The Origins of Capitalist Markets: Transition in Poland with Comparisons to East Asian Capitalism
Giffin, Phillip E., Ellington, Lucien, Journal of Economic Issues
The main concern of this paper is the role of government in the birth and development of industrial capitalism. Does the emergence of "proper institutional arrangements" allow for the birth of a modern market economy, or alternatively must capitalism be established through government regulation? Can the rapid development of appropriate capitalist institutions "set free" a particular mode of behavior with the "invisible hand" operating to force the emergence of a modem industrial economy? We explore this old question(1) in light of developments occurring in Poland since 1989. The final section of the paper provides an outline description of the development of East Asian industrial capitalism for purposes of comparison with the socialist economies of Eastern Europe.
Laissez-Faire and the Rise of the Nation-State
Our contention is that historical setting and institutional arrangements are crucial for emergence of an economic mode of production.(2) But more is required. According to Karl Polanyi , if anything was natural it was the continuation of feudal society. Polanyi's point is that deliberate and positive action had to be taken by government for the emergence of laissez-faire policies. Regulation and laissez-faire grew up together. Regulation is not the enemy of laissez-faire capitalism, but is the first prerequisite for its existence. It is the state that supplies and maintains the rules and regulations that protect property and enforce contract law, the heart of capitalist economy. Polanyi argues persuasively that a capitalist economy cannot function without a large and significant role for government.
Quite simply, it was the state that established the conditions whereby capitalism could emerge. Capitalism could never have appeared had not government protected the rights of individuals involved in internal commerce. The capitalist dynamic that accompanied the eighteenth century Industrial Revolution evolved with government over the preceding centuries. Capitalism was not a complete system ready to emerge from feudal society. The metaphor of the spontaneous rise of capitalism from the old feudal order is flawed in that the role of the nation-state is often ignored.
Polish Institutions, Ideology, and Economic Development
An analogy might be drawn between the rise of Western capitalism and the transitions currently taking place in Poland and all of Eastern Europe [Giffin 1994]. The drastic decline in performance of the Polish economy since 1989 requires little documentation today. The Polish elections in autumn 1993 signified to the world that Poles had had enough of the "shock therapy" designed to lead them into modem industrial capitalism. But why the drastic failure in the transition of the Polish economy from socialism to capitalism?
To answer briefly: Poland is dominated by institutions inconsistent with a capitalist market system. The basic ideological perspective of the Polish population does not foster capitalism. Entrepreneurial spirit and modem technology exist in Poland today only when imported.
While a more complete analysis of these matters is presented elsewhere [Giffin 1994], we will simply point out that the institutions of Poland appear closely aligned with a preindustrial ideology. From the tenth century until the present, the Roman Catholic Church has represented the dominant influence on Polish thought. The message of the Church, combined with other institutional arrangements, has established an environment inconsistent with capitalist development. The most fundamental governmental regulatory institutions are generally lacking in the country. A complex system of contract enforcement crucial to market transactions is mainly absent in Poland. Also absent are financial intermediaries, a financial press, and basic transportation and communication infrastructure [Lipton and Sachs 1990, 314]. Capitalist property rights have yet to evolve in Poland [Koslowski 1992, 679]. …