Deep hole (was: desired abduction/Small Business Offer)

Carl Remick cremick at
Wed Jul 15 12:43:37 PDT 1998

Re John Rosser's report on the Polish economy: Impressive level of detail, but how reliable are these data?

-----Original Message----- From: Rosser Jr, John Barkley [mailto:rosserjb at] Sent: Wednesday, July 15, 1998 3:14 PM To: lbo-talk at Cc: lbo-talk at Subject: Re: Deep hole (was: desired abduction/Small Business Offer)


I take it that you are referring to recent developments in Poland? The answer is that it is for real, but comes with a lot of unpleasant baggage, unsurprisingly, which has manifested itself in the inability of any government from 1989 on in Poland being able to get itself reelected. Indeed, the syndrome, common in several other CEECs (Central and Eastern European countries) is to elect a government that promises to undo or resist the various strictures of the IMF and the harsher aspects of the recent reform processes, only then under pressure of the IMF and international capital more generally to go along with such programs, thus leading to its inability to get reelected some years later.

As of now, Poland may be the only country, with the possible exceptions of Slovenia and Albania, among the formerly Communist CEECS (note that neither Slovenia nor Albania were in the CMEA and thus did not suffer from the collapse of trade when the CMEA collapsed, although Slovenia took a trade hit when Yugoslavia broke up) to have achieved a per capita income level above what it had in 1989. And it does have a very high growth rate, around 6-7% per year. Several points, some positive, some negative:

1) This has been accompanied by a substantial increase in the inequality of income, although not as much as in Russia but more than in the Czech or Slovak Republics and about the same as in Hungary. Especial losers are the old and the rural, despite pensions being kept pretty high, although other social safety net spending has been reduced. The boom is largely urban and among the young.

2) There is a mid-teens unemployment rate, beginning to drift down slightly, but still pretty high for such a "booming" economy.

3) The original macro plan in 1989 was a "shock therapy" to break inflation, which did bring down the rate from hyper three digit levels to low two digit levels and included full convertibility of the zloty.

4) There is a significant similarity to the Chinese reforms, not frequently remarked upon (although it is in the book by Rosser and Rosser, 1996, :-)), that there was not a major privatization of the major state-owned enterprises (SOEs). Smaller ones were however. But as part of the shock therapy there was a major removal of subsidies to the remaining SOEs, that is, a hard budget constraint was imposed. This led some to shut down, thus exacerbating the unemployment problem. OTOH, the remaining SOEs have done reasonably well, much better than you would gather from reading the mainstream media, being moderately successful in exporting even in some sectors (helped by the devaluation of the zloty that happened in 1989, in contrast with what was done in the former GDR (aside to Michael P., a good source on my claims about Germany is Wolfgang Stolper, Karl Hauser, (and a third author) _The Economy of Germany from 1870 to the Present_, 1967, English translation available)).

As in the PRC the major growth has been among new firms that have grown up around the existing SOEs. Central planning did not need to be dismantled as it already had largely been during the 1980s. A difficult to quantify element is an alleged high degree of "entrepreneurship" among the Poles, who were heavily involved in a lot of the arbitrage trade across borders in the former CMEA after its collapse.

In short, the new economy has grown up around the old economy without dismantling the old one fully, although Balcerowicz now wants to privatize the major remaining SOEs. A major block is that they are since the Jaruzelski tried to offset Solidarnosc by allowing workers' management is precisely that the worker-managers tend to oppose it. Also, Poland has been much less open to FDI than many other CEECs, partly out of fear of German domination.

5) Agriculture is pretty much of a mess. The attempt to collectivize was withdrawn after the Poznan uprising in 1956 and the fear of the resistance of the very anti-Russian, anti-Communist, and pro-Catholic peasantry. But the private plots in Poland are inefficiently small and the problems of trying to keep both the urban workers and the rural peasants happy were a source of downfalls of Polish governments even under the Communists. This continues to be a real sore spot and the rural sector is hurting. Barkley Rosser On Wed, 15 Jul 1998 12:55:23 -0400 Doug Henwood <dhenwood at> wrote:

> Wojtek Sokolowski wrote:
> >If anything, it was 1989 - not 1945 -- when most EE countries stepped
> >a a very deep hole.
> What about Poland's alleged "boom"? Does anyone know what the real
story is?
> Doug

-- Rosser Jr, John Barkley rosserjb at

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