The impact of market forces and government policies on the transition economy of Poland: a case study.

• Author: DeDee, J. Kim

ABSTRACT

Despite the growing interest in globalization, scholars give limited attention to the transition economies of Central and Eastern Europe (CEE) and especially to Poland, one of the most promising free markets since the fall of communism. This study explains how the government of Poland moved quickly and decisively to lay the cornerstones for a private sector economy. It goes on to show how the redirected economy responded to this policy and to market forces in moving toward its long term potential in the ever more competitive global business arena.

INTRODUCTION

Globalization is now the prevailing aspect in the evolution of world economies. Developed and developing nations are becoming increasingly global as they continue to spread economic activities across national boundaries, liberalize trade policies and further integrate both trans-boundary markets and production networks. The collapse of Soviet centralized decision making that initiated economic and democratic freedoms in Russia and its buffer states in Central and Eastern Europe (CEE) was the most significant peacetime event of the 20th century (Peng, 2001). Throughout history, and especially since WWII, economic revolution came about from actual or threatened military confrontation, which forced relatively free markets into strict government control. Because no society ever reversed itself from government command economics to market-based consumerism, the daunting tasks of this transition government was to initialize and further develop a private capital society.

Today, much of communism is either gone or being removed. Private business throughout CEE is linked inextricably to economic stability, trade, diplomatic relations, and foreign direct investments (FDI). But the transition from an economy that was government controlled to one that is free market driven is multifaceted and complex (De La Camara, 1997; Newman, 2000; Hitt, Dacin, Levitas, Arregle, & Borza, 2000).

For U.S. business leaders the varying cultures, social values, and management styles before and during the transition can present major obstacles. Poland, like most centrally planned economies, was characterized by pervasive bureaucratic restrictions, a poorly paid work force, low-grade products destined mainly for other communist states, ongoing shortages of materials, plant, equipment, and finished goods no formal business or fair exchange laws and state owned enterprises (SOEs) operated on direct financial support and government induced favoritism rather than on competitive efficiencies. (De La Camara, 1997; Uhlenbruck, 1997; Mueller & Clarke, 1998; Uhlenbruck & De Castro 2000; Newman, 2000, Hiskisson, Eden, Laub& Wright, 2000).

NEED FOR THE STUDY

The rapid opening of borders, integration of global manufacturing networks, and large volume trading across multi-dimensioned markets were essential in the evolution of Poland's economy into one of the most dynamic in CEE. From the onset Polish leaders gave top priority, to shifting away from centralized control and toward removing unnecessary regulations, promoting private sectors, liberalizing foreign trade, improving working conditions, and gaining positive standing within global markets.

Scholars, in spite of this, give little attention to the transition economy of Poland. Rather than focusing on the main factors of economic change during a particular transition, existing research covers multi-country regions, modifications to SOEs being privatized, existing laws and regulations, or changing management styles. This study starts with the premise that important historical antecedents help set the stage of this country as an emerging and as an ongoing player in the global marketplace. It then looks at significant government actions and critical measures of economic success in this developing transition economy. The timeframe of 1990-2006 was selected because it shows useful long-term trends and how Poland progressed beyond the turbulence of the early transition (1990-1994). Also, the authors understood that the move from socialism to capitalism is evolutionary and that the range of factors that shape the nature of this transition continues to develop.

THE PLATFORM FOR ECONOMIC CHANGE

From a historical viewpoint, both perceived and real attributes of a nation can be argued as necessary for the initial understanding of its potential markets (Porter, 1990). In the 15th century, Poland, with its vast coastline navigable terrain and part of Europe's most important distribution routes, was conquered by the Hapsburgs, who ruled for almost 300 years. After WWI, Poland was independent and agrarian, but by 1939, all of it was under the Third Reich. During WWII, Poles were forced to work the mines and high pollution industries for the Nazi war effort, and hundreds of thousands died from disease, injury, or execution. Soon after CEE was liberated by U.S. and Soviet forces, the Communist Party took power (1948), and under the Moscow umbrella controlled virtually all educational, artistic, scientific, and economic thought and activity. CEE throughout the 1980s invested only in industrial sectors, curtailed imports from the west, eliminated private ownership, and nationalized all activities resembling free markets. The economy stagnated, and a skilled and knowledgeable work force returned inadequate rewards with high turnover, low productivity, and poor product quality. By the end of 1989, the calm but determined overthrow of communism succeeded, and Soviet-styled command economics collapsed.

Before the economic and political demise of communism, Solidarity, the Polish United Workers' ParD, (PZPR), and other lesser known political groups drew up The Round Table Agreement, which set the stage for an independent judiciary, a freely elected two-chamber national assembly (Sejm and Senate) and a president (lnternet Polska, 2000). Poland became, and remains, a constitutional republic ruled by law, with a free press and a market driven economy.

POLAND: THE SHOCK THERAPY TRANSITION ECONOMY

The newly elected post-communist government (1990) almost immediately...