Working Paper
The Polish Alternative

In 1994-97 Poland has recorded an outstanding economic performance in terms of GDP growth, simultaneous reduction of inflation and unemployment, fiscal balance, zloty real revaluation, capacity restructuring, private sector growth and institution building. The Polish success needed a market environment but is not and could not be, as it is often claimed, the delayed result of the so-called 'shock therapy' of the early 1990s. This paper shows that initial shocks - e.g. in the foreign trade regime, exchange rate, credit and interest rate policies - were largely unnecessary or excessive. Therefore Polish stabilization and transition involved costs, often unduly belittled, which would have been and were subsequently reduced by the alternative policies adopted by post- 1993 governments under the new Strategy for Poland. The Strategy documents form an integrated and detailed package of medium to long term economic policies, characterized by a commitment to establish a modern and open market economy and by new and distinctive features. There is emphasis on the reform of central administration, on institution building through a participatory process, on parity between state and private enterprises; promotion of investment and growth; greater security in economic transactions. Strict fiscal austerity, with a lower and fairer tax burden and the drastic reform of the pension and social welfare system, is matched by reliance on monetary relaxation and by an anti-inflationary social pact on wages. Multitrack privatization is aimed at raising budgetary revenue and establishing corporate governance, accompanied by commercial management of the residual state sector. Industrial and agricultural policy guide restructuring, avoiding the softening of budgets constraints and direct or indirect favour for individual enterprises. Greater openness to trade integration, and to foreign direct investment, prepares an early Polish accession to the European Union with an option for possible membership of EMU. Consistent implementation of these policies has allowed and promoted Polish success, which is judged to be economically sustainable. The Strategy ideas and policies, which were unfashionable and controversial at the time of their first formulation and implementation, have been gaining increasing acceptance and are now gradually forming a new consensus. Poland's successful experience provides an alternative paradigm to those post-communist countries whose transformation is still incomplete.