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Poland THE ECONOMY UNDER THE COMMUNIST SYSTEM
After World War II, a centrally planned socialist
system was
transplanted to Poland from the Soviet Union without any
consideration for the differences in the level of
development of
the country, or its size, resource endowment, or cultural,
social, and political traditions. The inadequacies of that
system
left Poland in an economic crisis in the late 1980s.
System Structure
The new system was able to mobilize resources, but it
could
not ensure their efficient use. High but uneven rates of
growth of the net material product
(NMP--see Glossary), also
called "national income" in Marxist terminology, were recorded
over a
rather long period. However, these gains were made at the
expense
of large investment outlays. Lacking support from foreign
capital, these outlays could be financed only by severe
restriction of consumption and a very high ratio of
accumulation
(forced saving) in the NMP.
During the communist period, the same cycle of errors
occurred in Poland as in the other state-planned
economies. The
political and economic system enabled planners to select
any rate
of accumulation and investment; but, in the absence of
direct
warning signals from the system, accumulation often
exceeded the
optimum rate. Investment often covered an excessively
broad front
and had an over-extended gestation period; disappointingly
low
growth rates resulted from diminishing capital returns and
from
the lowering of worker incentives by excessive regulation
of
wages and constriction of consumption. Planners reacted to
these
conditions by further increasing the rate of accumulation
and the
volume of investment.
Investment funds mobilized in this wasteful way then
were
allocated without regard to consumer preference. Planners
directed money to projects expected to speed growth in the
economy. Again, considerable waste resulted from
overinvestment
in some branches and underinvestment in others. To achieve
the
required labor increases outside agriculture, planners
manipulated participation ratios, especially of women, and
made
large-scale transfers of labor from rural areas. Shortages
of
capital and labor became prevalent despite government
efforts to
maintain equitable distribution.
An example of inefficient state planning was the unpaid
exchange of technical documentation and blueprints among
Comecon
members on the basis of the Sofia Agreement of 1949. The
countries of origin had no incentive to make improvements
before
making plans available to other members of Comecon, even
when
improved technology was known to be available. For this
reason,
new factories often were obsolete by the time of
completion. In
turn, the machines and equipment these factories produced
froze
industry at an obsolete technological level.
The institutional framework of the centrally planned
economy
was able to insulate it to some extent from the impact of
world
economic trends. As a result, domestic industry was not
exposed
to foreign competition that would force improvements in
efficiency or to foreign innovations that would make such
improvements possible. Above all, the isolation of the
system
kept domestic prices totally unrelated to world prices.
Prices were determined administratively on the basis of
costs
plus a fixed percentage of planned profit. Because every
increase
in production costs was absorbed by prices, the system
provided
no incentive for enterprises to reduce costs. On the
contrary,
higher costs resulted in a higher absolute value of
profit, from
which the enterprise hierarchy financed its bonuses and
various
amenities. When the price was fixed below the level of
costs, the
government provided subsidies, ensuring the enterprise its
planned rate of profit. Enterprises producing the same
types of
goods belonged to administrative groups, called
associations in
the 1980s. Each of these groups was supervised by one of
the
industrial ministries. The ministry and the association
controlled and coordinated the activities of all state
enterprises and defended the interests of a given
industry. The
enterprises belonging to a given industrial group were not
allowed to compete among themselves, and the profit gained
by the
most efficient was transferred to finance losses incurred
by the
least efficient. This practice further reduced incentives
to seek
profits and avoid losses.
In this artificial atmosphere, prices could not be
related to
market demand; and without a genuine price mechanism,
resources
could not be allocated efficiently. Much capital was
wasted on
enterprises of inappropriate size, location, and
technology.
Furthermore, planners could not identify which enterprises
contributed to national income and which actually reduced
it by
using up more resources than the value added by their
activities.
The inability to make such distinctions was particularly
harmful
to the selection of products for export and decisions
concerning
import substitution, i.e., what should be produced within
the
country rather than imported.
Data as of October 1992
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