POLISH ECONOMY $
1. TRANSITION IN THE CONTEXT OF A CENTRALLY PLANNED ECONOMY
By the time of the collapse of the Soviet-inspired system of central plan- ning in‘‘democratic and socialist’’ Poland in the period 1988–1989 (a system which Stalin had reportedly remarked would ‘‘fit Poland like a saddle fits a cow’’) the nomenklatura system had developed into a highly centralized administrative structure – not only for national economic and political or- gans but also for small- and medium-sized organizations and enterprises – which operated only as a part of a huge centrally organized and bloated bureaucracy. The other key players in this tripartite structure were the official state or government apparatus and the Polish United Workers’
or Communist Party. By the late 1980s, the system of central planning had virtually elapsed into a ‘‘lunatic collage of incompetence, privilege, pandering and outright corruption,’’ based on a ‘‘principle of underqual- ification’’ and a ‘‘perverted practice of negative selection’’ (Weschler, 1982).
Although the system of central planning has been systematically dismantled, remnants and quite visible reminders of the nomenklatura system are still present. Not surprisingly, the role of the nomenklatura is still hotly debated in the Polish society.
After 1989, as the prospects for advancing their bureaucratic careers in the new system initially appeared more limited, the members of the no- menklatura in Poland almost immediately became active in privatized busi- nesses and banks in a variant of privatization that has sometimes derisively been referred to as ‘‘spontaneous privatization.’’ Others brand it simply
‘‘institutional theft’’ by the nomenklatura of state assets, apartments, prop- erty, and profitable state-owned enterprises. Members of the nomenklatura have also benefited politically and economically from popular discontent that is practically unavoidable during economic reforms started under very difficult economic conditions and circumstances. As a result, members of the nomenklatura have been judged to be major ‘‘winners’’ in the transforma- tion process (Hunter, Ryan, & Hrechak, 1994). Ironically, the Democratic Left Alliance or SLD, the successor to the Polish United Workers’ or Communist Party and an outgrowth, the newly formed Polish Social De- mocracy, are populated by many former members of the nomenklatura and are today the mainstay of capitalism in Poland and the champion of the emerging and burgeoning capitalist business class.
The system of central planning is also referred to as the monocentric system or the command-rationing mechanism (CRM). As it operated throughout the region of Central and Eastern Europe, but most especially in Poland, the CRM was characterized by certain derivative traits that were inimical to and destructive of the three cornerstones of potential economic and political transformation. These cornerstones were the privatization
process, the development of Poland’s export sector, and the attraction of significant amounts of foreign direct investment (FDI) into the Polish economy (Hunter, Shapiro, & Ryan, 2003; Hunter & Ryan, 2001, 2003, 2004). The decidedly negative traits of the CRM included administrative price-fixing by central authorities of all nature of goods and services ‘‘of- ficially produced’’ in the Polish economy, isolation of domestic producers from foreign markets, enterprises’ ‘‘soft budget constraints’’ where the ‘‘na- tional budget’’ was literally a ‘‘national joke,’’ and extreme monopolization in the hands of the state of everything in society that had any real economic value.
It is no surprise, then, that by 1989 and the historic ‘‘round table’’ that led to the overwhelming victory of Solidarity in the ‘‘semi-free’’ elections in the spring of that same year, the system of central planning literally imploded in Poland, and eventually in the entire region of Central and Eastern Europe.
Despite the persistent ‘‘propaganda of success’’ put forth by the Polish government and the blathering of the Polish Communist Party, the central planning system imploded, because of a combination of four interrelated factors. First, the CRM failed to create economic value and to improve the standard of living for the average Pole. For example, it often took 20 years for an individual to secure a private apartment or a private telephone. Sec- ond, the Polish economy failed to ‘‘measure up’’ to comparative economies, not only those capitalist economies in the West like the United States, France, Italy, or West Germany, but also several ‘‘fraternal’’ socialist econ- omies in Central and Eastern Europe, especially, Hungary, Slovenia, and Czechoslovakia, later the Czech Republic. Third, the Polish economy failed to satisfy basic consumer needs, essentially creating a dollarization of the Polish economy through the existence of a large, open, ‘‘semi-official,’’ and surprisingly efficient black market and long lines or queues for all consumer goods. By the summer of 1988, Polish stores literally had nothing to sell on their shelves. ‘‘Special shops,’’ called PEWEX, had shelves stocked with all nature of goods, but sold only for dollars. Fourth, and probably most important, the CRM failed to provide adequate individual and organiza- tional incentives.
1.1. The Attempt at Reform of the CRM
Given the dual economic and political aspects of the CRM and the enormity of its negative legacy of more than 45 years, reform of the central planning system has posed a considerable challenge from the outset and has involved a delicate blending of both political and economic considerations in the
adoption of the following macro strategies first advanced by the Mazowiecki government in the fall of 1989:
1. Attaining political stability and pluralism, which would be accomplished through holding free and multiparty elections as soon as possible after the collapse of the prior closed political system (this proved to be the easy part of transition).
2. Implementing a program of‘‘real’’ economic reform with the evolution to a full private market economy, involving an emphasis on the develop- ment of a substantial private sector and a reduction of the state sector through a multi-track program of privatization.
3. Creating the basic institutions of capitalism, including a private banking system, credit institutions, customs and clearing houses, currency ex- changes, a private insurance system, the reintroduction of the Polish stock market, and the creation of investment vehicles like stocks, bonds, and mutual funds – all of which are taken very much for granted in the West.
From the outset, three important questions dominated conversations concerning the transformation process: How would it be possible to create capitalism in a nation where there was neither capital nor capitalists? What should be the role of the nomenklatura and ex-communists in the political and economic life of Polish society? And, what would the system do about workers and others most negatively affected by the transition (Hunter &
Ryan, 2000)?
The attempt to move Poland from a system dominated by central planning to ‘‘some other system’’ – and no one was exactly sure what the new system would be – was based upon the following core assumptions (Balcerowicz, 1995):
1. The authoritarian nature of the society must gradually change into one based on administrative and bureaucratic competence, so as to weaken the decisive role of central authorities and to strengthen the role of mar- ket mechanisms in resource allocations.
2. Accepting that the system of central planning actually hampers economic analysis and hence does not provide sufficiently accurate information for effective decision-making, the top–down ‘‘command-and-control’’ econ- omy and administrative system must gradually change into a system based upon information sharing and verification, consultation, and co- operation among all segments of Polish society (Nikolaenko, 2002).
3. The state-run society must gradually change into a full civil society (Hunter & Ryan, 1998), marked by community self-governance, trade
and economic discipline, honest career building, and‘‘independent indi- viduals characterized by self-esteem, self-reliance, and self-empower- ment’’ (Fulin, 2002).
1.2. A Brief Focus on Polish Privatization
The multi-track approach to privatization adopted in Poland has involved a myriad of concurrent, sometimes seemingly inconsistent, strategies including re-privatization to former owners, the ‘‘small’’ privatization process, even- tual privatization by liquidation, ‘‘mass’’ privatization, and the sectoral ap- proach involving the creation of the National Investment Funds. In this context, four main options or variants for privatization were adopted:
commercial (traditional) privatization through the capital market; privati- zation through employee ownership (termed the ESOP option); privatiza- tion through some form of ‘‘citizenship ownership’’; and privatization through institutional investors (Blasczyk & Dabrowski, 1993). In the first half of 1990, more than 100 state-owned-enterprises indicated their interest in participating in the privatization process. On September 27, 1990, the Ministry of Privatization undertook its first major step. De la Rosa, Crawford and Franz (2004) report that the ‘‘‘Magnificent Seven,’ a name given to the first seven enterprises privatized according to the 1990 Law on Privatization, were established as wholly owned companies of the Polish state treasury.’’ This group included Exbud (construction), Fampa (indus- trial paper production machinery), Inowroclaw (meat packing), Kable (industrial electro-engineering), Krosno (commercial and consumer glass products), Norblin (metal industrial products), and Prochnik (clothing).
When the public subscription began on November 30, 1990, shares of Exbud, Kable, Krosno, and Prochnik, as well as a new firm, Tonsil (electro- acoustic equipment), were offered to the public.
Listings on the Warsaw Stock Exchange for 1997 included 15 National Investment Funds, which were initially created to implement the ‘‘mass privatization’’ program and to provide the necessary framework in order to restructure and privatize more than 500 state-owned enterprises. The history of the National Investment Funds is quite interesting. In December of 1994, the Ministry of the Treasury established 15 funds as joint-stock, lim- ited liability companies, wholly owned by the Treasury. During the next two-year period, the Ministry transferred 60 percent of the shares of the selected state-owned enterprises to the National Investment Funds, retain- ing 25 percent in the Treasury and reserving 15 percent for employees.
Share certificates were then distributed to Polish citizens – with more than
27 million Poles eligible to purchase one certificate each for 20 zlotys (ap- proximately U.S.$7.00). One original certificate purchased on the so-called primary market could be redeemed for one share in each of the 15 National Investment Funds. The funds began trading on the Warsaw Stock Exchange on July 15, 1997 (Hunter, Ryan, & Shapiro, 2004). A capital market thus rose literally from the ashes of the CRM.