Shock therapy master class

Janusz LEWANDOWSKI, the European Commission’s Budget and Financial Programming Commissioner, architect of Poland’s privatization program, one of the distinguished reformers in post-Soviet Poland (he played a major role in turning Poland into an economically sound country after implementing an effective transformation policy), was recently a guest lecturer at the National State Administration Academy under the auspices of the President of Ukraine. His subject was “Polish Transformation: Victories and Defeats” and he said, in part: “I would describe what happened to us [i.e., Ukraine and Poland], back in the early 1990s, as ‘civilizational wasteland.’ We are united by the awareness of so much time having been wasted. We were wasting time while other countries were carrying out reforms, showing quick progress. We were building large production facilities, making products many of which no one needed.”

Janusz Lewandowski was part of the reform team that succeeded in carrying out the most difficult reforms in Poland, so that in 1989-98 its national economic growth was Eastern Europe’s highest. EBRD estimates read that Poland’s GDP in 1998 was 117 percent that of 1989, with all other ex-Warsaw Pact members, including ex-Soviet republics, showing lower indices than prior to reform.

Poland is a member of the European Union and Europe’s only country to have shown GDP growth during the world financial crisis in 2009. This makes its experience regarding ambitious reforms especially important for Ukraine.

Experts who attended European Commissioner Lewandowski’s lecture arrived at the same conclusion. “I think that this get-together is important, considering that Ukraine is about to carry out economic reforms, and we believe that they must be based on the shock therapy model. Poland has a markedly positive experience of such transformations. Ukraine could use it when dealing with gas tariffs and pension reform,” says Bleyzer Foundation Ukraine’s CEO Oleh Ustenko.

Leszek Czerepka, special advisor, deputy Polish ambassador to Ukraine: “I would like to single out an interesting aspect, which serves to confirm that Mr. Lewandowski holds Ukraine in special favor: he was a member of Bilecki’s administration, the world’s first to recognize Ukraine’s independence. This get-together is especially important, held at a time when the

Eurozone is distressed and the euro’s very existence called into question. It’s good to have an opportunity to hear Janusz Lewandowski, a true expert in this domain. Among other things, Mr. Lewandowski is going to tell us today about Poland’s transformation experience. Ukraine has very similar conditions.”

Lewandowski is convinced that there is no “perfect” recipe for transforming a country’s economy, and that the most important experience is the one you can share and see it being seriously considered: “Back in the early 1990s, Poland had a well-developed private sector, with the collective farms functioning, but the country and its economy was under-regulated. There were huge production facilities… Communism had aroused great appetites… Solidarnosc [Solidarity] saved Poland. After Lech Walesa was elected President, there emerged the so-called umbrella against public outrage over the [unpopular yet vitally necessary] reforms. This is something you’d be hard put to organize in Ukraine.”

His lecture caused the experts present to ask a number of questions concerning not only economic transformations, but also EU member state’s budgets, why most countries had allowed their deficits to soar, despite being aware of the dire consequences. And then came the stunning question asked by Andrzej Aleksa of Skalar Trading, Ukraine. He asked how long the EU would keep being scared of Ukraine. “I represent Polish business in Ukraine. We have been doing business here since The Day on which the Ukrainian [national] flag was unfurled on top the City Hall of Lviv twenty years ago. We took part in the transformation of Ukraine. However, considering the EU policy in regard to Ukraine, my impression is that the Union is scared of Ukraine, not knowing what to do with this country. It is scared because Ukraine is a big and strong country, inhabited by strong people who are skilled in so many trades, who have a great intellectual potential. And so, given real progress, Ukraine would conquer EU markets,” he added.

Lewandowski replied that the si-tuation with the European Union isn’t as good as meets the eye, so there is no reason for hurrying to join it when there are so many problems in one’s backyard.

Integration into European structures remains a top priority for Ukraine, said Deputy Prime Minister Serhii Tihipko, who also attended Lewandowski’s public lecture.

So far, all integration discussions and debates have boiled down to finance. This topic dominates Ukraine-EU contacts. Experts, among them Polish diplomat Leszek Czerepka, are convinced that this isn’t the correct approach, for the emphasis must be not on the sum Ukraine would — or wouldn’t — receive from the EU, but on how well this money could be used; whether Ukraine has personnel and institutions with sufficient training to make good use of this money.

Following the lecture, Lewandowski kindly agreed to an interview with The Day. I was interested to hear about the EU’s stand in regard to President Yanukovych’s reform action plan, along with a piece of advice concerning economic transformations.

What would you describe as achievements and failures in the Polish economic transformation policy?

L.: “Reforms in Poland spell transformations being made on the lower level — in other words, things that the Polish man in the street could do. Making such transformations at the government level proved easier said than done. The main result of these transformations is upgrading the information, transport, and power supply infrastructures, as well as the health care, judicial, and social security systems. Above all, it means better state administration.

“One ought to realize that, by choosing a reform strategy, one can’t focus on the economy alone; it’s very important to analyze the environment of this economy.

“There are lots of problems left that must be solved on a top priority basis, including lack of qualified personnel, people who know foreign languages, who can work well, and who have no history of corruption. In this new Europe — I mean Poland, Bulgaria, Romania, Slovenia, Slovakia — there are still qualified personnel, rather than economic, problems to be solved.”

What about President Yanukovych’s reform action plan? How do you feel about its ambitious targets and prospects?

L.: “Each country should first consider political preconditions, whereas the president of Ukraine appears to be concerned about what the Verkhovna Rada has to say on the matter. The Ukrainian Parliament thus decides what is overambitious or realistic in this reform program.”

“However, there are times when the Cabinet has to suffer the implementation of unpopular reforms, thus risking its own unpopularity with the electorate. Gas prices, government purchases, struggle against corruption, are all good examples.

“Blaming Brussels for all troubles appears the most convenient way out of this situation. We did just that when carrying out unpopular reforms in Poland.”

What interests the EU in the transformation process above all?

L.: “The European Union is seriously concerned about keeping the public sector transparent, as well as protecting property rights. We all know about these being the weakest points of post-communist countries. We have a lab that studies them, so the EU is well aware of all these problems.”

You are the architect of another unpopular transformation in Poland: privatization. One of its key points was cleansing the state apparatus of corruption, keeping the process as transparent as absolutely possible. Privatization is very high on the Ukrainian agenda. How did you carry it out in Poland?

L.: “Privatization is never popular. People tend to see it as ‘our pro-perty’ being sold to ‘outsiders’ — fo-reign private owners. The problem of price is omnipresent, with opinions varying as to whether a property was sold too cheap or at an overstated price.

“Be that as it may, a privatization program has to be carried out without expecting encores from the audience. Implementing this program is like what a dentist does to a patient. Dentists are generally feared by patients, even though they know that a bad tooth has to be extracted. A patient hates his dentist because of the fear of pain the extraction process will cause. Ministers tasked with privatization are known to have been assassinated in a number of countries.

“It is also true that private property is far better managed than the public one. Take a family budget. Unlike the central budget, it is always balanced, with all income and expense items carefully managed. Still, this subconscious awareness of ‘our property’ being handed over to a foreign owner prevails and causes public outrage.

“With regard to corruption, there have always been complaints; we’ve always heard about something sold too cheap. Privatization remains the best hunting ground for tracking down corrupt politicians.”