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An Analysis of the Economic Transition of Poland

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    Introduction

    The changes that took place in Poland in the recent decade have taken the attention of the Polish populace as well as the world in general. The implemented policies of Poland’s government took a primary adjustment of the economic framework after along with the transition made by other former Soviet republics in Central Europe. This happened as the priorities of the Polish government shifted in the aftermath of the Solidarity trade union that took power in 1989 (Commiso, 1998). Such economic framework change started the move of the bleak Polish economy to a liberalized market economy in 1989 that prompted extensive monetary, communal and institutional alterations in the previous political system of the country. The development of the transition that took place in Poland from a Soviet-patterned Marxist economy to a more liberal market economy is then welcomed as a rationale that intends to free the economy. The activities therein distinctive to a capitalist economy brought about many social and economic implications, both positive and negative to the country. The social welfare services that were provided by the government decreased as corporate employers have discarded several practices in the old system. With the liberalization efforts, new relationships were also opened for Poland into the Western European neighbors as well the United States (Pawlik, 2005).

    This resulted to the weakening of the economic stance of several households after the new dependence on these households’ personal resources with little help from the Polish government (Pawlik, 2005). New problems therefore became evident as the sudden shift caused much more problems than solutions that the government had not foreseen. This paper then will analyze the factors that led to this outcome as well as look upon the measures that could have been taken to overturn such situation.

    Policy Inconsistencies in the Polish Economic Transition

    Polish economic growth remained sizeable and inflation was immediately carefully managed. This was done through the appreciation of the local currency, the Zloty, which was then heavily devalued (Pawlik, 2005). This then became a factor more than a benefit to the country’s export industry as the appreciation led to a poor revenue stint in 1991. Undeniably, the only positive instance in the 1991 Polish economic condition was the government’s accord with the French government. This deal minimized the serious hard exchange liability that amounted to about $45 billion into half the same year (Pawlik, 2005).

    A year after, however, the Polish financial system had already bowed down to economic pressures although growth still continued on. Poland’s economic growth faired in even at about a high of 5 percent in the succeeding years (Koen, 2006). Furthermore, the framework of the current economy of Poland fluctuates in major instances that differentiate it from the previous socialist economic system. Before, flourishing industries as well as promising segments of the economy are labor-intensive, consumer-driven, and are greatly dominated by several corporate entities. International trade has positively made a significant role in the country’s growth as several industries made improvements. Apparel as well as footwear manufacturing industries has flourished alongside forest product industries. The number of workers in the services sector also increased and unemployment rates went down. This was then contrasted by the decrease of the labor force distribution in the country. Likewise, both the course and objectives of Poland’s international trade relations have adapted the change as well especially with its neighboring European countries (Koen, 2006). For example, Germany outranked the Soviet Union as the country’s single largest trading partner. Also, the European Union in general dominated two-thirds of Polish foreign trade by 1995. This figure went up from 25% in 1987. Lastly, one of the most significant inconsistencies appears on the domestic private sector which was the primary reason for Polish economic growth.. The investments from lesser, mostly underground corporations have improved accordingly along with other indications that vary frameworks of downsizing the economy were taking root between the Polish government as well as the  private sector (Skrok, 1997).

    Government-controlled corporations were able to stimulate workforce outputs by 11 percent which can entirely be offset by lowering employment by around 10 percent. However, the output of the Polish private sector dramatically climbed at 20 per cent whereas the employment rate has also improved by 13 percent (Skrok, 1997). Practically, the fundamental and abrupt mixture of an immediate economic liberalization policy was deemed partly successful in the eyes of promptly majority of Poles.

    Story of the Polish Economic Transition

    Economic development in Poland in this study is mostly described by the presence of post-socialist governments’ set-ups that fall under two dimensions. Foremost, Polish economic transition is widely viewed as a process of westernization of the former eastern bloc nation.  This was done through a strengthened trade and political relationships with their western neighbors that resulted to Poland’s entering into NATO and the European Union as well as the OECD (Pawlik, 2005). Another consequence of this economic transition is a sort of estrangement from the eastern bloc as shown by the abolition of CMEA as well as Soviet trade relations. This situation continued on amidst inabilities of the government towards the decline of conventional trade partners that caused so many Eastern European firms to close down (Pawlik, 2005). Another is that, the concept of development is compensated by the formation of an economic structure based on competitive markets and private ownership. This is explained by the existence of a normal economy which has an obvious of the public from the private domain. The parameters of development likewise in the attainment these economic objectives are not focused on the conventional factors connected with development elsewhere especially in the Western bloc (Pawlik, 2005). The factors of economic development as well as the primary framework of labor, and the modernization the Polish technological capabilities improved living standards. Such factors have become significant to policy makers. As a result, reviews of Polish economic performance have often seen economic progress in rather different variables. These variables include the diminishing rates of employment contribution as well as the increased unemployment rates (Commiso, 1998). This is then coupled by a falling national income share which comes from Polish industrial and manufacturing activities that entails a drop in real earnings. High income and prosperity differences and other such significant add to these certain variables (Commiso, 1998). On the other hand, the agricultural sector in Poland was never socialized and majority of the land was tended by a small number of farmers. This contrasting case only makes sense after the realization that Poland’s abandonment of a socialist economic framework are seen by the government as the primary work rather than fighting off underdevelopment for economic reasons (Koen, 2006).

    Issues of the Polish Economic Transition

    The changes in policies of partaking in the Polish labour market after the economic transition have greatly affected women (Cielecka, 1996). More often than men, far more women have found it hard to be employed and use such compensations with child care and domestic their other household tasks. A study conducted in the 1990s has proved that jobless women in Poland have lesser chances being employed and rather constitute a high unemployment rate than Polish men. Such disparity in gender is much likely related to their civil status wherein married men have a high chance of employment as compared to married women (Cielecka, 1996).

    The number of marriages in Poland dropped from over 300,000 to 200,000, and at the same time fertility rates decreased from 600,000 to 400,000 and the total number which has been below 2.1 that is under the generation replacement level since the early 1990s in a span of a decade (Wroblewska, 2002). Technological and cultural transformations also accompanied political and economic changes since 1989. The abolition of the bans on access to information as well as the development of telecommunications diffused pluralism and liberalism and promote the increasing democratization of social life. The influence of the Church and Polish traditional family values has decreased while feelings of independence and individualism have also grown over recent years (Wroblewska, 2002). The underdeveloped childcare services and inflexible working hours in Poland worsened Women’s difficulties in combining occupational activity with household duties as well as the increasing requirements of employers. The shock caused by the transformation changes and changed labour market requirements have resulted in major demographic changes as well as the quick decline in marriages and births were brought about by the difficulties in obtaining adequate housing, together with in particular (Wroblewska, 2002).

    Obstacles for Growth under the Polish Agenda

    One thing that differentiated Poland from its neighbors who adapted similar economic transitions was the way it handled such events (Commiso, 1998). This specifically includes the direct and synchronized introduction of liberalization and stabilization in a single package of policy measures adopted by the Sejm in 1989. Such new policies affect the agricultural sector as well as the peasantry rates to which economic policies after it has largely been a process of modification of such significant components to the highly vocal domestic interests harmed to make it more persuasive to the Polish people (Commiso, 1998). The Polish economic transition then to an argument over continuation and sustenance of growth in 1992 after the first phase of the Balcerowicz plan of whether or not to modify such policies in the process, if true, Poland then deviated from the Washington Consensus, this being implemented without changing the vital policy included in the 1990 package (Commiso, 1998)..

    Several significant changes are important to make emerging Polish industries palatable in the international arena. The changes which have been implemented so quickly in a short span of time in the vital economic sectors such as agriculture and commercial industries is going on at a slower rate in the current infrastructures of the country. Sparse product offerings in the novel private corporate entities will be made in Poland in the absence of significant starting capitals (Commiso, 1998). A lot of alterations in the current policies require big capital investments in innovative processes and economic tools.

    The Balcerowicz shock therapy was adopted under circumstances unusual even in Eastern Europe at the time where near hyper-inflation is dominant (Comisso, 1998). For example, the hanging dilemma on the actions of the former Soviet Union to the economic transition along its neighbors and sphere of influence can be seen evident in the honeymoon period which was initially put upon by the Polish government. On January 1, 1990, the first non-communist economy in the Eastern Bloc along with the group of economic indicators that went into place were widely discussed elsewhere (Commiso, 1998).

    The economic transition policies in Poland very much succeeded in its primary objective of injecting capital in the country, most of which in a swift manner that shifted from an extent wherein citizens move with capital lined up in front of stores whose shelves are empty. Potential buyers lacked the personal income to buy goods even if stores were well stocked.  And through the decline of the GDP by about 12 percent in 1990, outputs followed suit. This was followed by another one in 1991, after the CMEA trade declined and unemployment rates started to rise to two-digit levels (Commiso, 1998).

    Practically everything was addressed in the aftermath of the “Big Bang” policy in January 1, 1990 which involved a 40% depreciation of the local currency to a fixed rate that would gauge in as an indicator for other macroeconomic measures. The primary objective then of the of changed fiscal policy was to minimize the Polish government’s budget deficit to 1 percent of the total Polish GDP in 1990 (Commiso, 1998). Key tax cuts were made in the overall government spending that includes the abolition of government subsidies on key industries with the coal industry being the only exclusion. Significantly, the popiwek appear inapplicable to corporate companies but it eventually empowered companies to compete globally in terms of labor force offering terms for qualified labor (Pawlik, 2005). Another significant factor is for government efforts to be able to tone down inflation rates with little excess in wages tax implemented on all state enterprises. This happens as real wage rates thus declined by 25 percent from 1989 inflation rates. The end result was a close to termination of bank lending in the first two months of the implementation of the program as well as the evident rise of stipulated lending by companies to among themselves (Koen, 2006). Fiscal policies were stricter in the new policy, providing positive real interest rates that came into effect immediately. This coupled with the banks’ reserve requirements increased dramatically in the coming years. Lastly, the tariff rates were made at remarkably levels low enough for small and medium enterprises. Such rates made foreign trade to undergo a major liberalization move which was does not only include quantitative restrictions on imports but exports removed as well (Koen, 2006).

    Negative Implications of the Polish Transition

    The economic transition was extremely disliked on a political perspective because of the production of a wave of political gridlocks in the Polish government (Pawlik, 2005). One setback was the questioning of the absence of the privatization measures in Phase II of the economic transition as well as the disagreements within government as it made impossible to move forward methodically. Arguments concerning the various privatization programs under Phase II were a key indicator in toppling the Suhocka government in 1993.  The new government then postponed on the implementation of the second phase of the economic transition (Pawlik, 2005). This then resulted to the policy which has only started this year, after a number of corporations involved in the Phase I downsized from the original plans. Generally, by 1996, comparatively a small number of large companies had been privatized to either private local or international buyers (Skrok, 1997). FDI has been sluggish to cope up in spite of new and more liberal policies regarding foreign investments on Poland that was legislated in 1991. Such legislations focus specifically on the size of the local Polish markets as well as favorable labor costs for the Poles. The rationale for this unwillingness may oftentimes vary, yet would include policies on local labor status for militancy as well as the battle by some companies to rights of a foreigner. This was then supported by the sustained debates on whether privatization measures should be done (Pawlik, 2005).

    The depreciated Polish currency coupled with liberalizations price policies as well as records piled up from 1989 records which allowed corporations to approve heavy price increases. This turned out into soaring profits in spite of a steep sales drop. The surplus wage tax likewise made its contribution to economic profitability. This induced labor costs would not cope up with inflation and government-initiated energy prices that could lower production costs as well. On the side of the government, a big part of Polish revenues were obtained from corporate taxes they get (Pawlik, 2005).

    The Role of the International Community

    The new opportunities that the Polish economic transition, in 2005 made expectations for it not to fail in its objectives within the short run. This likewise made the Polish economy to progress as it expanded its economic potentials at a faster rate. Positively, following a protracted spell of much-deplored economic policies, investments are thriving (Skrok, 1997). Many transparent instances have become evident for certain factors that work along with the economic transition. Over the years, the equally spectacular and at least as welcome is the strikingly fast decrease in unemployment rates.

    First, the country reaped the advantage of globalization that followed suit as well as the recovery it needed to cope with the European Union economies. Polish export volumes have been estimated to increase by 16% this year (Koen, 2006). This was brought about by a significant rise in local consumer demand on local products (Pawlik, 2005).

    Moreover, as concerns of higher revenues from increased energy prices and long-term interest rates, risks surround the global outlook and yields from government bonds stay put at a low rate though Poland has improved since 2005 (Pawlik, 2005). Even though, prices on the crude market which is close to $60 per barrel, remain at a high rate and have toned down the significance of the prices (Koen, 2006). Small margins of spare capacity in the residential construction will increase to more than the current rate which could stall consumption and foreign direct investments to Poland. The existence of demand shocks could quickly push the Polish government  to strengthen policies through supply disruption (Koen, 2006).

    On the other hand, this good news is half realistic. As Poland’s economic growth faired in at four and a half percent within the past five years and over five percent since 2004, Poland can be said to be on the way to economic recovery (Pawlik, 2005). Furthermore, the economic growth in Poland is still not expected carry on fast enough right ahead in the first coming years. It would have improvements yet on a slow but steady pace (Koen, 2006).

    Conclusion

                The economic transition then that was implemented in Poland in the late 80s was proved to be abrupt and was impractical for the Polish economy as a whole. Factors that contributed to such conclusion were the inability of the Polish government to faithfully monitor the vital economies of scale that include the Polish demographic situations. The sudden shift towards a marketing economy was also the main reason why the Polish population became heavily dependent on their personal resources or income that thereby lead to a greater loss of economic opportunities in the early 90s. Poland has also implemented certain provisions in the Washington Consensus although was pretty much unsuccessful in the privatization of some government-owned corporations. However, the move also opened new doors for Poland to establish greater ties with the Western economies that assured the country of economic security in the long run through its membership with NATO, the OECD and the European Union.  With such situation, Polish economy amidst its slow movement towards progress can be said to be on the way to economic recovery and at par with its European neighbors.

    Reference:

    CIELECKA, A. (1996) Pole’s Evaluation of the Benefits of the Polish Economic Transformation: A Rectification of the Misleading of Jeffrey Sachs, Springer Netherlands.

    COMISSO, E. (1998) ”Implicit” Development Strategies in Central East Europe and Cross-National Production Networks. University of California, Berkeley.

    COMMISO, E. (1998) Implicit Development Strategies in Central East Europe and Cross-National Production Networks.

    KOEN, V. (2006) The “Soaring Eagle”: Poland’s Economic Performance and Challenges.

    PAWLIK, K. (2005) Increasing Role of Foreign Capital in Polish Economy Since 1993. Aarhus School of Business, Department of Management.

    SKROK, W. (1997) Economic Outlook of Polish Economy for 1998. ERI.

    WROBLEWSKA, W. (2002) Women’s Health Status in Poland in the Transition to A Market Economy. Warsaw School of Economics

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