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Even while communism reigned, Leszek Balcerowicz said, he held out hope for a free market economy in Poland. Balcerowicz, professor of economics at the Warsaw School of Economics, is a former deputy prime minister and minister of finance of Poland, and former president of the National Bank of Poland.
“My hope was to think about reforms even when the political situation was sad,” he said during a Myron Scholes Global Market Forum, sponsored by the Chicago Council on Global Affairs and the Initiative on Global Markets, at Gleacher Center on November 10.
In the late 1970s, Balcerowicz created an informal, legal group of then-young economists who tried to plan a more efficient economic system, he said. When demand for reform proposals eventually grew, the Polish government sought Balcerowicz’s input. “Without the publicity I had gained, many years later nobody would have though to ask me to get involved,” he said.
Balcerowicz faced initial conditions of 20 to 40 percent inflation each month, massive shortages, and huge foreign debt in a very distorted, state-controlled economy that was sinking, he said. “I thought, ‘This is going to be hopeless if you move slowly or piece by piece,’” Balcerowicz said. “I said, ‘You have to go with a big bang,’ which means, ‘You have to try to get rid of this high inflation very quickly.’”
The Polish government radically reduced its budget deficit, increased the role of the central bank, and liberalized markets – except for the financial sector, which was intentionally reformed much more gradually, he said. Because the country was so strongly united in the early years of reform, Polish leaders enjoyed a two-year window of swift action, Balcerowicz said.
“This was a gift of history I called ‘the time of extraordinary politics that must be tapped,’” he said. “How? By moving fast in the right direction. You could not do everything needed in two years, but we did as much as possible. We were able to reduce inflation from about 10 percent to 3 percent.”
The effects of market reforms are dramatically different for countries in post-communist Europe, including current data on GDP per capita, inflation, FDI stock, life expectancy, mortality rates, and environmental conditions, Balcerowicz said. “Everybody is lower in inflation, but there are still huge differences,” he said. “In countries that have achieved better results of growth, on average they have lower inflation, which is a very important lesson.”
The dramatic difference in both economic and non-economic outcomes among the countries can best be explained by the extent of market reforms instituted in each, Balcerowicz said. “The more reforms you make away from socialism, the better your economic growth is,” he said. “This is not speculation. This is based on research.”
Two of the most important reforms were trade openness and ownership structure, Balcerowicz said. “Opening trade to the west was important because it meant transfer of technology,” he said. “Ownership was a revolution for socialism, where political control was maintained over everything. A radical increase in the ownership share of the private sector was a very important reform.”
—Phil Rockrohr