About the journey of Economic planning in poland

1. CSS GD
Economic
Planning in
Poland

2. INTRODUCTION
In 2019 Poland celebrated the 30th anniversary of political and economic
transition. Although, 1989 was a year of unprecedented changes, the
transformation of the economic system, which includes the development of
different institutions, did not happen at once. Instead, it was a long-term process
initiated at the beginning of communism in 1944. This paper is an attempt to
analyze the development of Polish economic system since the early days of
centrally-planned economy until 2019. A special focus is given to the key
policies introduced by each government which were determining the
institutional arrangements in different periods. The analysis includes also the
effects of those changes on the country’s economic performance and well-being
of the society. As the information presented in this paper comes from a variety of
sources, it includes opinions on those effects presented by different economists
which are not always coincident. In such cases both views are being discussed.
The last part summarizes the characteristics of main institutions shaping Polish
economy in three different periods of time.

3. Contents
CHAPTER 1 ; INSTITUTIONAL AND ECONOMIC DEVELOPMENT OF
POLAND BEFORE 1989
1.1 A short historical perspective of pre-war Poland
1.2 Economic, social and political changes in post Second World War Poland
1.3 The performance and evolution of communist economy in Poland
CHAPTER 2; FROM 1989 TRANSITION TO THE EU MEMBERSHIP
2.1 The “shock therapy”
2.2 The “Strategy for Poland” and privatization of large SOEs
2.3 Economic slowdown an accession to the EU
CHAPTER 3; POLAND’S DEVELOPMENT OF THE LAST 15 YEARS:
NEOLIBERALISM VERSUS STATE-LED CAPITALISM
3.1 The first government of “Law and Justice”
3.2 Eight years of “Civic Platform” rules – the return of neo-liberalism
3.3 The new state-led capitalism of “Law and Justice”
CONCLUSION

4. CHAPTER 1; INSTITUTIONAL AND ECONOMIC
DEVELOPMENT OF POLAND BEFORE 1989

5. 1.1 A short historical perspective of pre-war Poland
✤Pre-war Poland was characterized by extractive political and social institutions created
by the nobility in the end of the XV century when the so-called “Golden Age” of the
Polish-Lithuanian Commonwealth began.
✤In the largest European country at that time, elites monopolized power enslaving the
peasants (80% of the population) and preventing the city bourgeoisie from growing by
restricting trade only to foreigners.
✤Agriculture was the dominant sector in the economy.
✤However, the aristocracy was not interested in developing other sectors and focused
only on noncommercial activities, especially those connected with patriotism and wars.
✤Public administration almost did not exist and the state had only symbolic tax revenues
(Korys, 2018).
✤ Thus, despite many spectacular military successes, the country collapsed at the end of
the XVIII century.

6. 1.2 Economic, social and political changes in post Second
World War Poland
✤The core of the system became a centrally planned economy which combined public ownership with
state coordination through directives.
✤the new Soviet-dependent government announced the rebuild of the country starting the biggest
industrialization in Polish history and moving significant amounts of labor from agriculture to the
secondary sector.
✤The structural change in the economy was also influenced by the move of the borders around 350 km
from the East to the West.
✤ Communism replaced pre-war elites, that had been managing extractive institutions for centuries,
with a new classless society (Piątkowski, 2018).
✤In 1944 a new agrarian reform was introduced, confiscating all landholdings of more than 50 ha and
distributing them among peasants.
✤Moreover, free, public and compulsory primary education was introduced.
✤In the 1960s over 20% of pupils attended secondary education (compared to less than 1% in 1938)
(Piątkowski, 2018: 101).
✤Communists created also a kindergarten system covering 90% of kids aged 3-5.

7. 1.3 The performance and evolution of communist economy in
Poland
✤During the 1950s the economic performance of communist Poland was similar to
capitalist European states.
✤Fast industrialization was the main driver of economic growth.
✤ Poland was also the only country in the soviet bloc that avoided farm collectivization.
✤The growth began to slow down in the 1960s showing the failures of the centrally planned
communist system.
✤The raise of food prices in 1970 caused wide protests of workers, bloodily suppressed by
Gomulka’s administration. In consequence, he was replaced by Edward Gierek in the
position of the First Secretary.
✤Under Gierek’s regime, the communist economic structure was widely transformed.
✤Control over resources was switched from the central party supervision to ministries and
industrial associations.
✤Polish economy in 1971-75 made a great progress modernizing faster than any other
Eastern European country (Poznański, 1996).
✤The costs of this were being paid by constant budget deficits and hidden inflation. When
in 1976 the authorities decided to finally rise prices, big protests forced them to withdrew
from this idea (Morawski, 2018).

8. ✤The period of 1980-89, called also “the lost decade” was characterized by unprecedent institutional
changes.
✤In August 1980 the Independent Self-Governing Trade Union “NSZZ Solidarność” was established.
Shortly after that, the new government of general Jaruzelski gave the authority over enterprises to
workers collectives.
✤The government also passed regulations allowing the creation of private businesses and creating the
largest private sector in Eastern Europe. With pro-marked reforms, the communists wanted to move
from a planned market-type socialism to a market system where central planning was to be used only in
determining long term goals.
✤The martial law introduced in December 1981 allowed Jaruzelski’s administration to significantly raise
prices.
✤In 1986 Poland joined the World Bank and the IMF and introduced an anti-monopoly law.
✤During 1987-1989 the monetary policy was reformed, giving independence to the central bank that
was separated from its regional branches (those became commercial banks).
✤In 1989, the last communist government of Mieczysław Rakowski freed half of the prices and passed
the famous law “ustawa Wilczka”. This short act composed of only 55 articles until today has been
being praised for its simplicity and liberty that gave to the entrepreneurs.
✤Finally, in early 1989 the foreign exchange market was partly liberalized and the economy was opened
to inflows
of FDI.

9. CHAPTER 2; FROM 1989 TRANSITION TO
THE UE MEMBERSHIP

10. 2.1 The “shock therapy”
✤The first democratic government established in September 1989 with Tadeusz Mazowiecki as Prime Minister
had to face a task that no country made before: a full transition from communist to freemarket economy.
✤The Minister of Finance Leszek Balcerowicz with the help of the American economist Jefferey Sachs established
a plan to restore macroeconomic stability challenged by hyperinflation and to “catch up with the West” in the
long term (Balcerowicz, 2014: 23).
✤Central bank financing of budget was banned. Subsidies to enterprises and farm producers were eliminated and
corporate tax was extended to all state-owned companies. Privatization of small firms was initiated and an anti-
monopoly agency was set up. Indexation of wages was revoked and a tax on excessive wage growth introduced.
✤Finally the “Balcerowicz plan” included at a later stage the introduction of a stock exchange and privatization of
large SOEs (Jackson, 2005; Morawski, 2018; Piątkowski, 2018). As the reforms were implemented at an
unprecedent speed, they began to be called “shock-therapy”.
✤ Balcerowicz believed that because of the initial fatal macroeconomic conditions such fast approach was needed,
without prior focus on building institutions or securing the short-term wellbeing of the society (Balcerowicz,
2014). The plan came in force on January 1st 1990.
✤The post-transition recession was deepened with a 18% decline of GDP during 1990-91 (Piątkowski, 2018).
Unemployment grew from 0% to 16% in 1993 and real wages decreased by over one quarter (Jackson, 2005).
Domestic market was left unprotected and many companies did not withstand the competition from Western
multinationals.
✤In 1992 the economic activity revived and the GDP started to grow again. In this success the new domestically
owned private companies, which became the main driver of national growth, played largely more significant role
than already existing privatized enterprises (Jackson, 2005: 28). Finally, during 1991-94 most countries
agreed to cut by half Polish foreign debt inherited from the communist times in turn for introducing IMF backed
reforms.

11. 2.2 The “Strategy for Poland” and privatization of large SOEs
✤The social impact of radical economic policies led to a change of government in 1994
elections.
✤The new centrist-left government with Grzegorz Kołodko as Minister of Finance
developed a plan called “Strategy for Poland”. Its main objective was the reduction of
social costs of the transformation and further institution-building to prepare the country
for EU accession.
✤The period 1994-97 was characterized by the fastest growth of GDP in the whole post-
transformation period, exceeding 6% a year.
✤At the same time unemployment fell by one third and inflation by two thirds. Domestic
savings have been increased and export widely promoted. Those policies were going to set
the foundations for a long term development.
✤In 1996 Poland joined the OECD. One year later it approved the new constitution with
an important 60% of GDP limit of public debt. An significant labor reform was conducted
too, which aimed to decentralize the wage bargain system and put the government in a role
of negotiator between the employees and employers (Kołodko, 1994).

12. ✤One of the most controversial topic in Poland’s transformation is the privatization of large SOEs
that started in 1996.
✤In effect, Polish privatization did not produce oligarchs as in Russia and helped sell the
enterprises at prices closer to market values. Finally, IPOs helped Warsaw Stock Exchange to
become the largest stock market in the region.
✤Firstly, by excessive interest rates which made the companies unable to pay off their credits and
then by selling the best performing SOEs to foreign investors who transformed them into their
peripheral subsidiaries (Zagóra-Jonszta, 2017).
✤In consequence, the massive sales of Polish factories and banks did not only bring small revenues,
but also deprived the state budget from future income.

13. 2.3 Economic slowdown an accession to the EU
✤There is no consensus regarding the rationality of Balcerowicz’s policies who
became again minister of finance (1997-2000) and then president of the National
Bank of Poland (2001-2007).
✤His restrictive monetary policies with the objective to calm down the “overheated”
economy inherited by Kołodko decreased economic growth almost leading the
country into recession in 2001 and doubling unemployment to nearly 20%.
✤Both Piątkowski (2018) and Kołodko (2014) condemns this neoliberal policy as
completely unnecessary, however Morawski (2018) claims that it helped Poland
avoid the negative impact of Russian and Asian crises.
✤The 2001-04 left-wing government partially restored economic growth and
focused on reforming institutions, an indispensable process to access the EU.
✤In a referendum organized in 2003 75% of citizens voted in favor of joining the
European community.

14. CHAPTER 3; POLAND’S DEVELOPMENT OF THE
LAST 15 YEARS: NEOLIBERALISM VERSUS STATE-
LED CAPITALISM

15. 3.1 The first government of “Law and Justice”
✤Shortly after the EU accession, new elections were held.
✤In 2005 the government of post-Solidarity “Law and Justice” headed by Prime Minister
Marcinkiewicz secured a huge sum of 63bln euro from the EU budget for the years
2007-13 (Morawski, 2018: 29).
✤The short period between EU accession and the global financial crisis was also
characterized by important changes in internal policy.
✤The Law and Justice government, with Zyta Gilowska as minister of finance and key
figure at that time, introduced unprecedent tax cuts. Those included a significant
reduction of the corporate tax as well as cuts of pension contributions and social security
contributions payed by the employees. They were followed by decreases of VAT in the
construction sector and taxes on biofuels. Some taxes were completely abolished, as the
inheritance tax for close family members and the 10% duty on cosmetics.
✤ The government introduced also some smaller social benefits – an allowance on child
birth and a child bonus of 1200zł (around 300 euro) a year.
✤The minister of finance pursued a very stable monetary and fiscal policy, cutting the
budget deficit by half, which had a crucial impact on the performance of the economy
during the 2008 crisis.
✤It is important to notice that in 2006 and 2007 Poland again experienced a very high
economic growth of 6,2% and 7% respectively.

16. 3.2 Eight years of “Civic Platform” rules – the return of
neo-liberalism
✤Due to disagreements in the government coalition, in 2007 a new elections were called in
which the Civic Platform of Donald Tusk, an economically liberal post-Solidarity party,
gained power.
✤Poland was the only EU country that avoided recession, although the growth decreased to
less than 2% in 2009.
✤The main reasons that contributed to the remarkably good performance included: very
good fiscal condition inherited from Zyta Gilowska, adequate policies led by Minister of
Finance Jacek Rostowski and NBP president Sławomir Skrzypek which ensured
macroeconomic stability, weakening currency which boosted exports, large inflow of EU
funds since 2007, a healthy banking sector that did not need to receive any financial
support and the presence of domestic owned banks that provided credit when the
dominating foreign-owned limited its lending.
✤After surpassing the crisis the government created a propaganda myth of Poland as an
European “green island’ of economic growth and emphasized it with stability and security.

17. ✤Attracting FDI became a high priority.
✤Warsaw Stock Exchange was quickly recovering from the financial crisis. In 2015 the
market capitalization of all listed Polish companies achieved almost 40% of GDP.
✤In 2015 the market capitalization of all listed Polish companies achieved almost 40% of
GDP.
✤The gas terminal in Świnoujście, opened in 2015, allowed to diversify the imports of this
resource.
✤With the expected successful completion of the Baltic Pipe project in 2023 and a new
floating gas station in Gdańsk being developed by the current Law and Justice government,
Poland is expected to become fully independent from Russian gas.
✤Social exclusion was forcing young people for a further emigration.
✤The reluctancy to limit junk contracts, the rise of retirement age and the idea of sending 6-
years old children to school decreased the popularity of the ruling party decreased the
popularity of the government.
✤In the consequence, in 2015 they lost both the parliamentary and presidential elections.

18. 3.3 The new state-led capitalism of “Law and Justice”
✤Donald Tusk’s party lost the elections due to its consequence in introducing Polish
neoliberalism,
✤Unlike the previous government, the new cabinet led by Beata Szydło, exchanged later for
Mateusz Morawiecki, was not reluctant with introducing several deep reforms.
✤During 4 years, the social policy was widely extended. The core programmes include 500+,
a one third increase in minimal pensions, 13th pensions, a 300zł voucher for children at the
beginning of each school year, subsidies to kindergartens and minimal pension for mothers
that raised minimum 4 kids and did not participate in the job market.
✤In parallel, with the influence of the “Solidarity” Trade Union in the government, the
monthly minimum wage was raised from 1750zł (430 euro) in 2015 to already approved for
January 2020 – 3000zł (750 euro).
✤An innovative solution introduced this year was the income tax exemption for young people
under 26 years old. This idea, with the objective to persuade young people not to leave the
country, allows them to earn almost 20% higher salary than their older counterparts doing
the same job.

19. ✤Although the ideological propaganda of the ruling party is religious-conservative, the
economic policy is ruled almost independently by the Prime Minister Mateusz Morawiecki,
✤Morawiecki’s “Strategy of the Reasonable Development” announced in 2017 is aimed to
boost the economic growth and help Poland escape the middle-income trap.
✤In the case of Poland, wide reindustrialization plans has been conducted since 2016, with a
slogan of rebuilding Poland’s industrial potential destroyed by the neoliberal transition.
✤New business-government partnership in key sectors of the Polish industry have emerged
and the state provides support for upgrading industrial processes in companies like the
cooper producer KGHM or the holding Polish Armaments Group that is benefitting from
historical value Polish-US offset agreements. One of the key sources of such support is the
newly created Polish Development Fund (PDF).It provides financial assistance for new and
existent Polish companies, acts as a shareholder in many SOEs and helps them to expand
abroad.

20. ✤The government began also renationalization, which aims to create strong Polish business
leaders. The most significant example is the government’s acquisition of the second largest
Polish bank Pekao.
✤As for December 2019 domestic companies had a major presence in the financial sector
with PZU as the biggest insurer holding alone 45% of the market and domestic banks
accounting for over 60% of the sector.
✤An important part of the “reasonable development” is also the regional policy. Poorer,
eastern Poland became a special beneficiary of this program.
✤Since 2017 the GDP growth increased to almost 5% and keeps its level above 4% year to
year. The rise of consumption connected with social policies was the main driver of this
change, however, according to the National Statistics Office, state investments are playing a
bigger role in the last few quarters.

21. CONCLUSION
The table below presents a summary of the main characteristics of institutions
forming Poland’s economic system in three different periods. The first, which I
named “Gradually-Reforming Communist Economy”, refers to the institutions
that emerged after the Second World War and were slowly but gradually evolving
due to events and policies described in chapter 1. The next column called
“Dependent Neoliberal Economy” describe the features of institutions developed
during the 1990s and 2000s when the biggest changes were introduced and
when neoliberal policy dominated, as described in chapter 2 and the beginning of
chapter 3. The last column – “Liberal State-led Economy”, presents the new
characteristics of Poland’s economic system that started to emerge since the
policy-switch in 2015 discussed in chapter 3.

22. Criteria
Gradually-
Reforming
Communist
Economy
1950 to 1989
Dependent
Neoliberal
Economy
1990 to the
beginning
of 2010s
Liberal State-
led
Economy
From 2015
Coordination
mechanism and
role the of
government
From centrally
planned economy to
planned market-based
economy (decreasing
role of government
coordination)
Liberal and
competitive market with
moderate role of
the government, in
some degree
dependent from
hierarchies in MNCs
Liberal and
competitive market as
main coordinator with
increasing role of the
government
Corporate
governance
– main sources of
raising
investments
State-owned banks,
foreign loans taken by
the state
Internally generated
funds for domestic
SMEs, FDI and foreign
bank lending for
MNCs, domestic stock
market and state
financing for SOEs
Mainly domestic bank lending
and domestic stock market, FDI
and
foreign bank financing for some
foreign
companies, state and EU
financing plays a relevant role for
some
new enterprises

23. Criteria
Gradually-
Reforming
Communist
Economy
1950 to 1989
Dependent
Neoliberal
Economy
1990 to the
beginning
of 2010s
Liberal State-
led
Economy
From 2015
Industrial
relations
Constantly growing
unionization,
increasing collective
bargaining power to
an extremely high
degree in the 1980s
when managers and
the government were
forced to closely
cooperate with
employees to reach
any major decisions
Very low unionization
in private enterprises
where wage
negotiations take place
at the company level.
Collective bargaining
only in the public
sector, where trade
unions of miners,
doctors, nurses,
teachers and railway
workers have a
significant degree of
bargaining power.
The same as in the
previous period
with the addition
that the government
plays a key role in
wage fixing by
constant, significant
increases of the
minimum wage

24. Criteria
Gradually-
Reforming
Communist
Economy
1950 to 1989
Dependent
Neoliberal
Economy
1990 to the
beginning
of 2010s
Liberal State-
led
Economy
From 2015
Education
Vocational
apprenticeship for
industry-specific skills
more important than
general education
Decreasing importance
of vocational training,
increasing
participation in general
higher education
Education system
focused on general
skills, terciary
education with very
high rate of
participation
Transfer of
innovations
Key role of the
government in
providing cooperation
between industries
and introducing
innovations
Important role of FDI
in transferring
innovations and
increasing productivity
which benefits also
domestic firms
Since 2010 domestic
companies took the
lead in increasing the
share of technologically
advanced products
(PEI, 2019)

25. “As we are pursuing economic growth and economic development, we
have to make sure it happens with and by and for everyone. That
everyone gets opportunity.”
-Betsy Hodges
Th
ank Y
ou