In economic terms, state socialism is usually associated with an authoritarian state's monopoly over basic elements of the economy such as trade, distribution of resources, and regulation of wages and prices. However, limited forms of legal private enterprise – often in the form of micro-craft businesses and (family) retail trade – existed sporadically in some socialist states, including Hungary and the German Democratic Republic. But perhaps the most glaring example of this is the Polish People's Republic, where the small private craft and retail sectors have continued to stay away from non-collective agriculture in one form or another for the entire existence of the state. It was usually subject to severe restrictions by the authorities, but it also experienced periods of liberalization, for example during de-Stalinization and in the 1980s.
Despite the fundamental ideological aversion on the part of state socialist regimes towards private entrepreneurship, it has become an internal part of the economic landscape, alleviating the multiple imbalances in planned economies. Whenever the Polish People's Republic, for example, was hit by a severe economic crisis, with state-owned enterprises unable to meet basic consumer demands, the regime would “cut taxes and other administrative restrictions” on the private sector, despite its “ideological hatred of private property.” '.
with A breakthrough Strengthening economic relations between East and West under the slogan of “peaceful coexistence”, some state socialist countries allowed limited private foreign direct investment in their domestic economies. Examples include non-aligned Yugoslavia in the late 1960s; Romania, Hungary and Poland in the 1970s; Bulgaria in 1980; and the Soviet Union in 1987. The most common form of Western FDI is through joint ventures between Western companies and state-owned enterprises established in these countries. But the Polish People's Republic initially chose a different path, which was to open the limited markets to foreign direct investment from the West.
Warsaw 1977. Photo: Erkki Nagy Tibor / Source: Forteban
Businessmen in the diaspora
In order to improve living conditions and consumer demands, Poland's trade relations with the West became increasingly import-intensive during the 1970s. The People's Republic of China co-financed imports with generous Western loans, which, as a result of the global oil crises and high inflation in the US dollar, eventually led to massive debt.
Seeking more Western foreign exchange, the authorities under the leadership of Party Secretary Eduard Gierek issued special legal directives that allowed the establishment of small and medium-sized private enterprises relying on foreign capital from 1976. Since various forms of economic cooperation between parts of the country the Polish diaspora began to The West (so-called “Poland”) and the socialist state of Poland continued to grow significantly in the first half of the 1970s, and Warsaw in particular encouraged its citizens in the West to set up private SMEs in Poland.
Western founders of such SMEs were expected to provide the entire seed capital in Western currency and to appoint an agent – a person with permanent residency in Poland – who would act as the company's on-site manager. After a positive evaluation, local authorities usually granted the company concessions for ten years, either for specific services or for the production of certain consumer goods. Since the majority of Western investors belong to the Polish community in the West, these private SMEs have become known as “Polish companies” (Polish companies). Warsaw hoped that opening the limited market to Western foreign direct investment (Pologna) would lead to an influx of Western currency and know-how into the economy, as well as an increase in the production and supply of domestic consumer goods that state-owned enterprises were unable to supply (at least in sufficient quantities). This would also reduce expensive imports from the West in the long term, the regime expected.
The first Polish companies were founded in 1977 and their number increased particularly during the most important period of political and economic crisis in Poland between 1981 and 1983 (from 151 companies to 491 companies). This increase can be explained by the deteriorating supply situation in the local market and Warsaw's urgent need for foreign exchange at that time. The system thus created favorable tax conditions for Bologna companies and generally provided greater legal certainty for Western founders of private SMEs, culminating in the First Law on Bologna Companies in July 1982.
However, the huge profit margins of some Bologna companies and the “irregularities” revealed in many cases by state control authorities, such as the Supreme Audit Office, led to an increasingly negative government press campaign and tightening of tax and investment regulations between 1983 and 1985, after That the Polish People's Republic overcame the worst of the crisis. This in turn led to a noticeable decline in newly established companies after 1983.
Regular conflicts also arose between the authorities, SOEs and Bologna companies, for example over the poaching of top managers from the state sector (the jobs in Bologna companies were much better) or the purchase of raw materials from SOEs. companies instead of importing them from the West. Despite the regime's (necessary) economic pragmatism, it also did not trust Bologna's companies for political reasons, and from 1976 onwards they were placed under constant surveillance by the security service. But even when conditions became more hostile after 1983, many Bologna-based companies continued to grow in terms of turnover and number of employees.
The introduction of more restrictive laws towards Polish companies between 1983 and 1985 did not mean Warsaw's general rejection of further economic liberalization. On the contrary: in the second half of the 1980s, major liberalizing reforms – such as the Joint Venture Law of 1986 – allowed investment capital from the West to increase significantly in the country's economic sector. Indeed, the economic reforms of the late 1980s heralded the Polish People's Republic's shift toward a market economy.
At the same time, the search for large-scale investment capital in the second half of the 1980s further harmed small and medium-sized enterprises in Bologna. For example, joint ventures, as defined by the 1986 law, were offered better tax terms than those enjoyed by Polish companies, which led to frustration among these companies.
But in 1988, there were more than 700 Polish companies with more than 70,000 employees operating in the People's Republic of Poland, with most of the initial capital coming from West Germany, Great Britain, France, Austria and Sweden. Although many Polish companies did not survive the regime shift, some owners, agents and managers became highly successful entrepreneurs in post-socialist Poland. Entrepreneurial activity in a company in Bologna often served as a springboard for a successful business career after 1989.
In quantitative terms, Polish companies were at best modestly beneficial to the Polish economy, constituting only a marginal part of the non-collective sector. Its exports to the West were minimal because Polish companies had to transfer a large part of their export revenues to the country, which made exporting very unprofitable for them. Therefore, Polish companies produced and sold their goods almost exclusively to the local market.
Ultimately, the overall flows of Western currency through Polish companies and their willingness to reinvest their profits fell well short of the party leadership's expectations. Warsaw's success in mobilizing Western Poland, which often had a dismissive attitude towards the Polish People's Republic, was also limited – considering that in the 1970s, Polish authorities estimated the size of the Western diaspora at between 12 and 14 million people.
Selling the western lifestyle
However, the overall influence of Polish companies on the economy of late socialist Poland should not be underestimated. Many of them became important producers and suppliers of everyday consumer goods and helped fill large supply gaps caused by shortages in the state's socialist economy.
Jeans manufactured by the Polish company Top Mart, founded in 1977 with seed capital from Canada, have become very popular in the Polish People's Republic: long queues formed outside the company's sales hall in Krakow the night before its opening. Top Mart quickly expanded into a medium-sized enterprise with 600 employees, producing one million jeans a year at its factory in Lodz. Dekor, founded in 1977 with seed capital from Austria, produced a wide range of goods, from decorative materials, labels and labels to building materials. Haste, founded with capital from Sweden, began manufacturing wooden furniture and expanded rapidly, producing hygiene items for babies or goods made of polyethylene for the local market.
Other companies in Poland focused on electronic goods and IT products: for example, Marko Electronic assembles and sells digital wristwatches popular in Poland. IMPOL 2, founded with seed capital from Great Britain, became a major player in the local IT sector and produced, among other things, its own personal computer IMP-85, which was considered “the best product of its kind in Poland” in the mid-2000s. Twentieth century. -The eighties. However, other Bologna companies focused on producing specialized goods. For example, Plastomed, founded in 1981, has supplied the medical sector with much-needed pipettes and various plastic dishes for laboratory testing. The company often had to import the components it needed from the West, because the local market was unable to provide them at all.
In addition to filling material gaps in the supply of consumer goods, Polish companies were able to satisfy the desires of large sectors of the Polish population in the 1980s for a “Western” consumer lifestyle. Although everyday goods produced by Polish companies were in many cases only of slightly higher quality, and often much more expensive than their counterparts in the state sector, they enjoyed great popularity. As private enterprises, Bologna companies contributed significantly to the emergence of new management, marketing and advertising strategies. They used Western-sounding brand names and logos, and sold their products using attractive Western-style advertising and “aesthetic” packaging, outperforming often inactive state-owned companies.
For example, the Alpha company in Poland advertised its zippers (produced in Krakow) featuring Frankenstein's face with a zipper on his forehead. The ad, published in a Polish business magazine, was “shocking, but it brought attention to the product.” Haste offered functional Scandinavian-style furniture, while Carpathia's “delicious” chocolates were very popular with customers due to the “aesthetic interior design” and “store displays” in Carpathia sales halls. The famous sports shoes of the Bologna company Sofix, which was founded with seed capital from West Germany, gained popularity due to its “Adidas-like” design. The perfumes of Inter Fragrances, one of Bologna's most successful companies (founded with seed capital from France), offered consumers the “smell of the West”—or at least what they imagined.
Thus, Polish companies succeeded not only in filling the gaps in the shortage economy that the People's Republic of Poland witnessed in its late era. As private enterprises operating within the structure of a planned socialist state economy, which skillfully exploited their inherent vulnerabilities, they became pioneers of market-oriented entrepreneurship in a state socialist state, and thus agents of economic change years before the fall of the Iron Curtain in 1989.
This article was written as part of the System Breach research project. 'Bologna Companies' 1976-1994', funded by the Austrian Science Fund (FWF), project number: I 4877.
