Employers’ organisations reviewed

Employer representation in Hungary has been very fragmented since the transition to democracy, and in 2005 there are nine national-level employers’ organisations. This article describes the main characteristics of employers’ associations and their role in the Hungarian industrial relations system.

In the course of Hungary's transition from the state-socialist system to parliamentary democracy, the employers’ organisations that existed under the socialist regime had to face the disappearance of their exclusive and monopolistic privileges in the representation of business interests. The socialist-era associations used to organise distinct segments of the economy that were separated artificially by the regime following the socialist notion of ownership-types - such as state-owned companies, industrial cooperatives and private micro firms. Membership was practically compulsory. However, the negotiated nature of the transition made it possible for the employers' bodies to reform themselves in order to preserve organisational continuity and to adapt to the new environment. At the same time, new organisations were set up to represent new interest groups. This dual process has resulted in a highly fragmented representation structure of business interests.

The national employers’ confederations

Eventually, nine 'peak' employers’ organisations, all members of the national tripartite machinery (HU0209101N), have consolidated their positions (HU0506102N). The nine national level associations are as follows.

  • The Confederation of Hungarian Employers and Industrialists (Munkaadók és Gyáriparosok Országos Szövetsége, MGYOSZ) is arguably one of the biggest employers’ organisations. It represents about 6,000 employers employing 1.2 million workers. Members of MGYOSZ are typically large and medium-sized companies in the manufacturing and business services sector. MGYOSZ was established in 1998, by the amalgamation of two employers’ associations -one the successor of the socialist association that had represented state owned companies, and the other organisation a newly founded association representing major domestic private manufacturers.
  • The Agrarian Employers’ Federation (Agrár Munkaadói Szövetség, AMSZ) was established in 1989, representing private agricultural enterprises.
  • The National Federation of Agricultural Cooperatives and Producers (Mezőgazdasági Szövetkezők és Termelők Országos Szövetsége, MOSZ) is the heir organisation of the National Council of Agricultural Cooperatives (Termelőszövetkezetek Országos Tanácsa, TOT), which used to represent state socialist agricultural cooperatives.
  • The National Federation of Consumer Cooperatives (Általános Fogyasztási Szövetkezetek Országos Szövetsége, ÁFEOSZ) is the interest representation organisation of approximately 250 consumer cooperatives with 4,300 retail outlets.
  • The National Federation of Craftsmen Boards (Ipartestületek Országos Szövetsége, IPOSZ) is the largest employers' and professional association of Hungarian small and medium-sized enterprises (SMEs). It is also a reformed organisation, whose predecessor had organised industrial cooperatives in the past. IPOSZ is the association of 300 regional and sectoral associations. At present, IPOSZ represents about 100,000 SMEs.
  • The National Federation of Traders and Caterers (Kereskedők és Vendéglátók Országos Érdekképviseleti Szövetsége, KISOSZ) represents micro-enterprises in the retail trade sectors. Its members include approximately 10% of the Hungarian self-employed and 20% of small shopkeepers. There are also a number of restaurant owners, commercial agents and cooperatives that are members of KISOSZ. Its predecessor had organised private micro-enterprises under the socialist regime.
  • The Hungarian Industrial Association (Magyar Iparszövetség, OKISZ) represents the interests of industrial cooperatives and SMEs. OKISZ claims to represent enterprises employing altogether approximately 350,000 employees. Members are present especially in the following industries - machines, chemicals, textiles and clothing, construction and services. It an organisation which has its roots in the socialist regime.
  • The National Association of Strategic and Public Utility Companies (Stratégiai és Közszolgáltató Társaságok Országos Szövetsége, STRATOSZ) was established in 1994 with the aim of promoting the specific interests of public utility companies of strategic importance. STRATOSZ, with its 46 member companies, covers most of the employees of public utilities in Hungary. The member companies of STRATOSZ are reported to employ approximately 750,000 workers. STRATOSZ was accepted as member on the employers’ group of the national tripartite forum in 1999.
  • The National Association of Entrepreneurs and Employers (Vállalkozók és Munkáltatók Országos Szövetsége, VOSZ) was established in 1988 as the first independent association representing the interests of private entrepreneurs. Currently it has about 30,000 member companies. While in the beginning the membership of VOSZ consisted mainly of small enterprises, now it includes several large companies, too. 

The current structure of employers’ organisations is largely shaped by the organisational heritage of the socialist past. The majority of current associations had a state-socialist predecessor, with a fairly well separated segment of representation. The clear-cut separation of spheres resulted in a lack of competition between employers’ organisations for members.

Typically, organisations that had predecessors in the socialist period are sectoral and/or regional associations, while those set up following the transition period are associations of individual companies. Nonetheless, there are a number of exemptions: some new associations have set up regional and sectoral organisations, while some older ones have accepted direct membership of major companies in the national-level association.

Organisational features

Characteristically, membership fees are relatively low for member companies and member associations. Also, it is a widespread practice that members may provide the association with various services instead of paying membership fee. One of the consequences of low fees is that employers’ organisations in general have fairly small budgets for covering their core activities. On average, only about one third of the budget of employers’ associations is covered by membership fees, and instead employers’ associations have developed various business service activities in order to raise additional income. Additionally, an increasingly important share of the budget of employers’ organisations comes from the government in the form of earmarked financial support for various activities.

On the other hand, the practice of 'multi-membership' is fairly widespread, ie companies - especially the larger ones - and sectoral organisations are members of more than one national-level employers’ organisation. Multi-membership allows these companies and federal-level associations to increase their access to business services and lobbying channels, while membership fees, being low, are not a cost issue for them. As a consequence of frequent multi-membership, it is almost impossible to tell what the real coverage of employers’ associations is. Nevertheless, the vast majority of legally registered enterprises are not members of any interest-representation organisations. Typically, major undertakings are the dominant members of business interests groups, as a consequence of which these are fairly important organisations in terms of the share of employees or of economic significance.

Functional diversity

National-level employers’ organisations have relatively small central offices. For instance, MGYOSZ, arguably the most important association, has a staff of only 20 employees. Typically, at each of the national-level employers’ associations only a handful of employees can be considered as experts or full-time professional staff working on issues related to interest representation. Where an association has a bigger staff, the majority of them are in charge of running business services.

Employers’ associations identify their major functions as follows:

  • participation in the national tripartite social dialogue machinery and representing business interests;
  • provision of business services; and
  • acting as social partner in the bipartite industrial relations system.

Undoubtedly, the main function of national-level employers’ organisations is representation in the tripartite social dialogue machinery (HU0502105F) and lobbying for general business interests, through which they exercise influence on the major strategic issues of economic and social policy and take part in the regulation procedure on every major issue related to the world of work. Participation in the tripartite machinery also opens up channels for lobbying the government. The proliferation of tripartite-style institutions ensures access to various governmental funds designed, for instance, to facilitate market entry and training for associations' member companies. A further crucial issue is that various tenders for providing public goods are open exclusively to members of the national tripartite machinery, which is an important financial resource for these associations.

As far as their positions in business interest representation are concerned, employers’ associations have developed a rather coherent macroeconomic policy line in recent years, namely that the Hungarian economy should pursue an export-oriented economic development. This would involve a wholesale reform of state budget expenditures, including cutting the costs of state administration and public services, reducing taxes for enterprises and for employees, deregulating and reducing the administrative burden on economic activities, and further flexibilising labour law. The associations have also argued for modest wage developments, and especially for rules ensuring that minimum wages do not grow at a higher rate than the economy. In recent years, leading business personalities have urged employers’ organisations to cooperate more closely, because failure to do so over the last half-decade has been a major obstacle to successfully influencing government policies in order to curb government overspending and real wage increases exceeding GDP growth. The rapid rise of wages is seen as threatening Hungarian manufacturing industries with 'out-pricing' in globalised competition, especially with the imminent accession of Romania and Bulgaria to the European Union.

Another important function of national-level employers' associations is to provide business services, which are seen as the main attraction for individual companies, as interest representation alone would not be sufficient to attract and retain members. The scope of services is fairly wide, includes education, training, market research, business consultancy, legal assistance, information provision and last but not least lobbying, sometimes even on behalf of individual companies.

For employers’ associations, industrial relations are practically limited to participation in the social dialogue machinery, where trade unions are the other social partners. Indeed, within the tripartite machinery, trade unions seriously challenge employers’ associations’ agenda of demanding more flexibility and curbing wage increases. Not surprisingly, bipartite industrial relations as such are a fairly neglected area in the work of national-level employers organisations, as trade unions hardly represent a challenge in the sphere of bipartite relations. The majority of trade union actions at the sectoral or national level focus on government policies too. Industrial action, if it occurs at all, takes place at enterprise level, in the form of short warning stoppages or demonstrations.

Even sectoral employers’ associations are hardly in the position to make binding contracts with trade unions, including sectoral collective agreements. The by-rules of these associations typically stipulate that the central organisations can sign any agreement on behalf of the members only if they have the explicit authorisation of each of the member organisations, and the associations can not limit the autonomy of their members, be they companies or federal or regional associations.

Commentary

Largely due to the organisational continuity of former structures created by the socialist regime, employer representation in Hungary is very fragmented. Nine associations have consolidated their positions as national level employers’ organisations. Each association has a fairly distinct core constituency, for which it has tailored the services it provides. Despite some overlaps, employers’ associations represent different segments of the economy, which allows for a fairly seamless cooperation in the tripartite machinery. Nevertheless, they share a few characteristics, which can thus be considered as the general features of the 'post-socialist' type of employers’ associations in Hungary.

While the fragmented nature of business interest representation is partly a heritage of the artificial classification of undertakings under the socialist regime, the former monopoly organisations were able to convert themselves into employers’ associations providing member-tailored services. While only a relatively small number of undertakings are members of employers’ associations, the practice of multi-membership makes it difficult to measure the coverage of employers’ associations. None the less, the major companies are members, and thus the importance of organised business interests is bigger than the estimated coverage figures would suggest.

Employers’ associations have decentralised internal governance. National-level centres tend to act as lobbying agents and service providers. The by-rules of national-level associations ensure autonomy for members and limit the authority of central decision-making bodies, as a consequence of which the leverage of national-level organisations to harmonise the policies of member associations and member companies is fairly restricted. Similar to trade unions, the internal governance structure of employers’ associations is decentralised, which is a major institutional obstacle to developing sectoral collective bargaining. Bipartite industrial relations as such are fairly neglected by national-level employers' associations. Consequently, bipartite regulation between unions and employers’ associations has a fairly limited impact on the labour market in Hungary.

Given the lack of meaningful bargaining, the most important public function of national and sectoral employers’ associations is to represent business interests in the national tripartite machinery or through the sectoral social dialogue. In recent years, employers’ associations have developed a rather coherent economic policy strategy: they urge a public policy promoting export-oriented economic growth, including a wholesale reform of the state budget, general tax reductions, deregulation and further flexibilisation. (András Tóth and László Neumann, Institute of Political Science, Hungarian Academy of Sciences)

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