comparative shockology

Michael Hoover hoov at freenet.tlh.fl.us
Tue Aug 24 14:28:08 PDT 1999



> Does anyone know a good article about why shock treatment worked in Poland
> but not in Russia? I mean in the most basic sense -- Poland went through
> three horrible years, and then she came out of it with a functioning free
> market that produced things. Which Russia still doesn't seem to have.
> Michael

I, admittedly, don't keep up with above as much as I once did, so I don't have an article suggestion, but the process of agricultural collectivization had been reversed after 1956 and so most farmland was in private hands. Also, many state-owned enterprises that were privatized after 1989 were small. And I don't know if Levi-Strauss' 1992 $20M investment in a jeans factory (bucking its trend of outsourcing production) has been common, but foreign investment was more likely to occur in Poland and former socialist-bloc countries that had convertible currencies (ruble was not). Western banks/governments did roll over Poland's foreign debt (highest among Eastern European socialist countries at one point but I don't recall whether or not they proved willing to reduce the size of that debt.

One of the contradictions of the first year of Polish 'shock therapy' was that living standards declined 25% and production fell 20% but stores win Warsaw and other cities were filled with goods and small- scale businesses were mushrooming. And hyperinflation brought on by 'reforms' was brought under control as the currency (zloty) began to stablizing. Of course, industrial workers bore the brunt of marketization/privatization and by mid-1991 the 'Solidarity' government was backing off its 'leap to the market' in order to stave off a popular rebellion. In early 1992, the government backtracked by guaranteeing farm prices and eliminating wage restrictions, implementing these measure by printing more money and running a budget deficit, in contrast to the austerity program the IMF established for Poland.

In the 1995 elections, communists (renamed Social Democrats) reclaimed the presidency, the executive branch, and the parliament amidst public disillusionment about continuing economic problems, corruption and incompetence. Even 60% of Polish entrepreneurs voted for them. While the new government did not alter the 'path taken' by its predecessor, the years 1990-95 offered evidence that it was not simply a matter of leaving things to capitalism's 'invisible hand' because getting 'the prices right' also meant rising unemployment and lower wages. Moreover, economic growth priorities exacerbated already existing environmental problems and raised public concerns (perhaps one or more listers knows whether or not there has been greater willingness to commit resources to address these problems in recent years). Michael Hoover



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