THE ROLE OF PRIVATIZATION IN THE DEVELOPMENT OF THE CAPITAL MARKET IN POLAND
by Professor Jozef Okolski
(Article Reference: Document No.13, Chapter 3, November 2000)

When in 1989 Poland was the first European country to regain its political independence, it faced a disastrous economic situation resulting from 45 years of communist rule. Due to the Yalta declaration, which left Poland under Soviet control, and of the basis of the falsified referendum of 1946, the communist authorities carried out a hasty nationalization of the means of production and marginalized the so-called "private initiative".

The principal that individuals could only possess consumer goods, whereas production goods could be owned solely by the state or the organizations included in the category of socialized economy units, was an unquestioned truth of the Marxist doctrine. This model was not fully implemented, as individual farmers still owned a large acreage of land and there existed private craftsmanship, nevertheless state-owned enterprises and production co-operatives dominated the economic relations. However, the rights to the means of production vested in these entities had to be executed in a specific way. The socialized economy units had neither the liberty to dispose of nor to use the property they were entrusted with. In particular, as far as state-owned enterprises are concerned, the principal of unity of state property was a very important factor. According to this principal, state organizational units were not the owners but merely the "trustees" of the assets in their possession. Superior units could at any time separate the individual constituents of property of a given enterprise (or other unit) and transfer them to another entity. They could also reorganize the enterprise or even reserve to themselves the right to dispose of its fixed assets.

This was closely related to the constitutional principal of planned economy and the hierarchical system of planning acts. Its most important element was the 6-year plan, passed and controlled by the Seym on the model of the Soviet five-year plans. Its execution was supervised by an extensive economic administration, and the whole system is justly referred to as an "order-control" one. Its disadvantages quickly resulted on the one hand of a decrease of work efficiency and waste of means and on the other hand in many failed investments. Let us just bear in mind that in 1989 the Polish debt towards foreign governments and banks reached the staggering amount of USD 40 billion.

This gave rise to growing dissatisfaction in the society. This sentiment manifested itself for example in the indifference towards the economic policies of the state, including the methods of the national economy management. In early eighties this forced the authorities to significantly change the political "course" through limiting the number of directive indexes communicated to an enterprise by its superior unit, and soon replacing them with economic parameters.

This took place within the confines of a reform, which provided, among other things, for greater self-dependence of enterprises and subjected them to market mechanisms in order to improve their efficiency. Such solutions agreed to a large extent with the demands of the opposition, represented most of all by the "Solidarity" trade union. Consequently state owned enterprises became self-dependent, self governing and self financing economic entities. Any disputes between the enterprises and their founding bodies were to be resolved by courts. The authority over the enterprises was transferred from the state officials to the workers. (It is worth noting that today we still have to cope with the consequences of this situation.) However, the naive hopes of the reform's authors have not come true; the expected increase of commitment of employees to the development of the employing institutions has not taken place. Instead, the aberrant system in which the employee imposes his will upon the employer has become established.

The second, better thought out tool of the reform was the hesitant acceptance of private business entities and an attempt at attracting foreign investors. The legislative amendments made in 1982 made possible the creation of the so-called "Polonia companies", based on solely foreign or mixed capital. This trend was reinforced with the Act of 1986 on Companies with Foreign Participation, and the whole process found its culmination in December 1988, in the proclamation of economic freedom.

As it can be concluded from the above, private initiative ceased to be a taboo already at the times of communist rule (it is worth noting that the same happened in Hungary). Nevertheless, the attempts at reforming the Polish economy could not prevent the collapse, which the country faced in early 90s.

Therefore, the first non-communist governments after the war were burdened with repairing the mistakes of the fifty-year-long dictatorship. The program announced in October 1989 provided for the creation of a market economic system, modeled on the systems existing in the developed countries of Western Europe.

As the experience has shown, market economy may not function in an efficient way without private ownership. Therefore, privatization became one of the most important instruments of the systematic transformations. Privatization is commonly understood as the entirety of actions aiming at the development of the private sector, or just the ownership transformations of the existing public sector. The former process takes place through creating, and expanding the potential of the existing private companies by virtue of e.g. appropriate credit, taxation and customs policies. It is worth mentioning here that during the declining years of the communist system there existed a phenomenon of 'informal', 'nomenclature' privatization, which is hard to assess. Is consisted in a discreet transfer of assets of state owned enterprises and production co-operatives into private hands, most often for the benefit of persons managing these entities. This resulted from the weakness of the state supervision and the considerable freedom of decision-making by socialized economy units.


>> next