November 30, last updated
Today the success of this transition is evident—Poland is a middle income nation that enjoys a stable democracy and close integration into European state organizations. Despite its unnecessarily rushed introduction, shock therapy was successful because it was the right policy set at the right time for Poland.
Despite decades of stagnation and communist mismanagement, Poland already possessed the public institutions, infrastructure, high human development levels and proximity to world markets that were necessary to succeed in the world economy.
Introduction The Polish post-communist experience is unique. Despite facing formidable economic, political and social challenges upon democratization, today Poland is a developed nation that enjoys high levels of economic development and European integration, especially compared to its fellow Eastern European states.
However, this policy came at a cost.
The economic revolution sparked a deep and unanticipated recession that the architects of shock therapy were not prepared to address. This structure rested on two central pillars: State planners decided what goods and services would be produced in what quantities and Post communist eastern europe and polands market reforms and economy official prices for both raw materials and consumer goods Kondratowicz9.
In accordance with Marxist philosophy, the political and economic establishment placed a premium on manufactured goods—inheavy industry accounted for 45 percent of GDP, while services accounted for less than 15 percent Kondratowicz7. Additionally, state planners directly controlled the output of the industrial sector, preferring capital goods manufacturing over consumer goods Kondratowicz7a preference that led to the widespread shortages that were characteristic of Polish society Sacks While shortages and consumer good scarcity were common in communist nations, they were much more severe in Poland Adam Consumers responded to chronic shortages by establishing an extensive black market economy that ignored official price controls and regulation.
This unraveling was multifaceted. In an attempt to ensure low food prices for urban workers, the government elite maintained artificially low official prices for farm products.
This preference was rooted in both ideology and politics; Leninist political philosophy focused on industrial laborers and Polish communist leaders saw urban unrest as a greater threat than rural discontent. While this policy did ensure low food prices, it discouraged agricultural production and led to further shortages.
As a result, Polish leaders were forced to resort to wide publicly-funded subsidies that inflated the deficit Kondratowicz9. ByPolish national income began to fall as borrowing increased. A lack of private investment or enterprise prevented gains in international competitiveness; fixed prices removed incentives for efficiency gains and any attempt by the government to reduce services or raise artificially low prices were met by public riots Kondratowicz This situation could not last.
When policy makers were forced to relax the rigid controls over food prices inthe excess demand, stifled by restricted production, sent food prices skyrocketing and inflation immediately jumped by over percent Kondratowicz The Polish economic system had reached its breaking point.
This economy emergency coincided with looming political change. After the Soviet conquest of Eastern Europe, Poland existed in a strange political limbo, nominally independent but firmly controlled by Moscow. Spurred by growing economic stagnation, mounting inflation and the increasingly obvious ineffectiveness of the Communist leadership, democratic agitators, primarily trade unionists, became more and more militant in their demands for political revolution.
In the choice became clear to Polish Communists and their Soviet patrons: On June 4,democratic elections brought the reforming Solidarity union movement to power Sachs Shock Therapy Newly democratic Poland was forced to deal with the obstacles it had inherited from five decades of communist rule.
Inflation, unleashed by the relaxation of decades of artificial price controls, had reached percent in Slay Inescapable hyperinflation seemed poised to devastate the economy Sachsand national income and productivity were declining Jackson Chronic shortages deprived consumers of basic necessities Kondratowicz15 and the goods that were available became extraordinarily expensive.
Their response was simple: Poland would rejoin the European social model that its half-century detour of Soviet domination had led it away from. By adopting the privatized market economies and multiparty democratic government of its Western European neighbors, Poland hoped that it could quickly attain social and economic success.
Shock therapy, formally titled the Balcerowicz Plan after its primary architect Leszek Balcerowicz, was intended to rapidly reform the Polish economic structure from a centrally planned economy into a privatized market-based one.
While economic liberalization was the eventual goal, Polish policy makers first focused t on preventing the emerging menace of hyperinflation Poznanski The Balcerowicz Plan was a complicated blueprint for economic reform, but held five core macroeconomic and social changes Jackson Additionally, the government would no longer be able to finance budget deficits by printing money and raising the interest rate Swoada Additionally, the government committed to combating rampant tax evasion Poznanski This was done by reducing barriers to international trade, encouraging foreign investment and moving to establish the Polish currency, the zloty, as a convertible currency whose value changed in accordance with the world market Belka In addition to these strategies, shock therapy also included recommendations to privatize state-owned industries through auctions and direct sales, continuing social safety nets, ensuring continued employment for state-sector workers and adopting the social and governmental standards necessary for entry into the European community SachsA study of the market reforms in post-communist eastern Europe with a specific case study of Poland.
Introduction Poland, as well as it’s fellow post-communist countries, face an arduous task in re-inventing their economies to match the dominant Western style currently dominating the world. April 23, ECONOMIC REFORM IN EASTERN EUROPE A REPORT CARD INTRODUCTION It is over two years since Poland became the first East Empean nation to adapt de cisive free market economic reforms.
Eastern Europe's Postcommunist Transformations impact on policy design in post-communist countries that immediately adopted a liberal democratic trajectory with the goal of joining the EU.
A Study Of The Market Reforms In Post-Communist Eastern Europe With A Specific Case Study of Poland Introduction Poland, as well as it’s fellow post-communist countries, face an arduous task in re-inventing their economies to match the dominant Western style currently dominating the world. A Study of the Market Reforms in Post-Communist Eastern Europe Introduction Poland, as well as it's fellow post-communist countries, face an arduous task in re-inventing their economies to match the dominant Western style currently dominating the world.
The growth of SeCeS-Pol illustrates the powerful process that is driving economic reform at the enterprise level in postcommunist countries—a process we call “starting over.” After communism.