ORGANIZATIONAL STRUCTURE   

 

Centralization in the Polish Economy

by Diana Jauregui

 

 Ever since Poland became a soviet satellite in the mid-1940s, it had fought to find its own version of socialism. This struggle caused the government's economic plans to change drastically during its years under communism. One main factor that changed with its economic ideas was the degree of centralization implemented. When the Polish economy was suffering, decentralization was changed to centralization and vice versa. The degree of centralization seemed to be the scapegoat of badly implemented economic policies. This happened several times between 1947 to 1960.

       The first economic plan occurred during 1947- 49. It was designed to help the Polish economy recover from the horrific Second World War which ended in 1945. Three sectors were developed within the Polish economy: the socialist sector, the co-operative sector, and the private sector. Each area was treated individually. The socialist sector was centrally controlled, while the co-operative area drew up its own framework in harmony with the socialist plan. Price and market regulations, investment, and taxes guided the private sector. This first plan sought for decentralization and minimized direct intervention by the state.

However, by 1949, this plan was changed by the communists in office. They felt that a plan, which emphasized the centralization of the economy, would achieve faster and higher productivity. They also believed that the private and co-operative sectors were trying to gain profits on the goods produced by the socialist sector. Emphasis, in this plan, was placed on developing heavy industry. The development of producer goods was more important than the growth of consumer goods. In fact 89% of planned industrial investment concentrated on the capital goods industry, while consumer goods production, which was known for poor quality, fell from 12% to 8%. This caused horrible shortages for the average consumer. (Piotrowicz, 95) The second plan also designed to increase productivity in agriculture, but a combination of bad weather and low incentives for farmers, which included compulsory deliveries of crops to the state, stunted growth in this area. The capital sector became overdeveloped, and agriculture along with light industry was suffering.

All these problems led the Polish government, under liberal minded Wadyslaw Gomulka, to decentralize the economy in order to ameliorate the situation in 1956.  Decentralization was key to the plan, but it was not supposed to dissolve the economy into complete liberalism. Small-scale private enterprises were encouraged so as to overcome painful shortages in consumer goods. The State Commission of Economic Planning, which oversaw the centralized economy, was disassembled, and the Planning Commission of the Council of Ministers administered the decentralized economy. Investment in heavy industry and long-term projects was eliminated, and investment in residential building and consumer goods production was increased. Central allocation was reduced except for those short in supply, and the variety of goods was to be determined by consumers and individual enterprises. Prices were also to be designed to correspond more closely with world prices, but the formation of prices in free markets was not to be permitted. Managers, as along as they fulfilled a certain number of central directives, could allocate wages, become involved in minor investments, and increase sales above the planned levels. Managerial autonomy also allowed them to inaugurate sideline production for direct sale to the consumer market at their own prices. Profit, such as bonuses and commission on certain new products, was also allowed to become an incentive for higher industrial production. Central boards of industries were replaces by association of enterprises, which represented an enterprise's interest rather than transmitting directives from the central authorities. 

Decentralization occurred in agriculture in order to raise productivity in that sector also. Agricultural circles provided training, machinery, and lines of credit to the farmers. Compulsory deliveries from farmers to the state were removed and higher prices for grain helped increase the average farmer's income, so they could buy more consumer goods. The credit was to be used for collective investment on areas such as irrigation projects. State land was also sold to peasants for new farms. Farmers were not forced into co-operatives anymore, but the strong economic inducements helped keep up participation.

All this decentralization began to lead to several problems. Towards the end of 1958 the economy was heading towards inflation, and its chief cause was the large expansion of decentralized investments. Since managers, co-operatives, and state enterprises were gaining financial independence, all sectors were anxious to expand their activities. This, in turn, caused an increase in wages because more workers were needed in the new areas of expansion. Shortages of raw materials also occurred because they were used to build factories and as factors of production. This was aggravated in 1959 because, according to the decentralized plan, that was supposed to be the year of increased centralized investment. Therefore, wages were expanded even further. Also since less farmers were making deliveries to the state, prices were soaring because of scarcity. By 1959-60, limits were being placed on decentralized investments. Enterprises were forced to follow more directives from the state, and a central planning committee rationed out raw materials. Recentalization had begun again.

  • Sources
    Piotrowicz, Teresa M. The Polish Economic Pendulum. London: Rowan Press Ltd., 1963.
    Kaminski, Bartlomiej. The Collapse of State Socialism. Princeton: Princeton University Press,  1991.

 

 

 

 

OK Economics was designed and it is maintained by Oldrich Kyn.
To send me a message, please use one of the following addresses:

okyn@bu.edu --- okyn@verizon.net

This website contains the following sections:

General  Economics:

http://econc10.bu.edu/GENEC/Default.htm

Economic Systems:  

http://econc10.bu.edu/economic_systems/economics_system_frame.htm

Money and Banking:

http://econc10.bu.edu/Ec341_money/ec341_frame.htm

Past students:

http://econc10.bu.edu/okyn/OKpers/okyn_pub_frame.htm

Czech Republic

http://econc10.bu.edu/Czech_rep/czech_rep.htm

Kyn’s Publications

http://econc10.bu.edu/okyn/OKpers/okyn_pub_frame.htm

 American education

http://econc10.bu.edu/DECAMEDU/Decline/decline.htm

free hit counters
Nutrisystem Diet Coupons