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Reaching For Riches

World Bank

new internationalist
issue 214 - December 1990

Reaching for riches
Lured by the seeming bounty of the West, Poland has leapt with
almost a single bound to embrace the capitalist policies advocated
by World Bank economists. But what will be the end-product
of this shock treatment? Daniel Singer reports.

Ten years ago, in the glorious summer of 1980, workers in Gdansk gave Eastern Europe an example by winning the right to set up an autonomous, independent union - Solidarity. Now the Poles are pioneering again, setting the pace for the countries of the former Soviet bloc on the road towards capitalism. And they are doing this with the blessing not only of the Pope but of the World Bank and the International Monetary Fund (IMF), the joint keepers of capitalist financial orthodoxy.

It would not be quite accurate to claim that these international doctors have imposed their bitter medicine on reluctant Poles. The Government, headed by Tadeusz Mazowiecki, the wistful-looking former adviser to Solidarity, was chosen with the full backing of the population. And its deflationary package bears the name of Leszek Balcerowicz, the monetarist Minister of Finance.

But beggars apparently can't be choosers - Poland after all owes nearly $43 billion to Western creditors. Once it openly opted for capitalism and pinned sanguine hopes on foreign investment, the backing of the Bank and the IMF became crucial. Not so much because of the funds they offered directly but because their blessing was required to keep creditors quiet and to convince investors that Poland is safe for capital.

The arguments of international finance helped the monetarist advocates of a 'shock therapy' win the day. Now, as Poles debate the fate of state-owned enterprises, the same people, the partisans of privatization, argue that the old dreams of Solidarity about workers' self-management are anathema to world bankers. This is the sense in which, if the plan is Balcerowicz's, the Bank and the IMF can be considered as co-authors.

But maybe it's all to the good for the Poles? Backers of the plan used to boast that bananas in Warsaw markets (once an exotic and unobtainable fruit) symbolized the arrival of plenty. Yes, you can buy bananas. You can also purchase champagne, a BMW or even an elegant apartment in the heart of Warsaw, provided you have the money. Under the previous regime, the shelves were empty and the lines long as people waited to pay for fast-vanishing goods. Today the shelves are full and the lines short because most Poles can't afford to buy anything. The Poles are learning the Western method of rationing, the rationing of the purse.

'The countries of Eastern Europe will continue to need strong financial and technical
support in their efforts to develop competitive, marketorientated economies.'


By World Bank criteria, one may make a case for the Polish experiment. The shops are full. Inflation has slowed down. Imports were drastically cut and in the first half of this year Poland had a surplus of over two billion dollars in its trade with the West. The mighty dollar, which used to walk all over the Polish currency, has been kept stable at just under 15,000 zlotys. A record to boost the ego of the advisers, the international financial wizards.

But the other side of the balance sheet tells a different story. This performance was achieved thanks to a slump, a dramatic cut in living standards and a spectacular rise in unemployment. By keeping wages in check and allowing prices to soar, the authorities reduced real wages by 38 per cent in the first six months of 1990. Industrial output then fell by about 30 per cent. Unemployment went from nearly nothing to 700,000 by the end of July (it is expected to double by early 1991 to nearly ten per cent of the labour force.)

This is Poland's real monetarist 'miracle'. It says something about the Poles' dislike of their previous 'socialist' regime and their gratitude to Solidarity that the Mazowiecki Government could preserve a degree of popularity after more than year of such a performance.

But how long their gratitude will last is anyone's guess. No wonder Warsaw wits have revived the old story about the man who was teaching his horse to fast. Asked several weeks after about the success of the experiment, he bitterly complained: it was proceeding quite nicely, the horse was getting used to eating nothing when the stupid animal just went and died.

The Poles are not literally threatened with starvation, though in a country where 60 per cent of the income is spent on food (and 80 per cent in the case of pensioners), the new increases in the cost of rent or fuel prices may do real damage to the health of the nation. But more generally, if the current policy is pursued much longer the country will be threatened not only with economic disaster but also with possible political bankruptcy.

After Solidarity's electoral triumph more than a year ago, Lech Walesa proposed Tadeusz Mazowiecki, his adviser, as Prime Minister. That he now apparently winces whenever an opinion pol1 puts Mazowiecki's popularity rating higher than his own is anecdotal. More serious is the dilemma the former hero of Gdansk now faces. He rose to fame as a labour leader and is still, in principle, the head of a trade union. But he is also sponsoring a regime whose policy is hurting the basic interests of his supporters.

In a moment of candour Walesa admitted that if Solidarity were still only a union it would paralyse the country by strikes. However, as a potential 'national saviour' it has softened its line. And there may be a heavy price to pay for this contradiction. Poles still vote for Solidarity as a movement, but workers no longer trust it as a labour union. Membership has skidded from ten million members in 1981 to fewer than two million today. Its leader was thus driven to criticize the Government. Unable to attack it on essentials, he blamed it for not acting fast enough. But what was it supposed to speed up: the cut in real wages or the rise in unemployment?

When you can't wage genuine campaigns, you invent phony ones and the attack on the 'lay Left' is a good illustration. It takes a great deal of fantasy to describe as leftist a government reviving primitive capitalism, big social differences and high unemployment. It is true that within the intelligentsia, the jingoists and racists tend to rally around Walesa and the more liberal ones around Mazowiecki. But can you describe as 'lay' a government that has just reintroduced religious instruction in schools and is getting ready to criminalize abortion and render divorce more difficult? Would the Catholic Church ask for much more if Cardinal Glemp were the prime minister?

More worrying still are the echoes of anti-semitism. In the current phony battle between the Walesa and Mazowiecki camps allusions are made to the 'origin' of some of the protagonists amid open claims that 'true Poles' are Catholic. This is a symptom of something deeper, a sign warning how far irrational forces can go if rational progressive solutions are missing. It is also a far cry from the glorious days when Solidarity, with its mighty labour movement and' dreams of self-management, seemed to be looking for an alternative to both Stalinist repression and capitalist exploitation.

On paper democracy is flowering in Poland. By the time you read this the Poles will have elected either Walesa or Mazowiecki as President through universal suffrage. By the spring, having altered the electoral system itself, they are supposed to choose a new parliament. But beyond the political personalities lies a more worrying question: will the economic crisis lead to an explosion and what will be its outcome?

The Polish workers rediscovered their strength in bloody battles and they will not forget it. They got rid of neo-Stalinist rulers imposed by Moscow. Sooner or later, they will dispose of their new masters and the Western bankers who inspire them. For this they may need to discover the pitfalls of capitalism and they are clearly getting a crash course.

But in the mean time anything can happen. Socialism is discredited. Discontent is rising. A populist backlash may lead, with or without explosion, to a dictatorship. If Poland, after a brief democratic interlude, returns to an authoritarian regime, the blame will have to be put not only on the present Polish pipers, but also on the world bankers who, without paying much, are calling the tune. Yet in one respect the pioneering Poles are again serving as an example. In showing the consequences of a headlong rush towards capitalism they are writing, for Eastern Europe and beyond, a highly eloquent 'What is Not To Be Done'.

Daniel Singer is European correspondent for the US newsweekly The Nation.

What the World Bank thinks may be as important
as what it does. Christopher Neal finds that Canada's
aid policies slavishly follow the Bank's guidelines.

[image, unknown] Marcel Masse, head of Canada's foreign aid agency, CIDA, relaxed at the committee witness table. The former International Monetary Fund (IMF) technocrat had just delivered a vigorous defence of structural adjustment policies in the Third World and was preparing himself for questions.

'It seems we have two alternatives,' said opposition critic Bill Blaikie. 'Structural adjustment, in which, as we know, children die; and no structural adjustment, in which, according to Mr Masse, more children die. For God's sake, is there not some way we can have a program where children do not bloody well die to satisfy the economic assumptions and doctrines of the international marketplace?'

A hush fell over the Canadian parliamentary committee. 'I can only agree,' Masse whispered. 'I have children too. However I am a pragmatic man who has to deal with the policies I have.

Structural adjustment has been a pillar of Canada's aid policy since the mid-1980s, when it 'trickled down' from the World Bank. Masse's appointment as CIDA President confirmed it as the economic medicine of choice both domestically and abroad.

At CIDA the push has been to get aid recipients to bring their economies into harmony with global market forces. Masse dominates CIDA Minister Monique Landry with his knowledge of development and shrewd understanding of Canada's government bureaucracy - where he once held the top job as Clerk of the Privy Council. He also knows CIDA intimately, having been its president a decade ago. Since his return as Canadian Executive Director of the IMF, Masse has been tireless in preaching the structural adjustment gospel.

It is a switch for Canadian aid philosophy and for Masse. In the 1970s the government emphasized social justice, participation and 'basic needs'. Now CIDA, according to an internal agency document, accepts the World Bank-IMF 'definitions and leadership on structural adjustment as the only sensible way to proceed.'

'There's a broad consensus that the issue is not whether structural adjustment is good or bad,' said one Canadian official, 'Everyone agrees it is good. The question is how to make it better.'

Critics argue that government promises to 'put poor people first' are sabotaged by the commitment to adiustment. Tim Brodhead, director of the Canadian Council for International Cooperation and a keen World Bank observer, sees CIDA's infatuation with structural adjustment as part of a trend affecting most Western aid agencies. 'The World Bank has a newfound intellectual dominance of development thinking', he says. It now sets the agenda on international cooperation for the other UN agencies.

The US and UK lead the charge at the Bank in favor of market forces. Morris Miller, Canada's Executive Director at the Bank during the early 1980s, says US muscle is flexed not by exercising its vote but by its tactic of holding up general capital increases.

'Everyone has to pretend that they favor free markets and monetarism,' Miller says. 'There's always pressure to placate the Americans. I don't think the Canadian Government gave a damn when they supported structural adjustment. They just wanted to support the US, who only wanted to help the banks get their debts serviced.'

This sycophantic approach faces a challenge from the parliamentary committee Masse tried so hard to win over to World Bank-IM F analyses and prescriptions earlier this year. The all-party sub-committee on international debt recommended that 'Canada use its position to advocate major changes in the way that the international financial institutions respond to the debt crisis of developing countries'. Structural adjustment, the report concludes 'has been tried and found wanting'.

Christopher Neal is an Ottawa-based writer specializing in aid and development policy.

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