Systemic transformation in Poland

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Systemic transformation in Poland – the totality of changes initiated in Poland in the 1980s, which were aimed at building a free market, creating a civil society and democratization.

The reconstruction of the state covered almost all spheres of social life, so for research purposes the following subcategories of transformation are distinguished:

systemic transformation (implementation of democratic institutions and procedures)

economic transformation (creation of a free market based on private property)

social transformation (change of social mentality, acceptance of new rules).

Poland was the first country in the socialist camp to embark on the path of transformation. With the establishment of the Solidarity Trade Union in 1980, the foundations of a self-governing Republic were laid.

Table of contents

1 Political background 2 Political transformation

3 Economic transformation

3.1 Ownership transformation

4 Social transformation 5 Footnotes 6 Bibliography 7 External links

Political background[edit | edit code].

Political changes in Poland, inaugurated by a compromise between the communist authorities and the Solidarity opposition during the “round table” sessions, were accelerated by the first post-war, partially free parliamentary elections on June 4, 1989. The election results highlighted the lack of public support for those in power and enabled the opposition to form a government. The mission to form it was entrusted to a well-known opposition activist and union advisor to Lech Walesa, Tadeusz Mazowiecki. In the government of T. Mazowiecki, in addition to representatives of the Civic Club of Deputies, bringing together deputies from the Solidarity camp, included members of the parties in power during the communist era (PZPR, SD and ZSL)[1].

In a parliamentary speech delivered in late August 1989, Prime Minister T. Mazowiecki presented a program of systemic political and economic reforms. These were initiated by personnel and organizational changes in key state institutions, limiting the influence of the communists and their allies. The key position in the government on economic matters was given to Deputy Prime Minister and Finance Minister Leszek Balcerowicz[1].

In January 1990, the PZPR was dissolved, and some of its members formed the Social Democracy of the Republic of Poland (SdRP). The ZSL was replaced by the Polish People’s Party (PSL), which referred to the Mikolajczyk traditions. Groups operating illegally in the People’s Republic of Poland strengthened, and new parties were formed, bringing together representatives of the former opposition. The multiplicity of parties indicated the defeat of the communist-era mono-party system and the strengthening of political pluralism. It also revealed strong internal divisions in the former opposition environment and the weakness of the individual parties representing them[1].

These divisions appeared with full force during the presidential elections in the fall of 1990.The victory of L. Walesa’s victory and T. Mazowiecki’s defeat deepened the polarization of the anti-communist camp. T. Mazowiecki stepped down as prime minister, and his place was taken in early 1991 by Jan Krzysztof Bielecki, who came from the Liberal Democratic Congress (KL-D). The continuation of the economic reforms that had begun was symbolized by L. Balcerowicz’s retention of his current position in the government, while they were threatened by the exponentially increasing disputes and divisions within the ruling coalition, weakening them politically (the so-called “war on top”)[1].

All these circumstances influenced the low turnout and the results of the parliamentary elections in the fall of 1991.The Democratic Union (UD) of T. Mazowiecki and the post-communists received the most votes, although strongly dispersed. Mazowiecki and the post-communist Democratic Left Alliance (SLD), centered around Aleksander Kwasniewski’s SdRP. After a long struggle to form a government, Jan Olszewski of the Porozumienie Centrum (PC) headed it[1].

J. Olszewski’s government, which quickly came into conflict with President L. Walesa and the parliament against the background of an inept proposal for the vetting of state cadres, lasted only until mid-1992. It was replaced, after an unsuccessful attempt to form a government by Waldemar Pawlak of the PSL, by a cabinet formed by Hanna Suchocka of the UD. However, escalating political disputes on the right and a deepening conflict between the government, the Solidarity Trade Union and the president led to the collapse of H. Suchocka’s cabinet in May 1993 and the calling of early parliamentary elections[1].

The September 1993 elections resulted in the victory of the post-communists organized in the SLD and the defeat of the post-Solidarity groups. All that was left in the hands of the former opposition was the office of the President of the Republic of Poland and the so-called presidential ministries of national defense, internal affairs and foreign affairs. The public, confused and tired of the political disputes that were not always clear to it, and above all of the burdens of the economic reforms being carried out, opted for the leftist groupings, which under the conditions of the new political system fundamentally changed the political slogans they preached and raised hopes for painless systemic changes. The government formed by a coalition of the SLD and the PSL was headed by W. Pawlak, who was replaced in March 1995 by the more efficient SLD representative, Jozef Oleksy. Less than a year later, faced with allegations of espionage, Prime Minister J. Oleksy resigned. His place was taken by another SLD politician, Włodzimierz Cimoszewicz[1].

The successful campaign before the presidential elections in the fall of 1995 gave an advantage to SLD candidate A. Kwasniewski. His insignificant victory over L. Walesa led to a situation in which the left wing associated in coalition with the PSL regained its monopoly of power. Not only did it have an advantage in parliament and the government, but it also took over the presidential office. This facilitated the enactment of the new democratic Constitution of the Republic of Poland in 1997. Six years after the rise of the Solidarity government, groupings that had grown out of the struggle against the communist authorities found themselves once again in opposition[1].

However, these groupings did not stop in their efforts to reach for power in the next parliamentary elections. Marian Krzaklewski’s Electoral Action Solidarity (AWS), formed in 1996, was rapidly gaining popular support. After the victorious elections, the coalition of AWS and the Freedom Union (UW), formed in 1994 from the merger of KLD and UD, enabled the formation of Jerzy Buzek’s government in the fall of 1997. In his cabinet, the function of deputy prime minister in charge of economic affairs and finance minister was again entrusted to L. Balcerowicz, the leader of the UW[1].

However, the AWS-UW governments quickly began to lose public support under the influence of the country’s deteriorating economic situation, inefficiently implemented social and economic reforms and numerous manifestations of corruption. The diminished support for the government was compounded by disputes between AWS and UW, which in 2000 led to the resignation of UW ministers, including L. Balcerowicz. In the subsequent presidential election, the public, tired of political melees and the difficult economic situation, voted strongly for A. Kwasniewski to continue as president[1].

Political system transformation[edit | edit code].

See more in the article Poland’s political system, in the section Political system transformation.

The Round Table and the June 1989 elections, however, marked the beginning of the systemic transformation.

The first partially free elections were held on June 4 and 18, 1989 – as a result of which the Solidarity Civic Committee received the maximum number of seats allowed in the Sejm. On August 24, 1989, the Tadeusz Mazowiecki government was formed. At that time Wojciech Jaruzelski was appointed president. A year later, presidential elections were held, won by Lech Walesa. The first fully democratic parliamentary elections were held in 1991[2]. As a result, the first democratic government of Jan Olszewski was formed, and Poland became a fully democratic state.

The democratic government of Poland carried out many significant changes and reforms during the first years of the Third Republic. Initially, the Constitution of the People’s Republic of Poland was amended, changing the name of the country to the Republic of Poland, returning to the emblem of the crowned eagle and rejecting the principles of the communist one-party system[3].

See also: the Magdalenka talks, the April amendment, the December amendment, the Thick Dash and the Small Constitution of 1992.

Economic transformation[edit | edit code].

T. Mazowiecki’s government, established in 1989, embarked on sweeping economic reforms. They were an important part of the systemic transformation, prepared and implemented under the direction of Deputy Prime Minister L. Balcerowicz, with the participation of Western advisors. The first task of the reformers was to stop the price and income spiral, unleashed in the summer of 1989 by the last communist government, which turned into hyperinflation in the fall[1].

To counteract hyperinflation, L. Balcerowicz introduced a system of wage indexation, limiting wage increases, and led to the devaluation of the zloty from 988 zlotys (pre-denomination) in August to 6,500 zlotys per $1 in late December 1989. He also prepared changes to the outdated state budget, increasing its deficit but also increasing revenues, including by raising energy and alcohol prices. He also held talks with Western international institutions on economic aid to Poland, debt reduction and stabilization of the zloty[1].

In parallel with current activities, L. Balcerowicz worked on a package of comprehensive stabilization reforms and systemic changes, which were adopted by the Council of Ministers in October 1989 as the “Economic Program of the Government – Main Assumptions and Directions.” The program, dubbed the Balcerowicz Plan by journalists, was based on the assumption that a free choice of the country’s economic system was possible under conditions of political freedom. However, a proven system should be implemented, based on private ownership, competition, strong and convertible money and extensive foreign exchange, independent of state bureaucracy and trade union pressure[1].

The systemic and institutional reforms under the Balcerowicz plan included: eliminating the remnants of the system of central management of the economy, reactivating local government and municipal ownership, carrying out privatization, rejecting the principle of automatic financing of economic ventures, changing the tax system, making state-owned enterprises independent, introducing convertibility of money, liberalizing foreign trade, demonopolization, creating a real estate market, commercializing the banking and insurance sectors, organizing the securities market, facilitating the functioning of foreign investors and introducing social protection for the unemployed[1].

L. Balcerowicz believed that the creation of a new economic system must be coupled with a further determined fight against inflation. Given the monthly inflation rate of several tens of percent, he proposed radical moves (called radical therapy or shock therapy), consisting of limiting the amount of money flowing into the economy, lowering the ceiling on wage growth and setting a fixed (for several months) exchange rate for the currency. L. Balcerowicz was uncertain about the effectiveness of this policy due to the dominance of the state economy with its long-standing degeneration. However, he was convinced that a consistent fight against inflation was not only a condition for triggering the transformation of the economy, but also for its support by Western countries and the International Monetary Fund (IMF)[1].

The Balcerowicz plan was included in the stabilization package, which consisted of 11 laws adopted by the Sejm between Christmas and New Year’s Eve 1989. Contained in the new laws, the basic goals of economic policy for 1990 boiled down to limiting the budget deficit and stemming the rate of growth of the money supply. Capital expenditures were reduced, tax breaks were limited and subsidies, especially for energy carriers, were radically reduced. As a result, the prices of coal, gas and electricity rose dramatically (3-4 times). A high increase in passenger and freight railroad fares served the same purpose. The price changes were also corrective, gradually bringing their level closer to that of the world. In order to encourage savings in the national currency, interest rates on bank deposits were raised, making their rate more realistic[1].

Partial (internal) convertibility of the zloty was introduced and a fixed exchange rate for the zloty was set at 9,500 zlotys (pre-denomination) per $1. In May 1991, the way of shaping the zloty exchange rate was changed. Instead of to the dollar, the rate began to be set in relation to a so-called basket of currencies, which remained in place until the end of 1998. The basket consisted of 45% US dollars, 35% German marks, 10% British pounds, 5% French francs and 5% Swiss francs. In addition, since the autumn of 1991, the principle of creeping devaluation was applied, i.e. a daily increase in the value of the basket of currencies expressed in Polish zlotys. Initially, the devaluation amounted to 1.8% per month, and in subsequent years it was gradually reduced until it reached 0.5% in 1998. At the same time, the stepwise devaluation, which was carried out in February 1992 and August 1993, was not abandoned. The primary purpose of devaluation – as assumed – was to stimulate economic growth. In 1999, the composition of the National Bank of Poland’s basket of currencies was changed in connection with the establishment of the European Monetary Union and the euro common currency. The content of the basket was limited to two currencies – the euro and the dollar at a ratio of 55 to 45[1].

In an effort to curb excessive wage growth in companies, a tax on excessive wage growth, known as “popiwek,” was introduced. Exceeding a certain variable threshold drew, mainly on state-owned enterprises without a natural wage brake, tax sanctions. At the same time, taking advantage of the internal convertibility of the zloty, companies were obliged to sell export proceeds to banks and were allowed to purchase foreign currency to pay for imports[1].

At the same time as strong anti-inflationary brakes were put in place, a gradual liberalization of economic life began. As early as January 1990, 90% of prices were allowed to be set freely, which made it possible to reduce budget subsidies and gradually balance the market. All entities were allowed to conduct foreign trade, eliminating the state monopoly of foreign trade. In 1991, a new tariff was introduced that was protective in nature, while conforming to the norms of international law. Restrictions on land trade and land ownership by private farms were repealed. This did not apply to foreigners, who had to obtain permits from the Ministry of the Interior under the pre-war law still in force[1].

As part of the institutional transformation, reform of the budget sphere and tax system was undertaken. The central budget and local budgets were separated, and tax chambers and offices equipped with a strong fiscal executive were established. Changes were made to the tax system, taking its cues from the Western economy. Its basis became a unified corporate income tax, a general tax on personal income and a tax on goods and services (called VAT because of its design). The Anti-Monopoly Office was established to break up large monopolies in the sphere of production and trade[1].

Changes in industry were initiated by, among others, the Industrial Development Agency, established in 1991. Its funds were used to provide preferential loans aimed at the economic recovery of enterprises in poor economic condition. It also undertook the implementation of dozens of restructuring programs for specific industries and enterprises (including coal mining, metallurgy and the armaments industry). Some tax arrears were forgiven and arrears in payments to the Social Security Administration were tolerated[1].

State policy toward agriculture, in addition to privatization, focused on its gradual adaptation to the European Union’s Common Agricultural Policy and on raising the competitiveness necessary to expand exports. Subsidies were virtually eliminated, limiting assistance to tax breaks, protection against subsidized imports and preferential loans. Little effective protection against competitive imports was implemented through a system of tariffs and an import tax. Modest financial assistance – with foreign funds – was offered by the Agency for the Restructuring and Modernization of Agriculture. The activities of the Agricultural Market Agency, whose purpose was to intervene in the market for agricultural products, had mediocre results[1].

The central cooperative unions were abolished, allowing the demonopolization of cooperatives and their unfettered development. Local self-government was reactivated, with the communalized part of state property and independent budgets of municipalities as its economic basis. Various initiatives emerged to develop economic self-government representing the private sector. Commercialization of the state sector was launched as a prelude to its privatization, and the establishment of private banks was made possible. Legal action was taken, aiming to liquidate bankrupt enterprises and those that had lost their creditworthiness[1].

In addition to measures in the economic sphere, social protection was created for the growing number of unemployed and those in difficult material conditions. Unemployment benefits were introduced, usually paid for 12 months at 36% of the average wage in the economy. As part of the social welfare reform, permanent or periodic benefits were introduced, including for the purchase of medicines, for pregnant women and housing benefits. The allowances were in addition to those social institutions that were already in place[1].

Restrictive monetary policy was eased somewhat in June 1990. The burden of the “popiwek” was reduced and the NBP interest rate was lowered. The situation was complicated by the transition in early 1991 to dollar settlements with the USSR and the subsequent dissolution of the Comecon. It caused a sharp rise in fuel prices and a collapse in exports to former Eastern Bloc countries. There was a decline in production, a deterioration in the balance of payments and an increase in the budget deficit, mainly influenced by rising social spending. These unfavorable trends prompted the economic authorities to carry out a sharp devaluation of the zloty in May 1991 in order to make exports more attractive. A reduction in the interest rate on the NBP’s refinancing loan was supposed to stimulate the propensity to invest. At the same time, a law on companies with foreign participation was passed, encouraging foreign capital to invest in Poland.

The government of J. Olszewski, which took power in 1992, was critical of L. Balcerowicz’s economic policies. However, his finance ministers Karol Lutkowski and Andrzej Olechowski continued it, trying to combine curbing inflation with stimulating economic growth and profitable exports. A sharp devaluation of the zloty caused the dollar to rise, which stimulated exports. At the same time, import tariffs increased (especially heavily on cars) and a special fee was introduced to curb excessive imports of goods.

The political events of mid-1993 (the collapse of H. Suchocka’s government) negatively affected the effectiveness of economic policy. They inhibited the process of privatization and the implementation of new institutional solutions. A positive development in government policy was the agreement of the Enterprise Pact. It was formed by a package of laws relating to working conditions, social issues and the privatization of state-owned enterprises. The Pact on Enterprise created the legal conditions for improving the economic condition of state-run companies and their privatization, guaranteeing benefits for crews[1].

Formed in the autumn of 1993, the leftist SLD-PSL coalition government announced the adoption of a pro-social variant of the market economy. The outline of changes in economic policy, after a short tenure as Finance Minister Marek Borowski, was not presented until June 1994 in the form of the Strategy for Poland prepared by the next Deputy Prime Minister and Finance Minister Grzegorz W. Kołodko. The solutions contained therein ushered in a new phase of transformation, putting forward three priorities: rapid economic growth, systemic and macroeconomic stabilization and improved living conditions. As part of the implementation of the Strategy for Poland, “popiwek” was abolished, whose function of containing excessive wage growth was taken over by the Trilateral Commission for Social and Economic Affairs. Sitting on it, representatives of the government, trade unions and employers agreed on a maximum rate of incremental payroll counted for businesses employing more than 50 people[1].

Meanwhile, revealing disputes between the NBP, led by Hanna Gronkiewicz-Waltz, and the Ministry of Finance over monetary policy prompted conflicting decisions on interest rates. However, their increases dampened economic activity, while reductions had little effect on it, especially on exports[1].

A move of an orderly and psychological nature was the commencement of the equivalent denomination of the zloty by the NBP in 1995. It involved the gradual introduction into circulation of the new zloty in the ratio of 1 new zloty for 10,000 old zloty[1].

In general, the economic policy of the post-communist governments in 1994-1997 was more conservative than that implemented earlier. Fundamental structural reforms were not undertaken (e.g., in social security), and even the position of the state and the public sector in the economy was strengthened. Protection of the internal market from competition of foreign goods, especially agricultural goods, was maintained[1].

The inauguration in the autumn of 1997 of the functioning of the AWS-UW government was accompanied by serious perturbations in the world economy, especially in Russia. They carried serious threats to Poland’s economic prosperity. The government, particularly Deputy Prime Minister L. Balcerowicz and the NBP Monetary Policy Council, which was established in 1998. Monetary Policy Council of the National Bank of Poland advocated some cooling of the economy. In contrast, the head of the Government Center for Strategic Studies, Jerzy Kropiwnicki, and representatives of the opposition called for stimulating growth by lowering interest rates and devaluing the zloty. Despite the complicating economic situation, the government, in accordance with its election promises, made the necessary, but politically risky, decision to introduce local government reform in 1998, and to implement a new pension system, health care and education reform from 1999[1] (the Four Reforms Program).

Throughout the 1990-2000 period, the efforts of individual governments were directed at establishing closer contacts with international organizations of the Western world, facilitating trade in goods and reducing the burden of debt. On the basis of the Association Agreement between Poland and the European Communities, signed in December 1991, an interim agreement began to function in March 1992, regulating trade issues. In February 1994, the full agreement (the Europe Agreement) entered into force, covering issues such as the movement of labor and capital, services, legislative alignment and competition policy. In the same year, Poland applied for membership in the European Union, and then began painstaking negotiations and extensive adjustment work[1].

The Europe Agreement through liberalization of customs policy gradually opened the European Communities to Polish exports. A free trade zone for industrial goods was to be established within 10 years. On the other hand, more stringent treatment was given to agricultural products, making their import by the Union dependent on the pace at which Poland eliminated duties and fees on products exported by Western European countries. Similarly, more favorable conditions (mainly for industrial exports) were created by the December 1992 agreement with the countries of the European Free Trade Association (EFTA) on the establishment of a free trade zone, providing for a phased reduction of customs barriers[1].

An important development was the establishment of the Central European Free Trade Agreement (CEFTA) by Poland, the Czech Republic, Slovakia and Hungary in December 1992, which Slovenia, Romania and Bulgaria joined in 1996-1998. The goal of CEFTA, which was inaugurated in 1994, was to create a free trade zone for industrial goods and liberalize trade in agri-food products[1].

In December 1989, the Polish government sent to the IMF a Letter of Intent and Memorandum of Understanding, containing the assumptions of the economic program and economic policy goals. The documents, accepted by the IMF, were the basis for granting Poland a loan of more than $720 million. At the same time, the industrialized countries created a Stabilization Fund, which consisted of donations, loans and lines of credit worth about $1 billion. These funds were to be used to achieve partial convertibility of the zloty. The Polish side made efforts to use the Stabilization Fund for the restructuring of the banking system and privatization. The full utilization of IMF aid was hindered by excessive budget deficits and inflation, which exceeded the arrangements between the Polish government and IMF authorities[1].

Aid also came from the International Bank for Reconstruction and Development (World Bank), the European Bank for Reconstruction and Development (EBRD), the OECD (Organization for Economic Cooperation and Development) and the Commission of the European Union. The main objectives of this aid were reforms of the economic system (including privatization), changes in the structure of manufacturing and raising Poland’s creditworthiness. The European Union alone transferred more than 2 billion euros to Poland between 1990 and 1999, mainly for various purposes related to regional development[1].

A fundamental problem in international financial relations remained the issue of debt to Western countries, which the IMF tried to alleviate. Poland’s creditors were concentrated in two groups, together covering 89% of the debt. The first was made up of the 17 countries of the Paris Club, representing loans guaranteed by governments, while the second included representatives of commercial banks (the London Club). Talks with the clubs were not easy, especially with regard to loans taken from commercial banks. Initially, they led to an agreement with the Paris Club in February 1990, suspending all Polish payments for one year. Only then was a diplomatic offensive launched to reduce the debt. An agreement with the Paris Club was reached in 1991, and negotiations with the London Club dragged on until 1994.[1]

As a result of the agreements with the Paris Club, 20-30% of Poland’s national debt was forgiven and interest payments were radically reduced. The arrangements with the London Club meant a 49% reduction in debt, including outstanding interest. After the reductions, Poland found itself in the group of moderately indebted, more creditworthy countries[1].

Ownership transformation[edit | edit code].

Separate article: Ownership transformation in Poland after 1989.

An essential element of the political transformation became the privatization process, the legal framework of which was created by several laws. These included the Act of July 13, 1990 on the privatization of state-owned enterprises; the Act of October 19, 1991 on the management of agricultural properties of the State Treasury and amendments to certain laws; the Act of April 30, 1993 on national investment funds and their privatization; and the Act of August 30, 1996 on the commercialization and privatization of state-owned enterprises. The Law of September 25, 1981 on state-owned enterprises was also used, allowing for their liquidation[1].

The aforementioned laws were the basis for the adoption of several privatization paths. Thus, the capital path (indirect privatization) consisted of transforming the largest state-owned enterprises into sole proprietorships of the State Treasury, i.e. their commercialization. Subsequently, the shares or stocks of the stand-alone companies were acquired by investors, mainly strategic ones. Single-member companies of the State Treasury were also included in the process of mass privatization using National Investment Funds (NFIs). Small and medium-sized enterprises benefited from the liquidation path (direct privatization). Under it, the assets of state-owned enterprises were sold, contributed to companies or given away for a fee. Agricultural land of state-owned farms was included in the Agricultural Property Stock of the State Treasury before its privatization. In addition to top-down controlled privatization, bottom-up foundational privatization with the participation of domestic and foreign capital began to develop[1].

In September 1989, the Office of the Government Plenipotentiary for Ownership Transformation was established – within the Ministry of Finance. It prepared the privatization program, and among its first tasks was to block the process of creating “nomenklatura” companies, which had been growing since the beginning of 1989. These were created as a result of the seizure of state assets by people connected with the managements of state enterprises or the former authorities, enfranchising a selected social group at the expense of others. On the basis of the July 1990 law, the privatization of state assets was entrusted to the Ministry of Ownership Transformation. They were assisted by various institutions, including the Agricultural Property Agency of the State Treasury, established in 1992, whose main purpose was to manage the land of liquidated state farms. Since 1996, the problem of ownership transformation has been concentrated in the Ministry of the Treasury[1].

An important event for the ownership transformation process was the launch of the Warsaw Stock Exchange in April 1991. The first companies whose shares were listed were industrial and construction companies: Tonsil, Próchnik, Krosno, Exbud, Kable, followed by Swarzędz, Wólczanka, Żywiec and Wedel. This inaugurated a broader process of ownership transformation through capital. In 2000, the stock market listed shares of 194 companies, as well as Treasury bonds, futures contracts and other securities. Turnover on the stock market increased from just 29.2 million in 1991 to 232.6 billion in 2000.The stock market strengthened the foundations of Poland’s market economy and accelerated the process of ownership transformation[1].

The pace of privatization was a function of the political will of the authorities and organizational preparations, and, above all, interest from capital. The commitment of individual governments to ownership transformation varied. In general, greater progress was recorded during the post-Solidarity than post-communist teams in power. It should be stressed, however, that the basic obstacle to rapid privatization was the scarcity of domestic capital. Foreign capital, initially quite restrained, began to flow in by a greater stream from 1992 onward, motivated by the size of the Polish market, the emerging economic growth, the low cost of labor and the strengthening of market reforms[1].

Foreign capital purchased privatized enterprises, formed joint ventures and purchased shares on the stock market[1].

Initially, American, multinational, German, Italian, French and Dutch companies showed the greatest interest in investing in Poland. Their capitals were directed mainly to trade and manufacturing industries. By 1994, the value of foreign direct investment had reached $4.3 billion. The situation in this regard was definitely improved in 1995, when the value of foreign investment increased by $2.5 billion. Purchases in Poland were made by British American Tobacco, Michelin and Goodyear, among others. Between 1990 and 2000, the total value of foreign capital reached $45 billion, while the main countries of origin were: France, the US, Germany and the Netherlands. More than $1 billion was invested by the following corporations: Daewoo, Fiat, Vivendi, United Pan-Europe Communications, RAO Gazprom, UniCredito Italiano and Bayerische Hypo- und Vereinsbank AG. Poland received 30% of the investments that flowed into Central and Eastern Europe. However, on a per capita basis, the involvement of foreign capital in Poland remained much lower than in Hungary, Slovakia and the Czech Republic[1].

Between 1990 and 2000, the ownership transformation process covered 75% of state-owned enterprises. As part of capital privatization, nearly 1,500 sole proprietorships of the State Treasury were created, of which 1/3 were privatized. Enterprises ended up almost half each in the hands of Polish and foreign capital. Among the largest transactions were the sales of: KGHM “Polska Miedź” S.A., Celulozy “Świecie” S.A., Zakłady Przemysłu Tytoniowego Kraków S.A., Bank Handlowy w Warszawie S.A., Bank Pekao S.A., Bank Przemysłowo-Handlowy S.A., Powszechny Zakład Ubezpieczeń S.A. and Telekomunikacja Polska S.A.[1].

Direct privatization included 1,800 companies with up to 500 employees. Leasing assets to employee companies was particularly attractive, motivated by the desire to preserve jobs. Their establishment had a positive impact on labor relations, as well as on the economic performance of enterprises. The economically weakest enterprises were put up for sale in open tenders[1].

The results of top-down privatization, which deviated from predictions, meant that in 2000 there were still 2268 state-owned enterprises in operation, or 1/4 of their 1990 number. Most state-owned enterprises – especially coal mines, armaments plants and the Polish State Railways – were experiencing serious financial problems and were plagued by labor conflicts[1].

Among the more complicated was the process of privatizing PGRs, due in part to their concentration in the west and north of Poland, while there was an excess of agricultural population in the center and south of the country. The land of the PGRs, a total of 4.7 million hectares, was incorporated into the Agricultural Property Stock of the State Treasury. By 2000, 967,000 hectares, or just 21% of the acquired land, had been sold. Most of the ZWRSP land (55%) was leased, including to foreigners[1].

The shortage of capital, high prices for credit and rental of premises made the so-called “small privatization” the driving force of ownership transformation. It consisted of buying small state or cooperative enterprises and starting new ones, mainly commercial ones. Between 1990 and 1994 alone, more than 800,000 enterprises arrived, often with little capital, but very active[1].

The increase in the number of private enterprises was also influenced by the reclassification of cooperatives. In the People’s Republic of Poland, they were part of the so-called socialized sector, while in the Third Republic of Poland, they have bolstered private ownership. The rapid growth in the number of small businesses was halted in the mid-1990s as a result of market saturation and escalating bankruptcies, as well as because of high tax burdens, expensive credit and insufficient demand. In the second half of the 1990s, the number of single-owner enterprises remained at more than 2 million. Among small businesses, trading companies and repair shops dominated (38%)[1].

The banking sector, which by 1989 was characterized by far-reaching nationalization and centralization, underwent a fundamental transformation. The state form of the NBP as a state bank, issuing bank and bank of banks was preserved. However, the 9 largest district branches were separated from its structure to form a network of state-owned universal banks. The establishment of banks was also permitted: public banks, with mixed state-private capital, and private banks, including those with foreign capital[1].

In 1991, the new state-owned banks were transformed into state-owned joint stock companies and preparations were made for their privatization. Bank Rozwoju Eksportu S.A. was the first to be privatized and listed on the stock exchange, followed by: Wielkopolski Bank Kredytowy S.A. and Bank Przemysłowo-Handlowy S.A. in Cracow. At the same time, banks in the form of joint-stock companies were dynamically created in 1990-1991. In the following years, as a result of stricter licensing requirements, the number of newly created banks fell dramatically. In addition, the tendency to merge small banks, especially cooperative banks, intensified. As a result, the number of banks (excluding cooperative banks), which in 1992 approached 100, was 77 in 1995. The following years also brought bank mergers, and banking groups emerged from them, such as Bank Pekao S.A. took over: Pomorski Bank Kredytowy, Bank Depozytowo-Kredytowy and Powszechny Bank Gospodarczy. The privatization process also continued with extensive participation of foreign capital, e.g. in 1999 Bank Pekao S.A. was bought by Italian capital, and Bank Handlowy S.A. in Warsaw by American capital. Large global banks also established their branches, such as Deutsche Bank, Crédit Lyonnais and Creditanstalt. The share of foreign capital in the assets of the Polish banking sector approached 80%[1].

At the same time as direct and indirect privatization, preparations were underway for general privatization, involving the transfer to all adult citizens of 60% of the assets of 512 state-owned enterprises, which became part of 15 National Investment Funds. In November 1995, the first stage of universal privatization, i.e. the sale of share certificates to every adult Polish citizen, began. By 2000, half of the companies participating in the NFI program had been privatized[1].

The expansion of large and small capital, including foreign capital, induced significant changes in the ownership structure of the economy. In 1993, the share of the private sector in GDP creation exceeded 50%, when as recently as 1990 it did not exceed 1/3. In 2000, the private sector participated in GDP creation at 63%. Correspondingly, the percentage of private sector employment, relative to total employment, increased from 49% in 1990 to 74% in 2000. The private sector played the largest role in construction (96% of output sold), retail trade (95% of sales), agriculture (95% of output) and industry (72% of output sold)[1].

Structural changes also occurred in the public sector, mainly after the reactivation of local government. The Law on Local Self-Government of March 8, 1990 recognized the municipality as the primary entity for field activity, entrusted with all public affairs of local importance not reserved by law to other entities. By operation of law, municipalities acquired those assets that had been at the direct disposal of the former national councils and local state administration bodies. This resulted in the municipalization of a portion of state property, creating a new form of ownership that formed the basis of the developing local democracy. Its consolidation was served by the administrative division of the country into counties and large provinces – regions – introduced in 1999[1].

See also the Wilczek Law and the Program for the Commercialization of State Enterprises.

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