Poland and Hungary are in Transition

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Shamil Bikbov

MA Program “Studies in European Societies”

Poland and Hungary are in Transition

The transition of Eastern Europe countries from centralized, planned economy toward

market economy was very dramatic for every country of region; it was not only pure

economic transformation but institutional and cultural transformation as well.

This paper devoted to Polish and Hungarian reforms in transition period, the countries

that could be examined as the most successful in their transition to market economy

among other post-communist countries.

Polish reforms

Until “Solidarity” won the parliamentary elections in Poland in the summer of 1989, the

Polish economy had been, since the end of World War II, a rather typical planned

socialist economic system. State ownership was dominated, and though economic

reform was attempted in varying degrees at different times, little real systemic change

had taken place.

In the beginning of 1990, Poland took decisive steps toward a market economy. This

"shock therapy" approach was to be sudden, and in this it differed significantly from the

gradualist approach being discussed in other socialist systems.

The "Shock Therapy" approach has not been without critics. Moreover, although the

Polish case quickly attracted the interest of those who study the problems of socialist

transition, it was viewed as unique. The reform was much more likely to succeed in

Poland than in a case like Russia. But before we examine the Polish reform experience

more detail, we must review what brought the Polish economy to the reform phase and

how, at that point, it might be different from other socialist countries.

The Background

The organizational system of the Polish command economy was established

immediately after World War II and was close to the Soviet Union’s type. There was

widespread nationalization of property, central planning mechanisms were established,

and agriculture was socialized.

Although Poland attempted modification of the command system as early as 1956 when

collectivization was abandoned, little actually changed. Over time, private agriculture

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was neglected by the state, and continuing political protests, especially in the early

1970s, signaled both political and economic difficulties.

The 1970s was a difficult decade for many countries, especially those that rely on

imported oil. The Polish strategy in the 1970s and later was to stimulate the domestic

economy through the importation of foreign technology. This was not an unreasonable

strategy in theory, but Western economies were themselves in the centre of the energy

crisis and the recession it caused. Poland's effort to expand exports failed, hard-

currency debt accumulated, and the projected impact of Western technology on the

Polish economy was minimal. As the 1970s came to an end, it was evident that

domestic reduction would be essential — a difficult path in light of the continuing unrest

among Polish workers. The 1980s began with roughly three years of militant law and an

attempt to achieve economic stabilization.

After half-hearted economic reforms in the early 1980s, the rise of “Solidarity” (which

had been outlawed in 1982) proved that major systemic and structural reform was

necessary. Even so, and despite the fact that Polish economic performance was

deteriorating badly, serious economic reform did not begin until the late 1980s.

The Polish Transition

The Polish transition from plan to market has been watched closely by a variety of

interested observers. Although many of the policy and systemic changes introduced in

Poland are familiar hallmarks of the general reform scene, the speed of implementation

in the Polish case is unique.

There had been attempts to decentralize decision making in large state-owned Polish

enterprises in the 1980s, but these reforms failed to change outcomes (a possible