My role in Poland's shocking success

Shock to Therapy
June 22, 2001

In the first decade of Poland's post-communist transformation, economic policy was dominated by two characters - Leszek Balcerowicz and Grzegorz Kolodko, who between them endured more than six hard years leading the finance ministry. Balcerowicz was first to get his hands on the levers of economic power, such as they were, at the end of 1989. With an unfaltering commitment to the market, he is best known for the shock therapy that the workers' government, somewhat unexpectedly, embraced in 1990. When, four years later, voters turned their backs on Solidarity, allowing a "post-communist" return to power, it was Kolodko's turn to engineer the badly needed return to, as he unabashedly puts it, "wise policies".

From Shock to Therapy is an important contribution to the literature on the economics and politics of post-communist transformation. It is attractive for being a "hands-on" practitioner's account and - although the Polish case figures strongly - for touching on transformations as far afield as China, Russia, Nigeria and India.

As might be expected of a senior policy-maker, the book is well informed, with much useful transformation data. On the downside, however, Kolodko is repetitive in drumming home his central message that countries "have a choice" (between "wise" and "not-so-wise" economic policy). It translates at times as "thank goodness for Kolodko", who appeared just in time to rescue the country from the excesses of his predecessor's unbridled passion for the market.

Kolodko's book is structured as a travelogue with five main ports of call. Departure starts in 1989, when the author notes the swiftness with which Solidarity's economic ideas were reshaped under very strong outside pressure first from an interest in "socialist market economy" then to "social market economy" and finally to "capitalist restoration".

After some detours, coinciding more or less with the "pre-Kolodko" period (1990-94), the book reaches the time of perhaps greatest policy error and misjudgement. This was also the period when the harmful and wrong-headed commitment to the so-called Washington consensus, with its over-zealous faith in markets and its neglect of institutions, reached its high point.

The journey (roughly 1994-97), continues when Kolodko was in charge in Poland. Despite having to "manage a crisis" (inherited), the new finance minister achieved, as he tells us, "remarkable" growth in the gross domestic product. Kolodko also reflects on other key features of transformation: financial reform, privatisation and the relatively neglected matter of equity in transition policy.

In part four (post-1997), Solidarity is in government again, and Balcerowicz is in the finance ministry but facing the more comfortable task, the author says, of managing success, the benign legacy of Kolodko's stewardship of economic policy. The final part, on the future, allows the author to summarise the lessons of transformation and distil them into 12 major policy conclusions, the basis for wise policy.

The most important themes to emerge are the following: institutions are important in building market economies but take time to nurture; shock therapy is dangerous, especially if used for too long or applied too ferociously; a "post-Washington consensus" is desperately needed to shift attention from stabilisation to policies for sustained growth and development. And above all, Kolodko urges, do not blindly trust the "free" market. "Market forces", he concludes, "must serve society, not the other way round."

George Blazyca is director, centre for contemporary European studies, University of Paisley.

Shock to Therapy: The Political Economy of Postsocialist Transformation

Author - Grzegorz W. Kolodko
ISBN - 0 19 8297432
Publisher - Oxford University Press
Price - £48.00
Pages - 457

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