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Divide and Pacify Divide and pacify The political economy of the welfare state Hungary and Poland, 1989-1996 Pieter Vanhuysse London School of Economics and Political Science PhD thesis UMI Number: U183163 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 U183163 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 S 17 o 10 nc ACKNOWLEDGEMENTS I am grateful to the Fund for Scientific Research (FWO, Flanders), the Department of Economics of the Catholic University of Leuven, and the Economic and Social Research Council (ESRC, Britain) for financial support during the writing of this thesis. A Junior Fellowship at Collegium Budapest/Institute for Advanced Study and a VATAT Research Fellowship at the University of Haifa provided superb working environments in the last stages of writing. Special thanks therefore to my mentors at these institutes: Erik Schokkaert (Leuven), Janos Komai (Collegium Budapest) and Shlomo Breznitz (Haifa). At the London School of Economics, Klaus Goetz initially encouraged me to start thinking about doing a Ph.D., after which I received ample time from Brian Barry to make a focused proposal and from Patrick Dunleavy to work it all out. For helpful comments at various stages, thanks go to Els Compemolle, Jurgen De Wispelaere, Robert Ivan Gal, Zvi Gitelman, Pablo Gonzalez-Alvarez, Robert Goodin, Bela Greskovits, Ira Katznelson, Janos Komai, Orsolya Lelkes, David Piachaud, Kenneth Shepsle, Istvan Gyorgy Toth and seminar participants in the Rational Choice Workshop and the Shepsle Seminar at the LSE, at the Central European University, Collegium Budapest, the University of Trieste at Gorizia, the Catholic University of Leuven and the University of Haifa. At the personal level, Orsi, David, Dani, Robi and my family provided consistent support. With unbelievable friendship, Zvia Breznitz pushed and pulled me through to the very end. To her, this work is dedicated. ABSTRACT The thesis proposes a theoretical explanation for the comparative political quiescence of the post-communist transitions in Hungary and Poland between 1989 and 1996. Contrary to prior expectations and to earlier reform experiences in Latin America, the early 1990s in Central and Eastern Europe have been non-violent and comparatively non-disruptive. Emphasizing the role of welfare states in influencing collective action, I specify a political strategy that could reduce the capacity of working-age individuals to organize disruptive protests. The crux of this strategy was to split up well-networked and formally organized groups of workers in precarious jobs, by sending some of them onto unemployment benefits and many others onto 'abnormal* pensions (early retirement and disability retirement). The latter groups were likely to have a decreasing capacity to mobilize for collective action due to less advantageous social networks combined with increasing distributional conflicts over scarce state resources. Moreover, at a time of strongly declining living standards the unemployed and the abnormal pensioners had stronger economic incentives to earn informal private sector incomes, instead of pursuing public goods through collective protests. A number of social policies consistent with such a 'divide and pacify' hypothesis have been adopted in post-communist Hungary and Poland, though not in the Czech Republic. In particular, both Hungary and Poland experienced large and unprecedented increases in the numbers of'non-elderly' pensioners between 1989 and 1996. TABLE OF CONTENTS Introduction Chapter 1 Political violence, industrial disruption, and the social costs of transition 22 1.1. Transitional costs and the early expectations of social protests 23 1.2. The political salience of post-communist unemployment 31 1.3. Political violence and industrial disruption in Central and Eastern Europe 47 Conclusion 66 Chapter 2 Post-communist quiescence despite conditions for conflict: alternative theoretical frameworks 68 2.1. Alternative explanations of post-communist protest levels 69 2.2. Thick-rational and thin-rational theories of collective action 86 2.3. A thin-rational interpretation of disruptive protests in transition: the case of threatened workers 98 2.4. Disruptive protests in transition: selected cases 114 Conclusions 118 Chapter 3 Preventing disruptive protests: political strategy issues 119 3.1. Divide and pacify in theory: splitting up abnormal pensioners and the unemployed 120 3.2. The protest effectiveness of unemployed and abnormally retired people 128 3.3. Private earnings and protest opportunity costs of workers in late communism 134 3.4. Economic fortunes and social integration of the unemployed and abnormal pensioners during the transition 144 3.5. Cheap voice: the channels of political influence of normal pensioners 153 3.6. The combined effects of work-welfare status on disruptive protest capacities. 158 Conclusions 164 Chapter 4 Social policies and age group fortunes 166 4.1. The unemployed: squeezed by governments 167 4.2. Pensioner poverty: the wheel of fortune reversed 171 4.3. Pensioners in transition: worse off, but still better than the rest 178 4.4. Pension benefits: keeping up with wages, jumping ahead of other welfare benefits 188 4.5. Divide and pacify in action: the abnormal pensioner booms 193 Conclusions 212 Chapter 5 Peaceful welfare regime pathways 214 5.1. The politics of post-communist pensions: early policy choices 215 5.2. The evolution of distinct welfare pathways over time 226 5.3. Post-communist labor market strategies 237 5.4. Alternative explanations of post-communist welfare politics 257 Conclusions 270 Conclusions 272 Endnotes 279 References 304 LIST OF TABLES Table 1.1. Dynamics of income mobility and income stability for selected income categories in Hungary (1992-1996) and West Germany (1990-1994). Table 1.2. Violent protest actions, interventions by the authorities against protesters that involved the use of force, and interventions by the authorities against protesters that did not involve the use of force, in Poland and Hungary, 1989- 1993 (as % of all protest actions in a given year) Table 1.3. Changes in labor force participation rates for men and women in selected post-communist, conservative, social democratic and liberal countries, 1990-1997 (in percentage points) Table 1.4. Number of strikes and lockouts per ten million persons aged 15-64 in selected post-communist, conservative, social democratic and liberal countries, 1990-1995 Table 1.5. Workers involved in strikes and lockouts, per thousand persons aged 15-64 in selected post-communist, conservative, social democratic and liberal countries, 1990- 1995 Table 1.6. Workdays not worked as a result of strikes and lockouts, per thousand persons aged 15-64 in selected post­ communist, conservative, social democratic and liberal countries, 1990-1995 Table 2.1. Real family incomes in Poland, various categories, 1989- 1994 Table 2.2. Rural population (1990-1995), social expenditures (1990- 1993), average annual GDP growth (1990-1995), increase in the Gini coefficient of income inequality (1987-1993), share of 20-24 age group enrolled in higher education (1965), population 60+ as a share of population 18-59 (1989-1996), in Hungary, Poland and the Czech Republic Table 2.3. Trade union membership, industrial employment, employment in firms with more than 500 employees, and agricultural employment, in selected post-communist, conservative, social democratic and liberal countries, late 1980s (year between brackets) Table 3.1. Work-welfare composition of society and voting power of various groups before and after divide and pacify Table 3.2. Average number of personal network contacts, memberships in voluntary associations, and Christmas and New Year cards sent in Hungary 1997 Table 3.3. Percentage of respondents judging various categories of tax evasion and informal work to be 'excusable' or 'praiseworthy', in Hungary, Poland and the Czech Republic, 1999 Table 3.4. Material and social characteristics of selected social groups, and how they are expected to improve (T) or worsen ( i) the prospects for organizing collective protests Table 4.1. Selected unemployment policy parameters in Hungary, Poland and the Czech Republic, 1991 and 1995 Table 4.2. Total yearly nominal spending per unit of recipient, various welfare state programs, in Hungary (in thousands ofHUF, current prices), 1990-1996 Table 4.3. Replacement rate for unemployment benefits(u) and old age pensions (p) and 7r values in Hungary, Poland and the Czech Republic in 1991 and 1995 LIST OF FIGURES Figure 1.1. Real wages in Hungary, Poland and the Czech Republic, 1989-1996 (1989=100) Figure 1.2. Annual registered unemployment rate in Hungary, Poland and the Czech Republic, 1989-1996 (in percent) Figure 1.3. Fear of unemployment and inflation among low, middle and high income categories in Hungary, 1991- 1992 Figure 1.4. Percentage of respondents supporting the Balcerowicz Plan in Poland, according to how much they feared becoming unemployed, 1990 Figure 1.5. Net confidence
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