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Special Reports Last Updated: Feb 13th, 2007 - 00:43:57

�Gradualist privatization� in Poland: A case study
By Anthony Newkirk
Online Journal Contributing Writer

Feb 13, 2007, 00:38

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Recent developments in Poland include a new government headed by twin brothers, disclosures about CIA prisoners trafficked through Polish territory, tensions with the European Union and Russia, military commitments in the Middle East, even split public opinion about abortion (last year, the European Court of Human Rights upheld a Polish woman�s claim that government doctors breached the European Declaration of Human Rights when they denied her a therapeutic abortion). [1]

Ordinary Poles� ambivalence about �free market reform� particularly challenges stereotypes of them as submissive and deferential people.

December 13, 2006, was the 25th anniversary of the imposition of martial law in Poland by Prime Minister Wojciech Jaruzelski. Last September, the U.S. Senate recognized the date as an official Day of Remembrance for the role that the Poles played in �the fall of communism and the ultimate end of the Cold War.� [2]

A year earlier was the 25th anniversary of the establishment of the Independent Self-governing Trade Union �Solidarity.� At a gathering of dignitaries from post-Soviet states, the EU, and the United States in August 2005, former U.S. National Security Advisor Zbigniew Brzezinski called Solidarity the �explosive epicenter of a political tsunami that swept away the Soviet bloc.�� Former Secretary of State Madeleine Albright stated that ��the spirit of Solidarity�� stirs opposition to rogue states.

President Aleksander Kwaśniewski of the Democratic Left Alliance (SLD), a Communist government minister in the 1980s, cataloged Poland�s achievements: �We are secure, we are in NATO, we are surrounded by neighbors who are also members of this alliance [and] we are in the same political and military alliance as our great German neighbor. We . . . are . . . walking toward democracy [and] respect for human rights . . . [Poland] is a market country . . . which creates great opportunities for young people . . .� [3]

But the realities of Poland�s �transformation� are more complex. While most Poles feel that the authoritarian era was a national disaster, they are not enthralled by Cold War or Euro-positive buzz phrases. An examination of recent controversies in the port city of Szczecin in Northwestern Poland will help to correct misconceptions about the �new� Poland.

Poland�s �Long Revolution�

Although the Peoples Republic of Poland fell under Soviet domination after World War II, it was never a carbon copy of the USSR. In fact, Polish Secretary General Edward Gierek anticipated Soviet economic reform in the 1970s by taking huge loans from the International Monetary Fund. When this led to a debt crisis and rising social discontent spurred by Solidarity, Jaruzelski declared a state of emergency in 1981. After martial law ended, Solidarity became a legal political party embracing gradual reform. A Communist-Solidarity government was formed under Solidarity leader Lech Wałęsa in 1989; the Communists formally disbanded the next year.

The shift to a �free market� began after Wałęsa appointed American-trained economist Leszek Balcerowicz deputy prime minister of finance. This �Robespierre of the Polish economic transformation� -- as the English-language Warsaw Voice has called Balcerowicz -- eliminated price and wage controls, which triggered skyrocketing prices, deeper unemployment, and a temporary plunge in GDP. Thousands of middle- and small-scale businesses have undergone privatization since 1990. Balcerowicz was Kwaśniewski�s minister of finance in the late 1990s and served a full term as president of the National Bank of Poland from 2000 to 2006 (he was replaced early last month by Sławomir Skrzypek, a nominee of President Lech Kaczynski). [4]

Balcerowicz told Business Week in 2004 that there �can be no radical reform without hardship.�� These words have been borne out by facts: Unemployment has hovered between 15 and 20 percent out of a population of 38 million people over the past decade. According to various sources, about 18 percent of the work force was jobless last October -- the highest rate in the European Union. Last year, almost one-fifth of the population was under the official poverty line and the Labour Ministry estimated that some 660,000 Poles had left the country in search of work. Former IMF official Joseph Stiglitz has nevertheless seen these reforms as �gradualist� as they did not slavishly follow the prescriptions of the IMF-World Bank-U.S. Treasury axis. But considering the human costs involved, one is tempted to wonder how this qualifies as a �success.� [5]

Poland joined the European Union in 2004. Despite stated misgivings by the new government led by the Law and Justice Party, Balcerowicz, big business, foreign investors, and political parties like Civic Platform and SLD want the Euro to become Poland�s currency. The Finance Ministry is now working on Euro �convergence� and President Kaczyński approved the acquisition of Poland�s third largest bank by Italy�s UniCredito last April, even though he is a �nationalist.� [6]

The Banana Republic of Szczecin

The province of Zachodniopomorskie in northwestern Poland shows the effects of gradualist privatization. A recent study on economic development by the Gdańsk Institute for Market Economics holds that Zachodniopomorskie is the country�s poorest province with the least foreign investment, the worst working conditions, the lowest standard of living, and an underdeveloped infrastructure. The provincial capital Szczecin is also the �slowest�� city in Poland. Lying on the Odra River some 65 kilometers south of the Baltic Sea, Szczecin has a population of barely over 400,000 people but it is the southern terminus of one of Europe�s largest port complexes. [7] How to account for this seeming paradox between Szczecin�s underdevelopment and importance in the global economy?

While there are many reasons for this, politics plays a very large role, as local businessman Richard Grotowski* explained [n.b. an asterisk means that this is not the informant�s true name]. Grotowski�s office in Szcecin�s small business district overlooks Galaxy Centrum, the city�s only modern shopping mall. Grotowski thinks that �Szczecin is something like a banana republic� where �[y]ou can come with a bag of money and [the city government] will give you anything you want, even if you . . . create an image of yourself that isn�t true.� [8] Szczecin�s former Mayor Marian Jurczyk embodies this problem.

In 1980, Jurczyk led a pro-Solidarity sit-down strike at the city�s shipyard. Elected mayor in 1998, Jurczyk resigned a year later to run for the national Senate. He had to give up his seat after a court ruled that he had collaborated with the Communist secret police in the 1970s. But several months before the Supreme Court overturned the ruling in late 2003, Jurczyk won back the mayor�s office at the head of a shaky coalition. [9]

Since then, the Jurczyk administration spent little on public services. Notoriously corrupt and clueless on many key issues, Mayor Jurczyk also had a dubious track record with outside investment. For example, in 2004, France-based Carrefour SA offered to buy city land in order to build a �hypermarket.� Jurczyk indicated support if Carrefour paid for building an aquatic recreation complex on the site. Carrefour pulled out of the deal last year because, according to the Szczecin edition of Gazeta Wyborcza, Jurczyk refused to help finance the �aquapark.� In mid-June, the city council narrowly voted to sell a 30-year lease to any company that will build an aquapark on the site within three years. [10]

In Grotowski�s opinion, Polish politicains like Jurczyk and the demagogic Andrzej Lepper, concurrently Polish Minister of Agriculture and leader of the �left-populist� Self-Defense Party, trade in the rhetoric of injured national pride and do not seek practical alternatives to globalization.

Last November, Jurczyk received 3 percent of the votes cast in a reelection bid. Even though life in Szczecin will probably improve little under the election�s winner, avowedly free-market Civic Platform, Jurczyk did not seem to be overly-concerned. In fact, he stated that losing the election may have been good for him, considering his advanced age. Jurcyzk also received a �severance� of over $3,000. [11]

Shipyard scandals

By 2005, Poland ranked fifth in shipbuilding after South Korea, Japan, China, and Germany (shipbuilding was Poland�s third main export industry). Poland�s third largest shipbuilding center is in Szczecin. While Szczecin�s shipyard has great potential for foreign investment, various sources attest to the convoluted and wasteful activities of management there over the past decade. [12]

Szczecin�s shipyard was privatized in 1993 as Stocznia Szczecińska S.A., the largest holding of Stocznia Szczecińska Porta Holding (SSPH). A �masterpiece of financial engineering,� according to The Warsaw Voice, Stocznia was Szczecin�s largest employer. Its 6,000 employees had salaries above the national average. Domestic and foreign banks eagerly extended credit to Stocznia as it had plentiful construction orders. President Kwaśniewski gave the Presidential Economic Award to the company�s head, Krzysztof Piotrowski. [13]

Citing the shipyard�s inability to pay about $58 million to creditors, SSPH closed Stocznia in October 2001 (SSPH was also heavily in debt). In the summer of 2002, Stocznia declared bankruptcy and discharged its workers, leaving ships unfinished. Instead of building new ships, it appears that company directors had been making side �investments.� With management rejecting refinancing conditions, Piotrowski arrested for embezzlement, and employees going on strike for back pay, Warsaw stepped in to avoid the disastrous effect that Stocznia�s total collapse would have on jobs and exports. Banking and industry leaders agreed to Stocznia�s �re-nationalization� as Stocznia Szczecińska Nowa (SSN), with most shares in it and Poland�s two other shipyards owned by a partially state-controlled company. [14]

According to the EU and the U.S. Commerce Department, state aid enabled SSN to hire 3,500 people and start filling new orders for container ships and liquefied gas carriers by 2003. The Polish business press reports that SSN built 25 ships worth over $750 million for foreign clients in 2004. Last year, estimates put orders to all Polish shipyards at 100 ships worth $3.8 billion. [15]

Ruling last August that state aid was giving domestic shipyards an unfair advantage over foreign competitors, the European Competition Commission decreed that Warsaw must sell 27 percent of its stock in SSN to private bidders. According to The Financial Times, President Kaczynski�s deputy economy minister observed afterward that his government must comply with Brussels. Interestingly, Brussels had approved Warsaw state aid to Polish shipyards in previous years. [16]

On two scores, this defies the usual expectations about today�s world economy. First, that privatization is always an uncomplicated �one-way� process. Second, that self-appointed guardians of free trade, like the European Competition Commission, are always consistent. A true appreciation of these points is not possible, though, without recognizing the U.S. role in the saga of the Szczecin shipyard.

F-16s and container ships

While Washington and Brussels promote free markets, the administration of George W. Bush has apparently tolerated Warsaw�s subsidies to Polish ship-builders. Why? One word: �offsets.� An offset is when domestically made weapons systems are exchanged for military or non-military imports. Offset agreements help defense contractors secure export markets with state aid every step of the way. Arms exporters from the industrialized nations use this strategy even though it weakens domestic industry and is a shocking example of corporate welfare. While Warsaw also has offset pacts with Dutch, Finnish, French, Israeli, Italian, and Spanish arms companies, state-aided SSN has played an important role in the latest U.S. offset agreement. [17]

During the run-up to war in Iraq in early 2003, Lockheed Martin sold 48 F-16 fighters to the Kwaśniewski regime. A little-known fact about this historic $3.5 billion deal made possible by a huge Pentagon loan to Warsaw is that several U.S. corporations also made 40 offset investments in Poland to the tune of $9.7 billion -- an overall loss of $6.2 billion. This huge aquapark deal was discussed at a session of the House Armed Services Committee in 2004. Here are a few items:

  • Pratt & Whitney, maker of the F-16�s engine, would buy a factory and build the components there before assembling them in the United States.

  • Pratt & Whitney and parent company United Technologies Corporation would upgrade a Materiel Research Center for the Polish Air Force.

  • Textron Inc. would purchase parts for Cessna and Lycoming aircraft.

  • Lockheed Martin, Royston Components Ltd (a British company), and a Textron subsidiary would buy automobile parts.

  • Caterpillar World Trading Corporation would buy bulldozer parts.

Lockheed, a producer of aerospace products, also agreed to purchase two container ships from SSN (the Ministry of Economy�s Offset Committee gave the final go-ahead for this transaction last year). Interestingly, the F-16 offset package deal coincided with Warsaw�s decision to join the Coalition of the Willing. [18] Offset agreements may have their uses after all, even if they do violate �classical� free trade principles.

All abstract questions of political economy aside, the fate of Szczecin�s shipyard has not helped the local job market (over the past decade, the city�s official jobless rate has wavered between 12 to 15 percent). Shortly before Solidarity�s 25th birthday last year, Pawel Janowski*, a member of Szczecin�s small middle class, shared his thoughts about the collapse of the Polish shipbuilding industry. Pawel was trained in the merchant marine under the Communists. Today, when �cheaper fleets� are in demand, most Polish sailors work on foreign-registered ships -- as Pawel did himself for 15 years before retiring with a better pension than his colleagues who stayed on Polish ships. [19]

Poland�s free-market reforms are backed for different reasons by an array of home-grown neoliberals and opportunists, to say nothing of foreign interests. Thanks to all of them, Poland is living through what is -- to paraphrase intellectual historian and globalization critic John Gray -- a �false dawn.� [20]


[1] Press Release, �Chamber Hearing Tysiąc v. Poland,� European Court of Human Rights, no. 63, 7 February, 2006; Tysiąc against Poland (dec.), no. A 5410/03, ECHR HUDOC Collection,

[2] U.S. Congress. Senate. 2006. Senator Barbara Mikulski (MD) submitting the Joint Resolution Designating December 13, 2006, a Day Of Remembrance To Honor The 25th Anniversary Of The Imposition Of Martial Law By The Communist Government In Poland. S.J. Res. 579, 109th Cong., 2nd sess., Congressional Record -- Senate (21 September): S9907; M.M., �Martial law: 25 years on,The Warsaw Voice, 20 December, 2006.

[3] Speeches at the �From Solidarność to Freedom�� conference, Warsaw and Gdańsk, Poland, 29-31 August, 2005, Zbigniev Brzeziński, �Solidarność was born in Gdańsku,� Gdańsk, 31 August; Madeleine K. Albright, ��Threats to Human Rights and Democracy. Solidarity of the International Community,�� Warsaw, 30 August; Aleksander Kwaśniewski, ��The Speech of the President of the Republic of Poland, Aleksander Kwaśniewski,�� Warsaw, 29 August).

[4] Sławomir Majman, �Iago and the Belated Lover,� Warsaw Voice, 30 June, 2002; Katarzyna Łapińska, �Statistics as of January 31, 2006,� The Ministry of the Treasury, 6 March, 2006; �Skrzypek in as president of National Bank of Poland,� Warsaw Voice, 11 January, 2007.

[5] Special Report, �Leszek Balcerowicz,� BusinessWeek Online, 7 July, 2004; Maciej Bukowski, ed. Employment in Poland 2005 (Warszawa: Ministry of Economy and Labour -- Department of Economic Analyses and Forecasts, 2005), 21-46; �Poland,�� The World Factbook updated 17 October, 2006; PAP, �Jobless rate falls to lowest level in nearly six years,�� Warsaw Voice, 25 October, 2006; ��Polish employers having trouble finding workers,�� ibid., 23 October, 2006; Joseph E. Stiglitz, Globalization and Its Discontents (London: Penguin, 2002), pp. 180-181.

[6] Convergence Programme: 2005 Update. Warsaw: Ministry of Finance, January, 2006; PAP, �PM: We are determined to meet Maastricht criteria as fast as possible,� Warsaw Voice, 19 May, 2006; Press Release, �Mergers: Commission launches procedure against Poland for preventing Unicredit/HVB merger,� European Commission, Brussels, 8 March, 2006 (IP/06/277); Mark Landler, �Poland Averts Clash With Europe Over Italian Bank Deal,� New York Times, 6 April, 2006, C6.

[7] Marcin Maciocha, �Zachodniopomorskie silne, ale mało dynamiczne,� Gazeta Wyborcza (Szczecin ed.), 7 July, 2006; �Population Based on Balances As of 31 XII� (Tabl. 1/27/.), Statistical Office in Szczecin, (accessed 15 June, 2006); Port Szczecin-Świnoujście Annual Report 2004 (Szczecin: Szczecin and Świnoujście Seaports Authority, 2005).

[8] Richard Grotowski, interview by author, Szczecin, Poland, 14 August, 2005.

[9] Piotr Golik, �Union Activist Branded by Vetting Court,� Warsaw Voice, 5 December 1999; When the Smoke Cleared,� ibid., 15 November, 2002; Grotowski 14 August, 2005.

[10] Jolanta Kowalewska, �Carrefour nie zgadza się na całkoite finansowanie aquaparku,Gazeta Wyborcza, 12 July, 2005; idem, �Radni nie zablokowaii Jurczykowi Gontynki,� ibid, 12 June, 2006; idem, Prezydent Jurczyk może ogłaszać przetarg na Gontynkę,� Gazeta Wyborcza, 10 July, 2006, �Jurczyk nie odpowiedział Niemcom w sprawie Toyoty,� ibid., 3 November, 2006.

[11] Andrzej Kraśnicki, Jr., �Szczecin. Rada Miasta skręciła w prawo,� Gazeta Wyborcza, 13 November, 2006; Kov, �Jurczyk zaczyna się pakować,� ibid.; �PiS and PO the big winners in municipal elections,� Warsaw Voice, 13 November, 2006.

[12] Joanna Chomicka, �Shipbuilding,�, 31 August, 2005 [U.S. and Foreign Commercial Service, 3 September, 2003]; Marek Gryzbowski, �The Ship�s Come In,� Warsaw Voice, 14 September, 2005.

[13] Majman, �Iago and the Belated Lover.�

[14] Rafal Towalski, ��Bankruptcy of the Szczecin Shipyard,�� European Industrial Relations Observatory On-line, 10 July, 2002; Robert Szymczak, �Who�s to Blame?Warsaw Voice, 23 June, 2002; Robert Cyglicki and Joanna Osajda, �The Story of the Fuel Terminals in Estuary of Odra River,� Coalition Clean Baltic Newsletter, no. 4, 2000, 3-5; DW, ��Management of Bankrupt Polish Shipping Yard Arrested on Embezzlement Charges,�� RFE/RL, vol. 6 no. 126, 9 July, 2002; idem, �Striking Polish Shipyard Workers Set Up National Committee, Demand Meeting with Government,� HR-Net, 15 July, 2002, Andrzej Ratajczyk, �In Need of Aid,� Warsaw Voice, 21 July, 2002.

[15] Towalski, ��Bankruptcy�; Chomicka, �Shipbuilding�; Grzybowski, �Ship�s Come In�; Andrzej Ratajczyk, �Shipyards Get a Second Wind,� Warsaw Voice, 20 July, 2005; Austria Presse Agentur, �New state strategy for the years 2006-10,� Puls Biznesu, 3 April, 2006.

[16] European Commission Press Release, ��State aid: restructuring of Polish shipyards under Commission scrutiny,�� Brussels, 1 June, 2005 (IP-05-644); ��Stocznia Szczecińska Nowa na sprzedaż,�� Gazeta Wyborcza, 1 September, 2006; George Parker and Jan Cienski, �Polish shipyards caught up in aid row,� The Financial Times, 29 August, 2006.

[17] Offset in Poland,� Republic of Poland Ministry of Economy (accessed 11 June, 2006); Bureau of Industry and Security, Offsets in Defense Trade Tenth Study: Conducted Under Section 309 of the Defense Production Act of 1950, as Amended. Washington, D.C: Department of Commerce, December, 2005, 4/1-5/19.

[18] U.S. Congress, House. The Impact of Defense Trade Offsets on the U.S. Defense Industrial Base, Committee on Armed Services. 108th Congress, 2nd sess., 2004, 8-9, 46 [17 June, 2004], Robert Little, �U.S. dollars wooed ally in Iraq coalition,� The Baltimore Sun, 17 October, 2004, 1A; A Missing Billion,Warsaw Voice, 26 October, 2005; L.Ż., �Offset Projects,� ibid., 22 June, 2005.

[19] Registered Unemployed Persons By Age As of 31 XII,� Statistical Office in Szczecin (accessed 15 June, 2006); Paulina Majewicz, ��Jest praca, chętnzch nie ma,�� Gazeta Wyborczya, 25 August, 2006; Pawel Janoski, interview by author, Szczecin, Poland, 12 August, 2005.

[20] John Gray, False Dawn: The Delusions of Global Capitalism (New York: The New Press, 1998), p. 17.

(Special thanks to Joanna Newkirk for assistance with Polish translations)

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