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Leszek Balcerowicz Transformed Poland through an Embrace of Economic Freedom

May 19, 2014 in Economics

By James A. Dorn

James A. Dorn

The architect of Poland’s transition from Soviet-style central planning to a market economy will receive the prestigious Milton Friedman Prize for Advancing Liberty in New York City on May 21. The biennial $250,000 prize awarded by the Cato Institute since 2002 recognizes individuals who have made outstanding contributions to the spread of economic and personal freedom.

At the beginning of 1989, Leszek Balcerowicz was a young 42-year-old economist who had earned a Ph.D. at the Central School of Planning and Statistics (CSPS) in Warsaw and had been a member of the Polish United Workers Party (he left the PUWP in 1981). He had never held any leadership positions and had no thoughts of entering politics. Indeed, he expected Soviet dominance to last and its institutions of single-party rule and tight control of economic life to persist.

That all changed when Solidarity gained legal status in April 1989 and Tadeusz Mazowiecki, Poland’s designated prime minister in the first post-communist government, asked him to be his “Ludwig Erhard” in late August 1989. Balcerowicz accepted and became deputy prime minister and minister of finance in September. (Just a year before, he had spent several months in West Germany studying Ludwig Erhard’s reforms of 1948, which liberalized prices, ended shortages, and stabilized the currency.)

Earlier in his studies, Balcerowicz had read Ludwig von Mises and F. A. Hayek on the “socialist calculation debate,” and he came to recognize the importance of private property rights and free markets for generating rational prices. He saw the experiment with state ownership and planning as a tragic failure and recognized the importance of economic freedom for improving people’s lives.

The essence of the “Balcerowicz Plan” was rapid stabilization, liberalization, and institutional change to rein in the state and widen the scope of individual freedom.”

Balcerowicz formed an informal group of economists interested in reform while he was at the CSPS’s Institute of Marxism and Leninism in 1978–80. The “Balcerowicz Team” initially proposed working within the political constraints under the Communist regime to try to improve efficiency by introducing more competition. After martial law was imposed in December 1981, his group discussed more radical reforms — but as a “hobby” not a realistic blueprint.

When the moment came for fundamental reform, Balcerowicz was ready. He already had a vision of what steps were necessary to make the transition from planning to the market, and he had a …read more

Source: OP-EDS

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