(Page 33 of 33) - East European Labor and the Challenge to Europe's "Social Model" authored by Crowley, Stephen.

Further, the postcommunist environment has created additional obstacles for labor unions
than the post-authoritarian one, in both the level of economic change and the impact of
ideological legacies (see note 9). However, for the purposes of this paper, the main
difference with other middle-income countries is that eastern European societies focused
on here have joined a supra-national organization – the EU – and this arguably will have
consequences for the old members and the so-called social model.

While the effective rate might be important for businesses, this ignores the political

"demonstration effect" that the lowering of nominal rates can have on neighbouring
countries, a point we will return to in the conclusion.

In what would appear to be a case of the proverbial "race to the bottom," Estonia, the

first postcommunist country to introduce the flat tax in 1994, is now planning on
lowering its rate from 26% to 20% by 2007. "The Case for Flat Taxes," The Economist,
April 14, 2005.

Appel argues that this is surprising "given the political power of Polish unions" (2006:

9, also 7, 11). However, the power of Polish unions may be more perceived than real: it
certainly fails to show up on any statistical measure, whether union density, collective
bargaining rates or strike rates. For a detailed assessment that challenges the notion of the
relative power of the Polish labor movement, see Ost, 2005

According to the World Bank web-site for Bulgaria, one "observes a certain amount of

'reform fatigue' in the new EU member states" and that "the pre-accession period
represents a unique window of opportunity for change." It also notes that "although
Brussels may lose leverage after admittance, the challenge of competing in the EU
market and matching EU living standards" should create incentives for reform. These
sorts of reform pressures however are likely to continue to push against the strengthening
of labor and social policies.

One should not discount the significance of ideology in shaping policy choices in the

region. Not only was the ruling Communist Party discredited in eastern Europe, but so
were so many related institutions and symbols of the communist system, including
communist-installed trade unions, the central position of workers, and socialism
generally. Likewise, while these countries were attracted to Europe, they also saw the
U.S., perceived as the region's defender during the Cold War, as a model to be emulated.
Though the example might seem removed from domestic policies, several countries in
eastern Europe were willing to defy the opinions of most western European societies and
join the U.S. (along with the U.K., Spain and Italy) in its "coalition of the willing" that
invaded and occupied Iraq. Similarly, it would seem, they are willing than other countries
to adopt the more liberal US model in fiscal, labor and social policy.

I am grateful to Mitchell Orenstein for this point.