Poland And Czech Reform
After the fall of communism, several
different countries decided that it was
time to reform both current economic
and political policies. Two countries that
have had major economic reforms
are Poland and the Czech Republic. However, the
process of that change is
different, each country had a different idea of how to
become a new economic
power in the 1990’s. In December 1989, the new
government, led by members of
the labor union Solidarity, launched a reform
program designed to transform
Poland's economy into a free-market system. Price
controls were lifted, while
wage controls were imposed. State enterprises were
transformed into
joint-stock companies, and many were scheduled for eventual
privatization or
purchase by foreign investors. The restructuring of the Polish
economy
resulted in a massive layoff of workers and a rapid rise in
unemployment.
Poland's GDP declined sharply in 1990 and 1991. Poland had relied
heavily on
agriculture and would have been easier to reform if its exhausted
industrial
regions could have been abandoned. Poland may have been the first to
try a
rapid, sweeping conversion, deemed by the press as "shock therapy."
This
conversion was to a capitalism and free market. It was also the first
to
overcome the resultant drop in economic output. Economic growth returned
as
early as the first half of 1992, and voters should have begun to notice
the
benefits by September 1993. However, rather than reformers gaining
approval, the
renamed communist party captured the largest number of seats in
the Polish
parliament in the elections that month. This was yet another step
back for the
reforming process. After its initial decline, Poland's economy
began to improve.
Annual GDP increased between 1992 and 1997, when it
reached $135.7 billion.
Industrial production increased by about 12
percent in 1994, which, accompanied
by a 2 percent drop in unemployment,
represented a major increase in labor
productivity. Inflation remained above
government goals but steadily declined,
with an annual rate of 30 percent in
1994 dropping to 18.5 percent in 1996.
Although hundreds of enterprises
were transferred to private ownership during
1994 and 1995, the pace of
privatization was generally slow; the private
sector's share of GDP remained
at about 60 percent in 1995 and 1996. However, a
new constitution adopted in
May 1997 committed the country to pursuing a market
economy and further
privatization. In the early and mid-1990s Poland's foreign
debt was
significantly alleviated by concessions from creditors, which helped
to
attract increasing levels of foreign investment. The result of
"shock
therapy" for Poland was to emerge out after the fall of the former
reigning
communism, to take leaps and bounds in economic development. Another
country,
just south of Poland, the Czech Republic also economically reformed
in the early
1990’s. The Czech Republic has been traditionally among the
most economically
developed regions of Europe. When the Communists came to
power in Czechoslovakia
in 1948, they created a highly centralized economic
system. Nearly all aspects
of economic planning and management came under the
control of the central
government. Most of the country's economic assets were
placed in state hands;
economic managers and decision-makers were cut off
from their counterparts in
the West; and foreign trade was conducted almost
exclusively with other
Communist countries. Although the economy remained
strong by Eastern European
standards, with one of the highest standards of
living in the Communist world,
the policies adopted by the Communist
government led to long-term economic
decline in Czechoslovakia. After the
collapse of Communism in 1989, the new
leaders of Czechoslovakia had to deal
with this legacy. In the early 1990’s,
the post-Communist government moved
quickly to convert the economy to a system
based on free enterprise. A number
of reform measures were adopted, including a
voucher privatization plan,
which gave citizens, for a low administrative fee,
coupons that could later
be traded for stock in companies. The voucher plan
successfully transferred
large parts of the economy to private ownership. By
December 1994 more
than 80 percent of firms in the Czech Republic were
privatized or had decided
on a privatization strategy. Business boomed in Prague
and other cities in
the mid 1990’s as entrepreneurs established new companies.
The government
has also succeeded in re-establishing trade with the West and
obtaining
substantial levels of foreign investment. The average standard of
living in
the Czech Republic dropped somewhat in the early 1990s as market
reforms were
introduced, but in recent years, the economy has begun to
recover.
Inflation was about 10 percent in late 1994, less than half of
what it was in
1991. Gross domestic product (GDP) increased by
approximately 2 percent in 1994.
Industrial production, which declined
sharply in 1990 and 1991, also grew in
1994. The country's foreign debt
has remained modest. By 1997, the GDP had
reached $52 billion . Poland and
the Czech Republic had the similar progress
levels with the idea of having to
take a step back before the progress started.
In both reforms, the
countries had a level of unemployment and social decline
before the benefits
became apparent. Also in both countries the end result for
the working class
was worth the suffering endured, when comparing private sector
employment
rates from 1989 to 1995, Poland increased from 47% to 66%, the
Czech
Republic had an even more drastic change from a mere 16% to an
astounding 65%.
A few signs that show the progress of both Poland and the
Czech Republic are
that both are expected to become; full members of the
European Union, World
Bank, IMF, and World Trade Organization . Poland
and the Czech Republic can now
become a model to several other countries that
need economic reform. The two
aforementioned countries had overall success
with minimal, temporary disruptions
in the begging.