The Economic Transformation of Eastern Europe: The Case of Poland

By Sachs, Jeffrey | American Economist, Fall 1992 | Go to article overview

The Economic Transformation of Eastern Europe: The Case of Poland


Sachs, Jeffrey, American Economist


The East European economies are digging out from the rubble of 45 years of communist rule. In virtually every aspect of economic life, the communist legacy is adverse. Normal market institutions were destroyed by the communist rulers in the early post-war period, so that even the most basic categories of economic life in a market economy--corporations, bankruptcy law, securities trading, collective bargaining--must be painfully reconstructed. For four decades, capital spending was dictated by political fiat in a system that valued heavy industry to the neglect of basic consumer needs, and that ruthlessly reoriented trade from Western Europe to the Soviet Union.

The economic effects of the communist period are just now coming into clear view among analysts in the East and West, and the picture is even worse than expected. Living standards in Czechoslovakia, Hungary, and Poland are now estimated to be at the levels of the middle-income developing countries of Latin America, and far below the levels of even the poorer countries of the European Community.(1)

At the same time, the industrial structure seems even less suited to the requirements of competition in world markets than was hoped, and the ecological degradation caused by decades of reckless disregard for the environment constitutes another urgent and costly legacy of the previous regime.

The first two years of post-communist rule have been tumultuous for the average citizen, with high inflation, factory closings, and an end of the certainties of life in the communist era. But despite the deep anxieties which understandably grip the Eastern European societies, I believe that the new democratic leaders of these countries have already hit upon a broad strategy for economic reform that has a good chance of success. I have had the great honor to participate in the design of the reform strategy in Poland, as an unofficial advisor during 1989 to the leaders of Solidarity, and since the start of post-communist rule in Poland in August 1989, to senior Government officials and members of the Parliament.(2)

I will take this occasion to review Poland's economic strategy in the post-communist era and its economic prospects in the coming years.

Poland's Goal of Economic Integration with Europe

Poland's fundamental course, like that of other Eastern Europe countries, is to aim for the closest possible economic and political integration with Western Europe. Put succinctly, and in the words of the favored slogan of the revolutions of 1989, the goal is to "return to Europe." Operationally, Poland is aiming to put in place a political and economic system similar to that of the European Community. There is to be no "third way." This point of view was precisely described by Minister Jacek Saryusz-Wolski, Poland's Plenipoteniary for Relations with the European Community:

The most important thing will be to harmonize economic policy and legislation. Poland will try to take an enormous step forward in coordinating its economic and monetary policy with that of the EEC, followed by policies on industry, customs duties, commerce, company law, conditions for residence, and the pursuit of economic activity--taxation, social matters, regional issues, environmental protection, agriculture, energy, scientific research, the protection of intellectual property. And that is still not everything. We know that joining the EEC means adopting about 7,000 legal regulations. At the present time we are at the process of translating the EEC code of preferential product listings. We also have asked the Community to produce a list of norms that we would introduce right away, because they are of exceptional importance.

As a final step of this harmonization, Poland aims to become a full member of the European Community, to begin around the year 2000.

The urge to harmonize with and eventually join the EC has many deep roots. Most fundamentally, Poland desires to regain its place in the mainstream of European society and culture. …

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