Transition   Privatization   


The Privatization of Poland by Natasha L. Guidicelli:

Privatization of Clothing industry in Poland by John Papantonakis: \

Review of Polish Privatization by Nicoline Blom:



The Privatization of Poland

by Natasha L. Guidicelli:

In Poland, prior to the beginning of the transformation process, there were few private enterprises. Industries were state owned and most economic decisions were political. In 1989, the Polish government controlled 81% of nonagricultural assets.

Before deciding on which privatization strategy to follow, there was considerable debate. Many solutions were thought of but ultimately, they decided on implementing a mixture of strategies. They were certain that private property must be restored to insure the transformation to a market economy successful. In 1990, the government passed the Act on the Privatization of state-owned enterprises. This entailed that state-owned enterprises were to be transferred into corporations before transferring ownership to the employees. In addition, all enterprises were to be privatized within two years. Liquidation would also be used in the process of privatization. Foreign investors could purchase up to 10% of the shares in a privatized company. This was an attempt to attract capital and management from foreigners. This program was approved in February 1991.

The goals were to transfer half of state-owned assets to privatization within three years and to achieve Western style privatization within five years. Medium and large financially stable enterprises were to be privatized on a case-by-case basis. Their value was to be determined by independent consulting firms and offered to the public by prospectus. The government was to hold a group of shares and sell it to an investor who could also manage the company. All companies were to be transferred to the new owners in their current condition.

Vouchers were to be issued to all citizens of Poland. These vouchers were to be used to purchase shares of the Privatization Funds. The Privatization Funds would purchase shares from the Treasury and then these would be converted to open-ended Mutual Funds. This was to provide for widespread ownership and control. One possibility was to bring in an experienced manager to increase the value of these funds but still have the ownership remain in Polish hands. One significant problem with this idea was that the Polish people did not have experience with investing. They did not know how to invest and which Funds to invest in.

In June 1991, the final version of the privatization program was issued. The main strategy still remained the same. One main difference was rather than vouchers, Polish citizens over 18 years old would receive one share in each of the Investment Groups that were to be formed. The Investment Groups would retain 60% of the shares to be privatized, 10% would be given to workers for free and 30% for the Treasury. Four hundred large enterprises were to be included in this plan. These companies were to be privatized by early 1992.

Privatization for small and medium sized companies was to be carried out in a decentralized manner. The Ministry of Ownership Transformation was to look over their privatization. Most of these companies were to be sold at public auctions. Liquidation was also used in small and medium sized transitions to privatization. Auctions were also used here to determine the value of the assets. The Ministry of Ownership Transformation insisted that in this situation, 20% of the stocks were to be issued to nonemployees.

One of the biggest problems encountered by Poland was the lack of institutions basic to a successful market economy. As of May 1991, there were six private companies. These were chosen as the first companies to undergo the privatization process due to their economic performance. The prices were set low to encourage investors. An adequate valuation of the companies was difficult because their book value could not be compared to a market economy value. In addition, there were not many investors in Poland. Most had savings in zloty accounts and hard currency accounts and were unwilling to purchase stocks, considering their value was uncertain. Banks were unwilling to give mortgages because there were many properties where the ownership had not been determined. Thus, it was impossible to use property as security against loans.

By the end of 1990, 70% of small and medium sized companies had been privatized. There were few technical problems with their transition. The fixed assets are the floor space and the value is determined at an auction. Usually, the stores were auctioned off for two-year leases due to the ownership of the store not being yet determined. In addition, most Polish prefer to have their own business rather than purchasing stock from privatized companies. This enables smaller businesses to be privatized faster than larger companies.

In the first eighteen months of the program, there was a growth in small businesses. Although privatization was popular, the transformation was slow. There were those who showed resistance to the program because they feared they'd lose the power they had prior to the transition. In addition, there were those who feared they would not have a job, a house or ample health care. Overall, most were in favor of the transition but were scared of the hardships that came with it.

I believe that Poland is moving in the right direction. There definitely needs to be the introduction of the basic institutions necessary for a successful market economy. Although these are not necessary for the small-scale markets they are necessary for the large-scale markets. One symbolic achievement was the opening of the Warsaw Stock Exchange on April 16, 1991. It appears that many believed once privatization took place everything would fall into place and there would be ian mmediate success. Unfortunately, that is not the case. I feel the Polish are extremely uncertain and not ready to take any risks with whatever savings they have to increase investments. Perhaps, it is necessary for an experienced economist familiar with the market economy to speak with the people and assist them in becoming more comfortable with the new market. I believe once the people are better informed they will be more confident with the market economy.

Stanislaw Wellisz and Maciej Iwanek: The Privatization of Poland, EASTERN EUROPEAN economics, Volume 19, No3, Summer 1993 PP. 345-355


Privatization of Clothing industry in Poland

by John Papantonakis:  

The Polish Industry has been a very good case to study in determining the effects of privatization on a particular industry.  It has been an area plagued with the effects of stabilization and liberalization reforms.  More importantly, it has been also plagued with the low levels of productivity associated with such a labor intensive industry.  Despite all the setbacks caused by duty laws to the industry, it has been able to rise quite well lately.  In fact, it has been able to stay on top of average sales growth over all industries as a whole in Poland.

Today, the Polish clothing industry still resembles the old centralized state run system, when enterprises were comprised of huge work forces.  The industry still has the old state organization; but on a more broken down level.  For example, firms like Wolczanka are around in smaller pieces.  Many firms have split like the Wolczanka to form smaller privatized firms.  The important thing to note, though, is that where it used to be the case that in 1990 more than 60% of sales came from firms employing over 500 people, today this figure would not apply.  Only 40% of sales come from these larger enterprises now (Warsaw Voice May 1 1994). Since sales have increased in the industry as a whole above average, then it must be true that smaller firms are gaining access into the markets which once were dominated by the "dinosaur" enterprises of the old Command type system.  Truly, this must mean that privatization has been a recent phenomenon in the Polish clothing industry.

Actually, those "dinosaurs" have now been broken up into 4 basic groups.  The first consists of the giant enterprises that have gone or are undergoing privatization at the moment.  This group would include companies like Wolczanka, Romeo, Prochnik etc.  The second group consists of firms that were created as a result of the splitting up of companies in group 1.  These would be companies like Parys which was formed by the division of Romeo.  Group 3 is composed of smaller and more medium firms that existed under the old economic system;  and now have been corporatised or even privatized.  Finally, the last group is made up of new firms that have risen out of the spontaneous nature that seem to occur with the introduction of the market system (Warsaw Voice May 1, 1994).  It can be evidenced that privatization efforts have been proceeding in this industry, as can be seen by these new smaller companies.

Yet, just because many of these firms have privatized and have been able to increase sales above Polands' average industry, does not mean that they are in perfect shape.  The fact is that the sector has had great trouble producing  clothes with unique trademarks, quality and etc. (Warsaw Voice May 1, 1994).  That is, the industry, as a whole, still lacks the ability/imagination to compete with western style products on that feature.  Still, the big companies have been able to attract many foreign investors because of their present technological capabilities; and are looking in earnest to the west for leadership skills.  This lack of skill has been a quality which has been forested by gradualists like Peter Murrelll if privatization were to take place before restructuring were completed.  

Despite the criticisms, the clothing industry has been able to adapt quite well without those skills.  Even at last resort, big local Polish clothing companies have managed to gain partnerships with other world known companies in order to gain those western style qualities.  A good example would be Bielkon partnering with Pierre Cardin (Warsaw Voice May 1, 1994). Keep in mind that this would not have been possible if the clothing industries did not have such a high technological ability before the move to market transformation.  If the clothing industry of Poland were to improve on its fashion and marketing qualities, it could combine them with its already high technological sewing abilities;  and then the Industry would be a force to be reckoned with in World competition.  Of course, the industry has been hurt in the past because of 1)the demise of many chains 2) a poorly developed wholesale market and 3) strong competition within the Industry.  Still, the industry is expected to grow 2-3% annually  (Warsaw Voice May 1,1994). 

At least this sector seems to have been helped very much by privatization reforms.


previous year = 100       1989          1990          1991          1992

total all industries                99.5          75.8          88.1          103.9

clothing industry                105.9          76.0          97.3          117.3

source: industrial goods production in 1992 Warsaw 1993.


THE CLOTHING INDUSTRY: ironing out quality questions.  Warsaw Voice, section: privatization.  May 1, 1994


Review of Polish Privatization

by Nicoline Blom

      After the fall of communism, in 1989, all of the Eastern European countries to switch from a centralized command economy to a free market economy.  In order to create a market economy, privatization of the nationalized aspects of the economy must occur.  There are many different manners in which a country can privatize.  In Poland, the government decided on a shock therapy approach to privatize the economy, meaning all privatization should occur within two to three years.  This would be accomplished in several ways. 

  Three basic acts control the privatization in Poland: The Act on State Enterprises of September 1981, The Act on Privatization of State Enterprises of July 1990, and the Act on Management of Arable Land of the State Treasury.  A centralized organization was also created in 1990, The Ministry of Ownership Transformations, to oversee all privatization.  Numerous programs were implemented in order for rapid privatization to occur. 

 One such program is named capital privatization.  This was an attempt "at selling the shares of previously corporatized enterprises" by many different means. (Frydman, p.181)  IPO's were formed and tried to sell the shares either to foreigners or locals.  It was also hoped that a Polish stock exchange would be created simultaneous exchange would be created simultaneously.  This program was not very successful, privatizing only a small portion of enterprises.  Hence, new programs were created. 

Privatization by liquidation was established and turned out to be the most successful type of privatizing.  Firms are sold, leased, or there is a contribution in kind to other businesses and exist under the title of the new entity (Frydman, p.181) and no longer exist on their own. 

 Sectoral privatization is a method that was created to make privatization easier for the administration.  A number of firms are grouped together, in a similar sector of the economy, and are privatized as a collective effort.

In October of 1990 a method named mass privatization was introduced.  This is "based on the free distribution of shares and the creation of active privatization intermediaries." (Frydman, p.182)  These National Investment Funds hold sixty percent of a company's shares and must manage or sell these shares.  Polish citizens, over eighteen, were able to buy these shares at a discounted price.  Citizens were not aware of the value of these shares so this was not an attractive option in the beginning.

Polish citizens have lost some faith in the privatization process. Unemployment has increased incredibly as well as hyperinflation.  Privatization has slowed down considerably because of this.  This procedure did not occur in two to three years and is now estimated to last much longer.  The Polish government will not accept a check for $11.5m from the European Union to stimulate foreign investment in Poland.  PAIZ was created, in 1992, to locate foreign investors to help privatize enterprises but presently this agency is practically bankrupt.  High government officials will not comment on the situation yet, the prime minister states that mass privatization is not being curtailed. (Economist, p.59)

 I believe that Poland has made great efforts to privatize its economy, yet the government needs to continue to persue its goals.  The government seems to be changing its course because of public outcry. The first steps of privatization will not bring great results, such as unemployment, however, in the long run the market will come to equilibrium.  If the privatization process is slowed to such an extent this equilibrium will not occur for many years. 

  I also believe the Polish government should let market forces control privatization rather than a centralized organization.  In such a massive privatization process the marked should be guided but not controlled in order for true equilibrium to occur.

LOOKING AT GIFT HORSES. The Economist, Vol.332, No.7881, Sept. 17, 1994, p. 59

POLAND YOUR BUSINESS PARTNER.  Foreign Trade Research Institute, Warsaw, 1992 & 1993.


CEU Privatization Reports, Vol.1, New York, p. 176-203.




by Robert Soule:


  Poland's current privatization program is moving very quickly. Already, 50% of Polish citizens work in the private sector, and there is evidence that people are definitely beginning to understand and take an interest in the workings of the new private sector.  One of the best signs of this is the Warsaw Stock Exchange, created to handle the new market for trading shares of the new private companies. The Exchange has seen a huge increase in trading volume since 1992, when the Polish government received some major debt concessions and a favorable financial rating from the International Monetary Fund.  Between March and May of 1992, for example, the exchange set new volume records every single day it was open.  There has definitely been, then, an interest in investing in these private firms.

The oil refining industry has been one of the bright spots in Poland's transformation to a market economy.  The Polish market for gasoline has exploded since 1992, with demand growing by nearly 40%.  The Polish economy in general grew by 5% in 1993, which makes it one of the fastest growing in Europe.  Clearly, then the refining industry was an area in which the government wanted to see some rapid change, since it was an industry which could support some very successful companies.

In 1992 the government proposed a plan in which a new private company, called the Polish Oil Company (abbreviated PKN in Polish) would be created.  PKN would own many of the old assets of the state-owned oil industry, and interestingly enough would have a virtual monopoly on the Polish oil industry.  Some parts of the old enterprise, however, would be sold to private investors, such as many of the retail stations and some of the refineries. 

This proposal was made when Poland still wanted to sell most of its assets, rather than give them away, so plans were made to sell shares in the new corporation.  However, only 49% of them would actually be sold, and 51% would still be in the State Treasury.  This, of course, would leave actual control of the company in the hands of the Polish government, which seems to go against the main idea of privatization.  Also, local gas stations would be sold in groups to various investors.

This plan was discussed for the next year, but little was actually put into place, so in 1993 a new plan was suggested.  This had shares in the company divided between the State Treasury, various large investors, and Polish citizens (who would be given the shares free of charge as part of the mass privatization system.)  Once again, though, true control wouldn't be handed over, since the government would till own something called a "golden share", which would give them an overriding vote in any referendum held by the shareholders. 

The Polish government hopes to have the industry completely privatized by the end of 1995, but as of March, 1994, no real timetable had been introduced for these plans.  Still, privatization in Poland in the past have happened very quickly once the final decision was made, so it is possible that the government might be able to make this deadline.

       The stock market has clearly been an important part of Poland's privatization efforts, but there has been a shift in the leadership's policy about how to distribute these new shares.  Where once sales to investors were favored, now the government plans to give all Polish citizens shares in the formerly state-owned enterprises.  Still, an odd trend has appeared in that the government seems to be trying to keep a controlling share in a newly-privatized oil industry.  Perhaps they are simply interested in ensuring that they could step in if the company started heading for disaster, but the industry will not be truly privatized until the government is willing to put this controlling share on the market as well.


"Downstream opportunities seen in Polish industry," Oil and Gas Journal (March 21, 1994), p.27-32.

Copeland, Henry, "Warsaw Roars while Budapest Snores," Euromoney, (July 1993), p. 82-83.




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