Southern Europe with a Specific Case Study of Poland
Introduction:
Poland, along with its fellow post-communist countries, faces an arduous task of reinventing their economies to match the dominant Western style currently dominating the world. The difficulties lie in the areas of ideology, structural needs (massive changes required), the current world recession, and debt load.
Communist Economics:
Why did the economics of the communist bloc fail so miserably? Why has every single socialist, fascist, communist, and other non-democratic country had to implement economic change to survive? This is due to inherent problems in the command economy idea. Monopolies (in a command economy) tend to produce inefficiency, low-quality goods, lack of innovation, and technological improvement. Command economies tend to focus on growth rather than strength, leading to larger production and even more inefficiency.
Worse use of available resources. The 1980s marked a change in world markets, which meant that the communist economies faced four challenges that, if met, would have meant the continuation of the USSR. Resource-saving miniaturization requiring high technology and skill was demanded. Command economies have neither. Flexible production to meet a variety of needs was necessary, but command economies have large factories to keep production high. Thus, they did not have the funds or ability to affect the necessary changes to their means of production. The information age” meant that the communist bloc had to deny the new prevalent types of technology, which would spread Western ideas, and thus they fell behind. “Software” became essential to the growth of industry, but the “hardware” focus of the East could not absorb this new approach. The changes are being attempted in a deep period of economic crisis, making an already difficult process even more challenging.
Systematic transformation requires institutional innovations, the internal liberalization of the economy, the external liberalization, and the adjustment of the real economy as well as the monetary system. Not only does there need to be a different institutional framework for a market economy, but one has to remove most of the inherited structures and change the typical behavioral patterns in industry, state, and private households.
Privatization is a difficult task because of four main factors. Firm sizes in post-communist countries tend to be large, which means that their division or shrinkage poses difficulties for foreign investors. However, they are not worthwhile at their current sizes and must be reshaped. Expectations are running high, but attitudes ingrained in the workforce will need time to change. None of the structure exists to deal with private firms, and it must be created along with the labor needed to run it. There is very little knowledge and certainty about the property rights issue, and until it is resolved, investors will be wary of the situation.
However, not all countries have addressed the needed changes in the same fashion. Poland has been a leader in foreign investment and involvement when compared to its post-communist counterparts.
Poland: Brief History
The name Poland is derived from that of the Polanie, a Slavic people that settled in the area, probably in the 5th century AD. Poland is a nation in east-central Europe.
In the 18th century, it was divided up by its neighbors and ceased to exist until it was resurrected in 1918. It was again partitioned by Germany and the USSR at the beginning of World War II, and it was reestablished as a Soviet satellite state in 1945. It remained a Communist-dominated “people’s republic” until 1989. Mikhail Gorbachev’s appointment as Kremlin leader in March 1985 was the signal that the Polish opposition had been waiting for. Exploiting the new liberalization in the region, Lech Walesa and Solidarity, Pope John Paul II and the church hierarchy, and ordinary citizens stung by the deepening economic recession combined to force the Communists to sit down at roundtable talks in 1989. They secured far-reaching political concessions and exploited the resulting opportunities for political competition to drive the Communists from power. The new non-Communist government sought to bring about economic reform through “shock therapy” in a scheme devised by Finance Minister Leszek Balcerowicz.
Introduction to the Polish Economic Situation
Poland faces a fundamental economic problem: inadequate production and living standards for its 38 million people. With a GDP about a third of the United States on a per capita basis, Poland is considered a middle-income country. In the 1970s, the Gierek government attempted to tackle the problem of economic distress through a policy of rapidly expanding consumption and investment financed by foreign borrowing. For several years, this economic policy generated growth of about ten percent per year.
