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Poland in Transition

By Patricia E. Mohr

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Freed from the Iron Curtain in 1989, East Central European states faced the challenge of building themselves into stable democracies. Suddenly, they had to find effective ways to develop new political and economic structures where the old, dysfunctional system had existed. Because they had no historical guide to follow, the price of their new freedom was uncertainty.
 
To alleviate this uncertainty, the former Soviet republics looked with hope towards the West. Poland, in particular, had maintained a sense of European identity throughout the Cold War. When it became free to pursue a return to the West, Poland immediately initiated the processes of marketization and democratization.
 
Although its example is only one of many different transitional models, the Polish transition to democracy provides a good framework for all struggling democracies. Its model shows how some reform progresses in a relatively short amount of time, while progress in other areas stagnates. Yet, because of its individual characteristics, its example also depicts its own distinctive qualities. For example, Poland escaped problems with ethnic conflicts, but encountered other kinds of internal disunity.

A Unique Transformation

Poland’s revolution was unique because it was peaceful and relatively quiet. It began in 1980 when an underground network formed between intellectuals and labor workers. This anti-communist alliance became known as Solidarity. Throughout the 1980s Solidarity and the communist government agreed to discuss possible reforms in a series of Round Table Talks. The nine-year reform movement showed substantial achievement when the government agreed to transform its central political institutions.1 For the first time in history, a communist government had opened itself up to a system of power-sharing that included partially free elections.
 
Reform—minded communists used the party as a means for reform during the 1980s. President Jaruzelski believed the power-sharing system was essential during the initial transition. He agreed to open up the party to elections because he recognized the party’s limitations to reform towards genuine democracy. In order to enact the necessary economic reforms, the country needed a government that was accountable to the people.3 Because the 1989 elections were partially free and partly appointed, they produced a government mixed between Solidarity members and the old communist regime. Out of the seats that were available through election, Solidarity candidates won 160 out of 161 seats in the Sejm and 92 out of 100 seats in the Senate.4 “We took power without firing a shot,” said Solidarity supporter Helena Luczywo. “No one was hurt.”5
 
Thus, the peaceful revolution was won. The dissident heroes of the 1980s became the new leaders. Yet the struggle of state—building was just beginning. For the following seven years, Poland faced difficult challenges and decisions.

The Economy

The new government inherited an economy in shambles. After 15 years of economic crisis under communism, Poland suffered from a deteriorated infrastructure, ecological disaster and inefficient industries.6 Industry focused on the physical output of producer goods rather than efficient manufacturing and quality of goods. Plants used outmoded equipment and poorly trained labor and management. Bureaucrats, not the market, determined the prices of goods. Because production did not follow the law of supply and demand, resources were allocated disproportionately.7
 
In addition, Poland was completely unprepared to support private investment. No private banks that could have provided loans to entrepreneurs existed in the country.8 Businesses lacked the following conditions: a legal framework to protect private investments; market institutions for exchange; and a structure for complex regional specialization. One economic organization in the former Soviet Union, the Council for Mutual Economic Assistance (CMEA), administered trade relations between countries. However, instead of administering the benefits of comparative advantage, it existed as an instrument for Soviet control. CMEA also insulated the region from global competition.9
 
The state—run industries were completely unprepared for the competitive, international market. The 8,400 Polish state— owned enterprises (SOEs) were responsible for 80 percent of the country’s employment.10 Although the industries needed to undergo retrenchment, they remained unmanageable because they were significantly influenced by their employees. Workers councils gave employees legitimate authority over their industries.11

The Debate about Reform

While economists agreed that East Central European states had to change their command economies to market economies, they disagreed about which transitional methods to follow. More specifically, they debated about the essentiality of “shock therapy” reforms. Shock therapy is defined as “a thorough changeover from a command to a market economy in a relatively short time.”12 This method involves a complete overhaul of the macroeconomic economy. Proponents of a slower approach say that shock therapy can “provoke a political backlash by those suffering the most under reforms.”13 Moreover, it undermines the political stability that is need to attract foreign investment.
 
Valtir Komarek, the former deputy prime minister of Czechoslavakia, described it as a “means that could bring about an awful end.”14 While he blamed years of communist mismanagement for the economic problems, he said it is a “grave error” to try to fix them too quickly. According to him, the costs of reform impact skilled and educated workers too severely. These specialized laborers were not given time to adjust to the demands of the market. He recommended temporary governmental protection of certain industries until they could compete with the global economy. As of 1992, Komarek suggested that the negative effects of Poland’s shock therapy have not subsided, but have increased.15
 
Economist Jeffery Sachs, on the other hand, argued that new democracies should make quick transitions to market economies. He said gradualism does not work because it causes hyperinflations that destroy tax systems and undermine budgeting. Instead, states must, control their budgets by stabilizing their exchange rates and discontinuing wage increases. He admitted that these methods cause the public pain, but he asserted the primary goal should be getting the budget under control.16
 
Sachs said it is wrong to assume that Poland’s transition would cause cruel and painful social costs because the system would be social democratic like Western European states. However, a 1993 New York Times article contradicted his prediction. Roger Cohen wrote:

        “Capitalism is young, relatively wild and quite often cruel in the East European countries. These nations do not yet
        have the resources to build up the elaborate safety nets that decades of Social Democracy have bequeathed in Western Europe.“17

Malcolm S. Forbes Jr., deputy editor-in-chief of Forbes magazine, agreed with Sachs. He advised Poland to stabilize its currency. Stable money is not only essential for sustained growth, but also attracts foreign investment. In his 1989 article, Forbes cautioned the Polish government against following the advice of the International Monetary Fund (IMF). Instead of following IMF recommendations to reduce the budget deficit and end popular subsidies, Poland should have put a higher priority on lowering its taxes, tying its currency to the Common Market and privatizing industries.18

The First Steps to a Market Economy

Poland chose the quick, tough approach. In an agreement with the IMF, the Polish cabinet accepted a plan to control its budget.19 Beginning January 1990, the government reduced subsidies and allowed prices on consumer goods to fluctuate.20 Finance Minister Balcerowicz began a program to end wage increases, balance the budget, and eliminate and cut inefficient government industries. He identified his highest priority as controlling the inflation rate, which had soared to 251 percent in 1989 and to 585 percent in 1990.21

In exchange for its ambitious transition approach, Poland received a $710 million loan from the IMF that was contingent upon the programs progress. The loan supported the reforms and included a safety net for the poorest of the poor.22 Nevertheless, the safety net was not able to relieve all the costs of reform. IMF Managing Director Micheal Camdessus said: “There is no way of avoiding some hardship in the short—term if living standards are to be raised in the future.”23

In addition to the IMF loan, Poland received a $1 billion stabilization fund from the United States and other major nations in January 1990. This fund helped Poland maintain its new exchange rate so it could continue to buy imports. Though this fund was directed towards business transactions during 1990, it allowed Poland to transfer whatever was left over at the end of the year into other types of aid.24
 
Other aid came from a committee of creditors nations, called the Paris Club. The committee relieved Poland’s debt burden of $30 billion by $5 billion.25 When its international debts rose to $46.1 billion in 1990, Poland asked the creditor nations to forgive 80 percent of the burden These relief funds helped Poland launch its reforms.

Privatization

The reform process included plans to privatize the state industry and develop the private sector which accounted for only 15 percent of the gross national product.27 Privatization is the “transfer of property to the enterprise’s employees, or managers, or through public offerings and sales to foreign investors.”28 It was considered to be one of the most essential reforms because it could reduce the burdens on the government, provide consumers with lower—cost goods, and help industries to be more productive and profitable.29 It was also the hardest program to reform.
 
Before the transfer through sales could begin, the government had to determine what rights of compensation existed for the firms that had been confiscated between 1944 and 1962. The 70,000 claims they received became huge burdens on the government’s budget. 30
 
The government needed legal reform to create opportunity for privatization and private investment. In 1990 parliament approved legislation to govern the transfer of property. It created a stock exchange in Warsaw and provided a framework for the sale of stock to the public.31 However, this legislation merely provided the foundation for change. Actual progress in the reform was very slow.
 
For the next few years, privatization was delayed by political infighting and controversies.32 The public also played a role in setting back the reform. For instance, workers councils resisted layoffs and dismissed the executives of their SOEs.33 Some workers demanded that they receive preferential treatment in the sales of their companies.34 Other state employees, such as Coal miners and railworkers, threatened strikes unless the state intervened to preserve their jobs and salaries.35 Many Polish citizens feared that foreigners would buy up the industries at bargain prices.36
 
But this fear was unfounded because foreign firms were actually reluctant to invest in Polish enterprises. Foreign investment between 1989 and 1992 totaled only $700 million.37 Many investors were turned off by the numerous changes in the government and the uncertainty of Poland’s economic and political progress. Moreover, because workers asserted so much control over their industries, foreign investors would have lacked managerial controls As a result, only about 25 SOEs were sold to foreign investors. 38
In 1994, 6,500 companies were still owned by the state.39 By the end of the year, Poland finally approved its mass privatization program that converted ownership of more than 500 SOEs to Polish citizens.40 This program was able to circumvent many of the problems associated with privatization. For example, MPP overcame the shortage in domestic capital by selling certificates to citizens for a small fee. It created market institutions and new owners who were able to restructure industries to make them competitive.41
 
Although only 20 percent of state enterprises have been privatized, private sector growth has been the primary force in expanding the economy. Two million new businesses developed since 1990.42 Foreign investors became confident as Poland’s reforms progressed and its economy stabilized. The country’s large population, strategic location and low-cost, well educated work force attracted more than $2.5 billion in foreign investments during 1995.43 In addition, the booming underground economy has contributed as much as 25 percent of the gross domestic product.44 The private sector has been instrumental in providing new jobs for those displaced by reforms.
 

Political Support

Another residual effect of communism left for the new government was political apathy. Skepticism replaced hope soon after the economic reforms caused the public pain. Poland needed the strict economic plan to secure international aid, but the reforms were never sold to the public. Despite winning the approval of the IMF, the ambitious policies lost the public’s support because they increased unemployment, lowered wages and increased consumer prices.45 An October 1991 opinion poll showed that only 20 percent of the population approved of the government’s economic program.46
 
Throughout the transition, Poland struggled to find a balance between moving forward with economic reforms and building a representative government. It needed to be effective with both initiatives because the stability of newly democratized states depends upon widespread public support. Scholars William Mishler and Richard Rose explain this relationship:
 
“Regimes facing fundamental and intractable challenges or lacking institutions capable of mobilizing support or of responding effectively to challenges may fail despite substantial public approval.”47
 
Mishler and Rose argued that new democracies must gain legitimacy by representing all segments of society. Therefore, the leaders should have sold their programs to the public. But because of the politicians inexperience, they neglected to gain public approval for their reforms. President Walesa said he was unprepared to publicly explain the intricacies of economics. Finance Minister Leszek Balcerowicz said he did not have time to campaign for the reforms. Prime Minister Tadeusz Mazowiecki was also reluctant to address the nation.48
 
Prior to 1989, the public rallied around Solidarity’s unified antagonism against communism. That unity, as well as the public’s enthusiasm, broke down after Solidarity members took office. Zuzanna Dubrowska, a Solidarity activist and participant in the Round Table Talks, complained in 1990 about the reformers. “For 40 years, the communists tried to prevent any opposition,” she said. “Now the opposition is all in the government saying, ‘Just go along with us.’ It is the same thing.”49
 
By July 1991, the Washington Times reported that Solidarity had “completely broken down into its right and left, into its worker and intellectual wings.”50 The public was left out when the reformers fought for political control in the new government. A 1992 New York Times article by Stephen Engelberg explained why the new politicians ignored their citizens:

      “Many of the new breed of politicians were uncomfortable in this role, finding it difficult to distinguish between propaganda, as practiced
        by their communist predecessors, and public persuasion, which is the essence of any successful democratic leadership.”51

These politicians could not use their political parties to link them with the electorate because the parties were weakly institutionalized and unstable. Weak democratic links pose an inherent danger to new governments. This threat was described in an article by Tom Mackie, a Senior Lecturer at the University of Strathclyde. He wrote:
         “This creates conditions which may lead to the gradual alienation of citizenry from the regime and offers an opportunity for anti-system parties and movements.”52
 
Because Poland lacks a connection between the citizen and the state, it also lacks a civil society. According to Jiri Pehe, the director of the Research and Analysis Department at the Open Media Research Institute in Prague, Poland has not fully grasped the “democratic spirit.” He classified Poland into one of the post-communist states that has: “not full managed to ‘populate’ the new democratic institutions with a true respect for the rule of law and basic principles of democratic behavior.”

Pehe said a civil society develops gradually as citizens join civic associations and institutions that represent their values. Citizens become encouraged only after they gain small victories with political influence. 

The Catholic Church

One institution that has stayed involved in Polish politics is the Roman Catholic Church. During the 1980s, it served as a catalyst to the demise of communist control.54 When the system collapsed in 1989, the existing structure and organization of the Church enabled it to exert considerable control over the new government. Time magazine said “the Church emerged triumphant, solidly allied with an administration it had all but installed.”55
 
Over the past few years the Church’s popularity has declined as public opposition to it grew. A public opinion poll taken during the last presidential election showed that three quarters of the survey group thought “the Church should not try to influence the election result.”56 Although the Church tried to distance itself from its candidate, Lech Walesa, many analysts blamed the Church for his election loss.
 
Since that time, the Church has tried to reassert its influential role in Polish politics. It has derived power by persuading politicians, rather than consolidating the public’s interest. According to a 1991 poll:

        “The Church is perceived as the single most powerful national institution, stronger than the government, the presidency, the military,
        the old communist nomenklatura and even Solidarity.”57  

Although its campaigns effect domestic issues like abortion, the separation of church and state and religious instruction in public schools, it is motivated by larger issues. Timothy Byrnes explained why the Church wants greater influence in Poland:
 
“They want an authentically Catholic Poland to serve as an instrument of the re—evangelization of the Orthodox East, and as a spiritual and moral exemplar to the secular West.”58
While the Church does not advocate the isolation of Poland, it cautions against integrating into a “purely economic or political vision of European union.”59 In a speech given to Polish bishops in 1993, Pope John Paul II said:
 
        “The so-called entering of Europe cannot be reached at the cost of giving up the rights of health and consciousness in the name of wrongly understood tolerance and pluralism.”60

The Casualties of Reform

Another viable political force, the peasants, asserted their dismay throughout the transition. Because the farmers account for 40 percent of the electorate, they represent considerable influence in Polish politics.61 They were hit the hardest by reforms because their market disappeared at the same time their subsidies were removed. In effect, they had falling incomes and rising costs. In 1990 private farming was near the “brink of collapse.”62
 
Farmers were unable to support themselves after the Soviet Union collapsed and their market disappeared. To make matters worse, the European Community had trade barriers that restricted imports of agricultural goods.63 In 1992 the president of the European Bank for Reconstruction and Development (EBRD) warned that if the European Community (EC) did not import agricultural products, “the dangers are huge.”64
 
If he was indicating a political shift to the left, his prediction was accurate. In 1993 the Polish Peasant Party (PsIL) shifted its alliance to form a coalition with the former communist party, the Democratic Left Alliance (sLD).65 The combined parties won two-thirds of the seats available in the lower house.66 The splintered right-wing parties lost their seats despite having won a total of 30 percent of the popular vote because a new law required parties to receive at least 5 percent of the vote.67
 
This political majority gave the coalition stability and strength after years of political infighting. Because the 1991 elections had divided parliament among 29 political parties, it had been unable to agree upon reforms. Consequently, the much needed privatization program and a new constitution were delayed The new majority triggered both hope for cohesion and fear of a return to the past. Although the former communists promised to continue democratic reforms, some spectators worried that they would fall back into old—style socialism.68

The Former Communists

Their trepidation was enhanced when Lech Walesa lost the 1995 presidential election to Alexander Kwasniewski, the leader of the SLD. Malcolm Forbes Jr. commented that the “stunning defeat” was the result of misguided Western economic advice.69 Kwasniewski appealed to the electorate with his pledge to deliver capitalism with liberal social policies.70 This pledge attracted both the entrepreneurs and the victims of the economic reforms.
 
Nevertheless, many analysts reported that Walesa’s defeat was primarily his own fault. One reporter criticized Walesa for his “erratic record” as president.71 Another article described Walesa’s “intellectual laziness and undisciplined approach to governing.”72 The Economist expressed the irony of his defeat best when it asserted:
“The Poles’ poll shows that the qualities needed to create a democracy are not those you need to govern one.”73
 
Walesa won a Nobel prize for his aggressive fight against communism during the 198Os. But his steadfast stubbornness conflicted with the democratic procedures during his presidency. In contrast to his abrasive style, Kwasniewski ran a savvy and sophisticated campaign.
 
In spite of Kwasniewski’s former ties to the communist party, his background did not obstruct his vision for capitalist reforms. He was quoted in 1995 as saying the following:
“Poland will never go back from the road of reform and democracy. I am prepared that within five years Poland will be a member of NATO.”74

Eight Years into Reform

President Kwasniewski and the SLD majority in parliament have maintained their commitments to keep Poland on a capitalist road. They developed a new economic plan called the “Strategy for Poland.” With this plan, they intend to restructure heavy industry and telecommunications, and privatize the oil, chemical and banking sectors. They plan to finance the pension and socialsecurity system with the sale of the state industries.75 Although these reforms are likely to cause further costs for certain sectors of society, as a whole, the reforms should be sustainable for most citizens. The private sector now employs more than 62 percent of Poland’s total labor force.76 It continues to prompt economic growth.
 
Privatization will, not only continue to create more efficient industries, but will also contribute to the creation of a civil society. A concentration of power between the state and industry inhibits real competition and, in effect, prevents the growth of a pluralistic society. Poland’s development of citizen interest groups that are backed by political education has been weak so far. However, this development is a long-term process. Over time, civic groups and political parties will probably counter the few, dominant groups that influence Polish politics today.
 
A core of technocrats in the Finance Ministry have maintained a sound fiscal and monetary policy despite the frequent turnovers in the government. Inflation and interest rates have been dramatically reduced since the beginning of the reforms. Furthermore, Poland fulfilled the Maastrict Treaty criterion of a public deficit under 3 percent for the fourth year in a row in 1g96.77 This momentum has proven Poland’s commitment to gain membership in Western institutions like the European Union (EU) and the North Atlantic Treaty Organization (NATO).

Conclusion

While Poland has made great strides toward marketization and democratization, only membership in the EU and NATO can validate and strengthen Poland’s achievement. Ironically, a large portion of Poland’s fate depends upon the West’s ability and desire to follow through with its commitment to include East Central European states into these institutions. Both institutions continue to reassert their plans to expand, but significant questions remain.
 
Can the EU afford to enlist new members or will the EU be stretched to its limits? Can NATO members pay for enlargement? It has been estimated that the overall cost of NATO enlargement would be $35 billion over 13 years.78 Perhaps, more importantly, can NATO convince Russia that expansion is not a threat?
 
Before expanding, both institutions will have to redefine their internal structures and their institutional goals. Even if NATO and the EU overcome political controversies and include new members, these institutions will have to be able to assure the states of equal membership.
 
Poland is a good candidate for membership because of its large size, stability and progress with its reforms. Poland’s agreements with the IMF have proven the country’s ability to work with democratic institutions. Now that it has advanced through the transitional stages of democratization, it is strong enough to be a contributing member of the EU and NATO.
   

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23. ibid.
24. note 20 above.
25. ibid.
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27. note 10 above.
28. ibid.
29. ibid.
30. ibid.
31. ibid.
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33. note 11 above.
34. Greenhouse, S. (1990, Oct. 29). Old communist ways slow Polish capitalism. The New York Times, Sec D, p.4
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36. Poland plans to sell off state—owned industries. (1990, July 14). The Los Angeles Times, Sec A, p.17
37. note 10 above.
38. ibid.
39. ibid.
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43. ibid.
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45. note 1 above., p.360
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51. note 48 above.
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55. ibid.
56. Ash, T.G. (1996, Jan. 11). ‘Neo-Pagan’ Poland. New York Review of Books, 43, pp.10-14
57. note 54 above.
58. Byrnes, T. (1997). The Catholic Church and Poland’s Return to Europe. East European Quarterly, 30, Pp.433-447
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59. ibid.
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66. note 63 above.
67. Sikorski, R. (1996, Sept. 1). How we lost Poland. Foreign Affairs, 75, pp.15—22
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77. ibid.
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