How Shocking Was Shock Therapy?

By Barkley Rosser, Professor of Economics at James Madison University in Harrisonburg, Virginia. Originally published at EconoSpeak

In 2007 Naomi Klein got quite a bit of attention and mostly favorable comment for her  book, Shock Doctrine.  It promulgated that global elites used periods of crisis around the world to force damaging neoliberal policies derived from the Chicago School and Washington Consensus upon unhappy populations that suffered greatly as a result.  This was “shock therapy” that was more like destructive electroshock than any sort of therapy.  There is a lot of truth to this argument, and it highlighted underlying ideological arguments and outcomes.

The argument largely seems to hold for the original poster boy example in Chile with the Pinochet coup against the socialist Allende regime.  A military coup replaced a democratically government.  Whiole Chlle was experiencing a serious inflation, it was  not in a full-blown economic collapse.  The coup was supported by US leaders Nixon and Kissinger, who saw themselves preventing the emergence of pro-Soviet regime resembling Castro’s Cuba.  Thousands were killed, and a sweeping set of laisssez faire policies were imposed with the active participation of “Chicago Boys” associated with Milton Friedman.  In fact, aside from bringing down inflation these rreforms did not initially improve economic performance, even as foreign capital flowed in, especially into the copper industry, although the core of that industry remained nationalized.  After several years the Chicago Boys were sent away and more moderate policies, including a reimposition of controls on foreign capital flows, the economy did grow quite rapidly.  But this left a deeply unequal income distribution in place, which would largely remain the case even after Pinochet was removed from power and parliamentary democracy returned.

This scenario was argued to happen in many other narions, especially those in the former Sovit bloc as the soviet Union disintegrated and its successor states and the former members of the Soviet bloc in the CMEA and Warsaw Pact also moved to some sort of market capitalism imposed from outside with policies funded by the IMF and following the Washington Consensus.  Although he has since  expressed regret for this role in this, a key player linking what was done in several Latin American nations and what went down after 1989 in Eastern and Central Europe was Jeffrey Sachs.  Klein’s discussion especially of what went down in Russia also looks pretty sound by and large, wtthout dragging through the details, although in these cases the political shift was from dictatorships run by Communist parties dominated out of Moscow to at least somewhat more democratic governments, although not in all of the former Soviet republics such as in Central Asia and with many of these later backsliding towards more authoritarian governments later.  In Russia and in many oothers large numbers of people were thrown into poverty from which they have not recovered.  Klein has also extended this argument to other nations, including South Africa after the end of apartheid.

Having said all that it must also be recognized that in some parts of the book Klein overstated her argument even to the point of including outright false informaation.  The casse that really sticks out in thie regard is Poland, arguably especially important as it was the place where the term “shock therapy” was first used.  As it turns out, many observers have an inaccurate perception of what happened there, with Klein’s account not helping.  It is understandable that many might be misled given that it was the Polish finance minister during the worst of the crisis and shock in 1990-91 when economic output fell sharply and unemployment rose, Leszek Balcerowciz, who coiined the term and said that it was being applied in Poland.  But this turns out to be an exaggeration, with much of what he wanted with the support of Jeffrey Sachs and the IMF at the time not happening due to an election in 1993 that threw out the shockers and mitigated the policies substantially.  The upshot ultimately was that Poland ended up performing better than any other of the former socialist transition economies of the former Soviet bloc, becoming in fact one of the best economic performers in the entire continent of Europe, the only nation there not to go into recession in 2009 and now further ahead than any of the others economically.  While inequality and unemployment are somewhat higher than in 1989, they are not dramatically so while many other economic variables are strongly better.   The unemployment rate in August 2018 was 3.4%, higher than the less than 1% of 1989 but lower than in the US or most other European nations.  The Gini coefficient is now somewhere in the .32 to .34 range, higher than ..25-.28 of 1989, higher than in Sweden or the Czech Republic but about the same as in Germany and much lower than in Russia, the US, or China.

The vast majority of the population is unequivocally better off economically now than in 1989.  Comparing 2013 to 1989 as a ratio, real per capita GDP in Poland was 2.98, higher than any Soviet bloc transistion econoomy aside from Turkmenistan (whose data is unreliable), wih Russia at 1.44, the Czech Republic at 1.68, Hungary at 2.17, and Moldova at 0.82, now Europe’s poorest economy falling below Albania at 2.55.  Poland suffered an inflation rate of 6905 in 1989 but this is was brought down fairly rapidly and is now barely above zero.  It had the least level of graft of any of these economises as of 2013, There has been major environmental cleanup, especially in its southwestern corner, formerly part of the “dirty triangle,” one of the most polluted locations ever on this planet.  The rato of measured happiness between 2013 and 1989 is 1.44, higher than in any of the other transition nations.

A particularly controvrsial issue is that of the poverty rate in Poland, for which there are competing meassures.  Depending on the measure, the poverty rate in the 1980s was probably in the 5-10% range.  In 2012, 6.7% of the population was below a living wage level, while alternative measuures had it at around 11% or even as high as 16%.  The poverty rate certainly rose sharply as did income inequality in the crisis years of 1990-91, but then fell and rose again before falling aftrwards.  A low point after the transition was 2003, the year before Poland entered the EU and began receiving substantial agricultural subsidies that helped the poor largely rural southeastern region long marked by small unproductive farms (Poand had mostly private fram ownership throughout the communist period), with by one measure thr poverty rate possibly getting as high as 24%..  This is a point where Naomi Klein’s analysis basically went completely off the rails.  Her story on Poland basically stops with 2003, which can be understood given her book came out in 2007.  But she claims a poverty rate in 2003 of 59% (pp. 241-242), and declares strongly that the economic quality of life in Poland had completely collapsed.  This is simply false, a wild exaggeraton,

So, how did Poland end up doing so well, actually one of the best performing economies in Europe over the last quarter century?  Crucial is that in fact it did not follow through on important parts of its supposed shock therapy, although most people (including Naomi Klein) do not seem to know this.  Very important was that it did not undo its generous social safety net, especially its generous pension system.  This was a central issue in the 1993 election, with both Blacerowicz and Sachs unhappy about this outcome.  I remember well the 1994 ASSA convention at which Sachs gave a major speech in which he basically whined about this election outcome and essentially accused the Polish people of being a bunch of spoiled brats for wanting to hang onto their suppposedly overly generous pension system.  I note that he has since changed his tune and now recognizes the stabiliing and humane nature of maintaining a decent social safety net in these economies.

The other area where Poland did not follow through on its shock policies involved privatization, which was supposed to be rapid and complete.  It was not and has never been completed.  Indeed, today Poland has the highest rate of state owneed production in its economy at around 30% of GDP of any OECD economy, another little known fact.  Privatization was resited, especially because of fear of German companies taking over Polish firms, and what privarization that happened tended to be gradual, with a laege part of the private sector consisting of brand new firms owned by Poles, arguably the most dynamic part of the economy.In this areas, Poland actually resembles China substantially, a comparison made by a number of careful observers.  The current populist government of the Law and Justice Party has if anything tighteened restrictions on foreign ownership of banks and land, if not having engaged in any outright renationalizations as we have seen in Russia and Hungary.

Given that much of the shock therapy program did not happen or did not do so shockingly, where was there shock therapy.  This did indeed happen with respect to macro policy, driven by the problem of getting the incipient hyperinflation that had developed by 1989 in largely market socialist Poland under control.  This did involve sharp pain with falling output and rising unemployment and poverty in 1990-91, but Poland was the first of the Soviet bloc tranition economies to turn arond, with most still having declining output in 1994 and quite a few until well after that.  The pain in Poland was sharp, but it was short, and the onger run state has outperformed the others and put Poland far above where it was in 1989.

The politics of all this has been quite complicated and involved some important and curious twists and turns.  From 1989 on there has been a broad “left-right” split with probably the most important constant in this being attitudes towards the Roman Catholic Church in famously devout Poland, with being pro-Church being on the right, with people coming out of the old Commuinst Party veing on the left.  But the positions on economic policy regssrding these groups have changed over time.  in the 1989-93 period, the supporters of the shock therapy were on the right, although including the workers of the Solidarity movement.  However, by now the rightist  Law and Justice Party that is in power and attacks its rivals for being leftover communists and also strongly opposed Russia (in contrad to the populist rightist regime of Orban in Hungary who is friends with Putin), has in it populism become more the defender of both the social safety net and and supporting the state-owned enterprises compared to the supposedly crypto-communist left, now out of power.

Needless to say, there is much discussion about how it is that Poland has been by so many measures so economically successful, yet since 2015 has cmoe to be ruled by a reactionary populist party that has beeen restricting media and judicial independence, although it may be that it is going to hold back on some of this compared to Russia, Hungary, and Turkey.  I think two things are important.  One is that although Poland avoided going into recession in 2009 (largely due to staying out of the euro and also being strongly linked into the supply chains of neighboring Germany), its growth rate has slowed in more recent years while remaining positive, something happening throughout all of Eastern Europe, which has stopped catching up to Western Europe. And the second is that the frame of reference has changed.  Whereas Poland has done well compared to its formerly socialist neighbors, the population now ccompares rhemselves to those in Western Europe, especially nighboring Germany, whom they are clearly well behind.  Maany young Poles have left for the West, with a cliche in the Brexit debates in UK being about the supposed problem of “the Polish plumber” coming in to take away British jobs.  The Poles may be much happier than they were 30 years ago, but the bloom is off the rose as the transition has been long over.  Where they will end up is uncleat.

A final irony is that for all his advocacy in 1989-93 (and later as Director of the Polish central bank) for the hardline version of shock therapy that many think happened in Poland, Balcerowicz himself at one point advocated something pretty much like what came to pass, a gradual privatization and maintaining most of the sociaal safety net while advocating shock monetary policies to bring inflation under control.  This was before the transition started and Communist Party was still in control. Indeed, I met him in this period and heard him advocate pretty mch this approach, which he also advocated in print.  It was 1988 and I was teaching summer school at the University of Wsconsin-Madison when he  showed up in town as part of a general wandering around the US tlaking to people and giving talks.  We had some beers on the famous Union Terrace there by beautiful Lake Mendota.  I confess thinking him a naive dreamer with all his plans for Poland that at the time seemed so unlikely and utopian.  But that was one of those lessons for me: one should never discount a wandering prophet wihout position.  He can end up running the show and making at least some of his dreams become reality.

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  1. Darthbobber

    Any discussion of the Polish economy that completely ignores this massive level of economic outmigration, and it’s continued rise among the young, misses a great deal.

    In a vibrant economy, it seems unlikely that so many educated Poles would find, for example, lower tier jobs in Britain to be their best path forward.

    Yes, your unemployment and poverty rates are lower if a significant fraction of the population works elsewhere in the EU, and reatriates the money. Though the pattern may cause a few other problems. (while many nations like to export their unemployment, not everybody wants to import it.)

    1. upstater

      You beat me to the punch…

      Out-migration is a huge factor in eastern and central Europe and without it, the picture would look entirely different. The Baltics, Bulgaria and Romania are even more affected.

    2. vlade

      The migration from Poland does not have only economic reasons. A lot of Poles migrate because they find the polish society (especially small towns and rural) very stiffling.

      A friend of mine left Poland the moment she got her MSc – literally, the same day she was on a bus to Germany. She’s now a sucessfull woman, director level at a large consultancy. Yet her father calls her “old spinster” (this is the polite version), as she wasn’t maried by 30, and she basically avoids going to Poland.

      She says she could never be as sucessfull in Poland, being a woman, and not being keen on marrying. I’ve heard similar stories from young Poles, not just women.

      Inter-war Poland is celebrated a lot in Poland these days, conveniently ignoring the facts it was really a totalitarian state – when Czechoslovakia was Muniched in 1938, Poles (and Hugarians) were quick to grab bits of territory right after that.

    3. Kasia

      Poland has taken around a million Ukrainians over the past ten years so while many Poles are emigrating to Europe, they are being replaced by Ukrainians, who are ethnically and linguistically fairly similar to Poles.

      So Poland is proof that nationalist, populist policies can indeed work. Poland has had to taken rough measures with our judicial system and media to ensure globalist forces do not undermine our successes. No one, I mean no one, in Poland mouths the words, “diversity is our strength”. Internationalist, liberal minded people who are so susceptible to globalist propaganda, are generally the ones leaving the nation. Indigenous Western Europeans who are suffering the joys of cultural enrichment and vibrant diversity are starting to buy property in Eastern Europe — more Hungary than Poland — but as the globalists push even more multiculturalism and continue to impoverish indigenous Europeans, Eastern Europe will become a shining beacon on the hill free of many of the evils of globalisation.

      1. monday1929

        And the Poles were known for their helpfulness in herding some of those “liberal internationalists” onto trains about 75 years ago. May be why you hear silence instead of “diversity is our strength”.

    4. Alex V

      Would also be interesting to see the flow of remittances in this context. A large part of the Mexican and Philippine economies are dependent on these, for example.

  2. a different chris

    Interesting and a good read… except for the incomprehensible number of typos. This is my favorite:

    “Poand had mostly private fram ownership”

    I don’t know where Poand is or what a fram could possibly be but now I want to live there and own one.

  3. NotTimothyGeithner

    I suppose I would question what happened to the German sympathizers in each former Soviet bloc country. If memory serves, the Poles were also let off by the Soviets compared to the other states where East Germany was of significant concern and Hungary, so perhaps, Poland has more people with grandfathers with pasts that tend to ignore the pre-1939 environment than say the other Iron Curtain countries? Churchill didn’t give away Eastern Europe as much as he didn’t want to deal with with the heavier concentrations of right wing voters in the 30’s.

    The Soviet experience was not equal, and the governments had different levels of autonomy and control. I think the East Germans were pretty gung ho compared to the Soviets themselves, but it wasn’t a level playing field in 1989/91.

    90’s shock therapy might not have been as bad, but garbage in garbage out.

    Poland not being a state and maintaining an identity outside the geographical area is possibly another side of the issue, along with the Catholic identity versus Orthodox and atheist when approaching the West when there was a Polish Pope.

    1. vlade

      You have to remember that post WW2 Poles were moved en-masse by Soviets, who took over eastern Poland (Lvov in the current Ukraine used to be Polish), being compensated by Prussia and what used to be east of Germany. Poles were “encouraged” to move, Germans were told to move. Literally millions of people were moved in space of months or less.

      After 1948, there were no (official) german sympathisers left in Soviet block. Of course, there was a lot of german collaborants (especially informers) who just switched from nazis to communists (I know, my grandfather was in resistance, and was betrayed to Gestapo by a guy who was then in 1950s working for a communist secret police).

      But more broadly, CEE states are quite different, more so than most Westerners can see. Similar to the above, you could wonder how come that Czech economy experienced pretty much no large problem post 2008, and was booming recently, or that Slovak one post Czechoslovakia split tanked a lot,only for it to take off since about 2000 when right-wing “neo-liberals” implemented changes, and is now foundering again under nominally social-democratic party.

      There’s one thing that pretty much all parties that got to power in CEE in last 25 years have in common – they were parties of corruption. Some more, some less. Say current Czech premier built his empire on deeply subsidised agri-business – which, incidentlly, is still getting subsidies. And Czech governemnt refused to end bio-diesel subsidies that the EU first put in and then said should be removed. Which gives the Czech premier few hundred millions USD a year or so. But he has 30% of the vote as “he can’t be corrupted, he’s already rich enough”. No, he can’t be easily bought (by money), but that’s a different thing from corrupted.

  4. Jeremy Grimm

    I haven’t read Naomi Klein’s book “Shock Doctrine”, encapsulated by this post as “global elites used periods of crisis around the world to force damaging neoliberal policies derived from the Chicago School and Washington Consensus upon unhappy populations that suffered greatly as a result.” Maybe I should defer from commenting — but what is this post about exactly? How did Poland achieve such prominence in an analysis of Klein’s Shock Doctrine? Is this a post arguing that the Shock Doctrine wasn’t shocking, as the title suggests, or a post on how Poland might not be the best fit to the Doctrine. Two-thirds of this post is devoted to a discussion of Poland, because “The case that really sticks out in this regard is Poland, arguably especially important as it was the place where the term “shock therapy” was first used.” [Is the author of this post referring to Klein’s Shock Doctrine or the term “shock therapy” used to describe the electro-shock “therapy” used to treat psychiatric patients?] Perhaps Poland isn’t the best example of Shock Doctrine because the global elites were simply less successful in their efforts to force damaging neoliberal policies derived from the Chicago School and Washington Consensus upon unhappy populations.

    1. hemeantwell

      Exactly. It seems the post doesn’t really question Klein’s SD thesis so much as describe an instance where its implementation was blunted. The more useful criticisms I’ve seen of Klein’s idea is that it doesn’t describe anything new, capitalists have always tried to use disarray to create accumulation opportunities. What differs from case to case is the extent to which they are able to make those opportunities durable by seizing control of local state power.

      1. EoH

        She made the old accessible and understandable. That’s quite an achievement. And, yes, I would suggest that someone who has not read Klein’s work is better off critiquing Rosser’s.

  5. Unna

    Thanks very much for this. The article explains quite a lot of information about Poland which is generally difficult to obtain.

    I might be wrong, but it’s been my thought that the program of the Polish Law and Justice Party along with Orban and some similar others in Europe, but not in the English speaking countries, is in the process of presenting a full competing political-movement-ideology directed against neoliberal capitalism. The Law and Justice Party’s affiliation with traditional Catholicism (traditional Polish Christianity) is to be noted. See also Orban’s traditionalism discussed here in Rod Dreher’s article in the American Conservative. (I can’t believe I’m giving Dreher a referral, and I’m not sure he’d appreciate it from me)

    So for those who oppose neoliberal capitalism, the issue becomes which political movement will be most, or at all, successful in stopping/resisting neoliberal capitalism, the nation based social programs traditional values experiments now going on in Poland and Hungary, or the Bernie Sanders-Corbyn “liberal progressive” social democratic experiments now attempting to gain power in America and the UK. Will one or the other be successful, both, or neither? It seems that the current EU rulers will fight both with equal ferocity. If the Bernie-Corbyn experiments fail but the Polish-Hungarian experiments succeed, that will raise some issues that will have to be confronted. The hope would be that Bernie-Corbyn types do in fact eventually win out.

    1. vlade

      I’d not call Hungary (Poland less so) “social programs based traditional values experiments” any more than I’d call Nazi Germany’s social programs of 1930s (which tend to get exagerrated) the same (this is not saying that Hungary is modern Nazi Germany. This is to stress the point that most states like to show facades – but they are still just facades).

      How can you call “social” Hungary’s law that doubles the number of unpaid overtime a company can require, while allowing the company to defer paying for it for up to five years? (which often means not paying at all, as the company can “conveniently” go bust while having the assets transferred elsewhere). The law was passed when companies were asking for more employees. Because of the emigration, which drew on Hungarian youth, resulting in unemployment, and wages going up.

      Orban did not want to allow migration (even though realistically, Hungary had little problem with migration, as Hungarian is seriously HARD to learn, so for most migrants it was just a stopover. TBH, this is part of the problem in most of the CEE countries, over last century or so they had very little immigration, and what was there was with people who were a) sufficiently similar cf Slovaks to Czech Republic b) always deemed inferior and thus not a threat cf Ukrainians into CR, Slovakia and Poland ) to fill the jobs – not because he’d care about jobs or wages (more unpaid hours for the same job is lower wages still) – but because it would formally go against his no-immigration policy.

      1. Unna

        *How can you call “social” Hungary’s law that doubles the number of unpaid overtime a company can require, while allowing the company to defer paying for it for up to five years? *

        I absolutely don’t call it pro-social because it’s not, and that law surprised me and is meeting a lot of opposition in Hungary. It appears the law is costing Orban politically. And it should. Also, that law seems to me out of line with what Orban was otherwise doing which won him a big victory in the last election in Hungary. If Orban wants to exclude immigrants which is causing a labour shortage, then he must make the choice of either having Hungarian employers pay higher wages and make lower profits, or accept slower economic growth.

        I’m watching Orban and the Polish Law and Justice Party as best I can – which is why I appreciate today’s article on Poland by NC. Illiberal Democracy is problematic. Will it just be turned into a repressive vehicle by political elites for economic exploitation under a different name? Then it will have become a failure in opposing neoliberalism because it will have turned into much of the same thing with, I imagine, the letting in of economic “globalizing” forces eventually anyway because of money and profit.

        What I’m thinking is that, with the moral and now intellectual discrediting of neoliberalism, the future is once again up in the air. Even Tucker Carlson on Fox (!) is coyly denouncing what he calls “libertarianism” etc along with the Republican elites. What next, the pope questioning the existence of god? In that famous book, The Anatomy of Revolution, as I remember, change begins with a discrediting of the elites of the old regime, first among intellectuals, and then more generally among the population. This coincides with social and economic problems. That’s what we have now. And we even see the beginnings of open violence, ie, Yellow Vests and Macron’s repression. The very legitimacy of the regime comes into question

        But if the neoliberal system is weakening it still holds power. So my question is, will the Polish and Hungarian type experiments develop into viable and, let’s say, traditional illiberal but pro-social systems to challenge neoliberalism, or will they not? Will they simply devolve into repression? I don’t have the answer to that question. Also will the Bernie-Corbyn social-democratic types win, or not? We have to be prepard for the possibility that they fail. Also, what if one system succeeds against neoliberalism but the other doesn’t, what might that mean?

  6. lyman alpha blob

    So the ‘shock doctrine’ didn’t have terrible results in Poland because the ‘shock doctrine’ wasn’t actually used there. It’s been a decade since I read Klein’s book but I fail to see how this argument refutes it.

    It would have been nice to include some quotes showing how Klein was wrong, because my recollection of her book is that her theses was that the ‘shock doctrine’ was on the rise in the new century and I haven’t seen much to disprove that at all. In fact all the austerity imposed since 2008 in many countries by neoliberal technocrats in response to the global financial crisis, which started to happen shortly after the book was written, would seem to prove her point.

    1. a different chris

      I’m wondering if this post is meant to flip that coin twice – in defense of the Shock Doctrine.

      That is, maybe it is essentially trying to cut off any “But Poland” defenses of neo-liberalism? That is, it’s back-patching an error or at least an overstatement by Klein that could be (wrongly) used against her overall thesis.

      Or maybe not, I’m no polemical genius. It’s a re-post so maybe somebody less lazy than me can go over to Econospeak and see if there is any clarification to be found there.

    2. Jeff W

      So the ‘shock doctrine’ didn’t have terrible results in Poland because the ‘shock doctrine’ wasn’t actually used there.

      I think that’s what the post is about. The argument is a bit buried, for me.

      It’s not clear to what extent the writer agrees with Klein’s thesis overall—he acknowledges that “[t]here is a lot of truth” to her argument—but he seems to be saying that she got Poland wrong. He writes:

      Crucial is that in fact [Poland] did not follow through on important parts of its supposed shock therapy, although most people (including Naomi Klein) do not seem to know this. Very important was that it did not undo its generous social safety net, especially its generous pension system.

      Nor did Poland follow through, he says, on privatization. As a result, it is “far above where it was in 1989.”

      Naomi Klein’s thesis is that neoliberal élites use crises and disters to force through neoliberal policies—deregulation, privatization, cuts to social services—that they otherwise could not (or could not without resistance). That the neoliberal policies were incompletely implemented in Poland, or that Poland “outperformed other states”—maybe because the policies were not as fully implemented—doesn’t rebut Klein’s thesis, even if, as the writer seems to argue, she’s wrong about the particulars of Poland.

  7. ilpalazzo

    My post seem to have vanished into oblivion so I’m pasting from the clipboard.

    I am a Pole and have been a daily reader here since 2008. I hope a better versed compatriot will come out of the closet and give a better picture (I know there are a few).

    Let’s just say the shock was pretty bad. In terms of amount of human suffering the worst was dissolving state owned farms. Hundreds of thousands of people were just let go without any help, although many farms were profitable and others could be restructured or converted into collectives etc. I live in a small town where there was a huge state farm and I can see former employees started to recover and get by just recently judging by the looks of their dwellings.

    Most of the manufacturing and heavy industry was sold off and extinguished. We used to have pretty decent capital producing capabilities like tooling etc. Not a trace of that now. There is a lot being manufactured now here but mostly simple components for german industry to assemble.

    Pension system was thoroughly looted by you know who and is a ticking time bomb. Most of it was quasi privatized – that is managed by western companies but still part of the state system. There were supposed to be individual saving accounts managed by sophisticated investment specialists but the money ended up invested in state bonds, issued to subsidize it. Managing fee 7 – 10 percent charge on every payment into the system, regardless of performance, anyone? It was a heist of the century.
    The ticking time bomb is because a large part of young people working now are working on non – permanent contracts that don’t pay benefits. These people won’t have any pension at all and there are a lot of them.

    Healthcare is single payer fund but heavily underfunded. Private practice and hospitals are allowed and skim most profitable procedures leaving the rest to public fund. There are unrealistic limits on number of procedures so if you need to see a specialist in July or later prepare to pay cash or wait till January.

    Municipal service companies, at least the most lucrative ones have ben sold off to foreign investment funds. A few of our cities’ municipal companies, like central heating or energy have been sold off to german municipal companies (!). State telecom has been sold off to french state telecom (and one of the biggest and most famous fortunes made).

    Local printed press is 90% german corps owned.

    This is a map of state rail company railways in 1988 and 2009. It has been a meme here for some time. It is true. Cancelled lines are the subsidized ones workers relied on to get to job. I closely know a thousand years old town that had rail built in 1860 by germans and liquidated right in 1990. The populace is now halved, all young emigrated, businesses dead. There have been a huge investment in freeways and other kind of roads so every one has to own a car to get to her job. Most cars are used 10+ year old german imports. Polish car mechanic and body shops are the best in the world specialists of german automotive produce.

    I live in a small contry town that was a home to a wealthy aristocrat. There is a beautiful baroque palace and huge park, the complex is literally a third part of town. After the war it was nationalized, there were sporting facilities built in the park for locals and school pupils to use. The palace was re-purposed as medical facility and office complex for state farm management. In the nineties the whole thing was given back to aristocrat descendants – a shady bunch hiding in Argentina AFAIR. They couldn’t afford to keep it so they sold it to a nouveau – riche real estate developer. He fenced the whole thing off and refurbished into a sort of conference complex – it is underway and still not clear what’s gonna happen with it. The effect is that a third of my town that used to be public space is fenced off and off limits now.

    To conclude, there has been a tremendous development in real estate and infrastructure mostly funded by the EU that has been a serious engine of growth. Lot of people got mortgage and financed homes or flats and there has been a whole industry created around it. A few crown jewel companies (copper mining, petroleum and other chemistry) are state owned. But most of the sophisticated furnishings used in real estate are german made (there is german made nat gas furnace in 95% of newly built homes) etc. Two million young people emigrated to work mostly to UK and Ireland. I’d lived in Dublin for a year in 2003 and there were Chinese people as salespersons in groceries and seven – elevens everywhere, now there are Poles instead.

    Recommended reading about the transformation years dealing is this book:

    The author is Kalecki’s pupil.

    1. Darthbobber

      Thanks for this. Gowan’s book, Global Gamble, is also good on the details of shock therapy in the former Warsaw Pact nations. One key problem was that shock therapy partly rested on he assumption that western European buyers would want to invest in modernizing plant and equipment in industries they acquired, but it quickly turned out that the German and other western buyers were really interested only in acquiring new MARKETS for their own products.

      And in agriculture, they both insisted on the elimination of subsidies within the eastern nations, and proceeded to use the area as a dumping ground for their own (often subsidized) agricultural surpluses.

      1. JTMcPhee

        All this gets back, in my minuscule view, to failure to have a decent answer to one little question:

        What kind of political economy do “we, the mopes” want to live within?

        And related to that, what steps can and must “we, the mopes” take to get to that hopefully wiser, more decent, more homeostatic and sustainable, political economy?

        And it likely doesn’t matter for us old folks (obligatory blast at Boomers as cause of all problems and distresses, dismissing the roots and branches of “civilization,” current patterns of consumption, and millennia of Progress), given what is “baked in” and the current distribution of weatlhandpower. But maybe “we, the mopes” can at least go down fighting. Gilets Jaunes, 150 million Indians, all that…

        But without an answer to the first question, though, not much chance of “better,” is there? Except maybe locally, for the tiny set of us mopes who know how to do community and commensalism and some other “C” words…

        “We, the mopes” could make some important and effective changes. Enough of us, and soon enough, to avoid or mitigate the Jackpot?

    2. vlade

      This is a familiar picture for most of the CEE. As I write elsewhere, the CEE elitest are looter on par with US rail barons of the 19th century. Moreover, most of them came from dubious background – either criminal, or ex-communist secret service, as those were the people who in early 1990s had connections and could get their hands on money to cheaply get assets (which is actually a large problem, as the few genuinely competent enterpreneurs who made their money honestly get thrown into the same bag)

      Hey, Czechs managed to “export” one of their worst organised crime bosses to South Africa, where he promptly took over large chunk of the underworld (by murdering spree) was imprisoned, and then spent almost 20m USD on an escape attempt.

      The murder of the Slovak journalist was most likely arranged and paid for by a Slovak shady billionaire. And so on so on.

  8. Unna

    Thanks very much for this. Very graphic. So, if you would, could you explain who the Law and Justice Party is, and why they won the election, and what exactly are they doing to make themselves popular? Are they in fact enacting certain social programs that we can read about or are they primarily relying on something else, like mainly Catholic traditionalism, for their political power?

    1. Unna

      This is a reply to a very interesting comment from a person from Poland and the comment seems to have disappeared!

    2. BlueMoose

      One popular social plan was 500PLN per month plan for 2nd child, I think recently expanded to all children. (2nd and subsequent). Attempt to reverse decline in birth rate. PIS also lowered retirement age.

      I have been here for 14 years and I’m not sure if Poland is winning the battle againt western/US lifestyle. I came here to get away from the US. It is starting to look more like the US every year. One area I have especially noted is with obesity levels. When I first came here it was rare to see a fat person. If I did, I assumed they were American. Now, you would almost think you were in America. Thanks Pepsi/McDonalds, etc…

  9. disc_writes

    I remember a couple of paragraphs about Poland in my Economics 101 course, some 20 years ago. Was it in in Mankiw’s book? or Lipsey-Chrystal? I do not remember anymore. One of those vicious neoliberal propaganda mouthpieces, anyway.

    The textbook pitched Poland’s success story against Russia’s abject failure, claiming that the former had dismantled and shut down all its inefficient state-run companies, while the latter still kept its unprofitable heavy industry on life support.

    It is unsurprising to read that Poland followed a more nuanced approach. Somehow neoclassical economists always distort history into a cartoonish parody that confirms their models.

    That was in the early 2000s. The university was then brand new and was still filling the shelves of the library. If you looked carefully, you could still find older books, barely touched, that touted Albania as a neoliberal success story along the same lines as Poland. Albania almost collapsed in civil war in 1998.

  10. Darthbobber

    Klein at least provided footnotes, and sources for her claims. Which are conspicuously absent from this piece.
    The World Bank, (World Development Indicators, 2006), one of Klein’s sources, has a nationwide poverty rate only for 1993, and has it at 23% at that point, or between 2.3 times and more than 4 time the most common estimate he cites under the ancien regime.

    The same source has unemployment averaging 19.9% in 1990-92, and 19% in 2000-2004.

    As to the later poverty rate, Klein’s source is Przemyslaw Wielgosz, then editor of the Polish edition of leMonde Diplomatique, who gives this: “…Poles living below the ‘social minimum’ (defined as a living standard of £130 (192,4 EUR) per person and £297 (440,4 EUR) for a three person family per month) affecting 15% of the population in 1989 to 47% in 1996, and 59% in 2003.” but whence he obtains these figures he does not say. Given that it falls in a period when unemployment was pushing 20% for a prolonged period, and that both the EU’s subsidies and outmigration to the EU as an escape valve only start to kick in in 2003, the figure seems not wildly implausible.

    The author’s criticism doesn’t really address Klein’s central points at all, which would be that the crisis was used as leverage to ram through otherwise politically unpalatable change, and that a great deal of the constraint forcing that was provided by actors both undemocratic and external. He seems to be of the school that regards such niceties as beside the point, as long as various macroaggregates eventually rose.

    The contrast between what was done, and what Solidarnosc had claimed to be all about when in opposition is incredibly striking, basically the difference between libertarian Communism and uber Dirigisme style capitalism.

  11. likbez

    The level of the naivety of Barkley Rosser is astounding.

    Poland was a political project, the showcase for the neoliberal project in Eastern Europe and the USSR. EU was pressed to provide large subsidies, and that marionette complied. The commenter ilpalazzo (above) is right that there has been ” a tremendous development in real estate and infrastructure mostly funded by the EU that has been a serious engine of growth.” Like in Baltics and Ukraine, German, French, Swedish and other Western buyers were most interested in opening market for their products and getting rid of local and xUSSR competitors (and this supported and promoted Russophobia). With very few exceptions. University education system also was partially destroyed, but still fared better than most manufacturing industries.

    I remember talking to one of the Polish professors of economics when I was in Poland around 1992. He said that no matter how things will develop, the Polish economy will never be allowed to fail as the USA is interested in propelling it at all costs. Still, they lost quite a bit of manufacturing: for example all shipbuilding, which is ironic as Lech Wałęsa and Solidarity emerged in this industry.

    Eventually, Poland emerged as the major US agent of influence within the EU (along with GB) with the adamant anti-Russian stance. Which taking into account the real state of Polish manufacturing deprived of the major market is very questionable. Later by joining sanctions, they lost Russian agricultural market (including all apple market in which they have a prominent position).

    But they have a large gas pipeline on their territory, so I suspect that like Ukraine they make a lot of money via transit fees simply due to geographic. So they parochially live off rent — that why they bark so much at North Stream 2.

    Polish elite is a real horror show, almost beyond redemption, and not only in economics. I do not remember, but I think it was Churchill who said ” Poland is a greedy hyena of Europe.” This is as true now as it was before WWII.

  12. Jura

    Gosh! I used to actively fight the commies here in the 80’s.
    But then with Balcerowicz I almost regretted it. as to your words:
    “Balcerowicz himself at one point advocated something pretty much like what came to pass, a gradual privatization and maintaining most of the sociaal safety net while advocating shock monetary policies to bring inflation under control.”
    – They derail.
    You should have come here in the 90’s to see a shock of the Doctrine to face social trauma of “PGR”(Huge National Farms) workers (it’s the electorate of PiS (Law and Justice)), Miners near Wałbrzych, workers of textile industry near łódź bereft of everything from day to day (literally). Even the contemporary visit might ensure you quite a thrill if you knew where to look. Most of the firms that would easily survive if given some protectionism were hostily taken over by a foreigner capital and shut down with their production instantly replaced by imported goods.

    I do remember his speeches well.
    Form the spectrum offered by the chicago boys he chosen the hardest option. It was Michnik and Kuroń who opted for less “Chicago” direction. But they were in minority.
    The prevailing Zeitgeist of the period caused words “social”, “common” to be treated as a curse and socially stigmatizing.
    For a better understanding what went wrong you may take example of railroad privatization and compare it to the Czech way.
    Dont believe the official statistics, we have a huge part of our working poors here. Their voice will never be heard as they live in a subsistence economy and the’ve got neither time nor power to shout struggling to survive..

  13. John Mc

    One wonders why there is a need to revisit Klein’s thesis to debunk parts of it in this moment?

    And the point is so small in this article about Poland, that one wonders why a James Madison prof of econ does not have more time to look at significant problems everywhere instead of parse the progressive beast?

    In my lifetime, I have not witnessed a time where more of the political machinery has drifted to the right — caught in the headlights of what Chris Hedges calls the illusion of democracy in the decay of capitalism.

    Its important to not forget Gina Haspel’s contribution here and torture — how torture (economic, physical, and social shock) is implicated, vaulting her to the head of our top Spy agency —

    It reminds me of a recent article from Arundhati Roy’s, that the global elite perspective is that a quick way to rid the globe of the problems we face is to kill off enough people so that the problem dissipates — war, fraud, nationalism/racism used to point the finger at the other (making it easier for people to harm one another or look the other way (Arendt).

  14. Susan the Other

    China is wisely looking at the efficiency of state owned enterprises with a reluctance to privatize them. It will become very clear now that everyone is sobering up from the collapse of the USSR that neoliberal capitalist efficiency (profits) can only be made by socializing costs and externalizing everything that reduces their bottom line with answers like “That ain’t mine.” If even the doofuses at davos are looking at various forms of “capital” (social, political, civil, environmental, etc.) they have begun to mitigate their global catastrophe. Efficiency requires a variety of gains, returns, profits and fairness. Otherwise it is simply theft. And when all is accounted for there might not be any profit to be had in the real world. Only in the minds of the neoliberals. Efficiency is something that should be accounted for carefully so that no vital systems are harmed.

  15. bruce wilder

    Barkley insists on a left-right split for his analysis of political parties and their attachment to vague policy tendencies and that insistence makes a mess of the central issue: why the rise of right-wing populism in a “successful” economy?

    Naomi Klein’s book is about how and why centrist neoliberals got control of policy. The rise of right-wing populism is often supposed (see Mark Blyth) to be about the dissatisfaction bred by the long-term shortcomings of or blowback from neoliberal policy.

    Barkley Rosser treats neoliberal policy as implicitly successful and, therefore, the reaction from the populist right appears mysterious, something to investigate. His thesis regarding neoliberal success in Poland is predicated on policy being less severe, less “shocky”.

    In his left-right division of Polish politics, the centrist neoliberals — in the 21st century, Civic Platform — seem to disappear into the background even though I think they are still the second largest Party in Parliament, though some seem to think they will sink in elections this year.

    Electoral participation is another factor that receives little attention in this analysis. Politics is shaped in part by the people who do NOT show up. And, in Poland that has sometimes been a lot of people, indeed.

    Finally, there’s the matter of the neoliberal straitjacket — the flip-side of the shock in the one-two punch of “there’s no alternative”. What the policy options for a Party representing the interests of the angry and dissatisfied? If you make policy impossible for a party of the left, of course that breeds parties of the right. duh.

    1. Bob Simmons

      Left-Right analysis is always wrong. There is only 1 version of it and one version alone:
      Your a leftist if you oppose capitalism
      Your a rightist if you support capitalism

      Period. The last 30-40 years has gotten stupid how we equate that into other social positions. That is the traditional and only metric that matters.

    2. likbez


      Blowback from the neoliberal policy is coming. I would consider the current situation in the USA as the starting point of this “slow-motion collapse of the neoliberal garbage truck against the wall.” Neoliberalism like Bolshevism in 1945 has no future, only the past. That does not mean that will not limp forward in zombie (and pretty bloodthirsty ) stage for another 50 years. But it is doomed, notwithstanding recently staged revenge in countries like Ukraine, Argentina, and Brazil.

      Excessive financialization is the Achilles’ heel of neoliberalism. It inevitably distorts everything, blows the asset bubble, which then pops. With each pop, the level of political support of neoliberalism shrinks. Hillary defeat would have been impossible without 2008 events.

      At least half of Americans now hate soft neoliberals of Democratic Party (Clinton wing of Bought by Wall Street technocrats), as well as hard neoliberal of Republican Party, which created the “ crisis of confidence” toward governing neoliberal elite in countries like the USA, GB, and France. And that probably why the intelligence agencies became the prominent political players and staged the color revolution against Trump (aka Russiagate ) in the USA.
      The situation with the support of neoliberalism now is very different than in 1994 when Bill Clinton came to power. Of course, as Otto von Bismarck once quipped “God has a special providence for fools, drunkards, and the United States of America.” and another turn of the technological spiral might well save the USA. But the danger of never-ending secular stagnation is substantial and growing. This fact was admitted even by such dyed-in-the-wool neoliberals as Summers.

      This illusion that advances in statistics gave neoliberal access to such fine-grained and timely economic data, that now it is possible to regulated economy indirectly, by strictly monetary means is pure religious hubris. Milton Friedman would now be laughed out the room if he tried to repeat his monetarist junk science now. Actually he himself discarded his monetarist illusions before he died.

      We probably need to the return of strong direct investments in the economy by the state and nationalization of some assets, if we want to survive and compete with China. Australian politicians are already openly discussing this, we still lagging because of “walking dead” neoliberals in Congress like Pelosi, Schumer, and company.

      But we have another huge problem, which Australia and other countries (other than GB) do not have: neoliberalism in the USA is a state religion which completely displaced Christianity (and is hostile to Christianity), so it might be that the lemming will go off the cliff. I hope not.

      The only thing that still keeps neoliberalism from being thrown out to the garbage bin of history is that it is unclear what would the alternative. And that means that like in 1920th far-right nationalism and fascism have a fighting chance against decadent neoliberal oligarchy.

      Previously financial oligarchy was in many minds associated with Jewish bankers. Now people are more educated and probably can hang from the lampposts Anglo-Saxon and bankers of other nationalities as well ;-)

      I think that in some countries neoliberal oligarchs might soon feel very uncomfortable, much like Soros in Hungary.

      As far as I understood the level of animosity and suppressed anger toward financial oligarchy and their stooges including some professors in economics departments of the major universities might soon be approaching the level which existed in the Weimar Republic. And as Lenin noted, ” the ideas could become a material force when they got a mass support.” This is probably true about anger toward neoliberalism as well.

  16. RBHoughton

    Sachs has rejoined society from the outer darkness of Chicago School. He has come in from the cold, abjured his wrong opinions and remodelled himself as a champion of humanity. Woohoo. But the success of Poland may not simply be due to Poles shaping-up. There’s the belated joining the EU, the scary approval of NATO and hatred of Russia that underlies Polish willingness to be the stalking horse for Washington DC in Europe.

    Naomi Klein was mostly right about ‘shock doctrine’ – that was a popular political / economic game to wrest the wealth from society back into the welcoming arms of markets and corporations. “Shock Doctrine” was her purpose in life. I will not overlook her service to humanity.

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