For much of the 20th century, there was a curious mirror effect between orthodox Soviet and Chicago School ideologies — both saw the other as the only other possible economic system. Although both time and the ongoing global crisis of capitalism has begun to chip away at such a ridiculous binary, to a maddening degree this ideological straitjacket continues to assert itself. A straitjacket that does not spontaneously materialize but is crafted for the maintenance of power.
The effects of this mirrored duality are still very much with us, and are a crucial factor in the path the countries of the former Soviet bloc have traveled. The usages of this ideological construct are obvious enough in the capitalist world, distilled into “there is no alternative” by the just departed Margaret Thatcher. Less obvious were the usages further East; perhaps the nearest equivalent of the prime minister’s “TINA” is Leonid Brezhnev’s declaration of the Soviet system as “irreversible.”
When the general secretary’s formulation began unraveling in the late 1980s, what was a Soviet bloc economist to do? For many, the answer was to pick up a copy of a book by Friedrich Hayek or Milton Friedman, and jump through the looking glass. And when their new mirror seductively told them to apply shock treatment to their own countries, they did — the mirror told them there was no alternative.
There is always an alternative, Polish economist Tadeusz Kowalik reminds us in his book From Solidarity to Sellout: The Restoration of Capitalism in Poland.* Professor Kowalik, drawing on his decades of experience as a reform socialist often on the outs with the communist authorities for his willingness to challenge orthodoxy, his work as an adviser with the Solidarity trade union and his personal knowledge of the key players, reminds us that Poland — and, by implication, the Soviet bloc as a whole — had an opportunity to create a different economy, one built on cooperatives and democratic participation in the economy.
Such an outcome was widely desired by Poles, and the outlines of such a system emerged in the “Round Table” negotiations held between Poland’s communist authorities and representatives of opposition groups, led by Solidarity, from February to April 1989. Economic democracy was already an established concept, embodied in the “Self-Governing Republic” program of Solidarity, adopted at its first national congress in 1981. In it, Solidarity, which consciously identified itself as a labor union and a broad social movement, declared:
“In the organization of the economy, the basic unit will be a collectively managed social enterprise, represented by a workers’ council and led by a director who shall be appointed with the council’s help and subject to recall by the council. The social enterprise shall … [work] in the interests of society and the enterprise itself. … The reform must socialize planning so that the central plan reflects the aspirations of society and is freely accepted by it. Public debates are therefore indispensable. It should be possible to bring forward plans of every kind, including those drafted by social or civil organizations. Access to comprehensive economic information is therefore absolutely essential.”
Solidarity’s program forgotten, but the looking glass not on agenda
Although Solidarity’s original program was tossed aside, the Round Table negotiators envisioned significant changes without any “leap” into a capitalist market. The two sides did not have serious disagreements, ultimately agreeing in principal, on the political side, on pluralism, freedom of speech and freely elected local governments. On the economic side, there was agreement on facilitating employee ownership, for employee control of state-owned enterprises and a uniform policy toward enterprises, regardless of ownership form. Summarizing the agreement in Solidarity to Sellout, Professor Kowalik wrote:
“Of primary importance here are the provisions concerning protection of labor and employment, written out in ten settled upon and two contentious points. All these detailed settlements distinctly show that the participants of the agreement had no such thought in mind as a ‘leap’ into a market economy.” [page 60]
Yet a particularly harsh brand of capitalism was instituted; “Thatcherism” or “Reaganism” in the parlance of then and “neoliberalism” in today’s vernacular. Professor Kowalik cites several factors leading to the imposition of shock therapy in contradiction to popular opinion, negotiated agreements and pre-existing platforms:
- The centralization of Solidarity while underground during the period of martial law during the 1980s converted it into a top-down organization with a severe cut in membership and an isolated leadership that drifted to the Right.
- The grabbing of state property by the nomenklatura (the bureaucracy managing enterprises and overseeing that management from within the government) for themselves.
- A blurring of Catholicism with socialism, particularly on the part of Tadeusz Mazowiecki, who would become the first non-communist prime minister, but also by other influential people.
- The adoption of undiluted neoliberal ideology by the Polish economists who would become the architects of economic policy by becoming ministers and government advisers.
One of the agreements arising out of the Round Table was that one-third of the seats to the Polish parliament (the Sejm) would be contested later that year (1989) in June. Solidarity won all but one of the contested seats — so sweeping was the rout that Solidarity became the effective government even though the communists still held a parliamentary majority. Mr. Mazowiecki became prime minister when the next government was formed three months after the election. Solidarity activists dominated the new government, although communists retained some portfolios, including the Interior and Defense ministries.
Critically, however, the new finance minister/deputy prime minister was Leszek Balcerowicz, a proponent of neoliberalism who was distant from Solidarity’s struggles and whose writings were of an abstract nature; “his interests were limited to pure theory,” according to Professor Kowalik. Prime Minister Mazowiecki’s leading economic adviser was Stanisław Gomułka, who converted to neoliberal ideology while at the London School of Economics. And Western advisers beat a path to Warsaw as they did to other Soviet bloc capitals; Jeffrey Sachs, who oversaw shock therapy in multiple countries, perhaps was the most prominent. The International Monetary Fund was also on the scene.
Abstract theorizing instead of examination of concrete reality
Other economists who had imbibed starry-eyed ideas of how market forces would shortly create paradise played roles as well; but the finance minister’s role was so important that Poland’s shock therapy became known as the “Balcerowicz Plan.” Professor Kowalik wrote of his obfuscating tendencies:
“Balcerowicz made great efforts to compromise — like the term ‘social interest’ — the adjective ‘social.’ … Such a standpoint was bound to lead him to extreme individualism, a negation of the role of the state as a general social institution, with only the interest of the authorities being important. Balcerowicz does not write this outright, but his reasoning resembles a lot the well-known view of Margaret Thatcher, that there is no such thing as society (and thus it does not exist). He rejects the very notion of social justice and often simply avoids this subject. … Balcerowicz’s knowledge, of course, remained theoretical, abstract, and distant from real economic policies.” [pages 112-114]
Such an approach and outlook dovetails with orthodox capitalist economics, as distilled through the wellspring of neoliberalism, Chicago School economics: highly abstract, built on mathematics and based on airy concepts such as “perfect competition” rather than on the real world. Firms and individuals are not seen as part of a social structure; factors such as wealth and property are taken as given. Production is alleged to be independent of all social factors, the employees who do the work of production are in their jobs due to personal choice, and wages are based only on individual achievement independent of race, gender and other differences.
Such is the underlying rationale for neoliberalism, which seeks to make “market forces” — the aggregate interests of the wealthiest industrialists and financiers as expressed through the power of the corporations they control — the sole arbiter of outcomes in all social spheres. Neoliberalism, as Henry Giroux recently put it, “construes profit-making as the essence of democracy, consuming as the only operable form of citizenship, and an irrational belief in the market to solve all problems and serve as a model for structuring all social relations.”
New laws accelerate grabbing of state property already in progress
Privatization, however, was already under way by the time the Round Table negotiators hammered out their agreement. A 1987 law enabled the creation of private businesses with the assets of state enterprises and a January 1989 law stipulated outright that state assets could be transferred to private individuals for conducting economic activity. Such transfers were not necessarily done with full value paid, and private firms were given preferential treatment. Professor Kowalik wrote in Solidarity to Sellout:
“[T]he players of the nomenklatura offshoot of privatization consisted of managers of various rank, government and party functionaries associated with them, along with their families. The process, commonly called ‘enfranchisement of the nomenklatura,’ deserves attention because it was then that the phenomenon of corrupt privatization, or arranged clientelistic privatization, developed. …
“The state sector shortly became a cash machine, which was made easier by the authorities through relevant legal regulations. … These laws sanctioned the plunder of the state sector earlier begun by its own managers. The state sector was highly taxed to maintain the entire state infrastructure and doomed to hopeless competition with the nearly tax-free private firms that were also paying infinitesimal customs duties.” [pages 204-205]
The pace was accelerated when the parliament, in late December 1989, hurriedly passed nearly unanimously a series of bills implementing the Balcerowicz Plan, with the plan going into effect on January 1, 1990. Noting the later contrition of the parliament speaker, who said Finance Minister Balcerowicz and Professor Sachs “plainly tricked us,” Professor Kowalik summed up the vote this way:
“Advantage was simply taken of the immense trust that the people had in the first non-communist government. There could be no serious debate, because without a general document presenting a synthesis of the systemic contents of eleven laws and the simultaneously ratified budget, such a discussion was not possible. The parliamentarians acted under the pressure of a race with time, imposed on them by the executive authorities.” [page 133]
One scheme for privatization was the creation of “National Investment Funds” — state companies disposed in this program were to be 15 percent owned by employees, 25 percent by the state treasury and 60 percent by the funds, with the public allowed to buy shares in the funds. Only a minority of privatized enterprises were disposed of this way (more were simply sold to foreign buyers), but the funds were a failure, Solidarity to Sellout reports, because inflation and a declining stock market caused the shares to steadily lose value; moreover, most of the public shares wound up in foreign hands.
What capital remained in Polish hands also became concentrated as, similar to the pattern in Russia, the nomenklatura-turned-privatizers were soon dwarfed by a new class of oligarchs.
Actual cooperatives faced consistent hostility from the government, which saw coops as a temporary “transition” to what it termed “real” privatization. Pre-existing cooperatives were simply “administratively eliminated,” new coops had barriers placed in front of them and foreign capital, which soon controlled Polish banking, was also hostile. At the same time, state farms were immediately thrown into competition with subsidized Western European agriculture with all domestic subsidies removed at a stroke, devastating Polish farmers. This was in contrast to the buildup of Western European agriculture after World War II, which was nurtured through protective measures.
Results of shock therapy differ widely from promises
The results of the Balcerowicz Plan were devastating, in contrast to promises of a short-lived downturn followed by rapid growth and transition to Poland becoming a “normal” European country, a concept dangled by Western advisers skillfully playing on Polish antipathy toward Russia:
- A 50 percent drop in real wages and a 30 percent drop in industrial output in the first month of the Balcerowicz Plan.
- From 1996 to 2005, the percentage of Poles whose income was so low as to be insufficient for biological survival tripled to 12 percent even though the national income rose by one-third.
- Wage inequality became the highest in the European Union.
- The number of Poles living below the official poverty level ballooned to 58 percent by 2003; the statistics bureau then stopped publishing this figure.
- Before entry into the European Union, the average unemployment rate was 16 percent, topping 20 percent during the early 2000s, more than a decade after the imposition of shock therapy; the rate declined after E.U. ascension due to a stream of emigration.
Having told this story in a somewhat idiosyncratic but nonetheless compelling style, Solidarity to Sellout ends, surprisingly, on an unimaginative note by championing the Scandinavian model of capitalism, seeing Sweden as the model for Poland to emulate. In part, the conclusion follows from Professor Kowalik’s acknowledgment that a lack of organized anger and the sellout by trade unions has allowed the Polish Right to flourish, and a tacit understanding that creating a cooperative economy is drastically more difficult in a privatized economy than it would have been when enterprises were in state hands. He writes:
“[I]t was enough for the trade unions to become involved in support of anti-employee systemic changes and the shock operation. That is why rebuilding he strength of the trade unions in Poland is going to be an extremely difficult task.” [page 298]
Professor Kowalik calls the Scandinavian countries “centers of economic excellence,” contrasting them to Poland’s “role of subcontractor.” The former model by any reasonable measure is superior to neoliberalism, but the professor has perhaps not fully considered that Poland, and the rest of the Soviet bloc, were destined by the dynamics of capitalism to become a source of cheap labor, akin to Latin America’s relationship to the United States. Nor are the more powerful capitalist countries likely to acquiesce to a subcontractor becoming a serious competitor.
Having become completely entangled in the global capitalist system, Poland can only transcend to a better system as part of an international bloc; it can’t be an island unto itself. Given the structural crisis of global capitalism, the aim will have to be higher than simply emulating Sweden, where capitalist pressures are not unknown and the European Union methodically imposes downward pressure.
But regardless of one’s opinion of the conclusion, Solidarity to Sellout provides an outstanding analysis of the capitalist restoration of Poland on neoliberal grounds, as could only be written by an economist with an intimate understanding of Poland, economics, the Solidarity movement and the key individuals in the process. Professor Kowalik’s book is well worth pursing by anybody interested in understanding the post-Soviet path of Central Europe, or, more generally, the dynamics of neoliberalism.
* Tadeusz Kowalik, From Solidarity to Sellout: The Restoration of Capitalism in Poland [Monthly Review Press, New York, 2012]