It is widely believed that the unthinkable has happened — a non-communist government, borne of the popular will, is being allowed peacefully to supplant the communist autocracy that has misruled Poland for over forty years. The reaction in much of the democratic West is understandable, namely to provide economic, financial and technical assistance long withheld from the oppressive regime that used military rule to maintain control over the restive Polish people.
In theory, such assistance would have two objectives: First, it would be aimed at improving the chances that Solidarity’s representatives will succeed in this ambitious undertaking. Second, it would reward the communists for giving up power, a signal to other, less "reform-minded" totalitarians elsewhere in the Soviet bloc that they, too, can reap similar returns by following the Polish Communist Party’s lead.
The Present Polish Reality
Unfortunately, the reality of the present Polish situation is much more complex and far less certain than this popular perception suggests — with profound implications for Western policies toward assisting the democratic movement there. Consider the following:
- At this writing, the "non-communist" government is under great pressure to retain communists in most, if not all, of the key cabinet posts.
- In addition, the non-communist prime minister and his cabinet officers are subordinate to Poland’s communist president, Wojciech Jaruzelski. He retains the power to dissolve the government and the parliament at will and, should he choose to do so, to return the country to martial law.
- Moreover, the key bureaucratic positions below the cabinet level in virtually all of the agencies of the Polish government will probably continue to be held by the communist nomenklatura, the party apparatchiks whose commitment to the system that installed them and sustains them is unflagging.
For these reasons, the ability of the Solidarity-led faction in the government to effect the sorts of wholesale economic — and further political — reforms the Polish situation necessitates is, at best, unclear. Indeed, the real and continuing limits on the democratic elements’ freedom of action suggest that the communists have no intention of permitting either themselves or their stultifying policies to be displaced.
These portentous circumstances tend to support the view that President Jaruzelski, in partially acceding to demands for a greater role for Solidarity in the Polish government, may have a very cynical purpose in mind — to exploit the non-communists’ ability to obtain access to foreign credit and investment without having to undertake the kinds of reforms that would otherwise be required. By sharing responsibility on these terms with the democratic opposition, Poland’s communists can share in any economic successes that might result but, more importantly, it can also ensure that the opposition is fully implicated in the hardships and privation that will accompany any move to resuscitate the economy. Inevitably, Solidarity’s perceived complicity in escalating prices and inadequate consumer supplies could do much to help Jaruzelski discredit the independent trade union movement in Poland — while at the same time reinvigorate the weakened communist party.
If Solidarity is to avoid this fate — and if there is to be any hope for Poland’s economy — it must be able to eliminate the centralized planning mechanism with all its attendant inefficiency and waste, dramatically reduce the bloated nomenklatura, and be relieved of the burden imposed by the exploitative, colonial demands of the Soviet Union. These should also be conditions for Western assistance to the Poland.
Poland Must Accept No Substitutes: Real Change is Needed
In accordance with such a prescription, the Mazowiecki government must have the wherewithal and the latitude to implement the following structural changes:
- Massive privatization of the Polish economy, including key heavy industries, mining and agriculture;
- The reallocation of priority resources away from the military sector and unproductive COMECON endeavors to the destitute civilian economy;
- An important and visible feature of this reallocation process would be the conversion of extensive military infrastructure to civilian production — particularly weapons production dedicated to supplying Soviet end-users;
- The Polish government should commit to disengage gradually from COMECON and formulate a realistic program to wind-down its participation in that wasteful economic community;
- Sharp reductions in the responsibilities and privileges of the entrenched government bureaucracy which continues to manage the vast majority of industrial and mining operations of the country;
- Rejection of communist control of the Ministry of Finance which currently funds political, economic and military activities within Poland and abroad that are inimical to prospects for Polish economic recovery; and
- Implementation of comprehensive measures designed to address Poland’s chronic environmental hazards.
The Soviets’ Critical Role
The Soviet Union can play a possibly decisive role in Poland’s efforts to implement such a program. It can do so in several ways. Most obviously, it must signal a willingness to tolerate such systemic experimentation and reform. Poland must be assured that it will be able to take such steps as are necessary to effect its economic recovery without fear of renewed Soviet interference or intervention.
The USSR can also take more tangible steps — steps that will greatly increase the chances for Poland’s recovery. As it now stands, there have been no commitments made by either the Soviet Union or Poland’s other COMECON partners to relinquish or greatly reduce their "bleeding" of Poland’s priority resources and manufactured goods. Similarly absent has been any evidence that Moscow would be willing to contribute hard currency credits, loan guarantees and debt relief to accompany Western economic and financial assistance to Poland.
The Soviets have, compared to the West, been relatively stingy with their financial assistance to Poland (e.g., no effort made to reduce prices charged for Soviet oil or to cut claims on higher quality Polish exports — goods that might otherwise be sold in hard currency markets, etc.) since the onset of the crisis in March 1981. This is the more ironic insofar as the Soviet Union bears the single greatest responsibility for Poland’s present economic crisis.
The Soviet Union has served as the model of the autarkic command economy that East bloc countries like Poland have traditionally been forced to emulate. It has also contributed to Poland’s bankruptcy by its repeated demands that the Poles increase their participation in COMECON, the Soviet bloc’s economic community, in high technology and trade cooperation. Total trade turnover between Poland and Soviet bloc (COMECON) countries amounted in 1987 to $35.7 billion — nearly twice the $20.1 billion run up in 1980. During the corresponding period, Poland’s trade with developed countries actually dropped from $12.6 billion to $10.2 billion. These figures indicate that the Polish economy may, ironically, be being further absorbed into Soviet-controlled CMEA economic relations — despite the West’s policy of "differentiation," whose stated aim is to "wean" Eastern Europe away from the Soviet orbit.
The Soviet Union’s refusal to date to accept responsibility for its part in creating Poland’s economic crisis or to take steps to alleviate the crisis is a potentially important indicator of Soviet intentions. Indeed, its apparent attitude that bailing out failed East bloc economies is an exclusive responsibility of the West is of a piece with the Soviet effort to "internationalize perestroika," i.e., to off-load or "restructure" the financial obligations of its impoverished allies and client-states from Soviet books to Western balance sheets while maintaining ultimate political and military control.
Necessary Elements of a Plan for Helping Poland
As the Bush Administration and Congress consider future steps in responding to dramatic events in Poland (and elsewhere in the Soviet bloc), it is imperative that American and Western policies be governed by a recognition that undisciplined economic and financial assistance to Poland will have unintended and undesirable repercussions both for the Poles and for the American taxpayer.
Instead, such assistance should be tailored to advance true reform in Poland even as it minimizes the prospects for yet another "false start" on Poland’s road to radical political and economic reform. This will require ending the communist system’s — and the nomenklatura’s — stranglehold on industry, mining, and finance. It should also entail steps to deny the Soviets a financial "free-ride." At the same time, a concerted effort should be made to limit Western taxpayer liabilities and to ensure that pro-Western developing countries are accorded no less favorable treatment.
Key features of such a plan should be:
- The new Polish government must be committed to — and capable of implementing — a program of fundamental economic and political transformation. If it is, Western nations should agree on clearly enunciated goals — and specific milestones for achieving these goals — upon which coordinated disbursements of funds from various sources (e.g., bilateral government loans and credit lines, World Bank co-financing, IMF loans, etc.) will be made contingent.
- The Western democracies should also seek to secure Soviet agreement to provide Poland with hard currency credits and/or credit guarantees for projects and trade transactions with Western suppliers along with substantial debt relief. In this way, finite IMF/World Bank and commercial bank resources can be husbanded to meet the enormous claims of the developing world.
- All Western financial assistance measures intended to stimulate Polish reforms — such as IMF support, Paris Club rescheduling and debt relief, OPIC coverage and GSP eligibility — must be fully reversible in the event of subsequent political crackdowns, financial default, or other missed milestones.
- A firm alliance agreement is required at the outset of these new initiatives to insulate Western taxpayers to the maximum extent possible from the consequences of potential default or successive debt reschedulings by Poland. In particular, a financial aid package for Poland should avoid transferring credit risk from private commercial banks to Western governments and taxpayers as a way of covering and thereby encouraging loans from private credit markets.
- Western government creditors should, in all cases, be accorded equal or pari passu treatment with private bank creditors in debt rescheduling negotiations, which is not now the case.
- The terms and conditions of any further Paris Club reschedulings for Poland should be publicly debated before they are finalized to avoid the current subordination of taxpayer claims to those of Western commercial banks. Otherwise, the West is in jeopardy of creating additional precedents for mechanisms whereby preferential economic and financial treatment is provided to Soviet bloc countries.
- Even "reforming" Soviet bloc countries should obtain no more favorable terms on or access to Western financial flows than those offered fledgling democracies in the developing world.
- Preferential arrangements for Poland could reduce the prospects of Mexico, Venezuela, the Philippines and other countries from receiving adequate debt relief and new money flows.
It is crucial that these milestones be publicly identified and debated prior to any "new money" flows so that the West is engaging in a transparent and measurable process of economic assistance. In addition to economic criteria, these milestones should also encompass expanded democratic pluralism and the institutionalization of individual freedoms, including private ownership and transferability of property.
To meet the Soviet Union’s substantial financial responsibilities for Poland, the allies should also urge that Moscow set aside a multi-billion dollar collateralized hard currency account (e.g., funded by pledged oil and gold-generated revenues) to cover Western creditors in the event of future Polish arrearages under the new program. The allies should insist that the Soviet Union cut its oil prices for Poland and that Warsaw be excused from large Soviet/COMECON projects, either underway or contemplated, particularly in the energy and high-technology fields.
As they are asked once more to assume substantial financial exposure to assist the more destitute regimes of Eastern Europe, Western taxpayers should keep in mind one fact: the current economic crisis in Poland has been deepened by undisciplined Western largesse over the past fifteen years or more. The temptation to respond again to Eastern regimes’ liberalization half-steps with renewed, imprudent capital and technology flows would amount not only to throwing good money after bad; it will likely retard political and economic reform in Poland and elsewhere.
Indeed, the West should learn an important lesson from the Polish experience: the deeper the economic crisis in communist countries, the greater the prospect for systemic political and economic reform. As a result, Solidarity’s ability to obtain the authority and the means to effect such fundamental reform in both sectors may be determined in part by the judiciousness with which Western nations agree to provide assistance before the non-communist elements in Poland are able to secure such power.
It should also be self-evident that Western democracies should withhold the expansion of economic and financial ties with other East bloc countries (e.g., the Soviet Union, Hungary, East Germany, Czechoslovakia and Bulgaria) until at least a comparable degree of political and economic power is enjoyed by non-communist elements as is the case in Poland. Indeed, the Polish case demonstrates the wisdom of refraining from the sort of bail-outs often recommended by those in the West motivated by such considerations as sentiment, short-term trade or domestic political benefits unless and until an actual transfer of political and economic power takes place.
The only hope for genuine reform in the Soviet bloc is the adoption by the United States and its allies of security-minded policies designed to increase greatly the discipline and transparency of all Western economic, financial and technology transactions with the USSR and Eastern Europe. Poland is the place to start.
– 30 –
1. This paper is an update to an earlier Center analysis entitled, The Bush Administration Rescue Plan for Poland: Shooting Ourselves in the Wallet? and an op. ed. by Roger W. Robinson, Jr. derived from that paper which appeared in the Wall Street Journal on 19 April 1989.