University of Wroclaw, WS 2005
Crucial Problems of Polish Economic Policy in the Globalisation Era

1994: Poland’s Economy five Years after the
Implementation of a Market Economy

by: Philipp Schär

Table of contents

1. Introduction 3

2. Economic development in Poland since 1989 3

3. Investments in Poland 4

4. Social Situation in Poland 5

5. Outlook 6

6. Conclusion 8

7. Bibliography 9

1. Introduction

If one concerns oneself in Poland’s economic changes after escaping from the influence of the Soviet Empire in the Year 1989, especially one assumption made by several experts at this time seems to be rather naïve to us in today’s perspective: It is the assumption that the economic level of Poland and other countries of Central and Eastern Europe would catch up with the one of other countries, such as France or even Germany within only a few years, if the changes and reforms are made in the way they should. Some experts assumed that this duration is as low as three years.¹ Today we know that it is not so easy to catch up for several reasons, although some of those countries have had a amazing development and still have an economic growth that is far above the one of the so-called “Old European countries”, the EU- 15.

What I want to research at this point is how the situation after the short time given by the expert’s forecasts really was. I therefore take the situation in 1994, which makes, if compared to the first assumptions, a rather “tolerant” period of five years from 1989.

2. Economic development in Poland since 1989

Poland had huge disadvantages such as high level of foreign dept, nearhyperinflation, massive shortages, dramatic state of macro economy, shortage of specialists, economic structure which concentrated on mining and heavy industry which depended strongly on the Soviet economic demand.² After a shrinking economy in the years 1990 and 1991, Poland found back to a growing path in 1992, as the first reforming country. At this time, Poland made the race against other countries which have had far better conditions at the beginning. In the Year 1992, Poland had a real GDP Growth for the first time since 1988. In 1993, Poland even increased the lead over other countries, as it reached 4% p.a. according to the national Polish office for statistics. More than 50% of the GDP was already produced by the private economic sector at this time. The industrial production growth reached 6.2%, and the Inflation was lower than expected. The state budget deficit was only about half as high as espected, the reason for this good result lied in the implementation of a value-added tax (from 5.7.1993), and in new taxation – and customs regulations, which where adopted at the end of the year 1993.³ Witch the economic data of that year, Poland managed to fulfil all criteria given by an agreement with the IMF in the year 1992. As a result of this success, Poland received another USD 500 million credit.

Poland has increased its positive image in the world as a quite successful reforming country, which led to an agreement of a 42.5%-reduction of the polish foreign dept by 300 creditors. Such an agreement is, of course, also an advantage to attract new potential investors as such developments are a strong sign for a successful stabilisation process.

3. Investments in Poland

After implementing the Joint-venture-law in 1991, which gave foreign companies the same legal status for creating joint ventures as Polish companies had, the numbers of joint ventures increased from 4’796 in 1991 to 10’131 in 1992 and 15’053 in 1993. At his time, in 1993, the most important foreign investments were in food and electrical industry. Also important were building industry, banks, chemical industry, communication, timber industry, trade, light industry and mining.

Investors were not only attracted by Poland’s big, more and more expanding market, but also by its very low wage level. They were for example for furniture production at 2.60USD including non-wage labour costs, compared to 3.0USD in Czech Republic, 4.40USD in Hungary, while in Germany they were at a significantly higher level of 36 D-Mark (East Germany) and 45 D-Mark (West Germany). Even if labour productivity was only about half as high as in Western Germany, it was thanks to the low wage level still very attractive and a strong incentive to invest in labour intensive industries in Poland. This very cheap labour caused that many companies outsourced at least part of their industries to Central and Eastern Europe. And within CEE Poland was a very attractive place to go.⁴

4. Social Situation in Poland

[...]

1 Mgr S. Jakubowski in the Lessions of: Crucial Problems of Polish Economic Policy in the Globalisation Era.

2 Balcerowicz, 73-74.

3 Statystika Polski

4 HWWA-Report, S. 10-11