Therefore, Poland found itself in a situation where all the economic aspects faced disequilibrium. In 1976 the polish leadership tried to reduce investment and use resources in consumer good industries to recover from market disequilibrium, As a result economic growth started to decrease and in 1979 Poland came across with negative growth followed by a fall in wages. In 1980 the leadership’s final act was to increase prices to reduce market disequilibrium. This plan was the beginning of social crisis, with strikes for higher wages. Moreover, the decline of coal production together with the reduction in imports had impact effects on the national income, which declined in 1980s by 6% and in 1981 by 13% (RS, 1985)
So the main characteristic of Polish economy was hyperinflation. In 1982 some price adjustments took place under the “martial Law”, but still the picture of this decade was 15%-20% inflation. In 1988 Messner’s leadership started structural and institutional reforms, which managed to bring liberalizations in the foundation of new companies (even private ones) and limit foreign investment. But this attempt of liberalization and privatization in the market failed due to nomenklatura. (Blaszczyk and Dabrowski 1993). Finally in 1989, the decision of having free food prices together with the elimination of the rationing system, caused near-hyperinflation with monthly rates of 39,5%-54.8%.
Hungary’s Economic Reforms before transition
In Hungary the pre- reforms attempts started in 1956, when Hungarian economists came up with the inter alia proposal, which provides more autonomy to the enterprises and more significant role to the market and workers’ forces. Unfortunately this proposal was abandoned, as many economists believed that economic problems could be solved by small adjustments in systemic and organization basis. But they were proved wrong as soon as Hungary had to face imbalances from foreign trade and indebtedness from the minor production of consumer goods.
All these problems could only be solved by an economic reform, which would introduce economic efficiency. This reform started in 1968 and focused on the integration of central planning and market mechanism. During the reform, enterprises were given larger autonomy to meet market’s demands. The results were satisfying since economic growth started to increase, figures on production of goods also rose, balance of payments improved and real wage growth went up. Finally it is worth mentioning the improvement on the supply of consumer goods that restored market equilibrium. But this reform went only halfway, and halted in 1973, due to shortcomings: “The expansion of the enterprises’ autonomy succeeded by eliminating, among others, the plan output targets, but hierarchical relations, which were the instrument in carrying out the disaggregation of output targets, were left intact although at least a great part of bureaucracy could not be expected to be enthusiastic about the reform to say the least. So in order not to antagonize the bureaucracy, part of which was afraid to lose its position and influence, the reform went halfway”.
During the 1980’s, the general disequilibrium in Hungary’s economy still existed therefore, authorities decided to change economic policy and focus on a competitive price system, the expansion of small firms and the weakening of the hierarchical system, by introducing the “1985 provisions”. This reform had increased the role of fiscal policy and the progress of Capital market. Moreover, enterprises expanded their autonomy, giving market a greater role. But despite this changes there was not a sufficient increase in market forces. Furthermore, this reform introduced some changes in the management system: Government authorities interfere in the business of enterprises, but in the same time enterprises can protect themselves by bargaining and by modifying regulators (subsidies, tax breaks, prices) for their own benefits. But since these regulators were not applied homogeneously some enterprises managed to get away with regulators and have excessive profit. Moreover, the reform changed the managerial behavior of the enterprises, meaning that profit was the basis of decision-making and it managed to control the supply and demand of goods. Finally there was modernization of technology issues due to easier access to foreign technology (Bauer, 1987).
Poland during Transition
Mazowiecki was the first post-communist leader of Poland, who after one month of his appointment presented a plan for economic transformation. The reason why he presented his strategy so fast was the bad economic condition of the nation and the negative experience of the previous economic reforms. After some necessary preparations the reform plan was introduced on January 1, 1990 and included five components: Reduction in money supply together with high interest rates. a) Elimination of the subsidies to food products and intermediate inputs (budget surplus achieved in1990), b) Liberalization of prices (90% of prices controlled by market), c) Convertibility of polish currency, with constant exchange rate (stabilization in 9,500 zloty per U.S. dollar), d) Introduction of income policy, with taxation penalties on wage excesses. The objectives of this reform were mainly to balance inflation, increase competition for the economy, introduce free market of prices, and break down wage policy and stabilization of state budget.
Apart from macroeconomic issues, the plan also included microeconomic reforms such as common tax policy for all organizations, reorganization of banking sector and update of banking law, expansion of the strength of National Bank of Poland, privatization of organizations.
During the 10 years of Polish transition, the macroeconomic results were not the expected ones. Despite the fact that Poland managed to stabilize its economy, therefore having a high GDP (comparing to other transition countries) and experienced output recovery (1991 and onwards), it failed to have high figures in disinflation. So even though inflation decreased constantly year after year, the result in the end did not correspond the fast growth.
Hungary during Transition
Hungary embarked transition in 1990, with a relative liberalized economy and with the smallest economic contraction than other countries. Therefore someone would believe that the economy would perform well, but the opposite was proved. Hungary faced the worst growth performance, at the start of transition, than any other country in the region. The reason behind this is mainly the refuse of rescheduling the external debts it had and the gradualistic approach of the economy. So Hungary in the beginning of transition had high inflation, large government budget deficit and declining growth.
Hungary until 1995 was applying microeconomic reforms but its macroeconomic position was deteriorating so it could not get the benefits from these reforms. Privatization was moving slowly, and only the opening to foreign ownership brought benefits, since new technology and capital was introduced.
In 1995 the government changed policy and introduced a macroeconomic stabilization programme. This plan was going to deal with the reduction of budget expenditures, so that the market could financially support the deficit. The next two years the Hungarian economy started to grow. Microeconomic efforts came to a hand due to the macroeconomic balance. Moreover privatization started to increase and strategies were taken for increase in revenue and reduction in government spending.
Comparison of Poland and Hungary before and during transition.
Looking at the reforms, both countries pursue before transition, we make the following conclusions: Poland’s reforms were less successful than Hungary’s. Hungary managed to liberalize more its economy by opening up the economy to the west and bringing new technology and capital, improving production figures, whereas Poland with imbalances in investment and production of consumer goods, increased inflation and deteriorate growth.
During transition, though, the situation is different. Hungary started weak the transition with very poor figures in all economic aspects, whereas Poland had very large figures in Real GDP. Inflation was high for both countries but with a tendency of decreasing.
Comparing now the reforms undertaken before transition and during transition we could say that reforms during transition were much more successful. The reason is the change of the political system, from Communism to Democracy that liberated the market and helped the transition Nations to recover. Moreover during transition these countries managed to get assistance from foreign banks such as the World Bank and cover their deficits.
REFFERENCES
Blaszczyk, Barbara, and Marek Dabrowski. 1993. The privatization process in Poland 1989-1992: Expectations, results and remaining dilemmas. Working Paper, Center for research into Post-Communist Economics (CRCE), London
Marie Lavigne, 2nd Edition, The Economics of Transition: From Social Economy to Market Economy
