By the time the Berlin Wall came down, Leszek Balcerowicz had already been working on plans to restructure Poland’s ailing socialist economy for more than a decade.
“In 1978, I created an informal group of young economists to work on a blueprint of an improved economic system, which would still respect the geopolitical constraints,” he says. “We wanted to be realistic, because we didn’t assume that the Soviet Union would disappear in our lifetime.”
Their solution was a more radical variant on the Yugoslav socialist system.
“We proposed the introduction of self-management in firms but without Party control, because otherwise there would be no market economy,” says Balcerowicz.
The group went public with their proposals in September 1980, just as Poland’s labour movement was gaining strength. Their plan was picked up by the new Solidarity union, and for a year Balcerowicz and his team were in the political and media spotlight.
“Without this first project people would not have known about my activities and I wouldn’t have been asked to take responsibility for politics and economic reforms 10 years later,” says Balcerowicz.
At the time, however, hopes of reform were brought to an abrupt end by the imposition of martial law in Poland in December 1981. Balcerowicz resigned his Communist Party membership and returned to academia. He and his reformist colleagues continued to meet regularly, however.
“We didn’t foresee the end of the Soviet Union,” says Balcerowicz. “Nobody did. But as a hobby, we discussed how we would reform the economy if Poland was free. We were the only group in the country that was systematically thinking about this.”
When the first cracks in the socialist system began to appear in 1989, Balcerowicz was the natural choice to lead Poland’s economic restructuring. In August of that year, he accepted an invitation to head up the economic team of incoming Solidarity prime minister Tadeusz Mazowiecki.
Action was urgently needed. Poland was in the grip of hyperinflation and facing shortages of basic goods, as well as a heavy public debt burden. Balcerowicz’s solution was a radical programme of stabilization and transformation, starting with rapid tightening of fiscal and monetary policies and moving on to liberalization of the currency, privatization of state-owned enterprises and massive economic deregulation. This theory of fast and comprehensive reform subsequently became known as “shock therapy” – much to Balcerowicz’s annoyance.
“The discussion in the west about gradual versus shock therapy was nonsensical,” he says. “It could not capture the true challenges and problems in transition.”
His reforms also proved unpopular in Poland, however, where the “Balcerowicz Plan” – the package of measures passed by parliament in December 1989 – became a focus for local dissatisfaction with the economic hardships of the post-communist era.
Ahead of parliamentary elections in October 1991, dozens of parties campaigned on anti-reform platforms and the resulting messy coalition had neither the appetite nor the ability to push ahead with Balcerowicz’s programme. He resigned from government at the end of the year.
Economic policies are like medicine. The best treatment for a disease will be the same everywhere- Leszek Balcerowicz
In April 1995 he returned to politics as chairman of the reformist Freedom Union. In elections in 1997 the party won 14% of the vote campaigning on “the second Balcerowicz Plan” and entered government. Balcerowicz was appointed finance minister for a second time the following month.
One of his top priorities was to step up the pace of privatization, which had stalled during his time out of office. Over the next three years he pushed through sales of many state assets, including most of the manufacturing and banking sectors. This period also saw the introduction of Poland’s multi-pillar pension system, as well as a slew of other reforms. By May 2000, however, appetite for reform was once again waning and the Freedom Union left government. Balcerowicz stepped down as leader seven months later and was immediately nominated as head of the central bank, a post he held until early 2007.
Hugely admired by Poland’s financial community, Balcerowicz’s reform programme nevertheless remains controversial in the country as a whole. He vigorously defends his theories, however, noting that in terms of cumulative growth Poland has outpaced every other post-communist country since 1989. He is equally adamant that his proposals would have worked for other transition countries, rejecting criticisms of a one-size-fits-all approach.
“Economic policies are like medicine,” he says. “The best treatment for a disease will be the same whether you’re dealing with Chinese, Russians or Poles. If all of them have TB, you give them the same treatment.”