Kazimierz Laski

Consumer prices and private consumption in Poland and Austria

Abstract Starting from a bilateral comparison of consumption levels in Poland and Austria in 1964, 1973, and 1978, the authors calculate the implicit price indexes for both countries. The confrontation of the implicit and official price indexes seems to prove that official data grossly understate price inflation and overstate real growth of consumption in Poland. The causes of this discrepancy are mainly seen in the systemic difficulty of properly measuring price changes in Polands “shortage economy.” This problem may arise in all international comparison between centrally planned and market economies when official price indices are used.

Lessons to be drawn from main mistakes in the transition strategy

Let us start our analysis by asking a simple counter-factual question: would the overall transition strategy be the same if the command economy had happened to collapse 20 years earlier? Nobody knows the answer, but we guess that the strategy would be different from the one followed since 1990. Most probably, it would not be concerned almost exclusively with the supply side and not simply assume that full employment depends basically on the wage level. It would also most probably not assume that prices depend directly on the quantity of money and budget deficits. Last but not least, it would most probably not assume that state failures loom larger than market failures and would therefore not require a minimal role for the state in economic matters. At the beginning of the 1970s, the experience of the successful policy of rebuilding market economies after the second World War in Europe was still fresh in people’s minds. Of course, that policy also aimed at getting rid of postwar hyperinflation, but it did not forget that its ultimate goal was to put idle resources to use, and to shift them from less productive to more productive activities. That policy involved government guidance and planning because it did not share the belief that spontaneous market forces alone would take care of post-war reconstruction and of unemployment by creating jobs for everybody.

Repressed Inflation and Second Economy under Central Planning

Repressed inflation arises under central planning when excess demand on the consumer goods market does not lead to appropriate price increases. If prices in the second economy are allowed to increase the excess demand would seem to disappear. In reality this process would only partly take place and “speculative” money balances for future purchases in the first economy would arise. The accumulation of these balances is a rising function of the price-difference (between the second and first economy) ratio and of the probability of buying on the first market in the future, and a falling function of the pure rate of time preference.

Macroeconomic Problems of Trade Liberalisation and EU Eastern Enlargement

We concentrate our interest in this chapter upon the four Central and East European countries (CEECs): the Czech Republic, Hungary, Poland and the Slovak Republic, which have already concluded association agreements with the European Union, and we shall investigate only two new moments which are generally expected to happen after the CEECs have joined the Union. These are: a much stronger inflow of foreign capital, especially foreign direct investment (FDI), and price changes related to the opening of the common market to sensitive goods, especially food and textiles and footwear. We analyse the macroeconomic consequences of these two developments in a rather general manner. First, a model of GDP determined by aggregate demand is presented which takes special account of the consequences of the abrupt foreign trade liberalisation at the start of the transformation. In subsequent sections the model is then used for the question of the macroeconomic consequences of foreign capital inflows, and of the expected price changes in sensitive goods.

Fiscal Multipliers and Factors of Growth in Poland and the Czech Republic in 2009

First, the concept of public expenditure multiplier is redefined to allow for import intensity of exports, and its value is estimated for Poland and the Czech Republic in 2008–2009. Next, on the basis of effective demand model of economic dynamics, there follows a comparative analysis of GDP dynamics in the two countries in 2008-09 and of the factors that in 2009 made the rate of GDP growth positive in Poland and negative in Czech Republic. In 2009 both countries experienced the rate of exchange depreciation which, however, was significantly greater in Poland, as was the rise of rate of private savings, which negatively affects the GDP growth rate. On the other hand, fiscal expansion was slightly greater in Czech Republic than in Poland. What factors then helped to avoid the GDP growth to decline in 2009 in Poland but not in the Czech Republic? The key difference in the GDP generation was that in the latter country net exports were too small to offset the rate of growth of private savings, while in Poland improvement in the trade balance, heavily negative in earlier years, together with strong fiscal expansion outbalanced the effect of much greater than in the Czech Republic rise in the rate of private savings. The derived results are strongly sensitive to variations in such parameters of our model as sectoral import intensities and private propensity to save, which may well change with changes in growth of GDP and its components. This does not undermine theoretical foundations of our analysis, yet it limits validity of any conclusions with respect to hypothetical future impact of fiscal expansion or fiscal contraction. Nevertheless, it appears that maintaining a positive rate of GDP growth may require that the rate of private savings no longer continues to rise (i.e. that the average private propensity to consume no longer falls) at least until the dynamics of private investment and/or exports do not recover.

Lessons to be Learnt from Earlier Accessions1

There is a vast body of literature on the topic of the EU’s eastward enlargement and the lessons that the five accession countries in Central and Eastern Europe (the Czech Republic, Hungary, Poland, Slovenia and Slovakia) can learn from the experience of the four cohesion countries (Ireland, Greece, Portugal and Spain).2 At the centre of these investigations are the supply-side effects of enlargement, mostly in a general equilibrium type of analysis. As a rule they neglect demand-side effects, although supply and demand are the two poles of every economic process. This chapter will take a more balanced approach in respect of capital inflows, especially foreign direct investment (FDI). Thus the first question to be addressed is the influence of capital inflows on the size of GDP and the external position of the cohesion countries. The second question is only indirectly related to the first and deals with the impact of EU accession on the growth of the cohesion countries and their convergence with the EU average. In both cases we shall look for conclusions that can be drawn with regard to the accession countries.

Concepts of Transition in Socialist Economies

An important asymmetry holds between transition from a command towards a market economy and the reverse process. This asymmetry is closely related to basic features of each system.

Product Market and Capital Market in the Light of the Experience of the Hungarian New Economic Mechanism

Economists are seldom — many would say never — lucky enough to have their theoretical propositions tested empirically in a way sufficient to pronounce on the validity of the theories. The ceteris paribus clause is usually the main culprit: ‘other things’ are simply not equal … We cannot pretend therefore that the experience of the Hungarian New Economic Mechanism (NEM) provides us with the decisive proof of the virtual impossibility of expecting product markets to operate properly without simultaneously opening up these markets for factors of production, especially the capital market. Nevertheless, the fact that most analysts of the experience of the Hungarian NEM point to this flaw in the 1968 blueprint as the major reason for the new system falling short of expectations has to be taken as an important point of departure both for practical thinking on reform and for theoretical considerations (or reconsiderations, as in our case).

Problems in the Theory of Growth Under Socialism

From the many issues which could form the subject of a paper bearing the above title, we have chosen especially those which are, in our opinion, related to the experience of Polish economic development. We think that at least some elements of the theoretical examination of this experience may be of a more general importance.