Poland’s economic shock therapy still controversial after 30 years

1990 economic shock therapist Leszek Balcerowicz regrets only that reforms did not go far enough.

“Socialism never fulfilled its promise of prosperity,” the author of the shock therapy told Rzeczpospolita daily.  Thirty years ago ,on 1 January 1990, the measures to reform the indebted and stagnant Polish economy, which became known as the Balcerowicz Plan, came into effect, modernising the economy, but not without social and economic costs.

Overnight on that New Year's Day, printing money to cover rising public spending deficits was stopped in its tracks after inflation had spiralled to 30 percent per month by late 1989. The companies wage funds were also heavily taxed to cap wage inflation.

The first effect of the monetarist reforms for the general public was that bread and fuel prices were freed of subsidies and rose by up to 400 percent. As Balcerowicz has said in the introductory speech for his reforms „we have to stop the game where the state pretends to pay and the workers pretend to work”.

As a result of the dramatic drop in state subsidies, scores of state-owned companies, which could not adapt quickly enough closed down. Many had previously relied on guaranteed markets in countries of the fast-collapsing Eastern bloc, and orders had dropped off a cliff, giving no time to find buyers for their production elsewhere. Ironically, one of the major victims of the reform was the Gdańsk shipyards, where Poland’s freedom movement Solidarity had begun.

For such far-reaching Chicago-school monetarist reforms to emerge from the Solidarity government, which less than a year previously had been a trade union movement, was a sign of a huge intellectual shift towards belief in the free market in Poland.

It came at a time when the monetarist government of Margaret Thatcher was in its third term and Francis Fukuyama was announcing the end of history and the victory of liberal democracy. 

For many observers, the element of surprise was one of the main elements of success of the plan to reboot the economy, as not many people within the Solidarity movement properly understood what was coming their way. 

Criticism of the rapid privatisation of communally-owned assets spread as evidence of widespread asset stripping emerged.

Unemployment rose dramatically from the official zero percent in 1989 to over 16 percent in 1994 and would remain a key social problem until recently.

However, the plan began to work. A moratorium on Poland’s foreign debt for eight years was agreed in two tranches 1991 in return for promises of wide-scale privatisation of state-owned companies. Poland would otherwise have been unable to service its debts with the Paris Club - the group of lending nations, which had to be paid for in foreign currency. Repayments took up 44 percent of GDP by 1989. 

The real green shoots of economic growth were seen only in 1993, by which time inflation had slowed to 37.6 percent per annum. While this seems high now, it was a sign that prices were gradually coming under control. In 1990 prices rose by 252 percent slowing to 60.4 percent in 1991 and 44 percent in 1992. In the years 1992-1997  GDP rose by an average of 5.2 percent per annum. Prior to that production in state-owned industries slumped dramatically, and was not yet compensated by the nascent private sector.


The current Prime Minister Mateusz Morawiecki said again during his key policy speech in November that the Balcerowicz plan was a series of “missed opportunities” for the Polish economy. The privatisation programme, which led to many companies going into foreign hands, limited the potential of the Polish economy, when more effort should have been made in growing “Polish champions”.

Mr Balcerowicz maintains that the official statistics of the state of the economy painted a bleaker picture of the slowdown following the reforms than was actually the case, as the stats office was not geared to measure the growth of the private sector.

Meanwhile Andrzej Sadowski of the Adam Smith Institute says that the earlier reforms of Mieczysław Wilczek and the wave of private firms which opened in its wake saved the Balcerowicz plan and laid the foundations of modern Polish capitalism.

The FOR institute aligned with Leszek Balcerowicz points out that Poland’s GDP per capita has grown by 159 percent over the past 30 years, compared 40 percent in the case of Germany and 133 percent in Slovakia, suggesting that in the long term, the economy’s tough start helped build strong foundations for growth.

For many, Profesor Balcerowicz’s plan has been seen as the epitome of Chicago School free market economic experiments, which have lost favour across Europe in the age of Thomas Piketty and the promises of a return to One Nation policies by the British Conservatives.

It is evident with hindsight that upheaval which was caused was not matched by adequate safety nets for those who lost out, often referred to as “Polska B” - the inhabitants of smaller towns and rural areas, many of whom were among a generation that fled Poland in search of work.

The question remains, however, whether Poland had time for a more gradual approach, bearing in mind the real pressure of going broke it was under at that time.

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