Paper developed for the United National University/World Institute for Development Economics Research Conference on the Reforming Economies' Transition into the Global Economy, Helsinki May 27-27 1995

The East-Central European communist regimes that came into power at the close of World War II sought to eradicate the market mechanism and to insulate their countries from the capitalist West. Poland was no exception: most of its exports were directed to, and most of its imports were obtained from other COMECOM members, in particular from the Soviet Union. Gradually, however, the leadership of the PZPR, the Polish United Workers' (communist) Party realized that the command system and isolation from the world spelled stagnation. Sporadic attempts at reform were made as early as 1956, but the system remained virtually unchanged for the next twenty-five years.

In the 1970s growth slowed down, while social opposition to the regime gained in strength. The Party made an abortive attempts to improve economic performance by importing foreign technology. This strategy having failed, the July 1981 Party Congress adopted a reform program calling for increasing reliance on the market mechanism and for the opening of the economy. But the November 13, 1981 declaration of the "state of war" by Wojciech Jaruzelski, who combined the offices of Prime Minister, Defence Minister and First Secretary of PZPR, delayed implementation. After the return to "normalcy" various measures were taken to decentralize economic decision-making. The scope of central allocation of raw materials was reduced. Enterprises were granted more freedom of decision concerning production, marketing (including foreign sales) and investment. The market was allowed a greater role in price determination. Yet progress was slow: the ruling party was clearly aware of the risk that economic reform would lead to the loss of power.

The Solidarity-led regime which was formed in the Fall of 1989 inherited a partially liberalized and half-dismantled command system, and an economy hovering on the verge of hyperinflation. It also inherited a staggering foreign debt--the result of the ill-conceived foreign loan-financed modernization policy of the 1970s.