Discussion Papers 2007.
Regionality and/or Locality 104-121. p.
POLISH ENTERPRISES IN TRANSITION BETWEEN
STATE INTERVENTION, FOREIGN DIRECT
INVESTMENTS AND DOMESTIC CAPITAL
GIANCARLO COTELLA
Introduction: Economic system in transformation between
post-fordism and post-socialism
The transformation of the economic system occurred in Europe in the last part of
the  twentieth-century,  correspond  to  a  new  techno-economic  paradigm,  i.e.  accu-
mulation  regime,  exemplified  by  the  adjective  post-Fordist.  This  transformation,
inaugurated by the restructuring that followed the oil crisis (crisis of Fordisim and
structural re-adjustment) is commonly associated with the so-called globalization,
i.e. a process in which the traditional system of goods’ exchange became progres-
sively  more  and  more  integrated  in  a  world  system  of  production,  rich  of  new
strong  geographical  selectivity,  but  able  to  create  a  global  optimal  geographical
dimension of the organization of markets and enterprises.
The changes occurring in post-socialist countries after 1989 has been often as-
sumed to result almost entirely from the shift from the centrally planned economy
system  supported  by  a  mono-party  regime  to  a  market  economy  introduced  in  a
democratic  political  system,  attributing  an  evident  post-socialist  flavour  to  the
process itself. However, following Gorzelak (1995), it is also possible to substanti-
ate  the  thesis  that  the  decline  of  traditional  industries  which  began  to  happen  in
Central Eastern European Countries (CEECs) after 1990 could be assimilated to a
delayed  repetition  of  the  industrial  restructuring  which  has  begun  in  the  west  in
early 1960s and was accelerated during the 1970s. Thus, one may look at the post-
socialist  transformation  as a  shift from  fordist to  post-fordist  organization  of  eco-
nomic, social and political life, that was not possible in a system separated from the
global markets by economical and political barriers and therefore not strongly ex-
posed to international competition.
The  truth  lies  somewhere  in  between,  as  post-socialist  transformation  presents
both many post-fordist features as well as several peculiar elements that cannot be
noticed elsewhere. In 1990s, when the process was at its start, the reform has been
compared “with the building of a new house on old, crumbled foundations, without
a  detailed  plan  and  with  only  one  third  of  the  materials  available”  (Paul,  1995),
helping us to understand the atmosphere of uncertainty characterising the political
and decisional stage of the first years of the transition, where no blueprint could be
looked at in order to shift from “plan” to “market”.

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POLISH ENTERPRISES IN TRANSITION BETWEEN STATE INTERVENTION …
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The  present  paper  aims  to  shed  some  light  over  the  above-described  process,
analysing  the transformation  of  Polish  enterprises’  system,  as  it evolved  from  the
peculiar  pre–1989  socialist  model  towards  the  present  market-friendly  scenario.
The first part of the text describes how the application of the theoretical principles
of  soviet-inspired  centrally  planned  economy  led  to the  consolidation  of a typical
industrial  structure.  The  second  part  tries  to  read  the  interrelation  of  post-fordist
and  post-socialist  features  characterising  the  transformation  process.  After  a  brief
presentation of the general patterns of transition, the focus will shift to the privati-
zation  process,  and  to  the  exploration  of  the  different  agencies  structuring  the
emerging  model,  from  foreign  investments  to  newborn  domestic  capitalist,  in  the
light of a framework where the state, the general assumption of a passive role guar-
anteeing  more  market  freedom  notwithstanding,  pursues  a  strongly  active  neolib-
eral approach and shaped Polish reality in favour of the international capital. The
conclusive chapter will summarize the outcomes of the paper, trying to re-conduct
the analyzed process to its social and territorial implication.
Polish organization of production under socialism
Before  1800,  Polish  settlement  systems  were  constituted  by  some  hundred  cities,
mainly  presenting  an  economy  based  on  agriculture  and  rural  activities.  Nine-
teenth-century  constituted  a  period  of  high-pace  changes  for  Polish  production
system,  when  a sort  of proto-industrial culture,  mainly  generated  by  the  diffusion
of  the  new  technologies  developed  in  England,  began  to  spread  throughout  the
country.  The  industrialization  of  the  Polish  territory  throughout  the  nineteenth-
century was very uneven and lead to a general differentiation between more indus-
trialized western region and less industrialized eastern areas. The south and western
regions  where  characterised  by  the  concentration  of most  of  the  manufactory  and
mining activities (Silesia in particular). Also Wielkopolska developed a fair num-
ber  of  relatively  strong  medium  and  small  industrial centres specialized in  manu-
facturing and strong machinery production.
The situation radically changed after the end of WWII, when Poland entered the
sphere  of  Soviet  influence,  and  its  economic  development  became  subjected  to
communist ideology and political goals derived ad hoc in close connection with the
reality  of  the  Soviet  hegemony.  The  adopted  centralized  economic  model  was
based  on  the  development  of  heavy  industries  in  order  to  foster  rapid  economic
growth1 (Enyedi, 1990). The majority of the new state investments, centrally deter-

1Following French and Hamilton (1983), the main goals of central economic planning were
(1) the reduction of the gap between urban and rural areas; (2) the reduction of the socio-
economic  development  differences  between  regions;  (3)  to  avoid  as  much  as  possible

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106
GIANCARLO COTELLA
mined  within  the  COMECON  framework,  were  mainly  focused  on  the  develop-
ment of a large state-owned production system, and resulted in a high level of em-
ployment in the industrial sector, especially in such branches of heavy industry as
mining  and  steel.  The  guidelines  regulating  economic  development  were  based
upon long-term economic plans, taking for granted the determination in advance of
levels of demand for given goods and services, the money supply, the inflation, the
demand  for  labour,  the  distribution  of  productive  capacity  and  the  location  and
structure of investment, as well as all the most important indicators, elements and
phenomena relating to socioeconomic life (Sleszynski, 2006).
In order to make the country self-sustaining in the production of strategic goods,
and  to  urbanize  a  society  still  presenting  strong  rural  flavour,  a  huge  number  of
factories were localized throughout the country, only in part following the pre-war
industrial localization pattern (i.e. interesting the main industrial centres developed
in  nineteenth-century),  and  mainly  next  to  medium  and  small  towns  and  in  rural
areas (often favouring the establishment of new towns).
Many government policies supported such a process of change, both advantag-
ing new industrial workers and disfavouring rural ones (e.g. forbidding the subdivi-
sion  of  agricultural  activities).  The  described  political  choices  radically  modified
the urban structure of the nation, favouring a prodigious growth of many small and
medium centres that therefore became highly economic-dependent from the indus-
trial plants in their proximities.
After the initial successes in the transformation of the extensive growth model
of the 1950s and 1960s (in the period 1950–1969 Polish GDP grew of the 250%,
mainly  due  to  a  8,5%  yearly  increment  in  the  industrial  production.  Conti  1985)
into  an  intensive  growth  model  based  on  rationalization  and  savings,  during  the
second  half  of  the  1970s  growth  figures  began  to  decrease,  while  the  economic
restructuring  showed  to  be  slower  than  expected,  leading  to  what  Kornai  (1980)
labelled “an economy of shortage”. The technological obsolescence of polish facto-
ries and their excessive dimensions ensured that industries were mainly uncompe-
titive  due  to  their  material-,  labour-  and  energy-intensive  character  (Sleszynski,
2006),  and  consequently  incapacitating  the  economic  system.  This  forced  Polish
government  to  take  out  huge  loans  with  western  countries  to  keep  an  acceptable
level  of  industrial  output  and  employment,  in  order  to  maintain  social  order  and
control.  However  the  economic  inefficient  Polish  state-enterprises  were  less  and
less  capable  to  play  the  increasingly  global  competition  game,  and  to  meet  the
population’s growing demand. Such a shortage situation ended up with a wave of
protest  and  strikes in  which  the  factor  of  economic  dissatisfaction  combined  with

economic  and  social  contact  with  western  nations;  (4)  the  organization  of  a  centralized
economic  development  that  left  few  room  for  market  influence;  (5)  the  creation  of  the
basis for a future socialist society by education and propaganda.

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POLISH ENTERPRISES IN TRANSITION BETWEEN STATE INTERVENTION …
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the desire for independence. The several revolts that took place all around Poland
and  the  emergence of  Solidarnosc  as  a strong  social and  political  actor  led to the
epilogue of the communist control over Poland, and to the first free parliamentary
election of the 4th June 1989.
When  examining  the  evolution  of  Polish  production  system  in  the  period  be-
tween WWII and 1989, two sets of consideration can be made. The first concerns
the role assumed by the state: the evolution of polish production system has been
strongly state-driven, with the state trying to pursue in practice socialist theoretical
objectives  and  therefore  favouring  the  creation  of  the  so-called  socialist  society.
Such a goal presupposed the adoption of an integrated approach to social economi-
cal and territorial development, and the state to assume the double role of driver of
economic  and  territorial  development  and  of  provider  of  welfare  services  to  the
population.  The  second  set  of  consideration  concerns  the  role  of  the  state  enter-
prises at the different scales. In line with the strong hierarchical flavour character-
ising the system, the central level was the dominant one, as it was the level where
all  economic  goals  were  agreed  upon  (Sykora,  1999).  Nevertheless,  this  didn’t
mean that the role played by the state enterprises at the local level was weak. On
the  contrary  the  enterprises,  despite  a  weak  horizontal  integration,  interacted  in  a
strongly  integrated  vertical  way,  and  nevertheless  the  continuous  decisional  de-
pendence  from  the  central level,  constituted  a  crucial  factor  providing  local  com-
munities  with  several  welfare  and  socioeconomic  services  (They  had  their  own
shops,  schools,  sports  teams,  medical  care,  helped  during  construction  of  infra-
structure and during the harvest, etc.).
These two elements, the strong influence of the state in the industrial develop-
ment (and therefore in the creation of a particular economic structure) and a wel-
fare system mainly implemented through the state apparatus will be used as inter-
pretative  lens  to  read  the  changes  characterising  the  new  structure  flourishing  in
Poland through the transition period.
Macroeconomic reform and general patterns of transition
throughout the 1990s
At the beginning of the 1990s, the weak policy priority given by polish government
to  pivotal  themes  like  planning,  regional  and  local  policies,  social  services  and
housing, etc. (Sykora, 1999) have often been assumed as the litmus test of a transi-
tion characterised by a sort of withdrawal of the state, in a scenario where the dis-
mantling of the old structure has been rather fast and its substitution happened in a
slower and much more complex way. Nevertheless, the collapse of the old commu-
nist structure did not constitute a stop to the influence of the state on economic and
development  issues:  only  the  mechanism  changed  (Paul,  1995;  Shields,  2004).

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GIANCARLO COTELLA
Even though central economic planning was reduced considerably, and the mono-
political power of the communist party has been replaced by democratic structures,
the state didn’t play a neutral role in the reform, for it has been the main responsi-
ble  for  bringing  in  market-friendly  forms  of  governance  that  constitute  now  the
main feature of Polish reality.
In the new Polish transition scenario, instead of the state-driven top-down ar-
rangement peculiar of the previous system, the state began to play a role of coordi-
nation of the actions of the different agencies involved and, apart from the official
discourse  of  a  “powerless  state”,  remained  the  crucially  important  political  actor
(see part 6), and strongly contributed to the dismantling of the welfare/development
state and to the creation of a friendly operational environment for foreign capital to
massively  colonize  the  new  economic  system  through  the  privatization  of  former
state-owned sectors, leaving few place for local private capital to develop and op-
erate (see part 5).
Poland  began  its  social  and  political  transformation  with  the  burden  of  its
socialist heritage. Whereas obsolete production structures (41% of the Polish GDP
in 1989 was still created by state owned heavy industry. Gorzelak 1996), underde-
veloped technical infrastructure (in 1989 there were 82 telephones for 1000 people,
and 69 km of roads for 100kmq. Szul/Mync 1997) and closeness of the economy
could be mentioned as main negative characteristics, a well educated labour force,
high  level  of social security  and  strong  development of  social  infrastructure  were
the strong assets characterising the legacy of the previous historical period.
Soon  after  the  overthrow  of  communism,  the  introduction  of  market  economy
took shape, without any blueprint to refer to. The shared opinion on the edge of the
1990s  supported  the  idea  of  a  fast  embrace  of  the  new  economic  model:  Poland
started  therefore  a  so-called  shock  therapy  –  a  drastic  anti-inflationary  program
combined with a fast liberalization of the economy (Brada, 1993), underestimating
social costs and resulting in a deep recession and a breakdown of several branches
of the economy (Parysek, 1993), that suffered a major drop in the output levels (in
the  state  owned sector),  dramatically  growing  unemployment  and  strong  inflation
pressure (Table 1).
The  recovering  process  was  slow,  as  in  1989–92  the  official  GDP  decline  for
Poland was -15%, and only in the beginning of 1993 it was possible to see the first
signs of economic regrowth. One of the main worries of the different governments
was the creation of economic and legal conditions to attract foreign investors. Po-
land  represented  a  large  potential  market,  and  Polish  government  worked  hard  to
create  the  institutional  framework  for  foreign  and  domestic  capital  to  operate  as
soon  as  possible.  In  the  period  1990–1992  foreign  capital  invested  in  Poland
amounted  respectively  to  374  millions,  694  millions,  1300  millions  US  dollars.
Such an acceleration has been the result of several factors, among them being the
stabilisation of the general political and economical situation, the changing attitude

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POLISH ENTERPRISES IN TRANSITION BETWEEN STATE INTERVENTION …
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of foreign investors towards CEECs and, most important, the introduction of more
favourable rules and conditions for foreign investors (few or no restriction for for-
eign capital, the possibility to repatriate all profits, the introduction of several tax
relief’s opportunities).
Table 1
Economic development trends in Poland, 1989–1997 (Previous year=100)
Categories
1989
1990
1991
1992
1993
1994
1995
1996
1997
GDP
100.2
88.4
93.0
102.6
103.8
105.2
106.5
106.1
106.9
Industrial production
99.5
75.5
92.0
102.8
106.8
112.1
109.9
108.3
110.8
Agricultural pro-
111.0
99.7
106.8
87.7
108.8
89.2
117.8
99.1
101.7
duction
Exports
100.2
113.7
97.6
97.4
98.9
118.3
116.7
109.7
113.7
Imports
101.5
82.1
137.8
113.9
118.5
113.4
120.3
128.0
122.0
Foreign Investments
73.3
809.0
185.0
233.0
253.0
109.3
195.0
142.0
109.0
Fixed capital for-
97.9
89.4
95.6
102.3
102.9
109.2
126.0
120.3
120.2
mation
Inflation
351.0
686.0
171.1
142.4
134.6
130.7
126.8
119.8
113.3
Unemployment rate
/
6.3
11.8
13.6
13.7
16.0
14.9
13.2
10.5
Consumption
/
6.3
11.8
13.6
13.7
16.0
14.9
13.2
10.5
Source: Roczniki Statystyczne – Statistical Yearbooks, 1990–1998.
The process of economic restructuring has proceeded, although not as fast as as-
sumed, through all the 1990s, and presented two different dimensions:
−  the  collapse  of  several  enterprises,  which  has  not  always  reflected  the  real
economic situation and growth potential, but often has been the result of ex-
ternal conditions (as the collapse of traditional markets);
−  the growth of old firms and fast establishing of new economic units, mostly
in progressive economic sectors, mainly due to foreign investments.
A constant decline in agriculture has been replaced by a very high growth of the
share  of  tertiary  activities,  reflecting  a  sort  of  rationalization  of  the  overall  eco-
nomical structures (Table 2).
Transformation effects on the labour market were dramatic, with pauperization
and unemployment hitting wide strata of the population. The decrease in the num-
ber of jobs due to the economic recession manifested itself from the very beginning
of the transformation period. The total number of lost jobs in Poland in the period
1990–1993  amounted  to  over  2  millions,  and  in  1994  the  unemployment  rate
reached 16% of the economically active population. The economic reform resulted

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GIANCARLO COTELLA
in greater social polarization not guaranteeing a maintenance of their standards of
living to most of the workers, mainly due to the growing polarization of incomes
and in the precariousness of jobs.2 Moreover, state subsidies for several social ser-
vices, such as recreation, childcare, etc., have been withdrawn almost entirely (with
the  social  insurance  system  and  pension  system  reform  started  in  1996  and  con-
cluded in 1998. Gorzelak, 1998). This led to a shift from a granted supply of social
infrastructure  and  social  services,  to  the  privatisation  of  those  services  and  the
growing impossibility to benefit from them due to the high costs.
It  is  evident  how  the  scenario  just  described  has  been  characterised  by  a
strongly growth oriented transformation. Investment efforts and replacement of old
and  obsolete  fixed  assets  of  low  technical  standards  by  new  equipment  was  the
basic  assumption  behind  these  scenarios.  The  text  will  now  go  on  to  analyse  the
effect  of  such  a  shock-approach  on  the  process  of  privatization  of  Polish  enter-
prises.
Table 2
Creation of the GDP in Poland, 1989–1996
Sectors
1989
1990
1991
1992
1993
1994
1995
1996
Industry
41,0
43,6
39,2
39,6
33,4
32,2
28,9
27,1
Construction
9,6
9,5
10,9
11,2
6,6
5,7
5,2
5,3
Agriculture
12,2
7,3
8,4
7,3
6,6
6,2
6,6
6,0
Other
37,2
39,6
41,5
41,9
53,4
55,9
59,3
61,6
Source: Roczniki Statystyczne – Statistical Yearbooks, 1990–1996.
Polish enterpries’ privatisation in the new market economy
Several fundamental changes began to affect Polish enterprises after 1989. As de-
scribed above, to the considerable decline in the industrial output in the first years
of the shock therapy (33% in the period 1989–1991) followed a fast growth of the
production,  due  to  the  raise  of  domestic  consumption  and  growing  exports,  and
thanks  to  the  fundamental  transfer  of  ownership  and  the  connected  far-reaching
structural and qualitative changes taking place in the entire sector.
The highest growth interested computer, plastic and rubber factories, electronic
and electrical machinery, motor vehicles and precision instruments. Analogously to
post-fordist  transformations  interesting  Western  Europe,  the  structure  of  Polish

2If compared with the socialist period, when the society was characterised by strong egalitarianism,
income  differentiations  grew  exponentially,  with  the  richest  20%  of  households  having  an  income
per capita 6 time higher than the poorer 20% (Gorzelak, 1998).

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industry  moved  towards  an  increased  share  of  medium-  and  high-technology  and
basic  consumer  goods  at  the  expense  of  raw  materials  and  simple  semi-finished
goods dominant under communism (Domanski, 2006). The centrality of privatiza-
tion to the transition is instead a post-socialist peculiarity, and focused on the effi-
ciency gains of the adjustments to capitalism, as privatization was assumed to pro-
vide  efficiency  through  private  propriety  and  competition,  motivating  economic
performance.  Therefore  privatization  was  supposed  to  reform  not  only  the  man-
agement  of  enterprises,  but  the  economy  as  a  whole,  due  to  the  relationship  be-
tween private propriety and market efficiency (Kornai, 1990; Estrin, 1994).3
The struggle around the privatization bill lasted 10 months, mainly due to dis-
agreement on its basic principles. The government wanted to implement a British-
style  privatization,  with  the  sale  of  state-enterprises  by  the  state  organs  through
public offering. Part of the Solidarnosc establishment opposed the plan, preferring
“employee share ownership privatization” (Kowalik, 1991). The support of Jeffrey
Sachs was crucial to defeat this position and to break the reached legislative stale-
mate.  The  government,  and  in  particular  the  Minister  of  Privatization  Janusz
Lewandowski, with the help of World Bank and International Monetary Fund and
World Bank (that made their structural adjustment loan conditional on the adoption
of the bill), rejected the “employee share ownership privatization” model in order
to facilitate the concentration of capital. The legislation finally passed by the Sejm
in  July  1990  was  ultimately  ambivalent  regarding  the  decision-making  and  pro-
gramme  design  of  privatization.  The  system  implemented  entailed  a  two-tier  sys-
tem  with  the  state  deciding  the  overall  direction  of  privatization  and  the  level  of
revenue expected on annual basis (Shields, 2004).
Two main forms of privatization have been adopted: by liquidation and the so-
called  capital  privatization.  There  are  two  types  of  Privatization  by  liquidation
(Gorzelak 1998):
−  Liquidation  on  the  basis  of  the  Article  19  of  the  Law  on  State  Enterprises
(1981). Under this procedure the existence of state-owned enterprises as a le-
gal entity is terminated if it is in difficult economical conditions. In this case,
the propriety of such an enterprise may be sold or leased, usually in parts;
−  On the basis of Article 37 of the Law on Privatization of State Enterprises
(1990). In this case a state-owned enterprise is liquidated, by selling or leas-
ing, to a buyer.

3As  stated  by  Schusselbauer  (1999),  “Privatization  should  result  in  a  new  private  and  institutional
ownership  structure  replacing  the  old  sclerotic  state-administered  system  with  his  low  efficiency
pressure and distorted market and price signals. There is little doubt that private ownership leads to
an  incentive  system  in  which  the  costs  of  production  are  minimised  according  to  the  relative  price
structure  and  the  output  structure  is  oriented  towards  market  signals  given  by  the  preference
structure”.

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GIANCARLO COTELLA
Capital  Privatization,  based  on  Article 5  and  6  of  the  Law on  Privatization  of
State  Enterprises.  A  state  enterprise  becomes  a  company  wholly  owned  by  the
State  Treasury  and  than  issues  shares.  If  over  than  50%  of  the  shares  are  sold  to
private  owner(s),  the  enterprise  is  considered  to  be  privatized.  In  many  cases  the
shares are offered at the Warsaw stock Exchange.
Also a sort of Voucher-type Privatization was introduced in Poland in 1996, un-
der the so-called National Investments Funds Program. The State Treasury became
owner  of 512 state  enterprises,  managed  by  15  National  Investment  Funds  (NIF).
Coupons  issued  by  these  funds  covered  the  value  of  the  enterprises  and  where
made available to each adult citizen at a price of 8$. By the end of 1998 the cou-
pons unsold were turned into share and managed by the NIFs.
The privatization process has gone through ups and downs. The peak in the pace
of  changes  in  the  ownership  structure  came  in  the  second  half  of  1991.  By  1997
some two-thirds of the original number of 8441 state-owned enterprises at the end
of 1990 had begun the process of ownership transformation. In every fourth state
enterprises  this  process  was  completed.  Up  to  the  end  of  2004,  some  7165  state
enterprises  had  been  privatized  (including  1852  through  closure),  constituting  the
85% of the entire amount.
Nevertheless, none of the contending approaches to privatization has been par-
ticularly  successful.  Building  domestic  capitalism  has  proved  a  hardly  solvable
problem for all Central and Eastern European states. Ownership changes have not
brought  with  them  significant  amount  of  investments,  and  privatization  has  not
succeeded in immediately creating domestic agents of capital.4
In a transition path dominated by the believe that only with an appropriate level
of  investment  it  would  have  been  possible  to  reach  high  growth  rates  in  the long
run (Gorzelak, 1996), the scarcity of domestic capitals in Poland at the turn of 1989
strongly slowed down the process. Therefore the crucial factor to successfully pur-
sue the wished scenario was the establishment of the framework of rules necessary
to guarantee to foreign capital to play a strong role within the scenario itself. Sev-
eral incentives had to be developed in order to attract foreign capitals to enter pol-
ish privatization process. The presence of a big share of foreign capital resulted in
the  establishment  of  a  sort  of  vicious  circle  that  contributed  to  inhibit  the  rapid
development of domestic capitals, with the former starting to gain control of Polish
market. In quantitative terms, of the combined earnings of the top 500 polish firms
in  1999,  30,8  percent  was  constituted  by  foreign  capital,  against  19,8  percents  of
domestic one (the rest still being State-owned enterprises). In 2000 foreign capital

4Restructuring  has  been  disappointing,  so  much  that  the  UN  World  Economic  and  Social  Survey
states  that  “however  different  the  speed  and  depth  of  economic  reform,  one  key  problem  was
common  …  In  none  of  [the  Central  and  Eastern  European  countries]  have  economic  agents
conformed  to  the  model  that  the  policy  makers  had  in  mind  as  their  goal  when  they  launched  the
reforms” (UN 1995: 163).

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Polish Enterprises in Transition Between State Intervention, Foreing Direct Investments and Domestic Capital.
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POLISH ENTERPRISES IN TRANSITION BETWEEN STATE INTERVENTION …
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had reached the 35.6 percent, while domestic one just 21.3 (Rzeczpospolita, 2001).
This fractions are the dominant structures articulating the process of capital accu-
mulation in Poland, and will be further explored in the following paragraph.
Foreign direct investment in the polish
“capitalism without capitalists”
Immediately after the beginning of the transition period, with the end of the state
control  over the  market,  a  growing  number  of  western  enterprises  started to  relo-
cate  their  businesses  in  the  ex-socialist  nations.  Favoured  by  the  specific  legal
framework appositely created by the government, foreign investment played a cru-
cial role in the privatization of state-enterprise apparatuses, proceeding at growing
pace after 1989.
The  entrance  of  foreign  capital  on  Polish  markets  could  be  divided  into  three
different time periods:
−  Before  1989:  economic  relation  with  international  capital  existed  before
1989. Since the 1970s, several Western enterprises tried to penetrate the iron
curtain and to locate part of the production in CEECs, in order to have access
to a new share of market, taking advantage of Polish government consensus
on the benefit of Foreign Direct Investments. Several franchising and licens-
ing agreements followed larger firms operating in the region (e.g. ZPT Kra-
kow  produced  Marlboro  under  licence  since  1973).  The  equivalent  of  a
chamber of commerce, InterPolCom, was set up in 1977 to facilitate foreign
direct  investments,  that  in  1986  amounted  at  $100  million  (Sklair,  2001).
Nevertheless  several  attempts  of  “opening  up”  (e.g.  Gierek’s  import-led
growth  strategy  of  the  1970s),  the  socialist  structure  inhibited  a  massive
colonization of the economy, limiting foreign intervention to the creation of
small  businesses,  and  permitting  large  production  only  under  franchising  or
licensing agreement (Shields, 2004).
−  1989–1991/2: this period was characterised by prudent industrial investment,
mainly  operated  by  mixed  groups,  aiming  at  testing  the  characteristics  and
the  stability  of  the  new  market  together  with  the  financial  atmosphere,  the
real possibility to re-export profits, the potential delivery market, the political
stability,  the  cost  and  quality  of  the  labour  force  (Michlak,  1993;  Buckley–
Ghauri,  1994).  The  role  of  the  state  have  been  crucial  in  this  process,  as  it
undertook  the  organizational  reforms  necessary  for  a  proper  functioning  of
the new economic model. Among them are worth a mention: lifting the limit
on the size of private firms, elimination of legal limitation hindering private
entrepreneurship,  elimination  of  49%  limit  of  foreign  participation  in  joint

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Polish Enterprises in Transition Between State Intervention, Foreing Direct Investments and Domestic Capital.
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114
GIANCARLO COTELLA
ventures,  establishment  of  the  Ministry  of  Ownership  and  Transformation
(dealing  with  privatization),  opening  of  the  Warsaw  stock  exchange  (in
1991), reorganization of a former institution giving obligatory concession for
foreign investments into the Polish Agency for Foreign Investments, with the
specific  task  to  promote  Poland  among  foreign  investors  and  facilitate  their
intervention with financial deregulation (Szul–Mync, 1997).
−  A  second  period, after  1993,  witnessed  the jump  into  the  stage  of  multina-
tional enterprises and the number of investments saw an exponential growth
together  with  a  complex  diversification  of  the  investment  fields  (Blazyka,
2001).  The  state  has  not  been  passive  in  this  process,  enhancing  legislation
aiming to the provision of generous incentive like tax holidays and tariff and
quota  protection  in  accordance  with  Prawo  celne  z  1989  (Costum  Law  of
1989)  and  Prawo  z  1991  roku  o  spolkach  z  obcym  udzialem  (1991  Law  on
companies  with  foreign  participation).  Due  to  the  exponential  reduction  of
bureaucracy and to the increasing legal protection for FDI, particular sectors
of the economy were gradually transformed from state-owned monopolies to
transnational capital monopolies, in a process where privatization, instead of
bringing  about  competition  and  demonopolization,  perpetuated  and  exacer-
bated  market  domination  and  concentration.  (e.g.  Fiat  and  General  Motors
dominated  the  auto  sector  after  negotiating  state  protection  from  competing
imports. Gowan, 1995).
Foreign capital began to enter practically all sectors and branches, its most visi-
ble  presences  being  in  car  industry,  trading,  food  industry,  furniture,  electronics,
and since the second half of the 1990s also in banking and financial services, now
the main direction of investment (Szleszynski, 2006).
In the beginning of the transformation (see Table 3), the main amount of foreign
capital  invested  in  Poland  was  coming  from  USA  and  international  organization
(i.e.  the  IMF,  the  World  Bank,  etc.),  and  the  situation  lasted  until  the  end  of  the
1990s.  Nevertheless  the  striking  poor  presence  of  European  capital  in  the  early
period, the share of foreign investment in Poland will invert in favour of European
capital on the edge of 2000, and as of the end of 2004, 74% of all investments in
Poland  had  come  from  EU15,  with  France,  Germany  and  the  Nederland  on  top
(Szleszynski,  2006).  The  total  amount  of  foreign  capital  inflowing  to  Poland  con-
tinued  to  growth  exponentially  until  now  during  the  whole  transition  period  (see
Table 4).
As showed, during the 1990s, the main aim of polish legislation was to elimi-
nate  constraints  to  foreign  investment,  considered  an  essential  element  for  eco-
nomic  recovery  (Fischer,  2000).  Nevertheless,  while  contributing  to  revitalize
through privatization a great number of declining state enterprises, several negative
effect  are  often  associated  to  foreign  investments  (Paul,  1995;  Shields,  2004),  as

Giancarlo Cotella :
Polish Enterprises in Transition Between State Intervention, Foreing Direct Investments and Domestic Capital.
In: Regionality and/or Locality. Pécs: Centre for Regional Studies, 2007. 104-121. p. Discussion Papers, Special
POLISH ENTERPRISES IN TRANSITION BETWEEN STATE INTERVENTION …
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5
the main share of profits they generate is re-exported outside national borders and
does  not  contribute  to  positively  affect  national  development,  and  foreign-pro-
moted activities are usually easily to be relocated once the economic context is no
longer favourable.5
Table 3
The biggest foreign investments in Poland by countries
Country
1991–1993
Country
1995
Capital invested M$
Capital invested M$

USA
1050
USA
1702
International org.
245
International org.
871
Italy
220
Germany
512
The Netherlands
210
Italy
378
Germany
203
The Netherlands
353
Austria
195
UK
319
France
180
France
275
Sweden
80
Austria
246
UK
78
Sweden
140
Switzerland
40
Switzerland
121
Source: List of major investors in Poland. Polish Agency for foreign investments. Rzeczpospolita 22
April 1995.
Table 4
Inflow of foreign capital in Poland, 1976–2005
Year
M $
Year
M $
Year
M $
1976
6
1986
16
1996
4498
1977
65
197
12
1997
4905
1978
25
1988
15
1998
6365
1979
30
1989
11
1999
7270
1980
10
1990
89
2000
9343
1981
18
1991
291
2001
5714
1982
14
1992
678
2002
4131
1983
16
1993
1715
2003
4589
1984
28
1994
1875
2004
12873
1985
15
1995
3659
2005
7724
Source: Central Statistic Office.

5Furthermore, foreign investments proved to be highly spatially selective, since they hardly targeted
decline  areas,  and  interested  mainly  those  already  affected  by  economic  growth,  leading  to  a
worsening of spatial polarization effects (Cotella, 2007).

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GIANCARLO COTELLA
Coming  to  explore  the  development  of  domestic  capital,  whereas  in  Western
Europe  large-propriety  owners  created  the  institutions  of  the  market  economy,  in
Poland and other CEECs one of the main aims of transition was to promote private
ownership through mass privatization. Following Eyal et al. (1997) it is possible to
notice, that whenever the process of transition has been characterised by the rapid
creation of the legal and institutional framework necessary for a market economy
to work, this led to a scenario where the existence of new market institution com-
bines with a relatively scarce presence of national propriety owners. The resulting
model is a sort of “Capitalism without capitalists”, characterised, rather than by a
real capitalists class, by a complex network of cross-ownership, self ownership and
ineffective  small  shareholding  via  investments  funds  connected  with  state-owned
banks (Stark, 1996), with a new “power elite” controlling the command positions
of political and economic institutions. Therefore, a new “Polish bourgeoisie” in an
economic sense remains unfulfilled in a scenario where the only distinct owners are
the state and foreign capital (Eyal et al. 1997).
Even  if  a  first  wave  of  national  capitalists  emerged  during  the  1980s,  when
Polish government favoured first attempts of privatization and the creation of small
businesses,  partnership  with  foreign  capital  was  often  the  main  condition  of  the
emergence  of  new  economic  subjects,  as  almost  no  capital  was  present  to  under-
take  private  investment  on  polish  territory.  The  introduction  of  free-market  proc-
esses stimulated the rapid development of domestic private entrepreneurship, with
a  million  businesses  registered  in  1991,  a  second  million  achieved  by  June  1993
and  a  third  by  December  1999  (Sleszynski,  2006).  Nevertheless  the  3.6  million
firms  in  existent  in  Poland  by  the  end  of  2004,  most  of  them  are  small  activities
frequent  family-owned,  and  very  few  are  large  enterprises.  The  main  role  in  the
economy of the country is played instead by the largest firms (the first 500 firms in
terms of income account for around the 60% of the national total), most of which
depend from  foreign  capitals. The conditions  provided  by  the  state, favourable to
foreign investment due to continuous deregulation, in fact constituted a strong in-
hibition  for  the  formation  of  a  solid  national  entrepreneurial  class.  Where  it  did
happen, the relatively young formation and the limited financial capital, most of the
time  leads  to  an  unfair  competition  with  the  foreign  counterpart  on  international
markets, as well with foreign investors on their own territory.
The Crucial Role of the State
In the majority of studies concerning Central and Eastern Europe, the international
influences has seldom been considered as a main driving force, while it is evident
how the international scenario has been crucial, as Poland had to promote its own

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Polish Enterprises in Transition Between State Intervention, Foreing Direct Investments and Domestic Capital.
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POLISH ENTERPRISES IN TRANSITION BETWEEN STATE INTERVENTION …
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economic  development  inside  a  complex  international  scenario  influenced  by  in-
ternational multi-lateral institutions (Shields, 2004).
As  underlined  by  Piazolo  (2000),  Polish  transition  had  a  strong  European  fla-
vour, as accession into the EU was always linked to political conditionality in the
establishment  of  a  functioning  market  economy.  Also  the  International  Monetary
Fund  (IMF)  contributed  to  influence  the  macroeconomic  reform,  guaranteeing
credits and loans that created the necessary economic stability for commercial in-
stitutions and foreign  investments  to  operate  (therefore  constituting  a  sort  of  van-
guard of the capitalist economy). When it was time to take the hard measures in the
period of transition, Polish government often used IMF and EU Accession Treaty
as  a  cover  excuse  to  undertake  the  most  controversial  steps  (Szul–Mynk,  1997).
But, as Rodrik (1989) affirms, to embark reforms formally agreed with the EU or
the  IMF  in  order  to  enhance  their  credibility,  also  strongly  reduced  the  scope  of
governmental manoeuvring and flexibility in arbitrary changing the policies. Thus,
it can be said that the main directions of Polish development have necessarily been
embedded in a wider international system, in an era characterised by international
agents  overcoming  permeable  national  borders  and  configuring  the  material  basis
for political processes (Rosenau, 2000).
Within the described internationally influenced framework, the transition proc-
ess  transforming  Polish  economic  system  from  centrally-planned  to  market  ori-
ented, has been often explained as characterized by a withdrawal of the state from
economic intervention. Although this argumentation has been very often raised to
counteract  the  proposition  of  a  more  regulation-oriented  transition,  the  followed
path presented a high degree of state intervention. As Shields (2004: 133) affirms,
“one  of  the  ironies  of  transition  is  that  despite  the  collapse  of  state  socialism  the
role of the state has not necessarily diminished, instead the nature of state interven-
tion has changed”: occurring in the context of contemporary capitalist world order,
the government approach to the transition has been strongly influenced by several
international forces, and reconstituted in favour of international capitals.
Particular state apparatuses assumed the role of the leader in the sphere of pro-
duction  and  finances,  like  agencies  directly  connected  to  the  national  economy,
such as Ministry of finances, progressively began to influence the role of the Min-
istries  of  industry,  labour,  housing,  and  progressively  subordinated  their  needs  to
the one of international economic forces.
The  minimal  state  philosophy  adopted  in  Poland,  characterised  by  a  laissez-
faire  rhetoric  hiding  strong  government  interventions in  favour  of capital,  nation-
ally found a strong justification in the resurged cultural beliefs in self-reliance and
individualism, caused by 45 years of attempt to impose uniformity (Sykora, 1999).
The slogan “the less government the better” was used in order to support abolition
of taxes  on  foreign  capital,  to  phase  out  Social  Security  systems  in favour  of  pri-

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118
GIANCARLO COTELLA
vate retirement and to promote the privatization of historically public welfare sec-
tors.
The  increased  power  of  capital  was  not  necessary  removed  power  from  the
state. It is the nature of state intervention that has changed, intervening in this in-
tensification process and taking care of the interests of the international capital in
order to benefit from further investment and reach faster overall economic growth.
Examining the economic and the political as distinct moments part of the same
totality,  it  is  possible  to  understand  how  such  a  neoliberal  economic  project  has
been  preformed  through  the  harmonization  of  fiscal,  monetary,  industrial  and
commercial  policies  in  order to fully  enable  the functioning  of international capi-
tals. Public intervention played a very important role in this process (as it appears
clear analysing the legal and institutional reforms described in part 5), as political
and economic leaders did not consider public involvement itself to be inappropri-
ate, but rather specifically social services-oriented ones to be unwanted.6
Conclusion
The  elements  described  above  show  how  the  process  of  economic  restructuring
occurred  in  Poland  during  the  transition  period  has  been  a  complex  process,  pre-
senting both the features of a post-fordist transformation as well as a strong post-
socialist  flavour.  Capitalism  did  not  fall  on  Poland  fully  formed  from  the  sky  in
1989, rather the state has been the architect of a specific type of transition, estab-
lishing new “rules of the game” and embedding Polish economy into a wider inter-
national scenario. Two main dimensions of such an approach can be underlined: on
the  one  hand  the  enforcement  of  logics  and  laws  of  capital  accumulation  by  the
provision  of  the  necessary  stability  for  the  new  market  economic  model  to  work.
On the other hand the dismantling of the welfare system developed under the pre-
vious historical period that contributed to impose the cost of transition on labour.
In the socialist period, nevertheless the long term objectives of overall economic
growth, and in spite the rigid top-down structure and the weak horizontal integra-
tion among sectors, the society was the object of a complex system of service de-
livery  and  redistribution  operated  by  both  state  apparatuses  and  state  enterprises.
Even though the original theoretic objective to diminish the gap between urban and
rural areas and between the levels of development of the different regional realities

6In  this  direction  moved  the  already  introduced  reforms  of  the  pension,  as  well  as  the  lack  of
corrective measures to fight constantly increasing social and spatial polarization. Unemployment is
still one of the major emergence: peaked at 16% in 1994, it dropped to around 10% in 1997, due to
the stabilization of the economic situation after the negative  effects of the firsts  years of the shock
therapy. Since then it has been raising steadily towards the 20%  of 2001, the worst situation since
WWII.

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POLISH ENTERPRISES IN TRANSITION BETWEEN STATE INTERVENTION …
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was  soon  given  up  as  economically  unrealistic,  the  decentralization  of  industrial
production  and  the  creation  of  a  strong  welfare  system  contribute  to  the  achieve-
ment of a sort of social and spatial re-equilibrium.
In the new transitional scenario, the state reorganized its role from leader of the
economic  development  and  provider  of  the  benefit  deriving  from  the  economic
growth in form of redistributive policies, to designer of the rules for new players to
play the game and to guarantee national economic growth inside the broader global
scenario.
Such a transition path adopted by the state, aiming at the production of the ideal
conditions  for  international  capital  to  operate  and  to  perpetuate  itself  within  the
new context, did not produce equal development possibilities at the local level. The
transition  process  proved  to  be  strongly  spatially  selective  and  only  those  centres
that were able to attract capital fluxes, mainly foreign, and to offer valid guaranties
to private investors, ended up with benefits. This situation led to two contradictory
phenomena:  on  the  one  hand  the  consolidation  of  new  “pulling”  regions,  on  the
other hand the inertial resistance to any transformation of the regions characterized
by structural inertias (cf. among others: Paul, 1995; Bachler et al. 2000; Gorzelak
et al. 2001).
The  new  role played  by  the  state could  be seen  as Janus-faced,  strongly  inter-
vening in favour of capital but following a laissez-faire rhetoric when is referring
to its role as a “redistributors of benefits” to the society. This attitude results in a
substantial subordination of national and local interests to the international dimen-
sion,  and  degenerates  in  growing  phenomena  of  both  social  and  spatial  polariza-
tion.
In  conclusion,  nevertheless  many  of  the  conditions  that  negatively  influence
Poland’s  economic  development  potentialities  nowadays  could  be  imputed  to  the
heritage left by the socialist system, it is evident how today’s growing spatial and
social  disequilibria  are  also  direct  consequence  of  the  adopted  transition  model.
The increase of goods and services available notwithstanding, escalating job inse-
curity,  decreasing  in  real  wages  hitting  weak  social  categories,  growing  unem-
ployment, lowering of employment conditions are the real flavours of a transition
path that has as a main result the pauperization of the weak classes. Whereas inter-
national capital, new managerial elites and financial advisors are the winners of the
transition,  local  communities,  working  class  and  socially  weak  groups  have  been
definitely the losers, as their interests are more and more unheard in a governance
system strongly entwined in the broader international scenario.

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