Balcerowicz Plan

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The Balcerowicz Plan (

central planning, to a capitalist market economy
. A group of experts, which they formed together with Balcerowicz, including Stanisław Gomułka, Stefan Kawalec and Wojciech Misiąg, in September 1989 created a reform plan based on an earlier idea of Jeffrey Sachs, and on October 6, an outline of this plan was presented to the public by Balcerowicz at a press conference broadcast by TVP.[1]

Named after the Polish minister and economist

Similar reforms
were made in a number of countries. The plan has resulted in reduced inflation and budget deficit, while simultaneously increasing unemployment and worsening the financial situation of the poorest members of society.

Background

The unofficial talks at

Polish Round Table talks of 1989 allowed for a peaceful transition of power to the democratically elected government. Initially, it was agreed that the government would be formed by Tadeusz Mazowiecki and the opposition, while the seat of the president of Poland would be given to former Polish United Workers' Party leader Gen. Wojciech Jaruzelski
.

The state of Poland's economy as of 1989 was dire.

Western creditors in 1981[3]. Food price increases introduced first in 1970s to preserve the basic cash flow led to social unrest and formation of mass Solidarity social change movement which, by early 1980s had over 10 million members. Desperate attempts to maintain the Marxian-style economy and internal opposition in the Party to any economic reforms that would break this status quo led to the introduction of martial law (1981-83) which further hindered economic growth and resulted in international sanctions. In 1982 the government imposed further large (up to 100%) price increases and significantly extended rationing of food and other basic goods.[2]

In the late 1980s, after 45 years of communist rule, Poland's economy was ineffective, paralyzed by central planning and discontent of poorly paid workers. The inflation rate had reached 639.6% and was constantly rising. Foreign debt reached $42 billion. The majority of state-owned monopolies and holdings were largely ineffective and completely obsolete in terms of technology.[4] Although there was practically no unemployment in Poland, wages were low and the shortage economy led to lack of even the most basic foodstuffs in the shops.[5]

Main article: Polish People's Republic § Economy

The plan

In September 1989, a commission of experts was formed under the presidency of Leszek Balcerowicz,

Premier of Poland. Among the members of the commission were Jeffrey Sachs, Stanisław Gomułka, Stefan Kawalec and Wojciech Misiąg. The commission prepared a plan of extensive reforms that were to enable fast transformation of Poland's economy from "obsolete and ineffective central planning" to capitalism, as adopted by the states of Western Europe and America.[7]

On 6 October, the program was presented on public television and in December the Sejm passed a packet of 10 acts, all of which were signed by the president on 31 December 1989.[6] These were:[citation needed]

  1. Act on Financial Economy Within State-owned Companies, which allowed for state-owned businesses to declare bankruptcy and ended the fiction by which companies were able to exist even if their effectiveness and accountability was close to none. Removed the guarantee of the existence of all state-owned enterprises regardless of their financial results and production efficiency, enabled the insolvency proceedings against unprofitable enterprises.
  2. Act on Banking Law, which forbade financing the state
    budget deficit by the national central bank
    and forbade the issue of new currency.
  3. Act on Credits, which abolished the preferential laws on credits for state-owned companies and tied interest rates to inflation.
  4. Act on Taxation of Excessive Wage Rise, introducing the so-called popiwek tax limiting the wage increase in state-owned companies in order to limit hyperinflation.
  5. Act on New Rules of Taxation, introducing common taxation for all companies and abolishing special taxes that could previously have been applied to private companies through means of administrative decision.
  6. Act on Economic Activity of Foreign Investors, allowing foreign companies and private people to invest in Poland and export their profits abroad, exempting enterprises with foreign capital from paying popiwek tax.
  7. Act on Foreign Currencies, introducing internal exchangeability of the
    złoty
    and abolishing the state monopoly in international trade.
  8. Act on Customs Law, creating a uniform customs rate for all companies.
  9. Act on Employment, regulating the duties of unemployment agencies. Formally sanctioning the existence of unemployment.
  10. Act on Special Circumstances Under Which a Worker Could be Laid Off, protecting the workers of state firms from being fired in large numbers and guaranteeing unemployment grants and severance pay.

In late December the plan was approved by the

US$1 billion and an additional stand-by credit of US$720 million. Following this, the World Bank
granted Poland additional credits for modernization of exports of Polish goods and food products. Many governments followed and paid off some of the former Communist debt (about 50% of the sum of debt capital and all cumulated interest rates to 2001).

Effects

The most visible change in 1989 was the end of food and basic goods shortages thanks to

better source needed
]

In the larger picture, the reforms drastically limited the state's influence over the economy. The plan released price-fixing for many products, allowing them to be decided by the market instead of the Central Statistical Office. Also, the internal debt was drastically limited by 3% of GNP by reducing state subsidies to coal, electricity and petroleum. Although inflation seemed to be out of control, the Polish economy gradually started to get back on track. By 1992, more than 600,000 private companies had been set up, providing jobs for approximately 1.5 million people.

Comparison of GDP per capita PPP of Poland and Ukraine in years 1990-2017

Poland's annual growth rate between 1989 and 2000 was the highest of all post-communist economies.

GDP per capita corrected by purchasing power parity, both countries started from the same level in 1990, but Ukraine's economy was developing much slower in subsequent years.[10]

Many aspects of the post-communist economy were a shock to society, for example sharp rise of prices on food that was previously officially sold at small, regulated prices even though it was in fact rarely seen in shops.

disputed – discuss]) but from a legal point of view they weren't bankrupt, since the concept of bankruptsy of a state-owned enterprise did not even exist in the communist legislation for ideological reasons, just as didn't unemployment.[11][failed verification
]

Balcerowicz reforms reintroduced these concepts to the Polish law to allow for restructurization and privatization, which resulted in a widespread perception that it was these reforms that were the direct cause for bankruptcy and unemployment.[

disputed – discuss
]

A number of left-wing and populist leaders criticized the reforms; most notably,

Samoobrona) party used the slogan "Balcerowicz must go" (Balcerowicz musi odejść).[citation needed
]

Dynamics of

USD
) in selected countries - "GGDC"

Year Poland Hungary Czech Republic Russia Ukraine Belarus Finland
1990 −9,68% −6,67% −1,20% −3,00% −3,60% −1,90% +0,01%
1991 −7,02% −11,90% −11,61% −5,00% −8,70% −1,40% −6,39%
1992 +2,51% −3,06% −0,51% −14,50% −9,90% −9,60% −3,81%
1993 +3,74% −0,58% +0,06% −8,70% −14,20% −7,60% −1,24%
1994 +5,29% +2,95% +2,22% −12,70% −22,90% −11,70% +3,94%
1995 +6,95% +1,49% +5,94% −4,10% −12,20% −10,40% +3,45%
1996 +6,00% +1,32% +4,16% −3,60% −10,00% +2,80% +3,79%
1990–96 +6,61% −16,11% −1,94% −41,94% −58,55% −34,29% −0,75%

Inflation at the end of year in selected countries

Year Poland Czech Republic Slovakia Hungary Bulgaria Romania
1989 640,0% 1,5% 1,5% 18,9% 10,0% 0,6%
1990 249,0% 18,4% 18,4% 33,4% 72,5% 37,6%
1991 60,4% 52,0% 58,3% 32,2% 339,0% 222,8%
1992 44,3% 12,7% 9,2% 21,6% 79,0% 199,2%
1993 37,6% 18,2% 24,8% 21,1% 64,0% 295,5%

Dynamics of employees number in selected countries - "GGDC"

Period Poland Hungary Czech Republic Russia Ukraine Belarus Finland
1990–96 −15,3% −26,2% −10,2% −12,3% −8,4% −16,1% −16,4%

Unemployment rate in selected countries

Year Poland Hungary Czech Republic Slovakia Bulgaria Finland
1991 12,2% 6,1% 3,8% 9,6% 8,5% 6,6%
1992 14,3% 11,8% 2,6% 10,6% 14,3% 11,7%
1993 16,4% 12,9% 3,2% 13,9% 15,7% 16,3%
1994 16,0% 10,9% 3,2% 14,5% 13,4% 16,6%
1995 14,9% 10,9% 3,1% 14,8% 14,1% 15,4%

See also

References

  1. ^ Lech, Lesław (20 January 2015). "Orłu Korona, Narodowi reformy". Retrieved 27 November 2020.
  2. ^ a b c Karolina Szamańska (2008). "Sklepy w czasach PRL" (PDF). Portal Naukowy Wiedza i Edukacja. pp. 13, 22–23 / 25. Archived from the original (PDF file, direct download) on 19 October 2014. Retrieved 15 October 2014.
  3. ^ "Agreements concluded with Paris Club | Club de Paris". www.clubdeparis.org. Retrieved 2019-12-19.
  4. ^ a b "W PRL gospodarka została sprowadzona na manowce". forsal.pl. 24 May 2012. Retrieved 2019-12-19.
  5. ISBN 1-891620-82-7
    .
  6. ^ a b c d "Przeklasa: Między Wilczkiem a Balcerowiczem". mises.pl (in Polish). 2018-05-04. Retrieved 2019-12-19.
  7. ^ "Why Poland and Ukraine took different post-communist paths | KyivPost - Ukraine's Global Voice". KyivPost. 2018-10-19. Retrieved 2019-12-19.
  8. ^ a b "Świąteczne zakupy 1989 r. (wersja do druku)". www.zw.com.pl. Retrieved 2019-12-19.
  9. ^ http://www.ggdc.net/dseries/totecon.shtml#top - Total Economy Database (in Excel) - Total GDP, in millions of 1990 US$
  10. ^ "Why Poland and Ukraine took different post-communist paths | KyivPost". KyivPost. 2018-10-19. Retrieved 2018-10-25.
  11. ^ "Setki tysięcy bezrobotnych. Czy w czasach PRL-u rzeczywiście każdy miał pracę?". TwojaHistoria.pl (in Polish). 4 October 2017. Retrieved 2019-12-19.

External links

  1. Privatization Barometer (Poland), the official provider of privatization data to OECD and the World Bank
  2. Poland's Protracted Transition: Institutional Change and Economic Growth, 1970–1994 (Series: Cambridge Russian, Soviet and Post-Soviet Studies) by Kazimierz Z. Poznanski (University of Washington)
  3. From Solidarity to Sellout: The Restoration of Capitalism in Poland by Tadeusz Kowalik
  4. Underwriting Democracy by George Soros
  5. (in Polish) "SOCJALIZM. KAPITALIZM. TRANSFORMACJA Szkice z przełomu epok" by Leszek Balcerowicz
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