the parties to agree on a minimum-service provision (especially in public utilities) prior to a strike. Under the socialist government, the 2002 Labour Code amendments allowed the unions to apply pressure for improving legislation that until then was not in their favour and did not provide much protection in terms of employment. This legislative revision gave the unions rights to information and consultation (notably in the case of major changes affecting employment). Employee representatives also gained increased protection in a context where redundancy compensation remained at a low level.18 The revisions finally allowed unions to amend the 2001 law governing working time to make it more protective and to counterbalance in part the deregulatory effect of transposition of the EU directive. Nevertheless, practices remain more flexible than legislation, especially in the case of new workers. For these, whether or not they are on fixed-term contracts, the employer generally finds a way to reduce separation costs. Flexibility is also common in working time.19

3. Social dialogue, collective negotiations and individual bargaining In the newly emerging market economy, with fragmented and asymmetrical labour relations in which the state still prevails, collective negotiations were structured around macro-level tripartism. The National Interest Reconciliation Council (OET), born as early as 1988, was required by the 1992 Labour Code to conclude tripartite agreements on the minimum wage and on recommendations on annual wage increases. Bringing state, labour and employer representatives together, this body was relatively successful. An agreement was reached every year (except 1995) on wage guidelines for moderation in negotiating wages.20 Average wage increases, however, exceeded the recommended range in the market sector by between 1 and

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4 per cent.21 In the public sector, exceptional pay increases were also implemented in 2001–02. The limits to tripartism are shown by failed attempts to reach the general ‘social and economic agreement’ urged by the social partners on several occasions (Héthy, 1995). In 2004, to strengthen consultation over strategic issues and national programmes, an even wider, all-interest forum, the GSZT (Economic and Social Council) was established.22 Compared to macro-level tripartism, intermediate-level collective bargaining is rather weak. Following the single first wave of signatures of sector agreements in 1992, collective bargaining remains rare and occasional. The creation in 2004 of 30 bipartite sector committees and of a centre for sector social dialogue has not really modified this situation.23 Although a collective agreement for the construction sector was signed in 2005, in other sectors employers have attempted to withdraw from existing agreements, limiting sector bargaining to a dozen branches (those in which the unions are powerful or the employers few, such as in the power generation or chemical sectors). This is compounded by the weaknesses of employer organizations at sector level. Most agreements are actually ‘multi-employer’,24 where each separate company within a group or an MNC signs the group agreement. However, these agreements do include opt-out clauses that allow individual employers to preserve their power over wages and working conditions. Another indication of the weakness of sectoral regulation is that the content of sector agreements on wages is generally limited to defining an average increase, sometimes with the addition of a branch wage minimum. Overall, sectoral agreements do not cover more than one-tenth of employees of the market sector, and they have very little influence over negotiations at the firm level. The model of employment relations thus far described is very loosely coordinated and highly decentralized. At the level of individual firms, the development of negotiations was initially limited to the public sector but with the influx of foreign capital and new management approaches it was gradually expanded to include the bigger firms of the private sector. Most agreements are to be found in large manufacturing companies, utilities, financial services and also in public services. By 1998, the majority of large companies (three-quarters of those employing over 1000 and two-thirds of those employing 500–1000) had at least a ‘basic’ collective agreement. In the business sector half of the firms employing over 1000 had an agreement on wages. Many collective agreements, however, do not function much more effectively than did their socialist antecedents (merely recapitulating legal arrangements), while one-third of them make no reference at all to wages be it in terms of average increases, wage minima or base salaries.25 Between 2004 and 2008, the number of recorded firm-level collective agreements fell from about 1300 to 1040 in the market sector, and from 2000 to 1786 among public sector institutions, while the number of multiemployer agreements fell from 70–80 to 61 for firms, and from 10 to 3

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for public institutions. The number of real branch-level agreements in the market sector was a mere 19. In 2008, 36 per cent of all employees were covered, against 40 per cent in 2004 and 45 per cent in 1998, placing Hungary between Slovakia and the Czech Republic, all three well below the European average.26 Coverage rates for MNCs follow more or less the general pattern, somewhat higher earlier and somewhat lower recently (Neumann, 2009).27 Decentralization and informal and individual bargaining might explain, among other factors, the low level of industrial conflict throughout the whole period. Only a few thousand employees have participated, except for two peaks (670,000 involved in 1991 and 217,000 in 1995) and two troughs (40,000 in 2000 and 47,000 in 2007). The overwhelming majority of the 92 strikes between 1999 and 2008 have been organized over pay claims, almost exclusively in the public sector (healthcare and railways) or in reaction to health-insurance reform projects and austerity measures of the government, as were the strikes of some railway and local public transport unions after the crisis broke.28

4. Employment relations and the role of MNCs in shaping the ‘Hungarian Model’ The Hungarian system of industrial relations incorporates very weak coordination and high decentralization. The central level, through the establishment of an occupational-based minimum wage and agreements on wage guidelines in the Interest Reconciliation Council, became a platform for co-operation and a showcase for consultation between the social partners. The institutionalized tripartism between the state and the union and employer élites goes well beyond the world of labour, exhibiting external signs of corporatism, although without some of its essential attributes such as restricting wage/labour market competition and binding central wage coordination. With collective bargaining only taking root at the company level and just a few industries (mainly in the public utility sector) having sector collective agreements, individual bargaining remains decisive, not only in the non-union sector but also in unionized companies having collective agreements. Thus, supply and demand in the labour market have a direct role in wage setting and company-level agreements only perform a partial regulatory function for a small set of companies. The early implementation of tripartisim and its relative effectiveness (as evidenced among other factors by low levels of conflict) did not suffice to ensure the development of collective bargaining, which was further impeded by weak sectoral regulation. In this context, the high level of decentralization of employment relations left ample room for informal and individual bargaining. Direct relationships between management and employees by-passing unions were retained and even had their importance reinforced, not only within non-union SMEs but also in large firms, where

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employers have a choice of partners between unions and works councils, or where new technologies and management methods imported by multinationals have further opened the field for these direct relationships. In SMEs, self-employment and informal jobs individualism prevails, often tending towards shrewd pragmatic practices. Both new and older practices have, therefore, become integrated into an international tendency towards deunionization, individualization and flexibility, without breaking with the underlying rights of (reformed) socialism. In several ways, the resulting employment relations system resembles the Anglo-Saxon model.29 Employment relations also carry the imprint of MNCs. It is not difficult to identify home-country effects in a particular subsidiary, but even at the firm level, global tendencies common to MNCs coming from different countries prevail over country-specific elements. On the other hand, MNCs are more than willing to converge with the host-country environment, where there are at least as many country-specific as common post-socialist features mixed from surviving socialist practices/attitudes with elements picked from various Western countries’ legislation and flavoured by some EU norms. MNCs thus enjoy the host country’s less confining regulatory framework and/or underdeveloped collective bargaining practices as compared to the more stringent regulatory and collective bargaining environment of their home country. The pattern of employment relations has been shaped largely by the underlying macroeconomic framework in which MNCs play an eminent role. In the Hungarian export-led and FDI-based growth and integration, ‘intrafirm hierarchies within transnational enterprises constitute a distinctive coordination mechanism’ (Drahokoupil and Myant, 2009: 5), as in the ‘dependent market economies’ model proposed by Nölke and Vliegenthart (2009).30 Existing employment relations and practices proved to be rather persistent even in the face of the global crisis, threatening the underlying macroeconomic model, the future of which depends to a great extent on MNC (re)location decisions and on the shrinkage or rebound of FDI inflows.31 Employee–employer relations apparently are more resilient than employees or employers, both hit by the crisis, whose impact is felt not only in exports, production and financial markets but also in the labour market in terms of employment, unemployment and real wages. However, the latter are deteriorating within the magnitude of changes already experienced prior to the global crisis while industrial conflict remains at its previous low levels.

Acknowledgements Careful reading and constructive comments of the editors and the support of DARES and OTKA-National Research Fund are gratefully acknowledged.

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Notes 1. The original VoC approach identified distinct ‘liberal’ and ‘coordinated’ varieties of capitalism, and this has been (critically) extended in the recent literature to compare developed and new market economies, and applied to differentiate various post-socialist economies. 2. This included in-firm business work partnerships (VGMKs) allowing about 10 per cent of workers in the 1980s to form autonomous groups within stateowned enterprises and to work on a contractual basis after regular working hours. The ‘entrepreneurial skills’ acquired here were an asset for small-scale start-ups after regime change, also fuelling the hidden economy (cf. Koltay, 1986; Makó, 2005). 3. Thirty-eight per cent in 1998, against 17 per cent for the Czech Republic, 9 per cent for Slovakia, 10 per cent for Poland. Other CEEs were catching up. In 2008, Romania reached 34 per cent and Estonia outperformed Hungary, whose ratio had risen to 56 per cent, against 47 per cent for the Czech Republic, 39 per cent for Slovakia and 31 per cent for Poland (Hunya, 2010). 4. Seventy-seven per cent of MNCs originate in the EU (25 per cent in Germany). MNCs produce 60 per cent of GDP and employ 35 per cent of the private sector workforce (about 50 per cent in manufacturing, 27 per cent in services, 55 per cent in finances) (ITD Hungary, 2008). 5. Middle-class demand for low-interest credit was satisfied by foreign currency mortgages offered by mostly transnational banks. From around 2000, much of new credit went towards property, whereas loans in the 1990s had overwhelmingly gone into businesses. 6. Monetary policy and the National Bank’s primary focus on inflation targeting rather than on the exchange rate and the low level of foreign exchange reserves also became a controversial issue (cf. Furceri and Zdzienicka, 2009). 7. Hungary and the Czech Republic have a solid industrial base behind their 73 per cent and 60 per cent ratios of exports to GDP, while Slovakia’s high export ratio of 71 per cent is based on its recent automotive industry; in contrast, Romania has a 23 per cent exports to GDP ratio (CE Business Club, 2009). 8. Measures included pension system cuts (gradually raising the retirement age from 62 to 65, ending the 13th month pension), replacing the universal housing subsidy by a targeted scheme, freezing the public sector wages except for lower-income civil servants, increasing some benefits for the poorest and providing temporary relief to those most affected by the crisis. Employers were given a stimulus by extending lower social security contributions into 2010, along with targeted cuts in personal income tax rates, offset by higher VAT rates. 9. In July 2009, Hungary was able to issue a ¤1bn Euro-denominated bond. Consequently, interest rates on government debt have fallen and the forint exchange rate has recovered to about 270 (after depreciating to 317 against the Euro in March 2009). 10. At 56–57 per cent, Hungary’s employment rate (15–64 age group) has been lower over the last decade than the 2008 Czech rate of 66.6 per cent, the Slovak rate of 62.3 per cent and the Polish rate of 59.6 per cent; in the crisis it returned to its 1999 level. 11. These include MGYOSZ (Confederation of Hungarian Employers and Industrialists), which has about 6000 member companies in 51 branch sections and 17 regional associations with a total of 1.2 million employees. It was a merger of

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12.

13.

14.

15.

16.

17.

18.

19.

Multinationals and Host Countries in the Crisis the former MMSZ (Hungarian Employers’ Association) and GYOSZ (Industrialists’ Confederation) in 1998. The other organizations are: VOSZ (National Business Association), which has 40 branch and professional associations with some 500,000 employees; AMSZ (Union of Agricultural Employers); MOSZ (National Federation of Cooperatives and Agricultural Producers); IPOSZ (National Association of Industrial Corporations); Chamber of Handicrafts (100,000 SMEs with about 500,000 employees); KISOSZ (National Federation of Traders and Representation of Interest Caterers); OKISZ (Hungarian Industrial Association); ÁFEOSZ (National Federation of Consumer Cooperative Societies and Trade Associations) and STRATOSZ (National Association of Strategic and Public Utility Companies). Membership is voluntary, only five of them are involved as employer associations in collective bargaining (Tóth, 2006). The main division between the ‘reformed’ unions is that they cover different sectors. MSZOSZ represents employees in manufacturing, services and retail, whereas ASZSZ represents utilities, transport and chemical industries. SZEF and ESZT (cooperating since 1995) cover public services such as health, education, local and central government. ESZT organizes higher education and research. LIGA and MOSZ both represent workers across the economy. Competing confederations are reluctant to give, or tend to overstate, membership figures, which is difficult to reconcile with the Labour Force Survey figures. In terms of employed members the largest confederations are SZEF (270,000), MSZOSZ (200,000) and ASZSZ (100,000), overtaken recently by LIGA after the affiliation of FRDESZ (representing the military and the police) and the electrical power union (Neumann, 2006). Unlike union representatives elected only by union members, works council representatives are elected by all of the employees of firms and workplaces with more than 50 employees. Firms with between 15 and 50 employees elect an employee representative. A central works council can be established by firms with several councils. A 2003 survey of 2600 companies with more than 50 employees showed that 49 per cent of workplaces in the private sector had works councils, only 9 per cent of them in non-union companies. Furthermore, according to the 2004 Labour Force Survey only 33 per cent of respondents reported a trade union at their workplace and 75 per cent of works council members were trade unionists (Balogh and Neumann, 2005). Their influence is further limited by the absence of any legal obligation concerning the minimum contents of a collective agreement; works councils might thus have no power to influence employer decisions even within firms covered by a collective agreement. MKDSZ was established with the help of an EU PHARE project, receiving international support from, among others, US and UK arbitration and mediation services. The minimum amount of compensation ranges from one month’s wages for employees with 3 years’ seniority up to 6 months for those with 25 years’ employment. The Hungarian labour market is characterized by considerable flexibility and little job protection. Persistently low employment rates are explained by mass job losses in the early transition period, a dearth of re-employment perspectives for an obsolete labour force, and by social compensation (early and invalidity retirement schemes, generous childcare allowances, etc.) and by the hidden economy (Köll˝ o and Nacsa, 2005).

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Jen˝ o Koltay 131 20. The unions failed to secure tri-annual national wage agreements linking salary increases to inflation. Only in 2005 was an agreement reached concerning triannual increases in the minimum wage, accompanied by the introduction of higher wage minima for skilled and professional workers. 21. The wage recommendations and effective gross salary increases were respectively 8.5–11 per cent and 14.2 per cent for 2000; 7–8 per cent and 9.3 per cent for 2004; 5.5–8 per cent and 9.1 per cent for 2007. 22. The GSZT comprises all employer organizations and trade unions represented in the OET (National Interest Reconciliation Council) as well as chambers of commerce and industry, associations of foreign-owned companies and commercial banks, and experts from the Hungarian Academy of Sciences, the Monetary Council of the National Bank of Hungary and various NGOs. 23. A PHARE programme, Strengthening Autonomous Social Dialogue, helped create these new institutions (Fóti, 2007). 24. These agreements provide common regulation for holding companies that emerged from large state companies, which were reorganized into several companies, and multinational firms with several subsidiaries. Although the unions enjoy greater bargaining power at group level than at company level, the content of group agreements are close to those concluded at the individual company level. 25. The registry of collective agreements does not elucidate the question of base salary in wage agreements and remains highly flawed. It includes many agreements that have been broken or signed by companies that have subsequently gone out of business, although registration of agreements is mandatory since 1997. 26. Coverage rates, based on the Registry of Collective Agreements for Hungary, are not directly comparable to figures for Slovakia, with 50 per cent, or the Czech Republic, with 25 per cent (Fialová, 2010). In 2004 in the business sector, the number of employees covered by an agreement relating to a single firm was 638,000 and for agreements affecting several employers, 264,000. In the public sector, the respective figures were 250,000 and 2072 employees. (Re)negotiation of agreements declined during recent years and state extensions remained rare; only four sector agreements, including electricity and bakery, were renegotiated and re-extended. 27. In 1998, 49 per cent of nationally owned firms with 50 or more employees had collective agreements compared to 46 per cent of foreign-owned ones (employees ≥ 50). For firms with more than 300 employees Neumann calculates 68 per cent for Hungarian-owned enterprises, against 37–84 per cent for MNCs, depending on the foreign-ownership share (total, majority or minority, respectively). Greenfields in exclusive foreign ownership show the lowest coverage. Recently, coverage has declined more in MNCs than in nationally owned firms. 28. Conflicts somewhat intensified in 2006–07 with 32,000 working days lost involving 47,000 employees, against only 8000 working days and 8500 employees in 2004. In 2008 there were 8000 employees involved and 25,000 days lost in 25 strikes, 24 warning strikes and 3 solidarity strikes (EIRO, 2008; Fazekas et al., 2009). 29. Outside employment relations, the welfare system is closer to a continental European model, with more redistributive provisions and centralizing a higher share of GDP. 30. Building on this interpretation of the ‘Varieties of Capitalism’ (Hall and Soskice, 2001) framework, Drahokoupil and Myant argue (2009: 5) that with ‘the prominence of foreign ownership . . . themes of enterprise finance or corporate

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governance, or the “specific institutional advantages”, are of much less relevance and need not be well developed . . .: those issues are resolved by the MNCs in their home bases.’ 31. In 2008, FDI inflow did not decrease (¤4.4bn, Hungarian National Bank data), in 2009 it fell by around 50 per cent (Ministry of Economy and wiiw data). Hungary may again receive an annual ¤3.5–4bn FDI in the medium term (according to ITD Hungary), mostly depending on large-scale FDI projects like Daimler-Mercedes at Kecskemét. Without new projects profits repatriation may take away benefits related to capital inflows and exports, as in the first half of 2009 when Hungary and Slovakia experienced a negative net inflow.

References Balogh, E. and Neumann, L. ‘Trade union membership and workplace presence continue to shrink’ EIRO Online. Dublin (2005). CE Business Club. ‘Twenty years of the CEE economic region – Assumptions for sustainable development’ CE Business Club presentation Zagreb/Vienna (November 25, 2009), p. 19. Roland Berger Strategy Consultants VIE-9870-810110129-004_CEE_2020_E.pptx. Drahokoupil, J. and Myant, M. ‘Varieties of capitalism, varieties of vulnerabilities: Financial crisis and its impact on welfare states in Eastern Europe and the Commonwealth of Independent States’, Paper submitted to Historical Social Research/Historische Sozialforschung (November 2009), pp. 1–31. http://ssrn.com/ abstract=1506522. EIRO, ‘Developments in industrial action 2003–2007’, European Industrial Relations Observatory, (2008). http://www.eurofound.europa.eu/eiro/studies/tn0804039s/. Fazekas, K. et al. (eds), The Hungarian Labour Market: Review and Analysis (Budapest, Institute of economics HAS, 2009). Feldmann, M. Emerging Varieties of Capitalism in Transition Countries: Industrial Relations and Wage Bargaining in Estonia and Slovenia, Comparative Political Studies, 39 (7) (2006). Fialová, K. ‘Labor Market Flexibility and Economic Downturn’, Economic Trends, 63 (February 2010), Komercni Banka 18–23. Fóti, K. Capacity Building for Social Dialogue at Sectoral and Company Level, European Foundation for the Improvement of Living and Working Conditions, Dublin (2007), p. 11. Furceri, D. and Zdzienicka, A. ‘The Real Effect of Financial Crises in the European Transition Economies’ W.P. 9–20 (November 2009) GATE CNRS, p. 33. Greskovits, B. Leading Sectors and the Variety of Capitalism in Eastern Europe, Actes du GERPISA 39 (2005), pp. 113–128. Hall, P. A. and Soskice, D. V. (eds), Varieties of Capitalism: The Institutional Foundations of Comparative Advantage (Oxford and New York, Oxford University Press, 2001). HCSO, Labour Force Survey 2004, Hungarian Central Statistical Office (2004). Héthy, L. Anatomy of a Tripartite Experiment: Attempted Social and Economic Agreement in Hungary International Labour Review, 134 (3) (1995). Hunya, G. ‘wiiw Database on Foreign Direct Investment in Central, East and Southeast Europe, 2010: FDI in the CEECs Hit Hard by the Global Crisis’ Wiener Institut für Internationale Wirtsxhaftsvergleiche (2010). ITD Hungary, ‘Foreign Direct Investment’ Hungarian Investment and Trade Development Agency (2008), p. 3. http://www.itdh.com/engine.aspx?page= Itdh_Foreign.

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Jen˝ o Koltay 133 King, L. P. ‘Central European Capitalism in Comparative Perspective’, In: B. Hancké, M. Rhodes, and M. Thatcher (eds) Beyond Varieties of Capitalism: Conflict, Contradictions, and Complementarities in the European Economy Oxford, Oxford University Press (2007). Köll˝ o, J. and Nacsa, B. ‘Flexibility and Security in the Labour Market’. Hungary’s Experience Flexicurity paper 2004–02 Budapest, ILO (2005). Koltay, J. Réforme économique et démocratie industrielle en Hongrie, Revue d’études comparatives Est-Ouest, 17 (2) (1986). Koltay, J. ‘Hongrie: une économie de marché’ Trajectoires de la transformation hongroise CEFRES, Prague (1999). Kornai, J. ‘Transformational Recession: The Main Causes’, Journal of Comparative Economics, 19 (1) (1994). Makó, Cs. ‘Neo-Instead of Post-Fordism: The Transformation of Labor Processes in Hungary’, The International Journal of Human Resource Management, 16 (2) (2005). Neumann, L. ‘The Hungarian Trade Unions and Their Future Options’, in Industrial Relations in Hungary In: K. Fazekas, and J. Koltay (eds) The Hungarian Labour Market: Review and Analysis. Institute of Economics HAS, Budapest (2006), pp. 57–74. Neumann, L. ‘Hungary: Multinational Companies and Collective Bargaining’. EIRO Online, Dublin, (2009). Nölke, A. and Vliegenthart, A. ‘Enlarging the Varieties of Capitalism: The Emergence of Dependent Market Economies in East Central Europe’, World Politics, 61 (4) (2009), pp. 670–702. Tóth, A. ‘The Employers, Organisations in the World of Work’, in Industrial Relations in Hungary In: K. Fazekas and J. Koltay (eds) The Hungarian Labour Market: Review and Analysis. Institute of Economics HAS, Budapest (2006), pp. 36–56.

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8 How French Are French MNCs in Hungary? A Comparison of Two Service Sector Firms Linda Szabó and Viola Zentai

1. Introduction After the collapse of the Central and Eastern European (CEE) statecommanded economies, multinational companies (MNCs) have become key agents in engaging the region in global capitalist production. MNCs, however, are controversial actors. Many conceive them as ‘footloose’ enterprises making workers more defenceless against economic exploitation. At the same time, MNCs may attract further investments, infrastructural advancement and increase labour demand. They frequently offer higher average wages than small- or medium-size enterprises in the same industry. MNCs are considered as socially embedded organizations with imprints of their home-country capitalism. To gauge the significance of these imprints, some discuss the validity of the ‘varieties of capitalism’ concept (Avdagic and Crouch, 2006; Crowley, 2005; Tholen, 2007), while others focus on the post-socialist political-economic environment (Bohle and Greskovits, 2007). Several scholars argue that, in contrast to an Anglo-Saxon one, a European social model can also be defined in which German and French versions of capitalism coalesce (Crowley, 2005; Schmidt, 2003). Others argue that European MNCs are embedded in and thus channel a European social model to post-socialist contexts (Gradev, 2001; Hall and Soskice, 2001; Marginson and Meardi, 2004). A contrasting view stresses increasing internationalization through which a ‘unitary form’ of industrial relations emerge (Avdagic and Crouch, 2006). A new division of labour within the EU leaves relatively low-skill operations in post-socialist countries (Bohle and Greskovits, 2004). In this context, MNCs do not improve unionization and organized interest dialogue. Another stream of thought presents more mixed evidence of MNC potential to transfer social models. Studies introducing an actor-oriented approach identify varying employment practices at a company-level in post-socialist economic restructuring (Bloom et al., 2003; Galgóczi, 2003; Geppert and 134

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Williams, 2006; Gradev, 2001; Marginson and Meardi, 2006; Meardi, 2007; Meardi and Tóth, 2006; Meardi et al., 2009; Schwartz and McCann, 2006; Soulsby and Clark, 2006). Beyond examining the impact of the country of origin on MNC outlets, they also account for the interplay between MNC and host-country contexts, business strategies of local headquarters and the power of trade unionists in the CEE subsidiaries. A few scholars (Dörrenbächer 2004; Marginson and Meardi, 2006; Meardi and Tóth, 2006; Meardi et al., 2009) provide evidence for challenging both arguments: first, that continental European MNCs are more willing to transfer labourprotective social models than others, and second, that US- and UK-based companies are necessarily more adversarial towards employees’ organization. This approach departs from a rigid institutional path-dependency and argues that firms can and do consciously apply a selective transfer strategy, which is not strictly conditioned by the labour division between East and West Europe.

2. Methodological considerations This chapter applies an actor-oriented approach to examine industrial relations at French-based companies operating in the service sector in Hungary. The service sector is under-researched in spite of the fact that in recent years there has been a remarkable shift in the proportional distribution of FDI inflows: more than half of the total capital invested in Hungary has flowed into services. Our research focusses almost one-sidedly on how labour relations are explained by the employees and their representatives. This approach resonates with the literature that proposes to investigate the chances for a revitalized trade union movement in post-socialist Europe, due to direct and indirect effects of European policies, bottom-up labour activism and standards of conduct respected by FDI (Gradev, 2001; Marginson and Meardi, 2006, 2007; Ost, 2009). The chapter examines five aspects of labour relations: (1) legacy effect: the relevance of trade unions that existed before transition; (2) double representation effect: the role of local work councils in addition to trade unions; (3) European effect: the importance of European Works Councils (EWCs) in constructing a more employee-friendly social environment within firms; (4) sector effect: co-operation between local and sector trade unions in the contexts of traditionally local-based collective agreements and contemporary EU initiatives; (5) French effect: employee representatives’ perceptions of local managers with special regard to their Frenchness. The service sector attracts firms to CEE for purposes of market-seeking rather than efficiency-seeking. Further, labour relations are known to be shaped by the distinction between Greenfield and Brownfield investment discussed by Marginson and Meardi (2004, 2006). Out of the four target firms in our research, two started as Greenfield investments: one in banking

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(BNP Paribas), the other in retailing (Auchan). These two cases exemplify how foreign investors may try to circumvent, directly or indirectly, employee representation. At neither of the sites were trade unions established. In contrast, in two Brownfield acquisitions, employee organization was preserved and there was much more employee activism. Accor operates in the hotel sector, while EDF is in electric power supply; they respectively portray labour-intensive and knowledge-based capital-intensive environments. The case studies of these two Brownfield acquisitions involved semistructured interviews with employee representatives, both at sector and local level, and with a smaller number of managers, including HR managers and one CEO. In order to account for the transformations of industrial relations over time some interviews were repeated during the course of research in both sectors. Nine interviews were thus conducted in the hotel and eight in the electricity industry.

3. French FDI in the Hungarian economy According to the Hungarian National Bank (2007), among the EU 2004 accession members Hungary is France’s third most important partner after Poland and the Czech Republic. Three-quarters of French imports into the CEE countries are directed towards these three countries. France is the fourth most important market for Hungarian goods after Germany, Italy and Austria, and it is regularly the fifth most important foreign trading partner. French investment in Hungary took off in 1995–97 with a major wave of Hungarian privatizations, but it has been marked by a high degree of experimentation. There are few Greenfield sites, but investments were made mainly through acquisitions by large MNCs. Two-thirds of all French capital arrived through ten large MNCs. By the end of 2006, 400 companies, mainly in manufacturing, were partly or fully owned by French capital. According to the last available data, they employed almost 65,000 people, of whom only a small, though growing, number – around 250 – are French expatriates. The main industries involved are the energy sector, automotive industry, retailing, chemicals, foods and water management/environment protection. French investors are less present in the hotel and financial sectors (HFCCI, 2005). 3.1. The electricity industry In 1995–96, when the electricity industry was privatized, six strategically important corporations were acquired by three EU-based MNCs: two German MNCs became the electricity providers of the western and eastern as well as the northern parts of Hungary and most of Budapest; while through two Hungarian subsidiaries EDF established itself mainly in the south of the country and in Budapest, where EDF (DÉMÁSZ) was the prime focus of our analysis.

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At privatization, a sector collective agreement was concluded by all three sector trade unions and the Federation of Electricity Companies (VMSZ, later VTMSZ). The agreement was immediately extended by the minister of labour to the whole sector. Since then, the parties have respected the agreement and also signed a ‘Wage and Welfare Policy Agreement’ annually which have also been regularly extended to the whole sector. Over time, the foreign-owned companies gained a dominant position in the employer organization. However, the enforcement of workers’ rights was more successful, and the industrial relations remain more serious and co-operative than in other sectors of the economy. In 2003, a Sectoral Social Dialogue Committee was set up. Employees of the industry are much better organized at sector level than other affiliates of the trade union confederation they belong to. Out of the 57,400 sector employees (HCSO, 2009), 60 per cent are unionized compared to the 16.9 per cent average Hungarian trade union density. Nevertheless, it is important to note that electricity industry lost 49.7 per cent of its employees in the last 10 years (LIGA, 2008). Considerable changes imposed by EU directives1 were introduced through the so-called ‘unbundling’ process and the gradual liberalization of the electricity market, making the electricity production market in Hungary entirely open from January 2010. This has increased competition between electricity suppliers and meant that there are fewer jobs. Moreover, the operation of the employer representatives’ association is constrained by the fact that the other segment of the industry, electricity distribution, remains fully controlled by a state-owned company, the Hungarian Electric Works (MVM). The private companies complain they cannot easily co-operate with MVM and this weakens the employers’ sectoral organization as a forum for negotiations where employees’ representatives can voice their claims. The unbundling of company divisions also tends to fragment the company-level representation of employees. This increases the vulnerability of workers at smaller sites and makes employee interest representation more difficult. The French presence in energy is quite remarkable compared to other sectors of the Hungarian economy. There are 12 French companies with 54 workplaces (14 in Budapest, 39 elsewhere in the country), employing 5214 workers and with an annual income of ¤1.2 billion (HFCCI, 2005). French enterprises have a 35–40 per cent market share of electricity power supply. 3.2. The hotel sector The speed and extent of privatization were also remarkable in the hotel sector: the major state-owned companies were initially acquired by huge Hungarian companies but today they are mainly owned by foreign investors. However, there are several medium and small Hungarian-owned hotels. According to the latest data, in 2008 the hotel and catering sector employed 157,200 people in Hungary, up by 3000 over 2005 (HCSO, 2009).

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The sector level workers’ union, the Catering and Tourism Trade Union (VISZ)2 succeeded in signing a sector collective agreement with the National Association of the Employers in the Catering and Tourism Sector (VIMOSZ) in 1997. This was extended to the whole hotel and catering industry in 2001, during a period of considerable expansion (2000–04). The agreement concerns the consultative rights of union representatives, questions of overtime and telework, severance payments, terms and process of dismissals, working hours and leisure time of employees, remuneration and compensation in specific cases. In September 2003 a Sectoral Social Dialogue Committee for TourismCatering, in co-operation with VIMOSZ and VISZ, was among the first consultative bodies established in the country. The national introduction of a three-tiered occupational system of minimum wages in 2005 was significant in the hotels. It created a higher minimum wage for skilled than for unskilled workers, the majority in the sector. Also, the introduction of the ‘service fee’ (felszolgálási díj) to be legally charged and distributed among employees had a positive impact on sector wages. Nevertheless, sector trade union density is just 7.9 per cent (EIRO, 2005), since many of its workforce are seasonal and young workers with a very low propensity to get unionized. Among French firms the Accor (Pannonia) hotel chain is the biggest in the sector. The other French company, Le Méridien, is in the luxury tourism business. Accor (Pannonia) employs 1049 workers, of whom 40–50 per cent are members of the local trade union.

4. Two French MNCs 4.1. The legacy power of trade unionists French MNC managers appeared inclined to negotiate seriously with trade unions only in the case of Brownfield investments. The continuity of locallevel employee representation appeared to make the difference. In this section we will consider the legacy effect of the presence of the local trade unionists and their power in influencing industrial relations. Trade unions both at DÉMÁSZ and Pannonia had been in existence prior to the 1989 transitions and remained active afterwards. French owners of the investing companies could not avoid engaging with them due to legal obligations and also to grounded institutional mechanisms. When EDF appeared in Hungary in 1995 and when Accor acquired a major share of a formerly state-owned hotel chain in 1993, local trade unions had already negotiated with the local Hungarian managers. This remained the case at EDF (DÉMÁSZ) until 2005 and at Accor (Pannonia) until the end of 2001, when French managers replaced their Hungarian colleagues. At EDF (DÉMÁSZ) before 2005 French managers were present only as ‘consultants’ without specifically defined positions. Hence, until then, employee representatives negotiated labour issues with Hungarian

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managers, including some individuals who had been fellow employees and were promoted just after transition. This situation created a sort of collegial atmosphere with a fairly informal relationship between trade unionists and managers. Having a common social-cultural background led to smoother co-operation, but it reduced the efficiency of the trade union in cases of conflict. Works council representatives elected from a younger generation at EDF (DÉMÁSZ) see this intertwined legacy as a major impediment to a more effective trade union. The EDF (DÉMÁSZ) trade union and works council representatives recognized the inevitability of major labour force reductions resulting from rationalization and reorganization – irrespective of privatization and French FDI. Our interviewees reported, however, that the system of social benefits and HR policy had not been radically changed following French acquisition. The employee representatives were quite successful in preserving earlier rights, but they had no significant impact on dismissals. According to one trade unionist, layoffs were unavoidable ‘if the firm wanted to keep its market position in an extremely competitive environment’. The only trade union achievement was to introduce a corporate pension fund that helped the early retirement of certain employees. One trade union negotiator saw this achievement as only possible because they were able to refer to the social benefits provided by a competitor German MNC. Thus the pension fund was not interpreted as a genuinely ‘French practice’ within EDF (DÉMÁSZ). Despite the fact that any changes in labour arrangements were acknowledged as a necessary process of market liberalization, some trade unionists considered the experience as ‘economic colonization’. They point out the lack of additional investments by MNCs in Hungary and thus the exploitation of local economic sources. Curiously enough, while foreign investors are conceived as cruel capitalists with the single aim of profit maximization, the responsibility of Hungarian managers abusing certain rights of employees seemed to be downplayed. For instance, the main secretary of the local trade union described such instances as mere consequences of ‘the higher stress managers have to face’, and ‘the lack of time to become more informed on employees’ rights due to the competitive market environment’. At Accor (Pannonia), the local trade union seemed to be more powerful at the time of privatization. The first regulations on privatization, which were enacted already in 1989–90, in addition to facilitating the property change, underscored the importance of employee rights protection in the course of acquisition. The hotel trade unionists capitalized on this opportunity and defined three conditions for reaching a consensus: employees of the local sites should not be laid off for three years, the former collective agreement (concluded before the economic restructuring) should remain valid, and the agreement of the former employer (the state) and the union on severance payments should be respected. These claims were accepted by the management, but since 1996 more than two-thirds of workers have been

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dismissed. To compensate the people concerned, the union negotiated quite high severance payments and/or pensions. Participation in training courses was a crucial selection criterion for workers to stay. Therefore, the union promotes the training of all workers and has suggested management should keep staff instead of increasing wages. Leading trade unionists several times referred to the importance of keeping ‘the old brigade’ within the hotel since the younger generation of employees are more likely to be tempted by the competitive environment of the wider hotel sector labour market. The trade union seemed to ‘know something about everyone’ and to sustain an ‘intimate relationship’ between itself and the workers. Nevertheless, the main secretary of the local trade union interprets its current position vis-à-vis the management as ‘not being the right time to demand anything’. He portrays the union as representatives of a ‘power of cohesion’ that ‘pragmatically’ ensures the smooth operation of the company while assuring certain social rights for employees. The union – exceptionally within Hungarian labour relations – has a contract with the company, which funds its operations in exchange for its organization of the company’s welfare services and some other tasks. The union does not, therefore, seek dues from its members. The unionists referred to this as ‘an agreement of two economic organizations, one of which is a for-profit while the other is a non-profit organization’. Leading employee representatives claimed that this ‘service contract’, signed each year with annual collective bargaining amendments, is beneficial for everyone: . . . for the company, which can pay for the services provided for the employees from tax-free income; for the 1,049 workers who can address their individual demands to the union; and for the trade union which does not have to adapt to any state-regulated labour representation hierarchy and can act as an individual organization, while representatives at the sites do not have to pay membership fees to the central office of any trade union. Although this kind of ‘service contract’ raises doubts about the independence of the trade union representatives from Accor (Pannonia), our interviews revealed that the role of trade union in interest representation should be considered contradictory rather than entirely compromised. While leaders of the trade union claim that they try to act as mediators and approach the task of resolving conflicts of interests pragmatically, they do have strong commitments to the protection of employees with regard to certain issues. Examples are when female employees are sexually harassed, or when someone bullies his/her colleagues based on political convictions, especially grounded in right-wing ideology. In both of these cases, trade union representatives are ready to apply even ‘indecent’ means – like

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blackmailing and reporting cases to headquarters – to have the abuser dismissed, even where the perpetrator is a manager. One of the representatives of the central trade union said ‘harassment can destroy our family’. One further reason that the organization of employee representatives does not want to be a trade union legally is because it would involve them according to ‘corrupt state regulations’, instead of organizing themselves ‘from the grassroots’, based on the ‘communal cooperation from before 1989’. The union meets the eligibility requirements to sign a collective agreement, but trade union representatives conceive of themselves rather as members of ‘The Survival Association of Accor (Pannonia)’ that offers ‘relative equality’ within the firm through ‘seeking loopholes’ in the laws. 4.2. The dual system of employee representation Since the introduction of the new Labour Code in 1992, the Hungarian system of employee representation divides the responsibilities of representation between works councils and trade unions. The latter have the right to sign collective agreements only if they secure a majority of votes in works council elections. Therefore, since the works councils have rights to information and consultation, trade unions have an interest in co-operating with them, or with the employee representatives in the workplaces. This form of division between two channels of employee representation, the dual representation effect, is criticized by many scholars. It has not fulfilled its original aim of providing a solution to trade union fragmentation and the representation crisis during transition, nor has it created an employee voice mechanism within non-unionized workplaces (Galgóczi, 2003; Tóth and Neumann, 2003). Trade unionists usually consider this dualism as a means for the state to weaken the interest representation power of trade unions. At Accor (Pannonia) the works council is rather weak and tends to follow the trade union, which is well-organized and has the power to crowd out alternative voices. In the past, a closer relationship with the management provided strong voices for the works council, headed by someone who worked for the company before transition. The present works council leader believes that the retirement of the first president of the council left the employees with a ‘fake works council’, with a very small independent role between the union and the company. In EDF (DÉMÁSZ), the works council represents a more critical voice of employees than do the trade unions – most probably because of its more distant relation with the management board – although informants from both suggest the co-operation between the two institutions works well. Moreover, the president of the works council was finally elected as a lead representative of the local-level trade union as well. Such an accumulation of key positions was not criticized by any of the interviewees, because it was considered as an efficient way of handling the ongoing unbundling process in the sector. The

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unbundling of the energy sector easily results in the weakening of labour representation because in certain newly established subsidiaries employees may remain without any interest representation. To overcome this problem, in 2007 the local works councils of EDF (DÉMÁSZ) organized a central works council for all the subsidiaries. This permitted workers’ interest representation and negotiating capacity to remain effective, a move welcomed by the employer. 4.3. The strength of sector level representation In much of the economy, sector trade unions that had operated before transition ceased to exist and did not get (re)organized before the EU started to put pressure on governments. However, in both the hotel and electricity industries they had been operating continuously since before 1989. The successors of the former organizations were successful in concluding collective agreements that were later extended to all employees within the industry. To refer to the strength of these agreements regarding interest representation of employees and to the relations between sector and local level trade unionists, we use the concept of sectoral effect. In EDF (DÉMÁSZ), sector-level trade unions under state socialism had a major role in organizing local-level employee representation. Sector trade unionists also had personal ties to international networks developed during state socialism, which assisted them in preparing for the challenges of developing industrial relations in a market economy. This knowledge seemed to empower trade unionists in shaping employment representation after 1989 and also assisted the development of social dialogue with the new, French owner of DÉMÁSZ. By the time EDF entered the Hungarian electricity industry, negotiations on a sectoral collective agreement had already been underway. In 1995, the same year as EDF’s acquisition of DÉMÁSZ, an agreement was signed assuring minimum standards for all employees within the sector. Today, the sector trade union leads in organizing strikes, protests against the abolishment of tariff allowance or the reduction of the regular annual wage increase in similar ways to its French counterparts. All warning strikes that took place within the sector were initiated by the sector trade union. In contrast, the local Accor (Pannonia) union is not affiliated to the sector trade union. Leading trade unionists claim they have no interest in co-operation and are not willing to pay for affiliation because the sector union is inefficient and is ‘lagging behind the need for workers’ interest representation’. As a result, the local trade union is not formally eligible to participate in any international social dialogue separately from the sector trade union.3 It is important to note that the sector trade union represents hotel employees and workers in catering services. The latter have very low wages and are weakly organized, and thus subject to different forms of exploitation. The

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sector trade union representing the Hungarian hotel industry also has difficulties in relation to the volume of people in the sector: there are large numbers of seasonal workers and many enterprises with less than five people that do not appear in their statistics. Our research pointed to a slightly different focus of interests between the sector union and the Accor (Pannonia) employees: at the sector level the guarantee of a minimum wage for skilled and unskilled labour is the first priority, while the Accor (Pannonia) union is more interested in keeping as many employees within the hotel chain as possible. All this may help explain the criticisms of the sector union by the Accor (Pannonia) trade unionists. 4.4. The role of transnational relations The transposition to Hungary of the European Works Councils (EWCs) directive makes it important to look at the international relations of employee representatives, which we will call the European effect. Setting up EWCs concerns both EDF (DÉMÁSZ) and Accor (Pannonia). EDF has had an EWC since 2001 and it was quickly opened to Hungarian employee representatives, even before accession in 2004. The trade unionists considered their participation as enabling direct links with employee representatives in other subsidiaries, in the parent company or to the EDF Chief Executive Officer. These transnational employee relations are used in particular in cases of company reorganization. For instance, the transnational exchange of information seemed to be of high relevance for French trade unionists when in 2004–05 they faced large-scale cutbacks. By then, trade unionists of all the CEE countries with directly owned subsidiaries were active within the EWC. The direct relationship with the CEO is utilized by local trade unionists to resolve local conflicts. On certain occasions, when local managers infringed workers’ social rights, Hungarian trade unions were able to directly approach the French company headquarters. This puts certain pressures on local managers who feel embarrassed about reporting conflicts to the parent company. When the Hungarian trade unionists organized a warning strike, a demonstration was also held in front of the EDF headquarters building in Paris. Trade union representatives initiated negotiations with the parent company management as well as involving the French ambassador to Hungary to secure media attention. For the Accor (Pannonia) union, participation in the Accor EWC has no direct impact on their strength at the local level. They do not identify common interests with the employee representatives of other subsidiaries. Nevertheless, the main secretary of the union admitted that their participation at international forums strengthens union legitimacy at national, sector and local level. According to the Accor EWC agreement, the Accor (Pannonia) union cannot be an independent member of the EWC because only one organization can be recognized from Hungary, and that has to be

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the ETUC-affiliated sector union. But because the Accor (Pannonia) union refuses to affiliate to it, and yet Accor still wants to have labour representatives of their own subsidiaries present, the Accor (Pannonia) union is now invited to the EWC meetings as an observer. Nonetheless, the Accor (Pannonia) employee representatives prefer to resolve conflicts at local level. One interviewee declared: ‘if minimum standards of industrial relations are met, we feel no need to become the accomplice of the central management.’ Trade unionists hope this strategy provides better chances of improving working conditions at local level and of ‘keeping a labour peace’. The language the trade union leaders use refers to an ‘intimate relationship’ with the management parallel to tangible transnational ties to peer labour organizations. Strong alliances with the local management are also inspired by an understanding of the balance of forces within an MNC. Given the modest number of employees at the Hungarian subsidiary compared to the number of all Accor employees worldwide, local workers’ interests may have little relevance at a group level. Their trade union delegates would thus have little chance of influencing management through international networks. There was an exception when one local manager’s actions were challenged as harassment, when the union appealed to the French headquarters requesting disciplinary intervention. But this case concerned only the Hungarian managers of the Hungarian subsidiary. 4.5. Looking at Frenchness from the bottom-up The fifth and most specific aspect of our analysis regarding the possibilities of trade unions advancing employee voice within MNC subsidiaries concerns a French effect: how is the embeddedness of the mother firms in French culture and society perceived by employee representatives and reflected in trade unionists’ narratives. The market behaviour of MNCs focusing on efficiency and profit maximizing has had severe affects on the employees of both EDF (DÉMÁSZ) and Accor (Pannonia). The group managements of both firms had medium- and short-term strategies to be strictly followed by subsidiaries’ local managements, covering business operation and labour management. One of our unionist interviewees referred to these strategic plans as very similar to the 5-year plans that used to exist under state socialism and that had to be met at any price. At EDF (DÉMÁSZ) the Hungarian CEO was only replaced by a French manager in 2005. This has changed the relationship between employers and employees, since people who used to have a direct and more informal relationship with the managers have now developed a more formal and, due to language constraints, less relaxed connection to the leadership. Similarly, at Accor (Pannonia) the first French CEO was appointed only in 2002 after having a Hungarian CEO since acquisition in 1993. From 2002 until

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2008, he was supposed to introduce radical changes to improve the efficiency of operations. This was interpreted by one trade union representative as ‘a period of integrating the operations of the subsidiary into those of the parent company’, following ‘a period of the transition of a socialist company to a private, for-profit organization’. Thus, by 2008 Accor (Pannonia) was a ‘modern MNC subsidiary’ with ‘a good position at the transnational market’, governed by the Paris headquarters. At the same time, a leading trade unionist characterized this period as the beginning of ‘wild capitalism’, which ended ‘the protracted period of transition’, ‘when employees were provided with much more social benefits than capitalism can normally offer’. In case of EDF (DÉMÁSZ), organizing (warning) strikes were identified as a French form of labour resistance. While Hungarian trade unionists claimed ownership for the initiatives, they gained a sense of legitimacy from the French trade union experiences. Labour resistance was associated with ‘French democracy’ that should be followed because ‘this can prove that democracy exists not only in the form of periodic elections but also in this form of solidarity’. EDF (DÉMÁSZ) employee representatives were ready to learn both the practice and the language of French industrial relations. In the narratives of Accor (Pannonia) union interviewees, Frenchness appeared in two distinctive ways. First, the ‘French social model’ in general was characterized as an ‘old democratic system’ that ‘recognizes the importance of labour interest representation’. Second, the strike was considered an inherent characteristic of the ‘French social model’. One Accor (Pannonia) trade unionist also pointed out that French managers are more liked than Hungarian ones in the subsidiary because they are less prone to misuse their power over employees or to engage in direct political talk, and are more ‘civilized’ than Hungarian managers. The perception of strong spillover effects of Frenchness is qualified when characterizing the behaviour of current local managers in office. More emphasis is then given to personal capacities and loyalty to the firm as explanatory forces than to the manager’s nationality. Further, one opinion was voiced that saw the social benefits as a result of a competition between the ‘French social model’ and ‘the US system’ rather than as a cultural package transferred by French managers. Accor (Pannonia) interviewees, when accounting for their strategically formed relationship with the management, partly contradict the above imagery of Frenchness. Although the strike is considered an inherent characteristic of the ‘French social model’, conflict resolution through negotiations is preferred. Trade unions should let foreign managers know what Hungarian employees are more sensitive to (e.g. wearing a uniform and having additional shifts instead of working overtime) and try to make compromises along those lines. Further, the trade unionists argue that ‘Hungarian workers . . . tend to sabotage production, instead of going on strike’, giving employee representatives the responsibility to resolve conflicts through

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negotiations. Some informants stress that local conditions are very different from either the French or the American models: the ‘close relationship’ between workers and the union lets the latter ‘know everything’ from the former, and enables the union to offer the most effective assistance to workers. Finally, a strategic interpretation of the managerial relationship, which is partly French and partly local, leads to a critique of the colonizing effects of the French MNC as such. Co-operation with the local management is described as worthwhile because it can form ‘an alliance against French headquarters’, which eventually embodies an economic pressure against workers’ interests, and implicitly against local managers as well. At EDF (DÉMÁSZ), the notion of Frenchness is thus an unequivocally positive reference to the country origin of the parent company as well as to democratic practices to be followed. Whereas at Accor (Pannonia), Frenchness is constructed in the context of an opposition between East and West. On the one hand, the Eastern and Western forms of management styles are juxtaposed and valued, and on the other, symbolic geography describes unequal economic power within the firm that also shapes industrial relations.

5. Conclusions Examining the transformations in Central and Eastern Europe in the context of globalization and larger historical trends leads to the argument that a conspicuously weak labour organization is emerging in the post-socialist capitalism. Moreover, the possibilities of constructing a capital-labour contract of the Western post-Second-World-War kind have been structurally weakened. Organized labour remains fragmented and operates largely through informal or dispersed bargaining. It is weakly supported by sector agreements or multi-sector coordination. As a consequence, industrial relations are mainly shaped by employer decisions, and market forces and state policies (Bohle and Greskovits, 2004). Although the Europeanization of labour relations offers some support to better employee representation and protection and institutionalized collective bargaining (Koltay and Neumann, 2006), FDI can be differentiated along several dimensions that suggest very different potentials for reinforcing a European social model (Marginson and Meardi, 2004). The transfer of a labour protective model appears contingent on many variables. What does our research suggest? Although the number of studied cases is limited, it is fair to assume that already existing trade union arrangements, traditional bargaining power and skills can push managers to engage in a dialogue at the workplace, in particular on conditions of layoffs, or to maintain rights obtained earlier. Good intentions and bargaining can legitimize the combination of formal and informal ways of operating. What connects the hotel and the electricity sector is the ongoing dialogue between labour and employers, although this is inspired and given vitality

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by different forces. Continuities with the socialist past in one case, and Europeanization of labour representation in the other, ensure some power to the employees. Workers could exercise some rights, and even though they are not powerful enough to resist massive job losses, they can influence the conditions of dismissal. Our two cases provide evidence that the country origins of MNCs do not necessarily make a difference in transferring particular industrial relations systems, but can have an empowering effect on employee representative views of their employers’ sense of obligation. In these cases it is saturated by a ‘French social model’ that is democratic and respectful of pluralist industrial relations. The impact of the European level coordination of employee interest representation on the local labour conditions was ambiguous. The role of EWC in consolidating industrial relations may be more limited than was formerly expected (Marginson and Meardi, 2004).

Notes 1. Directive 92/96/EC concerning rules for the internal markets in electricity, and Directive 96/92/EC, later repealed and replaced by Directive 2003/54/EC concerning common rules for the internal market in electricity. 2. VISZ is a member of ETUC through its affiliation to EFFAT. It is also represented at the ITUC, through the IUF. 3. However, there is still some involvement of Accor (Pannonia) trade unionists in the European Works Council, as is discussed in the next section.

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9 MNCs and the Transformation of Bulgarian Employment Relations Zhelyu Vladimirov

This chapter considers the extent of the transfer of the European social model (ESM) of employment relations into Bulgaria through examining the examples of French multinational companies (MNCs). The choice of French MNC subsidiaries was determined by the role of the distinctive French social model and its influence on the ESM. Some authors suggest that the ESM is entering a crisis as it increasingly accommodates neo-liberal solutions (Schierup et al., 2006). This development also reflects upon the countries of Central and Eastern Europe (CEE) where tripartite social partnerships have not succeeded in raising industrial relations norms to those of the ESM. In some countries these partnerships are more a ‘façade’ with negligible influence on economic outcomes (Martin and Cristescu-Martin, 2004: 635). The French social model, however, includes pluralism in decision-making and legitimacy given to social dialogue, the recognition of employment rights (equal pay, inadmissibility of discrimination, training, etc.) and dual employees’ representation (by trade unions and by directly elected representatives) (Amossé and Pignoni, 2006). France is thus ranked among the six OECD countries with stronger protection of temporary forms of employment, specific requirements for collective dismissal and protection of permanent workers against (individual) dismissal (OECD, 2004: 72). A number of its key aspects are reproduced in European social directives, and French MNCs created some of the first European Works Councils (EWCs). Yet, apart from work by Claude Durand (1997), the influence of the French MNCs in CEE has hardly been studied. Over the period 1996–2008 Bulgaria attracted foreign direct investment (FDI) of total value ¤35 billion, 19.2 per cent of 2008 GDP (BNB, 2009). France is in 13th place among foreign investors with total FDI of ¤545 million. French companies made significant investments of ¤82 million (mainly SG Express Bank, French Cements – bought later by Italcementi – and Schneider Electric) in 1999, but FDI fell in 2002 to ¤9 million before rising to ¤132 million in 2008. The most important French investments in 2007–10 were constructions of plants by Montupet at 150

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Rousse, Schneider Electric at Plovdiv and by Air Liquide at Pernik, and of two shopping centres by Carrefour in Sofia and Bourgas, and the acquisitions of Toplofikatzia Varna by Dalkia International and of JetFinance International (leader of consumer credits) by Cetelem (a BNP Paribas subsidiary). In 2007, 142 French companies with about 7000 employees were based in Bulgaria, up from half that number in 2005 (French Economic Mission, 2009). This investigation contributes to an attempt to understand to what extent such companies might transfer their country-of-origin models, and whether such transfers concern only some procedural elements or more essential elements. The main research methods used were semi-structured interviews and extended self-completion questionnaires.1 The chapter begins with an analysis of the MNC role in the transfer of employment relations. After that, the results of the field research into the employment relations in the Bulgarian subsidiaries of the French MNCs, as well as some data on the employment relations in other MNCs, are discussed. Finally, the general conclusion presented is that the entry of these French MNCs does not lead automatically and directly to the transfer of their social policies.

1. MNCs’ role in the transfer of employment relations Two important approaches to employment relations transfer are the theory of diffusion (of the model from the MNC country of origin to the host country) and the theory of adaptation (to already existing practices in the host country). Following Boyer (1998), the concept of a ‘hybridization’ process has been developed. The Bulgarian host-country influence is expressed in an employment relations system that was created after 1989 and may be described as ‘neocorporatist’. It is based on organizations of employees and employers which, together with the state, participate in the National Council for Tripartite Cooperation. The representation criteria for trade union and employers organizations at the national level are set by the Labour Code. In 2007 there were six employers’ organizations2 and two officially recognized trade unions, CITUB and CL ‘Podkrepa’. Trade union membership density is close to the EU average, although ranging from 4–5 per cent in retailing to 60–70 per cent in the energy sector). In Bulgaria, two levels of collective bargaining dominate – national and firm level. In the period 2001–07 some 30 sector and 143 sub-branch collective labour agreements (CLAs) were signed. Of these, by the spring of 2008, only 10 sector and 58 sub-branch agreements remained functional. These numbers compare with about 5000 collective agreements signed at firm level between 2001 and 2005 (Tomev, 2008). Gladicheva (2004: 4) argued that the relatively high numbers of firm-level agreements with national bargaining represented ‘a transitional state’. Her view is that ‘The domination of the

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national level of negotiation can be explained by the inertia of the centralization from the past . . . The strength of the firm level comes out from the processes of . . . privatization.’ The tendencies in the development of the Bulgarian social model, however, are clearly from the national level towards the firm level and bipartite negotiations.

2. Employment relations in the Bulgarian subsidiaries of French MNCs 2.1. Employment relations in the retailing sector In 2006, the economic sector covering retailing employed about 450,000 people, of whom 350,000 were employees. More than 90 per cent of these work in micro or small retail outlets. In 2006, the employment share of small shops in retailing was about 64 per cent and of big retail chains about 20 per cent. The trend is towards an increasing proportion working in large retail chains. The employment relations and the social dialogue in the sector are underdeveloped, there are no trade unions and most of the employees are not covered by collective agreements. Trade union density in the sector in 2003 was only 4.2 per cent (Mihailova, 2005). The main reason for this is the domination of micro or small retail shops. But trade unions are also largely absent from the large chains, which are not members of representative employers’ organizations. The main employment relations issues raised in the branch are irregular working hours, low pay and casual employment. Equally, workers complain that overtime and the holiday pay are not paid. In Bulgaria, Mr Bricolage (45 per cent ownership) initiated a joint venture with a Bulgarian-owned holding company (55 per cent) and now possesses ten franchise shops in major Bulgarian cities, employs about 880 workers and has approximately 30 per cent of the do-it-yourself market.3 The managers considered the French group entered Bulgaria because of the potential of the Bulgarian market, the lack of competition, and the presence of available skills and a high educational level among the labour force. Employment relations in the company are fairly institutionalized. It has written documents covering recruitment and dismissal procedures and work codes. It holds information meetings in the company, although there are no regular email mechanisms for internal communication with non-managerial staff. The firm does offer some prospects for career development, and there is a continuous transfer of personnel from the central office to stores and vice versa. The company also fully respects the provisions of the national Labour Code, particularly on minimum wages, working time, a safe work environment, levels of social security contributions and rights to educational leave and protection from discrimination. There are no trade unions, nor works council, and hence no collective agreement at Mr Bricolage. According to one of the managers, the workers

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are not interested in them, but another claims this is because the company takes such good care of employment relations that they are not needed. The managers judged the labour practices to be similar or better than in other MNCs, and certainly better than in nationally owned stores. These practices are governed by the national Labour Code rather than by any International Code for Social Responsibility or the parent company’s Code of Ethics in France. Two of the managers interviewed admitted that they had no idea what the French social model implied, while a third considered it was not applicable in Bulgaria. The workers interviewed at Mr Bricolage also reported the absence of trade unions and any form of representation of the workers and employees or collective agreement, and did not have any concept of what a French social model might mean. They did, however, report the presence of Committees for Employee Safety in every one of the stores, in which there was an equal participation of managers and staff – even if they did not always meet regularly. Nearly all the employees are full-time. The interviewees considered there was no gender or other forms of discrimination and that the work environment was quite good. The major difficulties reported concerned the allocation and working of overtime needed to rearrange the merchandise and the stress involved in serving some clients. The HRM practices in place included publicity for job vacancies, a combination of on-site training with lectures at a Training Institute and the regular evaluation of performance. The chairman of the Federation of Independent Professional Unions in the Trade – the sector trade union – claimed members in several retailers, including six subsidiaries of MNCs. About 60 per cent of its members are women. He reported the period since transition as being very difficult for trade union recruitment, although this may have changed recently. He argued that fear of joining trade unions was widespread in a large number of Bulgarian retail chains, including Mr Bricolage. The trade union official had heard reports of cases where staff have been told not to form or join trade unions. In some cases, he claimed, staffs have been forced to sign declarations that they are not and will not be trade union members. Another factor against the trade unions in retailing is the high labour turnover. The union official recognized that remuneration in the larger retail chains is much higher than in small shops, although still very far from the level in other Western countries. He reported that the large chains tended to respect labour legislation, although ‘the main difficulty with them is to be persuaded to sign the collective agreement.’ When agreements are reached it is usually at a single store – so senior group management can still refuse to become an equivalent partner to the unions. The Ministry of Labour and Social Policy has also not been prepared to extend the collective agreement to the whole retailing sector, even though it has the power to do so. The union official rejects the view that information and consultation through works councils can replace the trade unions, as the two forms have different functions. In any case, the current Bulgarian

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Labour Code specifies that collective agreements can be only signed by the trade unions and not by works council representatives. 2.2. Employment relations in tourism In recent years, Bulgarian tourism has experienced a real boom accompanied by building of new hotels, holiday villages and cottage areas. By 2006, 500–600,000 beds were available and 110,000 personnel worked in tourism. The major tourist sites are along the Black Sea coast and in the mountains. The main clients of the Bulgarian tourist market are now EU citizens with a market share in 2006 of 52 per cent. In the same year, Bulgaria was visited by 83,062 French tourists, which placed France among the major clients. The income from tourism in 2006 amounted to nearly ¤2 billion, and the trade balance was positive at ¤886 million.4 The employers are represented by four organizations and the employees by the corresponding sector unions of CITUB and CL ‘Podkrepa’. In a 2006 campaign on work contracts, the Bulgarian General Labour Inspectorate (GLI) discovered a number of infringements, in particular in the sector of hotels and restaurants.5 In another GLI campaign in the first half of 2007, numerous Labour Code violations were again reported. The main infringements concerned remuneration and the absence of written labour contracts (31.5 per cent). Other offences were related to overtime work and days off, missing information on workers and staff and a lack of regular medical examinations.6 An explanation for this, according to the chairman of the Bulgarian Tourist Chamber, is that no less than 40 per cent of tourism lies in the ‘grey economy’ (Bulgarian Industrial Association, 2009). The object of study here was an Accor franchise. The hotel is an important employer with about 280 employees, nearly all full-time. Access to employees was not provided by the HR manager, but he reported that Accor had entered Bulgaria because of the good tax conditions and highly qualified personnel. The hotel managers keep in regular contact with the French group, although they are independently managed. The HR manager claimed that the employment relations in the hotel fully correspond to the Labour Code and that information on vacancies, changes in the labour legislation and so on are routinely available. Working-time regulations are observed, while taking into account employees’ preferences in a monthly schedule. The wages paid are above the minimum, and a bonus scheme is used to motivate personnel. A Health and Safety Committee exists, involving employees. There is also a Learning and Qualification Centre, and the employment relations are better than in local hotels. Staff mobility is encouraged, so if employees decide to go to work abroad, they are given unpaid leave, but their jobs are guaranteed upon their return, when their external experience is highly appreciated. The hotel is a member of two employers’ organizations, the Chamber of Tour Operators and the National Chamber of Tourism and Hotels, but as there are no trade unions, there is no collective negotiation on

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labour conditions and remunerations. The manager claimed that the Accor group standards are higher than those of the French social model, but did not indicate whether these standards were applied in the hotel. 2.3. Labour relations in the banking sector Towards the end of 2005, the share of assets controlled by foreign banks in Bulgaria was 75 per cent (Manchev, 2006). Two big French banks were operating in this sector. By the end of 2006, Société Générale had 1100 staff. In 2007, through its subsidiary, BNP Paribas acquired the market leader in consumer crediting in Bulgaria, which had 800 employees in 150 towns. The financial sector in Bulgaria is among those without industry collective agreements. Several banks (among them, Alpha Bank, Bulbank, DSK Bank, EBRD, ING Bank, OBB, Piraeus Bank, ProCredit Bank, Raiffeisen Bank, City Bank and Investbank) are members of the Confederation of Employers and Industrials in Bulgaria (CEIB). The two French banks are not members of this organization, but two of their senior managers are members of the FrenchBulgarian Chamber of Commerce. There is one National Bank trade union (affiliated to CITUB), which includes staff mainly from DSK Bank, Hebros Bank and Biochim (before its merger with Bulbank). The number of staff in these banks is approximately 3600. Over 80 per cent of DSK employees are members of the union. This was the major former state bank whose union structure and high density was inherited at privatization. The major issues after its privatization were keeping jobs and improving working conditions. The collective agreement in DSK Bank achieved a 1 per cent annual increase of wages above inflation in 2006 and 2007. According to the union leader interviewed, there are not any major differences in basic remuneration and working conditions in comparison with other banks, but there can be significant differences in the proportions of workers on different grades within each bank. The banking sector is dominated by women employees (making up about 85 per cent of DSK employees), who are predominantly inputting data. In 2004, the National Centre of Public Health Protection carried out a risk assessment in the sector. The job-related risk factors were ranked as following: work position, lighting, noise, clean air and psychological tension. The most common problem was the position of the monitor. About 47 per cent of those surveyed believed that the working conditions are damaging their health (Gladicheva, 2005). The BNP Paribas bank has only one office in Sofia and services mainly corporate clients. It employs about 100 people, with 28 foreigners, and the ratio women/men is 72 per cent/28 per cent. The information about labour relations in the bank is based on five questionnaires, filled out by four employees and one manager. According to them, the bank has neither a trade union nor representation of employees or collective agreement. One of the workers reported that remuneration was above the average for the sector.

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No discrimination on the wages was reported, and the respondents assessed HRM practices in hiring, career development, training, remuneration, working time, health and safety and working conditions as good. Nevertheless, some employees mentioned problems with overtime and work-related stress. They believed that the HRM practices were not as good as those in the parent company. They do not have links with the unions at a sector or other levels, nor do they have knowledge about the French social model. There have been no protests or strikes in the bank and what matters most for these employees is their personal level of remuneration, peer relations and job satisfaction. According to the manager interviewed, the bank entered Bulgaria to serve the global clients of BNP Paribas based in the country. The branch maintains formal and informal relations with other MNCs, needed for business deals. The company follows national legislation carefully as regards to working conditions and social contributions. The manager considered communication between staff and the management generally good. He was not familiar with EU directives on employee representation. According to him ‘there are no unions because nobody is interested in that.’ He considered HRM practices are similar or better than those in other MNC subsidiaries, while labour relations are governed by the concept of the corporate social responsibility (CSR) and the ethical code. He also admitted a lack of familiarity with the French social model. Within Société Générale we got responses from four managers and three employees based in their Sofia offices, which employ about 120 staff. The managers have been in the bank from 2 to 7 years, but had no idea about any future career prospects. All had undergone training since their appointments. They stated that the employment relations are in line with the Labour Code and they considered the company provided all major rights, such as in hiring/firing, remuneration, occupational health and safety, access to training and opposition to discrimination. Only one considered that the right of representation and collective agreement was not kept: ‘The bank does not have unions, or representation of employees.’ Another manager stated that he/she has to work overtime quite often. According to the managers, the factors that attract MNCs to create subsidiaries in Bulgaria are mainly the low remuneration levels, the availability of skills and union weakness. Communication is conducted mainly via internet at each workplace, but only one interviewee said that it is effective. The respondents did not know whether the bank was party to a collective agreement on the sector level, or whether it was a member of any employer organizations. Their main concerns were the low numbers of staff available in relation to the large volume of work to be done. Only one of these respondents considered that the bank’s practices are governed by its CSR code, while the others did not know. One also identified the French social model as meaning additional employment benefits, but was not aware of any details.

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None of the staff respondents belonged to a union; they did not even know whether there were any in Société Générale. Opinions on working conditions varied. In general they were considered good, but they did not meet the workers’ expectations of working in a big French bank. Two of the employees with longer periods of service felt there have not been significant changes in the working conditions and remuneration levels over the last 10 years. One considered there had been very small increases in salaries and improvements in the work equipment. All the respondents recognized there had been more training courses introduced. One reported having to do overtime work under stress. In the absence of collective negotiations, once a year the employees met formally with their direct manager to discuss and evaluate work, which can result in a slight salary increase. The interviewees could not compare the bank’s HRM with other subsidiaries or with France. They tended not to believe that similar practices are used in the parent company but do not have information on that or on the French social model. One respondent was a trainee who commented that the bank hires a lot of young people as trainees, some of them still students. The trainees are trained by permanent staff only when the latter have time to do so. The trainees work 7 hours with a 1-hour break, while the permanent staff work 8 hours and more. These trainees create quite a high turnover for the bank. One ex-Société Générale employee commented on an internet forum: ‘I worked in (this bank), very low remuneration, the directors views are that of the 1980s of the last century . . . My whole evaluation of this company is very negative.’ Another stated: ‘As a former staff of the bank I can state the following: this is maybe the most despicable bank in Bulgaria. The salaries are low, and the responsibilities quite high . . . . Turnover does not have an equal, only young people start (mainly from the countryside).’ A third added: ‘The bank is awful. The management is incompetent, especially the new arrivals. Knowledge and skills of employees are not taken into consideration, what matters is who is nice to whom and lip-service and reporting about the others. It is management by fear because most of the staff, mainly in the head office are above average age, and they afraid of losing their jobs, because with their knowledge they can hardly find anything else.’7 Three managers at the bank’s ExpressBank subsidiary provided some information. All three have been to in-company training but consider career prospects are poor. They agreed that the company respects the Labour Code’s basic provisions (working hours, minimum wages, occupational health and safety, etc.). However, there were no unions nor employees’ representation and collective bargaining, and the subsidiary was not covered by a collective agreement. Employment relations were similar to those in other MNCs. The main thing which mattered to these respondents was the level of remuneration: ‘The bank wants a lot, but do not tend to give enough.’ There were no signs that the company is governed by the norms of the French social

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model. One of the respondents reported that, in theory, the French social model ‘should be better, because there is no model of employment relations in Bulgaria at all’. 2.4. Employment relations in the energy sector In 2005, 58,200 people worked in the energy sector and 7000 of them for the largest state company NEK. The Chamber of Energy Employers, the National Federation of Energy Workers (CITUB), CL ‘Podkrepa’ and the Ministry of Economy and Energy all participated in the Energy Sector Council for Tripartite Consultation. At least 55–60 per cent of staff were covered by collective agreements at the company level, the highest proportion of any industry in the country, and wages were twice as high as the country average. According to the trade union chair of the Bulgarian National Federation of Energy Workers, the trade unions opposed total privatization in the energy sector but were denied access to the governmental strategies. He claims that after the privatization the quality of the power supply and the labour conditions worsened and that safety was not under full control. There was a lack of information, protective clothing, belts and so on. Since 2006, increasing numbers of consumers have complained about the poor quality of power supply and overcharged accounts from the three ‘new’ (privatized) regional companies. All this seems to support the trade unions’ criticisms of the restructuring of the former unified electrical grid. French participation in the sector is not very significant and to date fairly tentative. EDF is present at third-hand, through several joint-stock companies owned by one of its subsidiaries. Its Bulgarian interests are in partnership with other Bulgarian companies. In 2007, another EDF subsidiary acquired 100 per cent of a distribution company in one big Bulgarian city. We interviewed a management member of one of the joint-stock companies and the chairman of the National Federation of Energy Workers, and three managers and four workers of the second company completed written questionnaires. Across the three subsidiaries of the first EDF subsidiary there are about 160 workers. According to our interviewee, all the Labour Code requirements regarding labour conditions are respected, including obligations to provide access to drinks and medical provisions. Wages have risen nearly every year, although social benefits such as access to state holiday homes were lost after privatization. The interviewee considered that there was a long way to go to achieve what EDF employees have in France. Yet in comparison with other enterprises, the situation is better, as the pay is more attractive. There are trade unions in the sector, but these are not of much help in this company. In practise, the line managers represent the claims of workers to the senior managers (the Bulgarian and French directors), who make the decisions. The French social model was associated by this interviewee almost entirely with the 35-hour week.

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As the second EDF subsidiary only recently acquired its distribution outlet in one Bulgarian city, the employee respondents could not identify any significant changes after privatization. In this case, the company inherited a relatively well-organized and dense trade union organization (65 members out of 85 workers and staff). The sector is covered by a 2-year collective agreement at sector and firm level. Every 2 months the trade union leaders meet the management to exchange opinions. A slight wage increase took place after privatization, but the workers believe wages are relatively low compared with the average for the sector. Working conditions are estimated as good and work intensity as normal. So far there are no significant changes in these and so the influence of the parent company is not yet being felt. The respondents were not aware of the French social model but assume it is positive. There is no works council, and the trade union is in contact only with other CITUB affiliates. Although there have not been organized protests at work, if things do not change the workers considered that these might happen – especially over pay. The manager respondents considered that the EDF subsidiary had bought the company because ‘the energy business is always profitable.’ The Labour Code and other legal employment norms are observed. According to the managers, however, a new collective agreement might have to be negotiated to reduce business costs. The employment practices are similar to those in other enterprises within the sector and they do not see any serious problems. 2.5. Labour relations in the manufacturing sector In the manufacturing sector we investigated Schneider Electric, a French subsidiary in Bulgaria with over 200 employees. Three interviews were carried out with managers, who reported that the subsidiary maintains relations with the parent company HRM through a regional HR manager. Links are maintained with the European structures of the group in developing strategic competences, training and programmes for exchange of staff. The HRM goal is to be slightly above local requirements. The HRM department has developed mechanisms for informing and consulting employees. The company’s Code of Social Responsibility is demonstrated in the support of many local structures (nurseries, schools, youth organizations, orphanages, etc.). According to those interviewed, the company has a ‘social policy which is not only on paper, but is working’. Compared to the Bulgarian and smaller foreign companies, labour relations in this French subsidiary are considered much better. However, when comparing Bulgaria with West European countries, there are still significant differences. Some respondents who had the opportunity to compare admitted that ‘elsewhere is better’. For example, there is no union in the company, although there is employee representation. Improvements in working conditions are carried out jointly by employer and employee representatives. These measures include occupational health and

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safety, work clothes, covering food and transportation costs of employees, support of some employees with health or other problems and so on. The remuneration and expansion of activities are decided solely by the management, and then the employee representatives and the whole staff are informed. The manager respondents considered that the French social model could not be implemented in Bulgaria because of legal differences.

3. Employment relations in other MNC subsidiaries in Bulgaria A study by CITUB’s Institute for Employment and Trade Union Research shows that in general MNCs have had a positive influence on the restructuring of Bulgarian economy. They have introduced new technology and know-how, new managerial skills, new forms of labour organization and work culture (Daskalova, 2004, 2009). Nearly 65 per cent of all MNC subsidiaries introduced teamwork with job rotation. A widespread practice is bonus rewards, in particular an ‘attendance bonus’. The wages paid in MNCs is significantly higher than the average for the sector. In all the MNCs studied, risk assessments were taking place. These MNCs have their own corporate health service units, or contracts with external medical establishments. About one-third of MNC employers are members of corresponding branch chambers. This low representation at national level hinders the transfer of European social practices. In all the MNCs this CITUB research covered, collective agreements had been concluded. Most of them covered social issues, an area in which there was considerable evidence of problems: there were several with agreements concerned with the selling off of holiday homes, sports halls, swimming pools and so on. The argument was that these are not company priorities. The most common area of conflict during collective negotiations was on pay. Bulgarian MNCs’ subsidiary workers’ salaries were rather low compared to subsidiaries of the same MNC in other countries. Several MNCs, however, provided representation of their Bulgarian staff at their EWCs. According to data from CITUB and the European Trade Union Confederation (ETUC), a total of 18 workers (mainly trade unionists) were elected to EWCs in 2006–08 from 14 MNC subsidiaries in Bulgaria. However, EWCs already existed in almost 35 multinational corporations that have a Bulgarian subsidiary (Ribarova, 2009a). The trade union density in the MNC studied is high (on average 67 per cent), shared mainly by CITUB and CL Podkrepa. In more than two-thirds of companies the relations between social partners are institutionalized in special commissions and councils. Infringements of trade union rights are not common, and if some take place they concern delaying negotiations by the employers, breaching clauses within signed agreements, and not providing timely and sufficient information needed by the trade unions to negotiate. In some MNCs, however, the right to recruit has been violated,

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and some managers even suppress the trade unions. It is a difficult task to create an organization in Greenfield MNC subsidiaries and the degree of coverage by collective agreements depends mostly on the presence or absence of trade unions (Ribarova, 2009b).

4. Conclusions The interviews and responses from staff, managers and trade union leaders show that in the subsidiaries of French MNCs in Bulgaria there are employment relations of different types according to the sector and the governance relationship. Depending on the economic sector the situation differs as follows: • In the retailing and the tourist sector hardly any elements of the French social model could be found. These are highly labour-intensive sectors and, until recently, the high rate of unemployment in the country provided an advantage for the employers not to invest in human capital. • It is surprising to find no traces of the French social model within the bank sector, where only training has been well developed. Probably the subsidiaries of foreign banks do not offer the latest products in the Bulgarian market, and maybe because of that do not see any benefit in investing in the local staff (see Guillén and Suárez, 2005: 135–6). • In the energy and manufacturing sectors some traces of the employment policies of the parent companies could be seen. One may assume that the specifics of the production sector or sectors of key importance (such as energy) would require the enforcement of similar employment policies and standards across the whole MNC. It is, however, also possible to argue that these elements are due to inherited trade union structures with high density. The employment relations are also influenced by the way a subsidiary is franchised or directly managed: • In franchised companies there are hardly any elements of the parent company’s French social model. The local companies accept only the production standards of the MNC but not their employment conditions. • In direct subsidiaries some elements of the French social model can be found in combination with the host-country national model. MNCs are inclined to negotiate with trade unions only where these exist, but not to facilitate their formation or create representation of workers and staff. What all the subsidiaries of French MNCs in Bulgaria we researched have in common is that while there were hardly any trade unions, and in only one

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case was there a works council, there were no major breaches of the national Labour Code. The national labour requirements are strictly adhered to. This finding suggests a minimum effort by the MNCs. In the context of globalization and CSR such companies have a much greater capacity to improve the employment relations development. It is therefore possible to draw another conclusion: that the national legislation of Bulgaria is not sufficiently labour protective in this respect. By and large, no evidence has been found for a significant influence of the French social model of the parent companies on national social models, except for that which has been indirectly transposed through European directives (see also Contrepois et al., 2007: 116). This suggests that the penetration of MNCs, even those with the most strongly articulated domestic social models, does not automatically and directly lead to transfer of their social policies.

Notes 1. Thirty-six managers and employees from ten French subsidiaries, three national trade union leaders and the head of the economic mission to the French Embassy in Bulgaria were interviewed in the course of the DARES-funded project (see Contrepois et al., 2007). In some cases, written questionnaires were used. Seven companies were from the sectors with an intensive use of labour (retailing, tourism and energy), three with an intensive use of capital (banks) and one in manufacturing. 2. Bulgarian Industrial Association (BIA), Bulgarian Trade Industry Chamber (BTIC), Bulgarian Industrial Capital Association (BICA), Confederation of Employers and Industrials in Bulgaria (CEIB), Union of Economic Initiative (UEI), Bulgarian Union of Private Entrepreneurs (‘Renaissance’). 3. http://www.bcci.bg/top100_companies/2005/100_companies-katalog-2006-ENG. pdf. 4. French Economic Mission, Le tourisme, l’hôtellerie et la restauration en Bulgarie, July 30, 2007, Available online at: http://www.ubifrance.fr/tourisme-hotelleriesport/001B0952482A+le-tourisme-l-hotellerie-et-la-restauration-en-bulgarie.html? SourceSiteMap=1317. 5. General Labour Inspectorate, National campaign No. 3, http://www.gli. government.bg/bg/page/266 (accessed 12 March 2008). 6. General Labour Inspectorate, National Yearly Plan for 2007, http://www.gli. government.bg/bg/page/266 (accessed 12 March 2008). 7. http://www.bgrabotodatel.com/company.php?start=60&id_firm=40 (accessed 20 January 2009).

References Amossé, V. and Pignoni, M.-T. ‘La Transformation du Paysage Syndical Depuis 1945’, in INSEE (ed.) Données Sociales – La Société Française, Paris (2006). Bulgarian Industrial Association, ‘40 per cent is in the “grey” economy in tourism, according to the branch organization’, (2009), Available online at: http://www. bia-bg.com/40%25+%D0%B5+%2B%D1%81%D0%B8%D0%B2%D0%B0%D1%82 %D0%B0%2B+%D0%B8%D0%BA%D0%BE%D0%BD%D0%BE%D0%BC%D0%B8

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%D0%BA%D0%B0+%D0%B2+%D1%82%D1%83%D1%80%D0%B8%D0%B7%D0 %BC%D0%B0%2B+%D1%81%D0%BC%D1%8F%D1%82%D0%B0%D1%82+%D0 %BE%D1%82+%D0%B1%D1%80%D0%B0%D0%BD%D1%88%D0%BE%D0%B2% D0%B0+%D0%BE%D1%80%D0%B3%D0%B0%D0%BD%D0%B8%D0%B7%D0%B 0%D1%86%D0%B8%D1%8F-%D0%9D%D0%BE%D0%B2%D0%B8%D0%BD%D0 %B8/1/MlW-gRW7I5WnIlWHUZK3YJS-c9O3IdOfMhKvYZe7gRK-UdOLU9OHUlKL gdarIZmzcx Bulgarian National Bank (BNB), FDI, (2009). Available online at: http://www. bnb.bg/Statistics/StExternalSector/StDirect Investments/StDIBulgaria/index.htm (In Bulgarian). Boyer, R. ‘Hybridation et modèle productif: Geographie, Histoire Et Théorie’, Actes du Groupe d’ Etudes et de Recherches Permanent sur l’ Industrie et les Salariés de l’ Automobile (GERPISA) (Permanent Group for the Study of the Automobile Industry and its Employees) (1998), No. 24, pp. 7–50. Contrepois, S. et al., Deuxième rapport intermédiaire, 2 Novembre (London: Working Lives Research Institute, 2007). Daskalova, N. et al., MNCs – Challenges to Industrial Relations and Syndicates: Five years Later. CITUB, ‘Fridrich Ebert’ Foundation, Sofia (2004) (In Bulgarian). Daskalova, N. et al., MNCs – 2008. European aspects of Industrial relations. ISSR at CITUB, ‘Fridrich Ebert’ Foundation, Sofia (2009) (In Bulgarian). Durand, C. (ed.), Management et rationalisation: Les multinationales occidentales en Europe de l’est (Bruxelles: De Boeck Université, 1997). French Economic Mission, Le tourisme, l’hôtellerie et la restauration en Bulgarie, 30 juillet, 2007, Available online at: http://www.ubifrance.fr/tourisme-hotelleriesport/001B0952482A+le-tourisme-l-hotellerie-et-la-restauration-en-bulgarie.html? SourceSiteMap=1317. French Economic Mission, Commerce extérieur de la Bulgarie et échanges avec la France. Sofia (2009) (In Bulgarian). Available online at: http://www.tresor.economie. gouv.fr/se/bulgarie/documents_new.asp?V=3_PDF_156315 French Economic Mission, L’investissement étranger en Bulgarie en 2009, July 2010, (2010), Available online at: http://www.tresor.economie.gouv.fr/se/bulgarie/ documents_new.asp?V=3_PDF_156441. Gladicheva, R. ‘Contemporary Bulgarian Model of Industrial Relations (a comparative analysis)’, in “Bulgaria at the Doorstep to the EU: Tripartite Cooperation and the Development of the Industrial Relations. Comparative Models and Analysis”, PHARE Access Program (2004), pp. 7–50 (In Bulgarian). Gladicheva, R. Working Conditions in the Banking Sector: A Risk Assessment Survey among Employees in the Banking Sector, by Ivanovich E., Department head at the National Centre of Public Health Protection (2005), Available at: http://www.eurofound. europa.eu/ewco/2005/11/BG0511NU03.htm. Guillén, M. F. and Suárez, S. L. ‘The Institutional Context of Multinational Activity’, in Ghoshal, S. and Westney, D. E. (eds), Organization Theory and the Multinational Corporation (Basingstoke: Palgrave Macmillan, 2005). Manchev, T. Bulgarian Bank Sector on the Road to the EU Integration, Paper presented at the III International Financial Conference for the Central and South East European Countries, 30.01.2006, Sofia (In Bulgarian). Martin, R. and Cristescu-Martin, A. M. ‘Consolidating Segmentation: Post-Socialist Employment Relations in Central and Eastern Europe’, Industrial Relations Journal, 35: 6, 629–646 (2004).

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Mihailova, T. EIRO Comparative Study on Industrial Relations in the Retail Sector – Case of Bulgaria (2005), Available at: http://www.eiro.eurofound.eu.int/2004/07/word/ bg0404205s.doc. OECD. OECD Employment Outlook 2004, Available at: http://www.oecd.org/document/ 24/0,3343,en_2649_33927_3 935 102_1_1_1_1,00.html. Ribarova, E. Increase in Information and Consultation in Multinational Firms (2009a), Available at: http://www.eurofound.europa.eu/eiro/2009/01/articles/bg0901069i. htm. Ribarova, E. Bulgaria: Multinational Companies and Collective Bargaining (2009b), Available at: http://www.eurofound.europa.eu/eiro/studies/tn0904049s/bg09040 49q.htm. Schierup, C.-U., Hansen, P. and Castles, S. Migration, Citizenship, and the European Welfare State: A European Dilemma (Oxford: Oxford University Press, 2006). Tomev, L. Presentation at the workshop ‘Social dialogue in the EU, Challenges and Prospects for the new Member States’, Sofia, 11 April, 2008.

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10 Polish Employment Relations Under the Challenge of French Foreign Direct Investment Anna Kwiatkiewicz

For a long time Poland was the foreign direct investment (FDI) inflow leader in Central and Eastern Europe (CEE). Foreign investors were attracted by the size of Polish market, low wages and skilled workers, the perspective of strong economic growth, labour force qualifications and supply, potential to reduce production costs, stable legal environment, low taxes and EU membership. This chapter considers how Polish employment relations were shaped by this FDI and, with France being the largest source of FDI, by the presence of French-origin MNCs. The chapter arises out of a research project funded by the French Ministry of Labour, concerned with whether French MNCs were relocating or investing in CEE in order to escape the restraints of the French social model, and whether these MNCs were making efforts to transfer elements of that model to their CEE subsidiaries. The French social model is understood as based on three basic assumptions: pluralism of employees’ and employers’ organizations; dualism of employee representation mechanism, with elected representatives enjoying a strong position; and last but not least, a specific concept of social order (Contrepois et al., 2009: 125). Research was conducted in four sectors (energy, hotel, retail and finances) and seven French MNCs operating in Poland were chosen for in-depth analysis (one in energy, one in hotels, two in retail and three in financial services).1 The chapter first introduces the socio-economic context for MNC operations in Poland, and then characterizes French FDI and its place in the overall FDI inflow. Next, it discusses employment relations practices in the subsidies of the French MNCs and compares them with the distinctive features of the Polish social model. The conclusion considers whether the Polish employment relations model is influenced by the French MNC presence. 165

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1. Socio-economic context for MNCs and FDI in Poland The Polish economy developed dynamically in the 1990s and 2000s, although there was an important economic slowdown in 2001. In 2004, the Polish economy resumed its growth: real GDP growth was then estimated at 5 per cent. In the economic crisis of 2009, Poland was the only country in the EU that managed to maintain positive economic growth and was the country least affected by the crisis. There were several reasons for this: slower economic development than elsewhere, more limited access to ‘risky’ financial operations, a reluctance by Polish firms to take investment loans, a rather closed economy and a favourable foreign exchange rate that boosted exports. Despite the fact that early transformation processes in Poland were designed to avoid a significant presence of foreign investors (Redzepagic and Richet, 2008: 231), and a few negative features in the labour market including a strong bureaucratic tradition that impedes quick and flexible responses, Poland is still an attractive investment destination. In 2008, it was considered by MNC managers to be the most interesting country for the new FDI in Europe (Ernst and Young, 2008). The initial dominant form of FDI inflow was Brownfield investment. More recently, the producers of sub-components are starting to follow their clients and set up local supplier businesses. As a result, there is a slight change in the predominant type of FDI: privatization acquisitions are slowly being replaced by Greenfield investment and investments in the SME sector. Job creation has accelerated together with this investment, and in 2008 Poland ranked as 2nd as regards to FDI job creation – in 2007 there were 18,399 ‘FDI-induced’ jobs created. FDI inflow to Poland was very intensive up 2000 but it slowed down after 2001, mainly due to decrease of capital earmarked for purchase of shares in the Polish enterprises. The FDI inflow picked up again in 2004, and 2007 saw the most FDI to date with economic growth exceeding 6.5 per cent. The global economic crisis has, however, reduced FDI inflow to Poland: in 2007 Poland received 0.93 per cent of the world’s FDIs, while in 2009 it was only 0.13 per cent (UNCTAD, 2009). Generated profits are usually taken back to the country of origin; profit reinvestment is realized at a relatively modest level and is very vulnerable to the overall economic situation. Thus net disinvestment occurred in both 2003 and in 2008 (National Bank of Poland, 2009). Investors can be attracted to foreign countries by, among other factors, relatively low labour costs (Gradev, 2001: 10). This was the case in Poland, where the Polish labour market was conditioned by such factors as structural unemployment, a relatively cheap but skilled labour force, a relative rigidity of employment regulations2 that limits labour market flexibility and a low degree of workers’ professional and geographical mobility (Dach, 2008: 33). In the 1990s, during the first restructuring processes linked to privatization,

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unemployment was very high in Poland. During the economic slowdown of 2001–03 it reached the highest ever level of 20 per cent (in 2002). But starting in 2004, the unemployment rate gradually decreased to reach the level of 7.1 per cent in 2008. In 2009 it started to rise again and is expected to increase further in 2010. Labour productivity, however, is growing quite fast in Poland: between 1997 and 2003 productivity rose by 12 per cent. It climbed from 43 per cent of the EU15 average in 1997, to 55 per cent in 2005 (Business Europe et al., 2007). There were regional disparities in this rising labour productivity. Foreign-owned companies usually achieve a much better labour productivity in well-developed regions; moreover, the more developed the region, the more differences there are that can be observed between the productivity of foreign and Polish companies (Poniatowska-Jaksch, 2006: 84). One of the important characteristics of the current employment relations in Poland is the growth in the share of contractual arrangements that differ from traditional employment contracts. These include civil law agreements and self-employment. The share of part-time and/or fixed-term and self-employment is large and it grew further in the mid-2000s: in 2005 it accounted for 41.9 per cent of total employment, in 2006 – 42.8 per cent, and in 2007 – 43.1 per cent.3 Poland is the member of the EU with the highest share of part-time and self-employment in total employment as shown in Table 10.1. The majority of those who take up fixed-term and/or part-time jobs in Poland do so because they were not able to find full-time or permanent jobs; self-employment should be regarded rather as a loophole to avoid paying higher taxes and not a sign of blooming entrepreneurship (EFBWW and FIEC, 2009: 106). The services sector is where self-employment is used most

Table 10.1 Contractual and working arrangements in Poland and selected EU members (2008) Country

Total employees in part-time and/or fixed-term contracts plus total self-employment as % of persons in employment

Total self-employed as % of total persons in employment

EU27 Poland Bulgaria Hungary Latvia Slovenia France

38.7 41.7 16.6 21.7 16.2 27.0 34.5

14.8 18.8 11.4 11.9 10.1 9.9 9.9

Source: Eurostat (2009).

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often. Such a situation has serious consequences for employment relations: sometimes firms employ more temporary workers or subcontractors than regular employees. These temporary workers hardly ever belong to trade unions, therefore their interests are not represented and they do not enjoy the same rights as regular employees.

2. French companies as foreign investors and employers In the 1990s France was slow in reaching the Polish market, but it quickly made up for this in the 2000s, mainly by investing in the service sector (Contrepois et al., 2009: 34). In 2007, there were 760 French-origin enterprises operating in Poland; they participated in 40 per cent of the privatization processes (CCIFP, 2006). The biggest investment not only in Poland, but also in CEE was realized by France Telecom in 2000, when it bought a minority stock of the Polish national telecom operator. By 2001, 87 different French companies had already each invested an average of $117 million in Poland, compared to a German company average of $34 million and a UK average of $7 million. The value of the average French investment suggests that the French investors were mainly large firms. By the end of 2006 the total value of the French investment had risen to ¤16–17 billion and the French Chamber of Commerce in Poland (CCIFP) predicted that more French companies will invest in the future, particularly in automotive industry, logistics, transportation and real estate, while SMEs are more interested in services, agriculture and food-processing and tourism (CCIFP, 2006: 5, 34–5). The French multinationals selected for the research reported here are all global leaders in their respective fields. Their global and Polish employment levels are shown in Table 12.1. According to the CCIFP research, the French are perceived as attractive employers who create new jobs – in 2006 their number totalled at 175,000 and French FDI represented 1.5 per cent of all new jobs created in Poland. In these French firms, 99.7 per cent of the employees are Poles and the domination of French employees of the top managerial positions that existed 10 years ago has weakened slightly. At present 79 per cent of those employed in the French companies hold the ‘Matura’ exam (high school graduation exam) or higher education (the Polish company average is 65 per cent). This is because the French companies seem to prefer educated employees and staff, and they also invest in employee training seven times more than the average Polish company. Additionally, the average wage at French companies is higher by 44 per cent than average wage in the Polish company (CCIFP, 2006). The CCIFP in Poland thus has a very positive view of the impact of French FDI in Poland.4 Before turning to the employment relations policies of French multinationals it is important to sketch the general industrial relations context in Poland. The Polish social dialogue is relatively young and at the beginning was heavily politicized. Trade unions, especially NSZZ Solidarno´sc´

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(the Independent, Self-Governing Trade Union ‘Solidarno´sc´ ’), have played an important role in the process of socio-political changes in Poland. One of the characteristic features of the first phase of industrial relations was conflict, which created a specific model of Polish trade unionism with ‘conflicting pluralism’ as its most distinctive feature. The key element of this model was the existence within most companies of at least two competing trade unions,5 neither of which was able to prevail over the other or genuinely represent the workforce. This fragmentation is also typical today, and limited representativeness – or even the lack of it – forces trade unions to focus on their own ‘clientele’, often sacrificing the interests of the employees as a whole. This is illustrated by the EDF plant in Poland we researched where there are four trade unions, and where the fourth one had been created ‘in opposition’ to the three others who were already functioning. The fourth union encompasses those employees who joined the company after the privatization process, and who were, therefore, not entitled to free company shares. The three ‘older’ trade unions are affiliated to three federations at the national level. In Accor (Orbis) the majority of the trade unions are independent and are active in workplaces, but only a few are affiliated to two national confederations. There are also cases of workplace-level trade unions being affiliated to regional-level organizations, but not to national-level ones, in order ‘to protect their independence and income’. There is some evidence that MNCs might agree to a trade union presence in their foreign subsidiaries in order to have a social partner for dialogue (Meardi, 2007: 181). Equally, there is evidence that employees are unofficially ‘discouraged’ or even openly threatened with dismissal if they attempted to set up trade union activity. In 2006, for example, there was a case where nine employees of a foreign subsidiary in the retail sector, who made an attempt to set up a trade union, were dismissed (Towalski, 2007). It seems that in the less-capital intensive sectors, where the labour force tends to be less qualified and easily accessible, the MNCs become more hostile towards any unionization initiative and much less co-operative towards already functioning trade unions (Contrepois et al., 2009: 57). At present, both trade unions (OPZZ and NSZZ Solidarno´sc´ ) have roughly the same number of members (1.5 million out of the total 17 million employees). This translates into a rather low unionization level: approximately 16 per cent of the workforce, one of the lowest unionization rates in Central and Eastern Europe. Many researchers have analysed the weakness of trade unions in Poland today (Crowley, 2004; Gardawski et al., 1999; Ost, 2005, 2009). They agree that the main reasons for this weakness were the transition processes, profound structural changes, the pro-market orientation of trade unions and the conviction that trade unions are needed in the state-owned enterprises and not in private ones. Crowley points out that in the first phase of transition (1989–93) trade unions were promoting

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privatization, even at the expense of job cuts, and in the second (1994–99) anger about the difficult economic situation was translated into anger against ‘not enough capitalism’ (Crowley and Ost, 2001: 85–7). Workers had high expectations of capitalism and foreign investors and quietly hoped ‘to be taken care of and rewarded for the hard work’. At the same time, some foreign investors came to Poland expecting trade unions to have a more militant position or, at least, be a strong partner for social dialogue (Ost, 2005). Many foreign investors thus initially chose those sectors where trade unions were weak or non-existent (Bohle and Greskovits, 2004: 402). The lowest unionization level was initially observed in 1997 in Greenfield investments (9 per cent). However, a year later the unionization rate in Greenfield foreign companies reached 30 per cent compared to 5 per cent in case of the Polish investors (Gardawski, 1999: 74). Our research confirms this trend: the French MNCs presence in the highly unionized energy sector is an example of Brownfield investment. Greenfield investment in the service sector (e.g. finances and retail) is more often ‘union-free’. Unionization levels and employee representation in MNCs appear to reflect the age and education level of the staff. Whereas union membership still appears to be an option among blue-collar and older workers who had previously experienced unions, this is not the case among younger and white-collar workers. A good example is the EDF plant, where unionization is in decline due to the retirement of older workers and the hiring of better educated and younger workers, who are usually not interested in trade union membership. This can be explained by distrust of trade unions perceived historically as associated with a centrally planned economy as well as individualization of contractual arrangements and a growing number of atypical employment paths (Contrepois et al., 2009: 69–70; Gardawski, 1999: 68). In sectors like the financial services sector, the demand for trade unions is almost non-existent (outside of state-owned financial institutions). There are different reasons for joining trade unions. In energy, hotels and retail it is perceived as a means to secure improved working conditions and wages, as well as to guarantee employee rights. In the retail sector this interest is driven by workers’ experiences of difficult working conditions, huge demands for flexibility, fixed-term employment contracts, unpaid overtime and excessive workloads. An employee representative on the board of one of the case study companies stated: Our trade unions limit their activity to expressing their expectations. Contacts with them were significantly different some four years ago: we had one collective dispute after another, the dialogue was very aggressive, they were very demanding. Today the rhetoric is significantly different, it can’t be, however, said that trade unions have an influence on the strategic goals of the company.

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If trade unions participate, their voice is treated more as one of co-decision rather than the decisive one (Gardawski, 1999: 18). However, there are cases of informal relations and smooth co-operation between management and in-house trade unions in the MNCs (Carrefour). This particular example of good, constructive management – trade union relations were found in the retail sector, notoriously known for violating employee rights and being ‘anti-trade union’ – proves that quality of in-house co-operation depends on the commitment of the involved individuals (Contrepois et al., 2009). Available data shows that on average MNCs offer better working conditions than state-owned or Polish private enterprises (Gardawski, 1999; Gradev, 2001). One of our interviewees stated: It has to be said that the conditions of work here are not too bad here, especially if we compare it with the general situation in Poland [ . . . ] Salaries are also reasonable, in general it is a good company. (Trade unionist, EDF subsidiary) Yet when compared with conditions before privatization and the levels of staffing that operated then, even the experience of working in a relatively privileged part of the Polish economy is perceived somewhat differently. Often employees complain about work overload: Employees are still used to serving and not just working, so they do go an extra mile when needed. People take work home: they bought computers and work another eight hours at home as they have too much work. There are still four departments, the level of production is the same, but the difference is that there are not 1,350 people employed – the same job has to be done by 600 people. (Trade unionist, EDF subsidiary) Our research has shown that workers accept these conditions for multiple reasons: they are better than the Polish average, employees are not aware of their rights and the unionization level is low. Moreover, employees feel threatened by high unemployment – it is especially acute in the rural areas and in small towns, where the foreign investor is usually a major employer offering the best conditions of work. This is the case of a big chemical production plant in Olsztyn that employs 4,300 people and is located in the region (voivodeship) where the unemployment rate is traditionally the highest in Poland (it was 21 per cent in January 2010). Fear of unemployment leads to extensive acceptance of fixed-term contracts, which, according to a national-level trade union representative, was the main type of contractual arrangement in the retail sector. In addition, fixed-term workers were often forced to work unpaid overtime. They accepted this, hoping that the

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situation would normalize so they could be eventually offered permanent employment contracts. 2.1. Collective bargaining and collective agreements Social dialogue in Poland takes place mainly at the national level, within the framework of the Tripartite Commission, and at the enterprise level; social dialogue at the sectoral or branch level is missing. Martin (2005) argues that trade unions in Poland were quite powerful and had close links with the government, which resulted in a limited role of the Tripartite Commission in maintaining consensus and preventing social conflict. Therefore, collective bargaining is more at the core of the Polish social model than tripartism. The Tripartite Commission for Social and Economic Affairs was established in 1994 under the ‘State Enterprise Pact’. In 2001, the parliament passed a new act on the Tripartite Commission creating regional social dialogue commissions; later, Tripartite Sector Working Groups were set up. Collective agreements already existed in Polish law in 1937. However, during communist times government-driven sector collective agreements were nothing but the realization of the government policies towards certain sectors. The Labour Code passed in 1974 introduced the collective agreement as an arrangement framing mutual relationships between employers and employees within a branch of the economy or an occupation. In particular, collective agreements were supposed to define remuneration systems and working conditions as well as guarantee other benefits, including employee privileges, workplace health and safety and employees’ social and cultural needs. An important feature of this regulation was the possibility to introduce more favourable working conditions through collective agreements than those specified in the national regulations. The 1994 amendments to the Labour Code focussed almost entirely on collective agreements, making them the basic instrument of labour law. Collective agreements may be concluded for a definite or an indefinite period and may be amended by additional protocols. The 2002 amendments to the Labour Code introduced the possibility to suspend a collective agreement for up to 3 years through a joint declaration of the signatories, when this is justified by an employer’s financial difficulties. Strong legal support framework for collective bargaining does not translate into massive use of collective agreements. Gault (2005) reports that just 30 per cent of workers were covered by company-level negotiations and a further 10 per cent by sectoral negotiations. By mid-October 2007, only 135 multi-employer (industry) agreements were in operation, concerning just 500,000 workers, and for the whole of 2006 there were just 2,402 company-level agreements registered with the National Labour Inspectorate (Towalski, 2008). This was confirmed by our research: only one (energy) out of the four sectors was the subject of a collective agreement at the sectoral level. This situation is caused by problems with social partners’ organizations representatively and by the fact that employers’ organizations in Poland

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are fragmented and in some sectors, such as retail or finance, non-existent. Retail is a very competitive sector, and the interests of potential partners are very different, even conflicting (Towalski and Czarzasty, 2006). There is a strong resistance towards sharing information and co-operation – information that is widely accessible to all interested parties in the Western Europe is treated as confidential in Poland (Contrepois et al., 2009: 53). In the case of the hotel sector no initiative had taken place to negotiate or sign a collective agreement at the sectoral level (despite Accor’s Brownfield investment in the major state-owned company with a significant trade union presence). The weakness of collective bargaining is not because there is a strong tradition of ‘works councils’ expressing employee voice in Poland. In fact, a feature of employment relations in the French MNCs in Poland is the lack of alternative employee representation to the trade union one. Both work councils and European Works Councils (EWCs) are relatively new in Poland. Gault (2005) suggests that these are still regarded suspiciously by workers since they resemble the communist ‘work councils’ abolished in 1987 and can be perceived as a body gathering ‘trustees of the management/government’. At the beginning, employees perceived work councils, with employee representation rights at workplace level, and EWCs, where employees have rights to information and consultation across subsidiaries and countries at European-wide level, as overlapping with trade union prerogatives, especially in the situation where trade union leaders were delegates to both work councils and the EWC. Trade union representatives have various opinions on the effectiveness of the EWCs: ranging from the neutral assessment from a Carrefour union representative that they are ‘a platform for passing information, but with limited execution role’ to quite radical ones: While the employee representatives from Western Europe comment that their counterparts from the CEE countries are taking their jobs, the representatives from the CEE countries envy us for our well-being, wealth and better conditions of work. (Trade union representative, EDF)

Polish trade unionists at EDF claimed that participation in EWC activities provided them with the opportunity to meet their counterparts and enabled them to influence French decision-makers directly through the French EWC secretariat and its relations with the International Human Resource Management function in Paris (Contrepois et al., 2009: 80). However, the legal situation can make the use of employee representation mechanisms impossible. One example comes from the hotel sector, where each hotel within the Accor (Orbis) group was treated an independent entity and, as a result, employees could not participate in the EWC (Contrepois et al., 2009: 65).

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In terms of the general impact of MNCs on industrial relations, most countries report that foreign investment tends to be viewed as a positive factor (EIRO, 2009). FDI change employment structures: jobs tend to be more stable and of a better quality, but there are fewer of them (Gradev, 2001: 15). Our research has demonstrated that while the positive influence of foreign investment on employment relations in Poland is observed in some companies (e.g. more social dialogue, better working conditions, strategic approaches to training), the French social model is not being transferred to the Polish branches of the French enterprises. There are also cases of serious violation of employee rights in the MNCs. An example of such a situation was the Auchan retail chain, where its cashier staff were not permitted to take personal relief breaks during their shifts. In another quite infamous case, a former Polish board of director member brought a case against his French boss for repeatedly insulting him. This case is interesting as it represents – albeit in an extreme version – the quite commonly encountered attitude of French managers, who assume that Polish staff are not very well qualified and produce poor-quality work. This case was the first bullying or harassment case taken before the Polish courts (Contrepois, 2009: 146). Additionally, during the first phase of their operation in a foreign country, MNCs used to appoint foreign employees to management positions, while keeping the nationals at lower positions in the company structure (Guz et al., 2009: 45). Such a situation was observed in all the case study companies: at the beginning all top management positions were held by French managers and it is only recently that Polish managers have started to replace them. In all four sectors, the presidents of the firms are still French, while in all except one the HR directors are now Polish. Our research confirmed that the French social model – including the enterprise social dialogue process and consultation practice – is not well known in Poland. Trade union representatives most often associated the notion ‘French social model’ with better conditions of work, better pay, lifetime employment guarantees, ‘social’ approach of the company and a less heavy workload. Sometimes they, quite rightly, believed it was a factor underlying more balanced, partner relations between management teams and trade unions’ representatives. At the same time, they reported that the French social model was not implemented in their enterprises. One senior manager reported: This notion [the French social model] was mentioned, especially at the beginning. Now it is rather rarely present in the discussion. They [employees] have understood that here is Poland, so the Polish context has to be taken into account and the French social model cannot be automatically transferred. (Director for Social Relations, EDF)

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In most cases, not implementing the French social model was perceived as natural – trade union representatives believed that differences in management models in different countries were inevitable and it would be naïve to expect that HR models and employment relations were to be simply ‘copy-pasted’ from the country of origin to the receiving country. One of the interviewees stated: ‘Poland and France – these are two different worlds! They cannot operate according to the same [social] models!’ (Trade unionist, Carrefour). Another difficulty in striving for adaptation of the French social model may be caused by the fact that the notion ‘social model’ seems to evoke the previous centrally planned socialist model (Contrepois et al., 2009: 38). In this respect, especially in the first years of FDI inflow, foreign investors were quite often perceived as ‘invaders’ or ‘colonists’, and the French presence in the Polish enterprises was compared to Soviet oppression. This perception depended on the degree of domination exercised by the French management of the Polish subsidiaries, their openness to dialogue, the proportion of manager–expatriates and the language spoken by the management. One of the trade union representatives stated: They [French managers] wanted to make Poland French at any price. All their management methods were introduced here, but they did not want to learn our methods of working. Two or three directors came over from France and thought that all of us have to adopt their way of thinking. Personally, I think that they have treated us like the ancient colonies: they exploited us as much as they could. (Trade union leader, EDF) A similar opinion was shared by the trade union representatives from the hotel sector: they believed that all management personnel should be able to speak Polish and not have to depend on interpreters. At that time, in 2007, the board was still dominated by the French managers; there were also eight or ten French-origin directors of the hotels (approximately one-sixth of the total senior management).

3. Conclusions The Polish economy is still striving to close the gap with Western European economies. Attracting FDI is one main ways of doing this. However, our research suggests that French MNCs setting up their operations in the CEE countries do not transfer the French social model to their subsidiaries. There are two main reasons for such a situation: a lack of government and worker expectations as well as the strategy chosen by the MNC. The Polish government has not expected MNCs to transfer working conditions from their country of origin. Since all countries concerned were very

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enthusiastic about the FDI inflow, they did not want to diminish their investment attractiveness by imposing additional entry conditions (Contrepois et al., 2009: 6). As for employees, working conditions offered by MNCs are usually better than average working conditions in the country. Another explanation is the individualization and diversity of contractual arrangements, which does not promote unionization or other forms of employee representation. Last, but not least, trade unions are weak and membership is declining. All in all, foreign investors are aware of all these social weaknesses, and tend to exploit them to maximize their profits. The French MNCs tend to adopt host-country regulations and transfer only very few elements of the country-of-origin model. One of the consequences of such an approach is the avoidance of, or not promoting, unionization at the workplace (Greenfield investment). In case of existing unions (Brownfield investment), MNCs are more willing to participate in workplace social dialogue. At the same time, they take advantage of the underdeveloped sectoral-level social dialogue: they do not promote or develop it. Foreign investors adopt various social models. Gradev observed that ‘foreign companies “buy into” the existing industrial relations system and attempt to introduce changes which are mainly limited to customizing workplace industrial relations to their production requirements and imported management structures’ (Gradev, 2001: 19). Others are convinced that MNCs respect only ‘border conditions’ – minimum standards of the host country – and do not transfer the whole management model (Gardawski, 2007: 52–3). Our research confirmed this: one of the interviewed trade union representatives (Carrefour) said: ‘MNCs behave the way we allow them to behave’ and stressed that since the ultimate goal of the MNCs is maximizing profits, they therefore tend to accept only limitations whose disregard might directly influence their image and PR. Despite the fact that they do not transfer the French social model, Frenchorigin firms do exercise an influence over the subsidiary’s employment relations. They tend to implement modern human resources practices, such as career management, strategic approach to professional training, new work organization and performance appraisal or performance-based remuneration systems. They also seem to have more dialogue with employees than Polish private enterprises. More social dialogue is also a result of Poland’s accession to the EU and adoption of the EU law – good examples are work councils and Polish representatives’ participation in the EWC. These employee representation mechanisms seem not to be yet used to their full potential, but there is a growing awareness of issues that should be consulted with employees, and of the importance of a regular, formal and informal social dialogue. All the above mentioned are important contributions to shaping modern employment relations in Poland. However, the social model implemented in the French subsidiaries in Poland is evolving towards a more

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flexible management social model rather than towards the French/European social model. This observation can be extrapolated also to apply to other origin MNCs.

Notes 1. Twenty-nine semi-structured interviews were conducted among the six firms in 2006 and in 2008 with trade union representatives at local and national levels (15), senior managers (8) and national-level employment relations experts (6). 2. Perception of rigidity of employment regulation in Poland varies significantly: the Polish entrepreneurs perceive it as too rigid and not corresponding with the flexicurity requirements, while, according to OECD, Poland is one of the CEEC countries with the least rigid employment protection regulations (2.06 for Poland versus 3.05 for the Czech Republic or 3.15 for Slovenia). 3. Self-employment accounted respectively: 20.5 per cent in 2005, 19.9 per cent in 2006, 19.2 per cent in 2007 and 18.8 per cent in 2008. 4. This positive image of the French employer was only partly confirmed by the DARES project research. 5. Recently the Polish press reported a case where the management of a big production plant had to negotiate with some 140 different trade unions. It is worth noting that setting up trade unions in Poland is relatively easy as it does not require any permission, there have to be only ten member-founders and legal registration then is an administrative procedure in a local magistrates’ court.

Bibliography Bohle, D. and Greskovits, G., Capital, Labour, and the Prospects of the European Social Model in the East, Working Paper 58, Program on Central and East European Working Papers Series, Harvard University (2004). Business Europe, CEEP, ETUC/CES and UEAPME, Key Challenges Facing European Labour Markets: A Joint Analysis of European Social Partners, BusinessEurope: Brussels (2007). CCIFP, Annuaire des Enterprises Membres, Chambre de Commerce et d’Industrie Française en Pologne: Warsaw (2006). Contrepois, S., Jefferys, S., Kwiatkiewicz, A., Szabo, M., and Vladimirov, Z., ‘Dans quelle mesure le modèle de relations sociales français est-il transférable? Les multinationales françaises et leur influence sur l’évolution des relations professionnelles en Bulgarie, en Hongrie et en Pologne’, London: Working Lives Research Institute (2009). Crowley, S., Explaining Labour Weakness in Post-Communist Europe: Historical Legacies and Comparative Perspective, East European Politics and Societies, Vol. 18, No. 3, 394–429 (2004). Crowley, S. and Ost, D., Workers after Workers States: Labour and Politics in Postcommunist Eastern Europe. Lanham: Rowman & Littlefield (2001). Dach, Z., Rynek pracy w Polsce. Aspekty ekonomiczno-społeczne, Wydawnictwo Uniwersytetu Ekonomicznego w Krakowie, Kraków (2008). EFBWW and FIEC, Self-Employment and Bogus Self-Employment in the European Construction Industry, Werner Buelen (ed.), Brussels (2009). Ernst and Young, The Investment Attractiveness of Europe 2006, Washington (2008). Eurostat, EU Labour Force Survey, Eurostat: Brussels (2009).

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Gardawski, J., Korporacje transnarodowe a ERZ w Polsce, SGH Warsaw (2007). ´ Gardawski, J., Gaciarz, ˛ B., Mokrzyszewski, A. and Pankow, W., Rozpad bastionu? Zwiazki ˛ zawodowe w gospodarce prywatyzowanej, Fredriech Ebert Foundation, Warsaw (1999). Gault, F., ‘Les atouts des CE ont conquis les Polonais’, Entreprise & Carrières, 22 au 28 février (2005). Gradev, G., EU Companies in Eastern Europe: Strategic Choices and Labour Effects, ETUI Resource Center, Brussels (2001). ´ Guz, T., Kłosinski, K.A. and Marzec, P. (eds), Polska, Europa, s´wiat. Korporacje transnarodowe, Katolicki Uniwersytet Lubelski, Lublin (2009). Kahancova, M. and van der Meer, M., Coordination, Employment Flexibility, and Industrial Relations in Western European Multinationals: Evidence from Poland, International Journal of Human Resources Management, Vol. 17, No. 8, 1379–95 (2006). Martin, R., ‘Politics and Employment Relations: The Power of Labour in Poland after the Fall of Communism’, in H.-J. Stüting, W. Dorow, F. Claassen and S. Blazejewski (eds), Change Management in Transition Economies: Integrating Corporate Strategy, Structure and Culture, Basinstoke, Palgrave Macmillan (2005). Meardi, G., Multinational in the New EU Member States and the Revitalisation of Trade Unions, Debatte, Vol. 15, No. 2 (2007). National Bank of Poland, ‘FDI in Poland’, Warsaw (2009). Ost, D., The Consequences of Postcommunism: Trade Unions in Eastern Europe’s Future, European Politics and Societies, Vol. 23, No. 1 (2009). Ost, D., The Defeat of Solidarity: Anger and Politics in Postcommunist Europe, Ithaca, Cornell University Press (2005). Ost, D. and Weinstein, M., The Emergence of New Enterprise Institutions in Postcommunist Poland, The National Council for Soviet and East European Research, Title VIII Programme, Washington DC (1996). Poniatowska-Jaksch, M., Przemysłowe bezpo´srednie inwestycje zagraniczne z´ ródłem konkurencyjno´sci regionu, SGH, Warszawa (2006). Redzepagic, S. and Richet, X., Attractiveness of the FDI in Western Balkans: Evidence from the Central and Eastern European Countries (CEEC), conference proceedings: International Conference of the Faculty of Economics in Sarajevo, Sarajevo (ICES) (2008). Shields, S., How the East Was Won: Transnational Social Forces and the Neoliberalisation of Poland’s Post-Communist Transition, Global Society, Vol. 22, No. 4 (2008). Towalski, R. Employer Suppresses New Trade Union in Retail Outlet, EIRO online, http:// www.eurofound.europa.eu/eiro/2007/01/articles/pl0701019i.htm. Towalski, R., ‘Enterprise-level social dialogue in 2006 assessed.’ EIROnline (2008). Towalski, R. and Czarzasty, J., Barriers and Opportunities for Trade Union Representation in the Retail Sector, the Friedrich Ebert Foundation, Warsaw (2006). UNCTAD, ‘World Investment Report 2007: Transnational Corporations, Agricultural Production and Development’, New York and Geneva, United Nations Conference on Trade and Development (2009). ´ Wilinski, W., Inwestycje panstw ´ UE w Polsce, Szkoła Główna Handlowa, Warszawa (2000).

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11 Industrial Relations and Social Dialogue in the Baltic States – Crisis, Conflict and Compromise Charles Woolfson, Epp Kallaste and Janis Berzins

This chapter analyses the intersection of global recession with the viability of social dialogue between labour and capital in post-communist states. It examines the crisis in a region where its effects have been most pronounced, the Baltic countries of Estonia, Latvia and Lithuania, formerly Soviet republics and now full members of both NATO and the European Union (EU). The ‘shock’ of global economic and financial recession has had severe impacts on Baltic economies and, therefore, has also demanded radical changes on the part of governments. Through an analysis of responses to the crisis, this chapter attempts to assess the inherent strengths or weaknesses of social dialogue in the region. We suggest that trade unions have failed to influence the course of governmental crisis response measures. This is the result of the inherent weaknesses of post-communist trade unions, which have permitted governments to introduce fiscal policies largely unopposed. These measures have provided the primary means of adjustment to spiralling budget deficits in Latvia and Lithuania. In Estonia, which had previously succeeded in maintaining one of the lowest budget deficits in the EU, the crisis response measures were motivated as much by the determination to avoid the same predicament as its Baltic neighbours, as by the attempt to mitigate the almost as severe economic impacts of the crisis. In the main, fiscal interventions have been dictated by the desire of national governments to prioritize the longer-term goal of remaining candidates for European Monetary Union (EMU) membership, while pursing the path determined by international lenders and local borrowers to deal with their immediate predicaments. Future membership of the EMU, although with hindsight in the wake of the crisis an increasingly unlikely prospect for Latvia and Lithuania, would offer the prospect of providing attractive sites for future foreign direct investment (FDI), as well as insurance against potential capital outflows. 179

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First, the economic contours of the crisis in the Baltic states are described, taking into account the differences between each country. Second, the various governmental crisis-response measures are outlined and the key question is posed: how is it possible to sustain an accord between capital and labour, given the scale of sacrifices imposed on the latter? To answer this, the third part of the chapter overviews existing arrangements for social dialogue and the structure and density of trade union organization in the post-communist era. Fourth, the responses of organized labour to governmental policy are discussed. It is suggested that after initial potentially destabilizing opposition, trade unions have increasingly come to accept a revival of previous neo-corporatist compromise arrangements.

1. The contours of the crisis Since the collapse of the Soviet Union at the beginning of the 1990s, all three Baltic states have adopted neo-liberal ‘open market’ policies of economic and social reconstruction designed to promote FDI (Aidukaite, 2009; Bohle and Greskovits, 2007). By the middle of the present decade, the Baltic states, collectively dubbed ‘tiger economies’, had received a special accolade for their efforts in introducing free market reforms (World Bank, 2005). The successful economic transition was marked by steadily high growth levels of GDP from the beginning of 2000, and particularly since joining the EU in 2004 up until 2008. In Estonia and Latvia, the average yearly growth of GDP exceeded 8 per cent and in Lithuania it reached around 7.5 per cent during 2000–07, while EU27 average was less than 2.5 per cent (see Figure 11.1). The unwelcome corollary of higher GDP growth rates, largely based on the unsustainable development of 15 10 5 0 −5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009(f)2010(f) 2011(f)

−10 −15 −20 European union (27 countries)

Estonia

Latvia

Lithuania

(f) − forecast Figure 11.1

Real GDP growth rate, EU, Estonia, Latvia and Lithuania, 2000–10.

Source: Eurostat (2010a). (f) – forecast.

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economic sectors financed by external liquidity, has been the relative sharpness of the decline occasioned by the crisis, which was significantly greater than the average downturn for the EU. Previous growth in the Baltic economies had been largely based on ‘bubble’ economics. Property speculation and an orgy of profligate personal consumption fuelled by cheap foreign credits courtesy mainly of Swedish banks, rather than investment in productive industries, had produced much of the spectacular GDP growth. As a result, the Baltic states were economically vulnerable to an inevitable ‘hard landing’, contingently exacerbated by the systemic problems of the global financial system. All three countries subsequently experienced a sharp economic downturn with collapsing output, a severe ‘correction’ in property prices, and rapidly declining income and consumer consumption levels, as widespread unemployment gripped their economies. By the spring of 2009, the European Commission economic forecast for the Baltic states was gloomy, with the economic downturn predicted to be ‘deeper and more protracted than previously assumed’ (European Commission, 2009: 80). Already in 2008, compared to 2007, Estonia and Latvia had witnessed decreasing GDP. By the fourth quarter of 2009 compared to the previous year, GDP had decreased by 17.9 per cent in Latvia, 13.2 per cent in Lithuania and 9.4 per cent in Estonia (the three most significant declines in the EU), with the only other countries in Eastern Europe, Bulgaria at 6.2 per cent and Romania at 6.9 per cent, approaching these figures. The EU27 average decline for this period was 2.7 per cent (Eurostat, 2010a). An economic shock of this scale has had its impact on labour market. In 2009, official unemployment rates in Baltic countries equalled the highest in the EU after Spain, reaching 17.6 per cent in Latvia, and 14 per cent in Lithuania and Estonia according to Eurostat (2009a). Youth unemployment reached over 30 per cent in Latvia and Lithuania, and 28.5 per cent in Estonia (Eurostat, 2009b). In all three Baltic countries, the situation in labour market was still deteriorating in the first quarter of 2010 with unemployment continuing to rise. As such, the Baltic states have had the unwelcome distinction of suffering the economic effects of the crisis in the most acute form within the European Union, with their currencies, banking systems and economies verging on collapse (The Economist, 2009a). It should be noted, however, that not all the Baltic countries were in an equally difficult situation, and that the measures taken to adjust their economies to the impacts of the crisis were to some extent different. Estonia, for example, had exercised more prudent expansion policies than its neighbours during the boom years, moderating the kind of ‘over-heating’ most drastically experienced in Latvia, and to a slightly lesser extent in Lithuania, from the early 2000s onwards. Again, in contrast to neighbouring Latvia, which had been forced to seek a ¤7.5 billion bailout from lenders led by the International

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Monetary Fund (IMF), Lithuania and Estonia attempted to resolve their budget deficits without reliance on external support, that would have made their economic adjustment package subject to even more stringent policy measures.

2. Governmental responses to crisis in the Baltic states Each of the three Baltic states, in part the authors of their own misfortunes, was now presented with a dilemma: how to construct a national policy response, being small nations in a context of a financial and economic storm that was global in scope, and with a past pattern of economic expansion that had left them especially vulnerable. The lessons of economic interdependency were particularly unpalatable for these former Soviet republics, which had experienced the dislocations of transition to the market only now to discover that expectations of continued growth were misplaced. The ‘hard landing’ in the Baltics became all the harder as Swedish banks, through their local subsidiaries – having significantly overexposed themselves to potential defaults – now had a vested interest in securing early loan payments. These loans had been mostly denominated in Euros or Swiss francs (up to 90 per cent of the total), which simultaneously had the effect of drying up the credit market for investments in the productive sector. Latvia had an overvalued currency from the start, thus providing one of the reasons its ‘real economy’ has remained undeveloped, especially when combined with high taxes on labour (income and benefits), an absence of tax on reinvested capital and grossly under-taxed property values. Currency devaluation as one potential response option of the Baltic governments posed a threat to the borrowers, who had dominated significant loans in Euros, and accordingly to the Swedish banking system. For this reason, the Swedish government, along with the IMF and European lenders, undertook financial measures of support for Latvia, as the hardest hit economy. In the event of currency devaluation, the risks would have been significant in terms of bankruptcies and defaults, both personal and corporate, creating the worrisome prospect of a wider ‘contagion’ potentially affecting other banks like those of the UK and the Netherlands, which were already exposed because over-commitments in, for example, Iceland (The Economist, 2009b). As a result, the entire European financial system could potentially unravel. At the same time as the IMF and associated lenders were imposing deep cuts in the spending budget of the Latvian government, the European Central Bank asserted the necessary discipline in order to forestall any potential assertion of parliamentary interference with the operations of national central banks, which could arise, for example, as a result of pressure from disgruntled populations (European Central Bank, 2009).

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With currency devaluation ruled out, the fiscal route was the preferred option of Baltic governments. Thus, in response to unfolding events, including the threat of ‘excessive debt procedures’ from the European Central Bank, the recently formed centre-right Lithuanian coalition government proposed a series of draconian measures to address the budget deficit of 4.8 billion litas (¤1.4bn), accounting for up 4.8 per cent of GDP. These included swinging financial cuts, general increases in value added tax (VAT) on certain products of up to six times, reductions in state pensions and other forms of social support, and substantial wage reductions. In Estonia, the government approach was also primarily aimed at keeping a stable currency and bringing the state budget back into balance by cutting spending and increasing revenues. The cuts included, for example, pay reductions in public services (gross wages in public administration and defence sector were 16 per cent lower than year before in fourth quarter of 2009, with an average decrease of 6.5 per cent) (Statistics Estonia, 2010a). Reductions were also imposed in paid sickness days, a freezing of the second pillar of pension payments, abolishing support for student loans and cuts in agreed increases in unemployment insurance. Revenue increases were to be secured by a rise of 2 percentage points in VAT with just a 2-week notice period in the middle of summer 2009, as well as unemployment insurance tax increases and some excise taxes. At the same time, a concerted attempt was made to promote business revival, with a plan to stimulate the export potential of Estonian companies. In Latvia, where the depth of the crisis was the most severe, the government chose to pursue recessive policies, with consideration of the fundamental structural imbalances in the economy set to one side. First, major financial commitments were provided in order to support the somewhat dubious nationalization of Parex Bank, jeopardizing still further the government containment of the budget deficit and making the limited available resources to stimulate business recovery even more scarce. Second, in agreement with the IMF, the Latvian government’s main measures for dealing with the crisis were an increase in the rate of VAT from 18 per cent to 21 per cent; an increase in income tax from 23 per cent to 26 per cent; a reduction of the minimum level of tax exemption from 90.00 lats (¤63.11) to 35.00 lats (¤24.54); a reduction in public sector wages of 20 per cent, including those of teachers, health personnel and fire fighters; the closing schools and hospitals; and a reduction in the level of social benefit. Even the State Revenue Service, engaged in combating tax evasion and fraud, and the front-line agency in fiscal compliance and recovery, was placed, at least temporarily, on a 4-day week. In Estonia, the government policy in reaction to the crisis was to seek a balanced budget in order to guarantee stable currency and to pursue the goal of reaching membership of the Euro. This policy demanded major cuts of state budget and reductions in unemployment insurance. Such a strategy,

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amounting to an ‘internal’ devaluation that eroded living standards and created mass unemployment, was to a large degree replicated across the three Baltic states. Government policies thus resulted in radical changes in labour market conditions, undermining many of the previous assumptions governing social dialogue between labour and capital. The question at issue was how far it would be possible to sustain a national accord between capital and labour that would permit such sacrifices to be imposed without disrupting basic social cohesion in society. This was an issue that was of particular concern in the Baltics, but was to have European-wide resonance as the crisis unfolded.

3. Social dialogue and trade unionism in the Baltic states Trade unions have found it difficult to reinvent themselves in the postsocialist world (Ost, 2009). This has been especially so in the Baltics. The precipitate overall decline in union membership during the transition period encouraged trade union leaderships to welcome any neo-corporatist structures that would promote their voice as representative of the working people. As such, social dialogue was intended to act as a mechanism to institutionalize incipient or emergent class conflicts. It was based on shared ‘non-class’ assumptions of ‘social partnership’ between labour and capital, and ‘unity’ in the common project of transition. The promotion of this largely consensual worldview was an acutely ‘necessary’ form of intervention, given the fraught social tensions created by the spiralling inequalities of postcommunist society. In order to carry through the awkward business of transition, the collaboration of organized labour and capital in various forms of social dialogue was a useful emollient in maintaining social peace. In the context of the former socialist countries, social dialogue had a particular significance. The International Labour Organization (ILO), the European Union, and other external agencies and foundations, concerned with the promotion of democratic transformation in Central and Eastern Europe, made it their mission to promote tripartite social dialogue between trade unions, employer organizations and governments, as a means of underpinning a smooth transition to the market (Casale, 1999; Ost, 2000; Woolfson and Beck, 2002). The ILO developed new labour codes to replace outmoded Soviet ones which, in providing a partner role to reformed trade unions, would provide legitimacy as well as bolster new democratic rights, such as the right to strike. For the EU, social dialogue was thus seen as an integral part of contemporary European participatory democracy, and one eminently exportable to the new EU member states who had much to learn in this sphere (European Commission, 2004). The European Commission continued to monitor progress in the development of national social dialogue in the candidate countries in its regular pre-accession reports. Noting that progress was slow in this area, the Commission encouraged faltering

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attempts to create social dialogue ‘from below’, rather than simply imposing this ‘from above’ (see, for example, European Commission, 2000). As a generalization, it can be said, however, that bipartite ‘from below’, as against tripartite ‘from above’, social dialogue has been weakly developed in all three Baltic countries in the post-communist period (Vatta, 2001: 129–30). There has been a high degree of employer resistance to union organization, especially at enterprise level, and very few sectoral trade union agreements exist. Here we look at the trade union side, but it is worth stating that the majority of smaller enterprises, major foreign multinationals and many of the larger companies in the Baltics play little or no part in the affairs of employers’ confederations. Likewise, the weakness of trade unions as representative organizations of working people is evident in all of the Baltic countries, a weakness that is matched by that of the employers’ organizations. The current weakness of the Baltic trade unions has three dimensions. First, trade unions represent a very small fraction of employees, and the decline of union membership that started with transformation process has steadily continued. Second, the low levels of membership do not permit the servicing of a large union apparatus, which could be effective in representing employees, on the one hand, and enable competent social partner participation on wide array of policy and employment issues, on the other. Third, the fragmented structure of union representation, a ‘post-Soviet legacy’, with confederations splintered between rival organizations, especially in Estonia and Lithuania, further depletes the already limited organizational and financial resources. Such trade union strength as exists is often residual in nature and is mainly concentrated in the public sector, with most private sector employers remaining hostile to union representation in their workplaces, although some small advances have been made in recent years, for example, the unionization of the supermarket sector in Lithuania. In the public sector, a few sections of the workforce have become better organized, for example, police officers. But these cases apart, the overall level of union density, as elsewhere in Eastern Europe, has continued to decline over the two decades since independence across the Baltic states. Reported data indicate trade union density in all other new member states (NMS) exceeds that of the three Baltic countries (Van Gyes et al., 2007). The major union confederation in Estonia is the Estonian Trade Union Confederation (Eesti Ametiühingute Keskliit – EAKL). It comprises 19 branch unions. The other confederation is the Estonian Employees’ Unions’ Confederation (Teenistujate Ametiliitude Organisatsioon – TALO) comprising nine branch unions. EAKL is the confederation which is more active and its voice is more prominent in policy-making. In terms of claimed membership, EAKL has 43,000 while TALO has 3,000 together representing 7.7 per cent of employment in 2009. The Lithuanian Trade Union Confederation (LPSK) is the largest trade union organization. Its membership is organized on a

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branch/sectoral basis and it currently has 26 affiliated branch trade unions (an approximate membership of 120,000 persons). A second confederation, LPS ‘Solidarumas’ unites basic trade union organizations at enterprise level, grouped in county, city/town and regional territorial bodies and federations (it currently has 24 affiliated territorial unions and 12 federations). A Christian-based trade union confederation, the Lithuanian Labour Federation, (LDF), also exists with some limited enterprise agreements. LPSK claims to have 80,000 members, while LDF has 20,000 and LPS ‘Solidarumas’ no more than 8000. In total, therefore, there are three separate trade union confederations representing 7.6 per cent of employed people in 2009. In Latvia, where there is in contrast to the other Baltic states a single unified confederation, the Latvian Confederation of Trade Unions (LBAS) re-emerged in the post-Soviet era, managing to retain a higher level of membership in consequence, although it too has suffered sharp declines in recent years. Today, LBAS claims to represent 134,000 members, around 14 per cent of the employed in fourth quarter of 2009 of 932.6 thousand. It has collective agreements in a number of industries, especially in the public sector where the education trade unions have been the strongest organized section of the labour force. Given the relative absence of effective bipartite social dialogue, the question of the ‘compensatory’ role of state-sponsored tripartism in the ‘dialogue deficit’ emerges. Tripartite social dialogue has been coordinated by governments, which have acted as the prime movers in setting national agendas (Mailand and Due, 2004: 184). However, even though tripartite social dialogue between the key parties has been present in all three Baltic countries, it has often been no more than an empty shell with little substantive content (Jensen, 2003). For example, in Estonia the tripartite socio-economic council on state level has never achieved real influence in directing policies, or in discussing their detailed content, and in recent years has had no meetings at all. Despite these difficulties, there had been some progress in developing social dialogue at the national level. In Estonia, there was agreement on the general principle of consultations over social and labour regulations with social partners before major changes were introduced. Regular yearly negotiations were held on minimum wages and, from time-to-time, agreements on other issues were concluded. In the first half of 2008, the Estonian government, employers and employees reached agreement on the new labour law. The old law, created in the beginning of the 1990s, was seen as outdated. These tripartite discussions were heated, however compromises were made and a consensus was reached as to the way forward in a new labour law that carried with it the idea of some form of ‘flexicurity’. The resultant compromise, from one side, included relaxing the notification periods and reducing redundancy payments, while increases of unemployment insurance payments, as well as wider eligibility for unemployment insurance, were agreed on the other. However, this compromise was reached before the

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crisis emerged and as events unfolded, it was to prove a double-edged sword for the trade unions.

4. Baltic trade union demands in response to crisis measures Faced with the tsunami of the crisis, that struck the Baltics with full force in the latter half of 2008, the traditional tripartite consultative processes were simply swept aside as likely to impose ‘unacceptable delays’. In Lithuania, the new government’s anti-crisis measures were hastily devised and unilaterally pushed through in day and night sessions during December 2008, in order to be in place before 1 January 2009, the date of the new taxation year. These were to be implemented over the succeeding months. The trade unions had, over a period of 3 previous months, repeatedly requested the continuation of the social dialogue established with the previous administrations. Their successive letters and entreaties over proposed fiscal measures had received no response. For Lithuanian trade unions, this absence of dialogue, the non-recognition of the legitimacy of their voice in this time of national crisis, became unacceptable and a direct threat to maintaining their credibility as a representational channel for organized employees. For almost the first time in the post-independence period, the notoriously fractious Lithuanian trade union confederations publicly united around a common set of demands and called for a popular demonstration in the form of a warning strike in late January 2009. The protest demonstration in Vilnius on 16 January 2009 took place 1 week after a similar demonstration in Latvia in which the trade unions had also participated. This too had ended in social disorder and riot – the first such occurrences of social unrest in the new EU member states since the onset of the crisis, and a major surprise to the governing elites. In response to government austerity measures, the trade unions in each Baltic state attempted to formulate a coherent set of alternative policy responses. Their demands were a clear reflection of the problems facing working people as a result of the onset of the crisis. Predictably, such demands were of a defensive rather than ‘revolutionary’ nature, designed to mitigate the impacts of the crisis. These were precisely the kinds of issues that the trade unions had come to expect to be consulted on as part of routine discussions within the framework of the established processes of social dialogue. The demands of the Lithuanian trade unions included: a guarantee of social benefits for the unemployed; protection of low and middle earners from pay for health and education services; reduction of social inequalities through progressive taxes; the introduction of a property tax; an indexation system of minimum wages and social guarantees; guarantees for social benefits and pensions, and the halting of transfer of funds to private insurance from the state social insurance fund; an obligation on employers to provide authorities with specific reasons for redundancies and imposed salary cuts;

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an end to liberalization of labour relations, and for stronger state control of breaches of labour law; government obligations towards state employees’ salaries to be maintained; energy pricing to be transparent in view of impending increases; reduction of VAT to previous levels on key goods and services; an end to privatization of strategic national resources; the introduction of measures to protect families from eviction for credit defaults; and all social and economic questions to be discussed on the Tripartite Council (emphasis added). Trade unions in Estonia, as in Lithuania, did not endorse government policy responses to the crisis. The government abrogated the tripartite agreement on the new labour law reached in 2008 as simply not feasible anymore. Promises to widen the eligibility criteria and levels of unemployment insurance payments were abandoned. This step, taken unilaterally, simply overrode the social dialogue process. In so doing, the government breached the tripartite principles in place since 2003, requiring that all policies in the field of employment are subject to consultation with the various confederations of social partners. In response, trade union efforts were targeted towards influencing the government to withdraw proposed reductions of unemployment insurance and to consultation with the social partners before pursuing further changes. First, the unions demanded that the government postpone enactment of the new labour law until a more stable economic environment emerged, since the concessions granted on redundancy provisions now became a hostage to current ill-fortunes. Thereafter, the unions held bipartite negotiations with the Employers’ Confederation, but no agreement was reached on a joint approach. Their suggestions, like their union counterparts elsewhere in Europe, were mainly concentrated on increasing state revenues and enhancing the purchasing power of population as a way out of the crisis (EAKL, 18 February 2009). Their key demands were that all future changes concerning social protection should be made in tripartite dialogue (EAKL, 16 February 2009). The specific trade union demands included: an increase in basic tax-free exemption to equalize levels with the minimum wage (from current ¤143 to ¤278 per month); extension of tax obligations to dividends; a new unemployment insurance scheme that would pay unemployment insurance instead of wages in cases where a company faced severe economic hardship; the creation of green jobs and of personal services needed by an ageing population; postponement of the enactment of the previously agreed employment contract law to 2011, instead of July 2009; no increase in employees’ unemployment insurance tax; and an end to decreases in financing for the health services, on the grounds that reductions in financing might lead to major exit of Estonian health care professionals and negatively impact the health of population. As further crisis measures were enacted by the government, preparations for protest actions, including picket and strike action, began. The strike, targeted against the government and therefore political in nature,

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was organized by four unions from 15 companies on 16 June 2009. This action was also supported by Lithuanian unions in a display of crossborder solidarity with a picket in front of Estonian embassy in Vilnius. The Estonian trade union demands in 2009 were ignored by the government, and by the spring 2010 the impetus for continuing tripartite social dialogue had largely evaporated. The trade unions continued trying to influence decisions of government independently, and at the beginning of 2010, the transport sector unions launched a campaign to collect signatures against a planned increase in the pension age. Even so, the intrinsic weakness of Estonian trade unions meant that their voice could safely be disregarded. In Latvia, the processes of social dialogue fared almost equally as badly. Trade unions found themselves shut out of governmental deliberations with the IMF (Baltic Course, 2009a). This was by no means the first time their voice had been ignored. In response to the perceived refusal of government to consult social partners as the economy began to show signs of instability and overheating, exacerbated by government complacency, the Free Trade Union Confederation of Latvia (LBAS) organized a mass signature campaign that would have allowed early recall of parliament in 2007–08 (Eironline, 2008). The subsequent national referendum took place 2 August 2008, but only 40 per cent voted in favour of the amendments, in the event below the majority threshold required to change the constitution. Nevertheless, in taking the lead role in the collection of 250,000 signatures, an incredible achievement in the Latvian context, the trade unions had gained unprecedented credibility as responsible civil society actors in a time of gathering crisis. Once again, trade union demands were dictated by the severity of the new crisis. The position of LBAS was that ‘as a social partner’ it realized ‘that state budget cuts are necessary measures to receive the international loan’. In 2009, drastic budget amendments were adopted by parliament to decrease budget deficit by 500 million lats, with the prospect of further cuts of 500 million lats to follow in 2010 and again in 2011. Under the banner of ‘For Latvia. Against Injustice’, demonstrations, this time entirely peaceful, were held in Riga and other major towns on 18 June to protest the government’s measures (BASTUN, 2009a). The demands of the trade unions were, inter alia: to cancel state budget amendments; to maintain pensions, education, health care, culture and security; to halt unjustified increases of mandatory social insurance payments for workers; to revise budget amendments for 2009 without any cuts in salaries; to ensure complete social partners’ participation in discussions on the state budget for 2010; not to decrease minimum salaries; to ensure all people of Latvia in the autumn/winter period 2009–10 had basic services at home (heating, gas, electricity, water, etc.) and to guarantee stable tariffs; to elaborate a special Anti-Crisis Law together with social partners; and to make

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the National Tripartite Cooperation Council become a real aid for the government respecting its adopted decisions and opinions (emphasis added). LBAS also addressed its demands to the European Commission to provide Latvia with ‘urgent assistance’ and concluded by threatening to inform the president of the European Commission, Josè Manuel Barroso, and the general secretary of the European Trade Union Confederation (ETUC), John Monks, of the ‘anti-constitutional actions’ of the government and parliament regarding ‘unjustified decrease of social guarantees and wages for a great number of people’, increasing thereby ‘social tension and distrust to[wards] institutions of state administration’. However, what was striking by contrast to their leading role in the 2007–08 referendum campaign was the relative failure of the trade unions to focus the widespread popular discontent with government policies. By spring of 2010 the leader of the governing coalition in the Latvian parliament was ready to re-incorporate the trade unions in discussions, calling for the immediate signing of a public agreement between the social partners with a 10-year duration, to be binding on successor governments (Baltic Course, 2009b). It was an overture that the trade unions seemed predisposed to accept, after their enforced period of exclusion from public policy debate.

5. From crisis to compromise: the partial reinstatement of neo-corporatism It is not possible to say whether the approaches favoured by trade unions would have led to different/better outcomes and faster recovery from crisis than those taken by the various national governments. However, it is clear that the approaches chosen by governments differed markedly from the proposals of the trade unions, and that the changes introduced were not discussed with the social partners. Indeed, in at least Latvia and Lithuania, sections of the employers and small businesses in particular, felt equally as excluded from the process of social dialogue consultation, particularly over measures such as VAT increases, that were seen to undermine business interests. An inclusive social dialogue manifestly did not function as the Baltic governments elaborated their crisis response measures. For almost the first time in the post-independence period, the Baltic trade union confederations were faced with the reality of their disposability, by the summary rejection of their ‘voice’ in the ongoing crisis. As the crisis has unfolded, sporadic but increasingly muted social protests, led by organized workers mainly in the public sector, or by particularly hard-hit groups such as pensioners, students and others, took place. These remained largely disconnected from each other. For example, in Latvia, the trade unions did not link up with protests by local communities over hospital closures, farmers over diesel fuel tax increases, and students against cuts in the education budget. Indeed, a broader popular social movement that

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would have forced changes in government policy failed to emerge in any of the Baltic states. At the same time, the authorities in Lithuania and Latvia took great care to heavily police all further demonstrations after the events of January 2009. In some cases, as in Lithuania, the law was applied either to prevent protest actions being held in the first place or to confine protests to out-of-the-way locales. By the autumn and winter of 2009–10, with the numbers of newly unemployed persons in the course of each week spiralling across the Baltics, the trade unions had largely lapsed into submission. Some figures perhaps convey the scale of the collapse of employment. In the third quarter of 2009, in comparison with the previous quarter of the year, the increase in unemployment amounted to a staggering 16.3 per cent in Latvia, 10.7 per cent in Estonia and 7.5 per cent in Lithuania, compared with an average increase for the EU27 of 2 per cent. Only Ireland and Spain matched these levels (Eurostat, 2009c). Compared to the first quarter of 2008, when unemployment bottomed out in the EU, by the third quarter of 2009, unemployment had more than tripled in Estonia and Lithuania, and nearly tripled in Latvia (Eurostat, 2010b). These figures would certainly have been higher but for the accelerated ‘second surge’ of outwards migration (with over a third of those polled in Lithuania and Latvia expressing a desire to emigrate). In 2009, the total of those officially who ‘declared their departure’ from Lithuania (by official estimates more than half do not declare) was recorded as 21,970 which can be compared to the post-accession peak migration in 2005 of 15,571, an increase of over 40 per cent (Statistics Lithuania, 2010a). Over two-thirds of these migrants departed to other EU member states, with Britain, Ireland and Spain being the favoured destinations. Since the latter two, in particular, were faced with severe unemployment and recession, the choices perhaps reflect some measure of the desperation of those leaving. In terms of the attendant social consequences, the European Commission noted that while all EU countries had been hit by the global crisis: . . . in some countries situations of hardship are more widespread, and some populations are likely to be more severely affected by the economic downturn than others. In Slovakia, Hungary, Lithuania, Poland and Latvia, more than one third of the population see their living conditions severely affected by a lack of resources. (European Commission, 2009: 19 emphasis added) Some indication of the growing extent of hardship was revealed in data on private consumption expenditures. Compared with the same quarter of the previous year, in the third quarter of 2009 Latvia registered a 27.9 per cent reduction in consumption expenditure, while for Lithuania the figure was 16.5 per cent and for Estonia 15.7 per cent, again the worst performers in

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the EU (Eurostat, 2009d). Those hardest hit were the unemployed. In Lithuania, for example, for unemployed persons, the maximum rate of unemployment benefit of 1041 litas (¤301.5) per month was payable for first 3 months only, after which period, the level of support progressively declined. However, as a result of wage cuts, even those still in employment faced extreme difficulties. For the third quarter of 2009, the most dramatic annual decreases in the EU in nominal hourly labour costs, compared with the same quarter the previous year, were observed in Lithuania (–10.9 per cent), Estonia (–4.3 per cent) and Latvia (–2.7 per cent), with the only other EU member state recording a decrease being the Netherlands (–0.8 per cent) (Eurostat, 2009d). In Latvia, compared to the fourth quarter of 2008, monthly average gross wages and salaries in the public sector diminished by 23.7 per cent during a 12-month period, of which those in the general government sector decreased by 28.4 per cent. In the private sector, gross wages reduced by 5.0 per cent (Latvijas Statistika, 2010). Average gross monthly earnings in Lithuania, comparing fourth quarter 2009 against fourth quarter 2008, decreased in the whole economy by 8.7 per cent, in the public sector by 10.4 per cent, and in the private sector by 8 per cent. Among the largest wage decreases observed were those in construction (20.8 per cent) and public administration (18.1 per cent) (Statistics Lithuania, 2010b). In Estonia, fourth quarter 2009 average monthly gross wages were 6.5 per cent lower than for the same quarter the previous year (Statistics Estonia, 2010b). The economic downturn has, therefore, increased poverty risks at a mass level. The share of people at the end of 2009 who found it difficult to manage with the resources that they had had grown in Estonia to 60 per cent of the population. A year before, only 40 per cent reported difficulties (Statistical Office of Estonia, press release 26 February 2010). The front page of the leading right-wing newspaper in Lithuania captioned a report on the ‘ghost of hunger’ (Respublika, 2009). A World Bank report noted that the estimated number of people below the official poverty line of 350 litas (¤101) per month in Lithuania could increase to 49 per cent of the total population (Baltic Course, 2009c). Faced with this growth of unemployment and deterioration of living standards, in Lithuania the three trade union confederations endorsed a renewed social pact with government and employers, ostensibly offering to protect living standards in the crisis, but in fact endorsing wage reductions and benefit cuts (Nacionalinis susitarimas, 2009). As Prime Minister Kubilius commented: ‘You have to have a dialogue with your social partners, and you have to do the most difficult cuts as quickly as possible.’ For the trade unions his message was stark: ‘I told them this is history. You need to decide now how you want to be described in our history books’ (Thomas,

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2010). In Latvia, the trade union in the education sector, the most powerful in LBAS, also agreed to suspend further industrial protests in exchange for a promise to protect teachers’ jobs. By the year’s end, the Latvian trade unions could do little more than mount a symbolic picket outside parliament as the draft budget was being discussed with even more draconian cuts in train. In Estonia, however, trade unions remained firmly excluded as an irrelevancy in the elaboration of the national policy agenda.

Conclusion The onset of the crisis in the Baltic states has had particularly negative consequences for existing structures of social dialogue. Yet the future of European social dialogue is equally uncertain, having been tested and found wanting across a number of EU countries, some of which, like Ireland, had previously promoted social partnership as the key to its economic success (Roche, 2007). This is all the more worrisome given the impact on mass living standards, perhaps the most damaging aspect of the crisis from a trade union point of view and, potentially at least, a situation that might have offered opportunities for trade union renewal. From the point of view of governments, where trade unions were still capable of making their presence felt, as in Latvia and Lithuania, they could not be seen to simply disregard the previous tripartite set-ups, especially if they wanted the agreement of the trade unions to secure social peace in a long-term economic downturn. The national agreement in Lithuania, for example, represented a revived semblance of neo-corporatism that also had certain advantages for the trade unions. It at least offered the appearance that they had some role in protecting workers from the draconian cuts imposed by government. A similar compromise, reinstating neo-corporatist solutions, at least in part, appeared to be reached in Latvia, although not in Estonia. The desire by trade unions to seek renewed compromise was also a recognition that social dialogue of some sort appeared to be the only avenue open to them. Under the auspices of the Baltic Sea Trade Union Network (BASTUN) – a permanent network of national trade union confederations – the Baltic unions continued to meet and discuss common strategy throughout 2009, continuing into 2010. The promotion of social dialogue was one of its cornerstones; as BASTUN put it: ‘The trade union movement is willing to take responsibility for recovery measures if they can get something back’ (BASTUN, 2009b). Regardless of the pace of global economic recovery, the likelihood is that the Baltic economies will not return to positive growth before 2011 at the earliest, and possibly not before 2012. Even then, such growth would not be to the previous levels (European Commission, 2009: 86). The IMF World Economic Outlook for 2010 was especially cautious about the prospects

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for recovery in the Baltic region and in several other Eastern European economies: Economies that faced the crisis with unsustainable domestic booms that had fuelled excessively large current account deficits (Bulgaria, Latvia, Lithuania) and those with vulnerable private or public sector balance sheets (Hungary, Romania, Baltics) are expected to recover more slowly. (IMF, 2010: 55) Immediately, and for the foreseeable future in terms of general living standards, unemployment is likely to remain high and wage rates depressed. Moreover, those still in employment will be increasingly ‘unprotected’, pressured to accept lower labour standards in terms of working conditions and the imposition of undeclared ‘envelope’ wage payments in a potentially mushrooming ‘shadow economy’. Avoidance of tax and social insurance contributions will further erode access to welfare provisions and unemployment benefits, not to mention deplete fiscal resources. Baltic representatives of organized labour, having failed to mobilize a sustained broader movement of opposition to government crisis-measures, now faced their own particular crisis of credibility at least matching that of capital. The partial reinstatement of tripartite neo-corporatist forms of social dialogue seems unlikely to resolve the problem of representational credibility, even in the longer term. The most probable future prospect, therefore, is the further erosion of the fabric of the post-communist social and political compact, which had embraced the representatives of organized labour, albeit on terms largely dictated by governments, as active partners in a wider conversation about the agreed path of transition to the market.

References Aidukaite, J. ‘Transformation of welfare systems in the Baltic States: Estonia, Latvia and Lithunia’, in Alfio Cerami and Pieter Vanhuysse (eds), Post-Communist Welfare Pathways: Theorizing Social Policy Transformations in CEE, Basingstoke: Palgrave Macmillan, 2009. Baltic Course (2009a). ‘Krigers: Latvian government hasn’t discussed conditions of loan with social partners again’, 20 January. Available online at: http://www. baltic-course.com/eng/markets_and_companies/?doc=8907&underline=Krigers. Baltic Course (2009b). ‘Andris Skele proposes public agreement to improve economic situation in Latvia’, 12 March. Available online at: http://www.baltic-course.com/ eng/analytics/?doc=24643&underline=social+partners. Baltic Course (2009c). ‘World Bank: Lithuania faces euro criteria hurdles, Danuta Paviliene’, 12 August. Available online at: http://www.baltic-course.com/eng/ finances/?doc=16919. BASTUN (Baltic Sea Trade Union Network) (2009a). ‘Manifestation: For Latvia. Against Injustice’. People of Latvia against political cowardice. Available online

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at: http://www.bastun.nu//index.php?option=com_content&task=view&id=122& Itemid=199. BASTUN (Baltic Sea Trade Union Network) (2009b). ‘Road to Recovery’, Trade Union High Level Meeting, Vilnius, 26 November. Available online at: http://www.bastun. nu/index.php?option=com_content&task=view&id=136&Itemid=134. Bohle, D. and Greskovits, B. ‘Neoliberalism, embedded neoliberalism and neocorporatism: Towards transnational capitalism in Central-Eastern Europe’, West European Politics, 2007, 30(3): 443–466. Casale, G. (ed.) Social Dialogue in Central and Eastern Europe Budapest: International Labour Office, 1999. Delfi (2009). ‘Lietuvos provincija jau pajuto bada?’ ˛ Available online at: http://www. delfi.lt/news/daily/lithuania/article.php?id=23422422. EAKL (2009). Available online at: http://www.eakl.ee/. Economist (2009a). ‘No panic, just gloom’. Available online at: http://www.economist. com/world/europe/displayStory.cfm?story_id=13650051. Economist (2009b). ‘Briefing, Ex-communist economies, The whiff of contagion’. Available online at: http://www.economist.com/world/europe/displaystory.cfm? story_id=13184594. Eironline (2008). ‘Trade unions win support for referendum on people’s right to dissolve parliament’. Dublin: European Foundation for the Improvement of Living and Working Conditions. Available online at: http://www.eurofound.europa.eu/ eiro/2008/06/articles/lv0806039i.htm. European Central Bank (2009). ‘Opinion of the European Central Bank of 20 July 2009 on the procedure to change the official Litas exchange rate’ (CON/2009/61). Available online at: http://www.ecb.int/ecb/legal/pdf/en_con_2009_61_lt_credibility_of_ the_litas.pdf. European Commission (2000). 2000 Regular Report on Lithuania’s Progress Towards Accession, chapter 13 (Brussels) 62–23. Available online at: http://ec.europa.eu/ enlargement/archives/pdf/key_documents/2000/lt_en.pdf. European Commission (2004). ‘Communication from the Commission, Partnership for change in an enlarged Europe – Enhancing the contribution of European social dialogue’, Brussels, 12 August, COM (2004) 557 final, Available online at: http:// eurlex.europa.eu/smartapi/cgi/sga_doc?smartapi!celexplus!prod!DocNumber& lg=en&type_doc=COMfinal&an_doc=2004&nu_doc=557. European Commission (2009). ‘Economic Forecast Spring 2009’. Brussels: DirectorateGeneral for Economic and Financial Affairs. Available online at: http://ec.europa. eu/economy_finance/publications/publication15048_en.pdf. Eurostat, Newsrelease, euroindicators (2009a). Available online at: http://epp.eurostat. ec.europa.eu/cache/ITY_PUBLIC/4-24082009-AP/EN/4-24082009-AP-EN.PDF. Eurostat, Newsrelease, euroindicators (2009b). Available online at: http://epp.eurostat. ec.europa.eu/cache/ITY_PUBLIC/3-31072009-BP/EN/3-31072009-BP-EN.PDF. Eurostat, Principal European Economic Indicators (2009c). Employment – Percentage change q/q-4 (NSA) Percentage changes. Available online at: http://epp.eurostat.ec. europa.eu/tgm/table.do?tab=table&plugin=1&language=en&pcode=teina300. Eurostat, Principal European Economic Indicators (2009d). Private final consumption expenditure, volumes. Percentage change q/q-4. Available online on: http://epp.eurostat.ec.europa.eu/tgm/refreshTableAction.do;jsessionid=9ea7971b 30df390b88b70416418e95d989cbbbbbba87.e34RaNaLaN0Mc40LcheTaxiLbxyLe0? tab=table&plugin=1&pcode=teina021&language=en.

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Eurostat, Newsrelease, euroindicators (2009e) Available online at: http://epp.eurostat. ec.europa.eu/cache/ITY_PUBLIC/3-15122009-AP/EN/3-15122009-AP-EN.PDF. Eurostat (2010a) 26 February 2010, Real GDP growth compared to the previous year, authors’ calculations. Eurostat, First estimates for the fourth quarter of 2009, euroindicators (2010b) 34/2010, 4 March. Available online at: http://epp.eurostat.ec.europa.eu/cache/ITY_ PUBLIC/2-04032010-AP/EN/2-04032010-AP-EN.PDF. Eurostat, Labour markets in the EU-27 still in crisis, Statistics in Focus (2010c) 12/2010. Available online at: http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-SF-10012/EN/KS-SF-10-012-EN.PDF. Eurostat (2010c) 26 February 2010, authors’ calculations. Available online at: http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=1& language=en&pcode=tsieb020. IMF (International Monetary Fund) (2010) World Economic Outlook – Rebalancing Growth April 2010. Washington DC: International Monetary Fund (2010), Available online at: http://www.imf.org/external/pubs/ft/weo/2010/01/pdf/text.pdf. Jensen, S. ‘Baltic Corporatist Arrangements – A Comparative Analysis of Tripartite Arrangements in Estonia, Latvia and Lithuania’, MA Thesis, University of Bergen (2003). Latvijas Statistika (2010) ‘On changes of wages and salaries in 2009 and 4th quarter of 2009’, 2 March. Available online at: http://www.csb.gov.lv/csp/events/csp/events/? mode=arh&period=03.2010&cc_cat=471&id=11941. Mailand, M. and Due, J. ‘Social Dialogue in Central and Eastern Europe: Present State and Future Development’, European Journal of Industrial Relations, 2004, 10(2): 179–197. Nacionalinis susitarimas (2009) 28 October. Available online at: http://www.lps.lt/usr_ img/susitarimas_pasirasytas.pdf. Ost, D. ‘Illusory Corporatism in Eastern Europe: Neoliberal Tripartism and Postcommunist Class Identities’, Politics & Society, 2000, 28(4): 503–530. Ost, D. The consequences of post-communism: Trade unions in Eastern Europe’s future’, East European Politics and Societies, 2009, 23: 13–33. Respublika (2009) ‘The ghost of hunger is stalking about’. 8 August 2009, 1. Roche, W.K. ‘Social Partnership in Ireland and New Social Pacts’, Industrial Relations: A Journal of Economy and Society, 2007, 46(3): 395–425. Statistics Estonia (2010a) Online database (8 March). Available online at: http://www. stat.ee/37812. Statistics Estonia (2010b) Most requested statistics (16 March). Available online at: http://www.stat.ee/37812. Statistics Lithuania (2010a) International Migration. Available online at: http:// db1.stat.gov.lt/statbank/selectvarval/saveselections.asp?MainTable=M3020102&P Language=1&TableStyle=&Buttons=&PXSId=6282&IQY=&TC=&ST=ST&rvar0=& rvar1=&rvar2=&rvar3=&rvar4=&rvar5=&rvar6=&rvar7=&rvar8=&rvar9=&rvar 10=&rvar11=&rvar12=&rvar13=&rvar14=. Statistics Lithuania (2010b) Earnings, IV Quarter 2009, press release no. 1/026, 24 February. Available online at: http://www.stat.gov.lt/uploads/docs/Press_release_ 1.pdf. Thomas, L. Jr. ‘From Lithuania, a View of Austerity’s Costs’, New York Times, 1 April, Business supplement (2010). Vatta A. ‘The Enlargement of the European Union and Social Dialogue in Central and Eastern Europe’, Perspectives on European Politics and Society, 2001, 2(1): 127–146.

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Van Gyes, G., Kohl, H., Lehndorff, S., Schief, S., and Vandenbrande, T. (2007) Industrial relations in EU member states 2000–2004. Synthesis report for the European Foundation, Dublin: European Foundation for the Improvement of Living and Working Conditions. Available online at: http://www.eurofound.europa.eu/ pubdocs/2007/15/en/1/ef0715en.pdf. Woolfson, C. and Beck, M. ‘Re-mapping Labour’s Rights: The Case of Transitional Lithuania’, Europe-Asia Studies, 2002, 54(5): 749–769. World Bank. Doing Business in 2006: Eastern European and Baltic Nations Encourage Businesses with Aggressive Regulatory Reforms. Press Release, 12 September, Washington, DC: World Bank, 2005.

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Part IV European Social Integration, MNCs and Change

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12 Internationalizing Firms and Employee Representation: French Multinationals in Central and Eastern Europe Sylvie Contrepois

Employee representation is becoming increasingly integrated into company internationalization strategies, especially where the mother company is based within the European Union. This tendency shows itself principally in the development of European Works Councils (EWCs) and more widely through the multiplication of international framework agreements (IFAs). The spread of these new tools, however, remains limited and their achievements uncertain. Thus the European Trade Union Confederation (ETUC, 2009) found that only 34 per cent of companies covered by the EWC Directive 94/45/CE adopted on 22 September 1994 had set up an EWC.1 Its report comments: ‘Although the number of EWCs is growing every year, doubling since 1996, the rate of progress is too slow, and constitutes a major challenge for the development of European information and consultation procedures. At present, there are few if any penalties for companies that defy the directive.’ In a review of its own research on EWCs since 1994, the European Foundation for the Improvement of Living and Working Conditions (2007) noted ‘a considerable diversity of practice among EWCs, ranging from “symbolic” EWCs whose role is limited to annual meetings, to more “proactive” EWCs, which maintain regular liaison with management or even engage in negotiating agreements or joint texts with management’. More generally, however, the review considered that ‘employee representatives appear to see EWCs as having little influence on general management practices or on transnational business practices. The majority of EWC committees were informed after the event that business decisions were being taken, leaving little scope for consultation. Management tends to seek the involvement of the EWC in implementing the decision and ensuring that the decision is accepted.’ 201

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The situation is equally mixed in relation to IFAs. Bourque (2005) observed that nearly two-thirds of the existing 32 IFAs had only been signed by Global Union Federations (GUFs) and multinational companies (MNCs) since 2002, ‘reflecting both their recent appearance and the growing importance of this area within the GUFs’. Most of these IFAs were signed by MNCs headquartered in Europe. Bourque reports that the main weaknesses of the IFAs mentioned by the union federations interviewed were that they were not respected by subcontractors or suppliers; that while monitoring the application of the agreements by the unions was written in, few means were made available to them to do so; and that there were no sanctions in the event of the agreement being violated by the MNC or its business partners. Two sets of questions arise here. The first concerns the factors that are more or less important for the success and effectiveness of these new forms of international regulation in terms of representing employee interests. As far as the EWCs are concerned, the European Foundation (2007) identified four: the business strategy and structure of the company; the national industrial relations practices in the company’s home country; the resources the EWC has at its disposal; and the degree of cohesion between employee representatives in the headquarters and in the subsidiary. Could some of these factors be more significant than others? Or could other factors, such as sector norms or greater or lesser trade union influence within the companies or workplaces, also play a role? A second area of questions relates to the ways in which these new institutions play a training role in developing national industrial relations systems. Thus their appearance is often presented as a way of guaranteeing the maintenance of labour standards in the face of the risks to employee rights from ‘social dumping’. But how far and under what conditions can these new international institutions actually help ensure upwards harmonization of workers’ rights, and in particular their rights to employee representation? We propose here to bring out some reflections on these questions on the basis of research funded by the research department of the French Ministry of Labour and conducted within French multinationals and their CEE subsidiaries. This research aimed at assessing the extent to which the French MNCs transferred their employment relations systems to their CEE subsidiaries. Two projects were selected by the Ministry of Labour. Ours focussed on companies from the energy, retail distribution, banking and hotel sectors, with subsidiaries in Bulgaria, Hungary and Poland (Contrepois et al., 2009). The second project, conducted by Violaine Delteil and Patrick Dieuaide (2010), focussed on gas, automobile and food industry companies with subsidiaries in Hungary, Romania and Slovenia. Although the analysis proposed in this chapter is based on our own data, we also considered the results obtained by the Delteil–Dieuaide team.

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The fieldwork took place within the mother companies in France and in subsidiaries in Bulgaria, Hungary and Poland. The case studies are particularly illuminating in terms of understanding the internationalizing dynamic of industrial relations. In the MNCs that we studied, we observed the presence of two different types of process as regards the internationalization of industrial relations. One consisted of systematically treating each subsidiary as a separate compartment. This was essentially what we saw in the bank sector, in retailing and in hotels. The other, on the contrary, involved the development of international procedures for human resource management and industrial relations. Our observations here came from the energy and insurance sectors. In the first section of this chapter we present the research sample. In the second, we discuss the reasons why the MNCs prioritized one or other of these processes. This will show the determining role of the company’s industrial relations strategy. In the third section we will focus on the impact that these two processes have had on the nature of industrial relations in the subsidiaries in host countries. The impacts here vary according to the industrial relations strategy adopted by the mother company.

1. Research design The French MNCs have a common point of reference in the French employment relations system or ‘social model’. The system is structured around a number of principles that can be summarized in terms of three main elements. The first is the presence of organizational pluralism and weak worker and employer organizations. The second is the presence of a dual representative system within companies (having both directly elected employee representatives and trade union representatives). The third is the concept of a public regulatory framework, which lays out a hierarchy of rule-making over employment conditions in which legal enactment takes precedence over collective agreements. This model is, obviously, applied variously in different company and sector settings. The three countries researched, Bulgaria, Poland and Hungary, have a common communist past as well as transition towards the market economy and their recent affiliation to the EU. From the early 1990s, all three introduced labour law that included tripartite national fora, and they all now have dual representation systems (since EU accession in Bulgaria and Poland). As in other countries in the region, the unions have become quite weak. By the mid-2000s, trade union density had fallen to 20 per cent in Bulgaria, 17 per cent in Hungary and 16 per cent in Poland. There was little collective bargaining, whether at company or (even less so) sector level, despite a strong trend towards decentralization. As a result only 36–38 per cent of workers were covered by a collective agreement in Bulgaria compared to 33 per cent

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in Hungary. In Poland, roughly 30 per cent were covered by a company-level agreement and just 10 per cent by a sector agreement. The research was undertaken between December 2005 and November 2008 in collaboration with researchers based in Bulgaria, Hungary and Poland. We combined an examination of secondary sources and of existing literature with qualitative research methods. Two waves of interviews separated by a period of several months took place in France and the three host countries, allowing us to follow changes as they took place. In total we undertook 123 interviews with MNC mother and subsidiary managers and employee representatives, as well as with several experts from employers’ organizations, trade unions and from the French embassies. These interviews were conducted in the national languages, or in French or English, according to the languages skills of the interviewee; the author of this chapter participated in most of these. The eight French MNCs we researched were service sector firms based in four different sectors: energy production and distribution, banking and insurance, hotels and retailing, as shown in Table 12.1. We focussed on the service sector because relatively little research has been undertaken in that sector despite its high economic growth rate and the role it now plays in economic development. Several of these MNCs are also global or European market leaders. All saw real opportunities with the opening up of CEE and most started to invest from the mid-1990s, although two had already indicated a small interest under the previous regimes: Accor first invested in Bulgaria in 1977 and Société Générale started operating in Poland in 1976.

Table 12.1

Retail chains

Eight French multinationals in three countries

MNC

Global scope

Bulgaria

Carrefour

400,000 employees in 30 countries

No presence Since 2008 Greenfield 2 hypermarkets 450–500 employees

Since 1997 Greenfield 10 hypermarkets 27,000 employees

Auchan

186,000 employees in 12 countries

No presence

Since 1998 Greenfield 40 stores, 4–5000 employees

Since 1996 Greenfield 22 hypermarkets 9000 employees

From 2000 Greenfield 10 stores 650 employees

No presence

No presence

Mr Bricolage 10,000 employees in D.I.Y. 9 countries specialist

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Hungary

Poland

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AXA insurance

100,500 employees in 50 countries

No presence

Since 1996 Brownfield 500 employees

Since 2006 Brownfield 700 employees

BNP-Paribas Banking

171,000 employees in 85 countries

Since 1995 Greenfield 1000 employees

Since 1991 Greenfield 570 employees

Since 1990 Greenfield 490 employees

Société Générale Banking

151,000 employees in 82 countries

From 1999 Greenfield then Brownfield 1100 employees

No presence today

From 1976 Greenfield 2500 employees

Hotels

Accor

135,000 employees in 40 countries

From 1977 Greenfield 1 hotel franchise 284 employees

Since 1993 Brownfield then Greenfield 20 hotels 1200 employees

Since 2000 Brownfield then Greenfield 61 hotels 2530 employees

Energy

EDF

158,640 employees in 26 countries

From 2000 Brownfield 250 employees

Since 1995 Brownfield 2168 employees

From1997 Brownfield 5057 employees

Finance

2. Two strategies for international industrial relations Two distinct processes were observed among our sample in terms of their international approaches to the management of industrial relations. The first led to a relative compartmentalization, with each subsidiary being encouraged to develop its own employment policies essentially from local conditions. The second approach was quite different. It appeared to aim to integrate all the MNC’s subsidiaries within a common employment relations framework, a process that included giving an important role to the EWC. 2.1. The compartmental approach The compartmental approach appeared most flagrant within MNCs that were the most reticent in providing their employee representatives with the means of functioning properly and of developing social dialogue. Consciously trying to keep the unions at bay, these companies did little or nothing to assist them maintain their presence or to help them enter the workplaces the MNC acquired or built from scratch. Each of the local managements was allowed considerable room in which to manoeuvre and act according to the host-country legal system and local practices. In these firms,

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no relationships were developed between the various workplaces, and the international representative institutions were treated in the most minimalist fashion. This strategy was most widespread in our sample, involving six out of the eight MNCs, although with nuances conditional on the different sectors to which the firms belonged. The six companies which adopted this strategy thus presented quite different industrial relations profiles in France and in the CEE. Banking, for example, is quite a strongly regulated sector in France (Dressen et al., 1997). The 14 per cent trade union density there in banks is much higher than the national average, and the bank unions have strong support among technical and managerial staff. The sector collective agreement and the laws emanating from bank nationalizations helped in many respects to underwrite stronger trade union rights than elsewhere. Thus in every French bank, each of the French trade union confederations is allowed to nominate a national trade union delegate who is salaried by the bank. At the outset of the 2000s, the creeping privatization of the banks and the rejection and then renegotiation of the 1937 Bank Collective Agreement have not fundamentally challenged these trade union rights. In CEE, in contrast, the bank sector in its present form actually represents a relatively new sector. In Hungary, finance sector unionization is very weak, while in Poland and Bulgaria it remains restricted to the existing or former national banks (in Bulgaria unions are only present in four banks), and is not present in the subsidiaries of either of the French banks. The hotel business is, in contrast, a sector characterized by a very young and feminized labour force with an exceptionally high turnover and the near total absence of an identity linked to occupational skills. In France, trade unionism is extremely weak in hotels. Only the largest hotels belonging to hotel chains create an opportunity for a trade union presence and have employee representation institutions. The main collective agreement covering hotels and restaurants reproduces the standards laid down in the national Labour Code. Trade union activity is underdeveloped. When it takes place, it aims at trying to ensure respect for labour law and often focusses on defending individuals in employment tribunals. In CEE, in contrast, the hotel sector used to be characterized by a stable and strong unionized labour force. Now, while sector trade union density remains significant in Poland and Hungary, it has to be noted that independent local trade unions have become very important. In Bulgaria, on the other hand, unionization is very weak and union members are divided between the two main confederations. The retail MNCs researched represent a sector that is relatively recent – only developing strongly from the 1960s in France – and where industrial relations are particularly contested. In France, the trade union presence is very weak and often highly dependent upon the employer. Several

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interviewees reported that retail managements at local- and company-level clearly encouraged the creation of ‘docile’ or ‘management-friendly’ trade unions with whom they felt they could dialogue, while simultaneously repressing competitor trade unions. The ‘chosen’ union organization was not necessarily the same within one company as another. Nonetheless, there did appear to be a general preference in favour of FO (Force Ouvrière), which largely dominates representative institutions within the sector. In CEE the situation is even more difficult as retail chains are very new. Despite the presence of retail trade unions covering commerce in all three countries, our interviewees systematically reported facing big problems in trying to create trade unions within the subsidiaries. Among the French MNCs operating a compartmental approach, the country-of-origin industrial relations profiles thus vary widely. However, when they invest in CEE, almost all of them take on an approach that is quite closed towards trade union organizations and the representation of employees. Outside the old state-owned hotels in Poland and Hungary, trade union density is usually very low indeed and reports of trade unionists being victimized are common. Employee representation often does not exist and, when it does, it is strictly controlled by management. Employee representatives, where they do exist, are usually nominated by the management rather than elected. In this context, plant-level negotiation is often non-existent and, where it takes place, only exceptionally can it refer to sector agreements, since these too rarely exist. Here we can note that these MNCs neither attempt to participate in sector social dialogue when it exists, nor try to encourage it when it does not. Further, where these firms are required by the letter of the law to create EWCs, it is with the aim of overcoming any restraints that the 1994 Directive might introduce. As a result, their EWCs appear largely to be there just for the record. They are given very few means to operate, meeting only once a year, and their meetings consist principally of the distribution of basic information rather than operating as real vehicles for information and consultation. Finally, and this is important, in some cases only unions recognized by the ETUC are permitted to become EWC members. This can exclude several subsidiaries in CEE where the workers are represented by non-ETUC affiliated unions. In these circumstances, trade unionism is very difficult to root within the subsidiaries and does not receive support either at the international level. Table 12.2 summarizes the principal industrial relations characteristics of the MNC subsidiaries where the parent company’s approach is to compartmentalize. The compartmental approach is close to the strategy of avoidance or evasion of social dialogue in relation to management attitudes to their EWCs that Delteil and Dieuaide (2010) identified as appearing in a small minority

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Table 12.2 Selected industrial relations features of MNC subsidiaries in Bulgaria, Hungary and Poland influenced by a compartmental approach Banking BNPParibas

Société Générale

Retail chains

Hotels

Carrefour

Auchan

Mr Bricolage

Accor

Trade unionism

No

Yes

Very weak

No

Yes

Employee representation structures

No

No

Controlled in Hungary

No

Yes

Firm level agreements

No

One (in Poland)

Without union in Hungary

No

Yes

Sector agreements

Not in Bulgaria or Poland Under negotiation in Hungary

European Works Council

Yes (delegates chosen by companies)

No

Yes

Yes (delegates chosen)

No

No

Yes (partial and recent)

of their sample of industrial companies. They note that the activity of these EWCs was almost non-existent, testifying to ‘a strong reticence to make use of these institutions so that they could avoid getting involved in social dialogue at the international level’. They also found that the MNCs they studied only implemented the obligations of the Directive in the most minimalist way in terms of information and consultation, and limited the resources needed to help the EWCs function properly. 2.2. The integrating approach In contrast, the process of integrating industrial relations at the international level was associated with MNCs that often had a strong trade union presence in France, and whose trade unions had previously established international contacts. It thus reflected an offensive strategy aimed at developing employee representation institutions at national and international levels, through which MNC management could then channel trade union views. As with the other MNCs, local managers of each subsidiary retained significant room to manoeuvre and develop human resource management and industrial relations principally based on host-country law and local practices. But at the same time significant material and logistical means were

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mobilized, with the aim of developing a social dialogue dynamic that could embrace employee representatives at all levels. In doing this, the object was to nip potential conflicts in the bud. From this perspective, the international approach was viewed as a way of sensitizing employee representatives to the constraints weighing on the management. The unions and representative institutions within these MNCs thus have significantly better rights and facilities than in the compartmentalized MNCs. The difference appears quite clearly within the EWCs, where the integrative MNCs have made considerable efforts to improve communication between representatives from their constituent countries. Two MNCs that we researched clearly fall within this strategy, AXA and the energy MNC, EDF. They are two very different companies. One is a giant insurance business, and the other is the major national public sector energy company. Although the first has always been in the private sector it has deliberately followed a strategy of embedding social dialogue into its employment relations. The second’s industrial relations system, in contrast, has been largely structured by its special status as a publicly owned company. The two MNCs also belong to two very different sectors. The French finance industry is one of the most strongly unionized within the whole tertiary sector, but its level of unionization is still significantly below that in the energy industry. There are also different union traditions within the two sectors in France, with finance having a strong presence of reforming unions. This difference is even sharper in CEE, where insurance appears as a new emerging industry. As a consequence, if trade unions are quite developed in the subsidiaries of the French energy MNC EDF in Poland and in Hungary, this is not at all the case in those of AXA. As a result, employee representation is quite different in the two cases: in the energy MNC the local subsidiaries are unionized within national sector unions, and have held on to most of the heritage rights from the pre-transition period; while in the insurance MNC the CE subsidiaries do not have a trade union presence and there is no legacy of rights. The two MNCs are compared in Table 12.3. What the two MNCs do share lies in their approach to the development of international arrangements and, primarily, of their EWCs. This has gone hand-in-hand with the internationalization of the businesses. Thus, as soon as the mother MNC acquired subsidiaries in CEE, the membership of the two EWCs was immediately extended to them. In the energy MNC, EDF, this enlargement occurred in 2001, 3 years before the EU accessions made it obligatory. Equally, the two EWCs have been given sizeable resources with which to function. The numbers of EWC representatives are high (55 delegates for AXA and 39 for EDF compared to around 20 for the other firms), two full meetings are held each year with simultaneous translations in all the

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Table 12.3 Selected industrial relations features of MNC subsidiaries in Bulgaria, Hungary and Poland influenced by an integration approach Insurance (AXA)

Energy (EDF)

Trade unionism

No

Yes (strong)

Employee representation structures

Being developed (non-union)

Present (union influence)

Firm-level agreements

No/very few

Yes

Sector agreements

No

Yes

European Works Council

Yes

Yes

Social Responsibility Agreement

Under consideration

Yes

relevant languages at each meeting, offices are provided for the EWC secretariat based in France, and additional funding is available to cover the EWC executive’s travel costs. In addition to the EWC, both companies have been involved in the negotiation of social responsibility agreements. This is only just beginning in AXA, but has been completed in EDF where both an agreement and a monitoring committee are in place. Besides the immediate objective – the laying down of a floor of norms applicable everywhere throughout the group – the negotiation process itself was an additional opportunity for the employee representatives from different countries to help strengthen the links between themselves. While the MNCs taking an integrative approach are a minority among our sample of service sector MNCs, they constituted a majority of the large industrial sector French MNCs studied by Delteil et al. (2009). They bring out this feature in discussing the transnational coordination of human resource management. They show how the EWCs are part of a clear policy of contractualization and play a key role in the production of rules and measures (charters, declarations, international agreements, expert and monitoring committees, etc.) closely aligned to global HR strategy. Delteil et al. (2009) further evoke other elements of an integration approach when they point to a strategy aiming at the ‘cultural integration of trade unionists’. In particular, they note that the EWC was ‘viewed by several of the managements we met as a location where the trade unionists could be “trained” to see the “economic realities” and management problems with the perspective of legitimating managerial choices’. This involved both going along with the trade unions so they directly understand the change process, but also trying ‘to open up the French social model’. This strategy of cultural integration of the trade unionists can, in this way, articulate with a political strategy aiming at marginalizing the influence of the

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French trade unionists. The authors observe that the integration of CEE subsidiaries within EWCs also involves a redistribution of EWC seats and can provide an opportunity to reduce the numbers of French trade unionists.

3. The impact of international industrial relations strategies on the trade unions An initial analysis of the impact on trade union activity resulting from the two different internationalizing approaches to industrial relations described above appears quite clear: the further into a compartmental approach and the more trade union influence within each workplace depends on local factors, then the more difficult it appears to be to develop an international trade union strategy. So in the MNCs characterized by compartmental approaches, the means given to the EWCs are tiny: fewer delegates, only one meeting a year and a limited budget that only just covers some translation and the delegates’ travel costs. For example, in BNP-Paribas the EWC annual budget was just ¤7500. The result is that the trade unionists in these firms make very little contact between countries. Communication between delegates is very difficult, since there is no way of overcoming the language problems outside the official EWC meeting where an official translation is provided. A French EWC delegate from the retailer Auchan said: ‘We see each other once a year and then go home. We communicate very little between meetings, primarily because of language problems. The interpreters are only present during the meetings. The rest of the time communication is really difficult. For example, Solidarnosc has tried to contact me but we’ve never been able to find someone who can translate Polish into French and vice versa.’ Delteil and Dieuaide (2010) also confirm that linguistic issues can reinforce cultural divisions that already exist between representatives from the northern and Latin countries, and this then bears considerably on their capacity to develop common demands. In the firms that have adopted an integration strategy, on the contrary, the resources provided by the management to the EWCs strengthen international trade union relationships, which have sometimes existed for quite a lengthy period. In both EDF and AXA, the twice-yearly EWC meetings, the establishment of an EWC executive with a secretariat and an office, and budgets covering several fares, running costs and the costs of translations into several languages outside the meeting times, have all clearly helped create real international trade union teams. This process has also obviously had a big effect in training the employee representatives from the host-country subsidiaries. Thus in AXA, for example, the decision to integrate CEE within the EWC, required the CEE subsidiaries to establish local works councils in order to nominate local representatives.

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The formation of international trade union teams also appears to reinforce the local presence of trade unions, where they exist. Awareness over the respect of trade union rights seems to be much more present in the MNCs with integration strategies. These observations are confirmed by evidence from Delteil and Dieuaide (2010). They report that the EWCs can assist the practice of ‘trade union benchmarking’, where the best local agreements are identified and then shared among all EWC members. In this case, the EWC acts to lever labour standards and wages upwards in the CEE subsidiaries. The EWC also reinforces the legitimacy and influence of the new CEE union representatives in relation to their local managements. In this respect, Delteil and Dieuaide (2010) comment: ‘The EWC can be understood as a sounding box to highlight deficits in local employment regulations and as a tribune warning central management of the need to standardize local practices.’ In MNCs characterized by compartmental strategies, in contrast, the EWC does not have any knock-on training consequences on the development of local employee representation. Thus, in the CEE subsidiaries of these MNCs, the EWC directive is only partly respected. As a result, the impact of international structures on the local trade union organization is also very weak. The presence of local trade unions is effectively entirely dependent on the host country’s industrial relations context. Within these ‘compartmental’ MNCs, local managements remain largely free to act as they wish in terms of managing labour. This is quite different in the CEE subsidiaries of MNCs with an integration approach. Within these trade unions, awareness develops. In the production and distribution workplaces of EDF and AXA, the EWC also appears to contribute to the emergence of an international action dynamic. Thus, when workers of several French MNC subsidiaries organized a demonstration for jobs outside the French Embassy in Warsaw on 14 July 2005, several EDF EWC delegates attended. This internationalism is supported in EDF by the existence of a Social Responsibility Agreement, signed in 2005. It covers several aspects of employment relations and lays down principles on issues such as nondiscrimination and the support that should accompany workers who have become victims of restructuring. The agreement is a basic framework that serves as a point of reference for subsidiarity: the commitments undertaken in the agreement apply in all countries, but are implemented according to the prevailing local circumstances. It provides for the establishment of a ‘Social Dialogue Committee on Group Social Responsibility’ with the job of monitoring the implementation of the agreement. This committee is chaired by the chief executive of EDF and is made up of employee representatives from different subsidiaries. Among these, ten are French, two are Polish and two are Hungarian. The GUFs that have signed the agreement also have seats on the committee: the International Federation of Chemical, Energy, Mine and General Workers’

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Unions, the Public Services International, l’Organisation Internationale de l’Energie et des Mines and the World Federation of Industry Workers (WFIW). The establishment of such an institution is not, however, free of ambiguity. It follows on from a major restructuring of its own industrial relations system that MNC EDF undertook in France in the 1990s. Until then, its influential, jointly run social institutions (such as its works council) were largely dominated by the CGT trade union, traditionally identified as adversarial. The company then sought to remodel its employment relations to incorporate the now dominant practice of workplace-level collective bargaining. One way it tried to do this was through helping the evolution of trade union partners who, from its perspective, were ‘more constructive’ (Tixier, 2000). Understanding this context, it is possible to see the creation of the social responsibility monitoring committee almost as establishing a competitor institution to the EWC, the national works council and other parity bodies. Looking at this more widely, these international institutions are major challenges to trade unions, which have to use them to exercise employee voice in a new international arena, but which also cannot afford to neglect local issues. One of the problems often raised in France refers to the creation of a ‘forced’ national trade union unity: there are often pressures on different organizations to come up with a common position when meeting their foreign counterparts. This unity, which is often based on the lowest common denominator, has an effect on trade union actions within the mother country that is still difficult to measure. But whatever these effects, it is clear that the institutional learning involved is already stimulating important discussions within the participating unions. Thus within AXA, the principal French EWC activists are aware of the criticism by other union activists that they are being used by the management. The tensions between national-level representatives, official trade unions and representatives on international bodies have become even stronger as EWCs and the international institutions have increasingly become crucial parts of any mobilization on jobs and working conditions related to globalization and social dumping. Of course, these institutions only have very limited powers to do anything, often merely being recipients of the official information the managements wish to give them. Delteil and Dieuaide (2010) systematically found that ‘the emergence of transnational demands more often concerned employment standards rather than jobs themselves. On the jobs front, either inter-union competition dominated over union cooperation, and any joint trade union actions essentially remained mere declarations, or there were competitive negotiations between trade unionists from different sites leading to shared concessions over job losses.’ At the same time, the authors only noted one conflict concerning the share of group profits, in the Romanian Renault subsidiary (see Groux, 2010,

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this volume, Chapter 14). This strike, which lasted 2 months and led to a 30 per cent increase in wages, was mobilized around the argument of the significant contribution of the subsidiary to group profits. Nothing similar has yet occurred in the service MNCs in our sample.

Conclusion The two processes identified in our research, compartmentalization and integration, appear more associated with the industrial relations strategies developed by the MNCs than to other factors. The sector effect is relatively small. The comparison of these results with those of Delteil and Dieuaide (2010) certainly show that the integration process features more frequently among manufacturing MNCs than in the service sector. Manufacturing was, after all, one of the early bastions of trade unionism, and has a long industrial relations history. From this perspective, the energy production and distribution MNC, EDF, which we have included as a service sector company, closely resembles an industrial company. Among the integration-approach MNCs, the insurance sector MNC, AXA, is thus something of an exception. It is also noteworthy that all the other service MNCs we researched and which implement compartmentalization come from sectors which in France have very different industrial relations traditions. The role played by the local industrial relations systems in the host countries appears also quite minimal. Thus, for example, the hotel sector in CEE traditionally had well-structured industrial relations institutions. Nonetheless, the French MNC Accor still preferred a compartmental approach, for many years keeping its Polish employees out of the EWC. On the other hand, AXA acquired subsidiaries practically without any trade union presence in a newly emerging sector in CEE. In this case, the new subsidiaries were immediately integrated into the industrial relations strategy of the MNC. In the two cases, the presence of trade unions was neither an obstacle nor a facilitator. Finally, the impact of the two approaches was quite different on the evolution of industrial relations in the subsidiaries. The compartmental approach tended to result in the maintenance of significant differences in industrial relations management within each subsidiary. Their industrial relations were largely determined by the host country’s legal framework, tempered by the employment history of the specific firm. The second approach, integration, in contrast, tended to have an impact on the local subsidiary’s employment relations. They would attempt to harmonize between subsidiaries and an enterprise culture could emerge beyond national borders. In this case, EWCs and/or new international institutions of social dialogue appear to have become potentially useful workspaces, opening new horizons for international trade union action. A second hypothesis refers to the ‘institutional inventiveness’ in the make-up of EWCs (Wallace, 2000). She suggests

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that within certain MNCs operating in the EU, the EWCs are becoming important international players that cannot be avoided. However, even within the EWCs that are dynamic in this way, it is also possible to note the parallel creation of a dichotomy within national groups of trade union activists, separating activity at a local level from activities carried out internationally. In MNCs where international representative bodies are used by managements as means of acting on local industrial relations systems, the results therefore appear ambiguous. Undeniably, the resources given to the EWCs do have an impact on the whole apparatus of employee representation at every level within the MNC. Equally undeniably, the resources provided do facilitate international trade union actions. But at the same time, the new institutional constraints introduced through the operation of EWCs and social responsibility monitoring committees are forcing the unions to find new ways of organizing in order to maintain their independence.

Note 1. The ETUC adds, however, that most MNCs covered by the Directive are relatively small, employing fewer than 5000 workers and with low trade union density, and that only 23 per cent of these had established EWCs. By contrast, 61 per cent of larger MNCs with more than 10,000 employees had an EWC, and the 14.5 million workers covered by them represented 64 per cent of all workers with the rights to an EWC provided by the Directive.

References Bourque, R. Les accords-cadres internationaux (ACI) et la négociation collective internationale à l’ère de la mondialisation (Geneva: ILO Institut international d’études sociales Working Paper 161, 2005). Contrepois, S., Jefferys, J., Kwiatkiewicz, A., Szabo, M. and Vladimirov, Z. Dans quelle mesure le modèle de relations sociales français est-il transférable? Les multinationales françaises et leur influence sur l’évolution des relations professionnelles en Bulgarie, en Hongrie et en Pologne (London: Working Lives Research Institute, 2009). Delteil, V. and Dieuaide, P. ‘Les comités d’entreprise européens: entre outils de gestion et instance de régulation transnationale. Résultats d’enquête auprès de huit firmes multinationales françaises’, Travail et Emploi, Forthcoming, 2010. Delteil V., Dieuaide, P. and Groux, G. Les relations professionnelles à l’épreuve de l’élargissement. L’Est: nouveau laboratoire des relations sociales?, Rapport pour la DARES, Paris III, Mars 2009. Dressen, M., Roux-Rossi, D. and E. Blaustein. Restructuration des banques et devenir des salaries (Paris: La Documentation française, 1997). ETUC, European Works Councils (Brussels: European Trade Union Confederation, 2009) http://www.etuc.org/a/495. European Foundation for the Improvement of Living and Working Conditions, Foundation research on European works councils 1994–2006 (Dublin:

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European Foundation, 2007) http://www.eurofound.europa.eu/pubdocs/2006/108/ en/1/ef06108en.pdf. Tixier, P.-E. and N. Mauchamp (eds), EDF-GDF: une entreprise publique en mutation (Paris, La Découverte: 2000). Vladimirov, Z. ‘Les multinationales françaises et leur influence sur les relations de travail en Bulgarie’. Paper to Colloque: Les modèles sociaux européens à l’épreuve de la stratégie des multinationales ouest-européennes implantées dans les pays d’Europe centrale et orientale. Paris: 27 November 2008. Wallace, H. Europeanisation and Globalisation: Complementary or Contradictory Trends?, New Political Economy 5(3): (2000), 369–82.

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13 Central and Eastern European Social Models and the Challenge of Change Violaine Delteil

The difficulties of containing the social effects of the financial crisis in the Central and Eastern Europe (CEE) shed unprecedented light on the nature of Eastern European social models. Indeed, a number of factors in these new European member states raise questions about the efficacy with which their social welfare programmes, labour market regulations and industrial relations systems can provide institutional solutions that can soften social trauma or manage an exit from the crisis. The crisis has revealed the fragility of Eastern European social models in comparison to their French, German and Scandinavian counterparts that are considered the historical origins of the European social model (ESM). The differences can be interpreted in several ways, the most obvious of which relates to difficulties in convergence of the new member states with the ESM. Another interpretation, and the one supported in this chapter, posits a relationship between the weak performance of the Eastern European social programmes in applying some of the precepts of a ‘renovated’ ESM, broadly inspired by the Blairist ‘third way’ and EU requirements based on the Lisbon Strategy (2000). Because of their institutional plasticity, Eastern Europe’s economies appear to have provided a large-scale experimentation zone for the EU to test new modes of state intervention of a social character, new modalities of labour market regulation and new paradigms of industrial relations. This chapter will describe the most salient features of this process. The analysis will be presented in three parts, arguing that the social models of Eastern European present certain unique characteristics. The first part adopts evolutionary and institutionalist approaches in order to identify the factors that influenced the institutional trajectories and redefinition processes of the social models of the former socialist economies. This dynamic approach enables an emphasis on the key role played by international institutions and foreign investors in recasting Eastern European institutional frameworks. It also allows a post facto analysis of the limits of the institutional mergers 217

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promoted by the EU as part of a new mode of regulation in the area of social relations. The second part adopts a comparative approach that is consistent with studies of the ‘variety of capitalisms’ (Esping-Andersen, 1990; Amable, 2005). It discusses a number of the original traits shared by the new member states that suggest the existence of an ‘ideal Eastern European type’ that complements the typology of ESMs, while also raising questions about the uncertain future of the far-from-stabilized ESM. The final part of Chapter 13 returns to the crisis, which began in 2008 and which particularly affected these economies, whose relationship with the EU is semi-peripheral and dependent. Indeed, the crisis has the heuristic power both to reveal the degree of fragility of an ‘Eastern European social model’ and to illustrate the intrinsic limits of EU socio-economic regulation.

1. Transforming Eastern Europe’s social models 1.1. The role of international institutions The fall of the Berlin Wall confirmed the bankruptcy of the communist systems, offering a golden opportunity for market enthusiasts to reinforce the legitimacy of free-market/liberalist arguments. The ‘Washington Consensus’, the neo-liberal project promoted by the World Bank, the IMF and the OECD, saw in the CEE a new area in which to experiment with stabilization programmes and structural reforms, having already tried their hand in Latin America. This experimentation included social policies and programmes, as evidenced by international prescriptions for redesigned social policies and modes of labour-market regulation, as well as industrial relations systems. One example of this influence, and of the thinly veiled World Bank agenda to use the CEE as Europe’s laboratory, is that prescriptions for a retirement system are based on three principles that were not in effect in the rest of Europe in the early 1990s.1 External pressure to deregulate and ‘flexibilize’ the labour market constitutes a further example of the influence of free-market principles, which maintained credibility throughout the 1990s despite a lack of empirical evidence about their effectiveness. Slovakia provides an excellent example. Long considered a model in terms of labour-market flexibility in the early 2000s, Slovakia nevertheless suffered the region’s highest unemployment rate, evidence of an erroneous diagnosis of the causes of unemployment. These relate more to the modalities of restructuring the production system than to the nature of labour-market regulations. The reorganization of CEE industrial relations systems also seems to have been more heavily influenced by international institutions than by the old EU’s systems. Indeed, the EU remained relatively silent while the International Labour Organization (ILO) and the OECD applied pressure for the establishment of tripartite agencies (inspired by the ILO model) and decentralization of collective bargaining, both deemed better for economic performance than higher-level regulations (OECD, 1994). This

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pressure was exerted despite a lack of empirical evidence in favour of these approaches. 1.2. The renewal of the EU experience It was not until the mid-1990s, during preparation for CEE entry into the EU, that EU agencies truly put their fingerprints on the institutional frameworks of the future member states. Initially, the imprint of Europe’s social safety net was difficult to distinguish from neo-free market precepts – the freshly signed Treaty of Maastricht having ensured the primacy of an economic Europe grounded in budgetary orthodoxy. By limiting social expenditures, budgetary control indirectly determined the content of collective bargaining. The monetarist approach of the European Central Bank (ECB) in effect applied pressure through repeated interventions on the 2004 and 2007 EU accession countries to reinforce the wage moderation principle that is supposed to simultaneously combat inflation and unemployment. Combined with constraints on competitiveness, this pressure grew out of the criteria for membership in the Euro zone. It is partly responsible for the reconfiguration of national collective bargaining provisions under the stipulations of social pacts that promote wage moderation in the majority of the member states, initially in the West and later in the East (Rhodes, 1998). The Lisbon Strategy that was implemented during the 2000s only partly counterbalanced the emphasis on economic policies, giving only secondary consideration to the social dimension. Despite the guideline’s explicit promise to promote employment and social cohesion, promoting competitiveness was the primary driving force. Competitiveness was supposed to be achieved on a non-cost basis, that is, through quality, and is primarily based, in combination with structural investment deficits on education and innovation, on a strategy of price competitiveness. Wages became a major factor in determining competitiveness, as illustrated by collective bargaining that is tied to competitiveness instead of to productivity (Schulten, 2001). It is only once preparations for the accession phase and the required adoption of the EU acquis began that the EU truly began to reshape the social models of the future member states. The move towards institutional conformity via the transposition of EU directives launched a process of relative convergence of labour law, which offered a certain number of new guarantees to workers and their representatives, particularly concerning work conditions and hours and employee information and consultation. This top-down phase of formal convergence readily explains the pro-European stance of most trade unions, which see the EU norms as a bulwark against employer demands or their own governments’ use of minimal regulations to attract foreign investors. Indeed, EU norms enabled the Romanian unionist movement to foil an employer offensive in favour of a 60-hour work week and led them to insist on the employer’s obligation to justify firing and layoff decisions and to precede these by employee consultation (Mocanu and Mares, 2005). In Slovakia, EU regulations also helped the Social Democrats,

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re-elected in 2006, to amend the labour laws to provide better job protection (Svorenova, 2007). In certain contexts, however, the record of legislative harmonization also reveals ambivalent, deregulatory episodes. In Hungary, for example, the extension of the referral period for measuring working hours and the addition of terms for individual or collective opting-out have increased the unilateral power of employers to define work-time flexibilization (Meardi, 2007).2 This deregulatory impact was all the more noticeable in a highly regulated country like Romania, where integration of the EU acquis not only reduced administrative barriers but also increased flexibility in the rules governing individual and collective firing procedures, definitions of full- and part-time work and fixed-term contract labour. The attempt by several Eastern European governments to create a dual system of employee representation provides yet another example of the mixed impact of the EU directive on employee information and consultation (2001). This dual system would have attributed equal negotiating rights to employee councils and trade unions. As shown by the example of Hungary, which applied this system in 1993, this creates the obvious risk of limiting trade union power in a context in which employers already enjoyed considerable power. 1.3. The mixed influence of the EU Belatedly, if resolutely, the EU tried to influence Eastern European systems of industrial relations, which were heavily influenced by the heritage of the former systems (see Part II). In addition to the transposition of directives concerning employee information and consultation, the EU mandated implementation of a hierarchical structure for social dialogue built around tripartite institutions (a tripartite council, an economic and social council, etc.), sectoral or branch committees for social dialogue and employee representation structures within companies. This formal requirement, however, was considerably weakened by the exclusion of the industrial relations provisions from the EU acquis. Fruit of a compromise between the European Commission and the future member states that was intended to simplify the implementation of institutional conformity, the principle of ‘soft conditionality’ (Pilat, 2007) reduced EU input to recommendations without any obligatory results. The new institutions remained for the most part ‘empty shells’. The new sectoral social dialogue committees that were created in response to Commission requirements clearly illustrate how little formal harmonization really occurred in terms of collective bargaining procedures which, as we shall see, were for the most part decentralized. Although the socialist heritage partly explains the difficulties in coordinating collective bargaining, a second interpretation is possible. An implicit or unspoken intention of the EU was to discourage formal centralization of employee negotiations in

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favour of informal, consensus-based norms when social contracts oriented towards wage moderation were being implemented. This process resembles that practised in a number of principally Nordic member states. The question of how the EU has altered and redefined the notion of social dialogue over the past 15 years merits close attention. Of particular interest is the extent to which the EU distanced itself from each country’s reinterpretation of the social dialogue in terms of autonomous collective bargaining. The first change in definition is traceable to the agreement on social policy annexed to the Treaty of Maastricht (1992). This broadened the definition of social dialogue to include employee information and consultation. Employee consultation first became exclusive in the 1994 Directive concerning European Works Councils3 and was also applied to sectoral social dialogue committees, where, as Dufresne (2006: 59) has argued, ‘the potential for autonomous negotiation is significantly overshadowed by the reality of consultation on EU policies.’ The primacy of consultation over negotiation continued to be strengthened by the implementation of the Open Method of Coordination (OMC) at the end of the 1990s. This method of consultation par excellence was inspired by the United Kingdom’s public sector management approaches. The OMC served as a key instrument of the European Employment Strategy, which was later adapted to other issues such as health, retirement, diversity, environment and research. The OMC represented the culmination of the transformation of the European social dialogue into the integration of social actors into EU public management, essentially a method for managing public action (Maggi-Germain, 2007). The OMC called upon social dialogue to provide both the driving force behind successful economic and social reforms and to play a central role in legitimizing and applying reforms. Social dialogue thus acquired a double definition. On the one hand, it was defined as privileging ‘accompanying change’ above the principle of social partners’ autonomy (in terms of negotiation); on the other hand, it enacted a restrictive interpretation of the notion of ‘partnership’ that relegated actors to the periphery of the decision-making process. Broadened to include new applications, new topics and new actors well beyond the basic social partners,4 the European social dialogue is at the service of a managerial approach to industrial relations (Gold et al., 2007) that is depoliticized and partly controlled by the management. As discussed later in this chapter, this approach was easier to apply among the future member states than in the older member nations, where stronger institutional resistance limited their application.

2. Increasing the variety of ESMs Under the influence of the pressures and guidelines cited earlier, the reconstitution of Eastern European social models was deeply influenced by the

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weight of the double heritage of their former systems and of the years of systemic transformation; the combination produced a ‘lock-in’ effect (a term borrowed from path-dependency terminology) on both regulations and practices. Taken together, these factors serve to highlight the persistent uniqueness of the Eastern European social models, whose most salient features are the subject of the next section. 2.1. A minimalist and competitive version of the ‘active social state’ To varying degrees throughout the CEE, the transition phase amounted to a process of retrenchment of the welfare states. This process resulted from a dual movement: on one hand, the increase in the number of beneficiaries of social expenditures due to initially rapid rises in unemployment and ongoing growth in pension expenditures, and on the other hand, the structural weakness of social and fiscal revenues, tightly linked to the implementation by Eastern European governments of ‘competitive defiscalization’ or ‘competitive desocialization’ (reduction of tax and social contributions) strategies intended to insure their attractiveness to foreign direct investment (FDI). By comparison, the minimalist version of the social state asserted itself in Eastern Europe, with social expenditure to GDP ratios in 2004 of the order of 13 per cent for the Baltic countries, 15 per cent for Romania and Bulgaria, 17 per cent for Slovakia and 20 per cent for the others. This contrasts with ratios of around 30 per cent for most of the older member states (Eurostat, 2006). The gap is even more pronounced if only expenditures related to labour policies are considered; they do not exceed 0.5 per cent or 0.6 per cent of GDP in the CEE, compared to 2.5 per cent in France and 4.3 per cent in Denmark (Eurostat, 2006). The underdevelopment of social policies is particularly noticeable in the area of unemployment benefits. The gradual tightening of eligibility criteria and the reduction of duration, coupled with increases in wage deductions, have sharply limited the proportion of unemployed receiving benefits in countries with high rates of long-term unemployment (on average, only one out of every two unemployed). Initially higher than 70 per cent at the outset of the transition, the proportion of the unemployed receiving benefits was since 1997 uniformly lower than 50 per cent, ranging from 10 per cent in Lithuania to 17 per cent in Slovakia, and from 19 per cent in Poland to 35 per cent for the Czech Republic and Hungary (Eurostat, 2006). This phenomenon partly explains increases in poverty rates and informal employment, which did not subsequently drop with the return of economic growth. The underdevelopment of labour policies is also related to the lack of CEE investment in life-long learning. Although a priority in some national plans (Slovakia and Hungary) and governmental objectives (Romania), this aspect of labour policy remains significantly underfunded in terms of both infrastructure and financing (approximately 0.1–0.2 per cent of GDP).

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The reorganization of retirement systems, primarily oriented towards the three pillars recommended by the World Bank, contributes to the creation of a minimalist social state by focussing on individual capitalization to compensate for the resource deficit in distribution programmes. This has expressed itself differently in different countries’ retirement pensions, however, both in terms of the pace and type of reform chosen. Although most countries, including Hungary, Poland, Slovakia, Estonia and Lithuania, adopted the three-pillar system (see Part I), pressure from trade union and retiree associations prompted the Czech Republic and Slovenia to resist implementing capitalization-based systems. They refocussed their efforts instead on basic pensions for low-income workers, while keeping complementary plans that involve individual savings optional. In terms of how basic social benefits are awarded, the joint influence of the OECD and the EU triggered a retreat from the principle of universality during the 2000s. In its place, there has been an ever-increasing tendency to focus on targeted benefits that reflect the growing grip of the logic of the workfare state. The practice of targeting social benefits to specific categories who are encouraged to enter the labour market, like the young, women and members of ethnic minorities, has operated in tandem with exonerations from payroll deductions. This method of subsidizing the employment of the under-qualified has been widely tested in older member states. This application of the welfare state is relatively recent in Eastern Europe, as exemplified by Hungary, which implemented payroll deduction exonerations in 2002 and the ‘in-work benefit’ as recently as 2006. A number of factors thus suggest that state intervention in CEE is progressively being redesigned into a ‘Competitive Welfare State’. In confronting constraints related to competitiveness and territorial attractiveness, the Eastern European countries have deployed an array of strategies, including ‘competitive defiscalization’ and ‘desocialization’ and labour market deregulation, as well as various moves to support of foreign investors. Their responses to the 2008 crisis have reinforced this ‘strategic’ aspect of state intervention, which is less centred on protecting employment, as was the case in the 1990s, than on supporting the development of sectors of production that are well-integrated into transnational production networks. The increase in state aid for firms in the automotive sector, which are primarily in the hands of foreign investors, constitutes only the most emblematic example of this trend (see Chapter 1). 2.2. Highly segmented and lightly regulated labour markets The labour markets of Eastern Europe were heavily impacted by the liberalization process and reorganization of the systems of production, as well as by the massive arrival of FDI. These markets share a number of distinctive characteristics that set them apart from Western European markets, differences that include strong wage stratification according to qualifications (to the

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detriment of workers with weak qualifications or obsolete skills), age and ethnic identity. They also reflect strong regional disparities between areas with tight labour markets (capitals and other dynamic regions) and areas with low employment rates (particularly economically depressed areas that specialize in heavy industry). Additional variables contributing to wage disparities include limitations on the capacity of the unemployment system to serve as a mediator (in a context where job-to-job flows dominate), the level of ‘stagnant’ unemployment, contracts that are exempt from labour laws (civil contracts are especially prevalent in Poland) and informal employment. Under pressure from international and EU institutions and from lobbying by foreign investors, the CEE have used two parallel tactics to try to reabsorb elevated unemployment rates. The first is to legalize atypical contracts, which have increased at rates that vary from country to country.5 This has been accompanied by a significant weakening of laws to protect standard employment, rendering the majority of the CEE countries less protective of workers than most older member states. Data published by the World Bank in Doing Business, concerning the difficulty of layoffs, employment rigidity and layoff costs, corroborate this finding, while also indicating that Romania is an exception in which regulation remains better established (Dima, 2008).6 Qualitative, harder-to-measure variables, like the lack of influence of formal institutions over actual practices, indicate that assessments of the degree of protection need to be revised even further downwards than purely quantitative estimates suggest, especially if the weak position (or even total absence in many smaller firms) of trade union representatives in opposing layoffs is taken into account. It is little surprise, given the increasingly strong aversion to unemployment in nations that simultaneously guarantee low benefits and provide few active policy measures, that employment protection has gradually become a central issue in the political battles that take place with each successive revision of employment law. The example of Slovakia eloquently illustrates this tendency. After coalition lobbying by the political right and employers succeeded in imposing a highly permissive Labour Code in 2002, making Slovakia the brightest star in the OECD in labour-market deregulation (Svorenova, 2007), the Social Democrats’ return to power reinforced employee rights. The measures that they enacted included limitations on fixed-term contracts, which are renewable only once in three years, and the extension of the required layoff notification period from 15 to 30 days. They also maintained unions’ exclusive rights to collective bargaining, a provision that avoids the risk of competition with employee representatives of employee councils. This example, echoing recent strengthening of atypical contract workers’ security in 2009 in the Czech Republic and reflecting broader concerns raised by the crisis, could be indicative of a trend towards re-regulation being

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prompted by EU directives. Other signs, however, suggest that such a conclusion might be premature. Indications are that re-regulation is unlikely to include, notably, the EU recommendations contained in the Green Paper ‘Modernising labour law to meet the challenges of the 21st century’ (EC, 2006). These recommendations are motivated by efforts to reduce labour market segmentation and to implement labour flexibility requirements in order to reduce employment protection for employees with standard contracts while increasing the protection of atypical contracts. These recommendations are also reflected in the ECB’s directives to Romania, which promote ‘greater flexibility in labour contracts’ (ECB, 2008: 50). Compounding these external influences is the effect of lobbying by foreign investors, a source of deregulatory pressure on the labour market that increases as investors’ relative economic prominence grows. 2.3. Industrial relations under the hegemony of government and management The developments discussed thus far could potentially support the conclusion that Eastern European social models are evolving towards a hybrid that borrows simultaneously from the Mediterranean and Anglo-Saxon models (Esping-Andersen, 1990).7 However, systems of industrial relations in CEE suggest that these countries’ social models are developing in their own unique ways. The influence of the former systems, lack of initiative on the part of the EU in support of convergence (evidenced by the principle of ‘soft conditionality’), and the central role of foreign investors in remodelling social relations all combine to support the argument for a unique Eastern European hybrid. Earlier systems of industrial relations in Eastern Europe help explain the profound crisis affecting the legitimacy of the trade union movement. The often drastic erosion of the unionized population is but one manifestation of this heritage. Indeed, the crisis is tightly bound to the unions’ triple difficulty in shedding their role as communication channels and former co-managers of the labour organization in the earlier system (Pollert, 2002); in adapting to their new functions as representatives of employee interests in a context of limited financial and informational resources; and in positioning themselves with respect to the transformations of capitalism (Crowley, 2001). The legitimacy crisis that has afflicted union organizations is also tied to the early years of the transition, which saw the emergence of a new form of corporatism in which the state sought the support and co-operation of social partners in implementing economic reforms. Unions were heavily involved in tripartism related to legal, economic and labour policies as well as to government budgets and decisions on establishing minimum salaries and rates of growth for average salaries. The unions thus participated in supporting the very reforms that weakened them (Ost, 2007), but their loss of influence is also a consequence of the state’s

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hegemonic position within the tripartite framework. The vicissitudes of this framework, often described as an ‘appearance of tripartism’, thus constitute a unique form of neo-corporatism that is dominated by governments that do not hesitate to by-pass their obligations towards social dialogue. Instead of being the state’s responsibility, this non-cooperative strategy is instead taken over by employer’s representative structures. As a consequence, social dialogue is weakly organized, highly fragmented and exceedingly unrepresentative, and it often adopts a negative role in negotiations, particularly at the sectoral level, preferring to concentrate its activities on lobbying the government. In addition to a tripartism that rarely fosters social dialogue, the weak organization of the sectors (or branches) is also remarkable, as evidenced by the low number of collective agreements and, even more glaringly, by the superficiality of their content. While the non-existence of sectoral agreements in most socialist economies plays a big part in this, in the post-socialist period this reality is broadly dictated by avoidance strategies or through the nonaffiliation of employers to sectoral structures. Employers are motivated by their desire to retain the right to define the terms of social relations, particularly remuneration and work conditions (Toth, 1997). Research conducted by the author and her colleagues into the CEE subsidiaries of eight French MNCs confirms the importance of these same strategies among foreign investors (Delteil et al., 2009). The chronic ineffectiveness of tripartism and the underdevelopment of sectoral regulation are correlated to two other characteristics of most CEE EU member states. First, the weak coordination of industrial relations, as illustrated by the degree of employee coverage under collective agreements, roughly 25–50 per cent, compared to the 65 per cent average for the countries of the EU15 (EIRO, 2008). Only Slovenia and Romania exceed this level. The second relates to the extreme decentralization of the social dialogue in the CEE compared to most old member states (Schulten, 2005). Once again, the weight of tradition and heritage deserves mention, because the older systems were organized around collective agreements in each company (even if they did not apply directly to employees), providing a foundation that lent itself well to a decentralized system of industrial relations. The Eastern European systems of industrial relations provide a propitious environment for the development of a low institutionalized form of social dialogue that was less focussed on negotiation (almost exclusively limited to the subject of salaries) and more on consultation, and was often more individualized. Our research in several East European subsidiaries of French multinationals supports this argument while illustrating the suitability of this social dialogue to the requirements for ‘partnership for change’ (particularly in the initial phase of restructuring or in the phase of increasing the production process) and to the increased need for organizational flexibility imposed by parent companies (Delteil et al., 2009).

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Although this finding invalidates the hypothesis that practices are transferred from the countries of origin towards host countries, it does confirm that the CEE constituted fertile ground for the development of new modalities of social relations that are in phase with management objectives, while also reflecting the aims articulated by EU agencies. In this way, the CEE EU members provided a perfect space for the elaboration of a new paradigm of social relations that we have described as ‘managerial social dialogue’ (Delteil et al., 2009). It is not, therefore, surprising that Eastern European systems of industrial relations are also distinguished by low levels of conflict. Although data concerning on-site collective labour conflicts need to be interpreted with caution because variations in right-to-strike legislation can bias international comparisons, they nevertheless reveal a fairly significant gap between the CEE and old Europe. According to ILO data for 1991–98, the number of work days lost to strikes per 1000 workers per year is 21 days across the CEE. Here again, Romania’s 60 strike days per 1000 per year stand out when compared to 15 for Hungary and 10 for Slovakia. These differences are attributable to less restrictive legislation in this area and to stronger ties between unions and political parties (Pilat, 2007). Considered in light of high job turnover and workforce migration rates, strike data potentially suggest that exit is winning over voice (Meardi, 2007), and they could also lead to the conclusion that Eastern European models of industrial relations are converging with Anglo-Saxon models. Recent observations, though, suggest that the ‘labour quiescence’ (Crowley and Ost, 2001) and ‘labour flexibility’ may both require revision in favour of the prominence of voice (Meardi, 2007). Still relatively rare, disputes have proliferated as EU integration has progressed, mainly among foreign-owned firms in a context of increasing productivity gains on one side, and a shortage of skilled workers in certain labour markets on the other.

3. The fragility of Eastern European social models The vulnerability of the CEE to the financial crisis that began in 2008 illustrates the limits of peripheral EU integration (see Chapter 1). The crisis has also revealed the fragility of their social models. It is unsurprising that none of the Eastern European social models offers a real bulwark against the negative impact of a major fall in foreign demand and the withdrawal of the FDI – the two driving forces for growth in the majority of countries. In terms of the weakness of their social protection systems, these countries were unable to rely on automatic stabilizers. Budgetary and monetary constraints linked to preparation for integration into the Euro zone or to conditions for international financial aid added to social protection problems by limiting manoeuvring room and by producing political countercycles unpropitious to crisis recovery plans. In addition, austerity measures

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that were imposed as conditions for ECB and IMF aid led to further decline in domestic demand through cuts in either government employees’ wages (–15 per cent in Estonia, suppression of the 13th month in Hungary for 2009) or their numbers (–7.5 per cent in Romania for 2010). Poland, although it remained relatively protected from the crisis, chose to lower taxes and reduce social services (–9.2 per cent in nominal value in 2009) instead of reinforcing social protections. The lack of institutional and collective bargaining arrangements encouraging work-time flexibility, and the governments’ lack of inclination to implement subsidies for partial unemployment, limited negotiations for employment safeguards. Leaving aside the practices of a number of primarily French and German multinationals (essentially in the automotive sector) that tied partial unemployment to generous wage compensation for employees under atypical contracts who were released (up to 100 per cent for Renault’s subsidiaries), the dominant response to the crisis was less favourable. External flexibility involving job losses was used more frequently, explaining that the recession’s impact on unemployment was proportionately twice as significant in the CEE10 as in Western Europe at the height of the crisis (rising between December 2008 and September 2009 by 3.1 per cent compared to 1.5 per cent). Widespread job losses, although variable across sectors, primarily concerned employees on atypical contracts – those who were weakly protected by national legislation. External flexibility did not spare employees working under standard contacts. In firms with a union presence, layoffs were facilitated by redundancy payments that reflected arrangements reached during large-scale restructuring in the 1990s. Conversely, the absence of a tradition of sectoral or local social dialogue opened the way for work-time and wage flexibility measures that were for the most part decreed unilaterally by management. In many cases, firms not only reduced overtime hours and working time, but imposed workers, faced with the prospect of losing jobs, to accept wage reductions, even in firms that had not reduced working hours.8 If the crisis revived the demand for social protection in some countries, particularly concerning employment, it also provided a window of opportunity for employers to lobby for labour market deregulation. The example of Poland is especially revealing. While the ‘Manifesto for solidarity in the face of the crisis’ edited by Solidarity in February 2009 reflects that union’s major break with the Blairist version of economic liberalism, the Polish anticrisis plan ultimately reinforced flexibility. It promoted the annualization of hours and individualization of working time through removing the legislative guarantees offered to employees in an earlier version of the plan (Portet, 2009). In some countries, the crisis also functioned as an accelerator of labour policy reforms that essentially reinforced employment incentives (to work as an independent) or subsidized poorly remunerated jobs, to

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the detriment of measures that supported skill enhancements for manual workers (OEE, 2009). Considered together, these responses to the crisis demonstrate how far away the CEE economies are from implementing collective bargaining and programmes that provide employment protection and make professional transitions less risky.

4. Conclusion Two final comments can be formulated in concluding this chapter. The first concerns the singularity of the Eastern European social models compared to those of the EU15. Their uniqueness, which has persisted despite accession to the EU, resides principally in a minimalist social state coupled with a weakly institutionalized industrial relations model under state and management hegemony. This observation, which supports the postulate of an ‘ideal’ Eastern European type, posited by Kohl and Platzer (2003), is not solely attributable to their socialist heritage. It is more fundamentally coherent with a model of extroverted, semi-peripheral capitalism that is shared by the Eastern European member states. Centred on strong dependency on FDI and world markets, along with high levels of integration of the production system into transnational networks, this model also reflects the relative permissiveness of the CEE’s institutional framework, which is aimed at ensuring competitiveness and attractiveness. This ideal type does not contradict the internal heterogeneity of the new member states. A close comparison of their internal diversity is beyond the scope of the present chapter, which nevertheless indicates the existence of three primary intra-regional models: one ‘liberal type’ unites the Baltic states, another ‘coordinated type’ includes Slovenia and to a lesser extent Romania, while the majority of the new member states belong to a ‘hybrid type’ that combines the two other models. Second, lessons that can be drawn from an analysis of the consequences of the 2008 crisis for ESMs. The first lesson is that the Eastern European models are remarkably fragile, as manifested in low levels of protection for involuntary unemployment, a lack of negotiated ‘flexicurity’ plans and overall poor institutionalization of social dialogue. Another lesson concerns these countries’ particular modes of state intervention. Instead of causing these countries to show signs of breaking with established trends related to convergence, the crisis reinforced their efforts to promote the attractiveness of their economies, to the detriment of the ‘institutionalized social dialogue’ and of social policy. In view of these findings, the clear retreat of EU ambitions, so evident in the arena of social as well as political and industrial economic policies, is all the more troubling. The lack of EU regulations in these areas could indeed

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result in the long run in the realization of predictions that the ESM will be diluted by the forces of globalization.

Notes 1. The words of a World Bank specialist (cited in Vaughan-Whitehead, 2005: 78) demonstrates the laboratory role of the CEE: ‘The nations of the European Union have much to learn from the pension reforms currently being implemented in Central and Eastern Europe.’ 2. These consequences explain Hungarian labour unions’ criticisms of a directive that they saw as serving, through government arbitration, employers’ interests and powerful multinational lobbies (Neumann, 2007). 3. The Directive restricts social dialogue to the mere formality of consultation, defined as the ‘exchange of views and the establishment of a dialogue between labour representatives and the central administration or other appropriate administrative level’ (Point F of the Directive). In fact, however, many European Works Councils have also developed some bargaining functions that have included the signature of framework agreements (European or global). 4. The broadening of topics is prioritized by the Commission: ‘social dialogue could be revitalised by bringing new issues into the discussion, such as R&D, innovation, and education and skills’ (EC, 2007: 17). Widening the list of those who can considered stakeholders (labour representatives, but also those from society at large) is likewise judged important: ‘it is essential that all stakeholders involved are prepared to accept and take responsibility for change’ (EC, 2007: 8). 5. The rate of a typical employment varies widely among countries, from 1 per cent in Romania, 5 per cent in Slovakia, 9 per cent in Hungary, and 14 per cent in the Czech Republic up to 27 per cent in Poland. The extreme example of Poland may be linked to the OPZZ’s (the former official communist union) support for contract deregulation, perceived as a measure to combat elevated unemployment rates of nearly 20 per cent. More recently, in years of falling unemployment rates, the trade unions have demanded additional employment protections. 6. The ‘employment rigidity index’ is 62 for Romania, 56 for France, 36 for Slovakia and 30 for Hungary (World Bank, 2009). 7. Similarity with the Mediterranean model rests primarily on the welfare state’s minimalist character, the complementary role of familial solidarity and strong segmentation of the labour market; similarities with the Anglo-Saxon model pertain essentially to weak employment protection. 8. The law varies widely in this regard. Poland authorized employers to reduce wages pro-rata to cuts in working hours; Slovenia, in contrast, offered significant protection to workers by imposing the condition that there must be a signed company-level agreement covering any review of working hours and wages (OEE, 2009).

References Amable, B. Les cinq capitalismes: Diversité des systèmes économiques et sociaux dans la mondialisation (Paris: Editions du Seuil, 2005). Crowley, S. ‘Explaining Labour Quiescence in Post-Communist Europe: Historical Legacies and Comparative Perspective’, Center for European Studies Central and Eastern Europe, Working Paper no. 54 (2001).

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Crowley, S. and Ost, D. Workers after Workers State: Labor and Politics in Post-Communist Eastern Europe, New York, Oxford, Rowman & Littlefield (2001). Delteil, V., Dieuaide, P., and Groux, G. Les relations professionnelles à l’épreuve de l’élargissement. L’Est: nouveau laboratoire des relations sociales?, Paris, DARES, Ministère de l’emploi et des affaires sociales (2009). Dima, L. The Evolution of Labour Law in the Member States of the European Union, 1995–2006, Country Study of Romania, www.insse.ro/anuarpercent202005/CAPITOL/ cap15.pdf (2008). Dufresne, A. ‘The Evolution of Sectoral Industrial Relations Structures in Europe’, in A. Dufresne, C. Degryse and P. Pochet (eds) The European Sectoral Social Dialogue, Actors, Developments and Challenges, Bruxelles, Peter Lang (2006). EC, Towards Common Principles on Flexicurity: More and Better Jobs Through Flexibility and Security, COM (2007). EC, Modernising Labour Law to Meet the Challenges of the 21st Century, Green Paper, 708, European Commission (2006). ECB, Report on Convergence (May 2008). Esping-Andersen, N. The Three Worlds of Welfare State, Princeton, New Jersey: Princeton University Press (1990). EIRO, Developments in industrial action 2003–2007, Eurofound, Dublin (2008). Eurostat, ‘Social Protection in the European Union’, Statistics in Focus, vol. 14 (2006). Gold M., Cressey P., and Léonard E., ‘Whatever Happened to Social Dialogue? From Partnership to Managerialism in the EU Employment Agenda’, European Journal of Industrial Relations, vol. 13, no. 1, pp. 7–25 (2007). Kohl, H. and Platzer, H.-W. Arbeitsbeziehungen in Mittel/Osteuropa, Transformation und Integration. Die acht EU – Beitrittslaender im Vergleic, Baden-Baden, Nomos Verlagsgesellschaft (2003). Maggi-Germain, N. ‘Sur le dialogue social’, Droit Social, no. 7/8 (2007). Meardi, G. ‘More Voice after More Exit? Unstable Industrial Relations in Central Eastern Europe’, Industrial Relations Journal, vol. 38, no. 6 , pp. 503–523 (2007). Mocanu, D. and Mares, N. ‘The Romanian Labour Market – Toward the European Labour Market?’, South-East Europe Review, vol. 1, pp. 123–136 (2005). Neumann L., ‘European Labour Standards Impacts on Accession Countries: The Hungarian Case’, in P. Leisink, B. Steijn and U. Veersma (eds), Industrial Relations in the New Europe: Enlargement, Integration and Reform, Cheltenham, Edward Elgar, pp. 63–80 (2007). OECD, Employment Outlook, OECD, Paris (1994). OEE, Spring Report, Observatory of Employment in Europe (2009). Ost D., ‘Social Forces and the Post-Communist transition: Why labour Turns Right ?’, in D. Lane (ed.), Transformation of State Socialism, System Change, Capitalism or Something Else?, Palgrave, Macmillan, pp. 77–91 (2007). Pilat, N.-M. ‘Towards the Europeanisation of Trade Unions in Post-Communist Romania’, South-East Europe Review, vol. 2, pp. 95–107 (2007). Pollert A., ‘Labor and trade unions in the Czech Republic: 1989–2000’, in S. Crowley and D. Ost (eds) Workers After Workers’ States: Labor and Politics in Postcommunist Eastern Europe, New York, Oxford: Rowman & Littlefield, pp. 13–36 (2002). Portet S., ‘Pologne : le dialogue social à l’épreuve de la crise économique’, Chronique internationale de l’IRES, no. 121, pp. 148–160 (2009). Rhodes, M. ‘Globalisation, Labour Markets and Welfare States: A Future of “Competitive Corporatism” ’?, in M. Rhodes and Y. Mény (eds) The Future of European Welfare, Houndmills, Palgrave Macmillan, pp. 178–203 (1998).

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Schulten, T. ‘The European Metalworkers’ Federation’s approach to a European Coordination of Collective Bargaining Experiences, Problems and Prospects’, in T. Schulten and R. Bispink (eds) Collective Bargaining under the Euro: Experiences from the European Metal Industry ETUI, Brussels (2001). Schulten, T. Changes in National Collective Bargaining Systems since 1990, EIRO, Study n 3 (2005). Svorenova, M. Towards Transnational Trade Union Representation? National Trade Unions and European Integration, Conference paper, Ruhr University, Bochum, 6–8 December (2007). Toth, A. ‘The Role of Multi-employer Collective Agreements in Regulating Terms and Conditions of Employment in Hungary’, Transfer, vol. 3, no. 2, pp. 329–356 (1997). Vaughan-Whitehead, D. L’Europe à 25, un défi social, Paris, La documentation Française (2005). World Bank, Doing Business Project (2009).

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14 Is Central and Eastern Europe a Laboratory for New Forms of Employment Relations? Guy Groux

French Ministry of Labour-funded research on the location of French firms in Hungary, Romania and Slovakia aimed to answer a question that is both simple and wide-ranging: when large French industrial companies establish subsidiaries in Central and Eastern Europe (CEE) do they export their employment relations (Delteil et al., 2009)?1 Looking at the main results of the research gives a clear answer: employment relations in the subsidiaries in CEE appear far weaker than those in France among the industrial firms concerned. At first glance, this situation is rooted in the internationalization strategies implemented by the latter. Indeed, the economic strategies pursued by French firms in Eastern Europe are based on financial optimization, involving competition between geographic regions, divisions and local sites and a deterioration of industrial relations, especially in terms of collective bargaining agreements.2 The relations between parent companies and their CEE subsidiaries are direct, while industrial relations within the subsidiaries are often based on highly local criteria that are far removed from the collective agreement guarantees usually found at French sites. The regulatory role that some bodies could play, involving international companies within the European Union, is often ineffective. This is the case with the European Works Councils (EWCs), which are frequently reduced to being mere talking shops or sounding boards for local issues arising in subsidiaries and related, for example, largely to safety or working conditions.3 In this context, the observations made during the investigation resemble some of the analysis about the changes in the US industrial relations system developed by Katz, Kochan and McKersie in 1986. For these authors, the accumulation of contextual pressures on production plants resulted in the primacy of management concerns – especially the logic of human resources (HR) management – in the interactions which usually characterize the world of industrial relations and bargaining agreements between employers and union representatives.4 233

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It may thus be thought that company strategy in CEE would aim at organizing and managing industrial relations at the lowest possible cost. According to this hypothesis, there is a difference in kind and degree between sites in France and subsidiaries in CEE. In the former, bargaining and the guarantees of collective agreements are embedded more strongly than in the latter where conditions are more precarious. In other words, there is a clear gap between industrial relations in France and in the CEE. In the light of the research, however, there are problems with such reasoning, which only reflects one aspect of reality. The policies implemented by parent companies do not reflect a gap between situations in France and a more-or-less degraded reality in the East. Instead, they indicate the spread of employment practices that have emerged over the last 30 years in France, to CEE subsidiaries. These practices have given rise to a social dialogue which may be described as a ‘managerial social dialogue’. More specifically, the notion of managerial social dialogue underlines the commitment by management to organize industrial relations to promote a certain number of managerial objectives, such as flexibility, value creation and so on. Furthermore, the research suggests that the spread of the social dialogue model to CEE is not simply a pure transfer from the country of origin (France) to the host country. Rather it reflects the assertion of differentiated variables that are subject to local conditions affecting industrial and employment relations. From this point of view, the research, as shown below, highlights the continuities and discontinuities across French and CEE sites in managing industrial relations. Understanding the relationships between companies and their subsidiaries involves considering empirical observations made both in CEE and in France.5 This allows the notion of a managerial social dialogue to be fully explored as it is the crucible in which practices in both parent companies and CEE Eastern subsidiaries are forged.

1. French research results The French research demonstrates how most of the traditional traits that characterized the various systems of industrial relations in the firms studied have been superseded. The history of industrial relations in these firms indicates there are three types of companies: firms based on strong paternalist traditions; companies linked to the nationalized sector, which gave rise to statist-parity systems with strong contractual innovations; and, lastly, an intermediate type in which contractual innovation developed within a paternalist context. 1.1. The trivialization of old business models During the 1970s and 1980s the differences that shaped the firms studied here faded away, more or less forcefully, under joint pressure from the

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economic crisis, the rise of international competition and the emergence of a dual employment system (Piore and Sabel, 1984). Existing company models converged on a new type of company that Freyssinet (1982) called the ‘pure capitalist company’, geared to ‘minimizing costs and maximizing productivity’. From this point of view, the evidence collected during the survey is clear. Thus a CGT union delegate in the food industry remarked that ‘over the last 15 years, we’ve moved from paternalism to a shareholderbased system.’6 Other features, that are now well-recognized, also emerged. The development of temping, precarious labour and the individualization of wages have all been marked trends within the firms and their economic environments. This is borne out in numerous interviews where respondents commented on ‘the alignment of Human Resources on the business’ or ‘the emergence of a results and productivity culture in place of the old community culture which marked the company’. Or even on the evolution of organizational strategies in companies, be they ‘restructuring on the basis of processes’, ‘global sourcing policies concerning capital equipment suppliers’ or ‘benchmarking practices vis-à-vis subcontractors’.7 Lastly, other interviewees confirmed the links between companies and their local or international environments, both of which were often defined in terms of cost-cutting, especially of labour. ‘Low-cost purchasing policies don’t just put pressure on suppliers. They are defined according to international location strategies and implicate staff itself.’8 The importance of these location strategies is increasing, if certain companies’ forecasts are taken into account. Thus, the international production share of one firm should ‘rise from 27 per cent in 2009 to 37 per cent in three years, according to the management’.9 It is within this context that managerial social dialogue is emerging and reinforcing itself, first in France and then in CEE. The research makes it possible to specify its precise characteristics. These findings challenge studies that have insisted on the resizing of firms’ social regulation systems based on a distinction between law, bargaining and management.10 The empirical observations here provide evidence of a significant change in direction in the terms and outcomes of the dialogue. It is no longer limited to the traditional goals and procedures of collective bargaining (first and foremost wage agreements), but has been expanded to include more informal channels and processes. The new aim is to implicate employees and their representatives more closely in the goals of organizational flexibility, performance and confidence-building. To this end, managements are not just using contractual policies more intensely, relating to working time, employee savings, equality and so on. They are also implementing new management methods that are often more individualized, like bonuses, assessments, personalized training programmes and career management. Such changes have been particularly observed in France, and suggest significantly that old divisions between law and contracts, on the one hand, and between law and management, on the other, are being surpassed. As a

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result, new forms of employment relations are emerging between the distinct forms of legal, national and local employment rules that reflect a reconfiguration of their respective influences over industrial relations. 1.2. The hybridization of different levels of regulation The managerial social dialogue is thus characterized, firstly, by the implementation of cross-cutting levels of regulation and rule-making. At the local level, three forms of regulation are well-known in France: the legal order refers to a key principle, that of protecting employees; the contract order, which is based on the principle of solidarity between the social partners; and, lastly, the managerial order, which involves the principle of economic efficiency, and which in the context of financial globalization tends to take precedence over the other two orders.11 For the HR directors and trade unionists interviewed, these three distinctive forms of regulation are no longer necessarily separate or even in a state of passive coexistence. Instead, they are hybrid relationships that may take three forms: 1. As an increasing overlap between managerial rules and professional bargaining, which refers increasingly to individualized issues and leads to collective agreements on training, time savings and employee savings schemes among other matters; 2. As a close relationship between collective agreements and the law, something illustrated well in France through the negotiated application of the Aubry Laws on the 35-hour working week. This type of hybridization has also been extended to other fields, such as vocational training, since the French 2007 Fillon Law, ‘modernising’ social dialogue (Bloch-London and Pélisse, 2008; Groux, 2001); 3. As a hybridization between management and legal regulations. This has been facilitated by certain legal measures such as the Fillon Law and the approval of agreements revising or adapting the application of the 35-hour working week in some companies, as well as other contractual or legally acquired rights. In questioning the hierarchy of legal norms, legislators have provided employers with increased room for manoeuvre in negotiations, thereby allowing company agreements to become exempt from agreements reached at higher levels (sector or national levels).12 Thus, in France, the development of managerial social dialogue has not necessarily led to the by-passing of collective bargaining or collective agreements, as was the case of many employer initiatives during the 1970s (Morville, 1985). Rather, collective bargaining may actually provide institutional support to this form of social dialogue. Managerial social dialogue thus benefits from an additional legitimacy in the field of industrial relations,

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based on collective agreements and contracts that extend beyond the basic economic legitimacy that management traditionally draws on. 1.3. Hegemonic managerial and other sources of employment regulation Under managerial social dialogue, the rules produced and derived from various regulatory sources (legal, managerial or contractual) are not mutually contradictory or even substitutes for each other. However, the power relationships linking these different forms of rule-making are not symmetrical. From this perspective, the notion of a managerial social dialogue differs from some published work in France in the field of industrial relations or employment regulation that treats the rule-making according to the principle of equivalence (Reynaud, 1989; Terssac de, 2003; Thoemmes, 2010; Thuderoz, 2000). Reynaud, for example, argues that ‘a more flexible rule or replacement of a legislative rule by a collective agreement rule is not the same as an absence of rules.’13 More fundamentally, these approaches tend to underestimate the divisions of interests and power relations that underlie the coexistence of different types of rules (laws, collective agreements etc.), and that this research of French and CEE workplaces unfailingly shows up. In other words, the managerial social dialogue and hybrid rule-making it implies in terms of the law, contracts and management derive less from equivalence than from hegemony. The concept of managerial social dialogue thus reflects the dominance of managerial imperative in legal and bipartite rule-making processes. In this regard, evidence on the individualization of wage negotiations, employee shareholding and the convergence of HR on a business or results-oriented culture that replaces earlier ‘community’ cultures within companies, are eloquent and involve several key features of the managerial social dialogue. Thus, in a majority of the French sites studied, the managerial social dialogue is based both on the unilateral production of autonomous rules concerning the management of human resources (individualization, mobility, etc.) and on legal rules. The latter are grounded in collective agreements as well as being contractual and are usually constructed with reference to economic imperatives.14 In the firms studied, this hegemony of productive imperatives over principles of solidarity is, therefore, not just expressed in the contractual sphere. With the context of greater flexibility in which the productivity paradigm structures local negotiations, management’s legitimacy is often twofold. It has an economic legitimacy based on the principle of efficiency and a contractual legitimacy which strengthens it in terms of legal regulations. To conclude on this point, it should be stressed that the achievement of economic legitimacy by management occurred quite late in France compared to the Anglo-Saxon countries. It imposed itself through

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globalization, and through the employers adopting a discourse in favour of preserving jobs nationally.

2. A Hardening of the French model in CEE Our research into practices observed at French subsidiaries in CEE confirms the presence of an original variation of managerial social dialogue there, compared with that present in France. 2.1. A less-institutionalized managerial social dialogue In firms operating in France, the managerial social dialogue is often characterized by the way it draws on collective bargaining and, as such, is applied in numerous areas (wages, skills, working time, employee savings, profitsharing, vocational training, social security, etc.). In contrast, the field of collective bargaining is far more restricted in CEE, being mainly confined to the question of wages.15 In most other areas, methods of intervention and problem-solving occur through unilateral decisions by company managers. The CEE version of the managerial social dialogue is also less institutionalized than in France, partly because of the fragility of national systems of industrial relations. The research results underscore the informal and often individualized dimension of employer–employee relations. As it is largely structured by measures of HR management, the managerial social dialogue in CEE draws less on a ‘unionized system’ than on an ‘HR system’, to use Anglo-Saxon terminology (Katz et al., 1986). In other words, based on the information gathered about production sites in CEE, the hybridization of managerial and collective agreement rulemaking is much more limited than that observed in French sites.16 The economic imperative linked to productivity constraints is reflected here in a more singular manner. This observation begs the question of whether there has been a capitalistic hardening of the initial ‘French model’, a model that Freyssinet (1997) described as being guided by a logic of ‘cost minimisation and productivity maximisation’. More concretely, it may be asked whether this hardening is due to low-cost strategies applied by French firms and their influence on certain practices related to international production, as was suggested by many of the interviewees. Clearly these factors are at work here in a significant way, even if they were brought into play by other contextual considerations. In CEE, the weak institutionalization of the managerial social dialogue may also be explained by the political and social transitions characterizing these countries, and by the fact that collective bargaining with private or capitalist companies has only recently been institutionalized. Indeed, in France as in many democratic countries, the system of industrial relations is the result of long historical processes, which imply the institutional recognition of industrial conflicts

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and an organizational apprenticeship into collective bargaining. Moreover, in CEE, the fact that the managerial social dialogue and bargaining are largely centred on wages is also explained by the specific conditions of economic development. In this case, the importance of wages stems from the fact that CEE is progressively catching up with the West, a levelling-up process that in the subsidiaries studied here creates a major and obvious concern among staff. Indeed, wage demands are all the more sensitive as they are linked to strong increases in employee skills, to ever-higher levels of productivity and more generally to the consumer needs of the countries covered in the research. But beyond these various contextual issues, one fact remains: in CEE the purely ‘HR system’ goes far beyond the mere managerial social dialogue based on collective bargaining and the ‘unionized system’. CEE is a context dominated by the hegemony of managerial prerogatives and the underdevelopment of rule-making through collective bargaining. This explains one of the research results, which points to the weak influence, within CEE, of rules derived from EU social directives and, more especially, of EWCs. Indeed, to date, their existence has done little to compensate for weaknesses of contractual relations at the local level. In fact, the financial ‘optimisation’ logic of parent companies means that CEE subsidiaries are put into competition with each other. This leads to a direct relationship between headquarters and local subsidiaries that weakens the influence of EWCs over industrial relations.

2.2. Practices which break with community traditions Taken together, the observations and remarks linked to the research raise an important question about the various types of rule-making within the European Union. In CEE, certain aspects of the managerial social dialogue have been sharpened within French firms, subordinating it ever-more to productivity imperatives. Has this not contributed to reinforcing practices that are increasingly far removed from the historical traditions characterizing industrial relations in Europe (Slomp, 2000)? Within the EU, two major traditions have shaped industrial relations from the beginning, in both their political and symbolic representation. The Social Democratic tradition promoted the concept of a welfare state and the existence of rule-making founded at least minimally on legal initiatives – even if these do not exclude recognition of the importance of contractual bargaining. The Christian Democratic tradition, in contrast, drew on the principle of subsidiarity and favoured collective bargaining along with the implication of employees in company management, while granting a recognized role to the law as an essential means for structuring industrial relations (Crouch, 1990; Didry and Mias, 2005; Gabaglio and Hoffmann, 1998; Groux et al., 1998). Clearly, the model arising from the managerial social dialogue has created a new reference system with respect to these two fundamental

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traditions. This system is based not on the primacy of the law or of contracts, but on the primacy of economics. This is an important finding of the research that helps illuminate certain trends in the evolution of social Europe and the enlargement of the EU. During the election campaign for the referendum on the European Constitution, CEE was often presented as synonymous with ‘social dumping’. What is the reality of the situation? To be sure, the existence of a managerial social dialogue in CEE implies features which are often defined as ‘lowest common denominator’ politics. However, a further significant finding of the research, which compares the evolution of industrial relations in French and CEE sites, shows how practices that constitute a break with the major European social traditions are far from emanating only from CEE. From this point of view, the research runs against arguments suggesting that CEE systems constitute an autonomous and original crucible for an enhanced neo-liberal model of industrial relations, which oppose or will eventually disqualify the historical, political and social traditions of the EU. Rather, the CEE systems have only amplified the impact of managerial hegemony on social dialogue, a hegemony that was first implemented in France. This is how the rise of the managerial social dialogue should be read, as situating itself outside the more classical traditions of industrial relations in Europe. This is one of the key results of the research, highlighting certain trends concerning the social dialogue in Europe. In this case, the evolution of industrial relations in France, as well as in a majority of West European countries has contributed significantly to the emergence of common new forms of industrial relations. For a long time, these have challenged the traditional social and political collective bargaining processes of the EU15 member states. And it is in this context that the CEE recipients of FDI have merely acted as a sounding box, extending and consolidating economic and social practices that are today well established, and which come from elsewhere.

Annex: A Wage Dispute – The Dacia Renault Dispute (January–February 2008) The dispute began over fair pay. It was a response to the announcement made in 2006 by Renault’s Romanian subsidiary concerning its first ¤100 million profits, following 5 years of modernization. After more than a month’s strike – the longest dispute ever on the site – the employees obtained a 34 per cent pay rise in 2008, or ¤133, calculated on the basis of wages paid at the factory. It should be noted that on top of pay, employees receive benefits such as hot meals, lunch vouchers and transport refunds. The demands were made in the name of sharing out productivity gains, given the contribution of Romania workers to the Group’s results. They followed a 21 per cent pay rise already agreed to by management, in March 2007. At the time, the unions obtained slightly more than they were asking

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for (20 per cent) to cover inflation and to get back some of the productivity gains already achieved. It may be thought that these rises clearly fit in with macroeconomic developments geared to wage catch-up. But this should be put into perspective given the interaction of numerous factors which scarcely come together in other companies. These include the existence of a strong union base and its strong implication in Dacia’s restructuring, along with the scale of investments carried out by Renault and the positive effects of a profit strategy based on building low-cost cars. From this point of view, the pragmatic attitude of management to union demands follows not so much from a re-balancing of power, which management has to accept. Instead, it follows a strategic choice which management acknowledges fully, given the progress made in terms of productivity, from which the firm expects to benefit. It also follows from the gradual build-up of new production sites in Morocco, Iran and Russia, which will surely weigh on future bargaining. Two further remarks may be added. Firstly, wage increases conceded by the Group management weigh less on the plant’s competitiveness than does its overall economic situation (exchange rates, level of foreign demand, etc.) and the costs incurred by the general conditions of production organization at the local level (roads, transport, etc.). Still, the specificity of the Romanian situation, and more generally that of CEE, is that the level of national social norms and wages are often below the national benefits offered by multinational firms as part of their social policies. In other words, only the quality and quantity of labour available, combined with the free operation of the local labour market and minimal public infrastructures are likely to influence, at present, the choice of French (or foreign) industrial groups to relocate to CEE. Secondly, from the standpoint of management, the Romanian workers’ wage claims highlight the limits of profit-sharing policies (equal to 6 per cent of the Group’s profits) as a possible substitute for a wage policy. Until 2007, this agreement was only valid for the 40,000 employees of the parent company. From 2009, a new profit-sharing agreement, which was extended to subsidiaries, set the amount to be shared according to the operating margin achieved. The result is increased competition among production sites, which does not favour transnational, union co-operation. This is largely absent in the Renault Group committee. Source: Delteil et al. (2009: 180).

Acknowledgements The author would like to thank Violaine Delteil and Patrick Dieuaide warmly for their attentive reading of this text and the proposals they made which helped improve it significantly.

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Notes 1. These countries are referred to here with the abbreviation CEECs. It should be recalled that the survey covered eight large French industrial companies, and was undertaken between 2006 and 2008 in Eastern Europe. The parent companies and other sites in France were also surveyed. 2. Some of the findings of the survey show that in the automobile industry, in particular, the way in which countries, subsidiaries and local sites are put into competition with each other has allowed ‘coercive comparative’ practices to emerge. 3. See Delteil et al. (2009). 4. See also da Costa (1990). 5. In France, the directors of human resources and unionists within firms, as well as experts, consultants and actors in key positions to observe industrial relations were all surveyed. The report published under the auspices of the DARES provides more information. 6. Interview, France, June 2006. 7. Extracts from interviews conducted between 2006 and 2008, with HR managers and unionists (CGT, CFDT) in the food industry and in the metallurgy industry. 8. For example: Europe accounts for 60 per cent of the global workforce, of which 45 per cent are high cost and 15 per cent low cost. Figures elsewhere are Asia, 11 per cent with 5 per cent high cost and 6 per cent low cost; America, 16 per cent with 4 per cent high cost and 11 per cent low cost; Africa, 13 per cent all of which are low cost. Interview with an HR director (automobile sector), September 2006. 9. A survey interview with a CGT unionist (automobile sector), May 2006. Concerning international development, a similar observation could be made about the energy sector: interview with the Central European director, June 2006. 10. These studies draw strongly on the notion of deregulation. 11. The observations made concerning cross-cutting rule-making stem from interviews relating to the social dialogue and working relationships with production units or companies or EWCs. The research quoted did not take into account sector levels or national levels. The ‘managerial social dialogue’ described here thus concerns the local level, which remains fundamental in view of company strategies that aim to nurture competition between sites and geographical locations. 12. Other authors hold more qualified views. For example Mériaux et al. (2008) considered the number of agreements exempted from the Law of 4 May 2004 as still insignificant in the years 2004–07. This is undeniable, but at company level it does not call into question the rise of autonomous rule-making (alongside legal regulation) that is grounded solely in management practices that have long proved their effectiveness: the individualization of industrial relations, skills management and so on. For a more theoretical point of view, see also Jeammaud (1998), who demonstrates that the law today may support a process of self-regulation, as well as Gavini (1998) and Duclos et al. (2009). 13. The notions of a common ideology and the production of rules were formulated by Dunlop and applied to various levels of collective agreements within US firms during the 1950s. To some extent they refer to a similar rationale here (da Costa, 1990; Dunlop, 1958, 1993; Reynaud, 1990). 14. The research confirms some of the theories developed by Bélanger and Thudéroz (1998), Gavini (1998) and Freyssinet (1997).

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15. It should be noted that conflict is not entirely absent from negotiations. In 2008, a strike took place at Dacia in Romania on the issue of wages and employee demands for ‘fair pay’. This was, however, the only major strike in the private sector to have been organized in Eastern Europe in all these years. For further information about the strike see Annex, at the end of the text. 16. In some cases, the social dialogue may be very limited indeed: ‘We are below legal requirements [ . . . ]. The managers are overworked – they work from 8am until 20pm [ . . . ]. Furthermore, hourly wages vary enormously. The parent company does absolutely nothing to improve standards’ (a non-unionized employee representative in the automobile sector, Slovakia).

References Bélanger, J. and Thuderoz Ch. (1998), La recodification de la relation d’emploi, Revue française de sociologie, volume XXXIX, n◦ 3. Bloch-London, C. and Pélisse, J. (2008), L’évolution du cadre légal des relations professionnelles: entre foisonnement juridique et renouvellement des acteurs, une appropriation sélective des dispositifs » dans Amossé T., Bloch-London C., Wolff L., dir., Les relations sociales en entreprise. Un portrait à partir des enquêtes « Relations professionnelles et négociations d’entreprise (1992–1993, 1998–1999, 2004–2005), Paris, La Découverte, Collection Recherches. Crouch, C. Les systèmes de relations professionnelles : la théorie de Dunlop trente ans après et dans une perspective européenne dans Reynaud, J.-D., Eyraud, F., Paradeise, C., and Saglio, J. dir. Les systèmes de relations professionnelles. Examen critique d’une théorie, Paris, Éditions du CNRS (1990). Da Costa I. La théorie des relations industrielles aux Etats-Unis. De Dunlop au débat actuel, dans Reynaud J.-D., Eyraud F., Paradeise C., Saglio J., dir., Les systèmes de relations professionnelles. Examen critique d’une théorie, Paris, Éditions du CNRS (1990). Delteil, V., Dieuaide, P. and Groux G. (2009), Les relations professionnelles à l’épreuve de l’élargissement. L’Est : un nouveau laboratoire des relations sociales ? Résultats d’enquête auprès de firmes multinationales françaises implantées en Hongrie, Slovaquie, Roumanie, Rapport de recherche, Paris, DARES, Ministère du Travail, des Relations sociales, de la Famille, de la Solidarité et de la Ville (2009). Didry, C. and Mias, A. Le moment Delors. Les syndicats au cœur de l’Europe sociale, Bruxelles, P.I.E.-Peter Lang, collection Travail&Société (2005). Duclos, L., Groux, G. and Mériaux, O. (2009), dir., Les nouvelles dimensions du politique: Relations professionnelles et régulations sociales, Paris, LGDJ (2009). Dunlop, J.-T. Industrial Relations Systems, Boston, MA, Harvard Business School (première édition: 1958), (1993). Freyssinet J. Politiques d’emploi des grands groupes industriels, Grenoble, Presses Universitaires de Grenoble (1982). Freyssinet J. Le temps de travail en miettes. Vingt ans de politiques publiques et de négociations collectives, Paris, Éditions de l’Atelier (1997). Gabaglio, E. and Hoffmann, R. eds, The ETUC in the Mirror of Industrial Relations Research, Brussels, European Trade Union Institute Publ (1998). Gavini, C. Emploi et régulation. Les nouvelles pratiques de l’entreprise, Paris, CNRS Éditions, collection CNRS Sociologie (1998). Groux, G., Mouriaux, R. and Pernot, J.-M. The Europeanisation of the Trade Union Movement : the European Trade Union Confederation dans Gabaglio E.,

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Hoffmann R., eds, The ETUC in the Mirror of Industrial Relations Research, Brussels, European Trade Union Institute (ETUI) Publ, 1998). Groux, G. (2001), L’action publique négociée ou l’institutionnalisation des conflits de règles ? Propos de conclusion dans Groux G., dir., L’action publique négociée. Approches à partir des 35 heures. France-Europe, Paris, L’Harmattan, collection Logiques politiques (2001). Katz, H., Kochan T. and McKersie R. (1986), The Transformation of American Industrial Relations (New York, Basic Books, 1986). Jeammaud, A. Introduction à la sémantique de la régulation juridique. Des concepts en jeu, dans Clam J., Martin G., dir., Les transformations de la régulation juridique, Paris, LGDJ, 1998. Mériaux, O., Kerbouc’h, J.-Y. and Seiler, C. Évaluation de la loi du 4 mai 2004 sur la négociation d’accords dérogatoires dans les entreprises, Paris, Document d’études, n◦ 140, DARES (2008). Morville, P. Les nouvelles politiques sociales du patronat, Paris, La Découverte, collection Repères (1985). Piore, M. and Sabel, C. (1984), The Second Industrial Divide: Possibilities for Prosperity (New York, Basic Books, 1984). Reynaud, J.-D. Les règles du jeu. L’action collective et la régulation sociale (Paris, Armand Colin, 1989). Reynaud, J.-D. Un paradigme du système social, dans Reynaud J.-D., Eyraud F., Paradeise C., Saglio J., dir., Les systèmes de relations professionnelles. Examen critique d’une théorie (Paris, Éditions du CNRS, 1990). Slomp, H., Les relations professionnelles en Europe (Paris, Editions de l’Atelier, 2000). De Terssac G., dir, La Théorie de la régulation sociale de Jean-Daniel Reynaud, Paris, La Découverte, Recherches (2003). Thoemmes, J. La négociation du temps de travail : une comparaison France-Allemagne, (Paris, LGDJ, 2010). Thuderoz, C. Négociations. Essai de sociologie du lien social (Paris, PUF, 2000).

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Index Accor, 4, 58 Brownfield/Greenfield investments, 59 Bulgarian tourism and, 154–5 European Works Council and, 143–4 French effect and, 144–6 Hungarian hotel sector and, 137–8 sector-level trade unions and, 142–3 Survival Association of, 141 trade unions and, 138–40 Anglo-Saxon model, 128 anti-unionism, 13 Auchan, 4, 58–9, 136, 174, 204, 208, 211 automobile industry, Central and Eastern Europe, 74–9 car production, 76 crisis impact on, 76–8 jobs in, 76 proactive policies and, 78–9 Axa, 4, 59, 205, 209–14 Baltic Sea Trade Union Network (BASTUN), 189, 193 Baltic States, industrial relations and social dialogue in, 179–94 conclusion, 193–4 demands in response to crisis, trade union, 187–90 economic contours of crisis, 180–2 governmental responses to crisis, 182–4 LPS Solidarumas, 186 neo-corporatism as compromise, 190–3 trade unionism and, 184–7 Bank for International Settlements (BIS), 71, 72 banking sector, Bulgarian labour relations and, 155–8 Barroso, Josè Manuel, 190 best practice model, 33, 100, 111 BNP-Paribas, 4, 57, 59, 136, 151, 155–6, 205, 208, 211

Bongrain, 86–93 European Works Council at Bongrain, 92 Bulgaria Chamber of Energy Employers, 158 Confederation of Bulgarian Employers, 31 Confederation of Employers and Industrials in Bulgaria (CEIB), 155, 162 employment relations transformation, 150–62 Energy Sector Council for Tripartite Consultation, 158 Federation of Independent Professional Unions in the Trade, 153 financial asset ownership in, 70 foreign-owned banks in, 69–70 Institute for Employment and Trade Union Research, 160 Labour Code, 151–4, 156, 158–9, 162 manufacturing sector, labour relations in, 159–60 Ministry of Economy and Energy, 158 Ministry of Labour and Social Policy, 153 National Council for Tripartite Cooperation, 151 National Federation of Energy Workers (CITUB), 151, 154, 155, 158, 159, 160 Podkrepa (trade union), 158 tourism, Bulgarian employment relations and, 154–5 Bulgarian employment relations, multinational companies and, 150–62 in banking sector, 155–8 in energy sector, 158–9 in manufacturing sector, 159–60 in other subsidiaries, 160–1 in retailing sector, 152–4 in tourism, 154–5 transfer role of, 151–2

245

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Index

Bulgarian General Labour Inspectorate (GLI), 154 Bulgarian International Business Association, 31 Bulgarian National Federation of Energy Workers, 158 capitalism, 51 Carrefour, 4, 58–9, 151, 171, 173, 175–6, 204, 208 Central and Eastern Europe automobile industry in, 74–9 banking and finance sector in, 68–72 colonial perceptions/union opportunities in, 45–60 economic growth in, 49–52 finance, crisis impact on, 72–4 foreign direct investment impact on, 46–9, 54–6 French multinational companies in, 201–15 gross domestic product, 49–50, 67 manufacturing/services FDI and employment relations in, 56–7 service sector differences in, 57–9 social models, 217–30 trade union membership in, 52–4 2007–08 global financial crisis and, 66–8 unemployment in, 50–1, 67 Volkswagen work model in, 106–9 Central and Eastern Europe food industry, employment relations in, 83–95 embedding of HR policies and, 88–9 human resource policies and, 84–6, 90–2 MNC profiles, organizations, strategies in, 86–7 models used, 94 production and, 89–90 unions and, 92–4 co-determination, 29, 32, 38, 103 collective bargaining, intermediate level, 126, 127 collective bargaining/agreements, Polish employment relations and, 172–5 collective representation by U.S. multinational companies, 9–25 in Germany, 17–19

in Ireland, 20–2 in Spain, 19–20 transfer of practices by, 10–12 in UK, 14–16 unions and, in U.S., 13–14 colonialism, 45–6 compartmental approach, as international industrial relations strategy, 205–8 competitive advantage, 11 conflicting pluralism, 169 Contrepois, Sylvie, 1, 65, 201 cooperative conflict management model, 106, 107 co-ordinated market economies, 11, 29, 31 Czech Republic, 38–41 Dacia Renault wage dispute, 240–1 Danone, 86–93 DARES, 128 Deltiel, Violaine, 1, 65, 202, 217, 241 Dieuaide, Patrick, 1, 65, 83, 202, 241 diffusion, theory of, 151 dual representation effect, of labour relations, 135, 141–2 Durand, Claude, 150 Eastern European social models, increasing variety of, 221–7 labour markets and, 223–5 minimalist/competitive version of, 222–3 tripartism and, 225–6 economic colonization, 139 EDF, 4 Brownfield acquisitions by, 58–9 Bulgarian employment relations and, 158–9 employee representation and, 141–2 European Works Councils and, 143 French effect and, 144–6 Hungarian electricity industry and, 136, 138–9 Poland and, 169–70, 171 sector-level trade unions and, 142 employment protection, labour regulation institutions and, 112–13 employment protection agreements, 102

Jefferys

Index employment relations, Bulgarian subsidiaries of French multinational companies, 152–61 banking sector and labour relations, 155–8 energy sector, 158–9 manufacturing sector and labour relations, 159–60 retailing sector, 152–4 tourism, 154–5 employment relations, Central and Eastern Europe food industry and, 83–95 German work model and, 99–114 global financial crisis and, 65–80 manufacturing/services, foreign direct investment (FDI) and, 56–7 employment relations transfer, multinational companies role in, 151–2 energy sector, Bulgarian employment relations in, 158–9 Estonia. see also Baltic States, industrial relations and social dialogue in budget deficits in, 179–83 Estonian Employees’ Unions’ Confederation, 185 Estonian Trade Union Confederation, 185 foreign direct investment in, 30, 31, 46, 47, 49, 50 protest demonstration in, 51 trade unions in, 54, 186, 188–90, 193 unemployment in, 50, 51, 67, 191–2 EU acquis, 219, 220 EU Information and Consultation Directive, 111 European Central Bank, 74, 182–3, 219 European Commission, 190, 191 European effect, of labour relations, 135, 143–4 European Foundation for the Improvement of Living and Working Conditions, 201 European Monetary Union (EMU), 179 European social integration Central and Eastern Europe social models, 217–30

247

employee representation as internationalization strategy, 201–15 employment relations, new forms of, 233–41 European social model (ESM), 2, 31, 37, 40, 42, 80, 100, 134, 146, 150, 177, 217–18, 221–9, 230 European Trade Union Confederation (ETUC), 144, 147, 160, 190, 201, 207, 215 European Union (EU), 1, 2, 179, 181, 184, 201, 230, 233, 239 European Works Council Directive, 201 European Works Councils (EWCs), 4, 34–5, 92, 105, 107, 113–14, 143, 150, 160, 173, 176, 201–215, 221, 230, 233, 239 Facharbeiter (skilled worker), 99, 102, 104, 107 Ferner, Anthony, 9 foreign direct investment (FDI), 29 complexity of, 30–1 economic development and, 47–8 economic growth in Central and Eastern Europe and, 49–52 French, in Hungarian economy, 136–8 Hungary, 120 manufacturing/services, employment relations and, 56–7 new member states and, 30 sectoral trade unions, effects on, 54–6 trade union power in Central and Eastern Europe and, 52–4 foreign direct investment (FDI) transfers, Central/Eastern Europe collective employee representation by U.S. multinational companies, 9–25 manufacturing/services, trajectories, 45–60 social aspects of, 29–42 foreign-owned banks, 69 France dual representation and, 141–2 electricity industry and, 136–7 employee representation and, 201–3 Force Ouvrière (FO trade union), 207 French effects and, 144–6

Jefferys

248

Index

France – continued hotel sector and, 137–8 industrial relations strategies and, 205–11 international relations and, 143–4 Labour Code, 206 labour relations and, 135, 144–6 methodological considerations, 135–6 Ministry of Labour, 5, 165, 202, 233 MNCs in Central and Eastern Europe, 201–15 MNCs in Hungary, 134–47 sector level representation and, 142–3 social model and, research design for, 203–5 trade unions and, 138–41, 211–14 France Telecom, 168 free-riders, 112 GDP growth rate Baltic States, 180–1 Bulgaria, 150 foreign direct investment and, 30, 46–50 Hungary, 119–22 Poland, 166 German work model, exporting to Central and Eastern Europe, 99–114 contexts and meanings of, 101–3 labour regulation institutions and, 111–13 multinational companies standards and, 100–1 Volkswagen case study, 103–11 Germany collective representation by U.S. multinational companies in, 17–19 Metalworkers’ Union, 102 multinational companies and 2004–05 research project, 31–8 global deleveraging, 66 global financial crisis, Central and Eastern Europe, 65–80 automobile industry and, 74–8 banking/finance sector and, 68–72 explained, 65–8 impact of, 72–4 proactive policies and, 78–9

global financial crisis, multinationals/host countries in Baltic States, 179–94 Bulgaria, 150–62 French MNC’s in Hungary, 134–47 Hungary, 119–28 Poland, 165–77 Global Union Federations, 202 goods/service sectors, employment shares of, 55 governance structure, 101, 103–6 Groux, Guy, 233 high-road model, 41–2 hire and fire approach, 112, 114 home/host country effects, measurement of, 100 humanization of work, 113 Human Resource Information Systems (HRISs), 93 human resource policies, Central and Eastern Europe food industry, 84–6, 90–2 consistent with ownership structure, 88–9 differentiation strategy and, 89–90 employment relations models used in, 94 unions and, 92–4 variations in orientations of, 90–2 Hungary, 119–28 economic crisis in, 121–2 economy, transformation/ stabilization/growth of, 119–21 employment relations in, 122–5 Federation of Electricity Companies, 137 financial asset ownership in, 69 foreign-owned banks in, 69 Forum for Economic Concertation (GEF), 122–3 French multinational companies in, 134–47 GSZT (Economic and Social Council), 126, 131 Interest Reconciliation Council, 127 Labour Code, 124–5, 141 Labour Mediation and Arbitration Service (MKDSZ), 125, 130

Jefferys

Index legislation, employee representation, 124–5 multinational companies’ role in employment relations, 127–8 National Association of the Employers in the Catering and Tourism Sector, 138 National Interest Reconciliation Council (OET), 125–6, 131 organization/strategies, employment relations, 122–4 OTKA-National Research Fund, 128 Sectoral Social Dialogue Committee, 137, 138 social dialogue, negotiations, bargaining in, 125–7 unionization in, 123 VOSZ (National Business Association), 122 see also French multinational companies in Hungary hybridization, 100, 151 industrial relations (IR) American system of, 13 Baltic States, and social dialogue in, 179–94 Czech Republic case study in 2007–08 and, 40 French research results of, 234–8 international, strategies for, 205–11 New Deal model of, 13 integrating approach, as international industrial relations strategy, 208–11 international capitalism, 51 International Federation of Chemical, Energy, Mine and General Workers’ Union, 212–13 international framework agreements, 202 international industrial relations strategies, 205–11 compartmental approach, 205–8 impact on trade unions, 211–14 integrating approach, 208–11 international institutions, transforming Eastern Europe social models, 218–19 International Labour Organization (ILO), 105, 184, 218, 227

249

International Monetary Fund (IMF), 66, 73–4, 121, 181–2, 189, 193–4, 218, 228 Ireland, collective representation by U.S. multinational companies in, 20–2 Jefferys, Steve, 1, 45, 65 Koltay, Jen˝ o, 119 Krzywdzinski, Martin, 99 Kwiatkiewicz, Anna, 165 labour markets, Eastern European social models and, 223–5 labour regulation institutions, Central and Eastern Europe, 111–13 educational system and, 112 employment protection and, 112–13 humanization of work and, 113 labour relations, aspects of, 135 Latvia budget deficits in, 179–83 contractual and working arrangements in, 167 foreign direct investment in, 30, 31, 46, 47, 49, 50 Free Trade Union Confederation of Latvia (LBAS), 186, 189–90, 193 Latvian Confederation of Trade Unions (LBAS), 186, 189–90, 193 protest demonstration in, 187 social dialogue in, 189–92 trade unions in, 53, 54, 192–3 unemployment in, 50, 51, 67 see also Baltic States, industrial relations and social dialogue in legacy effect, of labour relations, 135, 138–41 liberal market economies, 11, 31 Lisbon Strategy, 219 Lithuania budget deficits in, 179–83 foreign direct investment in, 46, 49, 50 Lithuanian Labour Federation (LDF), 186 Lithuanian Trade Union Confederation (LPSK), 185–6 social dialogue in, 189–92

Jefferys

250

Index

Lithuania – continued trade unions in, 54, 185, 187–9 unemployment in, 50, 51, 67 see also Baltic States, industrial relations and social dialogue in l’Organisation Internationale de l’Energie et des Mines, 213 low-road union suppression strategies, 13, 17

French companies involved in, 168–71 Labour Code, 172 OPZZ (trade union), 35, 169, 230 socio-economic context for, 166–8 State Enterprise Pact, 172 production models, 102 profit-sharing, 89, 90 Public Services International, 213 quality of work, 113

managerial capitalism, 51 managerial social dialogue, 238–9 manufacturing/services, trajectories, foreign direct investment (FDI) transfers, Central/Eastern Europe, 45–60 market economies co-ordinated, 11, 29, 31 liberal, 11, 31 Meardi, Guglielmo, 29 Monks, John, 190 Mr Bricolage, 58–9, 153, 204, 208 multi-employer agreements, 126 multinational companies (MNCs), 9 American, importance of, 9–10 business associations of, 31 Czech Republic, 38–41 effect of, 31–8 in food industry’s employment relations, 86–7 French, in Hungary, 134–47 transfer of practices by, 10–22 transfer of standards in, 100–1

regional players, food industry as, 83 regulation, hybridization of, 236–7 Renault, 74, 75, 213–14, 228, 240–1

non-unionism, 13 Germany and, 17 Open Method of Coordination (OMC), 221 Poland collective bargaining/agreements, 172–5 contractual/working arrangements in, 167 employment relations, under French foreign direct investment, 165–77 employment relations in, 165–77 financial asset ownership in, 70 foreign-owned banks in, 69–70

Schneider Electric, Bulgaria, 159 sector effect, of labour relations, 135, 142–3 segmented social model, 51–2 shareholder/family-owned French food MNC comparison, 87 social dumping, 2, 202, 213, 240 social models, Central and Eastern European, 1–2, 217–30 foreign direct investment and, 46, 59 fragility of, 227–9 increasing variety of, 221–7 international institutions role, 218–19 mixed influence of European Union, 220–1 renewal of European Union experience, 219–20 segmented, 51–2 social models, French, 134–5, 162, 175, 176, 203–5 social transfers, multinationals in Central Europe, 29–42 foreign direct investment (FDI) and, 30–1 Société Générale, 4, 57, 59, 155, 156, 157, 204, 205, 208 Solidarity (Solidarno´sc´ trade union), 35, 106–7, 112, 168–9, 228 Spain, collective representation by U.S. multinational companies in, 19–20 strategic HR policies, 85 Szabó, Linda, 134

Jefferys

Index trade unionism, Baltic States, 184–7 trade unionists, French multinational companies in Hungary and, 138–41 transfer coalitions, 101 transfer of practices by multinational companies (MNCs), 10–22 collective representation in German, Irish, Spanish subsidiaries, 16–22 collective representation/U.S. subsidiaries in U.K., 14–6 unions and collective representation in U.S., 13–14 Traxler, Franz, 29 Treaty of Maastricht, 219, 221 tripartism, macro level, 125–6, 225–6 Tripartite Commission for Social and Economic Issues, 172

251

union density rates, CEE/EU, 52–4 Vienna Institute for International Economic Studies, 73 Vladimirov, Zhelyu, 150 Volkswagen, 29, 74 case study, 103–11 Global Works Council (GWC), 105–6 governance structure at, 103–6 other German company work models, CEE, 109–11 work model in CEE, 106–9 welfare capitalism, 13, 15, 16, 19 Wierink, Marie, 5 World Federation of Industry Workers (WFIW), 213 Zentai, Viola, 134

Jefferys