Poles Try the Free Market, and It Fits

CONSIDER the Polish potato chip.

Available in barbecue, bacon, or plain salted flavor, and packaged in a shiny red and yellow cellophane bag, it could easily be mistaken for a Western import.

The same could be said about the Polish television set, which contestants can win on Poland's own version of "Wheel of Fortune," the American game show. Sleek, compact, and equipped with remote control and stereo sound, it could be a Sony. But - surprise! - it's produced by Elemis, a state-owned company in Warsaw on its way to privatization.

Polish entrepreneurs - and even state-run businesses - have shown an uncanny ability to adjust quickly to free-market conditions and give consumers products they want. It's this flexibility, and the government's adherence to economic reforms, that make Poland the first country in Eastern Europe to emerge from severe post-communist recession.

Largely without the help of foreign investors, the Poles last year boosted industrial production by 4 percent (it plummeted 24 percent in 1990). Inflation is on a downward trend. Still high at a targeted 32 percent for this year, it is a lot better than three years ago, when it galloped along at nearly 600 percent.

The private sector, meanwhile, has advanced beyond the stage of sidewalk kiosks and hot dog stands, although there are still plenty of those. More than half of working Poles now have jobs in the private sector, a strong incentive for them to make sure capitalism succeeds.

As far as private enterprise goes, "this country is more advanced than any in the region," says Henryk Szlajfer of the Polish Institute of International Affairs.

But like everyday life in Poland, in which BMWs speed past fields still plowed by horses, the economic and political scene is a dichotomy of positive and negative trends.

Reformers trying to move the country forward are often undermined by those who yearn for the way things were.

As one longtime observer of the country remarks, "Poland is striding boldly forward on a banana peel."

Economic growth, for instance, is highly uneven. Blossoming cities like Warsaw, Poznan, and Krakow are blessed with unemployment rates of 5 percent to 9 percent, while agricultural regions and one-industry towns suffer jobless rates of 20 percent and higher. A severe housing shortage prevents movement of labor from depressed areas to prosperous ones.

The story of contrasts repeats itself in the political arena. For the first time since the demise of communism four years ago, Poland has enjoyed a small degree of political stability, personified in Prime Minister Hanna Suchocka (pronounced Su-HOTS-ka).

Appointed last July, she enjoys the confidence of more than 75 percent of the population, according to opinion polls.

But her job is not easy. She's juggling a minority, multiparty coalition government and is up against a fractious Sejm (parliament) consisting of more than 20 parties. Still, Prime Minister Suchocka has been able to withstand two severe labor strikes, and by relying on compromise, has pushed through the Sejm a much-needed "small constitution" that defines the balance of power in government, an austerity budget, and a long-awaited mass privatization plan.

In a Monitor interview this month, Suchocka said that Poland has turned the corner, but described the overall situation as "very delicate." Populist pressure is being exerted on the government, she warned, and "one false move may make us roll back."

That "false move" may be the Solidarity trade union's push for a vote of no confidence in the government, set to be debated in the Sejm May 27. The union is demanding higher wages for teachers and health workers, but the government says there is simply no money in the budget for such increases.

Anything could happen in the Sejm. The prime minister could fall, be asked to lead a caretaker government until early elections

are called, or survive the test. Although observers rule out a return to communist days, they warn that a new government could turn protectionist or pursue an inflationary monetary policy to meet higher wage demands. Attacking budget cuts

The federal budget - set under an agreement with the International Monetary Fund - has been a favorite target for legislators. In April,the Sejm protected an increase in benefits for pensioners, undermining the budget. The farmer parties, meanwhile, are clamoring for minimum prices for agriculture goods. One recently quit the ruling coalition over the issue.

In Poland, however, "one has to make a distinction between daily events and the fundamentals," comments Ian Hume, director of the World Bank in Warsaw. Day-to-day politics is a very rough-and-tumble affair, but "the fundamentals are strong in Poland," Mr. Hume says with conviction. "The reforms are working."

Hume praises the Poles for "broadly maintaining" the painful macroeconomic reforms launched by then Finance Minister Leszek Balcerowicz in January 1990. These policies called for fiscal, monetary, and wage discipline, a task made slightly easier by the decision of the Paris Club of creditor nations to write off 50 percent of Poland's $32 billion debt.

The country is meanwhile introducing Western taxation methods, including a personal income tax and a value-added tax. Free trade, pricing, and market forces also have solid footing in Poland, with about 80 percent of the economy running on market prices.

Although Warsaw dragged its feet in setting up a plan for mass privatization of state industry, other methods have enabled 1,500 state enterprises to be privatized since 1989. Including new business start-ups, the private sector accounts for nearly half of the country's gross domestic product, which grew by an estimated 0.5 percent to 2 percent last year.

A staggering number of state concerns, more than 6,000, remain to be privatized. But because much of the state sector appears to be restructuring, improving products, and redirecting exports westward, economists are not as discouraged about this as they could be.

Meanwhile, Poland has been able to reorient its trade so 80 percent now flows to Western Europe.

But all of this restructuring and reorientation has caused massive upheaval in Polish society. In March, 2.6 million Poles were unemployed (14.2 percent) and the forecast is for 3 million by year's end. According to an April poll by the CBOS Public Opinion Research Center, about one-third of Poles consider themselves near or below the poverty line.

The gap between rich and poor is still growing in Poland and wages are not keeping up with inflation. "It's very tough on people in the working ranks," Hume admits. Most observers expect more protests and strikes this year, although they do not believe it will come to violent unrest. `Little patience'

The prime minister sees hardship experienced by many Poles as the most likely threat to economic reform.

"People don't have enough patience and they still have this old way of thinking from the communist era, namely, that the state provides for social security and provides the right to employment," she says. "Certain parties are inspired by this old way of thinking and they want to play this card" by calling for early elections - which Suchocka says would be a diversion from economic reforms.

The Suchocka government has tried to address popular frustrations by concentrating the state's limited funds on especially depressed areas, setting up tax havens there, and allowing unemployment benefits to run longer in those regions. Medical care is still government-funded, although patients must partially pay for medicine. Meanwhile, the mass privatization plan is intended to share some of the assets left over from communist rule with the population.

Andrzej Wroblewski, editor of the banking journal Gazeta Bankowa, worries the government may go too far in trying to satisfy Poland's newly poor. The government, he warns, cannot afford to be a "good uncle" to everyone. "However cruel it may be, you must reward those who are pulling our economy ahead more than those who are pulling out."