Microeconomics Assignment: Poland's Economic Transition Analysis

This report examines Poland's economic history, focusing on its transition from a centrally planned economy to a free market system. It begins with a brief overview of Poland's economic history, highlighting the factors that led to the shift, including the economic crisis of the 1980s and the inefficiencies of central planning. The report then assesses the pros and cons of this transition, such as increased foreign direct investment, growth of the small and medium enterprise sector, and improved living standards, while also acknowledging challenges like job losses in state-owned enterprises and labor migration. Finally, the report concludes with recommendations for Poland to improve its market position and overcome current challenges, including labor market reforms, innovation system improvements, governance structure enhancements, and infrastructure investments. The report emphasizes the need for continuous improvement to sustain economic growth and development.

Running head: ECONOMICS 1
Microeconomics
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Brief discussion of the economic history Poland and factors that pushed Poland to change
its economic structure
The economy of Poland became centrally planned after the disastrous and catastrophic
world war two which saw the emergency of the USA and USSR as new world super powers
and the eventual transfer of a central planning system in the economy of Poland. Poland
was faced with a number of challenges leading to the late 1980's economic crisis. Is should
be realized that the period of the middle of the 1970's there were various economic
challenges facing Poland characterized by low levels of economic growth and development,
high wages compared to productivity, inefficient production due to high wages and
antiquated industrial infrastructure. The country was faced with an economic crisis caused
by hyper inflation and high levels of Government Defict which generally worsened the
standards of living (Myant and Drahokoupil, 2010).
The central planning system had no capacity to ensure effectiveness in the utilization of
resources though it registered some success in resource mobilization. Under central
planning, the optimum rate was often exceeded by accumulation due to the absence of
direct warning signals from the system though the economic and political system enabled
planners to select any rate or level of investment and accumulation. There was over
extended gestation period coupled with excessive broad front in investment (Afonso and
Kazemi, 2017).
Also, the constriction of consumption together with excessive regulation led to diminishing
returns on capital and hence low levels of economic growth and development. The overall
volume and accumulation of investment was increased by planners a strategy of increasing
growth. Consumer preference was not given much emphasis during allocation by the

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investment funds which were mobilized in a reckless and wasteful manner. In order to
increase the level of growth rate, planners under the system of a fully planned economy
directed capital to project. There was over and under investment in some areas or branches
because of such a system leading to high levels of resource wastage (Free, 2010).
There was huge transfers of workforce from rural areas and manipulation of participation
ratios mainly of women as a way of increasing the necessary labor increase outside the
sector of agriculture. Though there were considerable efforts to ensure that there an
effective equitable Distribution, labour and capital shortages became more prevalent in
Poland under the fully planned economy (World Bank, 2017). Throughout the period of
1970's, serious challenges were encountered by the economy of Poland due to the fully
planned economic system. The level of foreign debt became massive, inflation was at its
peak, there were consecutive low harvests and other forms unrests particularly with in the
industrial labourers (Fitzpatrick, 2007).
Therefore, the fully planned economy system could not enable the economy of Poland
attain services and mass consumption thus a call for a free market system in the year 1989.
There was heavy restriction put on the overall economies activities of the people of Poland
by the centralized system which affected their overall prosperity economically (Myant and
Drahokoupil, 2010). In summary the fully planned economic system failed to effectively offer
satisfaction to basic needs of the consumer, offer adequate organizational and individual
incentives, could not measure up to comparative economies and lastly the planned system
failed to improve the level of living standards of the average pole and at the same time
create economic value. It is imperative to realize that a number of aspects are involved
when the economy is shifting towards a market economy and they include among others;

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Training of human resources, stock market establishment, state enterprises privatization,
setting up other institutions to facilitate market functioning, foreign and domestic
transactions liberalization and setting up of public finance and a tax system basing on the
features of a market economy. Therefore Poland has to undertake such steps to improve its
overall economic performance (Mankiw, 2014).
An assessment of the pros and cons for the economy of making this transition
The country of Poland is regarded as one of Europe's success stories in the transition from a
fully planned economy to being a free enterprise economy. Poland, unlike other economies
in eastern and central Europe encountered a moderate slow in the in august 1998
aftermath of the Russian crisis, its overall currency has not be subjected to cases of
speculative attacks and lastly it was not challenged with a mid course depression. The
economy of Poland has a registered an improvement in the standards of living, fall in
inflation and rigorous expansion. It is clear that since the year 1989, Poland has undergone
through a process of transformation and economic change (McConnell, 2009).
Following the adoption of the free enterprise economy system, a number of foreign direct
investments were attracted into the economy of Poland leading to increased levels of
economic growth. For instance forty percent of the foreign direct investments to the Baltic
States, eastern and central Europe were attracted by Poland in the year 1998 (Diaz, 2012).
Currently Poland is being considered by foreign direct investments as base for export goods
and services to other markets in the west though foreign investors had focused initially on
the home market which is considered to be the biggest in the entire region. More the
adoption of a free market system has seen an emergency of a vibrant medium and small
enterprise sector due to small scale privatization and deregulation. The light manufacturing

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industry, retail and construction in the area of Poland at the moment employees over two
million entrepreneurs. In other words the market system has enabled Poland to improve its
overall level of employment creation and economic growth (Roth, 2012).
It is clear that the business friendly regulations, low taxes and trade ;liberalization popular in
the free market system have played a huge role in reforming the economy of Poland which
was in shambles during the period it was under centralized planning. The economy of
Poland has been able to undertake various non tariff barriers as directed by the European
Union such as quotas, subsidies and product and technical specific regulations which have
improved its economic growth (European Commission, 2014).
However, there challenges affected by Poland in its transition to a free market economy
which affected a number of sectors in the economy, it is important to note that the state
owned enterprises employed thousands of individuals. These individuals lost their
employment or source of survival following the transition to a free market economy. It is
clear that there were massive layoffs of employees at inefficient heavy industries in the
economy of Poland. Also up to date there has not been recovering the Gdansk ship yard.
The Gdansk is popularly known for having laid a foundation for the rise of a united and at
the same solid labour movement in the polish economy (Ellman, 2014).
More over a number of cities and towns specifically in the east of Poland experienced
massive flow of their citizens to other areas in Europe in such of a better living; the towns
couldn’t attract investments and became back waters. Therefore because of massive flow of
polish labour force in the transition period, there is lack of enough labour force in Poland
which has resulted into the bringing of labour immigrants from Ukraine amounting to more

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than a million (Ho, 2012). Hence the transition period was had some consequences on the
overall welfare of the polish citizens thus affecting the economy negatively
Conclusion (Recommendations of how Poland can improve its market position and
overcome its current challenges)
Though Poland has experienced a transition to a free market economy, there still a number
of aspects that needs to be improved or given prudent and effective attention for purposes
of improving economic performance and consolidating the current achievements and they
include among others;
Poland has to reforms its labour force, there is need to increase the overall labour force
productivity of Poland through labour market reforms. The total employment of the working
age persons stands at a level of sixty percent. As per the OECD average this is very low
(Afonso and Kazemi, 2017). The important demographic challenges can be overcome
through boosting employment. To improve efficiency in its labour force, Poland needs to put
strategies and tactics that will reduce the level of dualism in the labour market for purposes
of building up human capital in the economy. It is imperative to note that over 1/4 of the
employees in Poland posses contracts that are on a temporary basis making it in the OECD
as the second highest share (Afonso and Kazemi, 2017). This even exceeds fifty percent
when it comes to the youth. Thus through improving legal dismissal procedures, making all
contracts subject to similar social contribution and taxation regime, dualism can be reduced
in the economy. The unemployed population in Poland also needs to be activated. It is
imperative to note that the overall UN employment rate in Poland is estimated at ten
percent and for the youth is predicted at twenty five percent. The polish Government

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should expand its public employment services to address such challenges. Job search
requirements and work availability should also be tightened.
The elderly and women talents should also be better utilized in the economy as statistics
show that the total of women employment stands at only fifty three percent and thirty nine
percent for the elderly education, labour, taxations, cover decentralization, pensions, health
care and privatization (Pravda, 2010).
Additionally, there is need to reform the system of innovation. Poland should increase its
overall investment levels in the area of knowledge bass capital if it is to be successful in its
overall innovation strategies. The above type of investment can be best facilitated by
research and development together with prudent tax incentives.
Also, embracing green technologies can be a vital aspect which enhances the level of
Growth in Poland. It should be realized the main source of energy that Poland relies on is
coal. Thus there need to design technologies to stop and cap emissions to increase its
overall sustainability in spite of climate change. Solar, wind and other forms of renewable
energy need to be given high levels of priority as investments areas by the companies in
Poland. Thus to encourage knowledge diffusion and knowledge markets a high quality
intellectual property regime is deemed as very necessary. Also improvements need to be
undertaken in the product markets in order to improve on competition for product market
as a strategy of enhancing the level of competitiveness (Myant and Drahokoupil, 2010).
Further, the economy of Poland needs to put much emphasis on improving its current
governance structures for purposes of building public trust. Better governance will ensure
that there is effective involvement of the citizenry in the governance of the country,

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promote efficiency and transparency and at the same time ensure that services are more
client oriented (Ho, 2012). The unavoidable decline of European investment structural funds
and the ageing population pressures can be best addressed through developing a prudent
fiscal for purposes of sustaining a sound economy. Also, to promote continuous enjoyment
of trade benefits there is need to ramp up infrastructure. More investments need to be
undertaken in heath care and education for all to promote inclusive growth. Investment in
human capital plays a critical role in sustaining economic growth and development both in
the short and long run period (World Bank, 2017). Hence more efforts are needed to skill
and re-skill the workforce in order to improve their general competitiveness both
domestically and internationally (World Bank, 2017). Lastly, much focus need to be put on
ensuring that there is an effective business environment or macroeconomic stability capable
of attracting more foreign direct investments into the economy. This can be best achieved
through stabilising the levels of inflation and other macroeconomic indicators vital for
growth and development.
Therefore if the above recommendations are given prudent and keen attention, there is no
doubt that there will improvements in the level of economic growth and at the same time
ensure that there is sustainability that have been attained by Poland since its transition to a
free market economy.

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