Главная Private Enterprise in Eastern Europe: The Non-Agricultural Private Sector in Poland and the GDR,...
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