NYTimes.com Article: As Poland Endures Hard Times, Capitalism ComesUnder

Poland enters the post-postcommunist era.  But the fundamentals of the
Polish economy are, of course, sound...

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As Poland Endures Hard Times, Capitalism Comes Under Attack

June 12, 2002
By IAN FISHER






SZCZECIN, Poland - In Communist times, no one was louder
than Poland's famously feisty shipyard workers about the
state's inability to provide a decent standard of living.
So now it seems a cruel joke that, as the sparkle fades
from the market economy, it is private enterprise that has
failed them.

Since March, the Szczecin shipyard has been closed, and
6,000 workers have not been paid. When violence loomed, the
government stepped in, announcing a plan in May that would,
for the first time, renationalize a Polish company.

"It is certainly very abnormal," said Bogoslaw Rydzenski,
48, a worker. "No one could have predicted this."

These are hard times in Poland, which grew for nearly 10
straight years into a country of stocked shelves, giant
malls and impressive self-confidence - a 40-million-strong
symbol of Central Europe's post-Communist hopes.

Now, the will to continue privatization and other reforms,
and even the desire to join the European Union, have
flagged. The story is much the same around the region, as
the transformation from gangly state economies has brought
material comfort, but also insecurity and a new set of
inequalities. In Poland, indeed, the very notion that
Western-style capitalism will work in the eastern nation
that embraced it perhaps most heartily is under attack.

"There is an apropos graffiti," Krzysztof Bledowski, an
economist, said as he sat in a cafe in downtown Warsaw. He
pointed across the street to a car parts shop, where
someone had scrawled on a wall: "Free market, enslaved
people."

"It's the spirit of the day," he said. "The mood has
shifted. Capitalism is not seen by many people as a system
for justice, growth, better times for kids and so on."

What is happening now is not economic collapse of the kind
that engulfed Russia in the 1990's.

Many companies are doing well, and Poland appears set to
move into the European Union in 2004. But there is a
serious slowdown, compounded by what many experts say is
political dawdling and disagreement about how to fix it.

Around the region, the cost to top leaders is high: Second
terms here are rare, and experts say Poland's new coalition
government, led by the socialist Democratic Left Alliance,
will be no exception if it cannot reverse this downturn.

Last year, growth dropped to just 1 percent. Unemployment
this year hit 18 percent, the highest in the post-Communist
era, and there are real worries of street disturbances and
protests in the largest nation up for joining the European
Union, if more people lose their jobs.

This downturn, Mr. Bledowski said, is "causing a lot of
soul searching. People are revising a lot of assumptions
and expectations."

Some experts worry that the problems at the shipyard in
Szczecin (pronounced SHTESH-een), once the German Stettin,
may usher in an era of greater economic control by the
state. Although the center-left government elected last
year says Szczecin is a singular case, there are already
calls for intervention over a Daewoo car plant that went
bankrupt this year and where angry workers are staging a
hunger strike.

"There is a queue of other potential bankruptcies, and it
worries me," said Hubert A. Janiszewski, managing director
of Deutsche Bank in Poland.

Unlike many other former Soviet bloc states, whose
economies alternately surged and faltered, Poland's
trajectory since the early 1990's has been largely up.
Economic growth in the mid-1990's hit 7 percent.
Unemployment dipped for a time to below 10 percent. Foreign
investment flooded in. "People felt you could throw in a
little money and watch it expand into enormous piles of
cash," said Tony Housh, the former leader of the American
Chamber of Commerce in Warsaw.

But Poland remained two nations economically. Cities,
especially Warsaw, prospered, as poverty ground on in the
countryside, especially on the many inefficient farms. Many
large- and medium-size private business did well, more or
less masking big problems in overstaffed nationalized
companies, in coal mining, steel and chemical production.

Then in 2000 and 2001, the world economy turned, especially
that of Poland's main trading partner, Germany. Monetary
policies, aimed at staving off inflation, kept the national
currency, the zloty, strong and interest rates high.
Unemployment surged as companies, feeling the pinch of
reduced demand, shed workers. Reduced tax receipts and
increased spending by the old government during the
elections last September ratcheted up the budget deficit to
crisis levels.

In the disillusionment with the new economy and the
mainstream parties of both right and left, fringe parties,
particularly Self Defense, led by a radical populist,
Andrzej Lepper, have surged.

Mr. Lepper talks often about a middle road between
communism and capitalism, greater state protections over
the free market - a notion that appeals these days to many
Poles and resonates especially here in Szczecin. Many
shipyard workers say private management drove the company
into the ground.

"Polish yuppies!" spat out Janusz Gajek, a 43-year-old
worker here who led worker protests after the plant here
closed in March. A fellow protest organizer, Roman
Nizurski, 46, added: "What about the rest of us? The
relationship between managers and workers has been broken."


Poor management decisions, in fact, are often cited as a
reason for the shipyard's problems. But there are others: a
downturn in the worldwide shipbuilding market; the strong
zloty, which increases the prices of ships; problems with a
new prototype tanker. In March, banks simply stopped
extending credit.

Many workers say they are not happy with the state plans to
insert itself again into the shipyard - after all, it was
the Solidarity trade union in the Baltic shipyards that led
the fight against communism in the 1980's. Equally, they
know there is no other choice to save their jobs.

"We know this is some kind of temporary salvation," said
Mr. Gajek. "A rope has been thrown."

Mr. Janiszewski, of Deutsche Bank, sees a major problem in
state intervention because, he said, "the government has no
guts to reverse the situation in a decisive way."

Reducing the deficit and privatizing the big industries
still under state control means taking on the powerful
unions and making more job cuts at a time when high
unemployment has become a real political liability.

Government officials declined repeated requests for
interviews.

But Stanislaw Gomulka, a prominent economist who advises
the finance minister, contended that the present government
inherited many economic problems from the previous
administration, while acknowledging that Prime Minister
Leszek Miller and his team have been slow to impose their
own reforms.

"The government is a little bit afraid that if it imposes
radical laws that are opposed by the trade unions that we
will have street fights, demonstrations, large political
fights," said Mr. Gomulka, a professor at the London School
of Economics who has advised governments in Poland since
1989. That, he said, could strengthen populists like Mr.
Lepper even more. "They want to see if a consensus can be
reached."

Mr. Gomulka predicted that reforms - cutting taxes, easing
bureaucratic burdens on vital small and medium-size
enterprises - will come. Poland, he said, remains strong in
its foundations, an opinion shared by many economists and
business executives.

William V. Carey, a former golf professional from Florida,
came to Poland in 1991 to explore exporting Polish
agriculture. With a quick look around at the empty shop
shelves, he decided it might be better to bring in goods
instead. Starting simply by importing Fosters' beer -
before the Polish beer industry, like so many others, took
off - he slowly built his company into the nation's largest
distributor of beer, wine and spirits.

His company is flourishing, and he remains optimistic,
despite Poland's backward bureaucracy, poor roads (of
special concern to a distribution company), and the
downturn.

"It is quite a remarkable success," said Mr. Carey, now 37,
sitting in the new Warsaw headquarters of his business, the
Central European Distribution Corporation. "I viewed Poland
as 40 years behind when I got here, and it is just a few
years behind now."

But, he said, Poland's new business class is learning a
rough lesson from the downturn: "That there is a lot more
to running a company than just getting it up. It is a lot
of sweat to get it into progressive growth - not just to do
well when the economy is growing."

http://www.nytimes.com/2002/06/12/international/europe/12POLA.html?ex=1024871391&ei=1&en=a2a83289a41cb0f9



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