The ’Soft State’: Business-Government Relations in Post-Communist Poland Kevin Iain McMenamin, Department of Government, London School of Economics and Political Science Thesis submitted for the PhD examination, University of London April 2004 75,799 words (all inclusive, except bibliography) 1 UMI Number: U615998 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI U615998 Published by ProQuest LLC 2014. Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code. ProQuest LLC 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106-1346 Library iirmsfr ub*wy otflohfecai and&nwwicSaena- >H£S£S f $ 33 ^ 9869 The ‘Soft State’: Business-government relations in post- communist Poland Abstract I define modes of business-government relations by the actor, which represents business. In the association state, business associations are dominant. In the company state, the firm directly represents itself. In the party state, access to the political system is mediated by parties, with which businesses must identify themselves. In the soft state, the personal connections of businesspeople are the dominant channel of influence. The existing literature on business-government very rarely acknowledges that each mode forms part of the environment of business- government relations for the other modes. Of the four modes, by far the least attention has been given to personalism. I find the association state to be weak because large numbers of small firms, weak trade unions and the sectoral configuration of Polish business present few incentives for the formation of business associations. The company state is usually associated with foreign and state enterprises. Foreign direct investment has been relatively modest in Poland. When state enterprises directly engage with the state, they tend to do so, not as businesses, but in alliance with trade unions. The party state is undermined by the high governmental turnover in Poland. It makes no sense for business to commit itself to parties, which are only temporary rulers. The soft state is found to be the dominant form of business-government relations. The sources of personalism are partially hidden behind complex personal histories. However, 2 involvement in youth organisations is a powerful predictor of the level of personal connections to politicians amongst the business elite. Fundamental, and unlikely, changes to political competition and economic structure are necessary for Poland to become an association or a party state. In contrast, foreign ownership is increasing and state ownership is decreasing and transforming itself Some of the conditions for personalism are also being undermined. In the future, instead of being a soft state, permeated by personal interests, Polish business- government relations may move towards the company state. 3 Acknowledgments: I wish to thank my supervisor, Vesselin Dimitrov, for his unfailing commitment and special ability to tell me things I knew but would not admit, and my adviser, Klaus Goetz, for scepticism with a smile. I am also grateful for comments, on various sections and versions of this work, from Robert Elgie, Niamh Hardiman, Jouni Kuha, Roger Schoenman and Virpi Timonen, participants in seminars at the London School of Economics, University College Dublin, the European Consortium for Political Research General Conference and the UK Political Studies and American Political Science Association Annual Conferences, as well as the editors and referees of Business and Politics and the European Journal o f Political Research, in which parts of this thesis have been published. In Poland, I received invaluable assistance from the Polish Academy of Sciences, especially Zbigniew Dr^g, Krzysztof Jasiecki, Slawek Nalecz, and Jacek Wasilewski. This research for this thesis was supported by funds from the National University of Ireland Travelling Studentship in Politics, the London School of Economics and Political Science and the Polish Academy of Sciences / Royal Irish Academy Exchange Fund. My family and friends are wonderful but I’ll thank them in person! Iain McMenamin Ascal Griofa, B.A.C., Aibrean 2004 4 Contents: Chapter One Introduction 1 Business-Govemment Relations and Post-Communist Research 7 2 The Nature of Post-Communism 9 3 Methodology 13 4 Conclusion 23 Chapter Two The Polish Economy and Polity 1 Introduction 25 2 The Communist Polity 25 3 The Communist Economy 30 4 The Political Transformation 35 5 The Economic Transformation 38 6 Polish Democracy 42 7 Polish Capitalism 57 8 Conclusions 66 Chapter Three The Four Modes of Business-Government Relations 1 Business and Post-Communist Business-Govemment Relations 67 2 The Modes of Business-Govemment Relations 68 3 The Association State 72 4 The Company State 93 5 The Part)* State 96 6 The Soft State 101 7 Conclusions 109 Chapter Four Business Associations 1 Introduction 112 2 Dependent Variable 113 3 Independent Variable 127 4 Conclusions 162 Chapter Five Competing Modes of Business-Govemment Relations 1 Introduction 164 2 Identify ing and Explaining Modes 164 3 Competing Modes 213 4 Conclusions 218 Chapter Six Labour Law Making in the ThirdSejm 1 Introduction 220 2 The Labour Code as a Case Study 220 3 Context 223 4 The Twists and Turns of the Labour Code Reform 227 5 Conclusions 247 Chapter Seven Conclusions 1 Introduction 249 2 Summary 249 3 Potential changes in Poland 251 4 Poland’s post-communist neighbours 258 5 Post-communism 267 6 Conclusions 269 Appendix 1 Interview Schedules 271 Appendix 2 Interviewees 273 Appendix 3 List of Leaders from ISP Survey 274 Appendix 4 Dendrogram from Cluster Analysis 275 Appendix 5 World Bank Governance Scores 276 Bibliography 277 List of Tables 4.1 Data on Employer Organisations 11S 4.2 Motivations for Membership of Business Centre Club 134 4.3 Membership Incentives for Regional Chambers of Commerce 137 4.4 Trade Union Membership in Poland 142 4.5 Roundtable Members Under Communism 157 5.1 Lobbying Channels for Laws, Rules, Regulations and Decrees 166 5.2 Summary of Variables 182 5.3 Regression Analysis of “How Well Known” Leaders Are 183 5.4 Regression Analysis of Scaling Solution 186 5.5 Interpretation of Cluster Analysis 190 5.6 Impact of Forms of Corruption 192 5.7 Personalism as an Epiphenomenon: Associations and Companies 202 5.8 Personalism as an Epiphenomenon: Parties 204 5.9 Sources of Personalism: Business and Social Factors 206 5.10 Sources of Personalism: Youth and Communism 209 5.11 Sources of Personalism: Best Variables 210 5.12 Logistic Regression on Lobbying Activity 214 5.13 Logistic Regression on Lobbying Success 215 5.14 Logistic Regression on Lobbying Activity (without size) 216 5.15 Logistic Regression on Lobbying Success (without size) 217 7.1 Lobbying Channels for Laws, Rules, Regulations and Decrees 262 List of Figures 2.1 Ideological Space of the Third Sejm 45 2.2 Unemployment in Poland 65 2.3 Economic Growth in Poland 66 3.1 Economic Explanations for the Strength of Business Associations 85 3.2 Overall Explanations for the Strength of Business Associations 93 3.3 Sources of Social Capital 103 3.4 Explanatory Framework for Business-Govemment Relations 111 6.1 Support for Political Parties in the ThirdSejm 227 6 The ‘Soft’ State: Business-Govemment Relations in Poland - Chapter 1 Chapter 1: Introduction 1. Business-Government Relations and Post-Communist Research The first wave of research on former communist states was defined by a hypothesis that has dominated political science over the last century: the hypothesis of the universality of democracy. Some have argued that every comer of the globe can, or must, adopt this system, while others have asserted that it is possible in, and suitable for, only a small set of countries. The first wave was concerned with assessing the chances of the survival of capitalist democracy in former communist countries. This thesis concentrates on the Polish case. Capitalist democracy has been consolidated in Poland in the sense that no significant group, domestically or externally, even considers an alternative system.1 As in other East-Central European states, there is little doubt that Polish capitalist democracy will continue into the foreseeable future. The focus of the universality hypothesis is now moving south and east of this region. The second wave of research on former communist states is defined by another hypothesis, which has dominated political science for some time: this is the hypothesis of the diversity of capitalist democracy. It is now widely accepted that what divides capitalist democracies from each other is as important as what they have in common. However, there is great controversy about how to define the 1 There are still those who would argue that Poland is a fagade democracy, in which voters have no real choice and/or politicians have little control over policy. Undoubtedly, there are many limitations to Poland’s democracy. However, these limitations are ones suffered by most democracies, including, the USA. Poland is definitely not a fagade democracy in the usual sense. Contemporary7 examples are to be found in Africa rather than East-Central Europe (See, Larry7 Diamond, Developing Democracy: Towards Consolidation (Baltimore: Johns Hopkins University Press, 1999), Ch. 1. The debate about 7 The ‘Soft’ State: Business-Govemment Relations in Poland - Chapter 1 subtypes of capitalist democracy. The second wave of research on post-communism seeks to investigate what sort of capitalist democracies are being consolidated in Central and Eastern Europe. Often this is done more implicitly than explicitly, but it is nonetheless surely correct that this hypothesis underlies the vast majority of research currently being conducted on this region.