The situation in 1989 Poland was dire. Rampant price freezes and hyperinflation brought frequent shortages and widespread unemployment. Mieczyslaw Rakowski’s Communist government was throwing fiscal caution to the winds and spending with abandon. Discontent had been fomenting through the 80s; the time was ripe for change. The Communist Party grudgingly agreed to "Round Table" negotiations with the opposition, and by 5 April 1989 gave official recognition to the Solidarity Party, founded by Lech Walesa but formerly banned. Partially free parliamentary elections would follow on 4 June.

Much to the dismay of party elites, who sought to sew up the widening rift in Polish politics with Warsaw Pact sutures, Soviet intervention was not forthcoming. Solidarity won an overwhelming majority in Parliament, and Tadeusz Mazowiecki proceeded to organize the first non-communist government. On 29 December 1989, the Polish diet (Sejm) announced the official end of Poland’s incarnation as a Communist state. The country was rebaptised the Commonwealth of Poland, and its new lease on life was written on a clean slate of democracy.

At the beginning of the 21st century, the Poles are unequivocally pursuing the path to a market economy, while incubating a correlate political system. In little more than a decade, this central European population with a motley history has purposely undergone an economic upheaval that has left it relatively, and remarkably, unscathed. What were the tools used to jumpstart this structural and governmental transformation? Have they constructed a development that is both broad-based and sustainable? This paper will compare the fledgling democracy of the 1990s with Poland today, and attempt to assess the country’s progress in the direction of good governance.

The privatization of state-owned enterprises (SOEs) has been a priority goal since the outset of Poland’s economic transition. This ambitious process has occurred in three phases, each marked by governmental trial and error. In 1990, the passage of two legislative acts laid the groundwork for privatization. The painful transition from state-to-private sector has been accomplished with laws to simplify restructuring of heavy industry restructuring, and the creation of new enterprises. Most state-owned enterprises were transformed into joint-stock companies owned by the treasury. This was followed by some fumbling initiatives to privatize directly.

During the second phase, new strategies of privatizing came into vogue. These included sales to foreign and domestic investors, and simple liquidation of acutely uncompetitive enterprises. Phase three began in 1998 with an accelerated plan to privatize remaining state assets in one fell swoop. The accelerated momentum of these efforts, partly a result of government revenue raising, has been met with opposition on both sides of the government. This has slowed but not halted transformation of the oil sector, banking, airlines, telecommunications, armaments and utilities.

The restructuring of government revenue sources has involved the introduction of

several new taxes, including an excise tax, a value-added tax on goods and services, a personal income tax and a corporate income tax. The income tax carries progressive rates of 19%, 30% and 40%.

The capital market was initiated in 1991 with the establishment of the Warsaw Stock Exchange (WSE). Trading began with five publicly traded companies, which mushroomed into 230 by the end of 2001. In 1996, the government expanded trading by launching an over-the-counter (OTC) market. Since 1991, bonds, shares and commercial notes have increased the options for raising new venture revenue.

Prior to 1990, individual, privately owned land comprised 76% of farmland. 18.6% was state-owned, and 4% was cooperatively worked. From 1990 to 2001, the Agricultural Ownership Agency picked up management responsibility for the restructuring of this sector. The agency started with 4.7 million hectares, and within its first decade had sold 1.1 million of those. 2.5 million hectares were leased, and only 0.7 remain. One proposal, to distribute state-owned farmland to the occupant farmers themselves free of charge, passed through the parliament but was rejected by the president. Ongoing problems in the agricultural sector include small, inefficient farms with little investment and an overabundance of labor.
Banking

In the 1980s, the Polish banking system was controlled by a state monopoly, until the National Bank of Poland (NBP) was created in 1989 and made responsible for monetary policy. The parliament appoints the bank’s president, who sits for a six-year term. Measures regulating the relationship between the NBP and the government ensure the bank’s independence in setting monetary policy. The success of these policies is evident in the drastically reduced inflation rate, which has gone from 249% in 1990 to 3.6% in 2001. NBP’s other major goal is to keep the zloty freely convertible by easing money supply growth and cutting interest rates.

December 1991 saw the collapse of the trading alliance, Council for Mutual Economic Assistance (Comecon). As an exporter of primary products, in particular coal, Poland had been heavily reliant on the organization. Other goods produced by the country included metals, engines and machinery, textiles and chemicals. In this decade, a shift in the spatial distribution of industry was marked by a substantial fall in industrial production, due to the dissolution of Comecon and the consequent fall in demand.

In 1995, the technical and organizational gap between Western and Eastern European industry, in particular agriculture, was estimated to be 25-30 years. Today, Poland is a member of the Central European Free Trade Agreement (CEFTA), the European Free Trade Association (EFTA) and the General Agreement on Tariffs and Trade (GATT).

In general, Poland’s economy shows the best performance of any in the region during the 1990s. Macroeconomic indicators show impressive growth since independence, the result of coherent and restrained fiscal policies. Still, growth has slowed relative to that achieved throughout the 1990s. In 2001, GDP grew by 1.3%, compared to 4.6% just one year earlier. The deficit has climbed to 4.5% of GDP, and unemployment has risen 2.3% to reach 17.4% at the beginning of 2002.

Two concepts of privatization have floated in the Polish media since independence; that of "reprivatization", the return of private property confiscated by the state under communism, and "enfranchisement", or the compensation of those considered ‘losers’ in the process of transformation. On the current political agenda, this could include the legal transfer of communal apartments to their occupants. Though reform initiatives of this nature carry broad public appeal, they are often blocked at the upper levels of government.

Public sentiment about privatization has waxed and waned. Though Poles have exhibited remarkable patience in the face of sweeping change, the high social costs of privatization have left a lasting impression on a people grown accustomed to the free public services rendered by communism. Health sector reforms, undertaken rashly in a no-holds-barred approach to attaining EU membership, are particularly suspect to public scrutiny. The latter part of this paper will examine these reforms more closely.

The minimum wage in Poland is currently 760 zloty ($190) per month, and the average salary in 2001 was 2,047 zloty ($512). Men are allowed to retire at 65, and women at 60, which means that women generally receive smaller pensions. The pension plan has been transformed from a pay-per-year scheme to a system with various components, including a revised version of the traditional plan, as well as private, compulsory funds and voluntary plans. Employees participate in specific programs according to age criteria.

Social insurance has been reduced since the end of communist governance in Poland, but state budget transfers still account for 20-25% of these revenues. Unemployment funds are determined according to regional unemployment levels, and individuals’ time spent in the work force. On average, an unemployed person will receive 476 zloty ($120) per month for 6-18 months.

Education has played an important role historically in Poland. Krakow University, whose alumni included Nicholas Copernicus, was founded in 1364 and was renowned for its academic tolerance. During the 1900s, Poland was a "refuge for academic figures persecuted elsewhere in Europe for unorthodox ideas" (Glenn E Curtis 1992, 101). Poland struggled to maintain this heritage through underground schools during the country’s partitions and Nazi occupation.

A primary goal during the communist regime was the elimination of illiteracy, in order to rid professional jobs of gentry and incorporate the lower classes. The working class was also equipped with a proliferation of vocational schools. However, the crucial nature of educational reform became apparent during the 80s, when schools began to advocate decentralization and an infusion of jurisdictional autonomy. The Round Table negotiations resulted in the introduction of state-subsidized private schools, and an overall reform giving teachers, students, and parent the final decision-making authority on course content.

Two other important outcomes included the exclusion of political ideology from curriculum, and the establishment of religiously affiliated private schools. Though Poland is a strongly Catholic country, many were uneasy about the sudden blurring of the boundary between religion and education. Political rhetoric was now out of the curriculum, but in private schools, subjects like sex education followed suit.

Obligatory attendance has remained constant since the communist era. Children enter the system at age seven, and must remain until they are 17 or have completed their studies. At this point, students have the option of attending a two-year postsecondary or vocational school, or a two-year college preparatory school. Generally, parents split the cost of room and board with the government, and tuition is free. At the level of post-graduate studies, Poland still suffers from a "brain drain," due to the lack of demand for such individuals in the domestic job market, and their subsequent emigration.

Free health care was made available to everyone under the 1952 constitution. Unfortunately, the system was marred by a lack of dependability, poor administration, and a dearth of staff. Former attempts to minimize negative health data led to unreliable statistics of the country’s drug use, and outright concealment of major health issues. At least 50% of medicines were unavailable to Poles without party connections.

The doctor to population ratio has increased slightly from 2.0 per 1000 in 1993 to 2.2 per 1000 in 2000. However, the number of hospital beds has decreased by 11% in the same period, thought the ratio of beds to population was half that in France and Germany to begin with. Such skimming of funds from health care is seen as necessary to spur economic consolidation and market efficiency. From the public’s perspective, however, it is difficult to determine whether substantial improvements have actually occurred, and health care reform is publicly criticized as the most inequitable in the government’s transformation platform. Policies currently promote complete conversion to a privatized system, funded by a required health insurance fee for each individual.

Infant mortality rates have dropped dramatically from 19.3 per 1,000 in 1993 to 8.2 per 1,000 in 2000. The rates for urban and rural infants are the same. Life expectancy has risen slightly over the same period: from 67.4 to 69.7 years for men, and from 76 to 78 years for women.

These statistics are in sharp contrast to those of the period between 1988 and 1991, when serious air and water pollution, poor working and living conditions, and alcoholism were the norms. In those years, mortality increased from 8.8 to 10.1 persons per 1,000, and was higher among males.

The creation of a civil society has been deemed one of the greatest challenges facing states in transition. Poland has had a relative head start in this area. During the communist regime, a civil society and information network was already thriving underground (Lamentowicz, p.v). Organizations published and circulated newspapers and books, and other networks provided social welfare. Officially, any activity that provided an arena for the free exchange of ideas was considered an insidious threat to national unity and squelched. When the regime collapsed, there was concern over the assumption of governance responsibilities, and how this would impact the movement’s ethics (Lamentowicz, vi). What has actually occurred in the last ten years paints a more encouraging picture.

Poland now has a parliamentary-presidential democracy, with free elections. Political parties in this multi-party system are financed entirely through taxes and are not allowed to conduct any fundraising. There were 130 registered parties in 2001. The 100-seat Senate works in coordination with the 460-member Sejm, whose members are elected by proportional representation. A new constitution was adopted in April 1997 that limits the President’s power. It consecrates basic human rights, specifically the freedom of speech, assembly and association, as well as press and conscience. The constitution also addresses legal equality, ownership of property, and freedom from state intrusion into the home. A Constitutional Tribunal was established expressly for determining the constitutionality of legislative acts and other queries. The creation of the National Commemoration Institute in 2000 was intended to provide access to files compiled by the communist secret service for Polish individuals, and to conduct follow-up investigations.

Poland’s judicial system is accused of inefficiency. It is made up of provincial and regional courts, at the top of which is a supreme court. Though the judiciary is independent, judges are appointed jointly by the Parliament, president and justice minister, causing concern over politically influenced appointments and decisions.

The maturation of civil society in Poland is still in its fledgling stages. The majority of people are not members of parties, and do not try to influence policy through lobbying or organizing. Instead, interest groups such as trade unions often take part in elections themselves. Personal feuds are not separated from politics. Public favor of parties is frequently shifting, and electoral participation in general is decreasing. Frustration with incumbents appears to be on the rise.

About 10% of the population currently volunteers its time to various organizations. There are about 30,000 active NGOs in existence that focus on a variety of causes, such as ecology, democratization, sports and women’s groups, of which there are 250. The Center for Women’s Rights is an active example. The legal framework governing NGOs is progressive; however, unless an NGO is affiliated with the Church, or governed by international negotiations, it must register with the court system.

Women receive about 20% less than men for similar work, as well as lower pensions due to their earlier retirements. A bill enshrining men and women’s equal legal status in economic issues did not make it through Parliament in 1999. Other high-profile problems include women’s higher unemployment, as well as domestic and street violence against women.

The NGO, Women’s Rights Center, has played an active role during the development of the new constitution. While the previous constitution included provisions for gender equality in areas such as equal pay and maternity leave, these were not directly applied as law. The Center argued in 1994 that maternity leave, child care centers, and clinics, preschools and "community nourishment centers," should be described in a gender-neutral context that promotes shared parenting. Such institutions should be seen as existing for the betterment of the whole family, not as contributing to women’s rights. The Center also persuaded the constitutional drafters to change the term "women have equal rights with men", which they claimed used men as a reference point for women and was inherently paternalistic. This has been replaced with the phrase, "women and men have equal rights."
Freedom House Ratings

(On a scale of 1-7, where 1 = most free, and 7 = least free)

Poland ranks 37^th in the UNDP’s Human Development Index.

The fact that interest groups participate directly in elections, rather than seeking representation, demonstrates the existence of clientelism in Polish politics. The agenda of such interest group parties derives from the demands of one small and sharply defined group within the electorate. Politics of this nature gradually lose their ideological foundation, and become a simple give and take of resource distribution in proportion to extent of sponsorship (Törnquist, p.57). However, the inefficient political institutions in modern Poland are suggestive of a simple lack of practice in navigating democratic political mechanisms rather than a strong "neo-patrimonialism", which may have been the case prior to the collapse of Communism.

Huntington suggests that the move to more efficient, legitimate institutions through Modernization can "create unrest" and precipitate Communist and totalitarian movements (Törnquist 1999, 55). Whether this happened in Poland is questionable, since the Communist regime was imposed exogenously during the early stages of industrialization. As scholars of Third-World politics suggest, Poland should be viewed in the context of its own historical policies, ideologies and institutions, which transformed themselves (or atrophied) with Communism. The Poles view their political development in three stages: the national political tradition, before the partitions, whose legacies survived in underground governments and quasi-state experiments; the Communist takeover, and the political system now emerging out of the luxuries of national security and freedom. Poland is relatively autonomous and recognized, for the first time in centuries, as a legitimate state with inviolable borders.

With the beginnings of an increase in per capita GDP and a stabilizing macroeconomy, attention is shifting to the issue of environmentally sustainable development. The United Nations Centre for Human Settlements has joined forces with several NGOs in severely polluted regions. Other projects combine environmental, social and economic aspects and utilize a broad-based participatory process, and seek to devise replicable programs throughout the Baltic region. A group called the Earth Council works with Poland as a member of its regional process of implementing National Councils for Sustainable Development. These councils fill the space left by decentralization in post-communist societies and function as mechanisms to bring differing interests together. They promote policies and actions that incorporate the economy with environmental interests and social justice.

Because Poland has the memory of a market economy and pre-communist institutions of fair governance, it should not take long for these to ingrain themselves in the social fabric of Poland’s development. With the generally high emphasis on environmentally-friendly and energy-saving industrial practices in Europe, it is likely that the evolution of Poland’s democratic institutions will be both sustainable and broad-based.

Poland has ambitiously joined the ranks of transitional nations, and is creating its new identity on the model of neo-classical assumptions. Development since independence incorporates a vivid rejection of foreign dominance and the assumption of a free-market economy. Policy is designed to facilitate the successful establishment of mixed market networks. With a past consisting of frequent outside occupation, it is not surprising that its current political emphasis is on the economy. The slow development of a civil society has been explained as a simple lack of experience. Perhaps, as Törnquist states, "social capital does not emerge on its own in civil society but through deliberate political work and efforts" (Törnquist 199, 142). The Poles have had, until now, an outside oppressor to define their cohesion and resistance, the Polish brand of social capital. They are now struggling to redefine their civil society as an independent and progressive whole.

Georg Sorensen (1998, 13) uses the presence of competition, participation, and liberties as signals of democracy within a society. The World Bank (1994, xiv) defines good governance as the exercise of power in equitable social and economic resource distribution. It claims that the presence of good governance is discernable by its characteristic "open and enlightened policymaking." The Canadian International Development Agency (CIDA) qualifies the democratic exercise of power as "effective, honest, equitable, transparent and accountable" ("Policy for CIDA" 1996). The Organization for Economic Cooperation and Development (OECD) links the above factors to participation in development and human rights, and the United Nations Development Programme (UNDP) emphasizes the "structures that guide political and socio-economic relationships," i.e., economic, political and decision-making processes ("Governance for Sustainable Human Development").

Thus, judgments about the development of a country’s democracy and good governance are made according to nebulous and subjective standards. Scholars have not reached agreement on a specific set of guidelines, their relative weights or order of importance in determining good governance. This paper will use as its reference those standards adopted by the UNDP in its Human Development Report, 2002. Poland’s efforts to establish structures, institutions and legal support mechanisms that are widely seen as essential to the deepening of democracy will be examined.

Poland is conducting the ongoing experiment of transition from a controlled economy to democratic capitalism. In this project, it is considered a trailblazer among former Eastern Bloc countries. Its ‘Subjective Indicators of Governance,’ as compiled by the UNDP, are relatively high. With a 9 out of 10 as its Polity Score, (a number which synthesizes chief executive recruitment and participation), Poland is on par with its cohorts, whose mean score in this area is approximately the same. Out of a possible high of 2.5 for civil liberties, Poland does well at 2. On a scale of 1 to 100, Poland, at 19, lags only 14 points behind Norway, the leading contender in freedom of press.

Poland still has work to do in other UNDP governance areas, including ‘Voice and Accountability,’ in which it is only slightly above the median score. The public perception of the government is poor. According to recent surveys, more than half the population believes that high-ranking officials receive unofficial payments for performing their public service functions. People also see nepotism and corruption as problems in the state administration, judiciary, health care system, police and political parties. Initial steps have been taken to counteract the government’s failing image with the "Program Against Corruption," a project funded in part by the Ford Foundation and the Helsinki Foundation for Human Rights, which attempts to rebuild society’s trust in government by fostering public and government responsibility and transparency. A German initiative also functions in Poland to promote transparency through customs reform, freedom of information, and political lobbying. The government is a member of an "anti-corruption network" spanning the CEES region and sponsored by the OECD (Council of Europe 2002). Despite the government’s poor reputation, national financial accounts show a promising 6:1 ratio of public health plus education spending to military expenditure.

Political stability and lack of violence is average, at 0.69 out of a possible 2.5, and rule of law is even lower at 0.55 out of 2.5. However, the country promotes itself as "politically stable" in order to attract foreign direct investment, and cites the lack of politically motivated violence to foreign investment projects in recent years. Corruption is perceived to be a problem, as evident from the low corruption indicators (for which higher is better). This may be due to rapid and across the board privatization during the initial stages of structural transformation, and the ubiquitous practice of transferring capital to the political elite and politically connected.

The UNDP ‘Objective Indicators’ for Poland paint a relatively progressive picture. Women were granted suffrage in 1918. The percentage of women holding seats in Parliament is 20.7, close to twice that of many other nations in transition. Poland has signed both international conventions cited by UNDP as relevant to freedom of political participation and association, and the country claims a respectable number of non-governmental organizations (NGOs). On the other hand, the voter turnout rate is even lower than that in the US. This discrepancy between adopted norms and actual practice is partially attributable to patronage politics, and voters’ resulting disillusionment with participation.

According to the above indicators, and if viewed against the standard of a hypothetical, ideal state of democracy, the general level of democratic governance in Poland is fair. The country’s conditions should, however, be viewed in terms of the longer sequence of change begun in the 1980s with the rise of Solidarity, and continuing today through the process of economic transition. Certain problematic issues, such as graft corruption, can be better explained in terms of their historical context. Poland is still emerging from a forty-year political tradition that was predicated on upholding a bureaucratic hierarchy of elites to the total exclusion of outsiders. The incentive to continually reinforce barriers to participation lay in the scarcity of resources and their distribution within isolated economies. In light of this, Poland has done a remarkable job of adapting its economic and political institutions to the democratic norms and rules of the broader international society since the collapse of Communism. The pace of this transformation is indeed path breaking, as it is claimed. Snags and sputtering starts in the implementation of an entirely new system of governance is to some extent inevitable, as is the persistence of unfavorable political practices involving clout and elitism.

Sorensen lays out three preconditions for democracy; 1) wealth and modernization, 2) a political culture, and 3) a class structure that includes a middle class (Sorensen 1998, 25). He identifies three further elements whose existence should be preliminarily verified; these include competition, participation, and civil/political liberties. I would add to this the framework of a judicial system and the rule of law.

Wealth appears to concentrate population in urban areas, contribute to higher rates of literacy and education, and promote the development of mass media. However, the assumption that the social conditions of a modernized, industrial economy are essential to establishing democracy is not an empirical truth. As seen in South Korea, rapid economic development, even when associated with equal distribution of wealth, does not necessarily lead to democracy. UNDP human development reports often show a troubling disparity between countries’ per capita income and their human development indicators.

Poland showed rapid increases in wealth and modernization until it was hit by a recent recession. It is now emerging from this with a steady 3% growth rate. As one of the first transitional economies to begin privatization and locate markets in the west, it is effectively meeting Sorensen’s first precondition. Privatization and trade liberalization are hailed as the route to democracy in themselves; as such, many public resources have been drained into them at the great expense of public services like health care, for which the Polish government has received substantial criticism. This raises the question of whether industrialization is a necessary condition for democratic governance. If so, can industrialization itself occur democratically? Or, should a Machiavellian type of economic modernization simply be accepted as inevitable; a means to a morally desirable end? The transition from a society that provided a universal social net, (albeit of inconsistent quality), to a fend-for-oneself capitalism, has raised discussion of such ideas in Polish society. In my opinion, Poland showed a certain bravery in opting for Jeffrey Sachs’ "shock therapy," designed to initiate across the board privatization overnight. By choosing this path, wealth and modernization were successfully jumpstarted. However, the process itself was terribly painful for the population at large, and the resulting crises in the public services sector have since been acknowledged. The government is now working to extricate itself from Poland’s tangled social safety net by privatizing public institutions such as social security and health care. This appears to in fact be promoting democratization by creating an enabling environment for competition, and reducing arbitrary, politically motivated decisions that have previously prevented the full development of these institutions.

Poland now has a parliamentary-presidential democracy, with free elections. Political parties in this multi-party system are financed entirely through taxes and are not allowed to conduct any fundraising. As such, parties can more freely concentrate on the content of their competing platforms. There were 130 registered parties in 2001. The 100-seat Senate works in coordination with the 460-member Sejm, whose members are elected by proportional representation. A new constitution was adopted in April 1997 that limits the President’s power. A Constitutional Tribunal was established expressly for determining the constitutionality of legislative acts and other queries. At the state level, these developments reflect the impetus to create a space for political participation. They also point to the existence of a political culture conducive to the consolidation of civil society, Sorensen’s second precondition for democracy. However, legal changes are only a framework for democracy, and the rule of law in Poland has yet to prove itself more dependable than bribery.t the local level the political culture does not always encourage a democracy based on individual rights and agency. Poland uses a List Proportional Representation (PR) system, which allows each party to propose a list of candidates to the public. Voters vote for a single party, and winning parties receive seats proportional to their share in the overall vote. However, the majority of people are not members of parties, and do not try to influence policy through lobbying or organizing. Instead, interest groups such as trade unions often take part in elections themselves. While the high number of political parties testifies to the public’s desire for participation, it also raises concern about the know-how necessary for political organization. On the other hand, this situation could be a result of simple inexperience, making its eventual resolution likely.
The high number of political parties in the parliament is slightly misleading; the major parties number only five, and these are characterized by deep historical schisms. One of the major divisions still exists between the former communists and the post-Solidarity parties. Yet all parties seem to agree on the major economic issues of a humane form of privatization and European integration.

NGO proliferation in the country is indicative of an increasingly mobilized civil society. The development of independent media is another example of civil society building, but problems relating to dependence on international donors impede the full fruition of such efforts. A recent Columbia University study on NGOs and political society building notes that while democratic institutions are being built with frenetic energy, the same level of effort is rarely devoted to their internal capacity building. (Mendelson 2000, 6). In every case examined, the NGOs claim stronger links to Western, democracy-promoting organizations and donors than to their own society.

Dan Rodrik, an advocate for reform in development assistance, highlights the need for what he calls "homegrown, market-sustaining public institutions" for managing change and building consensus (as cited in Birdsall 2000). Because the middle class has constituted the supporting framework of democracy in Western, industrialized countries, Nancy Birdsall of the Carnegie Endowment for International Peace reasons that the middle class must also be the mobilizer and instigator of democratic institution building in developing countries. She defines this class as households with income per capita between 75 and 125% of the median. In Poland, this group receives about one-tenth the income of its counterpart in the US, due to a heavier concentration of wealth at the top. Though per capita growth was positive from 1986-1995, the size of Poland’s middle class shrank by 15% during this time, as did its proportional share of income, due to large-scale privatization and other structural adjustments. However, this trend is showing signs of reversal (e.g., rapidly growing car ownership, durable consumer goods purchases and holiday vacations), and the middle class appears to be on the rise. The role of the Polish middle-class as a stakeholder in the new market economy is tacitly acknowledged. It is being fostered through improvements in the banking system, which has been setting monetary policy independently of the government since 1989. The rule of law and enforceability of contracts have been addressed, to the same end, through the Civil Code Amendments of July 1990. Better schools also make for a more invested middle class; educational reform has been a priority of the Polish government since the late 1990s, when reforms were introduced to increase the age of compulsory education, improve the educational format and reduce university entrance exam requirements.

In terms of Sorensen’s discussion of transition to democracy, Poland’s position is in the category of "democracies plagued by acute social and economic problems" (Sorensen 1998, 53). The path to democracy is said to be just across the woods of a free market system. However, the communist regime in Poland left its successors with a host of economic problems and inefficient political practices. Poland is still struggling to implement democratic reforms, but must do so within the broader situation of economic upheaval. Its primary concern is therefore with the structural transformation of its economic and financial institutions. With an increasing demand for imports, lagging exports and consequent debt, the country must look inward to transform overall institutions, rather than complying with international development schemes that recommend maintaining its external economic balance. As Sorensen states, the danger of relying on the economy to institutionalize democracy is the economy’s unpredictability; if a recession occurs, democratic "decay" may not be far-fetched. However, Poland has made substantial strides thus far without making heavy trade-offs between democracy and economic development. Its population enjoys the freedom to participate politically, educate itself, and maintain health and a decent living wage.

The World Bank uses the following factors to determine the extent of good governance in a particular country:

1) the form of political regime,

2) the process by which authority is exercised in the management of a country’s social economic resources,

3) the capacity of governments to design, formulate and implement policies and discharge functions (World Bank 1994, xiv).

World Bank projects are implemented with a view to solidifying the above elements of good governance. In recent years the Bank’s role of lender has expanded to include the provision of technical support and analysis. Current projects include advising the Polish Government on reforms necessary for EU accession; namely, changes in efficient government sector spending in health care and pensions, and the financing of infrastructure modernization. It has invested over $550 million in multiple sectors, including small and medium-size enterprise (SME) financing, banking, urban development, telecommunications, and agribusiness and mortgage financing. The World Bank has also granted a loan to the country’s healthcare service provider, Medicover, to develop private medical services.

In its lending strategy, the Bank focuses on funding those areas that are conducive to institutional development. These include further privatization schemes, institutional development in the financial sector, the strengthening of corporate governance (i.e., for the Warsaw Stock Exchange), and the promotion of renewable energy resources. Companies most heavily funded include a large sheet glass manufacturer, an alloy and steel producer requiring privatization, a paper plant, and a liquid petroleum gas terminal undergoing infrastructural changes.

The strategy of the Bank in Poland is generally geared toward the modernization of heavy industry, infrastructure, and continued privatization. It seeks to build on the specializations pursued by Poland prior to the collapse of Comecon, and sees these investments as pertinent to an expanded role in the world market. The continuance of these global industries is dependent on a politically stable democracy that encourages outside investment, and therefore reduced corruption. The projects funded by the Bank appear to achieve the desired short-term results in infrastructural change; whether these translate to democratic governance will become evident over time.

The World Bank promotes good governance by encouraging policies that avoid distortionary fiscal policies and promote well defined property rights. The Bank’s policy is to require the open functioning of banks, with greater accountability. By requiring a focus on macroeconomic stability and liberalization, the Bank hopes to encourage democracy in Poland by disseminating the power typically held by elite groups that have a vested interest in maintaining the status quo. The Bank follows a policy that recognizes that the institutions of good governance are intimately linked to the economy, and that fostering economic growth will lead to equitable development. Its three pillars of concentration in Poland are:

1. Support to the continual rebalancing of macroeconomic policies

2. Improving effectiveness of government expenditures and programs

3. Support private sector-led growth and employment creation (World Bank 2002, 18).

Poland’s transition to democratic governance has been largely successful for a number of reasons. While the economic shock therapy of the 1980s was socially painful and led to a deep recession, rapid transformation of state industries is considered the foundation of Poland’s current success. The country has been fortunate in the sense that its transformation, however difficult, actually did lead to the proliferation of democratic institutions. It was not the privatization of monolithic parastatals that contributed to this, but the wave of "Greenfield" investment, which has single-handedly created a pro-reform constituency due to a visible increase in living standards. As a result, democracy-promoting organizations seek to ensure competition and the continuation of open debate through in-depth observation of elections. Programs such as the Office for Democratic Institutions and Human Rights, a regional initiative, undertakes voter education and rule of law strengthening projects. The country has a vested interest in maintaining and enhancing democratic institutions, in order to continue with reforms. It now needs to focus attention on the technical capacity of democratic organizations, if possible through comprehensive training and evaluation schemes.

Poland’s fortunate geographic position between East and West, and its relative political stability have been magnets for foreign investment. Obstacles to an equitable distribution of the expanding GDP are being dealt with through an increasing tax base and social safety net. Any amount of research on Poland makes it clear that the country’s major challenge is the functioning and organization of its public administration, and an increased focus on equitable development. Already there are signs of deep poverty among sectors of society that have not benefited from economic transformation.

The third major issue affecting Poland’s success story is the country’s inner cohesiveness. Poles have a strong sense of cultural and ethnic identity. However, the country has rushed to adopt practices of democratic capitalism from the West, partially with the intent of becoming an EU member. In so doing, it has formed strong ties with international trade and development organizations, to the detriment of its national links. While this approach will help to integrate Poland into the international community and foster capital growth, the inherent danger of an outside-in strategy is a lack of grassroots, homegrown initiatives. Women’s NGOs, for example, are criticized for a closer loyalty to international donors than to the constituents they represent.

Attention should now be turned to fostering those conditions that promote democracy in Poland. Though I questioned the true significance of economic reform in promoting democratic institutions at the beginning of this paper, my research shows clearly that a stable economy is essential to initiating and maintaining political refoms. The incentive for bribery could be reduced through the strengthening of rule of law. The economy itself produces the main obstacle to creating democracy-sustaining economic structures in the form of recession. Every economy experiences occasional recession, but for Poland this has come about during democracy’s infancy. It has led to a general questioning of the buoyancy and suitability of democratic institutions, and has even encouraged voters, primarily pensioners, to cast their ballots in favor of formerly communist candidates. Though the new economic and democratic system has brought undeniable advantages for many, others have found that markets alone cannot replace all of the services produced and distributed by a government. The following section examines the disenfranchisement of voters by ailing public sector reforms, in particular within the health care and pension systems.

Poor public sector regulation can lead to poor resource allocation, and the insufficient provision of public services. Poorly functioning public institutions can mean a lack of government accountability in the social sector and an inability to make development sustainable. Yet the proper methods to use in reforming the public sector are disputed, and failures not fully understood.

Poland’s health care network in the communist era was centrally managed and financed by the Ministry of Health. The National Health System (NHS) provided universal coverage, but its overcentralization caused a misallocation of resources that led to regional inequalities. Benefits were distributed through state-owned and state-managed facilities, creating little incentive for cost efficiency. Specialized care, often available only to the elite, required unofficial transaction costs. By the end of the 1990s, health care had become the public’s number one gripe, and its improvement a government priority. Reforms were proposed but heavily criticized for their inadequate funding provisions; that they were nevertheless passed indicates the country’s impatience with the old system.

Under these reforms, the state has partially given up responsibility for the health care system, and both private and public clinics have been founded. The Universal Health Insurance Act, which went into effect on 1 January 1999, created an alternate funding source for the public sector through obligatory insurance payments. Under this plan, modeled after the German "Krankenkasse" (health fund), Polish citizens pay 7.5% of their gross income, after social insurance deductions, into insurance institutions ("Kasy Chorych"). Those who do not make these payments, such as the homeless, unemployed, or students, receive services financed by the state. There is no fee for service payment. Sixteen insurance institutions exist in each province, with separate branches for the military, police and rail workers. To ensure transparency, the Kasy Chorych are prohibited from owning or holding stock in any medical institution.

In return for their tax contribution, Poles may choose their own family doctor from among those under contract with the Kasy Chorych. Doctors may refer patients to other hospitals or specialists within the system. While patients have the option of seeking alternative treatments, they must pay for these services out-of-pocket.

Hospitals were formerly administrated by the central government, but are now the property of local governments. Public clinics are known for their long waiting times and inadequate amount of doctor-client contact. Private clinics are thought to provide better care, for which many Poles are willing to pay.

The major goals of health care reorganization in general include:

When the reforms were implemented in 1999, there was a great deal of internal confusion. This was due in part to the convoluted bureaucracy of the former NHS, and budget cuts of 30–35%. Several lay-offs took place among medical personnel, but few institutions were forced to shut down completely. USAID/Warsaw has requested project assistance in identifying and evaluating local government methods of payment, management and governance in the health care system.

By linking insurance payments to individual incomes, it was hoped that the rising cost of medical care would be adequately covered by increasing per capita income. This was complicated with the collapse of Poland’s social security system, the institution responsible for collecting insurance premiums. Hospital managers were working below budget, and administrative organization at the state level was unequipped to ensure a smooth transition.

From the public’s perspective, the transition has brought slightly better access to primary health care and improvements in customer service. Hospitals, however, have suffered from a decrease in the number of beds, and long waiting lists have become the norm. The situation of prescription drugs is also problematic. Prior to reforms, all medication was provided free of charge. Patients may now be reimbursed at 30 to 100% of the prescription cost, but pharmaceutical companies effectively lobby for the continued sale of high-cost drugs.

The crisis of underfunding continues, and there has been talk of increasing the taxpayer contribution to 10% of income. Family doctors are only numerous enough to provide service to 2% of the population. There is little chance that more doctors can be recruited into the public system, when setting up practice in the private sector is increasingly more lucrative. Suggested options include modeling the public medical system more intensively after German health care, and providing scholarships and increased benefits to interested medical students.

The ZUS, Social Insurance Institution, is the overarching legal body responsible for social security in Poland. Social security encompasses the social and health insurance systems, unemployment benefits and social assistance systems. The organization consists of a Head Office, 51 Branch Offices, 214 Inspectorates and 66 Local Offices; it is overseen by the Ministry of Labor and Social Policy, and its President is appointed by the Prime Minister. It is one of the largest public institutions in Poland, whose legal framework is delineated in the Constitution of April 1997. Its key mandates are to fulfill the constitutional provisions for:

The definition of "employee" is broad. It applies to those carrying out contracted employment for any length of time, as well as persons performing cottage industries, the self-employed, artists, clergy and members of small farmers’ cooperatives.

Though the system appears progressive on the surface, it is widely criticized for being costly and unfair. The benefits of pension payments are outweighed by the high cost of payments, and future benefits are not guaranteed due to the government’s cuts and economic reforms every few years. In general, the regulations are not consistent, ad hoc decisions may occur and there are few safety provisions for maintaining long-term benefit values.

The previous social security system was based on former government guarantees, which is incompatible with a market system. In order to modernize, the government will have to focus effort on diversification of financing, particularly to pacify Poles who have grown wary of government promises. Reform suggestions include dividing social security into both private and public pension funding. Financial sustainability of the Social Insurance Fund is currently questionable. While an increase in per capita income is the determinant of secure benefits, growth in financial market investment is requisite for private pension maintenance.

According to a 1997 national survey, the public sees the following components essential to social security reform: safety, transparency, possibility for capitalization (investment), and individualization according to specific needs. On 1 March 1999, Poland officially privatized its Social Security system, by implementing individually owned, privately invested accounts. At this time, Polish employees began depositing into individual investment accounts that are privately and professionally managed. In this manner, they are able to benefit directly from capital markets. The prior system remains partially intact, and those born before 1 January 1949 remain in this system and continue to receive the same benefits. People born between 1 January 1949 and 1 January 1969 have the option of choosing to subscribe to either the new or old system. All other workers must take part in the reformed system.

Under the old requirements, 45% of a person’s payroll was directed to medical benefits and pensions. Under the reforms, 9% of the tax goes into the new accounts within private investment funds chosen by the worker. The model closely follows that implemented in Chile. A State Office for Pension Supervision has been created, which distributes licenses to companies managing private accounts. These managers must meet minimum capital requirements according to industry averages, and pay into their clients’ accounts if they fail to do so. A state fund guarantees compensation to clients in the event of pension provider/manager bankruptcy. Interest based on growth of taxable payroll will go into state accounts for individual workers, as will the remaining social security tax. Though the state system still exists in part, the creation of these individual accounts constitutes a significant reform.

In conclusion, the Polish government recognizes that the existence of a market economy cannot entirely replace its production and distribution of public services. The county’s population has had to make a huge mental transition away from a system that, though replete with failings, was indisputable based on egalitarian principles that assumed health care as a human right. The reforms implemented at government level provide a creative means of utilizing capital markets in social security accounts, and treating medical patients as individuals. The foundations of the new system are also based on a South American example whose merits have already been proven. Though the Polish government has received a good amount of flack over its dismal initial failures in public sector reform, the country acknowledges that neither sector can be relied on to guarantee the existence of the other. Both economic reform and democratic institutional strengthening must occur simultaneously, if Poland is to ensure the continued well-being and freedom of its population.

While Poland’s development indicators are excellent for transitional countries, the government acknowledges the need to continue mobilizing civil society by creating space for civil activity and expanding political participation. Local development initiatives need to emphasize more participatory methods for overall development to be sustainable. Decentralization of both bureaucratic and fiscal institutions in Krakow and Warsaw will make adherence to rule of law more likely, and easier to regulate. The key in the coming years is to find a reasonable balance between economic, free-market growth and the government provision of a reliable social safety net. With Poland’s integration into Europe, and the ensuing information and technical exchange, these aspects of public administration on a broad scale will undoubtedly improve.

Table 1: Per capita GNP and annual average per capita GNP growth and inflation rates

Table 2: Comparison of per capita GNP and PPP estimates of per capita GNP

Table 3: Current account balance as a percentage of GNP

Table 4: Sector share of GDP for different sectors

Table 5: Export shares of GDP

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