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Год:
1985
Издательство:
Palgrave Macmillan UK
Язык:
english
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310
ISBN 10:
1349074683
ISBN 13:
9781349074686
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St Antony’s/Macmillan Series
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PRIVATE ENTERPRISE IN EASTERN EUROPE
This is the first major study on private enterprise in Eastern Europe.
Contrary to original intentions, all Soviet-type states have preserved
private enterprise. This empirical comparative study investigates policy
changes during the postwar period in Poland and the GDR to find out
why private enterprise has survived.
On the one hand, the centralised socialised economy has failed to
provide numerous essential goods and services. Many who suffer from
shortages are compelled to turn to private errterprise -legal or illegal.
On the other hand, as the state has forced the number of private firms to
dwindle, markets have become highly speculative, allowing for conspicuous private profits. Revitalisations of the private sector have
occurred repeatedly but have encountered strong resistance.
This original contribution is essential reading for anyone who wants
to understand the political and economic dilemma of Eastern Europe
today.

Anders Aslund is first secretary at the Permanent Swedish Delegation in
Geneva. He took his first degrees from the University of Stockholm and
the Stockholm School of Economics and obtained his doctorate from
the University of Oxford in 1982 after four years of research at St
Antony's College. He joined the Swedish Foreign Service in 1976.

St Antony's; Macmillan Series

General editor: Archie Brown, Fellow of St Antony's College, Oxford
Said Amir Arjomand (editor) FROM NATIONALISM TO REVOLUTIONARY ISLAM
Anders Aslund PRIVATE ENTERPRISE IN EASTERN EUROPE
Archie Brown (editor) POLITICAL CULTURE AND COMMUNIST STUDIES
Archie Brown and Michael Kaser (editors) SOVIET POLICY FOR THE 1980s
S. B. Bunnan CHIEFDOM POLITICS AND ALIEN LAW
Renfrew Christie ELECTRICITY, INDUSTRY AND CLASS IN SOUTH AFRICA
Robert 0. Collins and Francis M. Deng (editors) THE BRITISH IN THE SUDAN, 1898-1956
Wilhelm Deist THE WEHRMACHT AND GERMAN REARMAMENT
Julius A. Elias PLATO'S DEFENCE OF POETRY
Ricardo Ffrench-Davis and Ernesto Tironi (editors) LATIN AMERICA AND THE NEW
INTERNAT; IONAL ECONOMIC ORDER
Bohdan Harasymiw POLITICAL ELITE RECRUITMENT IN THE SOVIET UNION
Neil Harding (editor) THE STATE IN SOCIALIST SOCIETY
Richard Holt SPORT AND SOCIETY IN MODERN FRANCE
Albert Hourani EUROPE AND THE MIDDLE EAST
Albert Hourani THE EMERGENCE OF THE MODERN MIDDLE EAST
J. R. Jennings GEORGES SOREL
A. Kemp-Welch (translator) THE BIRTH OF SOLIDARITY
Paul Kennedy and Anthony Nicholls (editors) NATIONALIST AND RACIALIST MOVEMENTS
IN BRITAIN AND GERMANY BEFORE 1914
Richard Kindersley (editor) IN SEARCH OF EUROCOMMUNISM
Bohdan Krawchenko SOCIAL CHANGE AND NATIONAL CONSCIOUSNESS IN
TWENTIETH-CENTURY UKRAINE
Gisela C. Lebzelter POLITICAL ANTI-SEMITISM IN ENGLAND, 1918-1939
Nancy Lubin LABOUR AND NATIONALITY IN SOVIET CENTRAL ASIA
C. A. MacDonald THE UNITED STATES, BRITAIN AND APPEASEMENT, 1936-1939
Patrick O'Brien (editor) RAILWAYS AND THE ECONOMIC DEVELOPMENT OF WESTERN
EUROPE, 1830-1914
Roger Owen (editor) STUDIES IN THE ECONOMIC AND SOCIAL HISTORY OF PALESTINE
IN THE NINETEENTH AND TWENTIETH CENTURIES
Irena Powell WRITERS AND SOCIETY IN MODERN JAPAN
T. H. Rigby and Ferenc Feher (editors) POLITICAL LEGJTIMA TION IN COMMUNIST STATES
Marilyn Rueschemeyer PROFESSIONAL WORK AND MARRIAGE
A. J. R. Russell-Wood THE BLACK MAN IN SLAVERY AND FREEDOM IN COLONIAL
BRAZIL
Aron Shai BRITAIN AND CHINA, 1941-47
Lewis H. Siegelbaum THE POLITICS OF INDUSTRIAL MOBILIZATION IN RUSSIA, 1914-17
David Stafford BRITAIN AND EUROPEAN RESISTANCE, 1940-1945
Nancy Stepan THE IDEA OF RACE IN SCIENCE
Guido di Tella ARGENTINA UNDER PER6N. 1973-76
Rosemary Thorp (editor) LATIN AMERICA IN THE 1930s
Rosemary Thorp and Laurence Whitehead (editors) INFLATION AND STABILISATION IN
LATIN AMERICA
Rudolf L. Tokes (editor) OPPOSITION IN EASTERN EUROPE

PRIVATE ENTERPRISE IN
EASTERN EUROPE
The Non-Agricultural Private Sector in Poland and
the GDR, 1945-83

Anders Aslund
Foreword by WJodzimierz Brus

M

MACMILLAN

in association with
Palgrave Macmillan

©Anders Aslund 1985
Foreword© WJ-odzimierz Brus 1985
Softcover reprint of the hardcover 1st edition 1985 978-0-333-37412-2
All rights reserved. No part of this publication
may be reproduced or transmitted, in any form
or by any means, without permission
First published 1985 by
THE MACMILLAN PRESS LTD
London and Basingstoke
Companies and representatives
throughout the world
British Library Cataloguing in Publication Data
Aslund, Anders
Private enterprise in Eastern Europe.
1. Laissez-faire
2. Europe, EasternEconomic conditions-19451. Title
338.6' l
HB95
ISBN 978-1-349-07468-6
ISBN 978-1-349-07466-2 (eBook)
DOI 10.1007/978-1-349-07466-2

Contents
Foreword
Preface
List of Tables
List of Abbreviations

vii
ix
xi
xiv

1 INTRODUCTION

Definitions and Scope of the Study
Availability and Reliability of Sources
Range of Private Enterprise
Ideology
Major Policy Terms

1
1
4
10
13
16

2 THE DEVELOPMENT OF THE PRIVATE SECTOR
IN POLAND
The immediate Post-war Period up to 1946
The 'Battle over Trade' 1947-8
Full Stalinism 1949-56
Hopes for Revival of the Private Sector 1956-7
Relative Stabilisation 1958-64
Cautious Reactivation of Private Handicraft 1965-8
Disintegration of Policy 1969-76
Favourable Changes under Pressure 1977-80 -Private
Enterprises and Leaseholds
Great Vitality in Rampant Crisis 1980-3

92
113

3 THE DEVELOPMENT OF THE PRIVATE SECTOR
IN THE GERMAN DEMOCRATIC REPUBLIC
The Aftermath of the War 1945-8
Introduction of a Socialist System of Regulation 1949-52
The First Socialist Offensive 1952-3
A Liberal Interlude 1953-7
The Second Socialist Offensive 1958-60

118
119
124
138
141
160

v

19
20
25
33
47
60
69
79

Contents

VI

Peaceful Coexistence under the shelter of the New Economic
167
System 1961-70
The Third Socialist Offensive 1971-5
182
Positive Accommodation with Diluted Ideology 1976-83
199
4 COMPARISON BETWEEN THE PRIVATE SECTORS
IN POLAND AND THE GDR
Static Analysis
Dynamic Analysis
Conclusions

205
205
216
227

Appendix: Tables
Notes and References
Index

229
259
286

Foreword
Anders Aslund's book is to my knowledge the first of its kind. Much has
been written about agriculture in Communist countries -both about
individual plots within collective and state-farms, and about predominantly private farming in countries like Poland and Yugoslavia. A great
deal of attention is currently being given to the so-called 'second
economy', usually understood as the sphere of illegal or semi-legal
private economic activity. As far as the legal non-agricultural private
sector is concerned, it has been neglected in academic investigations
(both in the East and in the West) apparently as a marginal
phenomenon.
In purely quantitative terms it may be so: Aslund shows that private
establishments in industry, handicraft, trade, catering and other services, as well as various forms of contractual relations between state
enterprises and individuals (leaseholds, franchises, etc.) represent in
total a negligible share in national income or employment in both
countries under examination -Poland and the German Democratic
Republic. This is basically the case in other East European countries as
well, and especially so in the Soviet Union. The only exception (and even
here more potentially than actually) is perhaps Hungary, where the
whole attitude to private economic activity is changing, and many new
forms emerge which blur the customarily established boundaries.
However, at the same time the book brings out, in a most convincing
fashion, that the quantitative aspects mentioned above are by no means
decisive: the size of the private sector may be small, but the problem
remains big indeed, and deserves to be regarded as such not only by the
countries in question, but by all who want to learn from the experience at
hand.
The author leads us painstakingly through all stages of the history of
the non-agricultural private sector under Communist rule in Poland and
East Germany. The pioneering character of the work makes it
indispensable to redefine many notions, to consult a great mass of
dispersed and not readily accessible sources, to bring together in
consistent series very heterogeneous statistical data, to reconstruct the
vii

viii

Foreword

meanderings of official party policies with regard to the private sector
and to follow carefully the even more maze-like patterns of their
implementation. In many instances Aslund generates primary sources of
his own -making good use of a large number of personal interviews.
The result is that this original and well-documented book makes very
rewarding reading.
It is not my intention to summarise in this foreword the observations
and conclusions contained in the book. Nor does it seem the right place
to engage in a general debate on the relative merits of private and public
enterprise- a subject where my views differ considerably in principle
from those of the author. What I want to emphasise is the great
relevance of what is to me the fundamental message of the book: even in
the interests of a socialist society it is entirely wrong to assume a
doctrinaire posture that private economic activity should disappear (or,
more precisely, that it should be wiped out forcefully). Not only does
such a policy cause unnecessary waste and diminish -very substantially,
as seen from the evidence adduced in Aslund's book- the possibilities of
satisfying the needs of the population; it also corrupts the socialist sector
itself, and -paradoxically -makes guidance and co-ordination of the
economy by 'visible hand' (which after all constitutes the essence of
planning) much more difficult to achieve. Moreover, acknowledgement
of the existence of limits to nationalisation must not be treated as a
temporary expediency. and the acceptance of private enterprise not as a
temporary reprieve only, which will come to an end as soon as sufficient
force can be mobilised. The 'short-term expediency' attitude- as the
author amply proves -is bound to eliminate the sound and promote the
degenerate forms of private enterprise, with strongly negative economic
anct social consequences, including the sphere of income distribution.
From this point of view the comparative analysis of Poland and the
GDR is most illuminating.
Looking back over the sixty years of existence first of one and then of
more Communist economies, one can see clearly that the long-term
efforts to eliminate private enterprise entirely have been frustrated. The
'final solution' is still not in sight, and signs abound that the increasingly
acute structural difficulties suffered by Communist countries may lead
to at least some revival of private economic activity in various forms.
Anders Aslund's book greatly helps the reader to understand the factors
underlying these phenomena.
WJ-odzimierz Brus
Oxford

Preface
This book is a revised and updated abridgement of my doctoral thesis,
written at St Antony's College, Oxford, 1978-82. Although the study
has been slimmed, little of substance has been left out, and the structure
remains the same. My special and manifold thanks are due to St
Antony's College, its staff and members, who provided a splendid
environment and intellectual company, finally facilitating this
publication.
Whatever the merits of this work, I am greatly indebted to many
people for their assistance. The Swedish Academy of Sciences supported
me financially for three years, and the Stockholm School of Economics
also provided support. This was not least due to the concern shown by
Professor Erik Dahmen for my work. The Swedish Institute made it
possible for me to spend two valuable weeks in East Berlin.
Since a great deal of the thesis is based on interviews, I want to express
my gratitude to all those who have generously shared their knowledge of
the intricacies of private enterprise in Communist states. Dr Roman
Skarzynski at the Polish Institute of Finance deserves special thanks for
introducing me during his time at St Antony's College (in 1978-9) to
the conditions of Polish artisans. Dr Wacl'aw Iwaszkiewicz of the Polish
Central Union of Handicraft taught me a great deal about Polish
handicraft. Mrs Maria Haendcke-Hoppe at Forschungsstel/e for gesamtdeutsche wirtschaftliche und sozia/e Fragen in West Berlin kindly
provided both materials on, and insight into, the private sector of the
GDR. Dr Martin McCauley at the (London) School of Slavonic and East
European Studies largely guided my ideas on the GDR's political
framework. Dr Walter Bielig at the Humboldt University arranged an
interesting itinerary for me in the GDR. I am happy to thank all friendly
and helpful entrepreneurs and officials in Poland and the GDR who
explained to me their tasks and problems but who prefer to remain
anonymous.
The selection of newspaper articles was facilitated by the excellent
services of the archives of Radio Free Europe in Munich, Johann
Gottfried Herder Institute in Marburg an der Lahn and the Institute of
ix

X

Preface

World Economy in Kiel. The library staff of St Antony's College, the
British Library of Political and Economic Science, London, the
Voivodeship Library in Szczecin and the Universitiitsbibliothek in East
Berlin gave me precious assistance.
I am grateful to Professor Gregory Grossman for having invited me to
the Research Conference on the Second Economy of the USSR in
Washington, DC (24-26 January 1980), which provided a valuable
discussion of alternative analytical frameworks for my topic. A research
conference at the Institute of Finance in Warsaw (30 June 1981)
contributed to my understanding of the Polish debate on the taxation of
the private sector. I have given three seminar papers related to this
subject, one each at the London School of Economics, at St Antony's
College, and to the Nordic Committee for Soviet and East European
Studies in Bergen, Norway. I hope that I have done justice to the many
valuable comments made by the participants. Numerous discussions
with Professor Peter Wiles have been especially fruitful. My examiners,
Mr Michael Kaser and Professor Mario Nuti, made several suggestions
which I have tried to incorporate.
My greatest debt is to my supervisor, Professor wtodzirnierz Brus,
who has ploughed through many pages of poorly expressed ideas and
offered encouragement and constructive criticism. I have benefited
immensely from his extensive knowledge of post-war Polish economics
and politics. I have followed in essence his interpretation of Polish
historiography. Mr Mark Almond has patiently helped me to improve
my language. Mr Keith Povey and Mrs Elizabeth Black have kindly
done the copy-editing. The responsibility for any error of opinion or
style is mine.
Chapter4 of this book has previously, in a slightly adapted form, been
published in Osteuropa Wirtschaft, vol. xxviii (1983) no. 3, as 'Private
Enterprise in Soviet-Type Economies: A Comparison between Poland
and the GDR'.
Geneva

P.A.A.

List of Tables
Chapter 2 The Development of the Private Sector in Poland

2.1 Number of private trade establishments 1947-9
2.2 Revenue from income-and-turnover taxes on the nonagricultural private sector 1947-55
2.3 Estimated turnover of private handicraft in relation to tax
payments 1950-5
in the non-agricultural private sector 1947Employment
2.4
55
2.5 Share of private tax-paying handicraft firms with lumpsum tax 1950-5
2.6 Programmes for private handicraft 1956-60
2.7 Increase in turnover and net income per firm 1956-7
2.8 Development of handicraft 1966-8
2.9 Handicraft firms with annual turnovers exceeding I m
zloties 1965-6
2.10 Increase in number of private enterprises 1956-71
2.11 Programme for handicraft until 1980
2.12 Value of handicraft exports 1962-79

30
38
39
42
45
59
60
78
82
86
101
I 02

Chapter 3 The Development of the Private Sector in the

GDR

Total handicraft production and services 1951-5
Reductions in private employment by branch 1958-60
Average self-employed net monthly income 1960-72
Interpolated median annual income of commission
traders 1960-6
3.5 Estimated average income per private handicraft enterprise 1955-70

3.1
3.2
3.3
3.4

xi

147
165
177
179
180

List of Tables

xii
Chapter 4

Comparison Between the Private Sectors in Poland and the

GDR

4.1 Net labour productivity in 1979
4.2 Net capital productivity in 1979

206
207

Apppendix

Poland

Private employment in the non-agricultural sector 194982
Private handicraft enterprises and employment 1945-82
Estimated sales by private handicraft 1945-82
Number of enterprises and employment in private industry 1945-71
Number of private sales points in domestic trade 194782
Estimated sales by private enterprises in domestic trade
1950-82
Number of private taxpayers liable to income-andturnover taxes 1947-82
Revenues from income-and-turnover tax on the nonagricultural private sector 1947-82
Credits disbursed to private handicraft, industry, trade
and services 1950-82
Productive investment outlays in the non-agricultural
private sector 1956-82
Average net income of self-employed 1960-82

230
232
234
235
236
237
238
239
240
241
242

The GDR

Private employment in the non-agricultural sector 1952-82
Employment in non-agricultural semi-state enterprises
1958-82
Employment in commission trade 1959-82
Private-cum-semi-private share of non-agricultural
labour force 1952-82
Number of self-employed including assisting family
members 1952-82

243
245
246
247
248

List of Tables
Private share of net product 1952-82
Semi-private share of net product 1956-82
Private handicraft: enterprises, employment and gross
sales 1945-82
Number of private and semi-private enterprises in industry and construction 1950-75
Number of private and semi-private sales points 1952-80
Sales by private and semi-private enterprises in domestic
trade 1950-82
Private and semi-private productive fixed assets 1955-82
Net labour productivity in industry, construction and
trade 1952-80
Average monthly wages and salaries in the socialised and
private sectors 1950-7

xiii

249
250
251
253
254
255
256
257
258

List of Abbreviations
BSB

Enterprise with state participation (in the GDR)
Central Committee
Christian Democratic Union (in the GDR)
CDU
Central Union of Handicraft (in Poland)
CZRz
Democratic Peasant Party of Germany
DBD
German Institute for Economic Research
DIW
Purchase and Delivery Co-operative (in the GDR)
ELG
Free German Trade Union Association
FDGB
Free German Youth Movement
FDJ
Federal Republic of Germany
FRG
Five-Year Plan
FYP
Gesetzb/att der DDR
GBJ
German Democratic Republic
GDR
Limited Company (in Germany)
GmbH
Central Statistical Office (in Poland)
GUS
Chamber of Handicraft (in the GDR)
HK
Chamber of Industry and Commerce (in the GDR)
IHK
JBWG
Jahrbuch fiir Wirtschaftsgeschichte
Communist Party of Germany
KPD
LDPD
Liberal Democratic Party of Germany
MF
Ministry of Finance
MHWiU Ministry of Domestic Trade and Services (in Poland)
NDPD
National Democratic Party of Germany
NEP
New Economic Policy
NES
New Economic System
NIK
Supreme Chamber of Control
NMP
Net Material Product
PGH
Handicraft Production Co-operative (in the GDR)
PIH
State Trade Inspection (in Poland)
PPR
Polish Workers' Party
Polish Socialist Party
PPS
PSL
Polish Peasant Party
Polish United Workers' Party
PZPR

cc

xiv

List of Abbreviations

RFE
RS
SAG
SD
SED
SJB
SMAD
SPD
SYP
TD

VVB

WOG

iG

ZHPSD

iw

XV

Radio Free Europe
Rocznik Statystyczny
Soviet limited company
Democratic Party (in Poland)
Socialist Unity Party of Germany
Statistisches Jahrbuch der DDR
Soviet Military Administration in Germany
Social Democratic Party of Germany
Seven-Year Plan
Tygodnik Demokratyczny
Association of Nationally-owned Enterprises (in the GDR)
Large Economic Organisation
Zycie Gospodarcze
Zeszyty Historyczno-Polityczne Stronnictwa
Demokratycznego
Zycie Warszawy

1 Introduction
One of the fundamental tenets of Marxism- Leninism is the abolition of
the exploitation of man by man through the elimination of private
ownership of the means of production. Under Stalin this was a major
objective of all communist governments. The private sector dwindled
rapidly and what was left was generally believed to be a temporary
remnant. However, the private sector has not disappeared. In the mid1950s, mid-1960s, and again in recent years, several East European
governments have made attempts to revive private enterprise, despite
their expressed adherence to the socialisation of all means of production. 1 A recent Polish textbook on political economy notes that the chief
task of the transitional period from capitalism to socialism is 'the
liquidation of the capitalist sector and the gradual transformation of the
petty commodity sector, in particular the individual peasant economy'. 2
The existence of private enterprise remains ideologically undesirable.
Two major questions emerge:
I. Why has private enterprise survived?
2. How does private enterprise function in a Soviet-type economy?
The private sector is a merciless mirror of the flaws of a socialised
economy. This cannot pass unremarked, but it is not a major objective of
this study. Likewise, the unofficial economy reflects short-comings of the
whole official economy, which will be commented upon.

DEFINITIONS AND SCOPE OF THE STUDY
Very little academic work has been undertaken on these questions. The
most prominent exceptions are recent studies by Soviet emigres and
Western scholars of the second economy of the USSR and Hungarian
studies of various aspects of the private economy in Hungary. There
remain vast virgin lands, but a study in depth is preferable. To
understand policy changes, we need to scrutinise political intentions,

2

Private Enterprise in Eastern Europe

measures, resulting economic and social effects, and the feedback. As the
focus is on the qualitative aspects of functioning, it seems natural to
begin with the official private sector, on which substantial material is
available.
In order to put limits on the subject, the whole of agriculture together
with market gardening is excluded. Agricultural economics would add
little within our scope and handicrafts and private agriculture present
similar problems in their functioning. The non-agricultural private
sector will also be called the urban private sector, although numerous
private enterprises are located in the countryside. The private sector will
normally also connotate agriculture, while terms like private entrepreneurs, enterprises and firms refer to the private sector outside
agriculture.
Three East European countries officially acknowledge private sectors
comprising at least a few per cent of employment, namely Poland, the
German Democratic Republic (GDR) and Hungary. None of these
countries can claim to be a typical Soviet-type economy, so observations
from any single state may be disregarded as conditioned by national
features. We prefer to limit our analysis to the two Soviet-type economies
with the most disparate experiences. The great divide lies between the
GDR, which maintained a large urban private sector, and Poland and
Hungary, which minimised their urban private economies in the early
1950s. The G DR is evidently one pole, and Poland the sharpest contrast.
An advantage is that the GDR has the reputation of being possibly the
least corrupt communist society, while illegality is abundantly obvious in
Poland. Their economic systems conform to the standard criteria of a
Soviet-type economy, while the status of Hungary's is debatable. Yet, in
a more extensive work, it would be worthwhile to include Hungary. 3
In order to clarify the nature of developments as trends or cycles, the
whole post-war period until the present (September 1983) will be
covered.
The subject of this study is legally registered private enterprises,
defined as follows:
I.
2.
3.
4.
5.

registered with the state,
privately controlled,
profitability is a condition for survival,
subject to economic risk,
not a co-operative, i.e. not owned by more than a very small number
of employees.
All solely self-employed people are required to possess a business

Introduction

3

licence both in Poland and the GDR, so the definition is legally precise
and in accordance with official statistics. Only people without socialised
employment are included, whose social status is determined by their
entrepreneurship and who need to account for all costs within their
business. The whole second economy of 'jobs on the side' and illegal or
unregistered activities is an interesting but different subject on which few
statistics are available. The official private sector is complex enough for a
study of this size.
The second requirement of private enterprise is a certain freedom of
action. Since enterprises are highly regulated in all developed societies, it
is difficult to quantify how much liberty is needed. As we want to
investigate whether private enterprises display specific qualities in their
functioning, we prefer private control to private ownership as the
criterion though, with few exceptions, the two coincide. Private ownership of blocks of flats is excluded, as private house-owners cannot choose
how to utilise their property, apart from their own dwellings. Yet
leaseholders with a certain independence are included. It has been argued
that ownership of enterprises in the GDR is not really to be considered
private, as their activities are thoroughly regulated. However, as shall be
seen, they are able to pursue their main objective- profit- satisfactorily,
so regulation has not exceeded the crucial threshold.
The characteristic objective of private enterprise is profit, that is, a
surplus of business revenue over costs at prevailing prices. However,
even in the West, a private enterprise usually pursues several other ends
as well (e.g. expansion, security, respectability). It therefore aims for
satisfactory rather than maximal profits, so there is no reason to require
profit maximisation as a characteristic of private enterprise. For a
socialised enterprise, profit is often an objective but not a condition of
survival. Private activities not aiming at profit are churches and social
organisations, such as the Polish political group 'Pax' with its own
company. Officially these bodies employ several tens of thousands in
both Poland and the GDR. Domestic servants and private villas are
forms of consumption which might be confused with private enterprise.
Controlled rents have made the private letting of flats highly unprofitable and private blocks of flats a financial liability resulting in a
striking lack of initiative by their owners, as evidenced by dilapidation in
both Poland and the GDR. We can disregard house-ownership apart
from hotels and boarding-houses, but extensive private house ownership
has remained important as an investment outlet and a source of business
premises.
Private enterprise should also entail risk, that is, the necessity to show

4

Private Enterprise in Eastern Europe

initiative. Otherwise, independently working employees remunerated
with straight piece-rates, notably home-workers, could be included.
For convenience and variety, legally registered enterprises will be
labelled either legal, official or registered, when necessary. The same
attributes apply to the private sector. All business plied within registered
enterprises on behalf of the owner is included. The proprietors of private
enterprises are here labelled entrepreneurs, whatever their profession.
Nationally-adopted concepts are translated literally into English and
used accordingly. The two synonymous notions 'socialised' (uspoleczniony) and 'socialist' (sozialistisch) comprise both 'state-owned' (panstwowy) or 'nationally-owned' (volkseigen), and 'co-operative'.
'Nationalised' implies state ownership. 'Non-socialised' is synonymous
with 'private' in Poland but is used to connote both 'semi-state'
(halbstaatlich) and private ownership in the GDR, while 'nonnationalised' also embraces co-operative. Semi-state enterprises and
commission trade in the GDR are regarded as semi-private. The same
label may be applied to Polish leaseholders. These three categories are
mainly private in their functioning, but will be distinguished for clarity.
Polish commission agents, on the contrary, are too restricted to be
considered private. National definitions of measurements are accepted
without comment, for example, net material product (NMP), net value,
and gross value. The words income and earnings are used interchangeably. Net income is total revenue minus all costs (including
insurance and tax) while net profit is net income minus a standard
remuneration for the owner's work. Normally, the owner's incomes
from work and ownership, respectively, have not been separated. Gross
income is net income plus the personal taxes which are non-deductible
from income tax. Gross and net margins are defined consistently as the
shares in turnover of gross and net income.
AVAILABILITY AND RELIABILITY OF SOURCES

Verbal Sources
Since private ownership is an ideologically sensitive subject for Marxists,
many aspects are rarely publicised, and the official sources are heavily
biased. Their reliability has been tested in the following four ways. First,
the concordance of available written versions from each state has been
scrutinised. For this purpose, a wide range of written material, scientific
publications, unpublished dissertations, laws, political speeches and

Introduction

5

documents, some unpublished government materials, statistics, and a
large number of newspaper articles have been studied.
Second, when available, Western publications have been considered.
Although suffering from a lack of empirical evidence, because of strict
GDR censorship, West German scholars have covered East Germany
extensively. However, like the GDR authorities, they are often keen on
showing how socialist the GDR is and, in particular, early West German
materials displayed a strong anti-communist bias. None the less, both
the empirical evidence and the analyses provided by West German
scholars are most valuable. By contrast, there is hardly any useful
Western material on the Polish private sector. Journalists' reports are
mostly superficial and faulty. Only Radio Free Europe (RFE) has
regularly analysed Poland's private sector.
Third, a large number of interviews and conversations were carried
out in both countries, more than one hundred in Poland and over forty in
the GDR. In order not to harm the many helpful interviewees,
institutions and interviewees are vaguely indicated in the end-notes.
Interviews were mainly conducted within three groups concerned with
private enterprises: entrepreneurs, officials and scholars. Some private
employees were also interviewed. Interviews have been invaluable for
establishing how private enterprise actually functions. I selected the
interviewees myself. Civil servants and scholars were usually approached
through official channels. For various reasons, many desired visits could
not be arranged, for example, GDR officials were accessible merely for a
fortnight, when I benefited from an official exchange scholarship.
Entrepreneurs were selected in many ways, but I refrained from asking
for official assistance, as that would have created an unnecessary bias. A
great variety of entrepreneurs was chosen to provide a wide range of
empirical evidence. The interviews took place in Poland mainly in 1979
and in the GDR principally in 1981. I travelled extensively, spending
seven months in Poland and more than a month in the GDR during the
work on my thesis, so ·numerous personal observations helped to form
my picture. To facilitate the evaluation of interviews, I had read most of
the relevant literaturein advance. Most talks were in private. The Polish
interviewees were virtually unanimous in their critical view of government policy, so only the bias caused by position or quality of knowledge
had to be taken into account. East German interviewees were much more
cautious. Most GDR officials and scholars provided largely but not
entirely the official version, since people do not enjoy repeating the
authorised version for two hours, while they do not like to contradict it
on too many points. The natural solution was to ask various people the

6

Private Enterprise in Eastern Europe

same question and prick up the ears for unusual answers. GDR
entrepreneurs were almost as open as their Polish colleagues. Rumours
play an important role, so only facts plausibly known to an interviewee
have been recorded. Illegal practices offer special problems. The bulk of
illegalities were readily acknowledged by Polish entrepreneurs, officials,
scholars and in publications. Where personal relations were not close
enough, I asked only about the practices of other people. In the GDR, it
was primarily entrepreneurs who acknowledged illicit practices. A
difficult balance has to be struck between the security of the interviewees
and the reader's desire to know, but the former condition has absolute
priority. For this reason, unpublished materials from authoritative
sources will only be presented with the name of the institution and year.
The fourth method of checking validity has been to scrutinise logical
consistency and see whether the resulting picture matches any feasible
economic theory. The major biases are naturally the suppression of
negative features of the socialised sector and the exaggeration of the
positive ones. Numerous dubious methods are used to prove the
superiority of socialist ownership. In GDR writing, it is common to
present incorrect facts in a vague manner, for example, 'less efficient', so
such imprecise statements, typically without references, are disregarded.
Specific facts and observations contradicting the desired state are likely
to be accurate. GDR scholars often present the truth in a circumspect
manner, well embedded in socialist terminology. Another way of
presenting valuable facts is to describe in an indignant manner the crimes
of hostile forces and the slander of West Germans. A common Polish
method in the 1970s was to express severe criticism, but to conclude with
praise of socialism proposing insignificant changes. Criticism has
normally been connected with ensuing changes, so incurable defects have
been less publicised. As policy changes have been sharper in Poland,
Polish literature offers a richer picture than GDR in writing. Quotations
referring to a source in a foreign language have been translated by the
author.
As the private sector has been a particularly embarrassing subject in
Poland, good Polish academic material covers little more than taxation
and handicraft. Fortunately, Polish newspaper articles have been a rich
source. For the GDR, a lot of good academic work has been done, but
only part of it has been at hand. The best complement has been West
Geman material, while GDR newspapers have provided a minimum of
additional information. Since much less detailed negative information
on the GDR has been available, it has unfortunately been difficult to
avoid a positive bias in the GDR account.

Introduction

7

Polish Statistics4 see Appendix, Tables A 1-A 11)
Polish and GDR statistics leave much to be desired. For Poland, the
great problem is that the data are extremely unreliable, while they are
well processed and publicised in great numbers with fair explanations.
An additional problem is that statistical methods and presentation have
varied considerably, so it is difficult to compile comparable time-series
and the whole private sector is rarely covered. GDR statistics pose
rather different riddles. Fewer relevant statistics are available, and
explanations are insufficient, although long time-series can be extracted.
Major tables compiled from official statistics of both countries are
displayed in the Appendix, however serious the flaws may be, as no
better statistics are available and the information for recounting is
missing. 'A' denotes Polish and 'B' GDR tables. These statistics will be
used without further comment.
The only published, Polish statistics that appear reliable are for
revenues from income-and-turnover taxes and state credits, provided by
the Ministry of Finance and state banks, respectively. State statistics on
the number of enterprises contain only minor discrepancies. Enterprises
are counted at the end of each year, which signifies a minor downward
bias, as some firms are seasonal and close down in the autumn.
Unfortunately, enterprise numbers are not available for all branches.
Because the remaining statistics constitute a base for taxation, they
are highly unreliable, as intrinsic distrust has persisted between entrepreneurs and authorities throughout the post-war period. An experienced tax official cited hidden employment as the second most
important method of evading tax, the first being faked turnover figures.
(Private employment connotes hired as well as self-employed labour and
assisting family members, but not apprentices unless explicitly included.) Since taxation is highly progressive with the number of hired
workers, the incentive for fraud is substantial, and it also facilitates the
concealment of turnover. Home-workers may be illicitly employed, as
well as workers from the socialised sector after official working hours,
since tax inspectors work only from 7 a.m. to 3 p.m. Entrepreneurs
complete forms on employment towards the end of each year. The
outstanding Polish handicraft expert, Waclaw Iwaszkiewicz, has argued
that about I 0 per cent should be added to this figure to obtain the annual
average, because of seasonal employment. Despite these observations,
employment statistics are used to illustrate the development of the
private sector, being the only available statistics for 1949-80, properly
subdivided by branch. They probably depict trends in the development

8

Private Enterprise in Eastern Europe

of the private sector accurately. The large residue of private employment
has rarely been specified. In 1970 and 1971, it apparently contained
20 000 priests and 44 000 people occupied in religious organisations
(mainly nuns), but also some services and free professions. s Most of the
residue should be excluded, but we lack information for such an
attempt, and it is too regular to cause much confusion.
Value measurements lack all reliability. The key statistics cover
turnover, which has only been estimated. Income and net product have
been estimated as a share of turnover. These shares have been
unimaginatively set standards for each branch, which have rarely
changed, for example, only in 1947 and 1957 for handicrafts. 6
Entrepreneurs' major method of evading combined income-andturnover tax has been to conceal their real turnover utilising all
conceivable measures, such as refusing and falsifying receipts; one
artisan declared that he threw away every second bill from state
suppliers; a private retailer of drinks received five identical deliveries
every day from a private producer, but an invoice for only one; a florist
kept half of her flowers in a clandestine storage room; a plastics
producer officially worked forty-six hours a week, though his firm in fact
worked continuously with additional labor. Capacity is most easily
assessed for services, while production is more elusive and trade even
more so. In addition, violations of price regulation have been common.
Interviews implied that actual turnovers commonly amounted to two or
three times the tax assessed in production and two to five times that in
trade, although individual disparities have been too great to allow for
any generalisation over time.
The organisations of entrepreneurs have been obliged to estimate
turnover. The Chambers of Handicraft rate turnover by branch only at
regional level and the Central Union of Handicraft (CZRz) compiles the
figures nationally. The Associations of Private Trade and Services
include turnover in their annual questionnaire and simply compile the
figures received. These crude statistics are grossly understated, as the
organisations of entrepreneurs defend their members' interests.
Handicraft turnover is likely to be least understated, as it is estimated.
Alterations are made at central level by a small group of experts from
GUS, the Ministry of Finance, some banks, the CZRz and the Chief
Council of Associations of Private Trade and Services. The Ministry of
Finance attempts to boost estimates to a more realistic level, but the
representatives of entrepreneurs counter with detailed knowledge,
holding estimates at a lower level. Sales to the socialised sector are about
as badly estimated as other private sales, because socialised enterprises

Introduction

9

make efforts to evade strict limits. GUS has even stated that it is
impossible to establish what the socialised sector purchases from
socialised retail trade. 7 Family budget surveys are unlikely to reveal
much illicit income. GUS reports on the income and expenditure of the
population prove little sophistication in the disguising of private
turnovers. For the years 1961-5, the final estimates of handicraft
turnover were 47-60 per cent higher than those by the CZRz, 8 and the
estimates by the Ministry of Finance were even higher. With such
unreliability it is very rash of GUS to specify handicraft turnovers in six
figures. Even the estimates by the Ministry of Finance appear too low.
The extensive concealment is hardly in vain, and the state has no interest
in revealing a large and efficient private sector. The Ministry of Finance
would expose itself to criticism for ineffective tax collection, if it insisted
on realistic estimates, while higher tax pressure would cause undesirable
liquidations. Some experts acknowledged that Polish statistics on the
turnovers of private enterprises were little more than guesses. The size of
biases or their trends cannot be estimated, since it is quite possible that
50 per cent should be added to the GUS estimates of private turnover.
Turnover statistics and their derivatives have been used cautiously.
Estimates of the investment and fixed assets of the urban private sector
are of minimal reliability, since basic data are not collected.
Apart from major statistics published in the Statistical Yearbook, 9
numerous special statistical studies have been published by GUS and the
CZRz, but with the same flaws.
GDR Statistics (see Appendix, Tables Bl-Bl4)

GDR statistics are limited to the Statistical Yearbook 10 which contains
the number of enterprises, employment, enterprise size, net and gross
product and fixed assets. Our knowledge of statistical pitfalls in the
GDR is very limited, but the statistical authorities gather data
conscientiously through quarterly questionnaires that all entrepreneurs
are required, by law, to complete.
The number of enterprises is likely to be correct, but the total number
has hardly been rublished and subdivision by branches is not complete.
Moreover, handicraft shops are included both in handicraft and retail
trade, so these statistics are difficult to dissect. Employment statistics are
selected to represent the development of the private sector, using the
only available relevant figures (1952-80) subdivided into major
branches.

lO

Private Enterprise in Eastern Europe

A flaw in GDR statistics is that handicraft turnover has been
underestimated, primarily because oflump sum taxation until 1966 and
again from 1976, but also because of tax evasion. Wolfgang Miiller, the
GDR handicraft expert, has asserted that the official turnover of
handicraft was at least 10 per cent below actual turnover from 1950 to
1966. 11 • Most turnover statistics are likely to contain some limited
downward bias also reflected in net product figures.
Few statistics on private income have been made public. Western
estimates of average net entrepreneurial income have been derived from
these statistics, but cannot be considered very reliable, as several
assumptions have to be made. Fractional income estimates by the
Ministry of Finance appear mainly in unpublished dissertations,
making it difficult to assess their reliability. The value of fixed assets of
the whole productive, non-socialised economy can be deduced, but since
1972 non-socialised productive fixed assets are rated as 1.0 per cent of
total productive fixed assets, which must be discarded as guesswork (see
Appendix, Table 812).
RANGE OF PRIVATE ENTERPRISE
A quantitative survey by branch of existing private enterprises immediately reveals differences between the two countries. Of the workforce outside agriculture in 1955, only 3.6 per cent were occupied in the
private sector in Poland (220 500 people), but as many as 30.8 percent in
the GDR (1986000 people). In 1980, these figures had become almost
equalised -4.9 per cent in Poland (602 700 people) and 5.2 per cent in
the GDR (392 600 people). While the urban private sector in Poland
recovered slightly in this period, it declined to its lowest level in the
GDR. Quantitatively, the private productive capacity outside agriculture is of very minor importance.
Polish industry was almost completely nationalised at the liberation
from the Germans. A law of early 1946 set an employment limit of fifty
men per shift in a private enterprise, but private industry was minimised
by other means in the Stalinist period. It reached a new peak in 1959 with
almost 10 000 enterprises and 30 500 people involved -just 1 percent of
the total industrial work-force. In 1972 private industry was abolished
through inclusion in handicraft, and enterprises with more than six
employees had their licences withdrawn.
East German industry was not subject to any general nationalisation

Introduction

II

in the Stalinist period, though private industry was steadily reduced.
Between 1958 and 1960, many private factories became semi-stateowned which hardly altered their functioning. In 1971, private and semistate enterprises still employed 15 per cent of the industrial work-force,
but the mass socialisation of 1972 almost eliminated private industry.
An informal employment limit of thirty people in a private industrial
plant has been enforced. In East Berlin, fifty-three private industrial
firms remained in 1981 Y
Within trade, retail and wholesale trade, catering and foreign trade
have received different treatment. In Poland, an early, campaign for the
socialisation of all trade reduced the private share of employment in
trade to 3 percent in the early 1950's at which level it has remained.
Retail trade has been strictly limited to branches relying on private
supplies, notably green-grocery, florists, sales of fancy goods, and
market places. In 1980, 10.4 per cent of all retail outlets were private.
The Polish government has repeatedly tried to activate socialised shops
through commission agents and leasing.
In the GDR, the socialisation of retail trade proceeded slowly, mainly
through not replacing retiring merchants. Many small traders accepted
commission contracts which changed little in their situation. Private
trade still accounts for 4.6 per cent of total labour in trade to which
should be added a share of 5.9 per cent in commission trade. If handicraft
shops pursuing retail sales are included, private and commission stores
comprised 36 per cent of all retail outlets in 1977. Large private
department-stores with as many as thirty employees are rare.
Private and semi-private enterprises have retained a large share in
catering in both countries. In Poland private firms constituted 16.1 per
cent and leaseholds 8 per cent of the total number of catering
establishments in 1980, compared with 6.2 per cent of all establishments
being private and 22.6 per cent run by commission agents in the GDR in
1978. In Poland especially, private catering has been strongly oriented
towards tourism and seasonal business requiring great flexibility.
Both states demanded complete control over wholesale trade in the
late 1940s. In Poland, the last private wholesalers survived untill972. In
1981, the GDR still possessed hundreds of private wholesalers. Foreign
trade was officially nationalised at a very early stage, but in the GDR one
trustworthy interviewee knew of a small private foreign trade enterprise
which had traded in luxury goods with official approval until the mid1970s.
We can conclude that private trade has played more prominent role in
the GDR than in Poland. In both countries private traders have been

12

Private Enterprise in Eastern Europe

steered towards market segments where flexibility, incentives and small
scale have been especially beneficial. Polish private trade has been limited
to certain market segments more or less reserved for private enterprise,
while the diversified private trade of the GDR has normally coexisted
with socialised competition. Polish private trade has been renowned for
speculation, so most goods priced under market-clearing level- which
have comprised the majority- have been withheld from private merchants, but GDR traders have been allowed to sell most things from meat
to gold. In both states, merchants have been evicted from the best
business premises, and concentrated near old town centres. Windowshopping makes it evident that Polish entrepreneurs, despite worse
premises, are more market-oriented and innovative than their GDR
colleagues.
Handicraft reveals more similarities between the two countries. It has
changed little, remains predominantly private and dominates the urban
private sector in both countries. Almost equal shares of the national
labour force were occupied in private handicraft in 1980- 2.5 per cent in
Poland and 2.3 percent in the GDR. Private handicraft is very diversified
and has been restructured with changed demand. The GDR set a limit of
ten hired workers in 1950 which it has maintained, while Poland has
varied its constraint from ten hired workers in 1949, one in 1955, four in
1956 and six since 1966. However, Poland has excluded various auxiliary
workers, particularly in times of liberalisation. In 1980, average
employment per workshop amounted to two persons in Poland and
three in the G DR.
Construction is an irregular category which does not meet standard
Marxist classification. It has been treated partly as industry, but has
gradually become classified as handicraft. In Poland, its requirement of a
large work-force has been accepted, with the application of an extended
employment limit of eight hired workers. In the GDR, seasonal
variations are taken into account with the ordinary handicraft limit of
ten hired workers only as an annual average. The private construction
sector has remained comparatively strong and equal with 7. 7 per cent of
construction labour in Poland in 1980 and 6.3 per cent in the GDR.
Transport, free professions, various services and minor branches
comprise the remainder of the private economy. In the GDR, the
number of free professionals has steadily fallen to 10 700 in 1980, while
Polish figures are not available, but are apparently lower.
The socialised sectors of both states have experienced particular
difficulties in operating in some branches. The early, massive socialisation in Poland led to the collapse of such sectors of tourism, the sale of

Introduction

13

highly perishable goods and taxi transport, so private enterprise was
called back. The GDR authorities never socialised very problematic
branches, but, for instance, left pet-shops entirely in private hands.
Furthermore, since socialised enterprise functioned much better in the
GDR, their shortfalls were less glaring than in Poland.
Taxi transport offers a peculiar disparity. In 1980, 96.4 per cent of all
Polish taxis were privately owned (61 760 cars) 13 and socialised taxi
companies survived (with large losses) only in a few big cities. Taxi
transport is neglected in the GDR with a total of only 5763 cars in 1980,
58 per cent of which were nationally-owned. 14 lt is very difficult to catch
a cab in the GDR. New taxi-licences are rarely issued, despite enormous
demand. The absence of any good reason for this shortcoming arouses
the suspicion that the GDR security police require control over this vital
means of information-gathering.
A general observation is that the private sector is much more varied
than might first have been anticipated, but the private sector remains far
more varied in the GDR than in Poland, and larger enterprises are also
more common in the GDR. The largest Polish private enterprise in 1979
was a fish smoking-house near Gdansk, which was classified as
handicraft, but employed eighty people thanks to an exemption from the
ordinary employment limit. 15 A Polish curiosity is the establishment
since 1976 of foreign-owned enterprises without employment limits. In
August 1982, one of these companies employed 300 persons. 16 The
biggest GDR enterprise in 1981 was Professor Baron Manfred von
Ardenne's research institute close to Dresden with more than one
hundred employees. Usual enterprise regulations do not apply to a
research institute.
IDEOLOGY

Marxism- Leninism has taken so much interest in the elimination of
private ownership of the means of production that we need to answer
two questions: what role has ideology played and how has MarxismLeninism been interpreted? Various groups give completely different
answers about the role of ideology. In both Poland and the GDR
economists and officials assert that ideology has been rather unimportant since the death of Stalin, whereas politics have become decisive.
Entrepreneurs, however, perceive state policy towards them as unreasonable and see the cause in ideology. These views are not irreconcil-

14

Private Enterprise in Eastern Europe

able. What entrepreneurs call ideology is the primacy of politics over
economics, which is indeed a Leninist principle, repeatedly invoked to
justify economic malpractice, in particular, in Poland. Besides, economists and officials are used to a Marxist framework and seem unaware
that some ideas are Marxist and not common sense, notably Marxist
notions of modernity. Ideology has provided the organisational structure and has set the conceptual framework within which political feuds
are conducted. Finally, ideology vindicates the strength of state power.
Politics may be of prior significance, but are both conditioned by and
intermixed with ideology.
For our purposes, we are not interested in how Marxism- Leninism
should be understood, but how it has been interpreted by the men who
have formed policy towards the private sector. We focus on the most
prominent ideological ideas in Polish and GDR writing on the private
sector. A general observation is that GDR work contains more ideology,
but that it is adjusted to present circumstances. Polish liberals are
inclined to neglect ideology, leaving it to the dogmatists. The reasons for
this difference are to be sought in political and academic culture, as well
as in the feasibility of deriving useful Marxist- Leninist ideas for the
given state of political and economic affairs. In general, ideology has
been progressively watered down.
Marx is rarely quoted in writings on the private sector, while general
Marxist tenets are omnipotent. The foremost doctrine is the abolition of
the private ownership of means of production. However, already in The
Communist Manifesto, Marx and Engels were ambivalent towards the
petty commodity sector of peasants and artisans, and their primary aim
became the prohibition of hired labour. The economy was divided into
three sectors: a socialist sector, a capitalist sector and a petty commodity
sector. Ideologues have paid minimal attention to a fourth sector of free
professions not involving any means of production, which has been
arbitrarily but mostly advantageously classified. Another Marxist
tendency is the preference for planning and the dislike of spontaneity and
of speculation. The urge to egalitarianism is a third socialist characteristic. A fourth feature is the fetishism of large-scale industry. Fifth, a
widespread practice arising from Marx's distinction between 'productive' and 'unproductive' work has been to disregard the utility of some
'unproductive' work. Finally, economic growth has been a major aim,
but it has- repeatedly mistakenly- been considered the natural outcome of ideologically correct actions.
More is quoted from Lenin's writings ( 1917-22) on the transitional
period from capitalism to socialism and his notion of state capitalism,

Introduction

15

developed when he faced the problem of combining ideological endeavours with economic and political reality. He criticised left-wing
communists for confusing confiscation and nationalisation with socialisation. Lenin cherished co-operation with 'cultured' capitalists, as they
possessed all the virtues of modem industrial society. Even Marx had
stated that under certain conditions, it would be expedient to 'buy out
the whole lot' (of capitalists). Lenin considered state capitalism as a
temporary aid to socialism, which did not mean the substitution of class
peace for class struggle, but its continuation by other means. It was an
alliance with a part of the bourgeoisie willing to compromise in order to
transform the remains of private capitalism into socialism. At the same
time, Lenin asserted 'we must ruthlessly suppress the uncultured
capitalists who refuse to have anything to do with "state capitalism".' 1 7
Lenin specified various forms of state capitalism in his pamphlet 'The
Tax in Kind' of May 1921, and Soviet practice added a few more models.
While Lenin advocated some mercy for cultured capitalists, he
expressed ferocious animosity against small-scale producers:
The petty bourgeoisie oppose every kind of state interference,
accounting and control, whether it be state capitalist or state
socialist. 18
Either we subordinate the petty bourgeoisie to our control and
accounting ... or they will overthrow our workers' power ... 19
One of Lenin's harshest and most quoted passages on petty commodity
production appeared in 'Left-Wing' Communism- an Infantile Disorder:
Unfortunately, small-scale production is still widespread in the world,
and small-scale production engenders capitalism and the bourgeoisie
continuously, daily, hourly, spontaneously, and on a mass scale. All
these reasons make the dictatorship of the proletariat necessary, and
victory over the bourgeoisie is impossible without a long, stubborn
and desperate life-and-death struggle. 20
This statement could not be overlooked, since it was all too clear and
appeared in a late, authoritative book. Lenin condemned tradesmen
especially fiercely 'The speculator, the marauder of trade, the disrupter
of monopoly -that is our principal "internal" enemy.' 21
Lenin's teaching appeared quite clear. Capitalists should be integrated
into socialist economy and disciplined, while the small-scale economy
should be combatted. However, Leninist practice followed the diametri-

16

Private Enterprise in Eastern Europe

cally opposed course. State capitalism assumed very modest proportions
under the New Economic Policy (NEP), while small enterprises revived
greatly, primarily in trade, so Lenin left two contrary examples.
Similarly, War Communism and NEP offered contradictory legacies
between which later communists could choose.
The Polish communists adopted a harsh Leninist line of vicious class
struggle and did not manage to develop state capitalism.
Notwithstanding vacillation, the GDR leadership inclined to the softer
Leninist line and was the most successful of all communist states in
establishing state capitalism. Little has been added to MarxismLeninism since Lenin. Stalin's major contribution was his 'law of
intensified class struggle in the process of building socialism', which
hindered attempts at state capitalism until this law was condemned as
false in 1956.
MAJOR POLICY TERMS
Political strategies in Poland and the GDR have had much in common,
though varying according to preconditions. The Polish political setting
has been characterised by two disequilibria: the population in general
has remained alienated from the communist regime, posing a permanent
threat to the rulers, who can neither consolidate their hold on the nation
nor mobilise its skills. Second, the ruling party itself has seen persistent
faction-fighting. The economy has constantly suffered from awesome
market disequilibria, rendering illegal practices on a large scale inevitable as compulsory concentration on short-term political aims has
excluded effective economic strategies. In addition, policies and legislation have been highly inconsistent in themselves, with attempts at
economic reform occurring as often as every two or three years since
1956. This political and economic environment has rendered planning of
any precision impossible. Consequently, achievements have deviated
considerably from the targets. 22 Polish society appears to have been
caught in a vicious circle. The government never had sufficient strength
or skill to pursue a policy to balance markets. Its apparent failure
strengthened political opposition inside and outside the party, but
because of Soviet domination, only communists were given the chance to
modify the socio-economic system. The succession of a new set of
communist rulers made no deep impact on the population, so the causes
of instability were conserved. In addition, the urban private sector

Introduction

17

suffered from being both dependent on state policy and treated as
insignificant. The audible debate was feeble, and the level of decisionmaking soon became low, with the private sector coming last- if at allinto consideration.
These internal restrictions did not exist in the GDR, where a
substantial and integrated private sector played an important role in the
national economy. We shall focus on five policy objectives which have
been fundamental to private enterprise, both in Poland and in the GDR:
1.
2.
3.
4.
5.

the urge to socialise,
the incorporation of the private sector into the socialised economy
through co-operation, control and planning,
aversion to competition with the socialised sector,
aversion to high private incomes,
the need to balance markets.

These points have been given varied emphasis and meaning in the two
countries. Nationalisations were much slower and less damaging to
entrepreneurs in the GDR. State co-operation has often shielded private
enterprises and offered them monopolistic advantages, while making
them increasingly dependent. In Poland, state co-operation has remained minimal, and persistent speculation has made the planning of
private firms impossible. In the GDR, on the contrary, numerous forms
of state co-operation have flourished, and planning has gradually been
imposed. Competition is officially regarded as the 'anarchy of the
market', and competition between private and socialised enterprises has
been anathema in Poland. The GDR has often condoned it, revealing the
relative competitiveness of its socialist enterprises. However, recently
private enterprises have been ordered solely to complement the
socialised sector. The most widely regretted consequences of private
enterprise are high entrepreneurial incomes. The Polish government has
exploited egalitarianism as one of the few aims arousing public support
for socialism. The stronger GDR dictatorship has not needed to appeal
to egalitarian sentiment, but has reluctantly accommodated it. The only
important argument for private enterprise has invariably been the need
to improve market balances.
The Polish entrepreneurs appear a small group of social outcasts and
political scapegoats, acting in a chronically unbalanced market. The
promotion of legality has been a prominent but unsuccessful theme in
Polish policy. Sometimes the private sector has been encouraged to
improve market balances and do away with the underground economy.
Next, the official private sector has been persecuted for illegalities within

18

Private Enterprise in Eastern Europe

it. The Polish private sector has been considered too small to be of
significance for economic growth. None of these extreme features has
been true for the GDR.
The five policy aims already listed are not consistent. Nationalisation
is a hostile act to entrepreneurs and deters them from co-operation with
the state. If state co-operation means monopolisation- as it normally
does- it boosts the incomes of selected entrepreneurs. Equally, private
competition diminishes after a certain dose of socialisation and regulation, facilitating high incomes. Can these earnings really be taxed? The
crucial contradiction, however, lies between the four ideological aims
and the inability of the socialised economy to balance the market. The
dynamics of our expose is provided by the variations of emphasis on
these objectives. The ideological urge to nationalise has faded. Instead
aversion to exorbitant private earnings and to private competition have
become the leading restrictive forces. Periodically, they lose out to
liberalisations for the sake of improved market balances. These counterforces provide the mechanism of a cycle. We shall investigate the nature
and strength of these forces to explain the direction of developments.

2 The Development of
the Private Sector
in Poland
Periodisation
The two following accounts of the development of the private sector in
Poland and the GDR, respectively, focus on policy aims, policy
implementation, and the effects and interaction among these three
elements. Practical policy has been the prime factor in the fate of the
private sector, and is therefore the basis for periodisation. From an early
stage, economic forces played only a marginal role in determining the
scale of the private sector, so the volume of private employment
indicates actual policy. Official periodisations differ from our own.
A chart of Polish private employment displays a precipitous fall until
the early 1950s, succeeded by a rising trend from 1956 with two
apparently cyclical set-backs. This pattern corresponds well with policy
practice, but only partly with the declared policy. The peaks and troughs
of the oscillation set our periods.
The first period covers the immediate aftermath of the war, in which
the communists attempted to form a broad political front and revive the
economy. During the so-called 'battle over trade' (1947-8) socialist
transformation was pursued, but the sphere intended for nationalisation
remained undefined and appeared limited. The so-called unification
congress in December 1948 signalled an era of uncompromising
Stalinism (1949-56). The PZPR (the Polish United Workers' Party)
called openly for the elimination of capitalist elements through ruthless
class struggle.
In October 1956, the eighth plenum of the PZPR brought about an
instant liberalisation of the private sector, but this period (1956-7) was
as brief as dynamic. A more restrictive regime with a policy of
stabilisation followed (1958-64). Between 1965 and 1968 new economic
reforms were propounded together with a cautious liberalisation
19

20

Private Enterprise in Eastern Europe

towards handicraft. In 1968, the private sector was attacked in a power
struggle. From 1969 until 1976, measures were haphazard, and the
discernible policies were insignificant. After the workers' rising of June
1976, the Gierek administration was so overwhelmed by faltering
market balances, that it started taking the private sector seriously. A
period of liberalisation (1977-80) continued until Gierek's fall in
September 1980. With regard to the private sector, the consecutive
period- 1980-3 -will probably appear as a continuation of the Gierek
era with hindsight, but it is considered separately here because of the
dramatic political events of this period. Against this fine subdivision in
nine periods, it might be objected that no fundamental changes took
place after 1956. However, the point is to uncover the degree of
vacillation in policy.
THE IMMEDIATE POST-WAR PERIOD UP TO 1946
The Polish people and economy suffered -relatively speaking -the
worst effects of the Second World War: 22 per cent of the population
was killed, with especially severe losses among the intelligentsia; the
country's real capital was devastated. The loss of almost half Poland's
territory in the east and the accretion of nearly the same area of German
land (the so-called 'Recovered Territories') brought about the resettlement of millions of people and necessitated a regional re-structuring of
the economy. The Generai-Gouvernement had been a hotbed for blackmarketeering during the war, since discriminatory and inconsistent
economic regulations rendered most business legally impossible. Blackmarketeering became both a necessity and a means of resistance.
Naturally, it also provided ample opportunities for conspicuous
enrichment to unscrupulous profiteers. In those parts of post-war
Poland that had belonged to the German Reich during the war, the
underground economy was reportedly minimal until the very end, but
after the war masses of Polish settlers arrived habituated to the GeneralGouvernement. Before the war, a large part of national wealth had lain in
foreign or state hands, and the German occupation did away with most
Polish public and private administration. War conditions fostered only
petty traders and spivs, but, despite the great shortage of civilian skills,
the experience of foreign occupation aroused calls for Polonisation. It
would have required a long process to bring a thoroughly disorganised
and, in any case, relatively underdeveloped country under a legal and

The Development of the Private Sector in Poland

21

orderly administration. The political climate after the war was unfriendly, with Soviet forces as de facto occupants, and anti-communist
groups fighting them and the Polish communists until 1947.

Communist Struggle for Political Control
Stalin had assigned power in Poland to the Polish Communist Party
(PPR, the Polish Workers' Party), but communists had, time and again,
been utterly discredited in Poland, since they had normally sided with
Russia- one of Poland's two traditional arch-enemies. Polish communists were well aware of the anti-communist and anti-Russian feelings of
the vast majority of Poles and the early PPR programme called for a
broad national coalition with moderate socialist demands. Overtly there
was little difference between the positions of the major Polish political
parties in 1943. They all agreed that key branches of the economy should
be nationalised and land reforms carried out. 1 Since few major Polish
enterprises remained in legitimate and untainted hands after the war,
nationalisation appeared the natural solution. Demands for national
planning and the extension of co-operative movements were universal,
as in many western countries. Yet, the PPR leaders saw the planning and
socialisation of large-scale industry as steps towards a socialist
economy, while some non-communist parties regarded nationalisation
as transitional.
The PPR adopted a programme called 'What are we fighting for?' in
November 1943, 2 which urged nationalisation only of large-scale key
industries (steelworks, mines, munitions, engineering and large-scale
processing industries), banks and transport, without specifying the size
at which industry became large-scale. The elimination of speculation
and confiscation of gains from war profiteering were other strong PPR
demands. However, the PPR soon dropped exclusively communist
demands in order to appeal to other left-wing groups. The communistled Polish Committee of National Liberation issued a vague manifesto
in Lublin, dated 22 July 1944, which represented a considerable retreat.
Confiscations were limited to German property, and a future restoration
of property was anticipated. Private enterprise was also promised state
support. 3 The PPR stand was clarified at its first congress on 6-13
December 1945 by the leading communist Hilary Mine 'We are building
and creating an economic system which is not a socialist system but
which is also not a capitalist system ... ' 4
There was a gulf between the proclaimed policy of the PPR and the

22

Private Enterprise in Eastern Europe

actions of Soviet forces and Polish communists. In the chaos after the
liberation from the Nazis, the communists pursued a ruthless struggle
for power. Since the communists had not yet secured control, they
carried out considerable socialist changes without the support oflaw. A
primary communist objective was the elimination of the pre-war
political parties. Therefore, three 'artificial' communist-supported parties with the names of pre-war parties were set up: the PPS, the SL. the
Peasant Party) and the SD (the Democratic Party). The SD was to
survive as a pro-communist 'party' of urban entrepreneurs.
Economic Control and Revival
At this early stage the economic policy necessarily had very limited
objectives. The three main aims were reconstruction, the stabilisation of
the economy, and the·extension of state control. Two fundamental
changes took place, namely far-reaching nationalisation and land
reform.
Most large and medium-sized industrial enterprises had been taken
over by the Soviet-supported government, as the Soviet-led troops
advanced. All property in the Recovered Territories initially became
state-owned. At the first PPR congress in December 1945, Hilary Mine
extended the PPR demands for nationalisation to medium-sized
industry. On 3 January 1946, a major law was enacted, nationalising all
industrial enterprises employing more than fifty people in one shift. (The
specification 'in one shift' scarcely played any role.) Furthermore,
seventeen branches of industry and German property were completely
nationalised. One article of this law stipulated that the Council of
Ministers could nationalise any category of enterprises not specifically
exempted. In fact, small industrial enterprises were also nationalised by
reference to this law. 5 By 31 March 1947, 7300 enterprises had officially
been nationalised, while 5870 firms were confiscated for various reasons
up to the end of 1948. 6 At the end of 1946, 17 100 'industrial' enterprises
with only 134 000 employees remained in private hands. Hilary Mine
had declared at the first congress of the PPR 'Confiscation without
compensation would mean starting on the road of socialist revolution.
We shall not start on that road'. 7 Compensation was endorsed in the
law, but hardly any was disbursed. 8 Since the nationalisation act
delimited state property, it had a stimulating effect on remaining private
enterprises. On 6 September 1944, a standard Leninist land reform was
decreed, which implied the parcelling out of many estates.

The Development of the Private Sector in Poland

23

Other urgent tasks were the standardisation and stabilisation of the
currency and the increase of fiscal revenue. Three currencies circulated in
Poland towards the end of the war: German marks, Polish zloties issued
by the Nazis and Soviet rubles. Six partial currency reforms followed in
the liberated parts of Poland from October 1944 till the end of the war.
Every individual could only exchange a small sum, so large money
holdings became worthless giving the currency reforms a strongly
egalitarian character. 9 They hit private banks severely. The government
refrained from nationalising banks and instead, mainly in 1946 and 1947,
forced them into liquidation by withdrawing their licences. The old bank
law of 1928 allowed this, if banks acted against the public interest, and so
private banks were accused of speculation. Their assets were, as a rule,
smaller than their liabilities, and expropriation would have caused
foreign claims for compensation. 10
The first fiscal legislation appears economically erratic. Taxes skyrocketed. At the end of 1944, the highest income-tax rate for enterprises
increased from 50 per cent to 97.5 per cent. It was impossible to collect
such high taxes in the prevailing chaos. Even so, they did not encourage
private enterprise to contribute to the reconstruction. 11 New tax
legislation was promulgated in 1946, imposing socialist ideas of differentiated taxation by social status. Separate tax systems were established for the socialised and private sectors, as well as for urban
entrepreneurs, peasants and wage-earners. The main tax on entrepreneurs was income tax, which at a maximum of 80 per cent, remained
high. Turnover tax was differentiated for private branches, but generally
very low, 2-3 per cent. Sales of real capital were taxed.
This tax system was accompanied with two phenomena that were to
recur. One was tax exemption for specific purposes, mostly for brief
periods. Tax reliefs enticed repatriates to return to Poland in 1944-6,
and private enterprises were lured to invest in the Recovered Territories
in 1946-7. In 1947, tax reliefs for investment were awarded throughout
the country. In order to encourage artisans to join the co-operative
movement, sales through co-operatives were exempted from turnover
taxY Initially, tax reliefs appear to have been effective.
In the Recovered Territories, enterprising individuals made use of
deserted premises and generated large profits quickly. However, private
enterprise never acquired roots and business assumed a feverish,
speculative character. The Recovered Territories were an area of
socialist experimentation, where entrepreneurs could not even ascertain
property rights, and people could not believe that these areas would
remain Polish. 13

24

Private Enterprise in Eastern Europe

Sudden once-for-all taxes have been another recurring phenomenon,
the first being imposed immediately after the war and amounting to 1575 per cent of wealth enhanced during the war. A second was levied in
late 1946, approximately totalling turnover tax that year. 14 The lasting
consequences of the complex tax system, once-for-all taxes and high tax
pressure have been massive tax evasion and distrust between authorities
and entrepreneurs.
It is striking how reluctant the government was to acknowledge any
limitation on its administrative capacity. State intervention strengthened
communist power and the alternative- indirect control- was not
feasible in the disorganised and hostile post-war environment. The
communists tried to extend their authority with police methods. A law of
late 1945 enabled the frequent sentencing of people to labour camps for
economic offences. 1 s In November 1945, the dreaded Special
Commission for the Struggle against Speculation (Naduiycie) and
Economic Sabotage was set up to assist in the administration of justice.
It exposed offenders and sentenced them instantly. 16 Where the
communists did not control central state organs, they encouraged their
followers in local administration to extra-legal actions.
The state assured itself of a substantial share of the economy. At the
end of 1945, only 285 292 private enterprises and free professionals were
registered. In 1946, private industry and handicraft contributed 21 per
cent of gross industrial product, and private trade 20 per cent of total
wholesale turnover and 78 per cent of retail turnover. 1 7
However, restrictions did not stop entrepreneurs from making profits,
and the economy was so disorganised that it was hardly practicable even
to continue rationing. Obligatory deliveries from peasants to the state
were abolished on 1 July 1946 which extended the scope of the money
economy and private trade considerably! 8 The Polish economic
historian, Janusz Kalinski asserts that some trading firms made enormous profits. The average margin in trade amounted to 30 per cent but
jumped to 300 or even 500 per cent for some commodities. Wartime
customs and blatant profiteering persisted together with wasteful
consumption, while the country lay in ruins, aroused a left-wing outcry
against speculation. 19
Although the government had great ambitions for planning, it was
only of indirect importance to the private sector. In 1946, the first central
plan was attempted, while the first medium-term economic plan covered
the three years 1947-9. Its main aims were to reconstruct the economy,
to boost the standard ofliving of the working masses and to integrate the
Recovered Territories with the rest of the country. The plan treated each

The Development of the Private Sector in Poland

25

form of property differently. Growth targets were normative for the state
sector, but indicative for the private sector. 20
'THE BATTLE OVER TRADE' 1947-8 2
Communist Control

The parliamentary election on 19 January 1947 was an important step
towards a firm communist grip on state power. Officially the
communist-led bloc managed to secure 80.1 per cent of the votes, while
the democratic, anti-communist Polish Peasant Party (PSL) attained
only 10.3 per cent. The communists had used every conceivable illicit
measure to win. Since they denied their real aims in order to appeal
broadly to the left, their attitude to private enterprise was conciliatory.
The Secretary-General of the PPR, Wtadysl1aw Gomulka, stated
before the election, that the PPR aimed at its 'own Polish way of
development' with 'individual initiative and non-socialised forms in
specified sections of industrial production. 22 Eugeniusz Szyr asserted
'No-one even thought of attempting to collectivise peasant property or
to expropriate other small-scale private property'. 2 3 The outcome of the
election facilitated the ousting of the legal democratic opposition during
1947. Soon, the communists needed only to sort out the dissenters
among their allies, the PPS, and in their own ranks. They could reveal
their socialist aspirations. 24
The PPR laid down its new course of action at a plenum of its Central
Committee (CC) on 13-14 April 1947. The regulation of nonnationalised activities and socialisation were attempted simultaneously.
The PPR wanted to enforce state authority not only over private
enterprise, but also over co-operatives which tended towards independence and alliance with entrepreneurs. Perhaps its most effective
body was the firmly PPR-controlled Ministry of Industry and Trade,
headed by the dreaded Hilary Mine. He delegated most pronouncements on private enterprise to his deputy Eugeniusz Szyr, also a senior
communist.
Soviet desires were undoubtedly paramount at this time, but domestic
considerations appear to have played some role. The political and
economic aims of the PPR coincided. It appealed to industrial workers
for political support and wanted to expand large-scale state industry as
quickly as possible, while economic balances were all but neglected.

26

Private Enterprise in Eastern Europe

Thus investment outlays were rapidly boosted to 21 per cent ofNMP in
1947, 25 and wages in state industry were allowed to rise in an
uncontrolled manner. Attempts were made to let the private sector pay
for the expansion through high taxes, but even if tax collection had not
encountered fierce resistance, taxes would probably have been insufficient to finance such a spurt in public investment. Instead the
government turned to an excessive printing of bank-notes. The ensuing
inflation was aggravated by the paucity of skills in the rapidlyexpanding state industry, which produced fewer commodities of poorer
quality than planned. According to calculations by the Polish National
Bank, 26 the cost of living in Warsaw rose by 19.8 per cent from January
to June 1947.
Inflation threatened to jeopardise the PPR concerns for workers'
material conditions, so state industry, was ordered to set low prices,
causing it large losses, while private middlemen reaped vast, speculative
profits. 27 This economic folly suited the political intentions of the
PPR- to divide and rule- inciting the workers to class struggle against
profiteering noveaux riches.
On May Day 1947, Hilary Mine made a famous pronouncement 'We
have won the battle over production, and we shall attempt to win the
battle over trade'. 28 'The battle over trade' was the dominating theme in
economic policy, until full Stalinism began at the end of 1948. Hilary
Mine presented his argument at the Aprill947 plenum of the CC of the
PPR. His main complaint was that 'part of the surplus produced by state
industry' was appropriated by 'capitalist elements'. 29 Mine wanted to
eliminate this appropriation, which 'cannot be achieved without a fierce
struggle for the conquest of the market and for a certain framework,
specified by the state, for its work'. He envisaged ·a transformation of
market capitalist elements into state-capitalist elements', while asserting
that 'the struggle for the conquest of the market does not mean the
elimination of market-capitalist elements ... It means only a struggle
for control over those elements by the People's Democratic State'. Mine
failed to elaborate his ideas of state capitalism and made no attempt at
an alliance with entrepreneurs, which was one of Lenin's requirements.
On the contrary, entrepreneurs were harshly abused, and Mine called
for 'a sharp and difficult class struggle'. 30 The PPR denied that
inflationary tendencies were caused by the excessive issuing of money or
shortfalls in state production. It refused to adjust prices to the market
and did not allow enhanced competition. Consequently, it conserved the
anarchy of speculation of the distorted market. 31
The PPR had chosen the road 0f intensified class struggle, and blamed

The Development of the Private Sector in Poland

27

the inflationary tendencies on 'the disorder, disorganisation, anarchy,
savagery, barbarity, [and] demoralisation' prevailing in trade. 32 Virtually the whole private sector was attached, but the spearhead was
aimed at private trade. A whole series of laws was enacted by the Sejm
(parliament) on 2-3 June 1947. Their content can be summarised in one
word- policing. New regulations were introduced in pricing and
licensing, but most importantly an extensive control apparatus was
established. The measures were openly hostile to private trade, offering
no gains to co-operative entrepreneurs; and they were hastily and
ruthlessly implemented.
A System of Repressive Economic Control

Price regulation formed the centrepiece of 'the battle over trade.' 33 It
assumed a simplistic character with the reduction or perhaps even the
elimination of private profits as its prime objective. From this time, state
trade has often tried to outdo private trade with limited cheap sales of
attractive goods of high quality, to show the public the superiority of
state trade. However, competition was a minor problem for private
trade, and such sales were quickly recycled on the black market. It was
worse that input prices were regulated at a higher level for private than
for socialised enterprises. Most artisans have continuously been charged
retail prices for supplies. The authorities took remarkably little interest in
balancing markets, which the remaining opposition demanded.
The price policy was an exact copy of the Soviet price policy of the late
NEP, which rendered the survival ofNEP inconceivable, as it entrapped
private trade in speculation. In both cases, the effects of an untenable
price regulation served as the basis for other restrictive measures. The
major measures of 'the battle over trade', and even its propaganda, were
the same as in the Soviet Union of the late 1920s. 34 The label, 'battle
over trade', first coined by Mine in December 1945, 35 was more original
than its content.
A law of 2 June 1947 proclaimed a struggle against high prices and
excessive profits in trade. Prices were generally regulated, either through
price-lists with maximum prices of standard goods and services, or
through calculation rules limiting legal gross margins in trade to just
5-10 per cent. 36 Severe punishments were instituted for transgressors
who were liable to five years imprisonment or fines of 5 m. zloties. The
custodial sanction has remained in force. The Special Commission was
entitled to confiscate the property of violators, close their firms, and
direct them to labour camps.

28

Private Enterprise in Eastern Europe

Powerful institutions were set up to enforce price regulation. The
leading organ was the Price Bureau of the Ministry of Industry and
Trade, formed in May 1947. It set prices with the assistance of two sorts
oflocal commissions. Recording Commissions collected information on
prices, and Price-List Commissions complemented the Price Bureau with
local price-setting. About 300 commissions of each sort had been
established within a year. 37 Both types of commissions were aided by
local Social Commissions for Price Control, constituted by representatives of trade unions, various organisation and the omnipotent Special
Commission. They checked stocks, accounts and invoices. The PPR
asserted its dominance in the new commissions which acted as a
communist battlefront. Commission members made up in political zeal
what they lacked in competence. They frequently recorded prices wrongly
and fixed many prices very low, rendering sales unprofitable. Moreover,
new prices were rapidly enforced, and entrepreneurs were penalised for
violating price-lists, which had not reached them. Tradesmen evaded the
impossible regulations, but the various commissions treated merchants
with the intended severity. During the first year of'the battle over trade',
these commissions carried out 359 000 controls of trading enterprises of
various ownership, that is, about two controls per enterprise, recording
indictments for over 69 000 violators, while the Special Commission sent
788 entrepreneurs to labour camps. 38 Two frequent abuses were the
charging of inflated prices and the lack of invoices (implying illicitly
acquired goods).
Similar measures were taken to impose taxation. 39 A new law on fiscal
crimes stipulated severe punishments, if any fiscal detail was incorrect or
missing. The authorities were given far-reaching rights to extract taxes in
arrears. A tax apparatus of zealous amateurs, Civic Tax Commissions,
was set up in June 1947 and obtained wide-ranging powers. The
Commissions assessed taxes freely and levied severe penal taxes
(domiary) on failing taxpayers. Complaints suggested that assessed
turnovers often grossly exceeded real turnovers, since the Civic Tax
Commissions tried to compel merchants' liquidation. 40
The Ministry of Finance determined the tax burden primarily by
planning tax. revenues and not by tax-rates, so it hardly mattered that the
highest income-tax rate was reduced to 50 per cent in spring 1947 to
encourage entrepreneurs to reveal their real income. 41 Tax revenue
increased very rapidly. The lower tax-rate lasted only until January 1948,
when compulsory Social Saving was introduced for the whole private
sector and population, with the declared purpose of diminishing private
purchasing power and increasing accumulation. Although it was

The Development of the Private Sector in Poland

29

presented as a saving scheme, in practice, Social Saving became an
additional progressive income tax boosting the legal maximum incometax rate from 50 per cent to 68 per cent. The law of June 1947 on tax
reliefs for investment and construction was rendered insignificant by
accompanying stem measures deterring entrepreneurs from
investment. 42
A third restrictive measure was a new law on licensing of2 June 1947,
to limit and direct private enterprise. 43 Henceforth, all firms and free
professions required licences, specifying location, branch and product
range. All entrepreneurs should possess adequate qualifications and high
business ethics. A sizeable licensing duty was levied, and the establishment of new enterprises was discouraged by a twelvefold fee. Merchants
perceived licensing as a conscious attempt to eliminate private enterprise, and the government maintained its right to refuse or withdraw any
licence at will.
Finally, one of the most important means of hampering private trade
was its exclusion from wholesale trade, either by prohibition or by
discrimination in supplies. The communists had hastened to establish the
first state wholesaler in May 1945. They regarded wholesale trade as the
commanding height of the economy and particularly desired a state
monopoly in the trade between town and country and in the distribution
of the produce of socialised industry. Numerous decrees were delivered
from 1947 to 1952 to regulate- mostly to prohibit- private business
purchases of specific commodities. The outstanding handicraft expert
Wactaw Iwaszkiewicz noted that 'from one day to another, specified
economic activities lost their legal basis of existence'. A wide range of
restricted commodities- including agricultural produce- and producers rendered effective control impossible. Moreover frequently changing decrees obscured the dividing line between legality and crime. 44
Private entrepreneurs were starved of supplies. Whenever they dared
trespass the regulations on supplies, they were liable to severe punishments, but the frequent absence of legal supplies made illicit deliveries
the only means of survival. Furthermore, artisans who paid retail prices
for all legal deliveries had no price incentive to purchase sparse official
supplies.
Outcome of 'the Battle over Trade'

The effects of 'the battle over trade' were profound and manifold. They
remain, as it has never been officially condemned. Gomulka headed it

Private Enterprise in Eastern Europe

30

and, after his comeback in 1956, he only criticised the period after the
battle, when he was out of office. Official Polish historiography rejoices
over the successes of 'the battle over trade'. Trade had been rapidly
restructured and socialised. Private profits had allegedly fallen which
eased inflationary pressures. Price regulation held official prices down,
and according to Polish estimates, the average real wage increased by 14
percent in 1947 and by 23 percent in 1948. 45 The cost of trade as a whole
had been minimised.
It is difficult to join in the exultation, since 'the battle over trade' dealt
a savage blow to trade as a whole. The number of private trading firms
was approximately halved in fourteen months (see Table 2.1).
TABLE

/947-9

2.1

Time
Oct 1947
1 Jan 1948
1 Jan 1949
SOURCE

Number of private trade establishments
Retail

Wholesale

180566
127877
93892

6813
4577

Kalinski (1970) p. 112.

The socialised sector was unable to replace private trade, and the
authorities were mostly not interested in taking over private shops, since
they were of the dubious opinion that trade was overcrowded. The total
number of sales points fell as low as 101 000 in 1950. The feeble response
by the state was to set up department stores, hailed· as a major
achievement. However, at the end of 1948, there were merely seventy-six
state-owned department stores, accounting for 0.4 per cent of total retail
tumover. 46
The retail network did not shrink evenly. More shops closed down in
small towns and the countryside than in cities, and the expression 'trade
desert' was coined for areas deprived of stores. This decay resulted
primarily from changes in supplies. Hitherto, minor trade had benefited
from local supplies now prohibited. The socialisation of wholesale trade
had brought about a far-reaching centralisation, offering small-town
tradesmen minimal, if any, access to legal supplies. Besides, the smaller a
township, the less the actions of local authorities were restricted.
Moreover, rural purchasing power was depressed. Another regional
disparity was that private trade was worse hit in the most German parts
of the Recovered Territories, notably Szczecin and Olsztyn, where

The Development of the Private Sector in Poland

31

private enterprises never took root, but remained unusually speculative.
Such private firms were both particularly offensive to communists and
easily eradicated.
The number of private shops plunged much faster than the private
portion of trade turnover. The private share of retail turnover fell
moderately from 78 per cent in 1946 to 61 per cent in 1948, and from 20
per cent of wholesale turnover to 7 per cent. 47 The concentration of
turnovers in fewer shops was intentional, but no measures were taken to
facilitate it. Experienced merchants were not desired in socialised trade,
which obtained minimal resources, and salespeople were badly paid.
Official propaganda hailed salespeople and artisans who adjusted to
modem society becoming blue-collar workers in large-scale industry.
Trade was understood as the mechanics of distribution without regard to
consumer service. Service fell permanently to a very low level, and the
malfunctioning of trade meant poor satisfaction of the needs of the
population. Trade was restructured regardless of economics. Its sparse
retail network and highly centralised wholesale organisation, with
dismal professional standards, has persisted and has prevented any
approach to a balanced market.
'The battle over trade' left a many-sided legacy. A massive control
apparatus had been established, which would have become superfluous,
if policing were played down. The many officials involved in the
campaign had a vested interest in justifying and defending their
measures- arbitrary reckless actions based on minimal informationfor their careers. This legacy undermined the foundation of any future
legality, and ever since the concept of Rechtsstaat has not been
applicable to Polish economic administration.
The attitudes of entrepreneurs were firmly set. They felt that the
communist state was directing a class struggle against them, aiming at
their elimination, without acknowledging any limitation to state power.
Laws were little more than tactical devices, and entrepreneurs realised
that they were social outcasts without rights. They fought back by
withholding information and evading regulations, whenever it appeared
advantageous. 48 In early 1947, Eugeniusz Szyr acknowledged:
Perhaps they are right who affirm that if a taxpayer disclosed his real
turnover and income, he would have to work for a pure loss in some
cases. It is possible that such cases may occur, but today there is no
doubt that the only cure in this field is a transition to full openness, i.e.
to correct, scrupulous bookkeeping and business documentation. The
permanent necessity of detailed control and the permanent state of

32

Private Enterprise in Eastern Europe

'war' between the tax inspector and taxpayer hinder the tax
authorities. 49
'The battle over trade' escalated this war which continues. Poland
never overcame wartime speculation. The private sector became legally
degenerate, that is, the precondition of entrepreneurial survival was
unlawful behaviour possibly leading to several years in prison. Insecurity
formed the consciousness of entrepreneurs. Eugeniusz Szyr depicted the
nature of the legally degenerate private sector, when in the autumn of
1948, he complained about harmful tendencies in private industry:
private industrialists avoided investment outlays; they preferred to
produce goods they could sell at high prices in uncontrolled markets;
they strove for easily changeable activities which made a large share of
enterprises fluid and technically primitive; they overlooked sanitary
regulations; they succeeded in recruiting the best qualified employees
from state enterprises; finally, they encouraged theft and abuses in their
struggle for scarce raw materials. 50 This perceptive picture of Polish
private enterprise still appears accurate.
Many traders left the legal sector for the more elusive illegal trade,
which alone could fulfil many needs of the population, and compensated
themselves for legal risks with wide margins. 51 Eugeniusz Szyr has
provided us with an expressive picture of growing black trade in the
·
spring of 1949:
Every temporary difficulty is immediately exploited by the class
enemy. Every mistake and oversight by the distribution
apparatus ... constitutes an immediate signal for anti-state action.
The great mobility of a mass of small tradesmen and completely
unregistered wandering vendors, declasse elements who fear physical
work as the devil holy water and also the lack of any form of control
whatsoever in this field. 52
A political legacy of 'the battle over trade' was the cynical usage of the
Leninist principle of the primacy of politics over economics. Various
economic disasters were henceforth defended for whatever slight
political gain resulted, while economic common sense was conspicuously
disregarded. Likewise, official contempt for trade lingered on, and
Lenin's stinging abuses against private trade and speculation were
frequently quoted. Lastly, it paved the way for Stalinism. Most Stalinist
measures were already in force, and a high degree ofnationalisation and

The Development of the Private Sector in Poland

33

centralisation had been achieved. Only the formulation of aims needed
to be revised.
Every policy towards private trade was matched by similar measures
against private industry and handicraft after minor delays, so these
branches were similarly affected, albeit not as severely. The number of
handicraft workshops and handicraft employment peaked apparently in
the middle of 1948.

FULL STALIN ISM 1949-56

The Emergence of Full Stalinism 1948-53
The communist hold on Polish society grew ever stronger. The PPR
managed to sack the PPS-dominated leadership of the Central Planning
Board in February 1948, and imposed Soviet-type objectives, such as
high economic growth-rates and fast expansion of heavy state industry
through rapidly increased accumulation. Less importance was given to
consumption and to balances in the economy. In September 1948,
GomuHca was ousted as Secretary General of the PPR and replaced by
the Soviet-supported Bolestaw Bierut. The special Polish road to
socialism was officially abandoned. The last step towards full Stalinism
was to merge the PPS and PPR into PZPR (the Polish United Workers'
Party) at the Unification Congress in the middle of December 1948. The
congress adopted an ideological declaration incessantly invoking the
Soviet Union. Both in theory and practice, standard Stalinism was
pursued. A tenet was:
the rule of people's democracy can and shall ... accomplish ... the
fundamental functions of the dictatorship of the proletariat which
bring about th