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Why Poland's Command Economy
  Failed?

by David Leibowitz

 

After World War II, a centrally planned socialist system was transplanted to Poland from the Soviet Union without any considerations for the differences in the cultural, social, and political traditions.  The inadequacies of that system led Poland to an economic and political crisis in the late 1980's.  Poland's economy once depended largely on agriculture.  However, the communists achieved control of Poland by the end of the 1940's.  The communists adopted a soviet-style planned economy in which heavy industry and engineering was emphasized.  Nearly all branches of large industry, foreign trade, finance, and transportation came under control of the communist government.  Private ownership was very limited to handcrafts and agriculture.  During the first several decades of communist control, Poland's economy expanded and a sort of positivism was amongst the people.  However, in the late 1970's, Poland began to experience severe economic difficulties.  There were consecutive poor harvests, social unrest among the industrial workers, rising inflation and massive foreign debt.  These economic problems worsened and were responsible for the collapse of the soviet-type communist regime and its replacement by a non-communist coalition called Solidarity in 1989.  Socialism in Poland didn't begin or end on specific dates, but can be depicted as the transition period from communism to capitalism. 

 This new system was able to mobilize Poland's resources but eventually couldn't ensure their efficiency.  There were gains made from large investment outlays.  However,  there was no support from foreign capital and the Polish people began to save everything they have.  Soon there became disappointingly low growth rates from diminished capital returns and from lowering worker incentives by regulating the wages and constriction of consumption. To achieve required labor increases and productivity, the central planners manipulated forced participation from the women.  Women were forced to work the land and blamed for low agricultural outputs.  Eventually shortages in labor and capital became prevalent despite the governments efforts to maintain equal distribution.   The inefficiency of  state planning caused several problems in reaching productivity  quotas.

Poland's institutional framework of the centrally planned economy was able to insulate it  from global trends. As a result, domestic industry was not exposed to the necessary foreign competition that would have forced technological improvements because Poland would want to become competitive in the world market economy.  The slow pace of technological progress in Poland depresses the ability of capital to substitute for labor.  The isolation of the command economy kept domestic prices totally unrelated to world prices.  The inability to make price distinctions was very detrimental to Poland to the selection of products for import and export purposes.  Is Poland's planned economy isolating itself too much from possible benefits in foreign intervention?  Poland's foreign trade was conducted mainly with other communist countries like the Soviet Union and Czechoslovakia.  Trade with western countries such as the United States and England steadily declined.  After the fall of the command economy, Poland began to expand its trade contacts with western nations.

Even the banking field was dominated by a large state owned bank with scattered branches across the country.  All banks who were previously involved in international financial transactions were subordinated to the state bank.  The state bank's role in the economy was to supervise the performance of all enterprises. They were not allowed to distribute loans.  The bank was allowed to apply sanctions on which enterprises overdrew from their accounts.  Hence, long-term loans were forbidden by the state. This eliminated an individual's opportunity to participate in financial investments.  If an industry was successful in generating profits, the state bank would redistribute that money  to an industry who is suffering.  Soon  wages were planned to meet the size of the workforce inorder to reach market equilibrium.  Consecutive years of rising inflation plagued Poland's workforce.  Everybody was forced to save their money  rather than to spend it.  Consumer prices were planned with the intention of regulating consumption goods.  Was controlling people's wage increases, labor incentives, and prices of consumer goods an effective way  to attain economic efficiency?

When the communists seized power, Poland was already behind western countries in technology.  The command economy did not encourage technological innovations.  In a system where enterprise incentives were based on satisfying revenue quotas, new inventions were considered to be time consuming and costly.  A new invention would actually disrupt the planned economy since it had to be tested for suitability.  What new invention is flawless the first time introduced?  Since the state bank was monitoring all finances, innovations could not be properly compensated for since there were budget constraints.  Perhaps, it was better for a firm not to introduce something new.   Enterprises did not have to fear that if they remained behind in technological progress, they would be unable to sell their products.  For a long time most research and development institutes were centralized, subordinated to the ministries and separated from enterprises.(Adam, pg.34)  Technological progress achieved under socialist conditions can usually derive from copying an innovation carried out by a developing capitalist society. The growing gap in technology that Poland experienced under the command economy was one reason for the collapse of the centralized state.

 In conclusion, Poland had failed to catch up with the advanced capitalist countries economically and politically following the directives of a  command economy.  Nevertheless, the soviet-type socialist system can't be considered a failure because Poland achieved basic industrialization and economic modernization.  However, Poland failed to develop mass consumption and services.  The command economy put limitations and restrictions on the Polish people and everything they tried to do. The collapse of the soviet-type socialism is the result of internal political and economic factors.  When Karl Marx discussed the socialist system, he believed it would eventually prevail over the world.  Along with Marx, Polish intellectuals were attracted to the centralized planning of the economy whose goals were to get rid of exploitation, create a social justice system, and to have equal opportunity for all.  As a result of Poland's modernization private ownership and a free economic life should be maintained.  The social unrest culminated in 1989 with the emergence of a bicameral legislative party known as Solidarity.  They overthrew a command system which had long been hallowed out from within. 

Bibliography

Adam,Jan.Why did the Socialist system Collapse in Eastern European Countries?1996. Macmillan Press LTD.

 Fowkes,Ben.The Rise and Fall of Communism in Eastern Europe.1993. St.Martin's             Press LTD.

 Hardt,John P.Planned Economies Confronting the Challenges of the 1980's.Nov. 1995.    Cambridge University Press.

 'Poland:History:Poland in the 20th Century: Communism to Capitalism.'            Britannica Online.

            http://www.eb.com:180/cgi-bin/g?DocL=macro/5005/12/53.html>

          

 

 

 

 

 

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