stern Europe With A SpecificCase Study of Poland
Poland, as well as it’s fellow post-communist countries, face an arduous
task in re-inventing 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), world recession(current) and debt
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 in order to survive? This is due to some 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 an evan. worse use of available resources.
The 1980’s marked a change in world markets meant that the communist
economies were faced with four challenges that would, if met, have meant the
continuation of the USSR.
Resource saving miniaturization requiring high technology and skill were
demanded (command economies have neither), Flexible production to meet a variety
of needs (command economies have large factories to keep production high – they,
thus, 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), and “software” became essential to the growth of
industry (the “hardware” focus of the East could not absorb this new approach.
As well, the changes are being attempted in a deep period of economic
crisis that make an already difficult process even more difficult.
Changing the Economy
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 to
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. This means that their
division or shrinkage poses difficulties for foreign investors, they are however,
not worthwhile at 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 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 resolved investors will be wary of the
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 it’s post-comminist counterparts.
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 resurrected in 1918. Again partitioned by Germany and the
USSR at the beginning of World War II, it was reestablished as a Soviet
satellite state in 1945, and remained a Communist-dominated “people’s republic”
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
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 Polish economic situation
Poland’s fundamental economic problem is that production and living
standards for it’s 38 million people is considered to be inadequate. With a GDP
about a third of the United States (on a per capita basis), Poland is considered
to be a middle income country.
During the 1970’s, the Gierek government tries to tackle the problem (of
economic distress) through a policy of rapidly expanding consumption coupled
with investment financed by foreign borrowing. For several years this economic
policy generated growth of about ten percent per year (The