European Document/Dismantling Socialism in One Country

...There now is a base of free-market consensus that can be counted on in Poland...

...Foremost among this class, and very important for its success, are well-placed relatives of the nomenklatura (some of whom were "converted" to capitalism by Miroslaw Dzielski's society...

...Furthest on the left we still find the social-democratic economist Ryszard Bugaj, who, in a recent article in the Warsaw review Krytyka (Spring 1989), outlines his unchanged four-part creed: "pluralism in the forms of property...

...Nonetheless, if the Poles do succeed in overcoming their immediate economic crisis, it will then be time for interested Western observers—and investors in particular—to understand more about the context within which the "capitalization" of the Polish economy will be taking place...

...Sachs proposed a "shock treatment" for the Polish economy that included the immediate decontrol of prices, of foreign trade, and of foreign-currency exchange...

...Otherwise, the program was a moderate "shock" plan...

...From that point on, the public Polish economic discussion (if it can be called that) was kept almost exclusively within the terms set by the Soviet example, and the only respectable intellectual alternative seemed to be a rather ill-defined social-democratic one...

...But within Poland itself during the 1980s one also noted the rise of a "manager" mentality among a large portion of the educated class, which was forced by the deteriorating economic situation to try opening its own businesses—above or below ground—despite official government roadblocks...

...Yet although Dzielski's prophetic manner marginalized some of his ideas, in tactical dealings with the Communist state, and especially its Kafkaesque "legal" system, he was astonishingly realistic and effective...

...Hardly proposing a free market, these economists had merely proposed a more realistic plan that focused on providing needed consumer goods rather than investing in heavy Soviet-style industry...

...This figure does not include the machines and businesses transported to the Soviet Union as captured "German" war loot, whose value Molotov once estimated at $500 million (in 1945 dollars...

...The social-democratic economist Ryszard Bugaj, for example, developed his own reform program that included strict wage-price controls, limited privatization, and continued controls of foreign exchange: this package was rejected by the Mazowiecki government...

...It comes as no surprise that, given its union base, Solidarity picked up what remained of the social-democratic tradition and supported economists like Kuczynski and Bugaj...

...A great number of these businessmen were dead, others were in Communist prisons or had fled the country, while few of those remaining were able to take up legal action...

...We have tried to describe this background to the Polish economic situation in two articles...

...appropriate property, centralize it in the hands of inefficient bureaucracies, distribute rewards to the nomenklatura, suppress initiative and dissent, subsidize the Soviet Union with underpriced raw materials, and, voila, Polish "socialism...

...But these critics were in turn swamped by what the Poles themselves now call "the Sachseffect": somehow this American economist had applied a psychological "shock" to the Polish public, giving them hope by painting a glowing picture of their future economy...

...There are also plenty of special interests—farmers, workers in heavy industry, bureaucrats—ready to defend their traditional privileges or demand new ones...

...In the coming years the Poles must face each of them, creating a "constitutional" framework (in the broadest sense of that term) for free economic activity...

...Building "socialism" turned out to be simple...

...But the economic failures of the 1970s and greater awareness of the sources of Western growth also convinced other opposition figures, such as Edward Lipinski of KOR (the Workers' Defense Committee), that "our economists were badly taught" and that what Poland really needed was not better bureaucratic economists but rather private "managers...

...It has been a difficult voyage, and it will not be getting any easier...

...Finally, he proposed a complete reform of the tax system, beginning with a new income tax fixed at a low level for all workers, and a value-added tax for businesses...

...After Hungary—always a special case —Poland may be the first...

...and an absence of independent local and regional, government...

...But Bugaj apart, the main body of economic opinion moved decidedly away from the social-democratic ideal, which came to be considered increasingly unrealistic in the Polish context...

...We can align their major spokesmen roughly from left to right...

...To complement this intellectual roadmap we hope to offer an institutional one in the article to follow...

...This will describe the institutional challenges offered by the dismantling of "state socialism," political and legal barriers we frankly consider the most important (and interesting) on the road back to capitalism...

...Consequently, the Polish postwar economic debate took place among parties all hostile to capitalism in principle, whether those principles were Communist, socialist, or agrarian...

...Despite the presence of the "Sachs effect" among the intellectual class and the public at large, the government's program still ran into criticism from the older schools of economic thought within Poland and the parliament...

...For the fact is that the Polish people will need a vision of success and a conviction that their society is capable of enjoying success...

...The only real difference between the Sachs proposals and the final official program was that the government retained a much stronger role for the public administration in regulating this transition to a privatized economy...

...Sachs arrived in Warsaw not long after the elections at the invitation of the government, and at the expense (it is reported) of Hungarian-American financier George Soros...

...The theoretical economic debate is, in our view, almost over...

...The first two were social-democratic in inspiration, while the third had a distinctly free-market flavor...

...Such debates are quite normal and natural within all democratic capitalist nations, and the Poles will now learn to enjoy them—or to suffer them, as the case may be...

...In fact, three different proposals for economic reform came out of that meeting...

...Capitalism had ceased to exist in any recognizable form in 1939, and by 1945 Poland was also without capitalists and their ideas...

...workers must move in search of work...

...If so, Poland is finally entering the homestretch on its long and circuitous journey back to a market economy...

...Although the authors of this program were careful never to use the words "privatization" or "free-market," their aims were clear, especially to the Communist party, which immediately criticized their "liberalism...

...For the Communist party, obviously, this plan offered itself as the first major opportunity to revolutionize the economy with "futuristic" social planning and to centralize it permanently within the organs of the state...

...But the plan itself had been drawn up by the Central Planning Office, which was under the influence of respected socialist economists such as Oskar Lange, Czeslaw Bobrowski, and Edward Lipinski...

...The new government is only months old, and the political-economic environment, both domestic and foreign, continues to change daily...

...Last June's elections were only half free, and the delicately balanced "cohabitation" with the Communists is still somewhat precarious...

...ostwar Polish economic thought I had its roots in the Second World War itself...

...A similar association was later founded in Warsaw by the current minister of construction, Aleksander Paszynski...

...The result was that the Polish government found itself the inheritor of a large part of the country's economy, which had already been essentially nationalized by the Germans...

...However, rather than hold up the U.S...

...But now may be the time to offer the Polish people hope as well, and Sachs did just that...

...For between the present situation and the radiant future painted by Jeffrey Sachs lie enormous barriers: the rusting, lethargic institutions of state economic control and the habits inculcated by them...

...For now, the important factors—short-term foreign aid, strikes, winter weather—rest in the hands of chance...

...The liberation of Polish economists to speak their minds after decades of imposed silence surprisingly exposed an underground free-market party more enamored of the Reagan and Thatcher "examples" than the Yugoslavian "example" they were officially allowed to praise...

...Despite the success of capitalism as an economic theory, it has no political theory for dismantling a completely socialized economy and constructing such a framework...

...technologically backward factories must be retooled or (more likely) sold for scrap...

...The more traditional trade-unionist faction of Solidarity also objected that it could not accept high levels of unemployment or a rapid reduction of real wages...

...Balcerowicz has long argued that the Poles' distrust of capitalism and desire for economic equalityhas been exaggerated, and that a market economy is possible in Poland...

...The struggle over the Economic Plan during 1948 gives a good example of the alternatives then being considered...

...to a private market economy...

...But we have yet to see what might be called "formerly developed" countries put back on the road to capitalism...

...As we write, the Berlin Wall has been opened and the call for reunification has begun, further complicating the Polish situation...

...Import tariffs, he continued, should be fixed at a flat 20 percent, and all unnecessary barriers to opening small private businesses should be immediately taken down...

...Nonetheless, Communist op28 THE AMERICAN SPECTATOR FEBRUARY 1990 ponents criticized the plan ferociously, and within a short time managed to change the directorship of the Planning Office, then to reorganize it along strict Soviet lines...

...a cynically politicized legal system...

...What such a project will entail in contemporary Poland is the subject of our follow-up article...

...the institutional one is just beginning...

...THE AMERICAN SPECTATOR FEBRUARY 1990 29 Further to the right, at least in economic theory, is the school of free-market partisans that grew up over the past five years around the late Miroslaw Dzielski, the founder and leading spirit behind the Krakow Industrial Society...

...We know from experience that developed countries ravaged by war can be rebuilt...

...In the short term, for instance, he predicted that a radical liberalization of prices would increase coal revenues, which could in turn be used to ease the budget deficit...

...As an editorial in the Solidarity daily Gazeta Wyborcza put it, "If the people believe that Sachs is right, he may turn out to be right...

...To put the matter bluntly: too much attention has been focused on an exaggerated ideological indifference to capitalism, not enough on the quite real structural barriers that could threaten an otherwise free market...

...In total, more than a third of Poland's economic infrastructure had disappeared...

...self-management...

...Almost entirely absent from the debate were defenders oc free-market liberalism...

...Yet however substantial these compromises end up being, it is a striking fact that in Poland today no other school of thought really competes with free-market liberalism at the level of economics...

...Can the Poles succeed...

...In fact it was, though the credit here must be given to an American, the Harvard economist Jeffrey Sachs...

...From that point on he became something of a soul possessed, putting out a hard-hitting magazine and organizing his society to encourage small private businessmen and to defend them against the Communist authorities...

...Today, of course, the two schools of economic thought within Solidarity—the social-democratic and the "manager" schools —represent only the two most distinct colors on a spectrum that now includes many other positions, both within the government and within parliament...

...Whether they remain convinced of the superiority of capitalism will depend perhaps less on the new government's success in permitting free-market activity than on its success in dismantling socialism...

...These institutional, barriers will not disappear overnight, no matter how big the economic "shock" is...

...Dzielski was a professor of philosophy who served as an early adviser to Solidarity in Krakow, and who discovered Milton Friedman's books in the early 1980s...

...The Polish government formed in 1945 announced its willingness to return private businesses to their prewar owners, but hardly any such owners were in a position to demand that that promise be fulfilled...

...But it also includes journalists, professors and school teachers, and even Solidarity activists, all of whom have become crucial supporters of economic realism in the present Polish situation...

...The declaration of martial law in 1981 rendered these proposals irrelevant, if only temporarily...

...Its primary author, Lublin economist Stefan Kurowski, focused especially on the role of farmers in the Polish economy, and proposed that the state sell one million hectares of cultivated land to private farmers and that the production of goods in agricultural support industries (machinery, fertilizers) be relocated to rural areas...

...Waldemar Kuczynski, today director of Prime Minister Tadeusz Mazowiecki's council of advisers, has been an important figure in this movement toward economic realism...

...This tactical realism was also reflected in the society's moderate reform plan for the Polish economy, which was published in the fall of 1987...

...Throughout this period the Catholic Church and its publications offered the only other intellectual alternative, which might be called Christian-democratic...

...These two streams of thought—the social-democratic school and the "manager" school, let's call them—still exist within the Solidarity movement...

...There are divergent views about how large a welfare state Poland can afford, and what character it should have to protect families, the elderly, and the unemployed...

...Throughout the 1980s, then, one could see a realistic free-market consensus growing among most opposition economists, a consensus made possible by important changes in the Polish political climate...

...Here in the first we thought it important to give readers a historical introduction to the current economic debates, a review of the main intellectual currents that have developed since the war and those that seem most important today...

...In 1988 he wrote an important article in the emigre magazine Kuftura marking the death of collectivization and centralized economic planning as respectable ideas...

...as an example, he has instead encouraged Poles to study 'Paivvan and South Korea as models of short-term economic development...

...They would first have to learn how to make the transition from "an almost medieval economy, centralized and state-directed...

...And even this role should not be exaggerated: the state planning office, for instance, will only provide statistical information in the future, rather than setting economic targets...

...Kurowski also proposed that greater freedom be given for opening private businesses in light industry, services, and construction, and he envisaged a private work force of at least one million...

...I t is this rise of a moderate, realistic economic liberalism within the opposition itself that explains the general character of the economic program announced by the new government last October...

...But the formation of the Mazowiecki government last summer left in doubt whether this intellectual consensus could be translated into radical economic reforms in the political arena...

...Monopolies must be abolished and competitors given time to establish themselves...

...But he also noted that, after forty years of Communist indoctrination, Poles were instinctively distrustful of capitalism, a prejudice only encouraged by radical free-market theorists defending uncontrolled competition and selfishness in distinctly un-Catholic terms...

...Many "reactionary" professors lost their academic posts during the following decades, and in 1952 the entire School of Law, Social Science, and Economics at the University of Lublin was closed down for propagating economic heresies...

...The difference between these two schools first became apparent at the Solidarity convention of September and October 1981...

...No one can predict who will win those debates, and it is perfectly possible (though in our view unlikely) that Poland will end up with a highly regulated economy burdened with disproportionate social spending...

...and Sweden—premature alternatives, to say the least...

...Writers grouped around the Catholic Krakow weekly 73'godnik Powszechny developed their own economic doctrine, for example, which was equally critical of collectivism and "egoistic" capitalism...

...This social-democratic tradition enjoyed moments of renewal, as during the 1956-57 economic reforms, and was later supported by Solidarity economists such as Waldemar Kuczynski and Ryszard Bugaj...

...Matching the material devastation of the country was the disappearance of the business class and its intellectual spokesmen...

...Joining Kuczynski in the plea for realism has been economist Leszek Balcerowicz, a Communist before 1980 who is now minister of finance and vice president of Mazowiecki's cabinet...

...How those ideas will be put into practice will depend, quite obviously, on the sorts of political compromises that must be made within parliament, the institutional limits of the bureaucracy, the future development of Solidarity as a union or a party, and the general economic climate...

...democracy in political life...

...The three central principles of the package were unmistakably Sachsian: a reform of property relations to encourage private ownership...

...In 1945 Poles found themselves not only under the Yalta-sanctioned military occupation of the Soviet Red Army, but also with little of the productive capacity their country boasted before 1939...

...In theory, all Poles are capitalists now...

...There were a few—Stefan Kisielewski and Leopold Tyrmand at 7j'godnik Powszechny, and economist Adam Krzyzanowski—but their voices were drowned out by the unlikely anti-capitalist coalition of Communists, social democrats, and Catholics...

...The most peculiar response came from the Communist party, though, which was divided between taking credit for its own earlier liberalizations, and criticizingthe new reforms in populist terms of "social justice...

...There were immediate, and predictable, critics of the Sachs plan, beginning with some social-democrats worried about the Polish welfare state, and including specialists within the state bureaucracies who felt that Sachs lacked an understanding of their particular institutions...

...ut in general it can be said that 1...0 liberal free-market ideas—as ideas —now command the respect and even enthusiasm of the most important figures within the Polish government, the press, and the economic profession...

...T his constellation of economic ideas 1. remained stable in Poland until roughly 1980—that is, until the rise of Solidarity as a political and intellectual force...

...the market...

...From this base Sachs predicted a number of effects, both long term and short term...

...He also suggested raising wages and public investment with the funds currently used to support consumer prices...

...the decontrol of supply and demand within the market...

...and the comfortable, unchanging work habits of a controlled economy must be unlearned...

...And the agrarian-Catholic wing of parliament also complained that family and agricultural problems had been ignored in the reforms...

...Mark Lilla, a former editor of the Public Interest, lives in Paris...

...The Poles in general are very prudent about the possibility of change, and have developed an understandable sense of tragedy that has served them well during their peaceful revolution...

...We even have examples, if only a few, of less-developed nations learning to nurture market economies...

...The government's final economic reform package announced by Finance Minister Balcerowicz on October 11 borrowed much from Sachs's original proposals, and profited enormously from the hopeful atmosphere they had created...

...must first be known before Poland's political institutions will be stable enough to allow a complete picture of the economic situation to emerge...

...30 THE AMERICAN SPECTATOR FEBRUARY 1990...

...Externally, of course, there had been the "Gorbachev effect": a Soviet-sanctioned crusade for economic reform, along with an opening of public debate on the alternatives ahead...

...What can be predicted is that such an economy would not be built on a rival theory of economics...

...and the reform of the banking and financial system in order to open the Polish economy to foreign investment...

...It has been estimated that 65 percent of Polish factories had been completely or partially destroyed during the war, as had 20 to 40 percent of the housing stock...

...He concluded that, in the short term, the Poles should not concern themselves with making abstract choices between Friedman and Keynes, the U.S...

...The results of upcoming local elections and the constitutional convention Piotr Brozyna is a historian and journalist living in Warsaw...

...It simply called for a currency reform that would allow the zloty to float freely, privatization of state enterprises, tax reform (including a value-added tax), and the reduction of import duties to encourage foreign trade...

...Building Polish capitalism won't be quite so easy, though, if only because Polish "socialism" must first be dismantled...

...Although Western reporting on Poland has generally been quite good on a daily basis, it is our sense that both the intellectual and institutional backgrounds of the current economic reforms are insufficiently understood abroad...

...No one, anywhere, knows...

...But, by and large, the Communists managed to suppress even this mild dissent...