Poland Economic Transition
Poland is characterized by a great history of rulers and conquers in the early stages of the country’s history. In the last century, Poland confirmed herself as an independent state, no more under foreign control and went through a major change in its economic stage adopting a policy of drastic change. The Yalta conference held in 1945 established the Polish Provisional Government of National Unity and called for fair elections.
However, the communist party, under influence of the powerful Soviet Russia, controlled the elections, thus creating a regime that followed the communist ideals: a centrally planned economy based on the principle of equality. A centrally planned economy allocates the resources in a much different way than a market driven economy. In short terms, a planned economy alleviates the use of the private sector and allows the government to take full control of the factors of production.
Allocating the resources of the country does not depend on the pricing system any longer, but is organized by the government, depending on what the government thought the people needed most (in Soviet Russia, a confirmed communist nation, bread coasted less than wheat since the government decided that bread is more essential and that everybody should be able to afford it). The ideals and programs proposed by the Poland communist regime were much similar to the ones in Soviet Russia.
Fully Soviet-style centralized planning begun in 1950 with the Six-Year Plan. The plan focused on rapid development of heavy industry and (eventually futile) collectivization of agriculture. The prior privately owned land was confiscated by the government to be reissued to the poorer peasants. Further attempts to reallocate the land to provide equal owning met great disagreements. The regime embarked on the collective of agriculture policy and Poland remained the only Soviet bloc country where individual peasants dominated agriculture. Resentment grew and strikes were common. In June 1956, workers in the industrial city of Poznan went on strike. Demonstrations by striking workers turned into huge riots, in which 80 people were killed. Cyrankiewicz, leader of the communist party tried to repress the riots at first, threatening that “any provocateur or lunatic who raises his hand against the people’s government may be sure that this hand will be chopped off”.
Edward Gierek came to power in 1956 by leading a campaign of great promises like increased freedom of speech, higher wages and assured that prices would remain stable. Even though Poles were skeptical, Gierek started a new plan in which he borrow around 10 billion dollars that he used to increase the level of technology used in the country to maximize the level of output and to buy consumer goods that would increase the scarce incentive of the workers. In the years from 1971 to 1975, wages increased by 40% and people could now afford to buy a car, a house and a television.
Even though borrowing money enables Gierek to enhance the living standards of the country, the program went through a massive collapse due to the recession in 1973 during the World Oil-Shock. Polish debt rose from US$100 million in 1971 to US$6 billion in 1975, and continued to rise rapidly. As previously happened in the beginning of the communist regime, consumer goods began to disappear from the market. From fear that the workers would rebel, the government had frozen the prices of goods to the 1970, without allowing a gradual increase that would, in time, pay off the country’s debt.
In 1976, pressed from the foreign creditors, the government increased the price of basic and essential goods drastically: butter by 33%, meat by 70%, and sugar by 100%. Strikes and violent displays of disagreement were a clear consequence. (CIA Factbook, 2010) A strike in 1980 led to the creation of the creation of “Solidarnosc”, an independent trade union. “Solidarnosc” grew so much in power in the following years that, during the 1989 elections, the “Solidarnosc” trade union won 99 out 100 seats in the Senate. This was a shocking result.
The communist party largely underestimated the potential of “Solidarnosc”, therefore signing the end of the communist regime and the start of the transition from a centrally planned economy to an open, market regulated economy. (Wikipedia, 20010) Poland economic transition is perhaps one of the most successful among all the other Central and Eastern European nations that shifted from a centrally planned economy to a mixed economy. But what is the difference between a centrally planned economy and a mixed economy?
As previously explained, in a centrally planned system, the government owns the scarce resources of the country and the work of allocating these resources is carried out by the government, not depending on the demand of the customers, but rather what the government think is necessary for the citizens. In a in an ideal Free Market economy, the allocation of resources is completely opposite: only the private sector owns the resources and allocates them to produce goods or offer services with the single goal of making profit.
A mixed economy is a fusion of the two economic sections. The government still provides essential goods (merit and public goods, essential in every economy), while other goods are provided by the private sector (allowing a wide variety of products to be produced at relatively low prices because of the competition between private sector industries). (Combs Susan, 2010) Poland, changing from a centrally planned economy to a mixed economy, embarked a transition that would allow her to overcome all the problems and lacks of the communist regime.
The lost incentive to work was restored and, as we can see from the graph below, Poland went through an impressive improvement from 1990, when the transition started. The following graphs help us understand the change, looking at different aspects of the economy: National GNP Poverty rates, selected transition countries, 1987-8 and 1993-5 (percent of population)| Poverty headcount| 1987-88| 1993-95| Central and Eastern Europe and the Baltic countries| Bulgaria| 2| 15| Czech Republic| 0| ;1b| Estonia| 1| 37| Hungary| 1| 4| Latvia| 1| 22| Lithuania| 1| 30| Poland| 6| 20| Romania| 6| 59|
Slovakia| 0| ;1b| Slovenia| 0| ;1b| Belarus| 1| 22| Moldova| 4| 66| Russia| 2| 50| Ukraine| 2| 63| There are three major disadvantages of a transition from a centrally planned economy to a mixed economy: output fall (meaning that in the first years of transition, the output of the country decreases before it starts rising again); less job security (since the government has now less control on the jobs of the workers, it cannot protect them from being fired) and lastly, and increase in the income disparity of the citizens (private businesses’ aims focus on making profit.
More talented people will have higher salaries than others thus increasing the gap between poor and rich people). The latter reason explains why the percentage of poor people in transition countries increased dramatically. (Barr Nicholas, 2007) The concept of economical equality typical of the centrally planned system is remarkably fascinating and idealistic, however it does not urge the workers to improve quality and quantity of the product because the high security of job. These conditions do not allow economical development on a long term planning.
The transition undertaken by Poland, as it is clearly shown in the numbers, facts and results, has unmistakably proven that the mixed economy represents the best solution to the adequate development of a nation and now Poland represents one of the major economic powers in Europe. Works Cited Barr, Nicholas. “Development and Transition: Poverty during the Early Transition. ” Development and Transition: Home. Jan. 2005. Web. 27 Nov. 2010. ;http://www. developmentandtransition. net/index. cfm? module=ActiveWeb
