! ! !
The Welfare States of Hungary’s
Fidesz and Poland’s Law and
Justice: Explaining the
Surprisingly Divergent
Trajectories
Jakub Tomášek
EIQ Paper No. 181 / 2023
April 2023
Jakub Tomášek
1
Editorial Board
Professor Chris Anderson
Dr Cristóbal Garibay-Petersen
Dr Gianmarco Fifi
Dr Xinchuchu Gao
Mr Friedrich Püttmann
All views expressed in this paper are those of the author(s) and do not necessarily represent
the views of the editors or the LSE.
© Jakub Tomášek
The Welfare States of Hungary’s Fidesz and Poland’s Law and Justice
2
The Welfare States of Hungary’s Fidesz and
Poland’s Law and Justice
Jakub Tomášek*
Abstract
The Fidesz-led government in Hungary and the Law and Justice-led government in
Poland have shared important similarities since assuming power in the last decade,
from party ideology to selective engagement with collective bargaining institutions.
Yet, their approach to the welfare state has markedly contrasted, with Poland
expanding and Hungary retrenching welfare provision. This paper uses the method of
difference to address this conundrum. The power resources approach, if appropriately
clarified and widened, helps us identify an independent variable of difference: the
balance of power between labour and capital. Empirical support is found for two
hypotheses. First, Hungarian business elites exert higher influence over welfare state
policymaking than Polish elites. Second, the Hungarian government can stay in office
more safely without satisfying its voters’ welfare state preferences. The findings imply
a continuing relevance of the power resources approach for understanding cross-
country social policy differences, even in countries with comparatively weak unions
and left parties.
Keywords: welfare state, power resources, populist radical-right parties, Hungary,
Poland
* Graduate of the European Institute, LSE (Email: [email protected])
Jakub Tomášek
3
Table of Contents
! Introduction*.............................................................................................................................................*5!
! The*Puzzle*.................................................................................................................................................*7!
2.1$Similar$cases$.....................................................................................................................................................................$8!
2.1.1$Party$ideology$and$political$and$economic$strategies$....................................................................$8!
2.1.2$Past$welfare$state$trajectories$..................................................................................................................$8!
2.1.3$Corporatist$bargaining$.................................................................................................................................$9!
2.1.4$Public$opinion$................................................................................................................................................$10!
2.2$Divergent$welfare$state$trajectories$...................................................................................................................$10!
2.2.1$Social$expenditure$........................................................................................................................................$11!
2.2.2$Redistribution$and$income$inequality$.................................................................................................$11!
2.2.3$Protection$of$employees$vis-à-vis$employers$..................................................................................$14!
2.3$Summary$.........................................................................................................................................................................$15!
! Literature*...............................................................................................................................................*15!
3.1$New$politics$of$the$welfare$state$..........................................................................................................................$15!
3.2$PRA$....................................................................................................................................................................................$16!
3.3$Electoral$preferences$.................................................................................................................................................$18!
3.4$Coalition$with$domestic$businesses$.....................................................................................................................$19!
3.5$Risk$of$being$voted$out$of$office$............................................................................................................................$22!
! Theoretical*Framework*....................................................................................................................*22!
4.1$PRA$revisited$.................................................................................................................................................................$22!
4.2$First$hypothesis$............................................................................................................................................................$24!
4.2.1$Two$objections$..............................................................................................................................................$26!
4.3$Second$hypothesis$.......................................................................................................................................................$27!
! Business*Influence*..............................................................................................................................*27!
5.1$Hungary$...........................................................................................................................................................................$28!
The Welfare States of Hungary’s Fidesz and Poland’s Law and Justice
4
5.1.1$Sources$of$instrumental$power$..............................................................................................................$28!
5.1.2$Flat$PIT$..............................................................................................................................................................$29!
5.1.3$Széll$Kálmán$Plan$.........................................................................................................................................$30!
5.1.4$Labour$code$reform$.....................................................................................................................................$31!
5.2$Poland$..............................................................................................................................................................................$32!
5.2.1$Sources$of$instrumental$power$..............................................................................................................$32!
5.2.2$Family$500+$....................................................................................................................................................$33!
5.2.3$Minimum$wage$reform$..............................................................................................................................$34!
5.2.4$The$Polish$Deal$..............................................................................................................................................$35!
5.3$Discussion$.......................................................................................................................................................................$35!
! Electoral*Margin*of*Safety*in*Office*...............................................................................................*36!
6.1$Hungary$...........................................................................................................................................................................$36!
6.2$Poland$..............................................................................................................................................................................$38!
6.3$Summary$.........................................................................................................................................................................$39!
! Conclusion*.............................................................................................................................................*39!
! References*.............................................................................................................................................*42!
5
The Welfare States of Hungary’s Fidesz and
Poland’s Law and Justice: Explaining the
Surprisingly Divergent Trajectories
1
Introduction
In 2011, a year after Viktor Orbán’s Fidesz party gained power in Hungary and just
after Poland’s Law and Justice (PiS) party lost the parliamentary election, PiS’s leader
Jaroslaw Kaczynski claimed: ‘There will come a day when we succeed in having
Budapest in Warsaw’ (Rzeczpospolita, 2011). After winning the 2015 election, PiS
indeed followed Fidesz in many ways, from attacking rule-of-law institutions and
nationalising banks to cooperating with only selected social partners who have helped
give its policies legitimacy.
Yet, in one respect the two governments have differed markedly: their welfare state
(WS) policy. This has not been fully appreciated by scholars on the region, who have
mostly emphasised similarities between the two WSs. For instance, Lendvai-Bainton
and Szelewa (2020, 569) observed ‘the conservative and religious reengineering of both
social relations and the norms and values of social sharing’ in both countries. Bugarič
and Orenstein (2020, 14) also failed to note any major differences, seeing the two
countries as sharing ‘nationalist conservative welfare visions’, promoting natalism and
traditional family values.
1
I am thankful to Dr Bob Hancké, Dr Abby Innes, Dr Fabian Mushövel and Prof
Waltraud Schelkle for their encouragement and helpful comments on this work.
The Welfare States of Hungary’s Fidesz and Poland’s Law and Justice
6
Without meaning to deny these claims, I observe a fundamental divergence. Whilst
Poland’s WS has become more generous under PiS, Fidesz has retrenched Hungary’s
WS. This is revealed by changes in opposite directions across three indicators: public
social expenditure; redistribution and income inequality; and workers’ protection.
These differences are surprising, I argue, given the otherwise numerous similarities
between the two cases: the parties’ ideology and political and economic measures; the
countries’ previous welfare state trajectories; selective engagement with institutions of
collective bargaining in both countries; and similar public opinion on the WS. This
gives rise to a research puzzle: Why did the PiS-led government expand Poland’s WS and
the Fidesz-led government retrench Hungary’s WS after the two parties gained power in the
last decade?
This paper follows the ‘method of difference’ research design (Mill, 1843; Hancké,
2009). With the cases of Hungary and Poland being similar in numerous respects, but
an outcome – their change in WS generosity – being different, I search for an
independent variable along which the two countries differ. This variable can
consequently explain the differences in the dependent variable.
I argue the power resources approach (PRA) helps us resolve the puzzle. According to
PRA, WS ‘development reflects any particular balance of power between labour and
capital’ (Korpi 2006, 170). Correspondingly, I claim that business elites’ power is
stronger relative to workers’ power in Hungary than in Poland, which accounts for the
different WS trajectories. The pathway to this conclusion may not first seem obvious.
For PRA has typically focused on analysing the strength of left parties and unions, and
unions and left parties are weak in both Hungary and Poland. However, workers may
have other power resources. Parties other than the left may represent their WS
preferences, which PRA can accommodate if widened. Moreover, political democracy
provides workers – in principle at least – with equal political resources. Furthermore,
if we focus not just on the power of workers but also on the balance of power between
classes, as PRA invites us to do, we may notice differences in business elites’ power,
including their influence on WS policy, across the two countries.
7
The argument proceeds in three main steps. First, it is observed, during the literature
review, that PiS expanded Poland’s WS because it represented voters desiring a WS
expansion. Yet, Fidesz, representing similar voters, retrenched Hungary’s WS. This
will prompt a reformulation of the puzzle: Why did PiS respond to voters’ demands for
WS expansion but Fidesz did not? Second, a hypothesis is formulated based on work of
Scheiring (2021a) and Fairfield (2015a; 2015b), which states that business elites,
typically opposed to the WS, exert higher influence over WS policymaking in Hungary
than in Poland. Third, another hypothesis is formulated based on work of Garrett
(1993) and Kitschelt (2001), which states that the Hungarian government can stay in
office more safely than the Polish government without satisfying its voters’ WS
preferences. The two hypotheses jointly, but also each of them separately, point to
higher power resources of business elites relative to those of workers in Hungary than
in Poland. Empirical support is found for both hypotheses.
The paper is structured as follows. After Section 2 sets out the analytical challenge in
more detail, Section 3 reviews the salient literature. Section 4 includes this paper’s
theoretical core, integrating insights from the reviewed literature into a widened PRA
framework and formulating two hypotheses. Sections 5 and 6 empirically evaluate
these hypotheses. Finally, Section 7 concludes.
The Puzzle
Following the method of difference, this section first notes four similarities between
Hungary and Poland (Section 2.1), before presenting differences in their WS
developments, focusing on the three above-mentioned indicators of WS generosity
(Section 2.2).
The Welfare States of Hungary’s Fidesz and Poland’s Law and Justice
8
2.1 Similar cases
2.1.1 Party ideology and political and economic strategies
Both Fidesz and PiS have been characterised as populist radical-right parties (PRRPs)
(Mudde, 2019). Such parties promote strict law-and-order measures, a homogenous
nation state with immigrants and minorities presented as threats, and claim to
represent ‘the people’ vis-à-vis ‘the corrupt elite’ (Mudde, 2016, 296). Furthermore,
both parties have essentially governed alone, in alliances with mostly loyal satellite
conservative parties elected with them on joint partly lists (Toplišek, 2020; Meardi and
Guardiancich, 2021).
Politically, both governments have attacked rule-of-law and liberal democracy
institutions, for instance by curtailing the freedom of courts (Grzymala-Busse, 2019),
and have effectively undertaken a ‘party state capture’ (Innes, 2014), monopolising
control over key institutions such as state-owned enterprises (SOEs) and public media
(Sata and Karolewski, 2019). Economically, after the 2008 financial crisis, with growing
public dissatisfaction in both countries about the reliance of the countries’ post-
communist growth models on foreign direct investment (FDI) (Nölke and
Vliegenthart, 2009; Appel and Orenstein, 2018), both governments promoted measures
favouring domestic firms and the state in strategic sectors such as banking (Toplišek,
2020). These policy similarities, moreover, are not entirely coincidental. Experts of
several Polish PiS-affiliated think-tanks studied closely Hungary’s economic policies
and thought favourably of many of them (Dąbrowska et al., 2018).
2.1.2 Past welfare state trajectories
The WSs Fidesz and PiS inherited shared several characteristics. Both presented
peculiar ‘hybrids’ when viewed from the perspective of Esping-Andersen’s (1990)
three worlds of welfare typology and its subsequent variations (Cerami, 2009; Fenger,
2007; Inglot, 2009). They combined elements of Bismackian insurance-based policies
with egalitarian ambitions nurtured during communism and more recent neoliberal
measures such as partial pension privatisation (Cerami, 2009; Vanhuysse, 2006a).
9
Poland and Hungary’s WSs were relatively generous; their public social spending
between 2000 and 2010 averaged 20.9% and 21.7% of GDP, respectively, with the
OECD average at 18.6% (OECD, 2021a). Both WSs were dominated by familial and
gendered consumption-based cash transfers, while services often lacked in quality
(Bohle and Greskovits, 2019; Domaradzka and Siemienska, 2019; Saxonberg and
Sirovátka, 2006; Scharle and Szikra, 2015). They also shared a strong pensioner bias,
after the two countries’ governments pushed masses of workers into early or disability
retirement during the early 1990s transitional years to prevent disruptive protests
(Vanhuysse, 2006a). With pensioners forming a large political constituency, younger
groups and the unemployed became relatively easier targets of welfare cuts
(Vanhuysse, 2006b; Bohle and Greskovits, 2012). Finally, a contradiction between both
countries’ generous welfare spending and the reliance of their growth models on
attracting FDI through extensive tax-reduction packages formed a shared continuous
source of fiscal pressures (Inglot, 2008; Nölke and Vliegenhart, 2009).
2.1.3 Corporatist bargaining
Both countries have been characterised by weak organised labour and policy
concertation (Vanhuysse, 2007). Trade unions have lacked real competences and
collective bargaining coverage has been low, at 21.8% of employees in Hungary and
13.4% in Poland in 2019 (OECD, 2021b; Bohle and Greskovits, 2012). Formal
institutions of collective bargaining exist in both countries, but the actual power and
influence of unions have typically depended on governments’ will (Bohle and
Greskovits, 2012). The Fidesz-led and PiS-led governments have both pursued
‘patronage corporatism’, cooperating only with selected partners who have helped
give their policies legitimacy (Olejnik, 2020).
In Hungary, the national tripartite social dialogue body (OÉT) was replaced in 2011
by the irregularly-convened and purely consultative National Economic and Social
Council (NGTT), with only selected union confederations and employers’
organisations invited, alongside economic chambers and other government-allied
bodies (Borbély and Neumann, 2019; Tóth, 2013). After pressure from both trade
The Welfare States of Hungary’s Fidesz and Poland’s Law and Justice
10
unions and employers’ organisations, a new permanent consultative forum for private
sector matters (VKF) was created in 2011, but not all trade unions were invited and the
government maintains a final say in case of no-agreement (Borbély and Neumann,
2019; Fulton, 2021).
In Poland, PiS used the strong competition and political divides between unions
(Bohle and Greskovits, 2012) to ally with the single national union, Solidarity.
Although it relaunched tripartite dialogue in the Social Dialogue Council in 2015, this
body soon turned into a façade institution, as recurrently pointed out by several union
confederations and employers’ organisations (Czarzasty, 2019; Olejnik, 2020). For
instance, a major 2017 education reform was implemented despite widespread
disagreement of sectoral unions (Czarzasty, 2017).
2.1.4 Public opinion
Finally, a significant majority of both Poles and Hungarians desire higher income
redistribution. In 2017, 90% of Hungarians and 82% of Poles ‘strongly agreed’ or
‘agreed’ that ‘differences in people’s incomes are too great’ (EC, 2018a, 108). Moreover,
87% of Hungarians and 79% of Poles ‘strongly agreed’
2
or ‘agreed’ that their
government ‘should take measures to reduce differences in income levels’ (ibid., 109).
2.2 Divergent welfare state trajectories
This section shows – using three different indicators – that whilst Hungary under
Fidesz made its WS less generous, Poland under PiS expanded its WS.
3
2
57% of Hungarians and 33% of Poles strongly agreed.
3
Interestingly, the two political parties also talk about the WS very differently. PiS
called its 2019 election manifesto ‘A Polish welfare state model’ (Meardi and
Guardiancich, 2021, 139), whilst Orbán claimed in 2014 that ‘the concept of [the]
welfare state is over’ (Lendvai-Bainton and Szelewa, 2020, 564).
11
2.2.1 Social expenditure
Hungary’s public expenditure on social protection under Fidesz decreased from 21.8%
of GDP in 2010 to 16.4% of GDP in 2019, whilst Poland’s spending under PiS increased
from 19.0% of GDP in 2015 to 20.9% of GDP in 2019 (Eurostat, 2021a). Hungary’s
spending fell in all but two areas examined by Eurostat (2021a), including health,
family and children, old-age, and disability expenditure. For instance, disability
pensions were scrapped in 2012, affecting about 100,000 people (Szikra, 2018). In
Poland, notable increases included family and children expenditure, which doubled
between 2015 and 2019, and health expenditure. Old-age expenditure also rose, after
PiS cut the minimum retirement age to 60 and 65 years for women and men,
respectively, and implemented a 30% increase in the state-financed minimum pension
(Eurostat, 2021a; Meardi and Guardiancich, 2021; Polakowski, 2017).
2.2.2 Redistribution and income inequality
Another useful indicator of WS generosity – focused on outcomes rather than output
– is the equalising effect of redistribution through taxes and transfers on incomes
(Causa et al., 2018). Here, too, we observe different trajectories. In Hungary,
redistribution fell considerably from a very high level, 51.7% in 2009, to 38.2% in 2019
(Figure 1a). By contrast, in Poland, a traditionally less redistributive country,
redistribution increased between 2015 and 2017 from 35.6 to 38.5% (Figure 1b).
Although it dropped slightly to 37.8% in 2018, it remained higher than anytime
between 2005 (when comparable records started) and 2015. Disposable income
inequality, as measured by Gini coefficients, broadly fell in Poland under PiS and rose
in Hungary under Fidesz, Figures 1a and 1b also show.
Figure 1c examines how the share of each income decile in total national disposable
income changed under Fidesz and PiS. Strikingly, the higher income decile one
belongs to, the better off, roughly, one has become under Fidesz relative to those in
other deciles, and the worse off one has become under PiS.
The Welfare States of Hungary’s Fidesz and Poland’s Law and Justice
12
Literature points to two main contributors to this divergence. First, Hungary
introduced a flat personal income tax (PIT) of 16% in 2011, replacing two PIT rates of
17 and 32% (Appel and Orenstein, 2013, 136), which also applied to minimum wage
earners who had previously been exempted from PIT (Szikra, 2018). Poland’s PIT
system, based on two rates of 18% and 32%, is not very redistributive either as not
many taxpayers fall into the higher tax bracket (Sawulski, 2019), but it has not become
any flatter under PiS. Additionally, the 2021 ‘Polish Deal’ tax and contribution package
was projected to primarily benefit the lower-income population (Reuters, 2021).
Second, family benefits are another important factor. In Hungary, a new generous
family tax allowance system was established in 2011 that clearly favours the richer
cohorts, with low earners and the unemployed unable to use tax allowances. People
in the two bottom deciles, even those with three children, became worse off as a result
of the PIT and family tax allowance reforms, while net incomes of those in the highest
two deciles increased considerably (Szikra, 2018; Tóth and Virovácz, 2013). In Poland,
the Family 500+ programme, introduced in 2016, is the most significant cash transfer
since 1989 (Domaradzka and Siemienska, 2019), and has reduced both poverty and
income inequality (Paradowski et al., 2020).
,
13
The Welfare States of Hungary’s Fidesz and Poland’s Law and Justice
14
2.2.3 Protection of employees vis-à-vis employers
Another useful variable which also focuses on outcomes is the protection of workers’
rights vis-à-vis employers. In Hungary, the government included the obligation to
work into the new 2011 constitution, and removed from it the right to social security
(Szombati, 2021). Unemployment benefits became conditional on accepting any job
deemed suitable by the local job centre, including those provided by the significantly
expanded and radicalised public work programme (PWP) paying less than the
minimum wage (Szikra, 2014; 2018; Scharle and Szikra, 2015). Employing 223,000
workers at its peak in 2016 (Molnár et al., 2019), PWP has been ‘(mis)used by employers
(including the state itself) to re-employ formerly fired employees on lower wages and
with weaker protection’ (Szikra, 2018, 5). The 2012 new labour code lowered all
workers’ protection, allowing employers to fire employees during sick leave, for
instance (Tóth 2012). The 2018 labour code amendment, called the ‘Slave Act’ by
unions, raised the maximum yearly overtime hours from 250 to 400 per employee,
with firms allowed to pay employees up to three years later, and sparked widespread
popular protests (Scheiring, 2021b; ETUI, 2019).
In Poland, workers’ protection has been mildly strengthened under PiS. Poland has
historically seen very high rates of temporary employment caused by widespread use
of fixed-term contracts (FTCs) and civil law contracts (CLCs). The latter rely on
contracting self-employed workers outside of the labour law (Eichhorst and Marx,
2021; Lopez-Uroz, 2019). Whilst the labour market remains dualised, since 2016 a
maximum duration of FTCs for a person has been set to three years, and most workers
employed on CLCs have to be paid a minimum wage (thus becoming eligible for
unemployment allowance) (EC, 2021a; Eichhorst and Marx, 2021, Lewandowski et al.,
2017). Temporary employment decreased from 28.0% of dependent employment in
2015 to 21.8% in 2019, the lowest rate since 2004 (OECD, 2021d).
15
2.3 Summary
These WS divergences are surprising, given the observed similarities between
Hungary and Poland, and they form the dependent variable I will now attempt to
explain. As regards workers’ protection in Hungary, I focus on the general decrease in
workers’ protection rather than PWP. PWP has been linked, to a large extent, to the
government’s desire to reinstate ethno-racial hierarchies in provincial areas
characterised by conflicts between Roma and non-Roma populations (Szombati, 2018),
a problem largely absent in Poland.
Literature
This section reviews the literature relevant for our topic, starting with the ‘new politics
of the welfare state’ literature (Section 3.1) and PRA in its traditional operationalisation
(Section 3.2). Literature focusing on electoral preferences prompts an important
reformulation of our puzzle (Section 3.3). I then review work by Scheiring (2021a) on
business influence (Section 3.4) and by Garrett (1993) and Kitschelt (2001) on an
electoral margin of safety in office (Section 3.5).
3.1 New politics of the welfare state
The ‘new politics of the welfare state’ (NPWS) literature (Pierson, 1994; 2001)
emphasises the path-dependent consequences of existing policies (Häusermann et al.,
2013). Past welfare-expanding policies are thought to have created ‘new politics’ by
transforming the preferences and expectations of interest groups and the electorate.
Policies now cannot be easily retrenched even by politicians ideologically opposed to
them (ibid.). Thus, according to this historical-institutionalist view merged with
rational choice insights about strategic behaviour of re-election-focused policymakers,
policy feedbacks and continuing public support for the WS are two major forces that
decrease the probability of major WS changes (Pierson, 1994; Patashnik, 2015; Jensen
et al., 2019).
The Welfare States of Hungary’s Fidesz and Poland’s Law and Justice
16
Could our puzzle be explained by differences in policy feedbacks or public WS
support in Hungary and Poland? Section 2.1 pointed out the remarkedly similar WS
orientations of the two countries before PiS and Fidesz took power, from the level of
social expenditure to the groups this spending favours and neglects, suggesting that
major differences in policy feedbacks are unlikely. Moreover, an important factor
which makes previous policy designs matter for policy change is their ability to gather
political opposition of interest groups to policy change (Pierson, 1994, 50). However,
both the Hungarian and the Polish governments are known for their readiness to
restrict the powers of non-conforming organisations, whether by defunding them or
by excluding them from policymaking (Szikra, 2014; Politico.eu, 2017). This suggests
that pro-welfare interest groups may face high constraints to their ability to prevent
change. As regards the level of public WS support, support for redistribution is similar
in both countries, possibly higher in Hungary (Section 2.1). These considerations
suggest that the main insights of NPWS do not shed much light on the divergence that
followed.
3.2 PRA
According to PRA (Korpi, 1974; 1978; 1998; Stephens, 1979), variations in WS
developments across countries stem from the differences in the distribution of power
resources
4
between classes. The main tenets of PRA are, firstly, that ‘socioeconomic
class generates differences in risks to which citizens are exposed during the life
course’, such as unemployment or poverty, and differences in resources people have
to cope with these risks (Korpi, 1998., 173). Secondly, employers’ key power resource,
control over major economic resources (e.g. means of production and money), is more
concentrated than workers’ basic power resource, their human capital (e.g. labour
power, skills and education). This gives employers a structural advantage over
4
Power resources are ‘capabilities of actors to reward or to punish other actors’ (Korpi,
2006, 172, fn. 12).
17
employees, and collective action through unions and social democratic parties
becomes a key tool for workers’ power enhancement (Korpi, 1978; 1998; 2006).
Thus, Korpi argues,
To favour their own position (…), employers and other interest groups that
control major economic resources are likely to prefer to situate distributive
processes in the context of markets, where economic assets constitute strategic
resources (…). Employees (…) are therefore expected to organise for collective
action in political parties and unions to modify conditions for and outcomes
market distribution. Social citizenship, which irrespective of citizen market
capacities grants them claim rights to support from the state for risks generated
during the life course, can be seen as outcomes of such strivings. (Korpi, 2006,
173)
Note that this definition of social citizenship (Marshall, 1950) understands WS benefits
as ‘decommodifying’ (Esping-Andersen, 1990), i.e. decreasing workers’ reliance on the
market and the necessity to work on employers’ terms.
In a traditional operationalisation of PRA, the strength of unions and left parties’
representation in government are thought to account for cross-national WS variation
(Jensen, 2014). Could these variables account for our puzzle? As Section 2.1 argued,
unions in both Hungary and Poland are rather weak and neither Fidesz or PiS grants
them influential roles. Moreover, neither party has governed with a left party. Thus,
at a first glance, this approach does not seem to be very helpful. But I regard this
operationalisation as too simplistic and revisit PRA in Section 4.1.
The Welfare States of Hungary’s Fidesz and Poland’s Law and Justice
18
3.3 Electoral preferences
Some scholars – sharing PRA’s assumption that parties’ WS positions are influenced
by who they represent – have argued that over recent decades, factors such as
deindustrialisation and the increasing importance of cultural issues for voters meant
that voters’ preferences changed, and subsequently parties’ WS policies shifted. Thus,
left parties may no longer be the undisputed chief WS defenders (Häusermann et al.,
2013). Gingrich and Häusermann (2015) find that the left has lost much of its working-
class support over recent decades and substituted this loss with middle-class votes,
while right and right-populist parties – to whom much of the working-class vote has
shifted – have consequently adopted increasingly pro-welfare positions.
Wanting to account for what social policy PRRPs pursue when governing alone,
Meardi and Guardiancich (2021) also emphasise electoral preferences when examining
the cases of Poland under PiS and Italy under the Lega and Five Star Movement
coalition (2018–19). They believe the desire to meet voters’ material – as well as cultural
– preferences leads PRRPs to prioritise ‘pension and family benefits, and to some
extent (…) labour market re-regulation and cash transfers’ and to increase ‘social
protection’ (ibid., 144–145).
Meardi and Guardiancich clearly fail to account for the Hungarian case where under
Fidesz, also a PRRP governing alone, social protection and labour market regulation
have decreased. But, importantly, their account explains the developments in Poland
well, with voters’ material preferences plausibly playing a crucial role in PiS-led WS
expansion. In 2015, the biggest inflow to PiS was from voters who had not previously
voted, while some voters of the Polish People’s Party (PSL) and the Democratic Left
Alliance (SLD) also turned to PiS (CBOS, 2015; cited in Meardi and Guardiancich, 2021,
140) The freshly mobilised voters were predominantly rural and lower-educated
(CBOS, 2017; cited in Meardi and Guardiancich, 2021, 140).
PiS’s Family 500+ programme has been extremely popular. In 2019, 62% of adults
expressed a positive view on the government’s family policy and only 7% a negative
one, while between 1996 and 2015 positive responses failed to exceed 16% (Meardi and
19
Guardiancich, 2021, 141). PiS voters assess the programme most positively
(Koszowska, 2017). Moreover, between the 2015 and 2019 parliamentary elections, the
share of over 65-year-olds voting for PiS increased from 49% to 56%, the share of rural
voters rose from 47% to 56% and that of voters with primary education climbed from
56% to 64% (Markowski, 2020, 1520). With PiS representing an increasingly large
proportion of the poorest and most vulnerable groups, it seems only logical that it
expands the WS.
Could our puzzle be explained by Fidesz’s electorate being less interested in the WS
than PiS’s voters? It does not seem so. Like PiS, Fidesz finds its strongest voting bases
among the poor, the rural and the lower-educated population (Rona et al., 2020;
Political Capital and Friedrich-Ebert-Stiftung, 2019). Moreover, a vast majority of
Hungarians wish to see more redistribution (Section 2.1), with Fidesz voters similarly
concerned as other voters about income inequalities and workers’ vulnerability vis-à-
vis employers (Bíró-Nagy, 2020, 18–20). It is thus hard to view Fidesz’s WS policy as
reflecting its electorate’s WS preferences.
Our investigation has thus progressed. The considerations of voters’ preferences
plausibly explain PiS’s WS expansion but not Fidesz’s retrenchment. Hence we can
now usefully reformulate our puzzle as follows: Why did PiS respond to voters’ demands
for WS expansion, but Fidesz did not and instead retrenched the WS? Sections 3.4 and 3.5
introduce literature that will help us answer this question.
3.4 Coalition with domestic businesses
Recently, Scheiring (2021a) argued that the differences in PiS’s and Fidesz’s WS
policies depend on whether domestic businesses form an important part of a social
coalition supporting the political party. This, in turn, depends on the extent to which
FDI had been prioritised at the expense of domestic businesses before the two parties
gained power in the last decade. Scheiring offers three reasons why Hungarian
business elites had more incentives to ally with their country’s populist party. First,
Hungary saw a significantly larger destruction of domestic productive capacities
The Welfare States of Hungary’s Fidesz and Poland’s Law and Justice
20
during the early transitional years. More Polish SOEs were restructured and privatised
to domestic entrepreneurs. Second, FDI inward stock, substantially higher – relative
to GDP – in Hungary than in Poland throughout the post-communist era (Figure 2),
had lower spillover effects on Hungarian enterprises.
5
The ratio of value-added per
capita in foreign-controlled companies to value-added in domestically-controlled
businesses was close to 3 in Hungary and 2 in Poland in 2017. Moreover, Hungarian-
owned firms’ share in the country’s total exports was below 15% and foreign-owned
firms’ share was nearly 70% in 2012, while in Poland the share of foreign and Polish
companies in total exports was balanced (ibid., 7–15). Third, already before PiS’s
reelection in 2015, the Civil Platform-led governments (2007–15) were implementing
economically patriotic policies, including nationalisation of foreign-owned banks,
after domestic capitalists pushed for these policies (Naczyk, 2021). Thus PiS, unlike
Fidesz, could not ‘claim a monopoly over representing the interests of national
capitalists’ (Scheiring, 2021a, 19).
Whether domestic businesses are an important element of the social coalition that
supports a political party, Scheiring claims, carries important implications for the
party’s socio-economic strategy. Thus, in Poland,
There is less push [than in Hungary] to dramatically change the fundamentals
of the economy to accelerate domestic capital accumulation. This also leaves
more room to focus on the needs of the lower classes (…). (ibid.; italics added)
5
A ‘spillover effect’ here refers to the impact of the new entry and consequent
expansion of foreign businesses with outstanding management and production
technology know-how on the productivity of domestically-controlled companies in
the host country (Iwasaki and Tokunaga, 2013).
21
Scheiring’s argument has an ambition to explain our puzzle, but it requires further
theoretical and empirical support. Theoretically, Scheiring (2021a) does not explain
why businesses should desire WS retrenchment and why their support and
preferences would matter to politicians. Empirically, while elsewhere Scheiring
(2021b) provides examples of business influence on Hungarian WS policy, he does not
systematically empirically test his argument for both Hungary and Poland. Later
sections address these deficiencies. Hypothesis 1 is based on Scheiring’s account.
The Welfare States of Hungary’s Fidesz and Poland’s Law and Justice
22
3.5 Risk of being voted out of office
According to Garrett (1993), the ability of governments to enact radical unpopular
reforms requires a low likelihood of losing the subsequent election. This, in turn,
depends on the degree of political competition they face. Factors influencing this
include large government majorities, the existence of multiple opposition parties in
plurality electoral systems, and low credibility of opposition parties. Similarly,
Kitschelt (2001, 273) argues that differences in electoral consequences for politicians
who ‘diverge from the social policy preference of the party’s electorate’ can help
explain cross-national variation in WS retrenchment. Kitschelt also emphasises that
credibility of WS-defending parties on social policy is an important factor. If it is weak,
‘voters will have no reasonable alternative to turn to’ (ibid., 274).
Can the Hungarian government stay in office more easily than the Polish government
without satisfying its electorate’s WS preferences? This is prima facie plausible. After
all, Fidesz has held a two-thirds parliamentary majority since 2010, while PiS lost its
majority in the Senate in 2019 and recently also in the Sejm. This account provides a
basis for Hypothesis 2.
Theoretical Framework
This section presents this work’s main theoretical framework. It first clarifies and
widens PRA, and integrates into it insights from the reviewed literature (Section 4.1).
After that, two hypotheses are formulated (Sections 4.2 and 4.3). The hypotheses
jointly, but also each of them separately, suggest that the power of workers relative to
the power of employers has been higher in Poland than in Hungary.
4.1 PRA revisited
PRA has sometimes been thought to imply that the strength of unions and labour
parties itself determines WS policy. However, PRA focuses on the relative distribution
of power between labour and capital. Thus, we also need to analyse employers’ power
resources and the balance of power between classes (Arnholtz and Refslund, 2021).
23
Moreover, recent developments suggest that the scope of PRA analysis should be
widened. With radical-right parties now frequently representing workers’ WS
preferences (Section 3.3) and left-wing parties sometimes absent or marginal, we
should not insist that left parties are always WS’s main protagonists. Other parties
may have taken over this role.
PRA thus clarified and widened can strengthen Scheiring’s account presented earlier.
First, PRA explains why employers are likely to oppose WS policies. Welfare benefits
often reduce labour supply and are typically financed from taxes on assets, incomes
and profits, or from payroll taxes which increase employers’ labour costs and reduce
their profits (Paster, 2015, 10). Thus, employers are unlikely to initiate WS-expanding
policies and are plausibly interested in WS retrenchment (Korpi, 2006). This also
implies that politicians representing workers will often face a trade-off between
satisfying the WS preferences of business elites and their electorate (Fairfield, 2015a).
Second, PRA can explain why business support and preferences matter to politicians,
and can also provide tools to empirically analyse whether businesses influence WS
policy. Here I rely on the account of Fairfield (2015a; 2015b) whose work builds on the
traditional PRA. Business influence over policymaking stems from businesses’
instrumental and structural power, which together specify ‘a comprehensive set of
power resources for economic elites’ (Fairfield, 2015b, 21). Instrumental power refers to
the ‘capacity [of business elites] for deliberate political actions’ (ibid., 28), such as
lobbying. It is more likely to translate into significant influence if these elites possess
strong and numerous sources of instrumental power. Such sources include, inter alia,
relationships with policymakers, for instance through partisan linkages – if businesses
support a party electorally, publicly or financially – and regular consultations; and
cohesion (ibid., 28–42). Structural power of business (Block, 1977; Lindblom, 1977) stems
‘from the dependence of state and society on economic performance’, which in turns
depends on businesses’ investment (Paster, 2015, 5). It relies on policymakers’
perception of whether a policy will result in businesses’ disinvestment (Fairfield,
2015b).
The Welfare States of Hungary’s Fidesz and Poland’s Law and Justice
24
Moreover, PRA can integrate the insights about government’s electoral safety in office
(Section 3.5), as it emphasises the importance of political democracy for WS
development. Democracy has based ‘control over the government, in principle, on
numbers rather than on economic resources’ as power resources in politics are
distributed equally – at least in principle – unlike in the markets (Korpi, 1998, 54–55).
If the opposition does not have a realistic chance of winning power, the governing
party may be less willing to listen to electoral WS demands and can pursue other
priorities, including businesses’ preferences. With this key power resource of workers
diminished, the relative power of employers increases.
To summarise, the widened PRA implies that even if left parties and unions are weak,
the balance of power between capital and labour matters for WS development. Voters’
WS preferences are less likely to be met by politicians if (i) business elites have high
influence over WS policymaking and/or if (ii) politicians can safely stay in office
without satisfying their electorate’s WS preferences. Thus, if business influence over
WS policymaking is higher in Hungary and/or if the Hungarian government is safer in
office, then, ceteris paribus, the power resources of employers relative to those of
workers are higher in Hungary than in Poland, and differences in WS development
can be expected. Considerations (i) and (ii) give rise to Hypotheses 1 and 2,
respectively. The hypotheses jointly, but also each of them separately, imply lower
power of workers relative to employers in Hungary than in Poland.
4.2 First hypothesis
The first hypothesis, based on Scheiring (2021a) and the preceding discussion, goes as
follows:
HYPOTHESIS 1:
Business elites exert higher influence over WS policymaking in Hungary than in Poland.
25
Whilst Scheiring’s (2021a) argument focuses on domestic business elites, Scheiring
(2021b) also notes the alliance Orbán made with transnational corporations (TNCs).
Although the Hungarian government introduced high sectoral taxes on foreign
banking, energy and retail firms, some FDI, for instance in manufacturing, has
remained heavily promoted in Hungary under Orbán, with tax allowances and other
financial incentives for such TNCs growing (Bohle and Greskovits, 2019; Bohle and
Regan, 2021).
Importantly, FDI dependence remains, even now, significantly higher in Hungary
than in Poland. Figure 2 shows that FDI inward stock was nearly as high in Hungary
in 2020 (at 65.4% of GDP) as it was in 2010 (69%). Whilst Poland has also maintained
stable FDI inward stock under PiS (at 38.9% of GDP in 2015 and 41.8% in 2020), the
overall level remains substantially lower than in Hungary. Moreover, alternative
sources of investment are more important in Poland than in Hungary, with domestic
credit to the private sector at 50.7% of GDP in Poland and 33.5% in Hungary in 2019,
and stock market capitalisation of listed domestic companies at 25.4% of GDP in
Poland and 20.1% in Hungary in 2019 (World Bank, 2021a; 2021b). Thus, Hungary
clearly relies on FDI more than Poland for its investment. Car manufacturing is
particularly important for Hungary, accounting for nearly 30% of its 2017 industrial
output (FT, 2018a). Hence, TNCs, too, can be theorised to have higher power over WS
policymaking in Hungary, widening Scheiring’s (2021a) focus on domestic firms.
This hypothesis will be supported if in Hungary, business actors express greater
support for key WS policies (see Section 2.2) than in Poland, and a mechanism can be
identified through which they have influenced the policies, such as lobbying (see
Section 4.1; Fairfield, 2015b; Naczyk, 2021). I focus primarily on identifying sources of
businesses’ instrumental power and assessing the success of elites’ overt actions
stemming from these sources. Assessment of structural power is harder to undertake,
as it relies on analysing policymakers’ perception of disinvestment threat, where
interviews are a key research method (Fairfield, 2015b). Nevertheless, I also look for
publicly available evidence that may point to structural power being engaged.
The Welfare States of Hungary’s Fidesz and Poland’s Law and Justice
26
4.2.1 Two objections
Two main objections may be raised to this PRA-based hypothesis. First, ‘social
investment’ WS policies (Hemerijck, 2013) may ‘aim at fostering labour market
participation rather than compensating for income loss’ through measures such as
child-care services and education (Gingrich and Häusermann, 2015, 54). As these
measures are ‘commodifying’, employers could be expected to support them – even
on PRA’s terms – as they may raise their power resources by increasing labour supply
and productivity (ibid.). This objection is important, possibly limiting the scope of PRA
to decommodifying benefits. But it can be put aside here, as PiS clearly undertook a
decommodifying WS expansion, with measures such as retirement age decrease and
passive cash transfers at its centre (Meardi and Guardiancich, 2021).
Second, the varieties of capitalism literature (Hall and Soskice, 2001) argues that ‘where
production requires asset-specific skills, employers have been key actors with first-
order preferences for social programs providing insurance for investment in specific
skills’ (Korpi, 2006, 170). Swenson (2002) and Mares (2003) also claim employers have
played a key role in establishing some social programs. Korpi (2006) objects to these
accounts, arguing that whilst employers have sometimes consented to social programs
as part of bargaining, they have rarely initiated these programs as they do not reflect
their first-order preferences. I nevertheless consider the possibility that some firms
initiated WS policies. Particularly, as recent research emphasised that small firms,
which are more cost-sensitive, are more likely to oppose WS policies than large firms,
which are often able to use them for personnel management (Paster, 2015, 14–15), I
search for evidence for the following rival hypothesis: Small firms hold higher influence
over Hungarian WS policymaking, while large firms have higher influence over Polish WS
policymaking. This would provide an alternative explanation of our puzzle.
27
4.3 Second hypothesis
The second main hypothesis, based on the discussion in Section 3.5, goes as follows:
HYPOTHESIS 2:
The Hungarian government can stay in office more safely than the Polish government without
satisfying its electorate’s WS preferences.
The hypothesis will be supported if it can be identified that Hungary clearly ranks
higher on variables mentioned as relevant by Garrett (1993) and Kitschelt (2001), i.e.
(a) large government majorities, (b) existence of multiple opposition parties in
plurality electoral systems, and (c) low credibility of the WS-defending opposition
parties on social policy. But given these governments’ attacks on democratic
institutions (Section 2.1), we may expect that additional variables, too, are relevant for
these governments’ safety in office. In particular, variables relating to elections being
free and fair should be analysed, namely (d) governmental control of the media, which
governments can use to spread propaganda, and (e) changes to electoral laws, such as
gerrymandering, and presence of major irregularities during elections. High ranking
on all these variables makes it more likely that either pro-welfare voters fail to vote for
the opposition parties – in case of variables (c) and (d) – or pro-welfare voters’ votes
for the opposition fail to significantly endanger the government’s electoral stability –
in case of (a), (b) and (e).
Business Influence
This section empirically evaluates the first hypothesis, examining websites of business,
political and other organisations, secondary literature and newspaper articles
(following Fairfield, 2015b; Naczyk, 2021). First, the case of Hungary is analysed
(Section 5.1), then that of Poland (Section 5.2), after which the findings are discussed
(Section 5.3).
The Welfare States of Hungary’s Fidesz and Poland’s Law and Justice
28
5.1 Hungary
To assess business influence on WS policymaking in Hungary, sources of instrumental
power are first examined. Following that, I analyse business influence on the 2011
personal income tax (PIT) reforms (relevant for redistribution), the 2011 ‘Széll Kálmán
Plan’ (relevant for all three WS generosity variables) and the 2018 labour code reform
(relevant for workers’ protection).
5.1.1 Sources of instrumental power
Hungarian businesses find strong sources of instrumental power in their relationships
with policymakers. Firstly, partisan linkages between Fidesz and businesses are strong,
with high political and financial support of businesses. Since 2006, a majority of
Hungarian politically affiliated top 100 billionaires have supported the Fidesz-led
right-wing political block (Scheiring, 2021b, 271). Many TNCs, too, are supportive of
Orbán, with Budapester Zeitung’s editor reporting in 2018 that ‘90% of German
investors in Hungary would vote for Orbán’ (Wirtschaftswoche, 2018; cited in
Scheiring 2021b, 273). As concerns financial support, according to Transparency
International Hungary (2014), Hungarian political parties are ‘vulnerable to
corruption’, with Fidesz spending more than twice the legal limit during the 2014
parliamentary election campaign. OSCE (2018, 15) notes that in Hungary, ‘there are no
explicit caps on individual donations’ to political parties, and ‘full lists of donors are
neither published nor submitted to relevant authorities’.
Secondly, frequent consultations, often informal, also enhance businesses’
instrumental power. The Hungarian Chamber of Commerce (MKIK), representing
primarily SMEs (EC, 2021b), has openly collaborated with Fidesz since the early 2000s
(Naczyk, 2014, 11). Former Orbán’s economy minister and current central bank
governor György Matolcsy claimed in 2008 – in a programmatic publication on
economic policymaking – to have ‘heavily drawn upon their [MKIK’s] analyses to
describe the current era’ (Matolcsy, 2008, 313). In February 2010, before the election,
Orbán and MKIK’s president László Parragh agreed on mutual cooperation with the
aim of integrating ‘the proposals collected and summarized by [MKIK] into the
29
economic policy of the next government’ (MKIK, 2010, 5). In 2014, Orbán expressed
gratitude for the organisation’s ‘principled and dedicated’ help in recent years
(Nol.hu, 2014; cited in Naczyk, 2014, 12). The president of the Confederation of
Hungarian Employers and Industrialists (MGYOSZ), representing mainly larger
companies (Neumann, 2017), said in 2010 that MGYOSZ’s proposals were being
integrated into the government’s program and that he believed it would remain so in
the future (MGYOSZ, 2010). Finally, the government’s new instrument, ‘strategic
partnerships’, provided many TNCs with additional direct governmental contacts
(Éltetö and Antalóczy, 2017).
5.1.2 Flat PIT
The government’s PIT reforms help account for Hungary’s fall in redistribution, as
discussed earlier. In November 2010, the parliament approved a tax bill which led to
an introduction of flat PIT and family tax allowance reforms in 2011 (Gerő and
Mátyási, 2011). These reforms resulted in a sharp drop of PIT revenue and had to be
complemented by additional taxes on some TNCs, contributing to the downgrade of
the country’s credit rating to junk status by the rating agency Moody’s in 2011 (Bartha,
2014; Moody’s, 2011).
Only a few months earlier, in February 2010, Orbán called flat taxation not ‘fair’
(index.hu, 2011), and Fidesz’s manifesto for the April 2010 parliamentary election did
not mention flat taxation (Fidesz, 2010). A proposal which included flat PIT, however,
appeared in Orbán’s June 2010 economic reform plan (EUobserver, 2010). MGYOSZ
said, in June 2010, the plan was ‘in line with the proposals recently submitted by
MGYOSZ leaders to government representatives’, and especially praised the tax
system changes, including flat PIT (MGYOSZ, 2010). The president of MKIK, Parragh,
said in May 2011 that the government had ‘built the chamber’s proposals into its
program’, including proposals ‘to establish a competitive system of taxation’ (BBJ,
2011). VOSZ, too, expressed support for flat-rate PIT including minimum wage
taxation (VOSZ, 2011).
The Welfare States of Hungary’s Fidesz and Poland’s Law and Justice
30
Thus, MKIK, MGYOSZ and VOSZ all supported the PIT reform and at least the former
two organisations pushed for the policy package through lobbying. The fact that
Orbán publicly changed his mind about PIT following the election does not in itself
imply that business influence was at play, given the difficulty of taking politicians’
pre-election statements at face value. But if we also consider the proclaimed close
governmental collaboration with MKIK on economic policy and the reforms’ negative
consequences on a large number of Fidesz’s voters and international investors, it is
plausible that the business organisations’ lobbying played a key role in this policy
being implemented.
5.1.3 Széll Kálmán Plan
Several measures with direct relevance for all three indicators of WS generosity were
announced as part of the government’s major economic reform, the March 2011 Széll
Kálmán Plan (SKP). SKP’s proclaimed aims were to reduce public debt, restructure
‘mismanaged areas of economic and social life’ and boost economic growth
(Hungarian Government, 2011, 6). As part of SKP, the government enshrined into the
2011 constitution a commitment to implement public debt-reducing budgets if the
public debt is above 50% of GDP. Moreover, ‘the share of social transfers unfavourable
from the aspect of growth’ was to decrease (ibid., 7), social benefits were to become
conditional on participance in PWP, and disability pensions were to be restricted
(Hungarian Government, 2011).
MGYOSZ supported SKP’s ‘reduction of public expenditures and public debt’, but
complained about some aspects of the plan, such as an extension of the bank tax
(hvg.hu, 2011). MKIK seemed to approve of the plan, with Parragh complaining a year
later that ‘SKP 2.0’, a slightly amended 2012 version of SKP, would not have been
needed had the government been quicker and more consistent in implementing the
original plan (hirado.hu, 2012). Strikingly, back in 2009, Parragh proposed numerous
measures present in SKP. He claimed it would be ‘necessary to reduce taxes and
reduce the burden on economic actors, which of course means that public spending
must also be reduced’ (szegedma.hu, 2009). He additionally complained that the
31
government of the time had failed to ‘touch’ disability pensions and called for ‘making
social benefits conditional’ (Kamarai Futáro, 2009, 5). This remarkable resemblance of
the proposed policies with those in SKP make MKIK’s input in designing these
measures plausible, in light of the proclaimed close cooperation on economic policy.
5.1.4 Labour code reform
The parliament approved the labour code’s ‘Slave Act’ amendment in December 2018.
Here we find the clearest evidence yet of business influence on WS policymaking.
Government minister László Palovits publicly admitted in an interview that ‘changes
in overtime regulations have been called for by the corporations themselves’
(Világgazdaság, 2018). However, it is not immediately clear which businesses
requested them. MKIK said Hungarian firms had not requested the changes (NYT,
2019). MGYOSZ and VOSZ backed the proposal but said they would prefer if the
overtime rules changes were optional (BBJ, 2018).
Evidence suggests that German TNCs called for the changes. Audi, Mercedes-Benz
and other big German multinationals publicly denied supporting the law, as did the
German-Hungarian Chamber of Commerce, but this was to be expected. German
unions representing German TNCs’ employees do not like to tolerate poor labour
standards in foreign subsidiaries (FT, 2018b; NYT, 2019). Hungary’s foreign affairs and
trade minister Péter Szijjártó revealed that German companies had in fact supported
the measure. Several weeks before the law was passed, he said, during a trip to North
Rhine-Westphalia:
Most investments in Hungary come from North Rhine-Westphalia, with over
11 billion euros invested annually (…) So it is very important that North Rhine-
Westphalian companies investing in Hungary have clearly welcomed
legislative proposals [the labour code amendment] which further enhance the
competitiveness of the country and improve the job market. (Emerging Europe,
2018)
The Welfare States of Hungary’s Fidesz and Poland’s Law and Justice
32
What is more, German companies plausibly lobbied for the amendment. For Szijjártó
added that ‘due to the challenges posed by extremely low unemployment, companies
here have long been asking to be reassured that the necessary manpower will be
available for their increased investment’ (444.hu, 2018).
5.2 Poland
To assess business influence on WS policymaking in Poland, I first examine businesses’
sources of instrumental power. I then analyse businesses’ influence on the 2016 Family
500+ programme (relevant for social expenditure and redistribution), the 2016 minimum
wage reform (relevant for workers’ protection) and the 2021 Polish Deal (relevant for
social expenditure and redistribution).
5.2.1 Sources of instrumental power
Relationships of businesses with policymakers are weaker in Poland than in Hungary.
Firstly, partisan linkages are less strong, with lower political and financial ties between
businesses and PiS. As regards political ties, Confederation Lewiatan, the largest
employers’ association which also represents numerous subsidiaries of TNCs
(Lewiatan 2021), has traditionally maintained close ties with the opposition Civil
Platform (Naczyk, 2014). Since 2016, sharp conflicts between the government and all
major employers’ organisations have occurred. For instance, in 2016, Kaczyński
blamed Polish entrepreneurs for failing to invest because ‘they believe that it is better
to wait for the old times to return’ (Lewiatan, 2016). Five employers’ organisations,
including Lewiatan, called this ‘an absurd view’, instead blaming the government for
declining investment (ibid.). In March 2020, the nine largest employers’ and
entrepreneurs’ organisations reactivated a cooperation forum, the Entrepreneurship
Council (RP), originally founded in 2003, in order ‘to save the economy threatened by
a pandemic and a recession’ (RP, 2021a). RP has since sharply criticised the
government on numerous issues. Turning to financial support, Polish political parties
rely heavily on public funding, with individuals’ donations limited to 15 times the
minimum monthly wage (Bertelsmann Stiftung, 2020a; OSCE, 2020). In 2020, Poland
33
scored higher (6/10) than Hungary (3/10) in the Bertelsmann Stiftung’s (2020b) party
financing index, which compares countries based on transparency, monitoring and
sanctioning of party financing. Thus, clientelism and corruption related to party
financing seem less prevalent in Poland.
Secondly, businesses have complained about a lack of consultation. In 2019,
Lewiatan’s director-general said that ‘basic principles and standards of social
dialogue’ in Poland had been violated (pb.pl, 2019) and that the Social Dialogue
Council (SDC) had ‘failed to produce a tripartite resolution for the second year in a
row’ (Czarzasty, 2019).
Yet, the reactivation of RP points to a very high cohesion of Polish businesses. The
absence of a similar undertaking in Hungary suggests that Polish businesses are more
unified. However, as it turns out, this resource was not enough to help them
significantly affect WS policy.
5.2.2 Family 500+
The Family 500+ benefit, PiS’s key pre-election promise (Polakowski, 2017), was
launched in April 2016 (Sowa, 2016). Between 2016 and mid-2019, all families received
a monthly benefit of PLN 500 (10.9% of the 2018 average wage) per each second and
subsequent child, with low-income families also receiving PLN 500 for their first child
(ibid.; OECD, 2021e).
Tripartite consultations about the programme had taken place (Gromada, 2017), and
the public statements of two of the three biggest employers’ organisations represented
in the SDC had revealed concerns about it.
6
The President of the Business Centre Club
(BCC), which represents businesses of all sizes (BCC, 2021), considered the high
expenses of the programme a ‘threat’ for entrepreneurs (dziennikzachodni.pl, 2016).
Lewiatan said the programme’s costs were disproportionate to its effects on reducing
6
No statement of the Employers of the Republic of Poland (PRP) was found.
The Welfare States of Hungary’s Fidesz and Poland’s Law and Justice
34
poverty and increasing fertility (prawo.pl, 2016a), the two stated objectives of the
programme (EC, 2018b). It proposed the benefits should be better targeted, with non-
means-tested benefits paid from the third child onwards only. It also believed the
benefit would provide work disincentives and that receiving it should affect eligibility
for other benefits (prawo.pl, 2016a). The criticised programme features remained
unchanged. In July 2019, the programme was extended to include all first-born
children (Polish Government, 2021), which made it even less targeted and more
expensive.
5.2.3 Minimum wage reform
In July 2016, the Sejm passed a reform which, inter alia, forced employers to pay most
workers on CLCs and people in their first jobs the country’s minimum wage (prawo.pl,
2016b).
7
An April 2016 draft of the proposal was ‘positively received’ by both unions
and employers’ organisations represented in the SDC (prawo.pl, 2016c). When the
Sejm passed the law, Lewiatan said it had been actively involved in the policy
formulation and was happy with some negotiated exceptions from the minimum wage
requirement, for instance for CLCs that are based on tasks to be completed rather than
on hours worked (prawo.pl, 2016d).
However, the policy clearly did not represent employers’ organisations’ first-order
preferences. For Lewiatan also said it believed most employers would not be happy
with the changes as they would rather have more freedom in how they conduct
business (ibid.). BCC judged this ‘interference by the legislator’ to be ‘a gross violation
of the principle of freedom of contracts’ (dziennik.pl, 2016). And PRP, which
represents businesses of all sizes including Polish subsidiaries of TNCs (PRP, 2021),
pointed to several problems with the new legislation, including a likely exclusion of
some young people from the labour market (prawo.pl, 2016b).
7
Previously, first-job workers’ minimum wage was at 80% of the standard minimum
wage.
35
5.2.4 The Polish Deal
The Sejm approved the Polish Deal in October 2021 (KPMG, 2021). This tax and
contribution package benefits the lower-income population the most, with a tax-free
allowance rising to PLN 30,000, ten times above the 2016 level, and planned changes
to health insurance contributions forecast to hit high earners and the self-employed in
particular (Reuters, 2021). The package was also projected to increase pensions and
health care spending (Politico.eu, 2021a).
RP, unifying all significant employers’ organisations, sharply criticised the
programme, saying it disturbed ‘stability and legal certainty’ among citizens and
entrepreneurs who had ‘based their economic calculations about long-term contracts
on the current shape of the tax system’ (RP, 2021b). It also complained the package
redistributed from active to passive labour market participants, such as the retirees
(RP, 2012c), and criticised the public consultations process (RP, 2021d).
5.3 Discussion
The examination of Hungary’s WS reforms has pointed to an influence of domestic
business interest groups on the first and second examined reforms, and of TNCs on
the third analysed reform. Strong sources of instrumental power were identified in
relationships with policymakers in Hungary. Lobbying was identified in all cases,
plausibly presenting an action through which instrumental power was engaged.
Moreover, in the labour code amendment case, TNCs’ requests for assurances related
to investment suggest that structural power may have been engaged as well. This
evidence supports Hypothesis 1. Organisations representing businesses of all sizes
approved of and lobbied for WS retrenchment, which contradicts the rival hypothesis
that firm size matters for WS support.
By contrast, the analysis of Poland’s WS reforms has shown widespread opposition of
business interest groups to WS expansion, plausibly stemming from their weaker ties
to politicians. In the only case where evidence of expressed positive views by
employers’ organisations about the proposed WS reforms was identified, namely the
The Welfare States of Hungary’s Fidesz and Poland’s Law and Justice
36
minimum wage changes, disapproving statements about the wider measure by all
main employers’ organisations were also found. This suggests the policy did not
represent their first-order preferences, and by positively evaluating some aspects of
the policy they perhaps hoped to maintain influence over policymaking. Furthermore,
neither Lewiatan (the largest employers’ association) nor PRP (which, like Lewiatan,
represents some subsidiaries of TNCs) favoured the examined reforms more than
other employers’ organisations. Moreover, in 2021, all employers spoke in one voice
against the Polish Deal. This evidence, too, contradicts the rival hypothesis and
strengthens Hypothesis 1.
Electoral Margin of Safety in Office
This section empirically assesses Hypothesis 2. In this section, too, I first analyse the
case of Hungary (Section 6.1) and then that of Poland (Section 6.2), referring to
variables (a)-(e) presented in Section 4.3, before summing up the findings (Section 6.3).
6.1 Hungary
As we shall see, Fidesz has benefitted from a wider electoral margin of safety than PiS.
As regards variable (a) – large government majorities – Fidesz, in alliance with the
Christian Democratic People’s Party (KDNP), has held a constitutional two-third
majority in the one-chamber Hungarian parliament since 2010. This has strengthened
its electoral safety: even if it lost some seats following a radical reform, it could still
win a majority simply because its original majority was so large.
Under Fidesz, Hungary’s mixed electoral system has shifted closer towards a plurality
system. This is relevant for variable (b), namely the existence of multiple opposition
parties in plurality electoral systems. Under Hungary’s electoral system valid until
2010, some MPs were elected in two rounds for single-member constituencies, and
others for ‘national lists’ on a proportional representation basis (Krugman, 2014).
Changes in 2011 replaced the two-round system for single-member constituencies
with one-round first-past-the-post system, and increased the proportion of MPs
37
elected for individual constituency seats from 46% to 53% (Political Capital, 2014).
Thus, most MPs are now elected using the Westminster-style system. The
breakthrough of the far-right Jobbik into the parliament in 2010, which has since been
similarly strong as the Socialists (MSZP), enabled Fidesz to keep disappointed voters
divided between the two main opposition parties (Policy Solutions, 2014).
As regards the credibility of welfare-defending opposition parties on social policy –
variable (c) – MSZP, traditionally the biggest WS defender, lost public trust on WS
policy when it was in power between 2002 and 2010, having failed to sustain generous
transfers after embracing neoliberal development (Innes, 2014). Its extensive 2002 WS
expansion was followed by austerity cuts in 2006, just after its centre-left coalition won
a second term on a ‘reform without austerity’ platform (Fabry, 2019, 171). Eventually,
Hungary needed a bail-out from international organisations during the financial crisis,
further damaging MSZP’s credibility for years to come (ibid., Scheiring 2020).
Concerning media influence – variable (d) – the government controls appointments to
key public media and the Media Council, which enforces media laws and can sanction
journalists (Brouillette and van Beek, 2012; Kelemen, 2017). Moreover, private media
are also largely under Fidesz’s influence (Sata and Karolewski, 2019). Fidesz-allied
oligarchs purchased several influential media outlets, sometimes using loans from
state-owned banks (ibid.; NYT, 2018). Thus, about 90% of Hungarian media were
under Fidesz’s direct or indirect control in 2017 (Dragomir, 2017). Róna et al. (2020)
find that higher media consumption in Hungary leads to higher support for Fidesz.
As concerns electoral rules and practices – variable (e) – the government rewrote the
constituency map in 2011 in a way that benefits Fidesz. Electoral districts are very
unequal in size, with the population in left-leaning constituencies typically 5,000-6,000
larger than that in right-leaning constituencies (Krugman, 2014). In 2014, Fidesz won
a two-thirds majority despite gaining fewer votes than in 2006, when it lost the election
(Scheiring, 2021b). Moreover, local Fidesz mayors and bureaucrats have been
systematically conditioning WS benefits, including PWP eligibility, on applicants’
voting for Fidesz candidates (Mares and Young, 2019; Róna et al., 2020).
The Welfare States of Hungary’s Fidesz and Poland’s Law and Justice
38
6.2 Poland
When it comes to parliamentary majorities – variable (a) – PiS has held nowhere near
as comfortable a majority as Fidesz, with the PiS-led United Right coalition gaining
235 seats in the 460-seats Sejm in both 2015 and 2019, a majority of mere four MPs.
Although the PiS-led ‘United Right’ coalition was very stable before 2020, it lost its
majority in the Sejm in August 2021 over disputes between PiS and the satellite Accord
party (Politico.eu, 2021a; 2021b). The coalition, moreover, lost the Senate majority in
2019, with opposition parties now able to the delay legislation and influence some state
appointments (Reuters, 2019).
As concerns variable (b), the existence of multiple opposition parties is only relevant
in plurality electoral systems. Poland’s MPs are elected through a proportional
representation system, which limits the extent to which the government can
strategically split the vote of dissatisfied voters. Concerning the credibility of welfare-
defending opposition parties – variable (c) – SLD was traditionally Poland’s biggest
WS defender. Like MSZP, SLD lost popularity during the 2000s after failing to deliver
on its WS promises and promoting neoliberal policies (Innes, 2014). The SLD-led left
coalition fought against temporary contracts as one of its chief issues in the 2015
election (Marcinkiewicz and Stegmaier, 2016), but failed to enter the parliament, losing
part of its voters to PiS (Section 3.3). However, its popularity subsequently increased
(Rzeczpospolita, 2018) and it gained 49 MPs in 2019. Growing in popularity and
credibility after 2015, the left coalition promoting similar WS issues as PiS was clearly
too dangerous to ignore, making any PiS’s potentially desired retrenchment harder.
When it comes to media influence – variable (d) – the Polish government controls
appointments to key public media outlets, with state-owned media turned into
channels of pro-government propaganda, but its desire to gain control over private
media was less successful and they mostly remain free (Sata and Karolewski, 2019). A
recent attempt to establish control over the American-owned channel TVN, critical of
PiS, failed (Politico.eu, 2021c).
39
Finally, as regards electoral rules and practices – variable (e) – Poland has not seen
changes to electoral laws or election irregularities comparable in their significance to
those in Hungary, such as gerrymandering or electoral clientelism. Probably the
biggest upheaval yet was caused by prime minister Morawiecki’s attempt in May 2020
– later found by a court to have broken the constitution – to rush through a presidential
election amidst a Covid-19 lockdown via a postal ballot, criticised by opposition
parties over concerns about democratic standards (Euractiv, 2020; Euronews, 2020).
The election was eventually postponed after coalition disagreements (Euronews,
2020).
6.3 Summary
Hungary ranks higher than Poland on all examined variables of the electoral margin
of safety. The Hungarian governing party has had a larger parliamentary majority; has
created a more favourable electoral system; has lacked a credible WS-defending
competitor in WS policy; has controlled not just the public but also most of the private
media; and has gerrymandered electoral districts and electorally coerced voters. These
findings support Hypothesis 2.
Conclusion
PRA has been neglected in recent WS scholarship, ‘often used only as the theoretical
antagonist of the argument being put forth – a strawman mentioned only to be
dismissed’ (Arnholtz and Refslund, 2021, 2). This paper has shown that examination
of power balance between classes can help us understand cross-country differences in
WS development, even in countries with weak unions and left parties. Therein lies this
work’s biggest contribution. Paying attention, firstly, to business influence over WS
policy and, secondly, to how safe governments are in office without satisfying their
electorates’ WS preferences has turned out to be crucial. These variables deserve to be
given more focus in future PRA research. Moreover, by focusing on the extent to which
elections are free and fair, as my extension to Garrett’s (1993) and Kitschelt’s (2001)
The Welfare States of Hungary’s Fidesz and Poland’s Law and Justice
40
theories has done, we can add a productive analytical tool for understanding WS
differences in democratically deficient countries. Furthermore, this work suggests that
PRA scholars should take more seriously the fact that other than left parties may
represent workers’ WS preferences.
Possibly the biggest limitation of this paper is that the outcome is somewhat
overdetermined. Whilst the class power balance is more in favour of capital in
Hungary than in Poland, each of the two key variables – the higher business influence
over WS policy in Hungary and the higher electoral safety of Fidesz – would alone have
caused this to happen. Of course, there may be good reasons to believe that business
influence could not be so high in Hungary if the government faced higher electoral
constraints. After all, winning elections is plausibly governments’ main objective
(Pierson, 1994, 17), and business interests often contradict electoral interests. However,
this cannot be empirically established based on this study, and further research into
the potential interdependence of these two variables is desirable.
Future research could also undertake a robustness analysis of my findings by
analysing the two parties’ previous WS policies. Both Fidesz and PiS had been in
government prior to being elected in the last decade, with Fidesz leading a centre-right
coalition government (1998-2002), and PiS leading a right coalition government (2005-
2007). During their first tenure, interestingly, the Fidesz-led government did not seem
to significantly retrench Hungary’s WS, whilst the PiS-led government did retrench
Poland’s WS.
8
This may partly have been influenced by the preferences of the two
8
The absence of OECD and Eurostat data on Hungary’s 1998 public social spending
means that we cannot ascertain with full confidence that Hungary did not retrench its
WS under the first Orbán government. However, in 2002, Hungary’s public social
spending was similar (at 20.8% of GDP) as in 1999 (when it was at 20.9%) (OECD,
2021a). Data for redistribution through taxes and transfers is not available. Poland’s
public social spending decreased between 2005 and 2007 from 20.9% of GDP to 19.5%
(OECD, 2021a). Redistribution also decreased (see Figure 1b). Examining workers’
41
parties’ coalition partners. But variables identified as relevant in this study may also
have played a role. For instance, in 2005, PiS replaced SLD in government, a party with
a very low WS credibility at the time (Innes, 2014). Moreover, PiS’s electorate was more
affluent and conservative (Meardi and Guardiancich, 2021). Fidesz faced significantly
higher electoral constraints when previously in government. It did not significantly
attack democratic institutions, being strongly focused on EU accession. These
preliminary considerations deserve deeper analysis, and business influence should
also be examined.
Finally, whilst my analysis of business influence focused primarily on the sources and
actions of businesses’ instrumental power in Hungary and Poland, future research
could more systematically analyse how strong their structural power was, and when
exactly each type of power – or both – was engaged.
protection in the period of Fidesz- and PiS-led first governments is outside the scope
of this work.
The Welfare States of Hungary’s Fidesz and Poland’s Law and Justice
42
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