Government Policy Guidelines:
Yes to Compromise,
No to Straying off the Course
by Jan Winieckiin
"Rzeczpospolita", No. 253, October 27 1992
In this paper Winiecki voices his concern that concessions given by the ruling coalition to various segments of the economy will derail the fast-approach transformation strategy and even reverse the policies already instituted by the strategy. His fears are especially acute considering he appears to hold in contempt any concession slowing the transformation process down below the levels set by the shock therapy strategy. The following is a list of issues cited by Winiecki as having the greatest potential impact on the speed and success of transformation, and I elaborate on these in the rest of this paper:
(1) COMPROMISES WITH LABOR COALITIONS,
(2) OVERLY PROTECTIVE OR SUPPORTIVE PRICE POLICIES, and
(3) LACK OF A CLEAR INDUSTRIAL POLICY TO ACCOMPANY TRANSITION-EASING MEASURES.
My summaries of his elaboration on these issues are as follows:
(1) Winiecki concedes that the need for a stable ruling coalition is paramount. While recognizing the voting constituency and promoting its concerns is of great value to the government, it must not overestimate the need to shore up its support via concessions. By the same token, labor unions seeking relief from the effects of transition shocks for their members must be dealt with but not catered to. That is to say, compromises on the part of the government must not contradict the ultimate goals of the strategy(namely, quick privatization and eradication of the "soft budget constraint").
(2)The author also recognizes the need to control the budget deficit, which includes revisions to the social services budget and a restructuring of the tax base. In hopes of reducing the burden to Polish workers, other direct and indirect revenue sources have been tapped. While an increase in the corporate profits tax works well to remove this burden, the effects of taxes such as the VAT and others can become overly protective in nature, thereby limiting access to domestic markets and stalling the movement towards efficient open markets. When access is limited to markets, the likelihood of inflation in an inefficient market is greater.
(3)The same rationale applies to the agriculture market. Protecting family-owned farms increases instability in the market (due to regional weather effects), while the process of land/property consolidation suffers setbacks. Again, overly protectionist measures which are incurred in response to pleas for relief from the transition shock lead to too much inefficiency.
(4)In the industrial sector, shocks from competitive markets to inefficient industries must be eased without forgoing progress toward privatization and eradication of the "soft budget constraint". Winiecki places emphasis on the need for these transition-easing strategies to be coupled with (and, in fact, give way to) an industrial policy with the above long-term goals: specifically, a restructured industrial base, with privately-owned, profit-maximizing enterprises functioning within an efficiently operating market.
In conclusion, Winiecki's cautionary tone advises the ruling coalition and policy makers not to compromise their transition strategy while offering relief to the labor force. It is his opinion that offering too much in the way concessions will slow or even reverse the progress made toward a free-market economy.