Jan Winiecki, 18. 5. 1987, ?

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Date 18. 5. 1987
Length 29:09

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Why was central planning adopted by communist regimes like the Polish one after 1945?

Well, first of all. Central planning was adopted in Eastern Europe, meaning smaller countries in Eastern Europe, for a very simple fact that those countries became dominated by Soviet Union and they had to toe the Soviet line and that meant that they had to imitate the system they established there, meaning central planning.

It wasn't adopted for idealistic reasons then.

Well, there may have been some communists, tiny minority, as communists were, and maybe a minority of that minority, who believed in a pre-Phoenician economy without money. That is one of ways to describe central planning. But, that was, I think, secondary to the main reason why central planning was established here and elsewhere.

Have these centrally planned economies been successful?

No, I think they have been a failure throughout. Only at different times centrally planned economies were showing either somewhat better, or somewhat worse results, but generally, they were much less successful than Western market type economies.

What is the basic reason for that?

There are at least three basic reasons of failure of centrally planned economies. First of all, it is that the usual test of the market has been superseded by commands. And if you command enterprise to produce something, it means that enterprise managers’ and workers' rewards depend not really on what they do, but depend on what they report. And that means that they don't need, in extreme case, to produce anything at all, they could just put up good reports. In reality, that means that they can produce any [unintelligible] the good they can think of, and probably less than they report. This is what took the name of imaginative reporting here in this part of the world.

So the reports are not accurate.

Definitely reports are overstated. There are many studies that show that economic growth rates in Eastern Europe have been grossly overstated. In some countries more, like in East Germany or Romania, in some countries less, like in Czechoslovakia, and least in Hungary, they have the most accurate statistics and have them throughout, even from the very beginning, but nonetheless they were all overstated.

But hasn't East Germany been successful as a centrally planned economy?

I think that East Germany hasn't been more successful than any other East European country. Actually, I think that East Germany and Czechoslovakia were the greatest failures. You have to remember that those were very highly advanced industrial economies before the Second World War. And after the war, they were losing the distance, decade by decade, to the industrial West. To compare the two Germanys, so to say, Federal Republic and East Germany, the... Before the war, the economic level of the present East Germany was something like 98% in 1936, if I remember well. Then, in the late 40s it was already 83% or something, according to another study. In 1967, there was a study done in West Berlin. It showed that that level is 78% and there are now various studies that show it is about 50%. So it is, in terms of competition of countries, or territories, with the same population, ethnic population, with the same level of industrial development, they are a clear and unequivocal failure. They might be better off than Poland, or Bulgaria, or Soviet Union, but that is not due to the fact that they are better centrally planned economy. They are due to the fact that they used to be a better, more industrialized market economy until ’45 and this is their sole advantage.

Can I just ask you to repeat part of that question and just say that East Germany compared to West Germany had... East Germany was 98% at the level of West Germany, then it fell to what the figures were, just to make the contrast very simple. If you could just say that [unintelligible] bit again.

Yeah, comparing East Germany with the Federal Republic, you could see that before the war the levels of economic development was about the same. It was 98% of the present West German territories level. On the other hand, it was much less in ’48, it was still less in 1967, some 70 something percent, and it is now about 50%, according to various studies. So, they are clearly falling behind.

How reliable are the economic statistics in Communist Europe generally?

Well, Hungarian writer once wrote that economic statistics are like a bikini swimsuit. They can reveal a lot, but on the other hand, they have to cover the gist of the matter, because otherwise the scandal would be too great. And this was written by a Hungarian writer and Hungary has the best statistics in Eastern Europe, so the other should be seen in a relation to that, which means that they are much worse. Hungarian statistics are actually not much worse than average Western statistics. But East German statistics, Romanian statistics, are very bad. Polish, Russian are also bad. Czech are somewhat better, but none of them are reliable enough to use them straight for East West comparison.

Could you give an example of a study done to show how unreliable these statistics are?

One of the examples of the unreliability of those statistics could be taken from the United Nations study of the level of income and growth rates of income in both West and East. And it showed, for example, then average overstatement of economic growth rate throughout the 50s, 60s and early 70s was something like 2 percentage points. So like, when for example economic growth rate was reported to be 5%, so it was, in reality, according to that study, which still overstated the case in my view, some 3%. And the East Germany was at the top of the overstatements. In some periods, for example, overstatements were as far, as high as eight percentage point. It was in the early 50s, during the so-called economic miracle in West Germany. And then, East Germans, they had to show that they have even better miracle, because this is a communist miracle, so they added so much to the official growth rate that the overestimate was something like 8 and a half percentage point per annum during the 1950-1955 period according to that study. Well, there are other studies who show... that show in similar light the East German and other statistics. The statistics for 1975-1982 periods in American study, they show, for example, that it was something like 50% of the growth rate was overstated. And in Bulgaria, for example, for the same period it was 75% overstated.

Throughout Eastern Europe we have, we hear about reforms, economic reforms after the martial law period in Poland. The economic reforms were discussed and are supposedly being introduced. What are these reforms?

Economic reforms are seen in Eastern Europe nowadays as a way out of economic decline that is visible everywhere, from relatively more successful to relatively less successful East European economies. It was also introduced in a very little, to a very limited extent in Poland in 1982, but unfortunately, it was much less than was discussed in 1981 during the relative freedom, during the Solidarity period. But even those reforms discussed in 1981 were not sufficient to give economy a momentum to move toward a really efficient market type economy.

So what sort of reforms were they?

Mostly, I would say, cosmetic. Abolishing commands for example, in most cases, not in all even, but on the other hand, keeping rationing intact, so that they could always not command, but suggest enterprise to produce what the bureaucrats wanted. Because otherwise, it was obvious that they wouldn't get the materials that are, as usual under central planning, in short supply.

What are the Polish economic reforms and what's wrong with them?

Polish economic reforms are simply very timid. They don't go far enough in the market direction. Some of the features of central planning have been abolished, like commands in most cases, not in all even, but on the other hand, rationing has been retained. And this is the way to force enterprises to work according to plan as before, as in the past, because under the conditions of general shortages of materials, labour, and so on, if they don't get materials, that means that they won't be able to pursue the most profitable option. So, retaining rationing and abolishing commands is quasi reform, not a reform as such. And secondly, there is a very important point of the autonomy of enterprises. This is probably one of the reasons why central planning cannot work at all under such conditions. Actually, under any conditions, because once you nationalize enterprises, there is nobody who is interested in pursuing the profit. Actually, everybody is interested in obeying commands or, as in the case of so-called reformed East European economies, obeying suggestions. And under the conditions when managers are appointed through one or another procedure by the superior bodies, the ministries, or whatnot, it means that they are following suggestions, rather than profitable options. And, of course, if they don't follow those suggestions, they lose their jobs. This is one thing. And another is that if they follow suggestions, that means they are not going after profitable options and as a result, they usually incur various losses, and then come back cap in hand to those, who give recommendations and suggestions and ask for various subsidies. So, the problem is unsolvable without enterprises that are completely autonomous and depend only on the owners. In this case, when it were... Owners disappeared long ago or they were none, because they were… The enterprises were created already after the communist rule, it means that they would have to be the workers.

Self, worker self-management.

Yeah, this is not the best solution, but under such circumstances, it is probably the only solution with those large enterprises that simply could not be bought by private entrepreneurs. It's obvious that private enterprise is better both in more quickly eliminating errors and it is also much better in pursuing avenues of success, but when it comes to self-managing enterprise, it's at least better in eliminating errors than state-owned enterprise.

No one can want an economic system that doesn't work, surely. So, who is stopping the more market orientated real reforms happening?

Yeah, I am often asked by Western visitors, scholars, politicians, casual observers who visit Poland, why it is so that the system that is obviously inefficient is still kept in place. Everybody would like to have a good economy, even the dictator, and the answer is that there is a lot of people who benefit from the badly functioning economy of that type. And in any kind of undemocratic regime, in what I would call ordinary dictatorship, you would have a stratum that benefits from that, but in a way that is normal, let's say in Latin America, or elsewhere. That is, they get higher wages, they get perquisites related to their positions in the government, but this all is all taken after the wealth is created. On the other hand, in this system we live in, situation is such that on top of this type of benefits, part of the ruling stratum, in the Soviet type system, benefits also from interfering in various ways in the functioning of the system itself. The most important part of it is the system of nomenklatura, that is the right of the party to appoint everybody to better paid managerial positions in public administration and first of all, in the economy. This is probably the cue to the failure of the system. You cannot really expect those people who are nominated on the basis of loyalty to follow the most profitable option of the enterprise, for the enterprise as a whole. They will always be looking to those above them, who nominated them as managers, to follow their suggestions. And that's why it is so difficult to eradicate a common ill of all East European economies, the so-called “soft constraint on enterprise”, that is that they always can get the money, one way or another, to cover the losses. And since it is a rotating position in those enterprises, that means that they have to help them. First of all, because otherwise they wouldn't follow their recommendations next time, and secondly, because they all may be reversed in a year. The bureaucrats, or party apparatchik can be appointed enterprise manager, and then the replacement manager can go to the party apparatus, so they are working all in the family. 90% of managers in Poland now, just as it was in Gierek period, are party members. And that means that the pool of talents is smaller, the average quality of the talent is lower, because of the well-known feature of the negative selection under totalitarianism, so you can't expect much. And thirdly, they don't pursue monetized goals, as in the normal economy. They are pursuing various goals. You may name them earning hard currency, saving energy, doing this, decreasing labour input, but in each cases they are unspecified in monetary terms, and that means that they come into conflict with the profitability of their enterprise. And that's the source of most losses.

What also happens to a lot of the goods that are produced in these systems?

I mentioned nomenklatura as one way of benefiting from the inefficient economy. In nomenklatura, you have now 250,000 managerial positions covered by the nomenklatura during the Jaruzelski period. Interestingly, it was only 100,000 such positions during the Gierek era. But there is also another way through which the ruling stratum in this system benefits from it. It is through the reverse flow of goods coming from those enterprises managed by those managers appointed by the nomenklatura. So, it is various goods and services that are being offered, that are in short supply, that are being offered to the higher level bureaucrats and to the politicians at all level. And they are very substantial in numbers. I heard at one conference that it is about 40% of cars that are sold on the domestic market are allocated through the rationing system within that nomenklatura.

Well, I mentioned insufficient and often superficial measures undertaken during the economic reforms after the martial law. But, there are other accompanying phenomena that also cast a shadow upon the intentions of the ruling stratum, as far as real economic reforms are concerned. I mentioned nomenklatura issue in different context, but it would be interesting to know that there were about 100,000 managerial posts in economy and public administration covered by the communist nomenklatura during the late Gierek era. But under Jaruzelski, the number of those posts increased 150% to 250,000. And that of course means that there are less competent people and those nominated not on the basis of the competence, but on the basis of loyalty throughout the economy, and that must affect performance as well.

What happened to the nomenklatura under the so-called reforms?

After the martial law, the number of posts covered by nomenklatura increased sharply from about 100,000 before to 250,000, which of course casts a shadow upon the real intentions of reforms by the authorities, if they increase the number of posts filled on the basis of loyalty rather than competence. This is one way of saying that things got worse. Another way of saying is by an example of allocation of scarce goods. I heard that in 1983, about 40% of cars that went to the domestic market were rationed through the nomenklatura system for the faithful, rather than through the market. And this is only one example. There are many other examples. For example, in Krakow region, it was revealed in the economic weekly that about 45% of household consumer durables, refrigerators, sewing machines and other goods of that sort was allocated on a similar basis, that is outside the regular retail trade channels.

What are some of the consequences of the poor economics of Communist Europe? [unintelligible] on the pollution.

There are many side effects of not only bad economic performance, but of the economic system, in which goals are outlined in numerical terms, as planned figures to produce something. One of them is pollution. Usually, pollution is assumed to be associated with the level of industrial development, but here, you have a completely different situation. That is, the level of industrial development is much lower than in the West, but pollution is very much higher. I would take an example of East Germany and the Federal Republic, where in East Germany the level of sulfur dioxide pollution is about four times higher than in the West Germany, in spite of the fact that the level of industrial development is obviously lower.

Also, there's an example of mineral water I'd like you to give us.

There are many other examples of various harmful pollutants found in the air, and in water, and in soil. I think a dramatic case is one of health resorts. In Poland, for example, in some health resorts... Some health resorts are so polluted that various minerals are found also in mineral water, that is the water that people drink to cure themselves. In Krynica, one of them, the level of lead is so high that it is already dangerous to one's health to drink mineral water, except one that is deep water. But all other kinds of mineral waters are already harmful to one's health.

Are there also psychological, as well as physical pollutants in East Communist Europe?

Certainly the stress of life in Eastern Europe, or generally stress of living under the communist system, is very high and it has manifold effects. One of them being increased mortality, especially among men. That is those, who take the largest part in any kind of social, or political activity. And this mortality has been higher here than elsewhere, but also it has been increasing over time. In the period, for example, between 1960 and 1980, mortality among men of 19th of... [unintelligible] The mortality among men of 35 to 65 years of age is... Has increased by some 25% in Hungary, by some 20% in Czechoslovakia, some 15% in Poland and Bulgaria. While in Western countries, it’s generally declined, the largest decline being registered in Switzerland, for example.

Can you give a specific example of stress in Romania? What causes stress? The sort of things that cause stress there?

Probably the most stressful situation nowadays is that in Romania, where there is a lot of harassment of the population by various watchmen groups, who control whether people don't hoard more food than authorities regard as necessary, or they come and tear down the light contacts in order to be sure that they won't use more than one lamp per apartment. And there are many other things of that sort that make life there miserable. Well, you could also take the plain physical exhaustion as one of the factors resultant from the fact that they live in apartments that are ill heated, or not heated at all, with temperature in winter falling to about four degrees centigrade, and they also often live in unlit apartments for hours a day.

How do you think Communist Europe is going to be reformed? Are communist regimes, like the Polish one, going to move towards democracies quickly?

I mentioned reforms that they are unsatisfactory, timid and actually blocked by those who benefits from the existence of the present inefficient economic system. And I don't think that under the political conditions of the Communist System it is easy, or quick, to move from what we have now toward democracy. I envisage somewhat different route, which I still regard as something that is better than what we have now. I think that the first stage would be something like an ordinary autocracy, when there is still a ruling elite, the police, the military and so on, but on the other hand, there are areas of autonomy. Economy, education, science, culture, and given that autonomy, things might get moving, but moving from the present situation to the democracy would mean that those at the top, the ruling stratum, would actually lose everything, because they are uncompetitive. So I think that they may give up something, because they see that situation is deteriorating also for them, not only for us, and as a result, they may give up the control of the totalitarian type of the economy, allow the economy to be run along the normal market lines and, with the overall increasing welfare of the population and their own welfare, they may at some point see that keeping political control is very tiring in the flexible moving society and economy. And then they may regard that it is simply not worth the bother. So then, probably in some 10 years, 20 years time, we may think of moving from the Franco-type ordinary dictatorship to the democracy. But right now, really our hope is to move from the totalitarian dictatorship to the ordinary dictatorship.

Jan Winiecki (1938–2016)

Jan Winiecki

Jan Winiecki (born June 21, 1938 - died June 7, 2016) - Polish economist, PhD in economics, university teacher, member of the Monetary Policy Council in the 2010-2016 term. From 1964 to 1982 he was a member of the Polish United Workers' Party (PZPR), which he left during the martial law. He was employed as Head of the Economic Policy Department at the Centre for Scientific Technical and Economic Information (1971-1973), then at the Polish Institute of International Affairs (until 1982) and the Polish Academy of Sciences, from where he was dismissed in 1984 due to his cooperation with the Solidarity movement.