Published by:
Harvard Business Publishing
Length: 9 pages
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Abstract
In January 1990, with inflation at 50%, the newly democratic Polish government introduced a draconian plan for a market economy. Most observers expected the Balcerowicz Plan, sometimes referred to as shock therapy, to spur reform through the restructuring of large state enterprises. When it failed to do so, they criticized it. But the plan succeeded in encouraging entrepreneurship, which now appears to be the main force driving economic reform in Poland. It was as if the Polish economy started over in January 1990. The central mechanism for the reallocation of labor and capital from state to private activity has enabled the growth of hundreds of thousands of private businesses. The authors argue that, although state enterprises have proved too unwieldy for rapid change, the Balcerowicz Plan has not failed. If anything, it could have gone further to stabilize inflation and help private enterprise.
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Abstract
In January 1990, with inflation at 50%, the newly democratic Polish government introduced a draconian plan for a market economy. Most observers expected the Balcerowicz Plan, sometimes referred to as shock therapy, to spur reform through the restructuring of large state enterprises. When it failed to do so, they criticized it. But the plan succeeded in encouraging entrepreneurship, which now appears to be the main force driving economic reform in Poland. It was as if the Polish economy started over in January 1990. The central mechanism for the reallocation of labor and capital from state to private activity has enabled the growth of hundreds of thousands of private businesses. The authors argue that, although state enterprises have proved too unwieldy for rapid change, the Balcerowicz Plan has not failed. If anything, it could have gone further to stabilize inflation and help private enterprise.