Daphné ARNAUD 8th November 2010
EC3408: Europe and the World Economy
The year 1989 symbolizes the end of the Soviet bloc after the fall of the Berlin Wall in November and the beginning of the transformation process of the countries of Central and Eastern Europe. For this transformation to besuccessful the CEE countries must undertake political and economic transition, as did Poland from 1990. Poland, which has inherited from a planned economy based on heavy industry and agriculture with many state-owned enterprises, known then hyperinflation which ruined its economy. For this reason, the Vice-Chairman and Minister of Finance of the Polish government, Leszek Balcerowicz isimplementing a policy to ensure the transition from planned economy to a market economy, capitalism itself. But what this new economy has been performing it since 1990. We see in the first part the performance of the Polish economy during the transition period from 1990 to 2004. Then we analyze its performance after the accession of Poland to the European Union. And finally, we'll see how Poland has facedthe crisis of 2007.
First, to move from a planned economy to a market economy as the country of Western Europe, the Polish government set up the "shock therapy", also known as "Big Bang". Contrary to the theory of gradualism, the "Shock therapy" is to implement all reforms simultaneously. Indeed, this theory was to the rapid liberalization of prices, trade, programs of inflation stabilizationand mass privatization. (Richard Portes, p.187) Being in a context of hyperinflation, the government must stabilize its macro-economic variables namely the rate of inflation in 1990 reached 686%, the unemployment rate corresponding to 6.3% the labor force, which was nonexistent before and above all to control its debt.
These reforms are very costly for the Polish government, so it puts inplace a policy that promotes economic activity and opening its market internationally. State Agency for Foreign Investment (PAIZ) promotes investments in Poland. This allows Poland to attract new investments. (Richard Portes, p191)
Foreign capital plays a very important role in the process of privatization and restructuring of the Polish economy, since they can create new companies orexisting companies resume, and stimulate growth. In fact, in 1994, over 2000 companies, 95% are new firms created by foreign capital. (Taras, 1995). Moreover, in order to carry out these reforms, Poland has established relationships with several organizations, such as the European Economic Community, which has invested $ 100 million to create a powerful business sector in exchange for an agreementtrade and cooperation. This agreement has allowed Poland to intensify and strengthen its economic development.
As can be seen, from 1992, Poland suffers a return to growth with a rate of 2.6%, and regains its level of GDP before the reforms in 1994, and continues to grow until in 2003. In addition, there is a higher standard of living, which leads to increased consumption as the purchasing powerhas multiplied by 3 since 1989. Moreover, unemployment has stabilized and began declining slowly.
Nevertheless, one can see an economic slowdown in 2001 with growth of 1% against an average of 5.8% between 95-99 because of the decline in domestic demand due to rising unemployment and low wage increases so, Poland is dependent on demand. But it achieves to control rate of inflation from686% in 90 to 43% in 92 and 7% in 2001 to finish in 2002 to 1.9% and 1.7% in 2003.
The decline in inflation and rapid growth is explained by the opening of the Polish market to international competition, which helped increase foreign investment and privatization of state enterprise. This restructuring causes a rapid increase in unemployment, which reached a high level in early 1990...