Business Help for Poland
Poland needs US advice and investment for its shift to a market economy. Here's what Warsaw must do to lay the groundwork
LECH WALESA recently made his second visit to Washington to meet with President Bush and United States business leaders. He expressed his continued concern about the widespread lack of US business investment in his homeland. Poland indeed desperately needs US technical advice and investment if it is to complete its transition to the free market. And Poland's success or failure may determine the extent of reforms in other nations, most notably Bulgaria, Romania, and perhaps even the Soviet Union.
Unfortunately, while Poland has made tremendous progress in dismantling the communist economy, many essential building blocks of a free market have yet to be set in place. These delays have forestalled much-needed US investment in Poland.
Here's what Mr. Walesa must do if he is to entice US investment to Warsaw.
Poland must be more active in marketing itself to the American business community. This should be the No. 1 priority of the Polish embassy in Washington. Without critical economic information, US companies can hardly be expected to risk millions investing in Poland. There is widespread confusion and misinformation in the business community about what steps Poland has or has not taken on the road toward capitalism. A coordinated public-relations program by the Polish embassy could easily solve this pro blem.
Poland's Sejm (Parliament) must move rapidly to implement the government's excellent investment law and ratify the US-Poland Business and Economic Treaty, which was signed by Mr. Bush last year.
Although Poland passed a privatization law for 7,600 large enterprises last July, final regulations were not set in place until December, and so far only a minuscule percentage of state-owned assets has been put on the auction block. In addition, some analysts argue that the re-privatization of shops and farms confiscated by the communist government in the '40s and '50s would have even more of an impact, creating a middle class almost immediately.
The revamping of real estate laws has also languished in the Sejm. American businesses have complained that it is nearly impossible to lease or buy most real estate. Much of the available real estate is controlled by local governments which have been charging outrageous rates for rent of shops and market space. The government should not be the country's biggest landlord.
American businesses have also cited the excessive delays in obtaining approval of foreign investment. Some blame this on the relatively large numbers of communist bureaucrats still employed in many state agencies. A US Overseas Private Investment Corporation (OPIC) official calls this "one of the most serious problems" facing American companies. Recent legislation may ease the problem, although the OPIC source points out, "A law is only as good as its implementation."
At the present pace, a credible banking system, a prime ingredient of a free market, is years away. Most of Poland's banking laws are hopelessly outdated and needlessly restrictive. So far, only a few foreign banks have taken the plunge into the uncertain Polish banking market, and foreign capital for new Polish enterprises is almost nonexistent. Although ahead of Czechoslovakia in this area, Poland still lags behind Hungary, according to investment experts.
Taxes are still too high. Income taxes remain at 40 percent, leaving Poles little money to reinvest in their businesses. The Sejm has made progress on a new tax system (which may or may not include a tax holiday of three to six years for foreign investors), but more must be done to send the right signals to the business community. In addition, many businessmen are horrified by the prospect of drastic increases in local and city taxes. Poland should not underestimate the importance of small businesses to its emerging market. Nearly all of the net new jobs created in the US during the 1980s were the result of small "mom and pop" businesses, and high taxes could devastate these entrepreneurs.
Poland still lacks a viable telecommunications system necessary for businesses to engage in effective marketing of their products and services. Last year, the government asked for bids on a nationwide cellular phone system. Several US companies spent time and money studying the situation and submitting proposals to the government. After months of delay, the Poles decided to scrap the competition, rewrite the requirements and start over. Walesa and his government should heed the words of one State Depa rtment official who noted that, "Whatever it is they're going to do, do it quickly and do it fairly."
In spite of all the work that lies ahead, we should not overlook the remarkable steps that Poland has taken during the past year. Poland needs and deserves our help. Last month's decision by Bush to forgive up to 70 percent of the US share of Poland's external debt is one important way we can help Walesa and his people. American businesses stand ready to assist and Congress is working with the administration to provide adequate incentives for US companies to take the plunge. By helping Poland we are adv ancing the cause of democracy and the free market worldwide.
Slawek Gorecki, a Polish activist, told us: "Poland sent several of its generals to help the struggling American colonies during your Revolutionary War. Now Poland needs the US to send some of their generals - General Dynamics, General Motors, General Electric - to help with Poland's revolution."
With help from our friends in Poland, we hope to do just that.