Poland And Czech Reform


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

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