Stability pact and market reform agenda

Assessment of the process and economic outcome of the Polish transformation, and especially privatization, requires application of an appropriate theoretical and methodological context. For this reason, it has been assumed that the Polish

6 A good example is Slovenia, where the private sector share in GDP was 70% in 2010.

market transformation period can be divided into two sub-periods. Th e fi rst in-volves restituting macroeconomic stability and introducing pro-market institu-tional reforms. Th e second (1992–2012) comprises longer-term economic growth uninterrupted by recessions – a phenomenon unique in European conditions (see Chapter 3). Th is stage witnessed manifold structural changes, among which pri-vatization was of crucial importance.

In 1989–1991, the opening adverse macroeconomic conditions and inherited structural characteristics of the economy, such as resource availability and gross domestic product structure, were of major importance. Th is stage might well be the focus of research both in terms of macroeconomic and microeconomic analyses and a new institutional approach [Page 2006; Janc & Kowalski 1996; Williamson 2000; Paldam & Gundlach 2008]. In particular, the new institutional econom-ics approach is vital to understanding the constraints of market transformation.

In the second stage of transformation qualitative factors of growth became very important. Th ey included perseverance and determination in market reform and privatization alongside improvement of the business environment. Innovation absorption capability and the ability to implement the acquis communautaire be-came necessary conditions for European Union membership. Th ese factors were of primary importance in terms of releasing actual potential, enabling departure of the economy from the biased path-dependence of past behavior and alloca-tion decisions practiced for years.

Due to a multitude of factors, the transformation process may be researched both in terms of growth theory and mechanisms of economic competitiveness (Chapter 3). As a matter of fact, both approaches supplement each other. Th ey enable the ability to identify and quantify factors conducive to growth and mod-ernization, as well as impediments to development. Th is context also creates a useful framework for international comparisons.

At the end of the 1980s, there was no normative theory of transforming cen-tralized economies into market economies based on private ownership (see Chap-ter 3). However, in academic literature there was a number of publications with correct diagnoses of sources of ineffi ciency of the centralized system [Balicki 1979;

Kornai 1985; Wilczynski 1991]. Th e experience drawn from subsequent failures of stabilization packages introduced in the economies of Latin America under the auspices of the International Monetary Fund served as a natural source of inspiration for Poland and consequently for the rest of the region. Th ey formed a foundation for the Washington Consensus formulated by J. Williamson [1990].

Th e recommendations following the Consensus, for many years constituted ref-erence grounds, as well as a set of indispensable necessary conditions for liber-al market reforms. Naturliber-ally, they provoked ideologicliber-al and economic debates [Wojtyna 2008a].

In Poland, as of 1989, the acceptance of the necessity of implementing deep institutional reforms was accompanied by awareness of the geopolitical

con-straints of the era. Th e major concern was, however, to design the framework for macroeconomic stability (see Chapter 3). Gradually, in the course of devel-oping macroeconomic stability, the increase in structural unemployment re-placed infl ation as the major concern to settle. Th is phenomenon, oft en linked to privatization, had a major impact on the social perception of the market and political transformation as a whole, also contributing to the increase in income and wealth diversifi cation.

Th e set of regulations devised under the supervision of L. Balcerowicz and put forward by T. Mazowiecki’s government, apart from regulating the matter of macroeconomic stability, created conditions conducive to systemic ownership transformation of the economy. Privatization in Poland commenced in 1990. As Table 5.1 shows, in Poland and Hungary, direct privatization prevailed. Th e for-mer Czechoslovakia implemented a voucher method. Th e re-launching of the stock exchange (Table 5.1) was treated as one of the preconditions to improving the mechanism of capital allocation and privatization facilitation. At the thresh-old of transformation Poland, due to the nature of its farming as well as small manufacturers and services, had a much bigger share of the private sector in GDP creation as compared with Hungary and Czechoslovakia (Table 5.1).

Table 5.1. Privatization in the stabilization packages of the fi rst stage of economic transformation

Methods and timing of privatization Poland Czechoslovakia Hungary

Main method of privatization Direct Voucher Direct

Privatization scheme date of commencement 1990 1992 1990

Launching stock exchange 1991 1992 1989

Share of the private sector in GDP (%) 20 5 5

Source: [Kowalski 2009b, pp. 259 and 261].

Th e second stage of transformation, as previously mentioned (Chapter 3), can be seen in the light of growth theory[Campos & Coricelli 2002]. Due to the already emphasized signifi cance of institutions in the process of eff ective mar-ket transformation, the standard growth theory framework is complemented by institutional aspects and quality of management [Rodrik 2007; Wojtyna 2008a;

Kowalski 2011c]. In such circumstances, growth, expressed as changes in GDP per capita, can be considered as a combination of four factors: social capital per capita, production capital per capita, natural resources per capita, as well as pro-ductivity in its broad sense. Th e latter is connected with management quality, technological advancement in terms of creating and incorporating innovation, i.e.

positive changes linked with privatization. It was also expected that these changes, accelerating modernization, would contribute to increased specialization and the

economies of scale due to intra-industry trade and would thus enable the econ-omy to participate fully in the international division of labor.