Poland's privatization process: a view from the inside.

• Author: Bonamo, Mark J.
• Position: Janusz Lewandowski, former Privatization Minister - Privatization: Political and Economic Challenges - Interview

Interviewed on 14 July 1996 by Mark J. Bonamo for the Journal International Affairs

Journal: Why did Poland, when shifting from a command to a market economy, go through the method known as "shock therapy?" Why did it choose a sudden transformation rather than a gradual one?

Lewandowski: Well, this was the most likely escape from the communist design. This was done under the pressure of hyper-inflation. There was disorganization and disorder in the economy, so one reason for "shock therapy" was to immediately restore the basic macroeconomic order in this disorganized economy. And the second reason is that some of us were conscious of working in this honeymoon period of reform. After the change, after regaining sovereignty, there was limited time to do as much as possible before the political games began disrupting the reforms. So the first reason was to escape from hyper-inflation and a really disorganized economy, and the second was to do as much as feasible from this macroeconomic switch to liberalize prices before the start of a normal political game.

Journal: What were the first industries to be privatized?

Lewandowski: The beginning course followed the British public offerings model of, for example, British Telecom. This meant to simultaneously sell five companies in public offerings. The selection of these initial companies was...done to fit to what was seen as attractive for a public offering and for the beginning of a Polish stock exchange. But certainly the easiest part of privatization was to privatize the consumer industries, like the systematic privatization of the cosmetics industry and confectioners. Generally, at the beginning, it was [on] a case by case basis, not a conscious selection of branches to be privatized. This was an investor-friendly privatization.

Journal: In these initially investor-driven privatizations, do you think the industries and their efficiency were improved dramatically immediately, or did it happen over time?

Lewandowski: It depends on the method of privatization. My research center has done research on post-privatization results and it is really striking that [companies] sold to foreign investors, after being privatized, consumed 10 times more investment than in the case of [sales to] domestic Polish buyers. This reflected the different financial capabilities of foreign investors and domestic investors like Polish businessmen. Therefore, foreign trade sales were most efficient in immediately restructuring industries, immediately bringing some inputs of technology and capital. This was seen, for example, at the very beginning with Philips investing in Polam Pila, which was one of the prototypes of trade sales, or when Thomson invested in Polkolor Electronics. The typical Polish inside-oriented privatization--such as managers and employees buying their company on a gradual basis--delayed restructuring...of both the particular company and our economy.

Journal: How do you think the people were affected by these changes in the industry? Do you think that the people served by these industries saw an immediate improvement in their living conditions, or do you think they are still waiting for that improvement?

Lewandowski: The immediate and tangible financial effect was the privilege in...