Monday, 13 June 2011

Balcerowicz’s tragic revolution — The failure of Polish transition (part 1)



I reproduce the following article by Piotr Szumlewicz from the website Polish Labour Notes



From the beginning of the transition in Poland (1989) Leszek Balcerowicz plays a very important role in Polish public life. It just so happens that the political career of the “father of Polish reform” above all has been characterized by failures and tragic mistakes with far reaching consequences.

The most spectacular act was the beginning of systemic transition. At that time Balcerowicz initiated and unfortunately was successful in putting into practice his plan free-market reforms. The effects of the Polish “economic miracle” were terrifying. In the years 1990-1991 the Gross Domestic Product fell by about 18%, the level of inflation was in triple figures, in the space of two years unemployment went up to above 2 million. Already in the first year of transition, the number of people living under the social minimum more than doubled — from 15% in 1989 to 31% in 1990. In the first two years of transition production, investment, production capacity as well as labour productivity went down radically. Production drastically fell in all sectors of the economy. In electromechanical industries it fell by 37,8% in light industries by 40,7% and maybe most importantly in the grocery industry by 25%. Wages for farmers were reduced by more than half in the space of two years.

The transition led to a number of other negative results of which a lot of people talk about even today. The reduction in the number of apartments built, mass liquidation of libraries and cultural facilities, closing down of a number of pre-schools, kinder gartens and nurseries. Huge number of suicides, alcoholism and explosion of prostitution followed. All of these events and phenomena are presented by Balcerowicz’s people as the necessary effects of change for which the state cannot be held accountable for. The pauperization of society, lack of jobs and life perspectives, segregation in education, lack of cultural finance… The guru of Polish liberalism was not interested those types of things.

Balcerowicz’s defenders like to repeat that there was no alternative for the neo-liberal reform. This time even the International Monetary Fund proposed three scenarios for reform in which Poland chose the one that had the most drastic effect on society. The strategy that Balcerowicz chose was no necessity at all. For example the government itself increased inflation by raising the price of energy six-fold. For unknown reasons customs control was removed and this caused a number of national companies to go bankrupt. Balcerowicz was stubborn in his quest to destroy the public sector, so taxes for state companies were two times higher than that of private firms. A significant part of the social infrastructure was liquidated, the money to fight poverty and tackle social exclusion was reduced and mass unemployment was seen as a necessary consequence for the transformation to a free-market.

In 1989 the Polish People’s Republic did not lose its potential to develop, nor was it on the edges of breaking up. In the mid 1980’s the economy started to expand relatively quickly. Production as well as consumption went up and the infrastructure was developing. The budget at this time was balanced and there was no threat of experiencing a deficit. In foreign trade exports were more than imports. A lot of other countries in the region had far much smoother transformation than Poland. In Czech, Slovenia, and in Hungary the level of unemployment was by far lower than in our country. Smaller also was the area where there was poverty, lesser also was the social stratification level.

Balcerowicz played an important part not only in the very begining, but also in the years 1997-2000 when he became the vice-premier and the minister of finance. Again the effects of his policies just like for the first time affected a large part of Polish society. The politics of ”cooling the economy” reduced the dynamics of development. In 1993-1997 the GDP rose by above 5% annually, however in 2001 only by 1%.The second edition of Balcerowicz’s government brought about a drastic rise in the level of unemployment. In 1998 1,83 million people were unemployed and four years later 1,3 million people more. In accordance to his declarations Balcerowicz did not do anything to fight against poverty. In effect the number of people living under the minimum existence level rose from 5,4% to 9,5%. The number of people living under the minimum social subsistence went up considerably from 50,4% to 57% of the population.

At this time the stratification of income went up, the social spending was limited and state property was intensly commercialized, at the same time taxes for firms were reduced although that did not have a positive effect on the macroeconomic indexes. It is also important to note that in between 1997-2001 the national debt went up considerably. From 22% of the Gross Domestic Product to 25,6% and the deficit of the public financial sector went up from 2,9% to 5,1%. The politics of “cutting” and “cooling” did not correct the state of national finances — very much on the contrary.

Jerzy Buzek’s government in which Balcerowicz steered the economy also made four unsuccessful reforms. They brought fatal effects, which up to today, successive governments have not been able to deal with.

Piotr Szumlewicz
Translation: Marlon Nziramasanga

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