Welfare states in East Central Europe, 1919-2004 9780521887250, 9780511402722

Table of contents :
Frontmatter
Figures and Tables (page ix)
Acknowledgments (page xiii)
Introduction: Understanding Past and Present Social Policy Development in East Central Europe (page 1)
Postcommunist Welfare States in Transition (page 3)
The Scope of Analysis: East Central European Welfare States in a Historical Perspective (page 6)
Summary of the Main Argument (page 8)
The Dependent Variable: Major Social Insurance Programs in East Central Europe (page 15)
A Brief Note on Data and Methodology (page 17)
Summary of the Book (page 19)
I The Welfare State in East Central Europe: A Conceptual and Theoretical Reconsideration (page 21)
The Welfare State as a Research Problem: West and East (page 22)
Understanding Historical Legacies of Social Policy in East Central Europe (page 43)
2 Institutional Legacies: State Building, Regime Change, and the Development of National Welfare States in Czechoslovakia, Poland, and Hungary, 1919-1989 (page 54)
Social Protection as a State-Building Project (page 55)
Preexisting Social Policy Institutions (page 56)
Domestic Political and Socioeconomic Conditions (page 57)
Ideational Context: Foreign Influences and Domestic Debates (page 60)
Czechoslovakia (page 62)
Poland (page 78)
Hungary (page 97)
Summary: Comparison of Institutional Legacies and Developmental Stages of Czechoslovak, Polish, and Hungarian Welfare States (page 109)
3 Policy Legacies and Welfare States under Communism: Cycles of Social Policy Expansion and Retrenchment in Czechoslovakia, Poland, and Hungary, 1945-1989 (page 119)
Policy Legacies and the "Communist" Welfare States in East Central Europe (page 119)
Cycles of Crisis and the Development of the Welfare State under Communism in East Central Europe (page 127)
Czechoslovakia (page 131)
Poland (page 147)
Hungary (page 176)
Summary: Comparison of Social Policy Legacies of Communism in East Central Europe (page 195)
4 Historical Legacies, Welfare State Institutions, and the Politics of Social Policy Reforms in Post Communist East Central Europe, 1989-2004 (page 211)
Historical Legacies and Competing Explanations of Postcommunist Social Policy (page 212)
Institutional and Policy Environment of the Welfare State at the Threshold of Regime Change (page 214)
Institutional Reforms and the Replication of the "Emergency" Policy Cycles of Welfare State Expansion and Retrenchment during the Postcommunist Era (page 216)
Czechoslovakia (page 219)
The Czech Republic (page 226)
Slovakia (page 238)
Poland (page 252)
Hungary (page 277)
Comparative Summary: Path Dependence in Post-1989 Development of Welfare States in East Central Europe (page 295)
Conclusion: Postcommunist “Emergency” Welfare States and Theoretical Exploration of Institutional Change and Social Policy Development (page 306)
Theoretical Implications (page 307)
Bibliography (page 315)
Index (page 341)

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Welfare States in East Central Europe, 1919-2004 This is the first comparative-historical study of welfare states (social policies) in the former communist region of East Central Europe. Tomasz Inglot analyzes almost one hundred years of expansion of social insurance programs across different political regimes. He places these programs in a larger political and socioeconomic context, which includes the most recent developments since the advent of democracy. Based on this research, he argues that despite apparent similarities, the welfare states of East Central Europe, Czechoslovakia (Czech Republic and Slovakia since 1993), Poland, and Hungary have pursued distinct historical paths of develop-

ment and change. He examines the highly unusual evolution of these welfare states in detail, tracing alternating periods of growth and retrenchment/reform, which he links to political and economic crises under communist rule. Inglot uses this comparative analysis of welfare systems to examine the continued influence of history over the politics and policies of the social safety nets in Eastern Europe. Tomasz Inglot is currently Professor of Political Science and Director of the International Relations Program at Minnesota State University. His articles

have appeared in Communist and Post-Communist Studies, Perspectives on Political Science, and Polityka Spoteczna (Warsaw), and he co-edited the collected conference papers of the 2005 meeting on East European social policy at the Woodrow Wilson Center for International Scholars. He is also the recipient of a Fulbright Fellowship, IREX travel grants, and an ACLS Postdoctoral Fellowship in East European Studies.

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Welfare States in East Central Europe, I9I9—-2004

TOMASZ INGLOT Minnesota State University, Mankato

CAMBRIDGE tab UNIVERSITY PRESS

CAMBRIDGE UNIVERSITY PRESS

Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, Sao Paulo Cambridge University Press

The Edinburgh Building, Cambridge CB2 8RU, UK Published in the United States of America by Cambridge University Press, New York www.cambridge.org Information on this title: www.cambridge.org/978052 1887250 © Tomasz Inglot 2008 This publication is in copyright. Subject to statutory exception and to the provision of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press.

First published in print format 2008

ISBN-13 978-0-511-40272-2 eBook (Adobe Reader) ISBN-13 978-0-521-88725-0 — hardback

Cambridge University Press has no responsibility for the persistence or accuracy of urls for external or third-party internet websites referred to in this publication, and does not guarantee that any content on such websites is, or will remain, accurate or appropriate.

In loving memory of my mother,

Anna Dubowska-Inglot and in honor of my late grandfather, Stefan Inglot

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Contents

Figures and Tables page 1x Acknowledgments Xill Introduction: Understanding Past and Present Social Policy

Development in East Central Europe I

Postcommunist Welfare States in Transition 3

Historical Perspective 6 Summary of the Main Argument 8 The Scope of Analysis: East Central European Welfare States in a

Central Europe 15 A Brief Note on Data and Methodology 17 The Dependent Variable: Major Social Insurance Programs in East

Summary of the Book 19

1 The Welfare State in East Central Europe: A Conceptual and

Theoretical Reconsideration 21

Europe 43

The Welfare State as a Research Problem: West and East 22 Understanding Historical Legacies of Social Policy in East Central

2 Institutional Legacies: State Building, Regime Change, and the Development of National Welfare States in Czechoslovakia,

Poland, and Hungary, 1919-1989 54 Social Protection as a State-Building Project 55

Preexisting Social Policy Institutions 56

Poland 78 Hungary 97

Domestic Political and Socioeconomic Conditions 57

Czechoslovakia 62

Ideational Context: Foreign Influences and Domestic Debates 60

vu

V1ll Contents Summary: Comparison of Institutional Legacies and Developmental Stages of the Czechoslovak, Polish, and

Hungarian Welfare States 109

3 Policy Legacies and Welfare States under Communism: Cycles of Social Policy Expansion and Retrenchment in

Czechoslovakia, Poland, and Hungary, 1945-1989 119

Central Europe 119 Communism in East Central Europe 127 Czechoslovakia 131

Policy Legacies and the “Communist” Welfare States in East

Poland Hungary147 176 Cycles of Crisis and the Development of the Welfare State under

East Central Europe 195

Summary: Comparison of Social Policy Legacies of Communism in

4 Historical Legacies, Welfare State Institutions, and the Politics of Social Policy Reforms in Postcommunist East Central

Europe, 1989-2004 211 Historical Legacies and Competing Explanations of

Postcommunist Social Policy Developments 212

Institutional and Policy Environment of the Welfare State at the

Threshold of Regime Change 214

Institutional Reforms and the Replication of the “Emergency” Policy Cycles of Welfare State Expansion and Retrenchment

during the Postcommunist Era 216

Czechoslovakia The Czech Republic219 226

Slovakia 238 Poland Hungary252 277 Comparative Summary: Path Dependence in Post-1989

Development of Welfare States in East Central Europe 295 Conclusion: Postcommunist “Emergency” Welfare States and Theoretical Exploration of Institutional Change and Social

Policy Development Theoretical Implications306 307

Index 341

Bibliography 315

Figures and Tables

FIGURES

1.1 Conventional model of postcommunist social policy reforms page 39 1.2 Historical stages of welfare state development in modern

Europe (West and East, 1880-2004) 43

1.3. Theoretical model for the study of historical legacies, institutions, and patterns of social policy development and

change in East Central Europe 51

3.1 Developmental paths of social policy in Czechoslovakia,

Poland, and Hungary under communist rule, 1945-1989 2.07 TABLES

1.1 Institutional components of the early welfare states in East

state” 32 Central Europe during the interwar period, 1919-1939 25

1.2 Three basic institutional components (“layers”) of the communist welfare systems in East Central Europe, 1949-1989 2.6 1.3. Four “institutional layers” of the “postcommunist welfare 1.4 Analytical framework tor the study of temporal path dependence in welfare state development in East Central

Europe (adopted from Ekiert and Hanson, 2003) A5

2.1 Employment categories in Czechoslovakia, 1922 and 1930 63 2.2 Growth of pension insurance in Czechoslovakia, 1930-1937 66

2.3 Pension insurance in Czechoslovakia, 1930-1937 67 2.4 Growth of pension insurance in Czechoslovakia, 1947-1950 74 2.5 Growth of pension insurance in Czechoslovakia, 1946-1950 75 2.6 Occupational structure in Poland according to the 1921 census 79

1921-1938 80

2.7. Annual growth of social insurance protection in Poland,

1X

Xx Figures and Tables 2.8 Growth of state pension entitlements in Poland, 1934-1938 81 2.9 Employment categories in interwar Hungary, 1920 and 1930 98

2.10 Social insurance coverage in Hungary, 1930-1980 IOI 2.11 Adoption of the first national social insurance laws and major

benefit programs in Czechoslovakia, Poland, and Hungary 109

Hungary III

2.12 Comparison of the major normative characteristics (principles) of the national welfare states in Czechoslovakia, Poland, and 2.13 Summary and comparison of major dimensions of institutional development (institutional legacies) of the national welfare

states in East Central Europe 113

2.14 Temporal sequencing (stages) of institutional development

of the national welfare states in East Central Europe 116 3.1 Cycles of economic growth in Czechoslovakia, Poland,

and Hungary, 1950-1988 130

3.2 Czechoslovakia: social expenditures for major cash benefits

as percentage of net material product, 1949-1991 133

fund, 1947-1957 150

3.3 Poland: expenditure for cash benefits as percentage of wage

1955-1988 155

3.4 Poland: comparison of the dynamics of social expenditures in selected categories as percentage of net material product, 3.5 Poland: social expenditures for major cash benefits as

percentage of net material product, 1956-1990 159

3.6 Hungary: social expenditures of major cash benefits as

percentage of gross domestic product, 1960-1990 186

3.7 Summary of the key social policy developments under communist rule in Czechoslovakia, Poland, and Hungary, 1945-1989: cycles of welfare state expansion and retrenchment 196 3.8 Comparison of five essential social policy legacies of

communism in Czechoslovakia, Poland, and Hungary 2.03 4.1 Dynamics of GDP growth and unemployment rate in East Central Europe, 1990-2003 (Poland, Hungary, Czech Republic,

and Slovakia) 228

4.2 Czech Republic: social expenditures for major cash benefits as

percentage of net material product, 1948-1991 229

4.3. Czech Republic: social expenditures for major cash benefits as

percentage of gross domestic product, 1992-2002 231

4.4 Slovakia: social expenditures for major cash benefits as

percentage of net material product, 1949-1994 240

4.5 Slovakia: social expenditures for major cash benefits as

percentage of gross domestic product, 1993-2003 249

4.6 Poland: social insurance expenditures for major cash benefits as

percentage of gross domestic product, 1989-2002 256

4.7 Pension replacement ratio in East Central Europe, 1990-2000 269

Figures and Tables xi

1989-1992 270 1991-1995 271

4.8 Poland: comparison of changes in real household income,

4.9 Poland: annual rate of increase in social insurance expenditures, 4.10 Hungary: social expenditures for major cash benefits as

percentage of gross domestic product, 1988-2003 279

4.11 Comparison of real dynamics of net average real pensions

and wages in Poland and Hungary, 1989-1995 289

4.12 Postcommunist cycles of welfare state expansion and

retrenchment in Eastern and Central Europe after 1989 304

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Acknowledgments

My involvement with social welfare issues began as an incident of history. One evening, in mid-November of 1981, as a second-year student of the University of Wroctaw, Poland, I attended a meeting of the strike committee of the Independent Student Association (NZS, the only officially registered, openly anticommunist civil society organization in the Soviet bloc before 1989). The main agenda included the assignment of key leadership positions for the upcoming strike action. In a matter of minutes we filled all required posts, except one: a person responsible for the everyday welfare needs of the striking students on campus. After a rather long and futile discussion, with no volunteers forthcoming, I finally decided to raise my hand. As the youngest of the group and eager to join this historic revolutionary undertaking, I failed to realize what all this meant in reality; that I would have to take care of several hundred people for almost three weeks in a country where grocery stores were totally empty of goods, save for salt and vinegar. In fact, I had to improvise a lot on the job, which included organizing an impromptu supply of tea and snacks from the neighboring women’s convent and sending out daily teams of fellow students at sunrise to purchase the first and only deliveries of milk and bread at government-run stores before everybody else got there. Thanks to the solidarity

and collective effort of many friends and supporters, including numerous anonymous donors from the surrounding community and even from abroad, we managed to pull it off and ended the strike with a promise of a comprehesive educational reform. A couple of weeks later, however, general Wojciech Jaruzelski declared martial law. I was “interned” and kept in various prisons for several months. My mother, who intervened on my behalf at the highest levels of the communist secret police, later told me that according to the martial law authorities I was guilty of “conducting independent socioeconomic activities.” These events eventually led to my political exile in the United States in 1983.

This book project took many years to complete and I owe my deep gratitude to numerous people whose friendship, encouragement, advice, criticism, generous support, and all kinds of assistance contributed to its success. First XU

XiVv Acknowledgments of all, my wife, Joanna, also a former student of the University of Wroclaw, offered me her continuous love and support throughout the difficult years of immigration, graduate study, and beyond. I cannot thank her enough for that. Early on, Stephen J. Anderson sparked my interest in comparative social policy as a rapidly growing area of study within political science. His seminar at the University of Wisconsin-Madison made me realize how much we still needed to learn and discover about the welfare states in the former communist world. During the past decade I also benefited greatly from comments, suggestions, and support of fellow political scientists, and experts in communist and postcommunist politics, Grzegorz Ekiert, Jan Kubik, Anna Seleny, Stephen Hanson, Valerie Bunce, and Sharon Wolchik, all of whom urged me to continue my work

in this area. I am also grateful to Theda Skocpol for her encouragement and insightful comments at the earlier stages of my research, as well as to Paul Pierson, Shannon O’Neil Trowbridge, Michal Rutkowski, Stefan Korbonski, and Janos Kornai for their help in later years, as this project continued to develop. Most recently, I benefited a lot from the friendship and collaboration with my friend and colleague, a fellow expert on East European social policy, Michael Cain, who cheered me on during the final period of work on the manuscript. I am also very grateful to the anonymous reviewers for Cambridge University Press for their insightful comments and constructive suggestions that helped me immensely in the process of revising and improving the book. This book, of course, would never have happened without the warm welcome

and invaluable assistance of numerous individuals during my field research in East Central Europe. In the Czech Republic I would like to especially thank Miroslav Hirsl, Jana Klementova, Jizi Kral, Martin Potucek, Gabriela Roésnerova, Josef Suchel, Igor Tomes, Petr Visek, and Marketa Vylitova. In Hungary, I am deeply grateful to Rudolf Andorka, Ilona Antal, Kalamanne Antal, Maria Augusztinovics, Gabriella Beki, Peter Bod, Tiinde Czinder, Otto Czucz, Zsuza Ferge, Peter Gedeon, Zsolt Hargitai, Maria Major, Gyorgi Marosi, Katalin Novak, Gabriella Papp, Andras Simonovits, Julia Szalai, and Reka Szemerkeényi. Also, my very special thanks go to Edit Szepvolgyi, Peter Szivos, Istvan Gyorgi Toth, Karolyne Tokaji, and Tamas Varga for their help

with the statistical data. Moreover, I owe a tremendous debt of gratitude to my Hungarian friends and colleagues Dorottya Szikra and Bela Tomka, who helped me understand the past and present of social policy in that country. In Poland, numerous individuals contributed much to this project over many years. Danuta Almert, Michat Boni, Agnieszka Chlon-Dominczak, Marek

Gora, Helena Goralska, Ewa Lewicka, Teresa Liszcz, Jan Litynski, Marek Mazur, Malgorzata Pawlisz, Anna Pochwatla, Jan Rulewski, Anna Semenowicz, Jerzy Szreter, and Irena Woycicka helped me untangle the complexities of the communist and postcommunist politics of social insurance. Ministers of labor and social policy — Jacek Kuron and Andrzej Baczkowski, both of whom sadly passed away in recent years — did even more than that, allowing me for a short while to become a witness to important events and policy decisions during crucial periods of postcommunist welfare reforms. Stanistawa

Acknowledgments XV Golinowska, Mirostaw Ksiezopolski, Zofia Czepulis-Rutkowska, late Andrzej Tymowski, and Aleksandra Wiktorow shared with me their impressive knowledge and long-term expertise in Polish and East European social policy. I also owe special thanks to the personnel of the Social Insurance Institution (ZUS) and especially to Ewa Borowezyk and Hanna Zalewska (the head of the statistics department) and Leszek Zienkowski from the Central Statistical Office in Warsaw for their cooperation during many months of my research there. Furthermore, this book would never have been written in the first place without the warm welcome and generous research assistance that I received from the past and present directors (Malgorzata Klossowska and Jolanta Gawron) and the personnel of the Central Library of Labor and Social Security in Warsaw. I remain greatly indebted to them. In Slovakia, I benefited from the invaluable assistance of Renata Balintova, Marek Jakoby, Marek Lendacky, and Michal Szabo. I am also extremely grateful to Radislav Bednarik, Kvetoslava Repkova, and Michaela Szaboova of the Center for Work and Family Studies in Bratislava for their help in acquiring precious statistical data on the Slovak social insurance programs. Research for this book was supported by grants from the Fulbright Commission (in the early stages) and also by IREX and most recently by the fellowship grant from the American Council of Learned Societies. During many years | also received generous financial assistance and other types of research support from Minnesota State University (MSU)-Mankato (including Graduate School Faculty Research grants and travel grant support). I would like to especially

thank my former department chair, and now professor emeritus of political science, Doran Hunter, who never stopped believing in my work and whose support for my research went far beyond a usual call of duty. I am also grateful to the present and former political science chairs, Joe Kunkel and Bill Lewinski, and to all my departmental colleagues, especially Jackie Vieceli, with whom I

shared many days of joy and anxiety while working on this project over the years. Furthermore, I want express my gratitude to the College of Social and Behavioral Sciences at MSU, in particular to the former dean, Susan CoultrapMcQuinn, and the current dean, John Alessio, for all their help and support. My graduate assistants Sara Fliflit and Nick Lyons spent many hours helping me prepare the statistical tables and figures, and they deserve extra thanks for their hard work. Our departmental office manager, Pat Davis, was always there to help; so was the longtime manager of the Dean’s office, Becky Gunderman — I appreciate this very much. Finally, I owe my gratitude to the editors of Cambridge University Press; first and foremost the Senior Acquisitions Editor Lewis Bateman for his kindness and the smooth handling of the publishing process; the production and copy editor Stephanie Sakson, for her exceptional professionalism and efficiency; and finally, the production controllers Shelby Peak and Mark Fox for bringing it all to a successful conclusion. This book is dedicated to the memory of my mother, Anna Dubowska-Inglot, and my paternal grandfather, Stefan Inglot. Their integrity, dedication, and love of knowledge will always remain the greatest inspiration for me and my work.

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Welfare States in East Central Europe, 1919-2004

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Introduction Understanding Past and Present Social Policy Development in East Central Europe

The dissolution of communist regimes of Eastern and Central Europe marked a beginning of a new stage in social policy development. At first, the examination

of common Marxist-Leninist history, comparable processes of change from command economy to free market, and a revival of the earlier, Bismarckian social insurance traditions gave rise to predictions of a difficult but also mostly similar future for the former communist welfare states in transition. Exposed to relentless pressure of capitalist economics and democratic politics, the seemingly underdeveloped systems of social protections in eastern countries were all expected to shrink even further and experience severe financial and political crises (Offe 1993; Barr 1995). More recently, successful accession to the European Union of the eight former Soviet republics and satellites,

Czech Republic, Estonia, Hungary, Poland, Latvia, Lithuania, Slovakia, and Slovenia, opened up the possibility of a forthcoming convergence of social leg-

islation between east and west, or even more universally on the global level (Linden 2002; Orenstein 2005). Closer examination of the developments since 1989, however, points to a much more complex reality. By the late 1990s many scholars and welfare experts have begun to notice and analyze striking variations in social policy institutions and actual policy decisions among individual countries throughout the postcommunist region (see, e.g., Kramer 1997; Cook, Orenstein, and Rueschemeyer 1999; Miller 1999; Tomka 2004; Cain, Gelazis, and Inglot 2005). Most surprising of all, several of these newer studies have shown that a narrow group of four more developed and stable Central Euro-

pean states with seemingly the most comparable traditions of welfare state development — Poland, Hungary, and the Czech and Slovak Republics — have been consistently pursing different solutions to similar social policy problems

and challenges (Orenstein 1995; Miller 1999; Inglot 1995, 2003). In short, after almost two decades of deep systemic reforms and frequent policy adjustments, “postcommunist welfare states” substantially differ not only from their West European counterparts but also from one another. As I show in this study, the former communist states of Poland, Hungary, and Czechoslovakia display I

2 Introduction crucial differences in the ways in which their social security programs under-

went retrenchment and reform not only during the 1990s, but also during communist rule and even earlier, in the interwar period. This book aims to reveal major reasons behind this remarkable divergence. It seeks to explain why the four welfare states of Eastern and Central Europe that share basic, similar, Bismarckian and imperial foundations of social insurance, half a century of Leninist rule, the most recent experiences with the collapse of communism, and the challenges of emergent capitalism and democracy since 1989 have nonetheless created and maintained such distinct paths of institutional development and change. The scope of this study goes much beyond a narrow focus on the social security reforms undertaken since the establishment of democracy in the region. It encompasses almost a century of social policy development and traces back the beginnings of the Czech, Polish, Hungarian, and Slovak welfare states to their imperial origins and to the political struggles of the interwar period. This book also uncovers causal factors behind the long-standing variations in cyclical patterns of social policy development in the region, with highly unusual, alternating periods of growth and retrenchment or reform throughout the twentieth century. Using cross-country comparisons it sheds light on these differences by focusing on the enduring power of historical legacies and discussing the key mechanisms that ensure adaptability and survival of the core institutions of national welfare states under different political regimes. In addition, a longitudinal analysis of each case reveals and explains crucial long-term continuities and discontinuities in the development of specific social policies (pensions and other major social security programs) from 1919 until the time of the accession to the European Union in May 2004. Finally, this study argues that the relatively conservative nature of many structural and policy reforms of the contemporary postcommunist era, including the partial privatization of the pension systems in Poland, Hungary, and Slovakia in the late 1990s, stems directly from earlier, distinct historical paths of social policy development. In other words, I argue not only that national institutional arrangements of the welfare state show great endurance across time and across different political and socioeconomic regimes, but also that certain clearly discernible patterns of social policy making within each country tend to persist, survive regime change, and often reemerge in similar configurations in different historical periods. Previous historical-institutionalist research presents detailed and extensive evidence in support of the “path-dependent” nature of west European, American, and also some Latin American welfare states (Heclo 1974; Malloy 1979; Skocpol 1985; Amenta 2003), but we have barely begun to uncover and understand the significance of historical legacies behind the ongoing institutional reforms and policy changes in various components of the welfare state throughout the postcommunist region. In his ground-breaking study of state-society relations in East Central Europe, Grzegorz Ekiert (1996) demonstrates that

past crises or “critical junctures” shaped “unique national trajectories” of state-society relations in Czechoslovakia, Poland, and Hungary during the

Postcommunist Welfare States in Transition 3 post-Stalinist period. Comparative-historical approach of this kind can also help to reveal crucial formative influences behind the emergence of contemporary welfare states in the former Soviet bloc. Rather than identifying one specific “critical juncture” for each country, however, I focus instead on a series of institutional adjustments, ideational shifts, and recurring patterns of crisisdriven social policy expansion and retrenchment within specific benefit areas to

uncover the mechanisms of institutional and policy reproduction and change over a longer period of time, from the beginnings of the national welfare states after World War I until the most recent reforms of the 1990s and early 2000s. I also point out that this historical process produces distinct varieties of highly adaptable “emergency” welfare states that are specific to the region as a whole but at the same time retain many important national characteristics. Paradoxically, even though so far the legacies of the past have prevented a radical overhaul of the welfare states in postcommunist countries, the same factors can either enable or constrain meaningful, incremental changes within particular benefit areas in individual countries. POSTCOMMUNIST WELFARE STATES IN TRANSITION

Arguably, welfare state programs and policies represent the most difficult, politically challenging, and economically burdensome components of postcommunist “transitions” in Central and Eastern Europe. At the end of the 1980s almost

one fifth of the total gross income of the population in the region came in the form of social transfers in cash (Milanovic 1994, 190). By the mid-1990s, the governments of Poland, Hungary, Czech Republic, and Slovakia were each spending on the average about 10-15 percent of the GDP annually on pensions and other social security benefits, such as sickness insurance, maternity payments, and family allowances. This level of expenditure matched or even exceeded that of the more developed western countries, many of which had been struggling to control government spending and reform their social security systems for more than two decades. Nonetheless, Eastern and Central European welfare states began to attract sustained scholarly attention only in the late 1990s, largely due to the ambitious and controversial proposals to reform pension sys-

tems in Poland, Hungary, the Czech Republic, and a few other countries in the former Soviet bloc (Kapstein and Mandelbaum 1997; Muller 1999; Miller, Ryll, and Wagener 1999; Cook et al. 1999; Orenstein 2000; Nelson 20or). Successes and failures of these reform efforts made the connection between the past and present structures, institutions, and policy choices increasingly visible and relevant (Inglot 1995, 2003; Baxendall 2003). As new members of the European Union, Poland, Hungary, Czech Republic, and Slovakia will almost certainly continue to experience social policy challenges and dilemmas that have deep roots not only in the first difficult decade of systemic transformation of

the 1990s but also in more distant communist and even precommunist periods, when the first comprehensive national welfare state programs originated. In these four countries more than 90 percent of the population is currently

4 Introduction covered by traditional social insurance programs. Thus, almost all citizens with a documented record of prior employment and their dependents may be eligible to receive pensions, sick pay, maternity, and other smaller benefits in cash. By the late twentieth century, old age, disability, and survivor pensions became the most expensive of these payments, consuming in most cases 80 percent or more of the total social insurance budget. Also, the number of benefit recipients reached extremely high levels. In the late 1990s Poland had approximately

9 million pensioners, Hungary 2.8 million, the Czech Republic 2.5 million, and Slovakia 1.4 million.’ In other words, currently in each country at least a quarter of all citizens receive some kind of pension payment. Initially, in the late 1980s and the early 1990s, few outside observers, welfare experts, or even the most knowledgeable policy makers in Eastern and Central Europe could fully and accurately assess the actual condition of the “communist welfare state” at the end of its formal existence. Following more than a decade of crisis or stagnation of state socialism it was hard to imagine how the established institutions would respond to a rapidly changing political and socioeconomic environment. As it turned out, in the early 1990s the great majority of experts and scholars seriously underestimated the actual complexity, magnitude, and especially the protracted nature of the tasks confronting Eastern and Central European reformers of social policy. From the start everybody agreed that one of the most immediate and the most traumatic shocks for the welfare state came as a result of a deep economic recession and growing unemployment, unseen in the region since the Great Depression. Two other, largely overlooked and less tangible types of challenges, however, resurfaced almost immediately after 1989. First, the new democratic governments inherited extensive social policy obligations to many well-entrenched occupational groups, dating back not only to the time of the Leninist rule but also to the earlier periods. Second, as the policy makers began to contemplate new welfare state reforms, they rediscovered a complex legacy of unresolved social policy problems, including the long-term, unintended consequences of temporary, emergency solutions to various political and economic crises of the past decades of state socialism. Particular common legacies of the welfare state in the region included, tor example, the absence of a regular inflationary adjustment of benefits, lack of transparency in social security financing, relaxed disability rules, severely skewed relations of benefits to earnings, lack of adequate unemployment protection, large discrepancies and discrimination in pensions for men versus women, and across different occupations, arbitrary systems of rules for the distribution of family benefits, and a long history of instability in sickness insurance. These legacies varied greatly in scope and intensity from country to country, and domestic attempts to address them have also differed accordingly. T Polish data include benefits from the Farmers Insurance Fund (Kasa Rolniczego Ubezpieczenia Spotecznego, KRUS). Sources: ZUS-Dept Statystyki, Warsaw 1999, Simonovits (2003), Macha (2002, 80), and Sfowacja 2000.

Postcommunist Welfare States in Transition 5 Inherited social policy problems became much more acute once the postcommunist governments began to readjust the existing social programs to fit the new socioeconomic reality and especially after the introduction of the first market mechanisms in conjunction with the liberalization of prices and elimination of government subsidies for consumer goods and services. Furthermore, throughout the last decade East Central Europeans came under international pressure

to reform their decision-making patterns, laws, and administrative structures in all areas of public policy and finance. From the very beginning, international lending institutions, especially the International Monetary Fund (IMF) and the World Bank, advised and assisted postcommunist governments in the restructuring of fiscal and monetary policies and administration, with a special emphasis on welfare state reform as a necessary prerequisite of economic stabilization. Also, by the late 1990s the stringent timetable of preparations for membership in the European Union (EU) propelled more vigorous action to strengthen state capacities of the new democracies in multiple areas of governance at once. Yet while social policy again had to compete for attention and foreign assistance as one among many priorities of institutional restructuring, a growing number of experts conceded that the postcommunist countries required new institutional

frameworks that could not simply imitate the existing western models of the welfare state (Scholz and Tomann 1999). Furthermore, it also became clear that individual countries preferred to adopt their own custom-made solutions to many specific social policy problems. Social policy reforms undertaken since 1989 have varied measurably across countries and in accordance with specific benefit programs within each country. They ranged from various adjustments within the existing public system of social security in the Czech Republic and Slovenia to much more comprehensive restructuring and partial privatization of pension insurance in Poland, Hungary, Latvia, and more recently also in the newly independent Slovakia.” By the end of the decade many of these changes were still in progress, with most countries resisting major changes to the status quo and only a few trying to test the limits of a more radical transformation.? In all countries, legacies of communist rule, and even those of the earlier regimes, have combined with the recent experiments of the early postcommunist transition to produce a complex web of institutions and policies that have provided a necessary cushion for a prolonged and painful period of economic and political transformation. Because they emerged from distinct national traditions, different institutional configurations, and country-specific patterns of reform, these combinations have appeared in remarkably varied forms. As I demonstrate later in this study, during most of the twentieth century despite intense political and economic > Anew reformed pension system with a mandatory “funded” scheme for the young people entering

the labor market was adopted by the Slovak parliament in December 2003, effective 1 January 2005.

3 For a complete summary of the progress of pension reforms in postcommunist countries as of April 2004, see Holzmann and Hinz 2005, 154-155.

6 Introduction pressures to adopt wholesale conventional institutional or policy blueprints from abroad, national welfare states in East Central Europe have continued to resist foreign influence. Even during the most repressive Stalinist years in the early 1950s, Poland, Hungary, and Czechoslovakia retained many of their own national social insurance traditions, institutions, and practices that later combined with elements of Soviet-style organization and financing to create different national versions of the “communist welfare state.” THE SCOPE OF ANALYSIS: EAST CENTRAL EUROPEAN WELFARE STATES IN A HISTORICAL PERSPECTIVE

In this study I focus primarily on the origins, development, and reforms of the modern social policies in Poland, Hungary, and the former Czechoslovakia. I view these countries as prominent examples of East Central European welfare states that emerged from the “imperial periphery” of Germany, Austria, and Russia. Moreover, I argue that during the twentieth century these systems of social protection, some dating back to late nineteenth century, remained significantly different from the Soviet model to merit separate investigation of their development under communism and beyond. As Harold Wilensky points out in his classic study, the age of the social security system, next to the level of economic development, is the key predictor of welfare spending in industrialized countries and also an important indicator of the “maturity” of modern welfare states (Wilensky 1975). I would argue that the age of social insurance programs is a major and often overlooked aspect of the welfare systems that helps us distinguish between the former communist bloc countries of Eastern and Central Europe, on one hand, and Russia, on the other. With the exception of the belated workers’ insurance law of 1912,4 which had a rather limited scope, all modern Russian social insurance legislation dates exclusively from the communist era (Madison 1968). In contrast, the Polish, Czechoslovak, and Hungarian cash benefit programs are much older; their first mandatory worker insurance laws originated in the late 1880s, and for the most part remained much more diverse and generous throughout the twentieth century. Before 1914 all three countries had already experienced over twenty years of growth of social insurance (at least in some regions of the country) and produced an experienced cadre of bureaucrats and experts in this area. Once we stress the historical importance of the period of 1948-1949, the turning point in the Soviet-imposed regime change marked by the forcible remaking of the socioeconomic infrastructure according to the Stalinist model, we also need to acknowledge the crucial legacy of at least sixty years of prior welfare state development in East Central Europe. Hence, if we take into account the early imperial beginnings, by 2004, the year of accession to the EU, each of the three welfare states was more than a hundred years old. It is important to note that less than half of this development, about 4 It came seven years after the Revolution of 1905, which called for the establishment of comprehensive workers’ insurance in all of the Russian empire (see Ewing 1991).

Historical Perspective 7 forty years, took place under the communist rule. As we learn more about current dilemmas of social policy, however, we cannot afford to ignore the crucial, early periods when the major benefit programs originated and major influences that led to their establishment in the first place. Earlier studies identified the origins of the capitalist welfare states within the state bureaucracy (Heclo 1974; Malloy 1979), in specific political coalitions and bargaining between the state and conflicting bureaucratic interests

(Skocpol 1992; Anderson 1993), in long-term left-wing dominance of government (Stephens 1979; Korpi 1983; Esping-Andersen 1990), or in competition between socialists and Christian Democrats (Castles 1994). More recently, scholars have also pointed to the pivotal importance of epistemic communities (Rueschemeyer and Skocpol 1996) and coalitions between labor and capital (Swenson 2002; Mares 2003). In contrast, my study concentrates on the significance of historical legacies in the development of the lesser known and insufficiently explored welfare states of East Central Europe. I trace back their beginnings of the first social insurance programs to their roots in imperial Germany and Austria-Hungary and stress the relevance of the initial political and ideological debates in the establishment of independent social policy institutions in the region. Yet my main goal is not simply to fill the gap in the literature by uncovering and explaining the origins and subsequent development of social policy within an underexplored geographical area. I also aim to enrich the theoretical debate on the significance of history and temporal processes by identifying and classifying the types of legacies that influenced each of these nascent welfare states since the end of World War I. Moreover, I seek to reveal specific mechanisms that help to carry over these legacies from one political regime to the next. I selected the year 1919 as the starting date of this analysis because it symbolizes the birth of independent welfare systems in modern East Central Europe.

More precisely, this date indicates the approximate time of the introduction of the first independent national social insurance programs in Poland and Czechoslovakia. Hungary stands out as a special case because of the considerable political autonomy it had enjoyed during 1867-1914. For the sake of a more accurate comparison with the other countries I decided to focus mainly on the post-Trianon era, since 1920, with the additional consideration of the crucial period of the Soviet Republic of Bela Kun, created in early 1919, to better illustrate the crucial transition in social policy from the “greater” (imperial) to the “smaller” (interwar) Hungary. The concluding year of this study, 2004, marks the entry of the four countries to the European Union. A few years prior, in 1998-1999, Poland and Hungary launched innovative pension reforms,’ while the Czech Republic continued to pursue, although more slowly, notably divergent social security changes in many benefit areas. By adopting this particular time frame I imply neither that the East Central European welfare states began exactly in 1919 nor that the process of postcommunist social policy reform was successfully completed by 2004. In many instances I also refer 5 Hungary launched its partially privatized pension system in 1998, and Poland in 1999.

8 Introduction to earlier developments to draw a more accurate picture of the highly dynamic and time-sensitive phenomenon of the welfare state. Moreover, in addition to Czechoslovakia until 1992, and its successor, the Czech Republic, I examine the development of separate national social policies in Slovakia after the split of the federation (since January 1, 1993) that eventually led to the passing of the crucial pension legislation in this country in December 2003. In essence, I intend to demonstrate that a detailed, more focused analysis of the complex evolution in the structure, institutions, and policies of the East Central European welfare states over a long time, including the crucial decade and a halt

before 2004, enables us to better summarize and explain the main reasons behind their remarkable survival and endurance following the severe shock of regime change. SUMMARY OF THE MAIN ARGUMENT

I view the welfare states of East Central Europe as dynamic historical entities, or “works in progress,” rather than static, finished models. As such, they reflect the larger phenomenon of long-term evolution and change of the political and economic regimes and social structures in the region. Concentrating on the state-

society relations in the communist period, Grzegorz Ekiert (1996), for example, explains that Poland, Czechoslovakia, and Hungary sought to adapt to the rising domestic sociopolitical and economic challenges of the post-Stalinist era by creating different variants of the “state socialist” regime. Furthermore, as David Stark and Laszlo Bruszt rightly observe, social change in East Central Europe should be analyzed “not as transition but as transformation — rearrangements, reconfigurations, and recombinations that yield new interweavings of the multiple social logics” (1998, 7). In fact, Eastern and Central European welfare states underwent such “transformations” several times during the twentieth century. In each country, preexisting ideas, institutions, and policies were “reconfigured” and adjusted to rapidly evolving internal and external circumstances during the early period of national independence after World War I, the Great Depression, World War II, the late 1940s, the Stalinist era, post-Stalinist crises and reforms, and finally during the time of postcommunist transformations of the 1990s. This book aims to contribute to the growing debate over the major determinants and mechanisms of institutional reproduction in a variety of historical, political, and socioeconomic contexts. It focuses specifically on what can be identified as some of the most enduring components of the modern state in Central and Eastern Europe that is, the Bismarckian social insurance institutions and policy networks. Regrettably, we still know little about the ways in which these institutions and policies develop in nondemocratic and noncapitalist contexts. Therefore, the East Central European welfare states, with their long history of crisis-driven, cyclical development, offer us a special opportunity to study the phenomenon of institutional endurance and continuity in

Summary of Argument 9 policy patterns in a situation of a semi-permanent political and socio-economic emergency. Such analysis, with a specific focus on the historical sources of enduring political and socioeconomic instability, can also help us to understand better the challenges and opportunities of systemic reforms in new democracies and emerging market economies worldwide.

More specifically, this study seeks to explain two types of cross-national variation in the historical transformation of the welfare state in East Central Europe. First, it focuses on the cross-national variation in the paths of institutional development of three different welfare states, Czechoslovak, Polish and Hungarian (Chapter 2). The three countries share, at least partially, similar “imperial” (Bismarckian) foundations, and after 1945 they also experienced two major regime changes, the imposition of Soviet communism during the late 1940s and early 1950s, and the advent of democracy since 1989. Nevertheless, I argue that since the early twentieth century these welfare states followed distinct evolutionary paths. The five most important dimensions of their institutional development are:

1. the timing of the adoption of the institutional and ideational (normative) foundation, that is, the national “blueprint” of the welfare state 2. the timing of the completion of the social insurance coverage (expansion of pension, sickness, family, and child-care benefits to all major employee eroups) 3. the type of decision-making structure in the area of social policy (level of concentration) consolidated under communism 4. the type of administration of social insurance bureaucracy (level of centralization) consolidated under communism 5. the sequencing of the major stages of institutional evolution during the formative years of the welfare state (preceding the completion of coverage).

A detailed comparison of the development of the three welfare states along these

five dimensions allows us to uncover a causal connection between the earlier history and later attempts to reform social policy institutions. For example, in this way we might be able to explain crucial differences in the types of reform undertaken in these countries, substantial divergence in their implementation and outcomes, and also significant variation in the adaptability of the core institutions of the inherited welfare state to the political and economic structures of the new regime. Second, this book analyzes the cross-national variation in cyclical patterns and stages of policy making (or alternating cycles of expansion and retrench-

ment) in the three countries of the region during the communist period and also in the first decade of postcommunism (Chapters 3 and 4). As I indicated above, the last segment of the historical analysis that focuses on the decade of the 1990s also includes an additional country, the newly independent Slovak republic. The three most important dimensions of this variation are (1) timing,

LO Introduction (2) sequencing, and (3) duration of the periods of expansion and retrenchment, with a special emphasis on key events and policy decisions that shaped divergent trajectories of social policy development in individual states from 1945 to 1989 and later through 2004. I also conduct a longitudinal analysis of the development of several major social insurance programs within each country to demonstrate important continuities and discontinuities in government policies and programs over time. These programs include pensions, sickness/maternity benefits, and tamily/child care allowances. I explore both the quantity (social policy expenditure and coverage) and quality (equity, replacement of earnings, etc.) of benefits to account for different, multiple dimensions of the welfare state. In this way we are able to identify properly winners and losers in the governmental distribution of social insurance resources and also observe the long-term impact of policy legacies in each country. The most important element of continuity is the perpetuation, across time within each country, of the “incomplete,” that is, fragmented and often inconsistently applied, Bismarckian® structures of social insurance, with later addi-

tions of new “layers” of programs (Beveridgean’ and others), that in practice have never evolved into a single coherent model of a welfare state. The other crucial continuity is the emergency “mode” of operation of the social safety net in all countries during most of the period from 1919 through 2004. Discontinuities can be observed by examining periodic attempts to selectively retrench or arrest the expansion of individual programs in each country. These

include, for instance, partial attempts to replace or renegotiate the original Bismarckian pension and sickness schemes, constant revamping of family benefits programs, and also selective temporary exclusion and punishment of cer-

tain groups of beneficiaries and the insured, especially during the Stalinist period of the early 1950s. The combination of cross-national and longitudinal analyses helps us not only to explain the exceptional durability, adaptability, and survival of welfare state institutions and policies within any particular historical period across several countries, but also to examine how specific

institutions and policies are “reproduced” over time in particular national contexts. In sum, in this study I analyze two historical trajectories: institutional evolution and change that give rise to the basic structural foundation of the welfare state, and social policy development that involves succeeding stages of expansion and retrenchment. These two trajectories are closely related to each other, and the latter is deeply imbedded in the former. They need to be analyzed separately, however, because they each address a different aspect of the welfare

state and allow us to uncover different mechanisms of reproduction of the social safety net. The first type of analysis examines how the system of social benefits operates as a dynamic and evolving set of institutions at different historical periods. The second looks at the question of how much each welfare state © This means the earliest types of programs modeled after Bismarckian Germany. 7 This means the later types of programs based on the British Beveridge plan of 1942.

Summary of Argument II delivers in terms of benefits and programs within a specific program (pensions, sick pay/maternity, family allowances, etc.) and across time.® In the analysis of institutional development, the two temporal dimensions, the timing of the adoption of the national “blueprint” (the founding legislative act) of the welfare state, combined with the timing of the completion of the social insurance coverage (nos. 1 and 2), help us explain the variation in redistributive aspects of the safety nets (level of egalitarianism) in the second half of the twentieth century. In addition, I argue that the sequencing of the major stages of institutional evolution during the formation of the welfare states before the completion of coverage (no. 5) affects the adaptability of the preexisting welfare state institutions to the institutional structure of state socialism after World War II. I also contend that the two typological dimensions (nos. 3 and 4), the type of the decision-making structure and the type of administration of social insurance bureaucracy under communism determine the level of institutional coherence that influences the overall stability of the welfare state as a whole during different historical periods. Conversely, in the analysis of how much social policy is delivered to the beneficiaries of different social insurance programs, I show that differences in the timing, sequencing, and duration of the alternating, aggregate periods of expansion and retrenchment create distinct developmental paths, which in turn shape the processes and outcomes of social policy reform in the postcommunist era. I argue that this type of multidimensional, historical-institutional analysis

enhances our understanding of the divergence of policy making and reveals the reasons behind successes and failures of various welfare state reforms in postcommunist countries. Even more significant, historical development of welfare state institutions of East Central Europe throughout the twentieth century serves as an excellent illustration of the mechanisms of institutional resilience,

endurance, and gradual “hybridization” and/or conversion of specific state institutions and policies in response to changing political and socioeconomic circumstances (see Thelen 2003, 2004; Pierson 2004). In contrast to the less dynamic view of European welfare states as more settled regime types (EspingAndersen 1990), this study also claims that it is possible that an “unfinished” or “unrealized” institutional blueprint of a welfare state can continue to func-

tion in the same, seemingly “unstable” manner over an extended period of time. Indeed, I show that by the late 1980s in communist East Central Europe different versions of “emergency welfare states” had already become clearly identifiable, well consolidated, and incredibly resistant to change. Moreover, | point out that patterns of emergency social policy making, usually following major political and socioeconomic crises, for example, in Czechoslovakia and Hungary during the 1960s and Poland in the late 1970s and early 1980s, also undergo cyclical evolution and adjustment in successive stages of expansion and retrenchment. This contrasts with the theory of a conventional, linear model of 8 For a discussion of the distinction between these two different dimensions of the welfare state (“how” and “how much”), see Bonoli 1997.

12 Introduction rapid expansion, followed by prolonged periods of retrenchment and reform (see Pierson 1994). In my analysis of the social policies of the communist era I focus primarily, but not exclusively, on the impact of “pivotal contingent events,” that is, crises that present serious challenge to the stability or even the very existence of the regime (or, in a narrow sense, to the “welfare state regime”). Early historicalinstitutionalist studies supply plenty of empirical evidence to demonstrate that

major political upheavals (wars, revolutions, and other serious challenges to regime stability), deep economic crises, and ideologically driven social transformations result in significant changes in the social safety nets of different countries, although not always in ways that would radically alter the trajectories of social policy development (see Rimlinger 1971; Heclo 1974; Flora and Alber 1981; Skocpol 1992). This also seems to be the case in regard to Eastern and Central Europe, where from the very beginning of national independence any major crisis of the state institutions as a whole also automatically triggered meaningful adjustments and changes in social policy. I argue, however, that even though practically all regime crises in the former communist countries led to important changes in social policy, not all social policy reforms were in fact directly linked to major political crises, such as those highlighted by Ekiert (1996), for example. In more “normal” times meaningful policy change and adaptation takes place as well but emerges in a slower, less visible manner. Therefore, not only do I pay attention to the pivotal events, as they usually coincide with the wellknown political and economic crises in Czechoslovakia, Hungary, and Poland, but I also analyze the long-term processes of institutional evolution, consisting of specific “event sequences” and producing slow-moving, cumulative changes (Pierson 2004), whose compounded effects become more visible as the welfare system matures in terms of coverage and the level of expenditures in proportion to the gross domestic product (GDP). I further point out that all of these welfare states have become “trapped” in a vicious cycle of “perpetual emergency.” We must keep in mind that the three countries vary greatly in terms of their reform preferences and outcomes, but the continuing influence of historical legacies makes any radical reform plan, such as a comprehensive restructuring of the whole social insurance system, extremely hard to implement. Even if political and economic conditions do begin to change rapidly and significantly, as they did after World War II and again during the 1990s, all we can hope for is “bounded change” (Thelen 2004) rather than a radical breakthrough. Thelen (2004) rightly points out that historical processes of institutional development should not be viewed in an overly deterministic way as permanently “lockedin”. They are usually subject to different kinds of political contestation and exogenous economic shocks which can result in creative adaptation (31; see also Pierson 2004, 142). I agree with Ekiert and Hanson (2003a), Kopstein (2003), and others who insist that precise definition of historical legacies is a necessary prerequisite to any theoretically sound, contextual analysis of politics and policy of Eastern

Summary of Argument 13 and Central Europe. In this study I concentrate on two types of legacies of the past: institutional and policy legacies. The tormer refers to the inherited “legal blueprints,” major laws, regulations, and governmental organizations (welfare state bureaucracies) that continue to run specific benefit programs under various regimes. Primary examples include such institutional blueprints as the Polish social insurance laws of 1933-1935, the Czechoslovak National Social Insurance Act of 1948, and the Hungarian social security legislation of 1975, along with different, evolving structures of social insurance administration in each country from 1919 to 2004. Policy legacies represent repeated, cumulative patterns of government action and reform attempts in the area of the welfare state that produce lasting effects over time.? In other words, we need to acknowledge the significance of including social insurance as a major tool in the “tool box” used by the government decision makers or placed on the agenda of state-society negotiations during various crisis points in history. In addition, long-term experience in crisis management under the old regime produces specific patterns of social policy making in each country that mirror its past experiences under communism. For example, Grzymata-Busse (2002) points out that ex-communist elites of East Central Europe “tend to rely on the political skills and expertise they had earlier gained [including policy innovation and implementation]” in addressing contemporary political crises (11). She further argues that such “portable skills” of former (ex-communist) political leaders as “elite perceptions, experiences and expertise” (26) acquired before 1989 play a vital role during transition to democracy. As I argue in Chapter 4, similar observation regarding the accumulated reserves of particular skills, knowledge, and expertise is equally valid in reference to the bureaucratic elites and experts who continue to be involved in social policy making after 1989.

More precisely, in my work I refer to long-standing patterns of government decisions, or cycles of retrenchment or expansion of pensions, sickness/maternity benefits, and family/child-care allowances, most of which represent some form of traditional (social insurance) benefits in cash. By using a comparative-historical approach, I demonstrate that in all three countries (four since 1993) these patterns represent “legacies” rather than “ad hoc” decisions based simply on bureaucratic inertia. Instead, they reflect deeply ingrained repertoires of bureaucratic “problem solving” derived from specific historical experiences of working within the context of a permanently “unfinished” (emergency) welfare state. Grzymata-Busse defines historical’° legacies as “the patterns of behavior, cognition, and organization with roots in the [previous] regime that persist despite a change in the conditions that gave rise to them” 9 Campbell (1996, 49) defines policy legacies more broadly as “the types of policies inherited from previous regime and expected by citizens [which] constrain the options available to political elites

so that policy-making and state-building are ‘path-dependent’ processes.” Schmidt (2002, 62) views the legacies more narrowly as ideational “‘fit? with long-standing policies and policymaking institutions.” TO She specifically labels them as “communist legacies” with roots in the authoritarian regime.

I4 Introduction (2002: 21). She argues that the validity of the “legacies explanation” can be tested in three different ways, by documenting a consistent occurrence of a behavioral or organizational pattern, by specifying a “transmission mechanism,” and by demonstrating the persistence of the same patterns “until a political disjuncture” or the time of regime change (21). As I demonstrate in Chapters 3 and 4, many of the same behavioral and orga-

nizational patterns within the welfare states have been reproduced repeatedly throughout history of Czechoslovakia, Poland, and Hungary. Furthermore, institutional and policy legacies are transmitted over time through several different mechanisms. On the macro level, institutional legacies are embedded in the process of rebuilding, adaptation, and recalibration of the state as a whole. This includes first and foremost the key historical moments of regime collapse, reconstruction, and subsequent reform in our study roughly spanning the period of eighty-five years, from 1919 to 2004. They are carried over time through reconfiguration, recombination (of existing welfare programs) (Stark and Bruszt 1998) or “layering” (adding of a new program on the top of the existing ones) (Schickler 2001; Thelen 2003) during regime change or sometimes

also during a severe political crises that deeply affect major state structures. In East Central Europe, through the continuous application of étatisme from the interwar to the communist era and again to the postcommunist period, parts of the old state structure are reconfigured to fit the new political regime, with the basic “layer” of Bismarckian social insurance programs remaining firmly in place, even though constant adjustments are being made all the time within specific policy areas (see Inglot 2003). In this study I especially emphasize the unbroken continuity of operation of several major social insurance institutions and programs from 1919 until 2004 as an important legacy in itself (see Chapter 1). Moreover, in some instances “conversion” also takes place (Thelen 2003, 2004; Pierson 2004) as some traditional programs (farmers’ benefits in Poland and family allowances in Hungary, for example) expand to cover new constituencies. Policy legacies in turn, are transmitted by narrow elites who participate in state building and policy making. Under each successive regime, and especially during the communist and postcommunist periods, they are transmitted through “policy learning” (Heclo 1974) and “positive feedback” (Pierson 2004) by the narrowly defined group of experts (epistemic communities), social policy advisers, and policy makers who serve different governments; the most important resource they command is the ability, with the requisite knowledge, to deal with social policy emergencies in a relatively effective and timely fashion.

All this, however, is highly contingent on the structure and organization of the social security administration in a particular country." I show, for example, that in Poland and Czechoslovakia these elites have been more cohesive and efficient in policy implementation due to the higher degree of centralization of the state ™ For a discussion of the importance of the type of social security administration in the development of social policy reform (pensions) in Western Europe, see Bonoli 2000.

Major Social Insurance Programs 15 welfare bureaucracy, but much less so in Hungary, where they have been highly divisive and dispersed between welfare and economic bureaucracies. Finally, I also show that the inheritances from the old regime survive and continue during and after the pivotal periods of regime change. This concerns not only the most recent collapse of communism in 1989, but also corresponding changes in the political and economic systems in the interwar period and in the aftermath of World War II.

THE DEPENDENT VARIABLE: MAJOR SOCIAL INSURANCE PROGRAMS IN EAST CENTRAL EUROPE

The so-called welfare effort or the level of social spending in proportion to the country’s GDP represents the most common measurement of the welfare state development used in comparative social policy literature (Wilensky 1975). Since the early 1980s, however, large aggregate measures of this kind have been increasingly challenged by more detailed research on individual social policy programs.** Now, many scholars also commonly use other multiple indicators of the quality of social policy such as the pension replacement ratio (relation of an average pension to an average wage), the scope of social insurance coverage, and the equality of benefits according to race, ethnicity, gender, or occupation”? (Pierson and Weaver 1993; Skocpol 1992; Pierson 1994; Bonoli 2000; Huber and Stephens 2001). This study focuses primarily on five categories of social insurance schemes,

or “cash transfers”: pensions, sickness benefits, maternity benefits, family allowances, and child-care benefits. One major reason for this choice of programs is the historical importance of the traditional income maintenance schemes in early twentieth-century Europe. During the interwar period these programs, first the sickness benefits and later also pensions, became the most

politically sensitive components of all modern welfare states on the continent (Flora and Heidenheimer 1981), including those countries that were later incorporated into the Soviet bloc. Furthermore, in Central and Eastern Europe, government spending in these categories has always served as a major and politically significant tool of income redistribution, beginning in the 1920s and continuing through the postcommunist period. In addition, availability of extensive time-series data on the historical development of these benefits makes it possible to better trace long-term policy trends within each country. In most cases all five programs continued to function practically without interruption from the time of their introduction until 2004 and beyond. I pay considerably more attention to pensions as the largest and most politically salient contemporary element of the welfare state and less to traditional ™ For the most recent discussion of the dependent variable problem in the study of social policy, see Kiihner 2007. ™ For a detailed discussion of other possible ways to measure the expansion or retrenchment of the welfare state, see Clayton and Pontusson 1998.

16 Introduction work injury benefits that play a minor role today in comparison to the early twentieth century, when industrial accidents were more frequent and other forms of welfare and social services remained underdeveloped. Also, I do not discuss education, housing, or health care. Although scholars of comparative social policy have argued for years over the redistributive nature of these programs, in the West and in the East (see, e.g., Wilensky 1975; De Deken 1994;

Alexander, Broadfoot, and Phillips 1999), the main reason behind my choice to omit these crucial areas of investigation is the limitations of time and space. Quite simply, each additional large and complex policy area would merit a separate in-depth investigation. For the most part I also exclude public assistance, better known in the United States as “means-tested” welfare programs for the poor. In addition to the problems mentioned above, another reason for not considering this policy area as a separate category of social transfers in an extensive historical study of this kind is the fact of its marginalization during most of the

communist period. Similarly, from the early 1950s until the late 1980s or the early 1990s, unemployment insurance was also largely absent in the countries under discussion. In the interwar period only Poland had a genuine unemployment insurance program from 1924 until 1939, while Czechoslovakia operated a so-called Ghent system of jobless benefits within individual companies,'* and Hungary had no official unemployment protection whatsoever before World War II. Therefore I discuss public assistance (welfare) and unemployment prosrams only briefly in relation to the other “core” social insurance components of the welfare state. Besides providing almost full employment and offering the continuation of traditional social insurance benefits, communist welfare states also consisted of an elaborate network of price subsidies and government-

supported social services administered at the workplace by the trade unions. However, as I discuss later in this book, during most of the past century the emergence of these new services and programs did not significantly diminish the historical importance of the conventional income maintenance benefits in cash.

Quite to the contrary, in the post-Stalinist period the political and socioeconomic salience of these benefits substantially increased and continued to grow until the very last days of communism. Another potential problem concerns the classification of newer benefits, primarily family allowances and child-care assistance. These programs, together with special family and public assistance for mothers with young children, are often discussed separately under the label of “family policy” (see Haney 2002) or sometimes even as “poverty alleviation” measures (Sipos and Toth 1998). For both historical and practical reasons I analyze these schemes as a separate category of cash benefits, directed toward “working mothers” and families in

general. In a larger perspective, however, I treat these programs also as an extension of traditional social insurance for the working population with special needs, or in other words, as a “second generation” of cash transfers. Some ™4 This scheme was operated by trade unions and supported by government subsidies.

Note on Data and Methodology 17 of these programs originated already betore World War II and were in part motivated by various pro-natalist policies but also sometimes aimed to fill the gaps in income maintenance protection for employees who had been covered by other, older schemes before. Also, it must be noted that in contrast to the earlier schemes these programs took on a variety of new forms, ranging from traditional social insurance payments to universal direct grants from the state budget. A BRIEF NOTE ON DATA AND METHODOLOGY

In my research for this book I used a wide variety of primary and secondary sources, including those that originated in Polish, Hungarian, Czech, and Slovak governments and research institutes and national archives of those countries. I traveled to East Central Europe on numerous occasions, in 1992-1993, 1996, 1997, 2002, 2003, and 2007. During these research trips I had direct access to government agencies, politicians, bureaucrats, and independent scholars involved in the events and policy developments analyzed in the book. I also participated in several closed conferences (by invitation only) and symposia, and in a few instances, I even witnessed social policies and decisions regarding various welfare programs being made in my presence during visits to various ministries and agencies. Moreover, in the early 1990s I was fortunate to be able to gain access to many original documents, both contemporary and archival, at the time when such access was not yet restricted to the extent it is now in many countries of the region. In addition, I interviewed more than forty individuals in all four countries, including several key political figures and experts from the communist and even precommunist periods, many of whom participated in different stages of social policy reforms under the old and new regimes (some of them have passed on since the time of the interview). At all times in my analysis I was careful not to jump to conclusions exclusively on the basis of what these interviewees told me or the events and conversations

I witnessed. In no instance did I base my conclusions on just one exclusive source or on hearsay or mere speculation. Information and data obtained from the interviews and from the archives were corroborated by numerous other primary sources (government documents), journal articles in native languages, and many additional secondary sources, including those published by international organizations, experts, scholars, and journalists who covered social security reforms in Poland, Hungary, the Czech Republic, and Slovakia before and after the time of communist rule. In every case I conducted thorough and detailed investigation of all sources, including government documents from multiple agencies with overlapping responsibilities (i.e., the ministries of labor and of finance, respective social security agencies, central statistical authorities, etc.) and sought additional secondary materials (books and articles in English and the local languages) and expertise (follow-up interviews) that would help me verity all my findings.

18 Introduction Furthermore, availability and compatibility of statistical data that adequately measure the quantity and quality of particular social programs over time poses a major challenge for anyone engaged in comparative-historical study of social policy in East Central Europe. I should stress that a particular benefit cate-

gory in one country, and in a given historical epoch, may be more broadly or more narrowly conceived than in another one. For instance, the category of pensions may or may not include additional benefits and bonuses for inhouse care or family support. Similarly, some countries use an expanded type of “maternity benefits” that includes both traditional payments during shortterm maternity leave and long-term “child-rearing” grants. Therefore, to avoid this kind of confusion, unless noted otherwise, in this book I generally tend

to follow the definitions of benefit categories used in Poland by the Social Insurance Institution (Zakltad Ubezpieczen Spotecznych, ZUS) and the Institute

of Labor and Social Policy associated with the Ministry of Labor and Social Policy in Warsaw. Poland is the only country where a single central organization has administered all types of social insurance mostly without interruption since the mid-1930s. Their data are fairly reliable, consistent, and often include time-series and international comparisons of social insurance spending and average real wage comparisons across the former Soviet bloc, with appropriate corrections in statistical methodologies to account for variations across different countries (see Rocznik Statystyczny Ubezpieczen Spotecznych 1946-1985, 1987; Goralska and Wiktorow 1988). Thus, in most of the book, by pensions I mean all pension benefits, including old age, disability, and survivor pensions. Pension replacement ratio, or the relation of average benefits to average earnings, usually refers to net pensions and net wages, when such data are available. Sick pay and maternity generally mean benefits paid at various time periods by the social insurance fund, employers, or both. Family benefits refer to payments

to families with one or more child by either the social security budget or by other sources, such as employers, backed by certain government guarantees. Child-care benefits are amounts paid to mothers either as social insurance benefits or budgetary grants given for a limited period, usually no longer than three years. Finally, I must also note that throughout the period under consideration in

this study, for the most part the national product statistics are methodologically, and sometimes also historically, incompatible. In my calculations of social

spending during the interwar period, I generally use GDP or gross national product (GNP) numbers gathered separately from local sources. As concerns the communist era, 1946-1988, using statistics obtained from the ZUS and the Central Statistical Office in Warsaw, I originally developed a time-series data set for Poland (Inglot 1994) that includes spending figures on each benefit category calculated as percentage of total national material product (NMP). This figure

is usually lower than western calculations of GDP in the former Soviet bloc, but for our purposes it allows for a measure of consistency that enables me to trace changes in government commitment to individual social programs over time. In my research for this book I obtained similar data for Czechoslovakia

Summary of the Book 19 (Czech Republic and Slovakia since 1993) and a separate time-series for Hungary, using a different methodology based on GDP estimates, starting only from 1960. I use these data sets separately for each country whenever possible, making some exceptions for secondary sources, and especially tor case studies that apply different methodologies (e.g., Tomka 2004). The more recent data from the 1990s are usually more standardized across countries with GDP

calculations subject to a new uniform methodology. As concerns economic and social statistics from the postcommunist period, such as GDP growth and unemployment data, I rely mostly on the publications by the World Bank, International Monetary Fund (IMF), Organization for Economic Cooperation and Development (OECD), and the European Bank for Reconstruction and Development (EBRD). Nonetheless, today each of the four governments still differs substantially in the definition and classification of particular benefit categories. All these problems with comparable data, however, can be overcome, because my main goal is to trace changes in each of the five benefit schemes within each country over a long time period of over eighty years, and then summarize var-

ious contrasting and parallel developments among them in a larger temporal frame. SUMMARY OF THE BOOK

This book consists of four main chapters. Chapter 1 addresses two theoretical questions that so far have received little attention in the study of comparative social policy: How to conceptualize the welfare state in East Central Europe as a dependent variable? and How to explain the origins and long-term development of social policies across divergent political and economic regimes in this region? It also lays out the main theoretical framework along with the eight major hypotheses regarding the impact of historical legacies on welfare state development. Chapter 2 discusses institutional legacies of the past. It uncov-

ers the origins and development of the major social policy institutions and the five traditional income maintenance programs (pensions, sickness, maternity, family allowances, and child-care benefits) within the larger political and socioeconomic contexts of Poland, Hungary, and Czechoslovakia before 1989. It also compares and contrasts dominant models/blueprints of the national welfare state in each country with special attention to the ideational foundations of social policy, and examines their transformation and adaptation under difterent political regimes. Chapter 3 analyzes policy legacies ot the emerging modern welfare states in the three countries, focusing primarily on the communist period. In particular, it identifies cycles of crisis and attempted retrenchment that shaped particular trajectories of social policy development within different benefit areas in each country. I argue that this experience constitutes a crucial example of slow-moving, cumulative change influenced by “feedback effects” and “learning” (Pierson 2004) under state socialism, with important long-term consequences for the early postcommunist era. Chapter 4 examines the politics of social policy retorm after 1989 with a special emphasis on the specific ways

20 Introduction in which particular institutional and policy legacies continue to enable or constrain reform and change within the Czechoslovak (before 1993), Czech and Slovak separately (since 1993), Hungarian, and Polish postcommunist welfare states. Finally, the Conclusion summarizes major similarities and differences among these countries at the turn of the new century, discusses possible scenarios for the future evolution of social policies in this region, and proposes further avenues of research using a similar theoretical framework.

I The Welfare State in East Central Europe

A Conceptual and Theoretical Reconsideration

The main emphasis of this book, on the “path-dependent” nature of welfare state development in East Central Europe and on the relevant historical legacies,

requires a new theoretical framework that would aim to reconcile two seemingly contradictory goals inherent in this kind of contextualized comparative analysis. First, we ought to acknowledge, clarify, and explain similar general characteristics of the Polish, Hungarian, and Czech and Slovak welfare states to determine whether or not a special single type of a discernible social policy regime (Esping-Anderson 1990) did actually emerge in this part of Europe during the twentieth century. Raised in the past by several leading scholars (Rimlinger 1971; Horowitz 1977; Scharf 1981; Castles 1986; Tomka 2004), this question still awaits a more complete and satisfactory answer. Second, we should attempt to account fully for the reasons behind the contemporary diversity of social policy outcomes and reform solutions in the postcommunist world. Such comprehensive investigation could lead us to uncover the key mechanisms of reproduction of each individual welfare state over a long period of time. In an effort to develop such framework this book engages three different bodies of scholarship: studies of comparative institutional development (and comparative social policy) of industrialized countries, which have mostly excluded Eastern Europe, comparative analyses of communist regimes, which in the past made only a few notable attempts to examine social policies of the Soviet bloc, and the so-called transitions (or democratization) literature, which incorporates various strains of current institutionalist and historical-institutionalist scholarship. The latter, until most recently, paid little attention to welfare state institutions and policies in the region. Moreover, for the most part, various concepts, definitions, and approaches used within these three discourses in reference to

social policy development in the former communist countries have remained nebulous and detached from one another. Hence, in this chapter I focus on the conceptualization of East Central European social policy regimes in relation to the study of western welfare states, state institutions, and democratic transitions. At the end, I also outline eight major hypotheses, discuss levels of 21

22 The Welfare State: A Reconsideration analysis, and propose a new theoretical model for the explanation of the origins, endurance, and survival of the welfare state institutions and policy patterns in Poland, Hungary, the Czech Republic, and Slovakia. THE WELFARE STATE AS A RESEARCH PROBLEM: WEST AND EAST

Western Definitions and the “Communist Welfare State”

The famous British Beveridge Report of 1942 describes the welfare state as the new idea of citizenship in a democratic society, which combines political and social rights (Bulmer, Lewis, and Piechud 1989, 73-74). Another, widely used definition refers to “an amalgam of diverse interests and ideas,” including liberalism, conservatism, and socialism (Heclo 1981, 390). If applied to contemporary East Central Europe, this rendering of the welfare state would imply that Poland, Hungary, the Czech Republic and Slovakia have already successfully adopted western norms, institutions, and patterns of social policy along with well-functioning democratic and capitalist institutions, that is, have made a radical break with the communist and even precommunist past. As I argue in this book and elsewhere (Inglot 1995, 2003), however, after 1989 the new East Central European democracies neither experienced a total destruction and reconstruction of their state (and welfare) institutions, ideologies, and policies “from scratch” nor did they adopt any of the available western models of social policy. Hence, it seems hardly surprising that given the distinct histories of western and eastern Europe repeated attempts to classify these countries according to conventional categories of “conservative” (corporatist), “liberal” (residual), or “socialist” (social democratic) welfare state regimes (Esping-Andersen 1990)

have been inconclusive at best (see Golinowska 1999; Miller 1999; Tomka 2004). Scholars of comparative social policy also view the welfare state as “a more

general phenomenon of modernization, not exclusively tied to its democratic capitalist version” or simply as a basic system of government-protected benefits to maintain minimum standards of income, nutrition, health, and safety, and perhaps also education and housing guaranteed by the state as a social right (see, e.g., Wilensky 1965; Flora and Heidenheimer 1981, 23), established in both western and eastern parts of Europe (see Pryor 1968; Wilensky 1975; Castles 1986). Several studies of the communist systems even hinted that the mature Leninist welfare regimes were actually “converging,” along with western countries, toward a common type of universal and progressively more generous social safety nets (Breslauer 1978). Other studies, however, reconfirmed earlier observations of Bernice Madison (1968) and Gaston Rimlinger (1971) that the “communist welfare state” should instead be analyzed as a unique phenomenon shaped by Marxist-Leninist ideology and the skewed logic of the command economy. During late 1970s and 1980s, for example, several scholars focused on the growing evidence of stagnation and progressive deterioration of welfare systems under “real state socialism” (Szelenyi 1978; Scharf 1981;

The Welfare State as a Research Problem 23 Castles 1986; Hauslohner 1987; Deacon 1983, 1992; Offe 1993). Furthermore, as Ivan Szelenyi (1978) observed, deeply imbedded, ambitious, and ideologically driven goals and priorities of a special social (or “societal”) policy for the working class were bound to clash with government attempts to introduce limited market mechanisms and austerity plans. The main goal of the “Soviet type of the welfare state,” all of these scholars remind us, was to offer a radical alternative to the emerging western social policy regimes, and therefore the ultimate failure of this project was bound to have meaningful political consequences both in the west and in the east. Nevertheless, in the past, few experts could agree on a common definition of a “communist type” of the welfare state or, for that matter, even decide whether such a single type could be devised to encompass all countries of the region. This lack of a shared frame of reference generated by previous comparative studies makes it extremely difficult to accurately assess and classify East and Central European welfare states in relation not only to their western equivalents but also in reference to the original Soviet model. Therefore, before proceeding any further with our investigation we should first go back to the root of the problem to identify and classify the most significant normative and institutional characteristic, of these social policy regimes.

Common Normative and Institutional Characteristics of East Central European Welfare State Regimes, 1919-2004

Throughout the communist era the East and Central European welfare states have remained deeply attached to their historical roots. Even during the darkest years of international isolation under Stalinism they continued to depend on institutional and ideational blueprints of the early welfare programs that emerged in Germany and Austria-Hungary at the turn of the century. Similar to their western counterparts, they also experienced different periods of rapid expansion of social policies in the interwar and postwar years, followed by decline and attempted reform or retrenchment of many benefit programs in the 1980s. Yet specific historical contexts in which these welfare states developed shaped them into phenomena quite distinct from Western Europe and sufficiently different from one another to merit further investigation. The East European welfare state comprises a century of intermittent institutional development marked by three distinct historical periods: the interwar years, the communist rule, and the current postcommunist era — periods also marked by cyclical recurrence of serious social policy crises. At the minimum, East European welfare states experienced major “reconfiguration” or “rebuilding” of their structures and institutions at least three times under different and ideologically opposing types of political and economic regimes. But as I explain later in more detail, once we disaggregate individual social insurance programs,

more consequential examples of creative policy adjustment, evolution, and overlapping of various normative traditions and institutional structures come to light. This complex reality cannot be easily captured by a static definition of

24 The Welfare State: A Reconsideration a dependent variable conceived as a “regime type” (Esping-Anderson 1990). Instead, we should view any individual East European welfare state as a permanent, slowly evolving “construction site” or an unfinished project that was built on discernible historical foundations with a certain vision of an “ideal-type,” national model of social security but always falling short of reaching its ambitious goals. Thus, the major underlying problem we are facing in this type of analysis is the long and persistent history of political discontinuity and instability in the region. This problem stems from the need to account for the repeated failure of successive governments to secure long-term economic prosperity and legitimacy in this part of Europe during most of the twentieth century. With

each change in a political regime came new institutional designs and policy prescriptions that had to be constantly modified in accordance with difficult local conditions. In addition, repeated economic failures and periodic political crises shook the foundations of many regimes, generating complicated patterns of “emergency” adjustments of major benefit programs. In the long term this

situation produced unique and often extremely convoluted national paths of social policy development.

The Interwar Period: The Origins of the Welfare State In the interwar period the core group of Eastern and Central European welfare states was built on the foundations established under the German, Hapsburg, and, to a lesser degree (in the Polish case) Russian imperial rule, involving two of the most advanced social policy laws of the time: the German Social Insurance

Law of 1911 and the Austrian Social Insurance Act of 1906. As a result of a historic change in the political map of Europe, these laws, designed for an advanced industrial society with a large, modern bureaucracy, were inherited by newly independent eastern countries with underdeveloped economies, weak governments, and impoverished, mostly rural populations (with an important exception of the heavily industrialized Czech lands of Bohemia and Moravia). Before World War II national social policies in East Central Europe consisted mainly of three main elements: an expanded core of social insurance programs for the workers, a special system of benefit provision for state employees (civil servants, military, police, railroad employees, etc.), and various poverty assistance programs administered usually at the local level by government and private agents, mainly churches and religious associations. The social insurance programs were segregated by type of risk: old age and disability, work injury, sickness and maternity, and unemployment; and by occupation: workers, salaried employees (and their families), and special employee groups with separate and independent benefit schemes, for example, miners or steelworkers (see Table 1.1). Even though the scope of social insurance coverage had been expanding steadily since 1919, at any given year before 1945 only select ™ In many countries of the region these programs were reformed or reduced during the Great Depression and World War II, but overall the classic Bismarckian social insurance programs remained in place throughout the precommunist period.

The Welfare State as a Research Problem 25 TABLE 1.1. Institutional Components of the Early Welfare States in East Central Europe during the Interwar Period, 1919-1939 (1) INHERITED INSTITUTIONAL FOUNDATIONS (1880-1918) German and Austro-Hungarian social insurance and state benefit provisions (2) CORE SOCIAL INSURANCE PROGRAMS/STATE BENEFIT PROGRAMS

White-collar employees Blue-collar employees Civil servants, military, police, railroads, etc.

Work injury Work injury Pensions, health care and

Old age and disability Old age and disability other’ benefits Sickness and maternity Sickness and maternity

Unemployment Unemployment Other’ Other’

(3) SYSTEM OF GOVERNMENT GUARANTEES AND CONTROLS (4) POVERTY (PUBLIC) ASSISTANCE (Public employment programs, local governments, churches, private charities, etc.) 7 This category included death benefits, childbirth assistance, and similar kinds of assistance to the insured and their families.

professions and sometimes also specific geographical regions of the country were eligible to receive benefits. The social insurance programs for the workers and salaried employees, often collectively referred to as the Bismarckian model,

had been originally established as a set of earnings-related schemes with an independent administration representing the insured. However, in the interwar period different governments frequently altered many of these provisions to fit their specific political and economic goals.” The increasing role of the state in the economy and society in general, and in the area of social policy in particular, represents the key developmental legacy of East Central Europe. First, since the 1920s the government often acted as a self-appointed mediator of conflicting class interests, that is, primarily the interests of the business opponents of social insurance versus the working-class advocates of more generous benefits (socialists, communists, etc.). Second, as the main agent of socioeconomic development in most East European countries

before World War II the state also became the main guarantor of financial viability of the social insurance system as a whole.

The “Communist Welfare State” In a general sense, since the end of World War II, the so-called communist welfare system appears to have followed a pattern set by other postwar European

welfare states: it evolved rapidly to meet the needs of industrialization and * Most notably during the Great Depression, 1929-1935, and World War II, 1939-1944, when in some cases the state abolished independent administration and imposed centralized control over social insurance programs, both to control costs and to eliminate leftist influence from these self-governing bodies.

26 The Welfare State: A Reconsideration TABLE 1.2. Three Basic Institutional Components (“Layers”) of the Communist Welfare Systems in East Central Europe, 1949-1989 (1) UNIFIED SOCIAL INSURANCE (All employees in the public and cooperative sector) (Historical core of the European welfare state: institutions and laws pertaining to work injury, pension, disability, sickness and maternity insurance, etc.)

(2) “SOCIALIST” PROGRAMS AND POLICIES (Postwar expansion of the welfare state — newer institutions and policies: “pay-asyou-go” financing of social insurance, full employment, national health service, affordable housing, family programs, and additional limited, means-tested benefit schemes)

(3) STALINIST MODEL OF SOCIAL POLICY (Reconfigured interwar system of state guarantees and controls combined with Soviet imports: organization, financing, and administration of all social programs within the centralized framework of economic planning and monopolistic political control)

srowing employment. It must be noted, however, that the latter concerned primarily the state sector and incorporated the urban areas where social protection had been usually the most complete and advanced already before the war. From 1946 until the late 1970s, in a rapidly industrializing economy, the government became the predominant employer. This phenomenon by itself made hundreds of thousands of persons instantly eligible to participate in the existing social benefit programs established before the war. In addition, gradually by the 1980s all three countries included in this study expanded the scope of most social benefit programs to cover virtually every citizen with a minimum required work record, often combined with the additional coverage for his or her dependents. In a deeper structural sense, however, during forty-five years of communist rule, every East European welfare state developed into an incredibly complex, and often inherently contradictory, entity with several layers of institutions and laws, many dating back to the interwar period. Without minimizing the importance of various indigenous elements in each country, we can conceive of a typical “communist welfare system” as a combination of three basic structures or components: (1) the original social insurance

institutions and programs, inherited from the previous regimes but rebuilt, reconfigured, unified, and expanded since 1945, (2) postwar additions of the newer “socialist” institutions and benefit schemes, and (3) the imported, Stalinist model, that is, the Soviet blueprint for the organization, financing, and administration that had been originally designed in Moscow in the 1930s (see Table 1.2). The second structure represents a new package of benefit programs introduced in Soviet-dominated Eastern Europe during the late 1940s and early 1950s under the influence from two sources. One of them was the western

The Welfare State as a Research Problem 27 example of various (domestic and foreign) social democratic models based on “social solidarity,” the pay-as-you-go (PAYG) financing system, and a secure minimum level of benefits for everyone. The other source was the Soviet Union itself, where the Stalinist regime, now extended throughout Eastern Europe, clearly favored better income protection for economically vital occupations (especially heavy industry) and showed a general preference for noncash benefits over traditional social insurance. For the lack of a better term, I refer to this newer structure as “socialist programs and policies,” which also included,

among other things, a national health service, subsidized housing, and full employment policy — arguably the most important social legacy of the commu-

nist era. We can possibly add to this list a wide variety of benefits sponsored by the workplace and administered by the trade unions, such as summer vacations, subsidized heating fuel, child-care services, food assistance, and other programs modeled after the factory-based and collective farm welfare systems in the Soviet Union. Finally, the third and the most controversial structure was the Stalinist system of social policy administration and control. It consisted of a combination of norms and administrative practices imported to Eastern Europe during 1949-1955 under political pressure from the Soviet Union. In the early 1930s the Stalinist social security system became an integral component of the highly centralized political and economic regime striving to establish total and monopolistic regulation of all aspects of life throughout the USSR (Madison 1968). In the short term, East European Stalinists hoped to use this model to strengthen the preexisting mechanisms of state control over the social insurance system. In the long term, however, they tried to incorporate and integrate all preexisting and newly introduced benefit programs into one giant welfare system directed from above by a handful of planners and administered from below by an army of state bureaucrats, including most prominently the officials of the single monopolistic trade union organization. Thus, for many years since then one of the most difficult challenges of the communist era was to somehow weld together the three structures to serve the political and socioeconomic goals of the newly established Marxist-Leninist regime. In practice this highly ambitious, holistic approach to social policy, designed according to the original Soviet model of social security, has proven to be extremely difficult to transplant into the East European context. This was true even in Czechoslovakia where support for the “socialist” programs and innovations appears to have been the strongest. One reason for this was that the Stalinist model of social insurance originated in Russia of the 1930s, that is, in a country at a much lower level of development and among a population with 3 T do not include free public education in my definition because I agree with Harold Wilensky (1975) that education programs belong to a separate category of public policy, distinct from social security, health, and other welfare programs. According to Wilensky, while “nation’s health and welfare effort is clearly and directly a contribution to absolute equality ... the nation’s educational effort...is chiefly a contribution to the equality of opportunity” (1975, 6).

28 The Welfare State: A Reconsideration only basic standard of living expectations among both skilled and unskilled workers. Thus, quite naturally this model clashed almost immediately with the reality of the preexisting social policies of Central and Eastern Europe, where relatively generous social insurance programs had been relied on by a generation of skilled industrial workers, state bureaucrats, and sometimes even agricultural employees for many decades already. Moreover, during the 1950s the Czech, Polish, and Hungarian workers learned very quickly that the reality of Soviet-style “socialist programs” was quite different from the propaganda images and that there appeared to be little prospect for the development of the higher quality collective benefits in the foreseeable future. However, it is also true that certain other, newly adopted Soviet-style norms and institutions did fit surprisingly well with previously adopted norms and institutions, and as such met with enthusiastic approval from not only from government policy makers, but also from the old cohort of welfare experts who later continued to defend them vigorously throughout the post-Stalinist era. From the standpoint of the government the Stalinist model of social policy had at least three distinct advantages. First, it built on the preexisting statist tradition, greatly expanding the power of the government over welfare spending. It gave communist economic planners a very useful set of tools that enabled them to control the cost of social policy effectively, thus transcending many of the problems identified by their predecessors during the 1930s and 1940s. For example, in the early 1950s, almost immediately after the security tax revenues had begun to flow into one central budget under the PAYG system, welfare expenditures decreased quite dramatically in many countries.* Second, the Stalinist model strengthened and centralized the preexisting system of political control over social policy. Most significantly, it eliminated, once and for all, a potential source of societal autonomy in the form of independent selfgoverning social insurance boards that used to challenge the central government during the 1920s and 1930s in Poland and Hungary, and also to some extent in Czechoslovakia through the 1940s. Third, it reinforced the preexisting hierarchical structure of social insurance benefits, conferring substantial privileges on certain categories of employees while keeping payments to other groups (women, for example) very low or denying social insurance to some occupations altogether (for example, to private farmers, the self-employed, clergy, political “enemies of the state,” etc.). The Stalinist social policy planners also made basic payments easily accessible to all working and “insured” people‘ but simultaneously eliminated all nongovernmental forms of welfare assistance that could possible threaten the state monopoly in this area. This measure was aimed, for instance, at all privately run charities and independent hospitals, most of which were disbanded in the immediate postwar period after several 4 For example, see detailed data on social expenditures in Poland during the first Six-Year Plan — 1949-55 discussed in Chapter 3, also Table 3.3. 5 In most cases now, the period of “insurance” was counted simply as the years of employment in a state enterprise, beginning in 1945.

The Welfare State as a Research Problem 29 years of successful operation. Moreover, once mandatory work requirements were introduced for all adults, the communist regimes abolished unemployment insurance as a redundant relic of capitalism. Policy makers in different countries continuously struggled to integrate all three structures of the reassembled welfare state into one cohesive system but never managed to carry through the planned wholesale replacement with a new Marxist-Leninist model. Instead, many of the inherited welfare institutions and social policies endured for a remarkably long time, undergoing only partial adjustment and slow evolution over many decades. As I argue later in Chapter 3, during 1945-1989, despite numerous crises and reform attempts, the communist welfare states experienced only limited, “bounded” change.°® Even if from the beginning the Stalinist reformers tried to exploit preexisting characteristics of the East European welfare states to accelerate the planned, “revolutionary” transformation, they also encountered other serious structural and ideological obstacles. Most important, as they attempted to reconcile the rapidly evolving national developmental plans and the utopian long-range economic and political goals of the Marxist-Leninist regime, the Polish, Hungarian, and Czechoslovak communists quickly realized that they could not reinvent the

national social insurance traditions from scratch without seriously jeopardizing postwar reconstruction and industrialization. Indeed, in the early Stalinist period ideological zealots did cause a serious, if short-lived, disruption in the functioning of the Czechoslovak, Polish, and most significantly Hungarian national welfare states. However, from the late 1950s institutions and policy patterns began to fall back into the previous mold. Yet the main challenge continued to be to find an appropriate balance among different types of new and old benefits, namely, the traditional, earnings-based cash entitlements, typical of more developed industrialized countries, some means-tested benefits aiming at more equal redistribution of income (such as various family benefits and minimum and maximum pension limits), and also the new types of benefitsin-kind delivered almost exclusively at the workplace and via the official trade unions. The “portable knowledge and skills”” of experts and bureaucrats from the old regime involved in this process turned out to be the most valuable assets for the countries facing chronic problems of political legitimacy and economic instability.

In fact, throughout the 1960s and especially during the 1970s the “welfare state” in the Soviet bloc expanded much faster than the economy as a whole. This discrepancy periodically stimulated government attempts of “retrenchment” in some selected benefit categories. The scope and intensity of these partial reforms varied from country to country and had profound effect on the future social policy development. Pensions, for example, were often cut drastically in Poland and Hungary during the early 1950s, while limited available resources were poured into economic investment. Only in Czechoslovakia, 6 For discussion of this concept, see the Introduction (also Thelen 2004). 7 See the discussion of this concept in the Introduction (see also Grzymata-Busse 2002).

30 The Welfare State: A Reconsideration where a large industrial base had already existed before the war, major cost reductions took place a decade later, enabling a shift of central government funding from social spending to economic modernization. By the mid-198o0s, however, all three welfare states experienced another wave of attempted cuts. Poland was hit the hardest, but reform proved unsustainable. While the welfare demands of the population continued to grow, the policy-making structures became less centralized, and any type of coherent and forward-looking social policy became virtually impossible to implement in the long run in the environment of a perpetual economic crisis. Hungary and Czechoslovakia initially fared much better, but by the late 1980s their welfare systems also experienced protracted crises and stagnation, which reflected the general state of affairs in the economy and the polity as a whole. As I discuss it further in Chapters 2 and 3, the so-called communist welfare state itself becomes a “legacy,” first through the expansion, consolidation, and transfer of the “hybrid” structure of “layered” programs, and second through

the institutionalization of the “emergency” mode of policy making that had been largely completed before 1989. We can also define this “emergency mode” in a political sense as a result of an underlying, semi-permanent elite consensus or compromise on the welfare state “inheritance,” passed on from one regime to the next throughout history, a process that invariably ensures the maintenance of a comprehensive and stable social safety net.

The Postcommunist “Reconfigured” Welfare State

Since the early 1990s the study of East European countries has become especially intriguing because of the series of major social policy reforms that have proven to be no less difficult than the ones undertaken during the Stalinist era. As I show in Chapter 4, however, in the postcommunist era the new democratic governments began to “reconfigure” (see Stark and Bruszt 1998, 3-7), rather than radically alter, the three previously discussed components of the communist welfare state (see Table 1.2). In contrast to the postwar regimes, the post-1989 governments failed to introduce any comprehensive new ideological or institutional blueprints that would restructure the whole system of social policy making in the country.® Instead, as they began to implement sweeping democratic and market reforms, they simultaneously attempted to reorganize the welfare state in a new way. This transformation does resemble the attempted changes of the 1950s to the degree that the normative and institutional requirements of the new regime dictated a need for the major overhaul of the polity and the economy. In both instances a comparable restructuring of the welfare state turned out to be much more difficult to carry out in practice, but there are also several crucial differences between these two historical periods that need to be explained. 8 Such proposals were extensively discussed in all four countries but never reached the crucial legislative stage (see Chapter 4).

The Welfare State as a Research Problem 31 First, by the late 1980s the welfare systems in Eastern and Central Europe had become much more mature and complex than those of the 1950s. Within four decades they grew to cover almost all major social groups and occupations, with an expanded network of programs and entitlements. As I discuss in more detail in Chapters 2 and 3, social insurance coverage expanded in several major increments but very unevenly in individual countries across time and across different programs. In Czechoslovakia the major types of coverage of the great majority of employees peaked already during the 1930s and 1940s. In Poland they grew in several successive waves, during the 1930s, 19408, 1960s, 1970s, and 1980s. In post-Trianon Hungary coverage expanded in two main stages, from the 1920s through 1930s, and more recently from mid-1960s to mid-1970s. Second, although domestic and international sources offered attractive new blueprints for reform, no single social policy doctrine could be easily imposed on the newly independent postcommunist countries of Eastern Europe where different traditions, institutions, and attitudes about welfare provision inherited from the previous regimes, going as far back as the 1920s and 1930s, continued to play a major role. Third, the new political elites lacked necessary knowledge and expertise in social policy, which made them less prone to experimentation and more dependent on the older cohort of experts and bureaucrats. In addition, government experts quickly realized that a radical overhaul of the welfare state was impossible not only due to institutional legacies, but also because of the deeply engrained and enduring patterns of policy making. These “policy legacies” offered workable and well-tested solutions to lingering social policy problems, such as the rapidly declining value of pension benefits, which could potentially be addressed in a variety of new, creative ways but were dealt with instead in a much more conventional manner, typical of previous periods of crisis and reform (see Inglot 1995, 2003). At first glance, when we compare the postcommunist welfare state with its pre-1989 predecessor we cannot fail to acknowledge significant evidence of change and at least partial indication of meaningful reform (see Table 1.3). The most dramatic change has been the introduction (or rather reintroduction) of an additional, fourth structure — the reorganized and decentralized welfare assistance schemes for the poor, now including not only “means-tested” family and child-care benefits and increased public assistance at the local government level, but also newly created private charities. Another significant new element has been the return of the unemployment assistance or insurance (usually as a separately funded benefit scheme) with flat or earnings-related benefits, or both. The most significant change of all was undoubtedly the introduction in some

countries (Poland and Hungary in the late 1990s, for example) of the new, mandatory, funded pension schemes (defined contribution) for the younger cohort of workers, and in most places also additional voluntary private or workplace-based pension insurance programs. It is important to note, however, that unlike the situation in Chile and other Latin American countries during the 1980s, a decade later in all East European states the original state-run, pay-as-you-go social security systems have continued to function as the primary

32 The Welfare State: A Reconsideration TABLE 1.3. Four “Institutional Layers” of the “Postcommunist Welfare State” Unemployment’ (1) BASIC SOCIAL INSURANCE PROGRAMS — Mandatory

insurance (Historical core with reinforced earnings- and/or voluntary

related principles) private pensions®

(2) RESIDUAL “SOCIALIST” PROGRAMS AND POLICIES

GOVERNMENT-CONTROLLED HEALTH AND FAMILY PROGRAMS

A mix of public and private’ health services Cash and other benefits for families with children, financed by general tax revenues

(3) RECONFIGURED SYSTEM OF STATE CONTROLS AND GUARANTEES Elimination of central socio-economic planning and formal separation of social policy budgets from the general budget with continuation of many state guarantees and controls. (4) PUBLIC ASSISTANCE PROGRAMS Reconstructed and decentralized public programs and new private charities” “ New programs added since 1989.

providers of pensions for the majority of the population, even though these schemes have been also reformed to varying degrees in different countries. Indeed, the fact that traditional social insurance programs still remain at the “core” of the welfare system and are largely financed by PAYG, often through separate budgetary arrangements and with regular state guarantees and subsidies from general tax revenues, provides powerful evidence of inherent institutional continuity between the old and the new regimes. We must also note that

in the postcommunist period social insurance has continued to serve as a de facto large-scale, centralized public assistance scheme. For example, today East European governments routinely continue to shift the burden of poverty assistance to disability pensions and frequently distribute generous early retirement benefits in lieu of unemployment assistance.?

The second component of the communist welfare state, the amalgam of “socialist programs and policies,” underwent more substantial restructuring. The most obvious reason is the disappearance of full employment that led to the reintroduction of various types of benefits for the jobless, but other changes have been no less significant. For instance, health services have been partially privatized,*° and family benefits have been transferred from the social insurance 9 Communist regimes regularly used social insurance programs to manipulate the labor market (see more detailed discussion of this problem in Chapter 3). TO Many East European doctors now work in a semi-private capacity; they see their patients first in the public health service clinics and hospitals, and later attend to them after hours as physicians in private practice.

The Welfare State as a Research Problem 33 system to the means-tested benefit category financed by general taxation. In addition, as many state factories closed down or became privatized, collective benefits in-kind that had provided an additional safety net for many workers and their families decreased considerably in importance or disappeared altogether.

This short summary of the changes in the East European welfare programs demonstrates a clear preference for programs that pay cash benefits. As we might recall from previous discussion, today in Czechoslovakia, Poland, and Hungary social security benefits, most of them pensions of different kinds, constitute the largest portion of governmental social expenditure. Thus on the surface, it might appear that this tendency takes the postcommunist countries away from their “collectivist,” Marxist-Leninist past and brings them closer to the future, based on the contemporary models of developed West European welfare states. Nevertheless, we must note that the preference for traditional cash benefits dates back to the interwar period, when impoverished East Central

European governments routinely relied on social insurance in their efforts to lessen the effect of industrial unemployment, urban destitution, and job insecurity in an underdeveloped capitalist economy. Furthermore, this tendency also became clearly visible again in the post-Stalinist period, especially during the late 1970s and 1980s, when government spending began to shift from social services toward social insurance (see Chapter 3). Notably, during the postcommunist period, the same top national bureaucracies, as opposed to the political leadership, have retained both the political influence and the institutional capacity to control and regulate most aspects of the welfare systems.” It is true that in the early 1990s several reform attempts threatened to decentralize the East European welfare states and decrease the traditionally strong role of the executive branch of government in shaping the policy agenda and implementation. More than a decade later, however, it seems that the decision making remained concentrated in just a few hands at the very top, with different degrees of political and administrative centralization, largely reflective of past traditions. In most countries this power has been consolidated again around one or both of the two key executive ministries: the ministry of labor (or/and welfare) and ministry of finance’ (see Inglot 1995, 2003; Miller 1999; Orenstein 2000; Nelson 2001). In most countries, with the significant exception of Hungary and later also Slovakia, the central ™ As Kazimierz Poznanski (1996) notes, in Poland, and the rest of East Central Europe as well, this mechanism of control over socioeconomic planning has been shifting steadily from the party structures to the state since the early 1970s. ™ In the general scheme of things a labor ministry, welfare ministry, or sometimes also branches of the finance ministry that oversee social security usually have been more influential politically than a health ministry, because during the 1990s in most governmental budgets pensions and other social security payments constituted the largest single expenditure item. We must also keep in mind that these ministries also preside over one of the largest sources of revenue, i.e., social insurance contributions (taxes).

34 The Welfare State: A Reconsideration bureaucratic structures turn out to be very difficult to change or reform. Hence, at least on the surface, in reality the “reconfiguring” of the preexisting Stalinist mechanisms of decision making in social policy has been hardly revolution-

ary. Although the Communist Party monopoly on power was permanently destroyed, basically the same central government agencies and offices have retained exclusive access to policy expertise. Even more significantly, they have

preserved their institutional capacity to manipulate different parts of the welfare system without much outside interference from either political parties or new types of interest groups that continue to appeal unsuccessfully for greater transparency and more democratic participation in decision making. This book argues that in all three countries the survival and expansion of the basic social insurance programs, and ways in which they operate within the overall state structure, by itself represents a common and lasting historical legacy of welfare state development in this part of Europe. This legacy has been

often misinterpreted and misunderstood, making it more difficult to uncover causal mechanisms of institutional endurance and policy continuity or change. Furthermore, as I would explain later in this book, we must not only account for the basic similarities, but also explore the reality of distinct institutional solutions and patterns of policy adaptation within specific national contexts at different stages of welfare state development throughout modern history. Therefore, before moving on to a theoretical and empirical investigation of the country-specific historical legacies, we ought to briefly assess the findings of the previous explanations of the major determinants of social policy expansion and

retrenchment in the west and the east and the ways in which they can inform our project. Explanations of Welfare State Expansion and Retrenchment: Western and Eastern Europe Conceptual reconsideration of the East Central European social policy regimes as different, “layered” and seemingly incoherent combinations of structures and policies casts a new light on traditional explanations of the historical development of the welfare state in the industrialized world. Unfortunately, previous studies offer us only limited insights into the long-term expansion, reform, or inner workings of the communist and even the postcommunist welfare states, while a detailed discussion of the early, interwar social policies in this region is missing altogether. Nonetheless, scholars of comparative social policy of western democracies have raised crucial theoretical questions and pointed out fruitful avenues for further investigation. Most significantly, they narrowed down the range of explanatory variables that account for the postwar growth of welfare states in various contexts. Still, we must ask whether we can use the same explanations in relation to East Central Europe. And if this is the case, which approaches and conceptual tools are the most useful for the study of the politics of expansion and retrenchment of welfare states in the region?

The Welfare State as a Research Problem 35 Competing Theories of Welfare State Development in the Industrialized World

Most analysts of welfare state development in the industrialized world refer to this phenomenon as a linear process with distinct stages of evolution directly related to changes in the redistributive function of the government in capitalist democracies during the last century. Accordingly, they define the dependent variable as either the origins or the expansion and growth — and, more recently, also the “retrenchment” or reform of the welfare state (see Amenta 2003). For example, the so-called logic of industrialism school saw social policy expansion of the 1960s and 1970s as highly dependent on the timing of social insurance adoption, demographic tendencies, and most of all the economic level of different nations (see Cutright 1965; Wilensky 1975; Castles 1986)."3 The “power-resources” approach pointed instead to the influence of left-wing forces, working-class interest groups, and coalitions and political parties supporting them (Stephens 1979; Korpi 1983; Myles 1984),'4 whereas oth-

ers stressed the impact of a particular type of ideological doctrine, that is, social democracy, conservatism, Christian democracy, or free market liberalism (Rimlinger 1971; Castles 1978; Esping-Andersen 1990).

In contrast to these approaches, the institutionalist school (Heclo 1974; Malloy 1979; Skocpol 1985; Pierson 1994; and many others) analyzed a smaller number of cases and social policy programs in greater detail to reveal that government bureaucrats, policy experts, and politicians can act independently from

societal groups, unions, and even political parties not only to adopt but also to expand and reform the welfare state. Their findings confirmed the claim of modernization theorists that the later-developing countries with a centralized state apparatus, heavily involved in economic development and dealing with the effectively neutralized working class, were instrumental in supporting expensive and highly ambitious welfare benefit schemes. Hence, these scholars indirectly opened the door for the investigation of Eastern and Central Europe, a region where the presence of the strong traditions of étatisme enables us to test these explanatory theories in regard to the early beginnings and subsequent expansion of major social policies.

According to the institutionalist school, social policy development has two dimensions — historical and institutional — and therefore should be ™ As I mentioned in the Introduction, another important predictor of welfare state expansion is the age of the social programs. We should also note, however, that the level of economic development still matters, because the oldest European welfare states, such as Germany, Austria, Denmark, and the Netherlands, are also today the richest industrialized nations in the world. ™ Other scholars point out that in most European countries left-wing parties and their allies have to share power in coalitions with other centrist and right-wing groups. Therefore, in the examination of “welfare effort” throughout most of Europe, we must also take into consideration the relative power and countervailing influence of center-right forces vis-a-vis the traditionally “pro-welfare” left (see Wilensky 1981).

36 The Welfare State: A Reconsideration examined as an integral part of the growth and expansion of the state itself. Historical-institutionalists explain how early development of state structures determines policy outcomes in different countries, or “locks in” certain practices and institutional solutions, making it more or less difficult for various sociopolitical forces to intervene in the political decision-making process. In contrast, the new institutionalists concentrate on the analysis of the contemporary relationship between the three major structures: constitutional arrangements, political institutions, and processes of policy making. For instance, they focus on the so-called veto points,’5 which determine the actual ability of the government to realize its agenda of social policy retorm (Huber, Ragin, and Stephens 1993; Pierson and Weaver 1993; Bonoli 2000; Huber and Stephens 2001). As I discuss below, however, this approach, which dominated the study of the postcommunist welfare states during the 1990s and early 2000s, usually omits or downplays the significance of slow-moving historical processes that is essential for the understanding of institutional continuity and change since 1989. The two strands of institutionalist analysis differ in the extent to which they accept the argument about a historically determined, path-dependent development that precludes a major change or retrenchment in social policy. Supporters of a longer historical perspective emphasize path dependence and usually define retrenchment as a substitute for a more radical reform. They also tend to argue

that although economically necessary, most of the attempted, contemporary welfare policy reforms cannot succeed. In other words, past policies and institutions that support a costly and expanding welfare state are extremely difficult to contain or reverse (Pierson 1994; Myles and Pierson 2001). Others who adopt a much shorter time frame view retrenchment as more substantial “reductions in the generosity, coverage, or quality of social programs” (Bonoli 2000, 35). They tend to argue that meaningful reforms are still possible as long as a particular constellation of actors is able successfully to manipulate various institutional channels to that effect. Most institutionalists, however, acknowledge the importance of state structures, “policy learning” (Heclo 1974), “focusing events,” and “event sequencing” (Pierson 1994, 2004), which ultimately determine how much power and opportunity the policy makers will have when they attempt to reform the welfare state.

Theoretical promise of historical-institutionalist research for the study of East Central Europe derives mainly from two sources. First, by disaggregating the dependent variable, the historical-institutionalists concentrated on the key social security programs or “entitlements,” which rightfully deserve special attention as the most politically sensitive and economically burdensome parts of contemporary welfare states (see Amenta 2003). Pestoff (1995), in particular, stresses that this approach is a necessary prerequisite to the full understanding of institutional change after the fall of communism. Second, this literature introduces a series of middle-range theories that can be used to explain different stages of welfare state development, that is, the origins, expansion, ™S For further theoretical exploration of this concept, see Tsebelis 2002.

The Welfare State as a Research Problem 37 and “retrenchment” within different causal configurations (Amenta 2003). In this way we can fully account for socioeconomic and political factors that are embedded in country-specific and historically determined institutional contexts. This is yet another reason why this approach can be especially helpful in the exploration of the foundations or legacies of social policy in the region where different countries share some crucial common origins and past regime characteristics but also display many noteworthy differences in their historical development. Nonetheless, any comprehensive attempt to apply western institutionalist theories in a comparative analysis of the former “communist welfare states” will have to address not only crucial differences in the political and socioeconomic contexts but also significant variations observed in a larger, temporal dimension.

Explanations of Welfare State Development in Communist Eastern Europe before 1989 In path-dependent processes different timing and sequencing of similar events produce highly divergent trajectories and outcomes (Pierson 2004, 66-68). So far, the existence of such trajectories has been largely taken for granted and never sufficiently investigated as a possible explanation of the policy decisions and policy outcomes in the former communist region. For example, we need to learn more about when and how such important groups as industrial workers, farmers, state employees, or nursing mothers acquired social benefits rights and whether the timing and sequence in which this happened made a difference for the long-term development of the social safety net before, during, or after Leninist rule. At the time of this writing, however, no English-language comprehensive historical analysis of the adoption of social insurance programs in East Europe exists that would compare in detail and scope to the work of Heclo (1974), Skocpol (1992), and Rueschemeyer and Skocpol (1996) on western democracies.t° We must also note that even though such large events as the two world wars or the Great Depression profoundly affected both Western and Eastern Europe, the duration, depth, and sequencing of domestic crises associated with these global disasters varied greatly across the two regions and also within the eastern countries themselves. Meanwhile, scholars who focused exclusively on communist social policy (Rimlinger 1971; Nelson 1983; Castles 1986), with just a few exceptions (Breslauer 1978; Hauslohner 1987; Cook 1993), usually concentrated on general concepts of ideology or economic growth, paying little ™ Only a few clues regarding the long-term significance of precommunist, early twentieth-century tradition of “statism” for the future of East European welfare states appeared in comparative social policy literature. For example, Collier and Messick briefly refer to “such pre-modern characteristics as the strong tradition of a centralized state and of state paternalism” among the major causes of “later economic growth and earlier adoption of social security” in Central and Eastern Europe before World War II (1975, 1311). This type of historical research, however, has begun to emerge again recently. See, e.g., the case studies of Czechoslovakia (De Deken 1994), Hungary in a comparative perspective (Tomka 2004), and a historical study of Hungarian family policy (Haney 2002).

38 The Welfare State: A Reconsideration attention to variations in specific historical contexts during different stages of Leninist rule. Previous studies also focused primarily on the Soviet Union as the main archetype of the “communist welfare state,” emphasizing the pivotal influence of Bolshevik ideology, Stalinist social policy doctrine, or the impact of subsequent Soviet economic policies under Khrushchev and Brezhnev (Madison 1968; Rimlinger 1971; Horowitz 1977; Breslauer 1978; Cook 1993) as the

major driving forces behind social policy development in all of the former Soviet bloc. Even more important, significant changes in the social policies of communist countries during the post-Stalinist years that revived interwar traditions and augmented many preexisting differences between the Soviet Union and its European satellites remain largely unexplored.’” This observation pertains equally to qualitative and to quantitative studies. Some of latter include Eastern Europe in the time-series analyses of social spending during the 1960s and 1970s (Pryor 1968; Collier and Messick 1975) but suffer

from the lack of attention to the historical and political contexts of social policy.7®

Shifting the focus to state-society relations, the so-called social contract perspective addresses some of these concerns by exploring the ways in which the Leninist and later also post-Leninist regimes made social policy and used it to maintain social peace. Yet in its main logic this perspective again follows the conventional understanding of the trajectory of welfare state as a linear process of adoption, expansion, and growth, starting with the imposition of communist rule in the late 1940s and lasting until the time of Gorbachev, Yeltsin, and the early 1990s reforms in Eastern and Central Europe (see Hauslohner 1987; Adam 1991; Cook 1993). This approach helps us understand the long neglected relationship between normative and institutional aspects of the communist system, on one hand, and the problem of regime legitimacy, on the other. It also rightly stressed the significance of welfare policy as an independent variable, not just in determining the success or failure of economic reforms but also in preventing social explosion during the difficult period of transition (see also Kapstein and Mandelbaum 1997). For the most part, however, while emphasizing current politics of economic reform this perspective overlooks the significance of many crucial political, institutional, and policy variations among the Soviet bloc nations. Moreover, it says nothing about the effects of reoccurring ™7 Indeed, later some scholars did acknowledge that their explanations failed to fully account for such potentially significant variables as the influence of evolving communist ideology in the postStalinist period (Scharf 1981) and the crucial changes in the international political environment, for example, following the Prague Spring and the Soviet intervention in Czechoslovakia in 1968, that could have influenced policy-making (Castles 1986). ™8 Collier and Messick (1975) did mention that the diffusion of social programs (in the interwar period) from the early adopters (such as Austria, Germany, and Denmark) was probably the common cause of the establishment of social insurance programs in many later developing countries in the East and South of Europe, but they also state that “it is beyond the scope of this research to test these... hypotheses” (1311).

The Welfare State as a Research Problem 39

oN |

INTERNATIONAL STRUCTURES Transmission of STATE STRUCTURES Global economic system and trends Macroeconomic Policy-making institutions

New economic ideologies |§ POLICY POLICY OUTCOMES

INTERNATIONAL AGENCY ———————— ENTREPRENEURS —> Reform success or failure International lending institutions New welfare blueprints (World Bank, IMF)

ee ve to

DOMESTIC ENVIRONMENT Periods of growth and recession Economic wealth, political pressures Shifts in employment and social composition Social needs/demography Legacies of the transition

FIGURE 1.1. Conventional model of postcommunist social policy reforms.

crisis “cycles” or the remarkable sequences of expansion and retrenchment of the communist-era welfare states throughout the twentieth century (see Chapter 3).

Contemporary Perspectives on Social Policy Reforms in the Postcommunist Era During the 1990s and early 2000s the main focus of the scholarship on postcommunist social policy has shifted from trying to explain social stability to study-

ing reform or retrenchment, often viewed also as a global, rather than merely a regional phenomenon (Miller 2003; Orenstein 2005). Figure 1.1 summarizes the main features of conventional state-centered perspectives that explain the causal relationship between internal and external variables and social policy reforms in postcommunist countries. The dependent variable is defined as either the presence or absence of “radical” social policy retorm and focuses mostly on pensions as the main policy area (see Miller 1999; Orenstein 2000). Typically, independent variables include a mix of international and domestic factors, such as global economic trends, international lending institutions, and domestic political pressures. Still, actions of policy entrepreneurs and their ability to construct winning political coalitions usually constitute the most important explanatory variable, often conceived within the general framework of rational choice theory. Many institutionalist studies also suffer from the lack of attention to the influence of ideas and policy feedback on state agency and on the formation of key policy coalitions. Closer attention to policy feedback and learning (see Pierson 1993, 2004) is especially important in East Central Europe, where we are dealing with many countries with a long history of crises and attempted, “half-baked” welfare state reforms that often produce unintended consequences.

40 The Welfare State: A Reconsideration In many studies social policy changes since 1989 appear as highly contingent on the presence of exogenous factors, such as the famous World Bank blueprint for the three-tier pension reform in the emerging market economies (World Bank 1994; Orenstein 2000). Generally, these works fall into two groups, those witha political perspective and those with an institutionalist approach. The first draws on the well-established “power resources” thesis and points to the strength of the reemerging left-wing parties and interest groups or party competition as a potential source of influence on the new East European social policy (Cook et al. 1999; Lipsmeyer 2002); the other perspective takes its inspiration from new institutionalism and focuses on the contemporary political economy of social

policy (see Miller 1999; Orenstein 2000). The latter view sees social policy reforms (especially pensions) as uniquely shaped by the structure of new political institutions and emerging patterns of decision making, including the outside influence of international actors such as the World Bank and the IMF. Such detailed empirical analysis of the policy-making process and increased attention to state autonomy as the major factor of postcommunist politics enables us to see how determined state agents or “policy entrepreneurs” can skillfully manipulate the newly established governmental structures and institutions in Eastern Europe to pursue their reform agendas effectively (Miller 1999; Miller et al. 1999; Orenstein 2000). Drawing on comparative scholarship on regime transitions, these studies also suggest that we can understand the wide variation of reform outcomes in the former Soviet bloc much better by analyzing the emerging new sets of democratic and market-oriented institutions. Hence they pay more attention to presidential or parliamentary systems, plurality or proportional representation elections, different types of party systems, and so on. It is true that understanding the actions of policy entrepreneurs and crossnational variations in basic institutional arrangements, even within the same family of governmental systems (parliamentary or presidential), can help us to better explain successes and failures of social policy retrenchment. Yet notwith-

standing all the advantages of this approach, many institutionalists send an ambiguous message about the overall compatibility of the western and eastern experiences of social policy reform. On one hand, they argue that successful, western-style (neo-liberal), welfare state “retrenchment” of sorts has been taking place in the former Soviet bloc and that therefore many conventional theories and analytical tools of policy making should work quite well in the East European context. On the other hand, their empirical findings also reveal the importance of numerous region-specific and country-specific characteristics, such as excessive centralization of power in the executive, inefficient bureaucracy, weak political parties, underdeveloped civil society, and perhaps also the excessive influence of international actors in the policy-making process. Therefore, it seems that we ought to place these welfare systems in a separate analytical category of the “former communist states” or, a little more broadly, in a distinct group of new “emerging democracies.” A few institutionalist studies of Eastern European transformations go even further and profess a “tabula rasa” view of regime change (Elster, Offe, and

The Welfare State as a Research Problem AI Preuss 1998). If an apparent break of continuity is true, however, a long-term historical analysis of the development of the state in the region would become a futile exercise indeed. In addition, new institutionalist approaches often fail to recognize the importance of “multiple institutional realms” as the necessary context in which policy entrepreneurs operate (Pierson 2004, 136). Moreover, students of comparative social policy reform in the west clearly demonstrate that we get much better results from paying closer attention to the relationship between the state institutions and the design of individual benefit schemes (see Bonoli 2000, 45). I argue that to better understand crises of the welfare state in the postcommunist era we must account not only for long-term institutional endurance and evolutionary change (institutional legacies), but also tor the surprising continuity in patterns of social policy making (policy legacies). Institutional legacies represent structures and norms that are firmly imbedded in the processes of state building and rebuilding during different historical periods.’? Social policy legacies are closely related to the larger phenomenon of the cyclical recurrence of political, social, and economic instability that underlies the twentieth-century history of East Central Europe.*° Although specific circumstances of these crises vary from country to country, we should pay special attention to the historical impact of such common experiences as the effects of the Great Depression in the prewar period, demographic and economic devastation of East European societies during World War II, the civil wars and/or violent communist revolutions after the war, and major challenges to the Leninist rule in the post-Stalinist period. These “pivotal points” in the histories of Czechoslovakia, Poland, and Hungary, for instance, not only break the continuity of the political regime but also usually stimulate serious attempts to restructure welfare state institutions and policies. Still, the collapse and replacement of a political regime does not automatically translate into the same radical changes in the social policy regime. Quite to the contrary, as we will see in the following chapters, many major structural elements (foundations) of the welfare state remain undisturbed. Deeply imbedded in the institutional practice and memory of the state since its inception, such features as the preferred type of decision-making structure and the type of organization of social insurance bureaucracy (administration) are subject only to more subtle “recombination” or “reconfiguration” (see Stark and Bruszt 1998) at best. In a parallel development, patterns of social policy making are also subject to partial adjustments or slow-moving change.

For our purposes, however, it is not sufficient to identify only the general types of historical legacies or “pivotal events,” since this exercise by itself cannot reveal the existence of any significant causal mechanisms behind

divergent institutional solutions and policy outcomes within the postcommunist region. Therefore, we must take a step further and examine potential, critical differences in timing and sequencing of institutional development ™ See the Introduction. 2° Thid.

A2 The Welfare State: A Reconsideration (Thelen 2003; Pierson 2004) across various countries, and also in regard to the processes of policy evolution within particular benefit programs in each of them, focusing separately on the key elements of social insurance such as pensions, sickness/maternity benefits, family allowances, and child-care payments. Narrowing down the focus to these major social insurance schemes allows for a more parsimonious analysis that seeks to capture the pivotal influence of time and slow-moving processes on the functioning of the welfare state as a whole. This study aims to explore the long-term evolution of many vital but often less visible and rarely studied benefit programs that rely on cash payments to individuals and their families, but my approach is not all-encompassing. It may leave out other causal factors that could possibly play a significant role in shaping institutional development and policy outcomes of the newer, less-entrenched programs such as health care services, housing, education, social services (public assistance), and unemployment. One could argue that these programs have displayed much less institutional continuity across different political regimes, and therefore, for example, we might find that at different crisis points in history they could have been much more vulnerable to shifts in official ideology, socioeconomic trends, and more direct pressures from new types of political coalitions. As I show later, the long-term expansion of the five major social insurance programs in Czechoslovakia, Poland, and Hungary was punctured not only by numerous crises, but also by several significant periods of readjustment, partial reform, or “retrenchment.” Retrenchment can mean both a series of incremental but often consequential (more radical) adjustments in policy or in the institutional structure (see Bonoli 2000) and an intentional substitute for a more radical reform that often produces unintended results (see Pierson 1996). In East Central Europe, the latter tends to prevail over the former, especially as far as the institutional structure is concerned. We must also note that even though all European welfare states to some degree share a common period of “origins,” followed by growth until the late

1920s or early 1930s, this is where, for the most part, the basic similarity in general western and eastern trajectories of social policy development ends. Cumulative effects of the Great Depression, World War II, Stalinist industrialization of the early 1950s, and later crises of the state socialism dramatically altered the dynamics of policy making in the East (see Fig. 1.2). From the late 1950s until the late 1970s, the impact of postwar crises of state socialism was never as severe as to undermine the overall pattern of welfare state expansion. It significantly affected, however, the quality and quantity of benefits in the long run and produced meaningful consequences for the future development of social policy in all of Eastern and Central Europe. In sum, repeated periods of social policy crises, retrenchment, and attempted reform in each country could be seen as “self-reinforcing” sequences of events and actions (Pierson 2004) that contributed to the underlying endurance and survival of the core elements of the national welfare states (i.e., social insurance schemes) throughout the region with all their inherent problems and shortcomings.

Understanding Historical Legacies 43 A.

ORIGINS EXPANSION RETRENCHMENT OR REFORM B.

(National EU

Origins Growth Retrenchment Growth Retrenchment Growth Retrenchment Growth Retrenchment Growth Retrenchment Growth

1880-1919 1930 1945 1950 1955 1965 1970 1980 1990 2004

independence) accession FIGURE 1.2. Historical stages of welfare state development in modern Europe (West and

East, 1880-2004). A: Conventional timeline of welfare state development in Western Europe. B: Cycles of welfare state development in Eastern and Central Europe. UNDERSTANDING HISTORICAL LEGACIES OF SOCIAL POLICY IN EAST CENTRAL EUROPE

Our “recontextualized” welfare state represents a “layered” construction, with old components adjusted and new ones added during different historical periods in a manner reminiscent of geological deposits. As such the whole structure cannot easily fit into a fixed, conventional prescription, design, or model. Because each “layer” frequently derives from different origins, it can also evolve and change independently over time. In short, a welfare state that develops in this manner should not be analyzed as a teleologically transparent or predesigned sum of all its constituent parts crafted by one particular regime at any given time in history. Indeed, many authors have acknowledged the existence of “communist” or even “precommunist” legacy of the welfare state, but, with only a few exceptions (Millar and Wolchik 1994; Barr 1995, 2005), they tell us little about the meaning and significance of this legacy. More important, we still need to discover how these legacies endure under different regimes over long periods of time and how they are passed on from one regime to the next.

Historical-institutionalists maintain that past policies and practices and preexisting structures of policy making create path dependence, thus predetermining which course of government action is going to succeed. In this chapter I have identified three significant preexisting structures incorporated into the postcommunist welfare states in East Central Europe: social insurance pro-

grams and policy patterns (Bismarckian tradition), “socialist” programs and policy patterns, and a system of government guarantees and controls. Originally, these structures took on different institutional forms in each country under successive political regimes and paved the way for distinct trajectories of development and reform or retrenchment (see Tables 1.1 to 1.3). Focusing specifically on welfare state reforms, Paul Pierson argues that in the “age of retrenchment” the legacies of the past become even more important than bureaucratic capacities, resulting only in piecemeal change (1996, 153). This argument could also apply to the development of East European welfare states

A4 The Welfare State: A Reconsideration in the twentieth century. In contrast to Western Europe, however, in the former communist region serious retrenchment attempts have been much less successful in the last few decades. Nevertheless, different, much less transparent forms of adaptation and “bounded” change occurred much more frequently, enhancing distinct patterns of crisis decision making in each country. Moreover, as suggested above, social policies in the former communist region

developed in a cyclical fashion, alternating incremental growth and frequent periods of crisis and attempted reform. As Ekiert (1996) rightly points out, the defining political and economic crises of the post-Stalinist period, in Hungary in 1956, in Czechoslovakia in 1968, and in Poland in 1980-1981, had a profound

impact on the transition paths of each country on the way to democracy and free market. As we will see in Chapter 3, these crises also stimulated government

attempts to restructure welfare state policies and institutions in an important way. Yet because my argument rests on the long-term significance of continuities or legacies of the welfare state from its beginnings until the present, I search for pivotal contingent events and decisions also in the more distant interwar period and more recently in the postcommunist era since 1989. I view pivotal contin-

gent events as crises of the existing welfare structure, but by themselves they do not necessarily produce radical change but rather engender future expansion or retrenchment of the key social insurance programs. I also point out that practically all major regime crises identified by Ekiert (1996) sooner or later are associated with important changes in social policy, but, inversely, not all major reforms of the welfare state are directly linked to major political crises. In addition, no single crisis event by itself could be construed as a “critical juncture” in a classical sense or a major turning point in welfare state development in particular, but, rather, all of these events, taken together, constitute relevant historical sequences with long-term cumulative effects on institutional development. Levels of Analysis

Grzegorz Ekiert and Stephen Hanson argue that it is possible to construct a “consensual analytic framework in which the general and specific features of the postcommunist institutional environment can be integrated within a single research program” (Ekiert and Hanson 2003b, 17). They also distinguish the “temporal” and “spatial” contexts of more general historical legacies and regional patterns of cultural, political, and economic change in Central and Eastern Europe. Because the main purpose of my study is to identify and classify the relevant historical legacies of welfare state development in the region over a long period of time, I focus exclusively on the “levels of temporal... patterning” (18-19) in different national contexts. Ekiert and Hanson rightly suggest that we should differentiate among three

levels of analysis: structural, institutional, and interactional, to help us clarify various categories of “path dependency” or specific historical legacies (see Table 1.4). In this study, the structural level pertains to the temporal reproduction of the larger patterns of social policy (modern welfare state), common to

Understanding Historical Legacies A5 TABLE 1.4. Analytical Framework for the Study of Temporal Path Dependence in Welfare State Development in East Central Europe

Level of Analysis Temporal Context Structural level Structural time: the longue durée; the historical patterns of socioeconomic reproduction of the modern welfare state in Eastern and Central Europe during the twentieth century

Institutional level Institutional time: origins, consolidation and reproduction of regular norms (blueprints) and other key institutional characteristics of particular welfare state regimes during the interwar, communist, socialist, and postcommunist periods

Interactional level Interactional time: contingent events (crises), choices, and decisions engendering processes of learning, positive feedback or self-reinforcement in social policy making Source: Ekiert and Hanson 2003b.

all industrializing countries in East Central Europe. Ekiert and Hanson refer to this long-term historical context as the longue durée.** Contemporary welfare states, however, also consist of a complex set of nation-specific institutional arrangements that are incorporated into a political regime in a given historical period and constantly evolve over time. In my exploration of path dependency in social policy I define “institutional time” as the origins, consolidation, and reproduction of specific institutional characteristics, including normative blueprints, of particular social policy regimes, for example, during the interwar period, under different varieties of state socialism, and more recently during the postcommunist era. In addition, Ekiert and Hanson suggest a third level of analysis, “interactional time,” that is, “contingent events, choices, and decisions engendering processes of increasing returns/reactive sequences” (2003b, 20, Table 1.1). In this study, the third level of analysis will help us identify a series

of contingent events or crises and related government decisions that engender processes of learning, positive feedback, or self-reinforcement in social policy making. These mechanisms enhance continuity and restrict change within a particular trajectory of welfare state development. In the next, historical section of the book I concentrate primarily on the institutional (Chapter 2) and interactional (Chapter 3) levels of analysis while seeking to reveal the causal effects of institutional and policy legacies. Chapter 4 ties together the impact 21 Or “historical patterns of economic and cultural reproduction” (Ekiert and Hanson 2003), 20, Table 1.1).

46 The Welfare State: A Reconsideration of welfare state development at all three levels in an effort to examine various historical causes of the more recent institutional reforms and policy outcomes. I modify the Ekiert and Hanson’s model to better account for a series of reform attempts and the resulting “layering” of institutional solutions and policy adjustments, and the ways in which they affect the nature of path depen-

dence. In other words, I argue that the “increasing returns argument” may not fully account for all the ways and processes in which these welfare states evolved for almost one hundred years and across different regimes. Instead, I suggest that we are dealing with a complex and fragmented process of adaptation and recombination of old and new elements. Moreover, this process is path-dependent but not necessarily always efficient in the economic sense.*” It also often produces a myriad of unforeseen and unintended consequences, even though it never radically alters the actual foundation of the welfare state itself. Therefore, in the historical analysis of welfare state institutions it might be much more fitting to talk about a combination of several interrelated mechanisms that include, among other things, institutional layering, ideational selfreinforcement, and elite renegotiation of normative rules and policy agreements inherited from the past. Definition of “Legacies” and Major Hypotheses I argue that contemporary East European welfare states, understood as a “layered” structure of social insurance programs and corresponding policy regimes, have their origins not so much in the common inheritance of Soviet communism but rather in the specific institutional legacies of the first part of the twentieth century. In addition, legacies of the welfare state and its particular elements (various layers of social programs) are strongly interrelated with the legacies of state building and rebuilding in each country since 1919. Hence the analysis of differences in the types of legacies that create diverging national trajectories of social policy development in Poland, Czechoslovakia (Czech Republic and Slovakia), and Hungary is an essential prerequisite for the identification of patterns of continuity and change in social policy across the region under successive political regimes. As concerns the first decade of transition after 1989, the two types of interlocking legacies, institutional and policy legacies, seem to be more significant than contemporary political, ideological, or socioeconomic factors in determining the direction of reform of cash benefits within postcommunist welfare states of East Central Europe. As I explained before, institutional legacies encompass the inherited legal and normative “blueprints,” major laws, regulations, and governmental agencies that supervise and administer pensions, sickness/maternity benefits, family allowances, child-care payments, and related cash benefits. As many historical studies of the welfare state have shown, contextual analysis of state structures, institutions, and policy decisions must also >? For more examples of institutional development through “layering,” see Thelen 2003, 226-228.

Understanding Historical Legacies A7 take into consideration the impact of ideas and social knowledge generated from either within or outside the state (Rueschemeyer and Skocpol 1996; Blyth 2001; Schmidt 2002). Therefore my definition of the institutional legacies incorporates the “ideational” dimension as well. My analysis also involves an examination of how the basic building blocs of social policy have continued to evolve and endure within specific national contexts during the interwar, communist, and postcommunist periods (see Tables 1.1 to 1.3). Therefore, I also explore the impact of policy legacies, or repeated, cumulative patterns of government action and reform/retrenchment attempts that produce lasting effects over time. The investigation of these legacies will help us identify periods of crisis and retrenchment associated with crucial decisions and policy choices that reinforce established decision-making patterns and constrain change. Differences in timing (and conjunctures)*} of crucial historical events (such

as adoption of major legislative acts and the completion of social insurance coverage) and sequencing of major stages of institutional development help us explain wide divergence in the adaptability of inherited welfare states to the political and economic structure of the new regime. More specifically, my analysis of institutional legacies of the three welfare states in East Central Europe (Chapter 2) tests the following four hypotheses: Hypothesis One: The timing of the first introduction of the basic institutional blueprint of the welfare state (the founding legislative act on social insurance) has a decisive, long-term impact on the relative equity of social policy benefits among the major occupations in the country, regardless of the change of the regime and the political or economic context. The earliest adoption (interwar) under a state-paternalistic regime produces a highly inequitable, underdeveloped welfare state that is likely to preserve the preexisting, inegalitarian (Bismarckian/imperial) distribution of benefits among the major occupational groups for decades to come. Moreover, the later the adoption date of the institutional blueprint, during the postwar (communist) period, the more likely it

is that greater egalitarianism will develop as far as the major social benefits (social insurance) are concerned. Hypothesis Two: In a larger historical frame, the conjuncture, or linking of the timing of adoption of the institutional blueprint, and the timing of the completion of social insurance coverage is also associated with tendencies toward greater equity of benefits within the welfare state (especially regarding income maintenance) during the twentieth century. Conversely, if the two events, the blueprint adoption and coverage completion, occur at distant intervals in time, inegalitarian trends are likely to become more entrenched and enduring as a result, thus perpetuating and consolidating the original characteristics of the imperial/Bismarckian system of social insurance in East Central Europe. *3 Pierson (2004, 55) refers to “conjunctures” as “the linking of discrete elements or dimensions of politics in the passage of time. If two events or particular processes occur at the same historical moment, the results may be very different from when they are temporally separated (in some cases, regardless of the order in which they otherwise arrive).”

48 The Welfare State: A Reconsideration Hypothesis Three: A combination of the early adoption of a highly concentrated decision-making structure in the area of social policy, firmly anchored in one central governmental agency (such as a welfare ministry), and a centralized social insurance bureaucracy (preferably a single agency with overarching responsibilities) is likely to result in high institutional coherence of the welfare state as a whole and in relation to the polity and the economic structure in the country, regardless of the regime type or the economic conditions. Any other combination of a less concentrated decision-making structure and/or a decentralized social insurance administration would work to undermine such cohesion over time. Hypothesis Four: Long-term adaptability of the original imperial (Bismarckian) institutions of the welfare state to the institutional structure of state socialism also depends on a particular temporal sequencing of institutional evolution before the completion of coverage. If various fundamental reforms of the Bismarckian system are tried and at least partially implemented in early stages, before the nearly full coverage becomes reality in the postwar period, the preexisting social policy institutions of the interwar era are more likely to adapt more easily to the overall political and economic structure of the communist (Lenin-

ist) regime. Conversely, in the absence of such earlier and successful reform sequences we would most likely witness much less adaptability. This type of institutional legacy is especially significant because it demonstrates both limitations and opportunities of reforming the welfare states in East Central Europe during the post-Stalinist period and also later after 1989. Furthermore, I intend to demonstrate that welfare state development in Czechoslovakia, Poland, and Hungary is path-dependent and that diverging social policy trajectories in each country have been shaped by distinct timing, sequencing, and duration of various political and socioeconomic crises. This highly unstable and varied mode of development led to the consolidation of distinct “emergency” patterns of policy making in the crucial areas of social policy. The following additional three hypotheses will be tested in the analysis of social policy legacies during communist rule (Chapter 3): Hypothesis Five: Greater political and economic weakening and attempted decentralization of the Leninist state in the post-Stalinist period is likely to reinforce preexisting (historical) patterns of policy making within different areas of the welfare state and weaken more recent, “socialist” (universalistic) influences. Conversely, preservation of an effective, centralized, and integrated system of socioeconomic planning under state socialism helps to engender the implementation of effective adjustments in the traditional social insurance system toward greater redistribution of resources; for instance, moving from cash benefits (pensions and other income maintenance) to a greater emphasis on social services and benefits in kind (i.e., those forms of welfare assistance that were officially

promoted as ideologically “superior” by the government propaganda during most of the communist rule). Hypothesis Six: The type of adaptation of the Bismarckian “core” of social insurance programs to the realities of Leninist rule is directly linked to the

Understanding Historical Legacies 49 qualitative and quantitative development of specific social policies (i.e., pensions, sickness/maternity benefits, family allowances, and other related social payments). Hence varied combinations of institutional legacies and social policy legacies produce different types of “emergency” politics of social insurance policy. For instance, an early introduction and maintenance of a more balanced system of cash and noncash benefits helps the government to alleviate crises connected with early expansion and maturation of the pension system. Combined with strict control and relative stability of the other, less expensive benefits, it is also likely to produce more infrequent retrenchment and reform, regardless of the immediate political and/or socioeconomic situation. In contrast, heavy and continuous emphasis on cash benefits would have the opposite effect, especially if it is combined with liberal access to social payments. As a result, “emergency” politics of social insurance would be characterized by frequent but largely ineffective attempts to change the status quo or more specifically to retrench social policy or impose austerity measures in select areas of social insurance. In addition, the effectiveness of these attempts to challenge the status quo is also contingent on the availability and cohesiveness of alternative sources of expertise within and outside the mainstream governmental agencies and on the relative access of various “outside lobbies” to the decision-making process in the area of social policy. In other words, a more varied, numerous, and independent community of experts is likely to produce less effective retrenchment policies, but a united and cohesive group of social policy specialists with limited autonomy would usually refrain from initiating such changes in the first place unless absolutely necessary. Hypothesis Seven: The timing, duration, and sequencing of the cycles of expansion and retrenchment in a given country is likely to impact the evolution and modernization of all major social insurance programs under communist rule. A sequence of early, shorter cycles of retrenchment, followed by longer and more frequent periods of expansion of social policy, would probably result in more developed, generous, and up-to-date benefit schemes. Conversely, longer and more frequent cycles of retrenchment, especially those interrupted by relatively short periods of expansion, would have the opposite effect. In addition, the final cycle of welfare state development that immediately precedes the collapse of communism sets the stage for major reform efforts in the new era of democracy and capitalism. If the “pivotal event” of regime change coincides with a retrenchment cycle, major reform efforts are likely to continue in some form during the 1990s. In my investigation of the continued impact of institutional and social policy legacies during the 1990s (Chapter 4), I will test the final hypothesis, which stipulates that many of the same institutional and social policy legacies that had been reproduced throughout most of the twentieth century also remained powerful during the period of democratic transition. I argue that the length and intensity of the “last minute” reforms under the old regime, but not necessarily their effectiveness, are likely to be reflected in similar cycles of policy development and change during the postcommunist era. Furthermore, the failure of

50 The Welfare State: A Reconsideration radical restructuring of the welfare state and varied outcomes of social policy reforms in East Central Europe in the first decade and a half of democratic rule (1989-2004) can be attributed to the continuing, cumulative influence of historical legacies and various contextual factors that help reproduce these legacies under the new political and economic regimes. Hypothesis Eight: The effectiveness of social policies and success of welfare state reforms undertaken during the postcommunist era (after 1989) is likely to depend heavily on adaptability or compatibility of the newly restructured

institutions and social policy agendas in relation to the legacies of the past discussed above. For instance, countries that preserved their original welfare state blueprints and maintained a high degree of administrative centralization in social insurance and concentrated decision making are likely to become more effective protectors of the basic safety net during the transition. The same insti-

tutional features, however, would also stand in the way of implementation of radical changes and/or necessary reductions in the scope and generosity of the welfare state. Moreover, late adopters of new, modernized welfare state blueprints and programs, for example, would also be more open to innovation and experimentation in policy in the postcommunist era. But the existence of a wide gap between the ambitious policy agenda and administrative capacity and inherited deficiencies in the decision-making mechanisms would also necessarily jeopardize implementation of reforms in some countries. In addition, historical patterns of development and/or growth of individual social insurance programs would determine the reform trajectories of these programs in the postcommunist period. For instance, if a pension system matured

and expanded early during the communist era, it would be easier to stabilize it and avoid major restructuring under a new regime in the 1990s, and, conversely, late maturation and slow growth of the program would have the opposite effect, regardless of the immediate political and economic context at the time. Finally, previous patterns of consistent and prolonged commitment to sickness, family, and child benefits would be difficult, if not impossible, to reverse, whereas countries with a clear history of frugality in these areas in the past would most likely emerge as more effective reformers of these areas of social policy at the end of the twentieth century. New Theoretical Framework for the Study of Path Dependency in Welfare State Development in East Central Europe The work of Ekiert (1996) and many other prominent scholars of “path dependency” rests on the notion of “critical junctures” that give rise to self-enforcing processes, “positive feedback,” or “increasing returns” (see also Collier and Collier 1991; Pierson 2000; Mahoney 2002). This approach uses “historical causation” to explain the occurrence of divergent developmental trajectories and outcomes of processes originating in largely similar conditions (Pierson 2003, 195-196). As Kathleen Thelen points out, the critical juncture perspective makes it possible to better understand path dependency by studying “different patterns of interaction between ongoing political processes and [the] effect [of]

Understanding Historical Legacies me WELFARE STATE ' Policy reforms , STATE AGENCY 7

“Hybrid” Social insurance “Learning” Policy makers/policy coalitions institutions and programs Policy feedback, and bureaucrats

i

self-reinforcement and i. constrained change

Transmission of he

political controls

decision-making structures, JL

financing mechanisms, Transmission of

bureaucratic capacities, and Va normative constraints legal and political guarantees

I jp Re-negotiation of ideational compromise Ill Institutional

Pa “bounded change”

“layering” wa

STATE STRUCTURES Inheritance and IDEATIONAL FOUNDATION Regime-specific transmission of ideas Welfare doctrine and ideology

economic tJ

political and Regime legitimation institutions

Ideational self-reinforcement

FIGURE 1.3. Theoretical model for the study of historical legacies, institutions, and patterns of social policy development and change in East Central Europe.

these interactions on institutional and other outcomes.” It is not enough, however, to reveal what these patterns are; we also need to explore “the mechanisms that translate critical junctures into lasting political legacies” (1999, 388). Thus, especially in the case of postcommunist welfare states it would be insufficient to limit our historical-institutional analysis to a simple typology of legacies and a static description of particular policy patterns. I argue that the combined effects of state building (or rebuilding) and crisis-driven policy emergencies are more important than single “critical junctures” in shaping specific developmental paths in each country. Therefore, I propose a new, more dynamic theoretical model for a joint investigation of the two types of historical legacies and the mechanisms that have continued to reproduce these legacies during the century of welfare state development. Even though this model is designed explicitly for the study of East Central Europe, it could be also used for a comparative analysis of other countries and regions with complex histories of instability and frequent regime change. Figure 1.3 depicts four types of interactions or mechanisms that reinforce and reproduce these legacies over time. Counterclockwise, the first one (I) refers to the temporal reproduction of the core of the welfare state — the inter-regime

52 The Welfare State: A Reconsideration transmission of social insurance institutions and program designs of major cash benefits that exist in a particular country. On the institutional level, the model focuses our attention on the emergence of certain country-specific modes of executive decision making, patterns of program coverage, financing, organization, legal guarantees, decision-making structures, and political controls over the welfare system and its beneficiaries. The “hybrid” institutions of the welfare state encompass permanent components and inheritance of the basic state

structure adopted by all political regimes in East Central Europe during the twentieth century. Institutional legacies are reproduced in time mainly through

layering of different programs, that is, adding new elements to the preexisting benefit schemes that occurs in conjunction with the current changes in the polity and the economy but is not exclusively dependent on them because it also involves the inheritance of preexisting structures. The second (II) type of interactive mechanism depicts a dynamic relationship between the state structures that incorporate political, economic, and, of course, welfare state institutions of different regimes in specific countries, on one hand, and the ideational foundations of the welfare state (welfare doctrine and ideology), on the other. A major socioeconomic crisis or collapse of a political regime usually engenders both short- and long-term pressures to reform the welfare state. At the same time, however, a preexisting set of ideological norms regarding a particular kind of redistributive intervention by the government in society presents a powerful obstacle to change. Regardless of the type of regime, the existence of a normative “blueprint” constitutes an important point of reference and helps to legitimize the state, across different regimes, as the main provider of particular benefits in a specific way to various segments of the population. Thus, at the crucial time of regime change the inheritance of preexisting state structures involves not only institutional layering but also ideational self-reinforcement, that is, the reassembly of the normative foundation of the welfare state in the new historical context. This allows the government to continue to pursue redistributive policies without interruption and automatically enhances support for the status quo ideas and norms that served to legitimize similar actions in the past. The third mechanism (III) illustrates ideological/normative constraints on

the state agency at a macro level; or in other words, it captures the role of state actors in the preservation of the ideological compromise among the decision makers and their societal clients over time. The state agents periodically

attempt to alter or even replace this doctrine, but as we will see later, such attempts usually encounter considerable resistance from within the social policy establishment and the public at large, and so far historically such efforts met with only partial success. Instead, we can observe a renegotiation of previous compromises regarding the welfare doctrine in close relation to the basic system social insurance programs and policies. As a result, only narrow innovation, or “bounded” change, in the national welfare doctrine is possible. The fourth mechanism (IV) refers to the policy-making process itself and

to more direct attempts to change or reform the welfare state or, rather, its

Understanding Historical Legacies 53 various components. Usually a relatively narrow group of experts or bureaucrats heavily reliant on the institutional memory of past practices bear the primary responsibility for policy planning and implementation during various alternating cycles of expansion and retrenchment. On one hand, long-term policy learning (Heclo 1974) and policy feedback (Pierson 1994, 2004) create reservoirs of accumulated experience within a narrow elite of welfare state experts, bureaucrats, and politicians, reinforcing long-standing patterns of social policy making over time. On the other hand, the existence of powerful structural and institutional constraints seriously undermines the effectiveness of policy makers

and policy coalitions acting as reformers, permitting only very slow-moving, partial reforms or “constrained (and incremental) change.” Finally, we must stress that, of course, the “state agency” is embedded in the historically determined state structure under any regime, as indicated by the diagonal, dotted line in Figure 1.3, but in this particular study we are most interested in its historical interaction with the institutional subset of the welfare state that, according to our definition, encompasses various mechanisms of political control, decision-making structures, and bureaucratic capacities. The next chapter examines in detail the impact of institutional legacies, transmitted primarily through the first two mechanisms, that is, institutional layering and ideational reinforcement. In the next segment I concentrate mainly on the emergence and the historical transformation of the social insurance institutions and programs and their ideational foundations in Czechoslovakia, Poland, and Hungary during the twentieth century.

2

Institutional Legacies

State Building, Regime Change, and the Development of National Welfare States in Czechoslovakia, Poland, and Hungary, 1919-1989

The major aim of this chapter is to explain how in all three countries the original “core” of the welfare state evolved under different political and economic systems, gradually adding layers of new and supplementary benefits and allowing only partial restructuring, adjustment, or conversion of the original social insurance institutions established in the interwar period. I argue that institutional legacies of the welfare state not only reinforce path dependence on their own but do so in conjunction with the legacies of the political regime and with regime change, exemplified by the crucial periods of state building and rebuilding in each country since r9rg. In keeping with our analogy of an East Central European welfare state as a permanent “construction site,” we should not expect Czechoslovakia, Poland, and Hungary to settle into a fixed type of a social policy regime under any particular political system, but instead during the period examined in this study we would witness the continuing evolution of “emergency” welfare states, from their Bismarckian origins to the contemporary postcommunist stage. As we see below, however, regardless of this inherent pattern of instability, at different historical moments each country created a main “edifice” or “blueprint” of national social policy that subsequently would serve as a guide in the process of institutional growth and adaptation. The type of these blueprints, their timing, and their placement in a particular developmental path of a welfare state would play a vital role in the process of “institutional layering,” a mechanism that produced considerable cross-national variation in pensions, sickness benefits, family allowances, and also other major policy areas. I agree with Flora and Heidenheimer’s (1981) claim that the original European social insurance programs should be considered more generally as products of modernization, regardless of the type of political regime. I also argue, however, that despite certain similar general trends in evidence throughout the continent, such as the steady expansion of coverage and the aggregate growth of social expenditures during the twentieth century, institutional patterns of welfare state development in the new nations of East Central Europe became visibly 54

Social Protection as a State-Building Project 55 different from the West and from one another already in the interwar period. In particular, the creation, failure, reconstruction and/or change of a particular political regime profoundly affected the processes of emergence, “maturation” (completion of social insurance coverage of all major social groups) and consolidation of the key institutions of social policy in the region. What is more, it is not only a single historical event or regime change that makes a difference, but also specific timing and sequencing of this process, in both the political and social policy realms. As previous historical-institutionalist studies have shown, crucial policy decisions, major events, and institutional changes in welfare policies frequently produce unintended consequences (Skocpol 1992; Pierson 1994; Myles and Pierson 2001; Amenta 2003). In a similar fashion, in the former communist bloc during almost a century of social policy development, certain, seemingly vital institutional features of the transforming welfare states turned out to be less significant over time, while other, apparently temporary solutions remained relevant much longer than anticipated. I seek to identify the most enduring and the most consequential institutional legacies of the three East European welfare states, beginning with the general characteristics and then analyzing in more detail the main institutions and individual social insurance programs in each country. These legacies reflect the cumulative effect of regime change at pivotal periods in history. They also encompass lesser known sequences of more or less successful reforms and actions of consecutive governments, beginning in 1919. Unevenly developed and distributed throughout the region in the early twentieth century, preexisting, “imperial” welfare institutions and norms set the stage for the emergence and subsequent transformation of the Czechoslovak, Polish, and Hungarian social policies. Likewise, differences in political, social, and economic conditions, and the extent to which a particular country was willing or able to follow and absorb foreign influences at various stages of welfare state development, also played a large role in shaping this process. Most of all, however, we will focus on the causal effects of conjunctures, that is, synchronized or unsynchronized timing of crucial historical events that shape the future trajectories of the welfare state; we will also identify the type and longterm effect of initial institutional choices and analyze the historical influence of sequencing (Pierson 2004, 55; see also Shefter 1977 and Ertman 1997) in the process of institutional evolution of each country. SOCIAL PROTECTION AS A STATE-BUILDING PROJECT

Since 1919 welfare state development in East Central Europe has become a vital element of the processes of state building and nation building in general and of the specific regime-building projects in individual countries in particular. On a basic level, all national governments subscribed to two broad goals originally set forth at the outset of national independence as necessary means of ensuring social stability and political legitimacy. The first of these was the provision of basic income maintenance coverage, such as work injury, sickness/maternity,

56 Institutional Legacies, 1919-1989 old age, disability, and/or unemployment, to at least the main occupational sroups and their families. The second goal refers to the state itself and specifically to its role as the main political and economic force that guarantees and protects the day-to-day functioning and long-term expansion of all major welfare programs. The pursuit of these two goals overlapped historically but did not always follow the same timetable. For example, Poland established its own national model of centralized state control over social insurance already in the mid-1930s but completed the coverage of its population only in the 1980os. Also, these processes have not progressed along a strictly linear path toward full coverage of the entire population. Frequent changes in government policy periodically arrested and sometimes even temporarily reversed the expansion of the national welfare states, although without permanently erasing or replacing them with another domestic or foreign alternative. For example, in terms of coverage and organization the Czechoslovak national model was largely completed in 1948, but afterward its implementation was repeatedly delayed and undermined by various political and economic crises. Hungary, the country with the oldest mandatory welfare state programs in the postcommunist region, achieved full coverage of all major working groups only a century after the adoption of its first social insurance schemes (see Tomka 2004). In the meantime, Hungarians modernized and upgraded many forms of welfare protection, especially benefits for women and working families, but they failed to create a stable institutional foundation to ensure the long-term stability and survival of these programs. Poland also was not immune from major reversals in the expansion of social insurance. For example, in the late 1920s and early 1930s the government cut back the rapidly expanding sickness insurance and took away benefit rights from several large occupational groups in different parts of the country. PREEXISTING SOCIAL POLICY INSTITUTIONS

Institutional inheritance of the earlier social programs played a key role in the initial phase of construction of the national welfare states in Eastern and Central Europe. Nevertheless, it also proved to be a mixed blessing for the newly sovereign governments in Prague, Warsaw, and Budapest. Their historical advantage undoubtedly rested on the prior development of advanced knowledge and expertise in and the inheritance of an experienced bureaucratic apparatus continuously working on the design and implementation of various

social programs. The main problem and the greatest challenge for the new national authorities, however, were the deep inequality and extreme regional and occupational diversity within the German, Austrian, Hungarian, and also Russian systems of welfare protection. While industrial employees in Bohemia,

Moravia, Silesia, and the German part of Poland received the best and the most generous and comprehensive social protection in the world, augmented by additional private and company plans, their counterparts in Russian Poland, Slovakia, Ruthenia, and Transylvania often did not qualify even for the most basic assistance in case of sickness or work injury.

Political and Socioeconomic Conditions 57 The distinctions among different occupations were no less striking. At the top of the scale were civil servants, military officers, miners with their own traditional self-insurance plans, and also many salaried employees with separate pension schemes. At the bottom stood numerous workers in small enterprises, cottage industries, commerce, and agriculture, where only rudimentary protection systems existed. In all countries the dilemmas and contradictions of how to deal with this complex and unequal set of benefit programs could not be overestimated. First, none of the governments, which emerged from the war with large foreign debts and huge social burdens of the impoverished populace, could afford simply to expand the best and the most generous Bismarckian schemes

to cover all working citizens. Second, they had to use all means at their disposal to ensure the political and economic survival of the new nation-states. Yet at the same time, at least in the initial period, the national governments were

too weak to ignore the demands of their powerful and effectively mobilized urban constituencies who had acquired vested interest in the protection and improvement of the well-established “imperial” social programs. DOMESTIC POLITICAL AND SOCIOECONOMIC CONDITIONS

The Interwar Period

In r9r9 the national governments of East Central Europe came under immediate pressure to incorporate the existing social insurance programs into the structure of the newly independent states and to upgrade and expand them substantially to benefit all major groups of hired employees. This pressure came

usually from four main sources, a narrow but influential group of bureaucrats and social policy experts, civil and military personnel, political parties, and organized labor. From the beginning government bureaucrats, well trained and experienced within a Bismarckian system of social policy, drafted extensive plans for the takeover and reform of mandatory sickness funds and other similar schemes. Thus, early on the government seized the strategic initiative and acquired considerable political advantage in social policy. Bitter ideological enemies, nationalist politicians, and moderate left-wing parties all insisted on immediate action in this area. Their consensus on this issue stemmed mainly

from the fear of domestic social upheaval, caused not only by war devastation and widespread poverty but increasingly also by the growing popularity of Leninist ideology among the workers in the immediate aftermath of the Bolshevik Revolution in neighboring Russia. In the first few months and years after World War I the Poles and the Czechs made a series of politically brilliant and strategically vital decisions to strengthen

two fundamental pillars of social provision in their countries — entitlements for state employees, military and civilian, and sickness insurance tor workers, using them effectively as pillars of state and nation building. In contrast, Hungarians, embroiled in a communist-led revolution and a civil war, suffered a major setback. Their well-established and pioneering system of social

58 Institutional Legacies, 1919-1989 protection disintegrated under contradictory pressures from the extreme left and the far right. After a short but bloody civil war, in the early 1920s the preexisting social programs had to be painstakingly reassembled from the ruins of Bela Kun’s Soviet republic to ensure social peace in the urban areas. In fact, in all Central European countries during the decade of the 1920s, government stabilization, the advent of national parliamentary regimes,’ postwar economic recovery, and a mobilization of national consensus among policy-making elites and major political forces in power on major tasks of national reconstruction, including the preservation and expansion of the social insurance system, sealed the defeat of the radical revolutionary option. Nevertheless, the bureaucratic legacies of the past imperial rule, in conjunction with the widening political division among socialist activists and extreme fragmentation of the labor movement, enhanced the influence of the executive ministries and government experts in the area of social reform. The crucial problem facing each country struggling to forge a deeper sense of national unity was to define the extent and the means of the government’s

influence in the future welfare system. This also required serious efforts to reconcile opposing socioeconomic interests and building an effective legal and administrative framework to institutionalize this role. The stage for this task

had been set to a certain degree by the inherited, imperial structure of state paternalism, but also by the initial decision to focus on the support schemes for public employees’ sickness insurance welfare relief and as the main priorities of the first governments after the Great War. This move, however, was inherently

contradictory. On one hand, as the growing number of state employees and military veterans joined the ranks of prospective beneficiaries of pensions and other forms of assistance, many of these relatively generous entitlement schemes quickly became financially unsustainable. Moreover, even though this category

of benefits officially remained under strict political and financial control of the treasury, the preservation of the inherited safety net in this area could easily explode into a major crisis, especially in the situation when particular ministries competed for meager resources to satisfy the demands of their own employees. In addition, sickness and other types of insurance presented another dilemma

of how to combine the tradition of financial autonomy and self-government with two conflicting government mandates. One of these focused on fostering economic growth and private investment, which often translated into lowering the social insurance burden of the employers. The other mandate referred to the expansion and consolidation of state’s self-proclaimed role as the main financial and political protector of the independent social benefit funds inherited from the previous regimes. By the late 1920s most governments in East Central Europe opted for some

type of mixed autonomous-statist system of social insurance administration ™ Tt must be noted that only Czechoslovakia had a competitive election and a stable parliamentary

system until 1938; Poland had such a system only during 1920-1926; and Hungary severely restricted political opposition and franchise throughout the interwar period.

Political and Socioeconomic Conditions 59 that preserved self-government in various separate funds with strong employee representation but also with effective oversight by the state. Indeed, especially since the years of the Great Depression, 1929-1935, everywhere in the region the idea of increased state responsibility and control over the social safety net was steadily gaining ground. At that time Poland moved the furthest toward a centralized, uniform, and government-controlled welfare system. Hungary

tried, with only limited success, to invent a new type of state-corporatist model of social policy. It aimed to supplement, if not replace, the preexisting, largely independent but slowly evolving traditional social insurance programs, inherited from the imperial period and run by independently elected boards. Czechoslovakia, however, remained committed to a dual system of more advanced, diverse, and mostly autonomous systems of protection for key political constituencies, combined with a basic but relatively widespread social safety net for other, less influential groups. As we will see later in more detail, already by 1939 the combination of the original imperial structures, laid out in distinct geographical patterns in each country, and the new “layers” of postwar institutional adjustment and reform produced distinct systems of social insurance in East Central Europe. By the advent of World War II, early Czechoslovak, Polish, and Hungarian welfare states not only diverged from each other in terms of coverage, range, and quality of benefits provided to their populations, much of which had already existed prior to independence, but also in the areas of financing and administration of

the welfare state, as their governments struggled in different ways to adopt the inherited structures to the postwar political and economic realities. The diversity of approaches to this problem could seem surprising, because in all three countries the state had to deal with similar challenges of limited resources,

entrenched and overblown bureaucracy, and a restive working class, the last two groups being relatively well covered by the preexisting social programs and

actively defending their rights through protests, demonstrations, and various types of political lobbying. Likewise, later on we would again witness similar processes of divergence in the region after the takeover of these institutions by the Moscow-backed communist parties. During the late 1940s and early 1950s the forced drive for institutional convergence under Marxist-Leninist rule aimed to produce “carbon copies” of Stalinist states throughout Eastern Europe, including a uniform model of a Soviet-style welfare state. But instead under the entire period of state socialism we could again observe a continuation of gradual, slow-moving institutional adjustment, with new elements or “layers” combined with or added on top of the old, preexisting structures. The Communist Period

Postwar transformation of welfare states in the region during the Stalinist period, 1949-1956, constituted an unprecedented and radical experiment aim-

ing to replace the distinct national social benefit systems with a structure adopted wholesale under pressure from the Soviet Union. As far as its stated

60 Institutional Legacies, 1919-1989 ideological purpose was concerned, however, namely, to create a new and advanced systems of social security for all citizens, to correct past injustices, and to compete effectively with western welfare states, this project turned out to be a dismal failure. Initially, each country suffered an irreversible destruction of some elements of its surviving welfare state from the interwar period. In a curious way, however, the unintended result of the communist takeover was the actual the strengthening of other, vital, although not always functional and efficient parts of the old system, such as the proliferation of privileges for the state employees or liberal access to disability, sick pay or certain types of family allowances. In other words, in practice the Stalinist and post-Stalinist reformers of social policy were neither willing nor able to create a new welfare state from scratch. Instead, they combined and reorganized new and old institutions (see Chapter 1, Table 1.2), but they also did it differently in each country, thus reinforcing the evolutionary, “layered” patterns of national welfare state development that had existed before the communist takeover. IDEATIONAL CONTEXT: FOREIGN INFLUENCES AND DOMESTIC DEBATES

Our main concentration on the national characteristics of social policy should not obscure the impact of ideational and international factors. These factors are not limited to the early imperial past and the imposition of the Stalinist institutional structure and ideology in the early 1950s. First, we must keep in mind that foreign political and economic domination has remained a constant feature of East European development throughout most of the twentieth century. Second, during each historical epoch there existed only a limited number of options or models of social policy to choose from. Since 1919 new foreign imports continued to clash with deeply ingrained domestic traditions and compounded many unresolved social problems. Hence, the contemporary debate over the proper role and the actual influence of foreign ideas, institutions, and

reform blueprints in postcommunist Central and Eastern Europe (see, e.g., Miller 1999; Orenstein and Haas 2005) often resembles previous historically relevant periods of welfare state history when change seemed urgently necessary and the outside world offered seemingly ideal solutions to domestic crises. State paternalism, economic liberalism, and socialist collectivism have been identified as the main sources of social-policy norms and principles in industrialized countries (Rimlinger 1971; Minkoff and Turgeon 1977; Flora and Heidenheimer 1981; Scharf 1981; Esping-Anderson 1990). We must also remember, however, that the construction of the ideational foundations of the Czechoslo-

vak, Polish, and Hungarian national welfare states predates the imposition of Soviet-style “socialist collectivism” in the region. Furthermore, the actual form of each national welfare doctrine or ideology and the way in which it was incorporated into the existing system of welfare institutions is crucial to our understanding of the long process of maturation, stagnation, and disintegration of state socialism as a whole in each country.

Foreign Influences and Domestic Debates 61 In the interwar period ideational debates over the nature of the national welfare state in Eastern and Central Europe mirrored previous dualism of early governmental policy in the immediate period following World War I. On one side advocates of social insurance autonomy and self-governance argued for an ideal model of the future “democratic” welfare state, backed by strong financial and legal guarantees but politically independent from the government. On the other side, the proponents of enhanced state paternalism and interventionism justified their position by the need to legitimize state and nation building and to use governmental power to address urgent socioeconomic problems. During the time of relative economic prosperity of the mid-1920s, the former tendency clearly emerged as the dominant one among these East European countries that

joined the social insurance section of the newly created International Labor Organization (ILO). During the entire interwar period, two of the nine founding members of the ILO, Czechoslovakia and Poland,* became leading supporters of the idea of comprehensive and autonomous social insurance schemes. East Central Europeans such as Czech social policy expert and ILO official Emil Schoenbaum,

Polish scholar of the welfare state Konstanty Krzeczkowski, and also Hungarian lawyer Bela Kovrig? were among leading proponents of this idea in the 1920s and 1930s. However, in the late 1920s and early 1930s when new types of fascist and corporatist regimes challenged parliamentary democracies all over

Europe, from Spain to the Baltic states, supporters of state paternalism and corporatism, calling for centralized control over social policy, rapidly gained popularity. Domestically, none of the three countries, facing serious developmental challenges and social problems, could avoid greater state interventionism necessary to preserve economic viability of national social insurance. Yet only states that managed to preserve a stronger commitment to parliamentarism turned out to be most resistant to both foreign and domestic pressures to curb democratic governance in social policy matters. Czechoslovakia, for example, remained committed to this principle until the end of the first republic in 1938, and the Poles never abolished it, even though in practice they began to introduce strict political controls over the welfare system already in the late 1920s, in the context of severely weakened parliamentary rule. The Hungarians followed the most contradictory and ultimately damaging policy. In the late 1920s they restored self-governance in social insurance as a gesture to the moderate left-wing forces in the urban areas, but also actively pursued alternative ideas of an authoritarian corporatist welfare state in the hope of turning the working masses away from socialism. In the mid-1930s

the Hungarian government of Bela Imred not only ceased its participation > The other seven members were Belgium, Cuba, France, Italy, Japan, the United Kingdom, and the United States. 3 Béla Kovrig was personal secretary to Prime Minister Istvan Bethlen, deputy director of the Workers Insurance Institution, and one of the main authors of the 1928 pension legislation. Iam grateful to Dorottya Szikra for pointing out this information to me.

62 Institutional Legacies, 1919-1989 in the Main International Organization of the Social Insurance Institutions, an ILO branch representing “liberal-democratic and socialist-leaning groups,” but also initiated an alternative international gathering of right-wing (fascist and nationalist) governments, with the first congress held in Budapest in 1935, clearly aimed against the ILO-sponsored meeting in Prague in the following year (“Praski kongres” 1936, 255). Later, in the immediate postwar years, all three countries experienced a short-term revival of domestic social-democratic ideas of the welfare state, viewed by many as a welcome antidote to the inadequate and highly unequal preexisting benefits. This trend was also partially reinforced later, during World War II, by the international appeal of the British Beveridge plan, with its emphasis on policy consensus, national solidarity, and universal social security coverage for all citizens. But, as I will demonstrate below, only Czechoslovakia completed a comprehensive “social democratic” reform in this area before the advent of Stalinism in the late 1940s and early 1950s. In ideational terms the history of the communist welfare state in East Central Europe reflects the fate of two utopian visions. One of them was the Stalinist experiment of “cloning” the Soviet-style social policy model, which fortunately

lasted less than a decade in most cases. The other represents a much longer and complex attempt to construct more independent national models of social policy that would revive some indigenous traditions within the general parameters of Leninist rule that is, without undermining the political monopoly of the Communist Party and the fundamentals of the centrally planned economy. Attempts to “renationalize” East European welfare states in the post-Stalinist period varied greatly not only across countries but also in regard to specific benefit programs. A major challenge for the communist rulers was to present to their populations a viable long-term plan for the improvement of the social safety net that would reach beyond the minimum employment guarantees and the basic protection provided under all Soviet-style welfare systems immediately

after World War II. Czechoslovakia created such vision at a very early stage, even before the full communist takeover, and maintained a highly repressive but

relatively stable welfare state regime until the late 1980s. In contrast, Poland and Hungary took much longer to consolidate their post-Stalinist welfare states and experienced much more frequent crises and problems while trying to maintain a viable social safety net from the late r950s until 1989. In Chapter 3 I examine these crises in more detail, but now I turn to the analysis of the institutional foundations of the three national welfare states and gradual processes of institutional “layering” in each country since 1919. CZECHOSLOVAKIA

The Legacy of Foreign Rule before 1919

The incorporation of Bohemia and Moravia, the most economically advanced parts of Austria-Hungary, into independent Czechoslovakia after World War I forced a large-scale transfer of the emerging imperial welfare state institutions to

Czechoslovakia 63 TABLE 2.1. Employment Categories in Czechoslovakia, 1922 and 1930 (in %)

Year Industry Commerce Urban Professionals Agriculture

1922 30 8.6 20.1 41.6 1930 34.9 12.9 17.4 33

Note: Numbers rounded up to nearest tenth. Sources: Cisar and Pokorny 1922, 95; Lewis 1945, 253.

a new national jurisdiction. After 1919, as much as 75 percent of the agenda of the Austrian Ministry of Welfare, mostly in the key areas of accident, sickness, and pension insurance, moved from Vienna to Prague (Gruber 1924, 15), now the capital of the most industrialized country in East Central Europe with almost 60 percent of the working population employed outside agriculture (Table 2.1). The early Czechoslovak social policy institutions rested on three major pil-

lars; the work injury programs (under the 1887 Austrian law in the Czech lands and the 1907 Hungarian law in Slovakia and Ruthenia), workers’ sickness insurance of 1889, and the 1906 (updated in 1914) law on pensions for salaried employees, all administered and financed by separate autonomous insti-

tutions. Also, since 1889 miners and civil servants had belonged to separate, mandatory social protection programs. In addition, numerous other groups of workers had joined voluntary sickness insurance (Lewis 1945, 257), and in the case of salaried employees, also supplementary pension plans (Winter 1924). It must be noted, however, that the Czechoslovak state inherited the bulk of the Austrian welfare system long before its social programs matured in terms of coverage, availability of benefits, and consolidation of social insurance administration. The major gaps in coverage included the absence of mandatory social insurance programs in the rural areas, no unemployment insurance for hired employees, and the lack of pension insurance for industrial workers. Moreover, the less advanced and often poorly implemented Hungarian laws in Slovakia and Ruthenia lagged far behind the complex web of compulsory and voluntary social schemes present in Bohemia, Moravia, and Silesia. The Early Czechoslovak Welfare State: Institutionalization of a Political Compromise The early foundation of the Czechoslovak national welfare state emerged in two distinct stages under closely knit coalition governments of five major parties, the so-called Pietka.* The first stage lasted from 1919 to approximately 1922. The second began in 1922 and included a series of comprehensive social insur-

ance laws passed during 1928-1929. Altogether, in the initial ten-year period of national independence Czechoslovakia created one of the most generous 4 National Democrats (right-wing), People’s Party (Catholic-populist), Agrarians (center-right), Social Democrats, National Socialists (left-wing).

64 Institutional Legacies, 1919-1989 but also most complex and unequal social policy regimes in interwar Europe. Already in the early years a desire to complete this constantly evolving welfare state project within the confines of the young parliamentary republic conflicted with immediate political and economic contingencies.

The First “Social Democratic” Period, 1919-1922. In the first stage of institution building considerable financial dependence on Western capital and the split between social democrats and the communists slowed down the pace of sweeping social reforms announced by the first national governments (Graham 1945b, 150-151). Confronted with the restive urban population and highly mobilized labor unions, the governing coalition in Prague, dominated by moderate social democrats, concentrated mainly on the most urgent tasks: relief for war veterans, widows and displaced persons, unemployment protection for industrial workers, and the expansion of the existing sickness and white-collar pension laws to all parts of the country. During the early 1920s over 700,000 widows, orphans, and other persons classified as “war victims” received pensions and other state allowances (Gruber 1924, 18-19; Korbel 1977, 61). Yet national social policy soon shifted its focus to the industrial workers. As Czech diplomat-historian Josef Korbel noted, with over 30 percent of the population working in industry, “in the long run...the fate of Czechoslovakia’s political system rested largely on the political and economic power of the organized working class” (1977, 57). Anticipating a further increase of social tensions in the future, in 1921 a team of Czechoslovak government experts formulated a plan for a long-term comprehensive improvement and expansion of all cash benefit programs under the central direction of the Ministry of Social Welfare® and with the assistance of the newly created Social Institute of the Czechoslovak Republic. In the words of a high government official at the time, “stagnation in this respect would spell reaction which our workers who are well educated (at least in Bohemia, Moravia, and Silesia), enjoy for the most part a much better standard of living than formerly, are class conscious and have a strong political sense, would simply not endure” (Gruber 192.4, 25-26). Given the numerical and organizational strength of the trade unions, it is hardly surprising that the early policy moves targeted the immediate needs of industrial workers. In 1925 there were a total of 478 unions in Czechoslovakia with 1.7 million members, including a large, 600,000 strong socialist organization (Odborove Sdruzeni Ceskoslovenske), and various communist-affiliated organizations with over 200,000 workers.’ They published 320 periodicals, including 147 monthly and 114 bi-weekly 5 In 1920 the Social Democrats were the strongest party in the government of Vladimir Tusar, followed by two nonparty governments of experts during 1920-1922 (Setton-Watson 1967, 172).

6 Dating 1919-1924 the Ministry of Social Welfare proposed at least 157 laws and decrees, includ-

ing adoption of the eight-hour workday (Gruber 1924). 7 Membership in the communist unions increased 124% during 1921-1925 (“Ruch zawodowy w Czechostowacji” 1927, 85).

Czechoslovakia 65 journals. In total, 21 percent of all adults over 21, or 44 percent of active labor force, belonged to a union (“Ruch zawodowy w Czechostowacji” 1927, 84-85). From the early days of the republic, industrial strikes became a powerful and effective weapon in the struggle for economic concessions from the employers and the state. In December 1920, left-wing social democrats (future communists) organized a general strike and an abortive coup. During 1919-1923 a total of 15,489 enterprises went on strike with 12.7 million working shifts lost (Graham 1945b, 152; Korbel 1977, 50). A system of mandatory and extensive collective bargaining involving the unions, large employers, and government representatives became the major tool for dealing with this potentially explosive situation (Graham 1945b). Paradoxically, however, workers in the large enterprises showed little enthusiasm for government plans to create a comprehensive social insurance system for all hired labor in the country, but instead focused more narrowly on the defense and improvement of the already extensive social protection plans within individual companies and branches of industry (Schoenbaum 1927, 60). These early politics of labor relations, when the highly mobilized and militant unions in large enterprises could influence the agenda of the Ministry of Welfare, undoubtedly contributed to the ultimate failure to introduce comprehensive and country-wide unemployment insurance during the interwar period. Instead, Czechoslovakia adopted a version of the so-called Ghent system, pioneered in Belgium, where unions themselves ran a state-subsidized unemployment fund in each enterprise. Laid-off workers collected on the average 21 percent of daily wage for six months, with a possible extension up to eighteen months, which represented the most generous program of its kind in Europe. At the same time, however, two thirds of other nonunion workers in the country had no unemployment protection whatsoever, and salaried employees could draw only on their pension funds to receive small jobless benefits at the discretion of their local funds (Sukiennicki 1939; Lewis 1945; Korbel 1977).

The “Agrarian” Period of Reform and Expansion, 1922-1935. The advent of the “Agrarian Era” (1922-1935) in Czechoslovak politics marked a change in welfare state building toward a more balanced and a more inclusive approach. The ministerial plan to close all major gaps in coverage while preserving financial stability of social insurance as a whole again became the main basis for government action. For example, in 1924 fixed sums paid under the Ghent system to unemployed union members and their families were reduced, but at the same time the legislature approved a new pension insurance program for all workers. Within the next five years ambitious plans for welfare state expansion were back on track, resulting in more uniform regulation of all types of worker insurance under one law in 1928, the updated and expanded pension system for salaried employees from 1929, and the introduction of a new type of “social pensions” for the elderly poor in the same year (Graham 1945b).

66 Institutional Legacies, 1919-1989 TABLE 2.2. Growth of Pension Insurance in Czechoslovakia, 1930-1937 (% of annual increase in the number of pensions paid by the social insurance agencies) Old Age and

Year Total Veterans Disability Social Pensions Accident

1931 5.6 —12.6 —9.3 16.5 2.6 5.0 1932 3.0 20.8 6.9 2.3 1933 4.2 —7.8 25.4 —5.7 1.2

1934 3.4 —3+5 —5.1 16.9 —7.7 0.2 1935 3-5 13.3 —7.6 2.4 1936 2.1 —2.3 5.0 —7.2 3.4 1937 1.8 —2.9 4.0 —7.9 6.0 1930-1937 26.3 — 63.4 154 —7.3 22.6 Source: Jerbakova and Salcmanova 1965, 163-164, tables Ila and IIb, and my own calculations.

It is significant to note that the main institutions of the interwar Czechoslovak welfare state, which survived for the most part until 1948, emerged under the conservative-led government of the Agrarian party leader Antonin Svehla during the tenure of the so-called Black-Green coalition, or the “coalition of

the squires” (Korbel 1977, 78). The growing marginalization of the social democrats, now engaged in a bitter rivalry with the influential Czechoslovak Communist Party (KPCz), within the executive committee of the “Pietka” helped government bureaucrats to regain the initiative in the process of social policy expansion. Social insurance experts in the Ministry of Welfare and the Social Institute, under the direction of Dr. Emil Schoenbaum, now moved on to implement their long-anticipated plans for comprehensive coverage against all risks for the majority of employees in the republic.

As a result of their action by 1930 about 21 percent of all citizens had pension insurance (Jerbakova and Salcmanova 1965 and my calculations), and

by 1938, 3.3 million workers, or 73 percent of the labor force, had sickness protection (Korbel 1977, 80). Pension coverage peaked at 3.1 million in 1930,

Or 21 percent of the population, but the Depression years, which hurt the export-oriented Czechoslovak economy especially hard, brought this number down again below 18 percent by 1935. The good news was that the overall number of pensions paid during 1930-1937 increased by over 26 percent, and the workers’ pensions grew by as much as 154 percent (see Table 2.2) — a testimony to Schoenbaum’s prediction that an extension of pension insurance in Czechoslovakia could be used effectively as cushion against unemployment at the time of economic downturn (Schoenbaum 1927). Moreover, even though

due to the depression the number of insured workers declined in the same period, during the 1930s coverage for white-collar employees in the state and private sectors continued to expand (see Jerbakova and Salcmanova 1965). As we will see later, however, in contrast to Poland and Hungary, in the interwar period Czechoslovakia workers represented the great majority of the insured in the pension system. Meanwhile the share of the salaried employees grew from

Czechoslovakia 67 TABLE 2.3. Pension Insurance in Czechoslovakia, 1930-1937 (share of the insured in each category of employment, in %) Salaried

Year Total Government Miners Employees Workers

1930 I2.4 3.6 4-5 14.8 I1l.9 68.8 71.2 1937 I0OO 100 12.8

Note: Numbers are rounded up to the nearest tenth. Source: Jerbakova and Salcmanova 1965, 162, table Ib, and my own calculations.

12 to almost 15 percent by 1937 (see Table 2.3), but benefits paid to eligible state employees and veterans continued to decline throughout the 1930s as the economy went into recession. Yet we must remember that the share of these benefits in the total pool of social insurance payments was relatively small in comparison with the other East Central European countries, and it actually dropped further from 56 percent in 1930 to 38 percent in 1937.° On closer scrutiny the institutional blueprint of the interwar Czechoslovak welfare state, implemented in the late 1920s, represented a carefully crafted political compromise with serious inherent contradictions and potentially dangerous consequences for the long-term stability of the safety net as a whole. The creation of an extensive and integrated system of social insurance benefits clearly constituted a major groundbreaking achievement of the legislative work undertaken by the Ministry of Social Welfare in the second stage of reform after

1922. This system protected the majority of workers,? including agricultural laborers, in case of sickness/maternity, disability, and old age under a unified administration of the Central Social Insurance Institute (Usttedni Socialni Pojist’ovna). In practice, however, the unification of the Czechoslovak welfare state was more apparent than real. It appears that the legacies of the Austrian imperial safety net were rearranged and renegotiated alongside new “layers” of institutions and programs developed under the new independent republic in a way that often jeopardized the long-term goals of government planners. First, white-collar employees and select industrial workers maintained and in some cases even increased their privileged positions. Pensions for the growing number of salaried employees were still managed separately under the General Pension Institute in Prague, and miners and steelworkers successfully resisted incorporation into the new social insurance structure, preserving their own independent social protection rights under the so-called Central Fund Office. Second, under the two administrative umbrellas, one for the workers’ insurance, the other for the pensions of salaried employees, the welfare system remained 8 My calculation based on Jerbakova and Salcmanova (1965, 163-164, tables Ia and IIb). 9 Various plans for mandatory and voluntary pensions and other forms of insurance for the selfemployed, including individual farmers, were discussed already during 1922-1925 but were never fully implemented, largely due to cost and limited administrative capacity of the state in the rural areas (Gruber 1924; “Ubezpieczenie spoteczne rolnikow w CSSR” 1961; De Deken 1994).

68 Institutional Legacies, 1919-1989 highly fragmented and difficult to manage. Although the Central Social Insurance Institute now supervised sickness benefits for all employee groups in the country using highly sophisticated and technologically advanced record keeping, in 1935 there were still as many as 297 separate sickness funds’® in all of Czechoslovakia (Sukiennicki 1939, 423). The original 1923 ministerial plan to merge all social insurance risks into 120 district funds never materialized (De Deken 1994). The government was more successful, however, in creating a uniform national pension plan for salaried employees. It banned the creation of new subsidiary institutions with varying eligibility conditions after 1929. The relative effectiveness of this reform could be attributed to the right timing, because

the advent of the Great Depression significantly muted the opposition and allowed more room for maneuver by the government. As a result, by 1938 there were only thirty-three such institutions left (De Deken 1994, 11) with membership dropping by 90 percent in less than ten years (see Sukiennicki 1939).

Third, the introduction of the new social insurance laws failed to address another fundamental problem of the early Czechoslovak welfare state, that is, the remaining inequalities of coverage within the system that not only cut across occupational groups but also reinforced differentiation in the level of protection in various categories of risk. Sickness and pension coverage were the most complete systems of all, in the same league as the best programs of this kind in the world. A large number of employees with a required record of contributions enjoyed solid core benefits. Select occupations still had access to supplemental private and company plans, often subsidized by the government. Moreover, many low-income elderly citizens received means-tested social pensions (statni starobni podpory)™ paid to individuals over sixty who did not qualify for regular social insurance benefits. In contrast, however, unemployment protection remained highly inadequate, with no insurance scheme widely available in this category. In addition, the government did little to unify, expand, or improve the preexisting Austrian laws regarding industrial accidents (work injury) and occupational sickness." Renegotiation of this particular, “layered” institutional configuration of the emerging welfare state in interwar Czechoslovakia involved a cross-section of

two forces, one originated within the government itself, the other pressing from the outside. As I will explain later, similar types of pressures continued to resurface under communist rule, reinforcing some of the preexisting structural elements through “positive feedback” within the government and the welfare bureaucracy. It has been widely acknowledged that a narrow group of social policy experts and their supporters within the Ministry of Social Welfare under the leadership of Emil Schoenbaum played a pivotal role in shaping TO Including district funds, agricultural funds, enterprise funds, occupational guild funds, and friendship society funds. ™ Administered by the local authorities. ™ While in 1938, 73 percent of workers in Czechoslovakia had sickness insurance, only 44 percent were protected against industrial accidents (Korbel 1977, 80).

Czechoslovakia 69 the country’s social policy for almost half a century (De Deken 1994; Tomes interview). Schoenbaum’s vision of an integrated system of social insurance benefits for all citizens, however, conflicted with the reality of numerous powerful and particularistic interests of various well-organized occupational groups supported by different political parties within the “Pietka.” A major governmental publication on the social insurance reform, edited by Schoenbaum himself, illustrates quite clearly the extent to which different political parties attempted to shape this process and take most of the credit for the unquestionable achievements of government experts. It can be argued that the final law bears an imprint of the center-right, especially the powerful agricultural cooperative movement and white-collar professions, now well protected under the comprehensive sickness and pension laws (see Table 2.3). Input from the socialist politicians and labor, however, appears to have been surprisingly small despite evident improvement in workers’ benefits across the board during the late 1920s. In 1927, the lone social democrat participant in the internal debate on the new package of social insurance laws, and the first Czechoslovak Minister of Social Welfare, Dr. Lev Winter, expressed his dissatisfaction with

this situation, complaining about worker alienation and the lack of popular consultations in the period leading up to the adoption of the 1928-1929 laws (Schoenbaum 1927, 59). In Schoenbaum’s long-term vision, the Czechoslovak welfare state would be based on an integrated organization of sickness and pension insurance under a unified law, administered by a network of a limited number of autonomous insurance funds supervised by the Ministry of Welfare. Financing of benefits by a mixture of capitalization, reapportioning, and targeted government subsidies, all based on an old German (imperial) actuarial model, was designed to maintain future stability of these programs. In addition, the envisioned benefit structure included government-regulated minimum payments for all citizens, supplemented by additional amounts depending on the length of contributions and the type of occupation (De Deken 1994).

The introduction of comprehensive mandatory pension insurance for the workers, with a large number of new contributors (employees and employers), and delayed benefits, was pivotal to the construction of the viable national social policy institutions in Czechoslovakia. First, it provided the necessary financial

reserve, which in a future, more integrated system could be used to support other deficit-producing social insurance programs, such as sickness insurance. Second, the pension funds could become a major source of public investment capital for housing and other urgent development needs. Third, the creation of “social pensions” and possibly even lowering of the pension age in the future would help the tight Czechoslovak labor market by freeing more and better jobs for the younger generation in all sectors of the economy. Finally, the creation of a government-supported minimum level of pension benefits across the board would help to alleviate poverty, at least in the major urban centers. Nonetheless, as it turned out in the long run such a system of liberalized pension rules could be sustained only by a steady expansion of the economy or by the imposition

70 Institutional Legacies, 1919-1989 of new severe restrictions and controls on payments to eligible individuals and groups, that is, the methods traditionally practiced and perfected by the early managers of the Czechoslovak social insurance and their imperial predecessors. As we will see later, when the former failed to materialize, the latter became the official mantra for many decades, including the period of communist rule until the 1990s.

Thus, on the financial side, Schoenbaum, who believed in preserving the pivotal role of government experts in long-term actuarial planning for the financial stability of the welfare state, acted in a manner typical of a statepaternalist, Bismarckian conservative. Success in this area, however, depended on the administrative capacity to exercise financial and ultimately also political control. Given the uncertain economic environment of the 1930s and due to persistent fragmentation of social insurance, this proved to be an increasingly

difficult task, as illustrated, for example, by the protracted crisis in miners’ insurance that almost resulted in a complete takeover of the oldest workers’ protection plan by the state (“Przesilenie w ubezpieczeniu gorniczem” 1927). On the administrative side, however, Schoenbaum opposed excessive centralization and advocated responsible partnership between the old-style autonomous funds (run by elected boards with strong representation of the employees) and the central state institutions. On the surface, it seems, his conception of the structure of the expenditures and the social function of cash benefits bears a clear mark of “socialist” or “social democratic” ideas calling for firm government guarantees of the socially acceptable level of existence for all citizens and their families. Underneath it all, however, lies the pragmatic Bismarckian legacy of state paternalism based on a careful balancing act between fiscal responsibility, social harmony, and political expediency. As we

have seen, Schoenbaum’s ambitious plan had to be scaled down and renegotiated in accordance with the complex political and socioeconomic conditions of interwar Czechoslovakia. In a curious twist of history, however, his favored “blueprint” of the more egalitarian, “socialist-inspired” welfare state for the workers was resurrected again after the war by the communist-led trade

unions as a key part of their “revolutionary” or “syndicalist” socio-political agenda.

Reconstruction of the Postwar Czechoslovak Welfare State: The Birth of the National “Social Democratic Model” Disintegration of the parliamentary republic and the loss of political sovereignty in 1938 initiated a long process of reassessment of welfare state development in Czechoslovakia. The carefully crafted compromise on the rearrangement and

improvement of national social insurance institutions, involving progressive bureaucrats and experts, on one hand, and various more conservative political and socioeconomic interests, on the other, suddenly collapsed. Although basically all existing insurance laws and institutions continued to function without interruption under the Nazi-controlled Protectorate of Bohemia and

Czechoslovakia 71 Moraria™ (1939-1945) and beyond, since early 1945 the social policy initiative shifted decisively from the traditionally moderate Ministry of Social Welfare, previously under direct political control by the executive committee of the “Pietka,” to much more radical leftist activists and trade unionists (De Deken 1994, 9).

The role of organized labor, as the main vehicle in the reconstruction of the Czechoslovak welfare state after the war, had no real equivalent in the other countries of East Central Europe and therefore deserves special attention. Before World War II, in spite of vast resources, large membership, and considerable bureaucratic expertise in a variety of areas of social welfare, the Czech labor organizations, closely linked to both the Socialist and Communist parties, exercised surprisingly small influence on the actual policy outcomes, at least after 1922. As we have seen above, the unions initially won significant concessions in the area of unemployment and collective bargaining rights. Yet their political fragmentation, almost exclusive focus on narrow occupational interests, and certainly also the marginalization of the Social Democrats within

the “Pietka” prevented the labor activists from playing a larger role in the crucial social insurance reforms of 1928-1929. In addition, the Communists, whose popularity peaked in 1925 and recovered again in the mid-1930s during the anti-fascist “popular front” campaign, treated social policy instrumentally. It became a tool to be exploited in the class struggle against the bourgeois parties and their allies rather than part of any positive agenda for societal change.

In contrast, the Social Democrats, with their long history of involvement in bread-and-butter issues of the Czech workers, were by far the best prepared to take the lead in social policy reforms during the war and beyond. The creation of the Nazi puppet state — the Protectorate of Bohemia and Moravia — and the elimination of all legal political parties indirectly contributed to the rise of the unions and their ambitious goal of becoming the main architect of the postwar Czechoslovak welfare state. Under the German occupation, the former left-wing opposition, including both Social Democrats and Communists,

operated on two levels, on the outside, underground, and in exile in London and in Moscow, and on the inside, within the existing institutions, primarily the social insurance funds and the newly consolidated trade unions, the Nazicontrolled National Center of Employees (NOUZ) (De Deken 1994, 20-35). Thus, when the war fortunes changed in favor of the allies, the left-wing forces were already well positioned to replace the compromised pre-1938 governing parties of the center-left’ as the leading political force in the future independent Czechoslovakia.

Initially, the Social Democrats, who now possessed the most social policy expertise among underground resistance groups in the country, had a virtual monopoly in this area. Already during 1939-1940 one forward-looking group of activists prepared a manifesto calling for the establishment of the ™ The Nazi-administered Protectorate of Bohemia and Moravia. ™4 The interwar political parties carried the burden of the 1939 surrender to Nazi Germany. This exposed them to frequent political attacks after 1945.

72 Institutional Legacies, 1919-1989 comprehensive social democratic welfare state with minimum-level benefits for all citizens. Others chose to join the official structures, the unions and social insurance funds, where the left had traditionally enjoyed strong influence. Formal Social Democratic Party leadership of the budding movement for welfare

state reform, however, was short-lived, not unlike the situation in the early 19208. But this time it was not the center-right forces but the communist resurgence in the political underground and the widespread arrests of many social democratic activists by the Nazis that caused the marginalization of the party’s official role. Nevertheless, according to some historians, the demise of the messenger — the Social Democrats — did not mean the death of the message itself. The Communists, who skillfully infiltrated the unions and other legal socioeconomic

institutions of the Protectorate and also dominated many of the early postwar governmental and societal organizations, virtually took over the social policy agenda generated by the rival Socialists. Their strategy also included large-scale cooptation of surviving Social Democrats into the pro-Soviet “popular front” (see Korbel 1959; De Deken 1994).*5 The National Insurance Act of 1948

Czechoslovakia stands alone within the Soviet bloc as a unique example of a genuine domestic social policy “revolution,” symbolized by the National Insurance Act of 1948. The act brought about accelerated completion of the welfare state expansion and created an upgraded system of benefits in cash, covering, at least in theory, almost all working persons and their families in the entire country. There are four major reasons why this impressive “leap forward” took place in Czechoslovakia in a short period of only three years following World War II. First, as we have seen before, the level of coverage and benefit

accessibility in the key areas of sickness and pension insurance had already been very high under the imperial rule, expanded considerably in the interwar period, and improved considerably under the Protectorate.*° Johan De Deken (1994) argues that contrary to the claims of many Czech scholars and despite the lack of regular state subsidies and the depletion of reserves, social insurance funds appeared to have worked normally throughout the early 1940s (20). Also, Korbel (1959, 182) observes that many “[Czech] people were grateful [to the ™> De Deken (1994) argues that many socialists joined the Communists voluntarily, hoping for a sweeping social change in the country after the war. Tn a paradoxical turn of events, major social welfare reforms were instituted in the Protectorate in the spring of 1942 by the notorious Nazi governor, SS Obergrupenfiihrer Reinhard Heydrich, with a major focus on the large arms industry production there. These measures included the introduction of mandatory unemployment insurance for industrial workers and the 75 percent increase of disability and widows’ pensions in April 1942. Newly discovered evidence also shows clearly a direct link between the successful social policies instituted by Heidrich and the decline of workers’ unrest and opposition to the Nazi occupation in the Czech lands. The apparent success of Heidrich’s social policies caused considerable anxiety within the Czech exile community and their allies in London and Moscow, in consequences leading to the assassination of the Nazi governor by Czech commandos sent from Britain in May 1942 (Vinter 2007).

Czechoslovakia 73 German occupation authorities] for social measures.” Moreover, at the peak of their military effort to regain initiative on the eastern front, in 1942-1943, the Nazis not only substantially increased benefits for the occupations vital to the war economy, such as mining, but also provided fixed social bonuses to salaried employees (De Deken 1994, 22). Second, it seemed that from the very beginning social policy making in postwar Czechoslovakia turned into a bitter political struggle, with various forces trying to outbid their rivals in welfare concessions to important constituencies. For example, at the very end of the war, in 1945, two new cash benefits appeared, mandatory pensions for private farmers financed by contributions and state subsidies, adopted still under the late Protectorate in March, and family allowances financed by a special social insurance fund, introduced by the new authorities for all working citizens with children (De Deken 1994, 23). Third, after the war, intensive planning and preparation of welfare state reform took place not in the recreated Ministry of Social Welfare, but rather within the Revolutionary Trade Union Movement (Revoluéni odborove hnuti, ROH) and especially its supreme body — the Central Council of the Trade Unions (Ustéedni rada odbori, URO) (De Deken 1994, 40-41; Korbel 1 959, 158-159). The communists, who won the plurality of the vote in the 1946 elections, controlled both the Ministry and the ROH. Their long-term strategy of winning total control of the state consisted of a calculated series of moves from above and from below. Until 1948, working through the official ministerial channels still involved complex parliamentary procedures and regular consultations with other legal political parties, Social Democrats, National Socialists, and the Catholics. These parties often demanded policy concessions that the ruling Communists were increasingly reluctant to make. In this situation, utilizing the unions as the policy-making group pressing for more radical change from below became a convenient political tool and an excuse for the increasingly common practice of subversion of regular democratic channels of decision making (see Korbel 1977). In short, in the area of social policy the unions could be easily mobilized by the Communist Party as the “genuine voice of the people,” pushing for a more egalitarian welfare state. By the late 1940s it became clear that the radical plan prepared by the ROH

could be of great use in the communist effort to legitimize full takeover of power, eventually completed by the coup d’etat of February 1948. Also, the favorable socio-economic situation in the initial few years after the war enabled the communist-led government to accumulate a solid record of generous social policy concessions, that in turn enhanced the growing popular support for the establishment of a permanent and universal “socialist” welfare state. It could be argued that various socialist groups and their trade union allies that had lost influence over the direction of government social policy during the 1920s and 19308 now managed to stage an effective comeback, hoping for a much more decisive break with the past. In doing so they faced not only much more favorable political circumstances, with their allies divided and compromised by the legacy of Munich, but also

74 Institutional Legacies, 1919-1989 TABLE 2.4. Growth of Pension Insurance in Czechoslovakia, 1947-1950 (% of annual increase in the number of insured persons)

Year Total Czech Lands Slovakia

1947 4.6 AG 3:7O70 8.9 1948 41.6 1949 4.2 3-9 3x14.4 77 1950 4.0 1946-1950 60.6 46.4 129

Note: The shaded area indicates the impact of the 1948 social insurance law (rapid expansion of social insurance coverage after the February 1948 communist coup d’etat). Numbers are rounded up to the nearest tenth. Source: Jerbakova and Salemanova 1965, 161, table Ia, and my own calculations.

better socioeconomic conditions, especially relative to neighboring countries. In comparison to Poland and Hungary, Czechoslovakia suffered much less human loss and destruction, and, as mentioned above, its complex institutional machinery of social insurance survived the war relatively intact. Furthermore, already in the first two years the government in Prague implemented two radical socioeconomic reforms, sweeping nationalization of large property and redistribu-

tion of wealth. The former produced a large number of new jobs, not just in industry but significantly also in different branches of the state bureaucracy. The latter reform in practice relied heavily on the appropriation of substantial resources belonging to the millions of ethnic Germans, Hungarians, and other persons labeled as “political enemies” after the war. In 1946 alone, three million ethnic Germans, including one million in active employment, were expelled from the country. In January, 232,212 Germans still worked in Czechoslovak

industry, but by December there were only 60,568 such persons left. Their pension contributions, assets, and savings disappeared into the state budget. Meanwhile in the same year, the state bureaucracy swelled by about 180,000, in comparison with 1938. While productivity plummeted, public dependence on government social benefits continued to increase (Orlewicz 1947, 68-70). In this situation, the formally independent ROH became an ideal conduit for welfare expansion, not just as a tool of the top Communist Party leadership but also as a powerful voice of a growing number of government employees who acquired an ever bigger stake in the rapidly nationalized Czechoslovak economy. By early February 1948, when the sweeping social insurance bill was first introduced in the parliament, two-thirds of the labor force worked in the nationalized industry with wages constituting 69 percent of the national income (in comparison with only 59 percent in 1937). With more money available from social insurance contributions and from the seized assets of various repressed

groups, the government could afford to raise pensions by half during 19461948, more than the salaries that went up only by a third, while maintaining low prices for basic goods (Korbel 1977, 239). The National Insurance Act added hundreds of thousands of new insured to the pension system, almost 42 percent in total in 1948, and in Slovakia 87 percent (Table 2.4). The total

Czechoslovakia 7's TABLE 2.5. Growth of Pension Insurance in Czechoslovakia, 1946-1950 (% of annual increase of the number of pensions paid by the Social Security Fund)

Old Age Social

Year Total Veterans and Disability Pensions Accident

1947 7.8 6.3 7.8 =$.7 16.2 1948 9.0 7.3 4.8 Zee T2 1449 TOns a7 9.7 5.8 oie 146.6 0.8 1950 ons 0.8 a, 2.6 1946/1950 54-5 19.2 31.1 824.2 e177

Note: The shaded area indicates the impact of the 1948 social insurance law (increased eligibility for newly granted social pensions). Numbers are rounded up to the nearest tenth. Source: Jerbakova and Salemanova 1965, 163-164, tables IIa and IIb, and my own calculations.

number of pensions paid during 1946-1950 increased by almost 55 percent, old age and disability payments by 31 percent, and social pensions by more than eight times (Table 2.5).

Postwar Czechoslovakia was by no means the first European country to favor a more egalitarian welfare state as an alternative to the traditional Bismarckian systems of social insurance. Some of the main features of the 1948 law, for instance, such as universal coverage, minimum benefits, and centralized financing system clearly reflect the influence of the pioneering British Beveridge

plan of 1942. The Czechoslovak government in exile in London supported the Beveridge model during its wartime discussions on the future of national social policy. Nonetheless, according to De Deken, outside influences played a rather minor role in what he calls a “revolution” in Czechoslovak social policy. Instead, the social democratic experts and their allies, previously of the wartime Social Democratic Workers Academy, now working within the communists-dominated trade unions, were instrumental in the preparation of this ground-breaking legislation. No less significant was the detailed expertise supplied by Schoenbaum himself, who survived the war while working at the ILO in Geneva, and now got a second chance to implement his ideal vision of the Czechoslovak welfare state (De Deken 1994, 36-39). The National Social Insurance law, adopted in April 1948, just two months after the complete seizure of power by the Czechoslovak Communist Party, emphasized universality and closer integration of various benefit systems. It was designed to function as a self-governed democratic organization headed by one institution and administered by its local branches under the general direction of the Ministry of Social Welfare responsible for the general social policy planning. Thus, this new welfare system was both “social democratic” and “national” — in the sense that it reflected quite clearly the ideas and experience of the social democratic activists and the national Czech government experts from the interwar era and, more specifically, one person — Dr. Emil Schoenbaum.

However, one element of the plan — the creation of the single National Social Insurance Institution (Ustredni narodni poist?ovna, UNP) — reflected neither the Czech tradition nor the practice of Czechoslovakia’s new patron,

76 Institutional Legacies, 1919-1989 the Soviet Union. As we remember, Schoenbaum opposed centralization, arguing instead for a more democratic network of 120 local funds, as envisioned by the original ministerial plan of the 1920s. The Soviet social insurance was

also decentralized and run by a combination of the trade union bureaucracy and government pension bureaus (Madison 1968). Moreover, in the late 1940s, when the East European satellites still enjoyed a greater degree of autonomy in domestic policy making, the considerably less developed Soviet social insurance infrastructure must have been judged incompatible with local conditions in an economically advanced country that clearly saw itself as a leader in socialist social policy in all of Europe after the war (Czechoslovak National Insurance 1948).

It is highly probable, therefore (if not absolutely certain), that the idea of a single centralized administration of all social insurance could have been adopted from neighboring Poland. The Czechs knew the Polish welfare system well and since 1920 maintained close contacts with the Poles, first working

together within the social insurance structures of the ILO and later also in close collaboration with the two communist governments, and especially the ministries of welfare responsible for social policy.*7 The Czechoslovak UNP, whose structure resembled the Polish Social Insurance Institution (Zaktad Ubezpieczen Spotecznych, ZUS, discussed further in the next section below), could have been considered a useful tool for better implementation and integration of social and economic policy within a system of centralized government planning.

Yet at the same time, this solution was both alien to the domestic Czechoslovak traditions and incompatible with the Stalinist model that was later pursued religiously by the communist leadership of Klement Gottwald. Therefore it is hardly surprising that the UNP survived barely six years before being replaced by the Soviet-style model of decentralized trade union administration in 1954. The advent of Stalinism, however, enhanced financial centralization inherent in the National Social Insurance legislation that combined all sickness/maternity benefits and pensions in one general fund for all employees, except miners and civil servants who preserved their own more privileged schemes. The financing of pensions switched officially from partial funding to a payas-you-go (PAYG) system in which current benefits are paid by current contributions, now set at 17.8 percent,?® including an 8.4 percent employee contribution, with the state paying additional subsidies to a reserve fund and health care fund. According to the official government plan, as much as 13 percent of national income in the planned economy would now be distributed by social insurance (De Deken 1994, 58-59; Czechoslovak National Insurance 1948, 26). In addition, accident grants and special maternity grants supplemented '7 The postwar contacts are well documented in the joint Polish/Czechoslovak publication, Polityka Spoteczna w Czechostowacji, Pracai Opieka Spoteczna nos. 1 and 2, Warsaw, 1949. For evidence of earlier contacts between the two countries, see, for example, “Praski kongres” 1936. 8 Sickness contributions were set at 6.8% (civil servants 5%, self-employed 6.7%), pensions 10%,

and accident insurance 1%.

Czechoslovakia 77 pension and sickness coverage. In 1948, however, the communist government transferred family allowances from the social insurance system into the general budget financed by the general tax revenue, initiating a new type of pro-natalist policy based on direct cash incentives (Kalinova 1998). Still, as opposed to the other two countries of the Soviet bloc before 1989 Czechoslovakia never changed the basic Stalinist structure of financing pensions and other social security programs. It appears that the timing and the nature of the shift within the decision-making structure and the social insurance bureaucracy toward greater political concentration and ideological discipline was a major factor in this case. The welfare state apparatus, although not all experts and advisers, was taken over by the Nazi authorities in 1939, then in the late 1940s it was transferred under the tight political control of the radical trade unions, which in turn gave way to even more strict control of the Stalinist planners and their successors. The pension system was the most complete of all schemes provided for by the 1948 legislation. It included the self-employed population and covered virtually

everybody in the country with a basic payment of about 21 percent of average earnings after 20 years of insurance plus additions for each extra year, up to a maximum of 85 percent of wage. It also paid benefits to the disabled who lost two thirds’ capacity to work and elderly employees at age sixty-five, but with a possible early retirement at sixty after minimum of twenty years in insurance.’? Uninsured persons were covered by a new type of more easily accessible “social

pensions” (see Table 2.5), and retired workers were allowed to collect full pension while still employed. Common-law wives living in the same household

were eligible for widows’ pensions, and pensioners received educational supplements for dependent children. Sickness/maternity benefits, at 44 to 66 percent of wage, depending on tenure at work, were increased progressively over time and lasted up to one year. Maternity leave was extended from 12 to 18 weeks. Self-employed workers and farmers were initially ineligible for mandatory social insurance but were promised similar benefits, beginning in 1950.

In sum, during 1945-1948 the Czechoslovak left-wing forces, namely the social democratic experts, supported by the communists eager to legitimize their “revolutionary” social agenda in the eyes of the wide segments of the population, reinvented a national “blueprint” of the welfare state. The rebuilt Czechoslovak state provided virtually full employment, mostly in the public sector. This fact alone substantially increased access to a wide range of social benefits already in place and also solved the longstanding problem of the absence of social insurance programs for the jobless. The postwar socioeconomic policies also deliberately narrowed the gap between the workers and salaried employees. Nevertheless, in accordance with the preexisting traditions and laws, millions of civil servants and employees in politically sensitive and ™) The so-called insurance periods were treated very liberally, including years of military service, pregnancy, education, temporary, part-time unemployment, etc.

78 Institutional Legacies, 1919-1989 better-paid professions came to expect progressively improved benefits to keep up with their rising wages.

We might argue, however, that in the late 1940s the interwar system not so much was supplanted by a new one but rather the emphasis within the Czechoslovak welfare state model shifted, at least temporarily, away from the protection of a number of narrow occupational interests, mainly of the middleclass groups, toward a more egalitarian basic protection for all workers. This situation was in part a product of the ideological and political struggle waged by the communist-dominated trade unions. But it also reflected the changing reality of the postwar economy in which the large and rapidly growing state sector was bound to play the key role. Nevertheless, the institutional legacies of the highly unequal and differentiated system of social protection that assured generous income protection and relatively comfortable “middle-class” existence for many working Czechs and Slovaks were difficult to erase. In essence, old and new layers of social protection for the same basic groups, with the major exception of farmers targeted for collectivization, were reorganized in a new way, this time under the direction of a small group of radical “left-wing” activists who had lost in the previous round of struggle for influence over the national social policies during the 1920 and 1930s. As we will see in the next chapter, the legacies of the interwar period reappeared in different forms during the late 1950s, 1960s, and 1970s. For example, even though all supplementary pension schemes, enjoyed by higher earners and salaried employees around the country, were now merged into one general system, the National Insurance Act envisioned the creation of voluntary individual and collective superannuation contracts to complement the basic government benefit.*° Also, this particular vision of an extensive welfare state that combined the legacies of state paternalism, social democracy, occupational syndicalism, and private supplemental insurance never fully materialized under communist rule, although undoubtedly it created a benchmark of national achievement that no future government could afford to ignore. Put on the back burner for several decades, the idea of additional, voluntary coverage was eventually implemented under the postcommunist government of Vaclav Klaus in the early 1990s, when the previously suppressed advocates of “middle-class” (white-collar) interests within the social policy establishment got another chance to partially “renegotiate” the terms of the institutional development of the welfare state. POLAND

The Legacy of Foreign Rule before 1919

The newly independent Polish state consisted of largely underdeveloped, outward provinces of German, Austrian, and Russian empires. In contrast to Czechoslovakia, its industry was small and highly concentrated in urbanized 2° De Deken (1994) claims that this was the concession given to the representatives of the exile government in London during the preparation of the original legislation.

Poland 79

TABLE 2.6. Occupational Structure in Poland According to the 1921 Census (in % of labor force)

Peasants 64

Employment Category

Agricultural laborers IO Industrial proletariat 17

White-collar professionals 5

Entrepreneurs Landowners 2I Source: Davies 1982, 406.

pockets around Poznan and Katowice in the German lands, Cracow in Austrian Galicia, and areas near Warsaw and Lodz in Russian Poland. According to the 1921 census, as much as 74 percent of the labor force was employed in agriculture and only 17 percent represented “industrial proletariat” (see Table 2.6). Initially the biggest and the most immediate challenge for the government social policy makers, however, was not just the evident socioeconomic

difference between industrial and rural parts of the country as a whole, but rather a huge gap in the scope and quality of welfare state development across the three imperial jurisdictions. Since r911 all major groups of hired employees in the former German territories had access to a complete range of sickness/ maternity, disability, and old age (pension) protection at a level that most countries in Central and Eastern Europe would not be able to afford or be willing to match for decades.” In the Austrian part of the country, Polish workers shared with their Czech counterparts limited sickness and work injury coverage and relatively well-developed mandatory pensions for salaried employees. Nevertheless, hired employees in the largest territory where most citizens lived — the

Russian part of Poland — had only rudimentary protection in a few large companies and enterprises with a tradition of voluntary self-supporting occupational schemes, for example, in the southeastern mining region (Zaglebie Dabrowskie). The enormity, complexity, and multiple failures of state-building efforts undertaken by Poland in the interwar period have been well documented by historians (see, e.g., Setton- Watson 1967; Rothschild 1975; Davies 1982). Therefore, at first glance, it seems truly surprising that this largely impoverished and mostly rural country with extreme social, economic, and cultural diversity successfully implemented a modern, centralized, and relatively efficient system of social insurance administration during a relatively short period of only fitteen years. On closer scrutiny, this system was highly indebted to the previous, imperial legislation and bureaucratic infrastructure in the German and Austrian parts of the country. Still, it eventually expanded to include all major risks, work injury, sickness/maternity, disability, old age, and unemployment insur*1 Under the German imperial law, Reichsversicherungsordnung of 19 July 1911 (Wratny 1991).

80 Institutional Legacies, 1919-1989 TABLE 2.7. Annual Growth of Social Insurance Protection in Poland, 1921-1938 (in % and by category of insurance) Pensions

Salaried

Year Sickness Accident Total Workers Employees

1926 1.9 =3.3 6.3 Tak 1.2 1927 14.9 29.9 8.6 9.0 4.9 1928 LAn3 20.75.1 28.0aD, 9.4 164.7 1929 57 cae 16.7 1930 =2.1 —8.4 —6.6 —10.9 5.6

1931 13.4 Oe =~E1L25 =—2).7 1932 Tee = TO. —I8.1 1.8 TAWA acres 1933 —3.8 —10.2 — 33 — 3-4 =aato

1934 L7250 oO. 260.2 ea 1935Silas pap68.3 3.3 1.6 14.5

1936 5-3 4.4 6.9 73 5-4 1937 10.9 10.6 9.7 LOG ores 1938 3.8 4.1 4.5 4.0 7.9 1925/1929 Al.5 54.2 32.0 32.0 211.2

1925/1938 19.8 88.0 292.0 284.6 328.7 Note: The shaded area indicates the impact of the 1927 and 1933 social insurance laws (rapid expansion of the work injury and pension coverage). Source: Rocznik Statystyczny Ubezpieczen Spotecznych 1987, table 2 (166), and my own calculations.

ance for workers and salaried employees in force on the territory of the whole country.** By the late 1930s, approximately 2-2.5 million people were covered by work injury, sickness, and/or pension insurance and over 1.5 million by unemployment insurance (Rocznik Ubezpieczen Spolecznych 1987). Sickness insurance expanded most rapidly during 1925-1929 by as much as 48 percent, work injury by 54 percent, and pension insurance by 32 percent (Table 2.7). In addition, hundreds of thousands of civil servants, military, police, railroad workers, miners, and employees of various state-owned enterprises belonged to separate pension schemes funded by the budget and employee contributions, now regulated by the 1923 law on social benefits for state employees and war veterans. In the interwar period about 450,000 persons collected various types of state pensions funded directly by the national or local governments. If we consider the fact that each recipient usually supported a large extended family, we must acknowledge the fact that perhaps 2 million or more citizens could rely on a relative generous and stable state assistance in a country that remained extremely poor and underdeveloped by European standards throughout the interwar period. The state employment category remained the most privileged and the best protect group of all. Despite attempts to reduce >> With the significant exception of Upper Silesia where the more generous German social legislation remained in effect during the interwar period.

Poland Sr TABLE 2.8. Growth of State Pension Entitlements in Poland, 1934-1938 (% increase in the number of pensions paid by the Polish Treasury and the State Pension Office, including former employees of government-owned enterprises and monopolies)

1934 1935-1936 1937-1938 1934/1938

State pensions* 7.6 4.4 AD 52: AF - 2605

Veterans’ disability” —25.6 53 4.7 5-0 —.8 14.8 Victims of foreign‘ 6.1 —.4 10.2 I00 —2.8 24.5 prosecution

State pensions (% of total 76.8 75.4 74.8 73.4 number of pensions paid Note: The shaded area indicates the impact of the 1933 pension laws — reduction of veteran disability pensions. Total number of all entitlement pensions for 1938 is about 230,000. Some 20,000 additional persons collected old-age pensions from the local and territorial government funds. “ Data includes all old-age pensions paid to retirees, widows, and orphans of civil servants and other government employees in forestry, railroads, military, postal service, etc. ® War invalids and disabled military personnel. © Veterans of national uprisings and former political prisoners. Source: Rocznik Statystyczny Ubezpieczen Spolecznych 1987 |Historical appendix] tables 11 (175), 14 (178), 17 (181), and 19 (183), and my own calculations.

veterans’ disability, the number of all state pension entitlements continued to grow through the late 1930s. In 1938, just before World War II the Polish government paid 26 percent more pension benefits to state employees of various kinds than it did four years prior (Table 2.8). Guiding Ideas and the Developmental Path of the Polish National Welfare State

Experience with the advanced and well-functioning programs in the western parts of Poland (ruled by Imperial Germany until World War I) inspired government leaders to draft ambitious plans for a comprehensive national social insurance system that could match or even surpass countries with more devel-

oped safety nets, such as Weimar Germany and Czechoslovakia. Interwar Germany continued to adhere to Bismarckian insurance principles within a highly fragmented institutional framework with differentiated types of coverage. Czechoslovakia unified its workers’ pensions and sickness insurance programs but also supported a large number of additional and separate insurance funds. Poland initially stressed institutional continuity throughout the inherited state bureaucracy (especially in the former German and Austrian territories), but it also put new emphasis on “the social welfare component” (pierwiastek opieki spotecznej),*> which translates as at least a minimum of government *3 The name of the government ministry — Ministerstwo Pracy i Opieki Spotecznej, which translates more accurately as the “Ministry of Labor and Social Care” — is indicative of the general “social welfare” orientation of the Polish government in the early period of national independence.

82 Institutional Legacies, 1919-1989 guarantee of protection of all employees against all major risks, monitored by a powerful welfare ministry. By the late 1920s, however, policy makers grasped the logistical, political, and socioeconomic limitations of this idea and opted instead for a creative restructuring of the existing social insurance institutions with somewhat enhanced state guarantees and controls (Sasorski 1933, 470). The emphasis on the latter grew as the country as a whole began to turn away from parliamentarism toward a more authoritarian, presidential system of government.

In Poland, more so than in any other country of the region, construction of the early welfare state became an essential component of the philosophy of “etdtisme” fostered by the ruling elites and especially by the followers of Marshall Jozef Pitsudski. This group governed the country in an increasingly authoritarian manner since the coup d’etat of May 1926 and eventually implemented a major constitutional change in 1935. The Pilsudski regime, however,

also embraced the ambitious idea of a comprehensive and modernized system of social insurance. They viewed the welfare state not just as a political necessity but as a showcase of national success, palpable evidence of the capacity of the young Polish state and its committed administrative apparatus to alleviate poverty and relieve socioeconomic tensions successfully.*4 Whereas in Czechoslovakia the executive committee of the five political parties maintained the ultimate authority to approve social insurance bills prepared by the ministerial experts, in Poland state bureaucracy under the centralized leadership of the Ministry of Labor and Social Welfare (Ministerstwo Pracy i Opieki Spolecznej) monopolized both planning and implementation of social policy in the very beginning of the independent republic, with the decision-making power progressively concentrated within the top bureaucratic structures of the state. Implemented in a country with high social expectations of many upwardly

mobile social groups but unstable politics and meager resources, this institutional design produced impressive results relatively quickly but admittedly at a high price in both the short and long term. Its success was predicated on slow but steady economic recovery accompanied by a substantial but only gradual increase of industrial employment, allowing for the steady accumulation of surplus funds for future benefit payments without incurring high costs for current social payments. Thus, when later in the 1940s the capital reserves disappeared in the course of the devastating wars and the number of jobs rapidly expanded immediately after the conflict ended, the number of potential beneficiaries shot up as well, threatening to consume more and more resources needed for investment in the ravaged economy. In the next decades the restoration of the balance *4 See, for example, the speech of the Polish Minister of Labor and Social Welfare in the parliament (Sejm) on March 4, 1929: “Przemowienie Ministra Pracy i Opieki Spotecznej Pana D-ra Stanistawa Jurkiewicza w sprawie projektu ustawy o ubezpieczeniu spotecznem.” Praca i Opieka Spoteczna, 1, 1929, 25-28. *5 The extent of damage to the extensive social insurance assets is extremely well documented by Polish actuaries and historians; see Bober 1986 [1948].

Poland 83

between social consumption, based in a large part on cash transfers via social insurance, and other types of necessary government spending often came at a cost of slowing down the expansion of coverage to large groups of people

heretofore excluded from the emerging welfare state. The formal legal and administrative foundation of the Polish national welfare

state was completed already in the mid-1930s, with the adoption of a new law on workers’ pensions for the whole country. On the average, however, the quality of benefits remained extremely low for decades, at least until the early 1970s, and large numbers of citizens remained outside the system as late as the beginning of the 1980s. For example, self-employed groups, such as taxi drivers, many freelance artists, lawyers, and their families had to wait for pensions until 1965 (Plawucka 1991, 422).7° Collective farmers and agricultural

cooperatives received social insurance rights in the 1950s and 1960s, but the communist government introduced a pension scheme for the majority of the rural population — private farmers and their dependents — only in 1978.77 During the twentieth century the other, short-term benefits in Poland under-

went a long and thorough transformation, at times even more complex and contradictory than in the case of the pension system. Sickness/maternity coverage and other related benefits expanded in four stages, the 1920s, the late 1940s, mid-1970s, and the early 1980s. New and improved social programs for families and working mothers were introduced gradually over four decades, in 1947, 1974, and in 1981, in the form of additional social insurance payments paid by the Social Insurance Institution (ZUS) rather than directly by the state budget.”® Private farmers and their families, who by the end of the century still represented a quarter of the entire population, remained the most disad-

vantaged of all groups. They gained access to free medical care and limited sick-pay payments in 1972, became eligible for maternity pay from the general social-insurance system in 1983, and, finally, only in 1992 received voluntary, state-subsidized sickness insurance.*? In sum, in Poland the development of social insurance began early at a high level in limited geographical areas and covered only select professions, and it took almost seventy years to achieve full coverage of all major social groups in the country. In contrast, in Czechoslovakia the same goal was achieved after only twenty-nine years, and in Hungary after fifty-six years. 26 Some artists already benefited from pension insurance in the interwar period, from 1928. In the 1960s the self-employed also became eligible for work injury insurance coverage paid from the general social insurance budget (Pawlucka 1991, 411-416). *7 Ustawa z dn. 27.10.1977 1. 0 zaopatrzeniu emerytalnym oraz innych swiadczeniach dla rolnikow i ich rodzin, Dziennik Ustaw PRL 1977, no. 32/140. 28 In 1947 Poland was the only country in Eastern Europe to introduce family benefits as strictly social insurance payments at the time when the social insurance funds were not yet merged with the state budget. *9 Jnitially this applied only to occupational sickness, but in reality this law was implemented very liberally, and from 1992, voluntary sickness insurance coverage was available to all farmers (Rzeczpospolita, 11 November 1991, Ekonomia 1 Prawo, p. 1).

84 Institutional Legacies, 1919-1989 The Institutional Model of Centralized Social Insurance in Poland

The centralized administration of social insurance established in the interwar period has been one of the most enduring and arguably the most significant institutional legacies of the Polish national welfare state. In combination with the sluggish expansion of social insurance coverage and also the unprecedented proliferation of legally mandated pension privileges for a wide variety of occupational groups, this legacy cast a long shadow on all subsequent efforts to reform major cash benefits in the country, including the most recent attempts of the 1990s. Polish legal scholar and social policy expert Jan Jonczyk recognizes three different periods/models of state control over the social insurance system in Poland since World War I: the autonomous period (model autonomiczny), a mixed autonomous-administrative model (model autonomicznoadministracyjny) during the 1930s and 1940s, and the pure administrative model (model administracyjny) since the 1950s (Jonczyk 1992). A closer contextualized analysis of these periods sheds more light on the key mechanisms, which preserved and even enhanced the significance of similar institutional features under different political regimes. The Autonomous Period: Independent Social Insurance Funds (Ubezpieczalnie Spoleczne). In 1919, in one of its first decisions after taking office the Polish provisional government decreed mandatory sickness insurance, based on the

German model, on the whole territory of the country, including the former Russian provinces where no form of compulsory weltare protection had existed before the war (Landau 1rg991r).3° Under this law, updated in May 1920 by the parliamentary legislation, the Polish sickness funds (kasy chorych) — many of them direct successors of the German Krankenkasse — functioned as separate territorial units. Benefits in cash and in kind (hospital care, supplies for nursing

mothers, etc.) were financed by an obligatory tax (contribution) paid jointly by employers and employees. Separate regional and occupational work injury funds, pension funds, and unemployment insurance funds in the former German and Austrian provinces also continued to operate as autonomous units based on similar principles.3* By law these funds had to maintain balanced budgets, but government’s role was largely limited to legal supervision and mediation between labor and business interests. While the state was not directly responsible for financing of any social insurance programs, it had to guarantee their financial stability. The sheer magnitude of the task of putting together a single, integrated institutional and legal framework for the entire country called for a determined and sustained government effort. This meant that almost by default social policy 3° Decree of the Provisional Government of January 11, 1919. The original work injury insurance adopted in the Russian empire in 1912 was never extended into the western “Polish” lands (Landau 1991, 22). 3% Employers, however, paid the full cost of the work-injury insurance in all instances.

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experts who had served in the German and Austrian bureaucracies found themselves in leading positions as the original framers of the national welfare state after World War I. In fact, work on this project began in 1916 within a temporary governmental structure set up by the German military in Warsaw, and in 1919 the Polish Ministry of Labor and Social Welfare already drafted a proposal for a unified national social insurance system (Praca i Opieka Spoteczna

I, 1923, 47). Domestic and foreign political factors, however, intervened to focus the government’s attention almost exclusively on sickness insurance as the key to winning the support of the urban population, whose loyalty to the new national government was by no means assured. Rapid advance of the Bolshevik troops on Warsaw in the summer of 1920 and the fear of worker unrest in the industrial centers of former Russian Poland increased the urgency of the situation and helped mobilize all available resources to strengthen the emerging independent state.** After the victory in the PolishSoviet war the government rejected employers’ plea to reduce their insurance burden but also increased its own influence within the autonomous sickness funds. As the number of such institutions expanded rapidly, growing by over 50 percent in the first three years — mostly in the former Russian and Austrian lands — these institutions also created a convenient political platform for the radical activists of the Polish Socialist Party (PPS), and to a lesser degree the much smaller and less influential Communist Party as well, to call for further social changes and thus try to generate political support among the beneficiaries of sickness insurance (Landau 1991, 26, and table r). Economic difficulties and political feuds between the left- and right-wing parties in the parliament during 1920-1926 exacerbated the ongoing conflict between the fiscally conservative bureaucrats in the state administration and the radical activists on the social insurance boards. The latter viewed the 1920 legislation as the beginning of the struggle for the creation of an egalitarian socialist state in Poland (Lazowski 1929; Landau 1991), triggering political confrontation with the employers and their right-wing supporters in local and national governments. Even though the country barely began to organize its national administration, socialist members of the governing coalition were powerless to prevent repression of workers’ representatives, mainly socialists, by the state

authorities. Legally entitled to two-thirds’ control of the Sickness Funds, in practice the insured had to submit to the will of special commissioners nominated by provincial or county governors to run these institutions.*? It appears that government bureaucrats and legal scholars, in great majority trained within the Bismarckian and Austrian traditions of social policy, felt that this tense political situation could quickly radicalize social insurance activists 3 Given the fact that in 1919 the membership of the Communist Party increased rapidly in Lodz and some other industrial areas, this fear was not completely unjustified (see Davies 1982, 543). 33 Several sickness funds, especially in the communist-dominated mining area, Zaglebie Dabrowskie, were taken over by government-appointed directors already in the early 1920s; this practice intensified again after 1929 under the Sanacja regime (Landau 1991).

86 Institutional Legacies, 1919-1989 among the left-wing parties and attempted to prevent the escalation of the problem. Hence, from the very beginning state paternalism of the executive institutions of the emerging welfare state, especially the Ministry of Labor and Social Welfare, worked to undermine the traditional idea of self-governance by the insured themselves. The ministry, for example, enjoyed the right to issue binding decrees in the area of welfare provision and usually submitted to the parliament ready laws to be either accepted or rejected. Moreover, the introduction of generous pensions and other benefits for the war veterans, military, anda srowing number of state employees in 1923 testified to the expanding political importance of the central government in the Polish society and the economy. In the longer historical perspective, this event serves as a classic example of institutional layering (Thelen 2003, 2004), occurring in this instance at the crucial junction of state building and welfare state development. In other words,

as different kinds of government experts from the old regime came to serve the newly independent Poland, they also helped to reproduce many essential elements of the imperial social protection in the new setting. In general, however, throughout the 1920s the government continued to send mixed signals, trying to create a balance between its preference for centrally directed “social welfare” programs (opieka spoteczna), originally invented for the postwar period of social emergency, and the deeply ingrained Bismarckian traditions of social insurance (ubezpieczenie spoteczne). This trend was best illustrated by the development of a very liberal and generous work injury law

during 1921-1933, funded exclusively by employers, and also by the 1924 unemployment insurance legislation, financed by a combination of employee and employer contributions but also heavily subsidized by the state.34 Meanwhile, the demise of parliamentary government in the late 1920s opened the way to full institutionalization of government’s role as the dominant player in the now centralized administration of all major social insurance funds. The Autonomous-Administrative Period and the Birth of the ZUS. In May 1926, the hero of Polish independence, Marshall Jozef Pitsudski, and his associates staged a coup d’etat against the right-wing coalition government of Prime

Minister and famous peasant leader Wincenty Witos. Socialist and communist labor activists initially embraced this revolt against their political enemies, Christian Democrats, peasant parties, and Nationalists (National Democrats). Once the coup succeeded they immediately began to push for more radical social legislation, which had been initially promised by the socialist-led government in 1919-1920 but never implemented. Nonetheless, at the time of relative economic prosperity and the expansion of the private sector of the late 1920s the 34 Businesses with fewer than five employees were exempt from unemployment insurance, but in 1926-1929 part-time workers and youth under sixteen were also included in the program. The government participated directly in financing benefits for blue-collar workers only, paying 50 percent of all expenses plus loans and assistance in kind. Thus the system was never fully incorporated into autonomous social insurance (Nowacki 1991). Work injury was funded by employers only with government subsidies to cover deficits (Loga 1991).

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Pitsudski regime abstained from excessive intervention in labor relations and refused to impose any new tax burdens on employers. One significant exception was the introduction of pension insurance for several hundred thousand salaried employees in 1927, often interpreted as a calculated political gesture toward the intelligentsia, while the labor support was taken for granted by the regime. Adopted from the preexisting Austrian scheme, this law applied liberal eligibility rules to high-income earners in the private sector and to the “free professions” of actors, artists, writers, and others. The Minister of Labor and Social Welfare, for example, could easily extend the status of a “white collar worker” to other groups not specified in the original law.*5 This move serves as a good illustration of the way in which the Polish interwar government recombined different “layers” of new and old imperial programs in a more conservative fashion, rather than responding to the growing pressures for more radical reform. Meanwhile, growing financial difficulties of the sickness funds, stemming from the liberalization of benefit policies by autonomous boards at the local level, helped to justify a piecemeal approach to institution building, further delaying the long-planned expansion and unification of all social insur-

ance laws in Poland.3° The mixed “autonomous-administrative” model originated a few years later under an increasingly authoritarian political system, following the arrest of the

vocal socialist opposition and the dissolution of the parliament. The rigged elections of 1930 produced the so-called Sanacja regime under the label of the Non-Party Bloc in Support of Government (Bezpartyjny Blok Wspoltpracy z Rzadem, BBWR), dominated by supporters of Pitsudski. In 1933-1935, amid the worsening welfare situation during the Great Depression, the Sanacja, also known as the “colonels’ regime” (rezim pulkownikow),>’” implemented a long-

planned consolidation of the social insurance schemes. It formally preserved the basic tenets of autonomy in social insurance but also enhanced the power of the Ministry of Labor and Social Welfare as the main guiding force of the emerging welfare state. These so-called unification laws resulted in the creation of a permanent legal and highly centralized bureaucratic structure, ideally suited for national emergencies but extremely difficult to reform and modernize. In this way institutional development of the welfare state in Poland entered a new phase where social policy reformers tried to negotiate a compromise 35 Rozporzadzenie Prezydenta Rzeczpospolitej z dn. 24. 11. 1927 0 ubezpieczeniu spotecznym pracownikow umystowych, Dziennik Ustaw RP 1927, no. 106/911. 36 “PrzemOwienie ministra pracy i opieki spotecznej Aleksandra Prystora dnia 23 stycznia 1930 r.” (Parliamentary speech by the Minister of Labor and Social Welfare, Aleksander Prystor on January 23, 1930), as quoted in Halbersztadt (1992, 313). 37 The “colonels’ group” consisted of approximately twelve persons, close associates of Jozef Pitsudski. Historical sources consistently mention six people: Janusz Jedrzejewicz, Bogustaw Miedzifski, Bronistaw Pieracki, Aleksander Prystor, Walery Stawek, and Kazimierz Switalski. Aleksander Prystor, Minister of Social Welfare in the late 1920s and Prime Minister from May 1931 to May 1933, was one of the leading authors of Polish social insurance and labor legislation (Kulesza 1985, 116-118; Halbersztadt 1992, 310, 313-314).

88 Institutional Legacies, 1919-1989 between the inherited traditions of autonomous social insurance programs and the stated goal of the new regime to concentrate decision-making power within the allegedly “nonpartisan” executive branch. Hence, in the early 1930s, as the economic situation worsened, the Sanacja regime moved cautiously, but also with increasing determination, to consolidate the institutional legacy of “conservative state paternalism” that had come to represent the dominant ideational trend within the policy-making circles since the initial years of national independence. The regime established a new central body, the Social Insurance Institution (Zaktad Ubezpieczen Spolecznych, ZUS) to manage a limited number (61 in total) of “autonomous” social insurance agencies (ubezpieczalnie spoteczne), which in turn administered five separate categories of funds: sickness and maternity, work injury, workers’ pensions, white-collar pensions, and unemployment for white-collar workers.3° In theory, this reform introduced centralized polit-

ical and bureaucratic control of the whole social insurance system without eliminating either the self-government or the financial autonomy of particular, risk-related funds. In practice, however, the government could now exercise new wide-ranging prerogatives.>? In truth, this tendency had been in evidence since the late 1920s. Traditionally, the preexisting funds had been able to invest

their surpluses freely in capital markets and real estate, but since 1927 the Sanacja regime began to curb their financial independence as part of a wider campaign against economically troubled and politically hostile social insurance (self-governing) boards. The 1933 reform further augmented the regime’s capacity to control the activities of the ZUS on the local and national levels, using surplus funds as direct investment in state-directed economic development.*° By 1938, the unified social insurance assets amounted to over 1.5 billion zloty, including substantial cash reserves,4* which enabled the ZUS to become a lead-

ing investor in housing construction, real estate, and other vital areas of the economy (Mackiewicz-Golnik 1991, 87).

Most Polish experts agree that this legislation, passed at the time of the Great Depression, constituted a crowning achievement of the otherwise much criticized Sanacja regime (Radzimowski 1958; Landau 1968; 1991). In the 19308, the social insurance system as a whole not only regained financial stability, generating on the average large surpluses in many of the funds, but also substantially increased the scope of coverage, establishing a new mandatory 38 Blue-collar workers received unemployment benefits from the separate Unemployment Fund (Fundusz Bezrobocia), 50 percent of which was financed by the state budget. The other half was covered by an employer mandate and a small payroll tax. 39 Even though formally the ZUS was to be governed by a new council composed of elected representatives of the insured (50 percent), employers (25 percent), and the government (25 percent), with a chairman nominated by the President of the Republic, until 1938 it was run directly by a commissioner appointed by the Minister of Labor and Social Welfare (Landau 1968). 4° In 1936 Poland launched a major industrialization campaign, financed largely by the state. 47 About $300 million U.S. at the time.

Poland 89 pension system for the workers on the territory of the whole country, beginning in 1933. Adopted as a major part of the major “unification legislation” (ustawa scaleniowa), this scheme covered employees in all sectors of the economy, except agricultural workers and citizens belonging to other pension plans, such as railroad personnel, miners, and others already benefiting from the more generous German pension legislation of r911. As a result of this legislation, during 1925-1938 total pension coverage grew by 292 percent for all eligible categories of employees, accident insurance by 88 percent, and sickness insurance by 20 percent (see Table 2.7, above). The 1933 law was implemented gradually over a five-year period, promising small but secure benefits to future retirees. Meanwhile, throughout the 1930s state pensions represented as much as 75 percent of all pension benefits paid annually, and conventional social insurance, in effect mainly in the former German provinces, the remaining 25 percent. Also, despite a sizable reduction in disability payments for military veterans in 1934, expenditure for government entitlements in most categories continued to increase until World War II (see Table 2.8, above).

The unification legislation mandated the payment of two general types of benefits: disability (including old age) and survivor pensions for widows, orphans, and other dependent family members. It required a prior insurance record of contributions, paid by employers and employees, and a uniform retirement age of sixty-five.4* In addition, during the period immediately preceding final implementation of pension insurance, all former employees over sixty or sixty-five (women and men, respectively) with serious preexisting disabilities

could receive temporary social security payments (zaopatrzenia emerytalne), provided that they had no other means of support and had a documented work record of at least four years, plus, in the case of disabled workers over sixty, a prior insurance history of at least twenty-six weeks.*3 In a rare reversal of previous policies, however, the same law cancelled mandatory sickness/maternity insurance for agricultural workers in the former German provinces, effectively excluding two million people from receiving these benefits. Adopted in conjunction with the new, more restrictive eligibility rules within the sickness funds, this decision was largely motivated by the collapse of the agricultural sector in a traditionally more prosperous region of the country during the Great Depression. While their employees lost the right and the privileged position of enjoying mandatory health protection unavailable to their counterparts in other regions of the country, the more productive and exportoriented landowners in Western Poland won a reprieve from compulsory social 4* Ustawa o ubezpieczeniu spotecznym z dn. 23 03 1933 r., Dziennik Ustaw RP 1933, no. 1069. Old age (65 or more) was considered equal to permanent disability. Younger persons with an established insurance record qualified for disability pensions if they lost at least two thirds of their capacity to work or one half for white-collar employees (see also Piatkowski 1991, 127-136). 43 Ustawa o ubezpieczeniu spotecznym z dn. 23 II 1933, art. 302 and 303.

90 Institutional Legacies, 1919-1989 insurance taxes (E-gie 1933, 211-214; Przestalski and Lis 1991, 98).44 This decision to eliminate preexisting benefits serves as an early example of a trend that is discussed further in Chapter 3, that is, the uneven and cyclical pattern of social policy development through successive periods of expansion and retrenchment. At this point I will only summarize the impact of World War II and the ways in which the Polish experience differs from the Czechoslovak one as far as the welfare state is concerned. The Impact of World War II. In Poland, as in Czechoslovakia, under Nazi occupation,*> the social insurance laws officially remained in force almost until the very end of the war. Also, the ZUS, as one of the few remaining national institutions, functioned continuously during 1939-1945 under the direct supervision

of occupation authorities, at least on the territories of the so-called Generalsouvernment — an administrative entity carved out by the Nazis from pre-1939

Poland.4° The population as whole, however, and hundreds of thousands of insured citizens who were members of large groups targeted for repression by the occupation authorities, suffered deprivation on a mass scale. For example, the scope and quality of social assistance, especially the benefits paid to the large number of Jewish citizens of the country, began to shrink almost immediately after the Nazi takeover. Jewish blue- and white-collar employees continued to

pay the same social insurance contributions as the rest of the eligible population, but within the first three years their benefits virtually disappeared as the genocidal policies of extermination began to take hold.+”7 The next wave of Nazi restrictions, during 1942-1943, focused on the Polish intelligentsia, and the salaried employees as a group were singled out for gradual elimination. Thousands of former clerical workers, military veterans, and government employees were driven into poverty as a result of the introduction of a system of uniform, very low pensions treated basically as minimum welfare relief (Unterstutzung). Manual workers, however, generally faced less severe restrictions. Their social benefits even increased slightly in 1943 asa part of the overall policy of maintaining a labor force necessary to support the Nazi war effort?° but not nearly as much as was the case in Czechoslovakia. Nevertheless, despite 44 These restrictions on sickness expenditures were among the most common policy measures applied by various European governments during the Great Depression. In many countries, however, they were perceived as only temporary setbacks in the overall process of expansion of the social protection (see Dr. W. Z. 1936). 45 The author was unable to obtain documentation concerning social insurance activities under the Soviet occupation of eastern Poland during 1939-1941. 46 Tn the lands incorporated into the Reich, German laws applied and Polish residents were regularly discriminated against, receiving substantially smaller benefits than the ethnic Germans (Szurgacz

1991, 175-210). 47 For more information on the Nazi social policy toward the Jewish population, see H. Kirchberger, Die Stellung der Juden in der deutschen Renterversicherung, Beitrage zur nationalsozial-

istischen Gesundheits — und sozialpolitik, vol. 5 (Berlin, 1987), as quoted by Szurgacz 1991, 194. 48 Thid., 175-209.

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this repression, the severely weakened Polish social insurance administration and the programs under its jurisdiction never stopped functioning; benefits, however small and diminishing, were being paid, records were kept, and, most important, many ZUS officials continued to do their jobs in anticipation of the forthcoming reconstruction of the independent state. We can argue that this experience of endurance and dedication enhanced the confidence of the surviving bureaucrats in the existing institutions and their capacity to handle social policy emergencies in a creative way, even in the absence of or in contradiction to the central direction from the top of the political structure. This specific feature of the Polish welfare state would be tested again and again under communist rule.

The Administrative Period: Centralized Social Insurance and the Advent of Central Planning. On the basis of general historical knowledge about the spread of authoritarian rule in Eastern and Central Europe between the wars, it might be tempting to draw parallels between the excessive “statism” in Soviet Russia and many of its western neighbors. In the 1930s, for example, Poland under Sanacja and the Soviet Union under Stalin shared a common goal of seeking to restructure the national welfare system to better reflect the reality of the growing role of the state in the economy and polity. Indeed, some similarities between the developmental goals and policies of the two countries were recognized and even praised by government officials hardly suspected of being communist sympathizers. Each country, however, used different strategies to

achieve their goal to develop a viable safety net during this period of statesponsored economic growth. While the Sanacja favored administrative centralization combined with semi-autonomous funds, the Stalinist model, later forcibly imposed on all Soviet satellites after the war, consisted of a decentralized welfare bureaucracy and a unified financial structure integrated with the rest of the planned economy. Moreover, the Soviet type of welfare state relied heavily on expanded trade union bureaucracy to administer the delivery of different social insurance benefits and services and left no room for any independent charity organizations or nongovernmental social insurance institutions. In the mid-1930s the Sanacja bureaucrats introduced a special tax on entitlements and reduced the social insurance contribution paid by employers (Landau 1991, 44-45). But this only shifted more welfare responsibility to the state budget, which by law had to cover any deficits created by the investment strate-

gies of the autonomous funds. In contrast, as one Polish government expert observed in a 1933 journal article, a pay-as-you go (PAYG) system, adopted in Russia under Stalin in 1930, appeared much simpler and more economical because it required no reserve funds and had much lower administrative costs (Szymanko 1933). Also, the Soviet social insurance institutions had no power to increase benefit levels above the minimum amount established in advance by the state. This directly benefited the government budget while keeping expenditures at the minimum. Furthermore, flexible taxes levied on the total wage

92 Institutional Legacies, 1919-1989 fund at each state-owned enterprise helped to accumulate enough resources for current benefits without having to save additional money for future payments. In the meantime, the tax receipts continued to grow as long as employment remained high. Any excess funds could be spent immediately to finance other urgent needs, such as public assistance, health care, and housing construction. If a shortage of funds were to occur in the future, the tax rate, which in the 1930s in the Soviet Union was set at only 13 percent, could always be raised on a short notice. Because in the state plan the social insurance expenditure became in fact an appropriated portion of the gross wage fund, the cost of this increase would always fall on the current working population (373-374). In 1936 the Polish government launched its own industrialization plan but without changing the financing of social policy, based on the traditional prin-

ciple of long-term savings and investments to secure future needs. As the Sanacja expert noted, this decision was grounded in the fundamental difterences between the Polish and Soviet socioeconomic contexts of the 1930s. The Soviet model, he argued, was “most rational in the Soviet economic and social conditions,” where the state had to forcibly “bind the great masses of people, recently recruited for labor, unaccustomed to systematic work and devoid of work ethic, to their jobs.” “In the long run,” however, he added, “we should consider the current Soviet social-insurance system merely as a temporary solution which in a few years will be remembered only as an example of an outdated practice of sudden policy shifts to the right or to the left in response to current needs” (Szymanko 1933, 374, my translation). In other words, the Polish expert

anticipated that later, at a higher level of economic development, the Soviet Union would naturally adopt a different system of social insurance protection and organization, much more in tune with the older European models. This, as we now know, never happened. Paradoxically, twenty years later Poland combined its own centralized social insurance administration, specializing in the distribution of relatively advanced cash benefits to individuals, with the Stalinist (decentralized) model of social security, which provided meager basic payments and emphasized collective forms of social consumption. As we will see, this type of institutional “layering” under different regimes also enhanced a cyclical pattern of policy shifts between expansion and reform that developed in conjunction with the alternating periods of growth and slow-down or outright recession in the economy. After World War II, in a calculated political move the Soviet-backed provisional government seized control over social insurance institutions in Poland while promising to rebuild and strengthen workers’ participation in the ZUS.*? Neither the supporters of the original autonomous model, including members of the emigre government in London, socialist allies of the communists at home, or the industrial workers themselves, however, played a meaningful role in rebuilding the Polish welfare state after the war. Instead, the Communist Party, Ministry of 49 Similar political tactics were used by the Bolsheviks in Russia during 1911-1912 (see Ewing 1991, 917).

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Labor and Social Welfare, and ZUS administrators*° joined together to address the socioeconomic emergencies of the difficult postwar years, imposing strict fiscal discipline and strong central government control on social policy making (Polska Partia Robotnicza, 1945-1948, 237/xviil). Formally, the prewar, mixed autonomous-administrative model continued to function for another decade but with increasing micro-management of independent social insurance funds under numerous executive decrees and bureaucratic directives. The first governmental decree of 1944 shifted the entire burden of social insurance taxes to all public and private employees. Subsequent regulations kept cash expenditures low while trying to maximize revenue collection for other needs, such as basic health care and rebuilding of the infrastructure. The Ministry of Labor and Social Welfare and the ZUS itself reconstituted the centralized decision-making structure according to the model of the 1930s. At the same time, however, the “administrative layer” was detached from the “financial and political layer” within the decision-making structure of the regime. Throughout the late 1940s, the communists gradually eliminated all vestiges of financial and political autonomy within the social insurance system, beginning with the oldest independent occupational pension schemes in western Poland and Upper Silesia that had escaped unification under the 1933 law.*"

During 1949-1950 the Stalinist reformers finally incorporated all social insurance funds into the general budget and replaced independent sickness insurance with nationalized health care. Also, to help accelerate the transformation of the ownership structure in the economy, they lowered the social insurance tax on public enterprises from 22 to 15.5 percent and levied a punitive 30 percent rate on the private sector. Yet the ZUS not only remained in place as the single, centralized social insurance agency, but after a 1949 purge of “class enemies” within the social insurance establishment continued to expand, hiring thousands of new employees with “working-class” backgrounds (“Tezy do materialow” 1949, 81-84). Thus, this organization, with a deeply entrenched

history of efficient work under adverse circumstances of crisis and war and a long record of reliable performance in generating revenue and redistributing income (Pirozynski and Winter 1961, 67, as cited in Radzimowski 1984, 22), now became an integral part of the rapidly expanding Stalinist bureaucracy, most of which was still poorly trained and inexperienced and had to be coached by the surviving veterans of the interwar period. This combination did not always work well together but proved to be extremely durable. Only when the hastily constructed and overly centralized system of postwar economic

management failed to perform as anticipated, the “purged” ZUS temporarily fell victim to further “Sovietization” pressures. 5° Experts and bureaucrats of the ZUS were able to preserve a substantial part of their office records from the main urban centers in Warsaw and Cracow and reestablished the local social insurance funds (ubezpieczalnie spoleczne) almost immediately after the Nazi withdrawal from Poland (see Bober 1986 [1948]). St Dekret z 13.11.1945 7. o Zarzadzie Ziem Odzyskanych and Dekret z 8.01.1946 r. O zmianie i uzupelnieniach ustawy o ubezpieczeniu spotecznym. Dziennik Ustaw RP (1946), no. 4/28.

94 Institutional Legacies, 1919-1989 In February 1954, the Second Congress of the Polish United Workers’ Party (PUWP) called for institutional changes to correct the shortcomings of the SixYear Plan (Weydenthal 1986, 76-77). In addition, after Stalin’s death, Moscow

urged all communist countries to pay more attention to the social needs of their working people (Brzezinski 1967). Criticism of excessive centralization and bureaucratization of economic and social policies at the Congress forced the resignation of the chief Stalinist in charge of economic planning, Hilary Minc. In the area of social policy this meant the belated, and only half-hearted, implementation of the Soviet model of social insurance in Poland in 1955. Curiously, this change was justified as a remedy for the deterioration and neglect of cash benefits during the early 1950s.5* This short-lived experiment with a decentralized bureaucracy ended relatively quickly, only five years later, after the Communist Party recovered from the 1956 crisis spurred by mass protests against the excesses of Stalinism and internal struggles within the party. In 1960 the new regime of Wladyslaw Gomulka brought back the ZUS as an independent government agency, now supervised jointly by the Communist Party and the General Council of the Trade Unions (Centralna Rada Zwiazkow Zawodowych, CRZZ). Interestingly, in the late 1950s the union officials themselves demanded the return to the previous “social insurance” model of the immediate postwar period. Within the social policy establishment itself, the “losers” of the battle to maintain the continuity of the national social insurance traditions throughout the 1950s pressured the new party leaders to renegotiate the terms of the institutional arrangement of the post-Stalinist welfare state.5 In this process the unions acted as de facto “proxy” of the ZUS, an institution by now well entrenched within the Polish state apparatus whose survival capacity had been tested repeatedly during and immediately after World War II. Meanwhile, the party leadership singled out the Ministry of Social Welfare as a symbol of excessive bureaucratization and social policy failures of the Stalinist years, downgrading it to a State Committee on Labor, Wages and Social Policy (Archives of the Ministry of Labor, Warsaw, doc. no. 160, 1960). The belated and incomplete Sovietization of the Polish postwar welfare state gave rise to another hybrid “administrative model” that supplanted one “layer” of centralized institutional structure, involving the Minister of Social Welfare and the fragmented ZUS run by monopolistic trade unions, with another, seemingly more decentralized and “democratic” one, consisting of the economic planners of the Central Committee of the Communist Party, the State Committee on Wages and Social Policy, the reconstructed ZUS, and public enterprises.*4

Interestingly enough, this new hybrid also consisted of the core administrative nexus based on the key relationship between the central ministry, now in a downgraded form of a “State Committee,” and the ZUS - a formula 5* Poland was the last of the three East Central European countries to adopt the Soviet model of social insurance administration. 53 For details on this process, see Piotrowski 1957a, 1957b, 1958a, and 1958b. 54 Individual insurance accounts were eliminated and each enterprise became responsible for keeping records of its employers for the purpose of future benefit claims.

Poland 95

institutionalized in the interwar period. In fact, since the early 1960s the trade unions, although now formally represented on the “elected” board of ZUS, again became marginalized relatively quickly. Their only hope to maintain limited influence over social policy decisions, which they apparently achieved for a short while during the late 1950s, was to try to adapt the best they could to the new circumstances. During the next decade the union lobbies worked slowly through the party, the government, or the workplace channels, pushing for a variety of small concessions and benefits for major occupational groups and even individuals, such as miners and steelworkers. Occasionally, their efforts included work on behalf of some previously neglected self-employed service professions who gradually won social insurance rights (Szreter and Zajchowski interviews, 1993). The creation of a separate Pension Insurance Fund within the ZUS in 1968 in the late Gomutka period55 and recreation of the central social policy bureaucracy, the Ministry of Labor and Social Aftairs, in 1972 by the new regime of Edward Gierek (“Ministerstwo obietnic i nadziei” 1972, 3) further reinforced the role of the central government institutions in the “administrativebureaucratic” triangle of the Polish welfare state, also involving direct supervision of social policy by the Economic Department of the Central Committee of the Communist Party (PZPR).°° In the 1970s, however, control over the ZUS shifted back from the party to the governmental economic and social policy bureaucracy. Thus the labor ministry, rather than the party leadership, increasingly became the target of a lobbying effort by state enterprises, trade unions, and various occupational groups seeking increased benefit rights and special privileges. In a few instances, industrial enterprises acquired more influence over some of the social benefits traditionally run exclusively by the social insurance bureaucracy. In 1975, for instance, the ZUS lost one of its key functions as a provider of sickness benefits on behalf of the state enterprises, which were supposed to combat work absenteeism but in reality could now hide these rising expenditures much better in a bloated industrial wage fund.>”7 Nonetheless, throughout the whole decade the Ministry of Labor continued to accumulate more power and influence over the decision-making structure in the area of social policy. During 1980-1981, at the time of Solidarity labor unrest, the ministry bolstered its stature further as it assumed the role of an official mediator of widespread labor conflicts all around the country (for more details, see Chapter 3). On the eve of the collapse of the communist regime, the Polish welfare state still reflected the same basic contradictions stemming from its incredibly convoluted developmental path. This includes most prominently the combination of the two institutional legacies, passed on from one regime to the next: the high 55 It was financed in part by a 3 percent tax on individual wages. 5° The committee regularly intervened in decision-making processes throughout the 1960s (Szreter interview, 2 June 1993). 57 The ZUS remained in charge of payments to the employees in the private economy, to the self-employed, and to other insured workers outside the state sector.

96 Institutional Legacies, 1919-1989 level of administrative and financial centralization of all benefit schemes and deeply ingrained fragmentation and inequalities in types of coverage and access to payments across different occupational groups, age, and gender. Meanwhile, experts and social policy bureaucrats with the ministry and the ZUS survived repeated challenges to their traditional, conservative-statist vision of a careful, gradual management of the profoundly hierarchical system of social insurance. During the regime crises in the late 1960s and 1970s they also skillfully and repeatedly managed to renegotiate new terms for the survival of the existing welfare state. When the Jaruzelski regime attempted gradually to dismantle planned economy in Poland during the 1980s, communist reformers inadvertently initiated a vigorous debate on the nature of social policy institutions, and especially their organization and financing.>® At that time a new generation of social policy experts came to a conclusion that the existing system was dysfunctional, with neither the government, nor the ZUS, nor state enterprises capable of addressing the growing social needs, exacerbated by a decade of deep economic crisis. Nonetheless, reforms of the welfare state institutions proceeded very slowly and reluctantly, encountering stiff opposition from both within and outside the government. In 1987, in a move reminiscent of the past reshuffling conducted in the late 1950s and early 1960s, the overgrown Ministry of Labor and Social Affairs was replaced with a leaner Ministry of Labor and Social Policy. More significant, however, the last communist regime recreated a separate Social Insurance Fund (FUS) to finance not only pensions but also the other types of cash benefits. Officially, the FUS remained under direct control of the government, but the ZUS could now accumulate surplus funds in a special account at the National

Bank of Poland, rather than being forced to give them up immediately for other purposes. As we will see later, this decision was more symbolic than real, because financial independence of this body was undermined almost immediately by the government authorities themselves, who failed to implement their economic austerity plans. Even more significant, the long-standing patterns of policy making involving the Ministry of Labor and its subservient bureaucratic

structures remained unchanged. Instead, similar to the maneuver conducted previously in the 1940s and 1950s, the existing administrative and ideational “layers” of the welfare state were merged with a new, added “layer” of a partly reformed structure of benefit financing. As I show in Chapter 4, the same mechanism of institutional reproduction continued to operate after the collapse of the communist regime, throughout the 1990s, as the democratic

governments attempted to adopt the Polish welfare state to the changed political and socioeconomic realities. 58 The economic and political aspects of this “withdrawal syndrome” are discussed in detail by Kaminski (1991, 162-193). Kaminski discusses the unprecedented expansion of the private sector during the 1980s but fails to mention the difference in the social insurance tax burden between private and state enterprises as a factor in the post—martial law economic recovery.

Hungary 97 HUNGARY

Social Policy Legacies of “Greater Hungary” Unlike Czechoslovakia and Poland, before World War I Hungary enjoyed considerable political autonomy under a parliament elected by limited franchise and representing mostly liberal and conservative parties with upper- and middleclass constituencies. In terms of the early politics of social policy, the imperial Hungary mirrored Bismarckian Germany. In an effort to avert radical mobilization of the urban proletariat, the conservative regime successfully seized the initiative of welfare reform from the emerging socialist movement. The oldest

of all national welfare states in Central and Eastern Europe, Hungary based its social policy on three fundamental laws: the 1891 Law XIV on Mandatory Sickness Insurance for Workers, the 1907 Law XIX on Work Injury Insurance, and the 1912 Law LXV on Pensions and Family Benefits for Civil Servants. Before 1919 these regulations applied uniformly to several major groups of employees in government and industry. Yet in reality, due in part to employers’ resistance and weak enforcement, the actual coverage grew very slowly, especially outside the capital city of Budapest and within smaller enterprises nationwide. According to Dorottya Szikra, in the early 1900s in large factories about 84 percent of employees were covered against sickness and work injury, but only 47.5 percent of all industrial workers were insured and 13 percent of the economically active people, which represented merely 3-—5.5 percent of the population (Szikra 2004, 267-269). Even more important, in the first decades of the twentieth century, after a period of rapid growth in the late 1800s, the process of industrialization slowed down considerably. Ten years after the passage of the first sickness insurance

act, two thirds of the labor force was still engaged in agriculture, and the country of 21 million inhabitants had only 1 million industrial workers — the most likely clients of the traditional Bismarckian social insurance. This situation changed little during the next twenty years, as the number of persons employed in industry, including mining and iron works, grew from 21 percent in 1920 to barely 23 percent in 1930 (Pietrzykowski 1939) (see Table 2.9).

The organization of the early social insurance system in Hungary comprised a large number of self-governing territorial (German model), union, company, miners’ guild, and other compulsory or voluntary units. By 1906 there were as many as 406 sickness funds already in existence. The first merger

occurred in 1907, combining sickness insurance under one national institution, the National Fund for the Aid of Sick Workers and Accident Insurance (Orszagos Munkasbetegsegélyz6 és Balesetbiztosito Penztar, OMBP). In general, the Hungarian authorities permitted self-government in these funds, with substantial workers’ representation, to operate freely throughout the country, but also since the turn of the century the state attempted to increase financial and administrative control over them using the State Office of Workers Insurance (AMH) as an overseeing body (Tomka 2003, 61).

98 Institutional Legacies, 1919-1989 TABLE 2.9. Employment Categories in Interwar Hungary, 1920 and 1930 (in % of total labor force)

Occupation 1920 Labor Force 1930 Labor Force Total number of persons 8 million 8.7 million

Agriculture 5507 51.8 Mining/iron works 1.5 1.3 Industry 19.1 217 Commerce/banking 5.1 5-4 Transportation State bureaucracy/free4.4 Ay 26 5-0 in employment

Military 1.6 8 Day laborers 13 1.4 Pensioners* 25 PERG) professions

Domestic 2:3 Others help 2.02.9; pie}

“ The number of pensioners in Hungary grew from 197,000 1n 1920 to 361,000 In 1930, an increase of 83 percent. Source: Pietrzykowski 1939, 420.

Although the Hungarian working class remained small, already in the late 1890s it was relatively well organized and considerably radicalized, especially in Budapest, other urban areas, and the mining regions where the Socialist party (established in 1890) and trade union activists remained active. Excluded from regular channels of political participation in public life before 1918, many of these activists, for example, the leader of the 1919 Hungarian Soviet Republic, Bela Kun, found employment and a forum for revolutionary agitation in the self-government of workers’ insurance. In addition, in the early r900s many prominent left-wing intellectuals, working within various societies and discussion clubs, such as the Society for Social Sciences (Tarsadalomtudomanyi Tarsasdg) and the Galileo Circle, created an ideologically charged plattorm for a radical social reform (Kovrig 1979, 13-17). Thus the main legacy of the pre1914 social policy in Hungary was not limited to the Bismarckian ideas of state paternalism and government-supported social insurance funds; the country also shared with Germany, Austria, and the rest of Central Europe a strong tradition of socialist activism in social policy going back to the late nineteenth century. In Hungary this activism acquired a particularly radical and ideologically charged character, and in conjunction with the political and bureaucratic weaknesses of the state it created a highly volatile foundation for the development of modern social policy. Whereas in Czechoslovakia and Poland the welfare state project became an

integral part of the broader post-1918 elite consensus on the larger task of state and nation building, Hungary stands alone among the three East Central European countries as a special case, where this project repeatedly fell

Hungary 99 victim to violent civil conflict and political confrontation. During 1919-1920 the internal weakness and collapse of the “Greater” Hungary severely undermined the capacity of its successor, a much smaller and more impoverished country, to undertake any ambitious national social policy program. When the old regime disintegrated in 1918, the newly appointed Minister of Social Welfare, socialist Zsigmond Kunf, had neither the time nor sufficient institutional or political support to prevent the escalating radicalization and politicization of social policy making. In early 1919, many Hungarian social democrats joined the communists to create the government of the Hungarian Soviet Republic, which decreed the immediate takeover of all social insurance institutions by the workers (Petrak and Milei 1959, 33-34). Also, the new government, People’s Commissariat, modeled on the Russian Bolsheviks, rapidly adopted a series of radical social measures, many of which incidentally had been drafted already by the previous, short-lived, liberal/social democratic regime of Count Mihaly Karolyi (Kovrig 1979, 46). Hastily assembled workers’ committees and a newly expanded and inexperienced “red” bureaucracy began to implement such policles as extended sickness benefits and the eight-hour working day immediately but rather haphazardly on the limited territory controlled by Bela Kun’s republic (51). Foreign intervention and the takeover of power by the traditional conserva-

tive elites in early 1920 put an end to this largely spontaneous, revolutionary effort to rapidly expand and improve the Bismarckian social welfare system in Hungary. Restoration of the legal status quo from before the 1919 revolution brought back old institutions and practices, considerably slowing down the expansion of the welfare state. Many of these survived longer than was necessary or prudent, while newly created structures often turned out to be temporary and politically expedient substitutes for a major comprehensive reform of social benefits. In essence, the defeat of the revolutionary option opened the way for a conservative resurgence, a return to the slow, cautiously reformist path in social policy making with a strong emphasis on the preservation of the Bismarckian/imperial status quo. This in practice meant the continuation of a rather limited social insurance system for some categories of industrial workers combined with the continuing generous protection for state employees. The reconstructed political institutions, with restricted suffrage and concentration of power within the executive branch, also favored the restoration of the pre-1919 status quo. A social welfare ministry, in Czechoslovakia and in Poland a source of new ideas, long-term planning, and short-term management of social policy and class conflict, in Hungary existed only briefly, during 1918-1932 and 1944-1952, as a weak and ultimately ineffectual player both within and outside the government. Instead, the economic and power ministries within the exec-

utive branch, primarily the Ministry of Trade and Industry, the Ministry of Interior,>? and later also the Treasury (Ministry of Finance), maintained a tight 59 These two ministries played a crucial role in the preparation of the 1891 Sickness Insurance law,

and again in the late 1920s. I am grateful to Dorottya Szikra for pointing this out to me.

LOO Institutional Legacies, 1919-1989 grip on policy-making initiative and political control over the welfare system. This situation further widened the gap between the conservative regime, which

after 1919 proved incapable of producing any new comprehensive national model of the Hungarian welfare state, and the defeated social policy activists, many of whom, as well as the public at large, now placed their hopes in extreme right- or left-wing political parties as the best vehicles for real improvement in the economic well-being of the working people (Kovrig 1979). Major Periods in the Development of the Hungarian Welfare State, 1919-1975

Since 1919 the Hungarian welfare state experienced three distinct periods of expansion and development of the major social insurance institutions; the restoration period of 1920-1929, the conservative expansion period of 19291956, and the long period of reconstruction, adaptation, and growth from the early 1960s through the mid-1970s. The Restoration, 1920-1929. Hungary emerged from World War I as a country not only defeated and internally divided by violent political strife, but also stripped of one third of its territory and three-quarters of the population under the harsh terms of the Treaty of Trianon. In addition, in 1920 the new, much smaller state had to absorb about 350,000 refugees, many of them educated civil servants, teachers, soldiers, and other individuals on the government payroll, while one third of all workers in the country were unemployed (Hoensch 1996, 103-104). Throughout the entire interwar period the share of nonagricultural employment remained stagnant at around 50 percent of all wage earners, but the government bureaucracy continued to grow. Thus, during the 1920s in the absence of major social insurance reforms, mandatory income maintenance schemes still included primarily state employees and workers in the main branches of industry, mining, commerce, and transportation (Tomka 2003, 46). But even these groups never received comprehensive protection granted to many of their counterparts in interwar Czechoslovakia and Poland. During interwar period in Hungary, especially, the traditional sickness and maternity benefits developed at a very slow pace. The 1927 Law XX], which included all workers, except in agriculture and forestry, was the only major update of the original 1891 sickness insurance legislation. In the following year female employees also received additional prenatal assistance and spe-

cial benefits in kind at childbirth (Tomka 2003, 49). In contrast to Poland and Czechoslovakia, however, white-collar salaried employees in higher income

groups were excluded from mandatory sickness coverage and had to rely on private insurance (“Ubezpieczenie Spoleczne na Wegrzech” 1992, 21). In general, the 1927 law had only minimal effect on the level of insurance coverage among the population at large; it grew from 25 percent of the labor force in 1920 to only 27 percent in 1930 and thereafter remained constant through the late 1940s. The addition of agricultural workers during 1945-1947, as well

Hungary IOI TABLE 2.10. Social Insurance Coverage in Hungary, 1930-1980 (number of insured as % of total labor force).

1930 16 27 39 1940 30 27 35 1950 47 46 47 1960 85 63 85 1970 97 79 97 1980 I0Oo 83 I0Oo

Year Pensions Sickness Benefits Accident/Work Injury

Source: Tomka 2003, appendix, 38-39.

as college students, some self-employed groups, and household members of working women, increased the number of insured to 46 percent of the labor force (see Tomka 2003, table 11). But only in 1975 did health insurance as a whole become a universal citizenship right. Even then, however, sick pay continued to depend on previous record of employment, leaving many groups (about 20 percent of the labor force) without access to full benefits (50) (see also Table 2.10). In sum, only the two oldest social insurance programs, sickness and work injury protection (see Table 2.10), had already been relatively well developed in the first decade of independence (see Tomka 2004). By the end of the decade, in 1927-1928, a series of important new laws improved health coverage and established pension benefits for some blue- and white-collar occupations. But at the same time huge gaps in coverage remained not only across occupations

but also in terms of income protection against other common risks. In addition, Hungary also failed to introduce any unemployment insurance scheme for thousands of jobless citizens, who had to rely on charity for meager assistance during the entire interwar period.

Conservative Expansion/Stagnation, 1929-1956. As in the other East Central European countries, during the interwar period the introduction of the pension system in Hungary in 1929 was a major but in this case also a rather limited step forward toward a modern and comprehensive twentieth-century welfare state. In general, the new pension law followed the Bismarckian tradition of mandatory insurance, but in practice it applied to only a fraction of the total labor force. In 1930 only about 16 percent of wage earners had pension insurance, and most of them were still civil servants and their families covered under the 1912 law. In comparison, 39 percent of all employees were eligible for occupational injury benefits under the law of 1907 (Table 2.10). Interestingly, the 1928 pension legislation®® also envisioned parallel development of independent company-based benefit schemes offering additional, much higher benefits to select groups of better paid workers, but, in stark contrast to 6° Adopted in 1928 but introduced in 1929.

102 Institutional Legacies, 1919-1989 in Czechoslovakia, this scheme was never implemented in interwar Hungary (“Ubezpieczenie Spoteczne na Wegrzech” 1992, 21). In 1939, during the time of economic recovery and government mobilization of national resources in preparation for the anticipated war, some groups of agricultural workers also became eligible for pension benefits. A decade later, under communist rule, the pension decree of 1951 merged all separate pension programs into one system. Nonetheless, the traditionally excluded occupational groups, especially the vast majority of the agricultural population and the self-employed in the cities, became eligible for old age, disability, and survivor pensions only gradually from the late 1950s, 1960s, and 1970s (Luchowski 1969a; Ferge 1979). Under the original pension law, all employees received a flat benefit of 120 pengos®* plus an annual 24 percent of previous contributions for workers and 19 percent for white-collar salaried employees. An additional 15 percent supplement was paid for each child below fifteen. As in Poland, the retirement age was relatively high, at sixty-five for both men and women, but in Hungary the qualifying waiting period was much longer, 400 weeks for old-age pensions and 200 weeks for disability benefits. Moreover, a major feature of the Hungarian pension system in the interwar period was a continuing, inherited bias in favor of the already privileged civil servants and against the rural population. For example, in 1932, 70 percent of all pension expenditures benefited government employees and their families (Tomka 2003, 53). Incidentally, this was also the group most heavily affected by communist repressions in the 1940s, when

the Stalinist rulers denied pension rights to thousands of persons associated with the former regime while offering better conditions under the new system to the new rapidly expanding bureaucracy (50). In the meantime, agricultural workers, with the exception of state-owned farms, continued to suffer severe discrimination and lower benefits until 1975. In the period 1920-1930, the number of pensioners increased by over 83 percent, but the majority were still state pensioners and miners (see Table 2.10; Pietrzykowski 1939, 420). The pattern of slow and gradual growth in the number of beneficiaries of the welfare state, symbolized by the reforms of 1927-

1928 under the liberal government of Istvan Bethlen continued through the Great Depression. The situation began to improve slightly only in the late 1930s and early 1940s when Germany opened its market to Hungarian exports

and the country began to invest heavily in war preparations. Arguably, the major achievement of this period was the introduction of family allowances as a separate government program, strongly motivated by nationalist ideology and demographic pressures. As one of the oldest programs of its kind in Europe, Hungarian family benefits originated from two different sources, none of which was directly related to traditional social insurance. One of them was the imperial system of cash entitlements for state employees with children, codified by the 1912 law on 6™ The old name of the Hungarian currency before World War II. 62 Already in the late 1930s Hungary had the lowest birth rate in Europe (Pietrzykowski 1939).

Hungary 103 pensions and other types of support for this politically important social group (Tomka 2003, 33). The other was the network of Belgian-style special family allowance funds administered jointly by companies and the government, with exclusive financing by the employers who paid annual contributions for every employee (Pietrzykowski 1939). Established in 1938 under the government of Béla Imrédy,°3 according to a plan drafted previously by the Duranyi government and in close collaboration with private businesses (Pietrzykowski 1939), this program covered all workers in industry, mining, trade, and transportation in enterprises with more than twenty employees,°+ amounting to approximately 30 percent of the population (Ferge 1979). Even though the payments were low, around five pengos per child, the importance of this program, first ever in East Central Europe should not be overlooked, especially given the fact that at that time many Hungarian workers and their families could rely on few other stable means of additional social protection. It must be noted, however, that in contrast to the regular social insurance programs, the family allowance funds were run by seven separate boards, each representing a specific branch of industry, social policy experts, and the Ministry of Trade and Industry and, but without the participation of the Ministry of Social Welfare (which was abolished in 1932) and, more important, without any representation of the employees (Pietrzykowski 1939). Later, under the communist rule the family allowance program continued to play a significant role in Hungary as both a universal entitlement and an element of wage regulation in the main sectors of the economy, and a flexible instrument of family policy and crisis management.

Reconstruction, Adaptation, and Growth, 1960-1975. As in the case of separate institution of family benefits before the war, under communist rule the Hungarian welfare state continued to follow a decentralized and bifurcated pattern of development that combined old, unreformed structures with some new and highly innovative programs. This particular type of layering, combining the earliest, still underdeveloped Bismarckian social insurance programs

with the latest, pioneering system of social protection, posed a tremendous challenge for policy makers who struggled to devise a suitable institutional blueprint for a more advanced welfare state in the country. After World War II and especially during the period of rapid industrialization from 1948 until the late 1950s, the number of insured workers grew rapidly,°5 but the next 63 The law was adopted on 30 December, two months after the Vienna Accord that granted Hungary the new territories of Southern Slovakia and Ruthenia in connection with the dismantling of Czechoslovakia. The implementation was rushed to start immediately on 1 January 1939, while the country increased its territory by 13 percent and its population by 12 percent (1.1 million) (Pietrzykowski 1939, 420-421). 64 Tt is important to note, however, that this system was discriminatory toward women workers, who were counted as two thirds of a full-time male employee (Pietrzykowski 1939). 6s The impact of this period on Hungarian society cannot be overestimated. As Zbigniew Brzezinski points out, a small country of about 9 million citizens suddenly gained over 1.5 million of new workers in just five years, 1949-1955 (Brzezinski 1967, 211-212, n. *).

104 Institutional Legacies, 1919-1989 major increase of coverage took place only following the 1956 anticommunist uprising. At that time social policy became a crucial element of the successful restoration of communist rule. By the mid-196o0s the regime of Janos Kadar not only initiated large-scale improvements in pensions, but also implemented the first widespread expansion and upgrade of social benefits for the agricultural population and introduced creative innovations in family programs. More than any other part of the welfare system, this combination of new and reconstructed cash benefits, which targeted working women, children, and the family as a whole, has been praised as the ultimate achievement of “socialist” social policy under the Kadar regime. Hungary occupies a special place among nations of East Central Europe as a country that developed a unique blend of short-term insurance benefits, including both the oldest and traditional forms of protection, and some of the most pioneering and advanced family policies. For most of the twentieth century, however, these schemes followed separate paths of institutional evolution and policy change, frequently guided by a rationale different than the rest of the welfare state. The most drastic transformation took place in the late 1960s, when the Kadar government created generous and universal citizenship entitlements to supplement the preexisting, traditional social insurance schemes for working mothers. During the last twenty years of communist rule, approximately from the mid-1g96os until the late 1980s, Hungary built an elaborate network of new and old, traditional family support schemes into a much more elaborate and modernized system of entitlements. The social policy reforms combined conventional maternity pay, still largely treated as an earned social insurance right, traditional family allowances administered and financed in separation from the general social security system, and new extensive provisions for working mothers. The latter represented an original mixture of childbirth grants, usually treated as a citizenship right, and two different kinds of child-rearing allowances paid from the social insurance budget only to women with a prior employment record of at least one year. The most famous and also the most popular of these benefits has been the child-rearing leave, known as “GYES” (Gyermekgondozasi Segély). Introduced in 1967, it provided a leave of two and a half years for mothers who wanted to take care of their newborn children at home. For the first six months women received full pay, and if they decided

to stay on leave for another two years (from 1969, two and a half years), they qualified for a fixed amount of assistance from the state budget (Haney 2002, 104). Symbolically and factually, the expansion of coverage peaked at the apex of political and economic stabilization under the Kadar regime in the mid-1970s. For the first time in the country’s history the new constitution of 1972 formally granted extensive social welfare rights to all citizens of Hungary.°° A few years later, the social insurance law of 1975 consolidated higher quality 66 The Polish and Czechoslovak constitutions of the 1920s already included such rights along with the political rights.

Hungary 105 pension, sickness, and family benefit programs into a single, unified system with similar regulations for all major occupational groups and their dependents (Ferge 1979). This legislation, however, failed to address one of the key problems of the Hungarian welfare state, that is, the lack of a permanent mechanism

for the long-term planning and short-term coordination and implementation of various social policy programs within a well-integrated institutional framework, similar to the one set up in Poland during the 1930s and in Czechoslovakia during the 1940s. The 1975 blueprint for the Hungarian welfare state appeared post factum, as a reaction to the political and socioeconomic consensus forged by the post-Stalinist regime of Janos Kadar. In other words, even though social policy ideas and concerns were very much a part of the New Economic Mechanism originated in the 1960s, no radical, new template for a wholesale redesign of the social safety net came forward fast enough to either remedy the past or

serve as a guide for the future institutional development. Instead, the major legislation of the Kadar era gave a stamp of approval to what had already been achieved in a piecemeal fashion since 1956 and temporarily brokered a truce between economic and social policy reformers (see Chapter 3).

Old Structures and New Policies: Failures of Institutional Modernization in Social Insurance

As we have seen above, from the very beginning the development of social insurance institutions in modern Hungary suffered from the lack of an elite consensus, and even outright neglect, with no forward-looking vision of a viable

welfare system acceptable to all major social and political groups emerging before or during World War II. Furthermore, none of the major players, the conservative or conservative/liberal nor their left-wing opponents, were either willing or able to break through with any comprehensive or bold social policy agenda that involved all major social insurance programs. In consequence, throughout the interwar period the underdeveloped Hungarian social insurance institutions experienced immense political and economic pressures from the economic ministries within the regime to employ the existing benefits and to design new ones merely as flexible policy instruments needed to address current needs. In these circumstances, the imperial structures and institutions, and especially the bureaucracies in charge of implementation of the key social insurance programs, evolved much slower than in Poland and Czechoslovakia, countries

where elements of independent statehood appeared for the first time only in 1919. Until the 1970s, all post-1919 Hungarian regimes, like their predecessors before World War I, focused almost exclusively on the most immediate and basic demands of the mobilized urban proletariat, increasingly radicalized not

only by the communists in the 1920s, but also by right-wing xenophobic and fascist parties in the 1930s, and again by the Stalinists in the 1950s. Furthermore, the Hungarian governing elites had neither the political legitimacy of the “Pietka” in Czechoslovakia or Marshal Pitsudski in Poland, nor the bureaucratic capacity of the Czech or Polish social insurance administrations of the

106 Institutional Legacies, 1919-1989 1930s and 1940s to launch a successful modernization of its pioneering welfare system in the interwar era or even immediately after World War II.

Etatisme versus Self-Government. Throughout the 1920s the liberal government of Istvan Bethlen maintained a fragile social peace with the support of the moderate socialists, formalized in the secret Bethlen-Payer pact, eventually made public in the mid-1920s. This truce came at a high price for the left, including demobilization of the unions and a wide ban on industrial strikes, but, as we have seen above, it also produced a few tangible benefits in social welfare. During the early 1930s, however, the industrial workers and other beneficiaries of the liberal social legislation who previously won meaningful concessions from the regime, including the preservation of some social gains achieved during 1919 revolution, lost both the existing and potential advocates of increased welfare rights within the executive branch. First, after Bethlen’s resignation in 1931 the increasingly authoritarian forces of étatisme in Hungary consolidated around the increasingly powerful office of the Prime Minister and the three powerful departments, the Ministry of Internal Aftairs, the Ministry of Industry and Trade, and the Ministry of Finance. Second, the Ministry of Welfare, which under the previous liberal government increased its stature during the preparation of the 1927-1928 social insurance laws in consultation with social policy experts, autonomous social insurance funds, and employers’ organizations, was abolished in 1932, following a corruption scandal (Kovrig 1979; Tomka 2003, 63; and Peter Bod interview, ro April 2003). Also, in 1930 the fragmented system of separate district funds merged into two central institutions, the National Social Security Institute (Orszagos Tarsadalombiztosito Intézet, OTI), in charge of workers’ health and pension insurance, and the Social Insurance Institute for Private (Salaried) Employees (Maganalkalmazottak Biztosito Intezete, MABI). Under this more consolidated system the Ministry of Internal Affairs could exercise better political supervision, while the Treasury maintained tight control over social spending, refusing to increase the mandatory state subsidy from 2 percent to 5 percent, as envisioned previously by the laws of 1927-1928 (Tomka 2003, 61-63). Nonethe-

less, it must be noted that in interwar Hungary not only the social insurance administration but also political control was not nearly as effective or complete as in Poland under the Sanacja regime. The new Hungarian laws still permitted immediate organization of self-government within MABI and OTI, and numerous independent compulsory and voluntary company and mutual social insurance funds continued to operate under separate, more flexible rules throughout the country. Therefore, the evidence of growing government involvement in social insur-

ance throughout the 1930s should not obscure the fact that the tradition of social insurance self-government remained very influential in Hungary for many decades under different political regimes to much greater degree than in Czechoslovakia and Poland. The old Hungarian/Bismarckian model of democratic, autonomous social policy remained alive for a surprisingly long

Hungary 107 time. Despite authoritarian tendencies and the growing role of the state bureau-

cracy in social policy making, the autonomous model resurfaced already in 1929, after ten years of suppression following the revolutionary upheaval of Bela Kun and the counter-revolutionary upsurge of the early 1920s. Thereafter,

the elected social insurance boards, with representatives of the workers and employers, continued to function through the late 1940s (Tomka 2003, 62) until they again became a political target, this time of the Stalinist regime of Matyas Rakosi. In short, in the absence of a clear alternative presented by the weak central government, representatives of the decentralized social insurance institutions were able temporarily to negotiate for themselves a return to the old, autonomous funds that traditionally coexisted well with the semi-authoritarian political regime. In 1944-1945, as the Red Army entered the country in pursuit of the Nazis,

the Hungarian communist and socialist activists engineered a revolutionary takeover of the social insurance funds, most prominently OTI and MABI (Bod interview, ro April 2003), in a manner strikingly similar to the events of 1919 under Bela Kun and to the situation in Czechoslovakia in the late 1940s. Once

the communists consolidated their grip on the Hungarian state bureaucracy, however, the independent self-governments disappeared again after only two years in existence. Repeating the authoritarian practices of the previous regimes,

the top economic and power ministries seized full control over social policy planning and implementation. Officially, in 1949 the communist-run trade unions still controlled the unified OTI and MABI and absorbed their elected boards, but at the same time the most loyal, Stalinist leaders of the social insurance self-governments moved into top positions in the economic bureaucracy,

including the important post of the Ministry of Finance (Bod interview, ro April 2003). Meanwhile, the Ministry of Welfare, which reappeared for a brief period of time after World War II, again became a weak and largely symbolic institution until its elimination for the second time in 1952. Since the 1950s, in accordance with the Soviet model, the Hungarian trade unions ran a decentralized administration of pensions, sick pay/maternity, and family benefits. Paradoxically, in terms of the organizational structure, until the mid-1960s in many ways this model resembled the interwar system, except for the absence of democratic elections to the governing boards. The Hungarian

Stalinists never really gave much priority to the task of adopting the Soviet system of social insurance and instead let the old system simply deteriorate, as all its resources were poured into the economic development at breathtaking speed. Thus, after 1956 social policy experts found it relatively easy to revive

the preexisting structures, run by the trade unions during 1945-1949, without much need to rearrange the additional administrative layers, as was the case in Czechoslovakia and Poland. Only in the 1964, the National Council of the Trade Unions (SZOT) and the Social Security Center of the Trade Unions (SZTK) relinquished their shared responsibilities for all social security programs to one Central Administration of Social Security (SZOT Tarasadalombiztositasi Foigazgatosaga), which actually never played such a prominent role as similar

108 Institutional Legacies, 1919-1989 organizations in Czechoslovakia or Poland. Thus, during most of the communist rule trade unions became de facto welfare bureaucracies (Tomka 2003, 63; Szelenyi and Machin 1987, 125). In accordance with the practice established already in the interwar period, employers also continued to play an important role in this system, because they kept the records, made the final decisions as to who received benefits, and calculated the appropriate payments (“Zasitki rodzinne na Wegierskiej” 1960, 54). The 1975 reform retained the existing decentralized administration until the creation of a Hungarian equivalent of the Polish ZUS, the National Central Administration of Social Security (OTF) in 1984. Yet, as opposed to the ZUS, which was subordinated directly to the Minister of Labor and Social Policy, the OTF fell under direct political and administrative supervision of the Council of Ministers (Tomka 2003, 63; Goralska and Wiktorow 1988, 92). As was the case in Poland in the same period, during the late 1940s Hungarian social insurance funds lost most of their reserves and the country converted to pay-as-you go financing. In accordance with the Stalinist model and the rest of the communist region, from 1950 the state budget absorbed all remaining independent funds into one common category of social spending. This reform

also included the introduction of a unified nationalized health system under the newly created Ministry of Health. Nonetheless, after the government of the reformist Prime Minister, Imre Nagy, rejected the rigid methods of Soviet-style

industrialization in 1954, Hungary again reinforced some elements of traditional social insurance in the area of pensions and other benefit programs. In fact, throughout the communist period Hungary remained the exception as the only Soviet bloc country to consistently maintain some form of separate individual payroll taxes for social security purposes. At the end of communist rule the latter amounted to 3-15 percent for employees (paid on a progressive scale in accordance with wage levels) and 40 percent for employers (Goralska and Wiktorow 1988, 69). Yet at the same time, in the absence of a welfare ministry as a potential powerful advocate for different welfare state constituencies, the Ministry of Finance maintained exclusive control over the unified social security budget and the levels of contributions, leaving the party channels, social policy experts, and unions as the only potential conduits for political pressure on behalf of the benefit recipients (Ferge 1979).

The basic organizational structure of welfare state financing in Hungary began to change only in 1989, shortly before the end of communist rule, when in conjunction with the 1988 tax reforms, the social security budget became

a separate entity under the direct control of the Council of Ministers (Bod interview, 10 April 2003). This reform represented the beginning of a major effort to modernize the Hungarian welfare state in the midst of a major political

and economic crisis and in conjunction with the radical decision of the last communist government to privatize large sections of the Hungarian economy. I discuss the policy legacies of this period and their long-term sociopolitical consequences in the next chapter, but we must conclude that undoubtedly, up to this moment the absence of the previously adopted institutional “blueprint”

Summary: Institutional Legacies Log TABLE 2.11. Adoption of the First National Social Insurance Laws and Major Benefit Programs in Czechoslovakia, Poland, and Hungary (year of adoption and program age in 2004)

Czechoslovakia Poland Hungary

Sickness and maternity 1919 (85) 1919 (85) 1891 (113)

Pensions (workers) 1928 (76) 1933 (71) 1928 (76)

Family benefits 1945 (59) 1947 (57) 1938 (66)

Work injury 1928 (76) 1933 (71) 1907 (97) Unemployment 19227 (1942) 1924° 19544 “ Limited coverage — closed shop/Ghent system in the interwar period.

’ Under Nazi administration, abolished in the 1950s. © Abolished in 1949.

4 Minimal impact under employment conditions, 1954-1989.

and a clear ideational guide made the future development of the welfare state in Hungary especially difficult and inherently contradictory. SUMMARY: COMPARISON OF INSTITUTIONAL LEGACIES AND DEVELOPMENTAL STAGES OF THE CZECHOSLOVAK, POLISH, AND HUNGARIAN WELFARE STATES

Our detailed comparative-historical analysis of the institutional development of the three welfare states in East Central Europe before 1989 leads us to four major conclusions. First, the so-called institutional and normative blueprints have played a major historical role in this process, but they cannot be easily classified as “critical junctures”; each of them served as a main guide or reference for decision makers and reformers but by itself did not create any “deep equilibrium” (Pierson 2004) that in turn could lead to a more stable, consolidated model of the welfare state. Second, as we have seen, the three wel-

fare states have differed substantially not only in terms of program adoption and age (see Table 2.11) but also in terms of benefit equity in social insurance provision. But this distinction seems not to derive so much from the welfare doctrine itself (as defined either by the normative blueprint or the ideology of a political regime) but rather could be traced back to conjunctures or temporal linking or delinking of the timing of crucial historical events. In this instance we should focus especially on the timing of two events, the adoption of a major institutional blueprint and the completion of social insurance coverage in each country. Third, in all three states we can identify a combination of the same two kinds of early institutional legacies (initial institutional choices) of the interwar regime that were reproduced during the communist period, namely, the type of decision-making structure in the area of social policy and the type of social insurance bureaucracy. The former varies across countries in terms of the level of concentration of decision-making power and its major location, either in the ministry of welfare or outside it. The latter concerns the difference in the

Ilo Institutional Legacies, 1919-1989 extent of administrative centralization. A particular combination of these two legacies, in turn, appears to have had a long-term impact on institutional coherence and stability of the welfare state. Finally, the fourth conclusion points to the pivotal role of temporal sequencing of the five key stages of institutional evolution of the three welfare states, spanning the formative years from the time of national independence to the completion of coverage in each country at various periods in time. Sequencing seems to have had crucial influence on the adaptability of the preexisting welfare state institutions of the interwar period to the institutional structure of state socialism imposed on each country by the Soviet Union during the 1950s. What I have in mind specifically is the nature and the consequences of the rearrangement or re-combination of layers 1-3 in Figures 1.1 and 1.2, presented in Chapter 1 (i.e., the transformation of the interwar welfare state into the “communist” welfare state). Institutional Blueprints

As we have seen, the comprehensive blueprints of the Czechoslovak, Polish, and Hungarian welfare states merit close scrutiny as potential sources of institutional and policy variation within East Central Europe because they were drafted in each of the three countries under a different type of political regime and under the influence of distinct welfare ideologies or doctrines. In Czechoslo-

vakia, to be precise, the National Insurance Act of 1948 was prepared by the semi-democratic, socialist regime that included the communists, who in fact formally adopted the same legislation just weeks after they seized full power in a carefully orchestrated “bloodless” coup. Poland’s “blueprint,” in contrast, was adopted earlier, before World War II, by the semi-authoritarian government that practically banned all political opposition and increasingly concentrated political and economic power in the executive institutions of the state (the Sanacja

regime) during the 1930s. In Hungary it was only in 1975 when a major unifying social insurance law was passed under the communist, but by now more liberalized government of Janos Kadar (see Table 2.12).

According to a conventional, path-dependent model, each of these blueprints, and especially the Czechoslovak and Polish ones, could possibly be construed as a “critical juncture” in the historical development of the three East Central European welfare states. The tormer aimed at creating a “socialist/ syndicalist” type of welfare state through a radical “revolution” carried out by the trade unions. The latter attempted to institutionalize a new form of state paternalism through gradual, conservative evolution of all major forms of income maintenance. The Hungarian case, however, would be much harder to explain in this mode. The 1975 legislation represented “accelerated modernization” or a post factum confirmation of the reinvented “communist” welfare regime upgraded and expanded during the 1960s in reaction to the excesses and the eventual collapse of its Stalinist predecessor, rather than a forwardlooking plan of action reminiscent of the Czechoslovak or Polish legislation. A more significant problem with focusing on “critical junctures” or ideological

Summary: Institutional Legacies III TABLE 2.12. Comparison of the Major Normative Characteristics (Principles) of the National Welfare States in Czechoslovakia, Poland, and Hungary

Czechoslovakia Poland Hungary I. Institutional blueprint 1948 1933-1935 1975 Regime type Semi- Semi-authoritarian Communist

democratic?’ (Sanacja) (Kadar’s market

(socialist-interim) socialism)

path evolution modernization Planned developmental —_ Radical change Conservative Accelerated

II. Normative blueprint — Socialist State paternalism Paternalistic

(welfare doctrine) syndicalism “societal policy” Historical influence of Strong Weak Moderate egalitarian tendencies (emphasis on relative equity of benefits among major occupations) “ In Czechoslovakia the legislation was prepared under an elected, semi-democratic regime but implemented several weeks after the February 1948 communist coup.

differences alone, however, is that in this way we cannot fully explain such important phenomena as the substantial divergence in long-term egalitarian tendencies between Czechoslovakia, on one hand, and Poland and Hungary, on the other. Also, this approach would hardly account, for example, for the existence of a significant variation between Poland and Hungary in the sphere of benefit equity or for the periodic reversals of organizational restructuring of different programs and across various time periods within Czechoslovakia under the communist rule. In addition, a conventional analytical framework that emphasizes “critical junctures” leaves out other potential key elements of the historical evolution of the welfare state that cannot be easily rendered as singular temporal events, such as the uneven and inconsistent expansion of coverage to all major segments of society. In this instance we are dealing with a complex cumulative process

that unfolds along several dimensions: quantitative, qualitative, and, first and foremost, temporal. Indeed, the achievement of nearly complete social insurance coverage is the key marker in a historical process that is extremely hard, if not impossible, to reverse regardless of the regime type or the actual amount of resources committed to particular social programs (see Wilensky 1975; Flora and Heidensheimer 1981; Castles 1986). Next to the indicators of social spending, this is also one of the main indicators of the “maturity” and consolidation of industrialized welfare states. Yet it matters not only how many citizens or groups of employees were covered and how they were covered, but also when, at what cost, and under what circumstances this process started, evolved, and

112 Institutional Legacies, 1919-1989 finally came to an end, granting the last major cohorts of employees full benefit rights. As we have seen, all three countries differ greatly in this regard. As Table 2.12 shows, our Hypothesis One, regarding the crucial impact of

the timing of the first introduction of the basic institutional blueprint of the welfare state on benefit equity, is largely confirmed but requires some major corrections. As shown in the case of Poland, the early (interwar) adoption of an institutional blueprint under a semi-authoritarian regime, with a statepaternalist welfare doctrine and an emphasis on conservative evolutionary path of development, produces a welfare state with weak egalitarian tendencies. This finding confirms the conclusions of previous research that emphasized the longterm endurance of the continental European welfare states with Bismarckian characteristics (Flora and Heidenheimer 1981; Bonoli 1997). In contrast, later (postwar) acceptance of the institutional blueprint clearly contributes to strong egalitarianism in the long haul, as demonstrated in the analysis of Czechoslovakia. We must also take into consideration, however, the fact that this adoption took place under a semi-democratic and socialist/syndicalist regime, with a radical agenda for change, but still before the full imposition of a Marxist-Leninist (Stalinist) regime. The latter, in its early reincarnation in the 1950s, actually proceeded to institute a Soviet model of a deeply inegalitarian (and much less developed) welfare state. Finally, as shown in the Hungarian case, a much delayed, later acceptance of the defining social policy legislation under “advanced” state socialism with a paternalistic welfare doctrine led to more mixed results — that is, the gradual incorporation of moderate egalitarian corrections into the traditional Bismarckian system of social insurance benefits. Thus, as predicted, the egalitarian adjustment can eventually happen in the former communist countries that adopt their major welfare state blueprints much later, in the second half of the twentieth century, but as we will see in Chapters 3 and 4 this type of reform path is also much more difficult to sustain in the long run. Timing of Key of Historical Events Table 2.13 A presents a summary and comparison of the major, temporal dimensions of institutional development (institutional legacies) of the national welfare states in East Central Europe as surmised on the basis of our historical investigation so far. The first dimension involves two crucial historical events, the adop-

tion of the institutional blueprint and the completion of social insurance coverage understood as the extension of pension, sickness/maternity, and family/ child-care benefits rights to all major groups of employees. The former event is marked by a specific year of adoption, in the Polish case involving a span of a few years, and the latter is designated by a decade when coverage expansion was largely completed through a final series of governmental laws and regulations. It appears that Hypothesis Two, regarding the conjunctures or linking of the timing of adoption of the institutional blueprint and the timing of the completion of social insurance coverage and its association with greater equity of benefits within the welfare state is also confirmed. Despite well-documented

Summary: Institutional Legacies 113 TABLE 2.13A AND B. Summary and Comparison of Major Dimensions of Institutional Development (Institutional Legacies) of the National Welfare States

in East Central Europe

Czechoslovakia Poland Hungary A. Causal “Conjunctures” (Timing of Key Historical Events)

I. Timing of institutional 1948 1933-1935 1975 blueprint?

II. Timing of the 19408 1980s 1970S completion of social insurance coverage

Outcome: Egalitarian trends Inegalitarian Egalitarian

trends adjustments

B. Combined Institutional Legacies of the Interwar Regime (I + II)

I. Type of Highly Highly/moderately | Moderately

decision-making structure concentrated concentrated concentrated

in the area of social policy

Location Welfare Ministry Welfare Ministry Interior and/or Finance Ministry

II. Type of administrative | Moderately Heavily Decentralized centralization (of social centralized centralized insurance bureaucracy)

Location Central social Single central Multiple agencies insurance agencies agency (ZUS) and union bodies and/or centralized union bureaucracies Outcome

Institutional coherence of | High Moderate/high Low

the welfare state

4 Major law unifying preexisting social insurance legislation. In Poland, a series of bills passed from 1933 to 1935.

historical differences in the Czechoslovak and Hungarian traditions and welfare doctrines, linking of the institutional blueprint and the completion of coverage within the same temporal context eventually tends to produce more egalitarian outcomes in both countries or, more precisely, results in greater equity in benefit coverage among the major occupations and groups within the main social insurance programs. In contrast, the Polish case, which is much closer to Hungary than Czechoslovakia in terms of interwar Bismarckian legacies and ideational traditions of state paternalism, demonstrates the lingering power of inegalitarian trends stemming

from the large gap between the timing of blueprint adoption and the actual completion of coverage in the country. Admittedly, a small-N study such as this one cannot offer a sweeping generalization on the causal effects of this

114 Institutional Legacies, 1919-1989 type of conjuncture, but we will revisit the problem of timing once again in a more detailed analysis of social policy legacies in the next chapter by analyzing parallel developmental tracks of pension policy, sickness policy, family policy, and so on in each country. This type of examination of “multiple institutional realms” (Pierson 2004, 134-135) of the political and social policy regimes can help us discover the full range of effects of historical legacies over time. The second major dimension, presented in Table 2.13B, highlights the significance of initial institutional choices that each country made during the interwar period. The two legacies, the type of the decision-making structure in the area of social policy and the type of administrative centralization, deserve special attention because they have been reproduced historically in a remarkably stable and consistent manner. As our Hypothesis Three stipulates, we should expect that

the early adoption of a highly concentrated decision-making structure, firmly anchored in one central governmental agency (such as a welfare ministry), in combination with a centralized social insurance bureaucracy (a single agency with overarching responsibilities) would lead to high institutional coherence of the welfare state, while any other combination of a less concentrated decisionmaking structure and/or a decentralized social insurance administration would work to undermine such cohesion over time. Indeed, our historical analysis of institutional development of the Czechoslovak welfare state suggests that a combination of a high concentration of decision-making power and at least a moderately centralized type of social insurance bureaucracy produced relatively high levels of cohesion and long-term stability. This stability was firmly anchored in the national welfare ministry that effectively utilized centralized trade unions as its bureaucratic muscle. In Poland, moderate to high concentration of decision-making power prevailed during most of the twentieth century. Linked with heavily centralized social insurance bureaucracy it also contributed to the maintenance of a relatively stable institutional structure over time, at least in terms of the preservation of the core political/administrative nexus of the welfare ministry and the ZUS under different political regimes. Paradoxically, as we see later in Chapters 3 and 4, in the birthplace of Solidarity, even at the apex of the labor’s independent strength and influence in the early 1980s, trade union organizations played only a symbolic and indirect role in shaping social policies and the institutions of the welfare state. Moreover, except for a brief period during the early 1960s when the official unions successfully pushed

for the reconstruction of the ZUS, even their formal function as an important administrative arm of the communist state remained much more subordinated to the ministry of welfare than was the case elsewhere in the Soviet bloc. This aspect suggests a lingering impact of interwar legacies when the ministry acted as a leading governmental institution in the process of state building and policy making. In Hungary, moderate or rather low concentration of decision-making power over social policy under different regimes coexisted, for the most part, with a fragmented and decentralized social insurance bureaucracy. In the long run this situation led to low cohesion and instability of the welfare state as a whole. As

Summary: Institutional Legacies 115 concerns the organization of the social insurance system in the interwar period, Poland took the early lead as a “modernizer” of social insurance bureaucracy, creating the most unified and effective administration of all major programs already in the 1930s. In contrast, the Hungarian system remained highly fragmented and decentralized throughout the twentieth century. Also, in Hungary trade union organizations gained a measure of influence during the communist era but only until the late 1970s, when again social policy increasingly came under the traditional forms of control not by a welfare ministry but rather by the Ministry of Finance and or more directly by the Council of Ministers. Timing is also a significant factor in the analysis of the initial institutional choices, but only to the extent that it indicates the origins of institutional legacies in a particular historical context — that is, the interwar period — and helps to illuminate the early stages of the formation of national welfare states. We must also emphasize that all these legacies have been successtully reproduced under different political regimes through /ayering but also partial conversion. For example, in communist Czechoslovakia designated segments of trade union bureaucracy became de facto welfare bureaucracies and in Hungary various economic ministries periodically took over control over social insurance. Furthermore, as we have seen in all three countries, each period of regime change or periods of attempted structural reform created opportunities for renegotiation or rearrangement of terms and details of these arrangements but without undermining the basic continuity of their path-dependent development in time. Historical Stages of Institutional Development of the Three Welfare States

Table 2.14 presents a summary of the historical paths of institutional development of the welfare state in Czechoslovakia, Poland, and Hungary during the long, formative period of the welfare state, that is, before the completion of coverage in each country. These paths are broken down into five distinct stages, starting with the imperial origins. Each path reflects several common legacies, most importantly the establishment of the compulsory, autonomous social insurance funds and state entitlements according to the Bismarckian model of the late nineteenth century. Among other crucial similarities we might also include the revolutionary disruptions of the institutional status quo in Hungary and Czechoslovakia, in 1919 (1945) and 1948, respectively (with different results), and also the periods of Nazi occupation in Poland and Czechoslovakia (again producing significantly different outcomes in each country). Yet despite these similarities and the fact that each of the three countries experienced periods of relatively independent self-government in social insurance after World War I, their developmental tracks diverge in significant ways in terms of the timing and sequencing of welfare state reforms. As we have seen earlier, the timing of the adoption of the first comprehensive, national social insurance legislation appears to have great importance in regard to the type and the quality of particular programs. At this point, we focus on the extent to which the original Bismarckian foundation of social insurance

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Summary: Institutional Legacies I17 was transformed before the consolidation or maturation of the welfare state under communist rule. As we recall, Hypothesis Four stipulates that we should expect a particular temporal sequencing of institutional evolution before the completion of coverage to have a considerable impact on long-term adaptability of the original imperial (Bismarckian) institutions of the welfare state to the institutional structure of state socialism. Table 2.14 shows, for example, that Czechoslovakia experienced the most profound and extensive change during this period. Before the advent of Stalinist rule in 1948 its social insurance system was shaped by the alternating sequence of two types of reforms: “social democratic,” favoring extensive and uniform coverage for all workers and the poor, and “liberal,” advocating numerous voluntary insurance schemes for the middle class. In short, the formative years of the Czechoslovak welfare state can be summarized as a sequence of Stage I, a social democratic reform, Stage II, a mixed social democratic and liberal reform, with the emphasis on the latter, and finally Stages III and IV, a social democratic reform with diminishing liberal elements in the form of additional voluntary insurance funds. I argue that this particular sequence of reforms sufficiently altered the original Bismarckian structure of the early welfare state to allow for greater compatibility between the imposed political and economic institutions of state socialism, on one hand, and the inherited social policy institutions, on the other. In Poland, the original Bismarckian structure of social insurance remained basically intact as the government struggled to create one nation-state out of three separate imperial provinces. Stage I (autonomous period), however, was followed relatively quickly, by the three successive stages of reforms that limited and eventually eliminated independent social insurance institutions, Stages I-IV, which include the autonomous-administrative period of 1933-1939, followed by the Nazi occupation under the same basic system heavily curtailed by the Germans, and ending with the final consolidation of the centralized system of social insurance under communist rule. In the long term, however, during the communist period this developmental sequence produced only a moder-

ately well-adapted welfare state. First, it is true the institutional core of the social insurance system, based on the welfare ministry and the ZUS, eventually

became integrated into the Stalinist and post-Stalinist structures of political decision making and social planning, but only after a long process of conflict and adjustment. Second, many Bismarckian elements had survived Stage II reforms under the Sanacja regime and eventually became part of the postwar welfare state, serving as an additional break on any radical transformation of the safety net during the period of communist rule. Finally, Hungary had maintained its original, Bismarckian/imperial institu-

tional structure the longest of all three countries. After a very brief Stage I, when the communist/socialist activists failed in their efforts to expand social insurance programs radically, the country experienced a slow path of restoration, then conservative expansion/stagnation, followed by reconstruction and growth (Stages II-IV). This time period included some important reforms and institutional innovations, most notably in family support, but fell short of a

118 Institutional Legacies, 1919-1989 major overhaul of the original system. As we have seen above, this particular developmental sequence seems to have prepared the country rather poorly tor a smooth merger of the Soviet-style political and economic institutions with the inherited structures of an underdeveloped welfare state of the interwar period. Rapid deterioration and near collapse of the safety net during the early 1950s as well as later, prolonged, and complicated attempts to integrate the reconstructed Bismarckian programs with the new types of family policy under the Kadar regime serve as the best illustration of this problem. As further analysis of individual benefit programs will show, Hungarian policy makers continued to struggle with this predicament until the end of state socialism nd beyond. The next chapter focuses on the impact of policy legacies and especially on the cycles of social policy expansion, crisis, and reform, and also on their long-term significance for welfare state development under communist rule during 19451989. This type of comprehensive explanation requires a detailed, longitudinal analysis of the development of individual social insurance programs, pensions, sickness benefits, family allowances, and child-care payments in each of the three countries.

3

Policy Legacies and Welfare States under Communism

Cycles of Social Policy Expansion and Retrenchment in Czechoslovakia, Poland, and Hungary, 1945-1989

POLICY LEGACIES AND THE “COMMUNIST” WELFARE STATES IN EAST CENTRAL EUROPE

Our cross-national comparison of institutional development of the Czechoslovak, Polish, and Hungarian welfare states revealed the significance of institutional legacies of the imperial period during their early, formative years. It has also illustrated the ways in which these legacies are reproduced over time under the influence of national “blueprints” and in conjunction with major changes in political regime. This chapter presents a longitudinal analysis of the historical development of the major social insurance programs, pensions, sickness/maternity benefits, family allowances, and child-care payments in the three countries during the communist period. It aims to further expand our inquiry to uncover relevant continuities and discontinuities in government decision making. Moreover, this kind of disaggregated examination of historical trajectories

of social insurance benefits enables us to better map, analyze, and compare individual “developmental paths” of the East Central European welfare states in a broad economic and sociopolitical context. These systems of social protection seem to have evolved in distinctive stages of retrenchment and expansion that often corresponded to the cycles of major crises of the polity and economy; as such their development contrasts with the conventional, linear trajectory of western welfare states, that is, one leading from the common “imperial” origins through periods of rapid postwar expansion to retrenchment or reform in the post-industrial era of economic austerity and globalism. As we recall, in this study recurring patterns of government action in the sphere of welfare state (and more specifically social insurance policies) that produce lasting effects over time are classified as policy legacies. A comparative analysis of historical changes in the quantity (social policy expenditure) and quality (equity, replacement of earnings, etc.) of different benefit categories allows us to recognize winners and losers in the governmental distribution of social insurance resources and to track the long-term impact of distinct policy

Il9

120 Policy Legacies under Communism, 1945-1989 legacies in each country. From the 1950s on, in East Central Europe policies regulating social payments in cash such as pensions, sickness/maternity support, and family/child-care allowances increased in importance as major elements of governments’ welfare agendas, and became especially pertinent at the time of various political and socioeconomic crises. Thus, the examination of the period of communism brings to light the accumulated, historical experience of crisis management as arguably the most critical element in the process of reproduction of social policy legacies in the region.

Policy legacies have been transmitted historically by elites, that is, small sroups of individuals, including government officials and social policy experts

who not only participated in routine decision making on a daily basis but also played important roles in managing various crises and reform attempts that followed. During the communist period these legacies were carried over from one government to the next through the combined mechanisms of “policy learning,” “positive feedback,” or “self-reinforcement” (Pierson 1996, 2004). As Paul Pierson notes, in politics, learning, understood as a process of “trial and error,” is “far from automatic” and “cannot be assumed to occur” (2004, 38). Yet by focusing more specifically on the paramount impact of state actors in the process of policy formation in Europe, Heclo (1974) supplies powerful evidence of the pivotal role of “learning” in shaping early social insurance policies that takes place within small decision-making communities. While analyzing policy legacies of the welfare state in the East Central European region, dominated by étatisme that was further enforced by decades of Leninist rule, we might find it even easier to justify narrowing the relevant definition of a “community of discourse”' to only a section of the larger polity encompassing a relatively limited group of decision makers and policy experts. Also, in line with Pierson’s argument, we ought to consider expanding the notion of the mechanism of reproduction to account for a host of interrelated temporal processes. In case of East Central Europe this includes the examination of periodic, cumulative and sequential reinforcement of preexisting capacities, that is, knowledge, experience, bureaucratic know-how, or expertise in dealing with recurring social policy emergencies. Thus, the first goal of this analysis is to explain the considerable variation across different policy areas within each country at different points in time. The second goal is to classify and compare separate developmental paths of each welfare state on a more general level. We must add, however, that the lasting impact of policy legacies is also highly contingent on the type of decision-making structure in the area of social policy and the type of organization of the social security administration (see Chapter 2, Table 2.13b). Thus, in essence throughout all of the twentieth century institutional legacies and policy legacies should be viewed as two distinct but also closely linked realms of the historical development of welfare states.

™ For a recent discussion of this concept in the Western European context, see, e.g., Schmidt 2002.

Policy Legacies of Communist Welfare States I21 Common Legacies of Adaptation to Leninist Rule and the Stalinist Command Economy

From the early days of communist rule East European social policy experts, most of whom had worked in the area already during the interwar period,” faced an inherently contradictory task of trying to reconcile Marxist-Leninist theory and the practice of state socialism. Many of them, for example, the socialist authors of the Czechoslovak reform of 1948, optimistically assumed that under the new regime a uniform socioeconomic plan would coordinate all necessary social benefits and make it easier to effectively implement long-term designs for multifaceted societal development. Stalinist ideologues and bureaucrats, however, envisioned a much more rigid and considerably less generous welfare state for postwar Eastern Europe. This vision derived from three general assumptions. First, elimination of unemployment and aggressive mobilization

of labor resources from all strata of society would give full social insurance rights to virtually every citizen with a solid work record. Second, because under new social conditions the great majority of citizens would support themselves and their families on income from employment, and those unable to work — the elderly, sick, disabled, and so on — would increasingly rely on a variety of collective social services and subsidies, traditional social insurance payments would become less costly and less urgent politically. Finally, a centrally planned economy would automatically simplify and reduce the bureaucratic apparatus of the welfare state without compromising the efficiency of social policy. The new social policy doctrine, officially adopted throughout the Soviet bloc by the late 1940s, drew inspiration from Karl Marx’s Critique of the Gotha Program, the Leninist notion of social-insurance as an effective weapon in workers’ struggle against capitalism, and the Stalinist principle of social justice defined by the slogan “to everyone according to his work.” The Gotha Program proposed a discernible hierarchy of socioeconomic goals for a future socialist society, based on a simplified division of the product of labor into production and consumption funds. At the bottom of the consumption allocation Marx placed “the

funds for those unable to work, etc.; [i.e.] “what is included under so-called official poor relief today.” He explained this rudimentary treatment of social welfare with a prediction that the future, postrevolutionary society would tend to rely more and more on the “common satisfaction of needs, such as schools, health services, etc.” (Marx 1977, 567). In short, in failing to anticipate the invention and rapid diffusion of mandatory social insurance among the emerging industrial societies, the founder of communism treated social benefits for

those “unable to work” mainly as a residual and static category within the broadly conceived consumption fund for the proletarian masses. * In 1945 in all countries the communist-led regimes took over the existing social insurance institutions along with the surviving personnel and expertise in running the welfare state. 3 Marx published his work in 1875, and the first large-scale mandatory social insurance program was established in Germany in 1885.

122 Policy Legacies under Communism, 1945-1989 In contrast, Lenin, the Bolsheviks, and their communist followers in Eastern Europe could hardly ignore the new reality of the emerging capitalist welfare states since the early 1900s. Unlike their socialist rivals who had quickly incor-

porated autonomous social insurance into their vision of the future socialist state, the communists saw this problem mainly as the tactical one. They considered social policy as an important, but secondary political issue to be exploited in the struggle for the ultimate overthrow of capitalism. Leon Trotsky, Lenin, and other Bolsheviks, for example, exploited the social insurance movement during the 1905 revolution in St. Petersburg to gain more recruits for the party and to create territorially based institutions, ideologically committed to the revolutionary struggle against the preexisting, legal structures

of the “bourgeois state” (see Ewing 1991). But after they seized power in 1917, for the most part they began to promote the more diffuse idea of benefits in kind, distributed within workers’ collectives, rather than individual cash payments (see Madison 1968). Thus, from the Leninist perspective, once the communist parties consolidated their monopoly on power in Poland, Czechoslovakia, Hungary, and elsewhere in Soviet-occupied Europe after 1945,

the political function of autonomous social insurance institutions became redundant. Following Moscow’s example, from the late 1940s and early 1950s, the East European regimes officially embraced collective forms of consumption and called for a strict accounting of social insurance as “reward for hard work” rather than a hard-won social privilege of the working masses, as it had been portrayed before by the socialists and communists alike. Conveniently, in the early postwar years the Soviet policy doctrine of the 1930s seemed to fit very well with the strategy of rapid industrialization, collectivization, and, above all, the newly adopted Stalinist structure of command economy. Under the Stalinist system, social benefits of all kinds became de facto derivatives of the specific type of economic planning, which favored particular occupations, especially

heavy manufacturing, and linked different forms of social assistance to the actual labor record of individuals and employee groups, rather than to insurance contributions or need. In these circumstances sharp reductions of government funding for traditional social benefits implemented across the region in the late 1940s and early 1950s were portrayed as the logical consequence of socialist development based primarily on the maximum mobilization of labor. As one Polish party official explained at the time: (1) Socialism by its very nature, as the system ruled by the proletariat, eliminates poverty and misery and gives everyone the right to work, (2) socialist state implements the idea “to each according to his work” in combination with another fundamental principle: “who does not work, does not eat.” This principle guides the scope of social welfare activity — only those who are unable to work because of a reason particular to each individual (invalidism, sickness etc.) are eligible to receive government assistance, (3) “social-insurance programs are supposed to serve not as a supplement but a replacement of (state and private) welfare assistance for the poor.” [Because] “in a socialist system social insurance .. . becomes universal, government public assistance loses its purpose

Policy Legacies of Communist Welfare States 123 and for all practical purposes ceases to exist.”4 (Archiwum Akt Nowych, Polish State Archives, Warsaw 237/xxvill-2, I-10, [1949]) (my translation, emphasis added)

Yet, in practice, for over four decades after 1945 the communist planners had to come to terms with the fact that “the task of building Communism is complex” and “human inventiveness and initiative must complement the broad ideological framework” (Brzezinski 1967, 53). In fact, for over forty years East European economies functioned in a highly unstable environment of “soft budget constraints” (Kornai 1980), constantly shifting planning targets and extreme politicization of decision making, undermining any meaningful long-term and coherent vision of social policy. This contradiction between the theory and practice of social policy under communist rule, and a lack of a single suitable or workable model of the welfare state for the “people’s democracies”

of Eastern Europe after the war, repeatedly undermined various attempts to modernize social insurance programs in Czechoslovakia, Poland, and Hungary from the late 1950s until 1989. Pension Policy

Under state socialism, pension insurance underwent the most dramatic transformation, growing from the marginal and low-cost schemes of the late 1940s to the most politically salient and expensive social benefits of the late 1980s. In more than three decades pension expenditures in Czechoslovakia, Poland, and Hungary jumped from 1-3 percent of the GDP to ro-15 percent, with a about a quarter of the population receiving some kind of old-age or disability payment. On the surface, this phenomenon appears to have a rather straightforward explanation. In the first decade after the communist takeover, pension insurance programs had been around for a relatively short time in all countries. The number of beneficiaries in these new schemes was small and coverage was limited, excluding the majority of the population living in agricultural areas, especially in Slovakia, Poland, and Hungary. But since the 1950s, creation of a virtually full employment economy automatically extended pension coverage to millions of new workers in the growing nationalized industry, expanding government bureaucracy, and gradually also in state-owned farms and collectivized agriculture. Then, beginning in the mid-196o0s, hundreds of thousands of persons with substantial work records under communist rule began to retire, increasing the ranks of pension recipients and requiring more social expenditures. On closer scrutiny, however, we must recognize the existence of large discrep-

ancies in the patterns of growth in pension spending among Czechoslovakia, Poland, and Hungary. For instance, Czechoslovakia reached a high pension 4 Until 1990, welfare assistance for the low-income population in Poland was governed by the 1923 law, which relegated most of the responsibility to the local communities. But under the centralized communist system of administration of the early 1950s, government public assistance was drastically scaled down and shifted to the jurisdiction of the Ministry of Health.

124 Policy Legacies under Communism, 1945-1989 expenditure level of about 7 percent of the net material product (NMP) already in 1960, but the latter two countries matched this figure only twenty years later. Low pension spending in Poland could be partly explained by demographics, because during the communist rule this country showed one of the lowest pension dependency ratios in the Soviet bloc (see Goralska and Wiktorow 1988) and lower levels of urbanization, even after the large postwar industrial expansion. Nonetheless, the difference between Czechoslovakia and Hungary, two smaller countries with similar numbers of rapidly aging and largely urban populations, cannot be accounted tor by demographics and socioeconomic factors alone. For example, from the early 1960s to the early 1980s Czechoslovak pen-

sion spending grew by only 2 percentage points, from over 7 percent of the NMP to only 9 percent, whereas in Hungary during the same period the same type of expenditure rose much faster, from just under 3 percent to over 8 percent of GDP (see Tables 3.2 and 3.6).5 Also, conventional socioeconomic and even political explanations, by themselves, do not help us much in accounting for the complexity of policy legacies in this area. Under severe economic conditions of crisis and recession of the late 1970s and early 1980s pension spending in Poland surpassed that of much more prosperous and stable Czechoslovakia

and came close to that of Hungary, where the expansion of social security expenditures during the Kadar era slowed down slightly only in the late 1980s. Financial and demographic indicators, of course, give us only a part of the complex picture of pension policy under communist rule. Other, no less salient dimensions include different indicators of quality of benefits and equity among different categories of pensioners. Before 1989, with a questionable exception of Hungary since 1971, none of the countries of the Soviet bloc used a regular system of pension indexing to compensate the retirees and the disabled for inflation and the rise in wages and the general standard of living.® This situation led to a pattern of frequent government manipulation of pension levels

in all three countries, making future reforms in this area extremely difficult to implement. We must also note, however, that during the communist period some countries raised their pensions more often and more substantially than others did, creating individual patterns of policy feedback and learning. A full understanding of the legacies of pension policy under state socialism should also include discussion of general trends and practices concerning elisibility, age limits, pension replacement ratios (relations of average pensions to average wages) over time, differentiation of payments and pension rights according to gender and across different occupations, taxation, and the ability to combine pension with income from work and other sources. For example, 5 Tuse adjusted GDP data for Hungary. On the average, these data give a measure of welfare effort that is 1-3 percentage points lower than a figure based on the NMP. We have to remember, however, that an exact comparison is not possible due to incompatibility of statistical methodologies and different classifications of expenditure categories. © As we will see later in this chapter, however, the significance of the Hungarian system of regular pension indexing diminished relatively quickly at the time of accelerated inflation of the late 1970s and 1980s.

Policy Legacies of Communist Welfare States 125 Czechoslovakia, which at the beginning of the communist period provided the most advanced and generous pensions in the Soviet bloc by the 1980s had much lower pension replacement ratios and many more working retirees than was the case in Poland and Hungary. On the other hand, disability pensions remained relatively rare and low in Czechoslovakia, meager but extremely widespread in Poland, and in many cases more accessible and higher than old-age benefits in Hungary. All these dimensions and long-term trends in pension policy deserve

closer scrutiny as we examine the long-term impact of policy legacies on the communist and postcommunist welfare states. Sickness and Maternity Policy

Sickness policy has received much less attention than pensions in the analyses of welfare states in the former Soviet bloc. Yet we must remember that in East Central Europe in the first half of the twentieth century, these types of benefits comprised the largest expenditure item in social insurance budgets. After World War II the communists fundamentally altered the traditional characteristics and institutions of this scheme by separating health services, now under a uniform, single-payer national health services, from temporary cash assistance in cases of illness and maternity. As we recall from the previous chapter, the administration of these payments was usually transferred from autonomous social insurance to either the trade unions or the employers, or a combination of the two.

One of the primary goals of sickness policy under state socialism in all countries was to increase labor productivity and to decrease job absenteeism. From a larger historical perspective this was hardly a new element of national social policy. In the interwar period, government experts feared that excessive social insurance guarantees would encourage abuse at the workplace and often attacked autonomous benefit funds as too liberal and fiscally irresponsible in their management of state-guaranteed social transfers.7 Under communist rule, however, trade unions and social insurance boards ceased to function as independent advocates of the workers and the insured. Instead, they became an extension of the government bureaucracy focused on labor discipline, ideological loyalty, and tight control of welfare expenditures. Nevertheless, despite these general similarities, in practice sickness policies worked quite differently in each of the three countries. For example, Poland repeatedly failed to control rapid increases in sick-pay costs and significantly liberalized policies in the late 1950s and the early 1970s. Czechoslovakia, in contrast, initially adopted generous benefits but rather consistently maintained a highly punitive system of labor discipline, discriminating especially against younger employees until the 1980s. Hungary retained a conservative system of low payments, and after a very brief period of liberalization tollowing the 1956 revolution eventually imposed rather effective administrative controls on sick-pay spending during 1970S. 7 See, e.g., Piotrowski 1933, 637, and “Przemowienie Ministra Pracy” 1929.

126 Policy Legacies under Communism, 1945-1989 Family and Child-Care Benefits Policy

Common policy legacies of the “communist welfare state” are the least discernible in the area of family allowances in cash and related benefits for women and children. One such legacy has been a dramatic decline in importance of these types of benefits as a share of overall social spending. Even though in some countries, such as Czechoslovakia and Hungary, family benefits amounted to

at least 20 percent of the average wage, social expenditures in this category rarely crossed the threshold of 1-3 percent of the national product, that is, more or less the level of pension spending in the early period, approximately from the 1930s to the mid-1950s, in most East European countries. As far as maternity benefits are concerned, in the previous chapter I noted important discrepancies in the type and quality of maternity assistance for young mothers in Czechoslovakia, Poland, and Hungary since the 1920s. Under communism, despite substantial progress in less developed countries, such as

Hungary and Poland, many of these differences persisted for a long time. Although all three states adopted similar institutions of Soviet-style central planning, based to a large extent on widespread mobilization of women into the labor force, their attitudes and practices concerning the role of family payments and child-care assistance varied widely since the early 1950s. First, especially at the very beginning, social policy planners in some countries, such as Poland, looked on this form of cash assistance in a more traditional, paternalistic way, as yet another type of insurance against the “risk” of having to support children and a spouse. Second, another view, which became more widespread a bit later, implied that family benefits could be used as an effective part of wage policy to compensate particular social groups, especially large families, for the periodic increase in the cost of living. This interpretation of the role of family benefits in reducing income inequality, as well as other, more advanced forms of assistance for mothers and families with children, speaks directly to the issue of the proper role of “targeting” and “means testing” in the welfare state as a whole. Since the communists abolished private poverty relief and substantially reduced means-tested forms of welfare payments in the 1950s, easier access to traditional social insurance inadvertently became a substitute for the eliminated forms of assistance to the poor, often blurring the distinction between work-related cash transfers and welfare-style public assistance.

Finally, as the Hungarian example has shown over many years, different kinds of family payments became an indispensable part of pronatalist (population) policy in countries with declining birth rates. Still, the origins of these benefits varied widely and emphasis on different functions often changed quite abruptly, especially in times of economic and political crises. The most crisisprone Poland, where family benefits functioned mostly as a social insurance

benefit and were never intended as a pronatalist measure, experienced the most frequent changes and followed the least consistent policies in this area. In contrast, Hungary and Czechoslovakia remained committed to cash payments and grants as means of stimulating population growth, but they also differed

Cycles of Crisis and Development 127 substantially in the scope and quality of assistance provided to different groups of citizens during the communist period (see Minkoff and Turgeon 1977). As

I show later, successes and failures of these policies were contingent on the specific institutional environment of the welfare state and decades later had a profound impact on family and child-care benefits reforms initiated after 1989. Development of family policies in East Central Europe can serve as a good

illustration of three undeniable common legacies of the communist welfare states: the legacy of semi-permanent emergency, excessive bureaucratization, and deep contradictions between the ambitious goals of the socioeconomic development and the actual day-to-day tasks of social policy. These tasks become even more urgent and more complex at the time of deep political and economic crises. Since the late 1940s in Czechoslovakia and the mid-1950s in Poland and Hungary, periods of economic slowdown, recession, and political unrest often led to significant changes in major benefit areas and permanently altered the trajectories of welfare state expansion as a whole in each country. As we will see below, the inherited structure and organization of the welfare state, along with its personnel experienced in particular methods and approaches to the distribution of cash benefits, played a major role in shaping these processes.

The instrumental approach to social insurance as a by-product of socioeconomic planning and a convenient “safety valve” in times of political unrest, however, stands out as a common underlying theme for all benefit categories. To be sure, communist regimes did not invent the use of social policy as a tool of economic intervention in the labor market, a means of social engineering, or an incentive of political bargaining between the state and important occupational groups. Nonetheless, they perfected and deepened these practices in a variety of creative ways in each of the three countries. Again, since the first days of national independence frequent occurrence of political and socioeconomic crises prevented consolidation of proposed models of the welfare state but at the same time created a semi-permanent “state of emergency” in almost all areas of policy making. This pattern assumed a cyclical form that under communist rule corresponded very closely to the periods of political and economic crises identified and analyzed in much detail by numerous scholars of state socialism. CYCLES OF CRISIS AND THE DEVELOPMENT OF THE WELFARE STATE UNDER COMMUNISM IN EAST CENTRAL EUROPE

In the 1990s conventional interpretations of East Central Europe under communist rule as a uniform system of Leninist party states with identical institutions and largely similar policies gave way to much more accurate and complex analyses of “massive institutional reforms, sudden policy changes, reversals, and adjustments instituted by the ruling elites in response to [political and socioeconomic crises]” (Ekiert 1996, 3). Political scientists and economists specializing in the region have extensively analyzed cyclical patterns of recurring crises, followed by policy changes or reforms in the post-Stalinist period, in Hungary after 1956, in Czechoslovakia during the 1960s, and repeatedly in Poland since

128 Policy Legacies under Communism, 1945-1989 the late 1950s (see Kornai 1986; Stevens 1985; Adam 1987, 1989, 1991; Kaminski 1991; Poznanski 1996; and Seleny 2006). How does social policy fit into this pattern as either an independent or a dependent variable? Policy legacies of the Czechoslovak, Polish, and Hungarian welfare states, understood as historical, crisis-related patterns of policy making that have a potential to influence long-term change and future reforms, date back to the interwar period. As we have seen in the previous chapter, the Great Depression and subsequent rise in state economic interventionism across the region stimulated cuts in short-term benefits and liberalization of pension policy in Czechoslovakia, played a major role in the fundamental overhaul of the Polish social security system, and generated a brief period of experimentation in family policy and social planning in Hungary. The experience of World War II also produced lasting but significantly different legacies in each of the three countries. In Czechoslovakia, relatively liberal social insurance policies under the Protectorate enabled left-wing welfare experts and union officials to create a solid organizational base necessary for the successful promotion of the “socialist” revolution in social policy after the war. In Poland, the survival of the ZUS during the Nazi occupation, as both an official body and a clandestine part of the underground state, reinforced the idea of a uniform, centralized administration as the main vehicle for the provision of the basic social insurance needs to the impoverished urban population. In Hungary, the devastating collapse of the state institutions during the last months of the war and the early days of the Soviet occupation stimulated a revival of the traditional, autonomous selfgovernment boards. These institutions, run by left-wing activists, achieved some initial success at “democratization of social policy,” reminiscent of the Bela Kun era. Nonetheless, the experience of communist rule in Hungary from the early 1950s until the late 1980s resulted in mixed and inconclusive outcomes. A com-

bination of central planning and underdeveloped social insurance institutions reinforced the deep division between the conservative and progressive visions of the welfare state and perpetuated historical patterns of instability in social policy. As we will see later, a pattern of “self-reinforcement” of inherited policy patterns would remain relevant in all three countries throughout the twentieth century.

After World War II, dilemmas of the underfunded postwar welfare states, with rising benefit obligations and ambitious goals, became increasingly burdensome for policy makers throughout the entire Soviet bloc. Since the mid19508 lackluster economic performance and political considerations repeatedly forced economic reformers to initiate changes in the organization and funding of pensions, sickness insurance, and many other benefit programs. Social policy failures of the Stalinist rulers during rapid industrialization and collectivization of agriculture, and later the unfulfilled expectations of the growing numbers of benefit recipients in more prosperous times, increased political tensions and seriously threatened the legitimacy of the communist states. Underlying systemic

problems and deficiencies of East European economies, most evident in the prolonged periods of slowdown and recession, especially during 1962-1965

Cycles of Crisis and Development 129 and 1970-1984 in Czechoslovakia, 1954-1963, 1969-1970, and 1976-1982

in Poland, and 1954-1956, 1961-1965, and 1970-1985 in Hungary (see Table 3.1), contributed to important social policy decisions with long-term consequences for the future development of the welfare state. Given the frequency of changes, reform attempts, and adjustments of major social insurance benefits, it would hardly be an exaggeration to say that under communist rule the Czechoslovak, Polish, and Hungarian welfare states consolidated their status as de facto regimes of “perpetual social policy emergency.”® Indeed, only brief periods of relative prosperity during the 1960s and 1970s could possibly create a temporary impression of a stable and “mature” communist welfare state as credible alternative to its western counterparts (see Breslauer 1978; Castles 1986). argue that before 1989, in East Central Europe three types of crises — of the polity, economy, and welfare state — remained closely interconnected. The actual range and depth of social policy reforms undertaken during and immediately after particular political and economic crises in communist Czechoslo-

vakia, Poland, and Hungary also varied widely across countries and benefit areas.

The relationship between the cycles of political and socioeconomic crises, on one hand, and the instances of social policy crisis and reform, on the other, has been extremely complex and often defies conventional wisdom. For example, a decline in economic output in a given country did not necessarily lead to immediate cuts in every type of social benefit, and, inversely, more prosperous times often failed to yield meaningful improvements in cash transfers. On the contrary, political and economic crises frequently resulted in short-term improvements in areas of importance to only some segments of the restive public but usually with limited long-term commitment of resources. Meanwhile, other areas of significance to large constituencies and to the long-term health of the welfare state as a whole, including the infrastructure of social services and indexing of pensions and family payments, suffered from continued neglect. Calls for significant reforms of social policy usually came to the surface during times of political unrest, but serious crises of the welfare state did not necessarily coincide with every single period of economic slowdown or recession. Moreover, welfare policy might have been a meaningful contributing factor leading to a political and economic crisis, but it is often difficult to detect and analyze its actual impact in separation from other influences. All this does not mean, however, that no discernible patterns of social policy making emerged in East Central Europe under communism. Rather, we must note that the nature of the policy legacies of the welfare state and their links with the recurring crises of the polity and the economy depended on a cluster of interconnected factors specific to each country. These factors include the efficiency of the institutions of the national welfare state, often hastily conceived as a “hybrid” combination 8 This emergency situation was also strikingly visible in housing policy and health care policy, areas not covered by this study but also deserving more attention in relation to the general problem of welfare state legacies in the region.

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Poland I51 peak postwar level during 1977-1983. Finally, under improved economic and political conditions of the mid-1980s the communist regime began the last and ultimately unsuccessful effort to stabilize the welfare state under a comprehensive plan that focused on some of the most dysfunctional legacies of the pension system.

Policy Legacies of Stalinist Retrenchment, 1949-1955 Polish Stalinists?® harbored even fewer reservations about the priority of economic development over social concerns than did their Czech colleagues. Dur-

ing the first four years of the rapid industrialization drive, 1949-1953, they effectively marginalized social policy, dealing separately with different components of the welfare state by issuing numerous executive decrees and administrative orders with a strong focus on work discipline and strict limits on spending for cash benefits. Regime officials specifically pointed out that in time of “intensifying class struggle,” too much emphasis on the welfare function of the state carried a serious political risk. An internal party memo, for example, warned that expansion of social insurance would “unduly raise popular expectations which the newly established workers’ state was unprepared to fulfill at this early stage of socioeconomic development.”’” This response in many ways echoed the warnings issued by the Sanacja regime against the social spending “excesses” of the socialists in charge of the social insurance funds. But this time, the Stalinist economic planners intended to follow a much more extreme path of “belt tightening.”

In a stark policy reversal and under the cover of a vigorous propaganda campaign for gender equity and social progress, the Communist party also reduced the newly introduced family benefits to foster recruitment of women into the labor force.*® The underlying goal of this policy was to keep the wages low, because women were paid much less than men, and help to reduce socialinsurance costs at the same time. In 1953, the year of extreme economic hardship when many people lost valuable savings in the process of currency exchange,

expenditures for family benefits, now the largest item in the postwar social insurance budget, fell from the peak of 10.5 percent of the wage fund in 1949 Inthe early 1950s three individuals held the key power positions in Poland: Bolestaw Bierut (head of the Communist Party, in charge of relations with the Soviet Union), Hilary Minc (economic and social planning), and Jakub Berman (security and political affairs). ™7 Full quote: “The mobilization of needs by way of expanding [social] insurance, [to compensate] for the years of underconsumption raises a danger of disappointment on the part of the interested parties, 1.e., the insured, because their expectations will not be met in a satisfying manner [during the Six-Year Plan]. This situation would be similar to what occurred in September 1939. Men who were mobilized formally or morally for war did not receive weapons or received only low-quality equipment. [Therefore] development of social insurance into a universal coverage should not be encouraged [at the present time]” (Archiwum Akt Nowych, 237/XXVIII-2, 53; my translation). 18 “Troska o kobiete pracy,” Sztandar Ludu, 6 May 1948, p. I.

152 Policy Legacies and Welfare States Under Communism, 1945-1989 to only 6.8 percent, whereas pension spending dropped almost by half in comparison to the prewar level (see Table 3.3). In defiance of the general pattern, only sick-pay expenditure continued to increase, largely due to the lax enforcement by the ZUS."? The death of Stalin and the change of economic course in the Soviet Union opened the way for an improvement of long-neglected consumption needs of the population with the communist bloc beginning with Hungary in 1953. This situation helped to accelerate the extremely slow pace of planning for a more permanent restructuring of the underfunded social insurance programs in Poland. Moreover, the new cohort of would-be retirees with substantial work records under the new regime came to expect an improved pension scheme worthy of the lofty communist propaganda, which praised the virtues of the Soviet model of social security. Faced by political uncertainty abroad and the critique of lackluster economic performance at home, the authors of the Six-Year Plan, led by Hilary Minc,”° stepped aside in 1954, giving welfare policy experts, trade union activists, and members of the welfare bureaucracy a chance to try to repair the damage caused by the Stalinist economic planners. In contrast to Czechoslovakia, however, the Polish retrenchment and reforms of the 1950s were much less generous, hastily prepared, incoherent, badly implemented, and extremely destabilizing for the welfare state as a whole. In other words, the Polish version of the national/Stalinist hybrid in the area of social policy turned out to be much less cohesive and stable than the one constructed by its southern neighbor. The reforms consisted of a series of government decrees and executive orders issued in 1954-1955, effectively splitting social insurance into two parts, a restructured pension system run by local bureaucracies under the supervision of National Councils, and short-term cash transfers administered by the trade unions at the enterprise level. The pension decree of June 1954 established a new type of old age and survivor pensions and Soviet-style, three-tier disability benefits tor all hired employees in the public sector and their families.*" Its stated purpose was to improve the well-being of the most “deserving groups of pensioners,” to further reduce administrative costs, and to ensure greater government control over the distribution of benefits. In departure from previous traditions, the pension decree replaced the term “pension insurance” (ubezpieczenie rentowe), which had failed to draw a clear distinction between disability and old age benefits, with a new concept of separate “old age pension entitlements” ™) This increase stemmed in part from the reforms of sickness insurance that separated the admin-

istration of cash payments and medical care. To lower disability cost, the sick pay period, regulated by ZUS and the Ministry of Labor, could now be extended beyond the statutory twenty-six weeks for cases in which recovery was imminent (Zylinski 1991, 306). 2° The dogmatic economic approach of the chief Stalinist planner, Hilary Minc, who was also responsible for drastic cuts in social spending, caused serious internal tensions with the communist party-state in the early 1950s. For an insight into the ideological debates during this period, see Toranska 1987. >I Dekret z dn. 25.06,1954 7. 0 powszechnym zaopatrzeniu emerytalnym pracownikow i ich rodzin (with changes in 1956 and 1958), Dziennik Ustaw PRL 1958, no. 23/97.

Poland 153 (zaopatrzenia emerytalne) and invalidity pensions (renty inwalidzkie). It also eliminated the separate, more advantageous work injury insurance (ubezpieczenie wypadkowe) for the workers. The communist lawmakers implied that the “socialist state” would now guarantee vastly improved pensions, now treated as a deserved reward for work in the postwar nationalized economy. This policy, however, automatically excluded older pensioners and thousands of employees in the private and cooperative sectors (Chajn 1954). Authors of the pension decree denied the existence of any conflict between the interest of an individual employee and the goals of production. They also

claimed that in a Marxist-Leninist state the right to receive social benefits derived solely from the fact of employment in the public economy, and not from

the record of tax contributions or social insurance membership, and attacked egalitarian tendencies of the past as incompatible with the socialist principle “to everyone according to his work” (Chajn 1954, 271). Because employment became mandatory for every able-bodied person, eighteen years of age or above, and the ZUS was no longer able to keep adequate insurance records of individuals, under the new decree practically every citizen with some proof of required employment in the “socialist economy” since 1945 could claim pension rights. Still, the level of these payments varied greatly according to the type of occupation and the timing of retirement or disability. In 1954 two new hierarchies of pensioners emerged in Poland, one distinguished according to the category of occupation and the other determined by

the type of regulation in force at the time of retirement. The first hierarchy resembled the situation in Stalinist Czechoslovakia, but with two occupational categories, rather than three. Most workers in heavy industry were assigned to the first, more privileged group, including miners who retained separate extended rights within the general system.** State officials, military, and the police maintained their separate schemes within the first category with lower retirement age. Employees of the sectors of the economy outside manufacturing, such as trade, transport, and all services, however, received much lower pensions, even though every state enterprise paid the same social insurance tax of 15.5 percent. In 1955 only 7.6 percent of the 1.1 million pensioners in Poland benefited from the new law, while the rest were paid on the average 40 percent less (Plawucka 1991, 384-385, and my calculations). Hence, the decree reinforced the main tenets of Stalinist economic policy, to keep social benefits at low levels to finance investment, to encourage the largest possible number of able-bodied persons to join the labor force, and to promote collective rather than individual forms of consumption. This approach had the most lasting impact on the development of disability pensions. In theory, the Polish version of the Soviet-style pension system was supposed to combine low-cash benefits,*> especially for the partially disabled >? After at least fifteen years of continuous employment in the same profession, miners automatically qualified for higher pensions. *3 For a description of the Soviet social disability system during this period, see Madison 1968, 53.

154 Policy Legacies and Welfare States Under Communism, 1945-1989 in the second and third categories of “invalidity,” with an active rehabilitation program. The envisioned social services for the disabled, however, never materialized on a larger scale under communism, and in most cases the meager disability pensions amounted to little more than small supplements to equally low wages. By the time of 1954 pension reform, already about 40 percent of all pensioners had been working. In the following years the income of disabled and retired person would not improve much either, because benefit raises came infrequently and irregularly and often were tollowed by new tougher restrictions on earnings. Until the first major benefit increase in 1958, for example, an average pension in postwar Poland remained below 20 percent of an average wage.*4 Much to the despair of future communist decision makers the convoluted sequence of changes during the first decade of the postwar welfare state, from successful reconstruction of the late 1940s to the austerity of the early 1950s, and again partial liberalization and reform since 1954, produced many unintended consequences, reinforcing some older trends in national social policy. Despite official declarations and many attempts to enforce workplace discipline, including criminal prosecution of employees (see Kenney 1997), the Stalinist government repeatedly failed to curb absenteeism and curtail access to disability pensions. Furthermore, economic austerity and disciplinary campaigns during 1949-1953 almost immediately created a strong backlash, similar to the one that had emerged during the Nazi occupation. General deterioration in wages and social payments helped to forge an implicit alliance of workers and welfare state administrators against the repressive policies. Accustomed to their role as defenders of national survival during the war and in the difficult months afterward, the personnel of the ZUS consistently resisted government efforts to turn social policy into a tool of labor discipline (Tymowski interview, 7 December 1992; and Ewa Borowczyk interview, 31 March 1993). Temporary elimination of the ZUS during 1955-1960 apparently made the situation even worse, because it reassigned the task of program supervision in this category from experienced social insurance officials to the trade unions, which, in contrast to the Czechoslovak example, had no administrative background in running any social programs in Poland. Frustrated by repeated unsuccessful attempts to control work absenteeism, the government compelled trade union bureaucrats to enforce strict sick pay quotas on all workplaces in 1955. Nonetheless, in the next decades public enterprises continued to defy both the reconstituted ZUS and the central ministries, successfully concealing excess social spending within the wage fund (Radzimowski 1991, 25). After the war, and especially since 1955, the number of disability pensions expanded extremely

fast, by roo percent in just fifteen years, that is, three times faster than the old age benefits (Plawucka 1991, 394, and my calculations), and expenditures in this category doubled in just five years, 1955-1960 (see Table 3.4). Physicians and local administrators of the ZUS who maintained extremely liberal *4 Before 1958 benefits decreased by 30 percent if they received additional income (Plawucka 1991, 384-385).

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156 Policy Legacies and Welfare States Under Communism, 1945-1989 attitudes toward applicants for both sickness and disability assistance since World War II undoubtedly contributed to this long-term trend, transmitting the policy legacies of the past into the communist era. Also, in stark contrast to Czechoslovakia, Poland escaped widespread political purges and avoided sustained repressions against large groups of pensioners during the Stalinist years,

and before 1954 generally all retired and disabled persons, except a narrow sroup of the highest party, security apparatus, and veterans of the communist resistance, had easy access to more or less the same extremely low benefits. As we remember, in contrast to Czechoslovakia, the postwar social policy planning in Poland fell into the hands of Stalinists without any prior attempt of radical transformation. Thus the resulting hybrid policies, especially in the area of pension and sickness policy, retained many of the preexisting conservative features and distortions inherent in the Polish Bismarckian system of social insurance. Policy Legacies of Post-Stalinist Recovery, 1956-1960

Liberalization of social policy in the final years of the Stalinist era came too late and offered too little to repair the damage inflicted on the Polish safety net during the first stage of the Six-Year Plan. Paralyzed by internal conflict since Khrushchev’s secret speech condemning Stalin in early 1956 and confronted by violent street riots in the industrial city of Poznan in June of the same year, the government failed to advance necessary changes in either the political or socioeconomic spheres. Immediate response to the protests and strikes involved a usual mix of repression, followed by token compensation in the form of wage increases and slightly improved family benefits. Clearly, even though in the mid-1950s the Stalinist regime rushed to liberalize social policy out of fear of looming economic and political disaster, in the end they underestimated the severity of the Poland’s problems and their own ability to manipulate policy to their advantage within the rigid structure of central planning and inherited institutions of social security. Peaceful resolution of the political crisis in October 1956 and the return to power of the national communist leader, Wtadystaw Gomulka, who survived the Stalinist purges of 1949, raised hopes for a less dogmatic and more balanced approach to social policy reflective of the Polish domestic traditions. In the atmosphere of great social expectations, even moderate changes, such as the partial revisions of the 1954 pension decree in 1956 and 1958, were widely interpreted as the first step on the way to a badly needed comprehensive reform of the welfare system (see Piotrowski 1957b). The Stalinist leadership came under attack for its failure to establish new “socialist” welfare programs, as promised in the 1952 constitution and numerous party declarations. Most of the experts and policy makers uniformly rejected the arguments of the early 1950s that the

“laws of Marxist-Leninist economics” would automatically resolve financial and organizational problems of social insurance in postwar Poland (Chechlinski 1957). This surprisingly open debate within the social policy establishment not only highlighted the neglect of social issues during the Stalinist period, but also

Poland 157 called for an immediate improvement of the quantity and quality of cash benefits and creation of a better safety net for the expected period of economic restructuring and limited unemployment. “Losers” of the previous confrontation between the Soviet-inspired economic planners and social policy advocates of the late 1940s and 1950s returned to renegotiate the norms and regulations of pensions and the other key benefit programs. Even the authors of the Soviet-inspired pension decree of 1954 now called for increased government welfare effort as a necessary prerequisite of progress in further development of “socialist social security” (socjalistyczne zabezpieczenie spoleczne). The term “social security” (zabezpieczenie spoteczne) actually became the favorite of catchphrase of one group of would-be reformers who

advocated large-scale modernization of the welfare state, based in part on foreign or even western examples. In the late 1950s, a political thaw in relations with the West actually permitted more open comparisons with postwar social policy developments in more advanced European countries. Furthermore,

recent declarations of the International Labor Organization and the United Nations in favor of more extensive universal social rights to fair compensation, shelter, health care, and education for all working people and their families supplied the reformers with additional arguments for broader approaches to social policy, advancing beyond traditional social insurance programs (Piotrowski 1957a, 1957b, 1958a, 1958b).

The uncommon pluralism of this debate and influx of fresh ideas from abroad, however, only exacerbated confusion and conflict over the direction of policy change in post-Stalinist Poland. On the theoretical level, advocates of universal social security (the “idealists”) clashed with defenders of traditional social insurance (the “conservatives”). Meanwhile, in the policy-making arena, trade union officials and labor organizations attacked the Ministry of Social Welfare, accusing them of undemocratic practices and excessive bureaucratization of the welfare state (Chechlinski 1957; Piotrowski 1957b; Archiwum Akt Nowych (Polish State Archives) 237/XXVI-36, 4— Correspondence of the Secretariat of the Central Committee, Polish United Workers’ Party, 195758). The newly empowered Workers’ Councils even went as far as to establish their own independent pension funds in defiance of the official trade unions and the government (Archiwum Akt Nowych, Polish State Archives, Ministerstwo Pracy i Opieki Spolecznej (Ministry of Labor and Social Welfare), no. 60, 15-17, 21-22). Weary of growing influence of the councils and the lack of progress in welfare reforms party, officials responsible for social insurance policy repeatedly warned the Gomulka leadership that meager benefit levels were causing great discontent among the workers and adversely aftected labor productivity (Archiwum Akt Nowych, Polish United Workers’ Party, 1957-1958, 237/XXI/245, Polish United Workers’ Party, Central Committee, classified documents). Such political considerations, combined with economic pressures to reduce excess employment in state enterprises and improve productivity in industry, led to significant changes in the pension laws. Responding to the widespread

158 Policy Legacies and Welfare States Under Communism, 1945-1989 calls for a more egalitarian approach to social security, in 1958 the Polish parliament (Sejm) mandated recalculation of all existing pensions according to the rules of the 1954 decree but with an important caveat that prohibited fulltime employees from collecting full pensions. At the same time, the first, privileged category of occupations was extended to include teachers, sailors, and a few other groups. These changes, in combination with mandatory layofts of 200,000 workers, mostly older men and women nearing retirement, dramatically increased pension rolls. Pension expenditure, as a percentage of the net material product, went up almost roo percent and, for the first time in postwar history of Poland, long-term financial viability of the welfare state became an important issue for the government (Plawucka 1991). This became a major issue especially in 1958, when the economy began to slow down significantly (cf. Tables 3.1. and 3.5a). By the early 1960 it became clear that all these small legislative changes and policy adjustments fell short of a major breakthrough that would indicate a permanent shift toward a more generous “socialist” welfare state, as expected and demanded by many social policy experts, labor groups, and the growing masses of benefit recipients. As their power firmly stabilized amid widespread public support, Gomutka and his chief economists argued that Poland needed to devote all its efforts to a “second technological transformation” that would create the necessary base for a prosperous socialist society in the future. Implementation of this plan, however, demanded not only temporary reductions in employment and greater industrial discipline, but also a significant departure from more egalitarian practices in wage and social policy of the late 1950s (Johnson 1989, 126-127).*> The consolidation of this approach increased the influence of a small but active group of conservative social policy experts who opposed the disruption of Polish social insurance traditions during the Stalinist period in a mistaken belief that the hybrid policies of the 1950s could be preserved within the strict parameters of fiscal discipline. Their ideas fit well with the ideological outlook of Gomutka and his close associates regarding the differences between the more cautious and gradual “Polish way to socialism” and the Soviet (Stalinist) model of rapid and revolutionary socioeconomic development.*° This approach also generated solid support within the larger party apparatus responsible for economic affairs and among Gomulka loyalists in the trade unions, who felt threatened by the more liberal elements of the establishment. As we have seen before, both the party and the unions now supported the reconstruction of the ZUS as a centralized distributor of social insurance, but for opposite reasons. The former hoped to rein in social spending, whereas the latter sought new channels of influence for special occupational interest on *5 Party economists also contemplated limited unemployment, 2 to 3 percent of the labor force, to maintain greater labor discipline (Janusz Obodowski interview, 18 March 1993; and Stanistawa Golinowska interview, 18 January 1993). *6 For detailed description of Gomutka’s position on the question of socialist development in Poland, see Brzezinski 1967, 338-366.

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160 Policy Legacies and Welfare States Under Communism, 1945-1989 the advisory boards of the organization (Archiwum Akt Nowych, Polish State Archives, 237/XXVII-32, Polish United Workers’ Party, Central Committee, 1957). Meanwhile, those welfare experts, including former officials of the Ministry of labor who sponsored wider social policy expansion since 1954 (often under the inspiration of neighboring Czechoslovakia), after 1956 lost political influence and largely retired to academia and research institutes.*7” Policy Legacies of Retrenchment and Stagnation under the Gomulka Regime, 1961-1970 After the adoption of the new developmental strategy in the early 1960s, social insurance spending quickly stagnated at the level achieved in the immediate aftermath of the 1956 crisis. Despite the fact that the economy picked up again, with an average growth of 7 percent in the 1964-1968 cycle (see Table 3.1), an average old age pension fell below 40 percent of an average wage, and the third

category of disability pension dropped to only 23 percent (Muszalski 1992, 176). Lack of regular wage indexing affected all parts of the social insurance system, as evidenced by an average family benefit, which declined from 13.3 percent of an average net wage in 1960 to only 8.5 percent in 1970. The only meaningful exception to the serious deterioration of the quantity and quality of practically all types of benefits was the steady expansion of pension rights and privileges for several select but growing categories of employees. For example, security and police officers received permanent separate pension rights and legal suarantees in 1959. In 1962 and 1965, respectively, agricultural cooperatives and the self-employed joined the pool of the insured, however with benefit rights based on traditional mandatory contributions rather than budget entitlements. Low social pensions were also offered for the first time, on a limited scale, to private farmers who would give up their land to the state (Jackowiak r991ra, 228). While the absence of a regular mechanism of benefit indexing hurt all categories of older pensioners, some groups were in a much better position than

others to try to improve their lot. The Gomulka regime tolerated and even implicitly encouraged informal lobbying for social rights and privileges, favoring prominent individuals and influential categories of employees sponsored by top officials of the party and government. One such network emerged in connection with the rapid political advancement of Minister of Internal Affairs, Mieczyslaw Moczar (1964-1968), who became a self-appointed protector of war veterans”® and the security police (Garlicki 1993). Another grew around the popular regional party chief in Upper Silesia, Edward Gierek, an avid supporter of miners and other workers in this heavily industrialized region (Rolicki 1990, 43-47). In addition, Gomutka and his fellow members of the Politburo and the Central Committee frequently intervened personally with the ZUS and *7 See “Socjalistyczny egalitaryzm” 1973, 7I-157. 28 Moczar later also became a long-time chairman of the politically influential veterans’ association (ZBOWi1D).

Poland 161 the Committee on Labor and Wages on behalf of numerous individuals and groups, such as veterans, retired teachers, intellectuals and party officials, who constantly petitioned the authorities for pension increases (see Garlicki 1993). The failures of the post-1956 policy regime and the accumulated deficiencies of the partially restructured post-Stalinist pension system came into full view in early 1968 when the economy stagnated again. The Fifth Party Congress, held in November, endorsed a new socioeconomic program calling for greater labor discipline in state enterprises, a system of wage incentives to enhance productivity, and a comprehensive pension reform. The latter aimed to institutionalize

the gradual retrenchment of social policy of the past decade in the spirit of conservative social insurance traditions, reminiscent of the interwar period. In evidence of this shift in the official attitude toward the precommunist social legacy, the main journal of the welfare state establishment in Poland openly praised the Sanacja reforms of the 1930s as effective and prudent measures that suited a country with limited resources very well at the time of deep economic crisis (Landau 1968, 47). The social insurance law of January 1968 reintroduced a separate pension fund, with 3 percent employee contribution, a change justified by the need to “educate” the workers about the rising cost of social programs and the desire to create additional savings for future benefit increases (Burski 1968, 2-7). Implemented in stages over the next three years, it also tried to erase egalitarian consequences of the 1954-1958 laws that hurt “workers with medium and higher skills” and aimed to persuade better paid employees to retire on time, creating more jobs for the new generation (Burski 1968, 2). Because the privileges for the top occupational category and work injury pensions now fell under a much wider, vaguely defined clause of “compensation for work under difficult or harmful conditions,” many new groups could qualify for extra benefits. Still, even though veterans and more influential groups felt immediate relief, the policy adjustments of 1968 exacerbated growing income inequities among pensioners, and the structural problem of steadily declining pension values remained unaddressed. Furthermore, the Gomulka government failed to stop the progressing deterioration of social benefits for the active population, especially those designed

to help working women. While during 1960-1970 participation of women in the labor force grew from 28 to 38 percent spending for maternity and child care benefits declined by 12.5 percent. In 1970, the ZUS paid 50 percent more for 38,000 military and police pensions than it spent for all kinds of benefits for working mothers’ combined (Rocznik Statystyczny Ubezpieczen Spotecenych 1990, 5 (table 4) and 86-87, table 1/82, and my calculations) (see also Table 3.4). Expenditures for family benefits, regulated separately by frequent administrative orders of the Committee on Labor and Wages, fell almost

by half, from 2.3 percent of the NMP in 1958 to only 1.2 percent in 1970 (see Tables 3.5a and 3.5b). In the same year of looming political crisis, temporary job shortages for women, with 70,000 applicants competing for only 8,500 positions, exacerbated the perception of social policy failure under the Gomutka regime (Muszalski 1992, 86, table 5).

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Poland 163 Policy Legacies of Modernization, Expansion, and Liberalization of the Welfare State, 1971-1982

Gomulka’s social policies derived from a specific blend of new and old ideas, the Leninist principle of the party monopoly on all decision making, Stalinist belief in the command economy, and domestic traditions of conservative developmental étatisme reminiscent of the interwar period. In a letter to the party Central Committee, written after his fall from power in early 1971, Gomulka defended his efforts to create a unique national road to socialism in Poland: The original source of errors [in the Stalinist period| was the false theoretical assumption that the Marxist law of value did not apply to a functioning socialist economy. We [the

Polish communists] should not be encouraged by the fact that all socialist countries adopted such theory. All of these countries, taken separately and as a whole, only suffered [during the 1950s] from this and are suffering still [today]. It is not easy to lift [a country|

from many years of economic backwardness. In fact this false theory, even though it had been [officially] abandoned, left a lasting impression on our economies.... This is true, perhaps most of all, in [Poland]. ... One of the most extreme versions of this theory rejects [the most basic] principles of economic calculation. Many people [in government| still believe today that after the means of production had been taken over by the state,

or by the cooperatives, we no longer would have to pay attention to the effectiveness of each part of our economy because everything would [eventually] “even out” in the [common] state or public “cauldron,” [containing all] products of human labor. (Tajne Dokumenty Biura Politycznego- Grudzien 1970 (Top Secret Documents of the PUWP Politburo) 1991, document no. 26, letter of W. Gomutka, 246, my translation)

Conservative retrenchment of the emerging post-Stalinist, liberalized welfare state in Poland, especially visible in the decline of benefits for women and the working population at large during the 1960s, played a major role in the collapse of Gomutka regime. In December 1970 a desperate move to increase prices amid disappointing economic performance and a decision to use force against the striking workers on the Baltic coast exposed fundamental weaknesses of the communist leadership. Dissatisfaction with the conservative-paternalistic policies of the regime spread widely both across many sectors of society and within the ranks of the privileged communist elite, many of whom also suffered from the deficiencies and uncertainties of the underdeveloped welfare state. Moreover, they could easily compare substandard social safety net available in Poland with much better conditions, not only in the West, but also in the other Soviet bloc nations. While other countries, such as Czechoslovakia and Hungary, proudly displayed their advances in “socialist” social policy at numerous meetings of welfare experts from different Soviet bloc countries, communist Poland continued to offer millions of new employees not only substandard social services for workers and their families but also meager social insurance benefits and wages. Lack of progress in the area of cash benefits was especially disappointing, given the renewed emphasis on national social insurance traditions in the post-Stalinist era.*? *9 Information acquired from unpublished notes from COMECON meetings, made available to the author in the archives of the Ministry of Labor and Social Policy, Warsaw, 1993.

164 Policy Legacies and Welfare States Under Communism, 1945-1989 In early 1971, after almost two months of labor unrest in several major industrial centers around the country, the Polish communist regime finally seemed to have realized what their Czech colleagues knew all along since the late 1940s — that steady expansion and modernization of the welfare state was a necessary condition for the long-term survival of not only capitalist states but the state socialist ones as well. The official response to Gomutka’s letter, made available to the party Central Committee in June 1971, offers an excellent summary of the guiding ideas behind a changed policy course proposed by the new party leader Edward Gierek and his associates: The [frequently misunderstood] principles of economic calculation represent all that comrade Gomulka has to offer in terms of his ideology of economic reform. Principles of economic calculation represent only a general foundation of the whole complex construction of a modern economy. [Under his leadership] we would have had to wait very long indeed for the discovery of such disciplines as the analysis and functioning of systems in organization and management, information science, methods of cadre recruitment and selection ..., and above all, the broadly conceived [modern] methods of social policy. (Tajne Dokumenty Biura Politycznego- Grudzien 1970, 1991, response to the letter of W. Gomutka, document no. 28, 295, my translation, emphasis added)

The pragmatic and “scientific” tone of this statement could hardly cover up the fact that the regime acted under tremendous social pressure and had no ready alternative to the failed economic program of the late 1960s. In a 1990 interview, Gierek admitted that “we [the new Politburo in 1971] did not have any theoretical conception on how to reform socialism,” although he “was convinced that great resources of [the Polish] economy could be utilized through

a different implementation of social policy” (Rolicki 1990, 78-81, emphasis added). Actually, the idea to change the overly conservative government approach toward the welfare state originated from several sources at once. First, in accordance with past practices throughout the twentieth century, the Polish regime combined violent repression of the strikes and demonstrations with emergency social spending for wages and worker benefits. In January 1971, the new prime minister, Piotr Jaroszewicz, allocated special funds for welfare assistance to lowincome workers, large families and pensioners. Incidentally, the amount of this assistance, 7—8 billion zloty, in the form of family benefits, pension increases, and wage bonuses, was almost exactly equal to the social insurance surplus doc-

umented by the ZUS in 1970 (8.3 billion), most of it coming from the newly created pension fund (Korybutowicz 1983, 95 and 129; Radzimowski 1991, 290-293; Rocznik Ubezpieczen Spotecznych 1987). Thus, it seems that in a paradoxical way, the conservative policies of the Gomutka regime, following in the footsteps of the Sanacja, enabled his successors to survive the first difficult months of transition and to consolidate power in the country. The emergency transfer of funds, together with carefully targeted wage increases, helped to quell workers’ protests in the most rebellious coastal cities of Gdansk, Gdynia, and Szczecin (see Laba 1991) but failed to satisfy the female

Poland 165 workers who staged spontaneous mass walkouts in the textile industry concentrated around the city of Lodz in central Poland. After repeated failure by local communist authorities to persuade the striking women to go back to work, in mid-February the party Politburo finally decided on a much more radical step. It reversed all price increases, made all temporary rises in social insurance permanent (Tajne Dokumenty-Grudzien 1970, 202-205), and set out to implement

the largest improvement of benefits for working mothers and families since World War II (see “Osiagniecia socjalne z perspektywy jednego roku” 1972).

Second, after the fall of Gomultka, social policy experts and government officials who advocated more vigorous modernization and expansion of the “socialist” welfare state since the late 1950s (Danecki and Wasilkowski, 1973b) returned to work on long-term social policy reforms in the reconstituted Ministry of Labor and Social Affairs (“Ministerstwo obietnic i nadzei” 1972).3° This

time the “idealists,” or the former “losers” of the social policy debate of the late 1950s, came back to power to make further, more comprehensive adjustments in social insurance programs, starting with the long-neglected areas of sickness insurance, family benefits, and child care. Keenly aware of the growing gap in social protection, not only in comparison with Western Europe but also

between Poland and the rest of the Soviet bloc, they argued that “the essence of socialism as a socioeconomic system means the subordination of economic decisions to an [unambiguous] conception of [balanced] social development.” (Danecki and Wasilkowski 1973a, Chapter ro). Third, additional pressure for a more decisive policy change came from a surprising source, the Soviet Union, where a new consumer-oriented type of “welfare authoritarianism,” an implicit “social contract” between the regime and society, had become a major pillar of regime stability under the leadership of Leonid Brezhnev (Breslauer 1978). In a 1971 emergency meeting with Gierek, Brezhnev, who never concealed his displeasure with Gomulka and his conservative policies,*" urged the new Polish leader to learn from the example of other “socialist” countries and generate support for the regime by modernizing

its social policies and thus improving living conditions of the working people. Soon after, the Soviets agreed to premier Jaroszewicz’s urgent request of a $100 million low-interest loan to finance price reductions, wage concessions to the female textile workers, and permanent adoption of social benefit increases temporarily granted under extreme social pressure of the first difficult months of 1971.>* Placing progress in social welfare near the top of the policy agenda for 3° Also Jerzy Szreter interview, 2 June 1993; Jozef Zajchowski interview, 15 March 1993; Janusz Obodowski interview, 18 March 1993; and Manfred Gorywoda interview, 23 March 1993). 3% Brezhnev especially objected to the excessive tolerance of private agriculture and the independent Catholic Church. 32, The Soviet leader lectured the Polish leadership that “today the times are different than they were during the first Five-Year Plan when we could give workers barracks and food coupons,

and ask them to tighten their belts....In our country and in yours a new middle class has emerged, intelligentsia, doctors, teachers, and others. ... Our key mistake [within the Soviet bloc]

was to try to surpass each other in economic achievement without regard to our capabilities”

166 Policy Legacies and Welfare States Under Communism, 1945-1989 the first time since the communist takeover of power in 1945, the Gierek regime officially presented its long-term strategy of socioeconomic development at the Sixth Party Congress in December 1971 (“Osiagniecia socjalne” 1972, 3). From now on long-term policy planning and “scientific” methods were supposed to take precedence over excessive preoccupation with theoretical problems.

Whereas during the 1960s most references to the official welfare doctrine were still frequently expressed in the language of Marxist-Leninist ideology, the 1970s were to become the “pragmatic decade,” at least in the sense of a flexible implementation of the combined plan of modernization in the economy and in social policy. Unprecedented economic prosperity and political stabilization of the early 1970s seemed to have created a very favorable climate for welfare reforms,?? prompting some of the more ambitious social policy planners to call for a creation of an advanced “socialist welfare society” (socjalistyczne spoteczenstwo dobrobytu) that would include rapid expansion of investments in the social infrastructure for day-care centers, schools, hospitals, higher education, and also further extension of cash benefits to all occupational groups. These plans also anticipated significant growth of pensions and other social insurance payments along with increasing labor productivity and rising real wages. Therefore, quality of the benefits would also continue to improve when they became more widely available, according to one universal measure of a statistically determined “social minimum” (minimum socjalne), regularly adjusted by the Ministry of Labor and Social Affairs in accordance with the wage increases in the national economy (Polska 2000, 1975, 73-101; Rajkiewicz 1975, 243). Guided by such an overoptimistic, “positivist” vision of state socialism, detached from larger historical trends, institutional realities, and the actual political and socioeconomic context of Gierek’s Poland, this vision plan promised much more than it could actually deliver. Instead of steady growth and permanent modernization, the Polish welfare state went through another turbulent cycle of failed retrenchment in the mid-1970s, followed by an unprecedented wave of liberalization in all areas of social insurance from 1977 until 1982. Even a short initial period of rapid economic growth of nearly ro percent per year, with 36 percent rise in real wages during 1971-1975 (Dane porownawcze 1979 and 1982), brought about rather disappointing results for those who expected widespread and lasting improvement of social security as a whole. It is true that after decades of neglect, spending for cash benefits for working women (mothers), for example, more than doubled as percentage of the NMP (see Table 3.4). Out of a dozen legislative changes in the welfare state (Tajne Dokumenty Biura Politycznego. Grudzien 1970, 1991 (Document no. 13, transcript of the conversation of Edward Gierek and Piotr Jaroszewicz with Leonid Brezhnev in Moscow on 5 January 1971, pp. 126-136, my translation).

33 The new Chairman of the State Planning Commission, Mieczystaw Jagielski, argued, for instance, that with good advanced planning, backed by modern scientific knowledge, the “socialist system” can overcome negative tendencies that have affected contemporary industrialized countries (Jagielski 1974, 39).

Poland 167 implemented in the first months following the strikes in the textile industry, at least half focused on female workers and mothers (“Osiagniecia socjalne” 1972). Also, for the first time since the war, maternity leave was extended from twelve to sixteen weeks (eighteen weeks for the second child), and by 1975 a new Labor Code granted insured workers sick and maternity pay at 100 percent of wage, a privilege so far enjoyed only by salaried employees. Yet although meaningful and badly needed, these improvements were a rare and rather modest exception to a general historical trend in Polish postwar social policy.

Usually a slowdown of government welfare effort in Poland would follow almost immediately after a crisis period. All surplus funds would again feed fur-

ther industrial investment, and benefits would quickly return to previous low levels. Indeed, in a pattern similar to the early 1950s and 1960s, soon after successful power transition and restoration of economic growth the level of social expenditures began to decline by the mid-1970s. For example, after a temporary rise in the wake of labor unrest in 1971, family benefit spending dropped to the precrisis levels already next year. More important, by mid-1970s, despite two pension increases, in 1970 and 1975, and the addition of hundreds of thousands of new beneficiaries, the level of pension expenditure remained practically unchanged since 1969 (see Table 3.5b), and during 1971-1978 rapid growth of real wages and continuous absence of inflation indexing pushed down the average pension replacement ratio from 52 to 40 percent (Muszalski 1992, 176).4 Post-1971 policy retrenchment also negatively affected sick pay policy. Unable

to control the growing cost of work absenteeism, the government tightened the eligibility rules, requiring a waiting period and an eight-year employment record to receive full compensation. Moreover, the state enterprises assumed responsibility for sickness insurance in the public sector, allowing the ZUS to maintain the social insurance tax unchanged at 15.5 percent. This conservative retrenchment of social insurance policies in the context of rapidly growing employment enabled the ZUS to maintain large surpluses of revenue, feeding into the investment frenzy of the early 1970s and creating a false impression of stability and prosperity of the welfare state under the Gierek regime. In reality, however, dysfunctional distributive mechanisms that had emerged during previous decades by now had become firmly institutionalized as an integral part of the welfare state. The pension system, which had expanded from a mere 30 percent of the social insurance budget in 1956 to over 70 percent in 1975, continued to grow in importance as the main focus of attention of different occupational groups seeking to improve their safety net. First, the members of the communist apparat received special permanent guarantees of pensions and other social benefits in a secret decree of 34 Expenditure for social benefits grew by 35 percent in 1971-1972, as much as in the whole five-year period from 1966 to 1970. Real wages grew by 12 percent (Bozyk 1983, 30). Average pension amounted to a record 51.8 percent of the average wage in 1971, but by 1978 it fell to only 39.7 percent (Muszalski 1992, 176).

168 Policy Legacies and Welfare States Under Communism, 1945-1989 October 1972 (Zielinski 1982, 12). Second, the emergence of the so-called min-

isterial lobbies in Gierek‘s Poland (Lepak 1988, 144-145) led to the consolidation and further expansion of separate pension rules and bonuses for the military, veterans,*> miners, and freelancing artists and writers. While total pension expenditure during 1975-1980 increased by 36 percent, military and police pensions rose by 84 percent, and benefits for miners and railroad workers by 46 percent as percentage of NMP (ZUS and my calculations) (see also Table

3.4 above). The declining level of average pensions also stimulated a virtual epidemic of special legislation granting numerous discounts and supplements to regular benefits, including payments to recipients of state medals, honors, and ever-expanding groups entitled to disability payments and early retirement because of “work in unhealthy and dangerous conditions” (Ewa Borowczyk interview, 31 March 1993). Decentralization of the party bureaucracy and the shift of decision-making power from the party Central Committee to the government helped to facilitate this process, undermining periodic attempts by the ZUS and the Ministry of Labor to bring more order and central control into social policy decision making. When in 1975-1976 the economy began to slow down, social insurance spending had already returned to the level of 1971, which in practice, however, meant the collapse of the half-hearted retrenchment efforts (see Table 3.5b). The failure of the price reforms in June 1976, reversed just a few days after a fresh wave of labor strikes in several industrial centers, demonstrated the political weakness of the Gierek regime in confrontation with social demands. It also undermined any hopes for a modernized vision of the “socialist” welfare state based on a balanced and realistic expansion of social insurance, health care, education, and other services. Without much advanced planning, in the context of deteriorating economic and political situation social policy priorities in Poland began to shift permanently toward a much greater reliance on cash benefits as the best proven method of crisis management. In the next six years, spanning the collapse of the Gierek regime, the rise and fall of the Solidarity movement, and the imposition of the martial law by General Wojciech Jaruzelski, the level of social insurance spending grew faster than ever before in the country’s history, reaching a record level of over 14 percent of NMP by 1982 (see Table 3.5). Since 1977, for the first time ever government “welfare effort” grew steadily in all categories, even though the economy continued to slide into a deep recession. Previous crises lasted for a relatively short time and could be addressed more effectively by shifting surplus funds from one program to another, with the hope that quick economic recovery would help to cushion subsequent policy retrenchment. This time, however, the government no longer had the will or the political capital needed to resist the avalanche of demands coming from numerous sources at once. 35 From 1972 the newly created Ministry of Veteran Affairs successfully lobbied to restore special pension rights for all military veterans and war prisoners regardless of political persuasion (Muszalski 1992, 142).

Poland 169 Again, deeply engrained reliance on cash benefits as the mainstay of the Polish “emergency welfare state” turned out to be one of the most prominent and influential policy legacies transmitted by successive generations of pension,

sickness, and family policy experts in the welfare ministry, the ZUS, and the related communities of experts. The explosion of social expenditures in conjunction with the next wave of economic crisis involved simultaneous changes in pension policy and further innovations in family support. First, in 1977-1979, as part of an economic reshuffling under the Gierek regime, almost 900,000 people were sent into early

retirement with improved benefits under new laws. In 1981, in part because of the continuing recession, but also due to intense union lobbying during the Solidarity period, another 120,000 employees followed. Because the 1968 prohibitions on working pensioners almost totally vanished during the 1970s, however, many of the same people were later rehired while still collecting full pension (Aleksandra Wiktorow interview, 22 April 1993). Second, at the time of great economic uncertainty, the Gierek government embarked on the most ambitious welfare state project to date, namely, the expansion of the pension system to private farmers and the rural population. Although they represented almost a quarter of the population in the third decade after the war, the majority of Polish farmers and their families had no health insurance until 1972 and no pension coverage until 1978. Adopted at the time of declining economy, the new pension system for Polish private farmers aimed quite openly to alter the ownership structure in agriculture rather than only to close the important gap in social insurance coverage. Originally intended as a self-financed payment to households, rather than individuals, on the basis of the sale of agricultural goods to the state it nonetheless relatively quickly developed into a permanent entitlement scheme with a large number of fringe benefits for the rapidly aging rural population. The largely unintended conversion of a self-financed and limited social insurance plan into a huge system of agricultural subsidies spread over two decades and several

regimes, including the postcommunist ones. From 1978 to 1986 the level of government expenditure for farmers’ pensions increased five times. The payments remained relatively low, but in the early 1980s the communists finally abandoned their ambition to undermine private agriculture and also gave up on their plans to cover at least one third of the expenditures with the contributions by the insured. Throughout the next decade the state budget continued to finance 90 percent of the pension expenditures, which in fact already amounted to a system of agricultural support in cash channeled via social security (see Simanis 1983). Third, the unfinished expansion of the short-term benefits resumed again in the late 1970s under Gierek and continued in the early 1980s in the more egalitarian direction under pressure from the Solidarity union. Initially, the introduction of a universal child-birth benefit equal to 42.6 percent average wage,

for every child in Poland in 1978, which was intended to benefit everybody equally, actually compounded the impression of deepening inequalities, because

170 Policy Legacies and Welfare States Under Communism, 1945-1989 now insured workers qualified for two payments, including the additional one from the ZUS, while all other families received only one benefit designed for all citizens (Muszalski 1992). In 1980-1981, Solidarity and the increasingly independent official unions attacked these and other similar privileges for certain groups of employees, including members of the party, nomenklatura, and the military. Once the secret decree of 1972 and special family benefits for the communist establishment were abolished, shortly after the famous agreements with the striking workers of September 1980, Solidarity demanded the establishment of paid child-care leave for all mothers willing to stay home with young children. Arguing that the communist policy of labor mobilization represented a deliberate attempt to destroy the traditional model of the Polish family, union activists called not only for special insurance benefits for young mothers, two thirds of whom took advantage of the unpaid extended leave after the expiration of the regular maternity period, but also for equal treatment of all workers and special provisions for fathers willing to take care of their children at home.3° Negotiated with the Ministry of Labor in February 1981 and implemented soon the following summer, the new child-care law granted all insured mothers a maximum of three years of child-care leave with a compensation of 50 to 100 percent of wages, depending on income. In the following year 800,000 women went on leave and 80 percent of them were eligible for cash benefits. Establishment of independent labor organizations also contributed to further liberalization of sick pay policy. Lack of fiscal discipline in state enterprises led to a 30 percent cost increase in this area already in the late 1970s, but in 1981, during the time of economic and constant political turmoil, sick pay expenditures rose to an alarming level of almost 2 percent of NMP (see Table 3.5). From the beginning, the Solidarity union paid special attention to the problem of unequal distribution of social benefits for current employees, starting with the early demand of the striking workers in Gdansk to abolish special family allowances for the police and party nomenklatura (Laba 1991, 157). Soon after, the union also seized on the popular idea of a “social minimum” to pressure the weakened party-state for further concessions in an escalating battle over the future of political and economic reforms in Poland. Nonetheless, Solidarity never offered any new prescription for the transformation of the ailing welfare system as a whole. To the contrary, all Polish unions, without exception, showed little interest in challenging the status quo in pension policy. In fact, during the 1980s Solidarity leaders and the entrenched “ministerial lobbies” of the Gierek era shared an interest in defending and expanding their extensive rights and privileges won during the past decade. Therefore it is hardly surprising that when government power in conducting coherent social policy continued to deteriorate and numerous concessions were easy to obtain 36 Andrzej Tymowski interview, 7 December 1993; Jan Rulewski interview, 15 April 1993; Janusz

Obodowski interview, 18 March 1993; Antoni Rajkiewicz interview, 30 November 1992; and Stanistlawa Golinowska interview, 18 January 1993.

Poland 71

in negotiations with the Ministry of Labor, no credible societal force seriously could question state monopoly over the welfare state (Tymowski 1981).3” The First Solidarity Congress, held in September 1981, formally criticized the centralized system of social policy in Poland and called for the “socialization” and democratization of social insurance, but, at the same time, it also defended the need for the state monopoly on welfare organization and financing (Zielinski 1982, 6). The imposition of martial law on December 13, 1981, and the defeat of the Solidarity movement produced little immediate change in the course of social

policy. Contrary to the expectations of many economic planners and social policy experts alarmed by escalating social expenditures, the Jaruzelski regime

approached the welfare state generally the same way as its predecessors did during previous political and economic crises. In 1982 the martial law regime succeeded in implementing price increases and cutting down sick pay costs in pacified state enterprises?° by almost 50 percent, using a mix of disciplinary measures and the reduction of the basic benefit from gross to net wages (Szubert

1990, 10). Yet these savings were immediately offset by a huge increase in spending for family benefits. First negotiated with Solidarity in preparation for an economic reform package in 1981, these extra payments, however, helped to cushion the effects of price and wage stabilization under the martial law. The new pension legislation, announced in December 1982, also contributed to higher than expected social insurance costs under the martial law regime. It not only increased all pensions but also established minimum old age pension at 90 percent of the lowest wage (minimum disability pension at 75 percent) and promised that regular annual indexing of all benefits in accordance with wage increases would begin in 1986. Praised by the official propaganda as a “major pension reform,” in practice the law represented a trimmed-down version of a much more realistic and cost-effective proposal prepared by the Ministry of Labor during the years of economic crisis, 1979-1981 (Januszek 1982, I-6G).

Introduced under intense political pressure from official trade unions, ministerial lobbies, and party officials fearful of social unrest, the new legislation not only preserved most of the existing privileges and inequalities in the pension system but also expanded them even further. New legalized provisions for government and party employees substituted for the repealed decree of 1972, all remaining restrictions on earnings vanished, and many more groups of employees became eligible for lower retirement age, a long-standing demand of both

the traditional ministerial lobbies and striking workers.3? Furthermore, the 1982 law greatly expanded the social insurance system for individual farmers. 37 Also Tymowski interview, 7 December 1993, and Golinowska interview, 18 January 1993. 38 That is, after the military and the police quelled the labor strikes and protests in many enterprises by force during late December 1981 and early 1982. 39 Earlier retirement rights and privileges appeared on the list of the top ten demands of striking workers in Poland both in 1971 and 1980 (Laba 1991, 157).

172 Policy Legacies and Welfare States Under Communism, 1945-1989 Prepared in conjunction with a constitutional amendment that guaranteed state protection for private ownership of land in Poland, it granted a much expanded menu of benefits, including work injury, disability, survivors’ pensions, and family assistance, to a much larger group of people in the countryside. Although benefits for private farmers still remained much lower than regular social insurance payments, many rural inhabitants continued to work in neighboring cities and towns and eventually qualified for two separate pensions while still holding on to their farms (Borowczyk interview, 31 March 1993; Wiktorow interview, 22 April 1993).

The massive, second wave of increase in social insurance spending and improved access to many old and new benefits during the most severe postwar economic crisis of 1979-1982 could hardly compensate the impoverished population for the shortages of consumer goods, deterioration of social services, price inflation, and ultimately for a subsequent drop of real wages under the martial law regime. Without this effort, however, the situation of the many social groups, especially large families, women with young children, and pensioners, whose benefits rose again to 50 percent of the wage in 1982, could have been much worse. We may argue, therefore, that historically the pattern of social policy making in Poland have been firmly based on “cyclical” waves of liberalization in the aftermath of major crisis, with the final, most consequential surge from the late 1970s through the early 1980s. Nevertheless, this sudden acceleration in social insurance spending and the corresponding expansion of benefit rights and privileges came with an extremely high cost for the slowly recovering economy. In the late 1970s the ZUS experienced the first short-term deficit in the pension fund, and during the crisis years the government had to raise social insurance taxes twice, first in 1980, from 15.5 to 30 percent, and then again in 1982 to 43 percent. The second increase worsened the dismal performance of the state sector of the economy, which in the first two years of recovery declined by a further 1.7 percent, while the small private sector that paid a reduced social insurance tax of only 33 percent grew by 3.8 percent (Rocznik Statystyczny GUS, 1987, 1988, 88, table 3).4° Policy Legacies of Final Retrenchment and Failed Reforms, 1983-1989

After forcibly removing Solidarity from Polish politics, the regime of General Jaruzelski saved the Communist Party from collapse and restored the basic tenets of state socialist polity and the economy. The communist rulers, however, also seem to have learned from the past that sudden imposition of economic austerity at a high social cost could easily jeopardize their plans for political normalization. Thus, the reinforcement of the existing system of easily accessible social benefits, with the structural confines of the centralized social security system, eventually paved the way for the initial transition to the post-Solidarity era. 4° Also Ewa Borowczyk interview, 31 March, 1993, and Aleksandra Wiktorow interview, 22 April 1993.

Poland 173 Still, internally divided and pushed aside by the closely knit security advisers of the Jaruzelski regime, pragmatic social policy reformers could do little to control progressing liberalization of social insurance that originated in the late 1970s and early 1980s (see Tymowski 1981; Zielinski 1982). Hopes expressed by some market-oriented pro-regime economists that the return to authoritarian rule would allow a decisive implementation of a tough, “Pinochet-style” austerity package under the cover of the martial law quickly evaporated. From the very beginning, Jaruzelski embarked on a desperate search for allies to help expand his extremely narrow base of social support, and advocates of more generous social policy reemerged from all corners of the welfare state establishment, the welfare ministry, various occupational lobbies (branch ministries), and the trade unions (Jerzy Szreter interview, 2 June 1993). The official, governmentsupported trade unions (OPZZ) almost immediately seized the opportunity to regain favor among the workers after the suppression of Solidarity, successfully claiming the mantle of the main defender of the established social privileges for miners, railroad workers, those in the steel industry, and many other professions (Jacek Kuron interview, 29 April 1993). Also, the procommunist establishment of the officially sanctioned Polish Peasant Party (ZSL) increased its influence as the key advocate of the continued expansion of the heavily subsidized social insurance system for private farmers (Wiktorow interview, 22 April 1993). The economic recovery of 1983 and the end of the special martial law regime further emboldened these special interests in their struggle for more social concessions based on the preexisting policy patterns and costly privileges granted to various occupational groups. Nonetheless, the resumption of economic growth

also stimulated a search for more comprehensive reforms of the welfare state. Aware of the precarious political position of the Communist Party and the general lack of confidence among the top leadership, leading economists and social policy experts began to criticize the Jaruzelski regime openly for wavering and ineffectiveness in dealing with the difficult socioeconomic situation (Kupiec 1983, 3-6). In 1984, after a major government restructuring, advocates of a tougher austerity measures took over the Ministry of Finance and the Ministry of Labor and launched a major effort to save the economic recovery by imposing wage controls and slowing down the rapid expansion of expenditures for cash benefits.4* In the end, attempts to control wage increases failed and the welfare state retrenchment of the mid-1980s succeeded only partially, following a predictable, politically sate pattern of seeking savings in the most vulnerable programs with weak constituencies. By the mid-1980s elimination of special price bonuses for families reduced spending for family allowances by 50 percent, and, mainly due to large reductions in eligibility for child-care support, benefits for mothers fell back to the 47 Stanistaw Gebala, an economic secretary of the PUWP Central Committee, replaced party liberal Stanistaw Ciosek as the Minister of Labor and immediately implemented new cost-saving measures (Jerzy Szreter interview, 2 June 1993).

174 Policy Legacies and Welfare States Under Communism, 1945-1989 TABLE 3.5¢. Poland: Social Expenditures for Major Cash Benefits as Percentage of Net Material Product (NMP), 1983-1990

Year 1983 1984} =1985 1986 1987 1988 1989 1990 Social insurance expenditures”

Yo NMP 13.38 12.99 12.41 12.34 12.4 12.08 11.28 14.14

Pensions”

Yo NMP 8.03 7.97 7.71 7.75 8.19 7.63 6.86 8.97 Yo NMP 0.77 0.8 0.86 1.09 1.07 1.01 0.97 1.56 Family benefits Yo NMP 2.54 2.26 1.96 1.67 1.37 1.92 2.37 1.87 Farmers’ pensions

Sick pay°

% NMP (ZUS) 0.06 0.08 0.09 O.I O.II 0.09 0.06 O.12

% NMP 0.95 I.O1 1.04 1.02 0.99 0.83 0.57 0.81 (enterprises)

% NMP (total) 1.01 1.1 1.13 1.12 1.1 0.93 0.63 0.94 Sources and Notes: See Table 3.5a.

1980 level (see Table 3.4, p. 155). The government also delayed the promised pension indexing, forcing many pensioners and young mothers to return to work. Also, the overall effect of the attempted austerity measures on pensions turned out to be much less dramatic than originally intended. By 1986 total spending in this category declined by only 3.5 percent (to 7.7% of NMP; see Table 3.5c), while miners and railroad benefits actually grew by over 14 percent. At the same time expenditures for farmers’ pensions rose from 0.8 to over 1.1% NMP (see Table 3.5c) during 1983-1987, confirming the long-standing legacy of well-entrenched power of the occupational lobbies in Poland under successive regimes. The initial plan to finance at least one third of the farmers’ benefits by individual social insurance taxes turned out to be impossible to implement, and in the final years of communist rule the state budget continued to pay 90 percent of the cost of the system, now consuming at least 1 percent of the net national product, five times more than in the late 1970s (Stanistawa Golinowska interview, 18 January 1993) (see Tables 3.5b and 3.5c). Unquestionably, since the late 1950s the influence of fiscal conservatives had eroded considerably, whereas combined political and economic weakness of the communist regime created the most favorable condition for the preservation of other key legacies of the domestic social policy, namely, the proliferation of special pension privileges and liberal access to sickness/maternity benefits. In spite of the improved economic situation, the structural conditions in Poland during the last decade of communism were hardly conducive to a meaningful welfare state reform, even a limited one reminiscent of the Gierek era. In the late 1980s the government began to dismantle the centrally planned mechanism and encourage limited expansion of the private sector. By doing so, the Jaruzelski regime effectively undermined the efforts of the finance and labor

Poland 175 ministries to better coordinate social and economic decisions, leading to inherently contradictory policy decisions. Limited concession to the private sector, for instance, produced a backlash from the state enterprises that eventually hurt social security reform. For example, the separation of the Social Insurance Fund from the general budget in 1987 coincided with lowering the social insurance tax by 5 percent, in an attempt to revive the public sector, while the private companies were now required to pay 5 percent more. In consequence, the fund’s surplus dropped suddenly in just one year from 22 to only 8 percent of the collected revenue. Meanwhile, public enterprises continued to raise wages, feeding the inflationary spiral and contributing to further deterioration of social benefits for most citizens, except the nomenklatura and the well-protected privileged groups, now including not only farmers but also the expanding private sector, where most of the income went largely unreported.* The final attempt to restore stability to the social insurance system amid a rapidly deteriorating economic and political situation came in late 1988 and early 1989, in the aftermath of another major wave of labor unrest but before the government made the historic decision to legalize the opposition and negotiate the famous Round Table agreements with the leaders of Solidarity. The Ministry of Labor, which by now had firmly consolidated its key position as

the central policy-making institution of the welfare state and an important mediator on social issues, attempted to forge a lasting compromise between the urgent need of economic reform and powerful societal interests. In contrast, economic reformers and social policy conservatives had been traditionally dis-

persed among various party and state organizations and since their heyday during the Gomutka years never really regained the upper hand. Approved by the Council of Ministers after widespread consultations with the trade unions, various occupations, and social groups (except the still illegal Solidarity) in early 1989, the official draft of the social insurance reform focused on several key unresolved problems of the communist welfare state in Poland, such as the lack of financial transparency of different social insurance programs, the spreading epidemic of special retirement rights, and the uncontrollable growth of disability pensions since the late 1970s. In 1988, when social insurance spending dropped for the first time to the level before the imposition of the martial law, one fifth of all social insurance spending went to finance pensions for only five major occupations, the military, police, miners, railroad workers, and private farmers. Moreover, during 1970-1989 the number of disability pensioners grew from 500,000 thousand to 2.2 million and in the last year of communist rule consumed 2.3 percent of economic output (Rocznik Statystyczny Ubezpieczen Spotecznych, 1987 and 1990, and my calculations). More than twenty different organizations involved in the discussions over the ministerial project fully endorsed the idea of increased financial independence of the ZUS, including new proposals to create supplemental pension schemes. 42 Wiktorow interview, 22 April 1993; Borowczyk interview, 31 March 1993; and Golinowska interview, 18 January 1993.

176 Policy Legacies and Welfare States Under Communism, 1945-1989 They also welcomed the new egalitarian and redistributive proposals, such as universal entitlement to family benefits adjusted to inflation, higher child-care benefits, and the abolition of all restrictions for working pensioners. Yet almost everyone vigorously opposed plans to curtail the existing pension rights, especially the abolition of early retirement provisions for women and elimination of bonuses for the privileged occupations (Polityka socjalna w PRL 1989). Even the most moderate proposals of a partial retrenchment in social policies, intended to ensure temporary viability of the pension system, were soundly rejected by the major clients of the welfare state. In just a few months the government and the opposition began heated discussions on similar subjects at special sessions during the famous roundtable talks of the early 1989. Instead of a comprehensive reform proposal, the talks produced an avalanche of separate detailed agreements designed to protect the rights of farmers, miners, teachers, and many other groups with special needs and grievances. To the dismay of all participants, the official trade unions also broke the ranks with the communist negotiating team to demand separate deals on the amendments to the 1982 pension law (Szreter interview, 2 June 1993; Jan Rulewski interview, 15 April 1993). All social groups, however, presented a common front on one issue: the implementation of regular, quarterly indexing of salaries and all social benefits in relation to a quarterly indicator of an average wage in five major branches of the public economy. In the end, following a well-established historical pattern of “emergency decision making” under communist rule, the government side gave up on its plans for any comprehensive reform of the welfare state. During an escalating political and economic crisis the Jaruzelski regime actually agreed in principle not only to maintain but also to continue to expand the existing social programs (Porozumienia okragtego stolu 1989). This time, however, the outgoing communists were convinced that the Solidarity politicians themselves would eventually have to bear at least part of the blame for the grave economic consequences of such a policy. They were eventually proven right when the first democratic government of Tadeusz Mazowiecki took over power in the summer of 1989, effectively ending the communist era in Poland. HUNGARY

Czechoslovakia and Poland experienced many significant and consequential crises and shifts in their social policies during 1945-1989, but none of these

developments was as radical, intense, and ultimately contradictory as the changes imposed on the Hungarian welfare state under communist rule. These

changes started during the Stalinist period of 1948-1956 with a calculated assault on the well-established and relatively generous system of state entitlements and sharp reductions of the recently expanded social benefit payments for the general working population. Next, after the collapse of the Stalinist state in the 1956 revolution and the subsequent restoration of communist control by the new party chief, Janos Kadar, Hungarian policy makers launched a major

Hungary 177 effort to rebuild and significantly modernize the long-neglected and underfunded social insurance programs. Implemented in stages, from the mid-1960s until the mid-1970s, the new social policies of the Kadar regime represented a vital component of a larger project — a unique combination of “welfare authoritarianism” (Breslauer 1978) and decentralized command economy under the

New Economic Mechanism (NEM), also known as the Hungarian “market socialism.” This period brought about significant improvement in family policy, with a dramatic shift of focus from collective forms of assistance to individual monetary forms of social support. Also, political liberalization and growing influence of independent experts raised hopes for the creation of a new type of expansive “societal policy” (Ferge 1979). Yet underlying structural weakness of the partially reformed economy and the existing welfare state, including the absence of an effective mechanism of policy coordination at the top level of government and the lack of basic ideological consensus within the policy-making establishment, paralyzed these efforts from the start. In the midst of a looming

economic crisis of the early 1980s the Hungarian government began to abandon its ambitious plans to continue to upgrade and expand many of the recently improved social programs. Instead, inspired in part by western economic liberalism, the communist regime, led by a group of younger and more determined reformers, turned back to conservative policies of the past, hoping to scale back the unprecedented increase in cash transfers that had accompanied the NEM program since the late 1960s. Policy Legacies of the Postwar “Transition Regime,” 1945-1947

Tumultuous transition from the provisional “Debrecen” government to full communist control under single party monopoly allowed little room for social policy experimentation in Hungary, and, in contrast to Czechoslovakia and Poland, the reconstructed system of social insurance was never clearly subordinated to a single governmental agency. As an embattled political minority surrounded by hostile population that favored full restoration of an independent national state, the Moscow-backed communists adopted a seemingly contradictory approach to winning an absolute monopoly on power in the country. On one hand, in accordance with Stalin’s instructions, they initially refrained from undermining the existing state institutions staffed by the highly experienced, professional civil service (Kovrig 1979, 160). On the other hand, already from 1946 they began to pursue “mass movement tactics,” which amounted to an inside purge of not only the government bureaucracy but also all other political and social organizations, including political parties, trade unions, works councils, and national committees that had been spontaneously organized around the country in a grass-roots effort to create a left-leaning democratic regime

after the war (173, 187, 190). The “revolutionary” fervor also affected the functioning of two main social insurance institutions, MABI and OTI, not only undermining the position of the old personnel hostile to the new regime, but also creating false hopes among the incoming cohort of young communist

178 Policy Legacies and Welfare States Under Communism, 1945-1989 supporters. This small but dedicated group of activists came to believe that a radical expansion of major benefit programs would quickly follow the bureaucratic purges (Péter Bod interview, ro April 2003), just as had happened almost three decades before under the short-lived Bela Kun‘s republic. Indeed, from the mid-1940s the central government in Budapest had been sending all the right signals, indicating that important changes toward a more generous and democratic social policy might be on the way shortly. In 1944, the outgoing regime lowered the retirement age for all insured to sixty years,

and during 1945-1947 all hired laborers in agriculture received mandatory health insurance (Bod 1995, 176-1977). Also, under a prime-ministerial decree of 1945 employers assumed all responsibility for social insurance contributions (Nagy 1986, 311). In addition, the Debrecen agreement restored the Ministry of Welfare under the leadership of a left-wing socialist, Erik Molnar (Kovrig 1979, 161), and confirmed the independence of the reconstituted and popularly elected boards of the social insurance institutions, OTI and MABI. At least on the surface, all these developments indicated a revival of government interest

in a more responsive and forward-looking social policy of the sort that had been promoted by the progressive socialist forces in Hungary since the early twentieth century. A complex mix of economic, political, and structural changes, however, shattered this vision before any major plans of social insurance reforms could crystalize. First, the postwar economic crisis and runaway inflation, caused not only

by the war devastation but also by the widespread appropriation of national resources by the Soviet Red Army (Held and Hanak 1992, 207-208), placed an enormous burden on the social insurance institutions. Contribution rates went up three times during 1945-1947 to satisfy the growing demand for investment in the health infrastructure, benefits, and services after the initial expansion of eligibility and employment in the public sector (Nagy 1986, 311; Bod interview, to April 2003). Second, once the orthodox communist officials, followers of the notorious Stalinist dictator, Matyas Rakosi, consolidated their power over the central government and successfully infiltrated OT] and MABI, they almost immediately reimposed the old mechanism of state control over social policy making that had functioned previously throughout the 1940s.

After the 1945 elections, the Ministry of the Interior, now in the hands of communist Imre Nagy, became an important tool of the “revolution from above,” issuing detailed policy decrees on behalf of Rakosi and his narrow ruling circle. Also, because in 1948 the Ministry of Finance and Central Planning practically took full control over social insurance policy, marginalizing both the Ministry of Welfare and the quasi-independent boards of OTI and MABI, any reform initiative coming from within the social policy establishment had little chance of success. The fate of one such proposal to progressively raise sick pay for workers from 60 to 95 percent of wage, rejected by the Ministry of Finance in the late 1940s (Bod interview, 10 April 2003), marked a quick end to a brief era of hope and anticipation for long-awaited improvements in the quality of Hungarian social policy after the war.

Hungary 179 Policy Legacies of Stalinist Retrenchment and Decline in Social Protection, 1948-1956

Immediately after the defeat of political opposition and the forced unification of the Hungarian Communist Party and the Social Democrats in June 1948, the regime forged ahead with its radical program of social change. Rakosi zealously followed Stalin’s belief that “the masses should be suppressed politically and exploited economically until socialism was secure and its enemies liquidated” (Brzezinski 1967, 211). Trade unions, social insurance institutions, and other organizations, so effectively utilized in the struggle for power in the immediate postwar periods, were completely demobilized and subordinated to the partystate, becoming de facto extensions of the state bureaucracy. The regime also combined administrative centralization and political terror with a particularly ruthless policy of socioeconomic transformation whose scope and intensity surpassed similar efforts undertaken by the much more entrenched and confident Gottwald regime in Czechoslovakia and the considerably weaker and less effective Bierut government in Poland during the same period. In stark contrast to Poland and Czechoslovakia, the Hungarian Stalinist constitution of 1949 made no mention of any extensive welfare guarantees. More specifically, social policy legacies of Hungarian Stalinism differed from the expe-

riences of the other two countries in four major ways. The scale and the depth of decline in social welfare were much greater. Beneficiaries of the social insurance system suffered more widely and directly as a result of sweeping political purges. All traces of independent social policy expertise almost completely disappeared from within and outside the decision-making circles. Finally, despite better health care and pension coverage for the working population after 1945, for ten years hence the communist governments failed to either propose or implement any meaningful reform or credible alternative to the underdeveloped and underfunded system of cash benefits carried over from the interwar period.

Although in real terms during the early 1950s the Hungarian economy expanded a bit more slowly than was the case in Czechoslovakia and Poland at the time (see Table 3.1 above), the society was much more deeply affected by harsh industrialization policies implemented very quickly amid unprecedented level of political repression. As Zbigniew Brzezinski notes, before the adoption

of the more liberal New Course under pressure from the new Soviet leadership in the summer of 1953, in Hungary “[t]he violence of the purge trials and the executions of many non-Communist leaders were matched by an industrial development drive which envisaged during a Five Year Plan a [utopian goal of| 380 percent increase in the production of consumer goods” (Brzezinski 1967, 163). In reality, the population suffered extreme economic hardships, especially after 1951 when the government introduced price reform and food rationing (Ferge 1979, 280). At the same time consumer prices rose by 20 percent, and in 1952 real wages and pensions, already severely diminished since the 1946 inflation spiral, dropped further by almost 20 percent (Maria Augusztinovics

180 Policy Legacies and Welfare States Under Communism, 1945-1989 interview, to April 2003). Because the postwar employment increased by as much as 50 percent during 1948-1955 and the value of all monetary income continued to fall, a large number of working people, including thousands of newly insured persons, had to pay wage taxes to maintain a diminishing social safety net that promised them little in return. Persistent poverty among the elderly and widespread recruitment of women to the labor force, which more than doubled since the 1950s, generated an urgent need for a new approach to welfare. The Stalinist government, however, suppressed all social research, and the term “social policy” disappeared from the official vocabulary (Ferge 1979, 62-64). The Rakosi regime opted only for a partial, temporary solution to this problem. It ran the existing programs at a minimum cost and without any firm commitments of state support for cash transfers that could raise expectations beyond what the government was willing to provide. The pension decree of 1951 recognized six different categories of employees but also reestablished the principle of joint employer/employee financing. Thus from the early 1950s, with the brief exception of 1952-1953 when all employees paid a 1 percent salary tax, not only employers but also all workers continued to pay a portion of their wages, from 1 to 15 percent, as contributions to the pension fund (Tomka 2003, 51; Nagy 1986, 320). This situation did not affect the basic nature of the benefit financing during state socialism as an integral part of the national budget but had an important longterm effect as a symbolic continuation of the deeply ingrained tradition of fiscally conservative, Bismarckian social insurance in Hungary. Apparently, the Hungarian Stalinists learned from the start that the rudimentary core of the welfare state, which had been rather successfully adopted to the country’s developmental needs during the 1930s and 1940s with little political opposition, would serve their purposes equally well without any major changes and adjustments. Concentrating on the firm consolidation of state power at the very top of the decision-making structure, they refrained from advocating a more generous system of “socialist social security” as a replacement for traditional social insurance programs, as happened in Czechoslovakia and also partly in Poland during the same period. Instead, aware of the preexisting structural constraints and the lack of a clear normative blueprint, they created a simplified common set of rules for six different groups of contributors, who received a base amount of 15-30 percent of average wage plus an annual 2 percent bonus based on employment record since January 1, 1945 (Tomka 2003, 51-53). Lhe age criteria, sixty years (fifty-five for women) for the lower base pension and sixty-five (sixty) for the higher one, with 3 percent increase in base payment for every extra year in insurance, was the only major distinguishing characteristic in the otherwise rudimentary scheme with few fringe benefits (Bod 1995, 177). Only miners and soldiers preserved some of their special privileges (Tomka 2003, 51).

In the early 1950s the Hungarian communists also completed the liquidation of the extensive system of state entitlements for thousands of employees of the previous Hungarian government that had remained largely intact since the

Hungary 181 beginning of the century, amounting to 70 percent of all pension expenditures in the 1930s. Already in 1946 approximately 60,000 civil service employees on the so-called B list lost their jobs and social benefits (Tomka 2003, 50). Meanwhile, before the adoption of the 1951 pension legislation, which replaced the 1912 state pension law, the communists arrested more than 150,000 “political

enemies,” equal to 1.5 percent of the total population (Heinrich 1986, 32), further reducing the number of clients of the postwar social insurance system. According to Tomka, when we include entitlements for state employees, in 1950 total pension spending in Hungary dropped to just 1.66 percent of the GDP, which represents less than half of the expenditure level recorded in 1930, the first year of the Great Depression (Tomka 2003, appendix, table 2). The policy of harsh repressions, disciplinary measures, and radical budget cuts aimed against the clients of the welfare state expanded far beyond the civil service and the pension system. For example, in 1952 alone the authorities launched 6,000 investigations of social security fraud (Tomka 2003, 64), and during 1951-1952 some 15,000 workers were convicted for work absenteeism (Hankiss 1989, 112). Also, after initial expansion of family benefits to all of the working population in 1946, in 1953 the government stopped payments to workers with only one child (except single mothers). In addition, until 1957 insurance payments to working mothers continued to decline parallel to the introduction of universal access to different forms of benefits in kind for all women (Goralska and Wiktorow 1988, 108). As sociologist Lynne Haney rightly observes, “it is not possible to understand fully the dynamics of Hungarian state-building in the postwar era without an analysis of the family both as a model for reconstruction and as an institution in need of reconstruction” (Haney 2002, 117). We must remember, however, that during the Stalinist period this process involved simultaneous destruction and “reconstruction” of the socioeconomic fabric of the country along with traditional institutions of the family, the Catholic Church, private property, and the emerging welfare state. Focusing on the latter, Haney argues that while the main driving force behind the Hungarian family policy in the 1950s was the desire to supply cheap labor of women for the expanding economy, the communist rulers also espoused “an expansive understanding of women’s social positions — an understanding that stemmed largely from its socialized conception of need” (28). She also points out that the new welfare regime or “welfare society” of that period explicitly targeted the traditional family as an institution in need of rebuilding to accommodate the multiple roles of “men and women as workers, spouses, parents, and family members” (104-105). Haney is correct to observe that during this time “central planning [became] a primary form of welfare redistribution” (30). Indeed, the Rakosi regime apparently redirected some of the severely limited welfare resources from the formerly privileged groups of government employees, private property owners, and better earning male workers to women, families, and the poor in general. Hungary’s special position in this respect stemmed also from the previous experience with declining birth rates, which no government could ignore for long,

182 Policy Legacies and Welfare States Under Communism, 1945-1989 especially at the time of great need for labor resources. More important, however, the regime seems to have intentionally cut all pensions and other traditional social insurance programs for all working people to generate more revenue for investment in industry on a scale matched only by the Polish planning office under Hilary Minc during the brief period of 1950-1953. Yet the influence of orthodox Stalinist economists in Hungary lasted longer, and, despite Soviet urging for a more liberal approach, the communist regime successfully resisted making any meaningful improvement in the core of the welfare state until after the 1956 revolution. We must also keep in mind that the Hungarian communists inherited a legacy of a limited, conservative welfare state that lacked a powerful institutional advocate at the top of the decision making, that is, a ministry of social affairs. By the mid-1950s the well-established, more than half-a-century-old Hungarian social insurance system, which had been already severely weakened under hostile right-wing regimes of the early 1930s and during World War II came dangerously close to a breaking point. Only the appointment of the new Prime Minister, Imre Nagy, representing a reformist anti-Rakosi faction with the party, ultimately prevented the total collapse of the economy and the disappearance of the remnants of the social safety net. Nonetheless, the Nagy faction was too weak politically and too much focused on agriculture and consumption to fundamentally restructure social insurance and bring it up to date in line with the fundamental transformation of the country. It is true that in 1954 pensions did improve a little, when the base amount was increased from the maximum 30 to 50 percent of wage plus 1 percent supplement for each year of work since 1945, with equalized retirement age of sixty/fifty-five for everyone. Still, these changes were financed by an increased worker contribution of 4 percent for employers and 3 percent for employees (Tomka 2003, 53; Bod 1995, 177). In the same year the new government also introduced unemployment insurance, the first program of its kind in Hungarian history, but large demand for labor and low benefits very soon diminished its significance (Haney 2002, 31). In the end, however, Nagy’s failure to decentralize the state administration and curtail the power of the Rakosi faction in the central ministries before his expulsion from the government and the party in 1955 (Brzezinski 1967, 215-218) made it impossible to implement any meaningful liberalization of social policy reminiscent of the 1953-1956 reforms in Poland and Czechoslovakia. Policy Legacies of Reconstruction and Modernization of Social Insurance, 1957-1979

The popular revolution against the Stalinist regime in 1956, Soviet invasion, suppression of anticommunist forces, and favorable economic conditions during 1957-1960 all eventually contributed to the restoration of social expenditures in Hungary to the level of the late 1940s. The quality and range of social insurance benefits, however, improved more slowly and gradually than in similar, postcrisis situations in Czechoslovakia and Poland. On the surface it

Hungary 183 seemed that the pattern of revolutionary upheaval, tollowed by the restoration of the status quo, reproduced itself once again in the history of Hungarian welfare state in the 1950s, but with at least one crucial difference, in contrast to the Bela Kun regime: the Rakosi government failed to offer any comprehensive plan for social policy development and instead settled on a severely restricted version of the status quo. The new regime of Janos Kadar reestablished the communist dictatorship and consolidated power through a pragmatic combination of political repression and greater emphasis on the fulfillment of basic consumer needs. The secret police arrested at least 20,000 persons, executed 2,000 suspected revolutionaries, including Prime Minister Imre Nagy, and deported thousands more to labor camps in the USSR (Kovrig 1979, 318). At the same time, however, immediately after the Soviet invasion real wages rose 8 to 15 percent in different areas of industry and an additional 26 percent in 1957 (Ekiert 1996, 111), while prices remained stable throughout the next decade (Augusztinovics interview, 10 April 2003). These improvements, in turn, influenced two areas of the welfare state that were most closely related to the labor market and income policies — family benefits and pensions. None of the changes in socioeconomic policy amounted to a real breakthrough, but, as Grzegorz Ekiert rightly observed, the Stalinist policies of 1949-1955 and the revolutionary upheaval of 1956 caused so much damage to Hungarian society that the Kadar regime could raise living standards relatively easily and efficiently by modest shifts of emphasis on consumer needs. The government also relied on short-term foreign loans and made only minor corrections in the investment plans that again focused heavily on industrialization and collectivization of agriculture (1996, 115). More government attention to consumer needs in the first years of postStalinist decade had little immediate impact on the functioning of the welfare state. But traditional patterns of social policy making with a strong emphasis on cash benefits resurfaced quickly after 1956. Family allowances, for instance, regained their status as a major element of social policy used not just in emergencies and as temporary supplement to low wages, as a was the case in Poland, but, similar to Czechoslovakia, also in government efforts to encourage workers to have more children. By 1960 almost 600,000 families and 1.4 million children received payments that represented 0.8 percent of the GDP and more than 17 percent of the total expenditure for cash benefits (Bod 1995, 27, table 12; Ferge 1979, 242, table 7/1). In 1966, for example, an average family benefit for two children amounted to 16.5 percent of an average gross wage, in comparison with 22 percent in Czechoslovakia and only 8.4 percent in Poland (Dzienio 1976, 11). The only significant departure from the national tradition was the belated adoption of a modified version of the Soviet-style disability system in 1958, with three categories of pensions, paying 70, 65, and Go percent of the basic amount (calculated according to recent best years of wages) with a I percent supplement for each year of employment since 1929, up to 100 percent of the base salary amount (see Brzozowski 1967). At the same time, agricultural cooperatives received their own pension scheme, based also

184 Policy Legacies and Welfare States Under Communism, 1945-1989 on employee contributions of 3 percent but with a higher retirement age and lower benefits than in the general system. In addition, four years later, in 1962, the government expanded mandatory social insurance to self-employed persons under separate, less generous rules (see Ferge 1979). The significance of these social policy adjustments in the immediate post1956 period was two-fold. First, they reinforced the Bismarckian core of the pension scheme that favored higher earners with longer employment records, beyond the required minimum of ten years. Second, the Kadar regime finally liberalized access to pensions, allowing more people to receive benefits while

still preserving the decades-old patterns of discrimination against the rural population and the older beneficiaries. Since the 1930s average social insurance pensions and especially widows’ benefits had been very low by international standards, and this situation changed little until the early 1960s (Tomka 2003, 49). In Hungary, however, post-Stalinist pension liberalization had its own unique characteristics, such as, the introduction of special bonuses for dependents, including even non-married companions, grandchildren, and siblings living in the same household. Also, under this expanded definition of “dependents” many more people could now receive survivor pensions after the death of a disabled head of household (see Brzozowski 1967). Together with the more egalitarian trends in family benefits, this policy amounted to an important change of focus from the heavy emphasis on social services and collective forms of consumption in the early 1950s to more accessible work-related benefits in cash for low-income people in the post-Stalinist period. This situation, however, must have automatically raised alarm among eco-

nomic planners in Budapest, as it did during the same period in the decisionmaking circles in Prague and Warsaw. In the long run, the ambitious investment

strategy could become incompatible with steadily rising social consumption, especially when thousands of newly eligible workers began to retire and claim disability benefits. In addition, after a sharp decline under the Rakosi regime the cost of sick pay began to rise as well. In fact, already at the end of Kadar’s first three-year plan, in 1960, the social insurance programs, pensions, and sickness payments together consumed 56 percent more of Hungary’s GDP than at the beginning of Rakosi’s industrialization drive in 1950 (Tomka 2004, appendix, 167). Nevertheless, a rather firm conservative approach to social insurance by then had already become a permanent feature of the Hungarian welfare state regardless of the regime type. Moreover, by restoring the basic institutions of the Leninist party state, the Kadar regime automatically reconstructed many of the old practices and policy preferences that nobody was willing or able to undermine once again in the wake of the attempted anticommunist revolution. At least at the beginning of the Kadar era foreign ideas of universal, more comprehensive social security played no visible role in the reconstruction of the Hungarian pension scheme after 1956. Instead, the government adopted a gradual increase in service requirements for old age benefits, from fourteen years in 1958 to twenty-five in 1970 (Bod 1995, 177). This measure, in conjunction with the lack of regular indexing, helped to keep pension expenditures at a

Hungary 185 low level for more than a decade. According to Tomka, in 1960 Hungary spent less than 39 percent of its social security expenditures on pensions, whereas the Western European average at the time was about 50 percent, and in 1968 almost half of all pensioners received benefits of less than half of average wage (2003, 35). Overall, despite large expansion of coverage and easier access to benefits in the first decade of the Kadar government, in 1970 pension expenditure still remained below 4 percent of GDP, which is approximately equal to what occurred in Poland at the time, but much less than in Czechoslovakia before the social policy retrenchment of the mid-1960s (cf. Tables 3.2, 3.5b, and 3.6).%3

The Hungarian regime experienced its own cycle of economic slowdown during 1961-1965, but it was much less severe than the Czech depression of 1963 or the Polish crisis of 1970. Similar to the situation in Poland under the Gierek

regime, politics, rather than economics, eventually forced the rapid modernization of social policy and the substantial increase of welfare efforts in many benefit areas. As Grzegorz Ekiert points out, “the political crisis that led to the revolution imprinted on the Hungarian Communist Party leadership a conviction that people require humane treatment and the policy securing consistent living standards and consumption is the best protection from the recurrence of political tensions and conflicts” (1996, 115). This conviction by itself, however, was apparently insufficient to generate necessary political will for immediate action in the area of social policy. For several years following the revolution, the communist regime that had been rescued from its own people by Soviet tanks was still too insecure domestically and internationally to engage in bold policy experiments. Successful political stabilization and collectivization of agricul-

ture, however, reaching 75 percent of all land by the early 1960s convinced the government that the Leninist system of rule had been firmly reestablished and consolidated (Heinrich 1986, 40). Furthermore, Khrushchev’s attempts to decentralize Stalinist command economy in the Soviet Union and declining domestic growth rates, down from 11 percent in 1958-1960, to only 5.4 percent during 1961-1965, apparently gave Budapest an additional powerful incentive to seek more fundamental reforms.

The crucial opening for change occurred at the Eighth Party Congress in November 1962, when Janos Kadar declared that Hungary had successfully created the basis for a “socialist society” and encouraged noncommunist experts and intellectuals to help the government to forge a common program of further

development (Ekiert 1996, 107-108). Political amnesty and increased pluralism of debate in the policy-making circles also created a better atmosphere for a critical evaluation of past mistakes and opened up new opportunities for the exchange of ideas with other Soviet-bloc countries and Western Europe. In the economic sphere, after numerous experiments ranging from wage incentives to increased production norms, in 1966 the government finally proposed 43 This is only a rough estimate based on varied indicators of economic performance in the three countries.

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Hungary 187 a comprehensive decentralization plan, labeled the New Economic Mechanism (NEM), to be implemented from 1 January 1968 (Adam 1989, 35; Kovrig 1979, 363).

Since the early 1960s transformation of Hungarian social policies evolved in close interaction with these changes in the polity and the economy. Various reform ideas originated simultaneously among the NEM economists and social scientists and members of the intelligentsia, including both communists and nonparty experts invited by Kadar to join the common “alliance” for national development. Interaction between the two groups followed a rather convoluted path of agreement, conflict, and compromise, a process that lasted more than ten years. As Haney (2002, 99) argues, following the transformation of the main social institutions, in the 1960s social groups became the main targets of these policy makers. At first, they apparently came to an agreement that after the successful reconstruction of the basic social insurance programs, the government should focus more attention on the situation of working women and their families. The combination of dismal economic performance in the early 1960s and falling birthrates brought together government economists worried about labor redundancies, demographers looking for ways to stimulate population growth, sociologists eager to improve the situation of working women, and psychologists seeking to modernize family policy (91-96). Before 1970 major policy changes focused mainly on three programs, maternity pay, child-care assistance, and family benefits. In contrast to the situation in Czechoslovakia and Poland, where such improvements usually came in a single package under a common set of financial and legal guidelines, in Hungary these reforms arrived incrementally through different governmental channels. In the

interwar period insured female workers received relatively generous benefits for twelve weeks, but even though during the Stalinist era they also qualified for full wages, this level of support appeared no longer adequate in the 1960s, after labor participation of women grew from 50 percent in 1955 to more than 6o percent over the next decade (Haney 2002, 105), and fewer working women were having children. Thus, in 1963 the government increased maternity leave to twenty weeks, with a possibility of further extension by an additional four. In a token concession to the social insurance principle and to maintain greater labor discipline, only women with employment records of at least 270 days before birth were eligible (Grzeszczyk 1968, 26). Three years later, in 1966, at the same time when the first draft of the New Economic Mechanism appeared, the Kadar regime introduced the child-care benefits, known as GYES (Gyermekgondozasi Segély). Introduced in 1967, this program provided thirty months of paid leave for mothers who wanted to take care of their newborn children at home. For the first six months such women received full pay and if they decided to stay on leave for another two years

(from 1969 two and a half, for a total of three years), they qualified for a fixed amount of assistance from the state budget (Haney 2002, 104). At the beginning the amount of child-care pay, 640 forint, was equal to about 30 percent of average wage in industry (Grzeszczyk 1968, 26), and by the mid-1970s

188 Policy Legacies and Welfare States Under Communism, 1945-1989 as many as 75 percent of all young mothers benefited from this program. Paid directly by the budget and administered jointly by the employers, Ministry of Labor, and the Ministry of Health, the child-care assistance represented a hybrid combination of social insurance traditions, pronatalist tendencies, labor market incentives, and even remnants of old-fashioned poverty relief. Officially at least one year of prior employment was required to receive payment beyond the usual twenty weeks of maternity leave. In reality, however, under new labor regulations women were treated differently from other social groups eligible for traditional social insurance, and, in contrast to regular sick pay, very few cases of benefit suspension or denial due to insufficient work record were actually implemented. In addition in 1968, students, homemakers, and part-time employees became eligible for family benefits after the birth of the second child, and the total number of beneficiaries increased by 20 percent (Haney 2002, 108).

As Haney notes, under the terms of this new type of “maternalist welfare state,” the social policy administrators usually paid much more attention to the motherhood experience, a woman’s dedication to family life, and her living con-

ditions than to the actual work record or any other consideration (108-114). In the late 1960s such generous economic incentives given directly to individuals seemed to have produced better results than similar, although much more diffuse efforts undertaken during the same period in Czechoslovakia (Dzienio 1976, 12). Nevertheless, this policy also fundamentally altered the composition of the welfare expenditures. As a result, combined spending for sick pay, family allowances, and all maternity benefits more than doubled in twenty years, from 1.62 percent of GDP in 1960 to 3.88 percent in 1990 (Tomka 2003, table 16, and my calculations). During 1960-1970 the level of spending for maternity and child-care benefits grew more than six times in relation to the GDP, and the share of child-care payments in the social insurance expenditures rose from 5.4 percent in 1970 to 6.7 percent in 1975 (Ferge 1979, 242, table 7/1). Even though in theory the child-care program was financed directly from the national budget, we must also remember that in the same year mandatory individual contributions to the pension fund went up, to a maximum of 10 percent, according to income (Nagy 1986, 320). This decision automatically increased the revenue surplus of social insurance that could be used to finance the family programs. The unprecedented decision to introduce new expensive programs, such as GYES, the most generous child-care assistance in the entire Soviet bloc derived from a complex mixture of economic and ideological factors. Haney, for instance, emphasizes purposeful government action guided by the advice of psychologists who promoted “home rearing” of children, in combination with the insufficient development of day-care facilities and, to a lesser extent, also the fear of labor surpluses expected to emerge under the NEM reforms (2002, 37, 93-96). Others, however, imply that a more general internal and

external diffusion of new ideas played a pivotal role in the expansion and modernization of Hungarian family policy in the late 1960s, for example, the

Hungary 189 “srowing significance of West European conceptions of generational solidarity and universality of benefits” (Tomka 2003, 55) and knowledge-driven “societal development” seeking to combat social inequalities by focusing on the “transforming aspect of inherited self-regulatory mechanisms such as the school and the family” (Ferge 1979, 47). Curiously, hardly anyone recalls previous experiments with various types of family-oriented benefits proposed before and after World War II (see Chapter 2).

In 1969, after years of working on the margins of the decision-making structure, professional experts and government advisers came forth to join the newly created Hungarian Commission for Prospective Planning and Manpower, which recognized, or rather rediscovered, the need to shape a new type of social policy for the country in accordance with the national traditions (Ferge 1979, 303-304). Similar to the “Poland 2000” committee in Gierek’s Poland, the commission optimistically assumed that the present economic expansion would continue and the mature “socialist society” would firmly reject “bourgeols patterns of consumption” (including traditional forms of social insurance) in favor of a more egalitarian redistribution of income. Yet after the first few years of economic reforms, the community of welfare experts as well as large segments of the Hungarian population, who viewed the NEM as just compensation for the harsh repressions of the late 1950s (Adam 1989, 28), began to object to the negative effects of decentralization and to long for the reimposition of some sort of a central control with a clear sense of direction in social policy. The economic context also changed in a meaningful way. In 1961-1970, for example, real prices went up less than 1 percent annually, but already in 19711975 average inflation increased to 2.8 percent. Meanwhile, in the same period after a few good years of excellent performance the economy slowed down considerably, exposing the reformers to new attacks from their opponents within the party. Supporters of the NEM within the government apparently held the view that, at least in the short term, a combination of more generous budgetary grants, such as family benefits on one hand, and the expanded Bismarckian system of social insurance, on the other, would provide a sufficient, if only temporary, safety net for the period of reform (Ferge 1979, 66 and 248). Nonetheless, almost immediately, in 1972, this compromise approach came under strong criticism from a broad coalition of social forces. The so-called workers opposition consisting of trade union activists, managers of big enterprises, and central ministerial bureaucracy, all threatened by rapid shifts in the job market, called for significant changes in social and labor policies to address socioeconomic problems created by the NEM, and especially its detrimental effect on the working classes and larger employers (Heinrich 1986, 4748). Large industrial lobbies also attempted to reclaim resources and special preferences, gaining ground against other more disadvantaged groups, such as agricultural cooperatives and smaller enterprises (Ferge 1979, 248-249). The trade unions also joined the fight, insisting on better wages in the public sector and protesting against the proliferation of better paying jobs for salaried

employees (Kovrig 1979, 400). In addition, managers of state enterprises

190 Policy Legacies and Welfare States Under Communism, 1945-1989 resisted job losses to small and private firms, and the ministries objected to progressing decentralization of economic planning and growing autonomy of individual factories (Kovrig 1979, 365; Heinrich 1986, 47). The ensuing conflict between different groups of reformers and conservatives eventually led to a series of policy concessions that tried to address the demands of all major constituencies at the same time. Regardless of numerous differences

in the scope and quality of state guarantees for the welfare state, everyone seemed to agree that, in accordance with the Hungarian national traditions and past policy legacies, increased social transfers in cash, rather than in kind, should serve as the primary tool for income redistribution during the NEM period. Already in 1971, Hungary became the first communist state to introduce a permanent mechanism for regular pension indexing. Since then, all payments increased 2 percent every year with a minimum rise of 70 forints. Also, in a symbolic break with the past, a new Constitution of 1972 offered all citizens state guarantees of support in old age and in case of disability and illness. The constitution explicitly mentioned the right to financial assistance from social insurance under a national system of social institutions (see Nagy 1986). Law no. II of 1975 unified all pension regulations for every employee in the country, requiring the same retirement age of sixty/fifty-five and a minimum of ten years of social insurance contributions, with a future increase to twenty years by 1990 (see Bod 1995). In the same year the government also reformed family benefits. For the next fifteen years all families received support for every child, including the first one, in the amount depending on the number of children, usually no less than 20 to 25 precent of an average wage in the public sector (see Goralska and Wiktorow 1988).

It would be hardly an exaggeration to argue that from the late 1960s to the late 1970s Hungary experienced a meaningful transformation of social policy, following a long period of negotiations and bargaining between different groups of reformers within the ruling establishment. This change was shaped in a distinct way by three groups of players with different agendas: the NEM reformers, the revived and increasingly independent social policy community, and the conservative industrial lobbies seeking to protect and expand their existing privileges. Moreover, disappointing results of the new economic policy and the sociopolitical concerns of the Kadarites augmented the growing conviction of the policy-makers that the state must continue to increase social insurance payments gradually in closer coordination with the NEM policies. In 1971-1981, for example, real prices increased 63 percent, that is, eight times faster than in the 1960s, whereas real wages during this time went up only by 23 percent. Meanwhile the share of social insurance benefits in family income rose from 23 percent in 1970 to 32 percent in 1981, with the average growth of real value of these payments reaching 5.5 percent at the end of the 1970s (Pawlukiewicz 1983, 26). Meanwhile, during 1972-1975 labor shortages forced the government to allow more pensioners back into the labor force. From the mid-1970s, at least one fifth of them remained at least partially employed (Kovrig 1979, 370 and 392; Miller 1999, 62).

Hungary Ig! Already in 1975 the development of the Hungarian welfare state crossed an important threshold when for the first time since World War II more than 50 percent of all social spending went to finance cash payments, primarily pensions, family benefits, and the newly introduced child care grants. Longterm demographic imbalance, the introduction of low retirement age for all occupational groups, liberal access to disability benefits, and the expansion of coverage to agricultural workers also resulted in a rapid rise in the number of pensioners. By the late 1970s almost 18 percent of the population received some kind of pension payment (Kovrig 1979, 401), and the ratio of disability pensioners per 10,000 employees grew from 49 in 1970 to almost 72 in 1980 (Bod 1995, 21, table 10). Hence, by the time of the next economic cycle of 1979-1985, when the average growth rate slowed down to less than 1 percent, Hungary had again become heavily dependent on cash transfers. In fact, the accumulated power of policy legacies combined with the strong inflationary pressures made this dependence much greater than at any time before in modern history of the country.

Policy Legacies of Crisis and Retrenchment, 1980-1987

Under pressure to simultaneously finance growing consumption and investment, the Kadar regime, in a way similar to Gierek government in Poland, resorted to extensive borrowing from western banks. Aggressive and eftfective pursuit of both economic reform and social policy retrenchment at the same time and the absence of mobilized political opposition helped Hungary to weather the crisis much better, however. The government managed to arrest the growth of the most expensive entitlements in a relatively short time through serious retrenchment efforts in sick pay and pension policy, beginning already in the late 1970s. In this instance, the well-entrenched legacy of concentration of decision-making power in the hands of the economic ministries, rather than the welfare establishment, seemed to facilitate these efforts. Also due to relatively strict workplace discipline, successfully imposed on the public enterprises since 1975, and traditionally low payments of only 65 to 75 percent of wage, the cost of sickness insurance remained under control at around 1 percent of the GDP throughout this period, that is, even slightly below the level at the beginning of NEM in 1970 (see Table 3.6). In addition, even though pensions were still regularly adjusted each year, benefit indexing produced little stress on the budget because real prices grew on the average eight

times faster than average income and the growth rate of real wages dropped to zero by the early 1980s (see Goralska and Wiktorow 1988). Hence the pain of socioeconomic reform was redistributed more equally among the pensioners and wage earners than was the case in Poland, for example. In 1980, the Twelfth Congress of the Communist Party reaffirmed the course of NEM reforms and approved new austerity measures to help restart the economy. Thus, the trade unions and independent social policy experts quickly lost ground as the party leadership endorsed much less ambitious policies based more firmly on traditional social insurance principles. Temporarily brought

192 Policy Legacies and Welfare States Under Communism, 1945-1989 together by the initial shock of the economic reforms in the early 1970s, the internal opposition no longer had the strength or institutional support to resist well-entrenched Kadarites, who used a mixture of purges and economic incentives to defend the current policy course. In this situation social policy experts once again found themselves practically alone in pursuit of their dream of a “third way” combination of “market socialism” and socialist welfare state in Hungary. Until 1988 the government austerity measures kept the total rate of security spending relatively constant at a range of approximately 11.5 to 12.5 percent of the GDP (see Table 3.6). Yet by 1984, GYES, which since the late 1960s had become an important symbol of national achievement under state socialism outlived its usefulness in the eyes of the Kadarite reformers. According to Haney, already several years before the collapse of the communist regime some social policy experts “lost interest in defending universal entitlements,” and the market-oriented planners “planted the seeds of the new liberal welfare state in Hungary” (2002, 171). Others, frustrated by the apparent abandonment of further social policy retorm by the government, lost faith in the reliability of

the state as the main supporter of the social safety net and began to organize alternative forms of welfare assistance (see Tomka 2004). Nevertheless, a closer look at the political and socioeconomic contexts reveals a much more complex picture. In contrast to the situation in Czechoslovakia, where spending for the most expensive cash programs remained in check since the early 1970s, the Hungarian reforms almost from the very beginning relied heavily on the expanded cushion of social transfers, which in accordance with the local, well-entrenched traditions had been closely related to the dynamics of wage increases. In addition, fifteen years of NEM not only created a new structure of social inequalities (see Szelenyi 1978), but also had a detrimental effect on the financing of social insurance. According to conservative estimates, by the mid-1980s at least 170,000 people worked in the legal private sector; 23 percent of these enterprises were not taxed at all; and approximately GO percent were suspected of serious tax evasion (Heinrich 1986, 147-149). In addition, hundreds of thousands more people worked in the vast underground economy beyond the reach of any government statistics (152). As wages froze, prices went up, and overall social spending reached 12 percent of the GDP. In the early 1980s, amid declining growth, the Kadar regime had to make extremely hard choices in a potentially explosive situation, made even more difficult by the news of labor unrest and reform failures in Poland.*4 As it happened on numerous occasions in the past, social insurance mechanisms again seem to have provided a temporary cushion for a crisis situation without

jeopardizing the long-term trends to liberalize the economy. The weakening influence of the trade unions on the national level since the late 1970s and the declining power of the old industrial nomenklatura made it easier for the NEM 44 Janos Kadar was the first communist leader to offer support for General Jaruzelski. A top-level Hungarian delegation had already visited Poland by the second week of martial law. See Janos Tischler, “Spokoj nad wista to tatwiejsze zycie na Wegrzech” (Peace on the Vistule means easier life in Hungary), Rzeczpospolita Online, Dec. 12, 2007, www.rp.pl/artykul/75231.html.

Hungary 193 reformers to impose significant cost reductions, first in sick pay and then also in pensions. Savings in both categories, and especially in pensions, which during 1980-1986 dropped to 18 from as much as 30 percent in real value (depending on income), apparently helped to finance improvements in family allowances

and implement reform of the child-care assistance system. At the same time, we have to keep in mind that since the 1960s the GYES program has become the most important symbol of national achievement in social policy under state socialism.*5

Beginning in 1982, for the first time since World War II the population of Hungary began to decline each year, and at the end of the communist rule the country had 1 percent fewer people than ten years prior (Goralska and Wiktorow 1988, 96, table 1; Barany 1999, 122). Simultaneously, inflation continued to erode the real value of GYES support, contributing to the first-ever significant drop in the number of women on leave in 1984. The government responded to this by introducing a new type of child-care program, called GYED, this time strictly dependent on the employment record and paying a sick pay rate of 65 to 75 percent for a shorter period of only two years, instead of three. From then on, most women, now also including student families, had a choice between the two programs. This reform, however, had only minimal effect on these choices and eventually tailed to improve either the demographic situation or the living conditions of families (see Staszewska 1989; Haney 2002). The austerity measures of the early 1980s and the targeted retrenchment in other major social insurance programs appeared relatively successful in the short term, but they also exposed the fundamental weakness of the social policy strategy in the era of NEM. Social policy reformers, who had hoped that the Kadar regime would be able to find a “third way,” social democratic route to modernization in Hungary, suddenly found themselves in the company of the “old guard restorationists and trade union officials” as critics of the widely praised efforts to transform the country into a prosperous market economy (Szelenyi and Manchin 1987, 125). Meanwhile, the communist regime was still convinced that by creating numerous legal and semi-legal opportunities for the

population to earn extra income, it could win a double victory. Indeed, the rebuilt Hungarian Socialist Workers Party not only had managed to survive political and socioeconomic troubles for almost four decades and largely dismantled the cumbersome structure of central planning, but also began to attract a new ideological base of support for a scaled-down model of the national welfare state. Already in 1982, for example, 47 percent of citizens believed that the state should support only the poor, and 13 percent that nobody deserved government assistance (Heinrich 1986, 96). Nonetheless, even after introduction of ground-breaking privatization reforms and the new income tax in 1988, it would be an exaggeration to say that Hungary embraced a version of a “neoliberal welfare state” or completely gave up egalitarian principles or plans for the implementation of a modernized and generous system of social protection. 45 Zsuza Ferge interview, 6 September 1996; Maria Augustinovics interview, 9 December 1996, and to April 2003.

194 Policy Legacies and Welfare States Under Communism, 1945-1989 Rather, even though during the 1980s the market reformers visibly gained the upper hand, the remainder of the policy-making establishment remained deeply divided on what type of welfare state would work best in the country suffering from the pains of economic adjustment. In the new situation a potential decline in social income would not, as in the past, cause the same kind of deprivation across all strata of society, because an increasing number of people could possibly earn a living in the shadowy “second” (black market) economy. Moreover, at the time of gradual political opening and the legalization of political parties in 1988-1989, the regime fought for its survival and could hardly afford to reverse their initial commitment to cash transfers to large constituencies that still heavily depended on these payments for daily sustenance. Not only did the communists fear political backlash from the losers of reform, that is, primarily persons employed in the public sector, but the decision makers also had become deeply dependent on the existing policy patterns. In accordance with past practices, they favored convenience and flexibility of addressing urgent social needs through targeted shifts of funds from accumulated savings in pension insurance to family programs, health care, education, and other needs; all this without any long-term commitment to social policy as a whole. Paradoxically, however, as the central planning authority practically disappeared two years before the collapse of the regime, no single institution proved capable of any meaningful coordination of social policy making in the long term. In other words, the policy legacies of the past lived on, as different segments of the welfare state developed at their own pace with only tenuous, rapidly disintegrating connections at the top of the decision-making structure. On the other side of the fence the trade unions continued to lose their already diminished stature in the social policy establishment, ceding all initiative to the NEM reformers and the finance ministry during the 1980s. In addition, social policy experts, whose urgent appeal to create the new powerful Ministry of Welfare fell on deaf ears (see Szelenyi and Manchin 1987), had already abandoned all hope that the ruling establishment had any interest in any meaningful social policy improvements. When at the 1988 Central Committee party meeting Miklos Nemeth, the new party secretary, argued that the country needed a new welfare system to cushion the pain of further market reforms, government advisers had already assumed that only a major fiscal policy reform, that is, introduction of a western-style income tax, would provide the best cure for budgetary problems. Yet even though Hungary created a separate social insurance budget for the first time since the 1940s, no concrete proposals to change any of the major social programs emerged to accompany the fiscal reforms. In the end Hungary rejoined the club of market economies with a vastly expanded, but weakly managed and badly coordinated safety net consisting largely of traditional cash transfers to pensioners and working families. In contrast to the 19708, however, this time the country carried the heaviest foreign loan burden per capita in the entire Soviet bloc, and the sluggish economy could not indefinitely sustain the real value of all cash transfers even at the highly inadequate level of the late 1980s.

Summary: Comparison of Social Policy Legacies 195 SUMMARY: COMPARISON OF SOCIAL POLICY LEGACIES OF COMMUNISM IN EAST CENTRAL EUROPE

Comprehensive historical analysis of the development of the key social insurance programs in the three states of East Central Europe allows us to make four general observations concerning the long-term impact of social policy legacies under state socialism. First, we must stress that the transmission of institutional legacies enables the reproduction of social policy legacies. In other words, in the postwar period the preexisting structural conditions and, especially, longterm, historical transmission of the key institutional legacies of the welfare state blueprints, decision-making structures, bureaucratic capacities, and so on facilitates the reinforcement and partial adjustment of nation-specific and benefitspecific policy legacies in each country. Second, under communist rule, in all three countries different areas of social policy — pensions, sickness/maternity insurance, and family policy — evolved in successive stages of expansion and retrenchment, in close relation to one another, and most significantly in conjunction with the cycles of political and socioeconomic crises. This highly unstable and uneven mode of development strengthened preexisting tendencies of emergency policy making inherited from interwar period, foreign occupation under World War II, and its immediate aftermath. Third, small groups of decision makers, government officials, bureaucrats, and welfare experts served as main agents of transmission of many policy legacies through learning and positive feedback. Nonetheless, partial reform and change was still possible. Inside each country and within specific policy areas and “communities of welfare discourse” various factions periodically clashed over policy preferences. “Losers”

in one round of conflict sometimes managed to win in the next round during yet another period of crisis. Finally, different timing, sequencing, and also varying duration of the cycles of expansion and retrenchment/reform of social policy created separate developmental paths with enduring characteristics in each country. These individual paths incorporate cumulative and uneven processes of adaptation and modification of the inherited social insurance policies to the indigenous contexts of state socialism in Czechoslovakia, Poland, and Hungary before 1989. Comparison of the Key Social Policy Developments under Communist Rule in Czechoslovakia, Poland, and Hungary

Although since the late 1940s social policies of communist Czechoslovakia, Poland, and Hungary developed in a similar cyclical fashion, each country responded to alternating periods of relative prosperity and crisis in significantly different ways. Table 3.7 summarizes and compares major clusters of policy development in the three communist states from the end of World War II in 1945 to the time of regime collapse in 1989. These clusters represent notable events, changes, and policy adjustments made either during cycles of welfare state expansion or retrenchment.

196 Policy Legacies and Welfare States Under Communism, 1945-1989 TABLE 3.7. Summary of the Key Social Policy Developments under Communist Rule in Czechoslovakia, Poland, and Hungary, 1945-1989: Cycles of Welfare State Expansion and Retrenchment

Expansion Cycle Retrenchment Cycle Czechoslovakia

1945-1950 19901993

e Postwar reconstruction (establishment ° Political repressions and local of the “socialist” welfare state-National discr etion over p olicy

Insurance Act of 1948) implementation e Reinforcement of the social welfare

1954-1963 function of pensions and family e Upgrade of entitlements for the middle benefits . and higher earners, according to ° Successful adaptation of the , occupation and employment record national welfare state to Stalinist e Broad improvement of cash transfers for central planning

manual workers, including model 1964-1968

collective farms (JZDs) and working a . .

women (pensions as reward for mothers) * Egalitarian r eadjustment/ AUSTCTITY,

e Rapid growth and crisis in pension tax on pensions, more emphasis on insurance (peak welfare effort of the work r ecord, strict lower and

communist era) upper limits on benefits e¢ Revival of national traditions of 1969-1980 comprehensive and planned social

e Rejection of a major comprehensive insurance for every citizen with

reform in social policy supplemental voluntary benefits for

e Stabilization of social benefits at a lower higher earners level, greater equality in payments e Improvement of family policy and cash transfers for current workers but progressing decline of higher and middle pensions

e Equilibrium between cash and noncash benefits, pension tax abolished to increase payments 1981-1989 e Reinforced conservative egalitarianism e Improvement and stability of cash transfers for workers and higher minimum pensions e First pension indexing proposal, planned for 1990

pyy

Summary: Comparison of Social Policy Legacies 197 Expansion Cycle Retrenchment Cycle Poland

1945-1948 T949-T955

© Postwar reconstruction e Partial conversion of pension insurance into ¢ Dual function of family benefits entitlements/rewards for service in the state

as social insurance benefits and economy a emergency cash supplements in e Sharp division into “old” and “new

crisis situationse Reinforced pensioners —7| inequalities among occupations

1956-1960 e Continued policy of liberal access to

e Partial recovery of the disability penslons | oe

traditional social insurance e Failed enforcement of sick pay discipline policy with improved benefits, 1961-70

defeat of a more generous and . expansive “social security e Revival of the fiscally conservative

option” Bismarckian approach to social insurance

¢ Consolidation of the existing with a separate pension fund | |

pension privileges and ¢ Rejection of egalitarianism in social policy

entitlements e Re-emergence of informal occupational

¢ Introduction of the widespread lobbies pushing for pension rights and

use of pension incentives to privileges . |

reduce employment e Sharp deterioration of short term benefits for working women

1971-1982

1983-1989

e Widespread distribution of cash |

transfers under political pressure ° L08S of control over sick Pay costs ¢ Radical shift to the emphasis on ° Explosion of early retirement

cash transfers to address ¢ Continuing liberalization of disability

socioeconomic crises, political benefits |

unrest. and short-term e Establishment of “social minimum” as a 3

employment problems benchmark of welfare progress ° Cash transfers accepted as the e First permanent wage indexing of benefits

main component of the social proposed for 1986

budget ¢ Repeated pattern of austerity in the most

© Liberalization of access and vulnerable programs: child-care benefits

improved quality of all benefits e Stagnation of pension spending but failed ¢ Upgrade of social insurance for reform of the pension system; entrenchment

working women of privileges ° Upgrade of benefits for manual e Deepening of inequalities in benefit quality — workers delayed wage indexing and fiscal e Institutionalization of manipulation of pension policy

occupational lobbies and e Adoption of regular “societal consultations” privileges for the nomenklatura On Major social policy reforms

¢ Rapid expansion of social ¢ Regular wage indexing of all benefits benefits for private farmers as granted at “Round Table” talks in 1989 budgetary entitlements e Institutionalization of liberal access to all cash benefits across the welfare system

(continued)

198 Policy Legacies and Welfare States Under Communism, 1945-1989 TABLE 3.7 (continued)

Expansion Cycle Retrenchment Cycle

1945-1947 1948-1956

Hungary

© Postwar reconstruction ¢ Elimination of traditional

| | . . _ .. ... ee

¢ Revival of the traditional Bismarckian entitlements for state employees social insurance and state benefits ° Reinforcement of conservative Bismarckian financing and

1957-1979 accounting practices

¢ Gradual reconstruction of the basic, Sharp 1 ecuction of tr aditional social insurance safety net with stable SP i enents and occupationa

cash payments Weakenis F

e First constitutional guarantees of cakening OF state guarantecs

social protection adopted for social insurance/cash e Strengthening of Bismarckian wansiers d £ cocial principles — reemergence of WIGESPE i bit socta | of inequalities in benefits according to Insurance benents as a COO! O

work/insurance record political repression e Reconstruction of social insurance as 1980-1987

the main core of the welfare state . a

¢ Rebuilding of social policy expertise * Inflationary deterioration of all

and planning with limited benefits . (family policy) according to Bismarckian rules

independent input into policy making ° Reforms of child-car c benefits

¢ From mid-1960s, modernization of e¢ Subordination of social policy to

cash assistance for working mothers new fiscal policy . |

e Renewed consensus on the priority of * Marginalization of social policy

family policy to revive population experts/ supporters of welfare

growth state egalitarianism and

e From mid-1970s extensive autonomy .

liberalization of access to all pensions, ° Weakened control over social

with special emphasis on generous, insurance revenues, proliferation

expanded eligibility for family of black market employment as members a permanent feature of the

e Radical shift in favor of cash transfers Hungarian economy as the main component of social budget under “market socialism”

In a similar way, during the first few years after the war all countries managed successfully to reconstruct all of their social insurance programs and even expand some of them, especially sickness and family benefits. It also appeared at first that rapidly progressing consolidation of Soviet control over Eastern Europe would further accelerate processes of convergence within the region.

Summary: Comparison of Social Policy Legacies 199 Yet, as we have seen, this has not occurred either on the institutional level or on the policy level. For example, even during the Stalinist period of Sovietimposed uniformity the three countries diverged considerably in terms of the timing, scope, and intensity of reconstruction, recombination, and reform of their inherited pension schemes and other major social insurance programs. Relatively prosperous and industrialized Czechoslovakia made a relatively smooth transition from fledgling “socialist” and egalitarian policies to more restrictive and unequal rules dictated by the prerogatives of rigid central planning of the

1950s. During the same period, however, both Poland and Hungary experienced much deeper adjustment shocks that threatened the very existence of their traditional safety nets inherited from the interwar period. Subsequently, strong political backlash following the collapse of their Stalinist regimes, which failed to create a viable social policy alternative for the East Central European states, eventually led to the partial revival of many older patterns of social policy making based on more traditional and conservative Bismarckian rules. Surviving members of the national social policy establishment who were allowed to return to positions of influence in the late 1950s and early 1960s for the most part facilitated this revival. Post-Stalinist expansion of social security across Eastern Europe also had a different long-term impact and significance in each country. In Czechoslovakia, where many more people had already qualified for higher benefits, policy liberalization relatively quickly led to a major budgetary crisis amid economic recession of the early 1960s. In the same period Poland experienced a short and intensive growth of benefit levels, followed by long stagnation under extreme fiscal conservatism of the Gomulka regime. Post-1956 Hungary under Kadar took even more time to improve the social insurance system after almost a decade of neglect during Stalinist rule. After the defeat of the popular revolution the regime concentrated first on the restoration of state administrative capacity, political controls, and the economy as a whole, and only later, in the mid-196o0s, began to pay more attention to the improvement of particular social programs. These cross-national differences became progressively more apparent in the

next cycle of expansion of social policy, from the late 1960s until the late 19708. The period of real progress, growth, and modernization of social insurance began earlier but eventually advanced much more slowly toward the end of the communist rule in Czechoslovakia, where comprehensive and carefully designed plans tor a second wave of “social democratic” reforms of the welfare state ran into stiff opposition within the Communist Party even before the Soviet invasion of 1968. By contrast, during the 1970s Poland and Hungary benefited greatly from the substantial expansion of the quality and quantity of all types of cash transfers, under the Gierek and Kadar regimes, respectively. The two countries, however, differed substantially from each other in regard to the timing, sequencing, speed, and emphasis of social policy modernization. In Hungary, attempts to update and expand the key social insurance programs,

200 Policy Legacies and Welfare States Under Communism, 1945-1989 including the introduction of generous child-care assistance, were conceived more gradually and mostly as preemptive measures. In addition, the accelerated decline in birth rates and the living memory of harsh experiences of the revolutionary turmoil of the 1950s played an important role in this decision. In Poland, however, since 1970 the expansion and qualitative improvement of cash transfers, especially family-oriented benefits, usually came almost immediately after the political crises, when the government found itself under intense

pressure from organized social forces and highly entrenched “occupational” lobbies. Also, while Hungary and, to a lesser extent, Czechoslovakia as well, used extensive cash payments to encourage large families, Poland remained much more focused on the short-time, “emergency” social insurance transfers in addressing urgent social and political needs. Both Hungary and Poland, however, preserved their traditional preference for traditional benefits in cash as the firm core of the welfare system. Moreover, in the aftermath of each crisis period, the successive communist governments gained more and more confidence that

these kinds of policy preferences were the best suited for addressing possible similar challenges in the future. Hypothesis Five anticipated that greater political and economic weakening and decentralization of the Leninist state in the post-Stalinist period would reinforce preexisting (historical) patterns of policy making within different areas of the welfare state and weaken more modern, “socialist” influences. Conversely, preservation of an effective, centralized, and integrated system of socioeconomic planning under state socialism would support adjustments in the traditional social insurance system toward greater redistribution of resources, with a possible shift from cash benefits to greater emphasis on social services or benefits in kind.

In fact, the political and economic weakening and decentralization of the Leninist state in the post-Stalinist period created a much more hospitable envi-

ronment for the transmission of the indigenous policy legacies that favored

greater reliance on social insurance in Poland and Hungary, whereas in Czechoslovakia the opposite has taken place. A continuation of a highly centralized and integrated system of socioeconomic planning actually helped to bring more balance and stability into the safety net by effectively redistributing resources from pensions and sickness spending to social services and consumer subsidies.

In Hungary the role of social insurance benefits in cash increased markedly already in the first stage of the New Economic Mechanism, 1968-1975, and remained at the center of government social policy until 1989. In Poland, the same phenomenon began a decade later, in the late 1970s. Within just three years, as the political and economic situation rapidly deteriorated, it actually reached crisis proportions. Meanwhile, Czechoslovakia fared much better than its neighbors did, not only due to better integration of its Leninist economic institutions and domestic “socialist” welfare institutions but also because of the political weakness of the key social constituencies, beneficiaries of the relatively

Summary: Comparison of Social Policy Legacies 201 generous and reliable welfare state. Recipients of pensions and other important cash transfers also tended to rely much more heavily on a variety of government subsidies and social services to maintain their relatively high standard of living. In addition, learning from the experience of the fiscal crisis of the mid-1960s the Czech government planners continued to utilize skillfully a combination of fiscal instruments, wage and price controls, and long-term planning of the labor market to avoid excessive reliance on direct cash transfers alone to maintain their social safety net.

Czechoslovakia also avoided a major retrenchment in social policy during the 1980s, even though by 1988 it became obvious that the government was barely able to support the existing income and consumption levels, not to mention further modernization of social benefits. In contrast, economic troubles in Poland and Hungary forced much more drastic policy adjustment with rather severe, although quantitatively and qualitatively different impact in each of the two countries. The Polish austerity program of the mid-1980s was poorly implemented and largely ineffective, and during 1988-1989 it almost totally disintegrated under massive egalitarian pressure from remobilized societal forces. The Hungarian economic reformers, however, were much more successful in neutralizing opposition to welfare state retrenchment and much less inclined to give in to societal pressures, although political uncertainties during the last two years of the communist regime precluded any more ageressive measures that could help to restore ailing national finances. Reasons behind these actions become more transparent when we consider the continuing influence of institutional legacies, that is, the reproduction of the fairly well-centralized structure of political controls (see Chapter 2) in conjuction with the past policy legacies of partial retrenchment under communist rule.

Four Essential Categories of Social Policy Legacies of State Socialism in Czechoslovakia, Poland, and Hungary

Detailed longitudinal analysis of welfare state development under state socialism not only helps us to uncover the cyclical nature of policy development in these countries, but also allows us to track the underlying continuities in patterns of social insurance policies over time. Hypothesis Six proposes that

the character of the maintenance (continuity) and type of adaptation of the Bismarckian “core” of social insurance programs to the realities of Leninist rule would have a direct influence on the qualitative and quantitative development of specific social insurance programs within each country, ultimately producing different types of “emergency” politics of social insurance policy. It suggests that an early introduction and maintenance of a balanced system of cash and noncash benefits would specifically help to address crises connected with early expansion and maturation of the pension system (i.e., most direct cause of rapid increase of welfare expenditures). If the other, less expensive

202 Policy Legacies and Welfare States Under Communism, 1945-1989 benefits are also under strict control, this type of system would help the government to avoid frequent retrenchment and reform and to preserve the status quo in policy making, regardless of the immediate political and/or socioeconomic situation. Conversely, heavy and continuous emphasis on cash benefits would have damaging results, and if combined with liberal access to social payments would generate frequent, unsuccessful reform attempts. Moreover, the attempts to challenge the status quo would be contingent on the presence and unity of the expert community inside and outside the official governmental institutions. A more diverse, larger, and autonomous group of welfare experts would normally advocate austerity but ultimately is likely to produce less eftective retrenchment policies under communist rule. On the other hand, a united and cohesive group of social policy specialists with limited autonomy would usually refrain from initiating such changes in the first place unless absolutely necessary.

Table 3.8 summarizes the key similarities and differences among Czechoslo-

vakia, Poland, and Hungary in relation to the four essential types of policy legacies that have surfaced in our investigation so far. First, we need to recognize policy differences in the maintenance and adaptation of the Bismarckian “core” of the welfare state, that is, the social insurance programs. Czechoslovakia, for the most part, adopted a rather balanced approach of periodic reinforcement of cash benefits in conjunction with new types of social services and consumer subsidies. Poland and Hungary, however, after only a few years of disruption under Stalinist rule, renewed their traditional emphasis on cash benefits in several successive stages of rapid expansion. Second, extensive quantitative

and qualitative growth of the pension system took place in all industrialized economies from the 1960 through the 1980s, but across communist Eastern and Central Europe it manifested itself in distinct ways through the creation and reinforcement of different constellations of policy legacies. Czechoslovakia experienced rapid growth and early maturation of its pension system already by the early 1960s. Its expansion of pension rights and preferences was relatively broad-based and uniform in comparison with the other countries, if not always equal or in perfect accordance with the 1948 blueprint. Poland went through a long period of slow growth, resulting in late maturation of an extremely inegalitarian pension system with numerous special privileges for various social and occupational groups and with an extremely liberal access to disability benefits. In Hungary, the expansion of all categories of pensions was delayed until the 1970s, but when it did eventually take place it became much more uniform, egalitarian, and accessible to most social groups, including nonindustrial occupations. Third, we can also observe significant differences in social policy legacies in the area of sickness/maternity and family benefits. Czechoslovakia combined strict control of access to these payments with effective implementation and steady quantitative and qualitative expansion over time. Poland, during most of the communist era, allowed liberal access to sickness and family benefits but also left behind a disturbing legacy of deterioration and frequent conversion

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204 Policy Legacies and Welfare States Under Communism, 1945-1989 of family benefits, in particular. Hungary, in contrast, rather consistently followed a pattern of strict formal control of access to these benefits. Despite problems with implementation, this approach nonetheless resulted in substantial expansion, modernization, and diversification of family support during the Kadar era. Hence we can argue that under state socialism all three countries became de facto “emergency welfare states,” at least as far as the politics of social insurance policy is concerned. Still, this type of policy legacy manifested itself differently in each country. Czechoslovakia implemented infrequent but effective retrenchment, ensuring greater stability of the welfare state. Poland,

in accordance with its historical traditions, carried out frequent, often wideranging, but usually ineffective retrenchment (austerity measures), engendering explosive protests and future escalation of social spending on many occasions. Hungary, however, favored frequent and selective retrenchment but was unable to prevent gradual acceleration of spending for social insurance in the later part of the twentieth century as the pension burden began to expand. Main Agents of Transmission of Social Policy Legacies and the Crises of State Socialism

Hypothesis Six also implies that the size, diversity, and autonomy of the community of social policy experts would have a significant impact on the politics of social policy in East Central Europe under state socialism. As we have seen, it matters not only what kinds of legacies are transmitted over time in each country, but also when and how. Government’s ability to carry out policy expansion, adjustments, reforms, or retrenchment depends to a large extent on a particular configuration of actors equipped with a specific kind of knowledge, expertise, and influence in the policy-making process. Throughout the twentieth century and under different political regimes in each country only a very small group of persons, social policy experts, legal scholars, economists, accountants, and the like had accumulated the necessary training and experience to plan and carry out major changes in pension policy and other types of social insurance. In this sense, the period of communist rule differed little from the previous era, although obviously the Leninist political organization and Stalinist structure of command economy severely limited the range and type of policy adjustments or reform plans that these actors could realistically contemplate.*® Yet, on the other hand, the shortage of any credible alternatives to traditional social policy expertise and disappointing performance of the Soviet-style socioeconomic model gradually opened the door for more independent experts who tried to draw on policy legacies of the past to deal with the present welfare challenges. Occasionally during the post-Stalinist period, and increasingly in the final decade of state socialism, a number of older members of the social 46 Of course, it also cut off the independent channels of communication between the state and segments of society interested in changing, reforming, or even supplementing the official social safety net.

Summary: Comparison of Social Policy Legacies 205 policy communities who lost their positions and/or influences during the most difficult years of Stalinist oppression were sometimes allowed to come back and “renegotiate” social insurance laws and regulations during various periods of attempted reform. In general, we might argue that since the 1950s, and even earlier in some cases, the transmission of social policy legacies under state socialism depended on particular modes of cooptation of the national social policy establishment. In Czechoslovakia, for example, social policy experts, trade union activists, and authors of the 1948 National Insurance Act showed great flexibility and

survival skills, well honed already during the years of Nazi occupation, as they struggled to find a middle ground between the generous social welfare agenda of the 1940s and the harsh realities of Stalinist politics and economics that followed. Meanwhile, effective centralization and coordination of decision

making within the highest bodies of the party-state helped to utilize the full potential of these experts and civil servants to address future crises. To be sure, social policy establishment in Czechoslovakia, just like any other social organization in the country, became a reliable and trusted extension of the communist bureaucracy. Yet for the very same reason advocates of the welfare

state expansion within the government were rarely seen as a credible threat or a serious obstacle to economic planners, as long as they recognized their subordinate role. When, as it happened in the late 1960s, some independent social policy experts broke that taboo and went too far by calling for a more radical retorm of the social safety net, they found little institutional support for their plans and were marginalized very quickly. After 1968 the central ministries and the top party leaders made sure the social policy reforms were immediately trimmed down to fit tightly within the rigid framework of a centrally planned budget that favored more aggressive family policies and investment in social infrastructure over modernization of pensions or social insurance as a whole.

A politically weak and unstable party-state in Poland faced a much more difficult task, because it had to deal with a large, vocal, and increasingly independent group of social policy experts, many of whom held conflicting views about the future of the welfare state in the country. Most of them, however, were eventually successfully recruited to work at the ZUS, the Ministry of Labor, and other official institutions during the post-Stalinist period. Even more important, however, the Polish decision makers failed to contain the growing influence of occupational lobbies, both inside and outside the government. Political weak-

ness of the regime and its repeated economic failures led to a series of social policy concessions on many fronts, undermining most efforts of long-term planning. Each subsequent crisis and especially failed policy retrenchments of the

late 1960s under Gomutka, in the late 1970s under Gierek, and during the 1980s under the Jaruzelski regime further encouraged those groups to intensify their struggle to defend and expand numerous social privileges. In sum, in post-Stalinist Poland the combined and continued influence of a wide and diverse group of social policy experts, bureaucrats, union activists, and ministerial lobbies reinforced the preexisting tendencies to liberalize and expand

206 Policy Legacies and Welfare States Under Communism, 1945-1989 cash transfers with special rewards for the “most deserving occupations” and also continued to resist more restrictive policies in the areas of sickness and disability compensation. The Hungarian government of Janos Kadar was initially stronger, more united, and less vulnerable to either inside or outside pressures to liberalize its social policies. Nevertheless, political liberalization and the launching of the NEM reforms during the 1960s spurred the emergence of many alternative policy visions and proposals, which increasingly challenged the decision-making establishment. In the next decade the mounting pressures from the social policy community, the resurgent unions, and enterprise managers, and also, to a large extent, disappointing economic results and demographic realities, compelled the Kadar regime to propose vast improvements in all kinds of cash transfers. Most visibly, during the post-Stalinist era Hungarian welfare experts played a notable role in the design and introduction of the new, highly innovative child-care programs. Still, the influence of outside or inside lobbies or other independent forces within the more traditional program areas turned out to be substantially weaker than in Poland, at least until the mid-1980s, when the “welfarist” community became active again. The financial planners and the NEM reformers regained tight control over pensions, sick pay, and family benefits and successfully resisted egalitarian pres-

sures to improve the legally mandated inflationary adjustment of benefits for the working people for a decade, trom 1975 to about 1985. As a result, despite relatively easy access to all kinds of pensions and the existence of additional employment opportunities in the private sector, on the eve of the transition to a new democratic regime Hungary faced a growing problem of poverty among the elderly and rapid deterioration of child-care benefits. In addition, the fiscal reforms of 1988 revealed many revenue collection problems and fears of unsustainable social expenditure that for a long time had remained hidden under the cover of the expansive central government budget. In the end, the acceleration of market-oriented changes during the last two years of communist rule had unintended consequences in the area of the welfare state. It actually increased the transparency of the financial condition of pensions and other benefit schemes, making it much more difficult for any Hungarian government to prepare badly needed and fiscally responsible emergency social programs for the forthcoming difficult period of deep recession and democratic transformation. Three Diverging Developmental Paths of Social Policy under Communist Rule Czechoslovak, Polish, and Hungarian developmental paths of social (insurance) policy share similar general characteristics, that is, alternating stages of expan-

sion and retrenchment that evolved in conjunction with major political and socioeconomic crises (see Figure 3.1). Immediately after World War II the three countries also experienced a significant, if only brief, first cycle of reconstruc-

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208 Policy Legacies and Welfare States Under Communism, 1945-1989 Furthermore, since the late 1940s recurring crises of state socialism augmented and reinforced the inherent patterns of social policy “emergency” that created

an outward impression of inertia, incoherence, and ad hoc decision making (see, e.g., Miller et al. 1999). Nonetheless, at the same time the three countries differed considerably in terms of timing, duration, and sequencing ot the specific stages of development of their social policies.

Czechoslovakia stands out from the other two cases primarily because of unusually long, more than thirty years in total, cycles of expansion, interrupted only by two brief periods of retrenchment, at the height of Stalinist rule in the early 1950s and again during the economic and political crises of the mid- to

late 1960s. The latter period was followed by a rather atypical sequence of two cycles, fast expansion and slow, stagnating growth in social programs that lasted two decades, 1969-1989. Poland demonstrates a more even, alternating pattern of expansion and retrenchment. By constrast with Czechoslovakia, both the Stalinist and post-Stalinist (1960s) retrenchment cycles lasted there much longer and were followed by rather short periods of growth or modernization of social policy. Even more significant, in Poland the decade of the 1980s brought about serious, if only partially successful retrenchment and reform attempts in many areas of social insurance. Finally, Hungary resembles Poland in terms of the length, but not the intensity, of Stalinist retrenchment. Hungarian periods of social policy expansion and growth, however, differ substantially from the Polish case in term of duration and sequencing. If we omit the brief period of postwar reconstruction, the Hungarian developmental path comprises only one, rather long period social policy expansion, 1957-1979. Thus, in this sense, it begins to look more like the Czechoslovak trajectory after 1968 than the Polish

one before the 1980s. We also must keep in mind that in Hungary the first post-Stalinist retrenchment cycle was delayed until the 1980s, allowing the country more time to catch up to its neighbors in significantly expanding and modernizing its welfare state. Hypothesis Seven states that the timing, duration, and sequencing of the cycles of expansion and retrenchment in each country would have a significant impact on the evolution and modernization of all major social insurance programs under state socialism. A sequence consisting of early, shorter cycles of retrenchment, followed by long-term and more frequent periods of expansion of social policy would lead to better, modernized benefits. In contrast, longer and more frequent cycles of retrenchment, especially if interrupted by short periods of expansion, would result in relatively underdeveloped social programs in many areas. Also, the final cycle of welfare state development during communist rule would have special importance as it prepares the ground for major reform efforts in the new era of democracy and market economy. If regime change overlaps with a retrenchment cycle, major reform efforts would most likely continue after the transition period. These continued reforms tend to be similar in duration and intensity but do not necessarily produce the same types of outcomes. As we will see in the next chapter, the failure of radical restructuring of the welfare state and different outcomes of social policy reforms in

Summary: Comparison of Social Policy Legacies 209 postcommunist Czech Republic, Slovakia, Poland, and Hungary in the first decade and a half of transition (1989-2004) can be attributed to the continuing, cumulative influence of historical legacies and various contextual factors that help to reproduce these legacies under the new political and economic regime.

In this chapter we could observe that indeed the timing, duration, and sequencing of the cycles of expansion and retrenchment in individual countries greatly impacted the overall historical dynamics and outcomes of social policy development across Eastern and Central Europe. For example, it made a huge difference how long the period of Stalinist retrenchment lasted and whether or not it was followed by an enduring or only brief cycle of expansion. Timing, duration, and sequencing of the later cycles of the post-Stalinist era appears to be more significant still; across these three dimensions the three countries differ the most from one another in terms of the actual evolution and modernization of specific social insurance programs. Czechoslovakia emerges as a clear leader in many areas, followed closely by Hungary, with Poland lagging far behind. To be more specific, in Czechoslovakia the earliest, Stalinist retrenchment was relatively short and followed by much longer expansion, a sequence that was eventually repeated once again before the collapse of commu-

nism (short retrenchment in 1964-1968, followed by longer expansion in the 1970s and 198os), resulting in a generous and relatively stable system of social benefits that lasted until the stagnation era of the late 1980s. Poland, on the other hand, represents the other extreme scenario, with longer and much more frequent retrenchment cycles and only one significant cycle of expansion that could be regarded as significant in terms of duration and modernizing impact, 1971-1982. Hungary lies somewhere between these two extremes. Similar to Czechoslovakia, it also experienced two retrenchment cycles, unlike three in the case of Poland. Yet one could also argue that these two cycles were also much longer and more damaging to many vital social programs than was the case in Poland, a pronounced “welfare laggard” throughout most of the period of state socialism. Still, we must also concede that over the long term, the twentyyear period of expansion that followed the especially severe cycle of Stalinist retrenchment allowed Hungary to “catch up” to and even surpass Czechoslovakia in some aspects of modernization and generosity of social insurance, namely, child-care assistance, family benefits, and some types of pensions. Finally, the type and the main characteristics of the last cycle in each developmental path — the one that coincides with the collapse of state socialism — deserves special attention because it sets the stage for tumultuous transformation of East European social policies in the postcommunist era. Thus the regime collapse in Czechoslovakia happened at the time of relative stability of the social safety net, with no major reform or austerity proposed yet. But we must also

stress that some of the gains of the previous decade such as a certain measure of balance and harmony between cash and noncash social assistance had already began to deteriorate in a visible way. In contrast, during the same period Poland and Hungary had already began another round of substantial economic

210 Policy Legacies and Welfare States Under Communism, 1945-1989 and social policy retorms. The former country started its retrenchment efforts much earlier in the 1980s, however, and implemented several austerity measures sooner and much more decisively than the latter. Next, we turn to the analysis of the period of regime change and its consequences for social policy in all three countries.

4 Historical Legacies, Welfare State Institutions, and the Politics of Social Policy Reforms in Postcommunist East Central Europe, 1989-2004

[S]ocial order, as it exists today, had been created in each country in its own, specific historical way. I was always amazed to see how many welfare elements of

the Vasa monarchy remained in social-democratic Sweden. ...Social democrats recently lost the elections but it does not seem their model of the welfare state will change much. Well, we also have our own historical road....we experienced real socialism....I believe that you cannot take away certain social rights from people, you can modify them, change the method of implementation, make them more rational... but to say simply — you are not entitled to them any more — it cannot be done. Jacek Kuron, Polish Minister of Labor and Social Policy, 1989-1990 and 1992-1993 (my translation)

I see [social policy] reforms as a long process...that lasts many years...and resembles a relay race. It would be a disaster for the...state if every next governmental team had to begin from scratch, negating the accomplishments of their predecessors. Andrzej Baczkowski, Polish Minister of Labor and Social Policy (interview, August 1996) (my translation)

[F]rom the mid-seventies on, the ideological politicians slowly became technocrats. The last Kadar government were essentially technocrats. The last two Kadar governments were not that different in that regard from those people in power now.... They are “nice” technocrats, they are adjusting to whatever ideology there is. Hungarian welfare expert Zsuza Ferge, commenting on postcommunist social policy reform (interview, September 1996) Sections of this chapter devoted to Poland and Hungary include material published before in Tomasz Inglot, “Historical Legacies, Institutions, and the Politics of Social Policy in Hungary and Poland, 1989-1999,” chapter 7 of Grzegorz Ekiert and Stephen E. Hanson, eds., Capitalism and Democracy in Central and Eastern Europe: Assessing the Legacy of Communist Rule (New York: Cambridge University Press), © Cambridge University Press 2003. Reprinted with permission.

211

212 Postcommunist Social Policy, 1989-2004 The mechanical transfer of ready-made [foreign] models is undesirable; it is the know-how, not the models that should be offered to the | postcommunist]| countries facing these [welfare state reform] problems, which have no comparable precedent in European history. Czech welfare expert, Igor Tomes, commenting on postcommunist social policy reform (1997)

HISTORICAL LEGACIES AND COMPETING EXPLANATIONS OF POSTCOMMUNIST SOCIAL POLICY DEVELOPMENTS

As we might recall from the literature summary in Chapter 2, scholarly investigations of postcommunist social policy reforms fall into two broad explanatory categories or perspectives, political and institutionalist. The first approach maintains that in the postcommunist conditions of competitive democracy, control of government by either left- or right-wing political parties and/or ideological orientations becomes a key determining factor in influencing the level of social spending and the overhaul of the pension systems and other social prosrams (see Offe 1993; Orenstein 1995; Cook et al. 1999; Lipsmeyer 2002). This perspective derives from the longstanding, “power resources” tradition, which emphasizes the strength of social democracy and labor movements (organized or spontaneous) as the main influences in the process of welfare state expansion in western industrialized democracies (Castles 1978; Piven and Cloward 1979; Korpi 1983; Baldwin 1990). Several scholars also emphasize rational choice decision making of politicians acting in a democratic environment and the role of electoral politics and public opinion in shaping social policy in East Central Europe (Cain and Surdej 1999; Lipsmeyer 2003). This strain of literature as a whole assumes a basic similarity of the politics and ideology of the postcommunist systems and the structure and dynamics of party competition in the west and in the east. It also implies that many new, ruling political parties and governments in the region are inclined to adopt neoliberal ideology (Washington consensus) as the main guide not only for their economic (market) reforms but also for welfare state reforms. Numerous studies have subsequently challenged the first assumption by pointing out fundamental historical and contemporary differences in the emergence and development of political parties and party politics in the old and new European democracies (see Kitschelt, Mansfeldova, Markowski, and Toka 1999; Grzymata-Busse 2002). The second conjecture, regarding the actual impact of neo-liberalism, also has come under increased scrutiny in the light of new empirical evidence (see Inglot 1995, 2003; Tomka 2004). Moreover, studies influenced by these political perspectives, for the most part, paid only scant attention to crucial policy developments under the previous regimes in individual postcommunist countries. In addition, at least at the beginning, they also emphasized the pivotal influence of the main political players or agents of reform and public opinion on the policy-making process without much in-depth exploration of institutional contexts.

Explanations of Postcommunist Development 213 The second approach, developed in the mid-1990s, addresses this particular shortcoming. It refocuses the investigation to examine the role of the state and political institutions and conducts comprehensive analyses of the political economy of social policy reform in the emerging democracies. Drawing on the “new institutionalist school” and/or a variety of rational choice theories (Weaver and Rockman 1993; Haggard and Kaufman 1995; Lijphart and Waisman 1998; Tsebelis 2002), this growing body of scholarship argues, for example, that factors such as the concentration of power in the executive branch, the relationship between welfare and finance ministries, the distribution of potential “veto points” in the decision-making process, bureaucratic capacities, and/or the existence of skilled “policy entrepreneurs” determine the direction and outcomes of pension reforms and other attempts to restructure social insurance systems in Eastern and Central Europe (see Kapstein and Mandelbaum 1997; Miiller 1999; Muller et al. 1999; Orenstein 2000). Many institutionalists also stress the crucial, if not always clearly prevalent, influence of international actors in the process of policy making, pointing especially to the key role of the World Bank as the main propagator of the so-called privatization blueprint, designed to address pension crises in the emerging market economies around the world (World Bank 1994; Orenstein 2000; Orenstein and Haas 2005). Indeed, a number of scholars of all persuasions have now come to recognize that exogenous factors, primarily international organizations, the World Bank, IMF, and, recently, the European Union, deserve much more attention as increasingly influential participants in social policy formation and implementation in the post-Soviet region as a whole (see Sissenich 2002; Miller 2003; Barr 2005; Cain et al. 2005).” Even though they largely focus on the present, both approaches often do acknowledge the existence and potential significance of history and especially the complex and potentially detrimental impact of communist and sometimes even precommunist legacies. Nonetheless, as I have stressed before, while doing so this literature usually overemphasizes similarities and minimizes differences in institutional arrangements and policy patterns across the region. Such gen-

eralizations have become especially prevalent in the comparisons within a more narrowly defined family of countries in Eastern and Central Europe. For instance, on the eve of the takeover of power by the ex-communists (left-wing parties) in Poland and Hungary in the early 1990s, one scholar observed, “In comparison with continental Western Europe, East Central European countries have developed a spectrum of political forces that has clearly shifted in favor of market liberal, nationalist, and conservative ideologies and policies of the political Right” (Offe 1993, 671). A few years later a World Bank study put forth a uniform set of policy recommendations for all countries of the region that was largely based on a comprehensive overview of common institutional legacies of communist rule across all countries of Eastern and Central Europe (Barr 1995). More recently, a leading expert on pension reform argued that T We must also note that in the 2000s the emphasis has shifted even more from the national to global level of analysis (see Miller 2003; Orenstein 2005).

214 Postcommunist Social Policy, 1989-2004 “Poland, Hungary and the Czech Republic share a common legacy in old-age security but opted for markedly different pension paradigms in the mid-1990s.” Therefore, she maintained, we cannot possibly claim that social policy legacies have any meaningful causal effect on policy outcomes (Miller 1999, 180). I agree that after 1989 contemporary politics, ideology, public opinion, and especially institutions (domestic and sometimes also international ones) have all influenced the process of welfare state reform in Eastern and Central Europe in a variety of meaningful ways. I reject, however, the prevailing theoretical assumptions about the uniform characteristics and weak explanatory power of historical legacies in the study of postcommunist social policy. I also question

the validity of many previous empirical evaluations of the outcomes of the major social policy reforms undertaken in Czechoslovakia (Czech Republic and Slovakia), Poland, and Hungary during the 1990s. In sum, I contend that, first, before 1999 in all these countries (with a possible exception of Slovakia) no radical overhaul of the welfare state institutions and policies has taken place,

and, second, that in each country this outcome has been shaped in different ways, primarily, if not exclusively, by the continuing, cumulative influence of different sets of historical (institutional and policy) legacies. Thus in this chapter I will test the last hypothesis (Hypothesis Eight), which links the effectiveness of social policies and welfare state reforms under the new democratic regime to the

problem of adaptation and compatibility of the new, restructured institutions and social policy agendas with the legacies of the past discussed so far in relation to the interwar and communist periods. INSTITUTIONAL AND POLICY ENVIRONMENT OF THE WELFARE STATE AT THE THRESHOLD OF REGIME CHANGE

Examined from a broader, historical perspective, the period of welfare state development at the time of transition from communism to postcommunism reminds us of the previous episodes of regime change immediately following each of the two world wars. At least in the first phase, under a new political order the existing institutions of social policy continued to function by simple inertia before becoming a target of major reconstruction or transformation in the early 1990s, when the enduring power of the past legacies became increasingly visible as the prevailing factor. As we recall from the previous chapter, the inexperienced democratic elites of Czechoslovakia, Poland, and Hungary took over political power in 1989-1990 either on the verge or in the midst of a next impending cycle of crisis or retrenchment of social policy (see Chapter 3, Fig. 3.1). The actual changes in this sphere that the communist regime managed to adopt in its final months were for the most part extremely cautious and fragmentary. It is especially telling, for example, that even the most liberal-minded policy makers and economists of that time failed to anticipate the real extent of the unemployment problem that deeply affected Poland, Hungary, and the Slovak lands in particular during the next decade (Kuron interview, 29 April 1993; Ferge interview 6 September 1996; Kral interview, 2 April 2003). Nonetheless,

The Welfare State and Regime Change 215 it would be highly inaccurate to characterize the late communist welfare states on the eve of regime transition as stagnant and hopelessly bankrupt systems of social protection. Rather, it seemed that the majority of decision makers and experts envisioned this difficult situation as yet another necessary cycle of gradual retrenchment that could be implemented in carefully planned stages over many years. Increasingly, however, more ambitious and comprehensive proposals of institutional reform were beginning to circulate within the small communities of social policy experts and their sympathizers in the ministries of labor and social policy. In the atmosphere of greater political openness of the late 1980s more direct criticism of current social policies and institutions also started to appear in official publications and on a more limited scale among the public as well. These debates usually emphasized one common theme across the communist bloc - an urgent need to focus on the modernization of pensions and family benefits as the main core of the social safety net under some type of a reformed, market-oriented economic system. In other words, the decisive shift toward greater reliance on cash transfers, initiated by Hungary and Poland during the late 1970s and early 1980s, now became much more widely accepted throughout the Soviet bloc as an inevitable tendency of mature, that is, greatly expanded in scope, “socialist welfare states.” The “last minute” reform attempts concentrated on four specific areas: the absence of regular inflationary adjustment of old and new pensions, excessively low retirement age (especially for women and certain privileged occupations), underdeveloped systems of means-tested benefits (especially for large families with children), and the lack of transparency in social security revenues and expenditures (Goralska and Wiktorow 1988; Staszewska 1990; Bod interview, 8 September, 1996). Before 1989 a combination of institutional and policy legacies of the past had shaped divergent approaches to these problems in each country. These processes resurfaced again later, in the 1990s, when the democratic regimes initiated much more comprehensive changes in conjunction with a new cycle of economic crisis and accelerated political transformation. Thus, historical legacies of the welfare state once again became an integral part of the process of rebuilding the state in Central and Eastern Europe. On the eve of the regime change, Polish and Hungarian reforms of the welfare state institutions, for instance, involved a carefully crafted mix of the imperatives of economic reforms and political considerations, leading to the acceptance of the principle of regular pension indexing and the creation of independent social insurance funds in the two countries. In contrast, the last Czechoslovak communist regime never contemplated separation of the social security financing from the general budget, but in 1988 it did adopt a new law mandating regular inflationary adjustment of pensions, planned to begin in 1990. In all three countries, many other, more controversial institutional reforms, such as proposals to change retirement conditions for women, the disabled, farmers, the self-employed, and other key occupational groups, were also drafted in the “eleventh hour” before the historic changes of 1989.

216 Postcommunist Social Policy, 1989-2004 The effectiveness of these maneuvers was inversely related to the degree of “monetization” of the welfare state or, in other words, the extent of the reliance on conventional social insurance and related cash transfers in each country during the late communist period. For instance, the Kadarite welfare state’s inheritance of a rapidly expanding pensioner population and cash-based, well-entrenched tamily policy posed a serious dilemma for the reformers of late communism in Hungary. The current mechanism of pension indexing, highly inadequate as it was, and accelerated inflation compelled the government to make at least minimal regular adjustments in benefit levels. As a result, in the beginning the relation of average pensions to average wages remained relatively constant. But when real wages stopped growing since the mid-1980o0s, social benefits suffered as well, unable to keep pace with rising inflation. Therefore,

already in the final years of communism Hungary neither was able to safesuard the value of its social safety net nor effectively reduce its fast-growing burden of social expenditures (see Chapter 3, Table 3.6). Thus, in the long run, the decision of communist economic planners to build a “modernized” welfare state around the traditional and more “frugal” Bismarckian component produced unintended consequences. Instead of saving resources, it enhanced entitlements to social transfers, which in combination with weak bureaucratic implementation led to perpetual budgetary problems. In Poland during 1987-1988, social policy retrenchment also ran into serious trouble, wage controls fell apart, and labor strikes forced the government once again to abandon plans for ambitious new austerity measures necessary to restart the economy. Another large explosion of social security spending was prevented only at the last minute by the skillful manipulation of the newly adopted and by now highly inadequate benefit indexing formula at the time of triple-digit inflation in 1989 (see Chapter 3, Table 3.5c). Czechoslovakia, however, struggled to maintain a constant level of social expenditures since the mid-1980s, but found it much easier to control the situation despite disappointing economic performance. No regular pension indexing was in place yet and wages remained under strict control, raising a mere 1.7 percent during 1985-1988 (see Dane porownawcze 1991). Moreover, without a transparent, separate social security budget the government could easily finance extra pension and family spending, thanks to savings in other, more manageable benefits such as sickness insurance. In 1988-1989 expenditures in this category declined from 1.56 to 1.31 percent of the NMP, due largely to tighter enforcement of elisibility rules and effective local efforts to maintain labor discipline (see Chapter 3, lable 3.2). INSTITUTIONAL REFORMS AND THE REPLICATION OF THE “EMERGENCY” POLICY CYCLES OF WELFARE STATE EXPANSION AND RETRENCHMENT DURING THE POSTCOMMUNIST ERA

How did welfare state institutions and policy patterns evolve and adapt to the new political and socioeconomic conditions since the collapse of communism

“Emergency” Cycles of Expansion and Retrenchment 217 in Eastern and Central Europe? What role did historical legacies play in this process? To answer these questions we must first reconsider conventional inter-

pretations of postcommunist “transitions” as two simultaneous processes of change of the polity and the economy. Initially, social and political tensions engendered by these changes are mediated by leaders of the opposition, who are empowered by democratic legitimacy and regained national sovereignty but are largely inexperienced in politics and policy making. Then, in the next phase of democratic consolidation, the much more seasoned and established political elite attempt to implement difficult and increasingly costly institutional reforms

without being able to demonstrate quick and clear-cut results, which in turn threatens to undermine not only their own position and reform agendas, but also the accomplishments of their predecessors. Throughout all this time, especially in the initial phase of transition, the maintenance and in some cases also substantial increase in social security spending is often viewed by the reformers in East Central Europe a necessary precondition for the successful completion of both economic and political reforms (see Inglot 1995, 2003). Following Linz and Stepan (1996), Ekiert and Kubik (1999) distinguish three separate realms of postcommunist transformations: the state, political society, and the civil society. As they observe in the case of Poland, throughout the early postcommunist period the state actually remained the main target of socioeconomic grievances. Furthermore, paradoxically, when democracy and market economy become more consolidated, the state, and more specifically the executive branch, becomes stronger, not weaker (see Bunce and Csanadi 1993;

Elster et al. 1998), as it continues to face either real or potential challenge from mobilized civil society. As Ekiert and Kubik explain, “during the period of democratic consolidation, all three realms (i.e. the state, political society, and civil society) undergo important transformations; however, their character, scope, and speed depend on legacies left by the preceding non-democratic system” (1999, 88). As we have seen before, the nature and actual form of this “resurrected” or “rebuilt” statism in the region have deep roots in communist and precommunist history, and I argued that they also profoundly impact social policy development in the post-1989 period.

Indeed, many scholars and practitioners of postcommunist transition acknowledge the urgent need for a stable “social safety net” at this crucial historic juncture (see Balcerowicz 1992, 1995; Kapstein and Mandelbaum 1997). But they rarely focus on the welfare state as a separate realm of change that cuts across the political and socioeconomic dimensions of this complex process and encompasses crucial inheritance from the past. For example, Balcerowicz (1992, 1995) pays special attention to the early months of transition and stresses the need for rapid economic transformation as an almost exclusive priority for Poland and other new democracies in the region. Democratization necessarily precedes economic reform, he argues, but the latter must take place in stages over a long period of time without being able to produce immediate improvements in living standards. Thus, the new democratic governments can and should take advantage of a narrow window of opportunity and introduce

218 Postcommunist Social Policy, 1989-2004 the first necessary package of liberal, market-oriented policies. They also must

act swiftly and decisively to avoid damaging political backlash and to keep economic reform on track for many years to come. Nonetheless, Balcerowicz (1992) acknowledges an unavoidable contradiction that threatens to derail this process; one cannot follow the same simple recipe in dealing with social policy. Since 1989 the state as whole has played a double and highly contradictory role of the subject and the object of transformation. Whereas in the political sphere postcommunist governments must quickly adopt new forms of democratic accountability, welfare institutions and programs are expected to remain reliable and predictable, especially at such a highly volatile time in history (see Inglot 1995, 2003). Moreover, during the so-called period of “extraordinary politics” (Balcerowicz 1995) when the new democratic government has a unique opportunity to generate public support for continuing and painful market reforms, the “late communist welfare state” continues to function by simple inertia or default as an invaluable source of institutional stability and necessary policy expertise. The still “unreformed” welfare states of East Central Europe of the early

1990s also confront a continuing crisis of their own that generates contradictory pressures on policy making (see, e.g., Offe 1993; Barr 1995; Kapstein and Mandelbaum 1997; Kornai et al. 2001). First, the preexisting and mostly failed retrenchment measures of the late communist period must be immediately transformed into appropriate safety net policies for the new era of transition. Second, all this takes place at the time when the state as whole, including its welfare state components, faces a major structural overhaul in accordance with the new laws and rules of democratic polity and the market. Hence, in the eyes of at least some reformers and social policy experts, a democratic-capitalist state requires a new type of welfare state relatively soon. Such a prospect by itself, however, can be extremely destabilizing to the existing social policy institutions, which must continue to function well during the transition, although, as we have seen, this type of attempted institutional reconstruction is hardly a new phenomenon in the twentieth-century history of the region and many experts and policy makers had learned well how to operate in such unstable or “emergency” environment in the past. Most of all, these developments must be analyzed in the larger historical context and as such they are hardly unique, representing yet another turning point in the long, complex trajectory of the “emergency welfare states” in the

region. First, the inherited welfare state institutions carry with them heavy normative and organizational baggage of the past, with all the distinct qualities accumulated in each country since the beginning of the century. Because many of these institutions and norms had not been discarded during previous episodes of regime change, we could hardly expect them to be fundamentally challenged

now without undermining the basic structure of the state itself. Second, the latest process of regime change has been closely intertwined with the ongoing, cyclical development of social policy, and coincided either with another period of attempted retrenchment (in Poland and Hungary) or a faltering, final phase

Czechoslovakia 219 of slow expansion (in Czechoslovakia). During this time the state institutions in general, and welfare state institutions in particular, not only remain in place but also continue day-to-day decision making and long-term strategic planning using the existing pool of expertise and accumulated experience in pensions, sickness/maternity, family benefits, and other key areas. It is true that the former activity (short-term) may initially involve pure inertia, but the latter (long-term) clearly takes shape under the influence of the lingering power of historical legacies.

By closely examining the ways in which individual welfare states of Czechoslovakia (since 1993 two separate states of Czech Republic and Slovakia), Poland, and Hungary adapted to the new political and economic environment, we can also discover which mechanisms of transmission of institutional and policy legacies continue to operate in the postcommunist period and how it happens. In many cases the new democratic governments successfully reconfigured their institutions and renegotiated their policy priorities and solutions. As of the late 1990s, however, neither country, with the possible exception

of Slovakia, seemed to have made a radical break with the past, even though clearly some governments have been much more creative than others in adapting to the new conditions and have maintained a relatively effective system of social protection for their populations during the latest cycles of economic recession and slowdown since 1989. CZECHOSLOVAKIA

Early Reforms of Welfare State Institutions and Policies, 1990-1992

Reinventing “Emergency Social Policy” in the “Federal Period,” 1990-1992. Czech and Slovak postcommunist welfare states share a three-year period of development, 1989-1992, when the Czechoslovak federal government implemented a series of important emergency policies designed to protect the most vulnerable social groups at the time of anticipated economic crisis and transition to a free market system. Simultaneously, federal plans for a long-term institutional reform of pensions and other cash benefits also began to emerge. After the 1993 split of the federation each of the two constituent republics followed different paths of change in many areas. The Czechs, who inherited the core of the Czechoslovak welfare state with its traditions, norms, and toplevel expertise, favored a more cautious conservative approach in social policy. The Slovaks gradually developed their own, more distinct vision of a national welfare state, tied closely not only to the specific challenges of political and economic transformation, but also more generally to their own renewed and historic process of nation and state building. As we have seen before, the transfer of political power to the democratic Opposition in Czechoslovakia at the end of 1989 coincided with a significant economic slowdown but fell short of an outright recession. It is true that the lack of substantial foreign debt, low inflation, and effective price and wage controls

220 Postcommunist Social Policy, 1989-2004 enabled the new government led by the Civic Forum and its leader, Vaclav Havel, now the president of the republic, more time and better resources in the preparation and implementation of necessary social policy measures for the difficult time ahead (Miller 1999). Still, emergency policy measures and insti-

tutional reforms introduced in postcommunist Czechoslovakia in the period between the summer of 1990, after the victory of the Civic Forum in the first democratic elections, and May 1992, when the new government of Vaclav Klaus was formed, not only reflected contemporary economic priorities but also in a large measure reproduced previous reform patterns and experiences accumulated under the old regime. As in other former communist countries, two major concerns appeared immediately on the top of the agenda: first, the fear of potentially severe social

and political consequences of price liberalization and, second, the spectrum of rising unemployment associated with the inevitable collapse of inefficient state enterprises. By mid-1990 neighboring Hungary and Poland, where market reforms had been much more advanced, offered powerful examples of the perils of economic transition — double- or even triple-digit inflation, followed by fiscal austerity and a sharp rise in joblessness. Yet when the economy began to show clear signs of recession within just a few months of the transfer of power,

leaders of the Czechoslovak democratic opposition looked not to their neigh-

bors but rather at their own history for guidance in creating an appropriate safety net for this difficult period. As it happened on numerous occasions in the past, they also relied on their own extensive welfare bureaucracy and the small community of social policy experts, with their extensive expertise and first-hand experience with previous crises of the welfare state, to implement a variety of measures that would ease the pain of political and economic transition. To be exact, in the early days before the first national democratic elections Czechoslovak social policy rested on three pillars: a freshly minted political alliance between dissident intellectuals and anticommunist worker activists, a hastily assembled group of independent welfare state experts and planners, and an experienced core of bureaucrats working under the supervision of the Federal Ministry of Labor and Social Policy. In the words of one of the leading experts, Igor Tomes, all these elements began to come together already in December 1989: In early December Havel took [Petr] Miller [independent labor leader] into the talks with the [communist] government. He was very close to Havel... They couldn’t get on with the talks because Havel wanted the communist government to make regular democratic elections [so that] we will [sic] win. Miller said, “Listen, let’s do another scenario, we will take over and we will prepare the elections.” Then, on the roth of December they had a meeting.... Miller was there; workers were supporting him: “They say you will be the Minister of Labor.” He said, “I do not know anything about this, Iam a blacksmith.” They said — “Do not worry we will give you a good deputy, he will be the professional.” On the next day, the car came to my steelworks, where I was working. They knew me before, because I was Dubéek’s social adviser — I wrote the social part of Dubéek’s program. Then I disappeared into the steelworks. They knew me from these days and

Czechoslovakia 221 sent a message. I sent a message back: we are working, we have a team of sixteen professional people, we had been working on this for some time. (Tomes interview, 12 June 2002)

The new deputy labor minister, Igor Tomes, first became known in the Czechoslovak social policy circles in the late 1960s as a leading advocate of the “social democratic” package of welfare state reforms introduced during the Prague Spring in 1968 but never realized in practice (see Chapter 3). In 1990 he and his close collaborators got a second chance; they drew on past experiences to plan both short- and long-term changes in the major benefit programs during the postcommunist era. This time, at least in the short run, the team of social democratic reformers could count on solid political support from President Havel and his close associate, Labor Minister Petr Miller. Moreover, their potential ideological opponents, the emerging neo-liberal politicians such as Finance Minister Vaclav Klaus, focused exclusively on the economy and paid little attention to social policy. Also, this early in the transition process the World Bank influence and advice was not yet forthcoming, neither in Czechoslovakia nor in any other East European country. Instead, even though Tomes and his group tapped into outside knowledge and old contacts with the “social democratic” welfare state experts at the International Labor Organization and the European Union (Tomes interview, 12 June 2002), their policy proposals and reform recommendations derived almost exclusively from indigenous sources and traditions. Therefore, the first half of 1990 brought about not so much a compromise between two alternative social democratic and liberal proposals of welfare state reform (Orenstein 1995; Macha 1999; Potucek 1999) but rather an unwritten agreement between two well-entrenched policy centers focusing on the interconnected, yet distinct spheres of transition, social policy

and economic policy. A series of social and economic legislation introduced in June and July 1990 combined substantial price liberalization, endorsed by the neo-liberal Finance Minister Vaclav Klaus, with a more “socialist” package of social policy measures designed by Tomes and his team of experts with the 1968 pedigree. These measures focused specifically on two crises that had to be addressed immediately: the inflationary deterioration of current pensions and other types of cash benefits, and a rapid increase in the number of benefit recipients retiring from the active labor force. After it abolished price controls in July 1990, the government concentrated on close coordination of labor and social policies. By the end of 1990 inflation climbed to 18 percent, but unemployment level reached a mere 1 percent (Tomes 1991), with slightly lower figures for Czech Republic and higher for Slovakia (Kapl, Sojka, and Tepper 1991, 203, table 1). The low official unemployment rate, however, obscured the extent of the actual job loss. As many as 79 percent of all people who left their jobs did not return to the labor market (Kabaj 1995a, 21). Because communist Czechoslovakia had one of the highest job mobilization rates in Europe, a large number of pensioners, disabled persons, and young mothers worked full time. Among women aged twenty-five to

222 Postcommunist Social Policy, 1989-2004 fifty-five, 90 percent were still in labor force at the beginning of 1990. But dur-

ing 1990-1992 the number of working pensioners dropped from 446,000 to just 120,000, including many women entitled to early retirement (below fiftyfive) due to the number of children raised. In addition, an estimated 200,000 persons moved to the black market economy (Kabaj 1995a, 21). Most of them remained eligible to collect numerous social benefits on the basis of their prior work in the public sector. Under a plan devised by Tomes the government transferred 56 billion crowns from price subsidies to cash supplements paid to all wage earners and recipients of social benefits. Planned for three years, the State Compensation Allowance Act (no. 206 of 1991) instituted a monthly cash allowance of 140 crowns per household as compensation for the increase in the price of food (Tomes 1991; Tomes interview, 12 June 2002). Subsidies for transport, housing, and energy,

however, were still kept in place for the time being (Orenstein 1995, 182). Meanwhile, in 1991, with technical assistance from Western Europe and the International Labor Organization, the Czechoslovak government also adopted anew “living minimum” standard for wages, pensions, and other social benefits (183). Incidentally, because the maximum level of pensions had gone up already before the fall of communism, in 1988, the higher income retirees were relatively well protected during the early stage of transition. In addition, the government increased the amount of parental allowance for families with young children by 50 percent and extended the eligibility period to three years, which included supplementary compensation payments under the 1990 law on state-provided social benefits (Tomes 1991; Potucek and Radicova 1998; Kral interview, 2 April 2.003).

How effective were these emergency policies in providing a reliable safety net

for the early period of transition? Despite genuine efforts of the government, the actual socioeconomic picture on the eve of the breakdown of the federation looked rather discouraging. Even though initially, in 1990, real income of the population fell only 1.2 percent, in the following year, after the introduction of the new social policies, it dropped by as much as 25 percent (Vecernik 1995, 37, table 1). Furthermore, in the first two years of transition, wage earners lost substantially more purchasing power, with real wages declining by as much

as 34 percent (Kabaj 1995a), than did pensioners, whose benefits lost only about 20 percent of real value in the same period (Pension System in the Czech

Republic 1998, 23). At the same time, pension replacement ratios climbed up considerably, above 50 percent, including significant increases in minimum pensions relative to wages (22), a clear testimony to government’s renewed, and historically grounded, egalitarian effort in support of the standard of living of the older generation of citizens during the first two years of transition. Stabilization of pension policy was made possible not just by the compensation allowances but also due to the Pension Adjustment Act of 1991, which ensured special regular increases in minimum pensions and all other benefits (except the highest brackets) with every 5 percent increase in the overall retail price index (Miller 1999, 133). Under this system, however, in relation to other

Czechoslovakia 223 wage earners pensioners remained relatively better off only until 1992, when real wages began to expand again with the recovering economy and pushed down replacement ratios to the lowest level since 1978 (Pension System in the Czech Republic 1998, 22-23). Overall, in the early 1990s the total expenditure for the main cash transfers fell by a half percentage point in comparison with 1989, but also remained remarkably stable throughout the early transition period, at about 15 percent of NMP. Pension spending initially grew somewhat due to a wave of early retirements and new indexing measures, but this increase was largely offset by targeted cuts in family allowances and sick pay/maternity benefits. For instance, gradual retargeting of family assistance, planned already in the late communist period (Staszewska 1990) led to the differentiation of payments according to the number of children, from 200 up to 1,720 crowns (Fakta o socidlni 1997, 242). This new law helped to slightly reduce the level of expenditure in this category from 3.2 percent of NMP in 1989 to 2.8 in 1992, the first year of economic recovery. We must remember, however, that at this time of deep recession the total spending for all social transfers still remained

below the level of 1989, which generally translates into a real decline of the standard of living for most benefit recipients, not just the households receiving family support (see Chapter 3, Table 3.2). In many important ways the dynamics of pension expenditure in Czechoslovakia during 1989-1992 appears strikingly familiar to the crisis situation of the mid-1960s. Three decades before, the country suffered much less severe economic decline but also faced a heavy social insurance burden, reaching a top level of 14 percent of NMP already in 1965. In both instances the government moved relatively quickly to limit the growth of higher and middle pensions while protecting the minimum benefits. Soon afterward the more vulnerable programs — sick pay and family payments — were also sharply reduced. But as it prepared for price reform in 1968, the Dubéek regime drafted plans for parallel benefit retorm and appropriate compensation for the previous cuts in social insurance payments, an idea that was only partially implemented and eventually abandoned due to the reimposition of strict price and wage controls and large consumer subsidies during the 1970s. We can also argue that in both historical periods, the 1960s and early 1990s, the “egalitarian” blueprint of the 1948 National Insurance Act was recalibrated or renegotiated, but in each instance under the prevailing influence of different sets of actors. This time around, of course, price controls disappeared and the new democratic government had made a clear choice to abandon central planning and pursue market reforms. But in doing so it also implemented a mix of old and new social and wage policies, designed not so much to cut spending for ideological reasons but rather to keep it in check for the time being in anticipation of more difficult times of transformation ahead. The social policy planners, still working under the influence of the old paradigm of the centralized state-run economy, insisted on keeping the wages in the public sector under tight supervision at the local level through 1993 (see Kabaj 1995a). Also, the government failed to reintroduce taxation of pensions, abolished in mid-1970s, but instead,

224 Postcommunist Social Policy, 1989-2004 at least for time being, higher benefits were exempt from the newly introduced indexing system. Thus, clearly the egalitarian norms and ideas of the 1948 and 1968 reformers emerged once again, this time in a political atmosphere much more favorable to the promotion of the more independent vision of the national welfare state based on indigenous traditions. Moreover, as had been the case during the 1968-1971 crisis, the supplementary cash compensation allowances for social benefits were supposed to last only for a few years, until the economy stabilized and the reformed institutions of the welfare state were put in place (Tomes interview, 12 June 2002; Kral interview, 2 April 2003).

Historical Legacies and Institutional Adaptation of the Welfare State — The Federal “Social Democratic” Model. The experience of the near and more distant past dictated to the Czechoslovak reformers a cautious approach, based on the reliable and predictable performance of the existing benefit programs. First and foremost, drawing on historical legacies and influenced by “positive feedback” from the early days of the postwar welfare state, they hoped to restore and update many of the social democratic traditions of the welfare state that had

been repeatedly suppressed under the communist rule, first in the 1950s, and then again after 1968. While doing so, however, they aimed not to replace the existing social institutions but rather to gradually make them more compatible with the changing political and economic environment in their own country. They frequently turned to Western Europe and the ILO primarily tor guidance on how to modernize and supplement the existing programs in this spirit, but rejected any ready-made recipes or particular foreign models of a welfare state either from within or from outside the region. As Tomes remarked: [the] countries [of the former Soviet bloc] may bear rich resemblance to each other, nevertheless, [social] programs must be tailored to match the needs of the particular country, with due respect to its traditions, economic standing, and social and political environment. The mechanical transfer of ready-made models is undesirable; it is the know-how, not the models that should be offered to the countries facing these problems, which have no comparable precedent in European history. (1997, 1488)

Thus, in practice, the structure, that is, the preexisting institutions and norms of social policy, enabled the agency, that is, the new constellation of social policy experts with previous expertise who lost the previous round of battles over welfare state reform, to renegotiate the social insurance benefits without disrupting the basic developmental trajectory of these programs. The group of social democratic experts succeeded in making several important adjustments to eliminate the perceived injustices of the communist social insurance system while preserving the stability and reliability of the existing benefit programs. The basic method of calculating pension payments, for example, remained the same, as envisioned by the latest, moderate reform law of 1988. Yet now equal pension rights were extended to all self-employed persons, and the privileged occupational categories of pensioners from the communist era were abolished. The latter change, however, was actually less

Czechoslovakia 225 significant in practice because a very low retirement age, the most important privilege for many workers, especially miners, heavy industry workers, and many white-collar professionals and women, remained in place for a number of years as one of the key unresolved problems of the Czechoslovak pension systems.

The federal concept of institutional reform also included a merger of the two social policy bureaucracies, the State Pension Offices and the trade union social security departments, into one new agency, the Czechoslovak (Czech and Slovak at the republican level) Social Security Administration (Ceskoslovenska Sprava Socialniho Zabezpeceni, CSSZ) subordinated to the Ministry of Labor and Social Affairs. Notably, this new agency, created in 1990, now controlled both pension and sickness insurance, but it had no meaningful autonomy or a separate budget. As was the case in the past, the social policy budget remained under the joint supervision of the executive branch, lacking transparency of revenues and expenditures within particular benefit categories. In addition, the Collective Bargaining Act (no. 2, 1991) established a semi-corporatist “bargaining structure,” basically trading off government promises of minimum social protection and low unemployment for the workers’ acceptance of wage control and declining living standards. Thus, the trade unions, encouraged by the promise of tripartite power sharing, pushed for the extension of corporatist governance to the CSSZ. Never envisioned in the original legislation, these efforts found little support in the government and were soon scrapped by the new Prime Minister Klaus after 1992 (Myant, Slocock, and Smith 2000). Elected in June 1992, the governing coalition, led by “neo-liberal” Klaus, brought no new sweeping initiatives in social policy nor did it propose any comprehensive institutional models of the postcommunist welfare state. The general tax reform, for example, included the split of the social insurance contributions into two parts — employer’s and employee’s, but, as Macha (2002) argues, this move was largely a symbolic confirmation of the basic Bismarckian core of the Czech welfare state. It could also be seen in a larger context, as an affirmation of the trend set already in the late communist period, that is, the reintroduction of some traditional earnings-related elements into the pension

system under the 1988 law (Macha 2002, 78). This element, as well as the idea of the maintenance of the traditional pay-as-you-go system as the foundation of the postcommunist Czechoslovak welfare state, has been supported by all consecutive governments, left and right. The majority of the political establishment and large segments of the general public, however, also favored the maintenance of a basic minimum pension with a possibility of some kind of voluntary supplemental pensions that would gradually reduce the importance of the traditional cash transfers financed by the PAYG method (Potucek and Radicova 1998). Tomes and his group of “social democratic” experts also proposed the introduction of separate occupational pension programs, modeled on the 1930s and 1940s schemes of precommunist Czechoslovakia and updated on the basis of similar, more modern benefits offered by large companies in contemporary Western Europe and North America (Tomes interview,

226 Postcommunist Social Policy, 1989-2004 12 June 2002).* Meanwhile, however, Klaus and his supporters of the newly formed Civic Democratic Party (Ob¢éanska Demokraticka Strana, ODS) called for the adoption of voluntary, individual pension accounts instead. As we have seen, initial inertia in social policy making in a new democratic Czechoslovakia gave way relatively quickly to comprehensive reform efforts greatly impacted

by the legacies of the past. Yet by late 1992 all social policy reform plans were temporarily suspended due to the separation of the Czech Republic and Slovakia. THE CZECH REPUBLIC

The Czechoslovak Legacy and the Politics of Social Policy Reform after 1993

Remarkable for its lack of institutional innovation and basic continuity in policy making, the period of post-federal welfare state development in the Czech Republic serves as yet another powerful illustration of the enduring impact of past legacies on contemporary politics of social policy in the postcommunist region. In a way similar to previous historical periods of regime change, these legacies were transmitted not only through bureaucratic learning, positive feedback, and partial renegotiation of preexisting norms, but also via institutional layering and adaptation of some longstanding benefit programs. The era of attempted social insurance reforms in the Czech Republic involves roughly two stages: attempted implementation of a mixed “socio-liberal” model of social policy under the ODS/ODA government of Vaclav Klaus (see Orenstein 1995), from 1993 to 1996, and an unambiguous return to more egalitarian benefit policies but with a renewed emphasis on state paternalism and institutional status quo, beginning in 1997. The Czech Republic inherited the core welfare ideas, social benefit programs, and institutions of the federal government of the former Czechoslovakia. Now the republican Ministry of Labor and Social Affairs in Prague, with its efficient but cautious and status quo—oriented personnel, became directly involved in long-term policy planning and reform, an area previously dominated by much more flexible and visionary federal bureaucracy. While the federal social policy planners pushed for a more expansive model of the “social democratic welfare state” symbolized by the “revolutionary” laws of 1948 and 1968, the Czech republic level ministry showed little enthusiasm for any radical change, either to the left or to the right. Although during the relatively prosperous times since the split of the federation the newly introduced, egalitarian social democratic project began to lose much of its former political and public support throughout the mid-1990s, the social policy planners in the Czech ministry showed little inclination toward any alternative neo-liberal models (Vylitova interview, 12 June 2002). Surprisingly, the controversial “Thatcherite” prime minister, > Similar programs were eventually adopted in Slovakia (see below).

The Czech Republic 227 Vaclav Klaus, also refrained from any outright attack on the “federal concept” of the welfare state. As a result, in accordance with the past patterns, institutional transformation in the aftermath of regime change would eventually give rise to a hybrid structure rather than a wholesale replacement of the “communist” social safety net.

At the first glance, the initial cautious and conservative “socio-liberal” approach appears to have provided “an effective social safety net” (Orenstein 1995, 194). Actually, for most of the time, from the end of the federation in 1993 until 1997, the new Czech welfare state remained relatively stable and financially secure. In fact, given widespread uncertainty and turmoil elsewhere in the region in the mid-1990s, the unusual phenomenon of postcommunist stability of the Czech republic appeared almost miraculous. It seemed that during its early years in power the “neo-liberal” Klaus government made a genuine effort to find an acceptable modus vivendi between the need to control social spending and the maintenance of an adequate, politically and socially acceptable safety net, as recommended by social policy experts and bureaucrats. The private sector grew rapidly, foreign exports recovered, the GDP increased by almost 6 percent, and after only slight decline in 1991 and the post-federal transition years of 1993-1994 the level of social spending also rebounded to

a relatively high level of about ro percent of the GDP (cf., Tables 4.1, 4.2, and 4.3). Nonetheless, this success turned out to be more apparent than real. Two years later the country experienced its second recession during the postcommunist period, and since 1996 budget deficits began to grow each year. As many observers would later point out, until the late 1990s the Czech welfare state survived on borrowed time and money, largely due to a set of extremely favorable internal and external circumstances in the early transition period (Macha 1999, 2002; Miller 1999). We might also add that this took place in no small measure due to the enduring power of historical legacies. A middle policy course emerged from past experiences and originated from within the inherited institutions. It proved to be very costly economically, but nonetheless it continued through 1999 and beyond. Initially, in 1993, a pivotal time of their national history, the Czechs seemed especially well positioned for a renewal of their political, economic, and welfare systems. First, separation from much more economically depressed and poorer Slovakia shifted most of the burden of unemployment and many other types of social assistance from Prague to Bratislava. Second, from 1992 until 1997 the Czech Republic continued to enjoy a period of high economic growth (see Table 4.1), fueled by the rapid expansion of the private sector and a steady

influx of foreign investment. Third, in contrast to many other neighboring states in the region, the government of the republic remained remarkably stable under the coalition government led by Klaus, lasting four years from 1992 until 1996. Finally, all of the above conditions created a positive international climate, an image of successful transition, which boosted the government’s confidence in its choice of an economic reform strategy. We must also remember that all this helped to protect the country from outside pressures of international

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242 Postcommunist Social Policy, 1989-2004 During the past several decades since the postwar era of accelerated industrialization the structure of spending and expenditure priorities in the two nations have remained consistently different in several areas. For instance, in Slovakia since the 1950s, and especially during the 1970s and 1980s, the government

directed much more resources into family support (stdtni socialni podpory) and fewer into pensions) (see Table 4.4). In addition, the concentration of both heavy industry and impoverished households in the eastern provinces (including large numbers of Roma) led to growing discrepancies in pension benefits there, creating a much more glaring gap between the “industrial elite” of the first and second employment categories, mostly men (see Chapter 3), and the rest of the retired population, many of whom were low-income Slovaks living in rural areas and small towns. We must note, however, that the latter group also included Slovak women who could retire in their early fifties with a full pension due to more children raised.° During the early transition of 1990-1992, when Czechoslovakia as a whole began a difficult process of economic transformation, differences between the two republics became more pronounced.’ In 1991, for example, the government in Bratislava still spent approximately 9.6 percent of its national product on pensions and more than 3 percent on family allowances and child-care payments, in comparison with ro and 2.3 percent (family plus parental benefits), respectively, in the more prosperous Czech lands. Examined from the Slovak perspective, however, the situation looked much worse. In 1990-1991, when the Czechoslovak economy fell into recession and real incomes dropped dramatically, the spending level for all types of family support combined (including universal compensation for price increases) in Slovakia dropped much faster than during the crisis of the mid-1960s, preceding the Soviet invasion.® We must also remember that although the whole country suffered a decline in social spending across the board, the Slovak population with double-digit unemployment was hurt much more. In 1992, for example, the total social expenditure for cash transfers in the republic fell to the lowest level since 1981, the time when the communist federal government, fearful of the workers’ rebellion in the neighboring (and also heavily Catholic) Poland, poured additional resources into Slovak social protection (see Chapter 3 and Table 4.4). This time, apparently, the federal government, motivated by the proposed, common “social democratic” vision of the postcommunist welfare state, made no special provisions for the Slovak lands, grossly underestimating the huge difference in impact of 5 We must also note, however, that the Czech population was older and many people there could demonstrate long work records in well-paid administrative and industrial positions, which entitled them to higher pensions. © Traditionally, Slovakia has had a substantially larger number of families with more than two children, in comparison to the Czech Republic (Macha and Wolekova 1998, 136). 7 By 1992 industrial production fell by 40 percent, instead of a projected 5 percent. In 1990-1991 unemployment rose from 1.5 to 11.8 percent (Meciar 1993, 5; Social Policy: Slovak Republic 2OOI, 32).

5 Compare the period of 1963-1967, with more than 25 percent decline, to 1990-1992, with more than one third reduction in family benefits, for example (see Table 4.4).

Slovakia 2.43 economic transformation between the two republics. In r991 and 1992 the Slovak GDP declined by 14.6 and 6.5 percent, respectively, in comparison with 11.5 and o.5 percent in the Czech lands. During the same period unemployment in Slovakia surpassed ro percent, compared with an average of only 3.3 percent in the Czech Republic (see Table 4.1). Thus it is hardly surprising that from the early 1990s a growing number of Slovak experts began to call for a different type of national social policy for their republic, again with more emphasis on family policy as an independent component of the welfare state (Potucek and Radicova 1998). Therefore, we might argue, on the eve of the split of the federation, the battle over the future direction of social policy fell victim to two contradictory policy legacies that

stemmed from the 1968 reforms. The first one, in evidence since the end of World War II, could be called “the legacy of cohesion.” This longstanding policy pattern focused on the redistribution of wealth within the country to create a more socially and economically stable, communist Czechoslovakia. The second legacy, “the legacy of solidarity,” in fact stems from the relative success of such redistribution under the previous regime and also, more recently, from the special position of the Czech opposition elite as the leaders in the process

of democratization. In other words, at least from the perspective of Prague, if the Slovaks were able to benefit equally, if not disproportionately, from the relatively generous safety net in the past, and later also share in the success of the “velvet revolution,” they too ought to be prepared to endure (temporary) pain of economic transition. Paradoxically, as we will see below, the initial, relative disadvantage of the Slovak position in first stage of postcommunist socioeconomic transformation was only a beginning of a future downward trend in regard to social policy and welfare spending. Since 1993 independent Slovakia based its national social insurance system on two pillars: traditional pension and sickness protection programs and a separate but highly volatile structure of family support paid directly from the state budget. The latter often became indistinguishable from other types of public assistance for the low-income population and thus was more open to fiscal and political manipulation by the government. This outcome and the emerging, new model of the Slovak welfare state, based on the institutional separation of the core social insurance programs from the rest of the cash transfers, stemmed directly from the nature of the social policy transformation and a particular dynamics of state building. In fact, hastily designed national policies of economic emergency helped to shape this process in a special way. As such, it contrasts sharply not only with the Czech example but also with Poland and Hungary, countries that experienced much greater institutional continuity during the first phase of systemic transformation after 1989.

Institution Building in Slovakia after 1993: Separation, Transformation, and Layering

Institutional separation from the Czecho-Slovak federation created a distinct and consequential context for the new Slovak welfare state. But also, conversely,

244 Postcommunist Social Policy, 1989-2004 in the early 1990s the politics of the separation to a large extent acquired an important social policy dimension. In mid-1992, at the time of the federal and national elections, Vladimir Meciar’s pro-independence political party, Movement for Democratic Slovakia (Hnutie za Democratické Slovensko, HZDS), published its own social program, calling for a separate Slovak system of social protection based on three distinct policy areas: social insurance, a system of state grants from the budget, and public assistance (Radi¢ova and Potucek 1998, 19).

Shortly after the “velvet divorce,” in a January 1993 interview with a French journalist, Meciar, the first Slovak Prime Minister, stated, “The [independent] Slovak state is the only opportunity to solve the crucial socio-economic problems facing Slovakia. ... The [main] goal of my government,” he added, “is to create a consensus between the requirements of the market and the necessary social protection” (Meciar 1993). Meciar and the HZDS headed the Slovak sovernment for almost five years, until October 1998, with only a short interruption from March to December 1994. Throughout most of the 1990s, the Czech and Slovak Republics mirrored each other as the most stable cabinets in the region, with substantial power and autonomy delegated to individual welfare ministers (Miller-Rommel and Malova 2001; Miiller-Rommel and Mansfeldova 2001). Nonetheless, the functioning of the executive branch in Bratislava differed to a large extent from that of its equivalent in Prague, in terms of both party ideology and the attitude toward market reform. Even though from the start Slovakia suftered from the lack of indigenous policy expertise, especially in matters of the economy and social protection — the two spheres previously dominated by the Czech federal politicians and bureaucrats — it nonetheless enjoyed certain tangible advantages as a newly independent postcommunist welfare state. As a co-successor of Czechoslovakia, a longtime social policy leader within the former communist bloc, it could utilize the preexisting institutional infrastructure. The Slovak sovernment, for example, immediately converted the Bratislava branch of the Czechoslovak Ministry of Labor into its own Ministry of Labor, Social Affairs and the Family (Ministerstvo Prace, Socialni Veci a Rodiny), while the branch of the federal Social Security Agency now became the National Social Insurance Agency in Slovakia (VSeobecna Narodna Poist’ovna). Contrary to the situation in the Czech Republic, however, from 1993 on this agency remained formally

independent from the government and was run in a corporatist fashion by a tripartite board, with the Social Affairs minister as its chair. The Slovaks also broke with the long tradition of centralized social insurance financing that carried over into the federal period and continued to function in the same fashion in the Czech Republic. In the early period, the Slovak National Social Insurance Agency administered three separate funds, pensions, sickness, and health. In 1995 the second MeCiar government split the agency into two separate entities, Social Insurance Agency (Socialna Poist’ovna), in charge of pension and sickness insurance, and Health Insurance Agency (Zdravotna Poist’ovna), dealing with health care. Several Slovak scholars pointed out that the post-1993 institutional reform, which marked a significant departure from the Czechoslovak social insurance

Slovakia 245 traditions, derived from both the fiscal policies of 1992-1993 and the politics of the newly independent Slovakia controlled by Vladimir Meciar (Butora and Butorova 1993; Wolekova 1998). The combination of financial reforms of the late federation and the early independent Slovakia and the accelerated nationalist push for a sovereign state opened the way for the creation of a particular type of less-centralized, semi-corporatist, welfare institution. Moreover,

in 1993 the ruling coalition led by HZDS had to rely on international help to stabilize government finances heavily burdened by growing social expenditures, which now Bratislava had to manage alone. In 1993, the IMF agreed toa vital assistance package but under strict conditions, which included immediate changes in the institutions and the structure of social protection. The Meciar government embraced this reform opportunity not only to solicit badly needed foreign assistance (Macha and Wolekova 1998), to strengthen the newly created sovereign state, and to reduce the excessive burden of social spending on the eve of independence (Wolekova 1998), but also to solidify the necessary support of his core constituency.

The Slovak government could also draw on the latest experience of the “social democratic” reform strategy drafted during the three-year federal period that increasingly relied on étatisme, rather than democratic corporatism. In fact, since the time of post-1968 political normalization the Slovaks had consistently shown greater support for socialism and state paternalism than the Czechs had.

Public opinion surveys of the late 1980s and early 1990s also demonstrated much more intense fear of “cruel capitalism.” In addition, since the end of the communist regime a number of Slovak nationalist leaders advocated a middle road between socialism and capitalism (Butora and Butorova 1993, 714-716), a position explicitly rejected, if not always adhered to, by Vaclav Klaus and the ODS supporters in Prague. In the end, in 1992, eager to pursue their own liberal economic agenda, the Czech rightist parties had little desire to oppose the “reformed communists,” nationalists, and influential industrial interests in Slovakia who pushed for a much more generous, government-controlled social protection within a separate national state (718-719). Meanwhile, the Slovak industrial interests, hurt by the recent wave of unemployment and disenchanted by the cuts in the social safety net in the late federal period during 1992, became a natural ally for Meciar, who was eager to consolidate his power in the republic where the majority of the general population apparently showed little enthusiasm for the separation of the two countries (722). Formal reintroduction of the traditional, Bismarckian model of autonomous social insurance institutions, including corporatist governance and decentralized financing, helped the HZDS to achieve other political and economic goals, while addressing the most immediate concerns and expectations of the international aid agencies and key domestic constituencies. The influence of the IMF and later also the World Bank, however, could not be completely separated from the legacy of the early federal period, which, at least in theory, emphasized strong tripartism and the eventual goal of social insurance self-government for the future Czechoslovakia (Myant et al. 2000, 728). We might also add that the Slovaks were familiar with the reformed model of

246 Postcommunist Social Policy, 1989-2004 autonomous social insurance implemented in neighboring Hungary in 1994, also significantly influenced by the prerogatives of market-oriented fiscal policy

(see the section on Hungary below in this chapter).? The key difference was in the much lesser influence of the ministry of social affairs in Budapest. In Bratislava, despite official claims to the contrary, the ministry remained firmly in control of the newly created and still politically inexperienced social insurance bureaucracies, formally through the ministerial chairing of the supervisory board, and even more so informally via fiscal policy and complicated budgetary maneuvering (Renata Balintova Interview, 5 June 2002; Szabo interview, 4 June 2002; and Marek Jakoby interview, 6 June 2002). The political context of the period of state and nation building in post-1993 Slovakia reinforced the transformative trends in the welfare system initiated by the first Meciar cabinet. In addition to further convergence, transformation, and decentralization of the welfare state (officially described as the conversion of a “paternalistic” social security system into a genuine, contributory social insurance), in 1996 the Slovaks also introduced a new institutional layer of supplementary (and voluntary) pension insurance (doplnkové déchodkove poistenie). Borrowed in part from the federal blueprint prepared originally in Prague by Igor Tomes and his team, this scheme covers employees of select enterprises

that enter into an agreement with the newly created pension insurance company (SPIC). Initially, employees and employers contributed a tax-deductible amount equal to 3 percent of nominal wages to the system, which in the 1990s enrolled approximately 100,000 workers. The supplementary pension legislation, however, also created a potentially serious problem of political accountability, because the law split the supervision of the pension funds between the ministries of labor and finance (Jakoby 2002, 13). Creation of this additional layer of pension protection seems to demonstrate

the continued importance of the industrial lobby and the markedly greater impact of tripartism in the political economy of Slovak reforms throughout the 1990s (see Myant et al. 2000). Yet from another perspective it also reflects increasing “hybridization” (Thelen 2003) of the postcommunist welfare state in Slovakia under a distinct mix of domestic historical legacies and contemporary foreign influences. Even more significant, the process of institutional change seems to signal more definite “branching out” of the Slovak developmental path, originated in the process of state building (see Campbell 1996) and as such might compare historically to 1919, rather than to previous instances

of regime transition in the 1940s or early 1990s. Yet this apparent historic break with the past on the institutional level should not obscure the presence of significant continuities in Czecho-Slovak patterns of social policies that carry over into the postcommunist period in both countries. For example, in independent Slovakia, even more so than in the Czech Republic, pension and 9 In conversation, the Deputy Labor Minister of Slovakia acknowledged collaboration with Hungary during the preparation of the social insurance reforms (Michal Szabo interview, 4 June 2002).

Slovakia 247 sickness insurance, the two areas that had been always very well protected within the centralized Czechoslovak welfare state at least since the late 1970s, have remained almost intact at least through the late 1990s. Only family programs represent the major exception. After 1993 they began to deteriorate much faster in Slovakia despite the growing need for new forms of social assistance for the low-income and jobless population in the country. Social Policy Adaptation and Reform Efforts since 1993

Until the defeat of the HZDS in the 1998 parliamentary elections, the Czechoslovak laws regulating pensions, sickness, and traditional forms of family assistance (statni socialni podpory) remained basically intact, preserving what many Slovaks believed were the necessary elements of a stable safety net at the time of great political and economic uncertainty. In contrast to the Czech Republic, the old privileges for the first and second employment categories, early retirement provisions, and more generous sick pay regulations stayed in effect through the early 2000s. Family benefits, never part of the social insurance budget in the first place, lost their universal status in 1994 and became less generous but were not radically overhauled either. Under the Meciar regime

families with an income of up to 2 to 2.2 times of the social minimum were eligible to receive child allowances. Later, however, the recipients were divided into two groups, those below 150 percent of social minimum and those in the bracket of 150 to 220 percent, with the former cohort collecting increased payments. At the same time the administration of benefits had become extremely

complex and unstable, involving at various times a mix of institutions, such as the Social Insurance Agency,’° workplaces, employment bureaus, and the local public assistance offices (Macha and Wolekova 1998, 144-147). In many ways, we might conclude, the reorganized welfare state institutions continued to operate and implement the old programs, except with fewer resources, which in turn demanded more creativity from a rather tiny and inexperienced group of politicians, experts, and bureaucrats. This group, which maintained a variety of formal and informal links to Prague for many years (Tomes interview, 12 June 2002), served as the main conduit for the social policy legacies of the Czechoslovak era at least until the late 1990s. What social and economic outcomes resulted from this basic continuity in the core social insurance policies? In practice the inheritance of the Czechoslovak laws and regulations pertaining to the major social insurance payments meant that the newly created welfare state now continued to suffer from the same, long-unresolved problems left over from the communist period. These included the weak relationship between earnings and benefits, special privileges for various employment categories, excessively low retirement age, especially for women, and an outdated system of family benefits that failed to address the new socioeconomic reality of increasing poverty and joblessness. The Slovaks TO Tt paid family allowances for the self-employed until July 2003.

248 Postcommunist Social Policy, 1989-2004 also kept in place the system of pension indexing introduced in Czechoslovakia in 1991. This decision helped to maintain the stable replacement ratio (at 45-47 percent) throughout the decade but not the real value of family incomes (see Table 4.7, p. 269). In 2000 average real pensions were still approximately 15 percent lower than in 1989 (Jakoby 2002). Because Slovak wages were bur-

dened by a high combined social security tax of 51 percent (including over 32 percent for pensions and sickness paid by employees and employers), tax evasion also became a significant problem in the late 1990s (Jakoby 2002). Nevertheless, since the creation of the separate social insurance institution the Medciar government managed to maintain pension and sickness spending constant at about 7.5 and 1 percent, respectively (see Table 4.5). As we recall, this was not the case in the Czech Republic, where in the same time period the cost of old-age benefits in particular increased rapidly. The more favorable financial situation in Slovakia can be explained in part by the fact that by 1993 the early retirement wave was largely over. Pension rolls grew only by 7.4 percent during 1993-2000, as opposed to 15.3 percent in 1989-1993."

Also, as we have seen, the Meciar government skillfully managed to coopt the trade unions and important occupational groups, such as state employees, railroad workers, police, and the military by continuing to offer them special, Czechoslovak-era pension privileges. Meanwhile, the majority of pensioners receiving much lower benefits absorbed the pain of steady, but gradual deterioration of payments, especially after the mid-1990s. In addition, sick pay was not reformed either, enabling Slovak workers to collect much higher benefits on the average than their Czech colleagues (Potucek and Radicova 1998). Thus it seems that at the policy level, the newly emerging welfare state went through

an initial stage of inertia. Nonetheless, the period of revived historical legacies, with a conscious decision to enhance state paternalism in the key policy areas, followed soon after. This included most prominently the promotion of special benefits for elite categories of workers at a time when their political and economic significance was actually in decline. In the first decade of national independence Slovakia made only two official attempts to restructure fundamentally its social policies as a whole. The first attempt occurred under MeCiar in a document submitted to the parliament in December 1995, called the “Policy of Transformation of Social Sphere of the Slovak Republic (SR).” The second, entitled “Policy of Social Insurance

Reform of the SR,” came in August 2000, two years after the electoral victory by the pro-European and pro-market coalition of Prime Minister Mikulas Dzurinda. Each of these two reform efforts tried to resolve the problem of delayed policy reform and a fundamental discrepancy created by the establishment of new welfare state institutions, while leaving the old Czechoslovak social benefits practically intact but with much less funding. The 1995 reform proposal acknowledged the need for further pension reform in the direction of a more diverse multipillar system, but the overall government policy makers, members ™ See Social Policy: Slovak Republic, 2001, 56, and my calculations.

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ee DN 8 In accordance with the 2002 reform proposal, the Slovak parliament approved a Swedish-style restructuring of the government old-age pensions, establishing a closer relationship between benefits and earnings. It also called for the creation of a mandatory funded pension scheme, to be phased in from 1 January 2005 and financed by a 9 percent contribution taken from workers’ salaries. In the same month a new 19 percent flat tax rate went into effect along with a proposal to reduce overall social insurance contributions gradually over the next several years. The Slovak pension reform, following partly in the footsteps of Hungary and Poland (discussed below), marks a late but significant departure from the Czechoslovak and also recently the Czech tradition of a universal and comprehensive social insurance based on social solidarity and solid state guarantees. After almost a decade of paying lip service to the demands of international ™ From March until December 1994, HZDS briefly lost control of government to a five-party minority cabinet led by the Realist Political Alternative (APR). ™ For a neo-liberal critique of the Slovak pension system, see Jakoby 2002.

Slovakia 251 financial institutions, Slovakia suddenly changed course, calling for a drastic reduction of the budget deficit, including further cuts in the social insurance budget. Why did the change take place and why did it appear to be more effective this time, despite the initial enduring power of the social policy legacies? A closer look at the circumstances leading up to this new plan reveals the outline of a carefully crafted policy compromise. A group of new actors within the welfare ministry, in close collaboration with outside advisers and international organizations (the World Bank, IMF, and OECD, among others), stepped in to fill the gap in know-how and expertise within the Slovak social insurance community, largely displacing former advisers, formal and informal, coming from Prague (Tomes interview, 12 June 2002; Jakoby interview, 6 June 2002). Curiously, at the same time, the deficit problem grew more severe, after the creation of the autonomous social insurance funds made the financial situation more transparent (see also the cases of Poland and Hungary below for the discussion of the same problem). Political considerations also compelled the MeCciar government to stabilize the pension and sickness funds (with subsidies for the privileged groups) and to limit the promised cuts in the family support schemes, while at the same time unsuccessfully trying to control the growing public assistance budget and the unemployment programs. Thus, in essence the institutional reforms eliminated the flexibility inherent in the former Czechoslovak system that had previously allowed almost unencumbered transfer of funds among various programs. At the same time interested parties, including trade unions and the emerging financial sector at home and abroad, could easily find out how much money was going where. Fundamental changes in the structure of the welfare state, implemented within the overall process of state building, also gradually opened the way to policy reform.

This sudden transparency of public finance revealed that spending reductions, focused on the stdtni socidlni podpory, were not sufficient to help balance

the budget. In addition, in the early 2000s, as the economy began to expand again, pension spending stagnated at about 7.4 percent of GDP (see Tables 4.1 and 4.5). In these circumstances, the Slovak ministries of labor and finance felt more comfortable to expand their close consultations with the World Bank and the IMF, hoping to implement a comprehensive socioeconomic reform package that would address the longstanding western concerns about the financial stability of the new state. Driven by the conditionality of renewed privatization efforts and promarket fiscal policies, reminiscent of the situation in Hungary in the 1980s and Poland later in the 1990s, and spurred by the renewed prospect of EU membership, the Slovak plan was nonetheless still tempered by other crucial legacies of the past. One such fundamental legacy was the persistent

weakness of all major national actors, now including the unions, the newly emerging private sector, and the government itself along with the inexperienced bureaucracies in charge of the social insurance system."4 ™ For a more comprehensive discussion of the other crucial policy legacies of the former Czechoslovakia, see Campbell 1996.

252 Postcommunist Social Policy, 1989-2004 The consequence of this situation was two-fold. First, the ministry of labor had to rely quite heavily on foreign assistance in preparation and implementation of the new pension reform proposal, which in turn encouraged the international and domestic financial sectors to get more directly involved in the reform process. Second, final approval of partial privatization of pensions came at the cost of significant concessions to both traditional domestic interests and newly emerging groups, such as the increasingly powerful financial/business lobbies. These concessions included slowing down the planned increase in pension age, the preservation of separate pension privileges for the military, police, and custom service, and women at large, and the return to the old system of universal family allowances paid to all families according to the number of children rather than income (Jakoby interview, 6 June 2002). The latter was portrayed as a long overdue attempt to address a new demographic crisis (Berecz 2002, 1), but it could also be interpreted as a return to the Czechoslovak traditions of family policy of the 1970s and 1980s. In sum, by the early 2000s, on the eve of the EU accession, the transformation of the Slovak postcommunist welfare state entered a second, more radical but still inconclusive phase, with several old institutional layers and policy patterns still visible within the newly restructured welfare state. It is important to note that the initial institutional overhaul, carried out in the context of accelerated state and nation building, enabled further transformation of social policy, making it much more vulnerable to international and domestic pressures for future change. Yet through the late 1990s, the successive Slovak governments also continued to draw heavily on the Czechoslovak laws and legacies of policy

making to address both the present and future, anticipated problems of the basic social safety net.75 At the time of this writing it was still too early to predict with certainty whether the “branching out” of the Slovak welfare state would continue on course later into the 2000s, creating a definite break with the past, or whether the process will go into reverse, leading to a much more limited, “bounded” change. So far, events and statistical data showing steady and consistent decline in spending in almost all categories of social insurance through the early 2000s seem to suggest the former (see Table 4.5). POLAND

Economic Shock Therapy and Early Continuity in Welfare State Institutions and Social Policy

The Polish governments shared with their Czech and Slovak counterparts the same dilemma of trying to preserve the social safety net during the first, most ™S As of this writing the actual cost of a transition to a new system is not known, but the OECD experts have warned of the unintended consequences of “phasing in” of the second pension pillar in Slovakia; 1.e., if the EU does not agree to exclude these costs from current expenditures (est. 1% GDP), the country will have trouble complying with the Maastricht rules for the single currency (euro) for many years to come (www.oecd.org/document/57, accessed 3/29/2004 — OECD Economic Survey, Slovak Republic).

Poland 2.53 volatile stage of postcommunist transformation. In the fall of 1989, anxiously

awaiting the unknown and largely unpredictable results of the dismantling of the Leninist political and economic system, the first opposition-led cabinet of Tadeusz Mazowiecki made no significant changes in social policies before the adoption of badly needed anti-inflationary policies several months later. In open defiance of its main constituency, the Solidarity union, it largely ignored the pledges made at the Round Table agreements by their communist predecessors and refrained from full indexing of all social benefits in accordance with growing wages. Without clear direction from the top, inertia set in within the welfare state. Social policy experts and government bureaucracies operated largely by default, defending institutional continuity and seeking only minimal, short-term policy adjustments to maintain the financial stability of pensions and other basic social insurance programs. As opposed to economic reformers, social policy planners stood on much firmer ground in supporting the temporary status quo. At the threshold of the transition, the Social Insurance Fund (FUS) looked relatively healthy, shored up by a steady flow of contributions from the state-dominated economy and additional savings accruing from delayed pension indexing (Wiktorow interview, 22 April 1993; Helena Goralska interview, 28 August 1996). Therefore, when the new policy-making team settled in, they could afford to take more time to put forth more comprehensive policy changes and long-term plans to restructure the welfare state institutions. The Solidarity-backed Mazowiecki government, enjoying the unprecedented political advantage of being the first noncommunist regime to rule the country since the end of World War II, moved quickly to implement a radical transition to a market economy (see Balcerowicz 1992). The reform, widely known as the Balcerowicz Plan (named after its author, Finance Minister Leszek Balcerowicz) or, More commonly, as the Polish “shock therapy,” consisted of a series of macroeconomic measures aiming primarily to curb escalating wages in the public sector, to eliminate subsidies and price controls, and to liberalize trade. When the plan became reality on 1 January 1990, the government seemed to have recognized its historic and unpredictable nature; the introduction of market mechanisms had never been tried before in such rapid and radical form in an open, democratic setting (see Kuron 1991; Balcerowicz 1992). We must also remember, however, that no domestic or foreign entity at the time proposed any other comprehensive plan that could adequately prepare the incoming, inexperienced ministers of labor for the unforeseen real political or socioeconomic consequences of the “shock therapy.”*° From the early 1990s, a wide array of domestic, political, and institutional factors influenced changes in pensions and other social insurance programs in Poland. Early calls for a possible radical overhaul of the inherited welfare state institutions that would complement political and economic reforms originated largely from within, as was the case in Czechoslovakia during its first months ™ The World Bank plan, for example, advocating the so-called three-pillar pension reform and other cost-saving measures for many transition countries, became widely known and publicized in the region only in the mid-1990s (World Bank 1994).

254 Postcommunist Social Policy, 1989-2004 of independence, generating fierce political and ideological battles in the parliament (Sejm) and among various interest groups. Nonetheless, I argue that historical legacies came to the fore as the preeminent determinant of welfare state reforms already when the first tangible policy recommendations began to emerge from the Mazowiecki cabinet. For example, the successful implementation of a social safety “cushion” under the martial law, in 1982, tollowed by five years of retrenchment and relative stability in social spending (see Chapter 3, Tables 3.5b and 3.5c), remained deeply ingrained in the “institutional memory” of the social policy bureaucrats at the influential Ministry of Labor during the time of postcommunist transformation. In late 1989 they advised their new boss, the former famous leader of the underground opposition and renowned social and political activist, Jacek Kuron, that the Polish system of social protection repeatedly performed well during past crises, and, if kept intact, there was little doubt it would do so again during the upcoming period of anticipated economic austerity (Kuron interview, 29 April 1993; Kuron 1991).’7 Meanwhile, in the absence of a major state-building effort on the scale experienced in Poland in the 1920s or even during the late 1940s, and in the rushed, crisis atmosphere generated by the Balcerowicz plan and the unfinished political transformation, more comprehensive, long-term proposals for the restructuring of the welfare state as a whole failed to gain sufficient momentum. Most significant, however, the inherited decision-making mechanism that centered on the powerful office of the labor ministry and the Social Insurance Institution (ZUS) remained in place as the main backbone of the postcommunist welfare state, creating a formidable structural barrier against any accelerated change. This institutional arrangement may have carried over from the old regime to the new almost automatically at first, but its significance expanded quickly as the “layered” recombination of different constituent parts of the state began. Throughout the next decade positive feedback generated within the inherited structures worked against the repeated indigenous and exogenous attempts to overhaul the Polish welfare state from the bottom up. The “shock therapy” was expected to generate a short-term crisis, a painful recession with higher prices and single-digit unemployment, to be followed in the next year by lower inflation and speedy recovery (Balcerowicz 1992; Kuron 1991; Kuron interview, 29 April 1993; Michat Boni interview, 16 February 1993). As we now know well, general assumptions about the overall macroeconomic trends were largely correct, but almost all government planners completely misjudged the scale, nature, and long-term impact of this strategy on the Polish society in general and on social policy in particular. Neither could they predict what would result from an unprecedented combination of a reformed

“capitalist” economy working in conjunction with the mostly unreformed “communist” welfare state. In the first two years Poland’s economy declined by almost 20 percent and unemployment jumped from o to 12 percent of the 7 Incidentally, as if by design, the level of social spending in 1990 turned out to be exactly the same as in 1982: 14.14 percent of the NMP (cf. Tables 3.5b and 3.5c).

Poland 255 labor force, but also quite unexpectedly the overall social spending for cash benefits reached an all time high of more than 16 percent of the GDP already by the end of 1991, and almost 17 percent in the next year (see Tables 4.1 and 4.6; Inglot 1995).?° In this context, renewed calls for a comprehensive reform of the welfare state acquired a new aura of urgency. In the early 1990s Polish reformers of social policy focused primarily on three major areas: benefit financing, rules and regulations concerning the eligibility and amount of cash transfers paid to individuals and select occupational

groups, and the political and administrative oversight of the social security system as a whole. In many ways, the first two of these areas reflected the perpetual unfinished agenda of the former regime, whose similar themes were to be replayed repeatedly in the new democratic period. More examples of these attempts at policy reform are reviewed in a separate section below. The issue of political control and a possible major change in administration of benefits, however, opened a new and much more controversial chapter in the troubled history of the Polish welfare state. It almost immediately targeted the venerable Social Insurance Institution (ZUS) that had run all major benefit programs, pensions, family benefits, and sickness insurance for over six decades. If successfully implemented, some of the more radical proposals would result in a major shift in the control and distribution of enormous resources, equal to one third of the national budget. In fact, given the extremely difficult socioeconomic conditions of the Polish transition and a deep recession that lasted until mid-1992, such fundamental changes in the welfare state institutions and policies could potentially threaten the government’s ability to support the existing entitlements and social obligations to its citizens and also seriously undermine the current state capacity to generate revenue. In direct response to these perceived threats, the conservative social policy establishment renewed an alliance with economic reformers that they had forged already in the late 1980s, with the former group again claiming a virtual monopoly on welfare state expertise. For a time being they also could rely on the firm support of postcommunist politicians who were extremely slow to come to terms with many complexities of social insurance and continued to call on the seasoned communist-era experts and bureaucrats for advice (Kuron interview, 29 April 1993). In consequence, as was the case in the postcommunist Czechoslovakia and later the Czech Republic, for almost

a decade from 1989 until 1999, Poland experienced a remarkable period of continuity in its basic social policy institutions. One exception to this trend was the creation in December 1990 of a separate organization charged with the administration of farmers’ insurance, the Farmers Social Insurance Fund (KRUS). A de facto clone of its “parent” bureaucracy, the ZUS, KRUS emerged from a convergence of two long-term tendencies or

crucial legacies of the past: the institutionalization and consolidation of the agricultural interests within the Polish welfare state, on one hand, and the ™8 With all kinds of farmers’ benefits added, these numbers could be even 2 to 3 percent higher (see Table 4.6).

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Poland 257 gradual reaffirmation of the core, national social insurance institutions, on the other. Both tendencies can be traced back to the 1960s and 1970s, but the former had become firmly entrenched only since 1983, when the Jaruzelski regime decided to grant private farmers and their families most of the same pension and other social benefit rights enjoyed by other occupations. For almost eight years afterward the communist regime followed an inherently contradictory policy of legal fiction, officially presenting the social transfer programs for private farmers and their families as “insurance” while in reality treating them always as direct budget subsidies to the rural communities with only token financial participation of the insured themselves.*? The Jaruzelski regime also brought into the social policy establishment one additional permanent player, the Ministry of Agriculture, along with its political ally the Peasant Party (ZSL) and a potential large constituency whose support was deemed essential for the stability of the regime in the country where almost two fifths of the population resided in the countryside. At the same time, almost from the very beginning both the Ministry of Labor and the ZUS deeply resisted the situation in which they shared administrative responsibility but no real political control over the payment of benefits to millions of new beneficiaries defended by their official ministry “lobbyists” and Peasant Party officials (see Jonczyk 19954). In 1990 the new regime ended the short-lived administrative merger of the farmers’ and employees’ insurance systems but maintained the legal fiction of “social insurance” for rural inhabitants, symbolized most clearly by the official name of the new bureaucracy: Kasa Rolniczego Ubezpieczenia Spotecznego (in which the Polish word ubezpieczenie means “insurance,” as opposed to zabezpieczenie, meaning social security or social protection). Thus the Mazowiecki government, acting in conjunction with the wishes of its Peasant Party (now PSL) allies who famously abandoned their association with the communist party in the summer of 1989 to support Solidarity, consolidated and reinforced the tendency of using the farmers’ social insurance as “one of the key instruments of the redistribution of income from the urban to the rural areas” (Prasznic 1995, 14). It must be noted that the main supporter of this “statist” and highly redistributive policy, the PSL, remained on the political scene as an influential political actor through mid-1990s when it joined ranks with the ex-communists in the new government led by their leader, Waldemar Pawlak.*° Nonetheless, regardless of the political pressure coming directly from the farmers’ representatives in the government, during the early transition nobody in the decision-making circles seriously considered “rolling back” the farmers’ insurance system, which in just one decade became a virtually indispensable antipoverty program for the underdeveloped Polish countryside, popularly referred to as “Polska B” (provincial Poland, as opposed to “Polska A,” the ™? On the average less than ro percent of the expenditures of farmers’ insurance was covered by the collected “taxes” or contributions from the “insured,” many of whom also lagged behind in their payments (see Jonczyk 1995a; Prasznic 1995). 2° The PSL survived almost two decades of political transformation surprisingly well. In the fall 2007 elections, it won enough votes to join a ruling coalition with the Civic Platform (PO).

258 Postcommunist Social Policy, 1989-2004 urbanized and industrialized areas of the country). Thus, paradoxically, once again a severe economic crisis stimulated yet another major expansion and consolidation of social insurance rights and benefits in the country, strengthening the traditional role of the state as the major guarantor of social welfare. Within this overall context also the ZUS and the Ministry of Labor felt empowered again to successfully defend and consolidate their traditional position under the new regime, which inherited the historically entrenched mission of providing pensions and other core benefits to the “insured” employees in all major occupations.**

Rearranging Welfare State Institutions in Postcommunist Poland: The Early Debate, 1990-1993 The debate over welfare state ideology and the direction of changes in the Polish social security program began already several months after the introduction of the “shock therapy” legislation in early 1990 and gained full force in the following year. On one side, the defenders of the existing pay as you go (PAYG) system

called for a slow, incremental change that would protect, first and foremost, the rights and benefits of current pensioners believed to be the most vulnerable group during the transition period. On the other side, the proponents of a more radical reform favored a relatively quick and radical transformation of the current social insurance into several independent funds liberated from monopolistic government control. In 1991 the latter group suffered an early defeat, which considerably slowed down the reform process. The unprecedented social consensus on the Balcerowicz plan (Balcerowicz 1995) appeared to have created a short-lived window of opportunity for radical institutional change. As we have seen, however, at this time the welfare state began to emerge from a period of initial inertia, and policy makers, experts, and bureaucrats started seriously to discuss the future of the safety net after communism. The sudden appearance of a serious social insurance deficit in 1990-1991 encouraged the newly appointed president of the ZUS, Wojciech Topinski, and his academic collaborators to offer a radical plan of action. They pushed for a swift transformation of the existing PAYG structure into a more independent system, with “funded” individual accounts to be invested in the financial markets. This proposal, based largely on the Chilean example from the 1980s,** immediately ran into a wall of opposition within the government and among most of the social policy establishment, including the ZUS itself, *1 This institutional separation was not fully complete for another decade. Even though in 1991 the ZUS personnel responsible for farmers’ insurance were transferred over to the KRUS, the main Social Insurance Agency administered disability screening for the farmers until 1999. Also the ministries of labor and agriculture shared jurisdiction over hundreds of thousands of claims by people who qualified for benefits from both the employees’ and farmers’ insurance due to their mixed occupational records on and off the farm. >? Topinski traveled to Chile in December 1990 to study the effectiveness of the privatized pension system. Wojciech Topinski interview, 5 May 1993. See Topinski and Wisniewski 1991.

Poland 259 leading eventually to the widely publicized resignation of Topinski in the summer of 1991. The failure of the Topinski proposal encouraged other policy entrepreneurs, social policy experts, and interest groups to explore new avenues for more fundamental change in the pension system, but again without much success. By this time the enduring influence of historical legacies had already penetrated the reassembled postcommunist social policy establishment. In some ways this situation resembled the postwar period of regime change, when “agents of reform” descended on the ZUS and the Ministry of Welfare to implement Soviet-style pension policy. Eventually, in both instances reformers

failed to produce lasting change on the institutional level, and on the policy level they achieved only partial results. During the next several years the major controversy centered not so much on whether some kind of social security reform was necessary — since the recent financial crisis and a sudden explosion of social spending showed that it was — but rather whether the future additional and partly privatized pension funds should be voluntary or mandatory. The Ministry of Labor and the ZUS continued to defend the current system as the cornerstone of the Polish welfare state

in need of restructuring but not any radical overhaul. Curiously, in support of their position they often again quoted the flexibility and relative efficiency of the ZUS in dealing with the fiscal crisis of the early 1990s and even earlier, when all benefits continued to be paid on time despite a sudden surge in expenditures (Wiktorow interview, 12 April 1993; Goralska interview, 28 August 1996). Meanwhile, the advocates of the mandatory plan, including the Solidarity labor union and later also a small group of experts in the Ministry of Finance,*3 prepared their own pension reform proposals, arguing for the introduction of a brand new second-tier scheme, in addition to other voluntary individual and group pension accounts (third-tier) to be created in the future. In this instance the Chilean case served as an example of a useful method to generate valuable capital for future growth in an emerging market economy.” In 1992 the Solidarity proposal was formally introduced in the Senate, the new upper chamber of the Polish parliament. It envisioned the split of the Social Insurance Fund, originally set up in 1987, into three separate funds according to insurance risk and transforming the ZUS into an autonomous, self-governing organization supervised directly by the parliament.*5 Save for the last important provision of legislative, rather than executive control, this plan de facto called for the return to the original idea of semi-autonomous *3 The so-called Mazur group, which prepared its own proposal of the mandatory pension plan in the mid-1990s with the participation of some leading Polish economists, such as Marek Mazur, Marek Gora, and Michat Rutkowski, some of whom later went on to work for the World Bank in Washington.

*4 Wojciech Topinski claimed in an interview with me (5 May 1993) that he was one of the major forces behind this effort, trying to push the issue once again in a different way onto the parliamentary agenda after his resignation. *5 Andrzej Baczkowski interview, 15 September 1996; Ewa Borowczyk (deputy director of ZUS) interview, 17 September 1996; and Michat Boni interview, 4 January 1997.

260 Postcommunist Social Policy, 1989-2004 social insurance from before World War II (1920s). This time, however, the proposal almost immediately met with widespread criticism of the vast majority of social policy experts and government officials and never advanced beyond

the early draft stage. The government, and especially the ministers of labor and finance, who had depended on the ZUS for effective collection of state revenues and implementation of social policy, were determined to stop any such initiative. As one high-ranking official in the Ministry of Finance stated in her opinion to the Senate project, “[I]n regards to the proposed autonomy of the ZUS we need to emphasize that we cannot seriously consider any autonomy of an institution that implements the policy of the state and pays the benefits

regulated by state law and guaranteed by the state” (Opinie do senackiego projektu 1992, 8, my translation, emphasis added). This episode illustrates the enduring impact of state paternalism in Poland, expressed most vividly in the 1933 legislative blueprint and its future normative reincarnations and renegotiations under communist rule and beyond. Once the worst financial crisis was over, in the fall of 1991 the parliament approved a new package of pension legislation that streamlined pension regulations without changing the basic tenets of the existing PAYG system. The mainstream social policy establishment argued that during this time of political instability and economic uncertainty the policy of slow and incremental reform of social security was the best available option. Ministers of Labor in the successive Solidarity governments, Jacek Kuron and Michat Boni, understood well that they had to carefully balance the perils and advantages of the existing social security system in the context of the pressing socioeconomic and political challenges around them. On one hand, the continuation of the status quo created constant short-term crises, such as the one in 1990-1991, and in the long run could presumably lead to a progressing deficit of the pension fund around the year 2025, when the “baby boom retirement” was expected to begin. On the other hand, in the opinion of the mainstream social policy experts within the Ministry of Labor and the ZUS, a more radical pension reform was a far more dangerous solution. It not only could undermine the government’s capacity to collect sufficient revenue needed to address the most immediate social problems but also threatened to alienate vital political constituencies (Kuron interview, 29 April 1993).

Nonetheless, it appears that in 1990-1993 the lack of progress of welfare state reforms in Poland stemmed mainly from the inability of the postcommunist governments to overcome preexisting institutional limitations and structural constraints. First, the country inherited a centralized social security system that had always been highly vulnerable to the lobbying efforts by wellentrenched insiders, allowing determined individuals within the government

and numerous occupational groups to derail reforms at the very top of the administrative structure — at the Ministry of Labor and Social Policy. This situation continued to favor politically powerful groups, such as the farmers, but also miners, the police, steelworkers, war veterans, and the military. Therefore, any effort to “democratize,” or restructure and decentralize the social insurance

Poland 261 administration, even one coming from some well-intentioned Solidarity experts,

could not possibly succeed in the early 1990s, when the traditional lobbies remained extremely influential and capable of paralyzing the government on numerous occasions not only in the area of social transfers but in the larger socioeconomic sphere as well (see Ekiert and Kubik 1999). Second, a huge burden of budget deficits in the first two years of transition

mobilized the fiscal bureaucrats from the ZUS and the Ministry of Finance once again to reclaim tight control over the financial assets of the state and thus to ensure the continuation of the major tenets of the Balcerowicz plan. By utilizing preexisting fiscal mechanisms and extensive regulatory powers of the executive branch, including those of the Minister of Labor, these officials for the most part managed to trim excessive spending to avoid financial collapse; by the mid-1990s pension expenditure, for example, stabilized at about 13-15 percent of GDP”® (see Table 4.6), following also a sharp rise in the contribution

tax to as much as 45 percent of gross (previously net) wage. We must also remember that all this took place despite increasingly hostile confrontations with the parliamentary opposition, within the cabinet and in the public at large. In contradiction to the claims of some scholars (see Cain and Surdej 1999; Lipsmeyer 2002), the impact of political parties and their ideologies on social spending and the pension reforms in Poland during the first stage of transition remained rather insignificant. From the very beginning, the institutional and policy legacies of the past enabled the top social policy makers of the Solidarity governments to increase spending for all major social benefits to unprecedented levels (see Table 4.6; Inglot 1995, 2003). However, they, eventually paid a high

political price for their efforts to save the budget while defending the maintenance of relatively large social expenditures in relation to the GDP, well above not only the other postcommunist countries in the region but also many wealthy European nations (see Inglot 2003). The cabinet of Prime Minister Hanna Suchocka suffered the brunt of the initial and the most hostile policy feedback from both the interested constituencies and the parliamentary opposition, including the Solidarity politicians and union leaders, causing the paralysis of most current reform efforts and leading to the fall of the government in the spring of 1993 (Rulewski interview, 15 April 1993; Kuron interview, 29 April 1993).

Stabilization of the Institutional Status Quo under the Ex-Communist Government, 1993-1996

When the next government, led by ex-communists and their coalition allies, took power after the September 1993 parliamentary elections, it had already become clear that any proposal to change the existing social security system not only carried serious political and economic risks but also faced major structural constraints. In government the coalition partners themselves failed to agree on 26 13 percent for employee pensions plus about 2 percent farmers’ pensions.

262 Postcommunist Social Policy, 1989-2004 a common course of pension reform and found little enthusiasm for change within the ministry or the ZUS. Therefore, regardless of the aggressive prowelfare rhetoric of the new “left-wing” cabinet, few observers expected to see substantial progress in this area any time soon. In addition, the economy had begun to show impressive signs of recovery, with lower number of new pensioners and dropping unemployment rates, lessening the pressure to reform the welfare state (see Table 4.1). Yet in 1998, by the end of the next electoral cycle, Poland finally managed to achieve a consensus on one of the most controversial restructurings of the inherited institutions of social policy: the introduction of a three-tier pension system with a mandatory funded (capitalized) component, based in part on the Latin American examples of Chile and Argentina.*” The nature of this consensus was largely determined by historical legacies that also eventually shaped the content of the final pension reform legislation. In November 1993, Polish Prime Minister Waldemar Pawlak announced that his government “would not treat social expenditures as a burden on the budget” (“Ludzki rzad” 1993, 10-11). The coalition of the ex-communist Alliance of Democratic Left (SLD) and the reconstituted PSL blamed the former Solidaritybased governments for the lack of progress in the area of social policy reform. A high-ranking labor ministry official claimed that the previous cabinet of Hanna Suchocka abandoned such reforms for political reasons on the eve of the parliamentary elections, ignoring the “years of unbearable sacrifice” imposed on the public in the early 1990s. Now, he declared, “[we will] find a less painful way to reach the same [reform] goals” (Hausner 1994, 4). In practice the ex-communists, just like their predecessors, made only minor

adjustments on the margins of the system (in sickness and family payments for example, as discussed below) but refrained from making radical changes in the pension laws. In an early 1995 interview, Labor Minister Leszek Miller candidly defended his policy of maintaining and even extending retirement benefits and privileges to select groups of employees by claiming that “nine million pensioners who vote could not be ignored and any government coalition

that does not want to provoke a large social conflict must take this fact into consideration.” He also backed the efforts of his parliamentary colleagues from

the SLD to secure the benefit rights of the members of the state apparatus, arguing that “in a case when the salaries in the military and the police are too low it is acceptable to use pension privileges as an incentive” (Miller 1995, 12). Previously, by focusing extensively on maintaining state capacities in the area of social policy, the Solidarity governments helped the conservative government bureaucrats and policy experts with strong ties to the previous regime to preserve their influence within the Ministry of Labor and Social Policy. After the 1993 elections these officials “emerged from the closet,” while the remaining radical reformers were purged from the Ministry of Labor and the ZUS (Malgorzata Pawlisz interview, 31 August 1996). Subsequently, an old team of *7 For more detailed comparisons of pension systems in East Central Europe and Latin America, see Miller 1999, 18-23.

Poland 2.63 policy experts was reassembled by Miller to draft his government’s proposal of pension reform that included a guaranteed pension for everyone (at the level of 30 percent of an average wage), wage and insurance-based retirement ben-

efits for persons with at least fifteen years of employment, and a voluntary supplementary pension for those willing to pay additional contributions. The first of these provisions was eventually dropped, but only after Finance Minister Grzegorz Kolodko threatened to resign. Kotodko’s economic program, the Strategy for Poland announced in the fall of 1994, insisted on urgent and comprehensive pension reforms that would generate long-term savings for the state budget (“Kotodko Sets Conditions” 1995). This conflict between the two ministers quickly became public and stimulated widespread media criticism of the proposed legislation. In consequence, the government was forced to revise its pension proposal approved by the cabinet in May 1995 and to eliminate several of its most controversial provisions, especially those favoring more generous indexing of benefits (Program Reformy 1995). Only by late 1995 had an uneasy compromise on pension reforms begun to emerge, once again challenging the status quo.

Institutional Adaptation and Layering: The Anatomy of the Pension Reform Compromise, 1996-1998 The crucial turning point in the process of pension reform in Poland came with the departure of Labor Minister Leszek Miller, who was moved “upstairs” to the post of Chief of Staff of the Council of Ministers, and with the arrival of his successor, Andrzej Baczkowski, a nonpartisan outsider and former Solidarity activist. Soon after, Miller’s pension reform was relegated to the lengthy and cumbersome “social consultations,” with little chance of passage before upcoming presidential elections, and the Labor and Finance Ministries agreed on a new law restricting the indexing of retirement benefits. This provision was immediately challenged by an executive veto, overruled by the Lower House (the Sejm), and then again turned over to the Constitutional Tribunal by President Watesa (“Lech Walesa Sends a Bill” 1995). Regardless of the final ruling, which deemed such restrictions illegal and mandated government compensation for past injustices, the delay in policy implementation enabled the two ministries to better coordinate their positions and gave the government more time to prepare for a possible backlash. The pragmatic policy makers, however, regained considerable influence in the process of pension reform only after the election of the new president, ex-communist Aleksander Kwasniewski, and the formation of the next government under Prime Minister Wlodzimierz Cimoszewicz in early 1996. Before his premature death in November 1996 Minister Baczkowski assumed personal responsibility for the social security reform and succeeded in building political momentum for the series of comprehensive pension bills adopted during the following year by the Seyjm. We might argue that by doing so he took advantage of the key institutional legacy of the Polish welfare state — the

264 Postcommunist Social Policy, 1989-2004 enhanced political and leadership position of the welfare (labor) minister, to promote change, in way similar to his predecessors of the early 1930s and the 1970s, for example. His team undertook a major revision of the pension project introduced by Miller in 1995, inviting its critics and the advocates of more radical approaches to propose further changes in the ministerial plan. The World Bank provided crucial logistical support and necessary expertise (Muller 1999), especially in the area of public relations — explaining the merits of the future reformed pension scheme to the people and the still skeptical conservative experts in the Ministry of Labor. The revised pension reform was first unveiled in February 1997, in a government publication called Security through Diver-

sity (Chton, Gora, and Rutkowski 1999, 19). Later, the legislative work on mandatory privatized pension funds continued under Baczkowski’s successors, Jerzy Hausner and Ewa Lewicka, neither of whom advocated major changes in the structure of the ZUS, but who instead focused on keeping the momentum

of reform through the time of election campaign and government change in 1998.

The first package of legislation in this area was passed still under the excommunist regime in 1997, but the second was approved a year later by the new Solidarity government. The legislative complexity of this undertaking, lengthy

parliamentary debates, and the need to conduct consultations with the trade unions and other social organizations pushed the implementation date of the new system up to 1 January 1999. The Bureau of the Special Government Representative for Social Insurance Reform (Biuro Petnomocnika Rzadu do Spraw Reformy Ubezpieczen Spotecznych), established by Baczkowski in August 1996, took the lead in coordinating the reform efforts, which were officially conducted outside the existing government structure by nonpolitical experts and with the advice of the World Bank, but in reality involved a carefully crafted political compromise. These difficult negotiations involved the Ministry of Labor, Ministry of Finance, and a number of powerful occupational lobbies, represented by different trade union leaders, ex-communist politicians, and several organizations of pensioners. Simultaneously, a related proposal to use the proceeds from privatization to finance the transition from the old to the new social security system was announced. Not surprisingly, as the budgetary crisis subsided

and the economy continued to grow steadily at an average rate of 5 percent annually, this idea became extremely popular among the general public.?°

The new pension scheme established mandatory participation in the new private pension funds by all persons born after 1 January 1969 and possible voluntary membership for employees and their families born after 1 January 1949. At the same time, the government pledged to protect the benefits and privileges of current pensioners and all those who would remain in the old system. These privileges still included some of the most popular but also most 28 In the February 1996 referendum, 90 percent of the voters supported the use of the proceeds from privatization to finance the new pension schemes (see Open Media Research Institute (OMRI) Daily (RFE/RL) Report, 20 February 1996).

Poland 265 expensive entitlements, such as early retirement provisions for many professions and a significantly lower retirement age for women.”? In fact, union members

working in traditionally well-paid occupations, for instance, in mining, steel industries, the military, and the police, immediately demanded a series of new, separate agreements that would protect their special old-age pension rights inherited from the communist regime.?° In addition, the authors of this reform largely ignored the problem of the separate and heavily subsidized pension system for private farmers, leaving the KRUS and its extensive system of heavily subsidized benefits basically intact. This neglected aspect of the Polish social security reforms clearly shows the

continuing detrimental impact of historical legacies originating in the 1980s, 19708, or even earlier. Institutional reforms typically involved “layering” and recombination of old and new elements and, in case of pension reform, for example, also conversion of a planned “social insurance” scheme into a de facto

income subsidy for impoverished rural households. The institutional features of the new pension system also suggest a preference for continuity and deepseated anxiety, within the policy-making elites and the public at large, about the long-term role of the state as the chief guarantor of social entitlements. The mandatory retirement funds are now subject to strict regulatory controls by the newly created government boards, granting licenses to private investment funds and watching over detailed investment guidelines. Still, the ZUS not only preserved its central role as the distributor of benefits in the basic PAYG system but also assumed collection and recalculation of old-age benefits for the private funds. In sum, the core institutions of the welfare state were reorganized with

an important addition of a new “layer” of private pensions, but many of their traditional features remained the same. Also, the future of more fundamental social policy reforms as a whole continued to look rather bleak due to many other crucial and unresolved problems to which we turn next. Impact of Policy Legacies, Phase I: The Postcommunist Welfare State Expansion, 1990-1993 During the early 1990s, Poland and, to a lesser degree, Hungary (as we will see below) defied conventional wisdom when the government combined aggressive

promarket economic policies with extremely generous social transfers that brought the welfare state to the brink of financial collapse (see Table 4.6; Inglot 1995, 2003). How did this crisis come about and what explains this apparent internal contradiction in socioeconomic policy? I believe the legacies of the past help to explain this puzzle. As we have seen before, dramatic periods of sudden

crisis-led expansion of social benefits were not uncommon throughout the *9 Many female employees in Poland continued to take advantage of early pension benefits from their state jobs while pursuing new career opportunities in the emerging private economy. See Nowy system emerytalny w Polsce, 1998, 17-18. 3° Tbid., 16-17.

266 Postcommunist Social Policy, 1989-2004 twentieth-century history of the Polish welfare state. A small group of social policy experts and bureaucrats “learned” how to manage crisis under communist rule. Moreover, positive feedback and self-reinforcement mechanisms with the ministry of labor and the ZUS helped to transmit policy legacies from the old regime to the new one. Only this time the political and socioeconomic environment had begun to change remarkably quickly and dramatically, forcing the policy makers to seek new, more creative ways of reinventing their welfare norms and policy preferences. Indeed, deep economic recession and rampant inflation of the early 1990s created an immediate social policy emergency. Practically all political leaders and their supporters in the general public shared at least one fundamental conviction about the possible victims of this crisis. They firmly believed that the over six million pensioners in general, as a group, constituted the most vulnerable segment of the population in need of special protection. This conviction, of course, had been firmly grounded in historical experience and undoubtedly enhanced by the so-called intractable old wallet (stary portfel) problem — the Polish term for the lack of a permanent benefit indexing mechanism. This defciency constantly, since at least the 1950s, recreated a huge gap between the newly granted benefits and the old ones, pushing many elderly persons to the verge of poverty. In conjunction with the popular conviction that an average pensioner in Poland never received a just reward for the years of mandatory employment (and the alleged contributions he or she made into the system>*), this factor put additional pressure on the government at a particularly difficult time when the new democratic leaders feared a major social backlash in the aftermath of the “shock therapy.” 3 The fundamental misconception, fully understood at that time by only a narrow group of knowledgeable social insurance experts, was that an average pensioner, described widely in the mass media along with an avalanche of statistical evidence claiming to show the progressing deterioration of the welfare state in postcommunist era, was a highly abstract notion conveying a greatly skewed image of reality. As we remember, in contrast to neighboring Czechoslovakia

or Hungary, Poland never unified its social insurance rules. Hence, by 1990 fifteen different and frequently overlapping general laws regulated benefits for millions of pensioners who received vastly differentiated payments under quite

byzantine entitlement rules. Moreover, as I mentioned before, an additional one hundred provisions and statutes provided extra privileges, such as early retirement opportunities and work bonuses, not only to women and farmers but also to those in other dozens of occupations, protected by their respective 31 This, of course, stemmed from a common misunderstanding, widespread also among the general public in the United States, about the nature of the PAYG system that pays the current benefits largely from the incoming payroll taxes, and not from any accumulated savings.

32 This was a prevailing theme expressed in numerous articles in the Polish press, radio, and television broadcasts, and personally to me by members of the Polish government and social policy experts in Warsaw in the early 1990s.

Poland 267 ministries in the executive branch of government. Thus from the very beginning the postcommunist governments faced an almost impossible challenge of trying to pursue some sort of uniform pension policy for the time of transition, while

in reality such efforts were doomed to failure from the start without a prior radical overhaul of the very foundation of the existing welfare state. Still, regardless of their political predicaments, Solidarity governments basically followed in the footsteps of their communist predecessors, using the existing institutional capacity and fiscal tools to buy time before coming up with a

plan on how to draft a feasible reform policy within the parameters allowed by the legacies of the past. Only a few months after the introduction of the Balcerowicz plan, in May 1990, Prime Minister Tadeusz Mazowiecki agreed to the first regular quarterly indexing of pensions based on the governmentissued wage index, as promised originally at the Round Table talks a year before. Meanwhile, an extremely liberal policy continued not only in farmers’ pensions, as mentioned above, but across the board in all categories, including most prominently disability benefits, early retirement regulations, and lax employment rules for current pensioners, benefiting largely high-earning groups with added bonuses, such as the miners, police, firemen, and railroad and steel

workers. New disability pensions jumped to almost half a million already in 1990, and in 1991 young pensioners flooded the system at a time when unemployment also climbed to double digits. Subsequently, within just three years overall pension spending doubled in size in relation to the GDP from barely 7 percent of the GDP to over 13 percent as the ZUS scrambled to pay benefits to almost two million new beneficiaries (see Table 4.6). Partial efforts to reform these costly policies and cut the expenditure levels, however, began in earnest only in late 1991, stimulated also part by the excessive cost of a newly introduced unemployment assistance program.33 The outgoing cabinet of Prime Minister Krzysztof Bielecki, a major proponent of economic neo-liberalism and a vocal critic of excessive state interventionism, finally managed to put together the first major pension bill of the postcommunist era. In the aftermath of a major fiscal crisis, in October 1991, he and labor minister Boni persuaded the parliament (Sejm) to approve new permanent rules for the calculation of benefits, putting more emphasis on the record of insurance contribution3* and, even more significantly, establishing a ceiling for the highest pension at 250 percent of average wage. The 1991 reform hurt mainly the higher income groups from among the existing pensioners but not necessarily the new retirees, especially those with special, legally guaranteed privileges, including bonuses and early retirement rights protected by other legislation. 33 Introduced under Labor Minister Jacek Kuron in 1990 and available to virtually any adult citizen without a job and with a credible record of previous employment. 34 This record includes the actual years of employment; nonemployment years were counted as “vears of insurance coverage” (maternity leave, school, military service, etc.) but were actually not equal in value to regular years of employment.

268 Postcommunist Social Policy, 1989-2004 Meanwhile, average nominal payments for most new pensioners actually increased since the adoption of the reform bill, and the pension replacement ratio quickly climbed to over 60 percent (see Table 4.7), compounding the already difficult financial situation of the Social Insurance Fund. Contrary to the popular myth at the time, however, the actual income of the retired population as a whole remained quite secure. In 1991, for example, an average pensioner gained 13.6 percent in real terms, a move that largely offset the substantial benefit decline of the previous year. In the context of the 7 percent drop in the GDP and a huge decrease in real wages, this clearly illustrates a deliberate government effort to safeguard the livelihood of the social group widely considered to be suffering the most during the economic shock therapy. Once again, we ought to see this policy in the larger historical context of a cyclical expansion of pension spending in the aftermath of political crises, in the mid-1950s or early 1980s, for example, followed by retrenchment attempts. This time some Polish pensioners with long employment records and higher salaries were hurt by the new restrictions on the maximum benefit amount, but in general retirees fared much better in relative terms than many other groups in society. A comparison of average real household incomes clearly shows that, in relation to the previous period, during 1989-1992 the retired population was in a much better economic situation than the average working family (see Tables 4.7 and 4.8). As I argued above, in the early 1990s the postcommunist governments were able to react efficiently to crisis situations not only because of the sound institutional foundation of the social security system but also through skillful utilization of the centralized executive power and the expertise, that is, positive feedback, self-reinforcement of norms and ideas, and learning, acquired by the social security bureaucracy in the past. This expertise involved drawing important lessons from the severe economic and political crises of 1971, 1980-1981, and 1987-1988, when the ZUS took over the distribution of emergency cash benefits and wage subsidies and managed to fulfill this task with admirable efficiency and speed. The policies of Jacek Kuron, a longtime opposition leader and the Minister of Labor in the first Solidarity government, and to some degree also his successor, Michal Boni, were greatly influenced by this legacy as they

struggled to balance the two contradictory roles: proponents of a responsible budget and efficient social policy reform and traditional advocates for a statistical “average benefit recipient.” When in the early tall of 1989 the Social Insurance Fund (FUS) began to show some signs of a possible deficit, Kuron, his then deputy Michal Boni, and the Minister of Finance, Leszek Balcerowicz, revealed this fact to the public

in hope of gaining support for a further increase in the social security tax and also, much less successfully, for possible future reductions in the rate of spending (Kuron interview, 29 April 1993; Boni interview, 4 January 1997). The latter, more difficult task depended largely on the government’s ability to control the growth of the pension fund and, therefore, had to be implemented carefully in several stages throughout the early 1990s. The former policy action,

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270 Postcommunist Social Policy, 1989-2004 TABLE 4.8. Poland: Comparison of Changes in Real Household Income, 1989-1992 (% change)

Years 1990:1989 1990:1I991 1992:1991 1992:1989 Wage earner’s household —24.9 1.7 2.2 —23.2 Pensioner’s household —15.8 8.7 —6.9 —II.3 Source: Jacek Mojkowski, “Cery na Latach” (Patching It Up), Polityka 51, 18 December 1993, p. I2.

however, along with many other pension-related measures that determine the

real value of benefits, could happen quietly as a part of the annual budget legislation prepared jointly by the Ministry of Finance and the Ministry Labor and Social Policy. Here, in fact, lay a major institutional strength of the Polish

“emergency” welfare state that many times in the past helped it to survive difficult economic and political crises. Even more significant, this legacy has lived on despite numerous unintended consequences stemming from excessive concentration of decision-making power with the two centralized agencies of the state (see Chapter 2). In the short run, the tax increase immediately affected employers, not the working population, because the enterprises (both public and private) were

required to transfer all of their required payments directly from their wage funds to the ZUS. By forcing the employers to carry the increased tax burden plus the additional cost of other benefits, such as sick pay, the government was able to create a temporary financial cushion and avoid a sudden political backlash. Hence, even in the midst of the severe crisis of 1991, the ministers in the coalition of Solidarity parties could comfortably reject urgent calls for pension reform in large measure because of the structural opportunities offered by the existing system. Keeping the status quo also allowed them to better handle social policy emergencies under the stress of postcommunist transformation without undermining the essential tenets of the state as the key provider of income for large segments of the population. In essence, this policy of continuity prepared the ground for the subsequent rebirth of the traditional “emergency” welfare state in postcommunist Poland in its new, increasingly costly and inegalitarian incarnation. Even though throughout the early 1990s large groups of people in the country began to fall into poverty, especially the long-term unemployed and their families, the traditional core of social insurance benefits expanded rapidly across all major program categories on an unprecedented scale. There is little doubt that the Solidarity-led government made a genuine, serious effort to boost social protection significantly at least for all major occupations and working women during the difficult period of free-market transition, something that the outgoing communist government appeared no longer able or willing to do in the late 1980s. Still, very soon, in accordance with historical trend, the most privileged esroups — the farmers, miners, railroad workers, the military, the police, and

Poland 271 TABLE 4.9. Poland: Annual Rate of Increase in Social Insurance Expenditures, 1991-1995 (General Social Insurance Fund vs. Farmers Insurance and “Uniformed” Services (military, police, etc.) in %)

Year I99I 1992 1993 1994 1995 Social Insurance Fund (FUS) Total 60.2 42.4 31.0 31.7 8.6 Farmers Insurance Fund (KRUS) 81.6 65.0 37.3 46.8 40.1 Benefits for military, police, and other 117.9 55-6 47.6 82.1 49.6 uniformed services (e.g., prison guards and customs officers)

Total budgetary subsidies to FUS and 118.6 101.5 41.7 35.1 24.7 KRUS?

“ Not covered by social insurance tax contributions. Source: Aleksandra Wiktorow, “Czy grozi nam krach ubezpieczen spolecznych?” Rzeczpospolita, 16 November, 1995, p. 14.

also a large number of war veterans — began to emerge again as clear winners in the politically charged game of the redistribution of social transfers under the new regime.*> Eventually, despite numerous efforts of the labor ministry to trim some of the most costly pension programs, by the mid-1990 practically all of these elite employees again secured for themselves separate legislation

that reconfirmed and even enhanced many of the existing entitlements (see Table 4.9). One of the top officials in the labor ministry vividly recalled the charged atmosphere of that period: All of those “uniformed services” people came and wanted to literally kill Kuron because we tried in our bills to create one [social insurance] legislation and minimize the priv-

ileges. So that somebody can control these things. I remember well when they all came...ministers of defense, interior, the chief of the prison system, and wanted to “kill” Kuron because he tried to change it all. (Goralska interview, 28 August 1996, my translation)

Protracted and repeated attempts by the Solidarity-based governments to limit pension privileges for the former communist functionaries of the security apparatus responsible for the violent repression against the political opposition during the Stalinist period, 1944-1956, further illustrate the intractability of this problem. The Sejm adopted two parliamentary bills taking away special veterans’ pensions for this group, in 1993 and 1997. The first legislation was vetoed by President Lech Watesa (“Prezydent nie podpisal ustawy” 1993), and the second was appealed to the Constitutional Tribunal, which only in April 2003 issued a final ruling that took away some of the special pension bonuses for this category of beneficiaries. 35 In 1999, for example, the ZUS paid 280,000 miners’ pensions with an average payment equal to I17 percent net average wage in the country. The average age of a newly retired miner that year was forty-seven. Emerytury i Renty Gornicze 2000.

272 Postcommunist Social Policy, 1989-2004 Impact of Policy Legacies, Phase II: Attempted Retrenchment and Benefit Reforms, 1995 to the Early 2000s The incremental reforms of the pension system in Poland during the early 1990s helped to alleviate the perpetual problem of the old cohort of pensioners whose benefits under communism have always lagged behind the new group of retirees.

Nonetheless, they failed to achieve the desired political and economic goals. They did little to satisfy benefit recipients, causing widespread protests and intensive lobbying of senior bureaucrats by the trade unions and groups of Polish pensioners representing the traditionally well-paid occupations.?° These changes also largely failed to arrest the explosion of social security spending. Due primarily to the steadily increasing cost of old-age and disability pensions, the overall level of spending for social transfers continued to grow approximately until 1995. Since then, improved economic performance and declining unemployment, from the peak 16.4 percent in 1994 to only 8.6 percent in 1997, helped to ease the burden somewhat. But more significant, we can attribute the slowdown in overall social insurance cost, beginning in the mid-1990s, to two time-tested techniques (policy legacies) applied by almost all past and present governments, namely, delays or reductions in pension indexing combined with select cuts in less expensive, nonpension benefits, such as family payments and sick pay (cf. Tables 3.1, 3.5a, 4.1, and 4.6). Before 1993, the Solidarity-led government coalitions prevented the financial collapse of the ZUS mainly by fiscal measures, including a raise in social insurance taxes to a total of 45 percent of gross wages in 1992 and trying to “flatten” pensions by imposing the upper benefit limit at 250 percent of average wage in 1991 plus a relatively low “floor” aimed at the poorest recipients with limited work records and low earnings. While the high taxes remained in place throughout the decade, the other part of this early retrenchment attempt failed to produce desired results, largely due to preexisting structural conditions. As we have seen above, in the absence of uniform pension legislation for all employees, the traditionally privileged professions secured for themselves many additional privileges and concessions that continued even after the major restructuring of 1998. Furthermore, after the new ex-communist/Peasant Party coalition came to power in 1994, all minimum pensions were increased, implicitly targeting over 2 million farmers, the majority of whom received at least the legally guaranteed minimum retirement and disability payments. Thus, in this situation, delayed and limited wage indexing, which threatened again to escalate pension cost beyond control as inflation declined and the average earnings began to pick up, became the only viable option for balancing the budget in the short term. Sold to the public as a mandatory, unavoidable emergency measure to save the country’s budget from a ballooning deficit, the policy of reduced indexing 36 See, e.g., “Ostry protest emerytow” (Pensioners Strongly Protest), Tygodnik Popularny Zwigzkowiec 50, 1992: 2.

Poland 2.73 of pensions nonetheless seriously undermined public support for the Solidaritybacked cabinet. As a former communist official, who continued to work at the ministry of labor’s economics department in the early 1990s, related to me, “I walked over to my new ‘Solidarity’ colleague across the hall and asked her,

‘Why did you insist on the regular indexing [at the Round Table in 1989]? Now you [yourself] will have to take back that stupid decision you forced on us [with the same political results|” (Szreter interview, 2 June 1993). In fact, at least until the wage indexing was formally replaced by the price-based one in September 1995, all governments faced the same challenge, exposing them not only to public protests and constant attacks by the parliamentary opposition, but now also to a serious legal challenge from the Constitutional Tribunal.37

Until the late 1990s, the policy makers acted mostly in a similar fashion, not only by making “invisible” adjustments in fiscal policy but also by seeking savings and cuts in less controversial programs, as they did on countless occasions before, in the 1960s, 1970s, and 1980s. During 1992-1993, for example,

Jacek Kuron, the Minister of Labor in the cabinet of Hanna Suchocka, initiated a series of small but significant administrative measures that prepared the ground for changing the nature of family benefits from a universal social insurance benefit to a means-tested payment financed by the budget, rather than by

the Social Insurance Fund. He reached out to the trade unions in hope for a consensus to redirect this traditional social insurance benefit to the truly needy families, but all labor organizations rejected the proposal outright, forcing the ministry to retract the rule, which under Polish law did not require parliamentary approval (Boni interview, 4 January 1997). The eftort to retorm tamily benefits finally succeeded in 1995,3° under more favorable political and economic conditions, when the Ministry of Finance, Ministry of Labor, and many trade unions enjoyed a short period of fruitful collaboration, strengthened by the series of concessions in the area of old-age pensions. As a result, two million

out of 12.5 million persons lost this family entitlement, and spending for this benefit program declined from a high of 2 percent of the GDP in 1989 to only o.8 percent in 1995 (see Table 4.6). Meanwhile, the tax contribution to the ZUS remained unchanged, allowing the government to redirect revenues previously intended for family payments to other payments (primarily pensions). Efforts to limit spending in another important benefit category, sick pay, however, met with much less success, again confirming a long historical trend, including, among other things, a protracted and largely futile battle waged by the Polish communist regime against “work absenteeism” since the early 1950s. Initially, the new democratic government framed this issue mainly as a financial

rather than a political or disciplinary problem. As the sickness expenditures 37 See, e.g., “Emerytury i pusta kasa,” Gazeta Wyborcza, 27/28 November 1993, p. 1, and Jonczyk 199§a.

38 This reform again turned out to be much less of a breakthrough than it originally appeared, because, in accordance with past legacies, several future Polish governments would repeatedly change the family allowance rules and regulations on a fairly regular basis.

274 Postcommunist Social Policy, 1989-2004 expanded rapidly during the early 1990s, the ZUS again had to absorb most of the burden, mainly due to the existing regulations that required public (state) employers, but not private ones, to carry responsibility for their sick leave obligations. As the private sector kept expanding, the ZUS was forced again to pay directly an ever larger share of the benefits from its Social Insurance Fund, rising from only 13 percent of the total sickness expenditures in 1990 to as much as 4o percent in 1993. In 1995 the new law changed the situation by requiring all employers to pay for the first 30 days of sickness. The law also altered the eligibility rules to generate further savings, among other things abolishing sick pay for the first day of work absence. Such rules, reminiscent somewhat of the old repressive days of communism, quickly backfired, as the number of longer sick leaves (7 days or more) increased suddenly, bolstering the continuing growth of social spending (see Solecka 2004). As Polish experts have amply documented, during the 1990s many other efforts by the ZUS to tighten control over sick pay rules also faltered repeatedly. Even though it appears that high unemployment did finally lead to a substantial drop in work absenteeism by the mid-2000s, evidence from the previous decade suggests a typical, cyclical development rather than any permanent reversal of a historical trend (Solecka 2004). For example, even though sickness spending declined slightly from a peak 1.3 percent of GDP in 1994 to 1.1 percent in 1999, the latter figure was still above the number registered during the crisis years of 1989-1990 (Golinowska zoorc, 34, table 2; also see Table 4.6). This contrasts starkly with the situation in Slovakia, for instance, where sick pay expenditure remained below 1 percent since 1993 and declined sharply in the early 2000s (see Tables 4.2 and 4.6).

The Crisis in Disability Pensions. The most costly failure of the postcommunist retrenchment policy, however, lies in the long-neglected area of disability benefits, a widely acknowledged “Achilles heel” of the Polish welfare state that also dangerously overlaps with numerous other problem areas. These include, among other things, heavily subsidized farmers’ insurance, lax early retirement laws, widespread pension bonuses for different occupations, gender inequalities (women generally receiving earlier but much lower benefits), and a relatively high job accident rate in agriculture.3? In 1999, about 4 million persons, or 10 percent of the general population in Poland, collected some disability payments, representing about 40 percent of all pensions with the total cost equal to 4 percent of GDP. Since 1980 the number of disability recipients doubled, with over one million new beneficiaries added only since 1990. This increase, combined

with the new pension laws of 1990-1991, contributed to the overall spending srowth of almost 75 percent in real terms during the first postcommunist decade (see Golinowska 20o01a). In a nutshell, the disability crisis in postcommunist 39 Since the introduction of the farmers’ insurance law in 1990, the number of accident-related pensions in this category grew much faster than all other types of disability benefits, rising from 0.6 percent of the total in 1991 to 1.4 percent in 1999 (Woycicka 2001, 123).

Poland 275 Poland reflects a convergence of three crucial historical legacies: dependence on one centralized institution to handle multiple, often conflicting social policy tasks, the lack of a uniform set of simplified and transparent pension rules for all categories of insured, and the underlying welfare doctrine that promotes liberal access to social transfers to persons with deficient or incomplete work records. As we have seen above, mechanisms of institutional layering, positive feedback, and learning within the social policy establishment helped to transmit these legacies during the period of regime transition. The first of these legacies concerns the frequently stressed indispensability of the ZUS as the basic institutional infrastructure of the welfare state in Poland. In the area of disability it has traditionally also performed other multiple, auxiliary tasks, including medical screening of pension applicants, monitoring health and employment of beneficiaries, and running a variety of rehabilitation programs. Only since 1996, at the time of when the crucial political consensus on the old-age pension reform was slowly emerging, the government finally began to contemplate serious reform in disability policy. Change, however, has been extremely slow and gradual — with such incremental steps as, for example, reintroducing certificates of disability from a single physician (replaced in 1954 by a Soviet-style commission), transferring disability screening for farmers to the KRUS, and separating the disability and old-age pensions into two distinct funds within the general Social Insurance Fund (FUS) in line with the ongoing process that had begun already in 1987. Second, on the normative side, rather than creating any common set of rules for all pensioners, the postcommunist regime instead opted, like their communist predecessors, for a change in the definition of disability. The claim to pension now became a purely “economic” concept with a focus on the loss of ability to work; replacing the old notion based on percentage loss of health dating back to the Stalinist era. This new definition was first applied in 1990 to private farmers who now had to prove only that they lost the capacity to perform “agricultural work” to qualify for social benefits from the KRUS (Golinowska 2oorc). Moreover, since the mid-1990s, similar to Czechoslovakia, all disability pensions have been divided into two categories, instead of the old Soviet-style three groups, originally designed to provide additional incentives for drafting more people into the labor force. Meanwhile, since 1990, however, economic reforms in Poland drastically restructured the labor market, putting enormous pressure on the already strained system of disability insurance. First, during the most severe crisis of 1990-1992, for many people nearing retirement, disability pensions became de facto early old-age pensions. The 1991 reform treated these pensioners quite generously, as it enabled them to circumvent some of the newly designed Bismarckian principles that tied old-age pension more closely to previous earnings (Golinowska 2o0or1a, 17). In 1992-1995, for example, an average disability pension was worth more than an average wage, just a few points below an old-age benefit (“ZUS goni dtuznikow” 1995, 13). Second, declining employment and opportunities for the disabled, the lack of adequate health services for them, and the pressing need to control social insurance expenditures

276 Postcommunist Social Policy, 1989-2004 created contradictory pressures on the government. In the past the state treated disability pensions as de facto compensation for both low wages and inadequate health services. This time the first part of the rationale still held true but not the second. Now a disability pension was supposed to replace income from equivalent employment in the new capitalist economy with a completely difterent wage structure. A combination of the availability of more lucrative earnings and the overall high jobless rate made the idea of continuing employment very attractive for some better skilled invalids and at the same time more difficult to realize for most of them. This situation, in essence, produced yet another set of unintended consequences. Reproduction of policy legacies within the postcommunist system of disability pensions further enhanced the already strong inegalitarian trend within the Polish social insurance system. To cite yet another example, since 1990 farmers could seek employment openly in many professions because they were banned only from agricultural work while collecting full pension, while other people with similar disability could not earn any additional income whatsoever. The policy makers tried to alleviate some of these problems by making a clear distinction between the fully disabled (category I) who could not earn income from work and the partial invalids (category II) who could earn up to 70 percent of an average wage. They also instructed the ZUS to tighten the screening of new and existing benefit recipients to prevent abuse. In practice, however, the results of these measures have been rather mixed, at best. Officially, only 17 percent of the disabled worked in 1999, but many more probably were unaccounted for in the black market.*° In addition, the farmers’ disability fund, including an increasing number of job accident benefits, accounted for more than 20 percent of all spending in this category. Moreover, the tougher screening of new benefit recipients had also performed rather poorly. For example, in 1999 close to 80,000 pensioners who were denied benefits appealed their decisions to the labor courts, and as many as 40 percent of these decisions were reversed (Golinowska 2oorc, 25). Finally, the last of the three legacies is especially important because it conflicts with the recently reinforced Bismarckian traditions of bringing the benefits much closer in line with the actual earnings and previous financial contributions to the system. In addition to the changes introduced in 1991, the 1998 old-age pension reform, which restructured the basic pension pillar and strengthened the fiscal transparency of the ZUS, apparently compounded the crisis in the area of disability benefits. Now many people found the easily accessible, flexible, and relatively generous disability pensions even more attractive than ever before (Mikonowicz and Pietka 2001, 149). This situation is hardly surprising, however, given the overall socioeconomic and political context of 4° Even though no fully scientific evidence exists to support this claim, during my numerous casual

conversations with Poles I discovered that in their immediate circle of friends and relatives almost everybody could name at least one disabled person or old-age pensioner who collected a full pension while moonlighting on some kind of black market job.

Hungary 277 the Polish transformation, with long-term double-digit unemployment and restricted access to jobless benefits and other types of social assistance.** Hence,

the system of disability pensions can serve in many ways as a case study for the illustration of the most enduring institutional and policy legacies of the “emergency” welfare state in Poland. These legacies have been carried over since at least World War II from one regime to the next, due largely to institutional continuity and the enduring presence of an influential community of welfare experts who transmitted their ideas and norms and reinforced policy preferences across generations. Before a final summary of the enduring power of historical legacies in postcommunist welfare states, we still need to turn to Hungary, where the reform challenge has been smaller in scope than in Poland, but no less daunting in intensity and complexity. HUNGARY

Welfare State in Transition: Institutional versus Policy Reforms In contrast to their Soviet-bloc neighbors, the postcommunist, democratic Hungary inherited an advanced process of socioeconomic transformation, making substantial progress toward a market economy already in the preceding decade. To be sure, this process also produced significant socioeconomic deprivation, not as severe as in Poland but much more serious than in Czechoslovakia during the same period. As we have seen in the previous chapter, by 1987 the attempted retrenchment in social policy helped to temporarily stabilize social insurance spending in Hungary above 12 percent of GDP (see Chapter 3, Table 3.6) while the standard of living of the general population, especially persons dependent

on social transfers and public sector employment, continued to deteriorate. In a country with practically zero economic growth, flat wages, and approximately 2.4 million or 23 percent of the population receiving pensions, citizens faced 16 and 18 percent rise in food prices in 1988 and 1989, respectively. In this situation the fact that officially an average pension replacement ratio held steady at about 57 percent (Dane porodwnawcze 1991) could hardly obscure the widespread perception of the ultimate failure of communist-era social protection (Ferge interview, 6 September 1996; Bod interview, 8 Septem-

ber 1996). Yet at the same time, as we have seen, contrary to the fears of the social policy community, the so-called neo-liberal welfare state retorms lagged far behind the procapitalist economic reforms. It is true that the last communist regime tried to supplement its promarket economic policies with targeted 47 In 1996 the ex-communist government introduced the so-called social disability pension for younger handicapped persons with insufficient work records. The increasing number of recipients in this category provides additional testimony for this ongoing problem. It also illustrates the persistent impact of institutional legacies, because after years of experimentation with different new agencies, in the 2000s this payment was transferred back to the ZUS to administer (Golinowska 2001Cc).

278 Postcommunist Social Policy, 1989-2004 retrenchment of the welfare state, but with the important exception of fiscal reform that affected government revenue collection as a whole, no meaningful breakthrough occurred at either the institutional or policy levels in this area before the official end of state socialism.

Contrary to public perception at the time, in a last-ditch effort to regain legitimacy and popular support, the outgoing, reformist regime all but abandoned any serious control of social expenditures during its final two years of rule, approximately from the last communist party conference and the ouster of Janos Kadar in May 1988 until the first democratic parliamentary elections in March 1990. As the Hungarian version of the “round table” talks with the legalized political opposition began in the spring of 1989 and free elections became a reality, the government of Prime Minister Miklos Nemeth actually liberalized access to social transfers. Most notably, on the eve of the elections family allowances became universal payments, financed by the budget contributing to expenditure increase in this category from 3.1 to 3.5 GDP during 1990-1991 (Sipos and Toth 1998, 228). Gradual abandonment of fiscal constraints and in particular the liberalization of sickness and family policy in the early pretran-

sition period of 1988-1990 resulted in an increase of the total spending for cash transfers from 13.6 to 14.9 percent of GDP (see Table 4.10). Nevertheless, we must remember that structural conditions of the Hungarian welfare state, including an imperfect but regular pension indexing system, weak welfare ministry, and a highly fragmented policy-making process, contributed to the failure of the retrenchment strategy even before the election politics intervened. After the final collapse of the Leninist system and the electoral victory of the opposition, the new democratic cabinet embraced the ongoing market transition as the only realistic option. But in the sphere of social policy the anticommunist parties and social activists almost immediately sought to differentiate themselves from their predecessors by rejecting what they saw as inefficient, corrupt, and monopolistic institutions of the communist welfare state. Thus, the issue of institutional, rather than more politically controversial policy reform, almost immediately became hostage to the heated confrontation between the coalition of new democratic parties led by the Hungarian Democratic Forum (Magyar Demokrata Forum, MDF) under its conservative leader, Prime Minister Jozsef Antall, and the outgoing communists, now regrouped in the new Hungarian Socialist Party (Magyar Szocialista Part, MSZP). Listening to the advice of nongovernmental welfare experts and scholars who pointed to the alarm-

ing deterioration of pensions and other cash transfers throughout the 1980s, the new coalition cabinet called for a return to the autonomous and decentralized system of social insurance of the first half of the twentieth century. A general sense of mistrust in the state bureaucracy and its ability effectively to manage social security and health systems united different factions with the Hungarian social policy community in support of a major restructuring of the administration of the welfare state under a democratic regime. It appears that

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280 Postcommunist Social Policy, 1989-2004 what they saw as ruthless promarket policies of the late Kadar era. At the same time the younger, more procapitalist oppositionists and nationalist conservatives also pushed for institutional change, but for quite different reasons. They seemed to believe in the restoration of the “original” Hungarian model of social insurance that would bury the communist utopian and “overextended”

or “premature” welfare state once and for all (Kornai 1995; Bod interview, 8 September 1996, 10 April 2002; Ferge interview, 6 September 1996; Julia Szalai interview, 5 September 1996). This ideologically charged juxtaposition of the compromised and oppressive “communist welfare state” versus the idealized, self-governed system of social protection of interwar Hungary largely overshadowed one critical issue of institutional legacy. Despite its special position as the oldest independent welfare state in East Central Europe with a recently modernized, almost universal system of social insurance coverage, the country never developed a centralized and transparent institutional structure that could efficiently direct and administer

its cash benefit programs. At this crucial juncture of political and economic transition, Antall’s proposal to reform the administration of social insurance radically by transferring decision-making power from the state bureaucrats to the representatives of society sounded attractive and democratic, but it also threatened to erode further the already weakened state capacity to manage public policy.

Institutional Restructuring and the Reintroduction of Self-Government in Social Insurance, 1990-1994

Proposals to shift the control of the Hungarian social security administration from the state bureaucracy to social organizations emerged in the early 1990s and by 1992 gained full support of the government. As the second postcommunist elections approached, the macroeconomic picture looked very bleak, with a third consecutive year of economic decline and unemployment rising to about 9 percent of the labor force (see Table 4.1). All this contributed to rapid deterioration of support for the Antall cabinet in public opinion polls. Therefore the MDF leaders saw the institutional reform plans also as a chance to restore political backing from pensioners and other social groups. In addition, the anticommunist parties hoped to encourage the growth of independent trade unions, which would challenge the monopoly of the ex-communists in the area of labor and social policy (Pataki 1993). In November 1992 the government moved to avert gathering social protests by signing a “new social contract” with all major trade unions. This agreement included important social insurance provisions, such as a pension raise, tax exemption for social benefits, a temporary suspension of the proposed retirement age increase for women, and, most significantly, free elections to the seltgovernment of the Pension Insurance and the Health Fund, to be organized with the participation of the labor organizations (Pataki 1993). These elections, held on 21 May 1993, represented a major attempt to restructure the

Hungary 281 Hungarian welfare state fundamentally. But these changes not only fell short of their goals of “democratizing” social policy in a significant way, but also exacerbated the impact of past institutional legacies. Political mobilization of the new and old trade unions, opposition politicians, and the community of welfare experts weakened the already tenuous executive control over pension and health policy at a time when effective administration was more necessary than ever. The elected boards of the two funds won extensive rights to advise and consult with the parliament on social insurance issues and to veto its policies — an exceptional situation even by the standards of highly developed and stable West European welfare states. Moreover, to the great surprise of the governing party, the elections turned into a highly politicized event and an early indication of the growing influence of the ex-communists. The official (prosocialist) National Confederation of Hungarian Trade Unions (MSZOSZ) won the plurality of over 45 percent of the seats on the Pension Insurance Board and a majority of over 50 percent on the Health Insurance Board. Fearing complete loss of control over its social insurance budget under public pressure, the government suspended all further efforts to reform the pension system. Previously, in 1994 the Pension Fund and Ministry of Welfare, in consultation with the financial lobby, jointly offered a pension reform plan that envisioned only moderate changes with minimum pensions for the poorest individuals and voluntary private old-age insurance schemes, treated largely as a supplement to state-funded entitlements and the traditional PAYG system.** This proposal followed the earlier separate law of late 1993, which set up independent, private, and voluntary pension insurance funds but did not challenge the institutional status quo in any significant way. Paradoxically, even though the general intention of the Ministry of Welfare seems to have been to preserve the existing safety net for working people during the difficult economic transition, this approach actually favored large employers. The endorsement of a voluntary, rather than mandatory third pillar of pension insurance encouraged employers to seek generous tax breaks and to offer different independent retirement plans to their workers (Batty 1997, 7). In this way substantial financial resources could be easily diverted from the public Pension Fund to the relatively flexible and autonomous private schemes. Clearly, until the late 1990s both the employers and the social policy establishment in Hungary opposed radical changes in the existing social security system but for dramatically different

reasons. On one hand, employers feared that the creation of the new mandatory private pension funds would strengthen the central government as a tax collector and a regulator of the financial markets. On the other hand, the social policy reformers from the Ministry of Welfare, the Pension Fund, and the trade 42 A joint statement to this effect was published in 1994 by a group of foreign and Hungarian economists and social policy experts, including Gy6rgy Suranyi, then a director of the Central European International Bank. See Hungarian Welfare State in Transition: Structure, Initial Reforms and Recommendations, The Joint Hungarian-International Blue Ribbon Commission and Hudson Institute, Policy Study no. 3, February 1994.

282 Postcommunist Social Policy, 1989-2004 unions continued to resist the idea of centralized control over the administration of benefits, a trend that in their estimation threatened to replace the concept of a generous European welfare state with “American-style” neo-liberalism (Bod interview, 8 September 1996; Szalai interview, 5 September 1996). In other words, the legacy of a fragmented welfare state, with only moderately concentrated decision-making structure and decentralized administration, was carried over to the new democratic regime by a politically and ideologically diverse, and deeply divided, group of social policy advocates, experts, economists, and state officials representing both new and old institutions.

Institutional Adaptation and Layering: The Politics of Hungarian Pension Reform, 1994-1998 After the Hungarian ex-communists returned to power in 1994, they inherited an escalating social insurance crisis, similar to the one experienced by Poland two years prior, with spending levels reaching as much as 16 percent of the GDP (see Table 4.10). At that time the prospects for any substantial progress in the area of pension reform looked even less promising than in Poland, where the left-wing coalition included some very influential proponents of the institutional status quo and committed supporters of increased social spending. In Hungary

the new regime of Gyula Horn, a two-party coalition of the MSZP and its junior partner, the Alliance of Free Democrats (Szabad Demokratak Sz6vetsege,

SZDSZ), showed little immediate interest in the welfare state after winning elections. Nevertheless, to the surprise of many observers, a pension reform breakthrough occurred relatively quickly and, according to some experts, rather

unexpectedly. One possible reason for this change of pace in the reform process was the increased pressure from foreign financial institutions to deliver a plan that would not only curtail social spending but stop the escalation of weltare costs, primarily caused by huge pension expenditures, once and for all. The continuing economic stagnation of the mid-1990s (see Table 4.1) and rising political conflicts within the ruling coalition raised considerable alarm among western creditors who had long emphasized the urgency of pension reform in Hungary, emphasizing that heavy tax burdens and huge deficits dampened prospects for economic recovery. For instance, in September 1995 an IMF delegation to Budapest complained directly to Prime Minister Horn about the lack of progress

in this crucial area.*4 Yet little action took place for another year, until April 1996, after the visiting vice-president of the World Bank, Johannes FE. Linn, remarked publicly that by delaying a comprehensive reform of both the health and pension systems, Hungary risked a major financial disaster.*5 43 A 1997 World Bank report remarked, “The factors that led the Government [in Hungary] to com-

mit to a multipillar system in mid-1996 are not entirely clear” (Palacios and Rocha 1997, 17). 44 RFE/RL Reports, 21 September 1995. 45 Thid.

Hungary 283 Increased pressure from the international financial institutions and new disclosures of growing deficits in both the Health and Pension Funds could indeed be seen as two significant factors that finally compelled the Hungarian government to act. It appears, however, that this type of incentive itself would be hardly sufficient to create a necessary opening for a major, fundamental institutional change. The Hungarian government had been engaged in a dialogue with the western financial agencies since the 1980s, and despite their frequent admonishments, little was done to solve the escalating problem of fiscal deficits through the 1990s. Rather, in accordance with historical patterns, limited adjustments in fiscal policy (discussed further below) substituted for serious action, at least until the first phase of regime transition was over. Only in mid-1996 did both

the Ministry of Labor and the Ministry of Finance finally approve the first draft of the revised pension proposals. The ex-communist regime, however, had little incentive to seek immediate cooperation and approval for the social security reform from the major interest groups. Unemployment declined from a peak of 14.5 percent in 1993 to below 9 percent in 1997, while the economy began to revive significantly from 1997 (see Table 4.1). Such evidence of economic improvement and the strong political position enjoyed by Horn and his cabinet bought the MSZP/SZDSZ coalition more time to delay the submission of the legislative draft to the parliament until May 1997. According to the World Bank experts, until 1997 the Hungarian policy makers continued to favor ad hoc temporary solutions that would prevent pension deficit rather

than reform the social security system as a whole (see Palacios and Rocha 1997). Finally, in mid-1997, “some government officials and Parliamentarians realized the growing crisis of credibility facing the PAYG scheme and considered the multipillar solution as the one most likely to produce permanent results” (Palacios and Rocha 1997, 17). In the light of the previous developments, we might

argue that the “permanent results” meant in fact an attempted compromise between the pragmatists and the welfare state advocates within the Hungarian Socialist Party (see Kornai 1995). The party leadership decided to institutionalize the fragile political compromise hastily put together by the most influential centrist politicians of the MSZP during 1996. The nature of this informal agreement brings to mind the uneasy truce between the economic reformers and the social policy establishment within the last communist regime during 1988-1990 and also previously in the mid-1970s. Since the late 1960s, neither the “pragmatists,” consisting mostly of the economists and fiscal conservatives, nor the “welfarists,” representing a small but vocal social policy community, occasionally bolstered by the trade unions and their supporters in the govern-

ment, had been strong enough to impose a coherent, long-term program for the future development of the Hungarian welfare state. The strategic paralysis, which we have already witnessed before in the analysis of the communist period,

turned into a lasting burden, a crucial legacy casting a deep shadow beyond 1989.

284 Postcommunist Social Policy, 1989-2004 Two other relevant institutional legacies concerned the inherent weakness of the Welfare Ministry and the maintenance of tight executive controls designed to limit outside input of organized lobbies into the decision-making process at the top of the government. By the mid-1990s in Budapest, just as in Warsaw, senior ex-communist politicians and Finance Ministry technocrats began to play an important role in shaping the new social security system. Yet in Hungary the official bureaucracies with expertise in social policy found it increasingly difficult to control the reform agenda and process (Maria Major interview, 9 December 1996). The Hungarian Welfare Ministry*® never acquired the same political significance or public influence as its counterparts in Poland, the Czech Republic, or even Slovakia. Even though on the average ministerial tenure lasted over three years and Antall’s Christian Democratic minister of welfare held this position for a record of four years, none of the four crucial “cabinet committees” responsible for shaping government policy during the 1990s included this portfolio (Muller-Rommel and Ilonszki 2001, 91-92). In addition, during 1993-1996, when social insurance reform remained at a standstill, the Ministry of Welfare formed a tenuous political and ideological alliance with the Pension Fund. The fund, however, as a new and independent body no longer subject to direct government control, also lacked the institutional experience of the Polish ZUS or the Czech Ministry of Labor, for example, to be able to play any significant role in shaping the direction of pension reforms. Moreover, it found itself in an unenviable position of being a political outsider under two consecutive governments: after the 1993 board elections, won by the ex-communist trade unionists against the wishes of the MDF, and again under the Horn cabinet, when the so-called left-wing, prounion faction within the Socialist Party lost the internal power struggle against the fiscal conservatives. Eventually, the Welfare Ministry once again failed in its bid to become a stronger institutional advocate for the beneficiaries of social insurance. In 1996 the Finance Ministry solicited the help of its experts to forge a new common position on pension reform that favored a mandatory, partially privatized scheme (Major interview, 9 December 1996), but the economic reformers never really relinquished its leadership role in social policy making. In the final analysis, the new Hungarian pension legislation, adopted by the parliament in 1998, reflects a temporary political and ideological compromise within the reformist establishment in Budapest, a compromise in which the “winners” of the power struggle at the top also recognized their inherent, limited capacity to put into effect their market-oriented reforms, especially as far as the welfare state was concerned. The pension reform was implemented through limited institutional adaptation and layering, reminiscent of Slovakia and Poland, but turned out to be intrinsically much more fragile and open to challenge. Under the newly created three-tier system, approximately two thirds 46 In Hungary social policy is administered by two different ministries, the Ministry of Labor, which handles labor-related issues (unemployment, disability, sick pay, etc.) and the Ministry of Welfare, which has been responsible for pensions.

Hungary 285 of the currently collected funds remained within a conventional PAYG scheme (social assistance part plus an insurance-related part), and the remaining one third covered mandatory funded pensions. Many of the provisions, especially

those creating new rules for the regulation of investment of these funds and protecting the present pensioners, are similar to the ones introduced in Poland. The Hungarian solution, however, also contains many other important elements that indicate a distinct path of policy development. One difference is the initial

requirement of mandatory coverage only for the new entrants into the labor force, with a possibility of voluntarily joining for the rest of the working population.‘ At first, the Hungarians also opted for a more lax regulation of pension fund assets and for giving employers, rather than any government agency, the responsibility for collecting insurance contributions.4° Furthermore, employers’ contribution to the social insurance funds fell from 24 percent in 1998 to only 18 percent in 2002 (Simonovits 2003). This liberal policy toward employers, who also retained many special privileges associated with the existing voluntary pension funds, contrasts with the rigid rules mandating state regulation of the amount of the minimum pension and advance setting of performance targets (minimum rates of return) for the individual pension funds (Batty 1997, 6-7).*° These and other similar provisions furnish additional evidence of the fragile and often quite contradictory character of the pension reform settlement that was constructed on the basis of the two dramatically opposed positions. One of them represents the view of pragmatic politicians in the Ministry of Finance, employers, and the financial lobby eager to keep the state out of market regulation, and the other expresses the wishes of many social policy experts in the Ministry of Welfare, the Pension Fund, and a diverse group of union leaders

and politicians with a long-standing record of resistance to both the strong state and liberal economics. In the end, however, the subsequent abolition of the Pension Fund and its subordination to the Finance Ministry, rather than the Welfare Ministry by the late 1990s (Miller 1999), confirms the long-term historical trend that ultimately favors the concentration of power over the social

insurance system in the fiscal bureaucracy, under strict control of the chief executive and to the detriment of other cabinet ministries and their respective constituencies. In sum, even though the outside forces and domestic socioeconomic considerations undoubtedly played a major role in the timing of this social security reform, country-specific legacies of the past have continued to influence the political dynamics and the final agreement on the new pension 47 Tn a further testimony to the underlying instability of the reform consensus, we should note that this provision was first introduced in 1998, cancelled in 2002, and then reintroduced in 2003 under a left-wing government (Simonovits 2003, 24). 48 After 1998 the collection of social insurance contribution was taken over by the State Tax Collection Agency under the supervision of the Finance Ministry (Augusztinovics et al. 2002,

49 an 1998 constant changes and adjustments have been made to these rules under consecutive cabinets, further contributing to the instability of the new system and delayed implementation of the private pension accounts. See Augusztinovics et al. 2002 and Simonovits 2003.

286 Postcommunist Social Policy, 1989-2004 system, in effect laying a new institutional foundation for a Hungarian, postcommunist version of the “emergency welfare state” that continues to differ in many important aspects from the Czech, Slovak, and Polish variants. Impact of Policy Legacies, Phase I: Continuities in Social Insurance Policy in the Early 1990s

The early and ultimately unsuccessful attempt to break with the past institutional traditions of the welfare state in Hungary in the first phase of transition contrasts sharply with the Polish and Czechoslovak experiences during the same period. When we examine specific areas of social policy in more detail, the divergence is no less striking despite the overall similar cyclical pattern of crisis-driven expansion of cash transfers followed by fiscal intervention and attempted retrenchment. As we might recall, in Czechoslovakia before 1993 expenditures for cash transfers either stagnated at the level of the late 1980s or even declined slightly in some categories, such as sick pay. In Poland, all kinds of pensions shot up very quickly since 1990, including also sick pay (especially in the private sector financed by ZUS), but in accordance with indigenous historical patterns, spending for family allowances rose only for a brief period of two years, falling back quickly already by mid-1993. In contrast, Hungary, until at least 1994, shows much more consistent, if a bit slower, spending increases in all categories, including, pensions, family allowances, and different forms of child-care assistance. This consistent “expansion” cycle across all main categories of cash transfers began to pick up already in 1988 and lasted as long as seven years until the next serious retrenchment beginning in 1995-1996 and reminds us of the early 1970s and early 1980s, when the Kadar government also struggled to define the tolerable limits of the growing social safety net (see Chapter 3, Table 3.6). Another intriguing feature of the early postcommunist Hungarian welfare state is the gradual nature of this expansion period, especially when compared with Poland. Although hundreds of thousands of new beneficiaries, early retirees,5° disability recipients, women with children, and so on began to collect new cash payments, in the early 1990s the total level of social spending increased by not even two percentage points, as opposed to an unprecedented surge of almost seven points in Poland (cf. Tables 4.6 and 4.10). In other words, even though the level of social insurance spending in Hungary surpassed an alarming 16 percent of GDP by 1992, the situation could have been much worse, but apparently, once again, the government was able to intervene to prevent financial collapse of the welfare state. What explains this remarkable policy continuity from one regime to the next, and how do we account for the serious crisis and the ultimate recovery of 5° In 1990-1993 the total number of pensioners increased by 12 percent (305,000). After the introduction of early retirement in 1991, 54.4 percent of male and 33.7 percent of female oldage pensioners were below the official retirement age (Hancock and Pudney 1996; Mora 2000, 57).

Hungary 287 the Hungarian social safety net during the first phase of transition? Answers to the first part of the question usually point to the “social market” ideology of the conservative Antall government (Gedeon 1995), political maneuvering of the MDF coalition before the next elections (Augusztinovics interview, 9 December 1996; Simonovits interview, 3 September 1996, 8 April 2002), the lack of a clear understanding social policy issues among political leaders (Ferge interview,

6 September 1996), or all of these factors taken together. We must note, however, that all these explanations stem directly from the legacy of a semipermanent ideological deadlock over the nature of the Hungarian social policy that has its origins in the intra-establishment split between the prowelfare and promarket factions during the Kadar era. As the advocates and opponents of the existing welfare state battled over political control of the restructured institutions of the welfare state, the basic philosophical division between them apparently continued unabated under the new democratic regime. The “welfarist” groups were never strong enough politically to push through their own models of a more generous or democratic welfare state, but the market retormers also shied away from open, drastic changes in policy in a “neo-liberal” direction. Many experts have argued that the relatively successful maintenance of what Janos Kornai (1995) has called the “overextended” welfare state in Hungary for four years during a severe recession and rapidly rising unemployment from 1990 until 1994 (see Table 4.1) owes much to the mixture of political and socioeconomic factors. As Adam (1995, IT000-1003) points out, in the first two years of transition real wages declined much more slowly in Hungary than in Poland, for example, and this “gradualist strategy helped avoid social tensions” (1003), especially, we might add, among employees in the public sectors who remained much less likely to engage in protests and demonstrations than the Poles (see Ekiert and Kubik 1999). Graskovits (1999, 10) also attributes Hungarian relative success in socioeconomic transition to another favorable legacy of state socialism: “traditions of going informal,” that is, the role of the black market economy in the labor market, directly benefiting at least one third of society and accounting for approximately 30 percent of the GDP (Gedeon 1995, 452).

A closer look at actual real incomes, rather than wages, however, reveals a rather dramatic decline of about 12 percent in 1990-1993 (Bossanyi 1995, 97), indicating the uneven distribution of economic pain among different social

groups. I would argue that this situation is directly related to the continuing impact of policy legacies. As Augusztinovics et al. (2002) and Simonovits (2003)

demonstrate, while the government fostered the overall expansion of the welfare state as a whole in the early 1990, it also skillfully used various fiscal tools to keep some categories of social expenditures in check, if not totally under control. For instance, the Antall cabinet introduced a new type of regular pension only gradually during 1991-1992, following a lengthy debate and multiple previous incremental adjustments that repeatedly, since the late 1980s, had failed to compensate pensioners for the rapid loss of purchasing power. Now, at least

288 Postcommunist Social Policy, 1989-2004 in theory, all Hungarian pensions had to be adjusted once a year in accordance with the increase in average wages. In reality, however, at a time of doubledigit inflation the government used a variety of well-tested methods to delay or scale back mandatory benefit increases. In addition, the new pension formula, introduced in 1992, penalized hundreds of thousands of “entry pensioners,” especially those with medium and higher earnings. We must remember that in Hungary under the old regime, social policy planning became an integral part of new fiscal policy planning in the process of being “refitted” for the market economy. Therefore, authors and executors of the Hungarian economic policy learned how to manage the welfare state at a time when stable and transparent market conditions were not yet fully created in the country. Hence, the new democratic governments inherited the “temporary” practices and emergency measures that had been tested and reinforced by the financial bureaucracy under late period of “goulash” communism and applied them continuously, albeit with visibly diminishing success, throughout the 1990s. In the same period of early postcommunist transformation Hungarians had much more reason to complain than Poles. Asa result of the new indexing policy

the average real pension continued to decline at a fast rate, with the largest drop of as much as 11.4 percent in 1993 (see Table 4.11). In addition, various studies consistently showed a sharp drop in the purchasing power of pensions, by approximately 13 to 14 percent, with the survivors of pensioners suffering the highest net losses of income (Antal, Reri, Résmnovits, and Toldi 1995, 205; also Augusztinovics interview, 9 December 1996; Simonovits interview, 3 September 1996). A minor improvement took place briefly in 1994, but the situation deteriorated again in the following years. With the exception of the very early years of 1990-1991, the wage earners actually fared much better than pensioners, the exactly opposite situation than in Poland. It must be noted, however, that during 1995, after the imposition of an economic austerity plan, both the pensioners and wage earners suffered an equally severe drop in their living standards (see Table 4.11).5” All other major benefit programs, with the notable exception of sick pay, also expanded gradually during the same period. As Haney (2002) rightly points out, “two key remnants of the socialist welfare system, family allowances and mater-

nity leave grants, made it through the mid-1990s relatively unscathed.” She attributes this mainly to ideological and political factors, that is, the dominant position of Christian conservatives and moderate nationalists in the government that protected these programs from “attacks by the liberal opposition and by agencies like the IMF and World Bank” (184). Nonetheless, it appears that as long as the economic decline continued, economic liberals could not backtrack on the policy that their immediate predecessors introduced in the late 1980s, replacing the traditional GYES grants with more Bismarckian GYED benefits. 5t These figures must be viewed in the proper context. In today’s Hungary the black market sector represents 30 to 32 percent of the economy. See Bossanyi 1995, 94. Also, Baxendall (2003, 426) gives an estimate of “informal activity” in Hungary at 28.1 percent.

Hungary 289 TABLE 4.11. Comparison of Real Dynamics of Net Average Real Pensions and Wages in Poland and Hungary, 1989-1995 (% change over previous year)

1989 1990 I991 1992 1993 1994 1995 Poland?

Pensions 4.4 —14.9 13.6 —5.3 —2.5 4.1 3.8

Wages 6.3? —24.4 —.3 —2.7 —2.9 5 3.0 Hungary‘

Pensions n.d —4.2 —6.5 —8.4 —I1I.4 7 —9.3 Wages n.d —5.5 —6.9 —2.3 —4.8 8.5 —17.7 4 Wages are net averages, after taxes, calculated according to the Consumer Price Index; pensions are net figures, after taxes, and adjusted to CPI. Since 1990 pension values do not include supplemental family benefit payments and nursing allowances paid to qualified recipients. Farmers’ pensions are not included. > Based on gross amount before taxes. © Wages are annual averages; pensions are of January each year wages are net figures; pensions are not taxed; calculations based on the CPI measure for each year. Sources: Social Insurance Institution (Zaktad Ubezpieczen Spolecznych), Department of Analysis and Statistics, Warsaw, 17 February 1997, Glowny Rocznik Statystyczny GUS 1993 and 1996 (Warsaw: Glowny Urzad Statystyczny, 1993 and 1996), and Tarki, the Social Research Information Center, Budapest, 3 February 1997, Central Statistical Office, Business Central Europe, Warsaw, Poland (www.paiz.gov.pl), and my own calculations.

This early in the transition they also had neither the necessary political strength

nor any larger strategic vision of social policy reform to compete with the Austrian-style mixed model of “social market” economy offered by the Antall cabinet. More significant, in a move intended to bolster the credibility of their backward-looking conception of the postcommunist safety net, the Hungarian conservatives augmented the existing family allowances with several new types of means-tested benefits aimed at the reducing poverty and administered at the local level. All this followed the long-established tradition of experimentation in this policy area — including the recent introduction of a new “pregnancy grant” in 1992, equal to an average family benefit. Even though some more skeptical welfare experts viewed this as another “political gimmick” to maintain power (Ferge interview, 6 September 1996), we must remember that historically family support in cash, often functioning outside the traditional social insurance systems throughout the twentieth century, became firmly institutionalized as a basic, almost unassailable pillar of the welfare state in Hungary (see Chapter 3). Furthermore, in contrast to Poland, Hungarian family benefits had long been a part of a state budget administered and implemented directly by the Ministry of Finance, rather than the Social Security Administration. Therefore the fiscal bureaucracy found it much easier to control overall expenditure in this area than was the case with pensions, since 1993 governed by the independent Pension Fund. As a result, while in 1990 family benefits amounted to about 41 percent of average wage, the proportion dropped to only 24 percent in 1994, keeping spending levels constant at about 3 percent of the GDP (Sipos and Toth 1998,

290 Postcommunist Social Policy, 1989-2004 295). Sick pay costs were also brought under control much quicker and more effectively than in Poland and even the Czech Republic, largely by introducing a new sick-leave law and shifting the responsibility for short-term sickness from the social insurance administration (since 1993 the Health Insurance Fund) to the employers (“Ubezpieczenie spoteczne na Wegrzech” 1992). Regardless of these early policy adjustments, the postcommunist expansion

of social policy in Hungary came to an end only in mid-1995 when the new sovernment moved much more aggressively not only to control but also to reduce expenditures to the level of the 1980s, that is, more in line with the sluggish pace of economic recovery.>* Why did it happen eventually? One possible explanation is that already in 1994 the fragile balance between fiscal and social policy that helped to preserve a relatively generous safety net during the most difficult period of postcommunist recession caved under intense political pressure. The deficit grew from previous year’s 6 percent to 8 percent, in large measure because of a sudden surge in social spending by the conservative regime

of Peter Boross before the parliamentary elections in early 1994 (Beck 1996, 8).53 Hence, in contrast to Poland, the newly elected “left-wing” cabinet was unable to capitalize on improved economic performance during the previous administration, but instead had to contemplate a major policy retrenchment. As Péter Gedeon pointed out, “It is the irony of postsocialist [sic] transition” that the conservative Antall government “internalized” the welfare expectations created by the pre-1989 regime, while the former communists began to “ease the burden of the state in financing social policy” (Gedeon 1995, 456-457). We need to remember, however, that one of the seemingly most pervasive legacies of the Hungarian welfare state has been the inherent weakness of those groups and forces within the decision-making establishment and society at large that could make such “internalized” expectations of a more generous and expansive welfare state a reality in the long run. Impact of Policy Legacies, Phase II: Family Policy Retrenchment of 1995-1996 and Beyond

In the immediate aftermath of their political victory in 1994 parliamentary elections, the Hungarian ex-communists, unlike their Polish counterparts in 1993, ranked social policy as a distant third item on their agenda, behind other urgent needs such as balancing the budget and privatization. But as the economy

slowed down again in 1995-1996 (see Table 4.1) and real incomes continued to erode, delayed reforms in many benefit areas resurfaced once again. Because during the relatively good year of 1994 the government lost precious time for a comfortable economic maneuvering, it subsequently had to invest substantial 5* After a temporary surge of 2.9 percent in 1994, the Hungarian economy grew by only 1.5 percent in 1995 and 1.3 percent in 1996 (see Table 4.1). 53 Real wages in Hungary increased dramatically before the 1994 elections; see Table 4.11, and also Mizsei 1994, 70.

Hungary 291 political capital to push through a much more drastic austerity plan. Hungarian political scientist Laszlo Vass observed at the time, “[The] government has no choice but to institute very unsocialist [sic] measures to manage the current economic crisis, even though the Socialist Party campaigned in 1994 on a platform promising increasing benefits to workers” (quoted in Langenkamp 1996, 7). The so-called pragmatic problem-solvers within the ruling establishment, including the newly appointed supporters of budgetary cuts, Finance Minister Lajos Bokros and the president of the National Bank Gyorgy Suranyi, emerged as the leading policy makers in the new coalition government with ready proposals to solve the mounting crisis. Their policy preferences provoked the resent-

ment of the weaker but increasingly vocal, “leftist faction,” which defended high levels of social spending as promised in the election program of the Socialist Party (MSZP).5+ However, once the third, middle-of-the-road group led by senior party leaders and Prime Minister Horn himself, together with the junior coalition partners from the Alliance of Free Democrats (SZDSZ), endorsed the

economic plans of the “pragmatists,” the Ministry of Finance under the leadership of Lajos Bokros emerged as the unquestionable leader of both economic reforms and social policy retrenchment. The so-called Bokros austerity plan focused primarily on family policy, including family allowances, child-care benefits (GYED and GYES), and other forms of maternity assistance, rather than pensions, the most expensive public benefit scheme, which, as we recall, had remained basically unchanged until 1998. Under the plan, family allowances became means-tested, with different income limits for one- and two-parent families and exemptions for large families (more than three children) and those with handicapped children. Child-care benefits (GYES) ceased to function as universal payments and became incomerelated. GYED payments, created only 1985 on the basis of sick pay regulations, were eliminated altogether. Maternity leave, covered by the Health Insurance Fund, was increased to twenty-four weeks, but the cash benefits were reduced to 70 percent of previous income for those with more 270 days of insurance and 60 to 65 percent for those with a shorter insurance record (Sipos and Toth 1998, 294). In addition, the Bokros plan included adjustments in the calculation of social insurance tax, further transfer of additional sick pay burden from the Health Fund to employers, and an introduction of partial fees for medical services and university tuition.

Often portrayed by its critics as an outright “neo-liberal” assault on the traditional Hungarian welfare system, with its strong emphasis on innovative “maternalist” programs (Haney 2002), the Bokros plan actually again demonstrated the predominance of continuity rather than change in the overall dynamics of social policy reforms in post-1989 Hungary. At the first glance the overall cuts appear quite radical indeed. By 1997 total expenditures for all major cash transfers fell to the level of 1987, before the most recent expansion cycle 54 In her address to the Woodrow Wilson Center in Washington, D.C., Radio Free Europe analyst Zofia Szilagyi distinguished these three factions within the MSZP. See Smith 1996, 7.

292 Postcommunist Social Policy, 1989-2004 (cf. Chapter 3, Tables 3.6 and Table 4.10). A closer overview of specific prosrams, however, reveals a much more complex picture. It is true that the conversion of the universal family allowance into means-tested benefits resulted in a sharp reduction of expenditures in this category. But due to intervention by the Constitutional Court, popular protests, and opposition from within the government itself, the actual number of families that lost eligibility for cash allowances turned out to be 50 percent fewer than previously planned (Sipos and Toth 1998, 313). In addition, 89 percent of recipients of both GYED and GYES payments were still eligible for child-care assistance, even though usually at reduced amounts. In fact, social expenditures for GYES remained constant from 1991, with a significant increase in 1997, owing to the phasing-out of GYED (Table 4.10). The program also became increasingly expensive and difficult to monitor, as more administrative power shifted from the central administration and the Health Fund to local governments that used their own wide discretion in granting payments (Sipos and Toth 1998, 312-313).5

A rather dramatic reduction took place in sick pay (see Table 4.10), but the available statistical data mainly reflect the reality of a dramatic shift of responsibility from the social insurance funds to employers, not in expenditures per se. Furthermore, a large part of the drop in social spending since the mid-1990s should be attributed to the decline in the number of new oldage and disability pensions that peaked before 1995 and also delayed benefit indexing (see Golinowska 2zoo1b; Augusztinovics 2002; Simonovits 2003). The retrenchment efforts of the ex-communist government also included the reinstatement of tighter controls of pension eligibility for the disabled. Con-

siderably relaxed during the final years of the Leninist rule and throughout the early 1990s, administrative controls of pensions resulted in a significant increase of rejected claims since the mid-1990s (Golinowska 20014, 326, table 80). This selective imposition of administrative and fiscal controls on disabil-

ity pensions and sick pay, while relaxing eligibility for family payments, in many ways mirrors the policy patterns from the NEM period of the 1970s and 1980s. Unable to coordinate and administer effectively the welfare state as a whole, the Hungarian government still used the well-tested mixture of fiscal policy and selective bureaucratic coercion to reinforce its control temporarily in those few remaining areas that still lent themselves to such “emergency” intervention by the Ministries of Finance and Interior and, to a lesser extent, also the Central Directorate for Social Security. We should also add that after the reorganization of pensions and other social insurance programs, government statistics no longer captured the actual total expenditures for many cash benefits, now administered by an increasingly confusing and complex network of central and local agencies.5° In sum, after the dismantling of state socialism, 55 This situation contributed to the growing problem of false income declarations, inadequate indexing, and unjustified collection of benefits by people employed in the black market economy (Sipos and Toth 1998, 313). 56 Much more transparent areas of pension and sick pay costs began to show increases again since 2001; see Table 4.10.

Hungary 293 the reimposition of central, financial controls over the welfare state according to the traditional model, that is, without input from an experienced welfare ministry, became progressively harder to implement. The center-left coalition easily won approval of the 1995 austerity budget proposal and managed to avoid lengthy parliamentary discussion and, even

more importantly, a widespread public debate on the future of the welfare state in Hungary. Such debate might have weakened the policy makers’ resolve, could have exposed serious differences within the cabinet, and also threatened

to reveal continuous neglect of social security reform by the policy planners within the Ministry of Finance. Moreover, in contradiction to the campaign promises to develop a system of tripartite negotiations on social policy issues, in early 1995 the Bokros plan was announced and implemented without mean-

ingful participation of the trade unions or other social groups (Pataki 1993; Bod interview, 8 September 1996). This resembled the situation in the Czech Republic but contrasted with the Polish and Slovak cases, where the ministries of labor (welfare) reached out to their crucial labor constituencies in search of a wider social consensus. In this case also the ex-communists replayed the scenario of the late 1980s, when more radical cuts in the welfare state were planned but later scaled down due to the rapid political decline of the ruling Leninist party. This time, however, returning on the wave of popular discontent with the ineffective and squabbling Opposition, the socialist reformers enjoyed much more freedom and genuine public support to push forward their policy agenda. At an urgent cabinet meeting on 12 March 1995 the Horn cabinet quickly endorsed the austerity plan. Its focus on family benefits, child care, and tuition, rather than pensions, most

likely stemmed from a political calculation that a diffuse action of this kind would generate less resistance both within and outside the governing coalition. Nonetheless, during the spring and summer of 1995 large protests and street demonstrations did take place throughout Hungary and the conflicts within the government intensified (Kocsis 1995, 6-7).

Regardless of the growing social discontent and criticism within his own party, Prime Minister Horn initially decided to stand firm behind Bokros, alienating other cabinet members who advocated a more gradual and less painful approach to budget reductions. Minister of Welfare Pal Kovacs, resigned almost immediately after the 12 March meeting. Minister of Labor Maria Kosa-Kovacs left in October, following a government decision to let the Finance Ministry negotiate a sick pay deal with employers without a prior consultation with social policy experts. The head of the largest trade union (MSZOSZ) also resigned in November due to “disagreements with government over leftist values and internal conflicts.” 57

Regardless of all these problems the government was determined to implement the austerity program in its entirety. In accordance with past practices, 57 RFE/RL Reports, 13 March, 15 May, 1 June, 9/10 October, and 10 November 1995. Also see Rzeczpospolita (Warsaw), 11 October 1995, p. 6.

294 Postcommunist Social Policy, 1989-2004 Prime Minister Horn reasserted his control over the Ministries of Welfare and Labor. He forged better relations with the new head of the trade union federation, drawing organized labor again into the central decision-making orbit in a pattern of cooptation widely practiced in Hungary before the creation of independent social insurance boards in 1993. By early 1996 the pragmatic wing of the MSZP even took a step further to secure the final implementation of the austerity plan; they sacrificed one of its leaders in exchange for upholding the new intra-party agreement. Lajos Bokros, who lent his name to the most unpopular government pro-

gram since 1989,5° resigned in February, following an aborted attempt to introduce a special social insurance tax. Apparently, the committed believer in the “Washington consensus” tried to push the “neo-liberal” agenda too far. After his departure, the supporters of the Finance Minister retreated once more by accepting the annulment of some austerity measures by the Constitutional Court. The demise of Bokros caused temporary anxiety in the financial markets and among Hungary’s western allies, but skillful political maneuvering by Horn prevented a larger government crisis. He quickly nominated Peter Medgyessy, a highly respected chairman of the National Bank, to the post of the Minister of Finance, won the parliamentary approval to continue the economic reforms, and announced that no new austerity measures would be passed in 1996. Judging from the opinion polls this cabinet reshuffle and partial, carefully managed social policy retrenchment worked well for the Socialists, as indicated by Horn’s popularity rising to a record 53.4 percent in May.5?

The developments of the mid-1990s put to rest fears that social security reforms in Hungary would be shaped exclusively by “neo-liberals” and showed that any meaningful changes in social security had to involve difficult negoti-

ations between the pragmatic reformers and the defenders of the traditional welfare state.°° It is a curious paradox of the Hungarian postcommunist reality that precisely this replication of the deeply ingrained ideological division and paralysis in the sphere of social policy was responsible for the extremely convoluted but ultimately successful effort to maintain a fairly reliable system of cash transfers for the most difficult period before 1995 but also into the future. Nonetheless, undoubtedly the continuing impact of institutional and policy legacies worked to undermine government efforts to solve the new and old problems and shortcomings of the welfare state. Therefore the seemingly never-ending, “permanent reform”* in pensions, and in other social insurance programs as well, continued to move along the familiar convoluted path until the early 2000s.

58 Public opinion polls published in February testified to the fact that most people associated the painful decisions of 1995 exclusively with the person of the Finance Minister. RFE/RL Reports, 18 February 1996. 59 Tbid., 25, 26, and 29 February, 2 March, and 2 May 1996. 6° Tbid., 23 November 1995. 61 Andras Simonovits used this term first in conversations with me in Budapest. See also Simonovits 2003.

Summary: Path Dependency, Post-1989 295 COMPARATIVE SUMMARY: PATH DEPENDENCE IN POST-1989 DEVELOPMENT OF WELFARE STATES IN EAST CENTRAL EUROPE

Results of our detailed comparative analysis of the politics of social policy reform in Eastern and Central Europe after 1989 largely confirm the main assumption of our final Hypothesis Eight, which stipulates that, with the possible exception of Slovakia, during the first decade of the new democratic rule welfare state institutions and policies in the four countries underwent much less radical change than generally believed.®* Furthermore, the level of effectiveness of social policies and success of welfare state reforms undertaken during the 1990s can be largely attributed to the enduring impact of the legacies of the past. In general, Czechoslovakia and Poland both maintained their original welfare state blueprints and preserved the high degree of administrative centralization in social insurance and concentrated decision making, which served their governments well as they tried to maintain a reliable safety net during the early 1990s. The same institutional legacies, however, stood in the way of either adoption or implementation of radical changes, or both. Also the same factors often obstructed attempted reductions in the scope and generosity of the welfare state. Moreover, Hungary, as a late adopter of new, modernized welfare state blueprints and programs, was indeed relatively open to innovation and experimentation in policy in the postcommunist era, but so was Poland, which once again attempted to “catch up” to its neighbors with only mixed success, mostly by spending more money on already existing programs, such as pensions. Hungarians, however, in the end suffered the most severe setbacks in policy implementation largely due to the continuing gap between their ambitious reform agenda and actual administrative capacity in this area. The Hungarian democratic governments inherited deep-seated deficiencies in the decision-making mechanisms with a weak welfare ministry and decentralized social insurance administration that seriously undermined implementation of social reforms. Finally, early growth and maturation of the pension system in Czechoslo-

vakia during the communist era seems to have prepared the country better for the necessary long-term efforts to restructure and stabilize pension benefits without a major overhaul of the welfare state. In contrast, slow growth and late maturation of the same social insurance programs in Poland and Hungary had exactly the opposite effect. Consistent and prolonged commitment to sickness, family, and child-care benefits, characteristic of the Czechoslovak and Hungarian welfare states under communism, have proved to be extremely difficult to reverse, even though, as we have seen, the Hungarians kept trying to impose harsh restrictions on these payments several times during the 1990s with mixed results. In contrast, Poland, a clear “welfare laggard” in this area, has managed 62 For example, Katharina Miiller states, “In the past decade, the countries of Eastern Europe and the former Soviet Union witnessed not only a fundamental transformation of their societies and economies, but also their retirement schemes” (2002, 12; emphasis added). Mitchell Orenstein argues, “New pension reforms involving the establishment of mandatory, private, individual pension savings accounts have revolutionized welfare practices in a growing number of countries around the world, including Central and Eastern Europe” (2005, 1; emphasis added].

296 Postcommunist Social Policy, 1989-2004 effectively to cut or restructure this category of benefits since the mid-1990s, although not without difficult political battles and temporary reversals.

It is true that in the initial months of transition all postcommunist countries under consideration pursued a conservative strategy in regard to the social safety net seemingly due to simple institutional inertia. Soon after, however,

in the early 1990s a significant period of readjustment and planning began and fresh reform agendas emerged. At this particular time historical legacies became clearly visible again as crucial factors shaping these agendas and aftect-

ing the implementation of particular institutional and policy reforms. To be sure, throughout the crucial decade and a half of 1989-2004 various contemporary political, ideological, and socioeconomic factors, such as party politics, elections, clashes over welfare norms, growth rates, demographic trends, and certainly pressures coming from the international financial institutions, all played a significant and in many cases critical part in government efforts to maintain the stability of the social safety net and in determining short-term successes or failures of many reform measures. Nevertheless, “bringing the history back in” to the study of postcommunist transformation reveals why numerous ambitious plans and proposals to overhaul the inherited social policy institu-

tions and programs produced limited and often disappointing results in the long run. Even more important, this approach allows us not only to identity, classify, and compare relevant historical legacies as underlying causes of diversity among the reconstructed postcommunist welfare states, but also to account for the lingering mechanisms of the transmission of these legacies during the crucial decade of regime change and democratic consolidation.

During the 1990s the power of historical legacies manifested itself on all three levels or temporal dimensions: structural, institutional, and interactional (policy) (see Table 1.4, p. 45). At the structural level we are dealing with a rare historic event of regime change that involves reproduction of the welfare state or, in the apt characterization of Stark and Bruszt (1998) —the “recombination” and reconstruction of social policy institutions and norms after the collapse of the old order and during the rebuilding of a new one. On the institutional level, we witness gradual emergence of norms and patterns characteristic of the new social policy regime. As we have seen, in this case layers of new and old elements create /ybrid institutions that frequently inhibit innovation and prevent comprehensive change. On the policy level, ample empirical evidence supports the claim that in all four categories — that is, the preservation of the Bismarckian social insurance, the growth of the pension system, development of sickness and family related benefits, and the “emergency” politics of social insurance policy (see Chapter 3, Table 3.8), specific combinations of historical legacies have passed on from the communist to the postcommunist era through learning, positive feedback, and self-reinforcement. Finally, so far, under democratic rule, the majority of countries, again with the possible exception of Slovakia since the mid-1990s, seem to follow the same, typical national trajectories of welfare state development, marked by frequent crises and alternating cycles of expansion and retrenchment.

Summary: Path Dependency, Post-1989 297 Welfare State Norms, Institutional Legacies, and Regime Change in the Postcommunist Era

Postcommunist welfare states of Czechoslovakia (before 1993), the Czech Republic, Slovakia, Poland, and Hungary have maintained their traditional normative profiles as distinct national varieties of East Central European étatisme

or and state paternalism. So far none of these new democracies decided to replace its original institutional blueprint that had served as the foundation of its social insurance systems throughout all of the twentieth century. Czechoslovaks did try to “revolutionize” their social policy back in 1948 but, as we recall, eventually implemented a hybrid system with strong elements of paternalism, revived during the Stalinist rule and maintained thereafter. In the early 1990s they refrained from any similar radical experiments despite an obvious “social democratic” temptation from some old-timers, social policy experts, and trade unionists. More important, since the late 1990s the Slovaks have began to move away from the original Czechoslovak model of a more egalitarian and expansive system of welfare protection. Yet from the normative standpoint they may yet gravitate closer to the Hungarian, much more frugal version of state paternalism and Bismarckian social insurance, rather than toward any straightforward type

of “neo-liberal” or residual welfare state. The Czechs, on their part, enjoyed a short period of semi-corporatist experiments in the early 1990s, but soon afterward strong elements of étatisme in social policy, reminiscent of both the interwar and communist era (Stalinist period and the post-1968 restoration), have crept back into the system. In other words, the so-called socio-liberalism of Vaclav Klaus represents not so much an innovative blend of “socialist” and “neo-liberal” models of social policy (Orenstein 1995) but rather a straightforward restoration of the status quo. Thus, from the ideational perspective the Czech welfare system changed little asa “hybrid” but also quite rigid structure, deeply rooted in the antecedents and the processes of historical adaptation of the 1948 National Insurance Act to the harsh realities of Stalinist politics and economics. Hungary and Poland, too, preserved their distinct varieties of a “conservative-statist” welfare state. Nevertheless, the two countries differ quite substantially in terms of their prospects

for change in the normative foundation of the postcommunist social policy in the future. Due to a late-adoption of the comprehensive blueprint legislation in the mid-1970s, Hungary today finds itself in a much better position than Poland, which has repeatedly failed to overcome, and even enhance, its burdensome legacy of the incomplete “unification” reform dating back to the interwar period. Since 1989 the new democratic governments inherited not only laws, rules, and norms of the communist-era welfare state but also its institutional resources, bureaucratic capacities, organizational structures, personnel, and networks of expertise (see Chapter 1, Table 1.3). After the regime change the old institutions of the welfare state restarted their operations before any new, comprehensive plans for their reform appeared. Then, since the early

298 Postcommunist Social Policy, 1989-2004 19908 previous conceptions of institutional change (dealing with social insurance financing, bureaucratic autonomy, and special occupational benefits, tor instance) inherited from the communist era clashed with fresh ideas and plans, now usually coming from the outside, that is, from finance ministries, independent experts, and also foreign advisers with different neo-liberal agendas. In the end, the resurgence of historical legacies within the existing institutions and networks of social policy specialists watered down the incoming proposals. Intense political struggles and negotiations yielded compromise solutions and new “hybrid” arrangements, but no clear, new models of postcommunist welfare states emerged. The Czech Republic and Poland have been the most consistent and consequential in holding on to their national institutional traditions. The two countries have maintained, in a rather consistent manner, a highly centralized structure of control over social policy centered on a welfare ministry (or a ministry of labor). The organization of the Czech and Polish social insurance bureaucracy of the postcommunist period also testifies to the continuing power of historical legacies. The Czechs have modeled their Socialni Poistovna on the previous Czechoslovak agency, with some autonomy granted to the local branches and

working closely with the trade unions, but also strictly subordinated to the central ministry in Prague. In Poland as well, the structure of the main Social Insurance Agency (ZUS) has remained basically unchanged as a vast, heavily centralized and powerful agency. Although officially subordinated to the ministry, it again has become a prominent political and bureaucratic player within the reassembled postcommunist state. Hungary, as we might remember,

at first seemed to defy its own legacies of tight political control by creating the seemingly democratic, autonomous, and self-governed Pension and Health Funds in 1994, reminiscent of the failed experiment to accomplish a similar type of independence during the 1920s and later also briefly in the mid-1940s. This experiment, however, once again was extremely short-lived. Only a tew years later, the executive branch, primarily the Council of Ministers and the finance ministry, restored their traditional control over the social security system. Throughout all this time, again according to a long-standing historical pattern, the welfare ministry has remained on the sidelines as a secondary player in the overall process of social policy making and reform. In addition, we must

also highlight the replication of a fundamental institutional deficiency of the modern Hungarian welfare state under the new regime, that is, the huge gap between the high capacity of the policy planning agencies at the national level and the low capacity and effectiveness of the implementation bodies at local levels®3 (see also Simonovits interview, 8 April 2003; Augusztinovics interview,

ro April 2003).

63 This feature of the Hungarian welfare state may also be analyzed at the structural level, as part of the long-term evolution of modern state in Hungary. Szikra (2004), for example, points out the existence of this problem already at the turn of the twentieth century.

Summary: Path Dependency, Post-1989 299 Our general claim in support of Hypothesis Eight must be revised somewhat, however, if we also consider welfare state reforms in postcommunist Slovakia. In many ways the nature and effectiveness of these reforms seems to differ quite significantly from the other three countries, although we must also keep in mind that Slovakia as a new nation-state, with a long history of subordinate development as a province of a larger state entity, represents truly a special case. At various stages since 1993 it tried to replicate, and in some areas actually assemble from scratch, its own kind of welfare system, incorporating both the Czech traditions of efficient centralized control over the welfare state via a national welfare ministry and the Hungarian-style, more independent and autonomous type of national social insurance administration. Neither effort, however, has yet (as of this writing) produced fully satisfactory or firm results, because the Slovak state has continued to suffer from inadequate institutional capacities, both at the political and bureaucratic levels (see Potucek and Radicova 1998). Nonetheless, we might still argue that since the early 2000s the Slovak government has taken several decisive, even radical steps in the direc-

tion of a different model of a national welfare state, deriving not only from the formal institutional separation from the Czechoslovak, federal infrastructure, but also based on a new normative foundation, favoring the delegation of more control and autonomy to state enterprises and private employers, for example. Even though it is hardly a sufficient or perhaps even a necessary condition

for this process to move forward in the future, we can argue that the creation of a nominal “federation” with parallel institutional structures in Prague and Bratislava in 1968 certainly paved the way for a more radical transformation of the Slovak social safety net. First, the analysis of the historical period of the advent of political independence and its aftermath in Eastern and Central Europe (Chapter 2) demonstrates a crucial relationship between the original (founding) process of state (and nation) building in general and the creation of the welfare state institutions, in particular. In other words, the initial process of state building creates a unique opening for a foundational change in the welfare state system, a chance that normally comes only once in the history of a modern nation-state, usually at the time of its inception. Second, the empowerment of the old industrial lobbies in the state sector and emerging new interests in the private sector during the early years of the new Slovak republic turned both of these groups into significant agents of change under the new regime. The collapse of the federal state structures in 1993 enabled them to take advantage of the historic opportunity to influence governmental institutions, and especially the reassembled decision-making structures in the area of social policy, in a meaningful way and to challenge the status quo fundamentally. Third, the institutionally weak and unsettled Slovak state, and by extension its newly independent welfare state as well, also became much more vulnerable to foreign pressures. As we have seen before, Slovak austerity measures and the implementation of the partial pension privatization program followed the prescription of the World Bank much more closely in the early 2000, and the

300 Postcommunist Social Policy, 1989-2004 reform outcomes were much more radical and thorough in their outcomes than in the neighboring states (cf. Tables 4.3, 4.5, 4.6, and 4.10]. This brings us to the most controversial question about the nature and the actual mechanisms of institutional development in East Central Europe since

1989. If indeed we observe more continuity than change, what mechanisms helped transmit historical legacies over time throughout the postcommunist decade? It is true that by 1999 at least three countries (Slovakia, Poland, and Hungary) did adopt significant institutional reforms in their social insurance systems, but, as we have seen above, these changes have been largely limited to partial, and highly volatile, privatization of the pension system, taxation, transfer of all family allowances into the public assistance budget, and a few other, relatively minor adjustments, often consistent with previous historical precedents. In all countries, however, except Slovakia, the institutional structure of the Bismarckian social insurance institutions, including state controls, guarantees, and administration, has stayed basically intact. Instead of a radical breakthrough, in the Czech Republic, Poland, and Hungary (and also Czechoslovakia before 1993), institutional layering, adaptation, and conversion took place on

a large scale. For example, as we have seen already in detail, new layers of programs such as mandatory and voluntary private pensions, with a host of governmental and nongovernmental institutions involved, were attached to the preexisting “core” of traditional social insurance programs (see also Chapter 1, Table 1.3). Family policies were trimmed and sometimes converted into public assistance schemes, in most cases without upsetting the general institutional

framework. Moreover, the old bureaucracies largely retained their previous positions and responsibilities, even though they were sometimes redirected to assume new roles; for example, the ZUS in Poland now administers the privatized pension pillar, and the Finance Ministry supervises the equivalent system in Hungary (in addition to being traditionally in charge of the old pension proerams). Only Slovakia made a much more evident break with the past, giving the state enterprises the important responsibility to implement and administer parts of the new pension schemes for a limited number of industrial occupations and also ceding numerous responsibilities for cash assistance to low-income families exclusively to local governments. The Enduring Impact of Social Policy Legacies during the 1990s On the policy level, continuity trends have been no less striking. In general, the majority of countries have maintained and adapted their “core” social insur-

ance programs to the conditions of the new regime fairly well, and they did so under a significant impact of historical legacies (see Chapter 3, Table 3.8). Czechoslovakia, and then its successor the Czech Republic, quickly reassembled the relatively well-balanced and comprehensive infrastructure of income maintenance, social services, and public subsidies.°+ At the same time, Poland 64 As we remember, in the mid-1990s the subsidies were permanently incorporated into cash benefits.

Summary: Path Dependency, Post-1989 301 and Hungary not only resumed but also further enhanced their reliance on cash benefits (pensions, sickpay, family support, etc.) as the fundamental pillar of the safety net. Nonetheless, Slovakia once again deviated from its (Czechoslo-

vak) past by moving closer to a more pure, Bismarckian model with much greater reliance on a markedly less expensive network of social insurance payments.

Within the general framework of these postcommunist welfare states the growth of the pension systems has also remained the most important problem and a formidable challenge for all countries, without exception. Early maturation and rapid growth of the retirement benefits in Czechoslovakia under communist rule created severe obstacles for reform under the new regime. The federation, and then its immediate successor, the Czech Republic, held on to the broad notion of pension rights and the need for social pensions. Even though the most controversial, special privileges for select groups of retirees were eliminated, and the legacy of the tight and comprehensive safety net for virtually every citizen of the republic remained firmly in place, with many new benefits and rights granted to the emerging private sector. During times of economic

slowdown, in accordance with the past, the Czechs also applied only shortterm, temporary austerity measures to keep the pension system in balance. As

a result, the pension burden kept growing, albeit at a much slower rate. In contrast, as we have seen, most recently independent Slovakia seems to have broken with the past decisively by, among other things, introducing partial privatization in a more radical manner and cutting pension levels across the board. Meanwhile, however, the Slovak government also experienced a serious backlash from the industrial workers who used to enjoy substantial privileges, a problem that eventually might lead to some watering-down of the original reform plan. Still, before 1999 at least, it appeared that within a given country a new, historic process of state building might undermine the staying power of institutional legacies in a decisive way, but this may not necessarily be the case with social policy legacies.

When it comes to the pension system, historically its late maturation and slow growth in Poland and Hungary meant that both countries had to confront the peak financial burden on their welfare states much later, during the 1980s, that is, also on the eve of major regime change. Piecemeal adjustments and delayed reforms in many crucial areas of the main pay as you go pension program continued to accumulate in both countries through the early 1990s. Despite the final adoption of pension reforms in 1997 and 1998, the impact of social policy legacies in this area was still deeply felt through the early 2000s. Poland has continued to uphold the deep-seated inegalitarian bias within the system, with extensive pension rights and privileges to numerous occupational groups, including private farmers, and an extremely liberal access to all kinds of disability pensions. Hungary has backtracked on its original reform commitments on numerous occasions since the late 1990s, while maintaining a more egalitarian but also extensive and costly system of easily accessible pensions to virtually every citizen. In other words, in spite of all the privatization efforts, the main, public pension scheme has continued to expand rapidly, contributing

302 Postcommunist Social Policy, 1989-2004 to skyrocketing public deficits and giving Hungary a dubious distinction of the highest pension spender (in proportion to the GDP) in the postcommunist region (see Table 4.10). General, historical patterns of development of sickness and family benefits have also remained in place, although with some significant changes toward

sreater equality between public and private sectors (in sick pay) and toward the more universal distribution of family allowances through the general budget, rather than social insurance. The Czech Republic has largely maintained its commitment to high levels of spending in these categories, with the one important exception of traditional family allowances, reduced somewhat in the late 1990s. Curiously, however, after 1999 the government seems to have lost control over sick pay spending (see Table 4.3).°5 This problem has been even more evident and historically relevant in Poland. In this country (see Table 4.3), the high burden of sick pay expenditure, above

I percent of GDP, continued unabated until 2000, and afterward it came down only to the relatively high level of 1990. Similar to the Czech Republic, however, family allowances began to drop substantially already in 1993 and leveled off at about 0.6 percent of the GDP in the late 1990s, that is, substantially below the peak of 1.83 in 1991. In Hungary (see Table 4.10), apparently the reestablishment of fiscal controls over the social security system

in 1996 helped to bring down the cost of these benefits. Again, in line with the past legacies, the strict formal controls remained in place, but this time it appears that implementation has improved somewhat, at least temporarily within this particular benefit area. Still, the legacy of an expansive and generous system of family benefits has continued to play a large role there through the late 1990s. As Sipos and Toth show (1998), despite substantial reductions in the traditional family allowances and the elimination of GYED, the overall commitment to all kinds of family payments in Hungary, at a total of almost 2 percent of GDP, has remained much higher than in any other country of the region.

Admittedly, the impact of historical legacies by itself cannot fully account for these developments, and several significant policy shifts within the other benefit areas, outside pensions, need to be acknowledged. For instance, in addition to its crucial advisory role in drafting of the pension reform, the World Bank seems to have been able to persuade all countries of Central and Eastern Europe, except Hungary, to adopt a more uniform and much less costly system of family allowances, limited only to the poorest groups and paid directly from the national budget, rather than social insurance. Nonetheless, at the time of this writing it is too early to predict whether or not this type of change will become permanent. Given the long history of crisis and instability within this area of social policy, and also in the light of recent new evidence of expansion of 65 This might be also due to the progressing privatization of the economy and government efforts to reduce nonwage burden on the employers. New harsh restrictions on sick pay in the Czech Republic were introduced in January 2008.

Summary: Path Dependency, Post-1989 303 family payments in Slovakia in 2004 and Poland in 2006, we might be justified in expressing serious doubt if this actually will happen.°° Also, in the last analysis empirical evidence from the decade of attempted reforms under the new democratic regime clearly supports our hypothesis in regard to the reproduction of the “emergency” politics of social insurance policy after 1989. Despite the lack of comprehensive reform of the pension system, Czechoslovakia before 1993 and the Czech Republic before 1999 have been remarkably effective in stabilizing the welfare state as a whole. Poland, as happened during multiple emergencies in the past, has continued to apply a wide array of measures with great frequency but also with disappointing results in many crucial areas, and especially in the costly disability pension scheme. Hungary, on the other hand, has been much more methodical and selective in its retrenchment measures but also did not hesitate to reverse itself and increase social spending in a significant way during crises, as it used to do on numerous occasions in the past. In sum, with one exception of Slovakia where downsiz-

ing of the welfare state has been much more radical and consistent, at least since the mid-1990s the postcommunist countries in East Central Europe have again, for the most part, affirmed their basic character as relatively generous “emergency” welfare states.

Historical Legacies and Developmental Paths of Postcommunist Welfare States after 1989

Finally, a comprehensive argument in support of historical path dependency of modern welfare states in the region must also account for the continuity of the “cyclical” evolution of the social insurance programs in alternating stages of expansion and retrenchment throughout the twentieth century. As Grzegorz Ekiert (1996) demonstrated in his comparative study of state-society relations in East Central Europe, previous experience with severe political and socioeconomic crises has a long-lasting impact on the political evolution and change in the region. However, in analyzing long-term development of the welfare state in East Central Europe, I not only examined the social policy consequences of the three most prominent crises of state socialism — Hungary in 1956, Czechoslo-

vakia in 1968, and Poland in 1980-1981, but also uncovered the distinct trajectories of social policy that contrast vividly with the corresponding developmental paths in Western Europe and North America (see Chapter 1, Fig. 1.2). Furthermore, I disaggregated the pattern of uneven growth and even periodic reversals in social insurance development to reveal the actual quantitative 66 For example, the center-right government of Jarostaw Kaczyfski made family policy a top priority and introduced increased family benefit levels again during 2006. See Ministerstwo Pracy i Polityki Spotecznej, http://www.mps.gov.pl/index.php?gid=295 (accessed 3 July 2007). A new family benefits law was also adopted in Slovakia in 2004; see http://www.ssa.gov/policy/ docs/progdesc/ssptw/2006-2007/europe/slovakrepublic.html.

304 Postcommunist Social Policy, 1989-2004 TABLE 4.12. Postcommunist Cycles of Welfare State Expansion and Retrenchment in Eastern and Central Europe after 1989 Czech

Czechoslovakia Republic Slovakia Poland Hungary

Expansion - 1994-1997 1990-1994 1989-1994 from 1999 from 2001

Retrenchment 1990-1992 1997-1998 from1993 1995-2000 from 1995 Note: Time periods reflect the latest reliable data available to the author at the time of this writing. Source: Tables 4.3, 4.5, 4.6, and 4.10, and my analysis.

and qualitative dynamic changes within particular categories of benefits (as discussed in detail in this and the previous chapter). Nevertheless, if we return to an aggregated comparison of the developmental paths of the three or four (since 1993) postcommunist welfare states, additional evidence in support of the thesis on the continuing, cumulative influence of historical legacies on social policy development in East Central Europe comes to light (see Table 4.12). First, the Czechoslovak data, with a short-lived retrench-

ment period, of three years in the first stage of transformation, 1990-1992, is a telling reminder of the past history of recurring brief periods of austerity applied in the past to slow down the rapid expansion of the welfare state that had “matured” decades before its neighbors. The Czech Republic generally followed the same trend, with retrenchment ending in 1994 and expansion picking up again in the mid- and late 1990s. The second brief retrenchment period, lasting only one year during 1997-1998, brings to mind again the successful, and also brief, fiscal adjustment of 1966-1967 (see Chapter 3, Table 3.2). Certainly a question arises about the staying power of this type of policy pattern in the much less predictable and controllable conditions of the market (and global) economy. The Czech example contrasts with the deviant case of Slovakia, where the

long retrenchment period, even if slowed down for a while in 1994-1996, in conjunction with extreme political instability during this time, continued unabated through the early 2000s. Both Czech and Slovak cases require further

study, based on fresh evidence, but it is interesting to note that periods of successful economic recovery in the mid-1990s, and again in the early 2000s, seem to have had little impact on the general trend of progressing welfare state cutbacks in Slovakia (also cf. Tables 4.1, 4.3, and 4.5). Poland, arguably, represents the most “classic” example of an emergency welfare state, with almost regular, alternating cycles of expansion during crisis and retrenchment following soon afterward. In this instance we must also stress another crucial legacy of the past: the inverse relationship between the cycles

of economic growth and the periods of increased welfare effort in relation to the GDP in this country (cf. Tables 3.5c, 4.1, and 4.6). Finally, Hungary, in the same way as Poland, seems to have replicated its own typical, cyclical

Summary: Path Dependency, Post-1989 305 developmental path. In accordance with its past historical legacies, but unlike Poland this time, since the 1980s the Hungarian developmental trajectory has become increasingly more sensitive to economic downturns (cf. Tables 3.6, 4.1, and 4.10). For example, in the communist era, the retrenchment cycles corresponded closely to the periods of economic slowdown.*®” This pattern resembles the situation in the Czech Republic much more than Poland, but we must also remember that the disaggregated evidence also shows crucial differences in traditional policy approaches of Prague and Budapest within separate areas of individual benefit programs. Seen from a longer historical perspective, the exploration of the eventful but also admittedly short period of social policy development under the restored democratic regimes in East Central Europe gives me reason to conclude on a cautious but also not an entirely grim note. After more than a decade of tumultuous transformation, the reconstruction of the welfare state in East Central Europe is far from complete, and, in the light of the most recent evidence, this process is likely to continue to unfold in a familiar and unstable, “emergency” mode for many years to come. Yet for all the problems, inconsistencies, and uncertainties of the first, crucial decade and a half of postcommunist transformation, and especially given the tumultuous past of the region, we must acknowledge that the East European welfare states have continued to perform surprisingly well, at least within the pivotal sphere of social insurance protec-

tion. It is certainly true that once again attempted reforms failed to resolve many of the serious and lingering problems of the pension system, sick pay insurance, and family policy. Nonetheless, despite the imposition of various economic austerity plans under much more transparent budgetary conditions and regardless of the persistent pressure from the international financial institutions, for the most part the postcommunist governments of the 1990s succeeded quite remarkably in bringing about badly needed and significant relief for the

general population during an extremely difficult and unprecedented time in their history. Undoubtedly, accession to the EU is likely to help stabilize and perhaps also to influence these reconstructed welfare states in new ways, but this is a subject for another study. 67 The Hungarian economy slowed down considerably in the mid-1990s and again in the early 2000s (see Table 4.1).

Conclusion Postcommunist “Emergency” Welfare States and Theoretical Exploration of Institutional Change and Social Policy Development

Historical examination of the origins, adaptation, and survival of the modern welfare states in Eastern and Central Europe reveals an intricate web of connections between the processes of political change and socioeconomic transformation, on one hand, and particular developmental trajectories of social policy in individual countries, on the other. This book sheds more light on these complex links and also opens up new avenues for future theoretical exploration. More specifically, it engages two broader arguments concerning the role of historical legacies in this region, one claiming that the so-called communist subtypes, which emerged in the Soviet bloc after 1945, in many ways reflect “the level of social and bureaucratic modernization in the interwar period” (Kopstein 2003, 238), and another one asserting that diverging legacies of Leninism and state socialism determine the outcomes of postcommunist transformations in significant ways (Grzymala-Busse 2002; Ekiert and Hanson 2003b; Seleny 2006). As we have seen, the meaning and the causal impact of historical legacies on East Central European social policies, in particular, can be traced all the way back to the beginning of independent statehood and nationhood, and also to the alternating cycles of crises and attempted reform under communist rule during 1945-1989. Temporal evolution of the East Central European welfare states, before and after 1989, takes place simultaneously on three levels: structural, institutional, and policy (see Ekiert and Hanson 2003b). On the structural level, I have demonstrated that despite their common imperial origins, the western and eastern developmental paths of social policy constitute parallel, distinct phenomena emerging from historically divergent processes. On the institutional level, hybridization, layering, and convergence (Thelen 1999, 2003, 2004) of the established institutions of the welfare state in East Central Europe take place within the overall process of regime change. This pattern surfaced repeatedly in the region during all three relevant periods of the regime formation and consolidation, the interwar, postwar, and postcommunist. In essence, under each new political system, as the preexisting state undergoes “reconfiguration” (Stark and Bruszt 1998) and readjustment, so does the welfare state as its core component. 306

Theoretical Implications 307 On the policy level, patterns of government social policy making of the 1990s encompass previous choices, experiences, and lessons drawn not only from the major political crises of the past (Ekiert 1996) but also from other numerous fiscal emergencies and reform attempts directed more specifically at pensions, sick pay, family policy, and so on (see Chapter 3). These patterns, reproduced by narrow elites of experts through learning (Heclo 1974), positive feedback, and self-reinforcement (Pierson 1996, 2000, 2004) shape the East European welfare states in distinct ways, generating cycles of expansion and retrenchment in a developmental process that has defined national variants of “emergency” welfare states in each country. Comparison of these cycles or developmental stages in Czechoslovakia (Czech Republic and Slovakia), Poland, and Hungary shows significant and consequential cross-country variation in timing, sequencing, and duration of each period of growth or reform of social policy. THEORETICAL IMPLICATIONS

This book has attempted to address some of the most fundamental questions concerning the politics of social policy making in the former communist region of East Central Europe and more generally about the long-term institutional development and change of the twentieth-century welfare state in the industrialized world. Further investigation of the causal links between specific types of historical legacies and different social policy decisions and outcomes may lead to the development of new middle-range theories that seek to explain both the endurance of institutions and persistence of established patterns of policy making in the era of fiscal austerity and reform in both old and new democracies (see Pierson 1994, 1996, 2000; Thelen 1999, 2003, 2004; Muller 1999; Inglot 2003).

By providing at least partial answers to the following three questions, this study can also contribute to the ongoing debate on the nature of the emerging “varieties” of democracy and capitalism in Europe, east and west, and perhaps in other regions as well. Can we classify all (European) welfare states within a single parsimonious typology of social policy regimes? (See Esping-Andersen 1990; Tomka 2004.) How do we identify and define relevant historical legacies?

(See Grzymala-Busse 2002; Ekiert and Hanson 2003b; Kopstein 2003.) And what are the mechanisms that transmit these legacies over time? (See Thelen 1999, 2003, 2004; Pierson 2004.) Seen in a larger historical context, the examples of Czechoslovakia (Czech Republic and Slovakia), Poland, and Hungary demonstrate that in specific circumstances of delayed and obstructed political and socioeconomic development, modern welfare states may never emerge as firmly consolidated “regime types” in a conventional sense. Rather, among the so-called late-developers we can detect the phenomenon of “permanent construction sites” or “layered” structuring of social policy institutions, which often incorporate highly inventive combinations of old and new benefit programs. These “emergency” welfare

states are usually heavily influenced by one dominant national, social policy

308 Conclusion blueprint, but their actual institutional foundation and ensuing policy-making patterns reflect a long history of difficult adaptation and ideational compromise, periodically also involving voluntary and involuntary exposure to foreign influences. They are also highly contingent on the processes of regime change. In addition, as we have seen, different origins (beginning stages), timing, and sequencing of the development of social welfare institutions, programs, and

policies give rise to distinct varieties of “emergency” welfare states in East Central Europe. Although the Czech Republic, Slovakia, Poland, and Hungary differ in the degree of emphasis on particular types of benefit over time, they also stand apart from the Soviet model of social policy because of the historically strong emphasis and commitment to the maintenance of the core social insurance programs, especially pensions, sick pay benefits, and later also wide distribution of these benefits across different occupational groups. In essence, in the Soviet Union from the early days of state-sponsored industrialization, full employment had served as a convenient substitute for underdeveloped social insurance. In contrast, the countries of Central and Eastern Europe had adopted and maintained social insurance as a steady replacement for regular earnings. Later they also used it consistently and quite efficiently as a crucial income supplement and increasingly vital redistributive mechanisms. Cash transfers eventually expanded significantly to claim the largest share of the national social budget before the collapse of the Leninist regime. As we have seen in Chapter 3, after temporary suppression in the 1950s, this traditional, Bismarckian approach to social policy reemerged gradually throughout the region in the post-Stalinist era. In sum, the heavy emphasis on social insurance and cash transfers is based on firm ideational foundations that not only distinguish East Central Europe from the Soviet model but also help us to better understand crucial institutional and policy differences among individual states within the region today. Instead of concentrating solely on the static notion of “critical junctures,” this study built on a contextual-historical perspective (Thelen 2003, 2004) to identify the most enduring types of institutional and policy legacies in individual countries and the mechanisms of their reproduction. It is true that in each country we can identify a specific “blueprint” of its national welfare state (see Chapter 2). Nonetheless, by itself it is neither a decisive nor a sufficient factor marking a “critical juncture” in path-dependent development of social policy. Amid constant political and economic turmoil, war, conflict, and repeated domestic crises, none of the analyzed national welfare states ever fully adopted or consolidated around any conventional type or model of social policy regime. Rather, at different moments in history ideal types of “social democratic,” “socialist,” “neo-liberal,” or more conservative Bismarckian social insurance served as important points of reference in political and ideational struggles over proposed welfare state reforms, leading only to partial compromise and adaptation of just a few select elements of an original, proposed design for a social safety net. Moreover, the losers of some previous intra-elite battles over welfare

Theoretical Implications 309 state norms and policy choices were sometimes able to return later and influence the decision-making process in a meaningful way, but without altering the basic foundations or pillars of the welfare state as a whole. This book has not attempted to provide an all-encompassing definition of a “historical legacy.” Yet it emphasizes the need to account for two specific types of legacies that seem particularly relevant and important for the understanding of developmental trajectories of the European welfare states, in general, and the East Central European safety nets, in particular. The first type, imstitutional legacies, encompass the inherited laws, regulations, and governmental organizations (welfare state bureaucracies) that continue to govern the structures of social protection in a similar fashion under various regimes since the beginning

of national independence early in the twentieth century to the present. The second type, policy legacies consist of established patterns of social policy or government responses to a wide variety of problems and challenges addressed in part through the evolving system of cash transfers, pensions, sickness/maternity benefits, and family/child-care allowances. This approach allows us to take into consideration the impact of the so-called structural legacies of “backwardness” (Janos 1982), those that derive from systemic crises (Ekiert 1996) and also from

conflict and foreign domination (limited sovereignty) throughout the region. In addition, this perspective also highlights the importance of distinguishing among Leninist legacies (Jowitt 1992; Crawford and Lijphart 1995), Stalinist legacies of command economics (Kaminski 1991), and the so-called legacies of state socialism in East Central Europe (Ekiert and Hanson 2003b). On the macro level, institutional legacies are transmitted in conjunction with the process of rebuilding, adaptation, and recalibration of the state. This includes first and foremost the historical moments of regime collapse, reconstruction, and subsequent reform, in our case spanning a prolonged period of eighty-five years, 1919-2004. This mechanism embodies the striking institutional endurance of the social insurance programs, functioning and surviving under many different political regimes. Institutional adaptation and survival and the consistency in policy patterns depend not so much on a particular level of economic performance or a temporary political calculation but rather on a large reservoir of accumulated legal and professional experience and expertise. As we have seen in Chapter 2, even before it actually begins to develop its own tangible, strategic vision of social policy, each new regime consciously “taps” into the pool of a narrow group of welfare experts and policy makers in an attempt to respond to immediate political and socioeconomic challenges. This sets in motion a process where both small and large reform projects need to be carefully negotiated within the preexisting institutional structures and mechanisms of the inherited welfare state. While speaking of policy legacies, I refer especially to a repertoire of policy choices or decisions used to address numerous political, social, and economic (financial) crises occurring since 1919, the first year of national sovereignty, in Czechoslovakia, Poland, and Hungary. Repeated experience in crisis management enhances specific patterns of “emergency” social policy making in each

310 Conclusion country where the “portable skills” (Grzymata-Busse 2002) of bureaucratic elites and experts involved in this area of governmental activity become especially significant. This brings us to yet another crucial point: the importance of the close link between institutional legacies and policy legacies. The two are closely connected historically, and the former enables the latter during the long and “staged” process of evolution. These two types of legacies also become

mutually dependent and reinforce each other through institutional memory, learning, and convergence of interests among bureaucrats and their clients — numerous groups of benefit recipients — relationships that tend to multiply and increase in complexity over time as the welfare state matures.

As we have seen above, the East Central European welfare states are not firmly confined to narrow developmental paths. Change is possible and does frequently occur, especially through intra-elite negotiations during the crucial periods of crisis and regime change; but nonetheless this is still only bounded or constrained change (see the theoretical model, Chapter 1, Fig. 1.3). Thus, given the confining nature of path dependence, can the new democratic governments of East Central Europe ever hope to break the spell and reform their “incomplete” welfare states in an effective and efficient manner? There is no simple answer to this question. Because institutional and policy legacies are so

closely interrelated, for such a breakthrough to take place one of two things must occur first. Either the governments must fundamentally reorganize the institutional foundation of the welfare state as a whole (not just single prosrams or layers) or the changed economic and political environment would have to somehow erase or at least significantly alter the pattern of recurring socioeconomic and political crises in the region. As we have seen, nothing so radical has taken place so far before the accession to the European Union in the spring of 2004. Despite numerous attempts and proposals, none of the four countries actually adopted a single, uniform social insurance legislation to regulate all types of social transfers in a comprehensive way. Instead, practically all changes so far, with the exception of the major institutional reforms in Slovakia, could be classified as “bounded” or constrained change, severely limited by the legacies of the past. Furthermore, after 1989 the Czech Republic, Slovakia, Poland, and Hungary continued to experience repetitive, and often quite severe, crisis-generated cycles of expansion and retrenchment, characteristic of “misdeveloped” countries in the East and South of the continent during most of the twentieth century (see Chapter 4, Table 4.12). In this context, their governments repeatedly opted for traditional, statist solutions to resolve current social policy problems.

However, as Ekiert and Hanson point out, we must also keep in mind that legacies of the past, communist as well as precommunist, may have both positive and negative impacts on the reconstruction of East European pollities, societies, and economies after 1989 (2003a, 4-5). Indeed, the analysis of both the communist (1945-1989) and the postcommunist periods (since 1989) reveals numerous contrasting examples of creative adaptations of existing welfare state institutions and inherited patterns of social policy making to regime

Theoretical Implications 311 change and evolving political and socioeconomic circumstances. On the positive side, in East Central Europe over time different government bureaucracies have become highly adept and creative in handling social policy emergencies in their own distinct ways. On the negative side, the same structure becomes even more vulnerable to political manipulation, and its replication under the new regime ultimately jeopardizes serious reform efforts aiming to bring more predictability and transparency to the state in general and the welfare system in particular. By the early 2000s the trajectories of social policy development in East Central Europe reflect these contrasting and often conflicting influences much more vividly than ever before. For instance, the creation of a centralized social insurance administration in Poland in the mid-1930s, the rapid expansion and unification of the Czechoslovak welfare system in the late 1940s, and the unification and modernization of Hungarian social policy rights and regulations in the mid-1970s all played a crucial positive role in laying the ground for the national social safety nets during the difficult period of transition. Conversely, such factors as historical accumulation of special occupational rights and privileges in Poland, lack of fiscal transparency of the social policy budget in the Czech Republic at the threshold of the transition, and the weakened institutions of social insurance administration in Hungary negatively impacted social policy making and reform attempts in the postcommunist period. Other legacies, such as the pervasive tradition of étatisme and varying degrees of bureaucratic centralization in all three countries, can have both positive and negative consequences, because they enhance vital state capacities in a difficult period of transition (or social emergency) while at the same time obstructing comprehensive reform efforts in many policy areas. What kind of change, then, can we realistically anticipate in the post-Soviet region in the near future? Or, in the words of a Hungarian social policy expert,* can we expect an end to the “permanent reform” of the welfare state in East Central Europe any time soon? A simple, optimistic answer would point to a successful consolidation of democratic rule and market-based economic systems, symbolized by the EU accession in May 2004, as a measurable sign of progress in this direction. Nevertheless, as Ekiert and Kubik (1999) remind us, democratic consolidation can take a variety of forms, some of which actually may make it even more difficult to reform the welfare state because they reinforce many inherited structures and institutions of the political and civil society. Also, in the future examination of the next phase of welfare state reforms, since 2004, we need to consider a host of other factors that we were unable to assess adequately given the short time frame of analysis since the collapse of the communist regime. These factors include, for example, the long-term impact of the development and consolidation of the political institutions of the democratic state, the growing influence of parliamentary and party politics, and the impact of newly empowered institutional actors such as Constitutional Courts * See Simonovits 2003.

312 Conclusion (see Seleny 1999, 2006), private employers, international and domestic financial lobbies, EU institutions and policies (Linden 2002), and so on that could now combine either to stabilize or to upset the fragile balance of the current policy-making environment in the region.* This study has shown that at least in the first phase of transformation, during the 1990s, the new democratic institutions, political parties, and interest groups, such as the trade unions, generally tended to support the status quo in social policy. It is true that in the new conditions of democratic rule, concentrated power also means concentrated accountability, and potentially the Ministries of Labor and Finance can and often do become convenient targets of protests and demonstrations as various organizations try to win welfare concessions from the government. However, most of these protest groups are inexperienced outsiders and possess little meaningful expertise in social policy to be able to come up with coherent alternative reform agendas; in the long haul they often lose out in substantive negotiations with government officials, especially the ones with long-standing experience in policy making during crisis situations.3 Moreover, any future study of social policy development ought to consider one additional exogenous factor, that is, the lingering consequences of the end of the “golden era” of stable, expansive, and generous welfare states that functioned in neighboring Western Europe for more than three decades, from the early 1960s until the late 1980s. This period of historically unprecedented expansion of social policy in the industrialized world ended practically on the eve of the collapse of Soviet-style communism. And we must remember that the competition between the rival political and economic blocs served as a powerful stimulus for successful development of western welfare states during the Cold War. Thus in the r99o0s the governments of East Central Europe faced a serious * Tn the early 2000s in the Czech Republic, for example, new pressures for urgent reform of the pension system have emerged from both domestic and international actors. On one hand, the EU and the IMF repeatedly warned the Czech government about the increasing budget deficits produced largely by uncontrolled growth of pension expenditure (IMF 2001, 2002). On the other hand, the revised pension proposals now also reflect the growing influence of private employers (small business organizations) (Myant et al. 2000, 733). More recently, domestic financial institutions became interested in pensions as a potential source of business opportunities (see www.radio.cz, accessed on 5 April and 11 May 2002). Since the Czech accession to the EU, these developments have introduced important changes in the policy-making environment that can potentially undermine the long-standing national consensus on the preservation of the rich and well-tested domestic traditions of the fairly egalitarian and centrally managed welfare state in the country. 3 The same observation can also be made about the role of Parliaments and perhaps also the courts, which, especially in Hungary, have become significant players in the politics of social policy after 1989 (Otto Cztcz interview, 7 April 2003). Still, in most East European countries, usually just a few dozen individuals who are genuine social policy experts in different areas, such as social insurance and/or health policy, continue to matter the most in policy decisions. These persons usually have been around long enough to have worked under the communist system in one of the key government ministries or agencies. New independent think-tanks and lobbying groups did emerge to challenge this in recent years, but they often employ exactly the same individuals who continue to maintain strong ties with the government bureaucracies.

Theoretical Implications 313 predicament. They implicitly judged their own performance by the standard of stable and generous German, Austrian, or Scandinavian welfare states of the postwar era, while simultaneously trying to sell to their populations different versions of substantially watered-down “reforms” inspired in part by the neo-liberal Washington consensus of the late 1980s and early 1990s. In the end result the well-tested “emergency” policies and approaches inherited from the past seemed to have prevailed within the rebuilt, “hybrid” institutional frameworks. As we have seen, initially in all countries during the 1920s, and most recently in Slovakia as well, a rare opportunity for major institutional change can arise in conjunction with the declaration of national independence and ensuing process of state building. At this time fresh chances emerge, for better or worse, for new domestic and international actors to influence the institutions and policies of the national welfare states. This hypothesis could be further tested in a comparative

analysis of social policy development in the other former communist states, including the former Yugoslav republics — Slovenia, Croatia, Serbia, and Bosnia-

Herzegovina — and perhaps also the Baltic states of Latvia, Lithuania, and Estonia, where recent pension reforms might turn out to be more significant and consequential in the long run than the comparable changes made in the social security systems of Hungary and Poland in 1998 and 1999, respectively (see Holzmann and Hinz 2005). We must also remember, however, as the case

of Slovakia reminds us, that a major change in the institutional structure of the welfare state does not necessarily produce an immediate shift in inherited policy patterns. It appears that the eventually diminished power of institutional legacies might lessen the impact of policy legacies, but this process, as we have observed before in the case of the legacies of the German and Austrian empires, might take a very long time indeed. In addition, this book addresses several theoretical questions with a broader relevance for the study of welfare state development in the industrialized world. What explains expansion and retrenchment/reform of the welfare state? Why do some reform efforts succeed and others fail, and Why do some reforms suc-

ceed better in some countries than in others? First and foremost, “small N,” comparative historical-institutional analysis of East Central European welfare states can help us to muster crucial evidence to illustrate causal relationships between structural factors, on one hand, and institutional changes and policy decisions to expand or reform particular benefit programs, on the other. Moreover, the historical origins of the key institutions of the welfare state still deserve

further study, with an additional focus on other key parts of the social safety net besides social insurance, such as health care and antipoverty programs. In our analysis, however, social insurance emerges as an especially vital and enduring structural component that binds state and society across time, regardless of regime type. Temporal sequencing of the social insurance programs also appears to have a special significance; the oldest types of benefits, that is, the ones introduced specifically in the interwar period, tend to be the most difficult to change and reform. Newer, postwar programs are usually much easier to restructure

314 Conclusion and change. In short, this argument expands on Wilensky’s earlier finding (1975), pointing to the age of the program as the most important predictor of welfare spending, in addition to demographic factors and the economic level, which I have found to be much less significant factors in East Central Europe throughout most of the twentieth century. Finally, while examining social policies over a long period of time we must

pay attention not only to institutional evolution and endurance, or policy “learning” and “feedback” as such, but also to the actual performance of welfare states in society. We should keep in mind that countries suffering from constant, repetitive “shocks” of accelerated development and fiscal austerity (see Kolodko 1993; Poznanski 1996) tend to maintain and defend traditional, complex, and “layered” institutional frameworks that function well in social “emergencies.” In these difficult circumstances the East Central European states, with their long history of comprehensive social insurance programs and policies, generally perform much better than other countries coming under similar pressures but equipped with newer and reformed institutions and schemes that nonetheless frequently fail to deliver in a regular and predictable manner the goods expected by their people.

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