Transition to the Market Economy: Poland, 1989-93 in Comparative Perspective

Abstract

Poland: the economic outcomes Leszek Balcerowicz The principal architect of Poland's radical reform strategy in 1990 analyses here its economic outcomes. Prior to reform, the characteristics which distinguished the Polish economy from other socialist economies in Central Europe were: – the critical nature of the hyperinflation and accompanying macroeconomic crisis in 1989; – the magnitude of the country's external debt; – the particularly strong socio-political position of the labour movement in general, and of the employees of state enterprises in particular; – a level of dependence of the USSR which, though dramatic, was less than that of its neighbours; – less economic centralization and a greater degree of private ownership in agriculture than elsewhere. The last two factors were favorable, but the first three – most particularly the heavy legacy of hyperinflation – were economically unfavorable. On balance, Poland entered reform with a substantial disadvantage. Nonetheless, its macroeconomic performance in the four years which followed reform was relatively better than that of its neighbours. The crown jewel of Poland's success was the halt of hyperinflation. This was not achieved at a relatively greater cost in output. Cumulative GDP decline was less than elsewhere (though, after adjustment for the effects of the CMEA shock, the differences are not large). Balcerowicz attributes Poland's relative success to the salient characteristics of its reform programme: it was rapid, radical, comprehensive and consistent. Romania, for one, followed the opposite course of ‘stop-go gradualism’. That country's accelerating inflation and deep decline in output suggests what might have happened to Poland had it followed a softer approach.