Small Businesses Drive Private Enterprise Boom

SHIRT sleeves rolled up, mobile phone in hand, and perspiring on this warm spring day, Tadeusz Gierak is out on the sidewalk, surveying his new gallery of shops in Poznan, an economically robust city in western Poland.

"Come on in!" he says with great enthusiasm, eager to show off his latest business venture to a foreign journalist.

Mr. Gierak has only one store front left to renovate, and that will soon be leased to a car dealership. His other commercial tenants have already moved in: a bookstore, a bathroom accessories shop, a store specializing in high-quality black-lacquered furniture, and a gift shop.

Gierak is exactly the kind of Pole who has helped build up private enterprise in this country with astonishing speed. Energetic, able to speak German (Germany is Poland's biggest trading partner), he saw gaps in the market and jumped to fill them.

His was the first sporting-goods store in Poznan, started with earnings from his years as a tennis professional in West Germany. He also supplies quality baked goods for half the city, and he's about to open a department store with the help of German investors. The beauty of it all, Gierak says proudly, is that "I never had to borrow." He reinvested his earnings and found a partner in Austria to go in on some of his projects.

Since economic reform began in 1989-90, Poland has experienced phenomenal growth in the private sector. Close to 60 percent of the labor force now works in private enterprise, churning out nearly half the country's gross domestic product. Though foreign companies have set up some significant joint ventures in Poland and invested $1.7 billion so far, the surge of private businesses is primarily a home-grown affair, involving mostly small- to medium-sized companies.

Private firms now conduct 90 percent of the retail business and more than 80 percent of foreign trade. An important weak spot, however, is industrial production, 70 percent of which is carried out by state-run companies.

Many Polish entrepreneurs got their start simply by driving to Berlin, buying goods there, driving back, and selling them to Poles hungry for Western products. "In that first stage, anyone who undertook anything was successful," says Stanislaw Deiksler, general director of W. Kruk, a leading private jeweler in Poland.

Polish private enterprise also flourished in an era of lax government regulation and weak customs control. "The law and the system are being enormously abused," Mr. Deiksler observes.

Many Polish small businesses operate on a mostly cash basis, to avoid a paper trail for tax collectors. Bogus papers are routinely presented at border controls, falsely identifying a van's contents or supplying non-existent addresses.

But the conditions for starting up new businesses now are less favorable. The government has stepped up enforcement, trying to close loopholes in the law or create regulations where none previously existed.

At the same time, "there are no more easy niches" left in the market, says Andrzej Wroblewski, editor of the banking journal Gazeta Bankowa. The lack of investment capital is one of the major challenges facing businesses today, Mr. Wroblewski adds. As the saying here goes, Poland is trying to introduce capitalism without any capital.

The problem lies in the country's lame banking system. It is burdened by heavy unpaid debts from state industries, and has discovered that lending to the federal government is more profitable than lending to industry. The end result is that banks' resources are being siphoned off to support the federal budget deficit - basically, the social safety net - rather than real economic growth.

Also moving along slowly is the privatization of state industry. About 1,500 state enterprises have been privatized so far, and the Sejm (parliament) just passed a mass privatization law on April 30.

In the wings almost two years, the plan calls for the privatization of 600 state-owned companies through foreign-managed investment funds. Shares of the funds will be made available to the general public for a nominal fee, while pensioners and civil servants will receive shares for free.

Even with the plan, more than 6,000 enterprises remain in state hands. Through a new vehicle called the Enterprise Pact, managers and employees of these firms will decide how their concerns are to be privatized. This will be a key year, and probably a tumultuous one as well, for the privatization of state industry.