The Polish Economy: Crisis, Reform, and Transformation

The Polish Economy: Crisis, Reform, and Transformation

by Ben Slay

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In 1989, Poland became the first Eastern Bloc country to shake off the dominance of its ruling Communist party. Although other post-Communist countries have since followed suit, Poland's experience has been unique in its move to Westernize. In this timely and insightful account, Ben Slay provides the first integrated, comprehensive assessment of Poland's economic

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In 1989, Poland became the first Eastern Bloc country to shake off the dominance of its ruling Communist party. Although other post-Communist countries have since followed suit, Poland's experience has been unique in its move to Westernize. In this timely and insightful account, Ben Slay provides the first integrated, comprehensive assessment of Poland's economic transformation from central planning to a market system, and the political and sociological factors that have contributed to it. Drawing on the work of Western and Polish scholars as well as his own research, Slay traces the evolution of the Polish transformation from its historical roots in People's Poland and predicts potential problems and successes facing the Polish economy.

A ground-breaking addition to the emerging study of post- Communist political economies, The Polish Economy demonstrates that other countries now struggling to join the West have much to learn from Poland's example. Of interest to scholars across the social sciences, this work provides general as well as professional readers with a compelling account of the realities behind one of the most important events of our time—the collapse of the Eastern Bloc.

Originally published in 1994.

The Princeton Legacy Library uses the latest print-on-demand technology to again make available previously out-of-print books from the distinguished backlist of Princeton University Press. These paperback editions preserve the original texts of these important books while presenting them in durable paperback editions. The goal of the Princeton Legacy Library is to vastly increase access to the rich scholarly heritage found in the thousands of books published by Princeton University Press since its founding in 1905.

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"It is Slay's rooting of modern Polish history in Poland's complex past and emphasis on the forces of continuity which distinguishes this analysis of a former communist economy from those whose framework is simply one of the transition from 'socialism' to 'capitalism', as though history began in 1948. As Slay shows, there is plenty in Poland's past which has echoes in the present.... This excellent and highly readable book offers a well-balanced assessment."Financial Times

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The Polish Economy

Crisis, Reform, and Transformation

By Ben Slay


Copyright © 1994 Princeton University Press
All rights reserved.
ISBN: 978-0-691-03616-8


The Polish Crisis and Polish Socialism

The rise of the Solidarity movement during 1980–1981, and the collapse of Soviet-style socialism in Poland after 1989, can be ascribed to many factors. The institutional inefficiencies of central planning and command management were certainly major causes, as was popular dissatisfaction with decades of misrule by the Polish United Workers' Party (PZPR). The economic policies pursued during the 1970s, which dramatically increased Poland's external indebtedness, also played an important role. These factors do not tell the whole story, however. Poland's economic and political institutions did not differ dramatically from those of other Soviet bloc countries, and Poland was only one of dozens of developing countries caught in the international debt trap during the 1980s.

Although by the late 1980s socialism was in crisis throughout the Soviet bloc, communist rule collapsed first in Poland. This was not a coincidence: Soviet-style socialism in Poland was in a state of crisis virtually from its inception in the late 1940s. The tensions afflicting People's Poland can in turn be linked to elements of Poland's historical experience before the postwar period. They can in part be ascribed to developments during the Second World War (1939–1945), the interwar period (1918–1939), and less directly to the era of the partitions (1795–1918), in which the Polish state essentially disappeared from the map of Europe. While these factors did not deterministically produce the collapse of Polish socialism, they form the historical context within which the rise and fall of People's Poland and the following transition to capitalist democracy are best understood.

The Polish-Lithuanian Commonwealth and the Partitions

During the Middle Ages the Polish Commonwealth was the Eastern bastion of Roman Catholicism. The Commonwealth was integrated with the rest of Europe through the Church, commerce, and dynastic intermarriage. For much of its history the Commonwealth was one of the largest, wealthiest, and most powerful European states. While few economic statistics from this period exist today, it is well accepted that economic development in agriculture, finance, mining, timber, and trade was relatively advanced. This was especially true in the years of the Polish-Lithuanian Commonwealth, also known as Poland's First Republic, following Poland's constitutional union with Lithuania in 1569.

The Commonwealth possessed relatively well developed traditions of civil society and gave broad political rights to the nobility, a group that included both landed magnates—who possessed vast landholdings, controlled rural life and stood at the apex of the Commonwealth—and the much larger and poorer (often landless) noble classes. The King or Queen was actually elected by the nobility as a whole. This function illustrated the nobility's passionate opposition to regal restrictions on its privileges. Legislation in the nobility's Sejm (parliament) was based on the principle of unanimity; a single nobleman could frustrate the will not only of the sovereign but also of the rest of the nobility through exercising his liberum veto. In the later years of the Commonwealth, the nobility, frequently acting at the behest of influential magnates, were often able to deny the sovereign the human, financial, and military resources necessary to rule effectively. From 1717 to 1773, for example, when the Commonwealth was larger in area and population than either France or Spain, it had no central treasury and a standing army of only 12,000 soldiers (Davies 1984, 1:511–513).

In many ways, the nobility's "golden freedom" served the Commonwealth well. It prevented the development of royalist absolutism, it attracted the allegiance of the nobility from a variety of lands between the Baltic and Black seas, and the Commonwealth's relative socioethnic tolerance provided a haven for Jews and others fleeing persecution in more authoritarian neighboring states. In fact, the Commonwealth's ability to loosely confederate a wide variety of national and religious groups can be regarded as one of its greatest successes. However, the constraints that the "golden freedom" imposed on the central government's ability to take decisive action in the face of external threat ultimately proved to be the Commonwealth's ruin.

The royal elections and the prerogative of a single nobleman to bring the machinery of state to a halt provided foreign powers with numerous opportunities to intervene in the Commonwealth's internal affairs. The rise of the Russian, Austrian, and Prussian empires was accompanied (and made possible) by their manipulation of strife and intrigue among the Polish-Lithuanian nobility. Attempts at reforming the political mechanisms that jeopardized the Commonwealth's interests were frustrated by foreign powers interested in the Republic's demise. Internal strife and a series of wars, the most devastating of which were with Sweden, loosened the Polish-Lithuanian hold on the Ukraine and the Baltic seacoast during the seventeenth century. These defeats weakened the Commonwealth's ability to defend itself against the designs of the Russian and Prussian empires. In 1772, 1793, and 1795 Russia, Prussia, and Austria subjected Poland-Lithuania to three partitions. Attempts at internal reform, such as the promulgation of the constitution of 3 May 1791, only stiffened imperial resolve to settle what became known as the "Polish question" more firmly. In 1795, the third partition essentially obliterated Poland from the map of Europe.

Polish history from 1795 to 1918 is thus a history of a people that began acquiring national consciousness while being divided between the Russian, Prussian (German), and Austrian empires. Poles in the German partition enjoyed the most advantageous socioeconomic circumstances; they benefited from the rapid German industrialization of the nineteenth century and until German unification, in 1871, experienced only moderate cultural germanification. By 1914, economic development had progressed furthest in the German regions, and many Poles migrated from the Austrian and Russian partitions to the German provinces of Silesia and Posen (Poznan) in search of opportunity.

In contrast to the German partition, where the scope of political and cultural autonomy was reduced during the course of the nineteenth century, Polish reformers in Galicja in the Austrian Empire were able to broaden the scope of local Polish control in the latter half of the nineteenth century, especially after the creation of the dual Austro-Hungarian Monarchy in 1867. Cracow attained a leading position in scientific and ecclesiastical affairs. However, as Polish culture prospered in the Austrian partition, economic development stagnated. According to a contemporary (1887) observer,

rural overpopulation in Galicja had outstripped that in all other parts of Europe, and was approaching levels prevalent in China and India.... some 50,000 people were dying each year as a result of near starvation conditions.... As compared with the standard of living in England at that time, the average Galician produced only one-quarter of the quantity of basic foodstuffs, ate less than one-half of the standard English diet, possessed only one-ninth of the Englishman's propertied wealth, and received barely one-eleventh of the English farmer's return on his land; yet he paid twice as high a proportion of his income in taxes. (Davies 1984, 2:145)

Grinding poverty in Galicja helped produce a number of bloody peasant revolts and exacerbated tensions between Poles, Ukrainians, Ruthenians, Jews, and other ethnic and religious groups. It also produced large migrations of Polish peasants to the German partition, to other German and European states, and, in the nineteenth century, to the Americas.

Poles in the Russian empire faced political oppression from the tsarist autocracy, russification campaigns focusing on Polish culture and Catholicism, and often stifling imperial controls over economic life. The suppression of Polish politics and culture was strongest in the Russian partition, especially following the death of Tsar Alexander I, in 1825. The assertion of tsarist absolutism by Nicholas I ("the gendarme of Europe") and his successors in turn incited the Poles to open rebellion in 1830–1831 and 1863. Both uprisings were brutally suppressed. On the other hand, because of their close proximity to Europe at the Russian empire's western edge, protective tariffs, and a high level of economic development relative to the rest of the Russian empire, Polish cities like Warsaw and Lódz became important commercial and industrial centers. The abolition of serfdom, in 1861, was followed by a more lenient attitude toward private enterprise, and the Polish lands in the Russian partition experienced agricultural and industrial revolutions of sorts, especially during the last decades of the nineteenth century.

Despite these differences, Poles in the three empires shared a number of experiences. The power of the landed magnates and the nobility was reduced and economic life became subject to firmer central state control. When the agricultural and industrial revolutions began to take hold in the nineteenth century, the degree of state direction was greater than in Britain or the United States, and probably greater than would have been the case if the relatively decentralized Polish-Lithuanian Commonwealth had been preserved. Because of this, when economic modernization came to Poland it was often directed by state institutions that regarded Polishness with indifference or hostility.

More specifically, economic development in the lands of the former Commonwealth was distorted by the borders now crisscrossing it. The partitions turned much of the Polish territories into borderlands in each of the three empires that were relatively vulnerable to military attack. This vulnerability made the imperial authorities reluctant to locate important industries or transportation and communication facilities in the Polish lands. The lack of political sovereignty affected the economic sphere, since policies that failed to promote (and at times persecuted) Polish businesses were also obstacles to economic development. The division of Poland into thirds reduced the size of Polish markets within each partition relative to their pre-1772 size. This made capturing economies of scale more difficult for entrepreneurs wanting to service the Polish community within each partition. Large-scale economic ventures were often conducted with non-Polish capital, often under imperial guidance or control. The borders dissecting what had been the First Republic provided Poles with greater opportunities for enrichment through smuggling, arbitrage, and speculation than would otherwise have been the case. Entrepreneurship, as it developed during the partitions, thus contained large measures of conspiracy and corruption.

Politically, Poles during the nineteenth and early twentieth centuries faced the dilemma of reconciling their increasingly well defined Polish national consciousness with their citizenship in one of the partitioning states. Polish nationalism in its modern form thus began to take shape at a time when the Polish state in which Poles could be Polish citizens was either dysfunctional or nonexistent. The conflict between Polish nationalism and non-Polish citizenship forced individuals to adopt one of three postures: loyalism, conciliation, or insurrection (Davies 1984, 2:29–60).

Loyalists essentially adopted the world view of their overlord, (re) casting their ethnic identity to correspond to their Russian/German/Austrian citizenship. Insurrectionists thus branded the loyalists as collaborators and traitors, while the authorities regarded loyalists as models for russification or germanification. Insurrectionists, by contrast, viewed themselves as Poles first and foremost, and generally refused to acknowledge the finality of either their non-Polish citizenship or the destruction of the Polish state. In the context of emerging nations in the nineteenth-century empires, this romantic nationalism made the insurrectionist a revolutionary who often rejected as collaboration all forms of compromise with or participation in official political life. Insurrectionism in turn provoked a harsh reaction from the authorities, who, especially in the Russian partition, often punished the population to a degree quite disproportionate to its support for the insurrectionists' programs and methods.

Conciliators occupied the center. While sharing many of the insurrectionists' goals of independence and self-determination, the conciliators adopted more moderate, pragmatic programs for attaining them, emphasizing cooperation with the authorities when it served national ends. In taking the long view, the conciliators hoped to salvage as much of Polish nationhood as possible, both before and after Poland's eventual release from imperial bondage. Conciliation was responsible for much of the socioeconomic progress made during the partitions, especially in such areas as education.

These world views made a deep imprint on Poland's national consciousness and had important implications for Polish political and economic life after the recovery of statehood in 1918. The legacy of insurrectionism, which was linked to certain elements of the nobility's preparation "golden freedom," hindered the development of a democratic political culture based on moderation, conciliation, and compromise. The loyalist tradition tended to equate dissent and opposition with conspiracy and sedition. These polarizing tendencies were reinforced by the crucible of the Nazi and Soviet occupations during the Second World War and by Poland's postwar subjugation to the Soviet Union.

These historical trends did not by themselves determine the path of Poland's economic and political development, of course. Nor were they unique to Poland, since the national consciousness of other Central and Eastern European nations developed under broadly similar circumstances in the late nineteenth and early twentieth centuries. Still, these trends did structure the historical context in which modern Poland emerged. The tensions evident in this structure, especially in the effects of the loss of statehood on Poland's economic development and in the political culture that formed during the awakening of modern Polish national identity, are important in understanding post-1918 developments.

The Rise and Fall of the Second Republic

Poland reemerged as a nation-state in 1918 with the collapse of the Russian, German, and Austrian Empires at the end of the First World War; its exact borders and population were determined by a series of military campaigns, treaties, and plebiscites from 1918 to 1921. The war and its aftermath had devastating economic consequences for Poland. More than 80 percent of the land area subsequently included in the Second Republic had been contested during the war and destructive battles were fought on more than 20 percent of what became Polish territory. Confiscation and expropriation by passing armies of everything from foodstuffs to industrial plant and equipment was common. According to one estimate, 11 percent of Polish assets, 18 percent of its housing stock, more than 1.5 million farm buildings, and one third of the country's livestock were destroyed in the war (Taylor 1952, 12). More than one million Poles are thought to have perished, and 3.6 million were involved in migrations during the period 1914–1918 (Kostrowicka and Przeciszewski 1989, 36–37).

The Second Republic was the phoenix that arose from these ashes. Despite the fact that it possessed only 35 percent of the territory included within the 1772 frontiers (Taylor 1952, 4), the Second Republic was the sixth largest European state in area. It was decidedly multiethnic: according to the 1921 census, national and ethnic minorities (primarily Ukrainians, Jews, Belarussians, and Germans) constituted approximately 30 percent of the general population and over 60 percent of the population in some of Poland's Eastern districts. More than one million ethnic Poles remained outside the new borders, primarily in Germany. The Polish economy in 1921 was overwhelmingly agricultural: 74 percent of the population lived in villages and 53 percent were classified as peasants (27 percent were classified as workers, 11 percent as small entrepreneurs, and 5 percent as intellectuals). The magnates continued to dominate the countryside, with 0.3 percent of the population owning more than 40 percent of the land (ibid., 33–34); the nobility's position was only marginally affected by the land reform of 1925 (Davies 1984, 2:410). Overpopulation and poverty haunted poorer farmers, many of whose farms were too small to be efficiently mechanized. Not surprisingly, peasant strikes and rural unrest were common in the Second Republic.


Excerpted from The Polish Economy by Ben Slay. Copyright © 1994 Princeton University Press. Excerpted by permission of PRINCETON UNIVERSITY PRESS.
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