Creating a Market Economy in Eastern Europe: The Case of Poland

Abstract

The Case o f Poland THE POLITICAL and intellectual leaders of Eastern Europe's revolution of 1989 describe their aim as a "return to Europe."Their overwhelming judgment is that the postwar division of Europe into East and West was artificially imposed by the Soviet Union, at enormous human and economic cost.They underscore the artificiality of the division by referring to their region as East Central Europe (or Middle Europe), rather than Eastern Europe, thereby stressing their countries' place in the mainstream of European history, politics, arts, and economy.The policy dimension of the return to Europe is the creation of political and economic institutions in the style of Western Europe.I In this spirit, these countries are directed toward the creation of multiparty parliamentary democracies and market economies with large private sectors.276 Brookings Papers on Economic Activity, 1:1990 With amazing rapidity, the postcommunist politicians of Poland, Czechoslovakia, and Hungary have dropped any support for an economic "third way"-that is, some form of market socialism-and seem intent on moving instead to a full-fledged market economy based on private property.3So far in 1990, political majorities in East Germany and Hungary have strongly rejected political currents linked to a continuation of socialism.4The intense desire to rejoin the economies of Western Europe reflects both an attraction to the obvious achievements of Western Europe and a revulsion against the failures under communism.The low per capita incomes in Eastern Europe do not fully explain the pervasive sense of frustration in the region.It is one thing to be poor, but it is quite another to have become impoverished needlessly as a result of the failure of the communist system.It is the sense of unnecessary decay, as much as the deprivation itself, that motivates the impulse toward change.5The postcommunist democratic governments will begin, in 1990, a process of comprehensive change aimed at the creation of market economies.Each government will face questions about the content of 3. At the same time, the new governments have intensified their diplomatic contact with Western European governments, regional institutions, and the international financial institutions to press for a close political and economic relationship.Czechoslovakia, Hungary, Poland, and Yugoslavia have appealed for new, intensive relationships with the Council of Europe, the European Community, and the Organization for Economic Cooperation and Development.The voters in East Germany went further, putting their electoral support in the March 1990 election behind the alliance opting for the most rapid reunification with West Germany.4.Even the social democratic parties, considered just six months ago to represent the likely dominant political force in democratic regimes, have fared very poorly.5. Solidarity's leading political theorist, Adam Michnik, has raised the issue of why even committed communists have been ready to turn their backs on the old system.Michnik's answer is that the collapse of living standards has been universal, affecting even the highest levels of the party.He summarizes this collapse as the "Doctrine of the Radiators," recently described in a speech at the University of Michigan."Three years ago all of the heaters [radiators] stopped working," said Michnik.Shivering in his apartment he thought that at least the Party officials were warm in their dachas.Then he met the wife of the former Polish premier at a friend's wedding.She was shivering."Why are you cold?" he asked.She said "My husband is sitting at home wearing the fur hat given to him by Kosygin." The country's heaters were on "a permanent strike."(Reported in Michigan Alumnus, January-February 1990, pp. 11-12.) Industry5 Poland 42.6 41.7 0.4 30.1 28.5 -0.9 Portugal 31.4 30.6 1.6 27.1 26.5 0.4 Spain 29.7 29.1 2.0 27.1 24.2 -1.8 Greece 26.1 25.1 2.3 20.7c 21.5 1.0 Agr iculture Poland 10.7 12.1 2.5 30.4 29.1 -0.8 Portugal 7.0 7.8 3.7 27.3 21.9 -2.3 Spain 6.9 6.3 0.8 19.2 15.1 -3.6 Greece 14.5 12.9 -0.5 30.7c 27.0 -1.8 Construction Poland 12.6 10.5 -1.9 7.7 7.8 0.0 Portugal 6.1 5.5 0.5 9.5 9.3 0.4 Spain 8.3 8.2 2.0 9.0 8.2 -1.6 Greece 6.3 4.7 -3.3 8.3c 6.4 -4.0Other sectors Poland 34.1 35.7 1.4 31.8 34.6 1.1 Portugal 55.6 56.1 2.1 36.1 42.3 3.1 Spain 55.1 56.4 2.6 44.7 52.5 2.2 Greece 53.1 57.3 2.4 40.4c 45.0 2.2 Sources: Rocznik Statystycztny (various years); OECD National Accounts, 1989; and OECD Labor Force Statistics, 1989.GDP calculations used GDP at factor price before adjusted to market price.a. Greece, billions of drachmae in 1970 prices; Spain, billions of pesetas in 1980 prices; Portugal, billions of escudos in 1987 prices.b.Includes mining

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