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A Champion of Economic Freedom

May 21, 2014 in Economics

By Michael D. Tanner

Michael D. Tanner

It is easy to become discouraged about the U.S. economy: slow economic growth, rising debt, the massive weight of government spending, taxes, and regulation. Few politicians from either party seem willing to take the difficult stands necessary to address the out-of-control growth of government.

It’s worth recalling, though, that other countries have been in even worse shape and gotten out of it. Often all it takes is bold free-market policies and political leaders with the courage to carry them out.

Wednesday night, one of those leaders, former Polish deputy prime minister and finance minister Leszek Balcerowicz, will be honored with the Cato Institute’s biennial Milton Friedman Prize for Advancing Liberty.

Leszek Balcerowicz shows that a leader willing to stick to principles can effect serious change.”

When Balcerowicz became deputy prime minister and minister of finance in 1989, Poland’s economy, like those of most Eastern European countries, was a basket case. The country’s debt exceeded two-thirds of its GDP. Inflation ran as high as 250 percent per year. Both national income and productivity were declining, while basic consumer goods were often in short supply.

Balcerowicz rejected Keynesianism, choosing instead policies dubbed by both supporters and opponents as “shock therapy.” Prices were deregulated, and Balcerowicz balanced the budget by slashing government spending. State-owned enterprises (SOEs) were sold off: Almost 1,900 were directly privatized in the first half of the decade, and many more were liquidated or had to declare bankruptcy because they were inefficient and unable to compete in a market economy. The sales and closings removed these distortions from the economy.

Balcerowicz vigorously pursued a free-trade agenda, cutting tariffs and other import barriers. He was an early advocate of social-security privatization and helped set the stage for the introduction of privately invested personal accounts as part of Poland’s national pension system.

It was not a painless process, of course. Initially, unemployment spiked. Economic output continued to decline, driven in part by former state enterprises that failed to adapt to market competition. There were protests. Political opponents both inside and outside Poland attacked him. The EU and other institutions told him to alter his policies. His political popularity plummeted. Yet Balcerowicz refused to change course.

Within a few years, Poland was on the road to recovery. By 1992, just two years into the Balcerowicz plan, inflation had been largely tamed. Shortly thereafter, the economy began to grow again. Foreign investment has poured into …read more

Source: OP-EDS

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