In financial phrases, state socialism is often related to the monopoly of an authoritarian state over core components of the economic system corresponding to commerce, the distribution of assets, and the regulation of wages and costs. But, restricted types of authorized non-public enterprise – typically within the type of micro-craft and retail (household) companies –existed sporadically in some state socialist nations, together with Hungary and the GDR. Maybe essentially the most placing instance, nonetheless, is the Polish Folks’s Republic, the place a small non-public craft and retail sector past non-collectivized agriculture continued roughly all through the state’s whole existence. It was often severely restricted by the authorities, but it surely additionally confronted durations of liberalization, for instance throughout de-Stalinization and within the Eighties.
Regardless of the basic ideological aversion on the a part of the state socialist regimes in direction of non-public entrepreneurship, it turned an inner a part of the financial panorama, mitigating the a number of dysfunctionalities of deliberate economies. Every time the Polish Folks’s Republic, for instance, underwent a extreme financial disaster, with state-owned corporations unable to fulfil elementary client calls for, the regime ‘lowered tax and other administrative restrictions’ for the non-public sector, regardless of its ‘ideological hatred towards private property’.
With détente and the strengthening of financial relations between East and West underneath the banner of ‘peaceful coexistence’, some state socialist nations allowed restricted non-public international direct funding (FDI) into their home economies. Examples embody non-aligned Yugoslavia within the late Nineteen Sixties; Romania, Hungary and Poland within the Seventies; Bulgaria in 1980; and the Soviet Union in 1987. The commonest type of western FDI was by way of joint ventures between western enterprises and state-owned corporations based in these nations. The Polish Folks’s Republic, nonetheless, initially selected a special path of restricted market opening for FDI from the West.
Warsaw 1977. Picture: Erky-Nagy Tibor / supply: Fortepan
Diaspora entrepreneurs
With a view to enhance dwelling situations and client calls for, Poland’s commerce relations with the West turned more and more import-heavy in the course of the Seventies. The Folks’s Republic co-financed imports with beneficiant western loans, which because of the worldwide oil crises and rising inflation of the US-Greenback finally led to monumental money owed.
Searching for further entry to western international change, the authorities underneath Occasion secretary Edward Gierek issued explicit authorized directives that allowed the founding of international capital-based small and medium sized non-public enterprises (SMEs) from 1976. Since numerous types of financial cooperation between components of the Polish diaspora within the West (the so-called ‘Polonia’) and state socialist Poland had begun to develop considerably within the first half of the Seventies, Warsaw particularly inspired compatriots within the West to arrange non-public SMEs in Poland.
The western founders of such SMEs have been anticipated to supply the total seed capital in western foreign money and to call a proxy – an individual with everlasting residence in Poland – who would act because the agency’s supervisor on-site. After a optimistic analysis, the native authorities often granted the agency with concessions for ten years, each for particular providers and the manufacturing of sure client items. Because the majority of the western traders belonged to the Polish diaspora within the West, these non-public SMEs turned generally referred to as ‘Polonia firms’ (firmy polonijne). Warsaw hoped a restricted market opening for western (Polonia) FDI would carry an inflow of western foreign money and know-how into the economic system, as properly a rise within the manufacturing and provide of home client items that state-owned corporations have been unable to supply (a minimum of in ample portions). This could additionally scale back costly imports from the West in the long run, so the regime anticipated.
The primary Polonia companies have been based in 1977 and grew in quantity significantly throughout essentially the most essential interval of political and financial disaster in Poland between 1981 and 1983 (from 151 companies to 491 companies). This enhance could be defined by the dire provide scenario on the home market and Warsaw’s determined want for international change at the moment. The regime due to this fact established useful tax situations for Polonia companies and customarily offered larger authorized certainty for western founders of personal SMEs, culminating within the first legislation on Polonia companies in July 1982.
Nevertheless, the immense revenue margins of some Polonia companies and the ‘illegalities’ uncovered in lots of instances by the state management authorities, such because the Supreme Audit Workplace, led to an more and more unfavourable state press marketing campaign and a tightening of tax and funding laws between 1983 and 1985, after the Polish Folks’s Republic had overcome the worst disaster. This, in flip, brought on a marked hunch in newly based companies after 1983.
Common conflicts additionally arose between the authorities, state-owned corporations and Polonia companies, for instance over the poaching of senior managers from the state sector (jobs in Polonia companies have been significantly better paid) or the buying-out of uncooked supplies from state-owned corporations as an alternative of importing them from the West.
Regardless of the regime’s (mandatory) financial pragmatism, it additionally distrusted Polonia companies for political causes, and from 1976 onwards they have been positioned underneath fixed surveillance by the safety service.
However even when situations turned extra hostile after 1983, most of the present Polonia companies continued to develop when it comes to turnover and variety of workers.
The introduction of extra restrictive legal guidelines in direction of Polonia companies between 1983 and 1985 didn’t imply Warsaw’s basic rejection of additional financial liberalization. Quite the opposite: within the second half of the Eighties, main liberalizing reforms – such because the Joint Enterprise Act of 1986 – permitted considerably larger funding capital from the West within the state financial sector. The financial reforms of the late Eighties in truth heralded the Polish Folks’s Republic’s transformation in direction of a market economic system.
On the identical time, the seek for large-scale funding capital within the second half of the Eighties deprived the small and medium sized Polonia companies even additional. For instance, Joint ventures as outlined by the 1986 legislation have been supplied higher tax situations than the Polonia companies, inflicting frustration among the many latter.
In 1988, nonetheless, greater than 700 Polonia companies with over 70,000 workers operated within the Polish Folks’s Republic,with many of the seed capital coming from West Germany, Nice Britain, France, Austria and Sweden. Though many Polonia companies didn’t survive the system transformation, some house owners, proxies and managers turned extremely profitable entrepreneurs in post-socialist Poland. Entrepreneurial exercise in a Polonia agency typically served as a springboard for a profitable enterprise profession after 1989.
Quantitatively talking, the Polonia companies have been at greatest modestly useful to the Polish economic system and made up solely a marginal a part of the non-collectivized sector. Their exports to the West have been minimal as a result of Polonia companies needed to switch a big a part of their export earnings to the state, which made exporting extremely unprofitable for them. Polonia companies due to this fact produced and offered their items nearly completely for the home market.
In the end, the general inflows of western foreign money by way of Polonia companies and their willingness to reinvest their income have been far under the expectations of the social gathering management.
Warsaw’s success in mobilizing western Polonia, which regularly had a rejectionist angle in direction of the Polish Folks’s Republic, was additionally restricted – contemplating that, within the Seventies, the Polish authorities estimated the dimensions of the western diaspora at between 12 and 14 million individuals.
Promoting a western life-style
However, the general affect of Polonia companies on the economic system of late state socialist Poland shouldn’t be underestimated. Many turned vital producers and suppliers of on a regular basis client items and helped shut the massive gaps in provide attributable to the state socialist scarcity economic system.
The denim denims made by the Polonia agency High Mart, based in 1977 with seed capital from Canada, turned extraordinarily widespread within the Polish Folks’s Republic: lengthy queues shaped exterior the corporate’s salesroom in Kraków within the evening earlier than it opened. High Mart rapidly expanded to develop into a medium sized enterprise with 600 workers, producing 1,000,000 denims a yr in its manufacturing facility within the metropolis of Łódź. Dekor, based in 1977 with seed capital from Austria, produced a variety of products, from ornamental articles, labels and stickers, to constructing supplies. Haste, based with capital from Sweden, began out making picket furnishings and rapidly expanded, producing hygiene articles for infants or items made out of polyethylene for the home market.
Different Polonia companies targeted on digital and IT-goods: Marco Digital, for instance, assembled and offered widespread digital wristwatches in Poland. Impol II, arrange with seed capital from Nice Britain, turned a serious participant within the home IT sector and produced, amongst different issues, its personal private pc IMP-85, thought-about the ‘best product of its type in Poland’ within the mid-Eighties. But different Polonia companies targeted on the manufacturing of specialist items. Plastomed, for instance, based in 1981, equipped the medical sector with much-needed pipettes and numerous plastic dishes for laboratory exams. The corporate typically needed to import the parts it wanted from the West, for the reason that home market couldn’t provide them in any respect.
Along with filling materials gaps within the provide of client items, Polonia companies have been in a position to deal with the wishes of huge components of Polish inhabitants within the Eighties for a ‘western’ client ‘lifestyle’. Though on a regular basis items produced by Polonia companies have been in lots of instances of solely barely larger high quality and sometimes significantly dearer than their state-sector equivalents, they loved nice reputation. As non-public enterprises, Polonia companies contributed considerably to the rise of recent administration, advertising and promoting methods. They used western-sounding model names and logos, promoting their merchandise utilizing eye-catching western-style promoting and ‘aesthetic’ packaging, outperforming the often-inert state-owned corporations.
The Polonia agency Alpha, for instance, marketed its zips (produced in Kraków) with Frankenstein’s face with a zipper on his brow. Printed in a Polish enterprise journal, the advert was ‘shocking, but drew attention to the product’. Haste supplied useful ‘Scandinavian style’ furnishings, whereas the ‘tasty’ chocolate produced by Carpatia was widespread with clients due to the ‘aesthetic interior design’ and the ‘shop displays’ in Carpatia’s salesrooms. The well-known sport sneakers of the Polonia agency Sofix, based with seed capital from West Germany, gained nice reputation due to their ‘Adidas a-like’ design. The perfumes of Inter Fragrances, one of the profitable Polonia companies (arrange with seed capital from France), supplied customers the ‘smell of the West’ – or a minimum of what they imagined that to be.
Polonia companies have been due to this fact profitable not solely in bridging gaps within the scarcity economic system of the late Polish Folks’s Republic. As non-public enterprises that operated throughout the construction of a state socialist deliberate economic system, whose inherent weaknesses they skilfully exploited, they turned forerunners for market-oriented entrepreneurship in a state socialist nation and thus brokers of financial change years earlier than the Iron Curtain fell in 1989.
This text was written as a part of the analysis undertaking ‘A Breach in the System. The “Polonia Firms” 1976–1994’, funded by the Austrian Science Fund (FWF), undertaking quantity: I 4877.
