The comparison of the two twenty-year old periods of independent Poland, away by 70 years of turbulent XX century is a risky task. Not only because we deal with two different eras, societies, behaviour standards, and above all with totally different conditions for achieving the planned goals in politics. The starting point to independence was also different. I am comparing the two eras not to demonstrate the superiority of one over the other but to emphasize the differences and by the way to refer to few myths.
The history turned a full circle
It is seeming to begin with the obvious statement: pre-war Poland was a much poorer country than the Third Polish Republic and it was in many respects a backward country. Statisticians used different measures then so it’s hard to compare GDP directly. As far as I know, no one attempted to make these kinds of estimates. It encourages me to present mine. Based on historical international comparisons and the data of Central Statistical Office of Poland (GUS) concerning agricultural, industrial and mining production, I estimate that in 1929 Poland’s GDP came to $50-60 billion (according to today’s value of dollar), so $1600-2000 per capita. In 2007 Poland’s GDP came to $422 billion and taking the purchasing-power parity of dollar and zloty into consideration- $590 billion. We are approximately 8-10 times richer than our grandfathers were. This means that in the last 70 years we were developing at the average of 2,3% (taking into account the catastrophe of the war and occupation). It wasn’t a slow pace but there is no reason for any special satisfaction either. The whole world was developing at similar pace. In actual fact, Poland’s position in the world today- measured by economic potential- is not much higher than it was before the World War II. Its best measure is the share of Polish export in world turnover which amounted to 1,1% in 2007, and 70 years earlier – 0,8%.
Two modernisations
The Second Polish Republic was an agricultural and industrial country in which 2/3 of the population lived off agriculture. This index is typical for a country in which the first wave of modernisation occurs- urbanization, industrialization, forming of large industrial plants with a special consideration for heavy industry. In 1931 there were 1675 thousand workers and 106 thousand office workers working in mining and industry. The economic crisis between 1923 and 1933 which was particularly deep in Poland stopped the industrialization which only at the end of 1930’s gathered great dynamics. In the years 1936-1938 Poland was one of the fastest developing countries in the world.
Within 10 years (1921-1931) the number of population living in towns increased from 24,6 to 27,2% and at the end of 1930’s it exceeded 30%. The population of Warsaw increased by 200 thousand people, Lodz by 150 thousand, Poznan by almost 100 thousand. The population of the cities of Upper Silesia belonging to Poland grew rapidly. It wasn’t only thanks to the migration from the country to the city but also thanks to the birth rate which was the highest in Europe.
Until the end of the Second Polish Republic the situation in agriculture was the most important problem, if not economic then social and political. The agricultural reform and the improvement of the agricultural structure were only partially successful. A quick industrialization would have been a solution but it would have involved considerable financial outlays which were missing in Poland.
Elimination of illiteracy was an important challenge for the modernizers- in 1921 33,1% of Poland’s population couldn’t read or write. In the country, it was as much as 38%. Ten years later the number of the illiterate was reduced to ‘only’ 23,1%, while in the country it was 27,6%. There is no information about illiteracy in the last years of the Second Polish Republic (the census was planned for 1941 but for the obvious reasons it didn’t take place) but from the partial data, it appears that the progress of the elementary education was fast and illiteracy- except for the most backward areas- was no longer a problem.
In the Third Polish Republic the educational revolution occurred on a higher level. The number of students rose by almost five times and Poland became one of the best educated countries in Europe. At least this is what was appearing from the numbers because the quality of the education was not without any reservations.
The Third Polish Republic began at the time when a process called by Alvin Toffler: third wave of modernization was advanced in the developed countries. The number of production workers was starting to decrease; the role of services and modern technologies was rising quickly.
The countries that developed earlier according to the rules of central planning faced dramatic challenges. A large part of the industry had to be dismantled and rebuilt in market-like way. The results achieved, were more impressive than in the Second Polish Republic. The social cost was considerable indeed- it can be measured by the number of people who withdrew from the activity in the labour market- but after 20 years of transformation the structure of the Polish economy fits better into the needs arising from the cooperation with the world than in the period of the Second Polish Republic. In 1923 Polish export came to 2056 billion zlotys, in 1938- 1185 billion zlotys. The real decrease was smaller (the world’s prices at the time were dropping) but we can be talking about stagnation of export at best. In the meantime, in the Third Polish Republic the export, which was the measure of the adjustment of the national economy to the world markets, grew by over twenty times during 20 years.
National economy
Having lived for over half a century in a nationally homogenous country we don’t always remember that the Second Polish Republic was a blend of few nationalities and the conflicts against a background of nationality were erupting on a regular basis. The role of the Jewish people was particularly significant in the economy. In 1938 out of 469 thousand trade companies almost half was owned by the Jewish people and a little bit over 40% by the Catholics, the owners of the rest of the companies practised a different religion or didn’t give any information about this.
“The Jewish issue” was strongly connected with economic issues. Almost all politicians and intellectuals agreed that it was a very important issue for Poland. Many different solutions were suggested- from emigration to assimilation of the Jewish people. Probably the most original one was proposed by the circle concentrated around the weekly magazine “Slowa” (“Words”) which was coming out in Vilnius- it concerned formation of self-governing districts conducting their own tax and social policy.
At the opposite pole, there was National Democratic Party calling for boycott of Jewish shops and craft. Polish elite thought “the Jewish issue” was a burden, a problem hard to solve. Virtually no one noticed that few million enterprising Jewish people, often better educated than Polish people, having international economic connections were a big Polish treasure. Only except that using this asset would involve a stronger integration of the Jewish with the Polish State and many career paths were closed for them in the Second Polish Republic.
The Jews who emigrated to USA assimilated into the American society easily, often becoming outstanding scientists, lawyers, bankers. Why wasn’t this possible in the Second Polish Republic? This is a subject for a separate discussion but it is worth taking up.
The outflow and inflow of globalization
The outbreak of World War I meant a sudden move away from globalization. While in 1914 foreign assets in relation to GDP around the world constituted 17,5%, in 1930 it was only 8,4% and this index was continually dropping. World export which in 1913 constituted about 8% of world’s GDP dropped in 1930’s to about 5%. The world was closing, separating itself with the customs barriers, trade wars were breaking up on a daily basis. This international context matters if we want to understand the economic policy in the Second Polish Republic.
Our most important trade partner was Germany – the biggest European country with which Poland had the longest borderline. Approximately half of Polish turnover was coming from trade with Germany. When in 1925 most-favoured nation clause which Poland had with Germany on the strength of Treaty of Versailles expired, Germany made conclusion of a permanent commercial treaty conditional on political concessions. It ended in trade war, resulting in a decrease in the trade turnover between both countries- the import from Germany was affected more than Polish export to this country. While Poland was a secondary partner for Germany, the tensions influenced Polish economy badly.
The outside threat- economic but also political and military- determined economic policy of the pre-war governments considerably. When in the second half of 1930’s the government decided to form Central Industrial District, it was located in central Poland, almost at the same distance from hostile Germany and Russia.
The second flagship investment of the Second Polish Republic- Gdynia- had also a strong political context. It was about independence from the port in Gdansk- which was controlled by the Polish authorities but the threat of losing control over it was taken into account.
Etatism
Unfriendly neighbourhood, slimness of capital and huge logistic problems resulting from the necessity to integrate three different economic organisms caused the pre-war governments to become strongly involved in economic matters. Etatism as a slogan was unpopular. The opposition accused each government of etatist activities and the governments were defending themselves, claiming they had nothing to do with etatism. But they were replacing private capital as entrepreneurs and modernizers. According to the estimates of economic historians, the state-owned companies produced about 30% of GDP. It was a lot if we consider a significant role of agriculture (fortunately private), crafts and trade. The state role was decisive in banking and industry.
During twenty years of independence, state ownership was extending. The credit for the most successful economic achievements of the Second Polish Republic- standardization of railways, port in Gdynia, Central Industrial District, Nitric Plant- went to the state. Hardly anyone remembers today that the public sector brought in little profit and ate up the slim financial reserves.
The Third Polish Republic was starting up from the second end, from the economy which was almost completely state-controlled but the structure of the ownership was changing quickly in favour of the private sector. Nationalization was a characteristic feature of the Second Polish Republic, for example nationalization of the Mechanical Plants in Ursus, Steelworks “Pokoj”, “Krolewska” and “Laura”, Scheibler and Grohman Plant. Privatization was an extremely rare phenomenon.
The Third Polish Republic started off when liberal views on economy were dominant all over the world. Privatization was one of the basic aims of transformation and though it was gradually decreasing, the ownership changes (also as a result of founding private companies from scratch) were one of the most important phenomena of the last twenty years.
We often envy the efficiency of the Second Polish Republic. To name one example, state-owned machine tool factory in Rzeszow came into existence within few months as a part of investment in Central Industrial District. Today the plan itself and arrangements would last few years. But the private sector can amass capitals and invest more effectively than in the Second Polish Republic.
Floating thanks to the economic climate
Favourable international economic situation that The Third Polish Republic encountered, facilitated the transformation, allowed considerable financial support and above all reduced obstacles in economic contacts with foreign countries.
At the beginning of 1920’s, when the subsequent governments tried to carry out a currency reform, the biggest problem was to obtain foreign loans that would stabilize the Polish currency. Since the country wasn’t considered to be particularly credible, creditors demanded guarantees in goods and rights to certain state income. The Italians granted a loan of $12 million which was secured by tobacco monopoly, the Swedish granted $6 million in exchange for the income from the match monopoly. A stabilization loan negotiated in 1972 in the U.S. was considered a great success- $62 million and £2 million (almost $1 million today).
The Third Polish Republic was a real bankrupt when it came into being but for political reasons it enjoyed the support of the U.S. and international financial institutions which were influenced greatly by the American government- IMF (International Monetary Fund) and World Bank. Balcerowicz’s reform was secured by the Stabilization Fund with a sum of $1 billion which was a donation to Poland. Negotiations for establishment of the fund were completed within few weeks. Before we had regained the trust of the financial markets few billion dollars worth of loans already came in from IMF and World Bank.
The agreements with the creditors gathered in the Paris Club (loans guaranteed by governments) and London Club (commercial banks) reached in 1991 and 1993 not only allowed to reduce the debt inherited from the Polish People’s Republic but above all enabled Poland, Polish banks and companies the access to international financial market.
Good economic situation for Poland which influences economy positively, results not only from the demise of totalitarianisms and the wave of democratization but in some sense is also an effect of moral debt felt towards Poland by the United States, Europe and above all by Germany. The Second Polish Republic was the moral creditor, betrayed by allies and broken up by Hitler and Stalin. We have received a partial compensation for this in the Third Polish Republic. Its final instalments are billions of Euros from the Structural Funds of EU. In few years’ time this inflow will end. It will be inevitable to start to live on our own account.
Translation: Marta Kurek
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