Eastern Europe HR Management

Employee relations in the Central and Eastern European states (CEE) have been undergoing enormous change in the post-communist era since 1989. Most CEE countries have been wedged in a transitional phase between the former Soviet system and a market economy (Blanchard et al., 1991; EBRD, 1999), although there are strong signs that each economy is beginning to exert a distinctive pattern of development peculiar to its own economic, social and political circumstances. In the past three years there have been further developments in CEE countries that do not bode well for systems of industrial relations rooted in tripartism (a system of industrial relations whereby the state, employer associations and trade unions oversee aspects of labour market policies).

  • Changing nature of the CEE economies

In the post-communist collapse there was a widespread assumption that free market capitalism would bring the benefits so transparently obvious in the West: consumer products, full shops, a higher standard of living, and economic and political freedom. This was reinforced by a huge initial interest from Western businesses and governments, which saw the potential for cheap labour and ultimately a large new market to exploit.

The immediate repercussion, however, was a steep rise in unemployment, accompanied by inflation and the undermining of currencies. The early 1990s witnessed a fall in standards of living for many people, and the emergence of poverty. Thousands of enterprises went into liquidation, unable to compete in open markets after being confronted with their inefficiencies (Blanchard et al., 1991). Responses to these changes have varied considerably throughout CEE countries, influenced by cultural and historical factors. The former Czechoslovakia and Hungary, which had developed industries before the advent of communism, have been able to use these pre-communist memories and experiences in the process of adaptation and change.

Bulgaria, Romania, Albania and the newly constituted states of Yugoslavia, coming from peasant pre-communist conditions, had and are still having greater difficulties in constructing a modern economy (Smith and Thompson, 1992; Holden, 1993). Channon and Dakin (1995) believe that the former Soviet states can now be divided into three regions according to geography, responses to and experiences of the postcommunist world:

  • Central Europe – the Czech Republic, Poland, Slovakia, Hungary and Slovenia, the Baltic States (Latvia, Lithuania and Estonia);
  • Russia and the former Soviet Union;
  • South-central region (the Balkans) – Romania, Bulgaria, Albania and the former Yugoslavia.

The Central European states have fared the best, partly because they have proved most attractive to foreign capital investment. The South-central region has been less attractive to capital investors, due to the rise of nationalist turbulence in the former Yugoslavia and also the relatively underdeveloped nature of their economies. Russia has in many ways proved the most difficult for foreign companies to deal with, because of the deep-rooted nature of the old communist system and its greater historical isolation from Western Europe:

The economic crisis that hit Russia in the late 1990s has also served to further undermine confidence, and there is a widespread view that privatisation has led to profiteering by the ‘Mafiosi’, leading to the plundering of state property and the widening of inequalities. Unemployment remains generally high, and is probably higher than the unreliable official statistics indicate, and wage levels, compared with the West, remain relatively low (Martin and Cristescu-Martin, 1999).

Over the past three years these economies have been further hit by the collapse of the new technology boom and the general malaise in Western economies which in turn has led to a reluctance to increase investments generally and particularly in CEE countries. The after-effects of the ‘9/11’ terrorist attacks on New York and Washington have further reinforced this trend. However, these influences have not been even and groups of countries such as the Czech Republic, Estonia, Latvia and Lithuania and Hungary have fared better than Bulgaria, Poland, Slovakia and Slovenia where unemployment remains high (Martin and Cristescu-Martin, 2002: 525).

  • Employee relations in the ‘new’ economies

Trade union density has been high in many CEE economies but is in decline. Levels initially remained high partly because of the backlash against the hardships wrought by free market policies. As early as 1992 the old ‘official’ unions had fared the best, ‘partly because of organisation, habit and resources, partly because they are the more consistent opponents of the new power’ (Milne, 1992a). Subsequent rises in unemployment have, however, caused membership to fall.

The efficacy of the unions has not been aided by the attitude of government, which is perceived by union officials to be hostile to the point of wishing them to be non-existent (Brewster, 1992). This decline in membership and influence of trade unions has been further reinforced by emerging trends. Firstly, a decline in industrial enterprises has witnessed diminishing levels of employment and thus trade union membership in this sector.

This has been associated with a rise in the service sector not noted for its encouragement of unionisation. Secondly, and influenced by the first trend, there has been a rise in importance of small to medium sized firms in CEE economies, particularly Hungary, the Czech Republic, Poland and the Baltic states, although this trend is apparent in all economies (Martin and Cristescu-Martin, 2002).

In Poland, OPZZ, the old ‘official’ union organisation, while experiencing some decline, has been relatively successful in the long term compared with Solidarnost, which has witnessed a fall in membership from 10 million to below 2 million (Milne, 1992a). In Hungary the main union organisation, MSZOSZ, has fared less well,‘and is now less than half of its [communist government -controlled] predecessor SZOT’ (Gill, 1990; Brewster, 1992), and this trend has continued. In Bulgaria a large independent There was autocratic government and a peasant culture, with a strong tradition of collectivism and mutual support or patronage mechanisms in the face of a harsh external climate. This is a far more difficult culture in which to establish an operation, because there are no deep seated traditions of private enterprise or private property.

(Channon and Dakin, 1995: 26) trade union, Podkrepa, was created in the aftermath of the fall of the communist regime. Initially born out of the desire to defend workers’ rights against communist abuse, it joined forces with a united front of anti-communist groups under the banner of the Union of Democratic Forces (UDF), but in the post-communist Bulgarian state has threatened and initiated strikes in protest at the undermining of its members’ living standards (Holden, 1991).

In Russia the old unions remain the most important organisation representative of the workers. The Soviet All Union Council of Trade Unions (AUCTU) had 142 million members in 32 branch unions in 1990, although since then its membership has witnessed some decline (Lloyd, 1990). As one Moscow worker stated, ‘most of us belong to the official trade unions, because there is no serious alternative’ (Weir, 1992).

As with many of the new non-communist governments in Eastern Europe, trade unions are not encouraged. In the initial desire to copy Western government practices many anti-union laws have been passed. For example, the draft law on collective agreements states that groups other than trade unions can participate in collective bargaining. As one Russian trade unionist states, ‘Of course it undermines the position of the union. At any workplace or enterprise, the manager can say to the workers “Why do you need to join the union in order to have a collective agreement?”’ (Cathcart, 1992).

Nevertheless, the unions have expressed dissatisfaction with government and organizational policies: strikes have occurred in Russia, Poland, Bulgaria and the former East Germany, and there was a particularly bitter coal strike in Romania in 1998–9. However, these disputes were the exception to the rule and the general lack of militancy seems to be more of a characteristic of trade union responses to change in CEE countries and is reflective of their relative decline and the changing nature of their economies and the new political agendas. Government responses have not been encouraging, and the argument is regularly stated that industrial unrest will have the effect of discouraging foreign investment.

The future for trade unionism is not particularly optimistic, although the experience across CEE states has varied. Increased privatisation has helped to undermine union membership, and evolving industrial relations legislation by many governments has curbed trade union powers (Blanchard et al., 1991; Smith and Thompson, 1992; Weir, 1992). Trade union influence at company level remains weak (Mason, 1995; Standing, 1997), and Western companies seek to exclude them, particularly on greenfield sites (Marti and Cristescu-Martin, 1999).

  • The stagnation and decline of tripartitism?

Despite the difficulties that have faced the CEE economies, forms of tripartitism have emerged, with the state continuing to have a major influence on employment relations. This is partly because the state still remains a major employer, and it also sets the agenda for policy reforms. Martin and Cristescu-Martin (1999) define tripartitism as ‘the institutional expression of the concept of social partnership’ .

Under a tripartite system the government, employers and trade unions negotiate issues related to employment relations, such as wage bargaining, in order to come to some consensual agreement. Such systems create a forum for discussion, and reduce the potential for conflict and damaging disputes. While trade union density remains high, its influence at company level is limited. At national level trade unions have had more impact, particularly by the use of strikes to defend employees against redundancy when restructuring has taken place. Employers’ associations, by contrast, remain weak, but management prerogative is strong at company level where collective bargaining takes place.

This dichotomy is also one cause of the decline in union membership, as employees do not perceive their trade union representatives as being effective in collective bargaining. This is partly because trade unions in CEE countries have emerged from the old communist organisations, and have found difficulties in adapting to the free bargaining system, which requires their officials to have skills in negotiating and employee representation.

While tripartitism does not seem to serve employers and employees very well in the short term, it is a framework within which employment policy can be forged in the long term, and it can help to frame protections for both employees and employers. Sceptics, however, see it as ‘a political shell for a neo-liberal economic strategy (Thirkell et al., 1998: 166) – a guise for the introduction of anti-union legislation. Tripartite institutions are stronger in some countries than in others.

East Germany has unsurprisingly adopted it and adapted to it well, whereas in Hungary the industrial relations system is more decentralised and less likely to serve its members’ interests (Frege and Tóth, 1999). Other observers are sceptical about the survival of tripartitism owing to the weakness of employer and employee associations and the decentralisation of economic management from the state to the enterprise (Mason,1995). Recently Martin and Cristescu-Martin (2002: 529) have seen tripartitism as being in decline or at best in some states, in stagnation, and they quote a report by Hungarian Trade Unions (2001):

While tripartite systems exist in Bulgaria, Rumania, the former GDR and Poland, their effectiveness is very much reliant on the power of trade unions and the willingness of governments and employers to work within the spirit of the system. Given the changing economic circumstances in CEE economies and in the world generally, this seems increasingly unlikely.

The fragile tripartite system may survive in some countries but not in others. This will depend on the continuing strength of trade unions, the effectiveness of state interventions at macro level in the economy, the continuing weakness of employer organisations, and the way HRM practices are filtered through the back door of foreign companies at micro level.

  • HRM and management in Eastern Europe

One of the main problems facing both economies and organisations is the change not only in organisational structures but also in management attitudes, which in many organisations remain locked in the old bureaucratic ways (Holden and Peck, 1990; Watts, 1991; Elenkov, 1998). Attempts at reform in management practices were already under way in many Eastern European states before 1989, with patchy results. Management in post-communist society was seen as gaining the right to manage, unfettered by the shackles of the Communist Party, state and trade unions, and hence creating an efficient human resource capable of competing with Western countries (Landa, 1990).

Not surprisingly, there has been a considerable emphasis on management development, with many Eastern European managers and academics forging links with Western business schools, universities, companies and organisations to set up business management courses of various kinds. There have been Tripartite institutions survived in Hungary and Poland, but became increasingly formal. In Hungary social dialogue became empty and reached the lowest point ‘… the institutional possibility of carrying on negotiations on taxation and contribution issues affecting the purchasing power of wages has ceased to exist.

The government appears to have no real intention to reach agreement, it has not accepted a single proposal from the social partners, what is more it pushed through the amendments to the world of work against their will.’ considerable problems, largely because of differences in attitudes and perceptions. Though many senior managers lost their positions after 1989 because of their associations with the communist system, others have thrived in the new atmosphere, holding on to their positions and making full use of their connections and networks built up under the old regimes (Meyer, 1990; Pieper, 1990; Elenkov, 1998; Kelemen, 1999).

Personnel and HRM continue to have a low priority in most CEE organisations; many training and recruitment functions are still entrenched in practices associated with the former regimes, although attempts to bring in payment systems linked to performance have been more successful (Landa, 1990; Koubek and Brewster, 1995; Kelemen, 1999). HRM practices are making headway, however, in foreign-owned subsidiaries that can operate fairly autonomously. In state-owned enterprises, and even in joint ventures, new management approaches remain relatively rare, although changes are beginning to take place.

Recently companies have given much more emphasis to HRM issues since initially having had their ‘fingers burnt’ by underestimating personnel problems. A survey conducted by the School of Slavonic Studies at London University and a corporate language training company, Communicaid, found that ‘almost all HR directors and managers of 30 British companies questioned agreed that Western companies had generally underestimated cultural differences and their impact on the establishment of operations and the nature of the local workforce’ (Channon and Dakin, 1995: 24).

As a result, a number of recommendations are beginning to emerge for companies setting up and operating in Eastern Europe. Training of staff has become a high priority, and this includes not only training in work skills but also attitudinal training. Another problem is poaching: as some companies train, other companies will attract away workers with desirable skills by offering larger wages and salaries.

This means that the compensation package also becomes important in retaining staff. Another consideration is succession planning and the takeover of operations by host country staff from expatriate staff. Considerations of when and how this should take place are also important. It is vital to have ‘connections’ (someone who can ‘fix’ things, and who has contacts to smooth operations), especially in Russia and the South-central region (the Balkans).

The system of patronage can cause difficulties in removing staff who may appear no longer to fit the job. In this respect recruitment and selection will prove crucial, but the criteria used in Western companies may not always be appropriate. Despite the resistance to changing practices there is emerging evidence that multinational corporations are infiltrating their HR practices more effectively into their CEE subsidiaries.

The effect, to which we have already alluded, is, according to some commentators, to undermine collective bargaining positions by introducing individualized forms of pay related to performance criteria, to reduce pay bargaining to company and even workplace levels, the introduction of rigorous recruitment and selection (to exclude potential troublemakers and create company-minded employees according to some) and to introduce thoroughgoing training programmes to reinforce not only policy and practice but company culture as well.

Martin and Cristescu-Martin (2002) are not sure that this is necessarily a conscious effort to undermine tripartitism or trade union power but just an extension of what these multinational corporations institute throughout their global operations. Nevertheless, the effect is the same. With the passage of nearly a decade and a half since the fall of the Soviet systems in the CEE countries, a diverse pattern is emerging based much more on the individual strengths of economies and their previous development. This trend will continue, and employment relations institutions and practices will vary increasingly between states.


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