University of Groningen
Institutional Change and Poland's Economic Performance since the 1970s
Platje, Johannes Casparus
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2004
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Citation for published version (APA):
Platje, J. C. (2004). Institutional Change and Poland's Economic Performance since the 1970s: incentives
and transaction costs Groningen: CL Consulting i Logistyka, Oficyna Wydawnicza "Nasz Dom i Ogród",
Wroclaw, Poland
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155
Chapter8
Summaryand Conclusions
This final chaptergivesan overviewof the main conclusionsand policy implicationsof this
study on institutional changeand Poland'seconomicperformancesincethe 1970s,and an
attemptis made to answerthe main questionof this thesis:Tb whatextenthaveincentivesand
transactioncostschangedin the Polish economyand influencedecononricpe(ormance in the
peiod 1970-2000and how can thesechangesbe explainedwith the help of New Institutional
Economics?Two periodswere taken into consideration.The socialistsystem,which existed
until 1989,and the period of market constructionsince1990.The main questionwasdivided
into sub-questions.
Concerningthe socialistsystem,to what extentcan transactioncosts
and incentivesexplain its demise,and how did they create the conditions for institutional
changetowardsa market economy?How did the situationat the end of the socialistsystem
influenceeconomicperformanceat the beginningof the 1990s,and how did institutional
changeproceedand transactioncostsand incentivesdevelopduring the 1990s?
Toolsof New Institutional Economics(NIE) havebeen applied in order to try to find an
answerto the researchquestion and analysethe processof institutional change.NIE analyseseconomicproblemsfrom a multidimensionalpoint of view. A focal point was how the
"legacyof the past" can be taken into accountwhen explainingthe decline of the socialist
systemin Polandand analysingthe processofinstitutionalchangein the 1990s.
8 . 1 . S u m m a r yo f m a i nf i n d í n g sa n d c o n c l u s i o n s
Formal and informal institutions(rulesof the game)provide incentivesfor economicactivity. Thus,when institutionschange,incentivesfor economicactivityalso change.Thansaction
costsinfluencethe payoft'sof undertakingeconomicactivity,and determinewhich type of
governancestructure is the most efficient.The level of transactioncostsis influenced not
only by institutionsinfluencingthe value in the public domain, but also by "hardware" like
physicalinfrastructureand by enforcementof the rules of the game by "institutional goverin order to stimulateeconomic
nance".Institutionsshouldbe stableand reduceuncertainty,
activity.However, inefficient institutionsmay survive,as people get used to them (mental
models),not all mistakesare uncovered,and stronginterestgroupsmay defenda statusquo.
Chapter8
In general, high transactioncostsnegativelyinfluence economic activity, while the same
counts for weak incentives.But when transactioncostsare high and incentivesstrong,the
influenceon economicactivity dependson which factor has the strongestinfluence.
Generally speaking,a planned economycan function appropriatetyat early stagesof
economic developmentor when market institutionsare not developedor fail. Thus, just
after World War II the model of central planningcould provide satisfactoryeconomicperformance,especiallyin the period of post-warreconstruction.However,when the number
of transactionsincrease,the planned economyis expectedto face increasing(marginal)
transactioncosts,as there are diseconomies
of scaleto planning.Then a more decentralised economicsystem,like a market economy,is neededto lower transactioncosts.When
transactioncostsincrease,there is larger value in the public domain,negativelyinfluencing
incentivesfor productive activity, as more opportunities for rent-seekingappear. This is
a theoreticalexplanationfor the economicstagnationin Soviet:lypeEconomies(STEs)that
appearedín the 1970sand 1980s.
The socialistsystemwasinefficientcomparedto developedmarket economies.A question
is why inefficient institutionsin socialistcountriescould survivefor such a long time. Until
the 1960seconomic performance in STEs was at an acceptablelevel. When economic
problems appeared,people had alreadygot used to the system.Furthermore,the communist Partyin fact monopolisedinformation,and had a strongideologicalcommitmentto the
socialistsystem.The influenceof the SovietUnion limited the room for changein Poland
to a large extent. Due to control of media, many mistakesremaineduncovered.When the
power monopolyof the CommunistPartywas broken,market institutionsthat would increaseefficiencycould be introduced.However,thereis a free-riderproblemwith introducing
them,as market institutionshavefeaturesof a publicgood.This is becausethey are accessiblefor free without reducingthe opportunitiesfor useby others.Self-interestand distrust
make the problem bigger,while trust and process-regarding
preferences(e.g.ideology)can
overcomethe free rider problem. However,evenwhen the free-riderproblem is overcome,
thereremainsuncertaintyaboutthe outcomeof institutionalchange.No-oneis ableto completelygraspthe complexnature of institutionalchangeor foreseewhich institutionsare
most efficient, becauseof many unknowns,while much can go wrong in the processof creation and implementation.
It is expectedthat transactioncostsincreasewhen the introductionof market institutions is speededup. When there is high uncertaintyabout institutionalchange,peoplefatl
back on mental modelsdevelopedunder the old system,leadingto adversereactionsto the
incentivesgiven by developingmarket institutions.This createsan institutionaldisequilibrium. As many peoplehad "system-specific"
skillsand contacts,they had an interestin
protectingold (inefficient)institutions,which sloweddown institutionalchange.Thus,for
a certainperiod old "degenerating"institutionswere likely to co-existwith new developing
institutions.This was accompanied
by lack of certaininstitutions(institutionalvacuum).
Furthermore,value in the publícdomainis expectedto increase.During the privatisation processthe opportunitiesfor rent-seekingincreased,and there were problemswith the
enforcementof market rules of the game as "institutional governance"was weak. The increasingtransactioncostsand adverseincentivesmay havecontributedto the fall in output
at the beginningof the 1990s,wh
freedom counteractedthis tende
GenerallYsPeaking,transac
in the socialistsYstem.This wa
socialism,via reform socialism
weakening incentivescontribut
with other factorslike thc largeÍ
nomic stagnation.In the Period<
of the 1960s,transactioncosts\
Central Committeehad an enco
property and Planningwere "st
startedin the 1970s,transactio
with the weakeningof the Plan
more clifficult. Reforms and dec€
of propertYrights.In otherword
to use) and ususfructus(the r
with what Olson argues.there*
Tire Central Committeehad an
dualswere interestedratherin n
economicPerformance'Further
who was in control over Prope
a situationwhere it becamemc
v a l u ei n t h e P u b l i cd o m a i ni n c
costsand weaker incentivesfor
The socialistsystemwasad
vided weak incentivesfor innov
were born bY the innovator'fu
of experimentingwith differen
Communist ideologYhad n'
I
tion tried to nlotivatePeoPle
wards narrow interest.Furthe
of living and a socialcontrac
consumPtionwas financedbY
f o r e x p o r t sf a i l e dd u e t o v a r i
duet<
the wasteof investment
negativelYinÍluenced opport
Westerneconomiesto enter
On the other hand,the increi
many productswere not exp
createda Problemwith rePaY
economicProblemscontinue
the labour movementin the Í
of the CommunistParty.
Sunrmary
and Conclusions
enceeconomicactivity, while the same
)ostsare high and incentivesstrong, the
rctorhasthe strongestinfluence.
'lnctionappropriatelyat early stagesof
ns are not developedor fail. Thus, just
;ouldprovidesatisfactoryeconomic per)nstruction.
However.when the number
expectedto face increasing(marginal)
nleto planning.Then a more decentraleededto lower transactioncosts.When
hepublicdomain,negativelyinfluencing
unitiesfor rent-seekingappear. This is
rn in SovietTypeEconomies(STEs) that
developed
marketeconomies.A question
couldsurvivefor such a long time. Until
t an acceptablelevel. When economic
o the system.Furthermore,the CommuI a strongideologicalcommitment to the
r limitedthe room for changein Poland
remaineduncovered.When the
nistakes
rken,marketinstitutionsthat would in:eisa free-riderproblemwith introducing
rlic good.This is becausethey are acces,r useby others.Self-interestand distrust
regardingpreferences(e.g.ideology) can
ihenthefree-riderproblemis overcome,
ititutionalchange.No-one is able to comchangeor foreseewhich institutions are
nuchcango wrong in the processof crevhenthe introductionof market instituty aboutinstitutionalchange,people fall
'stem,leadingto adversereactionsto the
rs.This createsan institutionaldisequiills and contacts,they had an interest in
veddowninstitutionalchange.Thus, for
:re likelyto co-existwith new developing
rininstitutions
(institutionalvacuum).
pectedto increase.During the privatisa'eased,
and therewere probiemswith the
itutionalgovernance"was weak. The inrayhavecontributedto the fall in output
157
at the beginningof the 1990s,while incentivesfor economicactivity due to more economic
freedomcounteractedthis tendency.
Generallyspeaking,transactioncostsincreasedand incentivesweakenedthrough time
in the socialistsystem.This was a consequence
of the systemweakeningfrom classical,
socialism,via reform socialismto "decaying"socialism.Increasingtransactioncostsand
weakeningincentivescontributed to deteriorating economic performance,and, together
with other factorslike the largeforeign debt and the extensivegrowth path, resultedin economicstagnation.In the period of classicalsocialism,which lastedmore or lessuntil the end
of the 1960s,transactioncostswere relativelylow and incentivesrelativelystrong,as the
CentralCommitteehad an encompassing
interestin good economicperformanceand public
property and planning were "strong". In the period of reform socialism,which in Poland
This is connected
startedin the 1970s,transactioncostsincreasedand incentivesweakened.
with the weakeningof the planned economy,making the solvingof the allocation problem
de facto led to a dispersionof the characteristics
moredifficult. Reformsand decentralisation
of propertyrights.In other words,lower levelsin the hierarchyobtainedpart of usus(the right
to use) and ususfructus (the right to pick the fruits). As a consequence,in accordance
interestto narrow interest.
with what Olson argues,there was a changefrom encompassing
economic
performance,while indiviCentral
an
interest
to
look
at
total
Tire
Committeehad
dualswere interestedrather in maximisingtheir own welfare,eventuallyat the cost of overall
economicperformance.Furthermore,the dispersionof propertyrightsmade it more unclear
who was in control over property rights,while the principal-agentproblem increasedin
a situationwhere it becamemore unclearwho is the principal.Thus, it can be argued that
valuein the publicdomainincreased,
leadingto increasedrent-seeking,
highertransaction
costsand weaker incentivesfor productiveeconomicactivity.
The socialistsystemwas adaptivelyinefficient.The institutionof public property providedweak incentivesfor innovation,sincebenefitsbecamepublicpropertyand costsand risk
were born by the innovator.Another reasonfor adaptiveinefficiencywas the impossibiliry
of experimentingwith different forms of property rights,as stateownershipwas sacrosanct.
Communistideologyhad neverbeenvery strongin Poland,and the Gierek administraThis supporteda developmenttotion tried to motivatepeoplewith economicincentives.
wardsnarrow interest.Furthermore,support was "bought" by promising higher standards
of living and a socialcontractof solvingpoliticalconflictsnon-violently.Investmentand
consumptionwas financed by foreign loans.However, the strategyof building up industry
for exportsfailed due to variousreasons.This may not have been so much the result of
as the oil crisesand stronginternaldemand
thewasteof investmentdue to weakincentives,
negativelyinfluencedopportunitiesfor exports.The oil crisesof 1973and 1979caused
Westerneconomiesto enter a recession,
loweringthe denrandÍbr Polishexportproducts.
On the other hand, the increasedexpectationsof societyhad to be fulfilled. Becauseof this
manyproductswere not exported,as they were consumedon the domesticmarket.This
createda problemwith repayingthe foreigndebts.Belief in the systemstartedto weakenas
economicproblemscontinued,especiallytowardsthe end of the 1970s.During this period
thelabourmovementin the form of Solidaritygainedmuch influence,weakeningthe power
of the ConrmunistParty.
158
Chapter8
The 1980swere a period of "decaying"socialism,where the economicpolicy seemedto
be "keep the boat from sinking". Thansactioncostsincreasedmore and more, and incentivesweakened.By way of Martial Law, which went into force on 13'hDecember 1981,an
attempt was made to break the power of the, by that time, legal labour union Solidarify.It
is difficult to find out whether it was the SovietUnion that inspiredthis or not, but as a consequencethe CommunistPartyitself weakenedvery much. Many membershad been active
in Solidarity,and in 1982many peopleleft the Party.After a while labour againgainedmore
power, and in the processof reform attemptsin 1982and after, labour and managementof
state-ownedenterprises(SOEs) obtained more influence.In other words, they had more
control over the characteristics
of stateproperty.As a result,property rights were more
,vaguelydefined, leading to more value in the public domain. From 1982 an attempt was
made to introducemore market into the economy,and the systemof directiveplanningwas
abolished.Plan bargainingwas replacedby regulationbargaining,which was accompanied
by higher transactioncosts.Shortagesincreased,which led to higher transactioncostsfrom
the sidesof both producersand consumers.Theoretically,in a planned economythere are
no transactioncostsinvolvedin activitiessuchas stockprocurementand sellingthe product.
However, due to shortagesit was never clear how much of the neededinput could be obtained at what moment. This led to hoarding and the developmentof an informal market
betweenfirms, accompaniedby high transactioncosts.Also many other transactioncostsincreased.For consumersthe consequenceof shortageswas that more and more often queuing and informal marketsbecamethe distributionmechanism.It was quite common that
people had to queue 2-3 hours per day for the necessities
of life. Sucha situationwasfrustrating,and contributedto generaldissatisfaction.
Beliefin the socialistsystemweakened,also amongmembersof the CommunistParty.In other words,the institutionaldisequilibrium
becamelarger.
The weakeningof the socialistsystemby way of de facto dispersionof properfy rights,
weakeningof the CommunistParty,the abolitionof centralplanningand the disappearanceof the belief in the systentwere factorsthat createda situationof "decaying"socialism
in the 1980s.Tiansactioncostsincreased,incentivesweakened,and economicstagnation
seemedto be a permanentfeature.This createdfertile ground for the creationof a market
economyin the 1990s.Economic factorsalone cannot explainthe direction of change.The
developmentof an economicinterestamongthe ruling elitesin a more market-orientedsystem was important. This, and the stronglabour movernent,loweredthe political transaction
costsof changesignificantly.However, the non-interferenceof the Soviet Union in Polish
internal affairs also lowered thesepolitical transactioncosts.
The situation at the end of the 1980swas one of neither plan nor market. With the
peacefulpower transferto the Solidaritymovementin l9Íi9, when a coalitionwith the Communistswas formed, the task of the Soli<Jarity
led governmentwas to develop a program
to impr<lveeconomicperformance.As transactioncostsincreasedand incentivesweakenedundersocialism,an implicit aim of transÍbrmationwasto lower transactioncostsand
strengthenincentives.
Although theoreticaliytheremay havebeenother options,it canbe
arguedthat the constructionof a market was chosenas there were no other t'easiblealternatives.Reformingsocialismwasnot a real alternative,as therewas no-oneto do this iob.
The reformerswere quite optim
der which a market economywo
hindsight, the tools of NIE can
€xpectedat the beginningof th
after a short recessionin compa
As informal institutionschan
veloped under the old systempli
(path-dependency).
This means
mal rulescan be changedat once
have to learn, interpret and app
building and the creationof "ins
costsof institutionalchange),wh
poses,negativelyinfluencingec
called "shock-therapy"asoppos
tions changedquickly,whileothe
pends on which institutionswe a
The developmentpath towa
examplesof former Sovietrepub
systemimmediatelywas the ma
trade liberalisation.
Althoughth
one hand, it reducedthe oppor
tions and reducedthe remainin
vatisation of property rights (ch
with respectto price regulation
liberalisationprovidedstronginc
transactioncosts,as little regula
lished.When opportunitiesfor re
wealth rnaximisingindividualsu
activities.
Uncertainty about future inl
1 9 9 0 sw. h i l e t h e e c o n o m i cs y s t
equilibrium.A mix of socialist
an
existedin an "embryonic"form c
actorsfall backon their mentaln
a situationcreatedmanyadvers
action costsin economicexchan
a n d r e s t r u c t u r i n go f S O E s .A s
thened by factorssuchas a lack
economy.However,due to the i
as deepas it could havebeen.
Tiansitionhascometo itsenc
costsare low and incentivesares'
Although manystepsin thisdirec
Summaryand Conclusions
0,wherethe economicpolicy seemedto
more and more, and incens increased
rt into force on 13'hDecember 1981,an
at time,legallabour union Solidarity. It
rn that inspiredthis or not, but as a cony much.Many membershad been active
. After a while labour againgainedmore
32andafter,labour and managementof
fluence.In other words, they had more
As a result,property rights were more
rlicdomain.From 1982 an attempt was
andthe systemof directiveplanning was
.ionbargaining,which was accompanied
hichled to higher transactioncostsfrom
etically,in a planned economythere are
lck procurementand sellingthe product.
muchof the neededinput could be obthe developmentof an informal market
sts.Also manyother transactioncostsingeswasthat ntore and more often queuIt was quite common that
r mechanism.
:essities
of life. Sucha situationwas frusleliefin the socialistsystemweakened,aler words,the institutionaldisequilibrium
rf de factodispersionof property rights,
r of centralplanningand the disappear:eateda situationof "decaying"socialism
vesweakened,
and economicstagnation
rrtilegroundfor the creationof a market
rnotexplainthe directionof change.The
rlingelitesin a more market-orientedsyslvement,loweredthe political transaction
of the Soviet Union in Polish
rterference
Jion costs.
reof neitherplan nor market. With the
t in 1989,when a coalitionwith the ComJ governmentwas to develop a program
rn costsincreasedand incentivesweakrationwasto lower transactioncostsand
'e mayhavebeen other options, it can be
senastherewere no other feasiblealterrative,asthere was no-one to do this job.
159
The reformerswere quite optimisticabout the expectedresultsof the Balcerowiczplan under which a market economywould be introducedin a short period. \ryith the advantageof
hindsight,the tools of NIE can be used to explain why the fall in output was larger than
expectedat the beginningof the 1990s,and why Poland'seconomystarted to grow again
after a short recessionin comparisonto other transformingformer STEs.
As informal institutionschangemore slowlythan formal institutions,mental modelsdevelopedunder the old systemplay an important role in the developmentof the new system
(path-dependency).
This meansthat fast institutionalchangeis difficult. Theoretically,formal rulescan be changedat once,but implementationtakestime becauseeconomicsubjects
haveto learn,interpretand applythe new rulesand to changetheir behaviour.Institution
building and the creationof "institutional governance"is very costly(high fixed transaction
costsof institutionalchange),whichimpliesthat thesesourcescannotbe usedfor other purposes,negativelyinfluencingeconomicactivity.Although the Polishtransformationwas
called"shock-therapy"as opposedto gradualism,theselabelsare not proper. Some institutionschangedquickly,while otherschangedslowly.Thus,the label"shock"or "gradual"dependson which institutionswe are talking about.
The developmentpath towardsa relativelystrong market economywas not obvious,as
examplesof fornrer Sovietrepublicsshow.An important factor strengtheningthe economic
systemimmediatelywas the macroeconomicstabilisationpolicy in the form of price and
tradeliberalisation.
Although this causeda deepeningof the recessionin 1990-1991on the
one hand, it reduced the opportunitiesfor rent-seekingactivitiescreated by price regulations and reducedthe remainingshortagesimmediately.Price liberalisationmeansthe privatisation of property rights (characteristicsof property) that the government possessed
with respectto price regulation,stimulatingthe developmentof a market economy.Tiade
liberalisationprovided strongincentivesfor small businessto develop,while they faced low
transactioncosts,as little regulationexisted.As a result,a privatesectorwasfirmly established.When opportunitiesfor rent-seekingare reduced(lower value in the public domain),
wealth maximisingindividualsuse their efforts for productiverather than redistributive
activities.
Uncertainfyabout future institutionalchangewas very high at the beginningof the
1990s,while the economicsystemfaced an institutionalvacuumand an institutionaldisequilibrium.A mix of socialistand marketinstitutionsexistedand manymarketinstitutions
existedin an "embryonic"form or did not existat all. When there is uncertainty,economic
actorsfall backon their mentalmodels,whichin thiscasetook shapeunder socialism.Such
a situationcreatedmany adverseincentivesfor economicbehaviourand led to high transactioncostsin economicexchangein the processof institutionalchange(e.g.privatisation)
and restructuringof SOEs.As a consequence,
output declined.This effect was strengthenedby factorssuchas a lack of socialcapitaland a lack of skillsneededfor a market
econonly.However,due to the immediatesyslemstrengthening,
the fall in output was nof
asdeepas it could havebeen.
Thansitionhascome to its end when a "nonnal" economicsystemexistswhere transaction
costsare low and incentives
are strong,whileinformalinstitutionssupportformalinstitutions.
Althoughmanystepsin this directionhavebeenmade,transitionstill proceedsin many fields.
160
C h a p t e r8
An example is logistic development,where Poland lags 10 to 30 years behind developed
marketeconomies.However,the developmentof logisticscreatesopportunitiesfor finding
transactioncost lowering solutionsand providesincentivesfor step-by-stepinstitutionalimprovement.It is suggested
that smallfirms shouldstartto co-operate
with eachother,in order to surviveincreasingcompetition from larger companiesoffering logisticservices.This
seemsalso to be necessary,
as the "institutionalvacuum"is becomingsmallerwith the introduction and implernentationof many standards(e.g.health, safetyand environmental
standards)in the processof E,U accession,
increasingthe coststo smallerfinns relatively
faster than to larger firms.
At the beginningof the 1990stransactioncoststo SOEsincreased,
while smallnewlyestablishedprivate businessfaced low transactioncostsand strongincentives.When property
rightsbecamemore certain,the institutionalvacuumbecamesmallerand part of the (privatised)statesectoradaptedto the new circumstances,
causinptransactioÍlcoststo decline.
A good exampleof a strengtheninginstitutionleadingto lowertransactioncostsis the banking
sector.However, as is suggestedby empirical researcl'r(see the Appendix), in the second
half of the 1990ssometransactionc:osts
increased,
at leastfor smallfirms.It may be thatthe
closingof the institutionalvacuum,e.g.in the form of the introductionand enforcement
of
new taxesas well as environmentaland healthregulationsposedproblemsfor them.The
data also suggestincreasingtransactioncostsfor firms rvith more than 20 employees.These
costsconcernineflicientpublic administration,
tt'ansaction
unclearlaws,law enforcement,
the processof creatinglegislation,
corruption,theft,and increasing
problemswith collecting
paymentsfrom trade partners.Irurthermore,trust and the propensityto co-operateremain
low. Tiust in different levelsof governmentamongentrepreneursis very low, posinga rhreat
to continuingeconomicgrowth.Some trust in banks,as well as process-based
(personal)
trust in suppliersand clients,exists,suggestingsome prospectsfor developingnew economicventures.
8 . 2 .S o m ei m p Í í c a t i o n s
Toolsof NIE have been used to analysesvsten changein Polandsirrcethc i970s It has
helpedto explainwhy the sc-rcialist
systemstagnated
economically,
and howweakeningincentives and increasingtransactioncostscc.ntributedto the demiseof the system,beingan
explanatoryvariablein additicrnto politicalfactors.Furthermore,it explaiuswhy the transfornrationstrafegywas accompanied
by a declinein output,and why the ecorromyentcred
a path of economicgrowth rather quickly.it alsohelpsto irrdicatewhich clrallenges
have
come up that may harnperfuture economicgrowth.
A questionis horvfuture institutionalchangewill proceed.A market has been inrroduced,generallyspeakingloweringtransacÍion
costsand strengthening
incentives
compared
to the socialistsystemwhen the economicsystemstrengthened
in the 1990s.However,although uncertaintyabout the directionof institutionalchangehas been reducedsignificantly,there is still a long way to go as only thirteenyearshavepassedsincethe introduction of the Balcerowiczplan. As much changestill hasto take place,uncertaintyremains.
Among others,weak "institution
hamper the introduction of more
Poland'sefforts for EU acce
tutions and good governancePra
cessof preparing accessionto the
tional changeaccompaniedby ma
processthan at the beginningoft
refer to and adaptationto EU in
the existingmental models,whic
inefficient formal institutionsand
that an "inefficient copy" of EU
scenario,as in the last few yearsr
have finished, of which hardlyan
huge amount of changes,not me
tions are more likely, if theseins
consideration.
Furthermore,EU institution
creating much uncertainty.For t
ket economygained up till now t
aspirationsof joining the EU. I
lessonsfrom the processof institu
problemsthat cameup at the be
for changes,due to the proceed
and to investin new traderelatio
there may be negativeeconomic
the medium-term as a resultof e
Poland is able to use the opportu
Summaryand Conclusions
Ldlags10 to 30 yearsbehind developed
logistics
createsopportunitiesfor finding
centives
for step-by-stepinstitutional imitart to co-operatewith eachother, in or:ompanies
offering logistic services.This
tcuum"is becomingsmallerwith the inls (e.9.health,safety and environmental
singthe coststo smallerfirrns relatively
to SOEsincreased,while small newly esstsandstrongincentives.When property
um becamesmaller and part of the (prirces,causingtransactioncoststo decline.
Lgto lowertransactioncostsis the banking
:arch(seethe Appendix),in the second
at leastfor smallfirms. It may be that the
r of theintroductionand enforcementof
;ulationsposedproblemsfor them. The
:mswith more than 20 employees.These
,stration,
unclearlaws,law enforcement,
increasing
and
problemswith collecting
,
andthepropensityto co-operateremain
entrepreneurs
is very low, posinga threat
nks,aswell as process-based
(personal)
)mc prospcctsfor 6lgys;.ting new eco-
ications
hangein Polandsincethe i97lls. It has
economically,
and how rveakeningincenI to the demiseof the system,being an
. Furthermore,
it explainswhy the transn output,andwhy the economventered
h e l p st o i n d i c a t ew h i c h c h a l l e n g ehs a v e
L
will proceed.A market has been intros anj strengthening
incentives
compared
strengthened
in the 1990s.However,al:ionalchangehas been reducedsignifi)n yearshavepassedsincethe introduchasto takeplace,uncertaintyremains.
161
Among others,weak "institutional governance",interestgroups and a lack of transparency
hamperthe introduction of more efficient institutions.
Poland'sefforts for EU accessioncreateincentivesfor the developmentof strong institutions and good governancepractices.At the moment (the year 2003)Poland is in the processof preparingaccessionto the European Union. In fact, this is also a processof institutional changeaccompaniedby many uncertainties.There seemsto be lessuncertaintyin this
processthan at the beginningof the 1990s,becausethere are establishedEU institutionsto
refer to and adaptationto EU institutionshas been proceedingfor many years.However,
the existingmental models,which still find their roots in the socialistsystem,as well as the
inefficientformal institutionsand "institutionalgovernance"still existing,createthe danger
that an "inefficient copy" of EU institutionswill be introduced. This is not an unrealistic
scenario,as in the last few yearsmany lawshavebeen passedand negotiationswith the EU
havefinished,of which hardly anyonecan predict what will be the effect, simply due to the
hugeamountof changes,not mentioningother factors."Inefficientcopies"of EU institutions are more likely,if theseinstitutionsare introducedwithout taking Polishreality into
consideration.
Furthermore,EU institutionsalso haveto be changedin the processof its enlargement,
creatingmuch uncertainty.For this reasonexperiencefrom the transformation to a market economygained up till now may be invaluablein facing the challengescreated by the
aspirationsof joining the ELJ.As EU accessionimplies a new kind of transformation,
lessonsfrom the processof institutionalchangecan be drawn,in order to preventthe type of
problemsthat cameup at the beginningof the 1990s.Although many firms are prepared
for changes,due to the proceedingtransformation,many are likely to have to restructure
and to investin new trade relationswhen Polandjoins the common market. In the short-run
there may be negativeeconomiceffects,while positiveeconomiceffectswill be felt only in
the medium-term as a result of evolutionaryinstitutionalchange,under the condition that
Polandis able to use the opportunitiescreatedby EU membership.