Colin Barker Archive   |   ETOL Main Page

Solidarność

Colin Barker & Kara Weber

Solidarność:
From Gdansk to Military Repression

II. ‘Accumulate! Accumulate!’ –
Polish state capitalism in crisis

10. The crisis deepens

What the Gierek regime had hoped was that by the mid-1970s the Polish economy would begin to pay off its debts and maintain its new growth rates through an expansion of manufactured exports. [63] The actual outcome was quite different: the crisis re-asserted itself with a vengeance. ‘External’ and ‘internal’ causes combined to turn Poland’s boom into a massive crash. First, the world economy, after a brief and hectic boom from 1971 to 1973, went into its deepest postwar recession. It thus became harder for Poland to sell its exports. In some cases, Western nations adopted protectionist policies against Polish goods: in 1974, for instance, Italy banned imports of Polish livestock and beef and tightened up on other Polish goods, pushing Polish trade with Italy into deficit. [64]

The world recession was combined with an upturn in the inflationary spiral: Poland got less goods in return for its hard currency borrowings. Rising world interest rates raised the cost of servicing Poland’s mounting debts to the West: by 1976, debt-service costs to the West had already risen to 42% of the value of Polish exports, and the percentage was to keep rising. [65]

But it was not only its relationships with the West, on which most commentators have focussed, that caused problems. Russia is Poland’s chief oil supplier; from 1975, Russia began to raise the price of its oil exports to other Comecon countries towards OPEC levels. Data on trade relations between Poland and Russia are hard to come by, but it appears that the Russian renegotiated the terms of trade between themselves and their satellites in ways that were very advantageous to themselves. Chris Harman quotes sources suggesting that Russia raised its oil prices to its allies by 130% in 1975, and that price rises on Russian raw materials to the rest of the Warsaw Pact cost them as much as one third of their planned growth in national income. [66] Recently, Kultura published the text of a speech by Marian Rajski, a delegate to the PUWP Gdynia City Conference on 16 May 1981, in which the speaker went so far as to attribute the entire Polish crisis to Russian robbery-through-trade. He cited figures to suggest that Polish exports to Russia increased in the period 1976–80 by 22% a year, or nearly four times the growth of Polish production. A high proportion of Polish manufactures, he suggested, flowed straight from Polish factories and shipyards across the Russian border at very disadvantageous prices in transferable rubles. Since much of Polish industrial production embodies hard-currency imports from the West, the Russians were thereby obtaining ‘semi-Western goods’ at no cost to their foreign currency balances, and offsetting tendencies to crisis in their domestic economy at Poland’s expense. In the absence of more information, Rajski’s important article is difficult to evaluate: most probably, he exaggerates, in blaming the whole crisis on Russian price-imperialism, yet it was nonetheless a significant factor. [67]

It is not – as some Polish official apologists claim [68] – that Poland was simply the victim of externally induced crisis: the Polish regime was an active participant in the very processes that produced world stagflation. Poland’s unrestrained rush for growth helped push up the world price of oil and other raw materials, as its massive borrowings helped shove up interest rates. Its cutbacks in machinery imports etc. in the later 1970s added to the world recession.

As the world economy turned downwards, however, the government’s expectations remained daftly optimistic. The Prime Minister, Jaroszewicz, announced in December 1975 that the share of Polish industrial output destined for exports on all markets could rise from 14.4% to at least 18%, implying an annual increase in real terms of around 12%. (The actual growth in 1976 was 5% and in 1977 8%.) The share of exports in total industrial output actually rose hardly at all. [69] The same Jaroszewicz also opined that the world oil crisis was only a minor passing ripple in the development of world economy and trade. [70] Blindly, the government persisted in its policies long after the danger-signals were apparent.

When the planners finally came to formulate the goals for 1976-80, they were forced to cut back the growth targets. However, if in the first half of the decade the problem was over-fulfilment of the ‘plans’, in the second half the problem was the reverse. [71] The whole economy spiralled downwards into chaos and crisis.

The most immediate problem was the rapidly mounting foreign debt, and the associated deficit in foreign trade. The answer seemed to be to raise exports and cut imports. But neither task was as simple as might appear.

Exports were raised from 1976–79, but the export growth rate fell by comparison with the first half of the 1970s. World markets were tightening, and the persistent problem of the quality of engineering goods (of which so much had been hoped) only made things worse. As the crisis deepened, in any case it became difficult to maintain production schedules in export industries. In 1980 exports at constant prices fell (although dollar receipts, due to inflation, rose). [72] In an effort to earn hard currency, Poland had to step up its exports of fuels, raw materials, and foodstuffs – all goods that were badly needed in the domestic economy, and whose growing shortage was to worsen the economic crisis.

Imports were not easily reduced. In terms of constant prices, the regime managed to achieve very small reductions in imports in 1977, 1979 and 1980. But in the real world, prices were not constant: only in 1977 was there a small reduction (of $300m) in hard currency spending on imports. Import spending rose again in 1978 to the level of 1976, and rose again in 1979. [73] In the one year that a 0.3 billion dollar reduction in the import bill was achieved, the cost of debt servicing rose by a full billion dollars, and total debt to the West rose by $3.1 billions.

Western capital had permitted the Polish bureaucrats to indulge their ‘propensity to excessive investment’ to the hilt. Now the result was an exaggerated form of the crisis-cycle noted earlier. There were still more unfinished plants, whose completion depended on further imports from the West. The ‘broadening of the investment front’ in the early 1970s now appeared as a broadening of the crisis-tendency. The shortages due to both increasing stringency in imports and the growing failures in domestic supplies meant that it took longer to complete investments that had been started: the average ‘gestation period’ for completed projects rose by a third between 1975 and 1980. In 1975, 37% of completed investments in the state sector had taken longer than planned to reach completion; in 1980 the proportion was 61% (and in the building industry it was 84%). [74]

Huge resources were tied up in monster projects, some of them undertaken in conjunction with western multinationals. At Katowice, a massive steel complex was begun in 1974, its siting determined by the personal whim of Gierek. The cost over-run on the project was 500%. By 1980 Huta Katowice contained 8.8 billion zlotys worth of unused machinery. The second stage of the project had to be cancelled. [75] The Ursus Tractor factory in Warsaw began a huge development plan in 1974, in conjunction with Massey-Ferguson and Perkins Diesels. The plan was that Ursus should, by 1981, produce 75,000 tractors and 90,000 engines, at a projected cost of $400m. By 1981 the project had already cost $840m, and was expected to take at least another four years to complete. By 1979, much of the expensive machinery for the project had been imported, but was standing around in crates because the floors had not been built. Because the plant was not built on time, such tractors as were produced depended heavily on imported forgings and castings and other components, involving an import cost of $4,000 per tractor. [76] The Berliet bus plant at Jelezansk only produced one fifth of its intended output in 1980; each bus produced cost $6,000 in imported parts, and was anyway unsuitable for the Polish roads and climate. The big PVC plant at Wloclawek, due for completion in 1979, was still unfinished in 1981; this involved massive waste at the Plock ethylene project, built by Japanese capital and completed on time, which depended on Wloclawek to take its output. [77]

Much of the investment development has taken the form of purchase of licenses from western capitalist concerns. Many of these were very import intensive; and 20% – though paid for – were never in fact used. In any case, the benefits of much of the imported technologies and machinery proved illusory: ‘Apart from disappointments with diffusion and post-license developments it also appears to be the case that not enough exports are being generated in licensed activity to pay for total license costs. Revenues covered 59% of costs in transactions with capitalist economies in 1977.’ [78] Failures in agriculture (see below) forced the regime into large food and fodder imports.

In these circumstances, Poland’s debts to the West continued to mount. The cost of servicing the debts rose very sharply, as Poland was forced to rely more and more on short-term, high interest borrowings from banks:

Debt servicing costs grew by more than 20 times over the decade 1971–80. The trade balance, in deficit from 1972, stayed in the red The rate of investment fell, in a series of abrupt and crisis, enhancing steps. In 1975 it had grown by 14.2%, but the following year it rose by only 2.5%. It then declined further. As a percentage of national income, accumulation fell from 34.1 % in 1976 to 31.5% in 1977 to 30.8% in 1978. The cut in 1979 was more drastic (26.2%) and again in 1980 (20.2%). These investment cuts ‘were not planned beforehand; they were imposed by bottlenecks in construction and installation, and by the reduced important capacity of the Polish economy’. [80]

The result was a growth in the proportion of ‘frozen’ resources in the Polish economy. Total investment outlays over the whole decade 1971–80 amounted to 4,834 billion zlotys, but at the end of 1980 over a sixth (821 billion) were tied up in unfinished projects, whose completion costs were estimated at a further 1,500 billion zlotys. This involved a vast waste of capital resources, much of it actually rusting in crates in the warehouses. The whole process has involved an immense destruction of capital, extracted by the bureaucracy from the labours of the workers and peasants of Poland and incapable of being used. A relatively timid Polish commentator wrote in 1979:

Our “great leap forward” in the early years of the present decade has left in its wake greater distortions between the various sectors and branches of our economy than existed before. This is a great burden. The resulting bottlenecks prevent us from making proper use of our expanded and considerably modernised economic potential. What is more, we have no chance to fill the existing gaps in supply by increasing our imports. Quite the opposite – the present growth in imports must be arrested. This is the result of our taking foreign loans without considering the export potential of our economy and investing those monies in branches of the economy that were import intensive. The consequence is the prospect of a long-term balance-of-payments problem. The disproportions have lowered the overall efficiency of the economy, and blatant signs of wastefulness in our economy have rampantly increased. [81]

In these circumstances, the productivity of fixed capital fell sharply, beginning its fall in 1975, and falling faster and faster in each subsequent year. [82] The declining efficiency of the economy meant that in the first quarter of 1978 three times as many enterprises as in the same period of 1977 were not managing to achieve their planned tasks, often through lack of needed inputs-Under these conditions, further falls in the quality of production were registered, and managers and workers became more and more cynical. [83] Shortages led to ‘chain’ losses of output, in a steepening vicious circle.

The outcome was finally registered in 1981, when the Polish economy had nose-dived into slump and bankruptcy:

Hundreds of projects, due for completion or starting this year, have now been abandoned, more than 40 of them very substantial. A company has now been set up in Warsaw whose sole responsibility is to sell or lease whatever it can of the expensive but unused equipment that had been bought in specially for these shelved projects. [84]

The Sunday Times reported, on the day of the military coup:

In and around Warsaw stand dozens of half-finished or under-used factories, like the $400 million colour TV plant built by RCA and Corning Glass, financed with a $75 million credit from the US Exim Bank. It is at present operating at 20 per cent capacity because there is no hard currency to pay for imported components and raw material. [85]

The so-called ‘planned economy’ of Poland was in chaos. The exiled Polish economist, Brus, wrote in 1979 that the economy seemed ‘ever more strongly to be drifting under the influence of uncontrolled processes, controlled by neither plan nor market’. The economic boom had become a monster that no one could control till it began, in the words of a Polish sociologist, ‘to suffocate itself because of the bottlenecks in its structure’. [86] Reviewing the whole period, George Blazyca commented, ‘The mechanism of adjustment from one policy to another is evidently usually economic and social crisis.’ [87] The economic ‘planners’ found that the economy was less and less ‘steerable’. The old methods for resolving crises were less and less appropriate: it became harder to designate a small number of projects as ‘priority’ sectors and to put all the emphasis on completing these. The more the economy was ‘modernised’, the greater the number of candidates for ‘priority’ status, to the point where the very notion of ‘priorities’ became meaningless:

The irreconcilable claims of different economic agents and the overambitious conflicting targets set for the economy led to the practical disintegration of economic control. There was a proliferation of “priorities” (exports, essential consumption goods, completion of half-finished investment projects, modernisation, motorisation, housing, armaments) ... [88]

Faced with this chaos, enterprise managers added their own contributions: given the growing shortages of supplies, especially imported inputs, they developed their tendency to hoarding: in 1979, industrial inventories rose three times as fast as production. [89]

Hardly surprisingly, the growth rate fell. The average growth per annum of national income in 1970–75 had been 9%; the target for 1975–80 was 7.3% a year, but the actual results were 6.8% in 1975, 5% in 1977 and 3% in 1978. In 1979 national income produced actually fell by 2.3% – an event previously unparalleled in the postwar history of Poland. The fall continued in 1980. The estimate for 1981 is at least a 15% drop in production.

The growing crisis in production was, of course, paralleled in the sphere of consumption. The growth in real wages of the first half of the 1970s first slowed down, and then went into reverse. In 1978 money wages rose by 5.7% on average, but the cost of living – on official figures – rose by 8.5%. Real wages, on the official index, thus fell by 2.6% (against a planned rise of 1.8%). [90] The fall continued into 1979 and 1980. The ‘monetary balances’ (unspendable wages) in the hands of the population continued to grow (on average, over the decade 1971–80, they grew by 16.2% a year).

One thing that the workers’ struggles of 1970–71 had impressed on the government was the danger of tampering with food prices. This was one reason why the growth policy of the early 1970s had not involved any significant element of reform of Poland’s chaotic prices system. Official food prices were controlled, but at the cost to the state of a huge and rising burden of subsidies, amounting by the late 1970s to almost 40% of the state budget. Faced with the growing crisis in the mid-1970s, the state attempted to force through a massive series of price rises, announced in July 1976. Meat was supposed to rise by an average of 69%, sugar by 100%, butter and cheese by more than a third; in all, the rises were reckoned to add some 16% to the cost of living. But the reply by the workers at Radom, Ursus, Plock and elsewhere was instantaneous: there were strikes and riots, and within 24 hours the regime withdrew the rises. As a result, the subsidy programme was maintained, and further expanded: by the summer of 1980, subsidies were costing the state almost 21 times what they had in 1971.

In a further effort to overcome this problem, and to shift the costs of the crisis onto the workers, the state began in 1977 to move meat supplies into the ‘commercial shops’, where prices were three or four times those in the normal stores. The ‘commercial shops’ sold 8% of the meat supplies in 1978, and 18% in 1979. In July 1980, moves to shift still more meat into the ‘commercial’ network – in effect, to raise prices again – provoked the first of the series of strikes that led in August, to the formation of Solidarity.

In reality, the fall in real living standards was greater than suggested by the official figures, for shortages of all manner of consumer goods became chronic. Getting hold of wanted goods came to depend on queuing, luck, corruption and ‘connections’. Some goods could only be obtained on the ‘internal export’ market, in exchange for hard currency. The black market flourished. Inequalities in income were now matched by other, much resented, inequalities in access to goods and services, which de facto became available chiefly to the privileged and the powerful. The stink of corruption in Polish society – portrayed in Wajda’s film, Wodzirej – became apparent to all.

It was by no means only in the industrial sector that the crisis made itself felt. The food supply system also ran up against the internal barriers identified earlier. In 1979–80 meat consumption rose by 1.6%, but the weight of cattle butchered in Poland fell by 3.6%. In the same period, despite its falling domestic meat supplies, Poland stepped up its exports of animals and meat products by 6.4% – covering the gap only through a 562.6% rise in its imports of meat, meat products and fats (from 9,100 to 60,300 tons). [91]

Polish agricultural performance had improved somewhat up to 1976, but then declined:

The worsening agricultural situation placed more strain on the balance of payments. Behind the agricultural crisis lay official neglect if, and actual destructive policies towards, farm production. After some small liberalising moves towards the peasantry in the early 1970s, the state began to reassert its old policies. Most of the investment in agricultural production (around 75% of the total) was directed into the state farm and cooperative sector (amounting at most to about 25% of the farm system), while the larger private peasant sector received only 25% of agricultural investment. [93]

Government policy, which has always been relatively hostile to the peasant sector, was to shift land to the state and cooperative sectors, despite the fact that these are actually less efficient. [94] The industrial boom pulled many peasant farmers out of the countryside, reducing private agricultural employment over the decade from 4.4m to 3.3m (in the ‘socialised’ sector, employment rose by 0.3m). The industrial crisis involved shortages, not only of pesticides, but also of spare parts of agricultural machinery (17% of tractors and 20% of trailers were out of action for this reason in 1980); and the supply of essentials like coal, cement, breeze-blocks etc. to farmers became more and more difficult. On top of that, an inappropriate pricing policy led peasants to switch from animal to vegetable production while the state farms – least suited to animal production – shifted in the opposite direction. The big meat imports at the end of the decade were a direct result.

No real agricultural development occurred. It was reported in the middle of 1981 that Polish peasants were having difficulty with the harvest for lack of 150,000 scythes – implements of the 19th rather than the 20th century. Other factors in the food crisis were the low prices paid to peasants for their produce, inefficient distribution and refrigeration systems, and the generally low quality of products. All, ultimately, could be reduced to the manic drive for accumulation at the expense of consumption.

That drive is connected with a further phenomenon in the state capitalist regimes: a ‘gigantomania’ which favours enormous plants and farms (despite the dubious benefits in terms of efficiency) and looks with disfavour on small enterprises. This is particularly strongly marked in Poland: enterprises with fewer than 100 workers account for only 11.3% of the total number of enterprises in Poland, compared with 51.4% in East Germany and 88% in West Germany. [95] The economy is therefore very much more ‘rigid’ in its movements, and far less productive than it might be with greater flexibility.

While the crisis was, on the one hand, wiping out substantial parts of the investments procured at so much cost to the Polish population, the regime’s real priorities did not change at all: ‘Above-plan investments continued to be an endemic feature of the Polish economy in the second half of the seventies, and the investment emphasis fell still more sharply on production goods, since it was in this area that delays were greatest; there was a low incidence of projects oriented towards either exports or the internal consumption market, or technically advanced products.’ [96]

The scale of the crisis was finally admitted by Gierek at the end of 1979. Once again, only this time much more seriously than ever before, the Polish economy faced a crisis in which ‘reserves’ were totally lacking: ‘Some factors contributing to the high growth rates in the 1970s – including a large labour reserve, the possibilities of increasing investment outlays, the obtaining of suitable loans from abroad and the purchase of cheap raw materials and cheap fuels- all these have been exhausted.’ [97]

If the Polish economy always had ‘stop-go’ tendencies, it had now come to a shuddering halt. Looking back from the vantage point of 1981, a senior Polish planning official declared, bluntly, ‘The Gierek years destroyed the economy more effectively than a war.’ [98]

At the February 1980 Party Congress, there were calls for and vague promises of reform. In May 1980, 84 directors of enterprises in the building sector were sacked ‘for gross neglect of their responsibilities’, along with 61 directors of other state and collective enterprises. (After August 1980, many thousands more were to be sacked for misconduct, corruption and the like.) But the problem went deeper than individual failures: at the root of the crisis was the ‘class goal’ of the ruling bodies. When the working class erupted into organised activity in the summer of 1980, the central issue became stark in its simplicity: would the ruling class succeed, somehow, in holding on to its power and in re-imposing its goals on to Polish society, or would the Polish workers, drawing all the exploited and oppressed of Poland behind them, rise to the task of smashing the ruling institutions and re-ordering totally the economic and social priorities of Polish production? The answer to that question would be fateful for Poland, the rest of Eastern Europe, Russia and the whole world.

Notes

63. According to Zauberman, (op. cit., p. 65), the regime had hoped to raise the level of investment spending still further in the second half of the decade, by 40% over the 1971–75 level.

64. Green, op. cit., p. 91.

65. Financial Times, 10 February 1981.

66. Harman, IS 94, p. 27.

67. Marian Rajski, Wspolpraca gospodarcza Polska – ZZSR, Kultura (Paris), no. 11/14, Nov. 1981. For data on the Russian economic robbery of Poland in the postwar period, cf. Ygael Gluckstein, Stalin’s Satellites in Eastern Europe, London 1952.

68. Blazyca’s wry comment is apt: ‘For understandable reasons the official explanation of why things went wrong rests mainly on external factors such as poor weather and recession in the West. (It seems not to be of any concern to the authorities that one might infer from this that good economic results are due mainly to good weather and a healthy capitalist economy).’

69. Gomulka, op. cit., p. 18. The author comments mordantly, ‘The 5-year plan appears to have been unrealistic.’

70. Nuti, 1981, p. 116. Cf Harman, IS 94, p. 27 for other examples of wild optimism.

71.

72. Data from Nuti, 1981, tables 1 and 2, pp. 106, 108.

73. Ibid.

74. Ibid.

75. Ibid., p. 119; Guardian, 22 May 1981; Financial Times, 24 July 1981.

76. Financial Times, 10 March 1981 and 24 July 1981; Nuti, 1981, p. 119.

77. Nuti, 1981, p. 119.

78. Blazyca, op. cit., p. 112.

79. Financial Times, 10 February 1981.

80. Nuti, 1981, p. 116.

81. Poland: The State of the Republic – two reports by the ‘Experience and Future’ (DiP) discussion group of Warsaw, London 1981, p. 44.

82. Nuti. 1981,Table l, p. 106.

83. Blazyca, op. cit., p. 114.

84. Guardian, 14 August 1981.

85. Sunday Times, 13 December 1981.

86. Jadwiga Staniszkis, On Remodelling of the Polish Economic System, Soviet Studies, XXX, 4, October 1978.

87. Blazyca, op. cit., p. 107.

88. Nuti. 1980, p. 13. It might be added that the chaotic pricing system in Poland made sensible choices by the authorities much more difficult. Before August 1980, coal at one mine cost 1,000 zlotys a ton to produce, but it sold at 550–800 zlotys a ton (FT, 7.7.81). Steel, once sold, is worth less than the coal used to smelt it. Bread was being sold at a price below that of the cheapest animal feed – and was therefore being used as such (Nuti, 1981, p. 135). The irrational price structure has been noted by many writers; it made it more difficult for planners to determine which investments would, and which would not, pay for themselves (Shapiro, op. cit., p. 492).

89. Nuti, 1980, p. 21.

90. Blazyca, op. cit., p. 104.

91. Nuti, 1981, p. 123.

92. Ibid., adapted from tables 4 and 5, p. 114.

93. Michael Ashton, Economic Crisis and Economic Reform in Poland, Critique 14, 1981; John Taylor, Five Months With Solidarity, Wildwood House, 1981, p. 48, gives slightly different figures, but the direction is the same.

94. Poland: The State of the Republic, pp. 192–3.

95. Ibid., p. 197.

96. Nuti, 1980, p. 11; 1981, p. 119.

97. Speech at Katowice, 13 Dec. 1979, cited in Problems of Communism, Mar.–Apr. 1980.

98. Financial Times, 24 July 1981.

 
Top of page

Colin Barker Archive   |   ETOL Main Page

Last updated: 22.9.2013