WLADYSLAW GOMULKA'S immediate predecessors, after mismanaging the Polish economy for a number of years, have left him a legacy of debts and unfulfilled promises of increased living standards, but scant means with which to patch up the Government's credit. Foreign currency holdings are low and dwindling, and government stockpiles of goods and raw materials are depleted. The peasants cannot be induced to market a larger share of their produce, while the townspeople, who have been paying the price of industrialization by their sacrifices, can be made to pay no more.

To stave off bankruptcy and to check inflation, Gomulka and his economic experts are bending their efforts in two directions. First, they are endeavoring to bring fairly prompt relief to consumers by obtaining external aid, a redirection of foreign trade and a cut in investments and armaments. Second, they expect to uncover "reserves" in the Polish economy itself so that greater well-being for the whole population may be achieved with the same effort and the same resources. This they propose to do by reforming the inefficient institutions that in the course of the last ten years have turned Poland into a miniature of the Soviet economy.

It would be wrong to lay all the blame at one door and to count on a rapid and lasting improvement as soon as the Soviet Union ceased to control Poland's economic policy. A search for the sources of the present economic ills would take us back before the First World War to the boom years when the mines and industrial plants of the future state were developed for the capacious national markets of the partitioning Powers--Germany, Austria and Russia--and then were cut off from these markets after Poland became independent; to the runaway inflation of the early 1920s; to the depression of the 1930s, when prices and money wages were driven down with resulting unemployment and dislocation; to the gradual cartelization and étatisation of the economy throughout the whole inter-war period; and finally to the disastrous German occupation during World War II, when entire cities, including Warsaw, were razed and over six million Poles were killed.

In spite of this unpropitious background, Poland recovered from the war with excellent prospects for economic development. The loss of certain poor, densely-populated provinces to the U.S.S.R. was more than offset by the gain of the mines, steel mills and chemical plants in the former German territories in the west, which were placed under Polish administration at the Potsdam Conference. This forced exchange of lands, together with the effects of the postwar migration to the towns, brought the non-agricultural population from 40 percent of the total population in 1931 to 53 percent in 1950. The former German lands were better cultivated than the lost provinces and their yields were higher. With moderate investments in agriculture, postwar Poland could have produced more food than prewar Poland even with 15 percent less arable land, and there are at present 7,000,000 fewer inhabitants to feed. In fact, the Three-Year Plan of Reconstruction (1947-1949) brought rapid gains in output at a relatively small cost in investments; industrial production exceeded prewar levels both in the old and in the new borders, while agricultural production came fairly close to prewar levels. These gains permitted a prompt rise in living standards after the extreme hardships of 1944 and 1945.[i]

The new ills arose from policies initiated soon after the rout of the German army and the institution of the Lublin Government. First came the notorious agreement of August 16, 1945, on coal deliveries to the Soviet Union, which was to mulct the economy until November 1953. Then in 1946 the Government set the stage for later reforms by subjugating private industry through nationalization and through discriminatory rationing of raw materials; and in 1947 and 1948 private trade was crushed by controls and prohibitive levies. From 1948 on, the Polish economy was clamped into a system of Soviet-type centralized planning despite the fact that psychological and natural differences between Russia and Poland made the institutions of the one ill-fitted to serve in the other. For example, the narrow range of natural resources in Poland called for an economic system that would promote economy in raw materials. What the Poles got, as we shall see, was a system of incentives that in effect rewarded material waste. It is also questionable whether extreme centralization along Soviet lines was suitable for the Poles, whose experience in business management qualified them for a greater degree of initiative, especially since the old industrial and business class in Poland was relatively more important than had been the case in Russia at the time of the Revolution and it was more smoothly integrated into the new bureaucracy of socialism.

"Schematism," as this indiscriminate alignment with Soviet patterns came to be called, was carried to extremes. Not only was the structure of the budget recast to conform to the Soviet model, but even the percentage of revenues collected from indirect taxes on consumer goods and the percentage of expenditures invested in the national economy soon approximated these proportions in the Soviet budget. Translations or imitations of Soviet books on management and finance were used to teach Polish students the techniques for managing their economy.

The great exception to all this imitation was of course the failure to collectivize agriculture. As late as 1955, collective farms, which more often than not were formed under economic pressure and even threats of violence, accounted for only 9 percent of the agricultural area of Poland and less than 8 percent of the total product of agriculture.[ii] Furthermore, such collectives as came into existence were much smaller in acreage and in membership than the Russian kolkhozy, and more loosely organized.

In 1949 the old Central Planning Office was reorganized as the State Commission for Economic Planning. New personnel committed to Soviet methods were appointed to all key positions. The Commission prepared and enforced the Six-Year Plan (1950 to 1955) which was to lay the groundwork for an ambitious industrialization program. At the cost of enormous investments, officially estimated at around 25 percent of national income, but more probably over 30 percent, the Plan was successful in its main goal: the output of producer goods, according to the official index, nearly tripled between 1950 and 1955. During this period non-agricultural employment increased by more than 60 percent. Forty-five percent of all investments went to industry (and most of those to metallurgy, machine-building and armaments), only 9 percent to agriculture (mainly to the collectives and State farms) and 10 percent to housing (primarily in the large industrial centers). The table on the next page shows the growth of Poland's industrial base that resulted from this policy of accelerated industrialization and from the postwar acquisition of Western Silesia.

POLAND'S OUTPUT OF SELECTED INDUSTRIAL PRODUCTS
1937 AND 1955
Output in Percentage of
millions of tons Soviet bloc output (a)
1937(b) 1955 1955
Bituminous coal 36.2    94.5 19   
Coke 2.3    10.0 17(c)
Crude steel 1.5    4.4 7   
Cement 1.3    3.8 9   
Sulfuric acid(d) 0.2    0.5 9(e)
Electric energy (in billions of kwh.) 3.6    17.8 7   
a) Bulgaria, Communist China, Czechoslovakia, East Germany, Hungary, Poland, Rumania and the Soviet Union. b) Prewar territory. c) Total excludes Communist China. d) Converted to 100 percent acid. e) Estimated. No Soviet figures published.

The adverse consequences of rapid industrialization are being felt now: a failure to maintain the stock of rural buildings; a deplorable housing crisis in the cities, where population rose by one-third in six years; and the retrogression of light industry, at least in efficiency and in the quality of its output. The lack of housing in Warsaw and in Silesia is now hampering further industrialization, since some 700,000 persons partially or totally unemployed in the central and eastern provinces of Poland cannot be resettled in the industrial districts of the west, where there is a labor shortage of more than half a million men.

The inadequacy of investments in agriculture, especially in the private sector, together with the shift of lands and manpower into such industrial crops as sugar beets, tobacco and flax, contributed to the decline in cereal and potato harvests from 1949 to 1955, necessitating imports of wheat and rye from the U.S.S.R., France and Argentina. The increase in the stock of animals (particularly of hogs and sheep) has been quite appreciable. But the failure to meet planned goals for over-all agricultural production or to offset this shortage by increasing the share of food marketed caused considerable difficulty in feeding the swollen population of the industrial cities, as well as an army of half a million men and the Soviet troops stationed in Poland. It also caused a steady inflation, with average money wages more than doubling from 1949 to 1955. The wage fund was always being planned on the basis of optimistic estimates of food output, and, when the plans failed, workers' incomes had to be raised to attract new manpower from the land and to redress the terms of trade between town and country, which threatened to become too advantageous to the farmers.

This inflation, incidentally, has in part been concealed by the policy of artificially keeping consumer prices down. Coal, for example, is in effect rationed and its black market price is about twice the official price. Many food items (including butter and some grades of meat), cinema tickets, motorcycles, private cars, better quality shoes and many other consumer goods produced by the State are priced too low, so that their distribution must be affected by privilege, queues, bribery or the black market. The figures of the Central Statistical Office notwithstanding, urban wages never fully recovered from the sharp setbacks of 1951 and 1952.[iii] The real wages of families fell less, because women and older persons sought employment--though rather from bitter need than from choice. The fall in real wages was particularly severe for workers in light industry and for white collar employees.

During this period foreign commerce was increasingly directed toward trade with the Soviet Union and other Communist countries, which took over 70 percent of total Polish trade in the peak year of 1954. Emphasis was on machinery, imports of which rose from 25 percent of the total value of all Polish imports in 1949 to a maximum of 41 percent in 1953. Poland at first tended toward autarky, replacing imports from all countries by domestic production; but in recent years some effort has been made to take advantage of the division of labor within the Communist bloc, especially in the production of machinery and metal goods. The structure of retail prices and the reports of travelers indicate that there still is ample scope for increased trade of consumer goods between Poland on the one hand and the Soviet Union and Czechoslovakia on the other. Nevertheless, exchanges concentrated within a bloc of countries pursuing similar policies of accelerated industrialization, of countries where differences in relative costs are much smaller than in the compass of the entire world, have deprived Poland of a large measure of the benefits of international trade.

An obvious consequence of autarky is that exports will decline as more resources are tied up, and at greater real cost, to replace imports with domestic production. Thus, despite a 30 percent increase in the output of coal in the last seven years and a nearly stable private consumption, coal exports have dropped from 26 million tons in 1949 to 19.5 million in 1956, and there is little hope of exporting more than 13 or 14 million tons in 1957; conversely, deliveries of coal to industry have nearly doubled since 1948, reaching 51 million tons in 1956. Coal at least is relatively plentiful as a raw material for industrialization, whereas there is an absolute shortage of most of the other vital raw materials. The development of the steel industry since 1949, which is dependent on imported iron ore, has necessitated a tripling of iron ore imports. Similarly, increasing imports of non-ferrous metals and of rubber and petroleum products must be fed into the industrial machine, thereby tying up most of the available foreign currency reserves earned with coal and forcing Poland to export high-cost items in order to pay for other "less essential" imports. Instead of coal, which brings in a dollar at an average cost of 8 zlotys, Poland must export steel costing 15 to 20 zlotys for each dollar and metal products such as railroad cars, locomotives and machine tools at 30 to 50 zlotys to the dollar.[iv] Since coal exported through Gdansk sells for $20 a ton, the expected decrease of 10 million tons in coal exports from 1955 to 1957 implies a yearly loss of 200 million dollars, which would buy consumer goods worth 15 to 20 billion zlotys on the domestic market,[v] or roughly one-third of the entire retail sales of non-agricultural goods by the State shops.

The planners made the raw material shortages worse during the Six-Year Plan by consistently overestimating available supplies from local resources and underestimating requirements for their ambitious production plans. Material balances, which relate available supplies to Plan requirements, were often "closed" on paper only: during the course of the year shortages arose which were made good by the running down of inventories, already at excessively low levels, or by shifting allotments from less essential (mainly consumer goods) industries to plants producing heavy chemicals, to metallurgy and to machine-building. Sometimes, as in the cruel winter of 1955-1956, coal supplies were so short that many light industries had to shut down for weeks or reduce working hours.

The bonuses paid by the State to plant managers increase rapidly according to output, particularly if output surpasses the Plan; they serve to encourage production gains at all costs while neglecting cost reduction. Controls on material expenditures and blandishments by the higher authorities to save materials run against the self-interest of managers and hence meet with little success. The bonuses, averaging over 70 percent of the base pay of the managerial staff, make it profitable to hoard materials or use them to turn out little-wanted items "above Plan." Meanwhile other firms may have to cease or curtail operations for lack of even small consignments of these same materials.

The complexity of industrial processes also frustrates the controls that are used to combat waste by means of norms relating planned outputs to inputs. The type and age of machines, their frequency of repairs, the quality of materials and of products, and the amount of labor used in production are variable and affect the consumption of materials to an unpredictable extent. Producers can easily find more or less acceptable excuses for ignoring or surpassing the norms when some overriding incentive, such as the bonus for output, makes it profitable for them to do so. In Poland, physical controls have failed, in part because of the live-and-let-live attitude that seems to rule relations between the bureaucracy and plant managers. It takes Draconian measures, such as only the Soviets are willing to apply, to punish the virtuous along with the wicked and instill enough fear in the lower echelons to make physical controls effective.

During the Plan years, not only materials were wasted but also transportation services, equipment and labor. In order to favor the backward regions of the east, the prices used in transactions among socialized enterprises have been equalized all over Polish territory since 1948 and made to include the costs of railroad delivery; as a result, since no one has an incentive to cut down on transportation costs, bulky materials such as coal are consumed in excessive quantities even where local substitutes like peat are available. As all important equipment is supplied by the State without charge (and is "paid for" only through amortization quotas based on a generous estimate of the durability of the equipment),[vi] there is no incentive for socialized firms to refrain from ordering labor-saving machinery which could easily be dispensed with in a country where labor is cheap. Instead, more scarce steel is used, involving further sacrifice on the part of consumers.

In the late 1940s and early 1950s labor was exhorted with some success to work harder, but exhortation is ineffective today. The institution of piecework frequently fails as an incentive to production because workers fear that quotas will be raised if they are surpassed too easily; on the other hand, workers are completely without interest in their jobs if they are paid on straight time. As early as July 1956 Oskar Lange, a noted Polish economist and former Professor at the University of Chicago, referred to the "nihilism" of workers, which he ascribed partly to their low living standards, but also to their lack of confidence in the planners' goals. Moral apathy also assumes the form of petty cheating in stores, of graft and of semi-legal "deals" on the part of workers and minor officials.[vii] Many staff cars of ministries operate as taxis on government time, occasionally with the collusion of policemen. In 1955 only 15 percent of the sales taxes on gasoline were actually collected, because most gasoline was purchased with tax-free coupons acquired by hook or by crook from socialized firms.

The system has also tended to stifle technical innovation. Invention is poorly rewarded and attention has focussed on Soviet techniques to the neglect of Western developments. Money has on occasion been wasted on research that had already been done abroad. In the early 1950s a license was purchased from the Soviet Union to manufacture electric locomotive motors produced in the United States and in Italy 30 to 40 years earlier and subsequently discontinued in all countries not excepting the Soviet Union. At least until recently, bureaucratic duplication and inefficiency in industry and in the administration of the economy were flagrant.

The strait jacket of the economy was loosened a little in 1953 and 1954, when some decentralization took place. For example, the number of commodities subject to central planning was reduced and the lack of balance between bonuses for cost reduction and bonuses for output slightly redressed. These measures were, however, weak and largely ineffective. The increases in prices of producer goods in January 1956 wiped out the deficits of industries producing basic raw materials and semi-fabricated goods, besides helping to strengthen cost accounting; yet because of the lack of interest of management in reducing cost and maximizing profits, much of the potential advantage of the price reform was lost.

The first decisive step taken after the political upheaval of October 1956 was the transformation of the State Planning Commission into an organization for guiding the economy rather than for planning and supervising its most minute activities. To implement this reform, two important decrees were passed, one increasing the responsibility of factory directors and the other setting the legal framework for "experimental plants." These plants are now trying out new management techniques for interesting the staff and workers in efficiency by allowing them to share both in profits and in the responsibility for results. In most of these experiments, efficiency is measured by money profits (no longer by Plan fulfilment) and is rewarded accordingly. In some experimental firms, profits are worked out according to a special set of prices and according to strict cost-accounting rules, which include charging interest on all working and fixed capital. The workers' council, borrowed in its general features from Jugoslavia, has wide powers of revision over the policy of the firm, especially in matters of management personnel, but it cannot interfere in the day-to-day decisions of the director and his staff. Sales prices and production targets are still handed down by the Central Board of Industry. Even if these reforms are generalized throughout the whole economy, this will not mean the end of central planning; yet they would more nearly realize the type of independent production units Oskar Lange envisaged in his famous essay "On the Economic Theory of Socialism" than had been thought possible only a year ago.

The Five-Year Plan for 1956 to 1960 was tentatively approved by Parliament at the end of its first year of operation, some days after Gomulka and his team took power.

The materials published show that this Plan treats the hard-pressed consumer only slightly better than the last one: it still concentrates on high investments in heavy industry while neglecting agriculture and housing. Without formally scrapping the Five-Year Plan, the new leaders have tended to bypass it and to solve economic problems as they arose. Long-term projects are being given up in favor of investments yielding quick benefit to consumers, and construction of factories is being curtailed if they require heavier allotments of deficit raw materials than their output is worth.[viii] In planning investments from now on, detailed calculations of profitability and efforts to minimize costs will assume far greater importance than they did during the Six-Year Plan, when political considerations overrode all others in the selection of investment targets.

Cutbacks in the armaments industry may also help to solve shortages on the domestic market. According to present plans, the defense plants will produce civilian manufactures valued at 4.5 billion zlotys for 1957 and at a total of 25 billion zlotys for the next three years. The yearly sales of these manufactures, consisting largely of agricultural machinery and of durable consumer items (such as sewing machines, motorcycles and refrigerators), will be worth about 10 percent of the total retail sales of industrial goods produced by the State. All these changes seem fairly far-reaching, and there is some question as to how the over-all Plan targets may be kept internally consistent in the face of uncoördinated cutbacks in producer goods and increases in consumer goods.

So many projects are close to completion that it is not easy to trim investments. Six billion zlotys have already been sunk in the great Nowa Huta steel works and the more modest sums required to complete them around 1960 are expected to yield a far better return than the isolated units already in production. Prospects are also good for many projects near completion in the chemical industry, such as the Oswiecim works.

Efforts to shift foreign trade toward the West and to lighten the burden of Soviet claims on the Polish economy, which began soon after the death of Stalin, have been greatly accelerated in the last six months. From 1945 to 1953 about six million tons of coal a year, or a total of around 50 million tons, had been delivered to the U.S.S.R. at a price of $1.25 a ton--barely enough to cover freight costs to the border. Another two million tons a year were sold at nearly world market prices. After November 1953, "political exports" were abolished; the price of lump coals was then raised to $15.50, and again to $19 in 1956. As a result of negotiations by Gomulka and Cyrankiewicz in Moscow in November 1956, two billion rubles of Polish debts to the Soviet Union for previous credits were cancelled in compensation for losses suffered on coal exports between 1948 and 1953. At the old rate of four rubles or four zlotys to one dollar this sum comes close to the estimated losses for these years.[ix] The new agreement of last November also provides for a loan of 1.4 million tons of wheat in 1957 and of 700 million rubles between 1958 and 1960, all to be repaid before 1965. Polish losses on Soviet railroad transit between 1945 and July 1954, when the privileged rates were abolished, will also be settled shortly.

If there is to be any Soviet economic exploitation in the future it might now take the subtler form of deflecting Polish trade away from channels most advantageous to Poland, rather than of the direct imposition of terms of trade that would drain the Polish economy.

It is interesting to speculate whether Poland may expect to gain by shifting trade to countries outside the Communist bloc. In 1955, the Soviet Union accounted for one-third of Poland's imports and 30 percent of her exports. A large share of this trade follows the lines of natural advantage: Poland imports annually over 400,000 tons of raw oil, 240,000 tons of petroleum products and 13 million cubic meters of gas from the Soviet Union, most of which comes from the Drohobycz, Boryslaw and Daszawa fields formerly in Polish territory. Ship plate, copper and nickel imports from the West were limited by strategic controls in recent years and could be bought by Poland only from uncontrolled sources and at higher prices than in the Soviet Union. Since metals may be exchanged in raw or in processed form, it is doubtful whether restrictions on strategic materials could be relaxed for Poland alone; they would rapidly filter through to the other countries of the Soviet bloc. Imports of machinery and spare parts from the U.S.S.R. may also be fixed for years to come by previous imports of plant and equipment and by Soviet blueprints. Finally, the Soviet Union exports over 200,000 tons of manganese ore, which the Poles use in their ferro-alloy industry; there is no other supplier for this natural Soviet export.

The relative benefit of the iron ore imports from the Krivoi Rog fields in the Soviet Ukraine, which came to three million tons in 1955, cannot be assessed so easily; the prices charged are low in terms of coal, but deliveries are irregular in quality and in quantity. The chemical and physical properties of Scandinavian ore are superior, but Sweden, Norway and Finland are not in a position to meet all of Poland's requirements, which already must be partly supplied by France, Brazil and India at high prices. Poland is not likely to buy much grain in the West if it can be bought on credit from the U.S.S.R. The main Polish imports that might be redirected from Russia to the free markets of the world consist of vegetable fats, cotton, rubber products and agricultural machinery. At least part of the demand for watches, of which Poland bought 330,000 in Russia in 1956, can easily be met by Western European producers.

Poland will perhaps be able to exercise more flexibility in her exchanges with East Germany, Hungary, Czechoslovakia and Communist China, which together account for nearly 30 percent of the value of her foreign trade. East Germany alone buys about one-half of Poland's coke exports, most of her lignite and some four million tons a year (or 15 percent) of her bituminous coal exports. These imports from Silesia are essential to East Germany's steel industry, since good metallurgical coke cannot be made exclusively from lignite, which is relatively abundant in East Germany. Czechoslovakia also depends on imports of Polish coal (3.7 million tons in 1955). This coal is in part coked for reëxport to Hungary, which buys an additional 330,000 tons for her metallurgical industry directly from the Polish ovens. There is no other available source of coal and coke for Central Europe except the Soviet Union, which has little to spare from its own domestic requirements. If Poland can bargain freely, she should be able to command highly advantageous terms in trading with East Germany, Hungary and Czechoslovakia, since they have nothing to sell that is as vital to Poland as coal is to them. If Poland cannot receive enough in exchange for her exports of coal and coke, she can divert them and increase exports to the Scandinavian countries, to West Germany, France, Austria, Italy or Argentina. For Poland to import cotton, tobacco, vegetable fats, iron ore and even pig iron all the way from Communist China or corn and handicraft products all the way from North Viet Nam cannot be very advantageous; yet she spent over one billion zlotys in 1956 to manufacture machinery and equipment for export to China alone in payment for such imports. "Prestige exports" of entire plants to the Middle East or of outmoded automobiles to South America have no more sound economic basis than politically motivated exports to Communist Asia, and Poland would stand to gain by curbing both.

Hopes of raising trade with the West hinge on credits as well as on the redirection of trade away from the Soviet bloc. The Poles need dollars for buying coal-sorting and mining machinery and modern power-generating equipment to replace the outworn equipment now producing electricity in thermal plants at the cost of enormous waste in coal. The sulfur mines, which are said to be rich and profitable, could be exploited if foreign capital were available. These investments would eventually increase exports and yield the dollars necessary to repay foreign credits.

Consumption loans would also be of great benefit to the economy, if only in raising labor productivity, which is now kept low by an inadequate diet; however, the dollar return on these "investments" would have to be stretched over a longer period. Last December Gomulka claimed that imports bought with foreign credits would be necessary to absorb the difference between the total wage bill and the anticipated volume of retail sales to wage earners. In 1957 this inflationary gap will rise to 13 or 14 billion zlotys, roughly equivalent to the market value of 150 to 250 million dollars in imports. The exact values of the external loans that Poland requires to bridge this gap will depend on the proportion of food to other consumer goods that she purchases in the West on credit. Imports of raw wool, cowhides, rubber products and finished manufactures would make a greater contribution to monetary stability (and to living standards) than imports of wheat and lard, the prices of which are relatively low on the Polish market.

A Western loan might most benefit the Polish economy by enabling the Government to cut back exports of foodstuffs, wood and furniture, paper and leather, which are now needed critically for her consumer market but must be sold abroad in order to cover the cost of imports.

In November of last year planners in Warsaw were discussing a project for exporting additional quantities of flame coals to Western Europe in exchange for quality coking coals from the United States. Imports of coking coals would enable the Poles to honor their commitments to Hungary for gas coals, which are now fed into Polish coking ovens to produce rather inferior cokes, and to improve their own coke production for the blast furnaces of Silesia. The westward reorientation of coal exports from Silesia would also help to solve the fuel crisis in Europe and to reduce continental dependence upon American coal exports.

These multilateral exchanges and foreign loans may be profitable not only to Poland but also to the Soviet bloc. In the long run any measure that improves the economy of Poland may help to turn her into a more efficient member of this bloc. Credits for imports of consumer goods may enable the Polish planners to shift factors of production now engaged in agriculture or in light industry to the manufacture of machine tools or armaments. While they can easily find ways of exploiting increased trade or loans to frustrate the policies of their potential Western creditors, the Poles have sound political and economic reasons to use foreign aid without fraud or deceit. The risks that the West might take in granting economic assistance to Poland seem outweighed by the tangible prospects of good will that this assistance will engender among the Polish people.

Even if it is too early to evaluate the economic policy of Gomulka and his aides, one thing is clear: they have moved more promptly toward reforms and toward liberating the country from Soviet influence than most people in Warsaw expected last October. Unfortunately, they have loosened the bonds of compulsion that kept the old economic system together before they have been able to revive individual initiative and enterprise. As a result, labor discipline has slackened, but the stimulating effects of profit-sharing schemes and other new labor incentives have not yet been felt. At least until recently, the peasants were not turning their compulsory deliveries of grain to the State on time because official prices were too low; in January, the Government found it necessary to double these prices, which will now come up to about 50 percent of the prices the peasants can get for their grain on the free market. While it is fairly clear that this price increase will feed the current inflation, it is not clear at all whether the peasants will be tempted to deliver any more grain than before. Private trade and industry are at last getting licenses, tax rebates and some guarantees of stability, but not enough raw materials to operate efficiently, while socialized firms will still be wasting a part of their allotments until the bonus system is reformed. Where the people have been granted freedom to make changes, as in the socialized sector of agriculture, their onslaughts have shattered socialist institutions: recent reports claim that 80 percent of the collective farms have been broken up and their lands redistributed, while most of the rest have been transformed into producers' coöperatives of the Western type. Equipment in the Communal Machine Centers has been bought by the peasants.

These anti-collectivist trends do not portend easy success for the current political and economic experiments of Poland's new leaders. In attempting to crossbreed authoritarian with liberal institutions, as if to foster a strain that would merge the finest characteristics of both, they are also challenging the forces of nature, for the offspring of such dissimilar parents seldom breed true.

For the time being there are two basic conditions for mending the Polish economy: first, that the Poles be allowed to administer their affairs with a minimum of foreign interference and doctrinal prejudice; second, that they may have the political stability necessary to carry out far-reaching institutional reforms. By strengthening the power of the more liberal and nationalist-minded Communists headed by Gomulka, the recent elections have gone some way toward fulfilling both these conditions.

[i] The old Central Planning Office (C.U.P.) was directed during most of this period by economists steeped in Western traditions. The policy was to limit investments to quick-yielding projects entailing a minimum of risk, in order to raise living standards as quickly as possible.

[ii] The State farms, which cultivate many of the old landed estates with little labor and much mechanical equipment, accounted for another 14 percent of the agricultural area in 1955.

[iii] By dividing an index of nominal wages by an index of retail prices heavily weighted with industrial commodities that hardly enter into workers' budgets and with prices that fail to ration off the demand, the Central Statistical Office succeeded in demonstrating an increase of 27.6 percent in real wages from 1949 to 1955. These official statistics of real wages have been sharply criticized lately in the Polish press and in economic periodicals.

[iv] Until February 11, 1957, the Polish zloty was equal to one Soviet ruble or 25 U.S. cents at the official rate of exchange. The zloty was then devalued to 4.17 U.S. cents in tourist transactions, without altering the nominal parity between the zloty and the ruble. Poland's foreign trade is carried on by a government monopoly, which makes little or no use of official exchange rates either in selecting commodities to be traded or in determining terms of exchange. Selection is made by comparing foreign prices and domestic costs, and terms of exchange are set by inter-governmental bargaining on the basis of world prices.

[v] Consumer goods imported from the United States sell for 80 to 110 zlotys to the dollar on the free market and in the luxury State stores (Gallux). However, heavy imports of goods from the West would have the effect of driving down this rate and reducing the sum cited in the text.

[vi] A modest allowance for obsolescence was charged to costs in the Ministry of Metallurgy during the Six-Year Plan, although this practice was condemned by the theoreticians. Many officials in the ministries tend to be more aware of economic problems than the economists who were cut off from industrial problems.

[vii] Even high officials in the ministries earn very low salaries. The range of pay between the director of a department in the State Planning Commission and an unskilled worker is about four to one.

[viii] However, the planners are paring down investments too evenly among the various branches of mining and industry instead of giving full priority to projects that will yield foreign exchange in one or two years (particularly coal mining) and instead of slashing plans of expansion in the already overgrown machine-building industry. They still aim at self-sufficiency in almost all types of machines and tools.

[ix] The rate of the four zlotys to the dollar may be justified in this instance. The available ruble prices of raw materials traded by the Soviet Union and Poland substantiate the claim that, with the exception of "political" coal exports, the terms of exchanges have been pegged to dollar prices current in world trade in 1950 and that ruble accounts have merely registered dollar values multiplied by four. However, prices paid by Poland for Soviet machinery and equipment are not known.

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  • JOHN MICHAEL MONTIAS, recently in Poland on a Ford Foundation fellowship; formerly of the Mid-European Studies Center at Harvard; co-author of "Institutional Changes in the Postwar Economy of Poland"
  • More By John Michael Montias