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Poland Causes of Decline
No single factor was responsible for Poland's
large-scale
decline in production and incomes in 1990 and 1991. The
very
restrictive stabilization policy caused some of the
decline in
economic indicators as well as increased unemployment. But
when
some fiscal and monetary restrictions were eased and real
incomes
increased late in 1990, inflation again increased. A
similar
succession of events in 1991 indicated that under
prevailing
conditions any increase in aggregate demand would lead to
an
increase in prices (hence inflation) rather than to an
increase
in output that would match the demand generated by higher
wages.
An important reason for the unresponsiveness of supply
was
the inherited industrial structure, especially the poor
condition
of capital stock and shortages of various components and
materials only available on the import market. But other
factors
also played a role. In many cases, enterprise managers
failed to
make responses and decisions appropriate to reform goals.
The
reform of 1981 had called for election of most managers by
the
workers' councils of their enterprises. Under the
communist
system, the political leverage of this relationship meant
that
managers sought to satisfy the councils by raising wages
and
avoiding layoffs through whatever strategy was available.
Beginning in January 1990, however, the enterprises
suddenly
found themselves in a buyer's market instead of the
traditional
seller's market. Substantial and rapid adjustments within
the
enterprises were needed to cope with a decline in the
domestic
demand caused by a drastic reduction in personal incomes,
cuts in
government expenditures, and rapidly increasing imports.
At the
same time, the sudden elimination of the formerly secure
Comecon
markets, especially those in the Soviet Union and East
Germany,
made establishment of new markets in the West a condition
of
survival for many enterprises.
Few managers were prepared by training or experience to
deal
with this new requirement. No consulting or foreign trade
brokerage firms were available to provide assistance, and
the
banking system that succeeded the old structure under the
National Bank of Poland (Narodowy Bank Polski--NBP) had no
experience in this respect. Although the elimination of
price
distortions and the introduction of an economically
meaningful
rate of exchange finally made profit and loss projections
meaningful, the system of internal accounting within the
enterprises still required considerable adjustment in
1992. At
that point, however, major changes in the product mix and
improvements in quality were unlikely because
anti-inflationary
macroeconomic policy had caused a scarcity of investment
funds
for modernization and restructuring.
Another inhibiting factor was the persistent
concentration of
the postcommunist Polish industrial structure, which in
1992 was
still dominated by huge state-owned enterprises. In many
cases,
one enterprise monopolized an entire group of products.
Antimonopoly legislation and an antimonopoly office
established
in 1990 had limited effect in the early postcommunist
years. Some
large enterprises were split, and some monopolistic
practices
were stopped. Rapidly increasing imports provided new
competition, but imports also reduced the market for
domestic
products and created an adverse trade balance despite a
surprisingly strong performance by Polish hard-currency
exports.
Closing bankrupt or unprofitable state- or municipally
owned
enterprises proved especially difficult when the
livelihood of
entire communities or regions was based on one or two such
plants. Powerful workers' councils lobbied for
continuation of
the status quo. In 1992 thousands of bankrupt state
enterprises
survived on loans from other enterprises or from banks,
which
were not capable of enforcing repayment under the
financial
conditions of the time.
Data as of October 1992
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