Poland syndrome

Introduction

The postcommunist societies face, with respect to welfare provision,

three challenges. The first is that of the social costs of transformation.

"Under the twin impact of declining incomes and rising inequality, poverty has

risen dramatically in the transition economies," writes Branko Milanovic from

the World Bank (Milanovic, 1966, p. 175). The second challenge is the legacy of

the past: overextended, ineffective and inefficient institutions, and

inflated expectations. The postcommunist countries that are otherwise quite

advanced in making the transformation-Poland, Hungary, and the Czech

Republic-still have state-expenditure budgets that reach or exceed 50

percent of their GDP, and it is hard to imagine that the), can shoulder

such burden without paying heavy price in terms of economic efficiency

(Barbone and Polackova, 1966). The third challenge is the crisis of the

welfare state in the West, which eliminates for the transforming countries

any clear model for organizing their social safety net, except for one

piece of technocratic advice: reduce and downsize as much as possible

what you inherited from communist times.(1) Thus, the crisis of the

idea of the welfare state in the West has established one of the

important parameters of the market transformation in the East.

Two questions related to the problem of the social safety net in

Central Eastern Europe are of particular interest. The first, which

concerns the recent past, is, how to explain the relatively peaceful

acceptance of the disintegration, or--in some cases--near collapse

of existing institutions of social support in countries such as

Poland, Hungary, the Czech Republic, and some others as well.

"What is surprising," says Mark Kramer, "is not that hardships

emerged, but that the public reaction to them has been so tranquil"

(Kramer, 1996, p. 46). Contrary to many pessimist prophecies

formulated at the beginning of the transition, there were no

major upheavals, nascent democratic institutions were not threatened

(Greskovits, forthcoming, Ch. 1). The second question,

which concerns the present, is, why, even in those countries that

have made the most successful transformation to a market economy,

has the pace of reforms of the public services--of the "redistributive"

sector--been so much slower than that of the

"productive" parts of the economy, or that of the political and

legal spheres? "Reform of the welfare sector," says Janos Kornai,

"is the sphere of transformation where the least progress has

occurred. Indeed there has hardly been any change at all.... The

socialist system with all its well known features has survived in the

welfare sector" (Kornai, 1996).

In trying to sketch answers to these questions, I focus mostly

upon the experience of Poland, which as the first reforming

country has accumulated considerable experience. The Polish

economy is diversified, with a vibrant private sector on one hand,

and socialist industrial "dinosaurs" and stagnant agriculture on

the other. The ideological spectrum is vast, with an array of different

proposals and opinions offered. Finally, Poland has the

longest period of the resumption of growth of the countries

undergoing transition, and--as of now--is the only country, that

has attained their 1989 level of GDP (Commission for Europe,

1997, p. 225).

The most important points this paper makes are as follows: Historically,

the fact that the Polish society relatively calmly has

accepted the demise of the welfare arrangements of the socialist

times may be explained by three reasons: (1) the process of

decomposition has been relatively gradual and incomplete, (2)

the potential for political mobilization of groups particularly hard

hit has been relatively low, and (3) significant social groups have

supported the change. The slow process of readjustment of social

safety net institutions to new conditions, in turn, may also be

explained in two ways: (1) the incapacity of the intellectual and

political elite to formulate clear and attractive visions for the

reform of these institutions, and (2) the presence of forces within

the political economy that tend to preserve the status quo rather

than to press for new solutions. The argument may thus be

reduced to three main theses: (1) the change in welfare arrangements

is gradual and incomplete in nature; (2) the political and

intellectual elites are incapable of articulating programs; (3) a

balance of forces within the political economy contributes to the

inertia. The argument that I present here will follow these three

points, but for the sake of clarity, it is necessary to begin with a

frame of reference--with a short description of the welfare

arrangements under communism.

The Communist Welfare State

As historian Ivan Berend observes, "[s]ocial policy, the building

of a consistent social safety net and, given the economic standards

of the countries, a premature welfare system became prevalent

during the post-Stalinist decades" (Berend, 1996, p. 165). (The

term "premature welfare state" was coined by Janos Kornai

[1992].) The three pillars of the communist welfare state were

full employment, price controls combined with rationing, and

universal accessibility of such services as education and health

care, as well as the provision of pensions, sick pay, child care benefits,

maternity leaves, and so on.

The promise of full employment, that is, the right to a job provided

by the state, not only gave access to the means of survival,

but also served as a tool of social control, and work was treated as

much as a right as it was a duty. Those who did not work were

treated as parasites, or even as criminals. The workplace served as

much as a production unit as it served as a channel of access to

scarce goods and services. Prices and wages were set administratively,

and basic commodities (food, housing) were subsidized.

Rationing, in open or disguised forms, served two different ends:

allowing access to basic but scarce commodities to all who

(according to the authorities) needed them, and enabling the

authorities to use scarce goods of a more luxurious character as

rewards for political loyalty. Finally, pensions, education and

health care, but also various kinds of more specific benefits, were

provided by centralized, bureaucratic state machinery. Protection

was standardized and its distribution centralized, social insurance

integrated into the state budget, medical care provided by universal

health care service and separated from social insurance

(Voirin, 1993, p. 28).

Perhaps the easiest way to characterize the communist welfare

state is to contrast it with its Western counterpart- Comparing

them, we see superficial similarities hiding profound differences.

in each case, there were transfers of income, as there were institutions

of health care, education, child care, family programs,

housing policies, employment policies, state organized pension

schemes, and so on (one clear difference is that in the communist

countries, there were neither unemployment benefit programs,

nor antipoverty measures, as ideologically the existence of both

were denied). Despite those apparent similarities, there were,

however, profound differences. They may be summarized by saying

that in the West the institutions of the welfare state, having a

wide variety of ideological sources (Barr, 1987, pp. 9-68; Esping-Andersen,

1990), emerged and evolved historically in the long

process of piecemeal adjustments of social arrangements to tensions

produced by markets, which, however, remained the principal

mechanism of social coordination, while in the East these

institutions were designed as a part of a complete project of the

social system, under which the market was to be banned, and

imposed upon Eastern European countries according to the

model developed in the Soviet Union in the 1930s (Voirin, 1993,

p. 28).

From a political point of view, Western societies remained liberal.

Institutions of social protection were open to criticism,

adjustment, and redesign. Indeed, the present critique of the

deficiencies of the welfare state may be treated as part of such a

process of constant readjustment (Hirschman, 1982). As such, the

social order has been treated as flexible and open to constant

modifications. In the East, the social system--including welfare

provision--was treated as close to perfect and not subject to critique;

at the most only the particularities of implementation

could be questioned.

In the West, the distinction between different spheres of life--particularly

economic and political, but also private and public--has

been relatively clear. Separate institutions and different rules

of the game have governed each of these spheres, although they

have obviously overlapped and interacted. In the East, such distinctions

did not exist. All institutions were politicized. Enterprises,

or--better to say--workplaces, served as much to produce

goods and services as to provide political control, and were the

centers of distribution of goods and services to the employees.

Life under communism had thus a corporatist character (Chirot,

1980). Economic decisions were motivated by political goals, as all

spheres of life were politicized, while at the same time the public

had no say about the social order. The welfare system had a character

of bureaucratic paternalism, and citizens were treated as

irresponsible children.

The Western welfare state is often criticized for its tendency to

develop a "dependency syndrome" among its clients. Sociologists,

analyzing the communist system, stress that the same tendency

showed up in the East, but with much more intensity, producing

a universal syndrome of "learned helplessness," and making it

particularly difficult for people to adjust to situations in which

they had to take responsibility for their lives (Narojek, 1991; Marody,

1991).

It is because of these profound differences that it is so difficult

to reform the welfare system in the East, to retain what is good

and reject what is bad. Rather, a complete reconstruction would

be advisable, but that is impossible, since for practical reasons the

change must be piecemeal and gradual.

Change and Demise

The Eastern welfare state itself, as well as the perception of it by

society, evolved. With the passage of time, it came to be perceived

as unfair, inadequate, ineffective, and inefficient. This stemmed

in part from the rising consumer and cultural aspirations of the

public, especially the middle classes, exposed to the ways of the

West. What might have been attractive for peasants-turned-workers

during the industrialization of the 1950s was much less so for

professionals of the 1970s or 1980s. The dissatisfaction was also

caused by over-extension of services, resulting in poor quality, and

by bad management. Waiting lines were growing longer, bribes

were becoming universal, and whoever could afford it exited the

system, preferring services offered by the parallel economy. All

this discredited the communist welfare state well before the

regime finally collapsed. This disillusionment is worth remembering

when one wonders why it was so easy for many to forget the

cozy and safe world of real socialism. It is also worth realizing that,

since the crisis first started at the end of the 1970s (1978 was the

peak year of output, and since then it has decreased), the collective

memory of almost a full generation is that of socialism crippled

and malfunctioning.

Understanding the true nature of the disintegration requires

qualification. Its effects were noticed on the "real" rather than the

financial side of the communist welfare state. Until the end, the

level of expenditure, or its share in the budget, remained

unchanged. What really mattered, however, was the poor delivery

of services, caused by inefficiencies, mismanagement, and--since

the end of the 1970s--the general effects of prolonged economic

crisis. Of importance, therefore, is not so much the sheer deterioration

of the welfare system (long lines at the doctor's office

door, crowded classrooms, and so on), as the fact that it had

become increasingly discredited.

The next chapter in the evolution, which came after 1989, had

quite a bizarre character. By this point, of the three pillars mentioned

at the beginning of the preceding section, the first two had

almost disappeared, while the third one had remained almost

intact. What had left was all the factors that had that stemmed

from the promise of job security and the role of the workplace as

a channel for access to goods and services. In the newly established

private enterprises, in the enterprises that were privatized,

and even in many of those that remained in the public hands but

had to meet market demands, management was forced to relate

pay to performance, to get rid of holiday resorts and nurseries,

and to shed the redundant employees.

In Poland, the initial effects of the demise of this part of the

communist welfare state, however, were cushioned by the lavish

unemployment benefits (later to be curtailed), by early retirement

plans, and by the indexing of pensions. The same trend has

appeared in all eastern European countries, with the share of

social expenditure in the GDP rising. In Poland, it went up from

20 percent of GDP in 1990 to over 29 percent in 1994 (Golinowska,

1995, p. 30). In such a way, part of the welfare burden was

shifted from the enterprises to the public budget. The demise was

far from complete for yet another reason. Some large state enterprises

had managed, and still manage, to secure disguised government

subsidies, allowing them to retain employment that

otherwise would have to go. These policies display poor economic

judgment, but they act as a buffer against possible social frustration

and unrest. In a way, the case of agriculture is similar. Protective

tariffs, lax tax policies, and subsidies disguised in the form

of cheap credits are helping farmers to cope. Most of them would

hardly be able to compete if the markets were to be completely

deregulated, which is not surprising, taking into consideration

that Polish agriculture still employs 25 percent of the nation's

active labor force, in most cases in small, underinvested farms. To

be fair, it must be admitted that the new challenges of unemployment

and rising poverty have resulted also in a lot of innovative

behavior, particularly in the field of social assistance, and in the

sphere of labor retraining and job creation, where public authorities,

as well as nongovernmental organizations (NGOs) have

become quite active (Bledowski, 1996)

Another part of the former system to go was subsidization of

food prices, which covered 30 percent of the value of food consumption

in 1988 (Graham, 1994, p. 222). The tremendous

increase in food prices, which came at the turn of the 1990s and

brought them close to European levels, hit the low-income categories

of population particularly hard and caused a rapid increase

in the number of those living below the poverty line. However, the

control of the cost of energy ameliorated the hardships connected

with the steep rise in the cost of living.

Public services, of which health care and education are the

most important examples, is a totally different story. Here, the

basic institutions, as established under the communist system,

have remained almost unchanged to this day. It is true, however,

that they suffered from budget slashes, occasioned by new budgetary

discipline. This has led to the curtailing of various services,

a dramatic lag in wages in relation to other sectors of the economy,

and the strengthening of corrupt practices in the form of

under-the-counter payments, as well as the semilegal privatization

of some services, in particular in the health care sector.

Pensions were the exception. The political strength of pensioners,

as well as the subsequent governments fear of unemployment,

resulted in indexing and in early retirement plans. As a

result, pensioners' position relative to wage-earners improved.

The cost was that the state pension fund developed significant

deficits, as the shrinking of the labor force and the reluctance of

troubled enterprises to pay their due contributions made it hard for the

funds to meet the increased obligations. Deficits had to be covered by the

public budget, which became one of the most important dangers for state

finances. The problems were made even more painful because of the greater

reluctance of farmers to contribute to the separate farmers' pension fund,

and to the subsequent inability of government to curtail the special

pension privileges of certain groups, such as the army, the police,

miners, and teachers.

To sum up the process of evolution, or rather the process of

disintegration, of the former system of welfare provision, we may repeat

that it has been gradual and incomplete. Thus, people had enough time to

learn the newly emerging rules of the game and to adjust their personal

life strategies in a step-by-step way--perhaps reducing the danger of

violent social reactions. Looking on this evolution, one also notices that

for the most part it has had a spontaneous character, resulting from the

overall market changes and anti-inflationary polices, little has been done

to reform welfare provisions according to some clear design. "No political

party has taken on serious reform of the social welfare system as a

platform issue," wrote an American analyst about the situation up to 1993

(Graham, 1994, p. 212). A Polish expert observes that, "within the last

few years no political discussions that could lead to coordination of main

principles of health care system functioning were conducted in Poland"

(Tymowska, 1996, p. 25). What happened is mostly a change by default.

This is in striking contrast to other sectors of economy, where reforms

were much farther reaching, as well as in contrast to radical reforms of

the political sphere.

Ideology

One of the reasons for the slow pace of the reforms of the public

services sector was the lack among the Polish intellectual and political

elite of a clear program, or vision, of how this sector should be

organized, save for the vision of economic liberals.(2) This might appear

strange, taking into consideration the traditional leftist bias of the

Polish intelligentsia on one hand, and the high value attached to

religious values on the other.

Social-democratic sympathies preceded World War II, were

widespread before the Stalinist turn in 1949, and were present

after the liberalization of 1956. Democratic revisionists inside the

party and economists believing in market socialism put their

hopes in an evolution of the Soviet-type regime into a more

acceptable form. The successes of the Keynesian intervention in

the West, and that of the Western European welfare state, supported

views (also quite common in the West) that in the long

run, communism and capitalism would converge into a new form

social organization, combining market, state, and democracy. A

social-democratic orientation was also common among intellectuals

serving as advisors to Solidarity in 1980-81, and later during

the 1989 Round Table talks. This line of thinking is still being

continued by the noncommunist social democrats (politically,

represented by the Labor Union), closely resembling the Western

European social democracy of the past and advocating a mixed

economy, employee ownership and participation in management,

and a substantial role for the state in providing welfare. Lacking a

clear message from Western social democracy, they seem unable,

however, to propose solutions that would somehow come to terms

with the negative experiences of the Western European welfare

state, and they have not done very much to translate their ideas

into an operational form with feasible, practical solutions.

The former-communists-turned-social-democrats, in power

since 1993 until at least the moment this paper is being written

(summer 1997), seem not to bother with articulating the theoretical

underpinnings of their views and attitudes. Those economists

who are close to them in their writings are not far from mainstream,

liberal opinion, stressing the importance of correct

macroeconomic policies, although they might put more faith in

state intervention.

On the other side of the spectrum, various segments of the self-styled

Polish right, stressing national and sometimes also religious

values, seem unable to go beyond populist demands for protection

of family, labor, and national economy. In contrast to economic

liberals, they are long on catchy slogans, but short on

substance and argument. Strikingly, in the deeply religious Polish

society, with a powerful church and with sympathies to the Pope,

who is so outspoken on social questions, there is no modern,

Christian Democratic orientation of the kind that pushed for

social reforms in some Western European countries, particularly

in Germany.

All this leaves the economic liberalism as the dominant intellectual

current. To the surprise of Western observers, who usually

see the sources of liberlism's popularity in Western advisors, there

have been indigenous roots for liberal ideology--particularly

what Jerzy Szacki calls "economic liberalism," to make it distinct

from political liberalism, which for historical reasons he finds in

short supply in Central Eastern Europe (Szacki, 1995, pp.

119-70). Groups of young liberals emerged in the late 1970s and

early 1980s, for whom the only way out of communism was to

build, on the grass-roots level, the attitudes of economic

entrepreneurship, as they believed that political change without

proper economic foundations would fail. These groups have had

a wide appeal among students, who read samizdat copies of works

of Friedrich Hayek and Milton Friedman. Economic liberalism

also found its way to Poland via professional economists, who

gradually became disillusioned as to the feasibility of market

socialism.

External influences were also important in forming economic

liberalism, but through a wider avenue than just the technical

advice given by foreign experts. On theoretical grounds, neoclassical

economic analysis and its developments--including the anti-Keynesian,

monetarist trend, as well as theories of public choice

and of "government failure"--have been followed by academics,

who have had easy access to the West since the 1960s. Ambitious

graduate students were eager to follow this line of thinking well

before 1989, and after this date mainstream economics also

became widely taught to the undergraduates in the more ambitious

economics departments. More practical influence came

from the critics of the Western European welfare state, who

pointed at cracks in its structure due to the combined weight of

global competition, demographic change, inflated expectations,

and the rising dependency of its clients (Rosenvallon, 1981; ISSA,

1995). A young Eastern European intellectual's perception of

Western welfare state thus changed, from that of seeing it as a

great invention, allowing Western societies to combine market

efficiency with social security and humane decency, into an inefficient

monster, causing inflation, producing dependency, stifling

initiative, and endangering civil liberties.

Since the beginning of the transformation, young economists

found themselves in the role of educators of the public in the

matters of organizing economic and social systems. Their beliefs

were reinforced by evident successes of market-oriented reforms

in less developed countries, particularly in Latin America, of

which Chile was the example most often cited. Their credibility

ensured by Western mainstream economics, and their resolve was

supported by the backing of the powerful international institutions,

particularly the World Bank. The majority of Polish economic

liberals are not libertarians and they do not oppose state

involvement in welfare organization, but they would like to see

the state in a regulatory role rather than as a direct provider, and

as for the use of public resources, they would like to see it done

within budgetary prescriptions, in an efficient and effective way.

According to their views, the central government and its bureaucracy

should play a subsidiary role, stepping in only when individual

citizens, firms, nongovernmental organizations, and local

governments fail. By and large, it can be said that an idealized

vision of the American system is closer to the hearts of economic

liberals than the European model, both in its state-centered and

corporatist versions (for comparisons, see Esping-Andersen, 1990,

pp. 26-27; Esping-Andersen and Micklewright, 1991).

While in general terms the message of economic liberals has

been well articulated, much less has been done to translate it into

a concrete reform of social security. Welfare provision has not

been at the center of their attention; rather, they have concentrated

on how to reform the overall institutional framework of the

economy, focusing on enterprises and the financial sector in particular.

As for the welfare state, only a general message was clear:

it should be downsized as far as is politically feasible, and restructured

considerably. Economic liberals find the present state of

affairs unacceptable, as the overextended state is incapable of

providing quality services, and the high incidence of taxation and

high costs of labor stifle economic initiative. They advocate such

initiatives as: a change in the pension system, from pay-as-you-go

to funding; the introduction of health insurance; turning government

schools and clinics over to local governments, to the NGOs,

or to the private sector; introducing educational vouchers; and

targeting benefits to the really needy. Most of these ideas still only

exist in a general form, although some have been translated into

practical proposals. Two projects are worth mentioning as particularly

well elaborated: one proposing pension reform and one for

higher education financing. The first (now being pushed through

the parliament) has been put together by an ad hoc expert team

under the umbrella of the Ministry of Labor and backed by the

World Bank (BP, 1996). The second is a detailed proposal for

introducing tuition, combined with students loans, into the public

institutions of higher education, and was prepared by an independent

think tank (Woznicki, 1997).

The strength of economic liberals, relative to those of other

orientations, is their ability to put ideas into an operational form,

through creation and financing of several think tanks. It is proper

to make a remark here that perhaps is all too obvious, namely that

the question of translating general ideas into workable projects of

institutional "piecemeal social engineering," to use famous Popper's

notion, is not a trivial matter. It requires more than sheer

enthusiasm--it usually needs months of detailed, painstaking

work by teams of specialists (whose work, incidentally, does not

come cheap), particularly economists and legal experts. The ability

to put such teams together and to finance them is evidently in

short supply. Because of the ideological climate prevalent in the

West, it is easier to find money and other forms of support for

projects closer to ideas of economic liberalism than other

options.

While economic liberals have well articulated and coherent

views, they have trouble, however, with marketing and selling

these views to the wider public, which somehow does not seem

eager to accept cold, logical arguments of economic rationality.

This is a result of not only their lack of persuasion, but also of the

balance of political forces.

The Political Economy

What is the nature of the game insofar as the institutions and

policies related to welfare provision are concerned? It is difficult

to say without a slightly wider look at the attitudes toward the

whole process of market transformation.

There is no doubt that transformation, particularly at the early

stage, is brought about with tremendous social costs (Graham,

1994; Milanovic, 1996; Golinowska, 1966; Andorka, 1977; Ferge.

1977). This fact, however, did not provoke political reactions

strong enough to block the reform process. During the initial

period of "shock therapy" (when prices were freed, subsidies cut

down, and wages in the state sector kept low in order to hold

down inflation) the lack of protest was due to the "extraordinary

politics," when the new, freely elected government enjoyed a

credit of trust, enabling it to push through very radical reforms

(Balcerowicz, 1995). Additionally, as I have noted before, considerable

measures were taken to protect the most vulnerable--unemployed

and pensioners. When the period of extraordinary

politics ended--somewhere in mid-1992--indeed, mobilization

against reforms showed up in the form of a series of strikes (Graham,

1994, pp. 193-95). Former-communists-turned-social-democrats

capitalized upon these sentiments and won the

parliamentary elections of 1993. However, after their victory, they

did not change the course radically, but pursued the same policies

that economic liberals did--especially insofar as macrostabilization

is concerned--although on a slowed pace. (I shall return

in a moment for reasons why did they do so.)

After the former communists gained power, the nationalist,

anti-Communist right became vocal in using popular sentiments

against supposedly unjust economic policies, combining that with

rhetoric targeted against the ruling coalition. The right did not

attack capitalism as such, but rather what they perceived as a parasitic

form that capitalism took due to alleged manipulation of

the former communists, who were interested solely in enriching

themselves, and due to the operations of foreign capital. The

right--which consists of the Solidarity trade union and an assortment

of smaller and bigger parties, often at odds one with

another--has shown, however, surprisingly little capacity for concerted,

unified action, and apparently is unable to present a clear

and convincing political program. The populist, demagogic, but

also ineffective politics of the right is, incidentally, often a matter

of concern for more intellectually oriented conservative writers

and columnists.

A much more balanced position is presented by the noncommunist

social democrats, represented by the Labor Union. Their

problem, however, is how to construct their identity in such a way

as to stress differences between themselves and the social democracy

of the former communists. Since the latter pursue centrist

policies, maneuvering between the desire to maintain the process

of market transformation and the wish not to alienate those parts

of their electorate that are hostile to radical reforms, the Labor

Union is pushed to the left (in the traditional sense of the word:

more state, more redistribution), with considerable problems in

keeping its electorate.

Market transition has not only enemies, but friends as well,

particularly among the young and the better educated, and their

numbers have been growing with time (Adamski, 1993; see also

Graham, 1994, pp. 209-10). The increase in the number of small and

medium-size businesses in Poland proves that substantial segments

of society have adjusted well to the new situation, showing

that pessimist prophecies, voiced at the beginning of transformation,

were wrong. "While giving lip service to capitalism and radical

economic reform, the vast majority of the Polish people are

hooked on socialism and are not likely to change anytime soon,"

stated a Western author in 1991 (Naylor, 1991). Contrary to such

opinions, many Poles proved to be well trained for the new reality.

Much of their learning came well before the final collapse of

the system, during the long process of the exit from communism,

when those disillusioned with the statist economy engaged in all

kinds of private activity, often within the framework of parallel

economy. At present, a small but telling proof of the popularity of

the market economy is the booming of private business schools.

Leaving aside the dubious quality of the education that some of

them offer, the demand for their services shows that for the

important segment of the young generation, business and the

market are being seen as the keys to personal success in the

future.

Members of the former communist elite also have a keen interest

in keeping on the road to capitalism. Many younger, more

ambitious, and more enlightened members of the former nomenklatura

found emerging capitalism to their advantage, building

"political capitalism," or turning political capital into economic

capital, and securing for themselves managerial positions, and, if

possible, property (Staniszkis, 1991, pp. 38-69; Szelenyi 1995,

p. 190). This is why this group, which holds key position in government

since 1993, may be slowing down the pace of reforms to

accommodate dissatisfied groups of their political clients (particularly

the large, postcommunist unions), but is not interested in

changing the direction.

The ruling coalition, however, is apparently less eager to push for drastic

reforms of the welfare arrangements. The reasons are not so much ideological

as practical, stemming from the logic of situation. Pushing through

monumental changes would be difficult for any government, since they are not

particularly popular. Economic soundness calls for reduction of the share of

budgetary transfers in the GDP. That would mean reducing subsidies for ailing

industries, which still command significant political leverage; abolition of

certain acquired rights; curtailing of money benefits; narrowing the range of

services provided by the state; and the introduction of users' fees. Not

surprisingly, it is not easy to sell such a program politically. It would be

attractive to the middle class only, who would expect higher quality and easier

availability of services--and lower taxes as well. The middle class, however,

even if supportive of the reforms, are neither numerous nor easy to mobilize,

and their members prefer the individual exit options of tax evasion and private

provision of services over collective action for the change of institutions and

policies.

The reforms would also call for the managerial streamlining of the

institutions that provide such services as education and health care, or even

more far-reaching institutional redesign, such as turning some of them over to

the local governments (which has actually been done in certain measure with

schools) or to NGOs. The status of some of their employees would be changed

from that of civil service to contract employment. Such changes are perceived

as endangering vested interests. "The bureaucracy that runs the state and

semi-state, corporatist welfare sector, fearing erosion of its power, resists

all reforms that point towards decentralization, competition and the market"

(Kornai, 1966). Two examples may serve as an illustration: one is

education, the second is health care.

The educational system is under criticism, as--according to the opinion of a

leading expert in the younger generation, the late sociologist

Wertenstein-Zulawski--"it does not teach initiative . . . but passivity and

lack of responsibility for one's future. The young

most often leave schools badly educated, unprepared for life and

for the adult world. Not surprisingly, they end up as unemployed"

(Wertenstein-Zulawski 1993). Critics call for changes in the methods and

content of education, as well as better preparation of

teachers, but with little result. One reform idea (advocated by the

World Bank and some other international organizations) is to

reduce the number of teachers, to increase the teaching load, to

introduce the system of promotion of teachers based on merit--and

to increase pay, which now is hopelessly low and attracts only

mediocre and poor candidates to the profession. The hope is to

achieve both an increase in quality, and a rise of efficiency. Such

proposals have been, however, fiercely opposed by the teachers'

union, which is closely associated with the former communists.

The teachers' opposition stems not only from their reluctance to

lose some jobs, but also out of fear of a more meritocratic system.

As things stand now, low pay and low obligations are preferred to

more demanding solutions, despite the hope of a higher reward.

In the public health care system, reforms are opposed by lobbies

of highly placed bosses of Poland's clinics and hospital wards.

The existing system allows them to realize high incomes through

private practice, often executed on the premises of public health

care institutions. Since they control access to the patients of public

medical facilities, which are in short supply I not surprisingly

they do not lack private patients. As for the lower-level medical

personnel, such as nurses, they also find accommodation within

the existing system due to private, untaxed payments from

patients searching for better care.

In both cases, the monopoly of ill-functioning and partly corrupt

state institutions is only slightly affected by the emerging private

sector, which mostly serves the more affluent members of

society. It also remains to be seen whether this arising competition

would improve the public sector, or rather lead to the abandonment

of the push for improvement called for by the more

vocal members of society, preferring "exit" to "voice" (Hirschman,

1970). While the service providers are well organized to block any

changes, clients (students, parents, and patients) are much less

focused, unable to organize, and not eager to press for reforms.

Their private strategies, in case of emergency, are to search to

establish personal relationships with a service provider. Moreover,

lower-income recipients are less interested in the quality of services

than the cost and would probably oppose either copayments

or narrowing down the range of services and shifting some of

them to the private sector.

One exception, where things seem likely to move, is pension

reform (BP, 1996). The long-term plan calls for replacing the present

pay-as-you-go system with a three-pillar system, where one pillar

consists of small basic pension guaranteed by the state, the

second pillar is obligatory but funded (and organized in the form

of pension plans within the framework of the enterprise), and the

third is private insurance. The eagerness to go on with the pension

reform is explained by two reasons. One is that the present

state of affairs is painful from any governmental point of view,

since on one hand the state has a legal obligation to pay due pensions,

and on the other it has tremendous trouble with raising the

necessary contributions. Even though reform would not solve the

present problems (it would bring visible results only after two

decades), at least there is a psychological readiness to proceed.

The second reason is that, contrary to the examples of health and

education sectors, pension reform is, at present, hardly dangerous

for any social group. However, that is due to the fact that the

suggested reform does not go so far as to curtail special pension

privileges of certain groups (teachers, miners, the army, and the

police), which cost the state budget dearly. Two political parties of

pensioners have registered to participate in the upcoming elections,

so it remains to be seen whether opposition to this pension

reform will arise.

Instead of Conclusions

The sheer power of the market transformation destroyed much

of the communist welfare state. Little, however, was reformed with

purpose, as the forces of the political economy and the lack of

thoughtful reform proposals resulted in the preservation of the

status quo. Paradoxically, Polish society's tendency to halt

reforms, whether honest or stemming from political opportunism,

might have reduced the social costs of transformation,

and prevented dangerous upheavals. The status quo, however,

would be hurtful to maintain further because it is too costly, and

because the quality of services is too low.

The future of welfare provision in Poland, as well as in the

other, more successful postcommunist countries, is not clear, as it

is not clear in the West. For Ralf Dahrendorf, maintaining social

cohesion in the face of global competitiveness is squaring the circle

(Dahrendorf, 1995-96). The crisis of the welfare state is as

much an economic and political problem as it is a reflection of a

deeper identity crisis in this era of globalization. Historically, the

welfare state was an attempt to create institutions of social

solidarity--institutions that replaced functions fulfilled in preindustrial

times by the family and the local community--based on

national identity (Kochanowicz, 1966). With national solidarity

eroding in the face of global challenge, the emotional, moral, and

ideological foundations of the welfare state have also been cracking,

under their own weight. While it is hard to deny the problems

the welfare state faces at the moment, one should be wary of writing

off its experience too easily. If we agree that, historically, it was

an answer to tensions and dislocations produced by the market,

industrialization, and technological change, an answer that tried

to respond to the longing for a modicum of security and some

form of solidarity and connection between of individuals and the

society, than we must admit that it did not fare that bad, as compared

with two other solutions that the twentieth century

brought: fascism and communism. Its successes stem from the

fact that the Western welfare state has been liberal and democratic,

and it has not been hostile to market capitalism. This success

is part and parcel of liberal society's ability to scrutinize its

institutions and to reform and readjust them constantly.

The situation of Eastern European countries is more problematic

than that of the West, as they are poorer, while the relative

size of the welfare sector they inherited from communism is

larger. They also lack the liberal democratic tradition of solving

social problems through debate and piecemeal readjustments.

The particular danger facing these countries is twofold. On the

one hand, maintaining structures that are overextended, ineffective,

and inefficient stifles economic growth. On the other, too

radical reduction of welfare provisions easily may lead to the

emergence of a self-reproducing, socially marginalized underclass,

which the United States knows all too well and which, due

to permanent unemployment, is quickly on the rise in Western

Europe (The Economist, 1994). To make things even more complicated,

switching to programs that treat their clients as passive

recipients, instead of empowering and enabling them, may also

lead to the creation of an underclass. There are signs that such a

class is already taking shape in Central Eastern Europe. The segment

of the younger generation that happens to live in areas hard

hit by unemployment (often the industrial centers of the communist

era) and is unprivileged regarding the access to education

are particularly endangered.

Enabling and empowering, indeed, should be the guiding principles

of welfare provision (Sen, 1995), but it is easier said than

done. If enabling and empowering is to serve as a standard, then

there is still a long way to go for Poland. Education and investment

in human capital in general seem to be the most neglected,

if judged by the attention they get from politicians and their

constantly diminishing share in the public budget. The expenditure

on education decreased in real terms, from 1989 to 1993, by 30

percent (Golinowska, 1995, p. 31). Nobody lobbies for education,

while many do so for ailing agriculture and outdated industries.

The only clear vision of what to do about welfare provision

comes from economic liberals. What they suggest is probably

sound and correct, although the details are obviously always

debatable--as is the idea of targeted assistance, for example (Sen,

1995)--but it is a vision that many are wary to accept. The logic

of economic soundness so often finds itself at odds with the logic

of mass democracy. As Stanley Hoffman has recently observed,

commenting on the developments in France, "the French workers

and middle classes are reluctant to dismantle a welfare state

that was fought for over decades ... and to which they owe a

degree of well-being and security that is, in many ways, a progressive

and humane achievement" (Hoffman, 1997, p. 48). Democracy

gives people the ability to search for ways of making their life

more stable and secure, something the work of market forces

does not allow, and it would be a mistake to believe that they

would easily renounce this commodity. That does not mean that

it is hopeless to expect the possibility that welfare institutions will

be rationalized, or even reduced. Such an agenda, however,

requires painstaking efforts by the political and intellectual elite

to explain the necessity of these changes, to negotiate them, to

convince the public they are necessary--and to engage people in

active reshaping of the institutions that are vital to them.

Notes

(1) I am using the term welfare state in its broad, comprehensive meaning,

which is closer to the European usage than to the American way of

understanding welfare as assistance to certain needy groups.

(2) I am using the term liberal, when related to the economy, in the

European sense of favoring the free market, not in the American sense

of favoring intervention and redistribution.

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