The Economic Consequences of Poland's Failed Social Contract

THE ECONOMIC CONSEQUENCES OF POLAND'S FAILED SOCIAL CONTRACT Leone Hettenbergh JLn recent years Poland's economy has fallen victim to a string ofshortsighted policies that have allowed it to lurch forward on a roller coaster course, unsustained by long-range planning or well-thought-out policy goals. One of the most significant policies designed to revive the Polish economy was prepared at the Ninth Party Congress under pressure from the independent trade union, Solidarity. Under this policy, enterprises were to increase independence and self-management: they would determine their own pattern of production, their own investment policy, and their own prices. Enterprises also were to be economically sound: selffinancing , less reliant on government subsidies, and liable for their own obligations, conditions that would, however, make such previously unexperienced circumstances as bankruptcy and layoffs possible. As for the agricultural sector, private farmers—who traditionally produced some 75 percent of the agricultural output — were to receive better treatment comparable with that of their socialized counterparts, for example, through subsidies and other benefits. All of these represented radical but sorely needed departures from previous economic planning. As early as 1982, however, the restructuring of prices began to slack, followed by a sharp decline in export profitability between 1982 and 1983. As a result, an anticipated revival of Polish manufactured exports never materialized, although this fact was camouflaged by surges in coal and Leone Hettenbergh is a lecturer in French in the Language Studies Department at SAIS. Material for this paper comes, in part, from lectures and seminars attended at the Jagiellonian University summer school session for the students of The Johns Hopkins University SAIS Bologna Center, held July 8-31, 1986, in Krakow, Poland. The author wishes to thank MarkJ. Ellyne for his thoughts on the Polish economy and his comments on early drafts. 89 90 SAIS REVIEW agricultural exports in 1983 and 1984. The effects of this new and burgeoning trade imbalance surfaced in 1985 and persisted in 1986. The failure to produce a trade surplus in manufactured goods left Poland with a persistent current account deficit and a growing external debt. After 1985 a disciplined government financial policy fizzled, as enterprises turned anew to credit and the transfer of resources among themselves in an effort to avoid being forced out ofbusiness. In this climate wages started to rise faster than the supply of consumer goods, and by the end of 1985 the Polish economy had drifted back to initial conditions of suppressed inflation that the Ninth Party Congress had tried to address, with a liquidity glut of some 10 to 15 percent of consumer expenditure in its economy. All of this was due to a lack of commitment by the authorities to the policies set forth in 1981, overall neglect in implementing policy, and a deep and rampant cynicism on the part of Poles. From a psychological standpoint, perhaps if ambitions and expectations had not been so high in the 1970s, the crisis and despair that followed in the 1980s would not now be so profound. As a resentful young Pole summarized his feelings: "The one thing for which I can never forgive Edward Gierek was raising our expectations too high." Under the Gierek administration (1970-80) Poland sustained rapid economic growth, while a significant increase in living standards showed promise for a renewed and modernized Polish economy. Poles were optimistic about their futures. By the end of the 1970s, however, Poland found itself encumbered with an excessive foreign debt, inflation, and a declining standard of living. These economic problems, compounded by poor economic management and rising political discontent, culminated in 1980 with the formation of the independent trade union, Solidarity. The economic paralysis of that year led Poland to default on its foreign debt in March 1981. Continuing political discontent was suppressed in December 1981 with the imposition of martial law. An explanation for this crisis may be found in the failure of the implicit "social contract" between the Polish populace and the government. The Social Contract For more than a decade socialist ideology has failed to inspire the Polish people; as a result, the legitimacy of the Polish regime has increasingly depended on economic performance. Poland provides an...